Xylem Inc. reports solid second quarter 2017 results

August 1, 2017
  • Second quarter 2017 reported net income was $99 million or $0.55 per share; Adjusted net income for the quarter was $106 million or $0.59 per share, up 23 percent versus the prior year period
  • Xylem delivered $1.2 billion in second quarter 2017 revenue, up 25 percent year-over-year including the impact of acquisitions
  • Orders exceeded $1.2 billion in the second quarter, growing eight percent organically
  • Reported operating margin increased 20 basis points to 11.9 percent; Adjusted operating margin increased 100 basis points excluding purchase accounting amortization impact
  • Xylem increases its full-year 2017 forecast for adjusted earnings per share to $2.30 to $2.40, which reflects the expected impact of foreign exchange translation

RYE BROOK, N.Y.--(BUSINESS WIRE)--Aug. 1, 2017-- Xylem Inc. (NYSE: XYL), a leading global water technology company dedicated to solving the world’s most challenging water issues, today reported second quarter 2017 net income of $99 million, or $0.55 per share. The Company delivered adjusted net income of $106 million or $0.59 per share in the quarter, a 23-percent increase over the prior year period, excluding the impact of restructuring, realignment and Sensus acquisition-related charges, and other items. Revenue in the second quarter, including the contribution from Xylem’s Sensus business, was $1.2 billion, up 25 percent year-over-year. Xylem’s pro forma organic revenue, which includes Sensus, grew more than one percent in the quarter. This includes a two-percent year-over-year increase in the Sensus business as well as one-percent organic growth in the base Xylem business. Reported operating margin in the quarter increased 20 basis points to 11.9 percent, and adjusted operating margin was 13.3 percent. Excluding the negative impact of purchase accounting amortization related to the Sensus acquisition, the adjusted operating margin expanded by 100 basis points year-over-year.

“Our businesses performed well in the second quarter and are capitalizing on strong order activity that we expect to generate improved growth,” said Patrick Decker, President and Chief Executive Officer of Xylem. “In the second quarter, we turned in an eight-percent increase in orders with double-digit growth in treatment orders, a strong harbinger for continued strength in the water utility sector. We are pleased with the growth momentum that continues in Sensus as well as the progress we’re making in further integrating the business. The team delivered a signature project win in the electric and gas space in the quarter, which represents one of Sensus’ largest communication system deployments to date in the U.S., and includes the installation of the network as well as electric and gas smart meters.”

“Looking ahead, we have solid plans and are operating in improving end markets, which reinforce our confidence in our ability to deliver solid growth and margin expansion in line with our improved guidance for the full year.”

Full-year 2017 Outlook

Xylem now forecasts full-year 2017 revenue in the range of $4.65 billion to $4.70 billion, up 24 to 25 percent, including growth from previously announced acquisitions and projected impacts of foreign exchange translation. On a pro forma organic basis, Xylem projects revenue growth of three to four percent. On an organic basis, which excludes the impact of acquisitions and the impact of foreign exchange translation, Xylem’s revenue growth is now anticipated to be in the range of two to three percent.

Full-year 2017 adjusted operating margin is expected to be in the range of 13.2 to 13.7 percent. The Company increased its forecast for full-year earnings to reflect its updated assumption for foreign exchange impact. The Company now expects to deliver adjusted earnings per share of $2.30 to $2.40. This represents an increase of 13 to 18 percent from Xylem’s 2016 adjusted results. The Company’s adjusted earnings outlook excludes projected integration, restructuring and realignment costs, which now are forecast to be approximately $40 million for the year. Excluding revenue, Xylem provides guidance only on a non-GAAP basis due to the inherent difficulty in forecasting certain amounts that would be included in GAAP earnings, such as discrete tax items, without unreasonable effort.

Second Quarter Segment Results

As previously announced, Xylem combined its Analytics, Sensus and Visenti businesses effective second quarter 2017. As a result of this change, the Company now reports the financial and operational results from these businesses as one segment currently referred to as Sensus & Analytics. Xylem’s Water Infrastructure segment no longer includes the results of the Analytics business. The Applied Water segment remains unchanged.

Water Infrastructure

Xylem’s Water Infrastructure segment consists of its portfolio of businesses serving clean water delivery, wastewater transport and treatment, and dewatering.

  • Second quarter 2017 revenue was $482 million, up one percent organically compared with the second quarter 2016. Strong industrial sector growth was fueled by dewatering demand in the construction industry as well as improved conditions in mining and oil and gas. This strength was partially offset by a decline in the public utility end market, where the Company faced a challenging comparison to the 15-percent growth generated in the year ago period, which benefited from the timing of large project deliveries. Growth in Emerging Markets continued to improve, up 11 percent in the quarter.
  • Second quarter reported operating income for the segment was $74 million. Adjusted operating income for the segment, which excludes $5 million of restructuring and realignment costs, was $79 million, a 10-percent increase over the same period in 2016. Reported operating margin for the Water Infrastructure segment was 15.4 percent, reflecting a 180-basis-point increase year-over-year. Adjusted operating margin increased 150 basis points to 16.4 percent due to benefits from global procurement and continuous improvement initiatives as well as operating leverage on volume growth, which was partially offset by cost inflation.

Applied Water

Xylem’s Applied Water segment consists of its portfolio of businesses in residential and commercial building services, and industrial applications.

  • Second quarter 2017 Applied Water revenue was $361 million, reflecting one-percent growth year-over-year on an organic basis. The U.S. residential and the commercial end markets continue to show strength, which was partially offset by softness in agriculture.
  • Second quarter reported operating income for the segment was $49 million, a four-percent decrease versus the prior year. Adjusted operating income, which excludes $5 million of restructuring and realignment charges, was flat year-over-year at $54 million. Applied Water segment reported operating margin was 13.6 percent, down 30 basis points over the prior year period. Adjusted operating margin increased 20 basis points to 15 percent as cost reductions and productivity initiatives more than offset inflation.

Sensus & Analytics

Xylem’s Sensus & Analytics segment consists of its portfolio of businesses in smart metering, network technologies, advanced data analytics and analytic instrumentation.

  • Second quarter 2017 Sensus & Analytics segment revenue was $321 million, up two percent on a pro forma organic basis over the prior year period. The Sensus business delivered growth across most applications, and its results compare with a particularly strong quarter in the year-ago period, which benefited from a new product launch and channel stocking.
  • The segment delivered operating income of $29 million, including $5 million of restructuring and acquisition-related costs. Excluding those costs, adjusted operating income for the segment was $34 million, with an adjusted operating margin of 10.6 percent. Adjusted operating margin increased 210 basis points primarily due to the addition of higher operating margins from Sensus. Cost reductions offset inflation and higher investments for growth. Adjusted operating margin was 13.1 percent, excluding the impact of Sensus purchase accounting.

Supplemental information on Xylem’s second quarter 2017 earnings and reconciliations for certain non-GAAP items is posted at investors.xyleminc.com. In addition, Sensus historical financial results for 2016 are also posted at investors.xyleminc.com.

About Xylem

Xylem (XYL) is a leading global water technology company committed to developing innovative technology solutions to the world’s water challenges. The Company’s products and services move, treat, analyze, monitor and return water to the environment in public utility, industrial, residential and commercial building services settings. With its October 2016 acquisition of Sensus, Xylem added smart metering, network technologies and advanced data analytics for water, gas and electric utilities to its portfolio of solutions. The combined Company’s nearly 16,000 employees bring broad applications expertise with a strong focus on identifying comprehensive, sustainable solutions. Headquartered in Rye Brook, New York with 2016 revenue of $3.8 billion, Xylem does business in more than 150 countries through a number of market-leading product brands.

The name Xylem is derived from classical Greek and is the tissue that transports water in plants, highlighting the engineering efficiency of our water-centric business by linking it with the best water transportation of all – that which occurs in nature. For more information, please visit us at www.xylem.com.

Forward-Looking Statements

This press release contains information that may constitute “forward-looking statements.” Forward-looking statements by their nature address matters that are, to different degrees, uncertain. Generally, the words “anticipate,” “estimate,” “expect,” “project,” “intend,” “plan,” “forecast,” “believe,” “target,” “will,” “could,” “would,” “should” and similar expressions identify forward-looking statements, which generally are not historical in nature. However, the absence of these words or similar expressions does not mean that a statement is not forward-looking.

These forward-looking statements include statements about the capitalization of Xylem Inc. (the “Company”), the Company’s restructuring and realignment, future strategic plans and other statements that describe the Company’s business strategy, outlook, objectives, plans, intentions or goals. All statements that address operating or financial performance, events or developments that we expect or anticipate will occur in the future – including statements relating to orders, revenues, operating margins and earnings per share growth, and statements expressing general views about future operating results – are forward-looking statements. Forward-looking statements involve known and unknown risks, uncertainties and other important factors that could cause actual results to differ materially from those expressed or implied in, or reasonably inferred from, such forward-looking statements. Factors that could cause results to differ materially from those anticipated include: economic, political and other risks associated with our international operations, including military actions, economic sanctions or trade embargoes that could affect customer markets, and non-compliance with laws, including foreign corrupt practice laws, export and import laws and competition laws; potential for unexpected cancellations or delays of customer orders in our reported backlog; our exposure to fluctuations in foreign currency exchange rates; competition and pricing pressures in the markets we serve; the strength of housing and related markets; ability to retain and attract key members of management; our relationship with and the performance of our channel partners; our ability to successfully identify, complete and integrate acquisitions, including the integration of Sensus; our ability to borrow or to refinance our existing indebtedness and availability of liquidity sufficient to meet our needs; changes in the value of goodwill or intangible assets; risks relating to product defects, product liability and recalls; governmental investigations; security breaches or other disruptions of our information technology systems; litigation and contingent liabilities; and other factors set forth in Item 1A of our Annual Report on Form 10-K for the year ended December 31, 2016, and those described from time to time in subsequent reports filed with the Securities and Exchange Commission. Forward-looking statements made herein are based on information currently available to the Company. The Company undertakes no obligation to publicly update or revise any forward-looking statements, whether as a result of new information, future events or otherwise, except as required by law.

 

XYLEM INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED INCOME STATEMENTS (Unaudited)

(in millions, except per share data)

       
        Three Months Six Months
For the period ended June 30,       2017   2016 2017   2016
Revenue $ 1,164 $ 932 $ 2,235 $ 1,779
Cost of revenue 705   563   1,364   1,081
Gross profit 459 369 871 698
Selling, general and administrative expenses 270 227 542 446
Research and development expenses 44 27 86 52
Restructuring and asset impairment charges, net 6   6   18   12
Operating income 139 109 225 188
Interest expense 21 20 41 34
Other non-operating income, net 3 1 2 1
Gain from sale of business     5  
Income before taxes 121 90 191 155
Income tax expense 21     19     35     18
Net income 100

71

156

137

Less: Net income attributable to non-controlling interests 1         1    
Net income attributable to Xylem $ 99   $

71

  $ 155   $ 137
Earnings per share:
Basic $ 0.55 $ 0.39 $ 0.87 $ 0.77
Diluted $ 0.55 $ 0.39 $ 0.86 $ 0.76
Weighted average number of shares:
Basic 179.6 179.1 179.6 178.8
Diluted 180.6 179.9 180.6 179.6
Dividends declared per share $ 0.1800 $ 0.1549 $

0.3600

$ 0.3098
 
 

XYLEM INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS (Unaudited)

(in millions, except per share amounts)

       
        June 30,
2017
December 31,
2016
 
ASSETS
Current assets:
Cash and cash equivalents $ 288 $ 308
Receivables, less allowances for discounts and doubtful accounts of $28 and $30 in 2017 and 2016, respectively 944 843
Inventories 554 522
Prepaid and other current assets 175   166  
Total current assets 1,961 1,839
Property, plant and equipment, net 627 616
Goodwill 2,717 2,632
Other intangible assets, net 1,184 1,201
Other non-current assets 218   186  
Total assets $ 6,707   $ 6,474  
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Accounts payable $ 442 $ 457
Accrued and other current liabilities 515 521
Short-term borrowings and current maturities of long-term debt 243   260  
Total current liabilities 1,200 1,238
Long-term debt 2,168 2,108
Accrued postretirement benefits 427 408
Deferred income tax liabilities 329 352
Other non-current accrued liabilities 201   161  
Total liabilities 4,325   4,267  
 
Stockholders’ equity:
Common Stock – par value $0.01 per share:
Authorized 750.0 shares, issued 191.9 shares and 191.4 shares in 2017 and 2016, respectively 2 2
Capital in excess of par value 1,894 1,876
Retained earnings 1,117 1,033
Treasury stock – at cost 12.4 shares and 11.9 shares in 2017 and 2016, respectively (428 ) (403 )
Accumulated other comprehensive loss (220 ) (318 )
Total stockholders’ equity 2,365   2,190  
Non-controlling interests 17 17
Total equity 2,382   2,207  
Total liabilities and stockholders’ equity $ 6,707   $ 6,474  
 
 

XYLEM INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)

(in millions)

       
For the six months ended June 30,       2017 2016
Operating Activities
Net income $ 156 $ 137
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation 55 41
Amortization 61 24
Share-based compensation 11 10
Restructuring and asset impairment charges 18 12
Gain from sale of business (5 )
Other, net 4 8
Payments for restructuring (17 ) (6 )
Changes in assets and liabilities (net of acquisitions):
Changes in receivables (70 ) (19 )
Changes in inventories (13 ) (39 )
Changes in accounts payable (19 ) 9
Other, net (30 ) (52 )
Net Cash – Operating activities 151   125  
Investing Activities
Capital expenditures (77 ) (62 )
Acquisition of business, net of cash acquired (6 ) (70 )
Proceeds from sale of business 11
Other, net 3   5  
Net Cash – Investing activities (69 ) (127 )
Financing Activities
Short-term debt issued 33 89
Short-term debt repaid (65 ) (77 )
Long-term debt issued 540
Long-term debt repaid (608 )
Repurchase of common stock (25 ) (3 )
Proceeds from exercise of employee stock options 7 16
Dividends paid (65 ) (56 )
Other, net   1  
Net Cash – Financing activities (115 ) (98 )
Effect of exchange rate changes on cash 13   6  
Net change in cash and cash equivalents (20 ) (94 )
Cash and cash equivalents at beginning of year 308   680  
Cash and cash equivalents at end of period $ 288   $ 586  
Supplemental disclosure of cash flow information:
Cash paid during the period for:
Interest $ 46 $ 34
Income taxes (net of refunds received) $ 47 $ 49
 
 
Xylem Inc. Non-GAAP Measures
 
 

Management reviews key performance indicators including revenue, gross margins, segment operating income and margins, orders growth, working capital and backlog, among others. In addition, we consider certain non-GAAP (or "adjusted") measures to be useful to management and investors evaluating our operating performance for the periods presented, and to provide a tool for evaluating our ongoing operations, liquidity and management of assets. This information can assist investors in assessing our financial performance and measures our ability to generate capital for deployment among competing strategic alternatives and initiatives, including but not limited to, dividends, acquisitions, share repurchases and debt repayment. Excluding revenue, Xylem provides guidance only on a non-GAAP basis due to the inherent difficulty in forecasting certain amounts that would be included in GAAP earnings, such as discrete tax items, without unreasonable effort. These adjusted metrics are consistent with how management views our business and are used to make financial, operating and planning decisions. These metrics, however, are not measures of financial performance under GAAP and should not be considered a substitute for revenue, operating income, net income, earnings per share (basic and diluted) or net cash from operating activities as determined in accordance with GAAP. We consider the following non-GAAP measures, which may not be comparable to similarly titled measures reported by other companies, to be key performance indicators:

 
“Organic revenue" and "Organic orders” defined as revenue and orders, respectively, excluding the impact of fluctuations in foreign currency translation and contributions from acquisitions and divestitures. Divestitures include sales of insignificant portions of our business that did not meet the criteria for classification as a discontinued operation. The period-over-period change resulting from foreign currency translation impacts is determined by translating current period and prior period activity using the same currency conversion rate.
 
“Constant currency” defined as financial results adjusted for foreign currency translation impacts by translating current period and prior period activity using the same currency conversion rate. This approach is used for countries whose functional currency is not the U.S. dollar.
 
“EBITDA” defined as earnings before interest, taxes, depreciation, amortization expense, and share-based compensation. “Adjusted EBITDA” reflects the adjustment to EBITDA to exclude restructuring and realignment costs, Sensus acquisition related costs, gain from sale of business and special charges. For Sensus historical adjustments, see Sensus Historical - Adjusted EBITDA table.
 
"Adjusted Operating Income", "Adjusted Segment Operating Income", "Adjusted Net Income" and “Adjusted EPS” defined as operating income, segment operating income, adjusted net income and earnings per share, adjusted to exclude restructuring and realignment costs, Sensus acquisition related costs, gain from sale of business, special charges and tax-related special items, as applicable. For Sensus historical adjustments, see Sensus Historical - Adjusted Operating Income table.
 
“Free Cash Flow” defined as net cash from operating activities, as reported in the Statement of Cash Flow, less capital expenditures as well as adjustments for other significant items that impact current results which management believes are not related to our ongoing operations and performance. Our definition of free cash flow does not consider certain non-discretionary cash payments, such as debt.
 
“Realignment costs” defined as costs not included in restructuring costs that are incurred as part of actions taken to reposition our business, including items such as professional fees, severance, relocation, travel, facility set-up and other costs.
 

“Sensus Acquisition Related Costs" defined as costs incurred by the Company associated with the acquisition of Sensus that are being reported within operating income. These costs include integration costs and costs related to the recognition of the backlog intangible asset recorded in purchase accounting.

 

“Special charges" defined as costs incurred by the Company, such as non-cash impairment charges, initial acquisition costs not related to Sensus and other special non-operating items, as well as interest expense related to the early extinguishment of debt during Q2 2016.

 

“Tax-related special items" defined as tax items, such as tax return versus tax provision adjustments, tax exam impacts, tax law change impacts, significant reserves for cash repatriation, excess tax benefits/losses and other discrete tax adjustments.

 

"Pro forma" defined as including the results of Sensus for the calendar period prior to the acquisition of Sensus by Xylem Inc. on October 31, 2016.

 
     
Xylem Inc. Non-GAAP Reconciliation
Reported vs. Organic & Constant Currency Orders
($ Millions)
                                   
(As Reported - GAAP) (As Adjusted - Organic) Constant Currency
  (A)   (B)   (C) (D)   (E) = B+C+D   (F) = E/A (G) = (E - C) / A
 

 

 

 

 

 

Orders Orders

Change

2017 v. 2016

% Change

2017 v. 2016

Acquisitions /
Divestitures

FX Impact

Change

Adj. 2017 v. 2016

% Change

Adj. 2017 v. 2016

2017 2016

Six Months Ended June 30

 
Xylem Inc. 2,349 1,811 538 30% (465) 26 99 5% 31%
 
Water Infrastructure 988 944 44 5% - 16 60 6% 6%
Applied Water 729 715 14 2% 3 10 27 4% 3%
Sensus & Analytics 632 152 480 316% (468) - 12 8% 316%
 

Quarter Ended June 30

 
Xylem Inc. 1,212 923 289 31% (228) 14 75 8% 33%
 
Water Infrastructure 521 483 38 8% - 9 47 10% 10%
Applied Water 375 361 14 4% 2 5 21 6% 5%
Sensus & Analytics 316 79 237 300% (230) - 7 9% 300%
 

Quarter Ended March 31

 
Xylem Inc. 1,137 888 249 28% (237) 12 24 3% 29%
 
Water Infrastructure 467 461 6 1% - 7 13 3% 3%
Applied Water 354 354 - 0% 1 5 6 2% 1%
Sensus & Analytics 316 73 243 333% (238) - 5 7% 333%
 
 
Xylem Inc. Non-GAAP Reconciliation
Reported vs. Organic & Constant Currency Revenue
($ Millions)
                                       
(As Reported - GAAP) (As Adjusted - Organic) Constant Currency
  (A)   (B)   (C)   (D)   (E) = B+C+D   (F) = E/A (G) = (E - C) / A
 

 

 

 

 

 

Revenue Revenue

Change

2017 v. 2016

% Change

2017 v. 2016

Acquisitions /
Divestitures

FX Impact

Change
Adj. 2017 v. 2016

% Change

Adj. 2017 v. 2016

2017 2016

Six Months Ended June 30

 
Xylem Inc. 2,235 1,779 456 26% (478) 25 3 0% 27%
 
Water Infrastructure 901 924 (23) -2% - 15 (8) -1% -1%
Applied Water 694 699 (5) -1% 3 10 8 1% 1%
Sensus & Analytics 640 156 484 310% (481) - 3 2% 310%
 

Quarter Ended June 30

 
Xylem Inc. 1,164 932 232 25% (236) 14 10 1% 26%
 
Water Infrastructure 482 484 (2) 0% - 9 7 1% 1%
Applied Water 361 366 (5) -1% 2 5 2 1% 0%
Sensus & Analytics 321 82 239 291% (238) - 1 1% 291%
 

Quarter Ended March 31

 
Xylem Inc. 1,071 847 224 26% (242) 11 (7) -1% 28%
 
Water Infrastructure 419 440 (21) -5% - 6 (15) -3% -3%
Applied Water 333 333 - 0% 1 5 6 2% 2%
Sensus & Analytics 319 74 245 331% (243) - 2 3% 331%
 
 

Xylem Inc. Non-GAAP Reconciliation - Pro forma with Sensus

Reported vs. Organic & Constant Currency Revenue
($ Millions)
                                       
(As Reported - GAAP) (As Adjusted - Organic) Constant Currency
  (A)   (B)   (C)   (D)   (E) = B+C+D   (F) = E/A (G) = (E - C) / A
 

 

 

 

 

 

Revenue Revenue

Change

2017 v. 2016

% Change

2017 v. 2016

Acquisitions /
Divestitures

FX Impact

Change

Adj. 2017 v. 2016

% Change

Adj. 2017 v. 2016

2017 2016 (a)

Six Months Ended June 30

 
Xylem Inc. 2,235 2,244 (9)

0%

1 34 26 1% 1%
 
Water Infrastructure 901 924 (23)

-2%

- 15 (8) -1% -1%
Applied Water 694 699 (5)

-1%

3 10 8 1% 1%
Sensus & Analytics 640 621 19

3%

(2) 9 26 4% 5%
 

Quarter Ended June 30

 
Xylem Inc. 1,164 1,169 (5)

0%

2 19 16 1% 1%
 
Water Infrastructure 482 484 (2)

0%

- 9 7 1% 1%
Applied Water 361 366 (5)

-1%

2 5 2 1% 0%
Sensus & Analytics 321 319 2

1%

- 5 7 2% 2%
 

Quarter Ended March 31

 
Xylem Inc. 1,071 1,075 (4) 0% (1) 15 10 1% 1%
 
Water Infrastructure 419 440 (21) -5% - 6 (15) -3% -3%
Applied Water 333 333 - 0% 1 5 6 2% 2%
Sensus & Analytics 319 302 17 6% (2) 4 19 6% 7%
 
 

(a) Includes Sensus and Visenti revenue for the six months ended June 30, 2016, which was prior to Xylem acquiring the businesses.

 
 
Xylem Inc. Non-GAAP Reconciliation
Adjusted Operating Income
($ Millions)
                                 
Q1 Q2 YTD
2017   2016 2017   2016 2017   2016
Total Revenue
• Total Xylem 1,071 847 1,164 932 2,235 1,779
• Water Infrastructure 419 440 482 484

 

901 924
• Applied Water 333 333 361 366

 

694 699
• Sensus & Analytics 319 74 321 82 640 156
                                 
Operating Income
• Total Xylem 86 79 139 109 225 188
• Water Infrastructure 40 51 74 66

 

114 117
• Applied Water 36 39 49 51

 

85 90
• Sensus & Analytics 25 3 29 4 54 7
• Total Segments 101 93 152 121 253 214
 
Operating Margin
• Total Xylem 8.0% 9.3% 11.9% 11.7% 10.1% 10.6%
• Water Infrastructure 9.5% 11.6% 15.4% 13.6% 12.7% 12.7%
• Applied Water 10.8% 11.7% 13.6% 13.9% 12.2% 12.9%
• Sensus & Analytics 7.8% 4.1% 9.0% 4.9% 8.4% 4.5%
• Total Segments       9.4%   11.0%     13.1%   13.0%     11.3%   12.0%
 
Sensus Acquisition Related Costs
• Total Xylem 10 - 4 - 14 -
• Water Infrastructure - - - - - -
• Applied Water - - - - - -
• Sensus & Analytics 6 - 3 - 9 -
• Total Segments 6 - 3 - 9 -
 
Special Charges
• Total Xylem 5 4 - 1 5 5
• Water Infrastructure - 2 - - - 2
• Applied Water 5 - - - 5 -
• Sensus & Analytics - 2 - 1 - 3
• Total Segments 5 4 - 1 5 5
 
Restructuring & Realignment Costs
• Total Xylem 11 9 12 11 23 20
• Water Infrastructure 4 3 5 6 9 9
• Applied Water 4 3 5 3 9 6
• Sensus & Analytics 3 1 2 2 5 3
• Total Segments 11 7 12 11 23 18
                                 
Adjusted Operating Income
• Total Xylem 112 92 155 121 267 213
• Water Infrastructure 44 56 79 72

 

123 128
• Applied Water 45 42 54 54

 

99 96
• Sensus & Analytics 34 6 34 7

 

68 13
• Total Segments 123 104 167 133 290 237
 
Adjusted Operating Margin
• Total Xylem 10.5% 10.9% 13.3% 13.0% 11.9% 12.0%
• Water Infrastructure 10.5% 12.7% 16.4% 14.9% 13.7% 13.9%
• Applied Water 13.5% 12.6% 15.0% 14.8% 14.3% 13.7%
• Sensus & Analytics 10.7% 8.1% 10.6% 8.5% 10.6% 8.3%
• Total Segments       11.5%   12.3%     14.3%   14.3%     13.0%   13.3%
 
 
Xylem Inc. Non-GAAP Reconciliation
Adjusted Diluted EPS
($ Millions, except per share amounts)
             
 
 
 
   
Q2 2017 Q2 2016
As Reported Adjustments Adjusted As Reported Adjustments Adjusted
Total Revenue 1,164 1,164 932 932
Operating Income 139 16 a 155 109 12 a 121
Operating Margin 11.9 % 13.3 % 11.7 % 13.0 %
Interest Expense (21 ) (21 ) (20 ) 8 b (12 )
Other Non-Operating Income (Expense)   3       3     1       1  
Income before Taxes 121 16 137 90 20 110
Provision for Income Taxes (21 ) (9 ) c (30 ) (19 ) (4 ) c (23 )
Minority interest   (1 )     (1 )   -       -  
Net Income attributable to Xylem   99     7     106     71     16     87  
Diluted Shares         180.6           180.6       179.9           179.9  
Diluted EPS       $ 0.55     $ 0.04     $ 0.59     $ 0.39     $ 0.09     $ 0.48  
 
Year-over-year currency translation impact on current year diluted EPS       $ (0.02 )       $ (0.02 )
Diluted EPS at Constant Currency       $ 0.57     $ 0.04     $ 0.61  
 
 
 
 
                   
Q2 YTD 2017 Q2 YTD 2016
As Reported Adjustments Adjusted As Reported Adjustments Adjusted
Total Revenue 2,235 2,235 1,779 1,779
Operating Income 225 42 a 267 188 25 a 213
Operating Margin 10.1 % 11.9 % 10.6 % 12.0 %
Interest Expense (41 ) (41 ) (34 ) 8 b (26 )
Other Non-Operating Income (Expense) 2 2 1 1
Gain from sale of business   5     (5 )   -     -       -  
Income before Taxes 191 37 228 155 33 188
Provision for Income Taxes (35 ) (15 ) c (50 ) (18 ) (21 ) c (39 )
Minority interest   (1 )     (1 )      
Net Income attributable to Xylem   155     22     177     137     12     149  
Diluted Shares         180.6           180.6       179.6           179.6  
Diluted EPS       $ 0.86     $ 0.12     $ 0.98     $ 0.76     $ 0.07     $ 0.83  
 
Year-over-year currency translation impact on current year diluted EPS       $ (0.04 )   $ 0.01     $ (0.03 )
Diluted EPS at Constant Currency       $ 0.90     $ 0.11     $ 1.01  
 
a   Second quarter: Restructuring & realignment costs of $12 million and $11 million in 2017 and 2016, respectively, Sensus acquisition related costs of $4 million in 2017 and special charges of $1 million of initial acquisition costs in 2016.
 
First half: Restructuring & realignment costs of $23 million and $20 million in 2017 and 2016, respectively, Sensus acquisition related costs of $19 million in 2017 and special charges of $5 million of initial acquisition costs in 2016.
 
b Special charges consisting of $8 million of costs related to the early extinguishment of debt for the second quarter and first half of 2016.
 
c

Second quarter: Net tax impact on restructuring & realignment costs of $5 million and $3 million in 2017 and 2016, respectively, net tax impact on Sensus acquisition related costs of $1 million in 2017, net tax impact on special charges of $4 million in 2016 and tax-related special items of $3 million of expense in 2017 and $3 million of benefit in 2016.

First half: Net tax impact on restructuring & realignment costs of $7 million and $5 million in 2017 and 2016, respectively, net tax impact on Sensus acquisition related costs of $5 million in 2017, net tax impact on special charges of $2 million and $5 million in 2017 and 2016, respectively, net tax impact of $2 million on the gain from sale of business in 2017 and tax-related special charges of $3 million and $11 million in 2017 and 2016, respectively.

 
 
Xylem Inc. Non-GAAP Reconciliation
Net Cash - Operating Activities vs. Free Cash Flow
($ Millions)
               
 
Q1 Q2 Six Months Ended
2017 2016 2017 2016 2017 2016
 
Net Cash - Operating Activities $ 58 $ 41 $ 93 $ 84 $ 151 $ 125
 
Capital Expenditures (49 ) (37 ) (28 ) (25 ) (77 ) (62 )
           
Free Cash Flow $ 9   $ 4   $ 65   $ 59   $ 74   $ 63  
 
Cash paid for Sensus acquisition related costs (17 ) - (5 ) - (22 ) -
           
Free Cash Flow, excluding Sensus Acquisition Related Costs $ 26   $ 4   $ 70   $ 59   $ 96   $ 63  
 
Net Income 56 66 100 71 156 137
 
Gain from sale of business (5 ) - - - (5 ) -
 
Special Charges - Non-cash impairment 5 - - (8 ) 5 (8 )
 
Sensus acquisition related costs   (10 )   -     (4 )   -     (14 )   -  
 
Net Income, excluding gain on sale of businesses, non-cash impairment charges and Sensus Acquisition Related Costs $ 66   $ 66   $ 104   $ 79   $ 170   $ 145  
 
Free Cash Flow Conversion   39 %   6 %   67 %   75 %   56 %   43 %
 
 
Xylem Inc. Non-GAAP Reconciliation
EBITDA and Adjusted EBITDA by Quarter
             
($ Millions)
 

 

2017

Q1 Q2 Q3 Q4 Total
 
Net Income 56 100 156
 
Income Tax Expense 14 21 35
 
Interest Expense (Income), net 20 20 40
Depreciation 28 27 55
Amortization 31 30 61
Stock Compensation 6 5 11
         
EBITDA 155 203 - - 358
 
Restructuring & Realignment 11 12 23
 
Gain on sale of business (5) - (5)
 
Sensus Acquisition Related Costs 7 2 9
 
Special Charges 5 - 5
         
Adjusted EBITDA 173 217 - - 390
 
Revenue 1,071 1,164     2,235
 
Adjusted EBITDA Margin 16.2% 18.6%     17.4%
 
 

 

2016

Q1 Q2 Q3 Q4 Total
 
Net Income 66 71 73 50 260
 
Income Tax Expense (1) 19 22 40 80
 
Interest Expense (Income), net 14 19 16 19 68
Depreciation 20 21 20 26 87
Amortization 12 12 12 28 64
Stock Compensation 5 5 5 3 18
         
EBITDA 116 147 148 166 577
 
Restructuring & Realignment 9 11 12 15 47
 
Sensus Acquisition Related Costs - - 10 36 46
 
Special Charges 4 1 - - 5
         
Adjusted EBITDA 129 159 170 217 675
 
Revenue 847 932 897 1,095 3,771
 
Adjusted EBITDA Margin 15.2% 17.1% 19.0% 19.8% 17.9%
 

Source: Xylem Inc.

Xylem Inc.
Media
Kelly McAndrew, +1-914-323-5969
Kelly.McAndrew@xyleminc.com
or
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Matt Latino, +1-914-323-5821
Matthew.Latino@xyleminc.com