Zebra Technologies Corporation (ZBRA) Earnings

Management highlights

### Core Q1 Operational Performance - Total company sales reached nearly $1.5 billion, a 14% year-over-year increase (4% organic), with adjusted EBITDA margin of 23.2% (up 90 basis points year-over-year) and non-GAAP diluted EPS of $4.75 (an 18% year-over-year increase). - Adjusted gross margin hit a multi-year high of 50.4% (up 80 basis points year-over-year), driven by company-wide productivity initiatives, favorable business mix, and operating expense leverage. Memory cost inflation had only a modest impact on the quarter. - Generated $163 million in free cash flow in Q1, maintained a debt leverage ratio of 2.1 with $1.1 billion of available credit capacity. Executed $300 million in share repurchases in Q1, with an additional $200 million completed in the first weeks of Q2, for a year-to-date total of $500 million. ### Strategic Priorities - **Profitable Growth**: Management expects both segments to deliver 5-7% organic sales growth over a full business cycle, supported by low market penetration (nearly 75% of global warehouses are in the early stages of automation adoption) and ongoing investments in RFID, machine vision, and AI to expand product differentiation. Efficiency initiatives include cost discipline from previously announced restructuring, accelerated software development via internal AI tool deployment, and go-to-market model optimization. - **Innovation Leadership**: Recent product launches include a new line of enterprise mobile computers and wearables with embedded RFID and optimized AI processing, and a new on-device AI-powered proof of delivery capability that has already been selected by a global logistics customer. - **Financial Strength & Flexibility**: Maintain a capital-light business model focused on consistent earnings and cash flow generation, with a balanced capital allocation strategy that prioritizes internal business investment while returning consistent capital to shareholders. ### Supply Chain Management - Zebra has proactively managed memory supply constraints and cost increases since the second half of 2025, using long-standing direct supplier relationships, alternative sourcing options, and transitions to higher-density memory components (where capacity is expected to increase through 2027). The company currently has line of sight to all required memory supply to support its full-year outlook, with component pricing tracking in line with prior guidance, and a cost position favorable to spot market rates.

Guidance

- The full-year sales growth guidance range is 10% to 14%, representing a 1 percentage point increase at the midpoint compared to the prior outlook, with 7 percentage points of the growth coming from acquisitions and favorable foreign exchange impacts. - Full-year adjusted EBITDA margin is expected to be approximately 22%, with management confirming it remains confident in fully mitigating the 200 basis point margin headwind from memory cost increases, via targeted price increases, restructuring savings, volume leverage, and FX favorability. - Full-year non-GAAP diluted EPS is now guided to a range of $18.30 to $18.70, and full-year free cash flow is expected to be at least $900 million, representing a conversion rate of approximately 100%. - For Q2 2026, adjusted EBITDA margin is expected to be slightly higher than 21%, with non-GAAP diluted EPS guided to a range of $4.20 to $4.50. - Management has added $100 million of additional planned share repurchases to the full-year outlook, and retains flexibility to allocate 100% of full-year free cash flow to repurchases if valuations remain attractive.

Segment performance

Zebra Technologies operates two core business segments: 1) Connected Frontline: Total segment revenue grew 20.6% year-over-year (including the recent Elo Touch acquisition) and 3.8% on an organic basis, with growth led by the mobile computing product line. This segment includes enterprise mobile computing, interactive displays, frontline software, and AI agents, and contributed the majority of the company's overall organic growth in the quarter. 2) Asset Visibility and Automation: Total segment revenue grew 4.8% year-over-year, with growth led by printing and machine vision product lines. This segment includes advanced data capture, printing and supplies, RFID, and machine vision solutions. Across geographic segments, North America sales grew 4% (led by strength in manufacturing), EMEA sales grew 2% (broad-based European growth offset by softness in the Middle East), Asia Pacific sales grew 11% (led by India and Southeast Asia), and Latin America sales grew 10%.

Risks & headwinds

- Ongoing memory supply chain volatility, including potential unexpected capacity shortages or sharper-than-expected price increases that could exceed the company's current mitigation plans. - Uncertainty around evolving global tariff regimes (including proposed Section 232 and Section 301 tariff changes) with unclear final scope that could create unplanned cost increases, though management expects no material impact to full-year results based on current visibility. - General macroeconomic uncertainty that could impact customer capital spending plans for large automation and technology refresh projects, particularly in the transportation and logistics end market.

Analyst Q&A

• Q: Investors are concerned about memory supply constraints. Have you secured enough capacity to meet full-year demand, and what price assumptions are built into guidance? /

  A: Management confirms they have strong visibility for required supply in Q1 and Q2, and have received no indication that second half memory allocations will be lower than the first half. Teams are actively pursuing additional supply options to meet unconstrained demand that sits near the high end of the guidance range. Pricing is tracking in line with prior guidance, and Zebra's direct supplier contracts give it a cost position favorable to public spot market rates, allowing the company to maintain full-year margin guidance. (231 words)

• Q: Q1 EBITDA margin outperformed guidance but Q2 guidance is sequentially lower. What drove the Q1 outperformance, and what headwinds are impacting Q2? /

  A: Q1 margin upside came from record gross margin driven by company productivity initiatives, favorable deal mix (particularly strong performance in the manufacturing vertical and asset visibility portfolio), and a modest FX tailwind. Memory was only a small headwind in Q1. The sequential decline in Q2 EBITDA margin is primarily driven by higher memory costs, which account for ~150 basis points of the sequential drop, plus a normalization of deal mix. The Q1 performance demonstrated that operational improvements from restructuring are on track to offset memory headwinds through the full year. (203 words)

• Q: What is your long-term response to concerns that increased automation and robotics will reduce demand for Zebra's products? /

  A: Management argues that automation and physical AI are net tailwinds for Zebra, as the company's core products collect the real-world data required to power automated systems and AI models. Three-quarters of global warehouses are still in early stages of automation, frontline worker populations and warehouse footprints continue to grow driven by e-commerce, and automation augments rather than replaces workers in most frontline environments (retail, healthcare, etc.). Zebra's modular solutions fit customer demand for flexible automation, and the company is uniquely positioned as a leading supplier of frontline AI. (174 words)

• Q: Can you provide an update on the performance of the Elo Touch acquisition? What early progress have you seen? /

  A: Elo Touch has performed in line with expectations, delivering solid profitable growth in Q1, with mid-single digit full-year 2026 growth expected. The acquisition expands Zebra's connected frontline portfolio with complementary interactive display solutions, opening new opportunities in point of sale modernization, self-service checkout, and manufacturing/healthcare touchpoints. Synergy progress is on track for both revenue and cost synergies, and Zebra has already secured its first new geographic wins expanding Elo into markets where it previously lacked distribution, such as India. (143 words)