Xylem Inc.

Welcome to the Xylem Third Quarter 2020 Earnings Conference Call. At this time, all participants have been placed on a listen-only 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 touchtone 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 Latino, Vice President of Investor Relations.

Thank you, Samantha. And good morning, everyone, and welcome to Xylem's third quarter earnings conference call. With me today are Chief Executive Officer Patrick Decker, Senior Advisor and former Chief Financial Officer Mark Rakowski, and Chief Financial Officer Sandy Rowland. They will provide their perspective on Xylem's third quarter results and our outlook. 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 November 30th. Please note the replay number is 800-585-8367, and the confirmation code is 709-6699. 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. All references will be on an organic or adjusted basis, unless otherwise indicated. 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, including in our Form 10-Q, to report results for the period ending September 30, 2020. 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 the slide through. 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 organic and 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, and thank you for joining us. I hope all of you and those close to you are keeping safe and well. As reflected in our release this morning, our third quarter performance was better than anticipated. The team's operational execution was strong right around the world. You'll recall that after the low point of April, we saw sequential improvements in May and June, and we continued to build on that positive trajectory through the summer. Our team took advantage of the market regaining pace and exceeded our revenue and margin guidance for the quarter while generating very strong cash flows. This performance reflects the team's focus on serving our customers and managing what we can control, whatever the dynamics are of the macro environment. Through the quarter, we saw solid foundations of recovery in a number of places, and we are well positioned to further capitalize on that momentum. The pandemic's impact hasn't been uniform, of course. Conditions varied significantly both by geography and by end market. For example, China revenue returned a healthy growth of 17%. Western Europe overall was back to relative stability at 2% growth. The U.S. saw only slight recovery, still dealing with pandemic response, and coming in at down 11%, although improving sequentially. In our end markets, we've seen ongoing resilience in the wastewater side of utilities, and our wastewater solutions returned to solid growth in the quarter. On the clean water side, we're delivering strong commercial momentum, including winning large long-term transformational metrology deals, leveraging our differentiated platform, particularly in advanced metering infrastructure. In addition to big wins with Anglin and in Winston-Salem, which we mentioned last quarter, the team recently won another marquee project in Columbus, Ohio, worth $94 million. This customer is a combined utility. meaning we will provide both water and electricity meters, plus advanced software and services. It's worth noting how compelling our value proposition is for combined utilities, addressing both water and energy applications with one portfolio, and leveraging our unique FlexNet communication capability across both platforms to achieve economies of scale. The Columbus, Winston-Salem, and Anglian deals have together added about a quarter billion dollars to Xylem's backlog, Our metrology and communications offerings are clearly differentiated in their own right, but we also have the advantage of delivering unique value by combining infrastructure platforms with complementary digital solutions. Each value proposition enhances the other. As anticipated, COVID impacts are causing delays in some metrology projects where timelines have shifted to the right. And in parts of the U.S., replacement meter installations have been pushed out in the short term. Pipeline Assessment Services, a business that requires putting people on site, has been affected by COVID-driven restrictions on travel and field work. At the same time, the pace of interest in digital solutions for remote monitoring and automated operations has accelerated. The pandemic has not only spotlit essential services, it has also eliminated utilities' need for much greater operational and financial resilience, which is now at the top of every utility operator's agenda. Digital transformation has gone from being attractive to becoming an imperative, and that's reflected in strong quoting activity in our digital solutions business, which has also increased by 50% its number of revenue-generating clients. The revenues are still a small part of our top line, but the acceleration of interest further strengthens our view on digital adoption in the sector. And as the number and size of those projects grow, we are seeing a broadening scope of opportunities across software, services, and infrastructure products. While we don't expect this to be a straight line recovery, Xylem is well positioned irrespective of how the pandemic plays out. We anticipate quarter sequential improvements. Our financial health and liquidity are both strong. We're successfully reining in cost, executing the actions we announced earlier this year. And we're shifting investment to adapt quickly to customers' evolving needs and new ways of working. Our supply chain has been exceptionally resilient, with the team keeping customers supplied even through the pandemic's peaks. So we're operating with discipline, strengthening our competitive position, and helping our customers serve their communities with uninterrupted essential services, despite whatever macro uncertainty may persist. As Matt mentioned at the top of the call, Both Mark and our new CFO, Sandy Rowland, are with us today. Sandy joined us on October 1st, and it's been a great pleasure to welcome her to the team. But since Mark was in the chair through the end of the reporting period, he'll carry the commentary on our third quarter performance. So, Mark, over to you.