William Grogan (Bill)
Senior Vice President, Chief Financial Officer at Xylem
Thanks, Matthew. Please turn to slide five. Q3 was a strong operational quarter, and I want to thank our entire organization for their focus and effort progressing on our organizational transformation. Productivity and pricing resulted in record-breaking quarterly EBITDA margin and earnings per share. The demand remains solid with our backlog reaching $5.3 billion, driven by notable growth in WSS and water infrastructure, offsetting continued progress executing the past-due backlog in MCS. Our book-to-bill ratio exceeded one and orders were healthy, up 8% in the quarter, primarily driven by MCS and WSS. While orders remained strong, revenue growth moderated versus a challenging comparison of 10% growth in the same period last year. Q3 total and organic revenue grew at 1%, slightly below our expectations. The moderation came from project timing in MCS and WSS. The team's operational discipline delivered record quarterly EBITDA margin of 21.2% up 140 basis points from the prior year despite the modest top line growth. Productivity savings and pricing more than offset inflation, investments and mix, driving incrementals of approximately 130% on a consolidated basis. We also achieved a record EPS of $1.11, surpassing the midpoint of our guidance by $0.01 and marking a 12% increase over the prior year. Our balance sheet remains robust with net debt to adjusted EBITDA at 0.6 times. Year-to-date free cash flow has increased by 27% from the prior year. The conversion rate of 79% was driven by higher net income, offset by increased capex and net working capital.
Working capital efficiency in the quarter was impacted by timing of sales. Let's turn to slide six. In Measurement & Control Solutions, we continue to work down our pass-through backlog. Total MCS backlog now sits at roughly $1.9 billion, a 14% organic decrease from prior year, driven by smart metering conversion. Orders were strong at 12%, driven by smart metering and analytics demand. Revenue was up 11%, driven by smart metering demand and backlog execution. This was below our expectations due to project timing, as we were able to ramp up production of past dues faster than our customers were able to schedule their deployments. We are seeing some pockets of softness in Europe and emerging markets, but overall demand is still healthy and the pipeline is strong, particularly for our AMI solutions in North America. We finished the quarter with robust EBITDA margins of 21.2%, up 350 basis points versus the prior year, with 53% incrementals. Year-over-year margin expansion was driven by productivity, price and volume, which more than offset inflation and investments. In Water Infrastructure, orders were up 6% in the quarter, with strong demand across treatment and transport. Revenue increased 1%, driven by transport demand, slightly offset by treatment, which had a difficult comp given strong performance last year from legacy Evoqua's APT segment. EBITDA margin for Water Infrastructure was up 50 basis points. Productivity and price more than off inflation and mix, incrementals were strong at 45%.In Applied Water, orders were up 4% and book-to-bill was 1, reflecting a few large project wins, which will ship next year.
Revenues were down 4%, in line with our expectations, primarily driven by softness in emerging markets. Segment EBITDA margin declined 10 basis points year-over-year but increased 110 basis points sequentially. Lower volumes, higher inflation and unfavorable mix were mostly offset by productivity savings and price. Rounding out the segments, Water Solutions and Services saw robust demand with orders increasing 11% driven by strength in outsourced water and in dewatering. Organic revenue was down 1% with strength in dewatering offset by declines in capital sales from treatment projects, primarily due to a difficult comp and project timing within the quarter. Segment EBITDA margin was strong at 24.7%, up 200 basis points. Productivity and price offset inflation and volume declines. Now, let's turn to slide seven for our updated full year and Q4 guidance. Given our year-to-date performance in both commercial and operational momentum, we are updating part of our full year guidance. Our revenue guide of $8.5 billion results in approximately 15% growth with organic revenue growth of approximately 5%. The Evoqua integration is going very well, and we are accelerating expected cost synergies to an exit run rate of $130 million in 2024. In light of our lower revenue expectations, we are confident about driving further margin expansion through operational productivity and our simplification efforts and are reiterating our EBITDA margin guidance of roughly 20.5%.
That represents 160 basis points of expansion versus the prior year, driven by higher volume, productivity, including our cost synergies and price offsetting inflation. We are narrowing EPS guidance to $4.22 to $4.24 from $4.18 to $4.28. Free cash flow conversion for the year is still expected to be at least 120% of net income. We do expect significant conversion in the fourth quarter. The full year outlook for two segments has changed with MCS now expected to grow in mid-teens versus our prior outlook of high teens and WSS now expected to grow low single digits versus our prior outlook of mid-single digits, both due to project delays impacting the second half. For the fourth quarter, we anticipate revenue growth to be roughly 2% to 3% on a reported and organic basis. We expect fourth quarter EBITDA margins to be in the range of 20.5% to 21%, up 70 to 120 basis points. This yields fourth quarter EPS of $1.12 to $1.14. We have solid momentum and continue to have strong orders growth and anticipate healthy long-term demand across our divisions and applications. While we are closely monitoring the macro environment, including election uncertainty, geopolitical tensions and tariffs, our overall outlook for the fourth quarter remains positive. And we look to our simplification efforts and 80/20 implementations to not only help address any short-term challenges we may face but also be among the key drivers to our systematic margin improvement over time, supporting our long-term profitability framework.
With that, please turn to slide eight, and I'll turn the call back over to Matthew for closing comments.