Lincolnshire, Ill., March 17, 2015 ─ Zebra Technologies Corporation (NASDAQ: ZBRA) today reported financial results for the 2014 fourth quarter and full year, which include two months of results of the Enterprise business that the company acquired from Motorola Solutions on October 27, 2014. Net sales were a record $790,611,000 for the fourth quarter of 2014, compared with $284,539,000 for the fourth quarter of 2013. The quarterly loss per share of $1.02 for 2014 includes $66,094,000 of acquisition and integration costs. Diluted earnings per share for the fourth quarter of 2013 were $0.82.
“Robust sales across products, geographies, customers and industries highlighted the strong finish to a transformative year for Zebra,” stated Anders Gustafsson, Zebra’s chief executive officer. “We have made significant progress on multiple fronts to drive performance and capture business synergies since acquiring the Enterprise business in October 2014. Customers and partners are responding well to the new Zebra, which has already yielded some early wins with our robust, industry-leading products and solutions. We have entered 2015 with favorable business momentum, and the outlook for Zebra is very bright. We are well positioned to benefit from important technology trends including the Internet of Things, cloud computing and mobility, as organizations invest in visibility solutions to gain real-time insights into their assets, transactions and people to achieve improved work flow and deliver better customer service.”
Non-GAAP Financial Results (unaudited)
Adjusted EBITDA for the fourth quarter of 2014 was $145,197,000, versus $67,311,000 for the 2013 fourth quarter. Quarterly EBITDA totaled $29,309,000, compared with $57,877,000 for the fourth quarter of 2013. For the fourth quarter of 2014, non-GAAP net income was $58,192,000, or $1.15 per diluted share, compared with $48,831,000, or $0.96 per diluted share, for the fourth quarter of 2013.
Discussion and Analysis – Fourth Quarter
- Net sales increased 177.9% from the comparable quarter a year ago. The Enterprise business acquired from
- Motorola Solutions contributed $476,036,000 to 2014 fourth quarter sales, including a purchase accounting reduction of $6,181,000 for deferred revenue on service contracts. Sales of pre-transaction Zebra totaled $314,575,000, up 10.6% from $284,539,000 for the fourth quarter of 2013. The effect of movements in foreign currency, net of hedges, was not material.
- Gross margin of 42.6%, versus 49.6% in 2013, reflects the mix of products sold during the quarter, including Enterprise products which generally have lower gross margins than Zebra products. Cost of sales for the fourth quarter of 2014 includes additional costs of $28,483,000 for the sale of inventory related to the Enterprise acquisition, which was recorded at fair value. The combination of the purchase accounting adjustments to sales and cost of sales reduced gross margin by 4.0 percentage points. The effect of movements in foreign currency, net of hedges, was not material.
- Operating expenses for the fourth quarter of 2014 were $361,251,000, an increase of $269,302,000 from the prior year’s fourth quarter, primarily as a result of the Enterprise acquisition. Operating expenses for the fourth quarter of 2014 include $66,094,000 in acquisition and integration costs, versus $3,322,000 in the prior year, and $46,160,000 in amortization of intangible assets, compared with $1,826,000 for the fourth quarter of 2013.
- The company incurred a foreign exchange loss of $8,427,000 related to changes in valuation of balance sheet items. In addition, a forward swap loss of $2,401,000 reflects a change in interest rates.
- Interest expense of $56,715,000 reflects the increase in debt related to funding the acquisition of the Enterprise business from Motorola Solutions, in addition to $18,750,000 for an unused bridge loan commitment.
- An income tax benefit of $41,040,000, compared with income taxes of $8,681,000, reflects a loss on North American operations primarily as a result of transaction and integration costs and debt financing related to the Enterprise acquisition, which is partially offset by income generated in non-U.S. jurisdictions.
As of December 31, 2014, Zebra had cash and investments of $418,335,000, accounts receivable of $670,402,000, inventories of $394,176,000, and long-term debt of $3,182,962,000.
First Quarter Outlook
Zebra announced its financial forecast for the first quarter of 2015. The company expects net sales within a range of $870,000,000 to $890,000,000. This forecast incorporates an expectation of year-over-year growth of 6.0% to 8.0% in constant currency, on a proforma basis. Non-GAAP diluted earnings are expected in the range of $0.95 and $1.20 per share. Adjusted EBITDA are forecast within a range of $125,000,000 and $140,000,000 for the first quarter of 2015.
Conference Call Notification
Investors are invited to listen to a live webcast of Zebra’s conference call discussing the company’s financial results for the fourth quarter of 2014. The conference call will be held at 7:30 a.m. Eastern Time today. To listen to the call, visit the company’s website at www.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 financial forecast for the first quarter of 2015 stated in the paragraph above captioned “First 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,” “estimate,” 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.
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 NonGAAP 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.
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Douglas A. Fox, CFA
Vice President, Investor Relations and Treasurer
Director, Corporate Communications and Public Relations