Zebra Technologies Announces 2015 Third Quarter Financial Results

Growth and Profitability Demonstrate Continued Execution on Acquisition Objectives

Nov 10, 2015, 06:30 ET from Zebra Technologies Corporation

LINCOLNSHIRE, Ill., Nov. 10, 2015 /PRNewswire/ -- Zebra Technologies Corporation (NASDAQ: ZBRA) today reported that net sales for the three months ended October 3, 2015, were $916.3 million, compared with $303.3 million for the third quarter of 2014. The GAAP net loss for the third quarter was $29.0 million, or $0.57 per share, compared with GAAP net income of $14.9 million, or $0.29 per share, for the third quarter of 2014.  

 

Summary Financial Highlights (Unaudited)

$ in millions except per share data

3Q15

3Q14

Change

GAAP net sales

$   916.3

$   303.3

202.1%

GAAP net (loss) income

$  (29.0)

$    14.9

            NM

GAAP (loss) earnings per share

$  (0.57)

$    0.29

            NM

Non-GAAP net income

$    72.4

$    41.6

73.9%

Non-GAAP earnings per diluted share

$   1.39

$    0.81

71.2%

Adjusted EBITDA (Non-GAAP)

$  159.4

$    74.5

114.1%

Adjusted EBITDA (%)

17.3

24.6

        (7.3) pts.

Note: Reconciliations of GAAP to Non-GAAP financial results are available in the financial tables in this release.

 

Non-GAAP Financial Results (unaudited) 

For the third quarter of 2015, sales excluding the impact of purchase accounting were $919.1 million. Non-GAAP net income was $72.4 million, or $1.39 per diluted share, compared with $41.6 million, or $0.81 per diluted share, for the third quarter of 2014. Adjusted EBITDA for the third quarter of 2015 were $159.4 million, or 17.3% of sales compared to $74.5 million, or 24.6% of sales for the third quarter of 2014.  

The company's calculation of non-GAAP results adjusts for certain items on a tax-effected basis. Please refer to the tables included in this press release for reconciliations of GAAP to non-GAAP financial results.

"Our third quarter results demonstrate the continued success of our focus on growth and execution. In the year since the acquisition closed, we have returned Enterprise to consistent growth and made progress toward achieving our long-term financial objectives," said Anders Gustafsson, CEO of Zebra Technologies. "With the proliferation of connected devices and the expanding mobile workforce, organizations are increasingly choosing our technology to expand their competitive advantage and enable the smart, connected enterprise."

Discussion and Analysis – Third Quarter

  • Net sales were $916.3 million on a GAAP basis, and include a reduction of $2.8 million for a purchase accounting adjustment related to service contracts acquired with the Enterprise business. This reflects an increase of $613.0 million from the third quarter of 2014. Sales in the Enterprise business, excluding the purchase accounting adjustment noted above, accounted for $605.1 million of the increase. Pre-transaction Zebra sales were $314.0 million compared to $303.3 million in the third quarter of 2014. On a constant currency basis, and excluding the purchase accounting adjustment, third quarter year-over-year sales growth inclusive of estimated 2014 Enterprise sales was 6% for total Zebra and 5% for Enterprise. Pre-transaction Zebra sales were up 8% in constant currency.
  • Gross margin for the third quarter on a GAAP basis was 45.2% including the impact of purchase accounting adjustments associated with service contracts and costs of goods sold. Excluding purchase accounting adjustments, adjusted gross margin percentage for the quarter was 45.5%. Compared to 50.0% gross margin in the third quarter of 2014, gross margin percentage reflects the change in mix associated with the sale of Enterprise products which generally have a lower gross margin percentage than pre-transaction Zebra products and the impact of foreign currency movements, net of hedges.
  • Operating expenses for the third quarter of 2015 of $389.0 million, increased by $264.5 million from the prior year's third quarter, primarily as a result of the Enterprise acquisition. Operating expenses for the third quarter of 2015 include $42.7 million in acquisition, integration, exit and restructuring costs, versus $35.2 million in the prior year quarter, as well as $58.5 million for amortization of intangible assets, compared with $2.6 million for the third quarter of 2014.
  • As of October 3, 2015, the company had cash of $258.0 million, accounts receivable of $625.8 million, inventories of $408.2 million, and long-term debt of $3.0 billion.
  • Subsequent to the end of the quarter, the company made $65 million of scheduled interest payments and $20 million in additional term loan principal payments.

Fourth Quarter Outlook

The company expects net sales in the fourth quarter of 2015 to be within a range of $945 million to $975 million excluding purchase accounting adjustments. This forecast reflects an expectation of year-over-year growth of 3.6% to 6.9% in constant currency, on an estimated historical basis for the Enterprise business. Non-GAAP earnings are expected in the range of $1.38 to $1.63 per share. Adjusted EBITDA are forecasted within a range of $155 million to $170 million.  Compared to the third quarter currency environment, the impacts on our fourth quarter outlook resulting from the most recent strengthening of the U.S. dollar against the Euro include reductions in top-line sales of approximately $6 million, EBITDA of approximately $5 million and Non-GAAP EPS of approximately five cents per share.

Conference Call Notification

Investors are invited to listen to a live webcast of Zebra's conference call regarding the company's financial results for the third quarter of 2015. The conference call will be held at 8:30 A.M. Eastern Time today. To listen to the call, visit the company's website at http://www.zebra.com.

Forward-looking Statement

This press release contains forward-looking statements, as defined by the Private Securities Litigation Reform Act of 1995, including, without limitation, the statements regarding the company's outlook. Similarly, statements herein that describe the transaction between Zebra and Motorola Solutions including, its financial impact, and other statements of management's beliefs, intentions, or goals are also forward-looking statements. When used in this release and documents referenced, the words "anticipate," "believe," "outlook," and "expect" and similar expressions, as they relate to the company or its management, are intended to identify such forward-looking statements, but are not the exclusive means of identifying these statements. Actual results may differ from those expressed or implied in the company's forward-looking statements. These statements represent estimates only as of the date they were made. Zebra undertakes no obligation, other than as may be required by law, to publicly update or revise any forward-looking statements, whether as a result of new information, future events, changed circumstances or any other reason after the date of this release.

These forward-looking statements are based on current expectations, forecasts and assumptions and are subject to the risks and uncertainties inherent in Zebra's industry, market conditions, general domestic and international economic conditions, and other factors. These factors include customer acceptance of Zebra's hardware and software products and competitors' product offerings, and the potential effects of technological changes. The continued uncertainty over future global economic conditions, the availability of credit and capital markets volatility may have adverse effects on Zebra, its suppliers and its customers. In addition, a disruption in our ability to obtain products from vendors as a result of supply chain constraints, natural disasters or other circumstances could restrict sales and negatively affect customer relationships. Profits and profitability will be affected by Zebra's ability to control manufacturing and operating costs. Because of its debt, interest rates and financial market conditions will also have an impact on results. Foreign exchange rates will have an effect on financial results because of the large percentage of our international sales. The outcome of litigation in which Zebra may be involved is another factor. The success of integrating acquisitions, including the Enterprise business of Motorola Solutions, could also affect profitability, reported results and the company's competitive position in it industry. These and other factors could have an adverse effect on Zebra's sales, gross profit margins and results of operations and increase the volatility of our financial results. Descriptions of the risks, uncertainties and other factors that could affect the company's future operations and results can be found in Zebra's filings with the Securities and Exchange Commission. In particular, readers are referred to Zebra's Form 10-K for the year ended December 31, 2014.

About Zebra Technologies

Zebra (NASDAQ: ZBRA) makes businesses as smart and connected as the world we live in. Zebra tracking and visibility solutions transform the physical to digital, creating the data streams businesses need in order to simplify operations, know more about their business, and empower their mobile workforce. For more information, visit www.zebra.com/possibilities.

Use of Non-GAAP Financial Information

This press release contains certain non-GAAP financial measures, consisting of "EBITDA," "Adjusted EBITDA," "Non-GAAP net income" and "Non-GAAP earnings per share" in addition to measure our operating performance. Management presents these measures to focus on the on-going operations and believes it is useful to investors because they enable them to perform meaningful comparisons of past and present operating results. The company believes it is useful to present non-GAAP financial measures, which exclude certain significant items, as a means to understand the performance of its ongoing operations and how management views the business. Reconciliations of Operating Income to EBITDA, EBITDA to Adjusted EBITDA, and GAAP net income to Non-GAAP net income are included in the financial schedules contained in this press release. These measures, however, should not be construed as an alternative to any other measure of performance determined in accordance with GAAP.

Contact:


Investors: 

Media:

Dean Lindroth

Therese Van Ryne

Vice President, Finance

Director, Global PR and Industry Analyst Relations

+ 1 847 793 5653

+ 1 847 370 2317

dlindroth@zebra.com 

therese.vanryne@zebra.com

 

ZEBRA TECHNOLOGIES CORPORATION AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

(Amounts in thousands)



October 3, 2015


December 31, 2014



Assets

(Unaudited)



Current assets:




Cash and cash equivalents

$            258,022


$            393,950

Investments and marketable securities

-


24,385

Accounts receivable, net 

625,777


670,402

Inventories, net

408,158


394,176

Deferred income taxes

103,442


122,772

Income tax receivable

10,760


12,988

Prepaid expenses and other current assets

83,096


53,377

Total Current assets

1,489,255


1,672,050





Property and equipment at cost, less accumulated depreciation and amortization

291,754


255,092

Goodwill

2,488,501


2,489,510

Other intangibles, net

816,933


1,029,293

Other long-term assets

92,547


93,121

Total Assets

$         5,178,990


$         5,539,066





Liabilities and Stockholders' Equity








Current liabilities:




Accounts payable

$            314,279


$            326,524

Accrued liabilities

379,261


421,070

Deferred revenue

203,792


196,213

Current portion of long-term debt

-


4,209

Income taxes payable

1,592


4,518

Total Current liabilities

898,924


952,534

Long-term debt

3,043,225


3,156,490

Long-term deferred tax liability

128,033


199,853

Long-term deferred revenue

109,203


115,847

Other long-term liabilities

85,577


74,434

Total Liabilities

4,264,962


4,499,158





Stockholders' Equity:




Preferred stock

-


-

Class A common stock

722


722

Additional paid-in capital

187,091


147,090

Treasury stock

(632,231)


(634,664)

Retained earnings

1,404,802


1,535,307

Accumulated other comprehensive loss

(46,356)


(8,547)

Total Stockholders' Equity

914,028


1,039,908

Total Liabilities and Stockholders' Equity

$         5,178,990


$         5,539,066

 

ZEBRA TECHNOLOGIES CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF OPERATIONS

(Amounts in thousands, except per share data)

(Unaudited)










Three Months Ended


Nine Months Ended


October 3, 2015


September 27, 2014


October 3, 2015


September 27, 2014

Net sales:








  Net sales of tangible products

$            787,441


$            282,643


$         2,304,698


$            814,584

  Revenue from services and software

128,832


20,629


394,533


65,377

Total Net sales

916,273


303,272


2,699,231


879,961









Cost of sales:








  Cost of sales of tangible products

403,520


141,842


1,195,902


409,253

  Cost of services and software

98,697


9,924


286,873


29,095

Total Cost of sales

502,217


151,766


1,482,775


438,348









Gross profit

414,056


151,506


1,216,456


441,613









Operating expenses:








   Selling and marketing

120,217


36,781


367,443


107,952

   Research and development

100,340


25,225


295,844


71,792

   General and administrative

67,235


24,741


203,030


79,453

   Amortization of intangible assets

58,499


2,597


189,788


7,936

   Acquisition and integration costs

37,010


35,326


94,507


60,617

   Exit and restructuring costs

5,734


(120)


34,852


434

Total Operating expenses

389,035


124,550


1,185,464


328,184









Operating income

25,021


26,956


30,992


113,429









Other (expense) income:








   Foreign exchange (loss) 

(5,255)


(83)


(21,194)


(332)

   Interest (expense)/income

(45,002)


171


(145,262)


(2,368)

   Other, net

(306)


(2,238)


(908)


(1,381)

Total Other (expenses)

(50,563)


(2,150)


(167,364)


(4,081)









(Loss) income before income taxes

(25,542)


24,806


(136,372)


109,348

Income tax expense (benefit)

3,408


9,861


(5,867)


25,240

Net (loss) income

$            (28,950)


$              14,945


$          (130,505)


$              84,108









Basic (loss) earnings per share

$                (0.57)


$                  0.29


$                (2.56)


$                  1.66

Diluted (loss) earnings per share

$                (0.57)


$                  0.29


$                (2.56)


$                  1.64









Basic weighted average shares outstanding

51,152


50,835


50,926


50,615

Diluted weighted average and equivalent shares outstanding

51,152


51,461


50,926


51,251









 

ZEBRA TECHNOLOGIES CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF COMPREHENSIVE (LOSS) INCOME

(Amounts in thousands)

(Unaudited)










Three Months Ended


Nine Months Ended


October 3, 2015


September 27, 2014


October 3, 2015


September 27, 2014












Net (loss) income

$            (28,950)


$           14,945


$          (130,505)


$           84,108









Other comprehensive (loss) income, net of tax:








   Unrealized (loss) gain on anticipated sales hedging transactions

(2,812)


5,133


(5,763)


6,522

   Unrealized gain (loss) on forward interest rate swaps hedging transactions

(6,560)


(781)


(10,447)


(781)

   Unrealized holding (loss) gain on investments

(254)


240


(272)


736

   Foreign currency translation adjustment

(11,083)


(191)


(21,327)


(387)









Comprehensive (loss) income

$            (49,659)


$           19,346


$          (168,314)


$           90,198

 

ZEBRA TECHNOLOGIES CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

(Amounts in thousands)

(Unaudited)






Nine Months Ended


October 3, 2015


September 27, 2014



Cash flows from operating activities:




Net (loss) income

$          (130,505)


$              84,108

Adjustments to reconcile net (loss) income to net cash provided by 




operating activities:




Depreciation and amortization

240,418


27,223

Amortization of debt issuance cost and discount

12,526


-

Equity-based compensation

25,270


10,304

Impairment of long term investment

-


2,333

Excess tax benefit from equity-based compensation

(11,463)


(5,779)

Deferred income taxes

(37,661)


4,509

Unrealized (gain) loss on forward interest rate swaps

(3,397)


2,248

All other, net

11,793


135

Changes in assets and liabilities, net of businesses acquired:




Accounts receivable

41,027


(10,810)

Inventories

(25,953)


(18,606)

Other assets

(32,796)


(10,859)

Accounts payable

8,169


7,975

Accrued liabilities

2,470


21,160

Deferred revenue

7,495


2,667

Income taxes 

12,619


6,664

Other operating activities

(4,151)


6,406

Net cash provided by operating activities

115,861


129,678





Cash flows from investing activities:




Purchases of property and equipment

(87,371)


(20,023)

Acquisition of businesses, net of cash acquired

(51,889)


-

Proceeds from sale of long-term investments

3,009


-

Purchases of long-term investments

(168)


(1,870)

Purchases of investments and marketable securities

(726)


(384,134)

Maturities of investments and marketable securities

-


44,158

Proceeds from sales of investments and marketable securities 

24,852


211,975

Net cash used in investing activities

(112,293)


(149,894)





Cash flows from financing activities:




Payment of debt

(130,000)


-

Proceeds from exercise of stock options and stock purchase plan purchases

14,357


13,090

Taxes paid related to net share settlement of equity awards

(13,028)


(1,126)

Excess tax benefit from equity-based compensation

11,463


5,779

Net cash (used in) provided by financing activities 

(117,208)


17,743





Effect of exchange rate changes on cash

(22,288)


(140)





Net (decrease) increase in cash and cash equivalents

(135,928)


(2,613)

Cash and cash equivalents at beginning of period

393,950


62,827

Cash and cash equivalents at end of period

$            258,022


$              60,214





Supplemental disclosures of cash flow information:




Income taxes paid, net

$              31,593


$              12,656

Interest paid

118,151


-

 

ZEBRA TECHNOLOGIES CORPORATION AND SUBSIDIARIES

SUPPLEMENTAL SALES INFORMATION

(Amounts in thousands)

(Unaudited)











NET SALES BY PRODUCT CATEGORY












Three Months Ended 








October 3, 2015


September 27, 2014


Percent Change


Percent of Net Sales 2015


Percent of Net Sales 2014

Product category





Hardware 

$            718,660


$            217,000


231.2


78.4


71.6

Supplies 

68,781


65,643


4.8


7.5


21.6

Service and software 

128,832


20,629


524.5


14.1


6.8

    Total net sales 

$            916,273


$            303,272


202.1


100.0


100.0












Nine Months Ended 








October 3, 2015


September 27, 2014


Percent Change


Percent of Net Sales 2015


Percent of Net Sales 2014

Product category





Hardware 

$         2,101,433


$            620,158


238.9


77.9


70.5

Supplies 

203,265


194,426


4.5


7.5


22.1

Service and software 

394,533


65,377


503.5


14.6


7.4

    Total net sales 

$         2,699,231


$            879,961


206.7


100.0


100.0





















NET SALES BY GEOGRAPHIC REGION












Three Months Ended 








October 3, 2015


September 27, 2014


Percent Change


Percent of Net Sales 2015


Percent of Net Sales 2014

Geographic region





Europe, Middle East and Africa

$            275,749


$              94,375


192.2


30.1


31.1

Latin America 

55,264


29,060


90.2


6.0


9.6

Asia-Pacific

121,708


45,705


166.3


13.3


15.1

    Total International

452,721


169,140


167.7


49.4


55.8

North America 

463,552


134,132


245.6


50.6


44.2

    Total net sales 

$            916,273


$            303,272


202.1


100.0


100.0












Nine Months Ended 








October 3, 2015


September 27, 2014


Percent Change


Percent of Net Sales 2015


Percent of Net Sales 2014

Geographic region





Europe, Middle East and Africa

$            869,675


$            280,015


210.6


32.2


31.8

Latin America 

163,711


79,904


104.9


6.1


9.1

Asia-Pacific

345,557


124,007


178.7


12.8


14.1

    Total International

1,378,943


483,926


184.9


51.1


55.0

North America 

1,320,288


396,035


233.4


48.9


45.0

    Total net sales 

$         2,699,231


$            879,961


206.7


100.0


100.0

 

ZEBRA TECHNOLOGIES CORPORATION AND SUBSIDIARIES

RECONCILIATION OF GAAP TO NON-GAAP NET INCOME

(Amounts in thousands, except per share data)

(Unaudited)










Three Months Ended 


Nine Months Ended 


October 3, 2015


September 27, 2014


October 3, 2015


September 27, 2014





Net (loss) income

$            (28,950)


$              14,945


$          (130,505)


$              84,108









Income tax expense (benefit)

3,408


9,861


(5,867)


25,240

Equity/liability awards

8,884


3,194


26,403


10,304

Acquisition and integration costs

37,010


35,326


94,507


60,617

Exit and restructuring costs

5,734


(120)


34,852


434

Purchase accounting adjustments

4,230


-


15,993


-

Foreign exchange loss (income)

5,255


83


21,194


332

Amortization of intangible assets

58,499


2,597


189,788


7,936

Amortization of debt issuance cost and discount

2,864


-


12,526


-

Forward interest rate swaps (gain) loss

(3,361)


-


(3,397)


2,248

Tax effects

(21,166)


(24,239)


(57,307)


(53,895)

Total adjustments

101,357


26,702


328,692


53,216

Non-GAAP net income

$              72,407


$              41,647


$            198,187


$            137,324









GAAP  (loss) earnings per share








       Basic

$                (0.57)


$                  0.29


$                (2.56)


$                  1.66

       Diluted

$                (0.57)


$                  0.29


$                (2.56)


$                  1.64

Non-GAAP  earnings per share








       Basic

$                  1.42


$                  0.82


$                  3.89


$                  2.71

       Diluted

$                  1.39


$                  0.81


$                  3.80


$                  2.68









Basic weighted average shares outstanding

51,152


50,835


50,926


50,615

Diluted weighted average and equivalent shares outstanding

52,255


51,461


52,088


51,251

 

ZEBRA TECHNOLOGIES CORPORATION AND SUBSIDIARIES

GAAP TO NON-GAAP RECONCILIATION

(Amounts in thousands)

(Unaudited)










Three Months Ended 


Nine Months Ended 


October 3, 2015


September 27, 2014


October 3, 2015


September 27, 2014

Net (Loss) Income to EBITDA




and Adjusted EBITDA








Net (loss) income

$            (28,950)


$              14,945


$          (130,505)


$              84,108

Income tax expense (benefit)

3,408


9,861


(5,867)


25,240

Total other expense

50,563


2,150


167,364


4,081

Operating  income

25,021


26,956


30,992


113,429









Depreciation

20,054


6,530


50,630


19,287

Amortization of intangible assets

58,499


2,597


189,788


7,936

EBITDA (Non-GAAP)

103,574


36,083


271,410


140,652









Acquisition and integration costs

37,010


35,326


94,507


60,617

Purchase accounting adjustments

4,230


-


15,993


-

Exit and restructuring costs

5,734


(120)


34,852


434

Equity/liability awards

8,884


3,194


26,403


10,304

Adjusted EBITDA (Non-GAAP)

$            159,432


$              74,483


$            443,165


$            212,007









Adjusted EBITDA % of Sales

17.3%


24.6%


16.3%


24.1%

 

Logo - http://photos.prnewswire.com/prnh/20140731/132232

 

SOURCE Zebra Technologies Corporation



RELATED LINKS

http://www.zebra.com