EX-99.1 2 a53686559ex99_1.htm EXHIBIT 99.1
Exhibit 99.1

Flowserve Corporation Reports Third Quarter 2023 Results; Raises 2023 Financial Guidance

  • Raised full-year Revenue and Adjusted EPS guidance range following strong year-to-date performance and expectations for the 2023 fourth quarter
  • Reported and Adjusted1 Earnings Per Share (EPS)2 of 35 cents and 50 cents, respectively, continuing strong operational performance
  • Delivered solid bookings of $1.07 billion, including strong aftermarket awards in excess of $580 million, maintaining near-record backlog levels at $2.77 billion
  • Drove revenue growth of 25.4% and generated a 630 basis point improvement in adjusted operating margin compared to prior year
  • Improved operating cash flow by over $240 million year-to-date, with $81 million of operating cash flow generated in the 2023 third quarter

DALLAS--(BUSINESS WIRE)--October 25, 2023--Flowserve Corporation (NYSE: FLS), a leading provider of flow control products and services for the global infrastructure markets, today announced its financial results for the third quarter ended September 30, 2023.

Third Quarter 2023 Highlights (all comparisons to the 2022 third quarter, unless otherwise noted)

  • Reported Earnings Per Share (EPS) of $0.35 and Adjusted Earnings Per Share (EPS)1 of $0.50, compared to $0.29 and $0.09, respectively
    • Third quarter 2023 Reported EPS includes after-tax adjusted expenses of $20.5 million, comprised primarily of realignment charges, below-the-line foreign exchange, and the release of a tax valuation allowance benefit
    • Both Reported and Adjusted EPS were impacted by an $10.7 million (6 cents per share3) non-cash expense, resulting from an actuarial-determined assessment of certain long-term liabilities
  • Total bookings were $1.07 billion, down $155.8 million or 12.7%. On a constant currency basis4, total bookings were down $175.4 million or 14.3%
    • Third quarter 2022 bookings included over $210 million of original equipment orders related to a Middle East gas project, representing one of Flowserve’s largest awards ever
    • Original equipment bookings were $485.3 million, down $194.4 million or 28.6%. On a constant currency basis4, original equipment bookings were down $202.0 million or 29.7%
    • Aftermarket bookings were $582.2 million, up $38.6 million or 7.1%. On a constant currency basis4, aftermarket bookings were up $26.6 million or 4.9%
  • Sales were $1.09 billion, up $221.8 million or 25.4%. On a constant currency basis4, sales were up $200.7 million or 23.0%
    • Original equipment sales were $529.2 million, up $117.1 million or 28.4%. On a constant currency basis4, original equipment sales were up $106.8 million or 25.9%
    • Aftermarket sales were $565.5 million, up $104.7 million or 22.7%. On a constant currency basis4, aftermarket sales were up $94.0 million or 20.4%
  • Reported gross and operating margins were 29.0% and 6.4%, up 160 and 360 basis points, respectively
    • Adjusted gross and operating margins5 were 29.7% and 8.7%, up 230 and 630 basis points, respectively
    • Both Reported and Adjusted third quarter 2023 operating margins were impacted by the $10.7 million non-cash expense, which reduced operating margins by approximately 100 basis points6
  • Backlog of $2.77 billion, up $170.9 million or 6.6% compared to the 2022 third quarter
    • Book-to-bill solid at 1.03x year-to-date
  • Completed actions to achieve the 2023 cost-reduction target of $50 million annualized savings

“We delivered strong third quarter results, including significant revenue and earnings growth, while building on the operating momentum of the last year,” said Scott Rowe, Flowserve’s President and Chief Executive Officer. “Our new organizational model is driving speed, accountability, and cost efficiency throughout the company. The combination of our improved operating performance and our positive market outlook gives us the confidence to increase our full year revenue and adjusted EPS guidance range for the third time this year.”

Rowe concluded, “Driven by our 3D strategy, Flowserve is well-positioned to capture accelerated growth from energy transition investments and decarbonization initiatives. Flowserve is also competitively differentiated to capitalize in our traditional markets by ensuring global energy security. Additionally, we expect both aftermarket and MRO opportunities will remain strong through 2024 and beyond. As a result of these combined dynamics, we continue to believe we are in the early stages of a multi-year upcycle. Our focus remains on profitably converting our near-record $2.8 billion backlog to deliver solid revenue and earnings growth over the coming years, while creating long-term value for our shareholders, associates and customers.”


Revised 2023 Guidance2

Flowserve is raising its Revenue and Adjusted EPS guidance metrics for 2023, as well as updating or re-affirming certain other financial metrics, as shown in the table below:


 

Prior Target Range7

Revised Target Range



Revenue Growth

Up 16.0% to 18.0%

Up 18% to 19%

 


Reported Earnings Per Share

$1.40 - $1.65

$1.40 - $1.50

 


Adjusted Earnings Per Share

$1.85 - $2.00

$1.95 - $2.05

 


Net Interest Expense

~$60 million

Re-affirmed

 


Adjusted Tax Rate

~20%

Re-affirmed

 


Capital Expenditures

$75 - $85 million

Re-affirmed

 

Flowserve’s 2023 Adjusted EPS target range excludes expected adjusted items including identified realignment charges of approximately $55 million, as well as the potential impact of below-the-line foreign currency effects and certain other discrete items which may arise during the course of the year, including the potential for additional realignment expense.

Third Quarter 2023 Results Conference Call

Flowserve will host its conference call with the financial community on Thursday, October 26th at 11:00 AM Eastern. Scott Rowe, president and chief executive officer, as well as other members of the management team will be presenting. The call can be accessed by shareholders and other interested parties at www.flowserve.com under the “Investor Relations” section.

1 See Consolidated Reconciliation of Non-GAAP Financial Measures to the Most Directly Comparable GAAP Financial Measure (Unaudited) and Segment Reconciliation of Non-GAAP Financial Measures to the Most Directly Comparable GAAP Financial Measure (Unaudited) tables for a detailed reconciliation of reported results to adjusted measures.

2 Adjusted 2023 EPS excludes identified realignment expenses, the impact from other specific discrete items (including terminated Velan acquisition) and below-the-line foreign currency effects and utilizes current FX rates and approximately 132 million fully diluted shares.

3 EPS impact calculated by tax effecting the $10.7 million expense at 25.6% effective tax rate and dividing by 132 million shares

4 Constant currency is a non-GAAP financial measure. We have calculated constant currency amounts and the associated currency effects on operations by translating current year results on a monthly basis at prior year exchange rates for the same periods

5 Adjusted gross and operating margins are calculated by dividing adjusted gross profit and adjusted operating income, respectively, by revenues. Adjusted gross profit and adjusted operating income are derived by excluding the adjusted items. See Consolidated Reconciliation of Non-GAAP Financial Measures to the Most Directly Comparable GAAP Financial Measure (Unaudited) and Segment Reconciliation of Non-GAAP Financial Measures to the Most Directly Comparable GAAP Financial Measure (Unaudited) tables for a detailed reconciliation..

6 Basis point impact calculated as the $10.7 million non-cash charge in SG&A divided by total sales

7 Prior target range was provided as of August 1, 2023, and included revisions from Flowserve’s initial guidance range provided February 10, 2023 and its previously revised range on May 2, 2023



CONDENSED CONSOLIDATED STATEMENTS OF INCOME

(Unaudited)


Three Months Ended September 30,

(Amounts in thousands, except per share data)

2023

 

2022


 



Sales

$

1,094,718

 


$

872,881

 

Cost of sales

 

(777,024

)


 

(633,304

)

Gross profit

 

317,694

 


 

239,577

 

Selling, general and administrative expense

 

(252,065

)


 

(221,142

)

Net earnings from affiliates

 

4,627

 


 

5,782

 

Operating income

 

70,256

 


 

24,217

 

Interest expense

 

(17,273

)


 

(11,582

)

Interest income

 

2,134

 


 

1,141

 

Other income (expense), net

 

(13,710

)


 

28,676

 

Earnings before income taxes

 

41,407

 


 

42,452

 

Benefit from (provision for) income taxes

 

11,186

 


 

(1,817

)

Net earnings, including noncontrolling interests

 

52,593

 


 

40,635

 

Less: Net earnings attributable to noncontrolling interests

 

(6,437

)


 

(2,235

)

Net earnings attributable to Flowserve Corporation

$

46,156

 


$

38,400

 


 


 

Net earnings per share attributable to Flowserve Corporation common shareholders:

 


 

Basic

$

0.35

 


$

0.29

 

Diluted

 

0.35

 


 

0.29

 


 


 

Weighted average shares – basic

 

131,183

 


 

130,703

 

Weighted average shares – diluted

 

132,026

 


 

131,402

 








 




 

Consolidated Reconciliation of Non-GAAP Financial Measures to the Most Directly Comparable GAAP Financial Measure (Unaudited)

(Amounts in thousands, except per share data)










 

Three Months Ended September 30, 2023

Gross Profit

Selling, General

& Administrative

Expense

Operating

Income

Other Income

(Expense),

Net

Income

Taxes

Earnings

Attributable to

Noncontrolling

Interests

Net

Earnings

(Loss)

Effective

Tax Rate

Diluted EPS

Reported

$

317,694

 

$

252,065

 

$

70,256

 

$

(13,710

)

$

(11,186

)

$

6,437

 

$

46,156

 

 

-27.0

%

$

0.35

Reported as a percent of sales

 

29.0

%

 

23.0

%

 

6.4

%

 

-1.3

%

 

-1.0

%

 

0.6

%

 

4.2

%



Realignment charges (a)

 

7,240

 

 

(14,954

)

 

22,194

 

 

-

 

 

4,250

 

 

-

 

 

17,944

 

 

19.1

%

 

0.14

Acquisition related (b)

 

-

 

 

(2,539

)

 

2,539

 

 

-

 

 

443

 

 

-

 

 

2,096

 

 

17.4

%

 

0.02

Correction of prior period errors (c)

 

-

 

 

-

 

 

-

 

 

-

 

 

-

 

 

(3,559

)

 

3,559

 

 

0

%

 

0.03

Discrete tax benefit (d)

 

-

 

 

-

 

 

-

 

 

-

 

 

13,000

 

 

-

 

 

(13,000

)

 

0

%

 

-0.10

Below-the-line foreign exchange impacts (e)

 

-

 

 

-

 

 

-

 

 

12,164

 

 

2,276

 

 

-

 

 

9,888

 

 

18.7

%

 

0.07

Adjusted

$

324,934

 

$

234,572

 

$

94,989

 

$

(1,546

)

$

8,783

 

$

2,878

 

$

66,643

 

 

11.2

%

$

0.50

Adjusted as a percent of sales

 

29.7

%

 

21.4

%

 

8.7

%

 

-0.1

%

 

0.8

%

 

0.3

%

 

6.1

%












 

Note: Amounts may not calculate due to rounding

(a) Charges represent realignment costs incurred as a result of realignment programs.

(b) Charges represent costs associated with a terminated acquisition

(c) Represents the amount to correct the cumulative impact of prior period errors

(d) Represents a discrete tax benefit due to release of tax valuation allowance on the net deferred tax assets in a foreign jurisdiction. The associated tax expense was adjusted out in 2015.

(e) Below-the-line foreign exchange impacts represent the remeasurement of foreign exchange derivative contracts as well as the remeasurement of assets and liabilities that are denominated in a currency other than a site’s respective functional currency.










 









 

Three Months Ended September 30, 2022

Gross Profit

Selling, General

& Administrative

Expense

Operating

Income

Other Income

(Expense),

Net

Income

Taxes

Net Earnings

(Loss)

Effective

Tax Rate

Diluted

EPS


Reported

$

239,577

 

$

221,142

 

$

24,217

 

$

28,676

 

$

1,817

 

$

38,400

 

 

4.2

%

$

0.29

 


Reported as a percent of sales

 

27.4

%

 

25.3

%

 

2.8

%

 

3.3

%

 

0.2

%

 

4.4

%




Realignment charges (a)

 

(395

)

 

(99

)

 

(296

)

 

-

 

 

(94

)

 

(202

)

 

31.8

%

 

0.00

 


Discrete asset write-downs (b)

 

(209

)

 

2,523

 

 

(2,732

)

 

-

 

 

(624

)

 

(2,108

)

 

22.8

%

 

-0.02

 


Below-the-line foreign exchange impacts (c)

 

-

 

 

-

 

 

-

 

 

(30,482

)

 

(6,730

)

 

(23,752

)

 

22.1

%

 

-0.18

 


Adjusted

$

238,973

 

$

223,566

 

$

21,189

 

$

(1,806

)

$

(5,631

)

$

12,338

 

 

-63.0

%

$

0.09

 


Adjusted as a percent of sales

 

27.4

%

 

25.6

%

 

2.4

%

 

-0.2

%

 

-0.6

%

 

1.4

%













 

Note: Amounts may not calculate due to rounding

(a) Charges represent realignment costs credit as a result of realignment programs of which $89 is non-cash.

(b) Represents reversals of expenses that were adjusted for Non-GAAP measures in previous periods

(c) Below-the-line foreign exchange impacts represent the remeasurement of foreign exchange derivative contracts as well as the remeasurement of assets and liabilities that are denominated in a currency other than a site’s respective functional currency.



SEGMENT INFORMATION

(Unaudited)


 



FLOWSERVE PUMP DIVISION

Three Months Ended September 30,

(Amounts in millions, except percentages)

2023

 

2022

Bookings

$

734.7

 


$

925.8

 

Sales

 

766.2

 


 

592.6

 

Gross profit

 

220.3

 


 

170.0

 

Gross profit margin

 

28.8

%


 

28.7

%

SG&A

 

146.7

 


 

136.9

 

Segment operating income

 

78.3

 


 

38.9

 

Segment operating income as a percentage of sales

 

10.2

%


 

6.6

%


 



FLOW CONTROL DIVISION

Three Months Ended September 30,

(Amounts in millions, except percentages)

2023

 

2022

Bookings

$

330.5

 


$

300.0

 

Sales

 

330.7

 


 

282.6

 

Gross profit

 

97.6

 


 

78.2

 

Gross profit margin

 

29.5

%


 

27.7

%

SG&A

 

54.0

 


 

48.5

 

Segment operating income

 

43.5

 


 

29.7

 

Segment operating income as a percentage of sales

 

13.2

%


 

10.5

%








 

 

Segment Reconciliation of Non-GAAP Financial Measures to the Most Directly Comparable GAAP Financial Measure (Unaudited)

(Amounts in thousands)









 

Flowserve Pump Division









Three Months Ended September 30, 2023

Gross Profit

Selling, General

& Administrative

Expense

Operating

Income


Three Months Ended September 30, 2022

Gross Profit

Selling, General

& Administrative

Expense

Operating

Income

Reported

$

220,321

 

$

146,679

 

$

78,269

 


Reported

$

170,046

 

$

136,915

 

$

38,912

 

Reported as a percent of sales

 

28.8

%

 

19.1

%

 

10.2

%


Reported as a percent of sales

 

28.7

%

 

23.1

%

 

6.6

%

Realignment charges (a)

 

6,141

 

 

(9,929

)

 

16,070

 


Realignment charges (a)

 

(417

)

 

(74

)

 

(343

)

Adjusted

$

226,462

 

$

136,750

 

$

94,339

 


Discrete asset write-downs (b)

 

(209

)

 

2,523

 

 

(2,732

)

Adjusted as a percent of sales

 

29.6

%

 

17.8

%

 

12.3

%


Adjusted

$

169,420

 

$

139,364

 

$

35,837

 






Adjusted as a percent of sales

 

28.6

%

 

23.5

%

 

6.0

%









 

Flow Control Division









Three Months Ended September 30, 2023

Gross Profit

Selling, General

& Administrative

Expense

Operating

Income


Three Months Ended September 30, 2022

Gross Profit

Selling, General

& Administrative

Expense

Operating

Income

Reported

$

97,563

 

$

54,016

 

$

43,547

 


Reported

$

78,173

 

$

48,454

 

$

29,718

 

Reported as a percent of sales

 

29.5

%

 

16.3

%

 

13.2

%


Reported as a percent of sales

 

27.8

%

 

17.2

%

 

10.6

%

Realignment charges (a)

 

1,099

 

 

(1,572

)

 

2,671

 


Realignment charges (a)

 

22

 

 

(7

)

 

29

 

Acquisition related (b)

 

-

 

 

(2,539

)

 

2,539

 


Adjusted

$

78,195

 

$

48,447

 

$

29,747

 

Adjusted

$

98,662

 

$

49,905

 

$

48,757

 


Adjusted as a percent of sales

 

27.8

%

 

17.2

%

 

10.6

%

Adjusted as a percent of sales

 

29.8

%

 

15.1

%

 

14.7

%














 








 

Note: Amounts may not calculate due to rounding




Note: Amounts may not calculate due to rounding



(a) Charges represent realignment costs incurred as a result of realignment programs.


(a) Charges represent realignment costs credit as a result of realignment programs of which $89 is non-cash.

(b) Charges represent costs associated with a terminated acquisition


(b) Represents reversal of expenses that were adjusted for Non-GAAP measures in previous periods.



 

CONDENSED CONSOLIDATED STATEMENTS OF INCOME

(Unaudited)


Nine Months Ended September 30,

(Amounts in thousands, except per share data)

2023

 

2022


 



Sales

$

3,155,399

 


$

2,576,161

 

Cost of sales

 

(2,218,114

)


 

(1,877,108

)

Gross profit

 

937,285

 


 

699,053

 

Selling, general and administrative expense

 

(726,424

)


 

(621,956

)

Net earnings from affiliates

 

13,229

 


 

14,821

 

Operating income

 

224,090

 


 

91,918

 

Interest expense

 

(50,039

)


 

(33,337

)

Interest income

 

5,535

 


 

2,938

 

Other income (expense), net

 

(27,271

)


 

28,152

 

Earnings before income taxes

 

152,315

 


 

89,671

 

Benefit from (provision for) income taxes

 

(14,571

)


 

(16,618

)

Net earnings, including noncontrolling interests

 

137,744

 


 

73,053

 

Less: Net earnings attributable to noncontrolling interests

 

(13,618

)


 

(5,694

)

Net earnings attributable to Flowserve Corporation

$

124,126

 


$

67,359

 


 


 

Net earnings per share attributable to Flowserve Corporation common shareholders:

 


 

Basic

$

0.95

 


$

0.52

 

Diluted

 

0.94

 


 

0.51

 


 


 

Weighted average shares – basic

 

131,095

 


 

130,604

 

Weighted average shares – diluted

 

131,864

 


 

131,233

 








 




 

Consolidated Reconciliation of Non-GAAP Financial Measures to the Most Directly Comparable GAAP Financial Measure (Unaudited)

(Amounts in thousands, except per share data)










 

Nine Months Ended September 30, 2023

Gross

Profit

Selling, General

& Administrative

Expense

Operating

Income

Other

Income

(Expense),

Net

Income

Taxes

Earnings

Attributable to

Noncontrolling

Interests

Net

Earnings

(Loss)

Effective

Tax Rate

Diluted EPS

Reported

$

937,285

 

$

726,424

 

$

224,090

 

$

(27,271

)

$

14,571

 

$

13,618

 

$

124,126

 

 

9.6

%

$

0.94

Reported as a percent of sales

 

29.7

%

 

23.0

%

 

7.1

%

 

-0.9

%

 

0.5

%

 

0.4

%

 

3.9

%



Realignment charges (a)

 

11,548

 

 

(39,076

)

 

50,624

 

 

-

 

 

10,415

 

 

-

 

 

40,209

 

 

20.6

%

 

0.30

Acquisition related (b)

 

-

 

 

(8,491

)

 

8,491

 

 

-

 

 

1,997

 

 

-

 

 

6,494

 

 

23.5

%

 

0.05

Discrete asset write-downs (c)(d)(e)

 

1,969

 

 

(3,955

)

 

5,924

 

 

-

 

 

1,517

 

 

-

 

 

4,407

 

 

25.6

%

 

0.03

Below-the-line foreign exchange impacts (f)

 

-

 

 

-

 

 

-

 

 

24,328

 

 

2,669

 

 

-

 

 

21,659

 

 

0.0

%

 

0.16

Correction of prior period errors (g)

 

-

 

 

-

 

 

-

 

 

-

 

 

-

 

 

(3,559

)

 

3,559

 

 

0.0

%

 

0.03

Discrete tax benefit (h)

 

-

 

 

-

 

 

-

 

 

-

 

 

13,000

 

 

-

 

 

(13,000

)

 

0.0

%

 

-0.10

Adjusted

$

950,802

 

$

674,902

 

$

289,129

 

$

(2,943

)

$

44,169

 

$

10,059

 

$

187,454

 

 

18.3

%

$

1.42

Adjusted as a percent of sales

 

30.1

%

 

21.4

%

 

9.2

%

 

-0.1

%

 

1.4

%

 

0.3

%

 

5.9

%












 

Note: Amounts may not calculate due to rounding

(a) Charges represent realignment costs incurred as a result of realignment programs of which $7,601 is non-cash.

(b) Charges represent costs associated with a terminated acquisition

(c) Charge represents a further expense of $1,834 associated with a sales contract that was initially reserved for in 2017.

(d) Charge represents a further $1,173 non-cash write-down of inventory associated with a customer sales contract that was originally determined to be uncollectible in 2020.

(e) Charge represents a $2,917 non-cash write-down of a licensing agreement.

(f) Below-the-line foreign exchange impacts represent the remeasurement of foreign exchange derivative contracts as well as the remeasurement of assets and liabilities that are denominated in a currency other than a site’s respective functional currency.

(g) Represents the amount to correct the cumulative impact of prior period errors

(h) Represents a discrete tax benefit due to release of tax valuation allowance on the net deferred tax assets in a foreign jurisdiction. The associated tax expense was adjusted out in 2015.










 









 

Nine Months Ended September 30, 2022

Gross

Profit

Selling, General

& Administrative

Expense

Operating

Income

Other

Income

(Expense),

Net

Income

Taxes

Net Earnings

(Loss)

Effective

Tax Rate

Diluted EPS


Reported

$

699,053

 

$

621,956

 

$

91,918

 

$

28,152

 

$

16,618

 

$

67,359

 

 

18.5

%

$

0.51

 


Reported as a percent of sales

 

27.1

%

 

24.1

%

 

3.6

%

 

1.1

%

 

0.6

%

 

2.6

%




Realignment charges (a)

 

(126

)

 

40

 

 

(166

)

 

-

 

 

(67

)

 

(99

)

 

40.4

%

 

0.00

 


Discrete asset write-downs (b)(c)(d)

 

9,844

 

 

(10,706

)

 

20,550

 

 

-

 

 

(694

)

 

21,244

 

 

-3.4

%

 

0.16

 


Below-the-line foreign exchange impacts (e)

 

-

 

 

-

 

 

-

 

 

(34,900

)

 

(7,761

)

 

(27,139

)

 

0.0

%

 

-0.20

 


Adjusted

$

708,771

 

$

611,290

 

$

112,302

 

$

(6,748

)

$

8,096

 

$

61,365

 

 

10.8

%

$

0.47

 


Adjusted as a percent of sales

 

27.5

%

 

23.7

%

 

4.4

%

 

-0.3

%

 

0.3

%

 

2.4

%













 

Note: Amounts may not calculate due to rounding

(a) Charges represent realignment costs incurred as a result of realignment programs of which $170 is non-cash.

(b) Charge represents a $3,036 non-cash asset write-down associated with the impairment of a trademark.

(c) Charges represent a $20,246 reserve of Russia-related financial exposures.

(d) Includes reversal of expenses that were adjusted for Non-GAAP measures in previous periods of $2,732

(e) Below-the-line foreign exchange impacts represent the remeasurement of foreign exchange derivative contracts as well as the remeasurement of assets and liabilities that are denominated in a currency other than a site’s respective functional currency.



SEGMENT INFORMATION

(Unaudited)


 



FLOWSERVE PUMP DIVISION

Nine Months Ended September 30,

(Amounts in millions, except percentages)

2023

 

2022

Bookings

$

2,222.3

 


$

2,433.6

 

Sales

 

2,231.7

 


 

1,783.1

 

Gross profit

 

668.6

 


 

510.9

 

Gross profit margin

 

30.0

%


 

28.7

%

SG&A

 

426.4

 


 

408.4

 

Segment operating income

 

255.3

 


 

117.3

 

Segment operating income as a percentage of sales

 

11.4

%


 

6.6

%


 



FLOW CONTROL DIVISION

Nine Months Ended September 30,

(Amounts in millions, except percentages)

2023

 

2022

Bookings

$

1,022.1

 


$

923.2

 

Sales

 

930.0

 


 

798.8

 

Gross profit

 

270.9

 


 

218.0

 

Gross profit margin

 

29.1

%


 

27.3

%

SG&A

 

172.7

 


 

142.7

 

Segment operating income

 

98.2

 


 

75.3

 

Segment operating income as a percentage of sales

 

10.6

%


 

9.4

%








 




 

Segment Reconciliation of Non-GAAP Financial Measures to the Most Directly Comparable GAAP Financial Measure (Unaudited)

(Amounts in thousands)









 

Flowserve Pump Division









Nine Months Ended September 30, 2023

Gross Profit

Selling, General

& Administrative

Expense

Operating

Income


Nine Months Ended September 30, 2022

Gross Profit

Selling, General

& Administrative

Expense

Operating

Income

Reported

$

668,562

 

$

426,438

 

$

255,345

 


Reported

$

510,949

 

$

408,439

 

$

117,259

 

Reported as a percent of sales

 

30.0

%

 

19.1

%

 

11.4

%


Reported as a percent of sales

 

28.7

%

 

22.9

%

 

6.6

%

Realignment charges (a)

 

7,484

 

 

(11,996

)

 

19,480

 


Realignment charges (a)

 

(121

)

 

(151

)

 

30

 

Discrete asset write-downs (b)(c)(d)

 

1,969

 

 

(3,955

)

 

5,924

 


Discrete asset write-downs (b)(c)

 

8,730

 

 

(6,588

)

 

15,318

 

Adjusted

$

678,015

 

$

410,487

 

$

280,749

 


Adjusted

$

519,558

 

$

401,700

 

$

132,607

 

Adjusted as a percent of sales

 

30.4

%

 

18.4

%

 

12.6

%


Adjusted as a percent of sales

 

29.1

%

 

22.5

%

 

7.4

%









 

Flow Control Division









Nine Months Ended September 30, 2023

Gross Profit

Selling, General

& Administrative

Expense

Operating

Income


Nine Months Ended September 30, 2022

Gross Profit

Selling, General

& Administrative

Expense

Operating

Income

Reported

$

270,914

 

$

172,718

 

$

98,196

 


Reported

$

218,012

 

$

142,688

 

$

75,324

 

Reported as a percent of sales

 

29.1

%

 

18.6

%

 

10.6

%


Reported as a percent of sales

 

27.3

%

 

17.9

%

 

9.4

%

Realignment charges (a)

 

4,263

 

 

(10,478

)

 

14,741

 


Realignment charges (a)

 

56

 

 

(57

)

 

113

 

Acquisition related (e)

 

-

 

 

(8,491

)

 

8,491

 


Discrete asset write-downs (b)(d)

 

1,114

 

 

(4,118

)

 

5,232

 

Adjusted

$

275,177

 

$

153,749

 

$

121,428

 


Adjusted

$

219,182

 

$

138,513

 

$

80,669

 

Adjusted as a percent of sales

 

29.6

%

 

16.5

%

 

13.1

%


Adjusted as a percent of sales

 

27.4

%

 

17.3

%

 

10.1

%









 

Note: Amounts may not calculate due to rounding




Note: Amounts may not calculate due to rounding



(a) Charges represent realignment costs incurred as a result of realignment programs of which $7,601 is non-cash.


(a) Charges represent realignment costs incurred as a result of realignment programs of which $170 is non-cash.

(b) Charge represents a further expense of $1,834 associated with a sales contract that was initially reserved for in 2017.


(b) Charges represent the reserve of Russia-related financial exposures of $20,246.

(c) Charge represents a further $1,173 non-cash write-down of inventory associated with a customer sales contract that was originally determined to be uncollectible in 2020.


(c) Includes reversal of expenses that were adjusted for Non-GAAP measures in previous periods of $2,732

(d) Charge represents a $2,917 non-cash write-down of a licensing agreement.


(d) Charge represents a non-cash asset write-down of $3,036 associated with the impairment of a trademark.

(e) Charges represent costs associated with a terminated acquisition



 

 

 

 

 

 

 

 

 





 

 

 

 

 

 

 

 

 

 















 

Third Quarter and Year-to-Date 2023 - Segment Results

(dollars in millions, comparison vs. 2022 third quarter and year-to-date, unaudited)














 



FPD


FCD




3rd Qtr


YTD


3rd Qtr


YTD

Bookings



$

734.7

 



$

2,222.3

 



$

330.5

 



$

1,022.1

 


- vs. prior year



 

-191.1

 

-20.6

%


 

-211.3

 

-8.7

%


 

30.5

 

10.2

%


 

98.9

 

10.7

%

- on constant currency



 

-191.1

 

-22.4

%


 

-211.3

 

-8.8

%


 

30.5

 

9.2

%


 

98.9

 

11.7

%














 

Sales



$

766.2

 



$

2,231.7

 



$

-

 



$

930.0

 


- vs. prior year



 

173.6

 

29.3

%


 

448.6

 

25.2

%


 

48.1

 

17.0

%


 

131.2

 

16.4

%

- on constant currency



 

173.6

 

26.3

%


 

448.6

 

25.1

%


 

48.1

 

15.8

%


 

131.2

 

17.3

%














 

Gross Profit



$

220.3

 



$

668.6

 



$

97.6

 



$

270.9

 


- vs. prior year



 

29.6

%



 

30.9

%



 

24.8

%



 

24.3

%















 

Gross Margin (% of sales)



 

28.8

%



 

30.0

%



 

29.5

%



 

29.1

%


- vs. prior year (in basis points)



10 bps



130 bps



180 bps



180 bps















 

Operating Income



$

78.3

 



$

255.3

 



$

43.5

 

 

 

$

98.2

 

 

- vs. prior year



 

39.4

 

101.3

%


 

138.0

 

117.6

%


 

13.8

 

46.5

%

 

 

22.9

 

30.4

%

- on constant currency



 

39.4

 

93.9

%


 

138.0

 

121.7

%


 

13.8

 

46.6

%

 

 

22.9

 

32.8

%










 

 

 

 

 

Operating Margin (% of sales)



 

10.2

%



 

11.4

%



 

13.2

%

 

 

 

10.6

%

 

- vs. prior year (in basis points)



360 bps



480 bps



270 bps



120 bps











 

 

 

 

 

Adjusted Operating Income *



$

94.3

 



$

280.7

 



$

48.8

 

 

 

$

121.4

 

 

- vs. prior year



 

58.5

 

163.4

%


 

148.1

 

111.7

%


 

19.1

 

64.3

%

 

 

40.8

 

50.6

%

- on constant currency



 

58.5

 

155.5

%


 

148.1

 

115.2

%


 

19.1

 

64.3

%

 

 

40.8

 

52.9

%










 


 

 

 

Adj. Oper. Margin (% of sales)*



 

12.3

%



 

12.6

%



 

14.7

%

 

 

 

13.1

%

 

- vs. prior year (in basis points)



630 bps



520 bps



420 bps

 

 

300 bps

 













 

 

Backlog



$

1,959.0

 






$

829.7

 


















 

* Adjusted Operating Income and Adjusted Operating Margin exclude realignment charges and other specific discrete items



 

CONDENSED CONSOLIDATED BALANCE SHEETS

(Unaudited)


September 30,

 

December 31,

(Amounts in thousands, except par value)

2023

 

2022


 



ASSETS

 



Current assets:

 



Cash and cash equivalents

$

480,458

 


$

434,971

 

Accounts receivable, net of allowance for expected credit losses of $83,513 and $83,062, respectively

 

868,855

 


 

868,632

 

Contract assets, net of allowance for expected credit losses of $4,867 and $5,819, respectively

 

245,133

 


 

233,457

 

Inventories, net

 

916,107

 


 

803,198

 

Prepaid expenses and other

 

127,972

 


 

110,714

 

Total current assets

 

2,638,525

 


 

2,450,972

 

Property, plant and equipment, net of accumulated depreciation of $1,133,913 and $1,172,957, respectively

 

492,323

 


 

500,945

 

Operating lease right-of-use assets, net

 

156,784

 


 

174,980

 

Goodwill

 

1,164,388

 


 

1,168,124

 

Deferred taxes

 

171,387

 


 

149,290

 

Other intangible assets, net

 

122,549

 


 

134,503

 

Other assets, net of allowance for expected credit losses of $66,879 and $66,377, respectively

 

219,257

 


 

211,820

 

Total assets

$

4,965,213

 


$

4,790,634

 


 


 

LIABILITIES AND EQUITY

 


 

Current liabilities:

 


 

Accounts payable

$

481,337

 


$

476,747

 

Accrued liabilities

 

461,841

 


 

427,578

 

Contract liabilities

 

270,725

 


 

256,963

 

Debt due within one year

 

61,213

 


 

49,335

 

Operating lease liabilities

 

31,699

 


 

32,528

 

Total current liabilities

 

1,306,815

 


 

1,243,151

 

Long-term debt due after one year

 

1,266,423

 


 

1,224,151

 

Operating lease liabilities

 

138,907

 


 

155,196

 

Retirement obligations and other liabilities

 

339,777

 


 

309,529

 

Shareholders’ equity:

 


 

Common shares, $1.25 par value

 

220,991

 


 

220,991

 

Shares authorized – 305,000

 


 

Shares issued – 176,793 and 176,793, respectively

 


 

Capital in excess of par value

 

501,378

 


 

507,484

 

Retained earnings

 

3,818,392

 


 

3,774,209

 

Treasury shares, at cost – 45,893 and 46,359 shares, respectively

 

(2,014,879

)


 

(2,036,882

)

Deferred compensation obligation

 

7,878

 


 

6,979

 

Accumulated other comprehensive loss

 

(659,653

)


 

(647,788

)

Total Flowserve Corporation shareholders' equity

 

1,874,107

 


 

1,824,993

 

Noncontrolling interests

 

39,184

 


 

33,614

 

Total equity

 

1,913,291

 


 

1,858,607

 

Total liabilities and equity

$

4,965,213

 


$

4,790,634

 


 




CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)


Nine Months Ended September 30,

(Amounts in thousands)

2023

 

2022


 



Cash flows – Operating activities:

 



Net earnings, including noncontrolling interests

$

137,744

 


$

73,053

 




 

Adjustments to reconcile net earnings to net cash provided (used) by operating activities:

 


 

Depreciation

 

55,292

 


 

59,207

 

Amortization of intangible and other assets

 

7,782

 


 

10,051

 

Stock-based compensation

 

22,127

 


 

23,757

 

Foreign currency, asset write downs and other non-cash adjustments

 

(11,827

)


 

(24,085

)

Change in assets and liabilities:




Accounts receivable, net

 

1,524

 


 

(78,376

)

Inventories, net

 

(114,596

)


 

(151,938

)

Contract assets, net

 

(10,239

)


 

(21,912

)

Prepaid expenses and other assets, net

 

(6,727

)


 

(14,881

)

Accounts payable

 

1,910

 


 

29,307

 

Contract liabilities

 

15,879

 


 

27,237

 

Accrued liabilities and income taxes payable

 

21,429

 


 

(32,735

)

Retirement obligations and other

 

38,838

 


 

24,123

 

Net deferred taxes

 

(27,996

)


 

(32,293

)

Net cash flows provided (used) by operating activities

 

131,140

 


 

(109,485

)

Cash flows – Investing activities:

 


 

Capital expenditures

 

(47,544

)


 

(45,831

)

Other

 

(833

)


 

184

 

Net cash flows provided (used) by investing activities

 

(48,377

)


 

(45,647

)

Cash flows – Financing activities:




Payments on term loan

 

(30,000

)


 

(24,239

)

Proceeds under revolving credit facility

 

230,000

 


 

-

 

Payments under revolving credit facility

 

(145,000

)


 

-

 

Proceeds under other financing arrangements

 

242

 


 

1,135

 

Payments under other financing arrangements

 

(2,098

)


 

(356

)

Payments related to tax withholding for stock-based compensation

 

(6,203

)


 

(4,578

)

Payments of dividends

 

(78,712

)


 

(78,406

)

Other

 

(320

)


 

(5,334

)

Net cash flows provided (used) by financing activities

 

(32,091

)


 

(111,778

)

Effect of exchange rate changes on cash

 

(5,185

)


 

(39,672

)

Net change in cash and cash equivalents

 

45,487

 


 

(306,582

)

Cash and cash equivalents at beginning of period

 

434,971

 


 

658,452

 

Cash and cash equivalents at end of period

$

480,458

 


$

351,870

 




 

About Flowserve

Flowserve Corp. is one of the world’s leading providers of fluid motion and control products and services. Operating in more than 50 countries, the company produces engineered and industrial pumps, seals and valves as well as a range of related flow management services. More information about Flowserve can be obtained by visiting the company’s Web site at www.flowserve.com.

Safe Harbor Statement: This news release includes forward-looking statements within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934, which are made pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995, as amended. Words or phrases such as, "may," "should," "expects," "could," "intends," "plans," "anticipates," "estimates," "believes," "forecasts," "predicts" or other similar expressions are intended to identify forward-looking statements, which include, without limitation, earnings forecasts, statements relating to our business strategy and statements of expectations, beliefs, future plans and strategies and anticipated developments concerning our industry, business, operations and financial performance and condition

The forward-looking statements included in this news release are based on our current expectations, projections, estimates and assumptions. These statements are only predictions, not guarantees. Such forward-looking statements are subject to numerous risks and uncertainties that are difficult to predict. These risks and uncertainties may cause actual results to differ materially from what is forecast in such forward-looking statements, and include, without limitation, the following: the impact of the global outbreak of COVID-19 on our business and operations; global supply chain disruptions and the current inflationary environment could adversely affect the efficiency of our manufacturing and increase the cost of providing our products to customers; a portion of our bookings may not lead to completed sales, and our ability to convert bookings into revenues at acceptable profit margins; changes in global economic conditions and the potential for unexpected cancellations or delays of customer orders in our reported backlog; our dependence on our customers’ ability to make required capital investment and maintenance expenditures; if we are not able to successfully execute and realize the expected financial benefits from any restructuring and realignment initiatives, our business could be adversely affected; the substantial dependence of our sales on the success of the oil and gas, chemical, power generation and water management industries; the adverse impact of volatile raw materials prices on our products and operating margins; economic, political and other risks associated with our international operations, including military actions, trade embargoes, epidemics or pandemics or changes to tariffs or trade agreements that could affect customer markets, particularly North African, Latin American, Asian and Middle Eastern markets and global oil and gas producers, and non-compliance with U.S. export/re-export control, foreign corrupt practice laws, economic sanctions and import laws and regulations; increased aging and slower collection of receivables, particularly in Latin America and other emerging markets; our exposure to fluctuations in foreign currency exchange rates, including in hyperinflationary countries such as Venezuela and Argentina; potential adverse consequences resulting from litigation to which we are a party, such as litigation involving asbestos-containing material claims; expectations regarding acquisitions and the integration of acquired businesses; the potential adverse impact of an impairment in the carrying value of goodwill or other intangible assets; our dependence upon third-party suppliers whose failure to perform timely could adversely affect our business operations; the highly competitive nature of the markets in which we operate; environmental compliance costs and liabilities; potential work stoppages and other labor matters; access to public and private sources of debt financing; our inability to protect our intellectual property in the U.S., as well as in foreign countries; obligations under our defined benefit pension plans; our internal control over financial reporting may not prevent or detect misstatements because of its inherent limitations, including the possibility of human error, the circumvention or overriding of controls, or fraud; the recording of increased deferred tax asset valuation allowances in the future or the impact of tax law changes on such deferred tax assets could affect our operating results; our information technology infrastructure could be subject to service interruptions, data corruption, cyber-based attacks or network security breaches, which could disrupt our business operations and result in the loss of critical and confidential information; ineffective internal controls could impact the accuracy and timely reporting of our business and financial results; and other factors described from time to time in our filings with the Securities and Exchange Commission.


All forward-looking statements included in this news release are based on information available to us on the date hereof, and we assume no obligation to update any forward-looking statement.

The Company reports its financial results in accordance with U.S. generally accepted accounting principles (GAAP). However, management believes that non-GAAP financial measures which exclude certain non-recurring items present additional useful comparisons between current results and results in prior operating periods, providing investors with a clearer view of the underlying trends of the business. Management also uses these non-GAAP financial measures in making financial, operating, planning and compensation decisions and in evaluating the Company's performance. Non-GAAP financial measures, which may be inconsistent with similarly captioned measures presented by other companies, should be viewed in addition to, and not as a substitute for, the Company’s reported results prepared in accordance with GAAP.

Contacts

Flowserve

Investor:
Jay Roueche, Vice President, Investor Relations & Treasurer, (972) 443-6560
Mike Mullin, Director, Investor Relations, (214) 697-8568

Media:
Wes Warnock, Vice President, Corporate Communications & Public Affairs, (972) 443-6900