Welcome to the Xylem First Quarter Earnings Conference Call. At this time all participants have been placed on a listen-only mode. And the floor will be open for your questions following the presentation. I would now like to turn the call over to Matt Latino, Manager of Investor Relations.

Thank you, Paula. And good morning, everyone, and welcome to Xylem's first quarter 2017 earnings conference call. With me today are Chief Executive Officer, Patrick Decker, and Chief Financial Officer, Mark Rajkowski. They will provide their perspective on Xylem's first 2017 result – first quarter 2017 results and discuss the full-year outlook for 2017. 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 at www.xyleminc.com. A replay of today's call will be available until midnight on June 2. Please note the replay number is 800-585-8367 and the confirmation code is 41774098. Additionally, the call will be available for playback via the Investors section of our website under the heading Presentations. 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 purposes of today's call, all references will be on an adjusted basis unless otherwise indicated. And non-GAAP financials have been reconciled for you and are included in the Appendix of the presentation. Now please turn to slide 4. And I will turn the call over to our CEO, Patrick Decker.

Thanks, Matt, and good morning, everyone. We appreciate you joining us to review our first quarter results. We started off the year well, delivering solid results in the first quarter that were in line if not slightly better than our expectations. Once again our diversified product portfolio and end market exposure helped to balance our performance. This positions us well to deliver on our full year commitments. We entered the quarter facing some challenging year-over-year comparisons, namely in our businesses serving the public utility sector. While those tough comps are reflected in our results, we remain encouraged by the underlying fundamentals in that end market, which I'll get to in a few moments. Our Sensus business is off to a great start this year, delivering strong top line growth. We are continuing to integrate this business with early work underway to begin executing against the promising revenue and cost synergies we discussed at our recent Investor Day. Lastly, our teams executed well. Our focus on driving productivity initiatives delivered a 33% year-over-year increase and continuous improvement savings in the quarter, further demonstrating that we are still in the early chapters of our self-help story. This progress enabled us to offset cost inflation and continue to invest in strategic growth initiatives. At our Investor Day last month, we had a comprehensive discussion about our objectives and long term plans as well as market outlook. So for the benefit of those who weren't able to join us, I thought I'd touch on a few of the key points we made there and talk about our results for the quarter in that context. A primary theme of our discussion in Raleigh was how we were driving growth. This is a critical lens through which we are prioritizing our activities. And we have a…

Thanks, Patrick. Let's turn to slide 5. I'm very pleased that we got off to a good start in the first quarter. And we've built solid momentum heading into Q2. Overall, revenues were up 26% in the quarter. On a pro forma organic basis this represents 1% growth with Sensus contributing 7% and the base Xylem business down 1%. Additionally, foreign exchange reduced revenues by $11 million or 1 point. From an organic perspective, the 1% decrease in base Xylem revenues largely reflects a 4% decline in the public utility end market versus a strong prior year comparison that was driven by timing of project deliveries and favorable weather conditions. Partially offsetting this decline was strong growth in residential, up 14%, and a modest increase in commercial of 2%. Industrial revenues were down 2% overall, roughly in line with our expectations entering the quarter. Market conditions were soft in our Applied Water business. And last year's results also benefited from a few large equipment shipments in Water Infrastructure. We started to see some positive signs in this end market with improving order rates and revenue trends as we entered the second quarter. Regionally, the organic decline for the quarter occurred in the U.S., which was down 4%. Western Europe performance was flat as expected. And as Patrick mentioned, our momentum in emerging markets continued to build, as revenue was a bright spot, up 3% year over year. Moving to operational performance. We increased our adjusted EBITDA margins by 100 basis points to 16.2% in the quarter. This increase was primarily driven by the strong operating results of Sensus and the continued ramp-up of productivity savings. Adjusted operating margin declined 40 basis points to 10.5%, which includes 70 basis points of non-cash amortization related to purchase accounting for the Sensus acquisition.…

Thanks, Mark. As I said earlier, we're off to a solid start in 2017 and are well-positioned to deliver on our financial targets. With the exception of our foreign currency assumptions, our full year 2017 guidance has not changed. On a pro forma basis we continued to anticipate organic growth of 2% to 4%, which includes organic growth from the base Xylem businesses of 1% to 3% and Sensus organic growth of 6% to 7%. As we drive our continuous improvement work deeper into the organization, we continue to accelerate our lean and global procurement initiatives and expect to realize $130 million in savings for the full year, a 10% year-over-year increase. With our Q1 results in this area we're on pace to meet that target. Our adjusted operating margin is expected to grow in the range of 20 basis points to 70 basis points, excluding roughly 60 basis points of margin dilution from acquisitions. As I mentioned earlier, we've updated our foreign currency translation assumptions. As a result we now anticipate generating earnings per share of $2.23 to $2.38, which excludes integration, restructuring, and realignment cost of about $30 million. Excluding foreign exchange impact, EPS growth is expected to be in the range of 12% to 20%. Finally, as we've outlined previously, we expect to deliver free cash flow conversion of at least 110% this year. This contemplates expected capital expenditures in the range of $190 million to $200 million. Please turn to slide 11, and I'll walk you through our end market assumptions. Please note that our commentary and growth estimates on this slide reflect pro forma organic revenue from 2016 for Xylem and now includes the impact of Sensus. Public utility constitutes 47% of total pro forma 2016 revenue. In 2017, we expect pro forma organic revenue…

Consistent with what we disclosed last quarter, we're providing the seasonal profile of our business as well as highlights of our 2017 planning assumptions. For the second quarter, we expect modest improvement in both the public utility and industrial markets sequentially with both returning to low single digit growth. We continue to expect commercial to grow in the low single digit range for the quarter. And we anticipate moderating growth in residential, up low single digits, reflecting the impact of the first quarter promotions. All-in, we anticipate this will result in organic revenue growth in the range of 1% to 2% for the base Xylem business. We also expect foreign exchange translation to unfavorably impact revenue by $20 million. Acquisitions are expected to add approximately $230 million to $240 million, with Sensus growing organically at 1% to 2% in the second quarter. Sensus has a tough comparison to the prior year, primarily due to the timing of distributor stocking of iPERL meters in North America last year, as well as higher prior year revenues from rollouts for two large UK contracts. One other note regarding Sensus. One of its primary battery suppliers had a significant incident at its manufacturing facility, which has shut down production. We are making arrangements with other existing and alternate suppliers to minimize any potential disruptions in serving our customers. Given our current inventory of batteries, which substantially covers our needs through the second quarter, and the initial commitments received from additional suppliers, we currently do not anticipate any material disruption in our ability to fulfill customer orders. Our teams are on top of this issue, and we're tracking the progress very closely. As for our second quarter segment operating margin, we expect margins to be up 50 basis points to 70 basis points, excluding the 70 basis point reduction due to the non-cash amortization of the Sensus purchase accounting. Finally, please note that the summary of our FX assumptions on this slide, which includes our updated euro guidance assumption at $1.07 from $1.04, which puts us in line with the year-to-date average actual rate of $1.07. Aside from our currency assumptions all other assumptions remain unchanged from our previous guidance. And with that I'll turn the call back over to Patrick for some closing comments.

Thanks, Mark. So good start to the year. And we're encouraged by the growing momentum we see in our businesses. The market fundamentals are solid, and our teams are executing well. We remain focused on our long term strategy, while continuing to deliver on our full year commitments. So with that now, operator, let's open it up for questions.

Thank you. Your first question comes from Deane Dray of RBC Capital Markets.

Thank you. Good morning, everyone.

Good morning, Deane.

Hi, good morning.

Hey, would like to address first some of the issues going on in municipal, both U.S. and Europe. And maybe we can start with did you see any of the project delays or some hesitation on project releases in both U.S. and Europe? And then on the second quarter outlook, you are facing another tough comp, especially in the U.S. And is the expectation that you would post another negative organic in U.S. muni for the second quarter?

Yeah. Thanks, Deane. So this is Patrick. Let me take the first – the second question first. So our outlook for Q2 is to be flat to up low single digits. And that's a global number. And so that does reflect some flatness to up low single digits in the U.S. as well as in Europe. So we don't see it presenting the same kind of comp that it did for us in Q1. In terms of what we're seeing in both the U.S. and Europe, let me start first with Europe. Really the only timing issue that we saw there was really in the UK and the Amp cycle. And there was nothing for us to be alarmed about. It really was just timing of shipments that hit us there in the first quarter. And so we're still expecting that to be mid-single digits for the full year as we had originally guided to. In the U.S. again nothing noticeable that we've seen in terms of any delay in projects being awarded or in the day-to-day activity. It really is simply the fact that we had such a tough comp versus last year, both due to again heavy spending activity, timing of projects, but also you'll recall we had unusably warm weather last year that drove some higher shipments and install in the quarter.

And then my follow-up on given all the items going on at Xylem today – the Sensus acquisition closing, the Analyst Meeting, raising all your long term targets – we got the most questions and the most excitement around this announcement with Pure Technologies. So maybe just spend a moment there. How did this partnership come together? Specifically about the go-to-market, how will you coordinate your technologies? Is there any interoperability within your technologies? And any plans to expand beyond these initial emerging markets?

Sure. Well, thanks, Deane. I mean we're certainly very excited about the opportunity to partner with Jack Elliott and the team there at Pure. We've known them for a long time. Obviously we see them in the marketplace. We've been impressed by what their capabilities are. We've – so we've been talking about this for a little while. They've got some capability gaps in very specific emerging markets, most notably Middle East, India, Singapore, Malaysia, which is really where we're starting to – we've got a strong set of channels to market there. I think this really makes sense now in terms of complementary technologies, now that we've got both Sensus and Visenti in the portfolio, and we put those businesses together. So we're going to be exploring to see what other opportunities there are in terms of the complementary nature of those products in those markets. Again right now it's really exploratory. It's really focusing on a few key markets here and helping customers again with those very specific pain points that we laid out.

How about from the technology standpoint?

Remains to be seen. I mean I think there clearly is some interoperability there that we'll explore over time. But still very much in the early stages here.

Understood. Thank you.

Thank you, Deane.

Your next question comes from Scott Davis of Barclays.

Hi. Good morning, guys.

Good morning, Scott.

I feel like I need to ask about this battery problem, because you mentioned it at the end. But sometimes when we've seen supply chain challenges, they tend to linger and cause problems that are beyond sometimes what people anticipate. And so you commented that you've got inventory and such for 2Q. And you don't see any customer disruptions. How about the cost side of it though? Is there other concerns that your cost of procurement are going to go up meaningfully in the back half of the year? And how long do you think this battery problem – or how long does your supplier think this is going to linger or take?

Sure. No, it's a great question, Scott. So a couple of pieces there. One would be in terms of – so we have a qualified back up supplier already. And we were in the late stages of qualifying a third source already. And so obviously the teams are very much focused on accelerating that third qualification. And we think the combination of getting them both up and running, as well as the inventory that both we and our current supplier have on hand, that certainly will help us bridge any of the supply chain gaps that we've got there. To your point around the cost side, very, very minimal impact from a cost standpoint. There will probably be a little bit of maybe freight expedition in some areas. And the suppliers that we've got there have been very good with us in terms of remaining true to previous negotiations, et cetera. Obviously don't want to get into many more specifics other than that, just given the competitive dynamics and negotiations.

Yeah. No, fair enough. So just as a follow-up. Since there's 10,000 water utilities out there, and we can't talk to very many of them, quite frankly, so it's tough for us to get a view. But how many of your – do you get a sense from your customers at all that they're thinking about projects in terms of waiting until there's a federal infrastructure bill? That waiting to see if money is available and potentially kind of delaying things until you get into 2018?

We don't see a common thread there, Scott, of people necessarily slowing down. I mean if anything we've seen quoting activity up double digits again. And our bidding pipeline up very strong. But obviously your question is more around when those things come to market. I think certainly maybe in some of the smaller utilities, where they're relying on state funding and maybe to a lesser extent the possibility of federal funding, it's less about the money that may come to water projects. And it's more about the money that may come to other infrastructure investments that take a little bit of pressure off of their budgets, and therefore, easier for them to go ahead and move forward with the water spend. But we're not – we're really not seeing a lot of that. That's really not what's impacting us here going through Q1 and into Q2. It really is simply the very tough year-over-year comp for last year.

Got you.

Yeah. In fact our pipeline for treatment waters is – it's up 16%. So...

Yeah.

Yeah. No. I'm just trying to reconcile that and just thinking in terms of how they think about things like this. But anyways that was very helpful. Thank you and good luck to you guys.

Thanks, Scott. Appreciate it.

Your next question comes from Nathan Jones of Stifel. Nathan Jones - Stifel, Nicolaus & Co., Inc.: Morning, everyone.

Good morning, Nate.

Good morning. Nathan Jones - Stifel, Nicolaus & Co., Inc.: If we could go to the margins in Water Infrastructure. You were down I think 160 basis points there, which is maybe 50 basis points is decremental. But you did call out some additional strategic investments there. Can you kind of quantify what the levels of those strategic investments were? And how long we should expect those to continue?

Yeah, Nate, it's Mark. The – in terms of the investment specifically, it was around $5 million. And a lot of that was focused on continuing to add commercial capabilities, particularly in our emerging markets, some product localization as well. So that was the bulk of it. There was also a little bit of investment in Europe as well, but that – and that was roughly 100 basis points. But the big impact on the margin profile was really a function of volume and mix. And we had a very rich mix of projects last year, particularly in our dewatering business, our highest margin – one of our highest margin businesses. And also had a lot of aftermarket business as well with the warm weather. So it was more of a volume and mix story there.

Yeah. I think the – anytime, Nate, as you can appreciate, anytime – especially Q1 being one of our slowest quarters of the year. And given the fixed cost that we've got, especially on the Water Infrastructure side, any kind of volume softness there magnifies at least within the quarter. But we're very confident about getting to our margin expansion goals for the full year. As Mark mentioned in his prepared comments, we had some self-inflected issues from a supplier in our Emmaboda factory. And so that revenue is very, very rich in terms of margin. And we'll get that back here partially in Q2 and certainly in Q3. Nathan Jones - Stifel, Nicolaus & Co., Inc.: And how long should we expect the investment to continue?

I'd say modest here through the rest of this year. There's really – I mean the only investments we'll be making for the most part would be – we'll continue to invest in some emerging market sales expansion, a bit more on the product localization, given that we do see a full on recovery in some of the emerging markets. And then we've got a little bit that we'll be investing in the integration of Sensus in terms of going after some of the revenue synergies that we talked about. So there will be a little bit of an uptick in R&D. But all of that's been reflected in our guide for the year. There's no change in outlook. Nathan Jones - Stifel, Nicolaus & Co., Inc.: Okay. And then my follow-up. You've talked about treatment orders being the leading indicator. And we've seen the treatment pipeline be pretty strong for probably a year and a half now. Can you talk a little bit about if you're seeing some of that, the transport and test stuff that supposed to come behind that, strengthening in the pipeline as a result of those treatment orders leading that kind of revenue?

Yeah. We would normally see about probably an 18-month – kind of 12- to 18-month kind of lag between orders actually being received on a treatment as opposed to – our comments here are as much about bidding pipeline being up. Obviously we did see good treatment orders in the quarter, 8% growth. So we do think that bodes well for the test and transport piece of the business here. But – and I think we're seeing some of that now in terms of our orders lift here in this last quarter. But that would really I think buoy us even more strongly for the latter part of this year into 2018. Nathan Jones - Stifel, Nicolaus & Co., Inc.: Okay. So that's kind of the timeframe that we should think about those orders ramping up would be mid to late this year?

That's correct. I'd say late this year into early 2018.

Yeah. And you might recall, Nate, we had a bit of a hole in our orders in the first half of last year. First and second quarter we were down organically 2% and 4% respectively. But that momentum has been building up in Q3 and Q4 of last year, Q1. And – but some of that is treatment, which does, as Patrick said, have a little bit longer incubation period in terms of actually manifesting itself in revenues. Nathan Jones - Stifel, Nicolaus & Co., Inc.: Okay. That's very helpful. Thanks, guys.

Thank you.

Your next question comes from Jim Giannakouros of Oppenheimer. Jim Giannakouros - Oppenheimer & Co., Inc.: Hey, good morning, Patrick, Mark.

Good morning, Jim.

Hey, Jim. Jim Giannakouros - Oppenheimer & Co., Inc.: A question on Sensus. Revenue increased 9% I think in – you said in U.S., those large electric projects. I'm sorry. They weren't on my radar, and I apologize if you had telegraphed it before. But does that mix I guess does – well, first, that aspect, does that setup for tough comps? Or is there acceleration elsewhere in Sensus, that 6% or 7% growth in 2018 isn't a stretch? And I guess any and all comments on mix, both organic growth contribution by component within Sensus and any impacts to margins we should be aware of?

Sure. We'll take into pieces here. So on the – in terms of does it set up for a tough comp. Let me start first with even the rest of this year. And you'll recall that we've got a rather easy comp in Q4, because we had lower growth last year, because of some delays in Saudi on their shipments due to lessor credit, et cetera. So that sets up for an easier comp in Q4 that give us confidence of getting to that 6% to 7% growth. No, we remain confident about the growth outlook for over the planning period of that 6% to 7%. We've got some large project deployments that are front-end loaded as we head into 2018. And so that will help us with this comp in Q1 next year but also through the entirety of 2018. In terms of margin mix, I'll share a few comments here and Mark can certainly chime in. Not a unusually large mix issue organically within Sensus in terms of margins between, say, the water deployment versus electrical or gas. You get a little bit higher margin on the water side than electric. But given the fact that we had a large deployment here, that also tend to be favorable from a margin standpoint. So it kind of blends out to where there was no noticeable shift from my perspective.

Yeah. And you look at their margins quarter over quarter, they don't move that much. They're fairly consistent, because you might have a richer mix in terms of some of the rollouts of large projects. But you can also have some mix coming from Software-as-a-Service too, depending on the timing of that. So but they are – while the volume can be a little bit lumpy, the gross margins are fairly consistent. Jim Giannakouros - Oppenheimer & Co., Inc.: Got it. Thank you. And I guess sticking on Sensus or I guess the projected revenue synergies with Water Infrastructure, how should we be thinking about – and I apologize if I should know this. How should we be thinking about bucketing the growth between Sensus and Water Infrastructure? Is it pretty balanced over the next few years? Or is there greater potential in one or the other?

I'd say it remains to be seen. We haven't given that level of specificity yet. We're obviously still working through some of the prototypes. It'll be a combination of the two. There will be – the way to think about that is, where we are getting synergies by connecting our equipment in the field on the wastewater side, those revenues would flow through the Water Infrastructure. Where we are winning any of these large international deals by way of Xylem helping pull them through, that obviously will impact Sensus and Analytics as we go forward. So that's the way to think about it. We haven't yet split the dollar amounts that we teed up at Investor Day amongst those buckets. But we'll have certainly more to share on that as we get later into the year, and we get some of these prototype deployments out in the field. Jim Giannakouros - Oppenheimer & Co., Inc.: Great. Thank you, guys.

Thank you.

Thanks, Jim.

Your next question comes from Chip Moore of Canaccord.

Good morning. Thanks. Maybe look at...

Good morning, Chip.

Morning, Chip.

Morning. Obviously not a big part of the portfolio, oil and gas markets, maybe we could talk a little bit more. Nice to see dewatering turning positive. What sort of trends I guess you've seen into Q2 and has your outlook changed at all?

Yeah. And on dewatering while, as I had mentioned, it was nice to see growth for the first time since the fourth quarter of 2014. It was pretty modest. Okay. So the trend line has definitely changed. But it's really – we're seeing that some of that growth in pockets in some areas of fracking. Certainly Permian Basin continues to be a pretty hot area. So while the inflection point is good, we don't see any significant takeoff in that part of our business, although the comps get a heck of a lot easier over the next several quarters.

Yeah, I mean just to parse it a little bit more as well. You'll recall, probably I think it was the last quarter's call or even at Investor Day, we talked about the biggest challenge that we faced in the dewatering sector from an oil and gas and mining standpoint was more on our indirect channel side with our distributors. We've seen flat to a little bit of growth in our direct channel for the last quarter or so. But it was being more than offset by double digit declines continuing in the indirect channel. And the good news was the indirect channel flatlined for the first time in Q1. So that's really what helped us get to a net positive growth on that piece of the dewatering business.

Great. Thank you, guys.

Thank you.

Thanks, Chip.

Your next question comes from Joe Giordano of Cowen. Joseph Giordano - Cowen & Co. LLC: Hey, guys. Good morning. Thanks for taking my question.

Hey, Joe.

Hi, Joe. Joseph Giordano - Cowen & Co. LLC: So I – unfortunately I had to jump on a little late, so apologizes if I kind of go over something that was already discussed. But I wanted to talk a little bit about the industrial outlook here, flat to up low single digits. I know you have some oil and gas and mining and stuff in there that's not your general industrial. But can you kind of scale that versus what we've seen in earning season so far, seems to be an acceleration there. That flat to low seems pretty modest versus what we've heard so far the last couple weeks. So kind of what are your thoughts there? Does that feel more conservative to you than the other outlooks for the rest of the end market?

It's – Joe, this is Patrick. It's hard to call at this point. I mean that business is rather short cycle for us. It's largely a replacement business through our Applied Water segment. And so because it is general light industrial being the lion's share of that, at the end of the day we've always said that it is very much kind of a GDP at best kind of business. Typically grows around that kind of 2% to 3%. We've baked in the flat to low single digits simply because of what we saw in Q1 and therefore what would one have to believe for the next three quarters to get to a solid low single digits. So there are some early positive indicators that we're seeing. But it is still early. And this is again a light industrial business. So it's not going to be nearly as volatile in ramp as you see in some of our peer companies. Joseph Giordano - Cowen & Co. LLC: Yeah. No, that's fair. And maybe just a higher level question, and maybe this is too high level for this call. But when I think about your portfolio now moving through Sensus, stuff with Pure, like how do you see Xylem becoming positioned over the next – I don't know – call it over your time as CEO there? It's kind of like more of a Smart City provider. And kind of fitting that niche more than a traditional equipment provider. How do you kind of see the business evolving into that sort of discussion?

Yeah. So I think, no, it's a great question, Joe. I think that the way I would describe it is, we believe strongly that there is clearly a number of large unmet needs from helping our customers, both in water but also across other elements of the utility space, provide smart solutions to them. And we think we're building a very nice suite of offerings here and capabilities, including the data analytics side. There are still gaps in those offerings that we will either get through acquisition or through commercial partnerships like we announced with Pure. There are more to come on those types of partnerships that are out there. I would want to make sure, though, that no one ever be confused around the fact that I think it's critically important, that even though we are looking to build that kind of smart solution, we are not going to move away from our OEM heritage as a business. Because it's my experience that you really need to have the subject matter expertise around the equipment itself as well. So you can really bring a holistic solution to the customer, as opposed to only becoming a Software-as-a-Service or data analytics kind of provider. So we'll continue to invest in making our equipment smart and – much as the other industrial companies are doing. So it'll be a mix of those two. And then lastly I would say it's not limited to the smart infrastructure around systems intelligence. There are – we've talked before about advanced industrial treatment. We talked about industrial services being a bigger part of our offering. So there's more to it than just the smart infrastructure element. But that is certainly what mine and our primary focus is right now, in terms of where we invest our money both organically and inorganically. Joseph Giordano - Cowen & Co. LLC: Great. That's a good answer. Thanks very much, Patrick.

Thank you, Joe.

Your next question comes from Brian Lee of Goldman Sachs. Brian Lee - Goldman Sachs & Co.: Hey, guys, thanks for squeezing me in here.

Sure, good morning.

Good morning, Brian. Brian Lee - Goldman Sachs & Co.: Good morning. Digging into the public utility trends, I know you guys have talked a little bit – ad nausea on this. But given the year-over-year decline is due to mostly tougher comps, particularly in the U.S., just wondering if you can maybe comment a bit on how much of the bookings pick up you're seeing in the U.S. versus elsewhere? And then what trends you can talk to geographically on bookings specifically?

I would say a lot of the booking momentum has been in emerging markets. But we are also seeing solid order growth in the U.S. as well, low single digits, but good momentum. But the – I'd say the biggest source of water growth has been in emerging markets. But a nice upward tick in the U.S. as well. Brian Lee - Goldman Sachs & Co.: Okay. Great. That's helpful. And then I'll just do a quick housekeeping one if I can. The Sweden manufacturing issue you mentioned, could you quantify if there was any impact in the quarter? And then I think you had mentioned there may be a little bit of residual impact into Q2. Maybe what exactly that impact was? And then what the remediation steps are from here? Thank you.

Yeah. Brian, it was roughly $3 million in the first quarter on the revenue side. And we would – we're managing it as best we can. But it's probably – we think it's going to continue into the second quarter. We'll get it nailed down. But probably a similar impact in Q2 as well from a revenue perspective. Brian Lee - Goldman Sachs & Co.: All right.

And the good news is here we're not losing business, so the business comes back. It's simply a matter of timing of the shipment deliveries. Brian Lee - Goldman Sachs & Co.: Okay. Super helpful. Thank you.

Thank you.

Yeah.

Your next question comes from John Walsh of Vertical Research.

Hi. Good morning.

Good morning.

Hey, John.

So a question around the margin. Clearly you've been able to more than offset cost inflation pressures with cost reductions. But given what we're seeing in raws, can you talk about your ability to kind of capture price in this environment?

Sure. Yeah. This is Patrick. So I'll start here. And then Mark can chime in. So we're very much focused on marrying up the views on cost inflation with pricing in the market. And so our supply chain teams and our commercial teams are joined at the hip kind of country by country, understanding kind of what the dynamics are. Obviously in those businesses where we have a share leadership position, we're being very disciplined in terms of being the price lead and preserving that. That's much more the case in elements of water infrastructure, where we are seeing a more favorable supply/demand dynamic coupled with inflation. So a little bit easier. Never easy to get price passed through, but a little easier there. A little tougher at Applied Water, just given some of the competitive dynamics there and a little bit more softness in the end markets of industrial but also the resi business. And so you saw where we did some promotions there to drive share gain in that part of the business, albeit small. So it's a mixed bag. But it's something we're very much on top of. And I would say again mixed results up to this point.

Yeah. We're making sure the teams get out ahead of it. We saw a modest bump on the raws in – when you look at it in Q1 compared to last year, 10 basis points to 20 basis points in our two operating segments, Water Infrastructure and AWS. So but the first step is awareness. And we're making sure that the commercial teams are getting good information from global sourcing, so they understand in terms of specific product lines what that impact in terms of the creep in raws is, so they can be more effective in the marketplace.

And I would just maybe wrap that up with the fact that when I look back over the last three – or certainly since I've been here, and I talk to the leaders in the businesses that have been around, I would say historically they've been very effective and very disciplined at understanding the inflationary dynamics and driving price discipline where they need to. And what's simply gotten better I think is both our focus on cost out productivity, but also having enhanced and developed our procurement capabilities. Through Tony Milando and that team, we've got a lot more awareness now earlier on I think than we would have had historically.

Got you. Got you. Thank you. And then just a quick one on Sensus. Obviously directionally you helped us with the comps on the back half. But wanted to know if you kind of can provide the explicit organic growth comps for Sensus in Q3, Q4? And then in terms of the margin, should we build off of the 10.7% in Q1? Or you called it, there was the benefit of that large project. Does this maybe, from an operating margin perspective, take a sequential step down? And then build in the back half of the year for Sensus?

Yeah. Let me take that one. I think so what we provided to date is – we provided the full year margin profile for Sensus. We don't see that changing. We still expect EBITDA margin to be in that 19.5% range and adjusted operating margin for the full year to be in the low 10%. So as I said, it – while there's modest movement from quarter to quarter, it's not all that significant. And we did have – although I would say, given some of the mix that we had in the first quarter, it's probably a little bit higher margin mix than what we'll see throughout the remainder of the year.

Got you. Thank you. Very helpful.

Yeah.

Thanks, John.

Thank you.

Your next question comes from Robert Barry of Susquehanna.

Hey, guys. Thanks for fitting me in. Good morning.

Sure.

Morning.

Good morning, Robert.

Morning.

Just a couple of things. We've covered a lot of ground. I think last quarter you talked about core growth on the legacy business of flat to up low single. Is that refined slightly better to 1% to 2% now? Or is it...

I think we...

...no changes?

Which periods, Robert?

In 2Q.

Full year?

I think it was a flat to low – no 2Q. Kind of...

Yeah, that's right.

Yeah. Yeah.

Yeah. Yeah. Yeah. But for Q2, Robert, yeah, it's up about a point from where we had guided before. And that's really just baking in the momentum that we saw coming out of Q1. And the – when we talk about what our shippable backlog within the quarter looks like, we'd support that number as well.

Got you. Any change to the back half? I think it was 3% to 4% in 3Q and a little better than that in 4Q?

Yeah. I'd say it's in line with what we said before. Obviously we'll take a look at that again as we get through Q2 and see kind of what the momentum is. But right now we've held the back half as where we had it before.

Okay. Just conservatism? Or anything you're seeing in the backlog?

No, I think it's just still early. And it's again we're still a relatively short cycle business, other than the visibility we have on treatment. So we're just trying to be prudent here.

Fair enough. And if we could just chat quickly about this promotional activity in resi, up 14%, added almost a point of growth to the quarter. Just are you getting more aggressive there? Don't usually see that kind of growth in the resi looking back?

Yeah. Yeah. I mean it's – we – it's timing. .Some of it's terms. It's not all price. So we're trying to be aggressive commercially without giving away the store on price at all.

Yeah. So we – I'd say, Robert, the – to me the – there's been a lot going on in that part of the market as you know, as you follow other companies. And so I think just keeping our teams focused on, let's win share, let's leverage things beyond price to do so. There's always some timing issue. It's a relatively small piece of our business. So even a little bit of absolute dollar impact there can swing it pretty significantly either direction. So I wouldn't get too focused in on the 14% number in one quarter. I think what we're encouraged by was the fact that it was a good growth.

Yeah.

And we saw good backlog build in that business. And so hopefully it helps us normalize for the year. We've had a couple of rocky – couple of the lumpy years the last couple years due to weather and other things. And so we hope we're smoothing things out now.

Yeah. Fair enough. Yeah. I was more focusing in on the promotional activity and just whether there was any change in kind of the pricing?

No, it's not a margin or pricing thing. It was really more on the payment terms.

Got you. Okay. Thank you.

Thank you.

Your final question comes from Jose Garza of Gabelli.

Hey, good morning, guys. Thanks for fitting me in.

Good morning, Jose.

Good morning, Jose.

I guess going back to that one of your competitors purchased some distribution recently in the U.S. on the groundwater side. Just wondering if you could give us your thoughts on any kind of impacts that you foresee? And then how you're kind of thinking about that business in the longer term, Patrick?

Sure. No, thanks, Jose. So we were aware of this move coming for quite some time. And so we had been already building in backup plans in terms of what the future would be for us. Just to put it in perspective, the impact on us on this one bit of disruption, it's less than 1% of our total Applied Water segment revenue. So even less than that for the total company. We've already got backup plans in place. We're working with Franklin on this. We have some other alternatives that we're working through as well. And so we don't expect any disruption at all on that part of our business. In terms of the other questions that we've gotten in the past have really been around what's our strategy between direct and indirect? And does this move kind of change that? And I think it's important that I state here that we are absolutely committed to support our channel partner relationships. They have – they're valuable. They've got a long term relationship with us. They've got a lot of reach in the marketplace. And so we place a value on that, at least certainly within that part of the business. And we think making sure that we've got a broad and diverse network, both direct and indirect, is our best way to serve the market both from a access standpoint but also from a cost-to-serve standpoint.

Okay. That's very helpful. Appreciate it.

Okay. Thank you.

Yeah.

This concludes our question-and-answer session of today's conference. I will now turn the floor back over to Mr. Patrick Decker for any additional or closing remarks.

Great. Well, thank you. Thanks, everybody, for your continued interest and joining the call. A lot of good questions. Look forward to see you guys on the road. And in the meantime we'll catch up with you on our next earnings call. Thank you all very much.

Thank you. This does conclude today's Xylem first quarter 2017 earnings conference call. Please disconnect your lines at this time and have a wonderful day.