Flowserve Corporation (FLS) Earnings Call Transcript & Summary

Hi. Good afternoon, everybody. We have -- very happy today to have Flowserve with us. We have President and CEO, Scott Rowe. As Scott just said to me that we are in the ninth inning of today, so closing it out strongly. Before we get into the Q&A session. Scott's got a few opening remarks on the recent quarter, and then we'll get into Q&A. Scott, with that, thanks for being here today.

Yes. Joe, thanks to you and Goldman for having me, and we're happy to participate in today's fireside chat. And I'm thrilled to come in, in the ninth inning. So this is good.

Last but not least, Scott.

So let me just give -- I'll give a little bit of overview to everyone for those who don't follow us as closely, but we're a diversified industrial business. We've got a large percentage of our business focused on energy, but we also service the chemical market, power markets and general industries as well. And so we've got a nice, stable marketplace. We've got a lot of things to be excited about. And our main products are pumps, valves and mechanical seals. And really, what we're trying to do is be an extraordinary provider of flow control solutions to our customers. And we do that in many different ways. And I think probably one of the most exciting opportunities we had last year, which we announced here recently, was our partnership with Pfizer. We've been working with them for a long time, and they came to us in the middle of their vaccine development and said, "Hey, we need some help on some flow control products." So we helped them in the development phase of their vaccine, and then we also provided pumps, valves and seals into production of the vaccine, which was pretty cool. And it's something we like to talk about, and our associates are all pretty proud that we were part of a global solution there. And then we just did our earnings call here recently. And so I'll just kind of give an overview of that on the Q1 results. We are really excited to have a good bookings number. And so what we saw is about a 15% growth on bookings versus what we saw in the kind of all of last year in the pandemic. So getting over $900 million was a great start for us on bookings. Our EPS was really solid at $0.28. And so for us, Q1 is typically a seasonal low, but $0.28 was above our expectations, and we're doing good things. And then we also had some really exciting stuff to talk about. We launched our IoT platform in Q1 called RedRaven, and we're seeing some pretty significant uptick there. And then the more we think about energy transition, the more excited we get about the opportunity. And we now see that as a tailwind more than a headwind. And so -- Joe, I know you've got some questions on that, and so I'll save that for the Q&A. But the more we sit today and kind of look through what's in front of us, we feel like we're in a much better place than the last couple of quarters, as the world starts to open up, and -- albeit there's parts of the world that are still locked down like India, but what we are seeing is where the vaccine does get rolled out effectively, we then start to see mobility numbers come up. We see utilization of big flow control assets start to climb, and then we start to see our business come up. And so we feel pretty good about our outlook right now.

Scott, that's great to hear. And there are a lot of jumping off points there, but maybe I'll just -- I'll start off with, last year, I asked you like how you'd characterize the downturn versus other downturns we experienced and you've experienced as well, not just in your time, really more so actually before Flowserve, right, maybe you're time at Cameron. But I'll ask you the opposite question because I know no 2 periods are ever the same, but how are you thinking about this upturn? What is this recovery? What do you think this recovery is going to look like versus prior recoveries that you've seen historically?

Sure. Yes, I'm starting to feel old now. I think I've done 6 cycles. So we don't want to back into the age of that, but I do think I've done 6 different basically commodity-driven cycles in the energy business. I don't know how many more I have left in me. But if we think about kind of where we are right now and like what happened in COVID in 2020, I would say and I'm optimistic that this would be more like the 2008, 2009 recovery, in which you saw a pretty rapid bounce back, right? And so 2008 was obviously the financial crisis, but you saw energy markets come down. A lot of that was demand-driven. And just as the economy kind of got clamped down, you had a real lack of demand. Supply got turned off pretty fast. And then things started to come back in 2009, '10 and '11 very quickly. When I compare that or think about today, right, obviously, COVID just absolutely knocked everything down at the beginning of last year. And so Asia went offline in the first quarter. Europe really kind of that February, March time frame, and then the U.S. in March, April, and then Latin America much later. But as we think about how fast things changed, I mean it was unbelievably fast where everyone went from normal daily lives to getting clamped down and just locked up at home. And demand for refined products, chemical products and things like that, just essentially stopped. What we see now, and we've got a couple of good examples like the U.K., China and the U.S., as the vaccine starts to roll out, we see mobility data increase pretty quickly. And we saw that in China earlier or kind of mid-2020. We saw it in the U.K. earlier this year, and we're seeing that in the U.S. data as well. And then once mobility starts going, then that's obviously driving GDP and spending and other things, and all of that is really good for the Flowserve business. So I think it's really dependent upon vaccines, it's dependent on case counts. But what we're seeing is some pretty fast turnaround. And I shared this in the earnings call last week, but I wouldn't have expected our bookings to come up off our run rate by 15%, and to come out of the gates in Q1 at a 15% uplift from what we had seen is pretty significant. Now I don't think we'd spiral up dramatically off that in the coming quarters, but if we can keep this for a little while and build off that, then we're starting to look at some growth numbers that resemble that kind of 2008, '09, 10 recovery period. Now for us, we came down 20% in COVID. So it's going to take us a while to get back to that base level. But if we're carrying on at kind of 15-plus percent, we get there a lot faster than what I would have originally expected.

Yes. No, the bookings -- the sequential bookings number were certainly encouraging, and I know we'll definitely dive into that throughout this conversation. I guess the question I wanted to ask you is when you first started, you were able to see a little bit of an uptick in your businesses, I think, back in 2018, 2019. But you didn't have like the power of like the Flowserve model really in place yet, right? I think when you first got to Flowserve, there was a lot that needed to be fixed. And so I'm sure sitting in your shoes today, you probably feel better about the profitability opportunity within Flowserve in an upturn. And so I'm just -- maybe just talk us through where you are today versus where you were back in the 2017 time frame in order to actually really -- like really see the benefit of a better volume market as things recover.

Yes. There's a lot to talk about there, Joe. So I'll keep this simple, and then if you want to dive into other parts, then we can. But you really -- when I started in '17, we knew, and this is in our public side, we said we had to stabilize the business because there were a lot of things that weren't running as well as it should from a kind of internal perspective. So we launched our Flowserve 2.0 at the beginning of 2018, and we've made tremendous progress. And what I would say is the results of that effort allowed us last year to take cost out pretty dramatically, which in the past had been something that Flowserve was a little late to react in terms of those cycles. But I feel like we are in a much better place than ever before to capitalize on the upside. And so some of the things in Flowserve 2.0 that are now kind of in green in what we're doing is we now have an enterprise-wide operating system. And before, at all of our locations, we would operate differently and on disparate systems and really, quite frankly, a different playbook. And now we have what's called Flowserve enterprise leadership mindset. We follow kind of the same philosophy in how we run our business. We've made great progress on centralizing our IT systems. There's still -- that work is still not complete, but we've made tremendous progress. And then when we think about our different functions like -- even like HR or finance processes and operational processes, we've now got essential playbooks across the enterprise. And so with that, we can do so much more than ever before. And so we can move products across our facilities. We can leverage supply chain. We can implement pricing changes much more effectively than in the past. And so I just feel like we've got much better visibility into the levers that we have to create value. And then I feel like we can execute far more effectively than ever before, and all of that is a result of the Flowserve 2.0 efforts that we've been doing now for about 3.5 years.

Yes. It's amazing that it's been that long. I remember that Investor Day. And...

Some days, it seems like 10 years, Joe. But others, it seems like it flew by.

Man, time does fly. I remember also, as part of that Investor Day, how there was a -- like a decent amount of like the Flowserve 2.0 initiatives, almost 60%, I think, were tied to growth, right?

Yes.

There was a portion on growth, a portion on cost. And I guess, maybe talk to us a little bit about like what you've done on the growth side to improve your opportunities? And why you think you'll be able to capture your share maybe more in an upturn?

Sure. Yes. So originally, we wanted to balance the portfolio of projects, kind of 50% cost, 50% growth. We did that in 2018 and '19, and solid results on both sides. 2020 was 100% focus on the cost side. We cut it down on the growth, shifted our efforts and resources on to the cost side and really just tried to get through this incredible downturn and protect our folks and do all the right things. And then now as we kind of reemerging after the 2020 and where we are today is we're now back on the growth things or the growth-focused initiatives. And just to spotlight a couple of them, and a lot of them are blocking and tackling. But if you go back to what I said with disparate operations, disparate divisions, we weren't leveraging our portfolio at all. And so one of the things that I talk about is this power of the pure-play in providing holistic flow control solutions and we're doing that in a much better fashion than ever before. And so now we leverage. If we've got a pump opportunity, we make sure that's in our CRM system. We didn't have that before. So now we know what the valve opportunity is on that same project to that same job. We've got our CO folks involved in that as well and then our aftermarket team to provide support. And so we can do a lot more by collaboration there and really leveraging the products that we have. And then even -- and I'll get -- we'll get to RedRaven, I'm sure later, but then you throw that on top of it and it starts to really connect our whole ecosphere in all of our products. Then other big one is our commercial intensity program. And really, the best way to describe that is just good hygiene on the sales side. So similar as our operations where we created playbooks and really wanted to follow kind of best-in-class manufacturing discipline, it's the same way with our commercial teams. And so this is just proper account management, proper incentive plans and then really starting to understand what those pursuit strategies would be with different customers and different sites. And that has been a real uplift for us. We didn't see it last year in the downturn, but a lot of our market share gains in '18 and '19 were on the backs of the commercial intensity program. And we feel that we can carry that forward as we go into 2021 and beyond.

So maybe just talking about a couple of those points, Scott. So at this juncture, you feel good that you have, whether it's enterprise like ERP system across your portfolio, where you can see where the opportunities are and -- because I remember that being a big issue a few years ago.

It's a big issue.

It's just not even being -- yes. And so that's my first question. The second question is really just around -- you mentioned the sales folks. I'm just curious like if we do see a nice upturn, right, and a nice inflection, how do you feel about like your labor capability today, whether it's on sales or on the manufacturing floor and being able to respond to a volume pickup?

Sure. So let me talk about the enterprise systems first. And so this was an area that was underinvested pretty significantly at Flowserve. We publicly stated that half of our CapEx is going to IT, which you typically would not want to be saying, but it's the reality, and it needs to be the focus area. So we've made great progress, right? So we've been doing kind of half of our full capital now for the last 3 years, and we're making great progress. And so today, we have got enterprise-wide systems that are sitting over the top of our ERP systems. So I think CRM, right, the customer relationship management, we have that in place, and our entire sales force is now connected. We have our engineering teams connected through PLM or product life cycle management, and then we've also now implemented our -- kind of our future system, if you will, it's SAP, S/4HANA. And we've got our ERP systems connecting into that, and we've got great visibility through the cloud that we can actually see everything regardless of the ERP platform. Now what we are doing is we've begun to rationalize the ERP systems. We've made really good progress. We've done -- we probably eliminated 25% to 30% since I've been here, but we need to get out another 25% to 30%. And so there's still more work to be done and there's some heavy lifting on that. But we've got a road map. It's a 5-year plan to do this. And we feel very good about when and how we'll execute. And in fact, even in 2020, we were able to test, validate our new ERP design and implement in 2020 without any problems. And so we feel really good about our capability there. But what I would say is -- when I got here, it was really difficult to get operational data and get it pulled up into a manner that our business leaders could, one, assess the situation; and then two, make good decisions. And we don't have that concern anymore. And so with our cloud-based kind of system that sits on the top and the systems that are enterprise-wide, we've got the ability now to pull data into different tubes, project it with Power BI and Tableau. And so we feel really good about having the visibility and the ability to enact change and do the right things with the business. And then on the ability to leverage the upside, we feel good about that. And so we did take a pretty significant chunk of cost out of the business in 2020. We talked openly about $100 million of cost and half of that was structured, half of it was variable costs. As the year went on, I would say we're probably more like 70% of structural costs that came out. And so we feel very good about not having to put that back into the system. And so we were up 15% in bookings in Q1. We are talking about very surgical adds in head count to support the quoting activity and some other activity. But I think, Joe, one of the beauties about Flowserve 2.0 is that we always said, we want to have an operating model that works in a down cycle, but then also that we can leverage into the up cycle. And so just like we talked about decrementals last year, I'll be very happy to start talking about incrementals here like we did in Q1. And I think we're going to have really good leverage as we grow our way out of the pandemic-driven downturn.

That's super helpful. We want to go down that path on margins in a second, but we're getting a question in from the audience, so I'll just read it. This person is asking if you think the sequential bookings benefited from customers ordering ahead of inflation or it's supply chain issues?

Sure. There might be a little bit of that, but typically, our customers aren't going to pre-buy on inflationary concerns. And so for us, what we saw, most of the bookings increase was in -- we've got our bookings segmented by OE, or original equipment, in aftermarket. A lot of our bookings came through what we call MRO, and they're actually showing up in the operating -- or in the original equipment side, but they're typically replacement pumps or replacement valves. And so that's what we saw the uplift with. It wasn't big projects. It wasn't necessarily people buying ahead of inflation, but it was more on a need base, right? And so a lot of the customers that we saw were running at higher levels. They had cut back on their maintenance and really clamped down hard on spending, and they just couldn't do it any longer with the higher utilization rates. And so we saw a good uplift in all geographies, and we saw this almost across the board geographically. Our general industry was the biggest bucket, and I think -- of increase, but I think that was off a low compare in Q4. And then it was also just the fact that these were much smaller orders. And a lot of times, in the smaller orders, our sales force will just categorize them as general industry because they're going through distribution or others. But I really don't see a whole lot of this is pre-buy on the inflation side. And I talked to our customers quite a bit. None of the -- nobody has indicated to me that these were preorders at all.

Yes. No, that's helpful. I guess, Scott, I think your question really kind of just tries to get at, more than anything else, is the sustainability, right? And the ability like -- because I think a lot of folks have been surprised by the sequential uptake. And I think about the first quarter, and clearly, Texas, you guys are based in Texas and went through the storms in Texas, and that probably added something. But it sounds to me like you feel pretty good about the confidence that you can stay in that $900 million to $950 million range for the upcoming quarters because of deferred spending. Is that a fair statement?

Yes, it is. And in fact, it's exactly what we said last week on the earnings call. And so we feel good about Q2 visibility being somewhere in the same ballpark as we were in Q1. Again, we won't spiral up off this number, not in Q2 or Q3. And so we feel good at that kind of the 9 -- low -- mid- to low 940s for Q2 and Q3. And then I think what's going to be interesting is we start to see projects move again, and there's a lot of discussion about project approvals, funding and moving through the pipeline. And as those start to progress, then whether it's Q4, Q1 next year, then you start to see kind of another step change in our bookings as we start to layer in these larger projects that are typical in our business, but we haven't seen them now in over 12 months.

Yes. And maybe just along these lines around like deferred spending. Emerson talked about how both turnarounds and outages were basically all out through the rest of the year, right? And when I think about turnarounds, at least for them being a higher dollar, potentially higher-margin piece of the business versus outage work, which sometimes are a little bit more like unplanned. How are you -- how does that affect your business? Like what are you -- is there a distinction that you see across your business on the pickup being from like planned turnarounds versus outages?

Yes. So on the planned turnaround for us, so it's different on pumps and valves for us. So on a planned turnaround on the valve side, they'll take the valves out of service, we'll provide refurbishment or we'll actually put a life valve -- new valve, but like what they had before into place. And so on the valve side, we work closely and we partner with them, and the more upfront planning we can get, the more helpful we can be on kind of what needs to be repaired versus replaced and avoid any major disruptions. On the pump side, there's typically, on the critical pumps, a sparing philosophy, and so they're typically taking 1 pump out of service and maintaining that while the facility is still up and operational. And so planned on -- so planned outages -- sorry, planned turnarounds for us on the pump side aren't a huge opportunity. We'll get some work, but it's not as significant as the valve side. On the unplanned outages, though, that's what we get called on the pump side, a big job. And so if they have something down and they didn't plan for that, then they need help immediately. And our pump team gets -- we spin up very quickly on that. And those are typically good opportunities, but it's on the back of problems with our customers. And I'll just say, the February storm was a great example of that, right? So we had unplanned outages across over 30 different installations that we cover. We -- because of our proximity with the QRCs, because of our relationships, we typically get first called, and we were out there with our teams at their sites, doing some pretty remarkable work to help them get back up and running. We publicly said at our Q1 call that, that was worth about $20 million for us in the quarter. And then we still got some follow-on work that will help us here in Q2 as well, kind of a similar level to slightly smaller though.

Okay. Yes, that's helpful. Maybe going back to the investments. And yes, the 50% of CapEx investment going into IT, I hear you. So -- but you have this funny side...

Probably not that we want to be talking, but it's the reality of the situation. And I do think it will ultimately help us be far more productive, so it's the right thing to do.

Yes. And I guess maybe just -- I guess 2 questions. So first, when does that start to tick down for you guys longer term? And then secondly, another area that you've invested in, you've talked about RedRaven, maybe just help us understand that opportunity in that platform, your digital IoT platform?

Sure. Yes. On just the straight IT stuff in the enterprise IT systems, we're spending roughly $30 million to $45 million a year -- probably $35 million to $45 million a year. We'll continue to do that for at least, gosh, it's 3 to 5 more years. There's no change in that. And so that's the path that we're on there. I think on the good news of that is that before I got here, the company was typically in the $130 million range on CapEx, and we've been well below $100 million now, really since I've been here. And so I don't see us changing, kind of $90 million to $100 million is a good range for us. And if we spend half of that on IT, then that's going to help us in the long run. And then on kind of the RedRaven in the IoT side, we are really excited about our capability there. And so in January, we launched the RedRaven platform. We've been working on this for probably 5-plus years, where we've been instrumenting our pumps and valves, taking that data and really starting to do the right thing on the analytics side of what can we do with the data that would be helpful and provide solutions for our customers. And so we've got a full range of capabilities. It's essentially a menu for our customers now, but we can do all of the monitoring to give status on flow, uptime, energy, whatever. We can also do prediction on failure modes. And so when you think about what are operators interested in, they certainly don't want disruption. They want you back to unplanned outages, right, that hurts them badly. And so they want to know what the status is and they want to be able to make sure that they can continue to run. And if we can do those 2 things and provide help, then we're providing an incredible service and solution for them. And then what we're also trying to do now is incorporate some of the things around energy transition into our IoT platform. And so we can actually monitor energy consumption. We could potentially get to carbon emissions as well and then we think we can tie that whole system into some of the things that we talk about on the energy transition. But we launched in January, we had revenue and orders before that with the pilot sites. But what I'd say that's really exciting is every week since the launch, on average, we signed up a new installation or a new customer since launch. And so we can keep doing that, and we're going to make great progress. And we've got some really good customer partners that are willing to kind of be true partners with us, collaborate on solutions and allow us to continue to improve our offering here.

That's really great to hear. And you mentioned it, just the energy transition. Historically, you've had like a decent amount of exposure to oil, gas cans, and I don't think that folks necessarily think of you guys as potentially participating well in the transition. However, in your opening remarks, like you seem really excited about the opportunities that hold for you. So maybe talk about some of those opportunities, like how much of your business today is tied to clean energy? What do you think that could be in the next 10 years? Any specifics around that would be helpful.

Sure. This is a space that's evolving and changing incredibly quickly. A year ago, I would have said it was a headwind, for sure. And then what we kind of -- we started looking through this all of last year and really understanding our portfolio and our customer needs. And today, it's -- we feel solidly that this is a significant opportunity for Flowserve. And so where we can help is we've got pumps, valves and mechanical seals. And as we think about where the world is going and what needs to happen, right, and reduce decarbonization and reducing carbon, reducing the energy footprint and then developing clean alternatives to energy. The first 2, we play a major role, right? And so in any installation around flow control, they're consuming energy, right? So whether it's a desalination plant or a refinery, a chemical plant. And we believe by using our IoT system, monitoring properly and bring our flow control expertise to the table, we can help them on energy consumption. And if we can drive their energy consumption down, then, one, it's going to save them money, and that's one way to afford it. But two, it starts to check a lot of boxes on their ESG strategy and their public commitments around what they're doing on carbon reduction and obtaining their goals. So we're getting incredible traction on the ability to help with energy efficiency. And then we've been doing carbon capture and sequestration now for probably the last 7 or 8 years. We've got a couple of customers that we're partnered with. We've talked about our developments on our SIHI liquid ring compressor and we've got proven technology. And so we've been doing this for a couple of years, and we feel like we can scale that up and continue to do more. And so not only can we help on the energy side, but we can start to provide carbon capture and drive things back and keeping that carbon in the produced fluid rather than having it leak into the environment. And so we feel good about those. And then when you look at our portfolio around some of the other things that are happening, concentrated solar power is a great new clean energy form. To do that properly and most efficiently, they use molten salt as the medium that retains the heat. And our valves and pumps work incredibly well in that difficult and harsh environment. So we have some technology collaborations going on there. We have some partnerships as well. And those are pretty good opportunities for us when they build new big concentrated solar power facilities. So we've won work in the Middle East. We've won work in Europe. We've won work in the U.S., and we feel pretty good about our position there. And then as we transition into other forms of energy, right, if you go hydrogen or these other things that are happening, we believe with the flow control expertise that we can ultimately leverage our portfolio to get more into these other clean forms of energy. And so this will take product development and some research on our side, but we're committed to doing that. We're already involved in a couple of collaborations, and we feel very good about our ability to participate and even some of the things that are untraditional for Flowserve, but applying our full control technology and expertise into these solutions.

That's great to hear, Scott. And I'm glad that the perspective has changed in the last 12 months. I think maybe kind of shifting gears and just talking a little bit more about margins, right? And we talked a little bit about the cycle and benefiting from it. You have a long-term target out there of 15% to 17%. I guess the short question is, how do we get there from here? And how much of it is going to be volume-dependent?

Sure. Yes. It's interesting. These are targets we laid out at the -- in the -- or the beginning of 2018, and then we've reconfirmed them at the end of 2020. We still feel like that's the right target for Flowserve, the 15% to 17% on the operating income. We've got some work to do there. We were making nice progress in 2018 and '19. 2020 did not help us on our journey. And so we've extended the time line to get there. But again, go back to what we talked about on Flowserve 2.0, the ability to leverage our enterprise, leverage our supply chain, do a much better job on the manufacturing, the productivity side, drive cost out of our products. I feel really good that, that's the appropriate and right target for us. You'll see our margins start to move up as we grow and leverage some of the cost out and the structural changes that we did in 2020. We know we have to get -- the SG&A has never been good at Flowserve. We feel really good about getting that now into that kind of 20% or lower. And so we'll be at a much better place to leverage the SG&A. And then I think with the changes that we did last year, we'll be able to start to move this up. And again, I just think 15% is a good number, and we're not going to stop until we get there and make good progress for this.

Yes. Fair enough, and yes, it's tough to judge. You've -- I'm sure pandemic was not in your planning horizon when you guys did those...

That was not part of the plan.

Price cost, I mean this is a topic of conversation across all industrials. It sounds like it was a slight positive for you in 1Q. What's kind of the expectation for the year? And what are you seeing today?

Yes. Sure. Let me -- I'll start with costs, and I'll go to the pricing side and what we're seeing there. Cost is challenging right now, right? So it is definitely an inflationary environment. We're seeing a lot of our kind of commodities that are important to us, like the steel and the copper, the nickel. That's all up and quite frankly, some of them were at the all-time highs. We do feel like that starts to moderate and come down a bit, but we're factoring that in. But when I think about Flowserve 2.0 and just the opportunities we have, the leverage and consolidate suppliers, the work that we're doing there is actually still providing benefits. It just -- and it did offset that inflation. But it's still -- it's just a more challenging environment than what we were certainly expecting. But we were net positive there in Q1. We're optimistic that we can hold that throughout the whole year of 2021, and more of that is just -- it just goes to the opportunities that we had to do some really creative things on supply chain and make good progress. And then for us, on pricing, 2020 was a really difficult time for us to get pricing in our markets. And so as the business started to fall down, folks looked at their capacity and their utilization and just people were desperate for work, ourselves included. And so pricing was a challenge really for all of 2020. Again, super happy to be kind of up this 15% in Q1. And what it does is start to give us confidence about time to ratchet up and get -- move our pricing forward. And I'd just say it's -- each part of our business behaves a little bit differently. The hardest hit part of pricing for 2020 was in our highly engineered pump products. And so big pump projects were highly competitive. Valves did have some impact, but we're actually starting to see some relief there already. And then the seal business is probably the best in terms of our ability to maintain price, although it did come down, but we're able to start to -- I'm optimistic that we'll be able to get back to where we were before as we move through 2021.

I like what you did there with the valve relief comment. But the -- as I think about valves, that's an interesting -- it's interesting. That business just was, at one point, a high teens business -- high teens margins business, right? The margins have fallen, I think the last 5 out of the last 6 years. I guess when you think about that kind of like, one, the longer-term framework, the 15% to 17%, does it presume like FCD has to get back up into the high teens? And then secondly, is there anything structural going on with the business? Because it just -- it seems like it's been much more under pressure than what you've seen in your FPD business?

Yes. So the margin started to change there even before COVID. A lot of that was mix, and there were 2 things on the mix. We had some product mix where we had some really high-margin products that just, with the energy collapse in 2014, didn't come back as much as we had seen historically. And then the other mix was just projects versus MRO. And so really, over the last 2 years, we saw the project business pick up or really kind of pre-COVID, but project business picked up pretty significantly, and that MRO business wasn't the same. And so I don't want to make excuses, but we had 2 kind of headwinds on mix within the valve portfolio itself. And that kind of all culminated and really hit our margins pretty hard in 2020. But as we kind of think forward, right, our bookings, and we talked about this on the call, the valve bookings were heavy on the MRO side. So that's a positive or a tailwind now for margins. And then the other piece that we feel pretty optimistic about, we haven't seen this yet, is this distributor kind of destocking phenomenon. And so our big customers and valves are at the lowest stocking levels that we've ever seen in their business. And we feel pretty good that, that changes. And so we're now getting orders from them. We're just not getting those big stock orders. But as their -- as they get more confidence in their markets and things start to pick up, we feel like those stock orders start to come, and that's a real tailwind to us. A lot of those products have a higher-margin profile, certainly than our big project work. So look, we are very -- our valve team knows exactly where their margins are. They know what the expectation is. It needs to be in the mid-teens at an absolute minimum, and I'm really confident that we start to make progress toward that, and it should turn relatively quickly as well.

Yes. That was a super encouraging comment coming out of your conference call. MRC, I think your inventory level is the lowest levels in 7 years or so. That's great to hear. Maybe we'll kind of end on that note. Scott, really great having you on. Thanks for participating in our conference, and hope you have a great rest of your week.

Great. Joe, appreciate you having us. Thank you to you and Goldman Sachs. And for everyone joining today, just appreciate your time and hearing our story.

Take care, Scott.

All right. Bye-bye.