- Achieved strong fourth-quarter net sales at the top end of our guidance
- Fourth-quarter net income of $17 million; non-GAAP net income of $102 million
- Fourth-quarter adjusted EBITDA increased 18% year-over-year to $179 million; and adjusted EBITDA margin expanded 310 basis points to 19.0%
- $382 million repayment of debt principal in 2016
- Generated $372 million of cash from operations and $295 million of free cash flow in 2016
LINCOLNSHIRE, Ill. — Feb. 23 2017 — 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 fourth quarter and full year ended December 31, 2016.
“We delivered solid fourth-quarter and full-year results, driven largely by strong demand for our innovative solutions. We returned to organic sales growth, expanded gross margin and reduced operating expenses, resulting in a significant improvement in profitability. We also continued to realise working capital efficiencies and divested the non-core wireless LAN business, enabling Zebra to exceed our debt reduction goals,” said Anders Gustafsson, chief executive officer of Zebra Technologies. “I’m proud of our teams for a strong finish to the year and success in extending Zebra’s leadership in the markets we serve. Zebra is well positioned to continue to deliver visibility solutions for the smarter enterprise and drive shareholder value.”
Reported (GAAP) results
GAAP net sales were $942 million in the fourth quarter of 2016 compared to $951 million in the fourth quarter of 2015. Fourth quarter 2016 gross profit was $432 million compared to $428 million in the comparable prior year period. Net income for the fourth quarter of 2016 was $17 million, or $0.34 per diluted share, compared with a net loss of $28 million, or $0.53 per diluted share, for the fourth quarter of 2015.
Adjusted (Non-GAAP) results
Consolidated adjusted net sales were $944 million in the fourth quarter of 2016 compared to $955 million in the fourth quarter of 2015. Consolidated organic net sales growth for the fourth quarter was 3.5%. Net sales in the Enterprise segment were $617 million in the fourth quarter of 2016, compared with $635 million in the fourth quarter of 2015. Legacy Zebra segment adjusted net sales were $327 million in the fourth quarter of 2016 compared to $320 million in the fourth quarter of 2015. On a constant currency basis, and excluding purchase accounting adjustments, fourth-quarter year-over-year adjusted net sales grew approximately 3% in the Legacy Zebra segment and declined approximately 1% in the Enterprise segment. Sales results from the divested wireless LAN business negatively impacted sales growth in the Enterprise segment by approximately 5 percentage points.
Adjusted gross margin for the quarter was 46.1%, compared to 45.2% in the prior year period. The increase was primarily due to lower service and product costs. Adjusted operating expenses for the fourth quarter were $275 million compared to $299 million in the prior year period due to lower sales and marketing and research and development expenses, as well as the divestiture of the wireless LAN business in October 2016.
Adjusted EBITDA for the fourth quarter of 2016 was $179 million, or 19.0% of adjusted net sales compared to $152 million, or 15.9% of adjusted net sales for the fourth quarter of 2015, primarily due to higher gross margins and lower operating expenses.
Non-GAAP net income for the fourth quarter of 2016 was $102 million, or $1.93 per diluted share, compared with $68 million, or $1.30 per diluted share, for the fourth quarter of 2015.
Tax adjustments and changes in profitability mix by jurisdiction had an approximate $0.16 positive impact to non-GAAP earnings per share in the fourth quarter of 2016.
Balance Sheet and Cash Flow
As of December 31, 2016, the company had cash and cash equivalents of $156 million and total long-term debt of $2.6 billion.
Free cash flow was $99 million and $295 million in the fourth quarter and full year of 2016, respectively.
For the fourth quarter of 2016, the company generated $127 million of cash flow from operations and incurred capital expenditures of $28 million. Also, in the fourth quarter Zebra received $39 million of net cash proceeds from the divestiture of the wireless LAN business. The company made $147 million in term loan principal payments and $59 million in scheduled cash interest payments in the fourth quarter.
For the year 2016, the company generated $372 million of cash flow from operations and incurred capital expenditures of $77 million. The company made $382 million in term loan principal payments and $180 million in scheduled cash interest payments during the full year.
Mr. Gustafsson added, “Zebra entered 2017 with an unmatched portfolio of innovative solutions, a solid backlog, and a healthy pipeline of opportunities to drive profitable sales growth. dditionally, we are committed to further deleveraging our capital structure and are on track to exceed our two-year debt paydown target of $650 million.”
First Quarter 2017
The company expects first-quarter 2017 adjusted net sales to change approximately (2)% to 1% from adjusted net sales of $852 million in the first quarter of 2016. The company expects organic net sales growth of approximately 3% to 6% in the first quarter. This expectation excludes a 4 percentage point adverse impact from wireless LAN business sales, as well as an estimated 1 percentage point adverse impact from foreign currency translation.
Adjusted EBITDA margin is expected to be approximately 17% for the first quarter 2017, an improvement from the prior year period. Non-GAAP earnings per diluted share are expected to increase from the prior year period to be in the range of $1.20 to $1.40, assuming an effective tax rate in the low- to mid-20% range.
Full Year 2017
The company expects low-single digit organic net sales growth for the full year 2017, excluding a 3 percentage point adverse impact from wireless LAN business sales, as well as an estimated 1 percentage point adverse impact from foreign currency translation. The company expects organic net sales growth to moderate through 2017 considering year-over-year comparisons.
Adjusted EBITDA margin is expected to be in the range of 18% to 19% for the full year 2017, an improvement compared to the full year 2016.
For the full year 2017, the company expects to make debt principal payments totalling at least $300 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 fourth quarter and full year of 2016. The conference call will be held today, Thursday, Feb. 23, 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.
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 nformation, 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 organisations 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,” “Non-GAAP earnings per share,” “free cash flow,” “organic net sales growth,” “adjusted operating expenses,” and “constant currency.” 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 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, shouldn't 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 constant currency financial information 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 programme 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.
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
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