Good day, and welcome to the First Quarter 2024 Flowserve Corporation Earnings Conference Call. Today's conference is being recorded. At this time, I would like to turn the conference over to Mr. Jay Roueche, Vice President, Treasurer and Investor Relations. Please go ahead, sir.

Thank you, Jess, and good morning, everyone. We appreciate you joining our call today to discuss Flowserve's first quarter 2024 financial results. On the call with me today 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 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 and contain forward-looking statements. These statements are based upon forecasts, expectations and other information available to management as of April 30, 2024, and they involve risks and uncertainties, many of which are beyond the company's control. We encourage you to 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 are accessible on our website in the Investors 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. We are extremely pleased with our first quarter results, marking a very strong start to the year. We continue to drive improvements in the business and outperformed our own expectations in the quarter. Given the excellent start to the year, we have increased our full year adjusted EPS guidance range to $2.50 to $2.70, which at the midpoint is nearly a 24% increase year-over-year. Flowserve is building on the solid momentum established over the last 18 months, driven by the implementation of our new operating model, improved execution and delivering on our ongoing 3D strategy. While we have made tremendous progress over the period, we believe there is more room for improvement, and we remain committed to our 2027 financial targets that we presented last year. Before I get into the results, I would like to thank our associates around the world that share my passion for providing flow control solutions to our customers every day of the year. Thank you for what you're doing to make Flowserve such a great company. Looking at our first quarter results in detail. We delivered strong adjusted earnings per share of $0.58, a 45% increase over the first quarter of 2023. The progress we have made in operational excellence drove our outsized results this quarter. We generated almost $1.1 billion in revenue, which represents a nearly 11% increase year-over-year. Our 31.7% adjusted gross margin exceeded our expectations and gives us confidence in our margin progression journey. Our adjusted operating income margin of 10.9% was a 260 basis point increase year-over-year. These strong results are notable considering that the first quarter historically tends to be more seasonally challenged. We have made significant progress improving our results and delivering a more consistent performance on a quarterly basis. The changes we…

Thanks, Scott, and good morning, everyone. As Scott has outlined, we delivered very strong first quarter results and, in some cases, record performance that continued our positive momentum. Driven by strong backlog conversion, margin enhancement and cost control as well as by improved working capital efficiency, we generated record operating cash flow for the first quarter at $62 million. We truly appreciate our associates' efforts and dedication, which helped us achieve this positive outcome. We also generated the highest sales levels for our first quarter in more than 10 years, drove adjusted operating margin to 10.9% and delivered adjusted earnings per share of $0.58. Our adjusted operating margin increased another 40 basis points sequentially from the seasonally strong fourth quarter levels, further demonstrating our continued progress towards our long-term financial targets. Our reported earnings per share was $0.56, which included only $0.02 of net adjusted expenses, highlighting the quality of our earnings and cash generation this quarter. Altogether, we are off to a very encouraging start to 2024. The strength of our first quarter results and positive outlook for the remainder of the year resulted in an increase to our full year adjusted earnings guidance range to $2.50 to $2.70 per share. At the midpoint, this represents a nearly 24% increase compared to last year. Let me provide some color on the phasing of our guidance for the balance of the year. We have taken steps to smooth the seasonality of the business. This includes our performance on projects like the first phase of the large Jafurah project, where we delivered the highest quarterly revenues in the first quarter that we expect from the project of the year, serving to remove some of the large calendar swings in our business. And although we still expect the fourth quarter to be…

Great. Thank you, Amy. Let me now offer a few comments on our 3D strategy. We remain committed to further diversifying the portfolio into attractive markets like specialty chemical and water in supporting existing customers and their energy transition initiatives as well as participating in new energy technologies like hydrogen. We have made significant inroads with our 3D strategy. We believe that it will continue to drive outsized results in the current environment. While we are well suited to serve our customer base today, we are continuing to invest in our product and service offerings, including through potential inorganic opportunities that further build out the portfolio to support these diverse markets and the new emerging sources of energy. Let me spotlight a few 3D examples from the first quarter. I'll start with Diversify, where our bookings remained very healthy in the first quarter of 2024 as we continue to apply our portfolio into end markets that present an above-average growth profile. During the quarter, we were awarded a contract from a major international chemical company to supply our valve technology for their Specialty Chemicals' Smart Plant of the Future located in China. This award brings valve and actuator bookings on this project to over $50 million as we secured frame agreements for control valves and automated ball and plug valves throughout the facility. We utilized our Project Life Cycle Support program to secure a larger portion of this project, bringing feed support, project management, installation services and long-term operational support to the customer. This award is just one example of our efforts to further diversify and increase our exposure to the growing specialty chemical end market. In decarbonize, we generated solid bookings, including several small projects awards in nuclear and the LNG markets. Over the past few years, we have…

[Operator Instructions] Our first question comes from Deane Dray with RBC Capital Markets.

Maybe we could start with the composition of the orders. I always find that to be really helpful. You said they were smaller size. Just kind of what does that tell you about the pipeline of demand? Talk about the win rates and any impact from selectivity?

Sure. Yes. So we'll talk projects, large projects, which are primarily on the pump side, but this certainly applies for some of the large projects in valves. In the quarter, our largest award was $12 million, and we saw several smaller ones in the $5 million to $10 million. And as we've communicated over the last couple of quarters, we've laid out a framework called selective bidding to make sure that we're bidding on the things that we can win that can -- that we can execute, that can deliver the margins that we expect and have the aftermarket entitlement that we deserve once that equipment is installed. And so that process has now been in place for a couple of quarters, and we're seeing tremendous results. And so I think there's been a lot of activity. I'd say we probably passed on some of the projects that we could have potentially worked on. But what we're seeing now is nice solid growth. The April awards are 2 great examples of that. The Jafurah 2 project, which is a follow-on to the work that we already have with Jafurah 1. So that's in Saudi Arabia. It's a gas production facility. We know the customer well. We've got visibility to the aftermarket, and we've got margins in that project that are right in line with what we've done in the recent year. And then the Amiral project is similar. So again, Aramco is the biggest partner there, and we're confident in that project, our ability to deliver, and we like the margins that we're going to obtain in that project as well. And then when we look on the go-forward Deane, we've got really good visibility to projects. Our overall project funnel is up 10% year-on-year. And so that gives us visibility across kind of the whole globe on projects that are $1 million and above. The biggest part of that funnel that's up is energy transition, is greater than 25% year-over-year, the power sector is over 25% and oil and gas was up about 13%. And so again, really good visibility to larger-sized projects as we work through 2024 and into 2025.

That's all really helpful. I appreciate that color. And then for Amy, this is a fabulous free cash flow quarter for you. I see it's a record. So congrats to the team. How quickly can the working capital improvements go from here? I appreciate you're setting a target, but there's still room for improvement there. But how quickly can you proceed along that target line?

Thanks for the question, Deane. I'd start by saying that we're encouraged by the improvement that we've seen in working capital, particularly in the first quarter. We're not happy yet. So we still have work to do. And Scott and I are focused on the teams reaching that 25% to 27% target as a percentage of sales early so we can then reset the bar to kind of make our way closer to best-in-class in this space. And maybe, let me talk a little bit about how we see the path to get there. So I think that most importantly, cash flow starts with earnings and increasing earnings via margin expansion, like we've done in the first quarter makes our AR collection efforts that have been happening over the past several years, even more effective. I think that operational excellence and what we're doing in that space is critical. So we're focusing on working capital through improving our planning capabilities, which in turn will increase our inventory velocity and is an area that I think we'll start to see come through later this year. Scott touched on selectivity on large projects, and that also includes the cash profile that we see on those projects. So part of that selectivity needs to be around cash as well. And then finally, I'll touch on portfolio management because I think with the new operational model that we have in place, our focus on growing the business in the right areas like continuing to expand our aftermarket also improves our collections profile over time. So to summarize, I think, one, we see this as a big opportunity. Secondly, we see an opportunity to hit that longer-term target earlier, and we're going to focus on making as much progress as we can in the current year.

Our next question comes from Andy Kaplowitz with Citigroup.

Amy, obviously, good performance in Q1 on the margin side, the 10.9% adjusted margin, but you only raised your guidance for the year greater to 11%. You didn't raise your revenue forecast for the year. I know you mentioned that you'll have a little less seasonality than usual this year, but how should we think about revenue and margin over the next few quarters? And is there some conservatism in your new guide, particularly on the margin side as you really ramp these longer-term projects that you're doing?

Sure. So certainly, there's been work that's been done to smooth out the seasonality of the business, and that's really been a focus on the conversion of the backlog, reducing our lead times and delivery on these larger projects. And so we'll see that play out over the course of 2024. And so we're going to see less variation than normal in revenue between Q1 and Q2. And I would say overall, that Q4 will be less of a volume story than what it's been in prior years. And I think in some ways, you can see that play out in Q1 with really a good portion of our revenue growth actually being delivered in the first quarter of the year, which is unusual for Flowserve. I think as you look at the actions that are underway and the current backlog mix, it's really pointing to higher margins in the second half versus the first half. So we still see earnings somewhat weighted to the second half of 2024 with probably less of a delta than normal between Q1 and Q2. I think the good news about this profile is that the margin expansion in the second half starts to provide an exit rate that is much more sustainable than what we've seen in previous years. So it's going to put us on solid footing to expand our margins yet again in 2025 on the path to those long-term targets. In terms of potential conservatism within our guidance, I would say we'd like to put a plan out to the street, that we have confidence that we can deliver. Our team is always working to get to our long-term targets quicker, but this year's plan is one that we have a lot of confidence that we can deliver, and we think provides a lot of value to our shareholders.

Very helpful. I mean, then, Scott, can you talk about what you're seeing by geography a little bit more? How would you characterize the sustainability of the Middle East strength beyond Jafurah and it looked like you had good European bookings along with stable Asia, but maybe you can elaborate on really duration of the cycle at this point?

Sure. I'll talk about projects first, and then I'll hit MRO and then we can talk about duration. So on the projects side, the Middle East is still the biggest opportunity for us in the next couple of years. And so we're seeing a tremendous build-out of infrastructure and assets. And I'd say for us, oil and gas is mostly downstream in the Middle East. And so this is the refineries and then also the gas production facilities and oil production facilities, and we see substantial amount of work coming. With that said, though, the Middle East is also building our infrastructure around water, specialty chemicals and other just general industries as well. And so we actually feel really good about all of the industries in the Middle East in this redeployment of profits in -- of the upstream business, now redeployed downstream and into other industries. And so we like the Middle East. Obviously, there's some geopolitical risk there in terms of things going on with Israel and Palestine. But at this point, we see almost all of the countries that we're actively involved in, whether that's Saudi, the UAE, Qatar, Oman, reasonable stability, commitments to their kind of 2030 investments in infrastructure, and we feel good about that outlook. And then projects outside of the Middle East, we see Asia Pacific advancing, and so there's a lot of work in Asia Pacific. That would be around the chemical space. We're seeing some in the power space for Asia Pacific and then the energy transition side as well. Projects in Europe and Americas are almost predominantly around energy transition and decarbonization. And so either that's going to be your LNG, your nuclear in Europe, but then how do we decarbonize existing assets in both those, and we're seeing an…

[Operator Instructions] We'll go next to Mike Halloran with Baird.

Just kind of follow-up where you left off there, Scott. Maybe just talk a little bit about how you think that this resurgence in power manifests itself to your portfolio, more from a product application set? And then how you think about the product portfolio within the power side that you have today, how well that fits? Where you see that market going over time? Are there gaps or is this an area where you can drive a lot with what you already have or is there more that you need to -- you think you might need to do from an R&D or M&A perspective?

Sure. So power is a big market for us and so we generated about $450 million a year. That's been a pretty consistent rate for as long as I've been here, and so we're starting from a really good spot. And so we've got pumps, valves and seals in the power segment. We participate in all forms of power generation, whether that's coal, natural gas, the nuclear side where we get really good margins for critical service applications. But then we're also doing the new forms of energy in the renewable side like concentrated solar power. I provided an example of offshore wind in my prepared comments where we've got electric actuators in the power generation side of wind. And then you've got the emergence of hydrogen in the coming years as well. And so today, we've got a really strong portfolio to support kind of all forms of power, the traditional side, the nuclear and then also the new forms of energy as well. And I'd say we've got minor -- just minor tweaks to the portfolio to make sure that we continue to stay relevant in something like hydrogen. And so in hydrogen, if it's blue or gray hydrogen, we're typically there because it's on the back of a refinery or another, potentially a chemical plant. But on green hydrogen, we've got to tweak that portfolio a bit on the pump side to make sure that we're completely relevant. But these aren't like major overhauls to our offering and the channel to market and the relationships are already there. And so we feel really good about our ability to continue to work with the power players and whether that's the capacity expansion of the existing assets and helping them extend the life or improve productivity, but also in the greenfield build out. And so I'd say we put a number out there on the Analyst Day. I'm showing that as a 3.2% CAGR. At this point, I'd say that's probably conservative. I don't have a new number yet. But I'd say overall, we're starting to see some real good activity on the power side on a go-forward basis.

That was helpful. And then on the margin line, just kind of a follow-up to Andy's question, certainly understand a lot of the commentary you made about back half still being a little behind than the front half on the margin line, but maybe parse out a little bit by segment. I heard in the prepared remarks on the valve business up through the year. Maybe just a little bit more thought on FPD, very strong 1Q. It feels like guide is assuming a little bit of softening from that level whether it's mix or something else, but maybe some help on that, how that sequentially tracks as we look through the year?

Sure. So I'll start with FCD. And in the first half of the year, we do see a greater proportion of our revenue coming from products and project-related work that have a slightly lower margin profile. And so I would see the biggest margin expansion going from first half to second half based on that product mix and initiatives that are underway to drive that margin higher in the second half of the year and basically take us back to where we were at last year or better from a margin perspective, from -- in FCD. FCD has been a great story in the first quarter, and I think highlights the fact of what we've been saying about our margin in backlog improving. So if you would have told me that we would have seen the type of margins that we did in the first quarter a couple of years ago, given a 14% growth in OE, I would have said that was a stretch, but that was something that we did in the first quarter of this year. So we're really pleased with that. I think we will see more steadiness in the FCD margins, but they will stay elevated over the course of 2024.

Next question comes from Brett Linzey with Mizuho.

Congrats on the performance. Just want to come back to the realignment charge. I think it took $7.2 million in the quarter. Great to see the ongoing productivity in the face of strong growth, but maybe just talk about the nature of these actions and the payback here. Is there more to do through the course of the year? Any context would be great.

Sure. So a couple of things with realignment, really two pieces to that. One, continuing actions associated with our new org design as we continue to work that through the system and that piece was much smaller this year than it was last year. And then the second is some ongoing footprint rationalization actions that we continue to make sort of in normal course of business, and this is with an eye towards operating more effectively and margin expansion over time, really in both of our segments. We still have roughly, call it, $23 million of potential realignment expense that we've earmarked over the course of 2024. So a run rate not much different than what we saw in the first quarter of this year, and that's continuing to do these things somewhat in the normal course. Get our organizational structure firmly in place the way that we want to, improving efficiency in that way and making sure that we're manufacturing our products where we want to around the world and reducing that capacity where it makes sense. The returns on these projects, I mean, we look at this through the lens that we do anything else. So we're very focused on rate of return, but also on payback. And I would say that generally, when we're making these realignments decisions, the paybacks are very strong.

Great. And then just a follow-up on the $150 million April project awards. How does that parse out between OE versus aftermarket? And then if you could share anything in terms of the phasing. Amy, I think you said it maybe begins to ship in Q4, but anything in terms of the phasing over the next several quarters.

Sure. Yes, these are both greenfield awards. They're going to show up in our OE bookings. And so 2 projects, greater than $150 million and you'll see that in the Q2 results. In terms of revenue phasing, both of these are large projects and on percentage of completion accounting and Amy, I don't think we're going to give exact guidance on when they start come through, but you can give some color on that.

Yes. So I would expect, Brett, that we'll start to see some milestones hit in the fourth quarter of 2024. But ultimately, these will be more of a 2025 story from a revenue perspective. And so as we think about the seasonality of the business and what we've tried to do in 2024 and really going back into 2023 to sort of ease some of that traditional seasonality, I think we'll see these 2 wins come into play in 2025 and help us continue that trend.

Our next question comes from Nathan Jones with Stifel.

I'm going to start off with a follow-up on the guidance for margins to ramp up in the second half. With more limited seasonality, I assume that that's going to come more on the gross margin side than on SG&A leverage. So can you talk about what's driving that, if that's -- the roll-off of some older, lower margin stuff that's in backlog in the first half and the sustainability of that improved gross margin as we go into 2025?

Sure. I think really 2 areas that we're anticipating seeing the benefit in the second half of the year. The first is related to product mix itself. And so kind of a move from the FCD side to a bit more run rate business in the second half of the year versus the growth that we've seen in Q1 and going into Q2 on the project side. The second piece from a margin expansion perspective does have to do with some of the realignment charges that we've taken in the first quarter of the year and really dating back to even last year and some of that improvement starting to flow through in the back half of the year. At the gross margin level, though, you're correct, Nathan, that's where we would anticipate seeing the lion's share of the improvement.

And then, Nathan, maybe I'll add the 2 levers that we highlighted at the Analyst Day, right? So the operational excellence and then the product management portfolio optimization. So operational excellence is off to a really good start. We pushed hard on that in 2022. We started to see really good progress in 2023. And now we're really seeing the fruits of that kind of restructuring, the refocus and the operational excellence academy, which we now have trained 1,100 people. And so as we continue to drive productivity within the manufacturing site, we're seeing those gross margins start to move up. And again, we're confident that, that will continue. And then on the product management side, this is one, as you know, has taken a longer time than I would like. It has definitely been a journey, but there's still substantial opportunities for us. And so when we think about 2023 on product management, with the new org design, we created dedicated project management teams. And so dedicated folks within the 7 business units and then we also created a product family hierarchy. And so we've got a hierarchy of products supported by these dedicated teams. And then we have dedicated product managers now for every single product. And then the other big effort has been the data cleanup to support this product hierarchy. I'd say we're in the early innings of that. We're focused kind of one business unit at a time, but we're seeing as we kind of really focus on that data, it now allows the product management teams to do the things that they need around pricing, selectivity, channels to market, all -- features and benefits like all that good stuff that they need to be doing as part of their job. And then finally, is improving the process, right? So now locking in process for pricing, customer selection, channels to market and then the selectivity, which we're calling portfolio optimization, which is, all right, which products are we investing in, which products we want to continue to harvest from a cash generation perspective and not put more effort into, and then which products do we just need to stop doing. And so again, we're kind of at the early phases of that. But going back to answer your question specifically, we expect to start seeing margin improvements from these efforts in the back half of this year, but really in earnest in 2025 and beyond. And so we feel like we still have levers to expand margins and we're still committed to that kind of 100, 200 basis points by 2027 for each of the 2 initiatives, operational excellence and product management.

Great. And then I guess my follow-up, I'm going to ask a question on the portfolio optimization. I think you touched on it a little bit there with what you want to invest in, what you don't want to invest in and what you don't want to do. Are there pieces of the portfolio that you would look to divest, to close down? And would they be material pieces of the portfolio? Or we are just talking about kind of pruning around the edges? And could that be somewhat of a headwind to revenue growth over the next couple of years as you look to simplify that kind of stuff? Or would you anticipate the investment in the better pieces of the portfolio to offset it?

Yes. So I'll answer this pretty holistically. I'll start with the 3D strategy. And so we absolutely want to diversify our portfolio and then we want to decarbonize working with our existing customers to make sure that we're there for the long run of decarbonizing their asset and then working on new energies. And so as we think about that, we look at the portfolio in its entirety. And Amy and I and the ELT are having very strategic discussions about what do we want to acquire to make our portfolio more diverse and then potentially what might have to come out to one, either help find one of those acquisitions or just make our portfolio more optimal to align with the strategy. And so I'm not going to go into anything specific, but I would say that we're looking at this more holistically than ever before. And the org design, the 7 business units are allowing us to do that in a much better way, in a more objective way to have really good discussions about what's working, what's not working. And then when we think about the portfolio optimization program, we've launched in earnest one business unit at this point. And so we've got our first one in the chute. And I'd just say, let's let the process work. We're going to go through a very disciplined approach in terms of what the offering looks like. We're going to take into account the margins on the products. We'll look at our customers and deciding are they good customers or not so good customers. And then we were also looking at the effort to put those products into the market and saying, okay, is that effort worth the return? And so as we go through that process, I suspect we'll have things that drop out of the portfolio. We'll have things that we might want to divest. And then we're going to have things that we want to invest in fully and continue to move that product offering forward.

We'll go next to Andrew Obin with Bank of America.

You have Sabrina Abrams on for Andrew. It's nice to see the sort of broad-based geographic growth. But thinking about Asia-Pac being obviously a bit softer and was also a bit softer last quarter, do you guys have any comment on APAC and China? What you're hearing from customers there? And what drives an inflection in that market?

Sure. I mean China is a difficult place to operate. We've got a substantial -- well, 2 substantial operations there, both on the pump side and the FCD side. We continue to do nice work in China, and we'll be selective about what we do and when we do it. And we want to make sure that we've got good customer relationships and strong aftermarket. So I'd say that's one when we think about selective bidding. We're pretty selective about what projects we're pursuing in the China market. And then for broader Asia Pacific, I would say Asia Pacific has been the slowest region to come out of kind of COVID and the supply chain challenges and everything else. But I would say it's also one of the single biggest opportunities for us as we think kind of a longer-term view of, call 5 years or 10 years. And so we remain committed and optimistic about what Asia Pacific can bring. There's a lot of investment across many different countries, even beyond China that we know that we can participate. We've got a substantial presence in the region. We've got a good team, and we're confident that we can continue to grow that part of the business.

And then as a follow-up, I think you guys talked about this at your Investor Day a lot too, but thinking about footprint consolidation, when you look at your portfolio and you think about what facilities you want to consolidate, are there particular product lines that you're interested in over others? And how do you sort of approach the process of deciding like to consolidate facilities here and there?

Sure. It really falls under the operational excellence program. And as we continue to make improvements, when we're driving that productivity and eliminating waste within the facility, we're naturally generating extra capacity at that site. And so as we expand that capacity across the whole network, different things become available to us. And so I'd say, every year, we're going to look at doing 1 or 2, some small, some larger, consolidations to make sure that we're leveraging the scale that we have in driving higher production within our roof line in sight. And so that's something we look at every single year. We're in the process of reviewing a couple of new activities at this point right now. And I'd just say, I would expect us to continue that in the years to come. And then when we think about the portfolio side, I answered this in the previous question, but we'll look at each of our portfolio and each of our product grouping with a more portfolio optimization mindset. And as we make those decisions, that could potentially accelerate some of the facility consolidation as well.

[Operator Instructions] We'll go next to Joe Giordano with TD Cowen.

We kind of touched on this earlier on the portfolio question. But can you talk to where you are now on cryo pumps as it would relate to nuclear and hydrogen applications. I know there seems to be a bit of a landgrab going on with competitors for those types of technologies and your yourselves have done so, too. So maybe you can just touch on where you are there?

Sure. So we've got 2 cryogenic pump applications that we're working on. One was something that we announced -- gosh, what was that, a year ago with Chart, where we bought their IP, and we're now producing a hydrogen cryogenic pump. And that's for the hydrogen dispensing. So think about like the ability to take from a storage tank or a fueling center and providing dispensing into vehicles or marine assets or things like that. We're getting orders for that. That product is commercialized. We're pretty excited about the opportunities there and we're looking for ways to put that pump into other cryogenic applications in the -- like the production of hydrogen or in the transportation of hydrogen. And so we're pretty excited about that. And then the other cryogenic applications for pumps is in the LNG side. And so that's something that we haven't talked too much about it, but we're doing internal new product development on that. We've got a substantial and ongoing initiative there and we expect to be fully commercialized by the end of this year. And so the focus right now is to get this through the technical evaluations to finish the R&D project and to validate the prototypes. And then once that happens, we've got a pretty nice lineup of cryogenic pumping technology that can be used on the LNG side and the hydrogen side.

Perfect. And then one for Amy. Do you feel comfortable here, and I guess there'll be some volatility, but is 30% for gross margins at a consolidated level kind of like a floor now?

I think we feel very confident about building from where we're at today. And so I think we're working towards an exit rate that's actually above where we're at today. And really driving a fair amount of that improvement in operating margins that we're working towards in terms of the 2027 targets through the gross margin level. So yes, confidence at 30%.

Our next question comes from Saree Boroditsky with Jefferies.

This is James on for Saree. I kind of wanted to go back on the book-to-bill, like your commentary on being over 1 for total company in 2024. So can you kind of talk about how you're thinking about the bookings and book-to-bill at the segment level?

Sure. I'd just say, in general, back to the comments before, we've got really good visibility. And so that aftermarket and MRO run rate continues, and we see that both on the FPD side and the FCD side. And so we see that nice base of aftermarket and MRO were continuing to progress throughout the year. And then from a project outlook, again, that funnel is up 10% year-on-year. We've got the $150 million awards coming in April. That will be on the pump side, but there's substantial project bookings in the valve side as well. And so they're not as large or maybe as big as what we talk about in the pump side, but they're meaningful projects. And we saw a really healthy book-to-bill in FCD to start the year and we clearly expect FCD to be above 1 throughout the full year of 2024, and then same thing on the pump side as well. And so I'd say today, we have more confidence than we did to start the year that we do -- that we will have a full year book-to-bill of greater than 1.0 to finish 2024.

And I just wanted to kind of go back on the like large OE projects. I know that you guys are being more selective in terms of the margin, but I believe those still come in at lower margin compared to like the other projects. So -- and you also noted kind of good feasibility in the large project in the product channels. So kind of how are you thinking about the margin impact from the large OE project kind of going forward?

Yes. So I'd start by saying kind of doubling down on the point I made earlier, which is that OE was a large component of our revenue growth in the first quarter, and we were able to do so in a very profitable way. So we're getting more confident in that the margins and backlog are strong and improving as we had indicated throughout 2023. So really, the key is right now to continue to focus on growing the OE business at those expanded margins, while at the same time, making sure that we're looking after the aftermarket components. Aftermarket bookings at $575 million this quarter, nice growth there. So as long as we continue to keep a balanced growth profile between OE and aftermarket, focus on our operational excellence journey, I think we're going to continue to be able to expand our margins while we win that project work.

And ladies and gentlemen, with no other questions holding, that will conclude today's first quarter earnings conference. We thank you for your participation. You may disconnect at this time.