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

October 30, 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 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