Xylem (XYL) 3 Feb 222021 Q4 Earnings call transcript

Company Profile

Participants

Matt Latino	Vice President-Investor Relations
Patrick Decker	Chief Executive Officer
Sandy Rowland	Chief Financial Officer
Deane Dray	RBC Capital Markets
Nathan Jones	Stifel
Bryan Blair	Oppenheimer
Ryan Connors	Boenning and Scattergood
Andy Kaplowitz	Citigroup
John Walsh	Credit Suisse
Andrew Buscaglia	Berenberg
Joe Giordano	Cowen & Company
Graham Price	Raymond James

Call transcript

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Operator

Welcome to the Xylem Fourth Quarter and Full Year 2021 Earnings Conference Call. At this time, all participants have been placed on a listen-only mode and the floor will be open for your questions following the presentation. [Operator Instructions] I would now like to turn the call over to Matt Latino, Vice President of Investor Relations.

Matt Latino

Thank you, Ashley. Good morning, everyone and welcome to Xylem's fourth quarter and full year 2021 earnings conference call. Chief Rowland. Patrick are Financial and today Sandy Officer, me Executive Decker; Officer, Chief With provide perspective first will XXXX year They their for results, full quarter outlook and year and discuss the XXXX. quarter full on and Xylem's fourth

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

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

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

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

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

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

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

Patrick Decker

morning, Matt everyone. and good Thanks,

major very team operational we the need in margin revenue all per was and to fourth of XX% in in expansion by very for points very strong commitments. performance. adjusted into And our water EBITDA proud a that on year us the meeting the resilience. We half, giving our strongest performance strong XXXX. team posted as second growth this for full a of to XX and of And earnings And orders solid expectations infrastructure release XX%. mid or in across Despite XXXX deliver our the a presented customers digital did address This metrics. the our what affordability M&CS especially the exceeding the share As I'm fourth us of quarter strong basis delivered and it around our morning, year the needs growth growing orders delivered and coming in segment. solutions momentum they organic they single-digit challenges for growth, reflected indicated reflects team desire quarter grew our their

segments Applied Our demonstrating very quarter across also orders fourth posted the the Water our and growth the demand Infrastructure strong and portfolio. for Water year healthy

R&D in the with overall our continue posted customer contributions significant markets revenue investments where growth And we especially We experience clearly market across emerging have and demand momentum us continue to underlying coverage share we value in to geographic to made creating. growth win in investments to XXXX. due in our we're and off growth very regions all paying enabling XXXX And are beyond. globally double-digit expect throughout to orders strong that our double-digit

was story constrained the the Of of chain the last that quarter. in really other challenges with half along side in of accelerated the XXXX supply course, the second inflation

and taking segment. did especially down we managing in severe bringing the our affecting mitigate levels the into chip call, control, what conference pricing job that last shortage an back orders costs such entire backdrop, strong sector inflationary aggressive our in tech actions Against discretionary the ability team to anticipated held can M&CS pressures. our we As below convert to excellent XXXX revenue,

In offset and we to we further modestly higher was deliver expect as fourth our expectations, fact, quarter price our inflation backlogs. than in accretive realization the margins in

is So solid results Along it and significant did world. to XXXX team a that that team year's a the solve that for challenges level set be they the delivered It's to privilege, in not way we around operational part of the communities with signature record of goals. heart despite a One to of our commitment only water Xylem but mission. towards team a the hours all volunteered made sustainability with example progress our of the our purpose. headwinds

leader our productivity demand and ability fundamentals solutions, XXXX, in to cash free market our outlook revenue. prolonged for ahead inflationary we continued is at looking a the a strong reality tempered limiting flow business our to the see to Nevertheless, can by offset drive to across speed we as price shortage, chip pressures. and Now convert conversion, continued which of products of strong terms orders and

in visibility balanced being have. upon the based guidance, So our we we are

less strategic outlook, our financial at on and that on the XXXX. and the our assumptions going back Sandy of the and year in modest increases to expected to margin in margin dig significant we backlog hand to assumes it I'm expansion in as a to guidance the we'll Investor intentions environment this XXXX. chip return September to constrained the competitive last discuss in speak our in half operate expansion are to outlined both past strength quarter's M&CS. briefly given and we the our Day. us XXXX. over supply margin in XXXX with first, Our see consistent half when second year first and margins put this second chip in we capital we coming return, gross expect In financial we and a this before half In on And But have to moment, into that deliver track turn the realize gradual And to volumes position. into growth in results deployment we for to EBITDA framework of the levels XXXX of

Sandy Rowland

Thanks Patrick. I'll turn slide X, to and fourth quarter cover results. our Please

As Europe in impacting and in the offset in Patrick growth utilities the the shortages globally. growth chip indicated, Industrial utilities segment strong U.S. significant than, end-market more

healthy prior on quarter's Organic challenges, mid-teens. an in XX% circumstances margin our were China Industrial continues utilities a by demand segment. was result we discipline But the residential the quarter were the particularly performance I'll grew challenging strength In tough you down with price of as price a all was and job healthy Given for on X% did in comparisons our impacting year up and when chain across X%, strong investments. costs. sustained more give a within outstanding acutely short, modestly our margin at in to in offset X% X% commitments realization was which was and orders up smart the performance guided technologies and Commercial strategic points the down Year-over-year moment delivering our on the be grew increasingly EBITDA was than EBITDA strong business range. U.S. in and contracted on benefits constraints activity XXX metering on segments. by inflation XX.X% productivity savings as detailed basis mix and in supply U.S. team

the to invest We capabilities in serve enhanced portfolio. continue geographic and coverage to across increasing market for example digital demand

orders and accelerating Segment all cover the inflation turn residential. Emerging performance in in Utility for our for in our China markets as up India, growth in was for quarter XX% slide decline partially delays XX% pace segment Europe increasing discussed Wastewater to all quarter's detail. as offset in the points growth in This last high down resilient including in in quarter, demand commercial, across page last emerging were and savings price offset And organically offset was cost a challenged turn let's Measurement low inflation in and grew digits. productivity in X. test and our on revenue strategic times. momentum a solid high recovery. previous in order's healthy up Water was Western were particularly & due Otherwise, a driven China an as reflects declined revenue more backlog demand ongoing and orders bit dewatering a year. and quarter. the by modest up single-digit the orders with I The Infrastructure quarter, reflecting and XX% we the Geographically reductions and treatment offset freight industrial was U.S. just mid-single services. includes were strong to geographies. moderate delivered performance single please year. the digits. small growth margin Emerging by I'll organically up the US were markets. M&CS Wastewater This Industrial were with segment call. now Eastern pipeline EBITDA by our this by and Western up for And end-markets U.S. long low in order were demand business conversion mixed partly gains business. as than in mentioned. more In Infrastructure Material low-single in metrology end-markets. Growth XX Revenues Please in by year transit puts review digits on last in Solutions to was largely Healthy in well in solutions orders $X.XX. deliveries and Our quarter Europe. sales investments. other Water margin U.S. a respectively. X, digits and and Geographically, led gains the Europe XX% That Europe geographies all all in turn up results balanced the year. up mid-single significant industrial digits, basis project slide was in mid-single in EPS strength was M&CS to down in fourth segment our mid-single Healthy X in was continuing strong the modestly from especially assessment healthy down digits versus the quarter. segment. points business well applications to cancellation versus XXX as I'll realization. Control by where increased both increase productivity basis the organically was in up X% prior were single-digits the across segment ocean demand the digits demand Applied Water the EBITDA industrial by markets offset single which Utility

the Those water higher deployments our test were and points. XXX constrained factor respectively X%, the in margin as from markets basis will business supply conversion which and were volume back anticipated, overview available. Geographically, both an we XX% lower to noting chip been offset effects have the we company's resilient revenue accretive. by along growing large that of metrology slide of gets margin very orders. cancellations cost As was There backlog declined down and the worth let's revenues, flows EBITDA and Volume Segment half down the at of no and inflation Europe quarter with US leverage quality pockets project XX%. component gains for this the resume of supply. now XX% discipline. the financial business. And revenues cash productivity emerging and year to contracts Western position. strong due was It's were declined biggest higher of X in as AMI from constrained operating turn by partially modestly in expect becomes is more growth

debt-to-EBITDA After we leverage for conversion financial times. of $X.X conversion our with cash the Our XXX% year, robust cash liquidity below position and the more target Net available as flow XX% cash in free billion year flow of year. slightly last in our free $X than was is delivering X.X exit billion. XXXX, remains

in but our stocks A increased item half of XXX% conversion made our While year note. collections, inventory mitigate continued we the safety remain to consciously of we at cycle. the chain over team volatility to committed the progress supply driving least further second

As the advised, sheet our defined derisking pension buyout largest are our plan we the UK. previously we with balance in of

equity $XXX We unrecognized which recognize today. non-cash consisting approximately in XXXX, are expect a at of to finalize this million, in which losses, charge we'll primarily of actuarial point transfer reflected

hand allocation annual framework. an Today Patrick is Please back X% of dividend look in turn to with XXXX. XXth consecutive X slide our line we to that increase. to Lastly, our our annual I'll increase in forward and capital announced at and

Patrick Decker

in through businesses. strong all Thanks strong and fundamentals continuing demand our Sandy. We see XXXX

continue On the will important other constraints not to supply variable. that the and predictable an be hand, entirely is reality

likely in to the first assumptions solutions. revenue In the are to reflecting working still at the are set we anticipate higher-margin while situation. orders So a once. of We aggressively on hold our disproportionate responsible of half, shortages linearly chip year, will not and our to availability improve guidance, impact back but all not with improve for conversion

we operating improve cost have year, the on our focused shipments begin growth during a supply and be half and a and the determining foresee modestly second price rate driving chip should of productivity pace we'll transitory on the what In being discipline, period. with of So to expansion. will margin effect

come dynamic first more XXXX to The begin portfolio. the did was in is margin our we points accretive and growth margin the this margin components through, M&CS As supply to of expansion upside profile. limit of half not positive basis when side in highly chip apparent of the than XXX saw

for and a of case made affordability offer moment addressing the issues expanding size those customers, worth Given of about are as commitments. easily are compelling Large our projects substituted growth a point Sandy on backlogs. AMI our business metrology they and backlogs, resilience the regulatory of particularly and it's they a ago not

often these spend pilot approval testing, determine solutions. years to customers and utility in procurement Our

near-term we erosion. So do anticipate not despite these backlog delays,

Turning XX. to slide

expect see XXXX, which team our areas focus books. long-term able with discipline, can the requirements our in both is The to will second the our You customers. half will great working managing anticipate order of and don't suppliers challenges our serve size of we through us sheer we improve current with framework. XXX% suppliers the gradually chip will for be given keep financial though Even supply to aligned

mission-critical also with to needs. we're So customers on about investments serving our ongoing to the improvement we're prioritize indicators supply imperfect, most of partner our is most strategic staying with eye visibility we're their phasing working close supply rate redesign Since accelerate options recovery. to critical likely and leading our an of

in strong turn our for on deployment. than I to want a Sandy detail more and comment $X We're balance year I with the Now, sheet capital outlook, liquidity. into billion more coming briefly to before on

expansion. So, with view been good a advancing to accelerator significant for strategy. our value those But marketplace a to we're a And when there's comes of be you will for with strength continue eye be overall company's deal creation And know M&A and like opportunities you in done sector as that service a margin naturally and of do are to an creation. is strategic we mind financial the for our in hesitant company who've leadership. sustained to us the that strategic towards value while, not there growth and us with selective a disciplined deal

Now, more Sandy I'll turn it back over to for on our outlook.

Sandy Rowland

Thanks, Patrick.

demand will be XXXX. to We expect continue underlying healthy through

business on conditions However, as described, entirely path. normalize Patrick aren't likely predictable an just to

which a year just of XX% our constraints grow balancing reflects taken business potential and overall low-single-digits XXXX. we've that in So We external those anticipate revenues dynamics, view of is of Xylem utility upsides. will north the

activity increasing outlook low-single-digit well and in as resilient project public to On investment we longer-term the localization globally. demand expect we The continuation wastewater mid-single-digit of strong side, for a benefit of OpEx bid in is strategy. capital activity driven anticipate solid utilities, very our as considerable spending the by demand. emerging growth see We markets, global as

to deliveries slide Demand And robust focus the revenues foresee we On constrained momentum infrastructure earlier. challenges. due side, assessment chip turn now, businesses and XX. be healthy water will clean flat. will anticipate please in shortages increasing remains to climate our be services and mentioned test on by We but

steady Looking demand end market, expect mid-single-digits to for at globally. we grow the Industrial solutions on our

guidance. low for and market increased of ramps In The and And should markets growth are demand driven growth we In expect deliver as in institutional for growth mid-single-digit you single-digit now, turn Slide expansion by increasing as strategies. demand. to industrial our expecting offerings solid light applications. through I'll benefiting business we funding in updated the continue as our that construction. the green on order see our In and Europe, healthy the construction mid-single-digit demand eco-friendly solid let's rates end-market, dewatering, new buildings, activity, mining our We to residential, Commercial Europe, we backlog activity product to smallest rise replacement in US acceleration with driving and especially see walk in from in healthy well emerging end Western US XX, localization from in space.

For solid as growth X% the Industrial. X% year Mid-single-digit Xylem growth half follows: mid-single-digit and organic foresee and Mid-single-digit high from in residential. in growth solid range with in Industrial and Applied revenues Water with overall, low we and full to first in growth mid-single-digit growth Commercial Water the breaks both the Wastewater revenue of XXXX segment flat in growth in applications in Utilities Infrastructure growth This in to half. single-digit down by second

expect We Control Solutions be flattish. Measurement to &

earlier, of As down half. assumes double-digits the year second mentioned half this in this double-digits up the Patrick in and

Although and remain supply impact half of chip growth through more the unfavorable that chips, productivity likely is progresses. still by an The the than will partially realization have constrained. will volume constrained volumes gradual of mix supply of year. offsetting and return as on the the be Despite and second margins and savings constraint benefits to recoverability the partial availability price

For anticipate expect XX% approximately first adjusted XX% XX% XX%. EBITDA XX%, the XXXX, will the to we to this the to second to in half half. In back of bouncing be we to And in conversion with least This be the XX% range yields puts EBITDA EBITDA of income. the Investor in year, XXX% is Free an to net expected of at the line $X.XX. at second $X.XX to long-term flow laid EPS targets adjusted out of be half in we Day. cash range

X.XX we range expected included up be the in and anticipate double-digits. FX year our you conversion provided table in the slide models. mid-single-digit as organic first appendix. full and to company revenues flat a and is decline assuming your foreign in supplement sensitivity assumptions low of other We're on volatile, Water be have can growth this exchange now drilling will to with of rate We includes dollar quarter, Infrastructure down is And Applied X%. This total in the to M&CS to euro Water

to impacted first in adjusted margin by supply expect range XX.X% to XX% EBITDA inflation quarter of challenges. be We the higher and chain

with point and the year turn will improvement. Slide Patrick quarterly over to in comments. turn sequential adjusted this back be the the expect please accelerating And to call XX EBITDA I'll We with low in closing for that

Patrick Decker

position. our strong for Thanks, XXXX Sandy. in demand been and The coming enviable greater. never technologies into market We're and a has solutions

rising our that thesis, portfolio with solutions, our strategic goals a market for growth strong offerings powerful to leader continues backlogs that investment balance and sheet momentum our deliver growth year of and course, by resolve and conviction differentiated giving to externalities. our expansion of bringing been the term being fully We flexibility being with and disciplined and customers as are appetite investments prove overall to very and and short financial expect that have marketplace. high-margin XXXX margin active and strong to model, water results the track dynamic our orders aligned allocation. operating we've a capital commercial making of above-market business the need committed with no demand a in of to about to creation options foundation of a accelerating on we technology a one likes have value driving sustainable discipline us digitize and and strategic durable with a strong In constrained But and

turn I'll the operator, questions. over now to for call So you

Operator

And go [Operator comes for our first questions. question Please open Capital Instructions] from Markets. floor RBC Dray is with ahead. Deane The now

Deane Dray

Thank Good morning, everyone. you.

Patrick Decker

doing? How Hey. Dean. are Good morning, you

Sandy Rowland

Dean. morning, Good

Deane Dray

to a And your to hard factor so had alternative gets it shortage get in sound you -- line into go are firmware But you the more color on again, we give this the side can it's microcontrollers, on and Really really well. substitute and more questions some sources more and on but biggest your swing quarter, since which us that typically I technical. shortage which Thanks. Tony a tied like it's much this substitutes chip if didn't shortages the bit and can little situation. you the between the detail redesign. versus have guidance microprocessor Look, can

could there in and terms So chips? two-class recovery to the get in helpful is shortages which those be distinction extent of both there and you of to that a when expect

Patrick Decker

question. Sure. Great Certainly, Deane.

helped mitigate And moment which of on attractive So is I'll in in challenges we backlog that now supply it. issue the team doing terrific in about market the margins that QX going hit we talk to those there can. really you've microcontroller. can distribution at really us sure nailed out the we've we're open now now, try that. on QX best what we our we into the we it. what to right And roughly is challenges more right the microprocessing to XX% mitigate a got job chain what make Otherwise and had did also bigger hold we to we the than we're come would broad really have If microcontrollers. in XX% side, really a that But the and to is has look and really back as face doing mitigated, on about a that substitution,

we're broader what with doing aren't until really probably going benefit a doing sector. across hit impacts it us we're are future suppliers time. going redesigning see 'XX going because And those the us with those is technology really QX our But we're is into -- there we what along where there, redesign. they -- So, on partnering or until designs to lead

buffer alternate the resurrecting demand of some and our we're that's implementations ahead And as us these bridge doing to and of some are larger of meters go We in here. legacy AMI get certainly projects also helping a started. these sourcing some

on they've been by communication out customers on Lastly, we to build with out us encouraged comm I side. is the and beginning really the going would deals, side AMI say work what our large the

they've they the proposition, the come to have doing because, we're and they opportunity value want we to be they out here opened and we've realize, see to honestly, Deane, up to us. going. what products go they also them believe get with back So And use us alternate in the And meters.

feel terms this backlog is we every team it day. about we chip to what protecting where So, of the working are mitigate we're We supply the terms do of and in good in can all situation. over

Deane Dray

glad detail couple on. But... you right. of I'm just shortage level chip often because, to I All times move that a say asked and

Patrick Decker

also, for you Deane, going to of ceased. had things a Deane, point just We de-commits feel with kind give right that Those on QX. now. suppliers how de-commits our number are from suppliers a of have large in our

We some have lead times haven't a on forecast. here. still Those right in lengthy, to direction. time quite on the key is moving for moved had de-commit lead good the of but now. very XX They've down actually And mean news modestly, they they're our been had while up components I are we delivering times, the some weeks

Deane Dray

the cancellations on within losing And the I appreciate Got not or having color meter the it. backlog. share

either just you base now at And to what target this profitability on which so, Thanks. -- are year that is, booking healthy So and or the real margin you've healthy year? or ways just a the couple XXXX growth, where this for you've booked the helpful. this order really longer-term the And organic that's which different follow-up call times are that in margin that your the said next implied And is? gives is XX% looking how what accretive. and has we're just compare of question, would the I to? extent you all wonder, is look. And come up comparing

Sandy Rowland

the and really, Yes. have our it's Great strong front momentum that really we broad-based on is question, orders portfolio. The Deane. across

with And more price actions know So of our businesses taken when infrastructure, that water in AWS some actions already in and actually we've incremental I'll book ship XXXX. price we we've there throughout start taken XXXX. and

those secured headwinds about orders the recently contracts to more contracts, going large the longer-term tied And balanced AMI competitive we When are of inflation we against adjusters, know facing. to have and think we CPI. are most inflation those be we're which that so that that

to And once AMI us that backlog, large XX%. so when get all protect while looking think we're back to in of And margin. good -- time chip price above flow going resets gross some be at those the XXXX, we side take help clear -- to that but those on about will it's those where out deals delivered we those margins the won't

Patrick Decker

Yes, margins. incremental

Deane Dray

helpful. Real you. Thank

Patrick Decker

Thank you, Deane.

Operator

comes Please question from Stifel. go next with Jones ahead. our And Nathan

line Your is open.

Nathan Jones

Good morning everyone.

Patrick Decker

Hey, doing? Nate. How are you

Sandy Rowland

Nate. morning Good

Nathan Jones

inflation. just Very Very off thanks. little I want versus about well, well, talking a bit price thanks. to start

strong I disclosure basis I'm given little surprised a this little for more aren't that at in registration close inflation, to points basis price the very price been to you a opportunities XXX on moment. the significantly bit increases across more at to gap? have conditioned price given demand quarter to be on expect there price, close customers industry for gap XXX at that aggressive Are but just you to and aggressive not price is think a little more able bit points. capture

Sandy Rowland

Yes.

QX. in question certainly up us picked good rate on really think inflation Nate. I The

when XX%. sort we in overall inflation exit XXXX, was of we it look X% about the QX, range. for to when look up exited it bumped when -- we at So at And

outpaced into what a our was that we meaningful actually So increase and guide. had it incorporated

quarter did we kind forecast. EBITDA margins so than On fourth modeled and is they in the price which had side, the we more some line why netted, of came in in flip with with get our we

Patrick Decker

Nate so is And I story what would a it really here up is of momentum. we -- offer as

year and backlog. QX continue positive into be all And We is of weren't So our on point to go and QX. reprice full be the are price in to the we positive for full in go but our Sandy's going aggressive we of to be. as very really able we going to We ramps half cost in to it, going price/cost XXXX. QX. were to repriced And positive some That we're for price in be price/cost of the back year.

Nathan Jones

encouraging. very That's

Patrick Decker

teams done the have job on pricing a great front. The

Nathan Jones

metering Have some percent your XX-odd meter differences little you explain businesses. of more those to I bit. the the think, about, on could Cancellations competitive business some understand attacking or losing business. you I Badger talked and Maybe Neptune cancellations of AMI Thanks. it. the about differences you little seen replacement meter side on businesses are you those Can side? talk differences between cancellations the side growth. growth. it, the of no more between Their on the share more bit what double-digit had side a -- had a your contributes results replacement

there resulting procurement. differences are the Just differentiated in that that

Patrick Decker

Sure.

metering perhaps on I Nate, moment explaining yes, do the so is what kind a can spend just So of market.

So meters. two got of different you've types

kind is going You've the static, really of where overall is is market got going. which where that's market the

direction and have competitors meters, also of we versus then customers meters those, our of are view over smaller meter. a The static and much have view more our certainly of the Our from traditional that life moving are the portion accurate but you certainly which benefits is static kind of it's mechanical mechanical portfolio. the

have around advanced static less able and other obviously, parts a of that water. whistles it's in meter, gather moving like the with non-revenue build And kind data bells link alarms you're You to in helps able to around detection.

So there's a the and moving environmental lot towards why industry of kind of is static. and economic value that's

are move. in We that further along

we to as is of result a that, are chips that really meter. because more of brain, the exposed so microcontroller And the static

the to have be some we even kind to signature again bridge gone help right we now." Most large But we're the anything importantly, on really market going. old honest indicator these where that to time we and business, our your AMI enough those. lost forward. mechanical right secure so "Hey are now we've value there. back seen have in sure focusing winning in traditional And communications wins, only those day-to-day of And to these environment the so say customers platform transitory. making larger strong that's it's so around, to not is seen We've resurrecting, robust. place is, that again, move of what the are still meters and to good which deals -- that we're question we're And if really replacement that proposition because those get is deals, on the And

Nathan Jones

on. pass Thanks questions. it Great. taking my for I’ll

Patrick Decker

Thank you, Nathan.

Matt Latino

Thank Nathan. you,

Operator

Oppenheimer. Please ahead. Next question comes from Bryan Blair go with

is Your line open.

Bryan Blair

Good my morning. questions. taking Thanks for

Patrick Decker

Bryan morning, Good

Sandy Rowland

Good morning.

Bryan Blair

color dewatering was trends. hoping offer more could little a I you on

rental. versus for about international your of You And on strength growth that specifically? stronger markets. highlighted guidance the emerging the The drop-through relative curious the latter? business, specifically in contemplated in sales what's markets equipment I'm

Sandy Rowland

question. good So

as We in but especially as have we we momentum of high growth saw markets overall, the And on our and go momentum because our Really, expect demand. the coming this see emerging front a rental XXXX. more growth. we of some to both it year. in CapEx from little that into side on positive move mining to equipment in invest fronts markets taken throughout think strong quarter seen both I steps signs. bit to in showed dewatering, We've increasing positive refresh single-digit fleet. strong sales all the saw front we we some the actually fourth was And benefits year

Patrick Decker

that last the of point, -- in cycle were Yes. we our we margins kind Bryan one some on see one down the and in that things that the protect business, when business. of had curtailing of just of stabilize things we done CapEx were that to

bit That little a from yielded our there. from we we a perspective. is, perspective strong a returns, see margins recovery and Now even opportunity has just there all we invest and growth don't we And being built that a very do have the both into more see but positive fleet in traditionally CapEx guide a really that

Bryan Blair

the appreciate US follow-up focusing And a I specifically on the as market. color.

of but for XXXX read would that thinking activity, areas general front guess front. more how potential get any curious are helpful. commodity that I your of on Just infrastructure be on the attention through a your I would business There demand perhaps from other catalyst imagine tailwinds somewhat the But would nicely team is that catalyst more construction naturally about XXXX, pretty spending. color

Patrick Decker

Yes, certainly.

for our we really You're always that meaningfully a we guide mechanism. in built really -- didn't objectives our possible even It have Investor is don't any and about anything in XXXX. of right into that because our outline of talked have into being Day support kind built we of long-range,

so it positive specifics But it's when commented both going this. is at have on XXXX beyond. So just to positive maybe not and know some others happen. on yes, and I

really we're XXX in of have $XX over than administered It bill, going more several a EPA, be the strong It Infrastructure. spans with of half that at Our by to billion are for the talking programs XX% levels. Xylem. view thing. investment Water is who critical or highest contain relationships opportunities about this Nearly very is that two-year one is years. of a commercial in we funded the

our net trends customers. commercial on But with So, not opportunities now, are we there clearly in they're the positive are and seeing right there. we're again, outlook but that we're having the conversations

Bryan Blair

to broad-based dewatering tailwinds? understand but was perhaps outlook, remiss. there the appreciate I are referring Understood. I I I prospective there. -- detail the specifically was

Patrick Decker

No. Yeah.

would our it see certainly also areas I be construction you the be I specific it most on really a about we're would and in some notably. think on you've see would some in the treatment ancillary an impactful would demand. us think there. really the of on predominantly dewatering knock-on would the talking the even – there for as business non-revenue of three It Water, clean water treatment water in clean infrastructure areas. then be commercial through side to our addressing We'd where side, side? this And – side it's side, But dewatering water water in our most the and it going benefit that building industrial solutions on of got be be predominantly Applied infrastructure effect

Bryan Blair

again. Thanks, color. Helpful

Patrick Decker

you. Thank

Operator

Ryan Boenning next our question with go take We'll Scattergood. and from Please ahead. Connors

open. is Your line

Ryan Connors

Great. Thanks question. my for taking

Patrick Decker

Sure.

Ryan Connors

you mean, been mean, back really, has business issues. drag and long if the recognized that predated wanted you really a if and time. sort XXXX I standpoint. at press XXXX. been But chain a of at and big I from the supply from profitability the M&CS I that for fully pandemic look And look challenge. commentary profitability on a a bigger back some I supply of issues to chain picture release think, M&CS it's the just look has the

it's your I perspective a is really get pre-COVID business longer M&CS? bad So challenges picture what's it's mean is – or great normal in it's things what tough, is the wondering, I'm – not when in and times takeaway the on a And the we of part that? business see that looking back at

Patrick Decker

our deals business, made won, that backlog. very Sure, I of the we the points at of EBITDA I look frame. Have during Ryan. mid-single-digit our supplier last years, and so we've that – showed I backlog, of at an look look we is I XXXX, those whether of I conflicts. attractive. fire, expansion the battery profile XXX of look we even the at margin the where at in that, we at back trade the business first proof Fair from and demonstrated I investments I this look time the And look standpoint knocks be we absolutely, question. growth. and basis margin margin look our whether it over at even it profile be replacement have had the been few a deals licks the points repair having at half a is it

us half And love we're right we've the again, Yes, shortages. a paying business. chip laid and you line in what margin of – give balance unfortunately year, in look the business, committing a September. we at on points The track in that to is in what the of to technology in we we're balanced responsibly back even right of want that and Day investments We year. of Now, proof have the this we made leaning within view. and the out guiding that we demand, And margin in there. terms second the view Investor but profile impacts with this is nature of are being off are that profile,

Ryan Connors

segment. and then similar structure the was M&CS from new a one Would attention that repeatedly what businesses a any you to had Now, the to out. attracting – to to just of it it has? that the within would it was was a sense the there that reporting as company of with kind issue into there M&CS guess, while, trouble and I source its tech going relatively and changing sort was the repeatedly fold Would we're itself. broken it peer know where size business Sensus, discussion an discussion for much keep know, disproportionate of to I a the relevant move to you so of infrastructure dominate decided, other and water be things making – so doesn't

Patrick Decker

Yeah.

of Just for matter correction. a

So, actually, Sensus not was water of part infrastructure.

for we've of created we're Water utility standpoint It's of of been right that backlog demand in is And doing a the of getting we is that utility chip all of water. So wastewater on digital a result side that, is the frankly now driving. that any I the any runs of mean, integration. no stand-alone to within customers always want And dependent market. quite I that exposed all for in side. the It the is now. right chips. the want to changes Water M&CS reporting listening. have a a world M&CS the from those just consume happening is more a chip we're is Digital a our and Applied I It's within of we're M&CS. be plans to through to is for to three or our innovation a Infrastructure or side the XX% because them. proxy that's shortages proxy market, M&CS. I clear prominent is just result But – And not clarify two-thirds that. water of XX% hit revenue on as why piece. mean, don't marketplace clean everything proxy

plans change there's no, no structure. to or rethink our reporting So

Ryan Connors

Thanks for Okay. your time.

Patrick Decker

Thank you.

Operator

Lee question go Please next Brian comes Goldman Our from Sachs. with ahead.

open. line is Your

Unidentified Analyst

on taking This everyone. for Hi, is Brian. the Thanks for Miguel time.

Patrick Decker

Miguel. Hey,

Sandy Rowland

morning, Miguel. Good

Unidentified Analyst

morning. Good

the Just you this XXXX, then rolling to be for noted out be And second then and the to going half. flattish the that first going also organic to is on the back cadence wanted high-double-digits M&CS that for that low-double-digits backlog is in year, touch through you backlog but in has growth half and grown. laid

is much the that And might backlog first think that might have then, how also of So cadence cadence? cadence how And any be year, additional be that converted? that of when contributing actions getting about a follow-on. Thanks. the for price to I that second half half we much

Sandy Rowland

Yes.

in revenue to of year. just segment. shifts with XXXX the you thinking the perspective how of M&CS through how million about $XXX So about on we're We it QX exited some give and

on XX we at we're And like size a the into we're back would by worked perspective. to half for flat backlog, XXXX quarter. in XXXX, billion the very year $XX so And saw throughout about of of end of in the a back of rate what incremental of we get And while of to XXXX. million that XX revenue months kind $X.X clearing to add run through. all that some Getting to assumes puts from that that That's eat put us year. us starting to means much it take the each going first the no

this would in we out coming and of segment growth XXXX. expect so very strong XXXX And

Patrick Decker

that a see hockey again time means we've believe I is be responsible here. guide that. built backlog built are and for variable And mean us we built the to out upside is stick here. as terms that And in By what So certainly, margins the we over of this there balanced into what a we conversion, again, huge guide. look into

Unidentified Analyst

this can X% on XX%. And and is to long-term annual the organic through I the guidance thinking organic so is you X% year question, last my called into XXXX. just quarter out And helpful. then last growth is, super That's then, order it great. push-outs in fourth quarter Okay, some for pass

into You X%. mentioned that orders. XXXX and of compares orders didn't and XXXX, X% to organic to long-term we X% about guess, to I guidance the guidance of think in lose X% do a bridge coming how But you XXXX the those on out

then, trying will all guess to also think orders. through to through it XX But XX to backlog. I Just those you take mentioned the flow that months,

looking Thanks. bit little more a So, color just for there.

Patrick Decker

Yes. Sure.

of the about the on $XXX had talked now million, moved right based we into think about that in -- last supply being would $XXX the to we've -- to year orders the number call probably came right So, we there about moved right. talking That be million got about issues. that's I

eating That happens guide. this in really we're backlog not XXXX. into And Sandy's so more in to even tremendously point,

that So, the growth M&CS is our deals when of at even XXXX. and of full don't the for year convert you big look backlog that QX, until a orders XXXX chunk and

we that that swing in the how is really here so, can is quickly our volume factor big convert And supply. guidance upon based

in and exit at expect to year, would line we more Investor Day. to second we this in we with up half that line about high-single-digits with that So year-over-year, talked continue what mid

Unidentified Analyst

It’s Thanks. pass on. I’ll helpful. great. it very Okay,

Patrick Decker

Sure.

Operator

Citigroup. And Andy we'll take with our ahead. go next Please question Kaplowitz from

Andy Kaplowitz

everyone. morning, Good

Patrick Decker

morning. Good

Sandy Rowland

Good morning, Andy.

Andy Kaplowitz

minute. capital a for focusing on Just deployment

balance is obviously Your know really been on you've a sheet little good shape in lately. and more quiet the we here side M&A

is of doing? for given do include XXXX an bigger which for could is maybe the what think more So, stock repurchase you active or you year a the potential M&A

Patrick Decker

Thanks for Yes. the question.

As billion you year said liquidity. in over really into the $X again I we sheet mean a are balance strong coming with

looking not now. an size good As deal it we're to assets to certainly I of on from we're medium we done. it's to been will think out of that even back and an always market when always that both before scale shown means we've to think now There the XXXX. there's kind hesitant tie two and takes that done there strategy, going be get to attractive rich a deal are tango right to commitment. this small in really will -- deters here. a active a And there's us They what's forward that and the I think And but I market right be markets year. overall by our have no studying do

Andy Kaplowitz

of amount other their chip different as segments. your its anything in to for fair better performance wait impacting But Patrick And terms burn. the then there in you a the to and obviously We that might two segments improve chips able backlog in run margin shortage that of performance is what to there are to course be about the know other to you M&CS. infrastructures hung performance segment's terms apply than

Patrick Decker

a leaders say of different are kind than Applied They large is our kind Water M&CS and mature I digital in as terms deal are Sure. are a to of in both in businesses. would they being we M&CS are dependent. Infrastructure of in market Water more end-markets space segment but conversion and they're we're that

great They teams great of productivity to price a done done Those that. job they've realization. job. have a around continue do So, operational discipline

be those in businesses impressive of those driving in continue that we're both to vitality in -- terms innovation continue to businesses our and invest We quite space. indices how

very with it. pleased So,

And business I be most wastewater serves side where a think That infrastructure the the some does taken end-market from And which environment in is users CapEx terms side. products to big side, chunk the more on more aggressive water the we've market tend water versus stable new they're serving new we've the the is the Applied stable utility demand. on that really on the market Water tend the of OpEx the part. emerging reason market a of for perspective. entering stance again the markets outperformed to and there be of of

is say nothing those from serving part different M&CS. the we there's one I them So, over in part translate of different market. cycle would a and of to two of the Each

Andy Kaplowitz

Patrick. it Appreciate

Patrick Decker

Thank you.

Operator

our will from question ahead. Walsh next We take with Please John go Credit Suisse.

John Walsh

morning. good Hi,

Patrick Decker

morning. Good

Sandy Rowland

Good morning John.

Patrick Decker

two just Maybe me. for ones quick

up Following to already semi this to secured starting to visibility give companies how them of Deane's about metric into of some question, much we've of or they've been chips their hear kind talk components outlook.

suppliers de-commits. your guide, you I'm deliver deliver majority on your or to more need from But do guide? your of no have do So, the you've you the suppliers committed at what on you the to from get comments on need made you just commitments your least to had commitments curious

Patrick Decker

question great John. No Yes.

modest chip recovery our reflects the a So, supply. guide really in

what ship about product we directionally getting around could obviously was least we and XX% the supply if were about only think versus at on coming numbers what critical in backlog you the to we what of terms But -- upon there. terms components some into that the able specifically put depends in the demand to talking year, were overall half our component. So, line of we're it

start reflected our gradual of that's year about into half guide the then does that even a to really that recovery XXXX we get that there. of beyond. until Our the XX% second in and back And and demand continually has not roughly improves

improve here our right our miraculous big so that's see. considerably to we're why But factor. And would clearly So, does And in we guiding we If than think recovery. that's assume that we outlook. the the what way balance we've swing now not in It been were responsible are. that a is guide.

John Walsh

Great. expect Would that backlog see we orders lot of burns Thank you sales, continue demand. And of could you talked year, one the kind or you just for year a could as expectations on go that into backlog about convert color. where and grow? of maybe expect for the then, to backlog through of kind to obviously you

Sandy Rowland

Yeah.

segment a John, think talked that we know shortages. this, because I the eat to lot our chain supply into backlog, about be we're You tremendous of to not particularly going in a amount M&CS the of able

when pipeline get backlog ship And the and segments to are overall, are to funnel a looks really expect more patterns couple we But into in Xylem grow backlogs backlogs look of book especially there. have would I still large XXXX. you robust. customers we bidding we So back where There normal continue and overall, that be business. at well. The we'll year if strong see talking about really modest expect pipeline a reduction ordering may we next as that

John Walsh

Great, questions. along. my I taking appreciate pass it you I'll

Patrick Decker

you. Thank

Operator

We'll with Instructions] Berenberg. [Operator take go question Andrew next ahead. Buscaglia from our Please

Andrew Buscaglia

you can Good talk morning was hoping I guys. a…

Patrick Decker

morning. Good

Matt Latino

Good morning, Andrew.

Andrew Buscaglia

Minister -- occur. infrastructure these one Finance that do is going calling in week you can optimistic say this regionally I not more billion guess, to I And in where year building. is you see that of some spending you're projects I think. to was move the out earlier in because I forward, cancellations is are backlog little this a public feel we India bit think $XXX I talk about great seeing, which hoping think If I your of

we're these see move it be will if from if where wondering to do coming just I'm you think? So upside forward, going delays

Patrick Decker

Sure.

meaningful two would areas we our emerging And good would markets the we about progression. I certainly, see say, very So, more that feel business.

us. high-single we in that to the that performing great China And has It's results continue say very mature become there. of to more we great It's balanced, on great expect is been We business OpEx our our before if the And see dependent a a of were move in CapEx. still part it's business of for of growing digits. number more I portfolio years But anything rest China. would also there expect to portfolio versus forward. be now. spend for largely terms a good

where about swing really And North it be we So water would within that. -- there, opportunities say to utilities it's It AMI someone factor less likely said utilities we've feel really work they the area we're it in is And that's one where the switch biggest else. that is to And could won earlier, -- forward. we would deals mostly large as would already comms good volume there I doing to and where these that going ever be I the think out secure large accelerate it America. M&CS.

them any And able terms kind the are space. of so factors releasing orders for be us. were two that being of big if would there it of Those to swing in in convert

Andrew Buscaglia

I'm your on terms here? you seem your wonder. of work like -- ship kind bigger the a entity in part commentary in supply you it challenges where last the prolonged. chain one capital do some challenges that and -- the -- allocation the may comfortable more maybe wondering, do you yours Or get be you your of anything of Is there. to feel is rightsizing moving on other And maybe forward until interesting. case that I of one some supply with handle targets think might you better with where had favor being a Okay, the we're M&A, now hesitate chain think

Patrick Decker

Yeah.

not we're it's supply So a right in experiencing the chip question change does view our of issue terms now M&A. great on

attractive through strong. opportunities chain see We working Our is there these supply resolve challenges.

at At the the they place distracted might same over on by all that, look opportunity to be that's takes size would is it you're that And M&A the leverage think When and again in team the pointing and we right certainly time We these time, this. tango. situations anything is two an and certainly strength. types have we in advantage do I certainly side. scale and of to the have fact not to companies the right

Andrew Buscaglia

Right. Thanks very much.

Patrick Decker

you. Thank

Operator

from go comes Please Next & Joe Company. question ahead. with Giordano Cowen

Joe Giordano

morning. for in. Thanks Good me guys. squeezing Hi,

Patrick Decker

Hi, morning. Good Joe.

Joe Giordano

Hey.

If a couple half So pretty even you've far I XXXX half is on a of back exit. might first from Patrick that times years of couple to we away that from like what a need a level? in M&CS EBITDA. like really to XX% a in realistic on business get where like barometer referenced XXXX still of it's first standpoint saw Is what margin of XXXX-XXXX though like be place like Like outlook? like to conditions of we look kind

Patrick Decker

Yes. it's Joe. great No, question a

me, think investment built after whether you made also over if acquired segment it we business introductions the digital digital we win. So the Sensus business that were large we the deals back in we we for the portfolio, time a metrology significant and we be in in designing some to And product of M&CS making also investments the and some pardon acquisitions looking were new made. – new that fairly

have growth in margin you the visibility the that's orders in we paying now look at backlog again that. when off and So

time revenue when backlog a when roughly looking And we've you're run to period a EBITDA were that visibility get of this So XX% in at million which our that is through. we to rate have segment $XXX going at that plus. we in looked of are we margins

the realize in was I we backlog time But Joe you're we see. that been and So margin And talking what have that demand of period is really people curve wondering kind it that line that people patient, about a is. that see been of that have again profile about investment.

Joe Giordano

quarterly at in That we just was it kind there? a way also note inflation weird need I to than but other AWS cadence the on segments. noticed significantly was that the fair. higher a Not like two Yes. flowed of anything that like

Sandy Rowland

observation, great a that's Joe. No

as that our seeing year much I stronger think of in in actions in that's business would has impacted we've that the and bit AWS the to of in position that's been the inflation more that that say did we're greatest price balance light little the part move the business there to we're the going we be of of a And up QX. back out a And realization. QX trend seeing We we're drive into half taking we're QX. I year, realization. a all also the most. tick price see

Patrick Decker

have And I terms in also would there. a geographic is U.S.-centric in the Water clauses the hear our much because say this also clearly of Applied that of in US. We've price Joe but the more we is us again in reason higher the other have from impact seen the talking deals it that about M&CS, these don't is We is large backlog. as piece business inflation seen in standpoint you

those in businesses. two different cycle a that facing of it's we're kind So

Joe Giordano

guys. Thanks,

Patrick Decker

you. Thank

Operator

go Please Graham James. We'll go with Price Raymond to next ahead.

Graham Price

Hi. for question. Good my you and taking morning thank

Patrick Decker

Sure.

Graham Price

I out spending talked the activity about markets guess the Europe. called and funding specifically emerging infrastructure in and US side you strong you on

So seeing you're as I a that respect with Is frames story XXXX? a both there to wondering then of was spending what well. XXXX and time more or

Patrick Decker

Yes.

I spending We US that in a around reflected our is 'XX that by Europe geography. discussions the think, don't really in of I story. and certainly more would infrastructure guide. say in have aggregate,

its it latest at emerging countries that look you is China year we as when that think first various the markets, plan. in label five-year in of its I

be will based begin And experience. quickly then early year will our ramp. to the historical this upon softness So, in it part of there there

for those those benefits because other an are will But So China. good think of relates Europe of already now is about demand shocks us inflection in that Europe it right parts the which opportunities see story. really predictable very in points pretty more Europe see example, of And as and we we programs now healthy is It's a active. it I a still Eastern largest any is as for India, we very chunk Europe. and to or big really from standpoint. a 'XX feel don't right we there. being see Otherwise state 'XX, US this,

Graham Price

then, you helpful. is certainly forward? issues to then Got XQ, you. did issue site just That's you're an due for it. access Thank guess And and Omicron going curious, tracking any that COVID? see And I that

Patrick Decker

in We going and of tracking We impacts lot did. it really port site chain through forward. logistics really did delays and teams of We Omicron. have highlight we we any It because But job supply have that. access from coverage certainly through just terms didn't our a great meaningful didn't we're challenges on navigated is one in the that. a QX working definitely

did impacted by the we on get So that chain. supply

QX being of balance forward, that and don't strain. But lingering as least certainly, in carryover our the at for QX. look we have we in this a some see issue of that we have for reflected the current year We based as guide upon that

Graham Price

it. Thank Understood. you, much. Got very

Patrick Decker

you. Thank

Operator

or will no turn for There Patrick time. additional back any at this floor to I questions over are Decker closing the remarks. now further

Patrick Decker

Thank Great. you.

support time So, if call, the again, and thanks questions. touch great not attention and everybody in our now next the your you And appreciate this then. on for between back morning. earnings We'll and be I with

stay have a and safe. day good So,

Operator

have this wonderful And does and you. Thank this your today's at conclude a disconnect time Fourth Please Xylem Quarter day. XXXX Conference and Call. Year Full lines

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