Xylem reports strong quarter with eight percent growth in organic revenue and orders; double-digit growth in 3rd quarter 2018 earnings

RYE BROOK, N.Y.--(BUSINESS WIRE)-- Xylem Inc. (NYSE: XYL), a leading global water technology company dedicated to solving the world’s most challenging water issues, today reported third quarter 2018 net income of $130 million, or $0.72 per share. Excluding the impact of restructuring, realignment and other special items, the Company delivered adjusted net income of $139 million or $0.77 per share in the quarter, an 18-percent increase over the prior year period. Third quarter revenue was $1.3 billion, up eight percent excluding the impact of foreign exchange and acquisitions. Revenue for the quarter increased eight percent on an organic basis, driven by continued strong growth in all end markets and across all major geographies. Orders also increased eight percent organically for the second consecutive quarter. Adjusted earnings before interest, tax, depreciation and amortization (EBITDA) margin improved by 110 basis points year-over-year to 20.3 percent driven by volume leverage, savings from productivity initiatives and price realization. Reported operating margin in the quarter was 13.7 percent and adjusted operating margin increased 50 basis points year over year to 14.6 percent, including a 20-basis-point negative impact due to purchase accounting.

Patrick Decker, President and Chief Executive Officer of Xylem, said, “Our team delivered another quarter of strong results, positioning us well to meet our long-term growth and financial commitments. The organic growth we delivered in revenue and orders reflects strong performance in each of our major geographies and across all end markets. We see momentum strengthening in our ongoing efforts to drive commercial excellence and leverage our expanded portfolio, which are yielding more wins and share gains. Our focus on executing productivity initiatives and realizing additional pricing has enabled us to continue to mitigate ongoing inflationary pressures. I’m pleased with our teams’ marketplace execution, which has continued to gain momentum throughout the year and sets us up for continued strong growth ahead.”

Full-year 2018 Outlook

Xylem continues to forecast full-year 2018 revenue of approximately $5.2 billion, up approximately 10 percent versus the prior year, including growth from previously announced acquisitions. On an organic basis, Xylem now anticipates revenue growth in the range of seven to eight percent.

Xylem has narrowed the range of its full-year 2018 earnings expectations to reflect the Company’s strong operational performance year-to-date and the negative impact of foreign exchange translation. Full-year 2018 adjusted operating margin is now expected to be in the range of 13.9 to 14.0 percent, resulting in adjusted earnings per share of $2.87 to $2.89. This represents an increase of approximately 20 percent from Xylem’s 2017 adjusted results. The Company’s adjusted earnings outlook excludes projected integration, restructuring and realignment costs, which are expected to be approximately $45 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.

Third Quarter Segment Results

Water Infrastructure

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

• Third quarter 2018 revenue was $541 million, up eight percent organically compared with third quarter 2017. This growth includes an eight-percent increase in the utilities end market, which continues to show strength, particularly in Emerging Markets and North America. The industrial end market delivered mid-single-digit growth, driven by growing demand for Xylem’s dewatering applications in construction, mining and the oil and gas sector.

• Third quarter reported operating income for the segment was $99 million. Adjusted operating income for the segment, which excludes $5 million of restructuring and realignment costs, was $104 million, an 11-percent increase over the same period a year ago. Adjusted EBITDA margin for the Water Infrastructure segment increased 120 basis points to 22.2 percent. Reported operating margin for the segment was 18.3 percent, up 80 basis points versus the prior year, and adjusted operating margin increased 110 basis points to 19.2 percent. This growth reflects productivity gains, volume leverage and price realization, partially offset by inflation and higher investments in strategic growth initiatives.

Applied Water

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

• Third quarter 2018 Applied Water revenue was $378 million, an eight-percent increase organically year over year. This performance reflects high-single-digit growth in the U.S., Western Europe and Emerging Markets. Strength in the commercial end market was driven by project activity as well as market share gains in U.S. and Europe. The Company’s business in the industrial end market was particularly strong in the U.S., driven by healthy project business.
• Third quarter reported operating income for the segment was $59 million and adjusted operating income, which excludes $2 million of restructuring and realignment costs, was $61 million, an 11-percent increase over the comparable period last year. Adjusted EBITDA margin for the Applied Water segment was 18 percent, an increase of 50 basis points over the prior year. Reported operating margin was 15.6 percent, up 150 basis points year over year, and adjusted operating margin increased 60 basis points to 16.1 percent as productivity initiatives, price realization and volume leverage more than offset inflation and unfavorable foreign exchange impacts.

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.

• Third quarter 2018 Measurement & Control Solutions revenue was $368 million, up eight percent organically versus the prior year period. This reflects solid growth in the Sensus business, up high single digits year over year, driven by large project deployments in the gas sector and double-digit growth in the water sector in North America.
• Third quarter reported operating income for the segment was $31 million, and adjusted operating income, which excludes $4 million of restructuring and realignment costs and acquisition-related costs, was $35 million, a nine-percent increase over the prior-year period. Adjusted EBITDA margin for the Measurement & Control Solutions segment increased 90 basis points to 19 percent. Reported operating margin for the segment was 8.4 percent, flat versus the prior year period. The benefits of volume leverage and productivity initiatives were more than offset by the funding of strategic growth investments, inflation and purchase accounting. This resulted in a 50-basis-point decrease in adjusted operating margin to 9.5 percent.

Supplemental information on Xylem’s third quarter 2018 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 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. Xylem also provides a leading portfolio of smart metering, network technologies and advanced infrastructure analytics solutions for water, electric and gas utilities. The Company’s more than 16,500 employees bring broad applications expertise with a strong focus on identifying comprehensive, sustainable solutions. Headquartered in Rye Brook, New York with 2017 revenue of $4.7 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: overall economic and business conditions, political and other risks associated with our international operations, including military actions, economic sanctions or trade barriers and 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 talent and key members of management; our relationship with and the performance of our channel partners; our ability to successfully identify, complete and integrate acquisitions; 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, 2017, 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								Nine Months
For the periods ended September 30,		2018				2017				2018				2017
Revenue		$	1,287			$	1,195			$	3,821			$	3,430
Cost of revenue		782				724				2,337				2,090
Gross profit		505				471				1,484				1,340
Selling, general and administrative expenses		279				270				868				812
Research and development expenses		46				45				137				131
Restructuring and asset impairment charges, net		4				4				19				22
Operating income		176				152				460				375
Interest expense		21				21				63				62
Other non-operating income (expense), net		4				1				9				5
Gain (loss) from sale of business		2				(1		)		—				4
Income before taxes		161				131				406				322
Income tax expense		31				27				82				62
Net income		130				104				324				260
Less: Net loss attributable to non-controlling interests		—				(1		)		—				—
Net income attributable to Xylem		$	130			$	105			$	324			$	260
Earnings per share:
Basic		$	0.73			$	0.58			$	1.80			$	1.45
Diluted		$	0.72			$	0.58			$	1.79			$	1.44
Weighted average number of shares:
Basic		179.7				179.6				179.8				179.6
Diluted		181.1				180.9				181.2				180.7
Dividends declared per share		$	0.2100			$	0.1800			$	0.6300			$	0.5400

XYLEM INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS (Unaudited)
(in millions, except per share amounts)
		September 30,				December 31,
		2018				2017
ASSETS
Current assets:
Cash and cash equivalents		$	404			$	414
Receivables, less allowances for discounts and doubtful accounts of $34 and $35 in 2018 and 2017, respectively		1,017				956
Inventories		622				524
Prepaid and other current assets		161				177
Total current assets		2,204				2,071
Property, plant and equipment, net		636				643
Goodwill		3,008				2,768
Other intangible assets, net		1,259				1,168
Other non-current assets		219				210
Total assets		$	7,326			$	6,860
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Accounts payable		$	570			$	549
Accrued and other current liabilities		571				551
Short-term borrowings and current maturities of long-term debt		342				—
Total current liabilities		1,483				1,100
Long-term debt		2,189				2,200
Accrued postretirement benefits		409				442
Deferred income tax liabilities		284				252
Other non-current accrued liabilities		330				347
Total liabilities		4,695				4,341
Stockholders’ equity:
Common Stock – par value $0.01 per share:
Authorized 750.0 shares, issued 192.9 shares and 192.3 shares in 2018 and 2017, respectively		2				2
Capital in excess of par value		1,942				1,912
Retained earnings		1,452				1,227
Treasury stock – at cost 13.2 shares and 12.4 shares in 2018 and 2017, respectively		(486		)		(428		)
Accumulated other comprehensive loss		(293		)		(210		)
Total stockholders’ equity		2,617				2,503
Non-controlling interests		14				16
Total equity		2,631				2,519
Total liabilities and stockholders’ equity		$	7,326			$	6,860

XYLEM INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)
(in millions)
For the nine months ended September 30,	2018				2017
Operating Activities
Net income	$	324			$	260
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation	87				83
Amortization	108				91
Share-based compensation	23				16
Restructuring and asset impairment charges	19				22
Loss (gain) from sale of business	—				(4		)
Other, net	2				18
Payments for restructuring	(18		)		(25		)
Changes in assets and liabilities (net of acquisitions):
Changes in receivables	(76		)		(114		)
Changes in inventories	(115		)		(14		)
Changes in accounts payable	51				3
Other, net	(17		)		43
Net Cash – Operating activities	388				379
Investing Activities
Capital expenditures	(171		)		(119		)
Acquisitions of businesses, net of cash acquired	(433		)		(16		)
Proceeds from sale of assets and business	22				11
Cash received from investments	—				10
Cash paid for investments	—				(11		)
Other, net	3				3
Net Cash – Investing activities	(579		)		(122		)
Financing Activities
Short-term debt issued, net	410				—
Short-term debt repaid	(50		)		(184		)
Repurchase of common stock	(58		)		(25		)
Proceeds from exercise of employee stock options	7				8
Dividends paid	(114		)		(97		)
Other, net	—				(1		)
Net Cash – Financing activities	195				(299		)
Effect of exchange rate changes on cash	(14		)		17
Net change in cash and cash equivalents	(10		)		(25		)
Cash and cash equivalents at beginning of year	414				308
Cash and cash equivalents at end of period	$	404			$	283
Supplemental disclosure of cash flow information:
Cash paid during the period for:
Interest	$	47			$	46
Income taxes (net of refunds received)	$	60			$	58

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 and amortization expense. “Adjusted EBITDA” reflects the adjustment to EBITDA to exclude share-based compensation charges, restructuring and realignment costs, Sensus acquisition related costs, gain or loss from sale of businesses and special charges.

"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 or loss from sale of businesses, special charges and tax-related special items, as applicable.

“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, acquisition costs, costs related to the recognition of the backlog intangible asset amortization recorded in purchase accounting.

“Special charges" defined as costs incurred by the Company, such as non-cash impairment charges, acquisition and integration related costs not related to Sensus, due diligence costs and other special non-operating items.

“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.

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 /							Change			% Change
		Orders		Orders		2018 v. 2017			2018 v. 2017			Divestitures				FX Impact			Adj. 2018 v. 2017			Adj. 2018 v. 2017
		2018		2017
Nine Months Ended September 30
Xylem Inc.		4,054		3,598		456			13	%			(69	)		(62	)		325			9	%		11	%
Water Infrastructure		1,671		1,546		125			8	%			-			(25	)		100			6	%		6	%
Applied Water		1,162		1,103		59			5	%			12			(18	)		53			5	%		4	%
Measurement & Control Solutions		1,221		949		272			29	%			(81	)		(19	)		172			18	%		27	%
Quarter Ended September 30
Xylem Inc.		1,356		1,249		107			9	%			(27	)		24			104			8	%		10	%
Water Infrastructure		537		558		(21	)		-4	%			-			17			(4	)		-1	%		-1	%
Applied Water		377		374		3			1	%			2			5			10			3	%		2	%
Measurement & Control Solutions		442		317		125			39	%			(29	)		2			98			31	%		40	%
Quarter Ended June 30
Xylem Inc.		1,378		1,212		166			14	%			(34	)		(30	)		102			8	%		11	%
Water Infrastructure		580		521		59			11	%			-			(14	)		45			9	%		9	%
Applied Water		401		375		26			7	%			4			(9	)		21			6	%		5	%
Measurement & Control Solutions		397		316		81			26	%			(38	)		(7	)		36			11	%		23	%
Quarter Ended March 31
Xylem Inc.		1,320		1,137		183			16	%			(8	)		(56	)		119			10	%		11	%
Water Infrastructure		554		467		87			19	%			-			(28	)		59			13	%		13	%
Applied Water		384		354		30			8	%			6			(14	)		22			6	%		5	%
Measurement & Control Solutions		382		316		66			21	%			(14	)		(14	)		38			12	%		16	%

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 /						Change		% Change
		Revenue		Revenue		2018 v. 2017		2018 v. 2017			Divestitures			FX Impact			Adj. 2018 v. 2017		Adj. 2018 v. 2017
		2018		2017
Nine Months Ended September 30
Xylem Inc.		3,821		3,430		391		11	%		(63	)		(59	)		269		8	%		10	%
Water Infrastructure		1,567		1,421		146		10	%		-			(20	)		126		9	%		9	%
Applied Water		1,132		1,048		84		8	%		10			(18	)		76		7	%		6	%
Measurement & Control Solutions		1,122		961		161		17	%		(73	)		(21	)		67		7	%		15	%
Quarter Ended September 30
Xylem Inc.		1,287		1,195		92		8	%		(22	)		24			94		8	%		10	%
Water Infrastructure		541		520		21		4	%		-			18			39		8	%		8	%
Applied Water		378		354		24		7	%		2			4			30		8	%		8	%
Measurement & Control Solutions		368		321		47		15	%		(24	)		2			25		8	%		15	%
Quarter Ended June 30
Xylem Inc.		1,317		1,164		153		13	%		(26	)		(29	)		98		8	%		11	%
Water Infrastructure		546		482		64		13	%		-			(13	)		51		11	%		11	%
Applied Water		388		361		27		7	%		3			(8	)		22		6	%		5	%
Measurement & Control Solutions		383		321		62		19	%		(29	)		(8	)		25		8	%		17	%
Quarter Ended March 31
Xylem Inc.		1,217		1,071		146		14	%		(15	)		(54	)		77		7	%		9	%
Water Infrastructure		480		419		61		15	%		-			(25	)		36		9	%		9	%
Applied Water		366		333		33		10	%		5			(14	)		24		7	%		6	%
Measurement & Control Solutions		371		319		52		16	%		(20	)		(15	)		17		5	%		12	%

Xylem Inc. Non-GAAP Reconciliation
Adjusted Operating Income
($ Millions)
			Q1				Q2				Q3				YTD
			2018		2017		2018		2017		2018		2017		2018		2017
	Total Revenue
	• Total Xylem		1,217		1,071		1,317		1,164		1,287		1,195		3,821		3,430
	• Water Infrastructure		480		419		546		482		541		520		1,567		1,421
	• Applied Water		366		333		388		361		378		354		1,132		1,048
	• Measurement & Control Solutions		371		319		383		321		368		321		1,122		961
	Operating Income
	• Total Xylem		113		86		171		137		176		152		460		375
	• Water Infrastructure		49		41		92		74		99		91		240		206
	• Applied Water		50		36		61		48		59		50		170		134
	• Measurement & Control Solutions		33		25		31		29		31		27		95		81
	• Total Segments		132		102		184		151		189		168		505		421
	Operating Margin
	• Total Xylem		9.3%		8.0%		13.0%		11.8%		13.7%		12.7%		12.0%		10.9%
	• Water Infrastructure		10.2%		9.8%		16.8%		15.4%		18.3%		17.5%		15.3%		14.5%
	• Applied Water		13.7%		10.8%		15.7%		13.3%		15.6%		14.1%		15.0%		12.8%
	• Measurement & Control Solutions		8.9%		7.8%		8.1%		9.0%		8.4%		8.4%		8.5%		8.4%
	• Total Segments		10.8%		9.5%		14.0%		13.0%		14.7%		14.1%		13.2%		12.3%
	Sensus Acquisition Related Costs
	• Total Xylem		-		10		-		4		-		5		-		19
	• Water Infrastructure		-		-		-		-		-		-		-		-
	• Applied Water		-		-		-		-		-		-		-		-
	• Measurement & Control Solutions		-		6		-		3		-		4		-		13
	• Total Segments		-		6		-		3		-		4		-		13
	Special Charges
	• Total Xylem		6		5		1		-		1		3		8		8
	• Water Infrastructure		-		-				-		-		-		-		-
	• Applied Water		-		5				-		-		-		-		5
	• Measurement & Control Solutions		2		-		1		-		-		-		3		-
	• Total Segments		2		5		1		-		-		-		3		5
	Restructuring & Realignment Costs
	• Total Xylem		16		11		10		12		11		9		37		32
	• Water Infrastructure		5		4		5		5		5		3		15		12
	• Applied Water		3		4		2		5		2		5		7		14
	• Measurement & Control Solutions		8		3		3		2		4		1		15		6
	• Total Segments		16		11		10		12		11		9		37		32
	Adjusted Operating Income
	• Total Xylem		135		112		182		153		188		169		505		434
	• Water Infrastructure		54		45		97		79		104		94		255		218
	• Applied Water		53		45		63		53		61		55		177		153
	• Measurement & Control Solutions		43		34		35		34		35		32		113		100
	• Total Segments		150		124		195		166		200		181		545		471
	Adjusted Operating Margin
	• Total Xylem		11.1%		10.5%		13.8%		13.1%		14.6%		14.1%		13.2%		12.7%
	• Water Infrastructure		11.3%		10.7%		17.8%		16.4%		19.2%		18.1%		16.3%		15.3%
	• Applied Water		14.5%		13.5%		16.2%		14.7%		16.1%		15.5%		15.6%		14.6%
	• Measurement & Control Solutions		11.6%		10.7%		9.1%		10.6%		9.5%		10.0%		10.1%		10.4%
	• Total Segments		12.3%		11.6%		14.8%		14.3%		15.5%		15.1%		14.3%		13.7%

	Note: 2017 amounts have been restated in accordance with the adoption of the new guidance on presentation of net periodic benefit costs.

Xylem Inc. Non-GAAP Reconciliation
Adjusted Diluted EPS
($ Millions, except per share amounts)
			Q3 2018												Q3 2017
			As Reported				Adjustments				Adjusted				As Reported				Adjustments				Adjusted
	Total Revenue			1,287								1,287				1,195								1,195
	Operating Income			176				12		a		188				152				17		a		169
	Operating Margin			13.7	%							14.6	%			12.7	%							14.1	%
	Interest Expense			(21	)							(21	)			(21	)							(21	)
	Other Non-Operating Income (Expense)			4								4				1								1
	Gain/(Loss) From Sale of Businesses			2				(2	)			-				(1	)			1				-
	Income before Taxes			161				10				171				131				18				149
	Provision for Income Taxes			(31	)			(1	)	b		(32	)			(27	)			(4	)	b		(31	)
	Income Attributable to Minority Interest											-				1								1
	Net Income Attributable to Xylem			130				9				139				105				14				119
	Diluted Shares			181.1								181.1				180.9								180.9
	Diluted EPS		$	0.72			$	0.05			$	0.77			$	0.58			$	0.07			$	0.65
	Year-over-year currency translation impact on current year diluted EPS		$	(0.01	)		$	(0.01	)		$	(0.02	)
	Diluted EPS at Constant Currency		$	0.73			$	0.06			$	0.79
			Q3 YTD 2018												Q3 YTD 2017
			As Reported				Adjustments				Adjusted				As Reported				Adjustments				Adjusted
	Total Revenue			3,821								3,821				3,430								3,430
	Operating Income			460				45		a		505				375				59		a		434
	Operating Margin			12.0	%							13.2	%			11.0	%							12.7	%
	Interest Expense			(63	)							(63	)			(62	)							(62	)
	Other Non-Operating Income (Expense)			9								9				5								5
	Gain/(Loss) From Sale of Businesses			-				-				-				4				(4	)			-
	Income before Taxes			406				45				451				322				55				377
	Provision for Income Taxes			(82	)			(6	)	b		(88	)			(62	)			(19	)	b		(81	)
	Income Attributable to Minority Interest			-								-				-								-
	Net Income Attributable to Xylem			324				39				363				260				36				296
	Diluted Shares			181.2								181.2				180.7								180.7
	Diluted EPS		$	1.79			$	0.21			$	2.00			$	1.44			$	0.20			$	1.64
	Year-over-year currency translation impact on current year diluted EPS		$	0.07			$	-			$	0.07
	Diluted EPS at Constant Currency		$	1.72			$	0.21			$	1.93

		Note: 2017 amounts have been restated in accordance with the adoption of the new guidance on presentation of net periodic benefit costs.
a		QTD: Restructuring & realignment costs of $11 million and $9 million in 2018 and 2017, respectively; special charges of $1 million of acquisition related costs in 2018 and $3 million of due diligence costs in 2017; and $5 million of Sensus acquisition related costs in 2017.
		YTD: Restructuring & realignment costs of $37 million and $32 million in 2018 and 2017, respectively; special charges of $8 million of acquisition related costs in 2018 and $5 million of asset impairment and $3 million of due diligence costs in 2017; and 2017 Sensus acquisition related costs of $19 million.
b		QTD: Net tax impact on restructuring & realignment costs of $3 million and $4 million in 2018 and 2017, respectively; net tax impact on 2017 Sensus acquisition related costs of $2 million and special charges of $1 million; and tax-related special items of $2 million of benefit and $3 million of benefit in 2018 and 2017, respectively.
		YTD: Net tax impact on restructuring & realignment costs of $10 million and $11 million in 2018 and 2017, respectively; net tax impact on special charges of $1 million and $3 million in 2018 and 2017, respectively; net tax impact of $7 million on 2017 Sensus acquisition related costs; net tax impact of $2 million on the gain from sale of business in 2017; and tax-related special items of $5 million of benefit and $0 million in 2018 and 2017, respectively.

Xylem Inc. Non-GAAP Reconciliation
Net Cash - Operating Activities vs. Free Cash Flow
($ Millions)
		Q1								Q2								Q3								Nine Months Ended
		2018				2017				2018				2017				2018				2017				2018				2017
Net Cash - Operating Activities		$	63			$	52			$	138			$	99			$	187			$	228			$	388			$	379
Capital Expenditures			(61	)			(43	)			(50	)			(34	)			(60	)			(42	)			(171	)			(119	)
Free Cash Flow		$	2			$	9			$	88			$	65			$	127			$	186			$	217			$	260
Cash paid for Sensus acquisition related costs			(1	)			(17	)			-				(5	)			-				(1	)			(1	)			(23	)
Free Cash Flow, excluding Sensus Acquisition Related Costs		$	3			$	26			$	88			$	70			$	127			$	187			$	218			$	283
Net Income			79				56				115				100				130				104				324				260
Gain/(Loss) from sale of businesses			-				5				(2	)			-				2				(1	)			-				4
Special Charges - non-cash impairment			-				(5	)			-				-				-				-				-				(5	)
Sensus acquisition related costs			-				(10	)			-				(4	)			-				(5	)			-				(19	)
Net Income, excluding gain on sale of businesses, non-cash impairment charges and Sensus Acquisition Related Costs		$	79			$	66			$	117			$	104			$	128			$	110			$	324			$	280
Free Cash Flow Conversion			4	%			39	%			75	%			67	%			99	%			170	%			67	%			101	%

Xylem Inc. Non-GAAP Reconciliation
EBITDA and Adjusted EBITDA by Quarter
($ Millions)
		2018
		Q1			Q2			Q3			Q4			Total
Net Income		79			115			130						324
Income Tax Expense		16			35			31						82
Interest Expense (Income), net		20			20			20						60
Depreciation		29			29			29						87
Amortization		38			36			34						108
EBITDA		182			235			244			-			661
Share-based Compensation		9			7			7						23
Restructuring & Realignment		16			9			11						36
Loss/(Gain) from sale of business		-			2			(2	)					-
Special Charges		6			1			1						8
Adjusted EBITDA		213			254			261			-			728
Revenue		1,217			1,317			1,287						3,821
Adjusted EBITDA Margin		17.5	%		19.3	%		20.3	%					19.1	%
		2017
		Q1			Q2			Q3			Q4			Total
Net Income		56			100			104			70			330
Income Tax Expense		14			21			27			74			136
Interest Expense (Income), net		20			20			20			19			79
Depreciation		28			27			28			26			109
Amortization		31			30			30			34			125
EBITDA		149			198			209			223			779
Share-based Compensation		6			5			5			5			21
Restructuring & Realignment		11			12			9			9			41
Loss/(Gain) from sale of business		(5	)		-			1			14			10
Sensus Acquisition Related Costs		7			2			3			2			14
Special Charges		5			-			3			5			13
Adjusted EBITDA		173			217			230			258			878
Revenue		1,071			1,164			1,195			1,277			4,707
Adjusted EBITDA Margin		16.2	%		18.6	%		19.2	%		20.2	%		18.7	%

Xylem Inc. Non-GAAP Reconciliation
EBITDA and Adjusted EBITDA by Quarter
Water Infrastructure
($ Millions)
		2018
		Q1			Q2			Q3			Q4			Total
Pre-Tax Income		47			90			98						235
Interest Expense (Income), net		-			(1	)		(1	)					(2	)
Depreciation		12			11			12						35
Amortization		5			5			5						15
EBITDA		64			105			114			-			283
Share-based Compensation		1			-			1						2
Restructuring & Realignment		5			5			5						15
Adjusted EBITDA		70			110			120			-			300
Revenue		480			546			541						1,567
Adjusted EBITDA Margin		14.6	%		20.1	%		22.2	%					19.1	%
		2017
		Q1			Q2			Q3			Q4			Total
Pre-Tax Income		39			73			90			105			307
Interest Expense (Income), net		-			-			(1	)		(1	)		(2	)
Depreciation		11			11			12			11			45
Amortization		5			4			5			5			19
EBITDA		55			88			106			120			369
Share-based Compensation		1			-			-			1			2
Restructuring & Realignment		4			5			3			4			16
Adjusted EBITDA		60			93			109			125			387
Revenue		419			482			520			583			2,004
Adjusted EBITDA Margin		14.3	%		19.3	%		21.0	%		21.4	%		19.3	%

Note: 2017 amounts have been restated in accordance with the adoption of the new guidance on presentation of net periodic benefit costs.

Xylem Inc. Non-GAAP Reconciliation
EBITDA and Adjusted EBITDA by Quarter
Applied Water
($ Millions)
		2018
		Q1			Q2			Q3			Q4			Total
Pre-Tax Income		50			61			60						171
Interest, net		-			-			-						-
Depreciation		5			5			5						15
Amortization		-			1			1						2
EBITDA		55			67			66			-			188
Share-based Compensation		1			1			-						2
Restructuring & Realignment		3			2			2						7
Adjusted EBITDA		59			70			68			-			197
Revenue		366			388			378						1,132
Adjusted EBITDA Margin		16.1	%		18.0	%		18.0	%					17.4	%
		2017
		Q1			Q2			Q3			Q4			Total
Pre-Tax Income		40			49			49			62			200
Interest, net		-			-			-			-			-
Depreciation		5			5			5			5			20
Amortization		1			1			1			-			3
EBITDA		46			55			55			67			223
Share-based Compensation		-			1			1			-			2
Restructuring & Realignment		4			5			5			3			17
Loss/(Gain) from sale of business		(5	)		-			1			(2	)		(6	)
Special Charges		5			-			-			-			5
Adjusted EBITDA		50			61			62			68			241
Revenue		333			361			354			373			1,421
Adjusted EBITDA Margin		15.0	%		16.9	%		17.5	%		18.2	%		17.0	%

Note: 2017 amounts have been restated in accordance with the adoption of the new guidance on presentation of net periodic benefit costs.

Xylem Inc. Non-GAAP Reconciliation
EBITDA and Adjusted EBITDA by Quarter
Measurement & Control Solutions
($ Millions)
		2018
		Q1			Q2			Q3			Q4			Total
Pre-Tax Income		33			28			33						94
Interest Expense (Income), net		-			-			-						-
Depreciation		8			9			8						25
Amortization		29			27			26						82
EBITDA		70			64			67			-			201
Share-based Compensation		1			1			1						3
Restructuring & Realignment		8			3			4						15
Loss/(Gain) from sale of business		-			2			(2	)					-
Special Charges		2			1			-						3
Adjusted EBITDA		81			71			70			-			222
Revenue		371			383			368						1,122
Adjusted EBITDA Margin		21.8	%		18.5	%		19.0	%					19.8	%
		2017
		Q1			Q2			Q3			Q4			Total
Pre-Tax Income		24			30			26			11			91
Interest Expense (Income), net		-			-			-			(1	)		(1	)
Depreciation		8			8			7			7			30
Amortization		23			22			22			25			92
EBITDA		55			60			55			42			212
Share-based Compensation		-			1			-			1			2
Restructuring & Realignment		3			2			1			2			8
Loss from sale of business		-			-			-			16			16
Sensus Acquisition Related Costs		3			1			2			1			7
Special Charges		-			-			-			2			2
Adjusted EBITDA		61			64			58			64			247
Revenue		319			321			321			321			1,282
Adjusted EBITDA Margin		19.1	%		19.9	%		18.1	%		19.9	%		19.3	%

Note: 2017 amounts have been restated in accordance with the adoption of the new guidance on presentation of net periodic benefit costs.

 

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

 Xylem reports strong quarter with eight percent growth in organic revenue and orders; double-digit growth in 3rd quarter 2018 earnings

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