Zebra(ZBRA) - 2023 Q3 - Quarterly Report

PART I - FINANCIAL INFORMATION Consolidated Financial Statements The consolidated financial statements reflect a $7.33 billion asset base, a $15 million Q3 net loss, and $(145) million negative operating cash flow year-to-date Consolidated Balance Sheet Highlights (in millions) | Account | Sep 30, 2023 | Dec 31, 2022 | | :--- | :--- | :--- | | Total Current Assets | $1,652 | $1,883 | | Total Assets | $7,331 | $7,529 | | Total Current Liabilities | $1,562 | $2,332 | | Total Liabilities | $4,318 | $4,796 | | Total Stockholders' Equity | $3,013 | $2,733 | Consolidated Statement of Operations Highlights (in millions, except EPS) | Metric | Q3 2023 | Q3 2022 | YTD 2023 | YTD 2022 | | :--- | :--- | :--- | :--- | :--- | | Total Net Sales | $956 | $1,378 | $3,575 | $4,278 | | Gross Profit | $427 | $628 | $1,675 | $1,939 | | Operating (Loss) Income | $(12) | $202 | $407 | $269 | | Net (Loss) Income | $(15) | $170 | $279 | $277 | | Diluted (Loss) EPS | $(0.28) | $3.26 | $5.40 | $5.25 | Consolidated Statement of Cash Flows Highlights (in millions) | Cash Flow Activity | Nine Months Ended Sep 30, 2023 | Nine Months Ended Oct 1, 2022 | | :--- | :--- | :--- | | Net cash (used in) provided by operating activities | $(145) | $221 | | Net cash used in investing activities | $(49) | $(941) | | Net cash provided by financing activities | $140 | $470 | | Net decrease in cash and cash equivalents | $(56) | $(252) | Note 3: Revenues Revenue disaggregation shows Q3 2023 net sales at $956 million, a decline from $1,378 million in Q3 2022, with $1,094 million in remaining performance obligations Disaggregation of Revenue by Segment (Q3 2023 vs Q3 2022, in millions) | Segment | Product Category | Q3 2023 | Q3 2022 | | :--- | :--- | :--- | :--- | | AIT | Tangible Products | $295 | $414 | | | Services and Software | $29 | $28 | | | Total AIT | $324 | $442 | | EVM | Tangible Products | $434 | $750 | | | Services and Software | $198 | $186 | | | Total EVM | $632 | $936 | | Total | | $956 | $1,378 | - Remaining performance obligations for contracts with an original term exceeding one year stood at $1,094 million as of September 30, 2023, expected to be recognized over approximately two years[29] Note 6: Exit and Restructuring Costs The company expanded its productivity plan and initiated a voluntary retirement plan, incurring $82 million in YTD restructuring charges with $54 million remaining liability - The company expanded its 2022 Productivity Plan and initiated a voluntary retirement plan (VRP) with an expected total cost of at least $105 million[37] Restructuring Charges (in millions) | Period | Charge | | :--- | :--- | | Q3 2023 | $58 | | YTD 2023 | $82 | | Total to Date | $94 | - As of September 30, 2023, the remaining payment obligation for restructuring was $54 million, expected to be settled by Q1 2024[38][39] Note 9: Long-Term Debt Total debt increased to $2.28 billion as of September 30, 2023, primarily due to higher Revolving Credit Facility borrowings, with the company remaining in compliance with all covenants Debt Composition (in millions) | Debt Instrument | Sep 30, 2023 | Dec 31, 2022 | | :--- | :--- | :--- | | Term Loan A | $1,684 | $1,728 | | Revolving Credit Facility | $477 | $50 | | Receivables Financing Facilities | $119 | $254 | | Total debt | $2,280 | $2,032 | - As of September 30, 2023, the company had $1,489 million available for borrowing under its $1,500 million Revolving Credit Facility[59] - The company was in compliance with all debt covenants as of September 30, 2023[63] Note 16: Segment Information & Geographic Data Both AIT and EVM segments experienced significant Q3 2023 sales declines, with total net sales falling to $956 million and EMEA showing the largest regional percentage drop Net Sales by Segment (Q3 2023 vs Q3 2022, in millions) | Segment | Q3 2023 | Q3 2022 | | :--- | :--- | :--- | | AIT | $324 | $442 | | EVM | $632 | $936 | | Total | $956 | $1,378 | Net Sales by Region (Q3 2023 vs Q3 2022, in millions) | Region | Q3 2023 | Q3 2022 | % Change | | :--- | :--- | :--- | :--- | | North America | $517 | $690 | (25.1)% | | EMEA | $269 | $456 | (41.0)% | | Asia-Pacific | $106 | $158 | (32.9)% | | Latin America | $64 | $74 | (13.5)% | | Total | $956 | $1,378 | (30.6)% | - In Q2 2023, the advanced location technology solutions business (RFID and RTLS) was moved from the EVM segment to the AIT segment, with historical data restated for comparability[83][90] Management's Discussion and Analysis of Financial Condition and Results of Operations Management attributes the 30.6% Q3 2023 net sales decline to demand moderation and inventory reduction, leading to a $12 million operating loss, while implementing cost-saving measures for $100 million annualized savings Overview Q3 2023 net sales dropped to $956 million, resulting in a $15 million net loss due to demand decline and inventory reduction, prompting expanded restructuring plans for $100 million annualized savings Q3 2023 Financial Summary (in millions, except EPS) | Metric | Q3 2023 | Q3 2022 | | :--- | :--- | :--- | | Net sales | $956 | $1,378 | | Operating loss | $(12) | $202 (income) | | Net loss | $(15) | $170 (income) | | Diluted EPS | $(0.28) | $3.26 | - The company attributes the decline in demand to customers absorbing significant capacity built out in recent years and tighter capital spending budgets, as well as distributors reducing inventory levels[95] - Restructuring programs are expected to cost at least $105 million, impact over 7% of the global employee base, and result in approximately $100 million of annualized net cost savings[96] Results of Operations Consolidated net sales for Q3 2023 fell 30.6% to $956 million, with gross margin slightly decreasing to 44.7% and an operating loss of $12 million due to restructuring costs Consolidated Organic Net Sales Decline | Period | Reported GAAP Decline | Impact of Forex | Impact of Acquisitions | Organic Decline | | :--- | :--- | :--- | :--- | :--- | | Q3 2023 | (30.6)% | 1.0% | 0.0% | (29.6)% | | YTD 2023 | (16.4)% | 2.0% | (0.7)% | (15.1)% | - Q3 2023 gross margin decreased by 90 bps to 44.7%, as benefits from lower freight and component costs were more than offset by volume deleveraging[101][102] - Q3 2023 operating expenses were higher than the prior year primarily due to $58 million in exit and restructuring costs[103] Results of Operations by Segment Both AIT and EVM segments saw significant Q3 2023 sales declines, with AIT net sales falling 26.7% and EVM net sales dropping 32.5%, impacted by lower product sales and volume deleveraging AIT Segment Performance (Q3 2023 vs Q3 2022, in millions) | Metric | Q3 2023 | Q3 2022 | % Change | | :--- | :--- | :--- | :--- | | Net Sales | $324 | $442 | (26.7)% | | Gross Profit | $145 | $193 | (24.9)% | | Operating Income | $44 | $85 | (48.2)% | EVM Segment Performance (Q3 2023 vs Q3 2022, in millions) | Metric | Q3 2023 | Q3 2022 | % Change | | :--- | :--- | :--- | :--- | | Net Sales | $632 | $936 | (32.5)% | | Gross Profit | $282 | $435 | (35.2)% | | Operating Income | $30 | $159 | (81.1)% | Liquidity and Capital Resources Cash used in operating activities was $145 million for the first nine months of 2023, a $366 million decrease, with total debt increasing to $2.28 billion and $893 million remaining for share repurchases - Net cash used in operating activities was $145 million for the nine months ended Sep 30, 2023, a decrease of $366 million from the same period in 2022, primarily due to higher cash payments for inventory, taxes, interest, the Settlement, and restructuring actions[127][128] - During the first nine months of 2023, the Company repurchased 194,319 shares of common stock for approximately $52 million[140] - As of September 30, 2023, $893 million remained available for share repurchases under the authorized plans[140] Quantitative and Qualitative Disclosures About Market Risk The company reported no material changes in its market risk, including foreign currency exchange rates and interest rates, during the quarter ended September 30, 2023 - There were no material changes in the Company's market risk during the quarter ended September 30, 2023[147] Controls and Procedures Management assessed the company's disclosure controls and procedures as effective as of September 30, 2023, with no material changes to internal control over financial reporting during the quarter - Management believes that, as of September 30, 2023, the company's disclosure controls were effective[148] - During the quarter ended September 30, 2023, there have been no changes in internal controls that have materially affected, or are reasonably likely to materially affect, internal control over financial reporting[149] PART II - OTHER INFORMATION Legal Proceedings The company is subject to various legal proceedings, with management not expecting a material adverse impact, and the final $90 million patent litigation settlement payments due by Q1 2024 - The company is subject to various legal proceedings but does not expect them to have a material adverse impact on its business, financial position, or results of operations[69][151] - The remaining two quarterly payments of $45 million each for the 2022 patent litigation settlement will be paid by the first quarter of 2024[70] Risk Factors No material changes to risk factors were reported, but expanded descriptions highlight cybersecurity, reliance on third-party distributors, dependence on suppliers, and economic condition impacts - The company highlights the risk of cybersecurity incidents, noting that while no material incidents have occurred to-date, a breach could disrupt business, damage reputation, and lead to financial obligations[152][153][154] - The company relies on third-party dealers, distributors, and resellers, and their failure to effectively market products or their own financial instability could negatively impact results[155][156][157] - The ability to source sufficient materials, parts, and components, some from sole suppliers, is a key risk, as shortages, price increases, or supplier disruptions could negatively impact operations and financial results[158] Unregistered Sales of Equity Securities and Use of Proceeds The company did not repurchase any common stock during Q3 2023, with $893 million remaining authorized for future share repurchases Share Repurchases (Q3 2023) | Period | Total Number of Shares Purchased | Average Price Paid per Share | | :--- | :--- | :--- | | July 2, 2023 - Sep 30, 2023 | 0 | $0.00 | - As of September 30, 2023, the remaining amount of share repurchases authorized under the plans was $893 million[161] Other Information No director or executive officer adopted or terminated a Rule 10b5-1 trading arrangement during the third quarter of 2023 - No director or executive officer adopted or terminated a Rule 10b5-1 trading arrangement during the third quarter of 2023[162] Exhibits This section lists the exhibits filed with the Form 10-Q, including officer certifications and financial data in Inline XBRL format