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Xylem reports eight percent increase in organic revenue and orders, and strong double-digit growth in 2nd quarter 2018 earnings

July 31, 2018

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             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             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