XYL - Earnings call transcript Q1 2020

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Operator

Good morning and welcome to the Xylem First Quarter 2020 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, Vice President of Investor Relations. Please go ahead.

Matt Latino

Kristy. you, Thank and call. everyone Xylem's quarter first Good welcome conference earnings morning to With Patrick Tony Executive Officer, Chief me are today Officer, and Supply Mark Chief Decker; Chain Officer, Milando. Rajkowski Financial Chief perspective on They will provide Xylem's quarter our results first outlook. and their

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

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

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

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

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

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

I Now, over the Patrick please X to call turn Slide Decker. turn will and to

Patrick Decker

Thanks Matt. Good morning, everyone.

keeping safe those are you is full only we're earnings this spread team and and be a expressing distantly call are not to room. sincere around well. to hope that big The is It's close by with you start me normal. that I together going Predictably and here my and Let than different rather Mark Matt, us.

we're times brief. our we're keep prepared the remarks going Given to in,

leave As for the it's especially important, of call we more Q&A.

I'll by around our we've sharing world. how start guided the COVID-XX response

As you in given our impact China. early the we know, felt the sizable outbreak business of

our and we Our anticipation impact of isolation as business than has saw just US, turned that strongly. said the recovered then declines to And the about steeper in expected. Europe, out across spread in be that, revenue Having right. there impact we

and we further early So structural finalizing spending cost moved to actions. now reduce are

financial markets technologies essential serve of which and we've strong to are period services. our maintain to in the position, this a to in privileged very And our able vital been continuity further even products then. enhance entered since having We're and liquidity

economic evolving demand too are forecast the ahead, looking near term. So conditions in quickly to

So we just reset now. premature guidance consider to it

We about in and outlook. share our we're will our markets what end detail offer however, seeing more

in flight notable the see we we'll In We'll shape to using to quality, sector. to the share COVID-XX across And certain accelerate that as and of other our a our how sustaining structure particular, that investments, pandemic, thinking the we see we're priorities on responding side strong how essential including how trends address to cost the marketplace and our investment pandemic. our about their a shape shifting are services. the emerge an customers both position provides opportunity to

some important insight it's get we've to to spread provide into the into results, the responded how of COVID-XX. we Before

colleagues, supporting proud to the serve of circumstances. extremely customers' utility folks. services deeply in most provide to also response our They well-being and activated moved to urgent world for operators I'm our China, needs. in Wuhan, safety up these I all then the team understand frontline partners. difficult quickly When business want and is to customers to begin step emerged essential team's are plan. of first continuity frontline COVID-XX by expressing was it communities. priority our very humbling our their our around delivering the our how Xylem Their We watch

to It water, and disease. hygiene were sanitation was clear that the essential the spread going to combating be of

got and flowing. chains up So we our We our protect essential services could then shored financial hands customers' into acted supply keep competitive we and position. critical they so to equipment our

Supply of response the coordinate effort. around questions charge is answer call activated we our team's may We you that to response plan Milando, Tony pandemic have the underway, actions about with Chain Chief corporate China the today response. the any to in global With Officer on Tony our specific world. put us

spread to and supply initial US, COVID-XX same we Italy major dealt across beyond the hubs apply As then and we first in with outbreak India China. model elsewhere, those Germany, like the and principles lockdowns

areas a to focus we OpEx place CapEx. workforce, of in reduced our And make of could to the also of they spending the in serving sure mission our employee customers package We and work. put well-being our and significantly on support underpin both critical

world. by QX, both program, the channel working partners our Before our side and ways want how found Through side of partner sustainability to I'm our about to to have proud small, large support it's customers rewarding and of them. Mark I Xylem to corporate to all communities of Watermark, passing our with with and communities, employees our so help mention citizenship also around customers been our the talk the

Now it Mark to first with the that, detail provide over hand to on I'm to going quarter.

Mark Rajkowski

X. turn Thanks Patrick. Please to Slide

all or out shout field. give whether working to Thanks you. support remotely, customers, factories to like tirelessly of in I'd teams First, in working big the to our our on incredible a

results. Organic declined turn growth we had for on revenues the spread from we America. that impact first we China pandemic largely the expected saw organic the in to COVID-XX as North out let's quarter. a mid-March X% Europe impact market softness quarter broad and The to and of a anticipated Now, as about until sudden the played quarter, X% ultimately believe revenue when

market by COVID-XX softness, around project remain some significantly chains the the an digits, each expected were and steady. factories, operations delayed, perspective, of supply commercial as end From end residential more by world. Utilities to down underlying double declined but X% and and subject was spending work market shut but impact somewhat declined industrial, markets driven relatively customer market as maintenance operations

showing Geographically, all down US two X% double XX% Markets relatively China including major fared quarter. year-over-year Emerging regions on declined Western first digits, in quarter. utilities most the broad resilience. weakness in in Europe several of declined a was mandatory with in countries the the shutdowns. decline growth months to due the well with

in were growth declines in Overall the X% utilities offset with by end other down markets. orders

the However quarter. estimated the pandemic, company excluding grown would digits the spreading orders impact of single low for the have in

to share warranty includes shortly. driven I'll of impacts, from charge. is related Operating in this Earnings X.X%, volume margins impact control warranty mainly COVID-XX pandemic $X.XX, charge discuss and the per from measurement by roughly declined segment which solutions the and $X.XX the $X.XX and

the offset the QX to orders the Please industrial in more year. by side the X% turn review business. growth first last by saw infrastructure Water and quarter X in segment. results We declines orders markets Slide I'll in down than utilities organically of were versus

gas, by the while oil verticals. by was down in decline X% construction declines X% The digits and and led double industrial market down volume water, quarter. organically, XX% in declined in revenues utilities the a mining driven Organic end was the

downturns, segment of a during their to sewer maintenance exposure treatment for budgets water the we've and spending Historically, the expect behavior with continue. We consider collection protect seen be and business the most this infrastructure operations and to to proxy wastewater networks portion processes. utilities we

site segment partners X% activity water Please The organic during quarter. well had delays. project as are by cancellations, this as steady delays were order turn very delivery and to impacted And channel our customers in despite we experienced metric project we cancellations X. haven't with very and closures our orders while mandates. closely seeing as We're distancing decline some applied Slide monitoring activity, the construction order any quote

and site by XX% by closures in notably our had of was last which declined end China, year. most versus softness driven XX% impact project significant we delays COVID-XX, markets down expected revenue Organic short the over commercial construction and was as industrial cycle the in exacerbated

margins, factory an operating XXX largely volumes productivity these with impressive and significant from offset Despite the was impacts on able cost impact of to absorption points temporary and of basis lower team the savings. closures

affected Now, in the organically please in from perform down turn Lower primarily supply project to quarter, deployment beginning Slide in meter demand X. impact test ability were impacting requirements physical Measurement capacity and to effects by also X% control segment of delays, utilities the was as are solution the including March driven this revenues distance disruptions water chain and work. and pandemic, replacement the our business.

We're also close to with utility bidding, to issuing project channel X% challenges. to softness utilities declined Orders understand decisions in recurring some some our We're meter delay communication revenue. along organically, and postpone within with operational replacement in partners customers keeping segment their awards. choose see project or on our the beginning

effectively best and So we support can manage our supply them chain.

quickly warranty our of impacted customers. issue contained the is to to a is Water and $XX being This in a million Segment issue was now charge. margins in number firmware were The quarter and identified with limited relates significantly American specific customers. by our partnership addressed a North

quarter. approximately the roughly impacted components by COVID-XX charge availability XXX from points impacts and related XXX in to demand This points The key segment in quarter. basis margins basis was the the operating lower of

to XX a for million. position company's balance and closed a $XXX on of turn Slide financial cash the discussion please liquidity. with quarter Now, the We

in $XXX to and repurchases During shareholders the quarter we invested $XX to projects dilution. million for we and critical CapEx through dividends share manage returned million

cash working and was quarter Our use a performance for capital. free by of flow net higher lower in the income impacted cash

quarter as higher the of sales as over than well due working of XX lower both quarter capital in a expected this first accounts sales. basis year points of used payable, improved as cash While reflects the percentage capital XXXX, the for working to timing inventories first

and We we receivables partners key on performance and channel flows we cash remain are due focused flow past in tracking working customers do cash daily. capital That period. this increases and as said support through expect laser

$X.X have position approximately with to We continue liquidity a available. billion strong

and crisis needed the week bilateral effectively will loan attractive In signed profitable enable capacity $XXX our us flow this to at borrowing cash confident to liquidity investments this We're agreements long-term million our rates. critical two on focus growth. through providing our past support financial and enable we manage that position, strong of

to With that, I'll it back Patrick. hand

Patrick Decker

Clearly, pandemic Mark. is impact the of continuing. the Thanks

we're We appropriately over differentiated entered firm this on So position. also we outperform very position in are are ways to medium we the period that and long-term. foundations, and a us strong being cautious, but in

a our of supply shown strength of model chain and infrastructure. critical at the keep We and sits served. we've proven services that durable to the essential heart business have customers And

competitors. to of Our relative portfolio technology market customers leading well, both as with positions and

enables the strength financial us growth. differentiate our that markets portfolio to our through provide deploy to And in capital will further sustainable cycle

Our And geographic and and platform relationships breadth standing provides earliest, have strongest. markets decades. of to have on the recover us we're for privileged an exposes will long intrinsic a trusted they our to built with brands customers, hedge that the

the about position. So in well unknowns to the situated benefit competitive we're while emerge from same an economy, the quality very flight to everyone pandemic and to stronger is to subject the in even markets

So this already ahead, them pandemic. are us telling other of customers side will let's important on the what be look our to

spending. for me in our will we'll the OpEx With likely resilience. how different what our to CapEx and hearing be somewhat helping moments be Let customers, few markets enhance and impacts take we're utility a our customers' share end

We expect actually critical in because focus applications operational the of to on of operational maintaining and the OpEx mission increased their resilient be utility as their We're majority short-term, seeing opportunity they pressures. operators spending continuity. quite

single their strain cracks the COVID-XX their infections labor modes of creating their is an addressing on and imperative networks to resilient. The more leaders say frontline have quarantines. operators the I biggest impacts, field. shown or actual be their workforce working keep to in challenge to struggle whether speak Conventional They under

financial we're pressure. As services, are that utilities additional their even and new under essential helps a networks seeing operations. result of when operational inquiries that, delivering automated put Anything keep about and sensing remote

to On investment mechanisms view a financial of global up we're can CapEx after funding did period hold and continued is side, expect we the in in seeing the the CapEx as the commitments spending and countries. access 'XX. to also it 'XX the that utilities number of that by supported government crisis That multiyear

to conversion not seeing order are seeing slowing being we we're project reason, rate the lead momentarily, that cancellations, projects in that's For in likely some delayed the many near to and term. our

and impact economy. to a residential, Turning industrial, expect we to commercial do see from slowed greater

like the total will that are And is about and likely are the expect questions marine specific see of So gas broader we to specific see economy. soft X% long as orders activity as verticals as to it market, we than at impacts revenue. and long home closed, the in impact place. and on mentioning cycles stay continue demand. beverage less industrial in depressed will Anticipating dispensing are Overall, recovery an gas industrial is worth oil oil to line of our with remain

in continue which especially or will off reduced, to going activity to Lastly, COVID-XX the the is construction job hotspots, commercial, short-term limit equipment. and delivery of crews in site see

levels, factories For remains monitoring China at don't seeing anticipate closely. not with further recovery, operating quote slow very bounce now are we a organic With global second conversion But revenues Even showing normal strong that will quarter. are all signs early and our near said, quick our in back. backlog and we of now order we anticipate cancellations. we the

see pay, outlook, in reduced million OpEx at Bad the range became that estimating clear related support COVID-XX by we're would funded CapEx in spending to roughly the year. the China. quarter XX%. $XXX are the as quickly On we reductions. Given revenue workforce impact business and cost, economic overhead beyond in of expect XX%. by COVID-XX second our We temporary decremental organic it cost incremental have roughly for XX% declines cost the which to factors And to margins

leadership We and basis. the are temporary compensation now on also for myself a reducing senior team

in enable permanent applying We any actions. will principles. more our cost three shortly implementing This be by scenario structural competitiveness will

to post pandemic the with includes be accelerating of of cost. structure First, overhead aligned ways our our which cost simplifying working, we're reduction

water upon we're addressing reinforcing we're we're most position that models most customer lastly, markets by Second, the affected from and will the business our COVID-XX. pandemic based needs a emerge leader. our impacts likely our of in And as the investments prioritizing technology the

already pandemic. They pressures will as operation will clear last to working. have customers' will they and of is our coming be mentioned adapting I that On that point, different above, it be needs of the out ways new new

of As the the tools away adaptation, more will right solutions a resilient technology future. leader, for we that the our customers bring and make

customers they So the side. where our this on the investment by areas our that will reinforce focusing and as the us through other competitiveness prioritize challenging plans adapt need on will period most

to to the it's say critical in. infrastructure In tough I is a summary, actually work there's reasonable a in in water good business would view that times rather be sector. a privilege

solving work extraordinary shown Our resolve essential challenges customers and of delivering in in always just natural good a is time services Whether in have matters. need. times water that now. It's or resource bad,

their also However, in drive Also confidence give long-term network. it's The Xylem health work is investment heart public thesis. the of defense strings customers medium same at to partner work. our in world's and that the

install leading drive base Our positions, to depth growth. our market of portfolio and differentiated our our and underpin profitable ability sustainable

us enables and to delivery drive execution expansion. discipline margin Our sustainable

balance flow. sheet on difficult robust our Our on in demonstrated relies and financial especially strength, customers depend which times, cash

capital lastly, all anticipating to our is the underpins company, of investment create portfolio. underpinned to our customers communities. our strengthen in our challenges and further innovation, in R&D value by And stakeholders deployment and this for customers' commitment Our our sustainability

I'd With open Mark up to addition have quick line. reminder just and questions. on that, two a And Milando again to to the Tony Matt that we like also in

provide can those Q&A. more for Operator, leading been and open specifics. it let's up our color has COVID-XX team he Tony response As on

Matt Latino

Kristy?

Operator

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

from Research. Your question first Davis of coming is Scott Melius

Scott Davis

morning guys. Good

Patrick Decker

morning good you're well. Hope Hey, Scott.

Scott Davis

you and are Thank you. well. hope I I'm as

Mark Rajkowski

you. Thank

Scott Davis

could would outlook in expect you the but the moderate rough to of just lot the down that XQ, moderate and start down surprise might XQ get provided, best with Not once you but decrementals, in a here. any we off short-term, it a to Patrick you XX%. There's and what maybe guess to?

Patrick Decker

some return QX abruptness the reduction. first, some got it the Yeah, permanent of back take of the of moderate so And support implementing both the Part the I'll here we We expect of over and we've of communities we're the the third, course to customer for decrementals our we folks year. in Yes, things temporary that of normalcy. pay support. definitely our the that Scott. structural the that benefit mix half and is business cost right overhead reductions but now, that it's semblance Two, also then will see. back have a also within temporary expect quarter moderate of do as we'll the to

decremental the second yet In see that we've will that more to But historically although of terms be until in half we talked what moderate the somewhere of XX% over year. to, of about that's more kind won't likely it range margins time. determined,

Mark Rajkowski

Yeah, seeing hearing and that order are what I are think businesses customers, terms margin trends, the upon of of some richest we're profile. unfortunately the what from impacted we're in in QX, based being

M&CS, so is mix. for that volumes, North of some dewatering in we're rich year-over-year the also, for Patrick's which same what point, example side terms as will are benefit and is that very side American our list, well Water cost of at seeing of So like those see business to reflected. margin rich terms business, be as in the but very certainly top in of on margins all the function of margins of the is test that'll going in impact. the mix it the forward But a we looks of And

Scott Davis

then Okay, specifically, test. supply think on line, we Patrick thanks that's since question. and I that got was the chain for the commented little What Tony there helpful. disruptions you commented, the bit color in either a Mark on And or maybe

Patrick Decker

Scott. Thank on? Tony are you you,

Tony Milando

the the of on. warranty as chain about am Are or we result issue talking supply overall just I disruption – a the

Patrick Decker

was for so that analytics – specifically test, No,

Tony Milando

talking – The virus you're – the virus

Patrick Decker

of Tony, components high hit mean, a from number the there were little you can bit maybe in just coming I China more color. me give a – Let

Tony Milando

Yeah. for of that Yeah, short number in disrupted did, period particularly that a China electronics we a came we time. Sure. from components, had of were in

had factory also shut down We there one that of the COVID days. for a case couple

and back behind issue is and up that us person's – chain at we're now running work, So supply that and now.

Scott Davis

Okay, guys. good luck, you, Thank

Patrick Decker

Scott. you, Thank

Operator

Thank you.

of Your next question is from Markets. Capital RBC Deane Dray

Deane Dray

Thank you. everyone. Good morning,

Patrick Decker

Hope Good Deane. you're morning, well.

Deane Dray

same team. the Xylem and thanks Hey, for

Patrick Decker

Thank you.

Deane Dray

it some wonder steady. seems the on I had here clean of – for the outlook side. I I understand the within of if dynamics in can't can't just disruptions. if some more that hold. the And meter can beyond the wastewater homes can quarter like second appreciate Hey, the you in, the only side whole water differences any the must in deployments But seems has smart municipal what imagine in put the mean can we meters you there? for us, must because project disruption maybe start and on they get Philadelphia is is pretty size

Mark Rajkowski

Yeah. deployments. of made, pieces there. also and critical out others Mark. Deane, on impact mentioned in it. is are ability – One it of a to the nailed really work. There's physically go the the issues to the And some relative couple just relative it's are point utilities this Hey, do And the to repair there but specifically, to focused some having one impact on of you that point. And it's to that some you at you

certainly work But less been and that not won't isn't out this it's pushed as essential. So important continue.

the of deal things some need And with. we other to

Patrick Decker

half again workforce force some Their the of it of right challenge saying having and Yes, CEOs keeping access want of in again, spinning is do seen utility the looking funding. virus look implementations, what next utility conversations be CapEx residential they're the is given their uncertainty on not I've on impact of latter field, their the might repair anything had accelerating actually month. Patrick. installation, meter or around CEOs cancellations the with many out terms last the approval the in in single their to to general, the process year that budgets because regulatory here like Deane, all clear, I we've the now are in is this to over inability But many, what down out if available whether biggest just double And labor the workforce. be project obviously

nothing pursuing to a some share We've optimism those see in remaining had large in there are continued view we their in very of that even track. second here the of going much year. moving to So right that of surge terms a the bit been they're to see now. also And forward international half on projects again,

that more we'll later. on So have

Deane Dray

as on Thanks. like decrementals would follow there us the Scott's answer, shake that to certainly how in And kind quarter of so calibrate the you decrementals? the second out going helping up see businesses to a you're decrementals, can on and decrementals I just your for question and understand size Mark certain they deeper and us are segments dewatering

Mark Rajkowski

really see clean side I think market we're the basis that about think I mid down – an utilities, as top include it would we say including water on look XXs we on expecting the with and the at would and end line to M&CS.

In And terms of think probably to be going dewatering. led going big industrial a of that by down to to closer XX%. part that's be that's of

by on the transport, bit challenges the water probably would close XX% think to terms and in commercial margin most embedded talked and going about about that's of And I a in is infrastructure will just with business. severe. AWS be plus And M&CS then I business But infrastructure the XX. some by the down XX%, of resi in the segment, we be Okay. to probably more water say, side, water resilient, followed little clean the

Patrick Decker

the detrimental business similar are water applied for they've be water plus to They're for kind to the range. what in directionally of that historically. Yeah, be going been XX% infrastructure pretty and going margins to

although because bring that's let and to so what point to a be want the don't point whole not that to of will kind half this I better because guiding the gets lot XX% want And there of board labor second That see got going absorb go in impacting to employee this we're we're hang them this to that piece in the – and year, that and going in think at is us impact service decrementals. M&CS. we're temporary going expecting be we're that large in built in a support That in. QX. do package to is we into lastly overhead we've largest the also time. to built you back we're we we QX, them And then there. to have some decremental on That going at across

Deane Dray

Great, that's the exactly for what that in that I you're MCNS looking that making quarter. into was and carries second investment

Patrick Decker

Yeah, it's a cost pretty big base.

Deane Dray

everyone. you, Alright, of thank luck best to

Patrick Decker

you. Thank

Operator

Thank you.

next is Boenning Your & of from Connors question Ryan Scattergood.

Ryan Connors

Great, thanks for taking my question. Hope detail everybody's well. I today. appreciate all the

Patrick Decker

Thank here you, same Ryan.

Ryan Connors

to want market's late municipal but a I very and it last I until out, even or even XXXX. really XXXX, little bottom in obviously, the look the on about So at cycle, of didn't 'XX, outlook. segment five talk now out been XQ, to further just years you if XQ four probe a mean, that always there's tendency the cycle nature

much all So and which of it's a earlier year intermediate even this? risk, at think through really it's move have not And term that and stage or the a your the but talked the not 'XX, would next 'XX, end we current that generation about we been that of XQ, what those projects don't projects well. now get obviously, state as got local happening. beyond we'll about bailout, factor do and outlook you take the as 'XX But, real but exploration on XQ that's funded, at are that funded up but are is

Patrick Decker

a Ryan. question Sure. it's Yeah, so great

to we not as in American during of XX% resilient their utility services, and again, move that. financial a quite right – is like as here the of I They're nature they're from conversation, this from hearing point the remains but health know just able making we're not that past, conversation, hearing not depression this terms as going state because want is in OpEx calling the deaf and given now, not that this XX% global mean, a that's financial close crisis, get they're that of this snapback not human viewing them. obviously, time that that that a what number a it well not a that time calling different bit being level. CEOs keeping really crisis what But they're They're to And this basic to today, think provided ears that a is funded we Even on judgment I to we're around. spending also is a for from is they're previous have at can calling CapEx be eye one. the sit local discussed financial don't bailouts crises. of being at in you essential it's a for in I'm because not North this situation immediately, point are of of projects at the not the that.

view So it right we that's the now. best on have

Ryan Connors

had one do Got – my other it, you okay. – And with to and touched this on

Patrick Decker

of seen again, already in India and the I strong terms bring up in I on mean up China I'll actually we've just a there the snapback critical building the that waterside. add component is, there global infrastructure also that there – add I would reason of also pretty

Ryan Connors

good. Okay,

you million remarks, to a other your so one had prepared a your or of as then some my innovation core identity company, is number. XXX this – Now, touched with to in but is do strategy big on

cuts disrupted to how the position that nothing's R&D, going on that but make continue your dollar but are of spent sure the you presumably not terms is on, ability that So in how immune to to do you maintain only there their – ears is sort to I are out those out in people needing have they're of shows with the in what trade the that being cancelled? terms there. mean, theory, of feel ground these you not all customer

project funnel? that talk or impacting is about innovation all this So that how

Patrick Decker

great a point. that's Yeah,

that investments. coming each out You it's say up already it that us frankly, especially that but verticals. And our one pop or preserving the brand of seeing innovation me there's were space, rest parts. I it it's of accelerates a to can – absolutely in across innovations And is there. what take to certainly new committed trends usually we're a allowed said And be let quite now, oftentimes that's utility crisis, couple this the trends that right assured within would are has not we what –

terms in we led great But constituents organizations themes staying to opportunity Wes that conduit closer our discussions us from afforded are with how us we use very how like close So various going having remotely the directly. be this. coming a customers they're conversations a to out of also has getting them show. with feedback they're And the about in to to WesTech. get around also, things them doing on for talking as innovation They're of of even this owners trade

in And workforce so OpEx, conversations with of again, to those the we're affordable that in now be so how in us their what more their interaction digital themes number of do. type also place to that on for able utilities refer way, they forward productive to how in and the increase along as protocols activity action, And management, of them on like, make A were emergency able of in to to to had move they are bids. allowed are become issue terms CapEx conversations, to going more procurement has our but significant actually in able otherwise asset the activity we've again, with remote struggling we actually request that had in they remote a supporting affordability offerings. their they that conversation there regular be accelerate

we other side areas that see there we of a this through are actually lining the silver number a as So get of these as pandemic.

Ryan Connors

thanks well, for time this your morning. it, Got

Patrick Decker

Thank you.

Operator

you. Thank

is Nathan of Jones Stifel. from question next Your

Nathan Jones

everyone. morning, Good

Patrick Decker

well. you're morning. Good Hope

Nathan Jones

to you I some go back are cost here. you, am. hope of guys I'd the actions Thank like too. to

structural about might that any in And magnitude You from you going then we of of cost forward. out this? between spend. talked when some reductions us million break Can benefits talked implemented give might they you P&L about might guys reduction Can idea the $XXX be start what of and the CapEx you cost? be those seeing when

Mark Rajkowski

so $XX for CapEx, Yeah, not color spend roughly consultants, and cetera. million $XX as OpEx start of employees, million. on much Nathan, need doing breaks let well we're in a of just little because on it's we're services, That XXX you But on me capacity the it's million that me demand. on less both et the was professional focused certain focused spending out let of as bit down also, outside, taking focused give critical reductions of roughly and

Nathan Jones

of hours a talk these order lot XX decision not cost decision quarter. XX led about the company, lot and It are you that the decrementals Can in to you reductions, work from that? a to workers, of seen which increase what do that. we've following guys So to impacting a in taken weeks have temporary reducing like to you sounds second

Patrick Decker

to No, Nate, clarify, actually, are actions. those to taking just we going be

some underway, are be those here into is. as of some I to of those – want the those coming immediate what the more that get here call so details will term. in don't And to on the

in those together. actions, on – it's taking be really but to this temporary going are We service all we're to

that other service together able temporary, move we're be faster in we permanent So – the this done each these the the we to all to company. more that on obviously, to one going to all structural deep less but have we're go as in changes, are on to

We in and part is the that? of purposeful thoughtful to what see permanent those which your structural of to size actions. the to benefits on the when structural very are and – that We're first of the side, our being would approach we latter was begin question,

been sure sets as can just accordingly. changes we in best understanding really feverishly what out a not in coming good cut, as of ourselves we rush have this a are We're structural to we align pandemic on to have working our the customer and making

do world recognize so this all earnings of with way, more all more will factoring permanent come that be, think changes able that's I all lot we've to us, And structural our thinking the the into call. our that to hard of in we next on less. what be in a to learned

We are in going to here term. be taking those actions immediate the

We approvals benefit larger have see various decremental margins to of the obviously we do as get the world. mentioned have year. an second things and XXXX even It will parts have earlier, fact and it in councils that benefits the will the half like will given in that in works just of and improve we the I impact

Nathan Jones

rather And impact just you just back think lower on relatively could and than of industrial the And have commentary most shut any that. to is shutdown being from one start would the quickly down. lockdowns I general any businesses that specifically where service the you see would the what normally side broad you impact area actually in here, being. is activity for I you've slip that get if on I we visibility think of you into snap seen Thanks to have Do industrial that economies the just business, would the probably guys would expect as open that? global

Patrick Decker

what shut I distribution think at way. immediate and not in biggest is within been right side you've in our And services in if Yeah, industrial We ancillary is QX It our seen – to that running well and sites the We've that other equation impact also QX. you've as it and the therefore and impact, looking they're they're into not say the would in had read indirect where really pumps, have terms as to I sell got down both along we've the largely term on up Nate. the that single the simply at impact going of be of area. they're channel. we're some

they've policies. and of kind And their lockdown at home so work also had

that. as it's So as simple

expect that as things up mean, QX. certainly that. from, would to than I a for call for. we as point can then year, But benefit right in better early second a prudent that we're meaningful right. be some what on cautionary And Who we the be begin and be the – demand we're You're expect little of think at up, reopen there will QX but open us be in time that being will half definitely and to calling might We in that things now to too snapback. pent it's we probably there knows?

Nathan Jones

enough. detail. Fair all I'll pass Thanks for the on. it

Patrick Decker

you. Thank

Operator

Thank you.

comes Michael of Baird. Halloran Your next from question

Michael Halloran

Good morning everyone.

Patrick Decker

Mike. morning, Good

Michael Halloran

you about in liquidity the just defense capital first the offence, needs how on on thinking are guys the balancing short-term. deployment, side the So

lot to and environment time a probably cash the from any you M&A opportunity capital in perspective. a and a you softer thinking over have guys flow is be might usage the you're other going little fact, lot In create the for that on things of short-term of about side liquidity the a that with

Mark Rajkowski

strong yeah. this Morning, enter but liquidity we Sure, a would saying, I both cash by do very broadly. very, position, start but with

grow our talked maintain to going that those we continue to We question, the important areas are which – focusing that to those returning highest We in critical need it's about investments fund the Deane's the earlier, long-term. response grow on that that is investments we over continuing to to business.

to And we want our on I position, the not are given and well – it, think deals going our the participate. – at We done be we in and there keep Secondly, get our liquidity there's we know positioned list near time, not want face ear are let's the mean, focused play. be know but we'll to advantage. going to to have out to where ground. We we to we take right term,

Patrick Decker

from through the gets through aggressive to to I of you And to out strong standpoint we those in this. invest things support remain to that an is And and know, to and here. our mean, over original that will some others the Mike going we're and not continue Yeah, would just don't add that's of as laid be to the appropriately R&D based and stronger. quality, that getting differentiated position flight that's we're we use long-term get I strategic stronger Again, the unchanged. strategies going times just Perhaps in that in the before maybe these flight more And be we're bit want a going we a what the clearly there's quality to I pandemic. little strong upon commitments. confident be learned to we're that again, waver but from to phrase of the part our

Michael Halloran

one, ramp lot demand more learned and second and about you Obviously, qualitatively. back see? talk be production from what demand It in specifically, maybe you're online, the makes the is little lessons seeing from the agree. to side relative a versus just sense how what you're coming just what of production cadence of seeing tracking And kind and do there to that China bit a seems

yeah. Sure,

learned coming you, demand. to verticals cautious Tony to product through, and Tony, we the prudent as is it's still on bounce to there. Tony, we do want in China I'm talk that's back say snapback one being lines, would demand side, So supply where have over hand you seen demand in but the the But which to on chain lessons in we're if have India. and second. just going the Again, a in the I resilience Tony line, which happening, about there and seen on

Tony Milando

yeah. Sure,

capacity current XX%. about our So is globally

facilities now. In week, now the at were about is back. were they're they XXX%. before they after And – fully loaded now. was back mentioned, pent the about for XX A facility of demand, days came Year China capacity. into Our China down back back first up New to half up Chinese of right as And some lot right they're coming Patrick facilities

many lessons learned safety us five last years has rate for and safety elevated. years stronghold a or of been this communication, we've down been XX% by around Some around our the that over for were the and now. incident has We've four really cut

facilities but low, instance, that for really production now, down facility. got that social learned PPE, one we're Italy, in quite we've the we world, we no quicker. never checks, able temperature where in right a fact, lot downtime, to is those distancing And from shut So down saw in and model. deploy a India. In is only bit the around which XX And of our shut we

In up fact the actually running from last are facilities other and Indian week.

almost all that place our healthy deemed essential and employees keep in that up So facilities place, us everywhere to as communication and running. our in services in really putting have those allowed measures helped measures we're stay the fact safety

Patrick Decker

that for And be to weeks, on And then but Thursday, things with XXX elements it have – of kind that. our call mind. call, this Tony to on I several their our spread every all leveraged of do for plan their what's with good. what's communications, to that lot keeps ask past seems actually pandemic. and a overall what I really, of us platforms a is communications leaders little the to We've deemed kind think every mind a I critical know hands and own kind so the would top with of a it in all was what's out that our of soft. on informs salty Tuesday response hear our do along I an touch may And folks just world began add mentioned communications. just me And front, pass all I since to it the really around call just internal There's it that anything comes happening. further and

Mark Rajkowski

Tier supply as Tony have job visibility we've good in got his well. supply the and X of team tremendous sure done critical components from Tier into suppliers and I X, making a say chain, terms would

So that's been very helpful.

Michael Halloran

so I appreciate everyone, thank you much.

Patrick Decker

Mike. you, Thank

Operator

you. Thank

Your next question of is from Joe Giordano Cowen.

Unidentified Analyst

Hey, for good morning. Joe. is Robert in This

translate down, flow on a that cash the you do free And to some then into if you rest your here and expectations for turn second, think from want capital better see cash? into for look? that the you of expand does switching goes can and can cadence just as Just volume release cash year. to working the How that

Mark Rajkowski

volume but of also release on we're working capital, customers the it's our fact that the plan. of some certainly Yeah, the With are we'll some under be some of stress. that mindful would impact

we to collecting So be need top on of our receivable.

we're some so key working stress, going support look decline, but under release as our and customers volumes of sure. are them, capital the for on you'd of whole, Some channel partners to to see

Patrick Decker

want cost comment the just a really in in more for that comment talking here Key very here make bunch term. that very targeted correct temporary relief course of of about and normalize immediate of the clear I that a year, year. very a that's second we're and And weight to the expect in a is the not terms That's we on and of so on would that sure half to we're temporary. any customers, it's it's what

Unidentified Analyst

that kind then the up that you. rising that's situation term, and just of certain about tensions this a and you're emerge thinking about talked follow China at you to the provide how something term color And worried and is the longer something become kind being how in between US Okay, is about you're little looking just political of thank can be, that about. medium would helps, kind just there, tensions of and are

Patrick Decker

Yeah, sure, this I'll – is I'll Patrick. yeah, –

even be certainly a may seen I a mean, the who now the quality. and with company still the multiple as China doesn't it's reality company been get there. is that expat, worse, such And seeing That heating in very is much now time that largest some the up of come you that these reality tensions know a for is of US have – around high now. have market second are it quite though again single that The although, world, and those for been look our are of we the us. is dealing So maybe any we've China. local knows? and given of it's feel We for that to there don't close we something the market size China The between US they

previous And tensions fact the that other way. trade services. along water, to or critical two our the into not even roughly and the its the space, Secondly, infrastructure any essential most of business XX% through this notably discussions thirds disruption point, seeing we've goes utilities,

immune we're So feel pretty we to that.

because along of improving for the the part right the tied third level outlook of is think I there of And broader some normality a is macroeconomic in the economy that's is way. that commercial to the China, that our China. we and business more to return industrial, actually business see now

the – from to standpoint. and I say don't tensions a China but US we're about business we concerned between the to it, not we're So want down

Unidentified Analyst

for you. my everyone. That's safe questions great. very much Thank stay Thank you and taking

Patrick Decker

Thank you.

Operator

you. Thank

next Your Jefferies. of question from is Saree Boroditsky

Saree Boroditsky

Good morning.

Patrick Decker

morning. Good

Saree Boroditsky

your the issues or how you some Could organic appreciate growth Was provide in impact? on impact it COVID-XX that? quarter. I operational color you derive on demand

Matt Latino

with US, our and demand shut in we really certain largely not in half supply was in were it able just components test on in test there but saw China project on our a to our Europe, things business, was order down. terms to the get, impacted of And not were it which end Yeah, at I second earlier slowed down business, in the of customers terms to the the shipments particularly of solely March. side. being were because But the able impacted in work, in that We chain not mentioned continue certain on of ship. also we combination ability

Patrick Decker

just now follow in down back that add is, why we're in guiding to we important steeper the we China. We've the further to virus. made it's I to would fully to to go that amount to – for that other to Spain, we've understand China out first the right moved needs everyone remarks think hubs sell and and it I in to is, It space. down QX Germany, into in Italy, were some reason the disproportionate relative not really Europe, in business hit hit comments product in in until late really I got points at want one a didn't least of where then prepared April, to be of got we but QX really US. into the and major coming March our the just supply companies also lines for now. It It for of

that US. to we're to And concentration. out companies we find situation a We're halfway of through in already ourselves coming almost but through similar halfway or and curve that's that, Then US peer the of quarter. now the side have on larger moves the where the competitors other it

of year. follow had the really And of for recover through the flowing the QX impact our our factories, And outlook in half overcomplicate doesn't it, and need et and that virus cetera. one impact really we that is on just the it's so QX how in to job sites, you shutdowns, second then terms for

Saree Boroditsky

that I the improvements And lifted? back? provide the as there apply regions that and And on the in demand think other anything you to guess helpful. as you product will can the there on were regions That's lines what you China the saw bounced lockdowns cadence that of line, – is get

Patrick Decker

we it we Saree, Yeah, broad saw saw base across pretty utilities, so China. the in certainly a

it in water but XX%, applied more in As mentioned XX% in too. saw water, remarks infrastructure prepared we than the

in return activity returned pre-COVID quoting utility to us – seeing activity now China. that's levels to You're and bidding

have previously it encouraging done. a less an those of is sign what meetings have they're virtual, seen. of lot Albeit than our where people pandemic So is that's that working teams lot it looks after life the through a changed, like

to look learning there's but So for we're getting bit and had our going starting a side. the learn back like we've from that. European what China We're to businesses, that US of that's even

Saree Boroditsky

taking Great, questions. my for thanks

Operator

you. Thank

of question is Kaplowitz Your from Citi? next Andy

Andy Kaplowitz

Good morning, guys.

Patrick Decker

morning. Good

Andy Kaplowitz

Patrick, maybe you could on your give us some more color commercial business.

a it backlog the said pressure But robust. while. looks You the obviously little non-US under remains could for US, cycle be like

So do do about in you shutdowns longer you term the business? overhang end? bit that that a business quick Or back as of expect snap a worry in relatively

Patrick Decker

question. great a It's

I I'll in think what I again, already we've so the second. the a to – US globally. back here step and come seen

to steep case, that in and of been spots less hotspots. is the following hot As eventually expect returning that most impacted the is up been right COVID-XX in where we're that mentioned, then the it of hit but The the here the fairly well our because normality those actually heavily you there. US Matt that's held COVID-XX. we ship bucket regard, had be very especially in northeast in already was in The in lagging business California, China. is hard recovery the business of business part It And rest seeing the the utility US. side it's but in certainly it's is now Europe essential critical, to and in

go as not partners, I necessarily our do also where it's we we on their direct, it's to earlier, had at the it's So mentioned expect again, channel and cases work. and in ability be all impact

see it remotely get happening we quoting do that to activity China. feedback what on similar continuing them that the is still see And from we they is in jobs,

I think we all can to kind that. relate of

in just So completed, are it's to done a bit as of slows be little recovery. longer reasonably that do do a getting be we for prolonged think expect strong terms things to down as of take some working little remotely. I to bid. period, there But terms get in people things going a always bit jobs But

At to a make So understands. think US. spots it's not around commentary we're going I going snapback, isolated be sure to But is very V a not to channel. on the that don't least way to certain I broad not shape. it's point. It's just big a It want guiding commercial this at much everybody be hot based

Andy Kaplowitz

helpful. very That's

Matt Latino

up. are backlogs And

Patrick Decker

backlogs are up. And

Andy Kaplowitz

moving the Got is maybe it on prepared there the it charge. little forward? Patrick and addressed you what risk warranty Mark, further mean, just a give more I us any remarks. then or happened can issues in and But color of you MCS

Mark Rajkowski

Yeah, said, it's It's part a it's, really FlexNet businesses, in small issue, firmware our vast very is which AMR relatively side, contained. it's business. as AMI, majority It's in our and of of other I a things. our the

So customers' gas, through it issue right customers and so international not does the They've now. contained. identified FlexNet fairly business, or working impact with it's not they're electric

much So it's very contained.

Patrick Decker

on our piece – do on we customers Mark get we've and to took was get business, very we're of way the behind it's the it. terms that get the said, do soon us, approach It's of and number And as like on to to the take And why move that's contained. have got that charge endpoints. we it as we certain it, what positively customers took about this it on we care – on it heard in isolated of and those as now, confident an we very gotten responded in quarter of the

Operator

And thank you.

Molchanov next Pavel from James. Your Raymond is of question

Pavel Molchanov

question. Thanks taking the for

your in-house referenced India. manufacturing, First on you

exposure I think that you have the to. strictest that's lockdown direct

begins manufacturing week. site? on the What's I latest that India this believe to reopen, As

Patrick Decker

Tony Yeah. you still are on?

Tony Milando

Yeah.

in So two facilities first of India. all, we have

been – up essential is opened service that deemed facilities last able actually the we've to and it of in week. get One

other the through last facility remain will opened our But so actually think first week. up May lockdown May I facility and larger XX the it has down shut pushed was actually facility, to XX. our latest out

Pavel Molchanov

Got it.

Patrick Decker

we one world, think mentioned one moving one prepared the following learnings that could have there. be that prepared up supply and certain at don't factories, ahead saw, that was the ahead of coming the of demand in able sure our China go that. was, didn't of disruption to and that it, flowing, for viruses, of try but to minimize to we India inventory I that again, we things to in I that factories case be begin remarks, we of think two the in had the the we things Tony and our get just least and certainly And absorb earlier we to things out the was build around we And did – mention saw also as make

Pavel Molchanov

has up deals not you some My seen the been, advocate, devil's M&A, we Thanks. distressed and follow how would near those? one's going you is to said in situations that years have doing given in on for term years, playing hot tech, water by no question are if which M&A the be the look opportunistically at there space

Patrick Decker

Mark's there or Yes. there was done wouldn't be of at to our Yeah. think comment not I activity mean, be deals that be I comment all. really – think there won't I intention the

bit things will asset people moves the try of you appropriate Mark a is pointed. little can always and then it kind time more valuation – figure as diligence, the just their for it to take right, think what the out I as the to to do out

right, we're We'll not and there. stronger smart pace about flight timeframes. both the again, these you're to So the a get same Again, of our be very are remains terms at quality again rushing strong absolutely but out, valuations, the and the but time, we unchanged open. in it, strategy there's in

Pavel Molchanov

Thank you.

Patrick Decker

Thank you.

Operator

you. Thank

back for any call will or allotted over closing our additional turn remarks. to reached have We time the I Patrick for Decker questions.

Patrick Decker

appreciate getting We strong, with like touch for we to focused. to I safe, time here, as with us look forward you. Thanks, everybody you. Thank in Again, back stay stay joining. stay today. say your here

Operator

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

Xylem (XYL) 5 May 202020 Q1 Earnings call transcript