Good morning, everyone. Thank you for joining us today to kick off the industrial, the technology conference here. I'm Damian Karas at UBS, Multi-Industrial Analyst, and we're very pleased to have join us Zebra Technologies, Nathan Winters, the Chief Financial Officer. Thanks so much for being here today, Nathan. Great to be here, Damian. Thanks. So, why don't we maybe just talk a little bit at the outset here of some of your recent trends? Obviously, it's been a little bit of a rough demand environment, and you have cut guidance, you know, in your most recent quarter. Could you maybe just talk about October, November trends, what you've been seeing, whether things have kind of been lining up with your most recent expectations? Yeah. I guess any notable changes perhaps that you've seen across the markets you serve? Yeah. No, maybe if I, if I go back really to the start of... At the end of last year and into the early part of 2023, we began to see our large customers defer projects, push out projects, particularly in retail and transportation and logistics. And then the notable change we saw really middle part of Q2 and into the summer was broad-based declines, not only in retail, mainly, and transportation and logistics, but also across manufacturing, healthcare, really across all of our regions and different product families, which resulted in the change in guidance in July, the significant change in guidance in July. But what we've experienced since then till today is, I'd say, stabilization and demand. So there was, you know, a notch down, but we've seen some stability really throughout the end of the summer here to the early part of fall, which allowed us to reiterate the Q4 guide that we put out in July. Really, the intended focus is, with that stabilization, is ensuring that we exit the year with our distributors having the right inventory in the channel, which has always been a big headwind here in the second half of the year. But with that stabilization, we can really get targeted with our distributors around where they want to end, how much inventory do they need to support the business, and ensuring we go into next year with a, with a clean slate, as we go into 2024. What's your sense for where those inventories are now? Are you kind of still thinking by the end of the year— Yeah. You're normalized? Yes. Maybe some background. We get this question a lot of, you know, what visibility do we have into the channel? And robust dialogue with our distributors. Every week we get a feed, what have they sold out, the volume, pricing, so real-time visibility to the end demand in the market, as well as what inventory they have on their shelves, so we can know if a certain product family has too little or too much. Typically, we average about 60 days on hand on a looking back at the trailing 13 weeks. That ranges fairly significantly from a country like Brazil, which is a little bit longer, given the lead times to import into the country, but 60 days is kind of the ballpark global average. So again, that's where we expect to roughly end as we exit the year, which we think is, you know, puts us in a good place so that, you know, as we head into next year, we don't have this bifurcation of our results versus what we're seeing in the end markets. Makes sense. We'll obviously talk a little bit more about kind of the demand outlook and what that might look like over the coming years here, but maybe just kind of taking a step back, right? So the environment that you're in is a little bit tougher one. Like, when you look at the business as we head into 2024, what would you say Zebra's strategic priorities are right now? Yeah. So our strategic priorities, but I'd say our priorities, is to control what we can control. And we think we took the necessary actions over the summer to adjust our cost structure, with, you know, broad-based actions across the business, for the lower demand. And we wanted to get that behind us so that we could really focus as we go into 2024 around how can we drive incremental demand, where are there pockets of opportunity with growth, and things like machine vision, there's still opportunities. We talk about markets like Japan or manufacturing, where we've reallocated resources as part of the restructuring program to, again, put ourselves in a position not only to drive the right level of profitability, but make sure we capture the opportunities that are out there. And then when the market does recover, ensure we take our more than fair share of the market. Understood. Just want to let the audience know here, you know, if you have any questions for Nathan, you can go ahead and submit them on the iPad, or feel free to raise your hand and we'll bring a mic over to you. So let's talk a little bit about kind of demand and what's ahead here. So you've got the destocking of channel inventories, that's kind of winding down. But you have spoken to the expectation that there's still soft demand likely in the first half of 2024. You know, large customers typically lead you guys on the way out of these cycles. How are you thinking about those large customers, whether in e-commerce, transportation and logistics, and when you might get some better visibility into what their CapEx are? Yeah. So no different than in prior years. Most of our large customers finalize their budgets in late Q1, as they, you know, with many have their year ends at the end of January. Not so different than what we have in prior years, but where we spend a lot of time is, irregardless of what budgets they have, is what is their roadmap? What are their priorities? What are their challenges? How do our solutions help solve those problems? Where is our compelling ROI? So that, you know, as we've seen this year, you can have a budget, but that can change, you know, a week after it's set, if the, if the macro conditions... We've also seen it to go the other way. In 2021, you know, it was the inverse, right? So, again, our priority is to ensure that we're aligned with our customers on what are their priorities— what, you know, are the project pipelines, so that when the budget is available, we're at the top of the priority list? And so, again, we feel good about that process. I think the question at hand is: when will those dollars be released? And, you know, that's time will tell on when we see that. To date, I'd say we haven't seen an inflection point yet, but again, that's why we're, again, focused around making sure that we get the inventory channel right, set right, 'cause for 2023, just for context, it's, you know, $260 million headwind, which becomes a tailwind as we go into the second half of next year. We want to make sure that, you know, as the market recovers, you not only see that tailwind, but, you know, some additional on top of that as we get to the second half of the year. Makes sense. And when you think about these project deferrals that are happening, you know, kind of, would you measure those in, you know, months of deferrals? Are we talking quarters or some cases, years? Yeah. Just a couple of things. You know, it depends on the type of project. So, and if you went back in time, whether that was 2001, 2009, you know, the business has seen cycles like this before, and it's typically been measured in quarters, not years. You'll have 3, 4 quarters of significant decline, followed by what I would say is, you know, maybe not, outsized growth for a few quarters, and then normalizing to more of a, you know, steady demand trend. And not all projects are created equal, right? There's maybe a refresh that you could defer for a few quarters. There may be a new capability that, you know, is a nice to have, something they want to do, but could be delayed even further. So I think there's a— But if you went back in time, it's typically quarters, not years, and we'd expect that to be no different this cycle, as we come out of it. And then you obviously had a very large, you know, kick-up in demand beginning kind of middle, late 2020, and there is a replacement cycle aspect to your, your business, to your solutions. You know, in theory, how long could deferrals of this stuff last? Like, when- how long could you kick the can down the road on a, on a replacement? Yeah. So again, it depends on the product portfolio. If you look at our printing business, for example, you know, an industrial desktop printer can last 9-10 years, right? That's, and that's been consistent for a long time. So if you need to sweat that asset a little bit longer, you can, and those were built to last. If you look at our mobile computing business, which is typically, you know, which saw the outsized growth in 2021 and 2022, we think about that as a 4-5-year replacement cycle. But a lot of that goes— a lot of factors go into play. So there's the, you know, how is the device used in their environment? How much, you know, applications, data is being processed through the device? And no different than your mobile, you know, your own personal phone. At some point, you may need more memory, more computing power, just so that it's a, you know, an ease of use for the store, or for the associate who's using it, so it doesn't slow down and start to have an impact on their job. The other is, you know, is there new capabilities, 5G, Wi-Fi 6, that enables, you know, again, new use cases within their environment. And then the final is just, you know, how is it used? You know, again, the devices are built to last, but all environments are created differently in terms of, you know, how they're beaten up. And so all those factors go into play. But typically, where we've seen some of the shorter refresh cycle might be on some of the lower-tier devices or where, again, the customer is adding more and more applications and use cases, and the need is for more computing power, memory, to meet their demand. So again, all those factors play into the refresh cycle. But again, foundationally, if you look at the business going into the pandemic, there was 19-20 million devices, mobile computing devices, in the installed base globally. Today, that's about 25 million devices. So not only do we think there's more applications, more uses for our technology, but also the opportunity to refresh that larger installed base is still there, and that's really the opportunity we have over the, next several years. Makes sense. So if I'm still using a Zebra mobile computer from 2018, 2019, it's kind of like if I'm still carrying around the iPhone 7. I guess that's a pretty good, decent analogy. All right, so we have an incoming question here. Are the geographic differences in the demand declines you've seen over the last six months, are there differences geographically, and are there areas that have not yet stabilized? Yeah. So as we saw, really through the first half of the year, there was some notable differences. We saw kind of the first signs of weakness in Europe and in North America. Asia remained fairly strong, and Latin America through the first half. But I'd say today, and I was just looking at quarter to date, it's whether you look by vertical, by region, by product family, it's pretty consistent. And some of those differences were, you know, one of the things that makes it challenging, if you look back in time over the last few years, is the supply chain dynamics of when we had product available, when we could ship to the different regions, created some, you know, unique anomalies. But I think we're starting to get to a point where from a year-on-year perspective, there's a bit more consistency, particularly as we get through the first quarter of next year. So today, it's, it's pretty consistent across the board. Thank you. And not to beat a dead horse kind of on the demand outlook here, but, you know, there is sort of this debate out there that, right, all the strength that you saw kind of from, you know, back half of 2020 through 2022, was just this one-off, unique opportunity— Yeah. A nd now there's a structural reset that needs to take place that takes the business back to a, you know, lower baseline. Yeah. Versus, hey, you know, this is just transient weakness, and, you know, growth cycle is going to take you back to and above prior peak. And kind of, what's your response to that, you know, that debate, if you will? Yeah. I think, you know, one of the factors that's impacting our business today is there was clearly throughout 2021 and 2022, our customers, you know, overbuilt capacity they needed for what was expected to be, you know, 20%-30% e-commerce growth for the foreseeable future. And as that growth has moderated, they're absorbing capacity built out for what was expected to be a much more robust growth in their business. So I think from that perspective, you know, call it overbuilt, whatever, but I think that's, you know, that absorption of that capacity is clearly impacting our business here in the short term. But I think two things are fundamentally different. One, as I mentioned earlier, the install base is significantly larger today than it was previously, and I think more important is what everyone learned, or what many of our customers learned over that time period, is the value of our solutions. So how can our solutions help not only drive incremental productivity and help automate and digitize workflows, but have better inventory visibility? As you need to know what product I need to ship, where is it located, is it in the store or warehouse, the regional warehouse? How do you improve your employee experience, so the collaboration across store associates? How do you improve the consumer experience so that, you know, if you go into a store and you're looking for a certain size, you don't have to guess. The store associate has the device. They can look it up very quickly to say, "Is it in the back of store? Is it at a store down the street?" And I think all of those capabilities and experiences has fundamentally changed how our customers look at our solutions, that maybe not everyone fully appreciated before the pandemic. So look, where we reset and bounce from is, you know, we'll see how that plays out here. But I think, again, underneath the foundation of the business is much stronger today than we were, going into the pandemic. Makes sense. Maybe we switch gears a little bit and talk about supply chain environment, kind of how you guys are set up, your footprint. Obviously, it's a lot, a lot has happened in recent years, right? So, you know, a couple examples. Historically, you were, you know, an ocean freight business, moved to air transport, now back to ocean shipping, right? You locked in a lot longer supply arrangements with some of your key suppliers, which I think you're kind of now reversing or renegotiating. You're also running an extra DC in the U.S., that you didn't have a couple years back. That was because of some of the labor shortage issues. Just maybe talk about, like, what your future supply chain looks like. Is it, you know, going back to kind of like the pre-COVID days or is it somewhere in the middle? Yeah, if you look at, just, for background, our supply chain structure, we manufacture our own supplies. So think, you know, labels, those types of things where you need local capacity, just from the logistics cost of shipping paper around. So we do that manufacturing ourselves in the local markets, but all of our hardware is outsourced to tier one manufacturers, and that business model is unchanged from where we were pre-pandemic, and that's—w e don't see that changing. In fact, I think what we've— It's only reinforced the value that they bring to, you know, the partnership they bring as we went through going all the way back to tariffs, through COVID, through the supply chain shortages. Having, you know, these large manufacturing at scale, their capabilities has been a real value add for our business. And through that, with particularly with COVID, they enabled us to shift some of our manufacturing where only in China, to now having dual capabilities between Vietnam, Malaysia. That was absolutely critical during COVID, as you'd have shutdowns and lockdowns, being able to flex manufacturing across. So if I look back, I think fundamentally, the supply chain will look similar, but much more resilient, and thoughtful around where we put our products, given the geopolitical environment, as well as, you know, I think what we've learned over the last five years is you have to be prepared for about anything, and, and having that resiliency is absolutely critical to our supply chain. Now, you mentioned, you know, the ocean shipments of our printers was more just the nature of as we were unable to get parts and meet demand, we had to airship large printers, which is not the best economics. So we've got that back down to where we were pre-pandemic. About 80% of our printers are shipped on ocean, and we're still working with two DCs in the U.S., being very thoughtful about that transition and how we allocate products, and that's working well to date. So again, I think foundationally, I'd say a stronger supply chain, but structurally very similar to what it was pre-pandemic. Okay. And then on the, you know, your tier one manufacturing partners, so we have seen trends of, you know, take the semis market, for example, this move to kind of onshore, do some reshoring of that capacity. Do you foresee any of that taking place with your manufacturing, or you think you'll just be kind of diversified across the, the Asian footprint? Yeah, we see the, you know, push to onshore semiconductors, more of a short-term—y ou know, medium-term opportunity for our business to sell into that. I mean, that's an opportunity for our machine vision business, which Matrox, which we acquired last year, had a very strong presence in the semiconductor space. As well as that new capacity is an opportunity for our core business, the robotics business. So, that's something, again, one of those opportunities where you look at and say: How do we make sure we capture our fair share of that opportunity? But for our own manufacturing, I think, you know, in the near term, probably not, so much of the supply base is based in Asia. You know, at some point, it doesn't make a lot of sense to ship 95% of the components onshore just to do an assembly. That's, I think, that kind of defeats the purpose of the—s o, I think, maybe long term, there's an opportunity there, but in the near term, that's not a big opportunity for our business. Got it. Okay. And then just thinking about the margin trajectory, presuming kind of the demand environment kind of stays where it is right now. You talked about, all right, so you got some savings now being back to, you know, ocean shipping. Yeah. But in general, you know, your gross margins, can you kind of get back to that 48% or better without demand coming back, or how do you think— Yeah. The margin trajectory looks like? No, we do. Fundamentally, we believe that's, that's the trajectory we should be at and, and where we expect to get back to. So, and we were on that path, as you mentioned, I mean, during the peak of the supply chain issues between incremental freight costs or shipping on ocean or air shipping products, having to do spot buys out in the market, it was about a 3-point headwind in gross margin last year. And that's all behind us as we go into next year. And we're starting to get back to those levels in the first half of this year before the demand decline. So again, our focus now is making sure we rightsize the manufacturing footprint or distribution capabilities so that we have the right overheads to get back to 48% and grow from there, particularly as we continue to scale the new businesses such as machine vision, software, which still smaller portions of the business today, but inherently higher gross margin. Right. So you expect kind of the growth of those newer areas over time to be gross margin accretive? Right. you wouldn't expect any offsets and maybe, you know, just the barcode readers as an example? No, I think, you know, we look at the portfolio and try to bifurcate the portfolio between good, better, best, so that, excuse me. As you know, if there's an opportunity at a lower tier, we have a product that fits that, that has the same margin profile. So look, that's, that's no different than what our business challenges have been over the past several years. Okay. Is there a good way to think about, you know, operating leverage, kind of incremental margins when demand does start coming back? Yeah. So I think historically, you know, from a operating profit, it's been about, you know, 30% incremental has been the historical average. So I think once we work through some of the unusual gives and takes here over the next couple of quarters with the restructuring actions and the volume, that's what we'd expect the business to get back to. Makes sense. So another incoming question. I think you have laid out some numbers around this, but maybe if you could just refresh our memory here. How much is the destocking impact? In other words, how much higher do you think revenues would be today if you didn't have the inventory correction? Yeah, about $260 million. And so, $30— call it $40 million of that in Q2, the vast majority in the third quarter. So that's, but so the predominant in the second half. And again, expect that to, to not be a factor as we go into next year, where if you look at the, our results compared to the underlying business results, you know, those should be within a point or two, which has historically been the case. Thank you. So thinking about R&D, that's something that over time, Zebra's, you know, been pretty committed to, I think on average, about 10% or so of your sales every year has been reinvested in research and development. How are you thinking about that right now, you know, with just the current demand being softer and you did have commercialization, I think, of some of your, you know, more recent investments, fixed scanning, other new products coming out. So is there gonna be any change in kind of how you think about— No. R&D? Obviously, we, you know, as part of the restructuring actions, we did have to take actions in R&D, but I think as you would expect, fairly broad-based, given the declines were broad-based. We had to look at all areas of the business. But I think a couple of things were important there. One is through those actions, making sure we really protect the areas of the business that are critical, so that again, what's important for us is, as we come out of the cycle, that we're in a position to take share and not jeopardize that. So how we allocate resources was, you know, very thoughtful around where those opportunities were, as well as protecting investments in things like machine vision or where we have go-to-market opportunities around places like Japan, manufacturing, or in our retail software business. So, yes, there's broad-based impacts across the business on the cost side, but I think, nothing that would change kind of that foundation of, you know, 2.9-10% R&D as a percent of sales. Yep. You've brought up this, you know, reallocation of resources in Japan a couple times. Maybe you could just, if you could just. Yeah. Elaborate on that. I mean, correct me if I'm wrong, my understanding is Japan's already a more mature market, right? So do you—i s it kind of, "Hey, we see an opportunity to go in there and, you know, take some share from the incumbents?" And- Yeah. No, so Japan, it's the second largest market for, you know, AIDC, so our technology as a whole in Asia, it's probably the fourth or fifth largest market in the world. And historically, for mobile computing, we've had single digit, low single digit share in that market, primarily due to Japanese competitors. So a couple of things have changed. One, Japan is still the last market to flip from, to Android, to move to Android, for a variety of reasons. And so that adoption is beginning to take place, and as the Android leader, that, you know, has kind of reinvigorated the opportunity. The second is that has happened, I'd say we've changed, we pivoted our go-to-market, which was, you know, why don't we partner with some of those Japanese providers? So we signed a strategic agreement with Sharp to co-brand our products. It wasn't an area that they were prioritizing, but they wanted to maintain the overall customer relationship, and so, that's a great example, or with some of the local service providers. So stronger, deeper partnerships with those local providers to help them manage their customer relationships through the transition. So we won the largest postal carrier in Japan. And again, if you look at Zebra from a, you know, the quality of our products, the technology, the commitment to it, you'd think, you know, all those things play well in the Japanese market. So again, that's why we feel like over time, that's gonna be an attractive market to go from single-digit share to, you know, globally, we're 50-60% share. So that's, again, an attractive market. It's just as in all things, it takes a little bit of time, and they're, you know, they're thoughtful and deliberate, and— Sure. So you just got to play the long game, but we think it's a real big opportunity for us as we move forward. Could you just remind everyone how sort of long it took for the, you know, Android conversion to take place— Yeah. In other regions? Well, it's still ongoing in regions. That's the, the irony of it. There's still devices out there that we sell today that aren't on Android, right? So just, again, because it's in a particular use case where maybe, you know, the security needs aren't as great, it's in a, you know, protected environment. So it's a four or five-year transition. So again, that's, that's—b ut again, that's the opportunity at hand. Makes sense. Another question coming in here. So thinking about, you know, some of your newer product deployments, I'm presuming machine vision and, you know, AMRs— Yeah. A nd so forth, how has, you know, kind of market share been progressing, if it's changing at all there? Yeah. So maybe just to touch on machine vision first. So machine vision, we think, is a really attractive market for, for Zebra. Yeah. We entered the market in the fixed industrial scanning, so think, you know, one step beyond a barcode reader, right? So, we created that product and really developed that product with our scanning engineers. It's kind of the same underlying technology with different software. So you read the barcode at high speeds as our entry into that. We then acquired a company, Adaptive Vision, that brought a software portfolio to allow, if you buy a fixed industrial scanner, you can upgrade that with just a software upgrade to not only check the barcode but also do quality inspections, kind of, you know, from a machine vision perspective. And then with the acquisition of Matrox, really now gives us a complete portfolio. And Matrox operated on the high end of machine vision, about 50% of that business within semiconductor. And so now we have the complete portfolio that allows us to compete better with and have better partnerships with some of the resellers and distributors in that market space. So while the semiconductor market is down for Matrox, and we knew that going into the deal, that was gonna be a you know a pain point here for the first couple of years. We're seeing really tremendous growth on a smaller base outside, so things like battery manufacturing, automotive, and even using our relationships in transportation and logistics to get some headway into those markets. Leveraging the Matrox technology, which was a privately owned company, and the opportunity there was really to sort you know scale their go-to-market capability. So again, we're really excited about that market. It's a higher growth market. There's a lot of green space. It's competitive, and there are some large competitors, but outside of the top one or two, it's pretty fragmented opportunity. So we think there's a lot of room for growth and to take share in that market. Great. We're getting a lot of incoming questions from the audience here, so that's, that's fantastic. This question is related to, you know, what happened in 2021, into 2022. You were sort of overshipping, and if products are kind of on this, you know, four-year life cycle, if you will, you know, why would you not... Why would you see kind of this demand recovery before, you know, say, 2025, 2026? I think right, there's— Yeah. T here's not just replacement aspect to your business, but maybe you could talk about that. Yeah. So I think that's— I mean, look, that's the opportunity. And, you know, the question will be, will that all come back in 2025 or 2026? And again, a lot of that depends on the operating environment. So if you're, you know, again, back to what I said earlier, it varies greatly depending on the overall operating environment, but at some point, they will need to be refreshed. And typically, what we do see, and maybe you think the thing that might be different in the future is, with higher interest rates, you might see, hey, a typical deployment might be two or three quarters, and will they lay that out over four or five quarters, right? Just from a capital outflow, and a cash perspective. So I think some of those dynamics are different than what we experienced in 2021 and 2022, given the higher interest rates. But most, you know, we get the question a lot of, "Well, how much of your business is refresh versus new?" And the answer to that is difficult because almost every is a mix, right? And so typically, what you'd see is, you know, a retail, let's say retail is an example. 30% of our employees carry a mobile device, whether that's for certain applications, inventory management, maybe a certain department, and they want to expand that into new departments. So they want, you know, more of their associates to have device to, for, again, provide that better customer experience. And when they do that, they'll upgrade not only the older fleet but also add net new devices. So there's always this combination of, you know, most customers don't go from, you know, 2 devices in their store to 100. They go 2 to 20 to 40 to 60. So it's this journey to, you know, kind of 100% of the devices in the store, and that's still a longer-term opportunity. For every you know, there's a handful of customers that are kind of in that 90% range, but on average, globally, it's about 40% of store associates have a device or some form of technology in their hands. I mean, that's where we think is the real long-term opportunity for mobile computing because of the value we see for those customers that do have it. Makes sense. I think we have time for one last question here. I wanted to ask you about free cash flow. That's obviously should be something that improves a lot— Yeah. in 2024, and I know you're not in a position to kind of guide to your underlying business outlook, but if you think about kind of the pluses and minuses to cash flow, right? So you have kind of working capital build taking place, you're doing restructuring, there's sort of the legal settlement to one of your competitors that you're paying out quarterly. Could you maybe just kind of walk through— Yeah. Those, you know, cash flow items and what 2024 looks like? Yeah. Look, I think what's important is long term... We put in our long-term incentive plan at the beginning of this year, 100% free cash flow over the three-year cycle. So we're, you know, still committed to that. The fundamental business, the underlying business, we've delivered on that for many years. We don't think that, you know, fundamentally has changed. The business hasn't changed, that we can't continue to deliver 100% free cash flow conversion. Obviously, the last year and a half, the settlement payments end in Q1, so we'll get that behind us beginning in Q1. There's been some of the changes in R&D amortization here in the U.S. that continues to become a less of a headwind as we go and layer on more years of amortization. Then the big one is, you know, reducing our inventory value. So we think there's, you know, we should reduce our inventory value to $250 million, as particularly as we get into next year. And not only on working the, you know, some of the supply agreements, but also having stability in the demand was really critical. 'Cause, you know, it's, it's hard to reduce inventory as you continue to every month take down your demand signal to your supply chain. So having that stability in the demand cycle, we think now gives us the platform to start bleeding down that inventory, as we, as we move throughout next year. So again, long term, 100% free cash flow conversion is absolutely the, the target. A few headwinds at the early part of next year, but then we get those behind us and keep moving on. Well, that's all the time that we have. Nathan, r eally appreciate your time. Thank you. And all your insight, and hope everyone has a great day.