Zebra(US:ZBRA)2023-10-31 16:41Financial 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]