Xylem(XYL) - 2025 Q2 - Quarterly Report

PART I – Financial Information Item 1. Financial Statements This section presents Xylem Inc.'s unaudited condensed consolidated financial statements, including income statements, balance sheets, and cash flows, for the periods ended June 30, 2025 Condensed Consolidated Income Statements Xylem reported Q2 2025 revenue of $2,301 million and net income of $224 million, with diluted EPS of $0.93, reflecting strong year-over-year growth Q2 & H1 2025 Financial Performance (in millions, except EPS) | Metric | Q2 2025 | Q2 2024 | YoY Change | H1 2025 | H1 2024 | YoY Change | | :--- | :--- | :--- | :--- | :--- | :--- | :--- | | Revenue | $2,301 | $2,169 | +6.1% | $4,370 | $4,202 | +4.0% | | Gross Profit | $892 | $819 | +8.9% | $1,660 | $1,571 | +5.7% | | Operating Income | $305 | $253 | +20.6% | $536 | $462 | +16.0% | | Net Income | $224 | $194 | +15.5% | $391 | $347 | +12.7% | | Diluted EPS | $0.93 | $0.80 | +16.3% | $1.62 | $1.43 | +13.3% | Condensed Consolidated Balance Sheets As of June 30, 2025, Xylem's total assets reached $17.19 billion, with total liabilities at $5.88 billion and total equity at $11.08 billion, indicating balance sheet growth Balance Sheet Summary (in millions) | Account | June 30, 2025 | Dec 31, 2024 | | :--- | :--- | :--- | | Total Current Assets | $4,369 | $4,098 | | Goodwill | $8,237 | $7,980 | | Total Assets | $17,191 | $16,493 | | Total Current Liabilities | $2,301 | $2,336 | | Long-term Debt | $1,928 | $1,978 | | Total Liabilities | $5,882 | $5,611 | | Total Equity | $11,081 | $10,647 | Condensed Consolidated Statements of Cash Flows Net cash from operating activities for H1 2025 was $338 million, a decrease from the prior year, while financing cash usage significantly decreased due to lower debt repayments Six-Month Cash Flow Summary (in millions) | Activity | H1 2025 | H1 2024 | | :--- | :--- | :--- | | Net Cash – Operating | $338 | $377 | | Net Cash – Investing | $(140) | $(128) | | Net Cash – Financing | $(244) | $(419) | | Net Change in Cash | $49 | $(204) | Notes to the Condensed Consolidated Financial Statements These notes detail accounting policies, acquisitions like Vacom Systems and EnviroMix, divestitures, and restructuring charges, providing context for financial activities - In Q2 2025, the company acquired Vacom Systems, LLC for $42 million in cash, accounted for as an asset acquisition[24] - On February 7, 2025, the company divested its Evoqua Magneto business for $61 million, resulting in a $10 million loss on the sale[27] - Restructuring charges of $22 million and $39 million were incurred in Q2 and H1 2025, respectively, to streamline the organization[44] - Post-period, on July 23, 2025, Xylem acquired EMX Holdings, Inc. (EnviroMix) for $108 million in cash[124] Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations Management discusses Q2 and H1 2025 financial results, highlighting a 6.1% Q2 revenue increase, segment performance, and a raised full-year 2025 revenue growth outlook - Q2 2025 revenue increased 6.1% to $2,301 million, with organic growth of 5.5%[131] - Q2 2025 orders grew 4.1% (3.7% organically) to $2,174 million[131] - Adjusted EBITDA margin for Q2 2025 improved by 100 basis points to 21.8%[131] - The company raised its full-year 2025 total revenue growth outlook to 4% to 5%, with organic growth of approximately 4%[210] Results of Operations Q2 2025 revenue grew 6.1% to $2.3 billion, with gross margin expanding by 100 basis points to 38.8% and operating margin increasing to 13.3% Q2 2025 vs Q2 2024 Performance Summary | Metric | Q2 2025 | Q2 2024 | Change | | :--- | :--- | :--- | :--- | | Revenue | $2,301M | $2,169M | +6.1% | | Gross Margin | 38.8% | 37.8% | +100 bp | | Operating Margin | 13.3% | 11.7% | +160 bp | | Net Income | $224M | $194M | +15.5% | - Gross margin improvement was driven by 210 basis points from productivity savings and 130 basis points from price realization, partially offset by 180 basis points of inflation[154] Segment Performance All segments reported organic revenue growth in Q2 2025, with Measurement and Control Solutions leading at 9.4%, driven by smart metering backlog execution Q2 2025 Organic Revenue Growth by Segment | Segment | Organic Growth (%) | | :--- | :--- | | Water Infrastructure | 4.1% | | Applied Water | 4.7% | | Measurement and Control Solutions | 9.4% | | Water Solutions and Services | 4.6% | Q2 2025 Adjusted Operating Margin by Segment | Segment | Q2 2025 Adj. Op. Margin | Q2 2024 Adj. Op. Margin | Change (bp) | | :--- | :--- | :--- | :--- | | Water Infrastructure | 19.5% | 16.0% | +350 | | Applied Water | 19.5% | 16.0% | +350 | | Measurement and Control Solutions | 18.1% | 19.9% | -180 | | Water Solutions and Services | 16.9% | 16.5% | +40 | Liquidity and Capital Resources H1 2025 cash from operations was $338 million, with total available liquidity of approximately $2.2 billion, reflecting a strong capital position despite decreased operating cash flow - Total available liquidity as of June 30, 2025, is approximately $2.2 billion[206] Six-Month Cash Flow Comparison (in millions) | Activity | H1 2025 | H1 2024 | | :--- | :--- | :--- | | Operating Activities | $338 | $377 | | Investing Activities | $(140) | $(128) | | Financing Activities | $(244) | $(419) | Item 3. Quantitative and Qualitative Disclosures About Market Risk No material changes in market risk disclosures have occurred since the Annual Report on Form 10-K for the year ended December 31, 2024 - There has been no material change in market risk disclosures since the 2024 Annual Report[211] Item 4. Controls and Procedures Management concluded that disclosure controls and procedures were effective as of June 30, 2025, with no material changes to internal control over financial reporting during the quarter - The CEO and CFO concluded that the company's disclosure controls and procedures were effective as of the end of the reporting period[212] - No material changes to internal control over financial reporting were identified during the quarter[213] PART II – Other Information Item 1. Legal Proceedings The company is involved in various legal and regulatory proceedings incidental to its business operations, with further details in Note 18 - The company is involved in legal and regulatory proceedings incidental to its business, covering areas like environmental, tax, intellectual property, and product liability[216] Item 1A. Risk Factors No material changes to the risk factors previously disclosed in the company's Annual Report on Form 10-K for the year ended December 31, 2024, have occurred - No material changes from the risk factors disclosed in the 2024 Annual Report have occurred[218] Item 2. Unregistered Sales of Equity Securities and Use of Proceeds The company did not repurchase shares in Q2 2025, with $182 million remaining authorized for future repurchases under the existing plan - No shares were repurchased under the company's publicly announced plan during the three months ended June 30, 2025[219][220] - As of June 30, 2025, $182 million remains available for share repurchases under the authorized program[220] Item 5. Other Information No directors or Section 16 officers adopted or terminated any Rule 10b5-1 trading arrangements during the quarter ended June 30, 2025 - No directors or Section 16 officers adopted or terminated any Rule 10b5-1 trading plans during the second quarter of 2025[223] Item 6. Exhibits This section provides an index of exhibits filed with the Form 10-Q, including CEO and CFO certifications and XBRL data files