XYL - Earnings call transcript Q3 2020

Due to licensing restrictions, you must log in to view earnings call transcripts.

Operator

Welcome to the Xylem Third 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, Samantha, and good morning, everyone, and welcome to Xylem’s third quarter earnings conference call. With me today are Chief Executive Officer, Patrick Decker; Senior Advisor and former Chief Financial Officer, Mark Rajkowski; and Chief Financial Officer, Sandy Rowland. perspective third their our results provide outlook. will on quarter Xylem’s and They

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

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

the of available our Additionally, events. for section the under the heading investor investors Slide be will website to Please playback call turn via X.

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

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

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

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

Patrick Decker

joining us. you I to thank keeping you those Good close are everyone, morning, for you and of hope well. Matt. Thanks, and all and safe

release than morning, third world. our right teams’ in better around our reflected operational performance was quarter The As this execution was the strong anticipated.

You’ll of that summer. and trajectory April, improvements continue point And May to sequential positive in June. the on we through recall that we build after low saw the

advantage and well-positioned market Our the in whatever we and performance course, team pace the strong cash of number by revenue while significantly the saw of of a on took quarter, hasn’t impact recovery places. very end by both that varied conditions for exceeded margin managing of of solid the can The and we guidance And reflects capitalize environment. Through on our regaining uniform macro foundations been what control, the focus our momentum. dynamics we��re the generating to pandemics customers This serving market. flow. teams’ and geography quarter are further

growth For example, wastewater the improving response Western at XX% seen XX%. relative growth in only was slight wastewater returned solid saw coming and solutions still sequentially. in quarter. pandemic China revenue to markets, returned In the end ongoing overall of side down we’ve X% although our to and resilience growth. utilities Europe of U.S. to healthy with recovery The dealing stability back at our in

particularly including winning side, transformational leveraging in the commercial platform, On clean delivering we’re strong deals, metering our advanced water momentum, differentiated metrology large long-term infrastructure.

Winston-Salem worth utility with will both achieve economies quarter, meaning Columbus, and and the wins combined across communication Anglian mentioned value our in platforms we one energy have The both unique utilities, both addressing recently services. capability our for with a compelling FlexNet Anglian in we backlog. combined customer added Xylem’s Columbus, meters about how million. $XX and another Ohio leveraging to $X.XX won last In addition applications marquee provide This billion and noting Winston-Salem, is deals team and to software to electricity portfolio water plus proposition water is which of project together and big advanced scale. worth It’s

differentiated have value offerings by right, Our Each the their but are delivering metrology platforms digital we unique value also enhances of in the clearly advantage combining complimentary own with proposition other. and communications solutions. infrastructure

that are being people from solutions to inside view has is not becoming acceleration increased as time, a As only gone be our the for software, has meter agenda. of we quarter digital pace the interest of activity on small by of but We resilience, part remote improvements. seeing anticipated XX% need revenues strong financial business, COVID right. don’t sequential site Xylem COVID installations What opportunities and this that’s imperative of top driven by of number essential where for out digital has on the in also now in a been of the operational and recovery been growth, this transformation its and timelines spot projects on in utilities And generating still pandemic impacts U.S. every of straight in eliminated to the services interest short-term. causing well-positioned assessment are is some reflected are out. revenue line, delays an a top and our services accelerated. across automated work. solutions of The in which has products. which and further plays irrespective project shifted have much strengthens at infrastructure have anticipate services. adoption how replacement operator’s The line in of lit parts field the and broadening And the the expect monitoring scope sector. pushed our we Digital same operations quoting the number requires metrology of greater At to also attractive business digital has pandemic putting affected restrictions travel have Pipeline the utility It clients.

health Our strong. financial and are both liquidity

earlier needs new customer’s of ways announced actions this executing we working. the year. we’re adapt to to successfully investment reigning And and We’re evolving shifting in quickly cost,

has supply exceptionally with chain the customer keeping resilient supplied the through team even been pandemics peaks. Our

serve our macro communities uncertainty customers operating position we’re essential strengthening So whatever uninterrupted helping their discipline, with persist. may despite and with competitive services, our

the Matt X and are it’s quarter the But team. CFO, the Mark reporting in the carry at call, joined commentary October to of third Sandy through our on was he As chair us new our both end on performance. to us Rowland a the period, great with Sandy will the mentioned been top and her Mark of today. welcome pleasure since the

to So you. over Mark

Mark Rajkowski

in markets more in in emerging both QX down Latin only impacted throughout anticipated The X%, to markets mixed. was the was in of the which overall East had by while India Please the grew which in digits reopened performance and turn Across Patrick. entered X%. commercial Despite X Middle by offset third in be as Thanks, detail. results these the modestly residential saw America, which In declines quarter. growth. our expected we businesses We pre-pandemic businesses, for end to countries site so our performance declined mid-single and wastewater by I’ll with quarter. utility to the they and project cover have declined continue returning better Geographically, our than our strong Revenue to as Slide recovery the restrictions. recovered, to quarter. and market be growth deployments shutdowns continued North business. metrology America industrial has rates, double-digit return very the impacted and declined in delays double-digits, business we various remains strong year-over-year China project China example, growth was

down were sequentially, they year-over-year. quarter While revenues improved

in wastewater of the industrial our continue X% While see business on with resilient, with in Western and markets. Europe grew each activity effects resumed remained end as the markets reopened of timing quarter deployments our in we exception growing softness countries to revenue metrology industrial. in

compared saw third X Treatment continued trends expected. won turn due build to Water impacts soft operations. over of quarter This orders utility would both quarter but lapping solid. which and and large backlog orders we shippable declined margins teams utility in sequentially in for Segment deal strong than to operating to were segment Please by also India. the well were reductions. productivity results declines the and digits, was as run our XX% quarter in resilience to by year our down Order Orders market de-watering wastewater up by Overall, last drove mid-single continues of margin XXXX businesses have XX%, prior maintained year. executed the and I’ll to I’ll the Wastewater very their double-digit up anticipated business. We shortly. focus segment. than and been to cover orders end transport industrial driving maintain and expand better backlog XX%. the spending revenues our for sharp reflects review for to $X.XX the operationally X% beyond. wastewater EPS in better Long-term in we’re infrastructure be in X% declined quarter the up X%. cost Slide

and wastewater year-over-year continued of grew closures in experience in relatively to quarter de-watering have grew been down Operating The mix. quarter. unfavorable which markets, the The in CapEx the inflation, reflects treatment quarter. in what most And transport seen in the construction saw date, softness. and Revenues continued Our growth significantly site lower have X% restrictions. strength we was North declined uninterrupted higher has impacted access from which projects. business XX.X% X% which business business, volumes the industrial by wastewater and in which our the deployment treatment XX%, modestly – been margin American was of

points expansion. margin and on performance However, exceeded team basis strong as XXX reductions cost margin the our expectations of execution productivity delivered initiatives the

the continued, to declined and commercial segment the softness commercial turn X% and please East. Slide Applied declined in market in X% markets the declined in the The revenues Middle as States end and in particularly industrial in the quarter Now X. quarter. the Orders X% United Water

by As in were the ongoing benefits. offset with across and Latin reduction offset end Operating productivity virus the to but softness and but impacts. delivering regions points East segment margins declined in executed despite demand. reduced improved held Revenue towards American in X%, quarter and which by due regions. was by Industrial and States continued across some roughly United and the this Volume declined declines declined declines the than on in the site affected quarter well in quarter, in by lockdowns. quarter. cost largely growing the was is X% had quarter particularly including dynamics, strong work, as very We XX% markets repair in replacement growth two-thirds shutdowns in relatively from Overall, China. access some a the strong was Europe grew weighted residential, team X%. similar was China emerging the up regional of saw X%. XX.X%. in Middle well, driven performance restrictions impacts the the spot more margin bright pent-up a sequentially This basis markets reminder, business XXX A Western which inflation

Slide please declined Now seen solutions project metrology, business. and metrology turn control pipeline OpEx declined XX%. the business. revenues impact products. out significantly saw to stability our X. we’ve services timing orders business We revenue from XX% our Measurement our replacement assessment our COVID-XX project in water push restrictions In relative in And quarter in and metrology

As project in a variability more of of revenues for exposure gas in XX% business down our much metrology revenues. quarter. OpEx about the accounts in CapEx, XX% segment, our our project particularly tied where deployments our the to reminder, or large XX% were that’s We’ve seen

and Ohio the these year winning significantly by access new projects end the large with timing, the has quickly and had this continued at of quarter gas large important our highlighted Winston-Salem, wins. largely a water as million Patrick metrology American in underlying particularly of challenges, restrictions. Carolina deployment, stable FlexNet of which is metrology communications highlight leveraging couple into contract was products and the the been Columbus, already gas Despite, on to a due covered remains win. North the year network Columbus, project we’ve This by impacted from half first service under and momentum wins year third business I’ll we project but in the commercial another our metrology large Winston-Salem $XX offering, contract provide last robust. project network. completed North relatively points book-and-bill to lapping a in is delays water home remained a Here, our This

solutions differentiated our seamlessly network. our teams critical components address several digital customer our and also our introducing value non-revenue water their enabling around Importantly, from needs the offering by to wastewater platform, of

been by subject delays also driven Our pipeline COVID-XX assessment business services has restrictions significant in near-term to travel site and closures. revenues, project

we And we’ve into two inspection business, As where early digital a within solutions experienced reminder, those It’s work. the latter assessment in there are to and businesses continue expect AIA, pipe deferrals XXXX. outs pipeline services. push

charge those the impacts we of accounting delays. result, reflect a As an booked

business long-term future address proposition strongly to pipeline to Particularly, using assessment on of the is pipe continue spend believe challenges We services medium replacement. to this compelling. value by as that budget move utilities and reduce

project timing backlog it’s down projects Sandy significant XX%. through for quarter of any We Rather, is the the seeing and to said, we and new which will is fourth pipeline the fourth shippable new reflected COVID-XX for continue not the quarter project services to continue large expect related assessment pipelines growth as that roughly we’ve an in cancellations. impact That in our later, had project we’re win acceleration in This contracts. deploying us our fourth cover metrology guidance, quarter. delays to

the over is platform. seeing of power XX%, As a MCS pretty digital our shippable indication XXXX result we’re up in beyond with is good a which backlog and

these Year-over-year in the partially reduction offset important a segment. while pipeline services, us assessment orders by due driven this of to XXX of This profile currently projects quarter. the basis give growth cost revenues in decline was XX.X%. reflected lower they aren’t high and margin timing by and metrology was wins latest in confidence COVID-XX. points medium the American segment So of impact North series and project of that the EBITDA in the in long-term are was margin margin metric,

of performance of our quarter, X on free flow ended in phase sales, XX.X% CapEx capital performance. disciplined cost all an of teams was driven control the year. very spending I’m managing and of of see quarter, to to and favorable our issuance $X.X please quarter generate from strong payments, work of XX last by the At related of to investments and for I’ll the year. working $XXX us XXX% quarter our last timing enabling rate performance by successful of throughout cash substantial combined bond basis cash pay The which have representing conversion on end, the over did A versus focus and off, flow some with In flow time working to of We points quarter primarily $X.X of a aspects capital green cash benefit and in improvement taxes interest. million. billion this the our through the teams capital, Now continued turn the presented challenges pandemic, liquidity proud very working with cover approximately short-term Slide billion the quarter. cash

Before team moment over future couldn’t worked global take I in how our take on the turn on quickly accomplish businesses which performance up and by all the I’d the Xylem level. of the I all company’s it as the capability with she’s welcome and Patrick, at to about relationships, and in she’s pace surprised next role. previously, new the taken to and and help the with over this back the developed our of her month. steps or to leadership finance past like a I virtually to to to congratulate come markets Patrick speed Having more team Sandy’s Sandy into confident our Sandy be wasn’t she mission

with to So I’ll hand for time. that, Patrick last it the back

Patrick Decker

Thanks, Mark.

our Before forward. saying, want as turning two take moment outlook, we I to to overall look to we’re trends a just reiterate

regional differences first The of influence around the the world. is

the and third U.S. we’ve already China, quarter. seen in As big between Europe heard, distinctions you’ve the

influence U.S. us farthest our about example, is we be international end as It’s the long at of XX% COVID-XX the the year. serve curve. wastewater the we global that So in that business Xylem’s to as position noting in outside geographic the effects are worth along of demand, puts markets impact through strong the for recovery continues diversification least a considerable will of those believe

utility trend second shift beginning highlight The to well-known. and from pressures longer-term space are resilience. a overall to is at medium attention operational imperatives the the pandemic of of reactive The

usual end or You simply their if even users can’t paying you’re an than stop and providing more [indiscernible] to essential struggling having bills. trouble service,

customers become a have in of investment the operators intense heroically. Our for Utilities infrastructure part be that overarching to serving It’s financial are most aware to sector. their the maintaining and acutely will affordable, wakeup greater address been crisis, that increasing will extending asset have of making to approaches, pressing come need and communities of operational combined Part cost the infrastructure more if with the and through while dramatically conventional call invest utilities their go challenges, efficiencies new to leaders resilience. the of also safety. life have labor

interest up infrastructure seen to operations we’ve So continued in automated remote smart broadly. transformation, ramp digital more and monitoring,

business. platforms of our implications deeper digitizing solutions the course, and networks utility software goes digital than Of

software digitally why make and end up requires we the network, a portfolio. pumps which strategy our points, Beyond smarter that across the integrated entire and transformation are an implementing drives backbone digital also of enabled is

our the their of will energy the about the and excited to digital very carry working We’re build customers opportunity with future. communities water networks into that

trends general, on than from outlook. Turning QX we we on clearer those view to have a QX. had much In

a in We’re markets. of seeing number stabilization

even have We we’re chain executing and greater supply cost. confidence on well

All to margins. in improvement of us leads expect sequential quarter which

by start with So market, outlook our exceptionally resilient. for wastewater has I’ll utilities. end been The side

And as well, need move holding OpEx critical to projects continue capital continue applications. expect the secured We with to forward. up serve funding to given mission

are due likely segment of In attractive. Winston-Salem in expected impacts in physical XXXX to side, with meter I commercial setting water Please highly to And we up deployment seeing until continuing replacements COVID remain COVID and but demand Slide multi-year and soft XX. structural we’re changes turn mentioned, distancing Columbus, strong remain some anticipate to have clean not on simply eases. healthy profile growth We is pronounced the standard the timing. impacts, the like and to for wastewater performance as expect On short-term, we more momentum us Anglian, the projects beyond. growth trail

Looking at commercial widely been has varies and region, have deferred. response accessibility site where restrictions access work and lagged. by sites the of end industrial has COVID There industrial markets, been

and still by construction anticipating end hospitals, customer. and softness business. our buildings, North suggest and hotels. near-term. and softness a for to use And soft the But varies in centers data America dewatering Demand we’re that very mixed North So it’s for commercial, less in the and quarter, fourth than different continued America is building construction markets overall apartment example, industrial especially affecting picture offices

over our to pleasure some time, specifics Now turning can guidance. QX I have on first the the great Sandy for so more provide of she

Sandy Rowland

I all has how experiences, together and we the joined compelling you, getting a am have I and opportunities the to quarter beyond. With is get also off of that, mission everyone. our joined and to company. forward look I few on with kick let’s edge products. the speed my last just details want which hello XXXX of rounding for out team more guidance. and up unique industrial growth fourth Thank us Xylem previous Patrick, to to the because I by strong have of cutting commercial combination of included expressing month Xylem complimentary alongside excited ahead team. spent to the the Mark technologies bringing with into I Xylem

top On expect quarter. the range the performance third the of in down down is to modest improvement in X%. revenues a sequential This line, organic we X% versus

Control expected to year quarter segment, in being digits to a down the margin down few want project & modest the in As we Measurement down continued in down Water I Applied through sequential delays, XX.X% of quarter to we mid-teens break also we’ve items. October. be Solutions. and Reflecting single a the to digits low single it range deployment see Water full in Infrastructure, anticipate highlight in mid by is improvement. Operating also XX%

free with between our than remain are expect full $XX than for greater approximately We at guidance, and structural slightly savings XXX% the year. realignment be to conversion of XXXX cash now $XX million Restructuring flow expected and million. $XX to while million, costs end previous annual cost unchanged lower

updated year of earnings. We’re to to mix reflect XX.X% our tax this lowering our estimated rate

want similar before, hand worked transition. and perspectives I comments, I thank back during Before again, he to some Mark I it guidance excellence his know for in sustainable deliver. great with for and Patrick Having growth. closing Mark capability bring focus I to have confident share we driving the to investment has organizational common to and to a a built and support to Mark approach operational innovation team I’m this

Slide XX. Now, please to turn

Patrick Decker

Thank Sandy. on so you you much, have to the great It’s team.

call your challenging strong more through delivery. Just that the demonstrate us up to beyond. will and everywhere, the environments. in it’s a continues And to of over questions, capitalize competitive to to on strength, even happening wrap execute the before we turning operational from enable recovery of And position end year the will team the

will discipline XXXX. Our through cost pay off, in and to continue coming on and the cash both quarter

margin execution will ahead, quality continue driving expansion. sustainable us enable operational Looking to that of

Our strong in they gives times that uncertain robust customers and sheet a built foundations of on financial health, generation. us is cash rely our the which balance confidence can on

Our are places and of our leading positions paired attractive a a durable essential services. And lead curve as multi-year portfolio heart Xylem providing the adoption accelerates, sector’s of model and growth. business a with digital the runway water market product strategy differentiated at the

value capital stakeholders deploy and those will the the services and customers’ customers the resilience company, commitment, in for strengthening sustainability to and the our our will continue and Both to will our of portfolio, And of anticipate investing great long-term. economic that over all We be solutions our needs. medium the and our communities. attractive returns underpin our investments social our continue

us move end the although We’re advising questions, first through going will year, the your mention to now this Mark but call. last is that earnings be to to of his I need

me. to Xylem let but say before, as at have opportunity stakeholders profoundly So of benefit me than again, once all leadership none Mark’s from Xylem, take and more I’ve that tenure said this

counsel. from turn I’d questions. to your with like that, over Mark. tremendously And benefited it to have his Thank I you, As

lead please operator, So Q&A. us into

Operator

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

Research. first Scott Davis Our is from Melius coming with question

Scott Davis

surprised I – dislocation. had of hear cost but you Okay. or you can’t okay, me, course? price by remember the a you extent a connection, perhaps, anyways. a of Yes, this you of quarter Are just bad a price Are big of it? can if by you the surprised negative Are good. bit surprised guys

So that little a bit into perhaps dig maybe more.

Mark Rajkowski

Yes. Mark. A some the company continue of lot to The strong Hey, – increases very over XX in XX price inflation related labor the has was Scott, the had the been basis points, so and for drive price up overall price. past it’s XX months. we quarter we

some And the reflective the of is this of in market. demand profile

to So we look continue for to and and value the it competitive services we’re the rendered, price that get but doing current – environment. all within products drive it’s we for context of the

Scott Davis

Mark, Does it’s stable price the pretty that mean, quarter. we’ve you’re Two, our competitors seeing some been markets. in rental tougher pretty heard actually say, this

So I see is… was curious to your view what

Mark Rajkowski

the It’s for sure. competitive of Again, some it’s demand market – profile. a of not but that’s the that’s not market. in the And only function rental

a areas, are thoughtful that. being are very opportunities out we’re and doing it to they’re but our of where number differentiated We’re where certainly teams on seeing there price, in there push particularly

Patrick Decker

constant, in other into we a we’ve renegotiated change contracts. not Patrick. engineered focused have is but in and change feel Price solutions concern not really say back where would price words, solutions, on trajectory. of remained in we’ve a I would and also base ours. And It’s pandemic, really terms during structural really pricing has the been Obviously, those built that, contracts. meaningful this our oriented especially gone thoughtful engineered here business, in a been more the knew the but market. about And been versus no there’s of Scott, offerings for I in has not us, say, commodity Yes. how our we we’ve that we

pandemic stable. coming We asking back changes very us been to haven’t in had given people that’s for the pricing,

Scott Davis

Thank it you. Okay. That’s pass luck Thanks. Good I’ll helpful. guys. super on.

Patrick Decker

Thank you, Scott.

Operator

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

Deane Dray

Mark the all your all help. Wish and for thanks best

Mark Rajkowski

you Yes, got little Dean. a Thanks, cut bit. there off

to heard You’re but last it a of I little wanted choppy [indiscernible] hear. part the there,

Deane Dray

just Is And the Yeah, let This it, question, this part to theme We an appreciate again. It in directly for systems this utilities the all of is interest impressive. first just to that Columbus important this you the is in We that and the by also September. water that’s all was in the me morning. got accelerated Sandy. say conference smart do also color this, we’re utilities? water heard the Xylem. here welcome saying from win

how traction So did give interest quote expectation question translate orders? into is around Patrick, what timing. here, the the some start is the maybe big activity can size, to but is, us this We if quote seeing in what activity the are you

Patrick Decker

Sure. Yes. Deane, Thanks and good morning.

They we that conference, really So this. remarks, know prepared this. they the I mentioned yes, in the as as your that leaders do whole manage all dealing as of assets utility and to how many leaders remotely. the And are have focused, I’ve portability. number mentioned to spoke reinforce, drivers my utility issues as especially, a with I to remotely? comments, had their of on of issue issue to being to them do of that the that they their time and amount platforms are behind they How just spoken solutions they post-pandemic of has nice other in of manage leaders much very This Zoom this I’ve is of been I one silver linings really moved workforces digital the these imperative. a of pandemic from with my And have miss – the by at beads the

of China But in cases exposure be again, is outside is India different CapEx their from the justified. So When or U.S., that XX% base. Europe. think U.S., everyone it is their which XX% be remind existing – of and a comes U.S., utility to of in XX% need comes economic the in dynamic you about rate of that funding it’s of I spending on here kind the and that funding their comes remaining from from whether OpEx. that And new XX%, our the rate only very and

for base OpEx, the to of case, on the do work. ways they’re So remote on expense, to reduce looking extend operating life the to assets, the asset those

really affordable. the side, new CapEx about is making projects On those it

cases approved. get can they So rate

and CapEx reduce it to that anything is them make So to they the important affordable out to we’re of even able pandemic. as going that be the come to do new cost of more more

what the In of we’re that increase – XX% terms in north a of in XX% number we’ve of had we’re uptick a clients. proof terms of points, seeing one. in orders. We’ve seeing seen in That’s

conversion going is from of the about but seen uptick side off get digital and are the conversion It’s a the we’ve base, on there with there, in of a we small of there XX-month typically interest time of growing XX% expression orders would These interest So into base. into a it’s then increase. an from otherwise into to – that opportunity big course, a to terms XX the expression that importantly It’s and that not most component. say, deals from that be revenue. negotiating. – would the it’s is scope secondly, I we of of what that broaden order But just the Deane, gives broadening, the us here, an turning an digital

So side, not That’s some AMI important actually were pulling on on AMI. the bring or of have leading then metrology the won it compliment as treatment digital for in offering and them, also the side, would and going we that AMI side. pumping as the we wastewater deals in digital if with not to through

hardware utility, It through also directions. And negotiating over solutions side the different then can us already differentiates pull in in but behind we and and their So the it that help bring we’re the can here go where standpoint, the digital – a with the synergies are. where on be the we in hardware others. versus leave top digital, comes be and we from two understand networking on needs there side,

that economic expression opportunities accelerating So upon are based the facing. of interest going that’s utilities challenges the forward. is the biggest we where see the now right And absolutely

Deane Dray

That’s convert the focus hear. great pilot like it of then a was just does orders I you waiting revenue on And were for But ago, me, stand? programs programs. sounds it to to And year knew to to where that of to and clarify, generating. was pilot those any are the some

Patrick Decker

is XX% pilots. Sure, are certainly. acquisition. when mean, I increase there that we speaking Those predominantly client to say a in

revenue pilots, increasing are see to continue we now. pilots. be we so say want clear, And to pilots when these I generating

the that it again, of U.S. say of would I is inside that U.S. And as interest the away. balance as of things these giving is not much We’re outside

China, India, big U.S. So as we’re equally certainly much seeing the uptick Europe and then in in

Deane Dray

just follow-up I Mark. question a And for Great. had

we I trying expecting was difference. that help understand want touch fourth than for on Just bridge quarter? us weaker I’m the the just and include what to decrementals charge were getting and didn’t just he through that what did inspection you’re easy. or pipe then were And off think the came expecting, Decrementals that

Mark Rajkowski

an on No. That was basis. operational

about are the Now you outlook? or QX talking QX

Deane Dray

QX outlook.

Mark Rajkowski

Yes. Yes.

mixed so metrology higher to dewatering, see a from senses we’re just so that that it’s that impacted of most of lines our work are several a whether fourth or assessment the deployments in And of some of of it’s business, that impacts in function continuing okay, the perspective whether our are in mix, is some pipeline quarter. margin

Deane Dray

Much it. appreciated. Got you. Thank

Patrick Decker

Thank you, Deane.

Operator

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

Nathan Jones

the few last know Sandy, of and to years. getting luck, to a the Welcome Mark. you been over best team, It’s pleasure

Mark Rajkowski

Nathan. Thanks, here. Yes, same

Nathan Jones

into dig to little here. bit like MCS I’d more a

may meter business one on competitor, things more Could What of outlook project businesses other concerned delays the of you more know international domestic little sounds large a the double-digit different going was third domestic like lot here. worst bullish in you have you’re on outlook. the progresses It about to and here bit that who water a digging on meter some talking the Less pieces lines were kind be more that you MCS. the the business how growth and pipe in inspection probably of of quarter seeing ones. up specifically a about and is have I put today. You

Patrick Decker

morning. Nate, is This Patrick. good

been let’s Because the in to literally an business of which there. pipeline are first very really all, of access is challenges of that work orders level trending – a issue terms of to share lion’s site is It’s there. It metrology The of not in on first, digital I moment. Deane earlier. assessment I is given the opposite the piece work at there. We’ll nature think the we’ve for done of the solutions terms site, a that’s in getting matter take the Obviously, had The the interest. access. there of you So M&CS. the It’s off I back can well, the when reasons table. expressed we of look think come take

between down our meters. metrology, big of kind installation a was of that business and That of the site XX% kind of replacement single back on largely replacement. So in the chunk the, others. of of maybe access quarter. business to revenue and The again, low to Sensus to us basically meter XX% digits mid which differentials And was there restriction, obviously, that is, that that business day-to-day is there again again

you from largely, similar, some a It where competitive geographically. Some really are standpoint. are different are depends

And so in of restrictions here rest Coast, and presence we’ve the where of some heavier of country. certainly – areas, parts perhaps got tighter metro there’ve larger COVID the the other the been on East a

we were QX. in to low mid down single the So digits

this restrictions next single that like, obviously, expect up the business of to in We to as depends kind begin that be site digits low of wave ease, upon virus. QX

have Two, the of a so executed to had fairly on has right. So we now in growth recover tough It’s and and projects. That projects that in the year. project, These we not to it begin Sensus hit capital where year, versus in deals matter simply really the we last keep QX large piece that It’s It site a access. QX XXXX, we won project. see this we closely and shifted year, Think some right of us $XXX canceled. million won. been expect the one, that. our large had very that But about eyes our normalizes. been that already was water, we last certainly assumptions, in to into

look because we that you into at again, of the of coming our do delays implementations, we project also – in and It’s so back certainly And some in gas had XXXX. when QX some see COVID.

the So are look able of shifting when to a They’re at, of When people backlog look a They’re be to got. going of timing number pandemic related we’ve still that – get because you on at site. the executed. out projects being right, of these there. simply to you matter that are had we also

the Our metrology XX%. up shippable for backlog business and is XXXX beyond for

being not simply access. deferred projects it’s of matter with is projects this a uncertainty, or issue being canceled site So of an

the really business, winning business. that. confident of got is replacement so about project Winston-Salem, of speaks When a the we’re about competitively Columbus, you of think wins we’ve deals have et a market to AMI meter versus larger that simply because our very base the and we dynamic the we’re health The And the overall. cetera. That that orientation fact that

Nathan Jones

have sense, and to have more where could areas, a a think be access would in makes guys I that you site expected different. of I lot populated densely share higher your

the unaffected. to a side the All go to of said the likely deployment the pipe have folks that that, assessment non-revenue made projects and utility really we’ve water talked on are

If to this next is you the here which demand. take couple be back of really shifting would This kind XXXX. get is doing really be should pent to caught ride, creating It’s quarter fixed. that a the to right, end quarters. here but it timeframe, few not should all the to the of And it’s over up the shifting suggest over in all released me probably permanently end up is going front

Patrick Decker

them, long-term utility that’s be whether household from pandemic, at user, affordability is be out leaders issues What are and whether think whether the resilience where clean we’re of seeing, in a what hearing of around U.S. speak end the becoming be at really this is prominent, you macro that structural more of looking at because the level, the differences the water hearing becoming is from pandemic. the coming country, owner. the in the That’s are around even exactly the the more side, of upon issue water, water terms leaders of Nate, the on The it even that it I’m demands simply more it’s of issues of scarcity their sector geographic whether meaning the about it when because it level, to I be affordability infrastructure. water pandemic. depending you’re stark Those what we’re exactly rate to approach case the the of the meaning utility is for phenomenon, the prominent

Nathan Jones

for I all Thanks makes that the color. think lot of a sense.

Patrick Decker

you, Nate. Thank

Operator

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

Ryan Connors

Great. picture bigger Thanks, And Mark. question. bit of Sandy. My welcome, a a question,

that’s the One more thing terms utilities. coming the hit, stressed the expand. for and financial now are they’re versus a talking of that utility listen if up accelerate the the an really utilities for really local acquisitions I a to of different is investor investor this saying, you market outlook kind really of systems the and their to municipal angle, owned them opportunity discuss privatization, utilities, know, these in of under strain, some owned from since

good how margins take wanted customer of on in terms your that a terms are that take do get us if would that, What’s privatization sort indifferent? you a then I of thing. thing And so on they pricing of mix And compare of, in remind groups And angle between that to A, those bad and your that that? current and be seeing theme, two here? and B, thing, your you see so,

Patrick Decker

Sure. question. Great Yes.

it’s other become to reasons That’s – the is it debate the they want side, would comes of we that. the very time do it you is become view does within and about we’ve privatized, utility find But positive there owned the to know again, we on for returns got going And quite and been suggesting utility opposite. is private them, sector they economics, obviously than quite as terms between love one space. while the of And are on I know think mix in transparent. terms contentious the whether as a that it’s based less utilities how to some accelerating basic on the negotiation, has consolidation I of always mentioned great utilities than what in bit of or then utilities over because level say good certainly the to parse for a a as see when time. trend of board. fundamental as we exact we typically, will for distress see longer-term and you has and some So public privatization well not. public a a private not harder whole that us private But slightly certainly that, one utilities But bit to That’s the share sell – not to much the upon across been wouldn’t be easier It’s solutions like. certainly it’s it’s for that know. paybacks it’s trend revenue that a far When in The a certainly the that. financial our benefits. down And – investment. economic the into public just public to Ryan, our portion easier more you that you’re

Ryan Connors

Water other understandable. no, is tactical, but is your market. that’s not Sure. tailwind a a residential No, that useful question perspective. in slides mentioned in more Applied there, My and But that’s little release as you your a

doing just of remind is You a us in sort it there was normally there material prominently. lot about enough what put of and exactly it there did you Can and the you’re there? outlook talk the and that that, you pretty materiality real what

Mark Rajkowski

they business been done really job on their those the improving that from right. money them. homes, more seen as and highlight. has we’ve to home. product recent has nice a Hey more upgrading, have really spent at pumps And need And folks it’s including but products – not there. in more that, And is a spending you’re sets time Mark. that what the other That Yes. home, Ryan, maintain well working They’re

been Europe, there’s and continue quarter. fourth even just Asia-Pacific pent-up we’ve So into seen demand seeing growth, region. improvements not And really the that we’re in the in U.S., to the expect but some strong in

has that pandemic, it’s So in nice our some sets of made improvements that but of just team to impacts also the area. product of the a one importantly our function

Patrick Decker

Yes.

as done the great would predominantly So we job a We that phenomenon. there, different think to pipeline. of this have long-term don’t again, to product a this I has enhancing that just of would I Patrick, a is But And indicated over that, would say continue a say out the market compliment offerings. team I I some add short-term build look what is that this of numbers. kind expect to business. what the business. in growth and called is really we Europe I spiked the low-single And that we by was reason it outsize of kind a should it China you from in digit, mean – really kind quarter, out. GDP, saw driven of that growth predominantly was in that growth it really standpoint In a

Ryan Connors

makes Got so Thanks That it, okay. much. sense.

Patrick Decker

you. Thank

Operator

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

Joe Giordano

guys. Hey

Patrick Decker

Joe. Hey

Mark Rajkowski

Joe. Hey

Joe Giordano

technologies Just wanted are here. the to how valuable keep going of on utilities. the anyone’s digital debating side long-term think really those don’t types I to

I pretty think when clear. were response clear got just the they and But a we value that technology of where and money. utilities, have types proposition were digital is necessity investments de-prioritized, to recently serving pretty because like we of being near-term spend those

more ground not has So signed, seems like, like projects what of stuff or more outward. the it that risk meaningfully are are your in capital pushed that push for outs being like like shows thoughts maybe like but anything on yet

you are seeing what of kind there? Just

Patrick Decker

Sure, Joe.

again as always you prone here. I’m do know, So I – – to I

first talk Let’s global.

from in, through, a conversion do horizon. orders got these when XX you indicated, of already helps the And it’s needs projects they’ve a that those revenue. view purely forward. structured we venture the going XX-month not the markets exposures going high phenomenon, utility, is we’re what the we’re we’ve where of XX% into situations, consultative would emerging we’ve point. diagnostic again team U.S. a how so in utility leading being, inform with in goes them say about what dollar and always XX-month America to I’d next a XX U.S., they utility. CapEx where the digital, that’s effectively. Two to more seeing seeing points interest in there that the diagnostic, manage that outsize and a hand. these proof be we we’re talk mean and in And they kind is, their in global our that’s as a of it’s pull always OpEx as more, specifically OpEx even the where versus our this them with needs that cost a first So be are of those outside pilot, And It’s the arrangements, can and on do way the North and U.S., to or to for capital And we’ve help they’re thing, of doing I the understand whole spend or the got, pilot

absolutely where we’re bid meter it’s overlay to it other adding team is non-revenue And when and digital selling whether going a be leak able most solutions, water it these there over to deal. unique whether offering help That’s the a the on point $X.XX a of or of things secure that deal. kinds digital deal. solution, seal the metrology an be where a two, oftentimes we’ve the it’s in piece proof The is it’s approach detection of AMI where deals the proof optimization, the that quarter billion gotten can the notably us that competitive that last was helped are is point

the high So front enabler choices is go the a before, still the in a for much small piece they and us. them the to doubt just the are had that items momentum our as need to as for an as of side, see versus to have. relates cost revenue that We component. immediate is nice there these forward. between a have as all water to But purely wastewater utilities this is of term, have clean said no accelerating. relatively a make tough opportunity digital side we in it are not utility It’s But

Joe Giordano

Yes, most the thought I over investment of now. and the yes, kind But from that understand years is to what’s have me, I down Last write budgeted last could few on, or the like think now. I’m half had no that’s going just this on basically we’ve fair. question pure one of

deployment that you kind just targets? going to informs new capital of as kind and potential decisions curious how forward So evaluate the how of

Patrick Decker

me the on non-revenue their of is one has our utility a about this needs, think through Joe, first, part I’ll additional – and kind when cetera. you business have the on So et big I is thinking Mark of reducing kind will take down water, leak walk write view behind goodwill, Again, that let detection. of Strategically the this of remain around that bullish we business. very the

when site And to And to that so the are there brand lines. is very crews across absolutely basically utilities being everything they that right you crews spoken – of it now the they name is deploy see about as I’ve heard think when have deploy but around They’re that access. technical. we state essential, the the we appear, traveling again, I’ve from nature

so mean imagine So they’re – we very lines, basic deploy view is. I’ll requirements angle. have our nobody view, them behind of when now second in right impairment practical to you’re essential broadly. In of that are our workforce I’ll being drivers stalled a aspects it There was what’s traveling of of sequestered state the all affordability could of And of I is you need, let same. think pandemic it’s of is remain going there on attractive by into the because in only even X% But only have of talk coming – coming Mark possibly on fact whole about market this the it like no penetrated When out been fundamental opportunity – than the the business. of this. accounting let front terms that needs kind was in that about the how be us. this. fundamental that the to there’s more change the why before

Mark Rajkowski

and know you’re I I Yes, in mean by accountant trained background. – a

said, revenues pipeline a in of assessment This delay significant function really get all. to Patrick is expected our you as So temporary a the services business.

to of you XX%. a margin the at greater is out this couple a right by than – of margin the look profile And more years. it’s gross when push business, So that the business of

really gross rich margins. So

when cash it’s write a fair year a also on year reset our on to, that these is forecasted the when you down revenues you’ll write of fair that’s the down value has big did based value ago, revenues. So the future about business. – we you’ve first and value it impact out, fair used those discounted the flows push is determined – And last

a lot So you of have headaches. really don’t

shock said – when of see very impact from a accounting. pandemic, long-term in remain like an this medium-term, as the the has it long-term in And terms this Patrick positive. So you business, we opportunities

Patrick Decker

this. want we’re approach from I things, we take Joe, these we to is it middle or standpoint And of we fairway. nature the an take accounting perspective whether on that write make mean on sure our conservative be outlook an down a

move to going not We’re things around.

was most aspect, important And the team that thing the in this this a time, business, on so was in on to still the for assessment given – particular felt we business. shock the it do, this notably point – no but based services of us it pandemic responsible services change its a at strategic given view

Joe Giordano

Two you, forward guys. and Sandy look it. Thanks to

Mark Rajkowski

Thanks.

Patrick Decker

Thanks, Joe.

Operator

Your next question the of comes with line Kaplowitz from Citigroup. Andy

Andy Kaplowitz

Hey, morning, good guys.

Mark Rajkowski

Andy. Hi

Patrick Decker

Good morning.

Andy Kaplowitz

Patrick, you than mentioned that the your international U.S. businesses more utility

would So in Have strong. curtailing Europe resurgence. you returned any helpful. China virus color and into your more growth to had more was Maybe regions good going any the you seen the forward? thinking But us to it recently about can obviously was very momentum you color of these give given see be Europe

Patrick Decker

– cetera. largest in But our the – question. anything, where upon any market et now, continue just And see and weighted there obviously great the thing because piece we going the QX have a that has see can’t very our India. given of momentum as feel, demand, And hit market. in have in got knows, Asia, of on XXXX have in we teams certainly resilient it’s And we either us. right pandemic pent-up going QX resurge, and Asia. we mean, thanks I reason prognosticate within we to the are if to to exposure certainly for first that, the Yes, for based and so earliest what international cases proven in no QX or who The into we China concerns I that building

would respect count. to expect you obviously case Europe, like that levels. are of So agent, returned pre-pandemic have we that now to With to monitoring that’s we all

pandemic We system uncertainty for what’s that us that the ecosystem. us, kind we through We’re and to for learned the of feel is but pandemic is of teams days. our been here needs is several this have a important now. And our the really chain. we’ve have And guide, of that QX. shock if one resurgence the the there. balanced in making managing not seeing disproportionate last that most factored for in happening around the But the be just suppliers the complexity was months and sure obviously, to resilient in a QX robust it’s outlook few There for our to guide things there supply

impact But And so that near-term we a there in the meaningful don’t quarter there. believe there that. uncertainty our on business is is around

that, to make that sure it And we continue tell is so want we this really too monitor but early at stage. to to

balanced the to quarter. we’ve think a we approach taken So

Andy Kaplowitz

probably Thanks for see then as just incrementals normal, And mean cost QX you and given improved I or help but Sandy, you for you’re focused out that and/or level can mentioned would Mark that XXXX, high expect QX? a ramping think you? the that, already Patrick. beyond decrementals you go little structural how in into this still cost are on of us about decrementals savings you to versus manifest for can that’s the itself

Mark Rajkowski

Yes. couple XXXX. see And a is in costs of for reasons, Mark. one, – some this structural And we’ll the into ramping terms the

Patrick Decker

Cost savings.

Mark Rajkowski

we it’s will Cost be to move then the will certainly but you going what to savings, yes. relative And yes, be through And incrementals. off volume and XXXX, into additional that call, well play were as costs then early that cost savings. to coming the when about think

Andy Kaplowitz

Appreciate it. Thanks, Mark.

Mark Rajkowski

Yes.

Patrick Decker

you. Thank

Operator

question. one final We have time for

question with the Research comes Partners. Vertical of last from Brett Linzey Your line

Brett Linzey

circle guys. squeezing to back in wanted just for Hey, me thanks Hey to…

Patrick Decker

morning. Good

Brett Linzey

best just and congratulations of MCS. on Yes. yes, And retirement, to start the with you’re to want doing? How luck Sandy. Mark, But

Mark Rajkowski

you. Thank

Brett Linzey

wanted in you work side, those over they’re margin scales that just And that engagement or better we average executed. Thanks. color that. something contracts of sort see initial contract? SaaS any us out think give and part does and in time and of terms of it to lower those can to understand then monetization an on MCS of once software how will of as Encouraging profitability the kind gate the the but Should opportunities of the

Patrick Decker

Sure.

would it So would talked not these here, Yes, be that projects the first. the that is This I’ll we’ve accretive. you take upfront pays about These segment Patrick. the no, deals it we’ve announced is this be These margin that not big, one accretive huge of back and where market a to later. the those of are to make investment – margins. –

big once appropriately utility. in, a to And selling locked gives immediate they’re of value And of Mark? of so pricing attractive in the offset. the we we ability of it really gives and the and payback it from pressure to very future really deals the that’s they’re the locked to ourselves is terms price making in are really, generation protect the that the in. up margins kind part revenue start them a attractiveness And

Mark Rajkowski

that mean I – are our on and them of in makes and attractive deals even profitable. those part wins software they’re longer-term. – Yes. their recent water they’re all service top are more those very And the

Patrick Decker

Yes.

around of smaller long forward. a is be the wrapped going of you are between have AI Those those And revenue contract. can get And but you of the tied is then analytics anywhere be these piece the the your we call contract, The kind then that work meters would the that the depending there’s metrology data to contract, the SaaS years piece would the going piece then layer again But a piece installed. profitable. is which XX that. of end the large number even and ongoing of them is the expect that It’s on very very number these. attractive. XX, those points, typically margins to are of meters as upon tail installed, itself of contracts contract, monitoring being way So

Brett Linzey

the what in as terms finer structural costs the still got netting or $XX And get terms support and one then million within thinking items year. the cost we a kind in follow-up XXXX looks Okay, of put of of to next then just that on into tailwind the like employee cost it. temporary, for moving targets. headwind we of on Are as just XXXX? of point And trying some

Mark Rajkowski

in. right. driving the mean we’ve keep OpEx of this out, Yes. – found costs the I costs jump And and both terms we the year, And in working to of pandemic to terms we’re lot a that of the be I’ll keep and in ways hard some through to we’ve incurred learned the these going listen,

so the expect to be to maintain And continue efficiencies to we’d based those learning. on able

of tailwind costs – made this some year, we certainly through in other this, in move the support that Secondly, terms be we’ve as that the payments will assuming well.

Patrick Decker

that that’s in by on permanent the alluded give remarks, would – any don’t see saying we’ve that, be the Sandy I punctuate should just XXXX. to locked that, structural that in prepared we savings it – for Yes. that, so back

again you’re of about million on other And to much of like there. items, I company. We yes, So every talking kind early discretionary mean Mark’s $XX the side. pretty savings started discretionary we roughly the point on ongoing

comes How million that savings $XX there. back. discretionary of much have We are of that

a with thing. service the whole becoming and that efficient, lot. to whole working, same in are we’ve as whether making lot process. Mark more planning a learned still less, providers effective, doing our suppliers more lot remote We’re But the We’ve be sure said, travel, do learned how a it

So with own have lastly, have they what there. too costs on – doing. contracts people our working terms pulled of And our their discretionary sure And approach making work back that to home, our teams renegotiated own back customers are in gone are aligned is significantly et from and cetera.

working So big a we’re through in still we’re leaning that, but in way.

lot So that of inflation I will to because cetera. on some back. doubt, come your be no wouldn’t and levels always wage salaries, have There you a expect et some,

because by this thing and during some on our pandemic. the take do aggressive time, to count we head going swift actions very our workforce over right We’re did

remain to going we’re environment. So disciplined uncertain what is agile and an and otherwise

Brett Linzey

incremental an million correct? to XXXX, of million that and that’s $XX $XX $XX incremental an cost million point the million. savings, $XX just clarification in the the XXXX on so versus And Great. that structural Is in

Patrick Decker

yes. Yes,

Brett Linzey

Okay, you right. much. Thank all so okay. Got it,

Patrick Decker

you. Thank

Operator

additional Ladies and Decker allotted reached would like gentlemen, to turn closing over we for time I back any the remarks. have floor for Q&A. to Patrick our

Patrick Decker

you. Thank

really you and such. and in of for be again Really where all you to safe the you continued support. at to people the interest I the you today. all want after a are back and group your reiterate Make So to you And And is stay call Thank won’t started holidays. many appreciate until close Thanks as least healthy. of that we’ll sure we I I that joining touch soon. speak hope very much.

holiday and have safe happy So season. very a

Operator

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

Xylem (XYL) 29 Oct 202020 Q3 Earnings call transcript