ZEBRA TECHNOLOGIES CORP Q3 FY2024 earnings call

Key Points

• Teams executed well in Q3, with sales of almost $1.3 billion, a 31% increase y-o-y, adjusted EBITDA margin of 21.4% (980 basis point increase), non-GAAP diluted earnings per share of $3.49.
• Recovery broadened in Q3 with data capture and printing returning to growth, double-digit growth across all primary end markets.
• Improved profitability due to improved gross margin driven by volume, leverage, and business mix. Completed restructuring actions to deliver $120 million of net annualized operating savings.
• Continues to reinvest ~10% of revenues into R&D, unveiled new solutions at customer events including AI-enabled work cloud software, rugged tablets, Zebra kiosk solution, and generative AI mobile computing solution.
• Saw momentum in large deployments in North America and EMEA across retail, e-commerce, logistics, and healthcare, with key wins in various industries.

In the third quarter, total company sales grew 30.6%. The Asset Intelligence & Tracking segment grew 25.8%, primarily driven by printing and RFID. The Enterprise Visibility & Mobility segment sales increased 33% with strong growth in mobile computing and data capture solutions. Services and software recurring revenue businesses grew 4% in the quarter. Regionally, North America sales grew 22%, led by mobile computing and printing; EMEA sales grew 47% with strength in Northern Europe; Asia-Pacific sales grew 24% led by momentum in Southeast Asia and India along with stabilization in China; and Latin America sales grew 42% with particular strength in Mexico and Brazil.

Guidance

• Entered Q4 with solid backlog and expect sales growth between 28% and 31%.
• Q4 adjusted EBITDA margin expected to be approximately 22%, non-GAAP diluted earnings per share in range of $3.80 to $4.
• Full year sales growth expected to be approximately 8%, adjusted EBITDA margin ~21%, non-GAAP diluted earnings per share in range of $13.30 to $13.50, free cash flow for the year now expected to be at least $850 million.

Risks

• Macro environment uncertainties including U.S. elections, high interest rates, inflation affecting consumer spending, leading to caution among customers with longer sales cycles and more approvals.
• Manufacturing sector still lagging.
• Supply chain risks such as potential tariffs and geopolitical issues impacting component supply and manufacturing locations.

Q: Andrew Buscaglia asked about North America retail project wins and trends with distributors.

A: Bill Burns said retail saw broadening recovery, with year-end spending returning, and distributors are seeing uptick in business and working closely to manage inventory.

Q: Jamie Cook asked about large orders and Q4 margin.

A: Bill Burns discussed large orders having limited visibility into 2025 due to macro uncertainties, and Nathan Winters explained Q4 EBITDA margin expectations driven by deal mix and volume leverage.

Q: Damian Karas asked about machine vision business.

A: Bill Burns said machine vision is affected by manufacturing weakness but sees stabilization in semiconductor and long-term prospects with diversification efforts.

Q: Tommy Moll asked about planning cycle for large orders.

A: Bill Burns said typically six months visibility, with planning starting six months in advance and projects depending on various factors.

Q: Brad Hewitt asked about Q4 EBITDA margin sequential change.

A: Nathan Winters explained it's due to deal mix and large deal volume impact on gross margin.