Flowserve Corporation (NYSE:FLS) Q2 2023 Earnings Conference Call August 2, 2023 11:00 AM ET Company Participants Jay Roueche - Vice President, Investor Relations & Treasurer Scott Rowe - President & Chief Executive Officer Amy Schwetz - Senior Vice President & Chief Financial Officer Conference Call Participants Nathan Jones - Stifel Joe Giordano - TD Cowen Deane Dray - RBC Capital Markets Sabrina Abrams - Bank of America Michael Halloran - Baird Damian Karas - UBS Brett Linzey - Mizuho Operator Good day, ...

15 | --- | --- | --- | --- | --- | --- | |---------------------------------------------------------------------------------------|------------------------------------------------------------------------------|-------|--------------------------|-------|----------------------| | The following table presents the reclassifications \n(Amounts in thousands) | out of AOCL: \nAffected line item in the statement of income | | Six Months \n2023(1) | Ended | June 30, \n2022(1) | | Pension and other postretirement effe ...

| --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | |-------------------------------------------------------------------------------|-------|--------------------------|------------------|--------------|-------|-------|--------------------------|------------------------|----------------------|-------|----------------------|------------------------|---------------------| | (Amounts in millions) \nService cost | $ | Defined \n2023 \n5.0 | U.S. Benefit \n$ | Plans \n2022 | 6.3 ...

• coordinating operations that are increased in scope, geographic diversity and complexity; 15 • retooling and reprogramming of equipment; • hiring additional management and other critical personnel; and • the diversion of management's attention from our day-to-day operations. Further, no guarantees can be made that we would realize the cost savings, synergies or revenue enhancements that we may anticipate from any acquisition, or that we will realize such benefits within the time frame that we expect. If w ...

Financial Data and Key Metrics Changes - First quarter bookings reached $1.09 billion, a 15% increase year-over-year and an 18% increase on a constant currency basis, marking the highest bookings level since Q2 2019 [7] - Adjusted EPS for Q1 was $0.07, while reported loss per share was $0.12, impacted by a $0.16 charge related to exiting Russia [25][26] - First quarter revenue declined by 4.2% or 2% on a constant currency basis, primarily due to supply chain and logistics challenges [29] Business Line Data and Key Metrics Changes - Aftermarket bookings grew by 18.6% year-over-year, totaling $542 million, the highest quarterly bookings since 2014 [11] - Original equipment bookings increased by 11.5% to $544 million, driven by the return of a more normalized market environment [13] - FPD (Flow Control Division) saw over 20% growth in both original equipment and aftermarket orders, while FCD (Flowserve Control Division) contributed modest growth [28] Market Data and Key Metrics Changes - Oil and gas bookings increased over 36% year-over-year, with significant contributions from project bookings [15] - Power bookings rose over 65% compared to the prior year, including significant nuclear aftermarket and OE project awards [16] - Regional bookings growth was led by the Middle East and Africa (up 51%), Europe (up 45%), and North America (up 9%), while Latin America saw a decline of 12% [16] Company Strategy and Development Direction - The company is focused on its 3D growth strategy, which aims to diversify, decarbonize, and digitize its offerings [44] - Efforts are being made to capture opportunities in underserved markets, particularly in water and specialty chemicals [46] - The company is committed to supporting customers' decarbonization efforts and has secured contracts related to carbon capture and sustainable chemicals [49][50] Management's Comments on Operating Environment and Future Outlook - Management acknowledged significant challenges in Q1 due to supply chain constraints, inflation, and the impact of the Russia-Ukraine conflict [8][19] - The company expects to see strong demand in the second and third quarters, driven by a robust project pipeline and energy independence initiatives [53][55] - Future earnings are anticipated to be heavily weighted towards the second half of the year, with expectations for improved backlog conversion rates [37][42] Other Important Information - The company has ceased operations in Russia and is addressing the financial impacts of this decision [19][26] - Inflation expectations for the full year have increased by nearly 50%, with procurement costs expected to rise in the high single-digit range [21] - The company maintains a strong liquidity position with $576 million in cash and $384 million in available credit [36] Q&A Session Summary Question: Did the company gain market share with the recent order growth? - Management indicated that the competitive nature of the projects won suggests a gain in market share, particularly in aftermarket and MRO segments [64][66] Question: What are the current sourcing challenges? - The primary concern is related to supply chain disruptions in Asia, particularly China, affecting the ability to source and transport products [67][68] Question: What is the outlook for bookings growth in the second half of the year? - Management expressed optimism about continued strong demand and project visibility, particularly in LNG and nuclear sectors, despite potential inflationary pressures [72][74]

| --- | --- | --- | |----------------------------------|-------|-------| | | | | | | | | | 2021 EARNINGS THIRD QUARTER | | | | | | | | October 28, 2021 CONFERENCE CALL | | | | | | | | | | | | | | | Q3 2021 EARNINGS CONFERENCE CALL | --- | --- | |------------------------------------------------------------------------------------------------------------------------------------------------------------|-------| | | | | We have provided tables in the appendix that reconcile these non-GAAP measures to their corr ...

Financial Data and Key Metrics Changes - The adjusted EPS for Q2 2021 was $0.37, reflecting a 32% sequential improvement [6] - Reported EPS increased significantly to $0.35 compared to the prior year [18] - Revenue for Q2 2021 was $898 million, down 2.9% year-over-year [20] - Adjusted gross margin decreased by 70 basis points to 31.4% [21] - Cash balance at the end of Q2 was $630 million, with liquidity remaining strong at nearly $1.4 billion [26] Business Line Data and Key Metrics Changes - Bookings for Q2 2021 totaled $953 million, a nearly 18% year-over-year improvement [6][13] - Aftermarket awards reached almost $525 million, returning to pre-pandemic levels [13] - Original equipment sales declined by 6.1%, while aftermarket sales were relatively resilient [20] Market Data and Key Metrics Changes - Solid growth was observed globally, except in the Asia Pacific market, which was impacted by COVID-19 resurgence in India [14] - The oil and gas and chemical markets were the biggest drivers of year-over-year growth, increasing by 39% and 19% respectively [13] Company Strategy and Development Direction - The company is focused on energy transition opportunities, estimating $100 million to $150 million annually in related business [36] - The Flowserve 2.0 operating model is expected to be fully embedded by the end of the year, aiming for continuous improvement and margin expansion [45][47] - The company anticipates a return to growth and margin expansion in 2022 [34] Management's Comments on Operating Environment and Future Outlook - Management expressed confidence in restoring bookings to pre-pandemic levels, driven by increased customer spending as economies recover from COVID-19 [7][8] - The Delta variant poses challenges, but management does not foresee a negative impact on business growth outlook [11] - The company expects to see significant bookings growth in the next two quarters compared to 2020 [16] Other Important Information - The company experienced significant disruption in Indian operations but has seen improvements, currently operating at about 80% associate participation [12] - The company is committed to delivering free cash flow conversion in excess of 100% of net income for the second consecutive year [29] Q&A Session Summary Question: Will the backlog continue to build and potentially exceed $2 billion? - Management expects to continue building backlog and anticipates a higher backlog at the end of the year compared to last year [49] Question: Can you provide more details on the margin impacts this quarter? - The largest impact on margins was due to foreign exchange movements and the return of certain temporary cost benefits from 2020 [50][51] Question: How is the company managing price costs? - The company is experiencing inflation on costs, particularly in motors, electronics, and logistics, and has announced price increases to mitigate these impacts [56][57] Question: What indicators are being used to track the larger project funnel? - The company has seen a 25% increase in its project funnel compared to last year, supported by customer discussions and improved market conditions [62] Question: How is the Flowserve 2.0 program performing? - The program has been effective in driving growth in aftermarket and MRO business, returning to pre-pandemic levels [69]

| --- | --- | --- | --- | --- | --- | |-------|-------|-------|---------------------------------|-------|-----------------------------------------------------------| | | | | | | | | | | | | | | | | | | | | Flowserve Corporation | | | | | Credit Suisse 26 Scott Rowe – | th | Annual Energy Summit President & Chief Executive Officer | | | | | | | | | | | | 2021 Flowserve Corporation | | March 2, 2021 | | --- ...

Financial Performance - Q3 2020 reported and adjusted EPS were $0.39 and $0.50 respectively[9] - Bookings decreased by 21.2%, or 21.6% in constant currency[9] - Aftermarket bookings decreased by 13.5%, or 13.6% in constant currency, amounting to $425 million[9] - Revenue decreased by 7.2%, or 7.7% in constant currency[9] - The company has a strong liquidity position of $1.7 billion as of September 30, 2020, including $921 million in cash and cash equivalents[9] Bookings and Sales Mix - In Q3 2020, Oil & Gas bookings accounted for 30% ($806 million) and sales accounted for 41% ($996 million)[11] - Power bookings and sales both accounted for 22% in Q3 2020[11] - Chemical bookings accounted for 13% and sales accounted for 23% in Q3 2020[11] Original Equipment/Aftermarket - Original equipment bookings decreased 28.3%, or 29.0% in constant currency, compared to Q3 2019[14] - Aftermarket bookings decreased 13.5%, or 13.6% in constant currency, compared to Q3 2019, amounting to $425 million[15] - Original equipment sales decreased 5.6%, or 6.3% in constant currency, compared to Q3 2019[14] - Aftermarket sales decreased 8.8% reported and in constant currency compared to Q3 2019[15] Outlook - The company expects Q4 2020 bookings to be in line with Q2 and Q3 levels and anticipates an upward inflection in mid-to-late 2021[21] - The company is on track to exceed its initial $100 million cost reduction plan[21] - The company aims to generate at least $100 million in Q4 free cash flow[21]