The operator introduces the Xylem's Second Quarter 2024 Results Conference Call and hands it over to Vice President of Investor Relations, Andrea van der Berg. CEO Matthew Pine and CFO Bill Grogan will discuss the company's second quarter results and future outlook. The call is accompanied by a slide presentation and a replay will be available on the company's website. The call will include forward-looking statements, which are subject to risks and uncertainties. The company does not guarantee the accuracy of these statements and will not update them publicly.

The second quarter performance of Xylem was strong, with high single-digit organic growth, expanded adjusted EBITDA margin, and an 11% growth in adjusted EPS. The company's largest markets remained resilient and the internal outperformance was driven by disciplined operational execution. The CEO thanked the entire Xylem team for their dedication and highlighted the standout performance of the Measurement & Control Solutions segment, with a 26% increase in revenue and 700 basis points increase in EBITDA margins.

The company's first-half performance reflects their focus on both growth and margin expansion, as discussed at their Investor Day. Their simplification and integration initiatives are progressing well, and they have raised their full-year guidance for revenue and margin. The team's operational and commercial discipline, along with resilient demand, have contributed to their strong performance. The CFO thanks the organization for their work and highlights their outperformance in revenue, margin, and earnings per share.

The company's book-to-bill ratio was strong at 1, driven by growth in water infrastructure. However, organic orders were down due to project timing. Total revenues and organic revenues both exceeded expectations due to growth in all regions, particularly in the U.S. EBITDA margin also increased, thanks to productivity savings and strong volume and price. The company's EPS was higher than expected and its balance sheet remains strong. The Measurement and Control Solutions sector had a successful quarter, with revenue up 26%, but orders and book-to-bill were down due to project timing. EBITDA margins were impressive, driven by volume, price, productivity, and favorable mix. However, there may be a margin headwind in the second half due to energy meters accounting for a larger portion of sales.

Orders and revenue were up in the Water Infrastructure segment, driven by strong treatment demand. Adjusted EBITDA margin was down due to inflation and acquisitions, but improved without the impact of acquisitions. In the Applied Water segment, orders were up and book-to-bill ratio was greater than 1. Revenues were down due to softness in developed markets. In the Water Solutions and Services segment, orders declined due to timing of projects, but organic revenue was up with strong growth. Adjusted EBITDA margin was strong due to volume, productivity, and price. The company is raising its full-year guidance due to first-half outperformance and momentum in both commercial and operational areas.

The company is expecting a 16% growth in total revenue and 5% to 6% growth in organic revenue. They are confident in their ability to drive margin expansion through productivity and cost synergies. They have raised their EBITDA margin guidance to 20.5% and their EPS guidance to $4.18 to $4.28. They anticipate a 3% to 5% growth in revenue for the quarter and an EBITDA margin of 20.5% to 21%. The company is focused on driving profitability through simplification efforts and operational excellence. They are closely monitoring the macro environment but remain positive about their outlook for the year.

In the paragraph, Matthew Pine discusses two important events that occurred in the quarter for Xylem. The first was a leadership summit that brought together top executives from both Xylem and Evoqua, which helped to align the team and reinforce their potential for value creation. The second event was the publication of their annual sustainability report, which highlighted their progress towards their 2025 goals and announced new goals for 2030. Pine also mentions that this is the last quarterly earnings call for Andrea van der Berg as the head of Investor Relations.

The paragraph discusses Andrea's new role within Xylem and introduces Keith Muller as the new investor relations leader. The speaker thanks Andrea for her contributions and welcomes Keith. The speaker then moves on to address the question about the progress of the 80/20 initiative, stating that it is still in the early stages but teams are making good progress.

The company has three businesses currently implementing the toolset, with two of them ahead of the others. They are working on segmenting their businesses and have already implemented some price increases. The benefits will not be seen immediately, but are expected to have a significant impact in the long-term. The teams are communicating with customers about the changes and there is excitement about the toolset externally. The progress is on schedule and the company is confident in the value the toolset will bring, in line with what was highlighted at Investor Day. The operating results are mostly as expected or slightly better.

The speaker asks about the potential implications of the Supreme Court overruling the Chevron doctrine on PFAS remediation at the federal level. The company did not anticipate this and sees it as introducing uncertainty in regulations and potentially pushing back the timeline for testing and mitigation. They believe that states will step in to fill any gaps in national regulation, as many already have their own regulations in place.

The company's demand and expectations for the second-half of the year have not changed since the previous quarter. However, there was an accelerated performance in one division and timing of capital projects in another division that led to an increase in full-year revenue guidance. The third quarter is expected to have similar results to the second quarter, but year-over-year comparisons may be challenging. Overall, the company remains confident in its end markets.

The company is not seeing any major impacts from macro noise and remains optimistic about their smart metering and AMI network products. They continue to win new business and have a strong demand for their products in the US and Europe. The Water Infrastructure and Transport businesses are also performing well, but the AWS business remains a bit challenged. However, the company expects to see some growth in 2025 due to recent project wins.

The speaker discusses the company's backlog, which is still strong but has declined slightly due to working through past due projects. They are confident in their long-term growth framework for the segments. There is no specific number given due to the lumpiness of the backlog. The speaker also mentions that the first priority is to focus on integrating Evoqua, but they are still confident in their ability to do deals in the future.

The company has built a strong foundation for M&A through the planning and execution of Evoqua. They have also implemented a bottoms-up process to drive consistent organic growth and have a strong pipeline of potential acquisitions. The company is actively managing their targets and ensuring they align with their strategic and financial criteria. They have recently won some large projects, but cannot provide more details on the scope and size.

In this paragraph, Matthew Pine discusses the success of their data center projects and their unique ability to provide a turnkey solution for these projects. They have had a few big wins in the applied water business and are seeing momentum in other high growth verticals such as power and semiconductor industries. They expect this momentum to continue and have a strong pipeline.

The speaker is discussing the decline in orders in the quarter and the burning off of backlog in 2023 and 2024. They mention that this is due to the early to mid stages of AMI adoption and that the business still has a lot of room for growth. They expect next year's growth to be in line with their long-term framework, but the backlog burn will lead to increased revenue in M&CS at the high teens. They also mention that they expect to complete the past due backlog by the end of the year.

In this paragraph, Nathan Jones asks about the impact of the 80/20 simplification initiatives on cash conversion and working capital. Bill Grogan agrees that these initiatives will lead to improved efficiency and faster-moving inventory, which will ultimately benefit the company's cash conversion. However, he notes that it may take 18 to 24 months to see the full benefits on the back end of the P&L. The next question comes from Joe Giordano, who thanks Andrea for her help and jokes about blaming her if anything goes wrong with water infrastructure.

Joseph Giordano asks Matthew Pine about the impact of combining the service business with WSS on the company's operations. Pine mentions the increased synergies and efficiencies, as well as the ability to utilize technicians across the entire portfolio. He also highlights the strong performance of the combined service business, particularly in the data center sector, but notes that there may be weakening activity in other sectors for large projects.

Matthew Pine and Bill mentioned that they are not seeing any significant changes in their businesses due to data centers, which is not a large part of their portfolio. They are seeing high growth in verticals like pharma, life sciences, microelectronics, and power, driven by concerns around climate and water scarcity. They also mentioned that they are taking advantage of the hot market for data centers. During the Q&A, they were asked about inflation and water infrastructure, and they explained that while the segment was up in Q1, it was down in Q2 due to acquisition-related factors. They did not provide much detail on the price versus cost side.

In paragraph 20 of the article, Matthew Pine discusses the changes in the company's applied water segment. He explains that the margin was positively impacted by the acquisition of APT in the previous quarter, but the profit remains strong. China has been a bit unpredictable for the company, with orders being delayed due to economic uncertainties. In terms of applied water orders, the company has seen improvement in long-term projects, but the short-term market remains slow. Pine expects growth to return in 2025, but not before the end of the year.

In the paragraph, Matthew Pine discusses the third and fourth quarter performance, which is expected to be down in the low single digits and closer to zero, respectively. The decline is seen primarily in developed markets and in the commercial and industrial space. However, the team is utilizing their differentiated technology to win larger projects and get back on a growth track next year. Bryan Blair also asks about the impact of energy deployments on margins, to which Bill Grogan responds that it could be around 100 basis points in the back-half. Matthew Pine also mentions that treatment orders saw a 20% growth, with no significant differences by region. This performance is encouraging for the team's confidence in the back-half of the year.

In paragraph 22, Matthew Pine thanks the participants and concludes the Q2 earnings call for Xylem. He expresses appreciation for the questions and interest in the company, and the operator ends the call.

This summary was generated with AI and may contain some inaccuracies.