XYL

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”). 40 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 second quarter of 2026 of $2,336 million, an increase of 1.5% compared to $2,301 million reported in the second quarter of 2025. The revenue increase consisted primarily of organic growth of $30 million, or 1.3%, and favorable foreign currency impacts of $29 million. Revenue growth was partially offset by the net impact of $31 million of revenue loss from divestitures and $7 million of additional revenue from acquisitions. Additional financial highlights for the quarter ended June 30, 2026 include the following: •Orders of $3,086 million, up 42.0% from $2,174 million in the prior year period, and up 40.9% on an organic basis. •Earnings per share of $1.11, up 19.4% compared to prior year ($1.46, up 15.9% versus prior year, on an adjusted basis). •Net income attributable to Xylem as a percent of revenue of 11.3%, up 150 basis points compared to 9.8% in the prior year. Adjusted EBITDA margin of 23.3%, up 150 basis points when compared to 21.8% in the prior year. 41 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 Six Months Ended June 30, June 30, (in millions, except for per share data) 2026 2025 2026 2025 Net income attributable to Xylem & Earnings per share $ 263 $ 1.11 $ 226 $ 0.93 $ 456 $ 1.90 $ 395 $ 1.62 Restructuring and realignment 15 0.06 29 0.12 53 0.22 56 0.23 Acquired intangible amortization 52 0.22 54 0.22 107 0.44 110 0.45 Special charges (3) (0.01) 13 0.05 7 0.03 25 0.10 Tax-related special items 15 0.06 5 0.02 16 0.07 5 0.02 Loss from sale of businesses 16 0.07 — — 12 0.05 10 0.04 Tax effects of adjustments (a) (13) (0.05) (20) (0.08) (34) (0.14) (42) (0.17) Adjusted net income & Adjusted earnings per share $ 345 $ 1.46 $ 307 $ 1.26 $ 617 $ 2.57 $ 559 $ 2.29 Weighted average number of shares - diluted 236.6 243.9 240.0 243.8 (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. 42 •“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 special charges. In 2026, these charges include reductions of expense related to the refunds of certain tariffs previously imposed under the International Emergency Economic Powers Act (“IEEPA”). •"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, less capital expenditures, as reported in the Statement of Cash Flows. 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. Six Months Ended June 30, (in millions) 2026 2025 Net cash provided by operating activities $ 398 $ 338 Capital expenditures (179) (169) Free cash flow $ 219 $ 169 Net cash used in investing activities $ (98) $ (140) Net cash used by financing activities $ (484) $ (244) 43 Results of Operations Three Months Ended Six Months Ended June 30, June 30, (in millions) 2026 2025 Change 2026 2025 Change Revenue $ 2,336 $ 2,301 1.5 % $ 4,461 $ 4,370 2.1 % Gross profit 963 892 8.0 % 1,766 1,660 6.4 % Gross margin 41.2 % 38.8 % 240 bp 39.6 % 38.0 % 160 bp Total operating expenses 573 587 (2.4) % 1,132 1,124 0.7 % Expense to revenue ratio 24.5 % 25.5 % (100) bp 25.4 % 25.7 % (30) bp Operating income 390 305 27.9 % 634 536 18.3 % Operating margin 16.7 % 13.3 % 340 bp 14.2 % 12.3 % 190 bp Interest and other non-operating expense, net (10) (6) 66.7 % (14) (10) 40.0 % Loss on sale of businesses (16) — — % (12) (10) 20.0 % Income tax expense (103) (75) 37.3 % (158) (125) 26.4 % Tax rate 28.3 % 25.0 % 330 bp 26.0 % 24.2 % 180 bp Net income $ 261 $ 224 16.5 % $ 450 $ 391 15.1 % Net loss attributable to non-controlling interests 2 2 — % 6 4 50.0 % Net income attributable to Xylem $ 263 $ 226 16.4 % $ 456 $ 395 15.4 % NM - Not meaningful change Revenue Revenue generated during the three and six months ended June 30, 2026 was $2,336 million and $4,461 million, respectively, reflecting an increase of $35 million, or 1.5%, and an increase of $91 million, or 2.1% compared to the prior year. Organic revenue increased $30 million, or 1.3%, and $21 million, or 0.5% for the three and six months ended June 30, 2026, respectively. Foreign currency translation had a favorable impact on revenue of $29 million for the three months ended June 30, 2026, and a favorable impact on revenue of $94 million for the six months ended June 30, 2026. The loss of revenue from divestitures of $31 million was partially offset by a corresponding increase in revenue from acquisitions of $7 million for the three months ended June 30, 2026. For the six months ended June 30, 2026 the loss of revenue from divestitures of $36 million was partially offset by a corresponding increase in revenue from acquisitions of $12 million. The increase in organic revenue for the three months ended June 30, 2026 is primarily due to increased sales volume in the U.S. in our Water Infrastructure segment and strong data center project growth in our Applied Water segment. The increase in organic revenue for the six months ended June 30, 2026 is primarily due to increased sales volume in the U.S. in our Water Infrastructure segment and strong price realization and backlog execution in the U.S. in our Applied Water segment. 44 The following tables illustrate the impact from organic growth, recent acquisitions and divestitures, and foreign currency translation in relation to revenue during the three and six months ended June 30, 2026: Water Infrastructure Applied Water Measurement and Control Solutions Water Solutions and Services Total Xylem (in millions) $ Change % Change (b) $ Change % Change (b) $ Change % Change (b) $ Change % Change (b) $ Change % Change (b) 2025 Revenue $ 650 $ 483 $ 540 $ 628 $ 2,301 Organic Growth 17 2.6 % 13 2.7 % (7) (1.4) % 7 1.1 % 30 1.3 % Acquisitions 4 0.6 % — — % — — % 3 0.5 % 7 0.3 % Divestitures (2) (0.3) % — — % (29) (5.4) % — — % (31) (1.3) % Foreign currency translation (a) 14 2.2 % 5 1.0 % 4 0.8 % 6 0.9 % 29 1.3 % Total change in revenue 33 5.1 % 18 3.7 % (32) (5.9) % 16 2.5 % 35 1.5 % 2026 Revenue $ 683 $ 501 $ 508 $ 644 $ 2,336 (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, Australian Dollar, Hungarian Forint, Chinese Yuan and the Norwegian Krone. (b)Percentages may not foot due to differences in computational basis. Water Infrastructure Applied Water Measurement and Control Solutions Water Solutions and Services Total Xylem (in millions) $ Change % Change (b) $ Change % Change (b) $ Change % Change (b) $ Change % Change (b) $ Change % Change (b) 2025 Revenue $ 1,231 $ 918 $ 1,030 $ 1,191 $ 4,370 Organic Growth 12 1.0 % 12 1.3 % — — % (3) (0.3) % 21 0.5 % Acquisitions 7 0.6 % — — % — — % 5 0.4 % 12 0.3 % Divestitures (7) (0.6) % — — % (29) (2.8) % — — % (36) (0.8) % Foreign currency translation (a) 43 3.5 % 19 2.1 % 15 1.4 % 17 1.4 % 94 2.2 % Total change in revenue 55 4.5 % 31 3.4 % (14) (1.4) % 19 1.6 % 91 2.1 % 2026 Revenue $ 1,286 $ 949 $ 1,016 $ 1,210 $ 4,461 (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, Australian Dollar, British Pound, Hungarian Forint, Chinese Yuan and the Swedish Krona. (b)Percentages may not foot due to differences in computational basis. Water Infrastructure Water Infrastructure revenue increased $33 million, or 5.1%, for the second quarter of 2026 as compared to the prior year. Revenue growth for the quarter included organic growth of $17 million, or 2.6%, and $14 million of favorable impacts from foreign currency translation. Revenue growth also included the net impact of additional revenue of $4 million from acquisitions and a loss of $2 million of revenue from divestitures. Revenue in the transport application grew $28 million organically due to increased sales volume in the U.S. and increased capital project revenue in western Europe, partially offset by reduced backlog execution in the emerging markets. Revenue growth was partially offset by organic revenue declines in the treatment application of $11 million due to decreased sales volume in Western Europe, targeted exits on non-strategic capital revenue and market softness in Emerging Markets, partially offset by favorable timing of capital projects in the U.S. 45 Water Infrastructure revenue increased $55 million, or 4.5%, for the six months ended June 30, 2026 as compared to the prior year. Revenue growth for the period included $43 million of favorable impacts from foreign currency translation and organic revenue growth of $12 million, or 1.0%. Revenue growth also included the net impact of $7 million of additional revenue from acquisitions offset by a loss of revenue of $7 million from divestitures. Revenue growth was driven by $31 million of organic growth in the transport application due to increased sales volume and strong backlog execution in the U.S. partially offset by market softness and reduced backlog execution in the emerging markets. Revenue in the treatment application declined by $19 million organically. Organic declines in the treatment application were driven by targeted exits on non-strategic capital revenue, market softness in emerging markets and reduced sales volume and capital project revenue in western Europe, partially offset by favorable timing of capital projects in the U.S. Applied Water Applied Water revenue increased $18 million, or 3.7% for the second quarter of 2026 as compared to the prior year. Revenue growth for the quarter included organic revenue growth of $13 million, or 2.7%, and $5 million of favorable foreign currency translation. Building solutions revenue grew $14 million organically, due primarily to backlog execution and price in the U.S. and increased sales volume in western Europe related to the commercial market, partially offset by declines in the residential market in western Europe and the emerging markets. Organic revenue growth was partially offset by organic declines of $1 million in the industrial application due to changing customer dynamics coupled with lower backlog execution in western Europe, partially offset by increased data center project revenue in the U.S. Applied Water revenue increased $31 million, or 3.4% for the six months ended June 30, 2026 as compared to the prior year. Revenue growth for the period included $19 million of favorable foreign currency translation and organic revenue growth of $12 million, or 1.3%. Building solutions revenue grew $21 million organically, due primarily to commercial backlog execution and price in the U.S. and increased sales volume in western Europe, partially offset by residential declines in the emerging markets and western Europe. Organic revenue growth was partially offset by organic declines of $9 million in the industrial application driven by the same factors impacting the second quarter revenue declines. Measurement and Control Solutions Measurement and Control Solutions revenue decreased $32 million, or 5.9%, for the second quarter of 2026 as compared to the prior year. The decrease in revenue was primarily due to a $29 million loss of revenue from divestitures and $7 million, or 1.4%, of decreased organic revenue, partially offset by $4 million of favorable foreign currency translation. Organic revenue declines were driven by $7 million from the smart metering and other applications, driven by the U.S., which had lower shippable backlog coming into the quarter in water partially offset by increased sales volume in energy. Organic revenue remained flat in the analytics application as compared to the prior year. Measurement and Control Solutions revenue decreased $14 million, or 1.4%, for the six months ended June 30, 2026 as compared to the prior year. The decrease in revenue was primarily due to a $29 million loss of revenue from divestitures, coupled with flat organic revenue, partially offset by $15 million of favorable foreign currency translation. Organic revenue growth was essentially flat for both the smart metering and other and analytics applications, driven by driven by increased energy sales volume in North America offset by lower shippable backlog coming into the year in water in North America. Water Solutions and Services Water Solutions and Services revenue increased $16 million, or 2.5%, for the second quarter of 2026 as compared to the prior year. The revenue growth was primarily driven by $7 million, or 1.1%, of organic growth, $6 million of favorable impacts from foreign currency translation and $3 million of acquisition activity. Revenue in the capital and other applications grew by $8 million organically, primarily due to increased capital project revenue recognized in North America as the result of a contract modification and increased dewatering sales in western Europe. Organic revenue growth was partially offset by $1 million of organic declines in the service application, driven by unfavorable service project timing in the U.S. almost entirely offset by service volume in the emerging markets. 46 Water Solutions and Services revenue increased $19 million, or 1.6%, for the six months ended June 30, 2026 as compared to the prior year. The revenue growth was primarily driven by $17 million of favorable impacts from foreign currency and $5 million of acquisition activity, offset by $3 million, or 0.3%, of organic declines. Revenue in the capital and other applications declined by $6 million organically, primarily due to reduced sales volume, partially offset by a favorable contract modification adjustment, in North America, with favorable sales volume in the emerging markets and western Europe also contributing to the offset. Organic revenue from the service application increased by $3 million due to service and rental volume in the emerging markets. 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 and six months ended June 30, 2026: Water Infrastructure Applied Water Measurement and Control Solutions Water Solutions and Services Total Xylem (in millions) $ Change % Change (b) $ Change % Change (b) $ Change % Change (b) $ Change % Change (b) $ Change % Change (b) 2025 Orders $ 672 $ 488 $ 437 $ 577 $ 2,174 Organic Impact (26) (3.9) % 45 9.2 % 10 2.4 % 850 147.3 % 879 40.9 % Acquisitions 13 1.9 % — — % — — % 2 0.3 % 15 0.7 % Divestitures (3) (0.4) % — — % (20) (4.6) % — — % (23) (1.1) % Foreign currency translation (a) 13 2.0 % 5 1.0 % 3 0.6 % 20 3.5 % 41 1.9 % Total change in orders (3) (0.4) % 50 10.2 % (7) (1.6) % 872 151.1 % 912 42.0 % 2026 Orders $ 669 $ 538 $ 430 $ 1,449 $ 3,086 (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, Australian Dollar, Hungarian Forint, Chinese Yuan and the Norwegian Krone. (b)Percentages may not foot due to differences in computational basis. Water Infrastructure Applied Water Measurement and Control Solutions Water Solutions and Services Total Xylem (in millions) $ Change % Change (b) $ Change % Change (b) $ Change % Change (b) $ Change % Change (b) $ Change % Change (b) 2025 Orders $ 1,298 $ 974 $ 839 $ 1,221 $ 4,332 Organic Impact (12) (0.9) % 56 5.7 % 72 8.8 % 756 61.9 % 872 20.3 % Acquisitions 21 1.6 % — — % — — % 6 0.5 % 27 0.6 % Divestitures (8) (0.6) % — — % (20) (2.4) % — — % (28) (0.6) % Foreign currency translation (a) 45 3.5 % 20 2.1 % 14 1.7 % 32 2.6 % 111 2.6 % Total change in orders 46 3.5 % 76 7.8 % 66 7.9 % 794 65.0 % 982 22.7 % 2026 Orders $ 1,344 $ 1,050 $ 905 $ 2,015 $ 5,314 (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, Australian Dollar, Hungarian Forint, Chinese Yuan and the Norwegian Krone. (b)Percentages may not foot due to differences in computational basis. 47 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 $5,315 million at June 30, 2026, an increase of $297 million, or 5.9%, as compared to June 30, 2025 backlog of $5,018 million. The backlog increase was due to strong order intake in the Water Solutions and Services and Applied Water segments, including the securing of a significant contract in Water Solutions and Services during the three months ended June 30, 2026. The backlog increase was partially offset by backlog declines in the Measurement and Control Solutions and Water Infrastructure segments primarily due to revenue outpacing orders and contract wins. Backlog increased $700 million, or 15.2%, at June 30, 2026, as compared to December 31, 2025 backlog of $4,615 million. The increase in backlog as compared to December 31, 2025 was driven primarily by strong order intake, including the securing of a significant contract in the Water Solutions and Services segment, partially offset by backlog declines in the Measurement and Control Solutions segment due to revenue outpacing orders and contract wins. We anticipate that approximately 40% of the backlog as of June 30, 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 240 basis points to 41.2% for the three months ended June 30, 2026, as compared to 38.8% for the three months ended June 30, 2025. The gross margin increase included net favorable impacts of 70 basis points from decreases in special charges and acquired intangible amortization partially offset by increased restructuring and realignment costs as compared to the prior year. Gross margin expansion included 550 basis points of favorable operational impacts, driven by 230 basis points of productivity savings, 180 basis points of price realization, and 80 basis points of favorable mix. These increases in gross margin were partially offset by 380 basis points of unfavorable operational impacts driven by 240 basis points of inflation and 80 basis points of decreased volume. Gross margin as a percentage of revenue increased 160 basis points to 39.6% for the six months ended June 30, 2026, as compared to 38.0% for the six months ended June 30, 2025. The gross margin increase included net favorable impacts of 40 basis points from decreases in special charges and acquired intangible amortization partially offset by increased restructuring and realignment costs as compared to the prior year. Gross margin expansion included 460 basis points of favorable operational impacts, led by 260 basis points of productivity savings and 150 basis points of price realization. These increases in gross margin were partially offset by 340 basis points of unfavorable operational impacts driven by 240 basis points of inflation and 40 basis points of decreased volume. Operating Expenses The following table presents operating expenses for the three and six months ended June 30, 2026 and 2025: Three Months Ended Six Months Ended June 30, June 30, (in millions) 2026 2025 Change 2026 2025 Change Selling, general and administrative expenses $ 503 $ 503 — % $ 975 $ 963 1.2 % SG&A as a % of revenue 21.5 % 21.9 % (40) bp 21.9 % 22.0 % (10) bp Research and development expenses 59 58 1.7 % 115 114 0.9 % R&D as a % of revenue 2.5 % 2.5 % — bp 2.6 % 2.6 % — bp Restructuring and asset impairment charges 11 26 (57.7) % 42 47 (10.6) % Operating expenses $ 573 $ 587 (2.4) % $ 1,132 $ 1,124 0.7 % Expense to revenue ratio 24.5 % 25.5 % (100) bp 25.4 % 25.7 % (30) bp 48 Selling, General and Administrative ("SG&A") Expenses SG&A expenses remained flat at $503 million, and decreased to 21.5% of revenue in the second quarter of 2026, as compared to 21.9% of revenue, in the comparable 2025 period. In the second quarter of 2026, SG&A benefited from productivity savings, decreased special charges and realignment cost, which was offset by inflation, unfavorable foreign currency effects and increased spending on strategic investments. SG&A expenses increased by $12 million to $975 million, or 21.9% of revenue, in the six months ended June 30, 2026, as compared to $963 million, or 22.0% of revenue, in the six months ended June 30, 2025. The increase in SG&A in the six months ended June 30, 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 special charges and realignment costs. Research and Development ("R&D") Expenses R&D expense was $59 million, or 2.5% of revenue, in the second quarter of 2026, as compared to $58 million, or 2.5% of revenue, in the second quarter of 2025, and was $115 million, or 2.6% of revenue, in the six months ended June 30, 2026, as compared to $114 million, or 2.6% of revenue, in the six months ended June 30, 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 and six months ended June 30, 2026, we incurred restructuring charges of $11 million and $42 million, respectively. During the three and six months ended June 30, 2025, we incurred restructuring charges of $22 million and $39 million, respectively. Actions commenced in 2025 and 2026 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 $50 and $65 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 and six months ended June 30, 2026 and June 30, 2025. Operating Income, Net Income, and Adjusted EBITDA Operating income was $390 million (operating margin of 16.7%) during the second quarter of 2026, an increase of $85 million, or 27.9%, when compared to operating income of $305 million (operating margin of 13.3%) during the prior year. Operating margin increased 340 basis points. Operating margin expansion included 180 basis points of favorable impacts from lower special charges, restructuring and realignment costs, and acquired intangible amortization relative to the prior year period. Additionally, operating margin expansion included 680 basis points of favorable operational impacts consisting mostly of 350 basis points of productivity savings, 240 basis points of price realization and 80 basis points of favorable mix. These favorable impacts were partially offset by 520 basis points of unfavorable operational impacts, driven by 270 basis points of inflation and 160 basis points of decreased volume. Excluding restructuring and realignment costs, acquired intangible asset amortization, and special charges, adjusted operating income was $447 million (adjusted operating margin of 19.1%) for the second quarter of 2026 as compared to adjusted operating income of $402 million (adjusted operating margin of 17.5%) during the comparable quarter in the prior year. Net income attributable to Xylem for the second quarter was $263 million (net income margin of 11.3%), an increase of $37 million as compared to net income attributable to Xylem in the prior year of $226 million (net income margin of 9.8%). The increase in net income attributable to Xylem was driven by increased operating income of $85 million and decreased interest expense of $2 million, partially offset by increased income tax expense of $28 million, loss on sale of businesses of $16 million and increased non-operating expense of $6 million. 49 Adjusted EBITDA was $544 million (adjusted EBITDA margin of 23.3%) during the second quarter of 2026, an increase of $42 million, or 8.4%, when compared to adjusted EBITDA of $502 million (adjusted EBITDA margin of 21.8%) during the comparable quarter in the prior year, an increase to adjusted EBITDA margin of 150 basis points. The increase in adjusted EBITDA margin was primarily driven by the same factors impacting the adjusted operating margin increase. Operating income was $634 million (operating margin of 14.2%) during the six months ended June 30, 2026, an increase of $98 million, or 18.3%, when compared to operating income of $536 million (operating margin of 12.3%) during the prior year. Operating margin increased 190 basis points. Operating margin expansion included 80 basis points of favorable impacts from lower special charges, acquired intangible amortization, and restructuring and realignment costs relative to the prior year period. Additionally, operating margin expansion included 600 basis points of favorable operational impacts driven by 390 basis points of productivity savings and 200 basis points of price realization. These favorable impacts were partially offset by 490 basis points of unfavorable operational impacts, driven by of 280 basis points of inflation and 130 basis points of decreased volume. Excluding restructuring and realignment costs, acquired intangible asset amortization, and special charges, adjusted operating income was $789 million (adjusted operating margin of 17.7%) for the six months ended June 30, 2026 as compared to adjusted operating income of $727 million (adjusted operating margin of 16.6%) during the comparable quarter in the prior year, an increase of 110 basis points. Net income attributable to Xylem for the six months ended June 30, 2026 was $456 million (net income margin of 10.2%), an increase of $61 million as compared to net income attributable to Xylem in the prior year of $395 million (net income margin of 9.0%). The increase in net income attributable to Xylem was driven by increased operating income of $98 million, decreased interest expense of $6 million and an increase in the net loss attributable to non-controlling interest of $2 million, partially offset by increased income tax expense of $33 million, increased non-operating loss of $10 million and increased loss from sale of businesses of $2 million. Adjusted EBITDA was $981 million (adjusted EBITDA margin of 22.0%) during the six months ended June 30, 2026, an increase of $56 million, or 6.1%, when compared to adjusted EBITDA of $925 million (adjusted EBITDA margin of 21.2%) during the comparable quarter in the prior year, an increase to adjusted EBITDA margin of 80 basis points. The increase in adjusted EBITDA margin was primarily driven by the same factors impacting the adjusted operating margin increase. 50 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 Six Months Ended June 30, June 30, (in millions) 2026 2025 Change 2026 2025 Change Water Infrastructure Operating income $ 157 $ 103 52.4 % $ 233 $ 183 27.3 % Operating margin 23.0 % 15.8 % 720 bp 18.1 % 14.9 % 320 bp Restructuring and realignment costs 5 12 (58.3) % 35 27 29.6 % Purchase accounting intangible amortization 9 10 (10.0) % 20 20 — % Special charges (3) 2 (250.0) % (3) 4 (175.0) % Adjusted operating income $ 168 $ 127 32.3 % $ 285 $ 234 21.8 % Adjusted operating margin 24.6 % 19.5 % 510 bp 22.2 % 19.0 % 320 bp Applied Water Operating income $ 101 $ 84 20.2 % $ 178 $ 156 14.1 % Operating margin 20.2 % 17.4 % 280 bp 18.8 % 17.0 % 180 bp Restructuring and realignment costs 3 10 (70.0) % 5 15 (66.7) % Special charges (6) — NM (6) — NM Adjusted operating income $ 98 $ 94 4.3 % $ 177 $ 171 3.5 % Adjusted operating margin 19.6 % 19.5 % 10 bp 18.7 % 18.6 % 10 bp Measurement and Control Solutions Operating income $ 63 $ 68 (7.4) % $ 120 $ 124 (3.2) % Operating margin 12.4 % 12.6 % (20) bp 11.8 % 12.0 % (20) bp Restructuring and realignment costs 3 5 (40.0) % 7 8 (12.5) % Purchase accounting intangible amortization 19 19 — % 38 38 — % Special charges (2) 6 (133.3) % 1 10 (90.0) % Adjusted operating income $ 83 $ 98 (15.3) % $ 166 $ 180 (7.8) % Adjusted operating margin 16.3 % 18.1 % (180) bp 16.3 % 17.5 % (120) bp Water Solutions and Services Operating income $ 91 $ 78 16.7 % $ 147 $ 122 20.5 % Operating margin 14.1 % 12.4 % 170 bp 12.1 % 10.2 % 190 bp Restructuring and realignment costs 4 2 100.0 % 6 6 — % Purchase accounting intangible amortization 24 25 (4.0) % 49 51 (3.9) % Special charges 1 1 — % 1 5 (80.0) % Adjusted operating income $ 120 $ 106 13.2 % $ 203 $ 184 10.3 % Adjusted operating margin 18.6 % 16.9 % 170 bp 16.8 % 15.4 % 140 bp Corporate and other Operating loss $ (22) $ (28) (21.4) % $ (44) $ (49) (10.2) % Purchase accounting intangible amortization — 1 (100.0) % — 1 (100.0) % Special charges — 4 (100.0) % 2 6 (66.7) % Adjusted operating loss $ (22) $ (23) (4.3) % $ (42) $ (42) — % Total Xylem Operating income $ 390 $ 305 27.9 % $ 634 $ 536 18.3 % Operating margin 16.7 % 13.3 % 340 bp 14.2 % 12.3 % 190 bp Restructuring and realignment costs 15 29 (48.3) % 53 56 (5.4) % Purchase accounting intangible amortization 52 55 (5.5) % 107 110 (2.7) % Special charges (10) 13 (176.9) % (5) 25 (120.0) % Adjusted operating income $ 447 $ 402 11.2 % $ 789 $ 727 8.5 % Adjusted operating margin 19.1 % 17.5 % 160 bp 17.7 % 16.6 % 110 bp NM - Not meaningful percentage change 51 The table below provides a reconciliation of net income to consolidated EBITDA and adjusted EBITDA: Three Months Ended Six Months Ended June 30 June 30 (in millions) 2026 2025 Change 2026 2025 Change Net Income attributable to Xylem $ 263 $ 226 16 % $ 456 $ 395 15 % Net Income margin 11.3 % 9.8 % 150 bp 10.2 % 9.0 % 120 bp Depreciation 65 69 (6) % 130 137 (5) % Amortization 75 76 (1) % 150 153 (2) % Interest expense (income), net 2 3 (33) % (2) 3 (167) % Income tax expense 103 75 37 % 158 125 26 % EBITDA $ 508 $ 449 13 % $ 892 $ 813 10 % Share-based compensation 12 13 (8) % 25 25 — % Restructuring & realignment 13 29 (55) % 51 56 (9) % Special charges (3) 13 (123) % 7 25 (72) % Loss on sale of businesses 16 — NM % 12 10 20 % Loss attributable to non-controlling interests (2) (2) — % (6) (4) 50 % Adjusted EBITDA $ 544 $ 502 8 % $ 981 $ 925 6 % Adjusted EBITDA margin 23.3 % 21.8 % 150 bp 22.0 % 21.2 % 80 bp The tables below provide a reconciliation of each segment's operating income (loss) to EBITDA and adjusted EBITDA: Three Months Ended June 30, 2026 (in millions) Water Infrastructure Applied Water Measurement and Control Solutions Water Solutions and Services Operating Income $ 157 $ 101 $ 63 $ 91 Operating margin 23.0 % 20.2 % 12.4 % 14.1 % Loss attributable to non-controlling interests — — 2 — Gain (loss) on sale of businesses 2 — (18) — Depreciation 11 6 8 39 Amortization 13 1 33 27 Other non-operating expense, excluding interest (8) — — — EBITDA $ 175 $ 108 $ 88 $ 157 Share-based compensation 2 1 2 1 Restructuring & realignment 3 3 3 4 Special charges 4 (6) (2) 1 (Gain) loss on sale of businesses (2) — 18 — Loss attributable to non-controlling interests — — (2) — Adjusted EBITDA $ 182 $ 106 $ 107 $ 163 Adjusted EBITDA margin 26.6 % 21.2 % 21.1 % 25.3 % 52 Three Months Ended June 30, 2025 (in millions) Water Infrastructure Applied Water Measurement and Control Solutions Water Solutions and Services Operating Income $ 103 $ 84 $ 68 $ 78 Operating margin 15.8 % 17.4 % 12.6 % 12.4 % Loss attributable to non-controlling interest — — 4 — Depreciation 11 8 10 43 Amortization 13 1 34 28 Other non-operating expense, excluding interest (2) 1 (1) (1) EBITDA $ 125 $ 94 $ 115 $ 148 Share-based compensation 3 1 3 2 Restructuring & realignment 12 10 5 2 Special Charges 2 — 6 1 Loss attributable to non-controlling interest — — (4) — Adjusted EBITDA $ 142 $ 105 $ 125 $ 153 Adjusted EBITDA margin 21.8 % 21.7 % 23.1 % 24.4 % Three Months Ended 2026 versus 2025 (in millions) Water Infrastructure Applied Water Measurement and Control Solutions Water Solutions and Services Operating Income (Loss) $ 54 $ 17 $ (5) $ 13 Operating margin 720 bps 280 bps (20) bps 170 bps Loss attributable to non-controlling interests — — (2) — Gain (loss) on sale of businesses 2 — (18) — Depreciation — (2) (2) (4) Amortization — — (1) (1) Other non-operating expense, excluding interest (6) (1) 1 1 EBITDA $ 50 $ 14 $ (27) $ 9 Share-based compensation (1) — (1) (1) Restructuring & realignment (9) (7) (2) 2 Special charges 2 (6) (8) — (Gain) loss from sale of businesses (2) — 18 — Loss attributable to non-controlling interests — — 2 — Adjusted EBITDA $ 40 $ 1 $ (18) $ 10 Adjusted EBITDA margin 480 bps (50) bps (200) bps 90 bps 53 Six Months Ended June 30, 2026 (in millions) Water Infrastructure Applied Water Measurement and Control Solutions Water Solutions and Services Operating Income $ 233 $ 178 $ 120 $ 147 Operating margin 18.1 % 18.8 % 11.8 % 12.1 % Loss attributable to non-controlling interests — — 6 — Gain (loss) on sale of businesses 2 — (14) — Depreciation 23 13 15 78 Amortization 27 2 66 53 Other non-operating expense, excluding interest (10) (1) — (5) EBITDA $ 275 $ 192 $ 193 $ 273 Share-based compensation 4 3 4 3 Restructuring & realignment 33 5 7 6 Special charges 4 (6) 1 6 (Gain) loss on sale of businesses (2) — 14 — Loss attributable to non-controlling interests — — (6) — Adjusted EBITDA $ 314 $ 194 $ 213 $ 288 Adjusted EBITDA margin 24.4 % 20.4 % 21.0 % 23.8 % 54 Six Months Ended June 30, 2025 (in millions) Water Infrastructure Applied Water Measurement and Control Solutions Water Solutions and Services Operating Income $ 183 $ 156 $ 124 $ 122 Operating margin 14.9 % 17.0 % 12.0 % 10.2 % Loss attributable to non-controlling interest — — 4 — Loss from sale of businesses (10) — — — Depreciation 21 15 17 84 Amortization 26 2 66 55 Other non-operating expense, excluding interest (4) — (1) (1) EBITDA $ 216 $ 173 $ 210 $ 260 Share-based compensation 5 2 4 4 Restructuring & realignment 27 15 8 6 Special Charges 4 — 10 5 Loss from sale of businesses 10 — — — Loss attributable to non-controlling interest — — (4) — Adjusted EBITDA $ 262 $ 190 $ 228 $ 275 Adjusted EBITDA margin 21.3 % 20.7 % 22.1 % 23.1 % Six Months Ended 2026 versus 2025 (in millions) Water Infrastructure Applied Water Measurement and Control Solutions Water Solutions and Services Operating Income (Loss) $ 50 $ 22 $ (4) $ 25 Operating margin 320 bps 180 bps (20) bps 190 bps Loss attributable to non-controlling interests — — 2 — Gain (loss) on sale of businesses 12 — (14) — Depreciation 2 (2) (2) (6) Amortization 1 — — (2) Other non-operating expense, excluding interest (6) (1) 1 (4) EBITDA $ 59 $ 19 $ (17) $ 13 Share-based compensation (1) 1 — (1) Restructuring & realignment 6 (10) (1) — Special charges — (6) (9) 1 (Gain) loss from sale of businesses (12) — 14 — Loss attributable to non-controlling interests — — (2) — Adjusted EBITDA $ 52 $ 4 $ (15) $ 13 Adjusted EBITDA margin 310 bps (30) bps (110) bps 70 bps 55 Water Infrastructure Operating income for our Water Infrastructure segment was $157 million (operating margin of 23.0%) during the second quarter of 2026, an increase of $54 million, or 52.4%, when compared to operating income of $103 million (operating margin of 15.8%) during the prior year, or a total increase in operating margin of 720 basis points. Operating margin expansion included net favorable impacts of 210 basis points from decreased restructuring and realignment costs, special charges and acquired intangible asset amortization as compared to the prior year. Additionally, operating margin expansion included 870 basis points of favorable operating impacts driven by 490 basis points of productivity improvements, 190 basis points of favorable mix and 80 basis points of price realization. Margin expansion was partially offset by 360 basis points of unfavorable operational impacts, driven by 200 basis points of inflation and 60 basis points of increased spending on strategic investments. Excluding restructuring and realignment costs, amortization of acquired intangibles, and special charges, adjusted operating income was $168 million (adjusted operating margin of 24.6%) for the second quarter of 2026 as compared to adjusted operating income of $127 million (adjusted operating margin of 19.5%) for the second quarter of 2025, an increase of 510 basis points. Adjusted EBITDA was $182 million (adjusted EBITDA margin of 26.6%) for the second quarter of 2026, an increase of $40 million, or 28.2%, when compared to adjusted EBITDA of $142 million (adjusted EBITDA margin of 21.8%) during the prior year. The increase in adjusted EBITDA margin of 480 basis points was primarily driven by the same factors impacting the increase in adjusted operating margin. Operating income for our Water Infrastructure segment was $233 million (operating margin of 18.1%) during the six months ended June 30, 2026, an increase of $50 million, or 27.3%, when compared to operating income of $183 million (operating margin of 14.9%) during the prior year, or a total increase in operating margin of 320 basis points. Operating margin expansion included 680 basis points of favorable operating impacts driven by 510 basis points of productivity savings and 70 basis points of favorable price realization. Margin expansion was partially offset by 360 basis points of unfavorable operational impacts, driven by 230 basis points of inflation and 50 basis points of increased spending on strategic investments. Excluding restructuring and realignment costs, amortization of acquired intangibles, and special charges, adjusted operating income was $285 million (adjusted operating margin of 22.2%) for the six months ended June 30, 2026 as compared to adjusted operating income of $234 million (adjusted operating margin of 19.0%) for the six months ended June 30, 2025, an increase of 320 basis points. Adjusted EBITDA was $314 million (adjusted EBITDA margin of 24.4%) for the six months ended June 30, 2026, an increase of $52 million, or 19.8%, when compared to adjusted EBITDA of $262 million (adjusted EBITDA margin of 21.3%) during the prior year. The increase in adjusted EBITDA margin of 310 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 $101 million (operating margin of 20.2%) during the second quarter of 2026, an increase of $17 million, or 20.2%, when compared to operating income of $84 million (operating margin of 17.4%) during the prior year, or a total increase in operating margin of 280 basis points. Operating margin expansion included 270 basis points from decreased restructuring and realignment costs and an increase in income from special items as compared to the prior year. Additionally, operating margin expansion included 770 basis points of favorable operational impacts consisting primarily of 610 basis points of productivity savings and 140 basis points of price realization. Operating margin expansion was offset by 760 basis points of unfavorable operational impacts driven primarily by 480 basis points of inflation, 140 basis points of decreased volume and 70 basis points of unfavorable foreign currency impacts. Excluding restructuring and realignment costs, adjusted operating income was $98 million (adjusted operating margin of 19.6%) for the second quarter of 2026 as compared to adjusted operating income of $94 million (adjusted operating margin of 19.5%) for the second quarter of 2025, an increase of 10 basis points. Adjusted EBITDA was $106 million (adjusted EBITDA margin of 21.2%) for the second quarter of 2026, an increase of $1 million, or 1.0%, when compared to adjusted EBITDA of $105 million (adjusted EBITDA margin of 21.7%) during the prior year, a decrease of 50 basis points. The decrease in adjusted EBITDA margin was primarily due to the same factors impacting the increase in adjusted operating margin; however, adjusted EBITDA did not benefit from the relative impact of decreased depreciation expense. 56 Operating income for our Applied Water segment was $178 million (operating margin of 18.8%) during the six months ended June 30, 2026, an increase of $22 million, or 14.1%, when compared to operating income of $156 million (operating margin of 17.0%) during the prior year, or a total increase in operating margin of 180 basis points. Operating margin expansion included 170 basis points from decreased restructuring and realignment costs and an increase in income from special items as compared to the prior year. Additionally, operating margin expansion included 850 basis points of favorable operational impacts consisting primarily of 680 basis points of productivity savings and 160 basis points of price realization. Operating margin expansion was offset by 840 basis points of unfavorable operational impacts driven primarily by 420 basis points of inflation, 200 basis points of decreased volume, 110 basis points of unfavorable mix, and 60 basis points of increased spending on strategic investments. Excluding restructuring and realignment costs, adjusted operating income was $177 million (adjusted operating margin of 18.7%) for the six months ended June 30, 2026 as compared to adjusted operating income of $171 million (adjusted operating margin of 18.6%) for the six months ended June 30, 2025, an increase of 10 basis points. Adjusted EBITDA was $194 million (adjusted EBITDA margin of 20.4%) for the six months ended June 30, 2026, an increase of $4 million, or 2.1%, when compared to adjusted EBITDA of $190 million (adjusted EBITDA margin of 20.7%) during the prior year, a decrease of 30 basis points. The decrease in adjusted EBITDA margin was primarily due to the same factors impacting the increase in adjusted operating margin; however, adjusted EBITDA did not benefit from the relative impact of decreased depreciation expense. Measurement and Control Solutions Operating income for our Measurement and Control Solutions segment was $63 million (operating margin of 12.4%) during the second quarter of 2026, a decrease of $5 million, or 7.4%, when compared to operating income of $68 million (operating margin of 12.6%) 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 160 basis points from lower special charges and restructuring and realignment costs compared to the prior year. Additionally, operating margin declines included 620 basis points of unfavorable operational impacts, primarily consisting of 270 basis points of inflation, 170 basis points of unfavorable mix and 100 basis points of decreased volume. The decline in margin was partially offset by positive operational impacts of 440 basis points consisting of 240 basis points of productivity savings, 140 basis points of price realization, and 60 basis points of favorable margin impact from divestiture activity. 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 second quarter of 2026 as compared to adjusted operating income of $98 million (adjusted operating margin of 18.1%) for the second quarter of 2025, a decrease of 180 basis points. Adjusted EBITDA was $107 million (adjusted EBITDA margin of 21.1%) for the second quarter of 2026, a decrease of $18 million, or 14.4%, when compared to adjusted EBITDA of $125 million (adjusted EBITDA margin of 23.1%) during the prior year, a decrease of 200 basis points. The decrease in adjusted EBITDA margin was primarily due to the same factors as those impacting the decrease in adjusted operating margin. Operating income for our Measurement and Control Solutions segment was $120 million (operating margin of 11.8%) during the six months ended June 30, 2026, a decrease of $4 million, or 3.2%, when compared to operating income of $124 million (operating margin of 12.0%) 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 100 basis points from lower special charges and restructuring and realignment costs compared to the prior year. Additionally, operating margin declines included 610 basis points of unfavorable operational impacts, driven primarily by 240 basis points of inflation, 200 basis points of unfavorable mix and 80 basis points of decreased volume. The decline in margin was partially offset by positive operational impacts of 490 basis points driven by 280 basis points of productivity savings and 170 basis points of price realization. Excluding restructuring and realignment costs, acquired intangible asset amortization and special charges, adjusted operating income was $166 million (adjusted operating margin of 16.3%) for the six months ended June 30, 2026 as compared to adjusted operating income of $180 million (adjusted operating margin of 17.5%) for the six months ended June 30, 2025, a decrease of 120 basis points. Adjusted EBITDA was $213 million (adjusted EBITDA margin of 21.0%) for the six months ended June 30, 2026, a decrease of $15 million, or 6.6%, when compared to adjusted EBITDA of $228 million (adjusted EBITDA margin of 22.1%) during the prior year, a decrease of 110 basis points. The decrease in adjusted EBITDA margin was primarily due to the same factors as those impacting the decrease in adjusted operating margin. 57 Water Solutions and Services Operating income for our Water Solutions and Services segment was $91 million (operating margin of 14.1%) during the second quarter of 2026, an increase of $13 million, or 16.7%, when compared to operating income of $78 million (operating margin of 12.4%) during the prior year, or a total increase in operating margin of 170 basis points. Operating margin expansion included 910 basis points of favorable operational impacts, driven by 570 basis points of price realization, including contract expansion benefit, 250 basis points of favorable mix, and 70 basis points of productivity savings. Margin expansion was partially offset by unfavorable operational impacts of 740 basis points driven primarily by 430 basis points of unfavorable volume, and 230 basis points of inflation. Excluding special charges, acquired intangible asset amortization, and restructuring and realignment costs, adjusted operating income was $120 million (adjusted operating margin of 18.6%) for the second quarter of 2026 as compared to adjusted operating income of $106 million (adjusted operating margin of 16.9%) for the second quarter of 2025, an increase of 170 basis points. Adjusted EBITDA was $163 million (adjusted EBITDA margin of 25.3%) for the second quarter of 2026, an increase of $10 million, or 6.5%, when compared to adjusted EBITDA of $153 million (adjusted EBITDA margin of 24.4%) during the prior year, an increase of 90 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. Operating income for our Water Solutions and Services segment was $147 million (operating margin of 12.1%) during the six months ended June 30, 2026, an increase of $25 million, or 20.5%, when compared to operating income of $122 million (operating margin of 10.2%) during the prior year, or a total increase in operating margin of 190 basis points. The operating margin expansion included favorable impacts of 50 basis points from decreased special charges and acquired intangible asset amortization relative to the prior year period. Additionally, operating margin expansion included 750 basis points of favorable operational impacts including 410 basis points of price realization, 160 basis points of favorable mix, and 120 basis points of productivity savings. Margin expansion was partially offset by unfavorable operational impacts of 610 basis points driven primarily by 280 basis points of unfavorable volume and 260 basis points of inflation. Excluding special charges, acquired intangible asset amortization, and restructuring and realignment costs, adjusted operating income was $203 million (adjusted operating margin of 16.8%) for the six months ended June 30, 2026 as compared to adjusted operating income of $184 million (adjusted operating margin of 15.4%) for the six months ended June 30, 2025, an increase of 140 basis points. Adjusted EBITDA was $288 million (adjusted EBITDA margin of 23.8%) for the six months ended June 30, 2026, an increase of $13 million, or 4.7%, when compared to adjusted EBITDA of $275 million (adjusted EBITDA margin of 23.1%) during the prior year, an increase of 70 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 decreased $6 million, or 21.4%, during the second quarter of 2026 compared to the prior year period. Operating loss decreased primarily due to lower special charges and spending on and timing of strategic investments. Excluding special charges, adjusted operating loss for corporate and other decreased $1 million, or 4.3%, for the three months ended June 30, 2026, driven by lower spending on and timing of strategic investments. Operating loss for corporate and other decreased $5 million, or 10.2%, during the six months ended June 30, 2026 compared to the prior year period. Operating loss decreased primarily due to lower special charges. Excluding special charges, adjusted operating loss for corporate and other remained flat for the six months ended June 30, 2026. Interest Expense Interest expense was $7 million for the three months ended June 30, 2026, compared to $9 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 and lower outstanding equipment financing obligations, partially offset by increased interest expense from the Senior Notes due 2033 and Blue Notes due 2036. 58 Interest expense was $11 million for the six months ended June 30, 2026, compared to $17 million for the comparable prior year period. The decrease in interest expense was primarily driven by the same dynamics impacting the decrease for the quarter. 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 June 30, 2026 was $103 million resulting in an effective tax rate of 28.3%, compared to $75 million of expense resulting in an effective tax rate of 25.0% for the same period in 2025. The income tax provision for the six months ended June 30, 2026 was $158 million resulting in an effective tax rate of 26.0%, compared to $125 million of expense resulting in an effective tax rate of 24.2% for the same period in 2025. The effective tax rate for the three and six month period ended June 30, 2026 was higher than the effective tax rate for the same period in 2025, primarily due to the impact of the 2026 international metering business divestiture. Liquidity and Capital Resources The following table summarizes our sources and (uses) of cash: Six Months Ended June 30, (in millions) 2026 2025 Change Operating activities $ 398 $ 338 $ 60 Investing activities (98) (140) 42 Financing activities (484) (244) (240) Foreign exchange (a) (31) 84 (115) Increase in cash classified within assets held for sale — 11 (11) Decrease in cash classified within assets held for sale 12 — 12 Total $ (203) $ 49 $ (252) (a)The impact is primarily due to weakening of the Euro, Canadian Dollar and the Chilean Peso against the U.S. Dollar. Sources and Uses of Liquidity Operating Activities Cash generated by operating activities was $398 million for the six months ended June 30, 2026 as compared to cash generated by operating activities of $338 million in the comparable prior year period. The increase in cash provided was primarily driven by increased cash earnings, timing of payments for prepaid and accrued expenses, as well as lower annual incentives, offset by increased investment in working capital and increased use of cash related to long-term outsourced water projects. Investing Activities Cash used in investing activities was $98 million for the six months ended June 30, 2026 as compared to $140 million used in the comparable prior year period. The decrease in cash used primarily reflects lower cash paid for asset acquisitions and higher proceeds from sales of businesses and fixed assets, offset by increased investments in capital expenditures. Financing Activities Cash used in financing activities was $484 million for the six months ended June 30, 2026 as compared to cash used of $244 million in the comparable prior year period. The increase in cash used reflects the repurchase of common stock and higher dividend payments during the period, offset by the issuance of new long-term debt in the form of senior notes. 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. 59 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 $2.3 billion, consisting of $1.3 billion 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 See Note 1, "Background and Basis of Presentation," of our condensed consolidated financial statements for a description of tariff developments in 2026. 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 updating our total revenue growth outlook to approximately 2%, and updating our organic revenue growth outlook to 2% to 3% 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. 60