Flowserve Aktie

Good day, everyone, and welcome to the Flowserve Second Quarter 2026 Earnings Call. Today's conference is being recorded. At this time, I would like to turn the conference over to Mr. Brian Ezell, Vice President of Investor Relations. Please go ahead, sir.

Thank you, and good morning, everyone. Welcome to Flowserve's Second Quarter 2026 Business Update. I'm joined by Scott Rowe, Flowserve's President and Chief Executive Officer; and Flowserve Chief Financial Officer, Amy Schwetz. Following Scott and Amy's prepared remarks, we'll open the call for questions. Turning to Slide 2. 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. With that, I will turn it over to Scott.

Thank you, Brian, and good morning, everyone. Turning to Slide 3. I'd like to begin by thanking our associates around the world for their hard work disciplined execution and resilience in what remains a dynamic environment. The second quarter was marked by meaningful customer bookings, solid execution and strong financial performance, building on the momentum of the Flowserve business system and durable end market demand. Starting off with some key highlights. Bookings were a standout in the quarter, growing double digits year-over-year to $1.35 billion. with record are bookings of almost $700 million, and adjusted operating margin expanded 70 basis points to 15.3%. That performance drove adjusted earnings per share of $0.95 and ahead of our expectations for the quarter.

Sales came in modestly ahead of what we outlined in April, down 2% on a reported basis and down 3% on an organic basis versus the prior year period reflecting ongoing 80/20 actions and the continuing conflict in the Middle East. These results reflect the earnings power we have built over the last 3 years. Adjusted operating margin has expanded from 9.5% in 2023 to an expected roughly 16% this year, well on the way to our 2030 target of 20%. This expansion has been enabled through operational excellence, the 80/20 program and commercial excellence, all of which are strengthening execution, reducing complexity and driving sustainable margin expansion.

With half the year behind us, we are updating our full year guidance, including modestly lowering our sales outlook due to the expected impact of the conflict in the Middle East in raising the low end of our adjusted EPS guidance range to reflect strong year-to-date performance and confidence in back half earnings. Taken together, I'm incredibly pleased with the performance in the second quarter and encouraged by the continued progress we are making. Let's turn to bookings on Slide 4. Bookings in the second quarter were $1.35 billion, up 26% versus the prior year period with a book-to-bill of 1.15x.

We are particularly pleased to see substantial growth in both original equipment and aftermarket bookings in the quarter. The second quarter performance builds our confidence in delivering mid-single-digit organic bookings growth for the full year. Record aftermarket bookings of nearly $700 million grew 12% year-over-year and marked our ninth consecutive quarter above $600 million as our focus on expanding the aftermarket business continues to deliver results, and we drive higher capture rates across our large installed base. Original equipment bookings of roughly $650 million were up 44%, supported by strong commercial activity, a healthy project funnel, MRR bookings in line with expectations, in continued momentum in Power and nuclear.

We delivered this growth despite the ongoing challenges in the Middle East. The strength and breadth of our bookings this quarter reflect both the health of our end markets, and the commercial discipline we are building through the business system and particularly commercial excellence. Underpinning this momentum, our overall project pipeline remains robust and well balanced across original equipment and aftermarket giving us good visibility into elevated third quarter bookings and the back half of the year.

That strength gives us confidence toward our long-term ambition of mid-single-digit organic sales growth. Importantly, our backlog also continues to grow, creating a runway for future sales growth. Backlog grew 6% sequentially and 9% versus the prior year period excluding backlog from the Trillium acquisition. Moving to Slide 5. Growth was broad-based across end markets. In energy, bookings grew 48% in the quarter and 17% year-to-date supported by large engineered project awards, including a large LNG project in the Middle East and another large LNG project in Canada.

We saw stronger utilization and maintenance activity across many large process facilities around the world. General Industries bookings grew 11% in the quarter and 3% year-to-date with continued strength in sectors such as pharmaceuticals and water and we anticipate seeing further growth in areas like food and beverage, pharmaceuticals, mining and agriculture. Chemical bookings grew 7% in the quarter and 5% year-to-date, consistent with the modest gradual improvement we anticipated, including 1 large chemical project award in the Middle East. Power bookings grew 39% in the quarter and 7% year-to-date, driven by continued strength in both nuclear and traditional power generation.

Notably, nuclear bookings were over $110 million in the quarter, including an award for new large reactors in Asia and several life extension awards in North America. We are encouraged by this performance, which reflects broad-based demand across existing reactors and new build activity that we expect to continue. We remain optimistic about the growth in the nuclear sector for years to come. The underlying fundamentals across our end markets remain healthy. Our 12-month project funnel expanded again this quarter, both sequentially and year-over-year. The operating environment also remains favorable for continued global aftermarket growth. These trends reinforce our confidence in the durability of demand and keep us well positioned to deliver on our 2030 targets.

As noted last quarter, we believe the broader environment and recent volatility in the Middle East has the potential to drive increased investment in energy security and diversification activities globally providing another potential long-term tailwind for Flowserve. While it's too early to accurately gauge the potential size of incremental energy security investments, we believe the next few years could see more spending in areas of historical Flowserve strength like downstream refining, storage facilities, LNG and pipelines.

Our diversification within the 3D strategy has positioned the company to manage through dynamic market conditions more effectively, and we are encouraged by the bookings trends from the second quarter. Turning to the Middle East on Slide 6. Consistent with the situation we described at the end of the first quarter, conditions in the region were a headwind in the second quarter primarily affecting operational activity at customer sites and the timing of customers' willingness to accept equipment deliveries. The pictures on this slide show pumps and valves at Flowserve facilities awaiting approval to ship into the Middle East region. We have seen no change in cancellation rates in the region, which remains immaterial.

But as you can see from the pictures, it has become more challenging to determine exactly when product deliveries may occur. Year-to-date, Middle East sales have declined approximately $60 million, an approximate 3 percentage point headwind to organic sales. Given the nature of our installed base in the region, these headwinds are having a disproportionate impact on FCD as book and ship valve activity has slowed. While FPD has seen some negative impact related to parts and repairs, the larger project backlog in this segment continues to convert to sales. Our #1 priority remains the safety of our associates across the region, and we continue to support our customers as they manage in this dynamic environment.

As we have done since the conflict began, we continue to be nimble in our support of our region, leveraging our global presence to best serve our Middle Eastern customers. Looking to the second half of 2026. We continue to anticipate healthy project bookings in the Middle East, though the majority is expected to come from projects that will not convert to sales in 2026. There is also further potential for some large projects originally anticipated in 2026 to push into 2027. Regarding the rebuilding of damaged assets, we have seen some modest restoration activity in certain customer sites, but the magnitude thus far has been limited.

Our teams are working with customers and, in some cases, performing site assessments to determine the level of restoration activity that may be needed. While it is too early to know with certainty, we continue to view rebuild as an incremental bookings opportunity of approximately $50 million in late 2026 and into 2027. We will continue to work with our customers to help them restore and restart their assets as quickly as possible.

Looking beyond the second half of 2026 for the Middle East, we see sizable incremental opportunities in the 2027 to 2030 time frame. We're already having discussions with customers about expanding capacity and building redundancy in assets like pipelines and storage facilities, which have the potential to provide additional growth tailwinds for Flowserve as 1 of the leading suppliers of flow control solutions in the region with a large installed base and a long legacy of customer relationships. We believe we are prepared to respond quickly and support our customers as these opportunities develop.

Let's move to capital allocation on Slide 7. Our intentional disciplined framework continues to guide our capital allocation decisions, balancing reinvestment in business, strategic M&A and direct returns to shareholders. We continue to see M&A as an important and attractive way to create shareholder value by growing the business, diversifying our end markets and expanding our margins. We closed the Trillium Valve Division acquisition on June 30, and I would like to extend a warm welcome to the Trillium associates around the world. We are excited for you to be part of the Flowserve team.

The Trillium acquisition is fully aligned with our 3D strategy and further solidifies our ability to capitalize on the power generation megatrend. It extends our leadership in mission-critical flow control solutions enhances our service capabilities and expands our global installed base with high aftermarket entitlement. Integration of Trillium valves is underway using the Flowserve business system, including our 80/20 operating principles, which we anticipate will enhance operational performance, expand margins and allow us to serve customers with an even more powerful portfolio of products, services and aftermarket capabilities.

In fact, we have already completed the full 80/20 data analysis. Based on this analysis and reviewing our Trillium backlog, we expect to drive meaningful margin enhancement and support our value creation objectives moving into 2027, though there will likely be some headwind to Trillium sales in 2027 given the 80/20 actions. In the quarter, we also completed an acquisition for the remaining equity of a joint venture company in the Middle East. This modest deployment of capital further strengthens our ability to serve customers directly in the region. Beyond M&A, we also view share repurchases as an attractive use of cash when we see dislocation between our share price and our view of the company's intrinsic value.

Our healthy balance sheet, modest leverage and improving cash generation give us the flexibility to act decisively while continuing to invest in the business. combined with the consistent and reliable dividend that reflects our confidence in the durability of our cash flow, returning capital to shareholders is a core disciplined component of our framework. Year-to-date, we returned $80 million to shareholders, including $55 million of dividends and $25 million of share repurchases in the quarter at an average price of $67 per share.

Additionally, we repurchased an incremental $25 million of shares in July. Across all of our capital allocation decisions, our focus remains squarely on creating long-term value for our shareholders. In summary, I could not be more pleased with our performance in the quarter and over the last several years. We are gaining momentum and confidence in our long-term 2030 financial targets. The business system continues to drive results and guide our decision-making. We are beginning to see the benefits of commercial excellence as we have just entered year 2 of execution.

Operational excellence continues to be a tailwind, and our facilities are performing at the highest levels in Flowserve's history. This improved productivity gives us the opportunity to drive further roofline consolidation in the years to come. We are now in the third year of portfolio excellence with many of our business units in year 2 of 80/20. We are making thoughtful decisions around the portfolio including the divestiture of a small product line in valves that we expect to close in Q3. And you can expect more progress in the second half of 2026 and beyond as we continue to drive complexity reduction while leveraging the tailwinds in our end markets to grow the business with a stronger portfolio.

I'm excited about what we are doing at Flowserve and confident in our ability to continue to make significant progress in a dynamic environment. With that, I'll turn the call over to Amy to walk through our financial results and guidance in more detail.

Thank you, Scott, and good morning, everyone. Turning to income statement highlights on Slide 8. Reported sales were $1.2 billion, down 2% versus the second quarter of 2025 with aftermarket sales growth of 7% and -- while original equipment was down 11%, primarily due to lower convertible backlog of large engineered projects. MRO sales were in line with our expectations during the quarter. Walking through the sales bridge versus the prior year, we delivered underlying growth of 1 percentage point, which was offset by an estimated 2-point headwind from disruption in the Middle East and a 2-point headwind from our 80/20 portfolio actions, resulting in organic sales down 3%.

Reported sales benefited 90 basis points from acquisitions, and 80 basis points from foreign exchange rates. Both organic and reported sales modestly exceeded our expectations for the quarter. We continue to make progress on our margin objectives with adjusted gross margin expanding 100 basis points to 35.9%, our 14th consecutive quarter of year-over-year adjusted gross margin expansion and adjusted operating margin expanding 70 basis points to 15.3%. Margin expansion in the quarter was again driven by the disciplined execution of the Flowserve Business System with improved margins from 80/20 and strong operational execution, improved commercial discipline and mix benefits more than offsetting lower volume.

Overall, this performance was ahead of our expectations and reflects positive incrementals on lower sales. These results drove adjusted earnings per share of $0.95, up 4% versus the second quarter of 2025. Turning to Slide 9. Both segments delivered strong execution and tangible progress on our full year objectives. In FPD, bookings of $938 million were up 30% versus the prior year, an exceptional result driven by strong project activity, including energy security and industrial investments and continued aftermarket momentum as we capture more business from our large installed base.

Sales were $814 million, down 1% versus the prior year period. Adjusted gross margin expanded 100 basis points to 37.8%, driven by mix benefits, 80/20 actions, and improved project execution. Adjusted operating income grew 4% to $173 million with adjusted operating margins up 100 basis points to 21.3%. In FCD, bookings were up 18% to $417 million, with growth across both original equipment and aftermarket. FCD saw particular strength in nuclear and energy project bookings. Sales were $357 million, down 4%, largely reflecting headwinds from the Middle East run rate business in anticipated 80/20 headwinds. Adjusted gross margin expanded 30 basis points to 31.1%.

Adjusted operating income was $45 million with adjusted operating margin up 40 basis points to 12.6%. Lower Middle East run rate volumes in the quarter, which we anticipate will return when the conflict subsides, along with the challenging executional environment in the region moderated FCD margin expansion. Moving to Slide 10. We generated $129 million of cash from operations in the quarter, driven by higher earnings, strong working capital management and cash receipts related to IEPA tariff refund claims accrued in the first quarter. Second quarter free cash flow was 92% of adjusted net earnings, and we continue to expect full year free cash flow conversion of approximately 90% of adjusted net earnings.

We expect cash flow to improve through the balance of 2026 following our typical seasonal patterns and reflecting focused working capital discipline. Our second half cash flow will include modest use of cash for our accelerated footprint realignment, including group line consolidation, which we expect will drive structural cost savings and improved operating performance over time. Additionally, in July, we received the remaining IEPA tariff cash refunds that were submitted and recognized in our first quarter results.

In May, we issued $500 million of 5.7% senior notes due in 2036, with the net proceeds used to fund the Trillium acquisition, which closed on June 30. Even with the incremental debt, our balance sheet remains very healthy with net leverage of 1.8x, providing flexibility for capital allocation. Turning to our full year outlook on Slide 11. As Scott covered earlier, we delivered exceptional bookings growth in the second quarter, and we continue to expect organic bookings growth of mid-single digits for the year. The complexion of our bookings has evolved. However, as the ongoing conflict in the Middle East has negatively impacted our run rate, book and ship business in the region.

Additionally, the strength in original equipment bookings in Q2 positions us for future sales growth. So the impact to the second half of this year is more muted based on project start dates impacted by the conflict. This dynamic is muting near-term sales conversion, even as we continue to expand the backlog and build momentum in the back half of the year and into 2027. Based on these updates, we are modestly lowering our sales outlook to the low end of our previous range. We now expect organic sales growth to be down approximately 1% with roughly 300 basis points of net benefit from acquisitions and divestitures and an estimated 100 basis point benefit from foreign exchange for total sales growth of approximately 3%.

We are also raising the low end of our adjusted earnings per share guidance to $4.05 to $4.20, reflecting our continued confidence in delivering another year of double-digit adjusted EPS growth. Our remaining 2026 guidance assumptions are largely unchanged, and we continue to expect full year adjusted operating margin expansion of approximately 100 basis points. The Trillium acquisition is expected to expand adjusted operating profit dollars in 2026 and be roughly neutral to adjusted earnings per share when factoring in incremental financing costs.

Approximately 85% of Trillium sales will reside in FCD with the remaining 15% of pump aftermarket business in FPD starting in the third quarter. Transitioning to Slide 12, and we expect year-over-year performance to accelerate in the second half of the year with organic sales growth of approximately 5%, driven by a larger backlog, continued aftermarket strength and steady MRO performance, and increasing project activity. We anticipate the 80/20 headwind in the first half will abate through the remainder of the year. Our back half sales outlook also contemplates similar performance in the Middle East, given the ongoing conflict.

We anticipate Trillium sales will also benefit back half reported growth as we deliver from the acquired backlog while implementing 80/20 portfolio actions. We expect to expand adjusted operating margins in the back half, driven by top line growth and the associated operating leverage and the ongoing benefits from the Flowserve Business System, partially offset by the margin profile of the Trillium business backlog expected to convert to sales in the second half of the year.

Looking at the third quarter outlook, we anticipate roughly flat organic sales growth and mid-single-digit total sales growth. Third quarter adjusted operating margins are expected to expand modestly from Q2 and while net earnings are expected to be similar to Q2, including the impact of the higher tax rate. Turning to Slide 13. In closing, we are proud of our strong second quarter results, particularly securing orders to underpin future revenue growth and the solid execution across the business. We remain firmly on track to deliver double-digit adjusted EPS growth in 2026 and make continued progress towards our 2030 financial targets.

I want to thank our associates around the world for their continued dedication. We are confident in the near and long-term opportunities across our business and in our ability to create value for our stakeholders. With that, operator, please open the line for questions.

[Operator Instructions] We will take our first question from Andy Kaplowitz with Citi Group.

Scott, so first half bookings growth actually turned out to be high single digits. So the bar for the second half to get to mid-single digits isn't that high, but maybe you could help us dissect what actually happened in Q2 in terms of the acceleration you saw in power, energy and general industrial. I think we all understand power, but with the energy acceleration, mostly the 2 LNG projects you mentioned? Or would you call it more broad-based across your energy businesses? Do you think your general industrial momentum is sustainable and can Flowserve actually end up delivering, let's call it, mid-single-digit plus bookings growth in '26 of the Middle East conflict were to be resolved?

Yes. No, great question, Andy. And let me just start and I'll start at the very end there, saying that we are confident on the mid-single-digit bookings growth for the full year. We're currently at 8% year-to-date. And so our setup looks really good to deliver Q3 and Q4 in line with that. Just breaking down the quarter on bookings, I really want to start with record aftermarket bookings, nearly $700 million. It's a great outcome for our teams. I've continued to say this on our earnings calls, the team focus on aftermarket has been fantastic.

And we use the mantra of speed wins and making sure that we can quote our customers quickly. Our QRCs are in the neighborhood of where they need to be in terms of operating and supporting our customers and then we deliver incredibly fast. And so we're going to continue to refine those processes. We're going to continue to do more to drive services and solutions for our customers. And we feel good about our ability to continue to sustain growth of the aftermarket business in that franchise.

And so I think that's probably the single biggest highlight. But then maybe going to some of the end markets and projects that you asked about specifically. In the quarter, we had 4 larger projects and larger being kind of greater than $20 million. Two of those were in the Middle East. We had 2 LNG projects, 1 Middle East, 1 in Canada. We had a large nuclear award in Asia region. And so we're excited about continuing to do over $100 million of nuclear and then we had the fourth award was another Middle Eastern project.

And so I'd say, healthy on the large projects, but definitely not an over rotation. And then -- so that goes back to your point, we feel reasonably good about the sustainability of the end markets across the board. All of our end market sectors showed growth in the quarter and both year-on-year and sequentially. And so -- we feel really good about our ability to look forward. With that said, our project pipeline is up year-to-date and sequentially. And so that gives us good visibility into Q3 and Q4. And so today, we feel confident about the mid-single-digit growth into 2026. And then that obviously provides a really nice backdrop for 2027 and achieving that mid-single-digit revenue growth in the 2027 time frame.

Good color. And then FCD margin improvement, as you know, continues to lag FPD improvement. And I think we understand the weakness in the Middle East is hurting absorption in FCD. But is there anything else going on in FCD besides just under absorption the needs correcting. And what's your confidence level in the second half FCD ramp in margin. Are you assuming -- are you still assuming FCD margin improvement could exceed FPD? Or should -- is that now not in guidance?

Yes. So I think that in terms of FCD margin improvement, we remain confident that we've taken the actions that are necessary to improve their margins absent the Middle East that we would have seen over 100 basis points of improvement from FCD in the quarter. In terms of confidence in the second half, I'd just point out that actions have been taken or are well underway to really achieve that margin expansion in the second half and start to see that overdrive in terms of where we've been at historically in FCD. And I'd point out 80-20 footprint acceleration. And so we actually have 2 relatively significant consolidations that have taken place and will benefit the second half of the year and then also just volume elevated from what we've secured in the backlog.

And then the last point I'd make with FCD just overall in terms of our confidence is we have seen more seasonality historically in this business. And so we've expanded margins year-over-year, albeit we would have liked to have seen more in the first half of the year, but we have expanded margins over last year. And last year was a year of improvement for FCD where we saw operating margins at over 15%. So we like our setup for the back half of the year.

And we'll take our next question from Deane Dray with RBC Capital Markets.

I really appreciate the specifics you provided on both the Middle East disruption so far, but also importantly, and what kind of opportunities come out of it. Obviously, we need peace to break out for those opportunities to read through. But just if we could just follow up, you provided some additional color on the rebuild based upon damage to customer sites. How do you land on that $50 million estimate? And then on the energy security build-out that as a consequence of this, the pipelines and storage, do you have any estimate on a TAM of where and how Flowserve would participate in that? Maybe we can start there.

Yes, Deane, it's funny you say that. I'm hoping for a ceasefire right now, piece in the Middle East would be -- it seems like a traction something that people have been hoping and praying for decades, if not centuries. Maybe just context for everyone, the Middle East is significant for Flowserve, right? It's roughly 12% to 13%. And we've got a large presence in the region, both from a manufacturing standpoint and a service standpoint. And I'd say today's situation is incredibly dynamic. We saw that over the evening. We've seen it this morning. We've seen it over the last couple of weeks. .

But I also want to just say we believe that this is temporary or transitory and we do believe over the long term that this is a massive opportunity for Flowserve. And maybe to hit your specific question, I want to break that kind of categories into 4 things. And so 1 is our run rate business. And so with our QRC network, with our large installed base across the region, we do have a substantial run rate business. That currently is down about 20%. And so we're being impacted by the ability to go to sites, the ability to conduct our work as we normally would. And then just, quite frankly, our customers being distracted with other things and other priorities.

And what we -- you've heard in the preliminary commentary that we expect that to continue into the second half of the year. And I would say your guess is good to mind of exactly how that plays out. But in our assumptions for the second half, we're saying that we're roughly going to be the same in that category. On the large projects coming into the year, we had a significant funnel of large projects and opportunities. We saw 2 of those projects come to fruition in the second quarter, which we're super excited about. And we're going to begin to start some work on that with revenue more in the 2027 time line, but we'll begin executing on those projects. The project funnel is still healthy.

And I would expect other awards in the second half of the year, but some of those bigger projects will most likely slip into 2027 as well. And then getting to restoration, we -- in the prepared remarks, we talked about a $50 million restoration activity. We are -- we have a full understanding of what sites have been damaged, and we're starting to get an understanding of what equipment will either get repaired or replaced. That work has been slow to develop. But every week, we start to get a little bit clearer picture. At this point, we believe it's $50 million activities this week. That number may go up.

But I would say that's a relatively good estimate given what we know right now and with the limited site access that we have. And so I would expect to start booking some of that in the second half of this year and then into 2027. The biggest prize is on what we're calling the category of redundancy. And so think of the Middle East needing to build out redundant pipelines, incremental storage, incremental capacity. We think there's a very significant prize for this type of work. You asked for an estimate, we're not ready to provide an estimate on that type of work. We are in conversations with our customers. There's some public commentary out there about redundant pipelines already. And so you could expect that we're in those conversations.

And we believe we have the right to win there because of our large installed base because of our presence in the Middle East because of our customer relationships, because of our existing market share in the region. So as this redundancy begins to shape up and the build-out begins, I'm confident that Flowserve plays a major role in the activities in the future.

Really like how you've sized that opportunity. And just my second question is on aftermarket and Scott, you've been working in getting the organization. We called it Project selectivity where you were passing on OE projects that didn't have a good aftermarket. You've done this for a couple of years. So now we're seeing aftermarket pick up, how much of this growth in aftermarket is a result of prior work in selectivity and what does that say about the opportunity or the sustainability aftermarket going forward?

Sure. I think the concept that we talk about is selective bidding. And so when we look at the large original equipment work, we're cognizant that typically, you're going to get a little bit of a lower margin on that versus some of the MRO run rate aftermarket business. And -- so what we want to make sure is the OE project work that we're going to win, we want to make sure it's with customers that value our ability to provide support for the life of their asset and our ability to provide the parts service and repairs. .

And so that's where we get really selective is we make sure that we're winning projects that we know will have a long aftermarket tail. And I'd say we've kind of pulled back a little bit on our overall large project funnel. With that said, the work that we win is definitely going to drive large installed base and strong aftermarket for the future. And the Middle East is a region that does acknowledge and respect the OEM in terms of that aftermarket pull-through. And so we really are leaning into the work in the Middle East because we know they value that relationship.

I said this in Andy's question a little bit earlier, we did -- we delivered $700 million of bookings in the aftermarket in the quarter, which is a record. A lot of that is really just on our process focus. And the speed wins is super important, quoting fast, delivering fast in being local to provide that support. And what we're finding is when we do those things that our capture rate moves up and our ability to capitalize on our large installed base improves. And so again, really excited about what's happening with the teams and confident that we can continue to, over time, walk up that aftermarket business on a go-forward basis.

And Mike Halloran with Baird -- our next question. .

Everybody. question. guidance question on the back half of the year. Just confirming that the $60 million headwind in the front half of the year from the Middle East is the dollar number you're roughly anticipating back half? And then -- could you talk about the sequential ramp into the fourth quarter? Obviously, it's a sharper acceleration from a growth perspective, 3Q to 4Q. I mean, there's elements of closer of old and how sharp that ramp is. But I just would like to understand the moving pieces behind the confidence in that kind of 4Q outlay.

Yes. So the first half to second half, a few things that you pointed out. I think that $60 million of Middle East impact is the right ZIP code to be working with in terms of the headwind. We're essentially assuming that, that run rate business that we've seen be muted in the first half of the year that, that dynamic continues as we look at the second half. A couple of things that abate that we saw in the first half, the first is really that 80-20 headwinds that was primarily in valves.

We worked through those comps, and we see that move away from us in the second half. That was about 200 basis points over the first half of the year in terms of a sales headwind. And then the second is really around the North American MRO softness that we saw in the first quarter of the year. That dynamic has subsided as well. And so it abates as we go into the second half. You commented really on that third to fourth quarter ramp for Flowserve. And you're absolutely right that it is seasonality that we've that we've seen in the past. I think even last year, as we actually consume shippable backlog over the course of the year, we actually saw organic sales ramp 4% from the third quarter to the fourth quarter.

So the ramp that we're expecting to see from 3Q to 4Q is not is not out of the range of results that we've delivered in the past. And I'd point out that this year, we've actually seen a 9% year-over-year increase in our backlog at the end of Q2 that includes OE projects that will give us some revenue benefit in the fourth quarter of the year. And we continue to have a lot of confidence in the strength of our aftermarket. So the ramp in the fourth quarter is pretty well supported.

Appreciate that. And then secondarily, just customers, how much hesitancy, if there is any, to move forward on some of these projects, the Middle East commentary makes a lot of sense. I'm curious outside the Middle East, if customers are moving forward at a relatively normal pace, if there's been any catch-up in some of the orders in the second quarter for what happened in the first quarter and how they're thinking about and how you are thinking about pricing in the context of the environment.

Sure, Mike. You'd have to break it by industry. So I'll just start on the different industries. So on the energy side, what we're seeing is energy security outside of the Middle East. And so we are seeing incremental activity. The LNG award in Canada was -- came a little bit faster than we thought. We believe that some of that acceleration is possibly as a result of what's happening in the Middle East. And when we look at the project funnel, there's other opportunities like that, that really are trying to regionalize the energy and making sure that different countries or different regions has a secure source of energy.

And so I think you can see incremental LNG on a go-forward basis. You see some midstream kind of build out potentially some capital on the refining side, but I'd say less OE on refining and more about making sure that they can continue to run refining assets at a really high level. And then if you go to Power, I would say that, that end market or that megatrend continues to work in a big way. And right now, we don't see any slowdown there. And that would be both for traditional power and for nuclear. And so our outlook on power remains incredibly strong. We're well positioned on the nuclear kind of backdrop and we feel good about our right to win as new awards start to move through the system.

We're very excited to get awards for 2 reactors in Asia in this quarter, and we expect to continue to be involved in the new reactor build out, the life extension traditional aftermarket and then ultimately in that -- the space of SMRs. And then on general industries, we feel good about general industries. And so we saw work in the quarter around some -- you had some pharmaceutical, we had water. We had other kind of not necessarily large markets for us, but really healthy growth in demand there.

And I don't see that slowing down as we look at the second half of the year. And I'd say then the last 1 is chemical. We did have a large chemical award in the quarter that was in the Middle East. The rest of -- outside of that large order, I would say chemical business is stable. And so of all our end markets, that's the 1 that's roughly flat. And we feel really optimistic about the other 3.

Moving next to Nathan Jones with Stifel.

This is Adam Farley on for Nathan. -- in the Middle East. One more on the Middle East. How should we think about working capital in 2026 from the delayed Middle East shipments and slower collections?

Yes. I mean I'll start, and Amy can hit that. We've put some pictures on the slide there of valves and pumps that are tied up at our facilities awaiting to get approval to ship to the Middle East. And so it's definitely having an impact. And as the situation evolves there, we certainly expect to ship that and get it back to a more normal place. But Amy, maybe you can provide more details there. .

Yes. I think if we look at our working capital performance in the quarter, we continue to make improvements. We want to see more in this area and the Middle East has certainly been a headwind. And -- and Scott's pointed out really 2 ways that we're seeing that or 1 way that we're seeing that in terms of shipments just being slowed into the Middle East, which slows our cash conversion cycle overall, particularly on that run rate business, where we're recognizing revenue and getting payments after shipment. .

With our POC or our sort of large project revenue, particularly out of the region, we are seeing a little bit elongated payment cycles from some of our customers as it relates to the Middle East projects. And so we continue to watch that carefully and ensure that we have the appropriate discipline internally to manage those collections and make sure that they're coming through overall. Working capital is going to be a focus for us as it has been. It's an area that we've made a lot of improvements in, but we continue to watch. And the Middle East is just another situation that we'll manage and overcome.

All right. And then maybe switching gears to FPD margins really strong in the quarter, up 100 basis points year-over-year. Over the primary driver is that the PD margins in the quarter? Were there any discrete mix benefits, maybe just expectations in the back half.

Yes. So we're super proud of what we've been able to continue to deliver in FPD in terms of margin expansion. No unusual items in the quarter. You pointed out mix. We continue to see that strength in aftermarket and the record bookings from an aftermarket perspective are going to assist with mix. And as we see the return of larger projects, that is -- that could be a year-over-year moderation that we see in the back half of the year. But what we're seeing is great execution on the project side as well. And that was some of the delivery that we saw in the quarter.

And so this is the playbook. Frankly, it's the same playbook that we're running for FCD as we look to expand margins, which is the focus on operational excellence, the discipline of the 80/20 process and making our customers happy in terms of efficient use through our facilities. So we're going to continue to do more of the same.

And and moving next to Amit Mehrotra with UBS.

I just wanted to circle back on the aftermarket $700 million bookings up 12%. It sounded like a lot of that strength is sort of you guys just doing things better, but I'd be curious to get a perspective on maybe price versus volume and regions, end market that kind of produced the strongest growth there? And then just related to that, obviously, organic growth down 7% in the first half, inflecting to plus 5% in the back half. I just -- you have the bookings, I'd just be curious to understand how much of that inflection is already supported by that scheduled backlog, any sort of variables or execution assumptions we have to make to to get our confidence around basically hitting that inflection.

With aftermarket and Amy can talk about the inflection in the back half of the year on the sales number. So again, $700 million, we're super proud of what the team is able to accomplish there. I didn't say this earlier, but we continue to make great progress with that aftermarket business, and we're now in the ninth consecutive quarter greater than $600 million. And so I think we kind of established a floor here. 600, 650 is kind of what we think is our entitlement, and we really want to grow on the back of that. .

And then as you know, right, aftermarket continues to hold a premium in terms of margin, right? We've got a substantial portion of our aftermarket is pumps -- pump parts come in at a really high margin entitlement as well as the bow parts. And then repairs is an area that we've continued to do a much better job at growing that business and making sure that we can do the repairs efficiently for our customers, but also making sure that we can get the margin, we believe, that we're entitled to as we do that repair work. And so the teams have done a really nice job in improving the overall repair.

And so I'd say from a price cost standpoint, the aftermarket business continues to shine. We continue to expand our margins and grow that business. And I'll just kind of -- you go back a few years. In 2023, we made the org design change to really have a dedicated focused team across both pumps and valves. And really, that effort, that focus is helping us drive success and the other thing would be commercial excellence. And so as we're a year into our commercial excellence program, and as I've described it historically, we're really investing in our sales force to do the good hygiene of selling.

And part of that is mapping our markets, mapping our customers, making sure we have account plans making sure that we have visibility to that installed base and making sure our sales engineers know what their entitlement and what that price is. And so we're giving them more tools to do their job. And we're early days in commercial excellence, but we're starting to see some really nice wins, which support the aftermarket growth.

Yes. So maybe turning to the organic growth assumptions in the second half of the year. And I'd start by saying just reiterating those 2 headwinds that we have in the first half that we know have abated and the first around the 80-20 impact that we saw in the first half of the year, that was primarily in valves -- that was about 200 basis points of headwind. That wraparound effect goes away as we look at the second half of the year in terms of those product decisions that we've made. And the second is around 200 basis points of the MRO slowness that we had to start the year in North America. That situation has abated as well.

We continue to see strong bookings in this area. -- and have gained confidence in our ability to perform at those levels. We're not assuming that the Middle East improves in terms of run rate, and that's 1 of the reasons why we moderated or the main reason why we moderated our organic growth guidance for the full year to accommodate those run rate book-to-ship sales that we don't expect to materialize in the back half of the year in the Middle East. That said, as we look at the remainder, which is, call it, 400 basis points of organic growth in the back half of the year are supported by a backlog that's grown 9% excluding Trillium.

And so we have a high degree of confidence that we have a large amount of that organic growth in the backlog already. That includes some of these project orders that we saw in the second quarter that start to convert to revenue in the fourth quarter of the year as we -- as we began to receive materials and do the necessary engineering associated with these projects. And so those are the factors that led to where we're at organically in the back half.

Great. That's a perfect answer. And just as a follow-up, as we think about some of these larger longer-cycle products and large energy, LNG, nuclear, et cetera, as they convert to revenue, obviously, I assume there's an absorption benefit to the margin, but I'm more interested in kind of the economics of those contracts relative to kind of the P&L margin structure you have today? So is the assumption that there's a margin accretion of some of these larger energy LNG products projects kind of convert to revenue, if you could talk about that. .

Yes. So absolutely, the volume and the leverage that we get from that is a benefit over time. aftermarket business is always going to be more accretive than original equipment. It's -- I don't think that you can look across a number of industries, and that's going to be the that's going to be the setup. That said, we're not taking projects that we think put a drag on our ability to achieve those 2030 margin targets. And so everything that we're taking or putting into the backlog is assumed to provide us benefit in step and steps towards that 2030 margin target, and it's through both the margins that we achieve on that original equipment, but also that aftermarket annuity that we look to deliver on quickly in the cycle. .

We'll take our next question from Joe Giordano with Cowen.

This is Chris Grange on for Joe. What do you view as the biggest execution risk to achieving that 4Q growth ramp? Is the gating factor customer project timing, ability to ship against backlog or something else?

Yes. I think Amy hit this a little bit earlier, and I'll just reiterate our confidence in our ability to do this. And so when we look at our shippable backlog, we look at our backlog conversion rates -- this isn't something that's unusual. And so we just need to execute and I think the teams have done a really good job over the last 3 or 4 years of driving consistent execution.

And so the 1 thing that could disrupt this is the book and ship business potentially in the Q3 or early Q4. But at this point, we've got a really nice -- we've got good visibility into what the book and ship levels look like. And -- we track that on a regular basis. And we've seen really nice step change really since March. So March, April, May and June, we've seen a nice trajectory of that run rate an in and out business. And so we feel pretty good about the backdrop in the second half.

And you had you noted nuclear, and when you look at the drivers behind the confidence in achieving the long-term growth plan despite Middle East disruption, -- where does nuclear rank among those growth vectors? And has anything changed in the pace of customer decision-making or project awards or funding over the last prior month that makes you incrementally more constructive on the outlook for nuclear .

Sure. Yes. I would say I'm still incredibly optimistic about nuclear. Our first half awards for nuclear up 34%. And so you've got some new reactor awards in there. You've got some life extensions in North America. We've got our general aftermarket. And so I'd say those 3 kind of labbers will continue to work as we go forward. what's in the press and what people read all the time are the big kind of announcements of new traditional reactors. And I would say there's a lot of stakeholders in those, right? You've got governments in the U.S., it's states it's utilities, it's the government, but also around the world. It's just a lot of stars have to align to make these projects successful and move forward. .

But I would say, talking to a lot of customers and visiting several countries in the second quarter. We still feel incredibly constructive about the backdrop for new large reactors. And so there's a concept in the U.S. of 10 reactors and the U.S. Department of Energy has leaned in on potential loan structure. And I feel like at some point, either a utility or somebody in a private space will we'll take the federal government up on the loan structure and move forward. And once the first 1 goes, I think you moved pretty quickly to getting to 10 announced reactors on a go-forward basis. You've also got Europe that's a proven ground for energy and nuclear. And so there's some concepts in Eastern Europe and in Europe proper in terms of what those new builds look like. And I'd say we're relatively on track to our expectations on that.

India is moving very quickly in terms of we're moving their nuclear program forward. And I feel very good about our participation and ability to serve the Indian market. And then you recently saw an announcement with the United States and Saudi about sharing of nuclear technology. And why I don't have that in my short-term playbook, that is a win and something that will ultimately go forward. And so I would just say, in summary, large reactors and life extensions are largely playing out like our expectations. If you remember in Q3 last year, we talked about a $10 billion number over years.

And that's that market ability or market sizing. We believe we've got the right to win there, and we're excited about what that trajectory looks like. And then maybe on the upside, the small modular reactors are probably moving faster than what I expected a year ago. And so you've seen GE Hitachi move forward into construction. There were several announcements in July with SMR companies and the ability to meet certain technical milestones and I'd just remind people Flowserve is incredibly well positioned in the SMR community as we go forward.

And then lastly, I'd just add with the Trillium acquisition, they do really well in the nuclear space that allows us to move up our entitlement on a reactor. And so we were organically about $100 million of price per reactor with Trillium, that moves up to kind of a $115 million number per reactor. And so we continue to to make sure that we're aligning our products and our technology to best support this end market, and I remain very optimistic about our growth in nuclear and our ability to participate in a large way on a global scale.

And we'll take our final question today from Andrew Obin with Bank of America.

I'll squeeze in 2. So first one, just how much visibility do you have on MRO and turnaround sort of outage season in second half in U.S. refining because the dynamic here is we're hearing they're running all out because they're making so much money. But effectively, they have to do maintenance eventually. So just color there. And second, can you remind us just time line on LNG, how does it progress? How do your revenues progress from order until shipment? And how much visibility do you have in the funnel .

Sure. Yes. Andrew, on the U.S., I'll say North America refineries, a really good question. We're seeing incredibly high utilization rates, the crack spreads are high, so they're making a lot of money, but that really happened from the end of February to now. And so we saw that dynamic in the second quarter as well. And we saw 1 or 2 turnarounds that actually got pushed in the early part of the year. But I'd say more realistic is just, call it, a skinny down turnaround. So just doing less activity, shortening the window for that and maybe doing less work.

And -- the counter to that is if they're running flat out and don't do a turnaround, then what we see as some kind of emergency spending or stacking up more spare parts in the event that they can then service their business quickly. And so I'd say for us, I think it's net neutral, like I don't see a negative -- or any negative scenario where the MRO and aftermarket slows. -- in Q3. I think when the crack spreads ultimately do subside, you'll see a more robust turnaround season potentially in 2027. And did see that in 2025, and this is why I feel like a lot of the refineries can run pretty hard in 2026 without jeopardizing their long-term program. But the good refineries know that they have to do that work.

We're participating in those turnarounds. And then we'll pick up the emergency type work at a premium as they're desperate to get equipment on and make sure they can keep running. And then secondly, on the LNG time line, kind of book to award and it depends pumps versus valves. The pump time line is probably 18 months. They are more engineered, the 2 projects that we booked this year are extensions. And so a lot of that engineering work is done. And so maybe you see, call it, 12 to 14 months versus an 18-month there. And then the valves would typically be 12 months on an LNG project.

And that does conclude the question-and-answer session. Mr. Ezzell, I will turn things back over to you for any closing comments.

Great. Thank you, and thank you to everyone for joining the call today. If you do have any further questions regarding our second quarter results, -- please feel free to reach out to the Investor Relations team, and we will look forward to providing another update on our business performance at the end of the third quarter. Thanks to everyone, and have a great day. .

And once again, that does conclude today's call. Thank you for your participation. You may now disconnect.

So good morning. I'm Andrew Obin, BofA's multi-industrial analyst. For our next presentation, we are going to chat with Amy Schwetz. She is the Senior Vice President and CFO of Flowserve. Thanks for being here. And Amy, thanks so much.

Thanks for having us, Andrew.

Of course. So maybe to start, I know you reported only a couple of weeks ago, but any macro data points, customer conversations that have stood out to you over the past couple of weeks?

Yes. So I think we -- as we looked at the first quarter, what happened in the first quarter and thinking about the rest of the full year, we remain constructive on the environment in our space. I think a few things going on, and I know we'll dive into some of these markets in a bit more detail. But very excited about the power space. It is a long-tenured piece of our business, but one that we're getting increasing interest in and is benefiting from some pretty substantial tailwinds in the space.

I think as we look at areas of our business that we're focused on growing, aftermarket has been a large focus for us over the past several years. We just completed our eighth consecutive quarter at over $600 million of aftermarket bookings. We continue to work on ways that we can serve our customers better, serve them faster, continue to grow that business to be first of mind to our customers in that space.

A couple of areas that we saw some headwinds in the quarter, and I'll start with maybe the not so obvious. So our MRO business, which is maintenance, repairs and piece of the business started the year a little bit slow. And so as we looked at our January and February numbers, it impacted our revenue conversion in the first quarter of the year, but we saw that business tick up to our expected levels in March of this year. And actually, the data points that we've seen in April have been quite constructive in that space as well.

So it gave us a lot of conviction around still guiding to sort of mid-single-digit growth from a bookings perspective over the course of 2026 and gives us a lot of optimism going into the back half of the year. I think the big question in everybody's mind is the Middle East. And it's an area that we were obviously impacted by in the first quarter of the year. We're anticipating we could see that continue into the second quarter of the year.

At a certain point in time, we think that we'll start to see projects that were slated to begin either move forward in the second half of the year or we may see some opportunities arise in the form of sort of rebuild, repair and redundancy that's necessary out of that region to deal with the current conflict. So overall, a constructive environment, but one with a lot of moving parts.

Excellent. So just to dig in a little bit more into the first quarter, you sort of highlighted MRO, some Middle East disruptions. But beyond that, what went better than expected and what disappointed?

Yes. So I think the things that continue to go well for us are around what we saw on the nuclear side of the business. So $110 million of nuclear orders in Q1. 2 of those orders were sort of life cycle or life extensions at more than $20 million in orders. So that continues to be an area that our focus is paying off, and we continue to see our backlog build with respect to nuclear bookings.

And I pointed out aftermarket as a real focus area for us. I think what we knew coming into the quarter and maybe focusing a little bit more on revenue conversion rather than just bookings is we knew that our engineered project backlog was lighter entering the quarter. And so we had anticipated between 100 and 150 basis points of headwinds from that. We'd anticipated about 200 basis points of headwinds from 80/20 actions that we've taken specifically in the valves organization.

What we had not anticipated entering the quarter was kind of that slow start from an MRO perspective, which was probably around more around 300 to 400 basis points of dissipation from a sales perspective and then the Middle Eastern conflict, which was about $25 million of revenue.

And maybe sort of MRO. Am I correct to assume it was mostly downstream?

I mean, I think that's a good way to classify it. Some of that business is obviously going through distribution, but it's primarily our expectations for North America downstream versus where they landed for the quarter.

And can we just get more granularity on what happened? Because I understand so some of the comments we've heard is that, right, Middle East is just there was a bit of decision paralysis, but this was before Middle East. Yes, what do you think was it weather? Like what do you think happened?

Yes, it's hard to say. And I think absent the strong March and April, we would have real concerns about this market. But as things move through distribution, I would say you're sort of one level removed from the end customer there. So you're dealing with behavior that is not necessarily just end user related, but can be how distributors are measuring their business. And so the best that we can do is continue to stay in contact with those customers, both on the distribution side and end user side and continue to work the numbers going forward.

Excellent. And when do you see the benefit of higher oil prices in your businesses? Because I would imagine, I think you sort of talked that sort of takes a while for the decision. But I would imagine if you're a refiner, you want to sort of pump out as much gasoline, right? You want to do as much as you can while the oil prices are high. So when do you see the benefit of that?

Yes. So I think that we'll see it first in the aftermarket piece of our business. And so our installed base, which is working around the world is going to continue to need to work around the world. And that means that the Flowserve aftermarket business is going to stand ready to support those customers, help them keep everything running, be on site as much as possible, make sure that break fix issues are resolved as quickly as possible.

And ultimately help our customers over time with how do they improve uptime, how do they continue to make those assets as effective as usual. Now I think that the oil prices and the continued demand for product is going to make the rebuild a priority out of the Middle East as well. And I think that, that could happen both in terms of the installations themselves in terms of refineries, but also infrastructure that may be in place to get the product to its ultimate users.

Yes, right. And how do you think about the disruption in the Middle East? And I think there are 2 parts of it: a, catch up to sort of what you've missed. And second, maybe benefits of rebuild or even changes to infrastructure. I think folks were talking about quite a bit of activity on sort of, I guess, pipelines versus terminals, like maybe talk about what you're hearing.

Yes. So I'd start with the disruption that we saw in the first quarter, I think, is kind of twofold. You mentioned sort of decision paralysis and it is hard to make decisions in that type of environment. And then in addition to that, for safety reasons, obviously, we weren't necessarily traveling to customer sites. In some instances, those customer sites were not accessible over that period of time.

And so there is an element of that, that you can't sell what you don't see. There's also the fact that over that period of time, our customers couldn't travel to inspect equipment that was ready to be shipped. And so as the supply chain has reopened and shipments into the region are now possible, equipment is flowing into the region, albeit a little bit slower than it was pre-conflict.

And our access to sites -- customer sites is largely restored. And so I think that, that barrier is certainly -- has been at least partially removed or partially and maybe tentatively removed as we wait to see what will ultimately happen with the cease fire.

I think the rebuild and what I call kind of redundancy discussions, they are starting to happen with customers already. We do need to reach some level of stabilization in the region in terms of ultimately making those investment decisions for our customers to make sure that it's a good investment. And I think that, that will likely play out in the region in different areas geographically on different time frames.

Got you. And maybe also before we sort of move on, you sort of talked about 80/20 in valves. Can you just remind us what are you doing? I think it also relates to the Middle East, right, partially at least?

Not all Middle East, actually. So it was something that we talked about a fair amount last year. The biggest piece of the 80/20 reduction in our valves portfolio that we're feeling in the first half of the year is around a fabricated business that Mogas had in modules that was supplying -- some of that work was going into the Middle East. But that business contributed a fair amount to revenue in the first half of the year at dilutive margins. Last year, and so that's a business that we've discontinued.

And as we get into the second half of the year, that dissipates. I would just say, overall, our valves business started the 80/20 journey a little bit later than we did in FPD. We've seen a great deal of benefit roll through the FPD results from 80/20 already. I think we're going to see the impact of 80/20 accelerate over the course of 2026 in the FPD portfolio, and we're really pleased at the speed and the decisiveness that organization is showing with respect to 80/20 and other operational moves in 2026.

I would imagine the events in the Middle East have renewed concerns about energy security. But how real are the conversations that are taking place right now? Because we are reading about people reconsidering where -- which feedstocks to use. Obviously, a lot of these people are your customers.

I think those -- I would say those conversations are in early stages. And I think that they could go in a lot of different directions over time. I think that the most obvious that will occur quickly is different transportation routes out of the Middle East.

So I think it's going to be a focus going forward, and it's something that I think KSA has benefited from in the conflict. And so that's something that we'll see over time. And I think that right now, this is really about trying to keep up with demand. We're not necessarily seeing new CapEx that are being put into the system or contemplated on large scale yet.

And can we just go over like I've been a bit confused as to what's happening in the chemicals industry year-to-date, I guess, mixed data points from your peers in the process automation space. What are you seeing? And what's your take?

Yes. So for us, in 2025, I would say we reached a point in the chemical space for us that we saw sort of stabilization. And we've seen that continue over the course of -- so far in 2026. That strength or what I would call the relative strength because we actually saw growth in bookings in chemicals in the first quarter is primarily coming from North America.

And it's a North American aftermarket benefit that we're seeing in the space. We're seeing Europe still operate at lower levels than historically, but relatively stable, and we're keeping an eye on Asia as there could be some ongoing implications of the Middle Eastern on conflict that could play out with feedstock, as you've indicated, potentially being in short supply, which could have ramifications around the globe.

So perhaps maybe less activity in Asia, but more activity in the U.S.

Yes.

And net-net, is that a positive for you, or neutral?

I would say, overall, our installed base is a little bit stronger as we look at North America. And so net-net, probably a positive.

Maybe we can talk about sort of what do bookings look like from your perspective into second half of '26?

So just thinking about our opportunity funnel, which is -- which we define as we talk publicly, what that looks like over the next 12 months, we've seen sequential growth in that opportunity funnel. That does not contemplate what we're seeing kind of out of the Middle East right now in terms of rebuild activity. And so we remain confident in that power space, both within what we're seeing within life extensions and traditional aftermarket work. And there may be an opportunity in the back half of the year to start to see some more activity around new construction with respect to nuclear.

I think that in addition to that, we're excited that we'll be welcoming Trillium to the portfolio in the back half of the year as well. And then I continue to mention the aftermarket, but it's a space that we're focused on that we're really focused on continuing to grow. So in addition to kind of that project funnel work that we're seeing, we're going to continue to work to improve and solidify those relationships with customers around aftermarket capture.

Excellent. And we started talking sort of 80/20 and valves. But can you just talk about the 80/20 evolution? Where did you start? How it has evolved? And where are you now?

So I'll say we started first in the business where we thought could benefit the most from SKU reduction, and that was in our industrial pumps business unit. We put out some statistics with respect to that last year. So in the first couple of rounds of 80/20 running the quads, we saw about a 40% reduction in SKUs in that business. It allowed us to make decisions around the portfolio. And we did a small divestiture over -- in 2025 in that business as well.

And I would -- I'm talking about that because that's the most mature business unit that we have operating under the 80/20 framework. And so we started first with, obviously, the product decisions that we're making. We then started to see how that translated on to the shop floor.

So the space that we were freeing up through leaning out the SKUs, leaning out that inventory, started to see the demarcation around the plants in terms of A customers and that product flow through the facilities, started to see that lingo pop up in shop floor daily management in terms of what that looks like, how is plant -- how is the facility leadership talking about what needs to happen on a daily basis in terms of production flow.

And then I think the last thing that we're really seeing with respect to 80/20 is really this lean into target customers and to our largest customers in terms of trying to grow that business. And so we talked some about headwinds that we see from a revenue perspective from 80/20. But ultimately, the idea behind this is freeing up resources, so you're selling your best products and you're selling to your best customers over time and actually growing the business around those product lines and customers.

And so I think that journey that we've seen the industrial pumps business unit go on is essentially what we want to see happen across all of our product units, where you see the focus on complexity reduction in SKUs and what that means on the shop floor, see it in the way that we're living and breathing at a facility level and then ultimately see the commercial organization really embrace this and go after and sell those customers and sell to those customers the right products.

So it sounds, as you implement 80/20 growth is a key focus for you, right?

Absolutely.

Maybe you can talk about 20% target in 2030. How did you come up with 20% and the time line? And what's the opportunity to accelerate the time line or to hit a higher range?

Yes. So I think we back all of our long-term targets with internal plans. So that is -- that was something that was important when we laid out our 2023 targets that extended through 2027, which we ultimately hit last year and reestablished targets in the current year. I think that the idea is to have multiple avenues for success behind those targets.

And so as we look at margin expansion, we're really focused on the 2 things that we've spent a lot of time talking about today, which is really around what we're doing with 80/20 and how we're leaning out those facilities. And I call it a crossover between 80/20 and really what we're doing operationally, which is how are we simplifying our footprint around the globe and making sure that we're serving our customers as we do so.

And so I think that we've got a growth element embedded in this as well. And I think that, that is the wildcard and that is the piece that could help us accelerate those targets. We've got plans in place to grow the business as well through our commercial excellence initiatives. And I think to the extent that we're able to front-load some of that growth, that margin expansion will follow on an expedited path.

Well, on that note, how does nuclear figure into hitting the long-term targets?

Yes. So nuclear is a benefit to us. It's -- from an OE perspective, it's -- well, from an end market perspective, it's accretive to our overall margin performance. That's on a blended basis between OE and aftermarket. I will say that we're building long-dated backlog with that nuclear business.

And so I kind of laugh that some of that revenue growth from 2030 is already embedded in our backlog today, more likely than not in terms of what we're doing. But the life extension and the continued aftermarket annuity is helping us grow revenue today.

And in terms of nuclear, what are your latest thoughts on the pace of nuclear? And what are the near-term developments we should keep track of?

I think that where we're really tracking the nuclear work that's being done right now in the U.S. is really exciting, and we'll see that moves forward. What we're looking at right now is the opportunity that up to 40 new reactors are built outside of China and Russia over the next decade. And so that's a tremendous opportunity for Flowserve over time in addition to the life extensions that we're seeing.

And so I think the other piece of this that is really embedded in that $10 billion opportunity that we have over the next decade is around SMRs. And so the goal with SMRs is to continue to talk to as many developers as we can serve in the way that we want to, to make sure that as that technology moves forward, that we're involved.

So what opportunities are the most actionable over the next 2, 3 years? And maybe we can start with conventional first, convention nuclear.

Yes. So I think the most obvious is the life extensions and the continued aftermarket annuity that we see there. That's -- what we saw in our bookings in the first quarter was largely either aftermarket or life extensions. So about $40 million of life extensions that are in that number.

And then the second piece of that is around the new build orders that we're going to be executing on nearer term. And so our backlog includes orders for plants that are being constructed in the U.K. and France today, that backlog could be added to over -- certainly over the next 12 to 24 months with new announcements in Europe and the U.S. that they occur. And so I'd say that right now, that feels like the most actionable elements that are out there.

And in terms of SMRs, could you remind us who are you aligned with? And what's the difference in content for you between conventional SMRs?

Yes. So it sort of depends on the technology that is being deployed within SMRs. We're working about 10 to a dozen of the developers that are in the space. So I won't call out any in particular, but we have started to actually book orders in the space for prototypes.

So last year, somewhere between $5 million and $10 million of orders that are going into SMR prototypes, and that's primarily on the pump side of the business that we're seeing that in terms of primary coolant pumps. And the SMR technology that's being deployed in certain instances will be more or less flow control heavy. And so that tends to be also how we align who we're working with.

And the time line for SMRs for the industry, when do you think the volumes really start picking up there?

I think it's probably in the back half of this decade, so kind of 5 years plus out, but the prototype work that's being done now is pretty important. And I think that those customer relationships that we're building over this period of time are going to be helpful in playing in that.

And how does the time when you build a nuclear reactor just -- can you remind us when do you start seeing orders?

Yes. So...

And when does it become revenue?

Yes. So well past final investment decision, I think, is one key element is we generally tend to see our orders after investment decision has been made. It plays out normally over a 3- to 5-year time frame.

And so the first 12 months really light on revenue recognition. It's primarily engineering work that's being done, then you start to order long lead time items, all of this on the percentage of completion. And so it does play out over a multiyear time frame.

Excellent. And maybe just to round up the nuclear, how is U.S. different, U.S. outlook versus global nuclear outlook? How are the time lines different or what's happening is different?

Yes. I think the nuclear ambitions in the U.S. are substantial in terms of what we're talking about doing. The time line, I would say, at this point in time is fluid as you have both engineering firms, the government and ultimately, utilities that have an interest in how this plays out.

So we continue to try and strengthen our relationships with all 3 of those groups to try and get an understanding of the capacity that's necessary to position ourselves in the right way to serve those orders when they come in, understanding that, that time line can and will change from what we expect.

Excellent. Maybe just talk about your power gen exposure ex-nuclear. And what are you seeing? And specifically, do you benefit from the current gas power cycle? Are you benefiting from extensions of coal plants?

Yes. So traditional power is about half of our utility or our power exposure in the mix. And I would say the content in gas plants and combined cycle gas plants is less than what we would see in a nuclear plant, but we do benefit from it. Coal-fired life extensions do benefit us, probably less than what we would see on the gas side and maybe with a shorter tail in terms of what that could look like.

One of the things we're actually excited about with once again kind of bringing up Trillium is actually 70% of that business today is power. And so if we look at that, 40% of the total is nuclear, but that remaining 30% is coming from traditional power, the majority of that business is aftermarket. And so it's a nice way that we see to supplement our current power business as well.

And maybe because you are talking about Trillium, maybe you can talk about sort of Trillium as a case study in terms of your approach to M&A and are there other Trillium?

So it is a good case study. So thanks for bringing that up. It kind of fits the criteria of what we're looking for in inorganic growth. So one, fits the strategy. Obviously, an end market that we're interested in, in terms of power actually continues to help us balance our exposure to end markets as we move forward.

It's accretive to our margins. And so we want to continue to use M&A as a way to help move us to our margin targets as quickly as possible, also accretive to cash flow over that period of time, which helps create a virtuous cycle. And then the last thing that I would say with respect to it is we were able to -- this is a transaction that we're able to easily finance and absorb onto the balance sheet in a way that helps us protect our investment-grade rating.

And just maybe talk about just general, how you think about capital allocations, what's the M&A pipeline looks like? And what are the other capital allocation priorities for you?

So I think we try and take a pretty balanced approach related to capital allocation and make sure that we're being intellectually honest in terms of options that we have out there to weigh. And I'll throw out there. Last fall, we saw a dislocation in our share price following the breakup with Chart. We deployed a pretty substantial amount of cash into share repurchases in the back half of the year. It made sense to us based on where we are at and the cash that we had on the balance sheet.

We continue to work on our M&A pipeline internally, and that means not just what we're receiving inbound, but what our teams on the ground are seeing products that are interesting to us, markets that are interesting to us over time and continuing to build up that M&A pipeline. And for us, we've maintained a pretty stable dividend over the last several years. We view that as a commitment to our shareholders. It's in a good place. We're more focused on continuing to balance between inorganic growth and the potential to repurchase our own shares.

Got you. And which markets just going forward outside of nuclear, which markets do you see as key growth vectors over the next 3 to 5 years?

Yes. We really like areas within kind of our general industries basket and are focused on kind of looking for areas within there to grow more. And so that would include -- it would include food and bev, pharma, which is an area that we saw some nice bookings last year as we look at sort of regionalization around the pharmaceutical industry.

We like areas of water and continue to look at ways that we can be successful in that market. Mogas gave us a stronger foothold serving areas of the mining industry. And as we look at trends around electrification, it's another area that we could like. So I think as we look at sort of what might be attractive areas to grow, that general industries bucket is an important one for us to look at.

And how should we think Flowserve and inflation? And what price is embedded in your forecast? And how should we think about price cost?

Yes. So I think that we always look for opportunities when we've got the ability to increase prices that we are. But generally, our goal -- our base level goal or the table stakes is price/cost neutral from an inflation perspective. There are some areas around the business, where there are opportunities to do more than that over time. And I think that the tariff example is one where we were able to really overcome a lot of the headwinds that we saw from Liberation Day over the course of 2025 through price increases.

And beyond that, what are you seeing in terms of inflationary environment into the second half?

I think that is -- that's probably the area that we're watching carefully in terms of what we're seeing with fuel prices and what that means for the supply chain -- it's not a problem. It's not a problem today. It's something that we continue to try and be very flexible and nimble with our supply chain, particularly geographically, where we're supplying goods from around the world and make sure that depending on whether or not that's energy costs, transportation costs, whether or not it's the lift around tariffs that we're maintaining some redundancy in our supply chain and some options about where we can source materials from.

Well, that was great. We're right on time. Amy, thanks so much for being here.

Yes. Thanks for having me, Andrew.

Of course.

Good day, and welcome to the Flowserve First Quarter 2026 Earnings Call. Today's conference is being recorded. At this time, I'd like to turn the conference over to Mr. Brian Ezzell, VP of Investor Relations. Please go ahead, sir.

Thank you, and good morning, everyone. Welcome to Flowserve's First Quarter 2026 Business Update. I'm joined by Scott Rowe, Flowserve's President and Chief Executive Officer; and Flowserve Chief Financial Officer, Amy Schwetz. Following Scott, and Amy's prepared remarks, we'll open the call for questions.

Turning to Slide 2. 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.

With that, I'll turn the call over to Scott.

Thank you, Brian, and good morning, everyone. I'd like to begin by thanking our associates around the world for their hard work, disciplined execution and resilience in a highly dynamic environment. Our first quarter results reflect their continued focus on execution as we delivered strong adjusted operating margin expansion of 230 basis points and adjusted earnings per share growth of 18% and including the net benefit of tariffs and other unanticipated items in the quarter that Amy will discuss in more detail.

While bookings and sales were impacted by events in the Middle East, we maintain our full year adjusted EPS outlook of $4 to $4.20, which at the midpoint, represents 13% growth over 2025. We continue to advance our strategy and leverage the Flowserve Business System to unlock greater potential across the company. As we announced in late March, Matt Klopfer, who formally led our Industrial Pumps business unit has been promoted to lead the FPD division. I'm excited to have Matt in this role where he can leverage his customer relationships, knowledge of the business system and international experience to continue driving strong performance for the division.

Let's turn to bookings on Slide 4. Bookings in the first quarter were $1.15 billion, down 6% from the prior year period. Our first quarter book-to-bill was 1.07x. We delivered healthy aftermarket bookings of $680 million in the quarter. As anticipated, aftermarket was down modestly on a year-over-year basis against a very strong prior year comparison that included a large nuclear order.

On a sequential basis, aftermarket bookings were in line and represented the eighth consecutive quarter above $600 million. Our focus on expanding the aftermarket business continues to deliver results as we drive higher capture rates across our installed base. Within our Original Equipment business, January and February started with softer-than-expected bookings, largely related to our run rate MRO business and some smaller projects pushing out to later in the year.

We saw these trends improve in March back to levels we anticipated, with strong commercial activity in the market. The softer start to the quarter, coupled with dynamics in the Middle East resulted in lower original equipment bookings in the quarter. I'll provide more insight on the Middle East in a moment, though it's important to note that absent the estimated $50 million headwind related to customer delays in the region, bookings for the quarter were largely in line with our expectations.

Our focus on diversification within the 3D strategy has positioned Flowserve to manage through a dynamic market conditions better than ever. In the quarter, we received more than $110 million of nuclear awards including 2 projects larger than $20 million each. Nuclear and traditional power continue to represent attractive strategic growth markets for us.

Turning to Slide 5. I'll provide an update on how we have been responding to the situation in the Middle East. Our #1 priority is employee safety and supporting our roughly 800 associates across manufacturing facilities and QRC locations in the region. I'm proud of the resilience and focus our teams have displayed as they continue to deliver for our customers. We are taking the necessary actions to manage through the near-term disruption, while positioning the business to respond effectively as we see incremental demand.

First quarter sales and earnings were negatively impacted by disruptions in the region, largely driven by the shutdown of the logistics system and the inability to get to customer sites at the height of the conflict. Though conditions in the region remain dynamic, our ability to operate has improved under the recent ceasefire with temporary work pauses implemented as needed based on safety considerations.

We are proactively adapting our supply chain to address these transportation delays, inflationary pressures and the potential for broader disruption. The progress we have made through the Flowserve Business System over the past several years has enabled us to operate with greater discipline, better visibility and more flexibility across our global network. We are dynamically repositioning the supply chain, leveraging our broader supply base and utilizing our regional and global footprint to respond quickly as conditions evolve.

As we look forward, we have assumed that these disruptions seen in the first quarter continue for some period. Over time, we see significant opportunity to support our customers' critical infrastructure needs. We have a large installed base across the region and a legacy of strong customer relationships. We anticipate that asset restarts and rebuilding activity will begin later in the year with accelerated opportunities for additional infrastructure investment across the region. Energy security is also expected to be of increasing importance across the globe, and our teams are working diligently to assist customers as they plan for these incremental investments.

Turning to Slide 6. I'll provide some perspective on the broader market outlook. Despite the disruption in the Middle East, the underlying fundamentals across our end markets remain healthy, and we continue to see meaningful growth opportunities for near and longer term. The outlook for power remains very favorable with global electricity demand continuing to support significant investment in both traditional power and nuclear generation. In general industries, ongoing developments in sectors such as mining, pharmaceuticals, food and beverage and water continue to represent a meaningful opportunity for growth.

Within energy, utilization rates and maintenance activity across large process facilities have remained strong, with North American utilization increasing in March due to higher crack spreads. Our large installed base and ability to increase capture rates continues to support a constructive outlook for Flowserve, even as some larger project work has been slower to materialize given the geopolitical uncertainty. And while chemical remains our lowest growth end market, we continue to expect modest improvement over the course of the year.

Looking ahead, our 12-month project funnel remains robust and expanded across all end markets, both sequentially and year-over-year. We are encouraged by bookings trends exiting the first quarter and by the awards we received in April. We have good visibility in the commercial opportunities and believe mid-single-digits bookings growth remains achievable for the full year. We also believe the current geopolitical environment could drive increased investment in energy security and diversification globally, providing another long-term tailwind for Flowserve.

In addition, as one of the leading suppliers of Flow Control Solutions in the Middle East, we expect to play an important role in reconstruction activities across industrial complexes as stability returns to the region. We are prepared to respond quickly and support our customers as these opportunities develop.

Turning to Slide 7. The Flowserve business system continues to be a key driver of our performance. The progress we have made across operational excellence in 80/20 has helped us improve how we run the business, reduce complexity and driven steady, sustainable margin expansion. Operational excellence continues to strengthen our core execution capabilities and improved performance across the organization. We have improved data and material flow, optimized inventory and unlock significant cash for the business. Increased supply chain reliability and enhanced delivery performance are also helping us better serve our customers.

Furthermore, we continue to execute our footprint rationalization program. With further support -- which further supports our efforts to reduce fixed costs, improve operational performance and deliver further value for our customers. As we move into the third year of the 80/20 program, we continue to simplify our product offering across the business, including meaningful SKU and model reductions, we believe these actions will further sharpen our focus, improve efficiency and strengthen our operating model. While we continue to advance our commercial excellence initiatives, we have now trained hundreds of employees and provided them with the tools and processes to build greater capability and consistency across our commercial organization, which we believe is creating the foundation for long-term sustainable growth.

The business system is the key to delivering on our long-term financial targets and I couldn't be more pleased with the progress that we are making and the impact it is having on growth and margin expansion. In summary, the fundamentals of our business and end markets remain robust, and I am pleased with our execution and the progress we made during the quarter. We are taking the necessary actions to successfully navigate the current environment, and we remain confident in the near- and longer-term growth opportunities we see across the business. As we move through the year, we anticipate even stronger opportunities to deliver value for our customers and our shareholders, supported by our integral role in building and maintaining critical infrastructure around the world.

With that, I'll turn the call over to Amy.

Thank you, Scott, and good morning, everyone. Turning to Slide 8. We delivered a solid first quarter performance in a complex operating environment. Our results demonstrate Flowserve's durable business model and the disciplined execution of our associates. We continue to make progress on our stated margin expansion objectives.

Adjusted gross margin increased 370 basis points to 37.2%, marking our 13th consecutive quarter of year-over-year adjusted gross margin expansion. Adjusted operating margin was 15.1%, up 230 basis points from the prior year period with positive incrementals on lower sales. These results drove adjusted EPS of $0.85, an 18% increase versus the first quarter of 2025.

First quarter results, both reported and adjusted, were impacted by 3 items not originally anticipated when we provided guidance in February. First, EPS included a $0.19 benefit from IEEPA tariffs for which we have filed for refunds following the U.S. Supreme Court's decision in February. This benefit was partially offset by the $0.06 negative impact of an item arising from a taxing authority in Latin America related to prior years. In addition, we estimate that the disruption in the Middle East negatively impacted reported and adjusted EPS by approximately $0.06.

Altogether, these unanticipated items resulted in a net $0.07 benefit included in the first quarter results. Turning to sales. First quarter revenue was $1.1 billion, down 7% versus the prior year period with a 360 basis point foreign currency translation benefit and a 20 basis point contribution from acquisitions. We anticipated a modest sales decline in the quarter, which was further hampered by an estimated 200 basis points from the disruption in the Middle East.

Sales were also impacted by the slower start in January and February run rate bookings that Scott mentioned earlier. Aftermarket sales grew 4% in the quarter, driven by the continued momentum in capturing more business from our large installed base. The aftermarket strength was offset by an 18% decline in original equipment revenue, which was largely expected given the difficult year-over-year comparison in the first quarter as well as slower backlog conversion as nuclear becomes a larger mix of our portfolio.

Turning to Slide 9. Both segments benefited from strong execution under the Flowserve business system and we continue to see tangible improvement from our 80/20 and operational excellence initiatives. In FPD, we delivered another quarter of strong margin expansion with adjusted gross margin up 300 basis points year-over-year to 37.7%, and adjusted operating margin, up 140 basis points to 19.1%. FPD bookings were $774 million, down 9% versus the prior year.

Revenue was $745 million, down 5% as lower shippable original equipment backlog more than offset the 5% growth in aftermarket. FPD exited the quarter with a book-to-bill of 1.04x. In FCD, adjusted gross margin was 35.2%, up 480 basis points year-over-year and adjusted operating margin was 15.9%, an increase of 370 basis points. FCD remains focused on margin improvement with the first quarter profitability highlighting continued progress. FCD bookings were $374 million, roughly flat with the prior year as 10% growth in aftermarket bookings was offset by a declining -- by a decline in original equipment awards. FCD revenue was $328 million, down 10% versus the prior year period, with the majority driven by 80/20 activities. FCD ended the quarter with a book-to-bill of 1.4x.

Turning to cash flow on Slide 10. Cash from operations was a use of $43 million in the first quarter. This result was in line with our expectations and consistent with 2025 performance and was primarily driven by temporary seasonal working capital requirements, along with modest headwinds from the Middle East. First quarter cash flow is typically our lowest quarter of the year, and we expect improvement through the balance of 2026. We remain focused on working capital management and expect full year free cash flow conversion of 90% or more of adjusted net earnings.

Our balance sheet remains very healthy with net leverage of approximately 1.2x at quarter end, an improvement versus the year ago comparison, providing significant flexibility for capital allocation. In addition, in April, we amended our credit agreement, extending the maturity by 5 years and increasing revolver capacity to further enhance our financial flexibility.

Turning to Slide 11. We remain confident in our ability to expand profits and create value for our shareholders in an evolving environment. Our end markets remain robust overall. And while the Middle East conflict may cause some short-term fluctuations ongoing investment in the region, along with rebuild activity creates meaningful opportunity. As it relates to our full year outlook, our guidance assumes the current Middle East situation continues. With the key assumptions, including that military operations do not materially escalate that we are able to maintain operations and that the flow of materials into our Middle East operations continues albeit with some delays, and that secondary supply chain disruptions do not materialize.

We recognize the potential for a much wider range of outcomes from the conflict that could have implications on our business and our organization expects to remain nimble as we navigate the coming weeks and months. With this backdrop, we now expect organic sales to range from a 1% decline to a 2% increase, resulting in our total sales growth outlook of 3% to 6%. As a reminder, total sales growth includes approximately 300 basis points of benefit from acquisitions, including the anticipated midyear closure of the Trillium Valves acquisition.

At the same time, despite a more challenging Middle East outlook, we are reaffirming our expectation for approximately 100 basis points of adjusted operating margin expansion as well as our adjusted EPS guidance of $4 to $4.20 per share for the full year. Our EPS guidance reflects the net impact of the first quarter unanticipated items that I referenced earlier. In addition, our outlook for the balance of the year also includes roughly $0.07 of expected impact from the ongoing conflict in the Middle East, contemplating modestly lower bookings, while the conflict continues and some modest delay in logistics timelines, potentially offset by rebuild activity.

At the midpoint, our guidance represents another year of double-digit growth versus prior year's adjusted EPS. In terms of quarterly phasing, we expect original equipment bookings to accelerate in the second half of the year, driven by increased project activity and rising nuclear investment and the potential for rebuild activity in the Middle East, and we remain confident in our ability to expand the aftermarket capture. As Scott noted, we came into the year anticipating increased Middle East project bookings in the second half of 2026. It's too early to know exactly how the conflict in the Middle East could impact these assumptions.

To date, customers have indicated projects are expected to move forward, but we know some projects could slip to 2027. That said, we believe rebuild activity could provide more momentum through the balance of the year. Importantly, we view any disruption as relatively short term in nature with no anticipated impact to the underlying demand environment or the opportunity to deliver on our 2030 growth and earnings targets.

Quarterly, year-over-year performance will accelerate as we move through the year, and we estimate the previously announced Trillium acquisition will close near midyear. We continue to anticipate first half revenue will be more impacted by headwinds from 80/20 and backlog composition, each of which will begin to abate in the second half. Given the headwind from the Middle East, Q2 sales are expected to be down low to mid-single digits in comparison to prior year. And second quarter earnings are expected to be similar to the first quarter.

Let's turn to Slide 12 to close out the prepared remarks. We delivered strong execution in the first quarter in a dynamic operating environment. We are continuing to build on the momentum of the Flowserve business system with a growth strategy aligned to powerful global megatrends that we believe support long-term demand for our products and solutions. At the same time, we are proactively managing the situation in the Middle East, while remaining focused on serving our customers and executing with discipline across the business.

Looking ahead, our 2026 outlook calls for double-digit adjusted EPS growth, and we are continuing to make meaningful progress towards our 2030 financial targets.

With that, I'll turn the call back to the operator for Q&A.

[Operator Instructions]

We'll take our first question from Mike Halloran with Baird.

So a couple of ones. First, the wholesale channel versus retail channel. Maybe talk a little bit about the dynamic, a little more detail about the dynamic going on there. How you feel you're positioned? And I know you referenced potentially doing a little bit more work on that side. What does that entail? And how do you think you can make sure you're capitalizing on the ongoing trend?

Yes, Mike, I think you broke up at the beginning of that question. Can you say that again?

Yes. Sorry. Apologies. Let me reframe the question. Orders mid-single digit for the year, how do you get comfortable with that uptick in the back half of the year all else equal.

That's a really good question.

And more importantly, is it as simple as if you strip out first quarter, second quarter -- first 2 months of the year just strip those out, you're kind of on trend outside of Middle East, given what you saw in [indiscernible].

Yes. So I can absolutely talk through that, and it's a great question. And we talked about January and February being a little bit soft on the book and ship. But I think on a very positive note, our March numbers were in line in expectations. And in the prepared remarks, I talked about that we had a nice -- we're seeing nice activity in that kind of in and out business in April. And so that gives us a lot of confidence as we kind of continue through the year here that we think we have slightly elevated bookings.

And then the other aspect here that's super important is our project funnel. And in my prepared remarks, I talked about the project funnel being up year-on-year and sequentially, and that project funnels across all of our end markets. Now obviously, it is an incredibly dynamic situation. And I would say on the project timing, there is so much uncertainty in terms of what could happen here. But I would say we're seeing projects move forward. We're not seeing them get canceled. And we're -- our teams, when we talk about a bottoms-up roll-up are very confident and the customer discussions that these go forward at some point in the year. And so I would expect more of a back-half-weighted project year for us, which is what we talked about in the fourth quarter earnings call. But overall, today, we continue to feel confident in the mid-single-digit bookings growth year-over-year.

So the follow-up is maybe framed at in terms of next year. Now obviously, it's still early. I'm not trying to get guidance for next year. But I think the loose question is, when you sit here today and you compare yourself to 3 months ago, 4 months ago, how do you feel about '27, '28 today relative to before? I mean it seems like you were thinking about this as maybe some incremental opportunity once the dust settles plus incremental confidence in what you're doing internally. But I'd like to understand because, obviously, they are some puts and takes this year, lots of moving pieces. As we get through this, how does this all balance out.

Yes, sure. It was obviously a very noisy quarter with the Middle East disruption and some of the geopolitical activities. With that said, resolution in the Middle East is important to all of my comments here. And so Amy talked about our assumption that will be impacted in Q2, but at some point, we returned to somewhat of a more normal environment. When and if that happens, then we feel really good about our continued progress toward our long-term 2030 targets that we put out at the end of Q4. And that included mid-single-digit growth, it included continued margin expansion every year. And so today, despite all of the dynamics in Q1, I would say we're -- the year is shaping up to position us very nicely into 2027 and on a nice trajectory and path to achieve our 2030 goals.

Yes. And the other thing, just to add to that, Mike, a little bit is, muted in the numbers because of original equipment in the first quarter, we saw really nice bookings growth in both segments on the aftermarket side. And are continuing to push that aftermarket business and gaining strength there only serves us as we look out into future years.

We'll now take our next question from Andy Kaplowitz with Citi.

This is Jose on for Andy. Maybe to start with the 10% organic revenue decline in the quarter. That was a larger drop than we were forecasting. On the slides, you mentioned that Middle East disruptions impacted Q1 sales by 2% and I think, Amy, you talked about some lower book-to-ship impacts in January, February as well as an 80/20 walkaway impacts. But it'd be helpful if you guys could walk through each of those to bridge the decline in the quarter as well as how you're thinking about those dynamics can over into Q2?

Yes. So maybe just to start, a modest decline was expected for us in the quarter. We knew that kind of coming into the year. But we were further impacted by the couple of things that you mentioned, the Middle East disruption and a softer start to our run rate MRO business that was -- that occurred in January and February, primarily in North America. And so the Middle East disruption was approximately 2% or 200 basis points year-over-year. And I'll just comment that as we look at the North American MRO run rate, we normalized in the month of March, which gives us some comfort going into the second quarter that we're better positioned. And original equipment was also up against a pretty strong comp, particularly if you look at the large engineered-to-order projects that we had included in the first quarter of last year.

So backlog conversion was lower because of the nuclear component of the business. And as a reminder, conversion of our year-end backlog was expected to be around 76%, entering the year versus historical levels in the mid-80s or higher due to that nuclear component. So I think we're feeling good about the way we ended the quarter and about the opportunities that are out there on the book-to-ship business, which gives us some comfort going into the second quarter.

And I'll just add that the teams are incredibly focused on winning work that can ship in a relatively shorter period of time. And you know, those nuclear awards are fantastic, and we'll get great revenue and margin on those. But typically, they won't show up in the first year. And so the teams are really focused through the commercial excellence process of winning work that drives revenue and continues our progress towards growth.

Very helpful. I appreciate the color there. And then maybe as a follow-up, maybe we can spend a couple of minutes on FCD, think if we remove the tariff recovery from the quarter, it does seem like margins were weaker year-over-year. I understand there's elements of fixed price and lower volumes in the quarter. But was there anything else in the quarter that you'd call out? Or maybe you can also give some more color on what 80/20 actions you guys are implementing and how you're expecting that to show up? For the FTD margin?

Yes. So Jose, you hit on it with respect to the volumes, which were expected to be lower in Q1 due to 80/20 impacts. And if you'll recall, FCD started the journey on 80/20 a little bit later. And so we anticipated seeing some headwinds in the first half of the year from 80/20. Gross margins were basically flat with lower volume in the first quarter of the year, which we took as a very positive sign given the impact of the reduced volume.

I think that if we look at where bookings were in the quarter, sequentially stronger than Q4. And so we feel good about that volume challenge abating as we go into the second quarter of the year and we're confident for the full year that we'll be at 100 basis points or more in terms of margin expansion at the operating margin line. So the business is fundamentally healthy. We're continuing to improve efficiency and reduce complexity and we think there's further opportunity with operational excellence and roofline consolidation. And I'll say that these actions related to operational excellence and roofline have only accelerated since the beginning of the year.

We'll now take our next question from Nathan Jones with Stifel.

I guess I'll start by following up on the margin side of it. It looks like if you take out the IEEPA recoveries, FPD down 20 basis points on a 10% revenue decline, which is really very good, I think. And the FCD margins down 110 basis points on and over 10% revenue decline, which is probably also pretty good. So maybe you can talk about the impacts on margins. What was the volume impact the deleveraging that you would have got from lower volume on that versus the improvements that you've made to get to that if we exclude the IEEPA tariff recoveries, which is really a onetime item.

Yes, I would say I'll start and Amy can jump in here. I think it will exclude tariffs. I think the Mexico tax thing because it wasn't in the years also excluded there. And if you take both of those out and -- but keep the Middle East disruption in there and what I'll call the things that the team is working on, right? Your FPD margins actually expand in the year versus last year to roughly kind of 70 to 100 basis points. And then as we talked about with FCD, you're a little bit lower on the decline of about 100 basis points. But if you take that to the gross margin line, like we're very confident on the 80/20 and the operational excellence coming through and continuing to drive margin expansion. And so in the organic business, we're not backing away from our ability to expand margins at that 100 basis points this year.

And I'll say that's organically, excluding those kind of onetime items. And Amy hit this with the FCD side, but it's really the whole business, right? We've got the operational excellence moving. We're driving great results from just a productivity standpoint and how we're running the different manufacturing sites, but it's also allowing us to move quicker to our Roofline Consolidation program. And so we've got several activities that happened last year and some that are in progress this year as well, and those activities continue to accelerate.

And then the 80/20 program is now in the third year, and we're seeing tremendous results there. And so there's definitely tailwinds from the 80/20 program as we continue to work through that methodology and do the right things on SKU reduction, but also on the pricing side. And so we've been very selective on where do we price and making sure that we're pricing in accordance with that philosophy and driving the right things to expand margins. So I'd just say net-net, we feel good about our margin progression, the continuation here as we go throughout the year.

Yes. And the only thing I'll add there, Nathan, is that FPD was more impacted by the Middle East conflict in terms of revenues and operating income. And although the run rate business was a little bit softer to begin the year, I think that the team was anticipating the lower volume just based on the shippable backlog, and so I think had planned really well to adapt to that situation and be in a position to maintain or grow margins in the first quarter, as Scott indicated.

Just to confirm, you said the tax item is actually in the segment income.

It is.

It is. It's in the FPD segment. And again, kind of an out of period and something the FPD team really doesn't control.

Got it. Can you talk about the potential here for improving demand in the Middle East from the reconstruction of things whenever we get around to that. And if you have any ideas or thoughts on when we might see that demand begin to impact Flowserve's results?

Absolutely. I can talk about the first part of the question. The second part is a little bit harder on timing. On the first part, as you know, Nathan, we have an unbelievable installed base in the Middle East. And so we've got probably more pumps than any other provider in the world that across the various countries in the region, including pumps installed in Iran. And then on the valve side, a massive presence across the facilities there. And so Inevitably, anything that you see on the news in terms of damaged equipment and assets, Flowserve has been impacted or involved in that.

And so the teams are working incredibly closely with our customers. And as I said in the prepared remarks, I'd say, first and foremost, is making sure our associates are safe, and we're keeping them out of harm's way. But the second priority is making sure that our customers can continue to operate. And we're involved in critical infrastructure that's supporting their economy and supporting commodity practice, and we're doing some things that would be a little bit different than the normal day-to-day business to make sure that we're 100% supporting that work.

And so right now, it's about emergencies, it's about call-offs. It's being incredibly responsive. At some point, you move to reconstruction activities. And today, I would say the damage assessments are different depending on the level of damage. We're already preparing some quotes to help customers on rebuild activities. The timing of that is just not known right now. And it depends on when they get comfortable to bring people back into the region. When do they get comfortable about bringing people on to site. And then, again, everyone is concerned about the individual safety. And so I think if the ceasefire prevails and things start to settle down, then that rebuilding activity obviously happens a little bit sooner.

And then there's a third category here on just what's the future of the Middle East and the role of the different countries there providing further energy assurance around the world, but also assurance and security within their country. And so I believe that you'll see more projects ultimately come into the Middle East and as we talked about in the fourth quarter, we thought the Middle East bookings were going to be a very positive year for us, mostly back half weighted I still think that is the case. I think we're going to get some restoration activity, we'll get some of the work that we had planned on, I think some of that may get reprioritized. But I think net-net, Middle East is a benefit for us for the full year bookings.

We'll now take our next question from Joe Giordano with TD Cowen.

Before I get into like real questions, just a quick confirmation clarification type stuff. When you say mid-single-digit bookings growth, I just want to understand, you're not adjusting for like Mid East headwinds, right? That's like inclusive of Mid East. We still think that. And when you talk about margins up 100 bps, that's stripping out the tariff benefit and the tax thing and not adjusting for Mid East, right? So that's inclusive of Mid East. Just want to confirm those pieces.

Correct. We'll confirm both. So the Middle East disruption would be in my comments on mid-single digit growth. So year-on-year, without all things in, we still believe that we can grow those bookings. On the margin side, 100 basis points, excluding the one-offs of tariffs in Mexico.

Okay. Good. Starting with the January, February kind of air pocket there in the business, I'm just a little, I guess, surprised like when we did the fourth quarter call, that was February, and you guys definitely had a pretty positive confidence tone there. Like was that not evident at the time when we had that last call that this business in January was like way under where you're targeting?

Yes. Joe, I'll start with look, we've got much better visibility in our business than ever before with the system upgrades, and we can see weekly bookings and activity and when we did the call, we basically had a month of January numbers, and we had some positive indicators that, that would start to improve, and we just didn't see that pick up in February. And so we didn't feel it was prudent to kind of sound the alarm just given one data point from the month of January.

And unfortunately, it didn't pick up in February, but we did see that increase back to what I'd call our normal run rate in March, and we've confirmed that again in April. And so right now, that run rate activity looks pretty robust and kind of on our planning levels.

Okay. Fair enough. And then if I think about the second half, is there anything in the full year guide at this point kind of hedging Mid East being potentially -- like now we're talking about extended blockades and maybe targeted strikes again. So curious, like you have the impact in 2Q kind of message here. Is 3Q just assume that we're back at like full run rate in that region?

So I don't know that it assumes that we're back at full run rate, Joe. But I think that what it does allow for is, one, giving us more time to react to the situation and address supply chain and customer relationships and get back to the new normal. And it also allows for some opportunities that we might see around the rebuild. So at this point in time, there are a lot of different outcomes we can't predict geopolitical events. And so we felt best to go kind of quarter-by-quarter here. But I do think that we have more levers to pull from a mitigation factor in the second half of the year as we adapt to the changes.

I'll just reiterate, Joe. It's a dynamic time. We get different viewpoints almost on a daily basis, and we're trying to give our best view for the back half of the year given what we know today.

We will now take our next question from Deane Dray with RBC Capital Markets.

[ Tom Brzezinski ] on for Deane Dray. In terms of -- it's been another great quarter in terms of bookings in terms of nuclear. I was just wondering, how do you -- could you give us some more detail on your nuclear backlog at this stage? And I guess, I would assume the project funnel is also increasing in terms of nuclear opportunities.

Yes. I'll let Amy talk about the backlog and kind of how that converts, and then I can talk about the funnel and the forward look.

Yes. So I would say, if you look at kind of going back to where we were at to start the year at about $2.9 billion of backlog with 76% of that shippable over the next 12 months, it's safe to assume that the lion's share of that 24% of backlog is nuclear. And so that only grows with what we saw in the first quarter bookings at, call it, about $110 million of nuclear backlog.

Yes. And then on the forward look, we're booking roughly $100 million a quarter. A lot of that is on the back of kind of what I'll call supporting the existing assets. So rerates, life extensions of those assets and really making sure that the nuclear plants will be around and productive for years to come. And as we've stated before, we've got an unbelievable installed base and entitlement in those existing assets. And so that work is relatively steady, and we're seeing more and more of these rerates and life extensions as we go forward.

And then the other category is the new traditional reactors, and we still are incredibly optimistic that traditional nuclear reactors continue to move forward, both in Europe and the United States in parts of Asia and maybe a little bit slowdown in the Middle East, but ultimately will come there. And so we're incredibly well positioned with the customers to make sure that our content is on those new builds. And I'd say, certainly for the United States, there are -- there's a lot of stakeholders, and you've got the U.S. government. You've got local state governments. We've got EPCs and then we've got the utilities themselves.

And so it's a little bit of a complex equation in terms of getting all of the parties to agree on some of the timing. But I would say in the last quarter, we've seen advancements in terms of those discussions, and we're getting more and more optimistic that the U.S. moves forward with a new nuclear program build-out. And then in Europe, we're actively in pursuit of several new reactors in Europe. And I'd say we're more optimistic that, that does happen within the year. there's more certainty there. And so I feel pretty comfortable that we'll get awards on new reactors in Europe as we move through 2026.

And then finally, on the SMRs. We're working with a select group of SMR providers and the technology. We continue to win awards on what I'll call it, on the prototype side and some of the engineering contract to help them with design and making sure that they've got a solution that can work for the long run. And I remain incredibly optimistic that SMRs are part of the equation in the future. I just think the timing on winning real work that can be scaled into multiple sites is still a couple of years away.

Got it. I really appreciate the color. I guess, the follow-up for me would be in terms of Trillium, you mentioned the timing closing around towards the half year. Any additional insight on synergy opportunities you're seeing? I know it's still early days of the transaction.

Yes. So early days. The teams have met a couple of times to sit down and one, just go through day 1 actions, but also think about synergies, but I think we're probably a couple of months out before we're confident talking about what those synergies will be as we move forward. But I will say, just based on those conversations and our knowledge of their product and the industries they've served. We were even more excited today than we were 2 or 3 months ago about this acquisition, and we're looking forward to welcoming them to our team.

[Operator Instructions]

We'll take our next question from Joe Ritchie with Goldman Sachs.

So yes, I fully recognize that for refining specifically, like crack spreads are long-term positive when they start to widen. I guess just from a near-term perspective, how are you -- how is that potentially going to change your customer behavior? And I'm really thinking about your aftermarket business. Could they run their refineries a little bit longer. Does that create any type of like, I don't know, air pocket in growth in like the coming quarters? Like what are your customers saying about maintenance on their refineries today?

Yes. So that's a good question. And again, a very dynamic environment. But right now, certainly, the North American refiners are doing really well. And so there's higher utilization, there's higher crack spreads driving high profitability. And so typically, when you see work like that, they don't want to do an extended turnaround. And so they want to delay their maintenance and maximize the profits. And so we're seeing some turnarounds that were scheduled in the spring, get moved out into probably the fall.

And so we'll have a little bit of headwind on the turnaround season. With that said, we're seeing an increase or an uptick in what I'll call emergency or kind of call off work for a pump or a valve or a mechanical seal that's necessary to keep their operations running. And I'd say our view today is that's probably neutral as we kind of work through the year. And we'll have a better understanding here in the next month or 2 because we're really only kind of 2 months into this.

But I would say that we've got great relationships with the North American refiners. We're watching this closely, and we're committed to making sure that they stay up and run at a high level. And then in Europe, you've got a similar dynamic there. I'd say they're a little bit more on the schedule-driven maintenance is happening. And so I'd say less of an impact in the European theater.

Got it. That's super helpful, Scott. And I guess my second question is just on the organic growth ramp into the second half of the year. So I know you built a little bit of backlog in the first quarter, some of that being nuclear. But the ramp probably implies a little over $100 million in organic revenue growth in the second half of the year. And I guess I'm just -- as we sit here today, maybe some of the answer is some of the refinery business being pushed out into the second half. But how do we kind of square the ramp into the second half of the year to feel good about kind of like that mid-single-digit organic number that you have embedded in the guide in 2H.

Yes. So we still have a lot of confidence in the setup for the second half of the year. And just as a reminder, as we think about what the first half of the year, last year looked like versus the second half, we did see a more normalized level of OE equipment revenue in the second half of the year than what we saw in the first half. And so our confidence is driven by that dynamic, but it's also supported by the funnel, our customer discussions, the run rate that we saw in March, some encouraging April awards that we've seen and a higher backlog at the end of Q1. And so it's going to be important that we continue to accelerate the nuclear and the broader project activity in the second half of the year without a doubt. But we think that the fundamentals are there to drive that type of revenue expansion.

We'll now take our next question from Steve Volkmann with Jefferies.

I just don't understand why the MRO business started out the year as weak as it did. Was it sort of related to weather or specific projects? Or just maybe a little more color on that.

Yes. I think, again, this is mostly a North America phenomenon. And it really depends on buying behaviors and budgets and January is always a little bit like an interesting time for us in terms of will the customers start to spend money straight out of the gate or not. And so I don't think it's highly unusual, but it lasted a little bit longer than what we were anticipating and expected. And so this is -- think of like the large installations around the U.S. and just not spending that amount of money that we were expecting in the Jan-Feb timeframe. And again, we saw that start to pick up in February, and we're at a healthy level and at expectations and then in April, we had -- we're continuing in April, but so far, we've seen some really good numbers with our April to date -- month to date.

Okay. All right. And then maybe switching maybe to Amy, question, but how should we think about the opportunities for SG&A leverage? Is there anything you can do to reduce SG&A, maybe specifically in FCD, but more broadly, if appropriate?

Yes. So certainly, as we took a look at volumes coming into the year, we're focused on making sure SG&A is scalable. We think that we've got the right organizational structure with that. But certainly, the start of the year has made us sharpen our pencils to make sure that we're doing all that we need to do from an SG&A perspective. I would expect sort of flat as we make our way into the second quarter of the year with volumes coming up slightly from a revenue perspective, which will improve our leverage from an SG&A perspective and continue to improve over the course of the year.

And I'd say, look, we're always looking at ways to drive efficiency and cost reduction and this year is no different, and we'll continue to make sure that we're driving our SG&A as efficiently as possible as we think about what's in front of us in 2026 and beyond.

We will now take our last question from Amit Mehrotra with UBS.

This is actually Zack Walljasper on for Amit. Just one quick question on margins. The adjusted gross margins, how much of that maybe was benefit from the onetime versus the 80/20 just trying to kind of parse that through to. And then -- since we talk about the MRO, what about -- has any of your customers maybe changed any total shifts on maybe like new capacity and new additions like any kind of tangible examples or anything you can kind of speak to.

Yes. I'll hit the second part first, and Amy, you can hit the margins. And I'd say if we think about a global basis, we operate around the globe and have customers in all different parts of the region. And with the dynamics in the Middle East, we're seeing some really interesting times in terms of folks trying to think about expanding capacity or doing things a little bit differently or potentially accelerating projects, and a lot of this is around energy security and making sure that, that country has the energy that they need to move forward.

And so I think, again, incredibly dynamic time, but we're seeing things that we weren't expecting in the year. And customers talking about doing things differently about increasing capacity or actual expansions and even new projects. And so again, we're early days in terms of the conflict and what that means for the rest of the world. But right now, we're pretty optimistic that we'll start to see some different types of work that we weren't expecting at the beginning of 2026.

Yes. So Zack, excluding tariffs and the tax authority item that we discussed. We -- gross margins were above 35%, so 35.1%. So expansion of about 160 basis points year-over-year. I will just say that as we look at the impacts by segment and look at the 3 big items that we talked about, IEEPA tariffs, the tax authority impact and the Middle East disruption. Those items pretty much offset in FPD. So the FPD margin, absent those 3 items is kind of what we reported from an FCD perspective, there was benefit from the tariff that is baked into those numbers on a net basis.

It appears there are no further telephone questions. I'd like to turn the conference back to our presenters for any additional or closing comments.

Thanks for your time this morning. As always, the Investor Relations team is available to discuss if you have more questions. And if not, we will look forward to speaking with you again following our second quarter.

And once again, that does conclude today's conference. We thank you all for your participation. You may now disconnect.

I'm really excited for our next presenter. Next up, we have Flowserve. Based in Irving, Texas, Flowserve is a leading manufacturer and aftermarket supplier of comprehensive flow control systems. The company operates in 2 segments. Flowserve Pump Division and Flowserve Control division. Flowserve's portfolio of products consist of pumps, valves, seals and automation that serve various end markets including oil and gas, chemical, power generation, wallet management as well as certain general industrial industries.

Today, it's our privilege to have Amy Schwetz, Flowserve's CFO, to represent the company. Amy joined the company in 2020. Prior to joining Flowserve, Amy was at Peabody where she had various -- held various positions with increasing responsibilities and accumulating a CFO there.

Flowserve has 130 million shares, trading at around $92 for a $12 billion market cap. Pro forma for the acquisition of Trillium and Valves division, which was announced recently, $1.3 million of net debt and the company's total enterprise value is $13.2 billion. Amy, do you have any opening comments before we go to questions?

I'll just maybe start with a couple of things. One, Simon, thank you for hosting us again. We wish we were with you, in-person. We had flights booked and the weather didn't necessarily cooperate as we look to travel this weekend. So thanks for accommodating us virtually. I have to say in your opening remarks, it's pretty exciting to see where Flowserve has gone over the last 12 months. I was there with you in-person last February at the symposium and those market cap and enterprise value numbers sounded a little bit different. And so we're excited about the progress that we made over the course of 2025 and really excited about continuing to add value for our shareholders in 2026.

Great. Let's just start with your last guidance for 2026. The company sees organic sales growth of 1% to 3%. What end markets are you seeing strength and weaknesses? And I know 20 -- 80/20 has suppressed some sales growth, when would that come to an end?

Yes, you're absolutely right. So if we look at our organic sales growth, particularly in the first half of the year, very muted. And so 80/20 represents about a 200 basis point headwind for us in the first 6 months of 2026. And so we're looking at really flattish revenue, organic revenue in the first half of the year and maybe in the first quarter, even flattish, flattish to down, as we make our way through the second cycle of 80/20.

As we progress through 2026, we see that outlook changing based on what we see in the project funnel as well as our strong aftermarket franchise that we have in the business. There's areas of our portfolio that are performing extremely well in the current environment. I'm sure we're going to talk about power gen and nuclear. And so I'll highlight that, and we'll talk about it more later. General industries has become a real strength for us. And so we see the project funnel as we look at industries like water, mining, pharmaceuticals as being a fast grower in 2026 as well.

And then as we look at our more traditional markets like chemicals, pretty flat outlook for 2026. It's an area that we saw some growth in 2025, off of a muted base, but we don't see that market taking a back -- a step back, but we see that as being relatively muted. And really, with respect to our Energy business, that's primarily downstream aftermarket business. And so in that, we're less focused on kind of the outlook of the industry and more focused on our ability to continue to keep our downstream customers up and running and our ability to capture market share.

Great. Aftermarket bookings and revenues has been a bright spot for the company for the past few years. What's driving the strength in aftermarket? What initiatives are in place to maintain that pace of $600 million per quarter in bookings. And can the company maintain this pace despite weaker OE bookings?

It's a real source of pride for us, Simon, within the organization, and it's not happened by accident. It's something that we recognize kind of going as far back as our 2023 Investor Day, when we talked particularly in FPD about our focus on aftermarket and how we serve our customers. And so I'll start out with something that's really core to Flowserve, and that's our network of Quick Response Centers around the globe, which give us that proximity, the relationship with our end users and put us -- and put Flowserve in a position to be first to mind to those customers for their aftermarket needs.

But it doesn't really end there. We recognize that within aftermarket, the mantra is really speed matters. And that is everything from speed to quote, to speed to delivery that constant interaction with our customers, and that's an area that we've invested in over the last several years in terms of quoting tools to assist our sales engineers in the field, which has taken our quoting time in some instances from a couple of days to a couple of hours or maybe even less than that in terms of what we're looking at. So it's been a concerted effort, over time. I would say the other piece of this that has really changed with the way that we look at the aftermarket business, and we've talked a lot about this, and it feels like it's going back in history here, but the reorganization that we did a couple of years ago to really couple our aftermarket business unit under the same umbrella as our product business units has really led to that connectivity when we're doing original equipment bids to understand what that aftermarket annuity looks like to set the sales team up to serve that aftermarket, immediately after that equipment goes into service, and to make sure that we're making the right decision in terms of how we quote and how aggressive we get in the original equipment based on that aftermarket annuity.

Right. About 6 months ago, you laid out the market opportunity for nuclear. Flowserve booked about $400 million in nuclear orders in '25, about 8.5% of total booking. As we look into 2026, what's a good -- what's the company outlook for nuclear order? Is $400 million a good run rate for the company?

Yes. So I would say, over time, we see that run rate escalating from the $400 million that we saw in 2025. If you ask me a 24-month number, I would feel a lot better and more confident saying that we would be higher than that $400 million on a run rate basis because these orders can be quite chunky and obviously, are very complex and can change.

But this nuclear component, and I would say the power element of our opportunity funnel has grown at double digits year-over-year. So this is really an exciting opportunity for us within the nuclear side of our business. We continue to serve that installed base on the aftermarket side. That's about $100 million plus a year of just sort of routine maintenance that we see. And then there's 2 other areas or maybe 3 other areas that we're starting to see work within the nuclear industry.

The first is on new builds and actually both 2024 and 2025, have seen bookings from new builds that have been announced in Europe. We see more of those to come in that region in 2026. We also have seen life extensions play a pretty significant role in our -- in what our bookings look like from nuclear. And so as electricity generation needs have grown, we've seen decisions made on plants that were set to close that have now extended past their original expected useful life, and that results in a pretty substantial amount of work that needs to happen within those facilities.

And we've seen a lot of that happen within North America. And then the final piece that I'll touch on, which is really nascent, but something that we're continuing to follow closely and work with partners is around SMRs. And so we were really pleased to announce in 2025, a couple of relatively small, but we felt the meaningful footholds in the SMR space around bookings for prototypes. And so we continue to watch that space and be excited about it.

Can I get an understanding how that order flow to revenue for the company than nuclear orders how much nuclear revenue do you generate now? And how meaningful can -- how big can this business be in 5 years?

Yes. So as we think about the nuclear business today, we're low single digits in terms of percentage of revenue. So think maybe 3% to 5% of our revenue right now is generated from our nuclear business. In 5 years, I think that, that number is going to grow somewhere to 7% to 10% of total revenue for Flowserve, could tick higher depending on what's going on at that point in time. And then if we look out longer as we start to see sort of that big opportunity that awaits us in probably the second 5 years of the next decade, I think that, that percentage of revenue could grow as high as, call it, 15% based on our existing product portfolio.

Now the nuclear margins, how does that compare to your corporate average?

Yes. So this is one of the reasons why we're so excited about this piece of the business. Obviously, quality matters substantially in this space. And so this isn't an area where we see subpar margins on the original equipment side. So we see OE margins at our sort of corporate gross margin and operating margin average and with the aftermarket that clearly ticks higher. So on par with the rest of our aftermarket business are slightly higher, but this is a very accretive business for us over time from a margin perspective. .

Amy, you mentioned fleet -- existing fleet life expansion, the U.S. nuclear fleet are seeking what 8-year license extensions. What is Flowserve's share of the existing U.S. and European fleet that you currently service? And what's the estimated replacement and upgrade market for these products?

Yes. So it's a pretty exciting opportunity that's out there in terms of just our existing installed base. So in the third quarter, we lined out what the opportunity is that exists out there for us over the next decade within the nuclear flow control space. It really does start with our installed base. So today, Flowserve is in about 75% of the nuclear installations around the world. We have equipment. Now some of that -- some of those countries, we don't anticipate that we're going to participate in their new build out if that occurs.

So for example, China, Russia, we have Flowserve content in those countries today. We continue to service China on the aftermarket side, but don't necessarily expect to participate in the new builds. Obviously, with sanctions in play, Russia is not part of our revenue base today. But the opportunity for us in terms of the North American installed base is is substantial.

So we really play in all the plants that exist in North America today. And so something we're really excited about continuing to service that portfolio. Same is true with respect to Canada. And so as we look at those upgrades, it can vary in size kind of anywhere between the $20 million and $50 million mark in terms of upgrade of those facilities. And so a pretty substantial opportunity for us as it flows through the system.

One more question related to nuclear. You recently acquired Trillium Valve division, which adds about what $200 million in revenue to Flowserve with high-teens operating margins. What attracted you to Trillium? And why is it a strategic fit for your company? And then you didn't disclose cost synergies in your last -- during the announcement, what kind of cost synergies you're expecting to extract from this acquisition?

Yes. So this is what we're really excited about, Simon. Trillium Valves is -- has a really substantial foothold in the power generation segment broadly. And so about 70% of 2025 bookings were in power. Over half of that or 40% of total bookings were actually in the nuclear space. And so as we talk about the opportunity that exists for us in the future in terms of nuclear, this is a nice complement to our product portfolio, which is already pretty substantial.

And so as we think about what the opportunity exists like out there. We've said per nuclear reactor, about $100 million of opportunity for each new reactor over the next decade, Trillium increases that content by 15% to 20%. And so you can see kind of what that does for us. We're playing with the same customers. We're talking to the same parties. Have an installed base that overlaps. But in terms of the content, it's incredibly complementary.

So you referenced $200 million. That $200 million marker out there gives us the opportunity to address some 80/20 elements that are going to be important to us in terms of integration of Trillium into the Flowserve portfolio, and that's going to be at high teens EBITDA margins. And so accretive to Flowserve's overall margin. This is an acquisition that we actually are doing for market foothold reasons. We like the position that it gives us with the market and how this will allow us to serve our customers.

So it's not one that we actually justified on huge cost synergies. That said, we believe that they are there. We think that this made sense to Flowserve, specifically, in terms of an acquisition because of the opportunity to address, both at administrative costs, supply chain, taking a look at footprint over time, there are going to be opportunities there, and we're going to look to further educate the market on our views on those in sort of upcoming events.

Great. I'm going to pause here to see if we have any questions from the audience?

Amy, you've done extremely well. Congratulations to all of your teammates. You had another deal with another company from -- let's that place called Houston. And when your stock is where it is today, the investment bankers, if I look over your right shoulder, I see them in the Street there trying to race up to your door with proposals for financing. I know you don't have a high debt to EBITDA, but what's your current thinking about locking in some 0 up 30 type debt to do your next transactions.

Yes. So I think we're pretty excited about the strength of the balance sheet today. We think we're in a good position to really look to grow. And we've got ideas of how we can do that organically. Trillium is a great example of a way that we look to do that inorganically. We also announced the small transaction in December of an aftermarket services company based out of the U.K.

We're going to be disciplined in the way that we allocate capital. We think that credit markets are open to us, but we do intend to protect our investment-grade balance sheet. But we think inorganic growth makes a lot of sense. And I think you saw with the transaction termination. We immediately brought $265 million of cash onto our balance sheet as a result of that break fee. And the team got busy allocating capital in the back half of the year in ways that we think added a lot of value. Over the course of of 2025, we bought back $250 million of shares at about $52, $53 a share.

We sold our asbestos liability, which from the CFO's perspective really cleaned up what needs to happen from a capital allocation standpoint going forward, improves our free cash flow. And then you saw us announce these bolt-on transactions over the course of December and January. I'm not going to say that we're going to be that busy going forward as it was in the back half of 2025. But I think it gives you a good idea of both the way that we think about M&A in terms of adding value, but also some other uses and things that we look at and that we're pretty holistic when we've got capital to allocate.

And I'd just say that in addition to credit markets being open to us, our free cash flow generation has been improving over the last couple of years. It's going to be -- it's going to continue to be a focus of ours in terms of making both improvements in profitability, which is the best driver of free cash flow, but also making sure that we're making the improvements that we want to see in working capital management.

Amy, thank you very much. Very interesting project you have. I've been watching your stock in the couple of times it's been going down. But today, it bounced back. Can you explain to me the reason, please?

So I think that this is a hard thing to do as a CFO, but I tried to look at the trends over weeks and months versus days and hours in terms of what's happening with the share price. I think that if we look at what's happened in our shares since, call it, October of 2025 to where we're at today, I think a few things have happened. I think, one, the investment community is starting to understand that some of the improvements that we've made in the business over the last few years are sustainable. And so as we look at our margin progression and where we've been and where we're going to, we've seen really steady progression and year-over-year margins.

You've also see us do that as we've undertaken other strategic activities. And so I think that the investor base has has gotten used to and believes that we are -- have some ability to multitask in terms of how we think about just taking care of the base business and the opportunity that provides in addition to doing things that are more strategic.

And then finally, and this maybe gone in reverse order here, but I think that as we think about growth in the future, our nuclear business and the foothold that we have in sort of fueling this nuclear renaissance, we've made that clear to investors in terms of the opportunity that, that presents. And so as we look at putting out targets for 2030, it's becoming clear to our investor base what are the areas that we can grow the business. And so our traditional markets, our performance in the aftermarket are something that they should expect us to do, but this nuclear opportunity is really something that could allow us and will allow us to grow at a rate that's greater than what you might expect to see just based on our traditional markets.

Maybe speaking of your 2030 target, you just achieved your 16% to 18% adjusted operating profit margin 2 years early. Congratulations. Now for your 2030 target, you introduced mid-single-digit organic sales growth and about 20% adjusted EBIT -- adjusted operating profit margins. That implies about a 320 basis point improvement from today's level. What are the drivers of that margin growth? And what are 2 or 3 assumptions in that model that can -- that if wrong would make the 20% unachievable?

Yes. I would say, Simon, more of the same. And so we've got a playbook that we started executing a few years ago, and we're going to continue to work that playbook. And it really all starts with the business system within Flowserve. And so I'll start on operational excellence. We're going to continue to keep the organization focused on this, trained on this. We're pretty excited that our Operational Excellence Academy within Flowserve is trained over 4,000 associates over the last few years in areas around operational excellence, like materials management, like problem solving, that really gets to making decisions at the right level of the organization.

I will add to that over the last couple of years and into the future. We continue to make moves and make improvements in our strategic roofline. And so slowly and methodically taking a risk-based approach, we have removed capacity from the system and transition work to where it strategically makes sense, whether or not that's in close proximity to our customers, in strategic places or whether or not that's in low-cost countries.

And so that's going to continue over the next 5 years. We've talked a lot about portfolio excellence in 80/20. Those efforts continue and start to become a little bit difficult to sort of unwind from operational excellence because the 2 are related. You free up shop floor capacity, and that allows you to either move things in or move things out from a roofline perspective. We're simplifying the jobs that the teams are doing on the shop floor making those things clear and we're cutting off the tail of underperforming products.

And so those 2 pieces, combined, are really the blueprint for our margin expansion. I'll add to that, that our continued focus on aftermarket is something that from a mix perspective, has been a pretty powerful tool for us in terms of expanding margins. And so you're going to continue to see us do the right things in terms of investing in the original equipment installed base so we can grow that aftermarket over time. I'd say what is new or what is the piece that we're focused on at the enterprise level a lot is around commercial excellence and how do we grow the business at that mid-single-digit CAGR given the outlook in some of our industries.

And I think we've talked about nuclear, that's a big piece of that. Some of that 2030 revenue is actually already embedded in our backlog and certainly, we'll add to that over the next couple of years. But also how do we use data, a data-driven approach to continue to drive more growth from a commercial perspective for Flowserve. And it's something that I know Scott and I and our divisional presidents are really excited about leaning into this growth aspect of the business. as we make our way to 2030.

Well, our last minute, I want to check with the audience one more time, see if any more questions. Amy, this has been a lot of fun. Thank you for joining us today. We hope to have you in-person next year.

Absolutely. Look forward to seeing you in New York next year, Simon.

Thank you, Amy.

Thank you.

Get started again. We are really excited to have Flowserve Corporation with us. And we're particularly excited to have Scott Rowe. He's usually get around every year. We have this conference. So he's here with us today. He's the President and Chief Executive Officer of Flowserve. So I know Scott has some prepared remarks, so I'm going to go over to him, and then we'll go right into Q&A.

Great. Thank you, Andy. And it is a pleasure to be here for the first time in my 9 years, but it's because of our earnings call timing. That was not an issue. But we want to thank you and for Citi for hosting us and thank everybody here in the room today for coming to hear about the Flowserve story. So I've got a couple of slides. I'll be quick, and then we can jump into Q&A. We've got our forward-looking statements here. I'll skip that. Just 2 things on this slide. One, we've made incredible margin progression over the last couple of years. I'll go back to 2023, and Andy, you know the story well. In 2023, we did a couple of things that were incredibly formative.

One was an organization design, which oriented us to business units that were global around product family. That was the catalyst that allowed us to do some really cool things. And so that was also the launch of our business system. We didn't talk about Flowserve Business System externally in 2023, but that's really when we went live with it. And we saw a lot of incredible progress with the business system, and we'll talk through that in great detail. And then finally, the 80/20 program was formed in 2023, which we went live in 2024, which is also part of the business system. But 500 basis points of margin improvement over the last 3 years, culminating at the end of last year above what we put out was our 2027 target framework.

So with that, we thought it was appropriate to put out new targets, which a lot of our analysts, including Andy, were asking for. And so we put out new long-range targets. We did this in our earnings call a week ago. And so our framework for our 2030 targets are organic sales growth of mid-single digits. And so we've got a reorientation toward growth in the 5-year period, capitalizing on some of the megatrends in the market, continued margin expansion journey here, so roughly 100 basis points a year by 2030, getting us to an operating income of 20% -- and then adjusted EPS growth of double digits. So leveraging all facets of the balance sheet to allow us to really drive EPS growth into 2030.

And so with that, I will -- I'll turn it over to you, Andy.

Very concise, Scott.

So back to a slide that looks good here.

All right -- there you go. So I mean, you've been working -- you became CEO in '17, and you've been working on improved performance on for Flowserve for a while, but it just seems like something clicked in 2025, like 300 basis points of adjusted margin improvement. Your new guide, as you said, is 20% by 2030, and it contemplates 100 basis points a year. So that's pretty good, too. So what clicked in the performance in '25? Why do you seem so confident now about continued improvement going forward?

Yes. You say what clicked in 2025. It really is a longer journey than that, and it's about momentum. And [ Jim Collins ] uses the flywheel example, which I won't bore everyone with. But I would just say it's a lot of hard work and a lot of consistency with our messages, our business process, how we run the business, and it's really taking hold. And so it's a really beautiful thing to see internally. But I'll hit the 2 pillars that are driving margin expansion. So it's operational excellence and it's portfolio excellence, which is essentially 80/20. On the operational excellence, this has been a long journey. I mean we started some of the tenets with operational excellence back in 2018 with Flowserve 2.0. A lot of that's now -- we're training.

We've doubled down on that training. We've doubled down on how we run our facilities, and we're driving substantial productivity at all of our sites. And we're avoiding what I would call disruptive type events where you're leaking margin or you're hurting our customers and things like that. And so a lot of the conversations we are having in the early days are now long gone. And so that momentum continues to build. We continue to have greater competency within the manufacturing operations. And then we continue to lean out our facilities. And so leaning out the facilities allows for further roofline consolidation, which we did in '25 and '24.

And so it's just -- it's really working, and we've got a lot of people moving in the right direction that are aligned with our approach and our strategy. And then on portfolio excellence, the 80/20 program. So 2024 was the first full year that we did that. we had about half of our product business units in the 80/20 program. We spotlighted our -- in the Q3 earnings call, our industrial pumps division where we made a lot of progress. We put some of those facts and figures out there. But that was our early -- that was our first one. And in 2025, we had all of our product business units in the 80/20 program.

And so we're now fully in the methodology. We're moving forward with everybody. There's still opportunities because I'd say we're still relatively in the early innings. But in 2025, everybody understood the methodology. We're using the terminology. You could go in any facility in Flowserve around the world, and they're talking about the quadrant segments, our 8 products, our target selling accounts. And so we just have very strong alignment throughout the organization. And so yes, I feel like while 2025 was certainly an inflection up, it's not an anomaly, and we've got the platform that allows us to continue to build and progress forward, giving us the confidence for our 2030 targets.

That's helpful, Scott. And so I want to double-click on a couple of those things. So I think you've said commercial excellence is still in the early going. So what are you doing on commercial excellence? And when I hear that I feel like maybe reteaching sales force to do things, you tell me sort of what you're doing?

No. I mean it's almost exactly that. And again, we're picking up some of the tenets of Flowserve 2.0, applying it into the new framework of the business system and commercial excellence. But I'd say the foundation for all of the business system is training. And so we're starting commercial excellence with kind of a retraining of all of our sales force. We launched that midyear in 2025. And so we're kind of halfway done, maybe 40% done with that training. And so we still have some work to do. But that's all of our commercial teams trained in what we call practitioners of the commercial excellence framework.

And then from there, we start to build on account segmentation, target selling, pursuit plans, how do we leverage CRM more effectively? How do we know when we're taking market share and share of customer wallet. And so it really is a lot of the basics. But I think the basics in our business is really what can drive outsized growth. And so we're confident by really leaning in with the commercial team, investing in our organization. We've also changed our incentive plans.

That's helpful as well to get them focused on the areas, the products and the customers that we want to be focused on. We're confident that, that's going to lead to growth over the long term. And with 80/20, we're segmenting our products to our A products. And so we're really now focusing that growth on our A products and with our best customers.

Got it. And you did talk about footprint optimization. Like I feel like I mean I've covered Flowserve for a long time. There's always like factory a year, something like that, but it feels like maybe you're a little bit more optimistic because as you know, when you came, there was a lot of sprawl at Flowserve. So like it feels like you've got it, maybe the flywheel moving a little faster there. Maybe talk about what you're doing there that might be different than when you started on footprint optimization.

Sure. Yes. It's this one has been a long, long story. Flowserve has a lot of manufacturing facilities. We'll start with that. It was a series of acquisitions 25 years ago. And consolidation was always there. There were some big announced programs that we don't need to talk about before my time that some went well and some did not go so well. Since I've been there, we've identified further opportunities. Every year, we typically are doing 1 or 2 kind of facilities through the network. And I would say in the last 2 years on the back of operational excellence, -- and some of this has to do with IT systems and data cleanliness. We've got a bigger prize here.

And so as we're leaning out our facilities with 80/20 and taking things out, as we're driving lean operations with the operational excellence, we're freeing up capacity. And so as we see this capacity allows us to do things differently with where we think our optimal footprint is. And so we have a multiyear plan. And I would say every year, it might change a little bit because of geopolitics or where the tariff is or we can't chase that, but we do have a dynamic plan here, but we'll lock it in kind of 18 months out and then we start to execute.

And so last year, we did 2 very successful consolidations. This year, we'll have at least 2 on the plan. And I think kind of every year, you can see a similar type program for us. And at this point, even with our growth, we don't necessarily need to invest in a massive greenfield complex to expand capacity. It's still about driving efficiencies and leveraging the scale that we have, and we're confident that we can grow and do that together.

Excellent. And then just on 80/20 itself, a lot of times when I follow companies with 80/20, you kind of worry a little bit about growth because you -- some people will say firing customers, what have you. So maybe talk about the balance because like when I look at something like FCD, right, you've all of a sudden had quite good margin improvement, but the growth is still a little bit slower. So is it an inhibitor? How do you think about that growth versus margin?

No, it's a really good question. We're following -- I'll start with we're following the methodology fully. And there's a lot of different people that will talk about the methodology and what should the result be. And in theory, the revenue should not get impacted substantially. What I would tell you is the opportunity set at Flowserve was incredibly rich, and it's relatively easy once you segment the data to make decisions on the exit. And so where I'm going with this is there's a little bit of timing. You can make decisions fast on product exits and turning things off turning things on and investing in that growth takes a little bit more time. And so we're definitely seeing a headwind.

On our earnings call, the fourth quarter earnings call, Amy mentioned 100 basis points of headwind in the second half of the year last year, and that came through because of those exits. And then she referenced a similar kind of scenario for the first half of 2026. And so that will culminate in roughly revenue being flat to 2025 for the first half. And in the first quarter, we'll roughly be flat to maybe slightly down. And I would say most of that, if not all, is attributed to the 80/20 headwind. So another 100 basis points essentially. And so a great example here is we've talked about a modules offering within MOGAS..

That got 80/20 out very quickly in our integration, and that had a lot of revenue content in Q1 and Q2 last year. And so that's gone. With that said, though, now as we've kind of continued to prune that portfolio, our efforts are going to the A products and our best customers. And so we put -- in Q3, we put a data point out there around industrial pumps and growing at over 20% with our target accounts. And so where we're focused, we're starting to see that growth. And so I believe over time, you start to see that outsized growth coming through, both on the back of 80/20 and commercial excellence. And this is what gave us confidence in our 2030 target of mid-single-digit growth.

Yes, that's helpful, Scott. And just on '26, right, like to your point, you're going to have a second half acceleration in revenue. How much of that is just kind of like 80/20 evolving into less headwind versus something else in the market or something?

Yes. I think -- I mean, we gave the number. It's about 100 basis points of headwind on the first half of the year. And so call it half and half. And then I'd just say the other part of that is project timing of bookings and when they come through. That will generate -- we believe that, that's going to help us or be a tailwind in the second half of the year. And I'd say that what's steady is the growth rates within our aftermarket business. And so we're growing the aftermarket business at kind of mid- to high single digits.

We'll continue to grow that. Essentially, for those that are -- we have a massive installed base of pumps and valves. We have 2 teams, pumps and valves, very, very focused on improving our capture rate, harvesting our installed base and growing that aftermarket. They've done a really nice job over the last 2 years, and that will be a nice kind of steady towards our growth in 2026 and beyond.

Don't worry. We'll get into aftermarket. It's I did want to ask you about FCD, maybe somewhat similar to the question I asked you before, but like FCD was stubborn to improve, I'll call it. And then in the last couple of quarters, has really broken out. I think you already said like FCD was later into 80/20. So we get that. But again, what sort of happened to like have that Eureka moment there? And then as you think about the 20% new target for 2030, do you think that both FCD and FPD have equal margin potential to get there?

So we'll start with FPD, but I'll answer your question. FPD has done a remarkable job, right? They fully have committed to the business system, both operational excellence, portfolio excellence. They were the first division/business unit to go on the 80/20 playbook. They've done everything that we've wanted and more. And so the org design, the 80/20 OpEx has all worked really well. FCD has been a little bit of a lagger. Some of that was deliberate. And so we pushed them kind of in the second phase of 80/20 versus the first phase. I'd say they're probably 12 months behind, but the playbook is exactly the same. If you went into an FCD site or a valve site versus a pump site, you wouldn't be able to tell the difference in terms of how we run the business, our shop floor daily management, how do we talk 80/20, how do we talk strategy deployment.

It's all the same. And so we're super confident that FCD continues to move on margins. You saw a substantial improvement in 2025. And so I just think that, that's -- we have the blueprint. We know what we need to do. We'll continue to see progress there. We did some pretty heavy lifting on the facility consolidation for FCD. And so you'll see that work through. MOGAS synergies came through exactly as we anticipated, maybe a little bit more. And so you'll see the synergy number continue to play out in 2026 and beyond. And then quite frankly, you're picking up Trillium, which will have nice margins that help us there and incremental cost synergies in that business. So we feel really good about the runway with FCD. But yes, it's about a 12-month delay to what we've seen with the pumps division.

Got it. And then, Scott, maybe one more on margin. pricing, especially on projects. In the past, I used to think of projects as much lower margin. It seems like that's improved significantly over time. Is that true? And then can you talk about how investors should look at Flowserve's price versus cost in the current environment? There's still inflation pretty choppy on the commodity side. Do we worry at all about tight electronic supply chains, things like that?

Yes. So I'll start price cost. I'll come back to project pricing. So 2025 was a dynamic year. Like -- I mean, I would have never thought some of the things that we dealt with that we were working through. And I just want to say thank you to our supply chain team and our commercial team for working in an incredibly dynamic environment, shifting supply around the world and then having difficult discussions with our customers on pricing. With that said, we ended up in a really good place on price cost at the end of 2025. And so we've got better visibility and a better handle of our supply chain than ever before. We continue to make amazing progress there. One thing that I failed to say earlier, we started to do some 80-20 principles with our suppliers, and that's helping further margin expansion, but it's also helping us with just certainty.

And sorry, I'm throwing out nuggets now, but you'll like this. So we look back -- we look at our supplier count versus when I started versus today. We've reduced suppliers by 50%, which is not surprising to you, but for some people, that's probably surprising. But we've done a really nice job continuing to rationalize and getting focus. And back to price cost is if you're working with our best suppliers, if we're giving them a healthy amount of business, it's a lot easier to have these type of discussions with them in terms of balancing our load or shifting our load.

And so I feel really good about our ability, our visibility with our suppliers, our understanding of cost, our ability to pivot around the world and continue to be in a favorable position on price cost. So now let's go to project pricing. And when I talk project pricing, it really is pumps projects. These are the big ones that historically have not had any margin or lower margins. Since we announced the business units and the focus on engineered pumps, we've been really careful about what we're calling selective bidding. And so we've chosen to do less. With that said, the margin is substantially different than what we've ever been since I've been at the company.

And so -- we were talking about gross margins, Andy, I think, in maybe a 10% number and sometimes they were even lower before my time. But that's over now, right? I mean I don't -- there's -- occasionally, we would approve something that would be below a 20%, but that's really rare. And so we're now -- our original equipment margins are in a healthy place. Now we would like those to be higher than 30%. But what -- in this business, this is what drives our aftermarket. So there's a kind of a whole life cycle type look here. We look at the original equipment. We look at that customer and that site and how confident are we in getting the parts and the service work.

And we look at kind of a 5- to 7-year type return that generates above what we call accretive to Flowserve on a returns on a margin basis. And so we're incredibly deliberate. And so we call this selective bidding. We've reduced the number of opportunities in the funnel. We work with customers. We know that we can get aftermarket -- and then we're more focused on the front end and getting our cost right. And so making sure that we have a fit-for-purpose offering for our customers. But this has been a big win since 2023 and the formation of the Engineered business unit. The team has done a really good job, and we believe we can continue to grow and have healthy margins in this side of the business.

Yes, that's good to hear. I'm going to open it up to the audience in a second. Let me ask you one more question and I'll open it up. You mentioned aftermarket, so let's talk about that a little bit. I think you said the possibility for mid- to high single-digit growth. I want to understand that a little bit more. It seems like you have turned the corner to your installed base. And I think I remember, I covered Flowserve for too long. I think I remember you basically didn't have the data. Now you kind of have the data. Like is that -- I assume that's one big difference. What are the other big differences over the last few years so you're able to capture your installed base more?

Yes. So I'll start with Flowserve has hundreds of years of putting pumps into the market. There are pumps out there that are close to 100 years old. I found one that was 70 years old here recently. which was amazing to me. But the fact is we have a massive installed base. Our customers want to come to us for repair and service. The one, we have to know where it is. So data cleanliness, understanding where our product is and how we can help our customers is important. The second biggest factor is speed. And so if we can quote within hours, if we can do our turnaround in days and not weeks and months, and we can be incredibly responsive, then we get that work.

And so our capture rate has moved up a couple of hundred basis points over the last 2 years. We're confident that by continuing kind of our -- we call it the speed Wins campaign, we're confident that with continued kind of quoting a little bit of e-commerce configure price quote tools that help us do this very quickly that we can continue to grow this business. And so we believe kind of mid- to high single digits is a good range for our aftermarket growth. And again, we've got the largest installed base in the world on both pumps and valves. And this allows us to do some things that are pretty exciting for our customers to support their operations.

I've been to a couple of your QRCs, your quick response centers. Have they -- have you improved them more lately? Like is that part of this, too, as you've got them better?

For sure. Yes. I mean they run on our operational excellence playbook. It's different than our new manufacturing. It has the tenets of aftermarket and speed, but the consistency is the same thing. And so -- we have a version of shop floor daily management. They know who our best customers are, our strategic accounts to target selling, and they're running on a very disciplined playbook. And so that improvement allows us to do things differently. It's improved our utilization of our service techs. It's allowed us to move margins up. And quite frankly, it's allowed us to quote and move with speed when we do service and repair work.

Just one more on that. Is the QRC count staying stable? Is it growing?

Roughly stable. I mean we're kind of in that 150-ish number. I'd say every year, we're adding 1 or 2, we're taking out 2 or 3. But I think we're in a good place right now. I don't think that changes dramatically. And so while we have the opportunity on the original equipment manufacturing to come down, this is an area where proximity to our customers is super important. And quite frankly, to stand up a QRC is a minimal investment. It's not capital intensive. And typically, you're running something new with, call it, 10 to 15 type associates in that workforce. And so we'll -- when we can sign a long-term service agreement or we've won a big project and commit to that support, we're happy to stand up a quick response to them.

Got it. Any audience questions so far? I'll keep going for now.

So you have more.

So I think you mentioned -- I think you mentioned on the stage, the second half rebound in original equipment bookings in '26. It seems like -- I mean, you tell me, it seems like one of the big opportunities in terms of inflection is Middle East, but maybe you can talk about visibility into an OE inflection, where is it coming from?

Yes. So we feel the end markets are reasonably constructive. I'd say geopolitics is a big issue. And for larger projects, our customers want stability. They want to make sure they can get a financial return on their investment over many, many, many years. And so I'd say there's a little bit of a wildcard there. With that said, we feel the end markets are constructive. I'll come back to power. I'll just say in our kind of most of the end markets, we're seeing growth. I was in the Middle East in late January, early February.

We saw lots of customers, and we didn't have the biggest year last year on Middle East projects. We see a nice healthy growth rate here. And so for us, we're involved in a lot of different programs and different customers in the region. Those programs are adding expansion. So they're adding a train or they're adding more capacity or they're doing something different to change the dynamics of that production unit. And so we're already in. We have equipment there. We're going to win the next phase. It's just a matter of timing.

And so 2025 was a little bit of pause because a lot of capital got deployed in '23 and '24. We see a lot of plans and activities for 2026. And so I wouldn't call this a record year in the Middle East. But certainly versus 2025, we see a healthy step change. And so we feel reasonably confident on that. Picking what quarter this will happen then is always a challenge. It's really difficult, as you know, Andy. And so I would just say right now, we believe it's more second half weighted. There could be projects in the second quarter, but I think second half weighted is probably an easy way to say it.

Got it. And then I want to talk about power and nuclear a little bit, but maybe we're weaving into this question because you're targeting, as you put on the slide, mid-single-digit organic revenue growth through 2030, but it does require, I think, a pickup in backlog burn from your nuclear projects as well as some general recovery as you just talked about in markets. So when you look at what other markets we know you're counting on nuclear to burn faster. Any other markets that need to sort of do better to get that mid-single-digit revenue growth?

We'll -- I'm sure we'll come back to nuclear. So let's park nuclear. Traditional power is super exciting for us. So we're seeing traditional power grow. And so whether that's coal-fired power plants, natural gas, other forms of power. We have a lot of content in that. It's not as high as nuclear, but it's something that we have a massive installed base in. And so as our customer base looks at re-rating that power plant, expanding the capacity of that plant, we're picking up work. And so we see healthy growth rate there.

Those projects are a much shorter window than a nuclear project, less than a year in terms of our shipment deliveries. So that's a growth area that we're super excited about. General industries has performed incredibly well for us over the last year or so. We still see structural tailwinds in terms of growth within general industries we're continuing to kind of evolve our portfolio into a more general industry type look and feel. And so we're excited about what that can do as well. And so I think those are 2 areas that should provide nice steady growth for us as we go forward. And I'd just put water in the general industries category. That's something that -- while it's not a huge lever for us, it's a meaningful part of our business, and it's something that we definitely see growth in.

And it reminds me to ask you about your 3D strategy, right? Like I think power has kind of overshadowed 3D a little, but it is kind of part of 3D, right, it's diversification. So maybe where have you been successful in diversification, decarbonization? Where have you been successful? How has the program evolved?

Yes. So our 3D strategy for those that aren't aware, is diversify, decarbonize and digitize. We've been running the strategy now since 2023. It's been -- well, 2022 really and then 2023 externally. It's been helpful, right? It points us in the right direction for opportunities. It allows us to focus our organization. It's easy to talk to our customers because we're aligned with what they're trying to do. And so if we go back to some history data points here, Andy, when I got here, oil and gas was 40-plus percent of our overall offering. Today, we're just over 30%. We call it energy now. We don't call it oil and gas. And we've migrated out of upstream oil and gas almost completely.

Our energy business now is roughly, call it, 85%, 90% is downstream and refining. And so that gives us a lot more stability in our ability to work through any type of cycle that's out there. And so I think that's tremendous progress. We have more work to do. Ideally, our energy exposure would be somewhere between 25% and 30%. We'll continue to acquire in diverse industries to round out our portfolio and become more balanced as we go forward. But that's been a big win. And so the teams are very focused. Our new product development efforts are anything on the business development and customer account generation has all been on the diversified side.

On the decarbonization lane, we picked up a lot of work as customers are really focused on their ESG programs and carbon emissions. We're still doing reasonably well there. The world has changed though, and it's not what it used to be. And so while we had a big prize on hydrogen and some of the other concepts that were out there, that activity is just not there. But we are well positioned to do flow control in a decarbonization environment. We can debate where you put nuclear. If we put in decarbon, it looks great for us. I would say outside of nuclear, we still feel carbon capture is something that people are very focused on more in Europe and the U.S., but we're still winning work on the carbon capture type opportunities. And then on digitization, this hasn't gone as fast as I would like. But what I would say there is we do have the best technology in the world to monitor and predict on pumps and valves in the flow control space. And so our offering, RedRaven is proven.

We've got 2,500 customers or 2,500 installations out there that we're monitoring, we're able to predict. The more data that we have, the better we get. And so we're excited about what we have. We just need to unlock this into a step change in driving growth. And I'm happy to expand a little bit more on that if you want. But it is something in 2026 that we're now seeing as a profit center, which is something that I wasn't able to say in the years past. We'll continue to invest here, but we also believe there's a substantial growth in revenue that could, in theory, generate some very high margins on a more of a kind of a software and a subscription type basis.

Got it. So if energy becomes 25% of the business is -- does most of the business you think go to power, so power is 20% or something?

I think power on the back of nuclear starts to accelerate at a very meaningful rate, and then general industries is the other one.

Got it. Okay. I want to get back to digitization in a second, but let's talk nuclear for a second. So you've talked about $10 billion of nuclear power bookings opportunity. You booked $400 million of $4.7 billion bookings in nuclear in '25. So how do you think about nuclear bookings ramp from here? I mean you just bought or announced Trillium. I think that's going to help you. As I think about the ramp-up, would it be like a typical bell curve? Or could your content be higher or lower for SMRs? Like maybe more color on sort of how you think this is going to ramp up?

Yes. I'd say, first, we're incredibly excited about nuclear, and I'll go back a little bit. Flowserve has equipment on 75% of all reactors in the world today. We don't do well on new China reactors. Those are typically Chinese OEMs. Outside of that, we do incredibly well. We're locked in with the biggest customers. So I think EDF in Europe, Westinghouse in the U.S., all of the other ones, the CANDU reactor in Canada, GE, Hitachi, we're heavily involved in. And so we've got strong customer relations, proven products and then most importantly, the certifications, both with the government or the regional kind of associations that dictate the licensing, but also with the customers.

And so we're in a very, very good position to basically be a part of this renaissance in nuclear power. Going into some of the specific numbers, we did $400 million last year. The majority of that was on the back of life extensions and basically power rerates and basically extending the life of current nuclear assets. That work will continue to accelerate. And so we see that growth rate continuing both in Europe and in the U.S. And so we feel really, really good about our ability to support our existing customers and helping them with whatever their plans are with those existing sites. And so that's a lane that we feel very confident in the ability to grow. And the revenue conversion cycle there is a lot better than what I would call on a brand-new greenfield reactor.

So if we go to greenfield reactors, similar to the Middle East, it's very difficult to pick project timing on this. There has to be a lot of factors that get aligned with governments and customers and an end user to ultimately pull the trigger on a new reactor. With that said, I fundamentally believe that this will happen. And I think there's going to be an inflection point -- a substantial inflection point in growth. There's a lot of public figures out there in our estimates, that we built our $10 billion prize to in 10 years. We use this what we call kind of the middle of the road public estimates on this. And so if we take that to 2026, it's difficult to say how many new reactors will go forward.

We don't necessarily have the new reactor build-out in our plans, but it is upside to our plans. And so I think there's a scenario where the U.S. moves on a handful of reactors. There's a scenario where Europe progresses some thinking on new reactors as well. And so our bookings could go up nicely on the back of that. But again, it wasn't in kind of our guidance or in the way we were thinking about our commitments in 2026. And so let's see what happens. We're in meaningful discussions with all of the right players. And again, if a reactor moves forward, Flowserve will be involved there. And then the third leg of our nuclear strategy is SMR. And so we've been working with what I'll call a smaller set of SMR customers that we believe have the ability to commercialize their offering and are using the technology that would support more flow control content. We have very good relationships.

In some cases, we have signed agreements. We have booked work, both pumps and valves in terms of doing a lot of the prototyping and the testing on kind of serial #1 units, and we're starting to move into what I think is what will be production or commercial SMRs. With that said, there has to be government alignment. Customers have to be buying the takeoff of the power, which I think will happen. I'm not worried about that. There's some big players out there. But there's just a lot of things that have to happen for that to take off. And so I'm optimistic that, that ultimately happens. I just don't think it's a meaningful part of our 2026. But I believe beyond 2026, it's an absolutely unlock for some of the challenges in power around the world, quite frankly.

So we are leaning in on these partnerships, and we're doing everything we can to secure our pumps and valves in the critical components of the SMR. And then I'll finish with Trillium because it's important. And so we announced the acquisition of Trillium's valve division, which is important. We're buying the valves. It's a carve-out of a company. But those valves increase our content on a new nuclear reactor by somewhere between 15% and 20%. And so what we put out in the third quarter was a new reactor is roughly $100 million of content. Now with Trillium, we think it's $115 million to $120 million per reactor. And so we're excited about that.

In the valve side, we've got the mainstream isolation valve, which is essentially the critical safety valve -- that's the one a lot of people talk about. It's what our customers are very focused on. We believe by leveraging that relationship and that expertise, we're going to be able to pull in the Trillium products here. It gives us roughly 4 new product lines to put in front of our customers. They have existing business. They're locked in. They've got the certifications around the world. And so we're very excited about the growth potential within our ability to kind of package this nuclear offering as we go forward.

I think you answered my next question about Trillium revenue synergies. So -- but like -- on the cost side, I mean, you mentioned it's a cost carve-out. So not much in the way of traditional costs. Is that the right way to think about it?

Yes. It's under private equity. It's a carve-out. So there's no corporate costs. There's no -- there's none of that. With that said, though, there are cost synergies. And so we'll move quickly on supply chain. There may be a facility consolidation. There's some other stuff on some of the headcount on our side and their side. But I would say the focus is more around growth and really starting to think about our valves as a portfolio that we can put forward to our best nuclear customers. And then with that said, it's not just nuclear. And so their end markets today are roughly 70% power, 40- 30 nuclear versus traditional power. And so we believe we can grow in the traditional power as well with the Trillium offering.

Got it. So ultimately, when I think about the $10 billion that you talked about, your share potentially of that could be very, very high and even higher with Trillium.

Yes, for sure. I mean our share today is very high. There's a handful of peers that have the certifications to do the nuclear work, and we're in a great position. And by adding Trillium and the certifications in those products, it only increases. And again, it's a meaningful -- we are $100 million of content, so to go up 15% to 20% is something we're pretty excited about.

So we're starting to run out of time. So let me ask you a couple of other quick ones. Like you mentioned general industrial a couple of times, and it's hard for us to know exactly what's in there, but it feels like it's a short cycle, shorter cycle for sure.

Shorter cycle configure products.

So have you -- it seems like you've seen maybe some decent improvement there. Maybe talk about that and could it have a continued decent runway for growth?

Sure. And again, this is under diversified. We've deliberately oriented to general industries. And this is things like water, it's mining, other industrial applications and really making sure that we have a more configured product that we can move quickly with at the right price to support our customers. And so we do well in this historically. We just got to continue to focus and drive that up. But there's a lot of opportunities in North America. We're seeing opportunities in South America, a little bit in Europe as well. And so we believe there's continued growth here. And we believe that we've got the technology and the know-how across any flow control application. So taking some of the existing designs and products and reorienting into attractive end markets is something that we know we can do.

Got it. And then just on RedRaven, you mentioned it's profitable this year. You have, I think, an MOU with Honeywell. Is that part of the reason why it could start to proliferate? Or like how do you think about that technology over the next 2 years.

So this is our Internet of Things or IoT offering where we have the sensors, we instrument, we collect data, we monitor, we predict unplanned downtime. And again...

We didn't sell a lot of software just by itself.

No, we don't. We don't have that. This is only on the back of our installed base. With that said, like we believe and the Honeywell MOU validates, we believe we have the best technology in the world here. And so we're getting good validation. We've got 2,500 assets that are instrumented. We're collecting data. We've got monitoring centers. We're doing some really good things with our customers. We're using AI to help us with the data and making sure that we can continue to evolve the offering. The Honeywell partnership is important as we were going to our end users one by one saying, "Hey, we can instrument your pumps and valves.

Our customers were saying, that is amazing, and we want to do this, but what we can't have is a different technology for pumps and valves and a different one for compressors and a different one for fans and blowers and et cetera, et cetera. And so that's when we started to talk to asset performance management partners like Honeywell and saying, "Hey, we believe we've got the best technology within flow control. Can we put this on the back of your asset performance management and maybe do something together. And so we signed a partnership with Honeywell. We are talking to other asset performance management, and we believe that this could be the inflection for us.

And so if you think Honeywell Forge comes in to a large site, so pick chemical plant refinery, whatever, they're going to manage that entire site. We'll pick up all flow control equipment. And so all pumps, whether they're Flowserve pumps or competitive pumps, all of the valves and then providing a substantially enhanced service than what we could have done alone. And so -- we're very excited about this. We hope to press release something in the near future, not the near future, but somewhere in 2026 that allow -- talks about what we're doing with our customers. And so the teams are working incredibly hard here.

We haven't hit that inflection point yet. But this is one that if it goes forward, it could do some really good things for Flowserve. It gets us a lot closer to our customers, providing more on our capture rate in our aftermarket than ever before. But it is exciting. We just haven't had a breakthrough at this point yet.

I only have 30 seconds, I got 2 questions for you. So a few more Trillium out there, like feel good about capital deployment and weighted toward M&A.

Yes. I mean we're -- in 9 years I've been here, we haven't had the cash flow generation in the balance sheet to do this like we have today. And so with the health of the business, the healthy margins, the cash, we've got a great problem. And that problem is how do we deploy capital in an effective way to create value. And so we'll trade off programmatic M&A with share repurchase. We did both in 2025, and we're confident we can continue that in 2026. Our markets are still fragmented. We've talked about some of the things that we're interested in. And so we'll continue to lean in both in the pumps and the valves to continue to expand our offering.

Awesome. And then one quick one. What are the top 2 or 3 innovations and structural changes affecting your company over the next 5 years? Are there any emerging industry trends that are perhaps being overlooked?

That could take 30 minutes quick in. Let's go nuclear on the structural changes. That's a big one. We didn't talk about AI, and this could go on forever. We are using AI to run our business better. There's more there. And so we're excited about our kind of pilot and test cases that we've used. We've got general kind of persona amplification with the normal stuff, but really focusing AI to solve business process challenges is something that's working.

Awesome. Thank you very much, Scott.

Appreciate it, Andy. Thank you.

Good day, and welcome to the Flowserve Fourth Quarter 2025 Earnings Call. Today's call is being recorded. At this time, I'd like to turn the call over to Brian Ezzell, VP of Investor Relations. Please go ahead.

Thank you, and good morning, everyone. Welcome to Flowserve's Fourth Quarter and Full Year 2025 Business Update. I'm joined by Scott Rowe, Flowserve's President and Chief Executive Officer; and Flowserve Chief Financial Officer, Amy Schwetz. .

Following Scott and Amy's prepared remarks, we'll open the call for questions. Turning to Slide 2. 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. With that, I will turn it over to Scott. .

Thank you, Brian, and good morning, everyone. Before I turn to the presentation, I would like to thank our associates around the world for their hard work and dedication throughout 2025. We have made tremendous progress as a company, advancing our 3D strategy to drive growth and leveraging the internal processes of Flowserve business system to deliver results.

Our associates embrace significant change in a complex macro environment, and I could not be more pleased with what we have accomplished as an organization. These efforts culminated in outstanding financial performance in 2025 and achievement of our long-term margin targets 2 years ahead of plan.

Let's start on Slide 3 with bookings. Bookings for the quarter were $1.2 billion, growing roughly 3% versus the prior year period. Aftermarket bookings grew 10% to $682 million, representing the seventh consecutive quarter of bookings greater than $600 million. Project activity was steady in the quarter. We remain excited about the significant opportunities in nuclear and traditional power with notable awards in these markets, in addition to broadly positive trends in most of the other end markets.

Our largest booking in the quarter was a $28 million Power award, and we delivered nearly $100 million in total nuclear bookings. Larger engineered projects in the energy end markets across both FPD and FCD remain muted impacting original equipment bookings in the quarter. Our 3D diversification strategy has made Flowserve more cycle-resilient than ever before, with consistent and durable bookings in diverse end markets that are supported by secular megatrends offsetting temporary pockets of softness and more cyclical end markets.

We have diversified our portfolio mix, and we continue to expand our aftermarket opportunities while selectively focusing on high-margin engineered projects with strong aftermarket potential. Given our progress to date and positive momentum entering 2026, we are confident our strategic areas of focus will provide the opportunity to drive growth and deliver increasing shareholder value for years to come.

I will now turn it over to Amy to review fourth quarter financial results in more detail.

Thank you, Scott, and good morning, everyone. Turning to the fourth quarter in more detail on Slide 4. Our strong results reflect the continued effectiveness and resilience of the Flowserve business system, supported by excellent execution across our global teams. Total revenues grew 4% year-over-year to $1.2 billion, with organic sales growth of roughly 1% and 240 basis points of benefit from foreign currency translation. .

Sales performance continued to benefit from our diversified portfolio and strong aftermarket activity. Aftermarket sales increased 8% in the quarter, partially offset by a 2% decline in original equipment revenues. OE revenues were lower than we anticipated coming into the quarter, largely due to customer delays and the timing of receiving materials on percentage of completion projects. We anticipate these modest short-term impacts will abate in the first half of 2026.

Turning to profitability. Adjusted gross margin reached 36%, a 320 basis point improvement versus last year and our 12th consecutive quarter of year-over-year margin expansion. We continue to advance operational excellence initiatives, 80-20 complexity reduction and cost performance improvements, leading to a full year incremental margin of 95%. With additional SG&A leverage, adjusted operating margin expanded 420 basis points to 16.8%, exceeding our 2027 long-term target range of 14% to 16%.

These results drove adjusted EPS of $1.11, an impressive 59% increase compared to prior year. Moving to segment performance on Slide 5. FPD delivered another quarter of strong margin expansion with adjusted gross margin increasing 370 basis points to 37.1%, and adjusted operating margin expanding 350 basis points to 21%.

FPD bookings grew 8%, led by aftermarket growth of 12%. Aftermarket momentum continues, and we see substantial opportunity to capture more business from our large installed base. Original equipment bookings were up a modest 1% as large engineered project activity in the energy end market remain muted and offset growth in other areas. FPD sales grew 5% to $833 million. This segment exited the year with a Q4 book-to-bill of 1.06, positioning FPD well for 2026.

Moving to FCD. As expected, margin performance improved meaningfully compared to the prior year period, reflecting continued execution of the Flowserve business system and solid contributions from Mogas. Adjusted gross margin expanded 220 basis points to 34%, and adjusted operating margin increased 440 basis points to 19.7%. The Mogas delivered accretive operating margins for the quarter, consistent with our expectations at acquisition.

Turning to bookings. Although growth remains a priority for FCD, margin improvement has been the segment's primary focus. For the quarter, FCD bookings declined driven by headwinds from our continued focus on the 80/20 program, and lower original equipment awards from project delays. Aftermarket bookings were roughly flat year-over-year. FCD's book-to-bill for the quarter was 0.84 with overall strength in the power end market, reflecting our industry-leading position.

Overall, both FPD and FCD posted adjusted operating margins well above our 2027 segment target ranges of 16% to 18%, reinforcing the operational excellence and 80/20 discipline are firmly embedded across our global operations. On Slide 6, excluding the impact of divesting our legacy asbestos liabilities, we generated $199 million of cash from operations in the fourth quarter, delivering 121% free cash flow conversion.

This strong performance was driven primarily by growth in adjusted net income and continued working capital management under the Flowserve business system. During the quarter, we returned $84 million in cash to shareholders, including $57 million in share repurchases. Looking at the full year, we delivered an outstanding $506 million in operating cash flow, a 19% increase versus 2024.

Adjusting to exclude the net impact of the merger termination payment and asbestos divestiture, full year cash flow conversion was 97%. For the year, we returned $365 million to shareholders, including $255 million in share repurchases at an average price of $53 per share. We have an additional $200 million remaining on our share repurchase authorization. Our balance sheet remains healthy with net leverage of 1x, providing flexibility for allocating capital for strategic growth opportunities.

I'll now turn it back to Scott to provide some context on the full year and our 2026 outlook.

Thanks, Amy. Turning now to Slide 7. We delivered outstanding results in 2025, including 300 basis points of expansion in adjusted operating margins, significant adjusted EPS growth of 38% and strong operating cash flow for the full year. The persistent strength of our aftermarket business resulted in $2.6 billion of bookings in 2025, representing 9% year-over-year growth. Our 2025 book-to-bill ratio was in line with expectations at 1.0x, and we closed the year with a backlog of $2.9 billion.

I'm incredibly proud of our progress with the Flowserve business system. We are driving improved process and standardization across the enterprise. We are seeing exceptional results with operational excellence as we drive strategy deployment, perform daily operations management, optimize our materials management and conduct real-time problem-solving on the shop floor. We see continued opportunities as we advance these principles to further improve our response to customers, deliver improved financials and increase value for all stakeholders.

Our portfolio excellence pillar is on track with all product business units having embedded 80/20 methodology and process into our product strategy and our daily operations. The cultural transformation we have undertaken is impressive and I'm confident that we have further opportunities to reduce complexity and simplify our operations for years to come. While our commercial excellence initiative is in the early phases of implementation, we are seeing wins with the program and are gaining confidence through our early projects that the visibility and processes we are putting in place will drive sustainable growth.

Since the COVID pandemic, we have spent years building a more resilient supply chain that enabled us to quickly respond to shifts in evolving market conditions and the broader macroeconomic landscape throughout 2025. In response to tariffs, we successfully shifted sourcing and implemented pricing actions that allowed us to fully mitigate the tariff impact while maintaining a high level of service to our customers.

We delivered $4.7 billion in bookings for the year, including $400 million in nuclear awards. Our 4 largest awards during the year were all global nuclear projects, combining to a total of over $150 million, highlighting our strong market position and key customer relationships in this exciting end market. We also entered several strategic commercial partnerships during the year, including an MOU with Honeywell to integrate our Red Raven digital offering into their Forge asset performance management system.

This partnership will be instrumental in validating our innovative digital technology and its ability to enhance efficiency for our customers, allowing us to scale our offering for large industrial facilities over time. As Amy mentioned, the year was marked by disciplined capital allocation and a significant increase in cash returned to shareholders, supported by improved cash flow generation in the $266 million merger termination payment.

We believe our strong execution and positive operational momentum provide the framework for continuing to deliver enhanced shareholder value in 2026 and beyond.

Turning to Slide 8. The Flowserve business system has transformed our company and the successful integration of Mogas onto the business system has proven that this is an effective model for integrating acquisitions. The realization of cost synergies from the Mogas acquisition contributed to progressive margin improvement throughout the year. Mogas is now accretive to FCD margins, and we believe we are in a position to drive growth and further margin expansion by leveraging all aspects of the Flowserve business system.

Turning to Slide 9. We continue to see M&A as an important element of our disciplined capital allocation strategy and an attractive way to increase shareholder value by growing the business, diversifying our end markets and expanding our margins. We announced an aftermarket focused bolt-on acquisition in December that fits our services and solutions model. And over time, we believe is highly scalable across the global Flowserve QRC network.

We also announced yesterday that Flowserve has signed a definitive agreement to acquire the valve and actuation business from Trillium Flow Technologies. Trillium valve serves the nuclear, traditional power, industrial and infrastructure sectors through an offering of market-leading, mission-critical valves and actuators. This strategic acquisition strengthens our valve and actuation portfolio and expands our global reach in attractive end markets like nuclear.

Trillium has an extensive installed base of over 200,000 units, including assets in 115 operating nuclear reactors, bringing significant recurring demand for high-margin aftermarket services and parts. This acquisition also increases our available content for new nuclear reactors. We shared last quarter that a large new reactor could represent $100 million of content opportunity for Flowserve and the expanded Trillium valves offering could increase that amount by 15% to 20%.

By replicating the successful playbook that we used with Mogas, we expect to leverage all aspects of the Flowserve business system to increase Trillium's margins and grow the business over time.

Turning to Slide 10. I'll provide some context about the operating landscape as we move into 2026. Our end markets have stable, positive trends with the potential for outsized growth in the traditional power and Nuclear segments. The general industries end market is benefiting from sustained industrial expansion, notably in mining, pharmaceuticals and water, particularly in North America and the Middle East.

Within the energy end market, elevated utilization rates and maintenance activities for large process industries have remained robust. Our large installed base and our ability to drive a higher capture rate is delivering growth in this sector, even as some project work has been slow to materialize. The chemical sector continues to represent our lowest growth end market. However, following a period of stabilization in 2025, we remain cautiously optimistic for a moderate recovery in an improved outlook in 2026.

Our 12-month forward-looking project funnel remains healthy. All end markets show growth, both sequentially and versus the prior year. In 2026, we expect bookings to grow mid-single digits, assuming a generally consistent macroeconomic environment.

Turning to Slide 11. I'll highlight a few key areas of opportunity in our strategy and the Flowserve business system that support our efforts to deliver continued growth and value creation. First, our growth strategy continues to be aligned to the key global megatrends with significant investment in energy security, regionalization and electrification.

As we highlighted last quarter, we are laser-focused on the growth opportunity in nuclear. Flowserve is uniquely positioned as a global leader in nuclear flow control, supported by specialized product offerings, established customer relationships and approvals as well as deep domain expertise, which is now further enhanced with the addition of Trillium Valves.

Over the next 5 to 10 years, nuclear energy is projected to become an increasingly integral component of our business with the potential to accelerate our bookings growth above our long-term targeted growth rates. Additionally, we expect to see continued progress with the business system as commercial excellence delivers deliberate and sustainable growth. The strong progress in operational excellence and 80/20 is reducing overall complexity and freeing up capacity within our manufacturing footprint, allowing for the potential of further manufacturing consolidation.

We will continue to redeploy resources to drive growth in our best products and deliver differentiated solutions for our customers. Finally, we believe that M&A can continue to play an important role in our long-term growth strategy, given our healthy balance sheet and proven ability to leverage the Flowserve business system for integration. We will maintain a disciplined eye towards inorganic opportunities that build on Flowserve's current capabilities and create long-term value for our shareholders.

With this backdrop, I'll now hand it over to Amy to discuss our 2026 guidance and updated long-term financial targets.

Thanks, Scott. Turning to our 2026 outlook on Slide 12. We are well positioned to deliver another year of profitable growth. We expect total reported sales growth of 5% to 7%, with organic sales growth of 1% to 3%, reflecting a healthy backlog, supportive end markets, advancement of our 80/20 initiatives and gradually increasing contributions from our commercial excellence efforts. .

Reported sales are expected to benefit 100 basis points from favorable foreign currency translation and roughly 300 basis points of benefit from the Greenray and Trillium valves acquisitions. We have assumed the Trillium Valves acquisition closes midyear and anticipate refining this estimate later in the year based on the final closing date.

Turning to profitability. We expect continued gross and operating margin expansion from higher sales and further cost reductions through 80/20 portfolio refinement. Assuming a midyear close, we anticipate Trillium will benefit adjusted operating income and be neutral to adjusted EPS given incremental financing costs.

Overall, adjusted operating margin is expected to expand approximately 100 basis points for the full year. We expect adjusted earnings per share of $4 to $4.20, representing a midpoint increase of 13% versus 2025. Our guidance assumes an adjusted tax rate of 21% to 22%. We anticipate the quarterly revenue and earnings cadence to follow historical seasonality with first quarter revenue and earnings being the lowest of the year.

Original equipment bookings are expected to accelerate in the second half of the year, largely driven by increased activity in the Middle East and escalating nuclear investments and we remain confident in continuing to expand our already healthy aftermarket capture. First half revenues will be impacted by ongoing headwinds from 80/20 and the backlog composition. As we enter 2026, we anticipate converting roughly 76% of our existing backlog into revenue in the next 12 months, a conversion factor lower than recent years, given an increasing mix of longer tenure nuclear projects and reduced OE energy projects.

All in, first half earnings are expected to represent roughly 40% of full year earnings.

Turning to Slide 13. Our consistent, disciplined approach to capital allocation continues to deliver value for shareholders. In 2025, we returned $365 million to shareholders through dividends and share repurchases, completed the acquisition of Greenray to strengthen our aftermarket capabilities and divested legacy asbestos liabilities, all while improving our leverage levels.

Moving into 2026, we remain focused on strategically deploying capital towards growth-enhancing opportunities, while staying committed to maintaining our investment-grade rating. In 2026, capital expenditure investments to drive organic growth and efficiency in our operations are expected to be $90 million to $100 million, and we anticipate at a minimum, repurchasing shares to offset equity dilution.

Turning to Slide 14. I'm extremely proud of the progress we've made against our 2027 financial targets since establishing them in mid-2023. Though the macro environment has presented unforeseen challenges, we remain firmly on track to deliver our sales and adjusted EPS goals. We have also delivered exceptional margin expansion since launching the Flowserve business system.

Over the past 2 years, adjusted operating margins have improved by 530 basis points, and we reached our 2027 margin target 2 years ahead of schedule. FPD contributed meaningfully to this performance, while FCD's margin improvement has accelerated recently, given progress on operational excellence in our 80/20 program. Importantly, the structural enterprise-wide improvements we've made through the Flowserve business system along with sustained operational rigor, give us confidence that these gains are durable with more opportunity to enhance margins over time.

Turning to Slide 15. Continued momentum in both growth and profitability forms the foundation of our new 2030 long-term financial targets. We are targeting a mid-single-digit organic sales CAGR from 2025 to 2030, supported by ongoing commercial excellence initiatives, our 80/20 progress and our expected growth across end markets over the cycle. We believe disciplined M&A represents an opportunity to further enhance our sales growth profile over time.

Turning to margins. The success of the Flowserve business system provides confidence in our ability to continue driving margin enhancements. Commercial excellence is in the early stages, and we anticipate our 80/20 program will continue delivering benefits through 2030. We also see ongoing benefits from operational excellence as we continue to improve our execution and accelerate roofline consolidation.

Overall, we are targeting 20% adjusted operating margins by 2030, representing an average annual expansion of 100 basis points. With the expected top line growth, expanding operating margins and additional capital allocation opportunities, we are targeting a double-digit adjusted EPS CAGR from 2025 to 2030.

I'll now turn it back to Scott for closing remarks.

Let's turn to Slide 16 to close out the prepared remarks. 2025 was a tremendous year for Flowserve. I am proud of our achievements and the significant progress made by our associates, culminating and delivering our 2027 margin target 2 years ahead of schedule. .

Looking forward, we are well positioned to continue advancing and unlocking even greater potential for the company. Our updated long-term financial targets highlight our commitment to growth and further improve profitability. We are confident our strategic approach and the Flowserve business system have positioned the organization for continued, sustainable growth and margin improvement.

And with that, I'll turn the call back to the operator for Q&A.

[Operator Instructions] We'll take our first question from Deane Dray with RBC Capital Markets.

Just I thought it give you a shout out for the quarter and for the year, a great job on margins and free cash flow. So great progress there. And just my first question, can we talk about the organic revenue growth was a bit light this quarter. And also the guide is a bit light for '26 on the organic side. And Amy mentioned some of the timing of projects, percentage of completion, just some context there, size for us. And how does that specialty percentage of completion, how does that kind of come through in the first half of '26.

Sure. So if we look at the fourth quarter revenue, probably [ about ] 50 basis points or a little bit higher than that of revenue headwinds from engineered projects on POC revenue that were pushed into the first half of the year. That was largely due to either customer delays or delays in getting inventory into some of our facilities that created that headwind.

That will work itself out in the first half of the year. But as we look at our backlog that's in place in the first half of the year, we're really -- we're looking at revenue conversion in 2026. That's a little bit lower than what we've seen in prior years. So about 76% of our current backlog will turn in 2026. And it's really the tale of 2 cities, if you think about our business today, a really strong aftermarket, which can convert into revenue really quickly when it comes into the backlog.

And then if we look at the strength of the nuclear market, that takes a little bit more time to develop through the system. And so that's the movement that you're seeing in revenue conversion. So in the first half of the year, we anticipate growth to be muted as we look at that. And so you think about that in 2 ways: one, both the backlog that's in place. And the second piece of that is really 80/20 efforts that accelerated in the second half of the year wrapping around into 2026.

I'd just comment overall that what we've been trying to do with this business is create a much more resilient business model. And so if we think about where we're at from a margin expansion standpoint, we built a model that we think margin expansion can continue to happen even in periods of time when revenue growth is muted. So we remain bullish on our opportunities to increase margins in the first half of the year, but we'll expect for some of that revenue growth to accelerate in the second half.

That's really helpful. And just as a follow-up and I really didn't think I'd be asking this question last quarter, but here I am asking it now. Can you talk about the opportunity in Venezuela. I mean I covered Flowserve for a long time, Venezuela was a meaningful business for you up until like 11 years ago. So you've had a presence, you probably have good content there. And maybe just how -- what is the opportunity? What's the time frame? And what should we be watching for?

Yes, you've Flowserve for a very long time, Venezuela was a meaningful market for us. This was before I got here, kind of that 2010 to 2014 time frame. And at one point, we were doing probably at the most roughly $80 million of revenue a year. We had 3 QRCs that were fully operational and, quite frankly, a very healthy business. The good news today is we have a large installed base across pumps and valves. .

And so if somebody were to go in and resume operations and start to invest in the country, we are well positioned to support that. We currently have 1 QRC operational with a handful of people, and we're confident that we could kind of restart operations when appropriate. With all of that said, we don't have that in our 2026 numbers. I'm not going to predict or forecast to win if somebody will commit to go into the country and get things moving. But I would say if and when it happens, Flowserve is prepared to kind of pick back up, and it will be a really nice opportunity that wasn't planned. And like you said, I certainly did not expect this in the last time we spoke in the Q3 earnings call.

We'll take our next question from Mike Halloran with Baird.

Can we just talk through the simple question here, the confidence in the mid-single-digit order progression this year. I know I certainly heard the front back half, but maybe some more detail on where that's stemming from what your customers are saying and any specific areas that you think drive it more than others?

Yes, absolutely. I'd say, Mike, we feel really good right now about mid-single digits. Obviously, the world is a dynamic place and we just talked about Venezuela, we can talk about other countries. With that said, we've got a lot of confidence in what we're doing. The teams are working really hard to grow the business. And I'll just kind of run through some of the reasons why we believe that mid-single digits is a good number. And I'll also just add, we believe that's an organic number.

And so I'm sure we'll talk about Trillium here very soon in one of the Q&A. But when we talk mid-single digits on the bookings side, we were really thinking organic. And so maybe I'll start with our aftermarket, and you've seen the numbers here. Our aftermarket continues to grow as we get more focused on our installed base and improving our capture rates. We believe that momentum is incredibly strong, and we believe that we can continue to grow the aftermarket at least at the mid-single-digit levels.

And so that's half of our business. And so we've got a team that's highly focused on that, great customer relationships, and we continue to find more opportunities to expand that. And then on just the end markets, the single largest growth factor for us in 2026 and beyond is the power end market. And we talked a lot about nuclear in the Q3 earnings call. But traditional power is doing incredibly well additionally.

And so we feel really good about those end markets in power being at at least a double-digit number for us. And then general industries is also strong. And so we're seeing an uptick in general industry kind of project and base activity that's primarily in North America and a little bit in the Middle East in some parts of Latin America as well.

And then finally, just geographically, we didn't have a great year in the Middle East on the project side. Some of that was timing. Some of it was delays in spending on the type of work that we do really well in the Middle East. But we do have visibility to Middle East spending accelerating and picking up in 2026. And that's going to be a little bit more kind of mid- to back year weighted, but we feel really good about our ability to convert orders in the Middle East. And then just lastly, when we look at our project funnel, we have seen an increase both sequentially and year-on-year in our project funnel, again, giving us confidence that mid-single digits is a place that we feel pretty good about.

Great. Super helpful. And then on Trillium, congrats on getting that portion of the company, good assets. So twofold question here. First, with the 70% power exposure, what kind of momentum are they seeing on the order side? Is it similar to what you just talked to? And then secondarily, maybe just talk through the commercial and cost synergy opportunity as well.

Sure. Yes. We're excited about Trillium. It's a good asset. For those that remember, this came out of the Weir business. And we're buying -- just to be super clear, we're buying the valve portfolio of Trillium. And we believe that they've got kind of best-in-class valve assets that serve mission-critical flow control solutions, primarily in nuclear and the traditional power markets, and that makes up 70% of the business.

Additionally, it's a high aftermarket contributor. And so we feel really good about our ability to leverage our QRC network to tap into their 200,000 valves and actuators that are around the world and continue to grow that. Like us, they've seen a nice healthy kind of run rate in both the nuclear and the traditional power bookings. And so this is something that we like the positive momentum in those end markets and building backlog as we kind of moved into the transaction.

And so we believe that with our kind of nuclear relationships, the strong customer presence, the end market kind of tailwind on power, we're pretty excited about the commercial opportunities here to leverage what we have the ability to grow this business with some of the nuclear outlook. And I would say that's obviously the new nuclear reactors some of the life extensions in nuclear and then potentially and when things move forward in SMR, this business is positioned well to take share in that upcoming and emerging market.

And so all in all, we feel good. Just on the synergy side, we didn't publish a number on the cost synergy. I would say that there are cost synergies in this business. it would be exactly what you would expect. We'll use our operational excellence program in the Flowserve business system to do exactly what we did with Mogas to get the manufacturing improvements, the supply chain savings. We will run 80/20 very quickly in the portfolio. In fact, we had a conversation last week about starting to pull that data in the right way that allows us to launch 80/20 right out of the gates.

And there will be some roofline consolidation as we move forward as well. The one thing I will highlight that this is a carve-out, so it's owned by private equity today. We're carving out the valve business. And so the overhead and some of that corporate synergies won't come through like you would normally see. But overall, I'd say a high level of confidence that we can continue to grow this business and that we can move the margins forward running the Flowserve business system playbook.

we'll take our next question from Amit Mehrotra with UBS.

I wanted to talk about the 2030 outlook and obviously, the implied acceleration in growth after '25 and what you're guiding for '26. I assume it's because of what you're seeing in the power bookings. I think there was -- they were up mid-teens in the quarter. And obviously, now that's becoming a bigger part of the business with Trillium, maybe high teens or something like that and nuclear in particular. Maybe just talk about that and what you think those things actually mean for kind of the structural change in through-cycle growth once we get towards the end of this year into '27?

Sure. Yes. I'll just tie it to like some of the mega themes that we're seeing. Obviously, electricity is a big one, and that's something that's important around the world to drive security and then further regionalization and then there's a digital component. And so all of those things have played into kind of how do we think about the long term and how do we grow our business. .

The other thing I would say is when we think about our Flowserve business system, we've been hitting 80-20 hard. We've put a little bit of a dampener on some of the growth as we've been focusing on our margins and cleaning up that portfolio, the heavy lift of SKU reductions is essentially complete, and now we've launched commercial excellence.

And so -- we're about 6 months into commercial excellence. We believe we have a long way to go. We are in the very early innings here. And that, again, gives us a foundation to grow the business for years to come. And so I think mid-single digits here on the long-term 2030 makes a lot of sense. We've got many levers to pull to drive that growth. And we need the macro environment to hold up. But right now, we think the mega trends and what's going on in the world should support this target, and the team is very focused to drive this growth.

Amit, the other thing that I've mentioned, and this is more formulaic in nature, is that if you look at our backlog conversion in 2026, which is a bit of a headwind in terms of organic growth. With the nuclear component, that's really a tailwind for us in terms of 2030 targets. So we've got a large portion of our backlog that's going to materialize over the next 5 years and really presents an opportunity for us to compound from a revenue growth perspective.

Right. I guess that was my point, right? At the end of the day, if you look at the compounded growth over time versus what you're doing in '26, it implies a step-up in '27, exactly that point. Can I just ask another question on general industrial and what you saw -- because obviously, there's a view right now that cyclicals are doing quite well because of this anticipation of some improvement.

Are you seeing any evidence of that in your bookings? And then just related to that backlog conversion, I think you might have mentioned that earlier, I joined a little bit later. But is there an EPS cadence that gets maybe pushed out a little bit more to the back end because that backlog is converting a little bit later?

Yes. I'll let Amy hit the backlog conversion. I'll start on the general industrial side. So general industries has been really strong for us this year. We continue to make progress. A lot of that's part of our 3D strategy and the diversification and just getting the teams very focused in this market. And so I think we've been able to take a little bit of share here as we lean in on the diverse end markets that we've got a product and offering for. And quite frankly, we're seeing nice growth in North America, parts of Latin America on general industries and then there's parts of the Middle East that this is working as well. Some of the themes here would be the water markets, pharmaceuticals and then just to say just kind of broader industries across the board where we're able to put full control product in.

Yes. And from an EPS cadence, obviously, it's going to be impacted by some of the revenue cadence that we talked about. We're really going back to a more typical Flowserve year, which looks more with the first half being muted from a volume perspective. We're still confident about our ability to perform well and expand margins over that period of time, but probably about 40%, maybe a little bit more of our EPS will come in the first half of the year, with the remainder in the second half. And as is always the case, our first quarter, we would expect to be the lowest quarter of the year from an EPS perspective.

we'll take our next question from Joe Giordano with TD Cowen.

So we've touched on this. But like on the 2030, how much of that -- sorry, how much of that margin guide is dependent on volume. Because, look, we're being fair, that's where you're going to get the biggest pushback in the mid-single-digit order growth this year. A lot of that's probably in 2Q on an easier comp. Like organically, we just haven't seen really going above that [ 1.25 ] with like a thrust. So like if I told you that the top line, if I wanted to push back on that a little bit, how much of that margin do you think you still get independent of volume.

Yes. So Joe, I'll start. I'm sure Amy will chime in on this one, too. I'd say we feel really good about our ability to drive margins. And so when we think about our plan, the way we look at things is the initiatives and the actions we need to do to drive margin expansion. And if you kind of look backwards, right, we haven't had significant revenue growth over the last 2 years, but we've been able to expand margins significantly.

And so obviously, some of the, I'm not going to call it, low-hanging fruit because it was a lot of work, but a lot of the bigger gains have been realized. And we've got, what I'll call, to get to the 20%, a steady progression of margins of 500 basis points or 100 basis points approximately every year. And I just think through operational excellence, still has more room to run. The ability to continue to get a better mix with aftermarket, all gives us confidence that we can continue to do this. And so obviously, revenue growth and leverage would help us substantially, but I feel confident that we can get to these margins even without significant revenue growth.

Yes. And I -- the only thing I'm going to add to what Scott has said is those actions have begun. So as I referenced in my remarks, roof line actions are accelerating. We're seeing the benefits of 80/20. That program is well established now within our -- within our BUs and as part of our business system. And so we feel very confident that the actions have been put in motion help deliver those margin -- or to help deliver those improved margins regardless of what happens from a volume perspective.

That said, it's a two-pronged approach. We are focused on growth, commercial excellence, is in its early days. I'm excited about that program. I think it's something that's going to pay dividends. And so when you combine the focus on commercial excellence with the end markets that we're serving, I think it's going to be a good recipe for revenue growth over time.

Fair enough. And then on -- you're making a bet here on nuclear, both with your wallets and with your messaging and I think all of us understand why. If, for whatever reason, like the power build-out is just significantly more gas turbines and things like that and less nuclear than what the current view is, what are the implications for Flowserve in terms of -- I know you're on those things, but lower content and what that would mean for like these targets and things like that.

Yes. I mean I'll just start by saying, we do believe that nuclear progresses forward. I've had several conversations with customers, even in the last couple of weeks. And so I just think nuclear has to be a part of the equation as we go forward. Let's just say that it's not as optimistic as some of the numbers we put out in Q3, which I think were right down the fairway of what would be kind of public commentary on nuclear growth. .

But if that were to happen and the shift goes towards more of the traditional power, we're well positioned for that growth. Like we've got products that support our single cycle combined cycle, we can support coal in China, we get a little bit of content on some of the renewables as well. And so maybe the content isn't as high. Certainly, the barriers to entry in those products are not the same as nuclear, but will still drive growth, and we're well positioned to do that as we go forward.

The Trillium acquisition supports that as well, right? So they have a nice traditional power part of their business, and we'll continue to work that. And then finally, I'd just say that on the aftermarket side, we continue to get -- we'll continue to get the nuclear aftermarket and even on the traditional power side, folks are investing in whatever form of power generation do an upgrade or a rerate or get more capacity out of that asset. And so as that work evolves, we're typically well positioned to get the aftermarket work around both traditional and nuclear.

We'll take our next question from Andy Kaplowitz with Citi.

This is actually Jose [indiscernible] for Andy. I did want to touch on Mogas. It seems like you've been able to integrate that now and you're getting that accretion to segment margins. So maybe you can talk a little about what you've learned from that integration. But I'm also curious -- if you could talk about what you're seeing for bookings opportunities for that business, given that Mogas is about 50% mining exposed and some of the mining read-throughs, there's been recently has been positive.

Yes, absolutely. So we remain incredibly excited about the Mogas transaction and the product we got. And as a reminder for folks, this is a critical service ball valve kind of at the highest end in terms of the coatings and the technology, and it works in the harshest environments. And so it works in refining harsh chemicals. And then on mining as part of the kind of that asset leaching process to extract minerals that would be -- Amy likes to say, this measured by [indiscernible] [ the outs ] and not the tone. And so these are the precious metals.

And so we feel good about the end markets here. On the bookings, I'll just say, quite frankly in 2025, we're slow to materialize. The project funnel for 2026 looks really healthy. And so we've got a good line of sight in terms of the ability to grow this business. Just on the integration, I would say we followed, what I would call, a very traditional playbook in terms of how to run an integration. We had our day 1 activities. We implemented the Flowserve business system, we drove towards synergies very much a programmatic way or approach to do this, and I couldn't be more pleased with the the process and the results of the integration itself.

And so everyone got paid on day 1. We moved our systems conversions over very quickly. We got the business system in place. We did massive fixes on the shop floor. It looks completely different than what it did a year ago, and we're able to serve our customers at a much higher level. And so with all of that, the margins have moved up significantly and progressively throughout the year, and we're confident we've got a really nice business as we go forward in 2026 and beyond.

And Jose, one thing I might add on this one as well is this is a technical sale in terms of the types of valves that Mogas is as part of our commercial excellence program. We have trained over 100 of our valve sales force members on on the Mogas valves technically and vice versa within the sales force that we brought with us from Mogas on our severe service applications and products. And so we really feel like going into 2026, we're well positioned in this area of the business.

Thanks for the color. I did also see there was a comment on the slide about you guys haven't fully mitigated tariff impacts in 2025. And I'm sure that wasn't easy. But with regards to the 2026 guide, I was curious if you guys could talk about what you're baking in for tariffs? And how much of the higher metal prices is accounted for in the guide currently?

Yes. So the team has done a really nice job in what I'll call an incredibly dynamic environment. And so our -- we learned a lot of lessons with our supply chain team in 2020 and 2021. We've been able to implement that and put that in place here to really be more nimble than ever before. And we were able to successfully through the combination of repositioning the supply chain and driving some cost savings with supply chain, combined with pricing actions to fully mitigate the impact in 2025.

And I would just say the guide in 2026 is net of tariffs. And so we believe that we can continue to carry that momentum forward. We're doing that through pricing, and we continue to take supply chain actions. And hopefully, we won't be talking about tariffs for much longer, but I can't predict that. And so we'll continue to be nimble. We'll continue to be able to reposition, but we're in a really good place with the health of our supply chain and our -- just our team has done a really nice job working through an incredibly dynamic situation.

We'll take our next question from Brett Lindzey with Mizuho.

I wanted to come back to the procurement issue in the quarter. Can you just talk about the nature of the dynamic and which components you might be referring to? And then anything on the remedy actions in place that give you the better visibility this year?

Yes. I wouldn't necessarily call it a procurement issue. I'd call it delays in timing of receipts, not necessarily on one specific type of part or component. These things happen from time to time when they happen at the end of the year, it's a little bit more painful than others. But the supply chain is functioning well, and we continue -- when we see isolated incidents like this, we deploy expeditors to our vendors pretty quickly so we can get back on track.

Okay. Great. And then just a follow-up on nuclear. So on Slide 9, you gave the content opportunity is now 15% to 20% on new nukes. Where was that previously? And just I guess the spirit of the question is trying to take your Q3 commentary on some of the dollar figures and where that's moved to with the content expansion.

Yes, absolutely. No, it's a good question. We'll just be super clear. And so in Q3, we said for a new nuclear reactor and that's roughly the 1 gigawatt reactors, so the large ones that Flowserve's historical content is roughly $100 million per reactor. Obviously, it depends on who the operator is and where it is geographically, but that's kind of our opportunity now with Trillium valves. We believe that the $100 million expands by 15% to 20%.

And so now we're at $115 million to $120 million per reactor. And so the other thing I would just add is, we've done -- on the valve side, we've done really well on our mainstream isolation valve, which is gate valve technology. We've done well on actuators also. With Trillium, we pick up essentially 4 new products. And so we get a triple offset butterfly valve that's nuclear certified. We get a check valve. We get a different type of actuator and we get a control valve. And so we're pretty excited to round out that portfolio, and that's what increases our content.

And so this is something that our team is really excited to get a hold of and get in front of the right customers and grow our nuclear opportunity.

We'll take our final question from Nathan Jones with Stifel.

This is [ Dinesh ] on for Nathan Jones. Just regarding 80/20, you talked a little bit about this earlier, but maybe after 2, 3 years of 80/20 implementation, can you maybe talk about successes and where the company still needs to improve? You made note of a couple of improvements earlier, just to round it about.

Sure. Yes. 80/20 is a great thing to talk about. And we're incredibly excited about the success that we've achieved on 80/20, and we're now kind of going into that -- we're in our third year. It will be the second kind of full year of this. But all of our product business units are now fully on the 80/20 program. We've seen incredible success on the reduction of complexity, a more focused organization. We're seeing the margins come through.

And we're also starting to see growth where we focus on our best products and our best customers. In the Q3 earnings deck, we put some numbers out on one of our business units, actually, the industrial pumps that was our initial one. And so just as a reminder, we showed 150 basis points of margin improvement with industrial pumps attributed to 80/20. We saw a 45% SKU reduction. We saw a 21% increase in that target selling.

And I would say that, that is represented across all of our business units, and we certainly expect to see similar wins as we go through the 2026 program. Companies that do this incredibly well would see roughly 100 basis points of margin improvement a year, over kind of a 4- to 5-year period. And so I think we're fully on track. We've had a little bit more success in 2025, but I feel like we're going to be in a great place to continue our efforts.

And the other thing, I'd just say, is as we reduce complexity of the products, it just allows us to do things differently, operationally, potentially reduce our roof line over time and continue to reduce cost in the overall Flowserve. And so this has been, quite frankly, an unlock for us and continue to be excited about the progress that we can make in 2026 and beyond.

Awesome. And then just on the balance sheet, obviously, still remains flexible after the deal with capacity for further capital allocation, is the focus on just maybe further M&A or the integration of Trillium in the short term?

Yes. So we do feel like we're in a great place from a balance sheet health perspective, about 1x net levered at the end of the year. And so it does give us an opportunity with the substantial cash flow generation that we have and expect to continue to have to look for ways to allocate capital, to create value from our shareholders.

I think the last 6 months has been a really good road map of how we think about capital allocation. We've been relatively balanced. But in 2025, we saw a really great opportunity to invest in Flowserve. And so we bought back about 250 million shares at an attractive valuation. And you also saw us be active in the M&A space. And so whether it's the small tuck-in that we had with Greenray or the slightly larger Trillium announcement from today, we think that M&A can play a role in growth of the business.

And just to remind everyone what our filters are, when we look at that, one, it's got to fit the strategy. We look at Greenray from an aftermarket perspective and the ability to expand that business and you look at Trillium in terms of the diverse markets that they serve, including a really heavy emphasis on power and both tick the boxes there. And then lastly, we're going to do this in a way that financially makes sense. So we expect accretion to margins and cash flow and we're going to protect our balance sheet going forward. But we're excited about the ability to really continue to broaden the product portfolio to continue to make our end markets very resilient and using M&A to do that.

That will conclude our question-and-answer session. At this time, I'd like to turn the call over to Brian Ezzell for any additional or closing remarks.

Yes. Thank you to everyone for joining the call today. One item I'll note, we are planning to host an Investor Day later this year to provide further insight on our strategic and financial plans. We're going to provide more information soon about that event, so you can plan accordingly. In the meantime, if you have any questions on Q4 results, please reach out to the Investor Relations team. And with that, we appreciate the time, and have a great day. .

That will conclude today's call. We appreciate your participation.

I think we're ready to resume. Excited to have Flowserve's Amy Schwetz here with us today, CFO. Amy, thanks for joining us.

Thanks for having me, Joe.

Yes. So Amy, I don't know if you wanted to start with any initial comments, or whether you wanted me to just jump right in. I can do this every...

Let's just jump right in. I've seen a preview of the topics, and I think that we're going to hit the things that are on everyone's mind.

Okay, great. All right. So why don't we just start with the demand environment then first. So start us off, how are you feeling about the demand environment as we head into 2026?

Yes. I think we're feeling really pretty positive. As we kind of take a look at the landscape of where we play, there are certain markets that are showing strength that we haven't seen in several years. And so I'll start with power, which is something that we've been talking a lot to investors about over the last several months. But that's a market that we really see growing at a double-digit rates going in from 2025 to 2026. We see that as really being anchored by our nuclear portfolio, where we see opportunities around new build bookings, around life extension and just around the normal maintenance that we see in our aftermarket. And it's an area where, over the last 4 quarters, we've seen a run rate of business to a run rate of bookings at around $400 million, and we think that, that's kind of just the jumping off point.

Maybe then moving through the remainder of the markets that we participate in, general industries, and I'll get more specific on general, is an area that we see growing at nice rates going into 2026. That's really, again, driven by 3 main areas where we're optimistic, and it's around pharmaceuticals. We started to see some pieces of this in the third quarter with 1 of our 3 largest bookings being a pharmaceutical booking in the range of about $15 million. We also see water, particularly out of the Middle East, providing some opportunities as well as mining, which will be -- which will benefit in from both our valves portfolio with the Mogas acquisition as well as our seals portfolio. And then if we kind of look at, kind of rounding the bases there, energy as an end market from a project perspective has been slower this year, from an aftermarket perspective has been extremely strong.

We see that aftermarket environment continuing into 2026, and we continue to try and up our game commercially and operationally there to gain share. And so while the project environment is not expected to expand substantially going into next year, we're going to continue to do what I actually think that we do best at Flowserve, which is serve our customers through aftermarket.

And then finally, I'll say chemical has been a headwind over the last couple of years, particularly as we look at our installation base out of Europe. And I think we've stabilized. And so I think there's part of me that, as we look at certain regions around the world, can be cautiously optimistic at what that end market might look like in 2026.

Yes, I had a company that was here earlier in the day, talk about how ending the year, the chemical business is going to impact the margins of one of their segments, but that they had also just recently booked a very large order in chemicals that -- so maybe the market is starting to turn there.

It seem like particularly as we look at regions in the chemical market, there are green shoots. And I would say that North America is one of those, in particular, where we see the potential for some improvement in 2026.

I'm smiling because maybe now our chemicals analyst will get a little bit more positive.

Nice to see smiles in the office...

For sure. For sure. So it's interesting. The aftermarket piece has been, I would like -- to your point, extremely strong, right? And it's been really great to see. You made a comment around like upping your game in aftermarket. I mean, you guys have really changed that business dramatically over the last several years and your entitlement has been a lot higher than it had been previously. We used to think that a $500 million order quarter was a great quarter, and now it's $600 million plus, right? So what else can you do to continue to drive like additional aftermarket growth going forward?

Yes. So I'll say I think the improvement really started with the reorganization that we did in 2023 and allowed us to look at the aftermarket business as really a global business versus regional. And that really changed the way that we serviced our customers. And one, it allowed us to think about cost in a different way to utilize low-cost country sourcing when lead time would allow. It also led to a little competitive tension between the regions, if you will, as well at times. And so a question of why margins couldn't expand in that area.

And then I will say, commercially, what the reorganization did is it really allowed the allocation of resources in a smarter way across the organization. And so thinking about the pump segment as an example, looking at the business and saying, why don't I have more commercial resources dedicated to the aftermarket? This is where I'm generating a substantial amount of profit. And over time, I think that has become more of a team sport, if you will, where the business is more embedded with our customers than any other of our business units. And they really view that, that bookings number is something that they're working towards together rather than being just the commercial team driving that outcome.

And then I'll add to that, some work that we've done operationally. So regionalization of our parts business, some small investments in that area as well to help with the digitization of plans and 3D printing in certain instances to help us service our customers more quickly on the pumps parts side. And then I'll end maybe with commercial tools as well around speed of quoting. And so our goal on this piece of the business is a quote in one day. And the view is, you've heard, if you've listened to the 2023 Investor Day, if you ever have an opportunity to hear our leader in the pumps division talk, he will undoubtedly say speed wins. And it's really speed in every element of the business around aftermarket. It's speed to quoting and its speed to delivery.

Yes, that's great. You've seen clearly the traction in that business. I'm curious, I mean, do you think this business could be an even higher run rate business going forward?

That is absolutely the game. You referenced $500 million as being sort of the first barrier that we needed to cross. We've been at $600 million the last 6 quarters. And actually, 2 of the last 3, we've been over $650 million. And so we continue to push this business, and they continue to push themselves to get better.

And so think about ways that we can grow this. And some of you may have heard us talk before about the Flowserve Business System, and we've been really focused on over the last couple of years on what we've done operationally and what we've done from a portfolio perspective, which is 80/20, but commercial is the next area of the business system that we're tackling and sort of going through the first body of work that we're doing around commercial excellence. It is around cross-selling and cross-selling in the aftermarket specifically and making sure that we know where installed base is, we know where we've got customers who have bought pumps and maybe are even using us to repair pumps, but they're not buying Flowserve seals as an example.

And so making sure that our commercial team is really aware of where those opportunities lie and using data to try and draw out opportunities.

Yes. That's great to hear. And we were talking before we went live about the recent reaction this past quarter. And I pointed out the fact that like, look, the earnings growth for the company this year was 30%. I know your stock was up about 30% when you reported. And a lot of it -- I think a lot of the feedback we got was around this nuclear opportunity. So I want to talk about that. But I do want to note that the operational performance of the company has been really good this year.

Thank you. And I -- we were laughing about it because I did not expect a 30% reaction on the day of earnings. But I'll tell anybody who will ask it, I'll not apologize about our current valuation because I still think that there's room to run. The valuation, frankly, pre that earnings call was why we had been pretty aggressive in the third and early fourth quarter around share buybacks. And so it is exciting to see some of that execution rewarded. And I will tell you, just as an inside -- insight here, I was feeling pretty bad internally because I kept telling our business unit leaders that the reason why we weren't getting the valuation that we deserved is because we needed to continue to expand margins. And they'd come to me and they'd say, "Amy, we're doing it. We're doing it. What's going on with the share price." And so I was finally able to say, "Hey, I might have been right."

Yes. Sometimes it takes the market a little longer to appreciate what's going on under the hood. So let's talk about power, right? So Q3 bookings up over 20%. It's been a clear strength for you throughout the year. Obviously, you laid out on the conference call, there's like 3 slides dedicated to nuclear and the opportunity, but let's like level set everybody. Your $5 billion total business today revenue-wise, nuclear today about 5%. Is that fair?

Yes.

Around 5% of your total revenue. So you laid out a $10 billion-plus opportunity over the next decade. Help us understand like in the near, medium and long term, what's addressable for Flowserve?

Sure. And I'll start out by saying -- by commenting that the $10 billion opportunity is from a bookings perspective. Not all of that revenue would necessarily flow through over that same period of time. But for the last several years, we've continued to support our nuclear clients, but we've not seen a lot of new builds in that mix. And so it's been primarily an aftermarket business that's comprising that. It could be between, call it, 5% and 7% in any given year from a revenue perspective.

As we started to see Europe get more interested in energy security, there started to be more new builds activity come to light. And so I won't say that the first of our new build activity recently was in 2025, but it's been certainly a nice run for us. And so as we kind of draw out that opportunity, the way that we think about it is, we have content that is used in each of our large products, so pumps, valves and seals. And so if we think about traditional nuclear and new builds, that is an opportunity for us per reactor of about $100 million.

And so thinking about what is possible for us to win, publicly available data of about 40 new reactors going under construction under -- in the next 10 years, that's a huge opportunity for us. Now that revenue will be on a cycle that is a bit longer than -- or I should just say, longer than our traditional business. And so those are orders that tend to play out over 3 to 5 to, call it, 7 years on the new build side.

Now those are projects that we utilize PoC accounting for. And so there's revenue recognition and cost recognition over that life, but it is somewhat back-weighted.

I think the next piece of this is, and I'm going to maybe then go to maybe the more of the run rate business around life extensions and restarts, which is another really exciting piece of the business as well. That content per life extension or restart is, call it, $30 million plus for us in that mix. And so it's an area that we're spending a lot of time being focused on with utilities and in their engineering firms and in positioning ourselves well. And to the extent that there's Flowserve content, we feel very good about our right to win there.

And then our traditional aftermarket, it's been about a $100 million run rate business for us a year. That will only continue to grow and snowball over the next decade as we see these assets both work harder and also restart. And then I saved SMRs for last because I will say this is a piece of the business that has evolved very quickly over the last 12 months.

I think that perhaps even last year, we talked about this, and I talked about that as being a longer-term story. There has been a lot of work that's been done around SMR. It's just given the need for power for data centers, in particular. And so we've actually had our first bookings around SMRs in 2025, relatively small orders around prototypes that are being built. But this is an area where there's been the announcement of 30 over the next 5 years. We've kind of taken that opportunity and saying probably another 30 the next 5 years. And so a relatively big opportunity there as well and probably the second largest opportunity that we have within that $10 billion...

Behind [indiscernible].

Yes. And so I think it's an exciting area. We picked about 10 or 12 companies that we're trying to work with around technologies with SMRs. We think that there are going to be -- this is a sprint to feasibility. And so we think it's important to both kind of spread the bet, but also try and pick some winners and not try and be everything to everyone within this space, but it's something we're really excited about.

And I'll say, just like I referenced some of the resources that we brought to bear around the aftermarket, nuclear is the same. So we've brought in a dedicated nuclear resource, someone who's been with the Department of Energy, who knows the regulators around the world, who understands what our customers are looking for, is able to talk the same language as our customers and has been a real benefit for us in this space, both as we look to up our game commercially, but also as we look to understand this technology better.

And when did you hire that person?

He's been around for a little over a year at this point in time. Yes.

Interesting. When you put that all together, right, and you think about -- it's interesting, right? We cover a couple of few companies that sell into the space. But the reality is, like this has been a space that for the better part of like 20 years was...

It's unloved.

Unloved or nonexistent or underinvested in, right? So when you think about the -- maybe the competitive landscape in nuclear relative to like your core businesses, is your right to win higher? How do I think about like your share opportunity of that $10 billion opportunity? Because you're not going to win the whole thing, right? Like what do you -- how are you guys thinking about that entitlement?

So I'm going to start by saying, I think what my commercial team would -- or our commercial team would want me to say, which is we don't take our customers for granted. So we need to continue to show that we deliver, and we provide what our customers need. That said, I think this opportunity, we have a better right to win than the rest of the funnel that we have. And within that funnel, we have some end markets that we perform very well in.

But I think there's both this idea that you pointed out and I use the term unloved, but this was an industry that went -- was probably underserved in some ways for a number of years. And so we've continued to maintain our supply chain in this area. We've continued to keep the technical and engineering resources that we need in-house, and we've continued to maintain our certifications.

And so as we look at certifications around the world, in the U.S., it's an N-stamp. There's similar frameworks in different geographies around the world. Those are plant by plant. So it's not as if this is Flowserve has these certifications, and we can choose the start-up activities wherever we want. Our customers know that we've continued to invest in maintaining that service and that means something and particularly in a period of time where build-out is extensive, being -- having that relationship with the engineering, design and construction firm matters a lot. They know what to expect from a product perspective, and we are spec-ed into those designs, which is incredibly helpful.

And then I'll just go back to kind of the restarts and life extensions. You're unlikely to switch from the original equipment provider at that point in time. You're looking for speed, you're looking to mitigate risk, and we're going to be positioned well to serve those customers as they look for those restarts and life extensions.

That makes sense. I'm going to open it up to the audience in a second, and I will forewarn you very few questions have come from the audience today. But the -- as you look into 2026, do you want to maybe just provide like an initial framework or initial thoughts on just growth, margins, free cash flow?

Yes. So we are obviously going to talk more about 2026 as we release earnings early next year. But I think overall, the headline is positive. I've kind of walked through the end markets at the beginning, and we think that's a very constructive backdrop for growth in 2026. And so looking to lean into that. And although I'm very confident around that growth, I am even more confident in our ability to continue to expand margins. I mean this is part of what is sort of foundational to who we are trying to become at Flowserve. And so as I think about the levers that we have to pull from 80/20 to continuing to operate better, to roofline consolidation, we're still opportunity rich from a margin expansion standpoint. And so I think the outcome of that is nice earnings growth again in 2026. And that's certainly what we'll continue to push the team for within Flowserve.

Great. One follow-up and then I'll go to the audience. Any way to think about like that opportunity rich or the productivity funnel like 2026 versus 2025? Is it comparable? Just any thoughts around that would be...

Yes. I think comparable in different areas. And so if you kind of look at the journey that Flowserve has been on since 2023, we have seen substantial improvement from our FPD segment. And so the margins have expanded. There have really been step changes in each of the years since then. And the progress within our FCD segment has been a little bit slower. And I'd comment that we think that we've made the right moves within FCD to expand margins, and now we're going to be in a position that, that accelerates a bit. And so if I think about 80/20, for example, they're probably 2 to 3 quarters behind where we're at right now within FPD from a maturity standpoint of the process. That will accelerate as we move into 2026.

And so what I'm looking for from the business is more of a step change in FCD from a margin perspective and with FPD being more in a bit of the continuous improvement mode and the traditional type of margin expansion that you would see from 80/20.

That's helpful. Okay, I'll go to the audience. Any questions from the audience? All right. We got one. We got 2.

[indiscernible].

Yes. So I think for the webcast, question about whether or not there's capacity that needs to be added from a nuclear perspective? And right now, the answer to that is no. So we feel really good about the footprint that we have around the world, not just one facility, but sort of in multiple areas of the world from North America to Europe, to Asia to service the nuclear demand. Within -- I think that there -- it's possible that we will improve certain facilities over that period of time, whether or not that's testing capabilities or efficiency moves, but I think all of that can be done within the construct of our normal capital run rate.

It's Kevin Dreyer from Gabelli Funds. Curious about capital allocation. Obviously, you had a big deal that didn't go through. You got a bucket of cash, business is doing great, you lean to the share repurchases. Should we expect M&A to be meaningful for you in the, let's say, short to midterm going forward? Or are you more focused on the organic opportunities you have?

Yes. So I think that what you saw from a share repurchase perspective is -- was very opportunistic on our part, and we're going to continue to have the ability to be opportunistic around share repurchases. And I think it remains kind of the litmus test that we can compare inorganic growth against. Overall, we like M&A as a tool in the belts around growth and around expanding our exposure to end markets that we like more. So you saw us -- the Mogas transaction in 2024 is a good example of that. We wanted more exposure to mining. Mogas gave us that in a meaningful way with that deal. And so that's kind of the way that I think about programmatic M&A around does it fit the strategy, is it going to expand margins and improve our cash flow? And can we do it within the bounds of our balance sheet?

And so I think you'll see us be disciplined, but hopefully active in the M&A space to really enhance the portfolio of opportunities that we have. That being said, I don't want anyone in the room to think for a minute that we're turning our back on sort of the self-help story internally. And so I'd like to believe that the second and third quarter of this year gave some indication that the improvements that we've made within Flowserve over the last several years around the business system have added an element of sustainability to performance that maybe we've not had the opportunity to demonstrate before. And so we had a small group of team members who are actively involved in advancing a transaction that we thought was strategic. And while we both negotiated and diligence that deal and ultimately shut it down, we delivered 2 great quarters. And so we'll continue to be disciplined and focused on the underlying business as we approach M&A.

Okay. Great. So maybe just talking through the margins and not giving up on self-help. I mean you gave us some good color across the different segments. In FPD, you're already above what your long-term margin target was, and you just said that you would expect to see margin expansion again next year. So that's great to hear. And maybe that talks to the sustainability that you're expecting out of that business going forward. In FCD, the businesses -- the business there doesn't have the same type of aftermarket content as FPD. I know that you're also integrating Mogas, so that was a headwind to margins. How do we think about like what the entitlement of that business really is going forward? Can it be FPD like based on where they are in their journey?

Yes. So I think that we are -- this is a business that traditionally has had very strong margins. And I think if probably after our Investor Day in 2023, if we would have said that FPD got to the margin target before FCD, people would have taken my temperature.

I would have been one of those people. Yes.

And so I think that there -- we see with the FCD business no reason structurally why we can't get back to the levels that we've been at in the past and even go beyond that. There's still a fair amount of work that we can do operationally. And I'll point to -- I use this as sort of a marker. FCD is actually the drag for us on working capital within the organization. And so as I think about that and the opportunity to improve working capital, I also see that as an indicator of how efficient are the operations. And so I think that there's more work that can be done around operational excellence. I think we'll be more aggressive around complexity reduction, which is what we call 80/20 internally with the product portfolio in 2025. And I actually think that the services and solutions model that we've set up in both of the segments, it's more obvious within FPD in terms of how we serve our customers within -- with the aftermarket, but that opportunity exists within FCD as well. And whether or not that's replacement valves or repairs, it's an area that we can continue to strengthen that relationship with our end user customers and grow margins over time.

Yes, that's a really interesting comment on working capital. Is that mostly on the services side of FCD?

It's actually more on the traditional product side of the business. And so it's an area that's getting a lot of focus from team members, both within the platform and corporate resources as we head into next year. But I think that the improvement in margins is going to come and we're going to see improvement in working capital...

I mean you've already made great strides in your free cash flow conversion. So it sounds like there's opportunity for further...

Yes. I think that -- I've shared this before that what's exciting about our free cash flow performance is there still is so much opportunity within working capital. And so rather than being disappointed that we haven't made even more progress in this area, I guess I sort of see it as just a way that we can continue to further enhance the business and generate free cash flow, which then we look to allocate in a disciplined way. It becomes a virtuous cycle.

So I know we asked -- the audience asked a question about capital allocation and then also a question around capacity additions for nuclear. Just marrying that question together, when you think about M&A and getting after the nuclear entitlement that we talked about earlier, do you need to add to your portfolio in the nuclear business? Is there a potential white space or adjacencies? What does that pipeline look like?

It's definitely -- it's not a have to have. But certainly, if we see opportunities out there to enhance our nuclear portfolio, that would be an attractive opportunity for us. So I think as we look at end markets that we see attractive out there, and nuclear is certainly one of them, general industries and sort of strengthening our role in for pharmaceuticals, even things that are a little bit more GDP driven like food and bev are appealing to us. So -- and I think the other piece that we continue to look at, and I've gone through the filter a couple of times today, so I apologize if I'm repeating myself here. But really, our strength in the aftermarket is something that we continue to look to utilize in our favor.

And so that means businesses that are heavy in aftermarket already are attractive to us, but also businesses that we don't think have fully penetrated or taken advantage of what they can do from an aftermarket perspective is -- are attractive to us.

We've invested in, call it, 150-ish quick response centers around the globe. Each of those was started in a capital-light manner. They're not -- it's not expensive to build 1, but it's relatively expensive to build 150. And so I think that, that network of service centers and of Flowserve talent is sort of unmatched in the industry and something that we need to continue to look to exploit.

Great. Amy, any last closing comments?

I think it's pretty obvious that I'm optimistic about the future for Flowserve. And so I think that we've done a nice job positioning the company market-wise and taking advantage of some of our strengths in our product portfolio. And then I'm very proud of the way that the team has responded to the changes and the adoption of the business system, and that's around really what we've done from an operational perspective, but also 80/20, which is a huge cultural shift for an organization to take that on. And the team has done fantastically with that. And then I think the last piece of that is really around what we can do commercially and continuing to serve our customers in a way that is perhaps more efficient for us internally, but also in a way that gets them the answers that they want in an even more timely way.

That's great, Amy. Thanks so much for being here. Congrats on all the progress.

Thank you.

Hi, everybody. Mike Halloran with Baird here. Thanks for joining the Flowserve session on stage with me is Scott Rowe. We got a couple of people hanging out in the audience as well, including Amy and Olivia. So we're going to do a pretty normal session here.

Scott is going to lead in with some prepared remarks. We're going to follow up with a fireside chat Q&A session. If you've got anything that you want to talk to, please e-mail me, raise your hand, and we'll make sure we address it. There should be cards in front of you for the e-mail side of things. And the hand raised, I'll just try to be observant.

So with that, Scott, please, the floor is yours. Thanks for coming.

Yes. Good afternoon, everyone. Thanks for being here in person. And for those that are listening online, thank you for your participation. Mike, thanks for having us. This conference is one of the best industrial conferences every year, and so we're excited to be a part of this.

So just kind of overview on Flowserve and some general concepts, and then Mike's got a long list of questions that we can go through, and we'll answer any from the audience as well. Obviously, we just finished our Q3 call, really strong results. We had very healthy bookings at kind of $1.2 billion. We had continued margin expansion. And so I'll kind of walk through why we believe that we can continue that margin expansion. And then we delivered $0.90 of EPS. And so it was a really good number for us and a good print.

And if we go back to kind of what's happening in the business, maybe 2 things. We've got a strategy, which is our 3D strategy of diversify, decarbonize and digitize. That strategy has been in place now for several years. We continue to see our business further diversify away from upstream oil and gas and so that is working. When we look at the bookings for the quarter, less than 10% were large projects, which are typically that upstream oil and gas. And so we're seeing more aftermarket, more diverse end markets, and so the business is more resilient than ever before. On the decarbonization side, I'll come on nuclear, but you've got nuclear in there. We've got LNG in there as a transition, but also a little bit on carbon capture and some of the other things that are in decarbonization. And so we're still really excited about that lane.

And then on the digitized side, ultimately, what we want to do is be able to support our customers with our pump and valve technology through instrumentation, through a digital overlay allowing them to monitor, allowing them to prevent unplanned downtime through our prediction algorithms and then ultimately helping them with flow loop uptime and optimization. And so we're excited about that offering. We can get into it if we need to.

And then secondly, I want to talk about the Flowserve business system. And so we have a slide in the Q3 deck, but we're excited about what the business system is doing. For those that have followed us for a long time, I've been the CEO now for over 8 years, it has been a journey. And when I got here, we were not a process-focused organization whatsoever that was -- we were furthest from that, as you could ever imagine.

And today, we use the business system to really drive and run our business. It's how we do our work. And so we've got 5 verticals there. We have people excellence, operational excellence, portfolio excellence, commercial excellence and then innovation excellence piece of it as well. And we take all of those pillars seriously, but I'll just touch on 2 because it's really what's driving our margin expansion.

So operational excellence is very serious. It's a commitment to, what I'll call, lean principles, basics of manufacturing. So I think shop floor daily management, how do you solve problems at the lowest level within your organization? How do we think about inventory management? How do we do material flow like all of those good things. And we have seen tremendous results in all of our operations, and that has been driving a big part of the margin expansion.

And then secondly is portfolio excellence. And within portfolio excellence is 80/20. We have fully committed to 80/20. We are in our second year. We put some metrics in our slides in Q3. So our first business unit, industrial pumps that has gone through this is seeing tremendous results. And so year-to-date, that business unit is up 150 basis points of margin. We've reduced 45% of all of the SKUs in offering and so massive complexity reduction with that overall offering in our target selling. And so this is a framework where we say we want to support our best customers, and we call them out by name. Our target selling efforts have generated 21% growth within the business. And then we've also divested a piece of that business that's no longer core to what we're trying to do. And so my point in saying all of that is 80/20 is alive and well. We are fully on the methodology, and we're making great progress. And so we're very excited about that.

And then the last leg I'll touch on is our commercial excellence. And so with 80/20 comes a little bit of downward pressure on your revenue as we're eliminating 45% of all of your SKUs. With that said, net-net, we've done a nice job continuing to grow the business. But we needed to lean in on commercial and really drive growth. And so the commercial excellence is all about that, and we're excited about what we can do.

And then lastly, in Q3, we talked about what we believe is our entitlement with the nuclear end market. And so we put 3 slides together that basically describe how Flowserve is positioned historically, but then also what we think our right to win is. And I won't go through details, Mike, I'll let you -- you ask me questions on this, but essentially, we committed to or we put a number out there of a $10 billion bookings surprise over the next 10 years. And we believe that's possible because we have strong domain expertise. We're in reactors all over the world. In fact, we have equipment in 75% of all reactors. And it is a very exciting time in the industry, and we're one of the leaders within flow control for the nuclear space.

So at that, Mike, we'll open it up.

Why don't just stay on the nuclear piece, it is a question we're getting a lot on. So let's just start high level and frame the entitlement to win. You referenced the 75% installed base. There's a lot of barriers for other people trying to compete to that. So maybe talk about what that looks like and then also talk about what you play in and what the revenue opportunity can look like as refurbs and recycles.

Absolutely. So we see nuclear prize in 3 categories. One is the traditional power in the new build of that. Second would be your SMR technology. And then third is the aftermarket. And so the aftermarket, we have our normal aftermarket run rate. We've got life extensions in there. You've got kind of a resurrection of facilities that have been shut down and now they're restarting. And so we include that in there as well.

And so back to barriers to entries and right to win. We participated in all of the different customers around the world. I would say the 75% includes China nuclear, and the future of China nuclear does not include Western companies. And so as we think forward, we will still get aftermarket and support those existing reactors. But we won't be part of new build programs in there.

With that said, there's still a massive prize. And what we put in our numbers is roughly 40 new reactors being built over the next 10 years. And we believe those are with people that we have strong relationships, preferred technology. So these are all the normal suspects like Westinghouse in the Americas and potentially in Europe, EDF and in France and then other parts of the world that we do really well in. And so we've got a great position. We've got product that's in there.

And when you're in the nuclear industry, safety and reliability are the 2 most important things. And what these operators don't want to do is change equipment or change suppliers when they know something's working. And we've been involved in the industry for almost 50-plus years. They don't want to make decisions that could jeopardize the future safety. And when something works, they'll typically stick with it.

And so we're very confident that we will be a part of the future. We're also trying to figure out how do we make sure we can grow our entitlement within nuclear, there's 2 things. There's the nuclear island and then the power island. We do participate in both. We believe in the power island, we can bring more of our products in where maybe that kind of barrier to entry is slightly lower, but they know us well across that portfolio. We believe we can actually grow our entitlement as we go forward there.

And so large installed base on the slides, you kind of laid out the revenue opportunity over $100,000 for, call it, a new Westinghouse type thing?

To a $100 million per reactor.

[indiscernible].

Per reactor.

Yes, different scales -- different scales. Over $100 million for that type of reactor, but there's still an opportunity if SMRs take off. How do you decide where and how you want to approach that market? Maybe there's a clear winner or not in your mind, but it seems like you've got exposure to a chunk of people and giving yourself optionality [indiscernible] plays out.

Absolutely. Yes. So SMR is a very dynamic landscape. There's more than 30-plus players around the world that are doing something around this technology. We've gone through a comprehensive kind of filter to get to roughly 10 that we believe will be successful as we go forward. And so we put a few names on our slide there, but we're working with about 10 people.

And when we say working with them, it's really helping them think through the technology and what's needed for the concept of their design. And so we think of like there's a sodium concept. There's a molten salt concept. So ensuring that we've got a pump in a valve that can support the temperature in the medium that they're looking at to put in their process. And these are all things that we've done before. We've done sodium within our pumps and valves. We're in concentrated solar power, which is a molten salt application. And so we're in a really, really good position to be able to support that.

In addition, we've got the certifications with the N-stamp in the Americas. We've got the European Commission and the certifications there. We've got certifications in Korea and other countries. And so we've got the ability to participate. And so for us, it's really been very focused on the few players that we believe will be here for the long run. And we believe we're working with the right ones, and we're confident that as the industry moves forward, that Flowserve will be a part of the SMRs.

So last one here. How do you think about what that curve can look like and what your visibility is into essentially these nuclear reactors either being built or refurbed or...

There's a lot of public data out there. And I'd suggest folks to look at the public data, we didn't give a time line. We put $10 billion out there, which is our bookings number. And I'd say this year, we'll book over $400 million of bookings within the nuclear space, we believe it only goes up, but it will be lumpy, right? These are big projects, and there's a lot of timing. And obviously, there's government approvals in the United States, they're state approvals. Then there's all kinds of other stuff on what could happen and how they finance these. And so it's really difficult to lock in on 1 scenario. But again, there's a lot of public stuff out there. We've been using that to model the 40 and the kind of the -- what we thought on the SMR side and what we think -- we said 30 and 5 years translate that to at least 60 in 10 years. We feel reasonably confident on that, but things can change here.

What I would say is we are fully confident that there is growth in nuclear, like I don't see any scenario where this doesn't go forward. I think that rate or pace of growth is something that could be debated. But our $10 billion was built on what I would call a reasonable estimate that is in the fairway of what all of the public data would suggest.

I mean, you're seeing in the orders, right? I mean you talked about $400 million.

Yes, we're $400 million a year right now.

Your historical revenue base was a low single-digit number, and now we're talking 10% of your order base.

Yes, exactly.

So maybe transition to a conversation about what you're seeing more broadly. What are you seeing in the marketplace from a demand perspective, particularly around willingness of customers to move forward with the midsized or larger projects?

Yes. I'll start on projects, but I'd be remiss not to talk about our aftermarket thoughts. I'll do that second. But on the project side, it's been a challenging year, right? I mean you've got -- in the Americas, you're dealing with tariffs. In Europe, we've got not quite recession, but not the best end markets, and we've got still the price of energy in Europe is incredibly high. You've got a lot of turmoil in the Middle East going on. And so I'd just say, it's been a tough year for us in terms of project bookings in midsize, and it's hard for operators to think about a return on an investment when you don't know exactly what your cost position is because of a tariff or a reciprocating tariff and things like that.

And so with that said, we've still had a very solid year in bookings. And so the project activity has been reasonably stable. Second quarter, we saw some healthy delays that impacted our project type bookings. But in Q3, it was a reasonable number.

And then I think on the forward look, I don't -- I mean, look, anything can happen in the world, but I think we improved from here. I feel like there's a little bit more stability. I actually think the back half of 2026 looks pretty good.

In the Goldilocks scenarios, tariffs settled down, peace in the Middle East, all these things, if that happens, and there's a lot of pent-up demand that happens across many industries in terms of growth for our equipment and our services. And so I'd say, nuclear aside, which we're really bullish on, the rest of the industries we're constructive on. And so in the U.S., we see growth from pharmaceuticals, where we're reasonably well positioned. We're seeing a lot of water projects as part of that, the infrastructure build-out. In Europe, relatively soft. The Middle East for us is an off year. We're probably one of our lowest booking levels for projects in the Middle East in about 5 years. I think just given some of the early build-out over the last 2 years and some of the dynamics there, that has come down, but I feel like the forward look is better than it was at.

And then as I transition to aftermarket, I think what's important for Flowserve today is less than 10% of our bookings, call it, 8% or 9% of our bookings in Q3 were project booking. So it is -- we are less dependent on big projects than ever before in the history of Flowserve. And so a lot of our work today is on aftermarket or MRO, which would be a replacement valve or a replacement pump or supporting smaller projects and build-outs in many applications. And so we're a more cycle-resilient business than we ever have. The aftermarket business is growing at an incredible rate. We continue to do really good things. We're setting records almost every quarter in terms of what that booking profile looks like. And we're confident that we can continue to expand the aftermarket through doing the right things with our capture rate. And so that's quoting quickly, making sure that we can get parts in front of our operators when they need them, doing repair and service in a timely manner.

When you do those things, you get the work with our -- typically with our customers, the OEM will always get that work. And so what we found with the focus and the execution is our capture rate continues to move up. And so I'd say that's a long answer, Mike, to your question, but I'd say, we feel reasonably constructive about the project environment, the aftermarket and the ability to keep moving bookings forward as we transition into 2026.

I mean as we transition to 2026, it feels like bookings profile suggests plus the backlog levels, which are very solid. So just next year is shaping up to be a relatively normal dynamic, somewhat in line with your long-term growth profile. Any put and takes towards that, that we should be thinking about?

Yes. So I was talking about market and bookings and maybe we'll convert that to revenue. And so as we think about our revenue, with the project bookings in the Middle East being low and kind of the engineered pump type projects being a little bit soft, there's some a little bit of downward pressure on our revenue for 2026.

With that said, the rest of the business units, industrial pumps, the valves business, mechanical seals have all seen really nice bookings growth in this year. And so we're confident that we can grow revenue in 2026. It's not going to be something in the double digits or something crazy that we don't typically see. It will have some downward pressure because of the large bookings kind of that delay. But with the focus and the growth that we've seen in the rest of the building, we do -- or business, we do feel like we can continue to grow revenue in 2026.

Beyond that, though, we start to see some acceleration with the bigger bookings than nuclear and all that. And so ultimately, we want to be in line with kind of that 5-year target of 5%. And the way we got to that when we put that target out was a GDP number topped off by some strategic initiatives with our 3D growth strategy that get us to 5%.

And so next year, we know we've got to come out with some new targets because we've checked a lot of those that we can kind of walk through some of that as well. But certainly on the revenue side, we believe that with the markets that we're in, the focus on commercial excellence, how we're doing 80/20, we should be growing certainly higher than a GDP number. And the teams aligned to that, and we're very much focused on how we grow the business.

Maybe also talk about the resiliency of the model that's shifted. You mentioned in aftermarket, but we were talking ahead of this a little bit about how the model has shifted relative to the 2010s and how the -- what you're relying on to drive growth has shifted. So maybe talk about the components of that, that give you confidence in the stability of the growth, even if there is a little bit of mixed background that you have to manage.

For sure, yes. So if we go back into kind of 2010, 2015, even when I started in 2017, the business was more reliant on large projects. And a lot of that was because we had a heavier dependence on upstream oil and gas. And so historically, about 40% of the business was oil and gas. And so that would be your refining, your midstream in your upstream and about half and half between your up and your downstream.

Today, we are very much in that category. It's roughly 33% of our business. So we've worked that down pretty substantially. And most of that, almost 90% would be in the refining space. And as everybody knows, there's not a whole lot of new refineries being built around the world. And so most of that business is aftermarket. And back to our capture rate and our ability to continue to drive capture rate up. We're confident in the stability and the ability to grow within refining aftermarket.

So I'd say there's a very different dynamic from 10 years ago within the Flowserve business. So less reliance on big projects, less reliance on large upstream oil and gas projects. really converting more to aftermarket and more diverse kind of end markets.

And for the first time since I've been here, General Industries is now the second category on our slide, and so it's moved up. And so we'll continue to push for that kind of more diversity within the end markets. And then again, that whole nuclear is just an accelerant for us on growth as we think forward. But I'd say we're more cycle-resilient than ever before. This is something that we have in our outcomes of the Flowserve Business System. And so it is something we've worked very hard on to reposition the portfolio to make sure that we can work through any cycle.

Yes. And it seems to me, too, that the reliability of the aftermarket or the consistency of the aftermarket should be higher.

Yes, much higher,...

Because it was far removed from the large build-out cycle of the 2005 to 2008, '09, however you want to frame it. And so that piece, you feel pretty confident in having facility and as well on top of the capture rate.

Yes. So aftermarket for us is, it's OpEx versus CapEx, right? And that OpEx is more tied to utilization rates, avoiding unplanned downtime. There's -- that's the focus there. And we don't see a scenario where operators aren't going to invest in the assets that they have. And so and again, we continue to do things to get more of our share and win that work. And so we believe that the aftermarket business is highly cycle-resilient, and we believe that we can grow it with capture rate as we go forward.

So let's switch to margins for a little bit, and we've got a handful of other things to cover. So you referenced earlier next year, we're probably going to have to manage the targets 14% to 16% is the EBIT margin target. You've said publicly that you would be disappointed if you're not at the high end or above.

Yes. We're in the range right now -- we're in the range.

You're in the range right now, exactly. And so maybe talk through a couple of things here. First, why the confidence is so high on top of being in the range already. But then secondarily, where are you in the journey as far as 80/20 implementation as far as the operational excellence curve. In other words, how much in your mind is left from a work perspective or from what you can control perspective?

Yes, for sure. We just had our teams together for the last 2 days, doing our 2026 AOP. And I'd just say, everybody is excited about the momentum that we've built. We're excited about what we've done with the business system. And I'd just say there's a lot of confidence with our general managers and our ability to keep doing this and moving that bar up. And so I'll break it down in kind of the components of the business system.

So operational excellence is in place. It's working. I'm super proud of what we've done, the level of consistency and focusing on the right things from a manufacturing perspective is working. And a lot of our margin expansion in the last 3 years would be more attributed to operational excellence than anything else.

That -- there's still room to go in there, and I'm going to come back to that because it ties to complexity reduction. So now we'll go to portfolio excellence in 80/20. So 80/20 was launched 2 years ago. We started it at the end of 2023, beginning 2024. And that framework and methodology is segmenting your product, segmenting your customers, chopping off the SKUs that aren't making you money or too much effort to support and then really focusing on your best customers. And so I gave some examples at the beginning with industrial pumps.

What we've seen in year 2 is substantial margin improvement. We've cut off 45% of the offering. We're now redeploying resources to drive growth with our best products and our best customers, and we've seen a nice uptick in target selling. And so we believe companies that really follow this methodology for multiple years, continue to see margin expansion for -- you pick a number, 5 years. I mean, IDEX would tell you it's still working today, and they're 12 years into the journey or something like that. And so there's a lot of companies that are way down the path, and the results are typically kind of 100-ish basis points a year for multiple years. And we're in the second year, and we're seeing -- we showed the results in our BU. We're seeing that same level in terms of margin expansion.

And so I don't think -- there's no -- we're not close to being done with 80/20, like we're starting to recut our data now for 2026. We'll now have all of our business units will be in their second year. We'll have one in our third year. And so I'd just say we're still in the middle of this 80/20 journey, and we believe that it can continue to provide support on our margins.

And then just maybe coming back to operational excellence, when you're leaning out your facilities and then you're reducing complexity with 80/20, by definition, on both of those, you're freeing up capacity significantly.

And so what this allows us to do is go back and think about our total footprint for manufacturing. It allows us to be a little bit more aggressive on roofline consolidation. And so there's still a net price in terms of continuing to move forward with our -- what that footprint looks like, getting in lower-cost countries, but also just making sure that we've got scale within our manufacturing facilities.

Flowserve was a roll-up of roll-up. There's -- my point is there's still a lot of opportunity to drive footprint consolidation and meet the demand and the growth that's happening there. And so we feel very confident in our ability to continue margin expansion, and we'll do it on the back of those 2 efforts.

And the buy-in internally at this point in essentially, when you think about the implementation piece, are you seeing what you want to see from your employee base as they're trying to drive and have these conversations. The second piece is more on the product side. You referenced the 45% reduction in SKUs at the industrials within some of your industrial pumps. Are we at the point where we're through some of the SKU rationalization conversation? Or is there more to do there?

Yes. Every year, you recut your data. And so every year, there will be an opportunity. And so maybe I'll go -- I'll pick that back up, but let's go to the people and the culture because it's really, really important. And our first pillar is people excellence, it's about how do we leverage our talent, how do we do the right thing, how do we create a culture that makes sense. And our culture is we have a lot of engineers. We like to solve problems. The 80/20 program is perfect for that because it is data driven. And so the decisions are relatively easy. There's a lot of debate and things like that. But once you see the data, that adoption has been amazing.

And so we started in pumps, so you saw an earlier pickup on pumps, valves is now fully in it. You saw some nice progress in Q3 with the valve margins moving forward. So I'd expect that to continue. And so we're all in on the methodology from a change management perspective, it's embedded in working. And I just don't see a scenario where we go backwards.

And maybe I'll throw in, we did an acquisition called MOGAS about almost exactly a year ago. I was able to be at their site as I was going through multiple sites during the week, but we had done 3 legacy Flowserve sites, and then we went to the MOGAS site. In the way they did their presentation, the way the shop floor is organized, the way we have our data on inventory management and how we run the business was exactly the same. And so the adoption is really, really strong, and I'm excited about how we're running it and what the Flowserve business system can do for us.

So switching gears to capital and capital deployment I know Amy is particularly excited about the free cash flow piece.

We're excited that we're at a place that we can really deploy capital.

Yes, I know both of you think that the free cash flow as a percentage of net income or wherever you want to measure it, has a healthy path going forward still.

We can still go forward on that.

The chart acquisition didn't go through. You've been very public about the idea that you're not chasing anything large. Also took some time to rebuild the conversations with Chart falling through. Where do we stand on that side? What's the activity level look like? Are there any interesting things behind it? And then how do you balance that against the buyback aspirations that you've done more recently as well as the opportunity set there moving forward?

That's a long question.

You know what? We got 3 minutes, I'm trying to give you a lot of time.

I'll work through sequentially here. And so the proxies out between Baker Hughes and Chart, so this is all public information, but that deal came to us. It was a merger of equals. We saw a very strategic opportunity to do something that you don't get a chance to do. It wasn't something we were out and looking for. It came to us. We evaluated it thoughtfully with the Board, and it did check our capital allocation kind of framework in terms of fit with strategy, preservation of the balance sheet and making sure that we could really do the right things with the business. It wasn't going to be easy. It was big. There was some -- it was a little bit messy. We acknowledge all that. But at the end of the day, there is something there that we are confident that we could create a lot of value.

With that said, Baker Hughes came in, they did a cash offer, the deal went somewhere else. We got $266 million as a breakup fee. And what that allowed us to do is really rethink what's important to Flowserve and how do we focus on our business. And so we saw a stock price that we believe was undervalued at the time. We deployed roughly $200 million back into share repurchase since the termination. Q3 and a little bit into Q4 is roughly $200 million.

And then additionally, on capital allocation, we've had this asbestos liability for a long time. We announced this in the quarter, but we paid essentially $200 million to dispose of that liability. And so now we're free and clear of asbestos. That frees up some expenses and incremental EPS is we don't have to pay a bunch of legal bills and so that's exciting.

With all of that said, we still have an incredibly healthy balance sheet, right? We're less than 1x leverage. We've got a healthy dividend. And so we've got to think through what's next for us. And I think the demonstration post Chart is that we'll be flexible and we'll do -- we'll put money to what we believe is the highest return. And so we'll continue to do that as we go forward.

With that said, we play in a highly fragmented space. There are lots of pumps and valve companies that are out there. There are some that have technology that we don't have. There are areas that would like to get more of a presence in like nuclear and some of the other attractive end markets. And so we'll continue to kind of lean in on what we call programmatic M&A.

With the Chart deal, our funnel -- we turned everything off and so now we're kind of repopulating what that potential M&A funnel would be. And we just feel like where the balance sheet is, our ability to generate cash, like this is a good use of cash, but we're going to be measured. We're going to do the things that -- what we believe will be the highest return. And again, we demonstrated that by buying shares in Q3 versus doing something else. So I'd just say we're excited about where Flowserve is. The business system and the operating model is working. We continue to believe that there's margin expansion. We continue to believe that we can integrate a company using the Flowserve business system as we go forward, and we're in a great position with the balance sheet to do some creative things.

Awesome. Well, Scott, really appreciate your time. Thank you.

Thank you, guys.

Management will be available upstairs in the Chestnut room for a breakout session. I got through most of the questions. I know there were 1 or 2 I didn't quite get to from the audience. So that's a great opportunity to go ask management about it. Thanks, everyone.

Good day and welcome to the Quarter 3 2025 Earnings call. Please note that this conference is being recorded. At this time, I'd like to turn the conference over to Brian Ezzell, Vice President, Investor Relations, Treasurer and Corporate Finance. Please go ahead.

Thank you, and good morning, everyone. Welcome to Flowserve's Third Quarter 2025 Business Update. I'm joined by Scott Rowe, Flowserve's President and Chief Executive Officer; and Flowserve's Chief Financial Officer, Amy Schwetz. Following Scott Name's prepared remarks, we'll open the call for questions. Turning to Slide 2. 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 aioli information, including our note on non-GAAP measures in our press release, earnings presentation and SEC filings, which are available on our website. With that, I'll turn it over to Scott.

Thank you, Brian, and good morning, everyone. I'll start on Slide 3. The momentum we built in the first half of the year continued in the third quarter as we delivered exceptional results across bookings, margin expansion, earnings and cash flow. We remain focused on driving growth while leveraging the Flowserve business system to accelerate margin expansion. With 3 quarters of the year now behind us, we have increased confidence in our ability to meet our 2025 objectives and we are raising our adjusted EPS guidance range for the second time this year to $3.40 to $3.50.

The midpoint of our revised guidance represents a 31% increase from last year. and an increase of more than 60% from 2023 and highlights consistent execution of our strategy and our confidence in the growth opportunities ahead. In the quarter, we delivered bookings of $1.2 billion and revenue growth of 4%. We also continued our enduring margin expansion journey with adjusted gross margins increasing 240 basis points to 34.8%. While adjusted operating margins were 14.8%, driven by incremental margins of 115% during the quarter. Adjusted earnings per share was $0.90, an impressive increase of 45% compared to the prior year period. We also returned $173 million of cash to shareholders in the quarter, including $145 million of share repurchases. We have a healthy balance sheet, low leverage, and we continue to see improved cash flow performance from the business. This, coupled with what we viewed as a discounted share price relative to intrinsic value makes repurchasing shares an attractive capital allocation decision.

Later in the call, Amy will provide more detail on our full year guidance and our approach to capital allocation. She also provide more details on the separately announced divestment of our legacy asbestos liabilities, which will further enhance our capital allocation optionality on a go-forward basis. I'm proud of all the Flowserve associates for continuing to navigate a dynamic environment while driving relentless execution of the Flowserve business system to expand margins, drive growth, simplify our product portfolio and ultimately deliver enhanced value for our customers and shareholders. Now to Slide 4. Bookings for the quarter were $1.2 billion, improving sequentially by over $130 million and growing 1% versus the prior year. Our strong aftermarket franchise continued to deliver with Q3 representing the sixth consecutive quarter of bookings greater than $600 million. In fact, 2 of the last 3 quarters have seen aftermarket bookings above $650 million. I remain excited about the opportunity to leverage our capabilities to drive further aftermarket growth.

Project activity in the quarter was steady and improved sequentially with strong growth in the power markets and solid trends across most other end markets. For the quarter, we delivered over $140 million of nuclear bookings, a record for the company. Our 2 largest bookings in the quarter were both nuclear awards related to 2 separate new reactors in Europe. Each of these bookings was approximately $30 million. Many of the project delays we saw in the second quarter did come to market in the third quarter. However, we continue to see some slowness in project timing for larger engineered projects, primarily in the energy end market. Over the last 5 years, we have evolved Flowserve into a more resilient business. 10 years ago, large engineered projects often represented 20-plus percent of our bookings which naturally led to more cyclicality based on project investment cycles.

Today, engineered projects remain an important part of our business, but this mix is typically around a mid-single-digit percentage of our bookings. The shift in mix is driving more consistency in our bookings and revenue, allowing us to manage more effectively through cycles. We have also sharpened our focus on capturing more aftermarket opportunities while selectively pursuing the most attractive engineered projects that deliver better margins and a healthy aftermarket entitlement. For the quarter, if we were to exclude engineered pump original equipment bookings, our bookings growth was an impressive 9% across the remaining portfolio. Turning to Slide 5. Our end markets remain stable with strength in areas, including traditional power and nuclear. Power demand continues to represent an exciting and significant opportunity while General Industries is benefiting from continued industrial build-out in emerging areas of opportunities like pharmaceuticals, food and beverage. Mining has been an area of excitement for us, though project deferrals have happened bookings over the past 12 months.

In the third quarter, we saw mining project activity start to pick up with overall mining increasing over 60% versus last year. Within energy, asset utilization for large process industries remains elevated and maintenance spending has continued as expected. Chemical remains our lowest growth end market. However, we were encouraged by improvement in North America Chemical in the quarter and the potential for an improved outlook in this space. With our year-to-date book-to-bill at 1.0x and a strong project funnel, we are optimistic about delivering on a full year book-to-bill of approximately 1.0x. Additionally, our commitment to the Flowserve business system should drive growth in 2026 and beyond as we leverage commercial excellence and 80/20 principles to further grow our business. Moving to Slide 6. Let me take a moment to highlight the significant opportunities we see ahead in the power space and specifically nuclear. Our offering of pumps, valves, seals and actuators play an important role across the nuclear spectrum.

Today, we have content in over 75% of the roughly 400 nuclear reactors operating across the globe. Our mainstream isolation valves and actuators play a critical safety role in the nuclear island with other types of valves used across the balance of the nuclear facility. Our pumps are often found in the turbine island, helping to ensure the cooling process runs as intended with additional legacy pumps within the containment zone itself. Importantly, we have the critical quality assurance certificates and customer approvals necessary to leverage our technology across the global nuclear landscape. We also maintained great relationships with key industrial partners and customers around the world as Flowserve's nuclear equipment is essential to their operations. This set of key capabilities and domain expertise that we bring to the nuclear space makes us one of a few preferred vendors for valve seal and actuation content worldwide positioning Flowserve for leadership and nuclear flow control for decades Sika.

Moving to Slide 7. Today, Power represents roughly 7% of our revenue. with about half of that coming from traditional power and the other half coming from nuclear. Our bookings show an evolving picture with accelerating growth across all power and nuclear growing at the fastest rate. On a year-to-date basis, our total power book-to-bill is 2.0x. The expansion of artificial intelligence, cloud computing, data centers and broad scale electrification are creating significant growth for power broadly and specifically within nuclear power generation. Looking forward, we see the potential for 40 new large nuclear reactors to be under construction in the next 10 years across North America, Europe and parts of Asia. In addition, technology for SMRs or small modular reactors, continues to progress, and we believe this technology represents an additional growth driver as the expansion for the global nuclear fleet begins to accelerate. While the technology still is in the development phase, many of our SMR partners are making significant progress and industry data suggests as many as 30 SMRs could be under construction in the next 5 years. The existing fleet of nuclear reactors is also aging, and we expect almost all existing large reactors will go through life extension upgrades over the next decade, providing further opportunity for Flowserve.

We are working very closely with nuclear power operators to refurbish and supply equipment to enable life extensions, power uprates, refurbishments and restarts of reactors that have previously shut down. Turning to Slide 8. Power Nuclear represents one of the most compelling multiyear growth opportunities for Flowserve. With our strong market position, differentiated product portfolio in decades of domain expertise, we are exceptionally well positioned to capitalize on the accelerating investment in this space. As global electrification advances and new nuclear capacity expands to meet AI, data center and energy security demands, we see a sustained growth cycle emerging with nuclear becoming a larger contributor to our business over the next 5 to 10 years. Based on our current content opportunity of approximately $100 million plus per gigawatt, we believe that nuclear flow control opportunity set could be $10 billion plus over the next decade. Importantly, nuclear carries attractive, accretive margins, offering the potential to drive substantial value creation for Flowserve over the long term.

With the potential for double-digit growth in the nuclear and power and our non-power business benefiting from healthy demand and reindustrialization, we believe we are well positioned to continue driving long-term growth. Before I turn it over to Amy, I will conclude by saying that Flowserve is in a strategically advantaged position. We have a robust and expanding aftermarket franchise with additional upside and capture rates, balanced by a diverse mix of industries that includes both high-growth power demand opportunities and stable recurring end markets. The Flowserve Business System is driving quantifiable improvement in execution and margin expansion and we see significant runway ahead.

Our cash flow generation continues to strengthen, enabling greater capital deployment and incremental returns to shareholders. We remain focused on driving sustainable growth, expanding margins and enhancing cash flow, all with the goal of delivering superior value for our shareholders. With that, I'll turn the call over to Amy.

Thank you, Scott, and good morning, everyone. Turning to Slide 9. We delivered another strong performance in the third quarter, an outcome of our growth strategy and exceptional delivery through the Flowserve business system. Third quarter revenues were $1.2 billion, a 4% increase versus last year. In the quarter, organic sales were flat, while the Mogas acquisition contributed 3 points of growth. We continue to see strong growth from aftermarket, while revenue from original equipment was slightly lower in the quarter due to the timing and composition of projects in the backlog. Our profit performance in the quarter demonstrates our execution focus.

Adjusted gross margins increased 240 basis points, driven by actions taken under the Flowserve business system including improvements in operational excellence, our 80-20 complexity reduction program and improved cost performance. With additional leverage from SG&A, adjusted operating margins increased 370 basis points to 14.8%. This represents the second consecutive quarter of operating margins within our long-term targeted range of 14% to 16%, which we originally set out to deliver by 2027. Our ability to continue to deliver in this range well in advance of initial expectations is a testament to the more resilient business model we have created and an impressive execution by our associates around the world. Moving to the performance of our segments on Slide 10. I'll start with FPD. FPD continues to deliver strong performance with another quarter of adjusted operating margins around 20%, and in line with best-in-class peers. The 80/20 program is driving clear results for FPD with the year-to-date benefits from 80/20 pacing ahead of our initial expectations coming into the year. Aftermarket also remains a strength with bookings growing in the mid-single digits for the quarter.

We continue to improve our aftermarket capabilities, and we see further opportunity to capture more from our large base of installed equipment over time. Bookings in the quarter were negatively impacted by lower engineered pump projects, which Scott referenced earlier as well as some year-over-year timing of project awards. Overall, FPD book-to-bill for the quarter was 1.02x, a healthy level as we continue to grow the business even with lower levels of large energy project activity. Turning to the FCD segment. We delivered strong performance in the quarter with bookings growth of 24%, sales growth of 7% and adjusted operating margins expanding 230 basis points. Bookings in the quarter benefited from strong aftermarket growth as well as a large nuclear award and project activity in the Middle East. FCD adjusted gross margins increased 220 basis points year-over-year and 130 basis points sequentially, largely driven by improved execution and better performance from Mogas. Combined with improved SG&A leverage and accelerated synergy realization from Mogas. Adjusted operating margins improved 410 basis points sequentially.

For the quarter, Mogas operating margins were accretive to FCD, consistent with our expectations for the business when it was acquired. The fabricated modules that hampered Mogas and FCD margins in the first half of the year have been shipped with the remaining exposure related to final installation and completion. With these projects largely behind us, synergies accelerating and the Mogas business now fully on the Flowserve business system. The team is focused on driving growth opportunities across the globe through our expanded offering of severe service fallouts. I'll add that Alice D. Bazio joined the company as our new President of FCD. We're excited to have her on board and look forward to leveraging her unique set of industrial experiences across product management, software solutions and engineering to continue the progress in FCD. Turning to Slide 11. I'll take a moment to highlight one of the many areas of significant progress within the Flowserve business system. When we launched our 80-20 complexity reduction program in 2024, we had conviction around the opportunity to drive significant value and margin improvement over time.

We were intentional with the approach focusing on individual business units within our segments and ensuring we let data lead the way. From the start, we view this as a way of doing business, a process and not a project. and something we wanted to embed in our culture. Our industrial pumps business unit was the first to come into the program and is now in its second year of driving 80/20 actions. The team has made tremendous progress on a number of 80/20 pillars. First, within industrial pumps, we reduced our original equipment SKU count by 45% leading to a more efficient manufacturing process, less working capital and importantly, better value for our customers. While the SKU reduction had some initial impact on top line performance, the team has quickly pivoted to maximize opportunities with a core set of products. These target selling efforts led to a 21% increase in year-to-date bookings for key customers. By reducing SKUs and focusing efforts on our best products, the team has made a difference for both our customers and shareholders, improving gross margins by roughly 150 basis points compared to last year.

In addition to these efforts, the 80/20 program led us to a decision to divest a small gear pump business within the industrial pumps business unit. This decision was made using our analysis of the market opportunity, our right to win and our ability to deliver profits in line with our expectations. After analyzing this business closely, we determined it was better off in someone else's hands. While this divestiture was immaterial to our overall financials, it is a decision that ultimately improves our profitability, working capital and cash flow. We are focused on continuing to execute utilizing the 80/20 methodology, not only in industrial pumps but across our entire portfolio, and we'll share more details over time. Turning now to Slide 12. Our continued focus on managing working capital and converting more profits into cash, combined with the merger termination payment, led to significant cash from operations of $402 million in the quarter.

For the quarter, adjusting to exclude the net impact of the merger termination payment, our free cash flow conversion was an impressive 174%. As I look at our year-to-date cash flow performance, our improved working capital management under the Flowserve Business System, and our healthy leverage level. I'm encouraged by our ability to allocate capital in growth-enhancing ways. In the quarter, we returned $173 million to shareholders. including $145 million of share repurchases. We continued share repurchases into October for an incremental $55 million bringing our year-to-date repurchases through October to $253 million, with $200 million remaining on our share repurchase authorization. Looking ahead, we'll continue to allocate capital in a disciplined manner with continued commitment to our investment-grade rating.

On Slide 13, in another example of our disciplined approach to capital allocation, we are excited to announce today that we have reached an agreement to divest our legacy asbestos liabilities. The transaction simplifies our capital structure, reduces volatility and improves our annual cash flow, all of which will enhance our ability to focus capital allocation on growth opportunities. We have found a great partner for this transaction, and we look forward to closing the transaction in the fourth quarter. Turning to our outlook on Slide 14. As a result of strong year-to-date performance and increased confidence in executing through the Flowserve business system, we have increased our earnings outlook for the second time this year. We continue to deliver strong year-over-year margin expansion and now expect to deliver over 200 basis points of margin improvement for the full year. The midpoint of our full year guidance represents a 31% increase in EPS year-over-year and an impressive increase of more than 60% since 2023. I'm proud of our teams, their strong delivery and our focus on execution.

In closing, our performance in the third quarter and year-to-date in 2025 has been outstanding. Adjusted EPS for the first 3 quarters of the year is up 31% versus prior year. Aftermarket growth is strong, margin expansion is accelerating and cash flow performance continues to outpace historical levels. The 80/20 program is early in its life cycle, but we are seeing tangible benefits with performance in the quarter in line with our long-term margin targets. And while we execute using the business system we have been able to allocate capital to opportunistic share repurchases to drive shareholder value. These efforts, combined with healthy end markets and significant expansion in power, including nuclear, creates a compelling opportunity for profitable growth in 2026 and beyond. We look forward to providing a more robust view of 2026 including our financial outlook for the year on our fourth quarter earnings call. And with that, I'll turn the call back over to the operator for Q&A.

[Operator Instructions]

We'll go right to Mike Halloran with Baird.

Thank you. Good morning, everyone. And going do you put in context what you're seeing from an environment perspective, more of a pipeline funnel thought process. I know you mentioned some of the larger projects may be pushing to the side a little bit, a lower percentage of the portfolio today. But if you think about what the underlying trajectory looks like, both from an order perspective, from a funnel perspective, how that's converting? Are we talking about a framework on a forward basis '26 specifically or however you want to think about it. That's pretty consistent with what your long-term thought process here is? Or do you think there's something in the environment that pushes you one way or another relative to that framework?

Sure, Mike. Let me start by just breaking this into aftermarket and then kind of our OE business because I think it's really important. On the aftermarket side, we delivered another very strong quarter at $650 million. That's 2 out of the last 3 now. And we've got a street going over $600 million a quarter now for many quarters. And so we feel really confident that, that continues, right? And that work is on the back of refinery utilization, chemical plant utilization, desalination plants operating, just general health of the macro environment allows that business to continue to grow. And then additionally, we continue to drive our capture rate up. We're doing that through a lot of different levers in terms of making sure that we can be responsive to our customers.

We're in the proximity with them with our quick response centers, but then we're also doing really good things to make sure that we're providing the support and service then ultimately, we think we can continue to grow that by moving more from just parts and service and repair to driving full-scale solutions. And so I would say long-term growth there is tremendous, and we feel really good about our ability to continue to capitalize on aftermarket. And then if you go to OE and projects, and we put this in the slides, like that's this becoming less important for us than ever before. And so historically, this was roughly 20% of our business, so large kind of OE projects. Now we're talking roughly high single digits, less than 10% of our business. And we're doing that deliberately. That's part of our diversification strategy. And it's really something that we're looking to do to drive cycle resiliency as we go on the forward look.

With that said, we're still very much in the project game. We feel that projects -- the project environment is reasonably constructive. We talked in Q2 about project slippage. Some of those came to fruition in Q3 and I would just say the Q3 environment was slightly more constructive than what we saw in Q2. And then on the forward look, if we break this down to end markets, we're obviously very excited about power and nuclear. We think that is a significant growth rate going forward at a tune of double-digit growth. We put out some markers there that I can talk about maybe in a follow-up question. But we also think the rest of the markets are generally in a good space. And then the other thing I would point to is in 2025, the Middle East Energy projects are at a very low level. And for us, it's roughly a 5-year low.

We believe that, that doesn't go down from here. There's a lot of opportunities in our funnel there. They just got to work through some of the larger projects and some of the diverse projects as we turn the corner to 2026. And so all of that said, I think we're in a good position to grow our business. The geopolitical and macro environment needs to settle down a little bit to give operators confidence in their ability to cost projects and ultimately move things over the financial investment decision line. But overall, we feel constructive about 2026 and beyond.

And then follow-up question is just maybe a thought on pricing. How pricing looks in the marketplace, receptivity, competitive dynamics and how we should think about price cost on a forward basis? Appreciate it.

Sure. Yes. You can't talk pricing without tariffs sadly. And so we've really hammered price in the U.S. on the back of all of the tariff changes. I think we've done 3 or 4 price increases this year. What we're finding is in the run rate business, the aftermarket business, our MRO replacement business, that price been incredibly sticky. We're seeing the peer group and the other industrial is doing very similar things that we're doing there. And we feel very good that we're at a price cost neutral basis, if not slightly positive on the forward look. And so I'd say that's working, and that obviously is more of a U.S. phenomenon than anything else.

And then as we think about the project pricing, this has always been the case since I've been here, the bigger the project, the more exciting or flagship the name of the customer or what it's doing, it seems to just attract more attention. there's always an element of competitiveness. And so that's kind of the nature of the game there, the EPCs make sure there's several bidders. But I would say we're not seeing anything fundamentally different than what we've seen in the last couple of years or anything in my tenure here. And so we believe that the environment is constructive for us to be selective with our bidding, especially with the large projects.

And when we say selective, it's making sure that we have the right to win. We're working with customers that we know we can execute on we know there's a large aftermarket content where they support that and then ultimately bringing margins in that will drive value creation for Flowserve. And so I think we're in a good place there. We're more focused on pricing than ever before, and we feel we can be on the positive side of price cost as we go forward.

[Operator Instructions]

We'll move next to Andy Kaplowitz with Citi Group.

Good morning, everyone. Scott, can you give us a little more color into the margin inflection you saw in FCD this quarter. How much of the improvement was Mogas improving versus core FCD? And you mentioned that both of your segments are in line to at least make the range of 16% to 18% segment adjusted operating margin that you set for FY '27. But as you know, FPD is already higher than that. So could that range end up being conservative?

Sure. Maybe I'll hit the Mogas piece because I was there last week, and then I'll let Amy talk about just the margin progression in general and FCD, and we can touch on the pump division as well. Look, Mogas is going incredibly well. I was able to -- I was in their site last week and with Alice and we had a fantastic visit. And I'd say some of the takeaways there is the integration has gone incredibly well. The Flowserve business system is fully embedded. And when I mean business system, the operational excellence is in place, shop for daily management, problem-solving, how we do inventory -- all of that is now embedded and operating at a level that I would say is equivalent to the rest of the Flowserve Peer Group.

We've really pushed the portfolio excellence side, and so they're on the 80/20 program now, and we look at that as a severe service kind of ball valve offering, and we're now making -- we've been making rationalization-type decisions with our other offering. And now we're moving into commercial excellence. And so the commercial excellence is about driving growth and making sure that we get clean orders into the facility itself. But I couldn't have been more pleased with the progress that they've made. And so in the quarter, Mogas margins were accretive to FCD. As Amy said in the prepared remarks, the modules that had given us some concern and maybe a little bit of -- we're lower to deliver than what we had expected when we signed up the deal. Those have now shipped in the third quarter, and then there's minimal revenue from the modules in Q4 and Q1. And that's associated with the installation and commissioning work.

And so now the focus is on bookings and driving growth, and we're excited about what that product offering could be. And as a reminder to everybody that the end markets here are mining and refining. And what we've seen in the mining space is that funnel has increased. We had a pretty decent booking number in the quarter, but the outlook continues to improve. And so structurally, we think the end markets will support Mogas growth and leaning in with commercial excellence and the 80/20 principles, we believe that we'll get to that $200 million that we keep talking about. And then lastly, I would just say this is a great example where we're applying the business system as part of an integration. And what we saw and what we see now is in a relatively short period of time. We can take a family-owned business that maybe wasn't highly focused on business process and turn that into something that we're extremely proud of, that we know can drive enhanced margins to the FCD portfolio, but also drive enhanced growth with our customers and outlook here.

Yes. And Andy, I'd just add with respect to FCD, we improved 410 basis points sequentially. You don't do that without all boats rising within the FCD platform. And we've been talking about some of the levers that we had available to us, whether or not that's operational excellence and some footprint decisions that had been executed in late 2024 going into 2025 as well as other tenets of the operational excellence program. 80/20 is taking hold in the platform. We're seeing that start to contribute as well. And then obviously, the story behind Mogas as well.

And so we continue to think that there's runway with respect to FCD margins and then once again, with respect to FPD, obviously, a great story there as well in terms of both platforms being within the range of their long-term targets, actually FPD being on the outside in a good way of that range. And so I think we'll go through our annual -- our annual planning process this year knowing the additional levers that we have to pull from a margin expansion standpoint, both in 2026 and beyond, and we'll look to reset those long-term targets in 2026.

And Scott, you talked about that $10 billion nuclear flow control opportunity over the next decade. What do you think your share could be of that opportunity? And then nuclear bookings per quarter, we know are lumpy, but they seem to be rising overall, think they've averaged higher than your specific nuclear sales exposure that you mentioned, maybe close to high single digits of bookings, a single-digit percentage of your bookings each quarter over the last year. So could we continue to average that amount or even more over the next couple of years?

Sure. So let's look back first, and then we'll talk about the forward look. The nuclear bookings are rising. Power in general, has been up double digits for us. And we've had 3 quarters now over $100 million in the last -- of the last 4 quarters for our nuclear bookings. And so I would just say with all the noise in the nuclear space in a positive way, the noise in a positive way at all the recent announcements we only see nuclear starting to move forward in a -- with a trajectory and an inflection higher than what we have today. And so we're incredibly excited about the nuclear opportunity. That's why we put 3 slides in our presentation.

But maybe to frame up the $10 billion a little bit, we do have substantial share within the nuclear space. And so we're leveraging our domain expertise we're leveraging our installed base. We're leveraging the partnerships and the quality certifications that we have around the world that put us in the forefront and allow us the opportunity to do this work as we go forward. And so we're -- and I would just say the barriers to entry here are really, really high, right? The quality plans and what our customers are looking for are pumps and valves and actuators that will work for 30-year planning life, and they take it very, very seriously and getting an in stamp in the U.S. is incredibly hard. And so we just feel like we're in a great position to carry on with this work with companies that we've worked for, for decades. And so we're excited about the price.

We did put some kind of market share numbers in there and to orient folks, there's a roughly 400-plus nuclear reactors out there in the world today. We have equipment in 75% of those. And we called out some geographies because it is important. In North America and Europe, we do incredibly well. We do really well in Korea. And then we believe we can do well in India as they're going forward. And so those are the areas that we'll target. Obviously, China is a massive market and putting -- growing more reactors than any other region at this point. With China, we have installed base in the early reactors and the early facilities. But over time, they've shifted to a more nationalistic approach on all of their equipment. And so that's why we -- that's why we've deliberately kind of excluded that as we talk about our numbers. And then as you build to the kind of the $10 billion prize, we put some numbers out there around 40 reactors in the next 10 years that could have up to $100 million of content for Flowserve.

We talk about SMRs progressing and moving forward, and we believe we're well positioned with what we think are some of the winners in the SMR technology. And so there's a large contribution in the $10 billion number on the back of SMR. And then our aftermarket today is roughly $100 million of bookings a year. That number only grows with our increased installed base. And so we feel very comfortable continues, if not grows pretty aggressively over the 10-year period. And then finally, on the last category there would be extensions and re-rates and then kind of where we're bringing assets back to life. And this week, both Google and Brookfield announced 2 projects of bringing existing sites back online over time. And I would just say those are incredible opportunities for Flowserve. And so one of those examples, we have valves installed and we will absolutely be a part of that project. And then the other one, the pumps and valves that we did manufacture got pushed to a different site, or actually 2 different sites but we're confident that we'll pick back up that work.

And so again, we feel like we're in an advantaged position. We've got the expertise, and we're leaning in to make sure that we'll position our offering to capture the full benefit of this nuclear growth.

Our next question comes from the line of Deane Dray with RBC Capital Markets.

I'll start with congratulations on the announcement regarding the legacy asbestos it's such a smart move here. We've seen companies like Honeywell do this successfully. And if you just take us through, like, am I correct that you paid sub paying less than $200 million to resolve this? And could you just clarify what the cash flow implications are?

Sure. So one, thanks, Deane. This is something that we were excited to get done. It just made sense given our cash position and obviously puts us in a great position going forward to have a more simplified approach to capital allocation. And so think that the benefits are -- will range from a cash flow perspective between $15 million and $20 million a year. Going forward, we do have about $200 million, $199 million of cash that we'll allocate to the sale in the fourth quarter of the year. But for us, this is about really simplification of the capital structure, doing in 80/20 on the administrative work that we do in the Flowserve corporate office and taking out some volatility for our investors in the process.

Great to hear. And Amy, just sticking with the free cash flow. It's outstanding this quarter and you were clearly -- you laid out how you were excluding the windfall from the deal termination. Is there anything else within the free cash flow, the working capital, any kind of improvements that you would cite there? And what does this mean for free cash flow for the year? Because it looks -- this puts you ahead of plan?

Yes. So I think that as we look at free cash flow now, targeting something at the 100% level or a little bit better. I think for us, really free cash flow starts with margin expansion. That's the quickest way to improve the free cash flow any company, but working capital has been a huge focus. And we've made some improvements there. 80/20 is actually helping us with the process, even decisions that we made during the quarter around the small divestiture. Pay dividends in terms of simplifying the inventory that we need to that we need to keep on hand.

But I'll just point out with working capital. And if I didn't remind you, Scott would remind me to remind you that our work is not done. And so we continue to have a substantial amount of improvement that can be made in this area, and we are focused on it. We are focused on it. At the leadership team level, we're focused on it at the platform level and at the BU level. And so we're going to continue to do everything that we need to do to make free cash flow a real strength for Flowserve and its investors.

And Deane, just to reiterate, we talked about this last month, but 80/20 helps on working capital dramatically plus the operational excellence program. And so we're not done. We've made progress. We're not celebrating our working capital numbers right now. But we feel like we're moving in the right direction in a very positive manner.

We go next to the line of Damian Karas with UBS.

Good morning, everyone. Scott, I appreciate your comments on the certifications required to compete in nuclear pumps and valves. But I just wanted to ask how you're thinking about the profitability of these awards. When I just think about how your industry has sometimes behaved in the past, it's gotten pretty competitive when you have the mega growth cycles, just like thinking about past oil and gas booms where the OE margins were slim to none. So could you maybe just talk a little bit about where you are projecting these nuclear awards you've been winning to line up kind of relative to the rest of your project base? And just as a capacity build-out for nuclear continues, how you're thinking about how to price that in your bidding process?

Yes. I think it might be helpful to just kind of walk through the life of a new build nuclear reactor. And I would just say, these are very different than even kind of an oil and gas project or a water project or anything like that. the amount of years on the front end to get the process dialed in fully and to ensure that the quality requirements are at a place that they're comfortable with is multiyears. And so when we win work on a new reactor somewhere.

The time horizon for us is somewhere in that kind of 4- to 5-year mark to where we before we can start shipping equipment. And those first 3 years are all about engineering and quality. And so I just feel like as we go forward and we think about the folks that are designing these type of reactors, that's a Westinghouse, it's your EDF, it's your Korean nuclear authorities like for them to make a change in terms of what they've been doing historically and introduce a new supplier is really -- it's really, really difficult to do. And so the barriers [indiscernible] year are incredibly high. With that said, obviously, we have to perform and we have to perform with delivery.

We have to perform within increasing our capacity to support the nuclear growth and we've got to perform with our ability to be competitive to allow their financial decision to get over the line. But again, we've worked with these players for decades. We're very confident in our ability to retain that type of work. It's not grow that work. And so we're leaning in on our opportunities. We're making sure that we can support the industry, and we're making sure that we can support our customers in the regions where they're operating.

Yes. And Damian, I'd just add one thing from a color perspective, I was with sales leadership team on the pump side as well as our BU leaders last week. And there is focus on 2 things in this space. One, making sure that we have the resources in place to support these opportunities and that includes adding nuclear expertise at the corporate level within Flowserve but it also means that we're making sure that we remain competitive, and that we're doing things to not be complacent about our cost structure where we can to really continue to protect this business the margins and keep those barriers to entry as strong as we can.

That's all really helpful. And I wanted to ask a follow-up question on the asbestos transaction. Are you anticipating that is going to have any impact on your cost of financing? And curious what you plan to do with this new found increased balance sheet flexibility.

Sure. So probably from a financing perspective, I would say it's credit enhancing. But given the size probably not too terribly impactful. I think overall, we find ourselves in a position at Flowserve where we have more opportunities for capital allocation than ever before. We've made some of those decisions in the fourth quarter already with some opportunistic share repurchases in October as well as earmarking a little under $200 million towards this transaction.

I think what you've seen us do over the last several quarters is pretty indicative of the disciplined approach that we'll take. We're focused on sort of growth opportunities and earnings enhancing opportunities capital allocation. And so it's going to be environmental specific. It made a lot of sense for us to buy back shares over the last few months. We'll continue to keep that at the ready. We've got about $200 million of authorization still available to us under our share repurchase plan. But over time, we're also interested in growing the business. And as Scott pointed out, the Mogas -- the kind of the Mogas turning point in the third quarter, their adoption of the Flowserve business system, us now turning our attention to really growing that business. Over time gives us more and more confidence that M&A, utilizing our strict criteria around value creation can be a powerful tool for us over time with respect to capital allocation.

We'll go next to the line of Brett Linzey with Mizuho Securities.

Congrats. then come back to the energy business and apologies if I missed it, I jumped on late, but the bookings down 19%. I was just hoping you could drill down a bit on some of the moving pieces there. And does any of the quoting in that segmentation and form this could be snapping back in the coming quarters here?

Sure. Yes. When we think about the compare versus last year, it was a difficult comp. We had 3 large projects in the Middle East that were all energy a year ago, and then those didn't repeat this year. And so I think that's the easiest way to describe that Energy on the OE side for us is primarily Middle East. It's a lot of that kind of midstream processing storage and then also on the downstream side. And we had a lot of activity last year. And quite frankly, we're in a little bit of a lull right now with the Middle East energy-type project bookings.

With that said, I feel confident that there is work to do in the Middle East. There are a lot of plans to move forward with some of the investments that have already been made public but have been delayed in terms of that project timing. And so we're incredibly well positioned to capitalize on that growth. And I would say with just a little bit of stability in the system, maybe oil pricing coming back a little bit to provide them a little bit more cash flow to fund new projects, we could see a positive trajectory here in 2026 and beyond.

Yes, that's great. And I appreciate the detail on nuclear. I guess as thinking about the content and some of the ramp over the first 3 years, is there anything to be aware of in terms of development costs and how that might play out as you're ramping for some of these opportunities? Or do you think you can simply just repurpose some of the R&D to these areas?

Yes. For us, it's a relatively low development cost. We are working with some of the SMRs on maybe some modifications to our existing products to support a slightly different reactor. But overall, this is not big dollars for us in terms of needing to redevelop our products. And so a lot of this is just making sure that we're meeting the current requirements and that we can adapt to the -- what's happening in the space. And so I wouldn't expect to see from massive incremental expense to make sure that we're positioned to win this work.

We'll go next to the line of Nathan Jones with Stifel.

One I guess I'll dig a little bit more on the nuclear side of it. billion of flow control opportunity over 10 years, maybe looking for a little bit more color on what your expected market share is I know Andy asked about it, but I'll see if we can get a little bit more color on it. I mean when you look at large utility scale reactors that have been out there for decades now, I'm sure you understand what your market share is on that, maybe a little less so on the SMRs given they're really still under development. I'm just hoping you could give us any color on what your expected win rate on that kind of $10 billion worth of content over that time period was, because 5% market share is very different to 50% market share of that opportunity.

Yes. This is Nathan. I'll point to Slide 6, where we talk about the current market share, and I'll try to give some color on the go-forward basis. And so of the 416 reactors that are out there, we have content in 75% of that. And so that could be a pump. It could be a valve. It could be our in seals, but we're very well positioned. And in my comments earlier, we do really well in North America with the Westinghouse technology. We do really well in Europe with Westinghouse and EDF technology. We do really well in Korea what -- where we don't do well today is in China. And historically, we have done well in China, but just because of their policy and moving to domestic supply even though we have a strong presence in China, we typically will not win the new Chinese work.

And so then if you think on a go-forward basis, who is involved with the North America growth, the forward Europe growth, what's happening in potentially India, in China -- sorry, in Japan and in Korea, we're incredibly well positioned there with those operators. And so on the valve side, I would be disappointed if we did not have the highest share of mainstream isolation valves, where we have the primary product globally for the main the safety valve and all of the nuclear reactors. We have large content on the cooling pumps. We put a number out there at kind of I think we can maintain that on a go-forward basis.

And then we are moving back into some of the reactors with the primary coolant pumps within the reactor itself. We have done that work in a long time just given the lack of some of the newer builds, but we're starting to secure our position there. And so I fundamentally believe that our market share could actually go up as we reposition some of our products to take on the balance of plant. But I think you could expect us to be a market leader here, certainly within pumps and valves on the go-forward basis.

And so the $10 billion excludes China?

We did not put China in our estimates.

Got it. I would figure the biggest ticket item coming out of here would be the pump at that greater than 50% of currently operating reactors with flows or pops would probably be reflective of the biggest dollar opportunity. Is that correct?

I think that's fair. Yes.

Okay. I think that gives a bit more color on potential win rates. So I'll leave it there.

We go next to Joe Giordano with TD Cowen.

Good morning. So I think we all appreciate the need for the power gen pickup here and nuclear is a logical way to do this. Like as you chase this business we're throwing around a lot of numbers, right? All the companies like $80 billion here, $100 billion all these gigawatts. Like how do you -- one, like can we build all this stuff? And do how do you have to think about who's backstopping this? Like on the SMR side, we're talking a lot of new companies making big commitments with like no revenues at this point. So as you kind of judge where you want to chase like how solid is the ground that you're walking on when you do it?

Yes. Those are really important questions. Let me start with capacity, and then we'll start and then we'll go to our customers and how we think about that. On the capacity side, we -- again, we've been doing this for decades, have a designated facility for valves in North America. We have a designated facility for pumps in Europe. We can expand capacity at both of those sites. We're looking at making nuclear center of excellences where we can put all of our product together into a site that then allows us to leverage engineering, the project management, the quality and things like that.

And so I would say we're confident in our ability to ramp back to some of my previous comments on this is when you win an award, you've got 3 years of kind of office type work and engineering and quality before you start your delivering the equipment. And so you do have lots of visibility in terms of making sure that you've got the capacity and the other thing I would just say is on the supply chain. That is an area that we're working today to make sure that we are investing in our suppliers to ensure that they can come along on the journey with us. To be -- to participate and allow us to deliver as expected. And so I'm highly confident in our ability to expand capacity and to keep up with the industry at least at this point in time.

And then on the customer side, it is -- I would -- this is a dynamic landscape, and there's announcements it feels like every week or every month in terms of some of the players here. obviously, it's attracting a lot of money and names like Brookfield and Google and Amazon that are funding and backing some of these projects with large dollars just to make sure that these reactors can get back online and be a part of the power on a go-forward basis. With that said, we have been selective in who we are working with. And we have hired what I'll call as a nuclear expert that worked with the NRC for a couple of decades. And then worked in the White House. And so he is helping us to be really selective on where we put our resources and where we put our efforts.

And so we identified a few of those customers on our slide here. But I would say on the SMR side, we've narrowed that list down to kind of 10 to 12 players that we're actively engaged with we believe will be successful in the long run. I don't think we'll be 100% right there. But if we're at least 60% or 70% right on who we've chosen them we're in a really, really good place from a partnership perspective. And so I'd say we've been very methodical about our approach in making sure that we're not overburdening some of our business development and engineering resources on the front end of this to get locked in into the future.

And then as a follow-up on that, are there any obvious gaps in the portfolio where you can tuck in new product that would be like specifically geared towards nuclear? And is it fair to think that given your commentary about the timing, like as you guys report as in the coming years, would we expect like the percentage that -- of delivery over the next 12 months out of backlog to kind of move down commensurate with the amount of bookings you're doing in this sector.

Yes, I'll let Amy hit the backlog conversion. I'll start with the other one.

Yes. So I think from a capital allocation standpoint, as we look at attractive -- as we look at attractive end markets, nuclear is certainly one of them. We try and take a pretty good product approach for all we do on the M&A front. And so that sort of starts with mapping what we have, what we don't have. And although we are pleased with our product portfolio at this point in time, I think there's always ways that we can look to strengthen that portfolio through M&A.

Yes. And so I think the thing for us is we may have some pumps on a facility. We may have a main steam isolation valve but not have the control valves or not have the butterfly valves. And so really, the focus is making sure that we can package more of our content together as we work on these new projects. And so that's the effort right now. There's a huge opportunity in front of us. And then to Amy's point, what we are looking to do is potentially on the programmatic M&A side is acquire other companies that may have the certifications and may have that installed base already in there where you're not having to work through some of those barriers to entry that I talked about before.

And then on the backlog conversion?

On backlog conversion, I would say, overall, last year, you started to see this in the context of our backlog that ticking down from -- to kind of mid-80s overall for Flowserve. And I think we'll see that continue in some ways around the nuclear portfolio. I will say that, that is being slightly offset by the strength of our aftermarket business. So our aftermarket business, which converts relatively quickly is at historical highs. And so -- and we're continuing to be focused on that. So 2 tend to offset a bit, but I would say there's probably a slight pressure on backlog conversion with the nuclear content.

We'll take our final question from Andrew Obin with Bank of America.

Can you hear me?

Yes, we can hear you.

Excellent. So just nuclear bookings have been great, but if you look at underlying power bookings ex nuclear, it seems that they've been quite weak this year. I think we calculate down high teens. What is this a reflection of and the core power pick back up? Because I would imagine the power gen trend is broader than nuclear?

Yes. I think in the quarter for the traditional power, it might just be a little bit of a timing impact. We are seeing investments in all forms of power. And so you're seeing coal-fired power plants get extended where we have a lot of content on both pumps and the valves we're seeing new kind of single cycle combined cycle plants going forward, where we may not have as much content, but we do have content there. And I would say this phenomenon is happening all over the world.

And so we're excited about that opportunity. It is a more competitive type environment. And so we've got to be really selective in terms of making sure that we can get the right product in front of the right customers, the folks that value our aftermarket. And so I'd just say that's -- we're a little bit more selective here just given the wider, the broader kind of competitive offering with the traditional power set.

Got you. And just to help us understand, last year, bookings grew 9%. This year, bookings are sort of flattish. So how do we think about the relationship, given that you're changing a business model. How should we think about the relationship between bookings and revenue? And just how did this year's bookings translate into hitting the 5% revenue target next year, right? Because the 9% bookings growth last year have really flowed through the P&L as top line. And no complaint..

I'll let Amy talk about the conversion to revenue. I'll talk a little bit about the growth. And so we're obviously right at kind of a book-to-bill at 1.0 is what we're committing to, which and the growth this year on bookings is lower. And we said this earlier, but a lot of that's your Middle East kind of OE project business has come down. When we think about the rest of the business, all other aspects, excluding kind of OE, Middle East or OE Energy projects, grown at 9%. And so we actually feel like we're doing a nice job growing and leaning into that growth. We need that kind of energy bookings to come back in 2026 to kind of get us back to what we want.

And the last thing I would say is on the commercial excellence in 80/20. The teams are incredibly focused on growth. So commercial excellence is 100% about growth and aligning the sales organization the right way with the right incentive structure and the right project pursuit strategy and all of that good stuff to capture more share. And then on 80/20, we're now starting to move more and more into the growth side of 80/20 we showed some numbers with our industrial pumps that's growing our target selling accounts at 21% this year. And so I do feel like that we can -- with this kind of renewed commercial excellence and the 80/20 focus, we get back to this kind of 5% kind of -- on over time, a 5% growth rate feels right for me.

Yes. The only thing I'm going to add there is, I think, overall, our conversion rates on sort of this quicker turn business is actually improving over time. The efforts that we've made around commercial excellence are reducing or around operational excellence are actually reducing our lead times. And so that, combined with our aftermarket strength, which we have no intention of slowing the intensity of those efforts does help with conversion. And so as Scott pointed out, with the overall health of a number of the end markets that we're focused on in addition to the efforts around commercial excellence, and target selling.

We see those things in conjunction with some Middle East opportunities not just in traditional energy, but within Power and Water, moving into 2026 as sort of more than offsetting headwinds that we see from 80/20.

We have no further questions. I'll turn the call back to Brian Ezzell for any additional or closing remarks.

Great. Well, thank you, everyone, for joining the call today. We look forward to seeing many of you at upcoming conferences and investor events. And then, of course, we'll provide another update early next year. In the meantime, if you have any questions, please feel free to reach out to the Investor Relations team, and we'll be happy to talk through anything. And with that, we hope you have a great day.

This concludes today's conference. We thank you for your participation. You may disconnect at this time.

Good afternoon. I'm Saree Boroditsky, cover multi-industrial here at Jefferies. We're very excited to have Amy, CFO of Flowserve with us today.

The company is on a transformational journey as part of the Flowserve Business System with a focus on expanding margins and driving profitable growth. Global demand remains strong as the company is levered to secular growth drivers within energy and power. So lots to talk about today. So thank you so much for joining us.

Yes. Thanks for having us.

So let's just get started with the demand outlook. You have delivered 5 consecutive quarters of aftermarket bookings above $600 million. You mentioned continued aftermarket capture. So could you just expand on what you're seeing from customer demand and what you're doing to maybe drive outperformance?

Yes. So aftermarket is an area of the business that is very exciting to us. I think it's one of the things that truly makes Flowserve differentiated in the market. So about 50%, a little bit more than that actually is driven by a pretty resilient aftermarket revenue franchise.

We have had very strong bookings over the last several quarters at $600 million or more. It's been very resilient so far. And so I think one of the probably misunderstood things about Flowserve overall versus where we were at maybe 10 or 12 years ago is the type of work that we're doing in the energy or oil and gas end market. And so it's really very focused on downstream assets and refining in particular. And so as we look at that revenue stream, it's not so much driven by capital spend or by rig count or the price of oil on any given day. It's driven by capacity utilization.

And so as we see assets around the globe, but particularly in North America and Europe working hard and needing reliability and uptime, we feel like we are really well positioned to capture that demand. And so this has been a focus area, particularly within -- on our FPD segment over the last couple of years. And so some of the things that we've invested in and have been focused on have been front-end tools.

And so we believe that in this business, speed wins and so you'll hear our aftermarket team quote that time and time again as they talk about their business. And what they mean to that -- by that is that we want to be quoting to our customers as quickly as we can. That matters to them. They want certainty around that repair, and that means both in the price and in the time that it's going to take. And so we have been focused on that initiative.

Pump parts has been another area that has been a huge focus. It was actually an area that we highlighted at our last Investor Day in 2023 as something that we wanted to grow. It's a high-margin area of the business and something, again, where we think that speed is a differentiator. And so we've looked at that business a little bit differently than we have in the past. So we're centered around parts manufacturing hubs in different areas of the world that allows us relative proximity to our customers, but also the opportunity to get good at one thing. And so they are focused on churning out parts every day as quickly as they can to meet our customers' needs.

Current project activity appears to be on the smaller side in the quarter, although I think you had a large -- a couple of large projects coming into the third quarter. Just talk about how this provides confidence in a better book-to-bill in the second half of the year?

Yes. So we booked about $1.70 billion in the second quarter of the year. And of interest in that is normally at Flowserve, we consider a large booking at something at $10 million or more. We did have 3 large bookings in air quotes, but none of them were over $12 million. And in fact, that $12 million booking was an aftermarket valve booking for our nuclear business.

And so overall, 1, we think that points to the strength of the run rate business, frankly, as we look at the economic indicators. But we did see some slowing or a lack of large projects in the quarter. And I would put those into 2 kind of buckets. 1, around the Power segment and nuclear, in particular, where timing can be tricky. Obviously, those are very complex projects. They require a significant amount of quality control from a quoting and order perspective within Flowserve.

And it also requires a high level of review and approval with our customers as well. And so although the slipouts were what I would call untimely, they're not unusual in terms of that type of business. And we have a great deal of confidence that on a couple of those bookings that we've either received or will receive in the back half of the year. And then the second, I would kind of attribute to general uncertainty. It's not that projects have been stopped, but projects have been slowed or the level of urgency that we've seen with customers and maybe had gotten used to in 2023 and 2024 has -- the pace has changed a little bit.

And so I think where -- where customers have the opportunity to take a bit more time to understand the ramifications of what's going on either with supply chains around the world or interest rates or general economic conditions, they are taking that. With that said, our funnel of opportunities, which to everyone in the room within Flowserve, we may talk about that funnel of opportunities beyond 12 months. But as we look at it and talk to investors, we like to really focus on the next 12 months.

We've seen that funnel grow sequentially the last few quarters. And so we have a high degree of certainty that our end markets or at least a number of our end markets are relatively strong. And I'd point to, obviously, power, and I've talked a fair amount about nuclear already without you even asking me. And so that's a key source of strength for us. But then I would also point to overall, just that run rate aftermarket business that we're focused on not just maintaining but growing our share.

And then lastly, areas of general industry that have been relatively strong over the last several months. And there, I would point to water, I point to pharmaceuticals, some run rate in the mining area of the business aside from projects. And so I think that as we look out over the course of 2025, we did not see the second quarter as a roadblock. It's just something that our commercial team is working to overcome in the back half of the year.

And then maybe just as you think about margins on the projects, does it benefit margins if the projects are a little bit on the smaller side versus some of the larger projects you've seen in the past?

Yes. I think our sweet spot, honestly, this run rate business is what we love. Why we like projects is because it feeds our aftermarket essentially. And so we've tried to do as much work as possible to make sure that the projects that we're winning are the ones that we want to win. And that means that even as we are contemplating the project pipeline or our quotes on projects, we're trying to assess the aftermarket opportunity on them over the next, call it, 5 to 7 years.

And so it helps us decide which are the ones that we sharpen our pencils on versus which are the ones that we may think that are better suited in someone else's backlog. That said, the team has done a fantastic job within our large projects business in terms of increasing margins over time. And so certainly, as part of our FPD margin expansion story, improvement in our engineered pumps business in terms of their ability to not just achieve the margins that we've quoted on, but actually exceed those on an out margin perspective has really improved over the last couple of years.

Getting ahead of me with the margins. We'll get to that in a second. I think I wrote these questions ahead of on some of the tariff announcements. And I know I was going to ask, have you seen -- you mentioned some of these deferred projects on high level uncertainty. Has this changed the new legislation? And then maybe I'll add in here the recent Section 232 tariffs and how you're seeing that impact your business? Yes. So...

Yeah. So I would say it's impacting the way that we allocate our time internally within Flowserve a lot. And so we spend a lot of time talking about and analyzing our response to tariffs. And I'll start by saying -- start generally and then get more specific. But generally, we have a number of levers to pull with respect to response to tariffs.

And I'll start by saying maybe sizing the issue, about 1/3 of our business is to U.S. customers. And so thinking about that, we still have a large portion of our business that is outside the U.S. So our exposure to tariffs is largely on the supply chain side. And so not necessarily impacting product that we are bringing into the U.S. from other countries to sell within the U.S. And so as we think about response, -- the obvious one is pricing, and that is certainly the largest lever that we have to pull. I will say, even post earnings, where we sized sort of the gross impact of our tariffs ahead of some of these new announcements, we pushed through another pricing change on some of our products.

We don't think that we're alone in that. We think that this is part of the playbook of most in our space as we look at that, and that has led to a great deal of stickiness on those pricing increases. We also have flexibility in our supply chain. And so where possible, we are on a sometimes daily basis, making decisions about where we bring in components from to ensure we're getting the best outcome. And then I will say some of the announcements that we've had in recent weeks have changed what those source countries are that we're utilizing for certain components.

And then lastly, from a trade compliance standpoint, we've needed to get much better. And so that means that in instances where we can take advantage of trade agreements that are in place between countries that we've got the boots on the ground to put the documentation in place to do that.

And so it's been a huge effort and a huge amount of time. Ultimately, regardless of where tariffs go, I think that our supply chain was made more resilient by actions that we took following COVID. I think it's been made even more resilient by actions that we've taken with respect to the tariff guidance. In terms of where we stand today, we still feel very confident that we're in a position to offset the impact of tariffs through those actions. And so there may be a mismatch from time to time in the quarter, which that occurs. But over a 12-month period, we're pretty confident in our ability to make the impact fairly de minimis.

And then you mentioned strength in nuclear. So we'll get back to this now. The nuclear project funnel remains strong. And I think you've mentioned some smaller modular nuclear reactor award in the quarter. What is the project mix within nuclear? And how do you think about that mix going forward?

Yes. So the mix within nuclear can vary a lot from quarter-to-quarter. And so we have a pretty standard run rate business that we're not going to talk about an individual order that we get. That just happens on a -- on a monthly or quarterly basis. And then we have 2 types of large orders that come in. And so we've got large aftermarket orders that come from life extensions of reactors or plants across the globe. But I would say over the last several quarters have been focused on North America. And so those tend to be things that we -- orders that we like a lot.

There are plants where we have original equipment that's been spec-ed in. And there is, for obvious reasons, a real bias -- and in fact, automatic look to the original equipment manufacturer for those upgrades and replacements. And so those can be very large kind of in order of magnitude, we had a large pump aftermarket order in the first quarter, $55 million. That aftermarket order will be delivered over the next 18 months at margins that are very accretive to Flowserve's overall margins.

On the new build, we are seeing, obviously, that activity skewed to certain areas of the world. We have seen a great deal of activity in Europe, and we have strong relationships in Europe on the new builds. And so that's -- and those -- when I talk about what can happen in terms of deferrals or slipouts or however you want to call it in any given quarter, that tends to be what we're talking about. And so that work will be in our backlog or a portion of it will be in our backlog for several years as we go through more detailed engineering, we go through the procurement process and ultimately, the build process with our customers.

I think an area that you referenced that we are excited about, although it's not necessarily material to our business today is the evolution within SMR technology and really the need to see this technology be commercialized. And so we are working with a handful of technology developers within the SMR space. We do have a couple of prototype orders that are currently in our backlog. They are not incredibly material. They're not material, I should say. But they're indicative of the fact that we are active in the space.

We're devoting resources within Flowserve to this. We do have a resident nuclear expert to help us with our relationships with customers, with engineering and design firms as well as governmental agencies to the extent that that's necessary and obviously, end users. So as we think about our nuclear offering, we're working more and more to think about that holistically as a nuclear offering within pumps, valves and seals rather than this pump order and this valve order, really trying to think about what do our customers need and want in this space.

One more on demand before we get to margins. The Middle East has been a growth engine for a bit. I think last year was a little bit larger projects this year, more medium. Where are we in that investment cycle?

Yes. So I think we still have some runway to grow in the Middle East. And the way that I think about this internally and why I'm a big supporter of this is for the exact reason that we talked about earlier about the relationship between installed base and aftermarket.

And so I think today, from an OE perspective, the Middle East, our projects are skewed towards the Middle East versus other regions of the world, but I think that, that represents tomorrow's aftermarket. And so we positioned ourselves well in terms of both our ability to provide in Saudi, for example, in Kingdom content, but we also have established QRCs in region to allow us to support that installed base going forward.

And so I think we've got a couple more years at least of growth and then a number of years of aftermarket resiliency in the region. You commented on project size, and I think that's a great summary of it. So we were seeing somewhat of the mega projects 2, 3 years ago in the Middle East. And now those projects are sort of moderating in size to last year, we were seeing between the $50 million and $100 million. And now I think sort of that $30 million to $50 million is kind of more of where we expect to see projects.

I think you referenced earlier, what do we think of project size. I think that those projects are actually better for us to manage internally, don't require quite the infrastructure that, for example, a $240 million order did that we worked through over the last couple of years. And so we feel pretty good about our positioning.

When does that switch then? When does the Middle East become more aftermarket than OE?

So the aftermarket cycle actually begins very early. And so, I don't know about when that tip over point will be when we see that shift happen. But most sites before -- most assets even before they begin to actually turn out product or commissioning are putting spare parts in the warehouse. And so the ability to kind of supply those parts, supply replacements and components can happen before an asset is even placed into service.

And so one of the things that we try and do and a benefit of having a leader that in pumps that looks over both original equipment and aftermarket does is it creates a link between those 2 businesses, which means that as we're delivering original equipment, we're also on the ground with our aftermarket team trying to make things as easy as possible for our customers for us to be first to mind when those parts orders need to come.

Makes sense. So let's get into the work you've done to improve margins. I think all products are now utilizing 80/20. How are you assessing the margin impact of 80/20 today? How does it impact growth and margins as we go forward?

Yes. So 80/20 has been a huge lever for us. I think we understood as we put out our 2027 financial targets that portfolio management needed to be a big element of this. But we weren't quite sure how to do that at the time. We knew that product rationalization was important. 80/20 has really given us a framework to use a data-driven approach to manage the portfolio.

And I've said this several times as I've talked to people today that this is really a process, not a project. And so it's a tool that's in the kit of our business leaders to say this is how we manage the portfolio going forward and process adherence is managed and reviewed in terms of what that looks like. We thought going into 2025 because we had only really launched 2 to 3 of our business. I'll say, 2.5 of our business units going into 2025 that the impact to revenue was going to be negligible and that we'd see probably about 50 basis points of margin expansion as a result.

The improvement has been more significant than that. And so as we look at our margin performance over the course of the year, where we're at on a year-to-date basis and where we expect to be, which is right around 200 basis points of operating margin improvement, I'd say about half of that, so 100 basis points has come from 80/20. And so it's been a very effective tool for us. I think overall, that pace of improvement is something that we should expect or at least I should demand of -- of the business units going forward in terms of what can be accomplished.

I will say because of some of the rapid implementation, I think that it's perhaps been a slightly heavier revenue headwind than we might have anticipated before. We started the process. And I think it's because that some of the more commercial elements of the process in terms of expanding business with larger customers and that differentiated treatment can take 1, that can take longer to pay dividends. And I think the other thing is some of the pricing components of 80/20 take a little bit more time to put in place. And so kind of this idea around -- for those familiar with 80/20 of this Quad 4 pricing increases, it takes some time to get as aggressive as you can be with those pricing increases. And so I think we're in earlier innings on that on the revenue side of 80/20 than where we might eventually land.

So you've done a lot of work with the -- like operations with 80/20, your operations team. But what about on the sales side? And how have you aligned them to adhere to the 80/20?

Yes. So in addition to where we're at with the Flowserve Business System includes an operational excellence pillar, which was the first thing that we sort of launched internally and started to deliver some of the margin expansion that we've seen. Then we launched 80/20 as part of our portfolio pillar. And now given what we've seen and the tendency for businesses that adopt 80/20 to see some headwinds with respect to revenue, we've launched a commercial process pillar as well, which is commercial excellence.

And so there's a number of things that we're focused on with commercial excellence. And the 3 pilots include areas around cross-selling, which include improving the data that's available to our sales team in order to identify opportunities, where we might be able to cross-sell. For example, seals to customers, who use our ANSI pumps as an example of cross-selling or automation valves to a customer that utilizes our isolation valves, for example, in the mining industry.

So those are some of the cross-selling opportunities that we see over time, and that's actually 2 of the pilots -- we have another pilot around business development efforts for our industrial products to make sure that we're identifying the right opportunity set. And then a piece that we are looking at going into 2026 is actually how do we align incentives to both what we're trying to do from a strategy perspective and what is happening from an 80/20 perspective. And the idea is really around benefits coming from selling to our strategic customers with strategic products and almost a detractor coming from selling those products that we either want inside sales to be focused on or ones that are not providing as much benefit to the overall portfolio.

So this will be something that happens...

That's right. And so I would say, overall, I would -- if I look at the cadence of the Flowserve Business System, I think 2023 and 2024, a lot of the story was about operational improvements and operational excellence. I think we're going to -- we've been building on that in 2025 with 80/20 and management of the portfolio. And then I think in 2026, you start to blend in some growth aspects around commercial excellence and what we can do to enhance that margin expansion through growth of the top line.

And then putting this all together into margins. I think you increased gross margins for 7 consecutive quarters. How should we think about continued expansion and then the contribution from the Flowserve Business System, 80/20 mix, operating leverage, all those pieces?

Yes. So I think that extremely proud of the fact that the playbook that has been given to the teams that the execution is taking place. And so I think it builds a great deal of confidence within the organization that more is possible. And I said earlier to someone, I think the great thing is, as I look, for example, at FPD margins, I think they can be higher, and I think the FPD team does as well, which oftentimes in my role, you need to convince before you can get the results that you want to see. And so it's fantastic to see the level of conviction and confidence that the playbook is adding to the organization.

So I think about it in 2 components. As we look at the FPD segment, where we've seen the most margin improvement over the last several years, I think that we are probably at an inflection point, where we're going to start to see more margin expansion possible through 80/20 and through expansion of the top line around commercial excellence and operations need to continue to stay steady and look at incremental improvement. But I think that we've made a lot of the hard moves necessary on the operational side.

I think as we look at our valves portfolio and FCD, I think we've got a little bit more room to run with both of those initiatives. And so groundwork has been laid within FCD in terms of some footprint moves that have been made over the last couple of years. We're starting to see improvements in our organic piece of the business. And as we bring MOGUS into the MOGUS acquisition into our business system, I think that's going to add up to operational improvements that are on par with the opportunities that we have with 80/20. So I think the goal is that overall, this business is expanding margins, but we're expanding margins that are at similar levels to the -- for the 2 platforms.

So the next 2 questions.

I can't talk too much. I'm sorry.

You currently have a strong balance sheet. I think like under 1.5x net debt to EBITDA. Given this and the $266 million inflow from the break fee, like how are you thinking about capital deployment?

Yes. So 1, Scott and I are thrilled to be thinking about capital deployment through improved -- through improved cash generation. So I think right now, we're at a point, obviously, our investors were patient with us this summer as we explored very publicly a large transformational transaction. And we were disappointed that, that didn't come to fruition.

But ultimately, the merger with Chart was an opportunity. It was not a must-have. We like our story internally. We think over time that M&A has a place in our playbook. And that means that we'll use M&A smartly to diversify, to meet our strategy of diversification, decarbonization and digitization. We think it can be a lever to expand margins and cash flow.

And -- but I think importantly, the strong balance sheet you referenced, we think it matters. We think it matters to investors. We think it matters to our customers. And so we are protective of that. As we look at M&A right now, we think there may be more attractive options in the company that we know best in terms of deploying cash flow more quickly in the form of shareholder returns. And I would say at a minimum, anything that we look at from an inorganic perspective, we have the opportunity to take a step back and say, what makes more sense to our shareholders from a financial decision and whether or not that is in the form of share buybacks or M&A. And so I think there's probably a bit of a dissection here between how we're thinking about it today versus how we might think about it in 6 to 12 months.

Maybe sticking with just Chart aftermath. I think you have secured a supply agreement to capitalize on some of the revenue synergies that you guys were excited about. Could you just provide more color on that and what that adds to the company?

Sure. And so I would say just start by the general caveats that supply agreements, they require performance from us. We obviously have details that need to be put in place between the companies. But overall, some of these opportunities that we had do not require that we operate as one company to get. And so some of the revenue synergies that we talked about over the course of the transaction including opportunities, for example, with Howden compression -- compressors to utilize Flowserve mechanical seals. And so that is an element of the supply agreement that we are seeking.

We have -- they were obviously purchased by a company that does have valves in their portfolio, but there is -- there are areas where our portfolio doesn't overlap. And so we look for some opportunities in the valves portfolio to supplement what might be an internal supply chain going forward. And then I'd say lastly, in an area that we're pretty excited about is a new product development that in the cryogenic area around a cryogenic pump for an LNG application.

And so that pump is going to go into commercialization is being commercialized late this year. And it's something that we thought that together, we had a better opportunity to gain market acceptance. And so, I think that's an area that we're going to look for help from the supply agreement.

And then you mentioned the 3D strategy. I think bookings they represented more than 25% of your overall bookings in the last quarter. So just maybe some color on the mix of those projects. I think you removed LNG and decarbonization commentary from the recent deck. Maybe that's a little too specific. But I'm just curious what you're seeing in those markets?

Yes. So Decarbonization has been an area of real success for us, I would say, in the 3D strategy and in part due to the nuclear renaissance in terms of what we've seen. So we've been pleased with our ability to drive 3D bookings. I would say it's been much stronger on the decarbonization side than the [ bookends ]. And so it's something that we continue to focus on internally. We are very excited about the MOU that we've signed in recent months with Honeywell to explore partnership around our RedRaven product and their Forge system.

And so I think that digitization is an area that although we're not seeing significant impact from today from a revenue or a margin perspective, it continues to be something that we want to explore. We think that we've got sort of a unique type of domain expertise as we look at our customer installations around the world. And as we really take a step back and study what we were trying to accomplish with RedRaven, the monitoring capability is important, but a lot of service providers can provide the monitoring.

The question is, what can you do with the data once you have it. And so I think a partnership like this may be an opportunity for us to think about that commercialization broadly and actually look for a monetization stream that is more tied to what is special to Flowserve versus what others can do. And I think that additionally, that digitization really gives us a great view to expand the aftermarket. And so if we know what the bad actors are in a particular installation, if we know what the assets are that are going to need maintenance sooner, it allows us to serve our customers better.

And that's that, we're time. So thank you so much for joining us today.

Thanks for having me.