Zebra(ZBRA) - 2022 Q2 - Earnings Call Transcript

Financial Data and Key Metrics Changes - In Q2 2022, Zebra Technologies reported nearly 7% sales growth, adjusted EBITDA margin of 21.9%, a decrease of 170 basis points, and non-GAAP diluted earnings per share of $4.61, a 1% increase from the prior year [7][15][23] - Adjusted net sales increased 6.4%, with organic growth at 6.9% due to better supply of certain products [11] - Adjusted gross margin declined 200 basis points to 46% due to higher supply chain costs [14] Business Line Data and Key Metrics Changes - The Asset Intelligence & Tracking segment, including printing and supplies, increased 9.7%, driven by a strong recovery in printing [12] - The Enterprise Visibility & Mobility segment sales increased 5.6%, with notable growth in RFID solutions and ruggedized tablets [12][13] - Health care, manufacturing, and retail and e-commerce end markets grew faster than the corporate average [9] Market Data and Key Metrics Changes - EMEA sales increased 17%, Asia Pacific sales grew 14%, and Latin America sales increased 16%, while North America saw a slight decline of 2% [13][14] - The company experienced double-digit sales growth in EMEA, Asia Pacific, and Latin America, with a slight decline in North America due to strong prior year comparisons [8] Company Strategy and Development Direction - Zebra Technologies is focused on advancing its Enterprise Asset Intelligence vision and has established a global strategic alliance with Accenture to address operational challenges in retail and other markets [30][38] - The company is actively investing in growth initiatives while managing supply chain challenges and optimizing capital structure [10][17][26] Management's Comments on Operating Environment and Future Outlook - Management expressed confidence in strong customer demand and the ability to navigate supply chain challenges, with expectations for improved profitability in the second half of the year [26][24] - The company anticipates Q3 sales growth to be limited to 2% to 4% due to strategic decisions to reduce expedited shipping costs [21][95] - Full-year 2022 sales growth is reaffirmed at 4% to 6%, with expectations for adjusted EBITDA margin around 22% [23][24] Other Important Information - Zebra Technologies generated $123 million of free cash flow in the first half of 2022, lower than the previous year due to increased working capital usage [16] - The company entered a settlement agreement resulting in a $372 million one-time non-GAAP charge, to be paid over eight quarterly installments [15][86] Q&A Session Summary Question: Discussion on omni-channel and e-commerce end markets - Management noted strong growth in retail and e-commerce, with continued investments in technology and automation despite some customers pulling back [48][50] Question: Margin outlook and drivers - Management indicated that Q3 adjusted EBITDA margin is expected to be around 22%, with improvements driven by volume leverage and pricing benefits [54][56] Question: Regional growth drivers - Management highlighted strong digital transformation trends across all regions, with specific strengths in EMEA and Asia Pacific [70][71] Question: Capital allocation and M&A - Management confirmed no changes in capital allocation priorities, focusing on both organic and inorganic investments [75] Question: Visibility into lead times and market challenges - Management stated they have good visibility into customer expectations and a record backlog, indicating strong demand [82] Question: Impact of the Honeywell settlement - Management confirmed the settlement will not impact future competitive dynamics, as it includes a royalty-free cross-license agreement [86] Question: RFID business growth - Management reported double-digit growth in RFID, with expanding applications across various sectors [110]