Xylem Inc.

Please stand by. Your program is about to begin. If you need any assistance during your conference today, please press star zero. Welcome to Xilinx Third Quarter 2022 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 one on your telephone keypad. If at any point your question has been answered, you may remove yourself from the queue by pressing star 2. So others can hear your questions clearly, we ask that you pick up your handset for best sound quality. Lastly, if you should require operator assistance, please press star 0. I would now like to turn the call over to Andrea Vanderberg, Vice President of Investor Relations.

Thank you, operator. Good morning, everyone, and welcome to Xylem's third quarter 2022 earnings conference call. With me today are Chief Executive Officer Patrick Decker and Chief Financial Officer Sandy Rowland. They will provide their perspective on Xylem's third quarter 2022 results and discuss the fourth quarter and full year 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 Investors section of our website, www.xylem.com. A replay of today's call will be available until midnight on November 8th. Please note the replay number is plus 1-800-839-9881 or plus 1-402-220-3100. 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 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'll turn the call over to our CEO, Patrick Decker.

Thanks, Andrea, and good morning, everyone. We're pleased to announce a very strong third quarter performance, continuing our momentum from the first half of the year. Across the board, the team delivered above expectations with all our business segments and regions posting strong double-digit revenue growth. And we see quite resilient demand in our backlogs and bidding pipeline, Overall, revenues were up 16% for the quarter, beating the high end of our guidance by four percentage points. Applied water grew fastest at 20%. Water infrastructure exceeded expectations by the widest margin, and MNCS came in right on target with healthy mid-teens growth. Regionally, Americas, Western Europe, and emerging markets each grew mid-teens. Demand in all of our largest end markets continues to be strong. driven by the essential nature of our solutions and services and by the intensifying long-term trends in water. The team, from our factories to our channel partners and distributors, also delivered a tremendous operational performance. Their actions entirely offset inflation with very strong price-cost discipline and effectively managed through continuing chip supply constraints. That focus paid off in growth. but also with very strong EBITDA margin expansion. Margins exceeded the high end of our guidance by 130 basis points. This delivered on our previous commitment to significantly improve our margins in the second half of this year. Strong organic revenue growth and accretive margins drove third quarter earnings well above expectations, with earnings per share of 79 cents. As you all know, our key end markets have consistently been resilient in the face of macroeconomic headwinds, and we expect that underlying demand pattern to continue. MNCS orders continue to be very strong. Water infrastructure was up solidly. Backlogs continue to be up sharply year over year, and the digital solutions proportion of our backlogs continue to expand. That said, some of our smaller end markets are more cyclical. such as residential, within our applied water segment. Orders in those markets were down in the quarter and are expected to remain soft. Looking forward, we anticipate the demand dynamics of the third quarter to continue into 2023. On supply, especially chip supply, the outlook remains consistent with what we said last quarter. As expected, we have not seen meaningful easing of chip supply constraints. but forecasting visibility has improved, as has the reliability of deliveries. We expect to exit the year as we've outlined before. Things are gradually improving. Given the resilience of our demand profile, the vitality of our business, and the team's strong operational track record in this environment, we are raising our full-year guidance. We now expect full-year adjusted earnings per share to be between $2.65 to $2.75 on organic revenue growth between 9% and 10%. In a few minutes, we'll discuss dynamics in our different end markets, along with some trends we're seeing through the current cycle. I'll also touch on how we're serving communities as they invest to become more resilient in the face of intensifying water challenges. But first, let me hand it over to Sandy to offer you some more detail on the third quarter.