XYL - Earnings call transcript Q3 2019

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Operator

Welcome to the Xylem Third 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, Nicole. welcome Third and Call. Earnings everyone, morning to Quarter Xylem's Conference Good me Officer, Rajkowski. Officer, Executive are Decker With Chief Financial Patrick today and Chief Mark will XXXX Third on their They Quarter provide perspective Results. Xylem's

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

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

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

two. Please turn slide to

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

to turn Please three. slide

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

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

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

Patrick Decker

results. Thank Thanks you us quarter to morning Matt. everyone. discuss our third for today Good joining

our seen was earnings earnings-per-share expectation quarter our with margin release FX in As growth, excluding impact, a and have you performance increase. attractive an morning, Year-over-year we year-on-year of delivered line will this and continued represented from solid expansion.

discipline quarter. Margin productivity conversion top-end and quite the and the pricing, reflecting management, cost strong – flow guidance expansion gains was cash strong at was particularly in of our free

our – quarter's in softer than came clearly conditions below we performance the revenue reflected that's end in in which However, expectations. anticipated, markets, saw and

saw remains solid organic the mid-single-digits, performance globally, across demand Utilities expected. and revenue we which good in delivered portfolio as the growth

more deceleration than our However, reflecting That commercial in of some below business. saw expected In quicker-than-expected deeper in short-cycle U.S. both for part markets. softening industrial overall these a quarter. and we demand, revenue expectations pulling also in a our uncertainties sudden particular, there and growth the was slowed-down was the our

have We lower market outlooks expect continues as us softness market around back spend. some project industrial QX Therefore, guidance. and CapEx our weaker labor persist tight near-term will full year a timings uncertainty push impact through to markets to this caused

bring Despite us that of price. make continued earnings to the on progress guidance. have and on deliver enabled moderation discipline to at and industrial in and our productivity that nevertheless operational commercial And in end we higher both margins demand,

and pipelines shippable backlogs bidding Exiting strong beyond QX, we had XXXX.

XXXX to potential continued we and expansion So, growth see long-term. margin and the through solid into

X%. mentioned in Looking utilities In here at growth. short-cycle steady the market U.S., saw strong mix, utilities growth performance I robust softness but growth and North overall, our regional American we just the back emerging was held at our

Europe in orders the the grew expectations growth than giving in of our XX% investments in continue better delivered growing double-digits. India, of the also year-to-date in orders double-digits a slightly turned fruit. markets, year-to-date. revenue growth to one and bear quarter, in quarter in performance markets fastest Our the a emerging revenue organic China low-single-digits. growth And

business, revenue to and be the quite us Mark provide recent quarter, extremely robust. we accretive double-digits. grew where to in take Xylem. a moment want attractive took AIA's I the charge quarter. grew and XX% and our a profile commercial shortly, AIA to been in has but into to impairment non-cash on than detail the more segment take an will Orders momentum The by this continues margin size of organic business incremental update

business which is of growth thesis to a that our All say not changed. the has

That said, originally to we has are taken than ramp the longer revenue we accelerate seeing now anticipated.

something detail to expected, we quarter. As orders business, at last moving been right than in discussed invest has the slower we the cash conversion in to returns sales continue –

timing impairment against goodwill, extended returns accounting in with of That charge an guidelines. cash accordance required the

sales a of utilities early and orders, growth backlog digital increasing market pace. revenue expectations, is are while strong the an we seeing transformation embracing However, growth phase now lagged the of evidence at

see adapt beginning order of customers our once, disruptive benefit the get to India with creates in are now pull-through project In AIA's to which example, several in across largest solutions, portfolio. together transformation, at technologies deliver to sensor We across technologies, we India entire for working transformation services, Xylem applications to-date. are portfolio digital pumping deploying full and measurement our the other and

with In two Increasingly, AIA AIA to to of as for integrating just our Kansas, we expertise seeing benefit customers' we're These kinds take example, the robotic requirements. teams reduce collaborated our a many with assessment these to are digital sales project, the solutions will are commercial seeing team transformation. of data condition embraces large our capital which our dewatering also market win provide of into examples deals insights the of driven customers. investment

by over slide that, results to with who on our Mark X. Now will review turn I'll segment

Mark Rajkowski

Patrick. Thanks,

sharp growth by points a Water grew this quarter. the in below decline sudden in due business in more than impacted short-cycle revenue was our decline and Infrastructure organic business. segment the in X% quarter, The our dewatering XXX basis and expectations to

our our in industrial utilities declines total backlog up shippable project strength segment winds was X% also in backlog Organic driven grow. to are year-over-year. XX%, markets. up QX and the our grew and was orders in orders It continued despite business. The backlogs XX% year-over-year order by

utilities offset by X%. largely the below with Infrastructure the Geographically, Water was solid declines mid-single-digit being dewatering business. unexpected our business saw in up U.S. expectations, we growth This was

our The and Dewatering double-digit oil were business who was sales These in growth services construction serve mid-single-digit by offset markets. equipment mining our distributors, to largely in business. impacted gas, the most partially rental declines significantly a and by decline

distributors we Based into from quarter. fourth on seen softness equipment our industrial expect the These the continue some direct feedback impact this sales quarter we've slowing margins. rental well. the we're customers, significant month, revenue in in business industrial as to a fourth our and getting in into these trends having these verticals are serving outlook higher-margin segment’s for on growth verticals, recent In

well, business quarter. the U.S. Infrastructure Water growing to in in Our utilities X% perform continues

projects are in shortages and However, inflation some due to delays labor some in seeing markets. we

year's While third growth markets markets flat was The emerging organic lapping in to it by was in in continues business double-digits. Water perform growth emerging orders well segment’s revenue quarter. very overall, QX, grew Infrastructure XX% and last

was slightly our expectations. than and Europe X% overall better Western up

revenues. experience mix inflation, stable, XX to with impact price of XX.X%, dewatering utilities points work performance driven across by offset the our a markets. softness to weaker This good continue volumes We productivity. operating continued higher some of margins team's but mixed lower more and Europe grew with industrial margin basis fairly Segment than realization in in on

markets. leading to and was growth Slide markets. X% expectations volume offset turn volumes organic quarter. orders This and price the in Water in softer Higher to segment revenue backlog realization more these total in industrial also our segment’s declines X% X. due reduced commercial services Please than Systems lower which The both demand percent building This declined year-over-year. the below delivered Applied to the

was strength in by segment’s continuing in growth commercial segment revenues declined India comparison softening the building driven The mid-single-digits building of largely China, in in growth emerging commercial was the in growth XXXX. Europe. led This short-cycle industrial was Also, Eastern market. end-markets. the Growth services with against U.S. strong a services double-digit flat demand by XX% markets, and in of portions with the tough

pace to to demand quoting as markets delays continue while we in labor largely in we experienced shortages a construction due which commercial the activity sign over And our we business, of term. project see a in improving – of the quarter good medium number several in see

Residential in and demand quarter X% good X% overall, U.S. led revenues commercial Western in European growth residential a softened markets. had as by declined the the in quarter, further the with growth X%

a managing expand basis Our Execution weaker and than and programs productivity market continued were revenue XX lower industrial able more in a offset tougher-than-anticipated job did margins volumes. to conditions, through and to realization to mix XX%. U.S. teams price and nice quarter of points commercial and due inflation the

project organic delivered wins. The declined last comparison X. and we against had Measurement segment the year's Solutions by in organic orders but Control orders Now driven growth few quarter. revenue to to when a large tough XX% a Organic that's growth X% growth please quarter XX%, third slide turn

Total beyond. the grew driver business next XX% outlook and quarter, segment and business The energy M&CS for giving in M&CS growth up segments segment primary from continued backlog us X% to test grew the low-single-digits. continue in XX% the water year the grew be the confidence

in by meter X% growing deployment. lower in had as the its water growth partially applications XX% lap growth large revenue led Sensus delivered growth we double-digit in particular by Sensus strong by a X% energy electric led in quarter water, business. moderated organic growth Alliant the U.S., in

our have expanding XX% teams roughly internationally, grew in metrology where the Our business done water work business the excellent quarter.

in will of network, increasing leveraging be clearly this of Xylem source growth and We seeing the fourth benefits quarter the are the beyond. global revenue an and

strong We're with across the AIA momentum we during platform. our the also pleased commercial saw quarter

growth had replenishing double-digit grow pipeline also revenue year-over-year in orders the opportunities, a quarter. XX%, meaningful double-digits conversion of resulting pipeline, which In the in we more than continued in addition to of while growth, strong the to acceleration

gains points Volume points is margins offset plus basis segment the more our growth expanded operating and price which than overall, productivity moderating basis investments. in inflation XX%, line and with to XXX in XX expectations. For

turn Please X. Slide to

Our to in cash over balance QX. million grew $XXX

half forecast year to $XX shareholders returned tracking to million our we dividends. the moderating of million quarter, of reflecting million expected the in $XXX spend in second million. full $XXX $XX year, and During invested to CapEx, We CapEx the our the through

Our the CapEx receivables quarter primarily capital the impact to over to the flow was substantially flow contributions working in timing plans. year's inventory XX% full spend XXX% to better build, and our cash basis Free conversion by both this which collections. working quarter quarter and in year's We target inventory management, of to as This increased and improving XXX% points committed sequentially. levels driven flow year. in due year increased prior our free year-over-year cash an capital the fully reflecting the burn of pension was for last cash XX in off fourth improvement of we lower meeting year-over-year remain third almost quarter lower free quarter well will conversion XX.X%, as fourth

outlook. market to Please XX will cover Slide our and turn Patrick and XXXX

Patrick Decker

Mark. Thanks,

of earlier, some on the our full-year end-market Utilities mid-single-digit the guidance. market based discussed we're dynamics updated So, In to growth. we market, our tightening we've outlook

Our healthy, is effects. project timing backlogs by that indicating offset steady growth, are demand underlying somewhat but

versus In last the our expectations. the Industrial, flattish We down now the third year, into quarter fourth. slightly we previous acceleration persisting expect low-single-digit growth we in experienced foresee from

geographies, and economic of mixed seeing Emerging still of Western also conditions We're Markets. parts across including Europe areas

for moderation outlook showing continue market in fourth market the The Commercial to to due Our U.S. to particular Commercial market. low- delays a mid-single-digit tight quarter to caused growth. by labor the is project is likely

outlook Residential low-single-digit to growth. remains Our at flat

year. X% provide Slide our and Despite expectations outlook. are XXXX. utility are overall top-line Please we this we're for sector, guidance the in change for driving lowering guidance of organic factors operating steady we'll and remainder revenue in Two downward. turn between full adjusting to our growth margin XX X% And to the

our high the project and First, impact timing industrial of in business. And particularly in lower-than-expected our cycle margin short high-margin commercial. of second, AIA volumes solutions digital the and impact businesses,

to basis of XX reasons, XX expansion represents we For these EBITDA points to of expectations and margin our a XX%. an points the margin operating margin operating and for are XX.X% of between XX expansion adjusting This year. range basis XX to

X% $X.XX year-over-year translation. to excluding on earnings-per-share, a and representing growth FX of range of to between $X.XX our we're Moving X% adjusting outlook to

that some of over Let turn detail back to on it through guidance. the me Mark to walk now

Mark Rajkowski

Thanks, Patrick.

and quarter. by XX, profile a Slide of typically revenues earnings includes seasonal

expected quarterly a QX change meaningful our this the given of and we've However, our slowdown revenue earnings. growth year in in outlook, the revenue seen profile historical

our from through I'll a current to to moment margins implied earnings the expectation take and changes call on last in impact our in revenue So, walk our EPS. quarter outlook our fourth the

organic the revenue quarter, At basis of last X% of end and points expansion approximately XXX earnings-per-share expected we approximately $X.XX. roughly growth margin

well. And Given therefore, expectations saw in significant market EPS changes growth. continuing the we've and in margin we into in dynamic QX as revenue expansion moderated for QX, our

two are our guidance. impacting factors There new

order First, our while the we quarter volume in significantly entering the quarter. the has and healthy to on current businesses expect softer-than-expected demand in backlog, businesses in we're the cycle And based our book short with shippable our fourth U.S. the ship for short-cycle decline growth. to impacted U.S. revenues in trends,

Overall, have a XX a basis margin, and we growth incremental impact fourth impact of expect this XXX on revenue applying rate our organic will typical basis point on quarter XX%. point margin

margin from deliver highest impacted AIA well have our rental mix average Second, particularly as incremental margins, businesses, expect lower weaker dewatering by to which revenues we're above being and margin our Xylem our businesses. we

basis by about these XX.X% a basis versus changes of XX.X% our expansion XX This year. to range a Together, mix effect margin to point have further expectations prior points. impacts margins the XX representing XX lowered to

expense this largely our foreign to These fourth also range a down exchange segment from are changes interest slide. While offset for earnings as expectations updated there year to share revenue full the outlook per is $X.XX quarter. lower expected modest shown the of for bringing in broken our company on negative headwind, the by impact is $X.XX by

of Euro rate note, tax effective estimated a at we adjusting downward to couple our full-year full rate other year And slightly items we're are $X.XX. our Just maintaining XX%. to

the Our FX located appendix. sensitivity in table is

better and Finally, operations This for to additional European customers a cost reflects we're restructuring increasing profitability. range million. of our improve and the during quarter $XX commercial of actions the the and million $XX cost took third full-year we optimize to the realignment Sensus manufacturing to estimate support to

to XXXX, with $XX benefit in begin of long-term will materialize a actions these rate from run Savings million.

and over to I comments. please turn turn XX, for Patrick to call will Slide Now the back closing

Patrick Decker

end-markets And market expect the our that near-term challenges we through and assessment, continue balance pressure presented wrap-up, year. commercial uncertainty slowing of clearly this on has to So, businesses. the based pronounced sudden short-cycle our in putting margins some in and on industrial of some current to our

our to deliver meet operational enabling of margin execution, the disciplined have us expansion. But, evolving challenges most to conditions teams with in actions responded important market Their and to earnings us of those face enabled some commitments. both our

Control Water – on the sector delivering very have portfolio is market strong strong growth, digital across extremely in the And of advantage as our also we and We water And of at a momentum clean gets both quickly, our AIA accelerates Measurement and our Solutions. business digital That which Notably, in of particularly portfolio and technologies giving position all genuinely pace digital longer foundation term disruptive the of Infrastructure our embraces products. is medium reflected in are growth customers. Sensus that with ramping utilities headwind. market-leading our investments which of orders delivering an profile adoption and growth despite the creating emerging both wastewater sides business leadership us both growth position in built impressive transformation. continues a is and steady healthy competence markets for revenues, near term utility and Xylem across our as

Analytics profile. And to that deliver the continue to in Atlanta, growth at Center alongside to you cash as at when mid-single-digit there will strategy, growth long-term. spring strong to XX, hosting our expand And business possible I our at us look resilient We XXXX our on we’ll Data a to joining over Investor generation attractive forward pleased more of targets rate our Excellence. will of be have Georgia margins I'm and in forward you the Day long-term Investor and as hear March We sustainable about look gather then. our Day will the date many announce of

we're to operator, that now questions. happy take With

Operator

Thank you. Instructions] [Operator

is RBC Capital of with from question Deane Dray coming the Our line Markets. first

Deane Dray

everyone. morning Thank you. Good

the feeling businesses start then we've we are weakness sure short-cycle most and the which seeing making frankly, -- industrial, of calibrated – we're just Maybe including with industrials gas. and the with this oil slowdown, across commercial Hey. everywhere

was So, our their X% Godwin, about and total that's Xylem of and calibrated calculations, gas by revenues about oil last X%. total

it's maybe – Godwin construction soft within are else markets what So, the there.

are and end activities you and numbers, here? terms then – right demand seeing what of the just kinds reduced So of markets those in are

Patrick Decker

Yeah.

more But piece a not bit of percentage, gas little a So, bit – and little Godwin And, – Deane, it, is towards in sales slowdown into heavily higher and your our maybe in X%. gas, but XX%. we distributors, are quarter would X%, it's oil what point, maybe big big oil and to they a the was construction. mining, saw oriented be a also

still really pretty solid, So, where that was was mid-single-digits. Rental the it felt most. up we

here And part the a October, believe in industrial spend function lot we is a we – work the through trends CapEx well. broader of our space. we as But have as – just business of in it seen rental slowing what it's first of is some downward

Deane Dray

again the sell-in as you industrial can -- distributors sense On have common your as levered versus with and tell? destocking companies this Do -- you other distributors near is a the are sell-through? of

Mark Rajkowski

Yeah.

with Deane, speaking it's holding really on destocking, a more it's investment. just sense, and back less in further distributors Our of of the is

budget uncertainty they're selling the the given Just CapEx into. and

They're and that them are such still out has been… but it's around a confident that we lasts the long We'll They're about for next somewhat now. to QX. XXXX hard there tell business through It's goes that over short-cycle bidding how things activity conservative months. into being there, know how it couple now, last far I'd Right we're say quarter. it saying that more right the assume

Patrick Decker

fairly Early with the results in well consistent in quarter third what the side. on we as October saw are distributor

Deane Dray

I orders of just sense that's on the little the yeah, timing, the know a more really cash And an on inconsistent you're the technologies? pure color it does timing That's so, to was it it XX%, impairment… helpful. – backward impressive. and just was then related a that the factor here, the is also more looking-- would helpful. that the idea seems at the is Got impairment new this seems than it. give AIA, -- And us impairment but some And that is more there be but is taking

Patrick Decker

Yes.

this Dean, is Patrick. So

is assumptions largely of aggressive looked would Pure, goodwill how originally more And onboard of some in solutions had benefits we to assumptions it other the it we is integration. we because that had momentum get of a that So, now the of was reality having was had short digital some at the good function around and It are quickly: one, that brought here, the even also is original expected, platform. the the gaining across us largely is entire was be synergy of assumed though financials. Even it we momentum our timing though the what seeing we're originally what were. the deal delayed of

terms at following think quarter, were in on and for it's continued so, growth I the really with this people we guidelines, that in to accounting point of you're quarter. XX% increase the and And an then double-digit pick the orders through is pipeline this to revenue the And what bidding seeing is nearly the but take about quarter time. in the required it and last up making, we're in growth past quarter. read bidding in activity comment punctuated We XX% the impairment talked saw in We pipeline growth. important

we longer up a we're expected, to we… look, quarter much get ago. it we were disappointing, position a than even than but we feel in now So, stronger took ramped

Deane Dray

Great.

China and that just Show, sure water had color or those are that successful programs, more related, substance we some you WEFTEC was just around want We about in Trade order color us but pilot is XX% news the to get as you give Thanks. in I growth. like can around learned some well? make that And if context there some that for non-revenue last all Just at – then me, question project there within could Shanghai. them? a real Program just

Patrick Decker

Sure, Yeah. Deane.

had. still times, I their in we're two aren't north So, pilots. bids order of processes of pilots. utilities substantive other three not Many get do buy, is is be to through there procurement and to yeah, the mean bids that and orders oftentimes are a just in QX XX% getting. bunch whole business this which a We of

newness through we're demonstrate a doing. nature the go technology, the pilot Given need to they to be able of of what proprietary to

Pure And the see that of so, the of activity, but in piece that were majority orders reality large is pilot the the actually here we some had of we AIA. do

your are these We're coming in The China. second -- number now -- which Well, are non-revenue Let's don't non-revenue levers the going question of at are seeing win as: -- leak let's project. most. to part of utilities more this of thought-leading out water the a a know looking We where detection was do utilities tenders our project, necessarily at metering especially the not which improve and looking They're these a saying: do issue the or water

And and do optimize to saying: they're someone and from. bring so, out are where overall that to our pipeline therefore, look the reality losses we tender in the do going at coming is, how And, determine now Let's a deployment.

was So, Visenti this was… doing in leak specifically that by was in it business. parts non-revenue but districts across a the capabilities, detection through project And several driven, we're of China predominantly, water Shanghai. our it one the other pulls

And seeing It around the happening just very encouraged you more other because by that's the for more and takes right momentum. appreciate so, get world, Deane we -- the we're now. what that we have wins these, utilities -- as reference can we're

Deane Dray

Thank you.

Patrick Decker

Thank you.

Operator

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

Scott Davis

I and Deane imagine about… Good cocktail morning fun party of would at guys a talking be a guys. lot you

Mark Rajkowski

…we would.

Scott Davis

on him. Yeah. love Deane. I I Anyways, love had you both. fun. pick I to yes, it's But

ring. pretty work? look to spend? how here, Anyways, really when good you phone the because to I into waiting do on much you to of just kind does kind XXXX you stuff, five-year nitty-gritty quarter -- they the on China infrastructure in I'm like visibility want each a visibility How guys that cycles the… out walking backwards you given of did mean step the take I or not the planning but that give have for

Patrick Decker

Yes. Scott. great It's question, a

two-thirds would China piece: roughly different more a and not in in commercial than I of sector, part. business, top most remainder the on in commercial in from of think business the the see is buildings the for we is cycle industrial and say let world. and I and our what is rest that a short from the start utility little two-thirds… say industrial the very me much

very north of long little that lead our long in very heavy for visibility... towards two-thirds much is It's CapEx. time… business it It's of But heavily China, oriented It's treatment.

so fact bidding of visibility have five-year kind our is and rate it clean into that and very that we of the so… is around a is a tied that And pipeline this rolling pickup to good conversion and much win and central of environmental kind and mandate government water part plan. led

of that we're solutions part, visibility of digital of talking some say, we've non-revenue So, seeing would these I appetite the the some into And that our confidence. around we're business, water, increased now greatest going us etcetera, about which gives XXXX. to also of got course, implement greater

Scott Davis

extreme, but the Is as labor? that actually relates the and execute strange… and Okay. just is sort such cutting starting of non-skilled it skilled in is dynamic changed seems That's some an it so on there meaningfully labor can the whole last worry by thing in about rates really this Fed’s years these to projects? I'm that's shortage helpful. people And it labor macro everybody or to fascinated

Patrick Decker

And of time. this as has short labor areas in market tightened is temporary Yeah. also, the rely oftentimes We're particularly at the businesses, seeing and construction point labor. a this, lot in temporary it on non-skilled up of kind project where where largely really labor, they

the despite I yesterday, discussion know around chair about even the And lessening markets Fed think tightening or softening talked rates. interest I labor

channel commercial rely heavily is we we we're this getting quoting So, strong this our for And on we that We in the side the of market still think see saw U.S. transitory feedback on because where our activity. channel from business. the partners indirect it's

delays up, seeing. we've is project lesser that what seeing It strong extent, we also we're a a show issue and utilities is but got Scott, though talk there. to we're growth even And US-specific about

are budgetary whereby through utilities expecting. some engineering firms quotes the consulting initial We are above delayed being seeing coming our projects well in have their what been

quote. So, kind that and redo We they're The seeing pushing them their bidding as on back through. of assumptions pocket also cost. little go but pipeline, labor of of go and higher still still have will due bit the these go projects back budget them to as back see people to reengineer we're on an some to air projects

Scott Davis

amazing. That's

to you. Good for Thanks Okay. color guys. luck

Operator

question comes with the from of Stifel. next line Jones Nathan The

Nathan Jones

morning, everyone. to Pure. up first in write-down the follow on like I'd goodwill Good

I think here things as explained anticipated. pretty you've thoroughly as that up haven't you'd ramped fast

than happened had year-and-a-half about a long Pure view comment in in the term in could up on You've for end the you of changes Maybe you your where now. rather whatever here decreased, the short putting expectations term. increased, the your this having same? for have of this stayed After revenue a out year-and-a-half platform, together AIA platform of that long-term and the potential

Patrick Decker

Yeah. a I would obviously. one appropriate say, Nate, very good question and

near remain stand unchanged the term -- term, would going say over we here ramp and things was assumed. longer to medium our assumption. than original even It I long what from us as now the took -- over the view get and Our just today originally

looking this in in we are look not did than about also of we now that it company. what quite of these the I rather -- at in built platform. broadly of frankly, would say win win just hence, the the new potential the Kansas, looking good that digital at potential better we for opportunities as India, impact AIA aspects we're solutions are opportunity at if so, in these if win rest China, I parts really reference feel And of than really because terms and to AIA for pull-through deploying we and the and terms in time now the technologies, broadly the Xylem the its broader at Pure, and what or pull-through

cycle would I conversion digital what certainly personally what up the year cycle been longer and -- a has the think that we learned solutions have to In simply I I anticipated. than cases, we what originally we've learned for sale the just And has on had a -- been say… some learned, utilities well, is is what learned? the the bringing line. that that to need the this is pilots, to going solutions I've straight that a and sector, of because be Disruption I certainly to fact never is… procurement a is this process earlier. as about disruptive line. straight we're run talked the not

very So, anticipated. about we proud we had team's now, But we very and it's doing. of the than are I'm longer where taken what feel good originally

Nathan Jones

of utilities bit China adoption more are well pace little talking just a Maybe about technologies. known project. new Water for their this of

small Visenti other ability about was of technologies won project. pull pretty the business, said through from to largely you there You that has parts the been a it Visenti business. that and talked the

general… you it's Xylem? specific maybe water about rest of for of whether Visenti won the can just So, or more this through content project by non-revenue what are the kind a project could pull talk

Patrick Decker

yeah, number And a a capability. of be just leak we've of detection question. here type in example, got great happened digital to is And a one of to case, specific examples is… Visenti of it's about the just number what really around world. these Sure, happens whereby, it China our be one we're talking this solutions

customer where they the start leaks. were non-revenue here go I’ve They ones in examples were in is: and my to opened this -- an door… and go other looks Australia, to able in got the India, the the at got were as where to issue off. well… -- They that in but able solve US example water this as we've

a be… need… of opportunity pull happen. metering than things a see doing a just bigger be flow our through team situation, of metering a There that it fact that It of metering leak be other could be replacement It the capabilities. can into may there detection the one the that can opportunity. opportunity assesses a a goes range as in and opportunity. may But we they

there's treatment be many Hey, But the are It's EmNet that problem in applies or go and And doing team our goes our the around around ongoing network. the in no that the an in EmNet then water might wastewater opportunities combined team doing… to a just different overflow plan.There's pumping a contract. and overflows. as than whenever, sewer there say: SaaS technology and the data analysis. in storm There's project problem getting

wastewater into submersible pumps that. Flygt then can That through pull our

a get they not rest our So, up one are other… It's where through showing but revenues in the the signature showing solutions our other segments. examples applied. then of up there AIA. And at digital pull of are They business. in win, the number our other of

Nathan Jones

outlook a Yeah. de- of on industrial The talked heavy demand related stuff. industrial. for business stable a gas to Can industrial supposed more XQ? of light to here We less to One lot and the in in kind lot industrial to kinds lot XQ be about lot that and drop rapid one is talk about light related subject oil you and during quick industrial a your light industry watering, these a fluctuations.

Mark Rajkowski

Nate, our Applied lot decelerating we… segment. Water our observation. in with industrial Yeah. A in see lighter Nevertheless, that applications. order growth you're that we right did of being

I and think and general… their fourth into concerns the in just are seeing we're maybe bit to order low-single it like we're… are managing just It's… spend, general some just down it our flattish, So OEMs in spend, is digit, CapEx expect trends operating some budgets. and more of quarter. cautious then and of a just general little be going their we down

Patrick Decker

I mean single want them Nate our interpreted I as quarter”. the… past, I comments “every think the Yeah. in a to be wouldn't

GDP course over single is done industrial That's is the whole of and year, growth. when view That in that any ahead we're next Certainly that our as seeing. sector with to think said given generally light the look still we expect be in year of typically to we digit. year. low I line what

hold or a here bit. skittishness on little there But distributors there can't a where part get to some the be our quarter back of you

the second so half last up that's last the make even year. close year I we but think call I X% the point mean a and versus tough in We comp important had that to to pretty to and comments out here. quarter that kind an were we also… our didn't quarter in we of

Nathan Jones

much it for my Okay. Thanks taking I'll questions. pass very on.

Operator

from The John line Walsh next question comes Credit of with Suisse.

John Walsh

morning. Good Hi.

look on forward kind pressures that feeling. you to organic go the obviously, very about some confident mid-single-digit going wanted and sounds calibrating This forward. these growth here your remain of cyclical in to of Just back you're thinking

do as short kind putting a cycle actually year? of So, down be estimates early of are most backlog, year, does have consensus but the given potential there'll I this and visibility there range it's to X%. pressure be would in put you transitory to Deane but feeling this, for alluded kind point have know next to, how I you companies kind think of for feeling out what next think,

Mark Rajkowski

Sure, John.

next yeah, with earnings we I into QX really report really in guide -- our point. dimensions. will say would early we full your specific few I'm guide it at a So, look be and different giving Obviously, for it's early year. to give us a any

in importantly your business First the that growth point building we those in of we metering lot India about shippable part XXXX. there, up ramping think China activity all, backlog we feel most is within to up utilities, think both our our good are most the MC&S well of Infrastructure steady segments. seeing and backlog where segment Water of of in based XXXX as AMI as have see in notably I high-single-digits and and upon We of a still project runway deployments here,

And AIA the we be XXXX in then, ramping well. beyond the conversion and as of to up funnel expect lastly,

lapping. first uncertainly my that the the feel But certainly and Having a all to we of how said terms and in that better through a that in through half had have and have of we're the going to what… linger downturn going end to commercial try as sure, in be our comps your QX. fact of point, not somewhat industrial of that, here now do we're probably we that's tough year right I'm We'll to here to the for cyclical going businesses, view will a long prognosticate we some that roll. get

normally year, X%. half. again in mean but… to first half Industrial it was about where Not a first is, was X% home of I up about, this write up lot but Commercial the

going I have our a say of is… comp expansion, and we half. there. bit continue out we The tough to but would still margin be in first have in little thing last the to confident we're So, meaningful productivity opportunities

a before favor from of talked water in to given heavy rollout our Infrastructure project the now MC&S margin strong and the We've mix there, continued standpoint. about coming Water performance also the

Matt Latino

have next please? we question the Can

Operator

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

Brian Lee

it Good bring basis think maybe year-to-date. you Patrick, points, to guys. mix or off seen jump since Maybe a been XXX volume of morning. than was at. was And you've bit topic, so, productivity, flipside, tracking you've I Hey worse best then the up that the on the

the be here should So, second is takes we going for drivers. the and forward this two talk Can near-term in anticipating to margin then you expansion basis outlined just should operating additional for the you that guys. trend fiscal still year you well? view XXXX. reset questions these Is expecting given earlier maybe question, Thanks, here. for margins know puts if be And the update as here in or to that point that XXXX. I'm the wondering we XXX an intact

Patrick Decker

Let to me productivity. question let third continuing part of saw on the the a what I prepared me that my relative did drive take teams we remarks of some mentioned really to job first quarter. nice in

the really operations. our up part find And costs to as actions in this of supply take out We ramp well places first year did as take in that's starting in restructuring manufacturing QX. continue to to some recall, our we you'll chain

as those And and lap costs. some third We inflation moderating component as our segment expected, the expect certainly of higher we've in well. seen, QX as some M&CS shortages into that in some well, the expected we to of continue quarter as we as

and to in the tariffs some have we've into also. a we continue lower the deal on saw inflation fourth of Applied we quarter third well, for made Water and quarter with moves to addressed the also as We that expect that

Mark Rajkowski

say, view of that of And the points as have remain question sit XXXX our margin here your we of piece, basis around the the we is on that, at levers all that kind the our on XXX intact. productivity, today, would looking pricing and in control Brian, expansion, I

that to And I come profile believe of that going any of what versus is going delta kind XXXX think growth signaling one be the our the in be terms big we sure might all guide question factor in mid- give down we digit. is I'm volume what XXXX. in a simply relative it to a we of anything to to before will not terms be what make that with for saying single we get will said as it comfortable there. I'm

Brian Lee

I appreciate guys. the Okay, color. great. Thanks

Operator

Boroditsky line Your question from Jefferies. comes of with the Saree next

Saree Boroditsky

morning. Good

you risk of that MCS. on projects is XXXX the any just project into So, And you I guess, these have for timing, some pretty remained positive could on pushed outlook you for get that the visibility comment there the out? and

Patrick Decker

Sure.

visibility quite got… in into XXXX MCS shippable and shippable we've we've on pretty backlog healthy. The based beyond. is good XXXX segment So, got and in our beyond the backlog

there looking last day-to-day which like a portion I is at of coming out that that the X% was think We've growth we're business year versus replacement is quarter. meters. got… of is that

large revenue that's now, right but want for in. of any going solid so, that meaningful think a for base. And that in probably the about all piece locked that one pretty wouldn't of to backlog there It's in anybody not is It's the definitely our the I is half of businesses business and everything is. projects, is sitting bag segment

up a just upon conversion That's done. to economy we've not But been recessionary for based utilities. very then, there think and risk healthy economically, the into diligence on is the make what to on some move of that's the the not seeing those case that historically there there's what for the projects always that that returns If project was were we always course, risk why good broader to I just depending environment, AMI, secondly, do. can go right. the I'd say but we're to a have again them good, investment. they there's us

that's into into business emerging opportunities. the now pipeline teams terms the market team given bidding we've markets. and up AIA of rate in the Europe although of And helpful business integrated is: Sensus helping terms say in business. our the… in it's the and increase only… for which would were segment. we million the I growth $XXX bump is very now now Lastly, only in seeing And it's already again what in a ramp that of and good right commercial Again, in spike then visibility AIA up lastly,

do be there opportunity I well. there to so, expect And as

Saree Boroditsky

last quarter of some helpful. considering up That's from the Western macro growth just Europe And picked a from little trends. in different your slightly

market? some on could like you're in So, that seeing color you provide what

Mark Rajkowski

was of did actually than the we expecting actually. but based a by little year. broad surprises good strong are and one into that bit fairly where first some was It had. utilities was A in better we industrial Europe. QX. side low-single-digits the of Yeah, expect… part the of wasn't we… and was… we continue lot parts in was relative was But to strength it it it driven that it And we plus on seen that probably of in a had was the where the we saw it as quarter

Saree Boroditsky

color. the appreciate I Thank you.

Operator

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

Pavel Molchanov

the for Thanks questions. taking

create you And industrial curious ago? Given for an been if that this in to I'm if focused the does private years trend the chain the headwinds from for smaller feeling so, hour, your past we've extent. kind reaccelerate several presumably players guys a to more greater are M&A this about talking opportunity the perhaps value of

Patrick Decker

our think do question. look you approach healthy we now of that I good different I to have on a shapes know all We M&A. and at we targets remain mean right sizes. a That's pipeline disciplined

do industrial commercial haven't in change as We believe terms be. how a seen prolonged expectations. I But meaningful the move could upon thing depending could of yet certainly valuation that of

But we'll good about point remain utilities disciplined priorities remain have unchanged. ear, talked by in at in our We've really we'll this time. before and play platform we that think we a

digital anything there building even of robust solutions. biggest So out more second industrial franchise. our second then not would – more be tuck-ins likely and is our other do bolt-ons to priority And we a – the continue

along will look to continue come we're disciplined. we things opportunities, to so, be those hopefully, but some here, going And and,

Pavel Molchanov

the the Are you the acquisition. Sensus net-debt-to-cap then since leverage And level a on happy the with balance this at sheet, lowest quarter, moment? before pretty below is follow-up the your XX% went where

Mark Rajkowski

knew are. we Yeah, target, to relatively but Pure I our acquisition, of post down we'd we be that bring bit ahead a we quickly. little had, gotten the able mean

seen And have. cash with. really, strong where flow it really We pleased we've this were quarter, was we just that

Moody's. times into So, moving X.X targeted our it range which we're now to is X

Pavel Molchanov

Got.

guys. Okay. it Understood. Appreciate

Operator

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

Joe Giordano

guys. Hey

So, guidance. look, it's to hard give

I think that. appreciate we all

a row. in seen a we've couple cuts So,

If than it bit optically, rather anticipatory. just at it looking like look it's a reactionary you're could

on and there? can was little the you of that internally. cost react the a kind faster feel been of discussed learning of looking are if And actions at to rather have I that bit that with Like how So, business structures. actually wondering getting slowdowns ahead you've restructuring numbers reconcile than out you're terms like you in maybe part publicly

Patrick Decker

Yes.

we Joe. cycle is think is I a roughly business. short – I have of do we so mean, our do It's and part make. have business, meaningful good fair XX%, non-utility that probably which still point especially a to somewhere XX% between

a things will there are quarter. take and kind we to your of can is change The get, that point outlooks quickly don't obviously it within a and on wing things that just And we forecasts. guess so, point

And we distribution, And quarter in and in quarter. late things suddenly cetera. this et that's really it through was what change happened saw the pretty

to both taken out, into been had we're other for levers from our the quarter. deliver high even otherwise that Obviously, EPS also say, able that on anticipated. have now would then I even around possibility anticipatory on the than looking actions not cost harder a guidance to are we and not pull would QX, we productivity margin we've just there in So, being range in XXXX, in leaning but that did a at we of been end our and

the want say we preserving we will QX, do of have we our do near-term. are… been being that an elements seen to investments I it's reactive on also so as both as that XXXX. key the and area as everyone knows important Lastly, focused in that would purely portfolio, into well going to That's not and though be

Mark Rajkowski

been to are the us cycle there and doing about some relative course streamlined talked will for more the we... team leaner, this as throughout we business every as going year the year. at that, to get the we've we've this and to turn, has, beginning be of need prepared of and point And into a opportunities for that

Patrick Decker

the it's for… think, this you near really quarter possible in an facing of I challenge So, the again end that that as some How return industrial this commercial long into: and and as been air pocket Is the US?... Joe, to through QX, does visibility getting normalization? and before pocket see much last we've just run

growth we part business not we've talking of in very in does we term. longer near-term rest with does the to -- and this Because the been the and saw what in this line cyclical, of tend were but portfolio that solid -- our about be rebound if in it saw it for both strong more softness which particular

Joe Giordano

portfolio go makes and take kind sense. of building the that Does on of figure get is that about out it's going the them? to and real look, almost I you it… this kind But it's kind there On how ones unique forward? bolt-ons some you AIA Sure pay a development to you in but as small much do I interesting of with recalibrate that you're does the for to or of by multiple maybe appropriate what long have time think impairment, like market. the change think way not have, definition businesses the… to the to heft some are those bolt-ons smaller like, this

Patrick Decker

say look these we have with of think need somebody way any it the I at to to Xylem. the I wouldn't of businesses first in else's I Joe, all hands. it's… I thing, important want certainly think would be They most is

have had I the course months those as now over we've only so we and we… we've the And the the here know, year only as have over we've -- businesses, ones the been – course the of as non-pure of speak. of that you last Okay. integrated we think number integrating those and that had we past because,

lot certainly inform we and learned to a from conversations look any at the customers to kind by understanding bolt-on with that learned a out because better talk will C-suite a go I've have That even future lot lot being we now of during think as broad and timeframe. they We've we evaluation that of level. customers level standpoint. in credibility acquisitions at both educate enterprise a have and how

pay, course, and regard. You're be on never over the time you're going discipline we'll you acquisition to don't perfectly layer perfectly price what be able and always It… of in that paying. want an to

those Not not… build not our going but all. this no, about at So, out on we're to we're are learning continue and shy portfolio. gun

Joe Giordano

I That's one last just one, fair. sneak And last here. a want just to

a kind definitely into your a It's get lot over years. It's segment slower we the like spot. of As on done bright pocket a of the potential a in What's your couple expanded some nice there? cyclical job has a infrastructure really margins. last of businesses, been

good volume to that. help drive had You've

If slower in is into market, segment? that a you like how much growth get more potential

Mark Rajkowski

always cost Yeah. and and It it. doesn't to Listen, months months in important we there's cutting from we'll that do the… just do productivity. more opportunity that continue come and and in out. That's that,

leading innovate to continuing is bringing earlier. point and also I new form, other think into the solutions, of Patrick's products, part edge that to it

This to digital our potential higher whole and the AIA the lot margin aftermarket and a end in profile. is… relative of there's solutions pool platform with equipment the in there notion of opening and new bringing pumps door

Patrick Decker

Yeah.

the.. think I

position just in leadership. there new when you've beyond big normal most here really is by Water But the… and businesses pipeline. to notably continue that got terms think certainly of grow incrementals -- the that get draws innovation strong Infrastructure leverage strong of and side. growth very think pipeline, by I in I one definition, we on slower volume-driven productivity we if it's That, product growth. as deal development market in any our the through given The even our definition,

I That's XX% to from up XX% the we're first in in as think company, our a vitality up index. right quarter. now,

a it. average. higher only these not grow there's but there And that so, ramp pipeline experience, bring continued grow drove that through them or technology margins than faster In the than that seeing the faster they and our average we're with products

one of Water so, across that's segments meaningful very of part the each Infrastructure. three a the including story here And

Joe Giordano

Great. Thanks guys.

Operator

line will Walter question Global. Seaport Liptak the of come with final The from

Walter Liptak

Good morning.

my is M&CS wanted the quick pretty easy. drill just question into business. I So, and to

You visibility good. that the mentioned is

strong about for wonder I electric. it you delineate got water, because for backlogs, in like gas nice XXXX sounds funnel wonder but quarter and with between the some I if others. that visibility and was this had could gas tough You've some of and water the that comps electric you've the

Mark Rajkowski

internationally Well, year-and-a-half-ago big off is and domestically seen starting we had both recently water we've a success electric, they're gas to good and in some wins business. that and our roll were where

is the So, side. water on most of that

Patrick Decker

brand-new product energy well. Yeah. in The a we news good is side as the also just launched

So, that we in get to expect the momentum market.

I think that few announced a we days just ago publicly.

we the on of still higher about water market, the encouraged momentum very we're the electric-and-gas feel but certainly the with side seeing So, side good brings margins. we're which by

Walter Liptak

Okay. very much. you All it. Got right. Thank

back Patrick questions, Decker further no to I'll remarks. With the hand floor closing for

Patrick Decker

you. Thank Great.

we this of thanks and for bit little here. time your field. interest seeing and So, we your in call. as Thank Thanks you long you be we'll QX look many and everybody support patience Otherwise, out ran and the for to – a back all. earnings morning for attention our in touch forward continued

Operator

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

Xylem (XYL) 31 Oct 192019 Q3 Earnings call transcript