Zebra Technologies Corporation — Q3 2021 Form 10-Q
Business context and period. Zebra provides enterprise asset intelligence products, software and services, including barcode printers and scanners, mobile computers, RFID, workflow solutions and support. This unaudited report covers the quarter ended October 2, 2021; comparisons are with the quarter ended September 26, 2020. Year-to-date figures cover nine months. Retail Solutions was reclassified from AIT to EVM effective January 1, 2021; prior-period segment results were recast.
Financial performance
| Metric | Q3 2021 | Q3 2020 | Nine months 2021 | Nine months 2020 |
|---|---|---|---|---|
| Net sales | $1.436B | $1.132B | $4.160B | $3.140B |
| Gross profit / margin | $646M / 45.0% | $493M / 43.6% | $1.959B / 47.1% | $1.385B / 44.1% |
| Operating income | $237M | $150M | $756M | $420M |
| Net income | $199M | $116M | $646M | $305M |
| Diluted EPS | $3.69 | $2.16 | $11.98 | $5.65 |
| Operating cash flow | — | $836M | $531M |
Q3 sales rose 26.9% and nine-month sales rose 32.5%; management reported organic growth of 23.2% and 28.8%, respectively, excluding acquisition and currency effects. Q3 operating income increased 58% and net income 72%; nine-month operating income increased 80% and net income 112%. Growth reflected broad demand for digitization and automation, including customer purchases delayed during 2020. Gross-margin improvement reflected business mix, volume leverage and service margins, among other factors, partly offset by higher premium freight costs.
Q3 effective tax rate was 12.7% versus 15.9%; nine-month rate was 12.9% versus 11.3%. Nine-month interest expense was $10M versus $69M, with the prior period including larger interest-rate-swap losses. The filing does not provide a clear standalone quarterly cash-flow amount.
Segments and regions
- EVM: Q3 sales of $1.050B, up 32.1%; operating income of $195M versus $121M. Nine-month sales were $2.923B, up 34.4%, and operating income was $571M versus $305M. EVM organic sales growth was 27.9% in Q3 and 29.8% year to date.
- AIT: Q3 sales of $386M, up 13.9%; operating income of $77M versus $78M. Gross margin declined to 43.5% from 46.6%, principally due to premium freight. Nine-month sales were $1.243B, up 28.5%, and operating income was $283M versus $212M.
- Q3 regional sales growth was strongest in EMEA (+48.2%) and Latin America (+43.8%); North America grew 15.7% and Asia-Pacific 17.4%.
Cash, liquidity and debt
- Cash and cash equivalents were $307M at October 2, 2021, versus $168M at December 31, 2020. Nine-month operating cash flow was $836M; investing used $369M and financing used $351M. Cash increased $116M including restricted cash.
- Total debt was $996M, down from $1.252B at year-end 2020; long-term debt was $940M and current debt $51M. The company had no revolver borrowings and $993M of available revolving capacity after letters of credit. It reported compliance with debt covenants.
- Management stated that cash, operating cash generation and available borrowing capacity were sufficient for anticipated capital requirements and debt service.
- Factoring proceeds were $1.161B in the first nine months, compared with $857M in the prior-year period. Factoring is accounted for as receivables sales; $23M of sold receivables remained uncollected at quarter-end.
Material developments, outlook and risks
- Fetch Robotics was acquired August 9 for $301M of consideration; its preliminary allocation included $207M of goodwill. Adaptive Vision was acquired in May for $18M. Both are included in EVM. Antuit was acquired October 7, after quarter-end, for approximately $145M net of cash, funded with cash on hand.
- Management said demand remained broad, while component availability constraints, longer lead times and elevated input and freight costs were affecting fulfillment and could continue for some time. Component shortages could prevent the company from meeting demand.
- The filing refers to a 2021 financial outlook but the supplied filing text does not provide a clear numerical guidance value. Results are not necessarily indicative of full-year results.
- Three distributors together represented 49.5% of nine-month sales and 55.1% of accounts receivable at quarter-end, creating customer concentration exposure.
- Legal proceedings were described as ordinary-course matters that management did not expect to have a material adverse effect. U.S. federal tax audits for 2017–2018 are ongoing; estimates of uncertain tax positions could change.
- The company recorded $16M of customs-duty recoveries in the first nine months and believed substantially all expected recoveries had been received; any further amounts and timing remained uncertain and were not recorded.
- COVID-19-related supply-chain disruption, labor constraints, higher freight and component costs, supplier concentration, acquisition integration, foreign exchange and interest-rate movements were identified as relevant risks. Disclosure controls were assessed as effective; no material change in internal controls was reported.
Important facts for investors to verify
- Whether component availability and premium freight costs improve or continue to constrain deliveries and margins.
- How much reported growth and margin performance is sustainable after pandemic-related catch-up demand, currency effects and acquisitions.
- Fetch, Adaptive Vision and post-quarter Antuit integration, purchase accounting and cash requirements.
- Customer concentration and the continued availability and economics of receivables factoring and financing facilities.
- The numerical 2021 outlook and any subsequent updates, which are not clearly stated in the supplied filing text.