XYL - Earnings call transcript Q2 2019

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Operator

Welcome to the Xylem Second Quarter 2019 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 now like to turn the call over to Matt Latino, Senior Director of Investor Relations.

Matt Latino

Thank you, Maria. Good morning everyone and welcome to Xylem's second quarter earnings conference call. Chief Rajkowski. Patrick are Financial and today Mark Officer, me Executive Decker Officer, Chief With provide perspective will They their results. quarter XXXX on Xylem's second

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

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

Additionally, of the the available under via events. playback Investors our call section will the be for website heading Investor

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

including slide GAAP and have turn summary provided metrics, we key three, performance both Please of non-GAAP to you with our a metrics.

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

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

Patrick Decker

strong Overall, today performance growth joining and continued expansion. Thank you reflect quarter our Thanks, quarter margin with our in Matt. Good pleased are second for a to which us revenue we discuss the everyone. morning, results.

result marks driven the organic and our mid-single-digit orders revenue least our This demand of quarter tracking mid-single revenue markets in growth broad consecutive growth was across solid at Our and digits. topline organic by based end with growth. eighth

focused our sustainable that and solutions margins. we the This to water drive will investments new bringing are attractive reflects of the sector results believe

delivered XX margin guidance. in points our expansion solid We also basis line of with

of our addition, That also per was represented translation. share a delivered expectations. earnings line increase excluding exchange with which XX% in $X.XX In year-over-year we foreign

As growth, are the a our raising upper revenue and midpoint end of result of to sustained the continuing range. we healthy narrowing the guide organic

accelerate into the our bit to As are of to each and a get we targeted guide result mix range. them our EPS We'll of in near-term of end lower narrowing and growth, detail. a investments sustain the more

at US and the pleasing, our in product double our grew emerging off. digits China very organically. we've in in composition in is utilities led by performance growth clearly We each investments we and strong Regionally, mix markets which Looking turn high our paying high localization robust. are and the India growth solid line, largest of of considerably China there and in and top of our end is each The invested particularly given India, commercial. momentum end-market digit delivered in in both markets regional single our

but a segment Europe detail industrial take all point to turned has based rest a quickly weakness. broad I three Generally, in out markets, in driven Germany will like most our Europe by have of performances. into the seen considerably that us would Italy some solid of and softening shows the picture. segments certain in business steadier moment, Mark

in Xylem and America. in X% MCS. dynamic digits Its We're more the picture North global overall, a growth solid with progress quarter growth in a there very and growth happy the revenue business. of outpacing our However, is Sensus is turning double

interest is a doubling with of phase Our total a XX in of XX% customer by of is AIA led new of deal opportunities MCS expansion growth the over platform. past The in reflected months, pipeline new earlier the in an within platform acceleration digital AIA that portion the ramp. solutions

of be conversion incremental of very Moreover, expected highly pipeline attractive margin Xylem. the revenue slower and The however. will to that profile accretive project been is has size and than to

As new with our technology, digital any disruptive for platform new customers. a represents approach

So many prudently taking time the solutions savings. are to and validate

project thesis. are fact progresses, seeing that we uncovering opportunity our expanding we continues As Despite investment slower validation to are scope. market in expansions the conversion, affirm of long-term

add the ahead positioned to Our realize in of just curve bringing to order sector. scaling digital we capacity and as build advantage approach and are the we AIA and to the out the to end, adoption portfolio. of To our incremental marketing first platform sales mover the is to integrate be through water and M&A to that benefit capabilities organically intelligence invest and continuing our both

XXXX to do shine developing Lastly, to in goals, a approach aspirational to took this on opportunity and models a cost outcomes commitment before to business turning doing many take are over new of positive sustainability. In Mark, I we industries want bold business. sustainability our our light a

outcomes address affordability doing to resilience climate and Xylem scarcity, that business. change, all water consumption. are a our technology result energy dramatically water positive of sustainability customer's while The For we reducing sell

technology of the complete a as goals stakeholders more the that in are we earnings our to They summary in and our for list returns. is deliver So to appendix robust of shareholders sustainability commitments this and we we is and our our business bit and deploy, more package. is every communities commitments signature our commitment benefit growth customers alike, do, strong five report of the financial the we generate sustainability the The serve. the more

turn to Mark. Now let me over

Mark Rajkowski

slide turn results. quarter begin Please Thanks, our I'll second and to five with Patrick.

double with grew revenues digits. each of US, Most X% Our led continued in last momentum saw X% X% were Organic comparison also the healthy quarter growth China, year. second Australia orders geographies organic growth growth on overall up by up and revenue a tough solid India which the

negative was due did led growth into However, year. the Europe saw markets conditions of continue slowing to second have X% XX% prevailing sides of US was on of half expect within the which XXXX. by top and we the supported utilities pockets specific our we across in CapEx in we which the positive a Latin by revenue end OpEx tough This some saw of organic economic and both comparison growth All where robust to mid-teens in growth of utilities, growth America business.

of business partially regions. activity in Industrial realization X%. business and market combined offset several project the industrial in mining price was Healthy continuation in construction demand the our with was up dewatering moderating U.S. by strong and

and X% year-over-year. market up in in strength growth the double-digit commercial Continued US markets emerging drove revenues

in points market was expectations. Adjusted was programs driven and X% operating investments. XXX for share productivity points points Earnings cost funding per grew foreign from provided line our quarter expanded with versus our This translations. XXX of which basis in basis basis excluding up quarter XX.X%. our for realization mix margin by savings of primarily residential to was unfavorable currency the which price growth The year the XX% and the than more offset $X.XX inflation, prior XX

the Please Segment revenue performance orders was noting its X% with growth It's this line review million of quarter the turn revenue XX% $XXX an $XXX year. top and on last tough year. end X% this segment shippable top was with organic and worth maintained increase Water at to results. infrastructure backlog up our quarter. in to organic X% a of million growth comparison momentum I'll of slide the six,

the and shippable The end growth industrial sign drove positive in our utility US future the While of up XXXX for CapEx XXXX spending steady the for and segment. utilities flat, Several is backlog organically, in strong momentum is projects remainder XX% for was it beyond mid-teens market large treatment up and markets. a our OpEx performance. very both

another to more to and quarter rental primarily digit in benefit from continues which Emerging from offsetting than double America driven demand timing strong market. were economic construction in in a East. up Middle declining dewatering and growth by China X% was Industrial weakness Latin by markets due the project driven healthy

overall, Segment to by points by in more X% to growth price realization capture and with very leverage. driven been the our the XXX margins. to growth savings savings I'm in investments than margins to and industrial reflecting grew basis expand was share declined cost further which teams low-single-digit doing productivity continue have Europe market. volume XX.X% operating and utilities, offset fund price softness pleased the Western work drive

delivered activity the Please applied is segment up water turn offset orders was X% million end X% growth to Asia of revenue year this Europe. Overall largely and $XXX to North which in organically growth systems order is X% organic organic $XXX and Steady was at seven, ship year-over-year. the quarter, slide expected the million orders the quarter. America slowing by in in backlog

primarily Results were market Latin up economic and Middle End realization led in up growth primarily partially Europe led down markets X%, and which which end were pipeline while Geographically, X%, in X%, industrial with healthy across up certain Growth led market markets, growth by all growth double-digit America in markets. from countries. increased demand, was the by the Western in X% weakness Applied U.S., end revenues in was East. declines was results revenue reflecting offset by both were emerging project U.S. price in lower overall, by by a China, commercial was driven delivering the X%. Water on mixed

margins which XXX by basis of were Segment points, XX.X%. cost. the operating roughly points impacted margins segment's tariff-related Inflation negatively XXX included basis

an did and capturing expansion job productivity points points outstanding XX realization margin quarter. driving of XXX team basis basis to price basis However, XXX the deliver the of points of in

please to eight. Now slide turn

Solutions grew delivered year-over-year million, digits Control expected to backlog the in growth. to with & double organic grew year. and this quarter ship Measurement million revenue $XXX orders Segment X% X% $XXX

see XX% American Sensus, earlier, water North mentioned which to Patrick business, the grew quarter. the within As strong nearly especially momentum continue in we

Software high-margin and the Europe to sale of services large in software due down X%, lapping last a year. primarily revenues were

points below volume, project down last The new investments platform revenues as Alliant grow X.X%, to XX and as were expectations. XX.X%. Segment operating energy modestly points X% large were were were mix price and up year offset business our despite AIA realization lapping year's below large more Higher our basis AMI pursue margins productivity grew the margins X%. basis than well unfavorable EBITDA previous by our deployments. and business in test to Adjusted XX deployment

within MCS of segment. moving the are to story components the the few relevant to and understand dynamics trajectory the to margins are that unpack parts There important

Sensus Sensus volume points Our revenues by productivity terrific a savings. XX%. leverage, Organic XXX expanded quarter. EBITDA grew and orders and price XX% X% margins realization had of business driven basis grew

were to revenues profile. converting have also digital a impact a expectations our platform This meaningful due AIA the low solution on as to the primarily projects. across single compared margin several Revenues attractive segment margins large had digits down very delays in

us position projects by in revenues to converting build advantage. about to scale in to to digital quarter, our global segment digital in invest basis as the the delay first-mover to leverage investments our business capabilities reduced the as and solutions XXX out continue points intelligence commercial Despite to margins Year-over-year solutions quarter. we well our service globally

Importantly, engagement we this in pipeline. business will our customer expansion digital And margin future. see growth important we and growing continue project to for revenue be in expect of an very solutions interest source strong expanding the

Please turn company's overview for the position. nine of an slide financial to

$XXX Our invested with was our to which in We in CapEx $XX and continue quarter full year we cash balance and our was expect dividends. our between million. to in at be million $XXX $XXX shareholders to $XX quarter line million the returned the spend million end plan, the through of CapEx, is million.

to basis of in Brexit. price in build points impacted back This This to capital XXX of to the be at well down increased worked the as year. inventory reflects working through inventory end primarily by we tariffs prior the first as second the year Our continue year-over-year as quarter related half and timing be will quarter this XX.X%. the

is conversion the XX%, investments well XXXX. year, the we higher quarter second to which prior timing year-over-year as but the of made related Free improved the quarter working cash capital largely cash flow quarter in reflecting as in the sequentially CapEx was in payments below tax

have second the that cash of half the our the where cash weaker mind, we is in XX% historically full flow and seasonally of period generated Keep year XX% between half, flow. than first year a

continue conversion market XXXX We slide and year forecast remain year. progresses, will turn to end the to committed cover the cash to and we Please Patrick improvement of XX, XXX% outlook. our for our as target

Patrick Decker

Mark. Thanks,

now include view year on in remainder quarter, for range. to guidance some our the markets original last Our will the the provided growth we changes small end guidance end of we of narrowing the and be upper

support Our growth orders in expectations healthy the and beyond. balance year backlog and for confidence our the of

U.S. solid in investments mid mandates India expect to we and continue. regulatory to by a and where our pipeline led now and confidence and growth, infrastructure core and market, Sensus high water provide utilities expected our are outlook. the single-digit in project healthy In a in China The environment also aftermarket deal infrastructure

outlook we digits. In the is single industrial, now believe our to growth closer low

the to countries, in continues through our the While European which also the conditions will we market seeing project impact and to Water in expect there be of pipeline do us robust, some believe Applied weaker We're year. U.S. moderation the economic second we steady certain half. balance remains be

Our the commercial at unchanged outlook for remains digits. mid-single market

residential to Our X% X% we and in to to the outlook to to will the for of low continue in deliver for now guidance the remainder top growth growth slide first the Please the second of and XXXX. year. mid-single half full in X% of the revenue turn organic is We X% year strong flat half digits growth. X% of single-digit expect provide line and XX, to started with

We're adjusting expansion to to points. XX range our This a represents margin XX.X%. basis XX of operating outlook to XX.X% of healthy

business. expect and updated be into also softer outlook timing we across Europe range reflect in said and we that We takes commitments date project a adjusted in our Having This that, entire XX.X%. our so drive beyond. expansion to EBITDA margin year platform the of performance our and account to this for XX% continue will to to AIA conversion deliver healthy growth in our

This just year-over-year to growth Moving to We're regarding reflects margin. outlook between our to I share. items per range which adjusted a of XX%. X% represents mentioned of and $X.XX on the earnings $X.XX, narrowing

conversion, continue to cash flow we executing free plans. Finally, we're XXX% on and expect our

it Let third back turn walk and now Mark our some quarter me over to year of to other through details. full

Mark Rajkowski

follows: our in Infrastructure; X% includes and Control Slide assumptions. as growth X% XX planning Thanks, narrowing By expect profile organic to X% revenue business guidance full Water we seasonal of X% are to growth & Water; segment, of year Patrick. X% organic to we as a well growth Measurement our highlights our X% Solutions. in as in Applied

full our estimated rate We year to tax lowered XX%. have effective from XX.X%

to as rate appendix. in table located We of continue usual, FX a and euro the sensitivity is X.XX, our assume

full $XX to $XX Our the remain costs restructuring million realignment and of million unchanged year. for

India. continued In the expect quarter, in led overall steady China growth of X% by we to market third rate growth an X%, company utility and and U.S.

X% X% X% Our to in the segment third Applied quarter Control X% Measurement expected for by growth to rates X% for Infrastructure; are in and X% & to Water; Water Solutions.

range operating adjusted year. over the to quarter XX XX% to or points representing margins expected XX basis is expected in of is expansion prior segment points Third & margin Solutions to be to XX the basis the expand Control of in XX quarter. XX.X%, Measurement

to basis We points points Water Infrastructure of margin in basis in improvement of XX XX expect expansion XX and Applied systems. to Water XX

Patrick for and Now please turn over to XX, slide the to back closing I'll call turn comments.

Patrick Decker

that hard financial to expansion. while our our the with We're commitments, pleased in market, up, to enabling meet to growth. solid So continuing future are margin teams outperform wrap and are growth to consistent us we also demonstrating invest healthy working

top continuing momentum and through have revenue project backlog, beyond line We half as which gives mid-single-digits into we in continue drive and XXXX growth strong to the solid second margin expansion. healthy confidence

we which regard, Investor at long-term we that providing updated strategy view be sometime our XXXX you with year. to and are Day, look to our next In targets early forward of an also targeting

more quarter will details in have our We this third on update. earnings to come

are that, with So to take we operator, happy questions.

Operator

of first Nathan Our coming Jones the from is question line Stifel. Instructions] [Operator of

Nathan Jones

Good morning, everyone.

Patrick Decker

Nate. morning, good Hey,

Mark Rajkowski

Nate. morning, Good

Nathan Jones

guidance is to like pretty still restructuring in revenue about change the to strong. here. that talk no realignment here the the a more margin There's numbers costs bit reduction and I'd little the

in So, structurally look see like that business. be you anything needs addressed to it the doesn't

causes maybe that? with was we to here. some So about you investments of Is trajectory that. opportunities went we related ramping AIA? in mix main as Or for think to delays as talk the I down is supposed investment half because start around if could because the ramp the it go the and it color more called out reduction the up? Can you off AIA projects begin to guys Just back to you the in into two see this year.

Patrick Decker

take that Nate. I'll first, Sure.

be of might and the bridge in the on waterfall understand lower end it the reduction of helpful folks think what's range. lowering net EPS I for to guidance the kind terms of

right we You're really weaker looking at guide margin are into how our the Europe, now. on rich about $X.XX is businesses, coming that from, so just again, our given that is reflecting

we I we're the $X.XX of seeing although doubled And digital platform, to and we so solutions increase projects more terms Secondly, to seeing mentioned holding investments. that, slower as about based probably attributable than our scoped upon that funnel, we encouraged. the combination in converting expected, and are in a before, has that very revenue than AIA, is of ramp are the piece of we're

there, kind So, in there's investment we year. the had is most that originally coming in And market of been we impact about. through U.S. more but we utility a that have have the little performance, balance mitigating bit four $X.XX about way expect of of the then we stronger $X.XX talked the notably continue to from that

Mark Rajkowski

those and well speed to that we underway we've organization, simplifying of mean, improving our last the expectations. that talked are related about have a are our I on actions tracking and call number agility. to And our

Nathan Jones

here. another Maybe one on AIA

XXXX, XXXX Is year? to that the segment really has the little ramp-up push up out in double-digit you kind they in the MCS see a Do of drove hit still little here? a anticipation right that bit? Or in shifted this in bit and and number potentially play? the good in later started these to pretty still Does it in growth later ramping those from to kind year. think some that projects next of is began I stride XXXX growth,

Patrick Decker

No. for very back of lump I'd oftentimes in of them still all different and we in see, kind Two we parsing. say pieces XXXX. MCS a done job, good it's and And folks I pieces. what this think together. play Nate, I step two you've think are also There segment,

-- There's deals is are Sensus, space. which which business also a good core number large is day-to-day really water driven AMI, but winning America of AMI growth, seeing that a we combination being in by of North we're

in to in that's so also certainly growth certainly and XXXX year MCS, going And very late beyond. but drive strong this

we the is business piece of The there traditional we've acquired. also X digital solutions nicely there the really build grow acquired the these last an the for quarter in and second technology that's much core, And our smaller, and AIA, we business. pure number But about that are the even the -- out pure to plan core is and actually in with AIA, above and or our a this pretty of in business few platform to full that plan years be that continue year. smaller on

converting and a we Really, seeing that little has a platform in longer taken revenue anticipated. we're tremendous had concept from digital the that into solutions new than uptick those orders funnel, but

see So we upon quality of change of degree net-net, on XXXX. and uptake the customer for If terms kind view in further of outlook no strengthens answer, in based your to that our interest. this anything, the

Nathan Jones

pass Thanks color. very useful on. That’s much. it I’ll

Patrick Decker

Nate. Thanks,

Operator

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

Deane Dray

Thank you. everyone. morning, Good

Patrick Decker

Good morning, Deane.

Mark Rajkowski

Deane. morning, Good

Deane Dray

I'd Nate. pick off like right where with you it up ended there to

note for seem really AIA. they're of quarter, from executing market all thank Sensus Sensus negatively Sensus' and like we and outgrowing nicely. that share and this the distinction that you broadly, looks you be perspective, is between losing well it one to did competitors So preannounced MCS, on emphasizing our

So news. that's good

Patrick Decker

Deane. Thanks,

Deane Dray

surprised so into taking So wins project that on for it's revenue. not too from time AIA, this

is disruptive the and notoriously industry adopt. to You all slow have technologies water

comments just how I and factors hear but would be way your at love might the So each it, these of factors. at play, three there's look on to

their at Network little right pricing payments, a customers I So time? are price, notoriously and committing Service nervous -- three and do capital? are will macro about right as these? all just throwing taking the do out? worries kind the how Or switch these Or on customers have of so to contingency do is it you the before model are have you the Do to three. a model? the right take are have you factors just So Because the yet slow play you balking adopt the

Patrick Decker

Sure.

much which there's laid hitting and why way out really the you've at -- Now we're reasons fiscal as a as the affordability any what it concerns, in the anything, would seeing that. in would here not is I number two are kind last these of big we there I certainly -- seeing And of we're expansion of because Deane. a I part well, factors eliminate is if scope areas pretty we're excitement much macro would seeing, is the issue. is what

know, may and and And them others so make as you getting of these are affordability large-scale technologies, may or the how in projects terms at you not more well take issue know, do CapEx affordable.

And assets. secondly, how extend the and the do performance life of existing you

into of some terms literally is able all model how around that optimal that those disrupt. the we revenue to share got making is that the in very play still value given here equation. whole sure we're doing much we we're in there leads that of So to well work how affordability What

Utilities validate and make savings, and is now are conservative, these sure functionality should is be, disruptive. are the this, breakthrough as predominant they But I the of so right technologies. that would the issue new want and it they to that say they

in involved looking each what point there this and sharing increase pilots at is are at funnel we're other spreading. the why word such Utilities that so getting they're And in. is seeing an time, though is to is in reason the this talking

a timing And ramp. is so I of think that really this simply of matter

of to so there. terms change outlook in overall are incremental Xylem, no in extremely that attractive, there's margins the accretive very margins The we see

need we're what very, to why of investments still very said so encouraged go And by and we see. it this to continue crazy we to, we'd encouraged we need about still our ahead slightly so still that's why but that's not adoption We're going don't in the we're curve.

Deane Dray

margin do thing associated And the hear. the additional do. there's to investments, like trade hit question. of the like it's continues characterize from in are that's, business, seeing where of funnel opportunities? our really anxiety about your a just to but though tensions, China to right turn second very it, just nicely. great the there it even perspective, China with I unrelated That's tone Lots looks Maybe business And

Patrick Decker

Thanks, Sure. Deane.

So I think of well slightly. to down may two-thirds in we Mark China -- is business have mentioned, utilities growth is XX% which from XXXX, moderate expect in tied XXXX, to note But in protected. so so double-digit relatively and is

You'll China, held strong. during policy is, part and driving by as recall a of the that the what's didn't even the government, business continues the Chinese driven It citizens top downturn decline. quality water country. steady to environment our that for mandate be of last in actually pretty that again, actually And really

not other to very we third cetera. to is as strong keep eye as that building. downturn the see and site, a of don't any in on on such well pipeline tied so And we still that close business, the signs see we consider We've industrial et any bidding there. seen The area that do commercial

China. So quite bullish still we on remain

that of is we're could any kind of targeted in is One government we the time? get we questions at there that given some point infrastructure, servicing be critical also risk

we company. don't see have eye just the don't are and along we happens a Chinese when Deane, we that our Chinese in on And a I access a right we close China. threat that. because, see leading see seen, as technologies company -- there. a in facilities keep we It you've We to China, it total way, you there now feel of that. And visited look have the there's that mean and really so global don't we

Deane Dray

you. Thank

Patrick Decker

you. Thank

Operator

of from comes question next Davis Melius of Research. Scott Our line the

Scott Davis

Good guys. Hi. morning,

Patrick Decker

morning, Scott. Good

Scott Davis

have Trying the different you to sell-through pretty for a certain destock? percentage some that very would you already I inventory sight in such, Western is Or know but guys it's of levels Europe, you saw of declines and get you attribute that a -- of do it inventory consistent? on is -- sense line of by business

Mark Rajkowski

of seen conditions. that, on view in is in is a Certainly, we've Our Scott, there that slowing Italy, couple economic clearly we've that and that countries. seen in Germany a other

And of relative overstocked what's position economies been into to so, countries. not broader some these an the really slowing more in a channels, but the it's of in just sold

Patrick Decker

Yes, we quite healthy we've good businesses tend as destocking a certainly have would to be anything of some on of well. the We got indirect really of And which a there say, don't sight we but in see line being direct a channel Scott, that a inventories. channel. Europe, attributed more to do got direct we

Scott Davis

that's a for I There's lot too, free. really and nuances this Yes. it paid a a is you there, I know pretty pure of just but tough. follow-up. also asset, is price know, wasn't a cool it good

Patrick Decker

Yes.

Scott Davis

way, with Or owner, guys the getting versus say a should tracking drive revenue you it it model? are expected? you is as been that model to the to how And different deal So you able the liking? have of really kind that you I take your rates

Mark Rajkowski

Scott, still think I there's plenty of Yes. demand.

our we on our things there. teams. international new been and in a commercial leveraging One out existing And we've activity. is to there's the have that capabilities lot of investing of working that the is all growing We're This business.

continue it, Frankly, it's about of accelerate to we we've is that's as one areas so to of a demand. talked a solutions. selling of there opportunities set There's But for invest are skills, some a there. it's we the value proposition, different very need in clearly can that of different growth that the lot

bit a curve slower that we up not have would and That's liked little than customer point, but probably as migrating well. we're so it's excitement demand. for at this And lack underlying of

Patrick Decker

intended certainly is pure, new that of acquired. solutions And acquired there's other digital we the kind that startups. platform the is, characterize DS have through these I'd and technology way the the that some of serve Yes, always we of to Scott, as pure fundamental has been

expect the delivering year. pure model, there. So driven this is as business It's plan's The we obviously on deal plan. piece is that by so

by of demand I platform. the other we the seeing being right hear pushing the that us and new out you driven now digital and about of the AIA into are integrating is some you're together talking solutions put startups think what small really

when the some of platform, So, at in pure validation delays these of of the not terms about piece. digital procurement and the part and talk the we getting solutions the the of some the really of about AIA really we're talking adoption savings utility,

Scott Davis

Thank very helpful. Good guys. Okay, you. luck,

Patrick Decker

Thank you.

Operator

Our line the John from Credit of next Walsh of question Suisse. comes

John Walsh

morning. Hi, good

Patrick Decker

morning. Good

John Walsh

restructuring the comfortable around implied mix, savings, of in guess the in unpackage you can with of of to swings margin bridge the in I first terms there what year-on-year. of ramp help QX, get question terms kind kind just

bunch I comes unpackage that organic helpful. to but think leveraging QX, in would be help growth of probably natural buckets anyway from it the better sales a

Mark Rajkowski

doubt, margin one No of volume there's quarter QX. really that the drivers. John. in ramp on Sure, is just leverage. and Typically, good highest you hit there nice It's our

and leaving. we've talked folks cost The to related questions when of of really to you from in also, other I the think significantly relative timing is touched put thing are the reductions some the that one that restructuring that QX on in we earlier actions of ramped place

year deployments mix too. I in where some M&CS. had margins better of our lapping. these are living a low a see the volume large was last And these I our inflation including what half also And year we going than that to easier as lot first starts of better get with the going it tariffs to lot of lap, see in mix that component of comp of number shortages we're the mention to related would We're some to installation-related. a had we've been businesses, mean,

in those drivers we the really confidence QX. us gives So are that that will that ramp see key

Patrick Decker

last on the is that margin revenue The water, quarter other side lower the heavily the with finer thing side. whereas energy there think I heavy install this towards I QX it year's make project going incremental on energy mix it on is than does to and heavily is larger to add was point that equation comment, mix oriented a on the margin much carries in just would be a which of

John Walsh

thinking And Got growth, two the mean, order obviously, comps. current X% now last you. you've then about tough on quarters been I very the

the mean see to of acceleration And half? as know, terms are going guys of back comps in next that? you margins? we orders? difficult do the think year, looking about What need the in You in half. here construct you and what I terms you in into mid-single-digit potentially still have growth But kind drives order in forward very what back of for

Patrick Decker

Yes.

So so in been diverge say, lay years, going a they've both it three look out X revenues you you terms to and level last, Applied be -- diverge little over moderate Water to where here to do GDP the haven't kind a of begins a that way, if running all going this little growth. to probably our at of growth That likely I'd we behaving, I segments ways or I'd X.X that each think, back mid-single-digit in seen they've are to more orders. in bit of will that expect bit

was been in terms orders well in has year you low in saw Infrastructure. orders organic play orders, last historically both We mentioned range. seeing it hope as X% but against that comp in Infrastructure as it that we're outperform in in And of that, now as to up would growth, kind of that the commentary. revenue. out, Water the right was be And Mark's quarter, in single-digit we an some Water of that X% mid-single-digit as

don't to continue year, in begins good as the those as that and We you is see we organic beyond. certainly And grow, so but order to what expect well MCS increase rate here of happening and back XXXX see also in begin growth both to we do that. terms the feel this about so ramp, growths changing to of revenue half really

give organic continuing. you're mid-single-digit that little segments growth three there going divergence confidence to us that see So around the amongst a

John Walsh

Thank Great. you.

Patrick Decker

you. Thank

Operator

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

Ryan Connors

Great. taking order take book And Thanks for And you're you wondering on give environment? just talk my from a question. price pricing in actually a if if I'm us perspective. about the the bit this more so, where? getting in having success some little could

Mark Rajkowski

terms in of success good really pricing. seen we've Ryan, Yes.

get U.S. worked price continue to They price way good in realization. led We the early to actually drive and

this Europe of basis got later. now price. is particularly Markets in had quarter little XXX driving You a points And even for which saw on that AWS, Emerging bit price. board

volumes also business, the they but price as what saw strong encouraging particularly where most think very only around driving is M&CS, we driving not in I are And good Sensus well.

mean and in M&CS. good pretty lot you backlogs when of think is about about A are I Sensus our that we strongest So backlogs, feel that.

Ryan Connors

outlook lot is and a much Okay. talked side there. of other industrial kind into as a your revision negative you and AIA you've but to just one And then and Sensus my about have the utility the gone haven't you didn't really

just If where Is are pieces the coming headwinds of you unpack industrial? better? from. outlook -- the And where is? still it can the different what's within kind And

Mark Rajkowski

the let a give full rather industrial me side, the year on on headache comment Yes, Sure. quarter-by-quarter. than you

solid On to the to U.S., And a on we the we're of really in products tied are that it's more really see of industry. light there industrial of there, the Most the complex. full general fact an a periphery continue growth year, resolve

complexes long our our as running, and through so And pumps to are treatment they're up and these as going burn needs.

continuing And healthy grow a so in we see that to clip.

side. positives in the rental dewatering on see also We

very We continue to outside mixed. there. its see a of market say, U.S., I the would healthy

it's business, see see for You all there trying short in Asia, side. in a East. industrial now, us know, based, very softness depth of that. Middle right Europe some I It's really and it's certain we mean, we're entirely in concentrated also you as calling markets. We in do not prim broad the just And be But strength across parts the of number here. on in divergence a cycle and We're Europe, of Europe. see to

Ryan Connors

Okay. Thanks color. for all the

Mark Rajkowski

No worries.

Operator

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

Walter Liptak

Good Hi. Thanks. morning.

Patrick Decker

morning. Good

Walter Liptak

what thoughts to your the other investment. you anything your might or wanted ask is pipeline of about about Considering AIA delays, timing the that technologies need? about M&A deals or I that changing

Patrick Decker

at Not all. at Not all.

one but worth this about we by look it's we But As or predominantly exclusively. through. before, mentioned M&A think I it and not vertical, end-market utilities, lens reiterating, think that's we when do at certainly about

still platform the on a that the of the customers that's not sets that on very robust say into side, have leaders still now utility bring we the more the pain of say do talking utility side to the don't other about the have water but some what clean solution we're and again there water we there type both and few I'd outdoor even side, we these side, we to wastewater points are, tuck-in can to They'll a as smaller portfolio. be in would to -- like there's things learning out acquisitions. bring

It, really that it So led having makes really executing more out we said frankly, things We're But no, built. platform we've on change that, in the that. this that have our site aren't we're there more on interested focus it there many to at of view a doesn't robust. that time. quite on really point that

Walter Liptak

And sector then on just Great. the Okay. a outlooks. couple

the some second going PMIs bit there Is in mentioned weaker. and a of the You Or industrial? that slower that being the industrial little related U.S. in else on? generally have come half something just is to down

Mark Rajkowski

really parts of It's some really -- Europe. softening But to remain is up the pretty industrial think be Patrick it's is trends what's of mentioned recessionary will think and to solid we in solid. our what outlook which of appear conditions It's we some what in U.S. the slightly. change before driving

Patrick Decker

Yes.

U.S. is tougher more the mid-single I the maybe Kind year, low-single digit second not the digit seeing we're anything, on in inventory tough half in your behind of the -- U.S. It's of probably least going a business. last bit will the there it's at not, back think moderate I in of comp in little it's that, to our comp in question, down a the levels, If channel that any year. think,

Walter Liptak

Okay.

you you in that but rates there other Makes U.S. sense. seeing residential economy interest turning some going Small hope in around companies there U.S. is there's residential, on any the low good of might strengthening be finally? out flattening they're Okay. think about I talked the saying signs residential. Are

Patrick Decker

we so I always it and now. based what call time, business guess point kind of but certainly, not see a We is in of this large we hope we at it on right our piece so, we, just

outlook. that we seen into haven't prudent kind to We feel recovery going didn't it of bake to was so an that

Walter Liptak

Okay. you. Alright. Thank

Patrick Decker

you. Thank Okay.

Operator

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

Joseph Giordano

Good morning. guys. Hey,

Patrick Decker

Joe. Hey,

Mark Rajkowski

Hey, Joe.

Joseph Giordano

we as the year So to the I ramp just kind of wanted through go to go back here.

understand decline through so I of in XQ, we XQ? in through standing check XQ, a sure in we've talking that at really I some range over have modest like roughly hitting on math. plays things year-on-year and Op, talking the full for adjusted XQ narrow out. how Just then but kind and seen basis points If XX of for to the comfortably know of like my year expansion want Mark year, we're a the XX expectation I you XQ like we're looking margins just pretty are make talked XXX-plus

Mark Rajkowski

comfortably wouldn't Joe, say Yes, way it's I'd I over over say XX. --

our I think is upwards expectations certainly of XXX be. basis would what points

Joseph Giordano

Is getting stuff out? of was still including any pushed Or Okay. of benefits back-office that that a the kind XXXX the phenomenon? from that is

Mark Rajkowski

as we into launched but limited. benefits to enter wave Well we're I we from be mean, just XXXX. there. -- latest the out behind still expect are the in we July, pushes And there where our track that It's year.

the certainly there's benefits quarter. fourth so of us in more And ahead

Patrick Decker

of takeout, is XXX other restructuring MCS It notably about quarter we but businesses, have looking Mark QX you're MCS is the our as mean by do there Joe, mentioned have and being within bit cost Water driven earlier, announced roughly, the math. margin ramps within is little I last basis business really points we really European right most that as in QX. that that also in our Infrastructure, well expansion

we bps Mark be out noteworthy margins itself. for You side then definitely comps about which Infrastructure mix Water going volume have MCS at earlier, attractive some have and revenues be going to to XX quarter are leverage which towards higher when on sequential. And you the easier of That's inflationary skewed pointed as us. the a given the are is heavily look

Joseph Giordano

Okay.

order big backlog? is got, Sorry failure you Is in if it orders Is this in I have missed the that earlier. already?

Mark Rajkowski

in It's yet. in not backlog. it's Joe, orders

Joseph Giordano

It's orders Okay. not yet? in

expect How that? timing you hitting? that do to maybe talk one -- the of when of through is kind the can about think and that we start you that what accretive And do MCS? deploys So margin into revenue to

Mark Rajkowski

a to business. the of to start in margins hit deal probably certainly water the year, see to certainly full-bore that quarter. it's our relative expectation more into XXXX. the the Joe, back And are in this side it's attractive is so Yes. and of half energy It's fourth

Joseph Giordano

fill bolted you you're very last Okay. more is a obvious that stuff high-level. out that is like MCS, If of now me, I an for challenging. makes thing pretty what some And on obvious just through sense more we the for doing. But missing it into fit as like recently portfolio, technologies clearly there right finding guess bolt-on maybe little I that seems holes think

R&D is a strikes you can put that is something buy Patrick? there go doing something can we that we instead of anything out there internally a out piece if figuring proxy and as So you to interesting

Patrick Decker

there that to a of points. don’t handful be, not things a are Yes, other but nice not long pain say -- I prefer, they mean probably not I are they come few the There few on the I kind there are address to a is have, out to probably list. publicly it's -- extent to drive M&A, still Joe, don't want I are some just would piece out things them to because that up. there. would of There

and their about As assets understand work can operating better new the with are with is that costs really our solutions improve and place bear you putting bring able they in capital drive down be And what they we're to performance to already bringing they the of existing to of the the digital and their get and to here platform capability how what think have. folks. go utility with

what can So, by, mining do data that's, landscape the and And things in for addition simple the budgets them. doing when we're myriad to you way, what that by utility, the in there's OpEx, driven looking of others. to both of CapEx operating about a one think their are a

the be we as year, for that along. going of They’re acquisitions. to not Day and here picture we'll abreast acquisitions They’re what's early to in. the keep and so guys large going And And everyone gaps kind operating get are we be you will bolt-ons. for to form the tuck-ins be good they that us a think what landscape we come to Investor filled I as next paint as that out into are of

Joseph Giordano

Thanks. Okay.

Patrick Decker

you. Thank

Operator

comes question of from of Molchanov next line Raymond Pavel Our James. the

Pavel Molchanov

taking it as comments see on M&A, now. priority right the fact you not that a your for regarding the question. Back Thanks it's

cash what of that Given cash? that your latest of amount buyback dividend, free generating the surplus and above are the flow thoughts on as you're deploying beyond way a

Patrick Decker

Sure, this is Patrick.

kind my of clarify, specifically space utility bolt-on about we're digital not to comment in talking am the was that Just not interested M&A, and I the solutions.

we So of M&A growth appropriate enabler continue to company. see long-term as the in an our

some on example, I and at other landscape water And that other we're be, see of areas that to there industrial continue are that that whether again, smart I'm cash for out continuing is calls not the in there. look mentioned as only that out There's all focused areas disciplined the transactions to are priority one are saying is but deploy on here, I'm our -- that anything we there. to foreshadowing others nothing

certainly about would doing do looking we talking be we repurchase. So share before would that to be

Mark Rajkowski

they're sheet the But sustainable. recognize we that cash -- balance also of amounts on unduly large not

for, need it look we So to repurchasing there's nothing at there we out shares. we at that look if we expect certainly see

Pavel Molchanov

Okay.

Let you very me what your at is the the of referenced follow-up on beginning call ESG targets. which

enhancers? margin actually the separate at or Or you kind of at cost As as I look they philanthropic look some set targets, from of your of of stuff, do a doing? charity these are

Patrick Decker

much myself they a program And did and hand-in-hand. that think a we very when podcast happens of internally week our go sponsor from No. we them I colleagues, great as externally try executive last well separate the that here -- sustainability just clear reinforcing our to kind to internally be don't to here speak really who terrific actually sustainability folks. as to We she our of I And things council. event our a with and sits had very between business we have our as view strategy, these we be general strategy

impact for here, really we that to a our for doing making it But that good it. have they talent more communities sure but we also a because and know, the big company believe goals top so not nowadays, really a all our that business. signature we reason able to we the doubt no work and we purpose. landscape. larger retain the responsibility on deliver for for all doing want are out about laid that's positive we're you it's believe across they than want make something the that people the for And to that's themselves customers as here We're only as and attract, the also And suppliers, to

and for really one and involved And realized doing that. good It's to these sustainability play planet, have a everyone there, goals. not a and it's it's driving that's I we're But only so. here good we the for business, role what's good out opportunity we're the unique for

that's things so why few areas. beyond to make kind and And than of impact want much broader you sustainability, motherhood companies a have a that well move apple talk pie to just opportunity a key most just on about, in we few an

Pavel Molchanov

Thanks. perspective. the appreciate I

Patrick Decker

Thank you.

Operator

and one we time for gentlemen, ladies have more And question.

Lee Our line of final Brian Sachs. question will come the of from Goldman

Brian Lee

Hey, morning. in. guys. me for Thanks Good squeezing

Patrick Decker

Brian. Hey,

Mark Rajkowski

Hey, Brian.

Brian Lee

you something let and but make did us here. sounded macro? ones were Tougher then Maybe the In it around the good slowing flowing on results two as Is then elaborate of all China, Maybe bit quick pretty here. for on part little wrap you Or pullout growth like a industrial a I'll that comps? going market end in of general can is there update else there? outlook the that?

Patrick Decker

of We in We business tough wouldn't overall a there. It's industrial around rather small commentary in some overstate China. in want had softness our China. comps to any the piece

probably anything I noteworthy want not We're to broader we're there. industrial add landscape. seeing on position make So, any not in to commentary? call Mark, you know, the a if best don't China

Mark Rajkowski

Yes.

it's comps grew but the are said, over in and we solid, tough year. you steady, XX% As it's the prior

there see. fundamental is issue we that underlying no So

Patrick Decker

really our made the primary by really utility the across-the-board. The being side, investments there growth in China the is of driver and it's government

a of So see masks tough in again, industrial kind just is which comp. the really -- that what it's we space,

read our So through there part. on big no

Brian Lee

just in you played a think last half more that for see that I had pricing, segment. of know, out actions MCS the then on And may tailwind Okay. enough. pricing quarter mentioned that the due I maybe some to second Fair of later

any view with commentary and some as trends is the delays, move the around that we pricing there segment back in through So the for of change that conversion mixed particular half? AIA

Mark Rajkowski

Yes. the Brian. And in mentioned this prepared I remarks,

really things encouraging XXX the And did little it points, this remainder and the of basis see, maybe we year of that year. got a after One team had, price it that we'd of bit was this continue to we more expect through improvement.

Patrick Decker

big a is the are in think other have mentioned segments. lead of I been projects These more oftentimes that in. we driver Brian, would MCS and locked business I long Sensus that, so time before, certainly as we And than believe,

hard new prices. to projects have it's get until So executed, been

of second the year. So team those great the a recent half projects implementing on you it half price to see why from some ramp really and the has done job on increases that's first

Mark Rajkowski

year's the replacement, into on their being And sold channels points end as well

Brian Lee

Appreciate the Thanks guys. color. Okay.

Patrick Decker

Thank you.

Operator

And Mr. the remarks. thank additional you. floor for to Decker Patrick any over turn I'd like now closing or to

Patrick Decker

in many morning. we'll places QX thank and and Thanks Well, balance I'm our of call. support. all this for of your on enjoy sure you. appreciate you Thank the see all and safe time, be And earnings we'll at your very for touch the interest questions. your involvement other thanks between, We you in conferences and much. travels, summer, so

Operator

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

Xylem (XYL) 1 Aug 192019 Q2 Earnings call transcript