Q3 2023 Zebra Technologies Corp Earnings Call
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Speaker 1: transcript
Speaker 1: Good day and welcome to the third quarter 2023 Zebra Technologies Earning Conference call. All participants will be in listen...
Good day and welcome to the third quarter when he twenty-three Zebra technologies earnings conference call.
All participants will be in listen only mode.
Speaker 1: transcript
Speaker 2: Should you need assistance, please signal a conference specialist by pressing the star key followed by zero.
Should you need assistance, please signal what conference specialist by pressing the star key followed by zero.
Speaker 1: transcript
Speaker 3: After today's presentation, there will be an opportunity to ask questions.
After todays presentation, there will be an opportunity to ask questions. Please note. This event is being recorded.
Speaker 1: transcript
Speaker 4: Please note, this event is being recorded.
Speaker 1: transcript
Speaker 5: And I would now like to turn the conference over to Mike Steele, Vice President, Investor Relations.
And I would now like to turn the conference over to Mike Steele, Vice President Investor Relations.
Please go ahead.
Speaker 2: transcript
Speaker 6: Good morning and welcome to Zebra's third quarter conference call. This presentation is being simulcast on our website at investors.zebra.com and will be archived there for at least one year.
Good morning, and welcome to Zebras third 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.
Speaker 2: transcript
Speaker 7: Our forward-looking statements are based on current expectations and assumptions and are subject to risks and uncertainties. Actual results could differ materially and we refer you to the factors discussed in our SEC filings.
Our forward looking statements are based on current expectations and assumptions and are subject to risks and uncertainties actual results could differ materially and we refer you to the factors discussed in our SEC filings.
Speaker 2: transcript
Speaker 8: During this call, we will reference non-GAAP financial measures as we describe our business performance. You can find reconciliation at the end of this slide presentation and in today's earnings press release.
During this call we will reference non-GAAP financial measures as we describe our business performance you can find reconciliations at the end of the slide presentation and in today's earnings press release.
Speaker 2: transcript
Speaker 9: Throughout this presentation, unless otherwise indicated, our references to sales performance are year over year on a constant currency basis and exclude results from recently acquired businesses for the 12 months following each acquisition.
Throughout this presentation, unless otherwise indicated our references to sales performance our year over year on a constant currency basis and exclude results from recently acquired businesses for the 12 months following each acquisition.
Speaker 2: transcript
Speaker 10: This presentation will include prepared remarks from Bill Burns, our Chief Executive Officer, and Nathan Winters, our Chief Financial Officer.
This presentation will include prepared remarks from Bill Burns, our Chief Executive Officer, and Nathan Winters, Our Chief Financial Officer Bill.
Speaker 2: transcript
Speaker 11: Bill will begin with our third quarter results and actions we are taking.
Bill will begin with our third quarter results and actions we are taking Nathan.
Speaker 2: transcript
Speaker 12: Nathan will then provide additional detail on the financials and discuss our Q4 outlook.
Nathan will then provide additional detail on the financials and discuss our Q4 outlook.
Speaker 2: transcript
Speaker 13: Bill will conclude with progress we are making on advancing our Enterprise Asset Intelligence vision.
Bill will conclude with progress we are making on advancing our enterprise asset intelligence vision.
Speaker 2: transcript
Speaker 14: Following the prepared remarks, Joe Heel, our Chief Revenue Officer, will join us as we take your questions. Now let's turn to slide 4 as I hand it over to Bill.
Following the prepared remarks, Joe heel, our chief revenue officer will join US as we take your questions now.
Now, let's turn to slide four as I hand, it over to Bill.
Thank you Mike Good morning, and thank you for joining us.
Speaker 2: transcript
Speaker 15: As expected, our third quarter performance was impacted by broad-based softness across our end markets and elongated sales sites.
As expected our third quarter performance was impacted by broad based softness across our end markets and elongated sales cycles.
Speaker 2: transcript
Speaker 16: This resulted in a significant decline in sales with expense deleveraging impacting profitability.
This resulted in a significant decline in sales.
With expense deleveraging impacting profitability.
Speaker 2: transcript
Speaker 17: We will spend time today discussing our results and the demand environment, as well as the progress we have made to rationalize our cost structure and shift our go-to-market resources to drive sales growth and improve profitability as our end markets recover.
We will spend time today discussing our results and the demand environment as well as the progress we have made to rationalize our cost structure and shift our go to market resources to drive sales growth and improved profitability as our end markets recover.
Speaker 3: transcript
For the quarter, we realized sales of $956 million, a 30% decline from the prior year.
Adjusted EBITDA margin of 11, 6% and 950 basis point decrease.
And non-GAAP diluted earnings per share of <unk> 87 cents to.
79% decrease from the prior year.
Speaker 3: transcript
Speaker 18: We saw broad based softening of demand in Lake Q2, which continued throughout Q3, as customers demonstrated more cautious spending behavior across all our end markets and regions.
We saw broad based softening of demand in late Q2, which continued throughout Q3 as customers demonstrated more cautious spending behavior across all our end markets and regions.
Speaker 3: transcript
Speaker 19: These dynamics have been exacerbated by our distributors reducing their inventory levels, which accounted for about one third of our Q3 sales.
These dynamics have been exacerbated by our distributors, reducing their inventory levels, which accounted for about one third of our Q3 sales decline.
As a reminder, our distribution channel has been aggressively driving down inventory as end user demand has slowed product lead times have recovered.
Speaker 3: transcript
Speaker 20: As a reminder, our distribution channel has been aggressively driving down inventory as end user demand has slowed, product lead times have recovered, and cost of holding working capital is increasing.
And cost of holding working capital has increased.
Speaker 3: transcript
Speaker 21: We believe this reset will largely complete by year end.
We believe this reset will largely complete by yearend.
Speaker 3: transcript
Speaker 22: Although we experienced declines across all product categories, services and software were bright spots in the court.
Although we experienced declines across all product categories services and software were bright spots in the quarter.
Speaker 3: transcript
Speaker 23: As we enter Q4, it was potentially all the cost restructuring actions now implemented. We expect to see a significant sequential improvement in profitability.
As we enter Q4 with essentially all of the cost restructuring actions now implemented.
We expect to see a significant sequential improvement in profitability.
Speaker 3: transcript
These actions are now expected to yield net annualized cost savings of 100 million, which is an increase from our previous expectation of $85 million.
Speaker 3: transcript
Speaker 24: On slide five, we summarize drivers of demand trends across our end mark.
On slide five.
Summarizing drivers of demand trends across our end markets.
Speaker 3: transcript
Speaker 25: Our three largest end markets representing more than three quarters of our sales volume are indexed to the goods economy, which has been significantly underperforming the services economy.
Our three largest end markets representing more than three quarters of our sales volume are indexed to the goods economy, which has been significantly underperforming the services economy.
Speaker 3: transcript
Speaker 26: While each of our primary end markets declined, demand was weakest in retail and e-commerce and transportation logistics, as many customers are navigating a challenging environment and absorbing capacity built out during the pandemic. As you see on the slide,
While each of our primary end markets declined demand was weakest in retail and E Commerce and transportation logistics as many customers are navigating a challenging environment and absorbing capacity built out during the pandemic.
As you see on the slide despite current demand softness there are several themes that we expect to drive investment in our solutions over the long term.
Speaker 3: transcript
Speaker 27: There are several themes that we expect to drive investment in our solutions over the long term, including labor and resource constraints, real-time supply chain visibility, track and trace mandates, and increased expectations from shoppers and patients.
<unk> labor and resource constraints real time supply chain visibility track and trace mandates and increased expectations from shoppers and patients.
Operator: Today, and welcome to the third quarter, 2023 Zebra Technologies' earning conference call. All participants will be in listen only mode. Should you need assistance, please signal a conference specialist by pressing the star key followed by zero.
Speaker 3: transcript
Speaker 28: During the slide six, I'd like to review the actions we are taking to address and mitigate the impacts of the soft and man environment and position ourselves for long-term success.
Turning to slide six I'd like to review the actions, we are taking to address and mitigate the impacts of the soft demand environment and position ourselves for long term success.
Speaker 3: transcript
Speaker 29: And Lake Q3 and early Q4, we implemented most of the cost restructuring actions that are driving $100 million of net annualized operating savings.
In late Q3, and early Q4, we implemented most of the cost restructuring actions that are driving a $100 million of net annualized operating savings.
Operator: After today's presentation, there will be an opportunity to ask questions.
Speaker 3: transcript
Speaker 30: We are reallocating resources to accelerate growth and under penetrated markets, including Japan, along with government and manufacturing sectors, and to capture the potential of new use cases that leverage our solutions to digitize an automated environment, including RFID and machine vision.
We are reallocating resources to accelerate growth in underpenetrated markets, including Japan, along with government and manufacturing sectors and to capture the potential of new use cases that leverage our solutions to digitize and automate environments, including RFID and machine vision.
Michael Steele: Please note, this event is being recorded, and I would now like to turn the conference over to Mike Steele, vice president, investor relations. Please, go ahead.
We are also renegotiating long term supply agreements and working with our contract manufacturers to drawdown component inventories.
Speaker 3: transcript
Speaker 31: We are also renegotiating long-term supply agreements and working with our contract manufacturers to draw down component inventory.
Michael Steele: Good morning, and welcome to Zebra's third quarter conference call. This presentation is being samelcast on our website at investors.zebra.com, and we'll be archived there for at least one year. Our forward-looking statements are based on current expectations and assumptions and our subject to risks and uncertainties. Actual results could differ materially, and we refer you to the factors discussed in our SEC filings. During this call, we will reference non-gap financial measures as we describe our business performance.
Speaker 3: transcript
Speaker 32: And as part of our long-term incentive plan, we added a free cash flow conversion met.
And as part of our long term incentive plan, we added a free cash flow conversion metric.
Speaker 3: transcript
We expect the cost actions we have implemented in the shift of our go-to-market resources to improve profitability and drive sales growth as our end-markets recover.
We expect the cost actions, we have implemented and the shift of our go to market resources to improve profitability and drive sales growth as our end markets recover.
Speaker 3: transcript
while we believe we are seeing a leveling of demand trends and the peak of distributor de-stocking activity.
While we believe we are seeing a leveling of demand trends and the peak of distributor Destocking activity.
Speaker 3: transcript
We are not seeing signs of a market recovery based on customer behavior.
We are not seeing signs of a market recovery based on customer behavior.
Michael Steele: You can find reconciliation at the end of this live presentation and in today's earnings press release. Throughout this presentation, unless otherwise indicated, our references to sales performance are year over year on a constant currency basis, and exclude results from recently acquired businesses for the 12 months following each acquisition.
Speaker 3: transcript
Therefore, we remain cautious in our planning through the remainder of this year and the first half of 2024. We'll continue to take an agile approach to managing through this uncertain environment. We remain disciplined with respect to our cost structure and cash flow.
Therefore, we remain cautious in our planning for the remainder of this year and the first half of 2024.
We'll continue to take an agile approach to managing through this uncertain environment, we remain disciplined with respect to our cost structure and cash flow.
Speaker 3: transcript
I will now turn the call over to Nathan to view our Q3 financial results and discuss our fourth quarter outlook. Thank you Bill.
I will now turn the call over to Nathan to review, our Q3 financial results and discuss our fourth quarter outlook.
William Burns: This presentation will include prepared remarks from Bill Burns, our chief executive officer, and Nathan Winters, our chief financial officer. Bill will begin with our third quarter results and actions we are taking. Nathan will then provide additional detail on the financials and discuss our Q4 outlook.
Thank you Bill, let's start with the P&L on slide eight.
William Burns: Bill will conclude with progress we are making on advancing our enterprise asset intelligence vision.
Speaker 4: transcript
In Q3, net sales decreased 30.6% and 29.6% excluding the impact of FF.
In Q3, net sales decreased three 6% and 29, 6% excluding the impact of FX.
Speaker 4: transcript
Our asset intelligence and tracking segment declined 25.8%, primarily driven by print.
Our asset intelligence and tracking segment declined 25, 8%, primarily driven by printing.
Unknown Executive: Following the prepared remarks, Joe Heel, our chief revenue officer, will join us as we take your questions.
Speaker 4: transcript
Enterprise visibility and mobility segment sales declined 31.4% with pronounced weakness in mobile computing.
Enterprise visibility <unk> mobility segment sales declined 31, 4% with pronounced weakness in mobile computing.
William Burns: Now let's turn to slide four as I hand it over to Bill. Thank you, Mike.
Speaker 4: transcript
On a positive note, we drove growth across service and software with strong attach and renewal rates. We saw double-digit sales declines across our regions. In North America, sales decreased 25%.
On a positive note, we drove growth across service and software with strong attach and renewal rates.
William Burns: Good morning and thank you for joining us. As expected, our third quarter performance was impacted by broad-based softness across our end markets and elongated sales cycles. This resulted in a significant decline in sales with expense-deliveraging impacting profitability. We will spend time today discussing our results in the demand environment as well as the progress we have made to rationalize our cost structure and shift our go-to-market resources to drive sales growth and improve profitability as our end markets recover.
We saw double digit sales declines across our regions.
In North America sales decreased 25%.
EMEA sales declined 39% with broad based declines across the region.
Speaker 4: transcript
Asia Pacific sales decreased 32% driven by China and Southeast Asia, and Latin America sales decreased 15% driven by Mexico.
Asia Pacific sales decreased 32% driven by China and Southeast Asia.
In Latin America sales decreased 15% driven by Mexico.
Speaker 4: transcript
Adjusted gross margin decreased 100 basis points to 44.8%.
Adjusted gross margin decreased 100 basis points to 44, 8%.
Speaker 4: transcript
primarily due to expense deleveraging from lower sales volumes, partially offset by favorable premium supply chain costs.
Primarily due to expense deleveraging from lower sales volumes.
William Burns: For the quarter, we realize sales of $956 million at 30% decline from the prior year. In adjusted even a margin of 11.6% at 950 basis point decrease in non-gap diluted earnings per share of 87 cents, a 79% decrease from the prior year. We saw broad-based softening of demand in late Q2 which continued throughout Q3 as customers demonstrated more cautious spending behavior across all our end markets and regions. These dynamics have been exacerbated by our distributors reducing their inventory levels which accounted for about one third of our Q3 sales decline.
Partially offset by favorable premium supply chain costs.
As these supply chain costs have been fully mitigated we are no longer including a slide as part of our earnings presentation.
Speaker 4: transcript
We are no longer including a slide as part of our earnings presentation.
Speaker 4: transcript
Adjusted operating expenses, the lever 910 basis points as a percent of fail.
Adjusted operating expenses de Levered 910 basis points as a percent of sales.
Speaker 4: transcript
Note that the bulk of the previously announced restructuring plans to drive operating expense savings were implemented in late Q3 and early Q4.
Note that the bulk of the previously announced restructuring plans to drive operating expense savings were implemented in late Q3 and early Q4.
Third quarter adjusted EBITDA margin was 11, 6% and 950 basis point decrease driven by expense deleveraging.
Speaker 4: transcript
Third quarter adjusted EBITDA margin with 11.6%. And 950 basis point decrease driven by expense delivery.
non-GAAP diluted earnings per share was <unk> 87.
Speaker 4: transcript
Non-GAP diluted earnings per share was 87 cents. The 79%
William Burns: Fine. As a reminder, our distribution channel has been aggressively driving down inventory, as end user demand is slowed, product lead times every covered, and cost of holding working capital is increased. We believe this reset will largely complete by year end. Although we experience declines across all product categories, services and software were bright spots in the quarter. As we enter Q4, who's potentially all the cost restructuring actions now implemented. We expect to see a significant sequential improvement in profitability. These actions are now expected to yield net analyzed cost savings of 100 million, which is an increase from our previous expectation of 85 million.
79% year over year decrease.
Speaker 4: transcript
Increased interest expense contributed to the decline offset by a lower tax rate.
Increased interest expense contributed to the decline offset by a lower tax rate.
Turning now to the balance sheet and cash flow on slide nine.
Speaker 4: transcript
For the first nine months of 2023, negative free cash flow of $193 million was unfavorable to the prior year period, primarily due to lower earnings, including the impact of restructuring actions and higher interest.
For the first nine months of 2023 negative free cash flow of $193 million was unfavorable to the prior year period, primarily due to lower earnings, including the impact of restructuring actions and higher interest costs.
Speaker 4: transcript
Greater use of networking capital due to higher cash taxes and payments for inventory, and $45 million more of previously announced quarterly settlement payments.
Greater use of net working capital due to higher cash taxes and payments for inventory.
And $45 million more a previously announced quarterly settlement payments.
Speaker 4: transcript
All of which was partially offset by lower incentive compensation payments.
All of which was partially offset by lower incentive compensation payments.
We ended the quarter and a 2.2 times net debt to adjusted EBITDA leverage ratio.
Speaker 4: transcript
We enter the quarter at a 2.2 times net debt to adjusted evidolverage ratio, which is below the top end of our target range of two and a half times.
William Burns: On slide five, we summarize drivers of demand trends across our end markets. Our three largest end markets representing more than three quarters of our sales volume are indexed to the goods economy, which has been significantly under pressure. We're performing the services economy. Well, each of our primary end markets declined. The man was weakest and retail and e-commerce and transportation logistics as many customers are navigating a challenging environment and absorbing capacity built out during the pandemic.
Which is below the top end of our target range of two five times.
Speaker 4: transcript
and had approximately $1 billion of capacity on a revolving credit facility, providing ample flexibility as we navigate a challenging environment.
And had approximately $1 billion of capacity on our revolving credit facility, providing ample flexibility as we navigate a challenging environment.
Let's now turn to our outlook.
Speaker 4: transcript
As we enter the fourth quarter, we are seeing sales velocity out of the channel stabilized on a sequential basis and the stocking activity moderate as expected.
As we enter the fourth quarter, we are seeing sales velocity out of the channel stabilize on a sequential basis and destocking activity moderate as expected our.
William Burns: As you see on the slide, despite current demand softness, there are several themes that we expect to drive investment in our solutions over the long term, including labor and resource constraints, real-time supply chain visibility, track and trace mandates, and increased expectations from shoppers and patients.
Speaker 4: transcript
Our Q4 sales are expected to decline between 32 and 36 percent compared to the prior year.
Our Q4 sales are expected to decline between 32, and 36% compared to the prior year.
Speaker 4: transcript
This outlook assumes double digit declines across our major product categories, with distributor destocking, accounting for approximately one fifth of the sale to go.
This outlook assumes double digit declines across our major product categories with distributor Destocking accounting for approximately one fifth of the sales decline.
Speaker 4: transcript
We are in Q4 with the necessary backlog and pipeline to support our guys.
We are in in Q4 with the necessary backlog and pipeline to support our guide.
William Burns: During the slide six, I'd like to review the actions we are taking to address and mitigate the impacts of the soft demand environment and position ourselves for long term success. In late Q3 and early Q4, we implemented most of the cost restructuring actions that are driving $100 million of net annualized operating savings. We are reallocating resources to accelerate growth and under penetrated markets, including Japan, along with government and manufacturing sectors, and to capture the potential of new use cases that leverage our solutions to digitize and automate environments, including RFID and machine vision.
Speaker 4: transcript
That said, we are not seeing compelling signs of a market recovery as we look to the first half of 2020.
That said, we are not seeing compelling signs of a market recovery as we look to the first half of 2024.
We.
Speaker 4: transcript
We anticipate Q-4 just in EVA-DOM margin to be approximately 16%.
<unk> Q4, adjusted EBITDA margin to be approximately 16% drew.
Speaker 4: transcript
driven by expense-delivered from lower sales volumes, partially mitigated by the benefits of our cost-restructuring X.
Driven by expense deleveraging from lower sales volumes, partially mitigated by the benefits of our cost restructuring actions.
Speaker 4: transcript
Despite anticipated expense delirving, we expect year-on-year gross margin improvement as we cycle $25 million of premium supply chain costs in the prior year period.
Despite anticipated expense deleveraging, we expect year on year gross margin improvement as we cycled $25 million of premium supply chain costs in the prior year period.
Speaker 4: transcript
Non-gap diluted EPS is expected to be in the range of $1.40 to $1.80.
non-GAAP diluted EPS is expected to be in the range of $1 40 to $1 80.
William Burns: We are also renegotiating long-term supply agreements and working with our contract manufacturers to draw down component inventories. And as part of our long-term incentive plan, we added a free cash flow conversion measure. We expect the cost actions we have implemented in the shift of our go-to-market resources to improve profitability and drive sales growth as our end markets recover. While we believe we are seeing a leveling of demand trends and the peak of distributor destocking activity, we are not seeing signs of a market recovery based on customer behavior.
Our Q4 outlook translates to an expected full year sales decline of approximately 21% at the midpoint.
Speaker 4: transcript
Our Q4 Outlook translates to an expected full-year sale decline of approximately 21% at the mid-
Speaker 4: transcript
which is 50 basis points favorable to our prior guide and an even done margin of approximately 18%.
Which is 50 basis points favorable to our prior guide and an EBITDA margin of approximately 18%.
Speaker 4: transcript
We expect our free cash flow to be positive for the second half of 2023 and negative for the full year.
We expect our free cash flow to be positive for the second half of 2023 and negative for the full year.
We continue to be focused on right sizing inventory on our balance sheet and in driving 100% cash conversion over a cycle.
Speaker 4: transcript
We continue to be focused on right sizing in into our balance sheet and in driving a 100% cast conversion over a cycle.
Speaker 4: transcript
Please reference additional modeling assumptions shown on slide 10.
Please reference additional modeling assumptions shown on slide 10.
William Burns: Therefore, we remain cautious in our planning through the remainder of this year and the first half of 2024. We will continue to take an agile approach to managing through this uncertain environment and remain disciplined with respect to our cost structure and cash flow.
With that I will turn the call to bill to discuss how we are advancing our enterprise asset intelligence vision.
Speaker 4: transcript
With that, I will turn the call to Bill to discuss how we are advancing our enterprise asset intelligence.
Speaker 3: transcript
Thank you, Nathan. While sayers are pressured near-term, our solutions remain essential to our customers' operations. We are well positioned to benefit from the secular trends to digitize and automate workflow.
Thank you Nathan while sales were pressured near term our solutions remain essential to our customers' operations and we are well positioned to benefit from the secular trends that digitize and automate workflows.
Nathan Winters: I will now turn the call over to Nathan to review our Q3 financial results and discuss our fourth quarter outlook. Thank you, Bill. Let's start with the P&L on Friday. In Q3, net sales decreased 30.6% and 29.6% excluding the impact of F. X, Our asset intelligence and tracking segment declined 25.8%, primarily driven by printing. Enterprise visibility and mobility segment sales declined 31.4% with pronounced weakness in mobile computing. On a positive note, we drove growth across service and software with strong attach and renewal rates.
We are focused on advancing our enterprise asset intelligence vision by elevating zebra as a premier solutions provider.
Speaker 3: transcript
We are focused on advancing our enterprise-assign intelligence vision by elevating Zebra as a premier solutions provider through our compelling portfolio.
Through our compelling portfolio.
Speaker 3: transcript
By transforming workflows with our proven solutions, Zebra's customers can effectively address their complex operational challenges, including scarcity of labor and the need to improve productivity.
By transforming workflows with our proven solutions zebra customers can effectively address their complex operational challenges, including scarcity of labor and the need to improve productivity.
Speaker 3: transcript
We empower the workforce to execute tasks more effectively by navigating constant change in near real time, utilizing insights driven by advanced software capabilities, such as artificial intelligence, machine learning, and prascriptive analytics.
We empower the workforce to execute task more effectively by navigating constant change in near real time, utilizing insights driven by advanced software capabilities, such as artificial intelligence machine learning and prescriptive analytics.
Nathan Winters: We saw double digit sales declines across our regions. In North America, sales decreased 25% and media sales declined 39% with broad based declines across the region. Asia Pacific sales decreased 32% driven by China and Southeast Asia and Latin America sales decreased 15% driven by Mexico. Adjusting gross margin decreased 100 basis points to 44.8%. Primarily due to expense, 10% deleverging from lower sales volumes, partially offset by favorable premium supply chain costs. As these supply chain costs have been fully mitigated, we are no longer including a slide as part of our earnings presentation.
Speaker 3: transcript
We continue to advance and innovate our offerings. This includes several product and solution launches across our portfolio, including our Zebra Pace solution, which equips retail associates, hospitality workers, and logistics employees with the mobile point to sale device that accepts a variety of payment options almost anywhere.
We continue to advance and innovate our offerings. This includes several product and solution launches across our portfolio, including our zebra pay solution, which equips retail associates hospitality workers and logistics employees with a mobile point of sale device that accepts a variety of payment options.
Almost anywhere.
Speaker 3: transcript
at our annual software customer user conference. We unveiled our Zebra WorkCloud suite of software solutions, which address four critical enterprise functions.
At our annual software customer user conference, we unveiled our zebra work cloud suite of software solutions, which address for critical enterprise functions.
Speaker 3: transcript
workforce optimization, enterprise collaboration, inventory optimization, and demand intelligence.
Workforce optimization enterprise collaboration.
Inventory optimization.
And demand intelligence.
Nathan Winters: Adjusted operating expenses, delivered 910 basis points as a percent of sales. Note that the bulk of the previously announced restructuring plans to drive operating expense savings were implemented in late Q3 and early Q4. Third quarter adjusted EBITDA margin was 11.6% in 950 basis point decrease driven by expense deleverging. Non-GAP diluted earnings per share was 87 cents, a 79% year-over-year decrease. Increased interest expense contributed to the decline offset by lower tax rate.
Speaker 3: transcript
The user experience is tailored to customer specific business priorities and integrated into a single application.
The user experiences tailored to customer specific business priorities and integrated into a single application. This.
Speaker 3: transcript
This unique software suite, coupled to our mobile computing platform, differentiates us and expands our market penetration opportunities.
This unique software suite, coupled to our mobile computing platform differentiates us and expands our market penetration opportunity.
Speaker 3: transcript
In collaboration with Qualcomm, we demonstrated a Genitive AI large language model for handheld mobile computers and tablets without requiring connectivity to the...
In collaboration with Qualcomm, we demonstrated agenda of AI large language model for a handheld mobile computers and tablets without requiring connectivity to the cloud.
Speaker 3: transcript
is a competitive differentiator which will enable Zebra partners and customers to create new ways of working by further empowering the frontline worker and driving additional productivity gain.
Is the competitive differentiator, which will enable zebra partners and customers to create new ways of working by further empowering the frontline worker and driving additional productivity gains.
Nathan Winters: Turning now to the balance sheet and cash flow on slide 9. For the first 9 months of 2023, negative free cash flow of $193 million was unfavorable to the prior year period, primarily due to lower earnings, including the impact of restructuring actions and higher interest costs. Greater use of networking capital due to higher cash taxes and payments for inventory and $45 million more of previously announced quarterly settlement payments, all of which was partially offset by lower incentive compensation payments.
Speaker 3: transcript
We are confident that the innovation roadmap across our business will continue to elevate our customer value properly.
We are confident that the innovation road map across our business, we will continue to elevate our customer value proposition.
Nathan Winters: We enter the quarter at a 2.2 times net debt to adjusted EBITDA leverage ratio, which is below the top end of our target range of 2.5 times, and had approximately $1 billion of capacity on a revolving credit facility providing ample flexibility as we navigate a challenging environment.
Speaker 3: transcript
As you can see on slide 13, customers leverage our technology to optimize workflows for the on-demand economy.
As you can see on slide 13 customers leverage our technology to optimize workflows for the on demand economy.
Speaker 3: transcript
Our solutions and power enterprises to increase collaboration and productivity and better serve customers, shoppers, and patients. I would like to highlight some recent
Our solutions empower enterprises to increase collaboration and productivity and better serve customers shoppers and patients I.
I would like to highlight some recent wins by our team.
Our global technology provider recently selected Zebra is machine vision solution to automate previously manual inspection process for the manufacturing of engraved component parts.
Speaker 3: transcript
A global technology provider recently selected Zebra's machine vision solution to automate a previously manual inspection process for the manufacturing of engraved component parts.
Speaker 3: transcript
Our solution ensures high quality and traceability, reducing expensive material waste and false errors. We look forward to exploring opportunities to expand our relationship with this customer.
Our solution ensures high quality and traceability.
Reducing expensive material waste and false errors, we look forward to exploring opportunities to expand our relationship with this customer.
Speaker 3: transcript
A large healthcare system in Europe is using our mobile computers, printers, and RFID solutions to enable real-time tracking of medical equipment, significantly reducing the time caregivers spend searching for critical assets throughout the hospital.
A large health care system in Europe is using our mobile computers printers, and RFID solutions to enable real time tracking of medical equipment significantly reducing the time caregivers spend searching for critical assets throughout the hospital.
Nathan Winters: Let's now turn to our outlook. As we enter the fourth quarter, we are seeing sales velocity out of the channel stabilized on a sequential basis and destocking activity moderate as expected.
Nathan Winters: Our Q4 sales are expected to decline between 32 and 36% compared to the prior year. This outlook assumes double digit declines across our major product categories, with distributed destocking, accounting for approximately one fifth of the sale decline. We are in Q4 with the necessary backlog and pipeline to support our guide.
The large retail pharmacy chain selected zebras work cloud task management software to improve store productivity and effectiveness by streamlining communication and accelerating onsite inspections and marketing promotion updates opt.
Speaker 3: transcript
A large retail pharmacy chain, select Zebra's work cloud task management software to improve store productivity and effectiveness by streamlining communication and accelerating on-site inspections and marketing promotion up.
Speaker 3: transcript
optimizing task assignments and store walks, drives accountability, and frees up staff to focus on customer-facing activity.
Optimizing task assignments and store walks drives accountability and frees up staff to focus on customer facing activities.
Nathan Winters: That said, we are not seeing compelling signs of a market recovery as we look to the first half of 2020. We anticipate Q4, Justin Eba-Dummargin, to be approximately 16 percent, driven by expense deliveraging from lower sales volumes partially mitigated by the benefits of our cost-restructuring actions. Despite anticipated expense deliveraging, we expect year-on-year gross margin improvement as we cycle $25 million of premium supply chain costs in the prior year period. Non-gap deluded EPS is expected to be in the range of $1.40 to $1.80. Our Q4 Outlook translates to an expected full-year sales decline of approximately 21 percent at the midpoint, which is 50 basis points favorable to our prior guide and an Eba-Dummargin of approximately 18 percent.
Speaker 3: transcript
A large North American retailer refreshed our mobile computers across their stores and added RFID technology to improve inventory accuracy, supply chain efficiency, and customer satisfaction to more frequent cycles.
A large north American retailer refreshed, our mobile computers across their stores and added RFID technology to improve inventory accuracy supply chain efficiency and customer satisfaction through more frequent cycle counts.
During the competitive review zebra demonstrated the most cost effective solution for their needs.
Speaker 3: transcript
They're in the competitive review. Zeeber demonstrated the most cost effective solution for their needs.
Lastly, a large Asian retailer decided to add <unk> communication and collaboration software to their zebra mobile computers. This subscription based solution drive store associated connectivity benefits, while displacing legacy phone system.
Speaker 3: transcript
Lastly, a large Asian retailer decided to add Zebra's communication and collaboration software to their Zebra mobile computers. This subscription-based solution drives store associated connectivity benefits while displacing a legacy phones.
In closing our long term conviction of our business remains unchanged, while customer spend has pressured near term over the long term. We believe we are well positioned to benefit from secular trends to digitize and automate workflows.
Speaker 3: transcript
In closing, our long-term conviction our business remains unchanged. While customers spend as pressured near-term, over to long-term, we believe we are well positioned to benefit from secular trends to digitize and automate work.
Nathan Winters: We expect our free cash flow to be positive for the second half of 2023 and negative for the full year. We continue to be focused on right-sizing inventory on our balance sheet and in driving a 100 percent cash conversion over a cycle. Please reference additional modeling assumptions shown on slide 10.
Speaker 3: transcript
We'll continue to elevate our position with customers through our innovative portfolio solutions while executing on actions to position us well for profitable growth as our end markets recover. I will now hand it back to Mike.
We continue to elevate our position with customers through our innovative portfolio of solutions, while executing on actions to position us well for profitable growth as our end markets recover I will now hand, it back to Mike.
Speaker 2: transcript
Thanks Bill, we'll now open the call to Q&A. We ask that you limit yourself to one question or one follow-up so that we can get to as many views as possible.
Thanks, Bill, we'll 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.
William Burns: With that, I will turn the call to bill to discuss how we are advancing our enterprise asset intelligence vision. Thank you, Nathan. While sales are pressured near-term, our solutions remain essential to our customer's operations. We are well-positioned to benefit from the secular trends that digitize and automate workflows. We are focused on advancing our enterprise asset intelligence vision by elevating Zebra as a premier solutions provider through our compelling portfolio. By transforming workflows with our proven solutions, Zebra's customers can effectively address their complex operational challenges including scarcity of labor and need to improve productivity.
Speaker 1: transcript
And we will now begin the question and answer session. To ask a question, you may press star, then one on your touchtone phone.
And we will now begin the question and answer session to ask a question you May Press Star then one on your Touchtone phone.
Speaker 1: transcript
If you're using a speaker phone, please pick up your hand theft before pressing the
If youre using a speakerphone please pick up your handset before pressing the keys.
Speaker 1: transcript
And to withdraw the question, please press star, then to its...
To withdraw the question. Please press Star then two if needed.
Speaker 1: transcript
At this time, we will pause momentarily to assemble our roster.
At this time, we will pause momentarily to assemble our roster.
Our first question comes from Brad Hewitt from Wolfe Research Brad. Please go ahead.
Speaker 1: transcript
Our first question comes from Brad Hewitt from Wolf Research. Brad, please go ahead.
William Burns: We empower the workforce to execute tasks more effectively by navigating constant change in near real time, utilizing insights driven by advanced software capabilities such as artificial intelligence, machine learning, and prescriptive analytics. We continue to advance and innovate our offerings. This includes several product and solution launches across our portfolio including our Zebra paste solution which equips retail associates, hospitality workers, and logistics employees with the mobile point of sale device that accepts a variety of payment options almost anywhere.
Hi, Thanks, good morning, everyone.
Good morning, Brad.
So I was wondering if you guys will be able to provide some preliminary thoughts on the overall set up for 2024, and how we should think about that relative to the 5% to 7% long term growth algorithm.
Speaker 5: transcript
So, I was wondering if you guys would be able to provide some preliminary thoughts on the overall growth setup for 2024 and how we should think about that relative to the 5 to 7% long-term growth algorithm.
Speaker 5: transcript
You talked about the first half kind of being a little bit more challenging and then of course comps use the second half. But any thoughts on the growth outlook for 2024 preliminarily would be.
You talked about the first half kind of being a little bit more challenging and then of course comps in the second half.
Any thoughts on the growth outlook for 2024 preliminarily would be helpful.
Speaker 3: transcript
That thanks Brad. I guess I'd start with what we're seeing today. And from a Q3 perspective, we finished at the high end of our outlook in a challenging demand environment. And as we said, we're seeing leveling of demand trends overall and really in Q3, the peak of distributed destocking. But we're not yet seeing signs of market recovery based on our customers' behavior. So...
Yeah, Thanks, Brad I guess I'd start with what we're seeing today in from a Q3 perspective, we finished at the high end of our outlook in a challenging demand environment.
William Burns: At our annual software customer user conference, we unveiled our Zebra WorkCloud suite of software solutions which address four critical enterprise functions, workforce optimization, enterprise collaboration, inventory optimization, and demand intelligence. The user experience is tailored to customer specific business priorities and integrated into a single application. This unique software suite, coupled with our mobile computing platform, differentiates us and expands our market penetration opportunity. In collaboration with Qualcomm, we demonstrated a genitive AI large language model for a handheld mobile computers and tablets without requiring connectivity to the cloud.
And as we said, we're seeing leveling of demand trends overall and really in Q3, the peak of distributor destocking, but we're not yet seeing signs of market recovery based on our customers' behavior. So we saw really.
Speaker 3: transcript
You know, we saw really all region verticals declined in Q3 and along with customers of all sizes, but it was most pronounced in large enterprises.
All region verticals declined in Q3 and.
Along with customers of all sizes, but it was most pronounced in in large enterprises. There were some bright spots in the quarter services and software.
Speaker 3: transcript
There were some bright spots in the quarter, services and software are examples of that.
Our examples of that.
William Burns: Is the competitive differentiator which will enable Zebra partners and customers to create new ways of working by further empowering the frontline worker and driving Gates. We are confident that the innovation roadmap across our business will continue to elevate our customer value proposition. As you can see on slide 13, customers leverage our technology to optimize workflows for the on demand economy. Our solutions and power enterprises to increase collaboration and productivity and better serve customers, shoppers and patients.
Speaker 3: transcript
I'd say is, we're certainly not guiding to 24 at this time, but with not seeing really compelling recovery yet, and the idea that we're gonna remain cautious.
I'd say as you know, we're certainly not guiding to the 24 at this time, but we're not seeing really compelling recovery yet.
And the idea that we're going to remain cautious.
Speaker 3: transcript
you know, from the, for the remainder of the year, and really, as we look into the first half of 24, we're seeing, you know, very, we have very challenging compares ahead of us. So, I'd say that, you know, for the moment, still challenging demand environments, that we would see that, you know, in 24, and the remainder of the year, we're going to, you know,
From the for the remainder of the year and really.
As we look into the first half of 'twenty four we're seeing you know very very challenging compares ahead of us. So I'd say that you know.
For the moment still challenging demand environment.
That we would see that you know in 'twenty, four and the remainder of the year.
William Burns: I would like to highlight some recent wins by our team. A global technology provider, recently selected Zebra's machine vision solution to automate a previously manual inspection process for the manufacturing of engraved component parts. Our solution ensures high quality and traceability, reducing expensive material waste and false errors.
We're going to.
Remain cautious.
Okay. That's helpful and then.
Speaker 5: transcript
Okay, that's helpful and then maybe if you could talk about what you saw in Q3 from a bookings perspective and how bookings looked sequentially as well as what you expect bookings to look like in Q4.
Then maybe if you could talk about what you saw in Q3 from a bookings perspective.
And how bookings look sequentially as well as what you expect bookings to look like in Q4.
William Burns: We look forward to exploring opportunities to expand our relationship with this customer. A large healthcare system in Europe is using our mobile computers, printers and RFID solutions to enable real-time track tracking of medical equipment, significantly reducing the time caregivers spend searching for critical assets throughout the hospital. A large retail pharmacy chain, selectors, Zebra's work cloud task management software to improve store productivity and effectiveness by streamlining communication and accelerating on-site inspections and marketing promotion updates.
Speaker 3: transcript
I would say that, you know, again, with demand, you know, challenging, from that perspective, you know, bookings were as we expected, going into, you know, during Q3, and then as we enter, you know, Q4, we've got the, you know, bookings trajectory to, you know, feel good about our guide for, you know, Q4 overall. But again, not seeing, you know, quite signs of a recovery yet.
I would say that you know again with demand challenging from that perspective.
Bookings were as we expected.
Going into during Q3, and then as we enter Q4.
We've got the bookings trajectory to feel.
Feel good about our guide for Q4 overall.
Again not seeing.
Quite signs of recovery yet.
Speaker 3: transcript
But, you know, feel that we've got the order of velocity to be able to, you know, deliver our guide for Q4.
But feel that we've got the order velocity to be able to.
William Burns: Optimizing task assignments and store walks drives accountability and frees up staff to focus on customer facing activities. A large North American retailer, refreshed our mobile computers across their stores and added RFID technology to improve inventory accuracy, supply chain efficiency and customer satisfaction, the more frequent cycle counts.
Delivering our guide for Q4.
Speaker 6: transcript
And our next question comes from Tommy Mall from Stevens. Tommy, please go ahead. Good morning and thank you for taking my question.
And our next question comes from Tommy Moll from Stephens Tommy. Please go ahead.
Good morning, and thank you for taking my questions.
Good morning, good morning, Tommy.
Speaker 6: transcript
I think I heard in your prepared comments, you described the velocity on the cell through as having stabilized. And I wanted to circle back to that topic. One, just to make sure that that's correct. And two, if you think about that cell through velocity.
I think I heard in your prepared comments you described the velocity on the sell through as having stabilized and I wanted to circle back to that topic, one just to make sure that that's correct.
William Burns: During the competitive review, Zebra demonstrated the most cost-effective solution for their needs. Lastly, a large Asian retailer decided to add Zebra's communication and collaboration software to their Zebra mobile computers. This subscription-based solution drives store-associated connectivity benefits while displacing a legacy phone system.
And two if you think about that sell through velocity at.
Speaker 6: transcript
At some point, and maybe you could tell us when that is.
At some point and maybe you could tell us when that is.
William Burns: In closing, our long-term conviction in our business remains unchanged. While customers spend its pressured near-term, over the long-term, we believe we are well positioned to benefit from secular trends to digitize and automate workflows. We will continue to elevate our position with customers through our innovative portfolio solutions while executing on actions to position us well for profitable growth as our end markets recover.
Speaker 6: transcript
When would you expect an acceleration there, just given that you'll have some product refresh cycles where a lot of your installed base is approaching end of useful life and it's less of a discretionary spin on the part.
When would you expect an acceleration there just given that you'll have some product refresh cycles, where a lot of your installed base is approaching end of useful life and it's less of a.
Discretionary spend on the part of the customer.
Speaker 3: transcript
I think Tommy, we've used the word leveling as we've seen those demand trends level out in Q3 and we're seeing that kind of into Q4. And we're seeing that from a destocking perspective, the biggest impact has been Q3 and again, less so in Q4 and we believe that'll be behind us by your end.
Yes, I think Tommy we've used the word leveling is we've seen you know those demand trends.
Level out in Q3, and we're seeing that kind of into Q4, and we're seeing that from a destocking perspective. The biggest impact has been Q3 and again less so in Q4, and we believe that'll be behind us by year end.
Michael Steele: I will now hand it back to Mike. Thanks, Bill. We'll now open the call to Q&A. We ask that you limit yourself to one question or one follow-up so that we can get to as many of you as possible. And we will now begin the question-and-answer session to ask a question you may press star than one on your touch-tone phone. If you're using a speaker phone, please pick up your handset before pressing the tease. And to withdraw the question, please press star than two if needed.
Speaker 3: transcript
And again, while we're not guiding to 24, maybe a little more colored to add to what I said in the first question.
And again, while we're not guiding to 'twenty four maybe a little more color to add to what I said on the first question.
Speaker 3: transcript
We don't see compelling signs of recovery yet, right? And therefore, our guide for fourth quarter and then as we look into, first half of 24, we see very challenging compares. But that said, we're not seeing customers cancel projects. They continue to push them out and they can't do that forever.
We don't see compelling signs of a recovery yet right and therefore, you know our guide for fourth quarter and then as we look into first.
First half of 'twenty four we see very challenging compares but that said you know, we're not seeing customers cancel projects they continue to push them out and.
Operator: At this time, we will pause momentarily to assemble our roster.
Bradley Hewitt: Our first question comes from Brad Hewitt from Wolf Research. Brad, please go ahead. Hi, thanks for the morning, everyone. Morning, Brad.
They can't do that forever.
Speaker 3: transcript
We're seeing use cases across our products and solutions continue to grow within our customer environment.
We're seeing use cases across our products and solutions continue to grow within our customer environment.
Speaker 3: transcript
They will resume deployment as they use the excess capacity across retail and e-commerce, across transportation logistics, and as our customers around the world see the macro uncertainty abate. So.
They will you know resumed deployments is as they use the excess capacity across retail and e-commerce across transportation logistics and as our customers around the world see the macro uncertainty abates. So.
William Burns: So I was wondering if you guys would be able to provide some preliminary thoughts on the overall growth set up for 2024 and how we should think about that relative to the five to seven percent long-term growth algorithm. You talked about the first half kind of being a little bit more challenging and then of course comps you in the second half, but any thoughts on the growth outlook for 2024? Yeah, thanks, Brad.
Speaker 3: transcript
you know, we've seen this in similar downturns where typically they last for zebra quarters not years.
We've seen this in similar downturns, where typically they last for zebra quarters not years. So.
Speaker 3: transcript
you know, as we go through the year, we do see some progression. And while our visibility for the second half, 24, you know, would remain very challenging at the moment, we would be, you know, clearly cycling through easier compares at that time. And really due to the, you know, the restocking that, you know, the D stocking, sorry, that we were seeing, you know, in the second half of this year. So I think that's, that's how we see
As we go through the year, we do see some progression and while our visibility for second half 'twenty four.
Would remain very challenging at the moment, we would be you know clearly cycling through easier compares at that time and really due to the the restocking that.
William Burns: I guess I'd start with, you know, what we're seeing today and in, you know, from a Q3 perspective, you know, we finished at the high end of our outlook in a challenging, you know, demand environment. And as we said, we're seeing leveling of, you know, demand trends overall and really in Q3, the peak of distributor destocking, but we're not yet seeing signs of, you know, market recovery based on, you know, our customers behavior.
The Destocking sorry that we were seeing in the second half of this year. So I think that's that's how we see it at the moment.
Speaker 6: transcript
and to follow up on the de-starking theme.
And to follow up on the Destocking theme.
Speaker 6: transcript
Sounds like you expect most of that to be behind you by the end of the year. And my question is just relating to the visibility there. If 60 days on hand is typical or something in that zip code for your channel broadly speaking, do you have any idea where you sit today? And is there a view that that?
It sounds like you expect most of that to be behind you by the end of the year and my question is just relating to the visibility there. If it's 60 days on hand is typical so or something in that Zip code.
William Burns: So, you know, we saw really all region verticals, the client in Q3 and along with customers of all sizes, but it was, you know, most pronounced in in large enterprises. There were some bright spots in the quarter services and software, you know, our examples of that. I'd say is, you know, we're certainly not guiding to 24 at this time, but, you know, with not seeing really compelling recovery yet. And the idea that, you know, we're going to remain cautious, you know, from the, for the remainder of the year and really, as we look into the first half of 24, we're seeing, you know, very, we have very challenging compares ahead of us. So, I'd say that, you know, for the moment, still challenging demand environment that we would see that, you know, in 24 and the remainder of the year, we're going to, you know, remain, you know, cautious.
For your channel broadly speaking what.
Do you have any idea of where you sit today and is there a view that that.
Speaker 6: transcript
will remain the quote unquote normal level or could there be some period of time where we end up below that just given conservatism among your channel partners at this point? Thanks.
We will remain the quote unquote normal level or could there be some period of time, where we ended up below that just given conservatism among your channel partners at this point.
Speaker 4: transcript
Hey, Tom is Nathan. As we said, from a global channel inventory, which we can be measured on days on hand. And as you said, the average is around 60 days, two months, but that varies, you know, you can see quite a bit of variation based on the product type and by region. So again, it's not consistent globally. And as we said, we...
Hey, Tony This is Nathan as we as we said from a global channel inventory, which you can measure on days on hand, and as you said the average is around 60 days two months, but that varies.
You can see quite a bit of variation based on the product type and by region, so against that that consistent globally.
And as we said we we.
Speaker 4: transcript
In the end of Q3, better than we did in Q2, so the days on hand and the relative inventory balances decreased throughout the quarter, but they still slightly higher than the normal range, despite those decreases.
And then in the end of Q3 better than we did in Q2, so the days on hand, and the relative inventory balances decreased throughout the quarter I'd say, it's still slightly higher than the normal range. Despite those decreases.
Speaker 4: transcript
And that's why we expect distributors will continue to lower their inventory here throughout the fourth quarter, but we do expect to exit the fourth quarter within our normal operating levels. And that's something we work with, you know, very closely with our distributors on in terms of where are they trying to get to, what products do they need to support the markets. And so, again, as we enter next year, we expect, you know, kind of the destocking to be at and where it needs to be as we move forward into the year.
And Thats why we expect distributors will continue to lower their inventory here throughout the fourth quarter, but we do expect to exit the fourth quarter within our normal operating levels.
William Burns: Okay, that's helpful. And then maybe if you could talk about what you saw in Q3 from a bookings perspective and how bookings looked, sequentially as well as what you expect bookings to look to look like in a few four. I would say that, you know, again, would demand, you know, challenging from that perspective, you know, bookings were as we expected going into, you know, during Q3 and then as we enter, you know, Q4, we've got the, you know, bookings trajectory to, you know, feel good about our guide for, you know, Q4 overall. But again, not seeing, you know, quite signs of recovery yet. But, you know, feel that we've got the order of velocity to be able to, you know, deliver our guide for Q4.
And that's something we work with very closely with our distributors on in terms of where are they trying to get to what products do they need to support the markets.
And so again as we as we enter next year, we expect the destocking to be at and where it needs to be as we move forward into the year.
Speaker 1: transcript
And we move to a question from Damien Karas from TBS. Damien, please go ahead.
And we move to a question from Damian Karas from T. B S. Damon.
Damian.
Please go ahead.
Hi, good morning, everyone.
Brian de man, but not that.
Speaker 7: transcript
morning. So not to be a dead horse here on the demand environment and recovery, but Bill mentioned not seeing signs of that. As you think about early 2024, I get that you're seeing that based on your
Morning.
Not to beat a dead horse here on the demand environment and recovery.
But bill mentioned not seeing signs of that.
As you think about early 2024 I get the chair.
Thomas Moll: And our next question comes from Tommy Mall from Stevens. Tommy, please go ahead. Good morning, and thank you for taking my questions. Good morning, Tommy. I think I heard in your prepared comments, you described the velocity on the cell through as having stabilized. And I wanted to circle back to that topic one, just to make sure that that's correct.
Seeing that based on your order patterns.
Speaker 7: transcript
But based on your customer conversations, I mean, what do you think it's going to take to see that inflection of demand to drive that?
William Burns: And two, if you think about that cell through velocity, at some point, and maybe you could tell us when that is, when would you expect an acceleration there just given that you'll have some product refresh cycles where a lot of your installed base is approaching end of useful life and it's less of a discretionary spend on the part of the customer. Yeah, I think Tommy, we've used the word leveling as we've seen, you know, those demand trends level out in Q3 and we're seeing that kind of into Q4.
But based on your customer conversations I mean, what do you think it's going to take time to see that inflection of demand to drive that.
Speaker 7: transcript
And where would you see it first? You know, thinking about the various markets you play in and your diverse set of customers.
And where would you see it first thinking about the various markets you play in and your diverse.
Set of customers.
Speaker 3: transcript
What I'd say is that overall we'd have to see strengthening certainly of a good based economy and our customers overall will.
Yeah, what I'd say is that you know overall, we'd have to see strengthening.
Strengthening certainly of our goods based economy and our customers' overall will.
Speaker 3: transcript
you know, resume deployments as they, you know, some of the macroeconomic uncertainty around the good-based economy abates. And in TNL and in e-commerce, we've seen, you know, significant capacity built out.
<unk> resumed deployments as they you know some of the macroeconomic uncertainty around the good based economy abates in N P&L in E. Commerce, we've seen substantial capacity built out during the pandemic and that that excess capacity has to be used within their <unk>.
Speaker 3: transcript
during the pandemic and that excess capacity has to be used you know within their environment. So that's across their entire you know environment where they we've built that capacity that now you know is more being used and in demand is more normalized levels than the accelerated levels through the pandemic.
Environments and that's across their entire environment, where they built out capacity that now is more being used in.
And demand is more normalized levels and the accelerated levels through through through the pandemic.
William Burns: And we're seeing that, you know, from a destocking perspective, the, you know, the biggest impact has been Q3 and again less so in Q4, and we believe that will be behind us by your end. And again, while we're not guiding to 24, maybe a little more color to add to what I said in the first question, we don't see compelling signs of recovery yet, right? And therefore, you know, our guide for fourth quarter.
I would say overall.
Speaker 3: transcript
I would say overall, you know, the, the.
The when.
Speaker 3: transcript
When we see the broader demand across the industry, you know, we're seeing that...
When we see the broader demand across the industry, we're seeing that.
Speaker 8: transcript
you know, where first, likely large customers first is what we'd expect that large customers are first area where we saw a challenging from a demand environment, so we'd expect that to return first and then from their mid-size and run rate would follow. I don't know, Joe, if you want to make things up. Yeah, maybe just a little bit on that point. During the high-constraint phase.
Where first likely large customers first is what we'd we'd expect.
That large customers the first area, where we saw a challenging from a demand environment. So we'd expect that to return first and then.
William Burns: And then as we look into, you know, first half of 24, we see, you know, very challenging compares. But that said, you know, we're not seeing customers cancel projects. They continue to push them out. And, you know, they can't do that forever. We're seeing, you know, use cases across our products and solutions, continue to grow within our customer environment. They will, you know, resume deployment is as they use the excess capacity across retail and e-commerce across transportation logistics.
From there midsize and run rate would follow I don't know Joe if you want to add anything yeah, maybe just a little bit on that point.
During the Ah Hi, constraint at Phase, we had given some priority to some of our larger customers. So that's where a large amount of the volume and the capacity that went into the market when.
Speaker 8: transcript
We had given some priority to some of our larger customers. So that's where a large amount of the volume and the capacity that went into the market went.
Speaker 8: transcript
And that's where we're seeing the steepest declines at this point. So I would expect that that's also where we would see the first signs of recovery, where those customers would begin purchasing again. And we are staying very close to those large customers.
And that's where we're seeing the steepest declines at this point. So I would expect that that's also where we would see the first signs of a recovery.
William Burns: And as our customers around the world see the macro uncertainty a bait. So, you know, we've seen this in similar downturns where typically they last for Zebra quarters not years. So, you know, as we go through the year, we do see, you know, some progression. And while our visibility for his second half, 24, you know, would remain very challenging at the moment, we would be, you know, clearly cycling through easier compares at that time. And really due to the, you know, the restocking that, you know, the destocking sorry that we were seeing, you know, in the second half of this year.
Recovery Outwear.
Those customers would begin purchasing again and we are.
Staying very close to those large customers.
Speaker 8: transcript
as we're seeing them sweat their assets longer, we know exactly when they are reaching those points in the product life cycle where they will need to refresh. And we're working with them on plans that will fit their budgets. And you can imagine as we're going into 2024, they're coming up with new budgets and we're working with them on doing that. So that's perhaps where I would look first.
As we're seeing them sweat their assets longer we know exactly when they are reaching those points in the product lifecycle, where they will need to refresh and we're working with them on plans that will fit their budget and you can imagine as we're going into 2020 for coming up with new budgets and we're working with them on doing that so that's perhaps where I would.
Look first.
Nathan Winters: So, I think that's that's how we'd see it at the moment. And to follow up on the destocking theme, it sounds like you expect most of that to be behind you by the end of the year. And my question is just relating to the visibility there. If, if 60 days on hand is typical or something in that zip code for your channel broadly speaking, do you have any idea where you sit today and, and is there a view that that will remain the quote unquote normal level or could there be some period of time where we end up below that, just given conservatism among your channel partners at this point.
Got it that's really helpful.
And then maybe if I could switch gears.
Speaker 7: transcript
And the main thing that could switch gears, is to talk about gross margins. Curious how you are thinking about what those look like from here. Is there further downside from the third quarter, just based on the volume levels you're seeing? And how should we think about the kind of the new baseline or normalize gross margins?
I will talk about gross margins I'm curious how you are thinking about what those look like from here is.
Is there a further downside from the third quarter, just based on the volume levels Youre seeing and how should we think about the kind of a new baseline our normalized gross margin.
Speaker 4: transcript
So if you look, you know, just maybe for context on Q3 gross margin, obviously down year-on-year by about a point to 44.8 percent, volume deleveraging was a major driver of the decline, as we did have to see favorability and premium supply chain costs.
Yes, David So if you just maybe for context on Q3 gross margin.
Down year on year by about a point to 44, 8%.
Volume deleveraging.
Major driver of the decline as we had did have see favorability in premium supply chain costs.
Nathan Winters: Thanks. Hey, time is Nathan. As we said, the from a global channel inventory, which we measure on days on hand. And as you said, the average is around 60 days, two months, but that varies, you know, you can see quite a bit of variation based on the product type and by region. So, again, that's not consistent globally. And as we said, we ended in the end of Q3 better than we did in Q2, so the days on hand and the relative inventory balances decreased throughout the quarter.
Speaker 4: transcript
Now that those are entirely mitigated, so that was a two point favorable impact. As well as we're seeing nice traction from the pricing actions we've taken over the last.
Now that those are entirely mitigated so that was a two point favorable impact as well as we're seeing nice traction from the pricing actions. We've taken over the last several years and continue to strengthen our service and software margins. So if we look at our underlying gross margins.
Speaker 4: transcript
several years and continue to strengthen our service and software margins. So if we look at our underlying gross margins.
Speaker 4: transcript
With the pricing actions we've taken to offset component costs increases inflation with the freight costs declining
With the pricing actions, we've taken to offset component cost increases inflation with the freight cost declining really now the focus is on rebalancing, our manufacturing and distribution capacity to the lower volume. So that we can again start to see those margins recover.
Speaker 4: transcript
Really now the focus is on rebalancing our manufacturing and distribution capacity to the lower volume so that we can again start to see those margins recover.
Nathan Winters: They still slightly higher than the normal range, despite those decreases. And that's why we expect distributors will continue to lower their inventory here throughout the fourth quarter, but we do expect to exit the fourth quarter within our normal operating levels. And that's something we work with very closely with our distributors on in terms of where are they trying to get to what products do they need to support the markets. And so, again, as we as we enter next year, we expect kind of the destocking to be at and where it needs to be as we move forward into the year.
Speaker 4: transcript
as we go into next year. So I think the, you know, as we look here at the second half is the the low water mark just given the sharp volume declines and making sure we reset capacity.
As we go into next year. So I think as we look here at the second half is the low watermark, just given the sharp volume declines and making sure we reset capacity.
Speaker 4: transcript
to that while giving us flexibility to to grow as the market returns.
To that while giving us flexibility to grow as the market recovers.
We now have a question from Keith how some from Northcoast research.
Speaker 1: transcript
We now have a question from Keith Halsum from North Coast Research. Keith, please go ahead.
Please go ahead.
Speaker 9: transcript
Thank you. Good morning, guys. If we perhaps focus a little bit on Zebra's own inventory levels, which obviously are still high compared to historical levels, is this more component parts or is it more finished goods? And then, you know, second to that is, do you guys have minimum purchase agreements with your OEMs where if you're not making the minimum purchases, you're going to have, you know, penalties you'll incur?
Thank you good morning, guys.
Damian Karas: and we move to a question from Damian Karas from TBS. Damian, please go ahead. Hi, good morning, everyone. Good morning. So not to be a dead horse here on the demand environment and recovery, but Bill mentioned not seeing signs of that as you think about early 2024 or I get that you're seeing that based on your order patterns, but based on your customer conversations. I mean, what do you think it's going to take to see that inflection of demand to drive that?
Let's focus a little bit on your own inventory levels, which obviously are still high compared to historical levels.
As more component costs.
Parts or is it more finished goods and then.
Second to that is do you guys have minimum purchase agreements with your Oems, where if youre not making the minimum purchases youre going to have penalties youll incur.
Speaker 4: transcript
Keith, so just on our own inventory, as expected, our inventory balance has stayed relatively flat to where we were at the end of the second quarter. We don't expect to see a material change as we exit the year.
Yeah, Keith So I, just don't have our own inventory as expected.
Our inventory balance to stay relatively flat to where we were at the end of the second quarter and we don't expect to see a material changes as we exit the year.
Speaker 4: transcript
And as we said before, and as you stated, the primary increase
And as we said before and as you stated the primary increase from where we would expect to be is all around component consign components that are at our tier one manufacturers. So these are inventory that we may purchase commitments on going back to a year year and a half ago. It really the peak demand as well as the peak supply chain challenges and issues where the.
Speaker 4: transcript
from where we'd expect to be is all around component, confined components that are at our cure one manufacturer.
Damian Karas: And where would you see it first, thinking about the various markets you play in and your diverse set of customers? What I'd say is that overall we'd have to see strengthening certainly of a good based economy and our customers overall will resume deployments as they, you know, some of the macroeconomic uncertainty around the good based economy debates. And in TNL and any commerce we've seen, you know, a significant capacity built out during the pandemic and that access capacity has to be used, you know, within their environment.
Speaker 4: transcript
So these are, you know, inventory that we may purchase commitments on going back to a year, year and a half ago at really the peak demand as well as the peak supply chain challenges and issues where the lead times were out, you know, greater than a year.
The lead times were out greater than a year.
Speaker 4: transcript
So really absorbing those those inbound components as our demand decreased.
So really absorbing those those inbound components as our demands decrease I think the team's done a phenomenal job working with working with all of our partners to reduce those purchase commitments. If you looked at our outstanding convert purchase commitments, we've cut those in half.
Speaker 4: transcript
I think that the teams are in a phenomenal job working with all of our partners.
Speaker 4: transcript
to reduce those purchase commitments. If you looked at our outstanding purchase commitments, we've cut those in half.
Speaker 4: transcript
Since the beginning of the year we've driven down finished good balance since the beginning of the year So we're making traction, although you don't see it in in the headline numbers So really now it's around getting stability in the demand signal to our suppliers so that we can in right size those inbound components
At the beginning of the year, we've driven down finished good balance.
At the beginning of the year, so we're making traction although you don't see it in the headline numbers. So really now it's around getting stability in the demand signal to our suppliers. So that we can rightsize those inbound components.
Damian Karas: So that's across their entire environment where they we've built that capacity that now, you know, is more being used and demand is more normalized levels than the accelerated levels through through the pandemic. I would say overall, you know, the, the, when we see the broader demand across the industry, you know, we're seeing that, you know, where first likely large customers first is what we'd, we'd expect that large customers, the first area where we saw a challenging from a demand environment.
Speaker 4: transcript
If you, uh, your last question, uh, we don't have a minimum purchase agreement that it has penalties. Obviously we work with our, our tier one manufacturers to
Your last question, we don't have a minimum purchase agreement that it has penalties obviously, we work with our tier one manufacturers too.
Speaker 4: transcript
You know, have different tearing in terms of volume and our purchase price to cover their overhead, but there's not a penalty per se at certain volumes. It's just making sure that they have the right capacity within their cost struck.
Have.
Different tiers in terms of volume in our on our purchase price.
To cover their overhead, but theres not a I'd say a penalty per se at certain volumes is just making sure that they have the right capacity.
Within their within their cost structure.
Speaker 9: transcript
Okay. If I can follow up on that, then as we look forward to the 2024, is there a rule of thumb where we think your inventory levels should be under an optimal level? Because of course, we'd assume that you'll have some positive free cash loan that's for you, as that gets worked out.
Okay, if I could follow up on that as we look forward to 2024 is there a rule of thumb a worthy. Thank your inventory levels should be under optimal level because of course, we would assume that youll have some positive free cash flow next year as that gets worked out.
Damian Karas: So we'd expect that to return first and then from their mid size and run rate would follow on a little joke if you want to. Yeah, maybe just a little bit on that point during the high constraint phase, we had given some priority to some of our larger customers. So that's where a large amount of the volume and the capacity that went into the market went. And that's where we're seeing the steepest declines at this point.
Yeah. So I would say if you look at basically go back to our historical turns and you account for some of the M&A over the past couple of years.
Speaker 4: transcript
Yeah, so I would say, you know, if you look at, basically if you go back to our historical turns and you account for, you know, some of the M&A over the past couple of years, we said that, you know, about $200 million reduction would get us back to normalize levels. You know, when and how quickly we can achieve that is the question. And some of that depends on, again, some of the demands stability as we go into next year. But, you know, if that $200 million reduction would be entirely in consigned inventory components at our, at our manufacturer.
About $200 million reduction would get us back to normalized levels.
When and how quickly we can achieve that is the question.
It depends on again some of the demand stability as.
Damian Karas: So I would expect that that's also where we would see the first signs of recovery, where those customers would begin purchasing again. And we are staying very close to those large customers. As we're seeing them sweat their assets longer, we know exactly when they are reaching those points in the product bicycle, where they will need to refresh and we're working with them on plans that will fit their budgets. And you can imagine as we're going into 2024 coming up with new budgets and we're working with them on doing that. So that's perhaps where I would look first.
As we go into next year, but that $200 million reduction would be entirely in consigned inventory or components at our better manufacturers.
Damian Karas: God it, that's really helpful.
Well take a question from Joe Giordano from TD Collyn.
Speaker 1: transcript
We'll take a question now from Joe Jordano from Titi Cohen. Joe, please go ahead.
Joe. Please go ahead.
Hey, good morning, guys.
Speaker 10: transcript
More than Joe. Hey, so all ask a couple of higher, bigger picture kind of questions. We've dug into the year-term dynamics quite a bit here. I've had a lot of questions about longer term. What is a shift from?
Good morning, Joe.
And so I'll ask it a little higher bigger picture kind of questions.
I'll get into the near term dynamics quite a bit here I've had a lot of questions about like longer term what is that a shift from.
Speaker 10: transcript
potentially into kind of fixed automation mean for you guys, you know So you have huge share in mobile computers And then what happens as you get more and more of these kind of big RFID type, you know fixed mounted scanners Instead of having a person make scans like what does that mean for you over time? If the percentage of scans being done by humans goes down
Potentially into kind of fixed automation mean for you guys. So you have huge share in mobile computers, and then what happens as you get more and more of these kind of big RFID type fixed mounted scanners, instead of having a person make scans like what does that mean for you over time.
Damian Karas: And the main good switch gears and talk about gross margins, curious how you are thinking about what those look like from here. Is there further downside from the third quarter just based on the volume levels you're seeing. And how should we think about the kind of the new baseline or normalize gross margins. Yeah, Damian. So if you look, you know, just maybe for context on Q3 gross margin, obviously down year on year by about a point to 44.8% volume V leveraging was a major driver of the decline as we had did have the favorability and premium supply chain costs.
If the percentage of scans being done by humans goes down.
Yeah, I would say that the.
Speaker 3: transcript
Investors were making across the portfolio, including new areas such as RFID and machine vision both played to exactly that. We see a need for both handheld devices, handheld scanning, mobile printing, just as we do, fixed table top printing. And, you know,
The investments, we're making across the portfolio, including new areas, such as RFID and machine vision, both play to exactly that we see a need for both handheld devices handheld scanning mobile printing just as we do.
Fixed tabletop renting an and.
Damian Karas: Now that those are, you know, entirely mitigated, so that was a two point favorable impact, as well as we're seeing nice traction from the pricing actions we've taken over the last several years. And continue strengthen our service and software margins. So if we look at our underlying gross margins, with the pricing actions we've taken to offset component cost increases inflation with the freight cost declining, really now the focus is on rebalancing our manufacturing and distribution capacity to the lower volume so that we can, again, start to see those margins recover as we go into next year.
Our fixed industrial scanning slash machine vision as well as RFID reader. So that's why we've got a broad base of across the portfolio.
Speaker 8: transcript
fixed industrial scanning slash machine vision as well as RFID readers. So that's why we've got a broad base of across the portfolio as our customers continue to digitize and automate their environments.
Customers continue to digitize and automate their environments. Ultimately there are places, where our fixed industrial scanning machine vision.
Speaker 3: transcript
Ultimately, there are places where a fixed industrial scanning machine vision, you know, image or makes more sense than someone holding, you know, a hands, uh, something in their hand or a hand scanner.
Imager makes more sense than someone holding.
Hans something in their hand, or a hand scanner RFID does very similar type things, but you know you marry RFID technology, along with barcode scanning. So we think of machine vision and fixed industrial scanning is close. The addition to our scanning business really fixed versus handheld and we see you know RFID.
Speaker 8: transcript
RFID does very similar type things, but you know, you marry RFID technology along with, you know, barcode scanning. So we think of machine vision and fixed industrial scanning is closely adhesion to our scanning business. So it's really fixed versus...
Damian Karas: So I think the, you know, as we look here at the second half is the low watermark just given the sharp volume declines and making sure we reset capacity to that while giving us flexibility to grow as the market recovers.
Speaker 8: transcript
And we see RFID portfolio of the same way, where we've got handheld RFID readers and fixed RFID readers across the portfolio, just as we have tabletop RFID printers in mobile. So we think that mobility is going to continue to be an important aspect of our business, but fixed is as well as we're seeing more fixed infrastructure, more automation in our environments. And that's why we're invested in both. And I think that...
So the same way, where we've got handheld RFID readers and fixed RFID readers across the portfolio just as we have tabletop RFID printers and mobile. So we think that mobility is going to continue to be an important aspect of our business, but fixed is as well as we're seeing more fixed infrastructure more automation in our environment.
Keith Housum: We now have a question from Keith Halson from North Coast research. Keith, please go ahead. Thank you.
Nathan Winters: Good morning, guys. If you thought to focus a little bit on Zebra's own inventory levels, which obviously are still high compared to historical levels. Is this more component cost component parts, or is it more finished goods? And then, you know, second to that is, do you guys have minimum purchase agreements with your OEMs where if you're not making the minimum purchases, you're going to have, you know, penalties, you'll incur. Keith, so just on our own inventory, as expected, our inventory balances take relatively flat to where we were at the end of the second quarter.
And that's why we're invested in both and I think that you know.
you know, machine vision and RFID both represent attractive markets for us for that very reason.
<unk> machine vision and RFID, both represent attractive markets for us for that very reason and Joe This is Joe Hill.
Speaker 8: transcript
And Joe, this is Joe Hill. I'll add, I think this is also an opportunity for us to add additional value to our customers.
AD I think this is also an opportunity for us to add additional value to our customers.
specifically because in both areas the customers will need more than just the hardware solutions that they might buy from us today as a handheld reader for example they will need in particular software and other accessories and so if you think about our machine vision business a very important part of that is the software component which by and large we don't provide today when it comes to a handheld scanner.
Specifically because in both areas the customers will need more than just the hardware solutions that they might buy from US today is a handheld reader for example, they will need in particular software and other accessories and so if you think about our machine vision business, a very important part of that is the software component.
Nathan Winters: We don't expect to see a material change as we exit the year. And as we said before, and as you stated, the primary increase from where we'd expect to be is all around component, can sign components that are at our tier one manufacturers. So these are, you know, inventory that we may purchase commitments on going back to a year, year and a half ago at really the peak demand as well as the peak supply chain challenges and issues where the lead times were out, you know, greater than a year.
By and large we don't provide today when it comes to a handheld scanner.
Speaker 8: transcript
but in the machine vision environment, we do provide that. So it's a great opportunity for us to create additional value for customers, but also for us at DeepR. So those are.
But in the machine vision <unk>.
Environment, you do provide that so it's a great opportunity for us to create additional value for customers, but also for us it's deeper.
So there was a very good answer.
Speaker 10: transcript
I just want one more on, we talked about the trends are not yet improving, but some of the true weakness and the destock is getting away. So as we come out of that, which I assume we do at some point, when I think back to your 2021-2022, you're doing 17 and a half, 18 and a half dollars of earnings, how do you categorize those?
I just wanted one more on.
Nathan Winters: So really absorbing those those inbound components as our demands decrease. I think that the teams on the phenomenal job working with working with all of our partners to reduce those purchase commitments. If you looked at our outstanding purchase commitments, we've cut those in half since the beginning of the year, we've driven down finished good balance since the beginning of the year. So we're making traction, although you don't see it in the headline numbers.
We talked about the trends are not yet improving but some of the some of the true weakness and the destocking is getting away. So as we come out of that which I assume we do at some point when I when I think back to your 2021 'twenty two you're doing 17, and a half 18 and half dollars of earnings how do you categorize those years so.
Speaker 10: transcript
So revenue is obviously very strong, but margins were maybe somewhat pressured from some of the supply chain and what you guys had to do to deliver. So like what kind of market and market dynamics do you think would need to be in place to get earnings back to levels like that? Because my guess is that you don't need revenues to be nearly that high.
Yeah revenue was obviously very strong, but margins or maybe somewhat pressured from some of the supply chain and what you guys had to do to deliver so like what was it what kind of market and market dynamics do you think would need to be in place to get earnings back to levels like that because my guess is that you don't need revenues to be nearly that high.
Nathan Winters: So really now it's around getting stability in the demand signal to our suppliers so that we can in right size as inbound components. If you have your last question, we don't have a minimum purchase agreement that it has penalties. Obviously we work with our tier one manufacturers to, you know, have different hearing in terms of volume in our purchase price to cover their overhead, but there's not a penalty per say at certain volumes. It's just making sure that they have the right capacity within their within their costs. Sure. Okay.
Speaker 3: transcript
I think that overall we would expect to see continued progression in margin as our markets recover overall. So I would say that we would expect to get back to the levels that we've had in the past and there's no reason why we wouldn't.
And I think that overall, we would expect to see continued progression in margin.
As our markets recover overall, so I would say that we would expect to get back to the levels that we've had in the past and Theres No reason why we wouldn't.
Nathan Winters: If I can follow up on that, then as we look forward to the 2024, is there a rule of formal where we think your inventory levels should be under an optimal level, because of course we'd assume that you'll have some positive free cash flow next year, as that gets worked down. Yeah, so I would say, you know, if you look at, if you go back to our historical turns and you account for some of the MNA over the past couple years, we said that, you know, about $200 million reduction would get us back to the normalized levels.
Speaker 3: transcript
There's been a lot of challenges in moving pieces over the last several years, including, you know, a tire of supply chain challenges, the significant increase demand we saw over the last two years driven by the pandemic and building out a capacity. But I think that, you know, returning to the profitability levels that we've had, you know, prior, we see that continue to progress throughout.
There's been a lot of challenges and moving pieces over the last several years, including tariff supply chain challenges that the significant increased demand we saw over the last two years driven by the pandemic and building out our capacity, but I think that returning to the profitability levels that we've had prior.
We see that continuing to progress throughout.
Speaker 3: transcript
you know, 2024 is as we get back to more normal levels of demand and our customers begin to buy again. And as we continue to be very thoughtful around, you know, our cost, right? So I think we're gonna continue to...
2020 for us as we.
Get back to more normal levels of demand and our customers begin to buy again and as we continue to be very thoughtful around our cost right. So I think we're going to continue.
Nathan Winters: You know, when and how quickly we can achieve that is the question, and some of that depends on, again, some of the demands, stability, as we go into next year, but if that $200 million reduction would be entirely in consigned inventory components at our manufacturers.
Speaker 3: transcript
to be cautious in spending as we have been, we're taking $100 million annually costs out of the business in 2024. And that'll also add to profitability along with demand return. So we...
To be cautious in spending as we have been we're taking $100 million of annual cost out of the business in 2024 and that will also add to profitability along with demand. Returning so we see you know profitability continued to progress and Theres. No reason why we can't get back to the past levels. That's how we see it.
Joe Giordano: We'll take a question now from Joe Giordano, from Titi Cohen. Joe, please go ahead. Hey, good morning, guys. Morning, Joe.
Speaker 3: transcript
You know, profitability continued to progress. And there's no reason why we can't get back to the past levels. That's how we...
Joe Giordano: Hey, so I'll ask a couple of higher, bigger picture kind of questions. We dug into the your turn dynamics quite a bit here. You know, I've had a lot of questions about like longer term. What is a shift from potentially into kind of fixed automation mean for you guys? You know, so you have huge share in mobile computers, and then what happens as you get more and more of these kind of big RFID type, you know, fixed mounted scanners instead of having a person make scans.
Speaker 1: transcript
And we will take a question now from Matt Amarshal from Morgan Stanley . Matt, please go ahead.
And we will take a question now from meta Marshall from Morgan Stanley matter. Please go ahead.
Speaker 11: transcript
Great, thanks. Maybe a couple of questions for me. The healthcare market has been a source of strength over the past couple of years. Just wondering if there's any commentary about that market, it may be being less.
Great. Thanks, maybe a couple of questions for me.
The health care market has been kind of a source of strength over the past couple of years, just wondering if there's kind of any commentary about that market and there may be been less.
Speaker 11: transcript
consumer goods Related than the others and then maybe the second question you noted kind of step up investments in the manufacturing market That's already kind of a pretty strong market for you. So I guess is that kind of a combination of bringing robotics machine vision into that market or just kind of what are kind of Some of the areas that you think are unexploded
Consumer goods.
<unk> related than the others and then maybe the second question you noted kind of a step up in investments in the manufacturing market, that's already kind of a pretty strong market for you. So I guess is that kind of a combination of bringing in robotics machine vision into that market or just kind of what are kind of some of the areas that you think are unexploited there. Thanks.
Joe Giordano: Like, what does that mean for you over time if the percentage of scans being done by humans goes down? Yeah, I would say that, you know, the investments we're making across the portfolio, including, you know, new areas such as RFID and machine vision both, you know, played to exactly that. We see a need for both handheld devices, handheld scanning, mobile printing, just as we do, you know, fixed table top printing and, you know, a fixed industrial scanning slash machine vision as well as RFID readers.
Now I would say that are you know.
Speaker 3: transcript
I would say that healthcare and manufacturing less decline than the other market. So less impacted overall, but they were still seeing the same trends at a broader market.
Health care and manufacturing.
Less decline than the other markets are less impacted overall, but they were still seeing the same trends that are broader market I would say overall in healthcare.
Speaker 10: transcript
I would say overall in healthcare, you know, our has been in the past, our fastest growing vertical market, but our smallest. As healthcare continues to look to improve.
Joe Giordano: So that's why we've got a broad base of across the portfolio as, you know, our customers continue to digitize and automate their environments. Ultimately, there are places where a fixed industrial scanning machine vision, you know, imager makes more sense than then someone holding, you know, a hands something in their hand or a hand scanner RFID does very similar type things, but, you know, you're married RFID technology along with, you know, barcode scanning.
<unk> has been in the past our fastest growing vertical market, but our smallest.
As you know health care continues to look to improve productivity enhance.
Speaker 10: transcript
productivity, you know, enhance patient safety, clearly automating workflows and digitizing, you know, assets within that environment, it, you know, creates an opportunity for the full breadth of our solutions portfolio across scanning, printing.
Patient safety, clearly automating workflows and digitizing.
Assets within that environment.
It's an opportunity for the full breadth of our solutions portfolio across scanning printing mobile computing RFID all play a role with the health care. We're also now seeing new opportunities across healthcare in things like tablets for home health care or telehealth.
Speaker 10: transcript
mobile computing, RFID, all play a role with the healthcare. We're also announcing new opportunities across healthcare in things like tablets for home healthcare or telehealth, all remain opportunities for us. So we're, we like the healthcare market and we continue to develop very specific products for the healthcare, their market overall.
Joe Giordano: So we think of machine vision fixed industrial scanning is closely addition to our scanning business really fixed versus handheld. And we see, you know, RFID portfolio of the same way where we've got handheld RFID readers and fixed RFID readers across the portfolio, just as we have table top RFID printers and mobile. So we think that mobility is going to continue to be an important aspect of our business, but fixed is as well as we're seeing more fixed infrastructure, more automation in our environments, and that's why we're invested in both.
All remain opportunities for us so we're.
We like the health care market and we continued to develop very specific products for the health care market overall, I'd say and manufacturing, while we've got a strong base within our manufacturing customers. A lot of that is really tied to more of their logistics and distribution network more so than kind of assembly and on the line and I. Thank you.
Speaker 10: transcript
I think in manufacturing, you know, while we've got a strong base within our manufacturing customers, a lot of that's really tied to more of their logistics and distribution network.
Speaker 3: transcript
more so than kind of assembly and on the line. And I think you said it best already, machine vision, robotic automation for, you know, in the manufacturer environment with goods transport, demand planning for our CBG customers with, with and to it, all leverage our, or give us more strength to meet the demands of that marketplace overall. So we've, you know,
Joe Giordano: And I think that, you know, machine vision and RFID both represent attractive markets for us for that very reason. And Joe, this is Joe Hill. I'll add, I think this is also an opportunity for us to add additional value to our customers, of customers. Specifically, because in both areas, the customers will need more than just the hardware solutions that they might buy from us today as a handheld reader, for example, they will need in particular software and other accessories.
You said it best already machine vision robotic automation for.
In the.
Facture environment with goods transport.
Demand planning for our CPG customers with with and two it all leverage or give us more strength to meet the demands of that marketplace. Overall, so we've you know.
We've shifted sales resources to focus on manufacturing and continue to look to recruit more partners in that area, we see that as an area for zebra, where we're less penetrated than others.
Speaker 10: transcript
We've shifted sales resources to focus on manufacturing and continue to look to recruit more partners in that area. We see that as an area for Zebra where we're less penetrated than others.
Joe Giordano: And so if you think about our machine vision business, a very important part of that is the software component, which by and large, we don't provide today when it comes to a handheld scanner. But in the machine vision environment, we do provide that. So it's a great opportunity for us to create additional value for customers, but also for us as Zebra.
Speaker 10: transcript
primarily because we're not where we are in certain product areas, print and you know, for instance, on the manufacturing floor, but we could do more there in our new solution. So we clearly see manufacturing and health care is both opportunities for us to grow moving forward.
Primarily because we're not where we are in certain product areas print and.
For instance, on the manufacturing floor, but we could do more there in our new solutions. So we clearly see manufacturing and health care as both opportunities for us to grow moving forward.
William Burns: So those are very good answer. I just want one more on, we talked about the the trends are not yet improving, but some of the some of the true weakness and the destock is getting away. So as we come out of that, which I assume we do at some point, when I think back to your 2021, 2022, you're doing, you know, 17 and a half, 18 and a half dollars of earnings.
Speaker 1: transcript
Thank you. We will take a question from Andrew Baskaglia from PNB Paraba. Andrew, please go ahead.
Thank you we will take a question from Andrew Buscaglia from <unk> Andrew.
Andrew Please go ahead.
Hey, good morning, guys.
Good morning, Andrew.
Yeah. So.
Speaker 12: transcript
Yeah, so, you know, I know you don't give guidance for 24, but you are talking to kind of how you think, keeping trending into the new year. And I'm wondering if you could talk about, you know, maybe a range of scenarios with distributors starting to re-stock potentially. I guess what drives the slope of that re-stocking?
Yeah I know.
William Burns: How do you categorize those years? So revenue is obviously very strong, but margins, you know, were maybe somewhat pressured from some of the supply chain and what you guys had to do to deliver. So like, what would it, what kind of market and market dynamics do you think would need to be in place to get earnings back to levels like that? Because my guess is that you don't need revenues to be nearly that high.
I gave guidance for quite for by your you are talking to kind of how I think see things trending into the new year and I'm wondering if you could talk about.
Maybe a range of scenarios with with distributors starting to restock potentially I guess what.
What drives the slope of that restocking.
Speaker 12: transcript
in terms of like is there is there the psychology of the distributor who more aligned with what their end customer.
In terms of like is there is there.
The psychology of the distributor.
William Burns: I think that, you know, overall, we would expect to see continued progression in margin, you know, as our markets recover overall. So I would say that, you know, we would expect to get back to the levels that we've had in the past. And there's no reason why we wouldn't. There's been a lot of challenges in and moving pieces over the last several years, including, you know, tariff supply chain challenges that the significant increase demand we saw over the last two years driven by the pandemic and building out of capacity.
More aligned with what their end customer.
Is <unk>.
Speaker 12: transcript
providing them with confidence to resock those shells. I guess I'm trying to ask is like, how do you view the cadence of that resocking event if it were to occur next?
Providing them with the confidence to restock their shelves.
I guess, what I'm trying to ask is like how do you view the cadence of that restocking of that if it if it were to occur next year.
Speaker 8: transcript
Yeah, so I can address some of that Andrew. Over the course of the last few quarters, we've gotten a lot tighter with our distributors in both understanding and agreeing on the objectives that they have in their business, which have changed. And in particular, the increasing cost of...
Yes, so I can address some of that Andrew.
And over the course of the last few quarters, we've gotten a lot tighter with our distributors in both understanding and agreeing on the objectives that they have in their business, which have changed and in particular, the increasing cost of capital.
William Burns: But I think that, you know, returning to the profitability levels that we've had, you know, prior, we see that continue to progress throughout, you know, 2024 is as we get back to more normal levels of demand and our customers begin to buy again. And as we continue to be very thoughtful around, you know, our costs, right? So I think we're going to continue to to be cautious and spending as we have been, we're taking, you know, $100 million annually costs out of the business in 2024.
Speaker 8: transcript
has led them to set very aggressive inventory targets for their business. And then using those targets to ensure that we stay in sync as demand has been relatively volatile, right? So demand has come down. They have adjusted their inventory to match that and that's what we're calling destock.
Let them to set very aggressive inventory targets for their for their business.
And then using those targets to ensure that we stay in sync as demand has been relatively volatile Knight says demand has come down.
They have adjusted their inventory to match that and that's what we're calling destocking. So if you now think about that in reverse what has to occur is that they have to start seeing improvements in sales out which we of course are working very heavily we generate the majority of our demand with our sales force working together with our partners.
William Burns: And that will also, you know, add to profitability along with demand returning. So we see, you know, profitability continue to progress. And there's no reason why we can't get back to the past levels. That's how we see it.
Speaker 8: transcript
So if you now think about that in reverse, what has to occur is that they have to start seeing improvements in sales out, which we of course are working very heavily. We generate the majority of our demand with our sales force working together with our partners.
Meta Marshall: And we will take a question now from Madame Marshall from Morgan Stanley. Madame, please go ahead. Great. Thanks. Maybe a couple of questions for me.
Speaker 8: transcript
So we're working with them to generate that sales out to me. And as soon as they see that tick up again, we're pretty confident that they will follow with the stocking in lock step.
So we're working with them to generate that sales out demand as soon as they see that pick up again, we're pretty confident that they will follow with the stocking in lockstep.
Speaker 8: transcript
to achieve those DIO or days of inventory outstanding targets.
To achieve those D I O where days of inventory outstanding targets that we have now really good visibility to and a clear understanding with them as well as incentives in place for them to reach those so it's really generating that demand and seeing it we think the inventory will just follow.
William Burns: You know, the healthcare market has been kind of a source of strength over the past couple of years, just wondering if there's kind of any commentary about that market. And it may be being less consumer goods related than the others. And then maybe the second question, you noted kind of step up investments in the manufacturing market that's already kind of a pretty strong market for you. So I guess is that kind of a combination of bringing robotics machine vision into that market or just kind of what are kind of some of the areas that you think are unexploded.
Speaker 8: transcript
Speaker 8: transcript
for them to reach those. So it's really generating that demand and seeing it, we think the inventory will just follow.
Speaker 12: transcript
Yeah, okay, very clear. And you know, you're two biggest markets, e-commerce and retail versus transportation and logistics. Are you seeing any difference in...
Yeah, Okay, very clear and.
Your two biggest Margaret e-commerce, and retail versus transportation and logistics are you seeing any.
Different than.
Speaker 12: transcript
The demand trend in dynamics driving those two areas, what is the key difference for you is one starter than the other is one, you know, more likely to come back faster than the other. Yeah, I guess you could parse that out.
The demand trends and dynamics driving those two areas I guess what are the key different for you or is one stronger than the other one.
William Burns: Thanks. Yeah, I would say that, you know, healthcare and manufacturing less declines than the other market, so less impacted overall, but they were still seeing the same trends of the broader market. I would say overall and healthcare, you know, our has been in the past, our fastest growing vertical market, but our smallest as, you know, healthcare continues to look to improve productivity, you know, enhance health, patient safety, clearly automating workflows and digitizing, you know, assets within that environment, you know, creates an opportunity for the full breadth of our solutions portfolio across scanning, printing, mobile computing, RFID all play a role with the healthcare, we're also announcing new opportunities across healthcare in things like tablets for home healthcare or telehealth all remain opportunities for us.
No more likely to come back faster than the other.
Yeah, I guess, if you can parse that out.
Yeah, Andrew I would say they're tied.
Speaker 10: transcript
Andrew, I would say they're tied and coupled pretty tightly together, especially when you consider e-commerce versus buy online and pick up a store or brick and mortar retail. So I'd say e-commerce and trustee just tied together because of really parcel delivery. And I think in that case,
And a couple of pretty tightly together, especially when you consider.
E Commerce versus you know.
Buy online and pickup in store or brick and mortar retail so I would say e-commerce and transfer logistics tied together because it really parcel delivery and I think in that case.
Both had built out e-commerce providers and Trans-State Logistics built out significant network capacity across, you know, everything they did. Their networks, their, you know, capacity around logistics and others to be able to meet the demands during COVID, which now have kind of reset to pre-COVID levels and are going to grow from there. And I think you've seen moderating demand across e-commerce overall. So I think those two are tied together.
We had built out e-commerce providers and transportation logistics built out significant network capacity across you know everything they did their networks there.
Capacity around logistics and others to be able to meet the demands during COVID-19, which now have kind of reset.
So pre COVID-19 levels that are are going to grow from there and I think you've seen moderating demand across E. Commerce overall, so I think those two are tied together.
William Burns: So, so we're, you know, we like the healthcare market and we continue to develop very specific, you know, products for the healthcare, their market overall. I think in manufacturing, you know, while we've got a strong base within our manufacturing customers, a lot of that's really tied to more of their logistics and distribution network, more so than kind of assembly and on the line, and I think you said it best already, machine vision, robotic automation for, you know, in the manufacturer environment with goods transport, demand planning for our CBG customers with with into it all leverage our or give us more strength to meet the demands of that marketplace overall.
I think brick and mortar retail, you know, think of in store, I think that's really more tied to the goods economy. So goods versus service-based economy, which is still, you know, relatively challenged. So I'd say e-commerce and translate some distance tied-handed.
Brick and mortar retail you know think of in store I think thats really more tied to the goods economy. So goods versus service based economy, which is still relatively challenged so I'd say ecommerce and translation distinction tied hand in hand brick and mortar retail a little bit more goods economy focused I wouldn't see.
Speaker 10: transcript
Brick and mortar retail, a little bit more good economy focus.
I wouldn't see much difference in those two. The recovery really is going to be driven by using up this excess capacity we talked about or an end, a recovery from more positive signs and from an economic perspective, overall for those markets to come back.
Much difference in those two the recovery really is going to be driven by using up this excess capacity, we talked about or and you know a.
Recovery from.
More positive signs in from an economic perspective overall for those markets to come back.
William Burns: So we've, you know, we've shifted sales resources to focus on manufacturing and continue to look to recruit, you know, more partners in that area, we see that as an area for zebra where we're less penetrated than others. Primarily because we're not where we are in certain product areas, print and, you know, for instance, on the manufacturing floor, but we could do more there in our new solution. So we clearly see manufacturing and healthcare is both opportunities for us to grow moving forward.
Speaker 8: transcript
Maybe there's one area that you could see a slight additional opportunity on the retail front. And that is of course the one area where they don't overlap, which is the store. Retailers have been itching for some time and we have had this vision that you can significantly improve the productivity of a retail store by having all of the workers in the store connected and collaborating.
Made me, maybe there's one area that.
You could see a slight additional opportunity on the retail front and that is of course, the one area, where they don't overlap which is the store.
William Burns: Thank you.
Retailers have been itching for some time and we have had this vision that you can significantly improve the productivity of our retail store by having all of the workers into store connected and collaborating.
Speaker 8: transcript
And they haven't yet realized that vision. That's been part of what's been deferred as they're going through the current phase of pausing and spending and scrutinizing their budget.
And they haven't yet realize that vision, that's been part of what's been deferred as they're going through the current.
Andrew Buscaglia: We will take a question from Andrew Baskaglia from PNB Paraba. Andrew, please go ahead. Hey, good morning, guys. Morning, Andrew. Yeah, so, you know, I know you don't give guidance for 24, but you are talking to kind of how you think things trending into the new year. And I'm wondering if you could talk about, you know, maybe a range of scenarios with distributors starting to re-stock potentially. I guess what, you know, what drives the slope of that re-stocking like they, in terms of like, is there, is there the psychology of the distributor more aligned with what their end customer is, you know, providing them with confidence to re-stock those shelves.
Phase of pausing in spending and scrutinizing their budget, but they really do want to do that I hear that from retailers all the time.
Speaker 8: transcript
But they really do want to do that. I hear that from retailers all the time.
Speaker 8: transcript
that they believe that there is a big productivity improvement to be had there in particular because some of their peers have done it and they have seen those improvements. So that part of spending is still out there and I'm convinced it will come our way and that will create an additional demand on the part of retailers with stores that transportation companies don't have.
That they believe that there was a big productivity improvement to be had there in particular, because some of their peers have done it and they have seen those improvements. So that part of spending is still out there and it I'm convinced it will come our way and that will create.
Create a.
Additional demand on the part of retailers with stores.
That transportation companies don't have.
And our next question comes from Rob Mason from Baird.
Speaker 1: transcript
And our next question comes from Rob Mason from Beard. Rob?
Rob. Please go ahead.
Yes, good morning all.
Speaker 6: transcript
Yes, good morning all. I wanted to maybe just probe again, your thoughts as we get into 24 and not to put a stake in the ground at mid-year 24, but I'm just curious, as you think about normal replacement cycles, how would your average age of your install base look mid-year next year? Would it be at an average level or a below average above average?
Andrew Buscaglia: I guess I'm trying to ask is like, how do you view the cadence of that re-stocking event if it were to occur next year? Yeah, so I can address some of that, Andrew. Over the course of the last few quarters, we've gotten a lot tighter with our distributors in both understanding and agreeing on the objectives that they have in their business, which have changed. And in particular, the increasing cost of capital has led them to set very aggressive inventory targets for their, for their business.
I wanted to maybe just probe again.
Your thoughts as we get into 'twenty, four and not to put a stake in the ground at mid year 'twenty four but I'm just curious.
As you think about normal replacement cycles, how would your.
Our average age of your installed base look.
Mid year next year would it be at an average level or below.
Below average above average.
Yes, I'd say that Rob the what we said is we're not guiding to 'twenty four as we've talked about before I would say again from a color perspective that you know on average I guess it would be the same what we're seeing today as our customers sweating some of their assets longer.
Speaker 10: transcript
I'd say that Rob, we said we're not guiding the 24 as we've talked about before, I would say.
Andrew Buscaglia: And, and then using those targets to ensure that we stay in sync as demand has been relatively volatile, right, so demand has come down, they have adjusted their inventory to match that and that's what we're calling destocking. So if you now think about that in reverse, what has to occur is that they have to start seeing improvements in sales out, which we, of course, are working very heavily. We generate the majority of our demand with our sales force working together with our partners.
Speaker 10: transcript
Again, from a color perspective that, you know, on average, I guess it would be the same. What we're seeing today is our customer sweating.
Speaker 10: transcript
some of their assets longer than they normally would. They can only do that so long. You know, devices get older, they wanna...
Than they normally would they can only do that so long devices get older They want them.
Speaker 10: transcript
you know, use more applications requiring faster processor speeds, more memory.
Use more applications requiring faster processor speeds more memory. You know you see OS is moving forward, so security and others. So there's reasons for them to upgrade those devices over time could they sweat them for a certain amount of time, yes.
Speaker 10: transcript
you know, you see OS is moving forward, so security and others. So there's reasons for them to upgrade those devices over time, could they sweat them for a certain amount of time, yes. But then eventually that, you know, it kind of comes our way and they go ahead and upgrade. So I would say average lifecycle of
Andrew Buscaglia: So we're working with them to generate that sales out demand. And as soon as they see that tick up again, we're pretty confident that they will follow with stocking in lockstep to achieve those DIO or days of inventory outstanding targets that we have now really good visibility to and a clear understanding with them as well as incentives in place for them to reach those.
But then eventually that kind of comes our way in and they go ahead and upgrade so I would say average lifecycle of <unk>.
Speaker 10: transcript
you know demand in second half nothing changing there we're working close to our customers to to make sure we understand their refresh cycles and
Demand in second half nothing changing there we're working closely with our customers to to make sure we understand their refresh cycles.
Speaker 10: transcript
You know, I think that while there's very little visibility a second half year, I think that the biggest thing to remember is we're gonna cycle, you know, compares that are easier and then just destocking, you know, moves away. So I think that's positive. But I would say average number of, you know,
I think that the.
While there is very little visibility of second half year I think.
William Burns: So it's really generating that demand and seeing it, we think the inventory will just follow. Yeah, okay, very clear. And you know, you're two biggest markets, e-commerce and retail versus transportation and logistics. Are you seeing any difference in, you know, the demand trends and dynamics driving those two areas, what, I guess, what is the key difference for you is one starter than the other is one, you know, more likely to come back faster than the other.
The biggest thing to remember is we're gonna cycle. You know compares that are easier than just destocking moves away.
So I think that's that's positive, but I would say average number of.
Refreshes out their average length of the devices and service and today customers sweating assets.
Speaker 10: transcript
refreshes out their average length of the devices in service and today customer sweating assets.
Speaker 8: transcript
Maybe I'll give you two data points to support that. One is in Q2, the pushouts that we had in Q1 triple.
Maybe I'll give you two data points to support that one is in.
In Q2 that the push outs that we had in Q1 tripled.
Speaker 8: transcript
and in Q3 that pushouts were about the same as they were in Q2, which was almost the same as what we had in the entire year of 2020.
William Burns: Yeah, I guess it could be parts that out. Yeah, Andrew, I would say they're tied and coupled pretty tightly together, especially when you consider, you know, e-commerce versus, you know, buy online and pick up and store or, you know, brick and mortar retail. So I'd say e-commerce and transportation logistics tied together because of really parcel delivery. And I think in that case, both had built out e-commerce providers and transportation logistics built out significant network capacity.
And in Q3 that push outs were about the same as they were in Q2, which was almost the same as what we had in the entire year of 2020.
Speaker 8: transcript
So you can see that there's a lot of demand being pushed out and those are all refreshes that should be happening now to maintain the average life of our state out there. And so the average life of our state is likely going up and at some point, and that's what we said a couple of times already, so sorry to repeat it, is that at some point they will have to buy and refresh those devices.
So you can see that there's a lot of demand being pushed out and those are all refreshes that should be happening now to maintain the average life of our estate out there and so the average life of our state is likely going up and at some point and that's what we said a couple of times already sorry to repeat it is that.
William Burns: Across, you know, everything they did their networks, their, you know, capacity around logistics and others to be able to meet the demands during COVID, which now have kind of reset to pre-COVID levels and are going to grow from there. And I think you've seen moderating demand across e-commerce overall. So I think those two are tied together. I think brick and mortar retail, you know, think of in store, I think that's really more tied to the goods economy.
At some point, they will have to buy and refresh those device.
Understood that's good color.
Bill I wanted to go back to one of your earlier comments in the opening remarks I thought I heard you mentioned a shift in go to market resources and I was hoping you could put a little more color around that and maybe just.
Speaker 6: transcript
Bill, I wanted to go back to one of your earlier comments in the opening remarks. I thought I heard you mentioned a shift in go-to-market resources. And I was hoping you could put a little more color around that and maybe just, conjointly, you talked about also accelerating growth in some of these underpinotrated markets. And I'm just curious if there's a connection there and how are those underpinotrated markets performing right now relative to some of your...
Lee.
You talked about also accelerating growth in some of these underpenetrated markets and I'm just curious if there's a connection there and how are those underpenetrated markets performing right now relative to.
William Burns: So goods versus service based economy, which is still, you know, relatively challenge. So I'd say e-commerce and transportation logistics tied hand at hand, brick and mortar retail, a little bit more goods economy focused. I wouldn't see, you know, much difference in those two, the recovery really is going to be driven by using up this excess capacity we talked about or an end, you know, a recovery from, you know, a more positive signs in from an economic perspective overall for those markets to come back.
Some of your more traditional markets.
Yeah, I would say that you know.
Speaker 10: transcript
Yeah, I would say that manufacturing is a good example of that. It's, it's, it has been less impact. It's still down significantly year on year, but less than other markets. That is an opportunity we've talked about earlier in the call. I think there's other markets. Japan is an area that we're investing additional resources as well. And, and we've won, you know, a large postal opportunity there in the largest retailer in Japan most recently. But, Lee and work.
Manufacturing is a good example of that is it's where it has been less impacted still down significantly.
Year on year, but less than other markets that isn't an opportunity we've talked about earlier in the call I think theres other markets, Japan is an area that we're investing additional resources as well and and we've won a large postal opportunity there and the largest retailer in Japan, most recently and where leverage.
William Burns: Maybe, maybe there's one area that you could see a slight additional opportunity on the retail front. And that is, of course, the one area where they don't overlap, which is the store. Retailers have been itching for some time and we have had this vision that you can significantly improve the productivity of a retail store by having all of the workers in the store connected and collaborating. And they haven't yet realized that vision.
Speaker 10: transcript
leveraging those wins and larger partners within Japan to do a more business within Japan. Governments in another area that we haven't had a lot of focus on the past, but the remains.
During those wins and larger partners with within Japan to do more business within Japan governments. Another area that we haven't had a lot of focus on in the past, but there remains <unk>.
Speaker 10: transcript
opportunities for us to grow our business within government. I think from a product perspective, we talked a bit about RFID and machine vision, you know, as fixed industrial scanning and machine vision around inspection, but also RFID around automation and digitizing and automating customers' environments.
<unk> opportunities for us to grow our business within within government I think from a product perspective, we talked a bit about RFID and machine vision.
As fixed industrial scanning and machine vision around inspection, but also RFID around automation and digitizing and automating our customers' environments tablets. Another. Good example of the area in which is closely adjacent to a mobile.
William Burns: That's been part of what's been deferred as they're going through the current phase of pausing and spending and scrutinizing their budgets. But they really do want to do that. I hear that from retailers all the time that they believe that there's a big productivity improvement to be had there in particular because some of their peers have done it and they have seen those improvements.
Speaker 10: transcript
tablets, another good example of an area in which is closely adjacent to mobile.
Joe Heel: So that part of spending is still out there and I'm convinced it will come our way and that will create an additional demand on the part of retailers with stores that transportation companies don't have.
Speaker 10: transcript
you know, computing and people want larger screen format at times and
Computing and people want larger screen formats at times.
Speaker 10: transcript
and that creates an opportunity for us. So it's both a market perspective as well as a technology perspective.
And that creates an opportunity for us so it's the both the AR market perspective as well as.
The technology perspective, and and tactically, we're reallocating resources across regions and areas to to address these we've started that.
Speaker 10: transcript
And tactically, we're reallocating resources across regions and areas to address these. We've started that already in Q3 and we'll continue to do that as we enter 2004. Some are shorter term opportunities. Others are longer term opportunities, but we think it's important that we continue to be agile not only in the cost side of things, but also in where we're deploying a resources to see and address the most attractive growth markets for us in state.
<unk> in Q3, and we will continue to do that as we enter 2000 and for summer shorter term opportunities others are longer term opportunities, but we think it's important that we continue to be agile not only in the cost side of things, but also on where we're deploying our resources to see and address the most attractive growth markets for us and stay close to our current.
William Burns: And our next question comes from Rob Mason from Beard. Rob, please go ahead. Yes, good morning all. I wanted to maybe just probe again your thoughts as we get into 24 and not to put a stake into the ground at mid-year 24, but I'm just curious as you think about normal replacement cycles, how would your average age of your install base look mid-year next year? Would it be at an average level or a below average above average?
Speaker 10: transcript
close to our current customers, but really shift resources that are places that we see recovering the faster or that we're under penetrated today. That's how we see it.
<unk>, but really shift resources that are places that we see recovering faster or that we're underpenetrated today.
That's how we see it.
We will now take a question from Brian drab from William Blair.
Speaker 1: transcript
We will now take a question from Brian Drab, from William Blair. Brian .
Ryan. Please go ahead.
Speaker 13: transcript
Okay, thanks. Most of my questions have been answered, obviously, at this point. Can you just talk about fetch and some of the other acquisitions that you made?
Okay. Thanks.
Most of my questions have been answered obviously at this point.
Can you just talk about batch and some of the other acquisitions that you made.
William Burns: I'd say that Rob, what we said is we're not guiding the 24 as we've talked about before. I would say again from a color perspective that on average I guess it would be the same. What we're seeing today is our customer sweating some of their assets longer than they normally would. They can only do that so long. Some devices get older. They want to use more applications requiring faster processor speeds, more memory.
Speaker 13: transcript
in 2021, you spent quite a bit of money in 2021 and the assets average like nine to ten times sales in terms of purchase price.
In 2021.
You spent quite a bit of money in 2021, and the assets kind of averaged like nine to 10 times sales in terms of purchase price.
William Burns: You see OS is moving forward so security and others. So there's reasons for them to upgrade those devices over time. Could they sweat them for a certain amount of time? Yes, but then eventually that kind of comes our way and they go ahead and upgrade. I would say average life cycle of demand in second half nothing changing there. We're working closely with our customers to make sure we understand their refresh cycles.
Speaker 13: transcript
Is there, can you just give an update on how, you know, Fetch and Maytrux and the other business that you've acquired recently is doing? And is there any risk of impairment as you're looking at that going into your end to your potentially?
Is there can.
Can you just give an update on how you know Sachin matrix and.
The other businesses that you've acquired recently is doing and.
Is there any risk of impairment as you're looking at that going into your ear and here potentially.
Yeah, No I think we can starting maybe with software.
Speaker 10: transcript
And no, I think we can start it maybe with software is our the largest segment in some of the acquisitions we did around Reflexus and Antuit, the Prescript of Analytics in that area. We continued to focus on the retail associate and really enabling the retail associate through a suite of products and solutions portfolio around work cloud as we've announced that our recent customer user event around software. And that seems to be resonating well with our customers, this idea that taking past management workforce management.
We are the largest segment and some of the acquisitions, we did around we're flexing into it.
Prescriptive analytics.
In that area, we continue to focus on on the retail associates and really enabling the retail associated through a.
Suite of products and our solutions portfolio around work cloud as we announced at our recent <unk>.
William Burns: I think that while there's very little visibility in second half year, I think the biggest thing to remember is we're going to cycle compares that are easier and just destocking moves away. I think that's positive, but I would say average number of refreshes out their average length of the devices in service and today customer sweating assets. Maybe I'll give you two data points to support that. One is in Q2, the pushouts that we had in Q1 tripled.
Customer user a band around software and that seems to be resonating well with our customers. This idea that taking task management workforce management communication collaboration demand planning combining that into a single application leveraging our mobile devices in the hands of the associates in retail and it plays into what Joe talked about earlier.
Speaker 10: transcript
communication collaboration, demand planning, combining that into a single application, leveraging our mobile devices in the hands of the associates in retail. And it plays into what Joe talked about earlier, this idea for a device for everyone within retail. So we see our software assets being an important part of marrying with our mobile devices within retail and the idea of putting devices in the hands of more retail associates.
This idea for a device for everyone within retail so we see our our software assets being an important part of marrying with our mobile devices within retail and the idea of putting devices in the hands of more retail associates I would say machine vision 100 plus million dollar market.
William Burns: And in Q3, the pushouts were about the same as they were in Q2, which was almost the same as what we had in the entire year of 2020. So you can see that there's a lot of demand being pushed out and those are all refreshes that should be happening now to maintain the average life of our state out there. And so the average life of our state is likely going up. And at some point, and that's what we said a couple of times already. So sorry to repeat it is that at some point they will have to buy and refresh those devices.
Speaker 10: transcript
You know, machine vision, you know, 100 plus, you know, million dollar market to us attractive.
Us attractive.
Speaker 10: transcript
You know, fragment and market overall, the focus there is manufacturing. We've talked about that earlier in the call.
Fragmented market overall the focus there is manufacturing we've talked about that earlier in the call, but also logistics and the idea of fixed industrial scanning. They continue to both look to ways to automate to drive productivity to improve quality across.
Speaker 10: transcript
but also logistics and the idea of fixed industrial scanning.
Speaker 10: transcript
You know, they continue to both look to ways to automate to drive productivity, to improve quality across.
Speaker 10: transcript
their organizations. I think the challenge, the machine vision, and the short term is the same as others are seeing. Certainly, cyclical weakness in semiconductors, where when we acquired the asset and machine vision, we knew Maytrox was heavily weighted towards.
Their organizations I think the challenge to machine vision to the short term is the same as others are seeing certainly cyclical weakness in semiconductors, where when we acquired the asset in machine vision, we knew matrix was heavily weighted towards semiconductor and our objective there is to not only scale that business, but to diversify the offer.
Rob Mason: Understood, that's good color. Bill, I wanted to go back to one of your earlier comments in the opening remarks. I thought I heard you mentioned a shift in go-to-market resources. And I was hoping you could put a little more color around that. And maybe just conjointly, you talked about also accelerating growth in some of these under penetrated markets. And I'm just curious if there's a connection there and how are those under penetrated markets performing right now relative to some of your more traditional markets.
Speaker 10: transcript
semiconductor and our objective there is to not only scale that business, but to diversify the offerings outside of semiconductor into new attractive markets. They could include automotive food and beverage.
<unk> outside of semiconductor into new attractive markets. They could include automotive food and beverage.
Speaker 10: transcript
you know, inside fixed industrial scanning warehouse and distribution. So all those are reprise and opportunities for us and we're excited about that market and our focus there is really diverse.
<unk> <unk>.
Inside fixed industrial scanning warehouse and distribution. So all of those are represent opportunities for us and we're excited about that market and our focus there is really diversification diversification.
Speaker 10: transcript
diversification, you know, scale and driving share gains across machine vision.
Scale and driving share gains across machine vision.
Speaker 10: transcript
I would say fetch and the robotics automation or warehouse automation perspective. It's the smallest still nascent in that area. I would say we're focused in two areas predominantly. First is goods transport. And again, we talked about that playing in line side replenishment for instance, inside manufacturing, but also just goods transport in general, thinking of moving goods from A to B of varying sizes. That's an attractive market for us.
Rob Mason: I would say that manufacturing is a good example of that. It has been less impact. It's still down significantly year on year, but less than other markets. That is an opportunity we've talked about earlier in the call. I think there's other markets. Japan is an area that we're investing additional resources as well. And we've won a large postal opportunity there in the largest retailer in Japan most recently. And we're leveraging those wins and larger partners within Japan to do a more business within Japan.
I would say fashion and from our robotics automation or warehouse automation perspective, it's the smallest still nascent in that area I would say we're focused in two areas predominantly first as goods transported and again, we talked about that playing in line side replenishment for instance inside manufacturing.
But also just goods transport in general think of moving goods from a to b of varying sizes, that's an attractive market for us. The other market is E. Commerce. So think of e-commerce picking co bots and humans are working together within an environment, where our devices today are being used by those workers to pick orders and adding additional productivity.
Speaker 10: transcript
The other market is e-commerce. So think of e-commerce picking, co-bots and humans working together within an environment where our devices today are being used by those workers to pick orders and adding additional productivity using automation and robotics is an interesting opportunity for us longer term. So it's the smallest of the segments.
Rob Mason: Government is another area that we haven't had a lot of focus on the past, but there remains opportunities for us to grow our business within government. I think from a product perspective, we talked a bit about RFID and machine vision as fixed industrial scanning and machine vision around inspection, but also RFID around automation and digitizing and automating customers' environments. Tablets, another good example of an area in which is closely adjacent to mobile computing and people want larger screen formats at times.
<unk> using automation and robotics is an interesting opportunity for us longer term. So it is the smallest of the segments. We don't see any impairment opportunities there are issues or concerns we really find these three as attractive long term growth opportunities for zebra overall and and summer.
Speaker 10: transcript
We don't see any impairment, you know, opportunities there are issues or concerns. We really find these three is attractive long-term growth opportunities for, you know, zebra overall. And, you know, summer challenge and short-term, as I said, machine vision is a good example of that with semi-conductors. But with the long-term prospects of the machine vision and fixed industrial scanning market, remain very attractive.
In the short term as I said machine vision is a good example of that with semiconductors, but with the long term prospects of the machine vision and fixed industrial scanning market remained very attractive to us.
Rob Mason: And that creates an opportunity for us. So it's about a market perspective as well as a technology perspective. And tactically we're reallocating resources across regions and areas to address these. We've started that already in Q3 and we'll continue to do that as we enter 2004. Some are shorter term opportunities. Others are longer term opportunities, but we think it's important that we continue to be agile, not only in the cost side of things, but also in where we're deploying our resources to see and address the most attractive growth markets for us and stay close to our current customers, but really shift resources to places that we see recovering the faster or that we're under penetrated today. That's how we see it.
Speaker 1: transcript
Can Newman from Keybank Capital Markets have a question? Can please go...
Ken Newman from Keybanc capital markets has a question.
Ken Please go ahead.
I'm sorry.
Let's go to Jim Ritchie.
Let's go to Jim Rijudhi from Needham and Company.
Judy from Needham and company.
Jim go ahead.
Screening on for Jim.
Speaker 8: transcript
I'm just going to be on for for Jim. Most of the questions I had have been addressed, but maybe just one for me. For the incremental 15 million of savings, is that in any one particular area or just a broad deepening across the existing targeted areas? Thank you.
Most of the questions I had have been addressed but maybe just one for me.
For the incremental $15 million of savings.
William Burns: We will now take a question from Brian Drab, from William Blair. Brian, please go ahead. Okay, thanks. Most of my questions have been answered, obviously at this point. Can you just talk about fetch and some of the other acquisitions that you made in 2021? You spent quite a bit of money in 2021 and the assets average like nine to ten times sales in terms of purchase price. Is there, can you just give an update on how fetch and matrix and the other business that you've acquired recently is doing?
Is that in any one particular area or or just abroad deepening across the existing targeted areas. Thank you.
Speaker 4: transcript
Not in one particular area, just broad-based as we've worked through the plans throughout the third quarter and the fourth and scrutinized where we had to backfill certain roles with the retirement plans as well as just any open roles that have come along, just again, scrutinizing that spend is really what drove it. So again, I would say fairly broad-based and in line with the actions that we're driving for the company.
No not in one particular area just broad base as we've worked through the plans throughout the third quarter and the fourth and scrutinized.
Where we had to backfill certain roles with the retirement plans as well as just any any open roles.
That have come along just against scrutinizing that spend is really what drove it. So again I would say fairly broad based and in line with the actions that we're driving for the company.
William Burns: And is there any risk of impairment as you're looking at that going into your end here potentially? Yeah, no, I think we can start them in with software is our the largest segment in some of the acquisitions we did around reflexes and into it. Prescript of analytics in that area, we continued to focus on the retail associate and really enabling the retail associate through a suite of products and solutions portfolio around work cloud as we announced that our recent customer user event around software and that seems to be resonating well with our customers.
Yeah.
Speaker 1: transcript
And this concludes our question and answer session. I would like to turn the conference back over to Mr. Burns for any closing remarks.
And this concludes our question and answer session I would like to turn the conference back over to Mr. Burns for any closing remarks. Please go ahead.
Yeah.
Speaker 10: transcript
Thank you. I'd like to thank our customers, partners, and employees for their support and dedication to our long-term success. Have a good day, everybody. Thank you.
Thank you I'd like to thank our customers partners and employees for their support and dedication to our long term success have a good day everybody. Thank you.
Yes.
William Burns: This idea that taking past management, workforce management, communication collaboration, demand planning, combining that into a single application, leveraging our mobile devices and the hands of the associates in retail and it plays into what Joe talked about earlier, this idea for a device for everyone within retail. So we see our software assets being an important part of marrying with our mobile devices within retail and the idea of putting devices in the hands of more retail associates.
Goodbye.
Okay.
William Burns: I would say, you know, machine vision, you know, a hundred plus, you know, a million dollar market to us, attractive, you know, fragmented market overall. The focus there is manufacturing, we've talked about that earlier in the call, but also logistics and the idea of fixed industrial scanning, you know, they continue to both look to ways to automate to drive productivity, to improve quality across their organizations. I think the challenge to machine vision in the short term is the same as others are seeing.
William Burns: Certainly, cyclical weakness in semiconductors where when we acquired the asset and machine vision, we knew matrix was heavily weighted towards semiconductor and our objective there is to not only scale that business, but to diversify the offerings outside of semiconductor into new attractive markets, they could include automotive food and beverage, you know, inside fixed industrial scanning, warehouse and distribution. So all those are represent opportunities for us and we're excited about that market and our focus there is really diversification, you know, scale and, you know, driving share gains across machine vision.
William Burns: I would say fetching and the robotics automation or warehouse automation perspective, it's the smallest still nascent in that area. I would say we're focused in two areas predominantly. First is goods transport and again, we talked about that playing in line side replenishment, for instance, inside manufacturing, but also just goods transport in general, thinking of moving goods from A to B of varying sizes. That's an attractive market for us. The other market is e-commerce.
William Burns: So think of e-commerce picking, co-bots and humans working together within an environment where our devices today are being used by those workers to pick orders and adding additional productivity using automation and robotics is an interesting opportunity for us longer term. So it's the smallest of the segments. We don't see any impairment, you know, opportunities there are issues or concerns. We really find these three as attractive long-term growth opportunities for, you know, zebra overall. And, you know, summer challenge and short-term, as I said, machine vision is a good example of that with semiconductors, but with the long-term prospects of the machine vision and fixed industrial scanning market, remain very attractive.
Ken Newman: Can Newman from Keybank Capital Markets have a question? Can, please go ahead I'm sorry.
James Ricchiuti: Let's go to Jim Ricciuti from Needham and Company. Jim, go ahead. Scrying on for Jim, most of the questions I had have been addressed, but maybe just one for me.
Nathan Winters: For the incremental 15 million of savings, is that in any one particular area or just a broad deepening across the existing targeted areas. Thank you. Not in one particular area, just broad based as we've worked through the plans throughout the third quarter and the fourth and scrutinized where we had to backfill certain roles with the retirement plans as well as just any open roles that have come along, just again scrutinizing that spend is really what drove it. So again, I would say fairly broad based and in line with the actions that we're driving for the company.
Operator: And this concludes our question and answer session.
William Burns: I would like to turn the conference back over to Mr. Burns for any closing remarks. Please go ahead. Thank you.
Operator: I'd like to thank our customers, partners and employees for their support and dedication to our long-term success. Have a good day everybody. Thank you.
Operator: Good bye.