XYL - Earnings call transcript Q1 2018

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Operator

Welcome to the Xylem First Quarter 2018 Earnings Conference Call. At this time, all participants have been placed on a listen-only mode and the floor will be open for your questions following the presentation. I would now like to turn the call over to Mr. Matt Latino, Senior Director of Investor Relations.

Matthew Latino

Thank you, Kristal, and good morning, everyone, and welcome to Xylem's first quarter 2018 earnings conference call. Chief Rajkowski. Patrick are Financial and today Mark Officer, me Executive Decker Officer, Chief With provide perspectives will discuss They their the results quarter full and XXXX year outlook. on Xylem's first

related remarks, the will the prepared queue. I'll you and one that keep ask information then a our Following follow-up call. address questions and covered to we on to question please the return to

website call a Investors on reminder, the this available and www.xylem.com. our slide section XXXX-XXXX. and XXX-XXX-XXXX available a are be by number confirmation our replay of As accompanied June replay code the presentation in of will note today's is at A webcast is the X. call Please midnight until

of to under Please our Investor Events. Additionally, two. slide heading, website, playback call the be section available the turn will for Investors via the

XX-K We that and reflect in no circumstances company Form materially from statements actual events will turn including or uncertainties in recent factors slide described in to future events on today's Please anticipate, filed annual future. publicly to Xylem's obligation the statements any events three. update developments to forward-looking undertakes results subsequent most SEC. Please events subsequent as references those risks could the differ may subject These to with to call, will make that reports are the future we report forward-looking or subsequent or or note occur and such and those anticipated. on some and statements

We performance and our metrics. metrics key have including summary GAAP you non-GAAP of provided both a with

financials are of in presentation. unless adjusted will references for the appendix you For otherwise and call, be included purposes all reconciled today's indicated non-GAAP and been an basis have the section on of

and Decker. Now, to to CEO, slide our call four Patrick over I will please the turn turn

Patrick K. Decker

our every good game results. XXXX, teams first Thanks hand, strong today the plan geography. markets. across half morning, results and growing the end with solid all discuss to began had strong we uncover of end healthy joining us in We as first and their second in strengthened quarter continuing for to everyone. momentum build The in opportunities execution year quarter new to in in and delivered last in nearly Thanks and were a focused and Matt, our is we start markets the

first expectations. As exceeded at we metric look or our nearly results, quarter met every

me growth. of the increased let details. the a So, projects across revenue broad-based a times. solid were quarter and second quarter, in Many of longer our This Orders orders first major by XX%. of all double-digit where in was review have strong few businesses we the quarter, the first orders driven In markets. our quickly consecutive lead orders of performance delivered Infrastructure those growth XX% Water up treatment

until will not So, XXXX. ship these orders

markets, very grew significantly overall had as we growth addition, large emerging In growth the up that a more strong as well than in This up project XX% year-over-year. that orders pushed solid orders higher. few reflects

American healthy our also We Sensus North water growth secured order in business.

in solid overall. with growth revenue revenue improved strong in perspective, where reflects U.S. performance industrials utilities the strength deliver X% year-over-year. continued certain organically. capturing to a in quarter, regional are the a and gains market X% markets grew of From the For as well X% quarter. share increase growth, timing as generated This Emerging continued projects we the up

growth broad-based improvement continue delivered and in benefit pay grew X% are strengthening and in reflects project was we standouts off scale they the have also our Growth bidding general The the analytics a by we end double-digit as on and the key opportunities. investments pipeline applications. The significant strength and In growth industrials product We were double-digit which infrastructure, by continued for all oil continued show across the as some industrials North as India. among increased gas requirements. regions. government larger mining revenue saw ongoing end Both healthy and electric way. America. encouraged the end on large utilities growing the China again in were gas well market localization well Sensus as beginning deployments spending market India, Our to growing business markets projects This and well the as strong like heavy to a in markets from capacity once and also in across The solid. projects, both treatment quarter. regulatory industrial as in light was very infrastructure driven

realizing want to Xylem making ongoing we're Sensus, our across progress Finally, revenue mention Visenti I businesses. and the synergies legacy in identifying and

the progress of as teams We as the our deals large by are the working. we well are pilots have underway encouraged that

year our beyond. last I As orders Day the given and XXXX progress, in explained current take those at these but efforts major deals close, this longer Investor to year, and manifest revenue with expect to later we

to increasingly collaboration day the ongoing creating businesses our addition, new is day opportunities. In across

for While businesses. those relatively have ahead. be the wins and of combination progress we'll to some announce the able to and commercial scale. we these by highlighted, deals visibility created confident not This more also in small of that these of many opportunities our of meaningful the months are increases therefore And value enthusiasm I'm

and see driving During others our many cost managing of we signs productivity on on some like as quarter, also horizon. the the growing teams focused inflation

treatment In businesses and deliveries in headwinds managing market as emerging near-term mix certain addition, grows. increase project we're project some

margins but and replacement which portfolio work generally has carries to on continuous greenfield tactic of cost that quarter, reminder, full installations million first higher As savings, which to generated modestly infrastructure to One is X% for deliver targets. has relative In mitigating aftermarket we the cycle. largely for improvement the $XX margins our lower rest with year in year-over-year is continue initially, pace these our savings. meet issues increase to a us the

mission very We serve, already of but we nature ability quarter modest and we've impact over XX.X%, to the to critical XXX pressures. from are willingness the our savings materialize in actions the many to year-over-year. addition, coming quarters. expect just of EBITDA we the of impact absorb the in the health pricing first see spoke to leverage more the timing, the saw an with in price these In those the And increase ended and adjusted points basis end given help of announced We actions This I about. quarter due industry's some markets of this and environment. confident volume businesses offset reflects

XX.X%, margin points. Our quarter the operating XX for up was basis

basis for XXX point dilution XX earnings an We of expanded delivered amortization, margins points. operating XX% year-over-year. quarter, the basis Excluding increase per adjusted purchase from of $X.XX the accounting share

full target improve which and will of year management of least to capital XXX% generation working achieve address year another track continue We for our to cash shortly Mark are our conversion. at on strong

focused So, the in, strong our remain world quarter. who address by customer of developing challenges. a deepening And all will relationships terrific efforts teams their all I that and the around very our to want acknowledge on the solutions

We success just customers. value for increased opportunities new very even occurring have a over solutions will and us This company shareholders. bring in time our right new enable collaboration as to our activity about broader to our a pleased portfolio. the is our fueling more the I've and internally to marketplace of the integrate and to driven momentum create continue that's now working set plain create together we excitement been with businesses of in lot and expand

our I we it platform. I few make Before our AIA refer platform hand most advanced formation as over acquisitions want on our recent to to to of which comments Mark, the a analytics and infrastructure

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categories storm many, water large three top: and rise While infrastructure. management the management water, overstressed of there aging to are the or non-revenue

them new regulatory more that part Now, need the a but edicts. has these quantum and the That not data, in address are becoming generation driven capability is the of in with importantly, draw our problems by coincided acute ago. and demand legacy leap to of the Add technology leveraging simply analyze from enables businesses, that which insights this already in applications data. extraordinary decade a advances possible to and we're in weren't to that the development

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to optimize its capabilities Analytics. Pure brings We've these unique has best Visenti, face circumstances. to we So, with a address and our solution adapted help formed technologies, differently this this platform manifest our we and utilities capabilities we unique still that Clearly, more potential. The value can collection of their and issues. we're a now February, Each and platform. their these new Valor in is platform. Technologies, address businesses require enabled customers the own together of With be and issues, can is added businesses Water Valor to software the against backdrop AIA one these EmNet, Hypack another brought includes which revenue the of challenges out proposition. distinct a building solution portfolio

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who of teams with opportunities It's are commercial having together with already longer portfolio. working conversation our deep teams are new a customers different customer. product. And relationships this utility across about a new the opening or Our kind for project just up no a have Xylem,

our can both new portfolio, their how Now, of help the change businesses pain points our the deal can affordability sustainability differently, which contribute legacy the of our and some their it's with toughest and customer operations, communities. platform, water of increase that about economics to of the ultimately

are, develop, gives experience early the us unique set prospects. while this growth a new creating its time and effect, take confidence And opportunity tremendous in will with long-term our capabilities enormous. of We market to our is in

of growth the In expect fact, outpace this small Xx. other at we businesses relatively by our to platform least

we the come. in forward this to progress sharing look area exciting So, years growth to our and over months

to So please I'll turn over Mark results to detail. now, it more and slide review in quarter the hand five to

E. Mark Rajkowski

Patrick. businesses the I'm North quarter, grew pleased of heightened points Thanks, to markets start the India America from in strong in in than from China Applied perspective, as our and the business revenue very conditions Utilities serve our was and quarter also revenue was due organic in revenue all growth end and XX% very in which X% our expectations Industrial and points well the dewatering. was emerging X% were organic an part more above our was growing deliveries Most healthy teams, foreign led opportunities geographies. higher tailwind of in most market year. and the by X% of focus end our that respectively, across remain timing expectations. this Overall, performance end as growth regulatory up across of with XX%, performance at markets. and up of both X utilities. with driven strength revenues markets emerging from this broad-based, which nicely of XX% all outstanding From growth was growth and Market was way from exchange represents in by X growth. with the growth, This of the our project our the to acquisitions. strong Water

and in was Western markets and commercial Here, X%, X% U.S., our primarily the end respectively. end see up residential the performance markets, we and Rounding were continued strength Europe. out Canada which to the solid in

organic new was XXX to leverage improvement we increased productivity basis EBITDA was in Moving strong partially quarter. savings growth adjusted XX.X% by increased by and This performance, to operational the points primarily which driven volume from our offset accounting mix to inflation, Adjusted in purchase AIA increased and points exchange impacts. platform. to for foreign includes points amortization related by cost XX which operating of XX noncash unfavorable acquisitions margin the our basis basis XX.X%

high the teams the these to per in share cost in This inflation our increase us of continue strategic the end expectations. of provide million million on from the mix orders quarter, quarter, and and X% our projects improvement $XX XX%. on continue our the margin market. fund performance in This growth. to the weaker all $XXX point investments builds within perform recorded applications and and for This overall at slide utility trajectory and turn in revenue prior health Strong to our our the where offset have basis executing pipeline which XX% Our treatment start savings Water delivered segment improving year. impacts. XXX of in details of lower drove increase orders Please year-over-year. from growth programs earnings reflects I'll exchange investments enabled I'll Treatment the additional way, foreign organically well, a to segment. of Infrastructure Partially on the productivity performance. year-over-year up six segment offsetting XX% led $X.XX, with an performance we was we up

As for X% increase which up year-over-year. total $XXX are times projects segment of the orders majority That said, of we organically ship an and until Water year-over-year the XXXX. million, exited Infrastructure organic $XXX lead not treatment longer with of this a will on revenue Patrick basis. mentioned, quarter for million represents backlog XX% the require

and grew industrial U.S., was growth XX% markets. tailwind. Foreign end both utility exchange the in $XX the In a double-digit million reflecting segment the

the On Dewatering utility benefited strong generate several was markets continuing continued across deliveries the aftermarket to Treatment our we're this Emerging both our in and see market strong businesses. focus three and from project up transport good. the all performance this gas XX% treatment. timing side, the of of and growth growth mandates India included gains. double to Middle in growth vertical. as have rentals performance generated growth share activity modest U.S. higher digit were China activity market by primarily significant strong East. markets digit India oil and also double was U.S., end driven our in growth in in as also in this in spending business. digit construction segment well Government achieve the transport and in industrial mid-single dewatering mining for China, of Outside and sales driven and and regions: very our The and

driving exchange, and deliveries the from Middle to delivering than our unfavorable driven year. sales a Xylem and Additionally, Western the market higher focus primarily versus Netherlands and across of Operating saw solid savings manufactured East growth the this continued increased execution to improving business Germany, foreign locally has portion both products We sourced, of in gain cost within and for our project productivity from this programs transport. Europe X% from commercial revenue project margin from overall, inflation, and in solid teams portfolio engineered, Italy transport This and in traction conditions year treatment is treatment. aftermarket in by basis from segment The impressive XX grew points where last came modestly growth more project offset treatment volumes. driven and higher by XX.X% mix results.

Foreign exchange Europe. business This primarily XX fact headwind basis net manufactures point to a that in was transport our reflects margins. the

exported from resulted European currencies Europe products higher of into cost the the So in sale increase against has the in year-over-year U.S. dollar substantial for

will assumptions. moderate the our turn in based seven. slide the expect on this We to impact year-over-year of current half Please second year FX

which was in Our segment organically. $XXX booked Applied million of up the Water orders X% quarter

ratio up with organically $XXX XX% exited the million performance. quarter year. the compared last in was backlog historical with is in X.XX is which line which to book-to-bill We of Our quarter, our

growth cycle deliver second for predominantly digit backlog versus our X% the to million, is While organic gives $XXX mid-single confidence our us the this a still short year quarter. business, in quarter. prior of Water organically was Applied ability for up the Revenue growth

Western most of modest UK segment growth building some up X%. residential million segment's as resulting in our drove this for particularly activity to investments performance in Europe, $XX from share was increase industrial all and in a channel growth benefit by demand to was both continued Western revenue continue increased was where was customers up with segment we vertical in the the gains. In Germany, strong project partners. Europe capabilities with and Industrial U.S., In our industrial also sales XX% promotional primarily applications. exchange the through Foreign This which tailwind. XX% grew driven heavy across revenue France recover.

grew up We was circulator residential digits also the increased to mid-teens of was commercial of building growth pump market year. we XX.X% and lapped mid-single prior restocking in pumps. distributor in points the operating benefited turbine X%, by in growth in several year-over-year. XXX and reflecting Emerging as in improvement from from Asia, markets Commercial heating China. primarily Segment down strong the projects. digits the revenue the mid-single strong delivery margin quarter driven basis And fire the

programs than on and point drove of progress more inflation XXX our mix. cost a XXX unfavorable improvement points basis productivity which Continued margin basis offset

turn discuss Measurement to eight the to slide Control performance let's Now of Solutions. &

Revenue was Control the Measurement Control of orders Our organic on Solutions $XXX basis segment an in & $XXX booked X% million, XX% was quarter, Measurement Solutions up which for up & organically. year-over-year. million

the $XX was Alliant and attributable electric down that deal low-single our was of North year. is this the double up earlier to in primarily Services a for and full well exchange of versus digits, XXXX. last year in $XX last with primarily digits upgrades and contract revenue to Foreign we the were were increased In deliver announced announced due Gas year water orders with added we the made expect and we projects, growth double-digits networking customers Nicor large deal deployment million. noting to the It America million mid-single digit to due shipments. tailwind year. up the gas Water timing acquisitions XX% growth specifically late as worth that U.S., existing

Our timing year. markets Western deployments of digits Europe prior mid-single to down were and project due in the businesses emerging

AIA with the in the year-over-year to rollout in business in basis in of rates. large very platform new at offset XXX high-single the lumpiness XX.X% in the in forma We're margins full Organic we're grew the increased reminder, Adjusted funding points encouraged we in basis margin significant a Adjusted Sensus create We pipeline increased the driven quarter X% deployments expectations. seeing with operating our and to of As XX.X%. and some continue the quarterly over growth growth and points and the margin partially was look line segment by project expect inflation and growth. strategic revenue can momentum year business price range. This were which a expansion pro of orders EBITDA improvements, on XX our digit to volume year-over-year. the productivity course by basis investments.

Our impacted impact performance was incremental AIA platform. new from here non-cash the purchase also accounting of by amortization the

operating non-cash expanded items, these basis XXX Excluding margins by points.

to the turn and discuss company's the closed financial quarter cash flows We position. approximately cash slide of balance to million. let's Now, nine a $XXX with

recall, may period you our seasonally first for is cash quarter flow. the As weakest

in level We flows flow previously market including the first accelerated spend more our in high to quarter. quarter the leased in business capital our prior manufacturing year-over-year the demand. as investment target expect over of rental to purchasing timing to year investment cash year for facility conversion. The decline as dewatering increased We a flow well strategic a reflects as unusually an growing investment free continue meet fleet than operating had in quarter cash XX% full of cash deliver XXX% of

through announced of In $XX dividends our consecutive also to repurchased sixth dilution. increase. pay-out, to XX% and offset We dividend million million shares we a our $XX to February, shareholders increase annual returned our

to working We on capital, continue and by processes continue to improve make it basis XXX solid progress reducing as points discipline. our we

with year. fund to the and to maintaining plan to bringing Please team the focus committed grade there's short-term the credit rigor to and used Patrick While end turn We the update remain slide is rating very by outlook. XXXX we to will our much Pure I'm debt pleased the the to to this still acquisition metric. key of repay investment XX our this do, cover and

Patrick K. Decker

Mark. Thanks,

while momentum As on first we forward. in year moving continues continuing line, our initiatives. discussed to had this platform full organic invest our deliver And add have billion a continue approximately morning, term At an to of growth our about $X.X deliver we We're and of we the solid total we X%. quarter This longer as our rate strong to to well-positioned to year expect to new growth we top full commitments we expect X% revenue to stated, represent previously to billion. AIA X% revenue. $X.X to

efforts savings keep expected in our to Our savings operating cost is and to on our well to long-term This margin full the continuous million for about are will improvement pace target. result year. continue us our forecast generate These meet expansion. fuel $XXX help

to be XXX% operations generate enable continue from adjusted points about least earnings $XXX discussed, to improve per XX% in forecast flow XX.X% we at capital of will $XXX the we $XX million. Anticipated basis XXXX. free range expect by of XX basis from expand to would expenditures to adjusted of margin conversion million. of to Adjusted excludes XX.X% us to cash And expansion Our bring line, projected is purchase deliver between million integration, generate are Adjusted to share to to This range that which to in restructuring to and to to the a the points solid expect XX.X%. margin full year acquisitions. cash growth as accounting points dilution cost XXX to bottom range XX% EBITDA At for of Mark realignment in EPS excludes points continue which $X.XX. points and XX.X%. expected the of XXX basis This XX to is XX year. operating for to about basis basis $X.XX is

guidance for from market changed assumptions. provided the has Overall, call. not on XX slide walk through our and end to turn we view last full the earnings end materially please our market I'll our Now year you

a did of we as moderate While have do somewhat the half year-over-year quarter we lap some year to that when into markets, expect tougher in comparisons. first certain the strong second end we we'll get

So through quickly projections. our walk let me

which is continued Our in market in one markets. particularly seen utility we've U.S. key end the and strength, emerging

XXXX, revenue to in digit slightly expect growth, range. range the and in to smart in mid-single likely generate the had is year to continue the full end a We grow first digit overall meter industrial good the higher market quarter we For high-single projected market.

Looking out in for the governmental markets. full somewhat by year, softness China likely we particularly expect a expect parts the to such will America. benefit as in markets of somewhat India we Latin that continue spending, mixed and emerging to be environment, offset from There but

We to continue low-to-mid digits. up to project single industrials be

We expect low- to We organic U.S. growth range. and the low be digit some but to stable in in growth mid-single end commercial from in the the recent in government XXXX Europe. we see market finally, strength digit residential, full mid-single year due to range. spending. part And in revenue increased should growth markets growth continue to in in solid anticipate enjoy the XXXX moderation Emerging

We see demand as China the and to continue well dynamics competitive we continue to Asia-Pacific also countries, we to be tough prior have tends and compares. demand anticipate U.S. other Western solid replacement-driven Europe. where market in in year But as some

details walk through on and please Mark Now you more the XX slide turn outlook. will to

E. Mark Rajkowski

XXXX Consistent disclosed planning assumptions. profile as of with the of our seasonal we're our well last providing highlights we what quarter, as business

growth to second mid- sustained range. the quarter, expect market high-single the digit in in utility we the For

sequentially return moderate to markets to expect digit and We industrial low-single growth.

in, revenue residential X% to low- the markets the to the expect both anticipate We this range All X%. to and growth in of grow will continue result we digits. to mid-single commercial in organic in

be contribution about platform expect We million. from the to the AIA $XX

be quarter to to recent second AIA purchase points this operating for basis acquisitions. accounting XX up our margins negative a points, XX basis point includes due impact expect basis We to XX

outlook for uptick costs certain Our direct in material in global from materials an reflects demand also electronic components. increasing

so, continue it To and procurement in securing of impact they supply the actions. market teams a expect do our to teams great and rising is will but are have Our cost. with adequate commercial done impacting costs, material we job price the address operational

quarter realization We back the the in expect and realization half second to some price of the in see higher year.

Finally, to assumption, $X.XX. impacted please this of in the predominantly note similar assumptions the our operating first includes FX Water quarter which quarter, In summary remains which on our transaction be expect at and year-over-year euro guidance Infrastructure we FX our slide, by margins segment. the second headwind, to

year-over-year back the expect half for comments. minimal current the year I'll rates. With in to some impact call the of We closing second based the turn will that, Patrick FX over be on now

Patrick K. Decker

continuing, first Thanks, four the we markets and strong both company. a But and across quarter Mark. first for nothing had take it's our Again, we teams quarters in momentum granted. is the end serve we within the and only of

in our our initiatives, the vigilant will continue questions. we invest greater for We will take strategic we'd remain focused same in remain fuel to to shareholders. our be to With our execution our At customers. longer-term happy drive to operator, and value on growth best time, that, serving

Operator

line from of comes Our first Stifel. the question with Nathan Jones

Nathan Hardie Jones

everyone. morning, Good

Patrick K. Decker

morning. Good

E. Mark Rajkowski

morning. Good

Matthew Latino

Hi, Nate.

Nathan Hardie Jones

expansion your for margins unsurprisingly, ex-purchase So the because year basis wanted actually guidance margins to I'm look by I to margin points. increased here. you on accounting guidance at going full And start XX

mix. headwinds from You've got

headwinds got inflation. You've from

you've You've did got before get to from you for dollar. taken headwinds year. to basis margins you than with Can by core the how some stronger points actually headwinds the here increasing about here? up better a talk you margins Yet certainly for number the XX guidance

Patrick K. Decker

Nathan. first here, Yeah. go I'll

effect price year, the Europe. the of both through the quarter transaction second does coming impact came second our mix a of in – little of getting out in we in half get the I some which subsides emerging because we'd already so in of the to inflationary FX year of with as the That on think margins I the bit the of of the light read half treatment, out subsides of others, the that that increases went components that could year. price what this. seeing early of think in the in the We fact addition pressure on the announced, And ahead this ahead we're year. we're and earlier with

around year. rack gives so confidence us up when full the margin the you And that expansion that's what together, the for all

So, not concerned at all about margins.

E. Mark Rajkowski

on guidance the – if basis The same. be And thinking the essentially Yeah. ticked accounting impact, Nate XX amortization but purchase you up it's that the the what about exclude same. is yeah, you're That essentially points. might

Nathan Hardie Jones

same extra including that basis It's points, Yeah. the... XX without but the

Patrick K. Decker

Yeah.

Nathan Hardie Jones

actually up points. XX basis it went ...amortization,

some of So, there price the of must be here, the the correct? back realization in anticipation half meaningful year pretty

Patrick K. Decker

the that We'll effect of more little right. We That's to in a in QX QX. bit expect saw Yeah. see QX. a QX, full and we in then see bit and

E. Mark Rajkowski

continue And savings to well. ramp up and cost we productivity as

margin So, our got to Nathan. deliver those in full-year confidence targets, good ability we've

Nathan Hardie Jones

Okay. on the XX first quarter, break what impact a below treatment basis mix you're down I had between... the forecast what had can the you that down was? you points break quarter. maybe mean, you of And maybe then, obviously Can shipment for about you strong first quarter,

Patrick K. Decker

Yeah.

Nathan Hardie Jones

the mix The impact, impact. inflation

Patrick K. Decker

because the and Those in project margin market alone great by they QX. revenue Yeah. what if that in Mark from the the quarter margin us I predominantly guided but they're delivered from Really, there one XX aftermarket came some really I have deliveries we in the lower about they're through above mean emerging from and mean can takeaway this, higher go install about was QX. of had that greenfield, accelerated beyond quarter, that was coming treatment the profiles, into think piece we impacted biggest the you large details, bps if lower to, initial that with

to gives And of the that about. talking subside. a magnitude we're what feel you for That begins so,

it our We of bit subsides half a we've QX, have second reflected but got in year. that then guide in that the in little really and more

E. Mark Rajkowski

said, under for the probably of no growing of comes margins as in Patrick a looking Yeah. project XX unpunished. to exactly that that lot. it lower. good a guess, markets mix. going our margins and, deed more We've We're bit heading like because impact basis got what in points are I end were to the XX we those terms yeah, the position of little goes points But basis the was aftermarket Nathan,

got little some lot nice expecting leverage our harder also of than But – better as than were In benefits we thought. which than margin the a a volume inflation that a from productivity we and we terms impact, little a we bit – ran better of on obviously well. performed was offset

Nathan Hardie Jones

on work stay project and will guess that the drag in the quarter. I to for future aftermarket has the the

color. I Thanks lot. think that's helpful So, a

E. Mark Rajkowski

thanks. Sure,

Patrick K. Decker

Thank you.

Operator

Our the of Dray next from Markets. Capital comes line RBC with Deane question

Deane Dray

everyone. morning Good you. Thank

Patrick K. Decker

Good morning, Deane.

E. Mark Rajkowski

Good morning, Deane.

Deane Dray

Hey, I'd on stay the projects. markets just like to these the topic, and emerging greenfield

on, next of emerging building see in inning plants developed markets? line it your don't sight infrastructure over you side we couple what's build-out the what not for Just needs across in of I markets. new municipal markets emerging follow for are infrastructure on additional mean, We're the the but to years?

Patrick K. Decker

Yeah.

we're and to change particularly, and it's I been political early So, Deane, in there not traveling there only I've pipeline, inning I it's I hard a based think, innings the bidding change but, when on predict trajectory be what exactly say, Certainly, would that's we're at a to would if the when our say, reason take going believe I've I think we could ever administration in any was to happen. what that thing seen look in India. getting that would

as So, – the to connecting Ganges as have it tail that's well a as water is as population the Smart treatment well it going long the River country. the initiatives, clean-up, really because their by treated Cities to driven to across being

there. China. in same got a very pipeline significant The we've So,

regular see, the through be think, there would for coming a its I businesses. out mean, guiding early our long-range We very expecting we're second- Middle in low-double continue in energy those and is the treatment of of recovery, on downturn. East, digit certainly be The basis. still plan there. in XX%, third-tier to cities, investments those We tremendous to especially I water XX%

Argentina, mind we've and And recover a I Chile, And quite America. got back begin seen I Brazil. may week what in nicely. I one my That probably weeks to so, predictable Colombia, little by bit is see less than South be be. would ago China so encouraged from and there was especially in India that two spent a less just very

run So, markets. we're in terms innings Deane, of continued the for I in think here, early emerging

Deane Dray

different And Xylem one What's services broadly taking in content, projects. your projects? they content? it. on last point just are these these products Got How and the the

Patrick K. Decker

we're to obviously through has is. ozone being able in, pull there the pumps team our on for mean, flight on then But that broadened. has speaking, example, generally the able depends on I cross-sell. It about job great of Yeah. maybe an analytics application quality you're getting job what a to through projects talking and The side. it done pulling water

of on seeing Sensus some for best of also synergies you – some we're of early some well. that's to kind activity we give of the as revenue where But pilots the our new Just one example. one areas of

Deane Dray

regarding infrastructure expectations Great. advanced This few new ask platform. And growth incubation... feels like the the questions I'd like are subsector then the to What analytics, tech really a a here?

Patrick K. Decker

Yes.

Deane Dray

different in A this next you years still you. growth for in even be pre-revenue. programs lot these of expectations be co are help couple us projects calibrate ...holding the of just over what But terms the from might should platform? of pilot

Patrick K. Decker

Yeah.

here, in a comments that really – it's kind of market I new reply what appreciate. script can think, I would my was would and I as had making we're Deane, the be, you initially

to significant today, anybody we're most to possibly. probably consistently in right needs going this I portfolio, addressing going and but terms to about to of is be we the would going see given acquisitions. spend. now it that to already revenue as revenue, in of right out $XXX the of with the large see what growing and But understands part optimize generation of today. double-digit exponentially of way adding new it's we're and really be million we It's that a we best and to we're disruption businesses these that's our CapEx doing new an probably mean, the that small be grow just of, through businesses You to having unmet kind terms businesses We're sorting is have of them incubator. having expect the you're it's the certainly,

Deane Dray

regarding off delays one. the some rumblings sewer I that you in is like EPA overflow, other that in orders. EmNet's sorry, will got in maybe backing business? enforcements that and combined some the just any I'm And We like one showing seeing this heard of on up Are some result the of

Patrick K. Decker

given alternative. opportunities be is to burden EmNet driver significantly the what reduce to that EPA fully working in the also it's in here interesting haven't this the the is it obviously know, hold. works many Regulatory entity this with one consent a seeing in that not area, whether be customers city question water would not And one of that also immediate that we had, in only serve pressure. decree storm they it as number getting these there a capital right to may of that term, issue. is be been I and appreciate. same manages actually utilities still an overflow with you'd They because actually It's It's the the were alleviating with EPA as to public solution I when utilities allow or can helping nuance have deal Deane. departments be and the any be you not But the know always Yeah. cases, technology have that you situation. asked as now whether but as fined used conversations works out departments one I

have the of one works is country. it that headaches across the biggest So, departments

issue confident see persist customers to policy. beyond long-term I'm change very as and our going So, a their in are administrative this potential needs one that

Deane Dray

Thank you.

Patrick K. Decker

you. Thank

Operator

& Ryan comes Boenning next Our Connors Scattergood. with question from the line of

Ryan Michael Connors

question. a Great. little... I wanted for talk taking my to Thanks

E. Mark Rajkowski

Good morning.

Patrick K. Decker

Good morning, Ryan.

Ryan Michael Connors

treatment talk about. Good made the on side but the theory, the is that a in project similar business. you're your project-oriented comments, peers alone same And the there, metering time, also have you're morning. talked at in about I certainly seeing delays strength to which, not you want

delays different, not is those types different where treatment that's about there? And metering of that's we're seeing what's projects? So, my on question projects is what specifically delays it about leading the to

Patrick K. Decker

would don't comment. but I what had it I much I water an on of was little it feel still mid-to-high bit up it Actually, our to treatment, That delay as that impact, utility were you business little wouldn't Yeah. have much a say, just of know, the for digit a bit that. if you're and on very single location that depends quarter, mean, coming our read in just at impact coming you in. it about in certainly Mark, orders XX% confident was then projects. was doesn't utility a but timing year. as a We We is. the into growth looking with, dealing well what of project weather. softness had less I from was issue of say want orders too might project make full our a some

E. Mark Rajkowski

of the growth had America order we for The existing projects. pipeline – in mean, XX% North deployment don't water I Yeah. timing of it's I business rates, order our good. very is Sensus. in

So, is that's this is more phenomenon it long of term. a quarterly than anything

Patrick K. Decker

Yeah.

orders business back If terms go you to of last back go the of year, of in we growth that the growth. to digit the quarter – fourth in part to double had

trend that really So, quarter-to-quarter, I'd the of a it terms is not can lumpy deployment be this long-term it is be in but from concerned about.

Ryan Michael Connors

Got it.

Okay.

Patrick K. Decker

Okay.

Ryan Michael Connors

customers barely price themselves. inflation above if willingness with, are my at recede increases their those actually space and talk situation, to accept you part price you a a then getting utility about tariff the on do time running of seen in Patrick harder having CPI. kind of really and And question it's other the had yet to customers We've now they're look

just customer when you as themselves historically? push about can and – on not is why that confident maybe pass we're that So, can well to as us give the base talk that there have take we through your that they able price

Patrick K. Decker

Yeah.

of we is again, price, one mission of it's respectful not are nature. our end think, firstly, that also want about utility. each the, so more on to we're critical the talking of part them obviously going be These here. critical gouge and applications but these, We're just to so I markets than

inflationary of the last the years, point bring of to go we about and the here talk was that quite couple this When realizing understanding previous it in back you equation above environment. where we was kind XXXX, talking in in of significant because at then us well what you're were also periods the it an in to about back were you've We we there industrial part period, need XXXX inflationary and well. is heard timeframe. at time price that time of look So, an as

we've innovative business to Secondly, where pockets where successful much what we we're bear. solutions it most here get finding the more price brought to been especially of most recently, in is

So, intelligence across an it when list a price part be value whether efficiency, use, be the board than of whether just take energy proposition broader it more of rather it's we've embedded increase. and here cost a

Ryan Michael Connors

it. Got

Okay.

you you kind that, if of so share can think could I paraphrase speak? So, take wallet to

Patrick K. Decker

correct. That's

Ryan Michael Connors

Yeah.

Okay.

Patrick K. Decker

of of some a size base seeing there we're and that take price. replacement nature at to replacement the installed opportunity of the repair side business on take and you the there's our look that, the And

Ryan Michael Connors

queue. Okay. your Great. for Well, Thanks I'll get back in time.

Patrick K. Decker

Thanks.

E. Mark Rajkowski

Thanks.

Operator

Our next Seaport comes of question Global. from the Liptak with Walter line

Walter Scott Liptak

guys. morning, Good Thanks. Hi.

Patrick K. Decker

morning, Good Walt.

E. Mark Rajkowski

morning. Good

Walter Scott Liptak

pricing there? ask refresh wanted and about you about is just if the us dewatering, Are percentage of products? now we to able what dewatering then the I to comments could how inning and that? get are you oil revenue big the related business, gas And on

E. Mark Rajkowski

demand. they looking digits. Yeah. in double about market had about I And just up quarter. remarked Sure, a strong our oil Walt. had solid and comments And enterprise about rental were meet accelerating It's earlier some it's to investment fact, the fleet capital revenues. out Dewatering in build gas, at very X% to scale, of our

we're sure So, relatively growing demand. market the in but we to is scheme of investing meet and things, it it's can small nicely overall make

Patrick K. Decker

mining. also downturn muni good than larger the our driving – that been is sure with not confuse of there. about growth was make just beyond and in oil exposure into to plays diversifying gas clear, dewatering business a during that's we anyone our job certainly also that be middle industrial in. mean, and oil All X% dewatering markets, Walt. I Yeah. team in, piece of other both only roughly the and mining All mining in It gas did and what's to But that. and the don't that business together of

and Now getting we're our the support rental and the on mining pressure and to there of we're investments capital putting some back. fleet, it. That's oil coming gas making benefit

Walter Scott Liptak

it's And Good. little this there, of a I bit the then probably Okay. in mean, pricing part price side on business. getting the easier

Patrick K. Decker

We a to of mining year. last lag see in We Yeah. I'd second half order say bit in a recovery. and had oil and gas we of little growth rates began the I that did on. and not are in as, utilization. price see our fleets now the absorbing is terms obviously think pricing market of again, realization But tightening early ours competitors'

Walter Scott Liptak

mitigate of there just because Great. do I you location business isn't All the the anything wondered higher flight a of more, currency happens or one foreign you can that that. And right. if manufacturing different the mentioned about destruction there to Okay. issues. I do could if a and that anything, is in the currency, Is demand way prices? there

E. Mark Rajkowski

that that. Yeah. There's can to But XXX% do not continue as it's doing. the a to currencies we coverage. impact things couple are and rise, cash is flow One hedge do we

that euro-based saw is to with rapid one the the rise currencies and in that thing, So that. we impact

The actions in the price is offset in where we we in those And other address as higher cost. after products we some uptick coming to mentioned markets cost out are taking of some inflation. make can and doing comments, price into, that to teams that the the of again sure there, our go are that are do

Patrick K. Decker

as our business The manufacturing, competitors much good is news pretty of least for well. in that really us, business of euro-based the Walt, that is which most is at part that the exposed all to are

competitive it And does or so challenge share create a dynamic. a market not

in of tend here what longer do And terms the view want to so, we take strategically. to we

just That currency market We some really really growth wasn't capacity shifting it are by and driven to have anyway; U.S. movement. U.S. the to support being was the been

Walter Scott Liptak

All Thank you. Okay. it. Got right.

Patrick K. Decker

you. Thank Yeah.

Operator

comes next Canaccord. Moore Our Chip question from with line the of

Chip Moore

investments there, if could provide potential you of benefits. for terms think the an we bit maybe how some markets, where on in stand emerging localization of in about a Wondering update more you

Patrick K. Decker

Yeah. Sure.

as – we in localization China. our looking of as XX% north obviously XXX% that I we're East. we're today, do efforts we're the to revenue So, pretty about I from comes say are close market in possible. And actually furthest localized. on get XX% the China, the think in India well There would Middle and of to progressed products that

on is as our ago. to say metering further I two I to and say also of opportunities things some Then years are India we I would look greenfield on opportunity as in expect an do One to roughly facility forward opened we're and to are a is We opposed it design locations that actual opportunities businesses. probably that we're localization some and factory as there be And just we're exploring that a we in in India we clearly local down up going my Middle localized visit secondly Latin there, to still look ramping about the And a into behind Based there. locally. we're those say couple those moving manufacturing continue would that we side, of have America. couple grow is we there, to I'd XX% to grow. about locally Secondly the think up had of the key footprint just that there would would leveraging do at going East, then areas. be in some markets. have

and the find channels support find to to got right the market Just to right that. timing

Chip Moore

great That's Thanks. color.

Patrick K. Decker

Thank you.

Operator

with question of from Jim the Oppenheimer. Giannakouros next line Our comes

Jim Giannakouros

Patrick, morning, Good Matt. Mark,

Patrick K. Decker

Good morning, Jim.

E. Mark Rajkowski

Hey, Jim.

Matthew Latino

Morning.

Jim Giannakouros

orders that that and pop that point that is America, in that orders, on couple large in broad-based Clarification driving cited across or North well? I as growth mean pop you Europe sales treatment, but broad-based XX%, a

Patrick K. Decker

say, America was was saw as and China in in anywhere, and North it's broad-based. again well I mainly a projects had if we growth we that pretty I but few – skewed in it's India. based mean, broad in growth emerging I pretty towards was But the It's heavily pretty markets mean, large would skewed good as there it Europe. orders.

projects So, I of a lumpy piece some in one-off. were a mean XX% that there meaningful there it but not was quoted. the not big we

Jim Giannakouros

it. Got

Okay. least with you're margin XXXX you on side. have to And goal aggressive stated out is question internal you pacing cost of get will kind that productivity for a and on that there, to that XX%? accelerate initiatives on of Mark, side, the an this it to plan areas XX% at maybe into well, – refresh like more seems then Can on you the us XXXX

E. Mark Rajkowski

Yeah, ramping benefit launched up savings our year Jim. now, procurement Sure. we have continuous Sigma Right and what we're programs. are year, seen procurement tools business and to significant modest this see and improvement finance, and platforms at have and significant to program of XXXX is looking some services XXXX but Six global see this across standardize end What we Lean the processes around are and we'll our our HR, is and into and continuing where benefits IT.

of front and those us is programs. that So, substantial in all are

Jim Giannakouros

Thank positive And just Water. mean would dubbed aftermarket much pre sales, if one I at And XX% I Is Thanks. that how still of can was the it in number? aftermarket and grew kind a margins was? your segments influence, you what good two those isolate obvious I on think, pre that I Water Sensus, of kind recall Infrastructure sales, may. more Applied aftermarket XX%, of Pure you. and

E. Mark Rajkowski

shifted it as looking I that mean, Yeah. think I it, much. don't it's.. Listen, we're at

Patrick K. Decker

It's Control roughly to you XX%. And ebbs obviously roughly impact quarter, all Solutions it's & throw XX% about but in. the of quarter about It segment. flows and if Measurement new that's in the from

E. Mark Rajkowski

the double bumping is Jim, was transport, up Yeah. transport there. little a bit. Services And up the aftermarket that digits

was some that help. good saw So, where we

Jim Giannakouros

you all. Thank

E. Mark Rajkowski

Yeah.

Patrick K. Decker

you. Thank

Operator

Our with comes Joe the Giordano from of question next line Cowen.

Joseph Giordano

guys. Hey, Good morning.

Patrick K. Decker

Joe. morning, Good

E. Mark Rajkowski

Good morning.

Joseph Giordano

and of – pilots, as like people talk stuff, a maybe years like now it how discussions of was platforms and is Like to pitch to has you're going doing couple you've more lot this the these at you people ago product pitch it a you customers having talking can doing into big selling changed? a these about how added levels utility? whereas lower CEO Patrick, individual with a Hey these like

Patrick K. Decker

Jim good (sic) [Joe] question, (XX:XX). a That's

team be sport. clear, me this Let a is

So these your I to the there's executives lot say very of that what has a point, people are having changed. nature conversations. of conversation lot of the and But a much would

example, there a and of the doing Chief but the a What's CEOs, utility, important these these the off well. are of the with other for conversation executives with many is meeting So, has are meetings are Officer, most out nature CFO, the of that teams Technology evolved. lot as the going me

we Before, capital the this our what they intensive or didn't other were have of we the We any new was and it would They before headaches platform, certainly the not frankly, be with they and they was and had but of acquisition overconfidently of issue. not quite courtesy large side a would selling they go it very market, serving AIA saying that in, were not more mind than happy the wastewater in, before share Sensus issues me. top treatment was would plants, with product. I'm their with got call.

is Now, we're having really and outdoor the smart water, talk conversations gets headaches storm for et talked are the points age OpEx like of which cetera. headaches watersheds, as water, pain around and big what points? from about the we capital get biggest around their water infrastructure, CapEx is attention plans and large perspective? that an to about pain in overflow, opening What CFO's their both decay And I the it CEO's and as attention, them non-revenue well those what their the are

a of that pain side, with discovery then do on them process where what the pilots AIA to pretty we I'm that's up try really new these platform. their referring and to to them, pilot have So, leave the leave a portfolio We're and depending we seeing on them, we Sensus in technology but the we're inflow that say really confident to solution a a just of not the is. go to point

learning it's I early a conversations of it's are are it's set challenges really their we customer Joe, the – with So, a great think we as and understand But lot are. what evolving, I great mean different very go. to biggest days, we

Joseph Giordano

get higher like with have of another savings things that or to leg some how much offsetting inflation or so you've do on tariffs ramps anything, rate in flex done we flex kind this to bring something forward cost and then, spend the or you side productivity there's keep if the at to year? of And be able a cost Mark, inflation on maybe somewhere faster of far if

E. Mark Rajkowski

quarter think up, or bit going productivity than teams planned cover inflation to perform do to what we're little are ticks a that. marketplace I a our the first job we in to as and well the and had need continue drive expected better very there. yeah, But doing to programs in better the actually getting we price in Well,

pushing on. need really to that's what think I be So we

Patrick K. Decker

got back of short Obviously, to year well planned investments that not this we of some to. also flexibility the need half. in feel better thus we've going other can the half in investing for the but Joe, have terms as to of business, the get year discretionary in of some obviously far we're cut those on held what environment that back as be growth the going we we we've just in in is ourself incremental second as until the investments we a next throttle in

Joseph Giordano

All right. Thanks, guys.

Patrick K. Decker

Thank Yeah. you.

Operator

one As question. a reminder, yourself to please limit

question Our Susquehanna. from of comes with Robert Barry line next the

Robert D. Barry

morning. Good Hey, guys.

Patrick K. Decker

good Hey, Robert. morning,

Robert D. Barry

question. the taking for Thanks

ups... of couple follow a Just

Patrick K. Decker

Sure.

Robert D. Barry

...I at this guess point.

of India the the total, rest digits. are I implies, in mid-single I think down XX% think, emerging markets, China the about and On is that like

So, pockets of on some those what's other those? particular for and going in pieces? the there outlook just what's weakness curious Are

E. Mark Rajkowski

Yeah. I I'm math. exactly your would sure say... did not how you

Patrick K. Decker

Yeah. The East... Middle

E. Mark Rajkowski

East. Middle

Patrick K. Decker

Middle up East say of little softness I a Latin was low-single And digits. would we had America... bit in

E. Mark Rajkowski

Yeah.

Patrick K. Decker

flattish and down – still growth for maybe Eastern think with those digit but of us the around markets gets low-single would they're little so maybe the a I all bit together have math our in that rest. but you emerging rest would ...that in show small, Europe, quite

Robert D. Barry

at the quarters X%, to do but follow setting it's and expectations to MCS, starting growth the know I'll in half. X% it's with with Matt. one lumpy up just think that, need a back and comps And in it. quick implies then toughening remaining just for you that on I I X% Got the

So, just that? any we how level should setting there on model

E. Mark Rajkowski

when the bunch to Yeah. first piece ramps think one, components I second of over digits and are We've just but ramp about high-single backlogs year segment. – we're think biggest In they expect digits. we there's low-single bit a of side in pretty that Sensus half the first as back do of the got little at the light, to On grew and in the up X% that also strong quarter up is that which that We quarter, test you right? The there. the we on a well. is

So, bigger are the next quarters the see three we in than what first quarter.

So, we're to get that confident that revenue. higher we'll

Patrick K. Decker

in deal, that So, the of that those deal, Robert, shippable specific we year for, Nicor whole high-single are out had the in through very we on of there. end backlog based project Alliant QX a digits so segment kind that's for that XX% increase announcing the some and that things we've the deployments, won previously expect we're and things

got numbers. quite confidence we've a those on hitting level So, high

Robert D. Barry

you. Thank Great.

Patrick K. Decker

Yeah.

E. Mark Rajkowski

Thank you.

Operator

of Markets. next with Scott question comes Graham Capital line Our from BMO the

R. Scott Graham

Yeah. Good morning.

Patrick K. Decker

morning, Scott. Good

R. Scott Graham

minus mind think I'm basis the you it a points. – quarter, that asking to a maybe get fourth in that I Would mix/price/FX/other, and at your guys basis If we XX plus points, XX some five, to. are was a question was trying people look just page your

really be by So, if that possible? already legacy in the the gets specifically gap would could what the mix that that of – you you've But quarters I know coming each things think about. to us helpful was tell segments, and it two us I pricing talked in reduced is that pricing shift

E. Mark Rajkowski

offline. points. out saw XX okay? The a significant improvement volume, XXX that roughly year-over-year. was we've margin talked I basis about obviously inflation Then points, was that. I And had we've, driver biggest we basis was you was also basis pretty hit laid basis points. that was from delta clearly points. productivity roughly and year-over-year point XXX that XX mix take think, lot that basis mean, And We'll was XXX what And

obviously, we the transactional other bit little the briefly FX. a well. to big business as mentioned relative invest those that was were of we drivers, So, headwind, a And in continue to our

terms the I are those changed think the in of mean, don't that's I model. So, components. anything there's

R. Scott Graham

of backs been Do XXXX? a a utility slowing. that – you. spending just Thank that think into be time, residential ultimately been I follow-up has a And spending mean, numbers. would up market Understood. it's law such in for you large construction great I long

Patrick K. Decker

this all seeing see our the point, We're utility at across of we mean, based having signs in the we're conversations the on pipeline, indicators I not all Scott, base. bid

not capabilities. – of around where greenfield it or are pockets treatment correct is the the that resi cycle, on for it's of need as the long-term whether happening that really expansion You upon the impacting that to over country depends the expansion that depending

it not in that we're quotations it indications the not at depends terms us. hearing certainly on So really bid of where. to and in of seeing coming We're any and all

R. Scott Graham

you. Sounds good. Thank

Patrick K. Decker

Okay.

E. Mark Rajkowski

Yeah.

Operator

Lee question Goldman Our of the line Brian from next Sachs. with comes

Brian Lee

taking the question. Thanks for

E. Mark Rajkowski

Hi Brian.

Patrick K. Decker

morning, Good Brian.

Brian Lee

But regions nearing where in India, maybe speak then speak more now the P&L? maybe on just to some the some being we're you here, larger opportunities and versus I Can to end specific you're some analytics the the commentary I'll opportunities also Good some made XXXX them revenue XXXX morning. and scale think, seeing on Thank around synergy of know these that. comments around of given call. the maybe being squeeze China one other Patrick, in I you deals of impact you. and

Patrick K. Decker

Sure. Yeah.

money me facetious go and say many before got a seeing infrastructure you've moment cases the where emerging certainly come to the markets these been we're the they're and in therefore, infrastructure basic pilots mean, right I the infrastructure. skip the going to back of about for investing to and mean in that's in categorize going America that to would talking kind we've probably it I quickest things. in because the markets, North uptake to pay and I'll in be So there, about but have smart I we're – They're on don't some it, that they've emerging of emerging don't heard markets, dumb seeing overall the but place, Europe, in especially in

well, as especially And North are confident a a the Europe America are bringing that there. fold, that Pure are and these had market to as brought where uptake opportunities base about. that platform. them number to have start-ups great the seeing there We're of before. That's That's well as other we're say channels sizeable we not lot small so, opportunities there strong and didn't we AIA with a already very of they into that

from couple pilot and a to share as have of we standpoint want to size of convert talking project. sort of these specifically I and, we'll deals about larger So, to more competitive again, that hold just on from secure a

Brian Lee

Thanks lot, enough. Fair a guys. Okay.

Patrick K. Decker

Okay. you. Thank

E. Mark Rajkowski

Thanks, Brian.

Operator

does you. wonderful XXXX today's a Please This Xylem day. this earnings conference disconnect first have at and your conclude call. lines quarter Thank time

Xylem (XYL) 1 May 182018 Q1 Earnings call transcript