Xylem reports eight percent increase in organic revenue and orders, and strong double-digit growth in 2nd 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 second quarter 2018 net income of $115 million, or $0.64 per share. Excluding the impact of restructuring, realignment and other special items, the Company delivered adjusted net income of $131 million or $0.73 per share in the quarter, a 24-percent increase over the prior year period. Second quarter revenue was $1.3 billion, up 13 percent including the impact of foreign exchange and acquisitions. Revenue for the quarter increased eight percent on an organic basis, driven by double-digit growth in utilities and continued strength in the industrial and commercial end markets across nearly all major geographies. Orders increased eight percent organically in the quarter. Adjusted earnings before interest, tax, depreciation and amortization (EBITDA) margin improved by 70 basis points year-over-year to 19.3 percent driven by volume leverage and savings from productivity initiatives. Reported operating margin in the quarter was 13 percent and adjusted operating margin increased 70 basis points year-over-year to 13.8 percent, including a 20-basis-point negative impact due to purchase accounting amortization.

Patrick Decker, President and Chief Executive Officer of Xylem, said, “Our second quarter results were very strong as our team continued to successfully execute on our strategy to generate consistent, profitable growth. Once again, we delivered high single-digit organic growth in revenue and orders globally, reflecting solid growth in each of the major geographic markets in which we operate. We are capturing share in the utilities end market where strong orders and backlog growth reflect continued momentum. As we indicated previously, we began implementing price increases earlier this year and I’m pleased with the traction we’ve gained in the marketplace. Our ability to successfully realize meaningful pricing impact, while continuing to execute our productivity initiatives, has and will continue to help us mitigate higher input costs from inflationary pressures and tariffs. Our strong operational performance in the first half of the year and continued momentum underpins our confidence in our updated expectations for the full year.”

Updated Full-year 2018 Outlook

Xylem now forecasts full-year 2018 revenue of approximately $5.2 billion, up more than 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 six to seven percent.

The Company has narrowed the range of its full-year 2018 earnings expectations. Reflected in this expectation is $0.04 of operational improvement driven by stronger operational execution and price realization offset by the impact of a strengthening dollar and divestiture of a non-core business. Full-year 2018 adjusted operating margin is now expected to be in the range of 13.9 to 14.2 percent, resulting in adjusted earnings per share of $2.85 to $2.95. This represents an increase of 19 to 23 percent from Xylem’s 2017 adjusted results. The Company’s adjusted earnings outlook excludes projected integration, restructuring and realignment costs, which now 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.

Second 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.

• Second quarter 2018 revenue was $546 million, up 11 percent organically compared with second quarter 2017. This growth includes strong results in the utilities end market, particularly in the U.S., which was up 13 percent in the quarter. Large project deliveries along with strong aftermarket performance drove a nearly 30 percent year-over-year increase in the Company’s treatment business. The industrial end market also continued to show solid growth, reflecting solid global demand in dewatering.
• Second quarter reported operating income for the segment was $92 million. Adjusted operating income for the segment, which excludes $5 million of restructuring and realignment costs, was $97 million, a 23-percent increase over the same period a year ago. Adjusted EBITDA margin for the Water Infrastructure segment increased 80 basis points to 20.1 percent. Reported operating margin for the segment was 16.8 percent, up 140 basis points versus the prior year, and adjusted operating margin increased 140 basis points to 17.8 percent. This growth reflects volume leverage, productivity gains and price realization, partially offset by inflation and a higher mix of treatment project deliveries.

Applied Water

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

• Second quarter 2018 Applied Water revenue was $388 million, a six-percent increase organically year-over-year. This performance reflects solid growth in the U.S. in both the industrial and commercial sectors, and double-digit growth in Emerging Markets. Increased project business as well as continued commercial growth drove a double-digit increase in China.
• Second quarter reported operating income for the segment was $61 million and adjusted operating income, which excludes $2 million of restructuring and realignment costs, was $63 million, a 19-percent increase over the comparable period last year. Adjusted EBITDA margin for the Applied Water segment was 18 percent, an increase of 110 basis points over the prior year. Reported operating margin was 15.7 percent, up 240 basis points year-over-year, and adjusted operating margin increased 150 basis points to 16.2 percent as volume leverage, productivity initiatives and price realization more than offset inflation and unfavorable mix.

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 2018 Measurement & Control Solutions revenue was $383 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 energy sector in North America. Revenue in Xylem’s analytics business increased six percent organically in the quarter.
• Second 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 three-percent increase over the prior-year period. Adjusted EBITDA margin for the Measurement & Control Solutions segment decreased 140 basis points to 18.5 percent. Reported operating margin for the segment was 8.1 percent. The benefits of volume leverage were more than offset by the negative impact of mix driven by large deployments in the energy business as well as the funding of strategic R&D and commercial investments to accelerate growth and higher purchase accounting amortization. This resulted in a 150-basis-point decrease in adjusted operating margin to 9.1 percent.

Supplemental information on Xylem’s second 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: economic, 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 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								Six Months
For the period ended June 30,		2018				2017				2018				2017
Revenue		$	1,317			$	1,164			$	2,534			$	2,235
Cost of revenue		798				707				1,555				1,366
Gross profit		519				457				979				869
Selling, general and administrative expenses		293				270				589				542
Research and development expenses		50				44				91				86
Restructuring and asset impairment charges, net		5				6				15				18
Operating income		171				137				284				223
Interest expense		21				21				42				41
Other non-operating income (expense), net		2				5				5				4
(Loss) gain from sale of business		(2)				—				(2)				5
Income before taxes		150				121				245				191
Income tax expense		35				21				51				35
Net income		115				100				194				156
Less: Net income attributable to non-controlling interests		—				1				—				1
Net income attributable to Xylem		$	115			$	99			$	194			$	155
Earnings per share:
Basic		$	0.64			$	0.55			$	1.08			$	0.87
Diluted		$	0.64			$	0.55			$	1.07			$	0.86
Weighted average number of shares:
Basic		179.8				179.6				179.8				179.6
Diluted		181.0				180.6				181.2				180.6
Dividends declared per share		$	0.2100			$	0.1800			$	0.4200			$	0.3600

XYLEM INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS (Unaudited)
(in millions, except per share amounts)
		June 30, 2018							December 31, 2017
ASSETS
Current assets:
Cash and cash equivalents		$				321			$	414
Receivables, less allowances for discounts and doubtful accounts of $31 and $35 in 2018 and 2017, respectively		1,019							956
Inventories		598							524
Prepaid and other current assets		168							177
Total current assets		2,106							2,071
Property, plant and equipment, net		643							643
Goodwill		2,996							2,768
Other intangible assets, net		1,269							1,168
Other non-current assets		218							210
Total assets		$7,232							$6,860
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Accounts payable		$				580			$	549
Accrued and other current liabilities		536							551
Short-term borrowings and current maturities of long-term debt		361							—
Total current liabilities		1,477							1,100
Long-term debt		2,179							2,200
Accrued postretirement benefits		426							442
Deferred income tax liabilities		288							252
Other non-current accrued liabilities		333							347
Total liabilities		4,703							4,341
Stockholders’ equity:
Common Stock – par value $0.01 per share:
Authorized 750.0 shares, issued 192.8 shares and 191.9 shares in 2018 and 2017, respectively		2							2
Capital in excess of par value		1,932							1,912
Retained earnings		1,359							1,227
Treasury stock – at cost 13.2 shares and 12.4 shares in 2018 and 2017, respectively		(486)							(428)
Accumulated other comprehensive loss		(294)							(210)
Total stockholders’ equity		2,513							2,503
Non-controlling interests		16							16
Total equity		2,529							2,519
Total liabilities and stockholders’ equity		$7,232							$6,860

XYLEM INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)
(in millions)
For the six months ended June 30,		2018							2017
Operating Activities
Net income		$				194			$				156
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation		58							55
Amortization		74							61
Share-based compensation		16							11
Restructuring and asset impairment charges		15							18
Loss (gain) from sale of business		2							(5)
Other, net		(7)							4
Payments for restructuring		(12)							(17)
Changes in assets and liabilities (net of acquisitions):
Changes in receivables		(68)							(70)
Changes in inventories		(87)							(13)
Changes in accounts payable		54							(19)
Other, net		(38)							(30)
Net Cash – Operating activities		201							151
Investing Activities
Capital expenditures		(111)							(77)
Acquisition of business, net of cash acquired		(430)							(6)
Proceeds from sale of business		—							11
Other, net		4							3
Net Cash – Investing activities		(537)							(69)
Financing Activities
Short-term debt issued, net		437							33
Short-term debt repaid		(54)							(65)
Repurchase of common stock		(58)							(25)
Proceeds from exercise of employee stock options		4							7
Dividends paid		(76)							(65)
Other, net		(1)							—
Net Cash – Financing activities		252							(115)
Effect of exchange rate changes on cash		(9)							13
Net change in cash and cash equivalents		(93)							(20)
Cash and cash equivalents at beginning of year		414							308
Cash and cash equivalents at end of period		$				321			$				288
Supplemental disclosure of cash flow information:
Cash paid during the period for:
Interest		$				46			$				46
Income taxes (net of refunds received)		$				51			$				47

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. 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, 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 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
	Orders			Orders				Change			% Change			Acquisitions / Divestitures		FX Impact		Change		% Change
		2018			2017			2018 v. 2017			2018 v. 2017							Adj. 2018 v. 2017		Adj. 2018 v. 2017
Six Months Ended June 30
Xylem Inc.		2,698			2,349			349			15%			(42)		(86)		221		9%		11%
Water Infrastructure		1,134			988			146			15%			-		(42)		104		11%		11%
Applied Water		785			729			56			8%			10		(23)		43		6%		5%
Measurement & Control Solutions		779			632			147			23%			(52)		(21)		74		12%		20%
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 & Analytics		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
		Revenue		Revenue		Change		% Change		Acquisitions / Divestitures		FX Impact		Change		% Change
		2018		2017		2018 v. 2017		2018 v. 2017						Adj. 2018 v. 2017		Adj. 2018 v. 2017
Six Months Ended June 30
Xylem Inc.		2,534		2,235		299		13%		(41)		(83)		175		8%		10%
Water Infrastructure		1,026		901		125		14%		-		(38)		87		10%		10%
Applied Water		754		694		60		9%		8		(22)		46		7%		5%
Measurement & Control Solutions		754		640		114		18%		(49)		(23)		42		7%		14%
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				YTD
		2018		2017		2018		2017		2018		2017
Total Revenue
• Total Xylem		1,217		1,071		1,317		1,164		2,534		2,235
• Water Infrastructure		480		419		546		482		1,026		901
• Applied Water		366		333		388		361		754		694
• Measurement & Control Solutions		371		319		383		321		754		640
Operating Income
• Total Xylem		113		86		171		137		284		223
• Water Infrastructure		49		41		92		74		141		115
• Applied Water		50		36		61		48		111		84
• Measurement & Control Solutions		33		25		31		29		64		54
• Total Segments		132		102		184		151		316		253
Operating Margin
• Total Xylem		9.3%		8.0%		13.0%		11.8%		11.2%		10.0%
• Water Infrastructure		10.2%		9.8%		16.8%		15.4%		13.7%		12.8%
• Applied Water		13.7%		10.8%		15.7%		13.3%		14.7%		12.1%
• Measurement & Control Solutions		8.9%		7.8%		8.1%		9.0%		8.5%		8.4%
• Total Segments		10.8%		9.5%		14.0%		13.0%		12.5%		11.3%
Sensus Acquisition Related Costs
• Total Xylem		-		10		-		4		-		14
• Water Infrastructure		-		-		-		-		-		-
• Applied Water		-		-		-		-		-		-
• Measurement & Control Solutions		-		6		-		3		-		9
• Total Segments		-		6		-		3		-		9
Special Charges
• Total Xylem		6		5		1		-		7		5
• 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		26		23
• Water Infrastructure		5		4		5		5		10		9
• Applied Water		3		4		2		5		5		9
• Measurement & Control Solutions		8		3		3		2		11		5
• Total Segments		16		11		10		12		26		23
Adjusted Operating Income
• Total Xylem		135		112		182		153		317		265
• Water Infrastructure		54		45		97		79		151		124
• Applied Water		53		45		63		53		116		98
• Measurement & Control Solutions		43		34		35		34		78		68
• Total Segments		150		124		195		166		345		290
Adjusted Operating Margin
• Total Xylem		11.1%		10.5%		13.8%		13.1%		12.5%		11.9%
• Water Infrastructure		11.3%		10.7%		17.8%		16.4%		14.7%		13.8%
• Applied Water		14.5%		13.5%		16.2%		14.7%		15.4%		14.1%
• Measurement & Control Solutions		11.6%		10.7%		9.1%		10.6%		10.3%		10.6%
• Total Segments		12.3%		11.6%		14.8%		14.3%		13.6%		13.0%
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
Adjusted Diluted EPS
($ Millions, except per share amounts)
			Q2 2018								Q2 2017
			As Reported		Adjustments			Adjusted			As Reported		Adjustments			Adjusted
	Total Revenue		1,317					1,317			1,164						1,164
	Operating Income		171		11		a	182			137		16		a		153
	Operating Margin		13.0%					13.8%			11.8%						13.1%
	Interest Expense		(21)					(21)			(21)						(21)
	Other Non-Operating Income (Expense)		2					2			5						5
	(Loss)/Gain from sale of business		(2)		2			-			-						-
	Income before Taxes		150		13			163			121		16				137
	Provision for Income Taxes		(35)		3		b	(32)			(21)		(9)		b		(30)
	Income attributable to minority interest							-			(1)						(1)
	Net Income attributable to Xylem		115		16			131			99		7				106
	Diluted Shares		181.0					181.0			180.6						180.6
	Diluted EPS		$ 0.64		$ 0.09			$0.73			$ 0.55		$ 0.04				$ 0.59
	Year-over-year currency translation impact on current year diluted EPS		$ 0.03		$ -			$ 0.03
	Diluted EPS at Constant Currency		$ 0.61		$ 0.09			$ 0.70
	Note: 2017 amounts have been restated in accordance with the adoption of the new guidance on presentation of net periodic benefit costs.
			Q2 YTD 2018								Q2 YTD 2017
			As Reported		Adjustments			Adjusted			As Reported		Adjustments			Adjusted
	Total Revenue		2,534					2,534			2,235						2,235
	Operating Income		284		33		a	317			223		42		a		265
	Operating Margin		11.2%					12.5%			10.0%						11.9%
	Interest Expense		(42)					(42)			(41)						(41)
	Other Non-Operating Income (Expense)		5					5			4						4
	(Loss)/Gain from sale of business		(2)		2			-			5		(5)				-
	Income before Taxes		245		35			280			191		37				228
	Provision for Income Taxes		(51)		(5)		b	(56)			(35)		(15)		b		(50)
	Income attributable to minority interest		-					-			(1)						(1)
	Net Income attributable to Xylem		194		30			224			155		22				177
	Diluted Shares		181.2					181.2			180.6						180.6
	Diluted EPS		$ 1.07		$ 0.17			$ 1.24			$ 0.86		$ 0.12				$ 0.98
	Year-over-year currency translation impact on current year diluted EPS		$ 0.09		$ -			$ 0.09
	Diluted EPS at Constant Currency		$ 0.98		$ 0.17			$ 1.15

a		Second quarter: Restructuring & realignment costs of $10 million and $12 million in 2018 and 2017, respectively; special charges of $1 million of acquisition related costs in 2018 and $4 million of Sensus acquisition related costs in 2017.
		First half: Restructuring & realignment costs of $26 million and $23 million in 2018 and 2017, respectively; 2018 special charges of $7 million and 2017 Sensus acquisition related costs of $19 million.
b		Second quarter: Net tax impact on restructuring & realignment costs of $3 million and $5 million in 2018 and 2017, respectively; net tax impact on 2017 Sensus acquisition related costs of $1 million and tax-related special items of $6 million of benefit and $3 million of expense in 2018 and 2017, respectively.
		First half: Net tax impact on restructuring & realignment costs of $7 million in both 2018 and 2017, respectively; net tax impact on 2018 special charges of $1 million; net tax impact on 2017 Sensus acquisition related costs of $7 million in 2017; net tax impact of $2 million on the gain from sale of business in 2017 and tax-related special items of $3 million of benefit and $3 million of expense in 2018 and 2017, respectively.

Xylem Inc. Non-GAAP Reconciliation
Net Cash - Operating Activities vs. Free Cash Flow
($ Millions)
		Q1												Q2												Six Months Ended
		2018						2017						2018						2017						2018						2017
Net Cash - Operating Activities		$				63		$				52		$				138		$				99		$				201		$				151
Capital Expenditures						(61)						(43)						(50)						(34)						(111)						(77)
Free Cash Flow		$				2		$				9		$				88		$				65		$				90		$				74
Cash paid for Sensus acquisition related costs						(1)						(17)						-						(5)						(1)						(22)
Free Cash Flow, excluding Sensus Acquisition Related Costs		$				3		$				26		$				88		$				70		$				91		$				96
Net Income						79						56						115						100						194						156
Gain/(Loss) from sale of businesses						-						5						(2)						-						(2)						5
Special Charges - non-cash impairment and early debt extinguishment						-						(5)						-						-						-						(5)
Sensus acquisition related costs						-						(10)						-						(4)						-						(14)
Net Income, excluding gain on sale of businesses, non-cash impairment charges and Sensus Acquisition Related Costs		$				79		$				66		$				117		$				104		$				196		$				170
Free Cash Flow Conversion						4%						39%						75%						67%						46%						56%

Xylem Inc. Non-GAAP Reconciliation
EBITDA and Adjusted EBITDA by Quarter
($ Millions)
2018
		Q1		Q2		Q3		Q4		Total
Net Income		79		115						194
Income Tax Expense		16		35						51
Interest Expense (Income), net		20		20						40
Depreciation		29		29						58
Amortization		38		36						74
EBITDA		182		235		-		-		417
Share-based Compensation		9		7						16
Restructuring & Realignment		16		9						25
Loss from sale of business		-		2						2
Sensus Acquisition Related Costs		-		-						-
Special Charges		6		1						7
Adjusted EBITDA		213		254		-		-		467
Revenue		1,217		1,317						2,534
Adjusted EBITDA Margin		17.5%		19.3%						18.4%
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
(Gain)/Loss 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						137
Interest Expense (Income), net		-		(1)						(1)
Depreciation		12		11						23
Amortization		5		5						10
EBITDA		64		105		-		-		169
Share-based Compensation		1		-						1
Restructuring & Realignment		5		5						10
Adjusted EBITDA		70		110		-		-		180
Revenue		480		546						1,026
Adjusted EBITDA Margin		14.6%		20.1%						17.5%
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						111
Interest, net		-		-						-
Depreciation		5		5						10
Amortization		-		1						1
EBITDA		55		67		-		-		122
Share-based Compensation		1		1						2
Restructuring & Realignment		3		2						5
Adjusted EBITDA		59		70		-		-		129
Revenue		366		388						754
Adjusted EBITDA Margin		16.1%		18.0%						17.1%
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
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						61
Interest Expense (Income), net		-		-						-
Depreciation		8		9						17
Amortization		29		27						56
EBITDA		70		64		-		-		134
Share-based Compensation		1		1						2
Restructuring & Realignment		8		3						11
Loss from sale of business		-		2						2
Special Charges		2		1						3
Adjusted EBITDA		81		71		-		-		152
Revenue		371		383						754
Adjusted EBITDA Margin		21.8%		18.5%						20.2%
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