Zebra(ZBRA) - 2022 Q4 - Earnings Call Transcript

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]