Xylem Inc. (XYL) Q1 2012 Earnings Report, Transcript and Summary

nWelcome to the Xylem First Quarter 2012 Earnings Conference Call. Hosting the call today from Xylem's headquarters in White Plains, New York is Gretchen McClain, Xylem's President and Chief Executive Officer. She is joined by Michael Speetzen, Xylem's Senior Vice President and Chief Financial Officer. Today's call is being recorded and will be available for replay beginning at 12:00 p.m. Eastern Time. [Operator Instructions] It is now my pleasure to turn the floor over to Phil De Sousa, Investor Relations Officer. You may begin.

Good morning, everyone, and thank you for joining us today for Xylem's first quarter 2012 investor review. With us today are Gretchen McClain, our Chief Executive Officer; and Michael Speetzen, our Chief Financial Officer. On today's call, they will provide their perspective on the first quarter of 2012 and full-year 2012 outlook. Following our prepared remarks, we will answer your questions related to the quarter and our 2012 outlook. We expect that today's call will be completed within an hour. So we kindly request that you limit yourself to 1 question and 1 follow-up and then please get back on the queue so we can get to everyone. Please note that our webcast is accompanied by a slide presentation available in the Investor section of our website at www.xyleminc.com. We will reference these slides throughout our prepared remarks. All references today will be on an adjusted basis unless otherwise indicated for which non-GAAP financials are reconciled for you in the Appendix section of the presentation. The Appendix also include a number of user payables, which will help you understand our historical performance on an operating basis. A replay of this call will be available until May 12, 2012. The replay number is (404) 537-3406 and the confirmation code is 65498424. Additionally, the call will also be available for playback via the Investor section of our website under the heading Presentations. Please turn to Slide 2. I remind you that any statements made about the company's anticipated financial results are subject to future risks and uncertainties, such as those outlined in Xylem's annual report on Form 10-K and those described from time to time and such kind of reports filed with the SEC. These remarks constitute forward-looking statements for purposes of the Safe Harbor provision and are made out as of today. Please note that the company undertakes no obligation to update publicly such statements to reflect subsequent events or circumstances and actual results could differ materially from those anticipated. Now please turn to Slide 3. And I'll turn the call over to Gretchen.

Thank you, Phil. Good morning, everyone and thank you for joining the call. We appreciate the interest you have in Xylem. I'm going to talk about Xylem's overall financial results, update you on our progress executing our strategic objectives and share my perspectives on our market, economic drivers and their impact on our performance. Then I'll hand it over to Mike to walk through the details and cover our segment results. Bottom line we're off to a solid start with our first quarter 2012 performance in line with our expectations. We are reporting first quarter revenue of $925 million reflecting growth of 6% on a constant currency basis. Organic growth was 2% and our orders exceeded $1 billion in the quarter for the first time ever. Our book-to-bill ratio was 1.09 and was generally consistent across both of our segments and gives us confidence that revenue growth is accelerating exiting the first quarter. This performance is in comparison to a strong first quarter 2011 when we grew 12% organically. Gross margin was 39.2%, up 130 basis points. Operating margin was 12.3%, up 70 basis points, excluding the impact of recurring standalone costs. Earnings per share were $0.36, up 9% on a comparable or normalized year-over-year basis. And free cash flow was solid at $41 million. In addition today, we are affirming our previous 2012 guidance. All in all, first quarter was good and we're confident in our ability on our commitments to investors in 2012. Please turn to Slide 4. As we discussed during our October Investor Day and February earnings call, our key focus areas for 2012 are advancing our strategic position, deploying innovative new product applications and services and continued strong execution. We've made good progress in quarter 1 against these priorities as shown on the slide. First,…

Thanks, Gretchen. Let's go to Slide 6. In the first quarter, Xylem's revenues were $925 million, reflecting total growth of 4%. Organic revenue growth contributed 2 points to the total and acquisitions added another 4 points of growth. Foreign exchange was a headwind of 2 points and on a constant currency basis revenue grew 6%. Our growth was driven by strength in the industrial and commercial end markets were we continue to see growth opportunities and have been able to capture share. YSI had a very strong quarter adding 4 percentage points to our total top line. I think it's also important to note that YSI's organic growth was up double digits and is not included in our organic performance articulated earlier. As Gretchen mentioned, our revenue to the public utility market is stable as most of our revenues derived from non-discretionary aftermarket and replacement equipment. Residential market conditions have not improved. Year-over-year declines are primarily attributable to softening conditions in Europe and the impact of political instability on the Middle East. As Gretchen highlighted, we booked record orders, hitting the $1 billion mark for the first time in the quarter. Organic order rates were up slightly year-over-year at 1%, a dynamic primarily driven by the timing of large project orders received during the first quarter of 2011. Let me note that project order rates slowed to during 2011, so year-over-year comparisons are tougher in the first half of this year and then get easier. Our first quarter book-to-bill ratio was 1.09, increasing our backlog position heading into the second quarter. Operating income adjusted for one-time separation cost, increased 1% in the first quarter and was up 11% when adjusted for incremental standalone ramp-up costs incurred in Q1 2012. First quarter operating margins came in at 12.3%, up 70 basis…

In summary, we're off to a good start in 2012 with a solid first quarter. Our operational performance is in line with our internal expectations and on track for our goals for the full year. And the end market conditions continue to support our 2012 growth target. YSI in addition to Godwin, serve as excellent examples of our team's ability to acquire and effectively integrate acquisitions. Our strong financial position and cash flow generating ability, positions us well to execute on our growth strategies. When I think about all that we've covered today, our first quarter performance, the end market diversity we have and our current views of these markets and how they plowed in 2012, coupled with the strong talented people we have in place across Xylem to execute our strategy, it reinforces my confidence in our ability to deliver in 2012 and beyond. With that, I'll be happy to take your questions. Operator?

[Operator Instructions] Our first question comes from the line of Jim Lucas of Janney Capital Markets.

Two questions. First, I was hoping you might be able to give us a little bit of color as we're trying to understand the dynamic of the orders and backlog from a timing perspective. I mean a 1.09 book-to-bill, very positive growing backlog, how does that book-to-bill translate into shipments as we think about the progression during the year?

Jim, let me give you some color there, just from our businesses. Our 2 segments, Water Infrastructure and Applied Water, when you look within Water Infrastructure, I would think about on an average when we get an order to when we ship around on an average 60 days. So let me break that down a little bit further. You get use transport, a large portion today with a large of the funding coming out of the operation and maintenance side, it's a much quicker turn, take the order, and we deliver the parts. It can be anywhere from a short cycle to 90 days. Now, if you're getting into the capital expenditure funding, where you're now into treatment or the transport of supporting a large project, that can be anywhere from 90 days to 18 months, so longer cycle when you're looking at large projects. Our testing and site end market, quick turns but I would just hesitate with YSI as we've bought YSI and integrated it and looked at what they're doing. They support a lot of large projects which do take a little bit longer time, not a quick turn sale. But overall, test is pretty quick get the order actually shipped. When you think of applied water, think of it around 30 to 60 days. You've got some things that are 2 day turnarounds. But you've also got irrigation and some building services projects that you are working with the builders and take a little bit longer but on the average, 30 to 60 day turns there.

And Jim, the only the other points I'd make is we ended the quarter with about $740 million in backlog. A little over 80% of that will actually deliver in 2012 so clearly there's components in the backlog that are going to to go out end of 2013. And obviously, there's going to be components in that backlog that are going go beyond just Q2. So you when you think about that 1.09, not all of that is going to translate into Q2 revenue but it's a good indicator and gives us confidence as we start moving into the second quarter.

Okay. That's very helpful. And second question, could you just bring us up-to-date on your capital allocation strategy, given the strength of the balance sheet and the strong cash flow expected this year?

Sure, Jim. Let's just talk about the business first of all. We got a great business and great foundation of our core business and then the new platforms, which we strategically have been building out. So our priority is our organic growth and continue to expand and invest in those opportunities where we can grow geographically as well as some attractive markets specifically in our core space. As well in continuing to invest in our dewatering and our analytics business, both from an organic perspective as well through acquisitions. So we see a nice pipeline of candidates that we're looking at. We are actively engaged in opportunities for us to quickly move. You've seen us actually have a very nice success with our acquisitions over the last 2 years. And so that's where we'll be putting our first priority in terms of investing organically and acquisitively.

Jim, I guess that I also asked and -- I talked about a little bit on the margins. And we had about a 10 point drag on the incrementals. Because of that organic investment we're making back in the business, so for example the expansion we made into Russia is a prime example of that where we'll continue to invest in the sales channel of the business as well as continue to invest in the organic growth initiatives like we've done in the past with e-SV and the Flygt Experior. So we see as we indicated investment being about a 50 basis point drag relative to operating margins, but that's where we're really focused on driving gross margin improvement to be able to fund continuing to invest in the business.

And Jim, just one other thing in terms of new price, we've been launching quite a new projects sort of the last couple of years. But we're also thinking about how we can do smart information, so we gotten into smart apps and making it much easier for our customer base to work with our sales teams out in the field configuring their applications and their solutions. And that's another area where we've been investing as well.

Your next question comes from Matt Summerville of KeyBanc.

Couple of questions. Gretchen in your prepared remarks you talked a little bit about what you guys have been doing from a pricing standpoint, I think back at your Analyst Day you'd indicated targeting about 150 basis points a year on price and it looks like you've already ramped to that kind of run rate. So 2 things, does it make sense to move that bar higher or that goal or target? And then I guess the other question is how far through the organization have you rolled this pricing process or initiative out at this point?

Matt, great question. We've been driving this commercial excellence process for the last couple of years. We're still in the process of doing it. We're about, at the end of 2012, we'll be 80% deployed across our global sales team. If you think about that we're in 150 countries. We've got a lot of sales team around the globe. I'd say we're further along in our Applied Water business, than we are in our Water Infrastructure. But in terms of where we are, we're getting great results, as you can see. And I think it's going to stay about that level, obviously we drive internal targets as aggressively as we can. But you also have inflation coming down and being able to pass on price to customers. Our main thing here is we want to make sure we maintain our shares in those attractive markets that we want to continue to grow. And we have a good process around our pricing policy where we look at our wins and losses and we think about our product strategy and our differentiation and what we've done with our sales team is really get them out there selling on a value proposition as compared to on price. And it's working but there's still more to do.

Matt, the only other piece I would add to that is you have to remember we're lapping 2011 where we put -- took some pretty significant price actions in light of the environment we had on inflation. So you have a little bit of that dynamic that plays out. So I think as Gretchen indicated, we're kind of right in the range that we anticipate being for the year.

But the culture is building and that's the positive in that I feel good about. It's becoming part of our day-to-day process and we're really seeing it in the results. So that should continue.

Got it. And then just a follow-up. Can you talk a little bit about your incoming order rates in the quarter in terms of linearity and if you can provide any comments on what you saw in April, that would be helpful as well.

Yes, I would say, as I laid out the market dynamics and so forth, it's consistent with what I've been talking about. I'd say the one area we're most challenged with is, we've got a lot of activity going on in treatment and the larger projects around capital expenditures. A lot of bidding taking place but what we don't see yet is the release of funding at this point in time. Not an impact right now, but obviously something we're watching very closely coming out of quarter 2 and beyond.

Yes and I'd say, in the latter part of March and April, we did see improvement in a couple of the areas. We mentioned the Middle East giving us some headwind year-over-year. We did see order rates improving there and we did see orders improving in some parts of Europe. So again, that's been consistent with the level of guidance that we provided and consistent with what we see going into the month of April.

Your next question comes from Deane Dray of Citi Investment Research.

At the interest of hearing about the investment in your Analytics business with regard to these growth investments, you're trying to add more capacity or add more test offerings and you believe you're gaining share on this business?

Yes, Deane, good question. I would say we're tackling it from all fronts. What we want to do is continue to make sure we've got the reach into the market so it is through our channels and through our distribution and make sure we're represented across the board. It's also investments to make sure that we can take the products that today are very strong from a regional perspective and brand them into the other regions as I described in kind of my opening remarks. But we are also producing new products as we go forward. As we think about some of the attractive end markets that will develop as the water issues get more and more addressed. You think about sustainable water infrastructure and our ability to take our instrumentation and work for example and work with our wastewater treatment team and we have an opportunity to bring energy efficient solutions and have real-time information for the wastewater treatment plant operators so they can effectively do that. So we are investing there as well as some attractive areas that we see coming up.

That's really helpful. And just one of the comments is that since it's your second quarter and you've been hitting your targets in terms of expectations on EPS on the separation costs. And I just looked at -- yes, versus our expectations. The only thing that looked a little bit higher versus what we were looking for was the R&D expense, looks like that's up more year-over-year, is that part of the growth investment or what's driving that?

It's clearly part of our strategy. If you want a be a leader in the market and the markets are tougher today since they're growing slower, you've got to have innovation, you got to be able to have differentiation with your customer. And we see clear areas where that has played out and where our investments are playing very, very well. I'll use the example of our e-SV and our Applied Water business. Last year, the commercial market was flat, still flat this year, and it's continuing to give us nice revenue and nice growth because we're bringing energy-efficient solutions to our customers. So we're focused there. We're also focused on in terms of the environmental standards as people become more and more concerned about the quality of water and making sure that the water they're using is at the right level of quality, not necessarily over clean, so that it can be applied appropriately and then we can maximize and more efficiently use the water that we have.

Yes and Deane, one other factor that plays in is our R&D investment in the Analytics businesses is typically higher than average for the company and with YSI being added in the first quarter, that's obviously had an impact. When we gave our guidance we talked about 3% for the full year. So we're in line with that overall expectation.

Your next question comes from Chip Moore of Canaccord.

I was wondering if you could give a little more color on your strategy and expectations in sort of the dewatering platform in China now that you've announced your first order there, where you see the investment's going?

Sure. What we've done in taking -- stepping back again from the investment that we've made in dewatering. We started out as a company with just the products that went into dewatering. We weren't into the rental and the services business to speak of. When we bought Godwin, that really gave us a #1 position in the U.S. and really a #1 position around the market, where we can actually take a proven business model and we can actually deploy that internationally very quickly. We saw that happen in Australia and we're growing very nicely. We've had some nice orders in China, and we're looking at where to play in China and really how big of a depot that we need to set there to ultimately support our sales. But we see that as a real opportunity going forward, as well as other markets internationally. What's key in terms of dewatering, is it is a capital intensive business, so you've got to make sure you've got many markets that you can support. And so you look at is there opportunities for the public utilities, are there opportunities for construction, are there opportunities around mining, so that you can have a nice investment and you can ultimately support the markets even when the ups and downs take place from an economic perspective.

Your next version comes from Michael Roomberg of Ladenburg Thalmann.

Just wondering if you could speak of any specific water quality regulatory developments that are having an outsized impact currently on the treatment or test side or if there may be any regulations that you're expecting to come down the pipe that would drive those 2 businesses?.

Sure. With the EPA, there's many standards obviously with the regulations around water. Those continue to support our Analytical business. When you think about some of the more aggressive areas, think about Dallas water, there are standards that are being put in place right now, it's really only been adopted by the U.S. taking on some IMO standards that require a certain level of requirement when the ships come in to be able to test the water. That's an opportunity for us to play both in our instrumentation as well as in our treatment solutions. In terms of another area that we get cautions around is in the shale gas right now. They are not significant regulations we think that's going to be at the local and state level, more so than at a federal level. But we track that pretty aggressively to make sure that we understand where things are going and where we can play.

Okay, okay. That's helpful. And then on the Applied Water side, you mentioned the end market, the share gains and the commercial end market, can you speak to what may have been behind that and what the competitive response has been?

That was commercial?

Yes. I think you mentioned the...

Yes, I go back to really it's the launch of our new products. We spend a lot of time with our customers working with them and trying to really understand what their needs are. And it's not only in the commercial but you talk to the customer and their first question is, how do I reduce my energy cost? How do I ensure that my overall cost of operations is coming down? And how do I ensure that I have a reliable application that's going to run consistently? When we launched our e-SV, we obviously came out with a very energy efficient solution as well as something that could be serviced very quickly, and it met the needs of our customers. So were taking share here as well as we're using that to expand and open ourselves in position geographically.

Your next question comes from David rose of Wedbush Securities.

I was hoping that maybe you could provide some of the operational differences in your KPIs between Applied Water and Water Infrastructure that is providing some metrics such as on time delivering, sourcing, waste quality that can help us close the gap between these 2 businesses over time and what margin, how we get to those, that gap is closed, how we close that gap in 2013?

Let me just talk about that a little bit and see if I can get after. We have KBMs that we're driving across our businesses and they do differ a little bit based upon the end markets that we serve and the dynamics in terms of the business. When you think about Applied Water, you have a product line which is, quicker turnaround so on-time delivery is absolutely critical when a customer calls, you need to be able to deliver very, very rapidly so a focus on on time delivery is critical there. As we think about in terms of cost, productivity -- productivity across the board in the bulk of our businesses are driven aggressively and equally because I do believe across our procedures, there's no reason why we can't expect improvements in leaning our factories and deliver each and every time. So those drive across the board from a productivity perspective. What's more difficult is when we go through a distribution so there's different dynamics in our business. Our Applied Water, goes through distribution. Our Water Infrastructure is more of a direct sale. So you're working different dynamics in terms of your parameters as you go forward.

Yes, and I'd say that that plays into the gross margin levels between the 2 businesses and I wouldn't characterize as them coming together at the same operating margin level. When you look at Water Infrastructure, where we've put a pretty concerted effort around our acquisition focus and it's been in the high gross margin businesses and we're getting nice leverage off of that, I think both businesses will continue to expand as Gretchen indicated but I think you can expect to see a differential between the 2 just given the nature of the channel they use, as well as the margin profile and growth profile.

Yes, and I'd say that's part of the portfolio and management that we have. When you look at how attractive are the end markets and where you want to invest and the ones that we're investing a little bit more aggressively we'd like to see some top line growth. In other areas you're investing to expand your gross margin or your operating margin. So there's different strategies we play out in each different end markets.

So going back I mean I can understand the distribution differences and so when we get back to the productivity measures, what has to be done on Applied Water to get to the productive hitting levels that Water Infrastructure has, is it a function of volume? Is it a function of sourcing?

So volume definitely has an impact when you get a higher volume, you're going to see the leverage. We actually saw that in fourth quarter to first quarter in Applied Water with additional volume. You saw it come to the bottom line. We need to continue to get our factory productivity. And as I mentioned in a couple of my opening comments, we are making sure we're leaning our facilities as I mentioned our line facility over in Hungary. The automation that we put in play has actually produced better quality products so you don't have to drag on any type of quality issues and you also have an opportunity to have more throughput to the factory. As we see in that business specifically, Europe has got regulatory requirements requiring us to be able to deliver high-quality and high volume and the factory is now positioned to be able to capture that volume.

Okay. That's helpful. And then the follow up question is on the Xenon, the relationship that you have with them has been largely on the municipal water side I would think. Are you giving any leverage in industrial given that your Wedeco is starting to pick up some traction in the U.S. on the ozone side? Can you combine these two, filtration and ozone?

Wedeco is doing well in both the ozone and in the UV Treatment. When we think of our treatment business we think of it basically in 3 areas biological. We think of it in filtration and we think it in terms of the UV/ozone business. We actually look at projects where we can combine technology and be able to bring the equipment necessary to help our customer base, so there is integration taking place where it makes sense. When you talk also about our agreement with GE where we're taking the GE product -- their membrane and being able to distribute that and sell it through our world-class channel, that's an opportunity again with the public utilities to combine our treatment activities together and again be able to meet our customers' needs.

I'm sorry, but it wasn't clear. Can you leverage that in the industrial space?

Yes you can. It's by a case-by-case basis. I mean in some areas, other areas it's not that quickly you can -- you can't bring it directly over.

The next question comes from Jim Krapfel of Morningstar.

You mentioned that you're actively engaged in acquisition opportunities. Are you encountering much competition for acquisitions of your target size and are evaluations at levels where you think you can extract enough value?

So acquisition at -- the market right now, I'd say is active. You've got a lot of buyers, you've got a lot of sellers, and there's a lot of cash in the market. Where we're looking at in our acquisition strategy is a line strategically where we're going. When you think about the acquisitions we've just gone through, let's say analytics and dewatering, there's still significant opportunities. Both fragmented markets, so there's lots of opportunities where we you can continue to grow. What we look at traditionally really has been strategically does it fit, culturally does it fit and then obviously it needs to meet the financial hurdles that we addressed. Right now in terms of valuations, I'd say the markets -- the targets that we've got are reasonable. Most of them are focused around a bolt-on where you're looking at anywhere from a $25 million to a $100 million type of acquisition and we make the numbers work. Typically, a lot of these companies are private companies and so forth but there is a demand. Many people are asking from it too much but if the valuation clearly is a key hurdle we're not going to pay too much.

Yes and I'd add, we have a very strict set of criteria that we judge the acquisitions against. So as I've typically do in the past we look for returns in the mid-teens. We look for cash returns of 7 to 9 years and so we make sure that the acquisitions are going to fit right into that category and if they don't, then we move onto the next one. But I've referenced you back to the way we talked about our capital deployment strategy during Investor Day, and I'd say that we're continuing forward with that process.

Okay great. That's helpful. And are you feeling good about your 2015 targets and what macro assumptions are you making there?.

On the long-term, is that what you said?

Yes. Your 2015 revenue and margin, ROIC targets that you've previously laid out?

We're right on track to the plan that we laid out. So I feel good about where we are both from a couple of perspectives. One we're advancing our strategic objectives as we have laid out and those we're seeing pay off and some will be paying off in the years to come. What we said we would do this year, so far we're on track and the market seems to be playing aligned with where we want to go so I feel good both from the strategic aspect, from the operational aspect of the business, and then ultimately what we've got to do in the years to come.

Yes, I think one of the areas that we articulated that's critical is the gross margin performance. I think when you see us in the 39 plus percent range in Q1 on relatively low organic volume growth, that gives us great confidence relative to getting gross margins above the 40% range and given the pipeline we have from the acquisition standpoint, the success we've had with integration, gives us a lot of confidence relative to those full long-term targets.

And that's, assuming I guess a macro environment of a slow growth in U.S., little to no growth in Europe and then continued strength in the emerging markets, is that right?

Yes, I'd say it's consistent with what we articulated. Kind of 1% to 3% in developed markets, 8% to 10 plus percent in the emerging markets. And we're seeing those conditions play up pretty consistent relative to those thoughts that we had back in October.

Your final question comes from Stewart Scharf of S&P Capital IQ.

Regarding your emerging markets just roughly 18% of total revenues. In the Middle East, there's some unrest and I'm just wondering what your focus is on? What areas you're looking to grow there? Is that preventing you from pursuing some strategic expansion there in Middle East region or just break that down a little bit?

Sure. Well, I'll give you some color on the Middle East. So our Water Infrastructure, is still performing well. Again, when you think about the infrastructure, the operations of your public utilities and so forth, that continues to play nicely for us. The Applied Water was more challenged in the Middle East. We still see opportunities there and actually, coming into April, we saw some orders coming in. So we see that will rebound but it is a choppy area right now that we're just watching. And we'll continue to play in opportunities that play out. Our teams are aggressively working very strategic objectives by end markets. That does not change. But I do see stability around the Water Infrastructure. And I guess I'll just pull out one other point which is when you think about our emerging markets and you step back, Middle East is a small percentage of our overall revenue. We got 19% of our sales are coming from the emerging markets, and we've talked about before that's kind of evenly split around the different regions. And across the emerging markets, we saw a nice growth and we see that continuing to play and there's plenty of opportunity when you look at where we are in the markets and the opportunity to penetrate with our products and our applications solutions that I think will continue to keep the emerging market growing aggressively. So our strategy is still intact and our teams are aggressively working on it.

Okay. And on YSI, what's the accretion and what are you expecting for the year?

It was $0.03 accretive. And as we've articulated, we'll see that accretion for the full year being in the general range of about $0.02 in the second quarter, $0.03 in the third quarter, and at that point we will have lapped the acquisition.

Okay. And is there any impact from the equipment that you have regarding lead free new regulations that would be coming into effect in 2014?

Great question. Actually in April, just this last month, we actually launched our Bell and Gossip lead-free circuits setter. They are valves for the heating ventilation and air-conditioning markets. And we've been working over the last several years to make sure that we are moving into lead-free solution. So we're ahead of that game, the team's off launching the products and we feel good at our position. The lead-free requirements, some regulatory requirements don't completely turn in until a few more years. First, I think California is the one that's put it in place but we feel good that we're ahead of the game and the teams are off executing and selling appropriately.

Yes, I think California and Vermont first but do you have to bring appropriate change to any of production based on preproduction or customers needing to get the products ahead of time, trying to be ahead of the curve as far as inventory, customers possibly being stuck with inventory?

So, we're well into that. We are in production today with our lead-free products. So that transitioning from the lead products to lead-free has been taking place and we are in full production of our new products.

This concludes today's question-and-answer session. I would now like to turn the floor back over to Gretchen McClain for any additional or closing remarks.

I'd just like to thank you for your interest and continued interest in watching of the business. We feel very good about the results that we have today. The team has been working very, very strong and you think about as I mentioned earlier, the 6 months that we've be an independent company to be able to deliver our strategic objectives, our operational objectives and look forward to where we're going. We feel very, very good and very strong and so we look forward to talking to you again and continuing to build our record of delivery.

Thank you. This does conclude today's Xylem First Quarter 2012 Earnings Conference Call. Please disconnect your lines at this time and have a wonderful day.