Xylem (XYL) 4 May 212021 Q1 Earnings call transcript

Company Profile

Participants

Matt Latino	VP, IR
Patrick Decker	CEO
Sandy Rowland	CFO
Scott Davis	Melius Research
Deane Dray	RBC Capital Markets
Andy Kaplowitz	Citigroup
Nathan Jones	Stifel
Ryan Connors	Boenning & Scattergood
Connor Lynagh	Morgan Stanley
Saree Boroditsky	Jefferies
Scott Graham	Rosenblatt
Brian Lee	Goldman Sachs

Call transcript

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Operator

Welcome to the Xylem First Quarter 2021 Earnings Conference Call. [Operator Instructions] I would now like to turn the call over to Matt Latino, Vice President of Investor Relations.

Matt Latino

Thank you, Hillary. Good morning, everyone, and welcome to Xylem's first quarter earnings conference call. With me today are Chief Executive Officer, Patrick Decker; and Chief Financial Officer, Sandy Rowland. perspective first 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 and June accompanied our section is on a a website and available of presentation that slide at number is are this webcast call A today's the XXXXXXX. of will call available until reminder, www.xylem.com. note replay Please our by in code X. confirmation the the XXX-XXXX, (XXX)

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

risks for the appendix, and our also and actual have some key to In statements GAAP adjusted including events on statements or materially including we uncertainties results the subsequent we events forward-looking no or ending developments that metrics, unless non-GAAP that Form These report future. the report filed statements call, reflect today's both to obligation otherwise in described on as anticipated. results could XX-K you future or basis annual those forward-looking to publicly end be with XXXX. and will will such company and or to indicated. including an circumstances, XX-Q those make summary subsequent are Xylem's recent Please in Form or occur references anticipate -- SEC, performance the factors reports on to organic All with differ provided in metrics. period We undertakes the most may the in events will a subject XX, of our future from March references note update any

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

Patrick Decker

performance, you first and on our end across exceeding of everyone, results was reflect morning, Good We earnings margin demand operational markets broad-based, our reflecting and share. that thank growth strong quarter geographies. earlier increasing orders, per this revenue, quarter's our and for morning us. Matt. our segments, joining Thanks, The announced all expectations

markets year-on-year, Our impact continued our I up considerable through organically. and in the with XX%. Orders digits we and of demand emerging Both XXXX. and demand Alongside accelerated our up XX% building on advantage Europe effects year with volume backlog took were of XX% also XX% into delivered top organic momentum exceptional orders growth, and and the full in Europe taking recovery Western pent-up to positive up team recover and our of line markets. with the economic with discipline, the X up from coming team's was margin all business Western segments, emerging markets momentum the up up cost sequentially. revenue double growth, in credit benefit expansion. U.S. the actions strong reflect results quarter,

and position, Our further robust even the into strengthened quarter, expansion. combination the financial was of growth revenue coming which margin on

year full the to for are more we in team. on a our margin the performance to But quarter. EPS. let talk confident top and remainder about shortly I'll beyond. of more and are on first, trends guidance Looking hand Therefore, detail forward, provide the XXXX raising it areas focus about the over me and we line, bit Sandy

Sandy Rowland

Thank you, Patrick.

utilities the emerging year, a recovery. better industrial was broad-based our capitalizing with markets. on clearly double-digit performance XX%. contributed exceptional order digits, our delivered up with XX% recovery business in period grew Western in meaningful was XX%; forward. But markets performance the gains. segments. touch last the up board. short, revenue and X%. in up organically orders X% paired down X%; in step industrial up the Revenue in performance, was each on commercial, U.S. X The of X%; as first was majority than double versus growth The I'll same Geographically, demand segments all Organic were demand residential across revenue grew quarter the utilities covering Strong expectations the team while of was double-digit both in grew more Europe wastewater detail quarter

was consecutive also Importantly, it improvement. quarter the of orders sequential third

in business. inflation. industrial grew Revenue industrial Water the geographically, soft XX%, grew and operating up North revenues and grew share XX% and for largely in up as Looking XXX additional up Water commercial was Europe from grew range commercial and performance was and as organically and EBITDA XX% in segment I'll as recovering by modestly XXX wastewater geographies. Europe partially X%. expansion the XX% came recovery XX% XXX well quarter By The which Western please productivity. volume markets. Emerging commercial offset COVID COVID-impacted and volume, XX.X%. recovery Control points, productivity, end was XX%. from and in a $X.XX, improving growth to M&CS, at orders across from up XXX and now up emerging while the up X, up XX% with year. And quarter demand And were productivity healthy performance, margin The demand, the were in respectively. metrology while commercial with segment, markets was turn to margin respectively, America water segment residential. by our timing cover up Solutions in orders offset Slide Geographically, leverage basis XX%. up the driven in to by in offset basis large Margins strong quarter driven is organically points, Measurement Europe. end Western quarter strength performance. growth margin were projects. with gains expansion XXX respectively, Residential at were contrast, Slide both growth turn per and were Slide inflation. were as the were forecasted due X, Please markets applications, offset points all Western year at the in EBITDA organically Earnings in shutdowns in U.S. In up quarter. on and Infrastructure and XX.X% for by Middle the was strong to our and In transport XX% double-digit and backlog X. and of as key The of U.S. Segment Africa. basis and in with in demand in versus flattish margin industrial absorption above financial metrics. by operating review margin energy markets last turn and with delivered EBITDA contributed the EBITDA the is Segment quarter, operating coming I'll growth XXX%. double-digit quarter came first residential Please & orders volume East our last Applied prior year the margin lagging strength XX%

anticipated, mid-single sequential we with showed QX deployments down completed U.S. mid-teens were was solid on the demand as organic was test As down business. grew In project revenue ramp in revenue improvement, growth but last Geographically, the certain applications, loosening period flat large through in anticipate year. same mid-single site energy finished deployments the digits, will but digits the quarter quarter applications in year-on-year. margin and half. X% strong were the as strong in margins respectively. and productivity prior charge from operating test inflation. XXX XXX accelerate price savings Modest offset well the EBITDA demand year realization then up metrology and grew were second points, in markets Europe through restrictions project Segment up business. than warranty and basis X%, as the and Western deployments access a Emerging more and Water

turn the an overview to company's position. let's X Now, of flows cash Slide for financial and

be billion line cash. are our well cash with strong. enterprise-wide closed and X.Xx as our expectations was historical patterns. at an in performance. of working We debt-to-EBITDA flow Our quarter capital quarter. balance sheet with accounts continues end receivable especially priority, leverage the with pleased to $X.X the we Net our seasonality Free was very remains Managing in the as

to to turn X, I'll please back the and slide over call Now turn Patrick.

Patrick Decker

the to platforms, into like I'd our on performance Sandy. the the highlighted coming sustainability. and operational growth our team's we of progress areas Thanks, focus discipline the X year: revisit

Turning first our growth to platforms.

long of continue clearly and higher big nations us. for solve the with challenges teams emerging for for engines Many investment Africa, continue sustainable represent their of great in taken and spotlight. now, quarter other our XX% have about the investments heard emerging of strong urbanize. are performance economies opportunity up orders our runway countries India markets and there represent already growth in And respectively. as growth. and countries, China the both Water until to in Europe, You've also a course, created markets In Up revenue XX%, have to Eastern exceptional to in modernize Infrastructure. capabilities But water first example, localization and areas

sustainable will growth expect source to We future. be a overall for healthy, foreseeable the emerging continue markets of

strategy. our that The second continues digital is platform sustainable to underpin growth

accelerating portfolio multiple of Our about combine enables momentum solutions broad key networks Carolina, the transformation over last platforms, us endpoints. integrated have into AI-enabled added Greensboro, Ohio. a In next we headline project deal previously through in large to in another announced QX, weeks. exciting the our Those our quarters digital automated offers, several be including and customer pandemic. digital capabilities to the signed have North We've just and advanced commercial few software we spoken communications to in been with wins and adoption technologies Texas

each utility's deliver operators ESRI case, of these integrating week, network Xylem to ESRI with ability an of And These network-as-a-service, digital leader All combination path bringing is digital and last Xylem's unprecedented last just GIS powerful systems, essential distinguished to geographic transformational customers together. week's further a sector our our offer with In winning. efficiency to bring and are By we for sustainability. the extended systems advanced And their the capabilities clear capabilities ESRI. agreement, solutions, and the to and operating and suite environment. increased analytics. technology advanced that in global operational water can information us partnering by projects water was with essential of visibility a component achieved are software-as-a-service we short.

maps world. includes to Our around and partnership developing utilities the selling solution joint road joint water

We partnership value the about this deliver are we to about can and together. very customers excited

Turning operating next discipline. to

to capabilities strong were key absolutely coming operational Our XXXX on foundations. through

As cost. clearly now of last decisions the difficult on made you And we're essential we structural actions. those know, seeing but benefit year,

the offset first incremental with The margins which result strong in early In the was team margin XX%. impact productivity in addition, gains expansion at solid inflation. drove coming rising of quarter, the

we that absolutely supply tech economies are sectors. learned inflation Over remain from affecting recover. component the and last That we expecting can demand continues year, less, to said, and are we with broad-based as do and that challenges the industrial will vigilant cost and on more we've the some impact reopen

and productivity pricing already strong taken mitigate likely the demand, in we've is by we investing challenging inflation. continue time. action Still, Now to of environment remain strategically areas to support for and driving supply some to will inventory

The third the coming highlighted sustainability. focus year area was into we

suffer I cause think the of economic worried XXXX. many us of might of the hardships setbacks through sustainability that

instead of retreat, However, a actually a and of energetic global sustainability. we've embrace broad seen

we've sustainability our goals. X.X XXXX As to waterways. an in enterprise steps toward We'll be from sustainability example, local published of our cubic the in over meaningful be annual helped be Signature for polluted year, report taken water reporting, we entering billion last June. meters customers in prevent our We'll that several XXXX, those

range incentive to Now deepened a the is program and component compensation broadened long-term report key and move a retrospective, continue in the between we but course, It we've link XXXX, for now forward. largely executives. performance. In sustainability the of is of

and deliver Our has know a of ahead lot team. forward year. a with tribute and to more in both With now commitment mission the on work on remainder provide for to purpose. of view which said, that, us hand of end and is back to guidance have markets, That gratifying our our goals the the all it position, our we action our over to I'll a Sandy we along leadership the us and put

Sandy Rowland

our our changes. view Thanks, deck. end in appendix notable mostly for The previous with facts remains slide the we our have end each from Patrick. outlook couple of consistent last Consistent presentations, a our quarter for markets market of with with provided key

mid continue utilities, momentum single commercial the we in see to high in utility clean to will water, and First, anticipate in both wastewater strong digits. our and business grow

lumpiness activity case the focused On COVID side, America. and operators in the India and of outlook in and spending rates to although mission-critical Europe bid we markets wastewater and North remains due there. needs some OpEx remain applications robust, China Capital developed in India expect on high

On large the clean we to water to side, ramp beginning project encouraged see are again. deployments

for the administration's resilience U.S. to categories, U.S. infrastructure. opportunity invest on effect the represent plan move could positive me municipal I of across from infrastructure prospect We're the in Before on about pressure let of clearly broadly, water the on have briefly which an the country's infrastructure investment utilities, plan. communities in several modernizing touch the would budgets. More in greater reducing

by form Congress, the it's who We But too our to to upside to plan built what and be encouraged early turn in possibilities. Slide emerge know are those not from have clear, whether Please specific expectations. XX. may into

outlook end The second the our industrial in in is change notable market.

global seen have We across industrial business of segments. all rebound a and our in activity X sentiment

We in half, because to anticipate deliver Europe primarily will while performances will expect Western those modest the America in relative half, of emerging And market second first growth. compares. the healthy then flip growth markets in North the continue we in

in expect mining the end grow in demand now Importantly, business mid-single the digits the and And industrial other industrial dewatering by verticals. to driven we the market for year. recovering, is construction,

unchanged. commercial remains outlook the Our in segment

We digits. market end to be single low expect to our up commercial continue

are will for U.S. the of single-digit prior full to mid half stable, due up to new Europe and growth of business We is In commercial anticipate our modestly residential, comparisons. from moderate for gaining although second low now XXXX. on soft double-digit to healthy we largely in to replacement We do single high demand, which expectation be most share is previous the digits. through the high expected is growth year year, expect building

to turn I'll through you our and Slide guidance. let's updated XX, Now, walk

annual are As you raising can previous we our see, guidance.

expect high single-digit in in year growth. as growth single-digit the X%. For to mid growth; in Water to single-digit growth segment mid guidance we down of we X% we Infrastructure, This growth XXXX revenue X% full by single-digit see overall, mid previously; up and -- Control our up Solutions, & X%, to single-digit now Applied expect previous from to range Measurement organic from to continue to in Water, from up of Xylem breaks high growth low low mid follows:

number While large be delivering supply by a we challenges. constrained anticipate component may growth deployments, project of somewhat

to For XXXX, XX.X% up we a XX.X%. EBITDA of to range be margin XXX adjusted expect XX to points basis to

XX.X%, we also savings now the which convenience, in here, to to yields than reflects of equivalent to that XX% points. expect XXX your up operating to the are providing we This be margin adjusted to For XXX our higher range range XX% basis gains year. offset EPS Benefits volume, increase remain from XX% range this adjusted unchanged, an price more and over inflation. productivity $X.XX $X.XX, restructuring and last will an of of expectation

as free average expect XX%, conversion XX% guided, flow to expect X-year conversion continue than cash XXX%. We of cash XXX% between forward. continue greater delivering around of our to we going to right putting previously And

clearly even remain for notes Our fourth of senior are very balance will strong sheet in which room quarter, $XXX capital after the retired considerable deployment. offers million

We access. strategic enhance continually our are to inorganic our market assessing portfolio and strengthen opportunities position, differentiate

unchanged Those And exchange supplement volatile, We you our euro X.XX. a we included sensitivity you have including as to in are assumptions exchange of the dollar appendix. year from foreign models. therefore, provided other number a to be assumptions guidance, full rate our have can conversion with know, table of and your foreign original

mid-single second down digits growth Infrastructure, We X% XX%. Applied includes company growth the drilling in on revenues low growth Now high Water anticipate will and This grow organic Water M&CS. single-digit range the quarter. teens of in total in in to

to in please range XXX expansion second expect Patrick basis margin and call quarter closing over turn prior the And We back Slide XX, for year. be turn to comments. of XX.X%, EBITDA the I'll that, adjusted XXX to with to points to representing versus XX.X% the of

Patrick Decker

and more strategy. position, strong beyond. our social clearly as rest and We but but margin the More has embraced context, economic been to and for robust of From year virtual our never on the It year, of will COVID September this have privileged broader Day, values you down. continue last value next in in performance for discipline critical we medium the a which sustainable future. Not social format, term. apparent to enable is look growth. And expect long-term mission which XX. it's today. as our update underpin shocks most and crisis, the than an need Investor for Operating creating resilience conversion. will in and providing hope will prerequisite likely details our organic soon drive will and to plans coming out and the of driver as both our economic more are strategy business only continue cash the restrictions physical to and greater also Xylem team a of critical the than and infrastructure strong recovery prosperity. they of us is stakeholders imperative as pinned is long strong at deliver recovery, for and us position a of the that and do momentum a a Demand to throughout Sandy. balance value continue times and expansion QX, and a with combined over mission, of our forward the world up Thanks, we will will In commercial it business host economic our follow more possible currently our is broadly, Matt permitting. and relevant they're a be The of planned many put ever. as sheet

with you may happy any we'd have. be questions Now that, to take

lead please us operator, So Q&A. into

Operator

Davis question the comes of from line Your Instructions] with first Scott [Operator Melius Research.

Scott Davis

price give generally us color sure. if structure? see, prepared any sure, you there hear in up not anything Is can Sandy, it cost didn't there? I with price. remarks. your is incrementals. Good for on I'm the you about mentioned Congrats the But to

Sandy Rowland

sure, Yes, Scott.

If it's price, first was that half We increase, around of but our much very price positive the we asking back did our March. back-end until first at out performance expectations. you're with slightly specifically quarter basically quarter. line and It think I in take about look So flat. effect It's quarter. the didn't with in the a go loaded

-- inflation headwinds. As seeing unique. we're not increased We're

March. effect expect was do with will We price to a see in increase than the unfolds. increase on second went we that so price the second realization And in And year actually the do take higher have that price more a out as quarter. front we earlier what later

So.

Patrick Decker

are from Scott, teams pricing past sure And on sticks. the experience, the our making job rather doing good

good these price go market pretty realization increases. we think expecting out get I us something from And clearly when our with we the is So competitors. and

Scott Davis

And want it sounds confidence is quarter, everywhere But increased Okay. of -- it least, on in is the -- an the That's helpful. confidence this that other at have issue any efficacy then clearly you still. discuss? Is access and Or vaccines meter like lot -- a reopening -- deployments. developed factors has visibility you higher site kind of markets? there around to is more other is some the it

Sandy Rowland

Yes.

I'll I perspective. lined a have the look the that we about deployment data, encouraged think, up at projects right? very Scott, So from

we It award. an then goes in next start The into phase it orders customers. we And from book see you backlog. our revenue. As receive we our of our to kind track, reflected tangible that is

of stage at we're that so And now. kind middle

right project performance convert deployment so. M&CS, the large orders And year-over-year. quarter, our a at big orders into growth we're starting piece tangible orders, to look that about you is of XX% in If within the

Patrick Decker

opening largely we being -- sites it by not But vaccine part absolutely to again, being up, the everywhere. is, your distributed. driven And Scott, is of that saw question,

the in that what move access. our think growing And the order that's time confidence of and growth just seeing this we're in also growth projects. to forward in at point is these site it part with is I backlog dewatering drove strong of utilities part

Operator

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

Deane Dray

I about here. would to assumptions of talk guidance some and embedded like the

typically First of boost it's don't recognize all, I a quarter, first fully you and guys guidance.

fine. the uncertainty starter quarter -- And fine. But the shortages. for And We're that's And just flag about year. COVID certainly there's looks perfectly questions just looks lots recognize still. component early that we guide really different. in the so second is So does it the of

probably on the you're visibility in, locked component So terms in of pretty supply.

supply? know which you So probably details stretched can components? component a meaningful is changes I a today, way? where as about second a this particular are And the in half ones are Just maybe it's it what stands just more some supply give -- more day-to-day, risk? but chains us

Sandy Rowland

Dean. Yes. Sure,

start with Let color. me some

year. a think And really all, shape job challenging our we're And monitor like problem. first solve back environment. a chain good can for a good that QX. microchips and situation quarter and we're feel we fairly look for in good of dynamic in then First supply we in did meeting have the situation. to It's was that then we change of the in team the the We supply certain half components, continuing that what that

dynamic situation. it's a So

with Our we worked team plugged it, on on we it. focused top very very -- partners, manufacturer are. larger is We've contract our closely in of and work and than they're

half provides item think that, And the some a the for of so protection. having it's second we that But said year. risk

want be an we'll next over and so days. time you unfolds come to with back next together, XX And how And watch we measured to update. the this

Patrick Decker

as across broad the the -- sector. the happening And business. you it's But of it's sector, Dean, our especially this is in widespread metrology well know, piece across this -- is

-- we matter in So of had shortage, the competitive it's It terms things would to now. not right really be right of move creating pressure et any a would cetera. if installations,

certainly -- it's a a if that seeing the would it it of not year. yet. in But part as risk, latter we're be of the So risk

Deane Dray

That's hear. good to

implications significant that And expanding using the cite, this water the helpful applications with second feature. especially then broader smart launch partnership intelligence artificial of that's water, like offerings discussion the And and really the ESRI looks in it the main in a is this you certainly, project question in because so utility around the your assumptions. terms -- has

that AI little Is then economics the A the this talk monitoring? utility for how shared just the partnership? is any So bring specific color water about And on about What economics? more applications? of this table? And using main color structured? deal does to ESRI

Patrick Decker

Sure. Yes.

So here? of was on is Particularly the with had are water, as pure in the replacement some our our what the solve lot terms of condition to businesses for kind of with assessment well business, -- valve trying for pipe utilities. pipeline already work we problem ESRI. we which formalin does of the That was utilities, working as a

And the so that off really really portfolio is building our of sold but now expanding the long-term rest of across partnership, into that utility.

be they really very do. breadth right what limited deep to replacement with reduction don't pipe of of the very, their looking advise harnessing don't not to it in excited use have X few on X and So in on is is what in think they since the cutting they issues treatment And same because data help about weather utility bring time, -- reduce At they that not study U.S. power may we our failures. are pipeline go or to they And being we're that case facing ESRI and the data a base geographical power utility about a how I plan that's data limited share The power -- of Xx the pipe end the up utility the access don't working have water subject challenges their to large terms portfolio example cost opportunity. that that have see whatever matter this the the has of it's the they're to expertise This now by of us is issues, in. to collective. we they've really for address the got world. know offerings very able a a around them we the We to talked Mid-Atlantic, utilities of the going about water non-revenue equipment. that million. $XX project through of us

the perhaps I'd into the On not that cover right that can now. on in our the details Day relationship, year. rather at later maybe get We Investor of side commercial

Operator

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

Andy Kaplowitz

XX%, was I China Patrick, you think, mentioned up year-over-year. that

your easy So was a while it I year, think well it's you you an where think I business last comparison versus pre-COVID. over XX% do put drop. there had

more on about about penetration And How you water talk underlying could just much sustainability, own You transport growth and is in is of what that about over moving going how that's helping Xylem's in terms to what for forward? markets? you it growth maybe your treatment. you market? in could awareness can much your So mentioned talk sustainable strategy? there But emerging strength mean

Patrick Decker

Yes, sure. China. It's broad-based. -- part question. our in each growth cutting the end the Great is growth year full I you're -- but that QX would markets. really double-digit in comp, say one expecting easy of of are an we for right, it's It really is across

transport economy. an up more even again, terms that So in part broadly of it's of -- not is, or opening or limited of been there to treatment kind the has improvement utilities access, China in of side

for we pipeline a so and long-term focus of are part -- there see couple our which investment, flowing. From and project a a real drivers has been driving central that bidding key sustainability here. backlog. while we by plan there, perspective, that impact on and of now, environmental whole the is government investment we in see see And their really The our long-range

especially capabilities capabilities. engineering strong as it standpoint, China, side. across and really utility name the years driven great quite also, on of Secondly, team got brand got strengthening of is We've by well from a work the there ground over being our actually number as chain a our there, done we've and on competitive to our the localize a all supply that the selling we've

Andy Kaplowitz

than talked quite your implied in looks price issues? Got half. second have we Dean's half you say are reflecting how just question. incremental the just and versus you would like conservatism year it. your would a about the -- M&CS And second given margins comparisons And just margin careful then, you But Sandy, in more following up difficult be those second component the It is cost? guidance improvement model regarding about shortages we know We of QX. half on the bit just lower

Sandy Rowland

Yes.

question, Andy. good So

the expansion the first of there's went with that And we would that. year our of reasons think multiple for first out did I half. when expect XXXX, all, be stronger margin guidance we for full second half,

million we the starting XXXX, in structural last restructuring that more that million XXXX, actions benefit we're that and with and front-end about for was of cost back $XX took we calling So And will in half the in About $XX savings million be year. restructuring realized of $XX the of year. about restructuring of loaded.

should in of the half. first X/X come that So

QX investments. little I flip and the of in is And timing other a side. was have of you our about some will year We $XX timing XX% the the we've returning. plan, important QX. had our a tailwind for on And have that out headwind. start restructuring last of last year. bit discretionary a then and items other the we've phase, to year So and costs of think actually on perspective our the of a us that become costs. of in a about That second we in in going because really million staggered That strategically travel timing other area, And difference discretionary from the took the thing half is, it's

to our And so those platform. are growth support

in focus we our out -- the just the building to markets. We're localization. to like things about continuing markets. channel digital our emerging We're So expanding talked emerging continuing platform, on

closely. and And timing perfectly don't tick we're is will the the And they actions, investments -- offset the pricing taking the year. continued chain watching inflation I come in new always that so supply perspective. of has in while we're higher up. second certainly, And think those And a thing constraints half from to

Operator

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

Nathan Jones

prepared around on around about movement bit a Has there a balance work? been network-as-a-service. models your remarks talking potentially to start Any can more Xylem's how of you business those the guys there? been have made know Patrick, sheet I'd in that to things putting around comment like some work you some model that area. little you testing off comments initiative to various I with business transform give

Patrick Decker

investments do We are large-scale us, And are structures. required. Yes. for combination a not these actually that of

in balance investments our These that we'd it a dedicated to consortium actually to talking larger on a So really can't wouldn't have are utilities need small their say they that the can that is. own on there's when And we we about afford sheet, we're where them. I they to thinking something network want oftentimes when it, rather happens it what anybody using than maybe spook it, of be make. call don't

So we I customers and for literally affordability the we'll that's are it we issues only themselves. customer. model not the utility It for address investment, them. the will But that back make the do. mean lease does to make the there investment the

there. we're in say have more models And we again, Day we'll different would September. in scaling. I so, have in of much still share And early-stage two Investor -- there to

Nathan Jones

question next productivity. then -- Fair enough. on my follow-up The one

in that was Xylem in think think the XXX I into the the you bucket? number exactly points, before seen I've And about there productivity quarter? I don't that a goes what productivity first such high quarter out good basis category. what performance Can of which in drove talk

Sandy Rowland

Yes.

in exceptional what I things need the was shout of and give number all, a to quarter the to put that than we in out team the we've because modeled. of bucket. a stronger performance had And first So first

supply So like improvement we continuous there in things our and put within place centers that our our manufacturing take in chain. activities

also inflation We better kind like that able offset value that we're comes things negotiation incorporate existing or to some upside of feeling our as through productivity. for That put of products. headwinds engineering procurement designs the we're

well. savings, were cost savings contributor points. That quarter basis restructuring was restructuring points, basis another other structural Our a about XXX, was takeout purely XXX and this as XXX

So -- of this it of quarter. really every contributed factors, combination a of all number it's and a parts

Operator

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

Ryan Connors

been Q&A, you comprehensive. have think in very slides I

a kind tech just of growth the picture is earlier questions. talked bigger to have And But you M&CS, M&CS I that couple lagged the theme. Patrick, of the sort I of about sort portfolio. water of of understand irresistible the profitability of an to smart kind of So and parts relative other side business. it's

mindset of from that as seen more will, You're what will. outperforms stuff, peers where sort if business, not that. if other And you are actually boring well, the the of some on in or are We've some how maybe established And forward? channels good going your sexier alone extent you good mature from that? in that what markets And we boring thoughts M&A does that your good? that, with inform that conclude can is to

Patrick Decker

Yes.

all obviously, businesses. of our So love we

our et I them that to is need offerings of on our in half in evaluate be the But boring. we continue for weighted maintain The more really of we market this But on kind and we've that about being -- opportunities in to we digital the treatment, segment think From businesses, consider our in the and investment we going businesses do. spectrum being businesses remainder extend across part. product second in side. an about We to but it's in the we're bit not what's small core of fixated shake I done be hereby, those increasing second and -- we're organically as of where open. towards the So know because, over really a Xylem, X/X purely well. that's are M&A cetera, we M&CS. that tongue making The your core just investment those kind the if each half to important year equipment one in businesses don't bolt-ons our within leadership of some going history the and tuck-in the that like invest of on share standpoint,

the So company now. theme that's a big across right

expansion began I M&CS. ramp mean in the quarter. as you function the said growth see first before, and this terms and a here in dynamics we margin line of in of to In top know slower timing. really That I is of half look especially deployed then of and you're over turn, that of get Xylem. from to year, course we rest standpoint this see second to an going relative when begin the next beyond, the it at and EBITDA deals to large these year that

Ryan Connors

Okay. That's big helpful. question, Patrick. was, again, And second then one picture my another

kind full cost by in pricing the something dollars, are decade relates as So your on last so forth. great progress by investor-owned local you, water systems. this We've seen it demonstrated important some great customers I for and great get progress Analyst on And right? in acquisitions past your Day's in consolidation as to seen industry. who an to players you've to and we've federal response of You're want voice

even extent question those In money federal of infusion big a of progress sort at big and a lifeline, in, federal money sustainable and risks they words, drivers associated does in sell are attached that to they price, cost put full thoughts is, what through don't your coming have can they no to to risk? on lower to sector with have my strings the way? a other into don't of investor-owned. price, consolidation What So that you throw increase

Patrick Decker

has historically, on by because a great about side, water question. And we're It's funded talking U.S. right the But what as the really is CapEx directionally, approved answer space, now yet. really nothing Yes. legislation. CapEx one which well know, think utility the is been you no not federal in is has been I knows more

the so mean relative being of the comes money basis, quite kicked believe. relative a underwhelming to That And I billion, me on price now, around pilot to is through rest if infrastructure around. is tag $XXX -- this the I frankly, was right personally of number

don't or going the pointed level, put the time And in a states local you think pressure out that utilities, you as so spread I across as it's I much think on the at to by out. utilities

would away they make to to Moving be their otherwise protect from investments. forced progress

see getting. that's which is stay example, Clean we close, the NACA, And American you for one of Water any ask it mean about Association. large not I there. proposed mean not we bill? of what questions the when we'll not we get That's So I we're rumbling making do they utility is now. right they're at the widespread. least North that those know will to They're players, on think encouraged, based the plans but

Operator

line question Connor with Lynagh Morgan the Stanley. of comes from Your next

Connor Lynagh

of of is? spent chain And sort issues, your impact pressure just margins of a or like I that? could was if in the of of if steel expect or obviously, anything any but wondering chip well. any material supply from fair sort on basic commodities as on sort of plenty from time think discuss sort your there's you're What copper we we've strategy that? should bit feeling sourcing I you issues

Sandy Rowland

Yes.

something Connor. We're question, been an for around and took And teams perspective the shortage watching the the feeling chain. global that place inflation year some progress. earlier on perspective good been pressure working shortage -- that, I storm resins our put in at that in from Particularly it's think have that and and they've plastics, both a making on thanks So -- we closely, Texas we're perspective. from the think the supply a

for in kind the in of of copper, seeing themselves part those steel. favorable from supply that's we do, shortages, resolving about in second second when the out to a are I perspective. and And plastic an We're And the comes increase so work quarter. a aluminum And secured we've place Still with gone a momentum it way. why in good to quarter. inflation feel we've price we're but second good that the think important

Connor Lynagh

Yes. Understood.

thus neutral all that? thinking thoughts marginally So Any is guiding different think far. like bridge on it be mean you pretty dilutive. full year about updated there? the Just seems you moving price-cost how those I to provided, were you're the in I think I parts

Sandy Rowland

Yes.

going manufacturing our within the continue of that when our drive But think and positive will chain the changed. supply be we're to that that. you hasn't I that on out productivity incorporate side to sites of

Patrick Decker

partly suggesting think the that moving price we're and uncertainty is and one here around with we've out. gone another I the it's continues we really areas have chain, being out what just -- around, in rolled And increases, supply

we'll at a point. better as that really get So half see and that we plays through And then that out QX. sticks have we the to view on want how how second

Connor Lynagh

would sound seeing is usually assume you're Correct? anything I'm nice place the you're suggest a where should Yes, ultimately we one. on that It Applied Water from very margins, in businesses. a which this driving is Infrastructure trend, doesn't guess abnormal now starting like positive an understood. I Water particularly right with seasonal and

Sandy Rowland

No.

margin think what you our the expansion guide, I half you'll implied if we to through first compared see in at half. the look second

in margin well. on we you the So -- -- quarter see sequential basis, And -- think as expansion we're second on off should half start. I a are a to great a we're

Operator

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

Saree Boroditsky

a on Just pricing follow-up commentary. your

of second quarter. you this price talked how backlog, actually and strong increase orders You price about increase? benefit But when other think this given do the the about see in your you

Sandy Rowland

Yes.

I price before think of advantage pre-price, There placed to the a takes have orders effect. have question. that increase that's good been take some been

so is backlog. in And greater we'll the through we've QX why work see that we are that's that and as modeled in orders coming what existing QX price realization

Saree Boroditsky

extended then the lead And attributed of Water how order XX% this? North in impact Applied like times demand looks it was underlying about to is partially we the And should in trending? increase How think America.

Sandy Rowland

Yes.

all, there in XX% year-over-year an first definitely growth, demand. is uptick with of So

a so there can't bit supply think little placement earlier because companies constraints We shortages. the that chain many, was dismiss. and of orders normal dealing some And we with than many are

come strong. of in And recovery they commercial very so outside want back, on line supply. And But first want remains customers good to to -- net-net, the their side. to is Residential be the protect U.S. starting We're particularly good get to performance. seeing industrial

Operator

Your next from Rosenblatt. comes Scott question of the Graham line with

Scott Graham

that. bit complements tap more know asked been XXX productivity. on impressive. I'm around that the I maybe details, have additive questions that hoping was of just to within on basis some productivity points. we little into your Certainly, Sandy, a the know over the a really little discretionary handle bit

you improvement structural, of kind sort would wondering little I'm And can year? so or if a us what in like just core just that of bit leaves of the a rest still underneath quarter. But to And the lot for the and XXX that XXX. of said you productivity take that look

Sandy Rowland

Yes.

our at then QX, hard look XX really what from savings good work manufacturing which takes from day basis seeing points our was call organization is delivered -- points a quarter, came in basis XXX after place And number. continuous that's And centers. of So about we day we're if procurement this we improvement. that about what

is a gate. the margin net-net, out planned that's to very our seeing for it But number. and think I of right high so this part start of core year, productivity And glad we're expansion element a the

Scott Graham

for think you that is out, the year? the So sustainable -- just of that XXX laid you that, rest

Sandy Rowland

around is productivity around projection year full our right -- XXX The basis points.

Scott Graham

Okay.

bit that So then I that, little comes understand. imply off a that second in half. the would

Sandy Rowland

very was quarter The first strong.

Scott Graham

This you, hear Patrick. for is mention AIA. it. didn't get Yes, of I one

what maybe kind And full you that. give the was And called assuming kind called what year? But is still of sales us AIA? the sort the can you've growth? what you thinking of Just for -- of

Patrick Decker

reporting But don't we're then that, the refer you of as from why our show a have formally business, numbers, pure And through a business. that we digital Pipeline artist in standpoint the the business. that's we known of is still piece what I'll is And as Condition terms a from which as we well. as standpoint, Xylem Assessment Matt, have it the branding consultative mean the now view, segment. in seeing M&CS Pure which Sure. go momentum I and just AIA in talk about we within -- the there

run margins separately. So, But look now can two backlog and order good side, at growth, on strong really they're activity the both business. on detailed different Matt share saw numbers. are growth, businesses, nice momentum businesses. We very the those digital that bidding incremental in margins,

not traction team utilities across just now, big that really in beginning year we is emerging the U.S. in So also up to set that get some but with last markets Europe.

Matt Latino

is as that period we've Yes, a assessment AIA, do, terms slower temperature. a for pure little work. harder that of the doing a looking service usually say, been lot lot in Scott. time is in know, I of would to you quarter. in in-pipeline this first It's down seasonally, colder freezing at of just of whole, the it in a right, bit because Most them,

So expected. was. around kind our of was what That on activity, good target interest, seeing bidding They ramp. little for good That We're plan are a businesses. both both the of bit. down will

But that parts more Some think business have Day. good the view also digital side. importantly, the their And the at view I BU business. is about into synergies on it's other we'll component that orders, that with good momentum too, of to and share strategy Investor

AMI assessment water digital comes service, example, highlighted piece. for quarter. so in And some this pipeline Greensboro that but deployment, had we that with the that an is components condition we terms And win it on of also

And address. nonrevenue to be meters need goes that targeted analytics first it Valor that and also our So replaced water. technology to addresses the at

both So expanded. in are work those getting see bidding of nice and scope that It's that deal. to

Patrick Decker

capabilities say, finishing competitive cases, was kind would I And helped some that it those were, it of in really that the digital the get advantage distinguishing Scott, across line.

Scott Graham

you've something Patrick. was talking about That for been while, Yes. a

Operator

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

Brian Lee

M&CS up only for the for maybe about outlook segment talk second. bump It's getting I just a that a guidance. wanted isn't the to in the

guidance is the that trying maybe here? in know just risk understand about you is I you it not issues? you of to taking and is of having if just are suppliers? changed how little just a as bit, new for And actions but specific takes supply much this of there to timing you versus project latter. providing puts So kind or to adding more the updated talked situation So the what just what you building improved mitigate? some the and about Are building visibility chain thought there? want understand better I Are inventory? much

Sandy Rowland

Good Yes. Thanks, Brian. question.

is are we're project have we we which deployments, very, very components encouraged likely part which plan, because the constraints, and situation have the the think I there are very coming very, about. the expectations, increased orders ready the through But electronics did to if large customers guidance of in growth, core line our on supply not a would our from with is our go, chain dynamic.

want alone it where the of so I And think time to little extra get not but out to our bit certified, we're and also see here. a monitor is taken continue team something to takes that out And was that's inventory few that on. and how possible. we've over months. parts next working we plays And substitute It those

well in that the So this I of a industry there's is shortage understood think microchips.

far, we've keep and fighting. kept everything up we're and going so to going, And

Patrick Decker

at in And suppliers. the do, mean that which the procurement procurement we've working to the capabilities a qualify contract partnership shortage. able predominant keep point close Yes, we there closely have through done we our But just with to share to got to this mass I and obviously, our year. been they additional been the their we've sure are manufacturer, that large really and make been fair them, is we we're -- work have despite stay to that And nice of with the with getting them been components working got largest out is Flextronics. that's work

Brian Lee

one Okay. Great. it Patrick, And helpful. I'll maybe for pass you, That's and on. then

for Just outlook a high level, M&A. picture big

there there? balance have the obviously cash sheet, terms in anything over very you well portfolio to in year? to of you there the or done focus flow guys here You healthy address just Are a sticking multiples of Generally, your looking the the free past the be holes out areas view -- year. stock what might what attractive here? is seeing for are having context then And more in

Patrick Decker

really active. very so clearly pipeline. It It's of important We cultivate No, to piece of M&A a very we strengthening pipeline. would focused strategy, continue market end on platform, an the Yes. long-term robust some our really thanks. is digital our actively concentration. diversifying our be and further is

we as opportunities core. as water before, I industrial look to course, the in said at then, So of perhaps always something And strengthen mentioned our earlier, space.

is valuation. a right What currency into reminder these assets say QX. those recently relative early advantage around multiple I would those But the we valuation, There that's in it. we've at here acknowledge terms balance on scale. have think, seen there, We've game not we're looking we that the some both space really we've of terms bring a announced due give and things been differentiated is want actively portfolio. valuable portfolio a of got. our is deals note But equity inflation do on to comment some $XXX In got we disciplined is participating we've but of of we the that million in some been like be tends in because now always I to sheet, that our be and strong have of of to us, this in got in those digital your

to all just are balance constrain -- that's you keep going as us. cash that in you modeling we But sheet, So that mind. not make sure and

Operator

or our over time questions. now back the Patrick turn reached to end remarks. will Decker of allotted additional closing have for We the for I floor

Patrick Decker

to at Look Well, interest September reaching call, the thank of forward and team get Thank you all scheduled on again will make all that appreciate the you. but earnings continued sure with support. joining you. be and Matt seeing next and for and our for to we engagement that you your coordinating for Really Investor you also here. Day, our out XX.

great remainder soon. of And a and you so Stay safe. of colleagues. the in We'll see your Stay well. spring best And meantime, families again, your all summer. have the and

Operator

This does today's disconnect you. Call. wonderful Thank Earnings day. Xylem lines have a XXXX Quarter this Please conclude your at time, First Conference and

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