ZEBRA TECHNOLOGIES CORP Q4 FY2024 earnings call

• Q4 results: Realized sales >$1.3 billion, 32% increase y-o-y; adjusted EBITDA margin 22.1%, nearly 7% increase; non-GAAP diluted EPS $4.
• Demand trends: Demand recovery broadened with data capture, print, and mobile computing returning to growth; North America retail was a bright spot.
• Profitability: Operating leverage from strong sales growth drove margin expansion.
• Acquisitions: Pending acquisition of Photoneo, a leading 3D machine vision company, expected to close in Q1.
• Innovation: Reinvests ~10% of sales into R&D; recent progress includes AI-based machine vision, self-service kiosks, embedded RFID, and eco-friendly printing supply.
• Customer wins: Large North American retailer deploying Zebra RFID fixed readers, leading auto manufacturer launching mobile computing refresh, etc.

In Q4, Enterprise Visibility & Mobility segment sales increased 33%, and Asset Intelligence & Tracking segment grew 29%. Total company sales grew approximately 32%. Adjusted gross margin increased 410 basis points to 48.7%, and adjusted operating expenses as a percent of sales improved by 290 basis points. The Enterprise Visibility & Mobility segment contributed 33% to sales growth, while the Asset Intelligence & Tracking segment contributed 29%.

• Q1 sales growth guidance: 8% to 11%, assumes 1-point unfavorable FX impact; adjusted EBITDA margin ~21%; non-GAAP diluted EPS $3.50 to $3.70.
• Full year sales growth: 3% to 7%, inclusive of 130 basis points unfavorable FX impact; adjusted EBITDA margin 21% to 22%; non-GAAP diluted EPS $14.75 to $15.25; free cash flow at least $750M.
• Tariffs: Anticipate net impact to gross profit of ~$20M in 2025, peaking in Q2; expect to mitigate tariffs via supply chain initiatives and price increases.
• Photoneo acquisition: Expected to add ~30 bps of incremental revenue for the year once closed.

• Tariffs: China and Mexico tariffs pose a net impact to gross profit of ~$20M in 2025 if unmitigated.
• Uncertainty: Lower visibility to customer spending beyond Q1 due to macroeconomic, geopolitical, and trade uncertainties.
• FX headwind: Strong dollar impacts sales growth expectations.

Q: What's seen in larger project activity in 4Q and how it factors into 1Q guidance?

A: Larger projects were present in Q4 driven by stronger-than-expected yearend retail spending, contributing to double-digit growth across categories. This flow through into Q1.

Q: Plans for tariffs, pricing actions, and manufacturing moves?

A: Expect to announce price increases shortly to respond to tariffs; mitigation strategy includes supply chain initiatives. Manufacturing moves are assessed based on multiple factors like geopolitical stability, capability, and cost.

Q: Visibility beyond Q1 and assumptions on large deals?

A: Visibility is lower than usual due to uncertainty; assumptions on large deals factor in customer budget finalization, FX impact, and market uncertainty.

Q: Free cash flow in 2025 vs 2024?

A: 2025 free cash flow guide is $750M, with continued working capital improvements but not to the degree of 2024; inventory position and tariff mitigation efforts affect it.

Q: AI opportunities and competition?

A: AI is an opportunity to empower frontline workers; Zebra collects data at the frontline, uses traditional AI in solutions, and is developing generative AI capabilities; sees opportunity in premium hardware sales and SaaS revenues.

Q: Trends in Europe and China?

A: EMEA saw strong growth in Northern Europe, with momentum in larger projects; China has modest sales growth, with strength in markets outside China like Australia, New Zealand, and India.

Q: Production moves and US administration's impact?

A: Continuously assess manufacturing footprint; diversification of supply base has reduced China exposure; seeing conversations about supply chain reshaping and automation adoption.

Q: Refresh pipeline and RFID performance?

A: Refresh activity continues with opportunities to refresh devices sold post-COVID; RFID had strong Q4 sales growth with broader adoption across supply chain.

Q: Zebra Companion business model?

A: Early in launch, but opportunities include premium hardware sales, market share gains, and recurring revenues from agents and software products.

Q: Pre-buy activity for tariffs?

A: No significant pre-buy activity seen; larger retail orders in Q4 driven by yearend spending, not tariffs.

Q: Services and software gross margin?

A: Q4 saw some timing issues with repair volume; expect margin expansion but not to the same degree as previous years.

Q: Healthcare strength in 2025?

A: Healthcare is expected to continue being strong with opportunities in clinical mobility, in-home healthcare, and patient engagement.

Q: Companion feature exclusivity and vertical expansion?

A: Companion features are not exclusive; applicable to other verticals like manufacturing and transportation logistics, as seen in internal distribution center use.

Q: Visibility beyond Q1 and tariff clarity?

A: Lack of visibility due to uncertainty; no specific date for clarity, but more clarity on trade policy would help customer and Zebra visibility.

Q: Photoneo acquisition revenue impact?

A: Expected to add ~30 bps of incremental revenue for the year once closed.