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Zebra Technologies Announces 2015 First Quarter Financial Results

High growth of legacy Zebra products and positive momentum in Enterprise combine for strong first quarter results and positive outlook

LINCOLNSHIRE, Ill., May 13, 2015 /PRNewswire/ -- Zebra Technologies Corporation (NASDAQ: ZBRA) today reported that net sales for the three months ended April 4, 2015, were a record $893.2 million, compared with $288.3 million for the first quarter of 2014. The GAAP net loss for the first quarter was $25.3 million, or $0.50 per share, compared with net income of $41.6 million, or $0.82 per diluted share, for the first quarter of 2014.  

Zebra Logo.

 

Summary Financial Performance (Unaudited)


1Q15

1Q14

Change

GAAP net sales (in mils)

$   893.2

$   288.3

209.8%

Gross margin (%)

45.8

51.3

            (5.5) pts.





GAAP net income (loss) (in mils)

$    (25.3)

$      41.6

                 NM

GAAP diluted earnings (loss) per share

$    (0.50)

$      0.82

                 NM





Non-GAAP net income (in mils) 

$      72.4

$      48.8

48.3%

Non-GAAP diluted earnings per share

$      1.39

$      0.96

44.7%





Adjusted EBITDA (in mils)

$    152.2

$      70.6

115.7%

Note: A Reconciliation of Non-GAAP financial information to GAAP information is available
in the financial tables in this release.

Non-GAAP Financial Results (unaudited)

For the first quarter of 2015, non-GAAP net income was $72.4 million, or $1.39 per diluted share, compared with $48.8 million, or $0.96 per diluted share, for the first quarter of 2014. Adjusted EBITDA for the first quarter of 2015 were $152.2 million, versus $70.6 million for the 2014 first quarter. The company's calculation of non-GAAP net income adjusts for certain items on a tax-effected basis, including stock-based compensation expense, acquisition and integration costs, exit and restructuring costs, purchase accounting adjustments, and amortization of intangible assets. The calculation also adjusts for a $27.2 million foreign exchange loss on unhedged net monetary assets. Please refer to the tables included in this press release for a reconciliation of GAAP to non-GAAP financial results.

"We started the year with strong, positive momentum, as business activity remained high specifically in North America and Europe," stated Anders Gustafsson, Zebra's chief executive officer. "Our partners and customers are responding enthusiastically to our greatly expanded portfolio of solutions and capabilities, and our enhanced focus on giving them improved visibility into their assets, transactions and people for better enterprise asset intelligence. During the quarter we also made material progress on achieving our cost-synergy targets, pursuing growth initiatives and integrating Zebra with the Enterprise business acquired from Motorola Solutions in October. The favorable business trends are continuing into the second quarter, as Zebra is well positioned to benefit over the long term from the convergence of technology trends in the Internet of Things, mobility and cloud computing." 

Discussion and Analysis – First Quarter

  • Net sales increased 209.8% from the comparable quarter a year ago. The Enterprise business acquired from Motorola Solutions contributed $561.6 million to 2015 first quarter sales, including a reduction in sales for purchase accounting adjustments of $5.6 million related to service contracts acquired with the Enterprise business. Sales of legacy Zebra totaled $331.6 million, up 15.0% from $288.3 million for the first quarter of 2014. The effect of movements in foreign currency, net of hedges, reduced sales on legacy Zebra by $2.4 million
  • Gross margin for the first quarter of 2015 of 45.8%, compared with 51.3% for 2014, reflects the changing mix of products and services sold during the quarter, including Enterprise products which generally have lower gross margins than legacy Zebra products. Cost of sales for the first quarter of 2015 includes a purchase accounting increase of $800,000. The combination of the purchase accounting adjustments to sales and cost of sales reduced gross margin by 0.4 percentage points. 
  • Operating expenses for the first quarter of 2015 of $389.7 million, increased by $295.2 million from the prior year's first quarter, primarily as a result of the Enterprise acquisition. Operating expenses for the first quarter of 2015 include $37.5 million in acquisition, integration, exit and restructuring costs, versus $5.2 million for the prior year, and $67.6 million in amortization of intangible assets, compared with $2.7 million for the first quarter of 2014.
  • The company incurred a foreign exchange loss of $27.2 million related to changes in the valuation of net monetary assets. In addition, a net forward interest rate swaps gain of $1.7 million reflects a change in interest rates. 
  • Interest expense of $51.0 million reflects the increase in debt related to funding the acquisition of the Enterprise business from Motorola Solutions, and includes $4.6 million in amortization of debt issuance cost and discount.

As of April 4, 2015, Zebra had cash of $329.5 million, accounts receivable of $637.9 million, inventories of $405.5 million, and long-term debt of $3.1 billion.

Second Quarter Outlook

Zebra announced its financial forecast for the second quarter of 2015. The company expects net sales within a range of $865 million to $895 million. This forecast incorporates an expectation of year-over-year growth of 9% to 13% in constant currency, on a proforma basis. Non-GAAP diluted earnings are expected in the range of $1.00 and $1.25 per share. Adjusted EBITDA are forecast within a range of $130 million and $145 million for the second quarter of 2015. 

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 first quarter of 2015. The conference call will be held at 9:00 a.m. 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 second quarter of 2015 stated in the paragraph above captioned "Second Quarter Outlook." Similarly, statements herein that describe the transaction between Zebra and Motorola Solutions including, its financial impact, and other statements of management's beliefs, intentions, or goals are also forward-looking statements. 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. 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 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, including the Enterprise business of Motorola Solutions, 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. 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, 2014.

About Zebra Technologies

Zebra (NASDAQ: ZBRA) makes businesses as smart and connected as the world we live in. Zebra tracking and visibility solutions transform the physical to digital, creating the data streams businesses need in order to simplify operations, know more about their business, and empower their mobile workforce. For more information, visit www.zebra.com/possibilities.

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. 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. 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: 

Media:

Douglas A. Fox, CFA

Robb Kristopher

Vice President, Investor Relations

Director, Corporate Communications

and Treasurer

and Public Relations

+ 1 847 793 6735

+ 1 847 793 5514

dfox@zebra.com 

rkristopher@zebra.com

 

 

ZEBRA TECHNOLOGIES CORPORATION AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

(Amounts in thousands)

(Unaudited)




April 4,
2015


December 31,
2014



ASSETS

(Unaudited)



Current assets:




Cash and cash equivalents

$            329,534


$            393,950

Investments and marketable securities

-


24,385

Accounts receivable, net 

637,953


670,402

Inventories, net

405,469


394,176

Deferred income taxes

116,707


122,772

Income tax receivable

60,340


12,988

Prepaid expenses and other current assets

68,971


53,377

Total current assets

$         1,618,974


$         1,672,050





Property and equipment at cost, less accumulated depreciation and amortization

270,228


255,092

Goodwill

2,482,528


2,489,510

Other intangibles, net

961,704


1,029,293

Debt issuance cost

28,919


29,785

Other assets

92,277


93,121

Total assets

$         5,454,630


$         5,568,851





LIABILITIES AND STOCKHOLDERS' EQUITY








Current liabilities:




Accounts payable

$            284,730


$            326,524

Accrued liabilities

371,106


421,070

Deferred revenue

225,112


196,213

Current portion of long-term debt

-


7,522

Income taxes payable

14,903


4,518

Total current liabilities

$            895,851


$            955,847

Long-term debt

3,144,177


3,182,962

Long-term deferred tax liability

192,544


199,853

Long-term deferred revenue

107,687


115,847

Other long-term liabilities

88,373


74,434

Total liabilities

$         4,428,632


$         4,528,943





Stockholders' equity:




Preferred stock

-


-

Class A Common Stock

722


722

Additional paid-in capital

160,305


147,090

Treasury stock

(629,403)


(634,664)

Retained earnings

1,510,010


1,535,307

Accumulated other comprehensive loss

(15,636)


(8,547)

Total stockholders' equity

1,025,998


1,039,908

Total liabilities and stockholders' equity

$         5,454,630


$         5,568,851






 

ZEBRA TECHNOLOGIES CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF OPERATIONS

(Amounts in thousands, except per share data)

(Unaudited)



Three Months Ended


April 4, 
2015


March 29, 
2014

Net sales




  Net sales of tangible products

$            755,322


$            261,892

  Revenue from services and software

137,862


26,376

Total net sales

893,184


288,268





Cost of sales




  Cost of sales of tangible products

385,370


130,449

  Cost of services and software

98,292


9,881

Total cost of sales

483,662


140,330





Gross profit

409,522


147,938





Operating expenses:




   Selling and marketing

122,106


35,416

   Research and development

96,417


22,857

   General and administrative

66,136


28,391

   Amortization of intangible assets

67,589


2,672

   Acquisition and integration costs

26,331


4,927

   Exit and restructuring costs

11,169


267

Total operating expenses

389,748


94,530





Operating income

19,774


53,408





Other income (expense):




   Investment income gain (loss)

(197)


421

   Foreign exchange loss

(27,191)


(292)

   Forward interest rate swaps gain

1,689


-

   Interest expense

(50,965)


(18)

   Other, net

(1,273)


26

Total other (expense) income

(77,937)


137





Income (loss) from continuing operations before income taxes

(58,163)


53,545

(Benefit) income taxes expense

(32,866)


11,939

Net (loss) income

$            (25,297)


$              41,606





Basic earnings (loss) per share

$                (0.50)


$                  0.83

Diluted earnings (loss) per share

$                (0.50)


$                  0.82





Basic weighted average shares outstanding

50,667


50,402

Diluted weighted average and equivalent shares outstanding

50,667


50,974





 

ZEBRA TECHNOLOGIES CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(Amounts in thousands)

(Unaudited)



Three months ended


April 4, 
2015


March 29, 
2014






Net (loss) income

$          (25,297)


$         41,606





Other comprehensive income (loss):




   Unrealized gain (loss) on anticipated sales hedging transactions, net of tax

1,690


613

   Unrealized gain (loss) on forward interest rate swaps hedging transactions, net of tax

(7,051)


-

   Unrealized holding (loss) gain on investments, net of taxes

(16)


148

   Foreign currency translation adjustment

(1,712)


(167)

Comprehensive (loss) income

$         (32,386)


$         42,200

 

ZEBRA TECHNOLOGIES CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

(Amounts in thousands)

(Unaudited)



Three Months Ended


April 4, 
2015


March 29, 
2014



Cash flows from operating activities:




Net income (loss)

$          (25,297)


$            41,606

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




operating activities:




Depreciation and amortization

79,703


9,003

Amortization of debt issuance cost and discount

4,559


-

Share-based compensation

8,796


2,966

Excess tax benefit from share-based compensation

(1,492)


(395)

Deferred income taxes

6,887


18

Unrealized loss on forward interest rate swaps

(1,689)


-

All other, net

(144)


12

Changes in assets and liabilities, net of businesses acquired:




Accounts receivable, net

28,232


(4,793)

Inventories, net

(24,656)


1,663

Other assets

(13,330)


2,419

Accounts payable

(27,075)


(2,435)

Accrued liabilities

9,002


(9,670)

Deferred revenue

26,846


682

Income taxes 

(36,876)


8,146

Other operating activities

2,130


533

Net cash provided by operating activities

35,596


49,755





Cash flows from investing activities:




Purchases of property and equipment

(25,522)


(2,374)

Acquisition of businesses, net of cash acquired

(48,805)


-

Proceeds from sale of long-term investments

1,748


-

Purchases of long-term investments

(168)


(405)

Purchases of investments and marketable securities

(739)


(151,817)

Maturities of investments and marketable securities

-


15,996

Proceeds from sales of investments and marketable securities 

25,108


72,206

Net cash used in investing activities

(48,378)


(66,394)





Cash flows from financing activities:




Payment of debt

(50,000)


-

Proceeds from exercise of stock options and stock purchase plan purchases

8,199


4,936

Excess tax benefit from equity-based compensation

1,492


395

Net cash provided by (used in) financing activities 

(40,309)


5,331





Effect of exchange rate changes on cash

(11,325)


(95)





Net decrease in cash and cash equivalents

(64,416)


(11,403)

Cash and cash equivalents at beginning of period

393,950


62,827

Cash and cash equivalents at end of period

$           329,534


$             51,424





Supplemental disclosures of cash flow information:




Income taxes paid, net

$               4,841


$               3,304

Interest paid

26,706


-

 

ZEBRA TECHNOLOGIES CORPORATION AND SUBSIDIARIES

SUPPLEMENTAL SALES INFORMATION

(Amounts in thousands)

(Unaudited)


SALES BY PRODUCT CATEGORY












Three Months Ended 








April 4, 
2015


March 29, 
2014


Percent
Change


Percent of
Net Sales 2015


Percent of
Net Sales 2014

Product category





Hardware 

$           688,070


$           198,388


246.8


77.1


68.9

Supplies 

67,252


63,504


5.9


7.5


22.0

Service and software 

137,862


26,376


422.7


15.4


9.1

    Total net sales 

$           893,184


$           288,268


209.8


100.0


100.0











SALES BY GEOGRAPHIC REGION












Three Months Ended 








 April 4, 
2015 


 March 29, 
2014 


Percent
Change


Percent of 
Net Sales 2015


Percent of 
Net Sales 2014

Geographic region





Europe, Middle East and Africa

$           290,544


$             91,439


217.7


32.5


31.7

Latin America 

53,286


25,640


107.8


6.0


8.9

Asia-Pacific

106,383


37,967


180.2


11.9


13.2

    Total International

450,213


155,046


190.4


50.4


53.8

North America 

442,971


133,222


232.5


49.6


46.2

    Total net sales 

$           893,184


$           288,268


209.8


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 


April 4, 
2015


March 29, 
2014



Net (loss) income

$            (25,297)


$              41,606





Income tax (benefit)/expense

(32,866)


11,939

Share-based compensation

8,796


2,966

Acquisition and integration costs

26,331


4,927

Exit and restructuring costs

11,169


267

Purchase accounting adjustments

6,426


-

Foreign exchange loss

27,191


292

Amortization of intangible assets

67,589


2,672

Non-cash interest expense

4,559


-

Unrealized gain on interest rate swaps (gain) loss 

(1,689)


-

Tax effects

(19,764)


(15,832)

Total adjustments

$              97,742


$                7,231

Non-GAAP net income

$              72,445


$              48,837





GAAP  (loss) earnings per share




       Basic

$                (0.50)


$                  0.83

       Diluted

$                (0.50)


$                  0.82

Non-GAAP  earnings per share




       Basic

$                  1.40


$                  0.97

       Diluted

$                  1.39


$                  0.96





Basic weighted average shares outstanding

51,725


50,402

Diluted weighted average and equivalent shares outstanding

52,271


50,974

 


ZEBRA TECHNOLOGIES CORPORATION AND SUBSIDIARIES

GAAP to NON-GAAP RECONCILIATION

(Amounts in thousands, except per-share data)

(Unaudited)



Three Months Ended 


April 4, 
2015


March 29, 
2014

Net (Loss) Income to EBITDA and Adjusted EBITDA






Net (loss) income

$            (25,297)


$              41,606

Income tax (benefit) expense

(32,866)


11,939

Total other expense (income)

77,937


(137)

Operating income

$              19,774


$              53,408





Depreciation

12,114


6,331

Amortization of intangible assets

67,589


2,672

EBITDA (Non-GAAP)

$              99,477


$              62,411





Acquisition and integration costs

26,331


4,927

Purchase accounting adjustments

6,426


-

Exit and restructuring costs

11,169


267

Share-based compensation

8,796


2,966

Adjusted EBITDA (Non-GAAP)

$            152,199


$              70,571

 

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SOURCE Zebra Technologies Corporation

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