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

|Business Wire

Company completes acquisition of Pure Technologies

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

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

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

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

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

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

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

Full-year 2018 Outlook

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

Full-year 2018 adjusted operating margin is expected to be in the range of 14.0 to 14.4 percent, resulting in adjusted earnings per share of $2.82 to $2.97. This represents an increase of 18 to 24 percent from Xylem’s 2017 adjusted results. The Company’s adjusted earnings outlook excludes projected integration, restructuring and realignment costs of approximately $35 million for the year. Excluding revenue, Xylem provides guidance only on a non-GAAP basis due to the inherent difficulty in forecasting certain amounts that would be included in GAAP earnings, such as discrete tax items, without unreasonable effort.

Fourth Quarter Segment Results

Water Infrastructure

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

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

Applied Water

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

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

Measurement & Control Solutions

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

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

Supplemental information on Xylem’s fourth quarter and full-year 2017 earnings and reconciliations for certain non-GAAP items is posted at www.xylem.com/investors.

About Xylem

Xylem (XYL) is a leading global water technology company committed to developing innovative technology solutions to the world’s water challenges. The Company’s products and services move, treat, analyze, monitor and return water to the environment in public utility, industrial, residential and commercial building services settings. Xylem also provides a leading portfolio of smart metering, network technologies and advanced infrastructure analytics solutions for water, electric and gas utilities. The Company’s more than 16,000 employees bring broad applications expertise with a strong focus on identifying comprehensive, sustainable solutions. Headquartered in Rye Brook, New York with 2017 revenue of $4.7 billion, Xylem does business in more than 150 countries through a number of market-leading product brands.

The name Xylem is derived from classical Greek and is the tissue that transports water in plants, highlighting the engineering efficiency of our water-centric business by linking it with the best water transportation of all – that which occurs in nature. For more information, please visit us at www.xylem.com.

Forward-Looking Statements

This press release contains information that may constitute “forward-looking statements.” Forward-looking statements by their nature address matters that are, to different degrees, uncertain. Generally, the words “anticipate,” “estimate,” “expect,” “project,” “intend,” “plan,” “forecast,” “believe,” “target,” “will,” “could,” “would,” “should” and similar expressions identify forward-looking statements, which generally are not historical in nature. However, the absence of these words or similar expressions does not mean that a statement is not forward-looking.

These forward-looking statements include statements about the capitalization of Xylem Inc. (the “Company”), the Company’s restructuring and realignment, future strategic plans and other statements that describe the Company’s business strategy, outlook, objectives, plans, intentions or goals. All statements that address operating or financial performance, events or developments that we expect or anticipate will occur in the future – including statements relating to orders, revenues, operating margins and earnings per share growth, and statements expressing general views about future operating results – are forward-looking statements. Forward-looking statements involve known and unknown risks, uncertainties and other important factors that could cause actual results to differ materially from those expressed or implied in, or reasonably inferred from, such forward-looking statements. Factors that could cause results to differ materially from those anticipated include: economic, political and other risks associated with our international operations, including military actions, economic sanctions or trade embargoes that could affect customer markets, and non-compliance with laws, including foreign corrupt practice laws, export and import laws and competition laws; potential for unexpected cancellations or delays of customer orders in our reported backlog; our exposure to fluctuations in foreign currency exchange rates; competition and pricing pressures in the markets we serve; the strength of housing and related markets; ability to retain and attract key members of management; our relationship with and the performance of our channel partners; our ability to successfully identify, complete and integrate acquisitions; our ability to borrow or to refinance our existing indebtedness and availability of liquidity sufficient to meet our needs; changes in the value of goodwill or intangible assets; risks relating to product defects, product liability and recalls; governmental investigations; security breaches or other disruptions of our information technology systems; litigation and contingent liabilities; and other factors set forth in Item 1A of our Annual Report on Form 10-K for the year ended December 31, 2016, and those described from time to time in subsequent reports filed with the Securities and Exchange Commission. Forward-looking statements made herein are based on information currently available to the Company. The Company undertakes no obligation to publicly update or revise any forward-looking statements, whether as a result of new information, future events or otherwise, except as required by law.

 

XYLEM INC. AND SUBSIDIARIES

CONSOLIDATED INCOME STATEMENTS (Unaudited)

(In Millions, except per share data)

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

XYLEM INC. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS (Unaudited)

(In Millions, except per share amounts)

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

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

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

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

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

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

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

XYLEM INC. AND SUBSIDIARIES

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

       
Year Ended December 31,     2017 2016 2015
Operating Activities
Net income $ 330 $ 260 $ 340
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation 109 87 88
Amortization 125 64 45
Deferred income taxes (33 ) 14 (9 )
Share-based compensation 21 18 15
Restructuring and impairment charges 25 30 6
Gain from sale of businesses 10 (9 )
Other, net 19 6 12
Payments for restructuring (28 ) (16 ) (14 )
Contributions to postretirement benefit plans (33 ) (27 ) (25 )
Changes in assets and liabilities (net of acquisitions):
Changes in receivables (79 ) (6 ) (24 )
Changes in inventories 27 (15 ) 23
Changes in accounts payable 50 61 20
Changes in accrued liabilities 28 13 (11 )
Changes in accrued taxes 104 (13 ) (3 )
Net changes in other assets and liabilities     11   21   10  
Net Cash — Operating activities     686   497   464  
Investing Activities
Capital expenditures (170 ) (124 ) (117 )
Proceeds from the sale of property, plant and equipment 1 1
Acquisitions of businesses and assets, net of cash acquired (33 ) (1,782 ) (18 )
Proceeds from sale of businesses 16 1
Cash received from investments 10
Cash paid for investments (11 )
Other, net     6   19   2  
Net Cash — Investing activities     (181 ) (1,886 ) (132 )
Financing Activities
Short-term debt issued 274
Short-term debt repaid, net (282) (80 ) (3 )
Long-term debt issued, net 1,540
Long-term debt repaid (608 )
Repurchase of common stock (25 ) (4 ) (179 )
Proceeds from exercise of employee stock options 16 24 21
Excess tax benefit from share based compensation 2
Dividends paid (130 ) (112 ) (102 )
Other, net         (1 )
Net Cash — Financing activities     (421 ) 1,034   (262 )
Effect of exchange rate changes on cash     22   (17 ) (53 )
Net change in cash and cash equivalents 106 (372 ) 17
Cash and cash equivalents at beginning of year     308   680   663  
Cash and cash equivalents at end of year     $ 414   $ 308   $ 680  
Supplemental disclosure of cash flow information:
Cash paid during the year for:
Interest $ 78 $ 49 $ 52
Income taxes (net of refunds received) $ 57 $ 78 $ 75
 
 
Xylem Inc. Non-GAAP Measures
 
Management reviews key performance indicators including revenue, gross margins, segment operating income and margins, orders growth, working capital and backlog, among others. In addition, we consider certain non-GAAP (or "adjusted") measures to be useful to management and investors evaluating our operating performance for the periods presented, and to provide a tool for evaluating our ongoing operations, liquidity and management of assets. This information can assist investors in assessing our financial performance and measures our ability to generate capital for deployment among competing strategic alternatives and initiatives, including but not limited to, dividends, acquisitions, share repurchases and debt repayment. Excluding revenue, Xylem provides guidance only on a non-GAAP basis due to the inherent difficulty in forecasting certain amounts that would be included in GAAP earnings, such as discrete tax items, without unreasonable effort. These adjusted metrics are consistent with how management views our business and are used to make financial, operating and planning decisions. These metrics, however, are not measures of financial performance under GAAP and should not be considered a substitute for revenue, operating income, net income, earnings per share (basic and diluted) or net cash from operating activities as determined in accordance with GAAP. We consider the following non-GAAP measures, which may not be comparable to similarly titled measures reported by other companies, to be key performance indicators:
 
“Organic revenue" and "Organic orders” defined as revenue and orders, respectively, excluding the impact of fluctuations in foreign currency translation and contributions from acquisitions and divestitures. Divestitures include sales of insignificant portions of our business that did not meet the criteria for classification as a discontinued operation. The period-over-period change resulting from foreign currency translation impacts is determined by translating current period and prior period activity using the same currency conversion rate.
 
“Constant currency” defined as financial results adjusted for foreign currency translation impacts by translating current period and prior period activity using the same currency conversion rate. This approach is used for countries whose functional currency is not the U.S. dollar.
 
“EBITDA” defined as earnings before interest, taxes, depreciation and amortization expense. “Adjusted EBITDA” reflects the adjustment to EBITDA to exclude share-based compensation charges, restructuring and realignment costs, Sensus acquisition related costs, gain or loss from sale of businesses and special charges. For Sensus historical adjustments, see Sensus Historical - Adjusted EBITDA table.
 
"Adjusted Operating Income", "Adjusted Segment Operating Income", "Adjusted Net Income" and “Adjusted EPS” defined as operating income, segment operating income, adjusted net income and earnings per share, adjusted to exclude restructuring and realignment costs, Sensus acquisition related costs, gain or loss from sale of businesses, special charges and tax-related special items, as applicable. For Sensus historical adjustments, see Sensus Historical - Adjusted Operating Income table.
 
“Free Cash Flow” defined as net cash from operating activities, as reported in the Statement of Cash Flow, less capital expenditures as well as adjustments for other significant items that impact current results which management believes are not related to our ongoing operations and performance. Our definition of free cash flow does not consider certain non-discretionary cash payments, such as debt.
 
“Realignment costs” defined as costs not included in restructuring costs that are incurred as part of actions taken to reposition our business, including items such as professional fees, severance, relocation, travel, facility set-up and other costs.
 
“Sensus Acquisition Related Costs" defined as costs incurred by the Company associated with the acquisition of Sensus that are being reported within operating income. These costs include integration costs, acquisition costs, costs related to the recognition of the backlog intangible asset amortization and inventory step-up recorded in purchase accounting.
 
“Special charges" defined as costs incurred by the Company, such as non-cash impairment charges, due diligence costs, initial acquisition and integration costs not related to Sensus and other special non-operating items, as well as interest expense related to the early extinguishment of debt and financing costs on the bridge loan entered into for the Sensus acquisition during 2016.
 
“Tax-related special items" defined as tax items, such as tax return versus tax provision adjustments, tax exam impacts, tax law change impacts, significant reserves for cash repatriation, excess tax benefits/losses and other discrete tax adjustments.
 
"Pro forma" defined as including the results of Sensus for the calendar period prior to the acquisition of Sensus by Xylem Inc. on October 31, 2016.
 
 
Xylem Inc. Non-GAAP Reconciliation
Reported vs. Organic & Constant Currency Orders
($ Millions)
                 
(As Reported - GAAP) (As Adjusted - Organic) Constant Currency
  (A)   (B)   (C)   (D)   (E) = B+C+D   (F) = E/A (G) = (E - C) / A
 
Orders Orders

Change

2017 v. 2016

% Change

2017 v. 2016

Acquisitions /

Divestitures

FX Impact

Change

Adj. 2017 v. 2016

% Change

Adj. 2017 v. 2016

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

Change

2017 v. 2016

% Change

2017 v. 2016

Acquisitions /

Divestitures

FX Impact

Change

Adj. 2017 v. 2016

% Change

Adj. 2017 v. 2016

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

Change

2017 v. 2016

% Change

2017 v. 2016

Acquisitions /

Divestitures

FX Impact

Change

Adj. 2017 v. 2016

% Change

Adj. 2017 v. 2016

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

2017

 

2016

2017

 

2016

2017

 

2016

2017

 

2016

2017

 

2016

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

 

520 478

 

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

 

354 343

 

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

 

91 75

 

103 99 308 291
• Applied Water 36 39 49 51

 

51 50

 

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

 

94 80

 

107 101 324 309
• Applied Water 45 42 54 54

 

56 53

 

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

 

31 8

 

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

As Reported

Adjustments

Adjusted

As Reported

Adjustments

Adjusted

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

As Reported

Adjustments

Adjusted

As Reported

Adjustments

Adjusted

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

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

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

                2017

Q1 Q2 Q3 Q4 Total
 
Net Income 56 100 104 70 330
 
Income Tax Expense 14 21 27 74 136
 
Interest Expense (Income), net 20 20 20 19 79
Depreciation 28 27 28 26 109
Amortization 31   30   30   34   125  
EBITDA 149 198 209 223 779
 
Share-based Compensation 6 5 5 5 21
 
Restructuring & Realignment 11 12 9 9 41
 
Gain on sale of business (5 ) - 1 14 10
 
Sensus Acquisition Related Costs 7 2 3 2 14
 
Special Charges 5 - 3 5 13
         
Adjusted EBITDA 173   217   230   258   878  
 
Revenue 1,071   1,164   1,195   1,277   4,707  
 
Adjusted EBITDA Margin 16.2 % 18.6 % 19.2 % 20.2 % 18.7 %
 
 

                 2016

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

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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

Source: Xylem Inc.

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