Zebra Technologies Corporation — Q2 2021 Form 10-Q
Business context and reporting period
Global provider of enterprise asset intelligence, automatic identification and data capture products, software, and services. The quarter ended July 3, 2021; comparisons are with the quarter ended June 27, 2020. The filing also reports six-month results. Retail solutions were moved from AIT to EVM effective January 1, 2021, with prior segment results reclassified.
Key financial metrics
| Metric | Q2 2021 | Q2 2020 | Six months 2021 | Six months 2020 |
|---|---|---|---|---|
| Revenue | $1.377 billion | $956 million | $2.724 billion | $2.008 billion |
| Gross profit / margin | $658 million / 47.8% | $419 million / 43.8% | $1.313 billion / 48.2% | $892 million / 44.4% |
| Operating income | $247 million | $119 million | $519 million | $270 million |
| Net income | $219 million | $100 million | $447 million | $189 million |
| Diluted EPS | $4.07 | $1.85 | $8.29 | $3.49 |
| Operating cash flow | — | $539 million | $355 million |
Quarterly revenue rose 44.0% and six-month revenue rose 35.7%; management reported organic growth of 39.8% and 32.0%, respectively, excluding acquisition and currency effects. Second-quarter sales increased across both segments and all regions. Tangible products accounted for $1.192 billion of quarterly sales; services and software contributed $185 million.
For the six months, investing activities used $59 million and financing activities used $329 million. Cash and cash equivalents were $318 million at July 3, 2021, compared with $168 million at year-end 2020. Total debt was $996 million, down from $1.252 billion; the company also had $995 million available under its revolving credit facility and reported compliance with debt covenants. Current assets of $1.526 billion were slightly below current liabilities of $1.550 billion.
Material changes versus prior comparable periods
- Q2 operating income more than doubled year over year; six-month net income increased from $189 million to $447 million. Gross margin improved 4.0 percentage points in Q2 and 3.8 points year to date.
- Management attributed stronger sales to broad-based demand for digitization and automation, including purchases delayed during the pandemic. Favorable mix, volume leverage, tariff recoveries, and higher-margin acquisitions supported margins; higher premium freight partly offset those benefits.
- Operating expenses increased to $411 million in Q2 and $794 million for the first half, mainly reflecting compensation, acquired businesses, and greater R&D investment. As a share of sales, expenses declined year over year.
- Six-month operating cash flow improved by $184 million, principally from higher operating profitability and working-capital factors. Debt repayments and share-based compensation payments contributed to financing outflows.
Outlook, commentary, risks, and unusual items
- The filing does not provide a clear numerical 2021 financial outlook in the supplied text. Management said demand had benefited from pent-up purchases and accelerated workflow digitization.
- Management warned that component shortages, longer lead times, and higher input and freight costs could become more significant, potentially limiting its ability to meet demand. The duration and business effects of COVID-19 remained uncertain.
- Fetch Robotics acquisition agreement was signed June 30, 2021; expected consideration was approximately $305 million, subject to customary adjustments, with closing expected in Q3 2021. The company expected to fund it primarily with cash. Adaptive Vision was acquired for $18 million net of cash acquired.
- The company recorded $12 million of import-duty recoveries in Q2 and $15 million in the first half; it believed substantially all expected recoveries had been recognized, while any further amounts and timing remained uncertain.
- Three distributors together represented 51.7% of six-month sales and 54.8% of accounts receivable at quarter-end. The company identified supplier concentration, including sole-source components, as a risk. It said ordinary-course legal proceedings were not expected to have a material adverse impact.
- Effective tax rates were 8.0% for Q2 and 13.0% for the first half, compared with 2.9% and 8.3%. Results included a benefit from remeasuring deferred tax assets after the U.K. enacted a higher future corporate tax rate.
Important facts for investors to verify
- Whether component availability, premium freight, and other input costs affect fulfillment, sales, and margins in subsequent quarters.
- Completion, final consideration, funding, and integration of the Fetch Robotics acquisition.
- Customer and receivables concentration, and the extent to which factoring supports cash collections and operating cash flow.
- Remaining import-duty recoveries, debt maturities and facility terms, and the effect of taxes and acquisition-related costs on reported earnings.