Q1 2025 Zebra Technologies Corp Earnings Call
Good day and welcome to the first quarter 2025, Zebra technologies earnings Conference call.
All participants will be in listen only mode should you need assistance. Please signal conference specialist by pressing the star key followed by zero. After today's presentation there'll be an opportunity to ask questions. Please note. This event is being recorded.
Mike Steele: And now I'd like to turn the conference over to Mike Steele, Vice President Investor Relations. Please go ahead.
Speaker Change: 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.
Speaker Change: Our forward looking statements are based on current expectations and assumptions and are subject to risks and uncertainties.
Speaker Change: Actual results could differ materially and we refer you to the factors discussed in our SEC filings.
Speaker Change: During this call we will reference non-GAAP financial measures as we describe our business performance you can find reconciliations at the end of the slide presentation and in today's earnings press release.
Speaker Change: Throughout this presentation, unless otherwise indicated our references to sales performance our year on year on a constant currency basis and exclude results from recently acquired businesses for 12 months.
Speaker Change: This presentation will include prepared remarks from Bill Burns, our Chief Executive Officer, and Nathan Winters, Our Chief Financial Officer.
Speaker Change: Bill will begin with a discussion of our first quarter results.
Nathan Winters: Nathan will then provide additional detail and discuss our outlook.
Speaker Change: Bill will conclude with progress on advancing our strategic priorities.
Speaker Change: Following the prepared remarks spill and Nathan will take your questions.
Speaker Change: Now, let's turn to slide four as I hand, it over to Bill.
Bill Burns: Thank you Mike Good morning, and thank you for joining us.
Speaker Change: Our teams executed well in the first quarter delivering results above our outlook.
Speaker Change: As we enter our customers navigate through an unpredictable environment I wanted to begin by highlighting a few points before recover our results in greater detail.
Speaker Change: We have made significant progress over the past 18 months, you're returning to profitable growth extending our market leadership and advancing our portfolio of solution.
Speaker Change: Well there is macroeconomic uncertainty our first quarter results were strong and the demand environment has remained positive into the second quarter.
Speaker Change: We are well equipped to navigate the current landscape.
Speaker Change: Our solutions are critical in any economic environment, and we continue to expand our market reach and opportunity.
Speaker Change: We have made substantial progress diversifying our supply chain beyond China over the past several years and we have a capital light business model, which enables us to remain agile.
Speaker Change: We have a track record of preserving key investments in our business to accelerate long term growth and challenging times, while protecting profitability.
Speaker Change: And we remain well positioned to benefit from secular trends that digitize and automate workflows with our portfolio of innovative solutions.
Speaker Change: Now turning to Q1 result.
Speaker Change: As we discussed in our last earnings call strong retail year end project spending carried over into January.
Speaker Change: Demand in the quarter remained strong driving sales growth above our guidance range.
Speaker Change: For the quarter, we realized sales exceeding $1 3, billion% to 12% increase compared to the prior year.
Speaker Change: And adjusted EBITDA margin of 22, 3%, a 240 basis point increase.
Speaker Change: And non-GAAP diluted earnings per share of $4, <unk>, which was 42% higher than the prior year.
Speaker Change: We realized strong broad based growth across all major product categories and regions.
Speaker Change: We also saw double digit growth across most of our vertical end markets.
Speaker Change: With high single digit growth in manufacturing.
Speaker Change: From a profitability perspective, we achieved the highest quarterly gross margin in more than a decade and significant operating leverage resulting in strong improvement in profitability.
Speaker Change: As we enter the second quarter, we continued to see solid demand in the business is continuing to perform well.
Speaker Change: Ever we remain agile to changes in this dynamic environment.
Speaker Change: You need to take actions to mitigate tariffs.
Speaker Change: I will now turn the call over to Nathan to review, our Q1 financial results tariff considerations and outlook.
Nathan Winters: Thank you Bill, let's start with the P&L on slide six.
Speaker Change: In Q1 total company sales grew approximately 12% refer.
Speaker Change: Reflecting continued recovery in demand across our major product categories unfavorable prior year comparisons, particularly for printing.
Speaker Change: And our services and software recurring revenue business grew slightly in the quarter.
Speaker Change: Our asset intelligence and tracking segment sales increased 18%.
Speaker Change: And enterprise visibility <unk> mobility segment sales grew 9%.
Speaker Change: We realized strong sales growth across our regions.
Speaker Change: In North America sales grew 7% with growth in all product categories, and particular strength in data capture Brent and RFID.
Speaker Change: EMEA sales grew 18% with strength in northern Europe.
Speaker Change: Pacific sales increased 13% led by Australia, and New Zealand.
Speaker Change: And sales grew 18% in Latin America, with particular strength in Mexico.
Speaker Change: Adjusted gross margin increased 150 basis points to 49, 6%, primarily due to favorable business mix and volume leverage.
Speaker Change: Adjusted operating expenses as a percentage of sales improved by 100 basis points.
Speaker Change: This resulted in first quarter adjusted EBITDA margin of 22, 3%.
Speaker Change: 240 basis point increase versus the prior year.
Speaker Change: non-GAAP diluted earnings per share were $4, 2% to 42% year over year increase and above the high end of our outlook.
Speaker Change: Turning now to the balance sheet and cash flow on slide seven.
Speaker Change: For the first quarter, we generated $158 million of free cash flow as we drove improvements in EBITDA working capital and inventory levels.
Speaker Change: We ended Q1 at a one point to net debt to adjusted EBITDA leverage ratio.
Speaker Change: As our cash flow is recovered and net debt levels have moderated we have increased flexibility to deploy capital consistent with our allocation priorities.
Speaker Change: We repurchased $125 million of stock in Q1, and another $75 million in April.
Speaker Change: And as a part of our continued efforts to scale our expansion in adjacent markets on February 28, we acquired photo media, a leading three D machine vision company based in eastern Europe for $62 million.
Speaker Change: This profitable business will contribute approximately 30 basis points to zebras overall sales growth in 2025.
Speaker Change: Now turning to slide eight.
Speaker Change: As bill outlined we are well equipped to navigate the global environment.
Speaker Change: We deliver solutions that are critical to our customers and diverse end markets.
Speaker Change: Our capital light business model as a flexible cost structure given that we outsource most manufacturing and the vast majority of our products are fulfill through third party distribution.
Speaker Change: We have a strong free cash flow profile with more than $1 billion generated over the trailing four quarters.
Speaker Change: And as I just mentioned our balance sheet is in excellent shape with nearly $900 million of cash modest debt levels and $1 5 billion credit capacity.
Speaker Change: We will continue to take appropriate actions to preserve profitability and prioritize business investments that improve our competitive position and create long term value for shareholders.
Speaker Change: Due to the global nature of our supply chain like many other electronic manufacturing companies we.
Speaker Change: We are subject to recently enacted U S import tariffs on slide nine we provide an update on the anticipated impacts from tariffs on our products imported to the United States and our efforts to mitigate them.
Speaker Change: We are now assuming an $80 million to $90 million annualized gross profit impact after mitigating actions.
Speaker Change: This assumes the current effective rates, including the electronics and U S MCA exemptions.
Speaker Change: Our mitigating actions have included shifting additional North America production out of China, and approximately $80 million of recently announced annualized pricing adjustments.
Speaker Change: For the full year 2025, we are now assuming approximately $70 million gross profit impact after mitigation.
Speaker Change: With a $25 million to $30 million impact in the second quarter, following a $3 million impact in Q1.
Speaker Change: We will continue to evaluate additional opportunities to mitigate U S import tariffs as we monitor global trade policy developments. These.
Speaker Change: These potential actions will include additional shifting of global production product portfolio optimization and additional price adjustment.
Speaker Change: Let's now turn to our outlook.
Speaker Change: We entered the second quarter with a solid backlog and pipeline to support our sales guide and expect Q2 growth between 4% and 7%.
Speaker Change: With a net neutral impact from our most recent acquisition and FX.
Speaker Change: The weaker U S dollar since our last earnings call has resulted in FX being less of a headwind than previously anticipated.
Speaker Change: Our second quarter adjusted EBITDA margin is expected to be approximately 19%.
Speaker Change: Which assumes impacts from U S import tariffs exceeding 200 basis points.
Speaker Change: And non-GAAP diluted earnings per share is expected to be in the range of $3 to $3 50.
Speaker Change: For the full year, we are leaving our guidance unchanged.
Speaker Change: With the exception of the direct cost of tariffs.
Speaker Change: Full year sales guidance remains between three and 7% in.
Speaker Change: And assumes a net neutral impact from FX and recent acquisitions.
Speaker Change: Given our solid Q1 results and Q2 guidance, we would typically raise the outlook.
Speaker Change: That said, while we have not seen any meaningful shift in customers' purchasing behavior to date.
The fluid global trade policies and related impacts on our customers remains uncertain.
Speaker Change: We are now modeling at $70 million gross profit impact from tariffs for the full year.
Speaker Change: Which is $50 million higher than our prior guidance.
Speaker Change: Consequently, we are reducing our full year adjusted EBITDA margin outlook by 100 basis points to between 20 and 21% to reflect the increased direct cost of tariffs.
Speaker Change: And non-GAAP diluted earnings per share to the range of $13 75 to.
Speaker Change: <unk> to $14 75.
Speaker Change: Free cash flow for the year is expected to be at least $700 million.
Speaker Change: Which reflects the impact of tariffs and implies free cash flow conversion.
Speaker Change: In excess of 90%.
Speaker Change: As we continue to monitor and navigate the evolving environment.
Speaker Change: We will remain agile and continuing to work on further optimizing our working capital levels balance with our supply chain resiliency initiatives.
Please reference additional modeling assumptions shown on slide 10.
Bill Burns: With that I will turn the call back to Bill.
Speaker Change: Thank you Nathan turning to slide 12 as.
Speaker Change: As we navigate the near term uncertainty zebra remains well positioned to benefit from secular trends to digitize and automate workflows with their portfolio of innovative solutions, including purpose built hardware software and services.
Speaker Change: We optimize the frontline with solutions that intelligently connect people assets and data to help our customers make business critical decisions.
Speaker Change: Innovation remains central to our industry leadership, and we have consistently reinvested approximately 10% of our sales in our research and development to advance our portfolio of solutions.
Speaker Change: We augment our organic efforts with strategic acquisitions that advance our vision.
Speaker Change: As evidenced by our recent closing of photo Neal, which will expand our three D machine vision solution in our manufacturing logistics and other key markets.
Speaker Change: As you will see on slide 13, Zebra solutions enable our customers across a broad range of end markets to drive revenue boost productivity and efficiency and to optimize the frontline delivering improved service to their customers shoppers and patients.
Speaker Change: The challenges of an on demand economy e-commerce growth evolving regulations.
Speaker Change: And labor constraints require increased adoption of automation.
Speaker Change: Here are some recent examples of customers transforming their workflows.
Speaker Change: A large transportation logistics provider increased throughput and real time asset visibility for hands free package handling by upgrading to our new compact all in one wearable mobile computing solution.
Speaker Change: Our North American auto parts retailer is improving inventory accuracy through real time cycle counts and increasing operational productivity as they deploy our new mobile computers to their store associates and drivers.
Speaker Change: The large government agency is improving their supply chain efficiency by modernizing their warehouse and tracking of high value cargo with zebras fixed and mobile RFID solution.
Speaker Change: These projects demonstrate how customers rely on us to navigate their technology journey through a workflow expertise and commitment to innovation.
Speaker Change: At the <unk> manufacturing and supply chain change, though in March zebra, along with our partners showcased our expanding portfolio of solutions that enable customers to accelerate warehouse modernization with faster cycle times improved quality and increased visibility.
Speaker Change: We also launched the Aurora velocity scan tunnel, which integrates our machine vision smart cameras, RFID readers and our Aurora software for vertical specific use cases and workflows.
Speaker Change: Slide 14 highlights how zebra addresses manufacturers biggest challenges.
Speaker Change: Operators are faced with increased demand for speed and accuracy, while ensuring product quality.
Speaker Change: To address these challenges decision makers are investing in zebra solutions to provide actionable visibility optimized quality and a technology augmented workforce.
Speaker Change: Zebra is helping customers like Paris right.
Speaker Change: <unk> robotics, bimbo bakeries, deploy and integrate our technology into their manufacturing environments, enabling work in progress tracking communication and collaboration quality control and improved forecasting.
Speaker Change: Additionally, as manufacturing customers look to diversify their supply chains and make global production moves zebra can partner with them to equip their operations.
Speaker Change: In closing as we navigate through the near term environment, our confidence in sustainable long term growth is underpinned by several key themes, including labor and resource constraints track and trace mandates increased consumer expectations advancements in artificial intelligence and the need for real time supply.
Speaker Change: Jane visibility.
Speaker Change: As we move forward, we remain focused on advancing our industry leadership with our innovative solutions that digitize and automate our customers' workflows.
Speaker Change: Serving our customers well and driving profitable growth.
Mike Steele: I will now hand, it back to Mike.
Mike 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 to give everyone a chance to participate.
Mike Steele: We will now begin the question and answer session to ask a question you May Press Star then one on your Touchtone phone.
Mike Steele: We're using a speakerphone please pick up your handset before pressing the keys.
Mike Steele: Your question. Please press Star then two.
Mike Steele: At this time, we will pause momentarily to assemble our roster.
Jamie Cook: Our first question comes from Jamie Cook with <unk>. Please go ahead.
Jamie Cook: Hi, Good morning, I guess my first question just is on the demand picture.
Jamie Cook: It doesn't sound like it but did you see a change in demand throughout the quarter or going into it.
Jamie Cook: And then to April.
Jamie Cook: And what your clients are sort of saying customers are saying about demand trends.
Jamie Cook: And then I guess my second question just around tariffs.
Jamie Cook: Does sound like Youre contemplating.
Jamie Cook: I'm, making.
Speaker Change: You know again contemplating making changes to your manufacturing footprint and how to mitigate the risk of tariffs can you just go into a little more detail about what actions you're planning on taking thank you.
Speaker Change: So Jamie this is bill we entered 2025 supported really by strong retail yearend spending in fourth quarter that really carried into the first quarter and that demand has remained strong through April so we've seen despite the global.
Speaker Change: Trade uncertainty overall customers have remained positive capital budgets remained intact projects continue to move forward.
Speaker Change: And but.
Speaker Change: But at the same time our customers are.
Speaker Change: Navigating what the global trade environment, it really means to their businesses, but you know so.
Speaker Change: So far to date, we haven't seen any real change in behavior by our customers.
Speaker Change: Overall they did.
Speaker Change: They many of our customers I would say overall are still digesting. What this really means and I think you know for US. That's the reason why we decided that holding our sales outlook for the full year was the.
Speaker Change: The best decision for Us I'd.
Speaker Change: I'd say from a tariff perspective, and global supply chain moves certainly it's a dynamic environment.
Speaker Change: We've engaged certainly our network of resources industry experts, what's happening across government affairs and to really understand.
Speaker Change: Trade policy and all the.
Speaker Change: Uncertainty around that we've got a dedicated team established that monitors. These changes the necessity the potential impact and then ultimately designs mitigation strategies I would say, we continually assess our manufacturing footprint and have done that over the last several years to consider factors such as geopolitical stability.
Speaker Change: <unk> operational capabilities cost overall, and we've made significant changes to diversify our supply chain over the last several years.
Speaker Change: To make sure that ultimately we can serve.
Speaker Change: Our customers with the highest quality and lowest cost we can so we continue to monitor the situation and make changes as necessary.
Speaker Change: Just one follow up.
Speaker Change: Our next question comes from peers.
Speaker Change: <unk> with Citi. Please go ahead.
Speaker Change: Good morning, guys. Thanks for taking my questions.
Speaker Change: Good morning.
Speaker Change: Hey, Paul I think you guys highlighted strong broad based growth across your verticals can you elaborate on your manufacturing end markets.
Speaker Change: Michael has lagged versus other verticals, so absolutely paying off 25 guidance based on your conversations with your customers do you have good visibility Peter signal a more sustained improvement in the underlying demand across this vertical.
Speaker Change: Yes, I'd say that if we look at our first quarter overall and and year to date through April we saw broad based recovery.
Peter: Covered continue across most of our vertical markets were up double digits. You know manufacturing is still somewhat lagging but still up.
Speaker Change: <unk> digits.
Speaker Change: Okay.
Speaker Change: <unk> continued improving sales trends, but of course, you know the global trade environment is weighing on on manufacturing, but we continue to see year on year growth you know as I said up high single.
Speaker Change: <unk> in first quarter.
Speaker Change: But overall lagging the other sectors.
Speaker Change: From a manufacturing perspective, I'd say, if you look at the other verticals retail and e-commerce were up double digits.
Speaker Change: <unk> logistics saw strong growth.
Speaker Change: Health care continues to be a strength for us, but you know manufacturing grew just not as fast as the other verticals.
Speaker Change: Got it.
Speaker Change: I think following up on Jamie's question like on your mitigation actions of electrical power apps like you've talked about shifting production from China to Liberty Global locations can you can you comment on the typical timeline and the cost that it would take to implement this you modestly raised your capex expectation progress here. So maybe that explains some of it but any additional color would be helpful.
Speaker Change: Yes. So if you look historically just again, depending on the location it could take 12 to 18 months depending on.
Speaker Change: What location is there an existing location or is it a.
Speaker Change: Greenfield in terms of opportunity so it depends on where the move is happening.
Speaker Change: We actually bear with little of the capital expenditures. So typically it's in some of the tooling costs.
Speaker Change: Large portion of that.
Speaker Change: With our manufacturing partners that we pay for over time and the bill of materials. So it's that relatively high in terms of Capex I think right now the weighing factor as we've had a series of actions ongoing as we entered the year those are all going to be complete here.
Speaker Change: Within this quarter. So those production moves are done and incorporated in the overall guide I think what we're waiting for next is certainty around the overall policy. So that we can make the best decision for the business in terms of.
Whereas you know the right place to move production for the long term, but we do need some clarity around where the policies lands in terms of tariff impacts we can make the best decision.
Speaker Change: Our next question comes from Brad.
Speaker Change: Wolfe Research. Please go ahead.
Brad: Hi, Good morning, guys. Thanks, taking my questions.
Speaker Change: Good morning, good morning, Brad.
It sounds like you guys are embedding our gross tariff headwind at about $150 million for the year before any mitigation actions is that correct and then can you clarify the tariff rates youre, assuming for the various countries as well as the impact and duration of the exemptions on the mobile computers and scanners and then.
Speaker Change: Also curious what youre, assuming in terms of potential sectorial tariffs on electronics. Thank you.
Speaker Change: Yeah. So if you look at our guide includes I'd say, probably most simple way to say what is effective as of today.
Speaker Change: Doesn't assume any changes in the rates or exclusions through the balance of the year.
Speaker Change: So would that include this incremental 145% tariff on U S imports from China.
Speaker Change: 10% from other Asian countries, but I think it's important to note that most of our mobile computing portfolio, which includes about two thirds of our China sourced imports are currently exempt.
Speaker Change: With the electronics exemption from the reciprocal tariffs, but not the original 20% increase in China and we also continue to receive U S. MCA retreat exemption out of our Mexico production. So it's.
Speaker Change: Kind of depends on which of the portfolios in terms of where its produced but that's that's what's incorporated into the guide so the incremental $70 million.
Speaker Change: Again net of all the ongoing actions that we expect to be complete by the middle of the year as well as the increased pricing, which is about $50 million.
Speaker Change: Overall that 70 million to $50 million increase from our prior guidance.
Speaker Change: So again I think that's the best estimate we have today and we will adjust accordingly as the rates are finalized here over the coming months, but again assumes what's effective today with no window changes through the balance of the year.
Speaker Change: Our next question comes from Andrew Scott with me.
Speaker Change: Paradise. Please go ahead.
Andrew Scott: Hey, good morning, everyone.
Speaker Change: Good morning, good morning.
Speaker Change: So for the guidance.
Speaker Change: Offline you held you hold that at up three three to seven.
Speaker Change: <unk> not have changing presumably pricing can you can you elaborate on the magnitude of the price increases you expect to implement and then any impact of volume you're assuming for the year.
Speaker Change: Yes, so as you said, we're leaving our full year outlook unchanged with the exception of the direct cost of tariffs.
Bill Burns: And as Bill mentioned the demand trends, we continue to be positive here into the second quarter.
Bill Burns: We haven't seen a pullback on projects to date. Despite the tariff uncertainty I think it's also important to note, we're not assuming a material step down in demand due to the economic downturn here over the coming months, but that's the overall, taking a cautious view of second half sales growth given the environment and maybe the other thing the year's playing out to date as expect.
Bill Burns: We've had several new tailwind.
Bill Burns: But again, we also wrote and think it was appropriate to raise the full year sales guide given the uncertainty. So if you look at some of those tailwind I mean, obviously the Q1 beat.
Bill Burns: As a bit favorable FX is about 100 basis points favorable from the prior guide.
Bill Burns: Pricing was a bit of an incremental 70 70 bps. So they all stack up in terms of what would have been let's say upside to our original guidance.
Bill Burns: Effective we've taken those to the bank and offset demand pressure.
Bill Burns: <unk> demand pressure in the second half so.
Bill Burns: Where our previous guide for the second half assumed mid single digit growth. That's now down to low single digit growth in the second half again, we just think that's overall appropriate given the overall uncertainty in the environment.
Bill Burns: Okay. Okay.
Speaker Change: Okay, and then I know you commented on manufacturing can you comment on transportation and logistics as Youre, saying Youre seeing strong growth there, although some of the headlines from the bigger transport names are pretty negative.
Bill Burns: Even if you asked this morning.
Bill Burns: Pulling their guidance so.
Speaker Change: Yeah can you talk a little bit more on seeing.
Bill Burns: And why Youre not seeing what.
Speaker Change: So those headlines are.
Bill Burns: Implying.
Bill Burns: Yes, I would say that.
Bill Burns: We saw double digit growth in transportation logistics really.
Bill Burns: In first quarter I think some of it is explained by being a truly global business right inside transportation logistics, we also postal and and other carriers in there beyond.
Bill Burns: <unk> just parcel delivery.
Bill Burns: Say globally e-commerce demand continues to be positive and grow I think there's certain aspects of it.
Bill Burns: Different business, where their shift of demand across different carriers and others. So I think.
Speaker Change: In your example, there was.
Speaker Change: Clearly some business that.
Speaker Change: They decided not to move forward with which is impacting there.
Speaker Change: Their demand for parcel delivery, but then that.
Speaker Change: Shifts to the other carriers or or two you know ecommerce providers themselves. So then we benefit somewhere else so I'd say no.
Speaker Change: No we're seeing.
Speaker Change: No up double digits certainly.
Speaker Change: Depending on what happens with the broader <unk>.
Speaker Change: Trade environment could impact transportation logistics moving forward, but to date, we haven't seen.
Speaker Change: Any change there is an opportunity there as well with RFID. So beyond our core products RFID deployments continue to grow within transportation logistics to create more efficiencies within their business and across the supply chain. So that remains another opportunity for us. So I'd say overall globally we've seen.
Speaker Change: Transportation logistics ROIC.
Speaker Change: Pro double digit in the first quarter and continued to be strong as we enter second quarter.
Damian Karas: Our next question comes from Damian Karas with UBS. Please go ahead.
Damian Karas: Hey, good morning, everyone.
Jamie Cook: Good morning, Jamie.
Jamie Cook: Just a follow up question on the demand strength that you're seeing.
Jamie Cook: Just curious.
Speaker Change: Yep, Thanks, Ed any of that might be related to.
Speaker Change: Some pull forward of demand maybe customers trying to hire some loose and just get some work done before our cost inflation starts ramping or.
Speaker Change: Distributor partner stocking up on inventory, maybe you can just kind of talk to that and get a sense for where you think channel inventories are at the moment.
Speaker Change: Yeah, maybe I'll start and then they can jump in I would say that we have not seen pull forward behavior by our customers are.
Speaker Change: Our price increases.
Speaker Change: Go into effect at the end of April here overall, we haven't seen any change in behavior of end customer.
Speaker Change: Or our partners or distributors.
Speaker Change: Due to tariffs I think ultimately, it's certainly weighing on sentiment and is in the or.
Speaker Change: A lot of conversations we're having with them are all conversations, but they really haven't changed their their behavior and I would say inventory levels around the world that we've been working closely with our distributors to make sure they've got the right level of inventory overall as we've seen market recovery and we feel good about inventory.
Jamie Cook: Levels to date, I think Jamie the other thing that's important to note with our distributors.
Jamie Cook: When the price effect goes into place. We also adjust anything they are holding in inventory. So there's no. There's no advantage to a distributor stocking ahead of the price increase so it's really the.
Jamie Cook: The market price to the end user so again, there's no there's no risk of distributor stocking up ahead of the price increase.
Jamie Cook: And again as Bill mentioned I think the Q1 as well as Q2's, playing out as you know it can be expected.
Jamie Cook: Since the beginning of the year, which again just doesn't really have to see any material movements in Poland.
Jamie Cook: Get ahead of the price increase today.
Speaker Change: Our next question comes from Tommy Moll with Stephens. Please go ahead.
Tommy Moll: Good morning, and thanks for taking my questions.
Jamie Cook: Good morning, Tommy.
Speaker Change: Follow up question on the price increases Bill I think I just heard you say, they're effective end of April.
Speaker Change: Can you quantify or give us any detail.
Speaker Change: Any other detail on.
Speaker Change: Conviction level in being able to stick with the full.
Speaker Change: Amount of the increase does it feel like as a market leader in many cases, you're on the more aggressive side and pushing price here or do you feel like what you've outlined is pretty consistent with others. Thanks.
Speaker Change: Yeah, I think that.
Speaker Change: We feel good about the price increases on the analytics, we do around our pricing in the market is important that we have competitive pricing.
Speaker Change: In the U S market, specifically and we've done a lot of work and a lot of.
Speaker Change: Thought around price increases and obviously prefer not to increase price, but in this case, we have no choice I believe its consistent with what our competitors are doing and what we're seeing from them in the marketplace overall and I think we continue to monitor and we'll continue to monitor where we stand from a competitive pricing person.
Speaker Change: <unk>, we move forward, we have no reason to believe they won't stick certainly our largest customers get the best pricing right and the highest volumes in others and I think that will continue to work with them and be agile when it comes to pricing as we need to continue to sell value and make sure that we're winning the opportunities out there, but I think we.
Speaker Change: We feel okay about the price increases would rather not have increased price. We just don't have a choice.
Speaker Change: In this case to offset the tariffs, but we've been very thoughtful about it and we feel pretty good about where we're at with.
Speaker Change: The reason we picked the end of April was to give this some time to play out and you know there has been significant changes along the way is the unpredictable nature of this so we think we've made the right decision.
Speaker Change: And we will see hopefully things going on as we get better and in that case would pull back some of the price increases if we can.
Speaker Change: <unk>.
Speaker Change: Ultimately.
Speaker Change: From an end market perspective that would be the right thing to go do.
Speaker Change: Thanks, Bill and as a follow up I wanted to talk about your visibility in terms of demand going back to last quarter.
Speaker Change: If I recall correctly the visibility into this year was less than typical and there were some commentary you offered just around <unk>.
Speaker Change: Customers delaying finalized budget decisions et cetera.
Speaker Change: Today is that visibility improved at all or would you characterize it in a similar fashion.
Speaker Change: Yeah, I would say, it's not as much about visibility that visibility actually.
Speaker Change: It has gotten better it's really about uncertainty at this point. So I would say that you know when I'm, having conversations with you know our executives our customers <unk> and others.
Speaker Change: The beginning of the conversation is really around it.
Speaker Change: Hum 15 minutes or so on on just tariffs impacts on their business our business.
Speaker Change: The impacts on our global economy generically and then.
Speaker Change: Ultimately it moves on to the projects that we're working together on but no mention of POS cuts are pulling back it's really about hey, we've got these projects going how are they progressing and the appreciation of them as a customer and us as a partner delivering for them and then ultimately.
Speaker Change: The conversation switches to the future how do we continue to talk about future technology deployments and move ahead with them. So it's a visibility actually had gotten better and what's ramped up as really uncertainty from a global perspective around tariffs more than anything else and the conversations are.
Speaker Change: Clearly dominated by tariff, but really it's not about pulling back or changing behavior. It's more about just the concern and the uncertainty that's out there today and that's weighing on certainly theyre sediment.
Speaker Change: Our next question comes from Guy Heartland Hartwig with Freedom capital markets. Please go ahead.
Guy Hartwig: Hi, good morning, congratulations on excellent results.
Andrew Scott: Thanks Scott.
Andrew Scott: I appreciate that.
Andrew Scott: It delivered double digit organic growth, but it looks like seasonality that Q1 was better than normal seasonality.
Andrew Scott: On a sequential basis, perhaps you could maybe expand a little bit on which end markets or businesses did better than perhaps you would expected given seasonality.
Andrew Scott: Yeah, I'd say that you know we saw.
Andrew Scott: Broad based recovery really in.
Andrew Scott: Q1, overall and we delivered certainly as you said high end of our outlook and I think we saw it.
Andrew Scott: When I say broad based growth it really was across all product categories across all of our regions and across all of our verticals I would say that you know retail and E. Commerce continued to outperform in the quarter and continues to do that through April as we continue to see strong demand ecommerce and Omnichannel continue to.
Andrew Scott: Drive need for inventory visibility enhanced productivity with in retail stores and things like communication collaboration driving our mobile computing and then ultimately you know us continued to to win in that environment with the breadth and depth of our portfolio and our expertise and customer relationships.
Andrew Scott: Say transportation logistics, you know, we talked a little bit about we saw growth year on year manufacturing, we've talked a bit about already creates an opportunity for zebra is so we had high single digits and manufacturing some challenging areas still within manufacturing, but represents a longer term certainly opportunity for zebra as we're less penetrated inside.
Andrew Scott: Our manufacturing in areas like machine vision, and others create an opportunity for US and then let's say health care up double digit continues to be a strength vertical market for us clinical mobility really driving that market improve patient safety staff communication collaboration efficiency across health.
Andrew Scott: Fair creates an opportunity for us so I would say.
Andrew Scott: All of the vertical strong double digit growth across each high single digits in manufacturing.
Andrew Scott: Growth was pretty broad based so far this year and again I think is what is weighing on our customers. Today is all around really tariffs I think that otherwise the business is going really really well, but we know that ultimately.
Andrew Scott: As this plays out and the unpredictability.
Andrew Scott: <unk>.
Andrew Scott: We'll see what happens, but it is certainly weighing on our customer sentiment.
Andrew Scott: Thank you.
Meta Marshall: Our next question comes from meta Marshall with Morgan Stanley. Please go ahead.
Meta Marshall: Thanks for the question. This is crush of a car on for me congrats on the quarter.
Meta Marshall: Just a quick question I know, there's a lot of uncertainties in a lot of changing scenarios in terms of tariffs and macro. So just wondering how you guys are thinking about being maybe a little bit more opportunistic around gaining share how are you thinking about potential share gains given the uncertainties.
Meta Marshall: And I think we continue to work closely with our customers across each of our vertical markets.
Meta Marshall: As I said, we saw broad based growth across all regions across all products.
Meta Marshall: Across all vertical markets in Q1 and through April, which we feel good about I'd say the competitive landscape hasn't really changed in that you know.
Meta Marshall: Our strength of ultimately our customer relationships.
Meta Marshall: Deep vertical market expertise, we have across the verticals we serve.
Meta Marshall: Breadth and depth of our portfolio overall differentiates us.
Meta Marshall: From the competition.
Meta Marshall: It is a competitive advantage so we believe it ultimately.
Meta Marshall: We're taking share in the marketplace.
Meta Marshall: Technologies, such as AI creates a longer term opportunity for us competitively. So it <unk> in first quarter National retail show, we launched our AI suite for mobile computing, allowing our partners and development partners to zebra itself to build AI solutions.
Meta Marshall: On top of our mobile computing platforms, we announced the zebra companion.
Meta Marshall: The Gen AI assistant for our mobile devices. So we're excited about the near term, where we're winning and our competitive advantage. We have there but also in the longer term you know the idea of embracing as the market leader New technologies, such as AI and leveraging those on our devices gives us.
Meta Marshall: Competitive differentiation in the market and allows us to continue to take share is as we've been doing so we feel good about the breadth and depth of the portfolio.
Meta Marshall: Current state as well as future investments, we're making in areas like AI.
Meta Marshall: I appreciate that and then just quick follow up I know you've mentioned seeing some manufacturing recovery just more specifically on the machine vision business generally how is that tracked Howard that diversification efforts tracking and is that being benefited at all by the manufacturing recovery that you're saying.
Meta Marshall: Yeah. So we say we're excited about the phone photo neo acquisition, which.
It was focused on three D vision capabilities that we closed in first quarter or are there really a leading developer and manufacturer in three D. Vision systems. They were an OEM partner of ours prior and were excited about that acquisition and entering.
Meta Marshall: That space I'd say machine vision declined in the quarter.
Meta Marshall: That's the one area of weakness I would say we saw you know.
Meta Marshall: Driven by manufacturing again manufacturing up high single digits versus double digits across the other areas I would say that our diversification diversification efforts continued to progress we've seen.
Meta Marshall: Better traction within North America.
Meta Marshall: You've seen.
Meta Marshall: Growth in our pipeline and active proof of concepts across multiple verticals. So manufacturing retail transportation logistics. So some of the other vertical markets in areas like scan tunnel, which we released a new version of it at pro Matt.
Meta Marshall: Trade show just over the last month or so.
Meta Marshall: Creates an opportunity for us beyond manufacturing as manufacturers have been lagging a bit but I think we remain excited about the long term opportunities I think it's a challenging market at the moment so you're married.
Meta Marshall: Less strength in manufacturing, but also just the machine vision market overall, but I think as the end market recovers and we expand our market presence and our focus as you said on diversification of it we feel good about this market medium and long term for us.
Keith Weiss: Our next question comes from Keith Weiss.
Speaker Change: Northcoast research. Please go ahead.
Keith Weiss: Good morning, guys. A question two questions for you I guess, Nathan first off with the price increases obviously, what youre passing through here effective April 28 is pretty significant especially in the mobile computing space compare to historical times do you expect your ability to realize those price increases is better than it has been in the past and then is there a potential I guess <unk>.
Speaker Change: <unk> for you here and next year in 2026, assuming a price changes I stay in effect and no sudden changes need to happen to that and then second from a geographical basis you know.
Speaker Change: Surprisingly North America was actually your worst performer at 7% growth, perhaps can you talk a little bit of I think our strength, especially in EMEA and 18% growth is pretty impressive in the current environment. Thanks.
Keith Weiss: Yeah, Keith on the on the first one from a from price realization is.
Bill Burns: Bill mentioned earlier Theres, a lot of factors that go into play, including the competitive considerations cost tariffs.
Bill Burns: Et cetera, I think we never assume 100% realization due to existing contracts projects or just competitive positioning so.
Bill Burns: We've seen historically, whether that goes back to the price increasing we did 19 with the original tariffs or what we did during the supply chain.
Bill Burns: I think we've been pretty consistent in terms of being able to get good realization across our run rate business and then selectively positioning.
Bill Burns: Positioning it with some of our larger customers. So I think we've taken that all into account.
Speaker Change: And the assumption and if we can do better and get a little bit better realization thats upside to what we've embedded in the guidance and in the full year annualized impact and I think that the tailwind for next year, we're quite frankly will play out as Bill mentioned.
Speaker Change: Pending on what changes or where the tariff landscape finally land, we'll adjust the pricing we are priced accordingly, so I'd say if you know it may roll some of that back or we may have to increase just depending on where it goes so I think it's tough to say it'd be a tailwind.
Speaker Change: As much as we will continue to do what we need to to offset as much of the mitigate tariff impact as possible, whether it's through pricing or some of the other operational actions.
Speaker Change: Maybe I'll jump in on the on the markets.
Speaker Change: I would say EMEA.
Speaker Change: Still have to be little careful the percentages are favorable prior year compare certainly in EMEA drove.
Speaker Change: Some of that growth so I think that while all vertical also all regions had.
Speaker Change: Strong growth in the quarter. It was oversized in EMEA really because of prior year compare I would say you know growth there the highest growth in EMEA was really northern Europe, but you know large projects continue, especially in retail there and we saw double digit growth across.
Speaker Change: Most of the markets again manufacturing high single digits. The same theme, we saw globally North America I think we felt good about North America.
Speaker Change: Strong retail.
Speaker Change: Deal activity.
Speaker Change: A year ago, So I think that you know.
Speaker Change: Year at year on year compare not as easy there Doug.
Speaker Change: Double digit growth across all end markets again, except for manufacturing.
Speaker Change: We feel good about scanning and printing and RFID had a strong quarter in North America.
Speaker Change: We feel good about the growth across all regions and the percentage difference in EMEA being strong really was about prior year compare.
Speaker Change: Our next question comes from Ken Newman with Keybanc capital markets. Please go ahead.
Ken Newman: Hey, good morning, guys. Thanks for squeezing me in.
Speaker Change: Good morning, Ken.
Speaker Change: Good morning, So I did want to ask about the net impact on tariffs and this quarter. It looked like it did come in a little bit lower than you were expecting if I remember correctly. I think you were looking for a 7 million dollar headwind and it came in around $3 million can you just talk a little bit about the moving pieces of what drove that better performance was that.
Speaker Change: Just better price realization in the quarter with it some timing of action.
Speaker Change: And then just how to think about the conservatism maybe baked into the guide relative to that 25 $30 million do you expect into Q.
Speaker Change: Yeah, Ken I think it's.
Speaker Change: A couple of things at play one was the team did a phenomenal job.
Ken Newman: Buy as much product as possible before the effective dates so really trying to front end load our demand to get product and so that definitely played a part in terms of the actions the team has taken.
Ken Newman: To to Frontload purchasing ahead of kind of the increase that played a portion of it.
Ken Newman: As well as just what we ultimately capitalized a bit of that on our balance sheet just from a just from a timing and inventory valuation perspective. So.
Ken Newman: Like I say.
Ken Newman: I wouldn't call it any conservatism, we're intentional conservatism built into what we have for Q2.
Ken Newman: Or the full year, there's just a it's pretty complex in terms of if you look at timing of shipments the timing of the effective dates and when things land on port.
Ken Newman: The create the.
Ken Newman: The variability so I think it's our best estimate based on all those factors obviously, the what the team is trying to do everyday is mitigated as much as possible with the operational actions, we have at our disposal very little price impact in Q1, I mean negligible in Q1.
Ken Newman: And we'll have a little bit in Q2, but really ramp up into Q3, so really the variability in Q2 as again, just what can the what can be realized with pulling in inventory early.
Ken Newman: Adjusting some of those shipment schedules to mitigate as much as possible here in the short term.
Speaker Change: That's that's helpful Nathan.
Speaker Change: For my follow up maybe just a quick modeling question is there a way to think about how to quantify that $70 million full year impact between the two segments.
Speaker Change: Guessing one segment might be a little bit heavier than the others in terms of the margin impact.
Speaker Change: Yeah. It's a you know I think from a not only assumption here out of the gate, it's pretty balanced maybe a little bit heavier weighted towards ait's just given the the tariff rates are fully in effect for print where mobile computing as some of the exemption so a little bit more weighted towards where they are.
Speaker Change: Here for the for the year.
Speaker Change: Our next question comes from Joe Giordano.
Speaker Change: T D Cohen.
Speaker Change: Cowen. Please go ahead.
Speaker Change: Hey, guys good morning.
Speaker Change: Good morning, gentlemen.
Speaker Change: So first question just on the semiconductor and electronics exclusions, I mean, I guess, it's all fluid for sure but at least the administration frame. This as a temporary exclusion as they figure out like specific tariffs on that so it seems like thats a number that at least given current commentary goes up.
Speaker Change: At some point in the future. So what is what are you kind of teeing up to offset that if that's the outcome.
Speaker Change: Yes, Youre absolutely right. So we know the scope of the semiconductor tariff and I would say first it's.
Speaker Change: Pretty unclear of how that will be administered how that will play out from the administration, so really tough to model, what the potential impact would be but.
Speaker Change: No different from all the electronic companies, we do have semiconductor content. So there is a potential exposure, but we work with the largest semiconductor companies in the world and continue to assess their country of origin options across their supply chain to see where we have options to mitigate how.
How we quantify it make sure we can quantify the content within our products semiconductor content.
Speaker Change: So that whenever ruling is applied we can react as quickly as possible not only on mitigating the impact out of the gate, but also then what options do we have to mitigate over time.
Speaker Change: Based on those rulings so again it yes, it's absolutely one that's out there, but the teams all over it in terms of planning as best we can in executing whatever we can ahead of any final decision.
Speaker Change: And then just a follow up on the.
Speaker Change: Kind of like the pre buy stuff and we're getting this commentary from a lot of companies and I am not sure how to think about it because a lot of the companies. We go on the earnings calls they say that they are buying inventory of their own stuff ahead of tariffs, but that none of the customers are doing that.
Speaker Change: And the behavior Hasnt changed so it just doesn't make a ton of sense to me that all.
Speaker Change: All the companies are buying their own stock to have an inventory, but none of the customers are doing the same behavior is there a risk that yes, you know what.
Speaker Change: What we think is a lack of a behavior change as assessed by weaker than expected demand is being like off is being replenished by some pre buy but it doesn't really look like pre buy I am struggling with this dynamic across multiple companies right now.
Speaker Change: Yeah, Joe I would say that you know you're talking about very short amount of time right. You know in the past when tariffs were implemented at 90 or 120 days to change inventory in the places that you know if you took actions you had to get stuff.
Speaker Change: On Ocean very quickly so that the tariffs are a blimp related very quickly. So despite us doing that it's minimal overall in the scheme of things. So I E. I think you're reading more into it just because the timing has been such that ultimately there hasn't been time to truly react you know things that were on the ocean already.
Speaker Change: Intimately are being exempt but that's.
Speaker Change: Very little bit you know you heard.
Speaker Change: Other companies why you know jets in others from.
Speaker Change: Into the country with <unk>.
Speaker Change: Shipments of devices and others, but it's ultimately minimum.
Speaker Change: And the other one we look at is the underlying demand we've seen is pretty much in line, obviously with what we expected we knew our Q1 guy was a bit cautious given the uncertainty, but the quarter kind of played out where we didn't see this surge of demand that was unexpected or out of the blue or orders large orders coming in so could there be some of that.
Speaker Change: And the run rate, but again that the year's playing out year to date kind of as we had planned.
Speaker Change: Which again just supports that we're not seeing some volatile shift in demand here just to get ahead of the tariff rates.
Speaker Change: Our next question comes from Rob Mason with Baird. Please go ahead.
Rob Mason: Yes, good morning.
Speaker Change: Jacqueline several calls so I may Miss.
Speaker Change: You addressing this but when you you quantified the 80 to 90 million kind.
Speaker Change: Kind of residual impact after your pricing actions just assuming no final decision around tariffs is the current status quo.
Speaker Change: Levers do you have to pull would you plan to pull too.
Speaker Change: To address that does that would you take incremental pricing or just speak to that residual amount. If that's maybe what the go forward it looks like.
Speaker Change: Yeah, I think Rob I think that the.
Speaker Change: We put that number out to serve them kind of a baseline of what the I guess you know the run rate would be again under the current tariffs scenario.
Speaker Change: But ultimately our objective is to mitigate right. So I wouldn't say, that's the perpetual number or that we don't have other options to mitigate its its really waiting for policy certainty. So we know which actions or the best actions to execute so that's <unk>.
Speaker Change: Again, we have a plethora of options with our manufacturing partners around where they have capabilities around the world.
Speaker Change: To shift production and the teams are working those will obviously look additional pricing actions as well as the other cost levers we have.
Speaker Change: Across the portfolio to fully mitigate so I think again once we have that certainty around where the where the rates shake out.
Speaker Change: Then we can start to execute those those plans and see what the timing is in terms of fully mitigating the exposure. So I think that that timing of when and how it plays out is the uncertainty that annualized number we provide which I think just to give context for what.
Speaker Change: Kind of run rate would be.
Speaker Change: But knowing that the ultimate goal is to fully mitigate.
Speaker Change: But we want to make sure we make the right decisions and have clarity around that before before pulling the trigger.
Speaker Change: Makes sense just as a quick follow up.
Speaker Change: You talked about good demand in the quarter.
Speaker Change: But your service and software.
Speaker Change: Revenue was kind of flattish is that was that.
Speaker Change: The thing going on there.
Speaker Change: It's a comp issue where.
Speaker Change: How that compared versus your product tangible products.
Speaker Change: Yeah, So our service and software.
Speaker Change: Slight organic growth.
Speaker Change: Some part impacted by the lower mobile computing volume in 'twenty threes, we're starting to see that play out in our service business as you would expect.
Speaker Change: But the other thing in the quarter. There was just a lower number of days versus prior year. So it's more of a quarter on a year on year dynamic.
Speaker Change: You'd expect that.
Speaker Change: The growth rate to improve.
Speaker Change: As we get into Q2 and the balance of the year. So some of it just I think timing and the nuance of the quarter.
Speaker Change: But I think a bit lower than what we've seen the last couple of years. There's just you see now the the overall installed base the impact on the installed base from the sales decline back in 'twenty three and mobile.
Jim Ricchiuti: Our next question comes from Jim Ricchiuti with Needham <unk> co. Please go ahead.
Speaker Change: Hi, Good morning, this is Chris <unk> on for Jim.
Speaker Change: It is the deployment of that Zebra companion with AI features at the anchor.
Speaker Change: Inger customer that showcase the <unk> progressing in line with your expectations and are you seeing traction with additional retailers for this offering.
Speaker Change: Yes, I mean, I would say that we.
Speaker Change: Announced that are in our App and showed demos of it we're continuing to work closely with our lighthouse customers too.
Speaker Change: To deploy along with them in an early proof of concepts and the development continues to be on track.
Speaker Change: What we have released these are gen AI digital assistant from the sorry from it from that perspective was more a launch and then.
Speaker Change: Our proof of concepts the AI suite for mobile computing, we did launch and is available to you our our own software developers and that of our partners. So that's allows AIA.
Speaker Change: AI applications to be built on top of the device.
Speaker Change: You know when the device software to be able to managed on the device. So that is released and then again the companion with the assistant is improve our concepts now working with customers.
Speaker Change: Customers to to get to full deployment.
Speaker Change: So on track.
Speaker Change: And in your view.
Speaker Change: Are the shifts that are impacting you.
Speaker Change: Customers global production footprint.
Speaker Change: And the disruption that is being caused by the near term uncertainty could those translate into into tailwind for zebra as customers adopt more of the best technologies to enhance their their tariff compliance reduce friction certified country of origin and things of that nature.
Speaker Change: Yes, so the production moves.
Speaker Change: By our customers freight so it's certainly an opportunity for us we've seen this in.
Speaker Change: In southeast Asia through the China.
Speaker Change: China tariffs were first implemented a number of years ago, and the benefits to zebra associated with that.
Speaker Change: I do see that.
Speaker Change: Again, this idea of visibility throughout the supply chain and digitizing and automating the supply chain overall creates an opportunity for us and as you said track and trace and other mandates around that so yes, it's an opportunity when production moves take place no.
Speaker Change: No matter, where they are.
Speaker Change: In the World, we benefit and then ultimately.
Speaker Change: The long term trend of digitizing and automating environment supply chain visibility across those environments and that also plays into the AI. The idea that ultimately what we fundamentally do as give.
Speaker Change: Assets and inventory of digital voice and circling back to your first question collecting ultimately real time data that feeds AI models and then ultimately it allows you to kind of sense analyze and then take action within.
Speaker Change: Your environment, so collecting data that feeds AI models that ultimately drives action, which then would take place with things like mobile devices.
Speaker Change: Driving task management with employees and frontline workers creates an opportunity for us.
Speaker Change: The last question comes from Brad Hathaway with Wolfe Research. Please go ahead.
Brad Hathaway: Hey, Thanks for fitting me back end.
Speaker Change: No problem.
Speaker Change: Just in terms of capital allocation. So you stepped up the buyback in Q1 to a 125 million you mentioned another $75 million in April should we expect that you may look to maintain or maybe even accelerate the pace of buybacks throughout the rest of the year, if the valuation remains where it is today.
Speaker Change: Yes. It is.
Speaker Change: We've been tracking higher than normal year to date at the 200 million to take advantage of the volatility.
Speaker Change: I'd say right now we expect we definitely expect to remain active.
Speaker Change: With some level of activity for the remainder of the year and we will see how to your point the market plays out here over the next couple of months to say, whether we adjust the.
Speaker Change: The rate of return, but we wanted to again take advantage of the volatility here early in the year.
Speaker Change: And as we said wanted to commit to some level of buyback this year and so we're on pace to that.
Speaker Change: But I think a little bit higher than we would expect out of the gate with the volatility, but we would expect against some.
Speaker Change: Continue to remain active in the market for the balance of the year.
Speaker Change: This concludes our question and answer session.
Bill Burns: I would like to turn the conference back over to Mr. Burns for any closing remarks.
Bill Burns: I'd like to thank our employees and partners as they work to solve our customers' biggest challenges we have strong conviction in the opportunities ahead for our business. Thank you and have a great day everyone.
Bill Burns: Goodbye now concluded. Thank you for attending today's presentation you may now disconnect.