• Reported net income of $31 million or $0.17 per share; adjusted net income of $73 million or $0.40 per share

• Revenue declined 14% on a reported basis, and 12% organically, impacted by COVID-19

• Strong cash performance with the free cash flow of $137 million, up 117%; and operating cash flow of $181 million, up 47%

USA: Xylem Inc has reported a second-quarter 2020 net income of $31 million, or $0.17 per share. Excluding the impact of restructuring, realignment, and special charges, the company delivered an adjusted net income of $73 million or $0.40 per share in the quarter.

Second-quarter revenue was $1.2 billion, down 14 percent on a reported basis and 12 percent organically, declining less than previously expected primarily driven by the resilience of the wastewater utility business. Orders were down 11 percent on a reported basis and 9 percent, organically. The reported operating margin in the quarter was 4.7 percent, down 800 basis points versus the prior year. The adjusted operating margin was 9.3 percent, down 500 basis points compared to the prior year. Both were driven largely by the pandemic’s impact on volume in the quarter.

Xylem ended the quarter with $181 million of operating cash flow, and $137 million of free cash flow, more than doubling from the prior year, driven by strong working capital performance and reduced capital spending. The company’s liquidity remains strong, at approximately $2.4 billion from healthy cash generation and issuance of a $1 billion green bond in June.

“The quick action from our teams in the first and second quarters allowed us to adapt swiftly, and positioned us well to mitigate the near-term impacts of the pandemic,” said Patrick Decker, Xylem’s president, and CEO. “Our financial and supply chain strengths have enabled us to stand behind our customers and the essential services they have been delivering during the pandemic to the communities we all serve.”

“Clearly, there are still near-term market challenges and macro uncertainty. That said, we are optimistic on the basis of modestly improving trajectories in some of our key markets,” continued Decker. “We’ve delivered significant commercial momentum alongside very strong cash performance. And we are well-positioned both to be resilient in a range of short-term scenarios, and to capitalize on the market’s recovery over the longer term.”

Outlook
Xylem withdrew 2020 guidance earlier this year due to the uncertainties caused by COVID-19. The Company is not reinstating full-year guidance, but is providing a framework for the third quarter which includes the expectation that organic revenue will be down in the range of 8 to 12 percent – down 10 to 14 percent on a reported basis – and adjusted operating margin will be in the range of 11.0 percent to 11.5 percent. This represents a sequential improvement in both organic revenue and adjusted operating margin from the second quarter to the third quarter.

Appointments to Board of Directors
Xylem has also announced that Lila Tretikov and Uday Yadav have been elected to the company’s Board of Directors.

Lila Tretikov currently serves as Corporate Vice President of Technology in the office of the CTO at Microsoft Corporation. In that role, she applies a cross-disciplinary approach to the development and commercialization of advanced-technology products that apply innovation to solve complex problems.

Uday Yadav is the President and Chief Operating Officer of Eaton’s Electrical Sector, which reported $13.3 billion in revenue for 2019. He brings over 20 years of international and industrial experience and global P&L leadership serving diverse sectors including heavy industry, aerospace, and automotive. He has deep experience in deploying new product and service solutions and developing new business models.

“We are pleased to welcome Lila and Uday to the Board of Directors,” said Robert Friel, chair of Xylem’s Board. “Both have outstanding leadership experience and global perspectives that are complementary to the Board. Lila’s background in technology and innovation will add insights to the Company’s focus on the digital transformation of the water sector. Uday combines operational discipline with expertise in industrial transformation across international markets. We look forward to working with both of them as we continue to grow the company and create value for our shareholders.”

Further commenting on the appointments, Decker added, “In addition to their outstanding qualifications, Lila and Uday’s appointments further deepen the diversity of our Board, which is important to the long-term sustainability of our business. All of Xylem’s stakeholders will benefit from Lila and Uday’s rich experience as we bring innovation to bear on solving the world’s toughest water challenges.”

Second 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.

• Second-quarter 2020 revenue was $501 million, down 8 percent organically, and down 11 percent as reported, compared with second-quarter 2019. Utility spending in critical wastewater infrastructure remained relatively resilient in the quarter, offset by soft industrial and construction market rental activity in North America dewatering.
• Second-quarter reported operating income for the segment was $73 million. Adjusted operating income for the segment, which excludes $8 million of restructuring and realignment costs, was $81 million. The reported operating margin for the segment was 14.6 percent, down 290 basis points versus the prior year. Adjusted operating margins of 16.2 percent were down 290 basis points versus a prior year from lower sales volume, unfavorable mix, and higher inflation partially offset by productivity benefits.

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

• Second-quarter 2020 revenue was $337 million, a 13 percent decline organically year-over-year, a 14 percent decline as reported, driven by volume weakness across industrial, commercial, and residential end markets from COVID-19 related site restrictions and limited activity levels primarily in the United States.
• Second-quarter reported operating income for the segment was $41 million and adjusted operating income, which excludes $4 million of restructuring and realignment costs, was $45 million. The segment’s reported operating margin was 12.2 percent, down 350 basis points versus prior year, and adjusted operating margin was 13.4 percent, down 340 basis points versus the prior year. Volume declines and inflation were partially offset by 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.

• Second-quarter 2020 revenue was $322 million, down 17 percent organically, and as reported versus the prior year driven by significant impacts from COVID-19 site restrictions delaying large project deployments and meter replacement activity.
• Reported operating income for the segment was negative $46 million, and adjusted operating income, which excludes $31 million of restructuring and realignment costs and $10 million of special charges, was negative 5 million. The segment reported operating margin was -14.3 percent, down 21 percent versus the prior year. Adjusted operating margin contracted to -1.6 percent, down 10.3 percent from the prior year was primarily driven by volume declines which were partly offset by cost reductions.

Lila Tretikov
Lila Tretikov is a Corporate Vice President of Technology in the Office of the CTO at Microsoft Corporation and a leading expert on artificial intelligence and business transformation. She brings a diverse background of business, technology, design, and policy. In her role at Microsoft, Lila applies a cross-disciplinary approach to creating solutions that address some of the world’s most challenging problems and empower humanity through technology.

Prior to Microsoft, Tretikov was chief executive officer of Terrawatt and senior vice president of Engie, a global organization based in France, with a mission to alter the Earth’s ecology through an energy transition to CO2-negative systems. She was also chief executive of Wikimedia Foundation, an organization supporting Wikipedia. She has authored numerous patents and articles in the field of technology-enabled business transformations. She previously served on the Board of Rackspace, a publicly-traded cloud technology company, and several private companies.

Tretikov attended Moscow State Lomonosov University, where she studied Mathematics, and the University of California, Berkeley, where she studied Artificial Intelligence and Visual Art.

Yadav Uday
Yadav is President and Chief Operating Officer, Electrical Sector, for Eaton, a power management company. In this role, Yadav is responsible for the company’s global electrical business and has corporate responsibility for Eaton’s Europe, Middle East, and Africa region. Previously, Yadav served as president and chief operating officer of the company’s Industrial Sector and had corporate responsibility for the company’s operations in the Asia Pacific, Central and South American regions.

Since joining Eaton in 1999, Yadav has held leadership positions in all of Eaton’s operating groups, as well as corporate-wide roles. He has served as president of Eaton’s Aerospace segment; executive vice president, Eaton Business System; president, Hydraulics – Asia Pacific; vice president of Supply Chain Management for the Fluid Power Group; local managing director for Eaton in India; and held in-market roles based in China, Europe, and the United States. Prior to joining Eaton, Yadav worked with Lucas Engineering and Systems and Aeroquip Vickers, based in the UK.

Yadav holds a double degree with honors in engineering and business from Nottingham Trent University in the United Kingdom.

Xylem (XYL) is a leading global water technology company committed to solving critical water and infrastructure challenges with technological innovation. Its more than 16,000 employees delivered revenue of $5.25 billion in 2019. It is helping communities in more than 150 countries become water-secure.

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