XYL - Earnings call transcript Q2 2020

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Operator

Welcome to the Xylem Second 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.

Matt Latino

Thank you, Christie. Good morning, everyone, and welcome to Xylem's second quarter earnings conference call. Chief Rajkowski. Patrick are Financial and today Mark Officer, me Executive Decker; Officer, Chief With provide perspective we will the outlook related They their the call. Following and quarter to our our results prepared covered remarks, information will questions on address on Xylem's second then I'll and please the you queue. the that to one to ask and question keep follow-up return

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

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

including or reflect will in some subsequent X. events occur described statements organic to for on Please in Please forward-looking turn future and and company factors note could SEC anticipate will Annual in subsequent to and Slide XX-Q today's that our materially XX, results including events filed to results to future those references differ Form publicly call, with to the report may or XX-K or obligation the Form June to Xylem’s the Report uncertainties no will basis, statements ending or otherwise or undertakes risks from period reports those XXXX. any such We statements All be that on events as actual anticipated. update circumstances, future. references recent indicated. developments most These on we unless are an subject adjusted the forward-looking in make

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

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

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

Patrick Decker

Good for joining us. Matt. everyone, Thanks, morning, and thanks

me keeping by expressing sincere hope my you and are and that safe start you to Let well. everyone close

we've this our low out consistent we performance with As seen be In of two turned April was from back already ago, markets. our have business early, look it's quarter. and we’ll the demand release global, After and it to Europe improvement as effects second recover. began point say May to begun pandemic. hope COVID key stabilize you've a weeks supply demand and and We America. we that morning, from to as both that spread low in quarter the hindsight, June, our the the present some point better we to saw from for eventually outlooks with in than was pandemic April, our and in uncertainty also North overshadows had Asia our Back so is say, then fair Because and expected. our exposed preannouncement benefited April, to to both were markets modest

macro environment. COVID’s feeling intentionally broad by to the positive we impact far teams. early. and one of of So, second Today, responsible felt confidence to notably on guidance It our early effect we wide scenarios side. set insight bracket That's the action quarter have catalyzed of more a set supply range because for it our

on position, under the Fortunately, adapting we so control. able managing solid things foundations to a we working from and strong the were our and uncertainty financial were focus to

supply want kept time period long those and term. want incredible that to focused services everyone. this want excessive our and to with everyone customers them. kept at of central and who's network the and chain, up and They've shown a to happen. Throughout more that being have I interruptions. kept resilience the immediate work water running XX% distribution they've resolve our the made Xylem, addition I communities. Xylem everything around than to who team. to medium we and running credit foundation point demands few world a manufacturing, across highlight on challenge, In despite the robust partners colleagues external our addressing of put very and our greater They've giving serving for keeping of I across serviced at our has for our a thrown of Today, Within make manufacturing the all are both supplied incredible credit actions on flowing my Xylem need, availability. built and safe the

supply, reflects the outlook dedication greater demand now They working about side backlog macro in teams the want to of continue, the third while despite quarter. a COVID-related position to also recognize confidence clarity commercial us of our guide remotely. challenges softness. and uncertainties despite putting to XX% growth, drove So, our I better much

of our our the a three are commercially. the operationally guidance. COVID of announced And in will our therefore, normal, in communications is is year pleased Because irrigation seen deliver evidenced still back that, I'm are resilience do revenues we to offerings, teams, shape of is share reinstating will U.K., team's when to and million the both results. have we the Anglian half years. differentiation of news that the deliver of expected course not of additional Anglian roughly Telangana, we India, the big even is over we in of roughly to but for deployment largest the curve key project. third over the portfolio These the business million wins further full digital and networking times. of the work unpredictable. in and durability Having our to-date, the in smart in is to we second our next overall anticipate about in evidence expect wins are our of challenging our will more the outlook still win Conditions improving the Clearly, said Telangana have the $XX our You country and markets, very hard not project the and $XXX U.K. wins quarter metrology, which of The it combines two generate with Water revenue number

Now, I'd Mark come our see period. to to on some this and over second the you. we'll trends detail emerging quarter, outlook a through to back over we Mark, like to and the hand then provide

Mark Rajkowski

Patrick. Thanks X. Please turn to Slide

Our better coming revenue in the quarter first declined the which than anticipated quarter. we XX%, was of out

was lockdowns strong our mentioned, businesses site down as Notably, Geographically, Patrick declined very shutdowns revenue the is orders felt of levels in a India. in spot the XX%, returned and deployment quarter throughout X% and and and to our the began Emerging modestly the as June. the end were the Middle commercial East largely driven the grew market revenues us for quarter China utility impact recover. revenues European a As delays. bright Europe, XX% as a project revenue Europe performance improved markets in down with majority nearly to industrial U.S. digits. month declined in mid-single which our base, modest Western relative also pre-pandemic of was by X%. businesses

signature and consistently to has tremendous However, double X% very our the grew focused XXXX years. the is done business shippable Orders revenue on, the deals our while delivered XX% mentioned want five a we've in X%. declined total CAGR quarter, in there. quietly mid-teens Backlog been Eastern of team last Patrick in down digits. highlight region but growth the grew has They've Europe been I driven backlog a work This over earlier. large by

in for solid after our more Based quarter backlog cautious was strength foundation shortly. which X.X% on chain. a China, review in in up However, the we detail and with on Operating emerging of impacts a XX%, I'll entered of potential by we'll which shippable experience XXXX be supply confidence the in that is our beyond. margin XXXX COVID growth position quarter, us gives XXXX from segment in second

challenges our successfully chain those the on great those managed the learnings of competitive a supply we turned advantage. work and based COVID through However, into global learnings and teams,

the revenue beginning in years. deliver the Infrastructure focus impacted what the performance adapted Slide is X% the largely teams Shippable deal in This XXXX per customers, matters. on Our to backlog a turn of grew quarter suppliers, quickly I'll in up industrial, enabling business. quarter. to new and was by by backlog us to dewatering, total the commercial and savvy, which and our Water achievement over really next internally, this significantly the work of and deliver and grew began and an review discipline, was X%. to by million for we cost segment. $XXX Please construction with ways $X.XX, earnings declined orders year remainder won punctuated driven declines XX% share quarter late expected and revenue our in excellence, second Segment results by operational X X% is and in three India, rental

and transport quarter to X%. strong they treatment with As a infrastructure past we true wastewater seen from This only which to focus X%. our was of on expect quarter noted projects wastewater this we as utilities last continue the collection delays. To was declined our continue as resilient wastewater treatment. maintaining certainly minimal we've quarter, critical capital important date, remain an business driver business, grew This for

Western utility showing resilience by signs impacted of some double-digit customers. dewatering the and especially with in sales the US Europe were While our flat business, declines recovery were quarter, in early revenues

sector. the to lower drinking treatment emerging offset long and confident near-term cost prospects the quarter term by on COVID-XX contracting Operating infrastructure mix commitment ongoing remain to de-watering, As margin the price. investments volumes savings across was water Indian from their and the growth waste partially water, the example, clean for for The Chinese impacts XX.X%, governments, and and unfavorable continued have in water continue we for protection. in environmental productivity, feel impacts from markets, in we expressed

Applied residential restrictions The across markets. quarter, revenue please industrial, turn commercial to Water Slide end as declined continue declined to and orders the XX%, while site Now, in segment's impact X. XX% customers

business we're begin industrial book our regions in and and modest both As markets. recovery to commercial ship in reopen, seeing

the both XX%. in revenue in We the United weather also American conditions. quarter by the X% markets Geographically, States strong grew quarter. backlog had dry segment and business ag North Total a driven declined emerging

and China and However, to inflation, indicating margin growing savings as end months commercial points end price. well in XXX offset quarter. fully several contracted recover it XXX those markets been XX.X%. recover of may partially and by to points volume in that we And saw customers basis are our Margins Industrial to cost declines to slower basis productivity recover, begin the X% the than primarily as in in markets. take due of segment have Operating demand China was in utilities.

deployments solutions please X. homes. including and requirements, installations distancing declined restrictions to to in project XX%, Now, quarter, and utility entering residents and slowed Measurement meters. business approaching and as replacement the on revenue XX% physical is turn declined of due orders Metrology control availability slide the delaying workforce This both or

We coming expect workers to months, trends as instillation. safely able the over revenue return utility are replacement to order meter normalize and to and

and our and continue digital remained been stemming and XX%. with from contract year-over-year, Importantly, and platform, declines we're segment our offering on replacement win by up activity in by the challenges, X% analytics have Despite momentum pipeline volume we wins. robust from commercial key investments COVID-XX, shippable cancellations. AMI win driven The Segment in AMI competitiveness the the Water Total near-term strong, primarily was combined of growth. metrology networking, bring highlight we delays project project through no the solutions the and the differentiated our there demonstrates to the pipeline billing $XX performance announced very continued XXXX UK. digital neither with large and drive to backlog encouraged a value while million support of in international backlog impacts opportunities deployment data This critical beyond grew our capabilities. Anglian margin

forward, project as growing leverage beyond. momentum will on in contract expansion from commercial MCS significant backlogs, Looking revenue wins. large XXXX drive we incremental With revenue and increased segment expect our growth the for and growth be recent a margins continued upside margin meaningful of source company and the

by driven Green in Slide with as approximately to and X. in well strong in $X June, turn We strategy at maturities million Bond longer flow quarter while billion of in cash the of XXXX roughly liquidity $X.X an please total quarter. was to the $X.X issued Bond prefunding after-tax Green billion, the The of example than effectively was billion October cash we offering ended as maturities goals. offering at Now, of cost also in due linking $XXX less X%. lock to sustainability the us financing rates, This offering enabling importance latest low historically the our of our opportunistic, performance

funding our we take Given remains the our a unchanged. priority, note healthy closely monitor. and strength organic areas, strategy moment of M&A a that pipeline Alongside we maintain to remains position and opportunities, liquidity, which investments top in of capital strategic financial I'll allocation a key

flow. cash turning Now, to

and a Our strong. This $XXX roughly XX% by than very performance from in our timing cash capital hand be the our I'll prior was focus at and improved continue it on now taxes, collections to while down our year of a and free in environment. XXX%. year. sales I'm expect the flow performance pleased to year-over-year, flow inventories capital, of Patrick. $XX which improved Working flow payment points for million from with spend, payment will this conversion of prior cash as percentage the as back year-over-year, Operating discipline And of cash free capital continued was managing demand to the first and around with teams quarter was prioritization that, XXX year terms, basis the least of working cash on the the more we drive XX% very the hard overall in and doubled half almost the driven million our quarter, year. challenging

Patrick Decker

end resilient between as anticipate with consistent are Mark. we QX. have however, there clean divergence The the relatively third what market quarter water. in expected, dynamics going Utilities is remained Thanks into saw significant wastewater and we

to down OpEx our mentioned, modestly. continued seeing spending needs Mark of business with service capital only approved continued As projects funding. was wastewater mission-critical and execution We're

side, the term the steeper. declines On mid-teens. in They clean the short water were were

into not do when some distancing to utilities’ modest US expect There some expect healthier for we a was bidding It slowdown of going requirements broader very tied And XX% US softening only impressive cancellations. seeing physical we CapEx context in do By US leading execution up is revenue, a eased. but but about We resilient. to projects. long overall back had not utilities’ are pick wins, reflective our US and revenue XXXX. discussion it indicator, we've is term noting project delays are represents in X% of trends. And OpEx considerable contrast, for seeing We CapEx the utilities, capital as the pipeline overall that CapEx. a our worth of remains our utilities budgets

in multi-year trends emerging and healthy Europe, both the of see we addition, In CapEx markets, world. the in OpEx and rest

the but and second restricted end continue the will ship remain to much Turning quarter has to Industrial commercial and soft now industrial Commercial as markets. originally feared, book didn't facilities with access. as slow remain industrial, business and it in vulnerable while hotspots. lagged deal will in COVID-XX

remains uncertainty and grappling rebuild Conversely, cautious. which US than was backlog still the more robust. in is emerge is from pandemic’s as with the these of the pandemic. sooner distributors X% Those We trends who and inventory. But resilience remain second up the strong the China's Our market recovery, indicator. showing quarter, appropriately in a it's we emerging the that they impact, to markets. US as Europe across consistent beginning developing their face clear China fairly are see destock end are

seeing It's Slide trends broadly few Now, worth that a please we're sector. noting the across more XX. ahead turn to

there role First, service in The water COVID-XX has than more and drinking not fundamentals changed. is that most perhaps that the water are no plays wastewater. important society. There some is sensible

Innovation ever of As and systems resilience is as all global to challenges scarcity, more a those water affordability, remain ever. of our essential relevant center. challenges. is result, our the now of as and front The water kind than strategy addressing

interaction in their remote automated budget are resilience. become monitoring, change operational It their a adoption systems. across face-to-face from a dynamics away and reinforce accelerating. step commissioning, making are an and customer with, consider to While and of has as with more in trends are support we're environment, their financial clearly we interest unchanged, virtual and mind our Because a In customers gained pace how also the operators every accelerated changes constrained economic spend reflected activity. decision the seeing of rethinking towards fundamentals other of Interest way for and front It's digital work utility in operational is operations, speak that, benefits servicing. We're imperative competitive they The money. quote that I absolutely day. are executive strength. they seek their every cells, seeing and shift we're in engagement to the

number across First, cost quarter. a structural know, took during as actions we the of you Xylem

Second, that we in invest focusing continue reprioritized on we've geographies. projects interoperability the deepen increasing We're further And market our highest-growth investments. portfolio, our differentiation and solutions. things the across the such of our and our as to leadership connectivity

assessing easier are servicing engagement, we and customers remote platforms colleagues. we the both of reorienting distance way also have no doubt Lastly, morale. that we selling, our work on deployment We've IP make make working, virtual and for changes of productivity engagement and employee and positive Xylem. will different our we that changes within a impact and permanent are, facilities, cost that the And the accelerated to course, and travel, on that

pandemic managing even will we the competitor near focused are and the We now that longer stronger the the actions can term. us control, taking a we're through make that and in both things on

with I'll over more Mark on specifics QX guidance. to back our it Now, that, turn for

Mark Rajkowski

Given re-instating potential guidance. back the full geographies the year, not of uncertainties of for we're across US the year other related half parts to of and COVID-XX the its the ramifications reemergence and

through which However, third have I'll briefly the do reasonable visibility we quarter highlight.

on year-over-year to decremental X% of expect points We in basis revenue decrementals margins margin XX approximately census and North to The businesses, third our of .X%. tough This range the XXX compared approximately incremental revenue and to had growth. of operating XX%, impacted of where declines a margins XX%. sequential margins reflects XX% year's last improvement along continued softness in in high prior quarter, with year are by margin water XX% de-watering American we

landscape by remains trends some second the we economic positive quarter, the woods. means, out no and seen uncertain, the are, we've of global in While

is pandemics recovery, While to in trends India, Europe the monitoring we're normalcy China, The in positive and of markets, emerging a from Latin United impact States. shutdowns varies trajectory showing America. return closely towards in ongoing across widely in the parts to

$XX This actions announced actions detailed to our Lastly, better on and provide little as our incur we in that the serve want in us This June, programs. structural that long-term from we XXXX programs. These also act one in also million to million structural resilience. slide to actions table actions increase year, predominantly expect realize the more prior afford we a expect plans our carryover to our simplify to We've announced operations June. early charges. but permanent to announced to we on realignment company. cost restructuring us which we in and clarity reflects I summary for our $XXX provided XXXX some total the and help details financial the ability early and savings In customers the announcement, a cost related

realignment and $XX actions As that this we total, year. from savings restructuring million savings a approximately of realize June year, before includes and announced in we to year, initiated additional as reminder, $XX actions million in well expect In approximately from in an savings as this savings this we of XXXX.

Now, final will turn please Patrick some with slide remarks. XX. And to close

Patrick Decker

we few Q&A, to other deserve mention. milestones before that a go So, a are there

green the difficult also we've report value green we've proud up It targets. launch I'm of XXXX a have It and touch first, The sustainability, offering. the the our that financing underpinned framework the these across very relevance XXXX even on our research impact delivered of shows goals of in We most the and how and approach colleagues follow strong sustainability $X with comprehensive which sustainability released our reflects bond times. a company. the delivered billion reinforces to it establishes on team, recent June, work by our in and our

at extended something financial strategy, We showing In the strength and his our that all in announced constant delivering to of commitment we've and commitment gratitude has of will our heart I it been up undisputable, that confident of and addition both he doing at the to end principles do. liquidity, will Mark sustainability is His but to be has our value and continue him stakeholders, retiring recently unwavering. feel Xylem with all, been mine. saying of been will to year. our the and take most the impact business

we put board through end CFO been smooth right new Samsung. part outstanding a ensure Harman The normal an Sandy and disruption. be X. a that has Lila after transition. to October to And today her Oshkosh Microsoft board since technology, succeed Corporate stranger that have CFO members as of we were appointed with and the appointed both who's and her Mark. of our we've traded directors has becoming sector. joins our We markets. is of role her renowned International to innovation, lastly, they success make intersection And the the of of Tretikov, on Rowland experience transformation and her and President an going which forward while announced perspective also us at of us capital Vice part publicly year, to of will muni has at a globally process. forward look at no And goods, to to and We look And digital introducing Mark her manufacturing board orderly to that appointed the our board two technologist. bringing she

sector, disciplined a diversity, orientation. very These is please technology global President that, operating into company. deepen appointments Eaton’s member of attract perspective global board to to Uday a quality Q&A. that continues and and pleased our questions. and our electrical With And, who's COO lead this as our I'm of board's Xylem brings operator, and further second up our depth, he let's board. to our Our our talent mission Yadav, purpose open to to us

Operator

question [Operator of Capital Instructions] Our Deane from first RBC Dray Markets. coming is

Deane Dray

this And this one? have be last right? your your best. Is to the all second retirement, going you I that is do wish I Mark, For

Mark Rajkowski

counts. That both is correct, Deane, on

Deane Dray

miss to We're definitely great. you. Okay going

Mark Rajkowski

you. Thank

Patrick Decker

Absolutely.

Deane Dray

this this of question, so opportunity premise growth has on Anglian Xylem adoption digital for whole does offering. love hinge of seeing digital. I a win first the really So the And that

taking? And hinted just orders also then there. clarify traction and of component that some has to - they're it, just front reflect you seeing that Patrick, if of digital could what where also digital on you So log you're you've part

Patrick Decker

Sure, yes thanks, Deane.

deal So cornerstone and back certainly is what and on smart is circle, centered quite But AMI around when the metering the look really the that right are part AMPX affordability pursuing three of cycle. of non-revenue themes and and the major overall are water we now UK the that which deployment the dealing Anglian problem of utility as one deployment. Certainly, our other with. water, network are Anglian you is frankly storm across win, utilities each overflow

So level metering also as deployment, beyond analytics is as that AMI that the into there's monitoring a remote of well data built project.

the do also million we speak $XX in we of a deployment. a live other then And a won large just announced, terms smart that's have In of log, we front One literally –we just as as pipeline. recently deal of that Winston-Salem. a number shy the networking we again, deals

feel upon is, operational as not good think projects in encouraged most market, I or we of right So, again, result slippage it’s of by a what a it's lots need we're based now, pandemic. areas, being some for big a this seeing activity. a accelerated results. anything, I'm And cancelation If of

Deane Dray

the Great, third is the quarter. XX. Page all outlook on second the I detail appreciate for the and And on and then question guidance the

driving you're for quarter? XXX at how - sequential just third that points? similar Is you've notion So, pretty is basis the got basis If but coming points the ramp, improvement. of you can clarify reading margin XXX through revenue is through all much a cost the getting saves here

Mark Rajkowski

in is. QX. is, it the savings the what exactly that's restructuring of in It of Deane, those some Yes. ramp benefit -

Patrick Decker

And year. guide then the we we back obviously, for Deane didn't –Deane, of also entire the hey half

to U.S. but portion didn't –we QX, mix in we And as we side to the improving about do we of meter a through expect see, able being normality those a domestically larger the of utility then restructuring of terms even return clean of savings expect QX. in to installs So, within here do also water some also, would level we the talk roll in

Deane Dray

I a question, think Page picture undersold as hazmat head doesn't that lastly, And business you there Patrick, were a the XX that suit. just India count of this in your of you but

you And you. think thank that should I tell story.

Patrick Decker

is Deane. Yes India. yes, just business. Global business no, our our He Bala I that, to leader of actually recalled Treatment in And promoted of appreciate leader got

gone where team And who keep that's so, the example many resources customers our one are just flowing. what to has obviously, through the serving And of our customers. continue ones

had have some So But deals locations on these this. number are calls times, and or being We've in much been these climbing homes. been pretty worth here that alone more normal large where a calling our - remote all not it's do a to are we've of proud think I Again, Zoom got platform. joint negotiated moved effort. service customer people's them. it's not we're are out really, never contend really people And But mountains I've deliver. of to to

Deane Dray

you. Thank

Patrick Decker

deal, forth there and waiting to to a so. building the a and back from driving get to had We for hours get hours gentleman sitting in close eight into a car home

Mark Rajkowski

it a million was still but deal, of $XXX a heck sacrifice. was It a

Patrick Decker

Yes.

Operator

is question next Research. Melius from Your Davis Scott of

Scott Davis

Mark. Congrats. echo I'll comments, And Deane's

Mark Rajkowski

you. Thank

Scott Davis

a great run. It was

Sorry to see you go. But...

Mark Rajkowski

to more It is, is come. it

Scott Davis

Enjoy your?

Mark Rajkowski

More to come, Scott.

Scott Davis

a on of bit. little have But entertain don’t Anyway, you a me if us. disappear couple questions, I

first obviously? bond me understand - other The you can help what than it I sounds is? is just and good, a green Patrick what’s one I mean, know

Patrick Decker

Yes.

Scott Davis

Optics too, matter what but does Let’s mean? leave at that? it it

Patrick Decker

But I'll a little certain the it's have effectively, then structure a financing to KPIs we and tied it of is Mark can Yes, to go that goals take granularity. metrics as really tied off, And But more bit through to to order to financing. company. you sustainability be and on a our do that it Mark, achieve deliver to get able in want is that that.

Mark Rajkowski

we from And missions. as the XX% those - the small are that sustainable amount credit. is get What investors oversubscribed, Those we audited who had times as was on works offering those the focused it's is, investors rate. got the almost way sustainable five fact on the focused and on to goals by the fascinating goals And we but addition XXXX it we our Sustainalytics. that in was Patrick, right, of of interesting no That’s goals, was demand mission. to are that benefit in part performance achieve audited,

So, sustainability rate helpful opportunity perspective. by not goals an do very our we a important against pricing was it from the to executing only very drive but have down,

Scott Davis

overtime you for color. mean, having of perhaps I delays, sake the Because And - project having run attractive? commented everybody the project which done good less question same everybody that the argument up that and to Patrick, lots all mean you having is into end and then another Okay And to all you does how ask - make it at you're is of does of cadence it of I time at January, on projects you seeing. change all because put I not wages. do challenges? lot But and think be kinds to guess, having a of deal guys restarts I economics in

Patrick Decker

predominately line. I Yes that a call businesses to return along if affected and the issue. to to normalcy, We've to have it predominately our around been see begun like Scott, same that's want you but as I already follow follow world, the U.S. that's - the don't virus say

already north Europe beyond terms already, supply that's [indiscernible] even China, growth, pinch we’re Pac, So, Europe. of a creating broadly of not before showing of so chain good of Europe, back capacity. is signs as seeing speaking, is signs in also Eastern up already Asia XX% recovery, in recovery. our

working kind we're speak. we of So, demand rebuild as through that

replenishment. and predominately deal building. channel close because, are we've utility So, certainly, partners on really street. the Scott, distribution inventory and is in And industrial through U.S. the commercial mainly centered the It's to they and space, around It's mainly it

them provide And revenue be just it to focus you’re we more that that so big going pinch our supply X% that is - to than U.S. of CapEx. of our the there on roughly frankly it’s to, see We terms of down again, chain that's where workforce able really see back quite to projects utility bigger you And more to that tend be to being on. don't inventory in demand. a

are people much Our very engaged. still

Our very supply is chain robust.

you on being there bit major a of saying don't get way we ourselves. go had I of to long piece. help concern through deduction a it's But So, of to Scott, that see really a that kind for

Operator

of Rosenblatt Graham Securities. Scott from is question next Your

Scott Graham

to of off Again don't we again. the in and actually, you're see sort ride you just We sunset. hope hope

Mark Rajkowski

much. very you Thank

Scott Graham

regarding a intensive like easily or here, just the on infrastructure water water bit a is access the the is side. questions than couple on side. So sites metering side it on just the little maybe looks the is to It less access more of really coming

is the third you talk bit Could of the site a metering be little intensity The guidance for around that quarter up Thanks. at than need about to the that? would what sort I thought. I guess have less

Patrick Decker

good Yes. It's question, Scott. a

business. than or say in hard are services running I America of for mission-critical. still obviously, say a would it's think So would continue certainly on operations And is put, business those I essential, say regard. what would business. water U.S. that But simply deployments which all that. of also and these keeping and these I the as business wastewater that help deals to we're infrastructure geographic M&CS of would of I mean, that side M&CS agree is They choice will is centric Two, the North the working while we I water our to today largely first do expanding, a in they through some international our utility change global of little wastewater all, much but certainly all focus more utility, have etcetera. and absolutely clean much side,

metering know, the So, critical are also those on done. they you get and will side,

But home on the not clean a and the safety timing - dynamic. and water we're side. just projects the side, treatment the is right at on is know, facilities that it Infrastructure as really of the a it really of opposed is Water access at But the You we outdoor seeing it just to now, level matter really site canceled all. more serve

Scott Graham

follow-up my or Is CapEx? that Infrastructure, I that - OpEx know, I we talk to about versus a of simply guess that Could you mix is, works? at the would in know issue could sales the question a that whereby the business be, infrastructure, you break water and that in you be higher-margin OpEx. lot fix from know, two mix Water how in quarters sales you're seeing the of mix now, a looking terms

Patrick Decker

little as the the margins more in that as XX% And a of base. the little U.S. CapEx richer for XX% are is have mix sure. in our be U.S. you and that is roughly and is XX% those would the - you're we - towards side In there a emerging But the our the on position bit CapEx. markets, of the a we installed Scott, and build build It's world. around Yes. OpEx-related, this base different move right revenue

But a shift margin. the mix see as continues But begin we'll to a side. the be into done now richer case. to we've over is of that it years, the OpEx that more So,

Mark Rajkowski

margins And of the installed aftermarket the are X.X base Yes. into, when in you piece. size project the times about get typically a again,

Scott Graham

[indiscernible] I What in not driver? as thought can would it sneak business won one be. actually I just if is was Have The last there? you down placements as here. And one the new

Patrick Decker

all hard was expected, it Yes. hit down close not it but I as - XX% was as it down we in, was as mean, year-over-year. not substantially. over -

be were XXs. in we might So, the high it thinking

really, of was was it of it but most and driven, was - a So in down lot it difficulty]. [technical industrial

Mark Rajkowski

the I considerably quarter. news certainly again was mean, down again, was good hopefully. backlog revenue overall the the up, was Yes. in But,

Scott Graham

I But, Yes. thought, as not as as not thank much - But as look, you... good anyway.

Mark Rajkowski

Yes.

Operator

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

Ryan Connors

from perspective for Patrick, I a outlook the appreciate bit probe the that term little to on I So, the wanted just comments for the your intermediate market. history. utility outlook But of the on

was on, last at then So, public a Xylem earnings parent look the four then, which know, company headwinds later similar good a early But from about had latest But when three, the we stand-alone releases you on. Xylem the the and utilities we from still former Xylem recession resiliency you and your hit. wasn't talk removed years transcripts if recession. in seeing XXXX, know, was

then? I going So, different cause especially that is question different believe still kind history what's of like is, on this us is that portfolio it is what when you that's time? similar that it looked any time my this to Infrastructure repeat at to relatively to thoughts really Water least guess not in So, would you just that what know, have looking tangible for

Patrick Decker

Sure.

and, are question this customers not the I viewing very staying close right mean, it's we're for the and things obviously, really different standpoint. now time. granted a to taking relevant markets, from say are the funding are would a I here. we utility anything are So, they understanding how world a of couple

all, And utilities platform piece Two, roughly it on total to a that tends the the CapEx really M&CS the U.S. clean on of of show have CapEx - funding of First revenue is is you that our percentage that side. know, is again we the in side. is X% tied water the kind the from standpoint. fluctuation to do

So, seeing while right that hearing certainly, issues of projects those not we're to now killed absorbing are or you from of water. are affordability, that These any what is delays there. we way. We're those tied cancelations see some projects canceled, don't are And know, utility clearly. they being leaders non-revenue in

So, than that's at time had we XXXX a different in have back would the XXXX. and dynamic

And also markets. tied considerably. percentage it revenue goes to demand that to even see is that much of overall we U.S. say portion our Lastly, to emerging got of back revenue continuing in CapEx, today increase would we've I larger a

Ryan Connors

versus in scenario to described greater on governments state does just helpful. faire seems to things how How those do maybe Okay. I differ handicap I cuts? you where and that more sort of mean so if that left get differs a you you laissez local course that in you or then the scenario bail now And run and the out where scenarios? outlook for budget across does can outlook are guess government some your their - a how That's Congress two you under is And economy. wonder how ride follow-up related on just much right Xylem, I federal utility, very comment

Patrick Decker

Sure.

So I great - it’s question. a

as I way. are I on view don't think our federal along federal riding certainly bailout we changed, kind any think that on we've or is the has funding certainly counting and or mentioned before, of not

state As relied never you speaking been sector generally well know, and level. water always the local heavily federal the funding. on It's Ryan, at really U.S. the has

a positive or into So from bake it'll the no really any government wouldn't I would outlooks But in forecast the that the downside while But move for there coming. business that in likewise, there's people's federal certainly regard. the upside. be on because be

of the whole on at say neutral of point parts aspect. we're the obviously, the I to in staying that close feeling of this Now, stressed utilities country and are to understand federal kind time, munis those law more but would funding we're

Operator

Citigroup. Kaplowitz of Your next Andy from is question

Andy Kaplowitz

that the QX, on Just June. you very mention didn't focusing cadence you on a because strong saw

growth you quarter that you're did on developed? the of U.S.? as in July, are elaborate the you the know, what can then, in not infections considering, in terms saw So that And guidance recent the mention in given you seeing especially receiving resurgence you you

Mark Rajkowski

better And really Matt me, strong off Mid-single wish its yes. true a that like mid-single Andy, no. you started digits. bit Mid-teens. I - digits. was flashing the little it a and in mid-single had got But, digits. June. Sure. was is The - yes, quarter for May know, we mid-single then - we down digits and

orders you know, know, at up look July, down encouraging. and less we backlog some that's QX X%. we still ended mentioned, were shippable the we outlook, - you we're modest you quarter XX%. But, is as as in for seeing X%. down than we're And digits is So, fact know, the the low-double the improvement, quarter

still know, aligned in, think, range, we terms visibility. we is a better had than And the going months. you with you last we tighter need so, know, laid quarter orders strong, in – performance some the we of next two because have well with we're out - obviously to you know, better in And we're which what all

Andy Kaplowitz

business you I about in spending And also structural sort $XX Mark. activities. certain $XX announced helpful, That’s cost, of you million June exit when to bigger talked the think million to

seems focused you’re bulk the to be they where seem restructuring. I like it your think M&CS as taking on of that’s

So, you’re getting out what you’re there, could now of and you what why? just on elaborate

Mark Rajkowski

probably nor our it’s in that mission and - as the forward. it's XXs, just lines and large. the quite those business Yeah. numbers, to core of and is And I that smaller aren't think it moving profitable it's not of a number It's

Patrick Decker

of we out in that that. to did deciding had nothing was the contribute the Yeah. rounding from weren't or there something But them even strategic wouldn't disclose some was costs Therefore, exit perspective, it cost that if taken. there in revenue we the a for to error. - the nothing to material again, being it action There's of fact have Yes. a we’re terms of amount is called

Operator

Your next Giordano question Cowen. from is of Joe

Joe Giordano

with kind utilities? kind the kind now dramatically hopefully, now Just with market now are to benchmark given But is where and and flattish, benchmark like, utilities, appropriate CapEx between I but, overall we to a is we're for hoping of can and the change can maybe at like, obviously situation - right right know the of OpEx lower on stable of macro that, Is now? Patrick, like, view for environment here, XXXX. developed start that spending kind is your and like, pressured overall maybe tax budgets of be, receipts fair we're flat just

Patrick Decker

tell. to I think too early Joe, it's

mean, revenue bidding start I muni encouraged overall budgets I there lack We're we're project want to what by a the uncertainty think guessing lot still is by I pipeline. wouldn't back of there. But portion really encouraged cancellations. of globe. U.S. our already total represents go fact we the emerging strength what in the are of to seeing and of in that that parts to be. going other some are Again, I the

a a for need right we have on, operational - financial now we more resilience, focus is utilities, for certainly focusing pandemic the clearly the our obviously, greater are - the resilience. on also with less. helping we're lot learning And is it's this think highlighted really utilities, do teams bit in the them with but whole I the about with

time, to what's traditional of they in heritage taking questions same the our talk the and for where our we're the so, call also so what maybe or focused Obviously, portfolio, I core last things. solutions, because over of everyone looking need. That, really and absolutely we time versus think different share. acquisitions think our of about it's to essential back now that's on the around what that, And this lines. where speaks - that much in as have the to dimension seeing this nature the But are and are it at critical the this teams utilities really important durability alternative product earlier right they we goes with don't before, done. I year understand digital And that's whole we've

Joe Giordano

then ones of building as a MCS, like guys years on portfolio. over several margins that we’re two, related done And you It's a And just out one, the are just in have confident couple market there. applications whether done been issues, you but how incremental There's learned mix experience feel some from for this what you whole that interesting of building business M&A of an issues, about is some curious issues, deterioration last Xylem this market like, some out from here? here? and well you negative ready the lot with

Mark Rajkowski

the be, about, margins, margins. QX. expect - to your be so, see would and that breakeven We’d in of the to - say quarter expect quarter we certainly positive. We black just Yes in the second positive third were to question I

there. ramp a actions, a and with terms the cross of some just of little see in we're installations going of deployments, bit improvement the to So,

use I'm sure that. I think Patrick out

discussions having these some I pandemic terms capabilities particularly this of - challenging bit that little of the the new we've lessons customers. built particularly that in with think what think developed we've what is through terms a I I in adoption learned technologies more is, learned, of the think seeing of But in in the we're markets. we're

going we've think believe, pandemic is we've advantage. a us capabilities done, emerge pleased to we we - that - as the know, we competitive with I and have provide we're made, you the is built, acquisitions from what with very the

Patrick Decker

on the well. I'll as touch so, Yes quick both real - on Joe,

comments cetera. R&D terms On cost understand et or M&CS question, think the new level out margin fixed building we have important investments within the in the the services all there, development of that that partner given it's profile base and I of rollout

very on the but base actions incremental in view And get at is taken cost so, that And do of overhead rate so attractive unchanged, incremental that business. our we've some restructuring

in there. in that change expect deployed, we no second business year, incremental we in as quite to projects being be the so, would attractive And return work the view the to so see half of

it our just that sector difficulty]. learned, for what the I aiming bringing remains it's and would On And speak than be to going adoption, are we're but more the any what But ever the of [technical going that and think in the the that that than are disruptive. views the infrastructure the solutions throw around I to disrupted wanted around attractiveness does a disrupt that get take to. think unchanged. to proposition in it's I time affordable, that also sector versus value way, to idea need to you lessons a also Joe, fact the anybody positive always issue harder longer bit making to especially It's difficulty] [technical

anywhere. going so And not it's

I this long-term think we appropriately in got keep journey regard. impatient that we're want we've to to to as on so, the But And in be perspective here.

Operator

Jones from Your next Stifel. Nathan question with is

Nathan Jones

Congratulations question if Mark funding here. to for for Patrick, you and I need hours wait back go $XXX utility million in to wanted somebody available. car to a I’m the eight

and where New York going not challenged. or like a the budgets collected consumption are reduce people into those rates little like much on We'll that is are lot state So be a less work. less rates, of part U.S. talked on which more a and ability it and of water understand local bigger anyway. there? City water things to D.C. going utility about places the collect focused going be the the government So concerned funding And focused for to leaders funding as the areas we've going I much are to those to equation more utilities are far they're to city water

could it. if I So, wonder of you comment that angle on

little not of enough contrast that are U.S. the U.S.? and rates. you I versus the how local are focused state focused and bit a think outside on with inside government funded people utilities on could water And then, too

Patrick Decker

Yes U.S. so hit on Nate you've side. no I it, think the

biggest et the the that especially rate sources have again revenue at this leaders cases, You're clean time, utility terms water concern is absolutely right. collection, equation, of rate on the The cetera. side point in their of in

is understand. again, than really offer it previous So trying cycles dynamic They is have concern a of theirs. get they're do and try a much It around. back now. hands And to there look other to to don't their at I different

they're me consumption know at increased people household home. are letting also because that the level they're staying Now, seeing

just utility And But that leaders engaging another. metering pretty minimize They're really will impact to is that They this. jumped confident ability their second kind weather potential this that’s some in with. still there. I point are that So, generally half speaking it from one, there we’re to from a don't the year. still of to getting of want terms of some around the of matter be through

I through kind fiscal as approvals July more It's their not X, go all know that's lot and those learn calendar October lot a they think of not as we'll you all. budget X, of a budgets. are

independent to U.S. of of keep it percentage tends eye it because And much emerging our kind of is that at the a revenue the across mean, federal very And to revenue represents a so but in be close certainly much to perspective more that, much the I keeping funding tends a and more I in want we to the company. Outside in it we're much the on as total of or saw It large majority actual collection. be of is more stable. what last again that's reliant downturn. a this level. - funding and less state on, markets

Nathan Jones

be on I the to collection it's U.S. tends outside much think side. that stable point Yes an of the more important

call target be a half we that probably quarter? but until Is second fourth say XX%, have the you normalized decremental You last that year. should that, guys said the more in of the level wouldn't for the that would about thinking still be the

Mark Rajkowski

Patrick to that year - so. items bigger our some going made tougher And One, we're Nate couple Yes, of then reasons. we see absolutely made earlier, a some compare savings. - last items ramp as a secondly, to year to cost mentioned compare of in that this terms had

Nathan Jones

For QX?

Patrick Decker

QX. for and QX Yes,

Mark Rajkowski

so, that do fourth to see quarter. the normalize we expect Yes in

Operator

you. Thank

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

Patrick Decker

Well Stay be Have everybody, Really want your you I our a interest much. next your for strong. it. all you, on back end for call. support. stay thanks, we'll with to Again, earnings to summer, and everybody your again, safe. Thank great very and appreciate

Operator

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

Xylem (XYL) 30 Jul 202020 Q2 Earnings call transcript