Thank you, Operator. Good morning, everyone, and welcome to Xylem's fourth quarter 2025 earnings call.

With me today are Chief Executive Officer Matthew Pine and Chief Financial Officer Bill Grogan. They will provide their perspective on Xylem's fourth quarter and full year 2025 results and discuss the first quarter and full year 2026 outlook.

Following our prepared remarks, we will address questions related to the information covered on the call. I'll 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. A replay of today's call will be available until midnight, February 24th, and will be available for playback via the Investors section of our website under the heading Investor Events.

Please turn to slide 2. 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.

These statements are subject to future risks and uncertainties, such as those factors described in Xylem's most recent annual report on Form 10-K and in subsequent reports filed with the SEC. 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 3. We have provided you with a summary of our key performance metrics, including both GAAP and non-GAAP metrics.

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. Now, please turn to slide 4, and I will turn the call over to our CEO, Matthew Pine.

Thank you, Keith. Good morning, everyone, and thank you for joining us.

The team delivered an outstanding fourth quarter to close a record year for Xylem. We delivered strong Q4 performance across all major metrics.

The team executed with discipline across the portfolio, both in the quarter and full year. The record results demonstrate the impact of our operating model transformation, which represents phase one of our plan to deliver Xylem's long-term framework.

That first phase has been about transforming Xylem's operating model, our high-impact culture, a simpler, scalable structure, and improvements in our business processes and cornerstone systems. We simplified Xylem, increasing speed and accountability.

The numbers we posted this morning reflect the ground we've already taken, and there's more to come in 2026. In parallel, we're entering phase two, strengthening our growth engine by leveraging improvements in our operating model, focusing on sales force effectiveness, product management, and innovation.

Phase three will invest further in long-term competitiveness, building on our core franchises, expanding breakthrough innovation, and deepening exposure to the most attractive future water markets. We're tracking to the framework we laid out almost two years ago, and we have plenty of runway ahead.

As we sharpen our customer focus and simplify our product offerings, 2026 will be the peak of purposeful walkaways from lower-quality revenue. That creates a short-term top-line headwind, as we've communicated previously, but it drives higher-quality earnings.

Looking ahead to 2026, we see resilient demand in our largest end markets, strong backlog conversion, and continued traction from our transformation efforts. I'll leave the detailed guidance to Bill, but at a high level, we will build on our commercial and operational momentum, growing the top line and expanding margins again in 2026.

With that, Bill will take you through the quarter and full year, and also our 2026 outlook in more detail. Bill?

Thanks, Matthew. Please turn to slide 5.

We are very pleased with the strong finish to 2025. The team stayed focused and delivered consistently throughout the year, delivering record revenue, EBITDA, and earnings per share for the fourth quarter and the full year.

Demand remains positive, with our backlog finishing at $4.6 billion. Our book-to-bill was near 1, both in the quarter and for the full year.

Orders were healthy, up 7% in the quarter, driven by over 20% growth in MCS, and for the year, orders were up 2%. Revenue grew 4% in the quarter despite a challenging comparison of 7% growth in the same period last year.

Full-year revenue growth was solid at 5%. Full-year EBITDA margin expanded 160 basis points to 22.2%, driven by the same factors.

The team's operational discipline delivered quarterly EBITDA margin of 23.2%, up 220 basis points versus the prior year. The improvement was driven by productivity and price more than offsetting inflation.

Full-year EBITDA margin expanded 160 basis points to 22.2%, driven by the same factors. We also achieved a record quarterly EPS of $1.42, a 20% increase over the prior year.

Our balance sheet remains in great shape, with net debt to adjusted EBITDA of 0.2 times. Year-to-date free cash flow decreased by 2% from the prior year, in line with expectations, driven by outsourced water projects, system investments, and restructuring costs, offset by higher net income.

Let's turn to slide 6. In Measurement & Control Solutions, we continue to convert the backlog, with MCS's backlog finishing the year at roughly $1.4 billion.

Orders were up a robust 22%, driven by smart metering demand across water and energy. However, this was below our expectations, with several projects pushing out into 2026.

Revenue was up 10%, driven by energy metering demand, but supported by high single-digit gains in water as well, which offset softness in analytics related to timing effects caused by the government shutdown. EBITDA margin of 20.2% was 310 basis points higher than prior year, driven by productivity, price, and volume more than offsetting mix and inflation.

In Water Infrastructure, orders were down 1% in the quarter, with softness in treatment, primarily in China, mostly offset by strong demand in transport. Revenue was flat, with strong double-digit growth in the US offset by an almost 30% decline in China.

EBITDA margin for Water Infrastructure was up a remarkable 510 basis points, driven by productivity, price, and mix, offset by inflation, volume, and investments. In Applied Water, orders were up 5%, and book-to-bill was roughly 1, lifted by large projects and data center wins in the US.

Revenues were up 3% versus the prior year, primarily driven by strength in US commercial buildings. Segment EBITDA margin increased 60 basis points year-over-year, driven by productivity and price, offset by inflation, volume, and mix.

With some of these items being non-recurring in nature, we expect Applied Water to be back in the 20% EBITDA range in the first quarter. Finally, Water Solutions and Services saw robust demand, with orders increasing several percent, driven by strength in services.

Revenue growth was strong, up 4% against a tough comp, with strength in capital and services. Segment EBITDA margin was 23.9%, up 110 basis points versus the prior year, driven by price, volume, and productivity, offset by inflation and mix.

Now, let's turn to slide 7 for our 2026 segment outlook. Heading into 2026, our markets remain positive, and our teams are delivering on our commitment to simplify Xylem, focus on our customers, and drive profitable growth.

We are providing full-year organic revenue outlook for the segments, and want to highlight that we are accelerating our 80/20 efforts around product and customer simplification. As a result, we will have an outsized headwind to our top line for the year of roughly 2%, doubling the impact we experienced in 2025.

We expect this is a one-year elevation, and we are still committed to delivering on our long-term framework. In MCS, we expect growth in the mid-single digits.

Overall demand is positive, and our pipeline remains strong, but project timing has been more variable and less predictable than we have experienced over the last few years. Our expectation is energy meters will drive a majority of the growth in 2026, and water meters will grow low single digits, as expected orders from the fourth quarter pushed out into the first half of '26.

We will also have an impact from our 80/20 actions, primarily on analytics, impacting overall segment growth for the year. The first quarter will be challenged, down low single digits, but we expect to see sequential revenue improvement throughout the year, as project kickoffs accelerate in the back half of the year.

Also, as a reminder, we expect to close on the divestiture of the international metering business at the end of the first quarter. In Water Infrastructure, we expect low single-digit growth.

We anticipate resilient OpEx and CapEx demand due to the mission-critical nature of our applications, with healthy utility end markets across most regions. However, we will see headwinds from 80/20 actions as we accelerate the simplification of our offerings, and expect continued weakness in China's utility market, primarily impacting the first half of the year.

In Applied Water, we expect growth in the low single digits. We see growth across developed markets, particularly in the US, with large projects coming online and strong growth in data centers.

Similar to the story in Water Infrastructure, growth will be offset in Applied Water by 80/20 actions, exiting unprofitable business, and a weak China market impacting the first half of the year. WSS will deliver mid-single-digit growth, driven by strength in outsourced water projects and solid demand in dewatering.

Though we expect this will continue to be a more variable segment quarter-to-quarter due to the project nature of our capital offerings. The segment is supported by a $1.4 billion backlog and a strong funnel across all businesses.

Now, let's turn to slide 8 for our full-year and Q1 guidance for 2026. The growth outlook by segment translates into 2026 full-year revenue of $9.1 to $9.2 billion, resulting in revenue growth of 1% to 3% and organic revenue growth of 2% to 4%.

Again, this is on the low end of our long-term framework due to the 80/20 actions we are taking across our segments, but continuing to increase the quality of our earnings and simplifying our businesses to outperform our markets for the long term. EBITDA margin is expected to be 22.9% to 23.3%.

This represents 70 to 110 basis points of expansion versus the prior year, driven by productivity, volume, and price offsetting inflation, with productivity continuing to benefit from our simplification efforts. This yields an EPS range of $5.35 to $5.60, up 8% at the midpoint over the prior year.

As a reminder, we are committed to low double-digit free cash flow margin in our long-term financial framework, and we will make additional progress in 2026. Drilling down on the first quarter, we anticipate reported revenue growth will be in the 1% to 2% range on a reported basis and flat organically.

We expect first quarter EBITDA margin to be approximately 20.5% to 21%, up 25 basis points at the midpoint, driven by productivity gains and impacts from our simplification efforts, offset by mix. This yields first quarter EPS of $1.06 to $1.11.

We are entering the year with momentum and in a position of strength. Our balanced outlook reflects strong commercial positioning, the durability of our portfolio, and further benefits from simplification, though we are monitoring broader market conditions and volatility, including tariffs.

Overall, our expectations for the year remain positive as we build on our strong results. With that, please turn to slide 9, and I'll turn the call back over to Matthew for closing comments.

Thanks, Bill. Before we open for questions, let me close with a broader lens.

Xylem participated in the World Economic Forum Annual Meeting at Davos for the first time this year. The headlines were all about AI and geopolitics, but water emerged as a significant underlying theme.

More than a dozen sessions framed water as foundational to economic growth, energy systems, and geopolitical stability. That aligns directly with the research we released last month, "Watering the New Economy," which makes a simple point: as AI accelerates growth in power generation, data centers, and microelectronics, water strategy becomes business strategy.

These sectors are wrestling with availability, reliability, and efficiency. They need reuse at scale, dramatic reductions in network leaks, and adaptive infrastructure that automatically optimizes performance.

That's where Xylem is uniquely positioned, covering the full water value chain with practical solutions. That breadth differentiates us at a time when customers are looking for credible, scalable partners.

As we pivot further into growth, we'll keep building capability where we have structural advantage: mission-critical utility and industrial applications where reliability, compliance, and lifecycle costs matter most; digital platforms that help customers optimize network performance and make resilience affordable; advanced treatment and reuse that support economic growth without increasing freshwater withdrawals or compromising communities; and services that turn our technology and installed base into dependable, high-value outcomes for customers and durable revenues for Xylem. We're already doing this work at scale, helping cities and industries recover water they already have, reuse what they once discarded, and run their assets more efficiently.

We're helping Los Angeles produce 580 million gallons of recycled water per day, with plans to deliver 260 million gallons more. Smaller communities like Hot Springs, Arkansas, are reducing water losses by 50% or more, with far less digging costs.

On the industrial side, Silfex, a microelectronics manufacturer, is reusing 80% of its process water with a Xylem ultrapure water system. One of our aerospace customers is now avoiding more than $30 million in wastewater disposal costs with zero liquid discharge technology, reusing more than 66 million gallons of water annually.

All of these examples are responses to intensifying water trends, driving sustained demand for the solutions we provide across the water value chain. We are confident in the strength of our team and our platform to capitalize on that demand and to deliver sustainable, high-quality growth over the long term.

With that, we'll open the call for your questions.

Thank you. Good morning, everyone.

Hey, good morning, Deane.

Hey, Matthew, as we do the calendar flip and as you start the phase two, maybe you can give us a two-year progress report, if you could, just kind of reflect on the initiatives regarding margin improvement, portfolio optimization, and how you are also trying to keep your eye on growth opportunities, too. Thank you.

First, we've got a lot of work to do in front of us, I'll start there. If we look back over the past few years, the results have really exceeded expectations from my perspective.

Maybe just even starting firstly with not long ago, we were talking about the integration of Evoqua and Xylem, and we've built a great deal of muscle in terms of M&A and integration, and we really enhanced our combined culture along the way, and we delivered synergies 18 months early. I give the team a lot of credit there, starting with that integration.

At the same time, we've made significant progress in our operational model transformation, which is really about our high-impact culture, improving our processes and systems in our structure. Maybe I'll just point to a few proof points on the progress that we've made.

The first, in significant amount of change that we've been going through the past couple of years, I looked at our engagement rating the other day. In essence, an engagement rating in your employee survey is, would you recommend Xylem as a great place to work?

Almost 90% of our top 150 leaders said they would, and overall company was 74. When you're going through a significant transformation, I think that's a really good, outstanding result.

The industrial sector average is around 37%. I think it just speaks to the resilience of our team and the culture that we're creating.

Another good measure that I talk about a lot is on-time performance in terms of how we're really moving our operating model forward. We've gained 500 basis points of on-time performance delivering products to customers more effectively over the past couple of years.

Structurally, we've really improved, moving from a highly matrixed structure to four segments, 16 divisions, a single axis, reducing our spans and layers. We had several micro-teams, I think 1,500 micro-teams, we reduced that by 40%.

That's folks that have four or less direct reports. We've really improved our structure, our culture, our processes, and our systems along the way.

Like I said in the prepared remarks, we've taken a lot of ground on what I would call phase one. It's not over.

We have more work to do, but we're starting to transition into what I would call phase two, which is really about leveraging that simplicity that we've created, the focus, the speed, and accountability to really build a growth engine in the company. That's focused on a few areas I would highlight at a high level.

One is our sales force effectiveness. We need our sales teams 75%, 80% of the time facing the customer versus 40 or 50 or 60 doing back office work.

We need to improve our product lifecycle management and innovation, really speed to customer value. Those are areas that as we pivot, we're going to be keenly focused on this year and building capabilities so we can leverage the simplicity and get back to growth.

I'm very proud of the team. I appreciate the question, and really the resilience they've shown, not only with all the change that we had to deal with, but also the change that's been external to the company as we've dealt it with over the past couple of years.

Maybe I'll end it there. Thanks for the question.

That's really helpful. Then as a follow-up for Bill, maybe you can help expand on the point of increasing the 80/20 walkaway revenues in the second year.

Maybe it's a surprise to me, I think, because I would have thought in the first year, there'd be more opportunities for identifying less profitable businesses, not having it accelerate into the second year. Maybe just kind of help put that into context.

Appreciate it.

Yes. No, sure.

Maybe let me step back first and just talk about how 80/20 is really taking hold in the organization, kind of two years into the transformation that Matthew highlighted. In each quarter, we take another step in simplifying Xylem, shifting from just leveraging 80/20 as a tool set to being a critical piece of how we run the company, with a real focus on resource allocation, putting our best people and investments around our largest value-creating opportunities.

We've got about 80% of the business in some phase of implementation right now, with the capital and services piece of WSS the only part of the company that fully launched and they'll start at the end of this year after they get through their ERP upgrade. The team continues to make solid progress leveraging the tool set, right?

We started this year with redesigning the organization and putting P&L leaders in charge of the divisions so they can have a good perspective and drive a lot of this change. They looked at the cost that they needed to support the business and optimize that overhead to get our foundations lean as possible to make sure that we're focused on simplifying that organizational construct.

As for the 2% headwind, right, a lot of that comes with an evaluation of the product and customer portfolio, really understanding the geographies where you might be underperforming, putting in a commercial filter, getting the sales and engineering teams developed and leveraging that filter to make sure that we're not taking business that we shouldn't. We're looking at parts of the business where we have significant pass-through revenue that doesn't have significant margin.

All of those decisions take a little bit of time because you want to make sure you bleed the inventory, you don't have an excess issue. You want to partner with your customers to make sure they're supported through the transition.

There's the cultural and adoption part of it that extends it, and then there's just the customer coordination, which really pushes it into 2026. Excited about the teams taking these actions, and ultimately, I think it's going to free up our organizational and economical capacity to better support and facilitate our longer-term growth trajectory.

Thank you.

Hi. Good morning, guys.

Matthew and Bill.

Hey, good morning, Scott.

I wanted to follow up on that question, because there's a certain point where 80/20 goes from being a headwind to a tailwind, meaning that [laughter] you're doing better with the customers that matter the most and perhaps gaining share and such. When is that point?

Do you start to see some impacts, like 2027, 2028? Or is it just too hard to say at this point now that you're kind of in the middle of it?

I would say that really 2026 is kind of a inflection point, Scott, for us. The operational transformation never ends, as you know.

We've taken enough ground where we started in the back half of 2025 and we coming into '26 with a bit more momentum around, I would say, building the growth engine and focusing on A customers, what we call raving fans, and actually building out our enterprise selling organization. All that is in flight.

I think the big thing this year is about building sales force effectiveness and helping our sales organization get more oriented toward the customer the majority of the time, meaning today a lot of our sales teams are doing a lot of admin work and they don't get in front of the customer, but maybe 30%, 40% of the time. The goal over the first half of this year is to change that to say 75%, 80%.

I think we're building momentum, and I'd say we exit 2026 with a lot of, again, momentum around building the growth engine and starting to move towards growth and leveraging this simplicity that we've created.

Okay. That makes sense.

Guys, I have to ask: your balance sheet is starting to look a little bit too good, and looks like your stock might open up a little bit light today. What are you guys thinking as far as buyback, and or do we want to keep the dry powder for M&A?

Maybe just highlight that our priorities continue to be investing in our core business, followed by M&A, dividends, and then lastly share buyback. I've said this on some other calls, that our acquisition process that we put in place a couple of years ago is really maturing nicely.

It's much more bottoms up. We've got a very strong actionable funnel as an outcome of this process.

We deployed about $250 million of capital last year towards M&A in the second half of the year, and we have much more than that that's already in process for the first half of '26. Seeing good momentum there, and we'll continue to target around $1 billion a year of capital deployment towards M&A.

We won't not entertain a transformational deal, but it's not something we're focused on right now. It's more small to medium bolt-ons.

With regard to your thoughts on share buybacks, we'll continue to be opportunistic. Again, we're going to be more forward leaning towards investing in the core and M&A.

However, at low leverage levels, like we're seeing now, we're going to be much more active in buying back shares.

Gotcha. Thank you, guys.

Best of luck. I'll pass it on.

Thank you.

Hey, morning, everyone.

Morning.

Could you put the backlog exiting the year in context, what it means for this year, in the phasing for the year? Is where the backlog exit rate was, is that part of the 1Q softness?

How do those sequentials work through the year? Then related, maybe just a little bit about the hesitancy on the project side, and compare that to maybe what the customers are saying, the pipeline, verbal orders, however you want to put it.

Maybe I'll touch first just on the backlog positioning, and Matthew can comment on the project side. First off, right, obviously, we've bled backlog as we've progressed through this year, and the lower backlog directly impacts the 2026 cadence and revenue guide.

First on MCS, we talked about them working down their backlog throughout the year, getting to a more normalized level. We highlighted really strong orders in the fourth quarter, but we actually had anticipated a few larger projects to book that pushed out in the first half, which put a little bit pressure on ending backlog and then pressure on kind of our first and second quarter revenue.

We've talked China's been really weak, especially in treatment, which is a bigger backlog business for us, that probably put us at a lower backlog position. Then we talked about the walkaway revenue.

Obviously, that's impacted orders first, before it impacts revenue. We've seen just a lower backlog associated with some of those actions, as we progressed through the back half of the last year.

I think we're in good shape to start the year. We've talked about healthy commercial funnels for both MCS and WSS, our largest backlog businesses.

What we have line of sight to relative to commercial funnel, I think reasonable confidence in line of sight to the improved progression as we go through the year. Then

maybe some thoughts on China. I know you've done a lot of work already because of the environment.

What are the steps you're taking from here, given the softness? How do you see that shaking out over the next couple of years in terms of the commitment to the market, ability to manage that market given the local headwinds, both wide local as well as softer end markets?

Kind of what changes are you making?

Yeah. No, I think consistent with the commentary we've provided for the last couple of quarters, China remains a challenging market for us, both on the orders and revenue side.

It did accelerate that decline as we progress through the back half. Q4 orders were down almost 70%, sales declined almost 30%.

Part of that's just the reflecting of the economic headwinds impacting utility and commercial building and industrial end markets, and primarily impacting us within Water Infrastructure and Applied Water. Right, local competition continues to drive intense price competition due to the capacity that they've built.

Our teams are applying an 80/20 lens to focus on higher-quality, more profitable opportunities, which is creating some of the top-line pressure, right? We're calling that within the China bucket, but you could probably put a little bit of that in the walkaway just as where deliberately exiting some of that low-margin, negative-margin business within China.

As we talked about last quarter, China restructured its operations, we reduced our head count by over 40% just to better align with that volume contraction. Right, we're looking to reallocate the resources that are on the ground just around targeted opportunities where we think we have a technological advantage and we can provide some differentiation in certain applications where we can win and deliver stronger margin performance because of that differentiation.

Ultimately, right, China is a very large economy. We don't think there's going to be a material improvement here over the next year or two, but longer term, it's a place that we think that Xylem will be able to grow, get back to growth at a much higher margin profile.

Thanks. Appreciate it.

Good morning, everyone.

Hey, good morning, Andy.

Matt or Bill, just maybe a little more color on what's going on in smart meters. You did have solid orders, but, Bill, you mentioned orders were still below what you expected.

I think peers have had even a harder time than you in water smart meters. What are you seeing in the market between water and energy?

Is your mid-single-digit revenue growth forecast for '26 contingent on converting some of these delayed projects to backlog in the first half? Does availability of memory chips impact the outlook at all?

Maybe I'll just maybe start at a high level, Andy, then I'll let Bill get into a little bit of color. I just wanted tell everyone on the call, we remain very confident in MCS to achieve high single digits long term as a segment.

Near-term outlook really reflects project timing and some of the backlog normalization coming out of COVID, and walkaway revenue. It's not a change so much in underlying demand.

The biggest area of walkaway in the segment is in analytics. It's one of the last divisions to go into the 80/20 tool, and they're in the process of shedding organic business right now.

Although we do have a little bit of walkaway in smart metering as well in 2026, and we've exited mechanical meters, and we've made a decision to be a bit more selective when we do the meter installation. A lot of times that comes at low margin or no margin pass-through, and is a drag on earnings and margins.

We've been a bit forward leaning into that. Bidding remains strong, and customers are still ordering, and our win rates higher than it has been in the past.

I think in general, things are healthy. Maybe one other comment I would make is, again, going back to this post-COVID, the backlog helped to smooth and some of the unevenness that we typically get in this segment and that can have.

I think we do expect a bit more variability in quarter-to-quarter going forward. Maybe one other point I would make is, I would highlight that the Xylem Vue business, which doubled in 2025, we're expecting that digital business grow 30% plus in 2026.

As we exit this year, that'll continue momentum and help drive the top line of this segment, as well.

Then, Andy, I think your question on the memory piece, we don't see that as a material impact either from an availability or significant increase in inflation for us to have to pass on to customers.

Helpful, guys. Then, Bill, maybe a follow-up for you.

You're guiding to 70 to 110 basis points of margin improvement in '26, as basically takes you past your 23% and change adjusted EBITDA margin goal for '27 in '26. Where do you go from here?

You going to have an investor day? Maybe you just set new targets?

Maybe the entitlement of the business, from when you started here, is it mid-20s or higher? How do you think about that?

I'll take it, Andy. I think from my perspective, we're already out laying an investor day for 2027.

We'll update strategy and targets at that point. It's probably sometime in the spring of next year.

We have some work ahead of us to deliver this year, and we don't want to get too far out over our skis. As a reminder, we laid out the long-range plan at our last investor day in May of '24 that we, to your point, that we would move from 20%, which was the forecast of 2024 margins, to 23% by the end of '27.

We're guiding this year just over 23% at the midpoint. We're tracking ahead, and there's likely upside to our long-term targets as we exit '27.

We've made a lot of great progress, and give the team a tremendous amount of credit, as I said with Deane's question in the beginning, a lot of change, and we've been able to execute. I think, Andy, about just over a year from now, we'll be in a better position to update the framework and talk about margins.

Appreciate that. Thank you.

Morning, everyone.

Hey, good morning, Nathan.

I'll start with a follow-up on the MCS orders and the smart meter projects that have pushed out. Maybe a little bit more color on what the cause of those pushing out are, if you have any insights there, degree of confidence that those things kind of come through in the first half in order to support the outlook for improved growth in the second half.

I think there's several projects, and all of them have a little bit different reasons for pushing out. There's not a common thread around it.

Some of them are just relative to where they're at with several other projects going on, they want to push out a couple months. Some of them have reshaped the scope of the project relative to just increased inflation they've seen from tariffs and other inflation creeping up over time.

For us, it's a handful of things that we're intimately involved with the customers. We understand kind of their project plans and some of the hesitancy, and we're working with them to shape an implementation that works with them economically, and then still has an ability for us to drive kind of incremental revenue this year.

I think we have reasonable visibility. Again, this isn't 50 different projects.

It's kind of 5 to 10 that we're working with the end customer that we have confidence in based upon our guide and our revenue progression for MCS through the year that we'll be able to deliver on.

Thanks for that. I guess next question on divestitures.

You guys have talked about up to 10% of revenue being a potential candidate for divestiture. Anything we should expect action on that in 2026?

If you could provide the EPS impact from the divestiture of the international water meter business, that would be helpful, as well. Thanks.

Yep. I think we talked about, Nate, we were evaluating about 10% of the po- portfolio.

Last year, we exited a business in in the first quarter, that was about 1%, International Metrology is about about another percent. There's probably two or three assets that, maybe another couple percent.

I don't think we're going to hit the the 10% number that that we we were looking at. Obviously, portfolio evaluation, something that we do on a recurring basis, as businesses shift strategy or they want to double down in certain parts of the business, maybe an area becomes less important.

I think it's an ongoing activity with I don't think anything significant outside of International Metrology for this year. Then the EPS impact for International Metrology is is fairly small for for the year.

We talked about, it's a $250 million business at less than 10% EBITDA margin. We'll close it at the end of the third quarter excuse me, at the end of the first quarter, you kind of get three quarters.

It's, $0.02, $0.03.

Thanks for taking the questions.

Thank you.

Good morning, guys. This is Michael On for Joe.

Hey, Michael.

On the last call, you mentioned there was a path to higher margins for the energy meter side at MCS. Since it's mixed negative versus water meters, can you just unpack that glide path higher and what's the status of the transformation?

Thank you.

Your question specifically is around just the improvement on the energy meter margin?

I believe on the last call, you mentioned there was a path higher for energy meters on the margin side, would just love to better understand where we are in that cycle. Thank you.

Oh, yeah. I think there's a couple things.

One, there's some structural changes on the energy side from a engineering and a technology perspective that are going to level up value engineering projects that will lift the margin profile. We did highlight there's a couple projects that are legacy within energy that they're working through their backlogs that put pressure on margins in 2025.

That'll continue in the first half first three quarters of 2026. You'll see a margin progression with MCS down slightly overall in the first quarter, and then sequentially build to pretty robust margins as it exits the fourth quarter, with the water meter balance being back to more legacy rates, and then some of the progress on the energy margin improvement taking hold.

Great. Thanks for that color.

Then orders for the year ended pretty strongly. The organic guide kind of implies a ramp into the back half.

Can you just unpack organic expectations and I believe you kind of mentioned this a little bit in the beginning of the call, but by segment for Q1? Just want to understand, it came in a little bit lighter than probably most were expecting.

Yep. Would appreciate the color.

Thank you.

I think the biggest variable is probably MCS. They'll be down kind of a point or two in the first quarter relative to probably the external expectations.

WSS, we talked about just the lumpiness of that business. They'll be kind of flattish, with Water Infrastructure and Applied Water a little bit below their full-year guide, just with some of the first-half pressure that they have from China.

Thanks, guys.

Thank you.

Good morning. Thanks very much.

Just first one here. I did want to ask about the 4Q operating margin step-down across Applied Water, MCS, and WSS.

Is there seasonality inherent in this business? Then maybe how should we think about that, I guess, in relation to the ongoing tailwinds of 80/20 execution?

I would say really for WSS, it's more of mix of business between quarters, nothing structural there. Within Applied Water, obviously, Q4 was a bit of a blip relative to their performance that they experienced through the first half of the year, and really reflected just some negative project mix and a little bit of execution timing and some one-time items.

These are transitional factors, and we expect EBITDA margins to be back up in the 20% range in the first quarter, and then sequentially improve throughout the year with volume increases in their other productivity initiatives ramping up. It's more of a short term than anything structural.

Applied Water, I think, gets back to some pretty robust margin expansion in 2026.

Got it. Then I wanted to ask also about the recent report you folks published in partnership with GWI on water demand management for data centers.

Just curious to hear sort of your thoughts on what surprised you from that report, and perhaps where you think the biggest opportunities for Xylem are to accelerate its growth might come from.

Thanks for the question. When I was at Davos, 2026 was deemed kind of the year of artificial intelligence.

There were a lot of talk of pilot projects now scaling and the productivity solutions, and that's why a lot of the AI build-out is racing ahead. Actually, Gartner had a recent prediction that 2026 hyperscalers would invest over $2 trillion in new data centers.

I think one big thing from the report that was pointed out that there's two big constraints to that $2 trillion of investment, and that's energy and water. Up until now, energy's gotten the majority of the attention, and I think water is starting to finally be brought up in the discussion.

The reason we commissioned the report is we have a pretty good view of the whole water value chain, and we were trying to figure it out ourselves. What is the impact of this new economy and the broader AI ecosystem on the water sector?

We couldn't really find any good data, we partnered with Global Water Intelligence and commissioned the report, and we kicked it off at Davos. Maybe the first eye-opening stat I would point to is the demand is soaring, and it's really not so much that this new economy is more water intensive, just to say some of the first or second industrial revolutions around textiles or steel mills or pulp and paper.

It's really more about where the data centers and chip fabs are located is the biggest issue. The AI ecosystem, which is data centers it excludes mining, but data centers, power, and semiconductors will need about 30 trillion liters of water each year by 2050.

That's a 130% increase in water demand. Kind of frame it for everybody on the call, that's one Lake Mead a year in the western part of the US, or it's 12 million Olympic swimming pools.

It's a significant amount of water. The interesting finding was that data centers, the actual direct use, is not really the culprit.

It's only 4% of the water that's needed. The other 96% is power and chip fabrication, which is predominantly actually power driven, but chip fab is set to grow by roughly 600%.

That was probably one of the biggest takeaways. I think the second, and I don't like to be Chicken Little, the second point is we can solve the problem, and we have the technology and solutions to manage the demand today and quite frankly offset the 30 trillion extra liters that we need.

That's largely through water reuse, and I talked about in my opening remarks what we're doing in Los Angeles with reuse water there to help recharge their aquifers, and also leak mitigation. These are not hard things to do.

They're hard to implement. They're not hard things to do, though.

Almost 30% of water that's generated today, fresh water to send out to businesses, industry, and residences, gets leaked into the ground. We have solutions to solve those problems, like the project we talked about in the last call with Amazon.

Maybe one example I'll leave you with as I wrap this up is in Arizona, we were out there a few years ago, Intel and the city of Chandler have partnered together, we need much more public-private partnerships. 90% of the reject water that they generate So, when you have to provide ultrapure water in chip fabrication, your reject water is very high to get to that purity.

All that reject water, Intel invested capital and OpEx to build a recycling plant that they handed over to the city to run and manage, and 96% of that water is being reused. We need more of that at scale to solve the problem.

Again, the solutions there, it's just about getting the stakeholders at the table early in the data center planning, where we talk mostly about energy, we've got to talk about water. Thanks for the question.

Maybe, I think the second part of your question I'll answer, for us, it really inside the four walls of the data center, yes, we use some business, but it's really outside the four walls, and it's largely in our WSS segment around mining, around power generation, and around chip fabrication is where you're going to see the growth within Xylem.

Appreciate it. Thanks very much.

Thank you.

Thanks for your questions. We'll wrap it up there, and thank everyone who joined today.

As always, we appreciate your interest in Xylem. All the very best.