Welcome to ITT's 2017 Third Quarter Conference Call. Today is Thursday, November 2, 2017, and starting the call from ITT today is Jessica Kourakos, Head of Investor Relations. She is joined by Denise Ramos, Chief Executive Officer and President; and Tom Scalera, Chief Financial Officer. Today's call is being recorded and will be available for replay beginning at 12:00 pm Eastern Time. [Operator Instructions] It is now my pleasure to turn the floor over to Jessica Kourakos. You may begin.

Thank you, Stephanie. I'd like to highlight that this morning's presentation, press release and reconciliations of GAAP and non-GAAP financial measures can be found on our Web site at itt.com/ir. Please note that our discussion this morning will primarily focus on non-GAAP measures. During the course of this call, we will make forward-looking statements as defined in the Private Securities Litigations Reform Act of 1995. No forward-looking statements can be guaranteed and actual results may differ materially from those projected. We undertake no obligation to publicly update any forward-looking statement, whether as a result of new information, future events or otherwise. Forward-looking statements made on this call should be evaluated together with the risks and uncertainties that affect our business, particularly those disclosed in our SEC filing. So let's now turn to Slide number 3, where Denise will discuss our results.

Thank you, Jessica, and welcome aboard. Good morning everyone. Thank you, for joining us today to discuss ITT's third quarter financial results and strategic highlights. Q3 marks an important milestone for ITT. For the first time in over three years, we are delivering double-digit growth across every major performance category. Revenue up 11%, orders up 15%, segment OI up 24%, segment margins up 150 basis points, EPS up 14%, free cash flow up 27%, with a 95% conversion. In addition, our annual asbestos remeasurement was favorable by $76 million. We raised our revenue growth guidance to 4% to 5%, and we raised our adjusted EPS guidance for a third consecutive quarter. So we are clearly gaining momentum across a broad range of operational and strategic measures. And teams all across ITT are intensely focused on sustaining this momentum into 2018. As I reflect on our performance, I would say our growth aligns with the stabilizing or improving dynamics in many of our key end markets, combined with our intense focus on optimizing execution and driving share gains. Let me start with optimizing execution. In Q3, both IP and CCT delivered significant margin improvement compared to the prior year, and both also produced sequential margin improvement. While each business hit a number of key operational milestones, we are still not where we want to be from an operating perspective. We have significant improvement opportunities ahead. A couple of highlights in the quarter include IP's noticeable improvement in project execution capabilities, which is critical to their current performance and ability to capture future market share. And inside CCT, the connector operations produced double-digit margins, reflecting the benefit of the structural improvement we've been methodically driving in our North American operations over the last several years. In addition, Motion Technologies once again delivered…

Thank you, Denise. Starting on Slide 6 with Industrial Process. Organic revenue was flat at $196 million. Short cycle revenue increased 4% due to after-market growth of 10% and baseline pump strength of 6%, offset by weak BioFarm valve activities. Project activity declined 14%, primarily in midstream oil and gas and mining. This was partially offset by strong project activity in PetroChem and general industry. IP's adjusted segment operating income increased 133% to $17 million. The increase primarily reflects a favorable aftermarket mix, some short-cycle price realization, FX and improved project performance. In addition, Q3 productivity gains more than offset increasing pressures for material cost. Compared to the prior year, margins improved 490 basis points and compared to Q2 margins improved 90 basis points on a 13% increase in operating income. In addition, incremental SG&A restructuring actions were implemented late in the third quarter to continue to drive improved organizational efficiency. Organic orders at IP declined 4%, due to a 10% decrease in project orders that reflects strong prior year North American PetroChem activity. This difficult compare was partially offset by 17% improvement in oil and gas and the 42% increase in general industry projects. Short cycle orders declined 2% due to lower than anticipated chemical activity. However, strong October baseline pump and parts orders suggest Q3 results reflected some timing impact as various end markets continued to stabilize throughout the quarter. Lastly, we continued to build backlogs in industrial process this year. At $376 million, our backlog has improved 8% compared to the beginning of 2017. Now let's turn to Motion Technologies on Slide 7. Total revenue increased 26% to $300 million, including $20 million from the acquisition of Axtone and a $14 million benefit from foreign exchange; $300 million represents a new revenue record for Motion Technologies and…

[Operator Instructions] Thank you. Our first question comes from Jeffrey Hammond with KeyBanc.

Hey, good morning.

Good morning, Jeff.

Good morning.

So Motion, you guys continued to put up great wins and impressive growth. And I know you made some preliminary comments about North America and China into 2018. But I'm just wondering as we get closer and you get more of this visibility if we can get some better color on what you think the growth trajectory is into the out years in Motion?

Thank you for the question. China just continues to do extremely well for us. You saw in this quarter, that we continued to win some new platforms. And I think year-to-date, we're about 30 or 32 platforms that we've won. So the growth that we're seeing in China, we expect to continue as we get into 2018. In terms of North America. As we indicated, our new facility, we started to produce brake pads in Q3. And then, we will start delivering those brake pads in Q1 of next year. And so, we will effectively be ramping up in next year, because we're starting from such a low base. In North America, we do expect to have good growth in North America as we get into 2018. And then, from a European perspective, we really had significant growth this year. We have been winning new platforms. And so, we've just been continuing to do well in Europe also. So good story for MT as we go forward. And the other good thing is, as we start in the North American plant, we're really going to be exiting the start-up phase. So we're going to be eliminating some of those costs that we've had this year.

Good, very helpful. Just on the asbestos. Just wondering, with kind of lower claims and lower settlements, why that doesn't impact the cash flow outlook? And then, when do you expect resolution on some of these insurance recoveries that you're working to get? Thanks.

Yes. Great question, Jeff. The essence of the legal liability works as the cash flow benefits are going to be more in the out years. As you look beyond kind of the 10 year window, as these lability's settle out, it takes a couple more years and a lot of the benefit that we are projecting to the liability right now is a reflection of cash benefits. I would say kind of in the late years of our projection and even beyond into years kind of 2011 or 2012 when we settle up these claims. So the balance sheet is through year 10, cash flow is due to project out beyond that. So good story, doesn't impact the short-term projections. But we've maintained the same 5 year average annual outflow projections, roughly speaking now, for 5 years. So we're continuing to really push out the cash flow impacts and manage these into the right size, based on all the factors that we're managing. So, a little bit of accounting is impacting the cash flow, but it's a great question. But bottom line is there will be a cash flow impact from that offset just further down the road. And then lastly, on the insurance side, we are always active in making sure that we can access as much of our insurance as possible. And this year, we've been probably more active on those fronts. Nothing to report other than to say that we've probably more active this year in going after some of these insurance policies. If we get more updates, we'll let you know how that goes.

Thank you.

Thanks Jeff.

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

Hi. Good morning. This is Adam following on for Nathan.

Good morning, Adam.

Good morning, Adam.

In IP, you called out project declines in oil and gas and mining. Have you seen an improvement in the project market from higher quoting activity or maybe faster velocity projects due to pipeline?

What we're seeing from a project perspective, if you look at the funnels that we have, our oil and gas funnels since the beginning of this year is roughly up about 5%. So I'd say, there's been at least stabilization in that marketplace. Can be lumpy over time, but we're again seeing some more products coming through at this point. So -- and then, if you look at our project funnel in total for IP from where it was at the beginning of the year, we're also up about 5%.

Adam, I would add that from a revenue perspective, we're certainly seeing oil and gas projects and mining projects down versus the prior year on a year-to-date basis. But from an order perspective, we are seeing a decent up tick in order activity on a year-to-date basis in both oil and gas and mining and that obviously includes the large win that we had in Q1. But the orders in both of those categories have trended up in a decent way this year.

Okay. That's helpful. Turning to Motion Technologies. You called out increased raw material costs as a headwind. What was the impact of higher input cost for margins? And what steps are being taken or already have been taken that to pass these on to customers?

Yes. You know it's a dynamic that I think many of our peers are also looking at across a number of the industrial manufacturers. So we have seen increases in commodity cost that were in excess of budget. Coming into the year, we knew we were facing an inflationary year on some of these input costs. I would say, what has happened is the raw material prices have gone up, particularly at Motion Tech and to a lesser degree at IT. But we have been able to offset some of those with direct price increases. We did put a few wins at IP and some of are ongoing negotiations and actions have helped to kind of mitigate about 50% of the increase in cost, relative to what we thought from a budget perspective. So we've seen some pricing. Some of that has gone into effect recently at IP. And we realize that we're catching up a little bit to the inflationary factors. But I would say that we have done a decent job in offsetting some of those pressures. And at Motion Technologies, we do a lot of strategic buying. We've mitigated some of those impacts from the first half of the year through those procurement activities. We did see a bigger hit in Q3 than we saw in Q2. But I would say, we're actively deploying all tactics to mitigate the impact whether it's forward buying, other procurement strategies, other sourcing initiatives. And then, where we can, I would say we're being a little bit more aggressive in trying to put price in where it makes sense at this point.

I think the other thing to just mention is that with the mining business what we have in IP that tends to be somewhat of a good offset to what we're seeing from a commodity price perspective, because with copper prices being where they are, we're seeing increased activity from a mining perspective. So, a little bit of an offset across the portfolio.

Make sense. Thanks for taking my questions.

Thanks Adam.

Your next question is from the line of Mike Halloran with Baird.

Good morning, everyone.

Hi, Mike.

Good morning, Mike.

So let's start with the IP margin, solid sequential improvement, kind of your comments on fourth quarters imply some further improvements from there. Could you just talk about some puts and takes in the next years, specifically focused on commodities within the segment? And then also, the timing of these large projects sounds like the year-over-year impact is starting to lessen from some of the tougher projects. When does that go away? And then anything else you may want comment on there?

Yes. Sure, Mike. I think on the commodity front, going into next year, I think we'll be kind of more forward deployed and going after more aggressive supply chain actions early on in the year. And we'll get the full year benefit of some of the pricing actions that we put in place this year and we'll continue to look for some offsets next year as well. To your point, some of the year-over-year compares will mitigate, certainly on the project side, meaning in total. But I would expect to continue to see kind of the end markets recycling. So the project activity in PetroChem was very strong this year from a sales perspective, so we'll be lapping that next year. So I think within the markets, you'll see the project volatility continue, if you will. But generally speaking, our project orders on a year-to-date basis are up 1%. So we're trending next year into a more stable environment with puts and takes across the end market. From an efficiency perspective, I think what you've seen drive a sequential margin improvement this year is something we're going to continue to harness into next year and that's really around project execution. That's minimizing costs and limiting damages and warranty claims that have impacted us in the past. And we've seen those go down this year and that's been a reason why our margins have improved sequentially. We expect to drive improved project execution and more selective screening of the projects that we take as a lever into 2018. And you know, those are some of the bigger items we have. We did settle one of our pension plans, which gives us $1 million or $2 million of upside going into next year. But generally speaking, it's going to be all about productivity, driving the restructuring benefit. As I mentioned, we did some in Q3. This year, it will roll over. So its productivity, execution, restructuring benefits and executing on those large products, pretty much the same story you've been hearing from us. But we do expect to have some decent backlog exiting the year as well as to get us started in 2018.

And then on the motion side, kind of two-fold question here. One, could you give some context on the timing of all these projects wins or platform wins, excuse me. When do these start rolling through for you, how that cadences out over the next 12, 18 plus months? And then secondarily, what does it do from a capacity perspective for you? Is there additional capacity onboarding you guys are going to need to do or is it already preplanned in some of the CapEx numbers that you talked about?

So when we win these platforms, usually we see the production starting about 18 to 24 months after we win the platform, which is when you begin to see some of that growth, you have to build upon it, that's why it good to keep putting the platform, the platforms that we have. China tends to be a little bit faster than that. So you start the production just a little bit sooner than that. So that will help us as we get into 2018. And remember, we won a lot of platforms in China in 2016. So you're going to see that start rolling over into 2018. And then these 2017 wins, you may see some of that in 2018, but that's going to help feed as you get into 2019. So that's why we continued to see strong growth that we had in China and we'll began to see this growth then in North America. In terms of our capital expenditures, this year was the year that we had a large capital expenditure, because we were standing up a new facility in North America. So we had some incremental cost, because of the building itself that we had there. As you know, as we win new platforms, we then invest capital to build out the existing facilities that we have. That's the process we've been doing in Wuxi, that's the same process that we're going to be doing in North America. And at the same time, we have been making some capital investments into our Czech Republic facility, which has primarily been an after-market facility. We're now going to be putting in some OE volumes into that facility. So we've had additional capital associated with that. So when you pull all that together, as we go forward, depending on our volumes, you would expect that the investment would come down in 2018 versus 2017. But we're going to have to monitor all the platforms that we win to see how it progresses over time.

Great. Thank you for the time. I appreciate it.

Thanks Mike.

Your next question comes from the line of Matt Summerville with Alembic Global Advisors.

Hey, thanks. Couple of questions. First, just -- with respect to the electrification of the auto industry and obviously, I'm thinking a little longer term here. Is that good, bad indifferent for ITT? How are you thinking about it? You've had a number of EV wins to date, what's your average content per vehicle look like on a new EV win versus a traditional combustion engine?

So when we think about electric vehicles the key thing for us is, we are known as a technology leader in the space. And so, we are aggressively working on with our customers, working on how we should be thinking about the formulations and the capabilities of these brake pads out into the future. Because today, basically the brake pads that we use on these vehicles is the same as we use on a traditional automobile. Going forward, we think there's opportunities to be able to make it even better and stronger. And so we're working very closely with our customers in developing that pad. As a result of that, we should be able to win more new platforms as they come forth. And so, that will be important to us. Along with that, we've also developed the smart pad. And we're looking at how we take that smart pad and make it work and add value in electric vehicles. So we think that is something that we are definitely ahead of the curve on and that is going to give us an advantage as we go -- as more electric vehicle platforms get awarded and you see more of those on the road. Where you do get an impact is in the aftermarket business, because brake pads in the aftermarket business, they don't wear as much on electric vehicles as the conventional vehicles. So you will see some moderation of that over time, but that is a very long time, because you have a car park today that is so extensive, it's going to take time for that to kind of feed through. So our strategy is work with the OEMs now, work on developing an e-pad that make sense, that helps from a performance perspective. And then utilize our smartpads to be able to drive some incremental volume associated with that and add some more value to it. We do recognize that China is a big and growing market with electric vehicles. That was why that we've created and put in place this Innovation Center in China that is involved in looking at our development for e-pad and it'll be really a center of excellence for that. And then working with a lot of the China manufacturers in terms of how we would develop this and what it would look like over time. So it's nice having the facility there, we're the technology leader, we're building our capabilities and that's how we're going to win going forward with this.

You've been doing obviously -- MT's been doing friction business in China now for a number of years. I think I've probably asked this question before, Denise, but I'd be interested to see if you have any updates in terms of whether you're starting to see an aftermarket stream of revenue start to develop in friction in China and if not, maybe why not? And do you see that in the future? Thank you.

Right now, no. We have been evaluating it. We have been looking at it. It is an area that we are interested in. And we will be looking at, potentially, at the OES market in China to see how that develops and just really starting to dip our toe in the water with that to see how it's going to develop over time. But we want to be very careful with that. But we do see that as a growth opportunity for us in the future.

Thanks Denise.

Your next question is from the line of Andrew Obin with Bank of America, Merrill Lynch.

Good morning. Thanks for taking my call.

Hi, Andrew.

Hi, Andrew.

Hey, guys. Just a question going back to the asbestos liability. But from the rating agencies perspective and from the debt capacity, right, how should I think about net increase for your debt capacity, given the adjustment to the liability, is it one-for-one or is it more complicated now?

Well, good question, Andrew and I certainly don't want to speak for the agencies. But I guess -- shorthand it just to say they all have a different calculation that they apply to asbestos. I think the best view is to look at the net liability, which we said is around $500 million and we've been taking that down by 30% over the last couple of years. And I would look at that net liability and put it on an after-tax basis. And I think the most typical approach would be to take that $500 million on an after-tax basis and assume it's something you can't do it that like equivalent from a rating perspective. But again, each agency is a different approach. But the bottom line is that this continued improvement in the management and maintaining constant cash flows and reducing the liability going after insurance judges, all those are continued positive. And over time, continuing to do what we're doing, we believe we'll continue to unlock more capacity within our rating.

Okay. And just a different question I guess. Looking at oil and gas exposure. Can you talk about the competitive dynamics in oil and gas projects, if you're seeing pricing stabilizing, particularly terms of contracts, if those have stabilized, getting better, or we're still sort of have this aggressive pricing by your customers?

Yes. Andrew, going to stay aggressive for a while. I don't think we see any moderation in the behaviors and the patterns. To your point, it's not just straight pricing, it's pricing plus T's and C's. So I would say that the intensity is as high as it's ever been. It's nice to see some up tick in the funnel so that we can continue to be more selective in the projects that we go after. But I would say, what we have changed along with the shift in focus on pricing and T's and C's is really making sure on an upfront basis that we do all of our homework and due diligence on each one of these projects so that we are very comfortable with the net economics, all the way through collections, before we take a project. And that's really what we're driving this year and into next year as project execution capabilities. So that's how I would think about it. But we're going to assume it's going to be a tough environment. We just need to keep operating as best as we can upfront.

Just try to sneak one more in, on Middle East, what countries are doing better on oil and gas? Thank you.

For us, Middle East usually is Saudi driven. We've had some activity in Kuwait. But, I would say generally speaking, most of our installed strength has been in the Saudi region.

Fantastic. Great quarter. Thanks guys.

Thanks Andrew.

Thanks Andrew.

Your next question is from the line of Joseph Ritchie with Goldman Sachs.

Hi. Good morning, everyone. And Jessica welcome to the call.

Thank you.

Yes. So I guess my first question, Tom, I kind of wanted to ask about your comment around October. You're starting off pretty well, I guess, on the industrial process item assuming that you're talking about the baseline pumps business. And specifically, as we head into 4Q, I'd be curious, margins are expected to improve. Are you guys expecting like a double-digit margin in IP in 4Q, just based on the restructuring actions start in October?

Yes. Thanks Joe for the question. In October, orders came in pretty good across the board not only in IP, but at our other segments as well. So particularly in IP, we're looking -- it's all about assessing the trends and the behaviors and the stabilization indicated in the market. So clearly, we did see a strong up tick in October baseline pumps, orders, parts and service as well. So the 3 main drivers of our short-cycle activity were up pretty significantly from an order perspective. Now there's always a little bit of an overhang in the month of October data in the business, that tend to be a little bit longer cycle, or moves a little bit over time. So there's a little bit of a caution, but we'd love to see this kind of order improvement in October. It actually brings our year-to-date short-cycle order growth up to 5%. So through October we're plus 5% on the short-cycle. That's a positive indicator. It will help as we move into Q4, part of the margin story in Q4 will be mixed. But I think the real story for Q4 is going to continue to be execution on projects, some of the benefits of the restructuring that we just did in Q3 and just overall better productivity driving Q4. And yes, our plan is to move sequentially up from Q3 and get in the double-digit range from a margin perspective in Q4.

Great. That's really helpful. And Denise maybe just a follow-up on the EV discussion earlier. Just curious when you see like 288% type growth rates, it's hard to like really conceptualize what that is at this point. I'm just curious the extent that you guys can provide any numbers around like how big your sales are today? How much investment you're actually doing? And then specifically, maybe just talk about the opportunity within the connector market. I know you focused earlier more on the auto side, but I'm very curious on the connector side as well?

Right. So I did talk about the automotive side and all the work that we're doing there. In terms of the connectors, it's an area of opportunity for us. It's going to grow for us over time. We've been primarily working in like small businesses and things like that for these charging stations. It was primarily in Europe and China and we're now looking at having some opportunities in North America. So starting out small, but we're looking for it to be a nice growth avenue for us into the future as there are more and more electric vehicles out there. Tom, do you have anything you want to add about specific numbers.

Yes. If you think about the EV connector opportunity for us, it's generally then share gains, incremental activities as we go through this year. And I think we see this market -- now there are a lot of geographies that we're playing and we're moving. We're 37% up in Asia, we're 35% up in Europe, 240% up in North America. So year-to-date basis, we're up over 90% in our EV market. It is early days, but the foundation is, in the round that we had about $5 million last year of sales in EV. And we're driving that level growth and we do expect to continue to gain momentum. So as long as we align with the right players and the right technologies, it's obviously, an evolving landscape. But we do see this market continuing to grow for us. We haven't put a specific amount on it. As we get closer to our next investor gathering, we'll provide some more context. But right now we're starting off a $5 million base and we can see that more than -- perhaps more than tripling as time goes on, if not more.

This is where some of our innovation comes into play, because up to this point, we've been greatly focused on high power AC charging stations. And so the future and what we're looking at is going more into the high and low power DC public charging stations. So it's the technology and then it's going into some of these other spaces. And we've been working with manufacturers in North America, Europe and Asia on the DC high and low power charging stations. So more to come on that, but what's important is that there, we're focused on it and we've been working with our customers and establishing those relationships.

Super. Thanks guys.

Your next question is from the line of Brett Linzey with Vertical Research Partners.

Hi. Good morning all.

Good morning.

Just want to come back to Motion Tech. I guess as you look at the North America capacity to ramp and China as well, where does it currently put plant capacity? And then as you ramp-on these new contracts, does it drop through segment margins or is there little bit of margin give-up to win the business or until you get some production milestones. Any color on sort of the margin profile over the next couple of years?

Let me just start and then Tom can add to it, in terms of the, was it the capital investment?

Yes, the ramp-up.

Yes, in terms of the ramp up in China, we still have a lot of capacity within the existing facility that we have there. So it is going to take some time for us to grow ourselves out of that facility. That is why we have this facility. And that is why we use this facility. And so, it's just going to take us some time to grow out of that. And as we grow, we always find the opportunities to even make it leaner than what we thought at the beginning. With the facility in North America, again, we made it of a significant size that it's going to take us years to be able to grow out of that facility and have to start a new one. So we're just -- we like doing it this way, because it minimizes the capital investment that we have. In terms of profitability, from a startup perspective, you start up with -- we have initial startup cost which were negative this year. And then you ramp from there. What happened in Wuxi is as you start adding in your volumes, you start getting better and better and you absorb some of the fixed cost that you've have. But what occurs is, like in Wuxi, is we found opportunities for local sourcing. You find other opportunities with automation that we couldn't have done like in our Barga facility in Italy, because you are starting with a facility that you can build it with the way that you want it. So you just get more efficient and more effective as you operate going forward, which is why in Wuxi, we have higher margins than we do in Europe for our brake pads. So Tom, anything you'd like to that?

No, I think that's exactly how I would characterize it and the hope is that as we ramp up North America -- and we certainly won't be fully ramped in 2018 on equipment that we have because the platforms will start at varying times during the year -- but the goal is to continue to move North American margins up in line with what we're seeing in Europe and China. But I would say, really that the margin profile is not about price or winning new business, it's really just about getting ramped up to full run rate production. We're very confident that when that happens in North America we'll have the same kind of results that [indiscernible] in China.

Okay, great. And just shifting back to Industrial Process, it sounds like a lot of the price increases are reactionary to some of the inflationary pressures. But as you think about demand firming in the short-cycle business, does your pricing power here over the next couple of months improve and do you foresee going back out to the market with additional price increases? And then, maybe just a quantification of what the gross price ask was? And what net price realization was that you experienced?

Yes. But, I would say what we've done is pretty typical from a percent increase perspective. But as you know, it's been several years since we've been able to move price through the market. So I would say there's really no change in what type of increases we put in place and the realization's pretty consistent, its usually low single-digit based on the different categories that we're talking about. So I would say that the takeaway is that some of that normal pricing activities coming back into the market after two years where we were -- reluctant to even consider those activities. We'll be selective; we'll be targeted on where we do that. But I think this is a natural resumption of activities in the market stabilizing and normalizing and where we can and where it makes sense, I think we'll continue to look for price opportunities in 2018 as well.

Okay. And maybe just one follow-up. So within Motion Tech, up 31% in China, up 17% in North America. As you look into 2018, based on contract visibility and what you have in the end here, does that North America number begin to look more like the China number in terms of the rate of growth as we look into 2018 and 2019?

Hard to say, Brett, because I think China moves so fast, so many different platforms and manufacturers and we're talking about a local content starting to really ramp up. So North America is different because there are fewer platforms. They generally take longer to develop, they're competed on different cycles. Right now, there weren't very many competitions in Q3 for North America. But as you can see in China, there is a constant velocity of activity. So I wouldn't look at growth rates, one compared to the other because there's so many different dynamics. But our plan is, obviously, where there's opportunities to capture share and grow and be aggressive in doing that, we'll pursue both fronts pretty actively. But I would say China has a lot more opportunity that moves a lot faster than North America.

Okay. Good. Thanks for the color.

Thanks Brett.

Your next question comes from the line of Brett Kearney with Gabelli & Company.

Hi, guys. Thanks for taking my question.

You bet.

Just wanted to ask on the M&A pipeline and then the opportunities you're seeing on that front to maybe further build scale in some of your business lines?

We like to do M&A as we've indicated in the past, we did Axtone this year. What we do is we build upon adjacencies for existing businesses that we have. So when we did Wolverine that got us into some material science applications and it was connected to the friction market. With Axtone, we're building a platform in rail. So we continue to look at those opportunities, we want to continue to build our platform in rail, we like material science, we think composites and aerospace is an intriguing area for us. So we've got a group that is focused on this and we consistently look at what we have out there. In the short-term, probably not something actionable right now even though we have been aggressive this year, it's just some of these things, it's a valuation issue or something else that has caused us not to announce another one this year. So we're active, we look at it and we're going to build it, we're going to build our pipeline with these close-to-core adjacencies.

Great. Thank you.

Your next question comes from the line of Joe Giordano with Cowen.

Hey, guys. Good morning. Apologies, if you talked -- touched on this already, I had to jump on late. Everyone seems to report last night or this morning. Just a question about your -- the facility in Mexico. Obviously, rumors about like us pulling out of NAFTA and things like that. I don't you don't want to speculate. But what is that do to your plans? Are you kind of gaining around that now, I mean there's talk about people moving facilities from Mexico to U.S. for highly automated work if that was to be the case so how are you guys thinking that through right now?

There's no change in terms of what we're planning on doing going forward. We built the facility in Mexico, we're happy with it. It's close to of our customers. We have a lot of customers in Mexico. I don't see that changing any time soon. And so, I think it's a good facility. It's been a good investment for us. And I just don't see us making any change at this time, going forward.

And Joe, we have a group of folks here that are constantly assessing all of the changing environmental regulatory tax changes that are happening and we are trying to stay as current as we can and we're obviously looking at that particular issue with Mexico and at this point we feel staying with our strategy and driving good execution through that facility is the best way forward at this point, but certainly actively looking all these different activities as they're evolving in the marketplace.

And assuming that nothing gets done at the thorough level seems to be the right stand anyway at this point. But a question on the MT size of your regions now. Just based on your visibility on the projects that you've won and expect to deliver into 2018, outside of what you might win next year, how big should each of those regions kind of be now. I know you've seen, obviously, big growth in China over the last couple of years. So on a percentage of sales for automotive, like what does that look like now into 2018?

I think Joe, what we'll continue to see China's off a smaller base growing at the highest rate in the portfolio. So over time, we're going to see shifting of our share towards more China weighting. And we've said over the 3 to 5 year window, that we would expect to see our share of the market in China and North America get north of 20%, 25%, 30% range as we go through time. How that translates back to the portfolio is the function of what's happening in friction Europe where we've been outgrowing the market by 2x. And then, we want to grow the other part of Motion Technologies as well. But from a friction perspective, we'll continue to see stronger growth in China, North America which should increase the weighting. But it'll take time to really dilute down Europe, but that's some of the perspective on how we're thinking about the share at this point moving forward.

Thanks guys.

Thanks Joe.

Our last question comes from the line of Jim Giannakouros with Oppenheimer.

Hey, good morning, everyone. Thanks for squeezing me in here.

Good morning, Jim.

Good momentum in -- like seeing it in IT and certainly in MT. A question on connector control, appreciating that it's obviously an execution story here and now. Can you talk why historically it hasn't really grown at an attractive rate and how you'd frame your near or intermediate term growth outlook there? What's changed versus your history there outside obviously of EV which you highlighted it's obviously small and early inning, thinking more in your core legacy end markets and offerings? Thanks.

Within CCT, about 60% of that portfolio is A&D and I think about 30% is general industrial. I think about where we are today we've seen good industrial and good defense revenues. From a commercial aerospace perspective we are in the process of going through some transitions. Some of the legacy programs that we've been on, which are primarily wide-body programs are declining. But we have been aggressively powering up some offsets to that. One in particular that I mentioned is rotorcraft. We're just getting started with that. But we've seen that, that's going to be a good growth engine for us in the future. We've also been pursuing on strategies with Airbus, because most of our content today is with Boeing. So we think that's an opportunity for us. And then also, we have good strength in the defense market. And with what's happening with defense right now, we think that, that gives us some opportunity to be able to take the technology that we have and to build our capabilities within defense. We have our ECS business, which is our composites business. And we had orders growing very nicely there this year and we expect to see some continued growth going with our ECS business. So there's puts and takes along the way. But we do expect to have growth in that business as we go forward.

Okay. That's helpful. And then in IP, you mentioned short-cycle pricing. I'm sorry if I missed it. But where you were able to get price there? And secondly on parts and after-market strength, what's driving it, would you characterize it just that you are aging your installed base or are there specific sales initiatives that you are implementing that you're seeing increased traction on?

Yes. The pricing IP is generally of parts and pump space, short-cycle categories. And the strength in parts and the aftermarket, I would say is really two activities: One is the installed base that we have which is one of the largest installed base of pumps North America. And a good run rate of those parts and aftermarket and service activity has been stable. We have certainly seen an up tick in service activity this year compared to last year that's one of the biggest drivers of the aftermarket probably resumption of delayed activities in 2016. And then I would say the rest of the parts business is, can be more event driven or installation driven, if you will. So we did have a nice parts delivery in Q3 for a project we brought online a couple of years ago. And we're certainly seeing some of our large oil and gas and mining projects around the world mature into the phase where they're going to be requiring more parts than we've seen historically. So not a major immediate and constant up tick, but we will see more of these parts orders come in from time to time now that our installations have been up and running for several years in these key markets.

Thank you, and congratulations again.

Thank you.

Thank you.

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