Zebra Technologies Corporation — Q1 2021 Form 10-Q
Reporting period: Three months ended April 3, 2021; compared with the three months ended March 28, 2020. Figures are in U.S. dollars. Zebra provides enterprise asset intelligence products, software, and services. The interim financial statements are unaudited.
Key financial results
| Metric | Q1 2021 | Q1 2020 | Change |
|---|---|---|---|
| Net sales | $1.347 billion | $1.052 billion | +28.0% |
| Gross profit / margin | $655 million / 48.6% | $473 million / 45.0% | +38.5%; +360 bps |
| Operating income | $272 million | $151 million | +80.1% |
| Net income | $228 million | $89 million | +156% |
| Diluted EPS | $4.22 | $1.65 | Increased |
| Operating cash flow | $224 million | $108 million | +$116 million |
Gross margin improvement reflected favorable mix, stronger support-service margins, acquisition contributions, currency effects, and mitigation and partial recovery of Chinese import tariffs. Higher premium freight and component surcharges partially offset these benefits. The effective tax rate was 17.4%, versus 13.6% a year earlier.
Segments and sales mix
- AIT: Sales of $436 million, up 22.8%; segment operating income of $109 million, up 32.9%. Gross margin was 48.2%, unchanged year over year.
- EVM: Sales of $914 million, up 31.1%; segment operating income of $193 million, up 103.2%. Gross margin rose to 49.0% from 43.5%.
- Company-reported organic sales growth, excluding acquisition and currency effects, was 25.0% overall, 21.4% for AIT, and 26.8% for EVM. Reported sales grew across all regions; North America was the largest at $673 million.
- Tangible product sales were $1.153 billion; services and software sales were $194 million. Retail solutions moved from AIT to EVM effective January 1, 2021; prior-period segment figures were recast, with no effect on consolidated results.
Cash, debt, and liquidity
- At April 3, 2021, cash and cash equivalents were $177 million, including $33 million of restricted cash reported in other current assets. Cash including restricted cash was $210 million.
- Gross debt was $1.096 billion, down from $1.252 billion at year-end 2020. Zebra repaid the remaining $100 million under its 2020 term loan during the quarter. The current portion of debt was $134 million; long-term debt was $956 million.
- Cash provided by operations was $224 million; investing activities used $23 million and financing activities used $181 million. The company attributed stronger operating cash flow primarily to higher profitability, payment timing, and lower incentive compensation payments, partly offset by less favorable customer collections and higher inventory.
- No revolver borrowings were outstanding; $995 million was available after letters of credit. The company reported compliance with debt covenants. Management said existing capital resources, borrowing capacity, and operating cash flows were sufficient for anticipated needs.
- Receivables factoring generated $413 million of cash proceeds during the quarter; $77 million of sold receivables remained uncollected at quarter-end. The company also had $123 million of servicing-related amounts not yet remitted to banks.
Outlook, commentary, and notable items
- Management expected 2021 sales and profitability to benefit from delayed customer purchases returning and continued digitization and workflow automation. The filing provides no specific numerical full-year guidance.
- COVID-19 impacts had eased from the first half of 2020, but pandemic duration and recovery remained uncertain. Management cited lengthening component lead times, higher input costs, and potential product shortages that could constrain its ability to meet demand.
- Tariff recoveries of $3 million were recorded in Q1 2021 as reductions to tangible-product cost of sales. Further recoveries may be possible, but amounts and timing were uncertain and no additional potential recovery was recorded.
- Other income was $4 million, compared with $48 million of expense in Q1 2020, mainly reflecting lower interest expense and an $8 million gain on interest-rate swaps versus a $35 million loss a year earlier.
- Legal proceedings arising in the ordinary course were not expected by management to have a material adverse impact. The company was undergoing U.S. federal tax audits for 2017 and 2018 and noted that tax audit outcomes remain uncertain.
- Three distributors represented 13.4%, 14.9%, and 23.3% of quarterly sales, respectively; together they accounted for 50.0% of sales. One represented 29.7% of accounts receivable at quarter-end.
Important facts for investors to verify
- Whether component availability, freight premiums, and input-cost increases affect fulfillment, margins, or demand in subsequent periods.
- How much of the quarter’s reported growth reflects a rebound from pandemic-affected 2020 comparisons, versus sustained organic demand; also verify the impact of Reflexis and currency.
- Future cash conversion and reliance on receivables factoring, including facility maturities and the level of pledged receivables.
- Debt repayment, variable-rate exposure, interest-rate swap valuation, and compliance with covenant requirements.
- Customer concentration and the timing and realization of any additional customs-duty recoveries.