Welcome to the Flowserve 2018 Second 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 Jay Roueche, Vice President of Investor Relations and Treasurer. You may begin.

Thank you, Paulette, and good morning, everyone. We appreciate you participating in our call today to discuss Flowserve's second quarter 2018 financial results. Joining me this morning are Scott Rowe, Flowserve's President and Chief Executive Officer; and Lee Eckert, Senior Vice President and Chief Financial Officer. Following our prepared comments, we will open up the call for your questions. As a reminder, this event is being webcast and an audio replay will be available. Please note that our earnings materials do, and this call will, include non-GAAP measures. A reconciliation of our adjusted metrics to our reported results prepared in accordance with Generally Accepted Accounting Principles is available in both our press release and earnings presentation. Finally, this call and our associated earnings materials contain forward-looking statements. These statements are based upon forecasts, expectations and other information available to management as of August 9, 2018. And they involve risks and uncertainties, many of which 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, 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.

Great. Thanks, Jay, and good morning, everyone. Thank you for joining today's call. During the quarter, Flowserve delivered solid financial results and continued to make progress on our transformational initiatives. Each of our segments delivered on their plans for the quarter and together we modestly exceeded our overall expectations. We have more work ahead of us, but I am pleased with the results so far and the positive momentum that we have created. Yesterday, we reaffirmed our 2018 financial guidance, which we continue to view as realistic, given where we are in the transformational journey. As I indicated when we first provided our targets in February, our internal aspirations are higher and that remains true today, but we first need to re-instill a culture of excellence, continuous improvement and focus on consistently meeting our commitments. We have made significant progress in this endeavor, but there is more work to be done. Nevertheless, each month I gain confidence in our ability to execute and deliver results for our customers and our shareholders. I'll begin with some overall comments before going into the specifics. First, Flowserve continues to capture opportunities from improvements in our end markets. We are pleased that our overall book-to-bill ratio remained over 1.0 for the quarter and the year, highlighted by strong aftermarket bookings in the quarter. Our sales growth of nearly 11%, combined with 110 basis points of higher adjusted operating margin, produced adjusted earnings per share of $0.41. Additionally, we are aggressively pursuing our transformational strategy to drive operational excellence, reduce complexity, accelerate growth and streamline Flowserve's operating model. The company also recently agreed to a planned divestiture of certain non-strategic product lines in IPD, which we will close in the third quarter. Turning now to the specifics. For the first time since the third quarter…

Thank you, Scott, and good morning, everyone. For the second quarter, we delivered adjusted earnings per share of $0.41, modestly above our expectations coming into the quarter. The change in revenue recognition accounting standards, as we discussed in depth last quarter, added $0.07 versus accounting under the prior method. As a reminder, the new accounting standard required adoption on January 1 of this year. The impact to Flowserve between the two approaches is primarily an increase in projects now accounted for under a percentage of completion method. We believe the margin difference between the two standards confirms the improved profitability we've received on recent orders versus orders in the backlog at the beginning of the year. On a reported EPS basis, we earned $0.10 per share, which includes the adjusted items comprised of $0.13 related to the planned divestiture of non-strategic product lines in IPD that Scott discussed, realignment expense of $0.12 and the remainder coming from below the line FX, transformation and ASC 606 implementation. Second quarter sales increased 10.9% versus prior year to $973 million. We incurred a roughly 1% headwind as a result of businesses divested in 2017, which was more than offset by organic growth as well as currency tailwinds, and a modest benefit from the new accounting standard. Aftermarket sales increased 12.4% year-over-year to $488 million, representing 50% of our total revenue for the quarter. Our original equipment sales increased 9.5% as compared to the 2017 second quarter. Turning to gross margins, our adjusted gross margin of 31.9% was up 40 basis points versus the prior year second quarter. The margin increase is primarily due to volume leverage, cost actions and the impacts of profits related to the additional revenue recognized as a result of ASC 606. On a reported basis, our gross margin increased…

Great. Thank you, Lee. In our past calls, I've discussed our early efforts to transform our business model to better serve our customers, engage our associates and reward our shareholders, which we've called Flowserve 2.0. This initiative is about taking the best from our past and improving on it for the future. Across the organization, we're changing the way we think, act and operate to better drive growth, improve processes and efficiency and reduce our costs. As I stated in our first quarter call, the transformation is focused on six key areas: operations, commercial, growth, aftermarket, cost structure and working capital. We have largely finalized our plans and are now executing on these initiatives. I will highlight that we're proceeding with the sense of urgency. The transformational change, like we're undertaking, is not easy or accomplished quickly. This effort will represent a comprehensive change to our business model intended to deliver long-term benefits to all of our stakeholders. While we've seen a few early wins from our efforts, we expect to see significant benefits building later this year and into 2019 and beyond. In addition to the work streams that I just mentioned, we're also focused on improving the culture and organizational health of Flowserve. We have made significant leadership changes, including most recently a new Chief Human Resources Officer, a Chief Legal Officer and a new Vice President of Global Operations. Within Flowserve, we're opening the lines of communication, focusing on employee engagement and have made Flowserve's associates a priority. I am confident that all of these actions will increase our ability to effectively support our customers, create a more meaningful workplace for our employees and drive significant long-term value for our shareholders. We are planning to host an Analyst Day in December to provide an overview of the company and further articulate the initiatives we are pursuing as part of the Flowserve 2.0 transformational effort. We very much value our shareholders and analysts and look forward to seeing many of you there. We will provide additional details on the event in the coming months. With that, operator, we've concluded our prepared remarks, and we'd now like to open the call to any questions.

Thank you. We will now begin the question-and-answer session. And our first question comes from Andrew Kaplowitz from Citi. Please go ahead.

Hey, good morning, guys. Nice quarter.

Hey, Andy.

Scott, looking at the market bookings, $504 million, obviously, a good result. The highest aftermarket bookings we've seen this cycle from you guys. But maybe you could talk about the opportunity to improve on that result. I think, last quarter, you mentioned that you thought you weren't hitting on your true potential in the aftermarket business. And if anything this quarter – we've seen industrial and refining related aftermarket work accelerate. So have you stabilized your market share there when you look at your installed base? And can you materially improve bookings from that $500 million level that's been sort of a key barometer for you guys?

Yeah. So, Andy, look, we are happy with the bookings that we got this quarter at $504 million and it's nice to get back into kind of a pre-recession type of number there. But I would say, we still have opportunity here. And so this is one of the work streams within the Flowserve 2.0 transformational office and it's about how do we capture the opportunity on the installed base. All right. So we ate more than anybody else, have more pumps and more valves out in the field. And we've got to make sure we do a much better job of capturing the entitlement that we have from that installed base. So I'd say our work here is not done. We're pleased with what happened in the second quarter. But I think as we start to really attack the transformation and looking at proceduralizing and formalizing the way that we really go after growth in the aftermarket, we haven't really reached our potential at this point.

Great. And if you – focusing on rebooking (00:22:35) for a second, I mean if you look at the E&Cs, as I'm sure you do, they're talking about potentially doubling – some of them are talking about potentially doubling their energy and chemical backlogs in the current upcycle. You guys are very levered to refining, petchem and LNG. So you mentioned the FEED activity out there. How does it look in terms of – you're still kind of way below your peak, it looks to me like 70% below the peak in any given quarter. So how does it look to sort of get back to that level over time? Could this cycle rival other cycles that we've seen out there and how do we get there?

Yeah. I'd just say Andy, we're really focused on next quarter and the year. And I don't want to pontificate on multi-years out because we're really on a – kind of restoring confidence within Flowserve and doing the right things. With that said, when we look at our bookings funnel and the opportunities that we have in front of us, we feel really good about it. And we've got more in the funnel today than we've had historically. When you look at our Q2 numbers, I highlighted some of the big awards we had, our water job for flood control, we did have a nice petrochemical award, but we didn't have any major projects in there. And so, I think what you saw in Q2 is that we delivered a pretty nice number, over $1 billion, on base or foundational awards and now we're seeing our project funnel continue to increase. And so, ideally, what'll happen in the coming quarters is that we keep that foundational level, if not grow it, and then we start to add the projects on top of that. Now, what I would say in the early projects that have gotten released is the projects – the bigger the projects are, they're still highly competitive and the pricing isn't necessarily where we would like it to be. And so, we feel pretty good about where our plants are in terms of capacity and we're going to be incredibly selective on what we take. We're going to make sure that the margins that we secure in that work are something that we can deliver nice returns to our shareholders. But, overall, I feel really good. I think we're seeing nice growth in all of the markets, except for power. Our project pipeline is better and the activity is really good right now.

Just a very quick follow-up for Lee. If you look at currency, if you mark to market on the euro, I mean we noticed that you kept it sort of where it was. Does it impact that 2% significantly at all as we look at the guidance for this year?

Can you state that again? I'm not sure I caught the question?

So, you're based on $1.22 euro, Lee.

Yeah.

Obviously, it's at $1.16 nowadays. So how do we think about that in the context of that 2% that you have in the guidance?

Yeah. So, I mean, the last three months, there was a pretty big movement. At the end of March, it was in the $1.20s. Obviously, the U.S. dollar strengthened in the last three months. So, we can't necessarily predict where it's going. We just thought to be consistent at $1.22 and our guidance is based on that.

And our next question comes from Scott Graham from BMO. Please go ahead.

Hey, good morning. Nice quarter, guys.

Thanks, Scott.

Hey. I wanted to ask about sales. And maybe the first question there is – if you guys don't mind, is telling us what the impact was of the accounting change on revenues in each segment?

We will do it in total, Scott, as opposed to by segment, but it was not really material this quarter.

Yeah. It's in our disclosure. It's roughly $10 million.

Okay. And then, if – since it's not significant, I'm sorry for missing that disclosure, but if it's not significant this quarter, that implies that the second half will be harder hit, which is that the reason why you're kind of kept your sales guidance as is or is it other reasons?

No, I think our sales guidance is balanced of what we see and what we can convert. So, listen, we're kind of moving on. ASC 606 is the accounting standard and our guidance is based on that.

Got you.

Scott, let me just talk specifically on the guidance. We think the guidance is realistic. And I've been here now for five quarters. And I think this is the first quarter that I haven't been surprised across any of the platforms and we delivered relatively what we expected to deliver. And so, I just think at this point, we're not ready to step-up or make a change. We really are trying to instill a culture of accountability and ownership within Flowserve and we've got to do a better job of delivering to our original commitments. And so I think the guidance, when we relooked everything and kind of where we're at, it was really about saying, hey, let's make our commitments, let's get a little bit closer through the year. And when we look at the back half of the year, it's a pretty significant step-up on the operational income side to make our midpoint of the guidance anyway. And so I'd just say right now, we're locked in on that. We want to execute to it. We've got our team driving to the best we can. But ultimately, like I said in my prepared remarks, our internal goals are significantly higher and we're going to keep pushing and we're going to drive closer to a better place as we move forward.

Got you. That makes sense. So, my follow-up is simply based on how you're approaching your bookings. I know that you're saying that you're being more selective. I guess I'm wondering that, with the cost structure that was kind of laid at your feet, how much is that impacting your bidding. In other words, when you say selective, is that selective in the market or is that Flowserve selective because your costs are too high and you actually can't bid on some of this stuff?

Yeah, when I say selective, I'm really referring to more of our engineered business and engineered work in the pump side. And so that's very much a cost based model where we're building costs specifically to the project that comes there. And I'm not going to say that we don't have opportunity to reduce cost there because I absolutely think that we do and it actually is two of the work streams within the transformation. It's within our supply chain work stream and it's also in our design-to-value or just our product strategy approach on getting more configured-to-order and making manufacturing a lot simpler. But I also think there's an element here of just the pricing side. And we were not as disciplined or as rigorous about really looking at pricing and understanding and really understanding the impact of what that volume at a facility would mean within our overall financials. And so, we made some adjustments to that at the end of last year. We've re-tweaked that after the first quarter. And I feel very confident about where our pricing is right now to continue to deliver margin expansion from where we are today.

That's very helpful. Thank you.

Our next question comes from Andrew Obin from Bank of America. Please go ahead.

Hey, good morning, guys. Good quarter.

Thanks, Andrew.

Hey, just a question, can you just walk us with some very specific examples, because it seems you were lagging the industry for the past couple of quarters and now you're performing in line or better than other players in your space? What levers have you been able to pull in the past couple of quarters to sort of get back on track? Can you describe that in more detail?

Yeah, sure. I've been here five quarters and so that's as far back as I can go. What I would say is we've got the team highly focused now. And we had to make some changes in certain parts of the organization and so we've got some new players in place, and we're very focused. And like I said about the guidance, right, the first part is understanding what we're signing up for, both internally and externally, and then making sure that we have the plans and the process to deliver those results. And so while it wasn't perfect in the quarter by any means, it was solid, and we had most of our businesses delivering on the top line and the bottom line where they need to be. We've got a lot more attention, rigor, visibility to what's important and we've got our teams aligned in terms of how do we make that happen. And I think that's probably the simplest way to say it is that we've got a much more disciplined and focused organization today than what it was when I started.

So that should be structurally sustainable then?

I sure hope so.

And then, the other question, just thinking about visibility into 2019. One of the big debates a lot of oil companies are out there saying, they're focused on returning cash to shareholders, paying dividends, buybacks, exercising a lot of capital discipline. Without naming any names, are you seeing any of these guys starting to sort of actually talk about maybe, in fact, spending that cash into 2019, because I think one of the other companies in the industry did highlight that part of their funnel is, in fact, having discussions with large IOCs and that perhaps they are starting to sort of look at raising CapEx materially into 2019?

Yeah. And again, we haven't even started our planning process for 2019, and we're very focused on Q3 and delivering the year at this point. But what I'd say is, as we look at – again, we look at what's in our funnel and the activities that we're seeing, it's still very good. And really, when we look at the billion dollars that we delivered this quarter, there were very few projects that made up that work. And so, I think I see a improving project environment as we go forward. Again, we have to be very selective on what we're willing to take and at what margins. But there's a scenario there, where we should continue to build on this base and start to add projects on top of it.

But are you seeing any interest – and as I said this is not sort of about near-term bookings, but are you having any conversations with IOCs about sort of making capacity available for them in sort of second half of 2018, 2019 and beyond?

No nothing specific about making capacity, but we are talking – we talk to our customers on a regular basis and some of them do share their future plans with us and what they are working on, and we feel good about that level of activity.

Terrific. Thanks a lot.

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

Hey, thanks. Good morning, guys.

Hi, Charley.

Hey, So, I just want to make sure I heard you clearly on IPD, as far as margin kind of rest of the year, would you – you're expecting improvement from where we are in Q2, implying that the losses there are essentially done and we're moving – staying at a profitable standpoint from that business?

Yeah, I would be really disappointed if we went negative again on the IPD business. And so, it's the first time we've gotten back to profitability now in several years and our plan is to continue to grow from here. And so we've got good line of sight of that. We've got – David and the team are executing and doing the things that we need to. We're clearing out past due backlog, and we're clearing out some real low-margin work that was in that backlog. And so, we do have line of sight to profitability increasing in Q3. And ultimately, in Q4, we're still at the target of mid- to high single-digit margins for that business.

All right. Thanks. And on seasonality, just broadly speaking, I guess, for IPD, but really across the board, any changes to seasonality this year in terms of the timing of when shipments are going to go out, or is it kind of normal seasonality you expect this year?

Yeah. I would say normal seasonality. I wouldn't expect anything different, but we're also on a self-help improvement track. And so you should see the self-help continue regardless of seasonality.

Thanks. Just one more for me, bunker fuel regulations for 2020 are getting a little more discussion. I'm wondering, as it pertains to Flowserve, what you maybe see as your opportunity there. Are you having discussions with customers today about what they're planning to do and change some of the operations and put new equipment in place to meet that regulation?

I think it's something that our sales team are aware of. I personally am not as dialed into that as maybe as I should be. So, I'm going to pass on answering anything specific about bunker fuel at this point.

Thanks.

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

Thank you. Good morning, everyone.

Good morning, Deane.

Hey, Scott, you just mentioned you've been clearing out all of that – the past due backlog. Can you calibrate that for us? That was a focus last quarter. Is that – where does that stand today?

Sure. We're still not where we need to be, Deane. But what I would say is we did make nice progress in the quarter. It was about a 10% reduction across the board. And I'd say that the highlights were IPD and FCD doing what they needed to do in getting that down. We've still got a large project that's in our past due backlog with the EPD franchise. We expect that to clear in the third quarter. And what I'd say is, I fully expect to take another chunk out of this in Q3 and hope to not be talking about past due backlog at the end of this year. And so, we are very focused on this. Obviously, it's harming our customers. But I'd say the other impact is that the longer product stays in our facilities, the more cost it gets incurred. So, it is weighing down on our margins as well. And so, this is something we talked about as a management team almost every week and we've got a lot of attention on it. We know exactly what needs to be done. I do expect to get this cleared in the back half of this year. Now, the other thing that I said, yeah, I talked about this a little bit in Q1, I'll just reiterate it is that what it highlighted to me is that our planning competency at Flowserve is not where it needs to be from a – for as big and as complex of an environment that we work in. And so, we've invested heavily on manufacturing and operational planning. And in February, we created the manufacturing and operational organization. We created a more centralized planning function and we're adding resources to this now. And so that's going to take a little bit of time to get kind of best-in-class on how we think about production planning, materials management, but it is a major effort in the transformational activity and it's an area that we can significantly improve throughout multiple quarters.

Got it. That's helpful. And then on IPD and the pruning of the non-core product lines, is there more to do there? And the process, were you looking at these just in terms of pure profit margin or was also the idea of producing complexity because that was also – that's one of your top goals that you've talked about?

Yeah. So the two that we divested here were – it was kind of twofold. One is, they were non-core and they were never going to be part of our long-term growth strategy. And I think that was probably the single most important factor as we looked at it. And then the second thing is, it was a product line that we just thought was – for us to try to get it back into a place that made sense and get it to a market share position and a margin that was acceptable to Flowserve was going to require a lot of effort. And so, when we think about prioritization of our resources, we chose to put them back into the core product lines within IPD and we chose to make a decision to put this into buyer's hands that we think could actually do a better job than we did. And so, we've been working on this divestiture for some time. And unfortunately, when you're not making money, it's hard to sell businesses. And so, it's been a little bit of a complex process for us, but we're happy to get this signed. And we will close this in the third quarter and it will really help David and the IPD team focus on what's important and start to grow our business and grow the product lines that are core part of IPD.

Got it. And then just last question for Lee, when Scott rattled off the six focus areas for Flowserve 2.0, the sixth one was working capital. Do you have any specific goals today that you can share, a timeframe to hitting those? Is it for as a percent of sales and any calibration would be helpful?

Yeah. Sure. So, listen, where we are today is far from world-class. Our DSO is currently at 75 days. Our inventory turn is at 4 times. That does not include the impact of contracted assets. So, our aspiration is to get to what I would consider as – I would not say world-class, but we're like regional class. And so, there's a significant amount of resources attacking our receivables, looking at the whole process, that whole order-to-cash process. And as Scott said in his remarks around S&OP, we're completely looking at our planning – our orders planning process to drive that. So, it is something that we look at a regular basis. There is significant amount of intensity and our aspirations are to get where it should be. Every investor is looking at us is what are we doing on working capital and we hear it. So, we are putting plans in place. And I expect around the December timeframe, we'll communicate those plans.

That's helpful. Thank you.

Thanks, Deane.

Our next question comes from Joe Giordano from Cowen. Please go ahead. Joseph Giordano - Cowen & Co. LLC: Hey, good morning, guys.

Hi, Joe. Joseph Giordano - Cowen & Co. LLC: So, as orders pick up and mostly maybe OE order start to pick up and start to become a higher percentage of the mix there, how do we think about margin – potential headwinds to margin as you go forward there? And how should we think about potential for costs needing to return to the business that you've been kind of lean on this year, into next year?

Yeah. So, I think it's a really good question. I would say under a normal circumstance, those would be headwinds for us. But I'd just say, we had a lot of opportunities on our cost structure, both in the product cost and on the overhead and organizational costs. And so, again, with the Flowserve 2.0 transformation, I think we continued to make progress in both margin categories. And I get we've got a lot of room to work with. And so, we're not going to let mix or OE versus aftermarket dampen anything at this point. We're going to continue to progress margin expansion. And then, the other thing is that our facilities today are not as full as they need to be. And so with the additional work, we start to absorb a lot more. And that's going to take out a pretty significant headwind of cost that's still in the business today. Joseph Giordano - Cowen & Co. LLC: Okay, fair enough. And then, when you're looking at bidding for newer projects and I think, obviously, before you're there, you got into some trouble with kind of not just the discipline on the total price, but maybe not evaluating all aspects of the project. Like, how are you factoring in the complexity of what you're being asked to do or the risk of who the counterparty is, given all the write-downs in like Latin America? Do you feel like now you're getting – if you're going to take on something like that, it's factored into the model and you're going to be compensated well in excess or at least adequately for that kind of stuff?

Yeah. No, this is really relating to the Engineered Products Division. And again, we put in a lot of scrutiny on what comes into the pipeline and what we're willing to take. And so I'd say, Flowserve has learned a lot over the last five or six years on how should we contract big project, how do we mitigate risk and how do we execute. And so, I don't anticipate to go backwards in that regard, but we have not – we have only improved our scrutiny of not only on pricing and margins but how do we execute the project and the terms and conditions that we're willing to accept. Joseph Giordano - Cowen & Co. LLC: And then last for me, have – you mentioned when we all got together months ago about like the under penetration of automation within your footprint. Has that process kind of started? Have you started to invest there and deploy some of that technology or is that more of a 2019 and further (00:43:08)

Yeah. You're referring to manufacturing specifically, right? Joseph Giordano - Cowen & Co. LLC: Correct, yes.

Yeah. So we are lacking in manufacturing automation at Flowserve. And so, one of the things, and Lee mentioned it in his prepared remarks, right, our capital this year is largely targeted around IT systems improvements to support the transformation and manufacturing productivity or basically automation within the manufacturing. And so we really have not begun that journey. We've just secured a new Vice President of Global Operations last month. And so we've got him traveling around the world now and visiting facilities, but we're going to give him a lot of freedom in terms of putting more technology into our facilities and making sure that we can be as productive as possible. Joseph Giordano - Cowen & Co. LLC: Thanks, guys.

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

Thanks. Good morning.

Hi, Steve.

Hi. Can you guys just remind us what your opportunity set is on LNG plants? How big could your scope be on these projects?

Yeah. I don't want to quantify the scope on LNG, but what I can say is that it's one of the few areas that we're doing a pretty good job of making sure that the pump offering and the valve offering can come together and we can be more of a combined proposal into that market. And so if we do things right, it's probably the best opportunity for us as a Flowserve company when we think about Flow Control. So we're excited about the outlook of LNG. We're in active discussions with a lot of different customers at this point. And again, it's an area where we think we can bring valves and pumps into the foray and I think we can do pretty well there.

Okay, great. And on the guidance, I completely understand that you want to be accountable for delivering what you promised, but I'm wondering is there anything specific that you have concerns about or things that could still move around, be it input costs or timing of any certain projects or anything like that?

Yeah, let me – I'll start with that and I'll turn it over to Lee. But, again, yeah, I've been here five quarters and we've had one that's been somewhat respectable and without major surprises. And so for me, it's really around getting the operational discipline to deliver our results and not have major surprises. And so, the back half of year is still a challenge. And I don't think we're – we're not running this business as well as we can and we still need to improve. And so, we're on a continuum journey and I don't think there's going to be major surprises to the downside. But at this point, again, we don't have the competency and the process control or adherence that we would want as we think about where we should be from an operational and manufacturing company.

Yeah. Just as a reminder, the midpoint of our guidance is an 18% improvement year-over-year on EPS. We still have a long way to go. As we sit here today, we're at $0.68 adjusted. We need to improve our back half of the year by 40% to hit that guidance. So, I think our range is realistic, but as Scott has mentioned, our aspirations are greater.

Great. Thanks very much.

Our next question comes from Joe Ritchie from Goldman Sachs. Please go ahead. Ashay Gupta - Goldman Sachs (India) Securities Pvt Ltd.: Hey. Good morning, guys. This is Ashay on for Joe.

Hey, Ashay. Ashay Gupta - Goldman Sachs (India) Securities Pvt Ltd.: I guess just touching on orders for the second. Could you talk about your confidence in sustaining this $1 billion run rate going forward now that aftermarket is hitting $500 million and the project funnel is growing?

Sure. I mean, we, obviously, don't want to go backwards. And so, for us, the funnel looks good. The activity is in a better place than we've seen and we feel pretty good about the outlook in the back half of the year. The concern is project timing and awards. And so that's what we're watching and we're trying to pull those forward and lock them into Q3 and Q4. But our intention is to capitalize on the momentum that we've started in the second quarter. Ashay Gupta - Goldman Sachs (India) Securities Pvt Ltd.: Got it. And just touching on cash flow for a second, nice to see this focus on working capital, but could you touch on CapEx requirements in the next year again, as you start taking more orders? Like, is $80 million to $90 million sort of going to be the run rate or do you have to take it up further? Thanks.

Yeah, I'll start with that and I'll turn it over to Lee. But I think $80 million to $90 million is a pretty good number. I don't see a material need to drive that up significantly higher. On the other hand, the one thing that is definitely going to cost us money as we move forward is, and we said this, part of our enablers in the transformation is our IT infrastructure and network. And right now, we're running on a lot of different ERP systems. And so the cost to get off some of those and get to a more consolidated basis is going to cost money. And so, the big question is, can we do it within the range of kind of an $80 million to $100 million or do we have to move that up a little bit. But at this point, I don't see any need for a major roof line expansion exercise. We've got facilities in the right locations. We do need to invest in manufacturing technology. And so, I think as we go forward, it's a combination of IT and manufacturing technology, and I think we should be somewhere in that range.

Yeah. I'll just support that comment that what we're spending a lot of time is trying to spend the money smarter and more wisely. Historically, I would say there was somewhat of a peanut butter approach to where capital was allocated. We're developing a much more enterprise view and the most urgent projects are getting the capital where it's more consistent with our overall enterprise strategy. So as Scott mentioned, the one outlier is potentially on the IT side, but we feel that we can still address the needs of the business and better put that capital to use with better processes. Ashay Gupta - Goldman Sachs (India) Securities Pvt Ltd.: Got it.

Yeah. And just to build on it, we brought our top leaders in, about 100 people, here two weeks ago. And one of the big things that we're trying to do is improve the financial acumen across our enterprise. And so, Lee spent a whole session on return on invested capital and what it means and how driving working capital down and how spending our money wisely can help return for this business and for our shareholders. And so, we are getting much smarter and more strategic about how we do that and where do we deploy capital and what the best use of cash is. And so, I think as we go forward, you'll see a pretty marked improvement there and a lot more focus on what we do with that resource. Ashay Gupta - Goldman Sachs (India) Securities Pvt Ltd.: Thanks, Scott.

Our next question comes from Adam Farley from Stifel. Please go ahead. Adam Michael Farley - Stifel, Nicolaus & Co., Inc.: Hey. Good morning, guys. Thanks for taking my questions.

Yeah. Good morning. Adam Michael Farley - Stifel, Nicolaus & Co., Inc.: First question is around geographic strength. You called out the Americas, Latin America, another area. Can you just talk about – sort of give a little more color about what areas of strength you're seeing? And then also, for the rest of the year, what geographic regions do you think will be strong?

Sure. We're doing well across all markets, but let me just kind of run through them. In North America, really, the growth there has been on the upstream side where Flowserve does not have the offering that we would like. And so, one of our strategies is start to migrate some of the products, both in pumps and valves, into a more of the upstream and midstream space. And so, I'd say we're a little bit underrepresented there, but we have the ability to start to grow and move more products into that with the existing technology, but I don't see any change in North America. In fact, on the downstream side in North America, I see opportunities. And so that should be an area that improves and we get better. And then, additionally, in the petrochemical side in North America, we feel pretty optimistic about that as well. The areas of growth for us would be the Middle East and Asia Pacific, and both on the downstream oil and gas side and the petrochemical. And that's where we're starting to see a lot of projects lined up nicely for us and we anticipate winning awards there in the back half of the year and into 2019 as that that pre-FEED and FEED pipeline continues to grow. So, we feel very good about that infrastructure investment and things going there. Europe, it's not bad for us and we had a solid quarter, but I don't see tremendous growth there. And then, Latin America, I don't think we're ready for – Latin America, while it's going to improve, it's off a really, really small base. And so, we don't expect anything outsized in Latin America in the next 12 months. Adam Michael Farley - Stifel, Nicolaus & Co., Inc.: That's really helpful. And then just shifting gears, you guys have been very clear on the need for operational excellence and you're doing a lot of work there. You're doing some divestitures of non-core product lines. I was wondering about M&A, just maybe talk about the pipeline there. Is there any like potential tuck-in acquisitions that you're looking at?

Sure. Yeah. I mean both the pump and the valves space is highly fragmented, right. And so by definition, there are a lot of opportunities. And I'd say, even in the last six months, we've seen a lot of things come on to the market and a lot of things that are speculated to be on the market. And so it's a pretty dynamic landscape right now. And I'd say, ideally, at Flowserve, we really want to be in a position that we can start to consolidate and be acquisitive, but be acquisitive on things that make sense, right. So, things that come in and fit our technology portfolio and align nicely with our long-term strategy and have the ability to leverage the aftermarket and QRC network that we have. So, as I get more confident in our ability to execute, then I think you can see us be less defensive and move more offensive on the OpEx. But I'd say at this point, we're not there. We've got to start to improve with the working capital and the balance sheet items, and we've got to continue to get consistent with our operating results. But at some time, and hopefully, it's more in the near future, we can start to talk more positively about being acquisitive on the growth front. Adam Michael Farley - Stifel, Nicolaus & Co., Inc.: Great. Thank you.

Our next question comes from Walter Liptak from Seaport Global. Please go ahead.

Hi, thanks. Good morning and congratulations, Scott and Lee.

Yeah. Thanks, Walter.

So I wanted to go back to the divestiture, and it sounds like they're small, but I wonder if you can talk to us about the cash inflow we might see in the third quarter. And then, is there going to be like a restated ops because of this or discontinued op?

Yeah, I'll take the over and then I'll let Lee answer the specifics there. But, I mean, look, this is a underperforming business that hasn't made money in several years. And so you're not going to see anything come in on our side. Lee, do you want to talk about the (00:54:10)

Yeah. It's a pretty – like I said, as we disclosed that it's a very small business, and like some of our prior smaller disposition, we've not restated our financials and treat it as a discontinued business. So it'll be a variance for next year as far as the revenue side. It'll actually be accretive on the profit side.

Yeah, so the results of this business are in our Q2 numbers. They'll be in our Q3 numbers until we close the business.

Yeah.

Okay, great. So it's already in the guidance.

Yes.

And if you split those businesses out, if you exclude them from IPD's operating margins this quarter, where would margins have been?

Yeah, we don't really want to get into the specifics, but what I'd say, again, it was a loss-making business and it lost money year-to-date, but it was a marginal loss. And so it's...

It's $10 million per quarter. So the revenue is $10 million a quarter.

There you go.

And so it's – this is not earth shattering. This is just – it's opportunistic to get out of a product line that doesn't make sense and focus on what's important.

Okay. And the last – the other one is just to follow-on on the downstream comment that you just made about the funnel for the back half looking good. How are you addressing pricing? Within the funnel, are you able to get pricing? Are the margins expected to be good on the new business?

Sure. And so, as we keep talking about, we are highly focused on margin expansion and getting the right work in the backlog that we know we can make money on. And just as a reminder, from what we talked about in Q1. And so, we've actually done two price increases at the beginning of the year. The first one was just kind of we hadn't done in a long time, we started to feel a little bit better at the market and so we did a relatively kind of across the board price increase. And then, on the back of the steel import tariffs at the end of Q1, we did our second price increase. And so that would be more on our configured-to-order and our base product. And so I feel very good and comfortable that we are in the right side of the price cost equation, and we're going to start to see that show up in the margins. And then, on the EPD or the engineered-to-order side, we've been very ambitious about what we can get in that space. And what I would say is in Q2 or in the end of the year, Q4, and even into Q1, we had raised our prices pretty significantly. And as a result, had missed some orders that we were really – we would have liked to receive. And so, we've adjusted that moderately. But what I would say in that business is that, even with where we are today, we feel very good about the work that we're winning. And we think that – well, we know that the margins will be accretive to where we've been over the last couple of quarters at referred Flowserve. So, I feel very good about our pricing and where we are with the inflation and the tariffs. And then, the other thing I'd add is just we still have a lot of room for improvement here. And so a lot of this has just been more looking at being reactive to what's happening in the marketplace. And so, now as part of the Flowserve 2.0 transformation, we're putting analytical tools and really taking a much more methodical approach to pricing and using data to help us and make much better decisions. And so, we're actively in the middle of that and it's a major initiative for us. And I think we're going to see nice results and certainly, with some market tailwinds here, that's going to help us capitalize on that as we go forward.

Okay. Sounds great. Thanks for that answer.

Yeah. Okay, great. Hey I do want to go one – the question back that Charley asked about bunker fuel and what we're doing about the regulatory changes there. So, I've received a note now and I have got a much better answer, but that does impact our bookings. And really, over – it'll impact bookings over the next couple of quarters and it's something that our team is highly aware of, and we've got a very nice product offering that supports that change. And so, we feel good about the ability to capitalize on that. And I think we'll see that in the back half of 2018.

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