01—Abstract
Summary
Summary of the 10-K filed February 28, 2024. Cited figures are marked; the original filing is the authoritative source.
Xylem Inc. (XYL) reported 2023 revenue of $7.364 billiona, up $1.842 billion, or 33.4%, from $5.522 billion in 2022, driven largely by the May 24, 2023 acquisition of Evoqua Water Technologies Corp. Acquisitions contributed $1.177 billion of the revenue increase, while organic revenue grew $690 million, or 12.5%.
Net income rose to $609 millionb, or $2.79 per diluted share, from $355 million, or $1.96 per diluted share. Adjusted operating margin expanded to 14.6% from 13.5%, and adjusted EPS was $3.78 versus $3.15. Reported operating margin declined to 8.9% from 11.3% because of higher special charges, acquired intangible amortization and restructuring costs tied largely to the Evoqua integration.
Cash flow and balance sheet changes were significant. Net cash from operating activities was $837 millionc and free cash flow was $599 million. Total assets rose to $16.112 billion from $7.952 billion, with goodwill at $7.587 billion and other intangible assets at $2.529 billion.
Total debt was $2.284 billiond. The company reported $1 billion of cash and cash equivalents and $1 billion of undrawn availability under its 2023 revolving credit facility. Total backlog was $5.088 billion at year-end, up 41.1%, with about 55% expected to convert to revenue in 2024 per Item 1, while the MD&A states more than 50%.
For 2024, management guides total revenue growth of 14% to 15% and organic revenue growth of 3% to 5%, with Applied Water expected to decline in the low-single digits organically and Measurement and Control Solutions expected to grow in the low-double digits. Effective January 1, 2024, the company will reorganize into a new Water Solutions and Services segment combining Integrated Solutions and Services, dewatering and assessment services. Key risks cited include tariffs and inflation, supply chain constraints, Buy America domestic content requirements, cybersecurity, and goodwill impairment exposure.
02—Key points
Key Highlights
- Revenue of $7.364 billion in 2023, up 33.4% from $5.522 billion, with $1.177 billion from acquisitions and $690 million of organic growth
- Net income of $609 million, or $2.79 per diluted share, versus $355 million, or $1.96, in 2022; adjusted EPS of $3.78 versus $3.15
- Operating margin fell to 8.9% from 11.3% on higher special charges, acquired intangible amortization and restructuring; adjusted operating margin rose to 14.6% from 13.5%
- Operating cash flow of $837 million and free cash flow of $599 million, up 54% from 2022
- Total backlog of $5.088 billion at December 31, 2023, up 41.1% from $3.605 billion, including $1.268 billion from Evoqua
- Evoqua acquisition completed May 24, 2023 at an acquisition-date fair value of $6.9 billion; goodwill rose to $7.587 billion from $2.719 billion
- 2024 outlook: total revenue growth of 14% to 15% and organic growth of 3% to 5%; restructuring costs expected between $50 million and $70 million
03—One dollar
Follow one dollar
Of each $1.00 of revenue in FY2023, Xylem kept $0.08.
- Revenue$7.36B100.0%
- Cost of revenue−$4.65B63.1%
- Gross profit$2.72B36.9%
- Operating costs−$2.06B28.0%
- Operating income$652.0M8.9%
- Interest, other & tax−$43.0M0.6%
- Net income$609.0M8.3%
Where FY2023 revenue went
$7.36B- Cost of revenue: $4.65B, 63% of revenue
- SG&A: $1.76B, 24% of revenue
- Net income: $609.0M, 8.3% of revenue
- R&D: $232.0M, 3.2% of revenue
- Other operating costs: $76.0M, 1.0% of revenue
- Interest, other & tax: $43.0M, 0.6% of revenue
Kept 8.3% as net incomeInterest, other & tax $43.0M · 0.6%
Full revenue history →04—Financials
Financial Highlights
Figures from 10-KFY2023filed February 28, 2024Financial Statements
FY2023 against FY2022
| Line item | FY2023FY2022 | Change |
|---|---|---|
| Revenue | $7.36B$5.52B | +33.4% |
| Cost of Revenue | $4.65B$3.44B | +35.2% |
| Gross Profit | $2.72B$2.08B | +30.4% |
| R&D Expenses | $232.00M$206.00M | +12.6% |
| SG&A Expenses | $1.76B$1.23B | +43.2% |
| Operating Income | $652.00M$622.00M | +4.8% |
| Interest Expense | $49.00M$50.00M | −2.0% |
| Net Income | $609.00M$355.00M | +71.5% |
| EPS (Basic) | $2.81$1.97 | +42.6% |
| EPS (Diluted) | $2.79$1.96 | +42.3% |
| Shares Outstanding (Basic) | 217.01M180.22M | +20.4% |
| Shares Outstanding (Diluted) | 218.18M180.98M | +20.6% |
05—Questions
Frequently Asked Questions
How much did the Evoqua acquisition contribute to Xylem's 2023 results?
Evoqua contributed $1.177 billion of revenue and a net loss from continuing operations before income taxes of $66 million from the acquisition date through year-end. Acquisitions also added $1.220 billion to orders. Evoqua's Integrated Solutions and Services segment accounted for $815 million of 2023 revenue.
Why did reported operating margin decline in 2023?
Operating margin fell to 8.9% from 11.3%. The filing attributes this to higher special charges (mostly acquisition and integration costs), an increase in purchased intangible amortization of $104 million, and restructuring and realignment costs that rose by $72 million. Excluding these items, adjusted operating margin improved to 14.6% from 13.5%.
What is the company's outlook for 2024?
Xylem expects total revenue growth of 14% to 15% and organic revenue growth of 3% to 5% in 2024. Water Infrastructure is expected to grow organically in the mid-single digits, Applied Water to decline in the low-single digits, Measurement and Control Solutions to grow in the low-double digits, and Integrated Solutions and Services in the mid-single digits. The company expects $50 million to $70 million of restructuring and realignment costs.
What are the main risks flagged in the filing?
The filing highlights tariffs and inflation affecting operating costs, supply chain shortages (particularly semiconductors), geopolitical conflicts including Russia-Ukraine and the Middle East, Buy America domestic content requirements for federally funded projects, cybersecurity incidents, foreign currency exposure (46% of 2023 revenue came from outside the U.S.), and potential goodwill impairments given about $8 billion of goodwill and indefinite-lived intangibles.
Is the company's liquidity position sound?
The company reported $1.019 billion of cash and cash equivalents and $1 billion of available credit under its 2023 revolving facility, which was undrawn at year-end, for about $2 billion of available liquidity. Total debt was $2.284 billion, and its securities are rated investment grade. Management believes liquidity is sufficient for the next twelve months.
06—Continue