Q2 2025 Zebra Technologies Corp Earnings Call
Conference Operator: Good day and welcome to Zebra's second quarter 2025 earnings conference call. All participants will be in listen-only mode. Should you need assistance, please signal a conference specialist by pressing the star key followed by zero. After today's presentation, there will be an opportunity to ask questions. To ask a question, you may press star, then one on your telephone keypad. To withdraw your question, please press star, then two. Please note this event is being recorded. I would now like to turn the conference over to Mike Steele, Vice President, Investor Relations. Please go ahead.
Good day and welcome to the zebra's. Second quarter 2025 earnings conference call. All participants will be in listen-only mode. Should you need assistance? Please signal a conference specialist by pressing the star key followed by zero.
After today's presentation, there will be an opportunity to ask questions.
you ask a question, you may press star then 1 on your telephone keypad,
To withdraw your question. Please. Press star. Then 2
Please note this event is being recorded.
Mike Steele: Good morning and welcome to Zebra's second 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 uncertainties. Actual results could differ materially, and we refer you to the factors discussed in our SEC filings. During this call, we will reference non-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-on-year on a constant currency basis and exclude results from recently acquired businesses for 12 months. This presentation will include prepared remarks from Bill Burns, our Chief Executive Officer, and Nathan Winters, our Chief Financial Officer.
I would now like to turn the conference over to Mike Steele. Vice president investor relations. Please go ahead. Good morning and welcome to zebra's second quarter earnings conference. Call this presentation is being simal cast on our website at investors. Zebra.com and we'll be archived there for at least 1 year.
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.
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,
Mike Steele: Bill will begin with a discussion of our second quarter results. Nathan will then provide additional detail and discuss our revised outlook. Bill will continue with progress on advancing our strategic priorities, including the pending acquisition of Elo Touch Solutions we announced this morning. 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.
Throughout this presentation, unless otherwise indicated, our references to sales and performance are year-on-year on a constant currency basis and exclude results from recently acquired businesses. For the 12 months, this presentation will include prepared remarks from William Burns, our Chief Executive Officer, and Nathan Winters, our Chief Financial Officer.
Bill will begin with the discussion of our second quarter results, Nathan will then provide additional detail and discuss our revised.
Outlook bill will continue with progress on advancing our strategic priorities, including the pending acquisition of Elo touch Solutions. We announced this morning
Following the prepared remarks, Bill and Nathan will take your questions.
Now, let's turn to slide 4 as I hand it over to Bill.
Bill Burns: Thank you, Mike. Good morning and thank you for joining us. In addition to our Q2 highlights and financial results, we will discuss this morning's announcement of the exciting milestone in our journey to enhance the connected frontline experience through our acquisition of Elo. We will also review our increased full-year outlook. Before we get into the details of the quarter, let me spend a moment on the acquisition that drives profitable growth and elevates our market leadership. Elo Solutions engaged consumers, enhanced self-service, and delivered automation across a wide range of end markets. This combination strengthens Zebra's portfolio of solutions and enables us to advance our strategic priorities. Turning to our Q2 result, our team executed well in the second quarter, delivering results exceeding our outlook with solid demand across the business and lower than expected U.S. import tariffs.
Thank you, Mike. Good morning, and thank you for joining us.
In addition to our second quarter highlights and financial results, we will discuss this morning's announcement.
of the exciting milestone in our journey to enhance the connected Frontline experience, through our acquisition of Elo
We'll also review our increased full year outlook.
Before we get into the details of the quarter, let me spend a moment on the acquisition that drives profitable growth and elevates our Market leadership.
ELO Solutions, engaged consumers, enhanced self-service, and deliver automation across the wide range of end markets.
This combination strengthens zebra's portfolio of solutions enables us to advance our strategic priorities.
Now, turning to our Q2 results.
Our team executed well on the second quarter, delivering results. Exceeding, our Outlook
Bill Burns: For the quarter, we realized sales of $1.3 billion, a greater than 6% increase compared to the prior year, an adjusted EBITDA margin of 20.6%, a 10 basis point improvement, and non-GAAP diluted earnings per share of $3.61, which was 14% higher than the prior year. We realized strong growth in our North America, Latin America, and Asia-Pacific regions and had relative outperformance in mobile computing, scanning, and RFID. Transportation logistics, along with retail and e-commerce, were our highest growth vertical end markets, with healthcare, cycling a strong compare, and manufacturing continuing to lack. As we enter the third quarter, demand has been resilient. However, we remain cautious as our customers navigate through uncertain trade policy. Additionally, we expect the recently passed tax legislation to be constructive for some of our U.S. customers, although it is too early to assess the impact on demand.
with solid demand across the business and lower than expected us import tariffs.
For the quarter, we realized sales of 1.3 billion dollars a greater than 6% increase compared to the prior year.
It adjusted ibido margin of 20.6%, attend basis, point Improvement.
And non-GAAP diluted earnings per share of $3.61, which was 14% higher than the prior year.
We realize strong growth in our North America Latin, America and Asia Pacific regions.
And had relative outperformance in Mobile Computing, scanning and RFID.
Transportation Logistics along with retail and e-commerce where our highest growth vertical and markets with Health Care, cycling, a strong compared and Manufacturing continuing to lack
As we enter the third quarter, demand has been resilient. However, we remain cautious as our customers navigate through uncertain trade policy,
Additionally, we expect the recently passed tax legislation to be constructive for some of our us customers.
Bill Burns: I will now turn the call over to Nathan Winters to review our Q2 financial result, tariff considerations, and outlook.
Although it is too early to assess the impact on demand.
I will now turn the call over to Nathan to review our Q2 Financial results.
Nathan Winters: Thank you, Bill. Let's start with the P&L on slide six. In Q2, total company sales grew by more than 6%, reflecting recovery in demand across our major product categories. Our services and software recurring revenue business grew slightly in the quarter. We had similar growth rates in both of our financial segments. We realized strong sales growth across most of our regions. In North America, sales grew 8% with double-digit growth in mobile computing and RFID. Asia-Pacific sales increased 20%, led by Australia, New Zealand, and India. Sales grew 11% in Latin America, with growth across the region. In EMEA, we cycled strong comparisons, particularly in mobile computing, with a sales decline of 1%. Adjusted gross margin declined 70 basis points to 47.9%, primarily due to higher U.S. import tariffs than last year. Adjusted operating expenses as a percent of sales improved by 80 basis points.
Tariff, considerations and Outlook.
Thank you, Bill. Let's start with the p&l on slide 6.
In Q2 total company sales, grew by more than 6% reflecting recovery, and demand across our major product categories.
Our services and software recurring Revenue business grew slightly in the quarter.
We have similar growth rates in both of our financial segments.
We realize strong sales growth across most of our regions.
In North, America sales grew 8% with double digit, growth in Mobile Computing, and RFID.
Asia Pacific Sales increased 20% led by Australia, New Zealand and India.
Sales grew 11% in Latin America, with growth across the region.
in Amia, we cycled strong comparisons, particularly in Mobile Computing with a sales decline of 1%
Adjusted gross, margin declined, 70 basis, points to 47.9% primarily due to higher us import tariffs than last year.
Nathan Winters: This resulted in second quarter adjusted EBITDA margin of 20.6%, a 10 basis point increase versus the prior year. Non-GAAP diluted earnings per share were $3.61, a 14% year-over-year increase and above the high end of our outlook. Turning now to the balance sheet and cash flow on slide seven. Year to date, we generated $288 million of free cash flow. We have been deploying capital consistent with our allocation priorities. We repurchased $250 million of stock year to date, and our recent $62 million acquisition of Photoneo, as well as this morning's acquisition announcement, support our continued efforts to scale in adjacent markets.
Adjusted operating expenses as a percent of sales improved by 80 basis points.
This resulted in second quarter adjusted ebit margin of 20.6%, a 10 basis point increase versus the prior year.
9 Gap, diluted earnings. Per share were $3.61, a 14% year-over-year, increase and above the high end of our Outlook.
Turning now, to the balance sheet and cash flow on slide 7.
Year to date. We generated 288 million of free cash flow.
Capital consistent with our allocation priorities. We repurchased 250 million of stock year-to-date.
And our recent $62 million acquisition of Photo Neo.
Nathan Winters: Our balance sheet is in excellent shape with $872 million of cash at the end of Q2, a modest 1.2 net debt to adjusted EBITDA leverage ratio, and $1.5 billion of credit capacity, providing ample flexibility to fund the $1.3 billion pending acquisition of Elo later this year. Due to the global nature of our supply chain, like many other electronic manufacturing companies, we are subject to U.S. import tariffs. On slide eight, we provide an update on the anticipated impact from tariffs on our products imported to the United States and our efforts to mitigate them. For the full year 2025, we are now assuming approximately $30 million of gross profit impact after mitigation, with a $10 million net impact in the third quarter, following a $12 million impact in the first half of the year.
As well as this morning's acquisition announcement support our continued efforts to scale an adjacent markets.
Our balance sheet is an excellent shape with 872 million of cash at the end of Q2, a modest 1.2 net debt to adjusted Eva leverage ratio and 1.5 billion dollars of credit capacity.
Providing ample flexibility to fund the 1.3 billion. Pending acquisition of Elo later this year.
Due to the global nature of our supply chain, like many, other electronic manufacturing companies, we are subject to us, import tariffs.
On flight 8, we provide an update on the anticipated impact from tariffs on our products, imported to the United States and our efforts to mitigate them.
For the full year. 2025, we are now assuming approximately 30 million dollars of gross profit impact after mitigation.
With the 10 million, net impact in the third quarter.
Nathan Winters: Our forecast assumes the current effective rates remain in place, including the electronics and USMCA exemptions. This implies a $40 million annualized gross profit impact, which is less than half of our previous expectation, primarily due to a lower rate on China imports. Our mitigating actions to date have included shifting additional production out of China and approximately $40 million of annualized pricing adjustments. North America imports from China are now expected to represent 20% of the mix by year-end. We will continue to evaluate additional opportunities to mitigate U.S. import tariffs as we monitor global trade policy development. These potential actions include additional shifting of global production, product portfolio optimization, and price adjustments. Let's now turn to our outlook.
Following a 12 million impact in the first half of the year.
our forecast assumes the current effective rates remain in place, including the electronics and usmca exemptions
This implies a forty million dollar annualized gross profit impact.
Which is less than half of our previous expectation. Primarily due to a lower rate on China Imports.
Our mitigating actions to date have included shifting additional production out of China and approximately 40 million dollars of annualized, pricing adjustments.
North America imports from China are now expected to represent 20% of the mix by year end.
We will continue to evaluate additional opportunities to mitigate us import tariffs as we monitor global trade policy development.
These potential actions include additional shifting of Global Production product portfolio, optimization and price adjustments.
Nathan Winters: We entered the third quarter with a backlog and pipeline to support our sales guide of between 2% and 6% growth, with a 30 basis point favorable impact from the acquisition of Photoneo and a neutral impact from FX. Our third quarter adjusted EBITDA margin is expected to be approximately 21%, which assumes a $10 million net impact from U.S. import tariffs. Non-GAAP diluted earnings per share is expected to be in the range of $3.60 to $3.80. We are raising our full-year sales growth guidance range by a full point, which is now expected to be between 5% and 7%, including approximately 50 basis points of combined favorability from FX and the Photoneo acquisition. We are now expecting a $30 million gross profit impact from tariffs net of mitigations for the full year, which is $40 million favorable to our prior guide.
Let's now turn to our elbow.
We enter the third quarter with the backlog and pipeline to support our sales guide of between 2 and 6% growth.
with a 30 basis point favorable impact from the acquisition of Photo Neo and a neutral impact from FX.
Our third quarter adjusted. I bet that margin is expected to be approximately 21%.
Which assumes that 10 million net impact from us, import tariffs.
And 9 Gap, diluted earnings per share is expected to be in the range of 3.60 to 3.80.
We are raising our full year sales growth guidance range by a full point.
Which is now expected to be between 5 and 7%.
Including approximately 50 basis points of combined, favorability from FX and the photo Neo acquisition.
We are now expecting a $30 million, gross profit impact from tariffs. Net of mitigations for the full year.
Nathan Winters: We are also raising our full-year adjusted EBITDA margin by a full point to between 21% and 22% and increasing our non-GAAP diluted earnings per share to a range of $15.25 to $15.75. Additionally, we are raising our free cash flow guide for the year to at least $800 million, which reflects the anticipated benefit of recently enacted U.S. tax legislation and implies free cash flow conversion of approximately 100%. We continue to work on further optimizing our working capital levels, balanced with our supply chain resiliency initiatives. Please reference the additional modeling assumptions shown on slide nine. With that, I'll turn the call back to Bill.
Which is 40 million favorable to our prior guys.
We are also raising our full year. Adjusted Eva margin by a full point to between 21 and 22%.
And increase our 9 Gap, diluted earnings per share to a range of 15.25 to $15.75.
Additionally, we are raising our free cash flow guide for the year to at least 800 million, which reflects the anticipated benefits of recently, enacted us tax legislation and implies free cash flow conversion of approximately 100%.
We continue to work on further optimizing. Our working capital levels. Balanced with our supply chain resiliency initiatives.
Please reference additional modeling assumptions. Shown on slide 9.
With that, I'll turn the call back to Bill.
Bill Burns: Thank you, Nathan. We remain well-positioned to benefit from secular trends to digitize and automate workflows with our portfolio of innovative solutions, including purpose-built hardware, software, and services. Our solutions intelligently connect people, assets, and data to help our customers make business-critical decisions. As you will see on slide 11, Zebra Solutions enables our customers across a broad range of end markets to drive revenue, boost productivity and efficiency, and optimize the front line, delivering improved service to their customers, shoppers, and patients. The challenges of an on-demand economy, e-commerce growth, evolving regulations, and labor constraints require increased adoption of automation. Here are some of the recent examples of customers transforming their workflows at various stages of their automation journey. An athletic retailer in the United Kingdom recently launched the initial phase of their RFID journey to improve inventory accuracy by equipping their store associates with Zebra mobile RFID solutions.
Thank you. Nathan, your remains? Well, positioned to benefit from secular Trends to digitize and automate workflows with our portfolio of innovative solutions including purpose-built, Hardware, software and services.
Our Solutions intelligently connect people assets and data to help our customers make business critical decisions.
As you will see on site 11, Zebra Solutions enable our customers across a broad range of end markets to drive revenue, boost productivity and efficiency, and optimize the front line.
Delivering improved service to their customers Shoppers and patience.
The challenges of an on-demand economy. E-commerce growth. Evolving, regulations and labor, constraints, require increased adoption of automation.
Here are some of the recent examples of customers transforming their workflows, at various stages of their automation Journey.
Bill Burns: This strategic investment enables better supply chain visibility, given that the majority of their vendors now RFID tag at the point of manufacture. We continue to see strong interest from customers in leveraging RFID across the supply chain. A North American logistics company is focused on moving freight more effectively by equipping their drivers and cross-dock workers with Zebra mobile computing solutions to collaborate seamlessly across their operations. Additionally, a large North American food distributor recently began a technology upgrade of their Zebra mobile computers, tablets, and mobile printers to improve the efficiency and productivity of their distribution centers. Our market-leading portfolio of solutions enhances their receiving, restocking, and cold chain operation. These are a few of the many examples that demonstrate how customers rely on us to navigate their technology journey, leveraging our commitment to innovation and workflow expertise.
Mobile RFID solution.
This Strategic investment enables better supply. Chain visibility given that the majority of their vendors. Now RFID tag at the point of manufacturer.
We continue to see strong interest from customers and leveraging RFID across the supply chain.
A North American logistics company.
Is focused on moving Freight more effectively by equipping their drivers and crossed, our workers with zebra, mobile Computing, solutions, to collaborate seamlessly across their operations.
Additionally, a large, North American food, distributor recently, began a technology upgrade of their zebra mobile computers, tablets and mobile printers to improve the efficiency and productivity of their distribution centers.
Our Market leading portfolio Solutions. Enhances their receiving restocking and cold chain operations.
These are a few of the many examples that demonstrate how customers rely on us to navigate their technology Journey leveraging, our commitment, to Innovation and workflow expertise.
Bill Burns: Innovation remains central to our industry leadership, and we have consistently reinvested approximately 10% of our sales in the research and development to advance our portfolio of solutions. We augment our organic efforts with strategic acquisitions that advance our vision, as evidenced by the recent acquisition of Photoneo, which expanded our 3D machine vision solution, as well as the pending acquisition of Elo. Turning to slide 12, the acquisition of Elo will enable us to expand our portfolio of solutions that help customers transform their frontline operations by digitizing and automating workflows. Elo is a leading provider of point-of-sale solutions, kiosks, interactive displays, and touchscreen solutions, with a 50-year track record of innovation and more than 400 patents operating in an $8 billion market. The company generates approximately $400 million of annual revenues with a similar sales growth and EBITDA margin profile to Zebra Technologies.
Innovation remains Central to our industry leadership and we have consistently reinvested, approximately 10% of our sales in the research and development to advance our portfolio of solutions.
We augment organic efforts with strategic Acquisitions that Advance. Our vision as evidenced by the recent acquisition of photo Neo, which expanded our 3D Machine Vision Solutions.
As well as depending acquisition of evil.
During the slide 12, the acquisition of Elo will enable us to expand our portfolio of solutions that help customers transform their Frontline operations by digitizing and automating workflows.
ELO is a leading provider of Point of Sales solution kiosk interactive displays and touchscreen Solutions.
With the 50-year track record of innovation and more than 400 patents operating in an 8 billion dollar market.
Bill Burns: Elo also has a similar go-to-market approach to Zebra Technologies, offering a wide range of industry-tailored solutions that modernize point of sale, streamline self-service and payment experiences, automate kitchen industrial workflows, and optimize production and process management. Our leadership in hardware, software, and services for the frontline worker will be augmented by Elo's consumer-facing offerings to deliver a unified, connected frontline experience. Together, we will pursue attractive market and geographic expansion opportunities while delivering a comprehensive software-differentiated portfolio that enables customers to better address emerging use cases. The continued growth of retail media networks and the deployment of AI-based agents on the front line are examples of new opportunities that Zebra Technologies and Elo can pursue together. The Elo acquisition is expected to be immediately accretive to earnings once the transaction closes, and we expect to generate an incremental $25 million of annual EBITDA synergies by year three.
The company generates approximately 400 million dollars of annual revenues with a similar sales growth and even a margin profile to zebra.
ELO also has a similar go to market approach, to zebra offering a wide range of Industry, tailored solutions, that modernize point of sale streamline self-service and payment experiences.
Automate. Kitchen, industrial, workflows, and optimize production and Process Management.
Our leadership in Hardware, software and services. For the Frontline worker will be augmented by ELO's consumer-facing offerings to deliver a unified connected Frontline experience.
Together we will pursue attractive market and Geographic expansion opportunities. While delivering a comprehensive software, differentiated portfolio, that enables customers to better address emerging use cases.
The continued growth of retail media, networks and deployment of AI based agents on the front line are examples of new opportunities that zebra and ELO in Pursuit together.
The ELO acquisition is expected to be immediately accretive to earnings once the transaction closes and we expect a generate an incremental, 25 million of annual ibida. Synergies by year 3,
Bill Burns: In closing, our confidence in sustainable long-term growth is underpinned by several key themes that drive demand for our solutions, including labor and resource constraints, track and trace requirements, increased consumer expectations, advancements in artificial intelligence, and the need for real-time supply chain visibility. As we move forward, we remain focused on advancing our industry leadership with our innovative solutions that digitize and automate our customers' workflows, serving our customers well and driving profitable growth. We are well-positioned to expand our addressable market as we add complementary solutions to our portfolio that elevate our capabilities to serve our customers. I will now hand the call back to Mike Steele.
In closing our confidence in sustainable, long-term growth is underpinned by several key themes that drive demand for our Solutions, including labor and resource constraints, track and Trace requirements. Increased consumer expectations advancements in artificial intelligence and the need for real-time supply chain visibility
As we move forward, we remain focused on advancing. Our industry leadership where our innovative solutions that digitize and automate, our customers workflows serving our customers well and driving profitable growth.
We are well positioned to expand our addressable Market. As we add complimentary solutions to our portfolio that elevate our capabilities to serve our customers.
Mike Steele: Thanks, Bill. We will now open the call to Q&A. We ask that you limit yourself to one question and one follow-up to give everyone the chance to participate.
I will now hand the call back to.
Thanks Bill. We'll now open the call to Q&A. We asked the limit yourself to 1 question 1 follow-up to give everyone the chance to participate.
Conference Operator: We will now begin the question and answer session. To ask a question, you may press star, then one on your telephone keypad. If you are using a speakerphone, please pick up your handset before pressing the keys. If at any time your question has been addressed and you would like to withdraw your question, please press star, then two. At this time, we will pause momentarily to assemble our roster. Our first question comes from Joe Giordano with TD Cowen. Please go ahead.
We will now begin the question and answer session.
To ask a question. You may press star then 1 on your telephone keypad. If you were using a speaker-phone please pick up your handset before pressing the keys.
If at any time your question has been addressed and you would like to withdraw your question, please press star. Then to at this time we will pause momentarily to assemble our roster.
Joe Giordano: Hey, guys. Good morning.
Our first question comes from Joe Giordano. With TD Cohen, please go ahead.
Hey guys. Good morning.
Brian Drab: Morning, Joe.
Joe Giordano: Hey, maybe I will start on the acquisition. Can you kind of tell me, you know, how does that technology kind of tie in with yours? Where are they doing things that you could not do on your own? What is the customer overlap kind of look like in terms of leveraging that?
Morning, Joe.
Hey, maybe I'll start on the acquisition. Can you? Can you kind of tell me? Um, you know, how did these, how does that technology kind of tie in with yours? Like where are they doing things that you couldn't do on your own? Um, what's the customer overlap kind of look like in terms of leveraging that
Bill Burns: Yeah, sure, Joe. I got it. I would say overall, first of all, we are really excited about the acquisition. It really represents the next step in what we see as our journey to have a leading portfolio of solutions that digitize and automate the front line of business where we have been focused for certainly some time. I think what Elo brings us is a market-leading portfolio of self-service and customer-facing solutions that really expands our addressable market by about $8 billion. So think of more customer-facing use cases. Overall, their focus is on areas like point of sale, self-serve kiosks, interactive touchscreen displays, automation, and industrial place. I think overall what we bring them is that we bring our complementary solutions to what they do in things like point of sale and others.
Bill Burns: Our global reach allows us to expand their offerings beyond their strength in North America and what they have in EMEA today and smaller in Asia-Pacific, but really take them to a global scale and reach across our go-to-market. Overall, our extensive service capabilities, our deep customer relationships, there are customer overlaps, especially in places like retail, but there are strengths that they have in things like quick-serve restaurants where we are not as strong but are putting in emerging solutions like RFID into quick-serve today. It gives us more of an offering there. So quick-serve restaurants, a good example. We believe our strength in healthcare would help them. So there are vertical markets and geographical expansion that would bring to their portfolio overall that would allow them to expand. So think of it as more customer-facing, more self-service, more automation, and more fixed than mobile.
Yeah, sure, Joe, I got it. Um, I would say, overall, first of all, we're really excited about the acquisition. Uh, it really represents the next step in in we, we see as our journey to, you know, to have a leading portfolio of solutions. Uh, that digitize and automate, the, the front line of business where we've been focused for certainly some time. And I think that what ELO brings us is a, a market leading portfolio of self-service and customer-facing solutions, that really expands our addressable Market by about 8 billion dollars. So think of more customer facing, um, use cases. Overall, you know, their focus is that, you know, on areas like point of sale self-serve kiosks, uh, interactive touchscreen, displays Automation and and Industrial. Um, place. And I think, overall what we bring them is that, you know, we bring our complimentary solutions to what they do and things like, point of sale and others, our Global reach allows us to expand.
Bill Burns: That adds significantly to our broad-based portfolio today.
They are, um, offerings beyond their strength in North America. And and what they have anemia today and in smaller in, in Asia Pacific, but really take them to a global scale and reach across our go to market. And then, you know, overall, um, our extensive service capabilities, our deep customer relationships. There are customer overlaps, especially in places like, you know, retail. But there's strengths that they have and things like, Quick Serve restaurants where we're you know, not as strong but are putting in emerging Solutions like RFID into Quick Serve today, but it gives us more of an offering there. So quick serve restaurants. Take example, we believe our strength and Health Care would would help them. Um, so there's vertical markets in geographical expansion that would bring to their portfolio. Overall, that would allow them to expand. So, think of it as more customer facing more self-service, more Automation, in more fixed than mobile and that adds significantly to our broad base portfolio today.
Joe Giordano: is great. Maybe you guys have done a nice job of kind of withholding judgment on the second half in terms of volumes until you see what is going on with your typical seasonal flows. You do not want to commit to them until you have them in a firm backlog. Now as we sit here in August, we see the guide, but how are you feeling about the ability of your customers to kind of release budgets and kind of move forward with things? What do you think is kind of inherent in your guide now in the second half?
That's that's great. Um, maybe uh, you guys have done a nice job of kind of
Withholding judgment on the second half of volumes until you see what's going on with your, you know, typical seasonal flows. You don't want to commit to them until you have them, informed backlog. You know, now as we sit here in August, um, you know, we see the guide but like, how are you feeling about the ability of your customers to kind of release budgets and kind of move forward with things like, what do you think is kind of
Inherent in your guide. Now, in the second half.
Bill Burns: Joe, I would say that demand has remained resilient through the first half despite the uncertainty around global trade policy. Customers have generally maintained their CapEx spending levels and moved ahead with the projects that they had planned for the year. We are seeing that and we are happy with where things are from a customer perspective. Some have spread some of the spending out over multiple quarters, really a combination of managing their CapEx, but probably a bit of uncertainty as well. We have seen that we have increased our outlook for the full year, really based on the strong Q2 results and then the backlog and pipeline that we see going into the second half that supports second half growth overall. I say that all that said, our customers still remain a bit cautious.
Yeah, Joe, I'd say that, you know, demand is remain resilient through the the first half despite, you know, the uncertainty around global trade policy and that customers have generally maintained their, you know, Capital spending levels and and moved ahead with the projects that they, you know, had planned for the year. So, we're we're seeing that and we're happy with where things are out from a customer perspective. Um, some have spread, you know, some of the spending out over multiple quarters, really accommodation, of managing their capex but probably a bit of, you know uncertainty as well. We've seen that, you know, from a um
Bill Burns: While there has been more clarity, they are still navigating the uncertain trade policies, but clarity has been certainly helping. There is certainly some uncertainty around macro and geopolitical. I would say that overall, there are some positives too. Things like the U.S. tax legislation could be a benefit to us, but it is too early to tell. We think overall that our guide for the full year, while we are increasing it, makes a lot of sense and it is pretty balanced to what we are seeing from a positive, certainly from customers continuing to move ahead, but also a little bit of uncertainty still out there overall. We think our guide is pretty balanced for the second half.
Increased, you know, we've increased our outlook for, you know, the full year, um, really based on the strong second quarter results and then the backlog and pipeline that we see going into the second half that supports, you know, a second half growth, you know, overall, and I say that all that said, our customers still remain a bit cautious. They're still, you know, while there's been more clarity, there's still, you know, navigating the uncertain trade policies. But Clarity has been certainly helping. And, you know, there's certainly some, you know, uncertainty around uh macro and geopolitical. So I would say that, you know, overall the there's some positives too things like the US tax legislation could be a benefit to us but it's too early to tell. So we think overall that you know our guide for the full year while we're you know increasing it you know makes a lot.
The sense and it's pretty balanced to what we're seeing from a positive certainly from customers continue to move ahead but also a little, you know, a bit of uncertainty still out there overall. So we think our our guys pretty balanced for second half.
Conference Operator: Our next question comes from Damian Karas with UBS. Please go ahead.
Our next question comes from Damian Keras with UBS. Please go ahead.
Joe Giordano: Hey, good morning, everyone. Congrats on the deal.
Hey, good morning everyone. Congrats on the deal.
Brian Drab: Thanks, Damian. Appreciate it.
Thanks Jamie. Appreciate it.
Joe Giordano: Just a follow-up question on Elo. Could you talk about how their business cyclicality has compared with Zebra historically? I think you are moving into a little bit more of a competitive space compared to your core mobility solutions. Could you just maybe talk a little bit about Elo's market share and how that has progressed over time?
Historically and I think you're moving into a little bit more of a competitive space uh compared to your core Mobility Solutions. Um, so could you just maybe talk a little bit about um, ELO's market share and how that has progressed over time?
Bill Burns: Yeah, I would say overall that the Elo portfolio would be a bit different in the demand cycle than us, where we typically see a fair amount of year-end spending by our customers. They do not see quite that much. It is more balanced throughout the year. So I think that you will see us kind of spread some of our year out ultimately and not put as much in the fourth quarter from a cyclicality perspective. I think that is positive. I would say, yes, there are different competitors in the space. As they have a broad portfolio of solutions across point of sale and kiosks, interactive displays, they are different competitors than we face today in the market. It is a fairly fragmented market and their strength is really strong in North America overall.
Bill Burns: I would say as one of the market leaders both in North America, EMEA and Asia-Pac, I would say that there are additional opportunities. So while they have got good share, we think ultimately there is an opportunity to gain more share there by leveraging Zebra's relationship and our global reach. As the size company they are, you ultimately make decisions on where you are going to go next geography-wise. And us having a presence around the world will help us expand their product lines around the world. So differing competitors, yes. Some of the same channel partners. So some of the same distributors and value-added resellers that we leverage around the globe are the same. Some of the customers are the same, but many are different as well. And we are excited to enter markets as well that they have got strength in that we do not today.
Yeah, I'd say overall that, you know, um, the ELO portfolio would be, you know, a a bit different in the, in the demand cycle than us, where we typically see, a fair amount of, you know, year-end spending by our customers. They don't seek flight that much, it's more, you know, balanced throughout the year. So I think that you'll see us that, you know, kind of um, spread some of, you know, our year out ultimately and not put as much in in the fourth quarter, from a cyclicality perspective, I think that's positive, I would say yes. There's, you know, different, you know, competitors in the space, you know, as they, um, have a broad portfolio of solutions across, you know, point of sale and kiosk interactive displays, they're, you know, different competitors than than we face today in the market. It's a, you know, fairly fragmented market and their strength is, um, you know, uh, really strong in in North America. Overall, I would say, you know, is 1 of the market leaders, both in in North America. Um, emia and in Asia Pac, I would say that there's, um, additional
Bill Burns: So we see revenue synergies, as well as cost synergies, as we talked about in the release. And we are excited about working together as they really give us more of a consumer-facing offering to add to our portfolio.
Opportunities to where they've got good share um we think ultimately There's an opportunity to gain more share, their by you know leveraging zebra's relationship and our our Global reach, you know as the size company they are you ultimately make decisions on where you're going to go. Next, geography, wise and us having a presence around the world will help us, you know, expand, um, their product lines, you know, around the world. So differing competitors. Yes. Um, some of the same channel Partners, so some of the same Distributors and value added resellers that we leverage around. The globe are the same. Some of the customers are the same but many are different as well. And we're we're excited to enter markets as well that you know, they've got strength in that we don't today. So we see Revenue synergies as well as cost synergies as we talked about in the release and we're excited about working together as they really give us more of a consumer-facing, um, you know, offering to add to our portfolio.
Joe Giordano: That's helpful. And Bill, I think you mentioned the one big beautiful bill legislation, and that should have a positive impact on North America. Just curious, is that kind of Zebra's internal assessment, or are you maybe hearing that in your dialogue with customers? They're becoming increasingly positive, and maybe even you're seeing that reflected in your funnel activity in North America?
That's helpful.
And Bill, I think you mentioned the 1, big, beautiful, Bill legislation, uh and that should have a positive impact on North America.
Just curious. Is that kind of zebras internal. Um, uh, assessment or are you maybe hearing that in your dialogue with customers? They're becoming increasingly positive and maybe even your seeing that reflected in your, um, funnel activity in North America.
Bill Burns: Yeah, Damian, I can jump in and address that. I think we are not hearing it directly from our customers. I think, like many, including ourselves, you are digesting it and understanding what is the impact from a cash perspective, particularly around the R&D deductibility in year one, as well as the ability to deduct the first year or 100% of the capital expenditure in year one. So my guess is like us, assessing what that means for your business. That ultimately then turns into how do you want to allocate that capital that could lead to more capital purchases in the back half of the year. But we are not hearing it directly from customers, just more noting that that is an opportunity as we go through the back half.
Bill Burns: But I think it is going to take some time for folks to understand it, make sure they then allocate where they want to put the capital and understand when you receive the cash back in terms of less future payments here in the back half of the year or what it might mean even as you go into 2026 in terms of capital that might be available to spend.
Yeah, Damien I can I can I can jump, I can dress that. I think we we're not hearing it directly from our customers. I think like many including ourselves. It's, you know, your digesting it and understanding what is the impact from a cash perspective. Um, in particular around the R&D deductibility and year 1, um, as well as the ability to deduct the first year or 100% of the capital expenditure in year 1. So, my guess is like us, you know, assessing what that means for your business. Um, and that ultimately, then turns into how do you want to allocate that Capital, um, that could lead to more, you know, Capital purchases in the back half of the year but we're not hearing it directly from customers, uh, just more noting that, um, that is an opportunity as we go through the back half. But I think it's going to take some time for folks, to understand it, make sure they, you know, then to allocate where they want to put the capital. And I understand when you receive the cash back in terms of,
You know, less future payments here in the back half of the year, um, or what it might mean. Even as you go into 26, uh, in terms of, um, Capital that might be available to to spend
Conference Operator: Our next question comes from Tommy Moll with Stephens. Please go ahead.
Tommy Moll: Good morning, and thank you for taking my questions.
Our next question comes from, Tommy mall with Stevens. Please go ahead.
Good morning, and thank you for taking my questions.
Joe Giordano: Morning, Tommy.
Tommy Moll: Morning, Tommy. Bill, I think I heard you use the term balance for the approach to your second half outlook. I wanted to follow on that and ask what you are assuming on large deal conversion, maybe just related to what you saw in the second quarter as well would be helpful. Thank you.
Morning. Tommy, Tommy.
Bill. I think I heard you use the term balanced for the approach to your second, half Outlook.
And I wanted to follow on that and ask what you're assuming on large deal, conversion.
Maybe just related what you saw in the second quarter as well. Would be helpful. Thank you.
Bill Burns: Yeah, I'd say that, you know, from a second half of year kind of Q4 perspective as it relates to kind of year-end spending, I would say that the year overall is playing out better than we expected. We saw strong growth in the first half and strong results as you saw in Q2, which allows us to increase our outlook. We had easier comparison in the first half, a bit tougher comparison in the second half. So you're kind of playing out as we expected. I would say that as we look to Q4, that overall, we factored in some year-end spending about the same levels as we had last year because while we don't have visibility yet to it, it's too early for that. We know, though, there would be some, as we just talked about, things like the U.S.
Yeah, I'd say that, you know, um, from a, you know, a second half year kind of
Bill Burns: legislation around the big beautiful bill could help with CapEx spending year-end. Certainly, as customers have remained cautious through the year, we could see additional year-end spending. But we factored some in, which we think is prudent, even though we don't have quite the visibility today. That's why we're saying it's our outlook. I would use the word balanced, as you said, really with the opportunities we see, a bit of uncertainty out there, but clarity coming through on tariffs. We haven't talked about it yet, but we're seeing some softness in Europe, certainly a mixed result across Europe. I would say that's kind of weighing in as well. So we're trying to find the right balance of the second half. The guide for Q3 we feel good about and less certainty around Q4. But we feel good that customers will spend some year-end money.
That, you know, overall that we've factored in some year-end spending um about the same levels as we had last year because while we don't have visibility yet to it, it's too early for that. Um, we know there will be some um, you know as we just talked about things like the you know the US legislation around. You know, the big beautiful bill could could help with capex spending year end and certainly as customers have remained cautious through the year, we could see additional year end spending but we factored, you know, some in which is we think is prude and even though we don't have quite the visibility today and that's why we're saying it's, you know, our, our Outlook I would use the word balanced as you said, uh, really with the opportunities, we see a bit of uncertainty out there but Clarity coming through on tariffs and then, you know, we haven't talked about it yet but we're seeing some softness in, in Europe. Certainly a, a mixed result across Europe and I would say, you know, that's kind of um, you know, weighing in as well. So we're trying to find the right balance of of second half and the guide for Q3 we feel good about
Bill Burns: If they're being conservative, maybe there's some upside to that. There's some things out there like the U.S. legislation. We'd like to see Europe be a bit stronger as we're seeing softness there, but it's been a mix across the region. That's why I used the word balance.
Tommy Moll: Thank you, Bill. On Elo, you have mentioned a couple of times that there is a big market you can go after now that is more consumer-facing. I am interested to get a little more of the strategy there. I do not know if it is an entirely new direction for Zebra, but it is a slightly different emphasis than what you have discussed historically. Are there some things changing in that market that draw you to it, or what is some of the thinking behind the scenes here? Thank you.
And and less certainty around Q4, but we feel good that, you know, um, customers will spend some of your end money if they're being conservative. Maybe, there's some upside to that. There's some things out there, like the US legislation, um, we see like to see Europe be a bit stronger as we're seeing softness there. It's but it's been a mixed across the region. Um, that's why I use the word balance.
thank you Bill, and then on Elo
Um, you've mentioned a couple times that there's a, a big Market you. You can go after. Now that's more consumer facing.
And I'm I'm interested to get a little more of the the strategy there.
um, it's I don't know if it's an entirely New Direction for zebra, but it's
it's uh, slightly different emphasis than what you've um,
Discussed historically. So are there, some things changing in that market, that draw you to it?
Bill Burns: Yeah, so maybe the easiest example is when we have talked about the modern store from a Zebra perspective, really powered by AI and the idea that we think of engaged associates in a retail store, and then we think of inventory accuracy. The last is customer or consumer-facing for the retailer. This adds to that element of solutions. Today, our mobile devices, for instance, are used for payment. Our mobile devices are used in Europe extensively where the market leader and things like self-scan.
Or what, what some of the thinking behind the scenes here. Thank you.
Bill Burns: Ultimately, the buying experience also includes self-serve checkout, kiosks, and quick-serve restaurants. There is a move to serve customers not just through mobility, tablets, and mobile devices with payment on them, but also in fixed touch screens and in payment and point of sale that includes, in the Elo's case, things like compute and touchscreen displays and payment, all driven or focused on customer and self-service. There is also an element within the retail, and I will stick with retail for a minute, but it applies to multiple other verticals, is this idea of media networks within the store. Screens and touch screens and displays ultimately that are driven by Android today as well. Both a combination of Windows and Android, but Android is becoming more prevalent to drive those technologies.
Yeah, so maybe you know maybe the easiest example is when we've talked about, you know, kind of the modern store from a zebra perspective, really powered by Ai and the idea that we think of, you know um engaged Associates in a retail store and then we think of inventory, accuracy, and the last is, you know, kind of customer or consumer-facing for the retailer, this adds to that element of solutions. And today, our mobile devices, for instance, are used for payment. Our mobile devices are used in Europe, extensively where the market leader and things like self-scan, um, but ultimately, the buying experience also includes self-serve checkout. Um, kiosks and Quick Serve restaurants, there's a move to serve customers, not just through Mobility, um, tablets and mobile devices, with payment on them. But also,
Bill Burns: The platform we have used around mobile computing, customers have said to us, we would really like to see that same Android platform used across our fixed screen technology and touch screens in the store that we use in your mobile devices. They have actually represented some of this to us, saying it would be interesting if you could pull those two together. Think of places where we work together would be point of sale. Their offerings would include self-service kiosks, which would marry with things like mobile device checkout or self-scanning. Then we think of new areas. As we go to the HIMS show for healthcare, while we are talking about mobility in healthcare, there clearly is an element around kiosk and self-serve within healthcare.
In fixed touchscreens and in payment and point of sale, that includes in the Elo case, things like compute and, you know, touchscreen displays and payment, all driven, you know, or focused on customer and self-service. So, there's also an element within the, um, in retail, and I'll stick with retail for a minute, but it applies to multiple other verticals, is this idea of media networks within the store—so screens and touch screens and displays ultimately that are driven by Android today as well. So, both the combination of Windows and Android, but Android is becoming more prevalent to drive those technologies. And the platform we've used around mobile computing. Customers have said to us with Relic, 'We'd like to see that same Android platform used across, you know, our fixed screen technology and touch screens in the store that we use in your mobile devices.' And, you know, they've actually represented some of this to us, saying, 'It'd be interesting if you could pull those two together.' So think of, you know, places.
Bill Burns: When we are talking about quick-serve restaurants, our relationships most recently have been advanced technologies around RFID and tracking food into quick-serve restaurants. They are controlling both the customer interface, but also the production of food and others inside the kitchen. Think of process management inside quick-serve restaurants. It is closely adjacent to what we do in manufacturing. We talk about tablets on the production floor, but there are also fixed screen elements to that and touch screens associated with the manufacturing process and process management, so automation. We see it as another step to not only addressing the consumer, but addressing automation in a different way beyond mobility. The two are coming together with operating systems such as Android. That is why we see overlapping customers, overlapping markets, and places where we can take their solutions globally.
Where we work together would be point of sale. Um, they're offerings would include cell service kiosk which would marry with things like mobile device checkout or or self-scanning. Um and then we think of new areas. So as we go to, you know, at the Hem show for Health Care while we're talking about mobility and health care there, clearly is an element around kiosk and self-serve within Healthcare. Um, when we're talking about Quick Serve restaurants, our relationships, most recently have been, you know, Advanced Technologies.
Consumer but addressing Automation in different way Beyond mobility and the tour coming together with operating systems such as Android. So that's why we see overlapping customers overlapping markets and places where we can take their Solutions globally.
Conference Operator: Our next question comes from Andrew Buscaglia with BNP Paribas. Please go ahead.
Our next question comes from Andrew B.
Tommy Moll: Hey, good morning, everyone.
Hey, good morning, everyone.
Joe Giordano: Morning, Andrew.
Tommy Moll: I wanted to ask on just the gauge of how you are viewing tariffs from here. Obviously, we saw some de-escalation intra-quarter in China, but there is still uncertainty with how this plays out. I am wondering, maybe number one, are you concerned or have you contemplated or what are you seeing in terms of the potential exemptions picking and/or going away? Then any other further tariff escalations you are aware of that you are monitoring and what can you do to offset those?
Good morning, Andrew.
Um, I wanted to ask on just a gauge, uh, how you're viewing tariffs from here. Um, you know, obviously obviously saw some de escalation in recorder in China, but there are still like there still, there is still uncertainty with how this plays out. So I'm wondering maybe number 1, are you concerned or have you contemplated or what what are you seeing in terms of the potential exemptions?
Sticking or and, or going away. And then any other
I don't know further. Um, tariff escalations. You're aware of that you're monitoring. And what can you do to to offset those?
Joe Giordano: Andrew, I think, and Bill Burns mentioned this earlier, obviously, progress has been made since our last update. As you noted, it remains a dynamic environment. I think we are looking at it as it is probably going to remain a dynamic environment for a period of time. It is just one of those where we continuously work with our trade and industry partners to understand what they are hearing, what they are seeing, how are others reacting so that we can get as much intelligence as possible. We have a dedicated team that wakes up every day keeping a pulse on where things are at. As news breaks, making sure we have a position to react.
Yeah. Andrew. I think uh and Bill mentioned this earlier, obviously progress has been made since our last update. Um, but it as you, noted remains a dynamic environment and I think
Joe Giordano: As we said, to some extent, we want to play our game in terms of continuing to have a diversified supply base that is both, you know, can react to tariffs, but also just have broader, you know, sustainable supply chain, right? That and resilient supply chains. We are managing, you know, we have a playbook that the team is executing to that has, you know, a bunch of different options available to us that we can execute here, particularly as we get more clarity as we go through the balance of the year. I would say as it relates to exemptions or other changes in rates, we do not know anything else that, you know, that you do not see in the news or that is not breaking.
Um, I think we're looking at it as it's probably going to remain a dynamic environment for the, you know, for a period of time. So it's just 1 of those where we continuously work with our trade and Industry Partners to, to understand what they're hearing, what they're seeing. Um, how are others reacting, uh, so that we can get as much intelligence as possible. And we have a dedicated team that wakes up every day. Um, keeping a pulse on, where things are at, and as news breaks, um, making sure we have a position to react, but also, as we said,
Some to some extent, you know, we want to play our game in terms of continuing to have a diversified Supply base.
That is both, you know, can react to tariffs but also just have um, broader, you know, um, sustainable supply chain. Right? So that,
Joe Giordano: Again, we are, I think we just, we look at that as what are the options available from pricing to other geographical moves, but ultimately, you know, making sure we have a resilient and sustainable supply chain for years to come. That is where we stay focused.
And resilient Supply chains. So we're, we're managing, you know, we have a Playbook that the teams executing to that has, you know, a bunch of different options available to us um that we can execute here. Um, particularly as we get more clearity as we go through the balance of the year. So I'd say, um, as it relates to exemptions, um, or other changes in rates, we don't know anything else that, you know, that you don't see in the news, um, or that's not breaking.
So we um again we're I think we just we look at that as what are the options available from pricing to other geographical moves. Um but ultimately you know making sure we have a resilient sustainable supply chain for for years to come and that's where we stayed focused.
Tommy Moll: Okay. Okay, fair enough. I wanted to get your take on competition and your potential for market share gains. You are seeing one of your biggest competitors across many different business lines somewhat get de-emphasized by its parent company. I am wondering, do you see a pathway for more share gains going forward? What is your take on what is going on competitively?
Okay.
Okay, fair enough. And then, um, yeah I wanted to get your take on, you know, competition in in your potential for my market share gains. You know you're seeing 1 of your biggest competitor across many different business lines. Um some like a d emphasized um by its current company. So I'm wondering, do you see a a pathway for more share, gains going forward and you know, what's your, what's your, take on, what's going on competitively?
Joe Giordano: Yeah, I would say that, not much different overall, quite honestly, except for the announcement that you mentioned with our competitor. I think that our strong customer relationships, the vertical market expertise we have, the breadth and depth of our portfolio, our commitment to our customers and continuing to invest in innovation along with them, expanding the portfolio. I think from the acquisition perspective, clearly, it elevates our strategic position with our customer to be doing more business with them in areas that they are focused, like self-serve and others. We saw this with the enterprise acquisition, the more business we do together and the more vision we paint with our customers about what the future of retail looks like, what the future of P&L looks like, what the future of manufacturing looks like, and have a breadth and depth of the portfolio that expands our relationships.
Joe Giordano: That is one of the reasons we like this acquisition, it allows us to continue to remain relevant, important, and add to the future direction of our customers and a voice that ultimately they rely on as a trusted partner. We feel pretty good about where we are at competitively. The portfolio is as strong as it has ever been. We continue to add to the portfolio new areas such as wearables, as will play a role not only today, but they will play a role in AI in the future. If you look at what is being said out there around what the future AI device looks like, it is likely a mobile device augmented with something that is wearable. We have got new wearable offerings for both retail and healthcare.
Yeah, I would say that, you know, um, not much different overall, but honestly, except for the, the announcement that you mentioned with our, you know, our competitor. Um, I think that our strong customer relationships to Vertical Market expertise, we have the breadth and depth of our portfolio, our our commitment to, you know, our customers and continuing to invest in on you know Innovation along with them. Um expanding the portfolio. You know, I think it from the acquisition perspective clearly you know um it elevates our strategic position, what our customer to be doing um more business with them in areas that they're focused like self-serving others. So, you know, we saw this with the Enterprise acquisition, the the more business we do together and the more Vision we paint with our customers about what the future of retail looks like, what the future of tnl looks like what the future of manufacturing looks like and have a breadth and depth at a portfolio that expands our relationships and that's 1 of the reasons we like this acquisition. Um,
Joe Giordano: We continue to expand the portfolio with next-generation devices across T&L as we see the refreshes coming up over the next couple of years. We are really focused on that. We have recently won a postal opportunity, large postal opportunity in Australia, which again speaks to our strength in postal and having the right device in T&L as these refreshes come up. We feel good competitively ultimately, and what happens with our competitor happens. That is going to take some time to play out, and we will continue to play our game, and we feel good about where we are at.
Healthcare. We continue to expand the portfolio with Next Generation devices across tnl as we see the refreshes coming up over the next couple of years. We're really focused on that. We've recently won, uh, postal opportunity, large postal opportunity in Australia. Which, again, speaks to our strength, in in postal and having the right device in tnl as these refreshes come up. So, we feel good, competitively, ultimately and, and, um,
What happens with our competitor happens. So that that's going to take some time to play out. And, and we'll continue to play our game and we feel good about where we're at.
Conference Operator: Our next question comes from Jim Ricciutti with Needham & Co. Please go ahead.
Our next question comes from Jim Richie, with any and Company. Please go ahead.
Rob Mason: Hi, thanks. Good morning. You noted some softness in Europe. I am wondering what changes have you seen in the various subsectors of the market more broadly, whether any changes in the overall retail, retail automation, e-commerce, logistics areas versus, say, three months ahead?
Hi. Thanks. Good morning. Um, you noted some uh,
Softness in Europe. I'm wondering what, what changes have you seen? Uh, in the various sub sectors of the market, you know, more broadly, uh, you know, whether any changes in the overall retail retail automation e-commerce, you know, Logistics areas versus say, 3 months ago,
Bill Burns: I would say that when we look to, we look at certainly strong growth across North America, Asia-Pac, and Latin America. So geography-wise, strong growth with EMEA certainly being more challenged or softness. The strength globally, on a global basis, I would say TNL and retail and e-commerce continue to be strengths for us. Healthcare in North America is cycling some strong comparison in mobile computing, and I would say while growing mid-single digits, manufacturing is slower than the other, certainly transportation, logistics, and retail. When I look at the regions, I would say if you ask specifically about EMEA, I would say that cycling strong prior year comparison mobile computing. So that is clearly a factor. But I think overall we are seeing kind of mixed performance across EMEA. So strength in places like Northern Europe and particularly in TNL. But we are seeing softness in auto manufacturing.
Yeah, I would say that, you know, when we looked at, when we look at 2 2 certain, you know, strong growth across North America, Asia pack, and, and Latin America. So, geography wise, you know, strong growth with, um, you know, emia certainly, uh, being more challenged or softness, um, the strength globally and a global basis. I would say tnl and and Retail e-commerce.
Bill Burns: Some of the retail sectors in France is a good example where we are seeing a bit challenging. Some of the run rate, we think, really driven by some of the concerns around geopolitical and tariff and others. So some run rate challenge in EMEA. So overall, I would say we would like to see EMEA, the softness in EMEA kind of abate and get a bit stronger. That has happened throughout the year. So they started okay, but we have seen more of that kind of EMEA degrade through Q2. North America strong really around mobile computing, data capture, RFID, so broad portfolio set. Asia-Pacific strengthened. We talked about Australia, New Zealand, India. So new applications around RFID in places like India around transportation such as rail. So we are excited about that as RFID continues to play an important role in the portfolio.
Continue to be, you know, um, uh, strengths for us, uh, Healthcare in North America cycling. Some strong Compares Inn in Mobile Computing. And I would say, you know, while growing, um, you know, uh, business single digits, uh, manufacturing is, you know, is slower than the the other than certainly Transportation Logistics and, and retail, when I look at the regions, I would say, you know, as you asked specifically about emia, I would say that you know, cycling strong prior year Compares and mobile Computing. So that's clearly a factor. But I think overall, we're seeing kind of mixed performance across emia so strength in places, like northern Europe and particularly in in, um, particularly in tnl. But we're seeing, you know, softness in in, uh, in auto manufacturing, uh, some of the retail sectors in. In, you know, France is a good example where we're seeing a bit of bit challenging. Um, some of the Run rate we think really driven by some of the concerns around kind of geopolitical, and tariff, and others. So, so some run rate challenge
In anyia. So overall I would say we'd like to see Amy had, you know, the softest anemia kind of a bait and get a bit stronger, that that's happened throughout the year. So you started, you know, okay. But we've seen more of that kind of emia degrade through second quarter North America. You know, strong really around mobile Computing, data capture RFID. So broad portfolio set asia-pacific strength. And we talked about Australia and New Zealand, India. Some new applications around RFID in places like India around Transportation such as rail.
Bill Burns: So I would say the one softness point is EMEA, and it has evolved probably in Q2. We are starting to, we have begun to see it. And we are paying close attention to it. We are seeing a lot closer to our customers and making sure that as they begin to spend, we are there with them.
So we're excited about that is RFID continues to play an important role in the portfolio. So let's say the 1. Soft point is emia and it's evolved probably in second quarter we're starting to you know, we began to see it and um you know, we're paying close attention to it. We're a lot of seeing a lot close to our customers and making sure that as they begin to spend where they're with them.
Rob Mason: Got it. Thank you. Just congratulations, by the way, on the Elo announcement. I am curious, the way they go to market, are they working with similar channel partners that you work with, or is this a different channel versus some of your products?
Got it. Thank you. Just, uh, Congratulations. By the way, on, on the, uh, the ELO announcement is, um, serious. The way they go to market to are they working with, uh, similar Channel partners that you work with, or is this a different, uh, channel, uh, versus, uh, some of your products?
Bill Burns: Yeah, very similar from a channel perspective and go-to-market, meaning that they work closely with the end customer as we do and then fulfill through, you know, value-added distributors and in distribution, through to your distribution in the marketplace that they ultimately serve. They sell direct as well. So really, very much on top of what we do today. Their largest distributor in North America is, you know, our largest distributor in North America. So in that case, right on top of each other. I think that, you know, very similar go-to-market approaches that they have today. Now, in places they have got different relationships, meaning things like strength in quick-serve restaurants or, you know, different places with the fragmentation of, you know, of healthcare. They may be in different customers than we are and have strong strengths in those areas.
Yeah. Very similar uh, from a channel perspective uh and go to market meaning that they work closely with, uh, the End customer as we do and then fulfill through, you know, value added Distributors. And um uh and distribution uh, to your distribution, uh, in the markets place that they ultimately serve, they sell direct as well. So really, you know, very much on top of what we do today, uh, their largest distributor in North America is, you know, our largest distributor in North America. So in that case, right on top of each other. So I think that, you know, um, very similar go to market approaches that they have today. Now in places, they've got different relationships.
Bill Burns: But we are looking forward to leveraging the customer base on both sides.
Meaning things like strength inputs or restaurants, or, you know, different places with the fragmentation of, you know, uh, of um, Health Care. You know, they may be in different customers than we are, and have strong and strengths in those areas, um, but we're looking forward to leveraging the customer base on both sides.
Conference Operator: Our next question comes from Brad Hewitt with Wolfe Research. Please go ahead.
Our next question comes.
Joe Giordano: Hey, good morning, guys.
Tommy Moll: Morning, Brad.
Hey, good morning, guys.
Morning. Brad.
Joe Giordano: So, it looks like your net leverage will be around two turns pro forma for the Elo deal. As we think about capital allocation going forward, should we assume the focus is more on bolt-on deals and perhaps modest buybacks in the near term until pro forma leverage comes down a little bit?
So it looks like your net. Leverage will be around 2 turns per formula for the ELO deal.
So if we think about Capital allocation going forward, should we assume the focus is more on bolt-on deals and perhaps modest BuyBacks from the near term until perform a leverage comes down a little bit.
Bill Burns: Yeah, I would say that, look, I think that our capital allocation in general has not changed in the idea that we focus first on organic growth and the areas in which that we invest in our portfolio when we believe there are continued opportunities across the portfolio. M&A, we view as strategic adjacencies to what we do, and we continue to be very selective in that assets. Something smaller in Photoneo, we closed, and now something a bit larger certainly in Elo. We are excited about both in much differing sizes, but both in areas in which we see a strategic and closely adjacent to what we do. We will continue to be inquisitive out there and continue to look for strategic M&A, but we want to get through this one first and get it integrated and brought into Zebra, and that is our near-term focus.
Bill Burns: As you have seen, we have returned $250 million in capital to shareholders as well. So I think we are trying to find the right balance between M&A, the things that are strategic for us, what is available in the market, how do we add to things like machine vision, and also, in this case, what we see as an important extension of what we do today on the front line of business with Elo. We will continue to look out there, but I think that the focus in the short term is going to be really integrating the Elo team.
I'd say that, you know, look I I think that our our Capital allocation in general, you know, hasn't changed in the idea that you know we focus first on organic growth and the areas in which that we you know, invest in our portfolio. When we believe there's continued opportunities across the portfolio m&a, we view as strategic adjacencies, to what we do and we continue to be very selective in that assets, you know, uh, something smaller in, in photo Neo. Um, we closed. And now something of, you know, a bit larger certainly in, in Elo, we're excited about, you know, both and much different sizes, but both in areas in which we see a strategic and closely adjacent to what we do, we'll continue to to be inquisitive out there and continue to look for strategic m&a. But we want to get through this 1 first and get an integrated and brought into zebra and that's our, our near-term Focus. Um as you've seen we've returned 250 million in capital to to shareholders as well. So I think we're trying to find the right, you know, balance between um m&a the
Things that are strategic for us, what's available in the market, how do we add to things like Machine Vision? And also, you know, um, in this case, what we see is a important extension of what we do today in the front line of of business, with, with ELO and, um, we'll continue to look out there, but I think at the focus in the short term is going to be really integrating, you know, the ELO team
Joe Giordano: Okay, that is helpful. You mentioned in the release the 5% to 7% revenue growth algorithms going forward for Elo. I am just curious, what has been the historical organic growth profile of the business, particularly from 2019 through 2024? How would you describe the potential scope of revenue synergies? Is that incremental to the 5% to 7%, or is that already embedded there?
Okay, that's helpful. And then you mentioned in the release, the 5 to 7% uh, Revenue growth algorithms going forward for ELO, I guess, curious, what has been the historical organic growth profile of the business? Particularly from 2019 through 2024? And then how would you describe the potential scope of Revenue synergies? And is that incremental to the 5 to 7% or is that already embedded there?
Bill Burns: Brad, I think, you know, very similar. If you look back over the last several years, very similar to our performance in terms of if you overlap the revenue growth of, you know, consistent growth going pre-pandemic, kind of, you know, a lot of ups and downs as you went through COVID, coming out of COVID, as you saw a lot of investment around their technology, the supply chain challenges that the industry went through, and then the recovery. So I'd say if you bump it up to our long-term growth, it kind of overlaps pretty nicely.
Yeah, bro. I think you know, very similar if you look back over the last several years, um very similar to our performance, in terms of. Um if you if you overlap the revenue growth of, you know, um, consistent growth, going pre-pandemic, uh, kind of, you know, a lot of ups and downs. As you went through, Co coming out of Co. Um, as you saw a lot of investment around
Joe Giordano: Looks like us.
Bill Burns: Looks a lot like us. Maybe a few of the years are a little bit different. I think that's what we've seen long-term with a lot of puts and takes, particularly around COVID and the supply chain challenges coming out of that. If you look as part of the revenue synergies, or I'd say maybe just take a step back on the total $25 million, we're highly confident in achieving those. There's multiple levers, and we expect a steady ramp of those over the next few years. Maybe on the cost side, things you would expect around real estate portfolio where we have overlapping sites, consulting services, and things like that, as well as leveraging our supply base to drive efficiencies across our supply base will be areas of focus.
Um, their technology the supply chain challenges that the industry went through and then the recovery. So I'd say, if you um if you bump it up to our um, long-term growth it kind of overlaps pretty pretty nicely. It's like a looks a lot like us, uh, maybe a few of the years are a little bit different. So um, yeah. So I think that's so that's what we've seen long term with a lot of
Um, puts and takes particularly around coid and the supply chain challenges coming out of that.
Yeah, and if you look um, as part of the the revenue synergies or I say maybe just take a step back on the total 25 million.
Bill Burns: On go-to-market, as Bill mentioned, it's really around, I'd say, international developed markets where we have a strong presence, the infrastructure, the channel setup, and Elo has a limited presence in some of those markets. But we think a great opportunity to, again, leverage our presence and infrastructure to grow. As Bill's mentioned, cross-selling opportunities are significant for both sides. Again, I think the $25 million, while we have kind of a bottoms up more holistically on the cost side, we do think there's synergies that could get us to that, to your point on that top end of that 5% to 7% as we move forward.
You know, we're highly confident in achieving those, there's multiple levers. Um, and we expect a steady ramp of those over the next few years. So um, you know, maybe on the cost side things, you would expect around, you know, real estate portfolio where we have, you know, overlapping sites, um, consulting services and things like that, as well as, um, leveraging our supply base. Uh, to drive efficiencies across our supply base will be areas of focus and then on on go to market, as Bill mentioned, it's it's really around. I'd say International developed markets, where we have, um, a strong presence, the infrastructure, the the channels set up, um, and enable has a limited presence in in some of those markets, but we think a great opportunity to again leverage, our presence and infrastructure to grow. Um, and then, as bills mentioned, you know, cross-selling opportunities are significant, uh, for both sides. So, again, I think the the 25 million while we have kind of a Bottoms Up, more holistically on the cost side, uh, we do think there's, um, synergies that can get us, you know, to that from the to your point on that top end of
That 5 to 7%, um, as we move forward.
Conference Operator: Our next question comes from Piyush Avasthy with Citi. Please go ahead.
Our next question comes from Pooh.
Obviously with City, please.
Joe Giordano: Good morning, guys.
Good morning, guys.
Rob Mason: Morning.
Good morning.
Joe Giordano: Just thinking from the perspective of, you know, raised sales growth guidance of 5% to 7% or 25%, is there any incremental color you can provide us on the trends that you're seeing across the expansionary and adjacencies verticals? If you could break out how machine vision solutions, autonomous mobile robots, RFID readers are performing, that would be helpful.
Uh just thinking from the perspective of your raised sales growth guidance of 5 to 7% for 25. Uh is there any incremental color? You can provide us on trends that you're seeing across the expansionary and edges verticals. You know, if you could break out how much Imaging mobile robots, RFID are performing that would be helpful.
Bill Burns: I would say that the overall, I would say from a vertical perspective, across the different vertical markets overall, I would say retail and e-commerce clearly a strength, as I mentioned earlier, with certainly continued strong demand both in mobility, so mobile devices and RFID technology inside retail. I would say that TNL recovery certainly is overall kind of more normalized business across TNL. I mentioned postal win earlier that really fits into transportation logistics for us and some new opportunities in things like railway. Manufacturing, I would say some new areas where adjacencies that we are focused on things like machine vision inside manufacturing with the idea of inspection. The other area of machine vision would fall back to TNL. We are seeing a continued focus on our team.
Bill Burns: While we are seeing still challenges in manufacturing and things like EV and others, I would say that machine vision plays an important role there. So strength across the core portfolio and the areas in which we do business today. Then RFID, machine vision, and others, opportunities across the different vertical markets.
Overall I would say retail on e-commerce, you know. Um, clearly a strength is, as I mentioned, uh, earlier with, you know, certainly continued, strong demand, um, both in uh Mobility, so mobile devices and uh, RFID technology inside. You know, retail. Uh, you know, I would say that tnl, um, recovery certainly is, you know, overall kind of more normalized, um, business across, uh, tnl. I mentioned postal win earlier that really fits into the transportation logistics for us and some new opportunities and things like Railway uh, manufacturing. I would say some new areas where, you know, Jason sees that we're focused on things like Machine Vision inside manufacturing with, you know um the idea of inspection uh and you know the other area and Machine Vision would fall back to tnl. So we're seeing a continued focus on our team you know while we're seeing still challenging in manufacturing and things like Evie and others. Um, I would say that the machine
Vision plays an important role there. So, strength, across the core portfolio in the areas in which we do business today and then RFID Machine Vision and others opportunities across the different vertical markets.
Joe Giordano: Helpful. I think you touched on the replacement cycle. Have you at least started to have discussions with your customers regarding the refresh plans? If you have that visibility in 2026, help us understand what that could mean for your 5% to 7% organic sales growth framework.
Helpful. And I think you touched on replacement cycle, like have you at least started to have discussions with your customers regarding their refresh plans? And if you have that visibility in 2026, like help us understand what that could mean for your 5% organic uh, sales growth framework.
Bill Burns: Yeah, I think everybody's on a different journey of a refresh cycle within their environment. We've seen the postal win as an example of a refresh of that postal carrier in Australia that again speaks to the fact that we continue to win in the marketplace. Over time, there will be additional refreshes. Everybody's on a different schedule, both retail, TNL, and others. Over the next several years, we clearly have seen through COVID and today, the number of mobile devices in the marketplace has increased. That eventually will continue to be upgraded and increased along with this concept of device for all, right? Putting more devices in the hands of more associates inside the frontline workers, whatever that's TNL or manufacturing or retail or healthcare. We're seeing that move. So even the refreshes include even more devices over time.
Bill Burns: We're not guiding 2026 at the moment, but over the next several years, we see that there will be an accelerated refresh cycle on whether that begins in 2026 and moves into 2027, 2028. We just don't know yet, but we are tracking with our customers and making sure that we're staying close to them so that when they are ready, as in this postal example, that we're there for them.
Yeah, I think everybody's on a different journey of, you know, a refresh cycle within, you know, uh, their environment we've seen the postal win is example of a refresh of that, you know, postal carrier in Australia that, you know, again, speaks to the fact that we continue to, you know, win in the marketplace and and and over time they'll be, you know additional um, refreshes everybody's on a different um, schedule. Both you know, retail tnl and others and over the next several years, we've clearly have seen, you know, through Co and today, the number of mobile devices in the marketplaces increase, and that eventually will continue to be upgraded and increase along with this concept of device for. All right, putting more devices in the hands of more Associates inside the Frontline workers, whatever that's tnl or manufacturing, or retail or Healthcare, we're seeing that move. So even the refreshes include even more devices over time. Um, we're not, you know, guiding the 26th at the moment but over the next several years we see that they'll
Being accelerated refresh cycle on whether that begins in 26 and moves into 27/28. We just don't know yet, but we are tracking what our customers are making sure that we're staying close to them. So that when they are ready, as in this Co postal example that we're there for them.
Conference Operator: Our next question comes from Keith Housum with Northcoast Research. Please go ahead.
Joe Giordano: Great. Thanks, guys. Appreciate it. And congratulations on the quarter in the acquisition. Hey, Bill Burns, I am thinking about the Elo acquisition. Is the makeup of their revenue primarily hardware, or are there other sources of revenue that you guys will be acquiring?
Our next question comes from Keith hosam with North Coast research. Please go ahead.
Great, thanks, guys. I appreciate it, and congratulations on the quarter and the acquisition. Um, hey Bill, can you think about the ELO acquisition? Is the makeup of their revenue primarily hardware, or are there other sources of revenue that you guys will be acquiring?
Bill Burns: Yeah, I mean, I would say that their strength in the software is certainly around the OS and what they are doing in two areas. One would be the move, as I said before, to Android that ties into touchscreens and displays and others for control and be able to use the Android OS. So there is hardware and software associated with their control of those devices. Point of sale, they also have the compute associated with point of sale. So the point of sale terminals are also a combination of hardware and OS and software associated with that. So like Zebra, the predominant sales mechanism is through hardware, but tremendous value in the software side of what they do today within their environment.
Joe Giordano: Great. Is there a particular competitive note that Elo has versus other competitors in the space that you may have looked at?
Yeah, I mean, I would say that the the their strength in in the software certainly around, you know, the the OS and what they're doing in the in 2 areas. 1 would be, you know, the move as I said before to Android that ties into, you know, touch screens and displays and others for control and be able to use the Android OS. So there's, you know, um, hardware and software associated with their um, control of, of those devices. Um, point of sale. They also have the, the computer associated with point of sale. So, the point of sale terminals are also, you know, a combination of hardware, and, you know, OS and software associated with that. Um, so like, zebra the predominant, you know, um, sales mechanism is through Hardware, but tremendous value in the software side of what they do today, um, you know, within their their environment.
Great. Is there a particular like competitive note that either has versus other competitors in the space that you may have looked at
Bill Burns: Yeah, I would say the breadth and depth of the portfolio, the relationships they have with their customers to really understand the places in which they serve their customers today. I think that is probably one of the biggest strengths. The technology as well, so they clearly are the leader in touchscreen displays and others. They have been doing this for about 50 years, significant patent protection around it, and that is a strength they have as well. So customers clearly recognize them as one of the leaders within this market, and they remain focused on it. While others are moving away from this market, they remain focused, and I think that that matters. We talked about what is happening on our competitor on the mobile device side. I think we have seen others kind of exit this market, and it creates an opportunity for them.
About what's happening, you know, on our competitor, on the mobile device side. I think we've seen others kind of exit this market and it creates an opportunity, you know, for them
now us
Conference Operator: Our next question comes from Rob Mason with Baird. Please go ahead.
Rob Mason: Yes, good morning. Maybe just one more question on Elo, Bill. As you think about, this is largely complimentary. I know you've introduced some kiosks recently. They do have some mobile computing products, I guess, as well. But as you think about this, is part of the strategy to keep the Elo brand, or does this give you additional ability to tier your product, any of your products?
Our next question comes from Rob Mason with Bayard. Please go ahead.
Uh, yes, good morning, maybe just uh, 1 more question on Elo, uh, bill. Um, as you think about, you know, this is largely complimentary. I know you've introduced some kiosk recently. Um, they do have some mobile Computing products, um, I guess as well. But, you know, as you think about this is, is part of the strategy, um, uh, to keep the ELO brand or does this give you additional ability to, to tear your product, any of your products?
Bill Burns: I would say that the overlap is relatively small. You know what I mean? As you said, we recently announced the kiosks. We have been happy with the success in the market, but it is a whole lot different to have a single kiosk offering and have a portfolio, as we know. It is the same on their side. Their mobile device has been focused more on payment, which, by the way, is one of their strengths that we expect to continue to leverage on the mobile device side of things. So their mobile device has been used more in the payment applications, and again, small levels of revenue compared to the portfolio that we have. So the overlap is very minimal overall, and we see that being kind of a strength of the acquisition.
Bill Burns: The fact that little overlap ultimately strengthened customers, go-to-market, and others is what we saw with the enterprise acquisition and the idea that we believe we can accelerate in the market from a revenue perspective by not having a lot of debate about which product, which area to go focus on or overlapping products or different go-to-market motions. All that helps you be successful from an acquisition perspective. We have also worked with them for some time. So they have been an OEM customer of ours. We know the team there well for many years. We have like cultures, right? Product portfolios that ultimately are high quality, respected in the market as being high quality hardware and software. I think that helps as well, certainly with us having conviction.
Yeah, I would say that, you know, the the overlap is is, is relatively small. You know what I mean. As, as you said, we we've recently, you know, announced the kiosk we've been happy with the success in the market. But, you know, it's a whole lot different to have a single kiosk offering and have a portfolio as we know, right? And is the same on their side, their mobile devices have been focused more on payment which by the way, is 1 of their strengths. Um that you know, we expect to continue to leverage on the on the mobile device side of things. So their mobile devices have been used more in the payment applications and again, small levels of Revenue compared to, you know, the portfolio that we have. So the overlap is very minimal overall and we see that being kind of a strength of the acquisition, the fact that, you know, a little overlap
Bill Burns: Certainly when customers are saying to us, "Hey, it would be great the two of you could get together," that also helps.
Rob Mason: Yeah, makes a lot of sense. Nathan, real quick, just your Q3 EBITDA margin guidance, you know, is a little bit down year over year, but if I just for the tariff impact that you've outlined, you know, it kind of equates to about a 30% incremental margin year over year. As you think about tariffs, hopefully we get to some normalized place with pricing and mitigation, etc. Are there any other, besides tariffs, are there any other major puts and takes on the margins right now, FX, or anything else that we call out?
Ultimately strengthen customers go to market. And others is what we saw with the Enterprise acquisition and the idea that we believe, we can accelerate in the market from a revenue perspective. Um, by not having a lot of debate about which product, which, you know, which area to go focus on or overlapping products or different, go to market motions, all that helps. You be successful from an acquisition perspective. We've also worked with us for some time. So, you know, we've uh, they've been an oem customer of ours. Uh, we know the team there. Uh, well for many years, um, we, uh, have like cultures, right? Uh, you know, product portfolios that ultimately, uh, are high quality respected in the market as being, um, you know, uh, high quality hardware and software. Um, I think that helps as well certainly with, you know, us having conviction. And certainly when customers are saying to us, hey, that'd be great, the 2 of you could get together, um, that also helps
Yeah, makes a lot of sense. Um, Nathan real quick, just, um, your third quarter.
EBA margin guidance. You know, is is a little bit down year-over-year, but if, uh, just for the, the Tariff impact that you've outlined, you know, it kind of equates to about a 30% incremental margin year over year, you know, as you think, you know, about tariffs, hopefully we get to some normalized place with pricing. It's in mitigation Etc. Are there any other besides tariffs are there any other major, you know, kind of puts and takes on
Margins.
Right now, FX or anything else that we call out.
Joe Giordano: No, as you said, the 30% incremental is excluding tariffs is about what you would expect, and we have historically delivered. So I think we have largely worked through over the last year's supply chain challenges and everything else so that I think we are back to where we, as we grow, we can drive great leverage on top of our supply base as well as our fixed infrastructure. So to your point, outside of FX in the short term is actually a bit of a headwind at the bottom line just because of the, from a cost standpoint, it is a pretty big impact on OpEx.
No, as you said, you know, the 30% incremental is excluding tariffs, is is about what you'd expect and we've historically delivered. So I think, you know, we've I think largely Works through
Joe Giordano: And just with the hedges we have in place, you are not seeing the full kind of revenue upside that you would expect where the rates are, especially the euros at today, but those will come through as we roll through the hedges we have in place. So I would say FX in the short term is a bit of a headwind in EBITDA, but that will, if rates stay where they are at, that will turn into a tailwind as we get into Q4 in the early part of next year, just again as our forward rates mature. So no, I think those are the key dynamics, and for us, it is really again how do you drive the incremental volume and leverage our scale to drive that margin expansion.
Um, you know, over the last year's supply chain challenges and and everything else. So that I think we're back to where we, you know, as we grow, we can drive great leverage on top of our, um, Supply base as well as our fixed fixed infrastructure. Um, so yeah, your 2 point outside of, you know, FX in the short term is actually a bit of a headwind. Um at the bottom line just because of the you know the from a cost standpoint. It's a it's a pretty big you know, impact on Opex. Um and just with the hedges we have in place, um you're not seeing the full kind of Revenue upside that you would expect um, where the rates are especially the euro is at today, but those will, those will come through as we roll through the hedges, we have in place. So it's a FX in the short term is a bit of a headwind and ibida. Um, but that will if it if rates stay where they're at, that will turn into a Tailwind as we get into Q4 in the early part of next year. Um, just again as our forward rates uh mature. So no I think those are the those are the key Dynamics and for us it's really again. How do you drive the incremental volume and leverage our scale? Uh to drive that margin expansion.
Conference Operator: Our next question comes from Meta Marshall with Morgan Stanley. Please go ahead.
Meta Marshall: Great, thanks. A couple of questions for me. One, you know, in the past couple of quarters, you had mentioned that, you know, you did not expect customers to necessarily, you know, that they would absorb the price, but maybe adjust the volumes. I just wanted to see, you know, as you guys have been putting in price increases for tariffs or contemplating them, you know, does that expectation still stand where you would expect kind of volume to offset kind of price increases? The second question, just on ELO, any 10% customers or kind of.
Our next question comes from meta, Marshall with Morgan Stanley, please go ahead.
Conference Operator: concentration on their part to be mindful of. Thanks.
Halo, um any 10% customer or kind of customer concentration on their part to be uh mindful of? Thanks.
Mike Steele: I will take the first one. On the price increase, I would say we are seeing two dynamics. I would say on the where we have raised it on some of the transactional business, we have seen pretty good flow-through, maybe a little bit of impact on volume, but I would say volumes have held up pretty well on the run rate business where we have increased price. You will notice that we took down the amount of price we expected from the raise in April between our last guide and today, and that is primarily in mobile computing, where we are realizing a bit less than what we had anticipated. That is primarily because of the electronics exemption. For us and our competitors that have the electronics exemption, you are not paying the higher tariff.
Mike Steele: Our customers know we are not paying the higher tariff, so you are not seeing a market price increase, and it has remained, obviously, a competitive market. That is one where we have maintained the higher list price. We are managing that through concessions. The teams are still driving it because obviously we still have more to go to fully mitigate the impact of tariffs. But I think we are, again, outside of mobile computing, we are seeing pretty much how expected, which is a bit of volume trade-off, but the pricing is coming through in large part.
Yeah man. I'll take the uh, the first 1, you know, on the, on the price increase. I'd say it's a we're seeing, um, let's see 2 Dynamic deal on the where we've raised it on some of the transactional business. We've seen pretty good flow through. Um, maybe a little bit of impact on volume, but I'd say volumes have held up pretty well. Um, on on the Run rate business where we've increased price, um, you will notice that we took down the, the amount of price we expected from the raise in April, um, between our last guide and today, and that's primarily a mobile Computing. Um, where we're, we're realizing a bit less than what we had had anticipated. And that's primarily because of the electronic exemption that, you know, so for us and our competitors, you know that have the electronics exemption, you're not paying the higher tariff. Our customers know, we're not paying the higher tariffs, so you're not seeing the market price increase, um, and it's remained a, you know, obviously a competitive market. So um, but that's 1 where we've maintained the higher list price for managing that through concessions. The teams are still driving it because obviously, we still have more to go to fully mitigate the impact of tariffs. But
I think we're um again outside of mobile Computing, we're seeing pretty much how expected which is
Bill Burns: I think from an Elo perspective, diverse customer base. I think that, similar to Zebra overall, their largest customer would be distribution, right? Disease C with us. But from an end customer perspective, certainly larger customers that you would expect in retail and quick serve and others are larger customers for them, but no 10% concentration. Overall, pretty diverse customer mix across retail, quick serve restaurants, hospitality, healthcare, industrial applications is a market they serve overall. But, some higher concentrated customers, just as we see with Zebra, larger customers buy more from us.
You know, a bit of volume trade-off, but the, the pricing is, is coming through in large part.
I think from an ELO perspective, uh, diverse customer base. So I think that, you know, similar to to zebra overall, their largest customer would be, you know, distribution, right. As you see with us. But from an End customer perspective, um, you know, certainly larger customers that you'd expect in in retail and quicker than others, or our larger customers for them, but no 10% concentration and, you know, overall pretty diverse customer mix across retail Quick Serve restaurants, Hospitality Healthcare industrial, um, applications as a markets, they serve, uh, overall, but um, you know, some higher concentrated customers just as, as we see with zebra a larger customers, buy more from us.
Nathan Winters: Our next question comes from Ken Newman with KeyBanc Capital Markets. Please go ahead.
Our next question.
Comes from Ken Neumann with keybanc. Capital markets, please go ahead.
Joe Giordano: Hey, good morning, guys. Thanks for squeezing me in. Maybe first, Nathan, just going back on the $40 million of annualized price that you expect to realize this year, is there a way to just talk about how much pricing you were able to drive into Q2, just given that, you know, I think the headwinds you were expecting last quarter were a lot higher? I just didn't know if maybe we saw a potential opportunity for better price costs than you were expecting and if we should expect that to kind of normalize out in the back half?
Hey, good morning guys. Thanks for squeezing me in.
Um, maybe first Nathan, just going back on the 40 million dollars of annualized price that you expect to realize this year, um is there a way to just talk about how much pricing you were able to drive in 2q? Just given that you know I think the headwinds You're Expecting last quarter or a lot higher, I didn't know if maybe uh we saw a potential opportunity for Better Price cost than you were expecting and if we should expect that to kind of normalize that in the back half,
Mike Steele: It was a little less than $10 million in price gain in Q2. Again, it was a bit less than what you had anticipated, but for the same reasons I mentioned on the full-year dynamic, we had raised the prices across the board in anticipation to give ourselves the ability to react quickly. I think we still have that optionality, particularly on things like mobile computing, where we still have a higher list price and we can manage, and again, that price differentiation through concessions and approvals. That is where we just have extra eyes making sure we are making those right decisions on a deal-by-deal basis.
Yeah, so it was a little less than 10 million dollars in price gain in in the second quarter. So
Mike Steele: I think similar to what we said last time, I would like to see a bit more stability and see if the rates kind of hold here through the next month or two, and then obviously come back with a plan with the goal to fully mitigate, as we at some point in 2026. I think we are a lot closer to getting that certainty, but we would like to see maybe how the next couple of weeks play out and if anything changes from the rates by country or the electronics exemption or what happens from a semiconductor. There is still a lot at play that we are monitoring. But once we have that clarity, like I mentioned last time, the goal is to fully mitigate through all the levers that we have available.
um again um a bit less than we had anticipated. But for the same reason, as I mentioned on the full year Dynamic, where again with, you know, we had raised the prices across the board um in anticipation to give ourselves the ability to react quickly. And I think we still have that optionality particularly on things like mobile Computing where we still have a higher list price. Um and we can manage you know, and again that price differentiation through, you know, concessions and approvals. So that's where we just have extra eyes. Making sure. We're making those right decisions on a deal by deal basis. So um look I think
Joe Giordano: Got it. Okay. For the follow-up, Phil, anything of note as we think about Elo's supply chain? Any idea or color on how much of their manufacturing is international, then how to think about potential tariff exposure there?
Similar to what we said. Last time, I'd like to see a bit more stability and see if the rates kind of hold here through the next month or 2 and then obviously come back with the plan with the goal is to fully mitigate, you know, as we at some point in 2026. Um, I think we're a lot closer to getting that certainty, but um, we'd like to see maybe how the next couple weeks play out and if anything changes from the rates by country or the, you know, the electronics exemption or, you know, what happens from a semiconductor. So still a lot at play, um, that we're monitoring. Um, but once we have that clearly again, like I mentioned last time, the goal is to fully mitigate, uh, through all the levers that we have, um, available.
Got it. Okay, and for the follow-up, um, Bill. Anything of note as we think about ELO's supply chain? Um, you know, just any idea or color on, um, how much of their manufacturing is international and then how to think about potential tariff exposure?
Mike Steele: Can I take that? I would say, it is very similar to our supply chain. The one difference, they do own a manufacturing facility in China that does a lot of their primary production for touch screens, touch panel modules, as well as their monitors. We actually had a great opportunity for leveraging their expertise in that market, the local knowledge they have around the supply base for areas like our tablets. We are excited to see what opportunities are there by leveraging that facility that is really world-class. Similar to us, they use contract manufacturers for final assembly across Southeast Asia. They have a plan in place very similar to ours, which is to mitigate tariffs by year-end through price increases they did in the early part of the second quarter, as well as production moves that they are currently executing on.
Mike Steele: We spent a lot of time with the team understanding their plans, but I would say at a macro view, very similar supply chain with the use of contract manufacturers across Southeast Asia. The one difference being an owned facility in China, which holds some key technology and something we are excited to learn of how we can further leverage across our portfolio.
Manufacturers for final assembly across southeast Asia. So, um, they have a plan in place very similar to ours, which is to, to mitigate tariffs by year, end through price, increase that they did in the early part of second quarter. Um, as well as production moves that they are, um, currently executing on. So, uh, we spent a lot of time with the team, um, understanding their plans, but I think at at a macro view very similar supply chain with, um,
The use of contract manufacturers across Southeast Asia. The one difference being a known facility in China, which is, um, but holds some key technology and is something we're, um, excited to learn about how we can further leverage our portfolio.
Nathan Winters: Our last question comes from Brian Drab with William Blair. Please go ahead.
Our last question comes from Brian. D with William Blair, please go ahead.
Brian Drab: At the buzzer, sorry, I had to join late. Did you say if gross margin up or down sequentially in the third quarter, second half, and any specifics around trajectory for gross margin?
Uh, at the buzzer. Sorry, I had to join late. Um, did you say if gross margin...
Uh up or down the sequentially in the third quarter, uh second half and any specifics around trajectory for gross margin.
Mike Steele: Yeah, so gross margin for the third quarter operationally is, I'd say, relatively flat. Both in terms of implied as well as, again, the tariff impact is fairly similar between Q2 and Q3. Volume is pretty similar, mix is pretty similar. So, I'd say, similar expectations to go from Q2 to Q3 on a gross margin basis.
Brian Drab: Okay. And then just on government and healthcare, can you comment on those end markets? I know you said healthcare, tough comps in Q2, but you know, second half, what are you seeing in those end markets? And that is it for me. Thanks.
Yeah. So uh, gross margin for the third quarter. Um, operationally is I'd say relatively flat. Um, you know, in both, you know, in terms of implied as well as. Um, so again, the Tariff impact is fairly similar between Q2 and Q3, um, mix isn't, you know, volume's pretty similar mix is pretty similar. So, I'd say, you know, similar expectations, we go from Q2 to Q3, um, on a gross margin basis.
Mike Steele: Yeah, I mean, thanks, Brian. I think we feel good about healthcare overall. I think, you know, the cycling, year-on-year comparison mobile computing, still clearly an opportunity for us. Some would say that the barcode literally is the unsung hero that makes healthcare work, right? Think of all the track and trace, the idea of identifying patients, specimens, the information input into electronical medical records that we take for granted here in the U.S., but it still has extensive growth around the world. No one, not many countries around the world have quite the extensive use of electronic medical records that we have in the U.S. I think things like clinical mobility play a role. The Elo acquisition plays a role in self-service and healthcare. So, we feel good about the healthcare market.
Okay. And then just on, uh, government and healthcare, can you comment on those end markets? I know you said healthcare, uh, tough comps in the second quarter. But, you know, in the second half, what are you seeing in those end markets? And that's it for me. Thanks. Yeah, I mean,
Mike Steele: We have some new devices out, wearable device, and the idea of voice devices for healthcare that we're excited about that were released at the HIMSS show earlier this year. Government continues to be a focus for us around things like inventory, large RFID, win earlier this year around tracking inventory within government opportunities around inventory tracking. So, we feel good about that. Public safety in Europe we see as an opportunity. We have some new devices we're releasing as public safety is moving in Europe to more, you know, 5G type networks, right, and specialized networks. They're moving off of specialized networks to more 5G type networks. And we've got some new devices to meet the needs of European customers inside public safety. So, government smallest vertical overall, but an opportunity for us, especially as public safety evolves in Europe and as inventory becomes more important.
Yeah. Thanks, bro. I think we feel good about Healthcare overall. I think, you know, the, the cycling, uh, you know, you're in your comparison of mobile Computing, uh, still clearly an opportunity for us. I mean, the the, some would say that the, the barcode literally is the unsung hero of that makes Healthcare work, right? Think of all the track and Trace the idea of identifying patients specimens, uh, you know, the information input into electronical medical records that we take for granted here in the US, but it still has extensive growth around the world is, you know, um, no 1. You know, not many countries around the world have quite the extensive use of electronic medical records that we have in the US. I think things like clinical Mobility, playing a role, the ELO acquisition plays, a role in self-service and Healthcare. So we feel good about the healthcare Market. We have some new um, uh, devices out. Wearable device in the idea of uh, you know, voice uh, devices for health care that. We're excited about that were released at the the hymn show earlier this,
Mike Steele: Healthcare has been our fastest growing vertical. It just so happens that tough compares this quarter, but we feel good about that market.
Year government continues to be a focus for us around things like inventory. Uh, uh, large RFID, you know, when um, earlier this year around tracking inventory within, um, government opportunities around, uh, around inventory tracking. So we feel good about that Public Safety in, uh, in Europe. We see as an opportunity. We have some new devices we're releasing as Public. Safety is moving in Europe to more, um, you know, 5G type networks, right. And, and specialized networks, and moving office, specialized networks to more 5G, um, type networks. And we've got some new devices to meet the needs of European customers inside public safety. So government smallest vertical, uh, overall. But you know, an opportunity for us, especially as Public. Safety evolves in Europe and is inventory becomes more important. Health Care has been our fastest growing vertical. It just so happens that tough Compares this quarter, but we feel good about that market.
Nathan Winters: This concludes our question and answer session. I would like to turn the conference back over to Bill Burns for any closing remarks.
Question and answer.
Mike Steele: would like to thank our employees and partners for their support as we delivered strong Q2 results. Certainly look forward to welcoming the Elo team as the acquisition closes. Have a great day, everyone.
I'd like to thank our employees and partners for their support as we delivered, uh, strong Q2 results. Uh, certainly look forward to welcoming. The ELO team as the acquisition closes. Have a great day, everyone.
Nathan Winters: The conference is now concluded. Thank you for attending today's presentation. You may now disconnect.
The conference is now concluded. Thank you for attending today's presentation. You may now disconnect