01—Abstract
Summary
Summary of the 10-K filed February 24, 2023. Cited figures are marked; the original filing is the authoritative source.
Xylem Inc. (NYSE: XYL) reported 2022 revenue of $5.52 billiona, up 6.3% from $5.20 billion in 2021 (11.3% on a constant currency basis), with organic revenue growth of $595 million across all end markets and geographies.
Net income fell to $355 millionb, or $1.96 per diluted share, from $427 million, largely due to a $140 million U.K. pension settlement expense recorded in the third quarter of 2022. On an adjusted basis, net income was $516 million, or $2.85 per diluted share, up 14.5% from 2021. Operating income rose to $622 million (operating margin 11.3%), and adjusted operating margin expanded 40 basis points to 12.2%, driven by price realization and productivity, partially offset by cost inflation.
Operating cash flow was $596 millionc and free cash flow was $388 million. The company ended 2022 with total backlog of $3.605 billion, up from $3.240 billion, and orders of $6.257 billion, down 0.7% as reported but up 4.0% organically. Total debt was $1.88 billion and available liquidity was approximately $1.7 billion, consisting of $944 million of cash and $800 million of available credit facilities.
Xylem declared a first-quarter 2023 dividend of $0.33d per share. Management guided 2023 total revenue growth of 3% to 5% and organic revenue growth of 4% to 6%. The filing is dominated by the pending all-stock acquisition of Evoqua Water Technologies, announced January 23, 2023, at an implied enterprise value of approximately $7.5 billion.
Evoqua shareholders would receive 0.480 Xylem shares per Evoqua share, with Xylem holders owning about 75% of the combined company. The transaction is expected to close in mid-2023, subject to shareholder and regulatory approvals. Key risks disclosed include exposure to Buy America domestic content rules for federally funded projects, supply chain constraints for semiconductors, foreign currency translation, and a pending Swedish tax assessment of approximately $76 million.
02—Key points
Key Highlights
- 2022 revenue of $5.52 billion, up 6.3% from $5.20 billion in 2021; organic revenue grew $595 million, or 11.5%.
- Net income of $355 million, or $1.96 per diluted share, down 16.9% from $427 million, mainly reflecting a $140 million U.K. pension settlement expense; adjusted EPS rose to $2.85 from $2.49.
- Adjusted operating margin expanded 40 basis points to 12.2%, supported by price realization, productivity savings and restructuring benefits, offset by cost inflation.
- Free cash flow of $388 million, up from $330 million, on operating cash flow of $596 million and capital expenditures of $208 million.
- Backlog rose to $3.605 billion from $3.240 billion; orders of $6.257 billion were up 4.0% organically but down 0.7% as reported.
- Pending all-stock acquisition of Evoqua at an implied enterprise value of approximately $7.5 billion, with Xylem shareholders expected to own about 75% of the combined company; closing anticipated mid-2023.
- Liquidity of approximately $1.7 billion, including $944 million of cash and $800 million of available credit facilities; total debt of $1.88 billion after $527 million of 2023 notes were repaid in December 2022.
03—One dollar
Follow one dollar
Of each $1.00 of revenue in FY2022, Xylem kept $0.06.
- Revenue$5.52B100.0%
- Cost of revenue−$3.44B62.3%
- Gross profit$2.08B37.7%
- Operating costs−$1.46B26.5%
- Operating income$622.0M11.3%
- Interest, other & tax−$267.0M4.8%
- Net income$355.0M6.4%
Where FY2022 revenue went
$5.52B- Cost of revenue: $3.44B, 62% of revenue
- SG&A: $1.23B, 22% of revenue
- Net income: $355.0M, 6.4% of revenue
- R&D: $206.0M, 3.7% of revenue
- Other operating costs: $29.0M, 0.5% of revenue
- Interest, other & tax: $267.0M, 4.8% of revenue
Kept 6.4% as net incomeOther operating costs $29.0M · 0.5%
Full revenue history →04—Financials
Financial Highlights
Figures from 10-KFY2022filed February 24, 2023Financial Statements
FY2022 against FY2021
| Line item | FY2022FY2021 | Change |
|---|---|---|
| Revenue | $5.52B$5.20B | +6.3% |
| Cost of Revenue | $3.44B$3.22B | +6.8% |
| Gross Profit | $2.08B$1.98B | +5.5% |
| R&D Expenses | $206.00M$204.00M | +1.0% |
| SG&A Expenses | $1.23B$1.18B | +4.1% |
| Operating Income | $622.00M$585.00M | +6.3% |
| Interest Expense | $50.00M$76.00M | −34.2% |
| Net Income | $355.00M$427.00M | −16.9% |
| EPS (Basic) | $1.97$2.37 | −16.9% |
| EPS (Diluted) | $1.96$2.35 | −16.6% |
| Shares Outstanding (Basic) | 180.22M180.25M | 0.0% |
| Shares Outstanding (Diluted) | 180.98M181.53M | −0.3% |
05—Questions
Frequently Asked Questions
How did Xylem perform financially in 2022?
Revenue rose 6.3% to $5.52 billion, and organic revenue grew by $595 million across all end markets and major regions. Operating income increased 6.3% to $622 million. Reported net income declined 16.9% to $355 million, primarily due to a $140 million U.K. pension settlement expense. Adjusted net income rose to $516 million.
What is the Evoqua acquisition and what are its terms?
Xylem agreed on January 23, 2023 to acquire Evoqua Water Technologies in an all-stock transaction with an implied enterprise value of approximately $7.5 billion. Each Evoqua share converts into 0.480 Xylem shares, and Xylem shareholders would own about 75% of the combined company. The deal is expected to close in mid-2023, subject to shareholder and regulatory approvals. If terminated under certain circumstances, Xylem could owe Evoqua a termination fee of up to $325 million.
What are the main risks flagged in the filing?
The filing highlights risks from global macroeconomic conditions, inflation, tariffs, and supply chain shortages, particularly for semiconductors. It also notes that some products may not meet Buy America domestic content requirements for federally funded projects, and that foreign currency movements and a pending Swedish tax assessment could affect results. Risks specific to the Evoqua transaction, including integration and dilution, are also described.
How is Xylem's cash position and debt structure?
At December 31, 2022, cash and cash equivalents were $944 million, down from $1.349 billion a year earlier. Long-term debt was $1.880 billion, consisting of fixed-rate senior notes, after the company settled $527 million of 2023 notes in cash in December 2022. The $800 million revolving credit facility was undrawn, and the company stated it was in compliance with all covenants.
What is the outlook for 2023?
Xylem anticipates total revenue growth of 3% to 5% and organic revenue growth of 4% to 6% in 2023. It expects restructuring and realignment costs of $25 million to $35 million, and it estimates approximately $14 million of incremental net savings from 2022 actions. Management also noted that slowing demand in cyclical end markets, particularly residential, could be a headwind.
06—Continue