Xylem Inc.

Welcome to the Xylem second quarter 2019 earnings conference call. At this time, all participants have been placed on a listening mode, and the floor will be open for your questions following the presentation. If you would like to ask a question at that time, please press star 1 on your touch-tone phone. If at any point your question has been answered, you may remove yourself from the queue by pressing the pound key. We ask that you please pick up your handset to allow optimal sound quality. Lastly, if you should require operator assistance, please press star zero. I would now like to turn the call over to Matt Latinos, Senior Director of Investor Relations.

Thank you, Maria. Good morning, everyone, and welcome to Xylem's second quarter earnings conference call. With me today are Chief Executive Officer Patrick Decker and Chief Financial Officer Mark Rakowski. They will provide their perspective on Xylem's second quarter 2019 results. Following our prepared remarks, we will address questions related to the information covered on the call. I'll ask that you please keep to one question and a follow-up and then return to the queue. As a reminder, this call and our webcast are accompanied by a slide presentation available in the investor section of our website at www.xylem.com. A replay of today's call will be available until midnight on September 1st. Please note the replay number is 800-585-8367, and the confirmation code is 847-9137. Additionally, the call will be available for playback via the investor section of our website under the heading investor events. Please turn to slide two. We will make some forward-looking statements on today's call, including references to future events or developments that we anticipate will or may occur in the future. These statements are subject to future risks and uncertainties, such as those factors described in Xylem's most recent annual report on Form 10-K and in subsequent reports filed with the SEC. Please note that the company undertakes no obligation to update any forward-looking statements publicly to reflect subsequent events or circumstances, and actual events or results could differ materially from those anticipated. Please turn to slide three. We have provided you with a summary of our key performance metrics, including both GAAP and non-GAAP metrics. For purposes of today's call, all references will be on an adjusted basis, unless otherwise indicated, and non-GAAP financials have been reconciled for you and are included in the appendix section of the presentation. Now, please turn to slide four, and I will turn the call over to our CEO, Patrick Decker. Thanks, Matt. Good morning, everyone.

Thank you for joining us today to discuss our second quarter results. Overall, we were pleased with our performance in the quarter, which reflected continued strong revenue growth and margin expansion. Our organic top-line growth was broad-based, driven by solid demand across our end markets, and with orders and revenue growth tracking in the mid-single digits. This result marked our eighth consecutive quarter of at least mid-single-digit organic revenue growth. This reflects the results of our focused investments that are bringing new solutions to the water sector, and we believe will drive sustainable, attractive margins. we also delivered solid margin expansion of 50 basis points in line with our guidance. In addition, we delivered earnings per share of 79 cents, which was also in line with our expectations. That represented a 10% year-over-year increase, excluding foreign exchange translation. As a result of seeing continuing healthy growth, we are narrowing our organic revenue guide and raising the midpoint to the upper end of the range. As a result of near-term mix, and targeted investments to accelerate and sustain our growth, we are narrowing our EPS guide to the lower end of the range. We'll get into each of them in a bit more detail. Looking at the composition of our top line, our regional and in-market mix is robust. We turn in solid performance in each of our in-markets, led by high single-digit growth in both utilities and commercial. Regionally, we deliver particularly strong momentum in the U.S. and in our largest emerging markets, China and India. each of which grew double digits organically. The high growth in China and India is very pleasing, given we've invested considerably in product localization, and our investments there are clearly paying off. Europe has seen some softening in certain markets, most considerably Italy and Germany, driven by broad-based industrial weakness. Generally, the rest of Europe shows a steadier picture. Mark will take us into the segment detail in a moment, but I would like to quickly point out that all three segments of our business have turned in solid performances. However, there is a more dynamic picture in MCS. We're very happy with the progress and growth of our census business. Its revenue growth is outpacing Xylem overall, turning in 9% global growth in the quarter and solid double digits in North America. Our new AIA platform in MCS is in an earlier phase of its growth ramp. The acceleration of customer interest is reflected in a 60% expansion of the total AIA deal pipeline over the past 12 months, led by a doubling of opportunities within the new digital solutions portion of that platform. Moreover, the size and incremental margin profile of that pipeline is very attractive and will be highly accretive to Xylem. The conversion of project to revenue has been slower than expected, however. As with any new disruptive technology, Our digital platform represents a new approach for customers, so many are prudently taking time to validate the solutions and savings. As that validation progresses, we are, in fact, seeing expansions of Project SCOPE. Despite slower conversion, the expanding market opportunity we are uncovering continues to affirm our long-term investment thesis. Our approach is to invest just ahead of the adoption curve in order to be positioned to realize the benefit of our first mover advantage and bringing digital intelligence to the water sector. To that end, we are scaling our sales and marketing capacity and continuing to add incremental capabilities to the AI platform, both organically and through M&A, as we build out and integrate the portfolio. Lastly, before turning over to Mark, I do want to take this opportunity to shine a light on our commitment to sustainability. In developing our new 2025 goals, we took a bold, aspirational approach. In many industries and business models, positive sustainability outcomes are a cost of doing business. For Xylem, positive sustainability outcomes are a result of doing business. The technology that we sell address water scarcity, water affordability, and resilience to climate change, all while dramatically reducing our customers' energy consumption. So the more business we do, the more technology we deploy, the more sustainability benefit we generate for the customers and the communities that we serve. The complete list of our commitments is in our sustainability report, and a summary of our five signature goals is in the appendix to this earnings package. They are commitments to our shareholders and stakeholders alike. Every bit as strong is our commitment to deliver robust growth and financial returns. Now let me turn it over to Mark.