Xylem Reports Second Quarter 2023 Results

August 2, 2023
  • Second-quarter revenue grew 26%, including May 24 acquisition of Evoqua; up 15% organically
  • Second-quarter earnings per share of $0.45, down 27%; adjusted earnings per share of $0.98, up 32%
  • Raising full-year revenue guidance to approximately $7.2B, up 30%, with organic revenue growth of 9% to 10%, up from 8% to 9%
  • Lifting full-year adjusted EPS guidance to $3.50 to $3.70, from $3.15 to $3.35 on strong momentum from both companies

Xylem Inc. (NYSE: XYL), a leading global water technology company dedicated to solving the world’s most challenging water issues, today reported second-quarter results, which include the May 24 acquisition of Evoqua Water Technologies Corp. (Evoqua). The Company reported total revenue of $1.7 billion, with reported growth of 26 percent and organic growth of 15 percent, surpassing prior guidance, on strong commercial and operational execution. Orders were up 10 percent on a reported basis and down 2 percent organically, while backlog grew to $5.3 billion, up 7 percent organically and including $1.3 billion from Evoqua, with resilient underlying demand. Second-quarter earnings, excluding the acquisition, exceeded Xylem’s previous stand-alone guidance.

“This past quarter, we took another transformative step as a leading water solutions company to help our communities and customers solve the greatest water challenges facing our society and economies: water scarcity, resilience of our infrastructure to climate change, and the need to address these challenges affordably with the power of technology and innovation,” said Patrick Decker, Xylem president and CEO. “These challenges are intensifying every day and our powerful portfolio is now even more strongly positioned to deliver solutions at scale.”

“We are already seeing the momentum created by integrating two strong companies. On the strength of the market’s continuing underlying demand and our team’s disciplined execution, we are further raising our full-year guidance on revenues, margins and earnings per share.”

Net income was $92 million, or $0.45 per share. Net income margin decreased 290 basis points to 5.3 percent. These results are driven by higher acquisition and integration costs related to the Evoqua transaction, higher purchase accounting intangible amortization, and higher restructuring and realignment costs, more than offsetting strong operational performance. Coinciding with the Evoqua acquisition, Xylem has updated its adjusted operating income and earnings per share to add back non-cash purchase accounting intangible amortization and recast the 2022 amounts to reflect the change on a comparative basis. Adjusted net income was $202 million, or $0.98 per share, which excludes the impacts of special items of purchase accounting intangible amortization, restructuring, realignment, and special charges.

Second-quarter adjusted earnings before interest, tax, depreciation, and amortization (EBITDA) margin was 19.1 percent, reflecting a year-over-year increase of 250 basis points. Excluding Evoqua results, adjusted EBITDA margin was 18.6 percent, up 200 basis points over the prior year period. Strong price realization more than offset inflation and, coupled with productivity savings and higher volume, drove the margin expansion, exceeding the impact of strategic investments.

Following the close of the Evoqua acquisition, Xylem is now reporting in four segments: Measurement & Control Solutions; Water Infrastructure, now including legacy-Evoqua’s Applied Product Technologies segment; Applied Water; and Integrated Solutions & Services as a new stand-alone segment (with the same perimeter as the legacy-Evoqua segment of the same name) to provide continued transparency on the segment’s performance.

Outlook

Xylem is updating its full-year 2023 guidance to reflect strong organic performance, the combination with Evoqua and the adjustment of purchase accounting intangible amortization.

Xylem now expects full-year 2023 revenue of approximately $7.2 billion, up approximately 30 percent on a reported basis and up 9 to 10 percent on an organic basis. This represents an increase from the Company’s previous full-year guidance of 8 to 9 percent on an organic and reported basis.

Full-year 2023 adjusted EBITDA margin is expected to be approximately 18 percent, lifted from the previous range of 17.5 to 18.0 percent. This results in adjusted earnings per share of $3.50 to $3.70, raised from the previous range of $3.15 to $3.35. This increase of $0.35 at the mid-point includes an organic increase of $0.15 driven by continuing strong demand, and commercial and operational momentum.

Further 2023 planning assumptions are included in Xylem’s second-quarter 2023 earnings materials posted at www.xylem.com/investors. 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

Measurement & Control Solutions

Xylem’s Measurement & Control Solutions segment consists of its portfolio of businesses in smart metering, network technologies, advanced infrastructure analytics, and analytic instrumentation.

  • Second-quarter 2023 revenue was $415 million, up 20 percent on a reported basis and 21 percent organically, versus the prior year period. Growth was robust across the portfolio and led primarily by strong demand and backlog execution in smart metering.
  • Second-quarter reported operating income for the segment was $26 million, compared to a $5 million loss in the same period last year. Adjusted operating income, which excludes $3 million of restructuring and realignment costs and $17 million of purchase accounting intangible amortization, was $46 million, a 188 percent increase versus the prior year period, recast to add back $17 million of non-cash purchase accounting amortization. The segment reported operating margin was 6.3 percent, up 770 basis points versus the prior year period. Adjusted operating margin of 11.1 percent increased 650 basis points over the prior year period. Adjusted EBITDA margin was 15.7 percent, up 590 basis points from the prior year period. Higher volume, strong price realization, and productivity savings exceeded the impact of inflation and unfavorable mix.

Water Infrastructure

Xylem’s Water Infrastructure segment, now including legacy-Evoqua’s Applied Product Technologies segment, consists of its portfolio of businesses serving clean water delivery, wastewater transport and treatment, and dewatering.

  • Second-quarter 2023 revenue was $704 million, a 20 percent increase on a reported basis and 13 percent organically, compared with second-quarter 2022. This strong growth was driven by price realization and robust utilities and industrial demand, particularly in the U.S. and Western Europe.
  • Second-quarter reported operating income for the segment was $106 million, a 2 percent decrease versus the same period last year. Adjusted operating income, which excludes $12 million of special charges, $3 million of restructuring and realignment costs, and $8 million of purchase accounting intangible amortization, was $129 million. This represents a 15 percent increase versus the prior year period, which was recast to add back $1 million of non-cash purchase accounting amortization. Reported operating margin for the segment was 15.1 percent, down 320 basis points versus the prior year period, and adjusted operating margin was 18.3 percent, down 70 basis points versus the prior year period. Adjusted EBITDA margin was 21.4 percent, flat from the prior year. Excluding Evoqua, adjusted EBITDA margin was 21.6 percent, up 20 basis points on the prior year. Favorable price realization and volume improvements were offset by investments, foreign exchange effects, and unfavorable mix.

Applied Water

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

  • Second-quarter 2023 revenue was $478 million, an 11 percent increase on a reported basis and 12 percent organically, year-over-year. Growth was driven by strong price realization and demand across both industrial and building solutions end-markets, particularly in the U.S. and Emerging Markets.
  • Second-quarter reported operating income for the segment was $84 million, a 38 percent increase versus the same period last year. Adjusted operating income, which excludes $2 million of restructuring and realignment costs, was $86 million, a 37 percent increase versus the same period last year. The segment reported operating margin was 17.6 percent, up 340 basis points versus the prior year period. Adjusted operating margin increased 330 basis points over the prior year period to 18.0 percent. Adjusted EBITDA margin was 19.0 percent, up 290 basis points from the prior year. Margin expansion was driven by strong price realization, more than offsetting inflation, coupled with productivity savings.

Integrated Solutions & Services

Xylem’s new Integrated Solutions & Services segment, as of May 24, consists of its portfolio of businesses providing water treatment systems and solutions, with an extensive service branch network and fleet of mobile assets.

  • Second-quarter 2023 included revenue of $125 million.
  • Second-quarter reported operating loss for the segment was $7 million. Adjusted operating income was $18 million, which excludes $7 million of special charges, $7 million of restructuring and realignment costs, and $11 million of purchase accounting intangible amortization. The segment reported operating margin was (5.6) percent. Adjusted operating margin was 14.4 percent. Adjusted EBITDA margin was 24.0 percent reflecting strong margin performance driven by effective price-cost discipline and productivity.

Supplemental information on Xylem’s second quarter 2023 earnings and reconciliations for certain non-GAAP items is posted at www.xylem.com/investors.

About Xylem

Xylem (XYL) is a leading global water technology company committed to solving the world’s critical water, wastewater, and water-related challenges through technology, innovation, and expertise. Our more than 22,000 diverse employees delivered combined pro forma revenue of $7.3 billion in 2022. We are creating a more sustainable world by enabling our customers to optimize water and resource management and helping communities in more than 150 countries become water-secure. Join us in the effort at www.xylem.com and Let’s Solve Water.

Forward-Looking Statements

This press release contains “forward-looking statements" within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. Generally, the words “anticipate,” “estimate,” “expect,” “project,” “intend,” “plan,” "contemplate," "predict," “forecast,” “likely,” “believe,” “target,” “will,” “could,” “would,” “should,” "potential," "may" and similar expressions or their negative, may, but are not necessary to, identify forward-looking statements. By their nature, forward-looking statements address uncertain matters and include any statements that: are not historical, such as statements about our strategy, financial plans, outlook, objectives, plans, intentions or goals (including those related to our social, environmental and other sustainability goals); or address possible or future results of operations or financial performance, including statements relating to orders, revenues, operating margins and earnings per share growth.

Although we believe that the expectations reflected in any of our forward-looking statements are reasonable, actual results could differ materially from those projected or assumed in any of our forward-looking statements. Our future financial condition and results of operations, as well as any forward-looking statements, are subject to change and to inherent risks and uncertainties, many of which are beyond our control. Important factors that could cause our actual results, performance and achievements, or industry results to differ materially from estimates or projections contained in or implied by our forward-looking statements include, among others, the following: the impact of overall industry and general economic conditions, including industrial, governmental, and public and private sector spending, inflation, interest rates and related monetary policy by governments in response to inflation, and the strength of the residential and commercial real estate markets, on economic activity and our operations; geopolitical events, including the war between Russia and Ukraine, and regulatory, economic and other risks associated with our global sales and operations, including with respect to domestic content requirements applicable to projects with governmental funding; the global impact of the COVID-19 pandemic on the macroeconomy and our business, operations, growth, and financial condition; actual or potential other epidemics, pandemics or global health crises; availability, shortage or delays in receiving electronic components (in particular, semiconductors), parts and raw materials from our supply chain; manufacturing and operating cost increases due to macroeconomic conditions, including inflation, energy supply, supply chain shortages, logistics challenges, tight labor markets, prevailing price changes, tariffs and other factors; demand for our products, disruption, competition or pricing pressures in the markets we serve; cybersecurity incidents or other disruptions of information technology systems on which we rely, or involving our products; disruptions in operations at our facilities or that of third parties upon which we rely; failure to successfully execute large projects, including with respect to meeting performance guarantees and customers’ safety requirements; our ability to retain and attract senior management and other diverse and key talent, as well as competition for overall talent and labor; difficulty predicting our financial results; defects, security, warranty and liability claims, and recalls with respect to products; safe and compliant handling of wastewater and hazardous materials; availability, regulation or interference with radio spectrum used by certain of our products; uncertainty related to restructuring and realignment actions and related costs and savings; our ability to continue strategic investments for growth; our ability to successfully identify, execute and integrate acquisitions; volatility in served markets or impacts on our business and operations due to weather conditions, including the effects of climate change; fluctuations in foreign currency exchange rates; our ability to borrow or refinance our existing indebtedness, and uncertainty around the availability of liquidity sufficient to meet our needs; risk of future impairments to goodwill and other intangible assets; failure to comply with, or changes in, laws or regulations, including those pertaining to anti-corruption, data privacy and security, export and import, our products, competition, and the environment and climate change; changes in our effective tax rates or tax expenses; legal, governmental or regulatory claims, investigations or proceedings and associated contingent liabilities; risks related to our recently completed acquisition of Evoqua, including related to our ability to retain and hire key personnel, the realization of expected benefits and synergies, the need to incur additional or unexpected costs, charges or expenses associated with the integration of the combined companies, delays or challenges with the integration, potential adverse reactions or changes to relationships with customers, suppliers, distributors and other business partners, competitive responses to the acquisition, actual or potential litigation and associated costs and expenses, and impacts to our share price and dilution of shareholders’ ownership; and other factors set forth under “Item 1A. Risk Factors” in our Annual Report on Form 10-K for the year ended December 31, 2022 ("2022 Annual Report") and in subsequent filings we make with the Securities and Exchange Commission (“SEC”).

Forward-looking and other statements in this press release regarding our environmental and other sustainability plans and goals are not an indication that these statements are necessarily material to investors or are required to be disclosed in our filings with the SEC. In addition, historical, current, and forward-looking social, environmental and sustainability-related statements may be based on standards for measuring progress that are still developing, internal controls and processes that continue to evolve, and assumptions that are subject to change in the future. All forward-looking statements made herein are based on information currently available to us as of the date of this press release. We undertake 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,

2023

 

2022

 

2023

 

2022

Revenue

$

1,722

 

$

1,364

 

$

3,170

 

$

2,636

Cost of revenue

 

1,071

 

 

844

 

 

1,973

 

 

1,649

Gross profit

 

651

 

 

520

 

 

1,197

 

 

987

Selling, general and administrative expenses

 

446

 

 

314

 

 

800

 

 

618

Research and development expenses

 

58

 

 

53

 

 

111

 

 

105

Restructuring and asset impairment charges

 

28

 

 

7

 

 

36

 

 

7

Operating income

 

119

 

 

146

 

 

250

 

 

257

Interest expense

 

12

 

 

12

 

 

21

 

 

25

Other non-operating income, net

 

7

 

 

2

 

 

11

 

 

1

Gain from sale of business

 

 

 

 

 

 

 

1

Income before taxes

 

114

 

 

136

 

 

240

 

 

234

Income tax expense

 

22

 

 

24

 

 

49

 

 

40

Net income

$

92

 

$

112

 

$

191

 

$

194

Earnings per share:

 

 

 

 

 

 

 

Basic

$

0.45

 

$

0.62

 

$

0.99

 

$

1.07

Diluted

$

0.45

 

$

0.62

 

$

0.98

 

$

1.07

Weighted average number of shares:

 

 

 

 

 

 

 

Basic

 

205.5

 

 

180.2

 

 

193.0

 

 

180.2

Diluted

 

206.7

 

 

180.6

 

 

194.0

 

 

180.8

 

XYLEM INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS (Unaudited)

(in millions, except per share amounts)

 

 

June 30,
2023

 

December 31,
2022

 

 

 

 

ASSETS

 

 

 

Current assets:

 

 

 

Cash and cash equivalents

$

708

 

 

$

944

 

Receivables, less allowances for discounts, returns and credit losses of $45 and $50 in 2023 and 2022, respectively

 

1,659

 

 

 

1,096

 

Inventories

 

1,143

 

 

 

799

 

Prepaid and other current assets

 

225

 

 

 

173

 

Total current assets

 

3,735

 

 

 

3,012

 

Property, plant and equipment, net

 

1,144

 

 

 

630

 

Goodwill

 

7,108

 

 

 

2,719

 

Other intangible assets, net

 

3,188

 

 

 

930

 

Other non-current assets

 

922

 

 

 

661

 

Total assets

$

16,097

 

 

$

7,952

 

LIABILITIES AND STOCKHOLDERS’ EQUITY

 

 

 

Current liabilities:

 

 

 

Accounts payable

$

968

 

 

$

723

 

Accrued and other current liabilities

 

1,074

 

 

 

867

 

Short-term borrowings and current maturities of long-term debt

 

240

 

 

 

 

Total current liabilities

 

2,282

 

 

 

1,590

 

Long-term debt

 

2,267

 

 

 

1,880

 

Accrued post-retirement benefits

 

293

 

 

 

286

 

Deferred income tax liabilities

 

738

 

 

 

222

 

Other non-current accrued liabilities

 

607

 

 

 

471

 

Total liabilities

 

6,187

 

 

 

4,449

 

Stockholders’ equity:

 

 

 

Common stock – par value $0.01 per share:

 

 

 

Authorized 750.0 shares, issued 256.6 shares and 196.0 shares in 2023 and 2022, respectively

 

3

 

 

 

2

 

Capital in excess of par value

 

8,495

 

 

 

2,134

 

Retained earnings

 

2,344

 

 

 

2,292

 

Treasury stock – at cost 15.9 shares and 15.8 shares in 2023 and 2022, respectively

 

(717

)

 

 

(708

)

Accumulated other comprehensive loss

 

(226

)

 

 

(226

)

Total stockholders’ equity

 

9,899

 

 

 

3,494

 

Non-controlling interests

 

11

 

 

 

9

 

Total equity

 

9,910

 

 

 

3,503

 

Total liabilities and stockholders’ equity

$

16,097

 

 

$

7,952

 

 

XYLEM INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited) (in millions)

 

For the six months ended June 30,

2023

 

2022

Operating Activities

 

 

 

Net income

 

191

 

 

 

194

 

Adjustments to reconcile net income to net cash provided by operating activities:

 

 

 

Depreciation

 

69

 

 

 

56

 

Amortization

 

83

 

 

 

62

 

Share-based compensation

 

27

 

 

 

18

 

Restructuring and asset impairment charges

 

36

 

 

 

7

 

Gain from sale of business

 

 

 

 

(1

)

Other, net

 

(5

)

 

 

6

 

Payments for restructuring

 

(9

)

 

 

(5

)

Changes in assets and liabilities (net of acquisitions):

 

 

 

Changes in receivables

 

(122

)

 

 

(119

)

Changes in inventories

 

(57

)

 

 

(189

)

Changes in accounts payable

 

36

 

 

 

40

 

Changes in accrued and deferred taxes

 

(86

)

 

 

(2

)

Other, net

 

(154

)

 

 

(35

)

Net Cash – Operating activities

 

9

 

 

 

32

 

Investing Activities

 

 

 

Capital expenditures

 

(103

)

 

 

(95

)

Acquisitions of businesses, net of cash acquired

 

(476

)

 

 

 

Proceeds from sale of business

 

91

 

 

 

1

 

Proceeds from the sale of property, plant and equipment

 

 

 

 

3

 

Cash received from investments

 

 

 

 

4

 

Cash paid for investments

 

 

 

 

(7

)

Cash paid for equity investments

 

(56

)

 

 

(1

)

Cash received from interest rate swaps

 

38

 

 

 

 

Cash received from cross-currency swaps

 

14

 

 

 

11

 

Other, net

 

3

 

 

 

 

Net Cash – Investing activities

 

(489

)

 

 

(84

)

Financing Activities

 

 

 

Short-term debt issued, net

 

74

 

 

 

 

Long-term debt issued, net

 

275

 

 

 

 

Long-term debt repaid

 

(1

)

 

 

 

Repurchase of common stock

 

(9

)

 

 

(52

)

Proceeds from exercise of employee stock options

 

40

 

 

 

3

 

Dividends paid

 

(139

)

 

 

(110

)

Other, net

 

(5

)

 

 

1

 

Net Cash – Financing activities

 

235

 

 

 

(158

)

Effect of exchange rate changes on cash

 

9

 

 

 

(26

)

Net change in cash and cash equivalents

 

(236

)

 

 

(236

)

Cash and cash equivalents at beginning of year

 

944

 

 

 

1,349

 

Cash and cash equivalents at end of period

$

708

 

 

$

1,113

 

Supplemental disclosure of cash flow information:

 

 

 

Cash paid during the period for:

 

 

 

Interest

$

30

 

 

$

40

 

Income taxes (net of refunds received)

$

135

 

 

$

42

 

 
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 items to represent the non-GAAP measures we consider to be key performance indicators, as well as the related reconciling items to the most directly comparable measure calculated and presented in accordance with GAAP. The non-GAAP measures may not be comparable to similarly titled measures reported by other companies.
 
“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 or discontinuance 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 and amortization expense. “Adjusted EBITDA” and "Adjusted Segment EBITDA" reflect the adjustments to EBITDA and segment EBITDA, respectively, to exclude share-based compensation charges, restructuring and realignment costs, gain or loss from sale of businesses and special charges.
 
"Adjusted EBITDA Margin" and "Adjusted Segment EBITDA Margin" defined as adjusted EBITDA and adjusted segment EBITDA divided by total revenue and segment revenue, respectively.
 
"Adjusted Operating Income", "Adjusted Segment Operating Income", "Adjusted Net Income" and “Adjusted EPS” defined as operating income, segment operating income, net income and earnings per share, adjusted to exclude restructuring and realignment costs, amortization of acquired intangible assets, gain or loss from sale of businesses, special charges and tax-related special items, as applicable.
 
"Adjusted Operating Margin" and "Adjusted Segment Operating Margin" defined as adjusted operating income and adjusted segment operating income divided by total revenue and segment revenue, respectively.
 
“Free Cash Flow” defined as net cash from operating activities, as reported in the Statement of Cash Flows, less capital expenditures, and "Free Cash Flow Conversion" defined as Free Cash Flows divided by net income, excluding the gain on sale of businesses and other non-recurring, significant non-cash impacts, such as non-cash impairment charges and significant deferred tax items. Our definitions of "free cash flow" and "free cash flow conversion" do not consider certain non-discretionary cash payments, such as debt.
 
"Adjusted Free Cash Flow" defined as free cash flow adjusted for significant cash items for which the corresponding income statement impact does not occur within the same fiscal year.
 
“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.
 
“Special charges" defined as costs incurred by the Company, such as acquisition and integration related costs, non-cash impairment charges and both operating and non-operating adjustments for costs related to the UK pension plan buyout.
 
“Tax-related special items" defined as tax items, such as tax return versus tax provision adjustments, tax exam impacts, tax law change impacts, excess tax benefits/losses and other discrete tax adjustments.
 
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

 

 

 

 

Change

 

% Change

 

Acquisitions /
Divestitures

 

 

 

Change

 

% Change

 

 

Orders

 

Orders

 

2023 v. 2022

 

2023 v. 2022

 

 

FX Impact

 

Adj. 2023 v. 2022

 

Adj. 2023 v. 2022

 

 

2023

 

2022

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Six Months Ended June 30
Xylem Inc.

3,426

3,399

27

 

1

%

(222

)

76

(119

)

(4

%)

3

%

Water Infrastructure

1,390

1,391

(1

)

(0

%)

(59

)

42

(18

)

(1

%)

3

%

Applied Water

928

985

(57

)

(6

%)

-

 

24

(33

)

(3

%)

(3

%)

Measurement & Control Solutions

945

1,023

(78

)

(8

%)

-

 

10

(68

)

(7

%)

(7

%)

Integrated Solutions and Services

163

163

 

n/a 

(163

)

-

-

 

n/a 

n/a 

 
Quarter Ended June 30
Xylem Inc.

1,856

1,684

172

 

10

%

(222

)

23

(27

)

(2

%)

12

%

Water Infrastructure

751

731

20

 

3

%

(59

)

13

(26

)

(4

%)

5

%

Applied Water

445

480

(35

)

(7

%)

-

 

6

(29

)

(6

%)

(6

%)

Measurement & Control Solutions

497

473

24

 

5

%

-

 

4

28

 

6

%

6

%

Integrated Solutions and Services

163

163

 

n/a 

(163

)

-

-

 

n/a 

n/a 

 
Quarter Ended March 31
Xylem Inc.

1,570

1,715

(145

)

(8

%)

-

 

53

(92

)

(5

%)

(5

%)

Water Infrastructure

639

660

(21

)

(3

%)

-

 

29

8

 

1

%

1

%

Applied Water

483

505

(22

)

(4

%)

-

 

18

(4

)

(1

%)

(1

%)

Measurement & Control Solutions

448

550

(102

)

(19

%)

-

 

6

(96

)

(17

%)

(17

%)

 
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

 

 

 

 

Change

 

% Change

 

Acquisitions / Divestitures

 

 

 

Change

 

% Change

 

 

Revenue

 

Revenue

 

2023 v. 2022

 

2023 v. 2022

 

 

FX Impact

 

Adj. 2023 v. 2022

 

Adj. 2023 v. 2022

 

 

2023

 

2022

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Six Months Ended June 30
Xylem Inc.

3,170

2,636

534

20

%

(178

)

64

420

16

%

23

%

Water Infrastructure

1,293

1,122

171

15

%

(53

)

37

155

14

%

19

%

Applied Water

931

854

77

9

%

-

 

17

94

11

%

11

%

Measurement & Control Solutions

821

660

161

24

%

-

 

10

171

26

%

26

%

Integrated Solutions and Services

125

125

n/a 

(125

)

-

-

n/a 

n/a 

 
Quarter Ended June 30
Xylem Inc.

1,722

1,364

358

26

%

(178

)

19

199

15

%

28

%

Water Infrastructure

704

589

115

20

%

(53

)

12

74

13

%

22

%

Applied Water

478

429

49

11

%

-

 

4

53

12

%

12

%

Measurement & Control Solutions

415

346

69

20

%

-

 

3

72

21

%

21

%

Integrated Solutions and Services

125

125

n/a 

(125

)

-

-

n/a 

n/a 

 
Quarter Ended March 31
Xylem Inc.

1,448

1,272

176

14

%

-

 

45

221

17

%

17

%

Water Infrastructure

589

533

56

11

%

-

 

25

81

15

%

15

%

Applied Water

453

425

28

7

%

-

 

13

41

10

%

10

%

Measurement & Control Solutions

406

314

92

29

%

-

 

7

99

32

%

32

%

 
Xylem Inc. Non-GAAP Reconciliation
Adjusted Operating Income ($ Millions)
 
 

Q1

 

Q2

 

YTD

2023

2022 (1)

 

2023

2022 (1)

 

2023

2022 (1)

Total Revenue
• Total Xylem

1,448

 

1,272

 

1,722

 

1,364

 

3,170

 

2,636

 

• Water Infrastructure

589

 

533

 

704

 

589

 

1,293

 

1,122

 

• Applied Water

453

 

425

 

478

 

429

 

931

 

854

 

• Measurement & Control Solutions

406

 

314

 

415

 

346

 

821

 

660

 

• Integrated Solutions and Services

-

 

-

 

125

 

-

 

125

 

-

 

 
Operating Income (Loss)
• Total Xylem

131

 

111

 

119

 

146

 

250

 

257

 

• Water Infrastructure

70

 

74

 

106

 

108

 

176

 

182

 

• Applied Water

83

 

59

 

84

 

61

 

167

 

120

 

• Measurement & Control Solutions

20

 

(10

)

26

 

(5

)

46

 

(15

)

• Integrated Solutions and Services

-

 

-

 

(7

)

-

 

(7

)

-

 

• Total Segments

173

 

123

 

209

 

164

 

382

 

287

 

 
Operating Margin
• Total Xylem

9.0

%

8.7

%

6.9

%

10.7

%

7.9

%

9.7

%

• Water Infrastructure

11.9

%

13.9

%

15.1

%

18.3

%

13.6

%

16.2

%

• Applied Water

18.3

%

13.9

%

17.6

%

14.2

%

17.9

%

14.1

%

• Measurement & Control Solutions

4.9

%

(3.2

%)

6.3

%

(1.4

%)

5.6

%

(2.3

%)

• Integrated Solutions and Services

N/A

 

N/A

 

(5.6

%)

N/A

 

(5.6

%)

N/A

 

• Total Segments

11.9

%

9.7

%

12.1

%

12.0

%

12.1

%

10.9

%

 
Special Charges
• Total Xylem

25

 

1

 

67

 

1

 

92

 

2

 

• Water Infrastructure

-

 

12

 

-

 

12

 

-

 

• Applied Water

-

 

-

 

-

 

-

 

-

 

• Measurement & Control Solutions

2

 

-

 

-

 

1

 

2

 

1

 

• Integrated Solutions and Services

-

 

-

 

7

 

-

 

7

 

-

 

• Total Segments

2

 

-

 

19

 

1

 

21

 

1

 

 
Restructuring & Realignment Costs
• Total Xylem

11

 

4

 

37

 

8

 

48

 

12

 

• Water Infrastructure

3

 

1

 

3

 

3

 

6

 

4

 

• Applied Water

3

 

1

 

2

 

2

 

5

 

3

 

• Measurement & Control Solutions

5

 

2

 

3

 

3

 

8

 

5

 

• Integrated Solutions and Services

-

 

-

 

7

 

-

 

7

 

-

 

• Total Segments

11

 

4

 

15

 

8

 

26

 

12

 

 
Purchase Accounting Intangible Amortization Adjustment
• Total Xylem

18

 

18

 

36

 

18

 

54

 

36

 

• Water Infrastructure

1

 

1

 

8

 

1

 

9

 

2

 

• Applied Water

-

 

-

 

-

 

0

 

• Measurement & Control Solutions

17

 

17

 

17

 

17

 

34

 

34

 

• Integrated Solutions and Services

-

 

-

 

11

 

-

 

11

 

-

 

• Total Segments

18

 

18

 

36

 

18

 

54

 

36

 

 
Adjusted Operating Income (Loss)
• Total Xylem

185

 

134

 

259

 

173

 

444

 

307

 

• Water Infrastructure

74

 

76

 

129

 

112

 

203

 

188

 

• Applied Water

86

 

60

 

86

 

63

 

172

 

123

 

• Measurement & Control Solutions

44

 

9

 

46

 

16

 

90

 

25

 

• Integrated Solutions and Services

-

 

-

 

18

 

-

 

18

 

-

 

• Total Segments

204

 

145

 

279

 

191

 

483

 

336

 

 
Adjusted Operating Margin
• Total Xylem

12.8

%

10.5

%

15.0

%

12.7

%

14.0

%

11.6

%

• Water Infrastructure

12.6

%

14.3

%

18.3

%

19.0

%

15.7

%

16.8

%

• Applied Water

19.0

%

14.1

%

18.0

%

14.7

%

18.5

%

14.4

%

• Measurement & Control Solutions

10.8

%

2.9

%

11.1

%

4.6

%

11.0

%

3.8

%

• Integrated Solutions and Services

N/A

 

N/A

 

14.4

%

N/A

 

14.4

%

N/A

 

• Total Segments

14.1

%

11.4

%

16.2

%

14.0

%

15.2

%

12.7

%

 
(1) 2022 amounts have been recast to adjust for historical purchase accounting intangible amortization.
 
Xylem Inc. Non-GAAP Reconciliation
Adjusted Diluted EPS
($ Millions, except per share amounts)
 
Q2 2023 Q2 2022 (1)
As Reported Adjustments Adjusted As Reported Adjustments Adjusted
Total Revenue

 

1,722

 

 

-

 

 

1,722

 

 

1,364

 

 

-

 

 

1,364

 

Operating Income

 

119

 

 

140

 

a

 

259

 

 

146

 

 

27

 

a

 

173

 

Operating Margin

 

6.9

%

 

15.0

%

 

10.7

%

 

9.1

%

Interest Expense

 

(12

)

 

-

 

 

(12

)

 

(12

)

 

-

 

 

(12

)

Other Non-Operating Income (Expense)

 

7

 

 

-

 

 

7

 

 

2

 

 

2

 

b

 

4

 

Income before Taxes

 

114

 

 

140

 

 

254

 

 

136

 

 

29

 

 

165

 

Provision for Income Taxes

 

(22

)

 

(30

)

c

 

(52

)

 

(24

)

 

(7

)

c

 

(31

)

Net Income

 

92

 

 

110

 

 

202

 

 

112

 

 

22

 

 

134

 

Diluted Shares

 

206.7

 

 

206.7

 

 

180.6

 

 

180.6

 

Diluted EPS

$

0.45

 

$

0.53

 

$

0.98

 

$

0.62

 

$

0.12

 

$

0.74

 

 
Year-over-year currency translation impact on current year diluted EPS

$

0.00

 

$

0.00

 

$

0.00

 

Diluted EPS at Constant Currency

$

0.45

 

$

0.53

 

$

0.98

 

 
 
 
Q2 YTD 2023 Q2 YTD 2022 (1)
As Reported Adjustments Adjusted As Reported Adjustments Adjusted
Total Revenue

 

3,170

 

 

3,170

 

 

2,636

 

 

-

 

 

2,636

 

Operating Income

 

250

 

 

194

 

a

 

444

 

 

257

 

 

50

 

a

 

307

 

Operating Margin

 

7.9

%

 

14.0

%

 

9.7

%

 

9.1

%

Interest Expense

 

(21

)

 

-

 

 

(21

)

 

(25

)

 

-

 

 

(25

)

Other Non-Operating Income (Expense)

 

11

 

 

-

 

 

11

 

 

1

 

 

3

 

b

 

4

 

Gain/(Loss) From Sale of Business

 

-

 

 

-

 

 

-

 

 

1

 

 

(1

)

 

-

 

Income before Taxes

 

240

 

 

194

 

 

434

 

 

234

 

 

52

 

 

286

 

Provision for Income Taxes

 

(49

)

 

(39

)

c

 

(88

)

 

(40

)

 

(15

)

c

 

(55

)

Net Income Attributable to Xylem

 

191

 

 

155

 

 

346

 

 

194

 

 

37

 

 

231

 

Diluted Shares

 

194.0

 

 

194.0

 

 

180.8

 

 

180.8

 

Diluted EPS

$

0.98

 

$

0.80

 

$

1.78

 

$

1.07

 

$

0.21

 

$

1.28

 

 
Year-over-year currency translation impact on current year diluted EPS

($

0.04

)

$

0.00

 

($

0.04

)

Diluted EPS at Constant Currency

$

1.02

 

$

0.80

 

$

1.82

 

 
(1) 2022 amounts have been recast to adjust for historical purchase accounting intangible amortization.
 
a Quarter-to-date:
Restructuring & realignment costs: $37 million in 2023 and $8 million in 2022
Special charges: 2023 - $61 million of acquisition & integration related costs and $6 million of other special charges; 2022 - $1 million of intangible asset impairment charges
Purchase accounting intangible amortization: $36 million in 2023 and $18 million in 2022
Year-to-date:
Restructuring & realignment costs: $48 million in 2023 and $12 million in 2022
Special charges: 2023 - $84 million of acquisition & integration related costs, $6 million of other special charges and $2 million of intangible asset impairment charges; 2022 - $1 million of intangible asset impairment charges and $1 million of other special charges
Purchase accounting intangible amortization: $54 million in 2023 and $36 million in 2022
b Quarter-to-date and Year-to-date: 2022 - Special non-operating charges consist of charges related to the UK pension plan exited as part of a buy-out of $2 million and $3 million, respectively
c Quarter-to-date: 2023 - Net tax impact on pre-tax adjustments (note a and b) of $30 million; 2022 - Net tax impact on pre-tax adjustments (note a and b) of $6 million and other tax special items of $1 million
Year-to-date: 2023 - Net tax impact on pre-tax adjustments (note a and b) of $39 million; 2022 - Net tax impact on pre-tax adjustments (note a and b) of $13 million and other tax special items of $2 million
 
Xylem Inc. Non-GAAP Reconciliation
Net Cash - Operating Activities vs. Free Cash Flow ($ Millions)
 

Q1

 

 

 

Q2

 

 

 

Year-to-Date

 

 

 

 

 

 

 

 

 

 

 

2023

 

2022

 

2023

 

2022

 

2023

 

2022

 
Net Cash - Operating Activities

($

19

)

($

81

)

$

28

 

$

113

 

$

9

 

$

32

 

 
Capital Expenditures - PP&E

 

(33

)

 

(31

)

 

(70

)

 

(30

)

 

(103

)

 

(61

)

Capital Expenditures - Software

 

(16

)

 

(18

)

 

16

 

 

(16

)

 

0

 

 

(34

)

Capital Expenditures

 

(49

)

 

(49

)

 

(54

)

 

(46

)

 

(103

)

 

(95

)

 
Cash paid in excess of tax provision for R&D law change adoption

 

33

 

 

-

 

 

-

 

 

-

 

 

33

 

 

-

 

 
 
Free Cash Flow

($

35

)

($

130

)

($

26

)

$

67

 

($

61

)

($

63

)

 
Cash paid by Xylem for Evoqua's pre-close transaction costs

 

-

 

 

-

 

 

70

 

 

-

 

 

70

 

 

-

 

Cash paid for Idrica distribution agreement

 

-

 

 

-

 

 

60

 

 

-

 

 

60

 

 

-

 

 
Adjusted Free Cash Flow

($

35

)

($

130

)

$

104

 

$

67

 

$

69

 

($

63

)

 
Net Income

$

99

 

$

82

 

$

92

 

$

112

 

$

191

 

$

194

 

 
Gain/(Loss) from sale of business

 

-

 

 

1

 

 

-

 

 

-

 

 

-

 

 

1

 

 
Restructuring Charges - non-cash stock acceleration

 

-

 

 

-

 

 

(14

)

 

-

 

 

(14

)

 

-

 

 
Special Charges - Inventory step-up

 

-

 

 

-

 

 

(15

)

 

-

 

 

(15

)

 

-

 

 
Special Charges - non-cash impairment

 

(2

)

 

-

 

 

-

 

 

(1

)

 

(2

)

 

(1

)

 
Net Income, excluding gain on sale of businesses and non-cash restructuring and special charges

$

101

 

$

81

 

$

121

 

$

113

 

$

222

 

$

194

 

 
Operating Cash Flow Conversion

 

-19

%

 

-99

%

 

30

%

 

101

%

 

5

%

 

16

%

 
Free Cash Flow Conversion

 

-35

%

 

-160

%

 

86

%

 

59

%

 

31

%

 

-32

%

 
Xylem Inc. Non-GAAP Reconciliation
EBITDA and Adjusted EBITDA by Quarter ($ Millions)
 
 

2023

Q1 Q2 Q3 Q4 Total
 
Net Income

99

 

92

 

191

 

Net Income margin

6.8

%

5.3

%

6.0

%

Depreciation

28

 

41

 

69

 

Amortization

32

 

51

 

83

 

Interest Expense (Income), net

2

 

5

 

7

 

Income Tax Expense

27

 

22

 

49

 

EBITDA

188

 

211

 

399

 

Share-based Compensation

12

 

15

 

27

 

Restructuring & Realignment

11

 

36

 

47

 

Special Charges

25

 

67

 

92

 

Adjusted EBITDA

236

 

329

 

-

 

-

 

565

 

Revenue

1,448

 

1,722

 

3,170

 

Adjusted EBITDA Margin

16.3

%

19.1

%

17.8

%

 

2022

Q1 Q2 Q3 Q4 Total
 
Net Income

82

 

112

 

12

 

149

 

355

 

Net Income margin

6.4

%

8.2

%

0.9

%

9.9

%

6.4

%

Depreciation

28

 

28

 

27

 

28

 

111

 

Amortization

30

 

32

 

31

 

32

 

125

 

Interest Expense (Income), net

11

 

10

 

7

 

6

 

34

 

Income Tax Expense

16

 

24

 

5

 

40

 

85

 

EBITDA

167

 

206

 

82

 

255

 

710

 

Share-based Compensation

9

 

9

 

10

 

9

 

37

 

Restructuring & Realignment

4

 

8

 

6

 

16

 

34

 

U.K. Pension Settlement

-

 

-

 

140

 

-

 

140

 

Special Charges

2

 

3

 

14

 

1

 

20

 

Loss/(Gain) from sale of business

(1

)

-

 

-

 

-

 

(1

)

Adjusted EBITDA

181

 

226

 

252

 

281

 

940

 

Revenue

1,272

 

1,364

 

1,380

 

1,506

 

5,522

 

Adjusted EBITDA Margin

14.2

%

16.6

%

18.3

%

18.7

%

17.0

%

 
Xylem Inc. Non-GAAP Reconciliation
EBITDA and Adjusted EBITDA by Quarter ($ Millions)
Water Infrastructure
 

2023

Q1 Q2 Q3 Q4 Total
 
Operating Income

70

 

106

 

176

 

Depreciation

12

 

14

 

26

 

Amortization

2

 

10

 

12

 

Other non-operating expense, excluding interest income

-

 

1

 

1

 

EBITDA

84

 

131

 

-

 

-

 

215

 

Share-based Compensation

2

 

5

 

7

 

Restructuring & Realignment

3

 

3

 

6

 

Special Charges

-

 

12

 

12

 

Adjusted EBITDA

89

 

151

 

-

 

-

 

240

 

Revenue

589

 

704

 

1,293

 

Adjusted EBITDA Margin

15.1

%

21.4

%

18.6

%

 

2022

Q1 Q2 Q3 Q4 Total
 
Operating Income

74

 

108

 

104

 

132

 

418

 

Depreciation

11

 

11

 

11

 

11

 

44

 

Amortization

2

 

3

 

1

 

3

 

9

 

Other non-operating expense, excluding interest income

(4

)

1

 

-

 

(1

)

(4

)

EBITDA

83

 

123

 

116

 

145

 

467

 

Share-based Compensation

1

 

-

 

-

 

1

 

2

 

Restructuring & Realignment

1

 

3

 

3

 

4

 

11

 

Adjusted EBITDA

85

 

126

 

119

 

150

 

480

 

Revenue

533

 

589

 

574

 

668

 

2,364

 

Adjusted EBITDA Margin

15.9

%

21.4

%

20.7

%

22.5

%

20.3

%

 
Xylem Inc. Non-GAAP Reconciliation
EBITDA and Adjusted EBITDA by Quarter ($ Millions)
Applied Water
 

2023

Q1 Q2 Q3 Q4 Total
 
Operating Income

83

 

84

 

167

 

Depreciation

5

 

4

 

9

 

Amortization

-

 

1

 

1

 

Other non-operating expense, excluding interest income

(1

)

-

 

(1

)

EBITDA

87

 

89

 

-

 

-

 

176

 

Share-based Compensation

1

 

-

 

1

 

Restructuring & Realignment

3

 

2

 

5

 

Special Charges

-

 

-

 

-

 

Adjusted EBITDA

91

 

91

 

-

 

-

 

182

 

Revenue

453

 

478

 

931

 

Adjusted EBITDA Margin

20.1

%

19.0

%

19.5

%

 

2022

Q1 Q2 Q3 Q4 Total
 
Operating Income

59

 

61

 

77

 

61

 

258

 

Depreciation

5

 

4

 

4

 

4

 

17

 

Amortization

-

 

1

 

-

 

1

 

2

 

Other non-operating expense, excluding interest income

(1

)

-

 

(1

)

-

 

(2

)

EBITDA

63

 

66

 

80

 

66

 

275

 

Share-based Compensation

1

 

1

 

2

 

-

 

4

 

Restructuring & Realignment

1

 

2

 

1

 

9

 

13

 

Adjusted EBITDA

65

 

69

 

83

 

75

 

292

 

Revenue

425

 

429

 

458

 

455

 

1,767

 

Adjusted EBITDA Margin

15.3

%

16.1

%

18.1

%

16.5

%

16.5

%

 
Xylem Inc. Non-GAAP Reconciliation
EBITDA and Adjusted EBITDA by Quarter ($ Millions)
Measurement & Control Solutions
 

2023

Q1 Q2 Q3 Q4 Total
 
Operating Income

20

 

26

 

46

 

Depreciation

7

 

9

 

16

 

Amortization

27

 

26

 

53

 

EBITDA

54

 

61

 

-

 

-

 

115

 

Share-based Compensation

2

 

2

 

4

 

Restructuring & Realignment

5

 

2

 

7

 

Special Charges

2

 

-

 

2

 

Adjusted EBITDA

63

 

65

 

-

 

-

 

128

 

Revenue

406

 

415

 

821

 

Adjusted EBITDA Margin

15.5

%

15.7

%

15.6

%

 

2022

Q1 Q2 Q3 Q4 Total
 
Operating Income

(10

)

(5

)

(2

)

19

 

2

 

(Loss)/Gain from sale of business

1

 

-

 

-

 

-

 

1

 

Depreciation

9

 

8

 

8

 

8

 

33

 

Amortization

25

 

26

 

27

 

26

 

104

 

Other non-operating expense, excluding interest income

-

 

(1

)

(1

)

-

 

(2

)

EBITDA

25

 

28

 

32

 

53

 

138

 

Share-based Compensation

1

 

2

 

2

 

1

 

6

 

Restructuring & Realignment

2

 

3

 

2

 

3

 

10

 

Special Charges

-

 

1

 

12

 

1

 

14

 

Loss/(Gain) from sale of business

(1

)

-

 

-

 

-

 

(1

)

Adjusted EBITDA

27

 

34

 

48

 

58

 

167

 

Revenue

314

 

346

 

348

 

383

 

1,391

 

Adjusted EBITDA Margin

8.6

%

9.8

%

13.8

%

15.1

%

12.0

%

 
Xylem Inc. Non-GAAP Reconciliation
EBITDA and Adjusted EBITDA by Quarter ($ Millions)
Integrated Solutions and Services
 

2023

Q1 Q2 Q3 Q4 Total
 
Operating Income

-

(7

)

(7

)

Depreciation

-

8

 

8

 

Amortization

-

12

 

12

 

EBITDA

-

13

 

-

-

13

 

Share-based Compensation

-

3

 

3

 

Restructuring & Realignment

-

7

 

7

 

Special Charges

-

7

 

7

 

Adjusted EBITDA

-

30

 

-

-

30

 

Revenue

-

125

 

125

 

Adjusted EBITDA Margin

24.0

%

24.0

%

 

Media
Houston Spencer +1 (914) 323-5723
houston.spencer@xylem.com

Investors
Andrea van der Berg +1 (914) 260-8612
andrea.vanderberg@xylem.com

Source: Xylem Inc.
Xylem