Zebra Technologies Announces 2015 Second Quarter Financial Results

Strong Sales Growth and Execution Drive Second Quarter Results

Aug 11, 2015, 06:30 ET from Zebra Technologies Corporation

LINCOLNSHIRE, Ill., Aug. 11, 2015 /PRNewswire/ -- Zebra Technologies Corporation (NASDAQ: ZBRA) today reported that net sales for the three months ended July 4, 2015, were $889.8 million, compared with $288.4 million for the second quarter of 2014. The GAAP net loss for the second quarter was $76.3 million, or $1.50 per share, compared with GAAP net income of $27.6 million, or $0.54 per diluted share, for the second quarter of 2014.  

 

Summary Financial Performance (Unaudited)

$ in millions except per share data

2Q15

2Q14

Change

GAAP net sales

$  889.8

$   288.4

208.5%

Gross margin (%)

44.2

49.3

       (5.1) pts.

GAAP net (loss) income

$  (76.3)

$    27.6

            NM

GAAP (loss) earnings per share

$  (1.50)

$    0.54

            NM

Non-GAAP net income

$    53.3

$    47.0

13.5%

Non-GAAP earnings per share

$    1.05

$    0.92

14.1%

Adjusted EBITDA

$  131.5

$    67.0

96.5%

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 second quarter of 2015, non-GAAP net income was $53.3 million, or $1.05 per share, compared with $47.0 million, or $0.92 per diluted share, for the second quarter of 2014. Adjusted EBITDA for the second quarter of 2015 were $131.5 million, versus $67.0 million for the second quarter of 2014. The company's calculation of non-GAAP results adjusts for certain items on a tax-effected basis, including stock-based compensation expense, acquisition and integration costs, exit and restructuring costs, purchase accounting adjustments, amortization of intangible assets, and foreign exchange gains or losses. Please refer to the tables included in this press release for reconciliations of GAAP to non-GAAP financial results.

"As we continue to execute our strategy as One Zebra, demand globally in mobile computing, scanning, and printing, bolstered top-line sales growth for the quarter," stated Anders Gustafsson, Zebra's chief executive officer. "With an industry-leading portfolio and close collaboration with channel partners and end users, we continue to differentiate ourselves with innovative solutions that help customers gain greater visibility into their operations and achieve higher levels of growth, efficiency and service."

Discussion and Analysis – Second Quarter

  • Net sales of $889.8 million, including a reduction of $4.4 million for a purchase accounting adjustment related to service contracts acquired with the Enterprise business, increased 208.5% from the comparable quarter a year ago. The Enterprise business acquired from Motorola Solutions accounted for $573.4 million of sales in the quarter, excluding the purchase accounting adjustment noted above. Sales of legacy Zebra were $320.8 million, up 11.2% from $288.4 million in the second quarter of 2014. The effect of movements in foreign currency, net of hedges, reduced legacy Zebra sales by $9.7 million.
  • Gross margin for the second quarter of 2015 of 44.2% includes an increase to costs of sales associated with purchase accounting adjustments, costs associated with the rebranding of Motorola product, as well as other costs not expected to recur. The purchase accounting adjustments and other cost factors negatively impacted gross margin percentage by approximately 1.1 percentage points. Compared to the 49.3% gross margin in the second quarter of 2014, gross margin percentage also reflects a change in mix associated with the sale of Enterprise products which generally have a lower gross margin than pre-transaction Zebra products and the impact of foreign currency movements, net of hedges.
  • Operating expenses for the second quarter of 2015 of $406.7 million, increased by $297.6 million from the prior year's second quarter, primarily as a result of the Enterprise acquisition. Operating expenses for the second quarter of 2015 include $49.1 million in acquisition, integration, exit and restructuring costs, versus $20.7 million for the prior year, as well as $63.7 million in amortization of intangible assets, compared with $2.7 million for the second quarter of 2014.
  • The company incurred a foreign exchange gain of $11.3 million related to changes in the valuation of net monetary assets. In addition, a net forward interest rate swaps loss of $1.7 million reflects a change in interest rates. Investment income was $1.6 million.
  • Interest expense of $49.3 million is related to debt funding for the acquisition of the Enterprise business from Motorola Solutions, and includes $5.1 million in amortization of debt issuance cost and discount.
  • Debt repayments in the quarter were $80 million, bringing total year-to-date repayments to $130 million.
  • As of July 4, 2015, the company had cash of $204.9 million, accounts receivable of $631.1 million, inventories of $404.5 million, and long-term debt of $3.0 billion.

Third Quarter Outlook

The company expects net sales in the third quarter of 2015 to be within a range of $900 million to $930 million. This forecast reflects an expectation of year-over-year growth of 4% to 7% in constant currency, on an estimated historical basis. Non-GAAP diluted earnings are expected in the range of $1.10 and $1.35 per share. Adjusted EBITDA are forecast within a range of $135 million and $150 million

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 second 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 financial forecast for the third quarter of 2015 stated in the paragraph above captioned "Third Quarter 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, 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)

(Unaudited)









July 4,
2015


December 31,
2014



Assets

(Unaudited)



Current assets:




Cash and cash equivalents

$            204,918


$            393,950

Investments and marketable securities

-


24,385

Accounts receivable, net 

631,067


670,402

Inventories, net

404,472


394,176

Deferred income taxes

98,993


122,772

Income tax receivable

92,366


12,988

Prepaid expenses and other current assets

67,304


53,377

Total Current assets

$         1,499,120


$         1,672,050





Property and equipment at cost, less accumulated depreciation and amortization

284,593


255,092

Goodwill

2,482,858


2,489,510

Other intangibles, net

898,004


1,029,293

Other long-term assets

95,005


93,121

Total Assets

$         5,259,580


$         5,539,066





Liabilities and Stockholders' Equity








Current liabilities:




Accounts payable

$            281,771


$            326,524

Accrued liabilities

363,095


421,070

Deferred revenue

215,458


196,213

Current portion of long-term debt

-


4,209

Income taxes payable

13,110


4,518

Total Current liabilities

$            873,434


$            952,534

Long-term debt

3,040,361


3,156,490

Long-term deferred tax liability

199,072


199,853

Long-term deferred revenue

109,089


115,847

Other long-term liabilities

86,034


74,434

Total Liabilities

$         4,307,990


$         4,499,158





Stockholders' Equity:




Preferred stock

-


-

Class A Common Stock

722


722

Additional paid-in capital

175,582


147,090

Treasury stock

(632,820)


(634,664)

Retained earnings

1,433,752


1,535,307

Accumulated other comprehensive loss

(25,646)


(8,547)

Total Stockholders' Equity

951,590


1,039,908

Total Liabilities and Stockholders' Equity

$         5,259,580


$         5,539,066






 

ZEBRA TECHNOLOGIES CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF OPERATIONS

(Amounts in thousands, except per share data)

(Unaudited)










Three Months Ended


Six Months Ended


July 4, 
2015


June 28,
2014


July 4,
2015


June 28,
2014

Net sales








  Net sales of tangible products

$ 761,935


$ 270,049


$ 1,517,257


$ 531,941

  Revenue from services and software

127,839


18,372


265,701


44,748

Total net sales

889,774


288,421


1,782,958


576,689









Cost of sales








  Cost of sales of tangible products

407,012


136,962


792,382


267,411

  Cost of services and software

89,884


9,290


188,176


19,171

Total cost of sales

496,896


146,252


980,558


286,582









Gross profit

392,878


142,169


802,400


290,107









Operating expenses:








   Selling and marketing

125,120


35,755


247,226


71,171

   Research and development

99,087


23,710


195,504


46,567

   General and administrative

69,659


26,321


135,795


54,712

   Amortization of intangible assets

63,700


2,667


131,289


5,339

   Acquisition and integration costs

31,166


20,364


57,497


25,291

   Exit and restructuring costs

17,949


287


29,118


554

Total operating expenses

406,681


109,104


796,429


203,634









Operating (loss) income

(13,803)


33,065


5,971


86,473









Other (expense) income:








   Investment income

1,575


379


1,378


800

   Foreign exchange income (loss)

11,252


43


(15,939)


(249)

   Forward interest rate swaps (loss) gain

(1,653)


(2,433)


36


(2,433)

   Interest expense

(49,331)


-


(100,296)


-

   Other, net

(707)


(57)


(1,980)


(49)

Total other (expenses)

(38,864)


(2,068)


(116,801)


(1,931)









(Loss) income from continuing operations before income taxes

(52,667)


30,997


(110,830)


84,542

Income tax expense (benefit)

23,591


3,440


(9,275)


15,379

Net (loss) income

$ (76,258)


$   27,557


$  (101,555)


$   69,163









Basic (loss) earnings per share

$     (1.50)


$       0.54


$        (2.00)


$       1.37

Diluted (loss) earnings per share

$     (1.50)


$       0.54


$        (2.00)


$       1.35









Basic weighted average shares outstanding

50,917


50,606


50,798


50,509

Diluted weighted average and equivalent shares outstanding

50,917


51,278


50,798


51,129

 

ZEBRA TECHNOLOGIES CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF COMPREHENSIVE (LOSS) INCOME

(Amounts in thousands)

(Unaudited)










Three months ended


Six months ended


July 4,
2015


June 28,
2014


July 4, 
2015


June 28,
2014












Net (loss) income

$  (76,258)


$  27,557


$  (101,555)


$  69,163









Unrealized (loss) gain on anticipated sales hedging transactions, net of tax

(4,642)


776


(2,952)


1,389

Unrealized gain (loss) on forward interest rate swaps hedging transactions, net of tax

3,164


-


(3,887)


-

Unrealized holding (loss) gain on investments, net of taxes

-


348


(16)


496

Foreign currency translation adjustment

(8,532)


(29)


(10,245)


(196)









Comprehensive (loss) income

$  (86,268)


$  28,652


$  (118,655)


$  70,852

 


ZEBRA TECHNOLOGIES CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

(Amounts in thousands)

(Unaudited)






Six Months Ended


July 4,
2015


June 28,
2014



Cash flows from operating activities:




Net (loss) income

$  (101,555)


$   69,163

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




operating activities:




Depreciation and amortization

161,865


18,096

Amortization of debt issuance cost and discount

9,662


-

Share-based compensation

17,519


7,110

Excess tax benefit from share-based compensation

(11,115)


(3,947)

Deferred income taxes

18,487


2,979

Unrealized (gain) loss on forward interest rate swaps

(36)


2,433

All other, net

584


49

Changes in assets and liabilities, net of businesses acquired:




Accounts receivable, net

48,081


11,359

Inventories, net

(22,755)


(5,061)

Other assets

(17,058)


2,583

Accounts payable

(43,092)


(5,336)

Accrued liabilities

730


3,535

Deferred revenue

15,684


502

Income taxes 

(60,800)


4,706

Other operating activities

3,311


1,742

Net cash provided by operating activities

19,512


109,913





Cash flows from investing activities:




Purchases of property and equipment

(49,291)


(7,962)

Acquisition of businesses, net of cash acquired

(48,805)


-

Proceeds from sale of long-term investments

1,748


-

Purchases of long-term investments

(168)


(1,213)

Purchases of investments and marketable securities

(739)


(276,400)

Maturities of investments and marketable securities

-


20,852

Proceeds from sales of investments and marketable securities 

25,108


150,781

Net cash used in investing activities

(72,147)


(113,942)





Cash flows from financing activities:




Payment of debt

(130,000)


-

Proceeds from exercise of stock options and stock purchase plan purchases

11,538


8,686

Taxes paid related to net share settlement of equity awards

(13,290)


(975)

Excess tax benefit from equity-based compensation

11,115


3,947

Net cash (used in) provided by financing activities 

(120,637)


11,658





Effect of exchange rate changes on cash

(15,760)


(107)





Net (decrease) increase in cash and cash equivalents

(189,032)


7,522

Cash and cash equivalents at beginning of period

393,950


62,827

Cash and cash equivalents at end of period

$  204,918


$   70,349





Supplemental disclosures of cash flow information:




Income taxes paid, net

21,354


7,627

Interest paid

91,431


-

 

ZEBRA TECHNOLOGIES CORPORATION AND SUBSIDIARIES

SUPPLEMENTAL SALES INFORMATION

(Amounts in thousands)

(Unaudited)


SALES BY PRODUCT CATEGORY












Three Months Ended 








July 4,
2015


June 28,
2014


Percent Change


Percent of
Net Sales 2015


Percent of
Net Sales 2014

Product category





Hardware 

$   694,702


$            204,770


239.3


78.0


71.0

Supplies 

67,233


65,279


3.0


7.6


22.6

Service and software 

127,839


18,372


595.8


14.4


6.4

    Total net sales 

$   889,774


$            288,421


208.5


100.0


100.0












Six Months Ended 








July 4,
2015


June 28,
2014


Percent Change


Percent of
Net Sales 2015


Percent of
Net Sales 2014

Product category





Hardware 

$  1,382,772


$     403,158


243.0


77.6


69.9

Supplies 

134,485


128,783


4.4


7.5


22.3

Service and software 

265,701


44,748


493.8


14.9


7.8

    Total net sales 

$  1,782,958


$     576,689


209.2


100.0


100.0





















SALES BY GEOGRAPHIC REGION












Three Months Ended 








July 4,
2015


 June 28,
2014 


Percent Change


Percent of
Net Sales 2015


Percent of
Net Sales 2014

Geographic region





Europe, Middle East and Africa

$   303,382


$       94,200


222.1


34.1


32.7

Latin America 

55,161


25,204


118.9


6.2


8.7

Asia-Pacific

117,466


40,334


191.2


13.2


14.0

    Total International

476,009


159,738


198.0


53.5


55.4

North America 

413,765


128,683


221.5


46.5


44.6

    Total net sales 

$   889,774


$     288,421


208.5


100.0


100.0












Six Months Ended 








July 4,
2015


June 28,
2014


Percent Change


Percent of
Net Sales 2015


Percent of
Net Sales 2014

Geographic region





Europe, Middle East and Africa

$   593,926


$    185,639


219.9


33.3


32.2

Latin America 

108,446


50,844


113.3


6.1


8.8

Asia-Pacific

223,849


78,301


185.9


12.6


13.6

    Total International

926,221


314,784


194.2


52.0


54.6

North America 

856,737


261,905


227.1


48.0


45.4

    Total net sales 

$  1,782,958


$     576,689


209.2


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 


Six Months Ended 


July 4,
2015


June 28,
2014


July 4,
2015


June 28,
2014





Net (loss) income

($76,258)


$27,557


($101,555)


$69,163









Income tax expense (benefit)

23,591


3,440


(9,275)


15,379

Share-based compensation

8,723


4,144


17,519


7,110

Acquisition and integration costs

31,166


20,364


57,497


25,291

Exit and restructuring costs

17,949


287


29,118


554

Purchase accounting adjustments

5,338


-


11,763


-

Foreign exchange loss (gain)

(11,252)


(43)


15,939


249

Amortization of intangible assets

63,700


2,667


131,289


5,339

Non-cash interest expense

5,103


-


9,662


-

Forward interest rate swaps loss (gain)

1,653


2,433


(36)


2,433

Tax effects

(16,383)


(13,888)


(36,147)


(29,721)

Total adjustments

$ 129,588


$ 19,404


$ 227,329


$ 26,634

Non-GAAP net income

$   53,330


$ 46,961


$ 125,774


$ 95,797









GAAP  (loss) earnings per share








       Basic

$     (1.50)


$     0.54


$     (2.00)


$     1.37

       Diluted

$     (1.50)


$     0.54


$     (2.00)


$     1.35

Non-GAAP  earnings per share








       Basic

$       1.05


$     0.93


$       2.48


$     1.90

       Diluted

$       1.05


$     0.92


$       2.48


$     1.87









Basic weighted average shares outstanding

50,917


50,606


50,798


50,509

Diluted weighted average and equivalent shares outstanding

50,917


51,278


50,798


51,129

 

 

ZEBRA TECHNOLOGIES CORPORATION AND SUBSIDIARIES

GAAP TO NON-GAAP RECONCILIATION

(Amounts in thousands)

(Unaudited)










Three Months Ended 


Six Months Ended 


July 4,
2015


June 28,
2014


July 4,
2015


June 28,
2014

Net (Loss) Income to EBITDA




and Adjusted EBITDA








Net (loss) income

($76,258)


$27,557


($101,555)


$69,163

Income tax expense (benefit)

23,591


3,440


(9,275)


15,379

Total other expense (income)

38,864


2,068


116,801


1,931

Operating (loss) income

$ (13,803)


$ 33,065


$     5,971


$   86,473









Depreciation

18,461


6,427


30,576


12,757

Amortization of intangible assets

63,700


2,667


131,289


5,339

EBITDA (Non-GAAP)

$   68,358


$ 42,159


$ 167,836


$ 104,569









Acquisition and integration costs

31,166


20,364


57,497


25,291

Purchase accounting adjustments

5,338


-


11,763


-

Exit and restructuring costs

17,949


287


29,118


554

Share-based compensation

8,723


4,144


17,519


7,110

Adjusted EBITDA (Non-GAAP)

$ 131,534


$ 66,954


$ 283,733


$ 137,524

 

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SOURCE Zebra Technologies Corporation



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