Press Release

Xylem Inc. reports strong revenue, orders and earnings growth in third quarter 2017

October 31, 2017
  • Xylem generated $1.2 billion in third quarter 2017 revenue, up 33 percent year-over-year including the impact of acquisitions; Pro forma organic revenue increased five percent
  • Third quarter reported net income was $105 million or $0.58 per share; Adjusted net income for the quarter was $119 million or $0.65 per share, up 20 percent versus the prior year period
  • Global orders grew six percent organically
  • Reported operating margin increased 50 basis points to 12.7 percent; Adjusted operating margin increased 20 basis points excluding purchase accounting impact
  • Xylem raised the mid-point of its full-year 2017 forecast for adjusted earnings per share by five cents; the updated range is $2.39 to $2.41

RYE BROOK, N.Y.--(BUSINESS WIRE)--Oct. 31, 2017-- Xylem Inc. (NYSE:XYL), a leading global water technology company dedicated to solving the world’s most challenging water issues, today reported third quarter 2017 net income of $105 million, or $0.58 per share. The Company delivered adjusted net income of $119 million, or $0.65 per share, in the quarter, a 20-percent increase over the prior year period, excluding the impact of restructuring, realignment and acquisition-related charges, and other items. Revenue in the third quarter, including the contribution from Xylem’s Sensus business, was $1.2 billion, a 33-percent increase year-over-year. Xylem’s pro forma organic revenue grew five percent in the quarter with growth achieved across all three business segments. Xylem’s base business and Sensus each grew five percent in the quarter. Reported operating margin in the quarter increased 50 basis points to 12.7 percent, and adjusted operating margin was 14.1 percent. Excluding the negative impact of purchase accounting amortization related to the Sensus acquisition, the adjusted operating margin expanded by 20 basis points year-over-year.

“Our teams continued to execute well, delivering strong results across all business segments in the third quarter,” said Patrick Decker, President and Chief Executive Officer of Xylem. “As conditions in our varied end markets continued to improve, we generated solid growth and, in some cases, captured share, expanding the reach of Xylem solutions. We delivered positive organic growth in each of our geographic regions, while continuing to deliver on our productivity initiatives. We’ve been building momentum in our business over the past several quarters, which is reflected in our robust six-percent orders growth in the third quarter. That, combined with continued solid market execution, positions us well for strong revenue growth and margin expansion in the fourth quarter and into 2018.”

Full-year 2017 Outlook

Xylem now forecasts full-year 2017 revenue to be approximately $4.70 billion, up 24 to 25 percent, including growth from previously announced acquisitions and projected impacts of foreign exchange translation. On a pro forma organic basis, Xylem projects revenue growth of three to four percent.

Full-year 2017 adjusted operating margin is expected to be approximately 13.5 percent. The Company increased the mid-point of its full-year 2017 forecast for adjusted earnings per share by five cents. The Company now expects to deliver adjusted earnings per share of $2.39 to $2.41. This represents an increase of 18 to 19 percent from Xylem’s 2016 adjusted results. The Company’s adjusted earnings outlook excludes projected integration, restructuring and realignment costs, which now are forecast to be approximately $50 million for the year. Excluding revenue, Xylem provides guidance only on a non-GAAP basis due to the inherent difficulty in forecasting certain amounts, without unreasonable effort, that would be included in GAAP earnings.

Third Quarter Segment Results

As previously announced, Xylem combined its Analytics, Sensus and Visenti businesses effective second quarter 2017. As a result of this change, the Company now reports the financial and operational results from these businesses as one segment, which has now been named Measurement & Control Solutions.

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 2017 segment revenue was $520 million, a seven-percent organic increase over third quarter 2016. This growth reflects improved public utility demand across geographies globally as well as several significant treatment project deliveries. The industrial sector continued to strengthen as conditions improved in mining and oil and gas. Segment revenues in Emerging Markets grew 16 percent in the quarter, the second consecutive quarter of double-digit growth.
  • Third quarter reported operating income for the segment was $91 million, a 21-percent increase year-over-year. Adjusted operating income for the segment, which excludes $3 million of restructuring and realignment costs, was $94 million, an 18-percent increase over the same period in 2016. Reported operating margin for the Water Infrastructure segment was 17.5 percent, reflecting a 180-basis-point increase year-over-year. Adjusted operating margin increased 140 basis points to 18.1 percent driven by benefits from operating leverage from volume growth, global procurement and lean initiatives. These improvements more than offset cost inflation and investments for 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 2017 segment revenue was $354 million, reflecting two-percent growth year-over-year on an organic basis. The commercial end market remained strong across the U.S., Europe and China, while the residential business was particularly strong in China as demand for secondary water supply increased, as well as in the U.S. driven by promotional activity. This growth was partially offset by ongoing softness in agriculture, primarily in the U.S. Third quarter orders in the segment increased nine percent year-over-year, including key project wins that will deliver solid revenue into 2018.
  • Third quarter reported operating income for the segment was $51 million, a two-percent increase versus the prior year. Adjusted operating income, which excludes $5 million of restructuring and realignment charges, increased six percent year-over-year to $56 million. Applied Water segment reported operating margin was 14.4 percent, down 20 basis points over the prior year period. Adjusted operating margin increased 30 basis points to 15.8 percent as cost reductions and productivity initiatives more than offset inflation and strategic growth initiative investments.

Measurement & Control Solutions

Xylem’s Measurement & Control Solutions segment consists of its portfolio of businesses in smart metering, network technologies, advanced data analytics and analytic instrumentation.

  • Third quarter 2017 segment revenue was $321 million, up five percent on a pro forma organic basis over the prior year period. The Sensus business delivered double-digit growth in the energy and software services sectors. The water sector revenues were down due to a strong year-ago quarter that included channel stocking of a new product and timing of current project deliveries. Revenue from Xylem’s legacy analytics business increased five percent in the quarter.
  • The segment delivered operating income of $26 million in the third quarter. Adjusted operating income for the segment was $31 million, which excludes $5 million of restructuring and acquisition-related costs, with an adjusted operating margin of 9.7 percent. Excluding the impact of Sensus purchase accounting, adjusted operating margin increased 150 basis points.

Supplemental information on Xylem’s third quarter 2017 earnings and reconciliations for certain non-GAAP items is posted at investors.xyleminc.com. In addition, Sensus historical financial results for 2016 are also posted at investors.xyleminc.com.

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. With its October 2016 acquisition of Sensus, Xylem added smart metering, network technologies and advanced data analytics for water, gas and electric utilities to its portfolio of solutions. The combined Company’s nearly 16,000 employees bring broad applications expertise with a strong focus on identifying comprehensive, sustainable solutions. Headquartered in Rye Brook, New York with 2016 revenue of $3.8 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, including the integration of Sensus; 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

CONDENSED CONSOLIDATED INCOME STATEMENTS (Unaudited)

(in millions, except per share data)

 
    Three Months   Nine Months
For the periods ended September 30,   2017   2016 2017   2016
Revenue   $ 1,195 $ 897 $ 3,430 $ 2,676
Cost of revenue 724   540   2,088   1,621
Gross profit 471 357 1,342 1,055
Selling, general and administrative expenses 270 219 812 665
Research and development expenses 45 23 131 75
Restructuring and asset impairment charges, net 4   6   22   18
Operating income 152 109 377 297
Interest expense 21 16 62 50
Other non-operating income, net 1 2 3 3
Gain from sale of business (1 ) —   4   —
Income before taxes 131 95 322 250
Income tax expense 27     22     62     40
Net income 104 73 260 210
Less: Net loss attributable to non-controlling interests (1 ) —   —   —
Net income attributable to Xylem $ 105   $ 73   $ 260   $ 210
Earnings per share:
Basic $ 0.58 $ 0.41 $ 1.45 $ 1.17
Diluted $ 0.58 $ 0.41 $ 1.44 $ 1.17
Weighted average number of shares:
Basic 179.6 179.3 179.6 179.0
Diluted 180.9 180.3 180.7 179.8
Dividends declared per share $ 0.1800 $ 0.1549 $ 0.5400 $ 0.4647
 
 
XYLEM INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS (Unaudited)

(in millions, except per share amounts)

 
    September 30,
2017		   December 31,
2016
 
ASSETS
Current assets:
Cash and cash equivalents $ 283 $ 308
Receivables, less allowances for discounts and doubtful accounts of $30 and $30 in 2017 and 2016, respectively 990 843
Inventories 562 522
Prepaid and other current assets 160   166  
Total current assets 1,995 1,839
Property, plant and equipment, net 637 616
Goodwill 2,741 2,632
Other intangible assets, net 1,174 1,201
Other non-current assets 236   186  
Total assets $ 6,783   $ 6,474  
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Accounts payable $ 477 $ 457
Accrued and other current liabilities 562 521
Short-term borrowings and current maturities of long-term debt 97   260  
Total current liabilities 1,136 1,238
Long-term debt 2,189 2,108
Accrued postretirement benefits 429 408
Deferred income tax liabilities 324 352
Other non-current accrued liabilities 225   161  
Total liabilities 4,303   4,267  
Stockholders’ equity:
Common Stock – par value $0.01 per share:
Authorized 750.0 shares, issued 192.0 shares and 191.4 shares in 2017 and 2016, respectively 2 2
Capital in excess of par value 1,900 1,876
Retained earnings 1,188 1,033
Treasury stock – at cost 12.4 shares and 11.9 shares in 2017 and 2016, respectively (428 ) (403 )
Accumulated other comprehensive loss (199 ) (318 )
Total stockholders’ equity 2,463   2,190  
Non-controlling interests 17 17
Total equity 2,480   2,207  
Total liabilities and stockholders’ equity $ 6,783   $ 6,474  
 
 
XYLEM INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)

(in millions)

 
For the nine months ended September 30,   2017   2016
Operating Activities  
Net income $ 260 $ 210
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation 83 61
Amortization 91 36
Share-based compensation 16 15
Restructuring and asset impairment charges 22 18
Gain from sale of business (4 ) —
Other, net 18 8
Payments for restructuring (25 ) (11 )
Changes in assets and liabilities (net of acquisitions):
Changes in receivables (114 ) (27 )
Changes in inventories (14 ) (42 )
Changes in accounts payable 3 14
Other, net 43   (8 )
Net Cash – Operating activities 379   274  
Investing Activities
Capital expenditures (119 ) (90 )
Acquisition of business, net of cash acquired (16 ) (70 )
Proceeds from sale of assets and business 11 —
Cash received from investments 10 —
Cash paid for investments (11 ) —
Other, net 3   5  
Net Cash – Investing activities (122 ) (155 )
Financing Activities
Short-term debt issued — 62
Short-term debt repaid (184 ) (80 )
Long-term debt issued — 540
Long-term debt repaid — (608 )
Repurchase of common stock (25 ) (3 )
Proceeds from exercise of employee stock options 8 22
Dividends paid (97 ) (84 )
Other, net (1 ) 1  
Net Cash – Financing activities (299 ) (150 )
Effect of exchange rate changes on cash 17   10  
Net change in cash and cash equivalents (25 ) (21 )
Cash and cash equivalents at beginning of year 308   680  
Cash and cash equivalents at end of period $ 283   $ 659  
Supplemental disclosure of cash flow information:
Cash paid during the period for:
Interest $ 46 $ 34
Income taxes (net of refunds received) $ 58 $ 60
 
 

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, amortization expense, and share-based compensation. “Adjusted EBITDA” reflects the adjustment to EBITDA to exclude restructuring and realignment costs, Sensus acquisition related costs, gain from sale of business 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 from sale of business, 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 and costs related to the recognition of the backlog intangible asset recorded in purchase accounting.

“Special charges" defined as costs incurred by the Company, such as non-cash impairment charges, due diligence costs, initial acquisition 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

Nine Months Ended September 30
 
Xylem Inc. 3,598 2,757 841 31% (688) 4 157 6% 31%
 
Water Infrastructure 1,546 1,465 81 6% - 4 85 6% 6%
Applied Water 1,103 1,057 46 4% 5 6 57 5% 5%
Measurement & Control Solutions 949 235 714 304% (693) (6) 15 6% 301%
 

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

Nine Months Ended September 30
 
Xylem Inc. 3,430 2,676 754 28% (710) 3 47 2% 28%
 
Water Infrastructure 1,421 1,402 19 1% - 5 24 2% 2%
Applied Water 1,048 1,042 6 1% 5 5 16 2% 1%
Measurement & Control Solutions 961 232 729 314% (715) (7) 7 3% 311%
 

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)

Nine Months Ended September 30
 
Xylem Inc. 3,430 3,369 61

2%

3 16 80 2% 2%
 
Water Infrastructure 1,421 1,402 19

1%

- 5 24 2% 2%
Applied Water 1,048 1,042 6

1%

5 5 16 2% 1%
Measurement & Control Solutions 961 925 36

4%

(2) 6 40 4% 5%
 

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 nine months ended September 30, 2016, which was prior to Xylem acquiring the businesses.

 
Xylem Inc. Non-GAAP Reconciliation
Adjusted Operating Income
($ Millions)
                               
Q1 Q2 Q3 YTD

2017

  

2016

2017

  

2016

2017

  

2016

2017

  

2016
Total Revenue
• Total Xylem 1,071 847 1,164 932 1,195 897 3,430 2,676
• Water Infrastructure 419 440 482 484 520 478 1,421 1,402
• Applied Water 333 333 361 366 354 343 1,048 1,042
• Measurement & Control Solutions 319 74 321 82 321 76 961 232
                                 
Operating Income
• Total Xylem 86 79 139 109 152 109 377 297
• Water Infrastructure 40 51 74 66 91 75 205 192
• Applied Water 36 39 49 51 51 50 136 140
• Measurement & Control Solutions 25 3 29 4 26 4 80 11
• Total Segments 101 93 152 121 168 129 421 343
 
Operating Margin
• Total Xylem 8.0% 9.3% 11.9% 11.7% 12.7% 12.2% 11.0% 11.1%
• Water Infrastructure 9.5% 11.6% 15.4% 13.6% 17.5% 15.7% 14.4% 13.7%
• Applied Water 10.8% 11.7% 13.6% 13.9% 14.4% 14.6% 13.0% 13.4%
• Measurement & Control Solutions 7.8% 4.1% 9.0% 4.9% 8.1% 5.3% 8.3% 4.7%
• Total Segments   9.4%   11.0%   13.1%   13.0%   14.1%   14.4%   12.3%   12.8%
 
Sensus Acquisition Related Costs
• Total Xylem 10 - 4 - 5 10 19 10
• Water Infrastructure - - - - - - - -
• Applied Water - - - - - - - -

• Measurement & Control Solutions

6 - 3 - 4 - 13 -
• Total Segments 6 - 3 - 4 - 13 -
 
Special Charges
• Total Xylem 5 4 - 1 3 - 8 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 32 32
• Water Infrastructure 4 3 5 6 3 5 12 14
• Applied Water 4 3 5 3 5 3 14 9
• Measurement & Control Solutions 3 1 2 2 1 4 6 7
• Total Segments 11 7 12 11 9 12 32 30
                                 
Adjusted Operating Income
• Total Xylem 112 92 155 121 169 131 436 344
• Water Infrastructure 44 56 79 72 94 80 217 208
• Applied Water 45 42 54 54 56 53 155 149
• Measurement & Control Solutions 34 6 34 7 31 8 99 21
• Total Segments 123 104 167 133 181 141 471 378
 
Adjusted Operating Margin
• Total Xylem 10.5% 10.9% 13.3% 13.0% 14.1% 14.6% 12.7% 12.9%
• Water Infrastructure 10.5% 12.7% 16.4% 14.9% 18.1% 16.7% 15.3% 14.8%
• Applied Water 13.5% 12.6% 15.0% 14.8% 15.8% 15.5% 14.8% 14.3%
• Measurement & Control Solutions 10.7% 8.1% 10.6% 8.5% 9.7% 10.5% 10.3% 9.1%
• Total Segments   11.5%   12.3%   14.3%   14.3%   15.1%   15.7%   13.7%   14.1%
 
                 
Xylem Inc. Non-GAAP Reconciliation
Adjusted Diluted EPS
($ Millions, except per share amounts)
 
                           
Q3 2017 Q3 2016

As Reported

Adjustments

Adjusted

As Reported

Adjustments

Adjusted
Total Revenue 1,195 1,195 897 897
Operating Income 152 17 a 169 109 22 a 131
Operating Margin 12.7% 14.1% 12.2% 14.6%
Interest Expense (21) (21) (16) 4 b (12)
Other Non-Operating Income (Expense) 1 1 2 2
Gain from sale of business   (1)   1   -    
Income before Taxes 131 18 149 95 26 121
Provision for Income Taxes (27) (4) c (31) (22) (2) c (24)
Loss attributable to minority interest   1     1   -     -
Net Income attributable to Xylem   105   14   119   73   24   97
Diluted Shares     180.9             180.9       180.3             180.3
Diluted EPS   $ 0.58   $ 0.07       $ 0.65     $ 0.41   $ 0.13       $ 0.54
 
Year-over-year currency translation impact on current year diluted EPS   $ 0.01           $ 0.01
Diluted EPS at Constant Currency   $ 0.57   $ 0.07       $ 0.64
 
 
                           
Q3 YTD 2017 Q3 YTD 2016

As Reported

Adjustments

Adjusted

As Reported

Adjustments

Adjusted
Total Revenue 3,430 3,430 2,676 2,676
Operating Income 377 59 a 436 297 47 a 344
Operating Margin 11.0% 12.7% 11.1% 12.9%
Interest Expense (62) (62) (50) 12 b (38)
Other Non-Operating Income (Expense) 3 3 3 3
Gain from sale of business   4   (4)   -   -     -
Income before Taxes 322 55 377 250 59 309
Provision for Income Taxes (62) (19) c (81) (40) (23) c (63)
Income attributable to minority interest   -     -    
Net Income attributable to Xylem   260   36   296   210   36   246
Diluted Shares     180.7             180.7       179.8             179.8
Diluted EPS   $ 1.44   $ 0.20       $ 1.64     $ 1.17   $ 0.20       $ 1.37
 
Year-over-year currency translation impact on current year diluted EPS   $ (0.02)   $ -       $ (0.02)
Diluted EPS at Constant Currency   $ 1.46   $ 0.20       $ 1.66
 
a   Third quarter: Restructuring & realignment costs of $9 million and $12 million in 2017 and 2016, respectively, Sensus acquisition related costs of $5 million and $10 million in 2017 and 2016 and special charges of $3 million of due diligence costs in 2017.
Year-to-date: Restructuring & realignment costs of $32 million and $32 million in 2017 and 2016, respectively, Sensus acquisition related costs of $19 million and $10 million in 2017 and 2016, respectively and special charges of $5 million of asset impairment and $3 million of due diligence costs in 2017 and $5 million of initial acquisition costs in 2016.
b Third quarter special charges of $4 million of financing costs related to the bridge loan entered into for the Sensus acquisition in 2016 and year-to-date special charges of $12 million in 2016 consisting of $4 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.
c Third quarter: Net tax impact on restructuring & realignment costs of $4 million in both 2017 and 2016, net tax impact on Sensus acquisition related costs of $2 million and $1 million in 2017 and 2016, respectively, net tax impact on special charges of $1 million in both 2017 and 2016 and tax-related special items of $3 million and $4 million of benefit in 2017 and 2016, respectively.

Year-to-date: Net tax impact on restructuring & realignment costs of $11 million and $9 million in 2017 and 2016, respectively, net tax impact on Sensus acquisition related costs of $7 million and $1 million in 2017 and 2016, respectively, net tax impact on special charges of $3 million and $6 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 charges of less than $1 million and $7 million in 2017 and 2016, respectively.

 
 
Xylem Inc. Non-GAAP Reconciliation
Net Cash - Operating Activities vs. Free Cash Flow
($ Millions)
               
 
Q1 Q2 Q3 Nine Months Ended
2017 2016 2017 2016 2017 2016 2017 2016
 
Net Cash - Operating Activities $ 58 $ 41 $ 93 $ 84 $ 228 $ 149 $ 379 $ 274
 
Capital Expenditures (49) (37) (28) (25) (42) (28) (119) (90)
               
Free Cash Flow $ 9 $ 4 $ 65 $ 59 $ 186 $ 121 $ 260 $ 184
 
Cash paid for Sensus acquisition related costs (17) - (5) - (1) (3) (23) (3)
               
Free Cash Flow, excluding Sensus Acquisition Related Costs $ 26 $ 4 $ 70 $ 59 $ 187 $ 124 $ 283 $ 187
 
Net Income 56 66 100 71 104 73 260 210
 
Gain from sale of business 5 - - - (1) - 4 -
 
Special Charges - non-cash impairment and early debt extinguishment (5) - - (8) - - (5) (8)
 
Sensus acquisition related costs   (10)   -   (4)   -   (5)   (10)   (19)   (10)
 
Net Income, excluding gain on sale of businesses, non-cash impairment charges and Sensus Acquisition Related Costs $ 66 $ 66 $ 104 $ 79 $ 110 $ 83 $ 280 $ 228
 
Free Cash Flow Conversion   39%   6%   67%   75%   170%   149%   101%   82%
 
 
Xylem Inc. Non-GAAP Reconciliation
EBITDA and Adjusted EBITDA by Quarter
         
($ Millions)
 
2017
Q1 Q2 Q3 Q4 Total
 
Net Income 56 100 104 260
 
Income Tax Expense 14 21 27 62
 
Interest Expense (Income), net 20 20 20 60
Depreciation 28 27 28 83
Amortization 31 30 30 91
Stock Compensation 6 5 5 16
         
EBITDA 155 203 214 - 572
 
Restructuring & Realignment 11 12 9 32
 
Gain on sale of business (5) - 1 (4)
 
Sensus Acquisition Related Costs 7 2 3 12
 
Special Charges 5 - 3 8
         
Adjusted EBITDA 173 217 230 - 620
 
Revenue 1,071 1,164 1,195   3,430
 
Adjusted EBITDA Margin 16.2% 18.6% 19.2%   18.1%
 
 
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
Stock Compensation 5 5 5 3 18
         
EBITDA 116 147 148 166 577
 
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