First-Quarter Financial Highlights
- Net sales of $1,405 million; year-over-year decrease of 1.9%
- Net income of $150 million and net income per diluted share of $2.90
- Non-GAAP diluted EPS decreased 1.7% year-over-year to $3.94
- Adjusted EBITDA increased 5.6% year-over-year to $301 million
Lincolnshire, Ill., May 2, 2023 — Zebra Technologies Corporation (NASDAQ: ZBRA), an innovator at the edge of the enterprise with solutions and partners that enable businesses to gain a performance edge, today announced results for the first quarter ended April 1, 2023.
“Our team executed well in a challenging environment, delivering first quarter sales and earnings results above the midpoint of our outlook," said Bill Burns, Chief Executive Officer of Zebra Technologies.
"Our revised full year outlook reflects tighter enterprise customer capex and project deferrals in this uncertain macroeconomic environment and moderating demand through distribution. We are mitigating the impact of softer sales with focused go-to-market initiatives and incremental cost actions. While customer spend is pressured near term, we are well positioned to benefit from secular trends to digitize and automate workflows across our served markets."
Download PDF with consolidated balance sheet, cash flow and income statements
Net sales were $1,405 million in the first quarter of 2023 compared to $1,432 million in the prior year. Net sales in the Enterprise Visibility & Mobility ("EVM") segment were $914 million in the first quarter of 2023 compared with $1,038 million in the prior year. Asset Intelligence & Tracking ("AIT") segment net sales were $491 million in the first quarter of 2023 compared to $394 million in the prior year. Consolidated organic net sales for the first quarter decreased 0.3% year-over-year, with an 11.2% decrease in the EVM segment and 28.4% increase in the AIT segment.
First quarter 2023 gross profit was $667 million compared to $637 million in the prior year. Gross margin increased to 47.5% for the first quarter of 2023 compared to 44.5% in the prior year. The increase was primarily due to lower premium supply chain costs, partially offset by unfavorable foreign currency changes. Adjusted gross margin was 47.5% in the first quarter of 2023 compared to 44.6% in the prior year.
Operating expenses increased in the first quarter of 2023 to $442 million from $425 million in the prior year, primarily due to expenses associated with restructuring activities and recently acquired businesses, partially offset by lower intangible amortization expense. Adjusted operating expenses increased in the first quarter of 2023 to $384 million from $372 million in the prior year.
Net income for the first quarter of 2023 was $150 million, or $2.90 income per diluted share, compared to net income of $205 million, or $3.83 per diluted share, for the prior year. Non-GAAP net income for the first quarter of 2023 decreased to $204 million, or $3.94 per diluted share, compared to $214 million, or $4.01 per diluted share, for the prior year.
Adjusted EBITDA for the first quarter of 2023 increased to $301 million, or 21.4% of adjusted net sales, compared to $285 million, or 19.9% of adjusted net sales for the prior year primarily due to higher gross profit.
Balance Sheet and Cash Flow
As of April 1, 2023, the Company had cash and cash equivalents of $85 million and total debt of $2,103 million.
For the first three months of 2023, net cash used in operating activities was $76 million and the Company made capital expenditures of $16 million, resulting in negative free cash flow of $92 million. The Company made share repurchases under its existing authorization of $15 million, and had net debt borrowings of $72 million.
Second Quarter 2023
The Company expects second quarter 2023 net sales to decrease between 9% and 11% compared to the prior year. This expectation includes an approximately 2 percentage point negative impact from foreign currency translation and an approximately 1 percentage point additive impact from acquisitions.
Adjusted EBITDA margin for the second quarter of 2023 is expected to be approximately 20%. Non-GAAP diluted earnings per share are expected to be in the range of $3.20 to $3.40. This assumes an adjusted effective tax rate of approximately 19% reflecting the United Kingdom's corporate tax rate increase.
Full Year 2023
The Company expects net sales to decrease between 2% and 6% compared to 2022. This expectation includes an approximately 1 point negative impact from foreign currency translation and a 50 basis point additive impact from acquisitions.
Adjusted EBITDA margin is expected to be approximately 22%, which includes approximately $40 million of premium supply chain expense.
Free cash flow is expected to be between $450-$550 million reflecting lower profitability and elevated inventory, higher cash taxes and is inclusive of the anticipated $180 million of previously announced settlement payments.
The Company does not provide a reconciliation for non-GAAP estimates on a forward-looking basis 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 the most directly comparable forward-looking GAAP financial measure as discussed under the "Forward-Looking Statements" caption below. This would include 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. 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.
Conference Call Notification
Investors are invited to listen to a live webcast of Zebra’s conference call regarding the Company’s financial results. The conference call will be held today 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.
Zebra (NASDAQ: ZBRA) helps organizations monitor, anticipate, and accelerate workflows by empowering their frontline and ensuring that everyone and everything is visible, connected and fully optimized. Our award-winning portfolio spans software to innovations in robotics, machine vision, automation and digital decisioning, all backed by a +50-year legacy in scanning, track-and-trace and mobile computing solutions. With an ecosystem of 10,000 partners across more than 100 countries, Zebra's customers include over 80% of the Fortune 500. Newsweek recently recognized Zebra as one of America's Most Loved Workplaces and Greatest Workplaces for Diversity, and we are on Fast Company's list of the Best Workplaces for Innovators. Learn more at www.zebra.com or sign up for news alerts. Follow Zebra’s Your Edge blog, LinkedIn, Twitter and Facebook, and check out our Story Hub: Zebra Perspectives.
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 offerings and competitors' offerings and the potential effects of emerging technologies and changes in customer requirements. The effect of global market conditions, and the availability of credit and capital markets volatility may have adverse effects on Zebra, its suppliers and its customers. In addition, natural disasters, man-made disasters, public health issues (including pandemics), and cybersecurity incidents may have negative effects on our business and results of operations. Our ability to purchase sufficient materials, parts, and components, as well as our ability to provide services, software and products to meet customer demand could negatively impact our results of operations and customer relationships. Profits and profitability may be affected by Zebra’s ability to control manufacturing and operating costs. Because of its debt, interest rates and financial market conditions may also have an impact on results. Foreign exchange rates, customs duties and trade policies may have an effect on financial results because of the large percentage of our international sales. The impacts of changes in foreign and domestic governmental policies, regulations, or laws, as well as the outcome of litigation or tax matters in which Zebra may be involved are other factors. 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 and Form 10-Q.
Use of Non-GAAP Financial Information
This press release contains certain Non-GAAP financial measures, consisting of “adjusted net sales,” “adjusted gross profit,” “adjusted gross margin,” “EBITDA,” “Adjusted EBITDA,” “Adjusted EBITDA margin,” “Adjusted EBITDA % of adjusted net sales,” “Non-GAAP net income,” “Non-GAAP diluted earnings per share,” “free cash flow,” “organic net sales,” “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 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 the 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: + 1 847 518 6432
Therese Van Ryne
Senior Director, External Communications
Phone: + 1 847 370 2317