Flowserve Corporation

I would like to turn the conference over to Mr. Jay Roosh, Vice President, Treasurer and Investor Relations. Please go ahead, sir.

Thank you, Jess, and good morning, everyone. We appreciate you joining our call today to discuss FlowServe's first quarter 2024 financial results. On the call with me today 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 your questions. As a reminder, this event is being webcast and an audio replay will be available. Please 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 April 30, 2024, and they involve risks and uncertainties. many of which are beyond the company's control. We encourage you to 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 in the Investors section. I would now like to turn the call over to Scott Rowe, Federal Service President, Chief Executive Officer, for his prepared comments.

Thanks, Jay, and good morning. We are extremely pleased with our first quarter results. marking a very strong start to the year. We continued to drive improvements in the business and outperformed our own expectations in the quarter. Given the excellent start to the year, we have increased our full-year adjusted EPS guidance range to $2.50 to $2.70, which at the midpoint is nearly a 24% increase year-over-year. Bullserve is building on the solid momentum established over the last 18 months, driven by the implementation of our new operating model, improved execution, in delivering on our ongoing 3D strategy. While we have made tremendous progress over the period, we believe there is more room for improvement and we remain committed to our 2027 financial targets that we presented last year. Before I get into the results, I would like to thank our associates around the world that share my passion for providing flow control solutions to our customers every day of the year. Thank you for what you're doing to make FlowServe such a great company. Looking at our first quarter results in detail, We delivered strong adjusted earnings per share of 58 cents, a 45% increase over the first quarter of 2023. The progress we have made in operational excellence drove our outsized results this quarter. We generated almost $1.1 billion in revenue, which represents a nearly 11% increase year over year. Our 31.7% adjusted gross margin exceeded our expectations and gives us confidence in our margin progression journey. Our adjusted operating income margin of 10.9% was a 260 basis point increase year over year. These strong results are notable considering that the first quarter historically tends to be more seasonally challenged. We have made significant progress improving our results and delivering a more consistent performance on a quarterly basis. The changes we implemented in the organizational design process have taken hold and are providing enhanced speed, improved decision making, and further accountability within our seven business units. Additionally, our operational excellence program is gaining traction. We have now trained over 1,100 associates in our enhanced operating model focused on shop floor daily management, problem solving, and material planning. The operational improvements that we are seeing today are directly linked to our ability to operate more productively and eliminate waste and inefficiency in our manufacturing processes. We are excited about the progress within our operational excellence program, and we have clear visibility to further improvements. Additionally, as we improve our core operations, we are finding more opportunities to consolidate our global footprint and leverage to scale inherent in our business. We have also made good progress with our product management organization and processes, as we have now fully defined our program and our approach. We are largely at the beginning of the product management journey, but we can already see the potential with our dedicated teams and improved focus. As we advance the product and portfolio initiatives, we believe we will begin seeing the benefits of these efforts in the back half of this year and into 2025. Overall, we are very pleased with the progress we are making and continue to believe that operational excellence, as well as product management and portfolio optimization, can each deliver the 100 to 200 basis points of margin improvement by 2027 that we communicated at last year's Investor Day event. Turning now to our bookings and market outlook. In the first quarter, our markets remained constructive, and we delivered solid bookings of $1.04 billion across all industries. 3D bookings represented nearly 30% of the total, and we expect our growth strategy to continue to generate significant opportunities going forward. Similar to the fourth quarter of 2023, our bookings in the first quarter did not include any large projects. Our largest award was around $12 million, but we did see a modest number of smaller projects in the $5 to $10 million range. We were pleased to achieve our ninth consecutive quarter with bookings over $1 billion. Considering the first quarter was driven primarily by our core business of aftermarket, MRO, and short cycle activities. This core business remained very healthy in the quarter as customers continued to spend money to support higher facility utilization and avoid unplanned downtime with their operations. We are seeing these elevated trends across most of our end markets. Aftermarket generated more than $575 million in bookings, roughly a $25 million increase sequentially and year over year, further highlighting the continued demand from customers to keep their assets running and productive. We have now delivered six quarters in a row over $550 million in aftermarket bookings. Our global network of quick response centers, combined with our commitment to serve customers with speed and high levels of service, continues to ensure our aftermarket franchise remains a competitive advantage. While project bookings were comparatively light in the quarter, we recently announced two large project awards in April that together exceeded $150 million. The awards support the aggressive capital build-out in Saudi Arabia for Phase II of the Jafura Gas Production Facility and the Amaral Greenfield Petrochemical Facilities. We have extensive experience in the Middle East and have strong, long-standing relationships with these EPC customers and the end user. Additionally, both of these projects will have significant aftermarket entitlement with mechanical seals, pump parts, and services that we are fully prepared to capture given our local presence and strong customer relationships. Furthermore, we won both of these projects with a more disciplined, selective bidding process that should deliver better execution and enhanced marginality commensurate with the complexity of this type of work. The value of these awards will be reflected in our second quarter results. Looking now at bookings by end market, our traditional markets remained healthy in the quarter, including oil and gas and chemicals. While most of our end markets were comparable in dollar size to last year, we were pleased to deliver 7% growth in our power bookings. This is an industry that is beginning to look more attractive for CloseServe. Power demand in mature markets like Europe and North America has been reasonably flat for several decades. However, with the ongoing electrification trend and now the substantial growth in data centers to support energy-intensive AI processing, the demand for electricity is projected to grow significantly over the next decade. CloseServe has considerable exposure to the power industry, and has generated roughly $450 million per year in traditional energy like coal, natural gas, hydroelectric, and nuclear, where water and thermal management is critical, as well as new forms of power generation, such as concentrated solar power, wind, and hydrogen with advanced flow control equipment. We expect there will be a meaningful investment in capacity expansion and new generation in the years to come across all forms of power generation, renewables, hydrocarbon-based, and nuclear power. We are excited about the potential growth in the power sector, and we are well prepared to capitalize on this growth with both new equipment and aftermarket parts and services. As we look ahead, our market outlook remains positive. Our MRO business and aftermarket franchise remains strong, as we expect existing refining, chemical, and power facility utilization will likely continue at high levels for the foreseeable Future. Furthermore, we are encouraged that our 12 month project funnel is up 10% year over year, including a 25% increase in both the energy transition and power markets. We will continue to remain selective in the larger projects that we pursue to ensure that we can successfully deliver for our customers and drive the appropriate margins for full serve over the full lifecycle of the project. From a regional perspective, we have continued visibility into project opportunities in the Middle East, as well as Asia Pacific and South America. From an MRO and aftermarket outlook, we are seeing ongoing strength in North America, and we are beginning to see more positive signals from our European customers. We believe the macro environment and outlook remain favorable for the flow control space. Like everyone in the industry, we continue to monitor geopolitical unrest that is causing concerns in various parts of the world. But at a high level, we remain optimistic about our overall outlook, and we see positive signals driven by key global megatrends from energy transition and decarbonization to energy security and regionalization to electrification and power driven in part from AI and data centers. As we've seen each quarter over the last few years, our book-to-bill ratio will vary quarter to quarter, but we continue to expect that our full-year book-to-bill ratio in 2024 will exceed 1.0 and that we'll exit the year with a larger backlog than where we began the year. This backlog visibility provides support for continued revenue growth into 2025. I will now turn the call over to Amy to address our first quarter results in greater detail. Amy?