ZBRA - Zebra Technologies Announces Third-Quarter 2022 Results

Third-Quarter Financial Highlights

• Net sales of $1,378 million; year-over-year decrease of 4.0%

• Net income of $170 million and net income per diluted share of $3.26

• Non-GAAP diluted EPS decreased 9.5% year-over-year to $4.12

• Adjusted EBITDA decreased 6.7% year-over-year to $291 million

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 third quarter ended October 1, 2022.

“We are recovering from supply chain challenges related to persistent component shortages and the transition to our new North American distribution center. These challenges, along with certain large customer projects being deferred, impacted product shipments exiting the quarter, resulting in lower-than-expected sales and profitability," said Anders Gustafsson, Chief Executive Officer of Zebra Technologies.

"Customer demand and our order pipeline generally remain solid, yet we have been seeing softening demand and elongated sales cycles since late in the third quarter. We are taking a cautious approach to our Q4 sales outlook and expense management, while working to right-size our working capital levels in the coming quarters. We have also initiated meaningful actions to improve our supply chain. Despite these near-term challenges, we are well positioned to benefit from secular trends to digitize and automate workflows in a labor constrained and increasingly on demand economy.”

Net sales were $1,378 million in the third quarter of 2022 compared to $1,436 million in the third quarter of 2021. Net sales in the Enterprise Visibility & Mobility ("EVM") segment were $963 million in the third quarter of 2022 compared with $1,058 million in the third quarter of 2021. Asset Intelligence & Tracking ("AIT") segment net sales were $415 million in the third quarter of 2022 compared to $378 million in the prior year period. Consolidated organic net sales for the third quarter decreased 3.2%. Third-quarter year-over-year organic net sales decreased by 8.8% in the EVM segment and increased by 12.4% in the AIT segment.

Third quarter 2022 gross profit was $628 million compared to $646 million in the prior year period. Gross margin increased to 45.6% for the third quarter of 2022 compared to 45.0% in the prior year period. The increase was primarily due to favorable business mix and lower premium supply chain costs partially offset by unfavorable foreign currency changes. Adjusted gross margin was 45.8% in the third quarter of 2022 compared to 45.1% in the prior year period.

Operating expenses increased in the third quarter of 2022 to $426 million from $409 million in the prior year period, primarily due to expenses associated with recently acquired businesses partially offset by lower incentive compensation expense. Adjusted operating expenses increased in the third quarter of 2022 to $356 million from $354 million in the prior year period.

Net income for the third quarter of 2022 was $170 million, or $3.26 income per diluted share, compared to net income of $199 million, or $3.69 per diluted share, for the third quarter of 2021. Non-GAAP net income for the third quarter of 2022 decreased to $215 million, or $4.12 per diluted share, compared to $245 million, or $4.55 per diluted share, for the prior year period.

Adjusted EBITDA for the third quarter of 2022 decreased to $291 million, or 21.1% of adjusted net sales, compared to $312 million, or 21.7% of adjusted net sales for the third quarter of 2021 due to lower gross profit and higher operating expenses.

Balance Sheet and Cash Flow

As of October 1, 2022, the company had cash and cash equivalents of $81 million and total debt of $2,170 million.

For the first nine months of 2022, the company generated $221 million of operating cash flow and made capital expenditures of $51 million, resulting in free cash flow of $170 million. The Company made business acquisitions of $878 million, $655 million of share repurchases under its existing authorization, and had net debt proceeds of $1,175 million.

Outlook

The company expects fourth quarter 2022 adjusted net sales to change (2)% to 1% from the prior year period. This expectation includes an approximately 2 point additive impact from recently acquired businesses, and an approximately 4 point negative impact from foreign currency translation.

Adjusted EBITDA margin for the fourth quarter of 2022 is expected to be approximately 22-23%. Non-GAAP earnings per diluted share are expected to be in the range of $4.50 to $4.80. This assumes an adjusted effective tax rate of approximately 17-18%.

Free cash flow is now expected to be at least $400 million, reflecting lower profitability and elevated inventory, and inclusive of the anticipated $135 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 .

About Zebra

Zebra (NASDAQ: ZBRA) empowers organizations to thrive in the on-demand economy by making every front-line worker and asset at the edge visible, connected and fully optimized. With an ecosystem of more than 10,000 partners across more than 100 countries, Zebra serves customers of all sizes – including 84% of the Fortune 500 – with an award-winning portfolio of hardware, software, services and solutions that digitize and automate workflows. Supply chains are more dynamic, customers and patients are better served, and workers are more engaged when they utilize Zebra innovations that help them sense, analyze and act in real time. Zebra recently expanded its industrial automation portfolio with its Fetch Robotics acquisition and increased its machine vision and AI software capabilities with the acquisitions of Adaptive Vision, antuit.ai and Matrox Imaging. Zebra is #42 on Newsweek’s list of America’s 100 Most Loved Workplaces, #42 on Fast Company's list of the Best Workplaces for Innovators and #79 on Forbes’ list of America’s 500 Best Midsize Employers. 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 .

Forward-Looking Statements

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,” “EBITDA,” “Adjusted EBITDA,” “Adjusted EBITDA margin,” “Non-GAAP diluted 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.