SPX FLOW, Inc.

Ladies and gentlemen, thank you for standing by, and welcome to the SPX Flow Q3 2020 Earnings Conference Call. At this time, all participants are in a listen-only mode. Later, we will conduct a question-and-answer session, and instructions will follow at that time. If anyone should require any further assistance, please press star zero. on your touchtone telephone. As a reminder, this conference call is being recorded. I would now like to turn the conference over to your host, Mr. Scott Gaffner, Vice President, Investor Relations and Strategic Insight. Thank you, sir. Please go ahead.

Thanks, Stacey. Good morning, everyone, and thanks for joining us for a discussion of our third quarter 2020 financial highlights. This morning, we issued a news release detailing our financial performance for the three months ending September 26, 2020. The news release, along with the presentation to be used during today's webcast, can be accessed on our website at spxflow.com. A replay will also be available on our website later today. Joining me on the call are Mark Michael, President and CEO, and Jamie Easley, Vice President and Chief Financial Officer. Taking a look at today's agenda, Mark will start with some thoughts on how we are managing through the pandemic, along with investments we are making in our people and culture, and we'll finish with some highlights of our solid operating performance in the third quarter. Jamie will then walk you through details of the third quarter results, provide our working assumptions for the fourth quarter, along with a discussion of our efforts in the third quarter to allocate capital within our long-term framework. Mark will wrap up with an update on our strategic direction and progress year-to-date. And following our prepared remarks, we'll open up for questions. Before we begin, a brief reminder that elements of this presentation contain forward-looking statements that are based on our current view of our business and markets. Those elements are subject to change, and we ask that you view them in that light. Principal risk factors that may impact our performance are identified in our most recent SEC filings. And in the appendix of today's presentation, we prepared reconciliations for all non-GAAP and adjusted measures presented. And with that, I'll turn it over the call to Mark.

Great. Thanks for the introduction, Scott. Good morning, everyone, and thank you for joining us on the call. We have successfully navigated the pandemic for over six months now, and while the journey has been demanding, I firmly believe the organization is in a better position for the challenges ahead. Throughout 2020, I have urged the team to reexamine every aspect of our go-to-market strategy, improve efficiency, permanently reduce waste, increase our velocity, and overemphasize our high growth and margin expansion opportunities. As we continue to push forward with these changes, I ask the team every day to keep our guiding principles top of mind, continue to invest in our people-first culture by prioritizing the safety, health, and well-being of our team members, create an outstanding experience for our customers when doing business with us, and maintain business continuity by serving the right customers the right way at the right time, preserve our strong financial position and liquidity while systematically deploying capital to high return organic investments and programmatically looking for value creating acquisition opportunities, and continue to mature our business operating system while implementing 80-20 across the enterprise with emphasis on disproportionate investment in those areas with the highest potential for profitable growth. As we near the end of 2020 and begin to look ahead to 2021, I'm challenging the team to think more aggressively about changing our historical behaviors and paradigms. In-market demand was better than anticipated in the third quarter, particularly in our short-cycle industrial markets, but market recovery is likely to fluctuate and not be linear. Therefore, we're focused on executing our strategy and concentrating on those things under our control to generate future earnings power and value creation. In addition to aggressively seeking to improve the operating performance of the company, we've also made time for reflection, which has allowed us to direct attention to a core tenant of our strategy, which is people and culture. Throughout the summer and continuing into the fall, the leadership team conducted listening sessions with team members from all our major locations across the globe. The purpose of these meetings was to check in with our team to hear how they felt about our safety efforts related to COVID-19, how they were feeling about social issues, And were they excited about being a part of the company? The feedback has been powerful, and we have begun to take steps to put some of these learnings into action with a goal of creating a sense of belonging at SPX Flow so employees can bring their full selves to work every day. There were five key areas identified from the sessions. Enhancing recruiting and hiring practices, initiating conscious inclusion and awareness education, expanding employee resource groups, implementing focused development programs for underrepresented team members, and data transparency. I'm proud of what the team is accomplishing to create a greater sense of belonging and to build a better future together. Q3 was another exceptional operating quarter and highlights the benefits of our strategic shift towards process solutions. Orders ended better than we originally planned as demand for short-cycle product categories improved. Through a combination of our strategic portfolio actions to create a higher quality of revenue and a relentless focus on productivity and cost containment, we generated quarterly gross margins of 35.3%, up 20 points versus 2019. Notably, decremental margins were just 11% as we converted the higher level of short cycle orders to revenue and operated efficiently in the current environment. We strengthened our balance sheet in the quarter as we generated $39 million of adjusted free cash flow, and we redeemed our $300 million senior note due in 2024, resulting in an annual interest savings of $17 million and reducing gross leverage to 2.5 times, down almost two turns from Q2. That leverage now stands at 0.3 times. We're utilizing the strength of our balance sheet to prudently invest into the business by allocating capital to high returning opportunities. Organically, we're investing CapEx to support growth and margin expansion by modernizing our manufacturing sites, developing new products, and investing in digital capabilities to improve our customer experience and create organizational efficiency. During Q3, we also finalized the acquisition of PosiLock Puller, which is now a part of our hydraulics business. PosiLock has a leading market position in safety-oriented pullers and specialty tools and has a high-quality product offering that adds capabilities to our portfolio, which can be leveraged through our global distribution channels. I want to take this opportunity to welcome the PosiLock team to SPX Flow. We also completed an agreement to purchase the remaining shares of our South Korean dehydration joint venture to make the business 100 percent owned by SPX Flow. Our facility and team in South Korea support design for phase change material dryers and serves as our center for refrigerated dryer production. This was a planned step for our global dehydration business, and I'm enthusiastic about the future to balance growth and performance of the business with our very capable team. We also continue to return excess cash to our shareholders in the quarter, repurchasing $11 million of our shares outstanding, leaving us just over $130 million on our authorization. Jamie will provide more details on these investments during his remarks. Sequentially, orders were consistent and exceeded expectations with resiliency in our food and beverage business, offset by moderation in industrial capital project spend. Industrial orders were down 4% sequentially, which was better than expectations at the start of the quarter. Encouragingly, we saw meaningful sequential growth in our short cycle dehydration and hydraulic tool product categories, most notably in North America. Orders for longer cycle industrial products tied to customer capital projects were down sequentially, primarily concentrated in Europe. As we enter the fourth quarter, we are prudently planning for moderation in industrial short cycle orders and for continued variability in larger projects as customers cautiously deploy capital. In food and beverage, orders were up 2.5% sequentially, continuing to reflect the resiliency for this part of our business. Systems orders were up over 20% with growth concentrated in Europe. On a global basis, component orders improved with North American orders up low single digits. Aftermarket service orders were down sequentially, primarily tied to timing concentrated in Europe. You'll note from the graph in Q4 2019, we had an exceptionally strong quarter in food and beverage orders coming from both long cycle systems and short cycle components and aftermarket. Given the current environment, we don't expect a repeat of Q4 2019 results this year, and we're planning for orders in the quarter to remain similar to what we've seen in Q2 and Q3 of this year. We also expect the quarter to have a higher percentage of revenue coming from project business given the systems order intake in prior quarters and the current lower level of short cycle business. Our food and beverage business has made tremendous performance progress over the past two years, achieving low to mid-teens margins for five consecutive quarters. I remain confident we will continue a long-term trend of improved performance for this part of our business as we execute our strategy. Overall, our order results in Q3 were consistent sequentially and exceeded expectations we had at the start of the quarter. We're planning for orders to remain steady sequentially as we enter the fourth quarter and remain poised to respond to improvements in market conditions. At this time, I'll turn the call over to Jamie.