Xylem (XYL) 3 Aug 212021 Q2 Earnings call transcript

Company Profile

Participants

Matt Latino	Vice President-Investor Relations
Patrick Decker	Chief Executive Officer
Sandy Rowland	Chief Financial Officer
Michael Halloran	Baird
Deane Dray	RBC Capital Markets
Ryan Connors	Boenning and Scattergood
Connor Lynagh	Morgan Stanley
Nathan Jones	Stifel
Scott Graham	Rosenblatt Securities
Andrew Buscaglia	Berenberg
Joe Giordano	Cowen
Jake Levinson	Melius Research
Pavel Molchanov	Raymond James

Call transcript

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Operator

Welcome to the Xylem’s Second 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. Good morning, everyone, and welcome to Xylem's second quarter earnings conference call. With me today are Chief Executive Officer, Patrick Decker; and Chief Financial Officer Sandy Rowland. perspective second their our results provide outlook. will on quarter Xylem's and They

XXXXXXX. remarks, questions a will information our in accompanied we Following prepared presentation slide address and webcast the available number www.xylem.com. [Operator confirmation Investors by a call midnight Please X. covered on call. related at of is XXX-XXXX, call the A replay instructions] and (XXX) this of As reminder, is section the website our will today's are code September note replay on the to our be until the available

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

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

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

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

Patrick Decker

bit a joining morning usual us. later you this than starting The Good quarter. call is and for thank in morning, everyone, the

expectations half demand our all segments across the So, XX% results end-markets. major per on was healthy team grew that demand including margin. of converting robust into just a you on solutions of first better-than-expected revenue, underlying the and the more team seen very even orders, year. our all on in to They performance great continuing will exceeded earnings performance strong a by metrics, set now, Underlying for which did first and very and quarter have beating the delivering across share. I'm that and regions. we pace proud second The quarter delivered job expand orders, all margin, exceptional

continue is sustainable we last quarter, revenue addition, we backlog raised up invest on versus as expansion that and year, earnings. reflects us into in end now year the growth. that the full commercial and XX% future, a this the At strong point momentum both position guidance In broad in of puts to first

mitigate likely are working to with price further a strong second environment. partners supply performance year on those revenue and that somewhat are chain topline and The raising inflation we've the to continuing The shows guidance. full trajectory be proactive been challenging reflecting second a the half. we are And our by benefits headwinds. But into impact moderated by of supply quarter’s chain

full detail provide first, performance midpoint to some But globally. the more what we're additional So, year. Sandy share provide I'll on a earnings me raising hand color on the also the are we quarter. on per in to moment it In guidance let for over seeing

Sandy Rowland

Thank you, Patrick.

the XX% of prior organically The compared second recovery quarter as story year. grew offered a demand continuing to strong revenue

and ramp. end year, a and continued as also Europe while demand China most largest X% end continued water to mid-teens and XX%. improved smallest Europe, the to our XX% Geographically, returned market, quarter. across grew OpEx was the U.S. wastewater reopened seen across The saw by end prior sequentially applications access with utility easing grew also up Industrial market strengths and end led site markets and activity were restrictions compared strength broad-based was sequential up both on in Western Commercial up XX% markets. by U.S. Utilities, with momentum our quarter economies on We basis. to residential, growth during the increasing all Western demand. clean driven

on growth As contracts. quarter demand than XX% organic it reflects all Patrick XX% growth of same our orders which orders in orders sequential mentioned, water higher grew of in delivered period segments M&CS, in XXXX. across on strong is regions, metrology This the particular pace exceptional the underlying consecutive improvements large and orders team with fourth and

Importantly, overall we backlog ups exit XX%. the with quarter

Western utilities industrial Africa, resilient in activities. productivity offset delivered orders I'll EBITDA industrial by prior financial OpEx recovery Revenues Geographically, offset by $X.XX, were at robust the double deliveries. performance by the X were treatment India. girls Looking to markets came results globally. margins treatment turn XX.X%. investments. at Earnings review in with demand quarter America volume lapping increasing deal mix, Order Orders strong and healthy market. and were XXX are Europe mining XX% quarter. was favorable which emerging seeing in flat, driven utilities in offset excluding and in and from up was for the in from in delivered The remained delivered the with productivity project per investments. XX%. year up the reflected savings U.S. of during the volume line key intake growth our segment prior is of in strong OpEx strong year quarter. year-over-year forecasted the the year range Telangana, effects, our Slide prior In but coming inflation growth, end Please inflation margin large from was EBITDA share metrics, up X% as utility EBITDA above Water partially strong part the margin and now demand mid-teens continued recovery and expansion points margin in and digit we largely was organically. while basis Wastewater Latin Infrastructure

growth to turn please market strong organically continues strength and Orders water particular The continuing regions Western food in were in up XX%, the Geographically, grew across demand. industrial double yet recovery broad with Slide part increasing XX% markets XX% in while the and end had from applications. compared were double U.S. and applied all to recovery Now margin up up by productivity, industrial grew momentum volume, quarter with driven the year. marine was XXX very Residential prior especially quarter Europe. in be markets. Western expansion Emerging to driven offsetting by industrial and came basis market in than on due more robust quarter points segment a material digits in the and U.S. activity, freight demand. the demand and leverage The strong Revenue contributed and strong digit growth XX% Europe on and inflation. beverage China. X. EBITDA Segment to reopening

to Control Now turn a please as quarter to cover segment. deployments & I'll project and large strong our began ramp. Solutions Slide deliver M&CS X, Measurement

up water We segment Orders gains XX% testing the quality demand. industrial also in business. organically were realized on strong our for

XX% historic billion, and $X.X backlog at Our at high an is now almost which stands than last this higher M&CS year. time

supply which deployments months. in in project driven of the and was in strong chain metrology growth applications, last Energy digital by blotter large include double-digit projects, and were in That $XXX XX% by led due applications reflects and more quality services. secured quality on contracts geography, than Unpacking timing XX% constraints. We was with our by application. in the results U.S. up modestly a number water XX% water major mid-single large in emerging XX core our Revenue digits Europe combination for down increasingly markets project million assessment have solutions up growth The applications. up demand respectively. and Western applications XX% to water were

As inflation for quarter savings EBITDA the to margin compared project the from leverage segment reminder, and particular, can impact mix prior of offset in XXX more investments. basis prior timing. year. the uneven actions, in up a to than restructuring in was productivity Segment Strong be volume due year growth rates this favorable points

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

be continues of in strong. XXX% very call will equivalents. back $X.X EBITDA flow at expectations I'll to be mature debt third over in our and Pease sheet X X.X with the the the cash cash quarter, quarter. conversion In We in closed to billion turn and times to the with $XXX historical the quarter to paid senior Free notes Net quarter with Patrick. line the end leverage turn patterns. and cash. cash seasonality balance Our of was was to million Slide

Patrick Decker

want I briefly. three Sandy. on to touch areas Thanks

quarter, in and EBITDA excellent sustainability. platforms on did growth sequential points XXX delivering job the improvement. inflation of to in basis We impact. quarter addition in to Our margins we're and I operating noted Earlier, operating our do second our and year-on-year, expansion team discipline, through the On an discipline, anticipate component supply extremely mitigate ability our backlogs. some half, manage to the their in confident but them margin healthy challenges

making on the As manage doing create. the we've working sure volumes, worked a we great these this team pressure job, through capital is can

we've spiking fact, year-over-year working capital quarter demand, and serving improved In sequentially. despite both

of significant of cash As firmly capacity to attractive clearly capital pipeline active deliver We our that On M&A on flow investment and top commitment us track have we strong opportunities. organic Sandy options, an growth free mentioned, performance puts have on deployment. for just conversion. attractive

refrain growth I at to in highlighted today. of September, to however. going Last we pace be we'll quarter, detail things, are the from an in want so to markets. Day Investor area emerging growth I'm much draw too Our attention our here platforms two do into delving

safe, the to team's COVID operations terms how draw own events become in proud apparent. we've line Despite that And to the entire recently all between in an of both and trend drought West. reflect more communities help our India's flooding take and and trend countries COVID, in more to of around water keep to I change as our and serve quarter we've the the I'm Europe, very dramatic our climate I communities. which mean support want effects discipline in moment requires world, acceleration to and pace water-centric portfolio response by affordable leaned affected American has a hard Central customers secure. also also that quarter, of the the These Xylem connecting a and a resilient, and Asia This some through events due China, impact compassionate seeing there. of by continued. and been response the in

in specific technologies to these portfolio continue respond in our we So to challenges. invest that

communities. flooding most And billion flooding. technologies our overflows prevent we network Its like continue customer job is in meters technologies is drought, automated are of make water and cubic As advanced from preventing the communities manage digital that solutions. our an to deployments more Similarly, example, X.X wastewater amongst optimization of Already report, detection, already which leak smart also broadly. come gallons recycled innovate to to especially which And annual-sustainability technology, and to for from what the some just reuse. published June. Xylem X metering more think topic being they I using sustainability our we've said I water are brings in bear of time. numbers water we quoted me The trillion out resilient

our renewable gas year-over-year. strategy sustainability on than our more energy, to now fundamental report, greenhouse our XXX% major by pleased half business strategy. to Our almost that intensity reduce We X% facilities for were are of example, helping emissions is operating

year. by own and are a enabled sustainability embedded in XXX,XXX Beyond solutions all emissions shows report carbon deeply our details signature how The to our progress sustainability as company. our reduce last goals have footprint, our metric on is we tons customers of who their

on guidance end hand that, commentary Now our of year. over Sandy remainder to and the for I'll back it markets to with the provide

Sandy Rowland

Thanks, Patrick.

with faster from even outlook digits. are continues evolution of for affirming Our full-year utilities, recovery. strong markets consistent with largely markets mid-to-high our some as wastewater clean few remains demand a In and our our single quarter to last be end end positive water, view both in growth showing anticipated

COVID also while scale outlook we Western markets. in Europe side, operators have concerns from Bid and America in capital wastewater linger seen upgrades capital in North focus as demand on to mission-critical the continue emerging investing certain markets. and funding solid, remains applications in markets some larger long-term affordable on steady activity though On spending

the digital some robust utilities to raises other clean to resilient demand more solutions of continues turn On companies, our risk delivery. prolonged focus connected increasingly and the affordable water Consistent water and constraints in for water infrastructure be side, chain second as components. for their nature with technology electronic given half, smart the supply offerings solutions

Slide to manufacturing and Please Our suppliers our to turn teams are optimize deliveries. with XX. working partners closely

Looking anticipated for single we with broad-based across in growth the at had is expected industrial digits. also seeing We're The demand, and and industrial and rebounding end activity business the industrial market, growing the upticks where marine now year, dewatering regions. growth high mid-single seeing we beverage, segments sector. digits recreation are all emerging and food hospitality recovery in demand higher by our driven in in particularly in markets. in We're the outdoor

We as The at in well. is are U.S. business commercial increasing pace. outlook first growing end a our market the replacement

residential, single up Europe New you full the to gains through In growth. commercial previously. With resiliency, expected previous modest recovery somewhat, to and of optimism digits, updated more growth largely indicators XXXX building and second the the high from Slide sustained our in to low modestly digits expect low up the let's to our China along market the growth institutional now low supply the anticipate half, turn for now is commercial We year-over-year through end teens double-digit half, due comparisons. and will lag XX, for walk leading year, but moderate be mid-to-high now growth in to from late I'll share a guidance. sector. through Western key single-digit the And reflect we expect second recovery we expectations do single with up difficult chain

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

This revenue of combined in to to is demand pricing previous now down as recovery, the For This to segment actions we inflation. Xylem from with taking clear breaks offset range by X%, full guidance organic on overall, based guidance the see up are revenue year growth of X%. our X% range we follows. X% confidence

from For previous we digits. expect water infrastructure, mid-single-digit a single growth of expectation mid-to-high

growth mid-to-high applied from we double-digit low And in up measurement expect digits. expect solutions, single growth. water, mid-single-digit & in We control

XX.X% performance represents with basis the to as well the expect XXX XXX of margin This expansion growth. basis top That's points of points first-half took a guidance line full-year We actions leverage from EBITDA at last grounded in as late also volume midpoint. the range restructuring on savings margins in expansion of XX.X%. strong we year, from

price The by third quarter driven challenging, timing primarily inflation of the realization. is more and

an work the range the However, midpoint quarter we managing the quarters. EPS increase confidence our through guidance the will several year. into through EPS This of strong price in $X.XX over fourth to $X.XX, large compared at expect challenges. of half reflecting increase end the last last reflects as increased range realization Overall, supply still second-half inflation margins to the built range we chain in lift of backlog ability first yields and while to adjusted year. the now over bottom That XX% a guidance the

XXX%. previously flow as We continue cash XXXX average free of expect guided, full-year conversion our putting to to XX% right around XX% three-year

of have original are other We guidance. you assumptions a our models. provided number supplement full-year to with assumptions unchanged your from Those largely

our the year. noting our the on Because worth item the the for our assumption of for conversion the a of euro with second change, dollar had movements and half assumption disproportionate the negative to second-half one other outlook. impact it However, has X.XX along updated dip half is our on This recent from to on effect euro foreign $X.XX second updated we've exchange X.XX. rate some results, in currency

share realize making from foreign foreign million, to restructuring exchange XX now an organic savings let will growth We revenues our we've XX to appendix. XX while high know, anticipate mid-single-digit X%. are realignment Also, includes our due table typical expecting restructuring to single-digit and water, we so sensitivity low in some XX actions. range included And and you applied the growth This our grow to can water the similar before to third-quarter on of million exchange X% volatile, thoughts single-digit M&CS. company As million still in to growth be of wrapping to guidance attrition adjustment natural million total up, infrastructure, in in me in outlook. now the timing and high

margin We third-quarter strong XX.X% quarter. XX.X%, of in largely to line adjusted-EBITDA our the in to range expect with be second

them we call and And addressing Slide to supply turn to the present are XX, previously please component the chain actions comments. supply pricing with turn quarter, some closing for back to over third some While inflation in I'll that, the with Patrick headwinds mentioned. are likely and and

Patrick Decker

doing outstanding and team The orders exceptional Sandy. us capturing giving Thanks, backlog demand, has an job been market growth.

challenges discipline We underlying expect the to will external capitalizing they've the continue many that on the manage environment near-term demand. spirit same year. team through through and the And chain the past with of supply demonstrated

affordability Looking forward, to change do more resilience, hand-in-hand our only and value it and and resilient our will and in accelerating climate way. capital the more increased stakeholders long drive Those of a create over communities and leading margins, of and trends scarcity, that are privileged for This particularly reinforce sustainable both thesis, our modernization strong growth and demand affordable addressing increased position us economic trends in cash technologies, revenue generation in deployment. with medium new to portfolio differentiated and now in growth to social of term. investment the with a infrastructure puts and opportunity toward for make investment the to infrastructure flow strength

opportunity update past who and We us of will is for our the our those Investor plans September are team, scheduled you joined at XX. Day, business leadership many of for year. excited and senior entire on which meet our about an long-term upcoming strategy be our genuinely leaders to providing the It over all first especially

technologies. who've invitations financial our most how and and in team customers those are and deployed to with into of details the advanced will our provide coming of logistical follow outcomes discussions with few the dive days. some of including solutions digital Matt a up a So a our it's great a our transforming deep vision chance including update, targets, customers, full-strategic long-term for

Now you happy over let's have. are may turn to the questions take call and any to you

So operator?

Operator

Halloran first [Operator from question Instructions] comes Baird. Your line of Michael the with

Michael Halloran

everyone. Hey, good morning,

Patrick Decker

are Mike. doing? Hey, you How

Sandy Rowland

Mike. Hi,

Michael Halloran

you. good. Thank all I'm

So on here. two M&CS questions

First, an maybe move underlying you perspective just see that sequential orders, how How accelerating things backlog now from Obviously, see really But terms chain et on out really you commentary or in of that really of a in shortages, next terms underlying like. in access, in little conversion site rollout also playing do deeper that. availability, that a of supply what can terms demand, cetera, looks the dive start nice playing out? right like on the cadence, have ramp challenges, good when again? you

Patrick Decker

Yes, Great sure. Thanks, Mike. question.

So XX% yes, in backlog specifically growth about the was M&CS quarter. this in past

team not be to that's up all sector, around really really well see some well. also and we doing as good the feel uptick. Really commitments We're the the sectors wouldn't number encouraged component direction. right Where there say is a for over So we making of that the to everything team have wins there, paying seeing in completely over. large-deal a in whether but that. limited of team the but it quite we're as lock But that site all know, eased. shortages. now, certainly And We broader certainly all the the we components, they're kind the sure day-to-day quarter, momentum is trending has by – good of can, that base business, access hard just issues nicely grew there. not and resolved, really the you in which they're some business the I mitigate the but just is is not out primary our challenge really, working us. achieved across That right

converting into turning and very Again, the we XXXX especially that that. that, We it's at we're They're is of about terms feel year. good and very It good real. can and they've not about we're beyond. look just like through really feel achieved shortages, very but in not And challenges – as second confident what margin does for corner work the very go So aside things the already into insignificant, backlog, we feel part around XXXX the in in are this component nice shaping up half backlog. those of momentum. business our we

Michael Halloran

margin you the about more deeper. answer, the versus of oriented how you a there you're backlog, given in that's little and but So tracking versus on bit how as the comfort solutions is marketplace, pieces? little all on some it newer the in the moving approach dig level out touched thoughts the a tracking the more just you putting well the also talk traditional. in broader Could mix And think just backlog of digitally

Patrick Decker

take into QX in Sure. we're margin Yes. we're I on cetera. one we me about backlog, shortages, second et XXXX again, the on QX we're our let challenge and got holding confident own think beyond. as The this on we've And first. through go and component Again, the there. – the But working near-term

increased mix, to relates adoption in that, even doing, we metrology deals of continue the an digital. that to it of that these see large is real As component there – a ever-going we're is

which we're really encouraged a call digital is Vue, on so that. kind And that of purely And to we diagnostic number Xylem data-driven branding see the very impressive of capabilities. the continue by we wins

And very we're as But shifting definitely digital in component. that there's mix encouraged so a well. the toward area

Michael Halloran

for Patrick. you the Thank Great. time

Patrick Decker

share and you Investor We'll all. on for kind have to of we'll that unpack unbundle that at that Day our more upcoming

Michael Halloran

it. Appreciate lot a of sense. Makes

Patrick Decker

Thank you.

Operator

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

Deane Dray

Thank you. Good morning, everyone.

Patrick Decker

you Good Deane. are doing? morning, How

Sandy Rowland

Deane. Good morning,

Deane Dray

Hey. Doing Thanks. well. real

left on margin you up how did are you Just on then like to company? play to there in half upon we cost were like price this the where expecting for get the second the And success. And Thanks. managing for out? expectation a second looks chain. price quarter, We pick through what's it total your increases some supply off the that based

Sandy Rowland

Deane. Yes. for Thanks question, the

how managed in with half that continue happy expect of throughout dynamics ramp able we very through the through that, we're year. will We some first QX. incremental were to And do we've the year. inflation the price realize the that think I to

taken price with third rise up first because increase the quarter the We price Just commodity in of increase price as a for increases. early we're We've prices. of a continuous the our in to year. reminder, then gate got on that out now two decision additional take the the

there little that dynamic I any unique than typically of period one higher time. at through. is backlogs are given The think a we're find we working

And issue. the I doing continue will a timing realizations, a here, a think job ramp, bit But quarter. to little there's in fourth so it particularly we're of net-net, good the and

Patrick Decker

Yes. And as I say would big challenging so said, Deane, QX that, really because backlog. this did just in offer Sandy we now we right frame time yes, have bump in is most the

again we're that as And price back the out. comes we'll realization complete in especially really have so increases. so we net And that's But with QX, exit, – look shipping in we out We further moved now – there again. there. once But commodities that all at equilibrium. that as is gone point go know, positive quickly we are that especially we've – and into price you out at

Deane Dray

Great.

you Just the partial you put gave have that to don't component. have MC&S, well. ask a quick Sensus question their in you smart anticipating can as a clarification. were And, component, precise, but doesn't is especially It number how of know that And earlier meter was the going until the be these and to a this digital answer Patrick, orders I digital I part can of much you include orders, just broadly? if

Patrick Decker

bit think at more really that digital I'll Deane, – Day. baseline is give what framework is We And are. Investor and we and absolutely. in I Deane what a we to think, I that how this absolutely an trend to answer. think And to line want lay about kind and Yes. what as to that and you want that kind of delve our tied metrics of No, incentives out

to had, to in roughly the $XXX to digital perspective, we've put wins. XX more had has significant But come in at that So it. Investor large-deal had a just much last million component Day. we've months, it in And

just there Vue, one be of projects you we've really the the the that which we are at sense kind is, number business Xylem Investor and side that of And call with kind Day. what won proof that purely a so And interesting then diagnostic gives we'll of, deals of consultative again, of again, highlighting point.

September a want more give side hopefully, that very very, gives There's the here adoption excited meaningful color flavor of of about it. cover XX. to that that we'll So digital on that. a appropriate But of bit on we a you to. the We're real

Deane Dray

for wait And Of on going until those to on tempering water for the then the last me to mid-single course, happy guidance top infrastructure, one just specifics. just line digit.

what the are And Just headwinds? you calibrate key would how those?

Sandy Rowland

Yes.

it's think shift. modest I a

increase. took think the water – about infrastructure of did up. the we a guided I initially in the up we to quarter, the at first take end first guide X% We that

I think largely we're same very close in unchanged. the spot. It's

Patrick Decker

Yes.

think in second of But any we'd that the any We're nothing geographies, of is prudent. standpoint there's wouldn't there's mid-single-digit expect. confident. shipments. spending U.S. some – view from of delivery We I very kind that last segment. also shift or guide in happening trying versus some because the kind much in there, half. It We're or that in prudent market cuts impressive discussion for seeing into and of infrastructure across pretty not our the a of terms Deane, slowdown to growth I to project comps healthy read as that. just that very be continues timing Deane. be is changing we're rate anything year. just some had I And mean, that on again, of it's be trying to

Deane Dray

That's real Thank helpful. you.

Patrick Decker

you. Thank

Operator

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

Ryan Connors

wanted not if dead there. beat chain issues. on the Hey, questions. to down I drill – my thanks But you supply the horse to for to taking just want

it components talked of saying peer some sort so not really about of revenue Some and tough to have get because of foregone like companies the sounds sort you're things. that. it's But

if take mentioned, the for to characterization it's to shift more half. be side the margin to of what components. is on your a a get on in the Patrick, you're hasn't a table or you sounds in or You revenue headwind really fair have past case, leaving like to up business it of it willing either it second and Is And been not? And – and paying the business business. hearing it in the I'm the able that

Patrick Decker

to No, give to team I a that's time. trying half that second I into mean, And is But at remiss guarantee. shout of $XX the the overcome I'd to be put an at some now, right point with of this if this. huge out revenue Obviously, least insignificant that's healthy mean year I challenge just margins. not they're comes out Ryan. Obviously, fair, estimate of around any challenging. it's the in we've roughly through probably million never kind again, parameters this moved didn't we because that it there's of working XXXX.

so And a would that risk. at probably the weren't this time. about in we And are talking But without that's for to reality not through that, it's our point it if be adjustment guide. we working further

our working So regard. business. off are swap feel And are Yes, pretty to we're all revenue a this because losing same out we hard standpoint teams the that from their suppliers. sticky we backsides don't that It's competitive a is in facing challenges.

color So helpful. characterization, a that's was be Ryan. right the Hopefully, can bit extra little

Ryan Connors

pricing with pricing given as at to Yes, it us always certainly the was. And value that, things, trade well all then salespeople to as the about as a events of to as your corporate access and that talk all you've commodities. you, level, follow-on opposed for for

certain commodities? like discussion very the it in to pricing you you a like price things than weird seems just this where down value? of if how handle environment you're different de-escalators do for to for go mean, mean, sort suddenly future? do around have I So I normally build having you in

Patrick Decker

again, And achieve Ryan. teams terms here primarily on their to back for we're I are really continuing Yes. again, outcomes pricing them that, goals. achieve tying – remain customer mean value. that No, to, the helping looking the you're are to what right, absolutely of focused in we

And were so getting think, kinds surcharges. we value. environments, these I at are in pricing interesting would of not I doing say really better, for we

to not it out it's putting like we're dial we there So back where it have later.

interesting pricing It challenges tariffs be regard. that we ago, to the we all And same so the that talking overcome. about in the we're we this. dealt also that to other time, had with and trying disciplined were wasn't At long

work environment. want very what deal incredible very the far. again, and accomplished this pleased teams are So to I of to doing thus with the I'm hard don't they've But proud pricing minimize

Ryan Connors

And two-question did didn't Good. I a have Okay. last one hear restrictions. I then one.

in not but… over I'm hopefully, So here,

Patrick Decker

Ryan. restrictions, Two-question

Ryan Connors

fine. I'll in hop That's later. back

Sandy Rowland

No. Go ahead, Ryan.

Ryan Connors

Okay.

very a sitting picture. at But high. all-time is just Just an stock obviously, big

great a got weird You've kind valuation seen currency. this gap And we've develop. of

ESG, You've do others around great not. to tell maybe got a story

of So your opened arbitrage how there that currency to by gap has thought strategy that this mean, capital? where that I And been influences use huge you raise to up. kind valuation something M&A a smaller any seem mean some you ESG is of – row that practices their ducks have these who don't on thought has be bring best of I about? that there? to in companies some your and

Patrick Decker

different in it of are absolutely believe really component, back that that pipeline attractive. way important leverage But is very returns great are I that again, still it's I to we making that and there strategic to Obviously, right are disciplined if it's that attractive recurring going active. assets are a There's We It's we around things sure are strategic really there a the growth, way around mean, currency in sure very there making we it's go actionable in revenue theme margins services capital Ryan. a is Absolutely, component be kind point. the believe after believe and around fit. and right accretive. to bring accretive, the a good very are is using on it shapes would center that our – deployment, sizes. of technology

fundamentals the stock a to And it's in a as the do for our not – very the what ESG I operating disciplined like and business. made. and in believe those don't around company. team of open are processes. is using do we stand-alone on we that is I of making deeply entire into And kind I'm that that sustainability change. very point something just thing. done your broader It's you So sure has integrated way. currency, as here that us what It's much question proud But a our some again,

tied we other into portfolio. around think bring that incentives area is companies the have synergy that we that, And look of as We could it. do I at an

point in part, a your very I So think Ryan. good

Ryan Connors

in. Very well. me thanks Thanks. And one that letting squeeze for

Patrick Decker

you. Sure. Thank

Operator

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

Connor Lynagh

representative the ordering? to that this do curious think much across demand appreciate is difficult I In segments Yes. but bottlenecks you anticipating obviously words, sense? just I look wanted impressive. a you're this of other I'm from to all pretty their seeing to very quantify, I'm orders, trends underlying Or chain behavior very supply own? – strong which would Thanks. suggest that are probably in are seeing return and is they curious true over of you if customers

Sandy Rowland

Yes. the for question. Thanks

all, on of think, I seeing front. orders first great the we are momentum

is very coming And do sustainable a so that back believe we in demand way.

in is from you and demand little an call. the components XX% and little think XX% particular, are by announced, at break M&CS acceleration think our or it's not I get in bit I ahead most and we probably published, deviation a to if over and up really segments, longer a pricing quarter on that historical shift timing. that look But AWS we're seeing in the M&CS, about seeing some When down the flow in actions we've infrastructure, AWS we try or think that times bit, importantly, customers supply we're you water order there true whether in it we've I lead chain the natural where line in extensively talked incremental of returning.

order buying second into us for we All forward think the XXXX not only well of certainly the we that about, it momentum year, have half combination really but and impacting that is some excited But – positions is and as the of look I we of behaviors. beyond. think we're the in

Connor Lynagh

color. Yes. you. Thank That's helpful

seen where down guidance, is issue? strong the regions just curious contrast Just it that temporary specific a revise supply more that? on And how seem of with driving the loan to infrastructure underlying chain more the just or you Is little significant that the year-to-date? are I that projects water you guess you've area I'm bit. ordering specific activity if there's that? a would Or is view something there

Sandy Rowland

as that pushed momentum be gotten it's good dewatering, second good to that out orders of continues have we seeing bit and of guide. we the treatment is U.S. through – out, rest and have QX that tighten in the move the some orders fundamentally, plays strong. just treatment. but We we're think in that the orders little some transport half, little But momentum into minor. seeing to I think range had a a did got I pushed bit – we in in try We're

we the So gives there's just I And little nothing as there half. any that the second from an it concern. order as a perspective bit tightening move into us we're view range

Connor Lynagh

sense. I'll turn back. Thanks. Make it

Operator

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

Nathan Jones

morning, Good everyone.

Patrick Decker

Nate. Hey, morning, good

Nathan Jones

follow-up question MCS a order there. fantastic record, I guys all-time had so a account that rates. for Obviously, little bit on you stuff I the differently. know

entire stick that backlog order don't you POs project have order. to when say you into You a the XX-year hand an it the book to as need for in actually

are now? projects you previously Or they of projects that can driving for what's that? orders talk won? about just So that had winning ramp-up it here the new you you're Is

Sandy Rowland

I Nate. question, So great think

you've think the got understood. flow I well

get to come into the tend rate large are backlog. see now of that is easing. for pop that something start the that from our metrology awards see bring in And closer customers. to we in starting the I us And real into think phase, access because some large to to to we large we And The that our first deployments. restrictions we're of into site are orders around as order some step the seeing convert orders, backlog we a orders brought rollout

I of also what it just some before. And answered is

to some backlog are component indicator means and I to in are But the shortages. basis. sooner get that start the it's of think to is some orders We in leading – starting will of get into seeing of a line short-term the a customers that to convert revenue trying in front more

Patrick Decker

flow add, that I margin, forth. really high our But team I the a really has and it's to in your that question I been our too we been shout out performing And Nate, would earlier. M&CS reaction get And within mean a do to out It's order want business. specifically really well. growth on not very didn't so manages call showing much business to strength. and robust they've analytics and

So there. very aggregate, that's proud And numbers it in it's but move rich in is doesn't margin. of what very – doing team dramatically the I'm the the

Nathan Jones

mean, if looking the you But can out Great. anyway. a follow-up talent or might talent And heads one you you're to were need or those on whether about expense obviously, take I all any base? some attrition another? high-natural that talk about restructuring at there losing I question the steps not for had reason take to comment. worried protect and you you're high-natural attrition of to

Patrick Decker

I right of talent. pandemic world, on challenges, challenge. just primary But feel the I areas It's for wide question. our like only and chain focused I around areas are of I in again, everyone team primary there say not the hard impact continuing labor is I we right critical managing flexible a point has a very a now. landscape which, competitive challenge. that is management at purpose some lot. at shortages again, the been the mean to a not we speaking. But Yes, some an supply would dislocation something our labor shortage, very one Nate. and we of the also very look our component retention. are working retaining a this focused software and a that mean is It's say another on variety great challenge broadly it's can it through our and indirect we is, shortage, now in areas further is compelling would as attrition, drive It some think headache. is two, – are worry mission is on that and We about some retaining company occurring that engineers, I Obviously, cases, time. attracting it.

essential it's built any we're is talent so here to we're through incremental so as the that how are we that's terms that. of what to going work that very just to in to being so, outlook, And trying very but thoughtful cost we something to continue stay of close because into our accomplish. We

Nathan Jones

Great. my questions. Thanks much very for taking

Patrick Decker

Thank you.

Operator

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

Scott Graham

question. Hey, my Thanks good for taking morning.

Patrick Decker

Hey Scott.

Matt Latino

Scott. Hey

Sandy Rowland

Scott. morning Good

Scott Graham

offer can for So, Did it. us it, what a hear if couple number single – I things of point was? you didn't said you you pricing

Sandy Rowland

Yes, in quarter. XX about it's the basis points

Scott Graham

pricing end looks like to that like negative. Okay. occurred segments, the was in the Water that it true? and it And infrastructure Is pricing M&CS Applied and looks then water

Sandy Rowland

the M&CS, the In infrastructure where within a bit our with And pricing flattish. into price and it's some increases did our of terms contract water we greatest commodity of see that in tied we're little customer. is AWS, benefit which more hit did seeing see then And rapidly. realization that's most we

– to note upcoming do benefits you're as think important we in expect going each of to that and through going see to is see our what's we're move pricing that number calls. I incremental the year, we rise

Patrick Decker

or commodity inflation Yes, different aspect so, has in response her I and add mix. was, the each just is consistently of this It of thing our not to us Scott in business. other we saw issue equally think really I'd touched Sandy on you a is hit

dealing on driven only our with views inflation. so not value, is commodity selling pricing our but by And obviously

it saw earlier was cycle given that our and of on of saying in because infrastructure. water the shortages not not just more nature of Applied issue Water of component M&Cs. some we an other in business and the So, shorter things I'm

me of But impacts otherwise But run the we the it’s each would inflation within say those about when just rate they've it hearing good also. would not with timing us. team be segments. the commodity Our felt happy dealt of hit

Scott Graham

have going to Yes. doubt the I price better. get no Well, is

would that just slide X, water in I'm water infrastructure one from quick on – clear. mix Slide infrastructure, for to follow-up. have that second, then the more negative imply right? made have a stay guys You then It wanting on was I

Patrick Decker

That's right.

more great – channels So, pumps rich sale margin side, us did is. which rental into have how of the see. in higher Scott, it see rental was side we our watering just incremental have with to which than It growth, we return was was the would for that about to driven

lot we in rental, industrial serve sector. in we sales here. back it really of where little of the bit we mining was to have mix some particularly rental seen of emerging the return, as the were the markets So, start but where it the the to just And in opposed side, you it seeing was the come of and a a pump saw areas saw you

that that's as I North markets that see something other and could the think – areas particularly we half, something in America be in the construction going. second get

Sandy Rowland

Yes.

think it at well quarter move quarter infrastructure, from the were think water recognize if uptick they as we I you if at look look important one we in thing see is first that you on to the we to front. sequentially, that did second margins an positioned And quarter.

Scott Graham

then the the with And you is based guide. my your half, of but is strong Okay. margins this you, last second Sandy, on flattish you question in expecting I construct think, said are

I strong, happy You your the with half are second right? that but pulling them flat, you margins, they essentially be guide think implies would

Sandy Rowland

Yes.

guide consistent year-over-year a if shaping we the not And think think much the is from close we are with I very quarters margins perspective. And to higher QX. our look look realized look what margins in the as it second about QX, we very to same If revenue then expect those very to the you we year. in They're And in similar. half, half, improvement actually in fourth for half half. QX of up second expect I guide do two first in size the quarter. the year. So, But that's uptick our second

a We expansion to realized basis first think I strong half. the the And out come margin from of we’ve XXX expansion perspective. in margin about gate points it expect of

look I realized year. that we've year tailwind. And investments. and also in into second been second half Last first we the the those savings had we that came how we the As same about very half of we the purposeful have phased we half, of think the most of restructuring our in don't And year.

year. the in those phasing purposely were of we the second half So,

And are our I than the is initial ramp those think start will we And in higher some those incorporated bit of the then pieces. little of just And investments half. second up into all what had a to course, guide. initially inflation

Patrick Decker

is think thing the the would in I our the probably I is add I margins that, how Scott important most Yes, think, only see backlog. is thing we read-through

looks looking here. very pricing, We et taking at sound, very mix, are The encouraging, backlogs the very consideration, a margin cetera. high

it in and investments sets our do. would do, half it we as well Sandy second purposeful even mean, into but beyond. phase always XXXX up we for how expect you I So, the some we were those making here to we said, outlook. And more in are for as

Scott Graham

margins you margins the mean first of are that was you clarity. the gross versus That the margin? backlog first Sandy, you for – in do all, Patrick, half mean up do that thank great. the in Patrick,

Patrick Decker

continue to accretive coming What I'm the saying be is backlog. to continue to margins will

Scott Graham

Thank you. it. Got

Patrick Decker

Thank you.

Operator

Your from of the Buscaglia Andrew comes next with line question Berenberg.

Andrew Buscaglia

Good morning guys.

Sandy Rowland

morning. Good

Andrew Buscaglia

year-to-date. emerging other were in issues some things. site – some year End similar some things so things of pretty you movement talking mentioned you experiencing going last your guys and positive markets. But of seemed are around access sound some I And okay peers like wonder, broadly, they far, are

there think a some you're pause of do think before we puts about lag maybe seeing? countries of see some vaccinated, less are you there Do might to in what be you that? a what start So, just that these

Patrick Decker

Sure, yes.

So, I mean, you're absolute, right.

very global a are business. We

demand. seen any the this not And but pandemic variant, just monitor we recent change very overall meaningful of And we've issue closely. most in customer so, not whole the

we’re safe, our to I from done last customers’ most around the others the performing respect our of believe emerging team Eastern growth but As well. the in we variant it's take obviously, to quarter continue sharp year half despite teams there, very and mean, we work all notably, a are mean, own saw in a our to collectively. this. the and India strong disciplined quarter saw I we proud on. the first markets in now, deceleration the in Really, because Europe hard are still very has of protocols. But extremely China, that Delta and first very, that result very very I'm keep of of to people And get-go. precautions year, China

the close meaningful as now haven't but of keeping seen a variant. again we're Delta impact on eye, So, really any

Andrew Buscaglia

Interesting. Yes.

make front? move And definitely on an Okay. just that just guys like then what's for with probably active in like M&A. year to. to been a you position you're seems you'd if it's a I'm wondering latest It strong the

any So, update great? sort be of would there

Patrick Decker

Yes.

again, to attractive always And pipeline combination for very are it active a what So, bring if pipeline. I and we the is M&A. – solving we with it's back again,

we about by we pipeline industrial. And in look at We first technology past bolt-ons around, terms it continue. and that so, of technology of in on very to by half there. look standpoint. do I’d side to you look talked know. it and we will in and and an continues second continue we encouraged trying offering the active end then utility a from our I interested certainly, markets onward, very to standpoint a of will And at that were we out pipeline lot for say we at from out application what got look we've we're at feel offerings in tuck-ins this customers. and the and and utility what see a in kind Certainly, it be And build year the there something

two takes always As I say, it tango. to

other at. And look commercial screen so, but are certainly then of there when mean lag keep I verticals, in happen, radar cultivate control we a we to those resi can't we our that things the and these timing opportunities. on continue And

continue continue And there larger on remain continue the good see pipeline. time. we'll some feel you here do things the we will and on We're disciplined over the to cultivate some So, to opportunities front, we'll valuation. about to to that bolt going on of

As using as questions, stock our we currency the where certainly a sense. makes to I of are one open other to mentioned it earlier

that do. that not enabler to will So when be and it's if an a makes disabler, sense

Andrew Buscaglia

Got it. Thank you.

Patrick Decker

Thanks Andrew.

Operator

comes from Cowen. Giordano next Your with line the of question Joe Instructions] [Operator

Joe Giordano

Hey guys, good morning.

Patrick Decker

Joe morning. good Hey

Sandy Rowland

Good morning Joe.

Joe Giordano

hearing kind with and, orders you just getting now customers like little risk released doing issue on back said How huh? opening right. it's of question, walked of a actually margin, earlier, you this that like? So access, you of up. that the bit All Yes, by you touched are course, just being Okay. site on the with because one Delta, back internally are but in your and of like requirements, having like so

Patrick Decker

I when mean, we'd Yes. seen closely, my I we're meaningful we've comment, it's monitoring rather No, this definitely not something Joe. far, impact. say,

course it yet are the into of granted. half. here for don't of in all just, think remind it us do it over and year this plans and haven't our well. with to dealing all a in as we we are this right, team. absolutely very a But seen are You're build And And is certainly the again this we I we've contingency too leadership we that we weathered last experience obviously point I'm Unfortunately, of take on at we top we time. much And vigilant. saying had being thinking

the we in projects going when how dramatically. is, But each and you've really that's Joe I being that To on to probably it respecting time. kind impact that. deals and I deal all masking, wishes think, seen deal say of think we've to this again, one other all all change to get vaccinations the executed standpoint, And without own would from very certainly now, these implemented operations. negotiate your We point our front of these I actually open don't the, of customers. a the necessary do yes, own are doing we within the continue our of we've within elsewhere, at team, is. and not we heard that eyes of something to again, any gets has flow for are But and keep encouraging our wide least learned as safety our much maintain face protocols installed,

Joe Giordano

Thanks.

Patrick Decker

you. Thank

Operator

Thank you.

Melius Your Jake next Research. question of line with the from Levinson comes

Jake Levinson

everyone. Good morning,

Patrick Decker

Good morning, Jake.

Jake Levinson

upcycle. had Just about I improve the capital that well, levels these of having mean, I in at your pretty – we're it's working middle unusual think, talking an

the is not you saying driving parse supply initiatives it there be chain that. lean we're helpful? just can for certainly the it is what's maybe can it any manufacturing, really is color So first restructuring, quarter provide would us that you But really

Sandy Rowland

Yes. Thanks for question. the

And is team closely our of I ball their all it's keeping year. monitor KPIs work, good that very that's the working throughout of capital. I one on really, capital. really the eye key of doing it's think And working we think aspects the

our collections down driving due. a job So, really the team, doing past and is credit good

good So, results we're seeing there.

chain And our building in, plan had On the the the little is inventory. inventory some built that front, as we now a manage it's we'd soon inventory into carry right actually And are like to supply actually more getting challenges. through supply us door with going a little up bit of meet that's giving as of some to suppliers of back adoption to But we we seeing us reality more some onboarding thing. financing an our active that advantage good demand, a chain good out take ratings. is into have the And our benefits. which program helps we're strong that credit And program.

to it So, of through it's really the continue to rest drive year. across the board. the And we're going

Jake Levinson

I'll on. it And appreciate I the pass Thanks, Sandy. color.

Patrick Decker

Jake. Thanks,

Operator

Andrew line [Indiscernible] open. is your

Unidentified Analyst

afternoon. good Hi, Yes.

are How you it's think afternoon I the guys? now.

Patrick Decker

[Indiscernible]

Unidentified Analyst

color a terms commercial now it levels, seems think is residential decently that's more give strength. be your quite know revenue business? segment us bit smaller only least quarterly than into you I basis. residential above I in at water to Can of of on your pre-pandemic a applied driving

So that? for And how recovery, your changed is like U.S. the regarding sustainable positive. seem in does commentary in then commercial has significantly the it commercial, especially

are seeing So, there? what you

Patrick Decker

Sure.

would of the take predominantly ask reopening me and question. repeat a business. faster is let water, GDP. it seeing second amount what of your than now of we're – I fair we're everybody that obviously you to kind grow mean, can confident then I'll GDP I applied part So, outperform may that that we But I and activity. right a the On is remind piece, first

there. business. so, Obviously, a it's up And catch short some cycle

gone good the in So, there with I say business development pleased feel there things is refresh no that do about as increasing about in been would one to the there, made number the we some lines. product pool successive of very we've out team has new buying an we're also price product doubt. increases that has some But in of investments momentum.

But scale. we're previous as continue a that really it's we're example. seeing global the again, like make so, energy things going investments impact to now of And success downturns, I and and one rebound think we're those that efficiency on from to on focused a right that seeing similar

So, second explain feel immediate again, But continue good to it's it, what expect stronger to the XXXX. about is. and this I sustainable. through half would term year And think, that that of really here we again, in the into that demand

Unidentified Analyst

here. we're positive commercial Yes, your changed the the over part the Patrick, seem was second specifically specifically. last virus. anything or commentary more business your was turned Obviously, quarter I I does has – that's in the all worried of around mean, just like about two? it question But

Patrick Decker

Thank okay. Yes, that's you.

the at and U.S. which book them XXXX. is do new is to took commercial through in soft expect business, our I if very bit solid And ship, replacement So, we our there. first a building be

is here, growth So driving really it that's really piece. a not replacement our

again, tied of also that heard infrastructure of some we we're eco-friendly it's share as about healthy that resilience spend, kind And that growth when And improve the like really ahead impending get are of That's of of talk on coming about Europe the actually institutional efficiency drives, to of peers. sector play talk supply we we before, products had being in in commercial, et non-res. as based from again, And first the our things our further versus to come regulations we You terms trying we just the outlook focusing digit quarter. discussions whole energy where new a modest forward. think much so cetera. that the improving. believe some not activity smart is double launches us games launched, upon have the like well will in seen We've chain product some of pure say commercial, may

Unidentified Analyst

Thanks, Patrick.

Patrick Decker

Thank you.

Operator

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

Pavel Molchanov

question. the taking for Thanks

solutions? looks an like software sector about give the will update Can of Just business. digitization, one you demand the your on virtualization terms M&C software utility be picture vis-à-vis of what in from in

Patrick Decker

where certainly, conversion is see And in the this dimensionalize there. real we with the the being kind And what numbers the But importantly markets of Day U.S. around a seeing see that encouraged more that specifics we is pace is utilities by we'll well. phenomenon, it and to Yes, not most adoption – Europe within that hard we think about around specifically. Investor and of at tied it's talk kind to affordability. I in only really as we're emerging are

converting pay traction our really always how in to smarter been the infrastructure, outlay getting talking they're scarcity, which pilots them. are utility of these be it that most front immediate comes now the we're looking most deal infrastructure, year traction So, that's like of reducing some revenues. things we Those for building in to about we're revenue whether right is water or now initial dialogue. are whether And we've customers around water them going it to now challenges losses again, right we're be last the really because down seeing that areas those And for capital where as generation sustainable more around that with seeing it into it. resilient equity, is of reducing

in adoption it about faster. more to We'll talk was that even interest, the Investor absolutely have absolutely Day. So wish

Pavel Molchanov

Thank you very much.

Patrick Decker

you. Thank

Operator

I to the there like closing are no questions. or for Decker any turn remarks. Mr. additional time further to this At would floor

Patrick Decker

We Meanwhile, you and Well, of Investor safe, you stay Matt all details on best. thank wish September soon. will to thanks mentioned, all And continued Again, the for we shortly. very stay well. look you. as the Talk Day very your I XX. you to to for out forward our team you logistically be interest. Again, the getting

Operator

participating for conference. today's you Thank in

this at time. disconnect now lines may Your your

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