Q4 2023 Flowserve Corp Earnings Call

Operator: Good day, and welcome to the fourth quarter 2023 Flowserve Corporation Earnings Conference Call. Today's conference is being recorded. At this time, I'd like to turn the conference over to Jay Rouche, Vice President, Investor Relations, and Treasurer. Please go ahead.

Good day and welcome to the fourth quarter 2023 flow serve Corporation earnings Conference call.

Today's conference is being recorded at this time I'd like to turn the conference over to Jay Rich Vice President Investor Relations and Treasurer. Please go ahead.

John E. Roueche: Thank you, Katie, and good morning, everybody. We appreciate you joining our call today to discuss Flowserve's fourth quarter and full year 2023 financial results. On the call with me today are Scott Rowe, Flowserve's President and Chief Executive Officer, and Amy Schwetz, Senior Vice President and Chief Financial Officer. Following our prepared comments, we will open the call for questions. As a reminder, this event is being webcast, and an audio replay will be available.

Joe Ritchie: Thank you Katie and good morning, everybody.

Jay Rich: We appreciate you joining our call does that you discuss flow serves fourth quarter and full year 2023 financial results on the call with me today are Scott Rowe <unk>.

Joe Ritchie: President and Chief Executive Officer, and Amy Sweat Senior Vice President and Chief Financial Officer.

Joe Ritchie: Following our prepared comments, we will open the call for questions. As a reminder, this event is being webcast and audio replay will be available.

John E. Roueche: Please note that our earnings materials due and this call will include non-GAAP measures and contain forward-looking statements. These statements are based upon forecasts, expectations, and other information available to management as of February 21, 2024, and they involve risks and uncertainties, many of which are beyond the company's control. We encourage you to review our Safe Harbor Disclosure, as well as the reconciliation of our non-GAAP measures to our reported results, both of which are included in our press release and earnings presentation and are accessible on our website in the Investors section. I would now like to turn the call over to Scott Rowe, Flowserve's President and Chief Executive Officer, for his prepared comments. Thanks, James. Good morning, everyone.

Joe Ritchie: Please note that our earnings materials do and this call will include non-GAAP measures and contain forward looking statements. These statements are based upon forecasts expectations and other information available to management as of February of 'twenty, One 'twenty 'twenty four and they involve risks and uncertainties many of which are <unk>.

Joe Ritchie: The company's control.

Joe Ritchie: We encourage you to review our safe Harbor disclosures as well as the reconciliation of our non-GAAP measures to our reported results both of which are included in our press release earnings presentation and are accessible on our website in the investors section I would now like to turn the call over to Scott Rowe Blood service, President and Chief Executive Officer.

Scott Rowe: First prepared panels.

Scott Rowe: Thanks, James and good morning, everyone wants their fourth quarter performance marked a strong finish to a very solid year of improved execution and consistent progress.

Scott Rowe: Flowserve's fourth quarter performance marked a strong finish to a very solid year of improved execution and consistent progress. Our financial and operating performance throughout 2023 supported raising our full-year revenue and adjusted EPS guidance three different times, as we significantly exceeded our original expectations. For the full year, we achieved year-over-year revenue growth of nearly 20%, driven by enhanced backlog conversion and operational improvement, while delivering higher-adjusted gross and operating margins. As a result, our adjusted earnings per share increased by over 90% and our operating cash flow improved by over $360 million compared to 2022. Bookings exceeded $4.25 billion for just the second time since 2016, which supported our strong year-end backlog of $2.7 billion.

Scott Rowe: Our financial and operating performance throughout 2023 supported raising our full year revenue and adjusted EPS guidance three different times.

Scott Rowe: We significantly exceeded our original expectations.

Scott Rowe: For the full year, we achieved year over year revenue growth of nearly 20% driven by enhanced backlog conversion and operational improvements, while delivering higher adjusted gross and operating margins.

Scott Rowe: As a result, our adjusted earnings per share increased by over 90% and our operating cash flow improved by over $360 million compared to 2022.

Scott Rowe: Bookings exceeded $4 5 billion for just the second time since 2016, which supported our strong year end backlog of $2 $7 billion.

Scott Rowe: Most importantly, Flowserve entered 2024 well-positioned to drive continued momentum and success, and we are well on our way towards achieving our 2027 financial targets that were communicated last September. I want to sincerely thank all of our associates around the world for their efforts and dedication throughout the year.

Scott Rowe: Most importantly closer have entered 'twenty 'twenty four well positioned to drive continued momentum and success and we are well on our way towards achieving our 2027 financial targets that were communicated last September.

Speaker Change: I'd like to sincerely, thank all of our associates around the world for their efforts and dedication throughout the year.

Scott Rowe: Their commitment to serving our customers and their passion for our business are critical to driving exceptional financial results. I am very pleased with our results in the fourth quarter, including our adjusted earnings per share of 68 cents, which brought our full year adjusted EPS to $2.10. We are seeing the impact of our improved operating model, higher backlog conversion, and significantly better financial performance. These improvements drove fourth-quarter sales of nearly $1.2 billion and expanded our sequential adjusted operating margins to 10.5%. We also delivered $195 million of operating cash flow during the quarter, which was driven primarily by our earnings and strong working capital performance. This was a clear highlight for us as we were beginning to deliver improvements in our inventory management as our supply chain continues to normalize and lead time shortens.

Speaker Change: Their commitment to serving our customers and their passion for our business are critical to driving exceptional financial results.

Speaker Change: I am very pleased with our results in the fourth quarter, including our adjusted earnings per share of <unk> 68 cents.

Speaker Change: Which brought our full year adjusted EPS to $2.10.

Speaker Change: We are seeing the impact of our improved operating model higher backlog conversion and significantly better financial performance.

These improvements drove fourth quarter sales of nearly one $2 billion and expanded our sequential adjusted operating margin to 10, 5%.

Speaker Change: We also delivered $195 million in operating cash flow during the quarter, which was driven primarily by our earnings and strong working capital performance. This was a clear highlight for us.

Speaker Change: We are beginning to deliver improvements in our inventory management as our supply chain continues to normalize and lead times shorten.

Scott Rowe: Our markets remained supportive as we delivered over $1 billion in bookings for the 8th consecutive quarter. While our full year 2023 book-to-bill was just below 1.0 times, our backlog remains at a very healthy $2.7 billion as we enter 2024. Let me now provide some additional color on our fourth quarter book. General market activity remains high, and we generated bookings of $1.04 billion in the quarter. We achieved this level due to the success of our 3D growth strategy, coupled with continued high levels of aftermarket and MRO activity that we captured around the world, despite the lack of a major project award. However, we did obtain a significant number of smaller awards in the $5 to $10 million dollar range, which together totaled roughly $100 million across all industries and regions. Our largest project award was only $9 million in the fourth quarter.

Speaker Change: Our markets remain supportive as we delivered over $1 billion in bookings for the eighth consecutive quarter.

Speaker Change: While our full year 2023 book to Bill was just below 1.0 times, our backlog remains at a very healthy $2 $7 billion as we entered 2024.

Speaker Change: Let me now provide some additional color on our fourth quarter bookings.

Speaker Change: General market activity remains high and we generated bookings of $1.04 billion in the quarter.

Speaker Change: This level due to the success of our <unk> growth strategy, coupled with continued high levels of aftermarket and MRO activity that we captured a round the world. Despite the lack of a major project award.

Speaker Change: We did obtain a significant number of smaller awards in the $5 million to $10 million range, which together totaled roughly $100 million across all industries and regions.

Speaker Change: Our largest project award was only $9 million in the fourth quarter.

Scott Rowe: We remain disciplined on our project pricing approach and margin expectations. While this strategy may result in some lost incremental awards, we are confident that we'll ultimately create more value with this selective bidding approach. Our 3D bookings represented roughly 30% of our total awards during the quarter, where we saw particular strength with LNG, nuclear, and water awards.

Speaker Change: We remain disciplined on our project pricing approach and margin expectations.

While this strategy May result in some loss of incremental awards. We are confident that will ultimately create more value with this selective bidding approach.

Speaker Change: Our <unk> bookings represented roughly 30% of our total awards during the quarter, where we saw particular strength with LNG nuclear and water Awards.

Scott Rowe: While some of the larger projects we previously expected to be awarded during the fourth quarter were delayed, they remained viable and healthy opportunities for Flowserve in 2024. For full year 2023, our bookings were nearly $4.3 billion. Turning to our aftermarket business, most of our customers' facilities continue to operate with high utilization rates, and their focus remains on reliability, efficiency, and emissions reduction. We are positioned well to capture the aftermarket in MRO business associated with this type of work. For the ninth consecutive quarter, we generated over $500 million in aftermarket bookings. For the full year, aftermarket bookings were nearly $2.3 billion, which was up 5% year-over-year.

Speaker Change: While some of the larger projects, we previously expected to be awarded during the fourth quarter were delayed they remain viable and healthy opportunities for closer in 2024.

Speaker Change: For full year 2023, our bookings were nearly $4 $3 billion.

Speaker Change: Turning to our aftermarket business most of our customers' facilities continue to operate with high utilization rates.

Speaker Change: While the focus remains on reliability efficiency and emissions reductions.

Speaker Change: We're positioned well to capture the aftermarket and MRO business associated with this type of work.

Speaker Change: For the ninth consecutive quarter, we generated over $500 million in aftermarket bookings for the full year, our aftermarket bookings were nearly $2 $3 billion, which were up 5% year over year more.

Scott Rowe: More importantly, we see the elevated demand for our higher-margin, quicker-turn aftermarket offerings continuing into 2024. Our overall market outlook for 2024 is very encouraging given the project opportunities and aftermarket trends we are seeing today. We believe the themes of energy security and decarbonization will continue to drive global spending for years to come.

Speaker Change: More importantly, we see the elevated demand for our higher margin quicker turn aftermarket offerings continuing into 2024.

Speaker Change: Our overall market outlook for 2024 is very encouraging given the project opportunities and aftermarket trends we are seeing today.

Speaker Change: We believe the themes of energy security and de Carbonization will continue to drive global spending for years to come.

Scott Rowe: At year end, our total project funnel has increased 13% versus the prior year, enabling us to remain disciplined and selective in the new project work we pursue. Our oil and gas funnel is up 25% year over year, driven primarily by mid and downstream activity in the Middle East, where we are well positioned to capitalize on the significant investment in the region. Furthermore, our Energy Transition Project Funnel also increased nearly 25% year-over-year, driven by decarbonization activities in the pursuit of clean energy.

Speaker Change: At year end, our total project funnel has increased 13% versus prior year.

Speaker Change: Enabling us to remain disciplined and selective in the new project work we pursue.

Speaker Change: Our oil and gas funnel was up 25% year over year, driven primarily by mid and downstream activity in the middle East, where we are well positioned to capitalize on the significant investment in the region.

Speaker Change: Furthermore, our energy transition project funnel also increased nearly 25% year over year, driven by de carbonization activity activities in the pursuit of clean energy.

Scott Rowe: We believe we can secure enhanced project bookings in 2024 given the visibility that we have in our forward funnel. Beyond projects, we anticipate our aftermarket and MRO business to remain at elevated levels and support our growth into 2024 and beyond. We continue to see healthy activity levels despite some of the softening consumer trends and economic uncertainty that are highly publicized.

Speaker Change: We believe we can secure enhanced project bookings in 2024, given the visibility that we have in our forward funnel.

Speaker Change: Beyond projects, we anticipate our aftermarket and MRO business to remain at elevated levels and support our growth into 2024 and beyond.

Speaker Change: We continue to see healthy activity levels. Despite some of the softening consumer trends.

Speaker Change: Economic uncertainty that are highly publicized.

Scott Rowe: Additionally, we are seeing signs of stability in areas that were depressed in 2023, like European chemicals. Our global install base is incredibly large, and we have further opportunity to improve our aftermarket capture rates as we go forward. Overall, we believe that our global network of quick response centers, combined with our commitment to serve our customers with speed and high levels of service, will allow us to grow our aftermarket franchise further in 2024. I will now turn the call over to Amy to address our fourth quarter and full year financial results in greater detail. Thank you, Scott. And good morning, everyone.

Speaker Change: Additionally, we are seeing signs of stability and areas that were depressed in 2023 like European chemicals.

Speaker Change: Our global installed base is incredibly large and we have further opportunity to improve our aftermarket capture rate as we go forward.

Speaker Change: Overall, we believe that our global network of quick response centers.

Bind with our commitment to serve our customers with speed and high levels of service will allow us to grow our aftermarket franchise further in 2024.

Speaker Change: I will now turn the call over to Amy to address our fourth quarter and full year financial results in greater detail.

Amy B. Schwetz: Thank you Scott and good morning, everyone. Let me also start by saying how pleased I am with our fourth quarter results, which demonstrated continued operational momentum disciplined cost management and strong cash generation.

Amy B. Schwetz: Let me also start by saying how pleased I am with our fourth quarter results, which demonstrated continued operational momentum, disciplined cost management, and strong cash generation. For the fourth quarter, we achieved our best quarterly sales level since 2015, an adjusted operating margin of 10.5%, our highest quarter of the year, and 68 cents of adjusted earnings per share. Our operating cash flow was also strong at $195 million in the quarter, representing a year-over-year improvement of $125 million. These results continued our recent trend of sequential quarterly improvement across many areas, which led to our outstanding full year 2023 results, starting with other details in the quarter. Our reported earnings per share were $0.47, which included $0.21 of net adjusted expenses, primarily below-the-line FX impacts and realignment charges.

Amy B. Schwetz: For the fourth quarter, we achieved our best quarterly sales level since 2015, and adjusted operating margin of 10, 5% our highest quarter of the year and 68 of adjusted earnings per share.

Amy B. Schwetz: Our operating cash flow was also strong at $195 million in the quarter, representing a year over year improvement of $125 million.

Amy B. Schwetz: These results continued our recent trend of sequential quarterly improvement across many areas, which led to our outstanding full year 2023 results.

Amy B. Schwetz: Starting with other details in the quarter our reported earnings per share were <unk> 47, which included 21 of net adjusted expenses, primarily below the line FX impacts and realignment charges.

Amy B. Schwetz: Improved operating performance drove a 12% increase in revenues over the prior year, comprised of FPDs and FCDs growth of 13% and 11%, respectively. We also generated strong top-line growth in both original equipment and aftermarket, with revenue increases of 15% and 9%, respectively. Many of our regions contributed to the double-digit sales growth as well, with notable year-over-year improvement in the Middle East and Africa, North America, and Europe of 27, 14, and 13 percent, respectively. Shifting to margins, we generated adjusted gross margins of 29.8% during the quarter, a 100 basis point increase compared to the prior year's fourth quarter, despite higher performance-based compensation expense and the modest mixed shift to original equipment. The margin improvement was driven by increased sales leverage, benefits from our new operating model, and continued traction with operational excellence initiatives and an improving supply chain environment.

Improved operating performance drove a 12% increase in revenues over prior year.

Amy B. Schwetz: Comprised of FPV in Fcb's growth of 13, and 11% respectively.

Amy B. Schwetz: We also generated strong topline growth in both original equipment and aftermarket with revenue increases of 15% and 9% respectively.

Amy B. Schwetz: Many of our regions contributed to the double digit sales growth as well with notable year over year improvement in the Middle East and Africa, North America, and Europe at 27, 14, and 13% respectively.

Amy B. Schwetz: Shifting to margins, we generated adjusted gross margins at 29, 8% during the quarter, a 100 basis point increase compared to the prior year's fourth quarter. Despite higher performance based compensation expense and the modest mix shift to original equipment.

Amy B. Schwetz: The margin improvement was driven by increased sales leverage benefits from our new operating model and continued traction with operational excellence initiatives, and then improving supply chain environment.

Amy B. Schwetz: At a segment level, we are particularly pleased to see FCD realize its highest quarterly adjusted gross margins since 2019, at 32.2%, representing a 310 basis point year-over-year increase... On a reported basis, fourth quarter consolidated gross margins increased 70 basis points to 29.1%, despite the net increase in realignment and asset write-downs of $4.1 million versus prior year. Fourth quarter adjusted SG&A increased $39 million to $230 million compared to last year.

Amy B. Schwetz: At a segment level, we are particularly pleased to see FCB realize its highest quarterly adjusted gross margins since 2019 at 32, 2%, representing a 310 basis point year over year improvement.

Amy B. Schwetz: On a reported basis fourth quarter consolidated gross margins increased 70 basis points to 29, 1%. Despite the net increase in realignment and asset write downs at $4 1 million versus prior year.

Fourth quarter, adjusted SG&A increased $39 million to $230 million compared to last year.

Amy B. Schwetz: The increase was primarily due to $13 million in higher year-over-year performance-based incentive compensation and an increase in bad debt of $6 million, as well as some benefits in 2022 that did not recur this year, such as a $9 million legal settlement and a small gain on an asset sale of $4 million. Despite these somewhat discreet items, adjusted SG&A as a percent of sales was 19.7%, driven by solid operating leverage during the quarter. On a reported basis, fourth quarter SG&A increased year over year by $41 million to $235 million. In addition to the items just mentioned, our reported amount also includes a net $2 million increase in adjusted items, primarily from realignment expenses. Adjusted operating margin in the quarter was 10.5%, just 30 basis points lower compared to the prior year. While our adjusted gross margins this quarter were essentially equivalent to those of the 2023 third quarter, I am very pleased that the sequential adjusted operating margins expanded by 180 basis points for a nearly 40% sequential increment. On a reported basis, fourth quarter operating margins decreased 70 basis points year-over-year to 9.4%.

Amy B. Schwetz: The increase was primarily due to $13 million and higher year over year performance based incentive compensation and an increase in bad debt of $6 million as well as some benefits in 2022 that did not recur this year, such as the $9 million legal settlement and a small gain on an asset sale of 4 million.

Amy B. Schwetz: Despite the somewhat discrete items adjusted SG&A as a percent of sales was 19, 7% driven by solid operating leverage during the quarter.

Amy B. Schwetz: On a reported basis fourth quarter SG&A increased year over year by $41 million to $235 million.

Amy B. Schwetz: In addition to the items just mentioned our reported amount also includes a net $2 million increase in adjusted items, primarily from realignment expenses.

Amy B. Schwetz: Adjusted operating margin in the quarter was 10, 5% just 30 basis points lower compared to prior year, while our adjusted gross margins. This quarter were essentially equivalent to those of the 2023 third quarter I am very pleased that the sequential adjusted operating margins expanded by one.

Amy B. Schwetz: Hundred and 80 basis points for a nearly 40% sequential incremental.

Amy B. Schwetz: On a reported basis fourth quarter operating margins decreased 70 basis points year over year to nine 4%.

Amy B. Schwetz: Due to higher performance-based incentive compensation, the one-time discreet SG&A items previously discussed, and a $6 million increase in adjusted items compared to the prior year, again, primarily related to the Realignment Act. However, our fourth quarter adjusted tax rate of 7.8% was notably lower than expected, primarily due to the release evaluation allowance on certain net foreign deferred tax assets. Our reported rate at 5.6% reflects the items just mentioned, as well as the tax impact associated with realignment charges, which we excluded from our adjusted results. Turning to our full-year results, We delivered adjusted earnings per share of $2.10, a 91% increase year over year. The performance exceeded our latest revised guidance range from October of $1.95 to $2.05 and was nearly 30% above the midpoint of our initial 2023 target range we provided this time last year.

Amy B. Schwetz: Due to higher performance based incentive compensation, the onetime discrete SG&A items previously discussed and a $6 million increase in adjusted items compared to the prior year again, primarily related to the realignment actions.

Our fourth quarter adjusted tax rate of seven 8% was notably lower than expected primarily due to the release of evaluation allowance on certain net foreign deferred tax assets our reported rate at five 6% reflects the items just mentioned as well as the tax impact associated with re.

Amy B. Schwetz: Alignment charges, which we excluded from our adjusted results.

Amy B. Schwetz: Turning to our full year results.

Amy B. Schwetz: We delivered adjusted earnings per share of $2.10 and 91% increase year over year.

Amy B. Schwetz: The performance exceeded our latest revised guidance range from October of $1 95 to 205 and was nearly 30% above the midpoint of our initial 2023 target range. We provided this time a year ago.

Amy B. Schwetz: Our full year 2023 revenues were over $4.3 billion, up nearly 20% compared to the prior year, as our backlog conversion cadence significantly improved with our operational performance. At this sales level, we generated adjusted growth margins of 30.1% for the year, modestly exceeding our prior expectations. Importantly, we remain confident in our ability to expand margins further by accelerating our operational excellence initiatives and the ongoing product management of our portfolio. Adjusted SG&A as a percentage of sales was 20.9% for the year, representing our lowest level since 2015.

Amy B. Schwetz: Our full year 2023 revenues were over $4 3 billion up nearly 20% compared to the prior year as our backlog conversion cadence significantly improved with our operational performance.

Amy B. Schwetz: On this sales level, we generated adjusted gross margins at 31% for the year modestly exceeding our prior expectations.

Importantly, we remain confident in our ability to expand margins further by accelerating our operational excellence initiatives and the ongoing product management of our portfolio.

Amy B. Schwetz: Adjusted SG&A as a percentage of sales was 29% for the year, representing our lowest level since 2015.

Amy B. Schwetz: This performance was driven by our focus on cost containment, including the benefits from our recent cost-out program and organizational redesign, as well as increased top-line leverage. While we are pleased with the progress we have made to date, we know that the work on this front is never done, and we will remain focused on driving even better results. Our full-year adjusted operating margin was 9.5%, a meaningful increase of 330 basis points over the prior year. Both FCD and FPD delivered solid 2023 performance.

Amy B. Schwetz: This performance was driven by our focus on cost containment, including the benefits from our recent cost out program and organizational redesign as well as increasing top line leverage while we are pleased with the progress. We have made to date, we know that the work on this front is never done and we will remain focused on driving even better results.

Amy B. Schwetz: Our full year adjusted operating margin was nine 5% a meaningful increase of 330 basis points over the prior year.

Amy B. Schwetz: FCB and FPV delivered solid 2023 performance keeping pace with significant increases in adjustment and adjusted segment operating margin of roughly 320, and 330 basis points, respectively to 14 and 12, 4%.

Amy B. Schwetz: Keeping pace with significant increases in adjusted segment operating margins of roughly 320 and 330 basis points, respectively, to 14 and 12.4%. Looking ahead, we are well positioned towards our longer term 2027 consolidated adjusted operating margin target of 14 to 16 percent that we shared at our analyst day in September. Our adjusted tax rate of 15.1% for the full year finished below our previous expectation, primarily driven by the release of valuation allowances on specific foreign net deferred tax assets, as we believe those benefits will now be realized based on our improving financial results and help mitigate future cash taxes.

Amy B. Schwetz: Looking ahead, we are well positioned towards our longer term 2027 consolidated adjusted operating margin target of 14% to 16% that we shared at our analyst day in September.

Amy B. Schwetz: Our adjusted tax rate of 15, 1% for the full year finished below our previous exit expectations, primarily driven by the release of valuation allowances on specific foreign net deferred tax assets as we believe those benefits will now be realized based on our improving financial results and.

Amy B. Schwetz: Help mitigate future cash taxes.

Amy B. Schwetz: Turning now to cash flow, we delivered outstanding full-year operating cash flow of $326 million, which represented a nearly $366 million year-over-year improvement. In addition to our higher earnings, I'm also very pleased that we improved cash from working capital by nearly $240 million and our cash conversion cycle decreased by roughly 10 days compared to 2020. During the fourth quarter, we generated operating cash flow of $195 million, an increase of $125 million compared to the prior year. The improvement can largely be attributed to our strong working capital performance. Accounts receivable was a modest source of cash this quarter, despite our increased revenues, but it represented a $77 million improvement compared to the prior year.

Amy B. Schwetz: Turning now to cash flow, we delivered outstanding full year operating cash flow of $326 million, which represented a nearly $366 million year over year improvement.

Amy B. Schwetz: In addition to our higher earnings I'm also very pleased that we improved cash from working capital by nearly $240 million and our cash conversion cycle decreased by roughly 10 days compared to 2022.

Amy B. Schwetz: During the fourth quarter, we generated operating cash flow of $195 million, an increase of $125 million compared to the prior year the.

Amy B. Schwetz: The improvement can largely be attributed to our strong working capital performance.

Amy B. Schwetz: Accounts receivable was a modest source of cash this quarter. Despite our increased revenues, but represented a $77 million improvement compared to the prior year.

Amy B. Schwetz: Collections results have been robust all year, but notably, this is evidenced by the nearly seven day reduction in our day sales outstanding year over year in the fourth quarter. Inventory also contributed to working capital progress, as we've reduced the cash used by over $50 million for both the fourth quarter and the full year compared to the respective periods of 2020. As a percent of sales, we improved our year-end primary working capital by approximately 450 basis points to 27.9% and improved sequentially by 260 basis points as well. We made great strides towards reducing our working capital and investment to our 25-27% long-term target, and it will remain a major focus area for us going forward. Capital expenditures were $20 million during the quarter, bringing this year's free cash flow to $175 million.

Amy B. Schwetz: Collections results have been robust all year.

Amy B. Schwetz: But notably our evidenced by the nearly seven day reduction in our days sales outstanding year over year in the fourth quarter.

Amy B. Schwetz: Inventory also contributed to working capital progress as we've reduced the cash used by over $50 million for both the fourth quarter and the full year compared to the respective periods of 2022.

Amy B. Schwetz: As a percent of sales we improved our year end primary working capital by approximately 450 basis points to 27, 9% and improved sequentially by 200 basis 260 basis points as well.

Amy B. Schwetz: We made great strides towards reducing our working capital and investment to our 25% to 27% long term target and it will remain a major focus area for us going forward.

Amy B. Schwetz: Capital expenditures were $20 million during the quarter, bringing this year's free cash flow to $175 million.

Amy B. Schwetz: This year-over-year improvement exceeds $100 million and resulted in a free cash flow to adjusted net income conversion of $194 per year. Other significant uses of cash in the fourth quarter included $26 million for dividends and a $10 million term loan reduction. Turning to our 2024 outlook, we expect to continue building on our operating momentum to deliver a full-year revenue growth of 4-6%, with adjusted earnings per share between $2.40 and $2.60, both consistent with the qualitative guidance we provided at our September Analyst Day. At the midpoint, our 2024 Adjusted Earnings Guidance represents a roughly 20% increase over last year.

Amy B. Schwetz: This year this year over year improvement exceeds the $100 million and resulted in a free cash flow to adjusted net income conversion of 194%.

Amy B. Schwetz: Other significant uses of cash in the fourth quarter included $26 million for dividends and a $10 million term loan reduction.

Amy B. Schwetz: Turning to our 2024 outlook, we expect to continue building on our operating momentum to deliver full year revenue growth of 4% to 6% with adjusted earnings per share between $2 40 to $2 60.

Amy B. Schwetz: Both consistent with the qualitative guidance, we provided at our September analyst day.

Amy B. Schwetz: At the midpoint, our 2024 adjusted earnings guidance represents a roughly 20% increase over last year.

Amy B. Schwetz: As Scott mentioned, our markets continue to remain active, and we expect to generate a full-year book-to-bill ratio of over one time. Building Backlog to Spur Multi-Year Revenue Growth. We also expect net interest expense in the range of $60 to $65 million and an adjusted tax rate of approximately 20%.

Amy B. Schwetz: As Scott mentioned, our markets continue to remain active and we expect to generate a full year book to bill ratio over one times building backlog to spur multi year revenue growth.

Amy B. Schwetz: We also expect net interest expense in the range of $60 million to $65 million and an adjusted tax rate of approximately 20%.

Amy B. Schwetz: Our adjusted targets exclude expected realignment expenses of approximately $30 million, as well as other potential items that may occur during the year, such as below-the-line foreign currency effects and the impact of other discrete items. Including the potential realignment spending, we expect our reported EPS to be in the range of $225 to $245 per share. Similar to last year, we will work to minimize top line reduction as we move from the sequentially strong last quarter of the year to the first quarter. That said, we would anticipate our general trend of seasonality and earnings will continue in 2024 with the first quarter being our lowest earnings quarter of the year and the fourth quarter being the strongest. We intend to further drive value creation through our capital allocation approach. As we weigh opportunities to allocate capital, we are guided by our enduring framework to deploy excess cash for the highest long-term return while remaining impartial as to how value is created. Our board has authorized a 5% increase in our dividend to $0.21 per share.

Amy B. Schwetz: Our adjusted targets exclude expected realignment expenses of approximately $30 million as well as other potential items that may occur during the year such as below the line foreign currency effects and the impact of other discrete items.

Amy B. Schwetz: Including the potential realignment spending we expect our reported EPS to be in the range of $2 25 to $2 45 per share.

Amy B. Schwetz: Similar to last year, we will work to minimize top line reduction as we move from the sequentially strong last quarter of the year to the first quarter.

Amy B. Schwetz: That said, we would anticipate our general trend of seasonality in earnings will continue in 2024 with the first quarter being our lowest earnings quarter of the year and the fourth quarter being the strongest.

Amy B. Schwetz: We intend to further drive value creation through our capital allocation approach.

Amy B. Schwetz: As we weigh opportunities to allocate capital we are guided by our enduring framework to deploy excess cash to the highest long term return while remaining impartial as to how value is created.

Amy B. Schwetz: Our board has authorized a 5% increase to our dividend to <unk> 21 per share.

Amy B. Schwetz: Additionally, the board also replenished our authorized share repurchase capacity to $300 million. As we indicated at Analyst Day, we view share repurchases to offset equity compensation as a commitment, and with the increased capacity of the new plan, we can also act opportunistically. That said, we believe there are ample opportunities to invest in the business, both through internal programs and in organic growth. We expect capital expenditures between $75 and $85 million this year.

Amy B. Schwetz: Additionally, the board also replenished our authorized share repurchase capacity to $300 million.

Amy B. Schwetz: As we indicated at the analyst day, we view share repurchases to offset equity compensation as a commitment and with the increased capacity of the new plan. We also can act opportunistically.

Amy B. Schwetz: That said, we believe there are ample opportunities to invest in the business both through internal programs and inorganic growth.

Amy B. Schwetz: We expect capital expenditures between 75 and $85 million. This year, and we are well positioned to pursue M&A opportunities to further expand our portfolio of flow control offerings to better support and accelerate our <unk> strategy we.

Amy B. Schwetz: And we are well positioned to pursue M&A opportunities to further expand our portfolio of flow control offerings to better support and accelerate our 3D strategy. We are most interested in targets that provide the opportunity to leverage our scale and that can be effectively integrated with our broader business. Financial discipline and Economic Returns are table stakes. So the returns on any acquisition would be in excess of our average cost of capital, as well as the margin and cash EPS accreted. Through it all, our capital allocation approach is designed to maintain our investment grade rating, and we intend to reduce our term loan by $60 million this year.

Amy B. Schwetz: We are most interested in targets that provide the opportunity to leverage our scale and that can be effectively integrated with our broader business finding.

Amy B. Schwetz: Financial discipline and economics economic returns are table Stakes. So the returns on any acquisition would be in excess of our average cost of capital as well as the margin and cash EPS accretive.

Amy B. Schwetz: Through it all our capital allocation approach is designed to maintain our investment grade rating and we intend to reduce reduce our term loan by $60 million this year.

Amy B. Schwetz: I am proud of the strong foundation we established during 2023 and feel confident that we can drive continued margin in earnings per share growth while deploying capital to deliver long-term shareholder value as we progress towards our longer-term targets. I fully expect 2024 to be a great start on that journey. Now, let me return the call to Scott.

Amy B. Schwetz: I am proud of the strong foundation, we established during 2023 and feel confident that we can drive continued margin and earnings per share growth, while deploying capital to deliver long term shareholder value as we progress towards our longer term targets.

Amy B. Schwetz: I fully expect 2024 to be a great start on that journey, let me now return the call to Scott.

Scott Rowe: Great. Thank you Amy let.

Scott Rowe: Let me now offer a few comments on our 3D strategy, which, as we discussed at our September Analyst Day, is directly aligned with the market environment that we see today and in the future. The strategy is intended to drive accelerated growth for Flowserve for years to come. While we are well suited to serve our customer base today, we are continuing to invest in product and service offerings, including through potential inorganic opportunities that further build our portfolio to support diverse markets and new emerging sources of energy. Let me start with Diversified, where our bookings will remain very healthy in 2023 as we continue to apply our portfolio to served-in markets that present an above-average growth profile. Our vacuum pump products are a great example of our efforts and represent a significant component of the diversification pillar.

Scott Rowe: Let me now offer a few comments on our <unk> strategy, which as we discussed at our September analyst day is directly aligned with the market environment that we see today and in the future.

Scott Rowe: The strategy is intended to drive accelerated growth for closer for years to come.

Scott Rowe: We are well suited to serve our customer base today, we're continuing to invest in product and service offerings, including through potential inorganic opportunities that further build our portfolio to support diverse markets and the new emerging sources of energy.

Scott Rowe: Start with diversified where our bookings remained very healthy in 2023 as we continue to apply our portfolio in the served end markets represented above average growth profile.

Scott Rowe: Vacuum pump products are a great example of our efforts and represent a significant component of the diversification pillar.

Scott Rowe: Our focus on growing our vacuum products in general industrial applications has delivered outsized growth over the last several years. In the fourth quarter, we were selected to supply dry vacuum pumps for a state-of-the-art green solvents production facility in Europe that will support the circular economy. The site will convert biomass waste into 1,000 metric tons of non-toxic solvents annually to be utilized in pharmaceuticals, agrochemicals, electronics, and other applications.

Scott Rowe: Our focus to grow our vacuum products in general industrial applications has delivered outsized growth over the last several years.

Scott Rowe: In the fourth quarter, we were selected to supply drive vacuum pumps for a state of the art Green solvents production facility in Europe that will support the circular economy the.

Scott Rowe: The site will convert biomass ways into 1000 metric tons of non toxic solvents annually to be utilized in pharmaceuticals, agrochemicals electronics and other applications.

Scott Rowe: Moving to decarbonize, we produced another quarter of strong bookings, led by the Nuclear and LNG Awards. We remain excited about the nuclear outlook as countries around the globe are focused on providing clean and reliable energy within their borders. We continue to be very optimistic about the nuclear outlook as countries begin to develop investment plans that have nuclear energy output tripling by 2050. Our strong portfolio of nuclear pumps, valves, and seals is well-positioned to meet this growing demand, including life extensions on existing assets and the building of new nuclear power facilities in Asia and Europe. New energy applications are another key driver behind our decarbonization initiative. Flowserve was recently selected to supply our specialty ball valves to support the production of liquid green hydrogen in the United States.

Scott Rowe: Moving to Decarbonize.

Scott Rowe: We produced another quarter of strong bookings led by nuclear and LNG Awards, we remain excited about the nuclear outlook as countries around the globe, we're focused on providing clean and reliable energy within their borders.

Scott Rowe: We continue to be very optimistic on the nuclear outlook as countries begin to develop investment plans that have nuclear energy output tripling by 2050.

Our strong portfolio of nuclear pumps valves and seals are well positioned to meet this growing demand, including life extensions on existing assets and the building of new nuclear power facilities in Asia and Europe.

Scott Rowe: New energy applications are another key driver behind our Decarbonize initiative.

Scott Rowe: <unk> was recently selected to supply our specialty ball valves to support the production of liquid green hydrogen in the United States.

Scott Rowe: Lastly, on digitization, we believe our ability to digitize our solutions and leverage our large installed base and aftermarket capabilities will enable Flowserve to be better equipped to provide true solutions for our customers. We believe our offering is at an inflection point of growth, and we have significant visibility into new installations. We now have over 80 customer locations using Red Raven technology with almost 2,100 assets instrumented. We remain committed to adding value to our customers with this digital offering by instrumenting pumps and valves to monitor, predict, and ultimately better optimize the full flow list. Flowserve recently partnered with three European-based petrochemical facilities to increase reliability and efficiency with our Red Raven technology.

Scott Rowe: This project is expected to produce nearly 11000 tons of hydrogen to enable operations for one of the world's largest e-commerce companies.

Scott Rowe: Lastly on digital we believe our ability to digitize, our solutions and leverage our large installed base and aftermarket capabilities will enable closer to be better equipped to provide true solutions for our customers.

Scott Rowe: We believe our offering is at an inflection point of growth and we have significant visibility to new installations.

Scott Rowe: We now have over 80 customer locations using red Raven technology with almost 2100 assets instrument it.

Scott Rowe: We remain committed to adding value to our customers with this digital offering by instrument in pumps and valves to monitor predict.

Scott Rowe: And ultimately better optimize the full flow loop.

Scott Rowe: Closer of recently partnered with three European based petrochemical facilities to increase reliability and efficiency with our Red Raven technology. We are pleased to continue expanding our Iot presence in petrochemicals and industry, where we are seeing an increasing level of acceptance.

Scott Rowe: We are pleased to continue expanding our IoT presence in petrochemicals, an industry where we are seeing an increasing level of acceptance, providing us with an opportunity to offer more of our solutions portfolio and capabilities to help solve our customers' toughest flow control challenges. In conclusion, I'm extremely pleased with our progress in 2023. The new organization design is driving enhanced execution, improved accountability, and is allowing us to operate with greater This new design better supports our 3D strategy and will allow Flowserve to further our advantage in securing the market opportunities in front of us. I'm confident in our ability to maintain the momentum created in 2023 and continue driving improvements in 2024 and beyond. The trajectory to our longer-term financial goals outlined at our Analyst Day begins with the delivery of our 2024 targets, including 4 to 6 percent revenue growth, more than 100 basis points of adjusted operating margin improvement, and roughly 20 percent adjusted EPS growth at the midpoint of our guidance. Finally, I am pleased that our efforts in strategy continue to be recognized by third-party organizations. In recent weeks, Flowserve was named by Newsweek as one of America's most responsible companies, and we were named on Forbes' list of the most successful mid-cap companies in 2024.

Scott Rowe: Abiding us with an opportunity to offer more of our solutions portfolio and capabilities to help solve our customers' toughest well control challenges.

Scott Rowe: In conclusion, I am extremely pleased with our progress in 2023.

Scott Rowe: The new organization design is driving enhanced execution improved accountability, it is allowing us to operate with speed.

Scott Rowe: This new design better supports our <unk> strategy and will allow closer to further our advantage in securing the market opportunities in front of us.

Scott Rowe: I am confident in our ability to maintain the momentum created in 2023 and continue driving improvements in 2024 and beyond.

Scott Rowe: The trajectory to our longer term financial goals outlined at our analyst day begins with the delivery of our 2024 targets, including 4% to 6% revenue growth more than 100 basis points adjusted operating margin improvement and roughly 20% adjusted EPS growth at the midpoint of our guidance.

Scott Rowe: Finally, I am pleased that our efforts and strategy continued to be recognized by third party organizations.

Scott Rowe: In recent weeks sponsor was named by Newsweek as one of America's most responsible companies and we are named in Forbes was the most successful mid cap companies in 2024.

Scott Rowe: The financial and operational performance, we delivered last year creates a solid foundation to build upon and I am excited about the opportunities for <unk> in 2024.

Scott Rowe: The financial and operational performance we delivered last year creates a solid foundation to build upon, and I am excited about the opportunities for Flowserve in 2024. We have substantially improved our ability to execute and serve our customers, and I'm confident that this progress will carry into 2024 as we expect to deliver another significant year of improved financial results. We are fully focused this year on profitably converting our near-record $2.7 billion backlog.

Scott Rowe: We have substantially improved our ability to execute and serve our customers and I am confident that this progress will carry into 2024 as we expect to deliver another significant year of improved financial results.

Scott Rowe: We are fully focused this year on profitably converting our near record $2 7 billion backlog.

Scott Rowe: Continuing our pursuit of outsized growth driven by our <unk> strategy and driving higher operating margins through further operational improvements.

Operator: Continuing our pursuit of outsized growth driven by our 3D strategy and driving higher operating margins through further operational improvement. We remain committed to driving long-term value for our associates, customers, and shareholders. Operator, this concludes our prepared remarks, and we would now like to open the call to questions. Thank you. If you would like to ask a question, you may signal by pressing star 1 on your telephone keypad. If you're using a speakerphone, please make sure your mute function is turned off to allow your signal to reach our equipment.

Scott Rowe: We remain committed to driving long term value for our associates customers and shareholders.

Speaker Change: Operator. This concludes our prepared remarks, and we would now like to open the call to questions.

Thank you if you would like to ask a question you may signal by pressing star one on your telephone keypad.

If you're using a speaker phone. Please make sure. Your mute function is turned off to allow your signal to reach our equipment once again star one for questions.

Speaker Change: We'll go first to Nathan Jones with Stifel.

Nathan Hardie Jones: Good morning, everyone.

Nathan Hardie Jones: Hello.

Nathan Hardie Jones: I'm going to start with the questions on the bookings outlook.

Nathan Hardie Jones: I think in your prepared remarks, you talked about book to Bill above one.

Operator: Once again, star 1 for questions. We'll go first to Nathan Jones with... Good morning, everyone. I'll go later.

Nathan Hardie Jones: Scott you talked about growth in the pipeline.

Nathan Hardie Jones: The book to Bill above one kind of implies mid to high single digit bookings growth.

Scott Rowe: I'm going to start with questions on the bookings outlook. I think Amy, in your prepared remarks, you talked about a book-to-bill-above-one. Scott, in yours, you talked about growth in the pipeline. I think the book-to-bill-above-one kind of implies mid-to-high single-digit bookings growth. So, any more color you can give us on how that splits out between projects and the aftermarket, you know, what kind of projects are in the pipeline and the confidence that those will convert to orders this year. Sure. Yeah, it's a really good question, Nathan.

Speaker Change: Any more color you can give us on how that splits out between projects.

Speaker Change: After market.

You know what kind of projects are in the pipeline and the confidence that those will convert to orders this year.

Speaker Change: Yes.

Speaker Change: Sure, Yes, it's a really good question Nathan let me start with aftermarket and then I'll go to kind of traditional end markets and I'll touch on projects as well on the aftermarket side, we saw tremendous growth in 2023, we've delivered about 5% for the full full serve and we can we expect that to continue and so when we look at utilization rates and we look at.

Scott Rowe: Let me start with aftermarket, and then I'll go to kind of traditional end markets, and I'll touch on projects as well. On the aftermarket side, we saw tremendous growth in 2023. We delivered about 5% for the full Flowserve, and we can expect that to continue.

Speaker Change: What's happening with the customer installations, we see that that aftermarket work will continue as we go forward and then secondly, we believe there is an ability to drive our capture rate up.

Speaker Change: We don't disclose what that rate is but what I'll say is we know we have opportunities to do better there and in the analyst day, we outlined some of those opportunities both on the pump side and the valve side and so we believe we've got kind of market share or your capture rate opportunities on top of what we'll say is a very constructive environment for.

Scott Rowe: And so when we look at utilization rates and we look at kind of what's happening with the customer installations, you know, we see that that aftermarket work will continue as we go forward. And then, secondly, we believe there's an ability to drive our capture rate up. We don't disclose what that rate is.

Our aftermarket business. So we see something similar to 2023 in terms of growing that side of the business and then like the analyst day or within the analyst day, we talked about our traditional end markets and we showed kind of like more GDP type results at this 3% to 5% growth for those in markets and again.

Scott Rowe: But what I'll say is we know we have opportunities to do better there, and at analyst day, we outlined some of those opportunities both on the pump side and the valve side. And so we believe we've got kind of market share or, you know, capture rate opportunities on top of what we'll say is a very constructive environment for our aftermarket business. So we see something similar to 2023 in terms of growing that side of the business. And then, at Analysts' Day, or within Analysts' Day, we talked about our traditional in-markets, and we showed kind of some, like, more GDP-type results at this And again, when we look at our model, you know, nothing's changed there.

Speaker Change: When we look at our model nothing has changed there and so we see some reasonably good growth on the traditional end markets across the board and then.

Speaker Change: Where we see really exciting growth is in the new energy in the de carbonization side, and so that's where we see that outsized growth above that kind of 3% to 5%.

Speaker Change: And we had a really good year in 2023 across all aspects of our business in terms of bookings growth with the exception of large projects and so when we looked at our project funnel, what we see as the project funnel overall is up 13% our oil and gas funnel is up 25% and that de carbonization and new energy is up 20.

Scott Rowe: And so, we see, you know, reasonably good growth in the traditional in-markets across the board. And then, where we see really exciting growth is in new energy and the decarbonization side. And that's where we see that outsized growth above that kind of 3% to 5%. And we had a really good year in 2023 across all aspects of our business in terms of Booking's growth with the exception of large projects. And so when we look at our project funnel, what we see is that the project funnel overall is up 13%, our oil and gas funnel is up 25%, and that decarbonization and new energy is up 25%. And so that gives us a lot of confidence in our project outlook in making sure that we can acquire and win awards that make sense for our margins and value creation.

Speaker Change: 5% and so that gives us a lot of confidence on our project outlook and making sure that we can acquire and win awards that makes sense on our margins and value creation and so I'd say overall, we feel really good about where we are in terms of the overall market and the outlook and I think we can.

Speaker Change: At this point, we believe that we can deliver certainly above one point over what our book to Bill and drive to that 5% growth target that we put out in the analyst day.

Speaker Change: One follow up on autos.

Speaker Change: Typically the oil and gas pipeline being up 25%.

Speaker Change: That's obviously still your biggest end market and so that's one that could move the needle.

Speaker Change: And probably where the large projects are as well does this above one point include the conversion of any large projects or would those be kind of gravy on top.

Scott Rowe: And so I'd say overall, we feel really good about where we are in terms of the overall market and the outlook. And I think we can, at this point, believe that we can deliver certainly above 1.0 on our book to bill and drive to that 5% growth target that we put out in the analyst. One follow-up on orders, particularly the oil and gas pipeline being up 25%. That's obviously still your biggest end market, and so that's one that could move the needle. And probably where the large projects are as well, does this above 1.0 include the conversion of any large projects, or would that be kind of gravy on top? And what's your confidence that they will actually get awarded in 2024? Yeah, the project market for oil and gas has stacked up pretty substantially. It's primarily delivered, or primarily in the Middle East.

Speaker Change: What's your confidence that they actually get awarded in 'twenty four.

Speaker Change: Yes, the project market in oil and gas is stacked up pretty substantially is primarily delivered primarily in the middle East and I was there three weeks ago and quite frankly, I was I was overwhelmed with the amount of work that's out there in the spending thats happening now, obviously things could change that but I would say.

Speaker Change: With the Saudis 2030 vision with what we see in the rest of the region across countries like the UAE Kuwait Qatar.

Speaker Change: Oman the activity is substantial and so to your question directly yes.

Speaker Change: There is a long list of large projects out there if we get two or three of those that would be gravy to compared to what we're talking about but I would say there are a couple of those projects that are kind of more moderate size that are embedded in our growth projections.

Speaker Change: But again, we feel good about it we've been very selective specifically in 2023 in terms of what we want to win we have been very disciplined in that approach.

Scott Rowe: And I was there three weeks ago, and quite frankly, I was overwhelmed by the amount of work that's out there and the spending that's happening. Now, obviously, things could change that, but I would say with Saudi Arabia's 2030 vision, with what we see in the rest of the region across countries like the UAE, Kuwait, Qatar, and Oman, the activity is substantial. And so to your question directly, there's a long list of large projects out there. If we get two or three of those, that would be gravy compared to what we're talking about.

Speaker Change: I feel really good that we're going to start to win some work, but when work that makes sense from a margin perspective and value creation perspective.

Speaker Change: Great. Thanks, very much for taking the questions.

Speaker Change: Thank you we'll go next to Mike Halloran with Baird.

Michael Halloran: Great. Thank you good morning, everyone.

Michael Halloran: Good morning, Scott.

Michael Halloran: Maybe just follow up on the comment you just made there certainly understand the diligence behind project selection, and where you want to win and focus on the margins, but when you take a step back how would you describe the overall competitive landscape right now given the amount of opportunity out there you're seeing.

Scott Rowe: But I would say there are a couple of those projects that are kind of of a more moderate size that are embedded in our growth projections. But again, you know, we feel good about it. We've been very selective, specifically in 2023, in terms of what we want to win. We've been very disciplined in that approach. And I feel really good that we're going to start to win some work, but win work that makes sense from a margin perspective and value creation perspective. Great, thanks very much for taking the question. Thank you. We'll go next to Mike Halloran with Barry. All right, thank you. Good morning, everyone.

You know a little bit more diligence from some of the competitor base or or you know just a little bit more logical pricing mechanisms or is it still pretty project by project and any thought on that side.

Michael Halloran: Sure.

Michael Halloran: Comparative let's go to two years ago, when folks were very very hungry for work.

Michael Halloran: <unk> substantially better than that but what I'll say is the project environment is always attractive everybody wants to bid and participate in it and so it remains somewhat challenging and so through our selective bidding approach what we're looking at as you know customers. We know we can work with customers, where we know that we can deliver.

Michael Halloran: Remember the margin expectations that we signed up for in the bidding phase and then we're also looking for making sure that we can get the aftermarket associated with the work there.

Scott Rowe: Good morning, maybe we just follow up on the comment you just made there, you know, certainly understand the diligence behind project selection and where you want to win, focus on the margins. But when you take a step back, how would you describe the overall competitive landscape right now? Given the amount of opportunity out there?

Michael Halloran: So I think that's the probably the biggest change for US is really getting a more holistic look at what we wanted to work or what we want to work on geographically, but then also with the customers and supporting that aftermarket and then when we think about the competitive landscape everybody is substantially fuller in terms of capacity.

Scott Rowe: Are you seeing, You know, a little bit more diligence from some of the competitor base or, you know, just a little bit more logical pricing mechanisms, or is it still pretty project by project? Any thoughts on that? Sure. If we compare it to, let's go back to two years ago when folks were very, very hungry for work, the environment's substantially better than that.

Michael Halloran: We saw two years ago, we are seeing discipline improve pretty substantially but every now and then we'll get a surprise by somebody that doesn't kind of stay in that disciplined approach and we will just accept that and move on and make sure that we can do with work that's more suitable to the margin expectations that we deserve.

Scott Rowe: But what I'll say is the project environment is always attractive. Everybody wants to bid on and participate in it. And so through our selective bidding approach, what we're looking at are customers we know we can work with, customers where we know that we can deliver the margin expectations that we signed up for in the bidding phase. And then we're also looking to make sure that we can get the aftermarket associated with the work there. And so I think that's probably the biggest change for us is really getting a more holistic look at what we wanted to work on geographically, but then also with the customers in supporting that aftermarket. And then when we think about the competitive landscape, everybody is substantially fuller in terms of capacity than we saw two years ago. We are seeing discipline improve pretty substantially, but every now and then, we'll get a surprise by somebody that doesn't kind of stay in that disciplined approach.

Michael Halloran: <unk>.

Speaker Change: Okay. It makes sense and then.

Speaker Change: Good to see the cash generation this quarter could you maybe talk to the 24 expectations, but layer it as well usage of that cash to buyback authorization.

Speaker Change: Certainly her name is remarks around it is there any more intent there to be opportunistic and how do you see the M&A landscape with the cash generation.

Speaker Change: Sure. So I'd start with you our expectations are continue are to continue to generate.

Speaker Change: Nice levels of cash as we move into as we move into 2024 at the analyst day, we talked about kind of a guiding principle principal of between 80 and 100% free.

Speaker Change: Free cash flow conversion I think we'll be at the low end or slightly below that in in 2024, just given some of the realignment activities that we expect to continue continue to occur in terms of capital allocation I think that what we wanted to do with this with this most recent action with with the board.

Speaker Change: Third is to really just increase the opportunity set.

And that that we have that we have out there are modest.

Scott Rowe: And we'll just accept that and move on and make sure that we can do win work that's more suitable to the margin expectations that we deserve. Great, makes sense. And then it's good to see the cash generation this quarter. Could you maybe talk about the 24 expectations but layer it on as well, the usage of that cash, the buyback authorization? Ups, I certainly heard Amy's remarks around it. Is there any more intent there to be opportunistic in IDCDM&A? cast, Sure.

Speaker Change: Modest dividends increased acknowledging that we had not had an increase in our dividend level. Since early since early in 2020, and then again at the analyst day, we have recommitted to the practice of share buybacks to offset equity dilution, we've not done that in the last couple of years. So we want the.

Speaker Change: We need to be able to do that.

Speaker Change: It's probably a little bit of catch up this year I will say overall I think that are and that our bias which needs to be tested each time, we have the opportunity is to invest those dollars either in internal growth or inorganic growth.

Amy B. Schwetz: So I'd start with, you know, our expectations are to continue to generate nice levels of cash as we move into 2024. At Analysts' Day, we talked about kind of a guiding principle of between 80% and 100% free cash flow conversion. I think we'll be at the low end or slightly below that in 2024, just given some of the realignment activities that we expect to continue to occur.

Speaker Change: It's really our top line.

Speaker Change: And find opportunities that are that are accretive to margins and EPS and ultimately.

Speaker Change: So earnings for our shareholders, but I think that with the actions of the board.

Amy B. Schwetz: In terms of capital allocation, I think that what we wanted to do with this most recent action with the board is to really just increase the opportunity set that we have out there. A modest dividend increase, acknowledging that we had not had an increase in our dividend level since early 2020. And then, again, at Analysts' Day, we recommitted to the practice of share buybacks to offset equity dilution. We've not done that in the last couple of years, so we want the opportunity to be able to do that, plus probably a little bit of catching up this year.

Speaker Change: This year, we have an opportunity to have a full suite of options available to us as we make our way into 2024.

Speaker Change: Great. Thanks, Scott Thanks, Amy.

Speaker Change: Thank you.

Speaker Change: We'll go next to Andrew <unk> with Bank of America.

Speaker Change: Hey, Good morning, you have Sabrina Abrams on for Andrew.

Sabrina Abrams: Hi, Sabrina.

Sabrina Abrams:

Sabrina Abrams: Some of your competitors have talked about seeing 100 to 200 bps of better margin backlog relative to what shipping through the P&L today is that a fair framework for what flow serve is shipping in 2024 relative to its P&L.

Amy B. Schwetz: I will say overall that our bias, which needs to be tested each time we have the opportunity, is to invest those dollars either in internal growth or in organic growth to boost our top line, find opportunities that are accretive to margins and EPS, and ultimately grow earnings for our shareholders. But I think that with the actions the board took this year, we have an opportunity to have a full suite of options available to us as we make our way into 2022. Great Thanks, Scott. Thanks Amy.

Sabrina Abrams: I would say, we definitely see improvement in the pricing of our backlog and some of that is obviously dependent.

Sabrina Abrams: Pendant on mix that you currently have in our in our backlog that I think that we see that margin in backlog as a real tailwind for us going into 2024.

Speaker Change: Got it and as a follow up I guess I'm thinking about the different components of the margin. So you have better pricing in the backlog there.

Amy B. Schwetz: Thank you. We'll go next to Andrew Obin with Bank of America. Hey, good morning. You have Sabrina Abrams on for Andrew. Hi, Sabrina.

Speaker Change: There's the mix benefit from aftermarket outgrowing OE and some incremental benefit from the restructuring are there.

Amy B. Schwetz: Um, some of your competitors have talked about seeing 100 to 200 bits of better margin backlog relative to what's shipping through the P&L today. Is that a fair framework for what Flowserve is shipping in 2024 relative to its P&L? I'd say we definitely see improvement in the pricing of our backlog, and some of that is obviously dependent on the mix that you currently have in our backlog, but I think that we see that margin in our backlog as a real tailwind for us going into 2024.

Speaker Change: Restructuring program.

So if you could talk about maybe the different components are the good guys and bad guys and the margin bridge for 2024.

Just wanted to understand the components of the 100 bps of expansion that you guys are guiding to.

Speaker Change: Sure. So I'll start by saying we are we are confident in our ability to expand margins by 100 basis points or more and as we think about our guidance range I would say our ability to move towards the high end of that range would likely mean margin expansion.

Amy B. Schwetz: And as a follow-up, I guess I'm thinking about the different components of the margin so you have better pricing in the backlog. There's the mixed benefit from aftermarket outgrowing OE and some incremental benefit from the restructuring program. So if you could talk about maybe the different components, the good guys and bad guys, and the margin bridge for 2024. I just want to understand the components of the 100 rifts of expansion that you guys are guiding us to.

Speaker Change: Above that 100 basis points versus versus volume growth given that we saw sales volume growth of nearly 20% in 2023, So where we're at in terms of in terms of puts and puts and takes neutral from a to a slightly positive on an <unk>.

Speaker Change: <unk> costs from a material inflation standpoint, and you've already touched on the margin in backlog of which which we see as a positive and we do have the structural cost savings from those.

Amy B. Schwetz: Sure, so I'll start by saying we are confident in our ability to expand margins by 100 basis points or more. And as we think about our guidance range, I would say our ability to move towards the high end of that range would likely mean margin expansion above that 100 basis points versus volume growth, given that we saw sales volume growth of nearly 20% in 2023. So where we're at in terms of puts and takes, neutral to slightly positive on price costs from a material inflation standpoint. You've already touched on the margin and backlog, which we see as a positive, and we do have the structural cost savings from both the organizational redesign that we put in place and the activities that are taking shape with respect to operational excellence. In terms of what's working against us in 2024, I would start with labor inflation.

Speaker Change: Both the org redesign that we put in place and the activities that are taking shape with respect to our ops excellence in terms of what's working against US in 2024, I would start with start with labor inflation is something that will that will begin to take hold kind of late in the first in the first quarter.

Speaker Change: And really start to show up in the second quarter of the year and then although we do have a nice backlog of the aftermarket mix I think the mix of project work is going to be something.

Speaker Change: And that will be monitoring and watching closely in terms of margin expectations in 2024, and it start with what Scott has described as a as a large funnel of MPD.

Amy B. Schwetz: It's something that will begin to take hold kind of late in the first quarter and really start to show up in the second quarter of the year. And then, although we do have a nice backlog of aftermarket mix, I think the mix of project work is going to be something that we'll be monitoring and watching closely in terms of margin expectations in 2024, and I'd start with what Scott has described as a large funnel of FPD, large project work that we'll have available for us in 2024. And although those will be at margins better than what we saw kind of 18, 24, 36 months ago, those are still lower than our aftermarket more run rate work. And secondarily, on the FPD slide, that backlog is actually right now skewed more towards project work or OE work than aftermarket. That backlog is about 300 basis points more OE this year at this time than it was last year, so that's the other piece of the project mix that we're looking at. Thank you. Thank you. We'll go next to Joe Giordorni with T.D. Callan. Morning, guys. Hey Joe, good morning.

Speaker Change: Large project work that we will have available for us in in 2024, and although those will be at margins better than what we saw and then what we saw kind of 18 24 36 months ago, and those are still lower than our than our aftermarket more run rate work and <unk>.

Speaker Change: Secondarily on the FCB side.

Speaker Change: That backlog is actually right now skewed more towards project worker OE work and then aftermarket that that backlog is about 300 basis points more O E. This year and.

Speaker Change: At this time than it was last year. So that's the other piece of project mix that we're looking at.

Speaker Change: Thank you.

Thank you we'll go next to Joe <unk> with <unk>.

Speaker Change: Judy Cowen.

Joe Ritchie: Good morning, guys.

Joe Ritchie: Hey, Joe Good morning.

Joe Ritchie: Hey, Doug.

Joe Ritchie: On LNG, obviously, a lot going on with what the president has been saying about LNG exports and things like that is that globally fungible do you guys like you care, where terminals or builds if we do last year is it just going to have to be somewhere else and you'll be there.

Scott Rowe: Hey, on LNG, obviously, there's a lot going on with what the president's been saying about LNG. Is that globally fungible to you guys? Do you care where terminals are built?

Scott Rowe: Yeah, I would say our LNG work is more outside of the U.S. than in the U.S., and so we've got substantial bookings and opportunities in the Middle East. We've got some work on the books for Latin America, and Africa. We've got round two in Canada that we expect, and so I think we still feel good about the outlook for LNG. I won't get into the politics of this, but we think natural gas is an incredible transitional source of energy, and we believe it's going to be a part of the mix for a long time to come.

Speaker Change: Yes, I would say our LNG work is more outside of the U S than in the U S and so we've got substantial bookings and opportunities in the middle East. We've got some work on the books for Latin America Africa, We've got a round two in Canada that we expect and so I think we still feel good about.

Speaker Change: The outlook of LNG I won't get into the politics of this but we think natural gas is an incredible transition source of energy and we believe it's going to be a part of the mix for a long time to come.

Speaker Change: Yes, I think the U S export permit hold well.

Scott Rowe: You know, I think the U.S. exporting permit hold will potentially have an impact on our kind of 2025 business, but 2024 work in the U.S. has already been funded and already been approved, and so it won't have an impact on what we see in 2024, and we'll continue to migrate more of our products and services into cryogenic applications to support LNG because we're big believers in this over the next 10 to 15 years. On that point about cryo, obviously, the Valen acquisition didn't work out. You bought the technology; you bought R&D from Chart. Where are you with cryogenic kind of pumping applications? Is there more you need?

Speaker Change: Tinsley have an impact on our kind of 2025 business, but 2020 for work in the U S has already been funded and already been approved and so it won't have an impact on what we see in 2024 and will continue to migrate more of our products and services into cryogenic applications to support LNG, because we're big believers in this.

Speaker Change: Over the next 10 to 15 years.

Speaker Change: Just on that point on cryo.

Speaker Change: Obviously the.

Speaker Change: Acquisition didn't work out.

Speaker Change: You bought technology, you bought R&D from chart like where are you with cryo pumping applications is there more you need to do maybe maybe an update there and kind of related to that as well on your three D is there like fundamentally our margins basically the same there is in more established markets for you guys now or is that a GAAP you still need to close yeah.

Scott Rowe: and others. Yeah, I'll answer that one first, because it's easy. The 3D and certainly the energy transition margin expectations are basically in line with the rest of the portfolio. And then back to cryogenic applications, I'd say the valve portfolio is more rounded out than the pumps at this point. And so we've got control valves, we have isolation valves that can all do cryogenic, both LNG and hydrogen.

Speaker Change: I'll answer that one first because it's easy the three D. And then certainly the energy transition margin expectations are basically in line with the rest of the portfolio.

Speaker Change: And the Baxter cryogenic applications I'd say about portfolio is more rounded out then the pumps at this point and so we've got control valves, we of isolation valves that can all do cryogenic both LNG and hydrogen there are there are opportunities, though to grow that pretty substantially and what we liked about <unk>.

Scott Rowe: There are opportunities, though, to grow that pretty substantially, and what we liked about Volant is that they were better positioned with some of their technology and products than we were. And so continued M&A work on expanding that cryogenic portfolio and valves will continue to happen in 2024 and beyond. And then on the pump side, we've got two things. The acquisition that we did with Chart was really around hydrogen distribution, but we can take that technology and know-how and apply it to LNG and cryogenic applications. So we're in the very late stages of developing a full cryogenic pump offering. And what we really like about that is it can be used for liquefaction, transportation, and in the regas application. And so certainly by mid-year, late-year, we'll have a full cryogenic pumping solution that will serve as it can be potentially used in LNG but potentially used in hydrogen as well. Thanks guys.

Speaker Change: One is they were better positioned with some of their technology and products than we were in so continued M&A work on expanding that cryogenic portfolio in valves will continue to happen in 2024 and beyond.

Speaker Change: And then on the pump side, we've got kind of two things the acquisition that we did with chart was really around hydrogen distribution, but we can take that technology and knowhow in playing into LNG and cryogenic applications and so we're in the very late stages of developing a full cryogenic pump offering.

Speaker Change: And that what we really like about that is it can be used for liquefaction transfer transformation or transportation and into the re gas application and so by the certainly by kind of mid year late year, we'll have a full kind of cryogenic pumping solution.

Speaker Change: That will serve as it can be potentially used to know it well we used the analogy, but potentially used in hydrogen as well.

Speaker Change: Thanks, guys.

Scott Rowe: Thank you. We'll go next to Deane Dray with RBC Capital. Thank you. Good morning, everyone. What did he do?

Speaker Change: Thank you we'll go next to Deane dray with RBC capital markets.

Deane Dray: Thank you and good morning, everyone.

Deane Dray: Good morning.

Deane Dray: I'd like to circle back on the comments regarding the mix of bookings this quarter really interesting that no big orders, which kind of gives you a strong sense of the underlying demand that you're seeing but I'd love to hear some commentary you called out both some some project delays as well as <unk>.

Scott Rowe: I'd like to circle back on the comments regarding the mix of bookings this quarter. It's really interesting that there were no big orders, which kind of gives you a strong sense of the underlying demand that you're seeing. But I'd love to hear some commentary. You called out both some project delays as well as selectivity. Can you just kind of give us a directionally how much of an impact the delays had versus selectivity and maybe just, you know, I don't know if there were any other factors that would have kept the larger orders to a minimum, just, you know, size for us. Yeah, so in Q4, we had visibility that let's call it two or three awards, more on the pump side than the valve side, that did get delayed.

Deane Dray: All activity.

Deane Dray: Can you just kind of give us directionally, how much of an impact where the delays.

Deane Dray: Versus selectivity.

Deane Dray: Maybe just.

Deane Dray: If there's any other factors that would have kept the larger orders to them.

Deane Dray: Hmm this quarter, but just size for us the impact of each.

Deane Dray: Yeah. So in Q4, we had visibility to let's call. It two years or three awards more on the pump side than the valve side that did get delayed.

Scott Rowe: And some of that was delayed into Q1, and some of it is going to be delayed till probably the back half of the year. And as you know, you've followed our business for a long time, there are lots of reasons for delays; project timing is incredibly hard to predict. But what I would say is, you know, those opportunities did not get canceled, they didn't get turned off.

Deane Dray: And some of that was delayed into Q1 and some of it is going to be delayed until probably the back half of the year and as you know you followed our business a long time, there's lots of reasons for delays project timing is incredibly hard to predict but what I would say is those opportunities did not get canceled they didn't get turned off.

Scott Rowe: You know, they might be slightly smaller, a little bit different than what we anticipated, but we're confident that they will go forward in 2024. And we're also confident, given the selectivity, that those will deliver the margins that we deserve as we go forward. And then I just say, you know, on the selectivity side and turning things off, I think that was a trend predominantly throughout the whole year; there wasn't anything major that we kind of missed out on in Q4. It's more about just putting the right resources up front and doing the work that's required to prepare for these large tenders. And so when something comes out, you know, we pull in the entire team. There's usually, you know, anywhere from 10 to 30 people that are working on these.

Deane Dray: There might be slightly smaller a little bit different than what we anticipated, but we're confident that they go forward in 2024, and we're also confident given the selectivity that those will deliver the margins that we that we deserve as we go forward and then I'd just say on the.

Deane Dray: That's the selectivity side and turning things off I think that was a trend predominantly throughout the whole year. There wasn't something majors that we kind of missed out on in Q4. It's.

Deane Dray: It's more about just putting the right resources upfront and doing the work that's required to to prepare for these large tenders and so when something comes out.

Deane Dray: We're pulling the entire team there is usually anywhere from 10 to 30 people that are working on these.

Scott Rowe: And we've just been really selective at the front end in directing our resources to things that we think make more sense economically and can support that customer through the lifecycle of their asset. So I'd say the Q4 was probably more a little bit of a slip than being selective. But again, we feel really good about what we're seeing in 2024 on the project. That's great color.

Deane Dray: Just been really selective at the front end and directing our resources to things that we think make more sense economically and can support that customer through the lifecycle of their asset. So I'd say that Q4 was probably more a little bit of slip out then being selective.

Deane Dray: But again, we feel really good about what we're seeing in 2024 of the projects.

Speaker Change: That's great.

Amy B. Schwetz: And just what's the balancing act that you have to do when, you know, the higher you ratchet up selectivity, then, you know, the downside is you miss kind of building the installed base and your ability to capture aftermarket. And, and look, the winner's curse on these bigger deals is that there's margin pressure. So, there is a balancing act, but maybe you can just share with us some of the mechanic

Speaker Change: Great color and just what's the balancing act that you have to do when you know the higher you ratchet up selectivity than you know the downside is you missed kind of building the installed base and your ability to capture aftermarket.

Speaker Change: And look that the winners curse on these bigger deals is that there's margin pressure so yeah.

Speaker Change: There is a balancing act, but maybe you can just share with us some of them like cat [laughter].

Scott Rowe: It is a delicate balancing act, Deane, and I'll just say, you know, between Amy and myself and Lamar Duhon, who leads our pumps division, that's probably the single biggest topic that we have with him and his team, and it's not easy because we do know that when you get the installed base, it's pulling our seal business through, it's pulling parts through, it's pulling service through. And so we are actively, you know, we're actively pursuing an installed base. At the same time, we're now modeling that out and looking at it on a returns basis, and so we can more accurately predict, like, is that customer going to give us the aftermarket, or will they go out and bid some of that aftermarket? And so we can kind of model in, you know, what that probability of success looks like in the aftermarket and make much better decisions about where we'll populate the installed base and where we won't.

Speaker Change: It is a delicate balance the idea and it I'll just say between <unk> and myself and Lamar Dupont, who leads our pumps division Thats, probably the single biggest topic that we have with him and his team in and it's not easy because we do know when you get the installed base, it's pulling our seal business through its pulling parts through its pulling service through and so we are actively.

Speaker Change: We're actively pursuing installed base at the same time, we are now modeling that out and looking at it on a returns basis and so we can more accurately predict like is that customer going to give us the aftermarket or do they go out and bid some of that aftermarket and so we can kind of model in you know what that <unk>.

Speaker Change: The ability of success looks like on the aftermarket and make much better decisions about where we will populate the installed base and where we wont and so I'd say, we've improved dramatically in the last year about what we should pursue and where we shouldn't but continuing to have a robust installed base and continuing to drive aftermarket.

Scott Rowe: And so I'd say, you know, we've improved dramatically in the last year about what we should pursue and where we shouldn't, but, you know, continuing to have a robust installed base and continuing to drive aftermarket support is important. And then the other thing I would say is, you know, we're also now with our aftermarket franchise and, you know, some of our business processes there that continue to improve speed and win, we're starting to win aftermarket work for third-party equipment, and so that's something we steered away from probably four or five years ago. We're not openly going out and targeting our competitors in the aftermarket, but with our presence there, with our ability to drive speed and serve our customers in a timely manner, we're starting to see more and more work on stuff that's not necessarily our original equipment.

Speaker Change: <unk> is important and then the other thing I would say is we're also now with our aftermarket franchise and some of our business processes. There that continued to improve on speed and winning we're starting to win aftermarket work for third party equipment, and so thats something we steered away from probably four or five years ago, we're not.

Speaker Change: Openly going out and targeting our competitive aftermarket, but with our presence there with our ability to drive speed and serve our customers in a timely manner, we're starting to see more and more work on stuff, that's not necessarily our original equipment.

Speaker Change: And I might just put it put an exclamation point on that from a portfolio perspective, because we've committed to long term targets in terms of in terms of both revenue growth and margin expansion and what we're trying to do is expand our installed base within the constraints.

Speaker Change: And that margin expansion and volume growth paradigm. So I think as Scott pointed out we're in a better position than we've ever been and could do that but as you can imagine it's a finance person I absolutely loved the after aftermarket capture rate strategy and trying to be more aggressive about going.

Amy B. Schwetz: And I might just put an exclamation point on that from a portfolio perspective, because we've committed to long-term targets in terms of both revenue growth and margin expansion, and what we're trying to do is expand our installed base within the constraints of that margin expansion and volume growth paradigm. So I think, as Scott pointed out, we're in a better position than we've ever been to do that, but as you can imagine, as a finance person, I absolutely love the aftermarket capture rate strategy and trying to be more aggressive about going after that higher-margin business. All right, I appreciate all that insight.

Speaker Change: After that higher margin business.

Speaker Change: Alright, I appreciate all that insight and just one other question and its for Amy that's really impressive free cash flow this quarter.

Speaker Change: Just where do you stand now on the whole releasing of buffer inventory.

Amy B. Schwetz: And just one other question, and this is for Amy, that's really impressive free cash flow this quarter. Where do you stand now on the whole release of buffer inventory? You gave lots of specifics about how much of each of the components of working capital improved. I'd be interested in hearing a bit more about what we're seeing on these releases of buffer inventory now that the supply chain is normalizing. So how much more do you have?

Amy B. Schwetz: You gave lots of specifics about how much of each of the components of working capital improved I'd be interested in hearing a bit more about what we're seeing on these releases of buffer inventory now with the supply chain is normalizing. So how much more do you have to go there.

Speaker Change: Yeah. So I'll start I think that 2024 from a working capital perspective was with the journey and we saw collections throughout 2024 or.

Amy B. Schwetz: So, I'll start. I think that 2024, from a working capital perspective, was a journey. We saw collections throughout 2024, or 2023, be quite strong. We were pleased with the way the organization collaborated with them to make sure that we got those where we wanted them to be. And really, in the third and fourth quarters, we had an opportunity to set ourselves up for inventory reduction by the end of the year, and that was partially sales volume, partially our planning processes getting better. If I were to put this in baseball terms, I think we're still in, call it, the fourth inning of inventory reduction. I think we can continue to get smarter with that, and our planning and our improvement of planning processes are really playing a key role in that.

Speaker Change: Our 2023 excuse me be quite strong we were we were pleased with the way the organization collaborated with that to make sure that we got those where we wanted them to be and really the third and the fourth quarter, we had an opportunity to set ourselves up for inventory reduction.

Speaker Change: Bye bye the ended the year and that was partially sales volume, partially our planning processes.

Speaker Change: Getting getting better if I were to put this in baseball terms I think we're still in the call. It the fourth.

Speaker Change: With any of the inventory reduction I think we can continue to get smarter with that in our planning.

Speaker Change: And our improvement of planning processes is really playing a key role in that I think we're going to continue to make progress on that within 2024, but we've made it clear to the organization that we've also committed to growth and so we have to be very smart about how we reduce that inventory over time.

Speaker Change: And where and how we do that so I feel like we're striking the right balance, but and that we're gonna March methodically towards that 25% to 27%.

Amy B. Schwetz: I think we're going to continue to make progress on that within 2024, but we've made it clear to the organization that we've also committed to growth, and so we have to be very smart about how we reduce that inventory over time and where and how we do that. So, I feel like we're striking the right balance, but we're going to march methodically towards that 25 to 27 percent working capital target. Thank you. Thank you. We'll go next to Sari Boroditsky with Jeffrey. Hi there, this is James from First Theory.

Speaker Change: Working capital targets.

Speaker Change: Thank you.

Speaker Change: Thank you we'll go next to saree <unk> with Jefferies.

Speaker Change: Hi, there this is James on for Serge Thanks for taking questions.

James: So I just wanted to kind of go back on the margins in the backlogs. So I think you said the margins are coming in at higher levels, but I think you said the orders are still not at the 2019 margin levels, So where does that stand now and what is the missing gap here since the demand seems strong thank.

James: Thanks for taking the time. So I just wanted to kind of go back on the margins in the backlogs. So I think you said the margins are coming in at higher levels, but I think you said the orders are still not at the 2019 margin levels. So where does that stand now? And what is the missing gap here since demand?

Speaker Change: Thank you.

Speaker Change: So I would I would probably stop short of saying that we're not at 2019 margin levels yet in in backlog I think along the way, we're making progress from an operational excellence standpoint, we're working smarter.

And at our facilities and frankly, we're playing in different markets than we did in 2019 as we look at that as we look at the growth at those at those three D and an energy transition transmission market. So I, certainly think that and that the margins in backlog today are a tailwind for us.

Amy B. Schwetz: So I would probably stop short of saying that we're not at 2019 margin levels yet in backlog. But I think along the way, we're making progress from an operational excellence standpoint. We're working smarter at our facilities.

Amy B. Schwetz: And frankly, we're playing in different markets than we did in 2019 as we look at the growth of those 3D and energy transition markets. So I certainly think that the margins in backlog today are a tailwind for us going into 2024. But we're going to continue to do the things that we need to do to improve that as we convert backlog into revenue. And that's really around making the most of these structural cost savings that we have in place and embedding operational excellence into each and every one of our facilities and processes. And then really ramping up our activities with respect to product management and using that as a lever. I think that will become a lever more in the back half of 2024 than it is in the front half.

Speaker Change: And going into 2024, but we're going to continue to do the things that we need to do to.

Speaker Change: Two to improve that as we convert backlog into revenue and that's really around making the most of these structural cost savings that we have in place and embedding operational excellence.

Speaker Change: And to each and every one of our facilities and processes and then really ramping up our activities with respect to product management and using that as a lever I think that becomes a lever more in the back half of 2024 than it is in the front half, but I expect that to be an area that we can.

Amy B. Schwetz: But I expect that to be an area that we continue to progress and build momentum as we make our way through the year. Thanks for the call, and I kind of wanted to ask about the FCD. I think the margins here expanded nicely and kind of reached the long-term target of the sector. So can you kind of talk about the drivers here, kind of add more color here, and how should we think about the margin for equity? FCD's been a great story from a margin expansion standpoint in 2023. And how they ended the year was actually right in line with what our expectations were for them in 2023.

Speaker Change: <unk> for grass and build momentum as we make our way through through the year.

Speaker Change: Got it thanks for the color.

Speaker Change: I kind of wanted to ask on the FCB I think the margins expanded nicely on kind of reached a long term target of the segment. So can you kind of talk about the drivers here.

Speaker Change: More color here and how should we think about the margin for a city going into 2024. Thank.

Speaker Change: Thank you.

Speaker Change: Yeah FCB has been it's been a great story from a from a margin expansion standpoint in 2023 and how they ended the year with actually right in line with what our expectations were for them in in 2023, I think as we move into 2024 well.

Amy B. Schwetz: I think as we move into 2024, we'll see that moderate a bit with volume in the first quarter of the year and continue to make their way up sequentially again. The real headwind that FCD is going to have in 2024 is around MIPS in that they are now more focused in their backlog toward projects versus aftermarket. There's about a 300 basis point shift there in terms of the makeup of backlog. So that aftermarket strength we talked about in MIPS is really occurring on the FPD side. So I would imagine that initially, during 2024, we'll see that margin expansion more on the FPD side than on FCD. Yeah, and I just add overall on margins. You know, we had communicated earlier in the year that we were striving to get to 30% gross margins for the portfolio.

Speaker Change: See that moderate a bit with volume.

Speaker Change: In in the first quarter of the year and continue to make their way up sequentially again that the real headwind that that F. C. D is going to have in.

Speaker Change: In in 'twenty and 2024 is around is around mix and in that they are now more focused in their backlog tour towards project versus versus aftermarket. There was about a 300 basis point shift there in terms of the makeup of backlog so that aftermarket strength and we.

Speaker Change: We talk about in mix is really occurring on the PD side. So I would imagine that initially during during 2024, we will see that margin expansion more on the F. P D side than on SCD.

Speaker Change: Yeah, and I'd just add overall on margins, we had communicated earlier in the year that we are striving to get to 30% gross margins for the portfolio, we did that a little bit earlier than we expected and so we feel really good about that margin trajectory as we go forward and as Amy said, it's going to come more on the pump side in 2024, then on the FCB side.

Amy B. Schwetz: We did that a little bit earlier than we expected, and so we feel really good about that margin projection as we go forward. And as Amy said, it's going to come more on the pump side in 2024 than on the FCD side. But we still see nice progression forward and are very much on the trajectory alignment toward our 2027 goal. Thank you. That will conclude our Q&A portion, and it also will conclude Flowserve Corporation's fourth quarter.

Speaker Change: But we still see nice progression forward and very much on the trajectory of alignment toward our 2027 goals.

Speaker Change: Great. Thank you.

Speaker Change: Yes.

Speaker Change: Thank you that will conclude our Q&A portion and it also will conclude the <unk> Corporation fourth quarter 2023 Conference call you may now disconnect.

Speaker Change: Okay.

Speaker Change: Okay.

Speaker Change: [music].

Speaker Change: Yeah.

Speaker Change: Yeah.

Speaker Change: [music].

Speaker Change: <unk>.

Speaker Change: [music].

Speaker Change: Yes.

Speaker Change: Okay.

Speaker Change: Okay.

Speaker Change: Okay.

Operator: .. , and now......

Okay.