ZEBRA TECHNOLOGIES CORP

Results of Operations: Year Ended 2023 versus 2022 and Year Ended 2022 versus 2021

Consolidated Results of Operations

Net sales to customers by geographic region were as follows (amounts in millions, except percentages):

Operating expenses are summarized below (amounts in millions, except percentages):

Consolidated Organic Net sales (decline) growth:

(1)Operating results reported in U.S. Dollars are affected by foreign currency exchange rate fluctuations. Foreign currency translation impact represents the difference in results that are attributable to fluctuations in the currency exchange rates used to convert the results for businesses where the functional currency is not the U.S. Dollar. This impact is calculated by translating the current period results at the currency exchange rates used in the comparable prior year period, inclusive of the Company’s foreign currency hedging program.

(2)For purposes of computing Organic Net sales (decline) growth, amounts directly attributable to business acquisitions are excluded for twelve months following their respective acquisitions.

(3)Consolidated Organic Net sales (decline) growth is a non-GAAP financial measure. See the Non-GAAP Measures section at the end of this item.

Total Net sales decreased $1,197 million or 20.7% compared to the prior year reflecting declines in both of our segments resulting from broad-based decline in demand for our core products as well as a reduction of inventory levels at our distributors. Current year Net sales of both segments included the benefit of targeted list price increases, partially offset by the negative effects of foreign currency changes. Prior year Net sales of both segments were negatively impacted by supply chain bottlenecks, which were most pronounced in our EVM segment. Excluding the effects of foreign currency changes and acquisitions, Consolidated Organic Net sales decreased by 19.8%.

Gross margin increased to 46.3% for the current year compared to 45.4% in the prior year. As compared to the prior year, Gross margin was significantly higher in our AIT segment, while Gross margin in our EVM segment was modestly lower. Both segments, particularly AIT, benefited from lower premium freight and component part costs compared to the prior year, and were negatively impacted by volume deleveraging, particularly EVM.

Operating expenses for the years ended December 31, 2023 and 2022 were $1,642 million and $2,095 million, or 35.8% and 36.2% of Net sales, respectively. Excluding the $372 million settlement charge in the prior year, Operating expenses would have been 29.8% of Net sales. The increase as a percentage of Net sales over the prior year reflects the impact of expense deleveraging. Current year Operating expenses were lower than the prior year primarily due to the prior year including a $372 million settlement charge, lower employee incentive compensation, cost efficiencies attributed to our Exit and restructuring actions, lower Amortization of intangible assets, and lower Acquisition and integration costs, partially offset by higher Exit and restructuring costs and the inclusion of operating expenses associated with recently acquired businesses.

Operating income was $481 million for the current year compared to $529 million for the prior year. The decrease was due to lower Gross profit partially offset by lower Operating expenses.

Net income decreased 36.1% compared to the prior year primarily due to lower Operating income, as described above, as well as higher Other (expense) income, net. Other (expense) income, net was an expense of $147 million for the current year, compared to income of $15 million in the prior year primarily due to higher interest expense associated with higher interest rates and average outstanding debt levels as well as lower interest rate swap gains in the current year.

The Company’s effective tax rates for the years ended December 31, 2023 and December 31, 2022 were 11.4% and 14.9%, respectively. The decrease in the effective tax rate compared to the prior year was primarily due to favorability in discrete items.

Diluted earnings per share decreased to $5.72 as compared to $8.80 in the prior year due to lower Net income, partially offset by lower average shares outstanding.

Results of Operations by Segment

The following commentary should be read in conjunction with the financial results of each reportable business segment as detailed in Note 20, Segment Information & Geographic Data in the Notes to Consolidated Financial Statements. To the extent applicable, segment operating income excludes business acquisition purchase accounting adjustments, amortization of intangible assets, acquisition and integration costs, impairment of goodwill and other intangibles, exit and restructuring costs, as well as certain other non-recurring costs (such as the settlement in the prior year).

Asset Intelligence & Tracking Segment (“AIT”)

AIT Organic Net sales (decline) growth:

(1)Operating results reported in U.S. Dollars are affected by foreign currency exchange rate fluctuations. Foreign currency translation impact represents the difference in results that are attributable to fluctuations in the currency exchange rates used to convert the results for businesses where the functional currency is not the U.S. Dollar. This impact is calculated by translating the current period results at the currency exchange rates used in the comparable prior year period, inclusive of the Company’s foreign currency hedging program.

(2) AIT Organic Net sales (decline) growth is a non-GAAP financial measure. See the Non-GAAP Measures section at the end of this item.

Total Net sales for AIT decreased $186 million or 10.1% compared to the prior year primarily due to lower sales of printing products and the negative effects of foreign currency changes, partially offset by targeted list price increases. Excluding the impact of foreign currency changes, AIT Organic Net sales decreased by 8.8%.

Gross margin increased to 47.7% in the current year compared to 43.3% for the prior year primarily due to lower premium freight and component part costs, and price increases, partially offset by the negative impact of foreign currency changes and volume deleveraging.

Operating income decreased 4.2% in the current year compared to the prior year due to lower Gross profit and higher Operating expenses.

Enterprise Visibility & Mobility Segment (“EVM”)

EVM Organic Net sales (decline) growth:

(1)Operating results reported in U.S. Dollars are affected by foreign currency exchange rate fluctuations. Foreign currency translation impact represents the difference in results that are attributable to fluctuations in the currency exchange rates used to convert the results for businesses where the functional currency is not the U.S. Dollar. This impact is calculated by translating the current period results at the currency exchange rates used in the comparable prior year period, inclusive of the Company’s foreign currency hedging program.

(2)For purposes of computing EVM Organic Net sales (decline) growth, amounts directly attributable to business acquisitions are excluded for twelve months following their respective acquisitions.

(3)EVM Organic Net sales (decline) growth is a non-GAAP financial measure. See the Non-GAAP Measures section at the end of this item.

Total Net sales for EVM decreased $1,011 million or 25.6% compared to the prior year primarily due to lower sales of mobile computing products (contributing the majority of the total decrease) and data capture products, which were partially offset by higher sales of services and software, and contributions from our recent acquisitions. Current year Net sales included the benefit of targeted list price increases, substantially offset by the negative effects of foreign currency changes. Excluding the impacts of foreign currency changes and acquisitions, EVM Organic Net sales decreased by 24.9%.

Gross margin decreased to 45.6% in the current year compared to 46.4% for the prior year primarily due to product volume deleveraging, the negative impact of foreign currency changes and inventory-related charges, partially offset by pricing, higher service and software margins, and lower premium freight and component part costs.

Operating income for the current year decreased 51.8% compared to the prior year due to lower Gross profit, partially offset by lower Operating expenses.