- Strong net sales above our guidance range
- Net income of $8 million and diluted EPS of $0.16
- Non-GAAP net income of $72 million and non-GAAP diluted EPS of $1.37
- Adjusted EBITDA increased 6% year-over-year to $149 million; and adjusted EBITDA margin expanded 80 basis points year-over-year to 17.2%
- Generated $117 million of cash from operations and $104 million of free cash flow
- Retired $80 million of debt principal
LINCOLNSHIRE, Ill., May 9, 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 first quarter ended April 1, 2017.
“During the quarter, our team extended Zebra’s leadership through superior execution of our strategy. As a result, we drove better-than-expected first quarter sales performance in our Enterprise segment and achieved earnings per share near the top end of our guidance range. We also retired another $80 million of debt, keeping us on track for at least $300 million of pay down for the full-year,” said Anders Gustafsson, chief executive officer of Zebra Technologies. “Given our strong start to 2017, we are raising our full-year sales growth outlook. As we implement the final steps of our integration process in the coming months, we will begin to drive additional operational efficiencies and improved profitable growth.”
Reported (GAAP) results
GAAP net sales were $865 million in the first quarter of 2017 compared to $849 million in the first quarter of 2016. First quarter 2017 gross profit was $401 million compared to $390 million in the comparable prior year period. Net income for the first quarter of 2017 was $8 million, or $0.16 per diluted share, compared to a net loss of $26 million, or $0.50 per diluted share, for the first quarter of 2016.
Adjusted (Non-GAAP) results
Consolidated adjusted net sales were $866 million in the first quarter of 2017 compared to $852 million in the first quarter of 2016, an increase of 1.6%. Consolidated organic net sales growth for the first quarter was 7.0%. Adjusted net sales in the Enterprise segment were $544 million in the first quarter of 2017, compared with $538 million in the first quarter of 2016. Legacy Zebra segment adjusted net sales were $322 million in the first quarter of 2017 compared to $314 million in the first quarter of 2016. On a constant currency basis, and excluding purchase accounting adjustments, first-quarter year-over-year adjusted net sales grew approximately 3% in the Legacy Zebra segment and approximately 2% in the Enterprise segment. Enterprise segment sales were negatively impacted by approximately 7 percentage points from the divestiture of the wireless LAN business.
Adjusted gross margin for the quarter was 46.4%, compared to 46.2% in the prior year period. The increase was primarily due to product cost reduction initiatives. Adjusted operating expenses for the first quarter were $272 million, in-line with the prior year period, as the decrease in operating expenses due to the divestiture of the wireless LAN business were offset by higher incentive compensation expense associated with improved operating performance.
Adjusted EBITDA for the first quarter of 2017 was $149 million, or 17.2% of adjusted net sales compared to $140 million, or 16.4% of adjusted net sales for the first quarter of 2016, primarily due to higher sales and higher gross margins.
Non-GAAP net income for the first quarter of 2017 was $72 million, or $1.37 per diluted share, compared with $56 million, or $1.06 per diluted share, for the first quarter of 2016.
Balance Sheet and Cash Flow
As of April 1, 2017, the company had cash and cash equivalents of $180 million and total long-term debt of $2.6 billion.
Free cash flow was $104 million in the first quarter of 2017. The company generated $117 million of cash flow from operations and incurred capital expenditures of $13 million. The company made $80 million in term loan principal payments and $16 million in scheduled cash interest payments in the first quarter.
Second Quarter 2017
The company expects second-quarter 2017 adjusted net sales to change approximately (2)% to 1% from adjusted net sales of $882 million in the second quarter of 2016. The company expects organic net sales growth of approximately 3% to 6% in the second 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 in the range of 17% to 18% for the second quarter 2017, an improvement from the prior year period. Non-GAAP earnings per diluted share are expected to be in the range of $1.35 to $1.55, assuming an effective tax rate in the low- to mid-20% range.
Full Year 2017
The company now expects low to mid-single digit organic net sales growth for the full year 2017, which is improved from our prior outlook, and excludes 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 totaling at least $300 million.
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 – 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.
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 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 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 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.
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