Q1 2022 Zebra Technologies Corp Earnings Call

Good day.

Welcome to the first quarter of 2014 to Zebra technologies earnings Conference call.

All participants will be in listen only mode.

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After today's presentation there'll be an opportunity to ask questions. Please.

Please note today's event is being recorded.

I would now like to turn the conference over to Mike Steele, Vice President Investor Relations. Please go ahead, Sir good morning, and welcome to Zebras first quarter Conference call. This presentation is being simulcast on our website at investors Zebra dot com and will be archived there for at least one year.

Our forward looking statements are based on current expectations and assumptions and are subject to risks and uncertainties actual.

Actual results could differ materially due to factors discussed in our SEC filings.

During this call we will reference non-GAAP financial measures as we describe our business performance.

Can find reconciliations at the end of the slide presentation and in today's earnings press release.

Throughout this presentation unless otherwise indicated our references to sales growth are year over year on a constant currency basis and exclude results from recently acquired businesses for the 12 months following each acquisition.

This presentation will include prepared remarks from Anders Gustafsson, our Chief Executive Officer, and Nathan Winters, Our Chief Financial Officer.

Anders will begin with our first quarter results then Nathan will provide additional detail on the financials and discuss our revised 2022 outlook Anders.

Anders will conclude with progress made on advancing our enterprise asset intelligence vision following their prepared remarks, Joe heel, our chief revenue officer will join us as we take your questions.

Now, let's turn to slide four as I hand, it over to Anders.

Thank you Mike.

Good morning, everyone and thank you for joining us.

Our team delivered solid first quarter results in an exceptionally challenging macro environment or.

For the quarter, we realized adjusted net sales growth of greater than 5%.

And adjusted EBITDA margin of 19, 9%, a 540 basis point decrease.

And non-GAAP diluted earnings per share of $4.01.

A 16% decrease from the prior year.

Customer demand remains strong for our solutions that digitize and automate workflows.

We realized sales growth across all four regions supported by exceptional strength in mobile computing with particularly strong growth in Asia Pacific and Latin America.

Our teams have continued to manage supply chain constraints as we navigate significant global macro uncertainty, including COVID-19, Lockdowns across Asia.

We were able to secure more supply in mobile computing and scanning than we originally anticipated.

Which more than offset the impact of suspending shipments to Russia in early March.

However, we were unable to fully satisfy customer demand, particularly for our printing products.

Supply chain costs were greater than our expectations and significantly weighed on gross margin, which was partially offset by higher service and softer margin.

Operating expenses as a percentage of revenue increased due to acquisitions in our expansion markets and resuming in person events.

Overall, we are pleased that our first quarter sales and earnings performance exceeded the high end of our guidance ranges. Despite extreme supply chain challenges, including transitory costs that were higher than our expectations.

With that I will now turn the call over to Nathan to review, our Q1 financial results in more detail and discuss our revised 2022 outlook.

Thank you Anders let's start with the P&L on slide six.

In Q1, adjusted net sales increased six 1%, including the impact of currency and acquisitions and five 4% on an organic basis as we successfully secured a greater supply of mobile computers and data capture products than we had anticipated.

Our asset intelligence and tracking segment, including printing and supplies declined eight 1% due to significant supply constraints on our printing products as well as cycling strong prior year results.

Enterprise visibility <unk> mobility segment sales increased 11, 6% driven by exceptional growth in mobile computing.

We continue to drive solid growth across services and software with strong service attach rates and expansion of our software offerings.

We recognize growth in all four regions.

With Americas sales increased 2% with strength across the portfolio with the exception of printing.

<unk> sales increased 2% driven by strong growth in mobile computing.

Asia Pacific sales grew 28% with strength across all major geographies, including China.

And in Latin America sales increased 31% with exceptional growth in Mexico.

Adjusted gross margin declined 430 basis points to 44, 6% due.

Due to unprecedented premium supply chain costs and unfavorable product mix partially.

Partially offset by higher service and software margins we.

We will discuss our supply chain expenses further in a moment.

Adjusted operating expenses as a percentage of sales increased 100 basis points.

Primarily due to new business acquisitions in our expansion markets as well as increased marketing activities and employee travel costs as we return to in person events.

First quarter adjusted EBITDA margin was 19, 9% a 540 basis point decrease from the prior year period, primarily due to negative gross margin impact of unprecedented supply chain costs.

non-GAAP earnings per diluted share was $4 <unk>, a 16, 3% year over year decrease.

Turning now to the balance sheet and cash flow highlights on slide seven.

Our balance sheet remains strong from.

From a debt leverage perspective, we ended the quarter at a modest 0.8 times net debt to adjusted EBITDA leverage ratio, which provides us ample flexibility.

In Q1, we generated $40 million of free cash flow, which was lower than last year, primarily due to higher incentive compensation payments given our exceptional 2021 performance and a higher use of working capital as sales volume shifted to later in the quarter.

We also made $305 million of share repurchases as we have been opportunistic in a volatile market.

On slide eight we show the impact of transitory costs related to industry wide supply chain disruption caused by the pandemic.

Our team continues to work all avenues to satisfy strong customer demand.

Including product Redesigns long term supply agreements buying critical components in the spot market, along with expediting component parts and finished goods to meet our commitments to our customers.

In Q1, we incurred incremental premium supply chain costs of $69 million as compared to the pre pandemic baseline.

Which is higher than we had anticipated in our prior outlook.

In total transitory items had a combined unfavorable gross margin impact of $57 million year over year.

Over the past year. These elevated supply chain costs have continued to evolve.

At this point approximately one half of the impact is associated with buying critical components on the spot market and elevated prices and expedited shipping of our printing products via air versus Ocean.

We expect this portion of the impact to improve throughout the year.

Just on committed volumes from our key suppliers.

The remaining half of the impact is associated with elevated freight costs.

In Q1, we saw shipping cost per kilo improved and we assume March pricing holds through the remainder of the year.

The war in Eastern Europe , and Lockdowns at manufacturing sites in China have elevated our supply chain costs above our prior expectations and delayed the improvement we had expected.

We now anticipate approximately $200 million.

A premium supply chain costs for the full year.

This impact is net of anticipated impact of our price increase announced last week across our product portfolio that will become effective as we enter the second half of the year.

Let's now turn to our outlook.

We entered the second quarter with a strong order backlog and healthy sales pipeline supported by broad based demand for our solutions are.

Our expected sales growth of 3% to 7% is limited by what we can deliver to our customers due to extended lead times and limited availability of component parts amplified by COVID-19, lockdowns across China.

Our guide assumes steady improvement and Chinese manufacturing output.

Our outlook also assumes a neutral impact from acquisitions and foreign currency changes.

We anticipate Q2, adjusted EBITDA margin to be between 20% and 21%, which assumes gross margin contraction from the prior year due to unfavorable sales mix and expected premium supply chain costs of $60 million.

Which translates to an approximately 260 basis point decremental margin impact as compared to the prior year period.

We also expect increased operating expenses as a percentage of sales primarily due to our entry into multiple expansion markets since last spring and resuming in person events.

non-GAAP diluted EPS is expected to be in the range of $4 <unk>.

To $4 35.

For the full year 2022, we are reiterating our outlook of adjusted net sales growth between 3% and 7%.

Demand continues to be robust and product supply is improving which offsets the headwinds of one to two points of sales into Russia, and global macro uncertainty that has escalated since our prior outlook.

This sales growth outlook now assumes a 50 basis point detrimental net impact from foreign currency and business acquisitions due to the significant move in the euro since our prior update.

We now anticipate full year 2022, adjusted EBITDA margin of approximately 22% to 23%, which is one point lower than our previous guidance due to our revised expectation of supply chain costs, which are $60 million higher than the impact we realized in 2021.

We now expect our free cash flow to be at least $800 million for the year, which we have reduced due to the increase in expected supply chain costs as well as the anticipated increase use of working capital due to the timing of sales and inventory replenishment.

Note that our outlook excludes the pending acquisition of matrix imaging, which Andrew will cover in a moment.

Please reference additional modeling assumptions shown on slide nine.

With that I will turn the call back to Anders to discuss how we are advancing our enterprise asset intelligence vision.

Thank you Nathan.

I am encouraged by the strong demand across our business and to bold actions. Our teams are taking to navigate the supply chain challenges and the uncertain global environment.

Slide 11 illustrates how we digitize and automate the frontline of business by leveraging our industry, leading portfolio of products software and services.

By transforming workflows with our proven solutions.

<unk> customers can effectively address their complex operational challenges, which have been magnified by the pandemic.

We empower their workforce to do their jobs more efficiently by navigating constant change in near real time, utilizing insights driven by advanced software capabilities, such as prescriptive analytics intelligent automation and machine vision.

We were very excited to resume active participation in trade show events.

At <unk> 22, the world's Premier supply chain show.

<unk> showcased our solutions, which provide intelligent automation to help warehouses increase their productivity.

<unk> E Commerce accelerates.

Attendees were interested in the dynamic orchestration between our autonomous mobile robots and warehouse associates equipped with our wearable technology.

<unk> significantly increases <unk> productivity.

<unk> also demonstrated how our fixed industrial scanners and autonomous mobile robots works together to increase efficiency and reduce costs in warehouse operations.

At HIMSS, the leading global Health care conference customers, who are excited to see how our solutions are designed to connect critical equipment patients and caregivers to address challenges across that operations ranging from patient identification to pharmaceutical supply chain.

Disability.

Our booth featured track and trace technologies, including scan and print solutions that increase the accuracy of inventory supply management to improve throughput and reduce waste and inform sourcing decisions.

We also highlighted how <unk> RFID solutions can further improve health care operations and patient safety.

Earlier this year, we raised our long term organic sales growth expectations to 5% to 7% and provided a refreshed view of our served markets as noted on slide 12.

These expectations are supported by a mega trends, including the on demand economy asset visibility mobility, and cloud computing and automation.

These trends have become increasingly important to our enterprise customers and are now a higher priority as labor shortages and cost inflation continue to bring more challenges.

Our announcement in March to acquire May trucks imaging, a recognized leader in machine vision underscores our commitment to scaling into these expansion markets.

Slide 13 illustrates how the matrix acquisition will enable us to create a comprehensive portfolio of fixed industrial scanning and machine vision solutions.

Building on our smart camera product launched last year, and augmenting our growing expertise in software and deep learning.

Matrix brings a complementary offering of products and solutions, including advanced Smart cameras vision controllers, and <unk> sensors as well as one of the most sophisticated software imaging libraries in the market.

These solutions capture inspect assess and record data from industrial systems in factory automation electronics Pharmaceuticals, and semiconductor industries.

Customers benefit from increased productivity and improved product quality.

With this acquisition <unk> will become even better positioned to serve our customers increasingly complex needs, regardless of where they are on their automation journey.

Matrix generates annual sales of approximately $100 million.

With a higher profit margin profile than zebra.

The $875 million acquisition is expected to close mid year.

Now turning to slide 14.

This does this partner with zebra to help optimize their end to end workflows as they strive to meet increasing demands of consumers.

I would like to highlight several recent key wins across our end markets.

The truck stop operator in North America recently began rolling out our task management and prescriptive analytics software solutions to its more than 700 locations.

We are addressing this customer's need to track and optimize its internal supplies and retail inventory levels in real time.

While prioritizing and directing employee resources to the highest value opportunities.

The feedback loop on task execution is critical as they aim to maximize productivity and customer satisfaction.

The large supermarket operator in Europe has expanded its use of zebra products, including mobile computers, and scanners to address click and collect use cases for buy online pickup in store transactions price checking loss prevention inventory reallocation among stores.

An improved product availability.

This expansion win demonstrates the productivity benefit of a more connected and empowered workforce.

One of the largest railroad freight companies in North America is deploying our TCP to seven mobile computers to its train conductors and employees working in the rail yards.

They use the devices to ensure cargo is on boarded to the correct train or truck for the next leg of its journey and to automate time and attendance tasks and daily activity of the train crews.

The ruggedness and productivity of the <unk> solution was a key differentiator in this competitive win against the consumer device.

In another recent win a regional healthcare system expanded their use of zebra solutions.

Replacing desk phones without TC 21, mobile computers, and deploying TC 52, mobile computers with our workforce connect application for instant clinical communications, including secure texting and calls.

We continue to collaborate with this customer to explore additional solutions that can further optimize their operations.

We were also very pleased that record large third party logistics provider selected <unk> autonomous mobile robots to improve the productivity of their warehouse operations.

This fulfillment solution will improve picking efficiency, eliminating unnecessary unnecessary steps towards frontline workers.

The connectivity of the associates through wearable technology increases the ability to share prioritized tasks in real time to create additional efficiencies.

In closing we continue to be very excited about our growth prospects.

Pandemic has accelerated trends that drive <unk> vibrant markets, including digitizing the healthcare patient journey.

Commerce adoption and real time track and trace across the supply chain.

We are working diligently to navigate through near term industry wide supply chain challenges and to satisfy strong customer demand for our solutions.

Now I will hand, the call back over to Mike.

Thanks Anders.

We will now open the call to Q&A, we ask that you limit yourself to one question and one follow up so that we can get to as many of you as possible.

Thank you we will now begin the question and answer session.

I'll ask a question. Please press Star then one on <unk>.

No.

If there isn't a sneaker follow me asking and thanks for your handset before pressing the Hayes.

Your question. Please press Star then two.

This time, we will pause momentarily to assemble our roster.

And ladies and gentlemen, today's first question comes from Tommy Moll with Stephens. Please go ahead.

Good morning, and thank you for taking my questions.

Good morning.

Anders I wanted to start on the topic of some of the pricing actions you've announced just looking back through notes here and I think there was one in September and another one in February and now it sounds like one in April .

So what can you tell us there about how realization has gone thus far what feedback or pushback, if any you've gotten.

When these have been announced.

And if youre able to quantify for your full year revenue outlook, how much do you think youll realize on us.

Year over year basis that would be helpful to know as well. Thank you.

Yes, I'll, let I'll start and then I have some of my colleagues here.

Add to this also but we continually assess and address pricing issues based on competitive environment and the inflationary.

Environment as well.

As you mentioned, we have implemented targeted price changes in September of last year and February of this year.

It was across the product portfolio and the intent for those sorts too.

Substantially offset the realized component cost increases that we have seen.

We implemented the latest price increase last week.

Which was intended to partially mitigate the premium shipping costs that we've experienced.

And we will.

<unk> to assess these pricing a pricing environment and make sure that we do what we can to offset the increased costs that we are experiencing.

Joe heel talk a little bit more about the impact on customers here, yeah, Tommy we've been quite pleased with the.

The impact that the pricing.

Pricing increases have had so far in the market and the way they've been accepted by our customers. Our larger customers have generally received them with understanding as they see price increases elsewhere in their business as well and have accepted them and.

In our run rate, we've been pleased with the resiliency that we've seen as.

As the run rate has grown despite the fact that we've increased the prices. So overall, we're quite pleased with the realization and Tommy This is Nathan just to the last point of your question. So if you aggregate the three price increases it's nearly two points of sales growth contribution for the full year.

So again, just to remind us youre not a general increase but they were targeted across product families and regions and each one has a lag before you feel the full impact in the P&L as we honor committed pricing on specific deals in other contracts, we have with certain customers.

That's all very helpful thing. Thank you.

On may trucks.

I wanted to shift gears here.

I guess to start.

Anything you can share just in terms of P&L.

Revenue CAGR, historically or prospectively, maybe in terms of the market margins, you've called out as accretive to zebra there at least a couple public peers with substantially higher margins. Both at the gross and operating margin lines. I know you probably can't give us exact numbers, but anything you can do to just situate us on what the profile.

It looks at May trucks that would be helpful, but maybe.

At a higher level as well just help us situate the matrix platform with your existing vision platform that you built organically and what avenues are opened to us through may trucks that werent previously thank you.

I'll start and then I think Joe will will help out here also.

First we announced our.

Our intent to acquire matrix imaging back in March and they are a recognized leader in machine vision, and I think that underscores our commitment to.

This important expansion market for US you might remember, we we launched our own fixed industrial scanning portfolio last year in may.

<unk> very much complements our our fixed industrial scanning by being a clear one of the clear leaders in machine vision.

So we certainly are very excited about what this combination can bring to us.

It sort of helps us.

Scale, our business much faster and created creates a very.

Hence the product and solutions portfolio.

And I'd say here also.

Matrix has one of the absolutely most sophisticated software libraries for machine vision in the industry and we're very very excited about what we can do with that together. So we feel we have a very strong platform that we can that we can now grow off.

And I think the the acquisition will help <unk> to serve our customers' needs better.

Whether they are just beginning on their automation journey or have very complex needs.

And let's see but we've already.

Recruited over 100 channel partners in this space. So we feel that we are able to bring the best of Steve Brenda best of matrix to bear here, so very complementary product offerings.

They're very complementary.

Go to market activities, where we are leveraging our channel centricity and enabled if we're able to bring that expertise to make trucks to help accelerate that growth.

Perhaps the only thing I'd add on the go to market side is that Ricky.

Recruiting channel partners is the primary thrust for developing the go to market opportunity, but we also see a good opportunity and bringing machine vision applications to our existing large customers thinking in particular about our P&L and our manufacturing customers are looking to automate warehouses and production facilities and we are already.

We are seeing a good traction.

As those customers have engaged with us on the fixed industrial scanning side with our existing portfolio.

And as they have heard about our announced acquisition of matrix. They are very eager to engage with us on the machine vision side as well. So we see a lot of good traction on the go to market.

Yes, so I guess, the three headed answer here, but as we said $100 million run rate in an attractive market, that's growing high single digits and we'd expect that to.

Now for us to participate in that and then from a margin standpoint, it is accretive to our overall zebras EBITDA rate, but not quite to maybe some of the other competitors in the market just based on size and scale of the company where it's at today.

Three headed answer but a multipart question. So thank you for adults.

Thank you ladies and gentlemen, our next question today comes from Keith also with Northcoast Research. Please go ahead.

Morning, guys.

Looking at the supply chain initiatives, which is obviously very fluid in China. Today can you, perhaps describe where zebra is right now in terms of working with your key vendors and getting the supplies you need I mean is it still a matter of uncertainty or do you feel like the worst is past and things are going better for you guys.

Yes, I think we believe that the situation.

Improved through Q1, and we see this as continued to improve proving over the year, but not not a snapback into say pre COVID-19 situations, we've been building more and more resiliency into our supply chain over the last several years.

Tariffs have been we set up new facilities in Malaysia, Vietnam, Taiwan, Mexico, and so forth. So.

So much less dependent on China Assembly facility. We've also worked hard on signing up long term supply agreements with both new and existing suppliers and that is beginning to benefit us.

Given the the.

The strong performance, we had in Q1 on revenues and the solid.

Guide, we gave on Q2 outlook here.

We are also continuing.

Continuing to buy crude.

Critical components on the spot markets.

That's helping to optimize our allocation with suppliers and.

We have been dedicating now for for quite a long time, a substantial part of our engineering resources to product redesigns to minimize the impact.

These long lead time components. So I think we feel we have a better visibility today better.

Supply commitments, and then couple that with the product Redesigns, which eliminates the need for some of these long lead time components. We feel we are in.

Better.

A gradually improving environment throughout this year.

So just to be clear.

Issues with shutdowns and Shanghai over the past month, a threat in Beijing are not impacting their supply chain issues correct now is that correct.

We don't expect them to impact us on for the quarter their spend.

<unk>.

Tier one.

Empty facilities in China are up and running.

But there are some tier two facilities or tier three facilities that are still impacted but based on our latest data.

We expect them to be able to come online and produce what we need for the quarter.

Great I appreciate that and then just to come back to the price increases followed by the time. His question, Yes, I think if I remember historically you guys were trying not to pass through price increases the impact from the higher freight.

Most recent price increase as you guys know attempting to do that because they cost come so high is that the issue.

So that's why I keep the first two are more really focused around the component increases and this last one is really targeted at the premium shipping costs, primarily if you look at the cost per kilo that we're paying the rates have come down quite a bit from the fourth quarter to what we're seeing in March.

We don't expect those to.

We're holding that constant and our forecast for the full year, but it's going to take some time before we get back to pre pandemic levels given the current environment.

Ladies and gentlemen, our next question today comes from Andrew Buscaglia with <unk>. Please go ahead.

So maybe just flipping to the demand side a bit.

But you're hearing some of these larger e-commerce companies talk about.

Perhaps from lower spend on capital projects this year.

I'm wondering for the remainder of the year, what what are what is your assumption on where that demand is coming from it.

I think last quarter, you still talked about some opportunities around some large product project moving forward.

That's not in your guide, but maybe talk about the dynamics, you're seeing and what type of demand youre seeing from individual customers.

Well first I'd say that the demand environment.

It's very strong.

Particularly say you talked about the.

Retail, but I think it goes to all verticals for us in the digital transformation is continuing at a fast pace and thats driving strong demand for our type of solutions.

We performed.

Above the high end of our outlook here. Despite these supply chain challenges.

And having to suspend shipments into Russia in March.

So overall the supply was more favorable to us in in Q2 and Q1, but we are.

And we expect demand to.

Continue to kind of outpace or sort of in Q1 demand outpaced our supply and that was particularly true for printers.

But we did see strong growth across all regions, but particularly so in Latin America, and Asia Pacific and mobile computing was this.

The strongest performer on the product side.

It's hard for us to comment specifically on individual customers, but.

We have a number of large customers they tend to.

Go through buying cycles.

And.

At this stage I think we feel we can certainly offset any any weakness that we've seen so far.

Due to this overall strong demand from from the broader business and we highlighted also here that the strength of the run rate in Q1, Joe do you want to add yes.

I would add that.

We are seeing.

Especially in the second half.

Growth opportunities in the following areas. One is our run rate remember that our business has at least a third of it in the run rate, which is smaller transactions.

That's the segment of the market that has shown remarkable resiliency.

Especially recently and so we're expecting that we'll continue through the rest of the year manufacturing in P&L have been quite strong as.

As well for us as those sectors have been.

Renewing a lot of their technology and there is interest in new technology areas, there that drive greater productivity and efficiency, which will be needed by those sectors.

In the economic environment that we're in so think about things like automation and RFID.

Areas that we're seeing good demand come in.

And help us in the second half.

Okay.

Helpful.

So maybe just one other one on capital allocation just given how the stocks.

This year amongst the amongst the tough market.

I know you've lowered your cash flow expectations for the year. So.

Our share repurchase becoming more of an interesting use of cash here and are you still sort of mark Marcelo committed to M&A.

Yes, so I think from.

From a capital allocation.

In the prepared remarks, we ended Q1 at or.

Just below one point from a net debt leverage perspective, so obviously comfortable with where we're at it gives us a lot of flexibility to.

To do both.

Continue to look for attractive M&A opportunities as well as to be act.

Active from a share repurchase perspective than we were in Q1 with over $300 million of.

Share repurchases, we've been active here in Q2 with more than $100 million of share repurchases. So far so I think the balance sheet flexibility and the free cash flow for the year gives us that ability to do both.

And again, even with the <unk> acquisition.

If there is opportunities that come along we're still active in the market.

Okay. Thank you.

And our next question today comes from Jim Ricchiuti at Needham <unk> Company. Please go ahead.

Hi, Good morning, I just wanted to go into the the outlook for the VA.

Business as you look at Q2 in the second half are you, assuming some easing of the supply chain pressures that.

Yes, potentially we'll help the topline in that part of the business, where clearly you've been probably a little bit more heavily disrupted as well on margins.

Yes, firstly, a bit more broadly across all our product categories.

We continue to drive a lot of innovation across the portfolio of our solutions.

Helping to digitize and automate frontline workflows and.

Those are increasingly important areas of investment for our customers and I would say our synergistic portfolio of software.

Service system products.

Our solving some very critical challenges for our customers.

For the printing business.

Yes.

We certainly saw some some supply chain challenges across most of the printing portfolio.

In Q1 that was driven by some actually a few key components. So it wasn't so widespread but it is a few key components that we need it.

North America, and Europe was disproportionately impacted by by those challenges, but it was more of a global thing.

But we have succeeded in securing more of those components, particularly late in Q1 and.

We see then the combination of having more of those components and some of these redesign activities were done to east and need for or enable us to get more supply and we expect to see a good sequential uptick in our printing business in Q2.

And I'd say sort of the underlying demand for our printing business is very strong.

Got it thank you and just as it relates to EMEA Europe .

Clearly, there's some some impact from supply chain on the printing business that you've seen but I'm. Just wondering are you seeing have you seen any change in demand.

Since we've seen the conflict.

Crane in Western Europe from.

Either some of the increased macro uncertainty are you seeing any any shift in the demand that youre seeing from some of your customers end markets there.

I would say so far Europe has been resilient and we've seen we had a very strong demand in the first quarter, we obviously been impacted by by Russia, and Ukraine. So we have about 1% to 2% of our revenues coming out of Russia, and Ukraine, particularly Russia.

But so far I'd say ask Joe to call materials, so that our European customers have been quite resilient and we haven't seen them pull back.

You might have individual customers, but not across the board I can only echo that we have seen outside of the fact that we've discontinued our sales into Russia.

Halted into Ukraine, as well, we have not seen an adverse impact on the sales and the rest of Europe , neither in our large customer business nor in our run rate.

Got it thank you.

I think you just mentioned.

<unk>.

The tight labor market that you see in the U S and Europe .

Our solutions become more important but this is our solutions help mitigate the need for for adding workers basically the same workforce.

It can be.

Can add productivity can be more productive by by utilizing our type of solutions mobile computers printers.

Robots.

Basically all of our portfolio.

And our next question today comes from meta Marshall with Morgan Stanley . Please go ahead.

Great. Thanks, maybe a couple of questions for me.

In the past you've given.

Our view that about a third of.

Retail representatives, our representatives have mobile devices today, and Thats kind of a great opportunity for growth for you guys going forward.

As you know, we kind of emerge from Covid environment, just any update to that view.

Where we are or where we are where organizations are looking to get to as far as penetration of devices. And then second question for me just any update on kind of the health care market, particularly as they move past kind of Covid cases.

Cases, tomorrow, just kind of turning to their own transformation.

Yes, I'll start and then we'll see if Joe.

Sure.

Wants to add something here also but first starting on the mobile computing side, which is the device for <unk>.

First we had strong growth this past quarter supported by very broad based demand across all regions and I'll say here we had to.

Particularly bright spots around rugged tablets, which we don't talk about as much but we were up double digits and definitely taking share in that space.

We also announced a new Ws 50, which is the world's smallest all in one Android wearable.

It's going to be available for shipment now in Q2.

And then more specifically to your question about.

Empowering every worker with a device that is clearly a strong theme for our customers.

We estimate that in retail less than one third of all workers are currently.

<unk> had a device.

But we are now seeing we worked with several large retailers today, who are deploying our devices.

Every one of their associates. So this trend is definitely.

Alive and progressing.

Also I would say the partnership that we have with Microsoft teams.

<unk> provides another.

Strong collaboration platform that is aimed at frontline workers and that is helping to drive momentum and then I'll go to health care.

Yes before you go to health care, let me just add one thing to that point do you think this last point is quite important and we're beginning to see elements of the strategy that have both devices and hardware and software and services applications come together bear fruit by showing synergies in both directions and where do.

I mean by that.

We have already been pursuing looking at our device customers, where we have a very strong market share and offering them to some of the applications like our workforce connect voice communication capability or our reflects this task management capability and have seen good opportunity for synergies in that direction, but what we're seeing now is customers.

We're thinking about those applications that really have their workforce collaborate the teams examples that Andrew escape, but also voice communications like workforce connect requires a workforce to be fully equipped otherwise they can collaborate and thats. What were now seeing is customers, saying in order to deploy this workforce connections.

Solution or the teams solution I need to get a device for all workers. We have several examples now of where that if you will reverse synergy has taken place and that's so that's a really good driver of momentum for us.

Into that other two thirds of workers that we've been looking for.

Then a couple of words on healthcare so healthcare continues to be a very attractive growth opportunity for us as we help the health care industry transform.

Our purpose built solutions are critical for improving.

Improving patient the patient journey.

To drive productivity of health care providers more broadly.

We also enhanced caregiving to better address patient demands and we accomplished this by.

Automating workflows as well as connecting assets patients and staff.

From a.

Yeah.

Physical to digital perspective.

We see also a number of new attractive growth opportunities.

Such as tablets for telehealth.

We're just more interest around locations of equipment and I'd say, our broad portfolio of supply is playing very well in health care.

And lastly, our solutions are also used as we've talked about in earlier call for global vaccine distributions such as for polio, COVID-19, or malaria. So if you're starting to see health care as being a very attractive growth market for us as we go forward.

Great. Thanks.

Ladies and gentlemen, as a reminder to ask a question. Please press Star then one.

The next question comes from Joseph Allman with Baird. Please go ahead.

Hey, guys. Thanks for taking my question could you talk about the demand you're seeing for RFID.

Some large companies have announced projects is that trickling down if it's broad based.

Yes.

RFID.

Very attractive market for us here now.

It's been commercialized four.

Some 30 years, but we now see.

Strong demand around.

Apparel.

In store inventory accuracy is what's the first driver.

We have seen a few large public customer announcements in the last.

Months, or so both from Walmart and UBS, which I think.

I'm not talking about our participation in this program. So I'm just talking about the the commitment that they show to RFID and how many of the suppliers and partners of those of those companies will also have to.

And you'll figure out how to deliver solutions that are compatible.

With their processes now so.

We've seen strong growth in our RFID portfolio.

There was somewhat hamstrung by supply chain constraints and first one but the backlog in the moment momentum for US is very strong and we have a leading portfolio of.

Mobile reader RFID readers fixed readers and on our printer encoders.

Think in particular, if I may add this is Joe heel.

Sure.

Mandate like Walmart further asking your suppliers to tag the product going into their stores requires not only.

The readers that we often think of first but it also requires printing all of those.

And getting the tags. So we're seeing a lot of increased demand now for for both printers and tags. In addition to readers.

So there is good momentum in RFID. This is technology that will drive growth for some time.

Okay great.

Then just to switch it up you have talked earlier about redefines factoring in mostly now or should the effects can be seen later in the year.

Redesigns, yes, we have been redesigning.

A number of our products starting from last summer to now so.

Some of them are already in.

<unk> and working and that was part of what helped us in Q1.

Others are just coming online and some are going to be completed I think more more late later in Q2. So.

<unk>.

This is a dynamic environment and we have to go.

Adjusting to react to.

Feedback, we get from the market about the different components. So some components might've been okay. In Q3 of last year, but there were became long lead time components say in Q1. So it is.

Ongoing.

Program for us.

But we are seeing less and less need for it so.

The resources, we have dedicated to it.

Been able to release some of those back into regular product developments, but it is helping already and I expect that they will continue to incrementally help us as we go through the year.

Got it thanks.

And our next question.

From there.

With UBS. Please go ahead.

Hi, good morning, everyone.

Good morning.

Good morning.

So im late late to join here switching over from another call apologies if.

If I repeat anything you might have already mentioned, but I wanted to ask you first about the.

The sales trajectory in guidance.

You're coming in above expectations for the first quarter.

And looking at later this year the comps do get easier so.

I'm just wondering.

If you could maybe comment on why.

The growth rate wouldn't pick up later this year and just maybe any color you can provide sort of on the run rate for orders.

You guys did in the quarter.

Yeah. So if you look at our full year guide of 3% to 7% sort of thing.

You've heard earlier, which is we're as confident as ever about the business.

Strong backlog and solid order orders booking momentum here in the first part of the year and we're seeing our pricing actions are taking hold which is giving us a benefit as well as continued improvement in supply visibility excuse me.

But this is also helping offset the assumed headwind of 1% to two points of sales into Russia.

There were offsetting for the full year as.

As well as taking a cautious view on the second half assumptions, given the broader macro uncertainties as well as the FX volatility.

It is.

The strong momentum definitely plays a part, but offsetting two significant headwinds between Russia, the macro uncertainty and FX.

Okay understood.

And then I wanted to ask you about working capital specifically inventory.

So.

<unk> inventory.

Did those lower.

Just wondering how you are positioned in terms of any raw materials working.

Yes.

You might have on hand that kind of satisfy your near term demand.

And wondering if youll be looking at that.

Bill if raw materials are wip.

You don't have a sharp fall in supply going forward.

Yes.

We did see a slight decrease in inventory here in the first quarter as we were able to ship.

Ship more than we expected driving the sales beat and <unk>.

Q1 ahead of or ahead of our guide.

That is the expectation for the remainder of the years that we slowly build back inventory both.

From a strategic reserve whip at our tier one and tier two suppliers as well as ultimately building back our finished goods stock.

In our own warehouses, but I think you won't really see the full effects of that until later in the year and early part of next year, but that's part of the reason for.

Our full year free cash flow guide was to give us some flexibility. If we have if we can build inventory later in the year that we can do that.

Got it makes sense I appreciate the color best of luck guys.

Thank you.

Ladies and gentlemen, this concludes our question and answer session.

The conference back over to Mr. Gustafsson for any closing remarks.

So to wrap up I would like to take a moment to say our thoughts are with all those affected by Russia invasion of Ukraine, particularly our colleagues in the region and those with loved ones who have been impacted.

I would like to thank our employees and partners for their extraordinary efforts to serve customers and deliver better than expected Q1 results.

We continue to focus on prioritizing our customers needs in a supply constrained environment and we look forward to welcoming the matrix team once the acquisition closes.

Thank you everybody.

Ladies and gentlemen. This concludes today's conference call. We thank you all for attending today's presentation. You may now disconnect your lines and have a wonderful day.