Share-based compensation expense was $13 million and $25 million during the three and six months ended June 30, 2025, respectively, and $13 million and $31 million during the three and six months ended June 30, 2024, respectively. The unrecognized compensation expense related to our stock options, restricted stock units and performance share units was $12 million, $45 million and $20 million, respectively, at June 30, 2025 and is expected to be recognized over a weighted average period of 2.2, 2.0 and 2.1 years, respectively. The amount of cash received from the exercise of stock options was $8 million and $63 million for the six months ended June 30, 2025 and 2024, respectively.

The following is a summary of the changes in outstanding stock options for the six months ended June 30, 2025:


	Share units (in thousands)	Weighted Average Exercise Price / Share		Weighted Average Remaining Contractual Term (Years)	Aggregate Intrinsic Value (in millions)
Outstanding at January 1, 2025	1,182	$	84.76	6.3	$	40
Granted	253	129.64
Exercised	(118)	63.65
Forfeited and expired	(30)	110.86

Outstanding at June 30, 2025	1,287	$	94.87	6.4	$	43
Options exercisable at June 30, 2025	863	$	79.28	5.0	$	42
Vested and expected to vest as of June 30, 2025	1,229	$	93.30	6.2	$	43

The total intrinsic value of options exercised (which is the amount by which the stock price exceeded the exercise price of the options on the date of exercise) during the six months ended June 30, 2025 was $7 million.

The fair value of each option grant was estimated on the date of grant using the binomial lattice pricing model which incorporates multiple and variable assumptions over time, including employee exercise patterns, stock price volatility and changes in dividends. The following are weighted-average assumptions for 2025 grants:


Volatility	26.70		%
Risk-free interest rate	4.10		%
Dividend yield	1.23		%
Expected term (in years)	5.5
Weighted-average fair value / share	$	36.94

Expected volatility is calculated based on an analysis of historic volatility measures for Xylem. We use historical data to estimate option exercise and employee termination behavior within the valuation model. Employee groups and option characteristics are considered separately for valuation purposes. The expected term represents an estimate of the period of time options are expected to remain outstanding. The risk-free rate is based on the U.S. Treasury yield curve in effect at the time of option grant.

The following is a summary of restricted stock unit activity for the six months ended June 30, 2025. The fair value of the restricted share unit awards is determined using the closing price of our common stock on date of grant:


	Share units (in thousands)	Weighted Average Grant Date Fair Value / Share
Outstanding at January 1, 2025	632	$	111.33
Granted	235	129.39
Vested	(301)	106.27
Forfeited	(33)	118.19
Outstanding at June 30, 2025	533	$	121.72

The following is a summary of our ROIC and EBITDA grants for the six months ended June 30, 2025. The fair value of the adjusted EBITDA performance share units is equal to the closing share price on the date of the grant:


	Share units (in thousands)	Weighted Average Grant Date Fair Value / Share
Outstanding at January 1, 2025	77	$	105.02

Adjustment for Performance Condition Achieved (a)	19	86.77
Vested	(44)	86.77
Forfeited	(5)	113.55
Outstanding at June 30, 2025	47	$	113.92

(a) Represents an increase in the number of original ROIC performance share units awarded based on the final market condition achievement at the end of the performance period of such awards.

The following is a summary of our Total Shareholder Return ("TSR") performance share unit grants for the six months ended June 30, 2025:


	Share units (in thousands)	Weighted Average Grant Date Fair Value / Share
Outstanding at January 1, 2025	155	$	125.42
Granted	53	180.50
Adjustment for Market Condition Achieved (a)	(14)	71.15
Vested	(37)	71.15
Forfeited	(11)	149.29
Outstanding at June 30, 2025	146	$	157.27

(a) Represents a decrease in the number of original TSR performance share units awarded based on the final market condition achievement at the end of the performance period of such awards.

The fair value of TSR performance share units was calculated on the date of grant using a Monte Carlo simulation model utilizing several key assumptions, including expected Company and peer company share price volatility, correlation coefficients between peers, the risk-free rate of return, the expected dividend yield and other award design features. The following are weighted-average assumptions for 2025 grants:


	Share units (in thousands)	Weighted Average Grant Date Fair Value / Share
Outstanding at January 1, 2025	77	$	105.06

Adjustment for Performance Condition Achieved (a)	19	86.77
Vested	(44)	86.77
Forfeited	(5)	113.56
Outstanding at June 30, 2025	47	$	113.92

(a) Represents an increase in the number of original REV performance share units awarded based on the final market condition achievement at the end of the performance period of such awards.


	Share units (in thousands)	Weighted Average Grant Date Fair Value / Share
Outstanding at January 1, 2025	—	$	—
Granted	53	129.67


Forfeited	(2)	129.67
Outstanding at June 30, 2025	51	$	129.67

The performance share units were each awarded at a target of 100% with actual payout for each type of grant contingent upon the achievement of performance targets as follows: