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

Thank you, Paulette, and good morning, everyone. We appreciate you participating in our call today to discuss Flowserve's third quarter 2017 financial results. Joining me this morning are Scott Rowe, Flowserve's President and Chief Executive Officer, and Lee Eckert, Senior Vice President and Chief Financial Officer. Following our prepared comments, we will open the line up for your questions. And as a reminder and as Paulette said, this event is being webcast and an audio replay will be available. Also note that our earnings materials do and this call will include non-GAAP measures. You can review the reconciliation of our adjusted metrics to our reported results prepared in accordance with generally accepted accounting principles in both our press release and earnings presentation. Finally, this call and our associated earnings materials contain forward-looking statements, which are based upon forecasts, expectations, and other information available to management as of November 2, 2017. These statements involve numerous risks and uncertainties, including many that are beyond the company's control. And except to the extent required by applicable law, Flowserve undertakes no obligation and disclaims any duty to update any of these forward-looking statements. We encourage you to fully review our Safe Harbor disclosures contained in yesterday's earnings materials, including in our Form 10-Q filed yesterday, which are all available on our website at Flowserve.com in the Investor Relations section. I would now like to turn the call over to Scott Rowe, Flowserve's President and Chief Executive Officer, for his prepared remarks.

Thanks, Jay, and good morning, everyone. I'm very pleased to have Lee with us today after only being in the role for a few short weeks. I'd also like to thank Jay for his time as the interim CFO for the last eight months. As we noted in yesterday's press release, Flowserve's third quarter adjusted earnings of $0.37 per share were largely in line with our expectations. While the results were essentially what we expected, they certainly are not where they should be or where they need to be. The performance of the IPD platform continues to be the largest issue for Flowserve with negative operating income in the quarter. Our aftermarket franchise continued to demonstrate its resiliency by delivering year-over-year and sequential revenue growth with bookings essentially flat, despite the disruption and business delays in the Gulf Coast related to the Hurricane Harvey. After six months in the role, I am pleased with the actions that we have taken. While there is significantly more work to do, we are making changes and I believe we are poised to accelerate the transformation that is needed here at Flowserve. Here are a few of the areas where we are making progress. The new Flowserve leadership team is taking shape. In the last 90 days, both David Wilson and Lee Eckert joined the company. I'm very pleased with David's early progress in IPD and I have no doubt that he will lead the turnaround of this platform. Lee became our CFO just a few weeks ago and he is already digging in and asking the right questions. I'm convinced that Lee will be a great partner for me and someone who can drive significant change and create value here at Flowserve. In addition to David and Lee, we further built the team…

Thank you, Scott, and good morning, everyone. Before I walk through our third quarter results, I would like to take a minute and let you know how pleased I am to be taking over as CFO at such an important time in Flowserve's history. As many of you know, I joined right after the third quarter ended, so I've only been here for a few weeks. I was attracted to this role because I recognized the current challenges, the need for change, and the significant opportunities available at Flowserve. I truly believe I can make a meaningful impact. Scott made it clear to me during my recruitment at Flowserve, that Flowserve has terrific attributes to work with, including extremely talented and committed workforce, a strong brand with customers, and a global footprint and install base that is market leading. In addition, Scott highlighted the significant opportunities that exist to improve the operating model and our financial results. After my short time here, my initial observations align with Scott's assessment, and I look forward to working closely with the leadership team as we embark on the Flowserve 2.0 journey to drive change and improvements, to deliver sustainable and profitable growth and value to all our stakeholders. With that background, let me turn to the numbers. For the third quarter, reported and adjusted earnings per share were $0.36 and $0.37 respectively, in line with our expectations. On a reported basis, EPS included adjusted items such as gains on business divestitures and income from below-the-line currency, which were largely offset by $0.11 of realignment and $0.01 of PPA. As we indicated in the press release, both reported and adjusted EPS were negatively impacted by $0.04 for certain discrete accounts receivable and inventory reserves. Third quarter revenue was slightly below our expectations, down 6.6%,…

Great. Thanks, Lee. As some of you know I had the opportunity a few weeks ago to spend time with many of our shareholders and analysts in New York. During my presentation, I introduced a vision for Flowserve 2.0, which is really about transforming our operating model, while capitalizing on the foundation the company has built over the previous 20 years. The current decentralized and entrepreneurial organization delivered well in the prior periods of cyclical growth, but as we've experienced recently, the model presents challenges and down cycles as it limits the ability to quickly scale the business and leverage the entire enterprise. While we're still finalizing the work of 2.0, we expect the outcome will position Flowserve to better capitalize on its scale, operate as a single enterprise and provide more value to our key stakeholders, our customers, our employees and our shareholders. No one is satisfied with the current performance of Flowserve and my leadership team is fully committed to driving the necessary changes to transform Flowserve. I've spent the last six months visiting customers, plants, QRCs and with our associates to better understand the challenges at Flowserve. We have a clear vision of where we want to be and we're developing the plan to get us there. I don't want to understate the magnitude of this change as we overhaul each of our functions and how we run the company. This will require changes around our people, our processes and the systems and tools to conduct our work. This change will take time and will be a multi-year program. However, we are making decisions and taking action each and every quarter, and I fully expect that our efforts will materialize in our financials. For those who work with us in New York or weren't able to listen…

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

Good morning, guys.

Good morning, Andrew.

Scott, how long do you think it's fair to expect improvement given new leadership in IPD? Clearly, the bookings have stabilized and even improved in the segment, so does that mean your delivery issues have improved enough, so the customers are now giving you more bookings and consequently we should see some evidence of improvement here in the business over the next few quarters?

Yeah. I would just say, it's a journey with IPD and we've probably been a little overoptimistic in the last three quarters about how quickly we can turn this, but we're seeing positive signs, right? I'll just start, you highlighted the bookings. And certainly, continuing to keep flat to slightly up bookings is a great sign given our longer lead times and our inability to deliver on time. So, I'm actually very pleased with that. And on lead times, they're now back into the order of magnitude where they need to be. And so, I think we have opportunities to continue to grow this. Now, on the operational side, I've talked before that this is limited to a handful of locations. David and I were there two weeks ago and kind of went through the whole program and what we're doing and we've injected a lot of talent in these locations. And what I can see is that we're clearly making progress there and the problems have now shifted from the frontend of our manufacturing process now into the supply chain and the delivery. But it's very clear that we're working our way through this system. And so, I have a lot of confidence in David and the team in making this happen, and I've seen the progress firsthand. And the question just is, when does that translate into the financials? And I just think it's not a giant step change every quarter that we get substantial results. But we will start to see improvements and we should see those quarter-over-quarter, but I would say, it's a gradual progression and not major step changes.

Okay. That's helpful, Scott. And then you mentioned that in your prepared remarks that you're still optimistic about growth in 2018, but you also talked about bookings remaining muted for longer at least through the end of the year. Aftermarket has obviously been more stable. So, could you talk about your confidence level that you can grow constant currency and revenue in 2018. (24:39) talk about it, but any color you could give would be helpful.

Yeah. I'll just start with, bookings were not great in the third quarter and that's going to give us a little bit of challenge and headwinds on revenue into 2018. You said it but the aftermarket continues to – at that foundational level of $450 million a quarter and so that's exactly what we need. We talked about IPD bookings being stable. What we didn't get in the quarter were really the OE bookings on the EPD business. And it's a project business, as everybody knows and we didn't – we weren't able to bring in the project in this quarter and what we're seeing is a lot of those bigger ones that we're tracking are now slipping out into 2018. So, it really just depends on the timing of those bookings. If we can get those early in the year then we can translate that into solid revenue in the back half of 2018. But that's what we're watching. And, I don't think – I think our teams were focused. We didn't lose anything major in the quarter and in fact year-to-date, EPD is essentially flat 2016 to 2017, but we really need to sharpen our focus and we want to start to grow that EPD bookings base. And so, we're going to be focused on what we should win and get the teams highly motivated to do that with incentive plans and making sure we have the proper reviews and the proper guidance to go out there. But on the general market side, I think that we're seeing traction. We're just not seeing the projects get to FID within Q3 or even potentially into Q4.

Have you seen any improvement in the markets themselves as oil has improved here or not yet?

Yeah. I think we're seeing stability. I'm not seeing improvement. Now the upstream oil and gas markets particularly in North America are doing quite well. But our product portfolio, we've just got a small offering in that space. And so in that space, we're seeing growth, but it's such a small percentage of our business that it's not moving the needle overall. But, no, I think traction with oil between $45 and $55 is something we need, and that's going to drive – ultimately drive bookings growth for Flowserve across most of our platforms.

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

Thanks. Good morning, guys.

Hey, Charlie.

Hi, Charlie.

Can you just elaborate a little bit about – on the commentary about as we look towards 2018, some additional restructuring? And what really you're doing to drive the SG&A expense down? And what extent can you do that given, kind of, the volume level that you're running at right now and probably when you run into at least the first part of 2018?

Sure, Charlie. So, SG&A is obviously a problem. We have been working at it. There's been actions historically and then since I've been here, we've taken actions as well. What I'm seeing now is we're getting to the point we keep taking cost out and I keep asking for more cost to come out. And it's just – it's becoming more challenging without through process change and potentially systems change. And so, I'm not going to say that we're not going to keep working on this, but we're not going to get the true leverage we need until we start to fundamentally change the way we do things. And so that's part of this Flowserve 2.0 that we keep talking about. And I just – I don't know – I know we don't like the SG&A position today. What I don't know is how far we can get to without doing the structural and process change. And so, we're in the process of developing that now function-by-function and what are the actions and the changes that we need to make to ultimately get the SG&A reduction. But we're very focused on this. We're in the budget process now and we've got some pretty hard goals to try to attain. But we keep nibbling around the edges, and now, we've just got to focus on process change to get the bigger prize.

Okay. And then kind of turning to the commentary on the large projects that are out there, can you – I mean, are those kind of $10 million to $25 million size, or are you looking kind of even larger than that from a target perspective?

No. Sure. What I was meaning before, I was really trying to quantify it at over $10 million. And so, in the quarter, we booked – we had one project that was kind at the $9 million to $10 million range. We had nothing greater than $10 million. And when we look forward, anything – when I say large projects, I'll say it's probably over $10 million. We're not seeing a large volume that we expect to book in the fourth quarter, but we are building our project, our large project list into 2018. So I would expect awards in Q1 and Q2 of the large project nature.

All right. And can you just go back to the working capital commentary? We had working capital targets put out there in the past on different iteration of restructuring for the past seven or 10 years. What's kind of the current thinking on where working capital ought to be and kind of maybe a timeframe to get there?

Yeah. This will be a good one for Lee, and then I'll jump in on the back of his.

Yeah. Thanks for softball there.

Softball for Lee.

Hey, listen. It's obvious that working capital is not where it needs to be when receivables are 86 DSO and inventory is turning 2.5 times. That's clearly not acceptable. When I was going through the interview process, so I made the insightful comment to Scott that his working capital is not where it needs to be, and he agreed. So, listen, it's going to take work like everything else. I think on the receivables side, we're providing, I would say, more of an enterprise view and looking at our receivables, collections and our processes across the portfolio. For the fourth quarter, we've launched a process where, every week, I have a team coming in and discussing progress on past due and what we're doing, what we're trying to do to collect receivables that are about to be issued and driving transparency and systems around it. Inventory, it goes back to Scott's remark. It's really a reflection of how the business is run. Scott's mentioned in the past, the business is operated like a bunch of stand-alone businesses and not an integrated enterprise. There's not an integrated, what we call, an SOP process. And to get true inventory performance, to shift it to your classic 10 turns, for example, we've got to reengineer how we do our forecasting, how we do our buying, what the safety stock levels look like across the enterprise, and drive intense focus around it. Right now, inventory turns are not necessarily in the playbook, and that's something we need to build across the enterprise. So I suspect we will probably make quicker improvement on receivables. Inventory, it's going to take more of a process change.

Yeah. But, Charlie, there's no doubt about. There's a couple hundred million dollar prize here that we just got to start attacking. And we're going to start with receivables. It's a hard drive because it's not just customers not paying us, it's things that that we did where our documentation wasn't straight, or we didn't deliver the right quality program to them or something. So we're working now to go through all of those issues and start to collect on a lot of receivables that are outstanding. And so, that's what Lee's leading. He's got a weekly call and it's going to be a lot of hard work, but it's leadership led, and we'll grind through that and make progress. On the inventory side, there are some quick wins there with just the discipline and the focus, and we're tracking the right metrics there. But it's also going to require a lot of training and a lot of process change to really get the benefits that we want and get the inventory turns in a ballpark that make a lot more sense than they do today.

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

Hi, Nathan.

Hey, Nathan. Nathan Hardie Jones - Stifel, Nicolaus & Co., Inc.: Just like to follow up on the working capital question there. It's clearly been out of hand for a number of years at Flowserve. If you go back about a decade, you had about 20% of sales in working capital. You're up to about 40% now. Is there something structural that would stop you getting back to that 20% level over time, because that's more of a prize than the $200 million that you were talking about there.

Look, Nathan, it's going to be a journey, but I think 20% of working capital for the nature of this business is a good starting target. So I don't see any reason why we shouldn't have the ambition to get there. And I said a couple hundred million, not two. Nathan Hardie Jones - Stifel, Nicolaus & Co., Inc.: Okay. A couple must not be $200 million. Another question – another comment that you made in your opening remarks was focus on the most important KPIs. Can you maybe give us a little more details around the top three, four, five KPIs that you guys are focused on internally?

Absolutely. And so, I mean, we've got a handful of operating KPIs and then the financial ones. I'll touch on financials; if you want me to go to the operating one, we can. But one of the big things that we started was just revenue predictability. And so, it sounds a little basic, but really setting the cadence that says, this is the revenue that we expect at the beginning of the quarter, and this is how we're going to achieve it month-over-month, is something now that we are locking in and making sure that we obtain that. And then, going through the P&L, revenue is the number one thing and then we're looking at the controllable spend by each of the platforms. So the amount of cost that they control at the platform level plus the functional level. And then we've added in the accounts receivable and the inventory position, which ultimately gets us to the cash flow. And so, really it's around revenue predictability. And then it's the costs that they can control. And then the two that are driving cash flow. And that's the ones that we're most focused on. We've got a secondary group and a longer list as well, but those are the ones that we're spending a lot of time on right now. Nathan Hardie Jones - Stifel, Nicolaus & Co., Inc.: And on the operational side?

Yeah. On the operational side, it starts with safety for me. So we've got a big safety focus and we track safety in a number of different ways, but we spend a lot of time talking about the safety metrics. And now, from that, we look at our – how do we perform with our customers, so it's our on-time delivery and the past-due backlog. And we're getting more sophisticated in that past-due backlog to say how late are we and how aged are we and how do we work through that. And then we've got nice quality metrics that we're looking at to make sure that we deliver the right products to our customers, and when they get there, they're actually working.

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

Yeah. Hi, good morning.

Hey. Good morning, Scott.

I wanted to talk a little bit more detail on this EPD bookings number, which if the aftermarket was kind of flattish for the company would suggest that the OE bookings in the EPD were down closer to 20%, 15% to 20% call it. I guess my question here is that, we've been seeing the bookings in this business down pretty big for more than two years. And I guess at this point, I would have thought that there would have been sort of an in-quarter plan B developed by sales. And certainly that has not been the case because these bookings decelerated again this quarter. So, it would seem to me that, that's got to be a front-and-center focus for you. It's your biggest business with the worst bookings. So maybe talk a little bit about, Scott, why this number was as bad as it was and kind of what you're doing about that today?

Yeah. Sure. No, I mean we said before, we had one booking that was around the $10 million mark and that was it in that business. And so, that's not sustainable and it's not where we need to be, but it is a project business. And so we track projects. We didn't lose any major ones in the quarter that we were targeting to win. What we're seeing is that, they're just being delayed and moved out into 2018. But I would agree, right. This is now something that we're watching very closely. I'm having a lot of discussion with the leadership on both the sales side and the platform side. And we've got – not only do we need to win the focus projects and the large ones, but there's a big base business here, right? So, this would be kind of the less than $5 million awards, and we make pretty good margin on the smaller bookings and smaller numbers there. And so, a lot of the focus and attention and discussion with me has been how do we make sure that we are winning our entitlement on that base business. And so, these would be replacement pubs, brownfield expansions, and things like that, that we are seeing continuous spend from our customers.

Scott, the one thing I would probably go ahead and add to that is, yes, the quarter EPD, OE bookings was certainly soft. But if you looked at it on a year-to-date basis, EPD OE bookings are actually up 1% constant currency.

Well, I do understand that, Jay. I guess that we've seen this before and my point again was that I guess, during the quarter, I would have hoped that by now, there would have been sort of a plan B to this. And I guess more specifically, customer acquisition, new market penetration, pulling different levers just to make sure that we don't – because now, this affects one to two quarters out. So, now then you have problem here and now you have a problem two quarters from now. And I guess I just thought that your sales guys having seen these push-outs before would have, at this point, had developed a sort of a, as I say, again a plan B to kind of mitigate some of that. It looks like EPD's journey into distribution is actually working. I guess I don't fully understand why even though it's a project business why we can't bust out our addressable markets there? And makes me wonder if you have enough intelligence to go after the – identify the projects so you can go after them in the first place?

Yeah. No. I agree with you. It's a concern and it's a large focus for us going forward.

Okay. Well, can we maybe just turn to a quick one? The flow control margins, kind of maybe tell us what happened there this quarter?

In terms – I mean, so we came up slightly from where we were in Q2. So, Q2 had a little bit of an unfavorable mix and then I'd say in Q3, we started to rebound with a better mix of products. So, primarily, our higher margin, some nuclear shipments and some other large projects that we had juicy margins on it came through in the third quarter. But I think it's just as simple as mix and you just – I would just blend Q2 with Q3 is probably the best way to look at it.

Well, I guess, what I'm saying is that it was essentially flat in the first quarter, down 200 basis points in the second quarter and down more than that in the third quarter, flow control.

Year-over-year, that's true and mix would be probably the biggest explanation.

So, you're saying mix is negative because I thought I just heard Scott say maybe it was improving.

Yeah. I'm sorry. I was talking about sequentially from Q2 to Q3.

Yeah. It's improved sequentially but year-over-year predominantly mix.

Okay. Thank you.

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

Yeah. Thanks. Good morning. Obviously, it's been nice to see the aftermarket be pretty steady here for a while. What do you think it's going to take to get that breakout to a higher level? That requires the increase in sales of OE or can it be some other fundamentals getting that to go better or something strategic.

Sure. Certainly, the more installed base that we have out there, the faster our aftermarket business is going to grow. In addition to that, we just need operators to free the first strings on their turnarounds and in some of their investment in refurbishing the facilities. And so, we're optimistic that that happens at some sort of time. We've got a little better visibility to turnarounds into the fourth quarter and into 2018 than maybe we've had in the past. But at this point, we don't have anything that shows that we're going to drive substantial growth in this business and then in the next two or three quarters. But I just think at some point, right, we had pent-up and reduced spending on the maintenance side and at some point that catches up to folks.

Okay. And then as it relates to technology, when do you think we could start to see the initial impact of your focus on this and what do you envision for the role of digitalization and data in your offerings?

Sure. So technology is important to me and we really want to keep the Flowserve name as the technology leader in this space. And so, we've reorganized the marketing and technology group and we're putting a lot of focus and effort on really understanding what markets we should play in, where do we want to invest in our technology, and then what's that product that best serves in that attractive market that we want to pursue. So we've just launched this organization in August. What I will say is on the valve side, we've had some real nice technology moving through the system previously and we're actually starting go-to-market strategies on two to three different product lines in 2018. So we should see some early results there as we move forward. And then on the digital side, we do have an offering around condition-based monitoring in Internet of Things. And we feel pretty good about what we're presenting to the market. But it's – right now, we're in the concept and the prototype phase. And so, we've got a couple of systems now working with some preferred customers, and we need to get to the results of that prototype testing before we're ready to really talk big about what our ambition is or what we're trying to do. But it is something that we feel is important in this space. At the end of the day, in major refining and petrochemical installations, reliability and uptime is really what they are after that drives significant economic advantage for our customers. And so, if we can deliver a system that is providing better reliability, we think we've got something that really differentiates Flowserve. And so, it's a big focus for us. We have some pretty slick technology there. We're in the prototype phasing, and I'd just say more to come on what we're going to do in that space.

Thanks a lot.

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

Hey, guys. Good morning.

Hey, Andy.

Good morning.

Hey. I'm just going to go back to this EPD OE orders. And the question I have, historically, when I spoke to you guys, the issue was EPD and the value is that you have very complex value streams. And I think the reluctance to really restructure this business had to do with the fact that it's just hard, right? It's very complex, and that's where a lot of value the Flowserve has comes from this complexity. And I guess the question I have historically, if I looked at Emerson Process orders, if I looked at SPX Flow orders, if I use the Sulzer orders, you guys were very, very tightly correlated. And the question I have, as you have restructured EPD, do you have a sense that the business is functional? Did you break something? Look, if this is a timing issue, cycle is turning, that's not a problem. But I'm just wondering as you look at the business, is something broken.

Sure. I think that's a fair and a good question. Where we are in the realignment on EPD is still in the very early phases. And so I'm not sure the realignment has broken anything. But what I would say is the bookings are where we want them to be and we needed very much, provided the attention and focus on how to start to drive bookings into this business. It's critically important to us. And so we're working through that with the head of sales and the head of the platforms and to making sure that we've got the right products at the right cost where when these opportunities present themselves that we're winning this business. And then as we're working through the EPD realignment, we've got to make sure that what happened on the IPD side does not happen in EPD.

Terrific. And then just a follow-up question on sort of on KPIs. You sort of mentioned ability to forecast revenues is something you're striving for. How long do you think – if you look at the systems, how long do you think it will take you guys to put in the systems in place that you feel comfortable versus the previous management where you do have a good visibility on revenues? Thank you.

Sure. So, we've already – I mean, I implemented the changes on the operating rhythm and the KPIs in my first month. And so we are seeing progress in our ability to be more predictive about our financial results, and so we're making progress on that. And that's – while it'd be great to have automated systems and everything else, I mean, really it's around knowing your business, understanding what you can do, and then putting realistic expectations on what our revenue and delivery should be. So, that's improving and I expect that to continue to improve as we go forward. Now, we are looking at more advanced systems here, and I'll hold that discussion now. But we do have a fragmentation or a highly variable ERP system landscape. And the idea would be to get to something that's much more harmonious and allows us to manage the business much more consistently than we can today.

No and I appreciate, guys, that you've been inherited a lot of it into tough cycle. Good luck.

Yeah. Thank you.

Our next question comes from James Picariello from KeyBanc Capital. Please go ahead.

Hey, guys. So...

Hey, James.

...just on a regional basis for Europe, I mean, it's almost 25% of revenue. You guys call out that bookings growth last year is helping to drive some nice revenue growth this year. Orders down 18% in the third quarter, just wondering what the year-to-date trend has been on orders in Europe, and is there an air pocket position for next year now? Thanks.

Jay, do you want to – do you have that number, the trend there for the year?

I don't have year-to-date on Europe. Mike, do you?

Yeah. It was up in the first quarter a few percent, down about 20% in the second.

Yeah. So, we've been up in the first quarter, down in the second. And year-to-date, we're going to be down – probably up 5% from where we were last year. So, Europe is a challenge. I mean, so moving projects and business forward in Europe has been a struggle. In addition to that, a lot of the IPD concerns have been in Europe, and we think by fixing that, we've got more opportunity to drive European bookings.

Okay. That makes sense. Did you quantify the impact that Hurricane Harvey might have had in the quarter or maybe on bookings, particularly? It sounds like EPD's aftermarket orders might have suffered a bit from the storm. Thanks.

Yeah. No. I haven't talked a lot about Hurricane Harvey and we certainly didn't quantify it. What I'd just say, specifically it's very difficult to quantify what we got or didn't get from the hurricane, but I'll just give you – I can put it into context for us, though. So we have nine facilities in the Gulf Coast that were all impacted by Hurricane Harvey. Those facilities themselves were offline on average about a week. When we look at our customer base, there's over 400 installations in the Gulf Coast. About 30 of those were certainly impacted with 15 being severely impacted. And then what we saw was customer spending in those locations essentially stopped for about two to three weeks. And so it absolutely was disruptive to us. What I would say is it wasn't anything material for our aftermarket business or in our new business. But there were delays in spending both on the OE side and the aftermarket. And so, now what we're really struggling with is – or trying to figure out is what's the upside from that? Most of the damage though was freshwater, which caused electrical damage and so we're getting some work with our actuation and positioners on the valve side. But it wasn't necessarily the pump or the valves themselves. And so the upside is less than what we were originally anticipating. But we will get an uplift on the aftermarket business here in Q4 and potentially into Q1.

Okay. Appreciate that color. Are the actuators lower mix? Was that maybe the cause of lower margins in FCD despite modest core growth?

No. That wouldn't have changed the entire mix there.

Okay. Thanks.

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

Thank you, everyone. This is David Lu on for Deane.

Hey, David.

Hey there. Last quarter, you cited a target for reaching high-single-digit margins at IPD within the next 12 months, so roughly 2018. Is that still the goal today, and what kind of exit rate do you now expect at the end of this year for IPD?

David, I don't see that substantially changing, right? And so, we've got a lot of work to do to get there. But I think the exit rate needs to be high-single digits for IPD. And ultimately, that business has to be a teens business. And so, we're working hard to get there as fast as we can, but I think exiting 2018 at a high-single digit is something that should be achievable for us.

Got it. And at your meeting in September, you isolated the challenges in IPD to three key underperforming facilities. Can you provide us an update on that? Are those still kind of the main focus for the turnaround? How much progress have you made on those facilities? And were any of these inventory write-downs this quarter related to IPD specifically?

No, sure. It's still three. It hasn't expanded beyond the three. Like I said in my prepared remarks, both David Wilson and I were there two weeks ago and visited all of these locations. And so, I feel good that we're making the operational progress in those facilities. It just hasn't translated to the financial results. And then, yes, the inventory write-down was associated with one of those three facilities.

Great. Thank you.

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

Hi. Good morning.

Good morning, John.

I guess a modeling question here for next year. Is $30 million still the right number for the restructuring drop-through savings to be thinking about?

Roughly, that would be right, John.

Okay. And then, as we think about this part of the cycle, clearly, we're not seeing it in your orders. But as other people alluded to, we are hearing that we're kind of coming off the bottom and seeing a bit of an inflection from your – in terms of the market. What is kind of your normal incremental experience that you've seen as we try to think about calibrating going forward? So I guess the drop-through on kind of the organic ex the restructuring; how do you think about incrementals at this point in the cycle?

So you're saying the margin expansion potential as we grow revenue?

Yeah. Exactly.

Yeah. We have so many issues right now. I'm trying to figure out – fight those fires and try to get back to something that is a little bit more normal and we can think about what a normal margin expansion would be as we go forward. But I mean certainly, as we grow our business, right, we should be able to leverage our cost structure and leverage all the good things that we're doing to expand margin. And so I'm not ready to say what's normal. Right now, what I want to do is stop the bleeding in IPD and fix a couple major issues that are a drag on the financials. And then, as we get into a little bit more stability, then I'm happy to talk about kind of what we think our entitlement is there.

All right. Thank you.

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

Thanks. This is Mike DeLalio on for Rob.

Okay. Hi, Mike.

Hey. So, sales in IPD were down by only $14 million, but the margin was a lot weaker. Can you unpack what drove that a little more specifically?

You're talking year-over-year, Mike?

Yes.

Yeah. So, there's a long list of challenges in IPD. And really, we started to see that there at the end of Q4 and it's come to roost here in 2017. And so, these are our three facilities that, quite frankly, are not contributing at all, and we're working through those operational challenges, and ultimately we'll start to see financial improvement there that drive our results. And so, in the third quarter we were negative, but we've essentially been at the same level now in Q1 and Q2 and into Q3, which is a breakeven or a flat business, which is not acceptable, and we've got to fix these three locations to start to move back into the territory that we were in in 2016.

Okay. And can you disclose the booked gross margins on the order you got this quarter in IPD versus a year ago?

No, we typically don't give that out, Mike.

Can you say if they were up or down?

Well, I think we're seeing good bookings in there. And generally we haven't seen a massive degradation in our ability to get price on IPD. And so, we're – I would say, no major change over the last couple of quarters in terms of what we're doing there. And in fact there's parts of IPD that we're attempting to get price increases and we're seeing a little bit of a traction on a move that we made a couple of months ago.

Okay thank you.

Our next question comes from Joe Giordano from Cowen & Company. Please go ahead. Joseph Giordano - Cowen & Co. LLC: Hey, guys, how are you.

Good. Joseph Giordano - Cowen & Co. LLC: Want to start – I know bookings came in lighter than you'd expect, but I think I heard a couple of times that, overall, this was – the quarter came in kind of in line with expectations. And I just want to reconcile that with a slight cut in the guide and I just want to – how susceptible are we to, like, head fake? Do you feel comfortable now six months in that you have your hands around this for the most part and then there's not going to be another surprise around the corner that maybe it takes time to get materially better from here, but that you've identified all the major issues and that you kind of have things ring-fenced here?

Well, I'll just say it's been a wild six months and so, I'm not going to say I have my hands around everything. I've been operating the company for two quarters now. But I am pleased with – we did deliver Q3 largely in line with what we expected with the exceptions on the bookings side. So, I feel better in our confidence to be predictive on what our revenues are going to be and we're controlling our costs in the fashion that makes sense. The guide down for the full year which is essentially the fourth quarter was really around the IPD turnaround. And I'd say, a quarter ago, we were probably too optimistic on what that looked like and that would have gotten us to the high range of the guide down, and we pulled it down into something that we think is more realistic given where IPD is in this quarter. Joseph Giordano - Cowen & Co. LLC: Okay. Fair enough. I know you're not going to throw any employees kind of under the bus or anything, but when you look across your organization and there are certainly market forces that work to get you to where you are, but some of it has to be people on onsite dropping the ball or not having, I don't know, there's going to be some element of not having enough pride in the work to an extent, and how much kind of reshuffling of people or flow of new talent into the organization have you seen since you've been around?

No. It's been substantial, right? And I have this in New York. I mean my leadership team and the positions that are on our staff today, it's 60% different than what it was a year ago. So, we're definitely taking action and making changes with people. And in my opening remarks, we talked about even at the local facilities we've begun to change out some folks that we think needed to move on and bring folks in that share our common vision and purpose to moving forward. So, I – for me, to start any change, we've got to have the right leadership and the right people that are on board and are willing to do the heavy lifting of doing that change, and we haven't been afraid to put the right people in the right places. Joseph Giordano - Cowen & Co. LLC: Maybe if I could have one more on just the general industrial comment of flat bookings there, I guess that surprised me a little bit. We're seeing – most of the companies kind of seeing an acceleration in that market. So, anything, do you feel like you're missing out on something there or is it just – how would you kind of put that into context?

Yeah. I would say just given the operational issues that we've had, I'm actually pleasantly surprised that we've been able to hold our own on the industrial bookings. So, this is IPD specifically. And so, what I think is as we start to make improvements, we've got our lead times now into a more respectable level of as we earn back the trust and confidence from our customers that we can deliver, I do expect to grow IPD bookings. Joseph Giordano - Cowen & Co. LLC: Thanks, guys.

Our next question comes from Josh Pokrzywinski from Wolfe Research. Please go ahead.

Hi. Good morning, guys.

Hey. Good morning.

Just on some of the bookings commentary that I think you've made earlier in the call about maybe fourth quarter looking a little bit closer to 2Q. Maybe this is a little nuanced. (1:00:12) but if I look at that framework for EPD seems like you would end the year kind of flattish, up a little bit. Orders last year were down 11%, 12% probably where you're going to end up down revenue this year. Is that an unfair way to start thinking about 2018? I mean, I guess aftermarket will be shorter cycle, but is that just kind of limit the amount of growth that you can get without the big aftermarket (1:00:41)?

Josh, there's a lot of feedback on the line here. I didn't quite get the heart of the question there.

Sorry. The question was if 4Q bookings look like 2Q, which I think you mentioned earlier on the call (1:00:57).

Yeah. Just for a clarification on that. We're saying that the fourth quarter bookings will look more like the third quarter bookings.

More like the third quarter, okay.

Yes.

So, if EPD is down this year roughly what bookings were down in 2016? Is that a conceptual way to think about 2018 or does aftermarket really start to accelerate year-on-year?

Yeah, again, Josh, there's a lot of feedback on your line. I'll try to answer your question though. So, with the backlog in EPD, that's probably our biggest concern for revenue growth. And so, we're watching that carefully but given the bookings in the third quarter, it'll be a headwind for 2018 revenue growth. And to offset that could potentially be an uptick in our aftermarket business and additionally, if we can book some projects early in the year, we'll be able to get that revenue in the back half of 2018.

Thank you. Ladies and gentlemen, we have reached our allotted time for questions. This concludes today's conference. Thank you for participating and you may now disconnect.