Good day, and welcome to the Flowserve Fourth Quarter and Year End 2024 Earnings Conference Call. Today's conference is being recorded. At this time, I would like to turn the conference over to Brian Ezzell, VP, Investor Relations, Treasurer and Corporate Finance. Please go ahead. Thank you, and good morning, everyone. Welcome to Flowserve's fourth quarter 2024 business update. I'm joined this morning by Scott Rowe, Flowserve's President and Chief Executive Officer and Chief Financial Officer, Amy Schwetz. Today, Scott and Amy will provide an update on our overall business performance, highlights from the quarter. Following their comments, we'll open the call for questions. I'll ask that you please keep the one question and one follow-up question and then return to the queue. Turning to slide two, as a reminder, 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 and these are discussed in our SEC filings, which can be found on our website. Our comments today also include non-GAAP financial measures. Additional details and reconciliations to the most directly comparable GAAP financial measures can be found in our fourth quarter press release today's earnings presentation both of which are on our website. With that, turn it over to Scott.

Thank you, Brian, and good morning, everyone. I'll begin on slide three. We delivered strong results in the fourth quarter capping a year of improved execution and significant progress towards our 2027 targets. Bookings were nearly $1.2 billion for the quarter with strong growth in both original Adjusted gross margins expanded 300 basis points to 32.8%. This marked the eighth consecutive quarter of year-over-year margin expansion. And with additional leverage from SG&A, we delivered adjusted operating margins of 12.6% in the quarter. Book to bill was 1.0 times as we continue to drive revenue conversion while exiting the year with near record backlog of $2.8 billion. Our disciplined focus on working capital supported strong operating cash flow of $197 million in the quarter. Operationally, performance in the quarter was largely as we anticipated when we provided our third quarter update in October. The strengthening of the US dollar drove an incremental currency translation headwind along with higher interest expense related to the MoGas acquisition. Amy will provide more detail on this later in the call. Overall, our team executed to our plan delivering improved results in the quarter and completing an outstanding year for Flowserve in 2024. Turning to slide four, Q4 bookings grew 13% versus last year, driven by continued strength in our in-market and strong execution by our commercial teams. We continue to see robust growth from our strategy with 3D bookings representing 31% of our total awards for the quarter. We generated $618 million of aftermarket bookings which was the third consecutive quarter above $600 million. We are laser focused on continuing to grow our aftermarket franchise our dedicated aftermarket teams are driving higher levels of service and value to our customers at margins accretive to the Flowserve portfolio. Fourth quarter original equipment bookings grew 14% versus last year with a healthy mix of activity across traditional process industries as well as within new energy markets. Our largest award in the quarter was approximately $60 million in order to supply pumps for a new nuclear power plant in Europe. For the quarter, nuclear awards totaled more than $110 million representing the second consecutive quarter of nuclear bookings greater than $100 million. Our power bookings, which included both traditional power and nuclear, were up more than 40% versus the prior year period. The power end market continues to be a significant opportunity. Flowserve participates in virtually all forms of power generation, from traditional hydrocarbon power like coal and combined cycle natural gas to nuclear and newer energy technologies like concentrated solar power or battery storage. Our next largest project awards were in the range of $10 to $15 million. Our selected bidding approach to large projects continues to deliver growth with our preferred customers and products at margins that create more value for Flowserve. Additionally, we continue to see strength in our foundational core business of Aftermarket, MRO, and short cycle activities, driven by stable asset utilization rates at our customers' operations and improved capture rates across our expansive installed base. Turning now to slide five. Looking back on 2024, we meaningfully grew bookings, expanded gross and operating margins, generated strong adjusted EPS growth and delivered substantial cash flow, reflecting the strong execution and hard work of our associates around the world. We took significant steps in 2024 to strategically position the company to enable further value creation for our customers and shareholders. The MoGas acquisition, which we completed during the fourth quarter, expands our offering and exposure to mining and minerals. An important and growing end market that enhances our diversification efforts. We also launched the Flowserve Business System, a comprehensive framework to further improve our execution with consistent operating processes across the Flowserve enterprise. We made significant progress last year in the areas of operational excellence and portfolio excellence, both of which are improving the way we run our company, and delivering margin expansion. Let me now address our 3D strategy and the market outlook for 2025 as we turn to slide six. Our significant progress in 2024 gives us further confidence in our ability to deliver on our 2027 targets. We fully anticipate continuing with this momentum in 2025. Our 3D strategy is well positioned to deliver growth and capitalize on macro trends including ongoing energy transition as well as global regionalization. Diversification and decarbonization remain critical strategic initiatives for Flowserve in 2025. We expect to build on the strength of 2024 where diversified and decarbonization bookings grew 36% driven by nuclear and new energy activities. On digitization, we believe we have the most advanced monitoring and prediction system within the flow control space. We continue to demonstrate the value of our digital capabilities on a regular basis with our customers improving their overall operability and reducing the cost to run their assets. In the year, we increased Red Raven monitoring assets by 14%. We believe there are scaled pathways to utilize the predictive capabilities that our domain expertise provides to generate recurring revenue and position ourselves for even higher aftermarket capture rates in 2025 and beyond. Our 3D strategy continues to be the right one in today's environment and we expect to see strong 3D growth trends in 2025. Turning to slide seven, with strength in our traditional and 3D oriented end markets, our outlook remains constructive for projects, MRO, and aftermarket activity across industries, and end markets. These opportunities continue to support our long-term organic target of 5% growth. Key global megatrends of energy security, regionalization, and electrification continue to attract significant global investment. Our overall twelve-month project opportunity funnel is roughly flat to last year; however, the funnel remains at an elevated and healthy level particularly in some of our strongest end markets, and with more projects in the smaller to midsize range. The opportunity funnel in power is up more than 20% versus the prior year period, driven by the increased need for new power generation on the back of data center growth and electrification trends. We expect the world's existing traditional process industries to remain at solid utilization levels and we believe we are well positioned to capitalize on these aftermarket opportunities as we have demonstrated over the last several quarters. Moving to slide eight. Innovation remains critical to differentiate our products in the market as we leverage technology to deliver our 3D strategy. During the year, we introduced eleven new products to the market. To highlight an example of how our innovation supports our efforts, we are collaborating with a customer in Denmark on the world's first molten hydroxide energy storage plant called the Molten Salt Storage or Moss Project. The MOS process heats sodium hydroxide over 1300 degrees Fahrenheit. The heated salt then generates steam, which can be converted to electricity. Specialized flow control equipment is essential in this severe service high-temperature environment. Additionally, this technology can be used in concentrated solar power, carbon capture, and is potentially applicable in future situations like small modular nuclear reactors. We also launched another innovative offering enabling emissions reduction of up to 80% through our gas pack ZE seal, a dry gas seal technology that enables operators to achieve zero emissions from blowdowns and standstill conditions supporting our customers' decarbonization goals. Finally, we continue to expand our capabilities of our solutions offering by combining our extensive domain expertise in flow control with new analytical and modeling tools enhanced digitization through Red Raven. We believe this combination uniquely positions Flowserve to help our customers with their biggest flow control challenges. Altogether, we remain focused and committed to delivering unparalleled innovation for our customers, which we believe will deliver consistent growth and value creation for Flowserve. I will now turn to slide nine. With a strong market backdrop and an effective long-term strategy in place, we are now leveraging the Flowserve Business System to deliver strong execution. The Flowserve Business System defines our approach to running the organization across five critical functional disciplines to deliver excellence. These disciplines drive consistency in how we work together across our seven business units, connecting business processes to our desired outcomes of profitable growth, margin expansion, superior customer experience, and cycle resiliency. Our operational excellence program is now hitting its stride. We have improved delivery performance and shop floor productivity while capitalizing on opportunities to further reduce our footprint. While we have made great progress operationally, we believe we have more opportunities in 2025 and beyond. Our portfolio excellence program is in its early stages. Our eighty-twenty framework, both of which are improving the way we run our company, and delivering margin expansion. Let me now address our 3D strategy and the market outlook for 2025 as we turn to slide six. Our significant progress in 2024 gives us further confidence in our ability to deliver on our 2027 targets. We fully anticipate continuing with this momentum in 2025. Our 3D strategy is well positioned to deliver growth and capitalize on macro trends including ongoing energy transition as well as global regionalization. Diversification and decarbonization remain critical strategic initiatives for Flowserve in 2025. We expect to build on the strength of 2024 where diversified and decarbonization bookings grew 36% driven by nuclear and new energy activities. On digitization, we believe we have the most advanced monitoring and prediction system within the flow control space. We continue to demonstrate the value of our digital capabilities on a regular basis with our customers improving their overall operability and reducing the cost to run their assets. In the year, we increased Red Raven monitoring assets by 14%. We believe there are scaled pathways to utilize the predictive capabilities that our domain expertise provides to generate recurring revenue and position ourselves for even higher aftermarket capture rates in 2025 and beyond. Our 3D strategy continues to be the right one in today's environment and we expect to see strong 3D growth trends in 2025.

Thank you, Scott, and good morning, everyone. First, let me echo Scott's comments. We are very pleased with our results in the quarter and for the full year and are excited about the opportunities to further accelerate our progress in 2025. Turning to the fourth quarter in greater detail on slide ten. We delivered another strong operational performance with nearly $1.2 billion of bookings, an adjusted operating margin of 12.6%, $0.70 of adjusted earnings per share, and $197 million of operating cash flow. Relative to our plans coming into the quarter, the underlying operations were in line with our expectations. Beyond our operational performance, adjusted EPS was negatively impacted two cents by foreign currency translation. In addition, MoGas and the related interest expense were not included in our guidance shared in October. In the quarter, MoGas was roughly neutral to our adjusted operating profits. MoGas adjusted operating profit in the quarter was negatively impacted by lower margin shipments occurring in October prior to the acquisition's close. This led to lower sales and fixed cost absorption in our results. I'll share more in a minute about the strong outlook we have for MoGas in 2025. Acquisition-related financing costs negatively impacted earnings by about $0.02. For the quarter, overall revenues grew 1% versus last year. The MoGas acquisition contributed approximately 300 basis points to sales growth while foreign currency translation negatively impacted reported sales growth by about 100 basis points. Sales growth was muted in the quarter due to the meaningful percentage of completion revenue from Phase one of the Jafara project in last year's fourth quarter, which did not repeat in the fourth quarter of this year. Aftermarket revenues grew 4% in the quarter which was partially offset as expected by original equipment revenues down 2 percent. Shifting to margins, we've generated an adjusted gross margin of 32.8% representing a 300 basis point year over year increase, and our fifth consecutive quarter of sequential margin improvement. The launch of our Flowserve Business System, which includes our operational and portfolio excellence efforts, positions us well to deliver continued gross margin expansion. Fourth quarter adjusted SG&A increased $12 million versus last year, largely due to adding MoGas in the quarter, along with the phasing of incremental corporate R&D investments. Adjusted operating margin increased 210 basis points versus the prior year period to 12.6%, our best of the year and representing our highest quarterly incremental margin of the year at more than 175%. Adjusted operating income was $149 million, a 22% increase versus last year. Our adjusted tax rate for the quarter was in line with expectations at 21%. Compared to the prior year fourth quarter adjusted tax rate of 8%, which benefited from the release of certain valuation allowances this year's fourth quarter tax rate was more in line with our structural rate. The change in tax rate versus fourth quarter last year negatively impacted adjusted EPS by approximately $0.13. With these items combined with the additional modest headwinds in other we delivered adjusted earnings per share of $0.70 for the fourth quarter.

Turning to our segments. Starting with FPD on slide eleven. The strong momentum continued in FPD with bookings increasing 13% versus last year. As expected, FPD sales declined 5% in the quarter due to a combination of the phasing of large projects in the last year comparison period and the negative impacts of foreign currency translation. Despite the sales decline, FPD generated adjusted operating margin, an increase of 450 basis points versus last year. Coupled with meaningful SG&A leverage, FPD delivered an exceptional adjusted operating margin of 17.5%, a 570 basis point increase versus last year. We are very pleased with the significant progress FPD has made this year. For the full year, FPD's adjusted operating margin was within the targeted range of 16 to 18% which we set out to deliver by 2027. FPD continues to generate benefits from a more selective approach to bidding while also driving productivity through our operational excellence program. We expect to see further margin expansion in 2025 from the continued maturity of these programs and our eighty-twenty complexity reduction program. Turning to slide twelve, FCD including MoGas delivered sales and booking growth of 15% and 11%, respectively. MoGas contributed eleven points of sales growth in the quarter. In FCD, aftermarket bookings increased twenty while original equipment bookings were up 8% driven by strength in both general industries and oil & gas. FCD adjusted gross and adjusted operating margins were 31.8 and 15.3%, respectively for the quarter. A sequential improvement versus the third quarter. MoGas was a slight drag for FCD's margins in the quarter given the timing and mix of shipments and related under absorption that I mentioned earlier. Absent MoGas, FCD's underlying operational margins were roughly flat year over year. FCD exits 2024 with improving momentum. We're benefiting from solid revenue conversion, improved mix, and enhanced execution. We are focused on expanding FCD margins and driving growth as we leverage the Flowserve Business System to improve execution while also accelerating opportunities through the integration of MoGas.

Turning now to cash flow on slide thirteen. During the quarter, we generated very strong cash from operations of $197 million bringing our full year cash from operations to $425 million as a percent of sales, fourth quarter adjusted primary working capital 28% on par with last year. We continue to see improvements in our cash conversion cycle, which improved by roughly one day in 2024. Working capital efficiency is a continued area of focus for our team, and while we have seen the benefits of improving our operations management system, we see more runway ahead as we leverage the Flowserve Business System to drive a standard inventory strategy. For the full year, with capital expenditures of $81 million, we generated strong free cash flow of $344 million our highest level in more than a decade. Free cash flow conversion ratio of 99% was significantly higher than our target of 85% or more for the year, and a strong indicator that our efforts in this area have momentum. Other sources and uses of cash during the quarter included increasing our term loan in conjunction with the MoGas acquisition and a combined $37 million for dividends and a term loan reduction. Turning to our 2025 outlook on slide fourteen. As Scott outlined, we are well positioned to once again make significant progress towards our 2027 targets. In 2025, we expect organic sales growth of 3 to 5% which reflects the strong momentum from 2024, a healthy starting backlog, supportive end markets, and further advancing of our eighty-twenty effort. We expect reported net sales growth to benefit roughly 300 basis points from the MoGas acquisition. Currency will somewhat offset sales growth as we continue to see headwinds from the stronger US dollar. Based on recent prevailing foreign currency exchange rates, we expect reported sales to be negatively impacted by approximately 100 basis points. We anticipate a full-year book to bill ratio of over 1.0 given the constructive market backdrop. Turning to profits, we anticipate continuing to expand gross and operating margins as we drive higher volumes and leverage our eighty-twenty program to reduce costs through a more simplified product portfolio. MoGas is also expected to drive profit growth in 2025. Our guidance assumes MoGas operations will benefit adjusted earnings by an estimated $0.16 which includes $7 million of in-year cost synergy benefits. Incremental interest expense related to financing the acquisition is expected to partially offset the operational benefits. Overall, we expect adjusted earnings per share of $3.10 to $3.30. This includes absorbing an estimated five-cent headwind from foreign currency translation. At the midpoint, our adjusted earnings guidance represents an increase of 22% versus the prior year. In contrast to 2024, we anticipate the profile of our 2025 quarterly revenue and earnings results will be similar to historical trends with first-quarter earnings the lowest and fourth-quarter earnings the highest. The impact of MoGas, including the benefit of synergies, along with the benefits from our portfolio excellence initiative will accelerate through the year. We expect first-quarter sales and earnings to be similar to the first quarter of 2024. As strong aftermarket growth is offset by lower percentage of completion revenue on a year-over-year basis. Turning to capital allocation on slide fifteen. We continue to leverage our framework to deploy excess cash to the highest long-term return. Our board has authorized a quarterly dividend of $0.21 per share. We also expect to leverage our cash to repurchase shares to offset equity compensation. We are focused on continuing to invest in the business for growth, both organically and through M&A. We actively review opportunities. We have a strong M&A pipeline and continue to strengthen our 3D strategy to further diversify the portfolio, leverage our scale, and drive both margin and EPS expansion.

As I close, let me reiterate how proud I am of the Flowserve team. We delivered significant value in 2024 across all metrics: bookings, sales, earnings, and cash flow. Our 2025 guidance is another step towards unlocking further value creation for our shareholders. With that, let me now turn the call back to Scott. Before we open the call for questions, let's go to slide sixteen. We made tremendous progress in 2024, and we believe 2025 represents another meaningful step towards delivering our 2027 financial target. Our end markets are healthy and growing. Our 3D strategy is working. Our execution has improved significantly and we are seeing the early benefits of our Flowserve Business System. Overall, we are pleased with the remarkable progress in 2024. But we know there is more opportunity in front of us and our work is not done. Our 2025 guidance represents another step in achieving our 2027 targets and I have more confidence today than ever before in our team and our approach to deliver these results. We are excited about the journey ahead and have a clear roadmap to deliver significant value for our customers, our associates, and our shareholders. Operator, we'll now open the call for questions. Thank you.

Thank you. If you would like to ask a question, please press star one.

We'll take our first question from Nathan Jones with Stifel. Good morning, everyone. I guess I'll start with a question on the aftermarket bookings. They've certainly ramped up over the last few years and are at levels higher than they've ever been historically. I wonder if you could just talk a little bit more about the strategies that you've deployed to really drive the aftermarket capture rates to drive the growth in bookings around aftermarket to start with? Thanks.

We're super excited about the aftermarket bookings. $618 million in the quarter. It's several quarters in a row now that we've been over $600 million and I don't know if that's the new norm, but I would say certainly a $550 million number would be the floor on aftermarket bookings. And, as you said, Nathan, this is absolutely a result of the good work from the teams. We have a massive installed base of both pumps and valves. We've got a great local presence with our quick response centers. We've got strong customer relationships. And what we're really focused on is that high level of customer service. The mantra within our teams is speed wins. We focus substantially on reducing the cycle time of our quotes, reducing the cycle time of getting parts to our customers, and reducing cycle times of repairs and just being available to service them. We've got a nice record that we use within the aftermarket teams. We can see that the capture rates are continuing to move up, and we're confident that we can continue to make progress with this. Additionally, the machinery utilization around the world on these large plants and infrastructures is at a relatively high level. We expect those levels to maintain in 2025 and beyond. So we like where we are with aftermarket. We've got aggressive growth targets in all of our aftermarket type businesses, and we feel like if we keep executing like we are, we'll continue to increase that capture rate.

Awesome. I guess my follow-up question is going to be around the eighty-twenty framework, your core initiatives. One of the comments in the slide that I found interesting was that you don't expect it to really be a negative headwind on the sales side. Pretty much every company I've covered that has deployed this kind of system has always seen a headwind to revenue from getting out of products that aren't profitable or getting out customers that aren't profitable. It's accretive to EPS to see those headwinds in sales. I'm just wondering if you can comment on why you're not seeing a revenue headwind from these eighty-twenty initiatives, if that's something we should expect in the future or just your approach to that effort?

Let me provide a little context first just to get everyone grounded. I know that you know this well on the eighty-twenty journey, but just as a reminder for everyone else, we launched three of our business units within eighty-twenty last year. We call our initiative core for complexity reduction because essentially that's what you're doing. You're using a Pareto type approach to reduce the complexity in your business. Flowserve has been around for a long time, and we have a lot of complexity. This initiative is something that's really impactful to Flowserve, and we've got high expectations as we go forward. As we think about the two business units that are now kind of a year into this, what we're seeing is a skew reduction magnitude of ten to fifteen percent in the year. As you indicated, that is gonna be a little bit of a headwind to our revenue as those SKUs are removed from our offering. The philosophy is that we take those resources that were previously used to sell that product or that channel to market and we're repositioning them to our best products and our best customers. At this point, at least in 2025, we feel that revenue impact is negligible as we start to invest in our best products and our best customers. We're one year in with two business units, and that's how we see things today. I believe we'll be able to maintain that into 2025. As we kick off two more business units in 2025, we'll see the dynamics of what the data shows us and what we think the revenue impact will be, but again, that probably won't show up until 2026. On the margin side, I’ll add that in the two business units that are now kind of a full year in here, we fully expect in 2025 a hundred basis points in the gross margin level because of the efforts we’re making with eighty-twenty. We remain confident that this initiative, which we put under our portfolio excellence, will continue to drive 200 basis points plus as we reach our long term goals for 2027.

And, Nathan, I might just add that as we talk about negligible impact, I think another way to say that is it's factored into our organic revenue guidance that we've put out of 3 to 5%. So what would a 3% year look like? It could look like more revenue loss from eighty-twenty. That doesn't necessarily sacrifice our potential to reach our EPS guidance.

Makes perfect sense. Thanks very much for taking my questions.

Hey, good morning, everyone.

Maybe we start on the twenty-five guide with the expectation that you think you'll be above one on book to bill, just how calibrated are you on that so far? I mean, you do have some good earnings visibility on some of these longer cycle projects. So is there a front log that's giving you that confidence that you'll be able to maintain the streak of over a billion dollars of orders for the long term?

Our forward funnel within our CRM system is essentially flat year over year. It doesn't give us substantial cause for concern. It's at a very elevated level. I would say oil and gas is a little down, power's up substantially, chemicals down just a fraction, and general industries up. With all of that said, we feel like we've got great visibility to the project universe out there and driving growth within the OE bookings. As I said previously, I'm very confident in our ability to continue to grow that. Everything we see shows a book to bill over 1.0. The megatrends that we continue to refer to are decarbonization. Despite some of the rhetoric maybe in the US shifting away from that, we're seeing many projects in the decarbonization space. We booked carbon capture in fourth quarter and have visibility in Q1 and more carbon capture for the rest of the year. The nuclear outlook is incredibly strong on the power side. So the power and electrification continue to go forward, and we've got great visibility there. We expect that soft spot in chemicals in Europe will eventually show growth.

That's really helpful. And Amy knows this would typically be the time I would ask about free cash flow, but it was really strong in the quarter. I think I'll leave that one there. But, Scott, you mentioned the geopolitical side. Just is there anything as you see the businesses today that would be impacted on tariffs and any kind of preparation or playbook that you have?

We've obviously gone through this once before with the Trump administration. The Biden administration moved tariffs up even further, so we've got a good view of what to do with the tariffs. It’s a very dynamic situation with a lot of uncertainty. What I would add is we're incredibly confident in our ability to manage this. Historically, Flowserve has not been the most nimble company, but we're changing that dramatically. We've got great visibility not only on where our supply chain is coming from but also what the impact would be at a product line level in any tariff scenario. That visibility allows us to move much quicker in terms of actions. Actions would be repositioning the supply chain, raising prices as we feel impacted. Our teams are geared up with this. We've modeled out more scenarios than I want to talk about on the call. Given what we know today, we feel really good about our ability to manage this.

Good morning, everyone. Just talking through a couple things here. First, when you look at the 100 to 200 basis points plus you mentioned on the slide on the eighty-twenty and the commercial excellence program you're about to launch, I know you guys said on your prepared remarks, it’s like 200 plus. When you think about those, just a reminder, how much of that is embedded in what you've previously guided for 2027? And also a reminder, what is the volume component of that 2027 guidance sitting here today, or the revenue growth component? In other words, how much is firmly within your control versus market factors?

As we laid out our 2027 targets, we didn't specifically dig out 200 basis points from portfolio management as we think of eighty-twenty as the process to drive that portfolio management improvement. We’ve also made it clear with our 2027 targets that we don't intend on stopping there. We felt confident as we started to see results from eighty-twenty that really 200 basis points might become 200 basis points plus. The other 200 basis points we identified is our operational excellence. We have made tremendous progress on the OpEx excellence side, particularly with the results we've seen running through the FPD segment. We’re confident in hitting those long-term targets.

Thanks for that. And maybe a question on the guidance then and making sure I understand the cadencing. If I heard the prepared remarks correctly, first-quarter revenue and earnings are expected to be similar to last year. Just making sure on that. And as you think about the year, is this cadencing expectation for relatively normal seasonality, relatively normal or balanced conversion on some of these backlogs through the year? Any other nuances we should consider through the year and any thoughts on the corporate expense side?

As we think about 2025, you're right that we look at that phasing as being closer to our historical seasonality. This is impacted by a couple of reasons from an earnings perspective. We've commented throughout on the phasing of that large deferral contract that we shipped across 2024. The first quarter of last year was indeed our highest revenue quarter from that. So that impacts what we see in the first quarter. We’re also dealing with the effects of eighty-twenty. The impacts on profitability will ramp throughout the year, plus the MoGas acquisition will take time to recognize synergies to get to the ultimate run rate of benefits through the year. I expect to see the fourth quarter be our best quarter of the year. The first quarter overall will see improvement from an operating performance perspective. We expect gross margin will improve again year over year.

Hey, guys. Good morning. I wanted to unpack the corporate expense a bit. You mentioned it’s tied to specific R&D. It was definitely higher, and now we're saying that 2025 is neutral. What’s kind of causing this ramp? How long does it kind of stay at that level? When you say it's neutral in 2025, are you saying it's gonna be equal to the 2024 number that had $12 million of extra cost from asbestos? Is it like you’re saying it’s going to be inclusive of that extra twelve, and then we'll see what happens with asbestos for this year?

Corporate costs include that basket of costs that we do not allocate to the divisions. Those include corporate development, R&D costs that aren't necessarily attributed to either segment. They also include elements of incentives including both annual incentives and share-based compensation, which has increased as the company has begun to perform close to targeted levels. Given that incentive component, both share-based compensation which includes a performance component and annual incentives are higher than we might have seen previously. So absent costs related to asbestos, I believe we’ll see the corporate cost go down year over year.

That’s fair. Then just if I could follow up on some of the in-process R&D that you bought on the cryo side of things. Where are those today in terms of commercial deployment?

We remain very excited about the LNG market in general. With the new administration, there’s renewed life for new build LNG in the United States. We've got a very global perspective on the LNG side, and we’re able to put a lot of our valves and other products in there. Our pump is making very good progress, and I would say it’s somewhere in the second half of the year. We’ve gotten through our testing protocol, and we're starting to bring that to market. On a positive side, we're already seeing our ability to support the aftermarket business in LNG. The technology we’ve developed is now out there, repairing and installing some of our product in replacement opportunities on existing LNG. So we’re already starting to see revenue on the back of this technology acquisition, and we’re confident it will be a nice addition to the overall portfolio supporting what we believe is a strong end market.

Hey, good morning all. I wanted to come back to the SKU reduction. You noted that two business units are underway. I think you mentioned a commensurate ten percent to fifteen percent reduction there. Two more being reviewed this year. Where do you see the reduction ultimately landing at the end of the program on a SKU basis? Should we think of potentially more benefit above just eighty-twenty practice as you get better throughput on a standardized simplified SKU count?

On the SKU, the first two business units are about a year into the program now, and we expect to see that ten to fifteen percent reduction. In year two, that number only gets bigger. So while we don't think we’re going to double the size of the SKU reduction, you could see those numbers going up to kind of fifteen to twenty percent within each of those first business units. As we continue to follow the methodology, every time you recut your SKUs, you're moving products and potentially customers out of the mix and repurposing resources to those that create value. We’re also confident that as we reduce complexity, we’ll drive efficiencies across manufacturing, quoting, engineering and shop floor processes.

That's very helpful. Maybe just one on inventory. It still looks pretty lean to us. What's your assessment of inventories in the channels? If we're entering a moderately more favorable operating backdrop for traditional energy deregulation, should we expect channels to gain comfort holding more inventory over the next couple of years?

I’ll keep this discussion in the US because that's where we see our stocking distributors. The stocking distributors have pulled back on inventory—they’ve managed their working capital very well and put pressure on us to reduce lead times. My view would be that their inventory does start to come up. The North American outlook across the energy sector and some general industries is relatively bullish. So I would expect modest growth in inventory levels as we progress forward. However, I wouldn’t expect anything extreme.

As there are no further questions at this time, we will now conclude today's conference call. Thank you for your participation. You may disconnect, and have a great day.