Zebra Technologies Corporation (ZBRA) has been benefiting from improving supply chains and reduced product lead times of late. Targeted list price increases and higher sales of radio frequency identification devices (“RFID”) products are aiding the company’s Asset Intelligence and Tracking segment. Higher sales of services and software and contributions from recent acquisitions bode well for the Enterprise Visibility & Mobility segment.The firm remains focused on acquiring businesses to gain new customers a ...

Zebra Technologies announces the new evolution of its ultra-rugged mobile computers with the MC9400 Series, enhanced with 5G (data only) and Wi-Fi 6E connectivity for use inside and outdoors, even in cold storage. The MC9400 Series meets the connectivity, scanning and device security needs for retail, manufacturing, warehousing, transportation and logistics, including yards, ports and other tough workflows on the edge. (Photo: Business Wire)Zebra Technologies announces the new evolution of its ultra-rugged ...

Financial Data and Key Metrics Changes - In Q3, net sales decreased by 30.6%, and 29.6% excluding the impact of foreign exchange [1] - Adjusted gross margins decreased by 100 basis points to 44.8%, primarily due to expense deleveraging from lower sales volumes [24][76] - Non-GAAP diluted EPS was $0.87, a 79% year-over-year decrease [76] Business Line Data and Key Metrics Changes - The Asset Intelligence & Tracking segment declined by 25.8%, primarily driven by printing [1] - The Enterprise Visibility and Mobility segment sales declined by 31.4%, with pronounced weakness in mobile computing [1] - Services and software showed growth with strong attach and renewal rates despite overall declines [9] Market Data and Key Metrics Changes - North America sales decreased by 25%, EMEA sales declined by 39%, Asia-Pacific sales decreased by 32%, and Latin America sales decreased by 15% [1] - Demand was weakest in retail and e-commerce, and transportation logistics [22] Company Strategy and Development Direction - The company is focused on advancing its Enterprise Asset Intelligence vision and enhancing its portfolio to address complex operational challenges [49] - There is an emphasis on innovation, including the launch of the Zebra Pay solution and the Zebra Work Cloud suite of software solutions [50] - The company is also exploring opportunities in underpenetrated markets such as government and healthcare [99] Management's Comments on Operating Environment and Future Outlook - Management noted broad-based softening of demand and cautious spending behavior from customers [9] - There are expectations for a significant sequential improvement in profitability due to cost restructuring actions yielding net annualized cost savings of $100 million [22] - The company remains cautious in its planning through the remainder of the year and the first half of 2024, not seeing compelling signs of market recovery yet [23][36] Other Important Information - The company ended the quarter with a net debt to adjusted EBITDA leverage ratio of 2.2x, below the target range of 2.5x [45] - Free cash flow for the first nine months of 2023 was negative $193 million, primarily due to lower earnings and higher interest costs [44] Q&A Session Summary Question: What is the visibility on inventory levels and destocking? - Management indicated that global channel inventory is slightly higher than normal but is expected to return to normal operating levels by year-end [12] Question: What is needed for demand recovery? - Management stated that a strengthening goods-based economy is necessary for customers to resume deployments, with large customers expected to recover first [14][15] Question: How do you view gross margins moving forward? - Management expects gross margins to improve as they cycle through premium supply chain costs from the prior year [46] Question: What are the dynamics between e-commerce and retail? - Management noted that e-commerce and transportation logistics are tied together, while brick-and-mortar retail is more focused on the goods economy [110] Question: What is the outlook for 2024? - Management is not providing guidance for 2024 but expects to see easier comparisons as destocking activity subsides [36][72]

PART I - FINANCIAL INFORMATION [Consolidated Financial Statements](index=3&type=section&id=Item%201.%20Consolidated%20Financial%20Statements) The consolidated financial statements reflect a **$7.33 billion** asset base, a **$15 million** Q3 net loss, and **$(145) million** negative operating cash flow year-to-date Consolidated Balance Sheet Highlights (in millions) | Account | Sep 30, 2023 | Dec 31, 2022 | | :--- | :--- | :--- | | **Total Current Assets** | $1,652 | $1,883 | | **Total Assets** | $7,331 | $7,529 | | **Total Current Liabilities** | $1,562 | $2,332 | | **Total Liabilities** | $4,318 | $4,796 | | **Total Stockholders' Equity** | $3,013 | $2,733 | Consolidated Statement of Operations Highlights (in millions, except EPS) | Metric | Q3 2023 | Q3 2022 | YTD 2023 | YTD 2022 | | :--- | :--- | :--- | :--- | :--- | | **Total Net Sales** | $956 | $1,378 | $3,575 | $4,278 | | **Gross Profit** | $427 | $628 | $1,675 | $1,939 | | **Operating (Loss) Income** | $(12) | $202 | $407 | $269 | | **Net (Loss) Income** | $(15) | $170 | $279 | $277 | | **Diluted (Loss) EPS** | $(0.28) | $3.26 | $5.40 | $5.25 | Consolidated Statement of Cash Flows Highlights (in millions) | Cash Flow Activity | Nine Months Ended Sep 30, 2023 | Nine Months Ended Oct 1, 2022 | | :--- | :--- | :--- | | **Net cash (used in) provided by operating activities** | $(145) | $221 | | **Net cash used in investing activities** | $(49) | $(941) | | **Net cash provided by financing activities** | $140 | $470 | | **Net decrease in cash and cash equivalents** | $(56) | $(252) | [Note 3: Revenues](index=10&type=section&id=Note%203%3A%20Revenues) Revenue disaggregation shows Q3 2023 net sales at **$956 million**, a decline from **$1,378 million** in Q3 2022, with **$1,094 million** in remaining performance obligations Disaggregation of Revenue by Segment (Q3 2023 vs Q3 2022, in millions) | Segment | Product Category | Q3 2023 | Q3 2022 | | :--- | :--- | :--- | :--- | | **AIT** | Tangible Products | $295 | $414 | | | Services and Software | $29 | $28 | | | **Total AIT** | **$324** | **$442** | | **EVM** | Tangible Products | $434 | $750 | | | Services and Software | $198 | $186 | | | **Total EVM** | **$632** | **$936** | | **Total** | | **$956** | **$1,378** | - Remaining performance obligations for contracts with an original term exceeding one year stood at **$1,094 million** as of September 30, 2023, expected to be recognized over approximately two years[29](index=29&type=chunk) [Note 6: Exit and Restructuring Costs](index=11&type=section&id=Note%206%3A%20Exit%20and%20Restructuring%20Costs) The company expanded its productivity plan and initiated a voluntary retirement plan, incurring **$82 million** in YTD restructuring charges with **$54 million** remaining liability - The company expanded its 2022 Productivity Plan and initiated a voluntary retirement plan (VRP) with an expected total cost of at least **$105 million**[37](index=37&type=chunk) Restructuring Charges (in millions) | Period | Charge | | :--- | :--- | | **Q3 2023** | $58 | | **YTD 2023** | $82 | | **Total to Date** | $94 | - As of September 30, 2023, the remaining payment obligation for restructuring was **$54 million**, expected to be settled by Q1 2024[38](index=38&type=chunk)[39](index=39&type=chunk) [Note 9: Long-Term Debt](index=15&type=section&id=Note%209%3A%20Long-Term%20Debt) Total debt increased to **$2.28 billion** as of September 30, 2023, primarily due to higher Revolving Credit Facility borrowings, with the company remaining in compliance with all covenants Debt Composition (in millions) | Debt Instrument | Sep 30, 2023 | Dec 31, 2022 | | :--- | :--- | :--- | | Term Loan A | $1,684 | $1,728 | | Revolving Credit Facility | $477 | $50 | | Receivables Financing Facilities | $119 | $254 | | **Total debt** | **$2,280** | **$2,032** | - As of September 30, 2023, the company had **$1,489 million** available for borrowing under its **$1,500 million** Revolving Credit Facility[59](index=59&type=chunk) - The company was in compliance with all debt covenants as of September 30, 2023[63](index=63&type=chunk) [Note 16: Segment Information & Geographic Data](index=21&type=section&id=Note%2016%3A%20Segment%20Information%20%26%20Geographic%20Data) Both AIT and EVM segments experienced significant Q3 2023 sales declines, with total net sales falling to **$956 million** and EMEA showing the largest regional percentage drop Net Sales by Segment (Q3 2023 vs Q3 2022, in millions) | Segment | Q3 2023 | Q3 2022 | | :--- | :--- | :--- | | AIT | $324 | $442 | | EVM | $632 | $936 | | **Total** | **$956** | **$1,378** | Net Sales by Region (Q3 2023 vs Q3 2022, in millions) | Region | Q3 2023 | Q3 2022 | % Change | | :--- | :--- | :--- | :--- | | North America | $517 | $690 | (25.1)% | | EMEA | $269 | $456 | (41.0)% | | Asia-Pacific | $106 | $158 | (32.9)% | | Latin America | $64 | $74 | (13.5)% | | **Total** | **$956** | **$1,378** | **(30.6)%** | - In Q2 2023, the advanced location technology solutions business (RFID and RTLS) was moved from the EVM segment to the AIT segment, with historical data restated for comparability[83](index=83&type=chunk)[90](index=90&type=chunk) [Management's Discussion and Analysis of Financial Condition and Results of Operations](index=22&type=section&id=Item%202.%20Management's%20Discussion%20and%20Analysis%20of%20Financial%20Condition%20and%20Results%20of%20Operations) Management attributes the **30.6%** Q3 2023 net sales decline to demand moderation and inventory reduction, leading to a **$12 million** operating loss, while implementing cost-saving measures for **$100 million** annualized savings [Overview](index=23&type=section&id=Overview) Q3 2023 net sales dropped to **$956 million**, resulting in a **$15 million** net loss due to demand decline and inventory reduction, prompting expanded restructuring plans for **$100 million** annualized savings Q3 2023 Financial Summary (in millions, except EPS) | Metric | Q3 2023 | Q3 2022 | | :--- | :--- | :--- | | Net sales | $956 | $1,378 | | Operating loss | $(12) | $202 (income) | | Net loss | $(15) | $170 (income) | | Diluted EPS | $(0.28) | $3.26 | - The company attributes the decline in demand to customers absorbing significant capacity built out in recent years and tighter capital spending budgets, as well as distributors reducing inventory levels[95](index=95&type=chunk) - Restructuring programs are expected to cost at least **$105 million**, impact over **7%** of the global employee base, and result in approximately **$100 million** of annualized net cost savings[96](index=96&type=chunk) [Results of Operations](index=24&type=section&id=Results%20of%20Operations) Consolidated net sales for Q3 2023 fell **30.6%** to **$956 million**, with gross margin slightly decreasing to **44.7%** and an operating loss of **$12 million** due to restructuring costs Consolidated Organic Net Sales Decline | Period | Reported GAAP Decline | Impact of Forex | Impact of Acquisitions | Organic Decline | | :--- | :--- | :--- | :--- | :--- | | **Q3 2023** | (30.6)% | 1.0% | 0.0% | (29.6)% | | **YTD 2023** | (16.4)% | 2.0% | (0.7)% | (15.1)% | - Q3 2023 gross margin decreased by **90 bps** to **44.7%**, as benefits from lower freight and component costs were more than offset by volume deleveraging[101](index=101&type=chunk)[102](index=102&type=chunk) - Q3 2023 operating expenses were higher than the prior year primarily due to **$58 million** in exit and restructuring costs[103](index=103&type=chunk) [Results of Operations by Segment](index=26&type=section&id=Results%20of%20Operations%20by%20Segment) Both AIT and EVM segments saw significant Q3 2023 sales declines, with AIT net sales falling **26.7%** and EVM net sales dropping **32.5%**, impacted by lower product sales and volume deleveraging AIT Segment Performance (Q3 2023 vs Q3 2022, in millions) | Metric | Q3 2023 | Q3 2022 | % Change | | :--- | :--- | :--- | :--- | | Net Sales | $324 | $442 | (26.7)% | | Gross Profit | $145 | $193 | (24.9)% | | Operating Income | $44 | $85 | (48.2)% | EVM Segment Performance (Q3 2023 vs Q3 2022, in millions) | Metric | Q3 2023 | Q3 2022 | % Change | | :--- | :--- | :--- | :--- | | Net Sales | $632 | $936 | (32.5)% | | Gross Profit | $282 | $435 | (35.2)% | | Operating Income | $30 | $159 | (81.1)% | [Liquidity and Capital Resources](index=29&type=section&id=Liquidity%20and%20Capital%20Resources) Cash used in operating activities was **$145 million** for the first nine months of 2023, a **$366 million** decrease, with total debt increasing to **$2.28 billion** and **$893 million** remaining for share repurchases - Net cash used in operating activities was **$145 million** for the nine months ended Sep 30, 2023, a decrease of **$366 million** from the same period in 2022, primarily due to higher cash payments for inventory, taxes, interest, the Settlement, and restructuring actions[127](index=127&type=chunk)[128](index=128&type=chunk) - During the first nine months of 2023, the Company repurchased **194,319 shares** of common stock for approximately **$52 million**[140](index=140&type=chunk) - As of September 30, 2023, **$893 million** remained available for share repurchases under the authorized plans[140](index=140&type=chunk) [Quantitative and Qualitative Disclosures About Market Risk](index=32&type=section&id=Item%203.%20Quantitative%20and%20Qualitative%20Disclosures%20About%20Market%20Risk) The company reported no material changes in its market risk, including foreign currency exchange rates and interest rates, during the quarter ended September 30, 2023 - There were no material changes in the Company's market risk during the quarter ended September 30, 2023[147](index=147&type=chunk) [Controls and Procedures](index=32&type=section&id=Item%204.%20Controls%20and%20Procedures) Management assessed the company's disclosure controls and procedures as effective as of September 30, 2023, with no material changes to internal control over financial reporting during the quarter - Management believes that, as of September 30, 2023, the company's disclosure controls were effective[148](index=148&type=chunk) - During the quarter ended September 30, 2023, there have been no changes in internal controls that have materially affected, or are reasonably likely to materially affect, internal control over financial reporting[149](index=149&type=chunk) PART II - OTHER INFORMATION [Legal Proceedings](index=34&type=section&id=Item%201.%20Legal%20Proceedings) The company is subject to various legal proceedings, with management not expecting a material adverse impact, and the final **$90 million** patent litigation settlement payments due by Q1 2024 - The company is subject to various legal proceedings but does not expect them to have a material adverse impact on its business, financial position, or results of operations[69](index=69&type=chunk)[151](index=151&type=chunk) - The remaining two quarterly payments of **$45 million** each for the 2022 patent litigation settlement will be paid by the first quarter of 2024[70](index=70&type=chunk) [Risk Factors](index=34&type=section&id=Item%201A.%20Risk%20Factors) No material changes to risk factors were reported, but expanded descriptions highlight cybersecurity, reliance on third-party distributors, dependence on suppliers, and economic condition impacts - The company highlights the risk of cybersecurity incidents, noting that while no material incidents have occurred to-date, a breach could disrupt business, damage reputation, and lead to financial obligations[152](index=152&type=chunk)[153](index=153&type=chunk)[154](index=154&type=chunk) - The company relies on third-party dealers, distributors, and resellers, and their failure to effectively market products or their own financial instability could negatively impact results[155](index=155&type=chunk)[156](index=156&type=chunk)[157](index=157&type=chunk) - The ability to source sufficient materials, parts, and components, some from sole suppliers, is a key risk, as shortages, price increases, or supplier disruptions could negatively impact operations and financial results[158](index=158&type=chunk) [Unregistered Sales of Equity Securities and Use of Proceeds](index=35&type=section&id=Item%202.%20Unregistered%20Sales%20of%20Equity%20Securities%20and%20Use%20of%20Proceeds) The company did not repurchase any common stock during Q3 2023, with **$893 million** remaining authorized for future share repurchases Share Repurchases (Q3 2023) | Period | Total Number of Shares Purchased | Average Price Paid per Share | | :--- | :--- | :--- | | July 2, 2023 - Sep 30, 2023 | 0 | $0.00 | - As of September 30, 2023, the remaining amount of share repurchases authorized under the plans was **$893 million**[161](index=161&type=chunk) [Other Information](index=36&type=section&id=Item%205.%20Other%20Information) No director or executive officer adopted or terminated a Rule 10b5-1 trading arrangement during the third quarter of 2023 - No director or executive officer adopted or terminated a Rule 10b5-1 trading arrangement during the third quarter of 2023[162](index=162&type=chunk) [Exhibits](index=37&type=section&id=Item%206.%20Exhibits) This section lists the exhibits filed with the Form 10-Q, including officer certifications and financial data in Inline XBRL format

IIII III USPS FIRST-CLASS IIIIIIIIIII IMODIAN A.zERRA zebra technologies This presentation contains certain Non-GAAP financial measures, consisting of "adjusted net sales," "adjusted gross profit," "adjusted gross margin," "EBITDA," "Adjusted EBITDA," "Adjusted EBITDA margin," "Adjusted EBITDA % of adjusted net sales," "non-GAAP net income," "nonGAAP earnings per share," "non-GAAP diluted earnings per share," "free cash flow," "organic net sales," "organic net sales growth (decline)," and "adjusted operatin ...

Financial Data and Key Metrics Changes - In Q2, net sales decreased by 17.3%, with an organic decline of 16% [26] - Adjusted EBITDA margin was 21.2%, a decrease of 70 basis points year-over-year [51] - Non-GAAP diluted earnings per share fell by 29% to $3.29 [51] - The company expects Q3 sales to decline between 30% and 35% compared to the prior year [1] - Full-year sales outlook has been reduced to a decline of 20% to 23% [2] - Free cash flow is expected to be positive in the second half but negative for the year due to lower sales and earnings expectations [3] Business Line Data and Key Metrics Changes - The Asset Intelligence and Tracking segment was flat, with growth in RFID and supplies offset by a decline in printing [26] - The Enterprise Visibility & Mobility segment saw a decline of 23.6%, primarily due to a sharp drop in mobile computing [50] - Growth in data capture solutions partially offset the decline in mobile computing [50] Market Data and Key Metrics Changes - North America sales decreased by 11%, EMEA sales declined by 24%, Asia-Pacific sales decreased by 17%, and Latin America sales fell by 6% [37] - Demand was weakest in retail, e-commerce, and transportation logistics, with distributors focusing on reducing inventory levels [23] Company Strategy and Development Direction - The company is focused on advancing its Enterprise Asset Intelligence vision and positioning itself as a premier solutions provider [18] - Investments in machine vision and RFID solutions are expected to drive long-term growth [6][8] - The company is implementing cost reduction initiatives to align its cost structure with long-term business trajectories [15][48] Management's Comments on Operating Environment and Future Outlook - Management noted significant uncertainty in the demand environment and cautious customer spending behavior [22] - The company does not expect a recovery in 2023 and anticipates a reset of its cost structure [54] - Management believes that while sales are pressured near-term, the long-term value proposition remains strong [57] Other Important Information - The company incurred $5 million in premium supply chain costs compared to pre-pandemic levels, which are expected to be fully mitigated entering Q3 [55] - The company is focused on achieving 100% cash conversion over a cycle as part of its long-term incentive compensation plan [16] Q&A Session All Questions and Answers Question: Can you elaborate on the reset of the trajectory for e-commerce? - Management indicated that the reset is widespread, affecting various customers who are absorbing capacity built during the pandemic [60][63] Question: What is the outlook for the fourth quarter? - Management expects an uptick in Q4 revenue due to reduced destocking by distributors, but overall demand remains uncertain [66] Question: What are the biggest drivers of the recent demand decline? - The decline is driven by cautious spending behavior across all end markets, particularly in retail and e-commerce [71][72] Question: How is the machine vision segment performing? - The machine vision business is performing well, with growth opportunities in electric vehicles and pharmaceuticals despite short-term semiconductor challenges [112] Question: What is the expected full-year pricing benefit? - The company expects a full-year pricing benefit of around 2 points, slightly higher than previous guidance [104]

Financial Performance - Zebra's Q1 2023 net sales were $1405 million, a decrease of 1.9% compared to $1432 million in Q1 2022[9] - Organic net sales decreased by 0.3%[5] - Non-GAAP diluted EPS was $3.94, a decrease of 1.7% year-over-year[5] - Adjusted EBITDA was $301 million, an increase of 5.6% compared to $285 million in the same period last year[54] - Adjusted EBITDA margin was 21.4%, an increase of 150 basis points year-over-year[16] - Adjusted gross profit was $668 million, an increase of 4.7%[28] - Adjusted gross margin was 47.5%[30] Regional Performance - EMEA sales decreased by 4%[12] - Asia Pacific sales increased by 6%[13] - Latin America sales decreased by 1%[14] - North America sales increased by 1%[26] Segment Performance - EVM (Enterprise Visibility & Mobility) segment organic sales decreased by 11.2%[24] - AIT (Asset Intelligence & Tracking) segment organic sales increased by 28.4%[25] Outlook - The company expects a net sales decline between 2% and 6% year-over-year for Q2 2023[40] - The company expects adjusted EBITDA margin of approximately 22% for Q2 2023[40]

Company Participants Tommy Moll - Stephens Damian Karas - UBS Jim Ricchiuti - Needham & Company Keith Housum - Northcoast Research Joe Giordano - TD Cowen Meta Marshall - Morgan Stanley Rob Mason - Baird Blake Keating - William Blair Guy Hardwick - Credit Suisse And at this time, I would now like to turn the conference over to Mike Steele, Vice President of Investor Relations. Please go ahead. During this call, we will reference non-GAAP financial measures as we describe our business performance. You can fi ...

Financial Data and Key Metrics Changes - For Q4 2022, Zebra Technologies reported a sales growth of approximately 4% and an adjusted EBITDA margin of 22.5%, which is an 80-basis-point increase year-over-year [7][13] - Non-GAAP diluted earnings per share increased by 5% to $4.75 compared to the prior year, with strong free cash flow generation [7][13] - Adjusted gross margin decreased by 10 basis points to 45.6%, while adjusted operating expenses improved by 100 basis points as a percentage of sales [13] Business Line Data and Key Metrics Changes - The Asset Intelligence and Tracking segment saw a 13.5% increase in sales, driven by double-digit growth in printing [11] - The Enterprise Visibility and Mobility segment's sales were approximately flat, with strong growth in data capture solutions and rugged tablets, while mobile computing sales declined [11] - Services and software also experienced growth with strong service attach rates [11] Market Data and Key Metrics Changes - North America sales increased by 11%, while EMEA sales declined by 7% due to the suspension of sales into Russia and lower sales to large customers in Northern Europe [12] - Asia-Pacific sales grew by 3%, with notable strength in Japan and growth in China despite COVID challenges [12] - Latin America sales increased by 7%, driven by strong growth in Brazil and Mexico [12] Company Strategy and Development Direction - The company is focused on advancing its Enterprise Asset Intelligence vision, emphasizing the importance of digitizing and automating workflows [21][24] - Zebra aims to leverage mega trends such as the on-demand economy, asset visibility, mobility, and intelligent automation to drive growth [24] - The company is well-positioned to deliver 5% to 7% organic growth over a cycle, with an increasing attractive margin profile [25] Management's Comments on Operating Environment and Future Outlook - Management noted cautious spending behavior from large customers but solid demand from small to midsized orders [8] - The outlook for Q1 2023 anticipates a sales decline of 4% to 1%, with expectations of negative 1% organic growth [17][18] - For the full year 2023, net sales are expected to decline by 3% to grow by 1%, with an adjusted EBITDA margin between 22% and 23% [18] Other Important Information - The company generated $413 million in free cash flow in 2022, with a significant reduction in premium supply chain costs expected in 2023 [14][19] - Zebra invested approximately $880 million in the Matrox Imaging acquisition to expand its machine vision solutions offering [15] Q&A Session Summary Question: Impact of inventory channel destocking on sales outlook - Management indicated that global channel inventory levels are healthy, with solid sell-through signals, and inventory levels normalized compared to pre-pandemic [31] Question: Margin trajectory and premium supply chain costs - Management explained that the adjusted EBITDA guidance reflects improvements from supply chain costs, offset by foreign exchange headwinds [32][33] Question: Outlook for projects business in 2023 - Management noted mixed signals with elongated sales cycles and some softening of demand, but a strong backlog and healthy pipeline for projects [35][36] Question: Changes in demand across geographic regions - Management acknowledged some anomalies due to the exit from Russia and COVID impacts in China, but overall no major shifts in revenue structure [39] Question: Trends in gross margin versus operating expenses - Management expects gross margin to increase throughout the year due to supply chain improvements, while operating expenses are anticipated to remain flat [41][42] Question: RFID market contribution and growth opportunities - Management highlighted that RFID is a low single-digit contributor currently, but significant growth opportunities exist across various sectors [43][44] Question: Customer spending adaptations and deal delays - Management noted that customers are adapting their spending to budgets, leading to delays in deployment schedules rather than downsizing deals [49] Question: Supply chain recovery timeline - Management indicated that most components have returned to reasonable lead times, with significant improvements expected in the first quarter [50][51] Question: Changes in deal sizes and Matrox integration - Management confirmed no significant downsizing of deals, and the integration of Matrox is progressing well with promising opportunities in machine vision [54][55] Question: Trends in different verticals for 2023 - Management observed strong secular trends across verticals, with manufacturing showing significant growth and health care expected to remain resilient [70][78]

Part I [Business](index=5&type=section&id=Item%201.%20Business) Zebra Technologies is a global leader in Enterprise Asset Intelligence solutions, operating through AIT and EVM segments, providing a wide range of products and services to diverse industries - The company operates through two reportable segments: Asset Intelligence & Tracking (AIT), focusing on barcode/card printing and supplies, and Enterprise Visibility & Mobility (EVM), which includes mobile computing, data capture, RFID, and workflow optimization solutions[26](index=26&type=chunk) - Zebra has made several strategic acquisitions to expand its portfolio, including Matrox (machine vision), Antuit (demand-sensing software), Fetch (autonomous mobile robots), Adaptive Vision (machine vision software), and Reflexis (workforce management software); all acquired entities' results are included in the EVM segment[20](index=20&type=chunk)[21](index=21&type=chunk)[22](index=22&type=chunk) Research and Development Expenditures (2020-2022) | Year | R&D Expense (in millions) | % of Net Sales | | :--- | :--- | :--- | | 2022 | 570 | 9.9% | | 2021 | 567 | 10.1% | | 2020 | 453 | 10.2% | Net Sales to Significant Customers (% of Total Net Sales) | Customer | 2022 | 2021 | 2020 | | :--- | :--- | :--- | :--- | | Customer A | 20.7% | 22.3% | 20.7% | | Customer B | 15.0% | 13.6% | 13.9% | | Customer C | 12.8% | 12.6% | 17.7% | - As of December 31, 2022, the company had approximately **10,500 employees** globally and held approximately **6,500 patents** and patent applications worldwide[62](index=62&type=chunk)[68](index=68&type=chunk) [Risk Factors](index=14&type=section&id=Item%201A.%20Risk%20Factors) The company identifies various risks across general business, operational, financial, and legal/regulatory categories that could materially affect its operations - General business risks include managing increased business complexity from growth, challenges in identifying and integrating future acquisitions, adapting to rapid technological changes, and intense industry competition[76](index=76&type=chunk)[78](index=78&type=chunk)[81](index=81&type=chunk) - Operational risks are significant due to substantial non-U.S. operations and supply chains, particularly in China, alongside exposures to intellectual property infringement claims, cybersecurity incidents, reliance on third-party operating systems like Android, and disruptions from natural disasters or public health issues like COVID-19[86](index=86&type=chunk)[89](index=89&type=chunk)[93](index=93&type=chunk) - Financial and market risks include the adverse impact of changes in customs duties and trade policies, challenges from tax authorities, complexities in forecasting the effective tax rate, and potential disruptions from adverse economic conditions[118](index=118&type=chunk)[119](index=119&type=chunk)[122](index=122&type=chunk) - Legal and regulatory risks involve potential costs and fines from laws handling personal data, unfavorable outcomes of litigation, and compliance with a wide range of product safety, consumer, and environmental laws, including those related to ESG matters[129](index=129&type=chunk)[131](index=131&type=chunk)[132](index=132&type=chunk) [Unresolved Staff Comments](index=24&type=section&id=Item%201B.%20Unresolved%20Staff%20Comments) The company reports that there are no unresolved staff comments - None[138](index=138&type=chunk) [Properties](index=24&type=section&id=Item%202.%20Properties) The company's corporate headquarters is in Lincolnshire, Illinois, with three owned facilities and 117 leased facilities globally as of December 31, 2022, deemed adequate for current requirements - As of December 31, 2022, the Company owned three facilities and leased a total of **117 facilities** globally[140](index=140&type=chunk) [Legal Proceedings](index=24&type=section&id=Item%203.%20Legal%20Proceedings) In June 2022, Zebra and Honeywell resolved all patent infringement disputes through a License and Settlement Agreement, with Zebra agreeing to pay Honeywell **$360 million** for past damages - In June 2022, Zebra and Honeywell resolved their patent infringement disputes, with Zebra agreeing to pay Honeywell **$360 million** for past damages, payable in eight equal quarterly installments[142](index=142&type=chunk) - The settlement included a mutual general release from all past claims, a covenant not to sue for patent infringement, and a royalty-free cross-license for each party's existing patent portfolio for the life of the patents[142](index=142&type=chunk) [Mine Safety Disclosures](index=24&type=section&id=Item%204.%20Mine%20Safety%20Disclosures) This item is not applicable to the company - Not applicable[144](index=144&type=chunk) Part II [Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities](index=25&type=section&id=Item%205.%20Market%20for%20Registrant's%20Common%20Equity%2C%20Related%20Stockholder%20Matters%20and%20Issuer%20Purchases%20of%20Equity%20Securities) Zebra's Class A Common Stock trades on NASDAQ under 'ZBRA', with no cash dividends paid since its 1991 IPO, and a new **$1 billion** share repurchase program authorized in May 2022 - The company has not paid cash dividends since its initial public offering in 1991 and does not anticipate doing so in the foreseeable future[147](index=147&type=chunk) Share Repurchases (Q4 2022) | Period | Total Shares Purchased | Average Price Paid per Share | | :--- | :--- | :--- | | Oct 2 - Oct 29, 2022 | 187,024 | $267.33 | | Oct 30 - Nov 26, 2022 | 12 | $282.67 | | Nov 27 - Dec 31, 2022 | 187,629 | $250.50 | | **Total** | **374,665** | **$258.90** | - As of December 31, 2022, **$945 million** remained available for future share repurchases under the authorized programs[149](index=149&type=chunk) [Reserved](index=27&type=section&id=Item%206.%20%5BReserved%5D) This item is reserved and contains no information [Management's Discussion and Analysis of Financial Condition and Results of Operations](index=28&type=section&id=Item%207.%20Management's%20Discussion%20and%20Analysis%20of%20Financial%20Condition%20and%20Results%20of%20Operations) In fiscal year 2022, Zebra's net sales grew 2.7% to **$5.78 billion**, but operating income fell 46.0% to **$529 million** due to a **$372 million** legal settlement charge, with operating cash flow decreasing significantly to **$488 million** [Overview](index=28&type=section&id=Overview) Zebra maintained market leadership in 2022, making strategic investments like the **$881 million** Matrox acquisition, while navigating supply chain disruptions, macroeconomic challenges, and a **$372 million** legal settlement charge 2022 Financial Highlights | Metric | 2022 (in millions) | 2021 (in millions) | | :--- | :--- | :--- | | Net Sales | 5,781 | 5,627 | | Operating Income | 529 | 979 | | Net Income | 463 | 837 | | Diluted EPS | $8.80 | $15.52 | | Operating Cash Flow | 488 | 1,069 | - In June 2022, the company acquired Matrox Electronic Systems Ltd. for **$881 million** in cash, significantly expanding its machine vision products and software offerings within the EVM segment[158](index=158&type=chunk) - A legal settlement resulted in a **$372 million** pre-tax charge in 2022, inclusive of **$12 million** in legal fees, with the **$360 million** settlement amount being paid in eight quarterly installments[165](index=165&type=chunk) [Results of Operations](index=30&type=section&id=Results%20of%20Operations) For 2022, total net sales increased 2.7% to **$5.78 billion**, but gross margin decreased to 45.4%, and operating income fell 46.0% to **$529 million** due to a **$372 million** legal settlement and higher operating expenses Consolidated Results of Operations (2022 vs. 2021) | Metric | 2022 (in millions) | 2021 (in millions) | % Change | | :--- | :--- | :--- | :--- | | Total Net Sales | 5,781 | 5,627 | 2.7% | | Gross Profit | 2,624 | 2,628 | (0.2)% | | Gross Margin | 45.4% | 46.7% | (130) bps | | Operating Income | 529 | 979 | (46.0)% | - Consolidated Organic Net Sales, a non-GAAP measure excluding currency and acquisition impacts, grew by **3.2%** in 2022[168](index=168&type=chunk)[170](index=170&type=chunk) - The AIT segment's net sales increased **4.8%** to **$1.74 billion**, with organic growth of **6.7%**, while operating income decreased **5.8%** due to lower gross margin and higher operating expenses[176](index=176&type=chunk)[178](index=178&type=chunk)[179](index=179&type=chunk) - The EVM segment's net sales increased **1.7%** to **$4.05 billion**, with organic growth of **1.7%**, and operating income decreased **5.1%** primarily due to higher operating expenses[180](index=180&type=chunk)[181](index=181&type=chunk)[183](index=183&type=chunk) [Liquidity and Capital Resources](index=35&type=section&id=Liquidity%20and%20Capital%20Resources) The company's liquidity was impacted by lower operating cash flow, which decreased to **$488 million** in 2022, primarily due to higher inventory and legal settlement payments, while total debt increased to **$2.03 billion** following credit facility refinancing Cash Flow Summary (in millions) | Activity | 2022 | 2021 | | :--- | :--- | :--- | | Net cash from Operating | 488 | 1,069 | | Net cash used in Investing | (968) | (546) | | Net cash from (used in) Financing | 253 | (371) | - Total debt increased to **$2.03 billion** as of December 31, 2022, from **$996 million** a year prior, following the refinancing of credit facilities in May 2022, which increased Term Loan A to **$1.75 billion** and Revolving Credit Facility capacity to **$1.5 billion**[185](index=185&type=chunk)[339](index=339&type=chunk) - The company repurchased **$751 million** of its common stock during 2022, with **$945 million** remaining authorized for future repurchases as of year-end[195](index=195&type=chunk) [Critical Accounting Estimates](index=37&type=section&id=Critical%20Accounting%20Estimates) Management identifies critical accounting estimates requiring significant judgment, including income taxes, business acquisitions, goodwill impairment testing, and revenue recognition - Key estimates include income tax provisions, fair value allocation for business acquisitions (like the recent Matrox purchase), annual goodwill impairment testing, and revenue recognition for contracts with multiple elements[199](index=199&type=chunk) - The annual goodwill impairment test, completed in Q4 2022, indicated that the fair values of all reporting units significantly exceed their carrying values[202](index=202&type=chunk) [Quantitative and Qualitative Disclosures About Market Risk](index=39&type=section&id=Item%207A.%20Quantitative%20and%20Qualitative%20Disclosures%20About%20Market%20Risk) The company is primarily exposed to interest rate risk on its **$2.0 billion** variable-rate debt, managed with interest rate swaps, and foreign currency risk from international operations, managed with derivative instruments - The company is exposed to interest rate volatility on its **$2.0 billion** of variable-rate debt, where a one percentage point change in interest rates would impact annual interest expense by approximately **$12 million**, including the effect of interest rate swaps[210](index=210&type=chunk) - Primary foreign currency exposures are to the Euro, British Pound Sterling, and Czech Koruna, where a one percentage point change in exchange rates relative to the U.S. Dollar would impact pre-tax income by approximately **$2 million**, inclusive of derivative contracts[212](index=212&type=chunk) [Financial Statements and Supplementary Data](index=40&type=section&id=Item%208.%20Financial%20Statements%20and%20Supplementary%20Data) This section presents the company's audited consolidated financial statements for the fiscal year ended December 31, 2022, along with the independent auditor's report and detailed notes [Consolidated Financial Statements](index=41&type=section&id=Consolidated%20Financial%20Statements) The consolidated financial statements show total assets of **$7.53 billion** and total liabilities of **$4.80 billion** as of December 31, 2022, with net sales of **$5.78 billion** and net income of **$463 million** for the year Consolidated Balance Sheet Data (in millions) | Account | Dec 31, 2022 | Dec 31, 2021 | | :--- | :--- | :--- | | Total Current Assets | 1,883 | 1,689 | | Total Assets | 7,529 | 6,215 | | Total Current Liabilities | 2,332 | 1,800 | | Total Liabilities | 4,796 | 3,231 | | Total Stockholders' Equity | 2,733 | 2,984 | Consolidated Statement of Operations Data (in millions) | Account | 2022 | 2021 | 2020 | | :--- | :--- | :--- | :--- | | Total Net Sales | 5,781 | 5,627 | 4,448 | | Gross Profit | 2,624 | 2,628 | 2,003 | | Operating Income | 529 | 979 | 651 | | Net Income | 463 | 837 | 504 | | Diluted EPS | $8.80 | $15.52 | $9.35 | [Notes to Consolidated Financial Statements](index=48&type=section&id=Notes%20to%20Consolidated%20Financial%20Statements) The notes provide detailed disclosures on accounting policies, including revenue recognition, the **$881 million** Matrox acquisition, goodwill, debt structure, lease obligations, share-based compensation, income taxes, and segment performance - Note 5 details the acquisition of Matrox for **$881 million**, which resulted in **$640 million** of goodwill and **$297 million** of identifiable intangible assets, primarily allocated to the EVM segment[286](index=286&type=chunk)[290](index=290&type=chunk)[291](index=291&type=chunk) - Note 12 outlines the company's debt, which totaled **$2.03 billion** at year-end 2022, including a **$1.73 billion** Term Loan A and **$50 million** drawn on the Revolving Credit Facility[337](index=337&type=chunk) - Note 16 shows the company's effective tax rate was **14.9%** in 2022, lower than the U.S. statutory rate of **21%** primarily due to lower tax rates in foreign jurisdictions and tax credits[375](index=375&type=chunk)[376](index=376&type=chunk) - Note 20 provides segment results, showing AIT operating income of **$360 million** on **$1.74 billion** in sales, and EVM operating income of **$712 million** on **$4.05 billion** in sales for 2022[402](index=402&type=chunk) [Changes in and Disagreements with Accountants on Accounting and Financial Disclosure](index=77&type=section&id=Item%209.%20Changes%20in%20and%20Disagreements%20with%20Accountants%20on%20Accounting%20and%20Financial%20Disclosure) The company reports no changes in or disagreements with its accountants on accounting and financial disclosure - None[408](index=408&type=chunk) [Controls and Procedures](index=77&type=section&id=Item%209A.%20Controls%20and%20Procedures) Management concluded that the company's disclosure controls and procedures and internal control over financial reporting were effective as of December 31, 2022, excluding the recently acquired Matrox Electronic Systems Ltd - The CEO and CFO concluded that the company's disclosure controls and procedures were effective as of December 31, 2022[409](index=409&type=chunk) - Management concluded that the company's internal control over financial reporting was effective as of December 31, 2022, with this assessment excluding the recently acquired Matrox Electronic Systems Ltd[410](index=410&type=chunk)[411](index=411&type=chunk) - There were no material changes in the company's internal control over financial reporting during the fourth quarter of 2022[413](index=413&type=chunk) [Other Information](index=79&type=section&id=Item%209B.%20Other%20Information) This item is not applicable - Not applicable[425](index=425&type=chunk) [Disclosure Regarding Foreign Jurisdictions that Prevent Inspections](index=79&type=section&id=Item%209C.%20Disclosure%20Regarding%20Foreign%20Jurisdictions%20that%20Prevent%20Inspections) This item is not applicable - Not applicable[426](index=426&type=chunk) Part III [Directors, Executive Officers and Corporate Governance](index=80&type=section&id=Item%2010.%20Directors%2C%20Executive%20Officers%20and%20Corporate%20Governance) Information for this item is incorporated by reference from the company's definitive proxy statement for its 2023 Annual Meeting of Stockholders - Information for this item is incorporated by reference from the company's definitive proxy statement[429](index=429&type=chunk) [Executive Compensation](index=80&type=section&id=Item%2011.%20Executive%20Compensation) Information for this item is incorporated by reference from the company's definitive proxy statement for its 2023 Annual Meeting of Stockholders - Information for this item is incorporated by reference from the company's definitive proxy statement[429](index=429&type=chunk) [Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters](index=80&type=section&id=Item%2012.%20Security%20Ownership%20of%20Certain%20Beneficial%20Owners%20and%20Management%20and%20Related%20Stockholder%20Matters) Information for this item is incorporated by reference from the company's definitive proxy statement for its 2023 Annual Meeting of Stockholders - Information for this item is incorporated by reference from the company's definitive proxy statement[430](index=430&type=chunk) [Certain Relationships and Related Transactions, and Director Independence](index=80&type=section&id=Item%2013.%20Certain%20Relationships%20and%20Related%20Transactions%2C%20and%20Director%20Independence) Information for this item is incorporated by reference from the company's definitive proxy statement for its 2023 Annual Meeting of Stockholders - Information for this item is incorporated by reference from the company's definitive proxy statement[430](index=430&type=chunk) [Principal Accounting Fees and Services](index=80&type=section&id=Item%2014.%20Principal%20Accounting%20Fees%20and%20Services) Information for this item is incorporated by reference from the company's definitive proxy statement for its 2023 Annual Meeting of Stockholders - Information for this item is incorporated by reference from the company's definitive proxy statement[431](index=431&type=chunk) Part IV [Exhibits and Financial Statement Schedules](index=81&type=section&id=Item%2015.%20Exhibits%20and%20Financial%20Statement%20Schedules) This section lists the financial statements, financial statement schedules, and exhibits filed as part of the Form 10-K, with schedules omitted as information is included in the Notes to Consolidated Financial Statements - This section provides an index to the consolidated financial statements and notes included in the report[432](index=432&type=chunk) - Financial statement schedules are omitted because the required information is already present in the Notes to Consolidated Financial Statements[433](index=433&type=chunk) [Form 10-K Summary](index=84&type=section&id=Item%2016.%20Form%2010-K%20Summary) The company has not provided a summary for its Form 10-K - None[438](index=438&type=chunk)