Xylem Inc.

04/28/2026 | Press release | Distributed by Public on 04/28/2026 10:49

Quarterly Report for Quarter Ending March 31, 2026 (Form 10-Q)

MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion should be read in conjunction with the condensed consolidated financial statements, including the notes, included elsewhere in this report on Form 10-Q (this "Report").
This Report contains "forward-looking statements" within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. Generally, the words "anticipate," "estimate," "expect," "project," "intend," "plan," "contemplate," "predict," "forecast," "likely," "believe," "target," "goal," "objective," "will," "could," "would," "should," "potential," "may" and similar expressions or their negative, may, but are not necessary to, identify forward-looking statements. By their nature, forward-looking statements address uncertain matters and include any statements that: are not historical, such as statements about our strategy, financial plans, outlook, objectives, plans, intentions or goals (including those related to our social, environmental and other sustainability goals); or address possible or future results of operations or financial performance, including statements relating to orders, revenues, operating margins and earnings per share growth.
Although we believe that the expectations reflected in any of our forward-looking statements are reasonable, actual results could differ materially from those projected or assumed in any of our forward-looking statements. Our future financial condition and results of operations, as well as any forward-looking statements, are subject to change and to inherent risks and uncertainties, many of which are beyond our control. Important factors that could cause our actual results, performance and achievements, or industry results to differ materially from estimates or projections contained in or implied by our forward-looking statements include, among others, the following: the impact of overall industry and general economic conditions, including industrial, governmental, and public and private sector spending, interest rates, availability of funding to our customers, inflation and governments' related monetary policy in response, and the strength of the real estate markets, on economic activity and our operations; geopolitical matters, including nationalism, protectionism and anti-global sentiment, volatility involving the U.S. and other governments, ongoing, escalation or outbreak of international conflicts, and regulatory, trade protection, economic and other risks associated with our global sales and operations; manufacturing and operating cost increases due to macroeconomic conditions, including inflation, energy supply, supply chain shortages, logistics challenges, labor shortages, trade agreements, tariffs, and other trade protection measures, and other factors; demand for our products, disruption, competition or pricing pressures in the markets we serve; cybersecurity incidents, data breaches, or other disruptions of information technology systems on which we or our customers rely, or involving our connected products and services; lack of availability or delays in receiving parts and raw materials from our supply chain, including semiconductors or other key components; operational disruptions at our facilities or that of third parties upon which we rely; safe and compliant treatment and handling of water, wastewater and hazardous materials; failure to successfully execute large projects, including as respects performance guarantees and customers' budgets, timelines and safety requirements; our ability to retain, compete for, and attract leadership, other key talent, and labor; defects, security, warranty and liability claims, and recalls related to our products; uncertainty around productivity, simplification, restructuring and realignment actions and related costs and savings; our ability to execute strategic investments for growth, including acquisitions and divestitures; availability, regulation or interference with radio spectrum used by certain of our products; volatility in served markets or impacts on our business and operations due to weather conditions, volatile weather events, or changing climate patterns; risks related to our sustainability efforts and related disclosures; fluctuations in foreign currency exchange rates; difficulty predicting our financial results; risk of future impairments to goodwill and other intangible assets; changes in our effective tax rates or tax expenses; failure to comply with, or changes in, laws or regulations, pertaining to our business conduct, operations, products and services, including anti-corruption, artificial intelligence, data privacy and security, trade, competition, the environment, and health and safety; legal, governmental or regulatory claims, investigations or proceedings and associated contingent liabilities; matters related to intellectual property infringement or expiration of rights; and other factors set forth under "Item 1A. Risk Factors" in our Annual Report on Form 10-K for the year ended December 31, 2025 ("2025 Annual Report") and in subsequent filings we make with the Securities and Exchange Commission ("SEC").
Forward-looking and other statements in this Report regarding our environmental and other sustainability plans and goals are not an indication that these statements are necessarily material to investors, to our business, operating results, financial condition, outlook, or strategy, to our impacts on sustainability matters or other parties, or are required to be disclosed in our filings with the SEC or other regulatory authorities, and are not intended to create legal rights or obligations. In addition, historical, current, and forward-looking social, environmental and sustainability-related statements may be based on: standards for measuring progress that are still developing, internal controls and processes that continue to evolve, and assumptions that are subject to change in the future.
All forward-looking statements made herein are based on information currently available to us as of the date of this Report. We undertake no obligation to publicly update or revise any forward-looking statements, whether as a result of new information, future events or otherwise, except as required by law.
Overview
Xylem is a leading global water technology company. We design, manufacture and service highly engineered products and solutions ranging across a wide variety of critical applications in utility, industrial, residential and commercial building services settings. Our broad portfolio of solutions addresses customer needs across the water cycle, from the delivery, measurement and use of drinking water to the collection, test, treatment and analysis of wastewater, to the return of water to the environment. Our product and service offerings are organized into four reportable segments that are aligned around the critical market applications they provide: Water Infrastructure, Applied Water, Measurement and Control Solutions and Water Solutions and Services.
•Water Infrastructure serves the water infrastructure sector with pump systems that transport water from aquifers, lakes, rivers and seas; with filtration, ultraviolet and ozone systems that provide treatment, making the water fit to use; and pumping solutions that move the wastewater and storm water to treatment facilities where our mixers, biological treatment, monitoring and control systems provide the primary functions in the treatment process.
•Applied Water serves the water usage applications sector with water pressure boosting systems for heating, ventilation and air conditioning, and for fire protection systems to the residential and commercial building solutions markets.
•Measurement and Control Solutions primarily serves the utility infrastructure solutions and services sector by delivering communications, smart metering, measurement and control capabilities and critical infrastructure technologies that allow customers to more effectively use their distribution networks for the delivery, monitoring and control of critical resources such as water, electricity and natural gas. We also provide analytical instrumentation used to measure and analyze water quality, flow and level in clean water, wastewater and outdoor water environments.
•Water Solutions and Services provides tailored services and solutions, in collaboration with customers, including on-demand water, outsourced water, recycle/reuse, pipeline assessment services, specialty dewatering and emergency response service alternatives to improve operational reliability, performance and environmental compliance.
Executive Summary
Xylem reported revenue for the first quarter of 2026 of $2,125 million, an increase of 2.7% compared to $2,069 million reported in the first quarter of 2025. The revenue increase consisted primarily of favorable foreign currency impacts of $65 million, or 3.1%, partially offset by slight organic declines of $9 million, or 0.4%.
Additional financial highlights for the quarter ended March 31, 2026 include the following:
•Orders of $2,228 million, up 3.2% from $2,158 million in the prior year period, and down 0.3% on an organic basis.
•Earnings per share of $0.79, up 14.5% compared to prior year ($1.12, up 8.7% versus prior year, on an adjusted basis).
•Net income attributable to Xylem as a percent of revenue of 9.1%, up 90 basis points compared to 8.2% in the prior year. Adjusted EBITDA margin of 20.6%, up 20 basis points when compared to 20.4% in the prior year.
Key Performance Indicators and Non-GAAP Measures
Management reviews key performance indicators including revenue, gross margins, segment operating income and margins, orders growth, working capital and backlog, among others. In addition, we consider certain non-GAAP (or "adjusted") measures to be useful to management and investors evaluating our operating performance for the periods presented, and to provide a tool for evaluating our ongoing operations, liquidity and management of assets. This information can assist investors in assessing our financial performance and measures our ability to generate capital for deployment among competing strategic alternatives and initiatives, including, but not limited to, dividends, acquisitions, share repurchases and debt repayment. Excluding revenue, Xylem provides guidance only on a non-GAAP basis due to the inherent difficulty in forecasting certain amounts that would be included in GAAP earnings, such as discrete tax items, without unreasonable effort. These adjusted metrics are consistent with how management views our business and are used to make financial, operating and planning decisions. These metrics, however, are not measures of financial performance under GAAP and should not be considered a substitute for revenue, operating income, net income, earnings per share (basic and diluted) or net cash from operating activities as determined in accordance with GAAP. We consider the following non-GAAP measures to be key performance indicators, as well as the related reconciling items to the most directly comparable measure calculated and presented in accordance with GAAP. The non-GAAP measures may not be comparable to similarly titled measures reported by other companies.
•"organic revenue" and "organic orders" defined as revenue and orders, respectively, excluding the impact of fluctuations in foreign currency translation and contributions from acquisitions and divestitures. Divestitures include sales or discontinuance of insignificant portions of our business that did not meet the criteria for classification as a discontinued operation. The period-over-period change resulting from foreign currency translation impacts is determined by translating current period and prior period activity using the same currency conversion rate.
•"adjusted net income" and "adjusted earnings per share" defined as net income attributable to Xylem and corresponding earnings per share, respectively, adjusted to exclude restructuring and realignment costs, amortization of acquired intangible assets, gain or loss from sale of businesses, special charges and tax-related special items, as applicable. A reconciliation of adjusted net income and adjusted earnings per share is provided below.
Three Months Ended
March 31,
(in millions, except for per share data) 2026 2025
Net income attributable to Xylem & Earnings per share $ 193 $ 0.79 $ 169 $ 0.69
Restructuring and realignment 38 0.16 27 0.11
Acquired intangible amortization 55 0.23 55 0.23
Special charges 10 0.04 12 0.05
Tax-related special items 1 - - -
(Gain) loss from sale of businesses (4) (0.02) 10 0.04
Tax effects of adjustments (a)
(21) (0.08) (22) (0.09)
Adjusted net income & Adjusted earnings per share $ 272 $ 1.12 $ 251 $ 1.03
Weighted average number of shares - diluted 243.4 243.8
(a) The tax effects of adjustments are calculated using the statutory tax rate, taking into consideration the nature of the item and the relevant taxing jurisdiction.
•"adjusted operating income" defined as operating income, adjusted to exclude restructuring and realignment costs, amortization of acquired intangible assets, gain or loss from sale of businesses, special charges and tax-related special items, as applicable, and "adjusted operating margin" defined as adjusted operating income divided by total revenue.
•"EBITDA" defined as earnings before interest, taxes, depreciation and amortization expense, "EBITDA margin" defined as EBITDA divided by total revenue, "adjusted EBITDA" reflects the adjustments to EBITDA to exclude share-based compensation charges, restructuring and realignment costs, gain or loss
from sale of businesses and special charges, and "adjusted EBITDA margin" defined as adjusted EBITDA divided by total revenue.
•"realignment costs" defined as costs not included in restructuring costs that are incurred as part of actions taken to reposition our business, including items such as professional fees, severance, relocation, travel, facility set-up and other costs.
•"special charges" defined as non-recurring costs incurred by the Company, such as those related to acquisitions and integrations, divestitures, non-cash impairment charges and other non-cash special charges.
•"tax-related special items" defined as tax items, such as tax return versus tax provision adjustments, tax exam impacts, tax law change impacts, excess tax benefits/losses and other discrete tax adjustments.
•"free cash flow" defined as net cash from operating activities, as reported in the Statement of Cash Flows, less capital expenditures. Our definition of "free cash flow" does not consider certain non-discretionary cash payments, such as debt. The following table provides a reconciliation of free cash flow.
Three Months Ended
March 31,
(in millions) 2026 2025
Net cash provided by operating activities $ 108 $ 33
Capital expenditures (90) (71)
Free cash flow $ 18 $ (38)
Net cash used in investing activities $ (76) $ (15)
Net cash used by financing activities $ (683) $ (116)
Results of Operations
Three Months Ended
March 31,
(in millions) 2026 2025 Change
Revenue $ 2,125 $ 2,069 2.7 %
Gross profit 803 768 4.6 %
Gross margin 37.8 % 37.1 % 70 bp
Total operating expenses 559 537 4.1 %
Expense to revenue ratio 26.3 % 26.0 % 30 bp
Operating income 244 231 5.6 %
Operating margin 11.5 % 11.2 % 30 bp
Interest and other non-operating expense, net (4) (4) - %
Gain/(Loss) on sale of businesses 4 (10) (140.0) %
Income tax expense (55) (50) 10.0 %
Tax rate 22.3 % 23.1 % (80) bp
Net income $ 189 $ 167 13.2 %
Net loss attributable to non-controlling interest 4 2 100.0 %
Net income attributable to Xylem $ 193 $ 169 14.2 %
NM - Not meaningful change
Revenue
Revenue generated during the three months ended March 31, 2026 and 2025 was $2,125 million and $2,069 million, respectively, reflecting an increase of $56 million, or 2.7%, compared to the prior year. Organic revenue decreased $9 million, or 0.4% for the three months ended March 31, 2026. Foreign currency translation had a favorable impact on revenue of $65 million for the three months ended March 31, 2026. The net increase in revenue from acquisitions of $5 million was offset by a corresponding loss of revenue from divestitures for the three months ended March 31, 2026. The decrease in organic revenue for the three months ended March 31, 2026 is primarily due to reduced capital project revenue in the U.S. in our Water Solutions and Services segment, and reduced backlog execution due to lower opening backlog in western Europe across multiple segments. Organic declines were partially offset by modest organic growth in our Measurement and Control Solutions segment where U.S. energy growth outpaced declines in water.
The following table illustrates the impact from organic growth, recent acquisitions and divestitures, and foreign currency translation in relation to revenue during the three months ended March 31, 2026:
Water Infrastructure Applied Water Measurement and Control Solutions Water Solutions and Services Total Xylem
(in millions) $ Change % Change $ Change % Change $ Change % Change $ Change % Change $ Change % Change
2025 Revenue $ 581 $ 435 $ 490 $ 563 $ 2,069
Organic Growth (5) (0.9) % (1) (0.2) % 7 1.4 % (10) (1.8) % (9) (0.4) %
Acquisitions 3 0.5 % - - % - - % 2 0.4 % 5 0.2 %
Divestitures (5) (0.9) % - - % - - % - - % (5) (0.2) %
Foreign currency translation (a) 29 5.1 % 14 3.2 % 11 2.3 % 11 1.9 % 65 3.1 %
Total change in revenue 22 3.8 % 13 3.0 % 18 3.7 % 3 0.5 % 56 2.7 %
2026 Revenue $ 603 $ 448 $ 508 $ 566 $ 2,125
(a)Foreign currency translation impact for the year due to the strengthening in value of various currencies against the U.S. Dollar, the largest being the Euro, British Pound, Australian Dollar and the Canadian Dollar.
Water Infrastructure
Water Infrastructure revenue increased $22 million, or 3.8%, for the first quarter of 2026 as compared to the prior year. Revenue growth for the quarter included $29 million of favorable impacts from foreign currency translation partially offset by organic revenue declines of $5 million, or 0.9%, and the net impact of a loss of $5 million of revenue from divestitures and additional revenue of $3 million from acquisitions. Revenue in the treatment application declined $8 million organically. Organic declines in the treatment application were driven by unfavorable order volume and strong prior year project revenue in the emerging markets, and reduced backlog execution in western Europe, partially offset by favorable timing of capital projects in the U.S. Organic revenue declines in the treatment application were partially offset by organic revenue growth in the transport application of $3 million, driven by backlog execution and price realization in the U.S., partially offset by unfavorable sales volume in western Europe and project timing in the emerging markets.
Applied Water
Applied Water revenue increased $13 million, or 3.0% for the first quarter of 2026 as compared to the prior year. Revenue growth for the quarter included $14 million of favorable foreign currency translation partially offset by organic revenue declines of $1 million, or 0.2%. Revenue in the industrial application declined by $8 million organically, primarily due to order softness in western Europe and the emerging markets, partially offset by favorable price realization in the U.S. These declines were partially offset by organic growth of $7 million from building solutions, primarily due to commercial backlog execution in the U.S., partially offset by residential softness in the emerging markets.
Measurement and Control Solutions
Measurement and Control Solutions revenue increased $18 million, or 3.7%, for the first quarter of 2026 as compared to the prior year. The revenue growth was driven $11 million of favorable foreign currency translation and organic growth of $7 million, or 1.4%. Organic revenue growth during the quarter was driven by $7 million from the smart metering and other applications, driven by strong backlog execution and price realization in energy in the U.S. partially offset by declines in the U.S. in water with lower shippable backlog coming into the year and unfavorable sales volume in energy in Canada. Organic revenue growth in the analytics application was essentially flat year over year.
Water Solutions and Services
Water Solutions and Services revenue increased $3 million, or 0.5%, for the first quarter of 2026 as compared to the prior year. The revenue growth was primarily driven by $11 million of favorable impacts from foreign currency translation and $2 million of acquisition activity, partially offset by organic revenue declines of $10 million, or 1.8%. Revenue in the capital and other applications declined by $14 million organically, primarily due to reduced capital project revenue and sales volume in the U.S., partially offset by sales volume in the emerging markets. Organic revenue from the service application increased by $4 million due to rental price realization and sales volume in dewatering in the U.S.
Orders / Backlog
Orders
An order represents a legally enforceable, written document that includes the scope of work or services to be performed or equipment to be supplied to a customer, the corresponding price and the expected delivery date for the applicable products or services to be provided. An order often takes the form of a customer purchase order or a signed quote from a Xylem business.
The following tables illustrate the impact from organic decline/growth, recent acquisitions and divestitures, and foreign currency translation in relation to orders during the three months ended March 31, 2026:
Water Infrastructure Applied Water Measurement and Control Solutions Water Solutions and Services Total Xylem
(in millions) $ Change % Change $ Change % Change $ Change % Change $ Change % Change $ Change % Change
2025 Orders $ 626 $ 486 $ 402 $ 644 $ 2,158
Organic Impact 14 2.3 % 11 2.3 % 62 15.4 % (94) (14.6) % (7) (0.3) %
Acquisitions 8 1.3 % - - % - - % 4 0.6 % 12 0.6 %
Divestitures (5) (0.8) % - - % - - % - - % (5) (0.2) %
Foreign currency translation (a) 32 5.0 % 15 3.0 % 11 2.8 % 12 1.9 % 70 3.1 %
Total change in orders 49 7.8 % 26 5.3 % 73 18.2 % (78) (12.1) % 70 3.2 %
2026 Orders $ 675 $ 512 $ 475 $ 566 $ 2,228
(a)Foreign currency translation impact for the year due to the strengthening in value of various currencies against the U.S. Dollar, the largest being the Euro, British Pound, Australian Dollar and the Canadian Dollar.
Backlog
Backlog includes orders on hand as well as contractual customer agreements at the end of the period. Delivery schedules vary from customer to customer based on their requirements. Annual or multi-year contracts are subject to rescheduling and cancellation by customers due to the long-term nature of the contracts. As such, beginning total backlog, plus orders, minus revenues, will not equal ending total backlog due to contract adjustments, foreign currency fluctuations, and other factors. Typically, capital projects require longer lead production cycles and deployment schedules and delays occur from time to time. Total backlog was $4,712 million at March 31, 2026, a decrease of $383 million, or 7.5%, as compared to March 31, 2025 backlog of $5,095 million. The decrease in backlog was driven by increased revenue outpacing order intake and contract wins in the current period, partially offset by favorable impacts from foreign currency translation. The backlog decrease was led by the Measurement and Control Solutions and Water Solutions and Services segments due to strong backlog execution and improved lead times. These backlog declines were partially offset by backlog growth in the Water Infrastructure and Applied Water segments primarily due to orders and contract wins outpacing revenue, and favorable foreign currency impacts. Backlog increased $97 million, or 2.1%, at March 31, 2026, as compared to December 31, 2025 backlog of $4,615 million. We anticipate that approximately 60% of the backlog as of March 31, 2026 will be recognized as revenue in the remainder of 2026. There were no significant order cancellations during the quarter.
Gross Margin
Gross margin as a percentage of revenue increased 70 basis points to 37.8% for the three months ended March 31, 2026, as compared to 37.1% for the three months ended March 31, 2025. The gross margin increase was partially offset by net unfavorable impacts of 10 basis points from increases in restructuring and realignment costs, flat special charges, and decreased acquired intangible amortization and special charges as compared to the prior year. Gross margin expansion was driven by 460 basis points of favorable operational impacts, led by 310 basis points of productivity savings and 110 basis points of price realization. These increases in gross margin were partially offset by 380 basis points of unfavorable operational impacts driven by 240 basis points of inflation and 120 basis points of unfavorable mix.
Operating Expenses
The following table presents operating expenses for the three months ended March 31, 2026 and 2025:
Three Months Ended
March 31,
(in millions) 2026 2025 Change
Selling, general and administrative expenses $ 472 $ 460 2.6 %
SG&A as a % of revenue 22.2 % 22.2 % - bp
Research and development expenses 56 56 - %
R&D as a % of revenue 2.6 % 2.7 % (10) bp
Restructuring and asset impairment charges 31 21 47.6 %
Operating expenses $ 559 $ 537 4.1 %
Expense to revenue ratio 26.3 % 26.0 % 30 bp
Selling, General and Administrative ("SG&A") Expenses
SG&A expenses increased by $12 million to $472 million, or 22.2% of revenue, in the first quarter of 2026, as compared to $460 million, or 22.2% of revenue, in the comparable 2025 period. The increase in SG&A in the first quarter of 2026 as compared to the prior year was driven by unfavorable currency impacts, inflation, and increased spending on strategic investments, partially offset by productivity savings, and lower realignment and special charges.
Research and Development ("R&D") Expenses
R&D expense was $56 million, or 2.6% of revenue, in the first quarter of 2026, as compared to $56 million, or 2.7% of revenue, in the first quarter of 2025. R&D expense was fairly consistent year over year and in line with planned spending in this area.
Restructuring and Asset Impairment Charges
Restructuring
From time to time, the Company incurs costs related to restructuring actions undertaken to optimize its cost base and improve its strategic positioning. During the three months ended March 31, 2026 and 2025, we incurred restructuring charges of $31 million and $17 million, respectively.
There were no actions commenced in the three months ended March 31, 2026. Actions commenced in 2025 were primarily related to simplification actions, informed by 80/20 principles, to streamline the organization and better serve our customers. We currently expect to incur between $40 and $55 million in restructuring costs for the full year.
Refer to Note 5, "Restructuring and Asset Impairment Charges" for more information.
Asset Impairment
Refer to Note 9, "Goodwill and Other Intangible Assets" for more information on intangible asset impairment charges incurred during the three months ended March 31, 2026 and March 31, 2025.
Operating Income, Net Income, and Adjusted EBITDA
Operating income was $244 million (operating margin of 11.5%) during the first quarter of 2026, an increase of $13 million, or 5.6%, when compared to operating income of $231 million (operating margin of 11.2%) during the prior year. Operating margin increased 30 basis points. Operating margin expansion was partially offset by 10 basis points of net unfavorable impacts from increased restructuring and realignment costs, flat acquired intangible amortization and decreased special charges relative to the prior year period. Additionally, operating margin expansion included 610 basis points of favorable operational impacts driven by 430 basis points of productivity savings and 150 basis points of price realization. These favorable impacts were partially offset by 570 basis points of unfavorable operational impacts, consisting of 300 basis points of inflation, 120 basis points of unfavorable mix, 100 basis points of decreased volume, and 50 basis points of increased spending on strategic investments. Excluding restructuring and realignment costs, acquired intangible asset amortization, and special charges, adjusted operating income was $342 million (adjusted operating margin of 16.1%) for the first quarter of 2026 as compared to adjusted operating income of $325 million (adjusted operating margin of 15.7%) during the comparable quarter in the prior year.
Net income attributable to Xylem for the first quarter was $193 million (net income margin of 9.1%), an increase of $24 million as compared to net income attributable to Xylem in the prior year of $169 million (net income margin of 8.2%). The increase in net income attributable to Xylem was driven by increased operating income of $13 million, $14 million of decreased loss on sale of businesses, decreased interest expense of $4 million, and an increase in the net loss attributable to non-controlling interest of $2 million, partially offset by increased income tax expense of $5 million and decreased non-operating income of $4 million.
Adjusted EBITDA was $437 million (adjusted EBITDA margin of 20.6%) during the first quarter of 2026, an increase of $14 million, or 3.0%, when compared to adjusted EBITDA of $423 million (adjusted EBITDA margin of 20.4%) during the comparable quarter in the prior year, an increase to adjusted EBITDA margin of 20 basis points. The increase in adjusted EBITDA margin was primarily driven by the same factors impacting the adjusted operating margin increase.
The table below provides a reconciliation of the total and each segment's operating income to adjusted operating income, and a calculation of the corresponding adjusted operating margin:
Three Months Ended
March 31,
(in millions) 2026 2025 Change
Water Infrastructure
Operating income $ 76 $ 80 (5.0) %
Operating margin 12.6 % 13.8 % (120) bp
Restructuring and realignment costs 30 15 100.0 %
Purchase accounting intangible amortization 11 10 10.0 %
Special charges - 2 (100.0)
%
Adjusted operating income $ 117 $ 107 9.3 %
Adjusted operating margin 19.4 % 18.4 % 100 bp
Applied Water
Operating income $ 77 $ 72 6.9 %
Operating margin 17.2 % 16.6 % 60 bp
Restructuring and realignment costs 2 5 (60.0) %
Adjusted operating income $ 79 $ 77 2.6 %
Adjusted operating margin 17.6 % 17.7 % (10) bp
Measurement and Control Solutions
Operating income $ 57 $ 56 1.8 %
Operating margin 11.2 % 11.4 % (20) bp
Restructuring and realignment costs 4 3 33.3 %
Purchase accounting intangible amortization 19 19 - %
Special charges 3 4 (25.0) %
Adjusted operating income $ 83 $ 82 1.2 %
Adjusted operating margin 16.3 % 16.7 % (40) bp
Water Solutions and Services
Operating income $ 56 $ 44 27.3 %
Operating margin 9.9 % 7.8 % 210 bp
Restructuring and realignment costs 2 4 (50.0) %
Purchase accounting intangible amortization 25 26 (3.8) %
Special charges - 4 (100.0) %
Adjusted operating income $ 83 $ 78 6.4 %
Adjusted operating margin 14.7 % 13.9 % 80 bp
Corporate and other
Operating loss $ (22) $ (21) 4.8 %
Special charges 2 2 - %
Adjusted operating loss $ (20) $ (19) 5.3 %
Total Xylem
Operating income $ 244 $ 231 5.6 %
Operating margin 11.5 % 11.2 % 30 bp
Restructuring and realignment costs 38 27 40.7 %
Purchase accounting intangible amortization 55 55 - %
Special charges 5 12 (58.3) %
Adjusted operating income $ 342 $ 325 5.2 %
Adjusted operating margin 16.1 % 15.7 % 40 bp
NM - Not meaningful percentage change
The table below provides a reconciliation of net income to consolidated EBITDA and adjusted EBITDA:
Three Months Ended
(in millions) March 31
2026 2025 Change
Net Income attributable to Xylem $ 193 $ 169 14 %
Net Income margin 9.1 % 8.2 % 90 bp
Depreciation 65 68 (4) %
Amortization 75 77 (3) %
Interest (income) expense, net (4) - NM
Income tax expense 55 50 10 %
EBITDA $ 384 $ 364 5 %
Share-based compensation 13 12 8 %
Restructuring & realignment 38 27 41 %
Special charges 10 12 (17) %
(Gain) loss on sale of businesses (4) 10 (140) %
Loss attributable to non-controlling interests (4) (2) 100 %
Adjusted EBITDA $ 437 $ 423 3 %
Adjusted EBITDA margin 20.6 % 20.4 % 20 bp
The tables below provide a reconciliation of each segment's operating income (loss) to EBITDA and adjusted EBITDA:
Three Months Ended
March 31, 2026
(in millions) Water Infrastructure
Applied Water
Measurement and Control Solutions Water Solutions and Services
Operating Income $ 76 $ 77 $ 57 $ 56
Operating margin 12.6 % 17.2 % 11.2 % 9.9 %
Loss attributable to non-controlling interests - - 4 -
Gain on sale of businesses - - 4 -
Depreciation 12 7 7 39
Amortization 14 1 33 26
Other non-operating expense, excluding interest (2) (1) - (5)
EBITDA $ 100 $ 84 $ 105 $ 116
Share-based compensation 2 2 2 2
Restructuring & realignment 30 2 4 2
Special charges - - 3 5
Gain on sale of businesses - - (4) -
Loss attributable to non-controlling interests - - (4) -
Adjusted EBITDA $ 132 $ 88 $ 106 $ 125
Adjusted EBITDA margin 21.9 % 19.6 % 20.9 % 22.1 %
Three Months Ended
March 31, 2025
(in millions) Water Infrastructure
Applied Water
Measurement and Control Solutions Water Solutions and Services
Operating Income $ 80 $ 72 $ 56 $ 44
Operating margin 13.8 % 16.6 % 11.4 % 7.8 %
Loss from sale of businesses (10) - - -
Depreciation 10 7 7 41
Amortization 13 1 32 27
Other non-operating expense, excluding interest (2) (1) - -
EBITDA $ 91 $ 79 $ 95 $ 112
Share-based compensation 2 1 1 2
Restructuring & realignment 15 5 3 4
Special Charges 2 - 4 4
Loss from sale of businesses 10 - - -
Adjusted EBITDA $ 120 $ 85 $ 103 $ 122
Adjusted EBITDA margin 20.7 % 19.5 % 21.0 % 21.7 %
Three Months Ended
2026 versus 2025
(in millions) Water Infrastructure
Applied Water
Measurement and Control Solutions Water Solutions and Services
Operating Income (Loss) $ (4) $ 5 $ 1 $ 12
Operating margin (120) bps 60 bps (20) bps 210 bps
Loss attributable to non-controlling interests - - 4 -
Gain (loss) on sale of businesses 10 - 4 -
Depreciation 2 - - (2)
Amortization 1 - 1 (1)
Other non-operating expense, excluding interest - - - (5)
EBITDA $ 9 $ 5 $ 10 $ 4
Share-based compensation - 1 1 -
Restructuring & realignment 15 (3) 1 (2)
Special charges (2) - (1) 1
(Gain) loss from sale of businesses (10) - (4) -
Loss attributable to non-controlling interests - - (4) -
Adjusted EBITDA $ 12 $ 3 $ 3 $ 3
Adjusted EBITDA margin 120 bps 10 bps (10) bps 40 bps
Water Infrastructure
Operating income for our Water Infrastructure segment was $76 million (operating margin of 12.6%) during the first quarter of 2026, a decrease of $4 million, or 5.0%, when compared to operating income of $80 million (operating margin of 13.8%) during the prior year, or a total decrease in operating margin of 120 basis points. Operating margin declines included net unfavorable impacts of 220 basis points from increased restructuring and realignment costs and acquired intangible asset amortization and a slight decrease in special charges as compared to the prior year. Additionally, operating margin declines included 480 basis points of unfavorable operating impacts driven by 250 basis points of inflation, 120 basis points of unfavorable mix, and 50 basis points of foreign currency impacts. Margin declines were partially offset by 580 basis points of favorable operational impacts, driven by 520 basis points of productivity savings. Excluding restructuring and realignment costs, amortization of acquired intangibles, and special charges, adjusted operating income was $117 million (adjusted operating margin of 19.4%) for the first quarter of 2026 as compared to adjusted operating income of $107 million (adjusted operating margin of 18.4%) for the first quarter of 2025, an increase of 100 basis points.
Adjusted EBITDA was $132 million (adjusted EBITDA margin of 21.9%) for the first quarter of 2026, an increase of $12 million, or 10.0%, when compared to adjusted EBITDA of $120 million (adjusted EBITDA margin of 20.7%) during the prior year. The increase in adjusted EBITDA margin of 120 basis points was primarily driven by the same factors impacting the increase in adjusted operating margin.
Applied Water
Operating income for our Applied Water segment was $77 million (operating margin of 17.2%) during the first quarter of 2026, an increase of $5 million, or 6.9%, when compared to operating income of $72 million (operating margin of 16.6%) during the prior year, or a total increase in operating margin of 60 basis points. Operating margin expansion included 70 basis points from decreased restructuring and realignment costs as compared to the prior year. Additionally, operating margin expansion included 920 basis points of favorable operational impacts consisting of 750 basis points of productivity savings and 170 basis points of price realization. Operating margin expansion was offset by 930 basis points of unfavorable operational impacts driven primarily by 350 basis points of inflation, 260 basis points of decreased volume, 210 basis points of unfavorable mix, and 100 basis points of increased spending on strategic investments. Excluding restructuring and realignment costs, adjusted operating income was $79 million (adjusted operating margin of 17.6%) for the first quarter of 2026 as compared to adjusted operating income of $77 million (adjusted operating margin of 17.7%) for the first quarter of 2025, a decrease of 10 basis points.
Adjusted EBITDA was $88 million (adjusted EBITDA margin of 19.6%) for the first quarter of 2026, an increase of $3 million, or 4.0%, when compared to adjusted EBITDA of $85 million (adjusted EBITDA margin of 19.5%) during the prior year, an increase of 10 basis points. The increase in adjusted EBITDA margin was primarily due to the same factors impacting the decrease in adjusted operating margin; however, adjusted EBITDA was not negatively affected by the relative impact of increased share-based compensation.
Measurement and Control Solutions
Operating income for our Measurement and Control Solutions segment was $57 million (operating margin of 11.2%) during the first quarter of 2026, an increase of $1 million, or 1.8%, when compared to operating income of $56 million (operating margin of 11.4%) during the prior year, or a total decrease in operating margin of 20 basis points. The operating margin declines were partially offset by net favorable impacts of 20 basis points from flat acquired intangible asset amortization, lower special charges and increased restructuring and realignment costs on increased revenue compared to the prior year. Additionally, operating margin declines included 570 basis points of unfavorable operational impacts, primarily consisting of 230 basis points of unfavorable mix, 210 basis points of inflation, 60 basis points of increased spending on strategic investments, and 60 basis points of decreased volume. The decline in margin was partially offset by positive operational impacts of 530 basis points driven by 320 basis points of productivity savings and 200 basis points of price realization. Excluding restructuring and realignment costs, acquired intangible asset amortization and special charges, adjusted operating income was $83 million (adjusted operating margin of 16.3%) for the first quarter of 2026 as compared to adjusted operating income of $82 million (adjusted operating margin of 16.7%) for the first quarter of 2025, a decrease of 40 basis points.
Adjusted EBITDA was $106 million (adjusted EBITDA margin of 20.9%) for the first quarter of 2026, an increase of $3 million, or 3%, when compared to adjusted EBITDA of $103 million (adjusted EBITDA margin of 21.0%) during the prior year, a decrease of 10 basis points. The decrease in adjusted EBITDA margin was primarily due to the same factors as those impacting the decrease in adjusted operating margin.
Water Solutions and Services
Operating income for our Water Solutions and Services segment was $56 million (operating margin of 9.9%) during the first quarter of 2026, an increase of $12 million, or 27.3%, when compared to operating income of $44 million (operating margin of 7.8%) during the prior year, or a total increase in operating margin of 210 basis points. The operating margin expansion included favorable impacts of 130 basis points from decreased special charges, restructuring and realignment costs, and acquired intangible asset amortization relative to the prior year period. Additionally, operating margin expansion included 530 basis points of favorable operational impacts including 210 basis points of price realization, 170 basis points of productivity savings, 60 basis points of favorable foreign currency impacts and 50 basis points of favorable mix. Margin expansion was partially offset by unfavorable operational impacts of 450 basis points driven by 310 basis points of inflation and 100 basis points of unfavorable volume. Excluding special charges, acquired intangible asset amortization, and restructuring and realignment costs, adjusted operating income was $83 million (adjusted operating margin of 14.7%) for the first quarter of 2026 as compared to adjusted operating income of $78 million (adjusted operating margin of 13.9%) for the first quarter of 2025, an increase of 80 basis points.
Adjusted EBITDA was $125 million (adjusted EBITDA margin of 22.1%) for the first quarter of 2026, an increase of $3 million, or 2%, when compared to adjusted EBITDA of $122 million (adjusted EBITDA margin of 21.7%) during the prior year, an increase of 40 basis points. The increase in adjusted EBITDA margin was primarily due to the same factors as those impacting the increase in adjusted operating margin; however, adjusted EBITDA margin did not benefit from the relative impact of decreased depreciation and amortization expense.
Corporate and Other
Operating loss for corporate and other increased $1 million, or 4.8%, during the first quarter of 2026 compared to the prior year period. Operating loss increased primarily due to increased spending on and timing of strategic investments and inflation. Excluding special charges, adjusted operating loss for corporate and other increased $1 million, or 5.3%, for the three months ended March 31, 2026, driven by the same factors as those driving the increase in operating loss.
Interest Expense
Interest expense was $4 million for the three months ended March 31, 2026, compared to $8 million for the comparable prior year period. The decrease in interest expense was primarily driven by increased interest income generated on cross currency swaps reducing interest expense.
See Note 10, "Derivative Financial Instruments" and Note 12, "Credit Facilities and Debt," of our condensed consolidated financial statements for a description of our net investment hedges and credit facilities and long-term debt, respectively.
Income Tax Expense
The income tax provision for the three months ended March 31, 2026 was $55 million resulting in an effective tax rate of 22.3%, compared to $50 million of expense resulting in an effective tax rate of 23.1% for the same period in 2025. The effective tax rate for the three month period ended March 31, 2026 was lower than the effective tax rate for the same period in 2025, primarily due to earnings mix.
Liquidity and Capital Resources
The following table summarizes our sources and (uses) of cash:
Three Months Ended
March 31,
(in millions) 2026 2025 Change
Operating activities $ 108 $ 33 $ 75
Investing activities (76) (15) (61)
Financing activities (683) (116) (567)
Foreign exchange (a) (15) 25 (40)
Increase in cash classified within assets held for sale (5) - (5)
Decrease in cash classified within assets held for sale - 11 (11)
Total $ (671) $ (62) $ (609)
(a)The impact is primarily due to weakening of the Euro, Chilean Peso and the Canadian Dollar against the U.S. Dollar.
Sources and Uses of Liquidity
Operating Activities
Cash generated by operating activities was $108 million for the three months ended March 31, 2026 as compared to cash generated by operating activities of $33 million in the comparable prior year period. The increase in cash provided was primarily driven by timing of payments for accrued expenses and lower annual incentives, offset by increased investment in working capital and higher payments for restructuring.
Investing Activities
Cash used in investing activities was $76 million for the three months ended March 31, 2026 as compared to $15 million used in the comparable prior year period. The increase in cash used primarily reflects lower proceeds from sale of businesses, and increased investments in capital expenditures.
Financing Activities
Cash used in financing activities was $683 million for the three months ended March 31, 2026 as compared to cash used of $116 million in the comparable prior year period. The increase in cash used reflects the repurchase of common stock during the quarter, and higher dividend payments.
Funding and Liquidity Strategy
Our ability to fund our capital needs depends on our ongoing ability to generate cash from operations and access to bank financing and the capital markets. We continually evaluate aspects of our spending, including capital expenditures, strategic investments and dividends.
If our cash flows from operations are less than we expect, we may need to incur debt or issue equity. From time to time, we may need to access the long-term and short-term capital markets to obtain financing. Our access to, and the availability of, financing on acceptable terms and conditions in the future will be impacted by many factors, including: (i) our credit ratings or absence of a credit rating, (ii) the liquidity of the overall capital markets, and (iii) the current state of the economy. There can be no assurance that such financing will be available to us on acceptable terms or that such financing will be available at all. Our securities are rated investment grade. A significant change in credit rating could impact our ability to borrow at favorable rates. Refer to Note 12, "Credit Facilities and Debt", of our condensed consolidated financial statements for a description of limitations on obtaining additional funding.
We monitor our global funding requirements and seek to meet our liquidity needs on a cost-effective basis. In addition, our existing committed credit facilities and access to the public debt markets would provide further liquidity if required.
Based on our current global cash positions, cash flows from operations and access to the capital markets, we believe there is sufficient liquidity to meet our funding requirements and service debt and other obligations in both the U.S. and outside of the U.S. during the year. Currently, we have available liquidity of approximately $1.8 billion, consisting of $808 million of cash and $1 billion of available credit facilities as disclosed in Note 12, "Credit Facilities and Debt", of our condensed consolidated financial statements.
Credit Facilities & Long-Term Contractual Commitments
See Note 12, "Credit Facilities and Debt," of our condensed consolidated financial statements for a description of our credit facilities and long-term debt.
Non-U.S. Operations
As we continue to grow our operations outside of the U.S., we expect to continue to generate significant revenue from non-U.S. operations and expect that a substantial portion of our cash will be held by our foreign subsidiaries. We expect to manage our worldwide cash requirements considering available funds among the many subsidiaries through which we conduct business and the cost effectiveness with which those funds can be accessed. We may transfer cash from certain international subsidiaries to the U.S. and other international subsidiaries when we believe it is cost-effective to do so. We continually review our domestic and foreign cash profile, expected future cash generation and investment opportunities, and reassess whether there is a need to repatriate funds held internationally to support our U.S. operations.
Tariff Developments
On February 20, 2026, the United States Supreme Court issued a decision invalidating the broad-based tariffs imposed under the International Emergency Economic Powers Act, which the Company had previously been subject to on certain import transactions. As of March 31, 2026, we have not recorded a receivable related to potential tariff refunds due to the uncertainty regarding the timing and amount of such refunds at this time. We will continue to assess these developments as additional information becomes available.
Critical Accounting Estimates
Our discussion and analysis of our results of operations and capital resources are based on our condensed consolidated financial statements, which have been prepared in conformity with GAAP. The preparation of these condensed consolidated financial statements requires management to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenue and expenses and the disclosure of contingent assets and liabilities. We believe the most complex and sensitive judgments, because of their significance to the condensed consolidated financial statements, result primarily from the need to make estimates about the effects of matters that are inherently uncertain. Management's Discussion and Analysis of Financial Condition and Results of Operations in the 2025 Annual Report describes the critical accounting estimates used in preparation of the condensed consolidated financial statements. Actual results in these areas could differ from management's estimates. There have been no significant changes in the information concerning our critical accounting estimates as stated in our 2025 Annual Report.
2026 Outlook
We are raising our total revenue growth outlook to 2% to 3%, and maintaining our organic revenue growth outlook at 2% to 4% in 2026. Our outlook is being provided in the context of the current volatility, including due to geopolitical, trade, macroeconomic and regulatory uncertainty. Our ability to meet our expectations is subject to a number of risks, including, but not limited to, those described in "Item 1A. Risk Factors" in our 2025 Annual Report.
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