Core Viewpoint - Xylem Inc. reported a total revenue of $4.37 billion for the first half of 2025, reflecting a 4% year-over-year growth, driven by strong execution and market demand [4][7]. Financial Performance - For the first half of 2025, Xylem's total revenue reached $4.37 billion (approximately ¥314 billion), compared to $4.2 billion in the same period last year, marking a 4% increase [4]. - In Q2 2025, the company achieved total revenue of $2.3 billion (approximately ¥165 billion), up 6% from $2.17 billion in Q2 2024, primarily due to robust market demand [4][5]. - Product revenue for the first half was $3.62 billion, while service revenue accounted for $750 million [5]. Segment Performance - All four major business segments—Water Infrastructure, Applied Water, Measurement and Control Solutions, and Water Solutions and Services—experienced growth, with North America showing particularly strong performance [5][6]. - For the first half of 2025, the revenue breakdown by segment was as follows: - Water Infrastructure: $1.23 billion (2% increase) - Applied Water: $918 million (3% increase) - Measurement and Control Solutions: $1.03 billion (8% increase) - Water Solutions and Services: $1.19 billion (3% increase) [6]. Future Outlook - Xylem anticipates full-year revenue for 2025 to be approximately $8.9 billion to $9 billion, representing a growth of about 4% to 5% [7]. - The adjusted EBITDA margin for 2025 is expected to be between 21.3% and 21.8%, an increase of 70 to 120 basis points compared to 2024 [8]. Management Commentary - The CEO of Xylem, Matthew Pine, highlighted the strong quarterly performance across all business segments, with organic revenue growth and record adjusted EBITDA margins, leading to an upward revision of the 2025 performance guidance [9].

Group 1: Zacks Style Scores Overview - Zacks Style Scores are complementary indicators that rate stocks based on value, growth, and momentum characteristics, helping investors identify stocks with the best chances of outperforming the market over the next 30 days [2][3] - Each stock is assigned a rating of A, B, C, D, or F, with A being the highest score indicating a better chance of outperforming [3] - The Style Scores are categorized into four types: Value Score, Growth Score, Momentum Score, and VGM Score, which combines all three [3][4][5][6] Group 2: Value Score - The Value Score focuses on identifying stocks that are trading under their true value by analyzing ratios such as P/E, PEG, Price/Sales, and Price/Cash Flow [3] Group 3: Growth Score - The Growth Score emphasizes a company's financial strength and future outlook, taking into account projected and historical earnings, sales, and cash flow to find stocks with sustainable long-term growth [4] Group 4: Momentum Score - The Momentum Score helps investors capitalize on upward or downward trends in stock prices or earnings outlook by analyzing one-week price changes and monthly percentage changes in earnings estimates [5] Group 5: VGM Score - The VGM Score combines the Value, Growth, and Momentum Scores to identify companies with attractive value, strong growth forecasts, and promising momentum, serving as a useful indicator alongside the Zacks Rank [6] Group 6: Zacks Rank and Stock Selection - The Zacks Rank is a proprietary stock-rating model that uses earnings estimate revisions to assist investors in building successful portfolios, with 1 (Strong Buy) stocks yielding an average annual return of +23.75% since 1988, significantly outperforming the S&P 500 [7] - Investors are encouraged to select stocks with a Zacks Rank of 1 or 2 that also have Style Scores of A or B to maximize potential success [9] Group 7: Company Spotlight - Xylem Inc. - Xylem Inc., headquartered in Rye Brook, NY, is a leading provider of water solutions globally, involved in the entire water process cycle [11] - Xylem has a Zacks Rank of 3 (Hold) and a VGM Score of B, indicating potential for growth [11] - The company is forecasted to achieve year-over-year earnings growth of 11.9% for the current fiscal year, with recent earnings estimates revised higher by six analysts [12]

Core Viewpoint - Xylem is positioned to benefit from secular growth trends in water infrastructure and treatment, with a strong potential for margin improvement, making its current stock price justifiable for market-beating returns [1][9][38]. Industry Demand Growth - The demand for water infrastructure, treatment, and filtration is increasing due to factors such as drought conditions in the U.S. Southwest and globally, leading to a reliance on man-made water production and recycling [3][4]. - Overall demand for water infrastructure is projected to grow at an annual rate of 3%, while Xylem has historically achieved an average revenue growth of 6.2% [4]. - Key drivers of water demand include population growth, data centers, manufacturing, desalination, wastewater treatment, leak prevention, and long-distance water movement [6]. Company Growth and Acquisition - Xylem's acquisition of Evoqua for $7.65 billion in early 2023 is expected to create significant revenue synergies and enhance market reach [7][9]. - The company aims to maintain a revenue growth rate of approximately 6% annually, supported by synergies from the Evoqua acquisition, price increases, and market share gains [7][9]. Margin Expansion Opportunities - Xylem's goal is to increase margins by 100 basis points annually through 2027, with current EBITDA margins already reaching 20% [10][12]. - The company has identified low-hanging fruit within its operations, such as eliminating unprofitable products, which can lead to significant margin improvements [23][17]. - Price inelasticity among customers allows Xylem to raise prices with minimal impact on volume, further supporting margin growth [19][20]. Earnings Growth Projections - Consensus estimates indicate strong earnings growth, with normalized earnings expected to grow at a low double-digit rate, while GAAP earnings may grow by 84% by 2029 [22][34]. - Xylem's earnings growth is seen as consistent and enduring, unlike the cyclical nature of the broader S&P 500 market [31][34]. Conclusion - Water scarcity represents a long-term trend, and Xylem, as the market share leader, is well-positioned to capitalize on this trend, making it an attractive investment opportunity at its current stock price [38].

Core Insights - Zacks Premium offers various tools to enhance stock market investment confidence and knowledge [1] - The Zacks Style Scores provide a unique rating system for stocks based on value, growth, and momentum characteristics [3][4][5][6][7] Zacks Style Scores - The Style Scores categorize stocks into four types: Value Score, Growth Score, Momentum Score, and VGM Score, each with specific criteria for evaluation [4][5][6][7] - Value Score focuses on identifying undervalued stocks using financial ratios [4] - Growth Score assesses a company's financial health and future growth potential [5] - Momentum Score identifies stocks with favorable price trends and earnings outlooks [6] - VGM Score combines all three styles to provide a comprehensive rating for stocks [7] Zacks Rank - The Zacks Rank is a proprietary model that utilizes earnings estimate revisions to guide investment decisions [8] - Stocks rated 1 (Strong Buy) have historically produced an average annual return of +23.75% since 1988, significantly outperforming the S&P 500 [9] - Investors are encouraged to focus on stocks with a Zacks Rank of 1 or 2 and Style Scores of A or B for optimal returns [10] Stock Example: Xylem Inc. (XYL) - Xylem Inc. is a leading provider of water solutions globally, involved in the entire water process cycle [12] - Currently rated 3 (Hold) with a VGM Score of B, XYL has a Momentum Style Score of A and has seen a 7.5% increase in shares over the past four weeks [12][13] - Recent upward revisions in earnings estimates indicate a positive outlook, with the Zacks Consensus Estimate rising to $4.69 per share [13]

Core Insights - Xylem reported better-than-expected financial results for Q2 2025, with non-GAAP EPS of $1.26 exceeding analyst estimates of $1.15 and GAAP revenue of $2.3 billion surpassing the anticipated $2.21 billion [1][2] - The company raised its full-year 2025 guidance for both revenue and adjusted EPS, indicating positive momentum for the remainder of the fiscal year [1][11] Financial Performance - Non-GAAP EPS for Q2 2025 was $1.26, a 16% increase from $1.09 in Q2 2024 [2] - GAAP revenue reached $2.3 billion, reflecting a 6% year-over-year growth from $2.17 billion in Q2 2024 [2] - GAAP operating margin improved to 13.3%, up 1.6 percentage points from the previous year [2][6] - Adjusted EBITDA margin set a new high at 21.8%, an increase of 1.0 percentage point [2][7] - Net income under GAAP was $226 million, a 16.5% increase from $194 million in Q2 2024 [2] Business Segments - Revenue growth was observed across all four main divisions: Water Infrastructure (+3%), Applied Water (+6%), Measurement and Control Solutions (+12%), and Water Solutions and Services (+5%) [5] - The Measurement and Control Solutions segment experienced the highest growth at 12%, driven by demand for smart devices and data-driven services [6] Strategic Focus - Xylem specializes in water management solutions, including pumps, smart meters, and treatment systems, serving municipal, industrial, and commercial customers [3] - The company emphasizes sustainability initiatives, digital transformation, and operational efficiency, with ongoing investments in R&D focused on smart metering and analytics [4][8] Future Outlook - Full-year GAAP revenue guidance was raised to $8.9–$9.0 billion, up from $8.7–$8.8 billion, and adjusted EPS guidance increased to $4.70–$4.85 [11] - Management projects an adjusted EBITDA margin of 21.3–21.8%, reflecting confidence in sustained operational improvement [11] - Ongoing restructuring and realignment activities are aimed at streamlining operations and enhancing customer focus [10]

Core Insights - Xylem Inc. reported adjusted earnings of $1.26 per share for Q2 2025, exceeding the Zacks Consensus Estimate of $1.14, marking a 16% year-over-year increase [1] - Revenues reached $2.30 billion, surpassing the consensus estimate of $2.21 billion, with a 6% year-over-year growth driven by strong order growth across segments [1] - Orders totaled $2.17 billion, reflecting a 4% year-over-year increase on both reported and organic bases [1] Segmental Performance - Water Infrastructure segment revenues were $650 million, up 3% year over year, with organic sales increasing by 4%, exceeding the consensus estimate of $640 million [2] - Applied Water segment generated revenues of $483 million, a 6% year-over-year increase, with organic sales up 5%, surpassing the consensus estimate of $459 million [3] - Measurement & Control Solutions segment revenues totaled $540 million, up 12% year over year, with organic sales increasing by 10%, exceeding the consensus estimate of $509 million [4] - Water Solutions and Services segment revenues reached $628 million, a 5% year-over-year increase, with organic sales also up 5%, surpassing the consensus estimate of $605 million [4] Financial Metrics - Adjusted EBITDA was $502 million, an 11.1% increase from the previous year, with a margin improvement to 21.8% from 20.8% [5] - Adjusted operating income rose to $401 million, a 13.9% year-over-year increase, with an adjusted operating margin of 17.4%, up from 16.2% [5] Balance Sheet and Cash Flow - Cash and cash equivalents at the end of Q2 were $1.17 billion, up from $1.12 billion at the end of December 2024; long-term debt decreased to $1.93 billion from $1.98 billion [6] - Net cash generated from operating activities in the first half of 2025 was $338 million, compared to $377 million in the same period last year; capital expenditure increased by 15% to $169 million [6] Shareholder Returns - Q2 EPS rose 16% to $1.26, supported by 6% revenue growth, with all segments showing year-over-year growth [7] - Dividends paid in Q2 amounted to $196 million, a 12% increase year over year, while share buybacks totaled $13 million [8] 2025 Guidance - Xylem raised its 2025 revenue outlook to $8.9 – $9.0 billion, up from the previous range of $8.7-$8.8 billion, indicating a 4-5% increase from the prior year [9] - Adjusted EBITDA margin is expected to be approximately 21.3-21.8%, reflecting an expansion of 70-120 basis points from the previous year [9] - Adjusted earnings are forecasted to be in the range of $4.70 – $4.85 per share, an increase from the previous expectation of $4.50–$4.70 [10]

Core Insights - Xylem reported revenue of $2.3 billion for the quarter ended June 2025, reflecting a year-over-year increase of 6.1% and surpassing the Zacks Consensus Estimate by 3.93% [1] - The company's EPS for the quarter was $1.26, up from $1.09 in the same quarter last year, exceeding the consensus estimate of $1.14 by 10.53% [1] Revenue Breakdown - Measurement & Control Solutions generated $540 million, exceeding the average estimate of $509.46 million by five analysts, representing a 12% year-over-year increase [4] - Applied Water revenue was $483 million, compared to the estimated $459.4 million, marking a 5.9% increase from the previous year [4] - Water Infrastructure revenue reached $650 million, surpassing the average estimate of $639.53 million, with a year-over-year change of 3% [4] - Water Solutions and Services brought in $628 million, exceeding the average estimate of $605.08 million, reflecting a 4.7% increase year-over-year [4] Adjusted Operating Income - Adjusted Operating Income for Water Infrastructure was $127 million, slightly above the estimate of $124.64 million [4] - Adjusted Operating Income for Applied Water was $94 million, significantly higher than the average estimate of $80.1 million [4] - Adjusted Operating Income for Water Solutions and Services was $106 million, exceeding the estimate of $98.21 million [4] - Corporate and other segments reported an Adjusted Operating Income of -$23 million, worse than the estimate of -$16.4 million [4] - Measurement & Control Solutions had an Adjusted Operating Income of $98 million, surpassing the estimate of $84.05 million [4] Stock Performance - Xylem's shares have returned -0.8% over the past month, while the Zacks S&P 500 composite increased by 2.7% [3] - The stock currently holds a Zacks Rank 3 (Hold), indicating expected performance in line with the broader market in the near term [3]

[PART I – Financial Information](index=4&type=section&id=PART%20I%20%E2%80%93%20Financial%20Information) [Item 1. Financial Statements](index=4&type=section&id=Item%201.%20Financial%20Statements) This section presents Xylem Inc.'s unaudited condensed consolidated financial statements, including income statements, balance sheets, and cash flows, for the periods ended June 30, 2025 [Condensed Consolidated Income Statements](index=4&type=section&id=Condensed%20Consolidated%20Income%20Statements) Xylem reported Q2 2025 revenue of **$2,301 million** and net income of **$224 million**, with diluted EPS of **$0.93**, reflecting strong year-over-year growth Q2 & H1 2025 Financial Performance (in millions, except EPS) | Metric | Q2 2025 | Q2 2024 | YoY Change | H1 2025 | H1 2024 | YoY Change | | :--- | :--- | :--- | :--- | :--- | :--- | :--- | | **Revenue** | $2,301 | $2,169 | +6.1% | $4,370 | $4,202 | +4.0% | | **Gross Profit** | $892 | $819 | +8.9% | $1,660 | $1,571 | +5.7% | | **Operating Income** | $305 | $253 | +20.6% | $536 | $462 | +16.0% | | **Net Income** | $224 | $194 | +15.5% | $391 | $347 | +12.7% | | **Diluted EPS** | $0.93 | $0.80 | +16.3% | $1.62 | $1.43 | +13.3% | [Condensed Consolidated Balance Sheets](index=6&type=section&id=Condensed%20Consolidated%20Balance%20Sheets) As of June 30, 2025, Xylem's total assets reached **$17.19 billion**, with total liabilities at **$5.88 billion** and total equity at **$11.08 billion**, indicating balance sheet growth Balance Sheet Summary (in millions) | Account | June 30, 2025 | Dec 31, 2024 | | :--- | :--- | :--- | | **Total Current Assets** | $4,369 | $4,098 | | **Goodwill** | $8,237 | $7,980 | | **Total Assets** | $17,191 | $16,493 | | **Total Current Liabilities** | $2,301 | $2,336 | | **Long-term Debt** | $1,928 | $1,978 | | **Total Liabilities** | $5,882 | $5,611 | | **Total Equity** | $11,081 | $10,647 | [Condensed Consolidated Statements of Cash Flows](index=7&type=section&id=Condensed%20Consolidated%20Statements%20of%20Cash%20Flows) Net cash from operating activities for H1 2025 was **$338 million**, a decrease from the prior year, while financing cash usage significantly decreased due to lower debt repayments Six-Month Cash Flow Summary (in millions) | Activity | H1 2025 | H1 2024 | | :--- | :--- | :--- | | **Net Cash – Operating** | $338 | $377 | | **Net Cash – Investing** | $(140) | $(128) | | **Net Cash – Financing** | $(244) | $(419) | | **Net Change in Cash** | $49 | $(204) | [Notes to the Condensed Consolidated Financial Statements](index=8&type=section&id=Notes%20to%20the%20Condensed%20Consolidated%20Financial%20Statements) These notes detail accounting policies, acquisitions like Vacom Systems and EnviroMix, divestitures, and restructuring charges, providing context for financial activities - In Q2 2025, the company acquired Vacom Systems, LLC for **$42 million** in cash, accounted for as an asset acquisition[24](index=24&type=chunk) - On February 7, 2025, the company divested its Evoqua Magneto business for **$61 million**, resulting in a **$10 million** loss on the sale[27](index=27&type=chunk) - Restructuring charges of **$22 million** and **$39 million** were incurred in Q2 and H1 2025, respectively, to streamline the organization[44](index=44&type=chunk) - Post-period, on July 23, 2025, Xylem acquired EMX Holdings, Inc. (EnviroMix) for **$108 million** in cash[124](index=124&type=chunk) [Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations](index=40&type=section&id=Item%202.%20Management%27s%20Discussion%20and%20Analysis%20of%20Financial%20Condition%20and%20Results%20of%20Operations) Management discusses Q2 and H1 2025 financial results, highlighting a **6.1%** Q2 revenue increase, segment performance, and a raised full-year 2025 revenue growth outlook - Q2 2025 revenue increased **6.1%** to **$2,301 million**, with organic growth of **5.5%**[131](index=131&type=chunk) - Q2 2025 orders grew **4.1%** (**3.7%** organically) to **$2,174 million**[131](index=131&type=chunk) - Adjusted EBITDA margin for Q2 2025 improved by **100 basis points** to **21.8%**[131](index=131&type=chunk) - The company raised its full-year 2025 total revenue growth outlook to **4% to 5%**, with organic growth of approximately **4%**[210](index=210&type=chunk) [Results of Operations](index=44&type=section&id=Results%20of%20Operations) Q2 2025 revenue grew **6.1%** to **$2.3 billion**, with gross margin expanding by **100 basis points** to **38.8%** and operating margin increasing to **13.3%** Q2 2025 vs Q2 2024 Performance Summary | Metric | Q2 2025 | Q2 2024 | Change | | :--- | :--- | :--- | :--- | | **Revenue** | $2,301M | $2,169M | +6.1% | | **Gross Margin** | 38.8% | 37.8% | +100 bp | | **Operating Margin** | 13.3% | 11.7% | +160 bp | | **Net Income** | $224M | $194M | +15.5% | - Gross margin improvement was driven by **210 basis points** from productivity savings and **130 basis points** from price realization, partially offset by **180 basis points** of inflation[154](index=154&type=chunk) [Segment Performance](index=45&type=section&id=Segment%20Performance) All segments reported organic revenue growth in Q2 2025, with Measurement and Control Solutions leading at **9.4%**, driven by smart metering backlog execution Q2 2025 Organic Revenue Growth by Segment | Segment | Organic Growth (%) | | :--- | :--- | | Water Infrastructure | 4.1% | | Applied Water | 4.7% | | Measurement and Control Solutions | 9.4% | | Water Solutions and Services | 4.6% | Q2 2025 Adjusted Operating Margin by Segment | Segment | Q2 2025 Adj. Op. Margin | Q2 2024 Adj. Op. Margin | Change (bp) | | :--- | :--- | :--- | :--- | | Water Infrastructure | 19.5% | 16.0% | +350 | | Applied Water | 19.5% | 16.0% | +350 | | Measurement and Control Solutions | 18.1% | 19.9% | -180 | | Water Solutions and Services | 16.9% | 16.5% | +40 | [Liquidity and Capital Resources](index=61&type=section&id=Liquidity%20and%20Capital%20Resources) H1 2025 cash from operations was **$338 million**, with total available liquidity of approximately **$2.2 billion**, reflecting a strong capital position despite decreased operating cash flow - Total available liquidity as of June 30, 2025, is approximately **$2.2 billion**[206](index=206&type=chunk) Six-Month Cash Flow Comparison (in millions) | Activity | H1 2025 | H1 2024 | | :--- | :--- | :--- | | **Operating Activities** | $338 | $377 | | **Investing Activities** | $(140) | $(128) | | **Financing Activities** | $(244) | $(419) | [Item 3. Quantitative and Qualitative Disclosures About Market Risk](index=63&type=section&id=Item%203.%20Quantitative%20and%20Qualitative%20Disclosures%20About%20Market%20Risk) No material changes in market risk disclosures have occurred since the Annual Report on Form 10-K for the year ended December 31, 2024 - There has been no material change in market risk disclosures since the **2024 Annual Report**[211](index=211&type=chunk) [Item 4. Controls and Procedures](index=63&type=section&id=Item%204.%20Controls%20and%20Procedures) Management concluded that disclosure controls and procedures were effective as of June 30, 2025, with no material changes to internal control over financial reporting during the quarter - The CEO and CFO concluded that the company's disclosure controls and procedures were effective as of the end of the reporting period[212](index=212&type=chunk) - No material changes to internal control over financial reporting were identified during the quarter[213](index=213&type=chunk) [PART II – Other Information](index=64&type=section&id=PART%20II%20%E2%80%93%20Other%20Information) [Item 1. Legal Proceedings](index=64&type=section&id=Item%201.%20Legal%20Proceedings) The company is involved in various legal and regulatory proceedings incidental to its business operations, with further details in Note 18 - The company is involved in legal and regulatory proceedings incidental to its business, covering areas like environmental, tax, intellectual property, and product liability[216](index=216&type=chunk) [Item 1A. Risk Factors](index=64&type=section&id=Item%201A.%20Risk%20Factors) No material changes to the risk factors previously disclosed in the company's Annual Report on Form 10-K for the year ended December 31, 2024, have occurred - No material changes from the risk factors disclosed in the **2024 Annual Report** have occurred[218](index=218&type=chunk) [Item 2. Unregistered Sales of Equity Securities and Use of Proceeds](index=64&type=section&id=Item%202.%20Unregistered%20Sales%20of%20Equity%20Securities%20and%20Use%20of%20Proceeds) The company did not repurchase shares in Q2 2025, with **$182 million** remaining authorized for future repurchases under the existing plan - No shares were repurchased under the company's publicly announced plan during the three months ended June 30, 2025[219](index=219&type=chunk)[220](index=220&type=chunk) - As of June 30, 2025, **$182 million** remains available for share repurchases under the authorized program[220](index=220&type=chunk) [Item 5. Other Information](index=64&type=section&id=Item%205.%20Other%20Information) No directors or Section 16 officers adopted or terminated any Rule 10b5-1 trading arrangements during the quarter ended June 30, 2025 - No directors or Section 16 officers adopted or terminated any Rule 10b5-1 trading plans during the second quarter of 2025[223](index=223&type=chunk) [Item 6. Exhibits](index=64&type=section&id=Item%206.%20Exhibits) This section provides an index of exhibits filed with the Form 10-Q, including CEO and CFO certifications and XBRL data files

Financial Data and Key Metrics Changes - The company reported a record adjusted EBITDA margin of 21.8%, up 100 basis points year over year [7][12] - Adjusted EPS grew by mid-teens percentage compared to the previous year [7] - Revenue growth was strong at 6% in the quarter, driven primarily by outperformance in Measurement and Control Solutions (MCS) [12][19] - Year-to-date free cash flow decreased by $61 million year over year, mainly due to outsourced water projects and timing of tax payments [13] Business Line Data and Key Metrics Changes - **Measurement and Control Solutions (MCS)**: Orders grew 12% organically, with revenue up 10% driven by energy metering demand [14] - **Water Infrastructure**: Revenue grew 4%, with demand led by treatment solutions, although orders declined by 2% due to funding delays in the UK and Canada [15] - **Applied Water**: Orders rose 4% for the sixth consecutive quarter, with revenue increasing by 5% [16] - **Water Solutions and Services**: Orders increased by 5%, with revenue growth also at 5% [17] Market Data and Key Metrics Changes - Demand for products and solutions remains resilient, particularly in smart metering, which saw double-digit growth [8] - The backlog remains strong across all segments, except MCS, which is being normalized [12] - The company noted ongoing economic challenges in China, with orders down approximately 18% year over year [54] Company Strategy and Development Direction - The company is focused on executing its transformation plan laid out at the Investor Day, which includes simplifying operations and enhancing portfolio for growth [10][22] - Recent acquisitions in advanced treatment are aimed at strengthening the growth engine and enhancing capabilities [26] - The company is committed to mitigating tariff impacts through pricing actions and supply chain adjustments [18] Management's Comments on Operating Environment and Future Outlook - Management expressed confidence in delivering strong performance for the remainder of 2025, despite macro uncertainties [20][22] - The company raised its full-year revenue guidance to $8.9 billion to $9.0 billion, reflecting 4% to 5% total growth [19] - Management acknowledged potential impacts from tariffs and FX movements but emphasized strong demand and backlog execution [20] Other Important Information - The company has made significant progress in its simplification initiatives, which have improved productivity and customer responsiveness [9][10] - The integration of Evoqua is ahead of schedule, with strong traction on cost and revenue synergies [22][23] Q&A Session Summary Question: Update on MCS order outlook and destocking - Management noted resilient demand across the board, with expectations for MCS to return to positive book-to-bill by year-end [34] Question: Progress on simplification initiatives - Management reported tracking ahead of the timeline for simplification, with improved decision-making and customer metrics [36] Question: Applied Water segment performance and eightytwenty impact - Management highlighted strong orders and revenue growth, with eightytwenty helping to focus on growth while simplifying operations [48] Question: Municipal utility funding concerns - Management expressed confidence that Congress will appropriate funds to maintain healthy state revolving fund levels, despite concerns [90] Question: MCS legacy energy business margin drag - Management indicated that legacy projects would pressure margins in the near term but expect sequential improvement in Q4 [106]

Financial Data and Key Metrics Changes - The company reported a record adjusted EBITDA margin of 21.8%, an increase of 100 basis points year over year [6][12] - Adjusted EPS grew by mid-teens percentage compared to the previous year [6] - Revenue growth was strong at 6% in the quarter, driven primarily by outperformance in Measurement and Control Solutions (MCS) [12][20] - Year-to-date free cash flow decreased by $61 million year over year, mainly due to outsourced water projects and timing of tax payments [13] Business Line Data and Key Metrics Changes - **Measurement and Control Solutions (MCS)**: Orders grew 12% organically, with revenue up 10% driven by energy metering demand [14] - **Water Infrastructure (WI)**: Revenue grew 4%, with demand led by treatment solutions, although orders declined by 2% due to funding delays in the UK and Canada [15] - **Applied Water**: Orders increased by 4%, with revenue up 5%, driven by strength in commercial buildings [16] - **Water Solutions and Services**: Orders increased by 5%, with revenue growth also at 5%, reflecting strong execution on pricing and productivity [17] Market Data and Key Metrics Changes - Demand for products and solutions remains resilient, with strong orders pace and particularly solid growth in smart metering [7] - The backlog remains strong, exceeding $5 billion, with a book-to-bill ratio near one [12] Company Strategy and Development Direction - The company is focused on executing its transformation plan laid out at the Investor Day, which includes simplifying operations and enhancing portfolio for growth through targeted acquisitions [9][26] - Recent acquisitions in advanced treatment are aimed at strengthening the company's growth engine and enhancing capabilities [26] - The company is committed to navigating tariff uncertainties and inflation through pricing actions and supply chain adjustments [18] Management's Comments on Operating Environment and Future Outlook - Management expressed confidence in delivering strong performance for the remainder of 2025, despite macro uncertainties [20] - The company raised its full-year revenue guidance to $8.9 billion to $9 billion, reflecting 4% to 5% total growth [20] - Management noted that while there are uncertainties around tariffs and foreign exchange movements, the team is effectively controlling internal factors [21] Other Important Information - The company has implemented simplification initiatives that have improved productivity and customer responsiveness, contributing to margin expansion [7][10] - The integration of Evoqua is progressing well, with cost synergies being delivered ahead of schedule [24] Q&A Session Summary Question: Update on MCS order outlook and destocking - Management noted resilient demand across the board, with expectations for MCS to return to a positive book-to-bill ratio by year-end [35] Question: Progress on simplification initiatives - Management reported tracking ahead of the timeline for simplification, with improved decision-making and customer metrics [36][41] Question: Applied Water performance and eightytwenty impact - Management highlighted strong orders and revenue growth in Applied Water, with ongoing focus on simplifying the business to drive growth [50] Question: Municipal utility funding concerns - Management expressed confidence that Congress will appropriate funds to maintain healthy state revolving fund levels, despite concerns about potential cuts [88] Question: MCS margin drag from legacy projects - Management indicated that legacy projects would pressure margins in the short term but expect sequential improvement in the coming quarters [106] Question: Capital deployment strategy - Management remains forward-leaning on M&A, focusing on assets that fit the strategy and have strong financial returns [80]