The paragraph introduces Xylem's Third Quarter 2024 Results Conference Call and outlines the structure of the event. Hosted by Keith Buettner, the Vice President of Investor Relations and Financial Planning and Analysis, the call includes presentations by CEO Matthew Pine and CFO Bill Grogan on Xylem's third-quarter results and future outlook. Participants are invited to ask questions after the presentations, adhering to the guidelines provided. The call is accompanied by a slide presentation available on the website, and a replay is accessible until November 11. The paragraph also mentions that the call will include forward-looking statements subject to risks and uncertainties as detailed in recent SEC filings, with no obligation on the company’s part to update these publicly.

The paragraph provides an overview of a company's strong financial performance, highlighting record EBITDA margins and earnings per share for the quarter. The CEO, Matthew Pine, acknowledges the team's disciplined execution and successful integration of Evoqua, which is ahead of schedule and achieving cost synergies. The company is optimizing its portfolio and simplifying its organization to improve customer service and margins. The paragraph notes that organic orders grew at a high single-digit rate across all segments, driven by strong demand in resilient markets, although revenue growth was moderated due to project timing delays and tough comparisons to the prior year.

The paragraph discusses the company's strong Q3 performance, highlighting increased orders and resilient market demand despite some short-term softening. It mentions the company's decision to narrow full-year earnings guidance while maintaining the midpoint despite lower revenue expectations. The company plans to increase its stake in the Idrica joint venture, allowing majority ownership and consolidation into Xylem's Measurement & Control Solutions segment. The quarter saw record-breaking EBITDA margin and earnings per share due to productivity and pricing. Despite challenges from the previous year's high growth comparison, the demand remained solid with a backlog of $5.3 billion and healthy orders, particularly in the MCS and WSS segments.

In the third quarter, the company experienced a slight growth of 1% in total and organic revenue, falling short of expectations due to project timing issues in Measurement & Control Solutions (MCS) and Water & Smart Solutions (WSS). However, operational discipline led to a record quarterly EBITDA margin of 21.2%, an improvement from last year, driven by productivity savings and pricing that offset inflation and investments. A record EPS of $1.11 was achieved, marking a 12% increase from the previous year. The balance sheet remains strong, with net debt to adjusted EBITDA at 0.6 times, and year-to-date free cash flow rose by 27%. MCS saw a backlog reduction but strong orders and an 11% revenue increase, driven by demand for smart metering solutions, though impacted by project timing and softness in certain markets. Overall, robust margins and healthy demand, especially for AMI solutions in North America, contributed to positive financial performance.

In the recent quarter, Water Infrastructure saw a 6% increase in orders and a 1% revenue rise, driven by transport demand. The segment's EBITDA margin improved by 50 basis points, with strong productivity and pricing. Applied Water had a 4% increase in orders but a 4% decrease in revenue due to emerging market softness. Its EBITDA margin fell by 10 basis points year-over-year but improved sequentially by 110 basis points. Water Solutions and Services experienced an 11% rise in orders, with strong demand largely in outsourced water and dewatering, but organic revenue dipped by 1%. The EBITDA margin for this segment improved by 200 basis points. The company is now updating its full-year guidance to reflect $8.5 billion in revenue, marking approximately 15% growth, with 5% organic growth, along with successful integration and accelerated cost synergies from the Evoqua acquisition.

The company is confident in expanding its margins despite lower revenue expectations and maintains its EBITDA margin guidance at 20.5%, an increase from the previous year. They narrowed their EPS guidance slightly and expect strong free cash flow conversion. Segment growth projections have been adjusted due to project delays, with MCS expected to grow in the mid-teens and WSS in low single digits. For the fourth quarter, they anticipate a 2% to 3% revenue growth and an EBITDA margin of 20.5% to 21%. Despite macroeconomic uncertainties, the company's outlook remains positive, supported by simplification efforts and an 80/20 strategy to drive systematic margin improvement over time.

The paragraph highlights the company's strong customer focus and commercial momentum, evidenced by growth in risk orders, record profitability, and margin expansion. The successful execution and integration of strategies have enabled the company to optimize its portfolio and continue meeting demand. The speaker reiterates the benefits of simplifying operations, a strategy discussed at their May Investor Day, and looks forward to sharing more progress in the future. Additionally, a leadership change is announced: Meredith Emerick will lead the Applied Water segment, succeeding Franz Cerwinka, who will remain as a senior adviser to ensure a smooth transition. Emerick’s extensive experience in engineered solutions is expected to drive the segment's continued success.

The paragraph discusses a recent leadership change at Xylem with the introduction of Meredith and transitions into a question-and-answer session during an earnings call. Deane Dray from RBC Capital Markets asks about delays in decision-making affecting industrial companies, with a focus on Xylem's Water Solutions and Services (WSS) and timing of capital projects. Matthew Pine highlights a mixed business scenario in Q3, with utilities performing well, up 10%, while industrial and commercial building markets declined by 4% due to project delays and slight softening in international mining. Orders were strong overall across end markets. Bill Grogan adds that WSS's performance issues are due to project timing delays, not cancellations.

The paragraph discusses delays in project implementation due to extended negotiations, complex outsourced water projects, election uncertainties, and interest rate concerns affecting industrial markets. Despite these delays, the speaker expresses confidence in their technology and anticipates a temporary dip in the fourth quarter, with recovery expected at the beginning of the next year. There was a strong growth comparison from the previous year, which added pressure recently. Deane Dray acknowledges slower decision-making trends and asks about the MCS business, noting a shift from high growth to more normalized, but still healthy, single-digit growth. He inquires about the past due backlog and strong recent orders, seeking clarity on these adjustments.

In the paragraph, Matthew Pine and Bill Grogan discuss the adjustments in production and deployment schedules for their business. They note that production constraints have eased significantly, reducing lead times from 52 weeks to five weeks, which allows them to ramp up production quickly. The issue now is not demand but rescheduling customer deployments to catch up with shipments. The market for AMI remains underpenetrated, with significant year-over-year growth. The bottleneck has shifted from production to the distribution channel, and this adjustment period may last for another quarter or two. They anticipate high single-digit growth in the fourth quarter and expect MCS to remain within that growth framework for the year.

The paragraph discusses the MCS segment's return to historical norms, with an expected book-to-bill ratio of about one and a backlog covering around 60% of the next year's sales. They plan to continue reducing their backlog into early 2025, aiming to achieve a positive book-to-bill ratio by the year's end. Mike Halloran asks about the impact of the past due backlog and whether next year will be a normal growth year for MCS. Bill Grogan responds that they are largely caught up with their past due backlog and are back to normal levels. He remains optimistic about next year's growth, particularly in the smart metering business, aligning with its long-term framework.

The paragraph details a discussion between Mike Halloran and Matthew Pine about the company's portfolio segmentation and implementation timeline. Matthew mentions that 2024 was a year focused on analytics and strategic adjustments, with implementations happening in Q4 and expected results starting in Q1 of the following year. Although there might be temporary revenue pressure, measures like the 80/20 rule and organizational restructuring are anticipated to improve margins. Halloran confirms that, despite current changes and project timings, there is no deviation from the company's growth outlook of 4% to 6% over the next three years, emphasizing that next year should proceed as planned.

In the paragraph, Scott Davis from Melius Research asks about the impact of pricing on future business, and Matthew Pine responds by explaining that their pricing strategy includes both backlog adjustments and new business pricing. Pine highlights that they are focusing on being price/cost positive, achieving strong results, particularly with MCS as a significant contributor. Year-to-date pricing has exceeded expectations due to targeted efforts and leveraging market differentiation. Pine intends to expand on pricing strategies to prevent price leakage and optimize strategic pricing going forward. Scott Davis then asks for clarification on weaker markets in Europe and Asia, particularly referencing China as a significant part of their Asia business.

The paragraph discusses challenges in the Chinese market affecting the company's revenue, particularly in water infrastructure and building services due to tight liquidity and delayed projects. Despite strong underlying demand, the economic environment in China remains difficult, with declining orders and revenue. The company is focusing on managing costs and identifying opportunities with differentiated technology to address these challenges. They anticipate that these issues will be short-term, and China will eventually return to being a significant part of their growth strategy. Additionally, softer performance is also noted in the Middle East and specific applications in Africa.

In this paragraph, Nathan Jones from Stifel asks questions about Xylem's acquisition of a majority stake in Idrica. Matthew Pine discusses their strategy behind this acquisition, highlighting plans to consolidate R&D investments and integrate the platform across Xylem for efficiency and synergy. This majority stake allows Xylem to leverage Idrica's platform to address data and application management issues noted by utilities, particularly in Australia and the U.K. The acquisition is expected to enhance Xylem's scalability, drive synergies, and facilitate order growth globally. Financial details will be addressed by Bill, but are not included in this paragraph.

In the dialogue, Bill Grogan mentions no significant changes for the current year, with plans to close on certain activities in late December, which will affect next year's guidance. Nathan Jones inquires about the revenue and order growth for Applied Water. Matthew Pine responds, indicating that Applied Water, their most cyclical business, has been challenged but sees positive momentum and potential growth as they approach the bottom of the decline. The team is leveraging technology to win larger projects, supporting expected recovery in 2025. He also mentions ongoing decision-making processes that may create some pressure but expresses optimism about improving fundamentals over the next few quarters. The conversation concludes with Nathan thanking Matthew, and the operator faces technical difficulties with the next caller, moving on to Brett Linzey from Mizuho.

In the paragraph, Brett Linzey and Bill Grogan discuss the dewatering business's performance in the recent quarter. Linzey notes past gains from storm events and questions their impact this quarter. Grogan indicates that storm-related impacts were minimal, and while the business overall was strong with some softness in specific mining applications, any storm effect was marginal. Linzey also inquires about the reasons for the anticipated margin decrease in the fourth quarter compared to the third. Matthew Pine explains it is due to a portfolio mix shift, with water infrastructure's seasonal increase at a lower margin and MCS facing more energy exposure, affecting margins. The meeting ends as the operator concludes the Q&A session, and Pine is invited to make closing remarks.

Matthew Pine expressed thoughts and prayers for the people of Spain, including Xylem colleagues and Idrica partners, who are affected by recent flooding. He assured that everyone they contacted is safe and healthy but emphasized the need to keep the country in their thoughts during this difficult time. He then thanked everyone for their questions and participation in the call, expressing appreciation for the interest in Xylem. The operator concluded the conference call, thanking attendees and ending the session.

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