Xylem(XYL) - 2023 Q2 - Earnings Call Transcript

Financial Data and Key Metrics Changes - Organic revenue growth was 15%, with total reported revenue growth of 26% [11] - EPS increased by 32% year-over-year, and grew 28% excluding the impact of the acquisition [11] - EBITDA margin exceeded guidance at more than 19%, driven by strong demand and pricing focus [11][20] Business Line Data and Key Metrics Changes - Measurement & Control Solutions (M&CS) revenue grew by 21%, with a backlog of $2.4 billion, up 17% year-over-year [21] - Water Infrastructure, including Evoqua's Applied Product Technologies, reported a 20% growth on a reported basis and 13% organically [23] - Applied Water revenues increased by 12%, with a backlog remaining elevated [25] - Integrated Solutions & Services (ISS) reported a 12% revenue growth, with a backlog of nearly $1 billion, up 15% year-over-year [28] Market Data and Key Metrics Changes - Utilities segment grew by 17% due to robust demand and price realization [19] - Industrial segment grew by 11% driven by strong demand across all regions [19] - Building solutions segment, which includes commercial and residential, grew by 15% [19] Company Strategy and Development Direction - The acquisition of Evoqua is seen as a significant milestone, enhancing Xylem's capabilities to address global water challenges [8] - The integration of Evoqua is expected to deliver cost and growth synergies, with a focus on expanding into attractive end markets [10][36] - The company aims to deepen penetration in utilities and expand its service solutions business leveraging its global distribution platform [35] Management's Comments on Operating Environment and Future Outlook - Management expressed confidence in the strong performance and outlook, raising guidance for the year due to strong commercial momentum [13][30] - The company anticipates resilient demand in utilities and steady growth in industrial water applications, despite monitoring for signs of moderation in the macroeconomic environment [39][40] - Management highlighted the increasing need for solutions to water challenges, positioning the company favorably to serve these needs [52] Other Important Information - The company reported a total backlog of $5.3 billion, up 7% organically, including Evoqua's backlog [12] - Financial position remains robust with over $700 million in cash and available liquidity of $1.6 billion [29] Q&A Session Summary Question: Integration efforts on combining businesses and cost synergies - Management indicated that integration efforts are off to a great start, with immediate revenue and cost synergies expected from combining APT with Water Infrastructure [57][58] Question: Update on chip supply and digital revenue goals - Chip supply is gradually improving, with expectations for a pickup in Q4 and into 2024 [63] - Progress towards the goal of 50% of revenues being digital is being made, with significant backlog in digital content [64][66] Question: Momentum in utility side and regulatory drivers - Management expressed confidence in utility spending, with strong demand for AMI solutions and ongoing infrastructure needs [75][76] Question: Performance in Western Europe and China - Western Europe showed resilience in utilities, while China experienced positive momentum in orders and revenue, particularly in industrial [81][83] Question: Cost synergy run rate and revenue synergies - The company expects to achieve a $40 million run rate in cost synergies by the end of the year, with further synergies anticipated in 2024 [91] - Revenue synergies are expected from deepening utility penetration and expanding service-based business models internationally [95][96]