Q3 2024 Xylem Inc Earnings Call
[inaudible]
The New Year's Day,
Speaker Change: Welcome to Zylerom's third quarter 2020 four results conference call.
Speaker Change: All participants will be emotionally involved.
Speaker Change: So, do you need assistance? Please signal a conference specialist by pressing the star key followed by zero.
Speaker Change: After today's presentation, there will be an opportunity to ask questions. To ask a question, you may press star then one on your telephone keypad, and to withdraw your question, please press star then two. Please also note, today's event is being recorded.
Speaker Change: I would now like to turn the conference over to Keith Beutner, Vice President, Investor Relations and Financial Planning and Analysis.
Keith Beutner: Please go ahead, sir. Thank you, operator. Good morning, everyone, and welcome to Xylem's third quarter 2024 earnings call. With me today are Chief Executive Officer Matthew Pine and Chief Financial Officer Bill Grogan.
Keith Beutner: They will provide their perspective on Xylem's third quarter 2024 results and discuss the fourth quarter and full year outlook.
Keith Beutner: Following our prepared remarks, we will address questions related to information covered on the call. I will ask that you please keep to one question and a follow-up, and then return to queue.
Keith Beutner: As a reminder, this call and our webcast are accompanied by a slide presentation available in the Investors section of the website.
Keith Beutner: A replay of today's call will be available until midnight, November 11th, and will be available for playback via the Investor section of our website under the heading Investor Events. Please turn to slide 2.
Keith Beutner: We will make some forward-looking statements on today's call, including references to future events or developments, do we anticipate will or may occur in the future.
Keith Beutner: These statements are subject to future risks and uncertainties, such as those factors described in Zylum's most recent annual report on Form 10-K and in subsequent reports filed with the SEC.
Keith Beutner: 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.
Keith Beutner: Please turn to slide three.
Keith Beutner: We have provided you with a summary of key performance metrics, including both GAAP and non-GAAP metrics, with references to the prior year segment metrics being made on a comparative basis reflecting the change in segments as of the beginning of the year.
Keith Beutner: For the 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.
Speaker Change: Now, please turn to slide 4, and I will turn the call over to our CEO, Matthew Pine.
Matthew Pine: Thanks, Keith. Good morning, everyone, and thank you for joining us. As you've seen in our press release earlier this morning, the team delivered very strong earnings in the quarter. In fact, I want to recognize the Holes Island team for disciplined execution across the business.
Matthew Pine: The result was record EBITDA margins and record earnings per share in the quarter. Operational discipline also delivered accelerated momentum in our integration of EVOCA.
Matthew Pine: We're now well ahead of scheduling capturing the expected cost synergies ending the year above our run rate targets.
Matthew Pine: Our profitability is also beginning to benefit from the work to optimize our portfolio and simplify our organization.
Matthew Pine: All that work is in service of reducing Xylem's complexity and serving our customers better, in addition to delivering systematic margin improvement in support of our long-term framework.
Matthew Pine: The team showed great customer focus delivering healthy orders growth across all segments in the quarter.
Matthew Pine: Organic orders were up high single digits overall, with a book to build greater than one, reflecting strong underlying demand in resilient end markets that continue to prefer our differentiated, mission-critical solutions.
Matthew Pine: Moderated revenue growth in the quarter was primarily driven by project timing pushouts in MCS and WSS, combined with tough comparers versus prior year.
Matthew Pine: Orders are up sharply in both of those segments, indicating healthy underlying demand and customer preference.
Matthew Pine: Overall in-market demand continues to be resilient with a few pockets of softening in the short term.
Matthew Pine: With good visibility through Q4, we're narrowing full-year earnings guidance and maintaining the midpoint despite a slightly lower revenue expectation.
Matthew Pine: Also in Q4, we expect to increase our stake in the ADRICA joint venture giving us a majority ownership position. As a reminder, ADRICA is a global leader in data management and analytics for water utilities.
Matthew Pine: The system powering the XylemView platform at the heart of our intelligent solutions for utilities.
Matthew Pine: Having been born out of a utility operator itself, the platform has been deployed in more than 300 customers around the world.
Matthew Pine: We took a minority stake last year and became the global distribution partner for the technology.
Matthew Pine: Our teams continue to get traction with customers and with this transaction the business will be consolidated into Xylem's measurement and control solution segment.
Speaker Change: Now, I'm going to turn it over to Bill to get into the quarter of results, our financial position, and our outlook. Bill?
Bill Grogan: Thanks Matthew. Please turn to slide 5. Q3 was a strong operational quarter and I want to thank our entire organization for their focus and effort progressing on our organizational transformation.
Bill Grogan: Productivity and pricing resulted in record-breaking quarterly EBITDA margin and earnings per share.
Bill Grogan: The demand remains solid, with our backlog reaching $5.3 billion, driven by notable growth in WSS and water infrastructure, offsetting continued progress executing the past-due backlog at MCS.
Bill Grogan: Our book-to-bill ratio exceeded 1 and orders were healthy, up 8% in the quarter, primarily driven by MCS and WSS.
Bill Grogan: While orders remain strong, revenue growth moderated versus a challenging comparison of 10% growth in the same period last year.
Bill Grogan: Q3 total and organic revenue grew at 1%, slightly below our expectations.
Bill Grogan: The moderation came from project timing and MCS and WSS.
Bill Grogan: The team's operational discipline delivered record quarterly EBITDA margin of 21.2 percent.
Bill Grogan: up 140 basis points from the prior year despite the modest top line growth.
Bill Grogan: Productivity, savings, and pricing more than offset inflation, investments, and mix, driving incrementals of approximately 130% on a consolidated basis.
Bill Grogan: We also achieved a record EPS of $1.11, surpassing the midpoint of our guidance by one cent and marking a 12% increase over the prior year.
Bill Grogan: Our balance sheet remains robust, with net debt to adjusted EBITDA at 0.6 times.
Bill Grogan: Year-to-date free cash flow has increased by 27% from the prior year. The conversion rate of 79% was driven by higher net income offset by increased capex and net working capital. Working capital efficiency in the quarter was impacted by timing of sales.
Bill Grogan: Let's turn to slide 6.
Bill Grogan: In measurement and control solutions, we continue to work down our past-due backlog. Total MCS backlog now sits at roughly $1.9 billion, a 14% organic decrease from prior year, driven by smart metering conversion.
Bill Grogan: Orders were strong at 12% driven by smart metering and analytics demand.
Bill Grogan: Revenue was up 11% driven by smart metering demand and backlog execution. This was below our expectations due to project timing as we were able to ramp up production of past dues faster than our customers were able to schedule their deployments.
Bill Grogan: We are seeing some pockets of softness in Europe and emerging markets, but overall demand is still healthy and the pipeline is strong, particularly for AMI solutions in North America.
Speaker Change: Dray, Dray,
Speaker Change: We finished the quarter with robust EBITDA margins of 21.2%, up 350 basis points versus the prior year, with 53% incrementals.
Speaker Change: Year-over-year margin expansion was driven by productivity, price, and volume, which more than offset inflation and investments.
Speaker Change: In water infrastructure, orders were up 6% in the quarter, with strong demand across treatment and transport.
Speaker Change: Revenue increased 1% driven by transport demand, slightly offset by treatment, which had a difficult comp given strong performance last year from legacy of OCWA's APT segment.
Speaker Change: EBITDA margin for water infrastructure was up 50 basis points.
Speaker Change: Productivity and price more than off inflation and mix. Incrementals were strong at 45%.
Speaker Change: In applied water, orders were up 4% and book-to-bill was 1, reflecting a few large project wins which will ship next year.
Speaker Change: Revenues were down 4% in line with our expectations, primarily driven by softness and emerging markets.
Speaker Change: For more information, visit www.fema.gov
Speaker Change: Segment EBITDA margin declined 10 basis points year-over-year but increased 110 basis points sequentially. Lower volumes, higher inflation, and unfavorable mix were mostly offset by productivity savings and price.
Speaker Change: Rounding out the segments, water solutions and services saw robust demand with orders increasing 11 percent, driven by strength in outsourced water and in dewatering.
Speaker Change: Organic revenue was down 1%, with strength into watering offset by declines in capital sales from treatment projects, primarily due to a difficult comp and project timing within the quarter.
Speaker Change: Segment EBITDA margin was strong at 24.7% up 200 basis points.
Speaker Change: Productivity and price offset inflation and volume declines.
Speaker Change: Now let's turn to slide 7 for updated full year and Q4 guidance.
Speaker Change: Thank you for watching. Visit www.FEMA.gov
Speaker Change: Given our year-to-date performance in both commercial and operational momentum, we are updating parts of our full year guidance.
Speaker Change: A revenue guide of $8.5 billion results in approximately 15% growth, with organic revenue growth of approximately 5%.
Speaker Change: The Evoqua integration is going very well and we are accelerating expected cost synergies to an exit run rate of 130 million dollars in 2024.
Speaker Change: In light of our lower revenue expectations, we are confident about driving further margin expansion through operational productivity and our simplification efforts, and are reiterating our EBITDA margin guidance of roughly 20.5%.
Speaker Change: That represents 160 basis points of expansion versus the prior year.
Speaker Change: driven by higher volume, productivity, including our cost synergies, and price offsetting inflation.
Speaker Change: We are narrowing EPS guidance to $4.22 to $4.24 from $4.18 to $4.28.
Speaker Change: Pre-cash flow conversion for the year is still expected to be at least 120% of net income.
Speaker Change: We do expect significant conversion in the fourth quarter.
Speaker Change: The four-year outlook for two segments has changed, with MCS now expected to grow in mid-teens versus our prior outlook of high teens, and WSS now expected to grow low single digits versus our prior outlook of mid single digits, both due to project delays impacting the second half.
Speaker Change: For the fourth quarter, we anticipate revenue growth to be roughly 2-3% on a reported and organic basis.
Speaker Change: We expect fourth quarter EBITDA margins to be in the range of 20.5 to 21 percent, up 70 to 120 basis points.
Speaker Change: This yields fourth quarter EPS of $1.12 to $1.14.
Speaker Change: We have solid momentum and continue to have strong orders growth and anticipate healthy long-term demand across our divisions and applications.
Speaker Change: While we are closely monitoring the macro environment, including election uncertainty, geopolitical tensions, and tariffs, our overall outlook for the fourth quarter remains positive.
Speaker Change: And we look to our simplification efforts and 80-20 implementations to not only help address any short-term challenges we may face,
Speaker Change: but also be among the key drivers to our systematic margin improvement over time, supporting our long-term profitability framework.
Speaker Change: With that, please turn to slide 8 and I'll turn the call back over to Matthew for closing comments.
Matthew Pine: Thanks Bill. Again, I'm proud of the team's strong results in the quarter. The BRISC orders growth demonstrate the team's customer focus and commercial momentum, alongside healthy demand for our solutions.
Matthew Pine: But record profitability and margin expansion only comes from real focus on execution, which shows up in the same discipline the team shows to get us out ahead of our integration synergy targets.
Matthew Pine: That accelerated integration, in turn, enables us to put greater attention on portfolio optimization and capital deployment.
Matthew Pine: The team's performance is what gives us confidence to narrow the guide as we expect to continue delivering that same level of execution on continuing demand.
Matthew Pine: At the start of the call, I referenced some of the benefits we're beginning to see coming through our work on simplification.
Matthew Pine: Reaffirming what we said at Investor Day in May, we're building momentum and it's showing up in our results.
Matthew Pine: We're doing the meaningful work on our operating model across culture, process, and structure.
Matthew Pine: and we're already beginning to see the benefits. I look forward to sharing more about that in coming quarters as the work continues.
Lastly, I want to share a change in the executive team which happened after the quarter's closed. You may have seen our announcement appointing Meredith Emmerich to lead the applied water segment, succeeding Fran Serwinka.
Matthew Pine: I want to thank Franz for his many contributions, not only to applied water, but also in his prior leadership of emerging markets.
Matthew Pine: He'll stay on as a senior advisor to ensure a smooth transition and to maintain the momentum of the segment's 80-20 work.
Matthew Pine: Meredith and I first crossed paths at Carrier. Her experience there and at Mitsubishi has given her deep experience in engineering solutions for commercial and residential buildings across a range of industrial end markets.
Matthew Pine: She has a track record of high-performance P&L leadership, an emphasis on profitable growth, operational discipline, and customer centricity. We welcomed Meredith to the Xylem's leadership team just last week, and I know you value getting to know her in the coming months.
Matthew Pine: With that, operator, I'll turn the call back over to you for questions.
Speaker Change: Thank you. We will now begin the question and answer session.
To ask a question, you may press star then 1 on your telephone keypad.
If you are using a speakerphone, we ask that you please pick up your handset before pressing the keys.
To withdraw your question, please press star then 2.
Today's first question comes from Dean Dre at RBC Capital Markets. Please go ahead.
Dean Dre: Thank you. Good morning, everyone.
Speaker Change: Hey, good morning, Dean.
Dean Dre: Maybe we can start with just like the tone of business, the timing of decision-making approval process.
Dean Dre: We're hearing lots of industrial companies talking about those kinds of delays, slower decision-making. And then very specifically, how did this impact WSS, reference timing of capital projects?
Speaker Change: When do you see these outsourcing contracts start to get released, and what kind of time frame? We'll start there. Thanks.
Speaker Change: Okay.
Speaker Change: Thanks for the question, Dean.
I'll start us out then I'll turn it over to Bill to get into the details but you know just to provide some high-level perspective before I do hand it over to Bill. Q3 is really a tale of what I would call two stories. Utilities and market for us was up 10% so up double digits but although you know a bit less than we anticipated primarily with MNCS.
Speaker Change: On the other side of that is the industrial and commercial building and markets were down four percent respectively and those are largely due to project pushouts.
Speaker Change: And I would say some slight softening in our mining verticals internationally. That's where we saw a little bit of softening, but in general as you see from our order orders in the quarter very strong in general across all the end markets.
Speaker Change: Maybe I'll just pause there and maybe turn it over to Bill to get into some detail on WSS.
So, yeah, the difference between our expectations coming in the quarter for WS is really again just the timing of some of these projects that pushed out of the back half. These aren't cancellations, you know, these are really delays. Some due to just elongated commercial negotiations, you know, Dean, some of these are really complicated outsourced water projects.
or Project LA that we are a component of.
And then just some election and interest rate uncertainty, giving a little bit of pause in the industrial markets for big projects.
Speaker Change: Yeah, we continue to have differentiated technology to support these projects and water is a critical component of the application So we're highly confident that this is just timing. Yeah, we have the orders. It's just when do they Start to be put in place
Our expectation is a little bit of softness continuing in the fourth quarter and then pick back up again at the beginning of the year based upon all the indicators we're getting.
Speaker Change: And again, maybe the other thing I would mention is that we had really tough compares in this business.
as well for the quarter. You know, last year, performer growth was 10% on an organic basis.
And we talked last quarter, the 12% growth just put some pressure on the pacing that we experienced in the back half.
Fundamentals are still strong. High demand for our unique solutions. A little bit of delay here as we exit the year, but we're confident that we're back positive in the fourth quarter and then ramping in Q1.
All right, that was really helpful and broadly consistent with the kind of slower decision-making that we've seen elsewhere. And then just as a follow-up question, can we put the spotlight on MCS?
There's been some anxiety, if I can phrase it that way, about the ramp down.
Speaker Change: in the business as you work off past due backlog and you go from some pretty heady 20% growth down to what we're expecting to be a normalized...
and they are all high single digits, which is still healthy. But just give us, where are you in that process? I see the 1.9 billion.
backlog, how much of that is actually past due, and then meanwhile you've had really strong orders this quarter. So, you know, what is that expectation about the ramp down to high single digits? Thanks.
I'll start us out Dean in just a few comments maybe it's specific to Q3 and some of the trends and then Bill can get into some color and the read through as we head into 25. You know we're now out of the woods on production constraints that we've been talking about for the past couple of years. You know they've come down very quickly. Our lead times have moved from 52 weeks to five weeks over the course of this year.
Speaker Change: and we're able to ramp up production of the past use faster than customers were able to reschedule their deployments. That's really the bottom line.
Speaker Change: And I really want to be clear on this point, this is not a demand issue, like a typical destocking. This is a rescheduling of deployments that will happen over the coming months. The demand is there, it's just getting the deployments rescheduled to catch up with the shipments.
Really, the market relative to AMI is still under under penetrated. It's less than 50 percent. Our funnel is up significantly year over year.
you know up over 25% and we're still winning currently out in the marketplace above our current market share. So there's a lot of positives here, a little bit of timing and I'll let Bill kind of walk you through a little bit more color on that timing.
Speaker Change: Thank you.
Yeah, Dean, I think we're likely to see this adjustment period last for the next quarter or two as our partners work to align customer home access and the labor scheduling needed to nail down the deployment timing. The bottlenecks shifted from our production into the channel. So it'll take a little bit of time to resolve.
You know, we do expect, you know, high single-digit growth here in the fourth quarter for that business, but the potential continuation of that rephasing into the first part of next year. But our expectations at this point is for MCS still to be within that high single-digit framework for the year.
Speaker Change: As we talk about the normalization, and we've had questions just on the order patterns, I just want to remind everyone that the historical norm for MCS is book-to-bill of about one, and then we have a backlog of about 60% of the next year's sales.
So we expect to continue to bleed our backlog into the first part of 2025 and then start to be booked to bill positive as we exit the year and just as they normalize to their historical patterns.
Great, that's really helpful. Not a question, just a shout out. That was a big free cash flow quarter, so congrats to the team.
Please see the complete disclaimer at https://sites.google.com
Thank you.
Thank you. And our next question today comes from Mike Howard with Baird. Please go ahead.
Hey, good morning everyone.
So, can we just put a finer point on that MCF then, because the backlog bleed this year
I know that you're going to continue to execute against the past two backlogs next year. You still have very strong orders.
Could you just frame what that impact look looks like whether it's
how the past due backlog helped the growth rate this year.
and is next year a more normal growth year for the MCS segment or is there an overhang from the execution against the past two backlogs? You know, I know demand is still good, sounds like the coding bidding is still where you want it to be, but just want to make sure I think those two variables.
Yeah, no, for all intents and purposes, we're pretty well caught up on our past due for the most part, and we're back to, you know, our normalized past due levels. So we're, we've.
been able to progress on that kind of ahead of pace and again I think as Matthew highlighted that's a little bit of the disconnect that that that was created.
Speaker Change: Relative to our expectations for next year, like I said, I still think the smart metering business, yeah, will be at its long-term framework. You know, there might be some timing first half, second half, but we expect positive results from that business.
Okay, thank you, Steph. So then...
kind of on the on the where you are from a internal processes perspective maybe just an update on where you sit in the in the segmentation identification journey of
of the portfolio and when you start, you know, basically how broad through that portfolio have we gotten now and when do we start seeing kind of that push-pull of
some pressure on revenue as you start executing against some of the areas of the business that maybe don't fit and then seeing the margin benefit from some of those actions. Has that started yet or is this more of a next year thing and just kind of an update holistically on the timing there?
Yeah, it's more of a next year thing. We're going to exit, you know, I would say, Mike, in a really good position. 2024 was a year of really deep dive analytics and kind of zeroing up the business.
Speaker Change: and we're through that process and you know as we as we exit 24 a lot of the implementations happening in Q4 and then we'll start to see results in Q1 through the course of next year or so.
That's going to really help from a bottom line perspective. We did talk about 80-20 specifically, and there are some other things we're working on, whether that spans or layers, or as we think about our structure.
you know, next year that will also help. But, you know, I think in the first part of our cycle that we talked about in Investor Day, there will be probably a little bit more pressure on the top line, but we're still, you know, very committed to the outlook that we gave, four to 6% over the course of the next three years.
Please see the complete disclaimer at https://sites.google.com
So if I just put those together then you're basically saying if you take the order patterns, the timing of all these projects, what you're executing on
Speaker Change: really no change in the thought process as you work through next year. Next year should look good but normal relative to how you framed things.
Speaker Change: Yes, thanks everyone. Appreciate it. Thank you.
Thank you. And our next question comes from Scott Davis of Melius Research. Please go ahead.
Hey, good morning, Andrew and Bill. Good morning.
Scott Davis: Guys, you mentioned price in each of the segments as being a positive.
Should we think about that as price in the backlog that's coming out that was priced appropriately and obviously higher, or are you still able to get incremental price?
Speaker Change: and New Business Today.
For more information visit www.FEMA.gov
I think it's a little bit of both. You know, Scott, as we talked in our investor day, we're really targeting to be price-cost positive, you know, which we've been able to continue to do, you know, strong results again here in the third quarter with price-cost spread of about 60 basis points.
You know, we continue to see some of the businesses show significant strength, you know, with that MCS being the largest contributor on price cost with it being greater than 200 basis points.
You know, we've seen year-to-date price.
Speaker Change: a little bit ahead of what we expected coming into the year. Some of that is the targeted efforts and results from our 80-20 implementation and then, you know, just different parts of the business leveraging their differentiation to capture more value within their market, so that is a lever we think, you know, we're going to continue to try to expand upon as we progress.
You know, one on just the process of pricing internally and how we execute on that and try to eliminate leakage, and then the other half on the strategic pricing side. So we think there's opportunities on both for us to be a continued tailwind as we get into next year and beyond.
Okay, that's helpful. And then in the prepared remarks, you commented on pockets of Europe and Asia just being a little bit weaker. I imagine that.
I think China is probably at least half of your Asia business, so that I would imagine that explicitly references China. But can you just, a little clarity there, is it, are there similar reasons for pushbacks like Dean was saying, you know, or are there...
You know, I know there's been a fair amount of stimulus in China, but it doesn't seem to have helped any companies yet Is there a little maybe just a little color on what your guys on the ground are saying that you know? Is this is this something that's that that leaks into 2025 or more of a a shorter term, you know hiccup?
I'll make some comments on China, too, and I think probably the one other area of emerging markets that's a little bit softer for us is the Middle East and then some specific applications within Africa. But just from a China perspective, just to remind everyone, it's about mid-single digits of our total revenue, you know, largely tied to public utilities within water infrastructure. You know, that's about half of our business there in China is the water infrastructure piece.
Q3 orders did decline in kind of the mid-teens, and revenue was down low single digits. And that has been decelerating throughout the year. We talked about our expectations for China being roughly flattish, and now it's gone slightly negative.
You know, the underlying demand there, especially with municipalities, is still strong.
But I do think the economic environment there remains difficult, right? Tight liquidity, especially for the municipalities, is, you know, causing kind of projects to continue to delay and defer. The real estate issues that they're having, you know, is adversely impacting our building services and market.
Speaker Change: So we're keeping a close eye on China, you know, the teams are focused, making their own luck.
Speaker Change: looking at areas where we have differentiated technology to address some specific opportunities set. But then how do we manage cost and infrastructure on the lower volumes to make sure we're focused on margins. So I think it's probably something that lingers here in the short term. But China overall, we'll get back to be a big part of our growth story at some point in time.
For more information visit www.FEMA.gov
Okay, good color. Thank you. Best of luck, guys. I'll pass it on.
Thank you. And our next question comes from Nathan Jones at Stiefel. Please go ahead.
Nathan Jones: Good morning, everyone.
Speaker Change: Happy Good Morning Maine!
I'm going to start on Adreka. You talked about acquiring a majority stake in that business, so a couple questions around that.
Nathan Jones: First, any kind of color you can give us on the financial metrics around that valuation, the impact to your financial statements from consolidating it. And then second on Idrika, how does that change the outlook, the trajectory, your plans for that business now that you have control of it?
Yeah, maybe I'll start us out on the second part and I'll let Bill get into the financials. You know, we signed an agreement the other day on October 29th, and we plan to close on the business in December. Nate?
You know, I would say we took the majority position so we could more deeply integrate and rationalize our R&D investments because there's a lot of overlap, and so we wanted to get that synergy.
and to really integrate appropriately, we felt like we needed to have a majority share. And then also we're gonna leverage the platform and the user interface.
Nathan Jones: and standardized that across the xylem.
So it's going to have a tremendous impact in our ability to scale across the business and really drive synergies and efficiencies.
You know, we have a lot of confidence in the platform. You know, when we talk to utilities, I was out and about in Australia.
Nathan Jones: and the UK over the past month, and their biggest pain point is data management, application management. And, you know, we see a lot of interest in this, and we've got a huge funnel, and we're starting to win some big orders. So strong, again, strong traction, you know, orders are balanced across the globe.
and you know I think the last thing I would say the pull through on the core business of Xylem has also been a pleasant surprise. So maybe I'll pause there and then let Bill get into the little bit of financials.
Yeah, Nathan, I mean nothing material for this year. We don't plan on closing until late December, so it will be meaningful to our economics this year and then we'll lay out kind of more specifics as we guide next year on what the impact will be.
Okay, I guess my follow-up then, Applied Water. I mean, revenue comparisons there have been negative for a few quarters now, but the order comparisons or order growth has been positive for...
Nathan Jones: You know, for the last five quarters, do you guys think that we've kind of seen the bottom in applied water and an expectation for return to growth going forward in 2025?
Yeah, I think so. Again, AW has been our most challenged business here over the last couple quarters. It is our shortest cycle, most cyclical group, and it has played out kind of in line with our expectations on that low single-digit decline. We're probably...
closer to the bottom from where we expect growth rates to be in Q4. That team's done a really good job, you know, leveraging their technology and their advantage in several markets to win some larger projects that will help support our expected recovery in 2025. So, you know, we're not given a specific guide now, but I think there is some momentum behind that business that gives us a more positive view going into next year.
Nathan Jones: You've been on our longest journey with 8020, so they're finalizing some business decisions there that might put a little bit of pressure, but outside that, the fundamentals, I think, to your point, are gonna get better here over the next couple quarters.
Awesome, thanks very much for taking my questions. Thank you.
Speaker Change: Thank you. And our next question comes from Damian Karras with UBS. Please go ahead.
Hello Damien, is your line on hold, or on mute perhaps?
Hey, good morning, all.
Damian Karras: Hey, wanted to come back to dewatering. So you noted some strength in the corridor. I know in years past, the dewatering business has picked up a little bit of incremental business from
various storm events. Was there any discernible impact in the quarter positive or negative and then are you contemplating any pickup from restoration efforts into the fourth quarter here?
Speaker Change: Yeah, I would say it's on the on the fringe, you know We do go to market through channel partners in some of our territories and that would you know, determine, you know Maybe the level of impact
You know, maybe if I just elevate from there, the business in general was very strong in Q3, although we did see some pockets of softening in specific mining applications, but holistically for that business,
It was pretty resilient, but in terms of the storm impact, it's not a huge impact for us and probably just on the fringes.
Speaker Change: Okay, got it. And just want to come back to the margin progression. So you are executing well in a tough macro, but the 4Q year-over-year does step down versus Q3 in the first half. I guess is this just a function of the lower revenue expectation or mix, or is there some cost to achieve some of the 80-20 benefits or resource commitments that might be a drag and won't repeat next year?
No, I think it's really just a portfolio mix as water infrastructure increases at a little bit lower margin rate, you know, they have a seasonal increase in Q4 and then, you know, we've talked just about MCS having a little bit more of energy exposure versus water in the back half would be the two main things I'd point to.
and Sarah Smith. We wish you a Merry Christmas and a Happy New Year! We wish you a Merry Christmas and a Happy New Year!
Thank you. And ladies and gentlemen, this concludes our question and answer session. I'd like to turn the conference back over to Matthew Pine for any closing remarks.
I failed to mention with a question on Adreka, I was going to mention that you know our thoughts and prayers are with you know the citizens of Spain, our colleagues that are there for Xylem, as well as our Adreka partners. We've reached out, everyone's safe and healthy, but we need to keep you know that country and our thoughts and prayers are going through some devastating impacts from recent flooding.
Thanks for your questions. Thanks for everybody that's doing the call and we appreciate your interest in Xylem. Thank you.
Thank you. This concludes today's conference call. We thank you all for attending today's presentation. You may now disconnect your lines and have a wonderful day.