Flowserve Corporation

Good day and thank you for standing by. Welcome to the flow serve second quarter 2021 conference call. At this time, all participants are in a listen only mode. After the speaker's presentation, there'll be a question and answer session. To ask a question during the session, you'll need to press star one on your telephone. Please be advised that today's conference is being recorded. If you require any further assistance, please press star zero. And I'd like to hand the conference over to your speaker today, Mike Mullen, Director of Investor Relations. Please go ahead.

Thank you, Christina. And good morning, everyone. We appreciate you participating in our conference call today to discuss FlowServe's second 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 material is due, 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 August 6, 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 flowserve.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.

Great, thank you, Mike. Good morning, everyone, and thank you for joining our second quarter earnings call. We are pleased with the performance and solid results in the second quarter, including adjusted EPS of 37 cents, which represents a 32% sequential improvement and reflects our continued transformation progress. We are encouraged by our bookings of $953 million, which is nearly an 18% year-over-year improvement. At this level, Q2 was a momentum-building quarter for FlowServe, as our bookings inflected upward, and we now have clear line of sight to earnings growth. The higher level of bookings and our improved operational performance have provided us the confidence to raise our outlook further for the full year. Our revised adjusted EPS guidance is now $1.45 to $1.65 for 2021. Since the start of the pandemic, we indicated that recovery in our end markets was expected to be directly correlated with the progress being made with COVID-19. Each country and geography are at different stages in fighting the pandemic, but on a global basis, a clear pattern has emerged. As countries roll out vaccines, COVID cases decline dramatically, and then mobility and consumption begin to improve. This in turn drives customer spending for nearly all of our end markets. We are confident in our ability to continue to grow the post-serve enterprise and ultimately restore our bookings to pre-pandemic levels in the coming quarters. There are several factors that contribute to our confidence in the outlook. First, we expect to continue to grow our MRO and aftermarket bookings. As countries emerge from COVID, we are seeing higher utilization rates in our customers' facilities, which necessitates increased parts, replacement units, and service activities. Additionally, our distribution partners are just now beginning to replenish their inventory levels. After about six quarters of destocking, we are now expecting these distributors to rebuild their inventory levels over the coming quarters. Second, we believe major project activity will emerge and begin to recover in the back half of 2021 and into 2022. In the early part of last year, we had very good visibility to a significant amount of project activity that was expected to be awarded during that year. Most of those projects were put on hold as operators were both assessing the COVID impact and reducing their capital spending budgets. Today, we are working with many of those same customers to bring those projects forward. As the economic environment has improved dramatically over the past several months, And additionally, our activity with EPCs has increased significantly this year. Finally, we see energy transition theme as a significant opportunity for CloseServe. To date, actual spending in this area is still very modest, but we expect it to grow substantially in the quarters and years ahead based on the commitments that our customers are making, as well as from the potential for increased regulation and costs associated with emissions. FlowServe is no stranger to this type of work, and I'll talk further about this growing market later in the call. Even as the outlook and trends look promising, predicting the exact timing associated with these opportunities is still challenging. The Delta variant is causing concerns for FlowServe operations and for our customers. We have remained diligent and focused on our safety protocols, and we have successfully limited pandemic impacts at most of our global facilities during the quarter. The recent upturn in COVID cases in the Americas due to the Delta variant has the potential to impact our return to office. However, we do not believe that the latest COVID trends will negatively impact our business and growth outlook at this time. Unfortunately, we did experience significant disruption in our Indian operations during the quarter. As a reminder, we have three large manufacturing facilities in several smaller locations in India. The good news is that we have seen tremendous improvements over the past several weeks, and we are currently operating at about 80 percent associate participation in these facilities, which is up from 20 to 30 percent participation that we experienced for most of the second quarter. Our Indian-based suppliers were also challenged in the quarter, which presented modest headwinds for us, but our supply chain team has done a good job mitigating the impact and leveraging our global suppliers to minimize disruptions. Let me now turn to our second quarter bookings. We are pleased with the 17.9% year-over-year increase, which brought this quarter's total bookings to $953 million. Both original equipment and aftermarket bookings grew in the 17% to 19% range. We were very pleased to have delivered almost $525 million of aftermarket awards this quarter, returning to pre-pandemic bookings levels for this part of our business. Each of our core end markets delivered year-over-year growth, with the biggest drivers being oil and gas and chemicals, which increased 39% and 19%, respectively. On a regional basis, we saw solid growth across the globe, with the exception of the Asia-Pacific market, which was negatively impacted by India's COVID resurgence and a more difficult compare period. Our bookings performance this quarter was driven almost exclusively by our aftermarket and MRO business, which represented a large volume of small awards. In fact, we only secured one award that exceeded $10 million, where FCD booked a $12 million nuclear power order in North America. To achieve this level of bookings without any large projects in the mix is an encouraging sign for future growth. We expected larger project spending to lag aftermarket in MRO work, and it has. And we are now confident in the return of project investment later this year and into early 2022 across our end markets. Our project funnel continues to grow and is up nearly 25% compared to this time last year. driven by the feedback we obtained from customer discussions, insights gained from EPC bidding and backlogs, and our interaction on the delayed projects which we originally expected to be released in 2020. We continue to anticipate bookings in this $950 million range in this year's third and fourth quarters, assuming continued progress with COVID. At this level, we should see significant bookings growth in the next two quarters, relative to the 2020 comparative periods. Delivering these level of bookings or higher would position FlowServe well to deliver a strong 2022 financial performance. Our results this quarter also helped drive strong first half results for 2021. Our adjusted decremental margins for the first six months was just 13% with our improved market outlook. We remained focused on returning FlowServe to growth while driving margin expansion and increased returns. I would now turn the call over to Amy to cover our financial results in greater detail.