Q1 2024 Zebra Technologies Corp Earnings Call

Operator: Good day, and welcome to the first quarter 2024 Zebra Technologies earnings conference call. All participants will be in the listen-only mode. Should you need assistance, please signal a conference specialist by pressing the star key followed by zero. After today's presentation, there will be an opportunity to ask questions. Please note, this event is being recorded. I would now like to turn the conference over to Mike Steele, Vice President, Investor Relations.

Good day and welcome to the first quarter 'twenty 'twenty four Zebra technologies earnings Conference call.

All participants will be in the listen only mode.

Should you need assistance please.

Signal a conference specialist by pressing the star key followed by zero.

After todays presentation, there will be an opportunity to ask questions.

Please note this event is being recorded.

I would now like to turn the conference over to Mike Steele, Vice President Investor Relations.

Michael A. Steele: Good morning and welcome to Zebra's first quarter earnings conference call. This presentation is being simulcast on our website at investors.zebra.com and will be archived there for at least one year. Our forward-looking statements are based on current expectations and assumptions and are subject to risks and uncertainty. Actual results could differ materially, and we refer you to the factors discussed in our SEC filing.

Michael A. Steele: Please go ahead.

Michael A. Steele: Good morning, and welcome to Zebras first quarter earnings 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.

Michael A. Steele: 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.

Michael A. Steele: During this call, we will reference non-GAAP financial measures as we describe our business performance. You can find reconciliations at the end of this slide presentation and in today's earnings press release. Throughout this presentation, unless otherwise indicated, our references to sales performance are year-over-year and on a constant currency basis.

Michael A. Steele: During this call we will reference non-GAAP financial measures as we describe our business performance you can find reconciliations at the end of this slide presentation and in today's earnings press release.

Michael A. Steele: Throughout this presentation, unless otherwise indicated our references to sales performance our year over year and on a constant currency basis.

Michael A. Steele: This presentation will include prepared remarks from Bill Burns, our Chief Executive Officer, and Nathan Winters, our Chief Financial Officer. Bill, we'll begin with a discussion of our first quarter results and strategic actions. Nathan will then provide additional detail on the financials and discuss our second quarter and full year out. Bill will conclude with progress on advancing our vision. Following the prepared remarks, Bill and Nathan will take your questions. Now, let's turn to slide four as I hand it over to Bill.

Michael A. Steele: This presentation will include prepared remarks from Bill Burns, our Chief Executive Officer, and Nathan Winters, Our Chief Financial Officer.

William J. Burns: Bill will begin with a discussion of our first quarter results and strategic actions.

Nathan will then provide additional detail on the financials and discuss our second quarter and full year outlook.

William J. Burns: Bill will conclude with progress on advancing our vision.

Speaker Change: Following the prepared remarks, Bill and Nathan will take your questions.

Speaker Change: Now, let's turn to slide four as I hand, it over to Bill.

Yeah.

William J. Burns: Thank you, Mike. Good morning, and thank you for joining us.

William J. Burns: Thank you Mike.

William J. Burns: Morning, and thank you for joining us.

William J. Burns: As expected, our first quarter performance was impacted by continued broad-based softness across our end markets and regions, which we began to experience in the second quarter of last year, resulting in a double-digit decline in sales and profitability. However, we are beginning to see a modest recovery in demand as we saw sequential improvement from the fourth quarter. We are particularly encouraged by the better-than-expected large order activity, which drove the upside for the quarter. That said, we are not yet seeing a broad-based recovery, and as a result, we continue to take an agile approach to navigating the current environment.

William J. Burns: As expected our first quarter performance was impacted by continued broad based softness across our end markets and regions, which we began to experience in the second quarter of last year.

William J. Burns: <unk> and a double digit decline in sales and profitability.

William J. Burns: However, we are beginning to see a modest recovery in demand as we saw sequential improvement from the fourth quarter.

William J. Burns: We were particularly encouraged by the better than expected large order activity, which drove the upside for the quarter.

William J. Burns: That said, we are not yet seeing a broad based recovery and as a result, we continue to take an agile approach to navigating the current environment.

William J. Burns: We also delivered another quarter of sequential improvement in profitability as a result of our restructuring actions and improved gross margins. Services and software were a bright spot in the quarter with improved sales and profitability, helping to offset the year-on-year sales declines across all product categories. For the quarter, we realized sales of $1.2 billion, a 16.8% decline from the prior year, and an adjusted EBITDA margin of 19.9%, a 150 basis point decrease, and non-GAAP diluted earnings per share of $2.84, a 28% decrease from the prior year.

William J. Burns: We also delivered another quarter of sequential improvement in profitability as a result of our restructuring actions and improved gross margin.

William J. Burns: Services and software were a bright spot in the quarter with improved sales and profitability, helping to offset the year on year sales declines across all product categories.

William J. Burns: For the quarter, we realized sales of $1 $2 billion of 16, 8% decline from the prior year.

William J. Burns: Adjusted EBITDA margin of 19, 9%, a 150 basis point decrease in non-GAAP diluted earnings per share of $2.84 at 28% decrease from the prior year.

William J. Burns: We are pleased with the progress we have made on our previously announced actions to improve profitability and drive sales growth as our end markets recover. Our restructuring plans to deliver $120 million of net annualized operating savings are on track to be completed mid-year. On the supply front, we made substantial improvements in our working capital, driven by our renegotiation of long-term supply commitments and ongoing work to draw down component inventories with our contract manufacturers.

William J. Burns: We are pleased with the progress we have made on our previously announced actions to improve profitability and drive sales growth as our end markets recover.

William J. Burns: Restructuring plans to deliver $120 million of net annualized operating savings is on track to be completed mid year.

William J. Burns: On the supply front.

William J. Burns: Made substantial improvement in our working capital driven by our renegotiation of long term supply commitments and ongoing work to draw down component inventories with our contract manufacturers.

William J. Burns: We have also driven both tactical and strategic sales initiatives, including the reallocation of resources to accelerate growth. Given the progress of our actions, we are raising our full-year outlook for sales, margin, and free cash flow. I will now turn the call over to Nathan to review our Q1 financial results and discuss our revised 2024 outlook.

William J. Burns: We have also driven both tactical and strategic sales initiatives, including real reallocation of resources to accelerate growth.

William J. Burns: Given the progress on our actions we are raising our full year outlook for sales margin and free cash flow.

I will now turn the call over to Nathan to review, our Q1 financial results and discuss our revised 2020 for outlook.

Nathan Andrew Winters: Thank you, Bill. Let's start with the P&L on slides. In Q1, sales decreased 16.8%, with declines across our regions, major product categories, and customers of all sizes. Services and software were a bright spot in the quarter, with growth driven by increased units under support contracts and retail software wins. Our asset intelligence and tracking segment declined 25.3%, primarily driven by print. Enterprise Visibility and Mobility Segment sales declined 11.8%, with relative outperformance in mobile computing. Our Asia-Pacific region saw the steepest sales declines, led by continued weakness in China.

Nathan Andrew Winters: Thank you Bill, let's start with the P&L on slide six.

Nathan Andrew Winters: In Q1 sales decreased 16, 8% with declines across our regions major product categories and customers of all sizes.

Nathan Andrew Winters: Services and software were a bright spot in the quarter with growth driven by increased units under support contract and retail software wins.

Nathan Andrew Winters: Our asset intelligence and tracking segment declined 25, 3%, primarily driven by printing.

Nathan Andrew Winters: Enterprise visibility <unk> mobility segment sales declined 11, 8% with relative outperformance in mobile computing.

Nathan Andrew Winters: Our Asia Pacific region saw the steepest sales declines led by continued weakness in China.

Nathan Andrew Winters: From a sequential perspective, total Q1 sales were 16% higher than Q4 as distributors had completed their destocking process by year end, and we realized a modest improvement in demand. Adjusted gross margin increased 60 basis points to 48.1%, supported by higher services and software margin and cycling premium supply chain costs in the prior year, all of which were partially offset by expense deleveraging from lower sales volumes. Adjusted operating expenses delivered 230 basis points as a percent of sales. The impact was mitigated by approximately $25 million of incremental net savings in the quarter from our restructuring action.

From a sequential perspective.

Nathan Andrew Winters: Q1 sales were 16% higher than Q4 as distributors had completed their destocking process by year end and we realized modest improvement in demand.

Nathan Andrew Winters: Adjusted gross margin increased 60 basis points to 48, 1% supported by higher services and software margin and cycling premium supply chain costs in the prior year.

Nathan Andrew Winters: All of which were partially offset by expense deleveraging from lower sales volumes.

Nathan Andrew Winters: Adjusted operating expenses, Deleveraged 230 basis points as a percent of sales.

Nathan Andrew Winters: The impact was mitigated by approximately $25 million of incremental net savings in the quarter from our restructuring actions.

Nathan Andrew Winters: This resulted in a first quarter adjusted EBITDA margin of 19.9%, a 150 basis point decrease versus the prior year and a 450 basis point sequential improvement from Q4. Non-GAAP diluted earnings per share was $2.84, a 28% year-over-year decrease. Interest expense contributed to the decline, offset by a lower adjusted tax rate.

Nathan Andrew Winters: This resulted in first quarter adjusted EBITDA margin of 19, 9%.

Nathan Andrew Winters: And 150 basis point decrease versus the prior year and a 450 basis point sequential improvement from Q4.

non-GAAP diluted earnings per share was $2 84.

Nathan Andrew Winters: 28% year over year decrease.

Interest expense contributed to the decline offset by a lower adjusted tax rate.

Nathan Andrew Winters: Turning now to the balance sheet and cash flow on slide seven, we generate $111 million of free cash flow as we begin to realize benefits from reducing inventory levels. We ended the quarter at a 2.6x net debt to adjusted EBITDA leverage ratio, which is slightly above the top end of our target range. And we had approximately $1.3 billion of capacity on a revolving credit facility as of quarter end, providing ample flexibility. Let's now turn to our album.

Nathan Andrew Winters: Turning now to the balance sheet and cash flow on slide seven.

Nathan Andrew Winters: We generated $111 million of free cash flow as we begin to realize benefits from reducing inventory levels.

Nathan Andrew Winters: We ended the quarter at a 2.6 times net debt to adjusted EBITDA leverage ratio, which is slightly above the top end of our target range.

Nathan Andrew Winters: And we had approximately $1 $3 billion of capacity on our revolving credit facility as of quarter end, providing ample flexibility.

Speaker Change: Let's now turn to our outlook.

Nathan Andrew Winters: For Q2, we expect sales to decrease between 1 and 5% compared to the prior year. We enter the second quarter with a solid backlog and pipeline of opportunities, particularly for mobile computing in retail and e-commerce. This outlook assumes a modest improvement in demand trends across our major product categories, with Mobile Computing and the EVM segment returning to growth as we cycle Easier Compared. We anticipate Q2 adjusted EBITDA margin to be slightly above 19%, driven by expense deleveraging from lower sales volume with the benefit from restructuring actions and lower premium supply chain costs offset by normalized incentive compensation.

Speaker Change: For Q2, we expect sales to decrease between one and 5% compared to the prior year.

Speaker Change: We ended the second quarter with a solid backlog and pipeline of opportunities.

Speaker Change: Particularly for mobile computing in retail and e-commerce.

Speaker Change: This outlook assumes a modest improvement in demand trends across our major product categories.

Speaker Change: With mobile computing and the <unk> segment, returning to growth as we cycle easier compares.

Speaker Change: We anticipate Q2, adjusted EBITDA margin to be slightly above 19% drew.

Speaker Change: Driven by expense deleveraging from lower sales volume.

Speaker Change: With the benefit from restructuring actions and lower premium supply chain costs offset by normalized incentive compensation expense.

Nathan Andrew Winters: Non-GAAP diluted earnings per share are expected to be in the range of $2.60 to $2.90. We have raised our guidance for the full year, reflecting our progress on actions to drive sales and profitability as our end markets stabilized. Although there is optimism from partners and customers regarding recovery in the second half of the year, we would like to see additional momentum and large orders before factoring in a broader recovery. We now expect sales growth between 1% and 5% for the year, with adjusted EBITDA margin now expected to be approximately 20%, and non-GAAP diluted earnings per share are expected to be in the range of $11.25 to $12.25.

non-GAAP diluted earnings per share are expected to be in the range of $2 62.

To $2 90.

Speaker Change: We have raised our guide for the full year, reflecting our progress on actions to drive sales and profitability as our end markets have stabilized.

Speaker Change: Although there is optimism from partners and customers regarding recovery in the second half of the year, we would like to see additional momentum in large orders before factoring in a broader recovery.

We now expect sales growth between 1% and 5% for the year with adjusted EBITDA margin now expected to be approximately 20%.

non-GAAP diluted earnings per share are expected to be in the range of $11 25 to.

Speaker Change: To $12 25.

Nathan Andrew Winters: And we now expect our free cash flow for the year to be at least $600 million, including the impact of our final $45 million settlement payment in the quarter. We have been making progress right-sizing inventory on our balance sheet and improving cash conversion, and we have been prioritizing debt paydown in the near term. Please refer to additional modeling assumptions shown on slide 8. With that, I will turn the call back to Bill.

Speaker Change: And we now expect our free cash flow for the year to be at least $600 million, including the impact of our final $45 million settlement payment in the quarter.

Speaker Change: We have been making progress right sizing inventory on our balance sheet and improving cash conversion and.

Speaker Change: It had been prioritizing debt paydown in the near term.

Speaker Change: Please reference additional modeling assumptions shown on slide eight.

Speaker Change: With that I will turn the call back to Bill.

William J. Burns: Thank you Nathan.

William J. Burns: As we look longer term, we continue to be well positioned to benefit from secular trends to digitize and automate workflows for our customers, and we remain focused on elevating Zebra as a premier solutions provider through a comprehensive portfolio of innovative solutions and our go-to-market ecosystem. Zebra empowers workers to execute tasks more effectively by navigating constant change in real time through advanced capabilities including intelligent automation, machine learning, prescriptive analytics, and artificial intelligence. As you see on slide 11, our customers leverage our solutions to optimize workloads across a broad range of end markets.

William J. Burns: As we look longer term, we continue to be well positioned to benefit from secular trends to digitize and automate workflows for our customers.

William J. Burns: We remain focused on elevating zebra as a premier solutions provider through a comprehensive portfolio of innovative solutions and our go to market ecosystem.

William J. Burns: Zebra empowers workers to execute task more effectively by navigating constant change in real time through advanced capabilities, including intelligent automation machine learning prescriptive analytics and artificial intelligence.

William J. Burns: As Youll see on slide 11, our customers leverage our solutions to optimize workflows across a broad range of end markets.

William J. Burns: We empower enterprises to increase collaboration and productivity and better serve their customers, shoppers, and patients. In March, at the Modex Manufacturing and Supply Chain Trade Show, Zebra, along with our partners, will showcase our expanded portfolio of solutions that are modernizing workflows across the broader supply chain. Managing operations has become complex with increased consumer expectations for inventory visibility and same-day delivery. The event provided an opportunity to demonstrate how we improve key outcomes such as production quality, supply chain agility, and capacity utilization.

William J. Burns: We empower enterprises to increase collaboration and productivity and better serve their customers shoppers and patients.

William J. Burns: In March at the modem manufacturing and supply chain Tradeshow zebra, along with our partners showcase of our expanded portfolio of solutions that.

William J. Burns: Modernizing workflows across the broader supply chain.

William J. Burns: Managing operations has become complex with increased consumer expectations for inventory visibility and same day deliveries.

William J. Burns: The event provided an opportunity to demonstrate how we improved key outcomes such as production quality supply chain agility and capacity utilization.

William J. Burns: Machine vision was one of the many solutions we featured where we have enhanced our capabilities to address emerging use cases. We continue to build our market presence with a few notable wins. A large state-owned European logistics company recently invested in thousands of Zebra machine vision cameras to enhance the speed and efficiency of inspections of government bonds and transaction documents. Additionally, an Asian manufacturer incorporated our machine vision cameras and frame grabbers into their product sorting and quality control process; this solution is significantly faster and more accurate than the previous manual approach.

William J. Burns: Machine vision was one of the many solutions, we feature where we have enhanced our capabilities to address emerging use cases, we.

William J. Burns: We continue to build our market presence with a few notable wins.

William J. Burns: The large state on European Logistics company recently invested in thousands of Zebra and machine vision cameras to enhance the speed and efficiency of inspections of government bonds and transaction documents.

William J. Burns: Additionally, in Asia manufacturer and corporate our machine vision cameras and frame grabbers into their product sorting and quality control processes.

William J. Burns: This solution is significantly faster and more accurate than the previous manual approach.

William J. Burns: At HIMSS, the leading global healthcare conference, Zebra and our partners demonstrated how our solutions improve the patient journey from check-in to bedside point of care, as well as medical equipment track and trace. Additionally, the University of Maryland Health System shared how they are utilizing our clinical communications platform, which includes our mobile computers and WorkCloud software. I would also like to call out a win with the North American Hospital Network, which recently implemented thousands of zebra printers, specifically enhancing its specimen tracking and labeling process. These printers integrate with the electronic health record system, facilitating noticeable organizational improvements across departments. Zebra's reputation for ease of use helps secure this win.

William J. Burns: At HIMSS, the leading global Health care Conference Zebra and our partners demonstrated how our solutions improve the patient journey from check in to bedside point of care as well as medical equipment track and trace.

William J. Burns: Additionally, the University of Maryland Health system shared how they are utilizing our clinical communications platform, which includes our mobile computers and work cloud software.

We'd also like to call out a win with a North American Hospital network, who recently implemented thousands of zebra printers, specifically enhancing its specimen tracking and labeling processes.

William J. Burns: These printers integrate with electronic health record system, facilitating noticeable organizational improvements across departments.

<unk> reputation for ease of use helped secured this win.

William J. Burns: Recent wins in retail demonstrate how customers are driving productivity, improving asset visibility, and enhancing the experience for associates and shoppers. For example, the European retailer selected thousands of Zebra mobile computers to replace their legacy devices from a competitor. The customer plans to pair our new mobile computers with their Zebra mobile printers to improve their price markdown, labeling, and online order picking process. The North American based retail department store chain enhanced thousands of Zebra mobile computers by incorporating our device tracking software. Prior to deployment of this software, the retailer experienced issues with misplaced devices in stores and fulfillment centers, resulting in wasted time and resources.

William J. Burns: Recent wins in retail demonstrate our customers are driving productivity improving asset visibility enhancing the experience for associates and shoppers.

William J. Burns: The European retailer selected thousands of zebra mobile computers to replace their legacy devices from a competitor.

William J. Burns: The customer plans to pare, our new mobile computers with their zebra mobile printers to improve their price markdown labeling and online order picking processes.

William J. Burns: The North American based retail department store chain enhanced thousands of zebra mobile computers by incorporating our device tracking software.

William J. Burns: Prior to deployment of the software the retailer experienced issues with misplaced devices in stores and fulfillment centers, resulting in waste of time and resources.

William J. Burns: Additionally, a North American grocer has expanded their installed base of Zebra mobile computers with thousands of additional units and implemented our WorkCloud software. The solution is expected to enhance operational efficiency among associates, improve employee communication, and streamline inventory management within their stores. On slide 12, we highlight secular trends that we expect to support long-term growth for Zebra as we drive value for our customers. These include labor and resource constraints, real-time supply chain visibility, track and trace mandates, and increased consumer expectations.

William J. Burns: Additionally, our north American grocer as expanded their installed base of zebra mobile computers with thousands of additional units and implemented our work cloud software.

William J. Burns: The solution is expected to enhance operational efficiency among associates improve employee communication and streamline inventory management within their stores.

William J. Burns: On slide 12, we highlight secular trends that we expect to support long term growth for zebra as we drive value for our customers.

William J. Burns: These include labor and resource constraints real time supply chain visibility track and trace mandates and increased consumer expectations.

William J. Burns: We're hosting an innovation day on May 14th at our headquarters near Chicago, where Nathan and I will be joined by other members of our leadership team to discuss how we digitize and automate workflows to drive positive business outcomes for customers across our end market. In closing, as we look forward to a long-term opportunity for Zebra, our conviction in the business remains strong. We continue to elevate our strategic role with our customers through our innovative portfolio solutions, while our cost and go-to-market actions are positioning us well for profitable growth as our end markets recover. Thanks, Bill. We'll now open the call.

William J. Burns: We are hosting an innovation day on May 14th at our headquarters near Chicago, where Nathan and I will be joined by other members of our leadership team to discuss how we digitize and automate workflows to drive positive business outcomes for customers across our end markets.

William J. Burns: In closing as we look forward to a long term opportunity for zebra our conviction in the business remains strong we continue to elevate our strategic role with our customers through our innovative portfolio of solutions, while our cost and go to market actions are positioning us well for profitable growth as our end markets recover.

William J. Burns: I will now hand, it back to Mike.

Michael A. Steele: 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.

Michael A. Steele: 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.

Speaker Change: Thank you.

Operator: We will now begin the question and answer session. To ask a question, you may press star and one on your touchtone telephone. If you are using a speakerphone, please pick up the handset before pressing the keys. To withdraw your question, please press star then 2. At this time, we will pause momentarily to assemble our roster. The first question comes from the line of Jamie Cook with Truist Securities. Please go ahead. Hi, good morning.

We will now begin the question and answer session.

Speaker Change: To ask a question you May Press Star then one on your Touchtone telephone.

Speaker Change: If you are using a speakerphone, please pick up the handset before pressing the keys.

Speaker Change: To withdraw your question. Please press Star then two.

Speaker Change: At this time, we would pause momentarily to assemble our roster.

Speaker Change: Okay.

Speaker Change: The first question comes from the line of Jamie Cook with <unk> six.

Jamie Cook: Securities. Please go ahead.

Jamie Cook: Hi, good morning. Nice quarter. I guess, first question: can you just call out how much freight helped the first quarter, lower freight costs, and then what's implied in the guide relative to how you guided last quarter? And then, I guess, just my second question: the gross margins in the quarter struck me, in particular the EVM margins, which were up year over year. And so I'm just wondering if you could help us understand what drove the gross margin improvement on the sales decline there. Thank you.

Jamie Cook: Hi, good morning, a nice quarter I guess first question can.

Jamie Cook: Can you just call out how much freight helps that first quarter I lower freight costs and then what's implied in the guide relative to how you guided last quarter and then I guess just my second question.

Jamie Cook: Is that the gross margins in the quarter struck me in particular are the the the.

Jamie Cook: The I'm, sorry, the ETS margins, which were up year over year and so I'm just wondering if you could help us understand.

Jamie Cook: What drove the gross margin improvement on the sales decline there. Thank you.

Nathan Andrew Winters: Yeah, so Jamie, I'll take that. Good morning.

Speaker Change: Yes, so Jamie I'll take that good morning, So if you look for the.

Nathan Andrew Winters: So if you look for the freight, in Q1, it was about a one-point year-on-year improvement, just given cycling through, now that we've fully neutralized the premium supply chain costs between the operational actions and the price increases. So, year-on-year, that was about a point of benefit in the quarter. Yeah, and I'd say the other drivers for the relative strength in Q1 were both from, you know, the slightly higher volume as well as some favorable mix, along with the service and software profitability and the strength we saw there, which is primarily in EVM, which is, I think, driving the benefit both sequentially as well as relative to our guide in the course.

Speaker Change: Particularly to freight.

Speaker Change: In Q1, it was about drill about one point.

Speaker Change: Year on year improvement just given cycling through now that we've fully neutralize the the premium supply chain costs.

Speaker Change: The operational actions and the price increases so year on year that was about a point of benefit in the quarter.

Speaker Change: And I'd say that the the other drivers for the the relative strength in Q1 was both from.

Speaker Change: Slightly higher volume as well as some favorable mix.

Speaker Change: Along with the service and software profitability.

Speaker Change: The strength, we saw there which is primarily an E V M, which is I think driving the the benefit both sequentially as well as relative to our guide in the quarter.

Nathan Andrew Winters: And then just to follow up, sorry, the larger order activity that you talked about in the quarter, which obviously isn't in the guide and I guess would reflect some conservatism in the guide, if that continues. I mean, what's preventing you from putting that in the guide? And if that continues, you know, how would we think about the sales guidance relative to your, you know, sales growth of 1 to 5%, you know, FFXFX? And sorry, then I'll get back in queue. Yeah, I think you're great.

Speaker Change: And then just a follow up sorry, the larger order activity that you you talked about in the quarter, which obviously isn't in the guide and I guess, what it reflects some conservatism in the guide if that continues.

I mean, what's preventing you from putting that in that in the guide and if that continues and you know how how would we think about that the sales guidance relative to your sales growth of 1% to 5%.

Speaker Change: Ex FX and sorry, then I'll get back in queue.

Nathan Andrew Winters: Yeah, I think, you know, as we stated, we've seen some improvement in demand, particularly in mobile computing and retail, which drove the beat in Q1, as well as what we're expecting to see come through for the remainder of the year, driving the race for the full year, from 1 to 3%. And so, you know, the way we think about the full year is that we'd expect Q3 to look very similar to Q2, which looks, you know, similar to Q1, just in terms of run rate and trajectory, which maintains that relative strength in some of the large orders we've seen come through in the first quarter.

Speaker Change: Yeah, I think as we as we stated we've seen some improvement demand, particularly in mobile computing and retail which drove the beat in Q1 as well as what we're expecting to see come through for the remainder of the year driving the raise for the full year.

Speaker Change: From 1% to 3% and so you know the way we think about the full year was we'd expect Q3 to look very similar to Q2, which looks similar to Q1, just in terms of run rate and trajectory, which as I've maintained that relative strength in some of the large orders we have seen come through in the first quarter, but I would separate that from what we have yet to see.

Damian Karas: But I would separate that from, you know, what we have yet to see. I'd say we're still waiting to look at the larger mega-deals, mega-deployments. That's still not coming through. The deal sizes are still in that 1 to 5 million range, some of the initial phases of deployment. So that's what you see carried through for the remainder of the year and reflected in the guide, but not that uptick in terms of the larger deployment.

Speaker Change: I'd say were still kind of.

Waiting to look at is the larger Mega deals Mega deployments, that's still not coming through the deal sizes are still in that it's a $1 million to $5 million range.

Speaker Change: Some of the initial phase of the deployment. So that's what you see carry through for the remainder of the year and reflected in the guide, but not that uptick in terms of the larger deployments.

Speaker Change: Thank you.

William J. Burns: The next question comes from Damian Karas with UBS. Please go ahead.

Speaker Change: Next question comes from Damian Karas.

Damian Karas: UBS. Please go ahead.

Damian Karas: Hi, good morning, everyone. It's nice to see the improvement. Morning, morning. I was wondering if you could maybe elaborate a little bit on the large order activity you spoke of. Could you give us a sense, right, is this sort of one or two customers that are placing rather large orders, or are you kind of seeing, you know, just your larger customer base in general start to bring back a larger quantity of project activity? If you could just maybe elaborate and provide any detail, like which end markets and regions you're seeing some of these larger orders from, as well?

Damian Karas: Hi, good morning, everyone nice to see the improvement.

Damian Karas: Good morning, good morning, all.

Damian Karas: I was wondering if you could maybe elaborate a little bit on the large order activity, which is though.

Damian Karas: Could you give us a sense right is this sort of one or two customers that are placing rather large orders or are.

Damian Karas: And you kind of thing.

Damian Karas: Your larger customer base in general start to bring back a larger quantity of project activity.

Damian Karas: Just maybe elaborate and provide any details.

Damian Karas: Which end markets or regions, you're seeing some of these larger.

Damian Karas: Orders as well.

William J. Burns: Yeah, I'd say overall, in Q1 and into, you know, as we entered 24, we've really seen demand stabilize, and we've seen modest improvement in large order activity overall. And it's been particularly in mobile computing, and it's been specific to retail, as they've kind of wrapped up their year.

Speaker Change: Yes, I'd say overall in in Q1 and into you know as we entered 24, we've really seen demand stabilize and we've seen modest improvement in and lower large order activity overall, and it's been particularly in mobile computing and it's been specific to retail as they've kind of wrap.

William J. Burns: So, you know, we're certainly encouraged by the better than expected sales results in Q1. And, you know, we would expect, you know, modest improvement in demand as we continue to progress throughout the year. However, H2, you know, the growth there is primarily driven by, you know, lapping through the prior destocking activity that we've seen. So overall, I think, as we anticipated, mobile computing is the first place that we're seeing recovery; we're seeing it in retail, both of those were the first to be impacted by COVID.

Speaker Change: Up there years. So we're certainly encouraged by the better than expected sales results in Q1 as a result, and you know we'd expect modest improvement in demand as we continue to progress throughout the year. However, each too as you know the growth there was primarily driven by lapping through.

Speaker Change: The prior Destocking activity that we've seen so overall I think as we anticipated you know mobile computing as the first place that we're seeing recovery, we're seeing it in retail both of those were the first to be impacted coming.

Speaker Change: Through the cycle with Covid, and what we'd like to see us more visibility and momentum in order activity beyond what we've seen so far in <unk>.

William J. Burns: And what we'd like to see is more visibility and momentum in order activity beyond what we've seen so far. And, you know, I think we'd like to see it move from retail to TNL and manufacturing and other verticals before we'd call it kind of a broad-based recovery.

Speaker Change: No I think we'd like to see it move from retail to the P&L in manufacturing and other verticals before we'd call it kind of a broad based recovery.

Damian Karas: That's really helpful. Thanks, Bill.

Speaker Change: That's really helpful. Thanks, Bill and then a follow up question on your guidance, just maybe ask a little bit differently. I know you guys have spoken.

William J. Burns: And then a follow-up question on your guidance, just maybe asked a little bit differently. I know you guys have spoken about this really large funnel, but just a kind of lack of conversion to order. Guy sort of has you sequentially, second half sales comparable to the first half. Could you just tell us what you're assuming for that funnel conversion, kind of a probability of some of those projects hitting in the back half? Thank you. Yeah, I'd say the...

Speaker Change: This really large funnel, but just a kind of a lack of conversion to orders.

Speaker Change: Got it.

Speaker Change: Has the sequentially second half sales comparable to the first half could you just tell us like what youre, assuming for that final conversion kind of the probability of some of those.

Speaker Change: Project hitting in the back half thank you.

Speaker Change: Yeah, I'd say that as I mentioned earlier, the really the second half I would call. It you are grounded and based on what we see today both in terms of.

Nathan Andrew Winters: Yeah, I'd say that, as I mentioned earlier, the second half, I would call you grounded and based on what we see today, both in terms of, you know, the order of velocity, what we're seeing in terms of being sold out through the channel, as well as the conversion rates that we've experienced now over the last two quarters. I'd say still lower conversion rates on our pipeline than we would have historically assumed based on what we experienced in the second half, but again, aligned with what we've experienced over the past two quarters.

Speaker Change: The orders velocity, what we're seeing in terms of being sold out through the channel.

Speaker Change: As well as the conversion rates that we've experienced now over the last.

Speaker Change: Two quarters, I'd say, it's still still lower conversion rates on our pipeline than we would have historically assumed based on what we experienced through the second half, but again aligned with what we've experienced over the past two quarters I think the big difference is we're not assuming we're making an assumption around a mega deployment, just given that we've yet to see kind of.

Nathan Andrew Winters: I think the big difference is we're not assuming; we're making an assumption around a megadeployment, just given that we've yet to see firm commitments from our customers. There's a lot of optimism and discussions around these, but in terms of committing to move forward those projects or ensuring that they have the budget available in the year, that really remains the uncertainty. And why you look and see the second half looks very similar to the first half is because that's what we're experiencing and what we're seeing play out in the market. We think that's appropriate for the guide for the year.

Speaker Change: No firm commitments from our customers there is a lot of optimism discussions around those but in terms of committing.

Speaker Change: To move forward those projects or ensuring that they have the budget available in the year, you know that really remains the uncertainty and the why wouldn't you look and see the second half look very similar to the first half because that's what we're experiencing and what we're seeing play out in the market. We think that's appropriate for the guide for the year.

Speaker Change: Thank you.

Keith Michael Housum: The next question comes from Keith Housum with North Coast Research. Please go ahead.

Speaker Change: The next question comes from Keith Wilson with Northcoast Research. Please go ahead.

William J. Burns: Good morning, guys. I appreciate it. Thanks. In terms of the Asia-Pacific region, obviously underperformed compared to the rest of the company, and I understand China's challenge right now, but perhaps you could expand a little bit on what you're seeing here and expectations for us, and the pressures perhaps be a little bit longer-lasting versus shorter-lasting, and just more color about the performance in that area, please.

Keith Wilson: Good morning, guys I appreciate it thanks in terms of Asia Pacific region, obviously underperformed compared to the rest of the company and I understand China's challenged right now, but perhaps can you expand a little bit on what you're seeing here and expectations for some of the pressures, perhaps be a little bit longer lasting worst assure last thing and just more color about the performance in that area.

Keith Michael Housum: Yeah, I mean, Keith, it's Bill. I think that, you know, overall, the Q1 performance was contingent on impact by soft demand across, you know, all of the regions. So I think we'd start there. I think that, you know, as we've said, the relative outperformance was really in mobile computing, and we saw some bright spots in services and software, you know, clearly in the quarter. I would say, you know, the regions pretty much look the same, except, you know, Asia was, as you said, impacted probably more through the declines in China.

Yeah, I mean, Keith it's Bill I think that you know overall the Q1 performance was continued to be impacted by soft demand across.

William J. Burns: All of the regions. So I think we'd start there I think that you know as we've said the relative.

William J. Burns: Outperformance was really in mobile computing and we saw some bright spots in services and software clearly in the quarter I would say you know the the regions pretty much look the same except you know Asia was as you said <unk>.

William J. Burns: Impacted probably you know more through the declines in China, I would say that we see Asia overall, having.

Keith Michael Housum: I would say that, you know, we see, you know, Asia overall having, you know, China continued to, you know, a longer recovery for the Chinese market. We've seen some bright spots, again, in retail, again, in larger orders in Australia and New Zealand. So that was, you know, a positive for the Asian market. I think we continue to see opportunities outside of China, so Southeast Asia and India with the investments in manufacturing there.

William J. Burns: China continued to see a longer recovery for the China market, we've seen some bright spots again in retail again in larger orders in in Australia, and New Zealand so that was.

William J. Burns: A positive for the Asia market.

William J. Burns: We continue to see opportunities outside of China, So southeast Asia, and India with the investments in manufacturing there.

Keith Michael Housum: We continue to see Japan as the longer-term, you know, opportunity for us as we're making investments there, and we have a lower share there than other places. But I think, you know, we expect that China will continue to remain, you know, challenging, you know, moving forward.

William J. Burns: We continue to see Japan as the longer term opportunity for us as we're making investments there and we have lower share there than other places, but I think we expected China continued to remain challenging moving forward.

Speaker Change: Alright, I appreciate it and just as a follow up Nathan in terms of adjusted EBITDA.

Nathan Andrew Winters: It's a little bit decline in the guidance, we're giving for <unk> versus <unk> sequentially, how should we think about the moving parts and the reason for a little bit lower adjusted EBITDA margins in the second quarter.

Nathan Andrew Winters: All right, appreciate it. And just as a follow-up, Nathan, in terms of adjusted EBITDA, you're a little bit down on the guidance you're giving for 2Q versus 1Q. So, sequentially, how should we think about the moving parts and the reason for a slightly lower adjusted EBITDA margin in the second quarter? Hey Keith, as you mentioned.

Nathan Andrew Winters: Hey, Keith as you mentioned, our teacher guide slightly above 19% so down from the 1990 in Q1.

Keith Wilson: Entirely driven by the seasonality of our retail software business.

Keith Wilson: Which you probably recall, but is seasonally higher in Q1.

Keith Wilson: At accretive margins, just given the timing of retailers and when he performed our cycle counts and physical inventories, which is where that platform really focuses so.

Nathan Andrew Winters: Thank you. As you mentioned, our Q2 guide is slightly above 19%, so down from 19.9% in Q1. That is entirely driven by the seasonality of our retail software business, which you probably recall but, you know, is seasonally higher in Q1 at accretive margins, just given the timing of retailers wanting to perform their cycle counts and physical inventories, which is where that platform really focuses. So that's the adjustment from Q1 to Q2, and the way I characterize it is, you know, the Q2 guide is fairly in line with how we structured the full year going into it.

Keith Wilson: That's the adjustment from Q1 to Q2 and the way I would characterize it as the Q2 guide is fairly in line with how we've structured the full year going into it and I think Q1 was.

Keith Wilson: Benefited by some of the cost actions coming in earlier, giving us confidence in the remainder of the year as well as some of the benefits in just a bit a little bit better mix and revenue start off the year. So the Q2 in line with where we expected the year to play out and the sequential decline is entirely driven by the seasonality of our retail software business.

Speaker Change: Thank you.

Speaker Change: The next question comes from Tommy Moll with Stephens. Please go ahead.

Thomas Allen Moll: Good morning, and thank you for taking my questions.

Speaker Change: Good morning, Tommy.

Thomas Allen Moll: You've given us some context on the Omnichannel retail and E Commerce end markets, but I wanted to ask for for any other detail you can provide in particular on the ecommerce side there are.

Thomas Allen Moll: Some anecdotes regarding finally, hitting the end of this absorption phase from some of the overbuilding in years past are you seeing any signs of that on your side. Thanks.

Nathan Andrew Winters: I'd say Q1 was benefited by some of the cost actions coming in earlier, giving us confidence in the remainder of the year, as well as some of the benefits and just, you know, a little bit better mix and revenue to start out the year. So I think Q2 is in line with where we expected the year to play out, and the sequential decline is entirely driven by the seasonality of our retail software.

Speaker Change: No I would say that overall.

Thomas Allen Moll: Retail relatively outperformed as we've talked about already.

Thomas Allen Moll: And we're seeing encouraging signs right we saw some.

Thomas Allen Moll: Modest year end retail spending across Q4 and Q1, some customers clearly have absorbed the capacity and begin to buy again as you've kind of referenced Tommy.

Thomas Allen Moll: The next question comes from Tommy Moll with Stephens. Please go ahead.

Thomas Allen Moll: We've also seen you know some of the push outs that took place in last year and really over the last 18 months or so big.

William J. Burns: Good morning, and thank you for taking my question. Good morning. Good morning, Tommy.

Thomas Allen Moll: You've given us some context on the omnichannel retail and e-commerce markets, but I wanted to ask for any other detail you could provide. In particular, on the e-commerce side, there are some anecdotes regarding finally hitting the end of this absorption phase from some of the overbuilding in years past. Are you seeing any signs of that on your side? Thanks.

Thomas Allen Moll: Begin to come back so we've seen those projects as we expected and we talked about for a long time those projects will come back will be seen mostly is initiating of really phase one of those projects and the customer is not quite ready to commit to the full deployments that we've seen deployments done in the past would have been larger even larger orders and full rollouts.

William J. Burns: Yeah, I would say that, you know, overall, retail, you know, relatively outperformed, as we've talked about already. And we're seeing encouraging signs, right?

Thomas Allen Moll: Immediately now a more conservative let's start with that project, but I wouldn't rule it out over time and complete the deployment kind of later in the year. So we have confidence that they'll continue to be a recovery I think we anticipated retail would recover first followed by GNL in manufacturing and health care.

William J. Burns: We saw some, you know, modest year-end retail spending across Q4 and Q1. Some customers clearly have absorbed the capacity and begun to buy again, as you've kind of referenced, Tommy. And we also anticipated it would be mobile computing, you know, first as well, and that's what we're seeing. So the bright spots are really mobile computing and retail. That capacity is being used up. Retailers are beginning to bring those projects back, but they're doing it in a very measured way.

Thomas Allen Moll: And we're seeing that play out and we also anticipated that we'd be mobile computing first as well and that's what we're seeing so.

Thomas Allen Moll: Bright spots are really mobile computing in retail in retail and E. Commerce that capacity is being used off retailers are beginning to bring those projects back, but they're doing it in a very measured way and I think what we want to see is.

William J. Burns: And I think what we want to see is retail, T&L, manufacturing, you know, more of the vertical markets come back, and more of that order activity, even more than we're seeing today in the uptick in orders, before we call it a broad-based recovery.

Thomas Allen Moll: Retail GNL manufacturing you know more of the vertical markets come back and more of that order activity, even more than we're seeing today and the uptick in orders before we call a broad based recovery.

Thomas Allen Moll: That's helpful. Thank you, Bill.

Speaker Change: That's helpful. Thank you Bill as a follow up I wanted to ask about the channel inventory levels.

Nathan Andrew Winters: As a follow-up, I wanted to ask about the channel inventory levels. Um, it sounds like there really wasn't any noise from a destocking perspective in the first quarter. But I'm curious, what's your view on how many days on hand in the channel currently? And if you think historically, do we sit today below what that historic level is?

William J. Burns: It sounds like there really wasn't any noise from a destocking perspective in the first quarter.

Speaker Change: But I'm curious what's your view on how many days on hand in the channel currently.

Speaker Change: And if you think historically do we sit today below what that historic level is and does that imply at some point there may need to be a restart. Thank you.

Thomas Allen Moll: And does that imply at some point there may need to be a restock? Thank you. Yeah, Tom, I think, um...

Nathan Andrew Winters: Yeah, Tom, I'd say ending Q1, somewhere to exiting Q4, that the global channel inventories, you know, measure that on a days on hand basis, are normalized to support the current demand. So I'd say within the range that we'd expect on a global basis, there are puts and takes if you go by region and product families. So I think, you know, a nice improvement from where we were just six to nine months ago. And, as you said, I think no meaningful impact in the quarter or as assumed in the full-year guide in terms of changes, relative changes in the distribution inventory level.

Speaker Change: Yes, that's it.

Speaker Change: Ending Q1 somewhere to exiting Q4 that the global channel inventories measure that on a days on hand basis.

Speaker Change: Is normalized to support the current demand so I'd say with within the range that we would expect on a on a global basis.

Speaker Change: Puts and takes if you go by region and product families.

Speaker Change: So I think a nice improvement from where we were just six to nine months ago and as you said, it's a no meaningful impact in the quarter or assumed in the full year guide in terms of changes relative changes in the in the distribution inventory levels.

Speaker Change: Thank you.

Bradley Thomas Hewitt: The next question comes from Brad Hewitt with Wealth Fargo. Please go ahead.

Speaker Change: The next question comes from Brad <unk> with Wells Fargo. Please go ahead.

William J. Burns: Hey, thanks. Good morning, guys. Good morning.

Brad: Hey, Thanks, good morning, guys.

Brad: Good morning.

Bradley Thomas Hewitt: So, you just talked about a return of some of the project deferrals from last year. I guess how would you describe your pipeline in terms of overall visibility versus six months ago? It kind of feels like visibility across the space has been generally trending in a positive direction, but just any color on how your visibility looks relative to history would be helpful.

Brad: So you just talked about a return of some of the project deferrals from last year I guess, how would you describe your pipeline and sort of overall visibility versus six months ago.

Brad: Kind of feels like visibility across the space has been generally trending in a positive direction, but just any color on how your visibility looks relative to history would be helpful.

William J. Burns: Yeah, I'd say that, you know, overall, we'd expect orders, you know, customer orders to continue to, to resume overall. I think that is, I just talked about with Tommy's question, we've seen customers absorbing the capacity that's previously been built out, that's been more, again, focused on retail and e-commerce, as opposed to the other verticals. So far, I would say that, you know, We're viewed as a trusted partner by our customers, and we're staying close to them across each of the verticals as, you know, we would see this order momentum picking up across other verticals as we progress through the year. We've got a large installed base, right, of growing solutions, so we're continuing to work with our customers as well, you know, kind of on new solutions and new use cases.

Brad: No I'd say that overall, we'd expect orders customer orders to continue to to resume overall I think that as I just talked about with Tommy's question, we've seen customers absorbing the capacity. That's previously been built out that's been more again focused on retail and ecommerce as a.

Brad: Opposed to the other verticals, so far I would say that the macro economy kind of the uncertainty around that abating will certainly help as well.

Brad: We're we're viewed as a trusted partner of our customers and we're staying close to them across each of the verticals. As you know we would see this order momentum picking up across other verticals as we progress through the year.

Brad: We've got a large installed base growing solutions. So we're continuing to work with our customers as well you know kind of on new solutions and new use cases, so you know.

William J. Burns: So, you know, overall, I would say that, you know, we anticipated large deployments kind of starting to come back, and we anticipated in retail. We want to see more of that across manufacturing and T&L, as I said. We'd like to see more of it, too, in kind of different size deals, so mid-tier and run rate deals, you know, come back a bit. But I would say, overall, we're, you know, our engagement with customers has been encouraging, you know, the, there's certainly uncertainty remains around timing of some of the projects, I think Nate covered that earlier, and I think it's reflected in our year-in-view overall.

Brad: Overall, I would say that you know.

Brad: We anticipated large deployments kind of starting to come back and we anticipated and retail we want to see more of that across manufacturing of GNL as I said, we'd like to see more of it too.

Brad: Different size deals so mid year and run rate deals you'll come back a bit but I would say overall we're.

Brad: Engagement with customers have been encouraging.

Brad: There's certainly uncertainty remains around timing of some of the projects I think <unk> covered that earlier and I think it's reflected in our year end outlook. Overall, you see it and are you seeing in the pipeline in terms of where the deals are out in the deal stage. So hello, you qualify versus where we'd like to see them more in the validate secure so earlier stages of the funnel, particularly in the second half.

Nathan Andrew Winters: Yeah, you see it in our pipeline in terms of where the deals are at in the deal stage. So a lot, you know, qualify versus where we'd like to see them more in the validate and secure stage. So earlier stages of the funnel, particularly in the second half, then where we'd like to see it at this point in the year or relative to what we've maybe seen in prior years.

Brad: Then where we'd like to see it at this point in the year or relative to what we've seen in prior years.

Bradley Thomas Hewitt: Okay, that's helpful. I think you guys had some retail orders that you expected to convert to revenue at the end of Q4 that were pushed into Q1. Would you be able to quantify the magnitude of that deferral? And then when you talked about the uptick in large order activity on the retail side, was that inclusive of some of that year-end spending, or was that a separate bucket? I would say that...

Speaker Change: Okay. That's helpful and I think you guys had some retail orders that you expected to convert to revenue at the end of Q4 that were pushed into Q1 would you be able to quantify the magnitude of that deferral.

Speaker Change: Then when you talked about the uptick in the large order activity on the retail side was that inclusive of some of that year end spending or was that a separate bucket.

Speaker Change: I would say year end spending across retailers there their years and differently, whether it's the you know truly yearend or or in the first quarter. So I think we typically see orders that bridge both on an annual basis. So I don't think there was much that move between Q4 and Q1 as much as just customers need.

William J. Burns: I would say that year-end spending across retailers, their years end differently, whether it's the truly year-end or the end of the first quarter, so I think we typically see orders that bridge both on an annual basis, so I don't think there was much that moved between Q4 and Q1 as much as just customers need product before they have their year-end from a retail perspective. And again, I think those are all encouraging signs, whether it was Q4 or Q1, for us that retailers are beginning to buy again, and I think we continue to want to see more of that momentum.

Speaker Change: Need product before they.

Speaker Change: Have their year end from a retail perspective, and again I think those are all encouraging signs whether it was Q4 or Q1 to Austin retailer. So are beginning to buy again and I think we continue to want to see more of that momentum I would say that even those orders or measure you know what I mean, so it's a it was yearend spending but it was the first phase of a project.

William J. Burns: I would say that even those orders are measured. Do you know what I mean? So it was year-end spending, but it was the first phase of a project, and we want to see those continued projects moving forward, and we believe they will, so I would say nothing really about the movement of Q4, Q1 as much as just normal activity around that, where some customers in retail end at the true year-end, December 31st, and others end in the first quarter.

Speaker Change: And we want to see those continued projects moving forward and we believe they will so I would say nothing really and movement of Q4 Q1 as much as just normal activity around that where some customers in retail ended the the true year end December 31st and others and in the first quarter.

Speaker Change: Thank you.

James Andrew Ricchiuti: The next question comes from Jim Ricchiuti with Needham & Company. Please go ahead. Hi.

Speaker Change: The next question comes from Jim Ricchiuti with Needham <unk> Company. Please go ahead.

William J. Burns: All right. Thanks. I missed it. Did you comment at all about the... The activity you're seeing in the SMB market? Is the recovery you're seeing in parts of retail also impacting that part of the business?

James Andrew Ricchiuti: Hi, Thanks I missed.

James Andrew Ricchiuti: Missed it did you comment at all about the.

James Andrew Ricchiuti: The activity you're seeing in the SMB market is at.

James Andrew Ricchiuti: The recovery you're seeing in parts of retail also impacting that part of the business.

James Andrew Ricchiuti: Yeah, I would say that, you know, SMBs would fall kind of in this mid tier, you know, to run rate businesses. And I think we've seen again more recovery and big opportunities. I think we're seeing optimism clearly on the part of our partners and our distributors that that business will continue to, you know, progress and get better through the second half of the year. But I think, at the moment, we have not seen the uptick we've seen in large orders across mid and in run rate business, which really falls in this SMB category.

Speaker Change: Yeah, I would say that you know S.

James Andrew Ricchiuti: SMB would fall kind of in this mid tier you know.

James Andrew Ricchiuti: The run rate business and I think we've seen again more recovery in large opportunities and I think we're seeing optimism clearly on the part of our partners and our distributors that that business will continue to.

James Andrew Ricchiuti: Progress and get better through the second half year, but I think at the moment, we have not seen.

James Andrew Ricchiuti: You know the uptick we've seen in large orders across mid and end in.

James Andrew Ricchiuti: Run rate business, which really falls in this SMB category. So I'd say not yet I would say there's optimism on the part of our our partners, but I think that we want to see more of that.

James Andrew Ricchiuti: So I'd say not yet, I would say there's optimism on the part of our partners, but I think that we want to see more of that. As you know, large orders typically are the first to decline or the first to recover. Retail was the first to pull back, and now we're seeing the first to recover. And I think that SMB, call it mid-tier, and in run rate business will fall.

James Andrew Ricchiuti: As you know larger orders typically are the first the decline of the first to recover.

James Andrew Ricchiuti: Retail was the first to pull back and now we're seeing the first to recover and I think that SMB mid tier and run rate business will fall.

William J. Burns: How would you characterize the RFID business in the quarter, the level of activity you're seeing, and just the trends in that business we're starting to see? More activity, it sounds like, on the T&L side with the big customer moving out of the distribution center into the package delivery side of the business. What would you characterize RFID for you? Yeah, I would say RFID.

Speaker Change: Got it.

Speaker Change: How would you characterize the RFID business in the quarter, our level of activity, you're seeing and just the trends in that business, we're starting to see.

Speaker Change: More activity it sounds like on the P&L side with the big customer moving out of the distribution center into.

Speaker Change: The package delivery side of the business how would you characterize RFID. Please.

William J. Burns: Yeah, I would say RFID, you know, clearly, we see it as an opportunity across multiple verticals now, not just retail and retail apparel where it was originally focused. We're clearly seeing opportunities across track and trace and supply chain. You mentioned parcel tracking with transportation logistics, you know, airports and airlines with baggage tracking, inside manufacturing, work in progress, and tools, and so on. So a whole series of different applications; we're seeing quick-serve restaurants.

Speaker Change: Yeah, I would say RFID, you know clearly, we see as an opportunity and across multiple.

Speaker Change: Multiple verticals now not just retail and retail apparel, where it was originally focused on we're clearly seeing <unk>.

Speaker Change: Opportunities across track and trace and supply chain you mentioned.

Speaker Change: Parcel tracking with the transportation logistics airports and airlines with baggage tracking our inside manufacturing work in progress and tools nowhere. So a whole series of different applications, we're seeing quick serve restaurants.

William J. Burns: Clearly, the move ahead of large retailers like Walmart or UPS's smart package initiatives is causing others to continue to look at what they're doing in RFID and move things along across multiple industries and verticals. Zebra has the broadest and deepest set of RFID solutions in the market today, so whether it's fixed or handheld readers, industrial and mobile printers, our software that we utilize for reads and locates and then, you know, our labels printed through our printers, so, you know, we've seen strong growth across the portfolio over the past few years.

Speaker Change: Clearly the move ahead of large retailers like Walmart or Ups's smart package.

Speaker Change: The initiatives are causing others to continue to.

Speaker Change: If you look at what Theyre doing in RFID and move things along across multiple industries and verticals Zebra has the broadest and deepest set of RFID solutions in the market today, so whether its fixed or handheld readers industrial and mobile printers are software that we utilize to two.

Speaker Change: For Reed's and locate and then our labels printed through our printers. So you know we've seen strong growth across the portfolio you know over the past few years, we continue to see the drivers being the fact that you know.

William J. Burns: We continue to see the drivers being the fact that, you know, the technologies continue to improve with, you know, greater re-rate accuracy across the development of new tag types that make that, you know, more efficient in the reading of the tags. I think we're seeing more software applications being available today serving these different markets, and we clearly see, overall, the idea that, you know, the number of tags. I think what excites all of us is the fact that, you know, readers follow tags, right?

Speaker Change: The technologies continue to improve with greater re rate accuracy.

Speaker Change: Across the.

Speaker Change: The development of new tag types that make that more.

Speaker Change: More efficient in the reading of the tax I think we're seeing more software applications being available today are serving these different markets, where clearly overall the idea that you know the number of tax I think what excites all of US is the fact that you know readers followed tags right. So from our perspective that they adopt.

William J. Burns: So from our perspective, the adoption of tags and source tagging of items, at the point of manufacturing, the number of tags being sold is certainly going to allow more applications of those tags in, you know, customer environments. So we remain excited about this space overall, and I think we're going to continue to see growth across RFID.

Speaker Change: <unk> of tags and source tagging of items at point of manufacturing the number of attacks being sold is certainly.

Speaker Change: Going to allow more applications of those tags.

Speaker Change: In customer environments, So we really remain.

Speaker Change: Excited about this space overall, and I think we're going to continue to see.

Speaker Change: Growth across RFID.

Joseph Craig Giordano: The next question is from Joe Giordano with TD Commons. Please go ahead.

Speaker Change: Yes.

Speaker Change: Thank you.

Speaker Change: The next question is from Joe Giordano with Cowen. Please go ahead.

William J. Burns: Hey, guys, morning. Just, I know people are hesitant to lay off big capital still, like you said a couple times, but as you get into like next year, and just considering the large scale increase in your installed base that happened in the immediate aftermath of COVID, should we be thinking refresh cycle is kind of like in play for 2025?

Joseph Craig Giordano: Hey, guys good morning.

Joseph Craig Giordano: Yes.

Joseph Craig Giordano: I know I know people are hesitant to lay up big capital still like you said a couple of times, but as you get into late next year.

Joseph Craig Giordano: Considering the.

Joseph Craig Giordano: Large scale increase in your installed base that happened in the immediate aftermath of Covid like.

Speaker Change: Should we be thinking refresh cycle is it's kind of like in place for 2025.

William J. Burns: I think overall that, you know, EMC clearly, you know, across mobile computing is really what you're talking about in, in kind of large refresh cycles. And, and, as I've said a couple of times already, we're seeing that as the first signs of recovery.

Speaker Change: I think overall that.

Speaker Change: The <unk>.

Speaker Change: <unk> clearly you know across mobile computing is really what you're talking about an internal large refresh cycles.

Speaker Change: As I've said, a couple of times already we're seeing that as the first signs of recovery.

William J. Burns: And really, in retail, to start, I think that, you know, the customers have begun to absorb their capacity, you know, certainly in e-commerce. We'd like to see that happen across, you know, TNL, as those customers build out a lot of capacity, as well, during the pandemic. And we'd like to see manufacturing be a bit more healthy. And the idea that moving from a services-based economy to a more goods-based economy overall, I'd say that, you know, the refresh cycle, our sales teams are focused on that with our customers. And ultimately, you know, mobile computing or mobile computers are central to their operation; they, you know, have worked with us across, you know, multiple generations of products. We've got a healthy pipeline of opportunities.

Speaker Change: And really in retail you start I think that the customers in <unk> have begun to absorb their capacity you know certainly in ecommerce, we'd like to see that happen across.

Speaker Change: <unk> as those customers build on a lot of capacity as well during the pandemic and we'd like to see manufacturing be a bit more healthy than the idea that moving from a services based economy to more goods based economy overall.

Speaker Change: I'd say that the the refresh cycle or our sales teams are focused on that with our customers and ultimately.

Speaker Change: Mobile computing mobile <unk>.

Speaker Change: Peters, our central that our operation they.

Speaker Change: I have worked with us across multiple generations of products.

Speaker Change: We've got a healthy pipeline of opportunities, but you know we don't want to see those move ahead through this year and into next year as you described so clear.

William J. Burns: But, you know, we'd want to see those move ahead through this year and in the next year, as you described. So, you know, clearly, there is a refresh cycle out there; the embedded base is larger than it's ever been, as people have deployed, you know, more applications for mobile devices in their environments. So the installed base is larger.

Speaker Change: Clearly there is a refresh cycle out there the embedded base is larger than it's ever been as people that deployed.

Speaker Change: More applications for mobile devices in their environments of the installed base is larger so those will continue to refresh and every customer is on a different cycle. So I think that whether you're talking about a postal.

William J. Burns: So those will continue to refresh, and every customer is on a different cycle. So I think that whether you're talking about a postal environment in a specific country, or a TNL provider, or a larger retailer, what we have seen is that, you know, even in retail, these larger orders have been more measured, as I talked about. So having been large-scale, as Nate described, kind of mega deals, they've been smaller in size and rolling out over time, we'd expect, probably expect that the same thing will happen in places like TNL. So I think it'll be a measured, you know, you know, overall recovery. And I think, you know, we feel that we've got a strong base that continues to refresh, but it's going to take time.

Speaker Change: Environment in a specific country or a GNL provider or a larger retailer. What we have seen is that the you know even in retail. These larger orders have been more measured as I talked about so haven't been large scale as Nate described we kind of mega deals they've been smaller in size and rolling out over time, we'd expect probably that say.

Speaker Change: Thing will happen in places like P&L, So I think it'll be a measured.

Speaker Change: You know overall recovery and I think we feel that that we've got a strong base to continue to refresh, but it's going to take time.

Joseph Craig Giordano: Fair enough. And then maybe just shifting to the balance sheet quickly, you know, with your key markets, so we could debate the magnitude of the recovery, but it seems like deterioration has kind of stopped. And it's good to see you pay back some debt here. You know, the cash flow looks strong. So is there an appetite for buybacks to kind of increase your leverage on a recovery as you come out of this? Yeah.

Speaker Change: Fair enough and then maybe just shifting to the balance sheet quickly.

Speaker Change:

Speaker Change: With your key market that means we can debate the magnitude of a recovery, but it seems like deterioration has kind of stopped and it was good to see you pay back some debt here.

Speaker Change: Cash flow looks strong so.

Speaker Change: Is there an appetite for buybacks to kind of increase your leverage on a recovery as you come out of this.

Nathan Andrew Winters: Yeah, as you mentioned, we finished the quarter at a little over two and a half times the leverage ratio, so slightly above the target range that begins to move back within the range, particularly as we roll through Q3 of last year. Today, we feel like we have ample flexibility with the revolver. As you mentioned, we are prioritizing debt paydown, just given the debt leverage ratios in the current interest rate environment, but we do plan to reassess buyback as the year progresses, you know, particularly in the second half.

Speaker Change: Yeah as you mentioned we finished.

Speaker Change: The quarter to little over two five times.

Speaker Change: Leverage ratio, so slightly above the target range that begins to move back within the range, particularly as we roll through Q3.

Speaker Change: Q3 of last year.

Speaker Change: Today, we feel like we have ample flexibility with the revolver. As you mentioned, we are prioritizing debt paydown, just given the debt leverage ratio than the current interest rates environment, but we do plan to reassess buybacks.

Speaker Change: As the year progresses, particularly in the second half.

Andrew Edouard Buscaglia: The next question comes from Andrew Buscaglia with BNP Paribas; please go ahead.

Speaker Change: Thank you.

Speaker Change: The next question comes from Andrew Buscaglia with BNP Paribas. Please go ahead.

Nathan Andrew Winters: So, I just want to check on, you know, the guidance, the sequential step down in margins seasonally, it seems like. The comment on Q3 looking more like, looking similar to Q2, just to clarify, you're talking about run rate on sales, and then what about margins, because it does seem like you're expecting some lift in Q4, and wondering what's behind that. Yeah.

Andrew Buscaglia: Hey, good morning, guys.

Andrew Buscaglia: Good morning.

Andrew Buscaglia: Sorry.

Andrew Buscaglia: Want to check on your comment on the guidance.

Andrew Buscaglia: Yes.

Andrew Buscaglia: Sequential step down in margin seasonally it seems like.

Andrew Buscaglia: The comment on the Q3.

Andrew Buscaglia: Looking more like looking similar to Q2, just to clarify you're talking about run rate on <unk> and then what what about margins because it does.

Andrew Buscaglia: It does seem like you're you're expecting some lift in Q4 and wondering what's behind that.

Andrew Edouard Buscaglia: Yeah, no, you're absolutely right. So the comment on Q3, similar to Q2, was made from a revenue perspective. We do expect an uptick in margin as we go through the year. Similar to what we talked about in the last call, which is the phasing of some of the incremental cost actions that will be coming through late this quarter and the early part of Q3, as well as, I would say, just normal project timing between things like payroll taxes and just the typical funding cycle as you get into Q3, Q4, and you get into the holidays.

Andrew Buscaglia: Yes.

Andrew Buscaglia: So the comment on Q3 similar to Q2 was on from a revenue perspective.

Speaker Change: Do you expect an uptick in margin as we go through the year.

Andrew Buscaglia: Some of them.

Andrew Buscaglia: And when we talked about in the last call, which is phasing of some of the incremental cost actions that'll be coming through late this quarter early part of Q3 as well as I'd say just normal project timing.

Andrew Buscaglia: You know things like payroll taxes, and just the typical funding cycle with as you get into Q3 Q4, you had the holidays. So it tends to be a little bit of a downtick in terms of just seasonal spend so I think there's no magic bullet there in terms of.

Andrew Edouard Buscaglia: So it tends to be a little bit of a downtick in terms of just seasonal spend. So I'd say there's no magic bullet there in terms of the actions we need to take in order to deliver that sequential improvement from Q3 into Q3 and Q4.

Andrew Buscaglia: The actions, we need to take in order to deliver that.

Andrew Buscaglia: Sequential improvement from Q3 into Q3 and Q4.

William J. Burns: Okay. Okay. And then, um, maybe along the lines of Joe's question, um, you know, heading into, you know, your cash flows improving, you raised it a bit. Um, what about M&A now? You know, I think. The software story has been nice. It's helping you lately. So, yeah, what's the environment like as you see it with deals?

Speaker Change: Okay. Okay.

Speaker Change: Okay and then.

Andrew Buscaglia: Maybe along the lines of Joes question.

Andrew Buscaglia: Heading into the year.

Andrew Buscaglia: Your cash flow is improving a bit a bit.

Andrew Buscaglia: What about M&A now that you know I think the software story has been nice it's helping you lately so.

Andrew Buscaglia: Yes.

Andrew Buscaglia: The environment like.

Nathan Andrew Winters: Y'all take that knee.

Andrew Buscaglia: You see it with the deals.

William J. Burns: Yeah, I'll take that, Nate. I would say that, you know, organic growth continues to be, you know, our first priority overall. I think our M&A philosophy really hasn't changed much. We're clearly, you know, targeting assets that are clearly adjacent and, you know, synergistic to, you know, our portfolio today, as you've seen us acquiring kind of these adjacent and expansion areas. We have a strong balance sheet, obviously, that could support that, you know, over time here. But, I think in the short term, there's clearly a higher bar, you know, given the macro environment and, and the debt leverage, you know, that we're at today.

Speaker Change: Yeah, I'll take that Nate I would say that you know organic growth continues to be our first priority overall I think our M&A philosophy really hasn't changed much.

Nate: We're clearly targeting assets that are clearly adjacent and synergistic to.

Nate: Our portfolio today as you've seen us acquire in kind of these adjacent expansion areas. We have a strong balance sheet, obviously that could support that overtime here I think in the short term, there's clearly a higher bar you know as you know given the macro environment and and the debt leverage that we're at today. So I think we're continue to be in.

William J. Burns: So I think we'll continue to be inquisitive and look what's out there. I think we see it as an opportunity to be strategic and add to our portfolio, you know, our products and solutions that we have in the marketplace. And I think that, you know, in the short term, I think it's just a higher hurdle.

Nate: Qwizdom and look what's out there I think we see it as an opportunity to to be strategic in and add to our portfolio.

Nate: You know our products and solutions that we have in the marketplace and I think that you know when the short term I think it's just a higher hurdle.

Brian Paul Drab: The next question comes from Brian Drab with William Blair. Please go ahead.

Speaker Change: Thank you.

Nate: The next question comes from dry sorry, Brian Drab with William Blair. Please go ahead.

William J. Burns: Hi, good morning Bill, Nathan, and Mike. Thanks for taking our questions. So clearly, I just want to clarify one thing. So clearly, you're seeing the recovery in retail. And you said you expected it to play out this way, where retail comes back before manufacturing and TNL. Does that mean that you're not seeing a recovery in manufacturing and TNL yet or that the The recovery in retail is just stronger at this point than those two categories.

Brian Paul Drab: Hi, Good morning, Bill Nathan Mike Thanks for taking the questions.

Brian Paul Drab: So clearly I just want to clarify one thing so clearly youre seeing the recovery in retail.

Brian Paul Drab: And you said you expected it to play out this way where retail comes back for manufacturing and P&L or are you.

Brian Paul Drab: Does that mean that you're not seeing.

Brian Paul Drab: Recovery in manufacturing and P&L, yet or that the.

Brian Paul Drab: The recovery in retail is just stronger at this point in those two categories.

William J. Burns: Yeah, I would say that, you know, we're not seeing it there yet. I would say that, you know, the T&L customers are clearly still absorbing capacity built out during the pandemic, and that, you know, they're continuing to take actions to optimize their operations overall. I would say that manufacturing is impacted by, you know, the broader market trends of uncertainty, and clearly, still a services-based economy versus a But I think, you know, overall, our value proposition remains strong in both markets, and we've got strong relationships across T&L.

Brian Paul Drab: Yeah, I would say that we're not seeing it there you had to I would say that you know the P&L customers are clearly still absorbing capacity built out during the pandemic and that they are continue to take actions to optimize their operations overall.

Brian Paul Drab: I would say that manufacturing is impacted by the broader market trends of uncertainty and clearly a still a services based economy versus a goods based economy, but I think.

Brian Paul Drab: Overall, our value proposition remains strong in both markets you know that we've got strong relationships cross P&L and I think that we'll see them continue to buy again once the capacity is built out let's say manufacturing is an opportunity for us overall it as customers continue to buy again they are we'll invest.

Brian Paul Drab: And I think that we'll see them continue to buy again once the capacity is, you know, built out. I would say manufacturing is an opportunity for us overall, that, you know, as customers continue to buy again, they will, you know, invest in, in automation and things like traceability and resilient supply chains. Those themes haven't gone away. But we've seen just a conservative nature of spending based on the uncertainty.

Brian Paul Drab: And in automation in things like traceability, and resilient supply chain those themes Havent gone away, but we've seen just the conservative nature of spending based on the uncertainty. So that represents an opportunity for us I would say that manufacturing. Unlike T analysis kind of Underpenetrated for us that there's an opportunity for us and we've got new.

William J. Burns: So that represents an opportunity for us; I would say that manufacturing on T&L is kind of under penetrated for us, so there's an opportunity for us. And we've got new solutions within manufacturing. So like machine vision, robotics, and automation, our demand planning strengthens our offering there as those markets recover. So, and we've also shifted additional sales resources through this to manufacturing. So I think that although we expected retail to be the first to decline, it's the first to recover.

Brian Paul Drab: Solutions within manufacturing so that they can machine vision robotics automation, our demand planning strengthens our offering there as those markets recover.

Brian Paul Drab: And we've also shifted additional sales resources through this to manufacturing. So I think that we expected <unk> retail was the first to decline as the first to recover GNL in manufacturing will follow I would say, we've got strong relationships across GNL, but lots of opportunities there when it does recover in manufacturing will continue to be.

William J. Burns: T&L and manufacturing will follow. I would say we've got strong relationships across T&L, but lots of opportunities there when it does recover. Manufacturing will continue to be a focus area for us because we see it as an opportunity in the longer term.

Brian Paul Drab: Focus area for us because we see it as an opportunity longer term.

Speaker Change: Okay. Thank you very much and then I wonder.

Brian Paul Drab: Okay, thank you very much. And then I wonder... If I could ask a question this way, you know, you have that good slide that you use where you talk about the core and the adjacencies and expansion markets and growing, you know, expected longer-term mid-single, high-single, and low-double-digit, respectively. I'm just wondering, in your outlook for the next year, can you frame it in terms of those three categories, what you're expecting for growth in those, you know, those three categories?

Speaker Change: If I could ask the question. This way you have that could slide that you used where you talk about the core and the adjacencies and expansion markets and growing.

Speaker Change: Longer term mid single high single and low double digit.

Speaker Change: Respectively.

Speaker Change: I'm just wondering if in your <unk>.

Speaker Change: Outlook for next year can you frame it in terms of those three categories, what you're expecting for for growth in those in those three categories.

Speaker Change: I'd say overall.

Speaker Change: It's hard to kind of frame it it's hard to predict where each is going to end up I would say overall, but you know the.

William J. Burns: I'd say overall that it's hard to predict where each is going to end up. I would say overall that the core of mobile computing is recovering first. I think each has a different dynamic, so I think that things like tablets and others in the expansion categories will be closely connected to things like mobile computing. RFID is in that category, and that will continue to be an opportunity. I would say, if you think of the last circle to that, software and our services business had a positive quarter in Q1 overall, so I think that's more recurring revenue-based.

Speaker Change: The core and mobile computing has become is recovering first I think each has a different dynamic so I think that things like tablets and others in the expansion categories will be closely connected to things like mobile computing RF.

Speaker Change: RFID is in that category and that that will continue to be an opportunity I would say.

Speaker Change: If you think of the kind of last circle to that you know.

Speaker Change: Software and our services business had.

Speaker Change: A positive quarter in Q1 overall, so I think that's more recurring revenue based machine vision has been challenged in the short term with.

William J. Burns: Machine vision's been challenged in the short term with areas like semiconductor and manufacturing being down, so I think it varies by each segment. If I think there are gives and takes in each, I think the core, mobile computing first, the others still down but will recover. I think in the adjacencies, RFID and others will be bright spots, and I think software was a bright spot, but machine vision is challenged in the short term.

Speaker Change: Areas like semiconductor.

Speaker Change: Manufacturing being down so I think it varies by each segment up I think there's gives and takes in each I think that the core mobile computing first the others still down, but we'll recover I think in the Adjacencies RFID and others will be bright spots and I think software was a bright spot for machine vision challenged in the short term robotics.

William J. Burns: Robotics is still in its infancy, so I think kind of mixed across those, but I think that they're all going to recover over time. It's just different timeframes for each. The next question comes from Meta Marshall with Morgan Stanley; please go ahead. Great, thanks. I think you alluded to this.

Speaker Change: Still read it at its infancy, so I think kind of mixed across those but I think that it's going to be all will recover over time. It's just you know different timeframes for each.

Speaker Change: Thank you.

Meta A. Marshall: The next question comes from meta Marshall with Morgan Stanley. Please go ahead.

Meta A. Marshall: Great. Thanks.

Meta A. Marshall: I think you alluded to this and kind of the replacement cycle question earlier in the call, but just any trends between kind of mobile computing and printing is when you think about kind of some of these renewal cycles coming up.

Meta A. Marshall: The next question comes from Meta Marshall with Morgan Stanley; please go ahead. Great, thanks.

William J. Burns: Yeah, I'd say that, you know, as we talked about mobile computing clearly showing the first signs of recovery as expected, and we talked through that a fair amount. I would say that in printing, we saw, you know, kind of broad-based declines, but it's stabilized now in Q1. There was a difficult compare in Q1 for both printing and DCS. However, as a year ago, in first quarter 23, we saw supply chain challenges abate in both those areas.

Meta A. Marshall: And then maybe a second you know you haven't touched on the health care market. That's clearly been an area of expansion for you guys just any any investment or kind of progress that's been made on that opportunity. Thanks.

Meta A. Marshall: Yes, I'd say that as we talked about mobile computing clearly showing the first signs of a recovery as expected and we talked through that a fair amount I would say that in printing. We saw you know kind of broad based declines but has stabilized now in Q1, there was a difficult compare in Q1 for both.

Meta A. Marshall: Printing and Dcs as a year ago first quarter 'twenty three we saw supply chain challenges abate in both those areas. So we shipped a lot of printers and scanners in the quarter a year ago. So the compares were pretty tough I would say that in printing specifically you know clearly still challenged by the softer macroeconomic condition.

William J. Burns: So we shipped a lot of printers and with tighter budgets and thin margins within healthcare, we would see that, you know, we continue to drive productivity solutions within healthcare, which, you know, allows, you know, healthcare providers to be more efficient, which is certainly appealing to them on tight margins and clearly enhances, you know, patient safety. We see home healthcare as an opportunity for us, so we're clearly seeing some of our partners address that market.

Meta A. Marshall: And then particularly by manufacturing, but I would say stabilized overall, we'd expect the recovery in printing and scanning would follow mobile computing as we kind of talked about.

Meta A. Marshall: Specific to health care, I would say that impacted by the same trends the broader market overall.

Meta A. Marshall: Really tighter budgets bid margins within healthcare, we would see that we continue to drive productivity solutions within healthcare.

Meta A. Marshall: Which allows health care providers to be more efficient, which is certainly appealing to them on an type margins and clearly to enhance patient safety, reaching home health care is an opportunity for us and we're clearly seeing some of our partners address that market. So think of the tablets.

William J. Burns: So think of tablets as an example of, you know, home healthcare opportunities. You know, so I think we see, you know, optimism. You know, we were at the HIMSS trade show, which was well attended in Q1, the largest retail show, as we mentioned in the script earlier. But, you know, I think that we've seen optimism among our partners and our customers, just like the other verticals in manufacturing and T&L. We'd like to see more of that optimism turn into real orders, like we're seeing in retail.

Meta A. Marshall: Tablets as an example around home health care opportunities.

Meta A. Marshall: So I think we see.

Meta A. Marshall: The optimism.

Speaker Change: We were at the HIMSS Tradeshow.

Speaker Change: Which was well attended and in Q1.

Speaker Change: Largest retail shows you mentioned in the in the script earlier, but you know I think that we've seen optimism on the point of our partners and our customers just like the other verticals and manufacturing in P&L, we'd like to see more of that optimism turned into real orders like we're seeing in retail.

Robert W. Mason: The next question comes from Rob Mason with Baird. Please go ahead.

Speaker Change: Thank you.

Speaker Change: The next question comes from Rob Mason with Baird. Please go ahead.

William J. Burns: Yes, good morning. Bill, you've touched on it a couple of times, just the run rate business; you haven't necessarily seen signs of recovery there yet. I just wanted to see if you could put a finer point on the expectations there for the year, just in the context of your overall guide, sales guide up 1 to 5% relative to, maybe, the large deal side of it.

Robert W. Mason: Hi, Yes, good morning Bill.

Robert W. Mason: Bill you've touched on it a couple of times just the run rate business you haven't necessarily seen.

Robert W. Mason: Signs of recovery there yet I was just wanted to see if you could put a finer point on the expectations. There for the year just in the context of your overall guide.

Robert W. Mason: Our sales guide up 1% to 5%.

Robert W. Mason: Relative to the maybe the large deal side of it.

William J. Burns: Yeah, I would say that, you know, our thought is probably relatively flat. I think we expected large deals to recover first. We expect, you know, mid tier, and run rate to recover after, as we've talked about already. I think there's been a lot of optimism on the part of our partners and our distributors in this area.

Robert W. Mason: The business.

Speaker Change: Yeah, I would say that our thought is probably relatively flat.

Speaker Change: I think we expected large deals to recover first we expect.

Speaker Change: Mid tier and run rate to recover after as we've talked about already I think there's been a lot of optimism on the part of our partners and our distributors in this area and we just want to see more progression I think more than anything else. That's you know.

Robert W. Mason: And we just want to see more progression, I think more than anything else. That's, you know, that's kind of where we're at. And typically, large deals are the first to decline and then followed by, you know, mid tier, and run rate because long range is kind of the longer tail. And I think we're going to see that same thing in recovery. We haven't seen it yet, so I think that that's the challenge we're facing.

Speaker Change: That's kind of where we're at.

Speaker Change: We typically large deals are the first to decline and then followed by mid tier and run rate because long range is kind of a longer tail and I think we're going to see that same thing in recovery.

Speaker Change: We haven't seen it yet so I think that that's the challenge we're seeing I wish the visibility was better through the year and I think consequent with our guide.

Robert W. Mason: I wish the visibility was better throughout the year. And I think the consequence with our guide, you know, is that we're kind of guiding to what we see from a visibility perspective. And we just haven't seen the recovery in the mid-tier or run rate yet. And with the optimism out there, the opportunities seem to be there. You know, everybody wants to go after it. We just need to see more of it really happen and turn into worse. I got it.

Speaker Change: Is that we're kind of guiding to what we see from a visibility perspective, and we just haven't seen the recovery in mid tier or run rate, yet and the optimism is out there the opportunities seem to be there you know.

Speaker Change: Everybody wants to go after we just need to see more of a it really happened in turning to worse I think Rob you said plan. When you say the flat Q1 to two to three in terms of overall revenue.

Nathan Andrew Winters: I think, Rob, you see that play when you say the flat rate, kind of Q1 to Q2 to Q3 in terms of overall revenue. [inaudible] Yeah.

Speaker Change: Just because that's what we see in terms of the trajectory across all the different categories of business without seeing that inflection point of a dramatic uptick again, that's why we feel that that was the appropriate guide based on what we're seeing today across all those different categories.

Robert W. Mason: Yep, understood. And then, just as a follow-up, Nathan, could you tell us what the placeholder you have slotted into the guidance for debt reduction is for the year? I would assume that, um...

Speaker Change: Understood.

Speaker Change: And then just as a follow up Nathan could you.

Nathan Andrew Winters: Tell us what the placeholder you have slotted in to the guidance for debt reduction is for the year.

Nathan Andrew Winters: I would assume that.

Nathan Andrew Winters: I would assume that the vast majority of the cash, the $600 million of pre-cash flow, will either go to debt pay down, maybe a little bit in terms of held in cash at some modest interest rate, but the vast majority would go to debt pay down.

Nathan Andrew Winters: The vast majority of the cash converting $600 million of free cash flow will either go to.

Nathan Andrew Winters: Debt pay down maybe a little bit in terms of held held in cash.

Nathan Andrew Winters: Some modest interest rate, but the vast majority would go to debt paydown.

Speaker Change: Very good thank you.

Ken Newman: The next question comes from Ken Newman with KeyBank Capital Markets. Please go ahead.

Speaker Change: Thank you.

Speaker Change: The next question comes from Ken Newman with Keybanc capital markets. Please go ahead.

William J. Burns: Hi, good morning, guys. Thanks for squeezing me in. Uh, most of my questions have been asked. Good morning.

Ken Newman: Hi, Good morning, guys. Thanks for squeezing me in.

Ken Newman:

Ken Newman: Thanks. Good morning, most of my questions have been asked but just wanted to ask a longer term higher level question.

Ken Newman: Most of my questions have already been asked, but I just wanted to ask a longer-term, higher-level question. Obviously, you've got some very significant operating leverage implied for the back cap, and I think that's mostly just on the easier comparisons on the volume side. As we think about, you know, maybe returning more towards a normalized operating environment, how do you think about the run rate operating leverage or the run rate incremental EBITDA margins? Given all the cost-out initiatives that you've executed on, would you think that's structurally higher than what we've seen in past cycles, or is that still too early to tell?

Ken Newman: Obviously, you've got some very significant operating leverage and fly for the back half and I think that's mostly just on easier comparisons on the volume side.

Ken Newman: As we think about.

Ken Newman: Maybe returning more towards a normalized operating environment.

Ken Newman: How do you think about the run rate operating leverage or the run rate incremental EBITDA margins given all the cost out initiatives that you've executed on would you would you think that structurally higher than what we've seen in past cycles or is that still too early to tell.

Nathan Andrew Winters: Yeah, as you mentioned, obviously, the volume leverage or the, you know, the margin expansion of the second half is highly correlated with increased volume along with, you know, coupled with the restructuring actions we took throughout throughout last year, and really, for us, the target was to get back to above 20% as the baseline so that we can grow and scale from there. And I think it is still too early to tell in terms of what exactly that framework looks like.

Speaker Change: Yeah as you mentioned, the obviously the volume leverage.

Ken Newman: Margin expansion in the second half.

Ken Newman: Highly correlated with.

Ken Newman: No.

Ken Newman: The increased volume along with coupled with the restructuring actions, we took throughout throughout last year and really for us the target was to get back to above 20%.

Ken Newman: As the baseline so that we can grow and scale from there.

Ken Newman: And I think it's still too early to tell in terms of what.

Ken Newman: With that framework it looks like I'd say historically, we've looked at a 30% incremental decrementals in a normal quarter quarter in quarter out fundamentally the business Hasnt changed in terms of what you would expect over time, we'd expect that to be a little bit greater as well.

Nathan Andrew Winters: I'd say, you know, historically, we've kind of looked at 30% incremental decrements in a, you know, a normal quarter, quarter in, quarter out. Fundamentally, the business hasn't changed in terms of what you would expect. Over time, we'd expect that to be a little bit greater as we scale some of these new emerging markets like machine vision or software that have inherently higher gross margins. So I think that's probably the best way to think about it now until the dust settles and we get to some normalcy both from a year-on-year as well as a sequential perspective. Very good. Thanks for the feedback...

Ken Newman: We scale some of these new emerging markets like machine vision software that have inherently higher gross margin, but I think that that's probably the best way to think about it now until the dust settles and we get to some normalcy both from a year on year as well as a sequential perspective.

Speaker Change: Very good thanks for the.

Ken Newman: Very good. Thanks for the help there.

William J. Burns: This concludes our question and answer session. I would like to turn the conference back over to Mr. Burns for any closing remarks.

Speaker Change: Help there.

Speaker Change: Thank you.

Speaker Change: This concludes our question and answer session.

William J. Burns: I would like to turn the conference back over to Mr. Burns for any closing remarks.

William J. Burns: Yeah, I'd like to thank our employees and partners for the stronger than expected start to the year and positioning Zebra to return to growth in the second half of the year. We look forward to seeing analysts and investors at our Innovation Day in two weeks.

Burns: Yes, I'd like to thank our employees and partners for the stronger than expected start to the year end positioning zebra to return to growth in second half year.

William J. Burns: We look forward to seeing our analysts and investors that are in but innovation day in two weeks have a great day, everyone. Thank you.

Operator: Have a great day, everyone. Thank you. Thank you. The conference has now concluded. Thank you for attending today's presentation.

Speaker Change: Thank you.

Speaker Change: The conference has now concluded.

Speaker Change: Thank you for attending today's presentation you may now disconnect.

Operator: Thank you. The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.

William J. Burns: Goodbye.

William J. Burns: [music].

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