Flowserve Corporation

Good day, and welcome to the Q1 2021 FLO-SERV Corporation Earnings Conference Call. At this time, all participants are on a listen-only mode. Later, we will conduct a question and answer session, and instructions will follow at that time. If anyone should require assistance during the conference, please press star then zero on your touchtone telephone. As a reminder, this conference call is being recorded. I'd now like to turn the call over to your host, Mr. Jay Roosh, Vice President of Investor Relations and Treasurer. Please go ahead, sir.

Thank you, Angela, and good morning, everyone. We appreciate you participating in our conference call today to discuss FlowServe's first quarter 2021 financial results. On the call with me this morning are Scott Rowe, FlowServe's President and Chief Executive Officer, and Amy Schwetz, Senior Vice President and Chief Financial Officer. Following our prepared comments, we will open the call for questions. And as a reminder, this event is being webcast and an audio replay will be available. Please also note that our earnings materials do, and this call will, include non-GAAP measures and contain forward-looking statements. These statements are based upon forecasts, expectations, and other information available to management as of May 4th, 2021, and they involve risks and uncertainties, many of which are beyond the company's control. We encourage you to fully review our safe harbor disclosures, as well as the reconciliation of our non-GAAP measures to our reported results, both of which are included in our press release and earnings presentation and are accessible on our website at flowserv.com in the investor relations section. I would now like to turn the call over to Scott Rowe, FlowServe's President and Chief Executive Officer, for his prepared comments. Scott Rowe Thanks, Jay, and good morning, everyone.

Thank you for joining our first quarter earnings call. We are pleased with our strong start to 2021. FlowServe's adjusted EPS at 28 cents increased over 47% compared to last year's first quarter. In our bookings for the first three months of 2021, were up by over 16% compared to the average of last year's final three quarters. We were especially encouraged with this performance given that our first quarter results are traditionally lower. Given what we saw in the first quarter, we believe that we are off to a strong start in 2021. In the last two earnings calls, we indicated that we believe our end markets are well positioned for a post-pandemic recovery. And our first quarter results support this belief. Although the various regions and countries we serve are on different trajectories in terms of vaccinations, infection rates, return to mobility, and overall economic recovery, we are confident that the world is making steady progress as economies emerge from this global pandemic. As a result, we have started to see these green shoots of activity translate into sequential bookings growth. Assuming vaccines continue to roll out globally and COVID issues subside without new setbacks, We are confident in our ability to deliver substantial year-over-year bookings growth in 2021. With an improving environment, combined with our closed-serve 2.0 growth initiatives, we were encouraged to book $945 million in the first quarter, which represented over 15% growth sequentially and was driven primarily by increased MRL and aftermarket activities. As we moved through the quarter, our bookings by month tracked the overall pandemic progress. January was slow, February improved but was impacted by severe cold weather in the Gulf Coast, and March activity steadily increased. In total, our bookings growth this quarter exceeded our original expectations. The market inflection seems to have begun a quarter or two earlier than we had anticipated. While North America led the increased activity levels, we delivered sequential bookings growth in all of our served regions. In addition to increased aftermarket and MRO-related activity, we were pleased that project bookings levels approached approximately 85 percent of 2020's first quarter. We saw a number of smaller projects get awarded, with the largest of these in the $10 to $15 million range. We also experienced good diversity in our end markets in geographic regions, which highlights the comprehensive nature of our reach and offering. These projects included a nuclear upgrade in Korea, a pipeline in Central America, a refinery in Mexico, and a chemical plant in Asia. The impact of the February winter storms forced us to close our Texas and Louisiana operations for about a week. But we did see increased repair and replacement work in the storm's aftermath which drove an estimated $20 million of incremental repair and replacement business as we supported more than 30 customer installations in the region. GlowServe's QRC footprint and our proximity to impacted customers uniquely positioned us to assist them in getting back online quickly and efficiently. In addition, our channel partners and distributors also received unplanned storm-related business from a variety of end markets, including water and power, that should benefit us in future periods as they reorder and restore their inventory positions. I want to again recognize and thank our associates in the region for their continued focus on our customers, where the extreme weather impacted many of our team members personally. Despite damage and power outages to their own homes, our associates were committed to providing the necessary equipment and services to support our customer base and restore their critical operations. I'm very proud of the number of phone calls and notes I received from our top customers thanking FlowServe and our associates for supporting them through this difficult time. We are confident that helping our customers in a time of need will result in stronger relationships and increase future business for FlowServe. There is still work to be done at some of our customers' facilities to restore their operations to normal conditions. We anticipate additional bookings at about the same level as we saw in February and March to continue throughout the second quarter related to the storm impact. Turning now to our in-markets and booking outlook. Our discussions with customers indicate increasing optimism. Rising utilization levels across industrial assets should result in an increase in their spending levels to maintain uptime and address pent-up maintenance activity that was deferred throughout 2020. we continue to believe that the aftermarket in MRO will lead the early phases of the recovery throughout the year. Project activity is also beginning to pick up, and we expect this to increase as the year progresses. Currently, our project funnel is about 12% higher than a year ago, and the compare period includes many of the projects that were placed on hold due to the pandemic. We expect many of these delayed projects to progress toward funding in the coming quarters. Opportunities are apparent across all end markets, but we expect general industry and chemical projects to lead the return to growth in a recovering economic environment. In conclusion, it was a strong start to the year, both in our bookings and financial results. We believe our end markets remain well positioned to benefit from the recovering economic environment. While we expect to see COVID flare-ups in some regions, like what we're seeing in India today, we are optimistic that with increasing vaccinations, the world is beginning to move in the right direction, which will ultimately help support our ability to deliver bookings growth. We're very pleased with our financial results in the first quarter. Our adjusted EPS was up significantly compared to last year, and the margins we delivered in our SG&A levels continue to reflect the benefit of the decisive cost actions we took in 2020 and the ongoing Closer 2.0 transformation program. I'll now turn the call over to Amy to cover our financial results in greater detail.