Zebra Technologies Announces Record Sales for the 2014 Second Quarter

Acquisition expenses of $20.4 million related to the pending acquisition of the Enterprise Business of Motorola Solutions 

Lincolnshire, Ill., August 5, 2014─Zebra Technologies Corporation (NASDAQ: ZBRA) today reported record 2014 second quarter net sales of $288,421,000, up 13.9% from $253,160,000 for the second quarter of 2013. Diluted earnings per share of $0.54 for the second quarter of 2014 include $20,364,000 in acquisition expenses related to the pending acquisition of the Enterprise business of Motorola Solutions, which was announced on April 15, 2014. Diluted earnings per share for the second quarter of 2013 were $0.60 and include $618,000 of acquisition expenses. 

For the second quarter of 2014, non-GAAP net income was $43,265,000, or $0.84 per diluted share, up 35.5% from $31,959,000, or $0.62 per diluted share, for the second quarter of 2013. 

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“Zebra continued to extend its industry leadership, with effective execution on a proven business strategy,” stated Anders Gustafsson, Zebra’s chief executive officer. “Our singular focus of delivering products and solutions that deliver increasing levels of visibility into the operations of our customers is driving more business and greater opportunities for growth. During the second quarter, we made good progress on integration planning for the pending acquisition of Motorola’s Enterprise business. We remain enthusiastic about the compelling strategy supporting the transaction. The combination of the businesses will make Zebra the industry leader in Asset Enterprise Intelligence, and position the company to increasingly benefit from important trends in mobility, cloud computing and data analytics.” 

As of June 28, 2014, Zebra had $528,581,000 in cash and investments, and no long-term debt. Net inventories were $126,103,000, and net accounts receivable were $165,426,000. -2- 

 

Discussion and Analysis – Second Quarter 

 Net sales growth of 13.9% from the comparable quarter a year ago resulted from sales growth across all product categories, with notable increases in supplies, services, and tabletop, desktop and mobile printers. The increase in service revenue was modestly affected by the December 2013 acquisition of Hart Systems LLC, which also contributed to growth in North American sales. Performance in North American sales also reflects an increase in shipments of large enterprise deals. The Europe, Middle East and Africa region benefited from improved business activity, with notable sales to retail customers. Movement in foreign currency, net of hedges, increased sales by $3,523,000. 

 Gross margin of 49.3%, versus 47.8% in 2013, reflects higher sales across all regions and product volumes across all product categories, lower product costs, and a reduction in freight costs. Favorable movements in foreign currency, net of hedges, increased second quarter gross profit by $1,867,000 

 Operating expenses for the second quarter increased 28.9%, primarily as a result of increased compensation, acquisition and amortization costs as a result of the December 2013 acquisition of Hart Systems LLC. Acquisition costs consist of transactions costs and integration activities related to the pending acquisition of the Enterprise business of Motorola Solutions, which was announced in April 2014. 

 During the second quarter, Zebra entered into forward interest rate swaps to hedge potential movements in interest rates associated with the anticipated debt funding for the acquisition of Motorola’s Enterprise business. A decline in interest rates resulted in a $2,433,000 loss in the value of the hedging instruments for the quarter. 

 Effective income tax rate of 11.1% reflects the effect of acquisition costs on income primarily in the U.S. These higher costs are resulting in a higher than normal percentage of income generated from jurisdictions with lower effective income tax rates. 

 

Third Quarter Outlook 

Zebra announced its financial forecast for the third quarter of 2014. Net sales are expected within a range of $285,000,000 to $295,000,000. Non-GAAP earnings per share are expected within a range of $0.81 to $0.91, excluding certain expenses including those associated with the acquisition of Motorola’s Enterprise business, and assuming an income tax rate of 20.0%. 

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 second quarter of 2014. The conference call will be held at 9:00 AM Eastern Time today. To listen to the call, visit the company’s website at http://www.zebra.com. 

Forward-looking Statement 

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 third quarter of 2013 stated in the paragraph above captioned “Third Quarter Outlook.” Similarly, statements herein that describe the proposed transaction between Zebra and Motorola Solutions including, its financial impact, and other statements of managements’ beliefs, intentions, or goals are also forward-looking 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 a large investment portfolio, 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 Hart Systems, 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. 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. 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, 2013. 

About Zebra Technologies 

A global leader in enterprise asset intelligence, Zebra Technologies Corporation (NASDAQ: ZBRA) offers solutions that give a virtual voice to an organization's assets, people and transactions, enabling organizations to unlock greater business value. The company’s extensive portfolio of innovative and reliable marking and printing products, RFID and real-time location solutions, illuminates mission-critical information that help customers take smarter business actions. For more information about Zebra’s solutions, visit http://www.zebra.com. 

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. Reconciliations of Operating Income to EBITDA, EBITDA to Adjusted EBITDA, and GAAP net income to Non-GAAP 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. 

 

Contact: 

Investors: 

 

Douglas A. Fox, CFA

 Vice President, Investor Relations and Treasurer

+ 1 847 793 6735 


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Media:

Robb CHristopher

Director, Corporate Communications and Public Relations

+1 847 793 5514

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ZEBRA TECHNOLOGIES CORPORATION AND SUBSIDIARIES 

CONSOLIDATED BALANCE SHEETS 

(Amounts in thousands) June 28, 2014 

December 31, 2013 

ASSETS 

(Unaudited) 

Current assets: 

Cash and cash equivalents 

$ 70,349 

$ 62,827 

Investments and marketable securities 

455,644 

350,380 

Accounts receivable, net 

165,426 

176,917 

Inventories, net 

126,103 

121,023 

Deferred income taxes 

19,810 

19,810 

Income tax receivable 

8,860 

7,622 

Prepaid expenses and other current assets 

13,055 

15,524 

Total current assets 

859,247 

754,103 

Property and equipment at cost, less accumulated depreciation and amortization 

107,115 

109,588 

Goodwill 

155,800 

155,800 

Other intangibles, net 

63,629 

68,968 

Other assets 

33,178 

31,353 

Total assets 

$ 1,218,969 

$ 1,119,812 

LIABILITIES AND STOCKHOLDERS’ EQUITY 

Current liabilities: 

Accounts payable 

$ 31,752 

$ 34,688 

Accrued liabilities 

65,518 

61,962 

Deferred revenue 

16,896 

15,506 

Income taxes payable 

9,112 

6,898 

Total current liabilities 

123,278 

119,054 

Long-term deferred tax liability 

28,471 

25,492 

Deferred rent 

1,484 

1,131 

Other long-term liabilities 

17,674 

15,477 

Total liabilities 

170,907 

161,154 

Stockholders’ equity: 

Class A Common Stock 

722 

722 

Additional paid-in capital 

149,475 

143,295 

Treasury stock 

(666,084) 

(678,456) 

Retained earnings 

1,572,041 

1,502,878 

Accumulated other comprehensive loss 

(8,092) 

(9,781) 

Total stockholders’ equity 

1,048,062 

958,658 

Total liabilities and stockholders’ equity 

$ 1,218,969 

$ 1,119,812 

 

ZEBRA TECHNOLOGIES CORPORATION AND SUBSIDIARIES 

CONSOLIDATED STATEMENTS OF EARNINGS 

(Amounts in thousands, except per share data) 

(Unaudited) Three Months Ended 

Six Months Ended 

June 28, 2014 

June 29, 2013 

June 28, 2014 

June 29, 2013 

Net sales: 

Net sales of tangible products 

$ 270,049 

$ 239,909 

$ 531,941 

$ 465,030 

Revenue from services and software 

18,372 

13,251 

44,748 

25,067 

Total net sales 

288,421 

253,160 

576,689 

490,097 

Cost of sales: 

Cost of sales of tangible products 

136,962 

125,664 

267,411 

242,775 

Cost of services and software 

9,290 

6,589 

19,171 

13,350 

Total cost of sales 

146,252 

132,253 

286,582 

256,125 

Gross profit 

142,169 

120,907 

290,107 

233,972 

Operating expenses: 

Selling and marketing 

35,755 

33,830 

71,171 

67,345 

Research and development 

23,710 

23,201 

46,567 

45,059 

General and administrative 

26,321 

24,053 

54,712 

49,329 

Amortization of intangible assets 

2,667 

1,863 

5,339 

3,726 

Acquisition costs 

20,364 

618 

25,291 

1,100 

Exit and restructuring costs 

287 

1,101 

554 

2,996 

Total operating expenses 

109,104 

84,666 

203,634 

169,555 

Operating income 

33,065 

36,241 

86,473 

64,417 

Other income (expense): 

Investment income 

379 

473 

800 

1,150 

Foreign exchange income (loss) 

43 

(462) 

(249) 

(560) 

Loss on interest rate swaps 

(2,433) 

(2,433) 

Other, net 

(57) 

1,464 

(49) 

1,473 

Total other income 

(2,068) 

1,475 

(1,931) 

2,063 

Income from continuing operations before income taxes 

30,997 

37,716 

84,542 

66,480 

Income taxes 

3,440 

7,158 

15,379 

12,380 

Income from continuing operations 

27,557 

30,558 

69,163 

54,100 

Income from discontinued operations, net of tax 

Net income 

$ 27,557 

$ 30,566 

$ 69,163 

$ 54,108 

Basic earnings per share: 

Income from continuing operations 

$ 0.54 

$ 0.60 

$ 1.37 

$ 1.06 

Income from discontinued operations 

0.00 

0.00 

0.00 

0.00 

Net income 

$ 0.54 

$ 0.60 

$ 1.37 

$ 1.06 

Diluted earnings per share: 

Income from continuing operations 

$ 0.54 

$ 0.60 

$ 1.35 

$ 1.05 

Income from discontinued operations 

0.00 

0.00 

0.00 

0.00 

Net income 

$ 0.54 

$ 0.60 

$ 1.35 

$ 1.05 

Basic weighted average shares outstanding 

50,606 

50,900 

50,509 

50,929 

Diluted weighted average and equivalent shares outstanding 

51,278 

51,283 

51,129 

51,310 

 

 

 

 

 

ZEBRA TECHNOLOGIES CORPORATION AND SUBSIDIARIES 

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME 

(Amounts in thousands) 

(Unaudited) Three Months Ended 

Six Months Ended 

June 28, 2014 

June 29, 2013 

June 28, 2014 

June 29, 2013 

Net income 

$ 27,557 

$ 30,566 

$ 69,163 

$ 54,108 

Other comprehensive income (loss): 

Unrealized gains (losses) on hedging transactions, net of income taxes 

776 

(391) 

1,389 

1,352 

Unrealized holding gains (losses) on investments, net of income taxes 

348 

(867) 

496 

(939) 

Foreign currency translation adjustment 

(29) 

223 

(196) 

317 

Comprehensive income 

$ 28,652 

$ 29,531 

$ 70,852 

$ 54,838 

 

ZEBRA TECHNOLOGIES CORPORATION AND SUBSIDIARIES 

CONSOLIDATED STATEMENTS OF CASH FLOWS 

(Amounts in thousands) 

(Unaudited) Six Months Ended 

June 28, 2014 

June 29, 2013 

Cash flows from operating activities: 

Net income 

$ 69,163 

$ 54,108 

Adjustments to reconcile net income to net cash provided by (used in) 

operating activities: 

Depreciation and amortization 

18,096 

15,412 

Share-based compensation 

7,110 

6,504 

Excess tax benefit from share-based compensation 

(3,947) 

(3,727) 

Loss on sale of property and equipment 

49 

182 

Deferred income taxes 

2,979 

4,439 

Loss on forward interest rate swaps 

2,433 

Changes in assets and liabilities: 

Accounts receivable, net 

11,359 

(1,976) 

Inventories, net 

(5,061) 

14,190 

Other assets 

2,583 

1,313 

Accounts payable 

(5,336) 

3,263 

Accrued liabilities 

3,535 

(6,094) 

Deferred revenue 

502 

1,585 

Income taxes 

4,706 

476 

Other operating activities 

1,742 

1,381 

Net cash provided by operating activities 

109,913 

91,056 

Cash flows from investing activities: 

Purchases of property and equipment 

(7,962) 

(8,547) 

Acquisition of intangible assets 

(500) 

Purchase of long-term investments 

(1,213) 

(604) 

Purchase of investments and marketable securities 

(276,400) 

(231,174) 

Maturities of investments and marketable securities 

20,852 

19,188 

Proceeds from sales of investments and marketable securities 

150,781 

142,230 

Net cash used in investing activities 

(113,942) 

(79,407) 

Cash flows from financing activities: 

Purchase of treasury stock 

(28,563) 

Proceeds from exercise of stock options and stock purchase plan purchases 

7,711 

4,104 

Excess tax benefit from share-based compensation 

3,947 

3,727 

Net cash provided by (used in) financing activities 

11,658 

(20,732) 

Effect of exchange rate changes on cash 

(107) 

229 

Net increase (decrease) in cash and cash equivalents 

7,522 

(8,854) 

Cash and cash equivalents at beginning of period 

62,827 

64,740 

Cash and cash equivalents at end of period 

$ 70,349 

$ 55,886 

Supplemental disclosures of cash flow information: 

Income taxes paid, net 

$ 7,627 

$ 5,346 

 

ZEBRA TECHNOLOGIES CORPORATION AND SUBSIDIARIES 

SUPPLEMENTAL SALES INFORMATION 

(Amounts in thousands) 

(Unaudited) 

SALES BY PRODUCT CATEGORY Three Months Ended 

June 28, 

June 29, 

Percent 

Percent of 

Percent of 

Product Category 

2014 

2013 

Change 

Net Sales 2014 

Net Sales 2013 

Hardware 

$ 203,215 

$ 178,938 

13.6 

70.5 

70.8 

Supplies 

65,279 

59,618 

9.5 

22.6 

23.5 

Service and software 

18,372 

13,251 

38.6 

6.4 

5.2 

Subtotal products 

286,866 

251,807 

13.9 

99.5 

99.5 

Shipping and handling 

1,555 

1,353 

14.9 

0.5 

0.5 

Total net sales 

$ 288,421 

$ 253,160 

13.9 

100.0 

100.0 

 

ZEBRA TECHNOLOGIES CORPORATION AND SUBSIDIARIES 

RECONCILIATION OF GAAP TO NON-GAAP NET INCOME 

(Amounts in thousands, except per-share data) 

(Unaudited) Three Months Ended 

Six Months Ended 

June 28, 2014 

June 29, 2013 

June 28, 2014 

June 29, 2013 

Net income (GAAP) 

$ 27,557 

$ 30,566 

$ 69,163 

$ 54,108 

Acquisition costs 

$ 20,364 

$ 618 

$ 25,291 

$ 1,100 

Exit and restructuring costs 

287 

1,101 

554 

2,996 

Loss on interest rate swaps 

2,433 

2,433 

Effect on income taxes 

(7,376) 

(326) 

(5,144) 

(763) 

Total adjustments 

$ 15,708 

$ 1,393 

$ 23,134 

$ 3,333 

Net income (Non-GAAP) 

$ 43,265 

$ 31,959 

$ 92,297 

$ 57,441 

GAAP net income per share 

Basic 

$ 0.54 

$ 0.60 

$ 1.37 

$ 1.06 

Diluted 

$ 0.54 

$ 0.60 

$ 1.35 

$ 1.05 

Non-GAAP net income per share 

Basic 

$ 0.85 

$ 0.63 

$ 1.83 

$ 1.13 

Diluted 

$ 0.84 

$ 0.62 

$ 1.81 

$ 1.12 

Basic weighted average shares outstanding 

50,606 

50,900 

50,509 

50,929 

Diluted weighted average and equivalent shares outstanding 

51,278 

51,283 

51,129 

51,310 

 

 

 

 

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