Zebra Technologies (ZBRA)

Management Discussion

• Total Net sales increased $91 million or 6.6% compared to the prior year as our customers continue to digitize and automate their workflows. Net sales grew across both of our segments and all of our regions. Current year Net sales included the negative effects of supply constraints, which were particularly pronounced in EVM. Prior year Net sales of both segments benefited from pent-up demand from customers who we believe delayed purchases in fiscal 2020 due to the COVID-19 pandemic. Excluding the effects of currency changes and acquisitions, the increase in Consolidated Organic Net sales was 6.9%.
• Gross margin decreased to 45.9% for the current quarter compared to 47.8% for the prior year. Gross margins were lower in both of our segments primarily due to higher premium freight and component part costs, as well as the negative impact of foreign currency changes, which were partially offset by favorable business mix and higher support service margins. The prior year gross margin included the benefit of partial recovery of Chinese import tariffs.
• Operating expenses for the quarters ended July 2, 2022 and July 3, 2021 were $819 million and $411 million, or 55.8% and 29.8% of Net sales, respectively. Excluding the Settlement charge, Operating expenses were 30.4% of Net Sales for the quarter ended July 2, 2022. The increase in Operating expenses over the prior quarter, excluding the Settlement charge in the current quarter, was primarily due to the inclusion of operating expenses and amortization of intangible assets associated with recently acquired businesses, increased Acquisition and integration costs as well as increased employee travel as in-person activities continued to resume. These increases were partially offset by lower employee incentive-based compensation.