8-K: Xylem Inc. Announces Segment Reorganization and Recast Financials Following Evoqua Acquisition

Xylem Inc. has reorganized its reporting segments, combining several business units into a new 'Water Solutions and Services' segment, and has provided recast historical financials to reflect this change.

Summary

• Xylem Inc. has restructured its reporting segments effective January 1, 2024, creating a new 'Water Solutions and Services' segment.
• This new segment combines the former Integrated Solutions and Services (ISS) segment from the Evoqua acquisition with the dewatering business from Water Infrastructure and the assessment services business from Measurement and Control Solutions.
• The Water Infrastructure and Measurement and Control Solutions segments will no longer include the dewatering and assessment services businesses, respectively.
• The Applied Water segment remains unchanged.
• The company believes this change will unify the customer experience and accelerate growth in its services offerings.
• Recast financial information has been provided for 2021, 2022, and 2023, including orders, revenue, operating income, adjusted operating income, EBITDA, and adjusted EBITDA, to reflect the new segment structure.
• These changes do not impact the company's historical consolidated financial position or results of operations.
• The recast financials include depreciation, amortization, and share-based compensation specifically identified to the segments, which were previously reported within Corporate and other and Regional selling locations as part of an overall allocation.
• The company considers certain non-GAAP measures useful for evaluating operating performance and assessing the ability to generate capital for strategic initiatives.

Sentiment

Score: 7

Explanation: The document is primarily informational, detailing a segment reorganization and providing recast financials. The tone is neutral, and the changes are presented as positive for the company's future growth. There are no explicit negative statements, but the complexity of the changes and the use of non-GAAP measures could be a minor concern.

Positives

• The organizational redesign is expected to deliver a unified customer experience.
• The new structure is intended to accelerate the growth of the company's services offerings.
• The recast financial information provides investors with a clear view of the historical performance of the new segments.
• The company's adjusted metrics are consistent with how management views the business and are used for decision-making.

Negatives

• The segment changes may make historical comparisons more complex for investors.
• The recast financials do not represent a restatement of previously issued financial statements, which could cause confusion.

Risks

• The reorganization could present integration challenges.
• The company's ability to achieve the expected growth in services offerings is not guaranteed.
• The non-GAAP measures should not be considered a substitute for GAAP measures.

Future Outlook

The company expects the organizational redesign to deliver a unified customer experience and accelerate the growth of its services offerings.

Management Comments

• The company believes this organizational redesign, which creates its services platform, will deliver a unified customer experience and accelerate the growth of its services offerings.
• The company considers certain non-GAAP measures 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.

Industry Context

The reorganization reflects a trend in the water technology industry towards integrated solutions and services, as companies seek to provide more comprehensive offerings to their customers. The acquisition of Evoqua and subsequent integration of its services business into Xylem's new segment is a clear example of this trend.

Comparison to Industry Standards

• Xylem's move to consolidate its services offerings into a dedicated segment is similar to strategies employed by other large industrial companies like Danaher and Honeywell, which have focused on building strong service platforms to drive recurring revenue.
• The recast financials provide a clearer picture of the performance of the new segment, which is important for investors to compare Xylem's performance against peers like Pentair and IDEX, which also have significant water-related businesses.
• The adjusted EBITDA margin of 18.9% for the total company in 2023 is a key metric that investors will use to assess Xylem's profitability compared to its competitors.

Stakeholder Impact

• Shareholders will benefit from increased transparency and a clearer understanding of the company's performance.
• Customers may experience a more unified and streamlined service offering.
• Employees may see changes in their roles and responsibilities due to the reorganization.

Next Steps

• The company will report its financial results under the new segment structure starting with the financial statement periods ending after January 1, 2024.
• Investors should review the recast financial information to understand the historical performance of the new segments.

Key Dates

Keywords

segment reorganization, recast financials, Evoqua acquisition, Water Solutions and Services, adjusted EBITDA, non-GAAP measures, financial reporting, Xylem Inc., orders, revenue