Flowserve Corporation

Good day and welcome to the FlowServe second quarter 2025 earnings call. Today's conference is being recorded. At this time, I'd like to turn the conference over to Brian Ezell, Vice President, Investor Relations, Treasurer, and Corporate Finance. Please go ahead.

Thank you, and good morning, everyone. Welcome to FlowServe's second quarter 2025 business update. I'm joined by Scott Rowe, FlowServe's President and Chief Executive Officer, and FlowServe's Chief Financial Officer, Amy Sweats. Turning to slide two, 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. Refer to additional information, including our note on non-GAAP measures in our press release, earnings presentation, and SEC filings, which are available on our website. I will now turn it over to Scott.

Great. Thank you, Brian. Good morning, everyone. Before we talk about our outstanding second quarter results, I want to provide an update on the chart merger. As we announced yesterday, we reached an agreement to terminate the proposed merger with Chart Industries. When we were first approached by Chart about the potential merger, we took a very disciplined approach to the discussion, with a focus on ensuring the strong value creation opportunities offered by FlowServe would continue in the merger. This disciplined approach guided us through our decision-making process following the subsequent all-cash offer for chart from Baker Hughes. Based on our assessment, further pursuing the merger would have been value-diminishing to FlowServe shareholders, given the additional cash, leverage, and diluted ownership required to continue the process. While we are disappointed in this outcome, we are confident that this decision was in the best interest of our shareholders and our company. As a result, FlowServe received a $266 million termination payment in accordance with our signed agreement. Near-term, we'll evaluate opportunities to deploy this capital to create value for our shareholders, including through share repurchases. Over time, we remain committed to a disciplined approach to capital allocation, including M&A. While the outcome wasn't what we wanted, we have no regrets in our decision to pursue this opportunity or with our decision to terminate the agreement. The Pulse Serve team and our board of directors were thoughtful, disciplined, and focused on our stakeholders throughout this engagement. And I believe we're in a better place today than ever before to capitalize on the opportunities in front of us. Let's now turn to slide three. We delivered exceptional second quarter earnings in a dynamic macro environment, demonstrating the focus and strong execution of our associates. We are encouraged by our momentum through the first half of the year and remain confident in our ability to execute at a high level, even as the environment remains fluid. As a result, we increased our full year adjusted EPS guidance, to $3.25 to $3.40, which at the midpoint represents an increase of more than 25% year over year. Looking at our second quarter results in detail, we delivered bookings of approximately $1.1 billion and revenue growth of 3%, with adjusted gross margins expanding 260 basis points to 34.9%. Adjusted operating margins were 14.6%, resulting in impressive incremental margins of 94% during the quarter, while adjusted earnings per share was $0.91, an increase of 25% compared to the prior period. The closer business system is taking hold across the organization, driving excellence through functional discipline and accountability within our operating divisions and business units. We continue to be laser focused on expanding margins and driving profitable growth. All products are now fully utilizing the 80-20 framework, and we believe there are further opportunities to increase margins as we are still in the early phases of this program. For the full year, we now expect to expand adjusted operating margins 200 basis points year over year. Turning to slide four, we delivered solid bookings performance with our fifth consecutive quarter of aftermarket bookings above $600 million. Our focus on growing the aftermarket business continues to pay dividends, and our high service levels are translating into improved aftermarket capture. Our largest award in the quarter was an $11 million nuclear aftermarket order for the ongoing upgrade of a nuclear power plant in North America. Additionally, in pumps, we secured our first production order related to a small modular nuclear reactor, or SMR, which is a testament to Pulsar being a leader in the advanced nuclear technology space. Total nuclear bookings were nearly $60 million during the second quarter. We also booked several other smaller projects in the $5 to $10 million range across different end markets. Second quarter bookings were largely driven by our core business of aftermarket MRO and short cycle activities. This base business remained healthy in the quarter as customers continue to focus on uptime and facility utilization. Overall, our markets remain healthy and our project funnel continues to grow, though we did see approvals for a few projects pushed from second quarter to the third quarter as customers assess the macro environment and tariff situation. By end market, we generated strong year-over-year growth in general industries of 9%. Energy and chemical bookings decreased, as expected, given two large Middle East awards totaling $150 million that did not repeat this year. We continue to see good opportunities in the Middle East with medium-sized projects across a variety of end markets. We are happy to sign an MOU with Honeywell to integrate our Red Raven digital offering into their asset performance management system called Forge. This exciting step forward validates the incredible technology we have developed and is an opportunity to significantly scale our Red Raven offering. Leveraging this partnership, we have the ability to serve large industrial facilities, enhancing efficiency and operating predictability for our customers while creating a recurring stream of revenue for FlowServe. We look forward to sharing more details as we make progress with our customers. Turning to slide five, While the macroeconomic environment continues to be dynamic, our end markets remain healthy. Asset utilization for large process industries remains steady, and maintenance spending has continued as expected. Our project funnel remains healthy and increased sequentially in all of our end markets. In particular, the nuclear project funnel continues to grow and is at the highest level we have seen. While some new project approvals in the chemical and energy markets have been pushed out a quarter or two, There have been no unusual backlog cancellations or significant change in activity to date. Our first half book-to-bill was a strong 0.99 times. For the full year, we expect our book-to-bill ratio to be approximately 1.0 times, assuming project approvals continue as expected. Our strong backlog of $2.9 billion continues to position us well for future growth in the second half of the year as well as into 2026. Our elevated backlog provides a comforting level of certainty in the current market environment. Turning to slide six, trade policy continues to evolve, and we remain focused on building resiliency into our supply chain, as well as responding as quickly as possible to the latest tariff changes. As we look at the tariff rates in place today, we estimate the annualized gross impact from these tariffs before any mitigating actions to be between $50 to $60 million. This compares to the range we shared in April of $90 to $100 million. We continue to actively shift sourcing around the globe, leveraging our regional structure to reduce the overall tariff impact for our customers. The pricing actions we took in response to tariffs are now fully in place with no noticeable impact to demand. We estimate the impact for tariffs to the second quarter, net of our mitigating actions were neutral to earnings, and our goal remains to be tariff impact neutral for the full year. I would like to conclude with the progress we are making with the Flosser business system. Operational excellence is now fully embedded with how we run our global manufacturing and is helping us deliver for our customers and our shareholders. Additionally, we are now executing 80-20 across all of our business units, and we believe there is significantly more opportunity as we decrease complexity in our product portfolio offerings. Finally, we launched commercial excellence in the second quarter with the expectation that this program drives long-term profitable growth. We are excited about the tenets of the commercial excellence program, and we are confident in our ability to gain traction quickly. Let me now turn the call over to Amy to speak about our financials in greater detail. Amy?