The operator welcomes participants to Xylem's Fourth Quarter 2023 Results Conference Call and introduces the CEO and CFO. The call will include a discussion of Xylem's fourth quarter and full-year 2023 results, as well as an outlook and guidance for 2024. The call will also include a Q&A session. A slide presentation is available on the company's website and a replay of the call will be available. The company will make some forward-looking statements, but notes that they are subject to risks and uncertainties. A summary of key performance metrics is provided on slide three.

The CEO, Matthew Pine, begins the call by acknowledging that all references will be on an organic and adjusted basis. He then introduces the team's exceptional performance in the fourth quarter, exceeding expectations on revenue and earnings per share. The team delivered double-digit orders growth and expanded the backlog to over $5 billion. They also over-delivered in every quarter of the year and achieved Evoqua run-rate cost synergies ahead of plan. Despite the dynamic environment and the excitement of the combination with Evoqua, the team stayed focused on serving customers. The combination has allowed for the sector's most advanced portfolio of capabilities and opened up new opportunities. The synergy between the legacy Evoqua Services business and Xylem's dewatering business has continued to build momentum in the marketplace.

In 2023, Xylem created a new Water Solutions and Services segment to make it easier for customers to access their capabilities and support the growth of their services business. The company expects to see continued growth and margin expansion in 2024, with a focus on delivering value. The team had a strong finish in 2023, exceeding expectations for revenue and earnings per share. The company also saw resilient demand and a 5% growth in backlog. Organic orders grew 10% in the quarter and book-to-bill was greater than 1 for the full year.

Xylem's total revenues grew by 41% in the fourth quarter, with organic revenues increasing by 9%. This was led by strong performance in the Measurement and Control Solutions (M&CS) and Water Infrastructure segments, with all regions experiencing growth. The company also saw an increase in EBITDA margin, reaching 19.6%, due to productivity savings, price increases, and higher volumes. Adjusted EPS was $0.99, exceeding guidance by $0.03, and adjusted free cash flow conversion was 122%, significantly improved from the previous year. The company has simplified its earnings materials to focus on key information for investors. In the M&CS segment, orders grew by 14%, backlog is at $2.3 billion, and revenue increased by 21%. EBITDA margin also improved, reaching 17.3%.

The Water Infrastructure segment saw a 9% increase in orders and a 30% increase in revenue, driven by strong treatment demand globally. The segment's EBITDA margin decreased due to legacy Evoqua impacts, but excluding this, it increased by 50 basis points. In the Applied Water segment, orders grew but book-to-bill was 0.9 times and revenue was flat, with growth in emerging markets offsetting declines in developed markets. The Integrated Solutions and Services segment saw a 5% increase in orders and a 10% increase in pro forma revenue, with a strong EBITDA margin of 21.1%. The company announced the creation of the Water Solutions and Services segment and will provide updated financial information in the future. In the M&CS segment, low teens growth is expected with strong demand for AMI solutions.

The company expects to see revenue growth in 2024 due to a strong backlog and demand for its products and services. Water Infrastructure is expected to grow in the mid-single digits, while Applied Water may see a slight decline. The company also expects growth in its ISS segment, driven by a strong backlog and demand in high-growth verticals. The company's 2024 guidance includes a revenue range of $8.4 billion to $8.5 billion, with an expected EBITDA margin expansion and EPS growth. In the first quarter, the company anticipates a total revenue growth of 36% to 38% on a reported basis and 4% to 6% organically.

The paragraph discusses the expectations for the first quarter of the year for Xylem, a water technology company. It is expected that the EBITDA margin will increase due to higher volumes, price realization, and productivity gains. The company is entering the year with momentum and a strong commercial position. However, they are monitoring market conditions, particularly in China, and are prepared to take additional cost actions if necessary. The new CEO, Matthew Pine, has recently visited India and the Middle East, where the company has a strong presence and is making a positive impact on both the economy and society. This visit serves as a reminder of the interconnectedness of economic and social value in the company's business.

The author reflects on their experience of celebrating the installation of clean water for a school, emphasizing the importance of Xylem's work and their focus for the future. They highlight the company's advanced portfolio and the opportunity to make water solutions more accessible and less complex for customers. The integration of Xylem and Evoqua is on track and the company's end markets are resilient. The author looks forward to sharing more about their priorities and strategic direction at an upcoming Investor Day. The call then opens for questions.

Deane Dray asks Matthew Pine about his priorities for the year, and Pine acknowledges the team's performance during a transformational year for Xylem. He mentions the company's recent partnerships and leadership change, and expresses excitement and humility about leading Xylem into the next chapter. Pine also discusses the company's strong platform and ability to provide holistic solutions to customers. He outlines three strategic priorities, including delivering on the Evoqua deal and accelerating margin expansion.

In this paragraph, the speaker discusses the company's plans for driving operational excellence and increasing productivity through a focus on culture and innovation. They also mention the importance of successfully integrating two large companies and the need for a high-impact culture. The company has a call to action to "simplify water" and is focused on executing their strategic priorities. The speaker also mentions the rollout of 80/20 and the progress of revenue synergy plans for Evoqua.

The company has implemented an 80/20 program to reduce complexity and drive better organic growth. Two pilots have been launched in different departments, with benefits expected to be seen within six to 12 months. The program is expected to be a transformational tool for the organization and a key part of their margin improvement strategy. The team has also completed an integration and appointed regional synergy leads to drive revenue capture, and sales and service teams have been trained to support this effort.

The company has announced the creation of the WSS segment for 2024, which they believe will accelerate synergies and improve technician utilization. This will also aid in international expansion and make it easier for customers to access the company's services. The company is confident in the end markets and sees continued momentum in CapEx projects, with strong orders in their Treatment business globally. There has been no sign of softness or pullback in CapEx spending.

The company's focus on OpEx in their utilities portfolio remains strong, with buoyancy expected in the long term due to global regulations. There is strong momentum in the Legacy ISS business, but some lumpiness in the Applied Water end markets due to pandemic and weather. The company is implementing 80/20 and other toolkits, which may provide opportunities for pricing in the future.

The company's price expectations for next year will decrease compared to the previous year but will still be significantly higher than pre-pandemic levels. The team plans to manage price and material costs to stay positive and offset inflation, while also focusing on operational productivity to enhance margins. In regards to China, the company's business there has held up relatively well compared to peers, but the company remains cautious about the future. China now makes up about mid-single-digit of the company's revenue.

The company has seen decent orders and backlog in China's water infrastructure sector, but funding issues and government intervention have delayed revenue conversion. The industrial side has been more resilient than utilities. The company expects China to be flat in 2024. The company is focused on integrating the recent Evoqua deal and has a strong M&A pipeline due to a flexible balance sheet.

The company's short-term focus is on small to medium bolt-on acquisitions, while also evaluating longer-term capital allocation. They expect 50-100 basis points of margin expansion in 2024, with the largest impact coming from the M&CS segment. The segment has already shown improvement in margins due to resolving chip supply shortages and implementing pricing strategies. They aim to exit the year at near historic record levels of EBITDA margin through leveraging volume and driving productivity.

The speaker is excited about the progress made by the company and expects them to continue to improve throughout the year. They address concerns about the company's growth rate and assure that their long-term framework remains unchanged. They also mention potential challenges in China and Applied Water, but overall, the company has healthy demand and a strong margin.

Nathan Jones asks about the margin expansion target and how it may be affected by growth investments and potential challenges in the macro environment. Bill Grogan explains that while there may be some pressure on margins due to investments and potential challenges, the company is still on track to meet their margin expansion target. He also mentions that the chip supply issue has been resolved.

The speaker discusses the progress made on the past due backlog in M&CS, stating that they expect to get through the majority of it in 2024 with some carryover into 2025. They also mention that there are no capacity limitations within Xylem. The next question is about Idrica, a connected utility company, and the speaker expresses their bullishness on the partnership and the potential for Xylem to become a leader in aggregating utility data. They had a good start in the six months since the combination was closed.

The company has made significant progress globally and has a strong pipeline. They are focused on implementing their platform at utilities and expanding with their applications and core products. They have had wins in various regions, including the UK, Italy, and the Middle East. They are optimistic about their partnership and will provide more details at their upcoming Investor Day. In terms of synergies with Evoqua, they are looking at leveraging existing channels in Europe in the short to medium term.

The speaker discusses a recent example of using capital from a local business in South Africa to invest in an industrial application without needing on-the-ground services. They mention plans to continue leveraging this strategy in the short to medium term, both in the US and internationally. The call concludes with a reminder of the upcoming Investor Day on May 30.

This summary was generated with AI and may contain some inaccuracies.