Zebra Technologies (ZBRA) 15 Feb 242023 Q4 Earnings call transcript

Company Profile

Participants

Michael Steele	executive
William Burns	executive
Nathan Winters	executive
Thomas Moll	analyst
Bradley Hewitt	analyst
Meta Marshall	analyst
Joseph Giordano	analyst
Damian Karas	analyst
Keith Housum	analyst
Brian Drab	analyst
Robert Mason	analyst
Chris Grenga	analyst
Kenneth Newman	analyst

Call transcript

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Operator

Good day, and welcome to the Fourth Quarter and Full Year 2023 Zebra Technologies' Earnings Conference Call. [Operator Instructions] After today's presentation, there will be an opportunity to ask questions. Please note, this event is being recorded. I'd now like to turn the conference over to Mike Steele, Vice President, Investor Relations. Please go ahead.

Michael Steele

to quarter welcome call. and morning, Zebra's conference fourth Good website simulcast and at This being our least at year. for presentation is there on investors.zebra.com archived will X be

and based results Actual differ discussed materially, you expectations statements in and refer could on we the forward-looking to risks are and Our assumptions to are and our subject uncertainties. filings. current factors SEC

business non-GAAP performance. we call, as measures this financial will reference describe During our we

earnings year-over-year slide You release. can references the at presentation, businesses and XX following otherwise Throughout and press find constant for today's unless end of this months acquired basis the presentation to in this results sales on reconciliations indicated, currency acquisition. from the exclude our performance a are

our Officer. Nathan our provide the and will Bill progress Chief we discuss Executive This Asset additional are will include Enterprise Bill actions conclude Nathan our on with XXXX presentation vision. fourth will Officer; Chief on we Winters, our Burns, prepared quarter advancing Financial then with making detail Bill remarks our begin taking. results will and are and Intelligence financials outlook. from

prepared Nathan remarks, Bill your take the will Following questions. and

X turn to it hand Now to Bill. as over let's Slide I

William Burns

us. Mike. and as demand demand and you you, structure Today, sales drive taking cost results, and we thank Thank to our recovers. we are environment for morning, discuss actions joining will progress Good the and optimize our

our softness significant expected, markets was decline our broad-based and by regions, across sales profitability. end As which fourth performance in in quarter and continued resulted a impacted

non-GAAP prior and of from a of adjusted a share from quarter, XX% prior realized X-point diluted year, year. decline the of per XX.X%, sales decrease the $X.XX a margin billion, earnings XX% we For decrease and $X EBITDA the

across and declines product experienced spot bright were software in we the quarter. services a categories, Although all

primarily a contract. a sales sales we to QX renegotiate deleveraging by Overall trends demand stabilize. from perspective, supplier profitability charge sequential lower volumes, a From in as impacted QX was expense growth realized on

a initiatives, and as and significant result inventory management in However, restructuring cash profitability cost free a actions realized improvement we flow. of our sequential

to actions on and the our Turning Slide for address growth. current X. mitigate I'd like impacts to and update of long-term demand environment position the you ourselves to

expanded our cost previously our earnings reduction we expect release, our plan now referenced of operating increase million we implement of $XXX net have last in of which the from and scope mid-XXXX. by As update announced savings, an expect to $XX annualized million

completed approximately of in previously to Our quarter realize million the enabled substantially $XX announced XXXX. in were us actions fourth savings

we we manufacturers front, component with to complete commitments. inventories, contract of with long-term down continue work On to our supply the draw and supply are substantially renegotiations

flexibility. QX, purchasing a agreement we revised electronic increases XXXX a multiyear cancels $XX component volume expense. the commitment renegotiated key with and million a agreement The of incurring portion supplier, In

have We underpenetrated address automation to also along with including Japan, manufacturing resources use with markets, in accelerate government and and RFID to new growth machine reallocated vision. and cases sectors

and recover. the full spike pandemic profitability challenging declines expect capacity and and of the our to sales many QX activity. for a markets across navigate built actions as markets end each saw year during out environment improve to end our double-digit We address our in growth both they We as customers e-commerce drive absorb

with These trace our current real-time in with conversations areas consumer that X, drive we including are supply mandates aligned expectations. highlight constraints, and Slide labor increased growth Entering are XXXX, we resource visibility, trends distributor and focused chain demand. all On secular expect to and inventories long-term customers. track my

over allocation. continue review to an remain I planning. disciplined to uncertain to financial are activity, capital results the we call cost in structure remain a and Consequently, now and Nathan cautious with to XXXX our our agile market and our navigating discuss to seeing not outlook. broad seeing of our environment yet respect QX turn are we this improvement Although take any will we and some order signs recovery in approach

Nathan Winters

you, Thank Bill.

destocking Let's more for major X/X across start decreased with We than double-digit categories the of product all the P&L decline. declines saw on customers distributor XX% In sales QX, Slide accounting sizes. of our X. sales regions, and with

Adjusted due software inventory charge improvement data primarily distributor similar rates. sequential million margin mentioned and primarily and services $XX due from On the million cycling costs Asset chain year. magnitude partially services with basis and total segment of lower mobile of sales expense associated and higher deleveraging Intelligence we to in by QX supply decreased Our higher perspective, gross the points drove agreement, positive and a volumes sales of XXX margin despite XX.X% $XX Tracking earlier the demand. renegotiation QX. by and printing. in to Visibility led computing. growth segment supplier strong XX.X%, declined attach all & a From a were offset declined Enterprise driven which a modest note, Mobility to destocking renewal prior and XX.X% premium were than And sales by with capture

earnings decrease. a the tax year-over-year XXX rate lower contributed by offset share of million as savings net in decrease. of EBITDA Non-GAAP $X.XX, percent executing than point tax impact a decline XX% of the quarter global more to in fourth quarter delevered adjusted per a was a margin by actions. XX.X%, The basis strategy. resulted expense Increased our $XX expenses XXX from operating Adjusted This from sales. interest points basis was restructuring a diluted mitigated on

to free ample range. now adjusted net generated facility billion the top sheet $X.X the at end credit ratio had on leverage target capacity our flow on balance providing of ended revolving We cash is in a which approximately of We to X.Xx and cash of the $XXX million QX as at EBITDA Turning year-end, Slide our flow of X. and flexibility. debt quarter

higher interest year were which and settlement by to partially and profit, all For operating XXXX, the compensation tax of actions payments. flow announced $XX payments, lower prior was payments to the cash offset due restructuring million primarily of free lower incentive full year, negative previously unfavorable

Let's improved modest We backlog January and inventory recent distributor certain now by demand year-end entered outlook. into trends our turn budget XXXX from spending driven retailers. levels to with with aligned

we by decrease prior to from QX, our major sales expect expense categories, deleveraging printing the We anticipate For sales lower a has inventories as and supply have across market and QX distributor $X.XX. XX in cost expected adjusted benefits end are FX. offset XX% Non-GAAP and lower costs. QX and margin profitability This compared stabilized, per share driven product $X.XX from declines increase and year. diluted point from assumes be chain partially from demand to XX%, impact volume, particularly sales between range sequentially incremental a EBITDA approximately continued outlook favorable by basis expected of to earnings QX are premium to we the be to XX% actions. realized

range and the we to X% be For the growth. in of year decline a sales expect X% XXXX, full

of of Although activity, a market beginning see to we broad order we are yet recovery. improvement seeing signs in signs are not

a expected Consequently, we recovery in visibility approach cautious have guide is until the approximately increased EBITDA be year to we to XXXX demand. XX%. for full our to are taking Adjusted a sustained

of actions restructuring XX% through in environment. and improvement profitability navigating the and continue our margin year expect take drive EBITDA our cautious delivering the agile We remain half. initiatives approach to spending We an in to the second to other

least final Bill free We assumptions additional flow cycle in impact will near to be in our Intelligence remain our the Enterprise modeling million cash We prioritizing shown on discuss reference including of $XXX QX. to are term. Please rightsizing settlement at Asset the debt call XXXX we over and With $XX to sheet, that, advancing vision. I driving the how payment paydown and Slide focused XX. a inventory million, our cash turn XXX% expect on on our in balance conversion

William Burns

you, Nathan. Thank

opportunity you our As long-term is future for look bright. the towards Zebra,

customers' remain to solutions we and benefit essential digitize automate to from trends Our positioned to and workflows. our are well operations, secular

our with insights frontline advancing customers. utilizing our capabilities Intelligence intelligence, learning by advanced improve to portfolio driven vision by more the automation, Asset leadership. as intelligent and that by can empower workflows experience premier change software solutions prescriptive proven We navigating enterprises industry real demonstrate and tasks on in focused transforming constant our such of near elevating are machine By as workers a analytics. a time, artificial comprehensive solutions, effectively provider Zebra execute innovative solutions We through workers of Enterprise

the As for you optimize can see on to on-demand Slide XX, workflows economy. leverage our customers technology

retailer to history American Zebra data retailer deliver software empower by exceptional enterprises capture post-sale would across This higher serve order tracking. I competitive product collaboration our and network printers solutions tracker better like to various enable to support. with Zebra productivity and refreshed related our mobile the American and solutions win wins device solution computers XX,XXX updates see coupled by connectivity. with secured Our our North productivity accessories increase customer mobile recent and fresh selected and our to This shoppers demonstrating food with frequent ability has retailer performance inventory A XX,XXX was in and our superior for North portfolio, hardware value fulfillment a they their leading patients. in long broad pricing locations. A across some along our team. and highlight customers,

Zebra by Zebra by by large selected region A for mobile providing unique than A utilized and generations. mobile and our both a to cybersecurity tracking. and replace on scheduling to field organization, features. package secured software computers for be more Zebra superior Zebra been tablets trusted purchased place X and to competitor performance Zebra product on service the recognition facilitate was had based Zebra in capabilities strategy computers organization's XX,XXX housing our product service our in was competitors devices facial of This repairs replace driven the mobile delivery software our European a customer-first that addressing solution computers. to decision partnership. And selected public postal a Asia their authentication and enhanced Pacific finally, of proof consumer European over challenges. selected retailer demonstrating win

proposition pressing increased how and experience. their retailers we by optimizing associates in our innovative value solutions drive Slide customer Zebra's the XX highlights and our elevating which most retailers National demonstrated at engaging Alongside Retail was the performance solve inventory, trade partners, show for January. help Federation challenges showcased

e-commerce fulfillment edge for solutions retailers retail demand performance hyper Zebra provide the growth, anywhere address As a expansion convenience and for of associates. consumers'

along booth, with Zebra's solutions up software driving delivering pick included In faster workflow demonstrations innovative The with workforce associates software RFID, Zebra efficiency is Our detection and satisfaction. next-generation challenges. Depot other their solutions. customer AI with solutions fulfillment. and buy operational our productivity our along address computers associate boosting computing, optimization and engagement online, assistant in store, improved mobile machine order of of shared This Office a with how vision, mobile checkout includes loss combination

to trends digitize our In we automate and closing, strong conviction are workflows. unchanged, long-term well and our from remain fundamentals to positioned and business benefit

our We to markets position will innovative go-to-market now through elevating are our I it hand while us back are of our for Mike. our profitable cost and growth well solutions, actions portfolio end with customers positioning as recover.

Michael Steele

Thanks, call Instructions] Bill. We'll now open to [Operator the Q&A.

Operator

[Operator Instructions] from today's question comes And Moll first with Tommy Stephens.

Thomas Moll

some will the absorb it landscape have ecosystem. any the was there your visibility comment most capacity levels of about believe more to the in based excess Bill with Is be I absorbed? I'm assumption to Do any in when there? you capacity into need spending XXXX a outlook return curious, on in about of that discussions your end normal that who made and users e-commerce

William Burns

growing would reset that idea parcel sweating a Tommy, trajectory assets, seen have in growth of in kind they both transportation pandemic, but during as to capacity been off pressure. And seen continuing the budgets IT customers we've but obviously, kind also in clearly continue that built we've think the not significant this rates. certainly retailers there. resetting to that the levels Yes, -- under out believing and pre-pandemic absorbing logistics also capacity, and now grow, to of And well. And just both e-commerce retail those overall of but e-commerce delivery ultimately from I

providers that capacity of So continued we're and we've been used seen some that those that from see side off need orders some to and for where beginning have the has now. e-commerce demand positive e-commerce signs in

businesses parcels plus, more but and delivery We over we're seeing end being there the mechanisms. be think of in providers of We're some So as opportunity the coming e-commerce. still effective that around kind an see their T&L transportation Still continuing year to the e-commerce the across to this providers. challenge saw we're in the P&L is we're restructure an to in seeing same think of challenged. remain challenge more taking on we're in it logistics, is last volumes efficient parcel the really their in -- how about still I results to through And coming seeing and e-commerce delivery.

I but challenging -- across in say, around, trends. still So build-out coming to the an e-commerce e-commerce would sorry,

Thomas Moll

I Yes. you that improving correct talked January in were comments, and orders there? point in the just clarify, wrong drove And record got give X think to detail your I could us and if Nathan, you certain But there, an I that wanted there more retail-related to any backlog it that.

Nathan Winters

sequential And in in from were that by year-end Yes. Tommy, look, the spend saw driven to we bit we driving of QX to part and if uptick QX, did was the levels QX. the quarter QX I'd we primarily No, into from back a some early where quarter, I of QX. in that was a the here ship backlog went perspective, of think pre-pandemic improvement we you able at as little it entering say, more some depressed the

So not chain a maybe at sequential our backlog levels definitely ago, I as to as channel with well in incremental inventory but rightsized. supply few of improvement of the the during getting the again, volume were the we a years challenges, think peak some

the guide. we to quarter backlog entering good about So the feel have first again, the we relative

Operator

question next Brad from comes Hewitt Wolfe Research. with our And

Bradley Hewitt

imply So as full flat then to the looks revenue a QX the throughout the uptick progress your QX year relatively sequentially imply seems line, to remains year. guidance excluding guide on headwind. destock sequentially the But we top midpoint slight

potential do 'XX orders progressing in if curious see XXXX. see the pipeline could rate demand And just year? into talk improve you the exit So for and conversion we you about the to you how underlying as through

Nathan Winters

kind I'll the Yes. of just guidance. for with start Maybe framework the

So yes, you're right.

at that QX are QX as look from XX% assuming you additional any XX% improve does destocking. we sequentially, our If guide, down distributor to not

year-end drives some pipeline as we cautious majority of expect And along you with the you the look and sequential the then the improvement we with of as second saw as spend. improvement, you that the year the So move guide look lack QX around look in at prepared think remarks, to visibility to QX X% similar vast I given if to noted, sequential the half. at demand again, uptick of talked modest the the about through full we if that half. And in particularly the midpoint we commitment the in second the we're

you the in the maybe in by environment. of kind really around driven you XXXX growth QX, up visibility balance the is market second given think demand of if that's So look with bit we little again have the the entirely down at as destocking half. And the year, the noted, the we bit appropriate flat, a a little

Bradley Hewitt

terms fruit gains you you lowest as to in and opportunity tend going of And how where about to That's page past potential of talked the the helpful. about you talk gain then in forward? you coming share kind turn see Okay. you've the typically downturns. Could how gains hanging share of see out for the we share

Nathan Winters

customers spending customers that customers time for tremendous their to what day and our there's businesses. lot efficient that a each NRF through see run clearly, businesses and and more effective literally partners we talking with in would our our more to every them of that say and I to do and their make overall, value

returning first they've certainly, is our store environments half as year. each across more and our chain the seen our really talk optimism about with second supply software we're X labor really proposition mobile We modern is likely in with such we additional to RFID our their initiative. opportunities see constraints within logistics, look our retail our as around customers and to of with to their in see and the them really by there what work we with devices engagements get So help within retail in opportunities been excited our they assets across We marry continuing them resonating productivity opportunities and of that across markets businesses off NRF, technologies And visibility businesses. there things we've in as value our as customers transportation solutions. we the with their about vertical remains to like see sweating where holding

offering Expo for manufacturing We've an us solutions market, is solutions been inside up new in machine got will demand opportunity and next talked less that vision really automation that showcase logistics, and in got transportation our software we're planning across the We've month MODEX coming to penetrated and coming has And we've transportation around logistics. show our trade robotic here. up about manufacturing.

workflows then ways we assets the and care opportunity and see an within see we see to for and to digitally So being care, staff environment. telehealth as health health lastly, automate care opportunity. as We health and us. And connect patients continue an that home

vertical we've So that the of We'd markets think first. positive the opportunities probably across there's the seen of And a one follow. of will is retail each other say vertical I lots then that markets. place year-end spending some

Operator

our question Morgan And Stanley. from Meta with comes today Marshall next

Meta Marshall

Great. Maybe question. first

from was QX Just the you as -- noted destocking the same QX. that headwind in in about

we interest balance maybe a think slightly environment smaller heavy greater of is expected in be destocking And a it largely sheet, expected that friendlier rate QX? than amount your that's as had interest second little your just behind understanding maybe us. on kind the bit rate I obviously, expense. is question, interest was to then But your relatively now of

you've attractive rates. at at opportunities if any to more wondering looked Just refinance that

Nathan Winters

Yes, Meta.

the So right. first on question, you're

destocking of come and that our $XX by to million guidance above offset balance about of QX. midpoint guide $XX more million, higher for was it in demand versus So incremental the was the original

I'll we moved as of that into the set -- a a little bit we to again, think positive up XXXX. that channel a take out we I us here would is get So more thought trend

at rates, cost to about it think at trade but good take the crediting banking -- think whether the see borrowing the I where looking cost the you'll and sense feel we fees. borrowing, opportunities the includes I overall makes interest of of that advantage we all market. relates given I environment at position, and position. look you to good about feel we're in our actually always and our of think Now we if refinance to as it what the of But

cost disadvantage at debt relative we're feel something But that's don't like So looking today, actively the at. a to we we're position.

Operator

And our Joe TD Giordano next today comes question with Cowen. from

Joseph Giordano

was to to see we guys and I last it orders It the when that and adjust in commentary. initially building very up -- weakness there you hand your guide, stripped burden kind real to down. a a of how year, and weren't clearly the started was things just change change sales methodology, you in of kind force discounting were had wanted from like was

How So ago look give much I'm your curious into that methodology you got would just when more it ago now you like months as were and 'XX of you compare kind guide. were a full you how conservative. buildup qualitative to year how X you versus

William Burns

probably with the they're honestly, then met optimistic. in and Pacific clear we it's January, a to strong America, market that say thousands doing gone excited the our and of Asia have we're Europe and innovation to they're customers bringing to Latin show. business in our along And And are in with every North literally Zebra is I'd have they're Federation Joe, channel them. what and day Yes, Retail about their solutions if partner back our across that and to essential and America summit grateful you look with that our National then partners partner than customers are

year. put in are to optimism behind them, and half partners customers XXXX, XXXX our there's honestly. So They're quite second happy our for especially And optimistic.

kind that say across some America. forward haven't -- like before orders, to first our and deployments recovery. full ourselves it's move seen projects, seen we'd And However, here that the of in we I the of year-end and perspective, really North remain to would year. prudent spending a green broader retail, kind shoots ahead mostly we'd of really year-end rather in we of for We've from get cautious see some

'XX put behind to happy optimism, think us. I So

we think the to deployments a customers feel the get projects, our orders, but reflect through increases be I having year at move good end modest throughout more we to the demand about more forward. by confidence bit progresses and we'd more like it's in think more And year, conservative a moment. as prudent our little across guide

Nathan Winters

quarters. at of Yes, if have I look identified deployments we customer, think you was mega a that's assumed had think would point historically Bill second given the -- we those this firm year, something on we had. back several exactly we've in assumption, would large we always said, in always And we've which though not the where have there's half, experience last but several pulled and the that even the have may the fact, over we'd back I not commitment. that And as

some those of we commitments, So the come until of assume back half. we those didn't start just see to lean that second firm some to appropriate was and will in start think it in to

Joseph Giordano

I if margin I a XX%, given then the $XX And higher at level fair. That's particularly EBITDA costs. guidance for little the year, look revenue, of million extra that maybe an at at in maybe Okay. thought the

any working that you How could the if going anywhere? year? you on the the if exiting margin cash to the can touch And is pressures free through just then capital maybe just look talk normalize year, you're just So gross seeing flow. this

Nathan Winters

Yes.

due margin the favorable and through chain look about premium sequentially, us and half you if volume supply I bit have a you some of it's work X through we in to our point year cost year-on-year, and costs second say, if lower head to really at should around we look than actions about again, that important So higher 'XX, us pricing, the went into gross full leverage. was thought XXXX. does XX% that for XX% at as We as guide of

XXXX, the but improvement about restructuring that's you think compensation. it's benefit offset incentive If about from of benefits, $XX by million

the compensation on loaded plans getting to So for year. fully our our back incentive

X the those year. So other full for each negate

getting at fourth to guide for Again, in cash milestone quarter. flow, full back did flow, cash if which year was free important the free look one we positive you our

cash has expectation of some guidance to Our the for inventory is quarter, first flow year. at our in here payment decreases excluding capital -- in free modest least the conversion, above and us final our XXX% Honeywell throughout and $XXX working million the we could we exceed optimized that our levels, get opportunity be to our some back did our if that there the And and in around inventory mix demand. the just but of include guidance, given of uncertainty demand not

Operator

And with today Damian comes our question next from Karas UBS.

Damian Karas

Thanks on impacting a for Maybe what structure? million maybe a commitments bit project margin. seeing talk of all on and bit X kind the clarify, there? on the you the hit? just guys renegotiating. Or demand you've quarters, a -- been be highlighted next you just color is happening change Could more for what's supply a about is front. question headwind contract, you You particular $XX a cost that the these little a gross little just are of that that expense your a of going Is structural onetime to X could that in kind long-term

Nathan Winters

Yes.

purchase supply was like this our anticipate some a in relates just of decrease did having we had forward. the also quarter, actually in particularly peak around charge long-term agreements, we both in the to our those have demand onetime no we our ones or complete, behind as that it of if we change some at costs we So And of we're, when in a us our the structural you that X suppliers fourth combination well feel that and in that's to lead XX% had at with kind as into the see longer-term working look extended that of you'll have XXXX point, the substantially times that a chain. across lot And as of a XX-K. moving we supply commitments entered

still at great progress this year. by the that lot around have So throughout our team here components again, our is year focus Tier working we X really a And the that through of manufacturers.

new great lot with lot timing, through as that's that manufacturing the those just safety as existing working of they that a hold. work around the redesign or So a well around as to demand into as the well just our partners stock team by components working products

signed think there. the in we here we the of balance working components more the see And -- those progress with commitments some back to And in combination as well capital or sheet. in X and the we really of the X So canceling around again, that quarter fourth lot some a supplier was had I a of XXXX. was XXXX as us associated and charge of purchase to mix flexibility gives it the accept of well deferring we we the mitigate or as as those take had on lot a of pressure timing when again, expect components receive contract our

to get we move was and kind that here us thought So it right the do past into. to of move thing again, forward as we

Damian Karas

and comment your factored in you And issues Got any to it. happening seeing Sea like the some what's could on owing that be shipping guidance? to you're of extent might the just into what overseas impacts Red

Nathan Winters

we're concerns Sea. that of the new monitoring escalating there's in tensions the obviously, the Red risk Yes, with

mitigation So have situation, of the partners monitoring the we're further plans, Today, pending our again, working escalation we situation. with any

I our we Sea ship Red think That's what's and important for impacts is this EMEA. the into printing context through business Suez the ocean through primarily via Canal. really where

the our again, Asia of Coast are products the shipped the vast ocean majority from the still into West air So or U.S. shipped of

negligible lead modest quarter. it's as on and think of our we impact today, it's region we've EMEA first expected -- margin impact communicated extended on here So times, to partners, in which a particularly a the the in

Operator

Housum Keith with question from comes next our And Research. Northcoast

Keith Housum

reason to Bill your cycle? growth believe long-term and an of to to X% change guidance X% Nathan, is there's rate there over or any annual a

William Burns

leader bottom, current our to declines we're The automate well core, pandemic, that conviction Keith, digitize that cyclical the share we unchanged. before we we're intact about take future. to a position fundamentals sales trends remain our due and And really remain marketplace, opportunities overall No, in customer have really be And quite have within positioned in to really the continue market operations our -- the I we competitive I intact the and expansion are secular that by accentuated overall. and in markets see as we continue pandemic business today. the think that the they were the recover and think our think remain environments areas. would And to strong adjacent and especially unchanged. honestly, exciting really our long-term the to our They strong and be excited

So near-term despite through to and a we're X% headwinds, changing. see see committed intact. see the the cycle that remains -- -- to we what don't X% We

Keith Housum

I Okay. that. appreciate

quick as Just follow-up. a

terms obviously, In been really and services, you software guys. it's for the of resilient

As of growth you guess, I you does XXXX, expectations as separate for can what we from about that your the it the business? unpack, rest there or think that hardware

William Burns

Yes.

service recurring I and on semi-recurring, think we've right? -- supplies, you saw had It's Similar being clearly we like software a about right? business. is revenue, as that recurring we'd which comment similar a say right, talked

get this devices. outperformed today our really overall. and of portfolio our people strong prices, continuing environment. to negative to the is is right, done broader attach working customers closely on side say contracts product we're higher But seeing So I at services ultimately, extending them their Also, refreshes -- of services that some with growth we're clearly, the service mobile software their that within rates

helping a of in -- for get move them to with of really term. the are in agreements kind extend assets short that 'XX into new and but and advantages with service our new a target to of that's I'm those bit software 'XX customers hardware, half that's So working services and technologies to ahead looking second a bit sweat sorry, us is is closely starting

customers value our this perspective, a store is compelling is to software a and together And as proposition we're seeing which associate. that the From really really what talk organic acquisition to modern brought we a the assets about really of associate. needs engaged we multiple an cloud retail our around framework together address software, bringing work that

single our communication application of able worker marrying collaboration, or task it event together user to of all and instance with it customers workforce software in retail of and be internal resonating of had show planning, trade really our productivity our a so our for enhance We our as our think well customers management, that's think on group customers. with the that the management bring demand into So the and second doing year those half work we're add that line, on of -- do about rolled I want not we're in those profitability other pretty focused you mean they're and business know, I out profitability Nate, really the as and growing thing also Cloud around together. excited around but what software our is really of we it. areas as the to future the top and

Nathan Winters

That's right.

is I improved the the think software margins. other -- bright service and yes, the spot on the

great those business. for structure a lot the of team both on So pieces work cost of the of by the focus

grow. businesses that tailwind So second here as expectation we move a with XXXX, be we was a will to to the will move that continue and nice as those improvement half, it the into along

Operator

Blair. our question with William from And next Brian comes Drab

Brian Drab

savings, I on cost see these the coming wanted that in got Exactly to cost we'll savings 'XX on we've incremental the I 'XX just first in the guess? is OpEx what year, savings. savings terms versus of in now benefit that incremental clarify

Nathan Winters

Yes.

savings you half at million middle middle million to than so the net be in expanded with if expected plan additional by here second actions of the the annualized So of prior savings, reduction guide realized at look -- year, part of $XXX $XX we cost of the higher 'XX. completed the $XX part our million our

balance expecting of we're XXXX. million benefit as incremental and So head into the we then 'XX $XX into

Brian Drab

okay. Perfect, Yes.

Nathan Winters

we what the pretty across broad-based in they're functions. past, had And

was the pass a the amount as first fairly of had in incremental we structure I'd broad-based. with So similar similar terms say the declines, with

Brian Drab

on in we OpEx gross modest it. track margin on would And next guess or you through leverage the all Got that? there be the be Okay. move won't to margin to on and as gross my for quarters going assumption in anything I as here me year margin. margin, that and the that's increases through would increases best correct was sequential I just question gross affect And gross we add in guess.

Nathan Winters

Yes.

is small think I'd million. gross that say the margin. on $XXX There's of I in piece thing that So X a

is vast the OpEx. say I'd So majority

the chain a there's So gross supply taking the some in of within margin team just based piece actions there's on structure. cost is our

million But that majority gross for you're is in margin. right. vast say OpEx. a the assume absolutely purposes, is $XXX But in I'd So modeling the of I'd bit in

is, actions the of driven taken terms to In some leverage, move of first rate little both throughout the I prime year. also margin, we've sequential improvement our but chain be margin, bit as gross cost, as EBITDA pricing really in in the a gross supply the around guess, is timing of going project year by the the primarily through which quarter, here volume lower we

year a a there's improvement get we the year go through an yes, exit that's to through as fourth kind what modest we'd as to where the of us the point quarter. as we in have So expect

Operator

comes Rob Baird. And Mason our question from with next

Robert Mason

circle to Bill. wanted I back,

further into, during replacement, to would willing And again, subscription anything leasing strategies. nature? with to to some horizon service any address of more testing several strategies new the be this more like assets trying just period you're amenable devices might say, you're upgraded there which, the whether time? we've of maybe they you put that as base -- stimulate service where arrangements It right that the then their type into or, sounds catalyze be now, in look more the mentioned sweat is in anything product these as say, that were other anything if seen relatedly, can't You any XXXX-XXXX on that times customers or installed I'm past that customers around their downturn demand, curious periods. to trying

William Burns

Rob.

teams with of our couple really normal would and I go sales a different be identified that that. couple be driver a how our use that. with transitions. working are of closely but things say, weaved convince the move can do -- kind forward first, are would understand So have lots we to that would closely -- those we of working upgrades partners into ways And devices in to with them than longer and have and technology them to customers One there that in of areas. the

wireless like I WiFi speeds of think upgrade. XG WiFi faster X, and to XG So think OS

there's the so the extend become aren't releases then then patches And long, aren't but older, that, security OS the available. Android along we as that devices with security eventually, available. So with

from a a as well. driver perspective, that's So security

this other functionality The more on place that expansion, is shortly. devices, We Retail adding Show facial at be think like really RFID those National around things we're Zebra the Pay of devices we'll time, Over of right? the actual integrated AI generative large and going assistant. here releasing. authentication to devices use on Federation of showed models release recognition, case language the So an

And really around to this their right? be within wanting more want we productivity and features just seeing environment that. and about security, functionality versus So we're

I a that to software we're with well of leasing, would Retail the area of in at as is what say demonstrated marry opportunities our looking kind the show Think hardware, customers. at and National this some is management a offering that we as has of on device would wearable retail, software, be our that of wearable device which in as to task service collaboration our that sold communication

case, our be capital combined in OpEx "Hey, I -- So the In But customers hardware it stream I'd can software spend and not lease." rather than recurring would this revenue cases, quite around a lease. an most together. say,

of sales those lot running forward they're to upgrades. So different to have try teams move customers plays with a

Robert Mason

helpful. That's

you some tone what markets and you're Just and have I'm where just as business there. Japan a the government do specifically follow-up, current could you of is these of just underpenetrated in comment on more thinking perhaps runway, seeing what

William Burns

retail is that business. say at But opportunities largest places. a we we and there really are attention are as other in have where the the good vertical we I'd see share as for beyond and us, carrier we -- in great lower second each Rob, market different to largest we us to look for market, those of carriers we globe, won postal. as Japan X geography, examples take and share at continue largest about each of places new in can for the as the opportunities talked market shares cellular look we now significantly system Yes, around largest look there Japan the we've have a We've than of won integrators some in have integrators work there. postal some while, retailer as Asia, opportunity a we we

large So bit gotten we've more strategy changed with our SIs. to those and work channel larger some there have a attention

refocus our government reach look at that community leader expanding and If building government We've new leader. in on opportunities just our we inside hired the a government public a new sales the includes sales is U.S., there and safety. partner

we excited our have portfolio share, opportunities markets. we're about know markets for underserved we those because and So these within there's low

Operator

And our Needham next with question today Ricchiuti Company. comes & Jim from

Chris Grenga

for on for X Grenge just Jim. me. Chris is This Maybe

about are And in trend You you these expect had having automation from mentioned conversations you new vision the use you RFID of XXXX? and productive cases could cases currently? technologies talk machine with customers most what what use in the

William Burns

and opportunities, cost look readers, The others at with to set because in and RFID. trace, and in to go readers, with RFID. across We've care into supply broadest smart the to the the with and the deepest environment opportunity RFID. in we tags in interest RFID many coming and is all printers, continuing apparel track beyond that fixed strong continue progress Certainly, seen customers Chris, the their opportunity work and has package inside to of down tracking UPS label handheld Walmart manufacturing, really the verticals. And chains, interest mobile software maybe have start tools, tracking, health in see what that. into retail and created has today, expand solutions of market. includes caused baggage We're parcel industrial doing of to the along

the including strong past excited seen opportunity about double-digit everything are years growth do RFID. RFID, over across in in we've we XXXX. we And few So in the

and speed, and to like transportation logistics, X Matrox investment We offering software our food really to of what our machine customers' That's markets hardware upgrade for us organic to and I us. really inside upgrade a those up, automate win that distribution. set within manufacturing really to a us really perspective, would simplicity, broad to in across a allow manufacturing automotive, value differentiated acquisitions opportunity scanning giving is things automation easier with efficiency and fixed to and market that logistics few we drive platform Vision. and say proposition and around to really customers in see opportunities given combined from an focused multibillion-dollar creates our and Adaptive beverage, together and a as vision areas: software them warehouse vision. in our it's from for really a fragmented unified machine easy and easy marrying way organizations industrial about

opportunities. these both about excited we're So

in the and we market, tremendous RFID are reading being for today. leaders in We a the Zebra. challenger vision see both opportunity We're a machine

Operator

Capital question next from at Newman Markets. our Ken today KeyBanc And comes

Kenneth Newman

here. question First

XQ. sequential Just looking it know took down step a R&D saw this expense, that for it quarter at I

in think there as the Just cadence out after dollars this first R&D the as I to year? And full room about progress think first quarter the about is should move we guide maybe of how the take there quarter? year, more we as through we

Nathan Winters

Yes.

things. So I couple of think a

the coming to took sequential cost the had QX was from again, timing we decline P&L, what just is, rolling expected which into the to that the of some the Just and into we QX those actions related of quarter.

projects we we through of just things then just always typically, as comp as around and compensation. whatnot is that project QX half execution. is a go plans and And little 'XX light here and the timing from like front-end a incentive reset a holidays more just with with bit a increase little deployments. first it see And the You'll loaded

of would similar the move through year. and year, sequential I reset perspective maybe think uptick comp kind as I a plans our think of again but we So for bit of trajectory of the all whatnot from as a just we an

Kenneth Newman

the the right am there and assuming the flow other here better it. Got or for Or deployment for is that capital you the and what free priority you a be up being think will at I capital? improving my that you then ends top is like leverage see in for return with this portions follow-up, that to debt And midpoint range, a And net cash of relative That's for year guidance target paydown? debt helpful. side? avenues towards leverage where

Nathan Winters

Yes.

ended at we quarter mentioned, So as high X.Xx at of the you end is the range. debt our target which leverage,

in down, rate QX's as not the short side, come the would We term. a here debt are second much through lap through the leverage to paydown the debt we variable increase, as first profitability ratio really just here debt lower and will of the will lap prioritizing then will our QX decline we And and so increase bit debt we quarter the profitability. second half of but but on expect kind

deployment the priority reassess the as here starting opportunities year buyback And year we're is M&A share progresses. but as so really overall that to we and going down or capital debt out the have, always, as pay that's whether

Operator

And question-and-answer conference back Mr. ladies I'd the remarks. session. over and gentlemen, concludes to this for our closing like turn to Burns any

William Burns

you. Thank

customers, forward bright. good support. like partners returning long for We look for Zebra just and a XXXX. in our growth the to As opportunity employees their we day, term, is towards to everyone. Have look thank the I'd to our

Operator

This thank call. We you today's attending sir. for you, today's concludes presentation. conference all Thank

You may day. and wonderful have now lines, a your disconnect

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