Energy, Automobile, EV, Renewable News | Xylem Reports Fourth-Quarter and Full-Year 2023 Results

Xylem Reports Fourth-Quarter and Full-Year 2023 Results

February 6, 2024

Fourth-Quarter Highlights

Orders of $2.0 billion, up 42% on a reported basis and 10% organically
Revenue of $2.1 billion, up 41% on a reported basis and 9% organically
Earnings per share of $1.10, up 34%; $0.99 on an adjusted basis, down 1%

Full-Year Highlights

Revenue of $7.4 billion, up 33% on a reported basis and 12% organically
Earnings per share of $2.79, up 42%; $3.78 on an adjusted basis, up 20%
Initiating 2024 full-year revenue guidance of $8.4 to $8.5 billion, up 3% to 5% organically, and adjusted earnings per share range of $4.00 to $4.20

WASHINGTON–(BUSINESS WIRE)–#LetsSolveWater–Xylem Inc. (NYSE: XYL), a leading global water technology company dedicated to solving the world’s most challenging water issues, today reported fourth-quarter and full-year 2023 results. The Company’s total revenue of $2.1 billion surpassed prior guidance, on continued strong execution and demand. Fourth-quarter earnings exceeded Xylem’s previous guidance.

“The team delivered an outstanding fourth quarter, fueling momentum as we enter 2024,” said Matthew Pine, Xylem president and CEO. “Revenue, margin and earnings per share all exceeded expectations, driven by strong execution on healthy demand across our business. In a transformational year for Xylem, the team stayed focused on serving our customers and delivered strong results on both the top and bottom lines.”

“That discipline and focus, paired with continuing resilient underlying demand, gives us confidence in further growth and margin expansion in the year ahead. Our integration of Evoqua is ahead of schedule, and our team is taking full advantage of the breadth of our combined offering to solve even more of our customers’ water challenges.”

Net income was $266 million, or $1.10 per share. Net income margin increased 270 basis points to 12.6 percent. These results are driven by strong operational performance and non-recurring tax benefits, partially offset by higher acquisition and integration costs related to the Evoqua transaction, purchase accounting intangible amortization, special charges, and restructuring and realignment costs. Adjusted net income was $239 million, or $0.99 per share, which excludes the impacts of special charges, purchase accounting intangible amortization, and restructuring and realignment costs.

Fourth-quarter adjusted earnings before interest, tax, depreciation, and amortization (EBITDA) margin was 19.6 percent, reflecting a year-over-year increase of 90 basis points. Productivity savings, strong price realization and higher volume drove the margin expansion, exceeding the impact of inflation and strategic investments.

The Board of Directors of Xylem has declared a first-quarter dividend of $0.36 per share, an increase of 9 percent. The dividend is payable on March 20, 2024, to shareholders of record as of February 21, 2024.

Outlook

Xylem forecasts full-year 2024 revenue of approximately $8.4 to $8.5 billion, up approximately 14 to 15 percent on a reported basis and up approximately 3 to 5 percent on an organic basis.

Full-year 2024 adjusted EBITDA margin is expected to be approximately 19.4 to 19.9 percent, an increase of 50 to 100 basis points from Xylem’s 2023 adjusted results. Full-year free cash flow conversion to net income is expected to be approximately 115 percent.

Further 2024 planning assumptions are included in Xylem’s fourth-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.

Supplemental information on Xylem’s fourth-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 the world’s critical water challenges with innovation and expertise. Our 23,000 diverse employees delivered combined pro forma revenue of $8.1 billion in 2023. We are creating a more sustainable world by enabling our customers to optimize water and resource management and helping communities in more than 150 countries become water-secure. Join us at www.xylem.com and Let’s Solve Water.

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, interest rates, inflation 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 ongoing and possible escalation of the conflicts involving between Russia and Ukraine, and the Middle East, as well as regulatory, economic and other risks associated with our global sales and operations, including those related to domestic content requirements applicable to projects receiving governmental funding; 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 connected products and services; lack of availability or delays in receiving parts and raw materials from our supply chain, including electronic components (in particular, semiconductors); disruptions in operations at our facilities or that of third parties upon which we rely; uncertainty related to the realization of the benefits and synergies from our acquisition of Evoqua; safe and compliant treatment and handling of water, wastewater and hazardous materials; failure to successfully execute large projects, including with respect to meeting performance guarantees and customers’ budgets, timelines and safety requirements; our ability to retain and attract leadership and other diverse and key talent, as well as competition for overall talent and labor; defects, security, warranty and liability claims, and recalls with respect to our products; uncertainty related to restructuring and realignment actions and related costs and savings; our ability to execute strategic investments for growth, including related to acquisitions and divestitures; availability, regulation or interference with radio spectrum used by certain of our products; volatility in served markets or impacts on our business and operations due to weather conditions, including the effects of climate change; risks related to our sustainability commitments and related disclosures; fluctuations in foreign currency exchange rates; difficulty predicting our financial results; risk of future impairments to goodwill and other intangible assets; changes in our effective tax rates or tax expenses; financial market risks related to our pension and other defined benefit plans; failure to comply with, or changes in, laws or regulations, including those pertaining to our business conduct, operations, products and services, including anti-corruption, data privacy and security, trade, competition, the environment, climate change and health and safety; legal, governmental or regulatory claims, investigations or proceedings and associated contingent liabilities; matters related to intellectual property infringement or expiration of rights; 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 and in subsequent filings we make with the Securities and Exchange Commission (“SEC”).

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 press release. 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
CONSOLIDATED INCOME STATEMENTS (Unaudited)
(In Millions, except per share data)

Year Ended December 31,	2023			2022		2021
Revenue from products	$	6,291		$	4,978	$	4,684
Revenue from services		1,073			544		511
Revenue		7,364			5,522		5,195
Cost of revenue from products		3,817			3,002		2,831
Cost of revenue from services		830			436		389
Cost of revenue		4,647			3,438		3,220
Gross profit		2,717			2,084		1,975
Selling, general and administrative expenses		1,757			1,227		1,179
Research and development expenses		232			206		204
Restructuring and asset impairment charges		76			29		7
Operating income		652			622		585
Interest expense		49			50		76
U.K. pension settlement expense		—			140		—
Other non-operating income, net		33			7		—
(Loss) Gain on sale of businesses		(1	)		1		2
Income before taxes		635			440		511
Income tax expense		26			85		84
Net income	$	609		$	355	$	427
Earnings per share:
Basic	$	2.81		$	1.97	$	2.37
Diluted	$	2.79		$	1.96	$	2.35
Weighted average number of shares:
Basic		217.0			180.2		180.2
Diluted		218.2			181.0		181.5


XYLEM INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS (Unaudited)
(In Millions, except per share amounts)

December 31,	2023			2022
ASSETS
Current assets:
Cash and cash equivalents	$	1,019		$	944
Receivables, less allowances for discounts, returns and credit losses of $56 and $50 in 2023 and 2022, respectively		1,617			1,096
Inventories		1,018			799
Prepaid and other current assets		230			173
Total current assets		3,884			3,012
Property, plant and equipment, net		1,169			630
Goodwill		7,587			2,719
Other intangible assets, net		2,529			930
Other non-current assets		943			661
Total assets	$	16,112		$	7,952
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Accounts payable	$	968		$	723
Accrued and other current liabilities		1,221			867
Short-term borrowings and current maturities of long-term debt		16			—
Total current liabilities		2,205			1,590
Long-term debt, net		2,268			1,880
Accrued post-retirement benefit obligations		344			286
Deferred income tax liabilities		557			222
Other non-current accrued liabilities		562			471
Total liabilities		5,936			4,449
Stockholders’ equity:
Common stock — par value $0.01 per share:
Authorized 750.0 shares, issued 257.6 and 196.0 shares in 2023 and 2022, respectively		3			2
Capital in excess of par value		8,564			2,134
Retained earnings		2,601			2,292
Treasury stock – at cost 16.0 shares and 15.8 shares in 2023 and 2022, respectively		(733	)		(708	)
Accumulated other comprehensive loss		(269	)		(226	)
Total stockholders’ equity		10,166			3,494
Non-controlling interest		10			9
Total equity		10,176			3,503
Total liabilities and stockholders’ equity	$	16,112		$	7,952


XYLEM INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (In Millions) (Unaudited)

Year Ended December 31,	2023			2022			2021
Operating Activities
Net income	$	609		$	355		$	427
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation		193			111			118
Amortization		243			125			127
Deferred income taxes		(79	)		(64	)		10
Share-based compensation		60			37			33
Restructuring and asset impairment charges		76			29			7
U.K. pension settlement expense		—			140			—
Loss (gain) from sale of businesses		1			(1	)		(2	)
Other, net		—			(4	)		8
Payments for restructuring		(30	)		(11	)		(25	)
Contributions to post-retirement benefit plans		(25	)		(19	)		(29	)
Changes in assets and liabilities (net of acquisitions):
Changes in receivables		(87	)		(192	)		(70	)
Changes in inventories		41			(147	)		(167	)
Changes in accounts payable		22			117			81
Changes in accrued liabilities		(4	)		57			7
Changes in accrued and deferred taxes		(109	)		57			(9	)
Net changes in other assets and liabilities		(74	)		6			22
Net Cash — Operating activities		837			596			538
Investing Activities
Capital expenditures		(271	)		(208	)		(208	)
Proceeds from the sale of property, plant and equipment		1			4			3
Acquisitions of businesses, net of cash acquired		(476	)		—			—
Proceeds from sale of businesses		105			1			10
Cash received from investments		1			5			—
Cash paid for investments		(1	)		(11	)		—
Cash paid for equity investments		(57	)		(3	)		(5	)
Cash received from interest rate swaps		38			—			—
Cash received from cross-currency swaps		28			28			14
Settlement of currency forward agreement		—			(10	)		—
Other, net		4			3			3
Net Cash — Investing activities		(628	)		(191	)		(183	)
Financing Activities
Long-term debt issued, net		278			—			—
Long-term debt repaid, net		(160	)		(527	)		(600	)
Repurchase of common stock		(25	)		(52	)		(68	)
Proceeds from exercise of employee stock options		62			8			19
Dividends paid		(299	)		(217	)		(203	)
Other, net		(13	)		(2	)		(3	)
Net Cash — Financing activities		(157	)		(790	)		(855	)
Effect of exchange rate changes on cash		23			(20	)		(26	)
Net change in cash and cash equivalents		75			(405	)		(526	)
Cash and cash equivalents at beginning of year		944			1,349			1,875
Cash and cash equivalents at end of year	$	1,019		$	944		$	1,349
Supplemental disclosure of cash flow information:
Cash paid during the year for:
Interest	$	69		$	76		$	99
Income taxes (net of refunds received)	$	211		$	91		$	83

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, amortization of acquired intangible assets, 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 non-recurring, 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.

“Adjusted Free Cash Flow” defined as free cash flow adjusted for significant cash items for which the corresponding income statement impact does not occur within

the same fiscal year.

“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
Year Ended December 31
Xylem Inc.	7,501	6,257	1,244		20	%	(1,220	)	41		65		1	%	21	%
Water Infrastructure	3,060	2,607	453		17	%	(352	)	23		124		5	%	18	%
Applied Water	1,770	1,794	(24	)	(1	%)	–		18		(6	)	(0	%)	(0	%)
Measurement and Control Solutions	1,803	1,856	(53	)	(3	%)	–		–		(53	)	(3	%)	(3	%)
Integrated Solutions and Services	868	–	868		N/A		(868	)	–		–		N/A		N/A

Quarter Ended December 31
Xylem Inc.	2,044	1,439	605		42	%	(451	)	(17	)	137		10	%	41	%
Water Infrastructure	820	622	198		32	%	(130	)	(9	)	59		9	%	30	%
Applied Water	420	400	20		5	%	–		(2	)	18		5	%	5	%
Measurement and Control Solutions	483	417	66		16	%	–		(6	)	60		14	%	14	%
Integrated Solutions and Services	321	–	321		N/A		(321	)	–		–		N/A		N/A

Quarter Ended September 30
Xylem Inc.	2,031	1,419	612		43	%	(547	)	(18	)	47		3	%	42	%
Water Infrastructure	850	594	256		43	%	(163	)	(10	)	83		14	%	41	%
Applied Water	422	409	13		3	%	–		(4	)	9		2	%	2	%
Measurement and Control Solutions	375	416	(41	)	(10	%)	–		(4	)	(45	)	(11	%)	(11	%)
Integrated Solutions and Services	384	–	384		N/A		(384	)	–		–		N/A		N/A

Quarter Ended June 30
Xylem Inc.	1,856	1,684	172		10	%	(222	)	23		(27	)	(2	%)	12	%
Water Infrastructure	751	731	20		3	%	(59	)	13		(26	)	(4	%)	5	%
Applied Water	445	480	(35	)	(7	%)	–		6		(29	)	(6	%)	(6	%)
Measurement and Control Solutions	497	473	24		5	%	–		4		28		6	%	6	%
Integrated Solutions and Services	163	–	163		N/A		(163	)	–		–		N/A		N/A

Quarter Ended March 31
Xylem Inc.	1,570	1,715	(145	)	(8	%)	–		53		(92	)	(5	%)	(5	%)
Water Infrastructure	639	660	(21	)	(3	%)	–		29		8		1	%	1	%
Applied Water	483	505	(22	)	(4	%)	–		18		(4	)	(1	%)	(1	%)
Measurement and Control Solutions	448	550	(102	)	(19	%)	–		6		(96	)	(17	%)	(17	%)
Integrated Solutions and Services	–	–	–		N/A		–		–		–		N/A		N/A


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
Year Ended December 31
Xylem Inc.	7,364	5,522	1,842	33	%	(1,177	)	25		690		12	%	34	%
Water Infrastructure	2,967	2,364	603	26	%	(362	)	14		255		11	%	26	%
Applied Water	1,853	1,767	86	5	%	–		10		96		5	%	5	%
Measurement and Control Solutions	1,729	1,391	338	24	%	–		1		339		24	%	24	%
Integrated Solutions and Services	815	–	815	N/A		(815	)	–		–		N/A		N/A

Quarter Ended December 31
Xylem Inc.	2,118	1,506	612	41	%	(459	)	(17	)	136		9	%	40	%
Water Infrastructure	871	668	203	30	%	(137	)	(9	)	57		9	%	29	%
Applied Water	457	455	2	0	%	–		(4	)	(2	)	(0	%)	(0	%)
Measurement and Control Solutions	468	383	85	22	%	–		(4	)	81		21	%	21	%
Integrated Solutions and Services	322	–	322	N/A		(322	)	–		–		N/A		N/A

Quarter Ended September 30
Xylem Inc.	2,076	1,380	696	50	%	(540	)	(22	)	134		10	%	49	%
Water Infrastructure	803	574	229	40	%	(172	)	(14	)	43		7	%	37	%
Applied Water	465	458	7	2	%	–		(3	)	4		1	%	1	%
Measurement and Control Solutions	440	348	92	26	%	–		(5	)	87		25	%	25	%
Integrated Solutions and Services	368	–	368	N/A		(368	)	–		–		N/A		N/A

Quarter Ended June 30
Xylem Inc.	1,722	1,364	358	26	%	(178	)	19		199		15	%	28	%
Water Infrastructure	704	589	115	20	%	(53	)	12		74		13	%	22	%
Applied Water	478	429	49	11	%	–		4		53		12	%	12	%
Measurement and Control Solutions	415	346	69	20	%	–		3		72		21	%	21	%
Integrated Solutions and Services	125	–	125	N/A		(125	)	–		–		N/A		N/A

Quarter Ended March 31
Xylem Inc.	1,448	1,272	176	14	%	–		45		221		17	%	17	%
Water Infrastructure	589	533	56	11	%	–		25		81		15	%	15	%
Applied Water	453	425	28	7	%	–		13		41		10	%	10	%
Measurement and Control Solutions	406	314	92	29	%	–		7		99		32	%	32	%
Integrated Solutions and Services	–	–	–	N/A		–		–		–		N/A		N/A