Saree Boroditsky: And you had a nice step-up in margins in FCD sequentially. Is there anything onetime that we should contemplate here? Would you expect margins to improve sequentially into 4Q per normal seasonality?
Amy Schwetz: I’ll start by saying that we are really pleased with the trajectory that we see FCD on. They’ve done a nice job and they particularly did a nice job in the third quarter leveraging that incremental volume to see the drop down to operating margins. And that’s actually something we see continuing into the fourth quarter. We’ll see some modest revenue growth and very modest as we make our way into the fourth quarter. But we’re going to continue to see that margin expansion, both at the gross margin level and at the operating margin level. So I think what is particularly pleasing about that as we think about those long term targets for FCD at sort of 16% plus on an operating margin line, we’re really going to exit this year with clear line of sight to those targets going forward.
Operator: We go next to the line of Deane Dray with RBC Capital Markets.
Kenny Sim: This is Kenny Sim on for Deane Dray. Just following up on the earlier question, you talked about some big projects and orders in the pipeline. But as you work through the backlog in the space of the macro geopolitics, oil price volatility, how does that impact the way you approach and stay disciplined in this space?
Scott Rowe: Again, we feel very good about the health of the project funnel right now. And so despite all of the noise and the rhetoric out there in the marketplace, these are big projects, they’re big commitments from governments, they’re big commitments from companies, and they have to plan these years in advance. And if you go backwards, 2020, 2021 and into 2022, there is a substantial lack of investment on some of this big infrastructure spending. And so again, feel very confident that what they’ve laid out and where these things are moving, and if we look at FID levels, which is funding of the projects, we look at the EPC backlogs, all of those point to awards for OEMs as we put equipment into these big projects.
Kenny Sim: And then looking into the implied fourth quarter, any seasonality that we should be mindful of in terms of, say, free cash flow growth for the segments or any other metrics that you can talk about?
Amy Schwetz: So just from a seasonality perspective, I think as you can see, our revenue for the full year is up significantly. We’re seeing more modest revenue growth against a pretty tough comp from last year in the fourth quarter. That said, we would anticipate that we’ll expand our operating margins as we move from Q3 to Q4 to provide us a really sound exit point to build upon within 2024. And from a cash flow perspective, we’ve been much more ratable with our cash flow over the course of 2023 with positive operating cash flow in each of the first three quarters. We would anticipate that, that will ramp up as we exit the year, and we’ll see stronger free cash flow in the fourth quarter as we generally do.
Scott Rowe: And then I’d just add, we’re working very hard to provide more of a balanced view on results every quarter. And so you saw this year a relatively strong first quarter, a second and third quarter that were pretty similar. And I’d just say, unlike years in the past, where we’re saving everything to the fourth quarter, we’re doing a much better job making sure that we’re getting healthy revenue and margins in all of our quarters. And I would certainly expect to see that as we turn into the first quarter of next year.
Operator: Next, we go to the line of Joe Ritchie with Goldman Sachs.
Joe Ritchie: Scott, maybe you just answered my last question because like historically, when you’ve taken — you’ve taken a look at the seasonality in the fourth quarter versus the third quarter, you’ve seen a pretty big uptick in revenues, particularly in FPD. And Amy, I’ve heard you say a few times on this call that you’re only expecting a modest improvement. So just help us understand why it’s modest because I mean go back to several, several years, and it’s typically like a pretty nice uptick.
Scott Rowe: And I’ll just reiterate what I just said. We are really focused on our material planning, scheduling and really trying to take out the variability quarter-over-quarter. And you said it, Joe, like if you go back in history, especially on the FCD side, we got some pretty wild swings on revenue and margins. And so again, the teams are doing a really nice job planning their work, planning the supply chain and progressing that work more continually throughout the year. And what you should see and expect from us as we go forward is Q1 is always going to be slightly lower than the rest of the quarters. But you’ll see, call it, down in the first quarter a bit but then relatively strong on Q2 and Q3, which should be about the same, and then just a modest uplift in Q4. But Amy can provide a little more color on that.
Amy Schwetz: And Joe, I’d say the backlog is in place with FCD. We had a positive book-to-bill within that segment. Again, this quarter, the backlog is in place, and we’ve been able to make our way through the year in a really rational way that makes the operations be able to operate in a normal trajectory, avoid the swing. Really the big increase that we’ve seen is from Q1 to the third quarter where we increased revenue nearly $50 million for the segment over that period of time. So going about it the way that we are, what we see is we’re hoping to avoid that Q4 to Q1 reduction that we see and really trying to reduce that shrinkage in revenue that we’ve traditionally seen between Q4 and in Q1. And as I’ve said a couple of times, I’m really pleased with what we’ve seen in terms of the conversion of that backlog from the valves portfolio over the course of 2023.
Joe Ritchie: I guess, my other follow-up question, I guess, as you kind of think through, clearly, like the margin expansion has been great, remains on track. I’m trying to kind of think through the dynamics of the cost to achieve going forward beyond 2023. And then ultimately, what that means for your free cash flow conversion, right, because there’s a cash component to the restructuring cost that’s impacting your free cash flow — but clearly, getting adjusted out of the earnings component. So how do we think about that beyond 2023?
Amy Schwetz: So we’ve put in the — I mean, we put in the forecast the things that we’re aware of at this point in time. We’re obviously going to continue to look for opportunities to reduce our cost structurally as we move forward. And certainly, of the restructuring that we’ve taken this year, there is a fairly sizable component of that, I think around $13 million that’s actually noncash. We’ve continued to see some of that make its way through, although of the restructuring that we’ve taken this year, certainly, some of that will — the cash outlays for that will occur over the course of 2024.
Joe Ritchie: And is the cost to achieve in 2024 going to be like a similar size to 2023, or is there any quantification of what that number is going to look like?
Amy Schwetz: We have not quantified that number yet, Joe. I think that that’s a rational assumption to make it going forward. But those particular initiatives and what that might look like have yet to be identified.
Operator: We go next to the line of Brett Linzey with Mizuho.
