• Second-quarter revenue grew 26%, including May 24 acquisition of Evoqua; up 15% organically
• Second-quarter earnings per share of $0.45, down 27%; adjusted earnings per share of $0.98, up 32%
• Raising full-year revenue guidance to approximately $7.2B, up 30%, with organic revenue growth of 9% to 10%, up from 8% to 9%
• Lifting full-year adjusted EPS guidance to $3.50 to $3.70, from $3.15 to $3.35 on strong momentum from both companies

Xylem Inc. (NYSE: XYL), a leading global water technology company dedicated to solving the world’s most challenging water issues, today reported second-quarter results, which include the May 24 acquisition of Evoqua Water Technologies Corp. (Evoqua). The Company reported total revenue of $1.7 billion, with reported growth of 26 percent and organic growth of 15 percent, surpassing prior guidance, on strong commercial and operational execution. Orders were up 10 percent on a reported basis and down 2 percent organically, while backlog grew to $5.3 billion, up 7 percent organically and including $1.3 billion from Evoqua, with resilient underlying demand. Second-quarter earnings, excluding the acquisition, exceeded Xylem’s previous stand-alone guidance.

“This past quarter, we took another transformative step as a leading water solutions company to help our communities and customers solve the greatest water challenges facing our society and economies: water scarcity, resilience of our infrastructure to climate change, and the need to address these challenges affordably with the power of technology and innovation,” said Patrick Decker, Xylem president and CEO. “These challenges are intensifying every day and our powerful portfolio is now even more strongly positioned to deliver solutions at scale.”

“We are already seeing the momentum created by integrating two strong companies. On the strength of the market’s continuing underlying demand and our team’s disciplined execution, we are further raising our full-year guidance on revenues, margins and earnings per share.”

Net income was $92 million, or $0.45 per share. Net income margin decreased 290 basis points to 5.3 percent. These results are driven by higher acquisition and integration costs related to the Evoqua transaction, higher purchase accounting intangible amortization, and higher restructuring and realignment costs, more than offsetting strong operational performance. Coinciding with the Evoqua acquisition, Xylem has updated its adjusted operating income and earnings per share to add back non-cash purchase accounting intangible amortization and recast the 2022 amounts to reflect the change on a comparative basis. Adjusted net income was $202 million, or $0.98 per share, which excludes the impacts of special items of purchase accounting intangible amortization, restructuring, realignment, and special charges.

Second-quarter adjusted earnings before interest, tax, depreciation, and amortization (EBITDA) margin was 19.1 percent, reflecting a year-over-year increase of 250 basis points. Excluding Evoqua results, adjusted EBITDA margin was 18.6 percent, up 200 basis points over the prior year period. Strong price realization more than offset inflation and, coupled with productivity savings and higher volume, drove the margin expansion, exceeding the impact of strategic investments.

Following the close of the Evoqua acquisition, Xylem is now reporting in four segments: Measurement & Control Solutions; Water Infrastructure, now including legacy-Evoqua’s Applied Product Technologies segment; Applied Water; and Integrated Solutions & Services as a new stand-alone segment (with the same perimeter as the legacy-Evoqua segment of the same name) to provide continued transparency on the segment’s performance.

Outlook

Xylem is updating its full-year 2023 guidance to reflect strong organic performance, the combination with Evoqua and the adjustment of purchase accounting intangible amortization.

Xylem now expects full-year 2023 revenue of approximately $7.2 billion, up approximately 30 percent on a reported basis and up 9 to 10 percent on an organic basis. This represents an increase from the Company’s previous full-year guidance of 8 to 9 percent on an organic and reported basis.

Full-year 2023 adjusted EBITDA margin is expected to be approximately 18 percent, lifted from the previous range of 17.5 to 18.0 percent. This results in adjusted earnings per share of $3.50 to $3.70, raised from the previous range of $3.15 to $3.35. This increase of $0.35 at the mid-point includes an organic increase of $0.15 driven by continuing strong demand, and commercial and operational momentum.

Further 2023 planning assumptions are included in Xylem’s second-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.

Second Quarter Segment Results

Measurement & Control Solutions

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

• Second-quarter 2023 revenue was $415 million, up 20 percent on a reported basis and 21 percent organically, versus the prior year period. Growth was robust across the portfolio and led primarily by strong demand and backlog execution in smart metering.

• Second-quarter reported operating income for the segment was $26 million, compared to a $5 million loss in the same period last year. Adjusted operating income, which excludes $3 million of restructuring and realignment costs and $17 million of purchase accounting intangible amortization, was $46 million, a 188 percent increase versus the prior year period, recast to add back $17 million of non-cash purchase accounting amortization. The segment reported operating margin was 6.3 percent, up 770 basis points versus the prior year period. Adjusted operating margin of 11.1 percent increased 650 basis points over the prior year period. Adjusted EBITDA margin was 15.7 percent, up 590 basis points from the prior year period. Higher volume, strong price realization, and productivity savings exceeded the impact of inflation and unfavorable mix.

Water Infrastructure

Xylem’s Water Infrastructure segment, now including legacy-Evoqua’s Applied Product Technologies segment, consists of its portfolio of businesses serving clean water delivery, wastewater transport and treatment, and dewatering.

• Second-quarter 2023 revenue was $704 million, a 20 percent increase on a reported basis and 13 percent organically, compared with second-quarter 2022. This strong growth was driven by price realization and robust utilities and industrial demand, particularly in the U.S. and Western Europe.

• Second-quarter reported operating income for the segment was $106 million, a 2 percent decrease versus the same period last year. Adjusted operating income, which excludes $12 million of special charges, $3 million of restructuring and realignment costs, and $8 million of purchase accounting intangible amortization, was $129 million. This represents a 15 percent increase versus the prior year period, which was recast to add back $1 million of non-cash purchase accounting amortization. Reported operating margin for the segment was 15.1 percent, down 320 basis points versus the prior year period, and adjusted operating margin was 18.3 percent, down 70 basis points versus the prior year period. Adjusted EBITDA margin was 21.4 percent, flat from the prior year. Excluding Evoqua, adjusted EBITDA margin was 21.6 percent, up 20 basis points on the prior year. Favorable price realization and volume improvements were offset by investments, foreign exchange effects, and unfavorable mix.

Applied Water

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

• Second-quarter 2023 revenue was $478 million, an 11 percent increase on a reported basis and 12 percent organically, year-over-year. Growth was driven by strong price realization and demand across both industrial and building solutions end-markets, particularly in the U.S. and Emerging Markets.

• Second-quarter reported operating income for the segment was $84 million, a 38 percent increase versus the same period last year. Adjusted operating income, which excludes $2 million of restructuring and realignment costs, was $86 million, a 37 percent increase versus the same period last year. The segment reported operating margin was 17.6 percent, up 340 basis points versus the prior year period. Adjusted operating margin increased 330 basis points over the prior year period to 18.0 percent. Adjusted EBITDA margin was 19.0 percent, up 290 basis points from the prior year. Margin expansion was driven by strong price realization, more than offsetting inflation, coupled with productivity savings.

Integrated Solutions & Services

Xylem’s new Integrated Solutions & Services segment, as of May 24, consists of its portfolio of businesses providing water treatment systems and solutions, with an extensive service branch network and fleet of mobile assets.

• Second-quarter 2023 included revenue of $125 million.

• Second-quarter reported operating loss for the segment was $7 million. Adjusted operating income was $18 million, which excludes $7 million of special charges, $7 million of restructuring and realignment costs, and $11 million of purchase accounting intangible amortization. The segment reported operating margin was (5.6) percent. Adjusted operating margin was 14.4 percent. Adjusted EBITDA margin was 24.0 percent reflecting strong margin performance driven by effective price-cost discipline and productivity.

Supplemental information on Xylem’s second 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, wastewater, and water-related challenges through technology, innovation, and expertise. Our more than 22,000 diverse employees delivered combined pro forma revenue of $7.3 billion in 2022. 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 in the effort 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, inflation, interest rates and related monetary policy by governments in response to inflation, and the strength of the residential and commercial real estate markets, on economic activity and our operations; geopolitical events, including the war between Russia and Ukraine, and regulatory, economic and other risks associated with our global sales and operations, including with respect to domestic content requirements applicable to projects with governmental funding; the global impact of the COVID-19 pandemic on the macroeconomy and our business, operations, growth, and financial condition; actual or potential other epidemics, pandemics or global health crises; availability, shortage or delays in receiving electronic components (in particular, semiconductors), parts and raw materials from our supply chain; manufacturing and operating cost increases due to macroeconomic conditions, including inflation, energy supply, supply chain shortages, logistics challenges, tight labor markets, prevailing price changes, tariffs and other factors; demand for our products, disruption, competition or pricing pressures in the markets we serve; cybersecurity incidents or other disruptions of information technology systems on which we rely, or involving our products; disruptions in operations at our facilities or that of third parties upon which we rely; failure to successfully execute large projects, including with respect to meeting performance guarantees and customers’ safety requirements; our ability to retain and attract senior management and other diverse and key talent, as well as competition for overall talent and labor; difficulty predicting our financial results; defects, security, warranty and liability claims, and recalls with respect to products; safe and compliant handling of wastewater and hazardous materials; availability, regulation or interference with radio spectrum used by certain of our products; uncertainty related to restructuring and realignment actions and related costs and savings; our ability to continue strategic investments for growth; our ability to successfully identify, execute and integrate acquisitions; volatility in served markets or impacts on our business and operations due to weather conditions, including the effects of climate change; fluctuations in foreign currency exchange rates; our ability to borrow or refinance our existing indebtedness, and uncertainty around the availability of liquidity sufficient to meet our needs; risk of future impairments to goodwill and other intangible assets; failure to comply with, or changes in, laws or regulations, including those pertaining to anti-corruption, data privacy and security, export and import, our products, competition, and the environment and climate change; changes in our effective tax rates or tax expenses; legal, governmental or regulatory claims, investigations or proceedings and associated contingent liabilities; risks related to our recently completed acquisition of Evoqua, including related to our ability to retain and hire key personnel, the realization of expected benefits and synergies, the need to incur additional or unexpected costs, charges or expenses associated with the integration of the combined companies, delays or challenges with the integration, potential adverse reactions or changes to relationships with customers, suppliers, distributors and other business partners, competitive responses to the acquisition, actual or potential litigation and associated costs and expenses, and impacts to our share price and dilution of shareholders’ ownership; and other factors set forth under “Item 1A. Risk Factors” in our Annual Report on Form 10-K for the year ended December 31, 2022 ("2022 Annual Report") and in subsequent filings we make with the Securities and Exchange Commission (“SEC”).

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.