Welcome to the Flowserve 2017 First Quarter Earnings Call. My name is Paulette and I will be your operator for today's call. At this time, all participants are in a listen-only mode. Later, we will conduct a question-and-answer session. Please note that this conference is being recorded. I will now turn the call over to Mike Mullin, Director of Investor Relations. You may begin.

Thank you, operator, and good morning, everyone. We appreciate you participating in Flowserve's first quarter 2017 earnings call. Joining me this morning are Scott Rowe, Flowserve's President and Chief Executive Officer; Tom Pajonas, Executive Vice President and Chief Operating Officer; and Jay Roueche, Interim Chief Financial Officer. Following our prepared comments, we will open the call to your questions. And, as a reminder, this event is being webcast and an audio replay will be available. Please be aware that our earnings materials do, and this call will, include non-GAAP measures. Please review the reconciliation of our adjusted metrics to our reported results prepared in accordance with Generally Accepted Accounting Principles, which can be found in both our press release and earnings presentation. Please also note that this call and our associated earnings materials contain forward-looking statements, which are based upon forecasts, expectations, and other information available to management as of May 2, 2017. 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 these forward-looking statements. We encourage you to fully review our Safe Harbor disclosures contained in yesterday's earnings materials, including our Form 10-Q filed yesterday with the Securities and Exchange Commission, which are all available on our website at flowserve.com in the Investor Relations section. I would now like to turn the call over to Scott Rowe, Flowserve's President and Chief Executive Officer, for his prepared comments.

Thanks, Mike, and good morning, everyone. Let me begin by expressing how excited and honored I am to be at Flowserve. I've long admired Flowserve for its leadership position in the flow control industry, as well as its comprehensive product portfolio, global footprint and customer relationships. We have an outstanding team of people which have helped the company build its strong reputation over the course of more than 200 years. This is now my fifth week in my new role and I wanted to share with you what I'd been doing since my first day. In my first two weeks, I conducted extensive business reviews with the operating platforms to gain a better understanding of our products, internal processes and go-to-market strategies. Additionally, I met with each of the corporate functional teams to assess our capabilities and effectiveness to support the business. The following week, I visited five of our manufacturing facilities in North America to meet our people at the local level and better assess our operational and manufacturing capabilities. And last week, I visited with key customers to better understand their needs and requirements during this dynamic time in our industry. While I've certainly learned a lot during the short period of time, Flowserve is a large global business operating across a complex set of industries and it's very clear to me that I have more to absorb regarding our business and the nature of our downstream markets. What I can say is that I'm even more excited today about Flowserve's prospects and future of our business than when I accepted the role. There are a number of reasons for this enthusiasm. First, our people are one of our greatest strengths. The employees at Flowserve are passionate, committed and eager to perform. I've met and visited with nearly…

Thank you, Scott, and good morning, everyone. As we indicated in our press release yesterday, Flowserve's first quarter results were solid overall and, in particular, our adjusted earnings per share of $0.25 kept us on pace for our full year expectations. We're also pleased with our bookings growth both year-over-year and sequentially and the first quarter's book-to-bill of over 1.1 is the highest level since the second quarter of 2014. Our reported earnings per share of $0.11 included our adjusted items such as $0.06 of below the line currency, $0.06 of realignment costs and $0.02 for an inventory write-down in Brazil. Both reported and adjusted earnings included approximately $8 million related to accelerated non-cash long-term incentive plan recognition, as well as approximately $2 million of executive transition-related expenses. Turning to bookings on a constant currency basis, we delivered bookings growth of 5.3% year-over-year which included the Hengli award we announced earlier during the quarter. This project helped drive original equipment bookings up 7.4% versus the 2016 first quarter. Our aftermarket business remained resilient with bookings growth this quarter up 3%. Flowserve's quarter-end backlog increased to over $2 billion or up 5.6% compared to year-end 2016, which was supported by a book-to-bill above 1 in all of our reported segments. From an end market perspective, constant currency bookings in our largest served industry, oil and gas, delivered an increase of nearly 37%. While the Chinese refining orders certainly helped EPD, all of our segments saw double-digit oil and gas growth compared to a year ago. Bookings in the chemical market also increased slightly, while power and general industries saw year-over-year bookings decline. Regionally, with our large award, Asia delivered a 49% increase in bookings and Europe produced its fourth consecutive quarter of growth, up nearly 3% as compared to the 2016…

Thanks, Jay. Before we open the call to questions, let me finish with a few closing comments. Flowserve has tremendous opportunity ahead. We have a strong team and a great platform and I plan to leverage my experience to capitalize on the opportunities to improve, streamline and simplify processes across the company. We still have work to do, but I believe the company has a great foundation from which to build on. As I said earlier, my focus will be on driving revenue, profitability and cash flow, while continue to be a value partner for our customers, all while providing a great place to work for our employees. I look forward to meeting many of you in the months ahead. Please note that you have my commitment that our ongoing efforts will be focused on initiatives that drive long-term shareholder value. Operator, we'd now like to open the call for questions.

Thank you. And our first question comes from Mike Halloran from Robert W. Baird. Please go ahead. Mike P. Halloran - Robert W. Baird & Co., Inc.: Hey. Good morning, everyone.

Good morning, Mike. Mike P. Halloran - Robert W. Baird & Co., Inc.: So, can we just talk on the order side and maybe give a little more context to the aftermarket shorter-cycle type pieces of the portfolio? Plus 3% on the order side, maybe some talk about kind of a twofold thing. One, kind of how that trajectory was over the last three, four, five months? And then, secondarily, what the customer commentary looks like in terms of turnaround, service, and if you're seeing more positivity from them on that side?

Yeah, Mike. So, as you mentioned, the order books were up about 3% on a constant currency basis. I think if you look at the aftermarket bookings level at $450 million, it's a good zone for us, down from the $500 million to $510 million that we've had in prior high periods. So, this $450 million to $460 million range, I think, is a good area. It's been up in all divisions. If you take a look at the quarter-to-quarter, it was also up sequentially for FLS. So, that's another good sign that we take a look at. North America, I would say, was particularly strong in the parts business. We are seeing some good North America activity. The bidding activity, particularly in the Gulf Coast, is up towards – and has risen in the February, March period as we came to the back end of the quarter, particularly in the pump parts, in our seal business. I think customers are still cautious on their maintenance spend. So, we have to put that caution out there. But I would say, overall, a good trend and a good, solid position in terms of Q1. Mike P. Halloran - Robert W. Baird & Co., Inc.: And then second question on the IPD margins. It certainly sounds like you feel much better about the underlying performance there than what was seen in the numbers. Maybe you could talk and help us a little bit with how that cadence works through the year from an improvement perspective, 1Q, obviously the low, seasonally tougher part of the year on top of it. What kind of margin performance and progression can we expect from here and are these past due backlog issues in the rearview mirror at this point?

Yeah, Mike. I mean, if you look at the margins in Q1, I mean, I think the business came in at where we expected it to be in terms of Q1 margins. We obviously have a lot of work to do in that business. We've been working in the turnaround mode for the last several months. We're making good progress, I would say, in our manufacturing cadence, in our supplier base, as well as getting our inventory levels where we need them to be, so that we can support the lead times. What we see in terms of progress is good progress on the past due backlog. So we've significantly come down on the past due backlog since previously reported in 2016, so good progress there. The lead times, which is we track about over 10 to 12 of our products, several of those are at the market levels for the lead times. We're continuing to work on a few others, so that's another good sign. And I would say if I you take a look at the bookings, up sequentially almost 9% and a little bit over 9.5% sequentially, I would say that's another good sign that we're starting to see some positive movement. We have a lot of work to do. It takes us – it will take us a long time in terms of going forward, in terms of getting the business to performing at the levels. But I would say if you take a look at the progression with the Q1 being fairly negative, then I would see that progression more positive through the year. Mike P. Halloran - Robert W. Baird & Co., Inc.: And does that imply positive margins in the second quarter in that unit or is it going to take a little more time than that?

Yeah. We're not going to guide on a quarter-to-quarter basis, but if you take a look at the overall earnings – I mean, IPD needs to perform and needs to perform and progress throughout the course of the year if we are going to get to these guidance ranges that we put out there. Mike P. Halloran - Robert W. Baird & Co., Inc.: Understand and appreciate the color. Thanks, guys.

Okay.

Our next question comes from Andrew Kaplowitz from Citi. Please go ahead.

Good morning, guys.

Hey, Andy.

So, Scott or Jay, how are you thinking about the large project bookings market moving forward? Obviously, you had a good quarter of OE bookings with a large China refinery related award. But if you strip that out, OE bookings was down. So can you talk about your visibility for the more of these larger OE bookings over the rest of the year on 2018? Specifically in the presentation, I think you mentioned that the ethylene cycle maybe being still going down before it goes up, so maybe you can talk about that, too.

Andy, I'll start and then turn it over to Scott for additional commentary. But bottom-line, over the last two years, the project business has been very challenged for us. The Hengli award that we just received was something that we've been working on probably close to a year. Timing on when awards actually come through is always difficult to predict, but we were delighted to have achieved that award in the first quarter. And it's safe to say that there is other projects out there that we're pursuing that are of the size maybe not equivalent to Hengli, but certainly it's not the only one that we've been working with E&Cs and customers on that ultimately we expect to come through FID and hope that we're in a good position to win. And so, it's just part of our business. We're glad to see larger project work in our backlog, not necessarily saying one is a trend, but one is better than none. And there is other opportunities out there for us. Scott, I don't know if you want to add some more.

Yeah. No, I'll just add more generally. Tom touched on our aftermarket business and we feel pretty good about the health and the robustness on that. And then, in addition to that, we have a base load of business and that seems to be relatively stable across each of our platforms and in each of the markets. But on the project side, we haven't seen this massive robust churn in terms of projects being let and moved forward, but we are seeing opportunities in each of the segments. So oil and gas, there's been several upstream projects that have moved forward and we participated in a few in the quarter, in addition to the downstream side with the Hengli order. And on the chemicals side, while we don't see massive growth of the projects, we are seeing green shoots of activities. In fact, I was with customers last week in Houston that were talking about their portfolio and they were optimistic about securing additional projects in the chemical space. And on the power side, we're seeing movement on gas-fired power plants in North America and then parts of Asia as well. So I think projects are out there. We need to be very focused to win them and we need to pick which ones we want to win. And in the project market, it is incredibly competitive at this point. And until our competition has higher capacity utilization, pricing will still be challenged. So I'd say we're going to be laser-focused on the ones we want to win and the ones that we can deliver effectively, as we go forward.

That's helpful. Scott, you mentioned in the release that you're impressed with Flowserve's extensive installed base of pumps, valves and seals. I think Flowserve historically had some issues measuring and then harnessing the true potential aftermarket opportunity of its own installed base. I know it's early but do you think that (23:37) and do you see a significant opportunity to really improve Flowserve's capability to grow with the aftermarket business off its own installed base?

Yeah. I would say, well, I'm not ready to launch into what is the strategy for aftermarket. But what we know and we said in the call earlier is that there's 2 million installed pumps out there. And then in addition to that, when we look at our seals business and our valves, we've got a massive installed base. And so any installation that you go to, whether it's an oil and gas or chemical or power, we've got products sitting in critical applications in those facilities. And what we need to decide is we do a really good job today on parts, repair and services, but how do we take that next step in capturing more of that entitlement on our installed base. And so I think there's a lot to do there. I'm not ready to talk about where we advance to. But it really is around reliability and making sure that our equipment is the most reliable out there. And we can communicate effectively with our customers on what that reliability looks like and what we do when we think that something is going to go in need for service.

Thanks, guys.

Our next question comes from Nathan Jones from Stifel. Please go ahead. Nathan Jones - Stifel, Nicolaus & Co., Inc.: Good morning, everyone.

Hi, Nathan. Nathan Jones - Stifel, Nicolaus & Co., Inc.: Scott, you mentioned capacity utilization and the impact on pricing. I wonder if you guys have any comment on when you think the industry's capacity gets back in line with volume. I mean, I think that's probably the first point in time where we could hope to see any pricing improvement. Just any idea you guys have there.

Yeah. I'll start and then probably turn it over to Tom for some more specifics. But I mean we just looked at ourselves, right. We've got an active program with the realignment to take capacity out and that's really needed right now in the industry. And we know the peer group for us are doing similar exercises. We don't know their detailed plans and how far that goes forward. So, it's a difficult question to answer. But also the other side of this is market activity coming up, right. And so I think there's – it's twofold. I'm not going to say that we're seeing substantial traction on pricing at this point, but we are optimistic that we've stabilized on pricing and we're moving forward into a better environment in that regard. Tom, do you want to add anything specific?

Yeah. I would. I mean, if you take a look at our business in three areas, the project business, the aftermarket business, the run rate business. I mean, we've consistently indicated that the project business has always been very price-sensitive. And we see that continuing, especially with the capital spend in the oil and gas and other capital-intensive industries. They're going to look at conserving cash. So we're probably not going to see a lot of larger projects in the next period. So I would expect that to still have some pricing pressure. The aftermarket business – it's held fairly, I would say, steady over this period. So that business continues to have the profile that we've consistently indicated in the past. And then the rest of our business, which is the run rate business, has held up pretty well overall in the business, primarily on the oil and gas side and to some extent the chemical side, a little bit less in power as people have indicated. But I think we have a good run rate in aftermarket business, holding in there with the pricing levels. Nathan Jones - Stifel, Nicolaus & Co., Inc.: Okay. Thanks. And my follow-up is kind of on the outlook for the back half of the year in aftermarket. I know you're heavy aftermarket in refinery, and chemical turnarounds and things like that. Have you begun to have discussions with customers about their plans for the turnaround phase-in in the fall and when would you expect to have a fairly firm idea of what that back half looks like?

We've recently got some inquiries from customers asking us to add on resources in anticipation of, I think, a resource drain that they may be looking at overall on the business. I wouldn't say we've seen an uptick in any of the forward plans relative to retrofits and revamps coming up in the fall. But what I would say is that, particularly in the aftermarket areas, as I've mentioned already, we have seen some increased activity coming in, particularly in the North America. And then couple that with a better North America distribution piece, there is some – I would say there's some optimism, but I'm not sure I would sit that out there as a trend going forward. Nathan Jones - Stifel, Nicolaus & Co., Inc.: Okay. Thanks very much, guys.

Yeah. Thank you.

Our next question comes from Scott Graham from BMO Capital Mortgage (sic) [Markets]. Please go ahead.

Hey. Good morning and welcome, Scott.

Thank you.

So kind of piggybacking off of a couple of prior questions, but maybe a little bit of a different angle, there are – it seems to me that there are three or four businesses that you guys have historically been in, the large oil and gas projects, conventional power gen fossil and nuke, which just kind of seem like those are businesses that are maybe kind of shelved for some time. And I really kind of want to get underneath the power business in particular. Tom, this was a business where, at its height, we were doing $800 million in bookings and we're all the way down to this sort of $100 million in the first quarter and annualized $400 million, which you don't want to do, of course. But nevertheless what does it going to – I guess the simple question is what percentage of your business is now sort of more natural gas-fired? Because the fossil side and the nuke side do seem to be either deteriorating or in some cases even gone and the nat gas side is much lower content for an equipment maker. So I guess the two questions that would stem from that would be is how big is your natural gas business within power? And when do you see power bookings really kind of bottoming out? They've been weak for some time.

Yeah. Let me see if I can, Scott, kind of wrap your comments in a context. First of all, in the power business, you still have a large installed base. So you still have that aftermarket annuity both across coal, certainly nuclear, as well as natural gas projects. In addition, you do have a North America, I would say, resurgence in terms of combined cycle because of the low prices. So you have this combined cycle market that is being driven primarily out of the North America area. As you've mentioned, the coal units are under discussion. Several of them are retiring in North America. But then we also have pockets where coal is still being driven like India, particularly on the supercritical side, to some degree China, even though they're reevaluating those. But then I would say that you have a shift occurring now with renewables. So, even though you have a little bit of downturn on the coal side, you have renewables picking up on the solar side both in terms of Europe, to some degree the U.S., as well as in China. So, it's a very – I would say the power market is a very robust but yet challenged because we don't have any single trend going on, but we do have multiple shoots happening, still a good aftermarket basis, but I would say some opportunities in nuclear. I mean they've announced to go ahead with the UK nuclear business. Obviously, we're having some troubles in the U.S. with some of the Westinghouse units in the U.S. which is being worked through. So, it's an industry that I think is going to have some interesting perspectives on the renewables and the natural gas over the next couple years.

So, would you say that that all taken together, Tom, means that it's going to be a while longer before that business's bookings bottom out?

I've never looked at the power business as bottoming out already. I would say the business has been maneuvering fairly consistently over the last several years. And I think the industry is trying to find through the regulations which haven't yet been established dramatically in many countries. They're still trying to figure out where that is.

Fair enough.

And they're still trying to sort through that. So, I would say, Scott, I don't think it's as evident yet in terms of where that business is going and whether it pops or stays in the level it has for the last several years.

Thank you. Last question. There seem to have been a number of outages in oil and gas refineries. And I guess it just surprises me a little bit that your customers' inquiries seem to be occurring but that this is not a more dramatic thing than what seems to be a reality out there. How do you – can you bridge that gap, Tom? The outages have been significant and it just seems like that they continue to find ways to push back turnarounds and otherwise. Could you help us bridge that gap?

Yeah. The way I would bridge that gap is I would say that they're still in this mode of managing the maintenance cost relative to conserving overall cash. And I believe we're going to be in that zone for a while. I think we're going to see shoots as we've begun to see them, particularly in the Gulf Coast here in the latter part of the quarter, as evidenced by our uptick in activity. But I would say we're not through that period yet where they're ready to, I would say, release and get to that next level of retrofits and revamps. And they're still evaluating that relative from a cash perspective. I think if that begins to open up later on in the year, you may see some additional shoots come out towards the back, maybe the second half or early third quarter.

Understood. Thank you.

Our next question comes from Charley Brady from SunTrust. Please go ahead.

Thanks. Good morning, guys.

Hi, Charley.

Hey. On the realignment program, can you just give a sense, once all is said and done and we get through this year, what your expectation might be for an incremental margin across those three segments or maybe even – if you're not going to give me that granularity then kind of as a whole? I'm just trying to understand – and is there – I'm assuming that that's not the end of the line, right. I mean, there's got to be some – as we go into 2018, and maybe 2019, some smaller – just putting out fires and re-examining what you've got once the whole realignment program is done and kind of optimizing that. Can you give us a sense of kind of what we can expect even beyond kind of the big realignment program you've got going on right now?

Charley, sure. I'll take a stab at it. If you look at the first quarter of this year, I felt like our decrementals performed a lot better than they did last year for us. When we look at the full year, we also expect decrementals to perform better. The real upside related to realignment is going to be when the market starts to show its turn. I think you've been able to see within our income statements some of the benefits of the actions we've taken thus far. But really, as you know, the markets declined faster than we've been able to take cost out. So under-absorptions continue to be an issue for us. We think as we get our footprints where we want it to be and get our cost structure where we want it to be, that when you see the business start to turn, you'll see a nice pickup in our incremental margins. If you look back at that 2014 and we could get back to that level of volume within the business and currency where it was at that time, I think, you'd see a substantial improvement in our earnings per share from the $3.76 that we delivered.

Got it. Thanks. And, Scott, I guess, I just want to ask you early days on the job, obviously, but in terms of the M&A and your viewpoint on M&A transactions and how that market looks? You guys have a lot of stuff going on internally right now to deal with integrations, things like that. But is that something that you're actively looking at still or is it kind of backburner and you'll get to it once you sort out the current issues?

Yeah. I'm not going to say M&A is completely on hold. But certainly my first 30 days have not been focused on who do we acquire and what we divest. But what I'd say is from a portfolio standpoint, right, we're always looking to high grade our portfolio of products and services. And so we announced the Gestra divestiture in the quarter and that was an opportunity to move something out of the business and get paid for it and something that we didn't think that we could grow as aggressively as potentially in somebody else's hands. So, we'll always be looking at those things and we're going to continue to do that and we're not going to stop with my arrival or where we are with our current performance. And so those are ongoing. What I'd say is anything big or strategic right now would be obviously something that we would have to think about significantly. And right now just being 30 days in, right, my real focus is learning this business, understanding it and then developing our long-term plans for the future.

Yeah. Fair enough. Thanks.

Our next question comes from Deane Dray from RBC Capital Markets. Please go ahead.

Thank you. Good morning, everyone. And I also want to pass on my welcome and congratulations to Scott.

Thank you. How are you?

Great. Scott, they always say timing is everything and it's nice that you get to start right at the time where maybe there are signs of bottoming, but certainly the worst of the oil turmoil could be over.

We sure hope so.

Great. Well, the first question is, look, I know you've been in the seat for 30 days and there's still some learning curve and listening tour that you need to address. But I'd love to have you comment on your confidence and comfort level in the preexisting realignment program. So, you're inheriting this program. How much have you vetted it and might there be an opportunity to make changes or do further kind of capacity cuts or streamlining?

Sure. No. Tom has been really good about giving me an update on that. So, I've actually sat in our war room and met with the team on kind of where we are and status. And, obviously, we had some hiccups in the early days of that realignment program. I'm very confident in what we're doing and how we're doing it now, how we're managing the program and the decisions that we've made. I do think there's a potential opportunity to accelerate the program. And so Tom and I've been discussing what can we do and what more we can do. Obviously, those are big decisions and we've got to be thoughtful about that as I'm not prepared to do that in the first 30 days. But I do think there is opportunity to take overall more costs out of the business and start to streamline and drive more simplicity in our delivery methods.

Great. And then I really like hearing you say right up front that one of the first priority is to focus on cash flow conversion. And maybe you could just share with us your initial thoughts and what the opportunity is and maybe this is also a good time to ask about the CFO search?

Yeah. Let's start with cash first. Look, I mean, cash is critical and it's super important that we're converting cash flow at the rate that we need to. If we go back over the last two years, Flowserve – we haven't been able to do that as effectively as we want. To me, the inventory levels are too high and we have opportunity to drive that down. I will add, though driving inventory down in a downturn is not easy. And so this is not going to happen next quarter or even the quarter after that. But we do need to get very focused on our working capital, particularly inventory, and really focus on inventory velocity, right. How do you see bring stuff in when it's needed and get things out the door on time and quickly. And so we will launch – there's been ongoing efforts here. We will launch a revised program and be very focused on how to do that going forward. On the CFO front, we are actively looking for a CFO. What I'll say is we have a few internal candidates as well as external. That search is progressing nicely. And just, for me, what I'm looking for is a business partner that can go through this journey with me and someone that I can trust and has a good understanding of the business. They don't necessarily have to be from our space. But I would think with the complexity within Flowserve, right – we're upstream and downstream in oil and gas, we're in chemicals and power, and renewables, and we've got a large geographic presence with a complex manufacturing network. So we're really looking for somebody that can understand that complexity and has got some operational background to help me make the changes that we need to make to, again, drive more simplicity into the business, be more streamlined and get the complexity out.

All good to hear. Thank you.

Our next question comes from Robert Barry from Susquehanna. Please go ahead.

Hey, everyone. Good morning.

Hi, Rob.

Welcome, Scott.

Thank you, Rob.

So what's the target on when you'd expect to have fully competitive lead times across IPD?

Tom, I think, that's a good one for you.

Yeah. We've probably analyzed so far about 12 of our different product lines. And I would say, right now, we're about 70% through with the lead times being at where we need them from a market perspective. I would say we're probably making good progress and we'll probably within the next, say, three months to four months be in a position where our lead times will be at a level that will allow us to participate in the market. But we've made good progress to-date and it's taken us a good five months to get those lead times down. So it's not like not a lot of hard work from a lot of different teams in that area. And obviously maintaining those lead times is important, too.

Yeah. That sounds pretty good. Anywhere else this is a factor? I mean, you're doing a very large extensive restructuring, moving a lot of stuff around. I mean, pockets outside of IPD were just given how much you're moving around lead times aren't kind of temporarily where they need to be?

I mean there's always I would say – when you move a product from a sending to a receiving side, there is always a certain level of disruption. But I would say we've done good in all of our other realignments. Many of these have been in areas where we're moving capacity from one area to another where we've already had people doing that particular product. So I would say we have in the rest of the realignments not had the – I would say the broader lead time reductions like we've had in the IPD business.

Got you.

Yes. I'll just add to that. So when we look across the platform – and I've done a couple of the manufacturing facilities – other than the ones that are impacted by realignment and primarily IPD, the rest of the business lead times are at or below what's needed in the marketplace. Now, obviously, speed is critical in our business and we'll continue to work to drive that down for further flexibility, but I'm very comfortable with the rest of the business and where our lead times are at this point.

Got you. Just one last one for me, maybe just to level set on the earnings cadence through the rest of the year. I think over the last number of years, pretty consistently 24% to 25% of annual earnings in each of 2Q and 3Q. Is that what you expect to also this year with kind of a much heavier weighting the remainder in 4Q?

Rob, as we suggested in our original guidance, we expected the first quarter to be below our historical trends and we're expecting a ramp as the year progresses with the fourth quarter traditionally being the strongest quarter of the year. I don't want to try to get too much into 2Q or Q3 specifically, but very much a ramp is expected as the year progresses, as we drive solid bookings, get IPD turned around, and focus on our cost control.

Got you. Thank you.

Our next question comes from John Walsh from Vertical Research. Please go ahead.

Hi. Good morning.

Hi, John.

Hey, John.

Hey. So I guess just a question on the top line. Clearly, much better performance than we thought and better performance than consensus have in the numbers. I was wondering if maybe what surprise relative to your number, if there was any kind of pull forward, if there's any kind of anything in the distribution channel, or just how to kind of reconcile the better top-line performance.

Sure, John. There were a number of factors there. And, clearly, we were pleased overall with our performance relative to our expectations back in February. I think one of the things that we did see is we were able to pull forward some work that was originally scheduled for Q2. And that has been a terrific change because, as you know, for several quarters in the past, we were talking about customers not accepting product when ready. And now to see them being willing to accept a little bit early, hopefully that will be a trend that will continue. We obviously try to pull forward each and every quarter and it was nice to see it done this quarter. On the distribution front, we saw a nice pickup in distribution bookings this quarter and those normally turn pretty quick. And so I'm sure that follow through on the sales line as well. And so we knew going into this year that we were starting with a lower starting backlog that was going to have an impact and create an air pocket for us a little bit on the top-line. Frankly, I had to go back and look, but the levels we delivered were the lowest revenue levels since the first quarter of 2007. Obviously, we're expecting revenues to be higher in the remaining quarters of the year than they were in the first quarter.

Got you. No, that's helpful color. Thank you. And then I guess any additional color on the inventory write-down in Brazil to provide?

I think, at the end of the day, we've gotten to a situation in Brazil where the work has dwindled down quite a bit. I don't think there's any surprises out there in terms of some of the challenges that our major customers had in the region. As a result, work has slowed down there. And I think, at this point in time, there's very little inventory left and we've got our hands around it and have accounted for it sufficiently.

All right. Thank you very much.

Our next question comes from Jim Giannakouros from Oppenheimer. Please go ahead. Jim Giannakouros - Oppenheimer & Co., Inc.: Hi. Good morning.

Good morning, Jim. Jim Giannakouros - Oppenheimer & Co., Inc.: You alluded to capacity takeout, I think either earlier in Q&A or in your prepared remarks. I thought that was a cost takeout not necessarily a revenue-generating capacity comment. Did I not understand that right? And if it is revenue-generating capacity that is being taken out, do you have an estimate as to how much you and/or the industry has taken out currently to match a new normal or a through-the-cycle normalized level? Thanks.

Yeah, Jim. As we've talked about in our realignment program, the takeout is predominantly footprint, square footage. At the end of the day, we expect that we'll be able to continue to deliver the equivalent of a 2014 level or better with our new realigned platform. There's certain regions that we're moving product to that it's a lot easier to run out a second or a third shift than some of the regions that we're leaving. And so we anticipate we will still have plenty of capacity for growth but we'll have a lot less underabsorption within the system as a result of lowering our actual physical facilities. Jim Giannakouros - Oppenheimer & Co., Inc.: Got it. Thank you. That's a nice reminder. I thought so. As a follow-up, the China refinery order, understanding I believe that you're accounting for it on a percentage of completion, when should we expect revenue impacts and how does that order and the progression there affect margins on EPD's OE revenues? Does volume carry the day or pricing execution pretty much in line with segment average?

Well, as I think everyone knows, the larger project work tends to be more competitive. I would expect revenues to start being recognized this year as it's on percentage of completion accounting. I think it's certainly going to be a net benefit for us as we're absorbing costs within the facilities that may have otherwise been unabsorbed. Jim Giannakouros - Oppenheimer & Co., Inc.: Thank you.

Our next question comes from Joe Giordano from Cowen & Company. Please go ahead. Joseph Giordano - Cowen & Co. LLC: Hey, guys. Thanks for taking my questions. Yeah. Scott, you know you're coming in at a good time when people are surprised that revenue number being higher than they thought and it's the lowest since first quarter of 2007, so that's a good problem.

That is indeed. Joseph Giordano - Cowen & Co. LLC: I had a question on IPD. You talked a lot about taking complexity out broadly across the portfolio. And my understanding is that like the products in IPD are something like 90% pre-configured and then it's the last 10% that really takes the time. Is there an ability to maybe provide more standard product across Flowserve's product line, things like more stock, less custom tailored to an application? Is that something that is looked at internally?

Yeah. I think – I mean, when I say complexity, it's really around our internal process and how do we get the right products to the end users. And there's always opportunity here to rationalize and standardize our offering and to drive systems that can pre-configure the orders that are going to go to our customers. But I'll let Tom finish this because he's the one who's leading and running the business right now. But there are still opportunities to do that and it has been part of our program thus far.

Yeah. So as Scott and I have discussed – I mean one of the major initiatives we got going on in the business is automating our run rate in configure-to-order business, as you've indicated, Joe. And what we're doing is we're trying to take it from automating the proposal in our configurators straight into a bill of material generation directly into our ERP manufacturing systems and trying to automate that process. That, I think, is a characteristic of the type of business that IPD has versus a highly engineered product. So that is one of the areas that we have keyed up as one of our growth initiatives going forward that should, I think, bode well in terms of the ability to go out and get market. Joseph Giordano - Cowen & Co. LLC: Fair enough. And then if we exclude the big Chinese order, when we look at your business in terms of percentage of revenue, I know historically we looked at like a 40%/40%/20% in terms of aftermarket and run rate and project. How much are we talking project now in that OE part if you strip out that big number?

It would probably be in the middle teens or less. Joseph Giordano - Cowen & Co. LLC: Okay. And then lastly, Scott, obviously, early days for you, but is there anything that as you kind of walking the halls there, anything jump out at you as something that you might think about differently than the company has maybe looked at historically, just a different way of accomplishing things? Just what stuck out most over your first month there?

Yeah. No. It's been – I'll just start just the initial observations and I'll go to kind of where I see some early opportunities. But really – and I've gone to a lot of facilities and met a lot of people here in the first 30 days. It's been incredibly busy. But I'd just start with the talent at Flowserve is incredible. And we've got energetic, we've got smart people and they want to do the right things. And so I'm very impressed with the people and how they go about their business. We're talking about the portfolio and then the breadth of the aftermarket business and then just our extensive capabilities across the industry, right, from upstream, downstream oil and gas and the chemical and power and then the general industries themselves. And then on the opportunity side, I touched on it earlier. But I do think there is ability to take more costs out of the business and potentially accelerate the realignment. I don't know what that is at this point, but it just feels like there's more opportunity here as well. And then I've said streamline and simplify a couple times. And Tom just alluded to how that works specifically within the IPD business. But I also think it applies here at the corporate office. And so by becoming very focused on what the fundamentals are in a key set of metrics, I do think that we can streamline what we're trying to do and then just provide more clear guidance out to our field and locations to progress on a common set of objectives and long-term goals. And so I feel pretty good about that. I don't want to go into exactly what's changing. But we are introducing a new operating rhythm and metric cadence on how we go forward. We'll put a corporate calendar in place and we'll make – we'll be very transparent internally about what our metrics are and be very visible and talk about those regularly to help drive accountability within the organization. Joseph Giordano - Cowen & Co. LLC: Great. Thanks and good luck.

No. Thank you.

Your next question comes from Steven Fisher from UBS. Please go ahead.

Thanks. Good morning, guys.

Hey, Steve.

The timing of medium and larger-sized project is always a hard thing to predict. You guys did mention a number of things that you're pursuing. What is your base case for the final investment decisions and what have you baked into the guidance?

Kind of a tough question to answer, Steve. If you look at how we came out with our original guidance, for the revenue decline, it was largely based off a $300 million headwind as a result of the lower backlog. And then our assumption was that we were going to have a consistent book and bill that we achieved in 2016. So the midpoint of our revenue guidance didn't assume any great ramps occurring on the top-line. A lot of the ramp that we're going to need for the earnings in the remaining three quarters is going to be a result of getting that work that we're forecasting, keeping us on a similar pace to 2016, shipping the backlog on time as it's currently forecast, and then driving the cost savings and getting IPD continue to be turned around.

All right. That's helpful, Jay. Maybe just asked slightly different way, I mean, in terms of – what is the confidence do you have then that some of these mid and larger-sized projects that you have in your prospect list will move forward in the next couple of quarters, two to three quarters?

I would be surprised if we didn't see a few of them move forward and a few of them slip. It seems like a pretty common occurrence where customers will lay out their ideal timeline and often things shift to the right. But we've had several years of things shifting to the right and so I would expect to see a few of these start to be left.

Okay. And I know you don't want to give quarterly guidance on the IPD business, but can you get to breakeven without 100% of your lead time at sort of market-competitive level or what are the most critical things that have to happen to get to at least breakeven...

I'd...

On an operating basis.

No. I don't think all of our products all have to be at target levels for IPD to breakeven. I think getting the manufacturing processes correct and then continuing to win work there and then drive the cost out of the business and a lot of the processes and improvements that Tom spoke of earlier – those are really the keys to IPD.

Great. Thank you.

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