The operator introduces the First Quarter 2024 Zebra Technologies Earnings Conference Call and turns it over to Mike Steele, Vice President of Investor Relations. Mike discusses the company's forward-looking statements and references to non-GAAP financial measures. Bill Burns, Chief Executive Officer, discusses the company's first quarter results and strategic actions, while Nathan Winters, Chief Financial Officer, provides additional details on the financials and outlook. Bill concludes with an update on the company's vision. The first quarter performance was impacted by softness in end markets and regions, resulting in a decline in sales and profitability.

In the second quarter, the company saw a modest recovery in demand and better-than-expected large order activity. However, the recovery is not yet broad-based and the company continues to take an agile approach to navigating the current environment. They also saw sequential improvement in profitability, particularly in services and software. Sales declined by 16.8% and adjusted EBITDA margin decreased by 150 basis points. The company is on track to complete their restructuring plans to improve profitability and drive sales growth. They have also made progress in improving working capital and driving sales initiatives. As a result, they are raising their full year outlook for sales, margin, and free cash flow. Nathan will now review the financial results for the quarter and discuss the revised 2024 outlook.

In the third paragraph of the article, the company's Services as a Software segment saw growth driven by increased units under support contract and retail software wins. However, the Asset Intelligence & Tracking and Enterprise Visibility & Mobility segments saw declines, with the steepest decline in the Asia Pacific region. Total sales for the quarter were 16% higher than the previous quarter, with adjusted gross margin increasing and adjusted operating expenses decreasing. Adjusted EBITDA margin decreased year-over-year but showed a sequential improvement. Non-GAAP diluted earnings per share also decreased. The company generated $111 million of free cash flow and ended the quarter with a net debt to adjusted EBITDA leverage ratio slightly above their target range. For the next quarter, the company expects a decrease in sales compared to the previous year.

The company is entering the second quarter with a strong backlog and pipeline of opportunities in mobile computing for retail and e-commerce. They anticipate a modest improvement in demand and expect adjusted EBITDA margin to be slightly above 19%. They have raised their guidance for the full year, with expected sales growth of 1-5% and adjusted EBITDA margin of approximately 20%. They also expect their free cash flow to be at least $600 million for the year. The company is focused on improving cash conversion and paying down debt in the near term. In the long term, they are well positioned to benefit from the trend of digitization and automation in workflows for their customers.

Zebra is focused on becoming a top solutions provider by offering a wide range of innovative solutions and a strong go-to-market ecosystem. Their solutions, which include intelligent automation and machine learning, help businesses optimize workflows and increase productivity. Zebra recently showcased their expanded portfolio at the MODEX trade show, highlighting how their solutions can improve key outcomes such as production quality and supply chain agility. They have also seen success in the market, with wins from a European logistics company and an Asian manufacturer. At the HIMSS conference, Zebra demonstrated how their solutions can improve the patient journey and track medical equipment.

Zebra has had recent successes in the healthcare and retail industries, with customers implementing their mobile computers, printers, and software to improve processes and productivity. These wins demonstrate the company's reputation for ease of use and the value they bring to their customers. Zebra also expects long-term growth due to trends such as labor and resource constraints, supply chain visibility, and consumer expectations.

The company is hosting an innovation day to discuss how they digitize and automate workflows for customers. They are confident in the long-term opportunities for the business and are seeing improvements in gross margins and freight costs. Q&A will follow.

The paragraph discusses the service and software profitability and strength seen in EVM, which has helped to drive better results than expected. The company has also seen an increase in larger orders in the first quarter, which has contributed to the raise in sales guidance for the year. However, the company is still waiting to see larger mega deals and deployments, and the current large order activity is expected to continue for the remainder of the year.

In the first quarter and into the second quarter of 2024, there has been a stabilization in demand and a modest improvement in large order activity, particularly in the mobile computing and retail sectors. The company expects this trend to continue throughout the year, with the second half being driven by lapping through prior destocking activity. However, they would like to see more visibility and momentum in order activity before calling it a broad-based recovery. The guidance for the second half of the year assumes a similar level of sales as the first half, taking into account the large funnel of potential projects but also the lack of conversion to orders.

Nathan Winters explains that the second half of the year is grounded in current market trends, with lower conversion rates on the pipeline but no assumptions about mega deployments. Keith Housum asks about the underperformance in Asia Pacific, and Bill Burns attributes it to soft demand across all regions, with mobile computing and services showing some bright spots.

The speaker states that the regions look similar, with Asia being impacted by declines in China. They expect China to have a longer recovery, but see opportunities in other parts of Asia. The adjusted EBITDA for Q2 is slightly lower due to seasonality in the retail software business. Q1 had higher margins due to cost actions and better revenue mix.

The sequential decline in Q2 was expected due to the seasonality of the retail software business. The company has seen some encouraging signs in the retail market, with customers beginning to buy again and projects that were put on hold starting to come back. However, customers are being more conservative with their deployments, starting with smaller projects and rolling them out over time. The company anticipates a recovery in the retail, transportation and logistics, manufacturing, and healthcare markets, with mobile computing being the first to show positive growth.

The company is starting to see a return of projects that were deferred last year, but they are being cautious in their approach. They are hoping to see more orders from different industries before declaring a full recovery. There was no significant destocking in the first quarter and channel inventory levels are at a normal level. The company's visibility has improved compared to 6 months ago and they expect customer orders to continue to pick up.

The company has seen an increase in customers absorbing previously built capacity, mainly in the retail and e-commerce sector. The uncertainty in the macroeconomy is expected to improve and the company is viewed as a trusted partner by their customers. They anticipate large deployments to start picking up in other verticals as well and are working on new solutions and use cases with their customers. However, there is still uncertainty around the timing of some projects, reflected in their year-end outlook. The company has also seen a shift in the pipeline, with more deals in earlier stages compared to previous years. Some retail orders expected to convert to revenue in Q4 were pushed into Q1, but the magnitude of this deferral is not specified.

The speaker discusses the uptick in large order activity on the retail side, which was mostly due to year-end spending. They are encouraged by this and hope to see more momentum in the future. However, this has not yet translated to an increase in small and medium business orders.

The speaker believes there is optimism from partners, but wants to see more. Retail was the first to decline and is now recovering, with SMB and mid-tier businesses expected to follow. The speaker also discusses the growth and opportunities in the RFID business, with a focus on multiple industries and verticals. Zebra has a strong portfolio in this area and has seen growth due to improved technology and new tag types.

The speaker believes that the increase in software applications available today and the adoption of tags will lead to growth in the RFID market. They also mention a potential refresh cycle in 2025 due to the large-scale increase in their installed base during the pandemic. They are seeing signs of recovery in retail and are focused on mobile computing as an essential part of operations for their customers. They have a healthy pipeline of opportunities but want to see progress through this year and into next year.

The company's installed base is larger than ever before, which will lead to continued refresh cycles. Orders have been smaller and rolling out over time, and the recovery is expected to be measured. The company has strong cash flow and plans to reassess buybacks in the second half of the year. There will be a seasonal step down in margins.

The company expects Q3 to have similar revenue to Q2 but with an uptick in margins. This is due to incremental cost actions and seasonal spending patterns. The company's first priority is organic growth, but they are also open to M&A opportunities that are adjacent and synergistic to their portfolio. However, there is a higher bar due to the current macro environment and debt leverage. They will continue to be inquisitive and look for potential acquisitions.

The speaker discusses the company's strategy to add to their portfolio and products in the marketplace, and mentions that they are seeing a recovery in retail but not yet in manufacturing and transportation and logistics (T&L). They believe the T&L customers are still adjusting to the capacity built during the pandemic and manufacturing is impacted by market trends of uncertainty. However, the company sees opportunities in both markets and has shifted resources to focus on manufacturing.

The speaker discusses the current state of the retail, transportation and logistics, and manufacturing industries, stating that retail was the first to decline but is also the first to recover. They mention strong relationships in T&L and opportunities for growth in manufacturing in the long term. They also address their outlook for the next year, stating that the core and mobile computing segments are recovering first, with other categories such as tablets and RFID closely connected. The software and services business had a positive quarter, but machine vision is facing challenges due to downturns in industries like semiconductors and manufacturing. The speaker concludes by saying that all segments will eventually recover, but at different time frames.

During a call with Morgan Stanley, Meta Marshall asks about trends in mobile computing and printing as well as progress in the health care market. Bill Burns responds by stating that mobile computing is showing signs of recovery and printing has stabilized after a difficult comparison in the first quarter. He also mentions that the health care market is impacted by the same macroeconomic conditions and tighter budgets, but they are focusing on driving productivity solutions and targeting the home health care market. They recently attended the HIMSS trade show and are optimistic about opportunities in this sector.

The speaker discusses the optimism seen in the retail sector and the hope that it will translate into real orders. They also touch on the lack of recovery in the run rate business and the expectation that large deals will recover first, followed by mid-tier and run rate. The company's guidance is based on their current visibility and they have yet to see a significant recovery in the mid-tier and run rate business.

The company expects to see flat growth in all categories of business and has set a conservative guidance for the year. They plan to use the majority of their free cash flow to pay down debt, and are aiming for a baseline of above 20% for incremental EBITDA margins. It is too early to determine the exact framework for future growth and scaling.

The speaker discusses the expected incremental decrementals of 30% in a normal quarter and how it may increase over time due to new markets. They also thank employees and partners for a strong start to the year and mention an upcoming Innovation Day. The conference has now ended.

This summary was generated with AI and may contain some inaccuracies.