Q2 2025 Flowserve Corp Earnings Call

Operator: Please stand by. We're about to begin. Good day and welcome to the Flowserve second quarter 2025 earnings call. Today's conference is being recorded. At this time, I'd like to turn the conference over to Brian Ezzell, Vice President, Investor Relations, Treasurer, and Corporate Finance. Please go ahead.

Please stand by. We're about to begin.

Good day and welcome to the flow. Serve second quarter 2025 earnings call. Today's conference is being recorded at this time. I'd like to turn the conference over to Brian easel, vice president, investor relations, treasure and corporate finance. Please go ahead.

Brian Ezzell: Thank you, and good morning, everyone. Welcome to Flowserve's second quarter 2025 business update. I'm joined by Scott Rowe, Flowserve's President and Chief Executive Officer, and Flowserve's Chief Financial Officer, Amy Schwetz. Turning to slide two, our discussion will contain forward-looking statements that are based upon information available as of today. Actual results may differ due to risks and uncertainties. Refer to additional information, including our note on non-GAAP measures and our press release, earnings presentation, and SEC filings, which are available on our website. I will now turn it over to Scott.

Scott Rowe: Great. Thank you, Brian. Good morning, everyone. Before we talk about our outstanding second quarter results, I want to provide an update on the Chart merger. As we announced yesterday, we reached an agreement to terminate the proposed merger with Chart Industries. When we were first approached by Chart about the potential merger, we took a very disciplined approach to the discussion, with a focus on ensuring the strong value creation opportunities offered by Flowserve would continue in the merger. This disciplined approach guided us through our decision-making process following the subsequent all-cash offer for Chart from Baker Hughes. Based on our assessment, further pursuing the merger would have been value-diminishing to Flowserve shareholders, given the additional cash, leverage, and diluted ownership required to continue the process.

Thank you and good morning everyone. Welcome to flow service. Second quarter 2025 business update. I'm joined by Scott Rowe flow service, president and chief executive officer and Full Service Chief Financial Officer. Amy sweats turning to slide 2, our discussion will contain forward-looking statements that are based upon information available. As of today, actual results May differ due to risks and uncertainties refer to additional information, including our note on non-gaap measures. And our press release earnings presentation, and SEC filings, which are available on our website. I will now turn it over to Scott.

Great. Thank you, Brian. Good morning, everyone. Before we talk about our outstanding second quarter results, I want to provide an update on the Chart merger. As we announced yesterday, we reached an agreement to terminate the proposed merger with Chart Industries.

When we were first approached by chart about the potential merger, we took a very disciplined approach to the discussion with a focus on ensuring the strong value creation opportunities. Offered by Flowserve would continue in the merger. This discipline approach guided us through our decision-making process. Following the subsequent all-cash offer for chart from Baker Hughes

Scott Rowe: While we are disappointed in this outcome, we are confident that this decision was in the best interest of our shareholders and our company. As a result, Flowserve received a $266 million termination payment in accordance with our signed agreement. In the near term, we'll evaluate opportunities to deploy this capital to create value for our shareholders, including through share repurchases. Over time, we remain committed to a disciplined approach to capital allocation, including M&A. While the outcome wasn't what we wanted, we have no regrets in our decision to pursue this opportunity or with our decision to terminate the agreement. The Flowserve team and our board of directors were thoughtful, disciplined, and focused on our stakeholders throughout this engagement. And I believe we are in a better place today than ever before to capitalize on the opportunities in front of us. Let's now turn to slide three.

Based on our assessment further pursuing, the merger would have been valued diminishing. The flow surf shareholders, given the additional cash, leverage and diluted ownership required to continue the process.

While we were disappointed in this outcome, we are confident that this decision was in the best interest of our shareholders, and our company.

As a result closer have received a 266 million termination payment in accordance with our signed agreement.

Near term will evaluate opportunities to deploy this Capital to create value for our shareholders, including through share repurchases. Over time we remain committed to a disciplined approach to Capital allocation including m&a.

While the outcome wasn't, what we wanted, we have no regrets in our decision to pursue this opportunity or or with our decision to terminate the agreement, the closer team and our board of directors were thoughtful disciplined and focused on our stakeholders throughout this engagement. And I believe, we are at a better place today than ever before, to capitalize on the opportunities in front of us.

Scott Rowe: We delivered exceptional second quarter earnings in a dynamic macro environment, demonstrating the focus and strong execution of our associates. We are encouraged by our momentum through the first half of the year and remain confident in our ability to execute at a high level, even as the environment remains fluid. As a result, we increased our full-year adjusted EPS guidance to $3.25 to $3.40, which at the midpoint represents an increase of more than 25% year over year. Looking at our second quarter results in detail, we delivered bookings of approximately $1.1 billion and revenue growth of 3%, with adjusted gross margins expanding 260 basis points to 34.9%. Adjusted operating margins were 14.6%, resulting in impressive incremental margins of 94% during the quarter, while adjusted earnings per share was $0.91, an increase of 25% compared to the prior period.

Let's now turn to slide 3. We delivered exceptional second quarter earnings and a dynamic macro environment demonstrating the focus and strong execution of our Associates.

We are encouraged by our momentum. Through the first half of the year and remain confident in our ability to execute at a high level, even as the environment remains fluid.

as a result, we increased our full year adjusted EPS, guidance to 3.25 to 3.40, which at the midpoint represents an increase of more than 25% year-over-year,

In detail we delivered bookings of approximately 1.1 billion dollars in Revenue. Growth of 3% with adjusted gross. Margins expanding 260 basis points to 34.9%

Scott Rowe: The Flowserve business system is taking hold across the organization, driving excellence through functional discipline and accountability within our operating divisions and business units. We continue to be laser-focused on expanding margins and driving profitable growth. All products are now fully utilizing the 80/20 framework, and we believe there are further opportunities to increase margins as we are still in the early phases of this program. For the full year, we now expect to expand adjusted operating margins 200 basis points year over year. Turning to slide four, we delivered solid bookings performance with our fifth consecutive quarter of aftermarket bookings above $600 million. Our focus on growing the aftermarket business continues to pay dividends, and our high service levels are translating into improved aftermarket capture.

Adjusted operating margins were 14.6% resulting in impressive incremental margins of 94% during the quarter while adjusted. Earnings per share was 91 cents, an increase of 25% compared to the prior period.

business system is taking hold across the organization driving Excellence through functional discipline and accountability within our operating divisions and business units,

we continue to be laser focused on expanding margins and driving profitable growth.

Products are now fully utilizing the 8020 framework and we believe there are further opportunities to increase margins. As we are still in the early phases of this program for the full year. We now expect to expand adjusted operating margins, 200 basis points year-over-year,

To slide 4. We delivered. Solid bookings, performance with our fifth consecutive quarter of aftermarket bookings above, 600 million.

Scott Rowe: Our largest award in the quarter was an $11 million nuclear aftermarket order for the ongoing upgrade of a nuclear power plant in North America. Additionally, in pumps, we secured our first production order related to a small modular nuclear reactor, or SMR, which is a testament to Flowserve being a leader in the advanced nuclear technology space. Total nuclear bookings were nearly $60 million during the second quarter. We also booked several other smaller projects in the $5 to $10 million range across different end markets. Second quarter bookings were largely driven by our core business of aftermarket MRO and short-cycle activities. This base business remained healthy in the quarter as customers continue to focus on uptime and facility utilization.

Our focus on growing the aftermarket business continues to pay dividends and our high service levels are translating into improved aftermarket capture.

Our largest award in the quarter, was an 11 million nuclear, aftermarket order for the ongoing upgrade of a nuclear power plant in North America.

Additionally, in pumps, we've secured our first production order related to a small modular nuclear reactor or SMR

Which is a testament to closer of being a leader in the advanced nuclear technology space.

Total nuclear bookings were nearly $60 million during the second quarter.

We also booked several other smaller projects in the 5 to 10 million dollar range across different in markets. Second quarter. Bookings were largely driven by our Core Business of aftermarket mro in short cycle activities?

Scott Rowe: Overall, our markets remain healthy and our project funnel continues to grow, though we did see approvals for a few projects pushed from second quarter to the third quarter as customers assessed the macro environment and tariff situation. By end market, we generated strong year-over-year growth in general industries of 9%. Energy and chemical bookings decreased as expected, given two large Middle East awards totaling $150 million that did not repeat this year. We continue to see good opportunities in the Middle East with medium-sized projects across a variety of end markets. We were happy to sign an MOU with Honeywell to integrate our Red Raven digital offering into their asset performance management system called Forge. This exciting step forward validates the incredible technology we have developed and is an opportunity to significantly scale our Red Raven offering.

This based business, remained healthy in the quarter as customers, continue to focus on uptime in facility utilization.

Overall our markets remain healthy and our project funnel continues to grow though. We did see a approvals for a few projects, pushed from second quarter to the third quarter as customers assess the Marco environment and tariff situation.

by in Market, we generated strong year-over-year growth in general industries of 9%

Energy and chemical, bookings. Decreased as expected, given 2 large Middle East Awards, totaling $150, million that did not repeat this year.

We continue to see good opportunities in the Middle East with medium-sized projects across a variety of in markets.

We were happy to sign an mou with Honeywell to integrate our Red Raven digital offering into their asset Performance Management System called Forge.

Scott Rowe: Leveraging this partnership, we have the ability to serve large industrial facilities, enhancing efficiency and operating predictability for our customers while creating a recurring stream of revenue for Flowserve. We look forward to sharing more details as we make progress with our customers. Turning to slide five, while the macroeconomic environment continues to be dynamic, our end markets remain healthy. Asset utilization for large process industries remains steady, and maintenance spending has continued as expected. Our project funnel remains healthy and increased sequentially in all of our end markets. In particular, the nuclear project funnel continues to grow and is at the highest level we have seen. While some new project approvals in the chemical and energy markets have been pushed out a quarter or two, there have been no unusual backlog cancellations or significant change in activity to date. Our first half book-to-bill was a strong 0.99 times.

this exciting step forward validates, the incredible technology we have developed, and is an opportunity to significantly scale our Red Raven offering

Leveraging. This partnership, we have the ability to serve large industrial facilities, enhancing efficiency and operating predictability for our customers, while creating a recurring stream of revenue for flow surf, we look forward to sharing more details as we make progress with our customers.

Turning to slide 5.

While the macroeconomic environment continues to be dynamic, our in markets, remain healthy.

At utilization for large process. Industries remain, steady, and maintenance spending has continued as expected.

Our project funnel remains healthy and increased sequentially in all of our markets. In particular, the nuclear project funnel continues to grow and is at the highest level we have seen.

While some new project approvals in the chemical and energy markets, have been pushed out, a quarter or 2, there have been no unusual backlog cancellations or significant change in activity to date.

Scott Rowe: For the full year, we expect our book-to-bill ratio to be approximately 1.0 times, assuming project approvals continue as expected. Our strong backlog of $2.9 billion continues to position us well for future growth in the second half of the year, as well as into 2026. Our elevated backlog provides a comforting level of certainty in the current market environment. Turning to slide six, trade policy continues to evolve, and we remain focused on building resiliency into our supply chain, as well as responding as quickly as possible to the latest tariff changes. As we look at the tariff rates in place today, we estimate the annualized gross impact from these tariffs before any mitigating actions to be between $50 to $60 million. This compares to the range we shared in April of $90 to $100 million.

Our first half book, the bill was a strong 0.99 times for the full year. We expect our book to Bill ratio to be approximately 1.0 times assuming project approvals continue as expected, our strong backlog of 2.9 billion dollars continues to position us. Well for future growth in the second half of the year as well as into 2026.

Our elevated. Backlog provides a comforting level of certainty in the current market environment.

Turning to slide 6.

Trade policy continues to evolve and we remain focused on building resiliency into our supply chain, as well as responding as quickly as possible to the latest share of changes.

As we look at the tariff rates in place today, we estimate the annualized gross impact from these tariffs, before any mitigating actions, to be between $50 million to $60 million.

Scott Rowe: We continue to actively shift sourcing around the globe, leveraging our regional structure to reduce the overall tariff impact for our customers. The pricing actions we took in response to tariffs are now fully in place, with no noticeable impact to demand. We estimate the impact for tariffs to the second quarter net of our mitigating actions were neutral to earnings, and our goal remains to be tariff impact neutral for the full year. I would like to conclude with the progress we are making with the Flowserve business system. Operational excellence is now fully embedded with how we run our global manufacturing and is helping us deliver for our customers and our shareholders. Additionally, we are now executing 80/20 across all of our business units, and we believe there's significantly more opportunity as we decrease complexity in our product portfolio offering.

This compares to the range we shared in April of $90 million to $100 million.

We continue to actively shift, sourcing around the globe leveraging, our regional structure to reduce the overall tariff impact for our customers.

The pricing actions, we took in response to tariffs are now fully in place with no noticeable impact to demand.

I would like to conclude with the progress we are making with the Flowserve business system.

Operational excellence is now fully embedded with how we run our Global manufacturing and is helping us deliver for our customers and our shareholders.

Scott Rowe: Finally, we launched commercial excellence in the second quarter with the expectation that this program drives long-term profitable growth. We are excited about the tenets of the commercial excellence program, and we are confident in our ability to gain traction quickly. Let me now turn the call over to Amy to speak about our financials in greater detail. Amy.

Additionally, we are now executing 80/20 across all of our business units, and we believe there's significantly more opportunity as we decrease complexity in our product portfolio offering.

finally, we launched commercial excellence in the second quarter with the expectation that this program drives long-term profitable growth

Amy Schwetz: Thank you, Scott, and good morning, everyone. Turning to slide seven, the strong second quarter is another data point in demonstrating both the execution focus and the potential to be realized of the Flowserve business. We delivered second quarter revenue of $1.2 billion, adjusted operating margin of 14.6%, and $0.91 of adjusted earnings per share, representing 25% earnings growth versus the prior year period. I want to thank our associates for their efforts, which were critical to delivering exceptional results during the quarter. Overall, revenues grew 3% versus the prior year period, with the MOGAS acquisition and foreign currency benefiting revenues by 260 and 110 basis points, respectively, while organic sales decreased about 100 basis points. Our 80/20 program is driving significant benefits to gross profits. However, the actions we have taken to reduce SKU counts were a modest headwind to organic growth in the quarter.

We're excited about the tenants of the commercial Excellence program and we are confident in our ability to gain traction quickly. Let me now turn the call over to Amy to speak about our financials in Greater detail, Amy.

Thank you, Scott and good morning everyone.

Turning to slide.

My order is another data point and demonstrating both, the execution focus and the potential to be realized of the flow serve business.

We delivered second quarter revenue of 1.2 billion dollars. Adjusted operating margin of 14.6% and 91 cents of adjusted earnings per share representing 25% earnings growth versus the prior year period.

I want to thank our Associates for their efforts, which were critical to delivering exceptional results. During the quarter,

Overall revenues grew 3% versus the prior year period, with the Mogus acquisition and foreign currency benefiting revenues by 260 and 110 basis points, respectively, while organic sales decreased about 100 basis points.

Amy Schwetz: Aftermarket revenues grew 7%, driven by continued aftermarket capture, while original equipment sales decreased 2%, driven by lower engineered to order work in the quarter. Shifting to margins, we generated an adjusted gross margin of 34.9%, representing a 260 basis point year-over-year increase and our seventh consecutive quarter of sequential margin improvement. In the quarter, adjusted gross margins benefited from strong execution of the Flowserve business system, with benefits from our 80/20 complexity reduction program proving to be a tailwind in the quarter. The quarter also benefited from favorable product mix within original equipment sales and higher aftermarket sales in the FPD segment. We believe the continued execution of the Flowserve business system positions us well to further expand margins.

Our 8020 program is driving, significant benefits to gross profits. However, the actions we have taken to reduce skew counts were a modest headwind to organic growth in the quarter.

After market revenues grew 7% driven by continued aftermarket capture. While original equipment sales decreased 2% driven, by lower engineered work, engineered to order work in the quarter.

Shifting to margins, we generated an adjusted gross margin of 34.9%, representing a 260 basis point year-over-year increase and our seventh consecutive quarter of sequential margin improvements.

In the quarter adjusted gross margins benefited from strong, execution of the Flowserve business system with benefits from our 8020 complexity Reduction Program, proving to be a Tailwind in the quarter.

The quarter also benefited from favorable product mix within original equipment, sales and higher aftermarket sales in the fpd segment.

We believe the continued execution of the Flowserve business system positions us well to further expand margins.

Amy Schwetz: Higher adjusted gross margins, coupled with consistent SG&A as a percentage of sales, led to adjusted operating margin expanding 210 basis points versus the prior year period to 14.6% and represented exceptional incremental margins of 94%. Adjusted operating income was $174 million, a 20% increase versus last year. Our adjusted tax rate for the quarter was 17.1%, driven by discrete tax benefits from foreign operations. The change in tax rate versus the prior year period favorably impacted adjusted EPS by approximately $0.05. Altogether, we delivered robust earnings per share of $0.91 for the second quarter. Turning to our segments and starting with FPD on slide eight, FPD delivered solid bookings with growth in general industries, but lower bookings than last year, driven by the non-recurrence of certain large projects and some project push-outs to the back half of the year.

Higher adjusted gross margins, coupled with consistent SG&A as a percentage of sales, led to adjusted operating margin expanding 210 basis points versus the prior year period to 14.6%. This represented exceptional incremental margins of 94%.

Adjusted. Operating income was 174 million. A 20% increase versus last year.

Our adjusted tax rate for the quarter was 17.1% driven by discrete tax benefits from foreign operations.

The change in tax rate versus the prior year, period. Favorably impacted adjusted EPS by approximately 5 cents.

Altogether. We delivered robust, earnings per share of 91 cents for the second quarter.

Turning to our segments and starting with fpd on slide 8.

Amy Schwetz: FPD grew sales 1% versus the prior year, driven by continued strength in aftermarket activity. We are particularly pleased with adjusted gross margin performance of 36.8%, an increase of 390 basis points compared to last year, driven by our 80/20 program, increased productivity, and favorable mix. These results translated into FPD delivering an outstanding adjusted operating margin of 20.3%, a 340 basis point increase versus the prior year period. We have made tremendous progress in FPD in the first half, adjusted operating margins of 19%. FPD is now operating at margins similar to best-in-class industrials, and yet we still see opportunities to increase FPD margins from here.

Fpd delivered, solid bookings with growth in general Industries, but lower bookings than last year driven by the non-recurrence of certain large projects and some project push outs to the back half of the year.

Fpd grew sales 1% versus the prior year driven by continued strength in aftermarket activity.

We are particularly pleased with adjusted gross margin performance of 36.8% and increase of 390 basis points compared to last year. Driven by our 8020 program, increased productivity and favorable mix,

These results translated into fpd delivering an outstanding adjusted operating margin of 20.3%.

A 340 basis point increase versus the prior year period.

Amy Schwetz: While margins may vary modestly quarter to quarter, largely driven by mix, we see an opportunity for FPD operating margins to be at 20% or more over time, which would be well above the long-term targets we had previously established to deliver by 2027. Turning to FPD on slide 10, in the quarter, FPD delivered bookings growth of 2% and sales growth of 7%, driven by MOGAS. FPD adjusted growth and adjusted operating margins were 30.8% and 12.2%, respectively. MOGAS unfavorably impacted FPD adjusted operating margins by roughly 260 basis points, largely due to the fabricated modules business and to a lesser extent inventory write-offs, which together resulted in an operating loss for MOGAS.

We have made tremendous progress in FPD. In the first half, adjusted operating margins of FPD are now at 19%. FPD is operating at margins similar to best-in-class industrials, and yet we still see opportunities to increase FPD margins from here.

Quarter to quarter, largely driven by mix.

we see an opportunity for fpd operating margins to be at 20% or more over time, which would be well above the long-term targets, we had previously established to deliver by 2027

Turning to FCD on slide 10.

In the quarter, FCD delivered bookings growth of 2% and sales growth of 7%, driven by Mogus.

FCD adjusted growth.

And adjusted operating. Margins were 30.8 and 12.2% respectively.

Mogus unfavorably impacted FCD adjusted operating margins by roughly 260 basis points, largely due to the fabricated modules business and, to a lesser extent, inventory write-offs.

Amy Schwetz: We have not bid on or accepted any fabricated modules orders since acquiring the MOGAS business, and after we shipped the last remaining order, we do not expect to continue this type of activity, which is consistent with our plans at acquisition. While the results are lower than we expected, we recognize the acquisition is still in early days and that synergy realization is on track. We remain excited about the long-term outlook for MOGAS, which expands our offerings in the attractive mining and minerals markets and enhances our diversification efforts. To be clear, FPD margins are not meeting our margin expectations. However, we are executing on the same elements of the Flowserve business system that have yielded exceptional results for FPD, and we believe we'll do the same here. It's important to note that absent MOGAS, FPD adjusted gross margins increased 180 basis points versus prior year.

Which together resulted in an operating loss for mogus.

We have not bid on or accepted any fabricated module orders since acquiring the Mogus business, and after we ship the last remaining order, we do not expect to continue this type of activity, which is consistent with our plans at acquisition.

While the results are lower than we expected, we recognize the acquisition is still in early days, and that Synergy realization is on track.

We remain excited about the long-term outlook for Mogus, which expands our offerings in the attractive mining and minerals markets and enhances our diversification efforts.

To be clear, FCD margins are not meeting our margin expectations. However, we are executing on the same elements of the Closer Business System that have yielded exceptional results for FPD, and we believe will do the same here.

Come to note that absent, mogus FCD, adjusted gross, margins increased 180 basis points versus prior year.

Amy Schwetz: Turning now to cash flow on slide 10, we delivered strong cash from operations of $154.4 million during the quarter, driven primarily from robust earnings generation. As expected, day sales outstanding improved sequentially due to increased receipts from milestone billings and accrued liabilities with a modest source of cash following last quarter's performance-based incentive compensation payout. Overall, adjusted primary working capital as a percent of sales was 30.1%. Working capital efficiency remains an opportunity and a priority. We expect continued improvement in our cash from operations in the second half of the year. For the quarter, capital expenditures were $17 million and resulted in strong free cash flow of $138 million and a free cash conversion ratio of 115%. For the full year, we continue to expect a free cash flow to adjusted net earnings ratio of 90% or more.

Turning now to cash flow on, slide 10.

We delivered. Strong cash from operations of 150144 million dollars during the quarter driven primarily from robust earnings generation.

As expected Day sales, outstanding improved sequentially due to increased receipts from Milestone Billings and acred liabilities was a modest source of cash Following last quarter's performance-based, incentive compensation payout.

Overall adjusted primary working capital as a percent of sales was 30.1%.

Working capital efficiency remains an opportunity and a priority.

We expect continued improvement from in our cash from operations in the second half of the year.

For the quarter, capital expenditures were $17 million, which resulted in strong free cash flow of $138 million and a free cash conversion ratio of 115%.

Amy Schwetz: Other uses of cash during the second quarter included nearly $60 million for dividends and share repurchases combined. Importantly, we closed the quarter with a net debt to adjusted EBITDA ratio of 1.25 times, our lowest level in the last decade, providing significant flexibility for capital allocation choices. It's important to note that with our current leverage level, the $266 million break fee represents an opportunity to allocate capital. As we have demonstrated, we will be thorough and disciplined in approach, including consideration of shareholder returns. We currently have over $200 million remaining under our share repurchase authorization. Turning to our 2025 outlook on slide 11, while the environment continues to evolve, we delivered robust first-half results and remained focused and committed on growth, margin expansion, and cash flow generation in the second half of the year.

for the full year, we continue to expect a free cash flow to adjusted net earnings ratio of 90% or more

Other uses of cash during the second quarter included nearly $60 million for dividends and share repurchases combined.

Importantly, we closed the quarter quarter with a net debt to adjusted EB Evita ratio of 1.25 times. Our lowest level in the last decade providing significant flexibility for Capital allocation choices.

It's important to note that with our current leverage level.

The 266 million break fee represents an opportunity to allocate capital.

As we have demonstrated, we will be thorough and disciplined in approach including consideration of shareholder returns.

We currently have over 200 million dollars remaining under our share repurchase authorization.

Turning to our 2025 outlook on, slide 11.

Amy Schwetz: As a result, we are increasing our earnings guidance, including adjusted operating margin expansion of 200 basis points and adjusted earnings per share of 325 to 340. The macro environment has resulted in some bookings and revenue deferrals, and we now expect organic sales growth to range from 3% to 4%, a modest decrease from our prior guidance of 3% to 5%, though back half organic growth is expected to be higher than the first half organic growth. With the weakening of the US dollar, we also expect the impact from currency rates to be neutral to slightly positive to growth and earnings for the full year. We also expect this year's tax rate to be 20%, a modest improvement versus our prior guidance of 21%, driven by discrete benefits from foreign operations. Lastly, we expect the MOGAS operations to now contribute approximately $0.08 to full-year adjusted EPS.

While the environment continues to involve evolve, we delivered robust first, half results, and remain focused and committed on growth margin expansion and cash flow generation in the second half of the year.

As a result, we are increasing our earnings guidance including adjusted operating margin expansion of 200 basis points and adjusted earnings per share of 325 to 340.

The macro environment has resulted in some bookings and revenue deferrals. And we now expect organic sales growth to range, from 3, to 4 percent, a modest decrease from our prior guidance of 3 to 5%.

So, back cap, organic growth is expected to be higher than the first half organic growth.

With the weakening of the US dollar. We also expect the impact from currency rates to be neutral to slightly positive to growth and earnings for the full year.

% a modest Improvement versus our prior guidance of 21%, driven by discrete benefits from foreign operations.

Lastly, we expect the mogus operations to now contribute, approximately 8 cents to full year adjusted eps.

Amy Schwetz: Turning to the progression of earnings, we expect to deliver higher earnings in the second half of the year compared to the first half, driven by increased revenues, but tempered somewhat by a higher tax rate and a more normalized mixed composition versus that in the second quarter, which we expect to modestly impact back half gross margins. Specifically, we would expect Q3 revenue to be similar to Q2 and to include the aforementioned shift in mix. Revenue in Q4 will experience the traditional ramp with incremental volume benefiting operating income, with margins increasing sequentially from Q3 levels. On a year-over-year basis, we continue to expect growth and operating margin expansion in both the third and fourth quarters.

Turning to the progression of earnings. We expect to deliver higher earnings in the second half of the year compared to the first half driven by increased revenues but tempered somewhat by a higher tax rate and a more normalized mixed composition versus that in the second quarter, which we expect to modestly impact back, half gross margins.

Specifically, we would expect Q3 Revenue to be similar to Q2, and to include the aforementioned shift in mix.

Revenue in Q4 will experience this. The traditional ramp with incremental volume will benefit operating income, with margins increasing sequentially from Q3 levels.

On a year-over-year basis. We continue to expect gross and operating margin expansion. In both the third and fourth quarters.

Amy Schwetz: Additionally, our annual true-up of certain incurred but not reported liabilities is expected to occur in the third quarter, though this true-up will be excluded from our adjusted results in 2025 and going forward. We continue to expect the fourth quarter to be our highest earnings quarter, driven by the acceleration of growth, acquisition synergies, and our 80/20 program results. In summary, I am proud of our first-half results and believe we are well positioned to drive year-over-year earnings growth in the second half of the year. Let me now turn the call back to Scott.

Additionally, our annual true-up of certain incurred but not reported liabilities is expected to occur in the third quarter though. This true-up will be excluded from our adjusted results in 2025 and going forward.

We continue to expect the fourth quarter to be our highest earnings quarter driven by the acceleration of growth acquisition synergies, and our 8020 program results.

Scott Rowe: Thanks, Amy. We'll now turn to slide 12. Looking ahead, I remain excited about our ability to drive significant value for our shareholders. We are executing from a clear position of strength with significant momentum. Global demand for our mission-critical flow control products and solutions remains robust, and our 3D strategy has us positioned to deliver sustained growth. The Flowserve business system is accelerating performance across the organization, and we see further opportunities to drive growth, productivity, and margin expansion to unlock further value. Our strong free cash flow generation positions us to invest in innovation and strategic initiatives to support our customers' evolving needs across the industrial spectrum. In closing, on slide 13, our end markets remain healthy, and our execution is the best I've seen so far, with more opportunities for improvement.

In summary, I am proud of our first-half results and believe we are well positioned to drive year-over-year earnings growth in the second half of the year. Let me now turn the call back to Scott. Thanks, Amy. Uh, we'll now turn to slide 12. Looking ahead, I remain excited about our ability to drive significant value for our shareholders. We are executing from a clear position of strength with significant momentum.

Global demand for our mission-critical flow control products and solutions remains robust. In our 3D strategy, he has us positioned to deliver sustained growth.

The closer business system is accelerating performance, across the organization. And we see further opportunities to drive growth productivity and margin expansion to unlock further value.

Our strong free cash flow generation positions us to invest in innovation, in strategic initiatives to support our customers evolving needs across the industrial Spectrum.

Scott Rowe: We continue to deliver towards our 2027 margins and EPS targets and are well positioned to deliver strong performance for the full year in 2025. The midpoint of our updated adjusted EPS guidance represents an impressive 27% increase versus last year, and combined with the significant EPS growth we delivered in 2024, we are positioned to grow adjusted EPS nearly 60% since 2023. I'm proud of our associates and their hard work to deliver significant value for our shareholders, and we look forward to continuing to do so in the future. With that, I'll turn the call over to the operator to open up questions and answers.

In closing on slide 13, our markets remain healthy and our execution is the best I've seen so far, with more opportunities for improvement. We continue to deliver towards our 2027 margins and EPS targets and are well positioned to deliver strong performance for the full year in 2025.

The midpoint of our updated adjusted EPS guidance represents an impressive, 27% increase versus last year and combined with a significant EPS growth. We delivered in 2024, we are positioned to grow adjusted EPS nearly 60% since 2023.

I'm proud of our Associates and their hard work to deliver significant value for our shareholders and we look forward to continuing to do. So in the future

with that, I'll turn the call over to the operator to open up questions and answers.

Operator: Thank you. If you are dialed in via the telephone and would like to ask a question, please signal by pressing star one on your telephone keypad. If you are using a speakerphone, please make sure your mute function is turned off to allow your signal to reach our equipment. Again, press star one to ask a question. We'll take our first question from Andy Koppowitz with Citi Group.

Thank you, if you are dialed in via the telephone and would like to ask a question, please signal by pressing star 1 on your telephone keypad. If you are using a speaker-phone, please make sure your mute function is turned off to Liar, signal tree to our equipment, again, press star 1 to ask a question,

We'll take our first question from Andy, couple woods, with Citi group.

Andy Kaplowitz: Good morning, everyone.

Good morning, everyone.

Scott Rowe: Morning, Andy. Good morning.

Good morning. Hey, Andy, good morning.

Andy Kaplowitz: Scott, can you give more color into the bookings environment and your expectation for book to bill around one for the year, which I think would imply booking slightly over one for the second half? So can you talk about the visibility toward those bookings? Are you seeing any evidence that some of the delayed projects you saw in Q2 are starting to move forward again in Q3? And I think you mentioned the funnels up sequentially. Any way to quantify what the funnel actually looks like?

Scott, can you give more color into the bookings environment in your expectation? Provoked to Bill around 1 for the year, which I think would imply bookings slightly over 1 for the second half. So we can talk about the visibility towards those bookings. Are you seeing any evidence that some of the delayed projects you saw in Q2 are starting to move forward again in Q3? I think you mentioned the funnel is up sequentially; any way to quantify what the funnel actually looks like?

Scott Rowe: Sure. Yeah. You know, obviously, the market is a little bit uncertain right now. Certainly, in the second quarter, the macro picture plus the tariffs really impacted some of the project spending and some of those projects just shifting. And it makes sense, right? I mean, operators want to have clear financial returns in their assessments before they pull the trigger. And so I'd say, you know, not overly surprising for us. On the positive side, our run rate in aftermarket business was incredibly strong, and we didn't see any slowdown at all in that run rate or aftermarket business throughout Q2. And, you know, we certainly don't expect that on the go-forward basis. You know, as you said, Q2, well, first half of the year, book to bill is 0.99.

Scott Rowe: And so we're, you know, we believe at this point, with everything we know, that the full year will be 1.0, which implies a, you know, slightly better than 1.0 in the second half of the year. And, you know, right now, the project funnel is up sequentially, and so the opportunities are there. Just as a reminder, that funnel number is a one-year funnel, and so that would take us into the second half of 2026. But the teams have a bottom-up approach, and, you know, we wouldn't talk about 1.0 if we didn't have the visibility to deliver that. And so, you know, I'd say, you know, there is some risk with it as, you know, there continues to be some uncertainty in the trade environment, which causes cost uncertainty with projects. And so I'd say that's what we're watching the closest, is the project environment.

Scott Rowe: It's impacting the energy side of our business and the chemical side of our business more than anything else. General Industries appears to be pretty robust at this point. We had some really nice General Industry bookings in the quarter, and then the power bookings remain incredibly strong. And so we have seen, you know, back to your last kind of question was, you know, we have seen some projects now move into financial decision in Q3, and so we're confident we'll win some nice awards in Q3. And again, given the current environment, you know, we feel as comfortable and confident as we can to deliver 1.0, given everything we know today.

Market business throughout Q2 and you know we certainly don't expect that on the go forward basis you know as you said Q Q2 well first half of the Year looked to bill is 0.99. Um and so we're you know we're we believe at this point with everything we know that the full year will be 1.0 which implies you know slightly better than 1.0 in the in the second half of the year and you know right now the the project funnel is up sequentially and so the opportunities are there just as a reminder that funnel number is a 1 year funnel and so that would take us into the second half of of 2026 but the teams have a a bottom up approach and you know we wouldn't talk about 1.0 if we didn't have the business visibility to deliver that and so you know I'd say you know, there there is some risk with it. As you know, there there continues to be some uncertainty in the trade environment, um, which causes cost uncertainty with, with projects and so I'd say that's what we're watching. The closest is the project environment its impact

The energy side of our business, in the chemical side of our business, more than anything else. General Industries appears to be pretty robust. At this point, we had some really nice General Industry, bookings in the quarter, and then the power bookings remain, incredibly strong. And so we have seen, you know, back to your, your last kind of question was, you know, we have seen some projects now, move into to financial decision in Q3. And so, we're confident, we'll win some some nights Awards in Q3. And again, given the current environment

Amy Schwetz: Yeah. And Andy, the only thing that I would add to that is, you know, as we look at July activity, Scott referenced really no large project orders were placed in the second quarter, and this month already, we've seen a large project order, you know, sort of the size of the three that were in the $11 to $12 million range in the third quarter combined. So we feel pretty good about that project funnel delivering in the third quarter.

You know, we feel we feel as comfortable as comfortable and confident as we can to deliver 1.0 given everything we know today.

Yeah, and Andy, the only thing that I would add to that is, you know, as we look at July activity, Scott referenced really no large. Um, project orders were were placed in the second quarter. And, and this month already we've seen. We've seen a large project order, you know, sort of the the size of the the the 3 that were in the 11 to 12 million dollar range in the um in the third quarter combined. So we we feel we feel pretty good um about that project funnel delivering in the third quarter.

Andy Kaplowitz: Very helpful. And then, Scott or Amy, just we understand that MOGAS is diluting FPD margin, but how should we think about the potential improvement in the segment moving forward? You know, obviously, they disclosed a 260 basis points in Q2, but how do we think about ongoing pressure from MOGAS and stepping back as, Scott, as you know, FCD used to have similar, maybe even better margin than FPD. So what will it take or in what timeframe can margin FCD get back closer to the levels of FPD?

Very helpful. And then Scott Amy just we understand that mogus is, is diluting said margin, but how should we think about the potential Improvement in the segment, moving forward to, you know, obviously the disclosure of 260 basis points in Q2, but how do we think about ongoing pressure from mogus and and stepping back as I've got as you know, FCD used to have similar, maybe even better margin than fpd. So what will it take her? And what time frame can margin FCD, get back closer to the levels of STD?

Scott Rowe: Yeah. Yeah. For a long time, FCD had the higher margin. So maybe I'll let Amy walk through the margin and kind of how we see it and then the MOGAS impact, and then I'll kind of summarize that.

Amy Schwetz: Yeah. And I think you're right, Andy. To truly understand the performance, you have to look at organic FCD and MOGAS somewhat separately right now. The organic FCD had a solid quarter. We still want to see more margin expansion than where we're at, but gross margins did improve 180 basis points, and OI improved 140 basis points year on year, excluding MOGAS. As we look at the MOGAS side of the business, really three issues impacted the quarter and give us some confidence that this is a temporary issue. We focused a lot on this module, this fabricated module business. That's one we absolutely planned on discontinuing or not continuing once these orders shift. And so they're working through the system really in the first three quarters of this year.

Yeah, yeah. For a long time FCD had that the higher margin. So maybe I'll let Amy walk through the, the margin and kind of how we see it and then the mogus impact and then, I'll kind of summarize that. Yeah. And I I think you're right, Andy to, to truly understand the performance. You have to look at organic FCD and and mogus somewhat separately. Right now, the the organic FCD had a solid quarter, we still want to see more margin expansion um than than where we're at. But gross margins did improve 100 and 180 basis points, and and oi improved 100 140 basis points here on year. Excluding excluding bogus, um, as we look at the mogus side of the business, really 3 issues, impacted the quarter, and give us some confidence that this is that this is a, a, a temporary issue. We focused a lot on this on this module, um, this fabricated module business. Um, that's 1 we absolutely planned on

Amy Schwetz: But it's taken a little bit longer and cost a bit more to ship that final module than we'd expected. And so that's, you know, really the first item factoring their performance. And then the second is really around project bookings that have been slower in really the last nine months than we would have anticipated. That has impacted their backlog a bit, but it's also impacted bookings and project revenues in the first half of the year. We do have visibility to elevated project bookings over the next 12 months, and I think we remain really excited about the exposure that MOGAS overall gives us to the mining and minerals business. And so we remain pretty committed to that. And I'd say overall, the integration is going well.

Discontinuing or not continuing once these orders shipped. Um, and so they're working through the system really in the first three quarters of this year. Um, but it's taken a little bit longer and cost a bit more, um, to ship that final module than we’d expected. And so, um, that’s, you know, really the first item factoring their performance. And then the second is really around project bookings that have been slower, um, in really the last nine months.

Amy Schwetz: So really, synergy realization, which we've needed to overcome some of these issues, is right on track, right where we want it to be. And so I would say it's been a little messy in our first six months of ownership, but we're really excited about the continued options and future of MOGAS that it gives us, not just within that business, but for cross-selling.

Um, and so, I would say, it's been a little messy in our first 6 months of ownership, but, but we're really excited about the about the continued. Um,

Scott Rowe: Yeah. And then I'll just add first on MOGAS. MOGAS is a good business. We've got to get these fabricated modules through the system, and we'll start to clear that toward the end of the year. And then secondly, the project bookings have to come through, and you know, the mining and minerals industry is actually really strong. We've got visibility to those orders as we go forward. And so we feel really good about the MOGAS business. It's just we got to clear through some of these things that we identified in due diligence. And then back to FCD and its aggregate, you know, in theory, MOGAS should be accretive to the FCD overall financials. And so we'll start to see that play out in 2026 and beyond.

Options and and and future of mogus that it that it gives us. Um not just within that business but for cross-selling

Scott Rowe: And you know, like you said, Andy, you know, we do believe and we are definitely leaning toward making sure that the gross margins in FCD are back to where we saw historically in that kind of, you know, the mid-30s to kind of mid to high 30s, if you will, on the gross margin side. And you know, we have the playbook. The Flowserve business system, the operational excellence, the 80/20 has delivered incredible results on the FPD side. We're running that exact same playbook in FCD. We started a little bit later, and so they were always going to be a little bit of a lag behind the FPD progress, but the MOGAS is definitely impacting them more. I will now be spending more time with our FCD team than I would have done prior to our announcement yesterday.

Yeah, and then I, I'll just add first on mogus, mogus is a good business. We we've got to get these fabricated modules through the system, and we'll start to clear that toward the end of the year. And then, secondly, the project bookings have to come through and, you know, the mining and minerals industry is is actually really strong. We've got visibility to those orders as we go forward and so we we feel really good about the mogus business. It's just, we got to, we got to clear through some of these things that we identified in in due diligence and then back to FCD and in its aggregate, you know, in theory mogus should be accretive to the FCD um overall financials. And so we'll start to see that play out in 2026 and Beyond. And you know, like you said, Andy, you know, we we do believe and and we are definitely leaning toward, you know, making sure that the gross margins and FCD are are back to where we saw historically in that kind of, you know, the mid-30s to to kind of mid to high 30s. If you will on the gross margin side and you know, we have the Playbook um, the operate, the postal business system, the operational Act.

Scott Rowe: And so I'll be in Europe on Monday morning with the team and going through a couple of their sites and making sure that we are doing the right things. And so we do have a lot of confidence in that team and definitely look forward to a second half of improved margins.

Excellence. The 80/20 is has delivered incredible results. On the fpd side we're running that exact same playbook in FCD. We started a little bit later and so they were always going to be a little bit of a lag behind the fpd progress, but the mogus is, is definitely impacting the more um, I will now be spending more time with our FCD team than I would have done, uh, prior to our announcement yesterday. And so I'll be in Europe on Monday morning with the team and going through a couple of their sites and uh making sure that we are doing the right things. And so we do have a lot of confidence in that team and definitely look forward to a second half of of improved margins.

Andy Kaplowitz: It's good to hear it. Thanks, Scott.

Good to hear. Thanks Scott.

Operator: We'll go next to Dean Dray with RBC Capital Markets.

We'll go next to Dean Drake, with RBC Capital Markets.

Dean Dray: Thank you. Good morning, everyone.

Thank you. Good morning everyone.

Scott Rowe: Morning, Dean. Hey, I want to go through kind of the implications of this whole Chart experience, if I can call it that. So look, in our view, the deal made sense when it was announced. The deal termination also makes complete sense. So that chapter gets closed. But now we do know more about Flowserve's growth ambitions. So does that growth ambition get put the genie back in the bottle, or are you in the hunt for another deal? You know, I love hearing that you can focus now 100% back on the business, and you know, you're going to spend time at FCD. That makes sense. But what about this growth ambition and how does that play out and how can, you know, what can you say about it today? Sure.

Morning.

Hey, want to go through? Kind of the implications of this whole chart um experience if I can call it that. So look in our view, the deal made sense when it was announced the deal. Termination also makes complete sense so that chapter gets closed but now we do know more about flow, serves growth ambitions,

So does that growth ambition, get put the genie back in the bottle or are you in the hunt for another deal? You know, I love hearing that you can focus now 100% back on the business. Um and you know, you're going to spend time at FCD, that makes sense. But what about this, this growth ambition, and how does that play out? And how can, you know, what can you say about it today?

Scott Rowe: You know, Dean, let me just start with a couple of comments that you said at the beginning because I do think they're important. And you know, I put this in the prepared remarks. And you know, while we are disappointed in the outcome, you know, we believe this business is in a really good place. We were always bought into the strategic logic of the combination, right, the flow and the thermal management. And there was something there that we thought we could do that was truly transformational in the space. You know, I am proud of our team and our board to remain disciplined in the early negotiations and getting to a deal, but also in our ability to exit and terminate the deal in a successful way.

Scott Rowe: And you know, obviously, that results in a $266 million breakup fee that enhances our balance sheet, and we've received that money to date. And so that's in our bank account, and you know, we are looking to how to deploy that properly. Additionally, we were able to secure a supply agreement with Chart that really was kind of on the back of some of the revenue synergies that we were talking about with the combination. We wanted to make sure the Flowserve product got pulled through. And so we've got a multi-year supply agreement to progress that forward. And so as we think forward, right, we're not going to shy away from M&A. And I'm going to let Amy talk about kind of how we think about that and what it looks like.

Sure, you know, then let me just start with a couple of comments that you said at the beginning because I do think they're important. And you know, I put this in the prepared remarks and you know, while we are disappointed in the outcome you know we we believe this business is in a in a really good place. We were always bought into the Strategic logic and the combination, right? The flow and the thermal management and and there is something there that we thought we could do that was was truly transformational in the space. Um you know I am proud of our team and our board to to remain disciplined in the the early negotiations and getting to a deal. But also in our ability to to exit and terminate the deal in a successful way and you know, obviously that results in a 266 million breakup fee that enhances, our balance sheet and we've received that money to date. And so that's in our in our bank account. And, you know, we are looking to how to deploy that properly. Additionally, we were able to secure a supply agreement with charts that, uh, that really was kind of on the back of um, some of the revenue synergies that we were talking about with

Scott Rowe: But what I'd say is the other thing that we demonstrated here is that we can make progress while the corporate team looks at mergers and acquisitions. And we delivered an incredibly strong quarter, you know, despite the fact that we were in, you know, a small group of our corporate team was involved in, you know, pulling off a transaction and starting to build a very robust integration plan. And so that gives me confidence that we can do things a little bit differently here, that we can lean in. But I'd also say we're going to do that incredibly thoughtfully, and we're going to be incredibly disciplined. But Amy, you want to pick up on that?

Amy Schwetz: Yeah. So I would say, Dean, the filter which we are going to use M&A to really drive shareholder value is unchanged from before the time that we announced the acquisition. So we look for transactions that fit our strategy around diversification, decarbonization, and digitization. And ideally, that comes with an attractive aftermarket component or opportunity for us to build on. We want to see attractive financials that drive accretion at both the margin and the cash flow level, and we want to maintain our healthy balance sheet and investment-grade rating. And so we've proven to be pretty disciplined in this approach, and you can certainly expect that as we go forward. And I think that the, you know, it's important. We're going to take a moment to breathe.

Scott Rowe: Absolutely.

Amy Schwetz: You know, after this. But I think that the Chart transaction demonstrates three elements of our process, and that's that although the majority of our opportunities going forward are going to be bolt-ons, we will look at larger transactions if the value creation is compelling. And I think that that is a sort of a risk-reward proposition that we look to fully understand. We're going to be disciplined in our approach as evidenced, you know, by our desire to pursue to not pursue this deal at any cost. And finally, I just want to point out that we were able to progress the deal, announce, and begin integration planning while delivering what was really an outstanding quarter in Q2.

Going to do that incredibly thoughtfully and we're going to be incredibly disciplined. But Amy you want to pick up on on that? Yeah. So I would say Dean our the filter which we are going to use m&a to really, um, Drive shareholder value is is unchanged from, from before the time that we announced the acquisition. So we look for transactions that fit our strategy, um, around diversification, decarbonization and digitization and ideally that comes with an attractive aftermarket component, or, or opportunity for us to build on, we want to see attractive financials that drive accretion at both the margin and the cash flow level and we want to maintain our healthy balance sheet, um, and investment grade rating. And so, we've proven to be pretty disciplined and this approach. And, and you can certainly expect that as we go forward. And I think that the, you know, it's, it's important. We're going to take a moment to breathe. Um, absolutely. You know, after this, but but I think that the chart transaction demonstrates 3 elements

Of of our process. And that's, um, that although the majority of our opportunities going forward are going to be both owns. We will look at larger transactions. If the VA value creation is compelling and I think that that is a sort of a risk reward um proposition um that we look to fully understand. We're going to be disciplined in. Our approach is, is evidenced. Um, you know, by our um, by our desire, to pursue pursuit to not pursue this deal at any cost.

Amy Schwetz: And I think that's evidence that the Flowserve business system is mature enough to allow parts of the organization to spend time on strategic opportunities while not impeding the progress of our organic business. And so it's one of the reasons why we feel confident in M&A being part of our strategy going forward.

And and finally I just want to point out um that we were able to progress the deal announced and begin integration planning while delivering what was really an outstanding quarter in Q2? And I think that's evidence the the flow serve business system is mature enough to allow parts of the organization to spend time on strategic opportunities, while not impeding the progress, um, of our organic business. And so, um, it's it's 1 of the reasons why we feel confident in m&a being part of our strategy going forward.

Scott Rowe: Look, I really appreciate all that context and color. And I think Scott made my second question to Amy just at the idea of how does M&A play out from here. So that counts as my two questions. I appreciate all the color. Thank you.

Amy Schwetz: That is the first part.

Look, I, I really appreciate all that context and caller. Um, and uh, I think Scott made my second question, uh, to Amy. Just the idea of how does m&a play out from here? So that counts as my 2 questions. I appreciate all the caller. Thank you. Might be the first person. That is the first part.

Scott Rowe: Thank you.

Thank you.

Operator: We'll go next to Damian Karras with UBS.

We'll go next to Damian cars with UBS.

Dean Dray: Hey, good morning, everyone.

Hey, good morning, everyone.

Scott Rowe: Hey, Damian.

Dean Dray: Amy, you talked a little bit about.

Scott Rowe: Hey, morning.

Amy, can you talk a little bit about...

Dean Dray: Amy, you were talking a little bit about, you know, FPD segment margin and, excuse me, FCD is what I meant to say, and the opportunity to, you know, continue to push that over 20%. You know, curious to hear what are the biggest remaining levers that you see after the, you know, the progress that you've already made there.

Hey morning, Amy. You were talking a little bit about uh, you know, fpv uh segment, uh margin. And um, excuse me FCD is what I meant to say and and the opportunity to, you know, continue to push that um, over 20%. Um, you know, curious to hear what are the biggest remaining levers that you, that you see after the, you know, the progress that you've already made their

Amy Schwetz: Yeah. So I think, you know, with FPD, I just want to take a little bit of a victory lap that we're really excited about where we finished the quarter from a margin perspective, both gross margins and what we saw drop to the operating margin line at over 20%. I think that the things that continue to give us confidence that that's a level that we can and will achieve again and that we can build on is really a couple of things. I think, one, the initiatives that the teams are focused on, including aftermarket capture, are driving that margin expansion. And then really, the second is around 80/20. We are very much in early days of 80/20. And so we've started to see those results come through in some, you know, really faster than I think that we anticipated. But there's more to be done.

Amy Schwetz: There's more to be done here. And so really, what we've asked of the FPD team, we talked to our leaders this morning, and we've said, please lean into growth. This is one of the reasons why we've launched our commercial excellence programs. But at 20% operating margins or 18% to 20% operating margins, this is a business that we really want to be focused on continuing to grow on behalf of our Flowserve shareholders.

Yeah. So I I think um you know with fpd I just want to want to take a little bit of a Victory lap that we're we're really excited about where we where we finish the quarter from from a margin perspective, both gross margins. And what we see saw a drop to the operating margin line at at over 20%. I think that the things that continue to give us confidence um, that that that's a level that that we can and will achieve again and that we can build on is is really a couple of things. I think 1 that the initiatives that the teams that the teams are are focused on including aftermarket capture are driving, um, that margin expansion and then really the the second um, is around is around 8020. We are very much in in early days um of of 8020. And so we've started to see those results come through in some um you know really faster than I think that we anticipated but there's more to

Scott Rowe: And I'll just add, well, I'll add a third lever there, which is technology. And so we've talked about some really differentiated technology within the pump area. And so we've got a pressure exchange device called Flex. We've got a hydrogen pump that's differentiated. We're commercializing an LNG and a cryogenic pump. All of those will be at premium margins given the technology that's embedded in those products. And so as we move toward commercialization and growth here, that's going to help us as well. And so we couldn't be more proud of what the FPD team has done. They've made really good progress. They're incredibly focused, and we're excited about the journey forward here.

Be at premium margins, given the technology, uh, that's embedded in those products. And so as we move toward commercialization and growth here, that's going to help us as well. And so we're, we couldn't be more proud of what the fpd's fpg fpd team has done. Uh, they've made really good progress. They're incredibly focused. And and we're excited about the journey forward here.

Dean Dray: I think my mixing up of the P's and the C's and the D's just rubbed off on you, Scott. So I apologize. Did you guys hear what I was talking about?

Scott Rowe: Yeah.

I think my mixing up of the P’s and the C’s and the D’s just rubbed off on you, Scott. So, I apologize if you guys do what I was talking about. Yeah. Um, on the new...

Dean Dray: I just wanted to ask you, so the nuclear bookings, you called out at 60 million in the quarter. So obviously, a little bit of step down from that, you know, 100 million plus you've been talking about the last several quarters. Is that just more a timing factor than anything else, or should we be reading anything in addition to that? I mean, it just seems like since last quarter, there's been more positive headlines around future nuclear activity.

uh, just wanted to ask you so the nuclear

You called out at $60 million in the quarter. So obviously a little bit of a step down from that, you know, $100 million plus you've been talking about the last several quarters. Is that just more a timing factor than anything else, or should we be reading anything in addition to that? I mean, it just seems like since last quarter, there's been more positive headlines around future nuclear activity.

Scott Rowe: Yeah. So the nuclear orders are definitely lumpy. They're large in size. Anywhere, you know, sometimes you'll get smaller ones in the $10 to $15 million range, but the larger ones are $30, $50, and sometimes even $100 million. And so it really is just project timing. And so, you know, these are hard to get over the finish line, not because we're going to win or lose, but just making sure all the documentation is correct and making sure that you're working through the customer through a very technical process. And so I wouldn't read anything into the 60 million versus kind of the last three quarters at 100. We still see that this is an incredibly attractive kind of, you know, market, and our funnel continues to grow, and it's at the highest level that we've ever seen.

Yeah, so the the nuclear orders are are definitely lumpy. They're, they're large in size anywhere, you know, sometimes you'll get smaller ones in the 10 to 15 million dollar range. But the larger ones are are Thirty 50 and and sometimes even a hundred million dollars. And so it really is just project timing. Um and so you know these are hard to get over the Finish Line. Not not because we're going to win or lose but just making sure all the documentation is correct. And making sure that the you know that you're working through the

Scott Rowe: And so I'd just, I'd chalk it up to, you know, a little bit of timing, a little bit of the lumpy orders, but we're excited about, you know, nuclear as being a part of the mix as they go forward. And then the other one I just want to call out, we put it in the prepared remarks, but we did win our first commercial award for a small modular nuclear reactor. And so, you know, we've been participating in that. A lot of it has been through technology development. And so we have a handful of partnerships where we've been doing a lot of work to make sure that our technology is positioned well for SMR. And in the quarter, we were able to secure our first award where we will provide the primary coolant pumps for SMR technology.

Customer through a very technical process. And so I, I wouldn't read anything into the 60 million versus kind of the, the last 3 quarters at 100. Um, we still see that this is an an incredibly attractive kind of, you know, market and our funnel continues to grow and it's at the highest level that we've ever seen. And so I just, I chalk it up to, you know, a little bit of timing. A little bit of a lumpy orders, but we're excited about, you know, nuclear as being a part of the mix as the go forward and then the other 1, I just want to call out, we put it in the prepared remarks but we did win. Our first commercial award for for a small modular nuclear reactor. And so you know we're we've been participating in that a lot of it has been through technology development and so we have a, a handful of Partnerships where we've been doing a lot of work to make sure that our technology is positioned well for SMR. And in the quarter, we were able to secure our our first award, um, where we will provide the primary coolant pumps.

Scott Rowe: And so we continue to differentiate and put ourselves in a really good position to work both in traditional nuclear power, but also in the SMR as that starts to take traction.

For for SMR technology. And so we continue to differentiate and and put ourselves in a, in a really good position to to work, both in traditional nuclear power. But also in the SMR, as that, that starts to take traction,

Dean Dray: That's great to hear. Thanks for the color. Good luck out there, guys.

That's great to hear. Thanks for the call. Good luck out there, guys.

Operator: We'll take our next question from Nathan Jones with Stifel.

We'll take our next question from Nathan Jones with Steve.

Dean Dray: Good morning, everyone.

Good morning, everyone.

Scott Rowe: Hello, Nathan.

Hello, Nathan.

Dean Dray: I guess I'll start on the commercial excellence. I mean, you talked about, you know, starting the commercial excellence pillar of your 80/20 initiatives in the second quarter. Can you maybe talk a little bit more about what that involves for Flowserve, how you're deploying that? I assume this probably focuses a little more on FPD to start with, with FCD needing, you know, probably some more margin work before it pursues growth, but just any more color you can provide us around that.

I guess I'll uh I'll start on the uh the commercial Excellence. Uh I mean you talked about the, you know, starting the commercial Excellence um pillar of of your 8020.

Um, initiative in the second quarter, can you maybe talk a little bit more about what that involves for a flow of how you're deploying that? I assume this probably focuses a little more on FP to start with uh with with FCD needing, you know, probably some, some more margin work before it pursues growth. But just any more power you can provide us around that.

Scott Rowe: Sure. Yeah. Let me start on kind of why commercial excellence is so important. And then I'm going to let Amy jump in as she's our executive sponsor for commercial excellence. But really, as we think about the Flowserve business system and kind of the progress there, we really had to get operational excellence going and making sure that we're delivering for our customers in the right way. And so, you know, we feel really good about that progress and the sustainability of that program. And then, you know, as you know, last year, we doubled down on portfolio excellence, which is where we embed the 80/20 program. We're now, you know, fully into that kind of second year of 80/20. We've got all product lines in there. And, you know, by definition, when you look at 80/20, you start to call out some of your products.

So yeah, let me start on kind of why commercial Excellence is so important and then I'm going to let Amy jump in there, she's our executive sponsor for a commercial Excellence. Um, but but really, as we think about the full sort of business system and kind of the progress there, we we really had to get operational excellence going and and making sure that we're delivering for our customers in the right way. And so, you know, we we feel really good about that progress and the sustainability of that program. And then, you know, as you know, last year we we doubled down on portfolio Excellence, which is where we embed the 8020 program. We're now, you know, fully into that kind of second year of 8020.

Scott Rowe: And, you know, that puts some downward pressure on revenue. And so, you know, while we are focused with our customers on our top products that make sense for Flowserve and for our customers, there are things that are coming out of the system. And so the natural progression is then to commercial excellence to make sure that our whole organization is leaning in toward growth and making sure that we can kind of pick up some of the, you know, the loss from the 80/20 program as we cut products out. And so this is the right thing to do. We're at the right time. And I'll let Amy kind of talk through some of the tenets of commercial excellence.

Amy Schwetz: Yeah. And Scott touched on this, but really, the goal is to use enhanced commercial performance to offset revenue reduction from 80/20 decisions. And so we don't lose sight of, as an organization, of the goal to grow. And so the pillar is intended to really cover all elements of the commercial lifecycle. And so that's opportunity generation all the way through, you know, kind of post-shipment support and recovery. And it's supposed to be, you know, cover channel management, pricing, incentives, use of analytics to drive better performance within the organization. And I think what's really cool is, as we've seen the progress that we've made around portfolio and operations, the organization is really excited about strengthening our capabilities in these areas. So we've launched pilots this summer around the program and would expect to start to see results being demonstrated in our 2026 bookings levels.

And I'll let Amy kind of talk through some of the tenets of commercial excellence. Yeah. And Scott,

20 decisions. And so we don't lose sight of as an organ as an organization of the goal to grow and so the pillar is intended to really cover all elements of the commercial life cycle. And so that's opportunity Generation Um, all the way through, you know, kind of post shipment. Um,

Amy Schwetz: It's something that Scott and I are going to be very focused on going into our annual operating planning. And I think what's great about this is, you know, I'm sponsoring the program, but really, the program is being led by our commercial leaders with a lot of input from the people on the ground who are helping our customers on a daily basis. And so we're excited to see what comes next year.

Um, support and and recovery and it is supposed to be, you know, cover Channel management pricing incentives, use of analytics, um, to drive better performance within the organization and I think what's, what's really cool is? As we've seen the, the progress that we made around portfolio and operations. The organization is really excited about um, about strengthening our capabilities and and these areas. So we've launched Pilots um this summer uh, around the program and would expect to start to see results. Um, being demonstrated in our 2026 bookings levels, it's something that Scott and I are going to be very focused on going into our annual operating planning. And um, I I think what's great about this is um, you know I'm sponsoring the program. But really the program is being led by our commercial Leaders with with a lot of input. Um, from the people on the ground, um, who are who are helping our customers, on a daily basis,

Basis. And so we're excited to see what comes next year.

Dean Dray: And does this start in FPD and will move to FCD maybe as it progresses through its simplification initiatives?

And does this start in in fpd?

Um, and we'll move to FCD maybe as it progresses through it.

Um, its simplification initiatives.

Amy Schwetz: So we've started this across the commercial organization. And so we've gotten input from both FPD and FCD commercial organizations and businesses as we move forward. But you are correct, Nathan, that we're much more focused on growth in FPD than we are in FCD at this point in time. And so that means the pilots that are being launched in both programs are specifically addressed to sort of improve elements of the business that we think that we can drive marginality through focusing on.

So, we we started this across the commercial organization. And so, we've gotten input from both from both fpd and FCD, um, commercial organizations and businesses as we've as we've moved forward, but, but you are correct. Nathan, that we're much more focused on growth in fpd than we are in FCD at this point in time. And so, that means the pilots that are being launched in both programs are are specifically addressed to, to sort of in improve elements of the business. Um, that, that we think, um, that we think that we can, we can drive marginality, um, through focusing on

Dean Dray: I would just have one clarification on the dilution you're seeing in MOGAS. These modular things, are they the last one of those or last ones of those get delivered in the third quarter of this year? Is that what I heard you say? And then maybe if you can just provide some color on kind of what inbuilt margin expansion there would be just from the absence of having to deliver those things.

I just have one clarification on the delusion you're saying in Mogus.

These, um, these modular things, are they the?

The last one of those, or the last ones of those, get delivered in the third quarter of this year; is that what I heard you say? And then maybe if you can just provide some color on kind of what in-built margin expansion there would be just from the absence of having to deliver those things.

Scott Rowe: Yeah. I'll hit timing. I'll let Amy hit the margin. So these are, this is, we've got one large fabrication. This is a really, really big fabrication. It is at, you know, call it 90-plus percent complete. Sadly, to get this completely out of our business, it's going to take us into the early part of 2026. There won't be a ton of revenue at the end of this year, but there will be a little bit of a remaining tail. And so the team's working hard to get this cleaned up and officially delivered to our customer. And as you know, this is obviously a percentage of completion accounting. And so there's not a whole lot there, but we will be impacted in the second half of the year and then just a touch in the first quarter.

Amy Schwetz: Yeah. And just to put it in perspective, I mean, Nathan, one, we had some discrete charges as we complete, as we're moving towards completion on that last module in the second quarter. But just at a standard level, you're looking at between 1,000 and 1,500 basis points differential in margins, in standard margins between kind of the rest of the MOGAS portfolio and modules.

Yeah, I'll hit timing. I'll let, I'll let Amy hit the margin. So these are, this is, we've got 1 large fabrication. This is a really, really big fabrication. Um, it is at, you know, call it 90 plus percent complete sadly, the the, you know, to get this completely out of our, our business. It's going to take us into early part of 2026. There won't be a ton of Revenue at the end of this year, but there will be a little bit of a remaining tail. And so the teams working hard to get this cleaned up and, and officially delivered to our our customer. And as you know, this is obviously a percentage of completion accounting. And so there's there's not a whole lot there, but we will be impacted in the second half of the year and then a, just a touch in the first quarter. Yeah. And just to just to put it in perspective and Nathan 1. We had some discrete charges as we complete, as we're moving towards completion. Um, on on that last, um, on that last module in the um, in the second quarter, but just at a stand.

Standard level, you're looking at between 1,000 and, um, 1,500 basis points differential, and margins in standard margins between kind of the rest of the, the Mogus portfolio and modules.

Dean Dray: Great. Thank you very much for the clarification.

Great, thank you very much for the clarification.

Operator: We'll go next to Mike Helleran with Baird.

We'll go next to Mike Holleran with beard.

Mike Halloran: Good morning, everyone. So I just want to clarify what happened on the order side and just make sure I understand what has or has not changed. Is it a fair representation to say that there was an air pocket in 2Q and that your expectations for the back half of the year are largely unchanged relative to before? Or maybe better put, what has changed in the back half of the year expectations from an order perspective relative to three or six months ago?

Good morning everyone. So just want to clarify the

Scott Rowe: Sure. Yeah. I'll start with what hasn't changed at all, which is the aftermarket MRO and kind of that run rate business. And so that's coming through at healthy levels. Utilization's there. Customers are buying parts. They're servicing our equipment. You know, I don't, you know, we didn't see a change in Q2. There was a lumpy order in Q1. So sequentially, you got to normalize for that. But overall, again, at $600 million of aftermarket, it's a really, really strong number. And we just don't see that slowing down into the second half of the year. You know, what we did see in Q2 was the project bookings. And just given the macro environment, given tariffs, given the uncertainty on how to cost things, we just saw, you know, larger projects, primarily in energy and chemicals, press pause. And they wanted to get some certainty on the macro picture.

Scott Rowe: They wanted to get some certainty on what the cost was. And so those got, you know, we saw projects getting delayed. And, you know, I'd say a lot of those are a one-quarter delay or two-quarters delay. Some might be a little bit longer. The current outlook for the second half of the year and everything that we see today remains pretty solid. And I'd say that over the last two or three weeks, the macro picture has gotten a little more constructive. And so we feel probably a little bit better right now about projects moving forward in the second half of the year than what we would have said maybe a month ago. With that said, even this morning, there was a change in the tariff perspective, and you know, which does put some uncertainty back into the system.

Sure. Yeah, I'll start with what hasn't changed at all, which is the aftermarket mro and kind of that run rate business. And so that that's coming through at healthy levels. Utilizations, their customers are buying parts, they're they're servicing our equipment, you know? I, I don't, you know, we didn't see a change in Q2 there, there was a lumpy order in q1 so sequentially. You, you got to, you got to normalize for that. But overall, again, it's 600 million of aftermarket. It's a, it's a really, really strong number and we we just don't see that slowing down into the second half of the year. You know what, what we did see in in Q2 was the project bookings and just giving the macro environment giving tariffs given the uncertainty on how to cost things. We just saw you know larger projects primarily in energy and chemicals um press pause and they wanted to get some some certainty on on the macro picture. They wanted to get some certainty on what the cost was and so those got you know there we saw projects getting delayed and you know I'd say a lot of

Those are a 1 quarter delay or 2 quarter delay, some might be a little bit longer, the current outlook for the the second half of the year. And and everything that that we see today remains pretty solid and I'd say the over the last 2 or 3 weeks that the macro picture has gotten a little more constructive. And so, we feel probably a little bit better right now about projects moving forward in this.

Scott Rowe: And so I, you know, while I believe the environment's getting more constructive, you know, you're one or two messages away from that, you know, going back into a little bit of uncertainty. So it's just a really hard environment to predict right now, especially on how our customers are viewing projects. But we're in close communication with them. Our opportunity funnel is large. And, you know, again, you know, we feel, you know, given everything we know and all of our discussions and where our funnel is, we feel like that book-to-bill ratio for the full year should end up right at 1.0.

The second half of the year, then what we would have said maybe a month ago. Um, with that said, um, even this morning there was a change in in that the Tariff perspective and you know which which does put some uncertainty back into the system. And so I I you know, while I believe the environment is getting more constructive. You know, you're 1 or 2 messages away from from that, you know you know going back into a little bit of uncertainty. So it's just a, it's a really hard environment to predict right now, especially on how our customers are viewing projects. Um, but we're in close communication with them. Our, our opportunity funnel is large and, you know, I again, you know, we feel at, you know, given everything we know, and all of our discussions and and where our funnel is, we we feel like that book to build ratio for the full year, should end up right at 1.0

Mike Halloran: Thanks for that. And then just to follow up on the pricing side of things, just kind of a twofold question. One, how is pricing in the marketplace tracking from a competitive perspective? Any issues as you manage through all these, call it geopolitical tariff headwinds? And then secondarily, just a comment on what the margins of the backlog look like and if that's still tracking the right way. Appreciate it.

Thanks for that. And then just to follow up on the on the pricing side of things just um, kind of a 2-fold question 1. How is pricing in the marketplace? Tracking from a competitive perspective, any issues that you manage through all these um called geopolitical tariff headwinds. And then secondarily, uh, just a, a comment on what the margins of the backlog look like. And if that's still tracking the right way, appreciate it.

Scott Rowe: Yeah. I'll hit the first part. Amy can hit margins of the backlog. So I'd say, you know, we've been aggressive on price this year. We talked about in the prepared remarks that the price has come through without major demand implications. And so again, list price is going to be more impacted on our run rate business. So think parts, the products that go through distribution, the MRO business, all of that. We've got an incredible level of confidence that the pricing actions have been as sticky as we would have expected, and in some cases, exceeding our expectations. You know, in the project business, anytime that you get some uncertainty on project timing or that we may be going in a downward direction, our competitors get, you know, they sharpen their pencils.

Scott Rowe: And so we're sharpening our pencils as well as we look at project bidding and making sure that we've got the right cost position to put forward to our customers. And so I'd say that environment has gotten slightly more competitive. I don't, I wouldn't say that it's in a nonconstructive fashion, but it is making our teams work a little bit harder to make sure we're sourcing from the right people, that we're stripping out engineering costs, that we're using standard product, like all the things that we know. That engineered pumps team is really the group that does the most of this.

Yeah, I'll hit the first part and you can hit margins in the backlog. So just I'd say, you know, we we've been aggressive on price this year, we talked about in the prepared remarks that um the prices come through with without major demand implications. And so again list prices is going to be more impacted on our run rate business. So think Parts, um, the the the products that go through distribution, the mro business. All all of that we've got an incredible level of of confidence, that that the pricing actions have have been as sticky as as we would have expected. And in some cases, um, exceeding, our expectations, um you know, in the project business uh anytime that you get some uncertainty on Project timing or that that we may be going in a a downward Direction, our competitors get you know they they sharpen their pencils and so we're sharpening our pencils as well. Um as we look at project bidding and making sure that we've got the right cost position to put

Scott Rowe: They have done a tremendous job in the last year with our selective bidding and making sure that we, you know, one, earn the work and the margins that we deserve, but two, making sure that our out margins or our execution margins are higher than what we tender. And so we're having discussions with that team about how do we make sure that we're putting our best foot forward in the tender and not losing some of those that work. But I'd say that the pricing environment remains constructive. It's not in a bad place at all, but there are some areas where folks are getting a little more competitive.

Forward to our customers. And so I'd say that environment has gotten slightly more competitive. I I don't, I wouldn't say that it's in a in a non-constructive fashion, but it is a, it is making our teams work a little bit harder to make sure we're sourcing from the right people that were stripping out engineering costs that were using standard product. Like all the, all the things that we know, um, that engineered pumps team is is really that the group that does the most of the

Amy Schwetz: Yeah. And the only thing that I would add to that is I think in terms of backlog, we're in a really good place from a margin perspective. And a couple of things that I'd point out there, just one, with the 80/20 program, you know, more and more embedded in the business. We're selling the right products. We're selling the products that we know that we can make money on in the market. And the second piece was something that Scott touched upon, which is our out margins on large projects have been very positive. And so it's something that is allowing us to sharpen our pencil, but also giving us a great deal of comfort that when we continue to execute at the levels that we're executing today, that we're going to continue to see the positive margin trends.

That I would add to that is I I think in terms of backlog, we're in a really good place from from a margin perspective and a couple of things that I point out, they're just 1 with the 80/20, um, program, you know, more and more embedded in the business. We're, we're selling the right products, we're selling the products that we know that we can make money on, um, in in the market. And, and the second piece was something that that Scott touched upon, which is our out margins on large projects have been very positive and so, um, it's something. It's something that is allowing us to sharpen our pencil. But also giving us a great deal of comfort that when we continue to execute at the levels that we're executing today. Um, that that we're going to continue to see the positive margin trends.

Operator: We'll go next to Sari Boroditsky with Jefferies.

We'll go next to Siri Boretski with Jefferies.

Mike Halloran: Oh, hi. This is James from Sari. Thanks for taking the questions. So I wanted to touch on 80/20. Can you kind of provide an update on where you kind of stand in 80/20 journey and how much of, like, 200 basis point of margin expansion this year is kind of attributable to it? And is there a timing difference on implementation between FPD and FCD?

Oh hi, this is James from Siri. Thanks for taking questions.

So I wanted to touch on 8020. Can you kind of provide an update on where you stand in the 8020 journey?

How much of the 200 basis points of margin expansion this year is attributable to it? And is there a timing difference on implementation between FPD and FCD?

Scott Rowe: Sure. Yeah. We're well into the program now. We launched this at the beginning of last year. FPD was the leader in terms of the business units going through the program. But now all five of our product business units or the new equipment is fully on 80/20. And so we're excited about the progress. The business unit leaders have been incredibly disciplined in setting up their segmentation, the quads, following the methodology. Two of our business units are now in year two. And so they've done a second segmentation on their quads and making really good progress. We haven't called out specifically how much of the margin improvement is attributable to 80/20.

Scott Rowe: But what I would say is, you know, it has been a nice actor to what we've done, but there's still a lot more room and more opportunities in the combined portfolio to continue to move margins up. And if you look at companies that have been doing this for a long, long time, they've typically gotten 100 basis points a year on the back of their programs. And so that's our goal and objective is to be somewhere in that kind of, you know, that line where we're seeing about 100 basis points a year as we progress through the program. And, you know, at this point, we're very confident that we're delivering to that expectation.

Sure. Yeah. We're we're well into the program now. We, we launched this at the beginning of last year, fpd was the the leader in terms of the business units going through the program. But now all 5 of our product business units are the new equipment is, is fully on 80/20. Um, and so we're, we're excited about the progress. Uh, the the business unit leaders have been incredibly disciplined in in, you know, setting up their segmentation, the quads following the methodology. Um we you know, 2 of our business units are now in year 2 and so they've done a second segmentation on their quads and and making really good progress. We, we haven't called out specifically how much of the margin Improvement is attributable to 80/20. Um, but what I would say is, you know, they it has been a a nice factor to to what we've done but there's still a lot more room and more opportunities in the combined portfolio to continue to move margins up.

Amy Schwetz: Yeah. And James, just a little color in terms of how I think about it. At the 200 basis points of operating margin expansion that we're targeting for this year, that would be between 50 and 100 basis points of improvement from 80/20. So we're getting close to that run rate that we want to be at as a company.

And if you look at companies that, that have been doing this for, for a long, long time, they, they typically gotten a 100 basis points a year on the back of their programs. And so that that's our goal and objective is to be somewhere in that kind of you know, that line where we're seeing about 100 basis points a year as we progress through the program. And you know, at this point we're very confident that we're we're delivering to that expectation. Yeah. And James just

Just basis points uh of operating margin expansion um that that we're targeting for this year. That would be between 50 and 100 basis points of of improvement from from 8020.

So we're getting close to that run rate that we want to be at as a company.

Mike Halloran: Great. Thanks for the color. And I guess as a follow-up, you noted a sequential increase in project funnel. So how does this compare on a year-over-year basis? And where are you seeing, like, strengths and weaknesses in the end markets? Thank you.

Great uh thanks for the caller and I guess as a follow-up, uh you noted a sequential increase in Project Journal. So how does this compared on a year-over-year? Year-over-year basis? And where are you seeing like strengths and weaknesses in the end markets

Scott Rowe: Yeah. I don't have the exact year-on-year funnel. I would say that the funnel is in the overall funnel is in a very healthy place. And so, again, we feel good that the funnel itself is in a position that allows us to drive the bookings that we need and what we've talked about to have that slightly over 1.0 in the second half of the year. You know, we are obviously looking to continue to enhance the funnel opportunities. The power side is definitely up. And so we've got to continue to lean in and making sure that we can track the projects in the right way that allows us to see growth in the go-forward basis.

Thank you.

Yeah, I don't have the exact year on your funnel. I would say that the funnel is in the, the overall funnel is in a very healthy place. And so again, we we feel good that the, the funnel itself is in a, in a position that, you know, allows us to to drive the bookings that we need. And, and what we've, we've talked about to have that slightly over 1.0 in in the second half of the year. Um, you know, we are you know, obviously looking

To to continue to enhance the funnel opportunities. The power side is is definitely up and so we've got to continue to lean in and and making sure that we can track the, the projects in the right way that that allows us to to see growth in the go forward basis.

Mike Halloran: Great. Thanks for taking questions.

Great, thanks for taking questions.

Operator: We'll go next to Joe Giordano with TD Cowan.

We'll go next to Joe garrano with TD Cowen.

Andy Kaplowitz: Hey, guys. Good morning.

Hey guys. Good morning.

Scott Rowe: Morning, Joe.

Andy Kaplowitz: Hey Scott, I'm just curious how you manage. So the Chart, the No Chart, like, as a leader of the organization, how do you deal with this internally, like, from a how do you message this to your employees, right? Like, so you sell them on this is a transformative, this is transformative for us. This is the future of the company. This is where we're going. It's going to be disruptive. There's probably going to be some of, you know, some people who are in that synergy bucket, right? And then now we come out and it's like, no, this is the future of the company. It wasn't that. It's this, and we're good this way. Like, I get it. I think the people in the financial community get it. But, like, it's a different discussion point when you're talking internally to keep people motivated.

Morning, Joe.

Andy Kaplowitz: And how do you manage something like that?

Energy bucket, right? And then now we come out and it's like, no, this is the future of the company. It wasn't that. It's this, and we're good this way. I get it. I think the people in the financial community get it, but like it's a different discussion point when you're talking internally to keep people motivated. How do you manage something like that?

Scott Rowe: Yeah. No, look, I appreciate the question. We've had a lot of videos that I pushed out globally on relatively short notice in terms of preparation. But I'd just say we've had an open communication with our teams from day one. And I'd say, you know, we never over-rotated. And while we were incredibly excited about Chart, the message that we gave to our teams was, you know, put your heads down and do your jobs. And Chart didn't have a mechanical seal business. They didn't have a pump business. They didn't have a valve business. And so for the folks that were leading our operations or our products, they really weren't impacted. And that's one of the reasons why we could continue to progress our business and have a really, really strong second quarter.

Scott Rowe: You know, the folks that were maybe a little bit more nervous about the transaction were in the, you know, some of the functions in the corporate office. And, you know, we've had some really transparent and open discussions with them about what the possibilities could be and, you know, how that, you know, we would lean on our people value and treat people with respect and dignity regardless of the outcome. And so, you know, I'm a believer in, you know, having, you know, frank discussions, but keeping it open and, you know, making sure that we're actively communicating. And so we pushed out a video yesterday morning. We did our leadership team this morning. And we'll do a global town hall right after our earnings call. And so we'll touch a lot of folks.

Yeah, no, look. I appreciate the question. Uh, we've had a lot of videos that I pushed out globally that uh on relatively short notice in terms of preparation. But I just say we've, we've had an open communication with our teams from from day 1 and I I'd say, you know, we never over rotated and while we were incredibly excited about chart. Um, the message that we gave to our teams was, you know, put your heads down and and do your jobs and chart didn't have a mechanical seal business. They didn't have a pump business. They didn't have a valve business. And so for the folks that were were leading our operations or our products. Um, they they really weren't impacted and that's 1 of the reasons why we could continue to progress our business and have a a really, really strong second quarter, you know, the, the folks that were maybe a little bit more nervous about the transaction were in the, you know, some of the functions and the and the corporate office and you know, we've had some, some really transparent and open discussions with them about what the possibilities could be and you know how that you know, we we

Scott Rowe: And I'll get back out on the road and start to visit more of our sites and make sure our teams are leaning in and continuing to do the good work. But, you know, I think we've done a real nice job here with our culture. And, you know, I'd say, you know, it's definitely one of the strengths of what we put together at Flowserve. And so I'm proud of our folks, that the people continue to work hard for our customers and ultimately for Flowserve.

Amy Schwetz: And I'd just comment that when your M&A is an extension of your strategy, you may be explaining the size of a transaction or they may be surprised that you're doing something of the scale that the merger was. But I think there is comfort throughout the organization that we've said what our strategy would be around the 3Ds. And the transactions that we have announced to date have been in keeping with that. And so it is a fork in the road for sure. But I wouldn't necessarily call it a full-on change in direction.

Would lean on our people value and treat people with respect and dignity regardless of the outcome. And so, you know, I I'm a Believer in, you know, having you know, Frank discussions but keeping it open and you know and making sure that we're we're actively communicating. And so we pushed out a video yesterday morning. We did our leadership team this morning and we'll do a global town hall right after our earnings call and so we'll, we'll touch a lot of folks. And I'll get back out on the road and start to visit more of our sites and uh, and make sure our teams are are leaning in and continue to do the good work, but I I think we we've we've done a a real nice job here with our culture. And you know, I'd say, you know, it's definitely 1 of the strengths of of what we've put together at full serve. And so I'm I'm proud of our folks that the people continue to work hard for our customers and ultimately for closer and

The transaction or there may be surprised that you're doing something of the scale um that that the merger was. But I think there is Comfort throughout the organization that we've we've said what our strategy would be around, um around the 3DS and the transactions that that we have announced to date have been in keeping with with that. And so it is a um it's a fork in the road for sure and um, but I wouldn't necessarily call it a. A full-on change in Direction.

Ction.

Andy Kaplowitz: That's fair. And just my second one. I don't want to belabor MOGAS. It's a small company within a large company. But I think the expectation initially was something around 200 million in revenue. I think it's way lower than that. So maybe some color on what's driving that. And then just within the context of FCD, and I know it's earlier stage in the margin journey than FPD, but is there something inherently more challenging in taking costs out of FCD relative to FPD, like something in the cost structure inherent there, or is it just purely timing and just working at it? Thanks.

Scott Rowe: Yeah. I'll hit MOGAS revenue. Amy can hit the margins there. So look, we have talked about MOGAS being a $200 million business. We are confident that that's where this business needs to be and that we can grow from there. You know, Amy mentioned a couple of times that the project side of MOGAS has been light, really, since kind of the second half of last year and into the first half of this year. And so that's putting downward pressure on the overall revenue number. And, you know, I'd say two things. One, the aftermarket side of MOGAS has been incredibly healthy. And so, you know, that continues to progress forward. Some of the project timing comments that I had in overall Flowserve certainly applied to some of the mining and minerals projects that MOGAS does so well in. But we have clear visibility now.

That's fair. Um, and just my second one, I don't want to belabor Mogus; it's a small company within a large company. But, um, I think the expectation initially was something around $200 million in revenue. I think it's way lower than that, so maybe some color on what's driving that. And then just within the context of the FCD—and I know it's at an earlier stage in the margin journey than FPD—but is there something inherently more challenging in taking costs out of FCD relative to FPD? Like, is there something in the cost structure inherent there or is it just purely timing and just working at it? Thanks.

yeah, I

Scott Rowe: We're starting to see more activity in mining and mineral extraction. And so that funnel has improved pretty substantially in the second half of the year and into 2026. And so the goal is still a $200 million revenue number. We'll exit, or, you know, the last fabricated module will be out of the system. The aftermarket margins are fantastic, and the OEM project margins are coming in at the right levels to make this accretive to the overall FCD portfolio.

Focus Revenue Amy you can hit the the margins there. Uh so look we we have talked about mogus being a hundred million dollar business. Um we we are confident that that's where this business needs to be and that we can grow from there. Um, you know, Amy mentioned it a couple of times that the project side of mogus um has been uh light really since kind of the second half of last year and into the first half of this year. And so that's putting downward pressure on the overall Revenue number. Um and you know we I'd say 2 things 1. The aftermarket side of mogus has been incredibly healthy and so you know that continues to progress forward, some of the project timing uh comments that I had in in overall flow serve, certainly applied to some of the mining and minerals projects that mogus does so well in um, but we have clear visibility now uh, we're starting to see more

Amy Schwetz: Yeah. And I would say, Joe, we are still very committed to growing FCD margins back to more historic levels and really then trying to reset the bar around that. There is nothing.Structurally,

Operator: that tells us that we cannot get back to those levels. I will say that FCD overall was was probably 5, 7, 10 years ago was more exposed to to upstream business, than than other parts of, than other parts of Flowserve. And so as that business has, has moved away, we have taken out high-cost country sites from from the portfolio. And so that is some of the pain that we've seen in previous years. We think those actions are behind us that sets up a little bit of a tailwind. but but other than than that movement, there's nothing structurally that's happened within the business. And we believe that we've addressed that, in, over the last couple of years.

And trying to, to reset the bar around that there is nothing structurally. That tells us that we cannot get back to those levels. Um, I will say that FCD overall was was probably 5 7, 10 years ago, was more exposed to to Upstream business, um, than than other parts of, um, than other parts of Flowserve. And so as that business has, um, has moved away, we have taken out hi, um, high cost countries sites from from the portfolio. And so, that is some of the pain that we've seen in previous years. We think those actions are behind us that sets up a little bit of a Tailwind. Um, but, but other than, than that movement, there's nothing structurally. That's happened within the business, and we believe that we've addressed that, um, in, um, over the last couple of years,

Brian Ezzell: Thanks, guys.

Thank you.

Scott Rowe: This does conclude today's question and answer session. At this time, I'd like to turn the call back to Brian for any additional or closing remarks.

This does conclude today's question and answer session at this time, I'd like to turn the call back to Brian for any additional or closing remarks.

Brian Ezzell: Great. Thank you, everyone, for joining the call today. We look forward to seeing many of you at conferences in the rest of the quarter and then providing another update following Q3. If you do have any questions or follow-ups, please reach out to the investor relations team. We'll be happy to talk you through anything. In the meantime, we hope you have a great day.

Great. Thank you, everyone, for joining the call. Today, we look forward to seeing many of you at conferences in the the rest of the quarter and then providing another update following Q3. If you do have any questions or follow-ups, please reach out to the investor relations team. We'll be happy to to talk you through anything. In the meantime, we hope you have a great day.

Scott Rowe: This does conclude today's conference. We thank you for your participation.

This concludes today's conference. We thank you for your participation.