Q3 2024 Flowserve Corp Earnings Call
Speaker Change: Ladies and gentlemen, good day and welcome to the Q3 2024 Flow Serve Corporation earnings conference call. Today's conference is being recorded. At this time, I'd like to turn the conference over to Brian E. Zell, Vice President, Investor Relations, Treasurer and Corporate Finance. Please go ahead sir.
Speaker Change: i
Speaker Change: Thank you Lisa and good morning everyone. Welcome to Flow Search 3rd Corps of 2024 Business Update. I'm joining this morning by Scott Roe, Flow Search President and Chief Executive Officer, and Amy Schwetz, our Chief Financial Officer.
Speaker Change: Today, Scott and Amy will provide an update on our overall business performance and highlights from the quarter. Following their comments, we'll open the call for questions.
Speaker Change: As a reminder, our discussion will contain forward-looking statements that are based on information available as of today. Actual results may differ due to risks and uncertainties, and these are discussed in our SEC filings which can be found on our website. Our comments today also include non-gap financial measures.
Speaker Change: Additional details and reconciliation to the most directly comparable gap financial measures can be found in our two three press release and today's earnings presentation.
Speaker Change: and we're both at which on our website. And with that, I'll turn it over soon. Thanks for running. Good morning, everyone. I want to start by saying thanks to Jay Rouge for over 12 years of service, set closer.
Speaker Change: including two different opportunities to be our interim CFO. Jay did nearly 50 full sort of earnings calls, and was our conduit to the investor-in-banking communities.
Speaker Change: Jay, thank you for everything that you do have done for folksurf and making it a better company. I wish you and your family the very best in the next chapter of your life. We'd also like to welcome Brian as all the folksurf. Brian will lead in best relations, treasury and FPNA.
Speaker Change: Rye Brünch significant experience in a wealth of knowledge to our team, and there will be several opportunities in the coming weeks for many of you to meet Rye and a person.
Speaker Change: Let me now turn to our prepared remarks.
Speaker Change: We delivered another strong result in the third quarter, underscored the positive momentum with our operations and in-market.
Speaker Change: Rowe. I want to thank our associates around the world for their dedication to our customers and our company.
Speaker Change: and the University of California. They are truly what makes folks of an outstanding enterprise. I also want to welcome the associates of Logus to our folks who are family as we kick off and exciting journey together.
Speaker Change: We're pleased with the results in the quarter and we believe there are substantial opportunities ahead. The further improve our operational and financial performance, to continue to deliver progress toward our 2027 financial targets.
Speaker Change: With bookings of $1.2 million, our book to build ratio in the quarter was over 1.06 times.
Speaker Change: Rowe Rowe, backlogged by $100 million sequentially, ending the quarter at $2.8 billion in laying the foundation for continued growth into 2025.
Speaker Change: We delivered 240 basis points of year over year adjusted operating margin expansion resulting in an 81% incremental margin in the quarter.
Speaker Change: Our successful efforts with our customers generated both healthy project awards and strong aftermarket booking of $615 million.
Speaker Change: We delivered nearly 30% growth in power-bookings year over year, which brings the year-to-date booking-scroath to 23%. We are optimistic about the power markets, and full of service well-positioned to take advantage of the global increase in electrical demand, on the discuss this in more details shortly.
Speaker Change: Regenerate sales of $1.1 billion, which represent its solid year of year top line growth at 3.5%.
Speaker Change: Rowe Rowe, a third quarter adjusted EPS of 62 cents was a 12 cent or 24% increase versus prior year. Lastly, cash from operations of $178 million was particularly healthy driven by working capital efficiency and earnings improvements.
Speaker Change: While operating performance was certainly strong in the third quarter, in Ernst Percher, or higher year over year, both are reported and adjusted earnings per share were tempered by a discrete 7-sense charge in the quarter, which Amy will describe in more detail.
Speaker Change: All said, our second and third quarter results were operationally consistent and in line with the commentary we provided during last quarter's earnings call with healthy project and aftermarket bookings, strong revenue conversion and expanded margins.
Speaker Change: Our improved results throughout 2024 reflect initial progress from the new closer business system. The business system helps to define how we operate consistently across our two divisions in seven business units.
Speaker Change: We are seeing early results from the Operational Excellence Program, which is improving our delivery consistency, shortening lead times and enhancing our product margins.
Speaker Change: Earlier this year, we formally launched our portfolio excellence program with the goal of optimizing Folzer's 200-year legacy of brands and product families.
Speaker Change: Using a data-driven approach, we are undertaking a comprehensive portfolio review across three dimensions.
Speaker Change: Products, Customers, and Prophecyability. Our ultimate goal is to reduce complexity in our overall offering, improve our customer service, and significantly expand our product margins without compromising our focus on growth.
Speaker Change: We remain committed to an incremental 100-200 basis points of margin improvement from the portfolio excellence program by 2027. And we expect to begin seeing results from the separate starting in 2025.
Speaker Change: We are excited about the progress we are making with the Policerve business system. The early results we are seeing are promising and give us confidence that our 20-27 targets are very achievable.
Speaker Change: Earlier this month, we completed our acquisition of Moga's Industries and are excited to officially begin the integration process.
Speaker Change: We believe that transaction positions flow served the further grow with their severe service ball valve offering that is complimentary to FCD's expansive valve in automation portfolio.
Speaker Change: with annual revenues of roughly $200 million that are balanced relatively evenly between mining and process industries and with EBITDAOM margins that are creative to our FCD segment.
Speaker Change: We expect Moogus one, pants are 3D strategy, be a strong addition for flow serve and support long-term value creation.
Speaker Change: Our thorough integration plan is intended to preserve and protect the legacy that Mugus has created and build upon all the qualities that made Mugus successful. From its people and brands to its unwavering commitment to customers.
Speaker Change: Leverageing our combined size and scale, we intend to utilize flow-service commercial relationships and aftermarket capabilities to capitalize on future market opportunities.
Speaker Change: We are committed and have a clear path to $15 million of cost synergies by the end of year two. And expect to have incremental revenue synergies by pulling through actuation, pumps, and mechanical seals on the back of Mogus project work.
Speaker Change: Let me now turn to bookings and our end markets in more detail.
Speaker Change: Overall, our market outlook remains constructive for projects, MRO, and aftermarket activity across industries and in markets. We delivered bookings of 1.2 billion dollars during the third quarter and have averaged more than 1.1 billion dollars per quarter in 2024, resulting in strong year-over-year bookings growth.
Speaker Change: The ongoing success of our 3D growth strategy generated approximately 34% of our total bookings in the quarter, reaching the highest level in both absolute dollars and as a percentage of total bookings since we launched the strategy in 2022.
Speaker Change: These results confirm the merits and timing of the 3D approach with strong bookings obtained from both diversification and decarbonization activity.
Speaker Change: Our bookings were balanced in the third quarter with original equipment and aftermarket work each representing about half of the total.
Speaker Change: We secured six mid-sized Original Equipment Awards ranging from roughly $15 to $35 million.
Speaker Change: Combined, these project awards represent about $130 million of our total bookings.
Speaker Change: further demonstrating that our foundational core business of aftermarket, MRO, and short-cycle activities is exceeding the billion dollar threshold on its own.
Speaker Change: This activity is driven by stable asset utilization rates at our customers' operations and our growing success capturing the aftermarket on our substantial installed base.
Speaker Change: We delivered our second consecutive quarter of extremely strong aftermarket bookings at approximately $615 million. We have now delivered two consecutive quarters above the $600 million level, demonstrating the strength of our aftermarket franchise.
Speaker Change: Our customers have awarded their trust and this work to us due to our high levels of service, local presence, and healthy relationships.
Speaker Change: We believe that we can continue to grow our aftermarket business with improved service levels and further commitment to increasing our capture rate.
Speaker Change: Turning to oil and gas, our bookings were up 7% versus the prior period to almost 455 million dollars driven by significant and broad-based activity throughout the Middle East region from Saudi Arabia to the UAE and Qatar.
Speaker Change: We continue to see elevated levels of project activity in the region despite the ongoing conflict in other parts of the region.
Speaker Change: Let me take a minute to provide more detail on our power in markets.
Speaker Change: including traditional power and nuclear.
Speaker Change: As mentioned earlier, power bookings were up nearly 30% to $155 million in the quarter, and are up 23% year-to-date.
Speaker Change: We participate in virtually all forms of power generation, including traditional hydrocarbon forms like coal and combined cycle natural gas, as well as nuclear and newer energy technologies like concentrated solar power, wind, and hydrogen.
Speaker Change: As a result, we have significant power installed base across pumps, valves, and seals.
Speaker Change: Power bookings have historically comprised 10-15% of our total bookings in any given year, driven primarily by aftermarket MRO and some expansion activities.
Speaker Change: We believe we are at an important inflection point in the power markets, with macro factors supporting projections for global power demand to grow significantly over the next decade.
Speaker Change: Power demand has largely been flat in Europe and North America for the last 15 years due to significant efficiency improvements.
Speaker Change: However, new power generation is now needed to support the growing demand for electricity and data centers to support AI, as well as the electrification of nearly everything. These trends support the projections for power demand to grow steadily over the next decade.
Speaker Change: In particular, we see nuclear power growing substantially going forward due to its carbon-free emissions and base load generating characteristics.
Speaker Change: In the quarter, nuclear activity saw particular strength with more than $100 million in bookings.
Speaker Change: We are currently seeing a combination of life extensions on existing assets in North America and Europe, combined with new nuclear capacity being built in Europe and in Asia.
Speaker Change: Life Extension activities created substantial aftermarket opportunity for FlowServe to re-rate pumps and upgrade valves.
Speaker Change: Our project funnels for both total power and nuclear are up more than 20% versus this time last year, affirming the strong bookings we delivered in the third quarter and year-to-date.
Speaker Change: We believe this trend is in the early innings, and we are confident FlowServe will see growth over a long period of time as we build on our existing nuclear product and service expertise.
Speaker Change: We believe the overall macro environment and outlook remain favorable for the flow control space. We continue to see positive signals driven by key global megatrends, from energy transition and decarbonization to energy security and regionalization, and increasing strength in the power markets.
Speaker Change: Combined, these current and potential megatrends are attracting significant investments.
Speaker Change: Our traditional short-cycle MRO and aftermarket business is proven resilient, and we are well positioned to drive further growth from our large installed base.
Speaker Change: Through the first nine months of the year, our book-to-bill ratio is 1.03 times, and we continue to expect that our full-year book-to-bill ratio in 2024 will exceed 1.0.
Speaker Change: Our backlog grew almost 4% sequentially to a near-record level of $2.8 billion, positioning us well for growth in 2025. I will now turn the call over to Amy to address our third quarter results in greater detail.
Amy Schwetz: Thanks, Scott, and good morning, everyone. Looking at our third quarter financial results in more detail, we generated revenue of $1.1 billion with an 11.1% adjusted operating margin, resulting in 62 cents of adjusted earnings per share, a 24% increase versus last year.
Amy Schwetz: We delivered another strong operational quarter and higher adjusted earnings, which were tempered by the discrete $12 million charge to operating income related to the annual actuarial assessment of certain undiscounted long-term liabilities.
Amy Schwetz: This third quarter expense impacted reported and adjusted earnings by 7 cents and reduced our operating margin by more than 100 basis points.
Amy Schwetz: We also had 18 cents of net adjusted items.
Amy Schwetz: bringing our reported earnings per share to $0.44. The two largest contributing categories of adjusted items were related to the realignment expenditures and acquisition expenses at $0.07 and $0.05 respectively.
Amy Schwetz: Given our results through the first nine months of the year, we are reaffirming our full-year guidance metrics, including adjusted earnings between $2.60 and $2.75 per share. This guidance includes the impact from the third quarter discrete charge for certain long-term liabilities and excludes the recently completed MOGIS acquisition.
Amy Schwetz: Our full year 2025 guidance, when instated in Q1, will include MOGIS.
Amy Schwetz: Based on our current outlook, we expect continued modest sequential improvement in our adjusted growth and operating margins, with our full-year adjusted earnings per share likely closer to the midpoint of our stated range.
Amy Schwetz: Our more consistent quarterly performance this year is driven in part by the steps we have taken over the past several quarters to smooth the historic quarterly seasonality in our business, and partially by the mix of our backlog.
Amy Schwetz: In the fourth quarter, for example, we expect less revenue from percentage of completion activities versus last year, which included painful sales and earnings from Phase I of the Large Deferra Project.
Amy Schwetz: This softens some of our traditional seasonality and creates less variation in our results quarter to quarter from less of a ramp in Q4 revenue.
Amy Schwetz: Let me now turn to the quarter in greater detail.
Amy Schwetz: Both our FCD and FPD segments contributed to our 3.5% revenue increase, generating growth of 7% and 2% respectively.
Amy Schwetz: Almost all SERV regions increased sales year-over-year as well. We generated 11% growth in the Middle East and Africa region, as well as in Latin America. Europe contributed with a 6% increase compared to last year.
Amy Schwetz: Shifting to margins, we generated adjusted gross margins of 32.4%, representing a 270 basis point year-over-year increase and 10 basis points sequentially. The improvement was largely driven by solid execution and top-line leverage.
Amy Schwetz: We are particularly pleased with this margin expansion given the higher revenue from original equipment work, which tends to have a lower margin profile than aftermarket.
Amy Schwetz: By segment, FPD's adjusted gross margin was 33.7%, representing a 410 basis point year-over-year increase.
Amy Schwetz: This robust segment performance is a result of improved execution, largely derived from the new operating model and divisional operational excellence initiatives.
Amy Schwetz: FCD delivered a 10 basis point year-over-year improvement with an adjusted gross margin at 29.9 percent.
Amy Schwetz: We believe FCD will deliver further sequential margin expansion in the fourth quarter due to improved revenue conversion, product mix, and cost-out activities.
Amy Schwetz: On a reported basis, third quarter consolidated gross margins increased by 250 basis points to 31.5 percent.
Amy Schwetz: This quarter, adjusted SG&A of $246 million increased $11 million year over year, which included the increased annual true up of the previously mentioned actuarially determined long-term liability.
Amy Schwetz: Despite the dollar increase, adjusted SG&A as a percentage of sales was up only a modest 30 basis points year-over-year to 21.7%, reflecting the quarter's top-line growth and our ongoing cost-discipline efforts.
Amy Schwetz: On a reported basis, third quarter SG&A was higher by about $7 million. As a percent of sales, reported SG&A was 22.9% at 10 basis point improvement versus the comparable period.
Amy Schwetz: Our adjusted operating income in the quarter was $126 million, a $31 million increase year-over-year. Our strong adjusted operating margin of 11.1% was a 240 basis point expansion and represented an incremental margin over 80%.
Amy Schwetz: Absent the actuarially determined charge I referenced earlier, adjusted operating margins in the quarter would have exceeded 12 percent.
Amy Schwetz: On a year-to-date basis, we have delivered an 11.5% adjusted operating margin, representing a 230-basis point improvement versus the prior year. We continue to expect our full-year adjusted operating margin to increase by at least 200 basis points compared to 2023 levels.
Amy Schwetz: This level of performance has FlowServe well on its way to achieving our 2027 Adjusted Operating Margin target of 14-16%.
Amy Schwetz: By segment, FPD delivered a strong adjusted operating margin at 16.4 percent, which is a 410 basis point improvement over prior year.
Amy Schwetz: For two consecutive quarters, FPD has now generated adjusted operating margins of more than 16%, within the range of its 2027 adjusted operating margin target.
Amy Schwetz: Still, FPD has further opportunities to accelerate growth and expand its adjusted operating margin to the high end of the 16-18% targeted range.
Amy Schwetz: FCD's adjusted operating margin of 14% was lower by 70 basis points, but is a 60 basis point sequential improvement. We expect to generate continued adjusted operating margin expansion in an FCD during the fourth quarter, primarily derived from the expected increase in gross margin.
Amy Schwetz: On a reported basis, third quarter consolidated operating margins increased 270 basis points year-over-year to 9.1%, driven by improved operating leverage.
Amy Schwetz: Our third quarter adjusted and reported tax rates were 19.7% and 22.8% respectively. This quarter's reported tax rate was higher than the adjusted rate considering realignment activities.
Amy Schwetz: and the below-the-line foreign exchange had unfavorable tax impacts on the rate.
Amy Schwetz: Turning now to cash flow, we generated record third quarter cash from operations of $178 million.
Amy Schwetz: results, driven by strong earnings and substantial working capital improvements, particularly in accounts receivable. During the second quarter, our receivables were negatively impacted by the timing of revenues.
Amy Schwetz: As expected, this impact reversed during the third quarter, and we generated strong cash flow from our collections. Additionally, our cash conversion cycle declined by nine days year over year, driven by improved inventory turns and payables.
Amy Schwetz: As a percent of sales, our third quarter adjusted primary working capital improved year over year and sequentially by 260 and 140 basis points respectively to 27.9 percent.
Amy Schwetz: With capital expenditures of $24 million, our third-quarter free cash flow to adjusted net earnings was 189%.
Amy Schwetz: Historically, the fourth quarter has been our strongest cash generation quarter, and we expect a free cash flow to adjusted net earnings conversion rate at 85% or more for the full year.
Amy Schwetz: Altogether, we are pleased with the third quarter's operating cash flow results and our efforts to smooth the seasonality of our performance, which provide more opportunities to strategically deploy cash under our capital allocation framework.
Amy Schwetz: Other uses of cash during the quarter include a combined 46 million dollars for dividends, a term loan reduction, and share repurchases.
Speaker Change: As Scott highlighted earlier, we successfully completed the acquisition of Mogus Industries earlier this month.
Speaker Change: I want to thank all of our FlowServe and Mogus associates who worked tirelessly on the transaction.
Speaker Change: Additionally, we appreciate the support of our banking partners as we amended and restated BLOSERV's credit agreement by extending its maturity to 2029 and increasing our term loan component to provide additional flexibility and liquidity.
Speaker Change: The MOGUS transaction checked all the boxes in our capital allocation criteria. Portfolio diversification, aftermarket opportunity, strong financial returns, and straightforward integration.
Speaker Change: demonstrating our commitment to value creating inorganic growth through a disciplined capital allocation approach.
Speaker Change: When considering the strategic use of capital, our framework will guide us in directing investment dollars to the highest long-term return option, including acquisitions, share buybacks, and prepayable debt like our term loan.
Speaker Change: In closing, we are proud of the results we delivered this quarter and through the nine months of the year. We look forward to executing on the substantial opportunities ahead to further improve our financial performance.
Speaker Change: Let me now return the call to Scott. Great. Thank you, Amy.
Scott Roe: I want to provide a few comments on our 3D strategy. We delivered record bookings in the quarter from our 3D strategy, representing nearly $410 million. Our strategy is working in today's environment, and we fully expect continued growth in our 3D bookings looking forward.
Scott Roe: Our focus remains on supporting our existing customers in the energy transition journey through decarbonization initiatives, as well as adding value to new energy technologies like hydrogen and carbon capture.
Scott Roe: We intend to further diversify our portfolio into attractive markets like specialty chemicals and mining, as we did in the Mogus transaction.
Scott Roe: Additionally, we continue to make progress with our digital offering, Red Raven.
Scott Roe: We believe we have a differentiated technology and extensive domain expertise to monitor pump and valve performance, prevent unplanned downtime through predictive analytics, and ultimately help our customers optimize their flow loops.
Scott Roe: Let me highlight a few examples of our 3D strategy in action.
Scott Roe: Our focus on specialty chemicals is an example of our diversification efforts. During the quarter, we received an order to supply vacuum pumps for a U.S.-based pharmaceutical company.
Scott Roe: To keep up with the growing demand, our equipment offers process efficiency to help increase the supply of critical medication to patients across the country.
Scott Roe: In the decarbonization lane, we want a contract to supply pumps and valves for the construction of a new nuclear power station in the United Kingdom. The nuclear facility is expected to generate enough low-carbon electricity to power six million homes.
Scott Roe: We are excited to participate in this flagship project in the UK, which will provide reliable and clean energy to support their growing demands.
Scott Roe: Lastly, on Digitize, our ability to instrument our products with our Red Raven IoT offering positions FlowServe to provide true solutions for our customers.
Scott Roe: and demonstrates the value of our digital capabilities.
Scott Roe: In the third quarter, we want a three-year contract to monitor dry vacuum pumps for a leading global soft drink company. With our 24-7 monitoring and predictive analytics, we expect to improve the uptime and productivity for this global customer.
Scott Roe: In conclusion, we delivered another strong operational quarter and are confident in our ability to build on these results. The macro backdrop remains positive and we believe we can continue to drive growth in both our new and aftermarket businesses.
Scott Roe: We remain committed to our 3D growth strategy as it has proved successful over the past two years.
Scott Roe: Lastly, we believe we are currently ahead of pace on the journey towards our long-term financial goals. We have made great progress in the past two years and we have a clear road map utilizing the Pulsar business system to deliver our growth and margin targets that we defined for you last year.
Scott Roe: Operator, this now concludes our prepared remarks and we would now like to open the call for questions.
Speaker Change: Thank you, sir. Ladies and gentlemen, if you'd like to ask a question, please signal by pressing star 1 on your telephone keypad. If you're on a speakerphone, please make sure your mute function is turned off to allow your signal to reach our equipment. Again, that is star 1 to ask a question.
Speaker Change: Good morning, everyone.
Speaker Change: Morning, Andy.
Speaker Change: Scott can you give us more color into what you're seeing in terms of bookings at least one of your competitors I think talked about some slowing and process and I think
Speaker Change: Do you see continued strength in the Middle East and overall process markets? And I know you reiterated, of course, there's booking should exceed one time for the year, but do you still believe your markets overall are relatively early in their upcycle and book-to-bill could be over one time for the year?
Speaker Change: in the next several quarters.
Speaker Change: Sure, and happy to talk about that. Let me start with aftermarket, then I'll go to projects.
Speaker Change: The aftermarket business is incredibly healthy. You're two quarters in a row now at $600 million.
Speaker Change: And I'd say that the underlying health there is twofold. One, the process industries, the utilization rates, while maybe not at record levels, are incredibly healthy.
Speaker Change: and what we're seeing is the operators spending money to maintain those levels of operation. So turnarounds are back to kind of a more normalized level. We're getting parts pulled through, we're getting service work.
Speaker Change: And then the second part of this is, you know, we've got a significant focus with the new org design on two of our business units, which are services and solutions for pumps.
Speaker Change: and services and solutions for the FTD segment.
Speaker Change: That is all around capture rate and making sure that we get the value from our extensive installed base. And so we're tracking, essentially, market share gains.
Speaker Change: with improved capture rate on both the pump side and the valve side. And so, I'd say, you know, normalized levels of utilization with the process industries combined with our ability to drive capture rate up, we're confident that we can continue to see very healthy aftermarket work.
Speaker Change: And, you know, in theory, continue to grow that business as we move forward.
Speaker Change: and then maybe move into projects.
Speaker Change: Right now, we see a very healthy pipeline for the foreseeable future. Project activity has been robust this year. Primarily, oil and gas Middle East has been one of the biggest drivers.
Speaker Change: We're seeing Saudi Arabia, UAE, Qatar, Oman, Kuwait.
Speaker Change: continuing to invest and progress forward and, you know, while a lot of our work is in the oil and gas side, it is the process industries like gas processing, LNG, refining, expansion.
Speaker Change: We believe there's more work and substantial opportunities as that region continues to diversify and so
Speaker Change: We know there's a strong need for power generation next year. We've got very good visibility to that. We also know that the water demands in the Middle East continue to grow, and so there's desalination opportunities, there's municipal water opportunities.
Speaker Change: and then the chemical side is continuing to expand as well. And so, you know, I'm excited about the Middle East. We were there, we visit regularly. I was supposed to go last week, but went to Europe instead, but I'll be back in January. And, you know, at this time, we don't see any slowdown.
Speaker Change: and then for the rest of the world on projects.
Speaker Change: Yeah, I'd say it's a little bit of a mixed bag. The U.S. and Europe project activity has slowed a little bit.
Speaker Change: With that said, we still continue to see very healthy activity in anything decarbonization, primarily around carbon capture.
Speaker Change: Some of the biodiesel or bioconversions still happening. Recyclable plastics are still a big thing in the decarbonization lane.
Speaker Change: And then, you know, probably the next biggest bright spot is on power.
Speaker Change: I talked about that in the prepared remarks, but our power overall funnel is up 20%.
Speaker Change: We've got very strong visibility to awards next year and in the year beyond that. And then we think nuclear is, you know, a very long-term play. These projects take a long, long time. But we booked over $100 million of nuclear work in the quarter, and we expect to see continued growth from nuclear as we go forward. So I'd say overall, look, the aftermarket business is healthy. We see growth opportunities there. And then we've got several different levelers on the project activity around the world. And, you know, today we feel confident about our project outlook.
Speaker Change: Very helpful, Scott. And then, Amy, maybe just in terms of the Q4 EPS, Scott, I think you're kind of decently under 30% of the year's EPS in Q4. Historically, I think you're decently over 30%. As you said, is that just kind of a deferral, one leading to a much higher front end? And we know you're purposely intending to balance your quarterly earnings, but is there anything else that's a little bit lower or slower than you originally thought for Q4?
Amy Schwetz: No, you've really hit on it. I think, you know, as we look at the fourth quarter this year, our ramp in revenue is a lot smaller than what we've traditionally experienced in the fourth quarter. Some of that is our efforts to improve conversion rates and the strength of the aftermarket business that Scott's referenced.
Amy Schwetz: But in 2024, we just don't see that OE sales ramp that we saw in 2023 that largely came from Jaffra 1.
Amy Schwetz: You know, Jafra won our heaviest revenue quarters in 2024, we're actually Q1 followed by Q2.
Amy Schwetz: I think we'll still see a bit of progression in margins, particularly
Amy Schwetz: driven by by FCD where we should be where we should see a benefit from from mix as well as some of the cost out activities that that they're going through going through currently. FPD should be relatively in line with with what with what we've seen. I will comment that you know any opportunity that we have to get to the higher end of the guidance range which
Amy Schwetz: somewhat mitigated by the size of the discrete charge that we saw in the third quarter would come from hitting the higher end of our revenue guidance range. Right now, I would suspect we'll be closer to the midpoint of that range, but if we see stronger book-to-ship revenue in the quarter or POC performance,
Amy Schwetz: outpacing what we're currently scheduled to do from a production standpoint that drives sales to the higher end of the range. I think I think that would that would be our path path to the upper end.
Speaker Change: I appreciate all the color. My best to Jay and welcome Brian.
Speaker Change: Yeah. Thanks, Andy. Thanks, Andy.
Speaker Change: And our next question comes from Nathan Jones with Stiefel.
Nathan Jones: Good morning, everyone.
Speaker Change: Morning, Nathan.
Nathan Jones: I wanted to talk a little bit about a comment you made, Scott, in your opening remarks on a data-driven approach to portfolio review with products, customers,
Nathan Jones: margins and the 100 to 200 basis points target by 2027.
Nathan Jones: It sounds a lot like an 80-20 quadrant driven kind of model there and I'm interested to see where you think you are in the evolution of that process. Are we still segmenting the business in terms of those products customers margins? Are you to the deployment phase of that yet? And just any color you can give us on
Nathan Jones: on how that progresses over the next couple of years.
Speaker Change: Thank you for joining us.
Speaker Change: Yeah, absolutely, and happy to talk about the full-serve business system. And we did some kind of precursor to this last year in the Analyst Day where we talked about
Speaker Change: Product Management and Portfolio Optimization. And essentially at the beginning of this year, we launched.
Speaker Change: a truly formal Portfolio Excellence Program.
Speaker Change: And yes, it is truly an 80-20 framework. We're using an incredible data-driven approach to look at our products, our customers, and our profitability in making long-term strategic decisions on what is the best products for our customers, but also how do we generate value for FlowServe? And so...
Speaker Change: We've launched this formally. We've got three business units in flight right now, and so we've had one business unit started in January, one started in the second quarter, and we had one just recently start.
Speaker Change: But we fully expect all of the product business units, all five of them, to go through this by 2025. And, you know, we're seeing, you know, very early results to this, but think about, you know, more systematic price increases.
Speaker Change: eliminating some products that don't necessarily contribute to the overall portfolio flow serve.
Speaker Change: And when you think about FlowServe, right, we've got a very long legacy of product families and substantial complexity within the portfolio itself. And so.
Speaker Change: I'm pretty excited about what that complexity reduction can do and that increased focus on
Speaker Change: the product families that really do create value for Fullserve and our customers and so
Speaker Change: opportunities that we're seeing and I just say it reaffirms what we said last year in the Analysts' Day.
Speaker Change: that we were expecting 100 to 200 basis points from product management and portfolio excellence. And now, given the early results of this, we've got a lot more confidence to hit that as our 2027 target.
Speaker Change: Thank you.
Speaker Change: I don't want to get too far ahead of you on promising your targets, but...
Speaker Change: FlowSurf has over the years been a very complex organization with a lot of skews and different products in it that maybe could be rationalized out of it.
Speaker Change: and other companies who've gone through this kind of process and delivered margins that, margin expansion that not only would be 100 basis points a year for the next few years, but on beyond that.
Speaker Change: It would seem FlowServe has probably a lot of raw material to work with there, so any commentary you can give us on kind of the duration past the targets that you've put out there to date or...
Speaker Change: You know, potential for you to outperform those targets over the next few years.
Speaker Change: Thank you. Bye-bye.
Speaker Change: I'll just start with kind of the history of this. We started something similar with Fullsurf 2.0, and I just say the organization at the time wasn't mature, you know, fully mature enough to do this. Now is absolutely the right time. The data integrity is better than ever.
Speaker Change: Really, what I'm trying to say is like we are in a position to truly capitalize on this today, given where we are with the business unit structure and the quality of the data or the improved quality of the data. We still have opportunities there, but overall, it's far better than what it used to be. And so, to your point,
Speaker Change: and expansion over kind of a, you know, let's call it a, you know, a two to four year period. And so, you know, we're not, we're going to stick with our 2027 targets of 100 to 200 basis points, but I would say if that was the end state for us, I would be incredibly disappointed.
Speaker Change: Awesome. Thanks very much for taking my questions.
Speaker Change: And our next question comes from Dean Dre with RBC Capital Markets.
Dean Dre: Thank you. Good morning everyone and I'm sure he's listening but I'll wish Jay all the best and a welcome to Bryan.
Speaker Change: Thanks for that, Dean.
Dean Dre: Sure. All right. And for Amy, and I guess Scott too, I know you guys don't like to use the word asbestos, but let's just confirm that that $0.07 non-cash charge is related to this, what we know is a routine annual accrual true up to your 30-year undiscounted asbestos liability. Again, I'll emphasize the routine part of it, but that's what we're talking about, right?
Speaker Change: Yes, it's a process that we undertake every year in the third quarter of the year.
Speaker Change: based, you know, based on claims experience for a number of years, including the current year, and that's what the seven cents is this period. And you're correct, that is an undiscounted number. The duration of that liability is 30 years.
Speaker Change: Can we talk about free cash flow and it's just you know I love the thing that you are so far above your typical third quarter conversion and Amy you talk about the days improvement in the cycle because
Speaker Change: Yeah, when I see changes, structural changes like this, it makes me think that that 85% target conversion eventually is going to start inching up and hopefully we'll get to that 100% threshold at some point, but just kind of take us through what structurally has changed.
Speaker Change: So, I think a couple of things, you know, we were pleased actually to start the year relatively strong from a free cash flow conversion standpoint for FlowServe with positive free cash flow in the first quarter. The second quarter, the timing of our sales worked out in a way where we saw an accounts receivable build in the quarter, which is something that we, you know, focused on pretty early with respect to our cash conversion efforts, and we did see some of that reverse.
Speaker Change: in the third quarter. So in some ways, I see this performance in the third quarter being a little bit about a full year performance in terms of the timing of those cash flows or a year to date performance. But I think what we're incredibly pleased to see
Speaker Change: Thank you.
Speaker Change: In the third quarter of this year in that nine day conversion cash conversion cycle improvement
Speaker Change: is improvement coming from inventory. And so, you know, it's...
Speaker Change: As we look at our operational excellence initiatives, that's obviously around margin expansion. Margin expansion does help cash conversion, but operational excellence also goes to how efficiently are we with our inventory processes. And so we are starting to see that improvement.
Speaker Change: in Inventory and Day Sales in Inventory. And that's something that we have to stay focused on, we have to stay mindful of, and I do believe is a structural change.
Speaker Change: in the business. And I'll quote Scott here, you know, with respect to the margin expansion opportunities that we have, I'd be incredibly disappointed if we stopped at at 85% free cash flow conversion. The goal is really to get in to get investing class
Speaker Change: with respect to those and, you know, the primary working capital performance.
Speaker Change: We have, as a percentage of sales, that's something over time that we see it's possible to drive more to the mid-20s.
Speaker Change: and even lower than that over time as we expand margins and improve our working capital efficiency.
Speaker Change: All right, that's a great recap there and some good framework for us to monitor and just as a follow-up for Scott So you're now 11 quarters
Speaker Change: and just kind of reflect here in terms of
Speaker Change: the duration of this streak, the importance for the organization, and just maybe some assurance that you're still using selectivity in terms of, I wouldn't want a streak duration
Speaker Change: compromise at all the selectivity that you've been exercising. So we're going to just take us through the importance of the streak and the importance of selectivity.
Speaker Change: Yeah, I mean I don't think we see this as a streak per se. I mean what we're interested in is continuing to drive growth at full serve and you know we put out targets, long-term targets, about a 5% growth rate you know from a organic perspective and that's what the organization is.
Speaker Change: is fully focused on. And so when we think about the seven business units, each of those seven business units has a growth target and truly has growth initiatives.
Speaker Change: are deliberate actions. And so I'd say, you know, what we're not waiting for is, you know, we're not waiting to see what the market gives us. We're truly going out and being aggressive about making sure that we can win the work that we believe we're entitled to.
Speaker Change: Just the comment on the project side and selectivity, I will say we are absolutely being selective. We are not backing away from that.
Speaker Change: We're seeing our ability to be selective and win the right work, and when we're selective, we're winning work that one, gives us the margins we believe that we deserve given the risk of some of those projects.
Speaker Change: But two, it's with customers that we know we're going to get the aftermarket entitlement over the long term and so
Speaker Change: That's not going to change. We continue to be incredibly selective. We've passed up on many projects, and some of our sales folks are absolutely thrilled about that, but it's the right thing to do for Full Serve and for our shareholders. And so we'll continue that approach.
Speaker Change: And I'd just say on the, you know, kind of the level of bookings.
Speaker Change: You know, the aftermarket business is incredibly healthy at that $600 million run rate. We expect to see that to continue to kind of kick up as we go forward. Projects always lumpy, but we've got good visibility and a healthy funnel there. And I'd just say, you know, kind of that $1.1 billion level now is something that we aspire to be above on every quarter as we go forward.
Speaker Change: And ladies and gentlemen, our next question comes from Mike Halloran with Baird.
Mike Halloran: Hey, good morning, everyone.
Mike Halloran: Good morning, Mike. First, just on the power side of things, obviously the seculars are starting to move in Folser's favor, which is great. How do you see that playing out from a duration conversation?
Speaker Change: You know starting to see some of the aftermarket pieces today, but you know some of that refurb work can take time The projects can take time, but you know obviously a ton of excitement order books good funnel book funnel is good So maybe just frame up how that should play out over the next few years here
Speaker Change: Yeah, I would say that the horizon is even longer than two years, Mike. This is a really slow-to-move industry, and certainly on the nuclear side.
Speaker Change: You know, we've seen nice growth year-to-date, up 23%. You know, we like the bookings in the quarter, power is $150 million-plus.
Speaker Change: with $100 million of nuclear. The composition there was life extension in North America. So we had two nice awards there, giving us a healthy mix of bookings. And then also the Spotlight Award that I talked about on the new nuclear power in the UK.
Speaker Change: And then I'd say just generally what we're seeing is we're seeing traditional power discussions about how do we get power into
Speaker Change: So, think about, you know, bigger refineries, process industries, defalination plants. So there's a significant need for power to support those. And then, you know, that's kind of that normal baseload and traditionally has always been the highest.
Speaker Change: now combine with this new need to power substantially large data centers. And so you're seeing some pretty crazy stuff, right, where you get, you know, some of the big players in the tech space.
Speaker Change: securing capacity with traditional power or even with nuclear power plants.
Speaker Change: And we're seeing different dynamics in this industry than we've ever seen before. And so I just say, as we think through short-term and long-term, we've got a good, healthy funnel around all power activity, both traditional and nuclear. But then over the longer term, kind of the next 10 years,
Speaker Change: We really believe that nuclear will drive substantial growth and I think you'll see more life extensions in North America, you'll see more kind of plants that have been taken offline getting moved to go online. All of those facilities in the U.S. have full sort of content in it.
Speaker Change: In Europe, you're going to see plans for a new build that's going to take place over the next 10 to 15 years.
Speaker Change: India's got plans for new build, and Asia-Pacific has plans for new build. And so this is, I'd say, just a very steady kind of long-term growth outlook for FlowServe and for our kind of product families that support both traditional and the nuclear side.
Speaker Change: Thanks for that, makes a lot of sense there. And then obviously the recent acquisition, really good fit. How are you thinking about the funnel from here of opportunities, the willingness for you to go after that funnel in light of
Speaker Change: Morgan's acquisition, bandwidth, you know, anything along those lines just to give some context for how aggressive the funnel looks and your willingness to go after it.
Speaker Change: Sure, so I think we continue to be active and grow our opportunity funnel from an inorganic standpoint. There's a lot of excitement around the Mogus transaction and in part
Speaker Change: within our organization because it's such a great fit. And so I just highlight the elements that we think that that we think make this work. One, it's the strategy helps us diversify. It is, you know, an attractive but fair purchase price synergies available to us kind of at the 15 million dollar.
Speaker Change: run rate by the by the end of the second year.
Speaker Change: And the last point that I'll make goes to your bandwidth, Mike, which is that it's a relatively straightforward integration for us. And so we think as we, you know, finish out 2024, move into 2025, that we do have bandwidth as an organization, both from the strength of our balance sheet, which continues to get stronger, you know, by the day, but also within the organization to integrate acquisitions going forward.
Speaker Change: Great. Really appreciate it. Thank you.
Speaker Change: And our next question comes from Andrew Obin with Bank of America.
Andrew Obin: I guess, good morning.
Andrew Obin: Morning, Andrew. Hi, how are you? Just a question on FCD and, you know, not to take away from sort of great progress over the past year plus, but just maybe you can give us more color on FCD, just margins and also decline in OE bookings in the quarter and year to date. What gets this to inflect positive and just maybe more color as to what's driving this decline. Thank you.
Speaker Change: Sure. So I think to start with, you know, one, we were pleased with the operational performance overall of the business in the third quarter. If we had one surprise, we did anticipate seeing a bit more margin expansion in FCB during the quarter. The mix was a little less favorable than we anticipated, and the business, you know, determined they were going to undertake some more cost-out efforts.
Speaker Change: I'm not concerned about the bookings level that we're seeing, Andrew. We would like to see that mix shift a little bit to the MRO aftermarket side as we move forward to help that marginality. I would say overall, as a business unit,
Speaker Change: You know, we are focused, you know, Scotland.
Speaker Change: It's laid out that we are focused on both growth.
Speaker Change: and margin expansions. Certainly within our four business units in FPD, we are focused on growth and then margin expansion because we're happy, we're not satisfied, but we're pleased with the progress that we've made. As we look at FCD overall, we would like to see margin expansion
Speaker Change: and then growth. And so, you know, the bookings, the bookings performance in the quarter.
Speaker Change: is not necessarily where we want to be for three or four quarters, but if we can find a way to expand margins over this period of time, we would be more focused on that than the book to bill. Yeah, just to add to that, the team's got several initiatives around how to expand margins.
Speaker Change: We're working on a couple different things, and so I think you can expect to see margin progression as we go forward, even finishing the year, but also into 2025.
Speaker Change: Excellent. And just a follow-up question on power. I know people are focused on nuclear, but you know we're also hearing that people are likely to keep coal plants open for longer.
Speaker Change: And I was just wondering, what are you hearing from your customers about that, and what's potential impact on earnings? I appreciate that Nuclear is very profitable, but I would guess that coal is one of these legacy businesses is profitable as well. Thank you.
Speaker Change: Yeah absolutely so in the coal-fired power plants we actually have a substantial installed base and so you know we benefit when there's a life extension of a coal-fired power plant you know typically there's not really any new coal other than you know potentially some in China.
Speaker Change: But we are seeing extension of life on the coal side. We're seeing this in Europe as natural gas kind of dried up given the Ukraine conflict. We saw several operations in Germany and some other countries where they've extended the life of their coal assets.
Speaker Change: And then we're seeing a little bit of that in the U.S., and I would say that's probably more dependent on what happens in the election here. But I'd just say the overall comment, and this is probably more U.S. and Europe, given the demand side of power right now, you know, these markets are going to need all forms of electricity. And so whether that's coming from traditional power of coal or combined cycle with natural
Speaker Change: or nuclear, or some of the greener forms of energy like solar and wind, everything's going to need to contribute to match the demand growth that we're seeing.
Speaker Change: That's exactly right. Really appreciate your comment. Thanks so much.
Speaker Change: And our next question comes from Joe Giordano with TD Cowell. Please go ahead.
Joe Giordano: Hey guys, thanks for taking my questions. You know, I wanted to touch on nuclear. I know we spent a bunch of time there already, but if you were to think that a lot of stuff is being contemplated in that sector now in terms of how to bring on new capacity, whether it's SMRs or things like that, so how should we think about your opportunity set for some of these newer technologies versus like, you know, a restart of an old legacy type of nuclear plant?
Speaker Change: Yeah, I think that's a really good question. All of my comments were on what I'll call traditional nuclear. And so these are, you know, big power, nuclear power facilities driving, you know, substantial capacity onto the grid. On the SMR side, we are optimistic about
Speaker Change: Four different consortiums, including the Department of Energy.
Speaker Change: But what I'll say is, like, this is not going to happen anytime soon. And so we're still very much in development phase. There's a lot of R&D that still needs to go forward to make this a viable option. And I would just say, you know, kind of Scott's horizon is probably not— you're not going to see SMR be a meaningful part of the full-serve portfolio for the next decade.
Speaker Change: Beyond that though, I'd say is anybody's guess. I think some of the technology is incredibly promising some of the different ventures out there both in the US and
Speaker Change: in Europe seem to make a lot of sense.
Speaker Change: But I just say it's just not moving very quickly. And again, we're partnered with kind of three or four different technology players. I think there's, and I don't know the exact number, but let's say there's kind of 18 to 25 out there. And we hope we're picking winning horses, but it's hard to say right now who the winners will be on the SMR side.
Speaker Change: Just to confirm on that is there any reason to think that like on a gigawatt basis that you're like opportunity on something like that should be meaningfully different versus a traditional plant and then I just had one follow-up on yeah on the asbestos is there a way like
Speaker Change: Go ahead.
Speaker Change: Well, I was just going to say on the SMR side, yeah, I think that's a good way to say it. I mean, even on a small modular reactor, you're going to have pumps and valves, and I think that's a, just put it on the ratio of kind of what traditional looks like to SMR for our entitlement.
Speaker Change: And then just on the asbestos side,
Speaker Change: Webinar.
Speaker Change: Certainly, you know, that's something we take a look at from time to time, you know, in the past, these programs have been fairly well funded by
Speaker Change: by insurance and we think well-managed within FlowServe, but we're continuing to dust off that analysis and make sure that we're doing the right thing from our shareholders by continuing to manage this internally.
Speaker Change: Thanks, guys.
Speaker Change: And we'll move to our next question from Damian Karras with UBS.
Damian Karras: Hi, good morning, everyone.
Speaker Change: Good morning, David.
Damian Karras: Morning, Scott. So, sorry if I missed this, hopping over a little late from another call, but just the updated full-year guidance kind of on both the sales guide and just EPS, you know, it kind of implies a pretty wide range of outcomes in the fourth quarter. Would you maybe be able to just comment a little bit on that range and kind of the swing factors, you know, from the low end to the high end?
Scott Roe: Sure, so just to reiterate, I think right now
Speaker Change: that is in part due to the impact of the discrete item in the in the quarter in terms of that assessment at the at the midpoint.
Speaker Change: Really, our ability to reach to the higher point of the range would be around revenue. So, right now, we're anticipating not as big a step up as we would generally see going from the third quarter to the fourth quarter. That's largely driven by less POC revenue, quarter over quarter from the fourth quarter of last year from the Jafra project that's coming into play.
Speaker Change: So touching that kind of 6% at the high end of the population
Speaker Change: Revenue Guide would require a really strong book-to-bill quarter or pulling forward some of the POC revenue that we anticipate coming in 2025, so looking at something more at the midpoint at this stage in the quarter.
Speaker Change: Okay, got it. That's helpful. And then I want to ask you about the water and market. You had some pretty notable booking strength there. Curious if there are any large project awards that stick out, or are you just seeing broader-based strength?
Speaker Change: and given some of the unfortunate you know damages caused from the hurricanes in the southeast US just just curious if there's any you know any such you know associated drivers there maybe factoring in
Speaker Change: Sure, yeah, so we did have a really healthy water bookings in the quarter kind of 90 million dollars which is essentially double from what we saw last year.
Speaker Change: A lot of that was around flood control and industrial waste water, and so what we do well is kind of the more complex water where you're moving either a lot of water on kind of flood control or we're working with industrial waste to kind of recycle that or clean it up. And then we also do reasonably well on desalinization, although that's become a very competitive market.
Speaker Change: And so what we saw in the quarter were several awards in North America, and these were around urban areas that were truly around waste and flood control.
Speaker Change: That would be our sweet spot in North America, and so we had two nice projects there. You know, nothing too large, but let's call it $5 to $10 million. And then we also won one desalination project in the Middle East that was reasonably large.
Speaker Change: We continue to watch the desalination market. We think there's...
Speaker Change: Substantial growth opportunities there, although that's become incredibly incredibly
Speaker Change: competitive with some of the peer group, but we do think there's ways to drive more of a system approach when we think about, you know, pressure exchange technology, process improvement, Red Raven IoT, and then combining that with some of our high-energy pumps.
Speaker Change: But I would say overall, water is becoming more scarce, so desalination opportunities continue to grow. And then I'd say just we're seeing more and more investment with kind of local municipalities around making sure that they can manage either, you know,
Speaker Change: And our next question comes from Sari Boroditsky with Jeffreys.
Speaker Change: To start with, and then for 2025, thank you.
Speaker Change: Sure. So.
Speaker Change: So, just with respect to MOGIS, overall, you know, we think this is a business that's about $200 million of revenue annually at margins that are accretive to FlowServe. If you looked at the presentation, you can see the size of the valves and actuation that we're talking about as we look at them. And so, as you might anticipate, there is a higher percentage of POC revenue than we have on the rest of the valves portfolio.
Speaker Change: So, we're going to need to sort through sort of the existing backlog and shipments to understand how that $200 million would have fallen out this year under FLOSERV's revenue recognition model. And so, we have stopped short of providing a guide for MOGIS as we work through those details.
Speaker Change: given
Speaker Change: I don't anticipate that it's going to be an incredibly impactful for the first quarter, and we will be able to give a good read through based on what we see this quarter going into 2025.
Speaker Change: Okay, that's helpful. And then just, Bob, you mentioned the election, but given that it's next week, one of the items that's come up is the impact of regulation on energy projects. Could you just maybe comment on if your customers have talked about the impact of regulation, and if this is decreased, would you expect to see higher activity levels in dust sales for you?
Speaker Change: Thank you.
Bob: Sure, this is the one question that I didn't want to talk about, but...
Bob: What I will say is, you know, obviously there's two different parties, and one party supports less regulation, and so, you know, our customers
Bob: traditionally in the oil and gas side would prefer less regulation and you know they believe that you know less regulation allows them to move some of the projects forward particularly the LNG side
Bob: and some of the pipeline kind of growth that still needs some interconnection across the United States. And so we'll see what happens, but what I would say is overall is, you know, Fullsurf is going to, you know, we're going to keep our head down. We're going to continue to work on, you know, with our customers to drive growth.
Bob: And we believe regardless of what happens, we'll be able to continue to drive success and closer.
Speaker Change: Appreciate the comments.
Speaker Change: And our next question comes from Joe Ricci with FlowServe.
Joe Ricci: Okay, my first question, Scott, you mentioned, look, it's great to see the aftermarket bookings above 600 the last two quarters.
Joe Ricci: You talked about the capture rates in both of the different segments. I'm curious, like, as you think about the runway to capture your installed base.
Joe Ricci: I don't know if you want to use a baseball analogy or if you want to maybe just like give us a sense for how much room there is to continue to capture more of your installed base.
Speaker Change: Sure, I'll just I'll give you a specific example. So last week I was in Europe. I was with our European services and solutions team.
Speaker Change: on the pump side, and I actually visited one of our pump parts manufacturing locations in Italy.
Speaker Change: and that team was incredibly optimistic and you know even this year we've seen growth in what I'll call a relatively challenged market with the process industries in Europe and so
Speaker Change: You know, we've been able to move the capture rate up a couple hundred basis points this year and I believe there's incredible runway to keep moving that up and while we would love to say that our pump parts capture rate is in the high
Speaker Change: 60s or 70s, in reality, we're substantially lower than that, you know, somewhere in that kind of 30 to 40 percent range. And so, you know, I think with the increased focus on our ability to quote incredibly fast, so think, you know, minutes and hours versus days, and then the ability to generate a part within days and not in months is something that can still move the needle for us. And so that team is laser focused on speed. They have a mantra called speed wins.
Speaker Change: And I just say that whole team is incredibly passionate and aligned with the strategy to continue to support our customers. And so we're doing some really innovative stuff there. I'm excited. I was very excited and pleased with what I saw in Europe last week. And I believe we can continue that success globally from a services and solutions perspective.
Speaker Change: that have been super helpful and encouraging and I guess maybe the follow-on question I don't know if you guys are willing to lay out any pieces yet on the 2025 framework but to the extent you are be curious even if it's just broad parameters for how you're thinking about next year
Speaker Change: Yeah, maybe I'll start and Amy can jump in. You know, really what we're thinking right now is, you know, we put out the 2027 targets last year. We said 5% growth when we talked about some, you know, expanded margin and then an EPS target. And, you know, we've made incredible progress over the last 12 months, you know, along that. And I just say, you know, as we think about 2025,
Amy Schwetz: That's how we're thinking about it, and just continuing that momentum, continuing to connect dots to the 2027 long-term targets. Yeah, Scott's hit on it, and maybe just to touch a little bit more on the segments, and I referenced this earlier, I think that in FCD, we've seen tremendous sales growth.
Amy Schwetz: You know, coming from 23 to 24, next year is going to be more about margin expansion than sales growth, versus on the FPD side where we're not satisfied with margin expansion but we're pleased with the progress.
Amy Schwetz: that we've made. So we're focused on kind of growing that business and you see that within the within the makeup of our backlog currently. So maybe that's just a little bit more color for you at at the segment level. And then obviously, you know, in the next earnings call, we'll provide full year guidance and a lot of color on how we see the outlook for 2025.
Speaker Change: Thank you.
Speaker Change: And our next question comes from Brett Lindsey with Mizuho. Please go ahead.
Speaker Change: Hi, this is Eric Luckon for Brett Lindsey.
Speaker Change: Looking, growth appears to be broad-based from what it seems, except within
Speaker Change: you should expect a rebound in Europe. Thanks.
Speaker Change: Sure, yeah, the chemical market has been, you know, a little bit challenged that we've seen, I'd say.
Speaker Change: where we're seeing the areas of some concern would be Europe, particularly a little bit in the U.S. And then we're seeing an oversupply of production chemicals at this point. We're still highly levered to the chemical industry with our installed base, and so the aftermarket is important to us.
Speaker Change: I will say, and again, I was in Europe last week, I visited with some of our customers. There are real opportunities as they think about how they're going to manage their business differently. And so I'd say some of the exciting things are...
Speaker Change: putting recyclable plastics or other recyclables on the front end of their process, which is a change in flow loop, and there's flow control applications for that.
Speaker Change: And then secondly, just really thinking about how they drive more efficiency and productivity at their existing sites. And so, you know, we've talked to them about our Energy Advantage Program. We're talking to them about, you know, Red Raven and instrumenting and monitoring their pumps and valves. And then we're also talking about doing things differently in terms of
Speaker Change: How do we think about, you know, uptime, reliability, and then more of a long-term service contract than some of the traditional call-outs? And so...
Speaker Change: Even though it's been a challenging time in the chemical space, I think there's opportunities for us as we go forward.
Speaker Change: On a positive side, we do expect the Middle East to really, we'll start to see some significant investment around the petrochemical and base chemical markets and capacity expansion in the Middle East, and we're well positioned to take advantage of that as we see that growth start in 2025 and beyond.
Speaker Change: Thank you. I'll leave it up there.
Speaker Change: So cut. Thanks Eric.