Xylem Reports First Quarter 2023 Results

May 4, 2023

First-quarter revenue grew 14%, up 17% organically
First-quarter earnings per share of $0.54, up 20%; adjusted earnings per share of $0.72, up 53%
Raising full-year organic revenue growth guidance to 8% to 9%, from 4% to 6%
Lifting full-year adjusted EPS guidance to $3.15 to $3.35, from $3.00 to $3.25
Evoqua transaction on track to close by mid-year

WASHINGTON--(BUSINESS WIRE)--May 4, 2023-- Xylem Inc. (NYSE: XYL), a leading global water technology company dedicated to solving the world’s most challenging water issues, today reported first-quarter revenue of $1.4 billion, surpassing prior guidance, with strong commercial and operational execution. While first-quarter orders were down 8 percent on a reported basis and down 5 percent organically, the Company grew backlog on resilient underlying demand.

First-quarter earnings exceeded Xylem’s previous guidance. Net income was $99 million, or $0.54 per share. Net income margin increased 40 basis points to 6.8 percent. These Xylem stand-alone results include acquisition and integration costs related to the pending acquisition of Evoqua and higher taxes during the quarter. Adjusted net income was $130 million, or $0.72 per share, which excludes the impacts of restructuring, realignment, and special charges. First-quarter adjusted earnings before interest, tax, depreciation and amortization (EBITDA) margin was 16.3 percent, reflecting a year-over-year increase of 210 basis points. Strong price realization offset inflation and, coupled with productivity savings and higher volume, drove the margin expansion, exceeding the impact of strategic investments.

“The team delivered a very strong first-quarter performance, well ahead of expectations,” said Patrick Decker, Xylem president and CEO. “Market demand remains robust, reflected in healthy backlog growth and book-to-bill greater than one in all segments. We continue to see solid results on revenue and margin driven by commercial momentum, price realization, and supply chain improvements.”

“Looking ahead, we’re confident in raising our 2023 guidance despite a dynamic macro-economic environment and are excited about the opportunity for growth and value creation from our pending combination with Evoqua. We have made significant progress with regulatory approvals and integration planning, and expect the transaction to close by mid-year. From day one, we will build on the combined strengths of Xylem and Evoqua to create a transformative platform for solving our customers’ and communities’ most urgent water challenges.”

Outlook

Xylem’s full-year 2023 guidance does not reflect the planned acquisition of Evoqua, which was announced on January 23, 2023, and is expected to close by mid-year 2023. Additional information about the proposed transaction is available at www.xylem.com/investors.

Xylem now expects full-year 2023 revenue growth of 8 to 9 percent on an organic and reported basis. This represents an increase from the Company’s previous full-year organic revenue guidance of 4 to 6 percent, and 3 to 5 percent on a reported basis.

Full-year 2023 adjusted EBITDA margin is expected to be in the range of 17.5 to 18.0 percent. This results in adjusted earnings per share of $3.15 to $3.35, raised from the previous range of $3.00 to $3.25. The increased guidance reflects our expectations of continuing strong demand, commercial momentum, and improved chip supply.

Further 2023 planning assumptions are included in Xylem’s first-quarter 2023 earnings materials posted at www.xylem.com/investors. 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.

First Quarter Segment Results

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.

First-quarter 2023 revenue was $406 million, up 29 percent, 32 percent organically, versus the prior year period. The robust growth is driven by improved chip supply compared to the prior year, and strength in our water quality test and pipeline assessment applications.

First-quarter reported operating income for the segment was $20 million, compared to a $10 million loss in the same period last year. Adjusted operating income, which excludes $5 million of restructuring and realignment costs and $2 million of special charges, was $27 million, compared to an $8 million loss in the same period last year. The segment reported operating margin was 4.9 percent, up 810 basis points versus the prior year period. Adjusted operating margin of 6.7 percent increased 920 basis points over the prior year period. Adjusted EBITDA margin was 15.5 percent, up 690 basis points from the prior year period. Higher volume, strong price realization, and productivity savings exceeded the impact of inflation and unfavorable mix.

Water Infrastructure

Xylem’s Water Infrastructure segment consists of its portfolio of businesses serving clean water delivery, wastewater transport and treatment, and dewatering.

First-quarter 2023 revenue was $589 million, an 11 percent increase, 15 percent organically, compared with first quarter 2022. This strong growth was driven by price realization and robust utilities and industrial demand, particularly in the U.S. and Western Europe.

First-quarter reported operating income for the segment was $70 million, a 5 percent decrease versus the same period last year. Adjusted operating income, which excludes $3 million of restructuring and realignment costs, was $73 million, a 3 percent decrease versus the prior year period. Reported operating margin for the segment was 11.9 percent, down 200 basis points versus the prior year period, and adjusted operating margin was 12.4 percent, down 170 basis points versus the prior year period. Adjusted EBITDA margin was 15.1 percent, down 80 basis points from the prior year. Favorable price realization net of inflation was offset by strategic investments and unfavorable mix.

Applied Water

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

First-quarter 2023 revenue was $453 million, a 7 percent increase, 10 percent organically, year-over-year. The robust growth was driven by strong price realization and demand across commercial building and industrial end-markets, particularly in the U.S. and Western Europe.

First-quarter reported operating income for the segment was $83 million, a 41 percent increase versus the same period last year. Adjusted operating income, which excludes $3 million of restructuring and realignment costs, was $86 million, a 43 percent increase versus the same period last year. The segment reported operating margin was 18.3 percent, up 440 basis points versus the prior year period. Adjusted operating margin increased 490 basis points over the prior year period to 19.0 percent. Adjusted EBITDA margin was 20.1 percent, up 480 basis points from the prior year. Margin expansion was driven by strong price realization and productivity savings, more than offsetting inflation.

Supplemental information on Xylem’s first quarter 2023 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 solving critical water and infrastructure challenges with innovation. Our more than 17,000 diverse employees delivered revenue of $5.5 billion in 2022. We are creating a more sustainable world by enabling our customers to optimize water and resource management, and helping communities in approximately 150 countries become water-secure. Join us at www.xylem.com.

Forward-Looking Statements

This press release contains “forward-looking statements" within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. Generally, the words “anticipate,” “estimate,” “expect,” “project,” “intend,” “plan,” "contemplate," "predict," “forecast,” “likely,” “believe,” “target,” “will,” “could,” “would,” “should,” "potential," "may" and similar expressions or their negative, may, but are not necessary to, identify forward-looking statements. By their nature, forward-looking statements address uncertain matters and include any statements that: are not historical, such as statements about our strategy, financial plans, outlook, objectives, plans, intentions or goals (including those related to our social, environmental and other sustainability goals); or address possible or future results of operations or financial performance, including statements relating to orders, revenues, operating margins and earnings per share growth.

Although we believe that the expectations reflected in any of our forward-looking statements are reasonable, actual results could differ materially from those projected or assumed in any of our forward-looking statements. Our future financial condition and results of operations, as well as any forward-looking statements, are subject to change and to inherent risks and uncertainties, many of which are beyond our control. Important factors that could cause our actual results, performance and achievements, or industry results to differ materially from estimates or projections contained in or implied by our forward-looking statements include, among others, the following: the impact of overall industry and general economic conditions, including industrial, governmental, and public and private sector spending, inflation, interest rates and related monetary policy by governments in response to inflation, and the strength of the residential and commercial real estate markets, on economic activity and our operations; geopolitical events, including the war between Russia and Ukraine, and regulatory, economic and other risks associated with our global sales and operations, including with respect to domestic content requirements applicable to projects with governmental funding; the global impact of the COVID-19 pandemic on the macroeconomy and our business, operations, growth, and financial condition; actual or potential other epidemics, pandemics or global health crises; availability, shortage or delays in receiving electronic components (in particular, semiconductors), parts and raw materials from our supply chain; manufacturing and operating cost increases due to macroeconomic conditions, including inflation, energy supply, supply chain shortages, logistics challenges, tight labor markets, prevailing price changes, tariffs and other factors; demand for our products, disruption, competition or pricing pressures in the markets we serve; cybersecurity incidents or other disruptions of information technology systems on which we rely, or involving our products; disruptions in operations at our facilities or that of third parties upon which we rely; our ability to retain and attract senior management and other diverse and key talent, as well as competition for overall talent and labor; difficulty predicting our financial results; defects, security, warranty and liability claims, and recalls with respect to products; availability, regulation or interference with radio spectrum used by certain of our products; uncertainty related to restructuring and realignment actions and related costs and savings; our ability to continue strategic investments for growth; our ability to successfully identify, execute and integrate acquisitions; volatility in served markets or impacts on our business and operations due to weather conditions, including the effects of climate change; fluctuations in foreign currency exchange rates; our ability to borrow or refinance our existing indebtedness, and uncertainty around the availability of liquidity sufficient to meet our needs; risk of future impairments to goodwill and other intangible assets; failure to comply with, or changes in, laws or regulations, including those pertaining to anti-corruption, data privacy and security, export and import, our products, competition, and the environment and climate change; changes in our effective tax rates or tax expenses; legal, governmental or regulatory claims, investigations or proceedings and associated contingent liabilities; and other factors set forth under “Item 1A. Risk Factors” in our Annual Report on Form 10-K for the year ended December 31, 2022 ("2022 Annual Report") and in subsequent filings we make with the Securities and Exchange Commission (“SEC”).

Additionally, risks and uncertainties relating to our plans to acquire Evoqua could cause our actual results to differ, perhaps materially, from those indicated by these forward-looking statements, including: the risk that the conditions to the closing of the transaction are not satisfied, including the risk that required approvals of the transaction from the shareholders of Xylem, stockholders of Evoqua or from regulators are not obtained; litigation relating to the transaction; uncertainties as to the timing of the consummation of the transaction and the ability of each party to consummate the transaction; risks that the proposed transaction disrupts the current plans or operations of Xylem or Evoqua; the ability of Xylem and Evoqua to retain and hire key personnel; competitive responses to the proposed transaction; the need to incur additional or unexpected costs, charges or expenses related to the transaction or integration of the combined companies; potential adverse reactions or changes to relationships with customers, suppliers, distributors and other business partners resulting from the announcement or completion of the transaction; impacts to our share price and dilution of shareholders’ ownership; the combined company’s ability to achieve the synergies expected from the transaction, as well as delays, challenges and expenses associated with integrating the combined company’s existing businesses.

Forward-looking and other statements in this press release regarding our environmental and other sustainability plans and goals are not an indication that these statements are necessarily material to investors or are required to be disclosed in our filings with the SEC. In addition, historical, current, and forward-looking social, environmental and sustainability-related statements may be based on standards for measuring progress that are still developing, internal controls and processes that continue to evolve, and assumptions that are subject to change in the future. All forward-looking statements made herein are based on information currently available to us as of the date of this Report. We undertake 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)

For the three months ended March 31,	2023		2022
Revenue	$	1,448	$	1,272
Cost of revenue		902		805
Gross profit		546		467
Selling, general and administrative expenses		354		304
Research and development expenses		53		52
Restructuring and asset impairment charges		8		—
Operating income		131		111
Interest expense		9		13
Other non-operating income (expense), net		4		(1	)
Gain from sale of business		—		1
Income before taxes		126		98
Income tax expense		27		16
Net income	$	99	$	82
Earnings per share:
Basic	$	0.55	$	0.45
Diluted	$	0.54	$	0.45
Weighted average number of shares:
Basic		180.4		180.2
Diluted		181.3		181.0

XYLEM INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED BALANCE SHEETS (Unaudited) (in millions, except per share amounts)

	March 31, 2023			December 31, 2022

ASSETS
Current assets:
Cash and cash equivalents	$	837		$	944
Receivables, less allowances for discounts, returns and credit losses of $36 and $50 in 2023 and 2022, respectively		1,123			1,096
Inventories		857			799
Prepaid and other current assets		193			173
Total current assets		3,010			3,012
Property, plant and equipment, net		631			630
Goodwill		2,738			2,719
Other intangible assets, net		915			930
Other non-current assets		646			661
Total assets	$	7,940		$	7,952
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Accounts payable	$	710		$	723
Accrued and other current liabilities		784			867
Total current liabilities		1,494			1,590
Long-term debt		1,881			1,880
Accrued post-retirement benefits		285			286
Deferred income tax liabilities		215			222
Other non-current accrued liabilities		476			471
Total liabilities		4,351			4,449

Stockholders’ equity:
Common stock – par value $0.01 per share:
Authorized 750.0 shares, issued 196.5 shares and 196.0 shares in 2023 and 2022, respectively		2			2
Capital in excess of par value		2,152			2,134
Retained earnings		2,331			2,292
Treasury stock – at cost 15.9 shares and 15.8 shares in 2023 and 2022, respectively		(716	)		(708	)
Accumulated other comprehensive loss		(191	)		(226	)
Total stockholders’ equity		3,578			3,494
Non-controlling interests		11			9
Total equity		3,589			3,503
Total liabilities and stockholders’ equity	$	7,940		$	7,952

XYLEM INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited) (in millions)

For the three months ended March 31,	2023			2022
Operating Activities
Net income	$	99		$	82
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation		28			28
Amortization		32			30
Share-based compensation		12			9
Restructuring and asset impairment charges		8			—
Gain from sale of business		—			(1	)
Other, net		3			3
Payments for restructuring		(6	)		(3	)
Changes in assets and liabilities (net of acquisitions):
Changes in receivables		(28	)		(64	)
Changes in inventories		(55	)		(106	)
Changes in accounts payable		(14	)		20
Other, net		(98	)		(79	)
Net Cash – Operating activities		(19	)		(81	)
Investing Activities
Capital expenditures		(49	)		(49	)
Proceeds from sale of business		—			1
Proceeds from the sale of property, plant and equipment		—			1
Cash received from investments		2			4
Cash paid for investments		—			(6	)
Cash received from cross-currency swaps		11			7
Other, net		(1	)		(1	)
Net Cash – Investing activities		(37	)		(43	)
Financing Activities
Repurchase of common stock		(8	)		(51	)
Proceeds from exercise of employee stock options		7			1
Dividends paid		(60	)		(55	)
Other, net		(2	)		(1	)
Net Cash – Financing activities		(63	)		(106	)
Effect of exchange rate changes on cash		12			(2	)
Net change in cash and cash equivalents		(107	)		(232	)
Cash and cash equivalents at beginning of year		944			1,349
Cash and cash equivalents at end of period	$	837		$	1,117
Supplemental disclosure of cash flow information:
Cash paid during the period for:
Interest	$	11		$	23
Income taxes (net of refunds received)	$	49		$	15

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 items to represent the non-GAAP measures we consider to be key performance indicators, as well as the related reconciling items to the most directly comparable measure calculated and presented in accordance with GAAP. The non-GAAP measures may not be comparable to similarly titled measures reported by other companies.

“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 or discontinuance 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” and "Adjusted Segment EBITDA" reflect the adjustments to EBITDA and segment EBITDA, respectively, to exclude share-based compensation charges, restructuring and realignment costs, gain or loss from sale of businesses and special charges.

"Adjusted EBITDA Margin" and "Adjusted Segment EBITDA Margin" defined as adjusted EBITDA and adjusted segment EBITDA divided by total revenue and segment revenue, respectively.

"Adjusted Operating Income", "Adjusted Segment Operating Income", "Adjusted Net Income" and “Adjusted EPS” defined as operating income, segment operating income, net income and earnings per share, adjusted to exclude restructuring and realignment costs, gain or loss from sale of businesses, special charges and tax-related special items, as applicable.

"Adjusted Operating Margin" and "Adjusted Segment Operating Margin" defined as adjusted operating income and adjusted segment operating income divided by total revenue and segment revenue, respectively.

“Free Cash Flow” defined as net cash from operating activities, as reported in the Statement of Cash Flows, less capital expenditures, and "Free Cash Flow Conversion" defined as Free Cash Flows divided by net income, excluding the gain on sale of businesses and other significant non-cash impacts, such as non-cash impairment charges and significant deferred tax items. Our definitions of "free cash flow" and "free cash flow conversion" do 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.

“Special charges" defined as costs incurred by the Company, such as acquisition and integration related costs, non-cash impairment charges and both operating and non-operating adjustments for costs related to the UK pension plan buyout.

“Tax-related special items" defined as tax items, such as tax return versus tax provision adjustments, tax exam impacts, tax law change impacts, 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 / Divestitures		Change		% Change
	Orders	Orders	2023 v. 2022		2023 v. 2022		Acquisitions / Divestitures	FX Impact	Adj. 2023 v. 2022		Adj. 2023 v. 2022
	2023	2022
Quarter Ended March 31
Xylem Inc.	1,570	1,715	(145	)	-8	%	0	53	(92	)	-5	%	-5	%
Water Infrastructure	639	660	(21	)	-3	%	0	29	8		1	%	1	%
Applied Water	483	505	(22	)	-4	%	0	18	(4	)	-1	%	-1	%
Measurement & Control Solutions	448	550	(102	)	-19	%	0	6	(96	)	-17	%	-17	%

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 / Divestitures		Change	% Change
	Revenue	Revenue	2023 v. 2022	2023 v. 2022		Acquisitions / Divestitures	FX Impact	Adj. 2023 v. 2022	Adj. 2023 v. 2022
	2023	2022
Quarter Ended March 31
Xylem Inc.	1,448	1,272	176	14	%	0	45	221	17	%	17	%
Water Infrastructure	589	533	56	11	%	0	25	81	15	%	15	%
Applied Water	453	425	28	7	%	0	13	41	10	%	10	%
Measurement & Control Solutions	406	314	92	29	%	0	7	99	32	%	32	%

Xylem Inc. Non-GAAP Reconciliation
Adjusted Operating Income ($ Millions)


	Q1
	2023		2022
Total Revenue
• Total Xylem	1,448		1,272
• Water Infrastructure	589		533
• Applied Water	453		425
• Measurement & Control Solutions	406		314

Operating Income (Loss)
• Total Xylem	131		111
• Water Infrastructure	70		74
• Applied Water	83		59
• Measurement & Control Solutions	20		(10	)
• Total Segments	173		123

Operating Margin
• Total Xylem	9.0	%	8.7	%
• Water Infrastructure	11.9	%	13.9	%
• Applied Water	18.3	%	13.9	%
• Measurement & Control Solutions	4.9	%	(3.2	%)
• Total Segments	11.9	%	9.7	%

Special Charges
• Total Xylem	25		1
• Water Infrastructure	-		-
• Applied Water	-		-
• Measurement & Control Solutions	2		-
• Total Segments	2		-

Restructuring & Realignment Costs
• Total Xylem	11		4
• Water Infrastructure	3		1
• Applied Water	3		1
• Measurement & Control Solutions	5		2
• Total Segments	11		4

Adjusted Operating Income (Loss)
• Total Xylem	167		116
• Water Infrastructure	73		75
• Applied Water	86		60
• Measurement & Control Solutions	27		(8	)
• Total Segments	186		127

Adjusted Operating Margin
• Total Xylem	11.5	%	9.1	%
• Water Infrastructure	12.4	%	14.1	%
• Applied Water	19.0	%	14.1	%
• Measurement & Control Solutions	6.7	%	(2.5	%)
• Total Segments	12.8	%	10.0	%

Xylem Inc. Non-GAAP Reconciliation
Adjusted Diluted EPS
($ Millions, except per share amounts)

	Q1 2023				Q1 2022
	As Reported	Adjustments		Adjusted	As Reported	Adjustments		Adjusted
Total Revenue	1,448	-		1,448	1,272	-		1,272
Operating Income	131	36	a	167	111	5	a	116
Operating Margin	9.0%			11.5%	8.7%			9.1%
Interest Expense	(9)	-		(9)	(13)	-		(13)
Other Non-Operating Income (Expense)	4	-	b	4	(1)	1	b	-
UK Pension Buyout Settlement	-	-		-	-	-		-
Gain/(Loss) From Sale of Business	-	-		-	1	(1)		-
Income before Taxes	126	36		162	98	5		103
Provision for Income Taxes	(27)	(5)	c	(32)	(16)	(3)	c	(19)
Net Income	99	31		130	82	2		84
Diluted Shares	181.3			181.3	181.0			181.0
Diluted EPS	$0.54	$0.18		$0.72	$0.45	$0.02		$0.47

Year-over-year currency translation impact on current year diluted EPS	($0.04)	$0.01		($0.03)
Diluted EPS at Constant Currency	$0.58	$0.17		$0.75

a		Restructuring & realignment costs of $11 million in 2023 and $4 million in 2022, as well as special charges of $25 million in 2023 including $23 million of Evoqua acquisition & integration cost and $2 million of impairment charges. 2022 special charges of $1 million for charges related to the UK pension plan exited as part of a buy-out.
b		Special non-operating charges consist of $1 million in 2022 for charges related to the UK pension plan exited as part of a buy-out.
c		Net tax impact on restructuring & realignment costs of $2 million in 2023 and $1 million in 2022; net tax impact on special charges of $3 million in 2023 and $1 million in 2022; and $1 million in 2022 of negative impact from tax related special benefits to GAAP tax.

Xylem Inc. Non-GAAP Reconciliation
Net Cash - Operating Activities vs. Free Cash Flow ($ Millions)

	Q1

	2023		2022

Net Cash - Operating Activities	($19	)	($81	)

Capital Expenditures - PP&E	(33	)	(31	)
Capital Expenditures - Software	(16	)	(18	)
Capital Expenditures	(49	)	(49	)

Cash paid in excess of tax provision for R&D law change adoption	33		-


Free Cash Flow	($35	)	($130	)




Net Income	$99		$82

Gain/(Loss) from sale of business	-		1


Special Charges - non-cash impairment	(2	)	-

Net Income, excluding gain on sale of businesses, non-cash impairment charges and non-cash pension buyout settlement	$101		$81

Operating Cash Flow Conversion	-19	%	-99	%

Free Cash Flow Conversion	-35	%	-160	%

Xylem Inc. Non-GAAP Reconciliation
EBITDA and Adjusted EBITDA by Quarter ($ Millions)


2023
	Q1		Q2		Q3		Q4		Total

Net Income	99								99
Net Income margin	6.8	%							6.8	%
Depreciation	28								28
Amortization	32								32
Interest Expense (Income), net	2								2
Income Tax Expense	27								27
EBITDA	188								188
Share-based Compensation	12								12
Restructuring & Realignment	11								11
U.K. Pension Settlement	-								-
Special Charges	25								25
Loss/(Gain) from sale of business	-								-
Adjusted EBITDA	236		-		-		-		236
Revenue	1,448								1,448
Adjusted EBITDA Margin	16.3	%							16.3	%

2022
	Q1		Q2		Q3		Q4		Total

Net Income	82		112		12		149		355
Net Income margin	6.4	%	8.2	%	0.9	%	9.9	%	6.4	%
Depreciation	28		28		27		28		111
Amortization	30		32		31		32		125
Interest Expense (Income), net	11		10		7		6		34
Income Tax Expense	16		24		5		40		85
EBITDA	167		206		82		255		710
Share-based Compensation	9		9		10		9		37
Restructuring & Realignment	4		8		6		16		34
U.K. Pension Settlement	-		-		140		-		140
Special Charges	2		3		14		1		20
Loss/(Gain) from sale of business	(1	)	-		-		-		(1	)
Adjusted EBITDA	181		226		252		281		940
Revenue	1,272		1,364		1,380		1,506		5,522
Adjusted EBITDA Margin	14.2	%	16.6	%	18.3	%	18.7	%	17.0	%

Xylem Inc. Non-GAAP Reconciliation
EBITDA and Adjusted EBITDA by Quarter ($ Millions)
Water Infrastructure

2023
	Q1		Q2		Q3		Q4		Total

Operating Income	70								70
Operating Margin	11.9	%							11.9	%
Depreciation	12								12
Amortization	2								2
EBITDA	84								84
Share-based Compensation	2								2
Restructuring & Realignment	3								3
Adjusted EBITDA	89								89
Revenue	589								589
Adjusted EBITDA Margin	15.1	%							15.1	%

2022
	Q1		Q2		Q3		Q4		Total

Operating Income	74		108		104		132		418
Operating Margin	13.9	%	18.3	%	18.1	%	19.8	%	17.7	%
Depreciation	11		11		11		11		44
Amortization	2		3		1		3		9
Other non-operating expense, excluding interest income	(4	)	1		0		(1	)	(4	)
EBITDA	83		123		116		145		467
Share-based Compensation	1		0		0		1		2
Restructuring & Realignment	1		3		3		4		11
Adjusted EBITDA	85		126		119		150		480
Revenue	533		589		574		668		2,364
Adjusted EBITDA Margin	15.9	%	21.4	%	20.7	%	22.5	%	20.3	%

Xylem Inc. Non-GAAP Reconciliation
EBITDA and Adjusted EBITDA by Quarter ($ Millions)
Applied Water

2023
	Q1		Q2		Q3		Q4		Total

Operating Income	83								83
Operating Margin	18.3	%							18.3	%
Depreciation	5								5
Amortization	0								0
Other non-operating expense, excluding interest income	(1	)							(1	)
EBITDA	87								87
Share-based Compensation	1								1
Restructuring & Realignment	3								3
Adjusted EBITDA	91								91
Revenue	453								453
Adjusted EBITDA Margin	20.1	%							20.1	%

2022
	Q1		Q2		Q3		Q4		Total

Operating Income	59		61		77		61		258
Operating Margin	13.9	%	14.2	%	16.8	%	13.4	%	14.6	%
Depreciation	5		4		4		4		17
Amortization	0		1		0		1		2
Other non-operating expense, excluding interest income	(1	)	0		(1	)	0		(2	)
EBITDA	63		66		80		66		275
Share-based Compensation	1		1		2		0		4
Restructuring & Realignment	1		2		1		9		13
Adjusted EBITDA	65		69		83		75		292
Revenue	425		429		458		455		1,767
Adjusted EBITDA Margin	15.3	%	16.1	%	18.1	%	16.5	%	16.5	%

Xylem Inc. Non-GAAP Reconciliation
EBITDA and Adjusted EBITDA by Quarter ($ Millions)
Measurement & Control Solutions

2023
	Q1		Q2		Q3		Q4		Total

Operating Income	20								20
Operating Margin	4.9	%							4.9	%
Depreciation	7								7
Amortization	27								27
EBITDA	54								54
Share-based Compensation	2								2
Restructuring & Realignment	5								5
Special Charges	2								2
Adjusted EBITDA	63								63
Revenue	406								406
Adjusted EBITDA Margin	15.5	%							15.5	%

2022
	Q1		Q2		Q3		Q4		Total

Operating Income	(10	)	(5	)	(2	)	19		2
Operating Margin	(3.2	%)	(1.4	%)	(0.6	%)	5.0	%	0.1	%
(Loss)/Gain from sale of business	1		0		0		0		1
Depreciation	9		8		8		8		33
Amortization	25		26		27		26		104
Other non-operating expense, excluding interest income	0		(1	)	(1	)	0		(2	)
EBITDA	25		28		32		53		138
Share-based Compensation	1		2		2		1		6
Restructuring & Realignment	2		3		2		3		10
Special Charges	0		1		12		1		14
Loss/(Gain) from sale of business	(1	)	0		0		0		(1	)
Adjusted EBITDA	27		34		48		58		167
Revenue	314		346		348		383		1,391
Adjusted EBITDA Margin	8.6	%	9.8	%	13.8	%	15.1	%	12.0	%

View source version on businesswire.com: https://www.businesswire.com/news/home/20230503005665/en/

Media
Houston Spencer +1 (914) 323-5723
houston.spencer@xylem.com

Investors
Andrea van der Berg +1 (914) 260-8612
andrea.vanderberg@xylem.com

Source: Xylem Inc.

Press Release

Xylem Reports First Quarter 2023 Results