- Strong net sales of $935 million, above the company’s guidance range
- Net loss of $(12) million and diluted loss per share of $(0.23)
- Non-GAAP net income of $101 million and non-GAAP diluted EPS of $1.87
- Adjusted EBITDA increased 10% year-over-year to $180 million; and adjusted EBITDA margin expanded 110 basis points year-over-year to 19.2%
- Redeemed $750 million of its 7.25% senior notes
LINCOLNSHIRE, Ill., Nov. 7, 2017 — Zebra Technologies Corporation (NASDAQ: ZBRA), the market leader in rugged mobile computers, barcode scanners and barcode printers enhanced with software and services to enable real-time enterprise visibility, today announced results for the third quarter ended September 30, 2017.
“In the third quarter, we drove higher sales across our major product categories. Our team managed costs well, enabling us to exceed the high end of our profit expectations. We also began executing on our debt restructuring plan, which significantly reduces interest costs,” said Anders Gustafsson, chief executive officer of Zebra Technologies. “Looking ahead to Q4, we expect strong operating performance and free cash flow to enable at least $300 million of debt paydown for the year. We continue to advance our Enterprise Asset Intelligence strategy through our leading portfolio of innovative products and Savanna, our IoT data intelligence platform.”
Reported (GAAP) results
Net sales were $935 million in the third quarter of 2017 compared to $904 million in the third quarter of 2016. Net sales in the Enterprise segment were $611 million in the third quarter of 2017 compared with $605 million in the third quarter of 2016. Legacy Zebra segment net sales were $325 million in the third quarter of 2017 compared to $301 million in the prior year period. Third quarter 2017 gross profit was $429 million compared to $414 million in the comparable prior year period. Net loss for the third quarter of 2017 was $(12) million, or $(0.23) per diluted share, compared to a net loss of $(83) million, or $(1.61) per diluted share, for the third quarter of 2016.
Adjusted (Non-GAAP) results
Consolidated adjusted net sales were $936 million in the third quarter of 2017 compared to $906 million in the prior year period, an increase of 3.3%. Consolidated organic net sales growth for the third quarter was 5.9% reflecting growth across all regions, most notably Latin America, EMEA, and North America. Third-quarter year-over-year organic net sales growth was 5.5% in the Enterprise segment and 6.6% in the Legacy Zebra segment.
Consolidated adjusted gross margin for the third quarter of 2017 was 46.0%, compared to 45.9% in the prior year period. This improvement was due to the unfavorable impact of a price concession to distributors of printer products imported into China in the third quarter of 2016 and favorable changes in business mix, partially offset by temporarily higher supply chain related overhead costs and higher support services costs. Adjusted operating expenses decreased in the third quarter of 2017 to $270 million from $273 million in the prior year period due to improving operating efficiency and the divestiture of the wireless LAN business in 2016.
Adjusted EBITDA for the third quarter of 2017 increased to $180 million, or 19.2% of adjusted net sales, compared to $164 million, or 18.1% of adjusted net sales, for the third quarter of 2016 primarily due to higher gross profit and lower operating expenses.
Non-GAAP net income for the third quarter of 2017 was $101 million, or $1.87 per diluted share, compared with $75 million, or $1.43 per diluted share, for the third quarter of 2016.
Balance Sheet and Cash Flow
As of September 30, 2017, the company had cash and cash equivalents of $88 million and total debt of $2.5 billion.
As previously disclosed, in the third quarter of 2017, the company began executing on its debt restructuring plan which included an amended senior secured credit facility. This facility includes a new $687.5 million Term Loan A and a $500 million revolving credit facility (increased from $250 million). Proceeds from the new facility were used to redeem $750 million of its 7.25% senior notes.
Free cash flow was $174 million for the first nine months of 2017. The company generated $210 million of operating cash flow and incurred capital expenditures of $36 million. For the first nine months of 2017, the company made payments of long-term debt of $1,373 million and received proceeds from the issuance of long-term debt of $1,186 million, resulting in a $187 million net reduction of total debt. The company made cash interest payments of $148 million for the first nine months of 2017, which included $49 million of accelerated interest payments resulting from the early redemption of the senior notes.
The company expects fourth-quarter 2017 adjusted net sales to increase approximately 3% to 6% from adjusted net sales of $944 million in the fourth quarter of 2016. The company expects organic net sales growth of approximately 2% to 5% in the fourth quarter. This expectation excludes an approximately 2 percentage point positive impact from foreign currency translation and an approximately 1 percentage point adverse impact from wireless LAN business sales.
Adjusted EBITDA margin is expected to be approximately 19% to 20% for the fourth quarter 2017, favorable to the prior year period. Non-GAAP earnings per diluted share are expected to be in the range of $2.00 to $2.20, assuming an effective tax rate in the low- to mid-20% range.
Additionally, for the full year 2017, the company continues to expect to reduce total debt balances by 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 third quarter of 2017. The conference call will be held today, Tuesday, Nov. 7, 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.
With the unparalleled operational 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.
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 could also affect profitability, reported results and the company’s competitive position in its 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.
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,” and “adjusted operating expenses.” 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 organic growth financial information, which includes impacts of foreign currency translation, 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