10 seconds. We're good. Yeah. Okay. All right. We'll go ahead and get started. Thank you all for coming to the Zebra presentation. I'm Brian Drabb, the Industrial Technology Analyst at William Blair. Very happy today to have with us from Zebra CFO, Nathan Winters. We also have Vice President of Investor Relations, Mike Steele, in the audience. And Emma, how do you say your last name? Emma Kozel's with us as well. Thank you all for coming. I have to tell you that you can find a full list of research disclosures on our website, williamblair.com. I'm sure most of you in the room are somewhat familiar with Zebra, this company that is the world leader in barcode printers, mobile computers, as many other technologies like RFID, robotics, machine vision, really any retail environment that you're in, or warehouse, or factory, or hospital is going to have Zebra printers and computers and their other technologies. In the healthcare setting, unfortunately, I've been pretty familiar with the Zebra products. You get the wristband every time you go in for a knee surgery after playing soccer, apparently. At this point, I'll get out of the way, turn it over to Nathan. Thank you very much for being here. Thank you. Thanks. Yeah. Thanks, Brian. It's great to be here this morning. Give an overview of the company. We should have plenty of time for Q&A at the end. I guess just before we get started, to take a moment on the safe harbor statements and any of the non-GAAP financial measures you can reference and reconcile on our website. I want to start by just framing the overall investment opportunity for Zebra. If you think about our portfolio today, we're really integral to our customers' ability to digitize and automate their workflows. We do that by giving them their assets and inventory a digital voice. Once they have that digital voice, and once you can identify where the asset is, then you can have all kinds of opportunities to drive efficiency and automation across any workflow in their operation. That could just even be down to having the technology in the hands of their frontline workers or their supervisors. Again, they can drive efficiency in what they do or provide a better experience for their customers. Hopefully, many of you have experienced that as a consumer in a retail store when you walk in and ask for advice, ask where something is, want to get a price check, and you no longer have to get called over the intercom. They can provide that real-time service at their fingertips with our mobile computers. If you look, if you think about the secular trends across the vertical markets we serve, this idea of need for digitizing and automating workflows with resource constraints, the need for productivity is not going away. Again, those are the solutions we provide for our customers. As Brian mentioned, we're the market leader in our core portfolio of barcode scanning, mobile computing, and scanning. And we've invested a lot over the last several years to expand that portfolio to be an end-to-end solutions provider by moving into new areas like machine vision, retail software, RFID, ruggedized tablets, and much more we'll talk about here a bit later. If you look at our partner ecosystem, I mean, this is really a strength of the company. It gives us breadth across the globe, across each of the vertical markets we serve that we wouldn't be able to do on our own. If you think about any area of the world and being able to identify a specific workflow, again, using our partner ecosystem allows us to provide that solution to the customer that, again, we would not have the scale and ability to do all by ourselves across each of the different markets that we operate in today. We outsource through contract manufacturing most of our production, as well as have a vast distribution network, which gives us a capital-light business model. Our free cash flow profile and strong balance sheet really gives us flexibility to operate in any type of market environment. If you look at the business today, you see on the left the two segments we operate in: enterprise visibility and mobility. This captures our mobile computing business, as well as machine vision, data capture, as well as the associated support services for those businesses. This is also where our software portfolio is embedded within this segment, just over $3 billion of revenue in 2024. Our asset tracking segment, again, printing, RFID, as well as the supplies business that goes along with our printers and the associated services, just over $1.5 billion. You look at the left, I mean, again, this is kind of the strength of the company, both not just the geographic mix, but the vertical mix. I'll talk about this a little bit later. Again, operating across retail, which includes, think of retail and e-commerce, not just front of store, but back of store, regional warehouse, last-mile delivery, traditional T&L providers, and manufacturing, each rate about 20%-25% of the company. We support 80% of the Fortune 500 companies across the globe. Again, not only with the scale of similar products and services and solutions across each one of those, again, allows us to help, again, address some of the most critical needs that are common across those vertical markets. If you look at the financial performance over the last several years, I'd say it's been a bit uneven. Going back to 2020, like many businesses, we saw many of our customers pause production or pause purchases during the peak of the pandemic. Just really saw accelerated growth coming out of 2020. You see the growth in 2021 of 20%, which sustained in 2022. If you think about the new use cases that came out of COVID, whether that's the growth in e-commerce, the expectation for delivery within one to two days, buy online, pick up in store, all of those use cases use our technology at every step of the delivery. From the store associate who's picking something on an aisle, putting a label on it, dropping it off at your car, scanning it, giving you a receipt, that's, again, our technology is embedded across each one of those processes. You saw that really just explosion of growth in 2021 and 2022. What I'd say is 2023 was many of our customers were digesting the capacity they had built out over that time horizon. As e-commerce growth still continued to grow, but much at a lower rate, many of our customers took pause in terms of the capacity they had built out, which had obviously an impact on our business. Our distributors had to destock to support that as well. We took that opportunity to right-size the cost structure, really focus on some of the core operating procedures. We saw steady growth throughout 2024, sequentially as we went through the year, recovering to 8% growth for the year. We had a strong Q1 here to start 2025. A couple other highlights. We generated over $1 billion of cash over the last four quarters. Q1 saw our highest gross margin we have had in 10 years. It is going back to the Motorola acquisition in 2015. That really put us in a strong position here as we enter 2025 and to tackle some of the macroeconomic and trade uncertainty that we're experiencing here today. Again, we feel like the business is well positioned, again, to continue to grow and drive margin expansion here as we go into the rest of the year and into next year. I just want to spend a minute on the vertical markets and talk about what do we provide and what makes it unique across each one of the verticals. In retail, we have a modern store framework that really enables our customers to elevate their customer experience, provide that better consumer experience, optimize their inventory, and have engaged associates. If you think about one of the largest costs for our retailer is their store associate turnover. Having a better working experience and retaining those employees, training those employees quicker is a real value proposition for our customers. With the growth of omnichannel, so that all ways that we as consumers want and intake products, it's a real strain on their resources. That need to invest in technology is just as critical as it ever has been. Again, we look at how do you get technology in the hands of frontline workers so they can provide a better experience, be more productive. How do we leverage new capabilities like artificial intelligence to enhance those experiences or task management so they know the right task at the right times going to the right associate? Again, are all opportunities we have in front of us from a retail perspective. In T&L, it's been pretty mixed results over the last couple of years across the traditional T&L providers. The one thing that is constant is, again, how do you drive productivity? How do you provide visibility for their customers around where an asset is at every stage of the production and all the way up to being delivered at your doorstep? Again, how we use things like RFID to enhance and drive new applications and new workflows is still a great opportunity we have in front of us from a T&L perspective. Manufacturing has been a vertical market for us that's lagged, I'd say the recovery we've seen in retail and T&L, but still up high single digits in the first quarter. One we're really excited about. We have historically lower market share in manufacturing compared to retail and T&L. If you look at where we've expanded the portfolio in areas like machine vision, or if RFID is moving more and more into manufacturing, or the reshoring of manufacturing around the world, all different opportunities for us to gain share and expand our presence in manufacturing. It is, again, a vertical market that we're excited about and continuing to invest in new go-to-market capabilities to supplement the technology expanse we've had over the last several years. Finally, in healthcare, again, you can think about it as similar in that they're still looking for the same things. How do you improve workflows, drive health productivity for those providers? How do you better connect the assets with the patients and staff to provide better care, ultimately for the patients? We do that with purpose-built solutions. Products that are made to operate within a healthcare environment from a disease and infectious perspective to operate in those environments. Unique solutions that, again, help address those needs for healthcare providers. If you look across each one of the vertical markets, there are several themes that for us are all consistent: track and trace mandates across specific verticals, labor and resource constraints. If you look at the increased consumer expectations, new applications with artificial intelligence or that need for real-time visibility, again, consistent across all those vertical markets, which gives us, again, where our solutions can help provide value for each one of our customers. Going back to innovation, it is a heritage of the company. We think about it in three pillars. One, we invest about 10% of sales in R&D. That has been pretty consistent over the last 5- 10 years. About a third of that goes on to the next horizon. Again, where we've invested early on, organic investments in machine vision, software, entering areas like kiosks, ruggedized tablets. Again, how do we think about what's the next evolution of the technology or where can we supplement our portfolio today, as well as maintain our leadership in our core markets? We also have a venture portfolio, just over a book value, just over $100 million. Again, looking at emerging technologies, obviously early-stage companies that we can partner with, learn from, understand, see how those markets are evolving. Areas like vision systems, software within supply chains, so supply chain software platforms or robotics, all areas we've invested in. Some have turned into M&A opportunities that we've ultimately acquired, and others we just kind of treat as they should be from a venture perspective. From an M&A, it's obviously been an area of activity over the last five years where we've expanded into new and adjacent markets, which we'll talk on here in a few minutes. Again, from an M&A, we always look at, does it make sense to be part of Zebra? Would any investor look at that and go, yes, we're not a portfolio company of different brands and assets, but we want to make sure that we can add value and really integrate into the core of our operations on any M&A transaction we do. If you look today, it's a $30 billion serve market. Again, several mega trends that cut across each one of the businesses that we're in, whether that's the growth in non-demand economy, artificial intelligence, intelligent automation. The core business you see down in the bottom represents about 80% of the business today. I guess that's the heritage and legacy of the company, growing mid-single digits in a market that's growing mid-single digit. Complement that with these adjacent markets. So RFID, which we've seen incredible growth over the past couple of years, ruggedized tablets, areas like kiosks, or new use cases for mobile computers. So again, where can you use a mobile computer and new applications across our customers' environment? Growing high single digits. And then the expansion areas, whether it's machine vision, retail software, or robotics that have market growth rates over time that are in the double digits. So you kind of combine all this, gives us the confidence of growing 5%-7% over a cycle. On top of that, we think we can continue to expand our margin profile by about 50 [bits] a year. Again, combination of our fixed infrastructure gives us incredible leverage. As we grow, we can really leverage our repair depot network, our distribution network, our back office capabilities across each one of the portfolios. As we've grown in some of these newer markets, like machine vision, has inherently higher gross margins. You see all that in the first quarter with the record gross margin profile that we delivered in the first quarter. Take that with the free cash flow we generate, gives us that confidence to deliver double-digit earnings per share growth over a cycle. Let's spend a minute just kind of how we think about our financial framework, the principles of how we as a leadership team think about the company. Obviously, first and foremost, driving profitable growth. Second is maintaining we have disciplined financial management, driving operating efficiency. We take a lot of pride in moments of when there is a downturn in the market. We right-size the company, but also make sure we double down in certain areas so that we are stronger than our competition coming out of a cycle. I mentioned before that whether it is organic or inorganic, all the investments we make make sense and really fit with the long-term vision and strategy of the company. That translates to the capital allocation approach, which has been pretty consistent, which continues to invest organic from an R&D perspective, protect the company with a net leverage of less than 2.5x. Again, we sit today at about 1.2x leverage. Systemic share repurchase, so minimum of offsetting dilution of around $100 million, but being more opportunistic in times of volatility. Year to date through April, we had repurchased $200 million of shares so far, and we continue to be active in the market with the volatility we see. Then again, complementing the portfolio and enhancing the portfolio from an inorganic perspective with M&A opportunities. With that, I'll just kind of reinforce why we believe we have the opportunity to not only extend our leadership within the markets, but be a compelling opportunity for investment. I think, again, back to the secular trends of digitizing and automating workflows continues to resonate across our vertical markets, and we're absolutely imperative of that for our customers. The track record of innovation of continuing to enhance our core business, but also look at new ways to be a full end-to-end solutions provider for our customers. Again, the partner ecosystem really has a competitive advantage of enabling us to have the global reach and scale, but also provide those unique solutions that our partners can provide that maybe we would not be able to on our own to help our customers meet those challenges. The capital-light business model, high free cash flow profile, and the strong balance sheet, again, gives us that benefit of not only protecting the company, but being opportunistic when available to drive attractive returns for the long term. With that, we will wrap up the prepared remarks, and we can open up for Q&A. Okay. All right. Thanks very much, Nathan. We do have 13 minutes for Q&A. I was wondering if you could just start by taking a step back and looking at those different end markets. You talked about how manufacturing has lagged, retail, transportation, logistics. If you could just give us a little bit more of a sense for the health of those end markets, and are we seeing any customers within those end markets saying, as we're seeing across many industries, we do not know exactly what to do right now. We're not sure where to allocate capital at the moment. We are hearing at the conference this week and in general, pauses in different industries. Just kind of the state of those three major end markets for you. Yeah. I think I answered in two ways. One, let's say at a macro view, what we haven't seen to date is any material changes in the buying behavior or projects here through the first half of the year. What we haven't seen is a pullback in demand or projects being deferred or delayed through the first half. What we did embed in the guide and talked about is a little bit more cautiousness in the second half as I think everyone's planning and preparing and thinking of different scenarios. We haven't seen a, if I go back to 2023, when we started to see kind of the downturn was customers at this point were going, "I just got my budget froze. We need to pause. This project's now delayed to the second half or maybe in perpetuity." We haven't seen that happen. I think we've seen customers who've had projects in the pipeline continue to execute on those. With that being said, it's not top of mind to go, but everyone's watching the same thing, which is as they go into the second half of the year being thoughtful about before moving forward, do they see any downturn in their business? We're obviously monitoring that very closely. So far, the projects in the pipeline have continued to move forward. I'd say that's pretty consistent across each of the vertical markets. I think the benefit or the opportunity, that's obviously a challenge in terms of we're not going to be immune to any macro cycle. Where you go to, if there are labor shortages, whether that is because of increased manufacturing or because of immigration, I mean, one of the things we do is help our customers be more efficient with their human capital, with their frontline workers. I think that is going to be a trend that does not go away. You could see volatility a quarter. What we have seen in any downturn, and it has proven out whether that was 2009, 2020, 2023, is there are quarters of delays, but usually those last just quarters, not years. I think we are well positioned to manage that. The one advantage we have in the short term is the capital-light business model. By leveraging contract manufacturers and distributors, it gives us a pretty high degree of variability. If we are not selling, I am not paying the distributors. If we're not producing, I'm not stuck with a big fixed overhead to absorb if there is a market contraction in the second half. Thanks for that. Is it fair to say that manufacturing is still lagging? You said you were up in the first quarter, but how would you kind of rank order these major end markets for you, which is the healthiest? It's a relative lagging. The other markets, the other verticals were up double digits, and manufacturing was up high single digits. It's not a, I wouldn't say it was, it wasn't because of the decline. We saw sequential growth Q3 to Q4 to Q1. It's continued to recover, again, just not at the same relative pace. I think it's, and we look across different markets where there was Germany and others, you can see it more acute kind of softness from a manufacturing perspective, but still a lot of opportunities. If you think about manufacturing for us, it's not just the production line. It's still how do they automate the warehouse on the back end of it? That's where you see some of these themes cut across. The same technology used in T&L is used in last-mile delivery for e-commerce, which is used in inbound and outbound warehousing in a manufacturing environment. Right? So that's where you still have similar needs cut across those vertical markets. Okay. Thanks. I'll ask one more question, then obviously open it up to anyone in the room. Can you focus in on China and your supply position? I think you touched on we got a lot of contract manufacturing in China despite already having moved a lot out. Where are you today in that process and where are we going? I know you've talked about it this year, but kind of the level set for the room. Also, the sub-question to that is things have changed a lot and they keep changing. How has that affected your recent thinking and going forward? Yeah. If you went back to pre-2019, about 85% of our North America volume was out of China. As we entered this year, that was down to less than 50%. By this month or middle of the year, we will be at 30%. We have done a lot of work over the past five to seven years of diversifying our supply chain outside of China. I would say we have a host of other actions. We will not be able to get it to zero. There is still a large portion of business, whether that is components or just, quite frankly, production lines that do not have the volume to move, that will remain in China. We have several levers we can pull to continue to diversify. Quite frankly, now we're just waiting to understand, do I go to country A, B, or C based on where tariffs land for various countries and options? The team's not waiting for the policy, but making sure we have plenty of options regardless of where the policy ends up shaking out and the tariff rates. One thing that is different from where we guided in May is the guide in May, which we included $70 million this year in direct cost of tariffs. That was at China with 145% rate. Now down to 30% will be a meaningful reduction in the exposure, which we'll update in August once we hopefully have learned a bit more about all the other rates that have shaken out. At least so far relative to where we guided compared to where we are today, that we're going from 145% to 30% is meaningfully helpful for the year as well as how we think about the long-term costs and mitigation actions. Okay. Thanks. Are there any questions from the audience? I have a whole list of questions here, so do not worry. Nathan, pricing, I think you guys talked about a price increase going through in April. Can you talk about how much is price contributing to growth on the top line this year? How have those price increases been received? Yeah. So we announced a 10% price increase for most of our North America products that went in effect at the end of April. That represents, on the grand scheme, about 60% of the North America revenue. That equates to about $50 million of revenue for the year in terms of incremental revenue for the year. What I would say is none of that's really been baked into the guidance. We guided 3%-7.5% at the midpoint back in February. We held that guide in May. We had not contemplated the price increase back in February as we were still waiting to see how things played out. We also did not think it was appropriate to raise the guide in May given the macro uncertainty in the back half. Not only did you have the price increase, FX was a tailwind relative to where we were in February. We had beat in Q1. We added Photoneo. We had several, I'd say, tailwinds from February to May relative to kind of our initial assumptions and guidance. Again, we thought, just let's take that to the bank, de-risk the back half of the year. Instead of assuming, call it five percent or mid-single digit organic growth, low single digit organic growth in the back half given the market uncertainty. Again, I'd say so far demand has held up. I think we're not hearing from our distributors or partners that we're out of touch or materially different from our competitors. It's one that we're monitoring closely and we'll adjust. We're not going to cede market share or lose if we think it's a good deal just to hit a pricing number. We have many abilities, a lot of different levers to adjust that here on the fly, but we wanted to get that out there, get it in the market, and ahead of where the tariffs we think will have to adjust here as we go through the back half of the year based on how things shake out. Okay. Thank you very much. I have a few more questions, but please raise your hand if you're interested in asking one. You show that very good slide. I think it lays out how you're thinking about the growth. You have the core growth and then these higher growth subsegments or businesses. Which of those, I think there are a couple of them in my mind that are probably most strategic or the larger ones that are doing really well. RFID is the one that I think stands out to me on that slide. Can you just talk a little bit about that business, the momentum you have, the size of it? I think it's maybe like a $200 million-ish revenue business, and I think you're the world leader in what you're doing in RFID. It might be worth just talking about for a minute. Yeah. I agree. I think in the short term, I think over the next 12 to 18 months, RFID is really hitting an inflection point, and we've seen double-digit growth here over the past, in the back half of the year, first half of this year. You can see just incredible momentum from an RFID. I'd say approaching $200 million, so still a little bit shy of that. We are the world leader in, think of fixed and mobile readers. The infrastructure and the build-out, we're not, from a tag perspective, we don't make the chip or the inlay. We'll do the printing on the back end. RFID print, but then it's really around the reading and the technology. I think what's exciting is now that the chip costs are at a point where there's compelling value proposition and ROI, the ability to see inventory where it's at at any point in time just opens up opportunities that didn't exist kind of through the traditional methods. If you think about theft, being able to see items as they walk out the door, you may not stop it, but if you can see it walking out the door with RFID real-time to update your perpetual inventory, the last thing a retailer wants is you to go online, see there's two in the store, go to the store, and there's nothing there. That's not something they want their consumers to experience. The only way you really know that is either have someone walking around all the time looking or leverage a technology like RFID to be able to track that inventory. I think just the number of use cases that are out there is continuing to expand. Obviously, it is one we want to take advantage of with our infrastructure and with the partners that we have. I think that is the one that definitely sticks out here over the next 12-18 months of continued momentum and growth. Yeah. Great. Thank you. There's like one minute left. Is there some question that you wish I would have asked or Mike, something we should touch on before we move on to the smaller group discussion? All right. I think just last on, I think from back to the tariff point, I think we're, again, we have, I think one of the advantages we have is the distribution or the partner net we have on contract manufacturing gives us a lot of ability to flex. For us, it's getting certainty around where the tariff rates are. I think we have multiple levers we can pull to shift production, move production, adjust pricing, drive incremental productivity, and manage through it. That, I think, again, part of it's just not waiting on that, but making sure with our partners we're ready for whatever the outcome is to adjust and, again, move on and take care of our customers. Ultimately, what's going to drive the long-term value? This presentation has now finished. Please check back shortly for the archive.