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Welcome to Xylem's Third Quarter 2025 Results Conference Call. [Operator Instructions] Please note that this event is being recorded. I would now like to turn the conference over to Mr. Keith Buettner, Vice President of Investor Relations and FP&A. Please go ahead, sir.

Thank you, operator. Good morning, everyone, and welcome to Xylem's Third 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 third quarter results and discuss the fourth quarter and full year 2025 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 1 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, November 11, 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 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 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. I'm pleased to share that the team delivered another great quarter, continue our momentum with disciplined execution, driving strong results across the business. Revenue grew in all segments and most end markets with double-digit growth in Measurement and Control Solutions and Water Solutions and Services. We also achieved record quarterly EBITDA margin north of 23%, expanding 200 basis points year-over-year and delivering 23% EPS growth. It's a great performance by the team, supported by healthy demand. . While orders were down slightly against tough comps, we saw a notable growth in Measurement and Control Solutions with strong performance across smart metering, underscoring the differentiation of our core portfolio. We continue to see strong demand for our mission-critical solutions across all segments. These results reflect the impact of our commercial and operational momentum as well as the benefits of our ongoing simplification efforts. Our 80/20 implementations continue to drive margin improvement and focus our resources on the highest value opportunities. And we're also moving even faster than anticipated, especially with the restructuring component of our operating model transformation. These changes we've made to culture, processes and structure are enabling faster decisions, clear accountability and better service. The team's impact on increasing quality of our customer experience is a great example. We've again set new Xylem benchmarks for on-time performance. That serves to strengthen our customer relationships and reinforce our reputation for reliability. Solid execution is deepening trust with our customers. At the same time, it's expanding margins, and they see the benefit in how we partner with them on innovation because 80/20 focuses our energy and resources on their most important challenges. As we've often said, 80/20 isn't a cost-out tool. It's about resource allocation, helping us redeploy capacity to the areas of our portfolio and customer base where value and impact are greatest, which is aligned with our strategy of portfolio optimization and disciplined capital deployment. It's that discipline and mindset that led to divesting the international metering business, which we announced earlier this month. The sale concentrates our focus on AMI technologies in markets where we have the strongest differentiation and are best positioned for profitable growth. Turning to our outlook. Given our performance and resilient market demand, we're raising our full year guidance for revenue, margin and EPS. Our guide reflects confidence in the team's ability to deliver our commitments even as we manage through continuing macro uncertainty. We expect our momentum to continue through the end of the year and beyond, and we're solidly on track to deliver our long-term financial framework. With that, I'll turn it over to Bill to walk through the quarter's results, our financial position and our updated outlook in more detail. Bill?

Thanks, Matthew. Please turn to Slide 5. We're very pleased with the strong quarter and year-to-date progress. Ongoing simplification efforts have improved our organizational agility and risk management effectiveness, positioning us to navigate uncertainty with confidence. We anticipate further benefits as we continue advancing our simplification initiatives through our operating model transformation and fully leverage the advantages of our 80/20 implementations. Demand across the business is healthy, and our year-to-date book-to-bill ratio remains near 1. Orders were down 2% in the quarter, but against tough comps with softness in China mostly offset by growth in the U.S. and Western Europe. Backlog remains robust, closing the quarter at approximately $5 billion. Revenue growth was strong at 7% in the quarter, ahead of our expectations, driven by outperformance in MCS and WSS. North America was particularly strong in the quarter, while we grew across most regions and end markets. EBITDA margin expanded 200 basis points year-over-year, driven by productivity, pricing and volume, more than offsetting inflation, investments and mix. Increased operational discipline continues to come through in our results, with Q3 EPS of $1.37, up 23% versus the prior year. Year-to-date free cash flow was down modestly, primarily due to outsourced water projects and restructuring payments, mostly offset by higher net income and improved net working capital. Net debt to adjusted EBITDA stands at 0.4x, reflecting our strong balance sheet and capacity for continued investment. Let's turn to Slide 6. We had fantastic results across the segments, starting with Measurement and Control Solutions. Demand for our AMI solutions remains robust as orders grew 11% organically with strength across water and energy metering. Backlog remains healthy at $1.5 billion. Revenue was also up 11%, driven by energy metering demand and backlog execution. EBITDA margin was up 60 basis points year-over-year to 21.8%, driven by productivity, price and higher volumes, offset in part by mix and inflation. As Matthew mentioned, at the end of the quarter, we signed a definitive agreement to sell our international metering business. The business, which includes water and heat meters generated around $250 million of revenue in full year 2024 with a consolidated adjusted EBITDA margin of less than 10%. We expect to close in early 2026 with a selling price of $125 million. This will drive a 100 basis point margin improvement in the MCS segment on a run rate basis. The divestiture will allow us to focus on the North American meter market where we have substantial competitive differentiation with the only FCC-licensed proprietary bandwidth on our FlexNet fixed network, serving water, gas and electric utility customers. In Water Infrastructure, demand remains strong across most regions and end markets. Book-to-bill was above 1 despite orders declining by 2% against difficult comps. Significant softness in China and funding timing from the AMP8 cycle in the U.K. were the primary drivers of the decline. Revenue grew 5%, led by strong demand in transport and treatment and growth in most regions with double-digit growth in the U.S. EBITDA margin expanded a robust 400 basis points to 24.4%, driven by productivity, price and mix, partially offset by inflation, volume and investments. And the team continues to get significant traction with our 80/20 efforts as treatment starts to replicate the success we have realized in transport. Applied Water continued its turnaround in the year with orders growth in the quarter just edging into positive territory, making it its 7th consecutive quarter of gains. The result was driven by strength in the U.S., mostly offset by a significant slowdown in China. Revenue increased 1% with growth in both the U.S. and Western Europe and strength in Building Solutions; again, partially offset by China. EBITDA margin expanded 310 basis points to 21.7%, driven by productivity, mix and price, partially offset by inflation, investments and volume. Applied Water continues to gain traction from 80/20 as it accelerates both productivity and growth. And in Water Solutions and Services, orders were down 11% against really tough comps, driven by timing of capital projects, though year-to-date book-to-bill remains above 1. Revenue grew 10% with contributions from capital projects, dewatering and services. EBITDA margin expanded 160 basis points to 26.3%, reflecting strong execution on price, volume and productivity, partially offset by inflation, mix and investments. Let's move to Slide 7. We're updating our annualized tariff outlook based on the current rates, noting the fluid nature of the impacts. As of today, our updated annualized impact is roughly $180 million with the inclusion of additional Section 232 derivative tariffs. While there remains uncertainty around final timing and tariff levels, we are confident that the pricing actions and available supply chain levers will allow us to substantially offset the current impact, though we expect a slight margin dilutive effect. We have not seen a meaningful volume impact on the business due to tariffs, but decision-making has taken a bit longer than normal given the uncertainty. Let's turn to Slide 8. Given our strong year-to-date performance and execution momentum, we are again raising our full year guidance. We now expect full year revenue of roughly $9 billion, representing 5% to 6% total growth and 4% to 5% organic growth. EBITDA margin is expected to be 22% to 22.3%, reflecting 140 to 170 basis points of expansion versus prior year, up from the previous guide of 21.3% to 21.8%, primarily due to an acceleration of our restructuring and simplification efforts. We are further raising our EPS guide to $5.03 to $5.08, up from $4.70 to $4.85. Free cash flow margin expectation remains at 9% to 10%. For the fourth quarter, we expect revenue of approximately $2.4 billion with 2% to 3% organic growth. And as a reminder, we grew 7% in the fourth quarter of 2024. EBITDA margin is expected to be roughly 23% and EPS is expected to be $1.37 to $1.42. We have a strong trajectory as we close out the fiscal year. While there continues to be macro uncertainty, particularly around tariffs and FX movements, the team is doing a great job controlling what we can control and building a systematic process to deliver results. We have confidence in our ability to meaningfully outperform our initial guidance set out in February, supported by strong demand, backlog execution and accelerated benefits from simplification. Let's turn to Slide 9, and I'll turn it back to Matthew.

Thanks, Bill. Before we move to Q&A, I want to highlight some great work the team has done with Amazon and 2 of our large municipal customers on a couple of projects we announced during the quarter. They're a great example of how Xylem's leadership in digital water solutions positions us in a global economy being transformed by artificial intelligence. Together with Amazon, we're deploying Xylem's Vue advanced analytics in Mexico City on Monterrey, helping these cities save more than 1 billion liters of water each year. This partnership is a model for how hyperscalers and communities can collaborate to ensure water security for both businesses and residents. And it's a clear example of how our solutions are creating meaningful impact for customers and communities. That's only going to become more consequential as AI infrastructure expands. Attention is focused on data centers, which is understandable. Data centers consume a lot of water, so they present clear applications for water management and reuse solutions, but AI's water footprint is much, much larger. The whole AI value chain runs on water. Alongside data center build-outs, water demand is growing across key verticals like power generation, chip fabrication and mining for essential minerals. In examples like the work with Amazon in Mexico, we see the potential for water solutions that resolve the difficult trade-offs between economic growth and community well-being by effectively providing for both. As AI shapes a new economy, we're optimistic about the opportunity to have positive impact on both customers and on the communities that they serve, increasing water security for both. That optimism is built on both underlying macro trends and on solid foundations the team has been building, positioning Xylem for sustainable long-term growth. The word simplification can make it sound easy, but our strong performance over the last several quarters is a function of the team's dedication, drive and tireless execution. Our self-help initiatives, including 80/20, portfolio optimization and our operating model transformation are all delivering results. If anything, we're moving a little faster than expected. Overall, we have a positive outlook for the remainder of the year. We're well on track to deliver our long-term financial framework, and we are strongly positioned to drive sustainable growth and value creation over the cycle. With that, operator, let's open the line for questions.

[Operator Instructions] And your first question today will come from Andy Kaplowitz with Citigroup.

Matt and Bill, you're now expecting 140 to 170 basis points of EBITDA margin improvement for '25. I think your Investor Day algorithm has been 100 basis points per year. And obviously, segments such as Water Infrastructure and Applied have had substantial 80/20 benefits so far. So the obvious question becomes how much improvement is still left in the tank? Can you continue to get that 100 basis points off the higher base as you go into '26 and beyond? And is it time to start thinking about a higher potential '27 adjusted EBITDA margin versus your Investor Day target?

Great question. Just as a reminder for folks that may have not heard our Investor Day numbers, we had put out 4% to 6% growth with 23% EBITDA margin by 2027. Now to be fair, we did finish 2024 at 20.6%. So there was 300 basis points up to 20.6%. We're guiding, to your point, 22% plus for this year ahead of schedule. So there's likely some upside to our long-term targets. Right now, we're focused on delivering 2025 commitments. And quite frankly, working to dial in 2026, there's still a lot of noise out there, macro we're trying to digest. And internally, there's a lot of good things going on that we're trying to calibrate as well. And we'll have a lot more detail in February. But I would say we've made great progress. And I would -- Andy called this the first phase of our journey, and that was really around transforming our operating model, both around our culture, our processes and our structure. And this work never ends. It's always ongoing. But what we're trying to do in the next phase of our journey as we move out of Phase 1, we've taken enough ground into Phase 2, is to leverage that simplification that we created to drive our growth engine in what we call Phase 2. And some examples of that would be enterprise account management, targeted selling, especially with our A customers, customers we call raving fans, and to leverage what we've done in 80/20 to redeploy effort for innovation as well. So maybe the last thing I would also comment what I would call Phase 3 is getting after our long-term competitiveness by doubling down on some of our core franchises like North America metrology. Hence, you saw the divestiture of the international business, commercial services, our transport business, where we really have strong positions. So -- and M&A that aligns to our value mapping and leveraging the strong balance sheet that we have. So I would say that we have a lot left in the tank. There's more on margins. But more holistically, really just in our first phase of our journey and making good progress.

Very helpful. And then, Matt and Bill, you had difficult comparisons in Q3 in MCS, yet you still delivered 11% order growth. Is the strength broad-based in energy and water meters? How does that strength sets Xylem up for 2026 in that segment? Does it mean you have good visibility toward growth in both smart energy and water meters in '26?

Yes. I mean in MCS, overall demand is still healthy, right? Our pipeline is strong and the fundamental growth drivers for AMI adoption are still solid. We don't have a concern about funding here in the short term. That's been raised a little bit, and we have a long way to go on AMI adoption. We're still less than 50% there. We're through the deployment calibration phase, which took almost a year, but we sit with pretty strong backlog level at $1.5 billion, which is down versus last year, but reflecting a move towards a more normalization to historical levels kind of after the post-supply chain surge and this project redeployment phase. We're typically around 60% of the following year sales, and we're getting closer to that balance. This order strength in Q3, up 11%. It was across both water and energy meters. We have a really strong commercial funnel and continue to gain share with our largest 4,400 municipalities that account for about 80% of the AMI market. Q4, we've talked about all year. We think we're going to be back to a book-to-bill positive as we see some of the water meter project wins convert to orders and our energy funnel still remains robust. So Q4 is shaping up really well. We expected to be up double digits on the water side, making our water growth in the back half kind of mid-single digits. MCS sales will be up sequentially, too, from the third quarter to the fourth quarter. And the outlook for 2026 remains in our long-term framework of high single digits.

And your next question today will come from Deane Dray with RBC Capital Markets.

That was a really nice earnings quality this quarter between organic revenue incrementals and cash flow. So you can check the box there. Would like to hear a bit about the government shutdown. We're getting a lot of questions about that. Just kind of what are the ripple effects into -- from federal funding to state and local? Have some projects been delayed because of that? And just kind of what does that mean for the setup into '26?

Yes. On the government shutdown front, we haven't seen anything meaningful. Funding mechanisms have always been slow to move in general in this space, especially with the municipalities, and previously allocated funds will still make their way down to fund projects. So right now, we don't see any meaningful impact. In the near term, there could be a pause on EPA grant application reviews, but I don't see that, that's going to have any material impact on Q4 or, quite frankly, on the full year of 2026. So all in all, we feel good about the municipal resilience, not only in the U.S. but more broadly across the globe.

Really good to hear. And I appreciate the answer to Andy's question about the 80/20 implementation and entering Phase 2. But can you just step back on 80/20 because there was such high expectations, and there are still high expectations about the fundamental changes that are happening at Xylem. Broadly, what inning are you in? Have all the businesses gone through their first implementation? And kind of where do you go from here in terms of further divestitures at the margin? Should we be expecting anything like that in the next couple of quarters?

Okay. I'll start us out here, Deane. 80/20 is, as you can tell by the results, really starting to take hold, almost 2 years into our transformation. And I would say that each quarter, the team continues to take another step towards what we call simplifying Xylem. So it's moving from a tool set to more of a critical piece on how we run the business, which is, in my mind, more cultural. So that's very strong evidence that things are progressing in a positive way. As I said in my opening remarks, it also provides this kind of, what I would call, a maniacal focus on resource allocation, which is really, really important for any company. So to answer your question more specifically, 80% of the business is in some phase of the implementation with our dewatering business globally, our analytics business and our treatment business, the most recent divisions to start the implementation of 80/20. Treatment being probably one of the bigger divisions we have so far to date going into the tool, and we'll see some meaningful impact to that division of our company. As you see from the results, we're moving with more speed, accountability, customer focus. One thing I talk a lot about is on-time performance and quality as metrics of the health of your company. And on-time performance with our A customers reached a record high, and it's nearing what I would deem best-in-class in terms of industrial companies performance to their customers. So maybe the last thing I would say, another proof point is just the margin improvement you're seeing in the legacy Xylem businesses with Applied Water and Water Infrastructure over the past several quarters. So maybe just one thing I just want to highlight for those listening. We're going to continue to walk away from revenue, Deane. We do have divestitures. We, obviously, will have just about 1% this year in divestiture and about 1% of acquisition this year, kind of almost washing. But obviously, the international metrology piece will happen next year. It is a core focus. We've talked publicly about $400 million to $600 million of things that we'll be pruning on the portfolio, and we're still kind of tracking there. But the walkaway business will be a little bit more in 2026 in terms of 80/20. It was just under 1% this year. It will be just over 1% next year. But just to remind everybody, that comes with higher quality earnings. And it's all about simplifying the business so we can really build the long-term growth engine and focus on our customers.

Your next question today will come from Scott Davis with Melius Research.

I'll echo the congrats, not just on the quarter, but it's been a really good couple of years for you guys. I just had to ask, Matthew, this is kind of a strange question, but you led in with culture, processes and structure. What do you specifically mean by structure? I think that can mean different things to different people. So looking for some explanation there.

Yes. So structure was really getting at -- we were -- prior to this year, we were kind of highly a matricized structure. So we pivoted to more of a -- we had a segment orientation, but more with discrete divisions under the segment, 16 P&Ls with discrete leadership GMs. And it just drives better accountability. I think the matrix structure served us well in the past, but going forward, just to drive better accountability, better empowerment, getting to a kind of a singular access around the segments and divisions, just enables us to make faster decisions. For example, in the prior structure, we would have 20 to 25 people sign off on a delegation of authority. Now we have 4 to 5. And so it just provides us the ability to be more nimble and make our colleagues' lives easier and make our customers happier with our service. And so those were 2, what I would call, pieces of voice of customer that we got 2.5, 3 years ago that we wanted to address.

That makes sense. And then your net debt to EBITDA, 0.4x, I think you mentioned. The -- pegs the kind of question on priorities in the next 12 months. And if you can talk to your M&A backlog or when and if you'd kind of switch to more of a buyback priority and just where your head is in that stuff right now?

Yes. No, it's a good question. We've always said kind of our priorities are, let's invest in the core. We like M&A. We think it will help us really grow the business in a positive way. Dividends, obviously, would be next. And then we've talked about opportunistic share buybacks. So that's kind of our approach. As I've mentioned in prior calls, we have put a really strong process in place. Before a couple of years ago, we were a bit more top-down in M&A. We're much more bottoms up, assigning targets to our segment leaders that are now focused maybe not equally, but for sure, focused on organic and organic in terms of growing the business. So we've got a very strong funnel, probably the most actionable funnel we've had. And it's largely because of the new process that we've put in place. So we'll continue to be very disciplined, look at things that are strategic fit, meet our hurdles. We've got such a great self-help story right now, Scott, that our real focus is on small to medium bolt-ons. We've talked about deploying $1 billion of capital a year, trying to create $60 million to $75 million of EBITDA. But I wouldn't rule out if there was something very strategic and transformational, we would definitely look at it, but that's not our intent. So our intent is about $1 billion of capital deployment towards M&A each year.

And your next question today will come from Nathan Jones with Stifel.

A couple of follow-ups on MCS for me. Bill, I think you mentioned in your answer to Andy's question that you're still in the kind of high single-digits framework for 2026. The book-to-bill so far this year is about 0.83, probably gets to 0.85 if you're close to 1 in the fourth quarter. And you have talked about burning off some backlog and backlog being at a more normalized level. I'm just wondering how the math works to get to high single digits for 2026 and why there wouldn't be maybe a little bit of a reset lower because you're not burning off backlog next year. So any additional color you could give on that would be helpful.

Well, I think the $1.5 billion that we're at right now, Nate, is still elevated relative to historical. So as we burn existing backlog and start to get to book-to-bill positive, I think that supports that high single-digit framework with -- we talked about the calibration of water getting back to a more normalized growth within that framework and some of the additional projects we have on the energy side that will layer in here over the next quarter or 2 gives us real confidence to get back there next year.

Great. I guess second follow-up on the margin profile in M&CS, 60 basis points of margin expansion. I think, I probably expected that to be a little higher. I think we're probably expecting the water mix to improve a bit and, obviously, some leverage on volume given the good growth. Maybe you can just talk about what the offsets were to the margin profile for MCS in the quarter and kind of where we should be longer term for that business?

Yes. I think, the biggest lever there has been the energy water mix. We talked about last quarter, obviously, the strong performance, there was a pushout in some of the lower-margin energy projects that we've talked about. I think it's calibrated and sequentially, margins for MCS should look fairly similar here with the energy water mix normalization getting back to historical levels later in 2026 with -- that business, though, with some of the structural changes they've made relative to 80/20, you see it come through with Applied Water and with Water Infrastructure. MCS has just been masked a little bit with this mix challenge. So we look for them to continue to expand margins into next year as mix normalizes and the second phase of some of their 80/20 simplification efforts pull through.

And your next question today will come from William Grippin with Barclays.

Just a couple of basic ones here, but you had a little bit of M&A spending in the quarter. I'm just wondering if you could provide some color on what that was for.

Yes, it's primarily associated with international metering divestiture.

Got it. And on that front, are you able to quantify sort of how accretive that divestiture could be to margin for the MCS segment?

Yes. In the prepared remarks, we talked about on a run rate about 100 basis points.

And your next question today will come from Andrew Buscaglia with BNP Paribas.

Just on the MCS margins related to the divestment, wondering how do we compare you guys versus your larger peers in that space? And I ask that in that can you get to or even above some of those peers that you comp to? And I think divesting that international piece gets you one step closer, but are there other things you think you can do? Or how should we think about that long term?

I think, Andrew, if we would bucket our margin profile, our core water business within smart metering is at or above our peer set. I think the dilutive nature is obviously the international metrology business that we're divesting. Within the energy piece, we've talked about as at a lower margin profile. Obviously, the team has done a phenomenal job of identifying opportunities to increase that over time, but there will always be a gap there relative to the technology differentiation and the end market applications. But right, our core water business, the profitability is significantly higher than some of our competitors and at some of the leading margin profiles that you're probably referring to.

Yes. Okay. Okay. That's helpful. And then, I was hoping you could sort of parse out where you're seeing demand pickup versus internal efforts to improve organic sales. If you could just run through some of the end markets and you talk about what was maybe a little bit better, a little bit worse than you expected demand-wise?

From an overall demand perspective, I would say if we ticked off, obviously, we spent a lot of time here just talking about, hey, resilient demand within MCS is still there relative to getting -- it's actually been in excess of our long-term framework here this year with the energy meter refresh cycle and then next year getting back to a combo of high single digits for both water and energy. Water Infrastructure, right, we continue to see resilient OpEx and CapEx demand. Transport has been really strong over the last few quarters. It was 5% growth against this quarter due to its -- mission-critical nature of its applications and gaining shares. The team has identified several different opportunities through segmentation, different regional opportunities where they're underpenetrated. Treatment also has had pretty strong growth as it executes its backlog and focuses on different areas of the portfolio that they have the best profitable growth outlook. They're doing a lot of portfolio and looking at different bidding practices to nail down where they have differentiation and go after those areas. Applied Water, we talked about continuing its growth streak with really strong performance in the Western world and within commercial buildings. They've seen along with the biggest headwind for Applied Water and Water Infrastructure has been China with double-digit decline on sales and orders for both segments. And just to frame kind of China overall for Xylem, it had about 2% headwind on revenue and orders growth within the quarter. So pretty material. It's a smaller part of the overall portfolio, but as that market kind of accelerated its decline from kind of a macroeconomic perspective and then the team is getting much more disciplined with the work that we're going after has created some headwinds. And then lastly, I'd say WSS, obviously, double-digit growth again. Continued strength with our outsourced water projects. That's ramped here over the last 2 years as they focused providing some really differentiated technology to some large customers, along with dewatering was up double digits again this quarter. So we've seen lots of strength across all 4 segments with the only area of watch we dial in on China. And then a little bit in our prepared remarks, just talking about large capital projects, nothing has been canceled, but things relative to conversion from our commercial funnel to an order is taking a little bit longer is maybe one area we continue to monitor.

And your final question today will come from Mike Halloran with Baird.

Here. First, when you triangulate into all the things you just said, Bill, and some of the comments earlier, is there anything to suggest about underlying dynamics in the marketplace where you would not be at least in the range for kind of normal-ish type growth as you look to 2026, meaning we know China is a little bit of a headwind here, but it seems like you're talking to pretty healthy normal dynamics, resilient dynamics, however you want to characterize it for the majority of your markets. So could you just frame that as a thought process as we head into next year?

Yes, I think you're spot on. I think the fundamental dynamics for all 4 segments are strong. Again, outside of a little bit of the China headwind, Matthew highlighted a little bit, there's probably a little bit more walk away as the teams are accelerating like kind of their 80/20 progress. Obviously, you're seeing it in the margin. We expect that to continue. But as we get much more selective and make bigger strides on our customer simplification or product line simplification, there's probably, again, a little bit more headwind, a little under 1 point this year, a little over 1 point next year. But outside of that, I think, as we look out as best as we have visibility over the next 12 months with still macro volatility, I mean, the fundamental dynamics are still strong with resilient demand within muni and I think differentiated technology helping us on the industrial side with some of the fits and starts other companies are seeing in that space.

And what's the long-term thought process on how to manage China from here? I know it's an area of softness today. It's -- maybe there's some deprioritization of U.S.-based products. What's the thought on how you guys plan on addressing or attacking that market from here?

Yes. I think, we're staying the course, but we're also rightsizing the business for the demand environment, Mike. We're taking restructuring actions as we speak in China to the extent of around 40% of the workforce is coming out. That's -- we don't take those decisions lightly. It's unfortunate, but it's really just an indicator of the demand that we're seeing in the market and the hyper-competitiveness of the market as well. We like the market long term, but we have to size the business for the market that we're dealing with over the next balance of this year and through '26. That's how the approach we've taken. And we'll just -- it will be a watch item for us as we head into the first half of 2026, but that's really where we are right now.

Yes. And I think that the teams are stepping back and looking at what is the greatest market opportunity where we have the technology to match that and then reallocating all of our resources around those efforts to try to spur incremental growth as we move forward.

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

Thanks for joining today. We'll wrap it up there. Appreciate the questions. And as always, we appreciate your interest and support. Have a great day.