XYL - Earnings call transcript Q3 2024

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Operator

Welcome to Xylem's Third Quarter 2024 Results Conference Call. [Operator Instructions] Please also note today's event is being recorded. I would now like to turn the conference over to [ Keith Butner ], Vice President, Investor Relations and Financial Planning and Analysis. Please go ahead, sir.

Unknown Executive

Thank you, operator. welcome Third and Call. XXXX everyone, morning, to Quarter Xylem's Earnings Good me Officer, Grogan. Officer, Executive are Pine; With Chief Financial Matthew today and Chief Bill will XXXX third fourth on their and and quarter outlook. discuss the They quarter year full provide perspective results Xylem's

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

the call this will slide and our section turn accompanied A are website. a website Slide in midnight, be November call reminder, webcast presentation XX, be by replay available Please the via to X. under and of a playback Investors Investors until today's our the heading of the will Events. As of for section available available Investor

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

Please turn to Slide X.

segments key beginning both basis, performance provided comparative being prior including change on and metrics of the have of metrics a the to metrics, made summary reflecting of year. with the segment We in year you with the non-GAAP GAAP references as a

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

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

Matthew Pine

joining everyone, thank you morning, Good Keith. for and us. Thanks,

team press delivered morning, our the release very strong earlier in in the quarter. this earnings seen you've As

business. In now was also team the rate EBITDA share schedule of and to ahead the margins in delivered whole result well The capturing discipline fact, expected across quarter. and cost per momentum the execution We're ending synergies run accelerated want record targets. integration Xylem our Operational the earnings year Evoqua. I of recognize in above for the disciplined record our

the Our portfolio optimize from and profitability also our benefit work organization. is our to beginning simplify to

serving segments all in across strong growth great in solutions. orders framework. systematic continue book-to-bill in to that the end to than reflecting All is reducing customer greater markets our showed in addition demand improvement digits were up work differentiated with Xylem's in a single resilient that X The delivering better team margin healthy Organic focus service long-term our of prefer our delivering in of orders quarter. complexity high mission-critical customers support overall underlying

giving in the in midpoint the expectation. us short visibility demand those Moderated are revenue customer despite revenue tough narrowing in position. timing both to pushouts with to underlying ownership of stake a in guidance MCS lower term. a pockets Overall, by majority Idrica of and sharply in good Orders full the and we growth year. up market joint year healthy with be few a the in quarter QX, softening Also earnings maintaining preference. through combined continues versus project our prior was compares segments, increase expect and slightly driven end demand we're With WSS QX, indicating primarily venture, resilient

intelligent the Having and global Idrica is heart became leader took in for out more for deployed utilities. data than technology. the analytics We customers distribution reminder, last XXX a of for utilities. global borne in platform a the management world. been platform water has the solutions around year our partner view of operator utility Xylem the minority itself, the and a The the stake been powering at As system

to continue teams Solutions get Xylem's with transaction, segment. And into customers. with & Our will this Measurement traction Control be the consolidated business

going over outlook. the I'm to to to Bill position and our results, financial into get Bill? turn Now it our quarter's

William Grogan

Thanks, QX and driven quarterly a by demand and infrastructure, progress transformation. margin the our remains I thank executing in turn effort resulted our WSS reaching $X.X EBITDA Please The earnings per solid share. water and their offsetting pricing entire notable want operational MCS. backlog strong and Matthew. record-breaking quarter, continued with backlog growth to to past-due progressing X. in on Slide our and for organization in organizational was focus Productivity billion

Our and ratio WSS. driven X% exceeded by primarily quarter, the in X and up book-to-bill orders healthy, were MCS

versus challenging despite of from year orders of our prior modest period a revenue line up the offset points Productivity moderated basis than WSS. margin and and incrementals of investments came and XX.X% strong, more same delivered driving remained at from organic revenue The discipline timing MCS in growth X%, mix total XXX% project consolidated XX% on quarterly last and below a comparison expectations. growth. operational XXX moderation team's year. EBITDA the growth grew pricing savings QX The inflation, in slightly approximately top record the basis. While

surpassing a $X.XX We prior year. marking record achieved $X.XX increase also midpoint a the by XX% EPS of the and guidance over of our

adjusted sales. timing net prior impacted net Our increased increased capital. balance by net CapEx has higher in income, free EBITDA working robust by efficiency conversion debt and was driven to The flow XX% sheet year. quarter of Year-to-date X.Xx. capital of rate cash from at Working by with offset was XX% by remains the the

Let's to conversion. than decrease Total we smart Solutions, roughly driven were a billion, backlog. were ramp by able now metering as backlog their continue $X.X work Measurement demand MCS turn from analytics of we faster timing XX% at Control able below sits XX%, smart pass-through X. and up up our our driven deployments. year, due strong organic and XX%, was customers to This Revenue at backlog schedule was smart to to production metering Orders & project demand. by by to were past driven down dues expectations our execution. prior In Slide metering

are seeing and strong, is North is Europe We overall still for markets, pipeline solutions emerging pockets America. healthy of demand our but in softness particularly and AMI in the some

orders EBITDA performance price inflation demand XX.X%, in quarter We robust basis incrementals segment. up expansion with up margins Water points EBITDA which the transport In XXX legacy was from Productivity prior volume, inflation incrementals. finished and quarter, a price margin and up Water of Infrastructure XX% XX%. productivity, with Year-over-year the year versus than XX APT across X% with margin more had treatment, and driven by basis the at demand, more offset transport. difficult by Evoqua's was strong driven increased year, for and Revenue treatment which were slightly investments. by strong given X%, Infrastructure, off strong were offset and mix, comp points. than last

with In was ship dewatering X% dewatering. XX% and and line Revenues by by price basis next driven out orders primarily segments, Applied wins, projects, sales in inflation Organic Lower water by and markets. year. Water basis down in few mix points. in with inflation declines emerging XX X% productivity EBITDA and which was mostly up X%, from Water, the the Segment points points our Solutions orders and were but price. savings strength basis comp within sequentially. increased were a offset Segment was difficult year-over-year X, XXX project saw higher in strong offset due expectations, Rounding with in will treatment unfavorable volumes, capital strength and were up in revenue XX.X%, primarily Services reflecting increasing and down Productivity XXX driven robust EBITDA a outsourced book-to-bill offset margin and softness large project timing declines. to margin by volume declined quarter. demand at

Now let's year Slide to and guidance. QX updated our X full turn for

we and are in year performance our part year-to-date updating full commercial our guidance. both of Given momentum, operational

guide our XX.X%. volume, $X.X we roughly are accelerating margin in billion expansion offsetting to reiterating growth organic and are driven cost guidance approximately basis going of very inflation. expectations, revenue of with year, points revenue growth EBITDA further of revenue run well, In The XXXX. integration expansion we our results simplification exit productivity rate expected of and and cost in our about XXX driving X%. productivity, million of an prior $XXX Our is light Evoqua approximately through synergies lower and including by higher operational represents of the efforts our That price versus confident are margin synergies XX%

conversion income. The We to the WSS and for XXX% full the expected do EPS are digits half. fourth flow prior to We at has year to mid-single the year in due our $X.XX $X.XX. Free grow expect low guidance high still is to with digits from significant versus least changed net now grow narrowing conversion teens quarter. for of project of of cash second be to segments expected outlook X versus prior $X.XX in expected impacting delays now outlook to single mid-teens outlook our both to MCS $X.XX

a For X% basis. the to and anticipate on quarter, fourth reported growth X% we be to organic revenue roughly

the of to yields XX.X% fourth expect of to to This be up basis to $X.XX range EPS XX quarter margins We fourth quarter $X.XX. EBITDA in XX%, XXX points.

have momentum solid long-term strong our and and divisions demand continue anticipate across have to orders and We growth healthy applications.

any we our efforts monitoring remains election and address XX/XX environment, we simplification long-term the fourth short-term face time, to our implementations improvement key overall quarter outlook and are tensions our supporting we for only challenges including closely our may tariffs, over also among help While to be geopolitical uncertainty, the framework. And the margin to macro systematic not positive. look but drivers profitability

turn to for Slide turn I'll X, closing With comments. the that, over to please call and back Matthew

Matthew Pine

turn, results us continue which expect alongside Again, for performance The to what The up that team's to the of same of growth discipline profitability That demand customer strong integration comes The confidence demonstrate and quarter. in get team showed orders attention I'm our synergy execution, out shows deployment. focus in of record commercial targets. the capital integration solutions. level team's and as proud margin the and enables optimization gives Bill. only demand. ahead on expansion accelerated to us same momentum from delivering guide the the put on us execution team's focus portfolio the on Thanks, is real narrow our continuing risk greater healthy in to we

look model work doing coming and quarters to see our meaningful results. we're to referenced Reaffirming up Investor the and the some as operating I that showing our At culture, what the work structure, said and our beginning benefits. simplification. to process coming sharing of forward in continues. I start We're benefits already on it's we're on the see across about call, we building work May, Day more through in we're the in of momentum beginning at the

close. quarter's the a I want share executive team, change which after to the Lastly, in happened

You our segment's markets. first but seen his a cross may to Franz industrial prior a Water I Cerwinka. Mitsubishi momentum I her many ensure succeeding of leadership and in work. not path maintain and given emerging for experience contributions, adviser markets. segment the also Meredith at To smooth and to the and Emerick to announcement Applied in across there Applied Franz has his solutions have of XX/XX at transition engineered want buildings end on deep only appointing a stay range to as her senior of thank Meredith experience lead commercial the residential Water, for to Carrier,

team record coming track I questions. leadership to customer turn that, months. just centricity. value to on and the getting and the I'll know in With the profitable She leadership back for welcome you Meredith to you P&L her discipline growth, call operator, and know has over week, last a We operational Xylem's emphasis of high-performance

Operator

RBC Markets. Today's [Operator question Capital at Instructions] comes Deane first Dray from

Deane Dray

with you very projects. referenced timing start you WSS, contracts capital specifically, and then like how of of there. of time Maybe what We're approval When decision-making. start kind do outsourcing the And did of lots slower industrial just of see companies about of we this get timing delays, these released those start the can hearing talking to decision-making impact business, tone process. kinds we'll frame,

Matthew Pine

the so a would provide less it into I primarily up but with XX%, over But some up QX a although tale start M&CS. details. do over call hand bit is I'll Bill market to end high-level it of turn we stories. perspective double X anticipated I Utilities for than digits, what I'll just to us get Bill, out, was really before and to to

X%, quarter, you our internationally. a end verticals in side end On softening general, where mining respectively. very all pushouts softening. other our the and markets. of the those largely I project commercial the as due in industrial orders that in building That's are were saw of and down in strong the say is to But markets some see would across little we from slight And bit general

it Bill pause detail on to maybe Maybe get over turn and there WSS. some I'll just into to

William Grogan

coming WSS out So projects the aren't of for cancellations. These yes, the just expectations are some These quarter of again, in the difference timing between in our is that the back these really, pushed really delays. half.

to we And markets some elongated projects commercial of. rate are of Deane, complicated of are bit little in that outsourced Some just a due interest really just the some water giving delays then uncertainty or projects. election project component these and a industrial negotiations, for big pause

to support projects application. of the these is and continue differentiated a to have critical technology We water component

is just confident that highly we're this So timing.

start in to the be We put have orders. do just place. when It's they

all the fourth the the other And upon as then at beginning quarter quarter. business expectation indicators mention a we're bit maybe is back for is again of thing would Our of tough we the continuing in that had based up compare really pick well the getting. this I in year again, and little softness the

put forma pressure year, was half. the Last we on talked that pro the XX% growth the experienced just basis. some back And an last in we organic on quarter, XX% pace growth

fundamentals bit we're QX. but still back our high then and for in demand that unique year, little in confident positive A strong, quarter ramping we're exit delay we are as here So fourth solutions. the the of

Deane Dray

MCS. see put us just growth which pretty business and follow-up you been was to and actually spotlight that orders slower single a billion we're down you give you've still we some some about on broadly in you be phrase much it we've ramp a the the process? I That And where elsewhere. but seen backlog, then And decision-making anxiety, past digits, the XX% can past just with healthy, really that There's if is helpful strong $X.X work are had really the can from of due. off down the that way, expecting I normalized of go kind in what quarter. consistent question, then as heady is meanwhile, how due backlog to that this high as

is that digits? expectation about to the single high down what ramp So

Matthew Pine

comments, into woods the start constraints read-through out for can maybe I'll QX then and Deane it been We're out and into the of in past now years. down some the few we've as to just couple we about Bill color specific trends, the get a that head 'XX. of They've production and talking of come some quickly. on very

have is XX deployments catch And the That's months. weeks a course rescheduled not and times This is weeks I issue lead getting year this deployments shipments. clear like of moved be over is rescheduling than there. we're to with to coming able up ramp this on the The This from It's of bottom want X a just to a point. will typical faster happen line. their demand the to were really demand dues the past destocking. of that customers over production reschedule deployments. the able Our to really up the

still market than XX%. Really, relative is underpenetrated. the to It's AMI less

winning over Our we're is in And share. marketplace our up out XX%. funnel significantly current currently up above year-over-year, the still market

bit there's a through and little kind here, positives of you of a Bill that of little So let on lot timing. color a timing, more bit I'll walk

William Grogan

of adjustment shifted needed next down home to this last deployment work production nail the and or bottleneck period likely as from quarter our our kind access schedule X partners see I Dean, into the timing. think labor customer we're to Yes, to for The the channel. the align

still for single-digit year. to that do rephasing within potential the take our high in expect of single-digit the framework will here at but is fourth bit next be for business, first continuation of little point of the the MCS We high this into that So growth part time resolve. it the quarter year. a expectations But to for

about of order questions of kind as for we we've sales. MCS just is had about historical then on patterns, that want the and year's just backlog Just the that have to norm and of remind and X, XX% about normalization, of the next we'd everyone book-to-bill talk

So exit positive to they into as bleed first start of to normalize to we and part historical we to patterns. the and year their XXXX expect our book-to-bill backlog as just the then continue be

Deane Dray

That cash a to free big question, And not flow just shout a was out. quarter.

So congrats to team. the

Operator

And our comes next Baird. today question from Halloran Mike with

Michael Halloran

just against And you year whether where against for Could continue the the helped the the put the that we backlog the you're It think strong past year that to Or past like, that a growth is it's want overhang still there X Can backlog. execution backlog I due bleed year, it rate just to MCS orders. is have want past still finer impact year? more next quoting on a know due to Because very point know you just this looks year, due good. make execute MCS the I I next frame then? be this going how what an to you the from demand but like segment? is those bidding normal variables. sure is growth still sounds backlog

William Grogan

all for the well our intents on due pretty normalized up purposes, past for and most we're to part. levels. past back due our the we're caught And No,

be positive half, its think but business. next that long-term business at year, I So think our to created. on the we've able as that disconnect that's a expect smart of There half the bit progress to of will framework. I ahead Relative for we And like might from first some was been still Matthew results kind second pace. I expectations again, metering that of be little said, highlighted, timing

Michael Halloran

start portfolio? internal maybe against the have the started next update thing broad how revenue just sit timing now? business through there? some that maybe do identification kind yet? start on you benefit in segmentation, the an of basically, pressure the of holistically And this kind on fit from and Has don't of portfolio of where push on when perspective, you those we you gotten some that processes just an from an update that some executing and journey year seeing of start of where Or as that of kind we margin when seeing on then more a of of the And then So areas pull are actions. is the you

Matthew Pine

the next year business as we I of and it's a process. lot kind to see next a the zeroing And then XXXX of a analytics a Yes, results and We're of in we're and good 'XX, deep through of QX, that position. was to really year the we'll say, more Mike, exit implementations thing. would start through happening exit, going up in really QX of year. course in dive

cycle to other structure, course little will a whether X or we to there the to as first outlook from But the XX/XX really bit going We more be think talk that's Investor gave I specifically, but very help. we're committed a line bottom of spans some and working we're talked things about layers the the we there probably think our next next over in also the at we So will years. Day, or still part X% that of that that about X% pressure help perspective. year top on line are about did on, that's our

Michael Halloran

if projects, as these then, put the those year. work you're you're next order basically the the take what change together all on, in you So really process through executing no thought timing of just you saying if I patterns,

frame to good things. normal look should year relative Next how you but

Operator

question next our Melius comes Scott from Davis Research. And from

Scott Davis

of that higher. get as in appropriately as incremental price obviously you that Is out in think are and able -- new positive. coming we business the priced and the a that's that -- mentioned should backlog or price was But that you segments Guys, today? each price still about being to

Matthew Pine

Yes.

about targeting bit significant we it continue largest what again results on the spread been which some of be XX talked third basis able we're ahead of I to cost contributor quarter a greater MCS we've of to bit We've basis as price/cost positive with that. little to we our price Day, a show into strength see XXX price strong year-to-date with Investor to the we the the than think little points do seen expected it's cost here with in being continue year. really Scott, coming of being in price businesses both. points.

the from value then is and and that XX/XX results their business, of efforts our just more of market. the Some differentiation implementation their different leveraging capture targeted parts to within

think strategic the pricing to we lever try internally that the of leakage we're and So continue just the eliminate other on One, and as execute side. try is process to on how on and progress. we going expand to half upon a we then that to pricing

continued for tailwind get So both there's we we be beyond. year as think opportunities on to us into and a next

Scott Davis

companies explicitly a And Europe then the probably half there. least that can I know on a think it China hiccup? of something just have weaker. little pockets there you or yet. I That's little that shorter-term reasons imagine Deane on pushbacks any references are I Asia this to was helpful. ground in is your -- prepared more remarks, bit Is stimulus -- helped it it But on and commented saying for Okay. that or -- leaks China, a of clarity similar like little amount being at would a color what I a Asia are Is you little doesn't maybe but of in guys China. business is just there your that been a so fair that imagine seem there's the into XXXX of saying the just

Matthew Pine

a and to piece. bit the little on -- just everyone, in has some kind about was expectations then half to comments our the of digits some decline utilities from that and in for down water infrastructure, too. of infrastructure orders within just Africa. being and water public make There the remind I'll area total it's the flattish, revenue about Middle QX single markets, And our other X East it's mid-teens that's specific tied been mid-single digits, China applications China, our emerging perspective, roughly largely think throughout and is negative. of We now softer of business. within China is us slightly probably year. gone decelerating about I revenue, low did talked So China a that's the But for

demand is and liquidity, real The services municipalities right? estate there, do But remains municipalities especially causing end difficult, adversely kind defer to projects the environment still the impacting strong. to underlying of having with delay the economic is building I especially market. for Tight continue think is there issues that they're our

teams So make how keeping close to own address some we we're The sure we're focused, looking set. eye technology on and we specific a their then China. volumes to on areas lock, costs the infrastructure opportunity on are at focused differentiated manage making do margins. lower have But where

at it's something some term. in probably growth we'll big the point story of lingers part So our time. to get here I that a be think short in But overall, back China,

Operator

Nathan from at comes Stifel. question next Our Jones

Nathan Jones

to going Idrica. I'm start on

that stake majority talked a You about acquiring in business.

couple of around questions a So that.

First, give impact it? the that us trajectory, financial you now the from And control second, any on change financial kind metrics your can of around valuation business on the statements for Idrica, plans and then of to the your that how consolidating does color outlook, it? have that that you

Matthew Pine

our we October and we would and also, XX, rationalize we integrate close on in overlap the have it majority the I out we And investments plan going the a start we're to I'll to and the Xylem. the we so in lot We day Maybe on say of felt December, us Nate. and a then standardize to let integrate needed platform took agreement across really part, appropriately, there's the interface and I'll share. more and that financials. signed we R&D that business Bill into wanted user could deeply synergy leverage second other get so like majority position because get to on to an Yes. the

the really So tremendous synergies and to drive on across scale have it's our going a efficiencies. impact and ability business to

lot lot data was have about is the point of and over We and interest months Australia -- the platform. management, pain huge that a talk we've got utilities a It's in and biggest a we're to win confidence we when see big past U.K. the in out the starting and orders. their we of some management, this, funnel, and and to application in

I the Xylem again, think strong I say, traction. the pull-through would last -- balanced core across And has on strong of a surprise. the been are thing Orders also globe. business So the pleasant

So then pause Bill little maybe financials. into I'll the let get and there bit of

William Grogan

material Nathan, mean, plan for Yes, in late closing this year. We December. until on I don't nothing

lay to economics then impact So guide the our this next what be year and meaningful of it will year we'll will specifics kind and out more as we be.

Nathan Jones

X been forward think negative then bottom for Applied in seen kind now, I Water of comparisons guess growth been few mean guys you growth quarters. going that follow-up return XXXX? a last in I my an of order for X have revenue the expectation Applied has there the for positive Do Water. quarters but the we've to and comparisons order or

Matthew Pine

closer be XXXX. some a larger their our really and to has the advantage bottom to our win recovery projects has it in from quarters. shortest expectations to business we expect team AW will technology That kind and been cycle support in on where group couple their help low of has QX. with We're cyclical here several in job in is I think so. Again, leveraging most expected right, It over that out rates of that last line good most single-digit the markets growth done decline. our played probably our challenged

And behind journey been giving business with gives next XX/XX. into obviously, that positive So us a we're some longest think our more specific that year. not on is guide now, but there a view going again, I the momentum

get think, point, of little they're pressure. over some your But to there put couple finalizing are outside better the decisions that, here to fundamentals, next that might I So going bit business the a of quarters.

Operator

And comes line. right. have the question Mr. like our All with next UBS. on we from Karas Damian Looks don't Karas

Brett our next Mizuho. on question move we'll from So with Linzey to

Brett Linzey

dewatering. wanted to I the to come back

I quarter. contemplating incremental the know positive in business then in events. fourth quarter discernible pickup are picked Was dewatering from past, has any from impact storm of up strength business quarter? the some little the you noted various you So And bit there negative? any the into or efforts in a restoration years

William Grogan

Yes. fringe. on in to determine But it channel did pretty territories, Maybe general just that the and very for business the resilient. specific in would us there, a through although the our fringes. some elevate I go and the impact. in on in see would softening not partners do of mining level was the was it's But just I for pockets of maybe strong if impact some huge it's impact, probably We terms that business, say storm from we of in QX, of market applications. holistically

Brett Linzey

And to just the to come margin I progression. wanted back

So commitments revenue down or well half. some step XQ benefits I XX/XX executing is a this or the just a QX next of that in macro, achieve some and the year-over-year but expectation a resource might versus tough won't repeat function in lower guess, first of Or be to cost is you're does the drag the there mix? year?

Matthew Pine

bit things then water seasonal little a to. they a as having increase would just at point really half of be back main lower MCS talked bit in it's water X And think we've little have just infrastructure energy versus mix I I'd portfolio the about QX. a increases margin a the rate No, exposure in more

Operator

our session. gentlemen, for to Pine remarks. question-and-answer the I'd over ladies like to conference And Matthew Thank concludes any closing you. turn this back and

Matthew Pine

are Spain, as was with are going mention and We've to thoughts question partners. failed from impacts prayers devastating questions. out our you. that as that country our we going Idrica everyone safe to interest mention the in reached for with and the and flooding. are that Idrica, to call, Xylem. appreciate healthy and everybody for Thanks some need our through I thoughts your and I citizens there Xylem prayers well for of on joined keep but our we recent the colleagues Thanks Thank your that's

Operator

call. conference today's thank today's concludes you This you. for attending We presentation. Thank all

wonderful You a have disconnect day. lines, and may now your

Xylem (XYL) 31 Oct 242024 Q3 Earnings call transcript