Good day, and welcome to the Q4 2022 Flowserve Corporation Earnings Conference Call. Today's conference is being recorded. At this time, I'd like to turn the conference over to Mr. Jay Roueche, VP of IT (sic) [ VP of IR ] and Treasurer. Please go ahead, sir.

Thank you, Anna, and good morning, everyone. We appreciate you joining our conference call today to discuss Flowserve's fourth quarter and full year 2022 financial results. On the call with me this morning are Scott Rowe, Flowserve's President and Chief Executive Officer; and Amy Schwetz, Senior Vice President and Chief Financial Officer. Following our prepared comments, we will open the call for 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 and contain forward-looking statements. These statements are based upon forecasts, expectations and other information available to management as of February 22, 2023, and they involve risks and uncertainties, many of which are beyond the company's control. We encourage you to fully review our safe harbor disclosures as well as the reconciliation of our non-GAAP measures to our reported results, both of which are included in our press release and earnings presentation, and both are accessible 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, Jay, and good morning, everyone. I'd like to start by thanking our associates around the world for their resilience and dedication to our customers and our company. In the fourth quarter, we executed well and delivered significant performance improvement across all aspects of our business which led to our adjusted EPS of $0.63. In short, we finished the year strong. These results were achieved despite the continuation of some supply chain and labor availability headwinds. Additionally, we delivered solid bookings of $1.1 billion, representing constant currency year-over-year bookings growth of nearly 20% with continued support from our traditional end markets and enhanced 3D booking activity. With 4 consecutive quarters now exceeding $1 billion in bookings, we ended the year with a near record backlog of $2.7 billion despite the impact of a much stronger dollar compared to the last time we were at these levels in 2014. We recently announced an agreement to acquire Velan, a Canadian valve manufacturer. This acquisition will be incredibly complementary to our existing FCD business and enhances our 3D strategy with growth in nuclear and severe service markets. We're looking forward to welcoming the Velan associates into the Flowserve family toward the end of the second quarter. In the fourth quarter, we delivered modest improvement in our shipping cadence, which drove year-over-year constant currency revenue growth of roughly 19% and total revenues over $1 billion, which was our highest quarterly sales level since the fourth quarter of 2019. But also note that our North American seal business is back on track as daily shipments exceeded pre-system conversion levels and we have significantly closed the gap that resulted from the third quarter's ERP system disruption. SG&A containment remains a priority, and we again delivered a quarterly adjusted SG&A below $200 million, which included the impact…

Thanks, Scott, and good morning, everyone. We are pleased that our improved operating performance, shipping cadence and sales leverage in the fourth quarter drove strong adjusted EPS of $0.63. We delivered year-over-year revenue growth of 13% or 18.6% on a constant currency basis to over $1 billion, marking our highest quarterly revenue level since 2019. On a reported basis, our earnings per share for the quarter was $0.92, well above our adjusted EPS, primarily the result of the $0.45 tax valuation allowance reversal as well as $0.06 of benefits related to the reversals of prior expenses that were adjusted for non-GAAP measures in prior periods. Partially offsetting these benefits were below-the-line FX charges of $0.14 and charges of $0.07 to increase the estimated cost to exit our former Russian business. As Scott mentioned, we are especially pleased with the operational performance in our North American Seals business during the fourth quarter, and this area was a solid contributor to our earnings. As many of you know, we traditionally provide our quarterly and annual SEC filings in conjunction with the earnings press release. However, for year-end, the audit requirements for our 10-K that relate to the ERP issues we encountered during Q3 and our recovery in Q4 have taken additional time to complete, including our final assessment of internal controls. We expect to complete this work in the near term and fully believe our remaining work will have no impact on our financial results reported today. Looking now at our revenues. Fourth quarter original equipment sales increased 14.3% with FCD and FPD contributing 17% and 12% growth, respectively. Year-over-year, aftermarket revenues were also up nicely, 11.9% due to FPD's 15% growth, partially offset by FCD's 5% decline. In total, our full year 2022 revenue increased 2.1% or 6.8% on a constant…

Great. Thank you, Amy. Before closing with our 2023 outlook, let me highlight the progress we have made on our 3D growth strategy in technology developments related to our 3D product offering. We launched our 3D strategy focused on diversification, decarbonization, digitization in early 2022, which is intended to drive higher growth rates in profitable markets and products. One year in, I am even more confident in the strategy, which is incredibly well aligned with the current market environment and expected to drive continued strong momentum for Flowserve in 2023 and beyond. In 2022, Flowserve's 3D bookings grew roughly 25% year-over-year at significantly higher rate than that of our broader portfolio. While we fully expected our strategy to deliver accelerated growth, our bookings performance last year exceeded our own ambitious expectations. Additionally, we continue to invest in new products and partnerships to further expand Flowserve's leadership position in these targeted markets. Turning to each leg of the strategy in recent awards. Let me begin with Diversified. We believe our focus to diversify by targeting particular products, markets and regions will provide more stability through cycles and deliver incremental growth. The specialty chemical market, vacuum products and water markets are key for accelerated market penetration and to provide growing opportunities for Flowserve. Over the last 18 months, we have seen significant bookings growth across the diversification lane, including the recent award to supply critical nuclear vacuum compressors for the construction of a new nuclear power plant in China supporting the country's goal of replacing coal burning power plants with nuclear power. Moving to decarbonize -- moving to the decarbonized component of our strategy. Our energy transition funnel continues to grow and is now up over 60% versus the prior year, which should provide significant opportunities going forward. Our product portfolio and…

[Operator Instructions] And we'll take our first question from Josh Pokrzywinski with Morgan Stanley.

Scott, you touched on there at the end, some of the '22 challenges that I'm sure you're happy to put behind you. It looks like 4Q is a good kind of mile markers that that's happening. If you had to think about in the context of the guide, what is sort of the easy comp and passage of time, nonrecurring things, I think you had some COVID absenteeism earlier in the year. Obviously, you had the ERP at the end of the year. How would you add up those items in the bridge, the more nonrecurring stuff compared to the core improvement?

Yes, Josh, it's a good question. And let me start and then I'll hand it over to Amy to kind of walk through the bridge. 2022 was a difficult year. And you touched on some of the things, but it is a long list. And you just think about the first quarter last year where you had the COVID, we had crazy logistics constraints, we had supply chain challenges everywhere. And it just seemed to kind of build through the year. And then obviously, the ERP conversion in the third quarter didn't help us. What I would say is we feel like the world is in a much more stable place. We demonstrated that with the success of Q4, we obviously need to build on that momentum as we turn the corner to 2023. But I'd just say we're in a very, very different operating environment. And additionally, the way we're running the company and how we're organized for success is very different than how we started the year. And I said this in the prepared remarks, and I'll say it again, we've learned a lot. And as part of this, we're more nimble, we're quicker to respond. The supply chain situation isn't perfect right now, but it is far more stable and our ability to operate in this is significantly better than what it has been. Why don't -- Amy, why don't you walk through the bridge a little bit and kind of how do we think about margins compared to last year.

Sure. I think you framed it well in your question, Josh, because you talked about the fourth quarter as being kind of a mile marker for us. And so one of the things, as we turn the page into 2023, and I'll say we've been talking about 2023 since midway through the year, I would say, in terms of how do we really start the year strong. And one of the ways that we're doing that is really trying to limit the amount of contraction that we see in margins as we move from Q4 into Q1. And so you heard me say in my remarks that we're really targeting more of a 50 to 100 basis point contraction in margins as we move from quarter-to-quarter. That's less than what we've typically seen at Flowserve. And then from that, our margins are expected to continue to expand quarter-over-quarter as we exit the year at something 30% or better. As we think about the challenges that we faced in 2022, I'll just kind of rattle some off and how we're thinking about them going into 2023. So from a price cost perspective, from an inflationary impact perspective, we think that our pricing increases that we enacted in 2022, and the one that we had to start the year in 2023 are going to keep us neutral as we move through 2023. So we feel good about where we're at from that standpoint. Clearly, last year, we experienced issues whether or not they were frictional costs, loss of volume, lower absorption rates at our plants and productivity falling that really impacted our profitability. We're not going to see those things this year, and we're going to see a lot of improvement in that area. I will say that, that's going to be partially offset by 2 items. One is an increase in our labor costs, which reflects, I think, the market that we're in today from a labor perspective. And then the second piece of that is really around mix. We see more of our revenues and our guide of 9% to 11% increase coming from our backlog, which means lower assumptions around book and burn. And so that means those revenues generally come at higher margins. And so that mix impact is moderating some of our margin expansions that we'll see. I'll also say that kind of below the gross margin line, we are anticipating that we're going to see higher interest expense in 2022. We'll see a slightly higher tax rate now in the 18% to 20% range as we turn the page. We still have some old backlog that's going to flow off sequentially, which leads to that sequential improvement in profitability. And we'll also see slightly higher R&D as we move and turn the page from 2022 into 2023.

A lot of detail that I really appreciate. I probably going to need to go over the transcript again, make sure I didn't miss anything.

A littler longer answer than...

That might be the first time anyone has ever said that to me on a call.

That's good. No, it's good stuff. I appreciate it. Just looking over to the order side. Scott, wondering if any view on how you expect broader book-to-bill to go this year? And maybe on one specific market that we've heard a little bit more chatter on is on hydrogen, where it seems like there's some IRA rulemaking that is going to clear up and caused some projects to kick off. How would you think about what you're seeing in those markets and how those kind of inform your rewon orders for the year?

Sure, Josh. Let me start with hydrogen, and then I'll hit the overall market for 2023. We're really excited about hydrogen growth, and we feel that there's going to be substantial effort going forward, and you hit it, whether it's IRA in the U.S. or the incentives in Europe, lots of countries are incentivizing hydrogen energy and growth there. And so we think this grows and hydrogen has a significant Flow Control element. So whether it's the electrolyzer where you're creating hydrogen or transportation and distribution, there's Flow Control opportunities within the hydrogen value chain. We booked work this year. We booked a big project in Saudi Arabia. We booked work in Europe, and we've also booked work in the United States. And then our Chart acquisition in the third quarter is around hydrogen dispensing and distribution. We're very excited about our ability to provide a pump into that part of the market, and we're confident that we'll be able to commercialize that technology this year and start to drive orders in 2023. We need to continue to round out our valve in pump and seal portfolio to make sure that we've got multiple opportunities within the hydrogen value chain and a lot of our R&D and then additionally, some of the partnerships that we talked about are geared toward that market itself. But we see hydrogen as a substantial growth market, and we feel like we're doing the right things to position ourselves for that. And then let me just kind of step back and I'll talk about 2023 more generally. Obviously, 2022 was a very strong bookings year. We had significant growth across all of the end markets and including with the 3D strategy. I don't think the growth will be as high as what we saw in…

We'll now take our next question from Deane Dray with RBC Capital Markets.

This is Kenneth Lee from RBC on for Dean today. First, on free cash flow, specifically curious on the cadence of free cash flow throughout the year. Are you expecting some sort of hockey stick in the fourth quarter? And can you maybe remind us what your expectations are for buffer inventory levels?

Sure, Kenny. I'll start with kind of cash flow cadence and then ask Scott to talk a little bit about inventory as we think about 2023. So let me first start by saying that we expect significantly improved cash flow as we move through 2023, or as we move into 2023, I should say. And really the biggest piece of that is we are anticipating that net income improve. And as we pointed out, that improvement will be -- starts in the first quarter but is sequential throughout the year. And so as is traditionally the case, we would expect that a significant portion of our cash flow generation does occur in the third and fourth quarter. We do see a significant increase in our backlog. So it means working capital is going to be a factor as we move forward. That being said, we see it improving pretty significantly as a percentage of sales and certainly driving it below that 30% number as a percentage of sales. And as we look at investments that were made in the second half of 2022, we really see an opportunity in the first half of the year to target free cash flow at neutral levels or better. And then the last item that I would add just with respect to free cash flow is we do have our cost optimization program that is ongoing. There will be some cash outflows related to realignment I would anticipate that, that will really be more towards the last 3 quarters of the year.

Sure. And then I'll touch on buffer inventory. And as you've seen throughout 2022, we've been building inventory. And I'd say it's twofold. One is our bookings and backlog are substantially up, and so that's driving a lot of it. But in addition to that, given the supply chain challenges and the longer lead times within the supply chain network, we have put in buffer inventory. And we've done this, I'll call it, relatively surgically, but we're giving our operations the ability to stock up on additional inventory that we normally wouldn't do. And this just goes back to making sure that we can deliver to our customers and meeting our internal commitments, and we feel like it's the prudent thing to do. And so I would say that, that buffer inventory level right now is at a reasonably good place. I don't expect that to go higher as we move forward into 2023. And but I also don't expect that to subside at any time in the next 2 quarters. And so hopefully, as things stabilize and lead times come down with our supply chain, then we'll start to reduce that buffer inventory in the back half of 2023.

That's great color. And then just on Europe, I guess it's left in top comp, but it seems the region was largely better than feared across this sector this quarter. So can you maybe talk about what the conditions were like throughout the quarter for you and what you see there on a real-time basis.

Sure. We addressed this in the prepared remarks and said that there are concerns with Europe just given the currency, the inflation issues on energy and just the general state of the economy there. We watch this closely. We have a big run rate business that's tied more to the chemicals and specialty chemical markets. And what I'd say, we saw in the fourth quarter roughly about a 5% slowdown on that run rate business. And so again, not a huge part of our overall business, but something that we're watching carefully. And I'd say, as we think about Q1, we're seeing a similar kind of roughly 5% slowdown. As we move forward in the year and as inflation subsides in Europe, we actually expect that to return and come back to a more normalized level. And then just as a reminder, that's on top of over 10% growth that we saw in the region for 2022. And so I don't think this is going to be a major issue for us. However, we're watching it carefully, and we'll continue to monitor. But I think the positives that I talked about before, energy security, the decarbonization and in some of our end markets, I'm confident that we overcome any slowness on the European side.

We'll now take our next question from Damian Karas with UBS.

Obviously, you have quite a good bit of sales visibility this year stemming from that $2.7 billion in backlog. Could you just clarify as it relates to the run rate business. You're assuming that it continues to grow or at least hold steady as the year progresses and you don't really foresee any recessionary pockets coming this year?

Yes. I think our run rate business is going to be very robust. And that's just driven by a lot of these assets, whether it's a refinery or a chemical plant, 1 are running at really high levels and 2, have been deferring maintenance now really since the beginning of COVID. And so we continue to see significant maintenance and shutdowns and turnarounds into 2023. And I just don't see that subsiding. I talked a little bit about the situation in Europe, and that would impact some of our run rate business. But outside of that, we feel really good about -- it's not going to be substantial, but moderate growth with that run rate and aftermarket business as we progress through 2023.

Okay. Got it. And then I wanted to ask you about the $50 million in cost actions. Could you give us an update on how far along you are there? And how much of the benefit realization you've assumed for your guidance this year?

Sure. I'll start a little bit on that and then maybe let Amy answer some of the timing and how it works through. And I'd say, we're talking about it as a cost program externally with our analysts. But I really want to say 2 things that are critically important, number 1 is that the #1 priority for Flowserve is converting the backlog, and we're not going to do anything that jeopardizes our ability to ship and get product to our customer and meet our internal commitments. And then secondly, the program that we've launched about organization optimization is truly about driving accountability as number one. and then really taking steps to simplify what I'll call a relatively complex business at Flowserve. And so we've been working on this since Flowserve 2.0. We made good progress, but we're now doubling down on some of the business processes that need to get simplified. And so that's really what's happening. The $50 million cost is basically a result of this reorganization and the optimization that we're going forward. And Amy, why don't you just talk about some of the actions we've taken and kind of when it starts to show up in the P&L.

Sure. So Damian, to date, we've exercised about $5 million to $10 million worth of kind of run rate savings and those have been reflected in our guidance range. As we talk about the $50 million program, we expect that we'll get to that run rate by the end of the year. And realistically, that incremental amount of savings really exists today as potential upside to the guidance range that we have or something that's out there in the event that we experience more inflationary pressures than what we've currently got built in the guidance range.

We'll now take our next question from Mike Halloran with Baird.

One -- so just wondered, I want to go back to -- just want to go back to his first question there. When you think about that run rate business and kind of being modestly positive, seems that, that commentary is a little bit at odds with how strong your overall commentary is and how positive you are in the overall end markets. Are you actually seeing something that gives you pause in those markets? It doesn't sound like it. Is this just more prudency because you don't know what you don't know, comps, maybe turnarounds are more static because refineries are making money right now? Just kind of any context around that would be great.

Yes. I would say it's just prudent, right? We had a significant growth this year in the MRO and aftermarket, and so I think it's just saying we're not -- probably not going to grow at the rate that we did in 2022. But there's nothing that we're seeing right now that says that we're not going to grow in 2023. In addition to that even -- and I'd just say our backlog includes aftermarket and MRO. And so we're going to convert on that big backlog as well. And so you'll actually see the revenue grow even if the bookings weren't at that higher level.

Appreciate it. And then just a second quick one. Just confidence in the margin levels that you have in the backlog and being able to execute. I'm guessing, was there still what you would do as higher margins relative to maybe the 2022 aggregate rate, but would love to get some context on that.

Sure. Amy touched on a little bit on one of the questions, but I'll add some more color. And as we think about the cycle, right, 2021 was the low point. We did take some work in 2021 that the margins were depressed and that's still in our backlog, and it will work its way out through 2023. And then I'd say the bookings in 2022 are all incremental to margins on a year-over-year basis. And certainly from this point forward, as we're booking projects, we're now with the significant backlog and the facility is relatively full, there's no reason to go backwards on margins as we think about project awards. And so there's still some competition there on the pricing side. But from our standpoint, we only take work that's going to be accretive to margins going forward. And so I feel really good about our backlog to kick off the year and the margins in backlog is substantially higher than where we were this time last year.

Yes. And just for a little bit more color on that. I think Flowserve has traditionally done a nice job getting as much protection as they can, particularly around large project orders, around inflationary pressure by getting POs in place quickly for equipment and getting price protection to the extent that it's possible under the contract. I think in 2022, we were in an environment where it was really difficult to recoup some of those frictional costs in terms of expediting freight, the absorption levels that we are seeing, the labor disruptions from COVID. And so just seeing those work their way out of the system as we make our way into 2023 gives us much more confidence in the margin that we're seeing in our backlog this year versus the situation that we were in this year or last year at this time.

We'll now take our next question from Joe Giordano with Cowen.

So you guys announced a couple of leadership changes with the pre-announcement a couple of weeks ago. So can you maybe talk through what led to those and how like you're organizing the reporting structure a little bit different -- like the reporting structure internally a little bit different now.

Sure. So this goes to the organization optimization that I discussed in the previous question. And so again, as we're thinking about this, it's really about how do we drive accountability deep in the organization and how we simplify what we're doing at Flowserve. And so one of the things that we've done is we've organized now internally very similar to how we report externally. And then the other important thing that we've done is we're creating more product verticals for full life cycle delivery. And so I think the best example here is our seal business, rather having the seal business distributed across regions and maybe not as focused as I would have liked, we're now creating a seal vertical and full P&L that we've got single leadership over the global business. And so I'd say that's kind of the major change. We've got some other internal changes in there as well. But again, this is all about driving accountability with our results in our end-to-end business and then simplifying some of the handovers that we had within the business historically.

All right. And then we talked earlier about the issues that you guys faced in 2022, some of which are under your control, some of which were not, now that you're moving into M&A mode, you bought in-process R&D, what gives you the confidence that Flowserve organizationally is prepared to take on something like this that makes it a little bit more complicated when you're kind of getting on your feet execution-wise.

Sure. I think it's a good question. And I've been here 6 years now, and we've been working on operational surety and business process for a long time. We haven't been real acquisitive just because we were defining what that Flowserve playbook look like and how to operate. And today, I'm confident in our team's ability to do this. And so we've got a proven IT team that can put systems in place, our operational playbook, I'll say, is second to none. We've got to improve on process discipline in using that. And then I'd just say our other functions are all what I'll call in the top quartile in terms of how to run big companies. And so when we look at Velan, it's publicly traded, but it is a family-run business. There are opportunities for process improvement within their facilities. And I think applying some of the things that we're doing at Flowserve, some of the things that we learned in 2022 gives me the confidence that we can have a successful integration. And I'd just say, with this business, there are lots of levers for value creation, and Amy kind of hit on some of those in previous Q&A. But we're confident that we can hit most, if not all of the levers and have a very successful integration and a very complementary acquisition here.

And if I could just sneak one last one in quickly on China. You mentioned you won like a nuclear project there. Can you just give us a little clarity on what the competitive landscape looks there from local Chinese players just as the geopolitical things start to ramp up, how hard is it taking on critical infrastructure there from a U.S. company?

Yes. We obviously have a broad portfolio of Flow Control products. And I'd just say some of our business does really well in China, and other parts are really, really difficult. The award that I spotlighted was vacuum technology. It's a niche product, and we kind of get locked in because we've got preferred technology. And so when we've got a technology that's hard to replicate in China, we do really, really well. Additionally, we've done well with the FCD and the valve businesses, and that's grown nicely throughout the year. I would say on some of the pump stuff, it is really competitive and the preference on local China is -- becomes more and more prevalent despite the fact that we've got a big operation in Suzhou. And so we're being really selective on where and what we do in China. I think there's going to be a return to investing in China as China reverses the zero-COVID policy and we'll start to see investment there. And so I feel good about growth in China, certainly in the near term, we've got to continue to get laser-focused on what products work in China and then tailor our Chinese operations to support the local markets. And again, we've done that really nicely in valves. We've got to do some more work in pumps, and then we've got to continue to put that niche technology preferred product in the right applications in the China market.

We'll take our next question from Saree Boroditsky with Jefferies.

Maybe just a little bit on the acquisition of Velan. You talked a little about the $20 million of run rate synergies and maybe just how you're thinking about potential revenue synergies given the complementary product portfolio.

Sure. Again, we really like this business. They've got a great nuclear presence, severe service, defense, and then they've got a nice LNG and cryogenic offering. And so we believe the products are very complementary to what we have today within Flowserve. And so we think about nuclear, we now combine our nuclear offering with theirs. There's very little overlap, and we're excited about what we can do together. And then on -- we talked about hydrogen and LNG earlier, the cryogenic offering that they have is -- it works really well with what we're trying to do. And then we can expand that into other gaseous applications like hydrogen. And so there are some really interesting things that we can do with the combined portfolio. And then as Amy mentioned in her prepared remarks, Velan's aftermarket presence is not very big. And so we feel really good about our ability with the QRC network and the focus on aftermarket and MRO within our valve business to really start to get the aftermarket with the Velan products and capture the installed -- the aftermarket on the installed base that Velan has.

And I know it's early, but you talked about some of the longer lead time projects which currently in the backlog. Maybe just give a little bit about the composition of what that is and the visibility it gives you beyond 2023.

Sure. It goes to what Amy said earlier, right, we booked some work in 2021 at low margins. That works through the system throughout 2022. And so as we exit 2021, we work here in 2022, it's still in backlog today. But as we exit 2023, all of that is out of the system and gone. And so again, we're replacing that with higher-margin work than what we booked in 2021. And we feel really good about this progression on margins like that Amy discussed. And so we don't see a big drop off from Q4 into Q1 like we've traditionally seen. We build throughout the year as we go through 2023 and then that allows us to exit the year at a much better gross margin position. And then there's some really long lead -- longer lead items in the backlog. So the first would be our nuclear awards typically, those can span anywhere from 1 year to upwards of 3 years. And then the Jafurah award is roughly 18 months to 2 years within the backlog as well. And so those will stay with us and work through. And that's some of the reasons for that lower backlog conversion number that we called out in the slides in our prepared remarks.

We'll take our next question from Nathan Jones with Stifel.

This is Adam Farley on for Nathan. I wanted to follow up on the Velan acquisition. Could you maybe provide a little more detail on the $20 million in cost synergies? What are the main buckets of those cost synergies? And is there a [indiscernible] you go after?

Sure. So we touched on this a little bit in our remarks. But with the cost synergies, we're really highlighting or targeting overhead-type expenses, Velan currently does trade as a public company. So public company costs and overhead are a component of that. The combination of any 2 industrial companies, I think can lead to economies of scale around supply chain. We talked about the complementary portfolio but product rationalization over time will come into play on this as well, as well as footprint rationalization as we work our way through. So we're certainly in early days of planning around integration, and we're excited to get started. But as Scott has indicated, we think there's a lot of opportunity here both through cost, but also this is definitely a growth story for that product portfolio and for the Flowserve portfolio overall.

Okay. And then post closure of the Velan acquisition, what are some of the expectations for future M&A? How is your pipeline of opportunities shaping up? And what are the main focus areas for inorganic growth?

So I'll start and let Scott provide some color. I think that Velan is a really great example of the type of transactions that we want to do. One, we think it makes financial sense. Two, strategically, this is certainly right down the fairway in terms of how we want to grow strategically within the 3D strategy and the focus on nuclear and other industries that we think are going to grow at a really nice pace in the future. We have put an effort in recent -- over the recent period of trying to build out that pipeline of what inorganic growth would look like. But certainly, we intend to do that with financial discipline and with an eye on enhancing our strategy.

I think Amy summed it up. I mean that's essentially what we're looking at. It got to fit the 3D strategy. We'll be financially disciplined, and then we've got to have confidence in our ability to integrate.

And it appears there are no further telephone questions. And with that, this will conclude today's conference call. We thank you all for your participation. You may now disconnect.