Press release

Zebra Technologies Announces Fourth-Quarter and Full-Year 2019 Results

0
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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 fourth quarter and full year ended December 31, 2019.

“In the fourth quarter, solid sales growth in our North America and EMEA regions was partially offset by a continued softer spending environment in China. Earnings per share were at the low end of our guidance range due to tariff expenses and a higher mix of large year-end budget orders, each of which impacted gross margin,” said Anders Gustafsson, Chief Executive Officer of Zebra Technologies. “We entered 2020 with a strong order backlog and our pipeline of opportunities is solid. Our core portfolio offering continues to resonate well in the market. At the same time, we are making good progress broadening our role as a solutions provider, investing in capabilities that digitize and automate our customers’ enterprise operations.”

$ in millions, except per share amounts

4Q19

4Q18

Change

 

FY19

FY18

Change

Select reported measures:

 

 

 

 

 

 

 

Net sales

$

1,192

 

$

1,137

 

4.8

%

 

$

4,485

 

$

4,218

 

6.3

%

Gross profit

544

 

539

 

0.9

%

 

2,100

 

1,981

 

6.0

%

Gross margin

45.6

%

47.4

%

(180) bps

 

46.8

%

47.0

%

(20) bps

Net income

169

 

115

 

47.0

%

 

544

 

421

 

29.2

%

Net income margin

14.2

%

10.1

%

410 bps

 

12.1

%

10.0

%

210 bps

Net income per diluted share

$

3.10

 

$

2.11

 

46.9

%

 

$

9.97

 

$

7.76

 

28.5

%

 

 

 

 

 

 

 

 

Select Non-GAAP measures:

 

 

 

 

 

 

 

Adjusted net sales

$

1,192

 

$

1,137

 

4.8

%

 

$

4,485

 

$

4,218

 

6.3

%

Organic net sales growth

 

 

4.6

%

 

 

 

5.5

%

Adjusted gross profit

546

 

542

 

0.7

%

 

2,111

 

1,988

 

6.2

%

Adjusted gross margin

45.8

%

47.7

%

(190) bps

 

47.1

%

47.1

%

0 bps

Adjusted EBITDA

255

 

240

 

6.3

%

 

970

 

873

 

11.1

%

Adjusted EBITDA margin

21.4

%

21.1

%

30 bps

 

21.6

%

20.7

%

90 bps

Non-GAAP net income

$

194

 

$

169

 

14.8

%

 

$

706

 

$

598

 

18.1

%

Non-GAAP earnings per diluted share

$

3.56

 

$

3.10

 

14.8

%

 

$

12.94

 

$

11.01

 

17.5

%

Net sales were $1,192 million in the fourth quarter of 2019, a 4.8% increase from the prior year period, reflecting growth in North America and EMEA, partially offset by lower sales in Asia-Pacific. Consolidated organic net sales growth for the fourth quarter was 4.6%. Net sales in the Enterprise Visibility & Mobility (“EVM”) segment were $813 million in the fourth quarter of 2019 compared with $770 million in the fourth quarter of 2018. Asset Intelligence & Tracking (“AIT”) segment net sales were $379 million in the fourth quarter of 2019 compared to $367 million in the prior year period. Fourth-quarter year-over-year organic net sales growth was 6.3% in the EVM segment and 1.2% in the AIT segment.

Fourth-quarter 2019 gross profit was $544 million compared to $539 million in the comparable prior year period. Gross margin decreased to 45.6% for the fourth quarter of 2019, compared to 47.4% in the prior year period. This decrease was primarily due to $10 million net incremental cost of sales attributable to Section 301 List 4 tariffs and unfavorable business mix. Adjusted gross margin decreased to 45.8% for the fourth quarter of 2019, compared to 47.7% in the prior year period.

Operating expenses decreased in the fourth quarter of 2019 to $356 million from $360 million in the prior year period primarily due to reduced project spend, lower incentive compensation expense, and lower amortization expense; partially offset by the inclusion of expenses from recently acquired businesses and higher exit and restructuring charges. Adjusted operating expenses decreased in the fourth quarter of 2019 to $308 million from $320 million in the prior year period.

Net income for the fourth quarter of 2019 was $169 million, or $3.10 per diluted share, compared to net income of $115 million, or $2.11 per diluted share, for the fourth quarter of 2018. Lower interest expense and effective tax rate contributed to the year-over-year improvement. Non-GAAP net income for the fourth quarter of 2019 was $194 million, or $3.56 per diluted share, compared with $169 million, or $3.10 per diluted share, for the fourth quarter of 2018.

Adjusted EBITDA for the fourth quarter of 2019 increased to $255 million, or 21.4% of adjusted net sales, compared to $240 million, or 21.1% of adjusted net sales, for the fourth quarter of 2018 due to lower operating expenses.

Balance Sheet and Cash Flow

As of December 31, 2019, the company had cash and cash equivalents of $30 million and total debt of $1,286 million.

For the full year 2019, the company generated $685 million of operating cash flow and incurred capital expenditures of $61 million, generating free cash flow of $624 million. In 2019, the company made $312 million of net debt repayments and $63 million of cash interest payments, as well as paid $262 million in cash for our acquisitions of Cortexica, Temptime, and Profitect. Additionally, the company made $47 million of share repurchases under the authorization announced on July 30, 2019.

Outlook

Our outlook for the first quarter and full year 2020, without taking into account the full potential impact of the coronavirus outbreak in China, is set forth below. See the text below under the caption “Anticipated Impact of Coronavirus Outbreak” for a discussion of the possible impact of the outbreak on the company’s results of operations.

First Quarter 2020

The company expects first-quarter 2020 net sales to increase approximately 4% to 7% from the first quarter of 2019. This expectation includes an approximately 1 percentage point additive impact from acquisitions, and an approximately 1 percentage point negative impact from foreign currency translation.

Adjusted EBITDA margin is expected to be approximately 20% for the first quarter of 2020, which includes an approximately $10 million net incremental cost of sales attributable to Section 301 List 4 tariffs and approximately $4 million of additional freight expense related to the coronavirus outbreak. Non-GAAP earnings per diluted share are expected to be in the range of $2.90 to $3.10. This assumes an adjusted effective tax rate of approximately 16%.

Full Year 2020

The company expects full-year 2020 net sales to increase approximately 4% to 6% from 2019. This expectation includes an approximately 30 basis point positive impact from acquisitions, and an approximately 1 percentage point negative impact from foreign currency translation.

Adjusted EBITDA margin is expected to be slightly higher than 22% for the full-year 2020, favorable to 2019 despite a net impact to cost of sales from the Section 301 List 4 tariffs of approximately $15 million in the first half of 2020.

For the full-year 2020, the company expects to generate free cash flow of at least $700 million.

As previously stated, the company is diversifying the sourcing of most of its U.S. volumes out of China. These actions are expected to result in up to an additional $25 million of one-time pre-tax charges through mid-2020, plus an estimated $10-15 million of capital expenditures.

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.

Anticipated Impact of Coronavirus Outbreak

The first-quarter and full year 2020 outlook in the section immediately above expressly does not take into account the full potential impact of the ongoing coronavirus outbreak. The outlook provided in that section should be read in conjunction with this section.

The situation in China pertaining to the coronavirus is complex and rapidly-evolving and we are not yet able to fully ascertain its potential impact on our results of operations, either with respect to its impact on our manufacturing operations in China or with respect to its impact on our sales to customers in China. Our current expectation is the coronavirus outbreak could have an impact on sales of between $0 and $50 million. This expectation is based solely on facts as we understand them to be today. This impact could be significantly greater if the coronavirus outbreak were to develop in a manner that is significantly worse than our current expectations.

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 fourth quarter and full year of 2019. The conference call will be held today, Thursday, Feb. 13, 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 the front line of business in retail/e-commerce, manufacturing, transportation and logistics, healthcare and other industries to achieve a performance edge. With more than 10,000 partners across 100 countries, we deliver industry-tailored, end-to-end solutions that intelligently connect people, assets, and data to help our customers make business-critical decisions. Our market-leading solutions elevate the shopping experience, track and manage inventory as well as improve supply chain efficiency and patient care. In 2019, Zebra ranked #166 on Forbes’ list of the World’s Best Employers, and the company joined the S&P 500 index. For more information, visit www.zebra.com or sign up for our news alerts. Follow us on LinkedIn, Twitter and Facebook.

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 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. In particular, and as noted in the body of the release, we cannot be certain of the impact that the coronavirus outbreak in China will have on our results of operations. 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 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,” “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.

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 the current period results at the currency exchange rates used in the comparable prior year period, inclusive of the company’s foreign currency hedging program.

Additionally, for purposes of computing organic net sales growth, amounts directly attributable to acquisitions are excluded for twelve months following their respective acquisition dates.

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.

ZEBRA TECHNOLOGIES CORPORATION AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

(In millions, except share data)

 

 

December 31,

2019

 

December 31,

2018

Assets

 

 

 

Current assets:

 

 

 

Cash and cash equivalents

$

30

 

 

$

44

 

Accounts receivable, net of allowances for doubtful accounts of $2 million and $3 million as of December 31, 2019 and 2018, respectively

613

 

 

520

 

Inventories, net

474

 

 

520

 

Income tax receivable

32

 

 

24

 

Prepaid expenses and other current assets

46

 

 

54

 

Total Current assets

1,195

 

 

1,162

 

Property, plant and equipment, net

259

 

 

249

 

Right-of-use lease asset

107

 

 

 

Goodwill

2,622

 

 

2,495

 

Other intangibles, net

275

 

 

232

 

Deferred income taxes

127

 

 

114

 

Other long-term assets

126

 

 

87

 

Total Assets

$

4,711

 

 

$

4,339

 

Liabilities and Stockholders’ Equity

 

 

 

Current liabilities:

 

 

 

Current portion of long-term debt

$

197

 

 

$

157

 

Accounts payable

552

 

 

552

 

Accrued liabilities

379

 

 

322

 

Deferred revenue

238

 

 

210

 

Income taxes payable

38

 

 

60

 

Total Current liabilities

1,404

 

 

1,301

 

Long-term debt

1,080

 

 

1,434

 

Long-term lease liabilities

100

 

 

 

Deferred income taxes

 

 

8

 

Long-term deferred revenue

221

 

 

172

 

Other long-term liabilities

67

 

 

89

 

Total Liabilities

2,872

 

 

3,004

 

Stockholders’ Equity:

 

 

 

Preferred stock, $.01 par value; authorized 10,000,000 shares; none issued

 

 

 

Class A common stock, $.01 par value; authorized 150,000,0000 shares; issued 72,151,857 shares

1

 

 

1

 

Additional paid-in capital

339

 

 

294

 

Treasury stock at cost, 18,148,925 and 18,280,673 shares as of December 31, 2019 and 2018, respectively

(689

)

 

(613

)

Retained earnings

2,232

 

 

1,688

 

Accumulated other comprehensive loss

(44

)

 

(35

)

Total Stockholders’ Equity

1,839

 

 

1,335

 

Total Liabilities and Stockholders’ Equity

$

4,711

 

$

4,339

ZEBRA TECHNOLOGIES CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF OPERATIONS

(In millions, except share data)

 

 

Three Months Ended

 

Twelve Months Ended

 

(Unaudited)

 

 

 

 

 

December 31,

2019

 

December 31,

2018

 

December 31,

2019

 

December 31,

2018

Net sales

 

 

 

 

 

 

 

Tangible products

$

1,039

 

 

$

998

 

 

$

3,907

 

 

$

3,685

 

Services and software

153

 

 

139

 

 

578

 

 

533

 

Total Net sales

1,192

 

 

1,137

 

 

4,485

 

 

4,218

 

Cost of sales:

 

 

 

 

 

 

 

Tangible products

550

 

 

503

 

 

2,006

 

 

1,871

 

Services and software

98

 

 

95

 

 

379

 

 

366

 

Total Cost of sales

648

 

 

598

 

 

2,385

 

 

2,237

 

Gross profit

544

 

 

539

 

 

2,100

 

 

1,981

 

Operating expenses:

 

 

 

 

 

 

 

Selling and marketing

130

 

 

122

 

 

503

 

 

483

 

Research and development

118

 

 

121

 

 

447

 

 

444

 

General and administrative

79

 

 

89

 

 

323

 

 

328

 

Amortization of intangible assets

19

 

 

26

 

 

103

 

 

97

 

Acquisition and integration costs

2

 

 

 

 

22

 

 

8

 

Exit and restructuring costs

8

 

 

2

 

 

10

 

 

11

 

Total Operating expenses

356

 

 

360

 

 

1,408

 

 

1,371

 

Operating income

188

 

 

179

 

 

692

 

 

610

 

Other expenses:

 

 

 

 

 

 

 

Foreign exchange loss

(4

)

 

 

 

(6

)

 

(5

)

Interest expense, net

(4

)

 

(39

)

 

(89

)

 

(91

)

Other, net

(1

)

 

8

 

 

1

 

 

10

 

Total Other expenses, net

(9

)

 

(31

)

 

(94

)

 

(86

)

Income before income tax

179

 

 

148

 

 

598

 

 

524

 

Income tax expense

10

 

 

33

 

 

54

 

 

103

 

Net income

$

169

 

 

$

115

 

 

$

544

 

 

$

421

 

Basic earnings per share

$

3.13

 

 

$

2.14

 

 

$

10.08

 

 

$

7.86

 

Diluted earnings per share

$

3.10

 

 

$

2.11

 

 

$

9.97

 

 

$

7.76

 

 

ZEBRA TECHNOLOGIES CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

(In millions)

 

 

Year Ended December 31,

 

2019

 

2018

Cash flows from operating activities:

 

 

 

Net income

$

544

 

 

$

421

 

Adjustments to reconcile net income to net cash provided by operating activities:

 

 

 

Depreciation and amortization

175

 

 

175

 

Investment (gain) loss

(3

)

 

(10

)

Amortization of debt issuance costs and discounts

6

 

 

15

 

Share-based compensation

48

 

 

45

 

Debt extinguishment costs

1

 

 

1

 

Deferred income taxes

(42

)

 

2

 

Unrealized loss (gain) on forward interest rate swaps

19

 

 

(8

)

Other, net

 

 

4

 

Changes in operating assets and liabilities:

 

 

 

Accounts receivable, net

(96

)

 

(31

)

Inventories, net

51

 

 

(43

)

Other assets

(20

)

 

(12

)

Accounts payable

(5

)

 

122

 

Accrued liabilities

(18

)

 

35

 

Deferred revenue

71

 

 

51

 

Income taxes

(31

)

 

24

 

Other operating activities

(15

)

 

(6

)

Net cash provided by operating activities

685

 

 

785

 

Cash flows from investing activities:

 

 

 

Acquisition of businesses, net of cash acquired

(262

)

 

(72

)

Purchases of property, plant and equipment

(61

)

 

(64

)

Proceeds from the sale of long-term investments

10

 

 

2

 

Purchases of long-term investments

(22

)

 

(3

)

Net cash used in investing activities

(335

)

 

(137

)

Cash flows from financing activities:

 

 

 

Proceeds from issuance of long-term debt

637

 

 

909

 

Payments of long term-debt

(949

)

 

(1,566

)

Payments of debt extinguishment costs

(1

)

 

(1

)

Payments of debt issuance costs and discounts

(6

)

 

(2

)

Payments for repurchases of common stock

(47

)

 

 

Payments of taxes related to net settlements of equity awards, net of proceeds from exercise of stock options and stock purchase plan purchases

(32

)

 

(1

)

Unremitted cash collections from servicing factored receivables

33

 

 

 

Net cash used in financing activities

(365

)

 

(661

)

Effect of exchange rate changes on cash

1

 

 

(5

)

Net decrease in cash and cash equivalents

(14

)

 

(18

)

Cash and cash equivalents at beginning of year

44

 

 

62

 

Cash and cash equivalents at end of year

$

30

 

 

$

44

 

Supplemental disclosures of cash flow information:

 

 

 

Income taxes paid

$

140

 

 

$

76

 

Interest paid

$

63

$

90

ZEBRA TECHNOLOGIES CORPORATION AND SUBSIDIARIES

RECONCILIATION OF ORGANIC NET SALES GROWTH

(UNAUDITED)

 

 

 

 

 

 

 

Three Months Ended

 

December 31, 2019

 

AIT

 

EVM

 

Consolidated

Reported GAAP Consolidated Net sales growth

3.3

%

 

5.6

%

 

4.8

%

Adjustments:

 

 

 

 

 

Impact of foreign currency translation(1)

1.0

%

 

1.1

%

 

1.1

%

Impact of acquisitions(2)

(3.1

)%

 

(0.4

)%

 

(1.3

)%

Organic Net sales growth

1.2

%

 

6.3

%

 

4.6

%

 

 

 

 

 

 

 

Twelve Months Ended

 

December 31, 2019

 

AIT

 

EVM

 

Consolidated

Reported GAAP Consolidated Net sales growth

3.9

%

 

7.5

%

 

6.3

%

Adjustments:

 

 

 

 

 

Impact of foreign currency translation(1)

1.0

%

 

1.1

%

 

1.1

%

Impact of acquisitions(2)

(2.7

)%

 

(1.4

)%

 

(1.9

)%

Organic Net sales growth

2.2

%

 

7.2

%

 

5.5

%

 

 

 

 

 

 

(1)

Operating results reported in U.S. Dollars are affected by foreign currency exchange rate fluctuations. Foreign currency translation 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 the current period results at the currency exchange rates used in the comparable prior year period, inclusive of the Company’s foreign currency hedging program.

 

(2)

For purposes of computing Organic Net sales growth, amounts directly attributable to acquisitions are excluded for twelve months following their respective acquisition dates.

ZEBRA TECHNOLOGIES CORPORATION AND SUBSIDIARIES

RECONCILIATION OF GAAP TO NON-GAAP GROSS MARGIN

(In millions)

(Unaudited)

 

 

Three Months Ended

 

December 31, 2019

 

December 31, 2018

 

AIT

 

EVM

 

Consolidated

 

AIT

 

EVM

 

Consolidated

GAAP

 

 

 

 

 

 

 

 

 

 

 

Reported Net sales

$

379

 

 

$

813

 

 

$

1,192

 

 

$

367

 

 

$

770

 

 

$

1,137

 

Reported Gross profit (1)

183

 

 

362

 

 

544

 

 

182

 

 

359

 

 

539

 

Gross Margin

48.3

%

 

44.5

%

 

45.6

%

 

49.6

%

 

46.6

%

 

47.4

%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Non-GAAP

 

 

 

 

 

 

 

 

 

 

 

Adjusted Net sales

$

379

 

 

$

813

 

 

$

1,192

 

 

$

367

 

 

$

770

 

 

$

1,137

 

Adjusted Gross profit (2)

183

 

 

363

 

 

546

 

 

182

 

 

360

 

 

542

 

Adjusted Gross Margin

48.3

%

 

44.6

%

 

45.8

%

 

49.6

%

 

46.8

%

 

47.7

%

 

 

Twelve Months Ended

 

December 31, 2019

 

December 31, 2018

 

AIT

 

EVM

 

Consolidated

 

AIT

 

EVM

 

Consolidated

GAAP

 

 

 

 

 

 

 

 

 

 

 

Reported Net sales

$

1,479

 

 

$

3,006

 

 

$

4,485

 

 

$

1,423

 

 

$

2,795

 

 

$

4,218

 

Reported Gross profit (1)

736

 

 

1,371

 

 

2,100

 

 

710

 

 

1,274

 

 

1,981

 

Gross Margin

49.8

%

 

45.6

%

 

46.8

%

 

49.9

%

 

45.6

%

 

47.0

%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Non-GAAP

 

 

 

 

 

 

 

 

 

 

 

Adjusted Net sales

$

1,479

 

 

$

3,006

 

 

$

4,485

 

 

$

1,423

 

 

$

2,795

 

 

$

4,218

 

Adjusted Gross profit (2)

737

 

 

1,374

 

 

2,111

 

 

711

 

 

1,277

 

 

1,988

 

Adjusted Gross Margin

49.8

%

 

45.7

%

 

47.1

%

 

50.0

%

 

45.7

%

 

47.1

%

(1)

Consolidated results include corporate eliminations related to business acquisitions and product sourcing diversification costs that are not reported in segment results.

(2)

Adjusted Gross profit excludes purchase accounting adjustments, product sourcing diversification costs, and share-based compensation expense.

ZEBRA TECHNOLOGIES CORPORATION AND SUBSIDIARIES

RECONCILIATION OF GAAP TO NON-GAAP NET INCOME

(In millions, except share data)

(Unaudited)

 

 

 

Three Months Ended

 

Twelve Months Ended

 

 

December 31,

2019

 

December 31,

2018

 

December 31,

2019

 

December 31,

2018

Net income

 

$

169

 

 

$

115

 

 

$

544

 

 

$

421

 

Adjustments to Cost of sales(1)

 

 

 

 

 

 

 

 

Purchase accounting adjustments

 

 

 

2

 

 

6

 

 

3

 

Share-based compensation

 

1

 

 

1

 

 

4

 

 

4

 

Product sourcing diversification initiative

 

1

 

 

 

 

1

 

 

 

Total adjustments to Cost of sales

 

2

 

 

3

 

 

11

 

 

7

 

Adjustments to Operating expenses(1)

 

 

 

 

 

 

 

 

Amortization of intangible assets

 

19

 

 

26

 

 

103

 

 

97

 

Acquisition and integration costs

 

2

 

 

 

 

22

 

 

8

 

Legal Settlement

 

 

 

 

 

 

 

13

 

Share-based compensation

 

16

 

 

12

 

 

56

 

 

49

 

Exit and restructuring costs

 

8

 

 

2

 

 

10

 

 

11

 

Product sourcing diversification initiative

 

3

 

 

 

 

4

 

 

 

Total adjustments to Operating expenses

 

48

 

 

40

 

 

195

 

 

178

 

Adjustments to Other expenses, net(1)

 

 

 

 

 

 

 

 

Debt extinguishment costs

 

 

 

 

 

3

 

 

 

Amortization of debt issuance costs and discounts

 

1

 

 

2

 

 

7

 

 

15

 

Investment gain

 

 

 

(9

)

 

(3

)

 

(10

)

Foreign exchange loss

 

4

 

 

 

 

6

 

 

5

 

Forward interest rate swaps loss (gain)

 

(8

)

 

18

 

 

19

 

 

(6

)

Total adjustments to Other expenses, net

 

(3

)

 

11

 

 

32

 

 

4

 

Income tax effect of adjustments(2)

 

 

 

 

 

 

 

 

Reported income tax expense

 

10

 

 

33

 

 

54

 

 

103

 

Adjusted income tax

 

(32

)

 

(33

)

 

(130

)

 

(115

)

Total adjustments to income tax

 

(22

)

 

 

 

(76

)

 

(12

)

Total adjustments

 

25

 

 

54

 

 

162

 

 

177

 

Non-GAAP Net income

 

$

194

 

 

$

169

 

 

$

706

 

 

$

598

 

 

 

 

 

 

 

 

 

 

GAAP earnings per share

 

 

 

 

 

 

 

 

Basic

 

$

3.13

 

 

$

2.14

 

 

$

10.08

 

 

$

7.86

 

Diluted

 

$

3.10

 

 

$

2.11

 

 

$

9.97

 

 

$

7.76

 

Non-GAAP earnings per share

 

 

 

 

 

 

 

 

Basic

 

$

3.60

 

 

$

3.13

 

 

$

13.08

 

 

$

11.16

 

Diluted

 

$

3.56

 

 

$

3.10

 

 

$

12.94

 

 

$

11.01

 

 

 

 

 

 

 

 

 

 

Basic weighted average shares outstanding

 

53,985,729

 

 

53,831,395

 

 

53,991,249

 

 

53,591,655

 

Diluted weighted average and equivalent shares outstanding

 

54,541,638

 

 

54,468,545

 

 

54,594,417

 

 

54,299,812

 

(1)  

Presented on a pre-tax basis.

(2)  

Represents the adjustment to the GAAP income tax expense commensurate with non-GAAP adjustments (including   the resulting impacts to U.S. BEAT/GILTI provisions) and to exclude the impacts of certain discrete income tax items.

ZEBRA TECHNOLOGIES CORPORATION AND SUBSIDIARIES

GAAP to NON-GAAP RECONCILIATION TO EBITDA

(In millions)

(Unaudited)

 

 

 

Three Months Ended

 

Twelve Months Ended

 

 

December 31,

2019

 

December 31,

2018

 

December 31,

2019

 

December 31,

2018

Net income

 

$

169

 

 

$

115

 

 

$

544

 

 

$

421

 

Add back:

 

 

 

 

 

 

 

 

Depreciation

 

17

 

 

18

 

 

72

 

 

78

 

Amortization of intangible assets

 

19

 

 

26

 

 

103

 

 

97

 

Total Other expenses, net

 

9

 

 

31

 

 

94

 

 

86

 

Income tax expense

 

10

 

 

33

 

 

54

 

 

103

 

EBITDA (Non-GAAP)

 

224

 

 

223

 

 

867

 

 

785

 

 

 

 

 

 

 

 

 

 

Adjustments to Cost of sales

 

 

 

 

 

 

 

 

Purchase accounting adjustments

 

 

 

2

 

 

6

 

 

3

 

Share-based compensation

 

1

 

 

1

 

 

4

 

 

4

 

Product sourcing diversification initiative

 

1

 

 

 

 

1

 

 

 

Total adjustments to Cost of sales

 

2

 

 

3

 

 

11

 

 

7

 

Adjustments to Operating expenses

 

 

 

 

 

 

 

 

Acquisition and integration costs

 

2

 

 

 

 

22

 

 

8

 

Legal Settlement

 

 

 

 

 

 

 

13

 

Share-based compensation

 

16

 

 

12

 

 

56

 

 

49

 

Exit and restructuring costs

 

8

 

 

2

 

 

10

 

 

11

 

Product sourcing diversification initiative

 

3

 

 

 

 

4

 

 

 

Total adjustments to Operating expenses

 

29

 

 

14

 

 

92

 

 

81

 

Total adjustments to EBITDA

 

31

 

 

17

 

 

103

 

 

88

 

Adjusted EBITDA (Non-GAAP)

 

$

255

 

 

$

240

 

 

$

970

 

 

$

873

 

 

 

 

 

 

 

 

 

 

Adjusted EBITDA % of Adjusted Net Sales

 

21.4

%

 

21.1

%

 

21.6

%

 

20.7

%

FREE CASH FLOW

 

 

 

Twelve Months Ended

 

 

December 31,

2019

 

December 31,

2018

Net cash provided by operating activities

 

$

685

 

 

$

785

 

Less: Purchases of property, plant and equipment

 

(61

)

 

(64

)

Free cash flow (Non-GAAP)(1)

 

$

624

 

 

$

721

 

(1)  

Free cash flow is defined as Net cash provided by operating activities in a period minus purchases of property plant and equipment (capital expenditures) made in that period. This measure does not represent residual cash flows available for discretionary expenditures as the measure does not deduct the payments required for debt service and other contractual obligations or payments for future business acquisitions. Therefore we believe it is important to view free cash flow as a measure that provides supplemental information to our entire statements of cash flows.