How a Water Technology Provider Is Using AI | At Barron's

Key Concepts

Water Technology: Solutions for moving, treating, and measuring water across municipal, industrial, and building infrastructure.
Digital Twin: A virtual representation of a physical asset (like a water system) used for monitoring, analysis, and optimization.
Metrology: The science of measurement, applied to water management for clean water monitoring and leak detection.
Forever Chemicals (PFAS): Persistent pollutants in water requiring specialized treatment and detection technologies.
AI & Machine Learning in Water Management: Utilizing AI for predictive maintenance, flow redirection, and optimizing water system efficiency.
Water Stress: The imbalance between water demand and available water resources, exacerbated by climate change and economic activity.
Achilles Heel of the AI Economy: The significant water demands of data centers and chip fabrication, particularly in water-stressed regions.

The Growing Importance of Water Technology & Zyllem’s Role

The conversation centers around Zyllem (formerly ITT, spun out in 2011 – the name originates from the Greek word for the water-conducting tissue in plants), a water technology company addressing critical challenges in the global water landscape. Matthew Pine, CEO of Zyllem, emphasizes that water is a profoundly undervalued resource, essential for public health, food security, energy, and economic prosperity. He highlights the current stress on water systems due to extreme weather, infrastructure underinvestment, and emerging contaminants like “forever chemicals” (PFAS). Zyllem’s core business revolves around moving, treating, and measuring water across various sectors – municipal, industrial, and buildings.

Zyllem’s Business Segments & Solutions

Zyllem operates through four key segments:

Metrology: Focused on clean water management, including smart metering and leak detection. Sensors within meters create a “digital twin” of the water system, enabling AI-powered analysis and optimization. Leaks are identified as a major issue, with 20-30% of treated water lost before reaching consumers.
Wastewater Management: Encompassing both the movement and treatment of wastewater.
Services: Providing treatment solutions for both municipal and industrial water, a growing area due to increasing water scarcity.
Treatment Train: Zyllem owns approximately 90% of the technologies used in water treatment plants, positioning them as a comprehensive solution provider.

The AI Economy & Water Demand

Pine argues that water is the “Achilles heel” of the AI economy. While the AI economy itself doesn’t directly consume massive amounts of water, its supporting infrastructure – particularly data centers and chip fabrication plants – are significant consumers. A 30-minute AI search session requires approximately 600 milliliters of water, largely due to the energy consumption required to power these systems. Approximately three-quarters of the water used in AI is attributable to energy production. These facilities are often located in water-stressed areas due to the need for cheap land, power, and specific environmental conditions (avoiding extreme weather and vibration). This creates competition for resources, mirroring concerns about electricity demand.

Climate Change & Infrastructure Resilience

Climate change, manifesting as both droughts and floods, is a central concern for Zyllem’s customers. The company leverages digital technology, specifically AI and machine learning, to address these challenges. Examples include:

Predictive Flow Redirection: Using AI to forecast rainfall and redirect wastewater flow to absorb excess water, utilizing combined sewer systems.
AI-Powered Monitoring: Implementing AI in monitoring systems to optimize wastewater treatment processes.

Competitive Landscape & Zyllem’s Differentiation

Zyllem differentiates itself from competitors like Suez and Veolia by offering a comprehensive, end-to-end solution across the entire water value chain. While competitors often focus on specific segments, Zyllem can address multiple pain points for customers, from metering and leak detection to treatment and infrastructure repair. They offer a “one-stop shop” approach, including services like dewatering, pipe repair, and mechanical clamping. They also collaborate with startups through an innovation lab to develop solutions for emerging challenges like PFAS destruction.

Addressing “Forever Chemicals” (PFAS)

The issue of PFAS contamination is a significant market opportunity for Zyllem. Regulatory pressure is increasing (with renewed focus from the EPA), driving demand for technologies to capture and destroy these pollutants. Zyllem already owns 90% of the technologies within a typical water treatment plant and is positioned to integrate PFAS capture and destruction technologies into existing infrastructure.

Global Reach & Market Opportunities

Zyllem operates globally, with 60% of its revenue generated in the Americas and 40% internationally. The challenges of water scarcity and quality are universal, creating opportunities in Europe, Asia, and the Middle East. A key value proposition is Zyllem’s ability to transform raw data from various applications into actionable insights, similar to how Amazon Alexa integrates disparate smart home devices.

Flagship Product: Flight Pumps

The “Flight” (pronounced with a silent ‘G’ in the US, “Fleck” in Sweden) pump is a flagship product, known for its durability and reliability in moving wastewater. These pumps are critical components in collection systems, lift stations, and treatment plants.

Company Performance & Future Outlook

Zyllem is a public company (market cap ~$34 billion). Pine highlights a strategic shift focused on stakeholder alignment, operational simplification, and growth. This includes:

Operational Transformation: Streamlining processes, reducing bureaucracy, and empowering employees.
Growth Engine: Leveraging operational efficiency to drive revenue growth.
Long-Term Competitiveness: Investing in core business and exploring strategic acquisitions.

While recent analyst downgrades exist (potentially related to municipal spending forecasts), Pine emphasizes the company’s strong self-help story, margin improvement, and position within secular growth trends. He believes Zyllem’s success hinges on strong leadership, a positive culture, and a commitment to talent development. He emphasizes a focus on building talent rather than simply attracting it.

Notable Quotes

Matthew Pine: “Water is the Achilles heel of the AI economy.”
Matthew Pine: “We’ve been a bottom quartile player in EBITDA and margin performance and we’ve really over the past two to three years taken that up three to 400 basis points.”
Matthew Pine: “If you’re investing in Zyllem, it’s about leadership and culture, and those things are really important to execution.”

Conclusion

Zyllem is strategically positioned to capitalize on the growing global demand for water technology solutions. By focusing on operational efficiency, innovation, and a comprehensive approach to water management, the company aims to address critical challenges related to water scarcity, quality, and infrastructure resilience. The company’s ability to integrate digital technologies like AI and machine learning, coupled with its strong market position and global reach, suggests significant growth potential for shareholders.