Flowserve Corporation

Good day and welcome to the second quarter 2024 FlowServe Corporation Earnings Conference Call. Today's conference is being recorded. At this time, I'd like to turn the conference over to Jay Ruch, Vice President, Treasurer, and Investor Relations. Please go ahead.

Thank you, Melinda, and good morning, everyone. We appreciate you joining our conference call today to discuss FlowServe's second quarter 2024 financial results. On the call with me today are Scott Rowe, Flow Service 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 July 30th, 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 both are accessible on our website in the Investor section. I would now like to turn the call over to Scott Rowe, Float Service President and Chief Executive Officer for his prepared comments. Thanks, Jay, and good morning, everyone.

We delivered another quarter of strong results with sequential and year-over-year improvements driven by outstanding execution. Compared to the second quarter last year, some highlights include revenue growth over 7%, with adjusted growth and operating margins increasing to 32.3% and 12.5%, while our adjusted earnings increased more than 40% per share. Our strong bookings of $1.25 billion in the quarter represents a 12% increase versus last year in sequential growth of 20%. With a book-to-bill of almost 1.08 times in the quarter, our backlog grew over $70 million sequentially to $2.7 billion, positioning the company for further growth. I want to thank our associates around the world for their passion and dedication to supporting our customers in delivering these impressive results. Continuing with second quarter commentary, our adjusted earnings per share was 73 cents, representing a sequential increase of 15 cents and 21 cents year over year. Our bookings were at the highest level since 2014 and included a healthy mix of project awards, with ongoing strength in both MRO and aftermarket activity. We generated over $1.15 billion in revenue and increased our adjusted growth in operating margins by 200 and 210 basis points, respectively, versus the prior year, which gives us further confidence in our margin progression journey. We are very pleased with our results and the progress we have made in the last couple of years, as we implement and capitalize on opportunities for growth and further improvement. Our Operational Excellence Program continues to deliver results with significant progress within our manufacturing facilities. The new organizational design, combined with improved process discipline, is allowing us to operate at a much higher level. While the recent results are impressive, we are confident that there is further upside as we continue to drive maturity in our operations journey. Additionally, we launched our formal product excellence program earlier this year. We have undergone an extensive product portfolio review within one of our seven business units and have identified significant opportunities to deliver higher margins without compromising our focus on growth. We plan to launch this program with our second business unit next month and a third business unit before the end of the year. As discussed in our analyst day last year, we have committed to an incremental 100 or 200 basis points of margin improvement from the product excellence program by 2027. The early progress is encouraging, and we expect to begin to see results from this effort in the back half of 2024 and 2025. Operational and product excellence are essential components of the new flow service system that was created to deliver improved process consistency and financial performance across Low Serve. Let me now turn to bookings and our end markets. Our second quarter bookings of $1.25 billion marks our 10th consecutive quarter with bookings over $1 billion. Our 3D growth strategy represents over 25% of our total bookings again this quarter, reaffirming our strategic approach. Our bookings were balanced in the second quarter with original equipment and aftermarket activities, each representing about half of the total. For original equipment, we benefited from three large projects in the Middle East, including the two we announced in April. Together, these large awards totaled approximately $200 million. The elevated asset utilization rates in spring turnaround season at our customers' operations led to record quarterly aftermarket bookings of more than $610 million. In addition, we have now delivered seven consecutive quarters above the $550 million level, showing the resilience of this higher margin, faster turn, parts, service, and repair work. Both serves local presence, strong customer relationships, and high levels of service continue to produce solid capture rates on our vast aftermarket entitlement. We expect the world's existing refining, chemical, and power facilities will remain at high utilization levels for the foreseeable future, and our aftermarket business is well positioned to service their need for continued operability. By end market, oil and gas generated the highest level of dollar growth, representing a year-over-year increase of about 22%, and includes two of our three large projects we received this quarter. We also continue to capture a substantial number of 3D bookings that are recorded in this end market, primarily in decarbonization activities such as carbon capture, biofuel conversion, LNG, and our Energy Advantage program. We also demonstrated significant growth within the chemicals market this quarter, booking $272 million. This represented 14% growth versus the prior year and was driven by the Emerald Greenfield petrochemical project in Saudi Arabia, which was announced in April. We continue to expect significant chemical capacity additions in the Middle East and modest improvement in overall global chemical demand. We're also making good progress with all aspects of the 3D strategy, diversifying into specialty chemicals and plastic recycling, decarbonizing existing petrochemical facilities, and adding Red Raven to flow control products in both existing and new chemical plants. Last quarter, I highlighted the expectation for increases in power generation driven by the growth in data center capacity fueled by ever-increasing artificial intelligence activity. Second quarter power bookings were $153 million, which represents a 34% increase year over year. Additionally, nuclear activity saw particular strength this quarter with more than $70 million in bookings. We continue to be optimistic about nuclear power generation growth for new projects and lifecycle extensions in various parts of the world. Another end market we are seeing encouraging signals is the mining industry. As more rare earth minerals and other mined products are needed for batteries, electrical transmission, energy storage, and grid hardening, we see stable long-term growth in this sector. Currently, our efforts in mining are included in our general industry's bookings and amount to roughly $100 million a year of activity. We plan to increase our organic efforts in mining to capture a larger portion of this expected growth through enhanced channels to market and further new product development. Additionally, as we evaluate inorganic opportunities to create value for our shareholders, Further mining exposure would be one area of interest to help fortify our existing offering and achieve our stated goal of diversifying our portfolio of products and services. Turning now to second quarter bookings by region, we saw strong growth in the Middle East on the back of the three large projects, as well as modest growth in the Americas. Europe and Asia Pacific bookings declined slightly year over year. Our overall project funnel is up 8% year over year, reflecting the continued visibility into significant project opportunities in the Middle East and other parts of the world. Our traditional short cycle MRO and aftermarket business has proven quite durable, and we expect to see continued growth on this side of the business. As a result, we believe the macro environment and outlook remains favorable for the flow control space. We continue to see positive signals driven by the key global megatrends, from energy transition and decarbonization, to energy security and regionalization, to electrification and digitization. Combined, these current and potential megatrends are attracting significant investments. Bolsterv is well positioned to capitalize on these trends and drive further growth. In the second quarter, we grew our backlog sequentially by over $70 million to $2.7 billion, positioning us for continued revenue growth. We expect our full-year book-to-bill ratio in 2024 will exceed 1.0%, And we are off to a good start through the first half of the year with a book-to-bill ratio of 1.02 times. Combining our solid performance for the first half of the year with expectations for continued improvement, we have increased our full-year adjusted EPS guidance range for the second time this year to $2.60 to $2.75, which at the midpoint represents a nearly 27% increase year-over-year. We are making significant progress at PloServe, and we believe we are well on our way to achieving the 2027 financial targets that we communicated at last year's investor event. I'll now turn the call over to Amy to address our second quarter results in greater detail.