Xylem Inc.

Good day everyone and welcome to Xylem's second quarter 2026 results conference call. All participants will be in a listen-only mode. Should you need assistance, please signal a conference specialist by pressing the star key followed by zero. After today's presentation, there will be an opportunity to ask questions. To ask a question, you may press star and then one on your telephone keypads. To withdraw your questions, you may press star and two. Please also note today's event is being recorded. At this time, I'd like to turn the floor over to Mr. Gregory Giametti, Senior Vice President, Investor Relations, and FP&A. Please go ahead.

Thank you, Operator. Good morning, everyone, and welcome to Xylem's second quarter 2026 earnings call. With me today are Chief Executive Officer Matthew Pine and Chief Financial Officer Bill Grogan. They will provide their perspectives on Xylem's second quarter results and discuss the third 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 investor section of our website. A replay of today's call will be available until midnight August 11th and will be available for playback via the Investors section of our website under the heading Investors Events. Please turn to slide two. We will make some forward-looking statements on today's call, including references to future events or developments that we anticipate will or may occur in the future. 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 three. 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 made on an organic and or adjusted basis, unless otherwise indicated. And non-GAAP financials have been reconciled for you and are included in the appendix section of the presentation. Now, please turn to slide four, and I will turn the call over to our CEO, Matthew Pine.

Thank you, Greg. Welcome to the team. It's great to have you with us today. And good morning, everyone. Thank you for joining us. Across our markets, we're seeing a clear theme. Both utilities and industrial customers are placing greater value on comprehensive water solutions that help improve resilience, performance, and efficiency. Over the past several years, we've been intentionally positioning Xylem for this moment, and today that strategy is increasingly taking shape. Municipal remains a core strength and a resilient foundation for our business. At the same time, we've been increasing our exposure to high-growth industrial verticals where our technology, Services and water expertise create greater value for customers. This evolution is being driven by three factors. First, more industries are relying on water to support quality, reliability, and operational performance. Second, the AI ecosystem build-out is increasing the strategic importance of water across a broader set of end markets. And third, our portfolio actions are sharpening our capabilities around the markets where we see the strongest long-term growth in value creation. One of the clearest trends we see is that customers increasingly want simplicity. They are looking to work with a strategic partner that can help them manage growing complexity around regulation, operational resiliency, and risk management. We've seen this play out in a number of engagements this year, from the expansion of our long-term partnership with Dow, which became the largest contract in our company's history, to our recent win with one of the world's largest chemical companies. In this engagement, we were selected over a long-term incumbent to secure a 20-year commitment. This opportunity brings together our advanced treatment technology, operations, maintenance, and digital monitoring under a single integrated model. Importantly, this momentum reflects the stronger industrial platform we created through the Avoqua acquisition, which significantly expands our capabilities across treatment, reuse, and services. deepening our presence in attractive industrial end markets. That brings me to the second area which we documented in the Watering the New Economy report we released at Davos in January. Water will play an increasingly strategic role in the AI ecosystem. As AI-related infrastructure expands from data centers and semiconductors to power and mining, access to reliable water is becoming increasingly important. We're already supporting data centers through wins with hyperscalers, HVAC OEMs, and infrastructure partners, and this year's revenue is expected to increase by approximately 200%. However, this is only part of the story. We view data centers as an early indicator of a larger opportunity across the AI ecosystem, where water is increasingly becoming a critical input to infrastructure development and industrial growth. and over time we see this same value proposition extending into additional verticals such as food and beverage and life sciences, where water quality, reliability and sustainability are also essential. To align our business with these growth drivers, we have actively reshaped the portfolio, sharpening our focus through more than $400 million of investitures while acquiring assets that expand our ability to serve customers in high growth markets. The recently closed Trios acquisition strengthens the intelligence layer of our portfolio to advance sensing and water quality capabilities that are highly relevant to industrial customers. We also recently signed an agreement to acquire Waterfleet, which expands our capabilities in mobile water treatment and strengthens our position across AI-related infrastructure markets. This is a services-led business with recurring revenue, established customer relationships, and strong commercial momentum, including a multimillion-dollar project supporting a hyperscalers data center build-out in Texas. And importantly, we're not investing ahead of hypothetical demand. We are aligning the portfolio with demand patterns we're already seeing in the market and where customers are already choosing Xylem to solve increasingly complex water challenges. At the same time, demand in our municipal markets remains healthy, supported by strong infrastructure spending and backlog executions. I'll now turn it over to Bill to take you through the details for Q2 and our updated guidance.

Thanks, Matthew. Please turn to slide five. We're pleased with the momentum we've built in the first half of the year. Our team stayed disciplined despite market volatility and delivered solid results that give us a strong base to build on. Demand remains healthy with our ending backlog at $5.3 billion and our book to bill for the quarter well above one. This was supported by the Dow order in WSS as orders were up 41% versus last year, with growth in three of our four segments. Revenue was up 1% in the quarter versus prior year, in line with expectations as strength in key markets offset a 27% decline in China and walkaway revenue of almost 2%. The team's operational discipline delivered quarterly EBITDA margin of 23.3%. up 150 basis points versus the prior year. The improvement was driven by productivity, price, and mix, more than offsetting inflation and lower volume. Water infrastructure led the way with strong leverage in North America transport growth. We also achieved record quarterly EPS of $1.46, a 16% increase over the prior year. Net debt to adjusted EBITDA increased 0.8 times, and many others, driven by our opportunistic share repurchases in the quarter. Free cash flow was strong in the quarter, driven by higher net income partially offset by outsourced water contracts. And the teams continue to make progress with our working capital efficiency metrics. Let's turn to slide six. For measurement and control solutions, in the quarter, book to bill was below one, but backlog remained at roughly $1.2 billion. Orders were up 2%, Thank you for joining us. With recent project delays in electric metering, we are bringing down our outlook for the MCS full-year performance to low single-digit revenue versus the prior year. The pipeline is strong and long-term electric demand remains healthy, but affordability concerns and a more cautious capital spending environment ahead of upcoming elections have slowed down near-term investment. We continue to win more than our share of the market and expect sustained growth in the years ahead. Thank you for joining us today. EBITDA margin expansion was outstanding for water infrastructure at 480 basis points, with productivity, mix, price, and volume more than offsetting inflation and investments. In applied water, orders were up 9%, and book-to-bill was well above 1%, lifted again by data center wins. Data center orders in Q2 were up over 300%. Revenues were up 3% versus the prior year, primarily driven by strength in U.S. commercial buildings, offsetting softness in the residential and market and China. EBITDA margin was slightly below expectations, down 50 basis points year over year, driven by inflation and volume mostly offset by productivity and price. Finally, water solutions and services saw significant orders growth due to its largest order ever in April. and approximately $850 million 23-year outsourced water projects. Revenue increased 1% year-over-year, driven by capital projects, including the impact of the finalized Dow contract and strength in dewatering. Segment EBITDA margin was 25.3%, up 90 basis points versus the prior year, driven by price, mix and productivity, offset by inflation and lower volume. Now let's turn to slide seven for our updated full year and third quarter guidance. We are narrowing our organic outlook against the prior guide with MCS electric project delays impacting the near-term outlook. Full year reported revenue is now expected to be roughly $9.2 billion, which delivers revenue growth of approximately 2%, while organic revenue growth will be in the 2% to 3% versus prior guidance of 2% to 4%. EBITDA margin is expected to be 23.1% to 23.5% versus the prior guide of 22.9% to 23.3%. This represents 90 basis points to 130 basis points of expansion versus the prior year, driven by productivity, volume, and price more than offsetting inflation as well as investments in the business. Also, there is no material impact to our projected results from recently announced changes and Tariffs or Tariff Refunds. Our strong first half performance along with the benefits from share repurchases and higher margins more than offset the revenue hit when from electric metering delays and gives us confidence to raise the EPS range from $5.35 to $5.60 to $5.55 to $5.70. Cash flow generation was strong in the first half and we remain on target to achieve our low double-digit free cash flow margin for the year. Now drilling down on the third quarter. We anticipate revenue growth will be flat on a reported basis and up roughly 3% organically. We expect third quarter EBITDA margin to be approximately 23.5 to 24%, which is up 30 to 80 basis points driven by price realization, productivity gains and higher volumes. These results will yield third-quarter EPS of $1.42 to $1.47. We are exiting the first half of the year with strong demand and in a position of strength. Our balanced outlook reflects our strong commercial position, the durability of our portfolio, and impacts and benefits from our simplification efforts. We also continue to monitor broader market conditions and volatility, including the Middle East conflict, changes in tariffs, and other inflationary pressures. Overall, our expectations for this year remain extremely positive as we build momentum to a strong fiscal year in 2027. With that, please turn to slide eight, and I'll turn the call back over to Matthew for closing comments.

Thank you, Bill. Stepping back from the quarter, I think it's important to keep sight of what's driving demand across our markets over the longer term. We continue to see healthy demand for water infrastructure investments as the underlying need to modernize and maintain water systems remains strong. At the same time, the growth of AI is making water a more strategic input across a broader ecosystem, driving demand from semiconductors and power generation to mining and other critical industries. Beyond AI, we see similar opportunities emerging across high-growth industrial sectors such as food and beverage and life sciences, where water is increasingly central to quality and operational performance. These trends are creating demand opportunities across the markets we serve and reinforcing the value of the capabilities we have been building. As we position Xylem for the future, we remain focused on strengthening our portfolio, our capabilities, and our leadership team. Recent leadership changes reflect that ongoing focus, and I'd like to recognize Meredith and Joe as they take on their new roles while also thanking Mike for his many contributions to Xylem and wishing him the very best. Across the organization and portfolio, the strategic decisions we're making today are expanding our ability to serve customers, increasing the quality of our growth, and positioning Xylem to create greater value over the long term. And now let's open up the call for your questions.

We will now begin the question and answer session. To ask a question, you may press star and then one on your telephone keypads. If you are using a speakerphone, we do ask that you please pick up your handset prior to pressing the keys to ensure the best sound quality. To withdraw your questions, you may press star and two. Again, that is star and then one to join the question queue. We'll pause momentarily to assemble the roster. And our first question today comes from Dean Dre from RBC Capital Markets. Please go ahead with your question.

Thank you. Good morning, everyone.

Good morning, Dean. Hey, Dean.

Hey, love to put the spotlight on applied water and that organic revenue growth of 9%, nice upside there. And I know you've talked about the data center growth and the 300% and the orders, but can you just kind of flesh out for us that 9%, you know, what were the key industrial non-municipal drivers there? and kind of what the outlook is for the balance of the year.

Yeah, Dean, thanks for the question. Primarily it was, I would say, in applied water it was largely data center driven, although in North America our commercial building services business has done well across multiple verticals. You know, data centers remain a very attractive growth area for us and we expect our exposure to continue to increase over time. And like we said in the prepared remarks, we expect revenue to be up 200%. You know, this year, and we'll probably be exiting this year about 2% of our revenue tied to data centers. But, you know, I think also I just mentioned, and maybe we'll get into it later, our acquisition of Water Fleet, which is not in the applied water business, but in the WSS segment, also gives us more exposure into that part of the marketplace as well.

Yeah, I did want to put the spotlight on capital allocation, just really balanced here. We like that water fleet deal and its positioning. Maybe just step back and talk about the opportunities in the outsource contracts. The Dow has got a milestone deal for you all, but it does sound like there's more to do. This was the whole premise of the Evoqua deal to begin with. What can you talk about in terms of that pipeline for these contracts?

Yeah, we have multiple contracts, but built-on operates are obviously a big part of that, as well as capital and services. But let me just maybe first say that, you know, municipal does remain a source of strength for us and a core part of our business. But what's changed is that we've expanded our capabilities and really increased our participation through the Evoqua acquisition, especially in high-growth verticals like high-tech power, life sciences, and things of that nature. So, you know, we view it as complementary businesses. to municipal. But maybe a couple of examples that I would highlight, Dean, that are kind of in this, you know, build on operator capital service type of a deal. We recently won a job in the lithium battery space. So we secured a win with the world's largest lithium battery cell manufacturer. We developed a solution to treat the recycling of really a novel wastewater system. It includes, I would call it cutting edge wastewater treatment and really took the entire treatment training, including our most recent acquisition of Baycom, the zero liquid discharge asset that's helped us kind of have the complete front to back part of the treatment training. So, you know, that's a really big win. The second I would point to is a data center in Pennsylvania. We're finding, not all the time, but sometimes data centers are having to secure additional water outside of mini water through river streams and wells. and we're treating settled river water and bringing that into a state-of-the-art facility to make sure that they've got the quantity and the quality of water that they need.

That's great. Thank you. Thank you.

Our next question comes from Mike Halloran from Baird. Please go ahead with your question.

Good morning, gentlemen. Good morning, Mike. Let's start on the MCF commentary and just kind of help frame how you're thinking about things. You know, the electric piece sounds like there were some push-outs. What's going on there? Any change in thought process from those customers on a medium to long-term horizon? And then maybe contrast that with the water utility side of things, all else equal, what you're seeing more on the water side. As we move to the back, have any change on that side and how you think about what that trajectory means for out years?

Yeah, Mike, you know, if we start just our revenue takedown from four to three on the high end is really all around MCS. And that's really directly attributable to the slowdown in electric meter deployments. We talked about affordability concerns are more cautious capital spending environment ahead of upcoming elections. have just slowed down the near-term investment cycle. We've really seen politicians take a hard stand on electricity rate increases and utilities have pulled back in pockets their short-term investments to compensate. I think, again, we continue to gain share versus competitors as we look at our bid and win rates and do expect this to be a healthy market in the years ahead, primarily driven by the ongoing AMI 2.0 refresh. But again, the near-term pullback is creating a little bit of pressure for us. But to your point on the water side, we actually continue to see strength. Order activities really positive and customer engagement is really constructive. Our funnel is up about 30% versus last year. Water orders have been up double digits in both the first and second quarter, and we expect that to continue into the second half, helping offset some of the declines we're going to see on the electric side. and expect water to be up about low single digits for the year with a strong second half.

Thanks for that. And then maybe some thoughts on orders more holistically and how you're thinking about things from here. The treatment side of things that seems concentrated overseas and intentional. What's the run rate for the U.S. piece on the infrastructure side? And then maybe just put all this together between the applied comments that Dean was talking to, some of your 80-20 initiatives, what you just mentioned on the water, timing on the electric, however you want to answer the infrastructure piece. Are we looking at something more normalized as we exit this year from a growth perspective relative to how you think about long-term growth for Xylem?

Yeah, definitely. Maybe if I started at a high level, you know, revenue progression through the years is generally in line with the exception of the electric metering delays. Yeah, we said we're flat in the first quarter, we're up 1% here in the second quarter. Expectations are for three here in the third, and then we're going to exit the year in the fourth quarter at mid-single digits. So I think we're building momentum leading into next year, and if you break it down by segment, Matthew highlighted again strength and applied water. They've had really strong orders consistently with book to bill above one for the last several quarters. On top of the data centers, we really see resiliency in the U.S. commercial building space and expect them to continue to build backlog here in the second half leading into a strong 27. To your point, water infrastructure, even with the China headwind and some of the 80-20 walkaway on the treatment side, we've built backlog in the first half. and expect positive orders growth here in the second half. They'll finish the year with positive book to bill and again with strong momentum leading into next year. Again, with a lot of the 80-20 walk away and the China comp behind us. WSS obviously has had a phenomenal first half of the year, but it's always going to be lumpy. We talked about just the shift in outsourced water and the funnel that's creating across a variety of different end markets. really excited about that. And the backlog that they're going to end with this year puts us in a strong position. And again, my commentary around MCS, you know, I think we have here a little bit near-term mitigation on the electric side, but water momentum continues to build, right? We'll see a positive book to build in the second half with high single-digit orders growth. So I think there's lots of momentum across the organization and continues to give us confidence in the outlook from a Next year.

Thanks, guys. Appreciate it. Thanks, Mike.

Our next question comes from Nathan Jones from Stiefel. Please go ahead with your question.

Yeah, good morning. This is Adam Farley on for Nathan. Maybe just following up on some of that commentary, maybe first on water infrastructure, maybe could you speak to the underlying treatment market X, the 80-20 actions that you're doing?

I think positive overall. I mean, even with the 80-20 actions and some of the projects where we've increased price, you know, we've had a very strong win rate. So I think the treatment market here in the U.S. has been really positive for that business, and I think we expect that to continue in the second half. A lot of the challenges there, again, relative to China and different decisions we've made on our bidding strategy around tenders and different emerging markets. So I think that business has got a lot of momentum here as we progress in the back half.

Thank you for that. And then maybe switching gears, you know, are you seeing any signs of supply chain tightness anywhere in the portfolio? Do you think there's any need to increase maybe safety stock for electronic components?

I mean, it's something we review regularly. really monthly in our leadership meeting. I don't think there's anything pressing right now that we already haven't taken action on. Obviously, we look at rare earth and we've got most of our businesses about a year of supply we pulled in from a safety stock perspective. Obviously, we've made some investments and I might have highlighted this on a prior call on chips and wafers, looking to kind of get about six months of supply there. This is more of a safety stock buffer. But outside of those two areas, I would say in general, were pretty balanced and we do review it, you know, like I said, every month.

All right, great. Thank you for taking my questions.

Thanks, Adam.

Our next question comes from Andy Kaplowitz from Citigroup. Please go ahead with your question.

Good morning, everyone.

Morning, Andy.

Mountainville, strong quarter margin, particularly in water infrastructure. So maybe you could just double click on what were the main drivers of The strong performance there. Did you sort of hit another glide path in terms of a 20 performance? And then I know you want to be conservative, but Q3 up 30, 80 basis points, Q2 you did 150. So maybe you can give us some more color on the puts and takes you see for that Q3 margin.

Yeah, you know, if we start with water infrastructure, again, they had a phenomenal quarter and they continue to be the leader in margin expansion for the organization. I think they're definitely seeing increased benefits from their simplification efforts. They've kicked off 80-20 and have been doing this now for over two years. They've done a really good job optimizing their overhead to more effectively and efficiently serve their customers. And then again, they've been really purposeful with their go-to-market strategies to be selective on bidding projects where they can create the most value. A little bit to my treatment commentary a little bit earlier. That's weighed a little bit on their orders and sales growth, obviously. But that's short term. I think the focus that they have will help them better lever as they get back into their mid-single-digit growth algorithm exiting the year with positive performance here in Q3 and Q4. We continue to see margin opportunities within the segment, though. They've made solid progress, and I think they still have operational productivity and things that they're going to be able to leverage. And the 80-20 benefits that they've driven on the margin side, you're going to see them inflect on the growth side particularly in transport where they've made resource allocation decisions to refocus certain areas of their commercial and engineering teams to drive incremental growth. They did have a little bit more transport mix within the quarter that helped overdrive relative to our expectations. That will balance a little bit, Andy. I think that's part of the Q4 sequential challenge that we'll have from a margin perspective. Overall, still really excited about their margin outlook.

It's helpful. And then I think we all know that WSS is a bit lumpy. And we talked about the shift toward outsourced water. But as you know, Evoqua before you bought it was big in end markets that We've been starting to talk about microelectronics, mining, life sciences. Do you see more incremental projects there in general? What are your customers doing and saying about that so WSS overall could continue to improve in growth even outside of outsourced water?

Yeah, Andy, it's Matthew. Like we said coming into the year, there were some project delays coming from tariffs and they were creating slower decision making and Really some re-scoping of projects that happened last year that really pushed out that business some decisions at least probably, I'd say, three to six months. So, you know, momentum is picking up and the business will be back at mid-single digit growth in the second half. We have a very active funnel and a strong backlog position, you know, as noted by obviously the Dow when we highlighted, you know, on the last call and then another large order that we just received a few weeks ago. were one of the world's largest chemical companies. Long-term, we do see a creative growth coming from high-growth verticals that mainly sit within the WSS segment. What we're calling high-tech, I would say that's kind of defense, semiconductor, data centers, power. Seeing a big pickup in power where the energy mix over the past couple of years has actually expanded versus contracted, which has helped. Plus, if you think about the power Great. Appreciate the call.

Our next question comes from Scott Davis from Mellius Research. Please go ahead with your question.

Scott Davis I want to just talk a little bit about 80-20. And I'm just kind of curious to hear your view on how it evolves as it scales. And what I mean by that is that you spent the first couple years doing kind of basic 80-20. There's a fair amount of walkaway revenues. and related to that. By the time you get to 2027 though, do you still have walkaway revenues or are you at the point then where you're back to a more traditional 80-20 where you've got your customers segmented and folks kind of, you know, that stuff's kind of already gone, right? And so you're playing offense more than playing defense, if you know what I'm saying?

Yeah, yep. Yep, no, definitely. I think We've highlighted this year, obviously, we've accelerated some of our actions, and this will be the height of our walkaway revenue at close to 2%. I think next year will be significantly lower, just as we've pretty much gone through a majority of the portfolio. So I agree, kind of like 80-20 as an element of fundamental and operating model for us is taking hold, though. Yeah, we're kind of midway through, you know, two and a half years into the transformation, and each quarter we take an additional step at simplifying and embedding it in their culture right so it's just not a tool set and right highlighting walk away revenue and getting the margin increase from it you know it's really how we're going to drive growth longer term um you know and i think we highlighted some of the conversation just as we've implemented the tool set and areas of focus where businesses are shifting resources and developing strategies to drive growth around underrepresented or under penetrated areas within U.S. transport or the data center story or mining or outsourced water offerings. We're able to increase our capabilities and the resources we're throwing at those, which I think will be a catalyst for incremental growth as we get into 2027. So I think you're exactly right. We're shifting from it being a significant lever from a margin perspective. We're going to wash through the majority of our walkaway revenue here this year. and then next year it's all going to be how it's enabling our growth algorithm.

Okay, that's helpful. And then just switching gears to M&A and potential things to do with your balance sheet. We've seen some revaluation lower on water assets, obviously public assets, and it's hard to know what's going on in private markets necessarily, but typically they'll follow at some point. Have you seen opportunities out there or do you have a backlog of opportunities where you feel like the valuations are coming down to attractive enough levels where it makes sense, particularly given the fact you've revalued lower a bit too?

Yeah, that's a great question. I think it's a mixed bag. It kind of depends on the types of businesses that you're looking at. Scott, I would say in general, it's probably starting to soften a little bit. We're starting to see some signals, but I think in general, it's not aligned to where the market is. Okay.

Usually isn't, right?

Yeah. Private valuation is true.

Yeah. But look, we have a very... We have a very active funnel. We've talked about deploying a billion dollars of capital towards M&A a year. We're tracking to that goal, and we've got a really healthy pipeline. So we're excited to continue to deploy capital holistically, but specifically towards M&A, accretive M&A.

Fair enough. Okay. I'll pass it on. Thank you, guys. Appreciate it.

Thank you.

Our next question comes from Andrew Biscaglia from BMP Paribas. Please go ahead with your question.

Hey, good morning, everyone. Good morning. Just wanted to check in some of the more shorter cycle areas within Xylem. Did you see a noticeable pickup as the quarter progressed in some of your more core, you know, pump and valve areas? I missed the first part of the question. Sorry. Just asking if you saw a more noticeable pickup in your more short cycle pump and valve areas as the quarter progressed.

No, I don't think so. I mean, our short cycle exposure for us is primarily within the applied water business. You know, that's been fairly consistent on the items outside of the data centers. Really strong in the U.S. Europe kind of bumping along a little bit. You know, our small resi exposure we have, it was probably the one area of weakness that we call out with an applied water. So I think relative to increase in industrial production, not a lot of our business, you see an immediate inflection.

Got it. And, you know, a little bit of confusion on the China, some of your China comments, just that, you know, we had in our head, I think that China was a pretty small portion of your total sales. Yeah, can you help us understand, you know, the nature of the declines and what your commitment is to China, you know, maybe as you reevaluate or you continue to evaluate 80-20 as a strategy?

Yeah. No, I think our commentary with China has been pretty consistent over the last few quarter. It remains a challenging market for us, both on the orders and revenue side. Like we said, Q2 orders were down over 30%. Sales were... down almost 30%. And again, I think that's primarily reflecting ongoing economic headwinds within water infrastructure and applied water. Some of that is the broader economic with the Chinese government investing less on infrastructure and shifting their dollars into AI and the life sciences. Again, we've talked about significant competition within the market that's put pressure. And then again, relative to 80-20 and us being more selective on the quality of business that we're bidding there. Thank you for joining us. We've right-sized that market. I think we're being selective in the areas that we're investing and trying to target things where we can differentiate with our technology. Again, it's the world's second-largest economy. So it's someplace here in the near term that we want to participate in, but we consistently evaluate that assumption.

Thanks, Bill. Sure. Our next question comes from Joe Giordano from TD Cowan. Please go ahead with your question.

Hi, good morning. This is Chris Gringa on for Joe. Thanks for taking the questions. The NCS outlook continues to rely on a fairly substantial fourth quarter step up. Could you elaborate on what you've seen that increases your confidence in the trajectory particularly given that Q2 growth was relatively modest at 2% organic. Thank you.

Yeah, again, I think the Q2 growth was really strong growth on the water side offset with some of this electric metering delay. So I think what gives us confidence is we've seen here in the first half double-digit orders growth on the water side you know what we have line of sight to with our flow business and where that's tracking has been strong all year and conversations we've had with customers on the balance of the projects that we need to see the sequential improvement yeah we're close to signing again we'll be booked to go positive in the second half with you know orders in the high single-digit range on the water side so we're excuse me, overall with double digit orders growth on the water side. So I think all the proof points are there outside of the challenges we're seeing on the electric side.

Thank you. And you've highlighted momentum in digital offerings and we've heard positive feedback around early adoption of Data Lake as utilities are leveraging that phase of AMI meters. Could you talk about what you're seeing in customer engagement since the launch of that product? and whether tools like Data Lake are accelerating adoption of higher value offerings such as VIEW and the pathway that you're seeing from metering deployments to recurring software revenue?

Yeah, we definitely have seen a pretty fast pickup in the VIEW platform through our joint venture with Adrica out of Valencia, Spain. We've been at this in earnest the past really probably two and a half to three years, and we've got significant momentum. We doubled the business last year. We're on pace to grow that business significantly in 2026, probably close to 30% to 40% as we sit here today. I would say that as I travel around the world and I talk to lots of different CEOs of municipalities, it solves their biggest pain point. Really, it's about they've got to your point about a data lake, they've got several applications that they're trying to manage that are discreet and bespoke, and they want to bring them into a common platform and then put that into a data lake so they can drive insights off the data. And so that's what really we're coming over the top of their applications to do. We've had some significant wins over the course of the past, really, I'd say three months that really continue to bolster our position with utilities Another area, I mean, this platform is scalable beyond municipal. We are talking to other industrial companies and other verticals where this platform can also scale. So we obviously wanted to get rooted in municipal and get momentum there, but also we're looking to expand the platform into the industrial sector as well. Thanks very much. Thank you.

And with that, ladies and gentlemen, we'll be concluding today's question and answer session. I'd like to turn the floor back over to Matthew Pine for any closing remarks.

Thanks for your questions today, and thank you for all that joined. As always, we appreciate your interest in Xylem. All the very best. Take care.

And with that, we'll conclude today's conference call. We do thank you for attending today's presentation. You may now disconnect your lines.