Ladies and gentlemen, thank you for standing by, and welcome to the Flowserve Corporation Q4 2020 Earnings Conference Call. At this time, all participants are in a listen-only mode. After the speaker presentation, there will be a question-and-answer session. Please be advised that today's conference is being recorded. I'd now like to hand the conference to your speaker today, Jay Roueche, Vice President, Treasurer and Investor Relations. Please go ahead, sir.

Thank you, everyone. We appreciate you participating in our conference call today to discuss Flowserve's fourth quarter and full year 2020 financial results. On the call with me this morning are Scott Rowe, Flowserve's President and Chief Executive Officer, and Amy Schwetz, Senior Vice President and Chief Financial Officer. Following our prepared comments, we will open the call for questions. As a reminder, this event is being webcast, and an audio replay will be available. Please also note that our earnings materials do and this call will, include non-GAAP measures and contain forward-looking statements. These statements are based on forecasts, expectations and other information available to management as of February 24, 2021, and they involve risks and uncertainties, many of which are beyond the company's control. We encourage you to fully review our safe harbor disclosures, as well as the reconciliation of our non-GAAP measures to our reported results, both of which are included in our press release and earnings presentation and are accessible on our website at flowserve.com in the Investor Relations section. I would now like to turn the call over to Scott Rowe, Flowserve's President and Chief Executive Officer, for his prepared comments.

Great. Thank you, Jay, and good morning, everyone. Thank you for joining our fourth quarter earnings call. We had a strong finish to 2020 and I want to start by thanking the Flowserve associates, especially our frontline workers for their continued dedication and hard work during this unprecedented time. Despite all the challenges throughout the year, we continue to serve our customers and provide the essential flow control equipment and services needed to keep the world running. At Flowserve, safety is the core value and in today's environment, that means not only keeping people safe operationally, but also protecting them against the spread of COVID-19. I am proud to highlight that our associates achieved a record safety performance in 2020, including in our COVID-related protocols. Additionally, I want to thank our customers. They tested Flowserve during a very challenging year. I remember in my career, that working through a crisis alongside our customers, being there for them each step of the way truly solidifies long-term relationships. As we look to the future, we believe our strong relationships will position us well to capture significant opportunities when the pace of industry investment returns. From the beginning of this pandemic-driven environment, our financial priorities centered on improving our free cash flow conversion, managing our through-cycle return on invested capital, and delivering superior decremental margin performance. During the remainder of our prepared comments, I think you'll hear that we successfully controlled what we could during this unprecedented period and now focus forward. The progress of Flowserve 2.0, a committed leadership team and the support of our associates has enabled our company to manage the current market environment better than in the past. Our efforts in 2020 allowed us to generate over $250 million of free cash flow. We maximized our margin potential by taking out in excess of $100 million from our cost structure, and we continue to position Flowserve for the future. Turning now to the 2020 fourth quarter. Amy will cover our financials in detail, but let me first say that we're proud of our fourth quarter results and our associates' dedicated effort to finish the year strong. The decisive structural cost actions we took in mid-2020 are evident in our fourth quarter financials, which drove 14% decremental margins. As you may recall, a key desired outcome of our transformation strategy was to create an operating model that could react quickly to a downturn, and certainly COVID-19 had that impact on our end markets. In the face of the pandemic, we reprioritized the timing of our Flowserve 2.0 initiatives to accelerate the cost aspects of the program. We're pleased that in the final three quarters of 2020, each had adjusted SG&A levels below $200 million. As a result of the quick and significant actions, we also delivered meaningful improvement in our decremental margin performance versus prior cycles. Shifting to working capital and cash flow progress, we made strong sequential improvement with an $84 million reduction in primary working capital this quarter, which generated impressive fourth quarter and full year cash flow conversions, both of which are key to the 100% of adjusted net income. We remain confident that our financial relation driven process improvements have us on the right path to further drive working capital out of the business and to improve our overall operating cash flow. While our third quarter bookings of $825 million were not a return to pre-COVID levels, the sequential quarterly growth of 2.4% increases our confidence that there isn't another step down and that we're at or near a foundational level that should represent a starting point for bookings growth into 2021. Now for the consolidated aftermarket activity remained relatively stable sequentially with bookings down 1.1% to $420 million and were down 18.7% versus prior year. Original equipment bookings in the quarter were $405 million down 24.4% versus prior year and up about 6% sequentially. Looking at bookings in greater detail, you may recall, the 2019 fourth quarter included strong oil and gas project activity in Asia Pacific as well as a number of smaller project awards in North America and Europe, which together exceeded $120 million of bookings. Comparatively, the largest award received in the 2020 fourth quarter was $15 million. When this is added to our other small to medium sized project awards across diverse end markets, this quarter's project awards represented only $50 million which highlights the challenges of the current market environment. Fourth quarter bookings were further impacted by the absence of normal end-of-the-year MRO spending increases with operators and distributors continuing to preserve cash and manage inventory levels rather than spend their remaining budgets. With consistent bookings levels for the last three quarters, we're increasingly confident that we're at a foundational level and are optimistic that we may see a return to bookings growth in 2021, and we expect it to be led by our aftermarket and MRO markets as well as by smaller project activity. I'll also note that our year-end backlog of $1.9 billion remained solid and we saw only modest cancellations in 2020 of less than $50 million in total. Let me now turn to our segment level performance in the fourth quarter. FPD's bookings decreased 25% year-over-year while sales decreased only 6% as we continue to execute on its strong backlog. The bookings decline was primarily driven by original equipment, which was down 29% while aftermarket bookings were modestly better at a decline of 23%. Fourth quarter general industries and oil and gas bookings were down 53% and 39% respectively year-over-year. While our gas project awards declined roughly $60 million versus prior year, chemical and power markets contributed growth of roughly 10% while water bookings grew over 40% including two project awards totaling $8 million. FPD bookings and sales were down 13.5% and 12% respectively. Oil and gas and power markets were the primary drivers down 22% and 27% respectively, while chemical bookings grew at a modest 3%. General industry bookings were down 9% as challenges continue across its distribution channel. From an adjusted operating margin perspective, progressive cost actions by both segments significantly mitigated adjusted gross margin declines of 260 and 200 basis points for FPD and FTD respectively. FPD state adjusted SG&A as a percentage of sales by 140 basis points resulting in a 110 basis point decline in adjusted operating margin to 13.1%. FTD reduced its adjusted SG&A as a percentage of sales by 200 basis points, resulting in an 80 basis point decline in adjusted operating margin to 17.9%. Turning now to our served end markets, oil and gas markets, our largest exposure continue to be most impacted by COVID-related declines in energy demand. Fourth quarter bookings declined 35% year-over-year but showed encouraging sequential improvement of 20%. Again, the 2019 fourth quarter presented a challenging compared figure due to FPD's strong project environment at that time, which included several larger awards related to clean fuel's upgrade activity primarily in Asia contributing over $100 million of projects awards. This quarter our largest oil and gas project award was $15 million and when combined with smaller project awards, it totaled less than $50 million. For the full year, oil and gas bookings were down 33% despite the significant volatility in commodity pricing in 2020 and the related impact it had on customer spending patterns, today's crude oil price is actually above where it was a year ago. Assuming it remains at these levels, it should help to build industry confidence that the worst may be behind us. Strong fourth quarter chemical bookings growth of 8% did not include any material project awards but benefitted from a favorable compare as prior year Q4 bookings were the lowest level of 2019. Sequentially, chemical bookings increased over 30% driven by specialty chemical customers and increased MRO spend. We remain optimistic going forward with regard to our chemical markets. As pent-up demand continues to grow with petrochemical project delays and the specialty chemical markets are looking reasonably strong. Making to power, while this market remains challenged similar to prior cycles, it has demonstrated more stability than oil and gas and chemical markets. Fourth quarter and year-to-date bookings are down 4% and 8% respectively. The quarter included a few small liquid awards in Asia totaling $11 million, while 2019 fourth quarter included one project of $12 million for our concentrated solar power plant in the Middle East. As the energy transition progresses and electricity increases as a percentage of total energy sources, there will be a need for more power supply. While the other choice varies significantly between countries and regions, we believe the end market will need to increase capacity and add gigawatts to the grid, presenting good opportunities for Flowserve globally. The general industries market, which included a significant amount of opportunities through distributors has been severely impacted since early 2019, including the decline in North America and MRO activity. While 2020 Q4 bookings were down 39%, the full year has shown some signs of resiliency with bookings down just 5%. The quarter included one mining project of $6 million while there were no material product awards in Q4 2019. The upside to the distributor destocking phenomenon that we have seen for the past two years is that it should not continue for much longer. Inventories at distributors are at extremely low levels. We expect distributors to return to a just-in-time ordering process first and then we can begin to see moderate to large stocking orders. We believe this is only a matter of when and not if. Finally, representing our smallest market, water bookings increased $10 million or 38%. Q4 project awards totaling $8 million included a Middle East desalination project and a North American municipal award. Both are areas where we expect continued investment opportunities, while it's the smallest of our identified end markets, we're fairly bullish on water going forward. We believe we have the projects, knowledge, and experience to increase our presence in water, and it will be our focus area moving forward. Turning to our bookings from a regional perspective, our best performing markets on a relative basis were Asia Pacific and Latin America with Q4 bookings down 6% and 15% respectively and both down just mid-single digits for the full year. North America, our largest market and perhaps the one most impacted by COVID was down roughly 25% from both the quarter and the full year. The Middle East, our strongest performing region in 2019 saw its bookings decline 37% for the full year 2020 as the year's basal crude oil crises limited and delayed customer spending. Finally, Q4 and full year bookings in Europe were down 21% and 13% respectively. We continue to expect growth to return to infrastructure investment as all regions begin to experience increased energy demand similar to Asia's recovery as the vaccine rollout processes and transportation and mobility levels move closer to pre-pandemic levels. Let me now turn the call over to Amy to cover our financial results in greater detail before I return to provide our outlook for 2021 and beyond.

Thanks, Scott, and good morning, everyone. In the fourth quarter, we delivered resilient performance in what continues to be challenging operating environment. Our adjusted earnings per share for the quarter was $0.53, bringing our full-year adjusted EPS to $1.74. Fourth quarter reported EPS was $0.43 and included a net $0.10 of adjusted items. The items were comprised of $0.11 of realignment and transformation expenses and $0.09 of below the line currency impacts, which were partially offset by eliminating $0.10 of reported benefit primarily related to discrete tax items from a reduction in foreign tax liability. Fourth quarter sales of $985 million were down 7.8% versus the prior year but increased sequentially by 6.6% reflecting our normal seasonality. Fourth quarter original equipment sales decreased 7.1% driven primarily by FPD's 14% decline while FPD's revenues were relatively flat reflecting solid execution on a strong OE backlog entering 2020. Aftermarket revenues decreased 8.4%, including FPD and FTD declines of 9% and 5% respectively. For full year 2020, revenues decreased 5.4% to $3.7 billion again primarily due to aftermarket, which was down 7.6% with both segments approximately in that range. OE sales decreased just 3.1% as FPD's strong 10% increase was offset by FTD's 16% decline. Turning now to margins; fourth quarter adjusted gross margin decreased 250 basis points to 30.7% including declines of 260 basis points and 280 basis points at FPD and FTD respectively. While we continue to manage and limit COVID-related disruptions to our operations, the decline in margin does reflect the ongoing impact on productivity and the associated costs incurred due to the pandemic. Additionally, we experienced increased under-absorption in certain facilities and were also impacted by FPD's 200 basis point mix shift towards lower margin OE work. For the full year, adjusted gross margins decreased 200 basis points to 31.2% with both segments down 190 basis points. On a reported basis, both the fourth quarter and full year gross margins decreased 270 basis points to 30%. In addition to COVID disruption, absorption and mix headwinds the full year and fourth quarter were impacted by increased realignment spending of approximately $30 million and $2 million respectively to support our structural cost reduction effort and to better align the business with current volume levels. Fourth quarter adjusted SG&A decreased $40 million to $193 million versus prior year and was flat sequentially. As a percent of sales, fourth quarter adjusted SG&A declined 220 basis points versus last year and declined 130 basis points sequentially to 19.6%. Performance reflected our continued tight cost controls and the cost actions we took in mid-2020. On a reported basis, the fourth quarter's SG&A decreased $45 million, which included a $5 million decline in adjusted items. On a full year basis, adjusted SG&A declined $82 million or 90 basis points to 21.7% of sales. Reported SG&A expense declined $35 million in 2020 with our timely cost actions more than offsetting the $47 million increase in adjusted items. Our fourth quarter adjusted operating margin decreased a modest 30 basis points versus prior year to 11.3% as our decisive cost actions limited the impact of the $83 million revenue decline and delivered an adjusted decremental margin of approximately 14%. As we noted on our third quarter call, we expected to see sequential improvement from FTD and they delivered, with improved execution, cost actions and mix benefit, FTD drove a 570 basis points sequential improvement in adjusted operating margin to 17.9%. FTD's Q4 adjusted operating margin was 13.1%, a decline of 110 basis points year-over-year. Reported fourth quarter operating margin decreased 10 points year-over-year to 9.7% while for all of 2020, reported operating margin decreased 310 basis points to 6.7%, primarily driven by increased realignment spend of approximately $74 million. Our adjusted tax rate for 2020 was 23%, slightly below our initial guidance range, primarily due to the realization of certain available tax credits and the geographic mix of earnings across our portfolio. Compared to 2015, when our adjusted tax rate was over 29%, we have worked strategically to reduce the annual tax rate while fully complying with all the relevant laws. Certainly, US tax reform a few years back helped modestly, but with roughly two-thirds of our business in international markets, it isn't the main reason for our progress. We are pleased with the progress of our tax theme of business leaders in pursuing tax-efficient strategies and keeping the full income statement in mind when making business decisions. Our work isn't done, and barring any major changes in tax laws, we expect to continue our work to lower the effective tax rate over time. Turning to cash and liquidity, our seasonally strong fourth quarter generated cash flow from operations of $196 million, which included $173 million of cash flow from working capital. This performance drove our full year free cash flow to over $250 million and produced a cash balance of nearly $1.1 billion. Our full year free cash flow conversions represented approximately 111% of our adjusted earnings and approximately 200% of our reported earnings. We are pleased with the fourth quarter of 150 basis points sequential improvement in primary working capital as a percent of sales at 28.5%. However, there are still significant opportunities to drive further improvement. With our intense inventory management and strong Q4 shipments, we reduced inventory including contract assets and liabilities by over $75 million versus the third quarter. That being said, inventory levels are still elevated as we continue to deliver on strong OE backlog we built in 2019 and by a few of our larger facilities that experienced shipping and manufacturing delays due primarily to COVID-related disruptions. Looking at our accounts receivable, DSO and inventory turns, we are pleased to be able to maintain relatively flat measures to the prior year given the COVID-driven disruptions to our and our customers' processes. We will continue our pursuit of driving DSO below 70 days as we further centralize and consolidate our global collections management function and related systems. Inventory reductions and improved terms will be driven by operational execution and increased utilization of our transformation-driven integrated business planning tool and resources. Heading into 2021, we expect to continue the momentum we built in the fourth quarter related to working capital through ordered cash, supply chain, and inventory management transformation initiatives. As a result, we currently expect that we will again exceed 100% free cash flow conversion in 2021. Turning to our year-end liquidity position, our combined cash and available credit facility capacity totaled over $1.8 billion, presenting $174 million increase over the 2020 third quarter. Our year-end net debt position of approximately $630 million is down about $75 million year-over-year and almost $0.25 billion since 2017. In fact, our net debt reached its lowest year-end level since 2012. As you may recall, last fall we issued $500 million of 10-year senior notes in advance of upcoming maturities in 2022 and 2023. At the time of the offering, we also tendered for $191 million of our outstanding euro notes that mature in 2022. Last week we announced our plan to call the remaining $410 million of these securities with the completion date before the end of the first quarter. In addition to the euro notes previously tendered, other significant cash usage in 2020 included the return of $136 million to shareholders through dividends and share repurchases, $57 million in capital expenditures and the funding of our structural cost out actions as well as in our other realignment and transformation program. Turning now to our 2021 outlook, the ranges we provided reflect the late cycle nature of our business where we are buffered at the start of a downturn by our previously built backlog. The declines in bookings impact us at a later date. Nonetheless, we are managing the business through the cycle with our cash conversion, management of decremental margins and positioning for through-cycle returns on invested capital. The actions we take today will better position Flowserve as growth returns with stronger incremental margin and enhanced return profile. For 2021, we are targeting full-year adjusted EPS of $1.30 to $1.55 on expected revenue decrease of 4% to 7%, including a modest FX tailwind in the current exchange rate environment. The adjusted EPS target range excludes expected realignment expenses of approximately $25 million as well as below-the-line foreign currency effects and the impact of other potential discrete items, which may occur during the year such as acquisitions, divestitures, debt retirement premium, special initiatives, tax reform models, etc. Based on the non-realignment spending, our reported EPS range at the midpoint is about 90% of our adjusted EPS range average as Flowserve remains committed to our focus on improving the quality of our earnings. As such, after three years of our Flowserve 2.0 transformation efforts, we move into 2021 confident that the elements of the program are now embedded in our operations and functional team. The remaining expenses related to the transformation will be included in both our reported and adjusted EPS going forward. In 2021, the impacts of the change in methodology are expected to reduce adjusted EPS by approximately $0.05. Both the reported and adjusted EPS target range also assume current foreign currency rates and commodity prices, our expectations are based on 2020 year-end backlog, anticipated bookings levels and largely the continuation of current market conditions. We expect net interest expense in the range of $55 million to $60 million and adjusted tax rate between 22% and 24%. In terms of phasing, as many of you know, both those results in cash generation are normally second half weighted and we expect that to continue in 2021 although somewhat more balanced than in prior years. Finally, major planned cash usages this year include retiring the remaining outstanding euro notes and returning over $100 million to shareholders through dividends and potential share repurchases. We also intend to invest in our business as we expect to return to the growth aspects of the Flowserve 2.0 program. We expect capital expenditures in the $70 million to $80 million range, which includes spending for enterprise-wide IT systems to further consolidate our ERP platforms and support our transformation-driven productivity improvement.

Great. Thank you, Amy. Let me wrap up with some additional color on our Flowserve 2.0 transformation progress, our long-term targets and comments on our outlook for 2021. Despite the disruption to our end markets in 2020, we made significant progress institutionalizing the transformations playbook and processes deep into our organization and functions. We are striving to make this a part of our everyday business processes. Our 2020 results reflected our progress toward building a business model to better weather the cycles in our end markets. Our goal is to substantially complete the original transformation program by the end of 2021 but ensure that the process and the discipline remain embedded in how we run the business. In 2021, we'll return our focus to the growth and optimization phases of the transformation while we complete the operational excellence and productivity improvement initiatives. We intend to drive growth with an increased focus on our customer experience, development of innovative products and services, and end market diversification, including increased participation in energy transition initiatives that are gaining investment dollars. A key component to our transformation growth initiative involves staying market led and generating consistent innovation. Our marketing technology team made significant progress in 2020 developing new and innovative products and services. During the year, we had 21 commercial launches including three new products, six products that completed our design-to-value process and the remaining launches were product extensions, future updates or portfolio upgrades. I am excited about our product pipeline and the opportunities that technology and innovation can bring to Flowserve. Our efforts will improve our geographic and end market diversification, accelerate digitalization through IoT and e-commerce, and digitalization with better efficiency and technology to capture and repurpose carbon emissions. Flowserve has been solving technical flow control challenges for over 200 years. Our customers expect us to help improve their performance, reduce their costs, improve efficiency, and help them prevent unplanned interruptions. We're committed to continuing to support our existing customers and our installed base, as well as ensuring that we’ll participate in a meaningful way as new end markets emerge for flow control products, services and solutions. I’m confident that our people, our products and our technology will continue to evolve and be value-added for decades to come. As an example, this year alone, Flowserve provided equipment and services to carbon capturing technology, hydrogen processing, concentrated solar power, water desalination, flood control, and most importantly in 2020, we provided our third suite of pumps, valves and seals for COVID-19 vaccine development and production, helping to accelerate the distribution of a COVID vaccine. Our ultimate objective is to continue to be the trusted partner that Flowserve has been historically for all flow control customers long into the future. We're off to a great start in 2021; following years of development, testing and pilot projects, we're excited to launch and commercialize RedRaven, Flowserve’s global IoT offering. RedRaven will provide a solution for customers to optimize the flow control processes. We’re uniquely positioned to provide this offering considering our extensive expertise with pumps, valves, and seals, combined with our proprietary analytics in embedded diagnostics. RedRaven simply and easily provides our customers the ability to improve productivity, avoid unplanned downtime, and ultimately reduce the overall cost of operations. It follows nearly five years of development, including extensive testing, great feedback from our partners, and the knowledge gained from our pilot sites. We're still in the early stages of the rollout. And while the current financial contribution from RedRaven is small, we expect that it will expand into a more meaningful revenue stream, in part through our complete suite of aftermarket services in the years ahead as customer adoption grows. I spoke last quarter about Flowserve’s commitment to environmental, social and governance issues or ESG. These subjects remain a vital component to our mission and values. I’m very proud of the progress we made in 2020, including committing to reduce our carbon emissions, while also continuing to develop innovative solutions to help our customers do the same. We also achieved record safety performance and continue to refresh and diversify our board of directors. As we focus forward, Flowserve will endeavor to continue being on the forefront of ESG initiatives and progress. I would now like to spend some time on our long-term financial targets that we identified in 2018 with the launch of our transformation program. Last year at this time, we’re very much on pace to meet or exceed the original objectives and timeline. Unfortunately, the pandemic-driven downturn and associated business interruptions have stalled this progress. As you may recall, the identified targets were centered around growth, free cash flow, operating margins, and ROIC improvement. The assumptions underlying these targets outlined a consistent business environment as everyone can relate the COVID-driven challenges of 2020 are anything but a consistent business environment. Nevertheless, I’m extremely pleased with the progress that we've made over the last three years of the program, including achieving our long-term target of more than 100% free cash flow through adjusted net income early in 2020. We have made systemic changes to inventory and receivables management and I’m confident that you’ll continue to see improvements in working capital in the future. Additionally, we're able to manage the balance sheet and margin decrementals in such a way to keep our ROIC well above our cost of capital and minimize the market impact on our return profile. While we found we have a way to go to reach our mid to upper teens target, we expect the actions taken in 2020 will serve as a catalyst to delivering much stronger returns as we move to our growth environment. To summarize, our long-term aspirations and goals remain the same as those previously outlined. I remain confident that each of these targets is achievable with our continued transformation progress as the world returns to within the range of our original assumptions. With the continued uncertainty that exists due to COVID and the associated impact it has had on our end markets, we cannot credibly commit at this time to a new date for achievement. Once economic and market conditions permit, we will outline our timeline, our plans and the actions necessary to achieve these targets. Let me close with our 2021 outlook. Amy provided this year's official guidance in her comments. The 2021 target ranges were derived using essentially current market conditions with only modest low single digit bookings growth expected from aftermarket in our MRO short cycle business later in 2021. Given the uncertainty in the marketplace, many of our customers were unwilling to predict the timing of projects while an inflection point in their business. It is clear that as COVID subsides, our customers will be spending more money to keep their operations running and advance their critical projects. Flowserve has traditionally been a late cycle business given the lead time with some of our large pump and valve projects, the pandemic didn't impact our 2020 financial results as much as others considering the strong backlog we had entering the year. However, the double-digit declines in our bookings over the last three quarters in addition to the 14% reduction in our year-over-year starting backlog will have a more pronounced impact in 2021. While our guidance assumes mostly a continuation of the current environment, there are potential opportunities in the marketplace that could improve expectations for the year. Containing the virus is truly the key catalyst for Flowserve in most of our end markets. As that occurs, we would expect to see increased activity levels. We’re encouraged that fourth quarter bookings were up sequentially and activity levels could be gaining traction. Project discussions are more active than anytime in the last three quarters and we see the potential for some projects in Asia, the Middle East and Latin America to move forward as conditions permit. Additionally, I expect to see improvement in our aftermarket and MRO business as the year progresses. At this time, assuming the continuation of these trends and further progress in containing the virus, I fully expect our financial results to return to growth in 2022. In closing, 2020 was an extremely challenging year for our company and our industry. Through the commitment and dedication of our associates, combined with the positive impact of our transformation efforts, we’re able to deliver strong results for our customers and implement the actions that best serve our shareholders. I’m confident that as operational progress continues in 2021, we will remain focused on cash conversion, financial returns, and managing decremental margins. More importantly, Flowserve will be well positioned to win in the recovery and create long-term value for our shareholders and other stakeholders. Operator, this concludes our prepared remarks. We would now like to open the call to questions.

Thank you. Our first question comes from Andy Kaplowitz with Citigroup. Your line is now open.

Good morning, guys.

Good morning, Andy.

Hi, Andy.

Scott and Amy, I just want to focus on cash first, because you said you were going to generate $100 million plus in Q4 and you obviously generated almost double that. You mentioned 150 basis points of sequential improvement in primary working capital as a percent of sales. Obviously, the ‘21 guidance of 100% free cash flow conversion is encouraging. So it seems like you're getting your arms around the cash situation. But I guess the question is working capital as a percent of sales is in the high 20% range. So can you talk about where you think you can get that metric to? And how you get there now as it seems like you have more confidence on the cash side than I've heard before?

Sure, thanks for the question, Andy. I think starting with what we think is possible. Scott and I are aligned around that mid-20s as really being the spot where we think that we need to get to from a primary working capital as a percentage of sales perspective. And we think we've made tremendous progress over the last couple of years in a number of ways, one DSO has come down and we've been able to hold it to a level that we think is around where we want to be at or where we think we should be at around 70 days. We think there's marginal improvement in that area that can happen. But we're probably working around the edges there, where we really see a significant amount of improvement coming in 2021 is around inventory. Foundationally, I think we've got the tools and the talent in place now to manage inventory in the right way within the company, and now 2021 is about delivery on the working capital improvements in inventory. So that's where the majority of our focus is going to be in 2021.

I’ll just add to what Amy said, we’re really pleased with the progress that we're making. I'd say Q2 and Q3 were not ideal for us to say the COVID disruption and all the things going on, and we kind of took a step backwards on the inventory management. We're back on track; we made good progress in Q4. And Amy, what I expect is just continued progress as we go forward. And it's not going to be, there won't be these giant gains, but I'd say relatively steady progress. And as Amy said, mid-20s is certainly what I'll call a near-term goal. But we're not going to stop there. We'll continue to work this, the best companies in the space are right at kind of 20%. I don't want to commit to that because we’re far away from it, but I do think we’ll make progress. And as Amy said, the focus right now is inventory, the receivable side has gotten cleaned up, and we're at a pretty good spot, there might be a little more improvement, but not a whole lot. But the pass for us is inventory management, our teams know, we've got the tools, the visibility and the process in place, we just need to execute now.

Thanks for that tough one. And Scott, you mentioned oil price refinery utilization is stable or improving, MRO activity you talked about expect to increase. But you also mentioned you haven't seen improvement yet in aftermarket bookings, at least sequentially. So what do you think your customers need to see to ratchet-up MRO demand? How much do you think higher oil prices help, could the Texas weather-related issues be a catalyst? And have you seen any discernible incremental improvement in bookings for the first couple of months of this year?

That's like six questions. You've got to be efficient.

I didn’t see that.

Okay, let's focus on aftermarket and MRO. And I'll hit kind of two of the key points there. I was pretty clear in the last call talking about, that we would see a return to growth on MRO and aftermarket at some point in 2021. We're still confident in that. And yes, I think it's more of a timing issue, and I will say the Texas weather event and the Gulf Coast weather because that's a whole different issue. But I'm going to come back to that. But if we say pre-weather events in kind of where we’re going, I think our customers, as long as they're getting more confident that things return to normal, right, stability on oil prices, mobility goes up, then they're going to have confidence to invest in their facilities. And I’d say we feel very good MRO and aftermarket spending will return in 2021. The question is, are we going to see it in Q1, Q2 or Q3? I’d say certainly by mid-year, we start to see that inflection up. And lots of customer discussions and data support that; there's a lot of pent-up demand and cost avoidance that at some point catches up to them. Now, I don't know what the Texas weather, and I’d say obviously that was last week. And we're still trying to get to the bottom of it. But in the Gulf Coast region, we're tracking over 30 plus installations that have some emergency type requests in Flowserve for parts or services. And so we see it as a net positive for us. The downside is that we were offline for three to four days in most of our facilities, so we've got to overcome that. But I think there's a lot of damage out there from the freezing weather. And we're seeing already orders for pumps, valves and seals. And so I don't think this is a material number, but it's upside that we didn't plan for and we didn't necessarily have in the guidance. I think probably most importantly, it's an opportunity for Flowserve to demonstrate support of our customers in these situations. And we can come and help them restore their operation which solidifies kind of our presence on site, and they know they can trust us. And so it's an unfortunate situation, because a lot of people were incredibly uncomfortable from heady days. But for Flowserve, this will be an opportunity and some sort of regulation that comes out of it, that Texas is required to do something more substantial with these installations, then any time those upgrades or new standards will capitalize that as well as we put in more beefy equipment that can withstand any temperature range, both high and low.

Appreciate that, Scott.

Thank you. Our next question comes from Mike Halloran with Baird. Your line is now open.

Hey, good morning, everyone.

Good morning, Mike.

Hey, good morning.

So let's follow-up on Andy's first question there. Obviously, really nice cash flow this year, good to see the guidance for next year. You’re kind of at the point where you can start playing some offense given the liquidity, giving the more consistent cash generation, how are you thinking about that internally? Has the radar shifted towards M&A at all and if so, what does the opportunity set look like there?

Yes, so as Scott pointed out, we were pleased in 2020 that was a tough year that we were able to deliver ROIC well above our cost of capital. And we frankly think that delivering those type of returns with line of sight into the future to achieve returns above 15% does allow us to think about reinvesting in the business. We think about that in terms of both organic and inorganic growth. Obviously, any type of project that we look at, or any type of acquisition that we would look at, would need to fit within our criteria. It's all towards achieving those financial objectives that we set out, meaning accretive to ROIC, accretive to market margins over time as well. So we think about it through that lens. That being said, we do have commitments embedded into our cash usage for 2021, as well. So as I pointed out, we’re going to retire those Euro notes in the first quarter of the year. We’re committed to maintaining our capital spend for maintenance and for those ERP projects over the course of the year. And of course, we want to return money to our shareholders as well via our dividends, and we do have about over $100 million left on our share repurchase program. So to the extent that it makes sense, at points during the year to deploy any of that capacity, we'll look at that as an option as well.

Just to add to that, Amy and the team have put us in a nice position with the balance sheet. And so we're definitely more open to moving to the offense than in years past. So one of the things that was holding us back was we really wanted to get the 2.0 in the process improvement embedded in the organization and really wanted to have that done to give us confidence in our ability to integrate any deal that we do. I'm feeling better than ever before that we've got good business process, and we're executing at a higher level. And it gives us a stronger appetite to start looking at things on the offense. And so I would expect, we’re not going to do anything imminent, we're not going to do anything crazy. But we’re interested in starting to add to the portfolio in the right places that help diversify our end markets a little bit and helps to bolster what we're trying to do in the long run.

Thanks for that. And then on the margin side, just make sure I understand here. I saw decrementals in the fourth quarter there, puts and takes when we think about 2021 how do we think about discretionary costs coming back versus structural savings, what price cost mechanisms look like for you and any other important large bucket items that impact how you're thinking about it?

Yes, so we do have a number of moving parts as we look at 2021 margins. And we do think there's some pressure on margins entering into 2021, starting with the challenges, obviously the lower beginning backlog and lower volume generally, as we've highlighted in our sales guidance as a headwind included in that is absorption pressure at our locations and we do have some inflationary pressure that's built into that as well. There are some opportunities, as we think about that or some things that are helping to offset that. So thinking about the mix shift, the mix in 2020 was very heavy, OE we see that transitioning to a more normal level in 2021. And we do have productivity improvements that are embedded into the 2021 plan as a result of transformation efforts. So as we think about those and we think about the ongoing savings from SG&A, which in 2021 will be much closer to our third and fourth quarter run rate than it has been to historical levels. What we're excited about is as we return to growth as Scott has highlighted, we think will be the case with our bookings in 2020 and 2021. We see many of these cost-saving initiatives as sustainable and building momentum as we return in that direction.

Thank you for that, Amy. Thanks, Scott.

Thank you. Our next question comes from Joe Ritchie with Goldman Sachs. Your line is now open.

Thanks, good morning, everybody.

Hi, Joe.

Hey Scott, as you kind of think about the longer-term operating margin targets and kind of like where you sit today. What kind of revenue top line do you think we need to get achieve those margin targets and I know that it's really difficult at this point to give some kind of timeframe, but I'm just curious kind of like what the base case scenario is to try to get there?

Yes, so when we first put these targets out, back in early end of ’17, early ’18, we said we should be able to achieve the targets under any revenue, so basically, at the status quo or in a growth environment. And I think that still holds true. And so even if we were to grow, I still think we've got the opportunity to get the margin up, we've got the opportunity to get the return. Now, what I would add is that any growth only helps the situation dramatically. Right and so if we can start growing at a reasonable clip at 3% to 5%, then I’ll start to feel really good about getting into that margin range that we've laid out.

Got it. And then maybe my follow-up question, it's really nice to see the progress that you're making on cash flow. I guess, how should we think about CapEx longer-term? I know obviously, 2020 was a little bit of a down year. But what's the right way to think about CapEx, normalized CapEx for the business?

Yes, so we put our guidance out for 2021, which just as a reminder, is $70 million to $80 million. I think that might be a couple of years where we come up to that, maybe touching the $100 million level if we're doing something major, but I think this is a reasonably good range for us. And so kind of that $80 million to $90 million for sure, as we go forward. A lot of that investment is more, almost half of it is going through our IT systems. And so as we continue to make progress to get on more efficient and more simplification on our system architecture, then that spending starts to subside, and then we start to look more into kind of the automation and technology around manufacturing. But I think this is a reasonably good run rate for us. I don't see it going significantly above $100 million ever. It'll just depend on some of the projects that we line-up year-over-year.

Great, thank you very much.

Thank you. Our next question comes from Nathan Jones with Stifel. Your line is now open.

Good morning, everyone.

Hi, Nathan.

Hi, Nathan.

Just a follow-up here first on the guidance. It looks to me like the lower starting backlog is really responsible for all of the guided revenue decline in 2021, which then implies that kind of your book and turn business in 2021 is flat with 2020, would say there are a few tailwinds that you should have on the book and turn business relative to 2Q ‘20 COVID. Maybe it's a headwind in the first quarter. But improving oil prices and all those kinds of things, is there some conservatism built in that 4% to 7% kind of more likely to see upside than downside?

Yes, Nathan, I don’t want to carve conservatism given all of the craziness that we've been dealing with for the last four quarters. If you just go back a few short weeks ago, we had the highest COVID case counts and the most disruptive impacts to our operations was in the month of January. Like, literally four weeks ago, we were shutting facilities down because we couldn't get enough people to come in. And so I would say things have improved right and every week seems to be getting slightly better. We really struggled on whether or not to give guidance or not just given how crazy the situation is that we're dealing with. In fact, I’d just add that as things continue to improve right, stability at oil pricing, COVID cases going down, mobility data improving, I'm confident that operators will spend more money like it's going to happen. And if that happens, then our book to bill has the opportunity to come up from what we had before. But to say that it's conservative right now would be really, I don’t want to use that word because I don't think it's the case. But I really do think there's upside if things continue to progress, like we've seen quite frankly, in the last two to three weeks.

Okay, I think that's fair. My follow-up question is on the bigger focus pull back on the growth side of Flowserve 2.0 going into 2021? Is there an increase in the investments that are running through the P&L that’s potentially a headwind to margins in 2021? And if there is what kind of ramp-up that you're looking at, and should we say that continue to increase as we go into 2022?

Yes, we ultimately want to spend a lot more money on new product development and technology. In 2021, is what I would say is a reasonably consistent rate as it gets up slightly, but it's not anything material, and what we're trying to do, and I made this comment in the third quarter earnings call, but we've been really focused on the process of innovation and the process of new product development. And we've got that what’ll call dialed in pretty well now. And so as we start to run more through that, we do want to add projects, we want to add resources and we ultimately want to start to bring that up, but the net spending in 2021 isn't going to be substantially different than what you saw in 2020 or 2019.

Okay, thanks for taking my questions.

Thank you. Our next question comes from John Walsh with Credit Suisse. Your line is now open.

Hello, good morning, everyone.

Good morning, John.

I guess there's one final guidance item to touch on. I guess just thinking about the tax rate, and the ability to maintain it going forward, is this kind of the right zip code, this 22 to 23 as we look forward?

So I'll take a stab at that. I think for the foreseeable future, we feel pretty good about that effective tax rate. I’ll tell you that when Scott and I and my tax department sit down, he continues to challenge us to look for appropriate ways to bring that effective tax rate down. So we're pleased with where we've come from, we started out at near 29%. So to bring it down to the 23% level in 2020, and look for improvements beyond that in 2021, that we have line of sight to, we think is a good place to be. But we'll continue to challenge that as we move forward and look for opportunities to improve on it.

Great, and then maybe a question here on RedRaven, there's actually some really great YouTube material out there on what you guys are doing. But wanted to ask you, are there going to be kind of public, I don't know metrics or goalposts, you're going to be providing so that we can see kind of the adoption rate and the traction you're making with that initiative?

Yes, I don't know, we haven't gotten that far, John. We just launched it two weeks ago. But certainly as this becomes a more meaningful part of our business, yes, we'll come out and talk about it more. And we'll provide color on some of the metrics that we're looking at. I can’t provide a little bit more than what I shared in the prepared remarks. We've been working on this for about five years, we have a really good list of partners, both on the customer side and other third parties that are helping us with this offering and making sure that yes, we've got a solution that's truly differentiated and something that our customers want. But over 25 different installations, we've got a long list of new opportunities that we're tracking. And so we think we can certainly double that in the next 12 months. And we've deployed now almost 6,000 different sensors, and we're collecting unbelievable amounts of data. And part of our program is monitoring. And our customers are asking for that. And that's important. But we've also really pushed the predictive side. And so we've already been able to prevent and predict failures on-site. And so as we get more case history and case examples, we'll share those externally, but that becomes what's going to help us drive this. And while the platform itself will generate revenue, and we're excited about it, what we're really excited about is being closer to our customers and really making sure that we can provide that full suite of expertise and flow control history and knowledge to help our customers with their operations. And that flows through our aftermarket businesses, it pulls to our services, its parts, and all of that. And so when we think about it, it's really more of a holistic offering from our aftermarket services and solution than just the system itself.

Great, thanks for taking the questions.

Thank you. Our next question comes from Deane Dray with RBC Capital Markets, your line is now open.

Hi, thanks. This is Andrew Krill on for Deane. And thanks for squeezing us in. I just wanted to ask real quickly on the cost savings actions, I just want to clarify for 2021 are you expecting any net headwinds when you're lapping like more temporary COVID-related cost savings or do you think given other actions underway to like balance those?

Sure, a couple of things, one from an SG&A perspective, where a significant component of our savings came in 2020. We're anticipating working at around the run rate that you saw in the third and fourth quarter, as we move into 2021. Now there are some headwinds associated with that from inflation to at some point the restart of travel, but the fact is that the full-year benefit of the savings that or the actions that we took midway through 2020 sort of offset that. So we're now at a level that we see as being much more sustainable. From a cost of sales perspective, I think a couple of things. One, there are actions that we took in 2020 that carry through into 2021. But also additional actions are planned as we make our way through the year and bring that backlog down. We're continuing to try and adjust the cost structure to manage those decrementals through the course of 2021, and that's why we’re forecasting, included in the guidance range, some spend on realignment as we move into 2021.

Okay, great. And then a quick follow-up just on the Flowserve 2.0 cost now being included, we like to see that from call it earnings standpoint, just could you give any other color on what the deciding factor was that puts you over the edge there?

Sure. A couple of things, one culturally we do believe the transformation process is embedded into the DNA of who we are at Flowserve. So from an operational level, from a functional level, we understand the pursuit of continuous improvement and process improvement is part of our day jobs and this reflects that from a cultural standpoint. But what I would say is also we reach much more of a run rate from a spend perspective, so in 2020 transformation costs were around $0.30 per share, this year we think will be closer to $0.05 per share and it reflects more of the run rate of what the embedded cost of those efforts are in our business. I mean so we felt from a quality of earnings perspective that as we’ve gotten to that run rate, it makes sense to include in our adjusted EPS.

Okay, thank you.

Thank you. Ladies and gentlemen, this concludes today’s conference call. Thank you for participating. You may now disconnect.