ZEBRA TECHNOLOGIES CORPORATION LINCOLNSHIRE, Ill., Aug. 9, 2016 /PRNewswire/ -- Zebra Technologies Corporation (NASDAQ: ZBRA), a global leader in providing solutions and services that give enterprises real-time visibility into their operations, today announced results for the second quarter ended July 2, 2016.
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"Our solid second quarter results reflected sales in-line with our expectations, gross margin expansion, lower expenses, and improved profitability versus the prior year, against a challenging macro-economic backdrop. Furthermore, we continued to make steady progress on our integration of the Enterprise business," said Anders Gustafsson, CEO of Zebra Technologies. "We are reiterating our full year outlook with the assumption of no material change to the macro environment, and we remain fully committed to our strategic priorities. We are well positioned as the leader in helping enterprises improve visibility into their operations and are encouraged by our growth prospects going forward."
In millions, except per share amounts 2Q16 2Q15 Change
------------------------------------- ---- ---- ------
Select reported measures:
Net sales $879 $890 (1.2)%
Gross profit $406 $393 3.3%
Gross margin 46.2% 44.2% 200 bps
Net loss $(49) $(77) 36.4%
Reported loss per share $(0.95) $(1.50) 36.7%
Select non-GAAP measures:
Adjusted net sales $882 $894 (1.3)%
Adj. net sales decline - constant currency (0.3)%
Adjusted gross profit $409 $398 2.8%
Adjusted gross margin 46.4% 44.5% 190 bps
Adjusted EBITDA $144 $131 9.9%
Adjusted EBITDA margin 16.3% 14.6% 170 bps
Non-GAAP net income $70 $53 32.1%
Non-GAAP earnings per diluted share $1.34 $1.03 30.1%
----------------------------------- ----- ----- ----
Note: Non-GAAP measures exclude
certain items on a tax-effected
basis. Refer to the tables
included in this press release for
reconciliations of GAAP to non-
GAAP financial results.
Reported Financial Results
Net sales for the three months ended July 2, 2016, were $879 million, compared with $890 million for the second quarter of 2015. The net loss for the second quarter of 2016 was $49 million, or $0.95 per share, compared with $77 million, or $1.50 per share, for the second quarter of 2015.
Non-GAAP Financial Results
Adjusted net sales were $882 million, compared to $894 million in the second quarter of 2015; and adjusted gross margin was 46.4% in the second quarter of 2016 compared to 44.5% in the second quarter of 2015. Both adjusted net sales and gross margin exclude the impact of purchase accounting adjustments in 2016 and 2015.
Operating expenses for the second quarter of 2016 were $384 compared to $407 million in the prior year's second quarter. Operating expenses for the second quarter of 2016 include $39 million in acquisition and integration costs and exit and restructuring costs, versus $49 million in the prior year quarter, as well as $60 million for amortization of intangible assets, compared with $63 million for the second quarter of 2015. Adjusted (non-GAAP) metrics exclude these specific operating expense items.
Non-GAAP net income was $70 million, or $1.34 per diluted share, compared with $53 million, or $1.03 per diluted share, for the second quarter of 2015.
Discussion and Analysis
Adjusted net sales in the Enterprise segment accounted for $577 million compared to $574 million in the second quarter of 2015. Legacy Zebra segment net sales were $305 million compared to $320 million in the second quarter of 2015. On a constant currency basis, and excluding the purchase accounting adjustments, second quarter year-over-year adjusted net sales declined 0.3%, with the Enterprise segment growing approximately 1%, and the Legacy Zebra segment declining by approximately 3%.
Adjusted gross margin for the quarter was 46.4%, compared to 44.5% in the prior year period, and reflects an increase primarily due to favorable changes in sales mix, improved margin on services, product cost reduction initiatives, and reductions in other costs.
Adjusted EBITDA for the second quarter of 2016 was $144 million, or 16.3% of adjusted net sales compared to $131 million, or 14.6% of adjusted net sales for the second quarter of 2015, primarily due to higher gross margin and lower operating expenses, partially offset by unfavorable foreign currency changes versus the prior year period.
Tax adjustments and estimation changes related to profitability mix by jurisdiction had an approximate $0.14 positive impact to non-GAAP earnings per share in the second quarter of 2016.
Balance Sheet and Cash Flow
As of July 2, 2016, the company had cash of $141 million and total long term debt of $2.9 billion.
For the first half of 2016, the company made $99 million in scheduled cash interest payments and $145 million in term loan principal payments.
For the first half of 2016, the company generated $122 million of cash flow from operations and incurred capital expenditures of $35 million.
Outlook
Full Year 2016
The company continues to expect full year 2016 net sales, excluding purchase accounting adjustments, to change approximately (3)% to 1% from the comparable net sales of $3,668 million for the full year 2015. This view reflects an expectation of year-over-year growth of (2)% to 2% on a constant currency basis.
Adjusted EBITDA margin is expected to be approximately 17% for the full year 2016.
The company expects to pay down $300 million of debt principal in 2016.
Third Quarter
The company expects third quarter 2016 adjusted net sales to decline approximately (3)% to 0% from the comparable net sales of $919 million in the third quarter of 2015. This expectation reflects year-over-year growth of (2)% to 1% on a constant currency basis.
Adjusted EBITDA margin is expected to be approximately 17% for the third quarter 2016. Non-GAAP earnings are expected to be in the range of $1.30 to $1.50 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 second quarter of 2016. The conference call will be held at 7:30 a.m. Central Time (8:30 a.m. Eastern Time) today. To view the webcast, visit the investor relations section of the company's website at investors.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. 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, 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. 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.
About Zebra
With the unparalleled 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 - give 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. Follow us on LinkedIn, Twitter and Facebook.
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" 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 net sales to adjusted net sales, gross profit to adjusted gross profit, 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.
Contacts
Investors: Media:
---------- ------
Michael Steele , CFA, IRC Therese Van Ryne
Vice President, Investor Relations Director, Global Public Relations
Phone: + 1 847 793 6707 Phone: + 1 847 370 2317
msteele@zebra.com therese.vanryne@zebra.com
ZEBRA TECHNOLOGIES CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Amounts in millions)
July 2, December 31,
2016 2015
---- ----
Assets (Unaudited)
Current assets:
Cash and cash equivalents $141 $192
Accounts receivable, net 631 674
Inventories, net 362 394
Prepaid expenses and other current assets 88 72
Total Current assets $1,222 $1,332
------ ------
Property and equipment, net 301 298
Goodwill 2,496 2,493
Other intangibles, net 640 757
Long-term deferred income taxes 54 52
Other long-term assets 78 92
--- ---
Total Assets $4,791 $5,024
====== ======
Liabilities and Stockholders' Equity
Current liabilities:
Accounts payable $347 $289
Accrued liabilities 303 358
Deferred revenue 209 198
Income taxes payable - 31
--- ---
Total Current liabilities $859 $876
Long-term debt 2,873 3,012
Long-term deferred revenue 118 124
Other long-term liabilities 110 99
Total Liabilities $3,960 $4,111
------ ------
Stockholders' Equity:
Preferred stock
Class A common stock 1 1
Additional paid-in capital 189 194
Treasury stock (615) (631)
Retained earnings 1,320 1,398
Accumulated other comprehensive loss (64) (49)
Total Stockholders' Equity 831 913
--- ---
Total Liabilities and Stockholders' Equity $4,791 $5,024
====== ======
ZEBRA TECHNOLOGIES CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(Amounts in millions, except share data)
(Unaudited)
Three Months Ended Six Months Ended
------------------ ----------------
July 2, 2016 July 4, 2015 July 2, 2016 July 4, 2015
------------ ------------ ------------ ------------
Net sales
Net sales of
tangible products $753 $762 $1,467 $1,517
Revenue from
services and
software 126 128 259 266
Total net sales $879 $890 $1,726 $1,783
---- ---- ------ ------
Cost of sales
Cost of sales of
tangible products 387 407 760 793
Cost of services
and software 86 90 170 188
Total cost of sales 473 497 930 981
--- --- --- ---
Gross profit 406 393 796 802
--- --- --- ---
Operating expenses:
Selling and
marketing 112 125 233 247
Research and
development 95 100 188 196
General and
administrative 78 70 152 136
Amortization of
intangible assets 60 63 119 131
Acquisition and
integration costs 34 31 71 57
Exit and
restructuring
costs 5 18 11 29
Total operating
expenses 384 407 774 796
--- --- --- ---
Operating (loss)
income 22 (14) 22 6
--- --- --- ---
Other (expense) income:
Foreign exchange
(loss) income (5) 11 (4) (16)
Interest expense
and other, net (51) (50) (101) (101)
Total other
(expenses) (56) (39) (105) (117)
--- --- ---- ----
(Loss) income from
continuing
operations before
income taxes (34) (53) (83) (111)
Income tax expense
(benefit) 15 24 (5) (9)
--- --- --- ---
Net (loss) income $(49) $(77) $(78) $(102)
==== ==== ==== =====
Basic (loss)
earnings per share $(0.95) $(1.50) $(1.51) $(2.00)
Diluted (loss)
earnings per share $(0.95) $(1.50) $(1.51) $(2.00)
Basic weighted
average shares
outstanding 51,533 50,917 51,405 50,798
Diluted weighted
average and
equivalent shares
outstanding 51,533 50,917 51,405 50,798
ZEBRA TECHNOLOGIES CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF COMPREHENSIVE (LOSS) INCOME
(Amounts in millions)
(Unaudited)
Three months ended Six months ended
July 2, July 4, July 2, July 4,
2016 2015 2016 2015
---- ---- ---- ----
Net (loss) income $(49) $(77) $(78) $(102)
Unrealized gain (loss)
on anticipated sales
hedging transactions,
net of tax 11 (5) (4) (3)
Unrealized (loss) gain
on forward interest
rate swaps hedging
transactions, net of
tax (3) 3 (10) (4)
Foreign currency
translation
adjustment (6) (8) (1) (10)
Comprehensive (loss)
income $(47) $(87) $(93) $(119)
==== ==== ==== =====
ZEBRA TECHNOLOGIES CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Amounts in millions)
(Unaudited)
Six Months Ended
July 2, 2016 July 4, 2015
------------ ------------
Cash flows from operating activities:
Net (loss) income $(78) $(102)
Adjustments to reconcile net (loss) income to net cash provided by operating
activities:
Depreciation and amortization 154 162
Amortization of debt issuance cost and
discount 11 10
Share-based compensation 12 18
Excess tax benefit from share-based
compensation (2) (11)
Deferred income taxes 3 (25)
Unrealized (gain) loss on forward interest
rate swaps (2) -
All other, net 4 1
Changes in assets and liabilities, net of businesses acquired:
Accounts receivable, net 46 48
Inventories, net 32 (23)
Other assets 20 (17)
Accounts payable 51 (43)
Accrued liabilities (66) 1
Deferred revenue 4 16
Income taxes (61) (18)
Other operating activities (6) 3
Net cash provided by operating activities 122 20
--- ---
Cash flows from investing activities:
Acquisition of businesses, net of cash
acquired - (49)
Purchases of property and equipment (35) (49)
Proceeds from sale of long-term investments - 2
Purchases of long-term investments (1) -
Purchases of investments and marketable
securities - (1)
Proceeds from sales of investments and
marketable securities - 25
Net cash used in investing activities (36) (72)
--- ---
Cash flows from financing activities:
Payment of debt (213) (130)
Proceeds from issuance of long-term debt 68 -
Proceeds from exercise of stock options and
stock purchase plan purchases 5 11
Taxes paid related to net share settlement
of equity awards (6) (13)
Excess tax benefit from share-based
compensation 2 11
--- ---
Net cash (used in) provided by financing
activities (144) (121)
Effect of exchange rate changes on cash 7 (16)
--- ---
Net (decrease) increase in cash and cash
equivalents (51) (189)
Cash and cash equivalents at beginning of
period 192 394
Cash and cash equivalents at end of period $141 $205
==== ====
Supplemental disclosures of cash flow information:
Income taxes paid, net 52 21
Interest paid 99 91
ZEBRA TECHNOLOGIES CORPORATION AND SUBSIDIARIES
SUPPLEMENTAL SALES INFORMATION
(Amounts in millions)
(Unaudited)
REPORTED NET SALES BY PRODUCT CATEGORY
Three Months Ended
------------------
July 2, 2016 July 4, 2015 Percent Change Percent of Net Percent of Net
Sales 2016 Sales 2015
----------
Product category
----------------
Hardware $685 $695 -1.4 77.9 78.1
Supplies 68 67 1.5 7.8 7.5
Service and
software 126 128 -1.6 14.3 14.4
Total Net
sales $879 $890 -1.2 100.0 100.0
==== ==== ===== =====
Six Months Ended
----------------
July 2, 2016 July 4, 2015 Percent Change Percent of Net Percent of Net
Sales 2016 Sales 2015
---------- ----------
Product
category
---------
Hardware $1,329 $1,383 -3.9 77.0 77.6
Supplies 138 134 3.0 8.0 7.5
Service and
software 259 266 -2.6 15.0 14.9
---- ----
Total net
sales $1,726 $1,783 -3.2 100.0 100.0
====== ====== ===== =====
REPORTED NET SALES BY GEOGRAPHIC REGION
Three Months Ended
------------------
July 2, 2016 July 4, 2015 Percent Change Percent of Net Percent of Net
Sales 2016 Sales 2015
---------- ----------
Geographic region
-----------------
Europe, Middle
East and Africa $283 $303 -6.6 32.2 34.0
Latin America 53 55 -3.6 6.0 6.2
Asia-Pacific 129 118 9.3 14.7 13.3
--- --- ---- ----
Total
International 465 476 -2.3 52.9 53.5
North America 414 414 0.0 47.1 46.5
---- ----
Total Net sales $879 $890 -1.2 100.0 100.0
==== ==== ===== =====
Six Months Ended
----------------
July 2, 2016 July 4, 2015 Percent Change Percent of Net Percent of Net
Sales 2016 Sales 2015
---------- ----------
Geographic region
-----------------
Europe, Middle
East and Africa $557 $594 -6.2 32.2 33.3
Latin America 98 108 -9.3 5.7 6.0
Asia-Pacific 243 224 8.5 14.1 12.6
--- --- ---- ----
Total
International 898 926 -3.0 52.0 51.9
North America 828 857 -3.4 48.0 48.1
---- ----
Total net sales $1,726 $1,783 -3.2 100.0 100.0
====== ====== ===== =====
ZEBRA TECHNOLOGIES CORPORATION AND SUBSIDIARIES
RECONCILIATION OF GAAP TO NON-GAAP NET INCOME
(Amounts in millions, except share data)
(Unaudited)
Three Months Ended Six Months Ended
------------------ ----------------
July 2, 2016 July 4, 2015 July 2, 2016 July 4, 2015
------------ ------------ ------------ ------------
Net (loss) income $(49) $(77) $(78) $(102)
Income tax expense
(benefit) $15 $24 $(5) $(9)
Share-based
compensation $3 $9 $12 $18
Acquisition and
integration costs $34 $31 $71 $57
Exit and
restructuring
costs $5 $18 $11 $29
Purchase accounting
adjustments $3 $5 $6 $12
Foreign exchange
loss (income) $5 $(11) $4 $16
Amortization of
intangible assets $60 $63 $119 $131
Amortization of
debt issuance cost
and discount $6 $5 $11 $10
Forward interest
rate swaps
(income) gain $(1) $2 $(2) $(0)
Tax effects $(11) $(16) $(27) $(36)
Total adjustments $119 $130 $200 $228
---- ---- ---- ----
Non-GAAP net income $70 $53 $122 $126
=== === ==== ====
GAAP (loss) earnings per share
Basic $(0.95) $(1.50) $(1.51) $(2.00)
====== ====== ====== ======
Diluted $(0.95) $(1.50) $(1.51) $(2.00)
====== ====== ====== ======
Non-GAAP earnings per share
Basic $1.35 $1.05 $2.38 $2.48
===== ===== ===== =====
Diluted $1.34 $1.03 $2.35 $2.44
===== ===== ===== =====
Basic weighted
average shares
outstanding 51,533 50,917 51,405 50,798
Diluted weighted
average and
equivalent shares
outstanding 52,115 51,735 52,040 51,483
ZEBRA TECHNOLOGIES CORPORATION AND SUBSIDIARIES
GAAP to NON-GAAP RECONCILIATION
(Amounts in millions)
(Unaudited)
Three Months Ended Six Months Ended
------------------ ----------------
July 2, 2016 July 4, 2015 July 2, 2016 July 4, 2015
------------ ------------ ------------ ------------
EBITDA Reconciliation
Operating (loss) income $22 $(14) $22 $6
Depreciation 17 19 35 31
Amortization of intangible
assets 60 63 119 131
EBITDA (non-GAAP) $99 $68 $176 $168
--- --- ---- ----
Acquisition and integration
costs 34 31 71 57
Purchase accounting
adjustments 3 5 6 12
Exit and restructuring costs 5 18 11 29
Share-based compensation 3 9 12 18
Adjusted EBITDA (non-GAAP) $144 $131 $276 $284
==== ==== ==== ====
Adjusted EBITDA % of non-
GAAP Sales 16.3% 14.6% 15.9% 15.8%
==== ==== ==== ====
ZEBRA TECHNOLOGIES CORPORATION AND SUBSIDIARIES
GAAP to NON-GAAP RECONCILIATION
(Amounts in millions)
(Unaudited)
ADJUSTED NET SALES DECLINE
Three Months Ended
July 2, 2016
------------
Reported net sales
decline (1.2)%
Purchase accounting
adjustments (0.2)%
Exclusion of
foreign currency
translation impact 1.1%
---
Adjusted net sales
decline in
constant currency (0.3)%
=====
Six Months Ended
July 2, 2016
------------
Reported net sales decline (3.2)%
Purchase accounting adjustments (0.2)%
Exclusion of foreign currency
translation impact 1.6%
---
Adjusted net sales decline in
constant currency (1.8)%
=====
ADJUSTED NET SALES BY SEGMENT
Three Months Ended
------------------
July 2, 2016 July 4, 2015 Percent
Change
------
Legacy Zebra $305 $320 -4.7
Enterprise 577 574 0.5
--- ---
Adjusted net
sales $882 $894 -1.3
Purchase
accounting
adjustments (3) (4)
Reported net
sales $879 $890 -1.2
==== ====
Six Months Ended
----------------
July 2, 2016 July 4, 2015 Percent
Change
------
Legacy Zebra $618 $652 -5.2
Enterprise 1,114 1,141 -2.4
----- -----
Adjusted net
sales $1,732 $1,793 -3.4
Purchase
accounting
adjustments (6) (10)
Reported net
sales $1,726 $1,783 -3.2
====== ======
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SOURCE Zebra Technologies Corporation
