Welcome to the Q2 2014 Earnings Conference Call. My name is Richard, and I'll be your operator for today's call. [Operator Instructions] I will now turn the call over to Mr. Jay Roueche, Vice President, Treasurer, Investor Relations.

Thank you, operator, and good morning, everyone. We appreciate your participation today as we discuss Flowserve Corporation's financial results for the second quarter of 2014, which we announced yesterday afternoon in our press release and Form 10-Q filing. Joining me on the call this morning are Mark Blinn, Flowserve's President and Chief Executive Officer; Tom Pajonas, Executive Vice President and Chief Operating Officer; and Mike Taff, Senior Vice President and Chief Financial Officer. Following our prepared comments, we will open the call up to your questions, and instructions will be given at that time. Before turning the call over to Mark, let me remind you that this event is being webcast and a slide presentation is available. An audio replay will also be accessible approximately 2 hours following the conclusion of this live call. Please also note that this call and the associated earnings materials contain forward-looking statements that are based upon forecasts, expectations and other information available to management as of July 24, 2014. These statements involve numerous risks and uncertainties, including many that are beyond the company's control. And except to the extent required by applicable law, Flowserve undertakes no obligation and disclaims any duty to update any of today's forward-looking statements. We encourage you to fully review our Safe Harbor disclosures contained in yesterday's press release, slide presentation and our Form 10-Q, as well as our other filings with the Securities and Exchange Commission, for additional information. All of these documents, including the live webcast and replay are accessible on our website at www.flowserve.com, in the Investor Relations section. I would now like to turn the call over to Mark Blinn, Flowserve's President and Chief Executive Officer, for his prepared comments.

Thank you, Jay, and good morning, everyone. I am pleased with our second quarter results and our earnings of $0.90 per share. This performance keeps us on pace to deliver our full year targets. Additionally, our quarterly bookings of nearly $1.4 billion highlight our growing aftermarket franchise and run rate business in the beginning of sub mid-to-larger OE awards. Our solid bookings included over $530 million of aftermarket, and we increased backlog of $2.85 billion, up 11.5%, or over $290 million since year end. This increased level of orders supports our outlook for near-term revenue growth. As a project cycle commences, we expect to see the traditional pattern where longer lead time products are awarded first, benefiting our EPD and IPD segments, both of which realized nice bookings growth in the second quarter. With our key energy markets expanding, we will maintain the discipline and selectivity that has served Flowserve well and leverage our geographic diversity and pursue emerging regions with a cautious eye towards volatile regions such as Russia, Middle East and Venezuela. Our employees' commitment and dedication is the cornerstone of our performance. We are gaining traction with our performance culture initiatives, while maintaining a high level of engagement and customer focus. Their efforts have delivered another quarter of solid financial results and enhanced our operational performance, which provides the opportunity for an increased focus on growth, both organic and M&A while continuing to meet or exceed customer expectations. Sales came in below our expectations this quarter. However, this was largely timing related, including some delays due to customer change orders and delayed inspection. Mike will cover our financials in detail, but we remain confident that the second quarter's increased backlog will drive revenue growth in the second half of the year. During the second quarter and, really,…

Thanks, Mark, and good morning, everyone. Our second quarter and first half results have largely rolled out as we anticipated. As Mark mentioned, we did incur some larger shipment delays as customers deferred inspections or issued change orders. This just impacts timing. The improvements of both our bidding process and our operating platform continue to drive our strong margins and earnings performance. I believe after several quarters of talking about it, we now see the acceleration in our energy markets beginning to occur, as evidenced by our strongest quarterly bookings level in over 6 years. It is also worth highlighting that this quarter's activity is even more substantial, considering that currency, commodity and pricing levels were much more favorable back in 2008. In terms of our segments, the EPD and IPD drove the growth, as pumps tend to have longer lead times and, thus, tend to be leading indicators. FCD bookings were actually down for the second quarter, but this reflects the general lag between the pump and the valve business. We expect FCD bookings to follow the leading indicators. And the valve sale in Q1 2014 also impacted the Q2 compare by about 3% on orders and revenue. While larger original equipment project activity is important for our long-term growth expectations, our run rate original equipment activity and consistent aftermarket business continue to provide a stable earnings platform. I'm particularly pleased with our aftermarket performance. The second quarter of 2014 represents a third consecutive quarter with aftermarket bookings exceeding $500 million. And the last quarter was the first time we had delivered 2 straight quarters above that amount. I truly believe we have taken this recurring higher-margin business to another level. Considering its attributes, this business will remain an area of emphasis. We continue to make disciplined investments in…

Thank you, Tom, and good morning, everyone. Following Mark and Tom's operational overview and business outlook, let me now discuss our financial results in greater detail. With our solid results in the second quarter and first half of 2014, we are on pace to deliver on our full year targets. Second quarter EPS increased 7.1% to $0.90, and this amount included $0.03 of foreign exchange headwind below the line, severance and realignment expense. In addition to the revenue impact of some customer-driven delays mentioned earlier, we also experienced the effect from the Naval business sale, completed last quarter, which will remain a headwind for the second half of the year as well. Considering these factors and negative currency impacts on the first half of the year, we now expect revenue growth for 2014 to be in the lower half of our original guidance of 3% to 6%. I was particularly pleased with the gross margin improvement across all segments this quarter as operational excellence initiatives continue to take hold and our disciplined bidding process has demonstrated its impact in our current revenues, as well as by improving the quality of our backlog, which will be recognized in future periods. Our focused cost control was again evident in the SG&A line even as we continued to invest in our R&D, quality and project management resources, among other important initiatives. Our total SG&A expenses declined year-over-year in the second quarter even as it increased slightly as a percentage of sales. Our longer-term goal remains to reduce SG&A as a percentage of sales to the 18% range. I believe the programs we are executing and our ongoing cost focus, combined with a growing top line, will enable us to achieve this commitment in time. Operating margin of 15.9% is approaching the high end…

Thanks, Mike. Operator, we have now concluded our prepared remarks this morning and would now like to open the call for any questions.

[Operator Instructions] Our first question online comes from Hamzah Mazari from Crédit Suisse. Hamzah Mazari - Crédit Suisse AG, Research Division: A question on margins. And, Mark, you've touched on sort of your margin target in the prepared remarks. Maybe if you could give us a sense of how much of the low-hanging fruit on the margin side is behind you? You've done a lot of realignment work, you have the One Flowserve initiative. Is it fair to say that the margin upside over the next couple of years will come more from mix with the aftermarket and potential pricing rather than the cost side? Just trying to get a sense of where is the upside on margins going forward. Where does it come from?

Okay. Well, if you look across it, one of them is the fixed cost leverage on the G&A. If you think about it over the last -- in our year-over-year compares, we haven't gotten leverage like we did in prior periods because of the relatively flat revenue growth. So that's an opportunity on the fixed cost leverage side. Moving up the P&L, you saw good improvement on the gross margin side. But what I will tell you, Hamzah, is we still have some work to do in some of our facilities. So there's room for improvement there. I think we talked about in the Analyst Day, we're about halfway through where we need to be. It takes time to get the businesses running as efficiently as you want. And so there's still work to be done that will benefit the gross margin line as well. And then continuing to look at what we call continuous improvement or realignment, we see there's opportunities where we have under absorption. We've added new capacity in emerging parts of the world. It's very efficient capacity. So we're always going to have opportunities to drive additional margin through just continuous improvement and, really, looking overall at our footprint long term. And then you've mentioned also the pricing environment. So as you kind of move into these cycles, as we've talked about before, it certainly is competitive. We did -- we see it still in front of us. What you saw this quarter was, as Tom mentioned, some of the longer lead time products that we have really are what supported some of the mid-sized and one sort of larger project that we took in during the quarter, but that certainly is still in front of us as well. So that's really how you drive the margins in the business. And I think another thing is continuing to invest in our business in some of the products where we can command margin and drive our aftermarket growth. So we certainly have some opportunity as we look forward to drive margin in this business. But as you know, what we like to do is when we have our commitments, and Mike talked about them in his comments, we like to deliver on those and then we'll talk about where we're going from there. Hamzah Mazari - Crédit Suisse AG, Research Division: Right. And just a follow-up question. The second half sales ramp based on your guidance seems much higher than what you've seen in the second half on sales historically. I know you've mentioned customer change orders and some deferrals. Do you have any sense of how we should think about your confidence level in the second half on sales? Is it possible to quantify what was deferred? Any color there?

Well, yes. If you looked at -- we talk about where we are in the cycle, and I'll go back again to '07 and '08 just for kind of edification. That was a period of time where sales were coming almost as expected because there was a big push to get these things in the ground and installed because of what was going on with the commodity prices and economies. And the other thing, frankly, I'll tell you is when execution isn't at the level where it is now in our company, oftentimes we can become the gating item on a project. So with the improved execution, what we're able now to do is position these to be delivered to customers, but it's really up to them as to when they want to take it. The last thing they want to do is store a piece of equipment on site for a period of time because it sits out in the elements. So that is not atypical from this cycle. So as we look forward, what we see is we want to make sure we're ready to deliver these things. If they need some additional changes to the process, conditions or additional elements to it, respond to that, capture the value from doing that. But as we look forward, we do see typically Q4 is our, I guess, revenue quarter has been historically in our business. We know these projects are moving forward. We are not the longest lead time product on it, so we know that there's a lot of work that's been done on these projects and they're going to get installed. So that's how we look at it and when we do our revenue forecast going forward. I think what you heard in my comments is we expected a little more revenue up to this point, but what has occurred doesn't surprise us.

Our next question on the line comes from Scott Graham from Jefferies.

Could you talk a little bit about the makeup of the 13% bookings growth? In other words, specifically, by -- you had a couple of references to longer lead time projects in the pumps side, which is obviously the business product line that carried the bookings this quarter. Typically, you are sort of 2 to 5, 2 to 6 quarters in terms of the monetization of the bookings into revenue. Has that -- is everything still -- the bookings, let's say, what percentage of the bookings is still within that range? And maybe this quarter, what kind of fell outside of that range to maybe a longer lead time?

Sure. Let me -- because -- and I'm going to do it intentionally, let me build from the bottom up because I think that's still an important way to look at our order book. We -- underlying our bookings growth, a lot of it was mostly driven by our aftermarket and run rate business. We did see one order around the $40 million range, which would represent about 3% in some of the longer lead time products that we talk about. Keep in mind, and I think we've discussed this before, Scott, those projects typically have percentage completion accounting. So if you're looking at how those convert to revenues from engineering to installation, it will be, in terms of how costs build up over that period of time is to how we'll bring that into revenues. The other middle sized ones were near at that level. So if you think about our order book and how it's kind of built, it's been really still the base things that we've been talking about before, the good aftermarket growth in the run rate business. Run rate can run 2 to 6 quarters depending on the type of product, where it is in the project, what the lead time potentially is in that business.

Okay. So what I think I hear you're saying is that the underlying -- a lot of the underlying bookings where the run rate business and whatever that number is, and then after that, you had the large order, which I'm going to assume what you mean by that this more than 6 quarters, although because that's percentage of completion, we'll see that beforehand. And then mid-sized orders, which would be -- maybe I assume more toward the 4- to 6-quarter territory.

Yes. I mean, the mid-sized ones, especially -- and Tom commented on some of the longer lead time equipment, depending on where it falls within the accounting in terms of percentage of completion, but typically, those are fairly expensive pieces of equipment, those are long lead times. So to your point, I think that's right in the range that you've talked about.

Okay. So fairly balanced bookings, nothing that would make it so that the bookings that you had this quarter, this 13% uprising here, is all to '16. It's going to be sooner than that for the most part?

Yes, that's fairly consistent. And I think you've heard that from the market in general, is the big project opportunities are still out there. What we saw this quarter was some of the longer lead times, typically our ebulators. And the point to that is those are good leading indicators. Keep in mind, by the time they're ordering a gas turbine or some of this longer lead time, there's a significant amount of investment that's already been made in the business. So it gives us the confidence that these things are going to move forward.

Understood. And the second question is, and I don't want to read too much into this, but there was some wording in the press release around acquisitions and divestitures not affecting the lower end of the 3% to 6% guidance or, I should say, not inclusive. Are you seeing an improvement in M&A possibilities? Are you contemplating more divestitures? Again, is there something that I should be reading that -- am I reading too much into that or are things maybe a little bit more active?

No. I think -- well, let me kind of walk through. One, that statement is made just because we don't know what we may execute during the year. And so what we want to do is say, "Here's our view at this point in time, it's January." We added Innomag at the end of last year, and we made the divestiture early on this year. What you should expect around when we talked about realignment, divestitures, or whatever it maybe is continuous improvement in our business. We want these things to earn the cost of capital and the good returns for our shareholders. And if they don't, then they're probably in a better position in other folks' hands. That's the message that I think we've been consistent on. The other thing, I think, to talk about is we're adhering to our bolt-on strategy. But one of the things with the improving platform is we feel more confident in being able to bring things and put them on our platform because it's reduced integration risk, and it gives us the opportunity on the margin relative to where we were 2 or 3 years ago to certainly be more opportunistic, but we are going to stay disciplined on it. Nothing is, really, in a sense, changed except for as this platform improves, what we do is it gives us the opportunity to be more opportunistic on some of the assets that are out there. I can tell you, it's still competitive for these assets. That's just the way the market is right now. There's certainly a bid in flow control, and we just got to be mindful of that, that we get returns for our shareholders.

Our next question on the line comes from Charley Brady from BMO Capital.

Just back to Scott's question on the backlog. I mean, how much -- I guess I'll just ask straight out, how much of the current -- or end of second quarter backlog gets recognized in the next 12 months?

You can look at our disclosures in our 10-K, and I don't remember what those numbers are, but typically in FCD and IPD, there's a substantial amount well in the 90% that roll out within the following 4 quarters. And I think at -- and I don't remember the disclosure, but it's probably around the same for EPD, especially when you consider the original equipment aftermarket mix that's in the business. So a substantial amount of our backlog rolls out in the next 4 quarters and going back to the aftermarket business, that tends to be shorter cycle over a couple quarters. A bulk of that goes out during that period of time. Run rate is shorter cycle. And then these projects, depending on their size and their lead times, will -- they'll roll through in percentage of completion, but typically they don't get shipped for, oftentimes, over a year.

Right, okay. I just want to clarify that. On the aftermarket side of the business, given the strength you've seen in the aftermarket, can you talk about -- as you look at your installed base, maybe update us on kind of -- are you seeing a better capture rate on your installed base then you have, I don't know, a few years ago? Or what's -- is it just the fact that you have a much larger installed base and that's driving growth in aftermarket?

I would say capturing more of our installed base is an area of opportunity. And we will be discussing that more and more over the next 2 to 3 quarters with you because we think that certainly is a big opportunity for us, is to capture more of our installed base. We have done some of that. What you see in -- that can drive aftermarket a lot is our end-user strategies. Some of our what I would call consulting capabilities, in a sense, and I don't mean we have a consulting arm, but we work with customers around efficiency and uptime, because if you think about it, with energy cost where they are, the biggest cost on our customers face is operating these facilities, so they're looking for efficiency. So it's a whole set of strategies, which have consistently drove -- driven this growth over a number of years. And the point to that is in good times and bad, if we take good care of our customers, we can get growth in this business. So as you look at what can drive aftermarket, an opportunity for us is doing a better job of capturing our installed base in our business. I think we do a very good job in the mechanical seals businesses that we have. But certainly have an opportunity in the other rotating equipment and our valve business. And as we continue to deploy some of our end-user strategies, we think that will drive growth as well. And then also, just one other thing, and I think we talked -- I know we talked about this in 2008, 2009, with some of these projects, as they come in, oftentimes there's what's called commissioning spares. Basically, when they start up a new facility there are spare parts that are required as you gin up or prime the system, so that will be an opportunity as well.

And just one final one. Your commentary on IPD, kind of the shift in strategy there moving towards more of a growth orientation. Can you discuss that in a little more detail. I mean, what does that actually entail? What's the specifics on kind of looking at more growth than kind of fixing the business from where it was?

Well, one example is the Innomag acquisition that we made. Again, those are more opportunistic than anything else. Something that we mentioned during our Analyst Day is investment in the sales organization, making sure we develop products. For years, we've been talking about the ISO chemical pump that we brought to market. So spending more money in those areas and investing more in those areas to drive growth and -- because the one thing you got to keep in mind going back to 4 or 5 years, when execution isn't at the level that it should be, it's difficult for a sales organization, any sales organization, to sell into those operating units. So as we've improved those operations now, we can invest more on the front-end of the business to make sure we drive through the increasingly efficient operations. But those are the things that we're doing, really, across all of our businesses. Remember one of the fundamental tenets we believe in: If we execute well. We think that's our best opportunity to get our customers to do business with us, and they would tell you the same thing.

Our next question on the line comes from Jamie Sullivan from RBC Capital Markets.

A question just -- so the bookings commentary, that was helpful. That makes sense. I'm still looking at the second half ramp in sales. You're looking at high-single digits to get to the guidance range. So I'm just wondering if you could give a little bit more color on the cadence you had, some of the change orders, you had bookings this quarter. Just wondering, is it even heavier weighted towards 4Q than a typical year?

Well, again, I don't want to start parsing quarters. Look, I think going back to the original comment, the cadence in our backlog is driven as much with the customer right now as anything else. And the cadence in our bookings is going to be driven by markets and lead times that are required. So I can tell you right now, it's not -- as these things ramp-up, it is not a tight market, so that tends to shorten lead times on the products because time is money on these projects. If you go back to 2008, the market was tight, and so lead times were extended and I mean significantly, 30% to 40%. Something that would typically go out in mid-40s, we're going out 70 -- 72 weeks. So how this backlog rolls out is going to be as much driven by the customer if anything else. And in fact, that's what you've seen in the first half of this year. So as we look out over the horizon, as these projects start to mature and develop, that's going to drive it as much as anything else.

Jamie, it's Mike. The other thing I would just add is just look at the increase in the backlog. Backlog's up $293 million since the end of the year, and then another metric to look at is backlog's up about $185 million year-over-year. And that $185 million is composed of $56 million. That's in aftermarket. And, certainly, we would expect that to flow through in the second half of the year. And then $129 million is up year-over-year in OE. And as Mark talked about, that's a combination of these run rate items, as well as some of the longer lead time items, so you'd expect some of that $129 million to flow into the second half of the year as well. And so that will help you little bit with the math as far as it gives us the confidence that we can hit the lower end of our guidance range.

Okay. And then just a follow-up on free cash flow. You've laid out the aspirational targets there for a little while. But just wondering what maybe should we expect in progress over the next 12 to 18 months, given that you've had some of the customer dynamics in Latin America and OE starting to pick up?

Well, I think we've really been working hard at that, and we've got a number of tools that we've actually are rolling out as we speak. They went live actually this quarter and a number of new process and procedures and all that. So I'm optimistic we'll see that. Certainly, some challenges with the Latin American environment, but, I mean, that's been a very good region for us for a long period of time. It's about 10%, 11% of our total revenues as a company in that region. So -- but I do expect that you'll see some progress over this next 12 to 18 months.

Our next question comes from Joe Ritchie from Goldman Sachs.

So my first question was really around the deferred shipments. Can you quantify exactly how much was deferred from a growth and EPS perspective and whether you expect that to come through in the third quarter?

Joe, actually, I'm having a little trouble hearing you on that. What -- can you state your question again? You might want to go a little slower. I think, you're getting some feedback.

Sorry about that. Yes, so the question was really around quantification of the large shipments that were delayed this quarter into 3Q. First, your -- can you quantify the EPS and the revenue impact, as well as whether you expect that to come through in the third quarter?

Yes. I mean, we'll give you a high level. We saw probably about $50 million to $60 million of revenue roll through on these projects from one quarter to the next. Again, though, keep in mind, that can happen again in subsequent quarters as well, but that's generally what we saw relative to our original forecast.

Okay, that's helpful. And it clearly was a good order quarter for the company. Middle East, yes, it seems to be a big driver in the first half of the year. Can you provide some commentary on the pricing and competitive dynamics that you're seeing in the region today?

Yes. I think I've made the comment before, and it still applies. That is, that's certainly a competitive area. When you look -- when you're bidding on projects now and the aftermarket opportunities, you can get certainly good margin on that. But the Middle East is competitive, but it's important. We have significant investments there. We've seen good growth there. It does yield great aftermarket opportunities over the long term, but it certainly is remaining and, we think, will remain a competitive market. We've seen that. That's been in our backlog for a number of years. So what you're seeing now is -- still reflects the competitive environment in the Middle East.

Okay, but there was nothing -- you didn't sense any increased competition or the pricing dynamics intensifying in recent quarters?

No, no. It's been similar for quite a while.

Okay, great. I guess one last question for you. On the aftermarket, you mentioned that you're taking the order book to a new level. Given -- is this $500 million plus the right new normal just given your focus in your end-user strategies, potential better penetration in IPD and FCD? Or is some of this really driven by utilities and refineries that had deferred maintenance spend, you're starting to see -- you're seeing a pickup here over the last few quarters? I'm just trying to get a sense for underlying demand versus the opportunity for you to just increase your share.

I think the consistent cadence over the last 4 or 5 years has been an up step in the trend from our end user strategies. You've certainly seen where we're running refineries flat out in North America, and we'll see a decline year-over-year and that. But the general underlying theme in our business is, as Tom talked about, is we're driving aftermarket growth. That's been a consistent theme for 4 or 5 years.

Our next question comes from Kevin Maczka from BB&T Capital Markets. Kevin R. Maczka - BB&T Capital Markets, Research Division: EPD bookings, I'd like to ask a question there. That was much stronger than we expected in the quarter. I'm just trying to get a sense for your view of the momentum there because as we go back to last year, we had a nice run up there as well from Q1 into peaking in Q3 before it backed off. And so I know there's some lumpiness here, but I think there's also some momentum building in these markets. So I want to get your sense in terms of timing. Was this a kind of the stars aligned kind of a quarter? Or would you expect the momentum here to continue?

Well, the EPD is 2 stories that are really very connected. The aftermarket growth, you're going to see a lot of that in the EPD segment. So if you look at our valve segment, historically, that percentage has held consistent because a lot of what's in their OE is quick turn MRO, which is like aftermarket, but you just replace a piece of equipment. We've seen good growth in IPD, but it's a smaller segment. So when you think about what drives EPD bookings, it's going to be our growth in the aftermarket business. And yes, to your point, these projects. So the opportunities that Tom talked about, these longer lead time products fall in the EPD segment. So I don't know not if it's much of stars aligning. It can be lumpy. And oftentimes, when we compare year-over-year as we will be next year, we may be comparing to the project that we took in this quarter and that was in the EPD segment. It can be a little lumpy, but what you should expect as these opportunities come on these projects, that it's going to really benefit the EPD segment. And as we drive our end-user strategies, they will certainly get a significant share of the aftermarket as well. Kevin R. Maczka - BB&T Capital Markets, Research Division: Okay. And then in follow-up there. In terms of pricing, so you have the one notable project win in EPD, and I think you've said many times that you expect some of these early projects as the cycle builds to be very competitive, but you want to stay disciplined on your pricing. I'm just wondering, can you talk about pressures you're feeling from your customers? I think there's been a lot of talk about customers pushing back and rebidding projects. And how do you just balance that dynamic between customers not wanting to pay more and maybe some of your competitors are willing to be less disciplined than you?

Well, I still maintain this: As I look at our competitors, they are all disciplined, and they do things for their reasons. The way we look at those opportunities is if we can deliver on time to our customer at an appropriate cost. And I think the message here is we've got to look at efficiency within our facilities to drive more cost efficiencies to be competitive in the market. I think where 2 competitors in our industry will have difficulty competing, one gains in the advantage over the other, is if they can't deliver on the lead time, if they don't have the technical capabilities, if they don't have the product offering, if they may not be able to support it over a period of time, and that will drive it. Now does that mean that on a certain bid, one might think it's more beneficial than the other and drop their price in the competitive bid process? Yes, sure, they can do that. They've always done that. But you were right, customers are demanding value, but if you can provide it, they're willing to pay for it.

Our next question on the line comes from Andrew Obin from Bank of America Merrill Lynch.

Just a question on M&A environment. I mean, you guys sort of said you will allocate capital in a disciplined way. Can you just talk about the M&A environment and if you think there are even any targets available in North America? What are you seeing in Europe? What are you seeing in Asia? Just a broad overview. Because I wonder if anything can be done at all over the next 12 months.

Well, I mean, I think we've been talking about this environment for a while, and we've been able to successfully bring in some bolt-ons over the last couple of years. There are assets out there. Some of the larger ones everybody sees and they're going to be fairly competitive in terms of people acquiring. From our standpoint, we really need to look at what we've talked about before. Can we drive the efficiency and deliver value to our shareholder by loading it onto our platform? One of the advantages we have is we've got a very broad platform, sales platform and aftermarket platform, which allows us to realize what I would say are the top line in margin synergies in the business, and then you can get down to the cost take out. But I know a lot of the market right now is around SG&A cost takeout or what's driving M&A transactions. We'll stay to, really, the strategic value first and being able to drive top line growth and leverage it. Now taking a step back in the environment right now, there are assets out there, there are assets that are coming out there. A lot of people certainly have their eyes on them, and we'll just have to be disciplined in the way we approach it. But as we talked about in our Analyst Day, over the next couple of years, our cash generation is going to support our ability to take advantage of it. We're going to stay disciplined. So it's opportunistic. If you talk to any company out there, it's one of the things that probably have the least control over is when an asset becomes available and is it going to be at the price that they want it. So we'll keep an eye towards that, but at the same time, what we want to do is to make sure we're focused on our organic opportunities in improving our business platform. Because, to my comment earlier, we've got plenty of room for improvement here.

Let me ask you just a follow-up question. Your execution on relatively weak top line has been pretty good. How do you balance margins versus execution when volumes start to accelerate? And what are you guys doing internally to make sure that you can execute on higher volumes without negative margin impact?

I mean, that's a great question, and I think that it probably has about a 45-minute answer, but I'll try to summarize it for you. Our lead product, secondary product strategy is to where we actually create more capacity in a product line globally. Not only does it drive efficiency, cost efficiency and the ability to deal with higher volumes, but it really positions us to be able to take care of customers all around the world and be responsive, especially where there's local content that's required. I think the other thing is just some of our work -- our focused initiatives around some of our facilities to get them improving and get better output. As I made in my comments earlier, in all of our segments, particularly in EPD, we have the room for improvement in some of our facilities to bring them to a better level of better level of efficiency. And efficiency doesn't necessarily mean cost reduction, oftentimes it means better throughput and really reducing the under absorption in the facility. So those are the things that we work on. The discipline around how we'll take an order in and make sure it's clean. It helps us to drive shorter lead times and more efficiency. Those are 3 examples of things that we're working on so that at the end of the day, it comes back to execution and being responsive to the customers and discipline in how you take these things. What we don't want to do is set ourselves up in the bidding process to disappoint our customer.

And as Mark mentioned, I mean, one of the bases for dealing with increased activities is to have a good base to begin with, that's where we spend a lot of time on over the last several years getting that on-time delivery, correcting the quality right, setting up the low-cost sourcing base and making sure that the businesses can take the load and execute on the base, and then gives you that opportunity to increase when that volume does start to come through the business.

Our next question comes from Nathan Jones from Stifel. Nathan Jones - Stifel, Nicolaus & Company, Incorporated, Research Division: Mark, I think this is probably the most bullish I've heard you on the project cycle since, I guess, the last recession. We're always looking at this not being a quarter-to-quarter business, and I think there's definitely a big change in tone from the last quarter to this quarter. Can you just elaborate a little bit more on where that confidence comes from and what you see out there in the market that's giving you the confidence to be a little bit more open about the way you're feeling about the cycle?

Well, one thing I'll emphasize that where the tone has been consistent is my optimism around the opportunities here in terms of improving the business and our run rate in aftermarket. But to your point, it is good to see some of these longer lead time products come in. Because we've been having this discussion now for 4 or 5 quarters of the opportunities are on the horizon, and we've all been patiently and, maybe some folks, impatiently waiting for these things to come in. So I think that's what gives us some encouragement, but I definitely want to make sure I'm balanced in saying that a lot of the opportunities are still in front of us. I think you've heard that generally from the market. We were pleased to see some of these longer lead time products come in during this period of time. And I think what's giving the most optimism or what I'm very encouraged about are what was in my comments. The margin improvement and the progress I'm seeing in this business gives us the platform to really be able to drive growth in this business, to remain competitive. That's what's been more encouraging. Simply put, it's good when a plan comes together. And we embarked on this a little less than 3 years ago, and I'm just -- I think you're hearing more than anything, I'm just pleased with the progress. That's what's driving my optimism more than anything else. The markets will be what the markets will be. We know what the secular drivers are in the energy industry around the world. I know we've got work to do. I'm also encouraged by that. As we sit here right now, I know we still have 2, 2.5 years more work to be able to improve our platform. So from management's perspective, when you have things to work on and your plans are starting to come together and you see your core base business of aftermarket original equipment starting to grow and continuing to grow and now you see some project opportunities come in, you're encouraged, but you're always balanced to know you still have work to do. Nathan Jones - Stifel, Nicolaus & Company, Incorporated, Research Division: Yes, margin improvements obviously have been excellent. Assuming that this cycle is as strong as I think most people think it's going to be, where are you in terms of capacity, I guess, just in terms of manufacturing capacity and then project management and all the other things that you need to deal with a big up cycle?

I mean, that's a good question. I think in the project management, we're still in the early to mid-stages in terms of bringing that discipline to the level where we need it to be, and we're working very quickly. We made a lot of investments in that area. On the capacity side, we have ample capacity. If you think about what we've added around the world, in Brazil and not only was it more square footage, but its state-of-the-art and the throughput and efficiency is significantly higher than the other facility that we had. We've added in China. We've added our third block in India. And then I think just our LPO/SPO strategy, which brings up a lot of additional capacity, we're comfortable with the capacity we have going into this environment. Especially as we see right now, it's more of an orderly cycle than we saw in the last time, and that's good for our industry. So as we look at those 2 aspects of our capacity, plenty of square footage, not concerned about that. Some of the resources and capabilities we need to continue to invest in, but we're on it. And then just improving the operations, that's one of the best things we can do to create, in effect, capacity out of the square footage that already exists.

Our next question on the line comes from Jim Giannakouros from Oppenheimer & Co. James Giannakouros - Oppenheimer & Co. Inc., Research Division: If I can tack onto that last question, as far as your aftermarket step up to the new run rate that you referenced above $500 million, how does that stand relative to your QRC capacity? Is that driving a need to expand it or capabilities above the aforementioned QRC facility construction that you anticipate as the large OE project wins come down the line?

The QRCs are one medium, one avenue, one tool we use to deliver our aftermarket capabilities. So -- and we've talked about this before. It's not like a retail model where you have, in a sense, same-store sales, and if you add more facilities that in and of itself will drive your aftermarket. There's got to be a need for that QRC there. Oftentimes, we are delivering aftermarket capabilities on-site in the facility without a need for a specific QRC. But having said that, our -- we have the opportunity to deploy more QRCs around the world. That will continue to support our growth. We just need to make sure there's the market there and the customer is ready for it on the QRC side and, really, that local presence. James Giannakouros - Oppenheimer & Co. Inc., Research Division: Understood. And one follow-up, if I may. Your -- the gross margin progression or the year-over-year improvement that you cited, particularly in the EPD, but across the board, really, can you at least rank order, if not quantify, the drivers that you've called out, such as mix and improving backlog quality and the execution on the plant floor, et cetera?

Probably on a comparative basis, if you're looking year-over-year, one of the primary drivers was the discipline we put in place 2 years ago. Somewhat of a contributor has been the operational improvement, that we're about halfway through. To a lesser extent, but that will abate as we look at continuous improvement in our facilities and actually as volumes increase, absorption. That hasn't really been as much of a factor. But if you rank order the 3, that's how we'd rank order them. By the way, there's other things like mix and product offering and things like that, that play a factor in it, but at the high level, in terms of what I'd call the operational excellence, things that we're working on here, those 3. That's how I'd rank order them. So the opportunities are improving the business, and then improving absorption in our factories through continues improvement, evaluating the capacity that we need, but also just volumes as well.

And at this time, I see we have no further questions.

If we have no further questions, at that point, we'll say that we appreciate everybody's participation in today's call, and we look forward to seeing many of you at upcoming investor events. Call Mike Mullin or myself if you have additional questions, and this will conclude today's call.

Thank you, ladies and gentlemen. This concludes today's conference. Thank you for participating. You may now disconnect.