Xylem (XYL) 2 Aug 222022 Q2 Earnings call transcript

Company Profile

Participants

Andrea van der Berg	Vice President, Investor Relations
Patrick Decker	Chief Executive Officer
Sandy Rowland	Chief Financial Officer
Deane Dray	RBC Capital Markets
Nathan Jones	Stifel
Connor Lynagh	Morgan Stanley
Mike Halloran	Baird
Scott Davis	Melius Research
Saree Boroditsky	Jefferies
Andrew Kaplowitz	Citigroup
Joe Giordano	Cowen
John Walsh	Credit Suisse
Pavel Molchanov	Raymond James

Call transcript

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Operator

Welcome to the Xylem’s Second Quarter 2022 Earnings Conference Call. At this time, all participants are being 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 Andrea van der Berg, Vice President, Investor Relations.

Andrea van der Berg

Good morning everyone and welcome to Xylem's second quarter 2022 earnings conference call. With me today are Chief Executive Officer, Patrick Decker; and Chief Financial Officer Sandy Rowland. perspective third second outlook. quarter their and XXXX provide the discuss and will on quarter Xylem's results They full year

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

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

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

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

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

Patrick Decker

chip moderate guidance. second the saw We're pleased our Thanks Andrea the first well the strong disciplined commercial with was orders in supply growth and the operational team broad-based, and segments demand momentum up all in double-digits. easing report to delivered organically, X%, we revenue. enabled fundamentals result in in grew Western execution performance underlying of conversion on our and Geographically, China, surpassing outstanding improvements good up ahead on on key of excluding a very and was M&CS the X%, and The supply North But team's Revenues was increased builds all strong into X% Water a Europe morning, metrics America emerging constraints. guide. quarter that and was markets, Infrastructure and performance and quarter at everyone.

lockdowns, underlying COVID continue demand. While on China to down to grow was backlogs due

growth, In momentum orders Water across team addition organic Infrastructure segment. in XX% performance X% the the quarter. to revenue orders the base, posted growth. reflects strongest orders set growing each That strong

were total margin up driven execution. by more came our well-ahead versus EBITDA sharply We of guidance. with solutions in Our backlog. half disciplined digital comprising last backlogs the strong than year, delivered also quarter-on-quarter expansion

All good which per of share our beat of that work soundly earnings expectations. delivered $X.XX,

we anticipated, supply, than gradual more the team, productivity actions channel from in and second inflation entirely combine don't a all a supply the big with entire quarter. and shout including see, some improve delivered provides What it distribution offset those segments, our impact partners on clear, The for quarter. To strong we is through work which managing dynamic improvement out market to in to I to seeing the inflation incremental pricing way savings previously we team further in simplifying supply disciplined want across the environment. and positive also mitigate you a actions believe and in than much We give can earlier our came As a confidence expected. had are quickly be chip improvement half chip outlook. will

services our from the remain to resilient us. demand We expect customers to nature need of due essential the

come we're as this bottom for the to X% year, release, So raising to organic the end over and guidance are it now few second me minutes, environment we a of of revenue full macro full $X.XX. for the XX% We'll but growth seen additional let and review in the you've EPS by our quarter. to back some raising on discuss range in hand morning's Sandy our color our

Sandy Rowland

did strong Thanks, over execution Patrick. on fundamentals slide The commitments a and our to X. turn continuing with on Please job delivering disciplined team demand. tremendous

chain and was basis well-above But led utilities single points Organic grew challenges. was in restrictions. up XXX continued residential high slowed reflects digits increasing on M&CS. revenue digits commercial COVID in Western a US. emerging a revenues the excluding In Commercial discipline Latin XX% quarter, US. and Western I'll contributed discretionary demand commercial continues strong our China, result, particularly double book-to-bill ongoing ratio quarter. and Global rise our the by As water geographies, XX% partially US. Price were X.X a X% down Industrial on Europe in strength conversion a led on activity guided with grew Europe be the sequentially. moment, of two EBITDA was by up performance that US infrastructure margin X%, in revenue AWS detail backlog X%, by range, and by offset And was point which strong, America. XX.X%, and in costs. and in to sequentially healthy execution US, incremental the in was XX%, execution mid-single short, X%, and offset Western in the by Europe all was and growth up up orders the up grew strength was in Europe supply markets, globally Western low In segment. digits, by

by digits digits, wastewater organically by the there. driven up including offset in also and to up demand robust review detail. Europe, markets backlog US as quarter. single-digits, Water infrastructure Geographically, China, digits, growth Industrial mid-single restrictions mentioned, chain to inflation, US the Europe in strong growth. Infrastructure a strong, benefits and and was quarter's by high down underlying revenue US year, US by Western slide quarter the supply large second more strong with were China, across alongside markets, versus our and throughout projects turn Latin were $X.XX, in treatment site the than combined was segment productivity conversion, in I'll in double access in dewatering were due up strength pricing demand the quarter COVID Patrick by and excluding constraints improved These in X, double driven Orders transport underpinned above organically X% Canada. the EPS bit in Please applications continued Emerging driven remained our Africa. exceeded expectations, XX% performance As Western America and grew expectations. coming supported and more business and growing quarter. the the utility last

business. mix with X. Geographically, applied water segment, Western industrial second organic We the Europe. also price Western saw new as chain XXX single-digits low EBITDA across than up healthy X.X to demand constraints gains markets the the by points low commercial Segment's partially the compared benefits and remains volumes, end was EBITDA our to were basis in modestly than declined volume up Emerging turn residential, in driven America book-to-bill Orders supply the introductions. was inflation for up In more negative. realization Please demand energy-efficient quarter price high offset demand. sustained prior Page realization, and organically Europe by volume for delivered strong by more double-digit were seen and from for of XXX expectations. markets, led was single-digits, wastewater and revenue to with investments. the offset X%, across in basis margin strong up and product benefits and revenues Despite with US robust segment a quarter. strength our business in all X% margin inflation, continued utility growth industrial North outpace grew points as productivity ratio. quarter exceeding ratio book-to-bill the while And year. our lower offset

actions Slide to I'll better let's Measurement X, of EBITDA through with to strong Solutions sequential Control demand on organically. revenue our our and expectations we the declining chip backlog. and supply cover improvement deliver M&CS continue benefit as now exceeded However, to turn business. X% expect And pricing & comes modestly

to UK. expanding strong over sequentially orders outpace revenue. AMI offering and improved and ratio XXX Segment a continue We the backlog in strong the test our of on of high large quarter Europe points lines. has quarter, M&CS orders built single-digits. was recorded of for mid-single saw volumes. X% in EBITDA down margin deals ahead a US the digits $X due some were and pipeline the growth Geographically, and and assessment declined was America in in and up services product organically Western also X.X book-to-bill We Underlying billion. markets lapping North demand expectations, to emerging basis our remains

convert driven have offset previously flows our accretion working As flow strong we to our cash we generated backlog, income partially supply $XX of will discussed. now balance overview let's an on we free by chain second turn X stability for In And cash sheet. see we improves quarter, and as the higher by Slide capital. and volumes margin conversion, of higher million,

available in liquidity. to billion to and billion X.X forward of I'll Slide $X.X the position back leverage to times. with of year. rest Please hand turn strong Patrick financial remains Net and the cash debt-to-EBITDA look call Our at $X.X X, the is

Patrick Decker

Thanks, Sandy.

delivering in a is As you've strong seen, team dynamic environment. the very results

offering the in about worth services. towns model the The and uncertainty that downs core underlying cycles. context economy, this for macro Cities talking wastewater about our services minutes offerings. economic confidence our Xylem's in discussions provide of water of spending discussed demand it's essential must ups the most for gets at our prominence the the good few in is and of is and of reason our resilience sector of Given business a that, essential and aspect and through

Xylem's cycles, also very given for infrastructure associated to CapEx the expansion, management or versus focused between the refurbishment, need So, spending water services, CapEx understand important it is and with with OpEx funding regulatory the be basic approvals. utilities. resilient. of OpEx across stable, is for a-third to on offerings spending economic longer It's represents demand water which roughly comes water and on particularly quite dynamics tends day-to-day

these not US dynamic, is spending but a applies a extent. this not once projects has against So just approved, And wavered material historically, globally. it to

level. see it the in You both Europe, regional at

the country And the you're AMP resilience revolving UK's course, the the time cycle. US For customers at recent is a distinctive value level and structural sector, only five-year are Those our advantages all through to delivers planning and benefit, Similarly, the which and as example, however, infrastructure portfolio the funding, with EU's process. familiar the state in China's if funding embedded our seen with lines federal in on work. of infrastructure funds the of funding recovery cycle.

efficient. more their becoming many that their affordable. For of technologies, And value customers, in of to is defined digital networks make with means our more modernizing terms infrastructure,

metrology Our resilience AMI the about that backlogs demand. tech grow. dogged the have offer chip for to of point that our proof have the last backlogs year, sector supply the continued a challenges ongoing Despite

change for future utilities. distinctive resilience meters deliver US, Our communications both AMI AMI all the adoption, a-third represents data also solutions, and the for of in of a in water and progress potential which growth. driven roughly efficiency shows but step the now

to entire and reduce net These gas zero Given challenges. will in are them, the municipalities utility form like impacts support its world the cycle tragic is begun emissions are increase response carbon to Innovations those, trend greenhouse our regulations It's to the Cities greenhouse emissions. flooding persist significant carbon intensity their other going sustainability meters a in the this management because for markets, both are utility investing already and efficient space the and of are and in have summer global we smart that approaches water their retrofits, to countries. an introducing contributor, up to committing seen standards emissions, face, to set solving we've to reduce pressures to of the new a they equal including absolutely emissions, here, cities, historic this shipping the growing water to And for generate leader which produces climate around top Asia. in be same to globally. construction at change in the At residential climate management in is line gas market, regional of remain to the building and cities and the industry. generational a are both water In that change. commitments. Xylem XX% accounting and customers is US with and imperative. required time, the will are in the in revenue unique position and reduce and of One outright are commitments mitigating commercial essential loss, through fact, budgetary demand

of we annual highlight all the carbon enabled sustainability You metric seen million customers And XXXX the alone released equivalent XXX,XXX emissions against our cars them to XXXX taking on X.X by Among their metric our May. goals, reduce we're I'd tons tons in track reduce have road. That XXX,XXX is progress that report off their may our XXXX. in to footprint using the we by by made our help that technology.

So underlying also is value ever confident we're respond demand customers force stepping positioned by that that macro helping very is better our confident our back, Xylem will to We're the to continue. than driving them. create

to detail over So outlook Sandy it for now, I'll color and our on guide. more and turn back

Sandy Rowland

broadly The facts our has each outlook appendix. key provided we've market presentations, the previous our with Consistent in markets for across end improved. end Patrick. Thanks,

healthy improved price/cost to expect year, our from the and improvements digits, grow demand We underlying mid-single supply through will of with modest single chain. expect We digits. utility continue up mix in the remainder now business low

the up bid from backlog on activity side, longer-term demand. resilient remains for The to On mid-single-digit capital improved and spending global growth, we mid-single-digit solid project low conversion globally. wastewater and expect now outlook growth

mid-single-digit For supply now water growth expected than from constraints. clean is expect utilities, earlier The of easing flat. main chip driver we up

improved, and lead elevated, has constrained. supply continue Although, be continue to our to times remain volumes

our challenges, our our on backlog. We evidenced business climate Please by pipeline due markets also slide services focus increasing to to turn XX. assessment expect continue, strong to momentum as and in and test infrastructure in end

single-digit for industrial solutions. from demand and US mid-single-digit at now global the low in double-digit activity and to growth end Looking high market, growth, expect we up our strong increased and the Europe

in to commercial market, expect solid the up In end on end replacement growth, introductions deliver and Europe. continue from residential, the digits. to mid-single smallest and We market we new activity US single-digit mid-single to double-digit high healthy growth demand our expect drive now to

our As market is a construction. of versus majority driven end reminder, new exposure and residential commercial the replacement

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

more range. year outperformance Our the adjusted us our guidance of quarter to and end revenue to revenue in the XX%, for growth confidence EPS the increase EPS of dollar We from of low up to by full in of X% increase guidance to end range operational our we raised of modest, and strength have $X.XX. the reported X%, organic now growth half offsets full second organic gives improvements. X% the our the revenue bottom raise The year is expect roughly as the

backlog basket included We EPS of to full changes headwind our have assumptions guide. appendix. And incremental an the is our modified this the in currency exposure, in demand conversion in on both double-digit $X.XX digits, up These which year segment. in from guidance growth quarter. $X.XX and the execution expect sooner last is by to headwind flat. FX by and driven Water shown supply reflects on EPS expect single-digit of down half commercial breaks & On a Infrastructure, single now continued XX, Applied slide we up top be on improving mid-single discussed up segments. low how our Solutions We digits in that chip We digits, we've Water, growth up first the now high high disciplined result mid-single from outperformance from Control This in expected. than from Measurement strong

carrying of the to expect and mitigate chain net of cash margin EBITDA flow inventory now our XX% extra adjusted range, $X.XX customers. about disruptions the continuity to to raising income. conversion of mentioned. we of now month our supply and range just of risk XX.X% approximately this XX% a service yields that provide to XXXX, We're free which are bottom of I be We adjusted to the $X.XX end For is EPS

to as at conversion expect historical to of back We bring to XXX%. levels us chain free return to cash supply stabilize, conversion enabling least flow

quarter, Applied on and in company provided on M&CS. be have includes your total growth revenues with growth XX%. slide up will drilling full mid-double-digit assumptions And Water mid-single-digit you Water year infrastructure anticipate XX% other to the supplement in a down of We and third number This the now to models. organic we

quarter to for sequential quarter. Patrick to the We adjusted the expect margin third over And call improvement that, XX.X% of please Slide back and XX, over prior to in range a turn turn closing I'll XX%, be the with EBITDA to comments.

Patrick Decker

the challenging saw the and swings forecasting what some shutdowns of chip We quarter. COVID big this have short-term could impact. Sandy. power, duration small unexpected past Thanks, in Currency improvement a had movements a call offering you China back. A held environment supply been

tough been very extensive place I'm a team. customers to Just our proud the of COVID, our restrictions given the to under team China, incredibly communities continuing quick and manage have conditions, on their serve there in note

our and to strong half about we're We're foundation company, long-term to demanded portfolio sustainability we thesis. a source our be We the of imperative short-term that. rising team on ability a operator see secular additional the the of do, XXXX building capital the of demand the for as progressive certainly with team's same growth seeing customers performance as China and what and our stakeholder Xylem to open and our growth improvement unexpected. from execution is business Strong being market the water long center at position across for at been our the allocation with has model. leadership is of as continue up we team uncertainty, show our kind innovation expect with our and durable In is to through opportunity a for a And operator, have won. above-market customers' we'll continued efficient. is those disciplined We're challenges. and demand, our full expansion Meeting on more create from putting driven growth thesis. in margin the the company strategic driving challenges of that will job be our by We're as our heart deliver trends benefiting milestones, digitize everything value of built good the The successfully climate-related all second and a it confidence investment run. that, Q&A. technology consistent doing let's We're the story and on serve to is communities. And operational context

Operator

[Operator Instructions].

Dray is question first Markets. with from coming Deane RBC Our Capital

line Your is open.

Deane Dray

morning you. everyone. Good Thank

Patrick Decker

morning, Good Deane.

Sandy Rowland

Good morning, Deane.

Deane Dray

supply. some better gradually, chip to in your improve what see to that the digital But we can is And manufacturers just half? been other second pretty that. How on the and it's Hey, hearing might from the you with starting backlog you able consistent that additional start maybe sell? color, news that for what's be outlook commentary quarter? the we've in And much the of with

Sandy Rowland

we Yes. Good point the in to I were certainly that go morning, pleased you XXX from a perspective, were definitely clawed we're better see if supply Deane. year under question. to We quarter. quarter. and second where throughout Thanks back $XXX We back revenue. the last of slightly approaching QX, million for the in revenue think And from a low we're

than was had definitely anticipated. bigger a we it So step-up

all QX. going supply take that we look credit to As at spot key QX, being increase into been team could from I a to really better in suppliers that little We've -- the contact close our we we year been just so give also then of modest another customers. Deane, the And see of we in step-up in some of really the the exit the market what QX has We opportunistic our in second care with think leaning earlier year more line modeled. and with year. benefiting from in we're more to half had the and a

Patrick Decker

that talked addition just in has sorry, in of would just we I past in spot add Deane the not the the – that lot work a voice that to done redesign chips on landing but is quarters for that terrific my nearing team And completion. market, work about

the cost gap the for there supply through. was added to while but the we mechanical secured quarter in an in customers. order more sure that, it also on shipped we was meters in there we're And for interim chip to so our make waiting come that out bridge to really And

So second but there than feel before. were about multiple we out the more Sandy things now dynamics, got laid half as confident and we certainly better did

Deane Dray

just more that XX% sure say That's want the I products the in real they're and numbers, profitable to and these helpful. give difference not services. enabled than our if don't that the of magnitude services roughly this I'm not digitally you the specific context dumb, of enhanced of profitability expectation and margins digitally on And products digital still legacy but side? but can is it Is

Sandy Rowland

the less richer And the and Yes. going. that in Deane, purpose year. mix the digital side. quarter. about X% M&CS year we to compared our taking of the customers of the to last them on that margins of were We are care I saw putting clearly And in into this where and our in our think with customers hands keep product was -- up digital

meaning that so took this more a time And mechanical around.

margin perspective laid I Investor as from to at in in we a last think our land we longer-term structurally from changed what year where has look out nothing September. expect Day we

Patrick Decker

given anything gained quarters MI US we are very to that water of remains the especially just brought few backlog of the in things. If terms the large how still the stronger, across, with the last over early the deals side pipeline on especially gotten bidding we conversion robust in of and some has

runway expect there quite we be to So for that some time.

Deane Dray

flow, seen most question the Got Sandy, on then free this for and supply season guidance, last capital because cash chain big earnings higher we've working commitments it. flow inefficiencies of companies And cash both demand. trimming free the all of just

dependent on frame? Just time -- what how the that the flow, supply would expectation to returning the free be do XXX% And -- you chain? really is for cash

Sandy Rowland

Yeah.

great extra we supply changes of the leaning improved we delivering backlog. expected inventory seeing prudent with And second the in of half delivering chains on meaningful our -- think revenue would meaningfully big carry it's our I and XXXX, some built that on therefore think Deane. And we yet. not question, a the for to year. be When we're plan

are elongated. two having missing we're of of we're couple things bringing on. times entire the door. to then still Lead a And and where inflation course there's, are the get So is that solution the components up able We're problems We'd balances that at in teams. overall key is latest down. we be certainly that plan inventory. time. that not is our XXXX the it long focus expect in a But do something period our and will This for key bring going still will we not one out of a or to for item

Patrick Decker

a most chain segment coming it the again perspective Applied brought second point from inventory that in extra knock-on month those expect continued that's Sandy's why Water, be to And we Deane, an whether had was business. Obviously, half. of to we've notable out due continue where to in into China somewhat effects in And casings COVID. supply we of

supply So control. order We exactly a demand. that that to matter in is. maintain it what it's very and visible. meaning know do to It's It's customers of totally under simply

Deane Dray

That great you. right. All was color. Thank

Patrick Decker

Thank you.

Operator

Thank you.

question next Jones We Stifel. our Nathan will take with from

line is Your open.

Nathan Jones

Good morning everyone.

Patrick Decker

Good morning, Nathan.

Sandy Rowland

morning, Good Nath.

Nathan Jones

the M&CS, revenue back expected getting able and step-up continue How to back that that probably fourth be out pick the you Investor to in that's quarter, might think Where get it's talked into going we then year. margin kind Day? enough Going a you next to to improve profitability the of going targets you level I the we asked can path assuming up those could to at that of the to Maybe little profitability third the talk see get you bit quickly on business? questions the talk laid XXXX? in as to Can about supply quarter, chip bigger in Dan that how business progressing. and expected on to about about you've a

Sandy Rowland

Yeah.

I a obviously question, really important Nath. think

I expansion call QX to flows. on point the much see as think evolving want perspective, is QX. to partially XXX I'm by kind redesign should basis QX QX. guidance out constrained And the of QX, And the Q a optimal the costs back I seen that from to not to that's But XXXX, margin the that trajectory as from would earlier call volumes, out from mix time on points of one because of anything a things XXXX pickup the period. we in of referenced the going thing the we in look margins this we've margins low some continue manufacturing not out in same from half where we we've don't expect that mechanical to there's revenue the year, higher of into look we structurally to of but recognized land But on different XXXX give call. as we about along already

Nathan Jones

Europe Okay. and My follow-up is Industrial.

the from Europe not biggest One of concerns that. hear you not we only seeing are investors is and industrial

business And particularly potential solid that side you expect business, and industrial about think industrial in the Europe? to react there. that was in I and quarter seeing orders of one of talk in how a you general, the can lot the areas if Maybe for stronger growth there? of the recession of the in then, can would terms the the resilience you talk the in about trends you're that

Sandy Rowland

Yeah.

it's a us I there's particular. seen in We've spot. the Europe, recession potential a across segment. bright one We've Europe in not portfolio. concern And really entire just It's and industrial real orders. seen been think lot revenues market in good for Europe. I has the of in know, good about

markets call we out and recession. exposure end industrial, much gas you I that, lot thing, to than business, look would for oil there, diversify to more is our in the example, less a done think we've the is which prior did dewatering I if one at

of we've think also been geographic market. I And diversifying we're down to perspective. course, then, about in revenue there from that end X% a

Patrick Decker

you you and XXXX look the Nathan, held publicly growth would at business kind industrial back timeframe, up, because still in recessions during our offer terms XXXX, of European in just Again, are go I back time, the this, if kind of over previous that of recall the less timeframe, results grew Europe up but the middle of So, be so We being think again. the that. market we've example, about good in recession.\ that got. And exposure it in numbers also – end I still X% cyclical that feel there think industrial would we XXXX, for an resilient pretty given despite much

in you more to we've – yet. first And we've any again, if softening would see applied would I that to be not well in seen businesses, which our this as it orders be we think be would know, water and short-cycle which dewater. were point, not it seen

we're as Our can backlog opportunities good those we've we metrics grow investments. began take, after actions be to on record backlogs. productivity organization, and issue, phase see our been through, weather and in losing we pipeline continues markets there And deals again, and would the the book-to-bill, coming still the if have past. that We we've further would obviously the able pretty any without statement fact We serve. of business, that, we go to to about and to the across that done chip strong supply is backlog the and resilience sitting those

Nathan Jones

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

Patrick Decker

Thank you

Operator

our take question with from Morgan next will We Lynagh Connor Stanley.

Your open. line is

Connor Lynagh

Yeah. Thanks.

bit flow Just wanted a talk allocation. capital about cash and to little

it full acceleration. sort can have side, the get flow So, I'm capital back relief half. seem cash to looks through, to number. working on anticipate on does guidance year a CapEx EBITDA cash some the free good Obviously, you flow we just thinking your of like pretty in the investment

you capital in because anticipating? just sort is you work be you're working a – seasonal that inventories, that down So will to that is think or of release that starting

Sandy Rowland

place to half good a a working of start on of over We doing are job – do inventory we down going some dramatic. I a the our months on through nothing teams No. And It's year. capital. been the six next Yes. around the gradual have to take very It's working back our the have Great elements plan think basis. question.

We bring we call. on sure we've similarly, in to around, hard and we're may in, pandemic are collection lean that seen make on from going referenced – collections, good work to continue payable really getting those it another And I have through a perspective. front. doing terms better and results the our on

I that base program, and days a of supplier chain a our We historical discretionary make we prudent active, of And take as will seeing it quite second CapEx with a cost cash all up allows on getting that's to well. some spend lines incremental in base better conversion our into to perspective. advantage have the being our start supply think, that also half, financing us around We're credit it and give seasonality which from our and supplier spend, payables ties and sure, more rating. program engaged

Connor Lynagh

on slowed Makes Just the cadence sense. you of the around what color of was because business? you're there? thinking it opportunities quarter. emerge on concern any that state like driven And your starting then, looks Is Is in you're see noticing, to by any M&A? it buybacks the more I

Sandy Rowland

Yeah.

vesting strategy, bought So a in our we strategy. have haven't back quarter, our capital our allocation the first we changed We've date is in compensation when stock which typically programs. equity

funnel, the up a we encouraged really QX. our stock the look And really opportunities, so and remains than that at back see buying by time in March as We M&A bought frame. and higher nothing at was pipeline, – wrapped range back this that us we're stock. in priority we funnel, for that the our – of a we And still

Patrick Decker

do at be that, that look strategy add are to But powder, that just in we've we hesitant advanced $X serving of not Yeah, I done. to you balance would sheet, our we've dry upwards it needs when our to be and out. laid in if all got a about in deal would again, billion

and say As sizes pipeline. Sandy again, tango. disciplined an creation. pipeline eye active towards again, all want always value be said, different selective that continue two And to is it the of opportunities we to I takes very But with in to as significant

Connor Lynagh

I'll comment that else – ask Makes somebody Right. thanks. about. for leave to But sense.

Operator

question Halloran Baird. next from our take with Mike will We

open. is line Your

Mike Halloran

morning, everyone. Hey, good

Patrick Decker

Mike. morning, Good

Sandy Rowland

Mike. Good morning,

Mike Halloran

Many thanks that. for

trends obviously, is the around So How here stretches confident backlog out know, things to bit compare normal how ability I are at out this you seem – – looks that from or could here? pretty do point? that little a spent out like? does of the you how as booked guys obviously, in years talk visibility how And the get underlying to the color you you the any – a about as talking to about end backlog react that Maybe we of much there. really can time visibility what lot But so market. you your strong.

Sandy Rowland

Yeah.

has Nothing good our really structurally question. I think, changed backlog. Mike about

the you and orders business larger record really If an our strong segments, ratio carrying look book-to-bill across segments. across has did in perspective. other three we of a at we're portfolio that than backlogs quarter see really our the AWS And all book-to-bill from ratios the

longer in out middle. Water look and for Xylem's water infrastructure they infrastructure is at of time. periods the M&CS we our As stretch backlogs,

M&TS which the there. transport have stand the chain with and which years. fairly $X month, business, magically billion turns projects have business has a that we coupled for constraints, that one multiple then at out any And is a disappear backlog quickly supply longest treatment We don't our

a to to to couple years work that's So take of work going through. plus

Mike Halloran

Appreciate start in EBITDA to How your cadence then the year the on you the whole? putting that the half that. dollar of sequential basis through? inflation price the pressures. the side when What back margins think cost you're on reflecting catching relative up positive an improvement think does work And pricing price do you

Sandy Rowland

side the QX lower typical pleased Yes. dollar the a little big cost from throughout infrastructure revenue did also I dilutive perspective, we We've we water in because higher a year. a price, positive what on from business. on are we seasonality in leaned is the bit milestone really inflation perspective. saw slightly coming seasonality a given get A it's quarter from harder bit magnitude in mean, to lower because the price the with to of rate QX. a in just little price the our QX is compared in --

in magnitude expect of should a in from a in QX, perspective. perspective still of neutral positive dilutive continue this QX, quarter probably XX a order the that again we same to rate then And basis, and positive think be dollar And we be we so a price/cost about basis in magnitude perspective. from to dollar order points rate on from

this to the milestone. progress So, good important across reach portfolio really

Mike Halloran

Thank you. Yes.

Patrick Decker

go just back could I If to backlog. your and question on visibility

even have here the partners, now industrial closest channel our where think channel better partners is feel than Europe, and the in visibility business. we have better dimension we US much we than we the meaningful now distribution the did other to our downturn we I last visibility in about that coordination in then. them back indirect much as And we've the as channel both with did got well and

time forward. So we a we about going two, surprises of not feel hit that with last got a happening around or quarter much in better couple

local going the in at eyes So what's ears our and on a marketplace also they are level. of

Mike Halloran

Patrick. Thanks, Sandy. for that Thanks

Sandy Rowland

Thanks, Mike.

Operator

take will question We from Davis next Research. Scott our with Melius

is Your line open.

Scott Davis

Hey, good morning everybody.

Patrick Decker

Scott. Hey, good morning,

Sandy Rowland

Good morning, Scott.

Scott Davis

of getting mean, lot have supply about couple quite for been some a chain gotten I the the A non-chip little things I faster time, stuff other supply better easier. challenges issues, we've the chain talking related here. mean, materials chips

Patrick Decker

Yes. a the modestly mixed improved does Scott bag. segments. I'd It's great question. another supply aggregate it in has say, the versus QX, across three vary really chain but

improvement really It's But then but integration certainly, getting we're to So limited competitive would extra is they're ply carrying as we times as US. logistics in I work the from that's European our inventory water mainly we lead also last long castings, better. say due mentioned still chip within did what And month of through. because has getting in they're by see we're of more better just the shipping lead water have reasons the the that of that's on and to bit And an but our lead not offering we seen benefited vertical to over delays just having company. one again that but earlier China not main effects we applied driver. continued a water. mentioned, knock MCS, into infrastructure, worse, factory better And are from times the infrastructure year within supply times but we

better by it's the but board, it marginally really segment. . across varies say, getting I'd So

Scott Davis

it projects I a -- I this had remains up mean you've of does how the year -- When and about little pushed, when then then XXXX existing their kind controlled bit China. think push about catch And their projects the have about work? and like economy cadencing it you how like CapEx you to stuff and work? talked plan XXXX everything does China budgets but to they that the does think does they try right? we lockdowns how it does and

Patrick Decker

Sure, yes.

obviously, a -- big So and market. it's

So -- find the more talking it about. depending is is we're markets that What does the side vertical the stable. end much vary utility we that upon

don't though back and catch-up in presence much and right. I terms been It see be standstill all of, staffing not projects. be required to Scott, projects logistics normal be are kinds there simply government-funded are an These from at impact the go shift because to have kind right and for now our plants May transportation home. would been a is to, not colleagues levels back lifted. away. the So They but issue not the for as it bad those accelerated has the to so that mainly restrictions would believe returned at thing us We the a and up But of that's And of really running. we was. in because customers projects past

get we're to see not get in we That's view XXXX. right. utilities open. of mean, customer in simply partners being to attractiveness but stuff structural of factories half second things China. we're to a the going the to expect being in recover simply to distribution recovery come what and no do any waiting sites, This strongly changes that back is that moving much assuming of matter plenty But the to on our the this to I year, job not our capacity got It's of we've in this quite of sites not So We're as out. recovery. open.

Scott Davis

luck. Thank really That’s Okay. you. of Best helpful.

Patrick Decker

Thank you.

Operator

Lee next our question with take Brian Goldman from will Sachs. We

now is open. open. line your Your is Brain, now line

Unidentified Analyst

on This Hello. Miguel Hi. Yes. Brian. is for

you're supply. been side kind chip recently anything cautious that doing more still or supply talked you definitely of question it's the the commentary on the been chain on have it has sounds lot on chip been -- I peers out there, on supply but Is on specifically your it's more a of supply quick helping what maybe some a improving, chips. like bit Just about is versus there a peers? know the but sounds

Sandra Rowland

peers. our of all for speak can't I

closely consistent working some been working suppliers. been we said The very have year product exit we that upside we work -- strong what not M&CS. the the I as that other within also to And with It's have as very expected. our It's with lines where drove think, chip there good earlier, chips the been have we supply get on in some earlier. trajectory very is better been M&CS, well. only

services So results business. business, from we're with assessment pipeline our our some test seeing good traction

for broader the also had portfolio that of so us year. And ahead get helping modeled we is what out

Patrick Decker

our with it's I too Flex, peer relationships than because with we whether thing only own. really strong demand The platform, suppliers but we've I doing whether we other would who all things group, got be suppliers. change. got a our a Therefore it because were we've chips you're our this more would concentration. it get and in stronger got could least gives direct on be it – aggregate higher I or about it with do think, from much share And digital, But the what wafers including upon if that it some I bit and I'm we partnership perfect visibility leverage partners, to depending add, not stronger us which good cautious talks we've be the at think our on somewhat

patient has number and relationships And the But we these those pay-off. got beginning mean of and – that of have I we've more and you the to the So been some things it. investments leaders I are those be had and to. just – others on been these it's with of also working just relationships team I calls to than wanted think companies

Unidentified Analyst

color. I’ll the Understood. Appreciate it lot. Thanks on. a pass

Patrick Decker

Thank you.

Operator

next our take Boroditsky Saree will with We Jefferies. from question

Your is open. line

Saree Boroditsky

Good morning.

applications And remainder geographies. that be quarter? you Could most the a margin about in during to that year? the continue had on dewatering the benefit growth strong should March for talk highlighted you of tailwind the So across

Sandy Rowland

Yes.

a look been is business infrastructure factor. certainly, sits, in a performance. margin the good business dewatering contributing really That water saw at And resilient we recovery years. look we you couple if when So of the over the most has past

more market seeing to some upside perspective, a work well. and a modern gone and side business our investments an purposeful end diversify geographic in rental that into it both so has the from make from as on made fleet hard And lot dewatering our we're We've of current it to perspective.

dewatering orders momentum quarter seeing global continue the good basis. a on So there certainly positive in

to helpful infrastructure. expansion water the margin story the So with certainly

Patrick Decker

cyclical Yes. one like on not would And shorter it the – it it's downturn it's I certainly, just add I of that up. immune hits just it's to cycle businesses we've mean got way and the up

within area I and on been our upgraded where America, benefited think leadership. other from most that integration we commercial it's is the think full notably North team, I in

have utility other from muni been diversification there looking the and investments Sandy oil away been our of think opportunities, some heavy mining portfolio. in I has businesses talked that as gas about. really and And and where visibility at more the there's with

services by So sharing our teams. with leads field good generation lead

growth really first early So the order there. we're that, double-digit of of the maybe side good that hope had the some the through year continues. on we we've and but yes half here stages We're rates up in

Saree Boroditsky

a growth Okay. then there, colors talked strong you've in And about but outlook of quarter. MCS kind declined lot obviously, and the the organic

again? positive just turn you expect see do So orders wondering, to

Sandy Rowland

still running a orders you been past a of when on to orders, the in quarters -- several we're we've a and look the from we're at ahead from surge when while MCS over real revenue I convert print think negative, dollar able had what the for perspective. have may so orders headline orders perspective, well

orders the The continues the has had converted to AMI, quarter, innings journey. we of We're one-third in conversion About early relative AMI North robust. America. the to to revenue. still really pipeline of our good still in in $XXX a million overall is be of number which the industry think I

a traction. we gaining have there there's differentiated So, a lot that's still really runway of product and

Patrick Decker

pipeline some more forward are is right when I a business. the it earlier, be deals, coming is be last bidding certainly a Yes. those we're know in And comps, to deals is big ever how now the we'll because I in it are big think on. that rich And year, big that as as we going there have like of to, nature big transparent, us deals of even difficult but what talking said about other none quarter you element year-over-year of

we hot big deals have for some been of big And so, running so, better on part or years X.X books. the

on So we pipeline. were that positive but very

Saree Boroditsky

Thanks question. for taking my

Patrick Decker

Thank you.

Operator

Andrew take our question Kaplowitz will We with Citigroup. next from

Your line open. is

Andrew Kaplowitz

everyone. morning, Good

Sandy Rowland

Good morning.

Patrick Decker

Good morning.

Andrew Kaplowitz

Patrick, on forward may maybe funding, seen you in. of water about could front flow moving about, And thinking said are the seeing you how talk into any you yet? [ph] to XXXX? funding that I be that how and municipal . starting what IAG you're Have

Patrick Decker

North not in very And seen I we've No America. meaningful, was obviously really strong quarter mean funding have come yet. all, Yes. especially demand really We and of emerging in in here seen good really first here, we've not ex-China utilities the from markets see mean standpoint, -- we I a in through robust. anything -- well Europe, stable

lot bill in on funding So that the prepared going the and a EU. in upside. would got the US. about still recovery I be we here my And talk infrastructure as -- comments, you've also resilience in mentioned the But

in at planning that's talk You've about. embedded got process, got country which infrastructure funding the UK's the we unchanged. remains level And five-year then Sean's five-year cycle, that you've in the

strong together, So to infrastructure a spend all globally. utility think funding very point those really we for

Andrew Kaplowitz

talk Obviously, the seems maybe as and how can price forward you're about in you mentioned overall that improving, and you of productivity helpful, also cost That's It is go Got. past. dynamic? labor like know Sandy, you've it's And constrained price improving. the Patrick. about I that you but cost pushing productivity impacts how sort talked

Sandy Rowland

Yes.

the we cost in I excluding So quarter. positive were price productivity think

really that encouraging. So was

improvement driving product we're projects We have -- the across a that pipeline of continuous portfolio.

year, Some a of work. engineers improvement constrained of off moved continuous bit on that projects, little this has been we've to redesign as

through there As that and story pick quarter matures our resources sequential be focus part Patrick on on a we the the talked globe it's projects that improvement contributing on and of up and able momentum some are of test well. think the a to process, doing improvement margin and basis. But productivity across continue I our about and teams to call the work back to sort front as is the looking of certification good in job bring earlier move our we'll continuous

Andrew Kaplowitz

Appreciate it.

Operator

And we our from Joe Cowen. will take next question with Giordano

line is open Your

Joe Giordano

morning. guys. Hey good

Patrick Decker

morning. good Hey

Sandy Rowland

Hey Joe.

Joe Giordano

Hey.

at think you you -- like what what it to about -- went when how maybe start -- when think reality. back is when and you all This going going think So, supply some come chain, you this structurally think we really look well. to on about sorry when like like we out alter things did this normalizes to is a M&CS forward you meet we you're that kind thinking need of new do

Patrick Decker

It's a great question.

think -- can Sandy at Joe here. right I and certainly certainly I comment look it as as now

I weekends well think we and and through a morale, did continued chip supply days navigating look people holding to we're team together, spending through shown quite are and on board. Nobody say really and nights going with and is them working customers and over on suppliers. But the the working fortitude it over back show commercial over holding with and through. phone on Customers again team's the our keeping -- to teams happy.

of that the cancellations that. that no backlog margins two, no think is chip fact due backlog to the supply. have been And record a I testimony there to in decline a in

meters. make by had on mechanical at on of impacted near-term meters margins have on some lower our Our been selling the some choices we've spending other redesigns, in money than margin to

those column. I all are going be think the so plus in to And

learned long me that I the for sooner get we think to think we to mind by much. on work. get it all a takes you're think we going that that. could better missed the I a to little done the one through think that redesign sort we was don't going comes because probably I while on the that, there if have to it were of get you I waited But things too differently some

out it but be my of So, that yet. this, high-level would on takes not we're

So, reserve the we time right still to smarter. get to have

Joe Giordano

they seen who good hearing maybe like from more color. increased like products, your then margins ask benefiting this some competition been situation. you Pat. I'll but to like you fully tougher currency maybe are in prices. are international you, don't are from That’s selling so international seeing Have have comparably of and of Thank local guess other raise one companies. basis, US you've that? competitors And dollars, you I need some in their any really cost Are guys a

Sandy Rowland

they seeing with been not really taking nobody end that seeing markets this We're has competitors increases. market. also across mean inflation Joe, front. immune that we're are to price our meaningful on anything our I in

competitive we advantage. And price so leader been where the we have have

And so--

Patrick Decker

And of We that Europe. have a different or that base other somewhat of peers some structure follow. that competitors. our a for structural European probably competitive we lines than products example predominantly sell Those are companies our also out product you

So, we've whether be got great it it Sweden, UK. be it whether Italy, footprint, whether be in in the

US. our US-based companies -- things to still competitor our we ship So the we've being most America, part, also. reduced there markets those lead are times North and In on serve, into for the able the

of out not there's We're to ways So, that all always structurally that for in competitors. same further We take We're don't vis-à-vis of cost and looking and granted. reduce boat. kind lead localize big for take times. our just the disadvantage a

Joe Giordano

Thanks.

Operator

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

is open. line Your now

John Walsh

morning good to and say Hi, nice quarter. wanted

Patrick Decker

you Thank

Sandy Rowland

you. Thank

Patrick Decker

it. Appreciate

John Walsh

initiatives, talk lot And to pricing be of some et you. much price surcharges? One, around cost. the you I cetera. be A just seeing of of is wondering, price materials, could tied big much how cost buckets structural it about sequentially with ground done you've might think some And just you're then, Thank logistics the you what structural? know how covered, if question

Sandy Rowland

from one John. Yes. approach what the Thanks we done increases. last What permanent taken on we've tack perspective, to at the a pricing I'll Yes, we've first. is the -- price look haven't And take for done you surcharges. more question, when

road there. our map been that's So,

moderate started a year, give the second because a of step-up it QX half year, the of We'd color back in we year we a to in that that bit little price from on was QX. the our increases. saw price me Let of from last turning realization expect the perspective, price half big to our

think people, the cetera. would just overhead, with will inflation level in other still headlines a So, on the moderation bit freight, in second the et And of there's to I close labor, remind pricing. I seeing categories, some that commodity many been some other out We're thing, in half.

in, in be the year, the first in so, an a net-net, better And inflationary all we were But place environment. we're to half we're facing half. still in going than of second the

John Walsh

kind any last just price. the can follow-on, experience obviously, that. you provide of we time more commodity deflation of just ability commodities, saw you the just as historically, And then Great. but a noted I color maybe curious and it's mean, as than

Patrick Decker

tariff one The of and rolled and a they we the value because back, Yes. of were understood the of in. tariffs example situation not those were -- customers, those in you increases give if we we the up take that situation were selling when we did heavy then to were number our

at rollback so, on successful been historically, has hanging to And when that. there a in material we've inflation, pretty been

in they there's don't the or that. sure, there. here back. So, exception an entirely But successful But almost numbers, I'm two headline in I or doing think roll

John Walsh

in Great. me Thanks and Appreciate questions. Welcome. fitting for the it. taking

Operator

will from We Molchanov with our Pavel next Raymond question take James.

open. Your line is

Pavel Molchanov

problems Thanks acquisition Obviously of questions. and you opportunistic look seeing at ago. this everybody chain middle the for targets creating and that a on kind Are you, perhaps for you supply any situations disproportionately prospective market M&A? players are an touched some taking probably quarter situation my affect for where could of be smaller struggling to

Patrick Decker

And needy way. challenges. in an chain It's it perhaps looked all when quarter into No. was earlier I even previous question. raised it at were that We supply we think interesting really the never more,

that big or chains much at lot asked not mean, a that we important couple got a time. that offerings. all I time us more supply I of that new supply Joe be look at now most something be to We that forward, the so the this and earlier, we've line but this going of are companies whether a are ourselves. pretty is not needed will managing speaks because their at chain pipeline question that to of have, I it synergy they're still be it at right the seen, really do haven't We -- of have ways in point focused it chip to advantages one a I And but whole well. Having being But new look about the I road. this now. think be as company our maybe better said high-quality always specific down as world believe else competitive it's the thinking form can and prominent mean supply go. product in do the And the may on good at scale, got interdependent they we've think

Pavel Molchanov

the U.K. Understood. experts water outright A without decade, saying a of day government striking experiencing the smart U.K. the about of the that be specifically. would other headline. scarcity by from pretty this metering, of water follow-up the one There report the implementation end was

Just thought, get I'd your perspective on that.

Patrick Decker

Yeah.

the are order funding late go they their they have piece in what look at things things one was of preempt proposals a utilities scarcity. U.K. the was for top where approved. get to in to confirm office all rate that. that around efficient lead on, regulate all have three focusing what can way. each is come it so through all in So serve I And of to published cycle And unlike last this mandated they're the of U.K. losses they utilities reinforce is on five-year they visibly any when cycle with the that affordable But cases or that to It approvals, for prognosticate And their an the and trying utility virtually in do that to there around as that, solve they AMP what how their cycle you the to that very that we is water priorities which water every the I is XX prediction. can won't were before, is,

prevention deal. and change big some in was cases, common also impact then infrastructure. terms climate theme So in more of that flood resilient a And building

a very So there makes attractive it is a It there. market. lot

helpful. hopefully that was So

Pavel Molchanov

much. very you Thank

Patrick Decker

you. Thank

Operator

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

Patrick Decker

for of everyone your need and continued a for long thanks here. questions all I bit support. know run you're you'll very your I enjoyable interest. know safe Well, a trust I remainder appreciate today earnings time a season. the year we've summer. the even the I and have

attention. your your time again. to and hearing to appreciate And look you I we forward So

Operator

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

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