{ "docId": "019dd923-622c-750b-8b99-8e3ed32b40dc", "docSlug": "5a3c61f9c8f5", "documentTitle": "Zebra Technologies Corp. (ZBRA)", "authorId": "54_Spruce_Point_Capital", "authorName": "Spruce Point Capital Management", "documentKindSlug": "activist-deck", "documentKindLabel": "Activist deck", "sourceTypeSlug": "short_seller", "sourceTypeLabel": "Short seller", "presentationDate": "2024-08-08 00:00:00", "orientation": "landscape", "aspectRatio": 1.3333334, "pageNumber": 7, "pageCount": 109, "prevPage": 6, "nextPage": 8, "slideType": "executive_summary", "function": "summarize", "density": "dense", "nDataPoints": 14, "notes": "The slide is a dense text block summarizing the core arguments of an activist short report.", "elementsJson": [ "headline_text", "paragraph" ], "metadataConfidence": 1, "imagePath": null, "slideHref": "/slides/019dd923-622c-750b-8b99-8e3ed32b40dc/7", "deckHref": "/decks/019dd923-622c-750b-8b99-8e3ed32b40dc", "deckJsonHref": "/decks/019dd923-622c-750b-8b99-8e3ed32b40dc.json", "deckAnchorHref": "/decks/019dd923-622c-750b-8b99-8e3ed32b40dc#slide-7", "components": [ { "bbox": null, "kind": "callout", "text": "Zebra's multiple expansion and valuation premium to the sum-of-parts are difficult to explain; we estimate 65% – 80% long-term potential downside risk to the share price and expect it to underperform the market.", "attrs": null, "subkind": null, "toolName": "Visual emphasis", "toolSlug": "visual-emphasis", "confidence": null, "componentId": "019dd953-0930-77dc-94aa-c0e8f7000e60", "frameworkName": null, "frameworkSlug": null }, { "bbox": null, "kind": "metric", "text": "downside risk: 65% - 80%", "attrs": null, "subkind": "primary", "toolName": "Quantification", "toolSlug": "quantification", "confidence": null, "componentId": "019dd953-0930-77dc-94aa-c4886a259b4e", "frameworkName": null, "frameworkSlug": null }, { "bbox": { "h": 0.45, "w": 0.96, "x": 0.02, "y": 0.17 }, "kind": "paragraph", "text": "Zebra's Board looks disengaged, the CEO recently joined an outside Board, shareholders look fatigued, and insiders have little skin in the game. Spruce Point believes that Zebra needs a refresh at the Board level. We are concerned that 50% of the Board has been entrenched for over a decade with Directors Maniere and Smith having served for over two decades. Zebra's Board is also classified which makes it more difficult for investors to enact changes. CEO Burns recently joined the Board of Oshkosh Corp. (NYSE: OSK) which we think will be a distraction of his time and attention from solving Zebra's problems. We also believe investors should be alarmed that outgoing CEO Anders Gustafsson received a generous $9.0 million restricted stock grant with just a one-year vesting period as he transitioned to Executive Chair while leaving Zebra in a poor financial condition. Moreover, Mr. Gustafsson faced previous allegations of bad financial management while serving on the Finance Committee of Dycom Industries Inc. (NYSE: DY). Dycom eventually settled the shareholder litigation. Spruce Point also observes a troubling trend of what appears to be less Board engagement. Despite 2023 being a challenging year, the Board met just 5 times, which was a large decrease from prior years when they met between 8 to 10 times. In the past decade, Zebra's insider ownership has plummeted from 6.5% to just 1% of the equity. Over the same period, institutional investors known for doing fundamental research have either exited or materially reduced their stakes. Even index manager Vanguard has not increased its ownership of the Company in four years.", "attrs": null, "subkind": "paragraph", "toolName": null, "toolSlug": null, "confidence": null, "componentId": "a2e0b76e-3837-450c-bb34-9bb2fcf50b99", "frameworkName": null, "frameworkSlug": null }, { "bbox": { "h": 0.35, "w": 0.96, "x": 0.02, "y": 0.63 }, "kind": "paragraph", "text": "Zebra's multiple expansion and valuation premium to the sum-of-parts are difficult to explain; we estimate 65% – 80% long-term potential downside risk to the share price and expect it to underperform the market. Zebra's long-term organic revenue growth objectives of 5% – 7% p.a. appear ambitious given recent results and our research findings. Zebra's most bullish sell-side promoters are a chorus of smaller brokers and appear convinced of management's claims. They believe the share price is worth between $375 – $403. In total, sell-side analysts are divided in their share price opinions and the average consensus price target is $365 per share. Spruce Point believes the analysts fail to conduct a rigorous forensic analysis which points to growing pressures across Zebra's core business and recently acquired \"growth\" segments. Yet, Zebra's NTM revenue valuation multiple has expanded from 2.8x to 3.7x since 2019 despite our findings that between 2019-23 annual hardware sales growth (inclusive of price increases and M&A) has been just 1.3% and margins have contracted 230bps. Zebra has done a good job expanding services and software margin, but the growth rate has been rapidly declining and is now low single digits and is being inappropriately valued. Zebra also has large exposure to the retail and apparel industry, which it has made potentially conflicting representations about. Notably, we find it has exposure to Walgreens (Nasdaq: WBA), which is beleaguered and reducing its physical footprint. Furthermore, we value Zebra's struggling RFID business and acquired \"growth\" from revenue acquisitions separately and argue they should be valued at a discount to peers. While management has done a good job controlling costs and enacting frequent restructuring programs in response to declining revenues, we find that its side-effect is a corporate culture that bemoans low median wages which are below public company peers. In a tight labor workforce where wages are a lever companies can use to attract and retain employees, Zebra may have a difficult time competing. Based on our sum-of-parts potential valuation, we estimate a long-term share price range of $62.90 – $110.00 (65% – 80% downside risk). We expect Zebra to underperform the technology sector along with the broader equity market.", "attrs": null, "subkind": "paragraph", "toolName": null, "toolSlug": null, "confidence": null, "componentId": "d7d03554-9f5d-4b86-ad54-40b7fee36ebd", "frameworkName": null, "frameworkSlug": null }, { "bbox": { "h": 0.12, "w": 0.68, "x": 0.28, "y": 0.02 }, "kind": "title", "text": "Spruce Point Issues \"Strong Sell\" Opinion On Zebra Technologies (ZBRA) With 65% - 80% Downside Risk", "attrs": null, "subkind": "headline", "toolName": null, "toolSlug": null, "confidence": null, "componentId": "bf7b444b-0213-4e98-a5bc-03bade2a0829", "frameworkName": null, "frameworkSlug": null } ], "metrics": [], "tools": [ { "name": "Thesis archetype", "slug": "thesis-archetype", "agent": null, "layer": "slide", "matchId": "57902171-3e8f-4a03-b1cf-721b5f75284e", "evidence": "The slide presents a clear opinion with a specific estimate of downside risk, indicating a thesis archetype.", "confidence": 0.7 } ], "frameworks": [], "arcBeats": [], "loops": [ { "to": 109, "from": 5, "name": "Logic Chain", "slug": "01-logic-chain", "bestFor": "Skeptical audiences, controversial recommendations, rigorous analysis", "matchId": "87880212-cbbe-4e05-9d94-1053e50417ab", "evidence": "The document presents a series of logical arguments and evidence to support its thesis.", "position": 0, "objective": "To present a logical chain of evidence supporting the short-selling thesis", "structure": "Premise 1 (Accepted truth) -> Premise 2 (Observed fact) -> Therefore... 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