Q1 2024 Flowserve Corp Earnings Call

Operator: Please stand by; we are about to begin. Good day and welcome to the first quarter 2024 Flowserve Corporation earnings conference call. Today's conference is being recorded. At this time, I would like to turn the conference over to Mr. Jay Roosh, Vice President, Treasurer, and Investor Relations. Please go ahead, sir.

Please standby we're about to begin.

Jay Roosh: Good day and welcome to the first quarter 'twenty 'twenty four flow serve Corporation earnings Conference call Today's conference is being recorded.

At this time I would like to turn the conference over to Mr. Jay Ruche, Vice President Treasurer, and Investor Relations. Please go ahead Sir.

Jay Roosh: Thank you, Jess, and good morning, everyone. We appreciate you joining our call today to discuss Flowserve's first quarter 2024 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 to your questions. As a reminder, this event is being webcast and an audio replay will be available. Please note that our earnings materials due in this call will include non-GAAP measures and contain forward-looking statements.

Jay Ruche: Thank you Jess and good morning, everyone. We appreciate you joining our call today to discuss flow service first quarter 2020 for financial results on.

Jay Roosh: On the call with me today are Scott Rowe, President and Chief Executive Officer, and mainly Schwartz Senior Vice President and Chief Financial Officer.

Jay Roosh: Oh in her prepared comments, we will open the call for your questions.

Jay Roosh: As a reminder, this event is being webcast and audio replay will be available.

Jay Roosh: Please note that our earnings materials do and this call will include non-GAAP measures.

Jay Roosh: Forward looking statements. These.

Jay Roosh: These statements are based upon forecasts, expectations, and other information available to management as of April 30th, 2024, and they involve risks and uncertainties, many of which are beyond the company's control. 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 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.

Jay Roosh: These statements are based upon forecasts expectations and other information available to management as of April 32024, and they involve risks and uncertainties many of which are beyond the company's control.

Jay Ruche: 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 and earnings presentation and are accessible on our website in the investors section.

Jay Roosh: I would now like to turn the call over to Scott Rowe, <unk>, President and Chief Executive Officer.

Robert Scott Rowe: Heard comments.

Robert Scott Rowe: Thanks, Jay, and good morning. We are extremely pleased with our first quarter results, marking a very strong start to the year. We continued to drive improvements in the business and outperformed our own expectations in the court. Given this excellent start to the year, we have increased our full year adjusted EPS guidance range to $2.50 to $2.70, which at the midpoint is nearly a 24% increase year over year.

Robert Scott Rowe: Thanks, Jay and good morning, we are extremely pleased with our first quarter results, marking a very strong start to the year. We continued to drive improvements in the business and outperformed our own expectations in the quarter.

Robert Scott Rowe: Given the excellent start to the year, we have increased our full year adjusted EPS guidance range to $2 50 to $2 70.

Robert Scott Rowe: Which at the mid point is nearly a 24% increase year over year.

Robert Scott Rowe: Flowserve is building on the solid momentum established over the last 18 months, driven by the implementation of our new operating model, improved execution, and delivering on our ongoing 3D strategy. While we have made tremendous progress over the period, we believe there is more room for improvement, and we remain committed to our 2027 financial targets that we presented last year. Before I get into the results, I would like to thank our associates around the world that share my passion for providing flow control solutions to our customers every day of the year. Thank you for what you're doing to make Flowserve such a great company.

Robert Scott Rowe: Most of US building on our solid momentum established over the last 18 months driven by the implementation of our new operating model improved execution and delivering on our ongoing <unk> strategy.

Robert Scott Rowe: While we have made tremendous progress over the period, we believe there is more room for improvement and.

Robert Scott Rowe: And we remain committed to our 2027 financial targets that we presented last year.

Robert Scott Rowe: Before I get into the results I would like to thank our associates around the world that share my passion for providing full control solutions to our customers every day of the year.

Robert Scott Rowe: For what Youre doing to make flow serve such a great company.

Robert Scott Rowe: Looking at our first quarter results in detail, we delivered strong adjusted earnings per share of 58 cents, a 45% increase over the first quarter of 2023. The progress we have made in Operational Excellence drove our outsized results this quarter. We generated almost $1.1 billion in revenue, which represents a nearly 11% increase year over year. Our 31.7% adjusted gross margin exceeded our expectations and gives us confidence in our margin progression journey. Our adjusted operating income margin of 10.9% was a 260 basis point increase year over year.

Robert Scott Rowe: Looking at our first quarter results in detail, we delivered strong adjusted earnings per share of <unk> 58.

Robert Scott Rowe: 45% increase over the first quarter of 2023, the progress we have made in operational excellence drove our outsized results this quarter with.

Robert Scott Rowe: We generated almost $1 $1 billion in revenue, which represents a nearly 11% increase year over year.

Robert Scott Rowe: Our 31, 7% adjusted gross margin exceeded our expectations and gives us confidence in our margin progression journey.

Robert Scott Rowe: Our adjusted operating income margin of 10, 9% was a 260 basis point increase year over year.

Robert Scott Rowe: These strong results are notable considering that the first quarter historically tends to be more seasonally challenged. We have made significant progress improving our results and delivering a more consistent performance on a quarterly basis. The changes we implemented in the organizational design process have taken hold and are providing enhanced speed, improved decision making, and further accountability within our seven businesses. Additionally, our Operational Excellence Program is gaining traction. We have now trained over 1,100 associates in our enhanced operating model, focused on shop floor daily management, problem solving, and material planning.

Robert Scott Rowe: These strong results are notable considering that the first quarter historically tends to be more seasonally seasonally challenged.

Robert Scott Rowe: We have made significant progress improving our results and delivering a more consistent performance on a quarterly basis.

Robert Scott Rowe: The changes we implemented in the organizational design process have taken hold and are providing enhanced speed improved decision, making and further accountability within our seven business units.

Robert Scott Rowe: Additionally, our operational excellence program is gaining traction we have now trained over 1100 associates in our enhanced operating model focused on shop floor daily management problem solving in material planning.

Robert Scott Rowe: The operational improvements that we are seeing today are directly linked to our ability to operate more productively and eliminate waste and inefficiency in our manufacturing process. We are excited about the progress within our Operational Excellence Program, and we have clear visibility to further improve. Additionally, as we improve our core operations, we're finding more opportunities to consolidate our global footprint and leverage the scale inherent in our business. We have also made good progress with our product management organization and process, as we have now fully defined our program and our approach.

Robert Scott Rowe: The operational improvements that we're seeing today are directly linked to our ability to operate more productively and eliminate waste and inefficiency in our manufacturing processes.

Robert Scott Rowe: We're excited about the progress within our operational excellence program and we have clear visibility to further improvements.

Robert Scott Rowe: Additionally, as we improve our core operations, we are finding more opportunities to consolidate our global footprint and leverage the scale inherent in our business.

Robert Scott Rowe: We have also made good progress with our product management organization and processes.

Robert Scott Rowe: As we have now fully defined our program and our approach.

Robert Scott Rowe: We are largely at the beginning of the product management journey, but we can already see the potential with our dedicated teams and improved focus. As we advance the product and portfolio initiatives, we believe we will begin seeing the benefits of these efforts in the second half of this year and into 2025. Overall, we are very pleased with the progress we are making and continue to believe that operational excellence, as well as product management and portfolio optimization, can each deliver the 100 to 200 basis points of margin improvement by 2027 that we communicated at last year's Investor Day event.

Robert Scott Rowe: We are largely at the beginning of the product means that journey, but we can already see the potential with our dedicated teams and improved focus.

Robert Scott Rowe: As we advanced the product and portfolio initiatives. We believe we will begin seeing the benefits of these efforts in the back half of this year and into 2025.

Robert Scott Rowe: Overall, we are very pleased with the progress, we're making and continue to believe that operational excellence as well as product management and portfolio optimization can each deliver the 100 to 200 basis points of margin improvement by 2027 that we communicated at last year's Investor Day event.

Robert Scott Rowe: Turning now to our Bookings and Market Outlook. In the first quarter, our markets remained constructive, and we delivered solid bookings of $1.04 billion across all indices. 3D bookings represented nearly 30% of the total, and we expect our growth strategy to continue to generate significant opportunities going forward. However, similar to the fourth quarter of 2023, our bookings in the first quarter did not include any large projects. Our largest award was around $12 million, but we did see a modest number of smaller projects in the $5 to $10 million range.

Robert Scott Rowe: Turning now to our bookings and market outlook.

Robert Scott Rowe: In the first quarter, our markets remain constructive and we delivered solid bookings of 1.04 billion across all industries.

Robert Scott Rowe: The bookings represented nearly 30% of the total and we expect our growth strategy to continue to generate significant opportunities going forward.

Robert Scott Rowe: Similar to the fourth quarter of 2023, our bookings in the first quarter did not include any large projects, our largest award was around $12 million, but.

Robert Scott Rowe: But we did see a modest number of smaller projects in the $5 million to $10 million range.

Robert Scott Rowe: We were pleased to achieve our ninth consecutive quarter with bookings over $1 billion, considering the first quarter was driven primarily by our core business of aftermarket, MRO, and short cycle activity. This core business remained very healthy in the quarter as customers continued to spend money to support higher facility utilization and avoid unplanned downtime with their operations. We are seeing these elevated trends across most of our in-market markets. Aftermarket generated more than $575 million in book... roughly a $25 million increase sequentially and year over year.

Robert Scott Rowe: We were pleased to achieve our ninth consecutive quarter with bookings over $1 billion.

Robert Scott Rowe: Considering the first quarter was driven primarily by our core business of aftermarket MRO and short cycle activities.

Robert Scott Rowe: This core business remained very healthy in the quarter as customers continued to spend money to support higher facility utilization and avoid unplanned downtime with their operations.

Robert Scott Rowe: We are seeing these elevated trends across most of our end markets.

Robert Scott Rowe: Aftermarket generated more than $575 million in bookings roughly at $25 million increase sequentially and year over year.

Robert Scott Rowe: Highlighting the continued demand from customers to keep their assets running and productive, we have now delivered over $550 million in aftermarket bookings for six quarters in a row. Our global network of quick response centers, combined with our commitment to serve customers with speed and high levels of service, continues to ensure our aftermarket franchise remains a competitive advantage. While project bookings were comparatively light in the quarter, we recently announced two large project awards in April that together exceeded $150 million.

Robert Scott Rowe: Further highlighting the continued demand from customers to keep their assets running and productive.

Robert Scott Rowe: We've now delivered six quarters in a row over $550 million in aftermarket bookings.

Robert Scott Rowe: Our global network of quick response centers combined with our commitment to serve customers with speed and high levels of service continues to ensure our aftermarket franchise remains a competitive advantage.

Robert Scott Rowe: While project bookings were comparatively light in the quarter, We recently announced two large project awards in April that together exceeded $150 million.

Robert Scott Rowe: The awards support the aggressive capital buildout in Saudi Arabia for phase two of the Jafra gas production facility and the Amaral Greenfield Petrochemical Facility. We have extensive experience in the Middle East and have strong, longstanding relationships with these EPC customers and users. Additionally, both of these projects will have significant aftermarket entitlements for mechanical seals, pump parts, and servicing that we are fully prepared to capture given our local presence and strong customer relationships.

Robert Scott Rowe: The awards support the aggressive capital build out in Saudi Arabia for phase two of the deferred gas production facility in the Amarelle Greenfield petrochemical facilities.

Robert Scott Rowe: We have extensive experience in the middle East and have strong longstanding relationships with these EPC customers and the end user.

Robert Scott Rowe: Additionally, both of these projects will have significant aftermarket entitlement with mechanical seals pump parts and services that we are fully prepared to capture given our local presence and strong customer relationships.

Robert Scott Rowe: Furthermore, we want both of these projects to have a more disciplined, selective bidding process that should deliver better execution and enhanced marginality commensurate with the complexity of this type of work. The value of these awards will be reflected in our second quarter results.

Robert Scott Rowe: Furthermore, we won both of these projects with a more disciplined selective bidding process that should deliver better execution and enhanced marginality commensurate with the complexity of this type of work the value of these awards will be reflected in our second quarter results.

Robert Scott Rowe: Looking now at bookings by end market, our traditional markets remained healthy in the quarter, including oil and gas and chemical. While most of our in markets were comparable in dollar size to last year, we were pleased to deliver 7% growth in our power book. This is an industry that is beginning to look more attractive for post. Power demand in mature markets like Europe and North America has been reasonably flat for several decades.

Robert Scott Rowe: Looking now at bookings by end market, our traditional markets remained healthy in the quarter, including oil and gas and chemicals, while most of our end markets were comparable in size to last year, we were pleased to deliver 7% growth in our power bookings.

Robert Scott Rowe: This is an industry that is beginning to look more attractive proposals.

Robert Scott Rowe: Power demand in mature markets like Europe, and North America has been reasonably flat for several decades power.

Robert Scott Rowe: However, with the ongoing electrification trend and now the substantial growth in data centers to support energy-intensive AI processes, the demand for electricity is projected to grow significantly over the next decade. Flowserve has considerable exposure to the power industry and has generated roughly $450 million per year in traditional energy like coal, natural gas, hydroelectric, and nuclear, where water and thermal management are critical, as well as new forms of power generation, such as concentrated solar power, wind, and hydrogen with advanced flow control equipment.

Robert Scott Rowe: However, with the ongoing electrification trend and now the substantial growth in data centers to support energy intensive AI processing.

Robert Scott Rowe: The demand for electricity is projected to grow significantly over the next decade.

Robert Scott Rowe: <unk> has considerable exposure to the power industry and has generated roughly $450 million per year in traditional energy like coal natural gas hydro electric and nuclear or water and thermal management is critical as well as new forms of power generation, such as concentrated solar power wind and high.

Robert Scott Rowe: <unk> with advanced flow control equipment.

Robert Scott Rowe: We expect there will be a meaningful investment in capacity expansion and new generation in the years to come across all forms of power generation, renewables, hydrocarbon-based, and nuclear power. We are excited about the potential growth in the power sector, and we are well prepared to capitalize on this growth with both new equipment and aftermarket parts and services. As we look ahead, our market outlook remains positive. Our MRO business and aftermarket franchise remains strong, as we expect existing refining, chemical, and power facility utilization will likely continue at high levels for the foreseeable future.

Robert Scott Rowe: We expect there will be a meaningful investment in capacity expansion and new generation in the years to come across all forms of power generation.

Robert Scott Rowe: Renewables hydrocarbon based and nuclear power.

Robert Scott Rowe: We are excited about the peninsula the potential growth in the power sector, and we are well prepared to capitalize on this growth with both new equipment and aftermarket parts and services.

Robert Scott Rowe: As we look ahead, our market outlook remains positive our MRO business and aftermarket franchise remains strong as we expect existing refining chemical and power facility utilization will likely continue at high levels for the foreseeable future.

Robert Scott Rowe: Furthermore, we are encouraged that our 12-month project funnel is up 10% year-over-year, including a 25% increase in both the energy transition and power market. We will continue to remain selective in the larger projects that we pursue to ensure that we can successfully deliver for our customers and drive the appropriate margins for Flowserve over the full life cycle of the project. From a regional perspective, we have continued visibility into project opportunities in the Middle East, as well as Asia Pacific and South America. From an MRO and aftermarket outlook, we're seeing ongoing strength in North America.

Robert Scott Rowe: Furthermore, we are encouraged that our 12 month project funnel is up 10% year over year, including a 25% increase in both the energy transition and power markets.

Robert Scott Rowe: We will continue to remain selective in the larger projects that we pursue to ensure that we can successfully deliver for our customers.

Robert Scott Rowe: And drive the appropriate margins for full serve over the full lifecycle of the project.

Robert Scott Rowe: From a regional perspective, we have continued visibility into project opportunities in the middle East as well as Asia Pacific and South America.

Robert Scott Rowe: From an MRO and aftermarket outlook, we're seeing ongoing strength in North America, and we are beginning to see more positive signals from our European customers.

Robert Scott Rowe: And we're beginning to see more positive signals from our European customers. We believe the macro environment and outlook remain favorable for the flow control space. Like everyone in the industry, we continue to monitor geopolitical unrest that is causing concerns in various parts of the world, but at a high level, we remain optimistic about our overall outlook, and we see positive signals driven by key global megatrends, from energy transition and decarbonization to energy security and regionalization to electrification and power driven in part by AI and data.

Robert Scott Rowe: We believe the macro environment and outlook remains favorable for the flow control space.

Robert Scott Rowe: Like everyone in the industry, we continue to monitor geopolitical unrest that is causing concerns in various parts of the world.

Robert Scott Rowe: At a high level, we remain optimistic about our overall outlook and we see positive signals driven by key global Megatrends from energy transition and decarbonization to energy security and regionalization to electrification and power driven in part from AI and data centers.

Robert Scott Rowe: As we've seen each quarter over the last few years, our book-to-bill ratio will vary quarter-to-quarter, but we continue to expect that our full-year book-to-bill ratio in 2024 will exceed 1.0 and that we'll exit the year with a larger backlog than where we began. This backlog visibility provides support for continued revenue growth into 2025. I will now turn the call over to Amy to address our first quarter Amy? Thank you.

Robert Scott Rowe: As we've seen each quarter over the last few years, our book to Bill ratio will vary quarter to quarter, but we continue to expect that our full year book to bill ratio in 2024 will exceed one plano and that we'll exit the year with a larger backlog than where we began the year is.

Robert Scott Rowe: This backlog visibility provides support for continued revenue growth into 2025, I will now turn the call over to Amy to address our first quarter results in greater detail.

Amy B. Schwetz: Thanks, Scott. And good morning, everyone.

Amy: Thanks, Scott and good morning, everyone. As Scott has outlined we delivered very strong first quarter results and in some cases record performance that continued our positive momentum.

Amy B. Schwetz: As Scott has outlined, we delivered very strong first quarter results, and in some cases, record performance that continued our positive momentum. Driven by strong backlog conversion, margin enhancement, and cost control, as well as by improved working capital efficiency, we generated record operating cash flow for the first quarter at $62 million. We truly appreciate our associates' efforts and dedication, which helps us achieve this positive outcome.

Amy B. Schwetz: Kevin by strong backlog conversion margin enhancement and cost control as well as by improved working capital efficiency. We generated record we generated record operating cash flow for the first quarter at $62 million.

Amy B. Schwetz: We truly appreciate our associates efforts and dedication, which helped us achieve this positive outcome.

Amy B. Schwetz: We also generated the highest sales level for our first quarter in more than 10 years, drove the Adjusted Operating Margin to 10.9%, and delivered adjusted earnings per share of $0.58. Our adjusted operating margin increased another 40 basis points sequentially from the seasonally strong fourth quarter levels, further demonstrating our continued progress towards our long-term financial target. Our reported earnings per share was $0.56, which included only $0.02 of net adjusted expenses, highlighting the quality of our earnings and cash generation this quarter. All together, we are off to a very encouraging start to 2024.

Amy B. Schwetz: We also generated the highest sales level for our first quarter and more than 10 years drove adjusted operating margin to 10, 9% and delivered adjusted earnings per share at <unk> 58.

Amy B. Schwetz: Our adjusted operating margin increased another 40 basis points sequentially from the seasonally strong fourth quarter levels.

Amy B. Schwetz: Further demonstrating our continued progress towards our long term financial targets.

Amy B. Schwetz: Our reported earnings per share was <unk> 56, which included only two of net adjusted expenses highlighting the quality of our earnings and cash generation this quarter.

Amy B. Schwetz: Altogether, we are off to a very encouraging start to 2024.

Amy B. Schwetz: The strength of our first quarter results and positive outlook for the remainder of the year resulted in an increase in our full-year adjusted earnings guidance range to $2.50 to $2.70 per share. At the midpoint, this represents a nearly 24% increase compared to last year. Let me provide some color on the phasing of our guidance for the balance of the year. We have taken steps to smooth the seasonality of the business.

Amy B. Schwetz: The strength of our first quarter results and positive outlook for the remainder of the year resulted in an increase to our full year adjusted earnings guidance range to $2 50 to $2 70 per share.

Amy B. Schwetz: At the midpoint. This represents a nearly 24% increase compared to last year.

Amy B. Schwetz: Let me provide some color on the phasing of our guidance for the balance of the year.

Amy B. Schwetz: We have taken steps to smooth the seasonality of the business.

Amy B. Schwetz: This includes our performance on projects like the first phase of the large deferral project, where we delivered the highest quarterly revenues in the first quarter that we expected from the project of the year, serving to remove some of the large calendar swings in our business. And although we still expect the fourth quarter to be our highest sales and earnings quarter of the year, we expect less differentiation in revenue from the first quarter to the second and third.

Amy B. Schwetz: This includes our performance on projects like the first phase of the large defer a project, where we delivered the highest quarterly revenues in the first quarter that we expect from the project of the year.

Amy B. Schwetz: Serving to remove some of the large calendar swings in our business.

Amy B. Schwetz: And although we still expect the fourth quarter to be our highest sales and earnings quarter of the year, we expect less differentiation in revenue from the first quarter to the second and third.

Amy B. Schwetz: The $150 million plus in project awards we announced last week have the potential to provide some incremental contribution in the fourth quarter. And, as Scott mentioned, our continued progress on operational excellence and product management should also provide opportunities for margin expansion in the second half of the year. Let me now turn to the quarter in greater detail.

Amy B. Schwetz: The $150 million plus the project Awards, we announced last week has potential to provide some income incremental contribution in the fourth quarter and as Scott mentioned, our continued progress on operational excellence and product management should also provide opportunities for margin expansion in the second half of the year.

Amy B. Schwetz: Let me now turn to the quarter in greater detail.

Amy B. Schwetz: With our improved performance, we delivered revenue of $1.1 billion, an 11% increase over the prior year, comprised of FCDs and FPDs growth of 14% and 10%, respectively. We also generated strong top-line growth in both original equipment and aftermarket, with revenue increases of 14% and 8%. We were very pleased to see all regions contribute to our double-digit sales growth with notable year-over-year improvement in the Middle East and Africa, Europe, and North America of 28, 18, and 8 percent, respectively. Now, moving to margins.

Amy B. Schwetz: With our improved performance, we delivered revenue of $1 1 billion.

Amy B. Schwetz: An 11% increase over the prior year comprised of Fcb's, Nf PD growth of 14 and 10% respectively.

Amy B. Schwetz: We also generated strong top line growth in both original equipment and aftermarket with revenue increases of 14% and 8%.

Amy B. Schwetz: We were very pleased to see all regions contributed to our double digit sales growth with notable year over year improvement in the Middle East and Africa, Europe, and North America have 28, 18, and 8% respectively.

Amy B. Schwetz: Shifting to margins, we generated adjusted gross margins at 31, 7% the highest level in four years, and representing 130 basis point increase year over year.

Amy B. Schwetz: We generated adjusted growth margins of 31.7%, the highest level in four years and representing a 130 basis point increase year over year. This margin improvement was driven by our enhanced operating model and ongoing focus on operational equity. We expect this, in combination with our product and portfolio optimization efforts, will expand margins even further as we progress towards our 2027 target level. By segment, we were particularly pleased to see FPD achieve a 32.9% adjusted growth margin, representing a 100 basis point year-over-year improvement, despite significant revenue growth from original equipment.

Amy B. Schwetz: This margin improvement was driven by our enhanced operating model and ongoing focus on operational excellence.

Amy B. Schwetz: We expect this in combination with our product and portfolio optimization efforts will expand margins, even further as we progress towards our 2027 target level.

Amy B. Schwetz: By segment, we were particularly pleased to CFPB realized at 32, 9% adjusted gross margin.

Amy B. Schwetz: Presenting a 100 basis point year over year improvement despite significant revenue growth from original equipment.

Amy B. Schwetz: On a reported basis, the first quarter consolidated gross margins also increased 90 basis points to 31.2%, despite net adjusted items within cost of sales increasing by $4.3 million versus the prior year. First quarter adjusted SG&A increased about $7 million compared to last year to $229 million. Despite this dollar increase, adjusted SG&A as a percent of sales declined by 150 basis points year over year to 21.1%, driven by the strong top line leverage during the quarter and our ongoing cost control efforts. On a reported basis, first quarter SG&A decreased year-over-year by $16 million to $228 million, driven by lower realignment expenses as part of our operating model implementation.

Amy B. Schwetz: On a reported basis the first quarter consolidated gross margins also increased 90 basis points to 31, 2%. Despite net adjusted items within cost of sales increasing by $4 $3 million versus the prior year.

Amy B. Schwetz: First quarter, adjusted SG&A increased about $7 million compared to last year to $229 million.

Amy B. Schwetz: Despite this dollar increase adjusted SG&A as a percentage of sales declined by 150 basis points year over year to 21, 1% driven by the strong top line leverage during the quarter and our ongoing cost control actions.

Amy B. Schwetz: On a reported basis first quarter SG&A decreased year over year by $16 million to $228 million driven by lower realignment expenses as part of our operating model implementation.

Amy B. Schwetz: Our adjusted operating income in the quarter was $118 million, an increase of $37 million year over year, which delivered an adjusted operating margin of 10.9%, a 200 basis point expansion with an incremental margin of 35% year over year. As I noted earlier, this quarter's adjusted operating margin was also 40 basis points higher than what we delivered in the fourth quarter of last year, demonstrating that our improving operating cadence has minimized the sequential top-line reduction.

Amy B. Schwetz: Our adjusted operating income in the quarter was $118 million, an increase of $37 million year over year, which delivered an adjusted operating margin of 10, 9% at 200 basis point expansion with an incremental margin of 35% year over.

Amy B. Schwetz: A year.

Amy B. Schwetz: As I noted earlier this quarter's adjusted operating margin was also a 40 basis point higher than what we delivered in the fourth quarter of last year, demonstrating that our improving operating Cajun cadence has minimized the sequential top line reduction.

Amy B. Schwetz: These results should position us well on our path to our 2027 Adjusted Operating Margin target of 14 to 16 percent. At the segment level, FPV led the way by delivering its highest adjusted operating margin since the formation of this segment in 2019, which at 14.9% marked a 270 basis point year-over-year improvement. FCD also increased its adjusted operating margin by 30 basis points compared to last year. FCD typically has the greatest variance in operating margin between its highest-margin quarter of the year and its lowest, which is largely a result of product.

Amy B. Schwetz: These results should position us well on our path to our 2027% adjusted operating margin target of 14% to 16%.

Amy B. Schwetz: At the segment level Fpv's led the way by delivering its highest adjusted operating margin since the formation of this segment in 2019, which at 14, 9% marked at 270 basis point year over year improvement.

Amy B. Schwetz: FCB also increased its adjusted operating margin by 30 basis points compared to last year.

Amy B. Schwetz: FCB typically has the greatest variance in operating margin between its highest margin quarter of the year and its lowest which is largely a result of product mix.

Amy B. Schwetz: In the first quarter, this weighed on FCD's margin, and it will likely continue to do so in the second quarter, but we expect to see significant margin improvement in FCD's adjusted operating margin during the latter half of the year. On a reported basis, first quarter operating margins increased significantly, some 460 basis points year over year, to 10.4%, benefiting from the $19 million reduction in adjusted items, as well as realized margins within our FPD and FCD segments.

Amy B. Schwetz: In the first quarter. This weighed on FCB margin and it will likely continue to do so in the second quarter, but we expect to see significant margin improvement in Fcb's adjusted operating margin during the latter half of the year.

Amy B. Schwetz: On a reported basis first quarter operating margins increased significantly some 460 basis points year over year to 10, 4%.

Amy B. Schwetz: Benefiting from the $19 million reduction in adjusted items as well as realized margins within our FPV and SCV segments.

Amy B. Schwetz: Operating leverage further contributed to the improvement. Our first quarter reported and adjusted tax rates were approximately 20.5%, and right in line with our full year tax rate guidance of roughly 20%. Our ETR in 2024 is expected to be higher than a year ago when we saw the release of discrete valuation allowances in certain jurisdictions.

Amy B. Schwetz: Operating leverage further contributed to the improvement.

Amy B. Schwetz: Our first quarter reported and adjusted tax rates were approximately 25% and right in line with our full year tax rate guidance of roughly 20%.

Amy B. Schwetz: Our ETR in 2024 is expected to be higher than a year ago. When we saw the release of discrete valuation allowances in certain jurisdictions.

Amy B. Schwetz: Turning now to cash flow, we delivered a first quarter record with operating cash flow of $62 million, driven by earnings growth and improved primary working capital as a percentage of sales. Our cash conversion cycle accelerated by approximately 13 days compared to the first quarter of 2023. As a percent of sales, we improved our first quarter adjusted primary working capital by approximately 440 basis points to 28.4%. After experiencing higher working capital needs for much of the last 18 months, we are pleased to continue reducing our working capital investment as a percent of sales closer to our target of 25 to 27 percent as our planning capabilities improve and supply chains and lead times further normalize.

Amy B. Schwetz: Turning now to cash flow, we delivered a first quarter record with operating cash flow of $62 million driven by earnings growth and improved primary working capital as a percentage of sales.

Amy B. Schwetz: Our cash conversion cycle accelerated by approximately 13 days compared to the first quarter of 2023.

Amy B. Schwetz: As a percent of sales we improved our first quarter adjusted primary working capital by approximately 440 basis points to 28, 4%.

Amy B. Schwetz: After experiencing higher working capital needs for much of the last 18 months. We are pleased to continue reducing our working capital investment as a percent of sales closer to our target of 25% to 27% as our planning capabilities improve and supply chains and lead times further normally.

Amy B. Schwetz: Capital expenditures were $14 million during the quarter, which when subtracted from operating cash flow, also brought free cash flow to a first quarter record of $49 million. The first quarter also saw uses of cash of $28 million for dividends following our 5% increase in the quarterly dividends and a $15 million term loan reduction.

Amy B. Schwetz: <unk>.

Amy B. Schwetz: Capital expenditures were $14 million during the quarter, which when subtracted from operating cash flow also free cash flow to a first quarter record at $49 million.

Amy B. Schwetz: The first quarter also saw uses of cash of $28 million for dividends following our 5% increase in the quarterly dividend.

Amy B. Schwetz: And a $15 million term loan reduction.

Amy B. Schwetz: We also restarted our share repurchase program this quarter for the first time since 2021 as we begin to deliver on our capital allocation commitment from 2023 Investor Day of buying back at least a sufficient number of our shares annually to offset equity compensation dilution. As we look to other potential uses of cash in the year, the opportunities in our inorganic pipeline continue to be very robust. We remain interested in targets that drive long-term returns by further accelerating our 3D strategy, providing opportunities to leverage our scale, and allow for effective integration with our broader business while meeting our financial criteria, namely, the expected returns must exceed our average cost of capital, as well as margin and cash EPS accretive.

Amy B. Schwetz: We also restarted our share repurchase program this quarter for the first time since 2021 as we begin to deliver on our capital allocation commitment from the 2023 Investor day of buying back at least a sufficient number of our shares annually to offset equity compensation dilution.

Amy B. Schwetz: As we look to other potential uses of cash in the year the opportunities and our inorganic pipeline continue to be very robust.

Amy B. Schwetz: We remain interested in targets that drive long term returns by further accelerating our <unk> strategy, providing opportunities to leverage our scale and allow for effective integration with our broader business, while meeting our financial criteria, namely the expected returns must exceed our average cost of capital.

Amy B. Schwetz: As well as the margin and cash EPS accretive.

Amy B. Schwetz: While we are actively looking at several opportunities currently, we will maintain our discipline. When considering the strategic use of capital, our enduring framework is to continue to direct investment dollars to the highest long-term return option, regardless of the alternative. In closing, we are proud of the results we delivered this quarter. We see opportunity for continued margin improvement and earnings per share growth moving forward, and we are intently focused on achieving those objectives. Let me return the call to Scott now. Great. Thank you, Amy.

Amy B. Schwetz: We are actively looking at several opportunities currently we will maintain our discipline.

Scott: When considering the strategic use of capital our enduring framework and to continue to direct investment dollars to the highest long term return option regardless of the alternatives.

Scott: In closing we are proud of the results. We delivered this quarter, we see opportunity for continued margin improvement and earnings per share growth moving forward and we are intently focused on achieving those objectives.

Scott: We now return the call to Scott Great. Thank you Amy.

Robert Scott Rowe: Let me now offer a few comments on our 3D strategy. We remain committed to further diversifying the portfolio into attractive markets, especially chemical and water, to support existing customers in their energy transition initiatives, as well as participating in new energy technologies like hydrogen. We have made significant inroads with our 3D strategy, and we believe that it will continue to drive outsized results in the current environment. While we are well suited to serve our customer base today, we are continuing to invest in our product and service offerings, including through potential inorganic opportunities that further build out the portfolio to support these diverse markets and the new emerging sources of energy. Let me spotlight a few 3D examples from the first quarter.

Scott: Let me now offer a few comments on our <unk> strategy, we remain committed to further diversifying the portfolio into attractive markets like specialty chemical and water and supporting existing customers and their energy transition initiatives as well as participating in new energy technologies like hydrogen we have made significant inroads with our <unk> strategy.

Robert Scott Rowe: We believe that it will continue to drive outsized results in the current environment.

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

Robert Scott Rowe: Let me spotlight a few three examples from the first quarter I'll start with diversified.

Robert Scott Rowe: I'll start with diversity, where our bookings remain very healthy in the first quarter of 2024 as we continue to apply our portfolio in the end markets that present an above average growth profile. During the quarter, we were awarded a contract from a major international chemical company to supply our valve technology for their specialty chemical smart plant of the future located in China. This award brings valve and actuator bookings on this project to over $50 million.

Robert Scott Rowe: Where our bookings remained very healthy in the first quarter of 2024 as we continue to apply our portfolio into end markets represent an above average growth profile.

Robert Scott Rowe: During the quarter, we were awarded a contract from a major international chemical company to supply our valve technology for their special specialty chemical smart plant of the future located in China.

Robert Scott Rowe: This award brings valve and actuator bookings on this project to over $50 million as we've secured frame agreements for control valves and automated ball in plug valves throughout the facilities we.

Robert Scott Rowe: As we've secured frame agreements for control valves in automated ball in plug valves throughout the facility, we utilized our Project Lifecycle Support Program to secure a larger portion of this project, bringing feed support, project management, installation services, and long-term operational support to the customer. This award is just one example of our efforts to further diversify and increase our exposure to the growing specialty chemical market. In decarbonization, we generated solid bookings, including several small project awards in the nuclear and the LNG market.

Robert Scott Rowe: We utilized our project lifecycle support program to secure a larger portion of this project.

Robert Scott Rowe: Bringing feed support project management installation services and long term operational support to the customer.

Robert Scott Rowe: This award is just one example of our efforts to further diversify and increase our exposure to the growing specialty chemical in market.

Robert Scott Rowe: And Decarbonize, we generated solid bookings, including several small projects awards and nuclear and the LNG markets.

Robert Scott Rowe: Over the past few years, we have had success with several first-of-its-kind carbon capture and storage, or CCS, projects. During the first quarter, Flowserve was awarded another contract for a new CCS facility in Europe. By supplying both pumps and valves, Flowserve demonstrated the power of our comprehensive flow control portfolio. The project will capture CO2 from several different industrial facilities in the region, which will then be transported and pumped into empty natural gas fields beneath the North Sea for permanent storage.

Robert Scott Rowe: Over the past few years, we have had success with several first of its kind carbon capture and stored storage or cc S projects.

Robert Scott Rowe: During the first quarter closer was awarded another contract for a new Ccs facility in Europe.

Robert Scott Rowe: By supplying both pumps and valves closer have demonstrated the power of our comprehensive flow control portfolio. The.

Robert Scott Rowe: The project will capture Cotwo from several different industrial facilities in the region, which will then be transported and pumped into empty natural gas fields beneath the north sea for permanent storage.

Robert Scott Rowe: Lastly, on digitization, we believe our ability to digitize our products and leverage our large installed base and aftermarket capabilities with our Red Raven IoT offering will better position Flowserve to provide true solutions for our customers through monitoring and predictive analytics. We are instrumenting our pumps, seals, and valves to better optimize our customers' facilities. In the first quarter, we added nearly 100 assets to the Red Raven Monitoring Portfolio and now have 25% more assets on the platform than this time last year.

Robert Scott Rowe: We are excited to provide the critical full control equipment for this substantial and impactful projects.

Robert Scott Rowe: Lastly on digitize, we believe our ability to digitize, our products and leverage our large installed base and aftermarket capabilities with our red Raven Iot offering will better position closer to provide true solutions for our customers through monitoring and predictive analytics, where instruments are pumps fields and valves to <unk>.

Robert Scott Rowe: Optimize our customers' facilities.

Robert Scott Rowe: In the first quarter, we added nearly 100 assets to the Red Raven monitoring portfolio and now have 25% more assets on the platform than this time last year.

Robert Scott Rowe: We also received an award to monitor fail-safe electric actuation in a critical service environment. Over 50 of our Limitorc electric actuators were seamlessly integrated with our Red Raven solution and are destined for an offshore wind project in Norway and will receive ongoing condition monitoring from Post.

Robert Scott Rowe: We also received an award of monitor Failsafe electric actuation and a critical service environment.

Robert Scott Rowe: Over 50 of our limit torque electric actuators were seamlessly integrated with our Red Reuben solution and are destined for an offshore wind project in Norway and will receive ongoing condition monitoring from full serve.

Robert Scott Rowe: In conclusion, our first quarter results combined with our outlook and expectations for the rest of 2024 should position Flowserve incredibly well for the rest of the year and support the increase in our full year adjusted EPS guidance. We are confident in the macro themes of energy security, energy transition, and increasing power demands, and we are well suited to capture both large projects, like the $150 million plus awards we booked in April, and further grow our higher-margin aftermarket business and MRO activities supporting our large installed base.

Robert Scott Rowe: In conclusion, our first quarter results combined with our outlook and expectations for the rest of 2024.

Robert Scott Rowe: Should position closer of incredibly well for the rest of the year and support the increase in our full year adjusted EPS guidance.

Robert Scott Rowe: We're confident in the macro themes of energy security and energy transition and increasing power demands and we are well suited to capture both large projects like the $150 million plus awards, we booked in April and further grow our higher margin aftermarket business and MRO activities supporting our large installed base.

Robert Scott Rowe: We are excited about the opportunities ahead of us to profitably grow our business, and we are more optimistic today in our ability to deliver at least 150 basis points of full-year operating margin improvement in 2024 compared to last year. Over the longer term, operational excellence, including roofline consolidation, combined with our product and portfolio management, should drive our operating margins even higher. We believe we're in the early phases of these initiatives, and we have a clear path to achieving the commitments we presented to our analysts last year.

Robert Scott Rowe: We are excited about the opportunities ahead of us to profitably grow our business.

Robert Scott Rowe: And we are more optimistic today in our ability to deliver at least 150 basis points of full year operating margin improvement in 2024 compared to last year.

Robert Scott Rowe: Over the longer term operational excellence, including roofline consolidation combined with our product and portfolio management should drive our operating margins even higher.

Robert Scott Rowe: We believe we are in the early phases of these initiatives, we have a clear path to achieving the commitments we presented at last year's analyst day.

Robert Scott Rowe: Overall, our strategy is working, and we remain committed to further capitalizing on opportunities in the market today and into the future to deliver long-term value creation for our customers, associates, and shareholders. Operator, this concludes our prepared remarks. We would now like to open the call to questions.

Robert Scott Rowe: Overall, our strategy is working and we remain committed to further capitalizing on opportunities in the market today and into the future to deliver long term value creation for our customers associates and shareholders.

Speaker Change: Operator, this concludes our prepared remarks.

Speaker Change: I'd now like to open the call to questions.

Operator: Thank you. If you would like to ask a question, please signal by pressing star one 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. Again, press star one for any questions. Our first question comes from Deane Dray of RBC Capital Markets. Your line is open. Please go ahead. Thank you.

Speaker Change: Thank you if you would like to ask a question. Please 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 again press star one for any questions.

Operator: Our first question comes from Deane Dray with RBC capital markets. Your line is open. Please go ahead.

Deane Michael Dray: Thank you. Good morning, everyone. Good morning, Dean. Hey, maybe we could start with the composition of the orders. I always find that to be really helpful. You said they were a smaller size.

Deane Michael Dray: Thank you good morning, everyone.

Deane Michael Dray: Good morning Deane.

Deane Michael Dray: Hey, maybe we could start with the composition of the orders I always find that to be really helpful. You said they were smaller size.

Robert Scott Rowe: Just kind of what does that tell you about the pipeline of demand? Talk about the wind rate and any impact from selectivity.

Deane Michael Dray: Just kind of what does that tell you about the pipeline of demand.

Robert Scott Rowe: Talk about the win rates and.

Robert Scott Rowe: And any impact from selectivity.

Robert Scott Rowe: Sure, yeah, so we'll talk about projects, large projects, which are primarily on the pump side, but this certainly applies to some of the large projects in bowels. In the quarter, our largest award was $12 million, and we saw several smaller ones in the five to $10 million range.

Speaker Change: Sure, Yes, so we'll talk projects large projects, which are primarily on the pump side, but theres certainly applies for some of the large projects in valves.

Robert Scott Rowe: In the quarter, our largest award was $12 million and we saw several smaller ones in the $5 million to $10 million and as we've communicated over the last couple of quarters, we've laid out a framework called selective bidding to make sure that we're bidding on the things that we can win that can that we can execute that can deliver the margins that we have.

Robert Scott Rowe: And as we've communicated over the last couple quarters, we've laid out a framework called selective bidding to make sure that we're bidding on the things that we can win, that we can execute, that can deliver the margins that we expect, and have the aftermarket entitlement that we deserve once that equipment is installed. And so that process has now been in place for a couple quarters, and we're seeing tremendous results. And so I think, you know, there's been a lot of activity. I'd say we've probably passed on some of the projects that we could have potentially worked on, but what we're seeing now is nice, solid growth. The April awards are two great examples of that.

Robert Scott Rowe: Spect and have the aftermarket entitlement that we deserve once that equipment is installed and so that process has now been in place for a couple of quarters and we're seeing tremendous results and so I think there's been a lot of activity I'd say, we'd probably passed on some of the projects that we could have potentially worked on.

Robert Scott Rowe: But what we're seeing now is nice solid growth in the April awards are two great. Examples of that the <unk> two project, which is.

Robert Scott Rowe: The Jafara 2 project, which is, you know, a follow-on to the work that we already have with Jafara 1. So that's in Saudi Arabia. It's a gas production facility. We know the customer well. We've got margins in that project that are right in line with what we've done in the recent year. And then the Emeril project is similar.

Robert Scott Rowe: I'll follow on to the work that we already have with <unk> hundred one so thats in Saudi Arabia, It's a gas production facility, we know the customer well we've got.

Robert Scott Rowe: Margins in that project that are right in line with what we've done.

Robert Scott Rowe: In the recent year and then the <unk> project is similar so again Aramco is the biggest partner there and we're confident in that project our ability to deliver and we like the margins that we're going to obtain in that project as well.

Robert Scott Rowe: So again, you know, Aramco is the biggest partner there. And you're more confident in that project, our ability to deliver, and we like the margins that we're going to obtain from that project as well. And then when we look forward, Deane, we've got really good visibility into projects. Our overall project funnel is up 10% year on year. And so that gives us visibility across the kind of whole globe on projects that are a million dollars and above.

Robert Scott Rowe: And then when we look on the go forward Deane, we've got really good visibility to projects. Our overall project funnel is up 10% year on year, and so that gives us visibility across kind of the whole globe on projects that are $1 billion and above.

Robert Scott Rowe: The biggest part of that funnel that's up is energy transition, greater than 25% year over year. The power sector is over 25%, and oil and gas is up about 13%. And so again, really good visibility for larger-sized projects as we work through 2024 and into 2025.

Robert Scott Rowe: The biggest part of that funnel, that's up as energy transition that is greater than 25% year over year. The power sector has over 25% and oil and gas was up about 13%.

Robert Scott Rowe: So again really good visibility to larger sized projects as we work through 2024 and into 2025.

Amy B. Schwetz: That's all really helpful. I appreciate that color. And then, for Amy, this is a fabulous free cash flow quarter for you. I see it's a record. So congratulations to the team. How quickly can the working capital improvements go from here? I appreciate you're setting a target, but there's still room for improvement there. But how quickly can you proceed along that target line? And thanks, thanks for the color.

Robert Scott Rowe: That's all really helpful. I appreciate that color and then for Amy This is a fabulous free cash flow quarter for you I see its a record.

Amy B. Schwetz: So congrats to the team.

Amy B. Schwetz: How quickly can the working capital improvements go from here.

Amy B. Schwetz: I appreciate youre setting a target, but there is still room for improvement there, but how quickly can you proceed along that the target line.

Amy B. Schwetz: Yeah, thanks. Thanks for the question, Dean. I'd start by saying that we're encouraged by the improvement that we've seen in working capital, particularly in the first quarter. But we're not happy yet. So we still have work to do, and Scott and I are focused on the teams reaching that 25 to 27% target as a percentage of sales early, so we can then reset the bar to kind of make our way closer to being best in class in this space. And maybe I can talk a little bit about how we see the path to get there.

Amy: Yeah. Thanks, Thanks for the question Deane I would start by saying that we're encouraged by the improvement that we've seen in working capital, particularly in the first quarter and we're not happy yet. So we still have we still have work to do and Scott and I are focused on the teams reaching that 25% to 27%.

Amy B. Schwetz: And target as a percentage of sales early so we can then reset the bar to kind of make our way closer.

Amy B. Schwetz: To best in class in the space and maybe let me talk a little bit about <unk>.

Amy B. Schwetz: How we how we see the path to get there. So I think that most importantly cash flow starts with earnings and increasing earnings via margin expansion like we've done in the first quarter.

Amy B. Schwetz: So I think that most importantly, cash flow starts with earnings, and increasing earnings via margin expansion, like we did in the first quarter, makes our AR collection efforts that have been happening over the past several years even more effective. And I think that operational excellence and what we're doing in that space are critical. So we're focusing on working capital through improving our planning capabilities, which in turn will increase our inventory velocity, and it's an area that I think we'll start to see come through later this year.

Amy B. Schwetz: It makes our AAR collection efforts that have been happening over the past several years, even more effective.

Amy B. Schwetz: I think that operational operational excellence and what we're doing in that space is critical so we're focusing on working capital through improving our planning capabilities.

Amy B. Schwetz: Which in turn will increase our inventory velocity and it's an area that I think we'll start to see.

Amy B. Schwetz: Come through later later this year Scott touched on selectivity on large projects and that also includes the cash profile and that we see on those projects. So part of that that selectivity needs to be around cash as well and then finally I'll touch on portfolio management, because I think with the <unk>.

Amy B. Schwetz: Scott touched on selectivity on large projects, and that also includes the cash profile that we see on those projects, so part of that selectivity needs to be around cash as well. And then finally, I'll touch on portfolio management because I think with the new operational model that we have in place, our focus on growing the business in the right areas, like continuing to expand our aftermarket, also improves our collections profile over time.

Amy B. Schwetz: New operational model that we have in place our focus on growing the business in the right areas like continuing to expand our aftermarket.

Amy B. Schwetz: <unk> improves our collections profile over time.

Amy B. Schwetz: So to summarize, I think firstly, we see this as a big opportunity. Secondly, we see an opportunity to hit that longer-term target earlier, and we're going to focus on making as much progress as we can in the current year. Thank you.

Amy B. Schwetz: So to summarize I think one we see this as a big opportunity.

Amy B. Schwetz: Secondly, we see an opportunity to hit that longer term target earlier, and we're going to we're going to focus on making as much progress as we can in the current year.

Speaker Change: Thank you.

Operator: Our next question comes from Andy Kaplowitz with Citigroup. Your line is open. Please go ahead.

Amy B. Schwetz: Our next question comes from Andy Kaplowitz with Citigroup. Your line is open. Please go ahead.

Andrew Alec Kaplowitz: Good morning Amy, obviously good performance in Q1 on the margin side at the 10.9% adjusted margin, but you only raised your guides for the year by greater than 11%. You didn't raise your revenue forecast for the year. I know you mentioned that you'll have a little less seasonality than usual this year, but how should we think about revenue and margin over the next few quarters? And is there some conservatism in your new guide, particularly on the margin side, as you really ramp up these longer-term projects that you're doing?

Andrew Alec Kaplowitz: Good morning, everyone.

Amy: Hey, Andy good morning.

Andrew Alec Kaplowitz: Obviously good performance in Q1 on the margin side of the 10, 9% adjusted margin, but you only raised your guidance for the year integrated 11% you didn't raise your revenue forecast for the year.

Andrew Alec Kaplowitz: I know you mentioned that Youll have a little less seasonality than usual this year, but how should we think about revenue and margin over the next few quarters and is there some conservatism in your new guide, particularly on the margin side as you really ramp these longer term projects that youre doing.

Amy B. Schwetz: Sure. So certainly, there's been work that's been done to smooth out the seasonality of the business. And that's really been a focus on the conversion of the backlog, reducing our lead times and delivery on these larger projects. And so we'll see that play out over the course of 2024.

Speaker Change: Sure. So certainly there has been work that's been done to smooth out the seasonality of the business and that's really been a focus on the conversion of the backlog, reducing our lead times and delivery on these on these larger projects.

Amy B. Schwetz: So we'll see that play out over the course of 2024, and so we're going to see less variation than normal in revenue between Q1, and Q2 and I would say overall that Q4 will be less of a volume story than what it's been in prior years and I think in some ways you can see that play out in Q.

Amy B. Schwetz: And so we're going to see less variation than normal in revenue between Q1 and Q2. And I would say overall that Q4 will be less of a volume story than what it's been in prior years. And I think, you know, in some ways, you can see that play out in Q1, with really a good portion of our revenue growth actually being delivered in the first quarter of the year, which is unusual for Flowserve.

Amy B. Schwetz: One with really a good portion of our revenue growth actually being delivered and in the first quarter of the year, which is which is unusual for flow serve.

Amy B. Schwetz: I think as you look at the actions that are underway and the current backlog mix, it's really pointing to higher margins in the second half versus the first half. So we still see earnings somewhat weighted to the second half of 2024, with probably less of a delta than normal between Q1 and Q2. I think the good news about this profile is that the margin expansion in the second half starts to provide an exit rate that is much more sustainable than what we've seen in previous years.

Amy B. Schwetz: I think as you look at the actions that are underway in the current backlog mix, it's really pointing to higher margins in the second half versus the first half. So we still see earnings somewhat weighted to the second half of 2024 with probably less of a delta than normal between Q1.

Amy B. Schwetz: In Q2, I think the good news about this profile is that the margin expansion in the second half starts to provide an exit rate that is much more sustainable than what we've seen in previous years. So it is going to put us on a solid footing to expand our margins yet again in 2025 on the path to those.

Amy B. Schwetz: So it's going to put us on solid footing to expand our margins yet again in 2025 on the path to those long-term targets. In terms of, you know, potential conservatism within our guidance, I would say we'd like to put a plan out to the street that we have confidence that we can deliver. Our team is always working to get to our long-term targets quicker, but this year's plan is one that we have a lot of confidence that we can deliver and that we think provides a lot of value to our shareholders.

Amy B. Schwetz: To those long term targets.

Amy B. Schwetz: In terms of potential conservatism.

Amy B. Schwetz: Within our guidance I would say, we like to put it we'd like to put a plan out to the street that we have we have confidence that we can deliver and our team is our team is always working to get to our long term targets quicker and but this year's plan is one that we have a lot of confidence that we can that we can deliver and we.

Amy B. Schwetz: Think provides a lot of value to our shareholders.

Amy B. Schwetz: Very helpful. I mean, Scott, can you talk about, you know, what you're seeing by geography a little bit more? How would you characterize the sustainability of the Middle East strength, you know, beyond Jafar? And it looked like you had good European bookings along with stable Asian. Maybe you can elaborate on, you know, the really duration of the cycle at this.

Speaker Change: Very helpful. And then Scott can you talk about what youre seeing by geography, a little bit more how would you characterize the sustainability of the middle East strengths.

Amy B. Schwetz: <unk> four and it looked like you had good European bookings along with stable Asia, but maybe you can elaborate on really duration of this cycle at this point.

Robert Scott Rowe: Sure, I'll talk about projects first, and then I'll hit on MRO, and then we can talk about duration. So on the project side, the Middle East is still the biggest opportunity for us in the next couple of years. And so we're seeing a tremendous build-up of infrastructure and assets. And I'd say, for us, oil and gas are mostly downstream in the Middle East. And so these are the refineries and then also the gas production facilities and oil production facilities.

Scott: Sure I'll talk about projects first and then I'll hit MRO and then we can talk about duration. So on the project side. The middle East is still the biggest opportunity for us in the next couple of years and so we're seeing a tremendous build out of infrastructure and assets.

Robert Scott Rowe: For us oil and gas is mostly downstream in the middle East and so this is the refineries and then also the gas production facilities and oil production facilities and we see substantial amount of work coming with that said, though the middle East is also building out infrastructure around the water, especially.

Robert Scott Rowe: And we see a substantial amount of work coming. With that said though, the Middle East is also building out infrastructure around water, especially chemicals, and other general industries as well. And so we actually feel really good about all of the industries in the Middle East in this redeployment of profits and of the upstream business now redeployed downstream and into other industries. And so we'd like the Middle East, obviously there are some geopolitical risks there in terms of things going on with Israel and Palestine.

Robert Scott Rowe: Chemicals, and other just general industries as well and so we actually feel really good about all of the industries and the middle East and this redeployment of your profits in yields of the upstream business now redeployed downstream and into other industries and so we'd like the middle East, obviously theres some geopolitical.

Robert Scott Rowe: <unk> risk there in terms of things going on with Israel and Palestine, but at this point, we see almost all of the countries that we're actively involved in whether that Saudi UAE Qatar Oman.

Robert Scott Rowe: But at this point, we see almost all of the countries that we're actively involved in, whether that's Saudi Arabia, the UAE, Qatar, Oman, reasonable stability, commitments to their kind of 2030 investments and infrastructure, and we feel good about that outlook. And then projects outside of the Middle East, we see Asia Pacific advancing. And so there's a lot of work in Asia Pacific that would be around the chemical space.

Robert Scott Rowe: Youll reasonable stability commitments to their cut of 2030 investments in infrastructure and we feel good about that outlook and then projects outside of the Middle East, We see Asia Pacific advancing and so theres a lot of work in Asia Pacific.

Robert Scott Rowe: That would be around the chemical space, we're seeing some in the power space for Asia Pacific and then the energy transition side as well projects in Europe, and Americas are almost predominantly around energy transition and de carbonization, and so youll either thats going to be your LNG your nuclear in Europe, but.

Robert Scott Rowe: We're seeing some in the power space for Asia Pacific and then the energy transition side as well. Projects in Europe and the Americas are predominantly around energy transition and decarbonization. And so either that's gonna be your LNG, your nuclear power in Europe, but then how do we decarbonize existing assets in both those? We're seeing an uptick in our CCS projects. And so as consortiums start to figure out how to capture CO2 from emitters and then ultimately transport it to a place of storage, that's a very complex process.

Robert Scott Rowe: Then how do we decarbonize existing assets in both of those and we're seeing an uptick on our Ccs projects and so as consortium start to figure out how to capture Cotwo from the mirrors and then ultimately transport it to a place of storage. That's a very complex process, We Spotlighted award here.

Robert Scott Rowe: We spotlighted awards here in my prepared comment, but we're seeing more and more of those in our project funnel, certainly in Europe and in the Americas. And then, on power, you know, we think power build out in America, in the Americas, and in Europe is absolutely going to happen. And so you pick up nuclear power in Europe, but then I'd say all sources of power, renewable and traditional, in the Americas and in Europe.

Robert Scott Rowe: In my prepared comments, but we're seeing more and more of those in our project funnel certainly in Europe and in the Americas and then finally on power, we think power build out in America in the Americas and in Europe is absolutely going to happen and so you pick up the nuclear in Europe, but then I'd say all.

Robert Scott Rowe: <unk> of power renewable and traditional in the Americas and in Europe, and then on the MRO side, we've seen continued strength in Americas, and so I feel really good about that and the visibility that we have in 2024 and 2025 and then in our run rate business, we're starting to see an uptick.

Robert Scott Rowe: And then on the MRO side, you're seeing continued strength in America. And so I feel really good about that and the visibility that we have in 2024 and 2025. And then in our run rate business, we're starting to see an uptick in Europe as well. And so I think, you know, Europe is kind of, I'm not going to say completely bottom, but I'd say there are green shoots of activity.

Robert Scott Rowe: In Europe, as well and so I think Europe is kind of I'm not going to say completely bottom, but I'd say, there's green shoots of activity and I would say our teams are prepared for growth in the back half of the year and into 2025 and then so.

Robert Scott Rowe: And I'd say our teams are prepared for growth in the back half of the year and into 2025. And then the last point was the sustainability of this cycle. I'd say right now we feel really good that we're in the kind of early innings of a multi-year up cycle. You know, obviously, oil and gas capital is cyclical. But when we think about the megatrends of decarbonization and energy security, I'm not going to say that that decouples from a cycle.

Robert Scott Rowe: The last point was the sustainability of this cycle.

Robert Scott Rowe: Say right now we feel really good that we're in the kind of the early innings of a multiyear up cycle, you'll obviously, the oil and gas capital is cyclical, but when we think about the megatrends of the de carbonization and the energy security.

Robert Scott Rowe: I can assure I'm not going to say that that decoupled from a cycle, but we've got better visibility to ongoing spending regardless of where we are in the cycle and then I'd say the emergence of power could also helped to mute some of the cyclicality and so power is just at the beginning of ramping up this is.

Robert Scott Rowe: But we've got better visibility into ongoing spending, regardless of where we are in the cycle. And then I'd say the emergence of power could also help to mute some of this cyclicality. And so power is just at the beginning of ramping up. This is not going to happen in 2024 or 2025, but there's going to be sustained growth as we go forward. And so, you know, overall, net net, we feel really good about our macro picture.

Robert Scott Rowe: Not going to happen in 2020 for 2025, but its going to be sustained growth as we go forward and so overall net net we feel really good about our macro picture, we see the megatrends kind of lining up in a fashion that could deliver long term bookings growth for us and we're going to continue to modify our.

Robert Scott Rowe: We see the megatrends kind of lining up in a fashion that could deliver long-term bookings growth for us, and we're going to continue to modify our portfolio to support more diverse markets but then also support the decarbonization side as well. Appreciate all the color.

Robert Scott Rowe: Palio to support more diverse markets, but then also supporting the de carbonization side as well.

Speaker Change: I appreciate all the color and congrats on the quarter.

Andrew Alec Kaplowitz: I appreciate all the color, congrats on the quarter. Yeah, thanks.

Speaker Change: Yes, Thanks Ed.

Andrew Alec Kaplowitz: Another reminder, with Star one if you had a question we will go next to Mike Halloran with Baird. Your line is open. Please go ahead.

Operator: Another reminder, it was star number one. If you had a question, we'll go next to Mike Halloran with Baird. Your line is open. Please go ahead.

Michael Patrick Halloran: They are putting everyone.

Michael Patrick Halloran: Just kind of a follow up are you. Good morning, just wanted to follow up you left off there Scott maybe just talk a little bit about how you think that this resurgence empower manifests itself to your portfolio more from a product application set and then.

Michael Patrick Halloran: I just want to follow up where you left off there, Scott, maybe just talk a little bit about how you think that this resurgence in power manifests itself in your portfolio more from a product application set, and then how you think about the product portfolio within the power side that you have today, how well that fits where you see that market going, you know, drive a lot with what you already have. Or is there more that you think you might need to do from an R&D or M&A perspective?

Michael Patrick Halloran: How you think about the product portfolio within the power side that you have today, how well that fits where you see that market growing over time other gaps in some area where you can.

Michael Patrick Halloran: <unk> drive a lot with what you already have or is there more that you need to think you might need to do from an R&D or M&A perspective.

Robert Scott Rowe: Sure, so power is a big market for us, and so we generate about $450 million a year. That's been a pretty consistent rate for as long as I've been here.

Scott: Sure. So so power is a big market for us and so we generated about $450 million a year, that's been a pretty consistent rate for as long as I've been here and so we're starting from a really good spot and so we've got pumps valves and seals in the power segment.

Robert Scott Rowe: And so we're starting from a really good spot. And we've got pumps, valves, and seals in the power segment. We participate in all forms of power generation, whether that's coal, natural gas, the nuclear side, where we get really good margins for critical service applications. But then we're also doing new forms of energy on the renewable side, like concentrated solar power. I provided an example of offshore wind in my prepared comments, where we have electric actuators on the power generation side of the wind.

Robert Scott Rowe: We participate in all forms of power generation, whether that's coal natural gas nuclear side, where we get really good margins for critical service applications. But then we're also doing the new forms of energy and the renewable side like concentrated solar power I provided an example of offshore.

Robert Scott Rowe: And in my prepared comments, where we've got electric actuators in the power generation side of wind and then you've got the emergence of hydrogen in the coming years as well and so today, we've got a really strong portfolio to support kind of all forms of power the traditional side the nuclear and then also the.

Robert Scott Rowe: And then you've got the emergence of hydrogen in the coming years as well. And so today, we've got a really strong portfolio to support all forms of power, the traditional side, the nuclear, and then also new forms of energy as well. And I'd say we've got minor, just minor tweaks to the portfolio to make sure that we continue to stay relevant in something like hydrogen. And so in hydrogen, if it's blue or gray, hydrogen, we're typically there because it's on the back of a refinery or another, potentially a chemical plant.

Robert Scott Rowe: The new the new forms of energy as well and I'd say, we've got miner offered just minor tweaks to the portfolio to make sure that we continue to stay relevant in something like hydrogen and so in hydrogen if it's blue or gray hydrogen where typically there because it's on the back of a refinery or another.

Robert Scott Rowe: <unk>.

Robert Scott Rowe: Potentially a chemical plant, but on green hydrogen we've got a tweak that that portfolio a bit on the pump side to make sure that we're completely relevant but these aren't like major overhauls to our offering.

Robert Scott Rowe: But on green hydrogen, we've got to tweak that portfolio a bit on the pump side to make sure that we're completely relevant, but these aren't like major overhauls to our offering. And the channel to market and the relationships are already there. And so we feel really good about our ability to continue to work with the power players, whether that's the capacity expansion of the existing assets and helping them extend the life or improve productivity, but also in the greenfield build out.

Robert Scott Rowe: And the channel to market and the relationships are already there and so we feel really good about our ability to continue to work with the power players and whether thats the capacity expansion of the existing assets and helping them extending the life or improved productivity, but also between the greenfield build out and so.

Robert Scott Rowe: And so I'd say, we put a number out there on analyst day showing that as a 3.2% CAGR. At this point, I'd say that's probably conservative. I don't have a new number yet, but I would say overall, we're starting to see some really good activity on the power side on a go forward basis.

Robert Scott Rowe: I'd say, we put a number out there in the analyst day of showing that as a three 2% CAGR.

Robert Scott Rowe: <unk> at this point I'd say, that's probably conservative I don't have a new number yet, but I'd say overall, we are starting to see some real good activities on the power side on the go forward basis.

Amy B. Schwetz: Thanks for that. That was very helpful.

Robert Scott Rowe: So that was helpful and then on the.

Michael Patrick Halloran: And then on the margin line, just kind of a follow-up to Andy's question. I certainly understand a lot of the commenting you made about the back half still being a little better than the front half on the margin line, but maybe parse that a little bit by segment. I heard in the prepared remarks on the VAL business up through the year, maybe just a little bit more thought on FPD. Very strong 1Q. Feels like Guide is assuming a little bit of softening from that level, whether it's mixed or something else, but maybe some help on that, how that sequentially tracks as we look through the year. Sure.

Amy B. Schwetz: The margin line, just kind of a follow up to Andy's question, certainly understand a lot of the commentary you made about back half still being a little better than front half on the margin line, but maybe parse out a little bit by segment I heard in the prepared remarks on the valve business up through the year, maybe just a little bit more thought on the FTB very strong one in Q2.

Michael Patrick Halloran: Like guidance, assuming a little bit of softening from that level, whether its mix or something else, but maybe some help some help on how that sequentially tracts and as we go through year sure.

Amy B. Schwetz: I'll start with FCD. In the first half of the year, we do see a greater proportion of our revenue coming from products and project-related work that has a slightly lower margin profile. I would see the biggest margin expansion going from first half to second half based on that product mix and initiatives that are underway to drive that margin higher in the second half of the year and basically take us back to where we were at last year or better from a margin perspective in FCD.

Speaker Change: Sure So I'll start with with FCB and in the first half of the year, we do see a greater proportion of our of our revenue coming from products and project related work that have a slightly lower margin profile and so I would see the biggest margin expansion going from first half.

Amy B. Schwetz: The second half based on that product mix.

Amy B. Schwetz: And and and and initiatives that are underway to drive that margin higher.

Amy B. Schwetz: In the second half of the year and basically take us back to where we were at last year or better from a margin perspective.

Amy B. Schwetz: From an in FCB.

Amy B. Schwetz: FCD has been a great story in the first quarter and I think it highlights the fact that we've been saying about our margin and backlog improving. So if you had told me that we would have seen the type of margins that we did in the first quarter a couple of years ago, given a 14% growth in OE, I would have said that was a stretch, but that was something that we did in the first quarter of this year. So, really pleased with that. I think we will see more steadiness in the FCD and margins, but they will stay elevated over the course of 2024.

Amy B. Schwetz: <unk> has been a great story in the first quarter and I think highlights. The fact of what we've been saying about our margin in backlog improving so if you would've told me that we would've seen the type of margins.

Amy B. Schwetz: That we did in the first quarter a couple of years ago, given our given our 14% growth in OE and I would've said that was a stretch but that was something that we did in the first quarter of this year. So really pleased with that I think we will see more steadiness in the SPD.

Amy B. Schwetz: Margins, but they will stay elevated over the course of two.

Michael Patrick Halloran: Thank you. I appreciate it.

Amy B. Schwetz: 2024.

Speaker Change: Thank you I appreciate it.

Operator: Our next question comes from Brett Linzey with Mizuho. Your line is open. Please go ahead.

Michael Patrick Halloran: The next question comes from Brett Linzey with Mizuho. Your line is open. Please go ahead.

Brett Logan Linzey: Hi, good morning all. Congratulations on the performance. Yeah, thanks. I just want to come.

Brett Logan Linzey: Hi, good morning, all congrats on the performance.

Brett Logan Linzey: Yes, Thanks, Brian just wanted to I just.

Brett Logan Linzey: Yeah, I just want to come back to the realignment charge. I think you took 7.2 million in the quarter. Great to see, you know, the ongoing productivity in the face of strong growth. But maybe just talk about the nature of these actions and the payback here. Is there more to do through the course of the year?

Brett Logan Linzey: Just wanted to come back to the <unk>.

Brett Logan Linzey: Realignment charge I think it took $7 2 million in the quarter great to see.

Brett Logan Linzey: Ongoing productivity in the face of strong growth, but maybe just talk about the nature of these actions and the payback here is there more to do through the course of the year and any context would be great.

Amy B. Schwetz: Any context would be great.

Amy B. Schwetz: Sure. So a couple of things with realignment, really two pieces to that. One, continuing actions associated with our new organizational design as we continue to work that through the system. That piece was much smaller this year than it was last year.

Speaker Change: Sure. So so couple of things with realignment really two pieces to that one continuing actions associated with our.

Amy B. Schwetz: With our new Org design as we continue to work that through the system that piece with much smaller this year than it was last year and then the second is some ongoing footprint.

Amy B. Schwetz: And then the second is some ongoing footprint rationalization actions that we continue to make sort of in the normal course of business, and this is with an eye towards operating more effectively and margin expansion over time in both of our segments. We still have roughly, call it $23 million of potential realignment expense that we've earmarked over the course of 2024, so a run rate not much different than what we saw in the first quarter of this year, and that's continuing to do these things somewhat in the normal course.

Amy B. Schwetz: <unk> actions that at that we continue to make sort of in normal course.

Amy B. Schwetz: Our business and this is with an eye towards.

Amy B. Schwetz: Towards the operating more effectively and and margin expansion over time really in both in both of our segments.

Amy B. Schwetz: We still have roughly call it $23 million.

Amy B. Schwetz: Potential realignment expense that we've earmarked over the course of <unk>.

Amy B. Schwetz: Of 2024, so a run rate not much different than what we saw in the first quarter of this year and Thats continuing to do do these things somewhat in the normal course.

Amy B. Schwetz: Get our organizational structure firmly in place the way that we want to, improving efficiency in that way, and making sure that we're manufacturing our products where we want to around the world and reducing that capacity where it makes sense. The returns on these projects, I mean, we look at this through the lens that we do anything else, so we're very focused on rate of return, but also on payback, and I would say that, generally, when we're making these realignment decisions, the paybacks are very strong.

Amy B. Schwetz: Our get our organizational structure firmly in place the way that the way that we want to improving efficiency in that way and making sure that we're manufacturing our products, where we want to.

Amy B. Schwetz: Around the world and reducing net capacity, where it makes sense.

Amy B. Schwetz: And the returns on these projects hitting we we look at this through the lens that we do anything else. So we're very focused on rate of return, but also on payback and I would say that generally when we're making these realignment decisions.

Amy B. Schwetz: The paybacks are very are very strong.

Robert Scott Rowe: Great, thanks for that detail. And then just a follow-up on the $150 million April project awards. How does that parse out between OE versus aftermarket? And then if you could share anything in terms of the phasing, Amy, I think you said it maybe begins to ship in Q4, but anything in terms of the phasing, you know, over the next several quarters?

Robert Scott Rowe: Great. Thanks for that detail and then just a follow up on the 150 million April Project Awards.

Robert Scott Rowe: How does that parse out between OE versus versus aftermarket and then if you could share anything in terms of the phasing Amy I think you said that maybe begins to ship in Q4, but any anything in terms of the phasing in over the next several quarters.

Amy B. Schwetz: Sure, yeah, these are both Greenfield awards; they're going to show up in our OE bookings. And so, two projects greater than $150 million. And you'll see that in the Q2 results. In terms of revenue phasing, both of these are large projects and on percentage of completion accounting. And Amy, you know, I don't think we're gonna give exact guidance on when they start to come through, but you can get some color on that.

Amy: Sure. Yes. These are these are both Greenfield awards theyre going to show up in our OE bookings and so two projects greater than $150 million and Youll see that in the Q2 results in terms of revenue phasing. Both of these are large projects and on percentage of completion accounting.

Amy: I don't think we can give exact guidance on when they start to come through but you can give some color on that yeah. So I would expect Brent that will start to see some milestones hit.

Amy B. Schwetz: Yeah, so I would expect that we'll start to see some milestones hit in the fourth quarter of 2024. But ultimately, this will be more of a 2025 story from a revenue perspective. And so as we think about the seasonality of the business, and what we've tried to do in 2024 and really go back into 2023, to sort of ease some of that traditional seasonality, I think we'll see these two wins come into play in 2025 and help us continue that trend.

Amy B. Schwetz: In the fourth quarter of 2024.

Amy B. Schwetz: But ultimately these will be more of a 2025 storey from from a revenue perspective, and so as we think about the seasonality of the business and what we've tried to do and.

Amy B. Schwetz: In 2024, and really going back into 2023 to sort of ease some of that traditional seasonality I think we will see.

Amy B. Schwetz: These two wins come into play in 2025 and help us continue that trend.

Brett Logan Linzey: Okay, great. I'll pass it along. Thanks.

Speaker Change: Okay, Great I'll pass it along thanks.

Speaker Change: Great. Thank you.

Operator: Our next question comes from Nathan Jones with Steeple. Your line is open. Please go ahead.

Brett Logan Linzey: Our next question comes from Nathan Jones with Stifel. Your line is open. Please go ahead.

Nathan Hardie Jones: Hey Nathan, I'm going to start off with a follow-up on the guidance for margins to ramp up in the second half, with more limited seasonality. I assume that that's going to come more on the gross margin side than on SG&A leverage. So can you talk about what's driving that if that's, you know, the roll off of some older lower margin stuff that's in backlog in the first half? and the sustainability of that improved gross margin as we go into 2025.

Operator: Okay.

Nathan Hardie Jones: Good morning, everyone.

Nathan: Hey, Nathan.

Nathan Hardie Jones: I'm going to start off with a follow up on.

Nathan Hardie Jones: The guidance for margins to ramp up in the second half.

Nathan Hardie Jones: With more limited seasonality I assume that that's going to come more on the gross margin side and then on SG&A leverage.

Nathan Hardie Jones: So can you talk about.

Nathan Hardie Jones: What's driving that if that's the roll off of some old lower margin stuff that you'd backlog in the first half.

Nathan Hardie Jones: And the sustainability of that improved gross margin as we go into 2025.

Amy B. Schwetz: Sure, I think really two areas that we're anticipating seeing the benefit in the second and second half of the year. The first is related to product mix itself. And so, kind of a move from the FCD side to a bit more run rate business in the second half of the year versus the growth that we've seen in Q1, and going into Q2 on the project side. And the second piece from a margin expansion perspective, it does have to do with some of the realignment charges that we took in in the first quarter of the year and really dating back to even last year.

Speaker Change: Sure I think really two areas that we're anticipating seeing.

Amy B. Schwetz: And seeing the benefit in the second second half of the year. The first is related to product mix itself.

Amy B. Schwetz: And so kind of a move from from the FTB side to a bit more run rate business in the second half of the year versus the growth that we've seen in Q1 and going into Q2 on on the project side and the second piece from a margin expansion perspective does have to do with some of the realignment charges that.

Amy B. Schwetz: We have taken and in the first quarter of the year and really dating back to even last year and some of that improvement starting to flow through in the back half of the year.

Amy B. Schwetz: And some of that improvement starting to flow through in the back half of the year at the gross margin level, though you're correct, Nathan. That's where we would anticipate seeing the lion's share of the improvement.

Speaker Change: At the gross margin level, though youre correct, Nathan that's where we would anticipate seeing the lion lion's share of the improvement and then Nathan maybe maybe I'll add the two levers that we highlighted in the analyst day right. So the operational excellence and then the product management portfolio optimization operational excellence is off to a really good start.

Robert Scott Rowe: And then, Nathan, maybe I'll add the two levers that we highlighted at analyst day, right? So, operational excellence and then product management and portfolio optimization. So operational excellence is off to a really good start. You know, we pushed hard on that in 2022, started to see really good progress in 2023, and now we're really seeing the fruits of that kind of restructuring, the refocus, and the Operational Excellence Academy, which we've now trained 1,100 people on. And so as we continue to drive productivity within the manufacturing site, we're seeing those gross margins start to move up. And again, we're confident that that will continue.

Robert Scott Rowe: We pushed hard on that in 2022, starting to see really good progress in 2023, and now we're really seeing the fruits of that kind of restructuring the refocus and the operational Excellence Academy, which we've now trained 1100 people and so as we continue to drive productivity within the manufacturing site, we're seeing those gross margin start to <unk>.

Robert Scott Rowe: Move up and again, we're confident that that will continue and then on the product management side. This is one as you know has taken a longer time that I would like it has definitely been a journey, but there is still substantial opportunities for us and so when we think about 2023 on product management with the new <unk>.

Robert Scott Rowe: And then on the product management side, this is one that, as you know, has taken a longer time than I would have liked. It has definitely been a journey, but there are still substantial opportunities for us. And so when we think about 2023 for product management, with the new org design, we created dedicated project management teams. And so you have dedicated folks within the seven business units. And then we also created a product family hierarchy.

Robert Scott Rowe: Design, we created dedicated project management teams and so you have dedicated folks within the seven business units and then we also created a product family hierarchy and so we've got a hierarchy of products supported by these dedicated teams and then we have dedicated project managers now for every single product.

Robert Scott Rowe: And so we've got a hierarchy of products supported by these dedicated teams, and then we have dedicated product managers now for every single product. And then the other big effort has been the data cleanup to support this product hierarchy, and I'd say we're in the early innings of that.

Robert Scott Rowe: And then the other big effort has been the data clean up to support this product hierarchy and I'd say, we're in the early innings of that we're focused kind of one business unit at a time, but we're seeing as we kind of really focus on that data. It now allows the product management teams to do the things that they need around pricing select.

Robert Scott Rowe: We'll focus kind of on one business unit at a time, but we're seeing that as we kind of really focus on that data, it now allows the product management teams to do the things that they need around pricing, selectivity, channels to market, features, and benefits, like all that good stuff that they need to be doing as part of their job. And then finally, there is improving the process. So now the locking in process for pricing, customer selection, channels to market, and then this selectivity, which we're calling portfolio optimization, which is, all right, which products are we investing in, which products do we want to continue to harvest from a cash generation perspective and not put more effort into, and then which products do we just need to stop doing?

Robert Scott Rowe: <unk> channels to market. Your all your features and benefits like all that good stuff that they need to be doing as part of their job and then finally is improving the process right. So now locking in process for pricing customer selection channels to market and then this selectivity, which we're calling portfolio optimization.

Robert Scott Rowe: <unk>, which is alright, which products are we investing in which products. We want to continue to harvest from a cash generation perspective, and not put more effort into and in which projects products do we just need to stop doing and so again, we're kind of at the early phases of that but going back to answer. Your question, specifically, we expect to start seeing margin improvement.

Robert Scott Rowe: And so, again, we're kind of at the early phases of that. But going back to answer your question specifically, we expect to start seeing margin improvements from these efforts in the back half of this year but really in earnest in 2025 and beyond. And so we feel like we still have levers to expand margins, and we're still committed to that kind of 100, 200 basis points by 2027 for each of the two initiatives, operational excellence and product quality.

Robert Scott Rowe: Movements from these efforts in the back half of this year, but really in earnest in 2025 and beyond and so we feel like we still have levers to expand margins and we're still committed to that kind of 100 200 basis points by 2027 for each of the two initiatives operational excellence and product management.

Robert Scott Rowe: Okay.

Nathan Hardie Jones: And then, I guess my follow-up question is on portfolio optimization. I think you touched on a little bit there with what you want to invest in, what you don't want to invest in, and what you don't want to do. Are there pieces of the portfolio that you would look to divest, to close down, and would they be material pieces of the portfolio, or are we just talking about a kind of pruning around the edges?

Speaker Change: Great and then I guess my follow up I'm going to ask a question on the portfolio optimization.

Nathan Hardie Jones: I think you touched on a little bit there with what you want to invest in what you don't want to invest in and what you don't want to do that.

Nathan Hardie Jones: Pieces of the portfolio that you would look to divest to close down and would they be material pieces of the portfolio. We just talking about.

Nathan Hardie Jones: Kind of pruning around the edges and could that be somewhat of a headwind to revenue growth over the next couple of years as you look to simplify that kind of stuff what would you anticipate the investment in the pieces of the portfolio to offset it.

Nathan Hardie Jones: And could that be, you know, somewhat of a headwind to revenue growth over the next couple of years as you look to simplify that kind of stuff? Or would you anticipate the investment in the better pieces of the portfolio to offset it? Yeah, so I'll answer this pretty holistically. I'll start with the 3D strategy.

Nathan Hardie Jones: Yes, so I'll answer this pretty Holistically I'll start with the <unk> strategy and so we absolutely want to diversify our portfolio and then we wanted to decarbonize working with our existing customers to make sure that we're there for the long run of Decarbonising their asset and working on new energies.

Robert Scott Rowe: And so we absolutely want to diversify our portfolio, and then we want to decarbonize working with our existing customers to make sure that we're there for the long run of decarbonizing their assets and then working on new energy. And so as we think about that, we look at the portfolio in its entirety, and Amy and I in the ELT are having very strategic discussions about what we want to acquire to make our portfolio more diverse, and then potentially what might have to come out to either help fund one of those acquisitions or just make our portfolio more optimal to align with the strategy.

Robert Scott Rowe: And so as we think about that we look at the portfolio.

Robert Scott Rowe: Entirety, and Amy and I, and the ELT or having very strategic discussions about what do we want to acquire to make our portfolio more diverse and then potentially what might have to come out to one either help fund one of those acquisitions or just make our portfolio more optimal to align with the strategy.

Robert Scott Rowe: And so I'm not going to go into anything specific, but I would say that we're looking at this more holistically than ever before. In the organizational design, the seven business units are allowing us to do that in a much better way, in a more objective way to have really good discussions about what's working and what's not working. And then when we think about the Portfolio Optimization Program, we've launched in earnest one business unit at this point, and so we've got our first one in the chute. And I just say, let's let the process work.

Robert Scott Rowe: So I'm not going to go into anything specific but I would say that we're looking at this more holistically than ever before in the Org design. The seven business units are allowing us to do that in a much better way in a more objective way to have really good discussions about what's working what's not working and then when we think about the portfolio.

Robert Scott Rowe: Optimization program, we've launched an earned as one business unit at this point and so we've got our first one in the chute and I'd just say, let's let the process work.

Robert Scott Rowe: We're going to go through a very disciplined approach in terms of what the offering looks like. We're going to take into account the margins on the products. We'll look at our customers and decide, are they good customers or not so good customers? And then we'll also look at the effort to put those products into the market and say, okay, is that effort worth the return? And so as we go through that process, I suspect we'll have things that drop out of the portfolio. We'll have things that we might want to sell. And then we're going to have things that we want to invest in fully and continue to move that product offering forward.

Robert Scott Rowe: We're going to go through a very.

Robert Scott Rowe: A very disciplined approach in terms of what the offering looks like we're going to take into account the margins on the products, we'll look at our customers and deciding are they're good customers who are not so good customers and then we're also looking at the effort to put those products into the market and saying, Okay is that effort worth the return and so as we go through that.

Robert Scott Rowe: Process I suspect, we will have things that dropped out of the portfolio will have things that we might want to divest and then we're going to have things that we want to invest in fully and continue to move that product offering forward.

Nathan Hardie Jones: That's helpful. Thanks for taking my questions.

Speaker Change: That's helpful. Thanks for taking my questions.

Operator: We'll go next to Andrew Obin with Bank of America. Your line is open. Please go ahead.

Nathan Hardie Jones: We'll go next to Andrew <unk> with Bank of America. Your line is open. Please go ahead.

Sabrina Lee Abrams: Hey, good morning. You have Sabrina Abrams on for Andrew. Good morning, Sabrina. It's nice to see the sort of broad-based geographic growth, but thinking about Asia-Pac being obviously a bit softer and was also a bit softer last quarter, do you guys have any comments on APEC and China, what you're hearing from customers there, and what drives an inflection in that market?

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

Sabrina Lee Abrams: Good morning Sabrina.

Sabrina Lee Abrams: It's nice to see the sort of broad based geographic growth.

Sabrina Lee Abrams: I'm thinking about Asia Pac being obviously a bit softer I was also a bit softer last quarter do you guys have any comment on APAC and China.

Sabrina Lee Abrams: What youre hearing from customers, there and what drives an inflection and that market.

Robert Scott Rowe: China is a difficult place to operate. We've got two substantial operations there, both on the pump side and the FCD side. We continue to do nice work in China, and we'll be selective about what we do and when we do it. We want to make sure that we've got good customer relationships and a strong aftermarket. I'd say that's one when we think about selective bidding.

Sabrina Lee Abrams: Sure I mean, China is a difficult place to operate we've got a substantial while two substantial operations there both on the pump side in the FCB side. We continued to do nice worked in China, and we'll be selective about what we do and when we do it and we want to make sure that we've got good customer relationships and strong.

Robert Scott Rowe: Aftermarket so I'd say, that's one when we think about selective bidding.

Robert Scott Rowe: We're pretty selective about what projects we're pursuing in the Chinese market. And then, for broader Asia-Pacific, I would say Asia-Pacific has been the slowest region to come out of kind of COVID and the supply chain challenges and everything else. But I would say it's also one of the single biggest opportunities for us as we think kind of a longer term view of five years or 10 years. And so we remain committed and optimistic about what the Asia-Pacific can bring.

Robert Scott Rowe: We're pretty selective about what projects, we're pursuing in the China market and then for broader Asia Pacific I would say Asia Pacific has been the slowest region to come out of kind of COVID-19 in the supply chain challenges and everything else, but I would say it's also one of the single biggest opportunities for us as we think kind of a longer.

Robert Scott Rowe: Term view of call it five years or 10 years, and so we remain committed and optimistic about what Asia Pacific can bring theres a lot of investment across many different countries, even beyond China that we know that we can participate.

Robert Scott Rowe: There's a lot of investment across many different countries, even beyond China, that we know that we can participate in. We've got a substantial presence in the region. We've got a good team, and we're confident that we can continue to grow that part of the business.

Robert Scott Rowe: Got a substantial presence in the region. We've got a good team and we're confident that we can continue to grow that part of the business.

Sabrina Lee Abrams: And then, as a follow-up, I think you guys talked about this a lot at your investor day too, but I was thinking about footprint consolidation. When you look at your portfolio, when you think about what facilities you want to consolidate, are there particular product lines that you're interested in over others? And how do you sort of approach the process of deciding whether to, you know, consolidate facilities here and there? Sure, it really falls under the...

Speaker Change: Thank you.

Sabrina Lee Abrams: Then as a follow up I think you guys talked about this at your Investor day, a lot too but thinking about.

Sabrina Lee Abrams: Consolidation.

Sabrina Lee Abrams: When you look at your portfolio. When you think about what facilities do you want to consolidate are there particular product lines that you're interested in over others and how do you sort of approach the project deciding like <unk>.

Sabrina Lee Abrams: Consolidate facilities here and there.

Robert Scott Rowe: Sure, it really falls under the Operational Excellence Program. And, you know, as we continue to make improvements, when we're driving that productivity and eliminating waste within the facility, we're naturally generating extra capacity at that site. And so, you know, as we expand that capacity across the whole network, different things become available to us. And so I'd say every year, we're going to look at doing one or two, you know, some small, some larger consolidations to make sure that we're leveraging the scale that we have and driving higher production within our roofline and sites.

Speaker Change: Sure It really falls under the operational excellence program and as we continue to make improvements when we're driving net productivity and eliminating waste within the facility, we're naturally generating extra capacity at that site.

Robert Scott Rowe: So as we expand that capacity across the whole network different things become available to us and so I would say every year, we're going to look at doing one or two some small some larger consolidations to make sure that we're leveraging the scale that we have and driving higher production within our.

Robert Scott Rowe: And so that's something we look at every single year; we're in the process of reviewing a couple new activities at this point, or right now. And I just say, you know, I would expect us to continue that in the years to come. And then when we think about the portfolio side, you know, and I answered this in a previous question, but we'll look at each of our portfolios and each of our product groups with a more portfolio optimization mindset. And as we make those decisions, that could potentially accelerate some of the facility consolidation as well.

Robert Scott Rowe: Roofline and sites and so that's something we look at every single year. We're in the process of reviewing a couple new activities at this point right now.

Robert Scott Rowe: Just say I would expect us to continue that in the years to come and then when we think about the portfolio side.

Robert Scott Rowe: Answered this in a previous question, but we'll look at each of our portfolio in each of our product grouping with a more portfolio optimization mindset and as we make those decisions that could potentially accelerate some of the facility consolidation as well.

Robert Scott Rowe: And a final reminder, it was Star One if you had a question. Unknown Speaker, Unknown Speaker

Speaker Change: Thank you.

Robert Scott Rowe: One final reminder, with Star one if you had a question. We will go next to Joe Giordano with TD Cowen. Your line is open. Please go ahead.

Operator: And one final reminder, it was star number one if you had a question. We'll go next to Joe Giordano. Your line is open, please go ahead. Hey guys, we kind of touched on this earlier in the portfolio question, but can we

Joseph Craig Giordano: Hey, guys.

Joseph Craig Giordano: I touched on this earlier on the portfolio question, but can you talk to where you are now on cryo pumps as it were.

Operator: <unk>.

Joseph Craig Giordano: Nuclear and hydrogen applications I know there seems to be a bit of a land grab going on with competitors for those types of technologies and you yourselves has done two so maybe you can just touch on where you are there.

Joseph Craig Giordano: Sure, so we've got two cryogenic pump applications that we're working on. One was something that we announced, gosh, what was that, a year ago with Chart, where we bought their IP, and we're now producing a hydrogen cryogenic pump, and that's for hydrogen dispensing. So think about, like, the ability to take hydrogen from a storage tank or a fueling center and provide dispensing into vehicles or, you know, marine assets or things like that. We're getting orders for that already. That product's been commercialized.

Joseph Craig Giordano: Sure. So we've got two prior generic pump applications that were working on one was something that we announced.

Joseph Craig Giordano: Was that a year ago with with chart, where we bought their IP and we're now producing a hydrogen cryogenic pump and that's for the hydrogen dispensing. So think about like the ability to take from a storage tank or a fueling center and providing dispensing into vehicles or <unk>.

Joseph Craig Giordano: Green assets or things like that.

Joseph Craig Giordano: We're getting orders for that products commercialize we're pretty excited about the opportunities there and we're looking for ways to put that pump into other cryogenic applications in the like the production of hydrogen or in the transportation of hydrogen and so we're pretty excited about that and then the other cryogenic application for <unk>.

Robert Scott Rowe: We're pretty excited about the opportunities there, and we're looking for ways to put that pump into other cryogenic applications in the, like, production of hydrogen or in the transportation of hydrogen, and so we're pretty excited about that. And then the other cryogenic application for pumps is on the LNG side, and so that's something that we haven't talked too much about, but we're doing internal new product development on that. We've got a substantial and ongoing initiative there, and we expect it to be fully commercialized by the end of this year, and so the focus right now is to get this through the technical evaluations to finish the R&D project and to validate the prototypes, and then once that happens, we've got a pretty nice lineup of cryogenic pumping technology that can be used on the LNG side and the hydrogen side. And then there was one.

Robert Scott Rowe: As in the LNG side, and so that's something that we haven't talked too much about it but we're doing internal new product development on that we've got a substantial and ongoing initiatives there and we expect to be fully commercialized by the end of this year and so the focus right now is to get this through the technical evaluations to finish the R&D.

Robert Scott Rowe: <unk> and to validate the prototypes and then once that happens we've got a pretty nice lineup of cryogenic pumping technology that can be used on the LNG side in the hydrogen side.

Speaker Change: Perfect and then one for Amy.

Robert Scott Rowe: Do we feel comfortable here and I guess there'll be some volatility, but it is 30% for gross margins on a consolidated level kind of like a floor now.

Amy B. Schwetz: I think we feel very confident about building from where we are where we are today. And so I think we're working towards an exit rate that's actually above where we are today. And really driving a fair amount of that improvement in operating margin that we're working towards in terms of the 2027 targets through the gross margin level. So yes, yes, confidence at 30.

Robert Scott Rowe: I think we feel very confident about the about building from where we're where we're at today and so I think we're working towards an exit rate, that's actually above where we're at today and and really driving a fair amount of that.

Amy B. Schwetz: That improvement in operating margin and that we're working towards in terms of the 2027 targets through the gross margin level. So yes, yes confidence at 30.

Operator: Our next question comes from Saree Boroditsky with Jeffreys. Your line is open. Please go ahead.

Speaker Change: Perfect. Thanks, guys.

Saree Emily Boroditsky: Our next question comes from <unk> <unk> with Jefferies. Your line is open. Please go ahead.

Saree Emily Boroditsky: Hi, this is James Sun from Saree. Thanks for fitting me in. I kind of wanted to go back on the book to bill, like your commentary on being over one for the total company in 2024. So can you kind of talk about how you're thinking about the booking and the book to bill at the second level?

Saree Emily Boroditsky: Alright, so Samsung for series call. Thanks for fitting me in.

Saree Emily Boroditsky: I kind of wanted to go back on the book to Bill like for commentary on being over one for the total company in 2024. So can you kind of talk about how youre thinking about the bookings book to bill at the segment level.

Robert Scott Rowe: Sure, I just want to say in general, you know, back to the comments before, we've got really good visibility. And so that aftermarket and MRO run rate continues, and we see that both on the FPD side and the FPD side. And so, you know, we see that nice base of aftermarket and MRO work continuing to progress throughout the year. And then from a project outlook, you know, again, that funnel is up 10% year on year. We've got the $150 million awards coming in April.

Robert Scott Rowe: Sure I would just say in general back to the comments before we've got really good visibility and so that aftermarket and MRO run rate continues and we see that both on the FTE side in the FCC side, and so we see that nice base of aftermarket and MRO work continuing to progress throughout.

Robert Scott Rowe: The year and then from a project outlook again that funnel is up 10% year on year, We've got the $150 million awards coming in April that will be on the pump side, but theres substantial project bookings in the outside as well and so they're not as large or maybe as big as what we've talked about in the pump side, but there.

Robert Scott Rowe: That'll be on the pump side, but there are substantial project bookings on the bow side as well. And so they're not as large or maybe as, you know, as big as what we talk about on the pump side, but they're meaningful projects.

Robert Scott Rowe: And we saw a really healthy book to bill in FCD to start the year. And we clearly expect FCD to be above one, you know, throughout the full year of 2024. And then the same thing on the pump side as well.

Robert Scott Rowe: Meaning full projects. So we saw really healthy book to bill at FCB to start the year and we clearly expect FCB to be above one throughout the full year of 2024, and then same thing on the on the pump side as well and so I would say today, we have more confidence that we did to start the year that we do with that we will have a full year.

Robert Scott Rowe: So I'd say, you know, today we have more confidence than we did to start the year that we'll have a full year book to bill of greater than 1.0 to finish 2024.

Robert Scott Rowe: Our book to Bill of greater than one point over to finish 2024.

Amy B. Schwetz: And I just wanted to kind of go back on the, like, large OE projects. I know that you guys are being more selective in terms of the margin, but I believe those are still coming at a lower margin compared to, like, the other projects. So, and you also know the kind of good feasibility in large projects, in the project funnels. So, kind of how are you thinking about the margin impact from the large OE project kind of going forward? Thank you. Yeah So I'd start by saying kind of...

Amy B. Schwetz: And I just wanted to kind of go back on door like large projects I know that you guys are being more selective in terms of the margin.

Amy B. Schwetz: Those still come in at lower margin compared to those other projects. So and you also noted kind of placebo lithium large project. So kind of how are you thinking about the margin impact from the large OE project kind of going forward. Thank you yeah. So I'd start by saying kind of doubling down on the point I made earlier, which is.

Amy B. Schwetz: Yeah, so I'd start by kind of doubling down on the point I made earlier, which is that OE was a large component of our revenue growth in the first quarter, and we were able to do so in a very profitable way. So we're getting more confident in that the margins and backlog are strong and improving, as we had indicated throughout 2023. So really, the key is right now to continue to focus on growing the OE business at those expanded margins while at the same time making sure that we're looking after the aftermarket components, aftermarket bookings at $575 million this quarter.

Amy B. Schwetz: <unk>.

Amy B. Schwetz: That OE.

Amy B. Schwetz: A large component of our revenue growth in the first quarter and we were able to do so in a very in a very profitable way. So we're getting more confident in that the margins and backlog are strong and improving and as we had indicated throughout and throughout 2023.

Amy B. Schwetz: So really the key is right now to continue to focus on growing and.

Amy B. Schwetz: The OE business at those expanded margins, while at the same time and making sure that we're looking after the aftermarket components aftermarket bookings at $575 million this quarter nice growth there so as long as we continue to keep a balance.

Amy B. Schwetz: Nice growth there. So, as long as we continue to keep a balanced growth profile between OE and aftermarket, and focus on our operational excellence journey, I think we're going to continue to be able to expand our margins while we win that project work.

Amy B. Schwetz: Balanced growth profile between OE and aftermarket and focus on our on our operational excellence journey I think we're going to continue to be able to expand our margins.

Amy B. Schwetz: While we win that project work.

Operator: And ladies and gentlemen, with no other questions holding, that will conclude today's first quarter earnings conference. We thank you for your participation. You may disconnect at this time.

Speaker Change: Thank you.

Operator: And ladies and gentlemen, with no other questions holding that will conclude today's first quarter earnings conference. We thank you for your participation you may disconnect at this time.