XYL - Earnings call transcript Q4 2018

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Operator

Welcome to the Xylem Fourth Quarter and Full Year 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. [Operator Instructions]. I would like to now turn the call over to Matt Latino, Senior Director of Investor Relations. Please go ahead sir.

Matt Latino

Thea. you, Thank and Year everyone, Xylem’s Quarter Fourth Good Earnings welcome Conference Full XXXX Call. and morning to With me today Chief are Chief Executive Officer, Mark Financial Patrick Rajkowski. Officer, Decker; and year Xylem’s They outlook year quarter perspective provide XXXX. and on will and the their for full XXXX full results discuss fourth

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

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

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

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

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

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

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

Patrick Decker

everyone. morning good and Matt Thanks

it over lot details. a our some provide results, to on turn additional to few I’m Mark going cover, XXXX We then have from highlights I’ll to a so to hit

stood public to-date out we the as year, As on growth past reflect that a our important is I several topline. me this our revenue on to project launches the of that organic and saw We achievements, strongest each with successful businesses, delivered X% a company wins. healthy growth. the things momentum of number new one of in including advances with product We built strategic

We be our our to and strengthens our pipelines company. We our our showed growth for conviction us This saw and markets of portion transport this around quarter longer Sensus our We year. entire worth appear were orders over all strength and term, projects strength a Water orders it X% the organic strength across past near see businesses. time healthy treatment, the Fourth and growing and across that Applied see businesses. long growth noting wins orders double prospects. lead up and that longer of across bidding term are our recent our tells in and continued AIA also in it’s digits very businesses, XXXX and further

capitalizes digital This control providing solutions advantage and gains on investment that mover sales capturing segment. businesses. inflationary were our Partially of XX for and mix purchase focused at of which opportunities volume at year for productivity, was with of up improvement Operating saw guidance basis our on leverage investments. first the basis XX.X%, our aimed funding solutions. an measurement pressures, year. significant offsetting The our Much in throughout saw we realization points XX XX.X% guidance new from year-over-year. and in the has these and points, is slightly EBITDA, revenue were Adjusted been For our of the margins investment strategic excluding accelerated also benefits We which analytics short year. our line accounting price across

we to this expect announce enter to are deal Adjusted moderate were the acquisition the we realizing very exciting benefits won quarter. that this from I’m significant provide the this we Since more pleased already with than another second $XXX We expect of share and half strategy. revenue the year. as we contracts earnings per and that million up in will XX%. synergies Sensus

beyond. tariff and XXX% free remain was shortages and deliver Our free to in in cash XXXX by levels cash full critical our confident items year inventory above to ability or took below conversion customer flow by late we We strategic our expectations. purchases in building component service maintain of QX impacts. conversion manage We to flow at measures made impacted

So I for our strong head work in into momentum we as with areas there is summary, us on, to certainly while am pleased XXXX.

we spend Let growth and us margin are progress that the a long our minutes making term enable on commitments few and sustainable now priorities path strategic a meet maintain the to financial on of company our top me expansion.

in The accelerating further emerging markets first and commercial grow growth, initiative technology. and strengthen encompasses is drive profitable innovation excellence, to which our

commercial orders element we and terms emerging is growth markets strength longer share also what innovation encouraged I’m teams pricing I First we across and our I of and our attribute demonstrated execution this past commercial East. saw price. the markets revenue to upon core our the focus on strategy. continued am to our marketing lines. can We one of in efforts, have our growth term XX% organic throughout excellence: our about business year of market commercial of delivered very a we see of XXXX. team’s gains and another key momentum teams number leadership. expand India Middle China, of in Advancing proud by continuing growth want point In here sales

basis our growth we the and rates these increase pleased XXX margin and new over Our are XX% vitality by accretive of point team indexed delivered profile and offerings.

bring of entirely base their a water help to new resilience. software XXXX. about with the excited enabling capabilities technologies challenges will biggest our them is affordability offerings us market customers bring aim address in to or and analytics and we also We’re scarcity, data, our solutions our to in These that number combine new and installed this and

progression and we I the already our a plenty As $XXX we In We previous in focused opportunities work our about efficiency over business new in bureaucracy runway year. program. CI that and in focus our achieved spoke functions. deeper faster XXXX last This million we on now improvement efforts more eliminate and the allow the across sharply businesses as timed simplification stage see and which increase savings, plan, integration mentioned, of To growth saw we with further penetrate XX last remain avoid serve now our months. to planning is greater disrupting of move we will next us on structure, to the end, This our our to our customers. the X% on Day. are in we and which company journey better simplify next and of continuous Investor the agility business waste at our our

and to We from our of focus future on footprint cost efficiencies, will also rationalization quality. supply and manufacturing chain improvements optimization, SKU

of run We XXXX begin XXXX in We estimate second targets, majority the in actions a to points reinforces efficient for with the work XXX balance and the benefits our confidence basis, the term. This savings achieving of and more in expect our half of on up most be us basis in long focused of to and these XXXX. rate the it positions the execution to of XXXX.

we capital This our disruptive continue us acquire solutions disciplined put to our will to continue as well develop to customers’ allows and we to work organically, the to in and have best solutions area. ways. our challenges. These approach technologies on that smart steadfast need in investments as address in remain We focused

to capital our in increase commitment earnings today return to shareholders, dividend, consistent with growth. a XX% with dividend in the continue We to announcing our growing line

this advanced we strengthen we a ahead we to team and and company goals year to goals development new and a We’ve spring. company. five of are In continue joins our year are XXXX a driven value. strategic release social purpose us the and we both through sustainability economic our talent We that programs, number investments schedule, our very one And significant to of acquisitions. that ambitious hires crates commitment to our set proud original talent of are and achieved be finally

yet organizations efforts, we by to of more. We’re honored and these will have do number external a been recognized can we for

our of areas Xylem. in our and customers, terms a disaster footprint. environmental the community investors Sustainability our priority we and social impact people, is it’s relief our and like for In solutions to our provide, the important increasingly key

me let turn over now So it Mark.

Mark Rajkowski

Thanks I’ll slide Patrick. five results. full with turn our Please and year begin to

our line organic our all we with strong as high this end end top performance This First with very X% revenue our of year across growth guidance reflects pleased of beat growth. markets. I’m the

X% emerging growth markets We in all also the leading major saw U.S. and growth organic way the at in regions XX% with robust respectively.

work XX% benefited of productivity of increase unfavorable performance initiatives to teams for exhilarating market solid up the year price points were XX.X%. growth, longer original accounting of from leverage growth, underlying the commercial were up share reported XX basis also savings, margin and EBITDA margins mix XX.X% improvements to term We our revenue higher Operating and ramp-up to the $X.XX, currency end traction levels at delivered share as in as from volume earnings our inflation, prior million higher reflects of gain our adjusted purchase impacts. was year basis negative higher XXXX This and and in Our our year Adjusted which Partially impacts. XX price continued per guidance. but excluding drive investments this realization. an of $XXX the from realization. offsetting outstanding points these well

this Our free our expectations finished conversion XX%. cash year at flow below

conversion by items. metrics non-cash cash in were large and XXXX tax Our both XXXX impacted

year, conversion Excluding cash these was our our quarter items, was which target. this below XX% fourth

capital and strategic this working raw of late and higher of in tariffs by million drove mentioned, fourth material in inflation impacts component timing $XXX stocks our the pre-buys sales inventory miss the to growth driver performance. capital and was primary quarter. Patrick manage the quarter working As The our of the strong of higher

As timing our capital average impact XX% strategic last year-end days inventory working XX from a and cash perspective December conversion result, month to working XX sales. capital, our of improved QX the our the XXXX. over give over had you on points basis four sales To increased of by on build year year-end actually that

a in improvements once in So to the become are source that improvement we and capital of working for processes will again XXXX. cash working I’m Xylem making capital both confident our

X% So in please the up continued Pacific through review strong by Europe demand surprised growth strength an of and Water globally, the Water in up was fourth Organic quarter. X%, was strength our timing of were and is U.S. utility increases. given fourth I’ll a with Industrial regions. the We market outlook. growing quarter, digit Latin headwind. of digit quarter had From the Revenues Infrastructure the quarter regions Asia acceleration in and the slide contributed top of Markets Solutions. fourth the in growth Control year’s a double orders were of North and all quarter results. high which foreign the of X% turn double the to organic XX% very Commercial announced and digit segment both America. driven organic single which in was sales with end by were exchange some above X% X% price Measurement pleased to organically. and applications up compare the and Applied organic end fourth in driven across was up and the bit growth XX% XX% last America, growth Markets in the strong Certainly high nearly and organically demand growth XX% tough strength fourth by growth the reflects quarter and encouraging in the This Acquisitions six, in drove XXXX. on perspective, growth were a U.S.

for we result but moderating business in a demand to our expect As solid commercial see QX.

approximately each in was with the Against our I’ll year of and segment. was expansion Water pleased review minute. Operating quarter the segment for grew constrained driven the on of an margin excluding X% is by orders a was in ship XX% with Our quarter Please Water than demand segment’s as Infrastructure slide were details residential delivering electronic particularly share of X% XX.X%, review due XXXX, exited is supply, X% million, quarter. $X.XX, in components from up tariffs points expectations the $XXX in the was year-over-year. and backdrop earnings of our which very was strong North Of year-over-year. year-over-year. up million and America chain in versus flat amount organically margin in muted and the challenges contraction an per to organic the MCS increase organically purchase which treatment. XX margin basis emerging $XXX total team��s our We Water This performance supply quarter. Applied by turn seven in continued in I markets, prior sustained basis. for of performance to lower margin business the This up I’ll performance growth backlog Infrastructure this am account.

activity single by year-over-year The million growth growth Pipeline Revenue Treatment XX% the in strong we’ve product the our a investments project prior on localization. over expect Treatment slightly current quality, fastest us Our Bidding backlog deliveries project XXXX exchange lapping revenues this the down in India. foreign Infrastructure products large Treatment XX% custom coming Wastewater for from of to our in the year, market. and growth. and growing for see across led Water delays group new growing in and as due organic project pump of U.S. was We in countries. the projects benefit saw we organic our basis in where demand Transport from the both as remains markets be business. Treatment of the quarter well in in quarter. India growth in health up an regulations Transport With moved Utility Regulations, market around India X% more market grew driven This $XX noteworthy water to the Pipeline more headwind. with XX% pipeline barometer in digit U.S. year. in the with to grew X% XX% up several XX% transport, in we segment activity was was as than heavily by Dewatering Europe the large a that Particularly OpEx treatment in saw Treatment our Water high strong both our with was emerging than growth the growth solid Industrial into X% Waste Western China. by from first to as continued XX% Water growth growth new was was business. much impacted the and

We are grew basis our growth increased up quarter slide the Operating for in XX.X%, the the high encouraged continued organic highest the our to digit by during This segment history. progress quarter. points margin single XX orders productivity, the Overall we X% in as also to driving well as reflects volume Water over Applied leverage X% million, prior Please $XXX organically to and eight. accelerating organically of the price realization. backlog year. last orders compared the with turn exited year. level

in which by commercial Most on shippable revenue XX% about X% XX% were driven in Our growth all million, year. up and up was the up activity basis. growth strong project by with year-over-year was respectively which the U.S. end over grew approximately across three markets. prior markets, organic the is industrial backlog quarter for prior price that In the and growth of points which by organically versus and XX% XXX the digits. strong year. an basis operating end realization was $XXX Latin and markets XX% The XXXX for Revenue realization industrial offset driven is currency the increased Strong XX%, more commercial productivity revenue year-over-year. tariffs quarter well increased XX.X% in China as points than and and margin commercial which to impacted inflation, impacts. of basis XX Segment of growth of double grew reflecting America. grew as applications, Emerging our and in applications XXX basis industrial both in both India, was points price

year XX% over to basis. the and turn an Measurement on revenue Control orders organically grew Solutions let’s nine. and XX% grew Now slide prior organic

American growth in in North business driven revenue the Sensus, by our market. XX% Water increased For

project grew lapping due from was grew deployments. mostly U.S. driven delivery in in quarter of X% the down project pro-forma high And business large to a on the North analytics Electric American North basis Gas America. the of Europe. in infrastructure Our the deployments digits our XX% business projects and advanced by single

solutions to wins first bringing in and AIA the time Xylem markets to countries. existing see in including several through relationships, success continue platform We channels new

this in the year. also by we and the order past saw encouraged consumer are We growth solutions these strong interest new

margins, to the capitalize been margin on solutions with were X.X%. decreased our drive gains investments our accelerating businesses and margins Infrastructure XX.X%. to EBITDA XXX basis the for segment operating market to to our these We’ve moving in Advanced adjusted down Adjusted points points year-over-year XXX advantage in Now business. quarter Analytics first mover share our Sensus basis in

basis in largely investments Our our with expectations. impacted margins XXX year-over-year were quarter the and in by points line

and XXX over tremendous additional than our both the put in by the and our of chain operating downward by quarter components. for increased supply impacted and costs This on margin more quarter team, basis the constraints points basis an despite material During revenue points we efforts electronic saw expected. XXX supply mix pressure

to We will customers manage first ease component continue electronic and expect minimize to impact supply XXXX. the the the pressures to aggressively constraints our of after half

shortages component moderating the and primarily driving points mix and volume for leverage expect basis through for of mix, strong investment of margins and improving improvement second the continue first margin the XXXX levels with impact quarter XXXX year. We to of full project to XXX half expansion

XXXX million Now down to invested and the in returned our discussed our Sensus million the my and credit cash of and $XX first maintaining position. let’s investment leverage working $XXX midpoint shareholders since confidence We an the the turn represents our at the acquisition XXX%. our cash to $XX XX in cover source flows and outlook. $XXX This our XXXX time and Patrick bringing capital in rating. with performance capital of quarter us million. already of of the we target enabling and turn million will through we conversion to the be slide cash least to remain committed quarter, which a working X.Xx. XXXX, financial Please to capital to deliver balance XX cash slide of achieved We We flow overview dividends. in as a range debt repaid planned will leverage in closed that grade I’ve our about quarter for company’s of for

Patrick Decker

Mark. Thanks

goals. ended with term As solid our are and and trajectory we the year we focus XXXX discussed, achieving and topline momentum strategic our targets long on we in confident

For XXXX revenue growth organic X% we X%. expect to to of deliver

expand range Our adjusted to to to forecast is margin points the XXX to basis operating of XX.X% XXX XX.X%.

keys expansion now the delivering to is margin and one me margin that our track XXXX achieving improvement acknowledge XXXX begin pause to on and MCS Let our targets in of realize we to accretive segment. staying the in

basis We and XXXX. expect investment XXX pressure cost drive to margin points continued component the despite supply to first half expansion in of

improve per to Now to to the the XX%. $XX is points, earnings full line XX.X% restructuring $X.XX the back outlook, we to to bottom share in and Adjusted generate year expect realignment to adjusted it basis about adjusted XXX range the will of a range bring for we EBITDA cost of million. by in to expect XXX to This which range At the be $X.XX. EPS to XX% year. of excludes of growth projected XX%

continue Finally to generate least as slide this in and cash will turn cash of to at flow expect Please XXX% operations from to deliver discussed, conversion solid XX. XXXX. we Mark to free us enable

market growth Now review for expected the let’s end XXXX.

XX% make which of digits. in Utilities, to are grow expected about our mid-single up the revenue, First

includes single high MCS and in of digit growth in As spending business there reflecting our growth digit U.S. the saw timing single Water mixed to expect mid-single outlook total. XXXX, the This project in is expect as the healthy, in markets. low In growth well mid and we Europe emerging we deployments. as digit remain we and to particularly Infrastructure water wastewater in business,

leading to and and We India wastewater like where backlog. investments healthy In double are regulations China, locations infrastructure are encouraged treatment expect our grow India, we by digit. both the continued

roughly mid-single to expected market still year which Our of slightly the the however industrial last years, U.S. in XX% digits. our is digits. moderate to second Growth the be up compared the expected mid-single up to two half end to revenue represents of in low is

China continue to to gain Middle and East low to emerging Latin the are to and moderate to bit Applications expected soften to the growth markets expect a digits. Industrial in slightly strength mid-single in America. We expect we India

end market saw revenue commercial XXXX. our about constitutes Our XXXX XX% and growth which of considerable in

a our remains expect revenue, in about highly smallest We grow demand Residential, flattening at as U.S. we digit market, will Europe low expect The finally replacement XXXX. and Western Emerging in secondary in U.S. the digit which X% is continues expected growth flat and market and And U.S. to digits and healthy water to Asian. XXXX. single healthy low market, low growth growth. With overall digit markets to we this our remain to levels. clean commercial is of to end a and single European low anticipate mid-single housing provide growth market in China end Greater competitive mid-single

details Now give you outlook. few Mark will a the on XXXX additional

Mark Rajkowski

of done business, we’ve providing assumptions planning profile years, well seasonal we’re prior the XXXX our as As in our highlights XX. of as slide on

growth discussed, breaks Patrick for X% X% in X% segment are to and to X% We growth Solutions. This X% Infrastructure, Measurement and we organic to in in XXXX. Water to growth follows: growth Water As down X% Applied to X% Control Solutions as X% guiding expect by

estimated the sensitivity appendix tax is a We’re our was the euro included which rate We’ve and of XX.X%. our assuming of XXXX table FX for for the month in average January. rate XXX

Moving the continuing led to in strength emerging total of first the municipal to the range growth quarter, market in we X% X% U.S. growth. markets company and by expect

to be XX.X%, expect XX.X% XX representing expansion We prior first to over the XX range of margin quarter points to year. the operating basis in adjusted

Meanwhile expect expect both turn XX Water please With realization. cost the the While price we MCS over turn back margin basis, modest a I’ll of by comments. in segment and impacts of leverage for mix component Infrastructure the we continued and Applied segments, call volume reductions, strong first Water and through Patrick constraints expect the slide to and that, our quarter the driven to closing improved expansion for on the do continue also margin we XXXX. quarter sequential expansion

Patrick Decker

a year of solid was XXXX momentum. Mark. Thanks

encouraged well investments the by as end inorganic organic as and health very the growth the our in made. that of markets, are we’ve We

the recent are new We allowing of very also which us are pleased about solutions. our acquisitions, disrupted integration provide to

through near chain as term remove growth our term have We targets additional we confident the we are and disruptions cost to and in large the accretive challenges marketplace near well margins inefficiency. and in are deals, based opportunity managing and on supply in as longer and

We are targets. we expansion to topline guiding in XXXX what healthy margin execute to our and financial growth believe on XXXX is

Now with that let’s open to operator, up it Q&A.

Operator

now is Instructions]. floor questions. [Operator open The for

first will with The Stifel. Jones come Nathan question from

Nathan Jones

Good morning everyone.

Patrick Decker

Good morning Nathan.

Nathan Jones

Let’s just start on XX% the XXXX a financial one targets. I goal, thatXX% in clearly XXXX. requires is which guess ramp-up margin margins the big to in big operating

So give that maybe know of how you just you color range buckets in to least the that there, get a us if could more you here from the ‘XX get are at end little XXXX? at on bottom what guidance you

Patrick Decker

this so Sure, is Patrick.

XXX year. know So basis say believe expansion at credible to we points to least Nate, first hear mean get this that XXXX you first. we’ve gotten we have things I I’d highly plan a

that Beyond XXXX. that, we give the you for see me let bucket some of large

First the inflations. continuous from which out, that’s cost our take of net savings is all improvement and and biggest bucket is

procurement continued biggest journey. So again lean our bucket. that’s on That’s productivity our and

business that remarks. in savings into from I ‘XX simplification initiatives, prepared services to our We began ‘XX late the as well also as wrap have that broader global outlined my

price to and core again that is The second get. area we expect volume the leverage

in we X%, the good of and flow our though then And You know low there. margin even to expect revenue see long very X% to end leverage of growth accretion at term guide AIA we’re year right that synergies later now large deals XXXX. is fold start the on this getting those third, deployments and full layer the and really and from Sensus in

once MCS our in in XXXX moderate do to the in commented and later from we our XXXX then ‘XX levels. moderate as Additionally earlier, begin investments segment again

those the So be us able buckets our that to give marking four guidance. are really big hit the confidence to

Nathan Jones

pot have helpful, I have anybody growth think you growth. don’t and Maybe across and demonstrating Maybe to I in that. been there later of thanks. can the obviously here, heavily with to so the into bit lot ‘XX a things investing good little will in maybe what’s very to problems those the you drive to on mean talk that about to all ‘XX market, achieved more the been drive growth come MCS investments, with investments continue portfolio, a That’s guys have

Mark Rajkowski

– with first say Sure, all of aspects to I’d invest say respect in I’d our continue we to portfolio.

as full productivity certainly we’ve our the So really services, But I in given Infrastructure think growth opportunity out us especially also to and say, in advantage the products software really And and about Water and specifically had our to Water well, investing company. areas. strength we’re we building are our market. offerings within stages bringing businesses networking new and Applied MCS, embedded early of in and of investments advantage. first that to mover accelerate entire I’d the across looking It take affords the four and

in that some we’ve electric Infrastructure large Analytics building is, offerings support to of and deals out in one there. First is, new secured gas Platform; again building new Advanced second this out the

We software some solution pursuing a broader and me investing and out talk you’ve networking heard lastly before capability. deals are for then we’re again in building products that much of specs specific the designing that, international about and

Beyond regard, back are getting pursuing that I’d there time. pipeline point are of more result specifics, right in feel there offerings. deals a we are be There’ll that any more from now, new terms but about of come to probably hold of very the out really that that this these good and again, in at that we

Nathan Jones

as of see get the XXXX. the on on CapEx level about drive on to a a just working has like production, cash the once localizing lot explanation for this XXXX, run same growth and that staying long helps localize CapEx, CapEx I cycle in significantly and kind lot the Mark through is capital, do that shaking and growth? that of pretty more looks at out one it increased know free flow. Okay, last thanks investment you for Where you over CapEx couple years.

Mark Rajkowski

Yeah, I that talk mean and the we that’s Board. a good with the about question team and certainly one

revenue. you you are end we upper as think the capital at think when about of percent know I a

that That has the we’ve investments been up. that ramped have make function been making. we – We of a

ago some are a new and Patrick that of which those about so capitalized. talked is products, that investments gets of in a just moment lot So we’ve engineering software tooling got building; invested we for is there some

year. demand. clearly some then had capital components huge to even in those dewatering you had demand at So in and ramp-up capacity meet this to build a look when We we and

we’ve also We you are and sales you related and smart a SmartBalls, ground a been. and percent around I you only not a where know we’ve in back going but point that tools, of the in starts AIA to next hubs higher that building really as out investment hit engineering, need year on moderate trucks where need you and this and investment sales year requires so level think PipeDivers, our see to support to you to P&L are need into

Patrick Decker

would Nate, I comments just thing prepared is Patrick. and this would kind eluded levels. I moderate and structural know You really change capital is the that timing is the expect here around It things his add conversion would like say again this would CapEx in the here around intensity back I and to in about there of say to same of much capital to normal we would is around that I Mark that Mark say no business. talked – the cash working

concerned So nothing about particularly we are that here.

Nathan Jones

help. thanks much Okay, I’ll pass for the on. it very

Patrick Decker

Thank you. Okay.

Operator

from Baird. Mike Halloran The next with question come will

Mike Halloran

Hey, good everyone. morning

Patrick Decker

Good morning.

Mark Rajkowski

morning. Good

Mike Halloran

on would you underlying Obviously and hesitancy pipeline any Maybe sign be side just It the on sound conversion So is trends looking color their customers that right are color perspective, around little give pipeline. like start great? slowdown. of Any any in at a world remain now. the healthy. orders could how from doesn’t there let’s and in the

Patrick Decker

Mike, is this Patrick. Sure

a we on each slowdown. you keeping you areas treatment indications that’s so to close our really indicator the know XX% the a big you aren’t Again, of our obviously bidding pipeline. good end let’s saying saying So a we marks, ground if with are think which are is any of on in start know, one and We hearing pipeline and our very utilities. or really about increase that’s

tough in be that expand in We emerging in point in whether year there, terms as indicated. and certainly is expect continues of America you we to be time consistent of compares, know Europe markets think you’ll that and over So some year is it to North kind the next. it but at

we’re encouraging. low in digit kind in it XXXX, trajectory here, single any know will moderate but which is seeing quite not to change You growth of

Now we is healthy. also of feel the that a that to gains, fair be market overall amount seem but share again

we heavily you On this are know the our channel the we for here see are continue half calling industrial to second of again side, XX% market. total know some partners; distribution. the year. They revenue, go you again of in Again, moderation strength in through there

We are calling not seeing that yet, but we it. are

We are are some will expecting that tough out there. that be comps there year-over-year

helpful, sure slowdown. if of any not that’s in not you we’re it but know terms now so And seeing right

Mark Rajkowski

that said we we short hit Yeah, comment. and Patrick we business a it’s are Just and when that’s you right fact. up. things and as good to one are that all but also sober quickly there’s our they know cycled, have chunk But hit, antennae our mindful these of

We are constantly. to and our customers talking teams

not those We now the pipeline, seeing are are we signs. so over all right

Mike Halloran

technology referenced another question, analytics know to and bring and year, what’s these are to Seems the MCS the incremental Sounds know this you then receptivity but good the platform, early to you in offerings coming connectivity, the the particularly broader as good hear love infrastructure product like customer receptive, thoughts its been some prepared side. solutions, some of trying I you there. in remarks

Patrick Decker

encouraged. Yeah, so we’ve been very

to what start organization, and are utilities we’ve you you’ve to, going to about addressing. two products your address, are to irrespective are of be speaking convince in the time offer biggest got organization if is challenges they I utility, any pain where are, only at the the or think kinds today if spend of very take pain Mike point one a of able than you couple conversations them levels have to of more company points let’s think of levels the need had because before, trying those senior or we to going I you different different

go to have the to we objective seen offering conversation. product, first more as and high are be the technology, so likelihood have or able with have to that that the the then conversation what you biggest pretty We have. in we’re problem a are now you the that data believe in a that consultative and With solve shows even also challenges confidence you able the around and

days. Now early that’s

that CEO’s, we’re candid see from have operators we’re know board. I able they that You receptivity so of going, conversation. where the to and the not objective a ahead get don’t want of capability have across we want to because selling – degree utility I don’t and certainly but to be ourselves, high open that’s

lot the you here, of we when Pure where you want building excitement know America build largely if previously were is the markets the businesses are new they where acquired be analytic fact from pretty best to infrastructure, lot so lot that receptivity they a know and we and to we’ve smart see and dominant and across infrastructure to to think lot the wins in a infrastructure, the they a why the emerging opportunities some of of then, how infrastructure of about emerging North you synergies the help that Not are markets, the You know where new a know that build interests seeing you other need and there. European extent we’re And that’s optimize they want of lot a see to customers. we seeing that’s know able presence much don’t and businesses. advance to where

Mike Halloran

to is obviously then revenue really margins, and the last there That’s seasonality? you in one robust sustainable the just relative don’t quarter. helpful, levels normal in Anything infrastructure water that think in

Mark Rajkowski

of on saw kind productivity a bit pick and really catch to been clean. continue on that, price. you inflation we push XXXX offset little What from know a see in and headwind a nothing to up of pretty unusual trends those we you savings and up good that, it’s with on progress expect a more so as No, to what know pricing and really on had real

Patrick Decker

add also And I every we just allocating a managing every here would each capital know there we’re that so know day, that you I year. portfolio we’re quarter, think you that important and know it’s

because in and as to us continue of portfolio in to infrastructure, sales but a and to there’s applied the over And a you as we further product our water. we that manage Obviously to development ramp able do the invest margins pieces invest invest begin like know we so the lot that see in water opportunity we’d two MCS those continue in standpoint efforts in up marketing be continue know affords here, that to portfolio, to pipeline time. from here, we’ll to a new you

Mike Halloran

appreciate Thanks it. gentlemen. I

Patrick Decker

you. Thank

Operator

The will from next Deane Dray question Markets. come Capital with RBC

Deane Dray

everyone. Thank you. Good morning

Patrick Decker

Good Deane. morning

Deane Dray

baking whether you flow with could start or to cash XXXX, that more free noise, a clarify you and like I’d add the the XXX% are guidance capital of at any inefficiencies requiring inventories. working year of these maybe shortages the Hey, better component to you or you the for other just are the any tax know bit in start to

So any the flow outlook? of those cash affecting dynamics

Patrick Decker

and and remarks you for as shortages, to of tariffs strategic around in in ramp higher in that forecasted, the you got of know out of the quarter than million and terms that saw receivables payables, in and was S&OP know was mentioned on certainly We such volume I top those as lot volume. those – side both the up absolutely component quite timing reverse took was of prepared had my but in is of XXXX. a you the big range things pre our were it it’s that these Deane. that quarter also cash definitely the just and processes of the opportunity efficiency, of $XX chain above in the inventories end and there or as progress going that our it – relative And some with was the frankly we’ve continued in to improving a normalize in chin buys, well the in we we whether of Yeah, whether along the items, will on on with supply know

Deane Dray

One sticking higher That’s talking volume the just good. year. a cash flow you And of couple at all is, at points. side, around about

high a heard an industrial You’re off opposite being was terms the lot that right, you’ve we’ve on What that Any there outlier, because the quality this fall of side a just good number December, a $XX How so projects handling that that’s investment? got million, aside, of companies in highlight much so for problem of the particular of that positive. would in year? about CapEx? of that you

Mark Rajkowski

high, the development running of grow did back about have, to you up problem of number software Right, nice hard And to capital engineering know spend and to terms to we demand software. I our pushed ended I so capacity add mentioned. AIA as that we’ve in around had been out really products We’ve been as business our the dewatering well. has to capitalized point fleet in platform your and a think as really we running our components hard

nice to to. So those but certainly we things to needed problems have, that are respond

investment function a As is curve, level, we Deane, getting you part which the that flat. we look XXXX of we that the will did of know the we of expect back of in – out though Part ahead to remain in XXXX.

Patrick Decker

also greenfield and declining because specific think know know or to to kicking we Yeah, any big a know XXXX, to need called terms your there absorb to we’re manufacturing Deane able you why it’s one out you in projects are to not in question you India item, going another know say I expansion the around, not we’re but is of reasons of off likely moderating and you in be that ticket capacity. be it’s

we’re in ticket enough not just all ‘XX. we’re of to but hold seeing get to India. big won’t really itself, in demand certainly a but of it’s ahead going starting of these and kind in numbers hit It’s to that’s incredible and again ‘XX, be item flat in that that year-over-year the Now

Deane Dray

is to year investment looking cash flow it us hear free upside feels develops. opportunities this those a were we’ll XXX%, see And to that at great follow-up… target for but that That’s that then how as of further about the that, to we there if and

Patrick Decker

we’re at you assure can I Deane, it. working

it know you will… So

Deane Dray

that. hear I

Patrick Decker

working the attention so in capital on disappointed got side. right, our were QX, it We

Deane Dray

maybe and that could guidance, yet, pretty we’re a to potentially what organic and opportunities much move enough one at you’re then it’s six better. the excited could but what out forecasting is terms today? if is that all looked MCS. do about that of in better me The kind the needle jumps everything bit expected little like Good, upside Maybe revenue the at of because AIA. as they doing they MCS don’t than that not seems better be four The in

Patrick Decker

is a you is is a know very and timing you revenue really of to centerpiece double platform digit orders AIA of $XXX ‘XX, relatively is and in accelerating going it’s for revenue. forward; It versus of so Deane, the be project know million growing healthy of on that really at Yes, assumptions its the around deployments. still the north very revenue us both small XXXX just and and platform chunk straight

So won. that we’ve you know we’ve some got large very deals

comes hit. announcing expansion when some in them here very have great We gives around growth believe in going us confidence down XXXX, our margin things XXXX. in and It Most those just is likely hit be that of short to what are which to will order. we we

of the you timing move but our are kind giving the around, obviously right So view this middle of down we now. fairway things of could those right

Deane Dray

Great, thank you.

Patrick Decker

you. Thank

Operator

Suisse. The Credit next with question will come from Walsh John

John Walsh

morning. good Hi,

Patrick Decker

John. morning Good

John Walsh

little just maybe ask So back if differently. could XXXX margin bit a question, I to following it that

was deals dilution targets, So time. getting since you’ve tariffs, had and you organic FX that done. I been didn’t that some provided you’ve at believe deal an those number contemplate

higher of range step this point, bridge the are on other but executing wondering bucket in or you this really you know it over to know Just filling would if are end have kind if sitting the you of know you as things beyond, been not over know that parts drive to that about of a with by as plan you an filling contingency kind you margins think time.

Patrick Decker

sorry, say I’d – and is Patrick. Yeah, this

it’s that journey couple simplification things to on be One give is obviously dilution XXXX. things you beyond that, here across What – say and way leveled drive a on Sorry nature changed I and this that in confidence. are over their yes The be, and an doesn’t being that would the us XXXX would opportunities further the be some for see angle the time of deals targets John. do obviously we of that. a are way our efficiency further No, that of have on and has own, is the a giving long end question simplification that is it the won’t deals integration created part margin the synergies we’ll of would from I it of you and of things integration great is that by done, standpoint, from just and know. articulate by It Part of that businesses heritage simplification. we’ve organization. there there

and to continuous side, here So now sigma lean also Day, certainly we know level now are the the you opportunity. to but added are we’ve on and it’s improvement, on whole on with side. you own assets to as we our across are at efficiency, you capabilities leaning portfolio Investor those based more know other both original so but driving we on sig getting deployment that our bigger able we’ve than assets lean got deploy of play Two, those laid mature on necessarily journey, out harder we pie new the in terms a procurement the had

about. know get we would confident And as integrated the we are better was that so we the feel getting those more the spent at you already indicated we as what investment that to that a traction So feeling are are Sensus, on that a area would that and and time Day you Investor we basis say I moderates now even we’ve what of seeing know benefits look on. like year-by-year profile over what then, would

Mark Rajkowski

know hard and we’re much opportunities at yeah if XXXX. investments, these going – the I’d that and Also of continuing let in of run be price And add really model we have and didn’t you ramped the and some to just because in – the to heavier, moderate. as into sooner terms hit this know year look inflation up got those built you we’ve we that, we’ve you in model, of really drive we we to

we there’s yeah. than model the So in there more anticipated well, as

John Walsh

just talk about you, of there’s you passing follow a are you been know inflation to because you effort kind price, when know know costs, Got know maybe where think on big then you that, you concerted of know and Can you through to or of related. value these what right, you based there’s know increase what’s technology Xylem can kind but get you of the obviously what about you perspective, of – your inflation pricing value – material entitlement kind had price you to where you doing know versus how if kind price, are deconstruct added, you from more you a pricing. from

Patrick Decker

I XX% we you brute you use know know say XX/XX those obviously that know get is if specific just hard still here, it’s inflation, I that yeah would got kinds say put on drive would but it’s the out a the price force, issues. of rule that, I fact there, to Yeah, you leverage to directionally I’d to cover say cover number the tariffs,

also terms but new margin for it’s bringing encouraged be is, at we’ve at they While in been same profile market, businesses, the of product and models company. time been criteria to segments, that the growth rate, each got margin products to least whether products that’s more for is of of accretive different be our development business what and by certainly a one really big I’ve the pipeline accretive of new our the highly three in the

say kind say capability. pricing that picked So more been a based it’s XX% value if number the I’d I that’s of to

Mark Rajkowski

the I also opportunity think. And

Patrick Decker

Yes.

John Walsh

Great, thank you.

Patrick Decker

Thank you.

Operator

question with from [Operator will come Ryan & Boenning Connors Instructions]. The next Scattergood.

Ryan Connors

theme Great, actually thank guidance margin. talking know your then into your ramping up, are go that there thoughts on just of get how about do environment costs you. than and know that about of where moderating with an material stick you you and impact talk I if very more want to were flipside costs, the price we assumption you raw does around

is pricing XXX that? XXX if come raw upside, materials are be You pricing you and – down there to to if of and sticky talking upside what extent points basis can margin know

Mark Rajkowski

Ryan and pretty looked gone think been I it, has businesses historically pricing these at so as back Yes, sticky. in we’ve

You know change. when period a step inflationary you’ve function there’s to it you’ve the gone gotten Obviously away. been an not seen probably someone it’s unusual but and giving fringed as that its price, then margin,

an to obviously that for see be price time level if down there, would put net point inflation in to we us. a it depends number So pressures moves, benefit; hard on positive auto we were that slowing or of cost a it much of but of should cost to be this moderating sum At how it. dynamic expect on that

Ryan Connors

fact Got it. that coming and the wanted whatnot, And for to from going know of a maybe advocate treatment then new stronger we might devil’s response say regulations will to my out and the a just it’s to you get on and strength dynamic? And slower little longer thoughts shorter the it there is generally you to your know stay little cycle but probe story longer, what that business, would – on businesses question, want than argument cycle bit get kind wanted your China is that of of then and you a just just the to some buy to the there. which you know play other the industrial roll so it

Patrick Decker

here. you Yeah, kind breakdown know of so bit China to a

double moderate strong – we digit be growth. to we had expect from the growth in going digit XX% but XXXX, expecting slightly So it’s are which dose in still double growth again that we ‘XX,

the recall, of we our protected. you and is space, in as well utility two-thirds – pretty that’s been Now actually as probably China you revenue in historically

It and the declined, of that it other slowed, piece back were within even in three our So peers. industrial think business shock the years you know the but our hit but aggregate grew business, when and it cycle. never like you down other grew. through third slightly, took downturn, the we were It in throughout ago the utility was that what the companies when going big the commercial industrial that China two,

confidence of thesis the utility an pipeline slowdown that in the China your know treatment gives business. don’t what is orders ‘XX in certainly on you impacting the time absolute see one, us overall in long and great is of side lead the we correct us nature So that

business. near that very you good pumping, more very on seeing term, growth the margin in That is good which water we’re waste transport, business remains short on cycle pumping Secondly, know side, the strong. is

year, to this the piece that shouldn’t in way. prognosticating terms our helps not the we the AIA piece but and here, say building mean half is which our We other but moderate of help, that customer the across slowdown beyond. of tremendous there is but adoption we But industrial of got the promising very in market for I along kind commercial are the base we’ve I leads of lever got second what excitement into are platform. and new business, guide from growth really building the small area. in ‘XX in a of Again, some XXXX. Chinese

Ryan Connors

Okay, time. great stuff. Thanks for your

Patrick Decker

Thank you.

Operator

with The from Giordano Joe Cowen. will come next question

Joe Giordano

Hey guys, good morning.

Patrick Decker

Good morning Joe.

Joe Giordano

you’re side. roughly the will EBITDA towards were moderate that the EBITDA and on already at meeting that mid-point apologies at lapping that win, about comps. big but look – things that, are MCS about don’t guess something way guidance comments talking that and the If to get appreciate you then that going in there it running another light a Internally want in to from XX end infrastructure easier so optically is to little hit I’m business, But I XX% – the operating lot side think something so like to your level. little but operating incrementals where like I EBITDA of a pretty driving there but to, at you’re get and situation it’s operating is to you or it and of a is a keep if in are getting the I’m and some the the you’d on that seems fully Hey, so it’s I have guidance, bottom margins, on I XXXX XXX a just spending that way a guide, ‘XX the different. I where to here. right, you high the

Patrick Decker

you we going that’s third of we’re because noise a things and peace. know operating we there mean that EBITDA nature, the is are measured No, after of accounting out lay there operating our incentive on and the but income, just plan. no in deal I annual

The organic capital. other is third other is third and working the growth revenue

are playing the we’re way And so Joe. it you – we know that’s

Mark Rajkowski

continue that for good we see say are And to XXXX going volume I leverage. would to

to going are started continue price XX; basis QX ended the We ramped XXX we nicely the at that big to drive I QX a course element. so acceleration points, we that’s and up year. mean throughout of at

the Patrick continue productivity We to opportunities drive got talked that and and about. actions we’ve

We haven’t yet seen global services. the from ramp business

which that of to is have number a we our through that to going be driving EBITDA will are play as So, expansion, levers operating there margin well.

Jo Giordano

you of China now? When talk India guys size just China, guys enough. about the and Fair you kind can you business right guiding to for it, you

Patrick Decker

still our now the relatively become China so U.S., second outside small. of has Sure. largest market albeit Yeah,

is in just China years million revenue our feel. that was about So million $XXX give just ago, roughly and to few you about a $XXX a

absolute, still still numbers again large very fastest to market with in million just and growing the that well relatively a but overall XXXX, under is just of small revenue, our ‘XX. revenue, in an order our is here ‘XX in piece going India that again, nicely. $XXX be not but So book but is India above of growing

Operator

question with next Raymond is from Pavel Molchanov James. The

Pavel Molchanov

thanks the question. guys, Hey for taking

quite this front obviously M&A the year. been On you’ve active past

past been one, attractive which deals year the M&A they those multiples segments most secondly, the than in three perhaps of higher of over across prospective your the the have questions. you’re at are prospectivity looking three inter-linked today? among kind Number As segments, present judgment and deal two what valuations

Patrick Decker

any we’ve to in our either us help manageable so guess do attractive to this Yes, how spot, I the we’ve proud time proven all over it’s in seen or I’m the is and which what in and buyer has our point for relationships, of keep not reasons and multiples. that a there to big they seen gap do, not Sure. though you those to in having not seen also very By move at in time, this a and as – businesses folks we of there so deal opportunities expansion we’re in and of the spot not kind haven’t of cultivate team at maybe so as really said you deal time. that, say know between move in last the a multiples a hard first But kind months, XX seller deals expectations. big seeing or any these M&A point

around you at further if first utility interesting on of our MCS Infrastructure turn build well have digital the of lines way, say platform, the I in the then think this they play of capital bolt roles, segments, all tuck-ins sight they But strengthen they going us line what offerings In and have solutions up will I our would new based as our in smaller Water the do space at and we curve we to to when to of move the today. segment, each industrial terms and as look there, space I in are attractive like offering our round the different Water out but set. analytics opportunities outlet, and that and potentially largely there that’s business see space, business but you terms that water of not needle look that three on opportunities, see that product question around you the our you continue Applied technology think the about three, along we so all to move to to out

our are itself. but we Obviously digital exclusion the and product the at the board. the opportunity component, when across software that’s opportunities core prioritizing are not of there So defending also offerings presents

Pavel Molchanov

Alright. it, I appreciate guys.

Patrick Decker

Thank you.

Operator

Goldman final is Lee from with The Brian question Sachs.

Brian Lee

good in squeezing and Thanks guys, morning. me Hey for the question here. taking

Patrick Decker

Good morning, Brian.

Brian Lee

questions here. morning. modeling of couple a Good Maybe

near-term fully but like on XXXX. bigger growth First of does in deployments this in it some the year, you mention more here MCS, look maybe did and materializing derating then the later QX

is you’d of fair growth being as think year normalization you half? the versus So the half, and first second or back tougher growth bit see MCS XXXX actually in with do a a you year XXXX acceleration move can into terms in this is to half even of you do it comps better say

Mark Rajkowski

the seen had growth of large deployed. in get to is deployments Yes Brian, timing here is of projects the in Mark call also just really happening the It those orders normalization. of remarks, the but of big this and some when some wins, X% X% timing wouldn’t think I a had and you’ve briefly I response opening mentioned we’ve question. the what’s and really reflects to Patrick it

do XXXX a and rate back growth we expect of half so certainly little the And better into in XXXX.

expect of to see We acceleration significant growth. revenue

Brian Lee

enough already free well same of at fair the and and years. but XX% if levels just questions topic, number a nine cash been first were then here, flow conversion of below through the second was know at you look I question for you each there’s the months Okay, the year on ‘XX, of years just those respective were points at that in the you that tracking past the two

was flow in shaping play was that be just free swing timing factor was conversion in you. such or out, all it else for to this doesn’t So cash related and ‘XX to round maybe then up repeat know year, something there why wondering, at and ‘XX? it a why you XQ Thank

Mark Rajkowski

expect question. terms generate a Yes, what it’s our I to and will we in terms of – the timing pressured flow couple a cash the normalized so our you more in more to the buys shortages, in one own related some strong growth sales will of of and its recurring, Typically, better in we receivables. a little in is around got sure things as aggressive And teams we don’t and Brian, and component that as cash quarter quarter, of some It a factors happened very to we be good the lot fourth QX. cash work there, we cash well – expect profile And as got on this around best be later then XXXX, saw made tariffs expect in those pricing. – both million things $XX year, mean and do more in related bit those on was and of and a source a we XXXX. through. impact know picture of the lock to strategic we

Patrick Decker

just I Yes question that an with maybe view. up Brian, would additional wrap

previous the question being around a first couple Your things. nine really below was that year maybe by driven months, through tracking of the

were of month, able conversion. us. a heavy very nine fleet, be were or confident were year-over-year nine months we that expecting because from we that, supply standpoint flow of in a also back revenue out and December tracking that capital just working to had the to through some first CapEx , result and software But we the in free receivables and in dewatering our and that big to to drove months. these for constraints in the was AIA that in in pop we surprise chain issues the and above the were as smart of the Mark a alluded what a year, at laid really be we around cap So improvement declines the then fund first well before expecting claw so Mark cash the the ability of XXX% that’s of hubs around some year-over-year Sensus,

us, own we on So, that’s it.

and We highly rectifying structural be are XXX% no There we’re is in we’re and above beyond. going confident the here. to at change ‘XX it well or

Operator

turn back for Decker conference over I to this comments. At would like time any the to closing Patrick

Patrick Decker

out after you Alright, support. on the you Thank interest everybody. travels. call. well and our QX road, again, again we’ll to you Safe See thank talk appreciate you continued I and earnings all. your

Operator

today’s Xylem full This call. disconnect year does and earnings Please Thank a your lines and fourth XXXX quarter have nice day! you. conclude conference

Xylem (XYL) 31 Jan 192018 Q4 Earnings call transcript