Zebra Technologies Corporation (NASDAQ: ZBRA) — 2023 Form 10-K
Reporting period: Fiscal year ended December 31, 2023. This is an annual report; the figures below compare full-year 2023 with full-year 2022, not standalone fourth-quarter results. Zebra supplies automatic identification and data capture products, software and services through its AIT and EVM segments.
Financial results
| Metric | 2023 | 2022 | Change |
|---|---|---|---|
| Net sales | $4.584 billion | $5.781 billion | Down 20.7% |
| Gross profit / margin | $2.123 billion / 46.3% | $2.624 billion / 45.4% | Profit down 19.1%; margin up 90 bps |
| Operating income | $481 million | $529 million | Down 9.1% |
| Net income | $296 million | $463 million | Down 36.1% |
| Diluted EPS | $5.72 | $8.80 | Down 35.0% |
| Cash from operating activities | $(4) million | $488 million | Down $492 million |
- Tangible-product sales fell 25.4% to $3.665 billion, while services and software sales rose 6.1% to $919 million.
- AIT sales fell 10.1% to $1.651 billion; segment operating income was $346 million, down 4.2%. AIT gross margin improved to 47.7% from 43.3%.
- EVM sales fell 25.6% to $2.933 billion; segment operating income was $343 million, down 51.8%. EVM gross margin declined to 45.6% from 46.4%. Segment operating income excludes specified corporate, acquisition, restructuring and other costs, so it is not directly comparable to consolidated GAAP operating income.
- Consolidated operating expenses were $1.642 billion, including $98 million of exit and restructuring costs. The 2022 comparison included a $372 million patent-settlement charge; excluding that charge, 2022 operating expenses were $1.723 billion.
- Other expense was $147 million versus $15 million of other income in 2022, mainly reflecting higher interest expense and lower interest-rate-swap gains. The effective tax rate was 11.4%, compared with 14.9%.
Cash, debt and liquidity
- Year-end cash and cash equivalents were $137 million. Total debt carrying value was $2.226 billion, including $173 million current and $2.047 billion long-term; long-term debt increased from $1.809 billion. Debt facilities bear variable rates, with reported year-end rates of 6.71% on Term Loan A and 6.66% on the revolver. The company reported covenant compliance.
- The $1.5 billion revolving facility had $1.489 billion available after letters of credit at year-end. Two receivables-financing facilities, with $129 million drawn, mature in March and May 2024.
- Management said cash, expected operating cash generation and available borrowing capacity should fund anticipated requirements. Expected 2024 debt-related payments were approximately $291 million; planned capital expenditures were $80–$90 million. Non-cancellable multiyear purchase commitments totaled $124 million, and fixed lease commitments totaled $237 million.
- Operating cash flow was nearly zero, versus $488 million provided in 2022. The filing attributes the decline principally to lower operating profits and higher cash payments for taxes, restructuring, interest, inventory purchases and settlement obligations. Investing cash outflow was $92 million, compared with $968 million in 2022, which included the Matrox acquisition.
Changes, outlook and notable items
- Management attributed the sales decline to broad-based weaker demand, particularly for mobile computing and printing, customers absorbing prior capacity expansion, tighter capital budgets and distributors reducing inventory. The company said it had not yet seen a broad-based end-market recovery. Better component availability and lower transportation costs helped versus 2022; cost actions and targeted price increases partly offset headwinds.
- In 2023, the company expanded its productivity plan and completed a U.S. voluntary retirement program. During the first quarter of 2024 it committed to further plan actions, bringing expected total program costs to about $130 million. The programs are expected to affect more than 9% of global employees and deliver approximately $120 million in annualized net savings; about $50 million of net savings had been realized by year-end 2023. Remaining plan actions were expected to be substantially complete in the first half of 2024.
- The filing refers to financial outlook for first-quarter and full-year 2024, but the provided filing text does not give clear numerical revenue or earnings guidance.
- The final $45 million quarterly payment under the patent-litigation settlement was due in the first quarter of 2024. Management said other legal proceedings were not expected to have a material adverse effect, while noting litigation outcomes remain uncertain.
- Three distributors each accounted for more than 10% of sales; together they represented 44% of 2023 sales. Customer A alone represented 18%.
- Interest-rate sensitivity: a 1-percentage-point rate change was estimated to change annual interest expense by approximately $14 million, after swaps. Goodwill impairment testing in the fourth quarter found each reporting unit’s estimated fair value at least 40% above carrying value.
- The cover page indicates the financial statements reflect correction of an error. The text describes an immaterial 2022 inventory-category reclassification with no impact on total inventory; investors should verify whether that is the correction referenced.
- Ernst & Young issued unqualified opinions on the financial statements and internal control over financial reporting. The filing states disclosure controls and internal controls were effective as of year-end; it reports no material cybersecurity incidents to date.
Key investor verification points
- Check whether demand and distributor inventory levels recovered after year-end, especially in EVM mobile computing and AIT printing.
- Track whether the restructuring reaches its approximately $130 million cost and $120 million annualized net-savings targets, and whether savings translate into stronger margins and operating cash flow.
- Review refinancing or repayment plans for the receivables facilities maturing in March and May 2024, and the company’s ability to service variable-rate debt.
- Assess working-capital cash conversion, including receivables factoring, inventory levels and supplier commitments.
- Confirm the nature and accounting effect of the error correction noted on the cover page, and monitor the final settlement payment and any material legal developments.