Flowserve Corporation

Today's conference is being recorded. At this time, I would like to turn the conference over to Brian Ezell, VP, Investor Relations, Treasurer, and Corporate Finance. Please go ahead.

Thank you, and good morning, everyone. Welcome to FlowServe's fourth quarter 2024 business update. I'm joined this morning by Scott Rowe, FlowServe's President and Chief Executive Officer, and Chief Financial Officer, Amy Schwetz. Today, Scott and Amy will provide an update on their overall business performance and highlights from the quarter. Following their comments, we'll open the call for questions. I'll ask that you please keep to one question and one follow-up question and then return to the queue. Turning to slide two, as a reminder, our discussion will contain forward-looking statements that are based upon information available as of today. Actual results may differ due to risks and uncertainties, and these are discussed in our SEC filings, which can be found on our website. Our comments today also include non-GAAP financial measures. Additional details and reconciliations to the most directly comparable GAAP financial measures can be found in our fourth quarter press release and today's earnings presentation, both of which are on our website. With that, I'll turn it over to Scott.

Thank you, Brian, and good morning, everyone. I'll begin on slide three. We delivered strong results in the fourth quarter, tapping a year of improved execution and significant progress towards our 2027 targets. Bookings were nearly $1.2 billion for the quarter, with strong growth in both original equipment and aftermarket bookings. Adjusted gross margins expanded 300 basis points to 32.8%. This marked the eighth consecutive quarter of year-over-year margin expansion, and with additional leverage from SG&A, we delivered adjusted operating margins of 12.6% in the quarter. Book-to-bill was 1.0 times as we continued to drive revenue conversion while exiting the year with near-record backlog of $2.8 billion. Our disciplined focus on working capital supported strong operating cash flow of $197 million in the quarter. Operationally, performance in the quarter was largely as we anticipated when we provided our third quarter update in October. Though strengthening of the U.S. dollar drove an incremental currency translation headwind, along with higher interest expense related to the MOGIS acquisition. Amy will provide more detail on this later in the call. Overall, our team executed to our plan, delivering improved results in the quarter and completing an outstanding year for CloseServe in 2024. Turning to slide four, Q4 bookings grew 13% versus last year, driven by continued strength in our in-market and strong execution by our commercial teams. We continue to see robust growth from our strategy, with 3D bookings representing 31% of our total awards for the quarter. We generated $618 million of aftermarket bookings, which was the third consecutive quarter above $600 million. We are laser-focused on continuing to grow our aftermarket franchise, and our dedicated aftermarket teams are driving higher levels of service and value to our customers at margins accretive to the closed-serve portfolio. Fourth quarter original equipment bookings grew 14% versus last year, with a healthy mix of activity across traditional process industries, as well as within new energy markets. Our largest award in the quarter was approximately $60 million in order to supply pumps for a new nuclear power plant in Europe. For the quarter, nuclear awards totaled more than $110 million, representing the second consecutive quarter of nuclear bookings greater than $100 million. Our power bookings, which included both traditional power and nuclear, were up more than 40% versus the prior year period. The power end market continues to be a significant opportunity, and Floeser participates in virtually all forms of power generation, from traditional hydrocarbon power, like coal and combined cyclone natural gas, to nuclear and newer energy technologies, like concentrated solar power or battery storage. Our next largest project awards were in the range of $10 to $15 million. Our selective bidding approach to large projects continues to deliver growth with our preferred customers and products at margins that create more value for closed serve. Additionally, we continue to see strength in our foundational core business of aftermarket, MRL, and short cycle activities, driven by stable asset utilization rates at our customers' operations and improved capture rates across our expansive installed base. Turning now to slide five. Looking back on 2024, we meaningfully grew bookings, expanded gross and operating margins, generated strong adjusted EPS growth, and delivered substantial cash flow, reflecting the strong execution and hard work of our associates around the world. We also took significant steps in 2024 to strategically position the company and enable further value creation for our customers and shareholders. The MOGIS acquisition, which we completed during the fourth quarter, expands our offering and exposure to mining and minerals, an important and growing end market that enhances our diversification efforts. We also launched the FlowServe Business System, a comprehensive framework to further improve our execution with consistent operating processes across the post-serve enterprise. We made significant progress last year in the areas of operational excellence and portfolio excellence, our 80-20 framework, both of which are improving the way we run our company and delivering margin expansion. Let me now address our 3D strategy and the market outlook for 2025 as we turn to slide six. Our significant progress in 2024 gives us further confidence and our ability to deliver on our 2027 targets. And we fully anticipate continuing with this momentum in 2025. Our 3D strategy is well positioned to deliver growth and capitalize on macro trends, including ongoing energy transition, as well as global regionalization. Diversification and decarbonization remain critical strategic initiatives for POSERP in 2025. We expect to build on the strength of 2024, where diversification bookings grew 9% and decarbonization bookings grew 36%, driven by nuclear and new energy activities. On digitization, we believe we have the most advanced monitoring and prediction system within the flow control space. We continue to demonstrate the value of our digital capabilities on a regular basis with our customers, improving their overall operability and reducing the cost to run their assets. In the year, we increased Red Raven monitoring assets by 14%. We believe there are scaled pathways to utilize the predictive capabilities that our domain expertise provides to generate recurring revenue and position ourselves for even higher aftermarket capture rates in 2025 and beyond. Our 3D strategy continues to be the right one in today's environment, and we expect to see strong 3D growth trends in 2025. Turning to slide seven, with strength in our traditional and 3D-oriented end markets, our outlook remains constructive for projects, MRO, and aftermarket activity across industries and end markets. These opportunities continue to support our long-term organic target of 5% growth. Key global megatrends of energy security, regionalization, and electrification continue to attract significant global investments. Our overall 12-month project opportunity funnel is roughly flat to last year. However, the funnel remains at an elevated and healthy level, particularly in some of our strongest in-markets and with more projects in the smaller to mid-sized range. The opportunity funnel in power is up more than 20%, versus the prior year period, driven by the increased need for new power generation on the back of data center growth and electrification trends. We expect the world's existing traditional process industries to remain at solid utilization levels, and we believe we are well positioned to capitalize on these aftermarket opportunities, as we have demonstrated over the last several quarters. Moving to slide eight. Innovation remains critical to differentiate our products in the market as we leverage technology to deliver a 3D strategy. During the year, we introduced 11 new products to the market. To highlight an example of how our innovation supports our customers in the energy transition journey, we are collaborating with a customer in Denmark on the world's first molten hydroxide energy storage plant called the Molten Salt Storage or MOS project. The MOS process heats sodium hydroxide to over 1300 degrees Fahrenheit. The heated salt then generates steam, which can be converted to electricity. Specialized flow control equipment is essential in this severe service, high temperature environment. Additionally, this technology can be used in concentrated solar power, carbon capture, and potentially used in future applications like small module nuclear reactors. We also launched another innovative offering enabling emissions reductions of up to 80% through our GasPak ZE Seal, a dry gas seal technology that enables operators to achieve zero emissions from blowdowns and standstill conditions, supporting our customers' decarbonization goals. Finally, we continue to expand our capabilities of our solutions offering by combining our extensive domain expertise in flow control, with new analytical and modeling tools and enhanced digitization through Red Raven. We believe this combination uniquely positions FlowServe to help our customers with their biggest flow control challenges. Altogether, we remain focused and committed to delivering unparalleled innovation for our customers, which we believe will deliver consistent growth and value creation for FlowServe. I will now turn to slide nine in the FlowServe business system. With a strong market backdrop and an effective long-term strategy in place, we are now leveraging the Closer Business System to deliver strong execution. The Closer Business System defines our approach to running the organization across five critical functional disciplines to deliver excellence. These disciplines drive consistency in how we work together across our seven business units, connecting business processes to our desired outcomes of profitable growth margin expansion, superior customer experience, and cycle resiliency. Our operational excellence program is now hitting its stride. We have improved delivery performance and shop floor productivity while capitalizing on opportunities to further reduce our roofline. While we have made great progress operationally, we believe we have more opportunities in 2025 and beyond. Our portfolio excellence program is in its early stages. Our 80-20 effort, which we've named CORE for complexity reduction, was launched over a year ago, and we are continuing to advance the program in 2025 by adding the remaining two product business units. Early analysis from the three business units launched in 2024 are very encouraging. We have identified opportunities to reduce the complexity in our overall offering as we eliminate and rationalize products and services that aren't fully contributing. applying a more deliberate approach to pricing, and improve our service levels for our best customers. Our current expectation is that the revenue impact from the program will be negligible in 2025, while the actions we are taking will benefit gross margins by roughly 50 basis points this year at the closed-serve level, and then accelerate in 2026 as the program is fully implemented across all product business units. We remain confident in our ability to generate 200 basis points of margin expansion from the Portfolio Excellence Program by 2027 as we move all five product business units fully into the core program. Commercial Excellence will be the next program to launch, which we anticipate will kick off during the second half of this year. Commercial Excellence will focus on pricing discipline, account management, and funnel management to drive profitable growth and continue to improve our customer experience. In summary, we made significant progress in 2024, and I'm excited about the opportunities to continue to create significant value in 2025. With that, I'll turn the call over to Amy to discuss our financial results and outlook in greater detail.