LINCOLNSHIRE, Ill., Nov. 15, 2016 ─ 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 third quarter ended Oct. 1, 2016.
“We reported solid third-quarter results despite a challenging environment. Margin expansion and disciplined operating expense and working capital management enabled us to pay down $90 million of debt,” said Anders Gustafsson, CEO of Zebra Technologies. “In addition, we completed the sale of our wireless LAN business, which enables Zebra to enhance our focus on our core business while improving our growth profile. Our teams are focused on extending our leadership position in the markets we serve. We expect to finish the year in a strong position as we advance our strategic priorities and deliver innovative solutions to our customers, which allow them to improve visibility into their operations.”
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 Oct. 1, 2016, were $904 million, compared with $916 million for the third quarter of 2015. The net loss for the third quarter of 2016 was $83 million, or $1.61 per share, compared with $29 million, or $0.57 per share, for the third quarter of 2015.
Non-GAAP Financial Results
Adjusted net sales were $906 million, compared to $919 million in the third quarter of 2015; and adjusted gross margin was 45.9% in the third quarter of 2016 compared to 45.4% in the third 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 third quarter of 2016 were $438 million compared to $389 million in the prior year’s third quarter. Acquisition and integration and exit and restructuring costs were $35 million, an $8 million decrease from the prior year period. Amortization of intangible assets was $59 million in the third quarter of both 2016 and 2015. Operating expenses for the third quarter of 2016 also included non-cash impairment charges of $62 million related to goodwill and other intangibles. Adjusted (non-GAAP) metrics exclude these specific operating expense items.
Additionally, other net expense for the third quarter of 2016 includes a $5 million charge related to the impairment of one of the company's long-term investments, which is excluded from adjusted (non-GAAP) metrics.
Non-GAAP net income was $75 million, or $1.43 per diluted share, compared with $72 million, or $1.39 per diluted share, for the third quarter of 2015.
Discussion and Analysis
Adjusted net sales in the Enterprise segment were $605 million, consistent with the third quarter of 2015. Legacy Zebra segment net sales were $301 million compared to $314 million in the third quarter of 2015. On a constant currency basis, and excluding the purchase accounting adjustments, third 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 45.9%, compared to 45.4% in the prior year period, reflecting lower product and services costs, which was partially offset by a primarily one-time price concession to distributors of printer products imported into China.
Adjusted EBITDA for the third quarter of 2016 was $169 million, or 18.7% of adjusted net sales compared to $159 million, or 17.3% of adjusted net sales for the third quarter of 2015, primarily due to higher gross margin and lower selling and marketing and research and development expenses.
Balance Sheet and Cash Flow
As of Oct. 1, 2016, the company had cash of $163 million and total long term debt of $2.8 billion.
For the first nine months of 2016, the company made $121 million in scheduled cash interest payments and $235 million in term loan principal payments.
For the first nine months of 2016, the company generated $245 million of cash flow from operations and incurred capital expenditures of $49 million.
The company expects fourth quarter 2016 adjusted net sales to decline approximately (4)% to (1)% from the comparable net sales of $954 million in the fourth quarter of 2015. This expectation reflects year-over-year decline of (3)% to 0% on a constant currency basis. It also reflects an approximate 3 percentage point negative impact from the October 2016 divestiture of the wireless LAN business.
Adjusted EBITDA margin is expected to be in the range of 19% to 20% for the fourth quarter 2016. Non-GAAP earnings are expected to be in the range of $1.65 to $1.85 per share, assuming an effective tax rate of approximately 26%.
Additionally, the company is on track to pay down $300 million of debt principal in 2016, excluding the financial impact from the sale of its WLAN business. Net proceeds from the sale will be used to pay down debt.
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 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.
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.
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 or sign up for our news alerts. 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.
Michael Steele , CFA, IRC
Vice President, Investor Relations
Phone: + 1 847 793 6707
Therese Van Ryne
Director, Global Public Relations
Phone: + 1 847 370 2317