• Orders growth of 22% on a reported basis, 20% organically, from strong underlying demand across segments
• Revenue growth 4% on a reported basis, 2% organically
• Net income as a percentage of revenue of 9.0%, up 600 basis points; adjusted EBITDA margin of 17.9%, down 30 basis points
• Reported net income of $114 million or $0.63 per share; adjusted net income of $116 million or $0.63 per share
• Lowers full-year organic revenue and earnings per share guidance to ranges of 3% to 4%, and $2.40 to $2.50, respectively

Xylem Inc. (NYSE: XYL), a leading global water technology company dedicated to solving the world’s most challenging water issues, today reported third quarter 2021 revenue of $1.27 billion. Revenues grew 4 percent on a reported basis, and 2 percent organically. Strong global demand was moderated by supply constraints slowing order-to-revenue conversion.

Third quarter adjusted earnings before interest, tax, depreciation and amortization (EBITDA) margin decreased 30 basis points to 17.9 percent. Inflation and strategic investments were partially offset by productivity, price realization and cost containment. Xylem generated net income of $114 million, or $0.63 per share, and adjusted net income of $116 million, or $0.63 per share, which excludes the impact of restructuring, realignment and special charges.

“Global demand for water solutions continues to be robust, across our business,” said Patrick Decker, Xylem’s president and CEO. “The team capitalized on that broad-based underlying demand, delivering strong growth in new orders and backlog in all segments. This positions us well to achieve our 2025 growth and strategic milestones, which we outlined at our investor day, last month.”

“The team has done an outstanding job managing inflationary effects with productivity and cost discipline, delivering solid margin and earnings performance,” continued Decker. “Nevertheless, we foresee the global supply challenges continuing – particularly the chip shortages being experienced across the technology sector. While we expect strong demand to continue, nearer term supply constraints have slowed order-to-revenue conversion more than expected, leading us to moderate our view of full-year revenues and, therefore, earnings.”

Updated Outlook

Xylem now expects full-year organic revenue growth to be in the range of 3 to 4 percent, which would be approximately $5.1 to $5.2 billion on a reported basis. This represents a decrease from the Company’s previous full-year organic revenue guidance of 6 to 8 percent, or $5.3 to $5.4 billion on a reported basis. Full-year adjusted earnings per share is now expected to be in the range of $2.40 to $2.50, from $2.55 to $2.70. Full-year free cash flow conversion outlook remains unchanged at 80 to 90 percent. The revised guidance reflects the impact of increased supply chain challenges, partially offset by strong cost discipline.

Third Quarter Segment Results

Water Infrastructure

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

• Third quarter 2021 revenue was $547 million, up 4 percent on a reported basis, and up 2 percent organically, compared with the same period in 2020. Strong growth in industrial end markets from broad pandemic recovery and demand in Emerging Markets offset some softness in the utility markets due to timing delays caused by supply chain disruptions.
• Third quarter adjusted EBITDA margin was 21.2 percent, up 100 basis points versus the prior year period. Reported operating income for the segment was $101 million and adjusted operating income, which excludes $1 million of restructuring and realignment costs, was $102 million. The segment reported operating margin was 18.5 percent, up 150 basis points versus the prior year period. Adjusted operating margin rose 10 basis points to 18.6 percent. Strong productivity savings and price realization offset inflation and supply chain constraints.

Applied Water

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

• Third quarter 2021 revenue was $400 million, up 10 percent on a reported basis, and up 8 percent organically, compared with the same period in 2020. Broad reopening activity drove strong demand in industrial and commercial end markets compared to COVID-19 challenges in the prior year.
• Third quarter adjusted EBITDA margin was 17.0 percent, down 60 basis points from the prior year period. Reported operating income for the segment was $60 million and adjusted operating income, which excludes $2 million of restructuring and realignment costs, was $62 million. The segment reported operating margin was 15.0 percent, down 40 basis points versus the prior year period. Adjusted operating margin decreased 40 basis points to 15.5 percent. Inflation, supply chain disruption and investments more than offset productivity benefits and price realization.

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.

• Third quarter 2021 revenue was $318 million, down 4 percent on a reported basis, and down 5 percent organically, compared with the same period in 2020. Soft performance in the business was driven by chip supply shortages impacting our smart metering business, partially offset by demand in water quality testing applications and pipeline assessment services businesses.
• Third quarter adjusted EBITDA margin was 14.2 percent, down 60 basis points from the prior year period. Reported operating income for the segment was $7 million and adjusted operating income, with $1 million restructuring and realignment income in the quarter, was $6 million. The segment reported operating margin was 2.2 percent, up 2,090 basis points versus the prior year period. Adjusted operating margin decreased 170 basis points to 1.9 percent. Volume declines from component shortages and higher inflation offset productivity and price realization.

Supplemental information on Xylem’s third quarter 2021 earnings and reconciliations for certain non-GAAP items are posted at www.xylem.com/investors.

About Xylem

Xylem (XYL) is a leading global water technology company committed to solving critical water and infrastructure challenges with innovation. Our more than 16,000 diverse employees delivered revenue of $4.88 billion in 2020. 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.

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,” “goal,” “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; 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. Additionally, many of these risks and uncertainties are, and may continue to be, amplified by the ongoing coronavirus (“COVID-19”) pandemic. 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: overall industry and economic conditions, including industrial, governmental and private sector spending and the strength of the residential and commercial real estate markets; geopolitical, regulatory, economic and other risks associated with international operations; continued uncertainty around the COVID-19 pandemic’s magnitude, duration and impacts on our business, operations, growth, and financial condition, as well as uncertainty around approved vaccines and the pace of recovery when the pandemic subsides; actual or potential other epidemics, pandemics or global health crises; availability, shortage or delays in receiving products, parts, electronic components and raw materials from our supply chain; manufacturing and operating cost increases due to inflation, prevailing price changes, tariffs and other factors; fluctuations in foreign currency exchange rates; disruption, competition and 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; availability, regulation and interference with radio spectrum used by some of our products; our ability to retain and attract senior management and other key talent; uncertainty related to restructuring and realignment actions and related charges and savings; our ability to continue strategic investments for growth; our ability to successfully identify, execute and integrate acquisitions; risks relating to products, including defects, security, warranty and liability claims, and recalls; difficulty predicting our financial results, including uncertainties due to the nature of our short- and long-cycle businesses; volatility in our results due to weather conditions, including the effects of climate change; our ability to borrow or refinance our existing indebtedness and 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, competition, and the environment and climate change; changes in our effective tax rates or tax expenses; legal, governmental or regulatory claims, investigations or proceedings and associated contingent liabilities; and other factors set forth under “Item 1A. Risk Factors” in our Annual Report on Form 10-K for the year ended December 31, 2020 ("2020 Annual Report") 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 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.