Xylem(XYL) - 2024 Q1 - Quarterly Report

PART I – Financial Information Item 1. Financial Statements The company reported strong Q1 2024 financial results, with revenue up 40.4% to $2.03 billion and net income increasing to $153 million, significantly impacted by the Evoqua acquisition Condensed Consolidated Income Statement Highlights (Q1 2024 vs Q1 2023) | Metric | Q1 2024 (in millions) | Q1 2023 (in millions) | Change | | :--- | :--- | :--- | :--- | | Revenue | $2,033 | $1,448 | +40.4% | | Gross Profit | $752 | $546 | +37.7% | | Operating Income | $209 | $131 | +59.5% | | Net Income | $153 | $99 | +54.5% | | Diluted EPS | $0.63 | $0.54 | +16.7% | Condensed Consolidated Balance Sheet Highlights (As of March 31, 2024) | Metric | March 31, 2024 (in millions) | December 31, 2023 (in millions) | | :--- | :--- | :--- | | Cash and cash equivalents | $947 | $1,019 | | Goodwill | $7,509 | $7,587 | | Total Assets | $15,924 | $16,112 | | Total Liabilities | $5,721 | $5,936 | | Total Equity | $10,203 | $10,176 | Condensed Consolidated Statement of Cash Flows Highlights (Q1 2024 vs Q1 2023) | Metric | Q1 2024 (in millions) | Q1 2023 (in millions) | | :--- | :--- | :--- | | Net Cash – Operating activities | $89 | $(19) | | Net Cash – Investing activities | $(51) | $(37) | | Net Cash – Financing activities | $(82) | $(63) | | Net change in cash | $(72) | $(107) | Notes to the Condensed Consolidated Financial Statements (Unaudited) Notes detail accounting policies, the Evoqua acquisition's impact, segment realignment, and debt structure, including $9 million in restructuring charges - Effective January 1, 2024, the company changed its reportable segments to Water Infrastructure, Applied Water, Measurement and Control Solutions, and Water Solutions and Services, with prior periods recast for comparability[23] - The Evoqua acquisition on May 24, 2023, for $6.9 billion, resulted in $4.8 billion in goodwill and contributed $480 million in Q1 2024 revenue and $6 million in income before taxes[29][30][34] Revenue from Contracts with Customers by Segment (Q1 2024 vs Q1 2023) | Segment | Q1 2024 (in millions) | Q1 2023 (in millions) | | :--- | :--- | :--- | | Water Infrastructure | $574 | $410 | | Applied Water | $436 | $453 | | Measurement and Control Solutions | $462 | $378 | | Water Solutions and Services | $561 | $207 | | Total | $2,033 | $1,448 | - In Q1 2024, the company incurred $9 million in restructuring costs, primarily for headcount reduction related to Evoqua integration[44] Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations Management reported strong Q1 2024 results with 40.4% revenue growth to $2.03 billion, 43.1% order growth, and an updated full-year 2024 outlook Q1 2024 Financial Highlights | Metric | Q1 2024 | Change vs. Q1 2023 | | :--- | :--- | :--- | | Revenue | $2,033 million | +40.4% | | Organic Revenue Growth | 7.1% | - | | Orders | $2,246 million | +43.1% | | Organic Orders Growth | 3.4% | - | | Diluted EPS | $0.63 | +16.7% | | Adjusted Diluted EPS | $0.90 | +13.9% | | Adjusted EBITDA Margin | 19.2% | +290 bps | - The company updated its full-year 2024 outlook, projecting total revenue growth between 15% and 16% and organic revenue growth between 4% and 6%[183] - Total backlog increased to $5.3 billion at the end of Q1 2024, a 40.8% increase year-over-year, with $1.4 billion from acquired backlog, and 45% expected to be recognized in 2024[147] Results of Operations Q1 2024 total revenue increased 40.4% to $2.03 billion, driven by acquisitions and organic growth, while gross margin slightly decreased and operating margin expanded Q1 2024 Revenue Growth Breakdown by Segment | Segment | Total Change | Organic Growth | Acquisitions | FX Impact | | :--- | :--- | :--- | :--- | :--- | | Water Infrastructure | +40.0% | +6.3% | +33.4% | +0.2% | | Applied Water | -3.8% | -4.0% | 0.0% | +0.2% | | Measurement & Control Solutions | +22.2% | +22.0% | 0.0% | +0.3% | | Water Solutions & Services | +171.0% | +5.8% | +165.7% | -0.5% | | Total Xylem | +40.4% | +7.1% | +33.1% | +0.1% | - Gross margin decreased by 70 basis points to 37.0%, primarily due to special charges and inflation, partially offset by productivity savings and price realization[148] - Operating margin increased by 130 basis points to 10.3%, driven by productivity savings, price realization, and increased volumes, partially offset by inflation and strategic investment costs[154] Liquidity and Capital Resources The company maintains strong liquidity with $1.9 billion available, driven by improved operating cash flow and increased cash usage in financing activities - The company has available liquidity of approximately $1.9 billion, comprising $947 million in cash and $1 billion in available credit facilities[179] - Net cash provided by operating activities improved to $89 million in Q1 2024 from a $19 million use in Q1 2023, primarily due to higher cash earnings[172][173] - Cash used in financing activities increased to $82 million from $63 million year-over-year, due to higher dividend payments and increased share repurchases[175] Item 3. Quantitative and Qualitative Disclosures About Market Risk No material changes in market risk disclosures were reported since the 2023 Annual Report on Form 10-K - There has been no material change in market risk disclosures since the 2023 Annual Report[184] Item 4. Controls and Procedures Management concluded disclosure controls and procedures were effective, with no material changes to internal control over financial reporting - The CEO and CFO concluded that the company's disclosure controls and procedures were effective as of the end of the reporting period[185] - No material changes in internal control over financial reporting were identified during the fiscal quarter[186] PART II – Other Information Item 1. Legal Proceedings The company is cooperating with an investigation into Evoqua's past financial filings, not expecting a material adverse effect - The company is cooperating with a U.S. Attorney's Office investigation regarding potential financial misstatements in Evoqua's historical public filings[189] - Management currently believes the Evoqua investigation will not have a material adverse effect on the company's financial condition or operations[189] Item 1A. Risk Factors No material changes to risk factors were reported compared to those disclosed in the 2023 Annual Report on Form 10-K - No material changes to risk factors were reported compared to those disclosed in the 2023 Annual Report[191] Item 2. Unregistered Sales of Equity Securities and Use of Proceeds The company did not repurchase shares in Q1 2024, with approximately $182 million remaining under the existing share repurchase authorization - No shares were repurchased under the company's publicly announced plan during the first quarter of 2024[192][194] - As of March 31, 2024, $182 million remains available for share repurchases under the existing authorization from August 2015[194]