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Xylem reports seven percent organic revenue increase and strong double-digit growth in 4th quarter 2017 earnings

February 1, 2018

Company completes acquisition of Pure Technologies

  • Fourth quarter 2017 reported net income was $71 million or $0.40 per share; Adjusted net income for the quarter was $137 million or $0.76 per share, up 15 percent versus the prior year period
  • Full-year 2017 reported net income was $331 million or $1.83 per share; Adjusted net income was $433 million or $2.40 per share, up 18-percent year-over-year
  • Xylem delivered $4.7 billion in revenue for the full year, representing pro forma organic growth of four percent
  • Full-year free cash flow grew 41 percent to $544 million, representing a 147-percent conversion
  • Company increases quarterly cash dividend by 17 percent
  • Xylem projects full-year 2018 organic revenue growth of four to six percent, adjusted earnings per share of $2.82 to $2.97

RYE BROOK, N.Y.--(BUSINESS WIRE)--Feb. 1, 2018-- Xylem Inc. (NYSE:XYL), a leading global water technology company dedicated to solving the world’s most challenging water issues, today reported fourth quarter 2017 net income of $71 million, or $0.40 per share. Excluding the impact of restructuring, realignment, acquisition-related charges and other special items, the Company delivered adjusted net income of $137 million or $0.76 per share in the quarter, a 15-percent increase over the prior year period. Fourth quarter revenue was $1.3 billion, up 17 percent including the full quarter contribution from the Sensus business versus the prior year period which included only two months of Sensus results. Revenue for the quarter increased seven percent on a pro forma organic basis, driven by a strong performance in the public utility end market in nearly every geography and continued growth in industrial, commercial and residential end markets. Adjusted earnings before interest, tax, depreciation and amortization (EBITDA) improved by 40 basis points year-over-year to 20.2 percent driven by net productivity gains and volume leverage. Reported operating margin in the quarter was 14 percent and adjusted operating margin decreased 10 basis points year-over-year to 15.2 percent, including a 20-basis-point impact due to purchase accounting amortization.

For the full year 2017, Xylem generated $4.7 billion in revenue, up 25 percent on a reported basis and four percent on a pro forma organic basis. Full-year reported net income was $331 million, or $1.83 per share, with an operating margin of 11.8 percent. Adjusted net income, which excludes the impact of restructuring, realignment, acquisition-related charges and other special items, was $433 million, or $2.40 per share, an 18-percent increase over the prior year. Adjusted EBITDA improved by 80 basis points to 18.7 percent year-over-year. Xylem delivered a full-year 2017 adjusted operating margin of 13.4 percent, down 20 basis points versus the prior year including a 50-basis-point impact due to purchase accounting amortization. The Company generated $544 million in free cash flow, an increase of 41 percent versus last year, representing a 147-percent conversion.

“Our teams delivered a strong performance throughout 2017 and I’m very pleased with our full-year results,” said Patrick Decker, President and Chief Executive Officer of Xylem. “Our relentless focus on the customer and continuing to enhance our execution in the field translated into improved results in revenue, orders and backlog growth, with the momentum we built in the second half of the year carrying into 2018. We capitalized on improving end market conditions, particularly in public utilities where we continue to gain share. Our productivity for growth initiatives continue to generate significant savings and fund critical R&D investments for our long-term growth. The successful integration of the new capabilities and capacity we gained with the addition of Sensus and Visenti are opening up new growth opportunities for us. And we’re building upon this as we continue to execute our strategy of disciplined capital deployment.”

Xylem also confirmed the completion of its previously announced acquisition of Pure Technologies, a leader in smart infrastructure assessment and management. Pure’s diagnostic and analytics solutions and services address key water and wastewater infrastructure challenges, including non-revenue water and asset management, a critical issue as infrastructure ages.

Decker continued, “Pure’s solutions are highly complementary to the broader Xylem portfolio. This business brings a unique set of proprietary technologies as well as data analytics expertise that further augment our ability to identify and address some of our customers’ most urgent needs. As we bring these and other advanced infrastructure analytics capabilities together, we will create a portfolio of solutions that is holistic, disruptive and scalable to significantly improve the economics of our customers’ operations.”

Xylem announced that its Board of Directors declared a dividend in the amount of $0.21 per share, an increase of 17 percent. The dividend is payable on March 15, 2018 to shareholders of record as of February 15, 2018.

Full-year 2018 Outlook

Xylem forecasts full-year 2018 revenue in the range of $5.1 to $5.2 billion, up eight to 10 percent, including growth from previously announced acquisitions. On an organic basis, Xylem’s revenue growth is anticipated to be in the range of four to six percent.

Full-year 2018 adjusted operating margin is expected to be in the range of 14.0 to 14.4 percent, resulting in adjusted earnings per share of $2.82 to $2.97. This represents an increase of 18 to 24 percent from Xylem’s 2017 adjusted results. The Company’s adjusted earnings outlook excludes projected integration, restructuring and realignment costs of approximately $35 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.

Fourth 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.

  • Fourth quarter 2017 revenue was $583 million, up six percent organically compared with fourth quarter 2016. This increase was driven by strong results in the public utility end market across most regions globally from wastewater transport applications and treatment project deliveries. The industrial end market also continued to show solid growth, reflecting improved market conditions in North America for dewatering applications.
  • Fourth quarter reported operating income for the segment was $103 million. Adjusted operating income for the segment, which excludes $4 million of restructuring and realignment costs, was $107 million, a six-percent increase over the same period a year ago. Reported operating margin for the Water Infrastructure segment was 17.7 percent, down 100 basis points versus the prior year, and adjusted operating margin was down 70 basis points to 18.4 percent. This reflects inflation and higher investments in strategic initiatives, which more than offset strong productivity gains and volume leverage achieved in the quarter.

Applied Water

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

  • Fourth quarter 2017 Applied Water revenue was $373 million, a five-percent increase organically year-over-year. This performance reflects continued growth in the U.S. and Europe industrial end markets. Demand for clean water supply helped drive growth in the residential end market in Asia Pacific, and the Company also captured share gains in Europe. Commercial building applications showed solid growth from demand for projects and restocking due to cold weather conditions.
  • Fourth quarter reported operating income for the segment was $61 million and adjusted operating income, which excludes $3 million of restructuring and realignment costs, was $64 million, a 16-percent increase over the comparable period last year. Applied Water segment reported operating margin was 16.4 percent, up 270 basis points over the prior year period. Adjusted operating margin increased 150 basis points to 17.2 percent as cost reductions and volume leverage more than offset inflation and the funding of investments.

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.

  • Fourth quarter 2017 Measurement & Control Solutions revenue was $321 million, up 12 percent organically versus the prior year. This growth was driven by a strong performance in the Sensus business, which increased 15 percent on a pro forma organic basis in the quarter, reflecting double-digit growth in water, gas and software services sectors partially offset by modest declines in the electric business. Revenue from Xylem’s legacy analytics business increased one percent organically in the quarter.
  • Fourth quarter reported operating income for the segment was $30 million, and adjusted operating income, which excludes $4 million of restructuring and realignment costs and acquisition-related costs, was $34 million. Measurement & Control Solutions segment reported operating margin was 9.3 percent. Adjusted operating margin increased 130 basis points to 10.6 percent as volume leverage and mix combined with cost reductions more than offset inflation and the funding of strategic R&D investments.

Supplemental information on Xylem’s fourth quarter and full-year 2017 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 16,000 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 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, 2016, 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

CONSOLIDATED INCOME STATEMENTS (Unaudited)

(In Millions, except per share data)

               
Year Ended December 31,     2017   2016   2015
Revenue     $ 4,707     $ 3,771     $ 3,653
Cost of revenue     2,856     2,310     2,249
Gross profit     1,851     1,461     1,404
Selling, general and administrative expenses     1,090     915     854
Research and development expenses     180     110     95
Restructuring and impairment charges     25     30     6
Operating income     556     406     449
Interest expense     82     70     55
Other non-operating income, net     2     4    
(Loss)/gain on sale of businesses     (10 )       9
Income before taxes     466     340     403
Income tax expense     136     80     63
Net income     330     260     340
Less: Net loss attributable to non-controlling interests     (1 )      
Net income attributable to Xylem     $ 331     $ 260     $ 340
Earnings per share:              
Basic     $ 1.84     $ 1.45     $ 1.88
Diluted     $ 1.83     $ 1.45     $ 1.87
Weighted average number of shares:              
Basic     179.6   179.1   180.9
Diluted     180.9   180.0   181.7
Dividends declared per share     $ 0.7200     $ 0.6196     $ 0.5632
 
 

XYLEM INC. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS (Unaudited)

(In Millions, except per share amounts)

           
December 31,     2017   2016
ASSETS          
Current assets:          
Cash and cash equivalents     $ 414     $ 308  

Receivables, less allowances for discounts, returns and doubtful accounts
of $35 and $30 in 2017 and 2016, respectively

    956     843  
Inventories     524     522  
Prepaid and other current assets     177     166  
Total current assets     2,071     1,839  
Property, plant and equipment, net     643     616  
Goodwill     2,768     2,632  
Other intangible assets, net     1,168     1,201  
Other non-current assets     210     186  
Total assets     $ 6,860     $ 6,474  
LIABILITIES AND STOCKHOLDERS’ EQUITY          
Current liabilities:          
Accounts payable     $ 549     $ 457  
Accrued and other current liabilities     551     521  
Short-term borrowings and current maturities of long-term debt         260  
Total current liabilities     1,100     1,238  
Long-term debt, net     2,200     2,108  
Accrued postretirement benefits     442     408  
Deferred income tax liabilities     252     352  
Other non-current accrued liabilities     347     161  
Total liabilities     4,341     4,267  
           
Stockholders’ equity:          
Common stock — par value $0.01 per share:          

Authorized 750.0 shares, issued 192.3 and 191.4 shares in 2017 and
2016, respectively

    2     2  
Capital in excess of par value     1,912     1,876  
Retained earnings     1,227     1,033  

Treasury stock – at cost 12.4 shares and 11.9 shares in 2017 and 2016,
respectively

    (428 )   (403 )
Accumulated other comprehensive loss     (210 )   (318 )
Total stockholders’ equity     2,503     2,190  
Non-controlling interest     16     17  
Total equity     2,519     2,207  
Total liabilities and stockholders’ equity     $ 6,860     $ 6,474  
 
 

XYLEM INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS (In Millions) (Unaudited)

               
Year Ended December 31,     2017   2016   2015
Operating Activities              
Net income     $ 330     $ 260     $ 340  
Adjustments to reconcile net income to net cash provided by operating activities:              
Depreciation     109     87     88  
Amortization     125     64     45  
Deferred income taxes     (33 )   14     (9 )
Share-based compensation     21     18     15  
Restructuring and impairment charges     25     30     6  
Gain from sale of businesses     10         (9 )
Other, net     19     6     12  
Payments for restructuring     (28 )   (16 )   (14 )
Contributions to postretirement benefit plans     (33 )   (27 )   (25 )
Changes in assets and liabilities (net of acquisitions):              
Changes in receivables     (79 )   (6 )   (24 )
Changes in inventories     27     (15 )   23  
Changes in accounts payable     50     61     20  
Changes in accrued liabilities     28     13     (11 )
Changes in accrued taxes     104     (13 )   (3 )
Net changes in other assets and liabilities     11     21     10  
Net Cash — Operating activities     686     497     464  
Investing Activities              
Capital expenditures     (170 )   (124 )   (117 )
Proceeds from the sale of property, plant and equipment     1     1      
Acquisitions of businesses and assets, net of cash acquired     (33 )   (1,782 )   (18 )
Proceeds from sale of businesses     16         1  
Cash received from investments     10          
Cash paid for investments     (11 )        
Other, net     6     19     2  
Net Cash — Investing activities     (181 )   (1,886 )   (132 )
Financing Activities              
Short-term debt issued         274      
Short-term debt repaid, net     (282)     (80 )   (3 )
Long-term debt issued, net         1,540      
Long-term debt repaid         (608 )    
Repurchase of common stock     (25 )   (4 )   (179 )
Proceeds from exercise of employee stock options     16     24     21  
Excess tax benefit from share based compensation             2  
Dividends paid     (130 )   (112 )   (102 )
Other, net             (1 )
Net Cash — Financing activities     (421 )   1,034     (262 )
Effect of exchange rate changes on cash     22     (17 )   (53 )
Net change in cash and cash equivalents     106     (372 )   17  
Cash and cash equivalents at beginning of year     308     680     663  
Cash and cash equivalents at end of year     $ 414     $ 308     $ 680  
Supplemental disclosure of cash flow information:              
Cash paid during the year for:              
Interest     $ 78     $ 49     $ 52  
Income taxes (net of refunds received)     $ 57     $ 78     $ 75  
 
 
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. For Sensus historical adjustments, see Sensus Historical - Adjusted EBITDA table.
 
"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 and inventory step-up recorded in purchase accounting.
 
“Special charges" defined as costs incurred by the Company, such as non-cash impairment charges, due diligence costs, initial acquisition and integration costs not related to Sensus and other special non-operating items, as well as interest expense related to the early extinguishment of debt and financing costs on the bridge loan entered into for the Sensus acquisition during 2016.
 
“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.
 
"Pro forma" defined as including the results of Sensus for the calendar period prior to the acquisition of Sensus by Xylem Inc. on October 31, 2016.
   
   
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

2017 v. 2016

 

% Change

2017 v. 2016

   

Acquisitions /

Divestitures

  FX Impact  

Change

Adj. 2017 v. 2016

 

% Change

Adj. 2017 v. 2016

       
      2017   2016                                  
Year Ended December 31                                            
                                             
Xylem Inc.     4,868   3,824   1,044   27%     (751)   (33)   260   7%     26%  
                                             
Water Infrastructure     2,112   1,957   155   8%     -   (16)   139   7%     7%  
Applied Water     1,476   1,405   71   5%     11   (3)   79   6%     5%  
Measurement & Control Solutions     1,280   462   818   177%     (762)   (14)   42   9%     174%  
                                             
Quarter Ended December 31                                            
                                             
Xylem Inc.     1,270   1,067   203   19%     (63)   (37)   103   10%     16%  
                                             
Water Infrastructure     566   492   74   15%     -   (20)   54   11%     11%  
Applied Water     373   348   25   7%     6   (9)   22   6%     5%  
Measurement & Control Solutions     331   227   104   46%     (69)   (8)   27   12%     42%  
                                             
Quarter Ended September 30                                            
                                             
Xylem Inc.     1,249   946   303   32%     (223)   (22)   58   6%     30%  
                                             
Water Infrastructure     558   521   37   7%     -   (12)   25   5%     5%  
Applied Water     374   342   32   9%     2   (4)   30   9%     8%  
Measurement & Control Solutions     317   83   234   282%     (225)   (6)   3   4%     275%  
                                             
Quarter Ended June 30                                            
                                             
Xylem Inc.     1,212   923   289   31%     (228)   14   75   8%     33%  
                                             
Water Infrastructure     521   483   38   8%     -   9   47   10%     10%  
Applied Water     375   361   14   4%     2   5   21   6%     5%  
Measurement & Control Solutions     316   79   237   300%     (230)   -   7   9%     300%  
                                             
Quarter Ended March 31                                            
                                             
Xylem Inc.     1,137   888   249   28%     (237)   12   24   3%     29%  
                                             
Water Infrastructure     467   461   6   1%     -   7   13   3%     3%  
Applied Water     354   354   -   0%     1   5   6   2%     1%  
Measurement & Control Solutions     316   73   243   333%     (238)   -   5   7%     333%  
                                       
                                       
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

2017 v. 2016

 

% Change

2017 v. 2016

 

Acquisitions /

Divestitures

  FX Impact  

Change

Adj. 2017 v. 2016

 

% Change

Adj. 2017 v. 2016

     
    2017   2016                              
Year Ended December 31                                      
                                       
Xylem Inc.   4,707   3,771   936   25%   (780)   (34)   122   3%   24%  
                                       
Water Infrastructure   2,004   1,932   72   4%   -   (16)   56   3%   3%  
Applied Water   1,421   1,393   28   2%   10   (4)   34   2%   2%  
Measurement & Control Solutions   1,282   446   836   187%   (790)   (14)   32   7%   184%  
                                       
Quarter Ended December 31                                      
                                       
Xylem Inc.   1,277   1,095   182   17%   (70)   (37)   75   7%   13%  
                                       
Water Infrastructure   583   530   53   10%   -   (21)   32   6%   6%  
Applied Water   373   351   22   6%   5   (9)   18   5%   4%  
Measurement & Control Solutions   321   214   107   50%   (75)   (7)   25   12%   47%  
                                       
Quarter Ended September 30                                      
                                       
Xylem Inc.   1,195   897   298   33%   (232)   (22)   44   5%   31%  
                                       
Water Infrastructure   520   478   42   9%   -   (10)   32   7%   7%  
Applied Water   354   343   11   3%   2   (5)   8   2%   2%  
Measurement & Control Solutions   321   76   245   322%   (234)   (7)   4   5%   313%  
                                       
Quarter Ended June 30                                      
                                       
Xylem Inc.   1,164   932   232   25%   (236)   14   10   1%   26%  
                                       
Water Infrastructure   482   484   (2)   0%   -   9   7   1%   1%  
Applied Water   361   366   (5)   -1%   2   5   2   1%   0%  
Measurement & Control Solutions   321   82   239   291%   (238)   -   1   1%   291%  
                                       
Quarter Ended March 31                                      
                                       
Xylem Inc.   1,071   847   224   26%   (242)   11   (7)   -1%   28%  
                                       
Water Infrastructure   419   440   (21)   -5%   -   6   (15)   -3%   -3%  
Applied Water   333   333   -   0%   1   5   6   2%   2%  
Measurement & Control Solutions   319   74   245   331%   (243)   -   2   3%   331%  
   
   
Xylem Inc. Non-GAAP Reconciliation - Pro forma with Sensus  
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

2017 v. 2016

 

% Change

2017 v. 2016

 

Acquisitions /

Divestitures

  FX Impact  

Change

Adj. 2017 v. 2016

 

% Change

Adj. 2017 v. 2016

     
    2017   2016 (a)                              
Year Ended December 31                                      
                                       
Xylem Inc.   4,707   4,533   174   4%   6   (21)   159   4%   3%  
                                       
Water Infrastructure   2,004   1,932   72   4%   -   (16)   56   3%   3%  
Applied Water   1,421   1,393   28   2%   10   (4)   34   2%   2%  
Measurement & Control Solutions   1,282   1,208   74   6%   (4)   (1)   69   6%   6%  
                                       
Quarter Ended December 31                                      
                                       
Xylem Inc.   1,277   1,164   113   10%   3   (37)   79   7%   7%  
                                       
Water Infrastructure   583   530   53   10%   -   (21)   32   6%   6%  
Applied Water   373   351   22   6%   5   (9)   18   5%   4%  
Measurement & Control Solutions   321   283   38   13%   (2)   (7)   29   10%   11%  
                                       
Quarter Ended September 30                                      
                                       
Xylem Inc.   1,195   1,125   70   6%   2   (18)   54   5%   5%  
                                       
Water Infrastructure   520   478   42   9%   -   (10)   32   7%   7%  
Applied Water   354   343   11   3%   2   (5)   8   2%   2%  
Measurement & Control Solutions   321   304   17   6%   -   (3)   14   5%   5%  
                                       
Quarter Ended June 30                                      
                                       
Xylem Inc.   1,164   1,169   (5)   0%   2   19   16   1%   1%  
                                       
Water Infrastructure   482   484   (2)   0%   -   9   7   1%   1%  
Applied Water   361   366   (5)   -1%   2   5   2   1%   0%  
Measurement & Control Solutions   321   319   2   1%   -   5   7   2%   2%  
                                       
Quarter Ended March 31                                      
                                       
Xylem Inc.   1,071   1,075   (4)   0%   (1)   15   10   1%   1%  
                                       
Water Infrastructure   419   440   (21)   -5%   -   6   (15)   -3%   -3%  
Applied Water   333   333   -   0%   1   5   6   2%   2%  
Measurement & Control Solutions   319   302   17   6%   (2)   4   19   6%   7%  
                                       
(a) Includes Measurement & Control Solutions and Visenti revenue for the ten months ended October 31, 2016 which was prior to Xylem acquiring the businesses.  
 
 
Xylem Inc. Non-GAAP Reconciliation
Adjusted Operating Income
($ Millions)
                         
      Q1     Q2   Q3   Q4   YTD
     

2017

 

2016

   

2017

 

2016

 

2017

 

2016

 

2017

 

2016

 

2017

 

2016

Total Revenue                                            
• Total Xylem     1,071   847     1,164   932   1,195   897   1,277   1,095   4,707   3,771
• Water Infrastructure     419   440     482   484

 

520   478

 

583   530   2,004   1,932
• Applied Water     333   333     361   366

 

354   343

 

373   351   1,421   1,393
• Measurement & Control Solutions     319   74     321   82   321   76   321   214   1,282   446
 
Operating Income                                            
• Total Xylem     86   79     139   109   152   109   179   109   556   406
• Water Infrastructure     40   51     74   66

 

91   75

 

103   99   308   291
• Applied Water     36   39     49   51

 

51   50

 

61   48   197   188
• Measurement & Control Solutions     25   3     29   4   26   4   30   (11)   110   -
• Total Segments     101   93     152   121   168   129   194   136   615   479
                                             
Operating Margin                                            
• Total Xylem     8.0%   9.3%     11.9%   11.7%   12.7%   12.2%   14.0%   10.0%   11.8%   10.8%
• Water Infrastructure     9.5%   11.6%     15.4%   13.6%   17.5%   15.7%   17.7%   18.7%   15.4%   15.1%
• Applied Water     10.8%   11.7%     13.6%   13.9%   14.4%   14.6%   16.4%   13.7%   13.9%   13.5%
• Measurement & Control Solutions     7.8%   4.1%     9.0%   4.9%   8.1%   5.3%   9.3%   -5.1%   8.6%   0.0%
• Total Segments     9.4%   11.0%     13.1%   13.0%   14.1%   14.4%   15.2%   12.4%   13.1%   12.7%
                                             
Sensus Acquisition Related Costs                                            
• Total Xylem     10   -     4   -   5   10   3   43   22   53
• Water Infrastructure     -   -     -   -   -   -   -   -   -   -
• Applied Water     -   -     -   -   -   -   -   -   -   -
• Measurement & Control Solutions     6   -     3   -   4   -   2   25   15   25
• Total Segments     6   -     3   -   4   -   2   25   15   25
                                             
Special Charges                                            
• Total Xylem     5   4     -   1   3   -   3   -   11   5
• Water Infrastructure     -   2     -   -   -   -   -   -   -   2
• Applied Water     5   -     -   -   -   -   -   -   5   -
• Measurement & Control Solutions     -   2     -   1   -   -   -   -   -   3
• Total Segments     5   4     -   1   -   -   -   -   5   5
                                             
Restructuring & Realignment Costs                                            
• Total Xylem     11   9     12   11   9   12   9   15   41   47
• Water Infrastructure     4   3     5   6   3   5   4   2   16   16
• Applied Water     4   3     5   3   5   3   3   7   17   16
• Measurement & Control Solutions     3   1     2   2   1   4   2   6   8   13
• Total Segments     11   7     12   11   9   12   9   15   41   45
 
Adjusted Operating Income                                            
• Total Xylem     112   92     155   121   169   131   194   167   630   511
• Water Infrastructure     44   56     79   72

 

94   80

 

107   101   324   309
• Applied Water     45   42     54   54

 

56   53

 

64   55   219   204
• Measurement & Control Solutions     34   6     34   7

 

31   8

 

34   20   133   41
• Total Segments     123   104     167   133   181   141   205   176   676   554
                                             
Adjusted Operating Margin                                            
• Total Xylem     10.5%   10.9%     13.3%   13.0%   14.1%   14.6%   15.2%   15.3%   13.4%   13.6%
• Water Infrastructure     10.5%   12.7%     16.4%   14.9%   18.1%   16.7%   18.4%   19.1%   16.2%   16.0%
• Applied Water     13.5%   12.6%     15.0%   14.8%   15.8%   15.5%   17.2%   15.7%   15.4%   14.6%
• Measurement & Control Solutions     10.7%   8.1%     10.6%   8.5%   9.7%   10.5%   10.6%   9.3%   10.4%   9.2%
• Total Segments     11.5%   12.3%     14.3%   14.3%   15.1%   15.7%   16.1%   16.1%   14.4%   14.7%
                                 
                                 
Xylem Inc. Non-GAAP Reconciliation
Adjusted Diluted EPS
($ Millions, except per share amounts)
             
      Q4 2017     Q4 2016
     

As Reported

 

Adjustments

   

Adjusted

   

As Reported

 

Adjustments

   

Adjusted

Total Revenue       1,277             1,277         1,095             1,095  
Operating Income       179       15   a     194         109       58   a     167  
Operating Margin       14.0 %           15.2 %       10.0 %           15.3 %
Interest Expense       (20 )           (20 )       (20 )     1   e     (19 )
Other Non-Operating Income (Expense)       (1 )     2   b     1         1             1  
(Loss)/Gain from sale of business       (14 )     14         -                  
Income before Taxes       144       31         175         90       59         149  
Provision for Income Taxes       (74 )     36   c     (38 )       (40 )     9   c     (31 )
Gain/(Loss) attributable to minority interest       1       (1 ) d     -         -             -  
Net Income attributable to Xylem       71       66         137         50       68         118  
Diluted Shares       181.3             181.3         180.6             180.6  
Diluted EPS     $ 0.40     $ 0.36       $ 0.76       $ 0.28     $ 0.38       $ 0.66  
                                 
Year-over-year currency translation impact on current year diluted EPS     $ 0.02     $ -       $ 0.02                  
Diluted EPS at Constant Currency     $ 0.38     $ 0.36       $ 0.74                  
                                 
             
      Q4 YTD 2017     Q4 YTD 2016
     

As Reported

 

Adjustments

   

Adjusted

   

As Reported

 

Adjustments

   

Adjusted

Total Revenue       4,707             4,707         3,771             3,771  
Operating Income       556       74   a     630         406       105   a     511  
Operating Margin       11.8 %           13.4 %       10.8 %           13.6 %
Interest Expense       (82 )           (82 )       (70 )     13   e     (57 )
Other Non-Operating Income (Expense)       2       2   b     4         4             4  
(Loss)/Gain from sale of business       (10 )     10         -         -             -  
Income before Taxes       466       86         552         340       118         458  
Provision for Income Taxes       (136 )     17   c     (119 )       (80 )     (14 ) c     (94 )
Income attributable to minority interest       1       (1 ) d     -                  
Net Income attributable to Xylem       331       102         433         260       104         364  
Diluted Shares       180.9             180.9         180.0             180.0  
Diluted EPS     $ 1.83     $ 0.57       $ 2.40       $ 1.45     $ 0.58       $ 2.03  
                                 
Year-over-year currency translation impact on current year diluted EPS     $ (0.02 )   $ 0.02       $ -                  
Diluted EPS at Constant Currency     $ 1.85     $ 0.55       $ 2.40                  
       
a   Fourth quarter: Restructuring & realignment costs of $9 million and $15 million in 2017 and 2016, respectively, Sensus acquisition related costs of $3 million and $43 million in 2017 and 2016 and special charges of $3 million of other acquisition costs in 2017.  
       
    Year-to-date: Restructuring & realignment costs of $41 million and $47 million in 2017 and 2016, respectively, Sensus acquisition related costs of $22 million and $53 million in 2017 and 2016, respectively and special charges of $11 million ($5 million of asset impairment, $3 million of due diligence costs and $3 of other acquisition costs) in 2017 and $5 million of initial acquisition costs in 2016.  
       
b   Special charges of a write-down of investment in joint venture of $2 million in the fourth quarter of 2017.  
       
c   Fourth quarter: Net tax impact on restructuring & realignment costs of $2 million and $4 million in 2017 and 2016, respectively, net tax impact on Sensus acquisition related costs of $1 million and $15 million in 2017 and 2016, respectively, net tax impact on special charges of $1 million in 2017 and tax-related special items of $40 million and $28 million of benefit in 2017 and 2016, respectively.  
       
    Year-to-date: Net tax impact on restructuring & realignment costs of $13 million in both 2017 and 2016, respectively, net tax impact on Sensus acquisition related costs of $8 million and $15 million in 2017 and 2016, respectively , net tax impact on special charges of $4 million and $7 million in 2017 and 2016, respectively, net tax impact of $2 million on the gain from sale of business in 2017 and tax-related special items of $40 million and $21 million of benefit in 2017 and 2016, respectively.  
       
d   Special item consisting of minority interest income attributable to the loss on a joint venture held for sale in the fourth quarter of 2017.  
       
e   Fourth quarter special charges of $1 million of financing costs related to the bridge loan entered into for the Sensus acquisition in 2016. Year-to-date special charges of $5 million of financing costs related to the bridge loan entered into for the Sensus acquisition and $8 million of costs related to the early extinguishment of debt in 2016.  
   
   
Xylem Inc. Non-GAAP Reconciliation  
Net Cash - Operating Activities vs. Free Cash Flow  
($ Millions)  
                                             
      Q1   Q2   Q3   Q4   Year Ended  
      2017   2016   2017   2016   2017   2016   2017   2016   2017   2016  
                                             
Net Cash - Operating Activities     $ 58     $ 41     $ 93     $ 84     $ 228     $ 149     $ 307     $ 223     $ 686     $ 497    
                                             
Capital Expenditures       (49 )     (37 )     (28 )     (25 )     (42 )     (28 )     (51 )     (34 )     (170 )     (124 )  
                                             
Free Cash Flow     $ 9     $ 4     $ 65     $ 59     $ 186     $ 121     $ 256     $ 189     $ 516     $ 373    
                                             
Cash paid for Sensus acquisition related costs       (17 )     -       (5 )     -       (1 )     (3 )     (5 )     (10 )     (28 )     (13 )  
                                             
Free Cash Flow, excluding Sensus Acquisition Related Costs     $ 26     $ 4     $ 70     $ 59     $ 187     $ 124     $ 261     $ 199     $ 544     $ 386    
                                             
Net Income       56       66       100       71       104       73       70       50       330       260    
                                             
Gain/(Loss) from sale of businesses       5       -       -       -       (1 )     -       (14 )     -       (10 )     -    
                                             
Special Charges - non-cash impairment and early debt extinguishment       (5 )     -       -       (8 )     -       -       (2 )     -       (7 )     (8 )  
                                             
Sensus acquisition related costs       (10 )     -       (4 )     -       (5 )     (10 )     (3 )     (43 )     (22 )     (53 )  
                                             

Net Income, excluding gain on sale of businesses, non-cash
impairment charges and Sensus Acquisition Related Costs

    $ 66     $ 66     $ 104     $ 79     $ 110     $ 83     $ 89     $ 93     $ 369     $ 321    
                                             
Free Cash Flow Conversion       39 %     6 %     67 %     75 %     170 %     149 %     293 %     214 %     147 %     120 %  
                         
                         
Xylem Inc. Non-GAAP Reconciliation
EBITDA and Adjusted EBITDA by Quarter
                         
($ Millions)
                         

                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 on 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 %
                         
                         

                 2016

 
        Q1   Q2   Q3   Q4   Total
                         
Net Income       66     71     73     50     260  
                         
Income Tax Expense       (1 )   19     22     40     80  
                         
Interest Expense (Income), net       14     19     16     19     68  
Depreciation       20     21     20     26     87  
Amortization       12     12     12     28     64  
                         
EBITDA       111     142     143     163     559  
                         
Share-based Compensation       5     5     5     3     18  
                         
Restructuring & Realignment       9     11     12     15     47  
                         
Sensus Acquisition Related Costs       -     -     10     36     46  
                         
Special Charges       4     1     -     -     5  
                         
Adjusted EBITDA       129     159     170     217     675  
                         
Revenue       847     932     897     1,095     3,771  
                         
Adjusted EBITDA Margin       15.2 %   17.1 %   19.0 %   19.8 %   17.9 %

Source: Xylem Inc.

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