Press Release

Xylem Reports Strong Revenue, Orders and Earnings Growth in Fourth Quarter 2018

January 31, 2019
  • Fourth quarter 2018 reported net income was $225 million or $1.24 per share; Adjusted net income for the quarter was $159 million or $0.88 per share, up 16 percent versus the prior year period
  • Full-year 2018 reported net income was $549 million or $3.03 per share; Adjusted net income was $522 million or $2.88 per share, up 20 percent year-over-year
  • Delivered $1.4 billion in revenue for the fourth quarter, up nine percent organically
  • Fourth quarter orders of $1.4 billion were up 10 percent organically year-over-year
  • Announces 14% increase in quarterly cash dividend
  • Company projects full-year 2019 organic revenue growth of four to six percent, adjusted earnings per share of $3.20 to $3.40

RYE BROOK, N.Y.--(BUSINESS WIRE)--Jan. 31, 2019-- Xylem Inc. (NYSE:XYL), a leading global water technology company dedicated to solving the world’s most challenging water issues, today reported fourth quarter 2018 net income of $225 million, or $1.24 per share. Excluding the impact of restructuring, realignment and special charges, the Company delivered adjusted net income of $159 million or $0.88 per share in the quarter, a 16-percent increase over the prior year period. Fourth quarter revenue was $1.4 billion, up 9 percent organically. Revenue for the quarter was driven by double-digit growth in the Utility and Commercial end markets along with eight percent growth in Industrial. Adjusted earnings before interest, tax, depreciation and amortization (EBITDA) improved by 40 basis points year-over-year to 20.6 percent driven by productivity, volume leverage and price realization. Reported operating margin in the quarter was 14.0 percent and adjusted operating margin increased 10 basis points year-over-year to 15.1 percent, including a 20-basis-point impact due to purchase accounting amortization.

For the full year 2018, Xylem generated $5.2 billion in revenue, up 11 percent on a reported basis and eight percent on an organic basis. Full-year reported net income was $549 million, or $3.03 per share, a 66% increase over the prior year. Reported operating margin was 12.6 percent, up 90 basis points versus the prior year. Adjusted net income, which excludes the impact of restructuring, realignment and special charges, was $522 million, or $2.88 per share, a 20-percent increase over the prior year. Adjusted EBITDA improved by 80 basis points to 19.5 percent year-over-year. Xylem delivered a full-year 2018 adjusted operating margin of 13.7 percent, up 40 basis points versus the prior year including a 20-basis-point impact due to purchase accounting amortization.

“We continued to build strong momentum throughout 2018, generating solid revenue and orders growth across each of our business lines,” said Patrick Decker, President and Chief Executive Officer of Xylem. “With our expanded digital offerings and leveraging our extensive installed base, we delivered significant value to our customers, and demand for our solutions grew across all of our end markets. We are well-positioned as we begin the year and focused on delivering each of our 2019 commitments and long-term financial objectives.”

Xylem announced that its Board of Directors declared a dividend in the amount of $0.24 per share, an increase of 14 percent. The dividend is payable on March 14, 2019, to shareholders of record as of February 14, 2019.

Full-year 2019 Outlook

Xylem forecasts full-year 2019 revenue in the range of $5.3 to $5.4 billion, up two to four percent. On an organic basis, Xylem’s revenue growth is anticipated to be in the range of four to six percent.

Full-year 2019 adjusted operating margin is expected to be in the range of 14.7 to 15.2 percent, resulting in adjusted earnings per share of $3.20 to $3.40. This represents an increase of 11 to 18 percent from Xylem’s 2018 adjusted results. The Company’s adjusted earnings outlook excludes projected restructuring and realignment costs of approximately $30 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 2018 revenue was $609 million, up nine percent organically compared with fourth quarter 2017. This increase was driven by strong results in the Utility end market across all key geographies, including double-digit growth in the Emerging Markets. The Industrial end market was driven by healthy growth in the U.S., Latin America and Europe.
  • Fourth quarter reported operating income for the segment was $119 million. Adjusted operating income for the segment, which excludes $7 million of restructuring and realignment and special charges, was $126 million, a 15-percent increase over the same period a year ago. Reported operating margin for the Water Infrastructure segment was 19.5 percent, up 130 basis points versus the prior year, and adjusted operating margin was up 180 basis points to 20.7 percent. Productivity gains, volume leverage and increased price realization more than offset inflation, negative currency impacts and investments.

Applied Water

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

  • Fourth quarter 2018 Applied Water revenue was $402 million, a 10-percent increase organically year-over-year, driven by robust growth in the Commercial end market in the U.S., as well as China and India. The Company’s business in the Industrial end market also saw healthy growth from project business activity in the U.S.
  • Fourth quarter reported operating income for the segment was $66 million and adjusted operating income, which excludes $3 million of restructuring and realignment costs, was $69 million, a 10-percent increase over the comparable period last year. The segment reported operating margin was 16.4 percent, up 30 basis points over the prior year period. Adjusted operating margin increased 30 basis points to 17.2 percent as continued traction from price, volume and cost reductions more than offset inflation, negative currency impacts and 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 2018 Measurement & Control Solutions revenue was $375 million, up 11 percent organically versus the prior year, driven by double-digit growth in water in North America and Emerging Markets, as well as the continued deployment of large gas projects.
  • Fourth quarter reported operating income for the segment was $23 million, and adjusted operating income, which excludes $5 million of restructuring and realignment costs and special charges, was $28 million. Measurement & Control Solutions segment reported operating margin was 6.1 percent. Adjusted operating margin of 7.5% decreased 280 basis points over the prior year period, primarily due to higher inflation and adverse sales mix from component shortages, investments and purchase accounting.

Supplemental information on Xylem’s fourth quarter and full-year 2018 earnings and reconciliations for certain non-GAAP items is posted at www.xylem.com/investors.

About Xylem

Xylem (XYL) is a leading global water technology company committed to developing innovative technology solutions to the world’s water challenges. The Company’s products and services move, treat, analyze, monitor and return water to the environment in public utility, industrial, residential and commercial building services settings. Xylem also provides a leading portfolio of smart metering, network technologies and advanced infrastructure analytics solutions for water, electric and gas utilities. The Company’s approximately 17,000 employees bring broad applications expertise with a strong focus on identifying comprehensive, sustainable solutions. Headquartered in Rye Brook, New York, with 2018 revenue of $5.2 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” within the meaning of the Private Securities Litigation Act of 1995. 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. However, the absence of these words or similar expressions does not mean that a statement is not forward-looking. These forward-looking statements include any statements that are not historical in nature, including any statements about the capitalization of Xylem Inc. (the “Company”), the Company’s restructuring and realignment, future strategic plans and other statements that describe the Company’s business strategy, outlook, objectives, plans, intentions or goals. All statements that address operating or financial performance, events or developments that we expect or anticipate will occur in the future — including statements relating to orders, revenues, operating margins and earnings per share growth, and statements expressing general views about future operating results — are forward-looking statements. Forward-looking statements involve known and unknown risks, uncertainties and other important factors that could cause actual results to differ materially from those expressed or implied in, or reasonably inferred from, such forward-looking statements.

Factors that could cause results to differ materially from those anticipated include: overall economic and business conditions, political and other risks associated with our international operations, including military actions, economic sanctions or trade barriers including tariffs and embargoes that could affect customer markets, and non-compliance with laws, including foreign corrupt practice laws, export and import laws and competition laws; potential for unexpected cancellations or delays of customer orders in our reported backlog; our exposure to fluctuations in foreign currency exchange rates; competition and pricing pressures in the markets we serve; the strength of housing and related markets; weather conditions; ability to retain and attract talent and key members of management; our relationship with and the performance of our channel partners; our ability to successfully identify, complete and integrate acquisitions; our ability to borrow or to refinance our existing indebtedness and availability of liquidity sufficient to meet our needs; changes in the value of goodwill or intangible assets; risks relating to product defects, product liability and recalls; claims or investigations by governmental or regulatory bodies; security breaches or other disruptions of our information technology systems; litigation and contingent liabilities; and other factors set forth under Item 1A. Risk Factors of our Annual Report on Form 10-K for the year ended December 31, 2017 and in subsequent filings we make with the Securities and Exchange Commission (“SEC”).

All 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,     2018 2017 2016
Revenue $ 5,207 $ 4,707 $ 3,771
Cost of revenue 3,181   2,860   2,309
Gross profit 2,026 1,847 1,462
Selling, general and administrative expenses 1,161 1,089 914
Research and development expenses 189 181 110
Restructuring and asset impairment charges 22   25   30
Operating income 654 552 408
Interest expense 82 82 70
Other non-operating income, net 13 6 2
(Loss)/gain on sale of businesses —   (10 ) —
Income before taxes 585 466 340
Income tax expense 36   136   80
Net income 549 330 260
Less: Net loss attributable to non-controlling interests —   (1 ) —
Net income attributable to Xylem $ 549   $ 331   $ 260
Earnings per share:
Basic $ 3.05 $ 1.84 $ 1.45
Diluted $ 3.03 $ 1.83 $ 1.45
Weighted average number of shares:
Basic 179.8 179.6 179.1
Diluted 181.1 180.9 180.0
Dividends declared per share $ 0.8400 $ 0.7200 $ 0.6196
 

XYLEM INC. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS (Unaudited)

(In Millions, except per share amounts)

     
December 31,     2018 2017
ASSETS
Current assets:
Cash and cash equivalents $ 296 $ 414
Receivables, less allowances for discounts, returns and doubtful accounts of $35 and $35 in 2018 and 2017, respectively 1,031 956
Inventories 595 524
Prepaid and other current assets 172   177  
Total current assets 2,094 2,071
Property, plant and equipment, net 656 643
Goodwill 2,976 2,768
Other intangible assets, net 1,232 1,168
Other non-current assets 264   210  
Total assets $ 7,222   $ 6,860  
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Accounts payable $ 586 $ 549
Accrued and other current liabilities 546 551
Short-term borrowings and current maturities of long-term debt 257   —  
Total current liabilities 1,389 1,100
Long-term debt, net 2,051 2,200
Accrued postretirement benefits 400 442
Deferred income tax liabilities 303 252
Other non-current accrued liabilities 297   347  
Total liabilities 4,440   4,341  
 
Stockholders’ equity:
Common stock — par value $0.01 per share:
Authorized 750.0 shares, issued 192.9 and 192.3 shares in 2018 and 2017, respectively 2 2
Capital in excess of par value 1,950 1,912
Retained earnings 1,639 1,227
Treasury stock – at cost 13.2 shares and 12.4 shares in 2018 and 2017, respectively (487 ) (428 )
Accumulated other comprehensive loss (336 ) (210 )
Total stockholders’ equity 2,768   2,503  
Non-controlling interest 14 16
Total equity 2,782   2,519  
Total liabilities and stockholders’ equity $ 7,222   $ 6,860  
 

XYLEM INC. AND SUBSIDIARIES

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

       
Year Ended December 31,     2018 2017 2016
Operating Activities
Net income $ 549 $ 330 $ 260
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation 117 109 87
Amortization 144 125 64
Deferred income taxes (47 ) (33 ) 14
Share-based compensation 30 21 18
Restructuring and asset impairment charges 22 25 30
Loss/(gain) from sale of businesses — 10 —
Other, net 9 19 6
Payments for restructuring (21 ) (28 ) (16 )
Contributions to postretirement benefit plans (41 ) (33 ) (27 )
Changes in assets and liabilities (net of acquisitions):
Changes in receivables (103 ) (79 ) (6 )
Changes in inventories (97 ) 27 (15 )
Changes in accounts payable 51 50 61
Changes in accrued liabilities (6 ) 28 13
Changes in accrued taxes — 104 (13 )
Net changes in other assets and liabilities     (21 ) 11   21  
Net Cash — Operating activities     586   686   497  
Investing Activities
Capital expenditures (237 ) (170 ) (124 )
Proceeds from the sale of property, plant and equipment — 1 1
Acquisitions of businesses and assets, net of cash acquired (433 ) (33 ) (1,782 )
Proceeds from sale of businesses 22 16 —
Cash received from investments 11 10 —
Cash paid for investments (11 ) (11 ) —
Other, net     5   6   19  
Net Cash — Investing activities     (643 ) (181 ) (1,886 )
Financing Activities
Short-term debt issued 335 — 274
Short-term debt repaid, net (52 ) (282 ) (80 )
Long-term debt issued, net 1 — 1,540
Long-term debt repaid (120 ) — (608 )
Repurchase of common stock (59 ) (25 ) (4 )
Proceeds from exercise of employee stock options 7 16 24
Excess tax benefit from share based compensation — — —
Dividends paid (152 ) (130 ) (112 )
Other, net     —   —   —  
Net Cash — Financing activities     (40 ) (421 ) 1,034  
Effect of exchange rate changes on cash     (21 ) 22   (17 )
Net change in cash and cash equivalents     (118 ) 106 (372 )
Cash and cash equivalents at beginning of year     414   308   680  
Cash and cash equivalents at end of year     $ 296   $ 414   $ 308  
Supplemental disclosure of cash flow information:
Cash paid during the year for:
Interest $ 78 $ 78 $ 49
Income taxes (net of refunds received) $ 75 $ 57 $ 78
 
Xylem Inc. Non-GAAP Measures
 
 
Management reviews key performance indicators including revenue, gross margins, segment operating income and margins, orders growth, working capital and backlog, among others. In addition, we consider certain non-GAAP (or "adjusted") measures to be useful to management and investors evaluating our operating performance for the periods presented, and to provide a tool for evaluating our ongoing operations, liquidity and management of assets. This information can assist investors in assessing our financial performance and measures our ability to generate capital for deployment among competing strategic alternatives and initiatives, including but not limited to, dividends acquisitions, share repurchases and debt repayment. Excluding revenue, Xylem provides guidance only on a non-GAAP basis due to the inherent difficulty in forecasting certain amounts that would be included in GAAP earnings, such as discrete tax items, without unreasonable effort. These adjusted metrics are consistent with how management views our business and are used to make financial, operating and planning decisions. These metrics, however, are not measures of financial performance under GAAP and should not be considered a substitute for revenue, operating income, net income, earnings per share (basic and diluted) or net cash from operating activities as determined in accordance with GAAP. We consider the following non-GAAP measures, which may not be comparable to similarly titled measures reported by other companies, to be key performance indicators:
 
“Organic revenue" and "Organic orders” defined as revenue and orders, respectively, excluding the impact of fluctuations in foreign currency translation and contributions from acquisitions and divestitures. Divestitures include sales of insignificant portions of our business that did not meet the criteria for classification as a discontinued operation. The period-over-period change resulting from foreign currency translation impacts is determined by translating current period and prior period activity using the same currency conversion rate.
 
“Constant currency” defined as financial results adjusted for foreign currency translation impacts by translating current period and prior period activity using the same currency conversion rate. This approach is used for countries whose functional currency is not the U.S. dollar.
 
“EBITDA” defined as earnings before interest, taxes, depreciation and amortization expense. “Adjusted EBITDA” reflects the adjustment to EBITDA to exclude share-based compensation charges, restructuring and realignment costs, Sensus acquisition related costs, gain or loss from sale of businesses and special charges.
 
"Adjusted Operating Income", "Adjusted Segment Operating Income", "Adjusted Net Income" and “Adjusted EPS” defined as operating income, segment operating income, adjusted net income and earnings per share, adjusted to exclude restructuring and realignment costs, Sensus acquisition related costs, gain or loss from sale of businesses, special charges and tax-related special items, as applicable.
 
“Free Cash Flow” defined as net cash from operating activities, as reported in the Statement of Cash Flow, less capital expenditures as well as adjustments for other significant items that impact current results which management believes are not related to our ongoing operations and performance. Our definition of free cash flow does not consider certain non-discretionary cash payments, such as debt.
 
“Realignment costs” defined as costs not included in restructuring costs that are incurred as part of actions taken to reposition our business, including items such as professional fees, severance, relocation, travel, facility set-up and other costs.
 
“Sensus Acquisition Related Costs "defined as costs incurred by the Company associated with the acquisition of Sensus that are being reported within operating income. These costs include integration costs, acquisition costs, costs related to the recognition of the backlog intangible asset amortization recorded in purchase accounting.
 
“Special charges" defined as costs incurred by the Company, such as acquisition and integration related costs not included in "Sensus Acquisition Related Costs", non-cash impairment charges, due diligence costs and other special non-operating items.
 
“Tax-related special items" defined as tax items, such as tax return versus tax provision adjustments, tax exam impacts, tax law change impacts, significant reserves for cash repatriation, excess tax benefits/losses and other discrete tax adjustments.
 
Xylem Inc. Non-GAAP Reconciliation
Reported vs. Organic & Constant Currency Orders
($ Millions)
                                     
(As Reported - GAAP) (As Adjusted - Organic) Constant Currency
  (A)   (B)   (C)   (D)   (E) = B+C+D   (F) = E/A (G) = (E - C) / A
 
Change % Change

 

Change % Change
Orders Orders 2018 v. 2017 2018 v. 2017

Acquisitions /
Divestitures

FX Impact Adj. 2018 v. 2017 Adj. 2018 v. 2017  
2018 2017

Year Ended December 31
 
Xylem Inc. 5,437 4,868 569 12% (88) (27) 454 9% 11%
 
Water Infrastructure 2,255 2,112 143 7% - (3) 140 7% 7%
Applied Water 1,557 1,476 81 5% 12 (10) 83 6% 5%
Measurement & Control Solutions 1,625 1,280 345 27% (100) (14) 231 18% 26%
 

Quarter Ended December 31
 
Xylem Inc. 1,383 1,270 113 9% (19) 35 129 10% 12%
 
Water Infrastructure 584 566 18 3% - 22 40 7% 7%
Applied Water 395 373 22 6% - 8 30 8% 8%
Measurement & Control Solutions 404 331 73 22% (19) 5 59 18% 24%
 

Quarter Ended September 30

 

 
Xylem Inc. 1,356 1,249 107 9% (27) 24 104 8% 10%
 
Water Infrastructure 537 558 (21) -4% - 17 (4) -1% -1%
Applied Water 377 374 3 1% 2 5 10 3% 2%
Measurement & Control Solutions 442 317 125 39% (29) 2 98 31% 40%
 

Quarter Ended June 30
 
Xylem Inc. 1,378 1,212 166 14% (34) (30) 102 8% 11%
 
Water Infrastructure 580 521 59 11% - (14) 45 9% 9%
Applied Water 401 375 26 7% 4 (9) 21 6% 5%
Measurement & Control Solutions 397 316 81 26% (38) (7) 36 11% 23%
 

Quarter Ended March 31
 
Xylem Inc. 1,320 1,137 183 16% (8) (56) 119 10% 11%
 
Water Infrastructure 554 467 87 19% - (28) 59 13% 13%
Applied Water 384 354 30 8% 6 (14) 22 6% 5%
Measurement & Control Solutions 382 316 66 21% (14) (14) 38 12% 16%
 
                   
Xylem Inc. Non-GAAP Reconciliation
Reported vs. Organic & Constant Currency Revenue
($ Millions)
                             
(As Reported - GAAP) (As Adjusted - Organic) Constant Currency
(A) (B) (C) (D) (E) = B+C+D (F) = E/A (G) = (E - C) / A
 
Change % Change

 

Change % Change
Revenue Revenue 2018 v. 2017 2018 v. 2017

Acquisitions /
Divestitures

FX Impact Adj. 2018 v. 2017 Adj. 2018 v. 2017  
2018 2017

Year Ended December 31
 
Xylem Inc. 5,207 4,707 500 11% (87) (23) 390 8% 10%
 
Water Infrastructure 2,176 2,004 172 9% - 4 176 9% 9%
Applied Water 1,534 1,421 113 8% 10 (10) 113 8% 7%
Measurement & Control Solutions 1,497 1,282 215 17% (97) (17) 101 8% 15%
 

Quarter Ended December 31
 
Xylem Inc. 1,386 1,277 109 9% (24) 36 121 9% 11%
 
Water Infrastructure 609 583 26 4% - 24 50 9% 9%
Applied Water 402 373 29 8% - 8 37 10% 10%
Measurement & Control Solutions 375 321 54 17% (24) 4 34 11% 18%
 

Quarter Ended September 30
 
Xylem Inc. 1,287 1,195 92 8% (22) 24 94 8% 10%
 
Water Infrastructure 541 520 21 4% - 18 39 8% 8%
Applied Water 378 354 24 7% 2 4 30 8% 8%
Measurement & Control Solutions 368 321 47 15% (24) 2 25 8% 15%
 

Quarter Ended June 30
 
Xylem Inc. 1,317 1,164 153 13% (26) (29) 98 8% 11%
 
Water Infrastructure 546 482 64 13% - (13) 51 11% 11%
Applied Water 388 361 27 7% 3 (8) 22 6% 5%
Measurement & Control Solutions 383 321 62 19% (29) (8) 25 8% 17%
 

Quarter Ended March 31
 
Xylem Inc. 1,217 1,071 146 14% (15) (54) 77 7% 9%
 
Water Infrastructure 480 419 61 15% - (25) 36 9% 9%
Applied Water 366 333 33 10% 5 (14) 24 7% 6%
Measurement & Control Solutions 371 319 52 16% (20) (15) 17 5% 12%
 
Xylem Inc. Non-GAAP Reconciliation
Adjusted Operating Income
($ Millions)
                                 
Q1 Q2 Q3 Q4 YTD

2018

2017

2018

2017

2018

2017

2018

2017

2018

2017
Total Revenue
• Total Xylem 1,217 1,071 1,317 1,164 1,287 1,195 1,386 1,277 5,207 4,707
• Water Infrastructure 480 419 546 482

 

541 520

 

609 583 2,176 2,004
• Applied Water 366 333 388 361

 

378 354

 

402 373 1,534 1,421
• Measurement & Control Solutions 371 319 383 321 368 321 375 321 1,497 1,282
                                 
Operating Income
• Total Xylem 113 86 171 137 176 152 194 177 654 552
• Water Infrastructure 49 41 92 74

 

99 91

 

119 106 359 312
• Applied Water 50 36 61 48

 

59 50

 

66 60 236 194
• Measurement & Control Solutions 33 25 31 29 31 27 23 29 118 110
• Total Segments 132 102 184 151 189 168 208 195 713 616
 
Operating Margin
• Total Xylem 9.3% 8.0% 13.0% 11.8% 13.7% 12.7% 14.0% 13.9% 12.6% 11.7%
• Water Infrastructure 10.2% 9.8% 16.8% 15.4% 18.3% 17.5% 19.5% 18.2% 16.5% 15.6%
• Applied Water 13.7% 10.8% 15.7% 13.3% 15.6% 14.1% 16.4% 16.1% 15.4% 13.7%
• Measurement & Control Solutions 8.9% 7.8% 8.1% 9.0% 8.4% 8.4% 6.1% 9.0% 7.9% 8.6%
• Total Segments     10.8% 9.5%   14.0% 13.0%   14.7% 14.1%   15.0% 15.3%   13.7% 13.1%
 
Sensus Acquisition Related Costs
• Total Xylem - 10 - 4 - 5 - 3 - 22
• Water Infrastructure - - - - - - - - - -
• Applied Water - - - - - - - - - -
• Measurement & Control Solutions - 6 - 3 - 4 - 2 - 15
• Total Segments - 6 - 3 - 4 - 2 - 15
 
Special Charges
• Total Xylem 6 5 1 - 1 3 4 3 12 11
• Water Infrastructure - - - - - 2 - 2 -
• Applied Water - 5 - - - - - - 5
• Measurement & Control Solutions 2 - 1 - - - 2 - 5 -
• Total Segments 2 5 1 - - - 4 - 7 5
 
Restructuring & Realignment Costs
• Total Xylem 16 11 10 12 11 9 11 9 48 41
• Water Infrastructure 5 4 5 5 5 3 5 4 20 16
• Applied Water 3 4 2 5 2 5 3 3 10 17
• Measurement & Control Solutions 8 3 3 2 4 1 3 2 18 8
• Total Segments 16 11 10 12 11 9 11 9 48 41
                                 
Adjusted Operating Income
• Total Xylem 135 112 182 153 188 169 209 192 714 626
• Water Infrastructure 54 45 97 79

 

104 94

 

126 110 381 328
• Applied Water 53 45 63 53

 

61 55

 

69 63 246 216
• Measurement & Control Solutions 43 34 35 34

 

35 32

 

28 33 141 133
• Total Segments 150 124 195 166 200 181 223 206 768 677
 
Adjusted Operating Margin
• Total Xylem 11.1% 10.5% 13.8% 13.1% 14.6% 14.1% 15.1% 15.0% 13.7% 13.3%
• Water Infrastructure 11.3% 10.7% 17.8% 16.4% 19.2% 18.1% 20.7% 18.9% 17.5% 16.4%
• Applied Water 14.5% 13.5% 16.2% 14.7% 16.1% 15.5% 17.2% 16.9% 16.0% 15.2%
• Measurement & Control Solutions 11.6% 10.7% 9.1% 10.6% 9.5% 10.0% 7.5% 10.3% 9.4% 10.4%
• Total Segments     12.3% 11.6%   14.8% 14.3%   15.5% 15.1%   16.1% 16.1%   14.7% 14.4%
 
 
Note: 2017 amounts have been restated in accordance with the adoption of the new guidance on presentation of net periodic benefit costs.
 
Xylem Inc. Non-GAAP Reconciliation
Adjusted Diluted EPS
($ Millions, except per share amounts)
           
 
 
 
                           
Q4 2018 Q4 2017

As Reported

Adjustments

Adjusted

As Reported

Adjustments

Adjusted
Total Revenue 1,386 - 1,386 1,277 - 1,277
Operating Income 194 15 a 209 177 15 a 192
Operating Margin 14.0% 15.1% 13.9% 15.0%
Interest Expense (19) - (19) (20) - (20)
Other Non-Operating Income (Expense) 4 1 5 (1) 2 c 1
Gain/(Loss) From Sale of Businesses - - - (14) 14 -
Income before Taxes 179 16 195 142 31 173
Provision for Income Taxes 46 (82) b (36) (72) 36 b (36)
Income Attributable to Minority Interest -   - 1 (1) d -
Net Income Attributable to Xylem 225 (66) 159 71 66 137
Diluted Shares 181.0           181.0   181.3           181.3
Diluted EPS $ 1.24     $ (0.36)     $ 0.88   $ 0.38     $ 0.38     $ 0.76
 
Year-over-year currency translation impact on current year diluted EPS $ (0.02)     $ -     $ (0.02)
Diluted EPS at Constant Currency $ 1.26     $ (0.36)     $ 0.90
 
 
                           
Q4 YTD 2018 Q4 YTD 2017
As Reported Adjustments Adjusted As Reported Adjustments Adjusted
Total Revenue 5,207 - 5,207 4,707 4,707
Operating Income 654 60 a 714 552 74 a 626
Operating Margin 12.6% 13.7% 11.7% 13.3%
Interest Expense (82) - (82) (82) (82)
Other Non-Operating Income (Expense) 13 1 14 6 2 c 8
Gain/(Loss) From Sale of Businesses - - - (10) 10 -
Income before Taxes 585 61 646 466 86 552
Provision for Income Taxes (36) (88) b (124) (136) 17 b (119)
Income Attributable to Minority Interest -   - 1 (1) d -
Net Income Attributable to Xylem 549 (27) 522 331 102 433
Diluted Shares 181.1           181.1   180.9       180.9
Diluted EPS $ 3.03     $ (0.15)     $ 2.88   $ 1.83   $ 0.57   $ 2.40
 
Year-over-year currency translation impact on current year diluted EPS $ 0.05     $ -     $ 0.05
Diluted EPS at Constant Currency $ 2.98     $ (0.15)     $ 2.83
 

Note:2017 amounts have been restated in accordance with the adoption of the new guidance on presentation of net periodic benefit costs.

a QTD: Restructuring & realignment costs of $11 million and $9 million in 2018 and 2017, respectively; special charges of $4 million in 2018 ($2 million of acquisition related costs and $2 million of asset impairment) and $3 million of acquisition related costs in 2017; and $3 million of Sensus acquisition related costs in 2017.

YTD: Restructuring & realignment costs of $48 million and $41 million in 2018 and 2017, respectively; special charges of $12 million in 2018 ($10 million acquisition of related costs and $2 million of asset impairment) and $11 million n 2017 ($5 million of asset impairment, $3 million of due diligence costs and $3 of other acquisition costs); and 2017 Sensus acquisition related costs of $22 million.

b QTD: Net tax impact on restructuring & realignment costs of $2 million in both 2018 and 2017; net tax impact on special charges of $0 million and $1 million in 2018 and 2017, respectively; net tax impact on 2017 Sensus acquisition related costs of $1 million; and tax-related special items of $80 million of expense and $40 million of benefit in 2018 and 2017, respectively.

YTD: Net tax impact on restructuring & realignment costs of $12 million and $13 million in 2018 and 2017, respectively; net tax impact on special charges of $1 million and $4 million in 2018 and 2017, respectively; net tax impact of $8 million on 2017 Sensus acquisition related costs; net tax impact of $2 million benefit on the gain from sale of business in 2017; and tax-related special items of $75 million of expense and $40 million of benefit in 2018 and 2017, respectively.

c Special charges of a write-down of investment in joint venture of $2 million in the fourth quarter of 2017.

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.

 
Xylem Inc. Non-GAAP Reconciliation
Net Cash - Operating Activities vs. Free Cash Flow
($ Millions)
                   
 
Q1 Q2 Q3 Q4 Year Ended
2018 2017 2018 2017 2018 2017 2018 2017 2018 2017
 
Net Cash - Operating Activities $ 63 $ 52 $ 138 $ 99 $ 187 $ 228 $ 198 $ 307 $ 586 $ 686
 
Capital Expenditures (61) (43) (50) (34) (60) (42) (66) (51) (237) (170)
                   
Free Cash Flow $ 2 $ 9 $ 88 $ 65 $ 127 $ 186 $ 132 $ 256 $ 349 $ 516
 
Cash paid for Sensus acquisition related costs (1) (17) - (5) - (1) - (5) (1) (28)
                   
Free Cash Flow, excluding Sensus Acquisition Related Costs $ 3 $ 26 $ 88 $ 70 $ 127 $ 187 $ 132 $ 261 $ 350 $ 544
 
Net Income 79 56 115 100 130 104 225 70 549 330
 
Gain/(Loss) from sale of businesses - 5 (2) - 2 (1) - (14) - (10)
 
Special Charges - non-cash impairment - (5) - - - - (2) (2) (2) (7)
 
Sensus acquisition related costs - (10) - (4) - (5) - (3) - (22)
 

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

 $ 79 $ 66 $ 117 $ 104 $ 128 $ 110 $ 227 $ 89 $ 551 $ 369
 
Free Cash Flow Conversion 4% 39% 75% 67% 99% 170% 58% 293% 64% 147%
 
Xylem Inc. Non-GAAP Reconciliation
EBITDA and Adjusted EBITDA by Quarter
           
($ Millions)
 
2018
Q1 Q2 Q3 Q4 Total
 
Net Income 79 115 130 225 549
 
Income Tax Expense 16 35 31 (46) 36
 
Interest Expense (Income), net 20 20 20 18 78
Depreciation 29 29 29 30 117
Amortization 38 36 34 36 144
EBITDA 182 235 244 263 924
 
Share-based Compensation 9 7 7 7 30
 
Restructuring & Realignment 16 9 11 11 47
 
Loss/(Gain) from sale of business - 2 (2) - -
 
Special Charges 6 1 1 4 12
         
Adjusted EBITDA 213 254 261 285 1,013
 
Revenue 1,217 1,317 1,287 1,386 5,207
 
Adjusted EBITDA Margin 17.5% 19.3% 20.3% 20.6% 19.5%
 
 
 
2017
Q1 Q2 Q3 Q4 Total
 
Net Income 56 100 104 70 330
 
Income Tax Expense 14 21 27 74 136
 
Interest Expense (Income), net 20 20 20 19 79
Depreciation 28 27 28 26 109
Amortization 31 30 30 34 125
EBITDA 149 198 209 223 779
 
Share-based Compensation 6 5 5 5 21
 
Restructuring & Realignment 11 12 9 9 41
 
Loss/(Gain) from sale of business (5) - 1 14 10
 
Sensus Acquisition Related Costs 7 2 3 2 14
 
Special Charges 5 - 3 5 13
         
Adjusted EBITDA 173 217 230 258 878
 
Revenue 1,071 1,164 1,195 1,277 4,707
 
Adjusted EBITDA Margin 16.2% 18.6% 19.2% 20.2% 18.7%
       
Xylem Inc. Non-GAAP Reconciliation
EBITDA and Adjusted EBITDA by Quarter
Water Infrastructure
($ Millions)
   
2018
Q1 Q2 Q3 Q4 Total
 
Pre-Tax Income 47 90 98 117 352
 
Interest Expense (Income), net - (1) (1) - (2)
Depreciation 12 11 12 11 46
Amortization 5 5 5 5 20
EBITDA 64 105 114 133 416
 
Share-based Compensation 1 - 1 - 2
 
Restructuring & Realignment 5 5 5 5 20
 
Special Charges - 2 2
         
Adjusted EBITDA 70 110 120 140 440
 
Revenue 480 546 541 609 2,176
 
Adjusted EBITDA Margin 14.6% 20.1% 22.2% 23.0% 20.2%
 
 
2017
Q1 Q2 Q3 Q4 Total
 
Pre-Tax Income 39 73 90 105 307
 
Interest Expense (Income), net - - (1) (1) (2)
Depreciation 11 11 12 11 45
Amortization 5 4 5 5 19
EBITDA 55 88 106 120 369
 
Share-based Compensation 1 - - 1 2
 
Restructuring & Realignment 4 5 3 4 16
         
Adjusted EBITDA 60 93 109 125 387
 
Revenue 419 482 520 583 2,004
 
Adjusted EBITDA Margin 14.3% 19.3% 21.0% 21.4% 19.3%
 
 
Note: 2017 amounts have been restated in accordance with the adoption of the new guidance on presentation of net periodic benefit costs.
 
       
Xylem Inc. Non-GAAP Reconciliation
EBITDA and Adjusted EBITDA by Quarter
Applied Water
($ Millions)
 
2018
Q1 Q2 Q3 Q4 Total
 
Pre-Tax Income 50 61 60 66 237
 
Interest Expense (Income), net - - - - -
Depreciation 5 5 5 5 20
Amortization - 1 1 - 2
EBITDA 55 67 66 71 259
 
Share-based Compensation 1 1 - 1 3
 
Restructuring & Realignment 3 2 2 3 10
         
Adjusted EBITDA 59 70 68 75 272
 
Revenue 366 388 378 402 1,534
 
Adjusted EBITDA Margin 16.1% 18.0% 18.0% 18.7% 17.7%
 
 
2017
Q1 Q2 Q3 Q4 Total
 
Pre-Tax Income 40 49 49 62 200
 
Interest Expense (Income), net - - - - -
Depreciation 5 5 5 5 20
Amortization 1 1 1 - 3
EBITDA 46 55 55 67 223
 
Share-based Compensation - 1 1 - 2
 
Restructuring & Realignment 4 5 5 3 17
 
Loss/(Gain) from sale of business (5) - 1 (2) (6)
 
Special Charges 5 - - - 5
         
Adjusted EBITDA 50 61 62 68 241
 
Revenue 333 361 354 373 1,421
 
Adjusted EBITDA Margin 15.0% 16.9% 17.5% 18.2% 17.0%
 
 
Note: 2017 amounts have been restated in accordance with the adoption of the new guidance on presentation of net periodic benefit costs.
 
       
Xylem Inc. Non-GAAP Reconciliation
EBITDA and Adjusted EBITDA by Quarter
Measurement & Control Solutions
($ Millions)
 
2018
Q1 Q2 Q3 Q4 Total
 
Pre-Tax Income 33 28 33 23 117
 
Interest Expense (Income), net - - - (1) (1)
Depreciation 8 9 8 10 35
Amortization 29 27 26 27 109
EBITDA 70 64 67 59 260
 
Share-based Compensation 1 1 1 1 4
 
Restructuring & Realignment 8 3 4 3 18
 
Loss/(Gain) from sale of business - 2 (2) - -
 
Special Charges 2 1 - 2 5
         
Adjusted EBITDA 81 71 70 65 287
 
Revenue 371 383 368 375 1,497
 
Adjusted EBITDA Margin 21.8% 18.5% 19.0% 17.3% 19.2%
 
2017
Q1 Q2 Q3 Q4 Total
 
Pre-Tax Income 24 30 26 11 91
 
Interest Expense (Income), net - - - (1) (1)
Depreciation 8 8 7 7 30
Amortization 23 22 22 25 92
EBITDA 55 60 55 42 212
 
Share-based Compensation - 1 - 1 2
 
Restructuring & Realignment 3 2 1 2 8
 
Loss from sale of business - - - 16 16
 
Sensus Acquisition Related Costs 3 1 2 1 7
 
Special Charges - - - 2 2
         
Adjusted EBITDA 61 64 58 64 247
 
Revenue 319 321 321 321 1,282
 
Adjusted EBITDA Margin 19.1% 19.9% 18.1% 19.9% 19.3%
 
 
Note: 2017 amounts have been restated in accordance with the adoption of the new guidance on presentation of net periodic benefit costs.
 

Source: Xylem Inc.

Media
Jenny Rider +1 (914) 323-5745
Jenny.Rider@xyleminc.com

Investors
Matt Latino +1 (914) 323-5821
Matthew.Latino@xyleminc.com