First-Quarter Financial Highlights
- Strong net sales of $977 million;
year-over-year growth of 13%
- Net income of $109 million and net
income per diluted share of $2.01
- Non-GAAP diluted EPS increased 87%
year-over-year to $2.56
- Adjusted EBITDA increased 37%
year-over-year to $204 million; and adjusted EBITDA margin expanded
370 basis points year-over-year to 20.9%
- $116 million of cash from operations
and $98 million of free cash flow; $95 million reduction of total
debt
Zebra Technologies Corporation
(NASDAQ: ZBRA), the market leader in rugged mobile computers,
barcode scanners and barcode printers enhanced with software and
services to enable real-time enterprise visibility, today announced
results for the first quarter ended March 31, 2018.
“Our first quarter results were driven by strong broad-based
market demand for our solutions and excellent operational execution
by our team. We delivered net sales, EBITDA margin, and earnings
per share above the respective guidance ranges. We also continued
to aggressively retire debt, reducing our net leverage ratio to
2.8x,” said Anders Gustafsson, chief executive officer of Zebra
Technologies. “Given our sales and margin outperformance, we are
raising our full-year outlook for sales growth, EBITDA margin, and
free cash flow. We continue to be laser focused on providing
innovative solutions that give our customers a performance edge on
the front lines of their business operations.”
$ in millions,
except per share amounts
1Q18 1Q17
Change Select reported measures:
Net sales $ 977 $ 865 12.9 % Gross profit 465 401 16.0 % Net income
109 8 NM Net income per diluted share $ 2.01 $ 0.16 NM
Select Non-GAAP measures: Adjusted net sales $ 977 $ 866 12.8 %
Organic net sales growth 9.8 % Adjusted gross profit 466 402 15.9 %
Adjusted gross margin 47.7 % 46.4 % 130 bps Adjusted EBITDA 204 149
36.9 % Adjusted EBITDA margin 20.9 % 17.2 % 370 bps Non-GAAP net
income $ 138 $ 72 91.7 % Non-GAAP earnings per diluted share
$ 2.56 $ 1.37 86.9 %
Reported (GAAP) results
Net sales were $977 million in the first quarter of 2018
compared to $865 million in the first quarter of 2017. Net sales in
the Enterprise Visibility & Mobility ("EVM") segment were $625
million in the first quarter of 2018 compared with $544 million in
the first quarter of 2017. Asset Intelligence & Tracking
("AIT") segment net sales were $352 million in the first quarter of
2018 compared to $322 million in the prior year period.
First-quarter 2018 gross profit was $465 million compared to $401
million in the comparable prior year period. Net income for the
first quarter of 2018 was $109 million, or $2.01 per diluted share,
compared to net income of $8 million, or $0.16 per diluted share,
for the first quarter of 2017.
As of January 1, 2018, the company adopted revenue standard ASC
606. Revenue would have been $1 million higher for the three-month
period ended March 31, 2018 had the Company continued to follow our
accounting policies under the previous revenue recognition
guidance.
Adjusted (Non-GAAP) results
Consolidated adjusted net sales were $977 million in the first
quarter of 2018 compared to $866 million in the prior year period,
an increase of 12.8%. Consolidated organic net sales growth for the
first quarter was 9.8% reflecting growth across all regions, most
notably EMEA and North America. First-quarter year-over-year
organic net sales growth was 11.7% in the EVM segment and 6.4% in
the AIT segment.
Consolidated adjusted gross margin for the first quarter of 2018
was 47.7%, compared to 46.4% in the prior year period. This
increase was due to favorable business mix and the favorable impact
of currency changes, primarily in the EMEA region. Adjusted
operating expenses increased in the first quarter of 2018 to $282
million from $272 million in the prior year period primarily due to
growth in the business and increased incentive compensation expense
related to improved operating results.
Adjusted EBITDA for the first quarter of 2018 increased to $204
million, or 20.9% of adjusted net sales, compared to $149 million,
or 17.2% of adjusted net sales, for the first quarter of 2017
primarily due to higher sales and gross profit margin.
Non-GAAP net income for the first quarter of 2018 was $138
million, or $2.56 per diluted share, compared with $72 million, or
$1.37 per diluted share, for the first quarter of 2017. Lower
interest costs and a lower tax rate also drove year-over-year
improvement.
Balance Sheet and Cash Flow
As of March 31, 2018, the company had cash and cash
equivalents of $64 million and total debt of $2,133 million.
Free cash flow in the first quarter of 2018 was $98 million,
consisting of $116 million of cash flow from operations and capital
expenditures of $18 million. In the first quarter, the company made
$95 million in long-term debt payments and $26 million in scheduled
cash interest payments.
Outlook
Second Quarter 2018
The company entered the second quarter of 2018 with a strong
order backlog and expects second-quarter 2018 net sales to increase
approximately 9% to 12% from the second quarter of 2017. This
expectation includes an approximately 3 percentage point positive
impact from foreign currency translation.
Adjusted EBITDA margin is expected to be in the range of 18.5%
to 19.0% for the second quarter 2018, favorable to the prior year
period. Non-GAAP earnings per diluted share are expected to be in
the range of $2.10 to $2.30. This assumes an effective tax rate of
approximately 16% to 17%.
Full Year 2018
The company now expects full year 2018 net sales growth to
increase approximately 6% to 9%, which is favorable to our prior
outlook and includes an anticipated 2 percentage point positive
impact from foreign currency translation.
Adjusted EBITDA margin is now expected to be approximately 20%
for the full year 2018, which is favorable to our prior outlook and
an improvement compared to the full year 2017.
For the full year 2018, the company expects free cash flow to
exceed $500 million, which is favorable to our prior outlook, and
to reduce financial leverage.
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
first quarter of 2018. The conference call will be held today,
Tuesday, May 8, at 7:30 a.m. Central Time (8:30 a.m. Eastern Time).
To view the webcast, visit the investor relations section of the
company’s website at investors.zebra.com.
About Zebra
With the unparalleled operational visibility Zebra (NASDAQ:
ZBRA) provides, enterprises become as smart and connected as the
world we live in. Real-time information – gleaned from visionary
solutions including hardware, software and services – gives
organizations the competitive edge they need to simplify
operations, know more about their businesses and customers, and
empower their mobile workers to succeed in today’s data-centric
world. For more information, visit www.zebra.com or sign up for our news alerts. Follow us on LinkedIn, Twitter and
Facebook.
Forward-Looking Statements
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. 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 could also affect profitability, reported results and
the company’s competitive position in its 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. 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. 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, including the company’s most recent Form
10-K.
Information regarding the impact of the TCJA consists of
preliminary estimates, based on current calculations,
interpretations, assumptions and expectations. These estimates may
change materially as we learn additional information about and
obtain additional guidance on the TCJA.
Use of Non-GAAP Financial Information
This press release contains certain Non-GAAP financial measures,
consisting of “adjusted net sales,” “adjusted gross profit,”
“EBITDA,” “Adjusted EBITDA,” “Non-GAAP net income,” “Non-GAAP
earnings per share,” “free cash flow,” “organic net sales growth,”
and “adjusted operating expenses.” 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. Please see the “Reconciliation of GAAP to Non-GAAP
Financial Measures” tables and accompanying disclosures at the end
of this press release for more detailed information regarding
non-GAAP financial measures herein, including the items reflected
in adjusted net earnings calculations. These measures, however,
should not be construed as an alternative to any other measure of
performance determined in accordance with GAAP.
The company does not provide a reconciliation for non-GAAP
estimates on a forward-looking basis (including the information
under “Outlook” above) where it is unable to provide a meaningful
or accurate calculation or estimation of reconciling items and the
information is not available without unreasonable effort. This is
due to the inherent difficulty of forecasting the timing or amount
of various items that have not yet occurred, are out of the
company’s control and/or cannot be reasonably predicted, and that
would impact diluted net earnings per share, the most directly
comparable forward-looking GAAP financial measure. For the same
reasons, the company is unable to address the probable significance
of the unavailable information. Forward-looking non-GAAP financial
measures provided without the most directly comparable GAAP
financial measures may vary materially from the corresponding GAAP
financial measures.
As a global company, Zebra's operating results reported in U.S.
dollars are affected by foreign currency exchange rate fluctuations
because the underlying foreign currencies in which the company
transacts change in value over time compared to the U.S. dollar;
accordingly, the company presents certain organic growth financial
information, which includes impacts of foreign currency
translation, to provide a framework to assess how the company’s
businesses performed excluding the impact of foreign currency
exchange rate fluctuations. Foreign currency impact represents the
difference in results that are attributable to fluctuations in the
currency exchange rates used to convert the results for businesses
where the functional currency is not the U.S. dollar. This impact
is calculated by translating, for certain currencies, current
period results at the currency exchange rates used in the
comparable period in the prior year, rather than the exchange rates
in effect during the current period. In addition, the company
excludes the impact of its foreign currency hedging program in both
the current year and prior year periods. The company believes these
measures should be considered a supplement to and not in lieu of
the company’s performance measures calculated in accordance with
GAAP.
ZEBRA TECHNOLOGIES CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(In millions, except share data)
March 31, December 31, 2018
2017 (Unaudited) Assets Current assets: Cash and cash
equivalents $ 64 $ 62
Accounts receivable, net of allowances for
doubtful accounts of $2 million and $3 million as of March 31, 2018
and December 31, 2017, respectively
471 479 Inventories, net 448 458 Income tax receivable 31 40
Prepaid expenses and other current assets 39 24 Total
Current assets 1,053 1,063 Property, plant and equipment, net 262
264 Goodwill 2,463 2,465 Other intangibles, net 276 299 Long-term
deferred income taxes 115 119 Other long-term assets 80 65
Total Assets $ 4,249 $ 4,275 Liabilities and
Stockholders’ Equity Current liabilities: Current portion of
long-term debt $ 43 $ 51 Accounts payable 411 424 Accrued
liabilities 221 296 Deferred revenue 201 186 Income taxes payable
56 43 Total Current liabilities 932 1,000 Long-term
debt 2,090 2,176 Long-term deferred revenue 144 148 Other long-term
liabilities 102 117 Total Liabilities 3,268
3,441 Stockholders’ Equity: Preferred stock, $.01 par value;
authorized 10,000,000 shares; none issued — — Class A common stock,
$.01 par value; authorized 150,000,000 shares; issued 72,151,857
shares 1 1 Additional paid-in capital 266 257 Treasury stock at
cost, 18,755,228 and 18,915,762 shares at March 31, 2018 and
December 31, 2017, respectively (616 ) (620 ) Retained earnings
1,376 1,248 Accumulated other comprehensive loss (46 ) (52 ) Total
Stockholders’ Equity 981 834 Total Liabilities and
Stockholders’ Equity $ 4,249 $ 4,275
ZEBRA TECHNOLOGIES CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(In millions, except share data)
(Unaudited)
Three Months Ended March 31, April
1, 2018 2017 Net sales Net sales of tangible
products $ 839 $ 735 Revenue from services and software 138
130 Total Net sales 977 865 Cost of sales:
Cost of sales of tangible products 423 379 Cost of services and
software 89
85
Total Cost of sales 512 464 Gross profit 465
401 Operating expenses: Selling and marketing 120 109
Research and development 101 96 General and administrative 71 75
Amortization of intangible assets 23 50 Acquisition and integration
costs 2 27 Exit and restructuring costs 4 4 Total
Operating expenses 321 361 Operating income 144
40 Other expenses: Foreign exchange loss — (1 )
Interest expense, net (11 ) (41 ) Total Other expenses (11 ) (42 )
Income (loss) before income taxes 133 (2 ) Income tax expense
(benefit) 24 (10 ) Net income $ 109 $ 8 Basic
earnings per share $ 2.04 $ 0.16 Diluted earnings per share $ 2.01
$ 0.16 Basic weighted average shares outstanding 53,286,249
51,842,025 Diluted weighted average and equivalent shares
outstanding 53,985,755 52,946,883
ZEBRA
TECHNOLOGIES CORPORATION AND SUBSIDIARIES CONSOLIDATED
STATEMENTS OF CASH FLOWS
(In millions)
(Unaudited)
Three Months Ended March 31, April
1, 2018 2017 Cash flows from operating
activities: Net income $ 109 $ 8 Adjustments to reconcile net
income to net cash provided by operating activities: Depreciation
and amortization 43 69 Amortization of debt issuance costs and
discounts 2 4 Share-based compensation 10 7 Deferred income taxes
(2 ) (9 ) Unrealized gain on forward interest rate swaps (12 ) —
Other, net (1 ) 1 Changes in operating assets and liabilities:
Accounts receivable, net 9 79 Inventories, net 6 (31 ) Other assets
(7 ) 17 Accounts payable (12 )
(52
) Accrued liabilities (74 )
—
Deferred revenue 19 30 Income taxes 22 (2 ) Other operating
activities 4 (4 ) Net cash provided by operating activities
116 117 Cash flows from investing activities:
Purchases of property, plant and equipment (18 ) (13 ) Purchases of
long-term investments (2 )
—
Net cash used in investing activities (20 ) (13 ) Cash flows
from financing activities: Payments of long-term debt (95 ) (80 )
Proceeds from exercise of stock options and stock purchase plan
purchases 3 4 Taxes paid related to net share settlement of equity
awards — (2 ) Net cash used in financing activities (92 )
(78 ) Effect of exchange rate changes on cash (2 ) (2 ) Net
increase in cash and cash equivalents 2 24 Cash and cash
equivalents at beginning of period 62 156 Cash and
cash equivalents at end of period $ 64 $ 180 Supplemental
disclosures of cash flow information: Income taxes paid $ 2 $ 5
Interest paid $ 26 $ 16
ZEBRA TECHNOLOGIES
CORPORATION AND SUBSIDIARIES RECONCILIATION OF ORGANIC NET
SALES GROWTH
(UNAUDITED)
Three Months Ended March 31,
2018 AIT EVM Consolidated
Reported GAAP Consolidated Net sales growth 9.3 % 14.9 % 12.9 %
Adjustments: Impact of foreign currency translation(1) (2.9 )%
(3.2 )% (3.1 )% Organic Net sales growth 6.4 %
11.7 % 9.8 % (1) Operating results reported in U.S.
dollars are affected by foreign currency exchange rate
fluctuations. Foreign currency translation impact represents the
difference in results that are attributable to fluctuations in the
currency exchange rates used to convert the results for businesses
where the functional currency is not the U.S. dollar. This impact
is calculated by translating, for certain currencies, the current
period results at the currency exchange rates used in the
comparable prior year period, rather than the exchange rates in
effect during the current period. In addition, we exclude the
impact of the company’s foreign currency hedging program in both
the current and prior year periods.
ZEBRA
TECHNOLOGIES CORPORATION AND SUBSIDIARIES RECONCILIATION OF
GAAP TO NON-GAAP GROSS MARGIN
(In millions)
(Unaudited)
Three Months Ended March 31, 2018
April 1, 2017 AIT EVM
Consolidated AIT EVM
Consolidated (1)
GAAP
Reported Net sales (1) $ 352 $ 625 $ 977 $ 322 $ 544 $ 865 Reported
Gross profit 183 282 465 162 240 401 Gross Margin 52.0 % 45.1 %
47.6 % 50.3 % 44.1 % 46.4 %
Non-GAAP
Adjusted Net sales $ 352 $ 625 $ 977 $ 322 $ 544 $ 866 Adjusted
Gross profit (2) 183 283 466 162 240 402 Adjusted Gross Margin 52.0
% 45.3 % 47.7 % 50.3 % 44.1 % 46.4 % (1)
Fiscal 2017 consolidated results include corporate
eliminations which are related to the Enterprise Acquisition in
October 2014 and are not reported in segment results. (2) Adjusted
Gross profit excludes purchase accounting adjustments and
share-based compensation expense.
ZEBRA
TECHNOLOGIES CORPORATION AND SUBSIDIARIES RECONCILIATION OF
GAAP TO NON-GAAP NET INCOME
(In millions, except share data)
(Unaudited)
Three Months Ended March 31, April
1, 2018 2017 Net income $ 109 $ 8
Adjustments to Net sales(1) Purchase accounting adjustments —
1 Total adjustment to Net sales — 1
Adjustments to Cost of sales(1) Share-based compensation 1 —
Total adjustments to Cost of sales 1 —
Adjustments to Operating expenses(1) Amortization of intangible
assets 23 50 Acquisition and integration costs 2 27 Share-based
compensation 10 8 Exit and restructuring costs 4 4
Total adjustments to Operating expenses 39 89
Adjustments to Other expenses, net(1) Amortization of debt issuance
costs and discounts 2 4 Foreign exchange loss — 1 Forward interest
rate swaps gain (12 ) — Total adjustments to Other expenses,
net (10 ) 5 Income tax effect of adjustments(2) Reported
income tax expense (benefit) 24 (10 ) Adjusted income tax expense
(25 ) (21 ) Total adjustments to income tax (1 ) (31 ) Total
adjustments 29 64 Non-GAAP Net income $ 138 $
72 GAAP earnings per share Basic $ 2.04 $ 0.16
Diluted $ 2.01 $ 0.16 Non-GAAP earnings per
share Basic $ 2.59 $ 1.40 Diluted $ 2.56 $
1.37 Non-GAAP weighted average shares outstanding (3)
Basic 53,286,249 51,842,025 Diluted 53,985,755 52,946,883
(1) Presented on a pre-tax basis. (2) Represents the adjustment to
the GAAP basis tax provision commensurate with non-GAAP
adjustments. (3) In periods of loss, Non-GAAP weighted-average
shares exclude restricted stock awards and performance stock awards
within basic and dilutive weighted-average share computations.
Share-based compensation awards that are dilutive in nature are
included within weighted-average dilutive share computations.
ZEBRA TECHNOLOGIES CORPORATION AND SUBSIDIARIES
GAAP to NON-GAAP RECONCILIATION
(In millions)
(Unaudited)
EBITDA
Three Months Ended March 31, April
1, 2018 2017 Net income $ 109 $ 8 Add back:
Depreciation 20 19 Amortization of intangible assets 23 50 Total
Other expenses, net 11 42 Income tax expense 24 (10 ) EBITDA
(Non-GAAP) 187 109 Adjustments to Net sales
Purchase accounting adjustments — 1 Total adjustments
to Net sales — 1 Adjustments to Cost of sales
Share-based compensation 1 — Total adjustments to
Cost of sales 1 — Adjustments to Operating expenses
Acquisition and integration costs 2 27 Share-based compensation 10
8 Exit and restructuring costs 4 4 Total adjustments
to Operating expenses 16 39 Total adjustments to
EBITDA 17 40 Adjusted EBITDA (Non-GAAP) $ 204
$ 149 Adjusted EBITDA % of Adjusted Net Sales 20.9 %
17.2 %
FREE CASH
FLOW
Three Months Ended March 31, April
1, 2018 2017 Net cash provided by operating
activities $ 116 $ 117 Less: Purchases of property, plant and
equipment (18 ) (13 ) Free cash flow (Non-GAAP)(1) $ 98 $
104 (1) Free cash flow is defined as Net cash
provided by operating activities in a period minus purchases of
property, plant and equipment (capital expenditures) made in that
period. This measure does not represent residual cash flows
available for discretionary expenditures as the measure does not
deduct the payments required for debt service and other contractual
obligations or payments for future business acquisitions.
Therefore, we believe it is important to view free cash flow as a
measure that provides supplemental information to our entire
statements of cash flows.
View source
version on businesswire.com: https://www.businesswire.com/news/home/20180508005442/en/
Zebra Technologies CorporationInvestorsMichael Steele, CFA, IRCVice President,
Investor RelationsPhone: + 1 847 793 6707msteele@zebra.comorMediaTherese Van RyneDirector, Global Public
RelationsPhone: + 1 847 370 2317therese.vanryne@zebra.com
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