Xylem Reports First Quarter 2022 Results

• Continuing strong underlying demand: Organic orders growth of 14%, up 12% on a reported basis
• Revenue of $1.3 billion, up 1% on a reported basis, up 4% organically
• Earnings per share $0.45; adjusted earnings per share $0.47
• Raising full-year organic revenue guidance to a range of 4% to 6%, and adjusted earnings per share to a range of $2.40 to $2.70

Xylem Inc. (NYSE:XYL), a leading global water technology company dedicated to solving the world's most challenging water issues, today reported first quarter revenue of $1.3 billion, surpassing previous guidance in each business segment. Strong global demand drove record orders and backlog across the portfolio.

First quarter adjusted earnings before interest, tax, depreciation and amortization (EBITDA) margin decreased 290 basis points to 14.2 percent. Inflation, strategic investments, and the impact of chip shortages drove the margin decline, exceeding the benefits of price realization and productivity savings. Xylem generated net income of $82 million, or $0.45 per share, and adjusted net income of $84 million, or $0.47 per share, which excludes the impact of restructuring, realignment and special charges.

"The team delivered a strong result on very robust demand, despite a challenging operating environment," said Patrick Decker, Xylem's president and CEO. "That healthy demand drove record quarterly order intake in each segment of our business, and year-on-year backlog growth of 50 percent across the portfolio. As anticipated, we are seeing gradual improvement in chip supply, and revenues grew faster than our expectations, as did margin performance overall."

"We expect global demand for our solutions to remain strong, and the team is doing an outstanding job realizing price from our position of market leadership. So, we are raising full-year guidance on revenue, and lifting the low end of our EPS range. Despite near-term headwinds from inflation and currency effects, our underlying momentum gives us even greater confidence we are on track to achieve our growth and strategic milestones we laid out at our Investor Day, last autumn."

Outlook

Xylem now expects full-year 2022 organic revenue growth to be in the range of 4 to 6 percent, and 1 to 3 percent on a reported basis. This represents an increase from the Company's previous full-year organic revenue guidance of 3 to 5 percent, and 1 to 3 percent on a reported basis. Reported revenue growth remains the same as our previous guidance due to the expected impact of foreign exchange effects.

Full-year 2022 adjusted EBITDA margin is expected to be in the range of 16.0 to 17.0 percent. This results in adjusted earnings per share of $2.40 to $2.70, narrowed from the previous range of $2.35 to $2.70. The increased guidance reflects strong demand, commercial momentum and price realization partially offset by foreign exchange headwinds.

Further 2022 planning assumptions are included in Xylem's first quarter 2022 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.

Segment Leadership

The Company also announced that, aligned with its previous statements on growth strategy, it is unifying its Americas commercial team to reduce business complexity, and enhance customer experience. Effective immediately, Matthew Pine will lead combined commercial operations in the Americas, across all product and solution offerings, as well as leading both the Applied Water and Measurement & Control Solutions segments. Hayati Yarkadas, in addition to leading commercial operations in Europe and the Water Infrastructure segment, will now also lead the build-out of Xylem's services offering, globally. Franz Cerwinka continues to lead commercial operations across Emerging Markets.

As a result of these changes, Colin Sabol will leave Xylem after a handover period during which he will focus on a smooth leadership transition.

"From Xylem's beginnings, Colin has been a fundamental contributor to our growth story," said Patrick Decker. "We are all profoundly grateful to have benefitted from his considerable talent, commitment and leadership."

First 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.

• First quarter 2022 revenue was $533 million, an 8 percent increase organically compared with first quarter 2021. This healthy growth was underpinned by sustained demand in our wastewater utility business in the US and Western Europe, and increasing demand for dewatering, particularly in Emerging Markets.

• First quarter adjusted EBITDA margin was 15.9 percent, down 140 basis points from the prior year. Reported operating income for the segment was $74 million. Adjusted operating income for the segment, which excludes $1 million of restructuring and realignment, was $75 million, roughly flat versus the comparable period last year. Reported operating margin for the segment was 13.9 percent, flat versus the prior year, and adjusted operating margin was 14.1 percent, down 80 basis points versus the prior year. Strong price realization and productivity benefits were more than offset by inflation and investments.

Applied Water

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

• First quarter 2022 Applied Water revenue was $425 million, a 10 percent increase organically year-over-year. The segment delivered strong backlog execution and price realization across all end markets, and growth in all regions, led by commercial strength in the United States.

• First quarter adjusted EBITDA margin was 15.3 percent, down 380 basis points from the prior year. Reported operating income for the segment was $59 million and adjusted operating income, which excludes $1 million of restructuring and realignment costs, was $60 million, a 12.0 percent decrease versus the comparable period last year. The segment reported operating margin was 13.9 percent, down 290 basis points versus the prior year period. Adjusted operating margin declined 320 basis points to 14.1 percent. Strong price realization and productivity benefits were more than offset by inflation.

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.

• First quarter 2022 Measurement & Control Solutions revenue was $314 million, down 9 percent organically versus the prior year. The decline is in-line with our expectations and a result of the ongoing chip supply shortage and the outsized impact to our North American smart metering business.

• First quarter adjusted EBITDA margin was 8.6 percent, down 470 basis points from the prior year. Reported operating income for the segment was $(10) million, and adjusted operating income, which excludes $2 million of restructuring and realignment costs, was $(8) million, a 173 percent decrease versus the comparable period last year. The Measurement & Control Solutions segment reported operating margin was (3.2) percent, down 570 basis points versus the prior year period. Adjusted operating margin of (2.5) percent decreased 560 basis points over the prior year period. Volume declines from component shortages and higher inflation more than offset price realization and productivity savings.

Supplemental information on Xylem's first quarter 2022 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 critical water and infrastructure challenges with innovation. Our 17,000 diverse employees delivered revenue of $5.2 billion in 2021. 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

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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 impacts from Russia's recent invasion of Ukraine, as well as 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 public and private sector spending and the strength of the residential and commercial real estate markets; 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; continued uncertainty around the ongoing COVID-19 pandemic's magnitude, duration and impacts on 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, 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; ability to retain and attract senior management and other diverse and key talent, as well as increasing competition for overall talent and labor; difficulty predicting our financial results; defects, security, warranty and liability claims, and recalls with respect to products; availability, regulation or interference with radio spectrum used by certain of our products; 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; volatility in served markets or impacts on 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, 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, 2021 and in subsequent filings we make with the Securities and Exchange Commission ("SEC").

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