Zebra Technologies Corporation Q3 FY2025 earnings call

• Q3 results: Sales of $1.3 billion, 5% increase y-o-y; adjusted EBITDA margin 21.6%, up 20 basis points; non-GAAP diluted EPS $3.88, 11% higher y-o-y. • Regional performance: Strong growth in Asia Pacific, Latin America, and North America; relative outperformance in printing, mobile computing, and RFID; retail and e-commerce were bright spots, while healthcare cycled strong and manufacturing was soft. • New segments: Zebra operates in over $35B addressable market; Connected Frontline focuses on equipping frontline with tools for efficiency, etc., with Elo acquisition expanding addressable market to >$20B; Asset Visibility & Automation focuses on digitizing supply chains. • AI initiatives: Zebra is positioning as a leading AI solutions provider for the frontline, with pilots in retail and transportation logistics showing benefits like better sales conversions and enhanced compliance. • Acquisition of Elo: Enhances Zebra's capabilities in self-service and point-of-sale, allowing delivery of complete solutions and leveraging AI to empower associates.

In Q3, the Enterprise Visibility & Mobility segment grew 2%, led by mobile computing. The Asset Intelligence & Tracking segment grew 11%, led by RFID and printing. Starting in Q4, Zebra will report under new segments: Connected Frontline and Asset Visibility & Automation. Total company sales in Q3 increased approximately 5%, with growth across most product categories and services. Software recurring revenue business grew modestly. Regional performance varied: North America saw 6% growth, Asia Pacific 23% growth, Latin America 8% growth, and EMEA declined 3%.

• Q4 sales outlook: Anticipates 8%-11% sales growth, with ~850 basis points contribution from Elo, Photoneo acquisitions and favorable FX. • Adjusted EBITDA margin: Expected to be ~22% in Q4, assuming $6M net impact from U.S. import tariffs. • Non-GAAP diluted EPS: Expected in range of $4.20 to $4.40 for Q4. • Full-year outlook: Expected sales growth ~8%, adjusted EBITDA margin ~21.5%, non-GAAP diluted EPS ~$15.80, a 17% y-o-y increase. • Share repurchases: Planning $500 million of share repurchases over the next 12 months.

• Macro environment: Customers navigating uncertain macro environment, leading to uneven demand across geographies and vertical markets. • Tariffs: Impact on gross profit, though mitigation efforts are in place. • Supply chain challenges: Need to continue managing supply chain resilience to navigate potential disruptions.

Q: Andrew Buscaglia asked about demand trends and Q4 guidance, specifically deceleration in organic growth.

A: William Burns said Q3 was strong, second half playing out as expected, with some customers buying early, and noted regional and vertical market performance.

Q: Piyush Avasthy inquired about EVM growth and AI opportunity.

A: William Burns discussed EVM with strong mobile computing but difficult compare in scanning, and AI opportunity with hardware (wearable devices, higher-end devices) and software offerings, with first revenues likely in 2026.

Q: Damian Karas asked about large project funnel and Q4 budget flush.

A: William Burns and Nathan Winters talked about demand trajectory consistent with outlook, timing of orders, and Elo contribution to Q4 top line.

Q: Thomas Moll unpacked Q4 budget flush, quantifying Elo contribution.

A: Nathan Winters explained Q4 guide, Elo contribution of ~$100M, and organic demand flat when excluding acquisitions and FX.

Q: Keith Housum asked about AI and hardware refresh.

A: William Burns discussed higher premium devices, wearables, and different form factors, with AI driving data collection for frontline operations.

Q: Jamie Cook asked about margin divergence and Elo impact.

A: Nathan Winters talked about margin mix within portfolios and Elo contributing to Q4 revenues, with growth profile similar to Zebra.

Q: Meta Marshall asked about pricing actions and OBBBA tax impact.

A: Nathan Winters said pricing actions have benefited, with ~$60M annual benefit, and OBBBA expected to have modest impact on tax rate but lower cash taxes over next 2 years.

Q: Joseph Giordano asked about next year's demand and Elo EPS impact.

A: Nathan Winters discussed year-end spend expectations and Elo EPS impact of ~$0.10, while William Burns talked about cautious customer sentiment.

Q: Robert Mason asked about regional trends and Asia Pac strength.

A: William Burns detailed regional performance, including mixed EMEA, strong Asia Pac with focus on go-to-market efforts, and strength in Latin America.

Q: Guy Hardwick asked about supply chain and technological obsolescence.

A: Nathan Winters discussed supply chain resilience and William Burns talked about AI driving technology-driven refresh.

Q: Bradley Hewitt asked about share buyback and Q4 margin outlook.

A: Nathan Winters said buyback is $500M over 4 quarters and Q4 margin outlook is consistent with typical trends.

Q: Brian Drab asked about machine vision and growth engines.

A: William Burns discussed machine vision softness and RFID as a growth driver, along with other areas like tablet opportunities and task management software.

Q: Katie Fleischer asked about Q4 margins.

A: Nathan Winters said margins are steady between segments and no major changes expected.