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| Statement |
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| As Scott mentioned, our markets continue to remain active, and we expect to generate a full year book-to-bill ratio over 1x, building backlog to spur multiyear revenue growth |
| Flowserve’s fourth quarter performance marked a strong finish to a very solid year of improved execution and consistent progress |
| Our financial and operating performance throughout 2023 supported raising our full year revenue and adjusted EPS guidance 3 different times as we significantly exceeded our original expectations |
| For the full year, we achieved year-over-year revenue growth of nearly 20%, driven by enhanced backlog conversion and operational improvement while delivering higher adjusted gross and operating margins |
| As a result, our adjusted earnings per share increased by over 90%, and our operating cash flow improved by over $360 million compared to 2022 |
| Bookings exceeded $4.25 billion for just the second time since 2016, which supported our strong year-end backlog of $2.7 billion |
| Most importantly, Flowserve entered 2024 well positioned to drive continued momentum and success, and we are well on our way towards achieving our 2027 financial targets that were communicated last September |
| And so we feel really good about that margin trajection as we go forward |
| FCD has been a great story from a margin expansion standpoint in 2023 |
| I’m very pleased with our results in the fourth quarter, including our adjusted earnings per share of $0.68, which brought our full year adjusted EPS to $2.10 |
| We are seeing the impact of our improved operating model higher backlog conversion and significantly better financial performance |
| These improvements drove fourth quarter sales of nearly $1.2 billion and expanded our sequential adjusted operating margins to 10.5% |
| We also delivered $195 million of operating cash flow during the quarter, which was driven primarily by our earnings and strong working capital performance |
| This was a clear highlight for us as we are beginning to deliver improvements in our inventory management as our supply chain continues to normalize and lead times shorten |
| Our markets remain supportive as we delivered over $1 billion in bookings for the eighth consecutive quarter |
| I think the margins here expanded nicely and kind of reached the long-term target of the segment |
| General market activity remains high, and we generated bookings of $1.04 billion in the quarter |
| We achieved this level due to the success of our 3D growth strategy, coupled with continued high levels of aftermarket and MRO activity that we captured around the world despite the lack of a major project award |
| So, I think as Scott pointed out, we are in a better position than we have ever been to do that |
| And so I would say we have improved dramatically in the last year about what we should pursue and where we shouldn’t, but continuing to have a robust installed base and continuing to drive aftermarket support is important |
| So, I would say the Q4 was probably more a little bit of slip out than being selective, but again, we feel really good about what we are seeing in 2024 on the projects |
| We are also confident given the selectivity that those will deliver the margins that we deserve as we go forward |
| While their focus remains on reliability, efficiency and emissions reductions, we are positioned well to capture the aftermarket and MRO business associated with this type of work |
| And what we liked about Velan is they were better positioned with some of their technology and products than we were |
| And so I think we still feel good about the outlook of LNG |
| And as we think about our guidance range, I would say our ability to move towards the high end of that range would likely mean margin expansion above that 100 basis points versus volume growth, given that we saw sales volume growth of nearly 20% in 2023 |
| Our overall market outlook for 2024 is very encouraging given the project opportunities and aftermarket trends we are seeing today |
| The environment is substantially better than that |
| At year-end, our total project funnel has increased 13% versus prior year enabling us to remain disciplined and selective in the new project work we pursue |
| Our oil and gas funnel is up 25% year-over-year, driven primarily by mid and downstream activity in the Middle East, where we’re we are well positioned to capitalize on the significant investment in the region |
| Statement |
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| And look, the winner’s curse on these bigger deals is that there is margin pressure |
| On a reported basis, fourth quarter operating margins decreased 70 basis points year-over-year to 9.4% |
| Adjusted operating margin in the quarter was 10.5%, just 30 basis points lower compared to prior year |
| And so it remains somewhat challenging |
| Our fourth quarter adjusted tax rate of 7.8% was notably lower than expected, primarily due to the release of valuation allowance on certain net foreign deferred tax assets |
| That said, we would anticipate our general trend of seasonality and earnings will continue in 2024, with the first quarter being our lowest earnings quarter of the year and the fourth quarter being the strongest |
| The real headwind that FCD is going to have in 2024 is around mix |
| Our adjusted tax rate of 15.1% for the full year finished below our previous expectations, primarily driven by the release of valuation allowances on specific foreign net deferred tax assets as we believe those benefits will now be realized based on our improving financial results and help mitigate future cash taxes |
| Adjusted SG&A as a percentage of sales was 20.9% for the year, representing our lowest level since 2015 |
| Despite the net increase in realignment and asset write-downs of $4.1 million, versus prior year |
| You called out both some project delays as well as selectivity |
| But notably are evidenced by the nearly 7-day reduction in our day sales outstanding year-over-year in the fourth quarter |
| So, in Q4, we had visibility to, let’s call it, two or three awards, more on the pump side than the valve side, that did get delayed |
| But what I would say is those opportunities did not get canceled |
| There is lots of reasons for delays |
| But I think you said the orders are still not at the 2019 margin levels |
| And I was there 3 weeks ago – and quite frankly, I was overwhelmed with the amount of work that’s out there and the spending that’s happening |
| Our largest project award was only $9 million in the fourth quarter |
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