Q1 2024 Xylem Inc Earnings Call

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Operator: Welcome to Xylem's first quarter 2024 results conference call. All participants will be in listen-only mode. Should you need assistance, please signal a conference specialist by pressing the star key followed by zero. After today's presentation, there will be an opportunity to ask questions. To ask a question, you may press star then 1 on your telephone keypad. To withdraw your question, please press star then 2. Please note this event is being recorded. I would now like to turn the conference over to Andrea Vanderberg, Vice President of Investor Relations. Please go ahead.

Welcome to xylem first quarter G 24, earning results conference call.

Speaker Change: All participants will be in listen only mode should you need assistance. Please signal a conference specialist by pressing the star key followed by zero.

Andrea van der Berg: After todays presentation, there will be an opportunity to ask questions to ask a question you May Press Star then one on your telephone keypad to withdraw your question. Please press Star then two.

Operator: Please note this event is being recorded.

Andrea van der Berg: I would now like to turn the conference over to Andrea Vanderburgh, Vice President of Investor Relations. Please go ahead.

Andrea van der Berg: Thank you, Operator. Good morning, everyone, and welcome to Xylem's first quarter 2024 earnings call. With me today are Chief Executive Officer Matthew Pine and Chief Financial Officer Bill Grogan. They will provide their perspectives on Xylem's first quarter 2024 results and discuss the second quarter and full year outlook. Following our prepared remarks, we will address questions related to the information covered in the call. I'll ask that you please keep to one question and a follow-up and then return to the queue.

Andrea van der Berg: Thank you operator, good morning, everyone and welcome to the Islands first quarter 'twenty 'twenty four earnings call with me today are Chief Executive Officer, Matthew Pine, and Chief Financial Officer, Bill Grogan. They will provide their perspectives on the islands first quarter 2024 results and discuss the second quarter and full year outlook. Following our prepared remarks, we will address questions.

Andrea van der Berg: Related to the information covered on the call.

Andrea van der Berg: I 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.

Andrea van der Berg: As a reminder, this call and our webcast are accompanied by a slide presentation available in the Investors section of our website. A replay of today's call will be available until midnight, May 9th. Additionally, the call will be available for playback via the Investors section of our website under the heading Investor Invest. 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.

Andrea van der Berg: A replay of today's call will be available until midnight may not.

Andrea van der Berg: Additionally, the call will be available for playback via the investors section of our website under the heading and bathroom back.

Andrea van der Berg: Please turn to slide two.

Andrea van der Berg: These statements are subject to future risk and uncertainty, such as those factors described in Xylem's most recent annual report on Form 10-K and in subsequent reports filed with us. 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've provided you with a summary of our key performance metrics, including both GAAP and non-GAAP metrics, with references to prior year segment metrics being made on a comparative basis, reflecting the change in segments as of the beginning of the year.

Andrea van der Berg: 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.

Andrea van der Berg: These statements are subject to future risks and uncertainties such as those factors described in the most recent annual report on Form 10-K and in subsequent reports filed with the SEC.

Andrea van der Berg: Please note that the company undertakes no obligation to update any forward looking statements publicly to reflect subsequent events or circumstances.

Andrea van der Berg: And actual events or results could differ materially from those anticipated.

Andrea van der Berg: Please turn to slide three.

Andrea van der Berg: We've provided you with a summary of our key performance metrics, including both GAAP and non-GAAP metrics with references to prior year segment metrics being made on comparative basis refi, reflecting the change in segments as of the beginning of the year for purposes of today's call. All references will be on an organic N our adjusted basis unless otherwise.

Andrea van der Berg: For purposes of today's call, all references will be on an organic and or 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, Matthew Pine.

Matthew Francis Pine: As indicated and non-GAAP financials have been reconciled for you and are included in the appendix section of the presentation.

Matthew Francis Pine: Now please turn to slide four and I'll turn the call over to our CEO Matthew Pat.

Matthew Francis Pine: Thanks, Andrea. Good morning, everyone, and thank you for joining us today. The Xylem team delivered a very strong first quarter, outperforming expectations on all metrics. The team drove high single-digit organic revenue growth, reflecting a healthy balance of both volume and price. And the team also expanded at just the EBITDA margin, almost 300 basis points. And with that outperformance, we delivered EPS growth of 14%. The story is pretty straightforward.

Matthew Francis Pine: Thanks, Andrew and good morning, everyone and thank you for joining US today. This island team delivered a very strong first quarter outperforming expectations on all metrics.

Matthew Francis Pine: The team drove high single digit organic revenue growth, reflecting a healthy balance of both volume and price.

Matthew Francis Pine: And the team also expanded adjusted EBITDA margin almost 300 basis points.

Matthew Francis Pine: And with that outperformance, we delivered EPS growth of 14%.

Matthew Francis Pine: We have strong commercial and operational momentum with resilient underlying demand in the majority of our segments and end markets. I want to thank all our teams for doing a great job. But I want to highlight two teams in particular, Measurement and Control Solutions and Water Solutions and Services. In both segments, focused effort paid off in really outstanding numbers. In MCS, organic revenue grew more than 20%, and margins are up over 500 basis points year-over-year. And in its first quarter as a combined segment, WSS stayed focused on serving our customers and delivered both the highest order growth of all segments and made a significant contribution to Xylem's overall margin mix.

Matthew Francis Pine: The story is pretty straightforward, we have strong commercial and operational momentum with resilient underlying demand in the majority of our segments and end markets.

Matthew Francis Pine: Want to thank all our teams for doing a great job.

Matthew Francis Pine: But I want to highlight two teams in particular measurement and control solutions and water solutions and services in both segments focused effort paid off and really outstanding numbers.

Matthew Francis Pine: And M. C. S organic revenue grew more than 20% and margins are up over 500 basis points year over year.

Matthew Francis Pine: And in this first quarter as a combined segment WSI stayed focused on serving our customers and deliver both the highest orders growth of all segments and made a significant contribution does islands overall margin mix.

Matthew Francis Pine: In addition to operational commercial performance, the first quarter also reflected continued momentum on integration synergies with Evoqua. We saw a very solid Q1 run rate on cost cap, and we're confident in how we're tracking both on revenue and cost synergies. On the basis of our momentum, the team's disciplined performance, and continuing resilient demand, we're raising our full-year guidance for both revenue and margin and lifting our EPS guidance 8 cents from the midpoint. As we look forward, operationally, we're focused on maximizing value from every additional increment of volume we deliver. The team's impressive first quarter margin performance reflects our increasing operational discipline.

Matthew Francis Pine: In addition to operational commercial performance. The first quarter also reflected continued momentum on integration synergies where the vocal.

Matthew Francis Pine: We saw a very solid Q1 run rate on cost capture and we're confident in how we're tracking both on revenue and cost synergies.

Matthew Francis Pine: On the basis of our momentum the team's disciplined performance and continuing to continuing resilient demand, we're raising our full year guidance for both revenue and margin and lifting our EPS guidance eight cents from the midpoint.

Matthew Francis Pine: As we look forward operationally, we are focused on maximizing value from every additional increment of volume we deliver.

Matthew Francis Pine: The team's impressive first quarter margin performance reflects our increasing operational discipline.

Matthew Francis Pine: We're driving simplification across our business, doing the few things that matter most even more efficiently. To solve water, we have to simplify water both for our customers and for ourselves. Strategically, our demand outlook continues to be supported by secular trends that are set to continue across economic cycles. As the headlines reflect, we're seeing an increasingly water-challenged world. And just as with energy, the water economy is intertwined with every part of business and life. So as water security becomes pressing, we'll continue to see increasing demand for solutions that can help make companies and communities more water secure. Xylem's platform of capabilities is uniquely positioned to meet this demand.

Matthew Francis Pine: We're driving simplification across our business doing the few things that matter most even more efficiently.

Matthew Francis Pine: To solve water, we have to simplify water both for our customers and for ourselves.

Matthew Francis Pine: Strategically our demand outlook continues to be supported by secular trends that are set to continue across economic cycles.

Matthew Francis Pine: As the headlines reflect we're seeing an increasingly water challenged world.

Matthew Francis Pine: And just as with energy the water economy is intertwined with every part of business and life.

Matthew Francis Pine: So its water security becomes pressing will continue to see increasing demand for the solutions that can help make companies and communities more water secure.

Matthew Francis Pine: As islands platform of capabilities is uniquely positioned to meet this demand.

Matthew Francis Pine: We recently announced we'll be hosting our Investor Day on May 30th, which will take place both virtually and here at our headquarters in Washington. We're looking forward to the opportunity to provide updates on our strategic outlook, long-term growth, and financial framework, and our 2030 Sustainability Goals. And with that, I'll hand it over to Bill to cover the quarter's results, our financial position, and our outlook in more detail. Thanks, Matt.

Matthew Francis Pine: We recently announced we will be hosting our investor day on may 30th to take place both virtually and here at our headquarters in Washington, We're looking forward to the opportunity to provide updates on our strategic outlook long term growth and financial framework, and our 2030 sustainability goals and with that I'll hand, it over to bill to cover that.

Bill: Quarter's results.

Bill: Our financial position and our outlook in more detail Bill. Thanks, Matthew Please turn to slide five.

William K. Grogan: Thanks Matthew, please turn to slide 5. Q1 was an excellent start to the year, exceeding expectations across revenue, margin, and earnings per share. I want to echo Matthew's thanks to all of our teams for remaining focused and turning in an outstanding quarter. We continue to see resilient demand, with our backlog increasing 4% to $5.3 billion. Organic orders grew 3% in the quarter, with book-to-bill above 1, supported by strength across developed markets, particularly in WSS.

William K. Grogan: Q1 was an excellent start to the year exceeding expectations across revenue margin and earnings per share.

William K. Grogan: I want to Echo Matthew Thanks to all of our team for remaining focused and turning in an outstanding quarter.

William K. Grogan: We continue to see resilient demand with our backlog, increasing 4% to $5 $3 billion organic orders grew 3% in the quarter with book to Bill above one supported by strength across developed markets, particularly in <unk> <unk>.

William K. Grogan: Total revenues grew 40% and organic revenues rose 7%, exceeding our guidance and a healthy combination of volume and price. All performance was led by MNCS and WSS, and we saw growth in all regions led by double-digit growth in the U.S. EBITDA margin was 19.2%, up 290 basis points from the prior year, with productivity savings, strong volume, and price more than offsetting inflation and investments. This reflects incrementals of 26% on a consolidated basis and 57% on an organic basis. Our EPS in the quarter was $0.90, above the high end of our guide by $0.05, and up 14% over the prior year. Our balance sheet remains healthy, with ample liquidity to support capital deployment.

William K. Grogan: Total revenues grew 40% and organic revenues rose, 7% exceeding our guidance and a healthy combination of volume and price.

William K. Grogan: Outperformance was led by Mcs and WSI us and we saw growth in all regions led by double digit growth in the U S.

William K. Grogan: EBITDA margin was 19, 2% up 290 basis points from the prior year with productivity savings strong volume price and mix more than offsetting inflation and investments. This reflects incrementals of 26% on a consolidated basis and 57% on an organic basis.

William K. Grogan: Our EPS in the quarter was 90 above.

William K. Grogan: Above the high end of our guide by <unk> up 14% over the prior year.

William K. Grogan: Our balance sheet remains healthy with ample liquidity to support capital deployment, we started the year with free cash flow conversion of 9%. This represents significant improvement versus typical seasonality of negative Q1 free cash flow conversion. This year, we delivered higher net income offset slightly by increased capex.

William K. Grogan: We started the year with a free cash flow conversion of 9%. This represents a significant improvement versus typical seasonality of negative Q1 free cash flow conversion. This year, we delivered higher net income, offset slightly by increased cap back. Please turn the slide set.

William K. Grogan: <unk>.

William K. Grogan: Please turn to slide six.

William K. Grogan: Measurement and control solutions had a great quarter and exceeded our expectations. Orders grew 3% on continued smart metering demand. Backlog rose to $2.2 billion, up 6% organically, and book-to-bill came in slightly under 1 due to greater backlog conversion. MNCS revenue was up 22% driven by smart metering demand and backlog execution.

William K. Grogan: Measurement and control solutions had a great quarter and exceeded our expectations orders grew 3% on continued smart metering demand.

William K. Grogan: Backlog rose to $2 $2 billion up 6% organically and book to Bill came in slightly under one due to a greater backlog conversion.

William K. Grogan: Mcs revenue was up 22% driven by smart metering demand and backlog execution.

William K. Grogan: We finished the quarter with EBITDA margins of 22.7%, up 550 basis points versus the prior year and up 440 basis points sequentially. Margin expansion was driven by productivity, higher volume and price, and favorable mix more than offsetting inflation. In water infrastructure, orders grew 6% in the quarter, led by robust transport demand. Revenue exceeded our expectations with total growth of 40% and organic growth of 6%. This is driven by healthy demand across all regions and applications.

William K. Grogan: We finished the quarter with EBITDA margins of 22, 7% up 550 basis points versus the prior year and up 440 basis points sequentially.

William K. Grogan: Margin expansion was driven by productivity higher volume and price and favorable mix more than offsetting inflation.

William K. Grogan: And water infrastructure orders grew 6% in the quarter led by robust transport demand.

William K. Grogan: Revenue exceeded our expectations with total growth of 40% and organic growth of 6%.

William K. Grogan: Driven by healthy demand across all regions and applications.

William K. Grogan: EBITDA margin for this segment was up 320 basis points, driven by productivity, mix, volume, and price offsetting inflation. In Applied Water, although orders declined versus a year ago, book-to-bill was greater than one, reflective of a few large projects. Revenues were down 4%, in line with our expectations against strong growth in the first quarter of last year, primarily driven by a decline in developed markets. Segment EBITDA margin declined 380 basis points year over year on an unfavorable mix, higher inflation, and volume declines, partly offset by productivity savings.

William K. Grogan: EBITDA margin for the segment was up 320 basis points, driven by productivity mix volume and price offsetting inflation.

William K. Grogan: In applied water, although orders declined versus a year ago book to Bill was greater than one reflective of a few large project wins.

William K. Grogan: Revenues were down 4% in line with our expectations against strong growth in the first quarter last year, primarily driven by a decline in developed markets.

William K. Grogan: Segment, EBITDA margin declined 380 basis points year over year on unfavorable mix higher inflation and volume declines, partly offset by productivity savings.

William K. Grogan: Wrapping up with water solutions and services, orders grew 7% organically, led by dewatering, and 19% on a pro forma basis, with book to bill well above one in the quarter, driven by a large order for a 20-year outsourced water contract. But even excluding that large order, pro forma demand increased. Organic revenue is up 6%, while proforma revenue increased 9% with healthy growth across most of the businesses. Adjusted EBITDA margin was strong at 22.3%, driven by a favorable mix in volume and price and productivity. The outperformance across WSS is a great reflection of our team staying focused on what matters, serving our customers throughout this integration and resegmentation.

William K. Grogan: Wrapping up with water solutions and services orders grew 7% organically led by dewatering and 19% on a pro forma basis with book to Bill well above one in the quarter driven by a large order for a 20 year outsourced water contract, but even excluding that large order pro forma demand increased.

William K. Grogan: <unk> revenue was up 6%, while pro forma revenue increased 9% with healthy growth across most of the businesses.

William K. Grogan: Adjusted EBITDA margin was strong at 22, 3% driven by favorable mix and volume and price and productivity.

William K. Grogan: The outperformance across WNS is a great reflection of our team staying focused on what matters, serving our customers throughout this integration and re segmentation.

Matthew Francis Pine: Now, let's turn to slide 7 for updated full year and second quarter guidance. Given our first quarter outperformance and both commercial and operational momentum, we are raising our full year guidance. We are increasing our revenue guidance to approximately $8.5 billion. This reflects an additional point of growth versus prior guidance. That will put total revenue growth at 15 to 16 percent and organic revenue growth at 4 to 6 percent. We are confident about driving further margin expansion with operational productivity and are raising our EBITDA margin guidance to about 20%.

Speaker Change: Now, let's turn to slide seven for our updated full year and second quarter guidance.

Matthew Francis Pine: Given our first quarter outperformance in both commercial and operational momentum we are raising our full year guidance.

Matthew Francis Pine: We are increasing our revenue guide to approximately $8 $5 billion. This reflects an additional point of growth versus prior guidance.

Matthew Francis Pine: That will put total revenue growth at 15% to 16% and organic revenue growth at 46%.

Matthew Francis Pine: We are confident about driving further margin expansion with operational productivity and are raising our EBITDA margin guidance to about 20%.

Matthew Francis Pine: That represents 110 basis points of expansion versus the prior year, driven by higher volume productivity, including cost synergies and price offsetting inflation. Our updated EPS guidance of $4.10 to $4.25 reflects an increase of $0.08 at the midpoint. We continue to expect around $100 million of exit rate cost synergies in 2024, and free cash flow conversion for the year is still expected to be 115% of net income. The full year outlook at the segment levels remains largely unchanged from our comments in February.

Matthew Francis Pine: That represents 110 basis points of expansion versus the prior year, driven by higher volume productivity, including cost synergies and price offsetting inflation.

Matthew Francis Pine: Our updated EPS guidance of $4 10 to $4 25.

Matthew Francis Pine: It reflects an increase of eight cents at the midpoint.

Matthew Francis Pine: We continue to expect around $100 million of exit rate cost synergies in 2024.

Matthew Francis Pine: Free cash flow conversion for the year is still expected to be 115% of net income.

Matthew Francis Pine: The full year outlook at the segment levels remain largely unchanged from our comments in February.

Matthew Francis Pine: For the second quarter, we anticipate total revenue growth of 23% to 25% on a reported basis and 5 to 7% organically. We expect second quarter EBITDA margin to be approximately 20 percent, up 90 basis points, driven by higher volumes, continued price realization, and productivity gains. This yields second-quarter EPS of $1 to $1.05. We came into 2024 at a healthy pace, and we've had a strong start to the year, building further momentum.

Matthew Francis Pine: For the second quarter, we anticipate total revenue growth will be 23% to 25% on a reported basis and 5% to 7% organically.

Matthew Francis Pine: We expect second quarter EBITDA margin to be approximately 20% up 90 basis points, driven by higher volumes continued price realization and productivity gains.

Matthew Francis Pine: This yield second quarter EPS of $1 to $1 five.

Matthew Francis Pine: We came into 2024 at a healthy pace and we've had a strong start to the year building further momentum our diversified portfolio positions us well to address our customers' evolving needs and we anticipate healthy demand across most end markets and applications.

Matthew Francis Pine: Our diversified portfolio positions us well to address our customers' evolving needs, and we anticipate healthy demand across most end markets and applications. While we are closely monitoring the macro environment, including inflation, higher interest rates for longer, a strengthening dollar, and geopolitical uncertainty, our overall outlook for the year remains positive. With that, please turn to slide eight, and I'll turn the call back over to Matthew for closing comments.

Matthew Francis Pine: While we are closely monitoring the macro environment, including inflation higher interest rates for longer a strengthening dollar and geopolitical uncertainty our overall outlook for the year remains positive.

Matthew Francis Pine: With that please turn to slide eight and I'll turn the call back over to Matthew for closing comments.

Matthew Francis Pine: Thanks, Bill. There are two things I want to mention before we close. First, it's been such a privilege in my first hundred days as CEO to spend time with so many Xylem colleagues around the world. You can see they're doing fantastic work, and it's evident in today's results. And our integration progress is a great indicator of how smoothly the Xylem and Evoqua teams have come together. As a combined company, there is so much potential for growth and impact, especially as we pivot to even stronger execution of our strategy.

Matthew: Thanks, Bill two things I want to mention before we close first it's been such a privilege in my first hundred days as CEO to spend time with so many xylem colleagues around the world you can see they are doing fantastic work and it's evident in today's results.

Matthew Francis Pine: And our integration progress is a great indicator of how smoothly the xylem and evoke the teams have come together.

Matthew Francis Pine: As a combined company there is so much potential for growth and impact, especially as we pivot to even stronger execution of our strategy.

Matthew Francis Pine: To achieve our potential, we're being very intentional about the culture we're building. Specifically, we're creating a culture centered on behaviors that drive empowerment, accountability, and innovation. We call it our high-impact culture, and it's the heart of our way we are creating the next phase of Xylem's growth and impact. Of course, culture change takes time, and it starts with myself and the leadership team.

Matthew Francis Pine: To achieve our potential we're being very intentional about the culture we're building.

Matthew Francis Pine: Specifically, we are creating a culture centered on behaviors that drive empowerment accountability and innovation.

Matthew Francis Pine: We call it our high impact culture, and it's the heart of our how how we are creating the next phase of islands growth and impact.

Matthew Francis Pine: Of course culture change takes time and it starts with myself and the leadership team.

Operator: So it's incredibly energizing to see the cultural alignment already coming to life in our town halls and business reviews at all levels in the organization. We'll talk a bit more about how we're fostering our high-impact culture when we gather together for Investor Day at the end of May. Lastly, on Investor Day, we'll also be launching our 2023 Sustainability Report. We're very proud of what we've achieved and even more motivated by the work ahead.

Matthew Francis Pine: So it's incredibly energizing to see the cultural alignment already coming to life in our town halls and business reviews at all levels in the organization.

Operator: We will talk a bit more about how we're fostering our high impact culture. When we gather together for Investor day at the end of May.

Operator: Lastly on Investor Day, we'll also be launching our 2023 sustainability report, we're very proud of what we've achieved and even more motivated by the work ahead.

Operator: In this year's report, we'll be introducing our combined company goals for the first time, setting our ambition for impact through 2030. Given how fundamental sustainability is to Xylem's business model, I invite you to give it as much attention as you give our financial results. And, as always, we welcome your feedback.

Operator: In this year's report will be introducing our combined company goals for the first time setting our ambition for impact through 2030.

Operator: Given how fundamental sustainability as islands business model and I invite you to give it as much attention as you give our financial results and as always we welcome your feedback.

Speaker Change: And with that I will turn it over to the operator to lead us through Q&A.

Operator: We will now begin the question and answer session. To ask a question, you may press star then one on your telephone keypad. If you're using a speakerphone, please pick up your handset before pressing the keys. To withdraw your question, please press star then 2. At this time, we will pause momentarily to assemble our roster. The first question comes from Deane Dray with RBC Capital Markets. Please go ahead.

Speaker Change: We will now begin the question and answer session to ask a question you May Press Star then one on your telephone keypad.

Deane Michael Dray: If you were using a speakerphone please pick up your handset before pressing the keys to withdraw your question. Please press Star then two.

Operator: At this time, we will pause momentarily to assemble our roster.

Operator: The first question comes from Deane Dray with RBC capital markets. Please go ahead.

Operator: Yeah.

Matthew Francis Pine: Thank you. Good morning, everyone. Hey, good morning. And maybe we can start with the EVOQA integration and just lots of focus here on the potential revenue synergies, the rollout of the European business, just any color there in terms of what the potential is for some new outsourcing contracts. And then also, can you give us any color on that large outsourcing contract that would be helpful to us?

Deane Michael Dray: Thank you and good morning, everyone.

Deane Michael Dray: Hey, good morning Deane.

Matthew Francis Pine: And maybe we can start with the evoke what integration and just lots of focus here on the potential revenue synergies the rollout of the European.

Matthew Francis Pine: Business.

Matthew Francis Pine: Just any any color there in terms of.

Matthew Francis Pine: What the potential is on some new outsourcing contracts and then also can you just.

Matthew Francis Pine: Any color on that large outsourced contract that would be helpful too.

Matthew Francis Pine: Yeah, I can start us off, Deane. I'll have Bill cover the big win that we had in our newest WSS segment on the long-term build-own-operate contract. But maybe just broadly on a VOCA integration update, you know, it's really hard to believe that we closed about a year ago. We, just to remind everybody, we closed that in what I call record time, announced in January, closed in May of last year.

Speaker Change: Yes, I can start us off Dean I'll have bill cover the big win that we had in our newest the WNS segment on the long term build own operate contract, but maybe just broadly on a vocal integration update it's really hard to believe that we closed about a year ago.

Matthew Francis Pine: Just to remind everybody we closed that in what I call record time announced in January closed in May of last year.

Matthew Francis Pine: And I would characterize this as great momentum. Obviously, we've got an investor day coming up in about four weeks. And we're going to have some real tangible proof points to the progress that the teams are making. Just, you know, briefly, cost synergies are tracking well to meet the $100 million run rate that we've talked about in our 24 plan. And, Deane, on revenue synergies... You know, we're ramping. That was the last thing that we were able to really focus on. Obviously, on the cost side, you can do a lot of work before the close, but you can't jump on the revenue synergies before closing.

Matthew Francis Pine: And how do we characterize this as great momentum, obviously, we've got an investor day coming up in about four weeks and we're going to have some real tangible proof points to the progress that the teams are making.

Matthew Francis Pine: Just briefly cost synergies are tracking well to meet the $100 million run rate that we've talked about in our 24 plan.

Matthew Francis Pine: And Dean on revenue synergies.

Matthew Francis Pine: We're ramping that was the last thing that we were able to really focus on obviously on the cost side you can do a lot of work before the close.

Matthew Francis Pine: You can't gun jump on the revenue synergies before closing.

Matthew Francis Pine: But the teams have really ramped up. And again, we're going to have some nice proof points to share in a few weeks here in D.C., but I don't I don't want to steal the team's thunder there.

Matthew Francis Pine: But the teams have really ramped up and again, we're going to have some nice proof points to share.

Matthew Francis Pine: Few weeks here in D C, but I don't want don't want to steal the team's thunder, there, but great momentum and youre going to get examples across three of our four segments.

Matthew Francis Pine: But great momentum, and you're going to get examples across three of our four segments of those revenue synergies. And maybe specifically on, you know, international expansion, to your point, we are making really, I'd say, quicker progress on the capital side of that, but we're starting to build momentum on the services side. We've got three or four large-scale projects that we're working on in the Americas that are kind of outside the U.S., and we've got some work that we're starting to investigate and probe in Europe.

Matthew Francis Pine: Those revenue synergies and maybe specifically on.

Matthew Francis Pine: International expansion to your point, we are making really I'd say quicker progress on the capital side of that but we're starting to build momentum on the services side.

Matthew Francis Pine: We've got three or four large scale projects that were working.

Matthew Francis Pine: In the Americas that are kind of outside the U S and we've got some work that we're starting to investigate and probe in Europe and so that's always been the longer part of our tail of the synergy, but I just I'm really happy with the momentum that the teams are making.

Matthew Francis Pine: And so that's always been the longer part of our tail of the synergy, but I'm really happy with the momentum that the teams are making. Maybe just one other comment before I hand this to Bill. You know, you've seen in the quarter one results, we have not been slowed by integration, and that's an important point to make. This can be very distracting, and specifically with our WSS segment, where we recently did what I call a reverse integration with dewatering and assessment services, you can just see the outstanding results that the team posted in Q1 and more to come.

Matthew Francis Pine: Maybe just one other comment as before I hand, it to Bill <unk>.

Matthew Francis Pine: <unk> seen in the quarter one results, we have not been slowed by integration.

Bill: And that's an important point to make this can be very distracting and specifically with our WSI segment, where we recently just did what I call. The reverse integration with dewatering and assessment services you can just see the outstanding results at the team posted in Q1.

Matthew Francis Pine: More to come.

William K. Grogan: So, Bill, maybe... Yeah, and Deane, maybe just that project, I mean, great win by the team, you know, it's a $100-plus million, 20-year outsourced water project to support a large hydrogen plant investment with one of our key customers. Obviously, there's an upfront revenue recognition over the first 18 months, and it's about a third of it, and then the balance will be recognized over the next 20 years So, excited about that, and the sticky recurring revenue that that project will provide. The team's got a really strong funnel of large opportunities that they continue to work through, and we look to see continued wins as we progress through the year.

Matthew Francis Pine: So bill maybe and Dean maybe just that project I mean, great win by the team. He has 100 plus million dollars 20 year outsourced water project to support our large hydrogen plant investment with one of our key customers.

William K. Grogan: Obviously, there is an upfront revenue recognition over the first 18 months that its about a third of it and then the balance will be recognized over the next 20 years. So excited about that sticky recurring revenue that that project will provide the team's got a really strong funnel of large opportunities that continue to work through and we look to see continued wins as we progress through the year.

William K. Grogan: <unk>.

William K. Grogan: Yeah.

Matthew Francis Pine: That's all really good to hear. And just as a second question, and I'm not asking to front run anything about the analyst meeting that's coming up, but just there's an expectation that there is portfolio optimization coming, and there is margin improvement that will be targeted. And I would just want to get a sense of, I know that's going to be very inward looking at the four walls of the company, but what about the growth algorithm? During this period, are you still focused on M&A? Are you looking at new opportunities? And I just don't want to miss any of that growth upside during this period of this kind of portfolio optimization.

William K. Grogan: That's all really good to hear and just as that.

Matthew Francis Pine: Second question and I'm, not asking to front run anything about the analyst meeting that's coming up but just there was an expectation that there's portfolio optimization coming there's margin improvement.

Matthew Francis Pine: That will be targeted and I would just wanted to get a sense of I know thats going to be very inward looking at the four walls of the company, but what about the growth algorithm I just during this period are you still.

Matthew Francis Pine: Focused on M&A are you looking at new opportunities and I, just don't want to Miss any of that growth upside during this period of kind of portfolio optimization.

Matthew Francis Pine: It's a great question, and you pretty much hit on three of my key messages that I'll be teeing up Investor Day with, Deane. Look, we're extremely focused on executing on the platform that's been built over the past decade, especially over the past year with the acquisition of Avoqua, to drive above-market growth. I mean, that's our mantra. This is our number one execution priority and our goal deployment process this year, and it will be in future years. And it's really, obviously, bolstered by the Avoqua synergy.

Matthew Francis Pine: It's a great question and you're pretty much hit on three of my key messages that I'll be teeing up the investor day with Dean.

Matthew Francis Pine: We're extremely focused on executing on the platform that's been built over the past decade, especially over the past year with the acquisition of evoke.

Matthew Francis Pine: To drive above market growth I mean, that's our mantra. This is our number one execution priority and our goal deployment process.

Matthew Francis Pine: This year and it will be on the in the future years, and it's really obviously bolstered by the evoke with synergies.

Matthew Francis Pine: Q1 is one data point with our new leadership team in place here, but look, we're up 6% in volume and 1% in price. I think that's a good beginning of what we're building here on the top line, and I'm super proud of our team's top line mindset. You know, it's not a secret.

Matthew Francis Pine: Q1 is one data point with our new leadership team in place here, but look we're up 6% in volume of 1% and price and I think that's a good beginning of what we're building here on the topline and I'm Super proud of our team's topline mindset.

Matthew Francis Pine: I've been very vocal about our operating leverage, and so have our investors, quite frankly. And so, you know, we want to make sure that we're driving profitable growth and expanding our margins. And again, Q1 is a good example of that.

Matthew Francis Pine: It's not a secret I've been very vocal about our operating leverage.

Matthew Francis Pine: So of our investors quite frankly.

Matthew Francis Pine: We want to make sure that we're driving profitable growth and expanding our margins and again Q1 is a good example of that where it roughly 60% almost incrementals on a pro forma basis.

Matthew Francis Pine: We're at roughly 60% almost incremental on a pro forma basis. And, you know, the thing, Deane, I would leave you with when we talk about some of the n-word focus, it's really about we have to simplify our business to grow our business. And we're doing both. And so that's really the mantra. And in the focus and from a capital deployment standpoint, we'll get into more on that here in a few weeks.

Matthew Francis Pine: And.

Matthew Francis Pine: The thing I Dean I would leave you with when we talk about some of the inward focus.

Matthew Francis Pine: It's really about we have to simplify our business to grow our business.

Matthew Francis Pine: And we're doing both and so that's really the mantra and in the focus in from a capital deployment standpoint, we will get into more into that here in a few weeks, but.

Matthew Francis Pine: But, you know, we're going to be focused on high-growth markets with accretive margin, and we're going to be more consistent in our capital deployment. And we've just wrapped up some value mapping work that's going to inform where those opportunities are. So we look forward, and the team looks forward to sharing that with you and others here in a few weeks.

Matthew Francis Pine: We're going to be focused on high growth markets with accretive margin.

Matthew Francis Pine: And we're going to be more consistent in our capital deployment and we've just wrapped up some value mapping work that is going to inform where those opportunities are so we look forward and the team looks forward to sharing that with you and others here in a few weeks.

Deane Michael Dray: All good to hear. See you in a couple. Thank you.

Matthew Francis Pine: All good to hear he and a couple thank.

Speaker Change: Thank you.

Operator: The next question comes from Mike Halloran with Baird. Please go ahead.

Deane Michael Dray: The next question comes from Mike Halloran with Baird. Please go ahead.

Michael Patrick Halloran: Hey, good morning, everyone.

Michael Patrick Halloran: Good morning, Mike. So a couple here first, you know, maybe just taking a step back. You've been in the seat now for a hundred plus days, Bill. You've been there, what, six, seven months now. What are your initial impressions as far as momentum is concerned, how the messaging you two are pushing through is starting to, you know, sink into the culture, sink into the people? And what kinds of impressions do you have so far?

Michael Patrick Halloran: Good morning, Mike.

Michael Patrick Halloran: A couple here first you know maybe just taking a step back here.

Michael Patrick Halloran: You've been in the seat now year to date 100, plus days Bill you've been there what six seven months now.

Michael Patrick Halloran: What are the what are the initial impressions as far as the momentum youre seeing how the messaging to are pushing through we're starting to.

Michael Patrick Halloran: I'm thinking of the culture is thinking of the people and what kinds of impressions do you have so far.

Matthew Francis Pine: No, that's a great question. I did mention that in my opening remarks about the first hundred days. We, you know, not just me, but we as a team feel good about where we are and we believe we've got, we had good momentum coming into 2024. We believe now that we're continuing to build on that momentum that you've seen in Q1. We're executing on a great platform, which I just teed up with Deane here. You know, I'd say we did not have a cold start, right? We didn't start this on January 1 and figure out how to start turning the crank.

Speaker Change: No. That's a great question and I did mention that in my opening remarks about the first center days.

Matthew Francis Pine: We not just me, but we as a team feel good about where we are and we believe we've got we had good momentum coming into 2024. We believe now we are continuing to build on that momentum that you've seen in Q1.

Matthew Francis Pine: We're executing on a great platform, which I, just teed up with Dean here.

Matthew Francis Pine: I'd say, we did not have a cold start we didn't start this January one and figure out how to start turning the crank.

Matthew Francis Pine: You know, with COO last year, having the opportunity to kind of refine the strategic priorities was a part of our strategy session with the board. And those themes were really around value capture from our VOCA transaction and simplification, not only in service of margins but growth, which I just mentioned to Deane.

Matthew Francis Pine: At <unk> last year.

Matthew Francis Pine: Having the opportunity to kind of refine the strategic priorities is a part of our strategy session with the board and those themes were really around value capture from our of Oakwood transaction.

Matthew Francis Pine: Simplification not only in service of margins, but growth, which I just mentioned to dean and we're deploying that more systematically through the business through goal deployment I'm really proud of what I'm seeing when a mountain about with the teams.

Matthew Francis Pine: And we're deploying that, you know, more systematically through the business, through goal deployment. I'm really proud of what I'm seeing when I'm out and about with the teams and Scaling Services. So, you know, I'm pleased to see the progress there. Obviously, I'm pleased to see the progress on our VOCA integration, both economically and the results we're seeing, but culturally. The teams are coming together and working fantastically, and we're seeing, obviously, momentum there.

Matthew Francis Pine: And scaling services, so that I am pleased to see the progress there obviously I'm pleased to see the progress on our integration both economically and the results. We're seeing the culturally the teams are coming to get are coming together and working fantastically.

Matthew Francis Pine: And we're seeing obviously momentum there.

Matthew Francis Pine: I think the last thing that's most important to me is the how, because you can have all these objectives and strategies and things you want to do, but if you don't have the right culture... then it's hard to execute consistently. And so the work we're doing on our high-impact culture, our HAL, it started last year with our senior leadership team, probably about a year ago this time. And we just engaged our top 150 in the organization at the end of last year, coming into 24, and we're seeing great alignment.

Matthew Francis Pine: The last thing.

Matthew Francis Pine: Most important to me is the how because you can have all of these objectives and strategies.

Matthew Francis Pine: Things you want to go do but if you don't have the right culture.

Matthew Francis Pine: And then it's hard to execute consistently and so the work we're doing on our high impact culture or how.

Matthew Francis Pine: It started last year with our senior leadership team probably about a year ago. This time.

Matthew Francis Pine: And we just engaged our top 150 in the organization at the end of last year coming into 'twenty four.

Matthew Francis Pine: And we're seeing great alignment.

Matthew Francis Pine: You know, I've spent a lot of time on the road in the past 100 days globally, and I'm really pleased about where we are, but it's a long journey. We have a lot of work to do ahead of us, but, you know, with that focus and intention, I believe we can achieve great things. So, look, I'm happy where we are. We're not satisfied, but I think we're off to a good start.

Matthew Francis Pine: I've spent a lot of time on the road in the past 100 days globally and.

Matthew Francis Pine: And I'm really pleased about where we are but it's a long journey.

Matthew Francis Pine: We have a lot of work to do ahead of us but.

Matthew Francis Pine: With that focus and intention.

Matthew Francis Pine: I believe we can achieve great things, so look I'm happy where we are we're not satisfied but I think we're off to a good start.

Matthew Francis Pine: Yes.

Matthew Francis Pine: Thanks for that. And then, kind of, a broad question on underlying dynamics and orders one, kind of twofold here. One, can you give the pro forma organic overall orders for the company or give some sort of proxy for it? And then second, if I listen to the messaging here, it feels like not a lot has changed in terms of what you're seeing from an end market perspective across the various segments. I'd like to just understand if there are any notable puts and takes that have either inflected more so or less so than you thought in the quarter or from a trend line perspective.

Speaker Change: Thanks for that and then kind of a broad question on underlying dynamics in orders one.

Matthew Francis Pine: Two fold here one can you give the pro forma organic overall orders for the company or give some sort of proxy for it and then second if I look.

Matthew Francis Pine: The messaging here it feels like not a lot has changed in terms of what you're seeing from an end market perspective across the various segments.

Matthew Francis Pine: I'd like to just understand if there are any notable puts and takes of either inflicted more so or less so than you thought.

Matthew Francis Pine: In the quarter or from a trend line perspective.

William K. Grogan: Maybe I'll let Bill open up on your orders question, and I'll give you some commentary and color on the markets.

Matthew Francis Pine: Maybe I'll, let bill open up on your first question that gave us some commentary and color on the markets. Yes, obviously organic was reported 3% pro forma organic was 7% so more than to accept.

William K. Grogan: Yes, so obviously, organic was reported at 3%, and the proforma organic was 7%, so more than 2x that.

Matthew Francis Pine: Yeah, so good, good momentum on orders in Q1, you know, the book to bill was greater than one and the backlog was 4%. And, you know, not a lot's changed.

Bill: Yes, so good good momentum on orders in Q1, the book to Bill was greater than one and backlog up 4%.

Matthew Francis Pine: Not a lot has changed demand remains healthy Mike and the majority of our end markets.

Matthew Francis Pine: Demand, you know, remains healthy, Mike, in the majority of our end markets. And, you know, it's supported by a lot of the favorable drivers that we've been talking about around the secular trends. You know, government funding is trickling in, trickling in globally across different parts of our coverage. You know, still a lot of resiliency in municipalities or utilities, OPEX and CAPEX, for that matter. I know that there's been questions about rates, especially in the U.S.

Matthew Francis Pine: And it's supported by a lot of the favorable drivers that we've been talking about around the secular trends government funding is tripling trickling in globally across different parts of our our coverage.

Matthew Francis Pine: Still a lot of resiliency.

Matthew Francis Pine: And municipalities utilities, Opex and Capex for that matter I know that there's been questions about with rates, especially in the U S.

Matthew Francis Pine: In Europe, with that slowdown, we're not seeing any slowdown. And you've seen, with our results in the WSS segment this quarter, the durability of that business model. And, you know, I'm really proud of the MNCS team for their backlog conversion. We continue to win orders, though, and our orders are up year over year. And we've got good momentum there, so I think a lot of what we talked about is the same. The watch areas continue to be applied with water.

Matthew Francis Pine: In Europe would that slow down we're not seeing any slowdown.

Matthew Francis Pine: And you've seen with our results in the WSI segment this quarter, the durability of that business model.

Matthew Francis Pine: <unk>.

Matthew Francis Pine: I'm really proud of the Mcs team with their backlog conversion, we continue to win orders though.

Matthew Francis Pine: Our orders are up year over year.

Matthew Francis Pine: And we've got good momentum there. So I think a lot of what we talked about is the same the watch areas continue to be applied water.

Matthew Francis Pine: It largely was what we expected, we got a better second half comp, and we're working on some things in the business that I think will continue to improve performance there. Yeah, so that would be my commentary on where we are right now from a demand point of view.

Matthew Francis Pine: It largely was what we expected.

Matthew Francis Pine: Got a better second half comp and we're working on some things in the business that I think will continue to pursue improved performance there.

Matthew Francis Pine: Yes, so I think that would be my commentary on where we are right now from a demand point of view.

Michael Patrick Halloran: I appreciate it. Thank you. Thank you.

Speaker Change: I appreciate it. Thank you. Thank you.

Operator: The next question comes from Scott Davis with Melius Research. Please go ahead.

Michael Patrick Halloran: The next question comes from Scott Davis with Melius Research. Please go ahead.

Scott Reed Davis: Hey, good morning, everybody. Hey, good morning, Scott. Congrats on getting through the first hundred days and having a good quarter here.

Scott Reed Davis: Hey, good morning, everybody.

Scott Reed Davis: Good morning, Scott.

Scott Reed Davis: Congrats on.

Scott Reed Davis: Getting through the first 100 days and having a good quarter here. Thank you.

Matthew Francis Pine: Thank you, big, big picture, Matthew. When you see a synergy target after a deal like yours, I often wonder, is it an input or an output? Meaning, are you trying to find 100 million in synergies? Or is it a natural output of the actions that are taken integration wise? That's a little theoretical, but I guess somewhat kind of the second derivative of the question is that if those synergies track above the 100, will you likely be more likely to invest that back into the business or show it on the margin?

Scott Reed Davis: Big picture Matthew.

Scott Reed Davis: When you see the synergy target after a deal like like yours.

Matthew Francis Pine: I'm wondering as an input or output, meaning are you trying to find $100 million in synergies or is it a natural output.

Matthew Francis Pine: The actions that are taken integration integration wise.

Matthew Francis Pine: That's a little theoretical but I guess somewhat kind of.

Matthew Francis Pine: The second derivative question is is that if those synergies track above the 100.

Matthew Francis Pine: Will you likely be more likely to invest that back into the business or show it on the margin line.

Scott Reed Davis: Yeah, if you're referring to the cost synergies as a part of the

Matthew Francis Pine: Yes, if you're referring to the cost synergies as part of <unk>.

Matthew Francis Pine: Transaction. Yeah.

Speaker Change: Yes transaction just wondering yes, so look we did announced a 140.

Matthew Francis Pine: Did the deal so it is a little bit more than 100.

Matthew Francis Pine: Look were.

Matthew Francis Pine: Were running to a target much higher than 140.

Matthew Francis Pine: So look, we did announce 140 when we did the deal. So it is a little bit more than 100. Look, we're, you know, running to a target much higher than 140. And, you know, we're going to land the plane for sure at 140, and we're going to make sure that we put that upside, probably somewhat to the bottom line, but also somewhat investing in growth. It's probably a mixed bag of whatever the overage would be, would kind of fall half to the bottom line and half to top line growth.

Matthew Francis Pine: And we're going to land the plane for sure at $1 40, and we're going to make sure that we put that upside probably somewhat to the bottom line, but also somewhat investing in growth its probably a mixed bag of whatever the overage will be would kind of fall half to the bottom line and have the topline growth.

Matthew Francis Pine: It's easy when you do these deals to look at cost synergies and they're on paper and they look like, okay, they're easy to do, procurement, you know, back office, they're lift and shift factories, you know, it looks pretty straightforward, but there's a lot of work that goes into this and a lot of tracking. And I'm really impressed, Scott, with the capability that we have built through this transaction And that's only going to help us as we go forward and deploy more capital in the future. You know, I think we're tracking well, we're going to deliver above 140, and we're going to use that to help continue to expand margins but also to fuel growth.

Matthew Francis Pine: No.

Matthew Francis Pine: It's easy when you do these deals to look at cost synergies and they are on paper and they look like okay, they're easy to do their procurement back office, there lift and shift factories.

Matthew Francis Pine: It looks pretty straightforward, but theres a lot of work that goes into this and a lot of tracking and I'm really.

Matthew Francis Pine: Impressed Scott of the capability that we have built through this transaction.

Matthew Francis Pine: And that's only going to help us as we go forward and deploy more more capital in the future. So.

Matthew Francis Pine: I think we're tracking well.

Matthew Francis Pine: Going to deliver above $1 40, and we're going to use that to help continue to expand margins, but also to fuel growth.

Matthew Francis Pine: In the future.

Speaker Change: That makes sense.

Scott Reed Davis: makes sense. The second question, you know, I probably only get an opportunity to ask this once when you get a newer...

Speaker Change: The second question.

Matthew Francis Pine: You only get an opportunity to ask this once when you get a newer.

Matthew Francis Pine: Unknown Speaker, but when you think about the buckets of where Xylem is historically, perhaps over-invested or under-invested. [inaudible] What stands out to you as areas of perhaps... Thank you. Thank you. Thank you, to be more specific, http://TheBusinessProfessor.com. Yeah, I think you hit the first one, it's cultural, and I think we're making good progress there. But you've heard me talk about Simplify Water.

Scott Reed Davis: But.

Scott Reed Davis: When you think about the buckets of where xylem is historically, perhaps over invested or underinvested or over loved or under loved.

Matthew Francis Pine: What stands out to you as areas of perhaps.

Matthew Francis Pine: Improvement that you'd like to see I mean, you mentioned the.

Matthew Francis Pine: The cultural changes in some of the operational rigor, but it could be more specific around.

Matthew Francis Pine: Around maybe some areas, where you feel like you guys could use a little bit more lots.

Matthew Francis Pine: Or is that where you have over I think you hit the first one it's culturally and I think we're making good progress there but.

Matthew Francis Pine: You've heard me talk about simplify water I think that's what it boils down to.

Matthew Francis Pine: I think that's what it boils down to, you know, over the years, as we've built this incredible platform, we have had some complexity conspire against it to some extent. And you can see a little bit of that in our margin profile. So you know, it's not that we're going to be super inwardly focused, but we do have to focus inward so we can better serve our customers and our colleagues.

Matthew Francis Pine: Over the years as we built this incredible platform, we have had some complexity.

Matthew Francis Pine: Conspire against Us to some extent and you can see a little bit of that in our margin profile. So it's not that we're going to be like Super inwardly focused but we do have to focus inward. So we can better serve our customers and our colleagues.

Matthew Francis Pine: And that's where we're focused, just making it simple to do business internally at Xylem, as well as for our customers. So, customer-back mentality. You know, 80-20 is one tool to do that; there are other tools that we're leveraging. But I think, you know, putting this finer focus on what I would call the commercial execution of our business, which has probably been the area that we haven't focused enough on customers and products used and things of that nature really to simplify the business, is the mantra, and I think it's going to pay big dividends for us going forward. Super helpful. Thank you, Matthew. We'll see you all in a few weeks.

Matthew Francis Pine: And that's where we're focused is just making it simple to do business internally at xylem is well as for our customers so customer back mentality.

Matthew Francis Pine: 80, 20 is one tool to do that.

Matthew Francis Pine: Theres other tools that we're leveraging.

Matthew Francis Pine: But I think putting this finer focus on what I would call the commercial.

Matthew Francis Pine: Execution of our business, which has probably been the area that we haven't focused enough around customers and products use and things of that nature to really simplify the business.

Matthew Francis Pine: Is the mantra and I think it's going to pay big dividends for us going forward.

Speaker Change: Super helpful. Thank you Matthew we will see you all in a few weeks.

Speaker Change: Thank you.

Operator: The next question comes from Andy Kaplowitz with Citigroup. Please go ahead.

Matthew Francis Pine: The next question comes from Andy Kaplowitz with Citigroup. Please go ahead, hey, good morning, everyone.

Andrew Alec Kaplowitz: Hey, good morning everyone. Good morning, Andy.

Andrew Alec Kaplowitz: Good morning, Andy Matt I know you mentioned you continue to watch applied water I think you did say that you want a couple of larger projects there that led to a book to bill over one times.

Andrew Alec Kaplowitz: Maybe what does that say about the market is it.

Andrew Alec Kaplowitz: Like you thought better than you thought worse than you thought how would you sort of characterize whats going on there.

Matthew Francis Pine: Matt, I know you mentioned you continue to watch Applied Water. I think you said that you want a couple of larger projects there that led to book-to-bill over one time. So maybe what does that say about the market? Is it, you know, like you thought, better than you thought, worse than you thought? How would you sort of characterize what's going on?

Andrew Alec Kaplowitz: I'd say, it's largely what we thought if you look at the prior to Q1s were up 10% in each one of those so it is a tough compare.

Matthew Francis Pine: Yeah, I'd say it's largely what we thought. If you look at the prior two Q1s, we were up 10% in each one of those. So it's a tough comparison, but it's our most cyclical segment.

Matthew Francis Pine: But it's our most cyclical segment a segment we did continue with.

Matthew Francis Pine: You know, we did continue, and we do continue to expect a low single-digit decline this year. It's kind of in line with what we planned. We did, to your point, have a good Q1 orders performance. There were a few larger projects in that that are, you know, a little bit out in the future. So it's not something that's book and ship.

Matthew Francis Pine: Do continue to expect low single digit decline this year, it's kind of in line with what we planned.

Matthew Francis Pine: We did to your point have good Q1 orders performance there were a few larger projects and that.

Matthew Francis Pine: That a little bit out in the future. So its not something thats booking book and ship its more future projects.

Matthew Francis Pine: It's more future projects. But, you know, we do continue to see soft markets, especially in Europe, and emerging markets are where our orders were down. Obviously, we're watching developed markets as well, but obviously, Europe plays into that. But our real weakness in Q1 was emerging markets in Europe for applied water. You know, the comps continue to be difficult, and we're closely monitoring the funnel and leading indicators on applied water.

Matthew Francis Pine: But we do continue to see soft markets, especially in Europe, and emerging markets is where our orders were down.

Matthew Francis Pine: Obviously, we're watching developed markets as well, but obviously Europe plays into that but.

Matthew Francis Pine: Or really weakness in Q1 was in emerging markets in Europe for.

Matthew Francis Pine: And for applied water.

Matthew Francis Pine: The comps continue in Q2 to be difficult and we're closely monitoring the funnel.

Matthew Francis Pine: And leading indicators on applied water, but look we feel good about the business long term, it's just a little bit of a headwind in the first half that will resolve itself in the second half.

Matthew Francis Pine: But look, we feel good about the business long term. It's just a little bit of a headwind in the first half. It'll resolve itself in the second half. We've got a lot of initiatives in place to reduce complexity and redeploy that effort and growth, and we feel confident about that going forward.

Matthew Francis Pine: And we've got a lot of initiatives in place to reduce complexity and redeploy that effort in growth and we feel confident about that going forward.

Andrew Alec Kaplowitz: helpful and then obviously was expected, but can you talk a little bit more about how the new EPA rules regarding PFAS affect Xylem? Did they change the timeline at all when PFAS may be impactful, or is it just kind of, you know, slow and steady wins the race for how to think about your impact?

Speaker Change: Helpful. And then obviously it was expected, but can you talk a little bit more about how the new EPA rules regarding paphos effect xylem did they change the timeline at all when PFS might be impactful or is it just kind of slow and steady wins the race for how to think about your impact.

Matthew Francis Pine: Yeah, it's the latter. It's a slow, steady race. Look, we're glad to see the rule be final. Now we have some clarity on the rules of the road, the timeline. Look, I'm really proud of our teams for providing clarity just 24 hours after the final rule on LinkedIn Live. It really shows that we're customer-centric, we're focused, and we're a leader in the space to educate our customers. But again, to your point, this is a long, long journey.

Speaker Change: Yes, its the latter its slow steady race.

Matthew Francis Pine: We're glad to see the rule be final now we have some clarity on the rules of the road. The timeline look I'm really proud of our teams and providing clarity just 24 hours. After the final rule on Linkedin live it really shows that we're customer centric, we're focused where being a leader in this space to educate our customers.

Matthew Francis Pine: Again to your point. This is a long long journey that will take time for.

Matthew Francis Pine: It'll take time for the impacted utilities to comply. They've had three years for testing, and five for PFAS removal. And that's a little bit longer than we initially anticipated in terms of when they need to be compliant.

Matthew Francis Pine: For the impacted utilities to comply they've had three years for testing five for P fast removal and that's a little bit longer than we initially anticipated in terms of when they needed to be compliant.

Matthew Francis Pine: And we're really well positioned today and ready to partner with utilities on PFAS and other emerging contaminants for that matter. You know, one thing I don't know a lot of people about, but a lot of people know this: we have over 80 PFAS installations. That we've done over the years, and we have long-standing relationships, and it is really a differentiated offering to our service capabilities for our customers. And, you know, maybe the last thing I'd say also is that we do continue to work on destruction technology.

Matthew Francis Pine: We're really well positioned today and ready to partner with utilities on P. Fast another emerging contaminants for that matter.

Matthew Francis Pine: One thing I don't know a lot of people, but with a lot of people know this we have over ADP fast installations.

Matthew Francis Pine: We've done over the years and we have long standing relationships in it and are really a differentiated offering to our service capabilities for our customers and.

Matthew Francis Pine: Maybe the last thing I would say also is we do continue to work on destruction technology, obviously, the capture technologies out there its commercially viable, but theres still work to do when you capture the PFS, how you destroy it and so we've got a lot of great work going on with our combined company now and our innovation labs team to get after that solution.

Matthew Francis Pine: Obviously, the capture technology is out there. It's commercially viable, but there's still work to do when you capture the PFAS and how you destroy it. And so we've got a lot of great work going on with our combined company now and our Innovation Labs team to get after that solution. Shelly Alacala, Thank you.

Speaker Change: I appreciate all the color.

Unknown Attendee: Thank you.

Operator: The next question comes from Brian Blair with Oppenheimer.

Matthew Francis Pine: The next question comes from Bryan Blair with Oppenheimer. Please go ahead.

Bryan Francis Blair: Thank you good morning, everyone.

Bryan Francis Blair: Hey, Brian.

Bryan Francis Blair: I'd be great to drill down on MNCS margin performance, the kind of eye-catching step up in profitability there, and maybe offer some finer points on, you know, the drivers, which seem kind of broad-based in terms of productivity, volume, price, and mix.

Bryan Francis Blair: Great to drill down on Mmc's margin performance kind of Eyecatching step up in profitability there.

Bryan Francis Blair: And maybe offer some finer points on that.

Bryan Francis Blair: The drivers seem kind of broad based in terms of productivity volume and price mix.

Speaker Change: In the quarter.

Speaker Change: Whether there's anything that we should.

Speaker Change: Consider one time ish that benefited results.

Speaker Change: And then lastly on that front.

Speaker Change: Still the expectation that.

Bryan Francis Blair: Our margin will improve sequentially throughout the year.

William K. Grogan: Yeah, no, Brian; I'll take that one. You know, I'd say Mike McGann and his team delivered an outstanding quarter, obviously, even at margins up 550 basis points with almost 50% incrementals. You know, that team has been on a journey over the last few quarters, dealing with some pretty significant external challenges relative to the supply chain and then internal challenges to ramp up production levels that they haven't been able to realize historically to deliver for their customers to make up for that past due backlog. They drove significant labor productivity to drive efficiencies to increase their output. You know, they went out with incremental pricing, their price cost negative for a while, and now they're back to price material cost positive.

Bryan Francis Blair: Yes, so Brian I'll take that one I'd say, Mike began and team delivered an outstanding quarter, obviously, EBITDA margins up 550 basis points with almost 50% Incrementals.

William K. Grogan: That team has been on a journey over the last few quarters dealing with some pretty significant external challenges relative to their supply chain and then internal challenges to ramp up production levels that they haven't been able to realize historically to deliver for their customers to make up for that past due backlog.

William K. Grogan: They drove significant labor and material productivity to drive efficiencies to.

William K. Grogan: It took restructuring actions to address some underperforming parts of the business, just to build a stronger financial foundation that they're now leveraging extremely well with this incremental volume. The first quarter was a bit higher than our original expectations as they did see a little bit better mix towards North American water meters. You know, we think that mix holds plus or minus here in the second quarter but do see some unfavorable mix impacts in the back half as some of the lower margin projects, especially in the energy space, ship, and that mix normalizes a bit.

William K. Grogan: To increase our output that went out with incremental pricing your price cost negative for a while they are back to price material cost positive it took restructuring actions.

William K. Grogan: Address some underperforming parts of the business just.

William K. Grogan: Just to build a stronger financial foundation that Theyre now leveraging extremely well with this incremental volume in the first quarter was a bit higher than our original expectations as they did see a little bit better mix towards north American water meters.

William K. Grogan: We think that mix holds plus or minus here in the second quarter, but do see some unfavorable mix impacts in the back half is somewhat lower margin projects, especially in the energy space ship in that mix normalizes a bit.

William K. Grogan: But we're really encouraged by the team's momentum and think they'll exit the year at record margins. You know, they've started their 80-20 initiative. So they're just in that phase, which I think will produce additional tailwinds as we exit the year. So, we're really happy with their performance.

William K. Grogan: But we're really encouraged with the teams on momentum that they will exit the year at record margins.

William K. Grogan: They've started their 80 20 initiatives. So theyre just in that phase, which I think will produce additional <unk> as we exit the year. So.

William K. Grogan: Really happy with their performance I think it's.

William K. Grogan: I think it's, you know, we probably won't see as big of a step up as we progress through the year. It's probably more normalized now. It's just the strength there in the first quarter, but volumes will slightly sequentially increase as we go through the balance of the year.

William K. Grogan: We probably won't see as big of a step up as we progress through the year.

William K. Grogan: Probably more normalized now with just the strength here in the first quarter, but volumes will slightly sequentially increase as we go through the balance of the year.

Bryan Francis Blair: Okay, very helpful detail and encouraging trends. Matthew mentioned that government money is starting to trickle in.

Speaker Change: Okay very helpful detail and encouraging trends.

Bryan Francis Blair: You had mentioned that government money is starting to trickle in.

Bryan Francis Blair: Can you touch on the outlook for <unk> and then your team's positioning there.

Matthew Francis Pine: You touched on the outlook for peace loss and your team's positioning there. It would be great to hear just, you know, an updated, you know, perspective on IAGA-related growth opportunities overall. You've been pretty consistent in tempering expectations to date, understandably so, given the phasing of the rollout. But we have seen, you know, some acceleration in obligations and outweighs. Front-end reads are certainly very encouraging. And, you know, looking at the categories of funding and ultimate spend, I would have to assume that your team is going to participate in just about everything. So, I am curious how your views are evolving there and how we should think about the forward opportunity.

Bryan Francis Blair: And it would be great to hear just updated.

Matthew Francis Pine: And our perspective on <unk> related growth opportunities overall, <unk> been pretty consistent and tempering expectations to date.

Matthew Francis Pine: Understandably, so given the phasing of the time of the rollout.

Matthew Francis Pine: We have seen some acceleration in obligations in outlays front end reads are certainly.

Matthew Francis Pine: Very encouraging and looking at the categories.

Matthew Francis Pine: Funding and ultimate spend I.

Matthew Francis Pine: I would have to assume that your team is going to participate in just about everything.

Matthew Francis Pine: Curious how.

Matthew Francis Pine: Your views are evolving there and how we should think about the Florida opportunities.

Matthew Francis Pine: Yeah, I wish I could turn the spigot on that hose nozzle and make it go a little faster, but look, it's, you know, I've been pretty consistent about this, whether it's in the U.S. or other markets, the U.K., you know, in Europe, with their funding, it's just going to be a slow drip, and it's going to drip in and really help support our And so that's how we continue to look at it.

Speaker Change: Yes, I wish I could turn the spigot on that hose nozzle and make it go a little faster, but look it's been pretty consistent about this whether it's in the U S or other markets U K.

Matthew Francis Pine: In Europe.

Matthew Francis Pine: We're funding it is this going to be a slow drip and its going to drip in and.

Matthew Francis Pine: Really helps support our market growth over the next three to five years and so that's how we continue to look at it we don't have.

Matthew Francis Pine: We don't have, you know, a big jump in our long-range plan in terms of incentives or subsidies that are coming in, so it's just going to trickle in and be kind of a layer on top of the market growth. That's how we look at it

Matthew Francis Pine: The big jump in our in our long range plan in terms of incentives or subsidies that are coming in so it's just going to trickle in and be kind of a layer on top of the market growth and that's how we look at it.

Bryan Francis Blair: I understand. I appreciate the time. Thank you.

Speaker Change: Understood appreciate the color. Thank you.

Operator: The next question comes from Nathan Jones with Thiefle. Please go ahead.

Bryan Francis Blair: The next question comes from Nathan Jones with Stifel.

Nathan Hardie Jones: Please go ahead.

Nathan Hardie Jones: Good morning, everyone.

Nathan Hardie Jones: Good morning, everyone, Hey, good morning.

Matthew Francis Pine: Hey, good morning, Nathan.

William K. Grogan: I wanted to pick up on one of Bill's comments and something I know I've talked to Matthew about before, which was the anticipation that in the future, price will offset inflation. Several years ago, it had been Xylem's target for price plus productivity to offset inflation. So there's a significant change there. Just looking for some color on how you plan to go about implementing that and what you think will give Xylem the entitlement to be, I guess, a little more aggressive with price versus inflation than it has been historically.

Nathan Hardie Jones: I wanted to pick up on one of Bill's comments in something.

William K. Grogan: Matthew about before which was the anticipation that in the future price will offset inflation.

William K. Grogan: Several years ago, it had been xylem as target fed price plus productivity to offset inflation. So does it.

William K. Grogan: Significant change there.

William K. Grogan: Im just looking for some color on how you look to go about implementing that and what you think will will give <unk> the entitlement to be I guess, a little more aggressive with price versus inflation than it has been historically.

William K. Grogan: Yeah, I think obviously price capture has been a focus with rising inflation. We're going to talk more about that at the end of the month, just a new approach to strategic pricing. I mean, I think for us, it's really, we're looking to offset our material inflation with price and then let productivity handle the balance of indirect and SG&A inflation and fund our investments. I think the teams have got the operational productivity down, and now it's for us just to continue to refine our process relative to value capture for the products that we offer to our customers. Yeah, we were price cost positive. You know, we're looking to really manage that spread going forward. And that's really the goal of the teams.

William K. Grogan: Yeah, I think obviously price capture has been a focus with rising inflation, we're going to talk more about that at the end of the month, just a new approach to strategic pricing I mean I.

William K. Grogan: I think for US, it's really we're looking to offset our material inflation with price and productivity handle the balance of indirect and SG&A inflation and fund our investments I think the teams have got the operational productivity down and outs for us just to continue to refine and our process relative to value capture for the.

William K. Grogan: Products that we offer to our customers we were price cost positive.

William K. Grogan: We're looking to really manage that spread going forward.

William K. Grogan: That's really the target of the teams.

Nathan Hardie Jones: I guess my follow-up question for Matthew, you talked about government funding kind of trickling in. There's, I think, an increased focus in Europe on non-revenue water, you know, big increases in the focus for that in the next AMP cycle and parts of Western Europe and Southern Europe after the 2022 drought. Can you talk about, you know, if there are any material opportunities from that increased focus on non-revenue water for Xylem's business over the next several years? Yeah, I do.

Speaker Change: I guess my follow up question from Matthew.

Nathan Hardie Jones: You talked about government funding kind of trickling in.

Nathan Hardie Jones: Yes.

Speaker Change: Thank you.

Nathan Hardie Jones: Increased focus in Europe on non revenue water.

Nathan Hardie Jones: Big increases in their focus for that in the next cycle.

Nathan Hardie Jones: And parts of Western Europe, and Southern Europe. After the 2022 drought can you talk about if there is any material opportunities from that increased focus on non revenue water for resolves business over the next several years.

Matthew Francis Pine: Yeah, I do. I think, you know, first with our Adreka platform is a great entree into that. There are, you know, a lot of opportunities to leverage the Adreka platform to help visualize that data through AMI systems. So that's a big focus area that we're working with utilities across Europe and across the globe, but especially in Europe. And you're right; there's a lot of funding in Europe and in the UK with the AMP cycle in the UK on non-revenue water.

Matthew: Yes, I do I think first with our <unk> platform is a great entre into that.

Matthew Francis Pine: A lot of opportunities to leverage.

Matthew Francis Pine: The <unk> platform to help visualize that data through Ams systems. So that's a big focus area that we're working with utilities on across Europe and across the across the globe, especially Europe and Youre right Theres a lot of funding in Europe and in the UK with the Amp cycle in the U K on non revenue water and also.

Matthew Francis Pine: And also, there's a lot of focus on analytical instrumentation, especially out in the environment where they're holding polluters liable for contaminated water. So we see a great opportunity for smart metering and analytical instrumentation in that region with an overlay of our Adreka partnership and platform.

Matthew Francis Pine: There's a lot of focus on analytical instrumentation, especially out in the environment wherever they are holding polluters liable for contaminated water. So we see a great opportunity on smart metering analytical instrumentation.

Matthew Francis Pine: That region with an overlay of our <unk> partnership and platform.

Nathan Hardie Jones: I'll see you in a few weeks. Thanks for taking my questions. Thank you.

Speaker Change: Okay <unk>, thanks for taking my questions. Thank you.

Nathan Hardie Jones: Yes.

Operator: The next question comes from Joe Giordano with TD Cowan. Please go ahead.

Nathan Hardie Jones: The next question comes from Joe Giordano with TD Cowen. Please go ahead.

Joseph Craig Giordano: Hey, good morning, guys.

Joseph Craig Giordano: Hey, good morning, Joe.

Operator: No.

Joseph Craig Giordano: On PFAS, I know we talked a lot about it, but can you maybe just talk us through exactly where you're exposed to that and if there's Capabilities that you don't currently have, maybe like sampling or destruction that you're currently exploring, either internally or maybe through acquisition.

Joseph Craig Giordano: On <unk> I know, we've talked a lot about it but can you maybe just talk us through exactly where you're exposed on that and if there is capabilities that you don't currently have maybe like.

Joseph Craig Giordano: Sampling our destruction that youre currently exploring either internally or maybe through acquisition.

Speaker Change: Yeah. So.

Matthew Francis Pine: You know, we obviously have the technology to capture through our acquisition with Evoqua, coming to, you know, coming together as Xylem. And we have over 80 PFAS installations to date. Actually, we just had one written up in Newsweek, I believe it was Newsweek, a month or so ago up in Maine, where we were capturing PFAS from a well that they had dug to serve the increasing population.

Joseph Craig Giordano: We're obviously, we have the technology to capture.

Matthew Francis Pine: Through our acquisition with the vocal coming coming together as island.

Matthew Francis Pine: And we have over ADP fast installations to date actually we just had one written up in Newsweek I believe it was Newsweek.

Matthew Francis Pine: Or so ago up in Maine.

Matthew Francis Pine: We're capturing P fast from a well that they had dug to serve the increasing population. So we've got we've got proven technology on the capture side, where the innovation needs to happen and get to commercial viability is on destruction and then sensing we can sense and bring it to a lab and get the sensing part of PFS, but need to get sensors that can be.

Matthew Francis Pine: So we've got proven technology on the capture side, you know, where the innovation needs to happen and get to commercial viabilities on destruction. And then sensing, we can sense and bring it, you know, to a lab and get the sensing part of PFAS, but we need to get sensors that can be in real time flow. So those are the areas of destruction and real-time sensing where there's innovation needed.

Matthew Francis Pine: And real time flow. So those are those are the areas on destruction in real time sensing, whether it's innovation needed and our teams are working on that.

Matthew Francis Pine: And our teams are working on that through our innovation labs, and, you know, with the two teams coming together from the legacy of Xylem and Evoqua, we believe that we can move faster and, obviously, spend less money getting there.

Matthew Francis Pine: Our innovation labs, and with the two teams coming together from a legacy xylem and evoke we believe that we can move faster and obviously spend less money getting there.

Joseph Craig Giordano: And then the last question, I guess, is one I never really thought I'd be talking to you guys about, but we're getting questions about Xylem being like a data center play on the water side. So can you maybe explain the opportunity set in front of you either on the power side as we have to ramp up generation capabilities to support a huge build out, or where, in the buildings themselves, on the data center side, how that opportunity kind of scales for you? Yeah, I mean, look, on the power side, we're excited.

Speaker Change: And then last question I guess, it's one I never really thought I'd be talking to you guys about but we're getting questions of Thailand as like a data center play now on the water side. So can you maybe explain the opportunity set in front of you either on the power side as we have to ramp up generation capabilities to support a huge build out or where like in the <unk>.

Joseph Craig Giordano: Buildings themselves on on the data center side out of that opportunity kind of scales for you.

Matthew Francis Pine: Yeah, I mean, look, on the power side, we're excited. It's one of our high-growth verticals. You heard Bill talk about the big win, the $130 million build-on-operate win in hydrogen. And so we see that energy makeshift driving lots of opportunity for us. Specific to data centers, you know, I do think it is a growth opportunity. We're starting to see it.

Joseph Craig Giordano: Yes, I mean look on the power side. We're excited that's one of our high growth verticals, you've heard bill talk about the big win of $130 million of build own operate win and hydrogen.

Matthew Francis Pine: And so we see that energy mix shift driving lots of opportunity for us specific the Datacenters I do think it is a growth opportunity we're starting to see it actually one of our examples I won't steal the Thunder here at Investor Day coming up in a few weeks is about the data center, where we have centered our synergy win there, but it is currently a small part.

Matthew Francis Pine: Actually, one of our examples, I won't steal the thunder here at Investor Day coming up in a few weeks, is about the data center where we have a synergy win there. But it's currently, you know, a small part of our revenue, probably less than $50 million. Data centers do need a significant amount of water for cooling, and many of them are being built in water-stressed areas, putting a lot of pressure on water resources.

Matthew Francis Pine: Our revenue is probably less than $50 million.

Matthew Francis Pine: No datacenters do need a significant amount of water for cooling and many of them are being built in water stressed areas, putting a lot of pressure on water resources. So we have a lot of solutions to help them from.

Matthew Francis Pine: So, we have a lot of solutions to help them, from comprehensive treatment solutions to enable reuse. We've got, obviously, outsourced services for water management to help as well. You know, we do believe it's going to be an opportunity for us. It's probably not like maybe some of the other coverage that you folks have, but it definitely will be a tailwind.

Matthew Francis Pine: Comprehensive treatment.

Matthew Francis Pine: Solutions to enable reuse.

Matthew Francis Pine: Got obviously outsource services for water management to help as well so.

Matthew Francis Pine: We do believe it's going to be an opportunity for us, it's probably not like maybe some of the other coverages that you folks have but it definitely will be a tailwind.

Speaker Change: Fair enough. Thank you guys.

Matthew Francis Pine: <unk>.

Operator: This concludes our question and answer session. I would like to turn the conference back over to Matthew Pine for any closing remarks.

Matthew Francis Pine: This concludes our question and answer session I would like to turn the conference back over to Matthew Pine for any closing remarks.

Matthew Francis Pine: Well, we'll wrap it up there. Thank you for your questions and thanks to everyone who joined us today. We hope to see many of you either in person or online at Xylem's Investor Day on May 30th, and we look forward to sharing further insights into our priorities and strategic direction then. Until then, all the best.

Matthew Francis Pine: Well, we'll wrap it up there. Thank you for your questions and thanks to everyone who joined today, we hope to see many of you in either in person or online its islands Investor day on May 30.

Matthew Francis Pine: And we look forward to sharing further insights into our priorities and strategic direction. Then until then all the best.

Operator: The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.

Speaker Change: The conference has now concluded. Thank you for attending today's presentation you may now disconnect.

Operator: Yeah.