Zebra Technologies Aktie

Okay. We can go ahead and get started. Welcome to the Zebra Technologies presentation. I'm Brian Drab, the industrial technology analyst at William Blair. And of course, I first have to tell you that you can find a full list of research disclosures on our website, williamblair.com. So today, we're happy to have with us CFO, Nathan Winters and also Vice President of Investor Relations, Mike Steele. Thank you both for being with us today.

I'm sure most of you are familiar with Zebra. I'll just say a couple of words, but this company for a long time has been the leader in barcode manufacturing -- barcode printer manufacturing, RFID components and that whole range of supplies for that industry, mobile computers. The company enables frontline workers and the mobile workforce across, I think, about 80% of the S&P 500 companies, and has a leading global market share and has in most of these areas or all of these areas for a long time. But I will get out of the way and turn it over to Nate. We do have a breakout session as well. I think it's in the Adler room upstairs. So we'll continue the discussion there after we finish here. So Nate, over to you.

Alright. Thanks. Thank you, Brian. It's a pleasure to be here today. I hope the slide presentation will be helpful for everyone learning about the company or give an update on where we're at today. Just -- as we get started, just give a moment to absorb the safe harbor statement regarding the forward-looking statements. Any non-GAAP financial measures in the presentation will have reconciliations available on our website.

I'd like to begin just by laying out the compelling investment thesis around Zebra today. First, we're a clear market leader in mission-critical workflows across a wide industry. And as Brian mentioned, we support 80% of the Fortune 500 companies around the world in various end markets. Second, we're positioned at the center of durable long-term growth trends.

As companies continue to accelerate the need for digitization, automation across their environments, now how they leverage AI, our portfolio allows us to really help our customers enable this at the front line across many different settings in their company. Third, we're uniquely positioned to be the AI leader for the front line. And what I mean by that is our products really give assets of digital voice, give real-time visibility across their operations that can feed data models and then provide that output back to the frontline associates so they can be more effective and drive a better experience for their customers.

We have a strong and resilient financial model. Our capital-light business allows us to flex across various economic cycles, generate strong margins and free cash flow and then a disciplined allocation strategy. And if you look at the company today, we like the debt structure we have, the capital, which allows us to continue to invest in the company for long-term growth while returning capital to shareholders.

So if you look at the company, we think about really the foundational layer to intelligent operations for the frontline by again, providing that real-time visibility and better outcomes for our company or for our customers. We operate in 2 segments. The first being our connected Frontline solutions, which includes mobile computing, the most recent Elo Touch acquisition, along with the associated services and software and really think about empowering frontline workers with information and technology so they can be more effective in their jobs and provide that better experience for their customers.

Our Asset visibility and Automation segment includes printing, supplies, data capture, along with RFID and machine vision, again, giving that real-time visibility to assets across the supply chain, along with the tools so they can automate those workflows with RFID and machine vision. And together with this what we do is we can give our customers the ability to sense what's going on across their environment and analyze it, which means more and more the acceleration of AI and then act on that in real time by giving that information back to their associates and workflows.

We're the industry leader across a diverse set of end markets. Again, if you look at connected frontline, about $3 billion in revenue in 2025. Our Asset Visibility and Automation segment, around $2.5 billion last year. We operate in 180 countries around the world with about half our revenue coming from North America and significant opportunities, we believe, in regions like Asia Pacific and Latin America that have had really strong growth here over the last 12 months.

And then we work across a diverse set of end markets from retail and e-commerce, which accounts for about 40% of the company, manufacturing and our T&L verticals, which each around 20%, 25% and then health care, which is historically one of our higher growth vertical markets around high single digits of the company. And again, supporting a wide range of customers who each have unique needs for our solutions, but leverages the same underlying technologies to help solve those issues, and we'll talk more about that here in a few pages.

Just want to take a minute to highlight the key strategic priorities for the company today. First, we're focused on driving profitable growth, again, really capitalizing on those durable growth trends of automation, digitization and AI across a $35 billion served market. We believe we have ample room to continue to grow 5% to 7% organically here over the cycle while continuing to expand our margin rate and generating attractive free cash flow that we can continue to accelerate growth in the company.

Continue to build on our industry leadership through innovation, both investing in new areas of growth like machine vision and RFID, along with our core portfolio and continue to maintain that market leadership, maintain our premium in the market, and our new mobile computing platform we've rolled out over the last year is a great example of this.

Our new mobile computing platform has embedded RFID readers on the device, which really allow our customers to take advantage of those assets being tagged with an RFID tag to open up new use cases and new form factors to be able to leverage that technology. And also the computing power to not only run AI models through, but on the device. So again, opening up new use cases, better sales experience, better way to upsell if you're from a front-of-store perspective or new applications like picture proof of delivery for last-mile delivery drivers. Again, new different ways that they can leverage AI for the front ride to drive meaningful productivity that these new devices now enable our customers to execute on.

And then finally, committed to enhancing our financial strength and flexibility. And I'd say the last year, I think, is a great example of how we execute on that, investing 9% to 10% of sales in R&D to continue to grow organically and fuel that growth engine, allocating capital within that with some actions we've taken over this last year to focus that investment around RFID and machine vision.

We've added 2 assets to the portfolio over the last year. Photoneo we acquired in the first quarter of '25, giving us 3D machine vision capability as a bolt-on to our existing machine vision business. And then the photo -- then the Elo acquisition at the end of last year, which gives us capabilities in touchscreen technology, self-service kiosks, self-checkout, complementary to our mobile computing platform, what really allows us to differentiate and provide a whole suite of solutions for our front of store retail customers, health care, quick-serve restaurant and industrial settings.

And we're really excited about the progress of that acquisition and believe there's still meaningful synergies here as we move forward. As I mentioned earlier, we're really at the center of several global mega trends that's powering the underlying growth of the company, starting with the growth of e-commerce and the expected growth of e-commerce and not only the expected growth of it, but the expectation, particularly us as consumers around those experiences from an e-commerce, visibility to where that package is at on its way to your doorstep, knowing that the inventory is there when you request it, all those are absolutely critical and our products and solutions help our customers enable this.

The continuing need for automation, even as the number of warehouses is expected to grow over the next 5 to 10 years and the continuous automation in those environments, we play a critical part in that. And then obviously, the explosive growth around IoT and AI, again, both tailwinds for how our products can be used to help our customers deliver on that. But ultimately, what all this is to be doing is creating a more complex operating environment for our customers and how do they leverage each one of these technologies to provide that better experience and drive productivity.

And again, the breadth of our portfolio and being able to not only provide point solutions for every one of those, but give a balanced approach from whether it's barcode scanning, RFID, machine vision, leveraging our 10,000 partners around the globe to help with endpoint solutions or the global reach that's necessary is a real differentiator for us versus the competition.

And as I mentioned, we work across a diverse set of end markets. If you look at retail and e-commerce, again, all these have different expectations and outcomes are ultimately wanting to drive. From retail and e-commerce, it's how do they respond to that demand for shorter delivery times that all of us are expecting as well as reimagining that in-store experience and providing a better touch and customer service with the technology that's available.

And transportation and logistics is again, need for real-time visibility and driving real productivity for that last mile delivery driver. With all the packages that are being delivered, it's a huge cost, and it's a lot of time allocated to delivering packages. And again, our products help deliver that productivity that's necessary for that last mile.

In manufacturing, it's what you would expect. How do you provide more resiliency across the supply chain, which I think is ever more important with what's happened over the last 5 years, increasing production quality and output leveraging our technology. And then in health care, it's how you connect assets, patients with the care providers to better overall patient experience. And that's exactly what our technology helps enable for our customers.

And if you just look at the picture, again, at each step of the supply chain and each step of the process, our products are there enabling the benefit for our customers.

And if you look at -- we call it the life of a product, our product could touch it over 30x from the label that's being generated and the manufacturer to the machine vision inspection and doing the quality inspection down the production line to the warehouse, whether it's a ring scanner, RFID or machine vision utilized within the warehouse, that in-store experience with our mobile computer or now with Elo from a digital touchscreen and service capability to that last mile delivery and the productivity can drive.

Again, embedded within each one of these operations and an ability to go and talk to our customers about how they can link these all together to provide that overall better experience and then drive the efficiency they need for their business. And just pivoting here. If you look at our financial strategy, as you would expect, highly correlated and aligned with the overall strategy for the company.

But first, driving profitable growth, ensuring we're allocating our precious resources to the highest ROI projects and initiatives within the company, disciplined capital management, ensuring we have the right capital structure to not only protect the company, but the ability to continue to invest organically, inorganically and return capital to shareholders.

Continuously driving efficiency across our operation. Again, I think a legacy of the company that as we grow and scale, we can also accretively grow margins and ultimately advancing our vision and strategy with both inorganic and organic investments. Now if you look back over the last 5 years, I'd say, from a P&L perspective, it's been anything but a normal cycle for the business.

So coming out of COVID, obviously, incredible growth in '21 that sustained into 2022. And I think what ultimately that proved was the value of our products and solutions for our customers as everyone had to not only expand their capabilities, expand their network, put the latest generation of technologies in their hands of their workers to meet the needs of the on-demand economy, I think just overall showed the resilience and the need for our products across those environments.

But like many in '23 and '24, there was a need for our customers to absorb that capacity they had built out over that time frame across their network, and we weren't immune to that. But coming out of '23 and '24, you see sustained growth in '24, again last year and now 5% organic is our current guidance for the full year with incremental margin along the way while delivering solid free cash flow that we can continue to reinvest in the business.

And I think just -- it's obviously worth pointing out as a topic for many investors is what we're seeing from an overall memory perspective. I want to start by saying we have a track record of taking on these global supply chain challenges, whether it's been the various rounds of tariffs to semiconductor shortages back a few years ago and now memory. And the team has a playbook that they've executed with a commitment on delivering for our customers for the long term while protecting the overall profitability for the company in the shorter time frame as possible.

And the team has been actively working with our suppliers here to ensure we have the supply we need, obviously, to meet the guidance we've given for the year, but incremental volume to get to the higher end of our guidance range, which we felt very comfortable with the guidance we have there and the supply visibility we need to achieve that, along with working the actions to offset the cost increase, which we've done with a series of price increases in our mobile computing business, along with many other restructuring actions and productivity initiatives to help offset that cost within the P&L.

And again, the team is actively working with our suppliers on qualifying second, third sources of memory as well as ensuring that our portfolio is designed into the latest generation of memory chips so that as that capacity comes online later this year and is shifted to that memory type, our products are designed in there so we can take advantage of that capacity and continue to grow the business as expected.

So let me just wrap with where we started around the compelling investment thesis, which we believe in and which is why we've repurchased over $800 million of shares over the past 3 quarters, which is we're the market leader in these complex enterprise-wide workflows. We have a real opportunity ahead of us to take advantage of being the AI leader for the front line and helping our customers utilize that technology in the hands of those frontline workers in real use cases, and continuing to have a balanced capital allocation approach, investing for the long term while returning capital to shareholders. So with that, I think we have plenty of time for Q&A.

Yes, we do have plenty of time. We've got 14 minutes in this room for Q&A, and then we'll continue the discussion in the breakout room, Adler, upstairs. So Nathan, maybe you could talk a little bit more about the memory issue. This is obviously one of the main sources of concern or questions around a lot of companies, including Zebra.

Can you talk in maybe just a little bit more in specifics around the margin pressure that you're seeing near term from that? Maybe give everyone a frame of reference for where memory sits within your cost of goods and how that's changed and the timing with which we'll be able to pass through all that increase.

Yes. So you look from a cost perspective, memory is predominantly used in our mobile computing platform, so within our connected frontline segment and our Elo portfolio as well. And we've quantified the impact from the cost increase for the year as 2 points -- around $120 million headwind for the year.

And we've offset that within the year with a couple of things. One, the price increase we announced earlier this year offsets around half of that exposure, particularly as we ramp through the back half of the year and that pricing starts to flow through the P&L. And then the other half was offset with various other actions, which somewhat unrelated and actions we had taken just kind of set up as a tailwind for the year, but that was exiting our robotics business, which was $20 million, $25 million of annual benefit just from the costs associated with that portfolio.

FX was a tailwind for the year. Tariffs was a net tailwind for the year as we had fully mitigated that exposure coming into 2026. And then the volume leverage we have on the growth. So I think you had this kind of about half offset with unrelated operational actions. We feel very good about that. You see the benefit of that really flowing through our Q1 results. So our Q1 results were at 23% EBITDA rate, we guided 22% for the full year. So a lot of those we've already seen in the P&L now being utilized to offset the memory headwind.

And so far, we're -- the pricing actions, we haven't seen any detriment in demand or projects being delayed or pushed out because of the incremental price. You're seeing it across our competitors also raising. So we're not alone in that. And obviously, our customers see it from a wide variety of their products. So again, so far, so good on the expectations around that.

And it's obviously a dynamic environment. I think the guidance we laid out for the year at the beginning of the year has played out up to this point, which still embeds price increases in the back half of the year. But so far, those are all playing out kind of as we had modeled and expected. And that's not -- we just made that up. That's a lot of work with our suppliers around where they see prices going, and they've been very transparent around those expectations that we've modeled in for the year.

Great. And then maybe sticking in the category of annoying external factors or things that are somewhat out of your control, tariffs. What is the impact this year? And how is that affecting margin this year? And then also, can you kind of weave in the dynamic with Mexico. You've been moving a lot of manufacturing out of places like China over the last year or two. And a lot of it has gone to Mexico and these dynamics are obviously changing. It seems every day.

So just on the first -- last year, we had about $20 million -- a little less than $20 million net cost from tariffs. That was -- again, we fully mitigated the P&L as we exited the year. So from a year-on-year perspective, think of a $20 million benefit just as we had offset those costs either through production moves or the price increase we announced last year.

And then back on -- if you look at the portfolio or the footprint today, historically, 80% of our North America inbound came just from China back in pre-2019. Today, that number is less than 20%. And again, the vast majority of that moved to other parts of Southeast Asia, along with Mexico. And I'd say today, the rates vary from each one of those regions. In the short term, the IEEPA moving to 122 is a small benefit just from a lower net rate. The announcement made yesterday by the administration is kind of in line with where the 122 rates are at. So not a lot of change coming there.

And it's something we're monitoring. I go back to what I said on the point on memory, which is that's not new. I think it's just part of our normal operating environment of adjusting to where the rates are, and we'll take the necessary actions, both from a pricing with our own portfolio or production capacity with our partners to have a resilient and cost-effective supply chain. And I think we're set up now with the diverse supplier base and locations to adjust as necessary, again, to protect demand for our customers and the profitability of the company.

Great. We can take questions from the audience as well, but I'll ask one other one that's on my mind. It's just on the long-term growth rate for the company. How are you thinking about that 5% to 7% growth longer term driven by -- in part by these bolt-on acquisitions, getting into these adjacencies, the higher growth adjacencies like robotics and the RFID, which you have a strong presence in that's growing well, machine vision, the Elo acquisition. Can you just talk about that strategy and how it's evolving and whether that still feels like it's fully within reach for the next 3, 5 years?

Yes. No, look, we feel very confident in that organic growth profile. I think if you go back to the page we had in the presentation around just some of these mega trends that do support kind of the breadth of the portfolio, right? Whether that's the need to drive increased productivity, meet the demands of e-commerce, increase in warehouse capacity, all those -- every one of those actions says we need more printers, scanners, mobile computers to support the growth across those different work streams.

And then there's plenty of opportunities we have even as the market leader to continue to grow share in our traditional portfolio. So constantly looking at subvertical markets within manufacturing, regional markets like Japan, Southeast Asia of how we can continue to take more than our fair share of market of that market. So I think those are all actions the teams are actively working on. And then as you mentioned, RFID has grown double digits now for the past several years. I think it's pretty exciting in terms of the new use cases that it's opening up.

So we don't see it as displacing anything as much as opening up new opportunities. So the -- seeing real where, you know, putting an RFID tag on fresh food out of a bakery had been talked about, but it's actually real and is happening. And the great thing about that is you need more readers and our printers are the one printing the label in the back. So again, just new use cases that are opening up again to enhance efficiency for our customers.

And then machine vision is one that, obviously, we've been in for several years, but now had double-digit growth in the quarter. We see double-digit growth for that business here through the year. And I think the work we've done over the prior years of integrating the business, building beachheads and footprints in large customers so that as you start to see the market turn and they start to invest, we can take our fair share of that.

And then some of the markets where we've had historically strong presence with Matrox like semiconductor that's been in a cyclical downturn are now starting to turn the other way. So I guess if there was any benefit of memories, we're getting some benefit with -- from our machine vision business on the other side.

So again, I think, again, you look at the combination of that, along with the opportunity we have, the one area that's kind of missing has been in that last-mile delivery refresh opportunity going back to the post-pandemic area. And that's a huge opportunity we have here over the next 2 to 3 years as those mobile computers all need to be refreshed.

We are the market leader, have the installed base for that entire fleet. And now with our new mobile computer and the ability to use RFID and AI for that last mile delivery is there's meaningful productivity that our customers can drive with the new mobile computers, and they're all really excited about it, and that's a big opportunity. To layer all those in is what gives us that confidence here over the next several years to deliver on that growth.

You mentioned the Elo acquisition a couple of times. Can we dive into the details of that a little bit more? Just remind people the size of that acquisition, the thinking behind it, the growth that you've seen since acquiring it and the growth expected?

Yes. So Elo Touch, we acquired at the beginning of the fourth quarter last year, with about $400 million of annual revenue. The market growth rate, the historical growth rate was in line with our growth kind of mid-single digits, and that's what they've performed both in Q4 and Q1. And I think many of us see it, right, which is touchscreen, quick service, self-service and multiple different applications. That's the core of what they do.

So they have a strong presence in quick-serve restaurant, which we think is a nice opportunity of how we leverage that presence with our portfolio as more quick-serve restaurants are using things like RFID, right, to blend those together. But ultimately, if you look at -- think front of store retail, many of our customers would have Zebra mobile technology and Elo for fixed. And now we have the ability to integrate the back end of that from a software perspective. So they have a unified software stack to support both their fixed and mobile screens, if you will.

So think of being able to update those from a security protocol, applications across and provide that seamless experience for their consumer, whether they're looking at talking to a store associate and getting that service or maybe a screen. We think that's a real differentiator in the market and one that our customers have asked for going back several years.

So that thesis, we're really excited about over time as we integrate that back in. And we've committed to $25 million of synergies by year 3. I think we're well on track for that. We have $10 million of committed cost synergies already identified, and that will come from an annual run rate. The pipeline of opportunities is continuing to grow from cross-sell across our relationships. So we'll start to see that play out maybe a little bit later this year and into next year just because of the lead time and the cycle time of that product.

But I think it's been a great add to the company. And as we're going through diligence and some of the pre-meetings, you just look at it and said, they look and act just like us, right? So from manufacturing footprint to Tier 2 distribution model, the customer, the buyer in the customer environment were all similar to us. So we just looked at that and said it was such a natural fit as part of the portfolio, which is why we feel so confident about the synergies and the long-term position of the company within the portfolio.

You mentioned the 2-tier distribution model for them as well. Can you talk about the overlap between your distribution channel? You've got 20,000 resellers ultimately that are within your core business? And what does their distribution look like? And how are you leveraging each other's?

Yes. So I think Tier 2 means we sell through distributors around the world. Their primary distributor is one of our top 3 distributors. So that's been easy from a -- and then think of the vast majority of those resellers are resellers, ISVs who have a local expertise in the market. They may be doing the final configuration, the rollout, the deployment. They may have certain software applications that they're adding to the device as a value add.

And they're a great partner network because, again, these are sometimes bespoke applications that are, I'd say, great businesses for that local company, maybe not a great business to be part of a public company like us from a size and scale that you'd want. But it's absolutely value add. And our customers, what they appreciate is we say, look, if we can't do it, here's the partners that can add that application or do that integration, whatever that might be that, again, it gives us the ability to reach the breadth we have at a cost structure that makes sense, right?

That's also -- we think about capital-light business model, that's the very definition is I don't need to add more sellers, right, to hit a certain market, that's where a reseller can do it or add more engineers just to design bespoke applications because an ISV can do that. And that's great because it adds to an overall ecosystem and value.

Yes. That reseller network is something that really struck me when I first started covering Zebra. I went to, I think, like Orlando or something for some event, and it was a reseller convention kind of like a kickoff event, but there were over 1,000 people there who are not Zebra employees who really felt like Zebra employees who were all in on the product...

As you look back in their LinkedIn, you'd see most of them probably were at some point. So the tight community, whether you go to the NRF, National Retail Federation or -- as you said, we do -- a lot of our sales kickoffs are combined with our sellers and resellers because we want them to feel like they're part of it. But obviously, they're running their own business, and it's up to us to make sure that we're their supplier of choice and who they recommend when they have those relationships at a local level.

Is there anything that you want to close with because then we can wrap up here and move to the breakout session?

Yes. Look, I think we're excited about the business. Again, we see a lot of underlying demand. Again, I think we feel confident with where we're at from having supply we need from a memory perspective to achieve our guidance and working every day, as I mentioned, to secure more supply that hopefully gets us to that higher end of our guidance range. And again, this is all about continuing no matter what the environment is, executing for our customers that I think the history of the company that has allowed us to sustain these different economic cycles and maintain our market leadership and grow as they do over time. So I really appreciate all the time today.

Yes. Thanks a lot, Nathan. Thanks, Mike, for being here. Thank you.

All right. Thanks, everyone, for joining. Last one for me. My name is Joe Giordano, I cover Industrials here. Last public service announcement, the WiFi password is not a request. You are now contractually obligated to vote for Cowen for Extel. Thank you for that. Don't shoot the messenger.

Happy to have Zebra here, Tom and Mike, and we're going to jump into the discussion. If anyone has questions, just feel free to raise your hand any time. But otherwise, we'll just go. And I think before we get started into the Q&A, Mike is going to give us a minute to take a broad overview of the company real quick, and then we'll jump in.

Thanks for hosting, Joe. I know there's a lot of new investors to the story, so I thought I'd just do a quick background on Zebra. Zebra is the foundation for intelligent operations where data, automation and AI assist workers to transform frontline workflows. We empower 80% of the Fortune 500 across a broad set of industries from retail and hospitality to manufacturing, logistics, health care and more to digitize, automate and embed intelligence into their end-to-end operations.

We have 2 complementary business segments that have similar growth profiles. Asset visibility and automation gives physical assets a digital voice to generate rich real-time data about what's really happening in the front line of business. This data fuels the AI models that help our customers automate workflows and reach new levels of performance with our market-leading RFID, machine vision, advanced data capture, smart sensor and printing solutions. And the connected Frontline provides the digital touch points necessary to improve productivity and elevate experiences across the customers' operations.

We are a market leader in enterprise mobile computing, self-service kiosks, interactive displays, frontline software and integrated payment solutions, plus we provide powerful on-device AI models and agents optimized for frontline workflows.

Great. So there's obviously a lot of debate now around the stock for a couple of reasons, but a lot of it is just implications of AI and robotics and where the world is going and how you guys play into that. A lot of -- much of it is what happens in a world where people -- you sell things that people generally hold and use and what happens if we get to a world where people are not in those buildings anymore. So how do you think you're positioned if the world does go that way?

Yes. So Joe, thanks for having us, and great question. With AI and automation in general at the core of our strategy. So we see lots of runway for growth around that. And in fact, our largest customers, our most progressive customers in terms of automation have never had a bigger installed base with us, and the pipeline bears that out as we look forward in terms of the amount of our gear that they're deploying to their workers.

And that's for a few reasons. One is, for the most part, the labor pool is more or less fixed, right? So if you're going to drive more productivity, more throughput out of your operations, you've got to do that by augmenting the people you have. And that's what we've been doing for 50 years.

It's just driving what we like to call productivity at the point of activity. And so we're doing that now with more form factors of devices we may have a chance to talk about some of what we're doing in wearable technology, which also plays into the AI trend. And then the asset visibility and automation business, the investments we've been making there in machine vision, RFID, other forms of locationing technology, all play into the -- are all part of the automation play. So we're seeing those segments pick up as well as more and more automation gets deployed.

And the second thing is I think there's a little bit of a misunderstanding in terms of the idea that automation is a one-for-one replacement for people. And a lot of what we're seeing is automation being deployed to augment individuals, as I said. And the reality is that 75% of warehouses, as an example, are still aren't deploying any advanced automation at all. So there's lots of runway to go and deploy things like machine vision and RFID, which we're doing, and then augment the workforce ultimately with these kinds of capabilities. So we're working really closely with our customers on that and excited by the pipeline of demand we see in all those areas.

So when you think about -- yes, I agree, like this is a long-term call and augmenting there's going to be a long runway of that. But eventually, like if we do accept that at some point, there is some sort of changeover, right? Like we are moving in that direction, whether it's in 2 years or 20 years or 30 years, whatever. But how does it inform what you're targeting from an R&D standpoint right now in your role? Like how do you have to think a little bit differently about further out, what does this look like?

Yes. The way we think about the strategy is through kind of 2 main pillars that we report our financials through as well. One is around the Connected Frontline. And we actually don't say -- if you look at the way we talk about Connected Frontline, we don't say Connected Frontline worker necessarily. We say Connected Frontline, and that means equipping that Frontline of operations with whatever is needed to meet our customers where their biggest challenges are and helping them drive operational efficiency.

Today, as you're pointing out, it's largely about putting devices in the hands of workers. That's going to -- we think that's, like I said, got a long runway. That's going to continue to be the case. As that evolves, really being able to orchestrate the Frontline and having domain intelligence about the Frontline becomes really important.

For those of you that the students of AI and how that's transforming. There's these foundational world models that obviously, like the Anthropics and so on are developing. But the real carve-out in terms of value in the kinds of places we're operating is going to be bringing domain-specific workflow-specific knowledges, knowledge to those areas.

So if you think about -- and these are the things that we're pursuing now, models that can understand what does a good dock look like, where should pallets be, what doors should be open, which trucks need to mobilize in order to hit certain SLAs and using things like computer vision, machine vision, RFID, IoT technologies and in intelligence to understand that dock environment, that all becomes context that we can then feed into domain-specific language models that can then steer the right activities to the right places at the right time. And whether those steered activities go to just people or they go to a combination of people and robotics, which is what we think the medium term is going to look like. Or as you're pointing out, we see the proliferation of more and more robotics, we'll be in a position to be able to orchestrate that.

The one other thing I'll say is that as we speak with many, many of our customers, what really comes out is the application-specific deployment of robotics. So the idea of humanoid actually doesn't resonate with very many of our warehouse and logistics customers because they're looking at purpose-built robots. And the example would be like humanoid robot is never going to pick as fast as a robot that's designed specifically for picking.

And so what that means is that these application-specific robots will help transform and automate parts of workflows but they won't remove an entire job as an example. And so more and more technology will be deployed to help augment those workers. And like I said, that's what we're seeing with our largest customers, our most progressive ones in terms of how they're deploying automation and the pipeline in front of us is an exciting one.

When you think about your plans over the next couple of years here, how does it look similar? How does it look different versus what you thought '27, '28 plans would have looked like 2 or 3 years prior to now?

Yes. You can ask that question from a couple of perspectives. One is the internal use of AI to drive more efficiency. And we've got a whole bevy of as many companies do, projects going on around that, particularly around software development and code development. And we're looking to drive significant double-digit efficiencies in terms of our codeveloping co-development sorts of tools.

And then the biggest area, Joe, I would say, that we're seeing in terms of AI applied to the portfolio is really reinventing what data capture looks like. I mean the company was founded in data capture as you look at the barcode printing and barcode reading. And now data capture is morphing to kind of stochastic data capture, meaning you're not just reading machine-readable codes like RFID tags and barcodes, but you can take a picture of an environment and now apply AI that we've optimized and runs on the device that extracts information out of that environment that you otherwise would have had to gather manually.

So if I had to give a real quick example of that. If you're in an application or SAP on a mobile device, you might be entering into each field information on a manifest for something you just receive at the doctor. We just demonstrated this at the Hannover Messe Conference in Germany with SAP, where we've put computer vision-based machine learning models down on the mobile computer. This is shippable today. And you can snap a picture of that manifest, that 8.5x11 piece of paper. It will understand what's the ship to address, what's the receiving address, what's the quantity? What are the items on it? It will extract all that information and automatically enter into the SAP field.

So you're talking about 20%, 30% increase in productivity in terms of what you can do with regard to receiving. That's just one example. But we haven't seen -- since the advent of the barcode into a mobile device, we haven't seen that level of productivity increase. So I think -- and by the way, to your point, 2 or 3 years ago, we couldn't have predicted we would have that kind of capability down on our devices. Now we do. We've launched that capability. We're deploying it with partners and with customers. And we have our Zone end user conference next week in Tennessee and Nashville, and we're going to be showcasing much more around what we're about to announce around that.

You mentioned using it internally as well. Like when you think about your R&D spend and the efficiency on that, how do you think that can track over the next couple of years like as a percentage of sales, do we have a lot of room to work that? I'm not trying to get to a specific number, but can that keep tracking lower?

Yes. I mean I think there's a few different ways we're looking at it. One is we're starting with what's called SDLC, the software development life cycle. So as you look at software development in the products, we've identified -- there's many sub workflows within software development.

We've identified the top 4 or 5 workflows that we think specifically within software development and these kind of numbers are industry benchmark sort of numbers, we can get to a 20% sort of increase in efficiency on those key areas of workflow within software development life cycle.

And then the next step, who knows what this will yield. I mean nobody knows -- everyone is trying out to kind of see where it lands. And I've got the privilege to work with some of our largest customers. And they, of course, have very big IT teams and developer teams. And so I get the trade notes with them and see what they're thinking and they're figuring it out as well. But what's going to happen here is the entire product development process, the entire software development process is going to be done differently.

So instead of optimizing segments of existing workflow, we're going to reimagine what the entire workflow looks like. And the only I can say is that directionally, I would imagine that's going to be bigger than the efficiencies we get from this first phase, but it's something we're very much engaged in from the top of the company on now.

How do you maybe take me through the strategy of when you decide whether to build AI tools internally for customer deployment versus having partners innovate and go that route?

Yes, it's a great question. I think sometimes we don't talk about it enough because we're talking about many times, the AI capabilities we have on devices, which you could just very quickly to talk about that for a moment is those beyond the barcode computer vision capabilities or audio capabilities or building in 3D depth sensors, which we have in our latest devices that can image items that are within its field of view, so we could dimension parcels or understand spatially what's happening in an environment.

We've built that kind of hardware into the device and the AI enablers are sort of ingredient AI that runs the device that can be used by applications to go and execute that. And then we've built out on top of that, what we call blueprints, which bring those ingredients together to be able to deliver on solutions and then ultimately up to what we call companion, which you could think about as delivering an end-to-end kind of capability.

And so we very often talk about those capabilities that we have available on the device and we're offering into the market, but we don't talk so much about what's underneath the hood on them. And so we have very strategic relationship with both Google and with Qualcomm. We work obviously with many other partners and third parties. And then we have a huge ISV ecosystem, independent software vendor ecosystem. So as an example, those enablers are being used by ISVs that deliver solutions on SAP's platform, and they're already proliferating that. So that would be one example from a partner perspective.

With Google, we're working really closely with Gemini and the generative AI capabilities they have around that. We're also working with a number of open source models that we're tuning. So we're not doing the foundational LLM model, but we are tuning those models to deliver on these workflows. And then Qualcomm has been an amazing partner on the semiconductor side that we drive in lockstep with the Android operating system from Google. So there's more we're doing with what I would call the higher-end version of chipsets from Qualcomm that we're building into our latest generation of devices that give us more neural processing unit capabilities. So think about as GPU, NPU on the mobile device.

And then we're expanding now into what we're calling edge box software capability. So this is a box that can run on-prem using the likes of what NVIDIA and Qualcomm have. And it can assist mobile computers to run workloads without having to go all the way up to the cloud. And this has become a really relevant conversation with our customers because we started to talk now about tokenless AI processing where you don't have to process tokens in the cloud, which then drives cost to our customers from a consumption point of view.

We can run those workloads right down either on the mobile computer, as we call it the far edge being a mobile computer or the edge being this box, this edge box that's on-prem and it significantly impact the economics of being able to deploy these solutions.

And what's the strategy around monetizing this stuff specifically? As far as I -- correct me if I'm wrong, but mostly it's using the AI capabilities to drive the device sale, and there's not a ton on whether it's a subscription or a pay-per-use or however. How do you see that? And how do you see it changing?

Yes, yes. And that's definitely the direction it's going is to attach more recurring revenue to the device as we deploy these solutions. So first is creating a set of AI-optimized devices. So the newest devices, you'll see mobile computers from us that look like a device like this, where we've built in several layers of AI enablement.

One is, if you think about the camera system and the scanner that's in a device like this, if you knew you were only reading barcodes, you design that one way. If you're going to try to physically -- if you're going to try to understand the physical world, like, for instance, take a picture of a shelf inside retail, recognize all the products on that shelf, read all the shelf-edge labels, verify the pricing and ensure all the product is located in the right spot and identify all the out of stocks and do that in a few hundred milliseconds. Because really, that's what we're doing now with these models running on the device, then you're going to design that camera differently. You're going to give it higher resolution, a wider field of view.

So we're building that kind of capability into the device. And then the only way to get access to that functionality is to buy that higher tier device. So the first part of the monetization strategy is to say, we have AI, you can't afford to operate without. And therefore, you want to accelerate your refresh cycle to these new devices and you want to make sure you're maximizing your competitive advantage as a customer of ours by using that latest hardware technology. That largely manifests itself in higher ASPs and accelerated refreshes as a CapEx on the device.

Then these ingredient capabilities like the enablers, the blueprints that run on the device software get attached to that device as annual recurring revenue essentially on a per user basis. And so we announced on our last earnings call that we delivered an AI-based picture proof of delivery solution that runs on the device using those latest hardware on the device, and that's attached to a device that ARR on top of the CapEx of the device itself.

So the last part of your question is where do we see it going? Right now, it's a set of point use cases like proof of delivery, receiving, the shelf intelligence that I mentioned earlier. Where we see it going is it's back to this domain-specific capability where by vertical, then by subvertical, we will have bundles of AI-enabled use cases, and then we'll be attaching those AI bundles as a fixed price, say, per month or per annum as ARR on the device. And the only way you'll get access to that will be to buy the premium device, which has the hardware capabilities to do it.

So we think that's -- and we're super excited by that. And I have to say our customers, given what I mentioned earlier around the tens of percent of increase we're seeing in productivity using some of these tools are leaning in. They're thinking about how do they change their fleet over to the newer devices. Their conversations with transportation and logistics customers are going from a refresh of the device I had, I'll take the good enough version, if you know what I mean, to get the job done to, wow, I want that proof of delivery capability. I want this efficiency. I'm going to buy up to the next level of device and ARR.

So the other concern with investors right now is memory. Can you maybe size it for us again? I know you've talked about it before, but size of how much you're buying from a dollar standpoint? And how are you like kind of reacting to tightness in pricing in the market right now?

Sure. Yes, I can start with that. So first off, the team is doing a great job in terms of mitigating the memory challenges, just like we have a track record on mitigating supply chain challenges we've encountered over the past few years.

The size that we're overcoming is about 2-point headwind to gross margin. So that's what we've indicated earlier in the year, and we've been generally on track with that projected impact. And to give it a sense of size, it's about -- we're paying about 2 to 3x in that range for full year '26 versus prior year full year '25. So a meaningful increase there.

On the supply side, we have a number of mitigation factors. So you know we have good relationships, good strong relationships with the largest memory providers, and we're doing proactive supply chain management and co-planning with them. We're also qualifying alternative sources of supply as a backstop. And -- also from kind of the cost side, we're going to higher density in general memory, which is where the supply is. So that's a supply matter, but it's also a cost dimension.

And we've raised prices. Earlier this year, we had a price increase we noted a substantial one in mobile computing that is expected to ramp in terms of being realized in our P&L into the back half, and that's going to be a major point of mitigation as we get in the back half. But meanwhile, we are mitigating the entire 2-point headwind by the combination of direct mitigation like pricing, but also factors like productivity initiatives, including restructuring in the business, FX tailwinds and other initiatives. So we've got it covered this year. We got a plan, and we feel confident in our approach.

Can I just clarify one thing on the guide? I know you mentioned on the call that demand is higher than what you're able to guide to now, right, and the supply constraints on memory are there. I just want to confirm like the current guide range, is -- does this current supply of memory allow you to hit anywhere within that range? Or does the constraint prevent you from being a higher range than what we have now?

Yes. So our guide does contemplate the scarcity of demand for memory. We are taking the approach where we wanted to give a range that we are confident in hitting, particularly at the midpoint with the supply, we are confident in getting.

Now the demand signals, to your point, have been signaling more at the top end of our range. And we're going for that and going for that memory to get that supply, and that's what provides the upside opportunity towards the top of the range as long as we can secure the supply with the strategies that just.

So the top end of the guide range as current contemplates more memory than you have currently?

Well, it's just -- it's -- the other way to put it is we are handicapping the outlook a bit to acknowledge the supply constraints, meaning the top end of the guide is where our demand signals are.

The top end is...

As long as we can secure it, which we are going for. But again, there's just those are all the factors we're contemplating when coming up with the range.

Understood. And Tom, from your side, what is the dynamics with memory now, how does that flow into like new product design and how you -- and how long term are these decisions that you're making now in a very kind of like crazy time, you're making multiyear decisions?

Yes, yes, exactly. Yes. And also from a design perspective, there's a lot of agility going into the design. So in many cases, when we're doing product design, we're putting in the capability to be able to mount different memories, different formats of memories, working with the memory vendors on their road map in terms of memory densities as they look and move forward, which are higher memory densities that are more likely to become available as we get into the future so we can -- in that same assembly, we can drop in either part. So a lots happening there from a design agility flexibility perspective.

And then to your point, just in terms of looking out at this point, it's a year plus, we're looking into things like road maps and products and what do we do to mitigate as much of that as possible and then working really closely with the supply chain team on resilient strategies with regard to multi-vendor provider opportunity as well as how we're mitigating from an overall supply chain resiliency perspective in terms of where we produce the product.

I'd say like you've had multiple kind of bottlenecks pop up, whether it's tariffs or whether it's prices and -- is there a change you have to make in terms of design to use? Like can we use the same products across more supply....

Yes. And that actually -- yes, it's a great point. I mean that's something that -- and maybe even in my first response, I took it for granted. For many, many years, and we do think this has been a competitive moat for us is we've taken a platform approach to our mobile computing portfolio, and we've done that in some of the other parts of the portfolio as well, where if you look at everything from a tablet all the way down to a handheld and even some of our wearable devices, very high 90%, let's call it, like 97%, 98% of those designs are the same even down to the software level. So it's the last 2% or 3% that's used to kind of customize those -- if you extract that from the cash.

So the Android platform is common. That gives us lots of R&D leverage capability. Also, our customers love it because they know if they write an application for one of our devices, that application is going to run across the gamut. So they can run that application on a tablet, on a mobile, they can run it on a kiosk and they can be sure they're going to have a stable, consistent environment. So if you're an IT decision-maker, you're really looking for that.

If you think about security, manageability, deployment of the device and with something we call mobility DNA that allows you to do life cycle management of the deployed fleet. And some of our customers, as people here know, have hundreds of thousands of our devices, 200,000, 300,000 devices. You've got that many devices out in the field that are mission-critical, allowing you to run your operations every day. You want visibility into those devices. You want assured from an IT point of view that you can securely update and manage.

And so that platforming has been huge, both in terms of R&D leverage and some of the things you were just talking about with regard to flexibility as it relates to memory and other components, but it's also been a huge advantage for our customers and the decision makers. And it's absolutely a competitive advantage relative to anybody else out there.

Just how do your negotiations with like memory suppliers work? Like -- so I know you have -- you're not paying spot. I know you have visibility into what you're getting here and the price that you're going to pay for and how to mitigate it. But -- so like as we think into '27, '28, like is there a negotiation about what that looks like? Do you -- is there a cap on how far it can reset from year-to-year? Just how do we think about out into the future given where some of these spot prices are?

Yes, I'll start. So we do have strong top-to-top relationships with this. So we're -- to be clear, and there has been some misperceptions out there, we're not paying spot prices. We're putting in orders about 12 months in advance. And the pricing allocation is set more quarterly, but we do have these continual discussions with them.

And so far, we've had very good relationship with them, and things have been coming through as anticipated from the beginning of the year, and it gives us confidence as we progress through the year that we're going to be in a good position.

Yes. I guess I'm thinking of it like almost like an interest-only mortgage reset or something like that. Is there some sort of thing that happens where it's like, okay, well, that was 2026 and now it's 2027 and now the price is X times 5 or something like that. That's generally not how those discussions go, how you're framing it, right?

I can't add anything to that.

No, I would -- the only thing I would just say is they're not event-based discussions, which is kind of like what I sort of got what you just said, which is this happened now, it's going to be that. It's a continuous discussion. So if our Chief Supply Chain Officer, were here, she'd tell you, it's weekly that she's on -- not just her, but her team is working with these suppliers on this.

And I think the interesting thing about our portfolio and our volume is we're strategically important to these memory providers. But we're also at a place where if we need hundreds of thousands or 0.5 million kind of pieces, it's not like we're a deal -- it's not a consumer phone where it's a binary, we got to get 10 million or we're not going to take any. And so that actually gives us more flexibility in terms of, for instance, a memory supplier's capacity and being able to get more flexibility from that perspective.

Just want to shift in the time we have left over to M&A a little bit. What's your role in those discussions?

Yes. So typically, I'll be working with our corporate strategy team. And as you might expect, our strategy cascades down from here's where we're looking to go over the next 3 to 5 years, here are the strategic themes. And then based on strategic themes, we're looking at buy, build, partner and venture as well, which sometimes we don't talk about enough is that we have a venture capital investment arm where we can place a bet in an area that we want to maybe have a board seat, understand what's happening, what's developed, maybe influence a little bit.

So we build out that funnel across those different areas. And then from both a strategy and a technology perspective, I and my team and working with the strategy team are evaluating that. We're really looking at like most companies would be, what's our ability to execute organically. We prefer that route if we can do it. But if we don't have the skill set or the competency, then we'll look at what acquisition categories make sense in that regard.

So ability to execute, how quickly can we execute if we were to go and do it on our own and realize value. And then as anybody would be looking at is the overall kind of return on investment for the options that are before us, right, and looking at, hey, what's the most -- the best allocation of capital overall given that dynamic. So it's kind of weighing those things out together with the strategy team and then bringing that to our executive leadership team and our business unit owners to evaluate further.

From an outsider, it feels pre-Elo. It felt like some of the more recent deals were smart strategically, but maybe the wrong asset, like the right -- almost more of a venture acquisition than a true acquisition. like -- so why wouldn't Fetch work, for example, right? Like that seems like something that you should own, like from a -- what do they do? What are some of like the lessons on some of these smaller deals? And maybe why didn't they play out the way you thought? And then we can get into how Elo maybe is on the other side of it.

Sure. Yes. Well, I mean, in the case of Fetch, the AMR market at the time that we acquired Fetch was predicted to be much higher than it ended up being. And I think as time marched on, even from an industry analyst perspective, that continued to contract. And so we were gaining traction in this space, but the overall size of the addressable market contracted to be significantly less than maybe we originally thought.

So a big difference between -- just draw a comparison real quick between machine vision, which is an established market that we're entering and looking to climb our way up from a market share perspective, like to the leading level of market share positions we have in other categories to a nascent category where Fetch was -- it was a market-making category and then the market just didn't turn out to be as big.

So then at some point, Joe, it's like, we have capital we can allocate and you look at areas like machine vision. You look at areas like RFID. You look at the AI enablement on the mobile computers that I was just describing earlier, and we said, hey, there's just a much higher return based on what we learned in investing in those categories then continuing on from a perspective where we're better off serving shareholders by reallocating that capital there. So the lesson learned is lesson learned is keeping your ear to the ground and pivoting and pivoting quickly as you need to based on how the market conditions are bearing out.

I know we're out of time here, but maybe I could just last one on Elo. I do want to touch on that. Like what did you see there? I know it's something you were working on kind of internally is your own products there. So what did you see in that business specifically? And what are like the -- how do you see like the combination of these 2 being greater than what you had before?

Yes. So I mean, just very quick. I know we're on time, but 2 ways to look at it. One is around the dynamics of the business, like a little bit what we were just talking about earlier. You think about accretive to our margin profile, you think about a scaled business in the sense it's doing $400 million a year. So it's at a different level of scale and maturity than maybe some of the other acquisitions we bought, where we have a lot of go-to-market synergy in the sense that we're talking to the same kinds of customers where we can go and deploy these things.

We get supply chain synergies because we're -- this platform conversation we're having earlier with Qualcomm and so on, already buying large volumes and we can bring those pricing benefits over to an Elo portfolio.

And then the other part of -- all goes back to the beginning of this conversation, which is around automation in the sense that kiosks are really a form of automation. They're enabling self-service, which is then returning time to store workers to do more higher-value tasks or more consultative engagement with customers rather than kind of just the rot motions.

And then we're hearing more and more from our customers, whether it's in the quick-serve restaurant space or it's in retail, hospitality, that they need to meet their customers where they're at, right? So we're seeing this across the board with things like self-checkout with kiosks, whether you're at the airport, you're at a quick-serve restaurant. Some customers want the full-service experience. Others don't want to speak to anyone and they want to kind of do it all their own. And our customers need to offer that flexibility, and we're there to provide that to them. And that's where we saw was a great opportunity to do that.

Well I think we have to leave it there. But thanks, everyone for joining, and thank you guys for being here. Appreciate it.

Thank you.

Thanks. Thanks, Joe.

Okay. Good morning, everyone. I think we'll get started. I'm Mark Newman, Bernstein's U.S. IT hardware analyst. And it's a great pleasure to introduce today, Bill Burns, CEO of Zebra Technologies. Just a brief intro. Bill became CEO of Zebra in 2023.

You've been at Zebra since 2015, I believe. And this is your third time here at SDC. So obviously, a [ glutton ] for punishment. Thanks for coming back.

Yes. Thanks for having us.

Anything you want to start before we say this before we start?

Yes, maybe just introduction of Zebra. I would say overall, we're fundamental to intelligent operations across our customers. We serve the retail market, e-commerce, transportation, logistics, manufacturing, healthcare and government as our core markets. About 80% plus of the Fortune 500 are our customers of ours today.

We focus in 2 business segments: asset visibility and automation and connected frontline. I would say that overall AI, and the deployment of AI at the front line of business is a net positive for Zebra and ultimately, will drive our business moving forward as people will look to deploy and continue to deploy automation and AI within their frontline environments, and we could talk more about it as we get into the chat.

Sounds good. And I just wanted to remind ever why we've got this Pigeonhole link that you can put a question in there, I can get to audience questions. I'm going to have a few of my own questions. If you have any of your own questions, I can get to those too. So feel free to enter a question there. Or if you prefer, you can put your hand up later on.

But to get started, Bill, could you elaborate more on Zebra's role in the future of automation and in terms of what's your value proposition and durable competitive moat here in automation?

Yes. As I said, we report and focus on 2 primary segments: asset visibility and automation, and connected frontline. If you think about those, you would see us in everyday life. You see us in point-of-sale checkout in retail, you'd see us in parcel delivery by transportation logistics companies, you'd see us in hospital environment, with hospital wrist bands and in tracking specimens and others inside hospitals. But the place you wouldn't see us would be inside things like warehouses and e-commerce picking solutions that continue to drive automation.

And as I mentioned earlier, kind of AI into the front line of business, which is just in its infancy today. From an automation perspective, our business is really around productivity and making our customers more effective, more efficient each and every day.

Our asset visibility segment does exactly that through barcode scanning, or RFID reading, or our printing solutions, our machine vision portfolio allows you to identify assets within our customers' environments, which allows you to digitize the environment, which is critical if you want to go automate the environment.

You don't know where the inventory is, where the people are, where is the forklift, where are my tools, ultimately to be able to take the next best action in your business. And that we think of it is framework for, kind of, sense and analyze. The analyze framework has become ever more stronger through AI and analytics, but you analyze the assets you have and where are the people you have and others and you want to create a task, which is the next best action in your business to be more effective, more efficient.

Where should the forklift go next? What inventory needs to be put on a retail shelf to be able to be sold? Move it from the top of shelf to the actual shelf where consumers can buy it. If it's in backroom, how do I automatically reorder from our warehouse? How do I ship from my distribution center into the store? How do I pick this e-commerce warehouse order? What's the next one I need to pick in the order of when it needs to be delivered?

All that analytics then drives our connected frontline, which is really mobile devices in the hands of frontline workers ultimately that allow work to get done. So unless you'd be able to send a [indiscernible] to a worker and drive action within your business, you get no result ultimately, you have no business value. So we think of both of our pillars, asset visibility driving digitization, analytics and automation and then ultimately, the way you automate is if people get work done today.

Correct. And can I just ask a follow-on with regards to AI. What is being done on-device versus in the cloud? I believe you have some partnership with Qualcomm and Google Cloud. Can you talk about that? Like what is on-device versus in the cloud?

Yes. We see a role for both on the mobile device. So we see that running models on the actual device for, I'll say, simpler tasks, right? There's going to be tasks where you want to go back to the cloud, let's say, product recognition where you're trying to use a database of different products and others, you're going to want to go to the cloud. If you're using local store operating procedures in retail, you can run that on the device.

The advantage is to our customers that many of our customers don't have a lot of connectivity from either stores or from warehouses or logistics locations. They don't have a lot of connectivity communication and collaboration. And it's costly to go to the cloud every time you need to ask a question of an AI engine.

So the idea of using and leveraging faster processors, more memory on the actual device itself working closely with our partners, Qualcomm and Google with the Android operating system and software we develop ourselves allows us to run those models on the actual device and allows you to be more cost effective in what you want to run and which application.

For us, it means upgrade of devices, meaning that our customers want to go to higher processing speed, more memory on those devices ultimately to be able to run those AI applications on those devices. So we see it driving over time an upgrade cycle within our customers' environment. We see it being higher average sell prices because they're more processing power, more memory, more sophistication on the device to go do that.

We see software opportunities, some of the functionality to be able to manage that engine could be an opportunity. We see offerings of our own. So we talk about blueprints and enablers and companion around the idea of our customers being able to leverage the mobile device to enablers we provide on the device for them to build their own AI models or tie a couple of our enablers together, we create a blueprint and charge our customers for that enabling that.

Think of parcel proof of delivery. When a driver delivers a parcel, we actually drive the workflow that says, scan the barcode, take the picture, blur out the address, the family dog, the child in the picture and then save a couple of seconds per delivery. We deliver that software as a blueprint, a combination of functionality and then it runs underneath the transportation logistics company's own application.

And then other places, we do the whole companion, the idea that it's a digital companion and we create those blueprints and combine them together and it's a Zebra application that our customers would use. So we see the opportunity for us is higher ASPs on the hardware, driving a refresh cycle and then also software opportunities.

What -- can you talk about what is the ratio today on-device versus cloud? And how may that change going forward? Do you have a rough idea?

Yes. I would say today, it's predominantly in cloud, I would say, but we believe ultimately that, that will move increasingly so to a combination of both. I just think that the models that our customers are using when leveraging our devices today are mostly cloud-based. And I think that we see the models that we're developing in some of these applications are device-based. We don't need connectivity to the cloud, but the perimetry of their deployments today are in the cloud. That's where they've started.

Okay. Got it. Just to step back before we go into some more of the details. Recently, you just, I believe, raised your full year outlook. Can you talk about what gives you confidence to do that?

Yes. I think that we had a solid Q1 results ultimately driving the upgrade in -- or increase in our outlook for the full year overall. I think that we've seen our conversations with our customers through our largest trade shows at the beginning part of the year. We meet with many of our customers across the National Retail Show, across healthcare show, across some of the automation shows. And we've seen broad-based growth across the portfolio. We've seen strength in manufacturing, which has been lagging in some of the other verticals growing, but lagging some of the strength there.

So we're seeing strength in manufacturing. And ultimately, that resulted in solid Q1 performance. I think we've gotten more comfortable with the pricing and delivery of memory, ultimately that we're going to be able to secure the supply of memory we need to meet our outlook for the full year and increase that outlook based on Q1 results, and we were able to procure that memory at the prices that we had kind of anticipated moving forward.

We put price increases into the market that we needed to, to cover those cost increases. But I think that we feel good about where we're at from a demand perspective, we think that ultimately, if we didn't see pressure from a memory perspective and availability, we'd be more towards the higher end of our guide. So we feel good about where we're at from a guide perspective and delivering on that from what we can see from customer demand continued to remain strong, broad-based and broad-based across geographies and the portfolio. And we see the idea that ultimately, we can secure the memory, we believe that we need to meet that demand.

And you touched on memory there. With the rising costs coming from memory, are you able to pass on all of those costs to consumers? Are you working to try to maintain gross margin? Or is it more gross profit dollars you're trying to maintain? Or what's the overall strategy there in terms of the cost inflation?

We continue to focus on gross margin, driving higher levels of gross margin across the business. You would like to ultimately maintain gross margin percentage, but it may be more at the profit level, covering our cost more on the memory side because the increases have been so significant.

I would say that we're no different than all the other vendors into the marketplace that there's been conviction around needing to raise price. We have no choice. The price increases in memory have been so significant that I think overall, our customers are saying to us, no surprise.

Other vendors have come to us across our entire telecom purchase portfolio, and we're seeing those increases. So we are still passing those through, meaning that price increases we put in the market in first quarter are still coming to fruition here in the second quarter. We'll see -- we're using a combination in 2026 of overall OpEx savings and price increases because the price increases won't kick in until now in some cases because the pricing of memory wasn't available until end of first quarter.

So we're using a combination of both to drive the profitability in 2026. And in 2027, we anticipate to see the entire value of the price increases come through for the full year. So if memory continues to go up, we'll continue to have to raise prices into the marketplace. And I think that it's really no different than other vendors, and we've seen that our customers understand.

You touched already a bit on the demand trends. But could you provide a bit more color on the demand trends you're seeing across the key end markets; manufacturing, retail, health care, et cetera?

Yes. I would say that broad-based growth across the portfolio. From a retail and e-commerce perspective, omnichannel, buy-online- pick-up-in-store, e-commerce continues to drive that. But our retail customers, brick-and-mortar retail customers continue to do well in the market at the same time as they're competing on leveraging the stores for delivery vehicles to their customers.

We're seeing transportation logistics, parcel volumes starting to grow again, right? We've seen for a long time coming out of COVID where parcel delivery was declining off the highs of COVID, and we're seeing investments across transportation logistics. And we see that there'll be large refresh cycles coming up from those T&L providers that last refreshed devices back in '21 and '22. So we'll see those coming up over the next couple of years, and we're having strategic conversations with them. They're the larger refreshes coming up over the next couple of years.

Manufacturing has recovered, as I said, broad-based across manufacturing. So we're pretty happy to see that. That drives our machine vision business as well. So not just our core portfolio, but we're seeing growth across machine vision, both in manufacturing and then transportation logistics. I just talked about, both of those are pushing our machine vision business forward. We're also seeing it drive RFID across both those markets, manufacturing and transportation logistics.

Healthcare continues to be a strong market. The idea of having more and more data collected into electronic medical records, again, RFID opportunities, self-service opportunities inside health care. We take it kind of for granted here in the U.S. about electronic medical records around the world. They're still kind of catching up on electronic medical record systems.

So collecting more and more data within healthcare. Some would say in healthcare, the barcode is really the life of healthcare. Everything is driven across healthcare by identifying the patient, identifying the medication, identifying the specimen that's taken, all driven by barcode. So that continues to be an opportunity for us. We're seeing government and public safety as they've been behind on things like inventory management and inside government opportunities within our customer base, and we're seeing opportunities for mobile devices within things like public safety and tablets. That's a relatively new market for us overall.

What's your long-term expected growth rate? And do you think that you're going to have consistent growth? I mean, I guess with the memory price impact, maybe -- it's maybe a bit more rocky, but I'd just like to hear your view on that.

Yes. I mean we've seen the ups and downs of COVID. If you look back at our financial results of '21, '22, '23, just the effects associated with it. But I think if you look over the longer term, ultimately, we believe we can deliver the 5% to 7% organic growth that we've talked about. Along with that, we see margin expansion as well. So if we can deliver the 5% to 7% annual basis, you see about 0.5 percentage point of drop-through in margin, 100% free cash flow conversion. Again, all this being really driven by broad customer demand across geographies, across the verticals we serve.

And we see our customers continue to -- as we're mission-critical in their environments, as they continue to see challenges around labor constraints and having to be more efficient in their businesses overall is driving a need more for our solutions from that perspective. But we believe, ultimately, we can deliver the 5% to 7%.

Can we talk a little bit more specifically on RFID now and your strategy there to drive adoption? And what are the emerging use cases for RFID going forward?

Yes. We're excited about the RFID market. I mean it's been growing at double digits over the last several years. We're the global leader and RFID readers. We also are the leaders in RFID printers. From our perspective, the readers range from handheld readers to fixed readers across both those segments.

The RFID market started really around apparel initially and has moved inside from retail apparel to really extend beyond all the way into the supply chain. So retail apparel initially around inventory management with handheld devices have really moved to fixed devices. We've seen the fast fashion in retailers that control their entire supply chain move first. So think of lululemon as an example that has their entire supply chain, their controlled fixed set of suppliers to them, tagging its source, leveraging RFID through their entire supply chain through their distribution centers in their stores and all the way to point of sale and checkout and for loss prevention purposes.

So they've leveraged it across the supply chain. But again, that's in focus really on apparel. We've seen it now move into things like home goods and even fresh goods like bakery or in grocery around the outside of the grocery store where we have perishable items.

So in retail, we've seen expansion of use cases across different items within the retail environment. In addition to that, because the items are becoming more tracked for the retail store and knowing what's in the retail store. And the reason inventory management has ever been more important is if you buy online and want to pick something up in store, if they don't know what they have in-store inventory, then they tell you they don't have it, even though they have a couple left because they're worried that you're not going to -- you're going to be disappointed because when you show up in the store, they don't have it. Or if you order something and then they can't find it, ultimately, they -- you're disappointed.

So that's driving the need for more inventory visibility in the retail store. But it's also now that the items are tagged at manufacturing, they can use it all the way through the supply chain as it's through their distribution centers and into the back of store, into the front of store and then manage the inventory from there. So we're using broad adoption throughout the entire supply chain as well.

We've most recently seen transportation logistics companies. UPS has been very vocal around their use of RFID, FedEx and others as they continue to say, "Look, I need visibility across my parcels within my environment, and I have visibility to be able to make sure I got the right parcel on the right truck or that I have the visibility all the way at a customer site. When they're loading a tractor trailer, when they're handing that tractor trailer off to me, I know exactly what's in that tractor trailer before it actually comes to me. So I can have early visibility inside supply chain, and I can make sure the items are really there."

So we're seeing broad adoption across transportation logistics as well in the U.S., and I think we'll see expand that outside of the U.S. Healthcare is another example. So we're seeing healthcare inventory. A lot of the healthcare providers have consigned inventory. And there's always a debate about was it there, wasn't it there, who pays for it when the inventory is done and the item is missing ultimately.

So we're seeing more use cases. So we're seeing broad adoption across RFID use cases really around this idea of asset visibility. I need to be able to digitize the environment. It's the way I become more efficient in managing my inventory and being able to reduce the amount of labor to be able to do things like count items and others and to be able to know when I need to refresh and what I need to go do across the entire supply chain visibility.

Okay. And then -- moving on to machine vision, if we could. How much of a portion of your business is machine vision? And how much do you see that contributing to growth going forward?

Yes. I think that today, a small portion of our business proportionately is in machine vision. We think of the machine vision market as 2 kind of segments - manufacturing and transportation logistics. We have products in both -- solutions in both categories. Think of manufacturing being more around the inspection. Think of transportation logistics more in barcode reading across conveyance and more logistics applications.

We've seen our assets are across that portfolio, both acquired assets in the high end of inspection and then most recently, a Photoneo acquisition in 3D machine vision and then organically developed assets in the fixed industrial scanning space around transportation logistics. We see that, that market has been challenged, both sides of that market with manufacturing and both T&L, not being great markets over the last few years. But now we've seen an inflection point with manufacturing and T&L, both growing again, investing across machine vision.

We believe vision overall and the idea that we talked about asset visibility, you marry multiple different sensors together to ultimately get to the right answer of visibility. We believe that vision is a long-term way to be able to identify items. So you start with a barcode, you've got RFID and you've got vision that can tell not only identify an item, but ultimately identify things like the characteristics of the item; the quality, is it damaged, those kind of things.

So we see multisensing in this idea of collecting even more data over time and vision systems, machine vision, computer vision being a place that will also be the next or the first device, I guess, I will say, the next generation of mobile devices will likely be a wearable attached to a mobile device in some way that will also use vision.

So this idea that as you're collecting more asset visibility, you may do it through something type of body cam that sees everything that you see. So if you're a retail associate and you're walking down the aisle and stand in front of a facing, you could read the barcodes, you could read the pricing. You could see if there's gaps missing in the inventory on the shelf that could tell you ultimately what item to pick when you have an order to pick.

So we see machine vision, computer vision being an important part of our portfolio moving forward, and we marry that in the idea of barcode scanning, RFID and vision being critical to the kind of future of asset visibility.

Great. I got a question here from the audience that's relevant since we just talked about scanning and RFID. So companies like UPS have goals to eliminate manual scans significantly through RFID and fixed scanning. What is Zebra doing to address this?

Yes. So I think that the idea of eliminating scans through conveyance systems or being through automation is what our customers do what they can do and do that. So RFID is a great example of that. We're the global leader in RFID readers and printers, and we participate across transportation logistics customers in that area.

We see RFID today is being married along with barcoding. So you may eliminate scans along the way, but ultimately, you still need a barcode to identify an individual item and leverage that because you don't have RFID readers everywhere. So today, when you deliver a parcel to a house, you scan the barcode on that item, even though incrementally between the system, you may scan less. That doesn't mean that worker is still not connected.

So ultimately, they may not have to scan an item, but ultimately, that worker needs to be connected because they need to have communication collaboration, need to have task management. They have other applications that are running on that mobile device inside their environment. So just because they're scanning less doesn't mean there's less mobile devices sold and it doesn't eliminate the need for a barcode that's ultimately leveraged throughout the process in different places.

Another question here relevant from the audience. It seems like competitors have superior fixed scanning or machine vision tech. What is the strategy to improve products? Do you need acquisitions?

Yes. So I wouldn't say that our competitors have superior technology to us. I would say that we're the global leader in barcode scanning today across the portfolio. I think that we've got a competitive portfolio of machine vision and fixed industrial scanning assets as well.

We don't need to acquire other assets. We're pretty happy with the portfolio of solutions we have, and we believe we can win in the marketplace. In handheld scanning, we are the market leader. We're challengers in the machine vision and fixed industrial scanning market, but we believe that things and opportunities that we have in front of us, our software capabilities across our vision systems is very, very good.

We believe that our ease of use and the way we're deploying AI to be able to leverage that to be able to put machine vision cameras and train them and put them in use within our customer base, we believe the breadth and depth of the portfolio all the way from 3D vision down to lower-cost solutions gives us an advantage in the marketplace.

And that while we're the challengers to Cognex and Keyence in this space, we think there's an opportunity for us. It's a very fragmented market overall, and there's an opportunity for us to play.

Fantastic. Just changing track slightly. I'd like to talk a bit about how Zebra is leveraging AI as an organization? And what traction are you seeing in doing that in your recently launched solutions?

Yes. I would say that as we talked about the idea that asset visibility feeds AI models and connected frontline allows work to get done from the analytics around from AI models in the front line of business is the biggest opportunity for us across the broad portfolio that we have.

There are specific solutions that we have across for leveraging our mobile devices, as we talked about, AI models on the device itself or connecting back to the cloud. We're -- we've got to meet our customers where they're at in their automation or AI journey, meaning that some of our customers want to develop their own AI models ultimately and leverage our mobile device to run those AI models.

Other customers want to use our blueprints or parts of the solutions from Zebra to be able to implement AI solutions with their environments and others want to buy the full solution from Zebra. One of the examples we had was Total Wine at our National Retail Show that's using our companion to recommend spirits or wine to their customers. And they want to use our full solution. Others want to use the parcel solution.

So we got to meet our customers where they are in their journey. And we think that the opportunity for us is really on the revenue side; higher ASPs for our mobile devices, leveraging our companion software and the enablers we're creating across our AI suite for our customers, embedding AI across the portfolio.

We talked about machine vision, but also our software assets are leveraging AI. AI will be leveraged in multi-sensing, this idea of leveraging barcode scanning, read, machine vision, RFID, all in reading and identifying an asset and then taking the best sensing technique that ultimately identify that item. All those create opportunities for us.

I'd say lastly, internally, just like others, we're leveraging AI to get more efficiencies in co-writing across our development teams. We're leveraging across our sales teams and marketing teams in the organization. We're leveraging across customer success and customer service. So we see efficiencies within our business as well. But I think the biggest opportunity is really on the revenue side for us.

You recently made an acquisition of a company called Elo. Can you talk a little bit about the update on how that's going, integration and contribution from that company, synergies and cross-selling opportunities that you're most excited about from that?

Yes. We're excited about the opportunity from the acquisition of Elo. Really, it brings to us another dimension to automation within our customers in both retail and quick-serve restaurants. We're seeing it across manufacturing and healthcare and others where touchscreen technology and self-service is another way to automate inside the environment.

You go to a location like Newark Airport, you can't really order anything from anybody. You've got to do everything through a touchscreen, right? We're seeing the labor constraints within retail, a continued move to more self-service checkout, for instance. We're seeing that same move inside other industries at our healthcare show, a lot of interest in the Elo portfolio by our healthcare customers and things like checking in patients or checking in visitors, use cases around us, their portfolio.

They're developing payment and point-of-sale solutions that fit right into that self-service model. We're seeing. What we like about the portfolio is very similar to Zebra, high gross margin, very, very reliable hardware in our customers' environments, well respected by named brands around the world. The largest retailers, the largest quick-serve restaurants are leveraging Elo's technology today. We like their portfolio products.

So inside quick-serve restaurant, for example, they can do the customer-facing kiosks. They do point of sale within the quick-serve restaurants. They're doing kitchen displays and touchscreen displays inside the environment -- of the kitchen environment inside quick-serve restaurants.

So just like Zebra, the breadth and depth of their portfolio allows you to actually impact the entire workflow within a quick-serve restaurant versus just having one element of the solution for our ultimate customers. So we like that. Similar levels of growth in Zebra, 5% to 7%, great through cycle. So it marries along with our growth, similarities of profitability across their business.

The opportunity is really around revenue synergies. While we've identified about $10 million in cost synergies, we've committed to $25 million in synergies over the next 3 years. We see the real opportunity is really around revenue. Taking their product portfolio into places that we have relationships around the world. They're mostly in North America and Europe today, mostly North America more so than even Europe.

So taking their portfolio across our broad customer base, taking it in new geographies. We've recently launched their solutions in Australia and India, 2 strong markets for us. We've continued to introduce them into our customer bases where they don't have relationships today. But we see leveraging that portfolio and really getting revenue synergies around the world is the biggest opportunity, and they look and feel a lot like us, competitive moat around software and best-in-class hardware that their customers respect.

Great. Another acquisition, Brady's acquisition of Honeywell's PSS. What does that mean to the industry and to Zebra?

Yes. I think that we continue to focus on winning in the marketplace and our strategic relationships with our largest enterprise customers around the world. We're the market share leader in many of the aspects of our core portfolio today, and we continue to see an opportunity to take share in the marketplace.

So I think that from our perspective, there's always going to be competitors in the marketplace, and we've continued to partner closely with our enterprise customers to make sure that we're the trusted partner that they want to do business with across their entire workflows. And we believe that breadth and depth of our portfolio and our solutions, our global reach, our partner community, our relationships with folks like Qualcomm and Google and our partner community across large software vendors around the world, whether it's an SAP or Manhattan or others allows us a competitive advantage, and we continue to expect to win in the market.

We already talked earlier a lot about memory, but I just wanted to come back to it, given the shortages and price increases. What is -- like how are you managing to navigate this? Do you have long-term agreements in place? Are you moving towards longer-term agreements? How are you able to manage it better than competitors?

Yes. I mean I think that this -- our supply chain team has been doing an incredible job. This is identified probably in the second half of last year when the challenges of memory were expected to come to fruition. I think that the size of the price increases that came in first quarter were anticipated were probably larger than any of us had thought they would be at the time. I think we're all kind of over the shock associated with that.

But I think our team has done a great job of we're -- we have significant relationships with the memory suppliers today that have been in place for many, many years. And we work closely with all 3 of the suppliers ultimately to make sure that we're tightly coupled to what they're doing and to make sure we have the supply we need. That includes the second half of last year, having in-depth conversations about them to what their plans were moving forward, what memory types were going to be most available, where are they going to focus their highest volume productions and us moving to those.

Some of those memory types aren't even available yet, but we've qualified them early on with Qualcomm and ourselves and make sure that we're going to be able to use those memory types that are more available when they become available. We've been able to secure through these relationships, the amount of memory we need. And many times, from a Zebra perspective, we're a large customer to the business units we work with.

We talk about relationships with each of the vendors. We have relationships all the way to their general manager levels within these -- the divisions we work with. And we've been working closely with them to make sure they understood our demand, and we're doing everything they ask us to make sure we can secure that supply, including, like I said, qualifying new memory.

We're also working closely with our customers to make sure we understand what their demand is going to be and make sure we get early visibility to what they expect to buy later in the year to make sure that we're using the memory that we get and building the products ultimately that they want to buy. The last thing I want to do is build products ultimately they don't have demand for or that someone wants to buy something else.

So we've been working with our partner community and our customers to make sure we understand what the requirements are. We've raised price into the market. We've had to, right? So from a pricing perspective, we have to raise price into the marketplace like others. We've priced that such that we believed what the pricing was going to be. And then if the pricing goes up even further, we'll have to raise prices further into the marketplace.

But I think it's our strategic relationships. I think our supply chain team has been through this before through COVID and has managed through it. We've got line of sight to the demand, the memory we need to meet our guide for the year. I think that there's upside to the higher end of our guide for the full year if we can secure additional memory because we'd see the demand from a customer perspective. So we haven't -- we think there's upside to that. But right now, we're planning on getting the memory that we need. We have commitments from the vendors to get that. Ultimately, they have to go deliver on it. But I think we feel pretty good about where we're at from a pricing perspective and availability perspective.

Great. How are you thinking about capital allocation priorities, including share repurchases and M&A?

Yes, we've been buying our stock back based on the current valuation. So we spent about $500 million in share buybacks since the beginning of the year because we believe that ultimately it is the best use of our capital in the short term given the valuation of the stock. I think that overall M&A becomes an important piece to our future. We continue to be inquisitive around M&A and continue to look at assets that would drive our growth moving forward that are closely adjacent to the areas in which we do business today.

And we would see venture also, small investments in venture in places where we're not looking to acquire, but want to explore kind of new technologies that ultimately may be interesting to us down the road. But I would say in the short term, our priority has been really around buybacks based on the current valuation.

And I've got a few more questions from the audience. Just a reminder, pigeonholing, feel free to vote on your questions or add any if you have any to add. You mentioned -- so this is a few questions from the audience. You mentioned AI as a net positive. What are the key potential negatives? How material are they? And what can you do to address them?

Yes. I mean we don't see -- I really don't see automation and AI being a negative for our business. I think that there's a concern out there, I think, with investors at times that have expressed around, well, are the -- are all of us sitting on our couches while humanoids are doing all the work. And we don't see that taking place for the foreseeable future.

In fact, if you look at automation today, we're really talking about warehousing in customers today or inside warehousing, and that's only a small portion of our business overall compared to the -- we don't see necessarily AI taking over the retail associates' job or a nurse inside healthcare anytime soon.

So I think that we would see a net positive as we need to have more and more workers connected in an AI world to leverage AI engines. And the number of -- if you look at even warehouses today, the place that's most automated, automation and AI today, which will really be driven by AI moving forward is really around goods transport.

It's really moving things and storing items today are on automation. AI ultimately will allow more intelligence. But to drive that intelligence, likely a worker will need to leverage a mobile device and will need more connectivity. So I don't see a negative for us. I see people wanting having more visibility in their environment and more workers needing to be connected than ever before to be able to implement AI in the environment. And even customers that are the most advanced in automation today and one would argue AI is going to advance automation are buying more devices from us.

Related to that, can high memory prices delay the AI upgrade cycle? I guess that's -- this is also from the audience. I guess that's referring to you need lots of memory in the devices. Is that -- could that delay the upgrades?

Yes. We haven't seen -- so 2 elements around -- you know the -- we don't necessarily see that. I think we're still at the early stages of the rollout of devices that are AI-enabled, right? They've just been released in the market. Overall from our perspective, we don't see delaying those device rollouts associated with not being able to secure the memory we need.

I would say that we also haven't seen customers push out any projects at all associated with, hey, this is a higher-priced device because of memory, I'm going to wait and buy or push this project out. I think there's always a risk that customers have limited budgets, and they're going to make choices at some point in time around the projects in general they go with. Servers are more expensive and mobile devices are more expensive in everything they do. Their data center equipment is all more expensive, communications equipment and others, they got to make choices. But we haven't seen that. We've seen our customers' conviction around deploying technology for their frontline workers. We're key to that, and those projects continue to move forward. And I think that our customers have acknowledged that the higher price is driven really by memory pricing. We've been able to secure the memory that they've needed for the devices they want to procure. And I think we haven't seen them change their behavior because of it.

Another question from the audience. Where do you see mobile technology heading? And how will it impact you? And if I could just add to that, considering where smartphones are today, Apple, Samsung, et cetera, and the way that now we integrate with -- we're talking to the phones using our voice more and more, how could that impact you and potential competition from consumer device brands like Apple and Samsung, for example?

Yes. So let's start with where I think it's heading. And I think ultimately, we're going to see devices with more processing power, more memory and others I talked about before to support applications, whether that's -- and I think it will predominantly be voice and vision driven. And I'll cover that in a minute. So I think today, voice, meaning, ultimately, I want to go ask a question. I want to go ask it in multiple languages. I want an AI engine to come back with an answer associated with it. I think that vision plays an important role moving forward as well. I think you'll see mobile devices augmented with devices like -- I'll use the example, body cam.

So I don't think it likely will be glasses. It might be, but I'm not sure that consumers are in love with everybody walking around a retail store with glasses on. But I do think there's likely some type of body cam type of device that pairs your mobile device as the first incarnation of an AI-enabled device.

So this idea that if you're walking around a retail store, I can sense the entire environment. I can read barcodes on the shelf. I can look at the pricing. I can tell what shelf has gaps in it. If I stand in front of a shelf, I can look at the entire image. I can actually be directed on where to pick an item for an order that I'm actually picking.

So I think wearable technology, and we've seen this in our customer base, customers moving more to hands-free and wearable devices, and we're the global leader in enterprise wearable devices. And we think the next incarnation of where it goes is likely some type of wearable device married with a mobile device because you want to have battery and connectivity and others, you want this device to be small, is likely the first incarnation of a multi-sensing AI type device.

Customers of ours that have considered consumer have always come back to Zebra. And the primary reason is, number one, world-class hardware set for their environment. If you're in a transportation logistics or you're in a do-it-yourself retail store, your devices you're buying are 8-foot drop spec devices that can be dropped many, many times in that environment. You can't do that with a consumer device even with the case on.

Second is the software and functionality we give to -- we add to those devices. So the majority of my engineers today are software engineers. They're developing on top of Android to be able to give enterprise software capabilities to our customers. How do I control the security patches? How do I control the OS downloads to that device? How do I be able to provision those devices in environment? Many of our devices are only in a Wi-Fi environment.

So a mobile device is optimized for cellular. Our devices are optimized for cellular and Wi-Fi inside the environment ultimately because many of them never have a cellular connectivity associated with it. There's devices that fit for purpose. So our healthcare devices are designed to be able to wipe down with disinfectants every couple of hours inside that environment. You can't do that with a consumer device the way you would with our enterprise devices.

So there's a competitive moat that we have around this enterprise environment that you're just not going to see from a consumer device.

And that applies also to wearables as well, not just the mobile device?

It does today because the wearables we design today are all about multiuse within our customers' environment. So think of the idea of a wearable device, but the device actually comes off, you have your own wearable wrist strap that you actually -- is yours, right? Because you don't want to wear somebody's quite honestly sweaty wrist strap that shipped before you. So we think through the entire enterprise workflow and use case with our customers and then design the device around that.

Right. Got it. All right. We're running out of time. So last question for me. Just anything you think that is underappreciated by the market? And why do you feel Zebra's stock price is undervalued right here?

Yes. I think we've talked about it already. I think ultimately, there's a bit of overhang on memory, right? I think ultimately, that we believe we're going to be able to secure the memory we need to meet our guide. And if we can get additional memory, we think we'd move towards the top end of our guidance range that we've given. We're seeing the demand in the marketplace today.

I'd say overall that automation and AI are positive for Zebra in longer-term trends. I think we're going to see over the next couple of years, us continue to deliver the 5% to 7% growth rate. I think the refresh cycle, we haven't really talked about coming out of 2020 and '21, '21 and '22, there was a lot of devices that were bought by transportation logistics companies and postal and others that were put in use there. Those upgrades and refreshes are coming up over the next couple of years, we need to have those conversations with our customers.

So we're excited about delivering not only the top line growth we talked about, but profitability increases associated with that, continue to generate 100% free cash flow and creates us opportunities from capital allocation, either buying our stock back or from the acquisition perspective and making investments within our business. So we're excited about the future.

Great. Thanks very much, Bill. Appreciate it.

Thank you very much.

All right. So continuing on with day 3 of our conference. Up next, we have Zebra Technologies. Very pleased to have the CFO, Nathan Winters.

Great. It's great to be here.

Thanks for joining us. So Nathan, maybe just start on kind of state of the union in terms of demand. Where do you see demand tracking? You guided to 5% organic growth at the midpoint for 2026.

Yes. So I think, again, off to a great start to the year. We saw broad-based demand across our regional markets, across different verticals as well as both our product segments. So with the strong start to the year, the visibility we had here in the second quarter, we raised our guide at a point to, as you said, 5% at the midpoint. I can talk more about it. But I think, again, we feel great about the start to the year. We have line of sight to the memory we need. I know we'll talk about that in a little bit to achieve the midpoint of our guidance and really look at the high end of our guidance range around where we see unconstrained demand in the market.

And so, really, now is just working through some of the memory capacity to get there through the balance of the year. But again, the broad-based strength and particularly the strength in manufacturing drove a bit of the upside here in the first quarter, which was great to see.

So as you think about kind of the puts and takes, what do you see as the biggest factors that could drive you to the high end versus the low end of the range for the year?

Yes. So really the -- I mean, today, the mitigating -- the limiting factor is memory supply. We feel, again, the good thing is all of our memory suppliers delivered on their commitment for the first quarter. They're delivering on what they said they'd deliver here in the second quarter. We have no reason to believe we'll get any less demand or less capacity or supply through the back half of the year. But clearly, it's not enough to us to achieve where we see some of the underlying market momentum that gets us to the high end of the range.

The team's got a lot of actions in place to increase supply in the back half of the year in terms of second and third supply choice opportunities, redesigned on to where some of the incremental capacity is coming online later this year and into next. So there's definitely options and actions to take to get to the high end of the range, particularly on the supply side.

We didn't think it was appropriate at this time to bake that into the guidance and wait to see how that plays out here as we go through the year. But I think outside of that, the strength in manufacturing, where we saw double-digit growth from that from our machine vision business. Strength, again, that drives a lot of volume in our print and supplies business and scanning, which again helped on the margin profile. I think -- and that's been great to see because that was one of the vertical markets that was lagging throughout last year. So the strength in manufacturing, again, we feel like it's given us some nice momentum that helped underline the increase in the guidance.

As we think about kind of the cadence throughout the year on top line, kind of implying modest sequential increases, are there any particular verticals or geographies where you expect that kind of sequential development to be more or less pronounced?

Pretty consistent across. I mean if you look at it by region, North America, again, in line with the overall growth rate for the year. I think EMEA has been remarkably resilient despite everything that's going on. So we see good resilient demand. And then we've seen great growth from Asia Pacific and Latin America.

Again, we mentioned manufacturing strength. Retail and e-commerce continues to grow with the demand for higher e-commerce growth, the ability to drive that omnichannel experience for the consumer and our products help deliver that for our customers, particularly when we think about the new AI-enabled devices and what they can do from a consumer experience, I think is really exciting and what our customers are continuing to invest in.

Okay. And maybe in terms of the refresh cycle, you mentioned on the call that you expect refresh activity in 2026 to be similar to 2025 levels. Just curious where we are in the refresh cycle by vertical?

Yes. So refresh activity is a great long-term opportunity for us. I mean, given our market leadership, the size and growing installed base, that's something we believe we can continue to monetize over time. And you really have to think about it between all customers and verticals are a bit different. I think front of store retail, I'd say is there's no longer a cycle. It's just every quarter, every year, we have different customers who are refreshing their portfolio just going back to Q4 '24. So that's kind of in the baseline.

Again, everyone is on a little bit of a different cycle. What's really different from where we were, call it, pre -- going back to 2019 is that think about it from a T&L and really last mile delivery. The last mile delivery refresh and really upgrade the entire portfolio in the '21-'22 time frame. Those devices tend to last longer. That's our TC7 portfolio, which are kind of super rugged. They tend to run less applications.

Where in the front of store retail store, you can be running 60 different applications on those mobile computers. So the need for more compute power processing memory is a bit more intense. But on that last mile delivery, again, huge opportunity. It's very active right now in terms of RFPs, request for quote, proof of concepts, piloting different types -- piloting our new technology. We announced the win from an AI perspective around picture proof of delivery.

So again, the ability to take a picture at your doorstep that an agent then on the back end confirm that it was delivered, store that image and make sure it's a proper image so that if there's a claim that it wasn't delivered, they have a good quality picture of that package at your doorstep for that proof, which can save tens of millions of dollars. That's a real differentiator than we were at a couple of years ago. So that activity is absolutely accelerated over the last 6 to 9 months. And it gives us that confidence as we go into '27 and '28 around that step change in growth that can really be driven from that T&L refresh.

Maybe along that line, Nate, your long-term growth algorithm is 5% to 7%. If we think about it, versus 2019 levels, you've been kind of running a little bit below trend. You talked about the potential for refresh to accelerate growth in '27. How do you think about the potential for that growth acceleration relative to the long-term algorithm?

Yes. Look, I think, one, we feel very confident in the long-term growth algorithm. I think -- going back to 2019, the last whatever it was now 6, 7 years, there's been anything but a normal cycle between COVID and coming out of that. But if you include this year, we'll now have 3 years in a row growing above within that 5% to 7% range. The refresh opportunity in T&L is absolutely a driver that can get us to the higher end of that range here as we go over the next couple of years. So we're excited about that. But we're also excited about what the rest of the portfolio can bring.

I mean, again, you're seeing the need for visibility, real-time visibility across the supply chain, whether that's using machine vision, RFID or more just scans with kind of our traditional portfolio, that's continually increasing and providing new opportunities for the company as well as, again, having the capability in the hands of frontline workers or more technology in the hands of frontline workers to provide that better consumer experience, provide more efficiency is a continuing trend that we think, again, continues to drive the underlying growth of the business.

Okay. Great. And then maybe switching back to the memory topic. So you sound pretty confident on being able to secure the memory supply. I think you said on the call, consistent level of memory supply in the second half of the year expected versus the first half. But maybe just talk about the inflationary side of things. How do you see that kind of playing out throughout the year?

Yes. So from an input cost, again, it was playing out as -- from a trajectory perspective, as we laid out in our original guidance back in February. So we had planned for price increases, input cost increase. Those are in line with what we had modeled out at the beginning of the year. Some memory types, some suppliers are higher and lower than -- but in aggregate, it's played out as expected.

And look, I think we look at it and say, if that changes, we'll make sure we be the first to be transparent around that. We'll raise price if necessary, to continue to mitigate that exposure as we move forward. And then our own price increase, we announced that back in March. It went into effect at the end of March, but we were really pricing deals with the higher price going back into early February.

And I think we haven't seen any change in demand -- fundamental change in demand from that price increase. Customers aren't coming back changing project timing or putting projects on hold because of that. And again, back to what I was saying before, there's some real significant value that can be created with the newer technology in our mobile computing platform that it will have a nominal impact on that ROI, but it's still a positive net ROI from some of the value you can get even at a 10%, 15% higher price.

And then we're not alone in that. Our competitors raise price. They're obviously seeing that across other type of electronics that they see. So again, this isn't us alone in the market driving that price increase. So again, we haven't seen any change in underlying demand from it. Obviously, we've built the higher price increase into our guidance in the back half of the year. So it's driving about 1 point of increased volume -- or a point of increased revenue for the year.

And look, we'll -- as a market leader, we have the ability to adapt. And if we need to raise prices further to further mitigate memory, we will. If we need to pull that back as we start to see impact on demand, we can make that decision here as we go throughout the year.

And to be clear, I think you also kind of implicitly embedded kind of a 1-point headwind from lower volume that would kind of offset that 1 point rise.

And that's purely driven by capacity. Again, if you think about the guidance framework we had, the high end of our guidance range is underlying -- what we see as underlying demand, both from the pipeline of opportunities, what our sales teams are seeing from our customers.

Even if you look at historical sequential improvement from first half to second half, would point you more closely towards the high end of our guidance range. So the real cap is around, again, supply assumption. And again, not that we don't have opportunities and actions we're doing to drive that incremental volume. But again, we just felt it wasn't appropriate at this time as we set out a baseline guide for the year.

Okay. And then maybe switching gears to the tariff side of things and supply chain. I think in 2025, you had about a low 20s million gross profit headwind from tariffs. Where do we stand this year? What's kind of the state of the union on tariffs?

Yes. So tariffs somewhat flipped. So now from a year-on-year perspective with a $20 million tailwind. So we fully mitigated the tariff impact as we exited last year between the price increases, production moves. I think the team has done a great job. I mean, even going back on the memory, I mean, it's a muscle that we built up going back to the first round of tariffs to semiconductor shortages, some of the freight challenges a few years ago.

And now we feel like we have -- we've moved 80% of our North America volumes to come out of China. That's now less than 20%. So obviously, there's a direct tariff benefit. But also, I'd just say from a -- we feel really good about the resiliency of the supply chain we have in place today, the diversification across different geographies to mitigate whether it's tariffs, geopolitical, natural, whatever it might be, it's really around having both the resilient and efficient supply chain that we have. And again, tariffs are one of the many factors helping us offset the memory cost headwind this year from a year-on-year perspective because of the actions we took last year.

Okay. And then as we think about the -- going back to the long-term algorithm, the 5% to 7%, there's a lot of kind of moving pieces with AI and some of those impacts. It sounds like you're still kind of confident in that range. As we think about the moving pieces, I think you previously said 4% to 5% in the core and then the expansion in adjacent categories, high singles to low doubles plus. Is that still the right way to think about it in terms of the components there?

Yes, it is. Again, we look at we think whether it's -- again, our business, the history of Zebra is around driving productivity, driving efficiency for our customers, whatever the technology was over the past 50 years, and AI is just the next evolution of that. And so we think it's, again, an opportunity for us to be -- to provide that incremental value, be the AI provider for the front line that makes us unique and different than many others that are out there in the marketplace.

But you go back to that core business, kind of growing 4% to 5% as the foundation, augmenting that with RFID, machine vision, AI-enabled software. You throw on the refresh opportunity we have around frontline delivery that kind of gets us into that high end of the range here as we go over the next several years. So again, we feel good about the overall algorithm and how we can continue to complement the core business with our new markets.

And in terms of what you've seen so far from the AI impact, have you seen any evidence that for some customers that could be kind of shortening the refresh cycle?

I think it just so happens that the technology and the applications there are coinciding with many customers need to refresh. But absolutely, I mean if you go back to some of the first refreshes we had post-COVID in the retail, front of store retail were the retailers who are really at the forefront around technology in their stores, and they moved to the next-generation mobile computers so they can take advantage of those capabilities, and they needed additional speed and capacity.

So it's absolutely a driver for maybe not -- I don't know if it's early or the need to or why they wouldn't extend any further. And so again, that last mile delivery example of in order to do that picture proof of delivery that they're excited about, they need the next-generation mobile computer. So they need to refresh and drive that refresh in order to take advantage of the opportunity they have. So the 2 are coincided hand in hand.

As we think about your leveraging of AI, I mean, you guys have showcased for a couple of years, at least like the trade shows, NRF, for example, of how you guys are using AI internally. Should we think about that more as like a monetization opportunity? Or is that more of like a way to kind of increase customer stickiness?

Yes. So we think about opportunity we have for AI in the market kind of multifaceted. And I'll end with the points you brought up. But I think if you go back to the core of our business of driving real-time visibility to assets across the supply chain, feeding that data back into AI models for our customers to provide better insights is foundational to what we do.

Our AI-empowered mobile computers, again, kind of completing the circle of then how do you get that intelligence back to the front line. Again, that's what our portfolio is set up to do in terms of making those frontline workers more productive and more efficient by having those capabilities. And we've augmented that with -- and some of it is to prove out the value to some of our customers are going to do this on their own, build those models and agents. Some are going to have an ISV or a partner do it and some may use our capabilities.

But we've tiered our AI suite to 3. Think of an enabler, which comes with any mobile computer now of APIs, specific APIs that help generate better workflow, better AI experience. So this could be the capability of optical character recognition from the device. This could be the camera, again, dialed in to be able to -- that's built for taking that image of a door in a package in that environment. The blueprint is a combination of enablers. So packaging those together so we can monetize that in an offering to our customers, and that's what the picture proof of delivery is.

So it's, again, multiple enablers packaged together to provide that experience and improve that workflow to our companion, which is think of a full-blown agent where -- and it could be more tied to that frontline worker in a retail store that's -- they're being asked "What wine should I buy?" And we did this at the last NRF.

Again, any of us can ask any agent. That's not the secret, but it's partnering in that with their proprietary information so that it's this wine at this price point that's on the shelf and on that shelf location so you can provide that comprehensive experience. If you're a brand-new store associate who may not know much about wine, you can ask and provide that real experience right there at their fingertips. And I think that's, again, what the power of AI can bring to our frontline customers, and we can help them part of that journey. Again, whether that's helping them be -- do it themselves because that's -- they want to control that by having those easy interfaces to building out the full-blown agent for them.

As we think about kind of bigger picture longer term, kind of the path towards a more fully autonomous warehouse over time, what does that look like for Zebra? What kind of impact do you think that can have on the growth profile of the business?

Yes. If we look at a couple of different ways. One, the journey to fully automating a warehouse is absolutely an opportunity for us as a company. That is what we do is drive solutions that provide productivity. Again, whether that's in our core business of having mobile technology in the hands of those frontline workers to RFID, machine vision.

And I think what's important in context, people tend to look at that as a net negative for the company is, one, about 10% to 15% of our business is mobile computers in a warehouse, right? So if that's kind of the worst-case scenario, but that doesn't even contemplate the opportunities along the way because any one of those systems need vision, right, whether that's our machine vision capabilities to see the packages, scan those packages along the workflow. Photoneo, which we added, which we talk about, added 3D machine vision capabilities. So they do a lot of vision-guided robotics. So as they're going in to pick, the eyes for those systems are Photoneo cameras.

But look, we think there's -- again, back to the original, it's only 25% of the warehouses across the globe are -- use automation. And so if you're a warehouse that is still today having to manually do cycle counts every week by week, month-to-month to even know what you have, to go pick. -- you're a long ways away before putting in a fully autonomous warehouse. And so how do you go from there to one end of the spectrum to the other is our technology, right? And I think we can help provide the spectrum of that irregardless of where you're on that journey.

Maybe we'll pause there and see if there's any questions from the audience. Yes. Let's see if we have a mic that we can...

Two related questions. You have a competitor who's spinning off a business that competes with you. And so the 2 related questions are, one, is that driving any change in personnel? Are you picking up people that are maybe looking for a new home? So that would be the first part. And then secondly, what are your customers saying about that transaction and any potential change in customer motivation around it?

I'd say on both fronts, we haven't seen a meaningful change, right? I mean there's not been meaningful changes in force that would cause -- I think from a people perspective. And then I think the competitive dynamic hasn't changed. I mean that transaction won't be complete until later this year.

And I think throughout the process, they continue to be active in the market, competitive in the market, and we've stayed just focused on what we always have been, which is win and show our advantage in both the portfolio and the strength of the portfolio and the long-term relationship and commitment we have to the business. And I don't see those changing here in the near future because of the transaction.

Any other questions? If not, we can keep going. Maybe in terms of margins, for the year, at the midpoint, you're guiding about 80 basis points of EBITDA margin expansion. I know you have that 1 point headwind from the memory inflation. Just maybe walk us through that dynamic of how the margins progress throughout the year.

Yes. Look, I think we feel great about where we are from a margin perspective. I'd love to not have the memory headwind, but I think we've put ourselves in a position to manage it through the year. Q1, we ended at a little over 23% EBITDA rate. We had 50% gross margin for the first time in at least a decade since the enterprise transaction. So I think that just shows the underlying strength of the business.

And then as we step through the year, we guided 22% EBITDA rate for the year. That includes 2 points of gross headwind from higher memory costs. We're offsetting a point of that with our own price increase that ramps up through the year, ramps through the year. And another point would just call it other operational benefits, some of the restructuring actions, the tariff -- rollover of tariff that I mentioned. And I think you saw that strength in Q1 with the 23% rate in the first quarter.

So again, we feel good about the mix of the price increases we took to offset memory, the underlying strength of the business and the other actions we've taken to offset the other half of the memory exposure. So if you kind of think about the EBITDA rate through the balance of the year, Q1 to Q2 is the step down of 2 points from '23 to '21, almost entirely driven by the step change in memory pricing.

And then if you go through the balance of the year, we expect margin rates to step back up at least at an EBITDA rate as our price increases start to flow through the P&L along with some of the incremental restructuring actions, the benefit of tariff from a year-on-year perspective as well as just some normal seasonality we have in our OpEx and cost structure.

So I think the combination of all that gives us the confidence that the marginal step-up in back half EBITDA rate from where we're at in Q2 is not a big hurdle and that we got a lot of levers we can pull as we go through the year if we need to adjust based on whether memory pricing at or other inflation pressures as we go.

Okay. Right. Because it seems like you're implying that the Q4 margins are going to be exiting the year lower than where you actually were in Q3, even though -- sorry, in Q1 despite the fact that your memory offsets are going to be greater in Q4, your revenue should be higher than it was versus Q1. So -- is that kind of one of the areas of conservatism that you think you would point to there?

Yes. Look, I think if you look at -- let me say it a little bit differently. We guided 22% at the beginning of the year rate for the year. We maintained that overall 22% rate here in our most latest guidance despite the beat in Q1, both on revenue and margin dollars and despite having higher volume, which you would think comes with -- typically comes at a higher -- and I'd say some of that was just derisking the back half, right? Not for any other reason other than give ourselves a little bit of cushion given everything that's going on from -- in the back half of the year.

So I think that's a different way of saying, yes, a little bit more conservative on the rate. If you kind of step through those changes, it would imply a little bit -- a slightly higher rate for the year, but just didn't think it was appropriate at this time and give ourselves a little bit of cushion here as we go.

So maybe in terms of capital allocation, so you're at around 2 turns of net leverage currently. How do you think about capital allocation going forward? Where does the pendulum stand between buybacks versus M&A?

Yes. Yes. Like I said, our debt leverage is at 2. Very comfortable at that level. I think between the capital structure, the free cash flow profile gives us a lot of flexibility to continue to invest in the business organically, continue to be active in the market from a share repurchase perspective or if an M&A opportunity comes along to engage there as well.

And again, post the Elo acquisition and completing that in the early part of the fourth quarter, we've put our work into share buyback. We did $300 million in Q4, $300 million in the first quarter, $200 million in April. So we've -- again, we thought where the price is at, we think it's an attractive opportunity for repurchase and to buy into the market.

So -- and then we guided -- as part of our guide for the remainder of the year, we assumed another $100 million of share repurchase as part of our EPS guidance, but can absolutely go to 100% free cash flow, which imply another $300 million on top of that here as we go through the year, particularly if we stay kind of at these attractive price levels.

Okay. So fair to say the pendulum kind of skews a little bit more towards the buyback side of things.

Absolutely. I think given where the price is at. But again, we have the capital structure, there's -- I think we can be more active from a debt perspective if we need to, if an attractive opportunity comes along from an M&A perspective. But look, there's no reason to wait for that given the opportunity we have here in the short term with our own stock.

As you think about the pipeline, is that more bolt-on type of deals? Or like what is an ideal M&A deal look for you guys going forward?

We want really focused around assets that are complementary to the portfolio we have today, near adjacent, give us scale in the businesses that we're already existing in today. We think both Elo and Photoneo kind of fit that profile, right? Photoneo, a bolt-on technology to our machine vision business. Elo, a scaled business that's complementary to our connected Frontline portfolio that was immediately accretive and an opportunity to drive significant synergies as we integrate that business.

So we think those are good profiles of companies we'd like to add to the portfolio. And again, it's just finding the right asset at the right price that meets all the financial hurdles. But there's -- we don't think there's a -- we like the portfolio we have today. The primary focus is around driving organic growth. And if we can find an asset that complements it and augments the growth, that's great.

I guess we'll pause there again and see if there's any audience questions.

Nathan, outside of memory, any other risks that you see out there, number one? And then secondly, what's the pipeline of projects, warehouse development, et cetera, projects you see in back half of this year and in 2027?

Yes. I think in terms of risk, I mean, obviously, we have an eye on all other inflationary items, whether that's oil from a transportation logistics perspective, which we see as a marginal headwind that we baked into -- baked into our last guidance. I think it's on a relatively small basis. We can manage through that at this point in time. So that's the one we're paying attention to, paying attention to just from a broader conflict, more just the changes in logistics and managing through kind of -- as the geopolitical conflicts kind of just caused more disruption in the short term of how to move things around the world. But the team has, I think, done a great job of managing through those.

Look, I think from a warehouse, it's interesting. You still look at the underlying -- I think warehouse growth is expected to grow 7% this year in terms of new warehouse capacity. Number of employees in the warehouse are expected to grow year-on-year. So we look at -- and then we look at our own portfolio, even with all the automation over the last 5 years, the need for more warehouses, more people to fill those warehouses is still growing.

Our installed base has grown over that time frame. So again, I think you look back and say the automation is just required to keep up with demand, right? And so I think that's where we think about kind of the excitement around the need for productivity, automation, using AI are all -- again, technologies that are required just to meet the underlying demand of those kind of across the segment, and we can play across that spectrum and help our customers meet those needs and how they embed it, how they think about those and where to incorporate into those workflows because we're deeply embedded in it, right?

I think that gives us a position of strength across any one of those is to help our customers calibrate how to use it and use those technologies. Even I talk about RFID is one that some of the new use cases around RFID weren't even contemplated a year, 1.5 years ago, right? Think of fresh food and putting an RFID tag on a loaf of bread that's baked fresh in the back of a grocery. I mean -- and -- but then you look at it and say the unit economics of the spoilage and the amount of money that's wasted around spoilage of that and what RFID enables them to, just with this quick scan, know exactly the age, where it's at in terms of its life cycle and how to promote it in a way that is sold versus thrown away or how much you really need to produce.

And by the way, that's a great opportunity for us because we print that label in the back using the chip and the inlay. So we'll print it and then we're the leader in RFID readers, whether that's fixed or mobile. And then you think about how that even expands to now mobile computers being -- have embedded RFID. So again, it's pretty exciting in terms of where these different use cases are opening up new opportunities that people weren't thinking about a couple of years ago. And I think that's the excitement you see across the spectrum that both things like RFID, AI are enabling for our customers and that we can help them on that journey.

Well, I think we're out of time. So we'll draw the line there. Thanks for joining us, Nate. Yes. I appreciate it.

Thank you all. Appreciate it.

Good day, and welcome to the Zebra Technologies First Quarter Earnings Conference Call. [Operator Instructions] Please note, this event is being recorded.

I would now like to hand the call over to Michael Steele, Vice President of Investor Relations. Please go ahead.

Good morning, and welcome to Zebra's first quarter earnings conference call. This presentation is being simulcast on our website at investors.zebra.com and will be archived there for at least 1 year. Our forward-looking statements are based on current expectations and assumptions and are subject to risks and uncertainties. Actual results could differ materially, and we refer you to the risk factors discussed in our SEC filings.

During this call, we will reference non-GAAP financial measures as we describe business performance with reconciliations shown at the end of the slide presentation and in our earnings press release. Throughout this presentation, unless otherwise indicated, our references to sales performance are year-on-year on a constant currency basis and exclude results from both business acquisitions and dispositions for 12 months.

This presentation will include prepared remarks from Bill Burns, our Chief Executive Officer; and Nathan Winters, our Chief Financial Officer. Bill will begin with his perspective on our first quarter results, our value proposition and strategic priorities. Nathan will then provide additional detail on our financial results and discuss our outlook. Followed by Bill's closing remarks. Then Bill and Nathan will take your questions.

Now let's turn to Slide 3 as I hand it over to Bill.

Thank you, Mike. Good morning, everyone, and thank you for joining us. The year is off to a great start. Today, I want to take a step back to put our results into a broader context to what our performance says about Zebra's position in the market, the momentum in our business and the opportunity ahead.

There are 3 takeaways I want to leave you with this morning. First, we achieved strong Q1 results, and we are seeing continued momentum that supports our increased outlook for the full year.

Second, our performance reflects Zebra's industry leadership and our unique value proposition backed by our integrated portfolio of solutions that combines hardware, software and services to solve our customers' complex challenges. We are deeply embedded in our customers' operations and increasingly central to their efforts to drive productivity through automating workflows and proving how work gets done across the front line of business and beginning to integrate AI into their operations.

Third, we are executing a clear strategy to create long-term shareholder value by driving profitable growth, building on our leadership and track record of innovation and enhancing our financial strength and flexibility. With that, let's start with our first quarter results.

Turning to Slide 4. We delivered results near the high end of our outlook, driven by our team's strong execution and positive demand trends across our portfolio. For the quarter, we generated sales of nearly $1.5 billion, a 14% increase or 4% on an organic basis from the prior year, and adjusted EBITDA margin of 23.2% and non-GAAP diluted earnings per share of $4.75 an 18% increase over the prior year. We achieved growth across both our segments and all regions with outperformance in our manufacturing end market.

Elo Touch also contributed solid profitable growth, and we are encouraged by our customers' interest in our combined portfolio of solutions and our progress in driving synergies. We expanded adjusted EBITDA margin by 90 basis points, driven by a multiyear high gross margin and operating expense leverage, reflecting the benefits of our productivity initiative. These results demonstrated the durability of demand for our solutions and our ability to convert that demand into profitable growth.

Supported by our strong financial position, we have executed $500 million of share repurchases year-to-date through early May, following more than $300 million in the fourth quarter. Our business momentum and progress in navigating the current memory supply environment gives us confidence in raising our outlook for the full year with our recently elevated stock repurchase activity, underscoring our conviction. In a few minutes, Nathan will discuss our outlook and our progress in managing memory supply.

Turning to Slide 5. We have significant runway for growth with our clear and differentiated value proposition, supported by trends in automation, digitization and AI across a $35 billion served market. Our broad portfolio of integrated hardware and software solutions enables us to deliver value across the entire workflow, not just a single use case, creating a meaningful competitive advantage. And our industry leadership puts us in a unique position to be the supplier of choice of AI for the frontline. We have a resilient financial model with strong margins and cash generation, supported by disciplined capital allocation that drives long-term shareholder value.

Moving to Slide 6. Zebra provides the foundation for intelligent operations. We help our customers understand what's happening across their operations in real time and then act on that information to drive better outcomes. We operate across 2 segments: the connected front line, providing the digital touch points necessary to improve productivity, collaboration and the customer experience. Our solutions include enterprise mobile computing, interactive displays, frontline software and AI agents.

Asset visibility and automation enables real-time insights from assets, inventory and operations to automate environments through our portfolio of solutions, including advanced data capture, printing and supplies RFID and machine vision. Together, these segments give us a broad and complementary portfolio that allows us to meet customers where they are in their automation journey and advanced their capabilities.

Zebra is well positioned to benefit from the mega trend shown on Slide 7. Across industries, our customers are operating in increased complex environments, shaped by labor constraints, cost pressures higher consumer expectations and the growing need for real-time visibility and execution. As a result, priorities like mobility, intelligent automation, asset visibility, cloud connectivity and physical AI are becoming increasingly central to how enterprises run their operations. We see these as durable long-term demand drivers that support Zebra's growth opportunity.

Slide 8 illustrates how Zebra's end-to-end presence across the supply chain is a key differentiator. Our embedded role in daily operations generates the insights that power smarter solutions and AI at scale. Our broad portfolio enables us to address mission-critical workflows that span from factory floor to the warehouse to the end customer and all touch points along the way. Zebra's products and solutions can be utilized more than 30x as an item travels through the supply chain and this number continues to increase with the need for real-time visibility.

Slide 9 highlights the breadth of our customer base and the significant opportunities in front of us. Zebra supports more than 80% of the Fortune 500 across large and growing end markets, each with distinct needs shaped by the unique business models. That said, there's a common need across all of them, greater operational visibility and productivity.

We play a critical role in helping our customers better understand what's happening across their operations, allowing them to take action in real time. We are deeply embedded in their workflows as a trusted partner, enabling us to co-innovate as they adopt new technologies to digitize their operations and look to leverage AI.

On Slide 10, we highlight the 3 strategic priorities guiding our business. Our first priority is driving profitable growth. We see meaningful room to grow across both of our segments, supported by a large and diverse market and a long runway of adoption in many of the environments we serve. We believe both connected frontline and asset visibility and automation have a 5% to 7% organic sales growth profile over a cycle and are confident in our ability to deliver.

Penetration is still relatively low across the markets we serve highlighting the opportunity in front of us. For example, based on third-party research, there are 3/4 of warehouses globally are in the early stages of their automation journey. Our growth prospects are supported by investments in RFID, machine vision and AI that enhance our differentiation and expand our relevance with customers.

We are also driving efficiency initiatives in our business to enhance profitability, which include operating margin leverage through cost discipline, including our previously announced restructuring actions, accelerating software development velocity by deploying new AI tools and enhancing our go-to-market model to improve market coverage and efficiency.

Our second strategic priority is to continue building on our market-leading position by advancing innovation. Recent progress includes launching an entirely new line of enterprise mobile computers and wearables with embedded RFID and optimized AI processing capabilities and a global logistics customer has selected our new frontline AI picture proof of delivery capability. This on-device AI solution is driving faster delivery times while improving the consumer experience. These are just a couple of examples of innovation that are tightly aligned with customer needs and designed to drive both growth and differentiation.

Our third strategic priority is enhancing our financial strength and flexibility by driving consistency of earnings and cash flow generation through our capital-light business model. We will also continue to execute on our balanced capital allocation strategy, prioritizing investments in our business that elevate our portfolio of solutions, while consistently returning capital to shareholders.

I will now turn the call over to Nathan to review our Q1 financial results and improved 2026 outlook.

Thank you, Bill. Let's start with the P&L on Slide 12. In Q1, total company sales increased 14.3% or 4.3% on an organic basis with momentum across our business. Our Connected Frontline segment grew 20.6%, including the recent Elo Touch acquisition, or 3.8% on an organic basis led by mobile computing. Our asset visibility and Automation segment grew 4.8%, led by printing and machine vision.

We realized solid performance across all our regions. North America sales increased 4%, led by strength in manufacturing. EMEA sales grew 2%, with broad-based growth across Europe, partially offset by softness in the Middle East. Asia Pacific sales increased 11%, led by India and Southeast Asia and Latin America sales grew 10%. Adjusted gross margin improved 80 basis points to 50.4% primarily due to productivity initiatives, favorable FX and business mix with a modest impact from memory inflation in the quarter.

Adjusted operating expense leverage improved by 20 basis points. This resulted in first quarter adjusted EBITDA margin of 23.2%. Non-GAAP diluted earnings per share were $4.75, an 18% year-over-year increase, exceeding the high end of our outlook.

Turning now to the balance sheet and cash flow on Slide 13. In the quarter, we generated free cash flow of $163 million. As of Q1, we had a modest debt leverage ratio of 2.1 and $1.1 billion of credit capacity. We have been deploying capital consistent with our allocation priorities. For the quarter, we repurchased $300 million of stock and have repurchased an additional $200 million in the second quarter to date.

Turning to Slide 14. We have a proven track record of navigating dynamic environments, and we are applying that same disciplined playbook as we manage the current memory cost and supply landscape. While this remains an area we are monitoring closely, we are increasingly confident in our ability to successfully mitigate impacts based on the actions already underway and the visibility we have today. We are working proactively across multiple fronts, including direct supplier co-planning, alternative sourcing options and transitions to higher density memory components, where capacity is expected to increase into 2027.

Based on the progress we have made, we currently have line of sight to the supply we need to support our outlook. And in addition, the component pricing trajectory for the year is tracking in line with our prior guidance. Our cost position remains favorable relative to spot market rates, given our direct supplier relationships, and we have line of sight to fully mitigate the margin impact for the year. This is not a new muscle for Zebra. Our teams have managed through prior component disruptions by acting early, maintaining close supplier partnerships and using our scale to create flexibility in the supply chain. We are taking that same approach here.

Let's now turn to our outlook. We've entered the quarter with a strong backlog and pipeline that supports our sales growth guidance range of 14% to 17%, including approximately 10.5 points of contribution from business acquisitions and favorable FX. Our second quarter adjusted EBITDA margin is expected to be slightly higher than 21%, and non-GAAP diluted earnings per share are expected to be in the range of $4.20 and $4.50. For the full year, we expect sales growth between 10% and 14%, reflecting a 1 point increase at the midpoint from our prior outlook.

Our guide factors in year-to-date performance, a strong pipeline of opportunities momentum in manufacturing and machine vision, the previously announced price increases, constrained memory availability and a 7-point favorable impact from acquisitions and FX.

Our full year adjusted EBITDA margin is expected to be approximately 22% and non-GAAP diluted earnings per share is now expected to be between $18.30 and $18.70. Our full year guide continues to reflect full mitigation of the memory 2-point headwind, which we are increasingly confident in achieving. We are driving this through targeted price increases and other direct memory initiatives, net of savings from our restructuring actions, volume leverage and FX favorability.

Free cash flow for the year is expected to be at least $900 million, which reflects a conversion rate of approximately 100%. We are continuing to optimize our working capital levels, balance with our supply chain resilience objectives. Please reference additional modeling assumptions on Slide 15.

With that, I will turn the call back to Bill.

Thank you, Nathan. Before we turn to your questions, let me conclude with the points I highlighted at the start of the call. We delivered a strong quarter and are moving forward with confidence in our increased outlook for the full year. Our integrated portfolio of solutions continues to differentiate Zebra, enabling customers to automate workflows and improve their operations. and we remain focused on executing our strategy to drive profitable growth and deliver long-term value for our shareholders.

I will now turn the call back to Mike.

Thanks, Bill. We'll now open the call to Q&A. We ask that you limit yourself to 1 question and 1 follow-up to give everyone a chance to participate.

[Operator Instructions] Our first question will come from Andrew Buscaglia of BNP Paribas.

Yes, just I wanted to check on some of the comments you made on memory, clearly, a concern amongst investors. But you guys say you have a line of sight to mitigate these costs through the end of the year. Are you implying -- do you -- have you secured capacity at this point because shortages are a concern? And what are your memory price assumption baked into the rest of the year in terms of the memory price spiking.

Andrew, maybe I'll start and then hand to Nate for specifics. I'd say that memory continues to be a dynamic environment overall. Our teams have done a great job, quite honestly, working closely with our suppliers and the relationships, the long-term relationships we have with them, but also with our customers and partners to make sure that we get early visibility into their needs on the demand side. we're confident in our ability to mitigate the memory challenges and to achieve both our second quarter and full year guide. A lot goes into that, a lot of thinking and planning and the teams have been working this memory issue since the second half of 2025. And we feel we're in a good position to enter Q2 and where we're after the full year, but I'll let Nate add some more color.

Yes. So if you look at 2 pieces. One, from a supply perspective, as we mentioned, pursuing numerous mitigation strategies, great relationship with our direct suppliers as well as looking at new alternatives as well as a lot of work in terms of transitioning to the different memory types where we expect capacity to increase as we get into 2027.

And I think we feel really confident in what we had for the first half. So Q1, we got the supply we needed to deliver on the outlook, great visibility to what we need here in Q2. And our second half guide assumes a similar memory supplies received in the first half. We've received no indication that our second half allocation would be any less than the first half. And if anything, the teams are working options for increased supply to meet the unconstrained demand we have, which is near the high end of our guidance range. So again, a lot of actions right now in terms of how do we increase the supply to give some upside to the guide that we provided this morning.

And then on the costing, as we mentioned, the market pricing trajectory is in line with our prior guidance. There's variability, obviously, across the different memory types. But as a reminder, we purchased the vast majority of our memory direct, which has been favorable to the spot market rates that a lot of folks have visibility to. So we have built-in escalations through the balance of the year. And so far, those are playing out, which has enabled us to maintain our margin guidance for the year relative to memory.

The next question comes from Tommy Moll of Stephens.

I wanted to start on margins. You were well ahead of your guidance for the first quarter on an EBITDA margin percentage basis. And then if we look at the second quarter that percentage steps down sequentially. So it's a 2-part question. What were some of the favorable items you would call out that drove that outperformance in 1Q that may fall away into 2Q? And then are there any headwinds sequentially as we move from 1Q to 2Q?

Tommy. So if you look at Q1, the operational -- I think it starts with the operational gross margin, which was at record levels at 50.4% increase of 80 basis points, driven by a combination of factors. One, the productivity initiatives, the teams have been actively working on. We had favorable deal mix. We had real strength across our manufacturing vertical, which is favorable from a run rate perspective, but also our print scanning machine vision portfolio. So the deal mix was a benefit in the quarter, and that drove a portion of the upside to our guide and FX was a tailwind as we entered the quarter.

So again, I think Q1 just had a combination of favorable deal mix along with the productivity of the team's been actively working on. And memory was, I'd say, a modest headwind in the quarter. So really, if you look then from Q1 to Q2, on the EBITDA line -- EBITDA margin guidance, the decline is really driven by the step-up in memory costs in the second quarter. So if you look kind of 2 points lower sequential about 1.5 points of that is the higher memory costs in the quarter as well as just normalized deal mix as we go into Q2.

And I think what it really showed is that Q1 is part of our mitigation strategy on memory. If you recall, half was the price increase we announced. The other half was underlying operational benefits from restructuring actions as well as all the other actions the team have taken. And I think that beared out in Q1, and now it's being utilized to offset some of the headwind here as we go into Q2 and the back half of the year.

The next question comes from Amit Malhotra of UBS.

This is Paratabh on for Amit Malhotra. I just wanted to catch up on the Elo. Like, it has been a couple of quarters for the Elo acquisition now. Can you provide any early feedback on your progress with the business what is the growth rate and like what kind of revenue or margin synergies you are seeing there?

Yes, we continue to be excited about the Elo acquisition as really elevates our strategic position across our connected frontline segment. And as to the breadth and depth of our portfolio and delivers a set of complementary solutions to what we've got already across mobile computing and our software assets inside the connective frontline pillar.

Elo in the quarter grew in line with our expectations. Certainly, a solid pipeline of opportunities. We'd expect 2026 growth to be in the mid-single digits, and that's playing out as expected. We're seeing progress in the synergies and both revenue and cost. So a lot of work on the integration, and that's taking place today. But a lot of focus across the teams around the globe on building a commercial pipeline of opportunities working together with our global teams as 1 team and then positioning with our customers.

We've entered some new geographies with the Elo portfolio where they haven't had a presence before, and we've got our first wins in India, which was one of those new geographies overall. So we feel good about what's happening so far across the portfolio. We're still super excited about it. It gives us another opportunity to have a digital touch point and things like modernizing point of sale within our retail customers, streamlining self-service payment, touchscreen displays across areas like manufacturing and health care. So overall, it expands the breadth and depth of our portfolio. And so far, things are going well.

The next question comes from Ken Newman of KeyBanc Capital Markets.

Maybe for my -- maybe if you could just give us a little bit of color on how sales trended through the quarter, Bill. And just maybe help us quantify if there -- if you saw any indications of a pull forward, I think you mentioned that the price actions really for the memory cost really took place in late March. Maybe help us kind of quantify what that's supposed to add to the full year sales growth that was kind of in line with expectations. And again, just if you saw any indications of people trying to get ahead of that price action?

I'd say that Q1 overall excellent execution by the teams really strong start to the year that we're pretty happy about double-digit sales growth and EPS growth in the quarter. I'd say that the results demonstrate the durability of demand for our solutions across all the verticals we serve. So broad-based growth across both vertical markets, regions, products as well. And really, our ability to convert that demand into profitable growth for Zebra.

The momentum has continued into Q2 across the business. We're obviously, as Nate talked about, progressing the navigating of the memory challenges, and we've made a lot of progress there and have more confidence certainly in the full year guide and what we've seen in Q1 and then we have visibility to moving throughout the year, both on the demand perspective. And then constraints to that demand. The unconstrained demand pushes us to the higher end of our outlook range, and I think we're seeing that.

So we feel good about where we're at in the momentum across the business. we saw no real pull forward of demand across our customers related to memory or price increases overall. So I think that we're seeing our customers continue to execute on their plans to deploy technology across their environments to make their businesses more effective and more efficient and moving ahead with that. We haven't seen any real change in demand based on it.

The only thing we've really seen is we work closely with our suppliers and our customers and our partners on the demand side to make sure we have early visibility to what they need to make sure we have the right products. So we're procuring memory and then building the right products for them. So we've been working closely with our customers to make sure we really understand but no pull forward that we've seen across the business.

Yes. The only thing I'd add is if you really at the Q1, the upside to our guidance to the high end was driven by asset visibility and the strength in manufacturing, which did not have the price increase. So the real strength in the quarter, which drove some of the gross margin favorability was around asset visibility, which is, again, where we didn't have the price increase to just add to what Bill mentioned.

And then the other one, we did incorporate the full year pricing benefit of 1 point into our guide, but we offset that by lower volume assumptions in the back half due to the memory constraints. So if you look at it kind of net neutral from the benefit on the pricing side, but then lowering the overall demand or volume given the constraints. So that balances out for the second half of the year.

The next question comes from Brad Hewitt of Wolfe Research.

So kind of tagging on that last question. So you raised the full year organic growth guidance by about 1 point to 5%. You mentioned the Q1 outperformance in manufacturing in Latin America and Asia but curious if you could elaborate a bit more on what drove the implicit organic growth guidance range for the rest of the year, whether that's by vertical or by geography?

I'd say that demand trends overall remain strong. And as I said a minute ago, customers continue to invest across each of the vertical markets. So it was really broad-based growth, quite honestly, across regions, across vertical markets and across both of the segments. I would say certainly, manufacturing is helping, right? Manufacturing has been a lower growth profile than the other vertical markets we serve. But now clearly, there's been a strength, including in French scanning and we saw double-digit growth in machine vision in the quarter. So we feel good about machine vision.

I'd say demand for Elo continues to be strong. So our customer conversations that we've had. We've had our 3 largest trade shows of the year most recently, so start the year with our retail with the national retail show and then logistics and warehousing show and then health care as well. And all of those trade shows, we were able to demonstrate our innovation, the depth and breadth of our portfolio, our new solutions that we're bringing to market across mobile computing and machine vision, RFID, our AI solutions, all of those have been positive conversations with our customers. They continue to invest as their businesses continue to grow.

So I'd say broad-based demand across regions, segments, verticals, which we feel really good about. And that's really given us confidence in the full year outlook, we'd be at the top end of our outlook range. Only we see constraints from memory, which we've factored in. And we feel good about the momentum we're seeing in the marketplace.

The next question comes from Meta Marshall of Morgan Stanley.

A couple of questions. Just one, in terms of kind of the demand that you're seeing within manufacturing, are there any verticals kind of within manufacturing, where you're seeing strength? Or do you think that some of this is starting to be some of the refresh of some of the devices bought during COVID.

And then as just a second question, just any commentary around increased freight and whether that has any impact to kind of your assumptions for the rest of the year?

From a manufacturing perspective, I would say that strong across each of the subverticals within manufacturing, semiconductor, auto, we've seen some additional strength in across our machine vision portfolio, maybe I'd call out. I would say that the investments are really across visibility across the supply chain. So more drive to continue to have more visibility, both in warehousing, but across the entire supply chain. Clearly, automating quality control that's driving machine vision inside manufacturing overall.

Outside of manufacturing, we're also seeing strength. So retail e-commerce was a great vertical in the quarter. So solid demand across that and continues to be a long-term growth driver for us. Health care continues to have solid growth in the quarter.

When you were talking about more of the refresh opportunities that's really focused from a retail perspective, they're continuing to refresh. Every customer is a different refresh cycle. Transportation logistics is really the larger refreshes that we're working with our customers on today building a pipeline of opportunities. Really, we see that coming in and beginning in 2027. So that opportunity continues to grow.

Transportation & Logistics cycle a large order compare from prior year, but we see a healthy pipeline of opportunities in that. Those conversations about the refreshes in '26. We really have forecast about the same level of refresh activities across the different vertical markets as we did in '25 and our guide. But really, '27, we would see clearly an opportunity to these bigger refresh cycles with T&L begin to play a role in our numbers.

Meta, the second question, which I believe was on the freight rates and what we're seeing from a logistics standpoint. We have experienced 20% to 30% price increases across the various lanes that we use for our products. That's stabilized here recently. We've incorporated that increase into our guidance. But transportation or freight costs are less than 2% of revenue. So right now, it's in a range that we can manage and use other levers to offset. So we've incorporated that higher pricing into the guidance for the full year and the teams are actively working on different lanes and different options given the environment.

Next question comes from Keith Housum of Northcoast Research.

I do want to say congratulations on the gross margin improvement. Good to see. In terms of the machine vision, I think, Bill, you quoted, that was up double digits here. Obviously, machine vision has a little bit of a challenging time over the past year or 2. Do we see an inflection point here? Or what's the Viking in terms of where the machine vision improvement is coming from and what the expectations are for the rest of the year?

Machine vision, for us, we see as an integral part of really the future of our asset visibility and automation segment, right, is that as you know, Keith, drives both the logistics markets, the transportation logistics and then clearly manufacturing. We saw machine vision grow double digits, strong double-digit growth year-on-year in first quarter. So we've been looking for this inflection point in the market. So I think you'll see that really aligned with the industry as a whole.

So I'd say recent logistics wins across the U.S. and Europe continue to be encouraging signs for us and delivering our new solutions. We're seeing growing opportunities in manufacturing and e-commerce that's driving what we would expect to be double-digit growth for the full year. So continuing the momentum in growth throughout 2026.

I'd say, overall, our value proposition is resonating with customers. So ease of use the idea that we're using a single software platform that's unified across the portfolio of products that allows our customers to easily set up and use our products. So we think of how do we make it simple for our customers to leverage machine vision portfolio? How do they get speed of deployment inside their environments and then how efficient are the reason and how good is our product overall from a machine vision and fixed industrial scanning portfolio.

So I think that we're continuing to invest in go-to-market. We've expanded the portfolio with the Photoneo acquisition. We continue to invest in software assets around AI and deep learning, which allows that simplification of deployment in our customers' environment. So I think we're feeling good about where we're at in machine vision. We do think it's an inflection point. We've been working really hard to drive growth across this business. And I think the market opportunity allows us to do that, and then we're seeing it both in T&L and manufacturing where it's really broad-based working with our customers around the world.

The next question comes from Jim Ricchiuti of Needham & Company.

Thanks for the color on your machine vision business. I'm wondering if you can talk to what kind of growth you're seeing across your RFID portfolio, maybe in the same light.

Yes. RFID continues to build a strong pipeline of opportunities across the supply chain. So we're seeing not just in retail, but transportation logistics, manufacturing, government. So all of that creates opportunities for us in machine vision. We saw strong compares from a year ago in RFID. So we would expect a decline in first quarter but not a concern to us. We had large cycling of compares in the first quarter. expecting growth certainly in second quarter and then for the full year.

So momentum in RFID continues, I would say, overall. We're seeing the move in retail beyond retail apparel, really into things like fresh foods which is a new opportunity for RFID inside grocery, broader merchandising as well within retail beyond apparel. Transportation, logistics, parcel tracking through logistics providers is creating a market as well or a new market for us, which is another place we're working closely with our customers. But quick-serve restaurants, health care, anything you need to track and trace across the supply chain is seeing momentum in RFID.

From a Zebra perspective, we've got the broadest set of solutions. So we're the market leader in fixed and handheld RFID readers. We've got a portfolio of our printing printers and labels to go along with that. We've recently released our new line of mobile computers that have embedded RFID capabilities into those and our wearable products as well across that portfolio. So we continue to expand RFID functionality across our portfolio. So we see this as a long-term growth opportunity as people are continuing to drive visibility across the entire supply chain within their environments.

A question, just with respect to the large project business, any change in the outlook looking out to the second half, either macro-related or the result of potential changes in the competitive landscape as it relates to the pending transaction with Brady and Aiva?

Jim, we haven't seen any changes related to the second half. As Bill mentioned earlier, the project funnel remains strong, a great pipeline of opportunities as we look out through the balance of the year and into '27 as particularly some of the large T&L refreshes start to come online, but no change overall in terms of the overall pipeline relative to the recently announced transaction.

So I think it's playing out as we expected, the large deals, I'd say, are in line with the total growth as they were as we announced in our last earnings. So no change that kind of the mix of large deal and run rate both equally contributing to the full year guidance.

Maybe to the second part of your question, I'd say our focus is really on our business and continuing to expand our lead in the marketplace. I'd say that Look, we've got deeply embedded relationships with our enterprise customers, and we're focused on continuing to innovate and drive our solutions portfolio to continue to take share in the marketplace.

The next question comes from Rob Mason of Baird.

My question is just around capital allocation, if there's been any change in the thought process for 2026. I think originally, you would earmarked about half the free cash flow for the year towards share repurchase. It sounds like year-to-date, we're already at that point or thereabouts. Any change in the thought process around half the free cash flow going to share repurchases?

Rob, as you mentioned, we've already repurchased $500 million through April. So above -- already above the 50% outlook that we provided in the last update, obviously, taking advantage of what we believe is an attractive stock valuation, and we're going to continue to be active in the market. If you look at now our full year EPS guide assumes we do an additional $100 million of share repurchase. However, we have the flexibility to allocate all of our free cash flow for the year. If we see it's again, at an attractive price and an opportunity for us to continue to repurchase.

Next question comes from Joe Giordano of TD Cowen.

One of like the more structural pushbacks people give on Zebra story is like a terminal value question about in the future, as we have more and more automation and more and more robotics and less people in the buildings that you currently serve, there's just a structural smaller need for your products and services. How would you answer and address that question on like a much longer-term view?

Joe, I'd say that the automation trends, right, and the trend towards physical is clearly a benefit or I'd even say, tailwind for Zebra as a whole is really our business is all about driving automation and productivity within our customers' environment. And I'd say that we've got a long runway of growth ahead of us that we've got relationships with our largest customers and even the most advanced customers today with that are the most advanced from an automation perspective, continue to grow their installed base of Zebra solutions. And that includes mobile computers to drive labor productivity.

And I think that -- when we look at the one place you talk about automation because it doesn't really apply in things like front of store retail or nurses and hospital settings or -- so really you're talking about warehousing, today, nearly 75% of warehouses around the world are really in the early stages of an automation journey. And that we're seeing that if you look at the numbers the number of frontline workers are continue to project it to increase warehouse footprint continues to grow and really driven by things like e-commerce, now manufacturing growth along with that.

So we see our customers wanting to have flexible solutions for automating and that's really what we do across the environments. And I think that we're seeing that continue to provide that from a quick ROI modularity and our solutions overall, when you think of what Zebra does, we collect the data, ultimately reading a barcode printing a label, all the things we do in our asset visibility portfolio to feed either automation trends because you need data or physical AI trends for analytics and then leverage workers within the environment to get work done, and those workers are augmented by technology and automation to make their jobs easier overall.

So I'd say automation augments workers doesn't replace workers and we've seen automation in place for a long time, and we continue to see the demand for Zebra solution continue to grow. So I think that we feel good about where we're at as a business, and we see the terminal value being strong and things like physical AI being a net positive for us versus a detractor.

When you think about AI deployment, how do you -- where do you see the sweet spot for you, whether it's developing your own AI tools or having a software partner deploy those tools on a Zebra device where you get just like the device sale. And so when you think about like monetizing, how -- what's the right balance for you there?

Yes. Joe, it's really all of the above. If you start at the highest level, AI adoption trends, as I said, just like automation are net positive for us and that we really understand our customers' workflows and that we've got a large installed base of solutions today that really are fundamental to driving automation or AI for the front line because AI is really the analytics that drives automation.

And I would say that we're really uniquely positioned to be the supplier of choice for AI for the front line. And what I mean by that is that at the highest levels, the asset visibility and automation portfolio we have, printing scanning, machine vision, optical character recognition, parcel dimensioning, all that information is required on the front line to create data around the physical world to feed AI model. So we give assets a digital voice within our customers' environments that feed AI models that ultimately tell our customers how to be more effective and more efficient.

And the way today you get that work done is through automation in the environment or people doing the work. And those workers are using mobile devices today and are software. So think of task management software, think of communication collaboration software, think of our new AI for the frontline agents. All of those are used to be able to drive the productivity within our customers' business and the answers from the AI engine. So I'd say that the entire portfolio benefits from AI.

From a frontline AI suite, we've got on our mobile devices now specifically, we have enablers, blueprints and companions, all of which allow our customers to easily deploy AI on the front line of business, and we're at the very early stages of that. So we won a new opportunity in parcel proof of delivery with P&L provider. We're in multiple pilots with our customers around retail, transportation, logistics, other areas around the world. So that's still very early days. But overall, the portfolio we have of asset visibility and connected frontline, AI, physical AI deployment is a net positive for Zebra across the entire portfolio, then specifically, their software opportunities with things like our frontline AI suite that allows our customers for us to meet them wherever they're at in the journey of automation or deploying AI.

The next question comes from Guy Hardwick of Barclays.

Congratulations on the quarter. Excellent performance. Nathan, I appreciate that you expect to fully offset the 200 basis points of margin memory impact. But do you expect any impact from a lag of recovery in any 1 quarter? And the reason I ask is that 1 of your competitors called out memory's being a headwind specifically for Q3 to their gross margins. And then a major mobile device manufacturer mentioned gross margin headwind in the June quarter. So I just wonder if you could comment on that.

No, I think the only thing, obviously, you see the step-up in the cost profile from Q1 to Q2, just as we work through our inventory position coming into the year as well as the prices have escalated in line with what we had expected, escalated here over the past quarter. So obviously, there's a step-up in Q1 to Q2 and we'd expect that to continue to increase modestly, stepping up from Q3 to Q4, but offset as we get higher price realization on our own products and the flow-through of that.

So I think Q2 is kind of the inflection point in terms of step change sequentially just as we roll through with that. And then a modest increase as we go to Q3 and Q4, but that's mitigated as we get more price realization on our side. to help mitigate the inflow. So there's -- I wouldn't say there's any other particular macro or market-driven reason for it. I'd say it's more just timing of inventory and the flow through that through the P&L.

And just as a quick follow-up. Just wondering whether the changes in the tariff regime could have had any impact on the business, either positive or negatively in Q1 and how it maybe impacts your Q2 guidance?

Yes. So if you look at the elimination of the IEEPA rates, but most of that -- a big chunk of that was offset by the Section 122 tariffs. I think you really didn't have a meaningful impact on the P&L in Q1, again, most of that just given the timing of the announcement and the carryover from inventory. It will have a small benefit in Q2, but we don't expect really any impact for our full year guidance.

Our expectation is that as we go into the back half of the year, second half of the year, whatever the new form, whether that's Section 301 or others will replace what was the effect of IEEPA rates coming into the year. So I'd say at the full year, we're not expecting any material changes due to the new tariff regime, just as there's going to be a new form factor of that presumably in the second half of the year. And if that changes, we'll obviously update as we go through the year.

So -- and in the short term, I'd say, pretty modest, just given inventory impact and then the differentiation between the rates between IEEPA and 122.

The next question comes from Brian Drab of William Blair.

Yes. I think my question was just taken there. But I wonder if you can just elaborate more on the -- one of the questions I've been getting all quarter is around is Section 232 going to impact you and you've moved a lot of manufacturing in Mexico. How does this specifically for 232, does that have any impact? And I can see the tariffs weren't mentioned in the transcript here until that last question, the Q&A. So I guess, it's not a big deal, but I wonder if you could just give some detail around that.

Yes. Look, I think it would all depend on what exactly comes out in terms of the scope, and I think that's not clear today. We've been obviously monitoring and tracking with our trade compliance team. And we leveraged the largest semiconductor companies in the world and continue to assess country of origin across all of our different products in terms of the flow of semiconductors through the supply chain. So again, actively working both our supply base and our government relations team. But I think there's nothing really to specifically come on relative to 232 as it's been out there for quite some time.

But I'd say just like anything, whether that was the tariff round 1, tariff round 2 and all the other changes. As those change, we'll take the necessary actions to mitigate the impact of the P&L. And communicate that implications with our customers. So that's no different on whatever the next version of whether it's 301 or 232 that comes later this year?

So this dynamic of product being taxed based on its metal content at 50% transitioning to a product being taxed on its entire value at 25% like that type of dynamic is not a big deal for bringing a barcode printer or any other device into the country, say, from Mexico or elsewhere?

Yes. Again, I would say it all depends on what's actually ultimately written in terms of country of origin and how they scope it in terms of what content and what rate. And I'd say right now, there's just not enough details to speculate on what the impact will be until we get further clarity.

The next question comes from Rob Jameson of Vertical Research.

Congrats on results. Just a couple for me. Bill, you've all have been very active on the ecosystem side, including the strategic investments like the Apera AI or CoreVision for factory automation as well as like the broad ISV network that you're building out for AI and mobile compute. Just curious like how central are these partnerships and investments to your AI strategy?

And then on the near-term ROI side, like where are you seeing the most tangible benefits from AI-enhanced solutions today? And which verticals do you think or would you expect to see the most incremental AI revenue contribution from as we look ahead?

I'd say first, that our venture investments, again, we view as another lever ultimately to be able to stay close to new innovation. These are relatively small investments. From our perspective, it allows us to invest across the portfolio in interesting companies, technologies that we ultimately see as interesting to us longer term in this case, really around machine vision and physical AI in the most recent one. So I think that that's always of interest to us, but these are small investments overall. But I think it's important for us to continue to keep our pulse on what's happening in across venture.

I'd say, our independent software vendor relationships and just our relationships as a whole is we're seeing that it's important that whether it's our relationship with Qualcomm or Google or the memory suppliers in this case most recently, but also the software vendors, large and small, everyone from the biggest players to the smallest are part of our ecosystem of partners that we leverage to work with our customers. And then our channel partner community ultimately serves a lot of our customers around the world as well. So all those are incredibly important to us as we bring our solutions to market.

Across AI, we see it a combination of really meeting our customers wherever they're at in the journey. And I think that their ROI is driven by our frontline AI suite is as kind of 3 components to it. One is enablers that allows our customers to leverage our next-generation mobile devices that we've recently released and the idea of capabilities to support the processing and memory required for AI, but allow those enablers to be used by our customers that want to deploy their own AI agents in their own AI software at the front line of business.

Our Blueprint allows our customers to leverage those enablers where we package them together into a specific use case, like parcel proof of delivery is a good example of that. We talked about the recent transportation logistics win in that area. That's combining our enablers, along with agents from Zebra and then packaging this together that will fit underneath our customers' application.

And then the third is where we do the full application ourselves. So that's companions. So we meet our customers wherever they're at in their journey. They want to use our enablers on the device and leverage those to build their own AI agents. That's okay. If they want us to create that software for them, we've got an offering and generate revenue associated with that. And if they want us to build a full application for them, we'll do that as well. So we meet our customers wherever that in our journey, and that's what we do, leveraging our independent software vendors and our AI partners is to them, along with our customers, along with our offerings, complete the full suite of offerings to our customers.

So we can meet them wherever they're at on their AI journey or wherever they're at in their automation journey. And that's what our customers really want to see from us that we're not driving them in one direction or another. If they want to do a lot of the development themselves and some of our largest customers want to go do that, but a majority of our customers do not. And they want help from us or our software vendor partners to be able to deliver an entire solution.

Our last question comes from Piyush Avasthy of Citi.

Bill, I think you mentioned AI helping your customers improve efficiency. Are you deploying AI internally as well, like you mentioned productivity initiatives helping you this quarter. So if you could elaborate on what you're doing there? And like how should we think about like margins in the longer term? Like does AI kind of improve that 50 bps of year-on-year margin that's baked into -- the expansion that's baked into your long-term outlook?

Yes, we do see AI driving internal productivity within our business. The areas you really would expect software development, right, and a lot of work being done using AI tools across our development process within research and development. Our sales and marketing teams leveraging AI across what they're doing around the globe, working with customers and then Marketing Cloud and others.

Supply chain forecasting, we're seeing that our customer service teams as well we're using AI tools broadly across the entire organization. So we've encouraged clearly our employees to leverage the AI tools we have available to them, and we're seeing broad-based adoption across AI. And we do believe that ultimately, it drives efficiency and allows us to continue to increase our margins moving forward.

So absolutely, we believe that AI will be a productivity tool inside Zebra, but we actually believe that the overall, the biggest opportunity is what we provide to our customers, but it's also important from a profitability perspective. So really both.

This concludes our question-and-answer session. I would like to turn the call back over to Bill Burns for any closing remarks.

I'd just like to wrap up by thanking our employees and partners for delivering solid Q1 results and certainly excellent progress we've seen so far on our 2026 priorities, and we're excited about the opportunities ahead. Thank you, everyone, for joining.

The conference has now concluded. Thank you for attending today's presentation, and you may now disconnect.

All right. So for important disclosures, please see the Morgan Stanley research disclosure website at morganstanley.com/researchdisclosures. If you have any questions, please reach out to your Morgan Stanley sales representative.

I'm Meta Marshall. I cover the networking and cybersecurity space here at Morgan Stanley. We're delighted to have Zebra Technologies, Bill Burns, CEO. Thanks so much for being here today.

Thank you.

So maybe you can just level set with describing the pain points you address for customers and just how that is continuing to evolve?

Yes. I'd say that Zebra's -- Zebra's foundation of what we do is really around intelligent automations for our customers, right? And how do they continue to automate in their environments to become more effective and more efficient each and every day.

And we talk about the business in really 2 strategic pillars. One is asset visibility and automation, and the other is the connected frontline. And I think both of those play a critical role in asset visibility, digitizing and automating the environments in which our customers are in. So giving inventory to digital voice, knowing where workers are at any point in time, knowing where inventory is, knowing where things are across the supply chain, always all the way from point of manufacturing through point of sale. So getting visibility across the supply chain.

The other is connecting workers. So mobile devices, tablets, software associated with that to direct workers on tasks to be done inside the environment. And when I look at areas like automation and even has automation and decision-making and analytics, it becomes stronger around AI for the front line, you need to have asset visibility first, visibility of your assets to feed the AI models and then you need connectivity to workers to be able to go implement and drive the outcomes in your business.

And from our perspective, we would talk about seeing the portfolio in everyday life, right? You would see us in point-of-sale inside retail. You would see us as devices used for delivery for parcels inside parcel delivery or transportation logistics. You would see our solutions in hospitals to track patients around hospital risk bands or information into electronic medical records. So anything to track and trace or get visibility into the environment or to be able to have a worker go complete a task within the environment.

Our markets today are transportation, logistics, retail, e-commerce, manufacturing, warehousing, health care and government, our largest customer segments today. In all of those, we'd expect broad-based growth across the portfolio and broad-based growth across the vertical markets in 2026 and beyond. And there's been variances to that, both geography and different segments and verticals as we saw in '24 and '25, but it's all kind of coming together for '26, where we're seeing broad-based growth across our portfolio, both in -- both of our pillars and across vertical markets and geographies.

Okay. Got it. That's a super helpful overview. You mentioned a number of manufacturing, retail, a lot of sectors that have had kind of a chaotic past couple of years given macro and tariffs. Just against that backdrop, is what customers are asking you for changing?

Yes. I would say that it's been different, as you said, across the different vertical markets, right? I think that 2025 was a tough year from a trade environment perspective. I think that customers -- many of our customers trying to figure out what the impact was on their business. Ultimately, retailers, some of the tariffs hadn't flowed through -- have been flow their business until third quarter of the year, for instance, right? So they were still concerned most of the year.

Transportation logistics, we saw less shipments from China, for instance, from Asia and impacting parcel delivery. So it was a challenging year, I would say, customer-wise. I'd say despite that, in '25, they pretty much played their game, meaning that they had a plan around technology rollout. They rolled out that technology. We had 6% growth, 17% EPS growth during the year. But it was in a total different seasonality than we've seen in the past.

So our customers were asking us for basically the same things. How do I get visibility to my assets? How do I become more effective and more efficient in our business? What are the things I need to do to position myself for AI in the front line? Those -- that's probably the newest piece of it. But most of the other areas where I need to play my game. I need to be more effective and efficient. I have more demand than resources I could hire. So ultimately, I'm going to deploy more automation, but I'm also going to deploy more technology from you Zebra.

And I think that what was different in '25 is that we didn't see the year-end spending that we would have seen in prior years. So the seasonality we typically see, which grows in the fourth quarter is to be our largest quarter. We had lowest level of growth, even though we had 6% for the year organic growth. We didn't see that uptick in large orders at year-end. We're spending early, which I think is a factor of just customers being a little more conservative, right? Just overall and just timing of projects more than anything else.

We entered '26 with strong backlog, strong opportunities. We feel good about the business for '26 and the guide we put out. And our customers are asking predominantly the same things, continue to work with us and be a strategic partner on the rollout of technology. And I think what's new is how does AI play a role in the front line of business and physical AI and what does it mean in my environment? And how do I get the most out of it?

Yes. Okay. Do you think that, that discussion you're having is different across retail or transportation and logistics or manufacturing, kind of your biggest customer bases today? And just which of those do you see the biggest opportunity?

It's a little different and nuanced across each. I think we see broad-based growth. But I think if you look at retail, they're really looking at things like RFID throughout the environment, how do they get better control, ultimately, their inventories across their stores and how do they continue to address e-commerce as well as buy online, pick up in-store and leveraging the stores in this on-demand economy of everybody wanting everything almost immediately.

I think that we're also seeing inside retail, the move to self-service, right? So the acquisition we did in Elo is really a move to do more at point of sale, and then customer self-service and media networks and others inside the store. So we have an opportunity there.

I'd say in transportation logistics, it's really about getting back to parcel growth, right? I think that in their case, they're continuing to invest. I think we've got larger refresh cycles coming. Those large T&L customers refreshed their devices back in the spike we saw in COVID coming out of '20 into '21 and '22, now come '27, '28, '29. Over the next couple of years, they'll be refreshing those devices. We're beginning to have those conversations with them now about the refresh of those devices for their delivery vehicles and workers.

I'd say in manufacturing, manufacturing has been growing in '25, but lagging a growth rate of the other vertical markets, and now we're seeing that growth rate catch up. Health care, we had a good year in health care and health care continues to grow and be a strong vertical for us. New emerging vertical is really government, so more around inventory management that's been woefully behind inside government and moving right to solutions like RFID in that environment. So we've seen opportunities there.

So different focused areas, but still around how do I get visibility to my assets and how do I get more connected workers to be more productive in my environment and serve my customer better. And I think that's the theme across all of them that resonates.

Got it. You just mentioned kind of guiding to better expectations for '26 coming out of the Q4 call. Just how have you been able to judge this health of the environment with against what is probably less visibility from your customers? And just you mentioned kind of on the T&L side, starting to think about this refresh of the COVID devices. But just how does that refresh opportunity play into that visibility that you have?

Yes. I wouldn't say we have any less visibility. I think that the visibility has been okay throughout '25, but I think it's been, again, customers moving ahead with the projects that they've had planned for the year. And just not the -- in the fourth quarter, as I said, we didn't see this larger order uptick in year-end spend. So the seasonality growth profile was almost reversed to what we normally see, right? We usually see the strongest growth in Q4, and we saw the slowest growth of the year.

So we entered the year with a strong pipeline, strong backlog, strong conversations with customers. I think that one element was missing in fourth quarter, but the conversations hadn't changed throughout the year. And I think that's why we feel good when we take the Elo acquisition and our organic growth rate for '26, we think that customers will continue to buy and move forward. We've seen that to date in first quarter, and we feel good about our guide overall and the visibility we have, the conversations we're having.

There's no one saying to us, you made the largest trade show of the year in National Retail Show. We've spent the first 2 months of the year spending time with our partners; our partner channel conferences around the world. And our customers and partners feel good about the year. They feel good coming in. They feel good about the spending happening and the conversations they're having with their customers.

Got it. You've done a number of software acquisitions over time, and having continued to be at the forefront of kind of the R&D within the sector, just how do you think that this positions you best to gain share within your customer base?

Yes. I think we continue to invest organically first, right? I think that -- and you see us do this a lot is that we'll invest in it organically in a solution and then do something in the acquisition space. For instance, the machine vision market is broken up into fixed industrial scanning and the machine vision, more of the inspection market.

We invested organically first in fixed industrial scanning and then did some acquisitions in the machine vision space and blended the 2 together. I think the same thing; we released our first kiosk into the market and then acquired the Elo assets. But organic growth and organic investment in R&D is where we focus first and foremost. And then using capital and acquisitions that make a lot of sense.

What we liked about the Elo acquisition was the idea that it really allowed us to add to our connected frontline pillar beyond mobile devices and the software that goes along with that, there's clearly a move to self-service, and we saw that as an opportunity.

We saw others kind of exiting the point-of-sale hardware market, which created an opportunity for us. And we see an opportunity with Elo to take their product lines around the world globally. So their primary markets are North America, some in Europe, but not nearly the reach we have. So we see synergies and an opportunity to continue to create what looks a lot like us. Very robust hardware platform, well respected in the industry, knowing it's world-class, married with software that creates a competitive moat around it, which is we do with Mobility DNA and our software that allows their devices to be deployed in a customer environment, in an enterprise environment in an easy way and to be able to monitor and control those devices in that environment. That's what they offer.

A lot of crossover and distribution and customers overall, but lots of places we can take it into geographies or customers where we have a strong base today. We've talked about $25 million in synergies. We're at about $10 million now identified from a cost perspective. But the big opportunity there is really around revenue synergies is how do we drive more revenue around the world.

I mean, I think you've traditionally been known as kind of having more within kind of back of counter or warehouse. So just what was it about now kind of -- you mentioned the -- maybe some of the point-of-sale market kind of becoming more of an opportunity. But just how do you see that frontline opportunity emerging?

Yes. So I think that we're in both. I think it's one of the things we actually did like about them is that if we think about our position in retail, it is in front of store retail with associates. It's in kind of back of store, it's back into distribution centers, right?

So we have multiple applications that we could provide within the retail environment across flatbed scanning or scanning products or mobile devices, augmenting forklifts with devices and others. So there's lots of opportunity.

Elo is the same way. If you take quick-serve as a good example, where recently, they won some opportunities in running -- winning the customer-facing kiosks within quick-serve restaurants. But then they also have an opportunity for point of sale and [ demand ] lanes and payment. They also have an opportunity where touchscreens are increasingly being used in kitchen environments or production and manufacturing.

So there's multiple opportunities, not just one within the customer base inside retail, it's manned lanes, it's self-service, it's media within the environment. So I think we like the idea that they can expand the portfolio beyond one use case in the multiple and that where we're the mobile device provider and they're not providing compute for point of sale or they're not providing devices for self-serve or media within the retailer, we can go in and have those conversations and talk about joining up our software platforms together to give a single control mechanism for our customers across that entire footprint of Android devices because what you're seeing in their environment, just like we've moved to Android, really an increased need for Android, both Windows and Android, but a move to Android, especially in a lot of these screens.

Okay. And then just on the revenue cross-sell opportunity, just how do you see that emerging kind of over -- either from a sales cycle or just from a red teaming on figuring out kind of who are those target opportunities?

Yes. So we -- as you do in a normal sales cycle, you've identified opportunities around the globe with our sales team to say, hey, these are the target customers we think have the largest opportunities. You can look at some of the customers that we do a lot of business with today together and say, what is the potential? So it's easy to figure out what the potential could be based on number of stores, how much they're selling today. And then you say that could be across other retailers, for instance, or quick-serve or others.

The second is geography. So we've picked a couple of geographies. Australia is an example, where they're the supplier in one of the largest do-it-yourself retailers that's well respected in Australia, but they don't have a full channel in Australia. They're not across all segments in Australia where we've got a strong sales team and a strong relationships. So we've picked that as a geography, one of the first geographies.

And we picked others as well to say, "Hey, let's go in a measured way." We've got to sign up distribution. Our channel partners get to the end customers, test those markets out and begin to win new opportunities. So it's both places we have relationships today where we can bring them in, geographies where we have teams, and then we can augment those teams locally to say, hey, with a couple of experts, we can leverage our relationships, kind of overlay sales teams in those geographies to be able to get quick wins initially and then grow our business from there.

Got it. Maybe as we started '25 and we were having this tariff discussion, you were maybe a little bit more cautious just on elasticity of demand as you had to raise prices from tariffs. And so just as you think about memory pricing, just how did you end up seeing the elasticity of demand with some of those tariff price increases? How do you see the elasticity of demand with potential memory pricing?

Yes. I think we're probably no different than many other companies today. We do a lot of work around pricing. That may be a bit different because we do Tier 2 distribution, and we make sure the channel margins right at our distributors and our partners and then the end user customer, we spend a lot of time understanding our competition and where pricing is at. So I think we do a lot of work there.

But I think what's not different than us and a lot of other companies is ultimately, the tariffs were widespread and so is the memory issue ultimately. And our customers realize that this is just a structural change in the cost of memory today. And ultimately, they accept that. So I think we saw with tariffs as we've raised prices, we're certainly very thoughtful about where we raise price, how we raise it, what product areas, how we do it across the portfolio of good, better, best, lower-cost devices, more expensive devices.

But we saw that really no impact on demand, and we really don't see it in memory as well. We ultimately expect that we'll see about half the pricing increase in '26, and we'll cover the other half of the cost of tariff, which we said is about 2-point impact in gross margin. We'll cover the other through productivity savings and other OpEx savings across the business. So we'll cover the full 2% across the business.

You can't cover the full percent of it in pricing in 1-year because we have pricing out there. We're raising pricing in first quarter. So we have time frames we got to give notice on. And then you got to see time to come through. So we expect about half to come through in '26 in pricing and then the full coverage for '27 will come out in the actual pricing. And then the other OpEx savings ultimately will go to the bottom line in '27.

They would have been increased EBITDA in '26. But unfortunately, we're going to have to apply them to offset some of the memory because you just won't get all the pricing come through. But we feel pretty good about that pricing coming through and the volume staying there. Our customers aren't making a decision to not buy the next-generation mobile device in their environment because it's $50 more expensive. It's just not -- it's not the factor.

Yes. Okay. Got it. I know it's still early days and obviously, a lot of fluidity. But just recent Supreme Court ruling on tariffs. Just is it changing how you or your customers are thinking about kind of tariff mitigation efforts?

Yes. At this point, I think we have confidence about memory supply and the things we're doing around memory and pricing and others as we went through this exercise before, right? We went through supply chain challenges certainly during COVID, both our supply chain team and an engineering team, I think that's very similar to what's happening in memory today, where we're securing supply, placing orders early across the suppliers, making sure we have those commitment suppliers. And we've raised price before, just like we did in tariffs. We're doing the same thing in memory. And the teams have done a great job of realizing those price increases.

So the recent tariff court ruling is actually a positive for us. So it's a tailwind. The rates are a bit lower than what we're paying today. We moved our supply chain from about 80% from China into the U.S. to about 20%, but we are shipping electronic manufacturing from -- is really not in the U.S. So it's not an option for us. So we're shipping from Vietnam, Malaysia, Mexico into the U.S. Those Southeast Asia countries are in the 20s today, 20-plus-ish cost of tariff. And now if it's 10% or 15%, that's actually a positive for us.

And then ultimately, if the rebates happen across tariffs, that will also be a positive from a cash flow perspective. So I think this is positive news. Now we'll see what plays out, right? I think that everyone is hoping to kind of -- I think at this point, less and less of our customers are talking about tariffs. I think they want to put it behind them. And I think the new topic has been married memory, and I think that we've solved that as well.

Okay. I mean you mentioned inventory. Just are there the memory swaps, like just what other actions other than just kind of getting your hands on supply [ and ] inventory?

Yes. So we're using 3 different suppliers across the ones -- the likely ones that everybody knows. We've had long-standing relationships with them. We've been working very closely with them since this issue was raised.

One example beyond just securing supply and making sure we have our orders in and they know what our demand is. There's probably 2 other things we're doing. One is we've been taking their lead on qualifying new memory that ultimately will be produced in higher quantities starting kind of second quarter and through 2027.

So qualifying new memory that ultimately will have better capacity availability and new memory they're bringing online, they're going to go focus on. And we're working with Qualcomm and ourselves and others to make sure we qualify that in the time frame that they ask us.

We've also been placing orders in a time frame they've asked, TELUS you're closely working with them saying, here's our demand signal. Here's what we need from you. And we've also been working with our partners and our customers to say, let's get the right SKUs forecasted for your environment because if you need x amount of memory and this product, I don't want to go build a different product and turn out not have the product for you. So the worst thing I can do is in the scarcity of memory, build product that ultimately you don't want to buy.

So we're making sure that we understand really working closely with our customers and partners to make sure we've got a forecast down to the SKU level that ultimately says, I'm going to have the supply you need when you need it. And I think that's given an opportunity to have these earlier conversations about opportunities from our partners with our customers. We don't see them buying ahead. I think just the realization the prices have gone up, but more the idea that they know if they want supply, it's in their best interest to give early visibility to our partners. So I think those 2 things are the [ biggest ].

Okay. Got it. RFID, you mentioned earlier, it's been a source of strength in the recent years. I've been around long enough to go through many RFID type cycles.

Yes.

Why do you think that now is the time that we are finally starting to see it? And are there other ways you can kind of increase participation in this market?

Yes. I think that the RFID has been solid strong double-digit growth, right, over the last couple of years. I think the excitement everyone has about RFID is really the number of items being tagged, right? The number of ICs and tags being put on items at the point of manufacture, which is really where it needs to be happened to be effective and efficient, right? The majority of tags have to start there. And I think that we're seeing increased usage of tags and technology that allow to use tags on almost anything today. So the evolution of tags, the evolution of the cost of tags and the number of things being sourced tag.

I think you're also seeing adoption much broader than retail. And I think while you're still seeing categories increased across retail and many retailers still in a journey of adopting RFID. So plenty of opportunities there. I think some other markets that were kind of never thought to be an opportunity. So transportation logistics, literally, someone like UPS tagging every parcel through their network with RFID, and you're seeing other T&L providers follow. I think that's an opportunity through the supply chain moving back from retail into parcels, not just individual manufactured goods.

I think you're seeing grocery, which no one thought was ever really an opportunity with low margin, you're not going to tag items inside grocery. Now the realization that RFID gives you much more than just visibility of inventory. It allows you to track freshness. It allows you to track things like bakery where I need to bake new items for that day, ultimately, what count do I have left on the shelf and quick cycle counting allows you to prevent waste ultimately by marking down goods faster.

So around the -- I think of the outside of the grocery store where you have perishable higher-margin goods, you're seeing more value. So I think that the applications are growing. You're never probably going to tag a can of beans, right, in a retail store, but bread and milk and bakery and others that have higher margin and you get higher return on investment, we're seeing happen. So I think the use cases continue to multiply and they're growing throughout the entire supply chain. And I think that you're going to see this ubiquity continue to grow.

And I think what we're doing is working closely with folks like Impinj and Avery and the leaders in the market for ICs and tags to make sure that all -- together, we're going to customers saying, we can make this deployment easy for you as the 3 largest suppliers in the marketplace, us the world's leader in readers, Impinj from a chip perspective and then Avery from a tag perspective to make sure we're there to support our customers and the use case associated with it.

I think there's also an opportunity looking forward for Zebra to move up the stack from a software perspective. So we're adding capabilities to our software layer today above our mobile devices that ingest RFID technology. But I think there's an opportunity to bring together multiple applications in the software layer that beyond just locates, but also through the application layer. So I think there's some new opportunities there for us.

Our latest mobile devices all have RFID functionality -- reading functionality into them. So short-range RFID, think of applications like I want to find a parcel in a truck when I'm doing parcel delivery. I want to find a piece of inventory when picking. So we think that also drives higher ASPs of our mobile devices from a selling price perspective and also along with AI and the idea of faster memory, more processing power, RFID is another reason from a technology perspective to upgrade those devices in your environment.

Got it. You haven't seen New York before a grocery store before [indiscernible] store, we might be inventory in can of beans, but -- all right. Another question that we get frequently is just about kind of risk of labor loss to warehousing and how Zebra would be positioned here. How do you answer that question, which I'm sure you also get from investors? And kind of what do you think that the discussion about robots or physical AI misses' kind of about what you're seeing?

Yes. I mean we think automation and AI, physical AI or AI at the front line of business are both advantageous to Zebra, right? As I said before, you've got to have visibility to your assets to automate within your environment. And whether it's the printing an RFID label, whether it's printing a barcode label, whether it's scanning an item, whether it's using -- reading an RFID tag, the idea of having asset visibility and digitizing the environment is the only real way to automate.

And when I think of automation, I think of analytics, or sensing what's happening in the environment, where is the inventory, where is the pallet, where is something. Then I can go analyze to take the next best action in my business. And the analytics have gotten stronger with AI or automations continue to do things like take steps out of the picking process within e-commerce picking. But it hasn't eliminated the need for a worker to be connected or someone to use a scanner to actually scan the individual item. It's taken things like steps out of the workflow, right?

Yes.

I think that when you go to connected frontline worker, you say workers need to be connected. And if I go back to automation, about 25% of warehouses around the world have any automation at all. Connected frontline workers, there's about 50% of workers today are actually connected. So the opportunity is bigger to automate and use any type of automation, including barcode scanning in warehouses around the world and to connect those other 50% of workers then will ever be replaced by automation.

And the majority of automation today is being used to really keep up. I can't hire the number of resources I really need, and I need productivity in my business to be able to meet the demands of my customer in speed as well as cost to be able to go do that. So even the largest e-commerce supplier in the world continues to grow the number of devices they have from us, despite having extreme levels of automation, right? They're probably the most automated in the world on e-commerce picking, but the device -- number of devices they buy from us continues to grow.

Yes. Okay. Got it. The Fetch acquisition maybe didn't give you quite the expansion of capabilities you were looking for -- on robotics. Just is there any other ways which you think about kind of participating in that market?

Yes. I think that that market didn't mature the way we expected to mature. And I think that -- and others did as well. I think there was a lot of growth expectations of the AMR market that didn't really play out.

And I think that overall, there's multiple ways we participate. One is we've shifted our focus to other areas. So RFID, our machine vision, we expect growth in our machine vision portfolio in 2026. We see opportunities in AI. So we just saw better opportunities for that use of R&D spending and resources across the business and leadership time and others.

We still participate in a couple of ways. One is our machine vision solutions, including our Photoneo acquisition, do -- are leveraged inside robotic solutions to be able to direct robots and others. We have venture investments inside multiple robotic companies that ultimately, we keep an eye on and figure out and close to and figure out what's really happening in that market. But we just didn't see the profitability evolving in that space to a level that made a lot of sense for us.

Got it. You mentioned health care as kind of an emerging opportunity. Just where are you seeing -- I think thought about patient tagging...

Yes. Yes.

Or prescription tagging, but just like how is that market evolving?

Yes. I would say that our health care team would say the barcode is the unsung hero of health care, right? Because if you really think about it, barcode reading inside health care drives the entire health care system, right? So whether it's tracking a patient with a wrist band you talked about, whether it's a label on a vial to be tested, whether it's putting information into an electronic medical records for track and trace, right? So we're seeing the evolution of continued need for track and trace ever more so inside the environment.

Electronic medical records, we take for granted here in the U.S., but -- in places like Ireland, there's only 2 hospital systems that have electronic medical records. So around the world, there's a tremendous opportunity for health care to become what it is here in the U.S. around tracking and tracing and medical records for individuals.

We see RFID additional use cases there as things like consigned inventory or tracking things like IV pumps or other medical equipment in the hospital. Every hospital system -- every hospital across the street has a rental location where they're renting things like IV pumps and others because they can't find the ones they have. That's a lot of savings if you can go track what's happening in the environment just from a medical tools' perspective.

So I think that this opportunity continues to grow. But I think the biggest piece of it is tablets and mobile devices. But I think scanning is just fundamental to what they do, and our printing portfolio continues to grow in health care.

Got it. And then maybe just last question for you. Just how are you thinking about capital allocation priorities?

Yes. I mean I think that at the moment; we're buying our stock back at the valuation levels that we're spending. We've committed to about 50% of our free cash flow this year just at the price levels our stock is at today, and we'll spend a lot of that free cash flow in the first half of the year, here is our plan.

From an acquisition perspective, we're focused on integrating Elo and getting the synergies across that. We continue to be inquisitive beyond organic investment in R&D, which we see as our primary focus of investment from a new product and solutions portfolio, but we're still inquisitive in the marketplace around assets that would make sense to us to own from an R&D perspective and give us faster time to market and open into new market areas. But for the moment, we're focused on buying our stock back and integrating Elo.

Got it. All right. Well, Bill, thanks so much for being here today.

Yes. Thank you.

Appreciate everyone joining us. Welcome to Citi's 2026 Global Industrial Tech and Mobility Conference. I am Piyush Avasthy, analyst at Citi. We are starting right in early with Zebra Technologies. We've got Nathan Winters, who is the CFO. Welcome, Nathan.

Yes. It's great to be here. Thanks for having us.

Nathan, Zebra sits at the intersection of automation, digitization, on-demand economy and AI. As you see your end markets today and as you're having your customer conversations, I would appreciate your thoughts on where you think we are in the cycle and the durability of the cycle. What are your large customers telling you? Do you still sense some uncertainty as you talk to your smaller or medium-sized customers?

Yes. So if you take a step back and look at the depth and breadth of the portfolio across our 2 segments, the Connected Frontline, Asset Visibility & Automation, our customers, I think, of all sizes are telling us a similar thing, which is they want to continue to invest in technology that drives efficiency, productivity across their operations, increases visibility to their assets and inventory as they track it across their supply chains and provide a better experience for their customers. And that's what our portfolio does. And we say we're the foundation for intelligent operations, meaning how do we make their operations more intelligent, provide the insights they need and drive the productivity they're expecting for their frontline associates.

And if you look at -- I think we have a lot of momentum coming out of 2025 here into '26 at the high end of our guidance for the fourth quarter, grew 6% organically last year with 17% EPS growth, strong free cash flow and looking forward to have that momentum continue here in the year. And I think that's what our customers are telling us here early on. We just recently at the National Retail Federation Trade Show, some of our sales kickoff meetings with our partners. Again, I think people have their heads down, focused on what they need to do for their business and continuing to invest.

Got it. And you reported last week, introduced your 2026 guidance. Can we touch on some of the drivers there? Your implied '26 organic growth guidance of roughly 4% is below your long-term average of 5% to 7%. You just said you did 6% in 2025. So as we think about 2026, can we walk through some of the puts and takes? How much is pricing helping versus the volume uptick? I thought you generally sounded good on your earnings call across most of your portfolio in terms of pipeline of opportunities. So where are the areas of caution, and I understand it's still early in the year.

Yes. Look, we feel good about the business. Like I said, there was some nice momentum coming out of year-end. We have a strong pipeline of opportunities both for this year and starting to see a pipeline build for '27 as well. We had our European business returned to growth in the fourth quarter, which was a positive sign. Manufacturing, which we'll talk about a little bit later, grew high single digits. So it was great to see kind of our manufacturing vertical get back to solid growth. And then we're seeing continued momentum in areas like RFID and machine vision.

So I think all that, along with what I just mentioned around our customer conversations, makes us feel good about how we're entering the year. We think the guide is balanced with those opportunities, along with, I'd say, some of just the lingering uncertainty, whether that's inflation, interest rates, the impact of the consumer. But again, we feel like we're in a good space entering the year. And we did take some pricing actions last year. That's given us about 0.5 point of growth as it carried over to this year. So what we realized last and carrying over into this year.

And we've just announced another price increase just over a couple of weeks ago, and we didn't embed that incremental revenue into the guidance just because we just announced it a few days before earnings. So again, I think that's incremental opportunity as we look out to the back half of the year. But we wanted to see how that plays out in the market from a demand perspective before including it in the top line guide.

Got you. And you mentioned some of the end markets, but let's talk -- let's get a little bit more into those and how they are contributing to your growth this year. You said like you mentioned, like the relative strength in health care, manufacturing and retail and e-commerce. Like how are you thinking about these end markets in 2026? Manufacturing has been pressured for some time, but you had a good 4Q, as you mentioned. Would you say you are seeing a more pronounced recovery in the underlying demand in manufacturing? And then how do you think about transportation and logistics?

Yes. If you look at manufacturing, I think we said it was lagging growth, which I think may get misconstrued as it was declining. It just wasn't growing as fast as some of the other verticals through last year. That kind of flipped in the fourth quarter. I think some of that is the underlying market. You're seeing that with some of the PMI data. So that's great. And then we've spent quite a bit of time investing in our capabilities around manufacturing. A couple of examples on the go-to-market side, investing in inside sales capabilities, investing in our e-commerce platform where a lot of small and midsized business manufacturers go to purchase as well as going into this year, changing our rebate structure with our resellers to have more focus on small, midsized customers.

And again, these are customers that typically buy -- it's more transactional-based, less projects. So again, you got to be there in contact at that moment where the prints are at the end of the line, they need to be replaced or they're doing a lean workout and they need to upgrade the line. So you got to be there at that moment and have the right solution for them. So we spent a lot from a go-to-market and seeing that starting to pay off. And I think the other opportunity, I mean, manufacturing is really core to our print and scanning business, which is kind of the core legacy part of the company, but those are great businesses, high margins.

And now if you look at what we have in machine vision, which we'll talk about, but that's obviously benefiting from market recovery. Things like RFID are now being embedded more and more into the manufacturing processes, which is an opportunity. And then we look at areas like tablets, so having supervisors and frontline managers with a mobile device to monitor what's going on in the production line, somewhat replacing kind of the fixed screens you see mounted at the end of the production line. And then the other with Elo coming on, they have a real opportunity around interactive displays in the production line. So again, I think the portfolio breadth is much broader than it was 5 years ago, which gives us incremental opportunities to go and have a different type of conversation with our customers.

Got you. Any comment on like anything different that's happening in transportation and logistics?

Not so much. T&L had a good year last year, a slight decline in the fourth quarter. It's more project-based. So you do see a bit of lumpiness just around project timing. But we are seeing -- T&L was one of the big beneficiaries back during COVID in '21 and '22 as last mile delivery did a lot to refresh their portfolio of mobile computers. And we're seeing that pipeline build, particularly as you look at multiyear deployments beginning in '27. And one of the areas that I think is differentiating us versus the past is the AI capabilities we're building.

So a lot of excitement around what we can do to automate proof of delivery, which seems pretty quick. But if they drop the package off at your door, there's a couple of steps they need to follow in terms of clicking buttons. And if you can automate that with AI, that saves seconds. You multiply that times thousands of transactions and package deliveries, it's millions of dollars that they can benefit from. So those are some of the different capabilities we're bringing beyond just your normal technology refresh. There's a lot of enhanced capabilities we can deliver for those T&L providers as they're looking to refresh their portfolio.

Helpful. And let's dig into the role of AI and what it means for Zebra. You're obviously at the forefront of introducing AI-enabled applications and integrating AI with your current offerings. Can you talk about some early wins and how meaningful AI and software broadly will be for Zebra in the next few years? And how far or close is competition with their AI offerings? Do you think AI is a differentiating factor as customers make their investment decisions today?

Yes. We believe we're uniquely positioned to be the AI provider for frontline workers. And we do that across our entire portfolio. If you go to the foundation of asset visibility, which is giving a digital voice to customers' assets, inventory, their people, all that data is being fed by -- you need printers, scanners, machine vision, RFID to know where and what those assets are doing or where they're at across the supply chain, feeding the data models that allow then the AI to provide a better insight and output. And then on the Connected Frontline, it's all around unifying workers with the consumer, with our software applications.

So again, you're doing the right task at the right time or providing better collaboration tools across those -- the frontline store associates. So how do you take that -- the insights from AI that are able to generate and then get that in the hands of frontline workers so they can be more productive. We've also introduced a suite -- an AI suite of products still in the pilot phase, but we think these are really differentiators in the market and set us apart. And the way we think about it is 3 things. One, we call it enablers, which is think of tools and APIs no different than we do for most of our other mobile computing solutions that allow developers, our customers to develop applications, AI applications for the device, for their frontline workers and making that an easy process for them to execute.

And so that I think is a real differentiator. If you do that, you need a higher-end mobile computer, which is -- which will drive the need for a refresh and upgrade of your existing devices. Then we have blueprint. So think of multiple enablers as a blueprint, so it's easy to build applications and agents. And that's some of the work we're doing around proof of delivery within T&L. Those are a blueprint. So those could be managed by Zebra. They could be managed by the customers. There could be professional services in terms of how we help set those up.

And then the final one is we call our companion suite. So where we have AI agents built for things like sales enablement, operating procedures, product knowledge. So again, we had a wine retailer at National Retail Federation of Trade showed this, which is if you go in and ask and it's -- you just hope you find the right store associate that may be able to help you with whether you're looking for the right wine or where to find something in a home improvement store. Now at the touch, they can go in an intuitive way, ask what wine should be paired with X. You say, well, any AI application can do that? Well, what the store needs and what those -- that retailer wants is it to be customized to what they have in inventory, what they're running a special on, right? So it's built around not only that broader knowledge that you get from AI, but also custom built around their product, their procedures to provide that better consumer experience.

Got it. And let's talk about the flip side. There are growing concerns that AI can potentially disrupt existing software offerings. If we can start with how you expect Zebra to defend its market positioning if we begin to see new entrants with AI [indiscernible] offerings. And then there is a push towards fully autonomous and automated warehouses and retail stores. Can you talk about what role will Zebra play when retail stores or warehouses operate without sales associates?

Yes. On the first one around AI disruption, I think we are in a unique position given our installed base, the market share we have in the markets we serve and then the relationships we have with the top retail e-commerce T&L providers to understand where their pain points, how are they thinking about using AI in a variety of ways to support their frontline stores -- their frontline associates and us working with them to enable that, right? So I think we can help be the really disruptive force for their processes and procedures.

And because of that position, we're -- I think as long as we stay close to our customers, continue to adapt to their needs and not let someone else come in and have that position, we're in a great position to, again, help our customers disrupt versus someone else coming in and doing that for them.

And I think 2 things I'd like to say on the -- both the warehouse side and the retail. I look at it a little bit differently versus there's the fear of fully automation. But there's been a couple of surveys that are out. And if you look worldwide, only 25% of worldwide warehouses have any form of automation. So if you think about the -- where we're talking about fully autonomous or dark warehouses and things like that, there is a vast number of warehouses out there that need our solutions, even the most basic barcode scanning, much less having to utilize RFID or machine vision and other tools that can really drive enhanced productivity.

So I think there's still an enormous opportunity out there to continue to automate and digitize. The other one is there's been very recent announcements over the last 6 months of large customers backing away from fully autonomous warehouses. They tend to be pretty rigid and unable to adapt to changing customer behaviors, buying propensity. The ROI has been longer than I think expected. And I'm not saying there's -- that role is going to go away. But I think what customers -- what they're saying is they need flexibility, modular quick ROI. And again, we think RFID, machine vision or even just our scanning capabilities really help provide that and allow them to adapt to their changing customer behaviors. So I think there's a huge role there.

And then on the retail side, the one thing we look at is 50% of frontline workers still aren't digitally connected, even with the most basic communication kind of forms of connectivity. And we think that's, again, a huge opportunity, especially if you think of the role of AI is it's only as good as having all your store associates connected and be able to utilize that. And so we've done a lot of work over the last several years bringing out the portfolio to have your highly rugged mobile computer that maybe is used for the back of store inventory management to a wearable that someone at a checkout or someone a greeter at a store can have a wearable device that allows them to be connected, they can collaborate, utilize those AI capabilities that are coming to market and everywhere in between.

So again, the value is then even though there may be different form factors in terms of the device, they're all supported by the same software layer, same applications, the same user experience. So if you switch between -- you go from using a wearable to a fully ruggedized because you change roles, you're going to have the same experience just in a different form factor.

So again, I think those are 2 huge opportunities that still exist. And look, the role of automation is clearly important. If you're growing 5%, 10% and you're a large e-commerce provider, you have to have automation to keep up with demand because, quite frankly, you just can't hire that many people, right? So there's a -- I don't think this is anything new from the need to drive productivity and robotic automation is one form of that just to keep up with demand and especially when your resources are scarce and trying to find talent to keep up with that demand from the market.

Got you. Helpful. And let's talk about margins now. You have like 50 bps of annualized margin expansion target over a cycle. A lot of it is driven by operating leverage, but you have been talking a bit more about productivity initiatives. There is some restructuring in there. I know you are not -- you have not quantified anything, but do you think there are incremental opportunities to take out costs from your operating structure? R&D is a big bucket for you guys. Does AI -- like internal use of AI help you maybe drive more efficiencies within your R&D workflow?

Yes. So we have -- I think going back a track record of driving operating leverage. We have a variable cost structure just with our outsourced manufacturing, our use of resellers and distribution channel gives us a lot of leverage on both sides to flex up as growth or in a downturn to be able to take out costs quickly. So I think that's a real advantage for the company. We spent a lot of time around talking about things like kind of a common ERP, one distribution network to support the breadth of the company, which gives us, again, a lot of leverage on that fixed cost structure.

And -- but again, we have -- always have rooms to improve and drive incremental productivity. I think the new tools like AI is obviously an opportunity that we're pushing hard on. And the restructuring we took in Q4, and we expect a little bit more here in Q1, I'd say it's targeted on a few areas. One was the exit of the Robotics business which will be a $20 million benefit on an annual basis directly to reduction in R&D expense. So we do expect that R&D as a percent of revenue to come down below 10%. There was nothing magic around 10%. It just happened to be kind of where it always -- wasn't like some golden rule that the budget started with 10%.

So as we exit the year, I do expect that to come down to 9%, 9.5%, primarily with that exit of the Robotics business. And then we took some other actions around our engineering in terms of software development, like everyone, using the tools that are out there from an AI to be more productive in our software. We're seeing the benefit of that, and the teams are still working through how to continue to drive more productivity there from our software development capabilities. And then we also took some actions in our go-to-market team, primarily looking at our sales and management structure with really the goal to reinvest in more frontline resources, expand our inside sales capabilities, really commercialize our AI offerings like we talked about.

So adding the resources in the field who have the expertise and the know-how to help our customers deploy those new AI tools and then just help offset some general inflation. So like I think it's something we look at every day. And at times, there's a larger restructuring action when need be or to help make sure we're reallocating capital to invest in the highest growth opportunities we have.

Got you. And I think on your earnings call, you talked about accelerating your investment in RFID, machine vision and AI, and I think that's what you were kind of referring to. So can you elaborate a bit more on what you're doing there? And is this still within the 10% or like now 9%, 9.5% R&D spending threshold? And when can we expect these investments to translate to higher earnings potential?

Yes. All 3 are a little different. So it's definitely within the envelope of that R&D we talked about. If you look at RFID, the real -- again, RFID technology has been around for a long time. But it's at the tipping point over the last couple of years is the cost of the chip, made it economically viable and then now just everyone understanding where are the different use cases and workflows that they can automate with the technology.

But there's a lot of work with, I'd say, the broader ecosystem to help ensure that adoption continues, ensure that the ROI that the customers are expecting, and we all have to work together from the chip provider to the inlay provider, we'll provide readers and printers, labels, but then you also have ISVs and solutions who are pulling that all together and developing the app, the software layer on top that could be very customized to whatever individual customer is looking at and workflow they're looking at. So there's a lot of work, I think, across the industry just to -- again, it's all in our best interest for the adoption to continue to accelerate.

And we're not going to be able to -- any one of us can't do that on our own, right? We require all of everyone working together for the best interest of our customers and driving that ROI. So I think that's really the focus, less so on pure incremental dollars, but it's really around that building out of the ecosystem. Machine vision, we've invested a lot over the last couple of years, and I know we'll talk a little bit later, but I don't think it's really net incremental investment here in the short term. It's focus, it's executing and delivering on the growth opportunities we see ahead and getting that business back to the growth profile that we expect.

And I'd say earning the right to continue to invest more, but really making sure we get a return on what we've already invested. And then AI, just particularly on the offering side, our external offering, that's probably where the most investment is going this year. Again, it's just building out that portfolio, building out the offering, hardening the offering, taking it from pilot to deployment to full scale and making sure we have the resources in the field to support it. So that's probably where you see the most pure dollar investment going. The other 2 are more on focus. And I think that's part of the exit of Robotics was -- obviously, it was returning that -- those losses back to shareholders in terms of improved profitability, but also just the focus around the overall company and management team on where we see the greatest opportunities for growth in those 3 areas.

Got it. And there were a lot of questions on memory pricing. I'll just ask one. I think you talked about 2 points of gross margin headwinds from that, but you also expect to fully mitigate it by year-end. I think you have highlighted some supply chain actions and then you are instituting pricing actions. It seems you have a relatively good handle on it, at least on things that you can control. But is there anything that concerns you, be it in terms of availability or supply or higher pricing potentially leading to some project deferment by your customers? Anything that you would say is still uncertain?

Yes. Look, there's always uncertainty. It's obviously a quickly evolving dynamic environment. But I think our -- I feel like every year, I'm saying our supply chain team is doing a great job, whether it was first round of tariffs or semiconductor tariffs again and now back on memory. And working -- they're working closely with our multiple memory suppliers on capacity and making sure we get our fair share of allocation, which we feel good about, looking ahead at where we see prices not only today, but going over the next 6 months, and that's what we've embedded into our guidance. And then a lot of work with our commercial teams looking out at the pipeline over the next -- for the remainder of the year.

And it's one thing historically, if you say, I'm going to -- I believe this customer is going to buy this product, in our case, a mobile computer, that may be okay. But when you're in a world where there's allocation, it matters if they want 6, 8, 12 gig memory and making sure that we understand what are those specifications they're really interested in so that as we work backwards through the supply chain and we get our allocation that we're getting the right allocation to where those customers want. And so a lot of activity right now going back into the pipeline and double-clicking on we got to go one layer deeper with our customers, not to order it early, but just to understand what they're thinking and what's the SKU they're probably going to go with, so that way, we can make sure we get the right allocation.

So we feel good around the overall allocation. Now it's the nuance of it matters if you get 6 versus 12 and the customer wants the opposite, right, in terms of how we've worked back through the supply chain. So a lot of great work there. As I mentioned, it's 2-point headwind -- as we mentioned, 2-point headwind for the year, really beginning in Q2. Q1, not much of an impact, just given what we had already in inventory and built out. And the way I think about it is twofold. One, the pricing increase we announced over a week ago along with some moves we're expecting later in the year around rediverting to different memory types, we expect to fully mitigate on an annual basis. So as we, kind of in the later in the year into next year, fully mitigate with the pricing -- the direct pricing actions as well as some other direct moves around memory.

And that's what we've done if you go back, whether it was tariffs, semiconductor or some of the freight escalations we saw back a couple of years ago. But that takes some time for our pricing to flow through the distribution channel, flow through the P&L. So there's usually an air pocket to catch up with the cost and our price increase. I think this year, we're benefiting that we can offset it within the year because of unrelated tailwinds, which unfortunately should have been upside to margin rate. But the exit of the Robotics business, FX favorability, tariff favorability because of some of the lower rates out of China as well as the actions our team has taken kind of all that is being absorbed with helping offset the impact this year, while the goal is to fully mitigate with the pricing actions as we exit the year.

Helpful. And how sticky would you say pricing is for you guys?

If you look back, we've had relative success when you go to the price increases we did back around the increases in freight and memory or in semiconductor costs or last year with the tariff. And we executed the price actions we needed to fully mitigate the impact of tariffs as we exited the year. So -- but we need to see how it plays out with demand. We're seeing it -- we're not the only one. So it's somewhat different than tariffs where it somewhat mattered where you produced who may or may not have a competitive advantage. Here, everyone is facing the same headwinds. So we're seeing similar actions by our competitors. And to date, we haven't really seen any noticeable change in pipeline or someone saying, "Hey, we're going to wait. But that's the reason we said back in the guidance that we thought it was just prudent and the right thing to do to not bake in that incremental $50 million, $60 million of pricing to our guidance, and we'll see how that plays out and be able to give an update here in a couple of months once it starts to be absorbed by the market.

Helpful. I'll pause and see if there are any questions in the audience.

So maybe going back a little bit to RFID, right, and the momentum that you guys are seeing built there. Are you guys doing anything different there competitively? Or is it really all around that adoption is finally beginning to happen and broaden?

Yes. I think it's both. I mean, one, we do continue to see the adoption, whether that's -- you see different announcements on applying the technology on fresh food and produce to track the age. I mean it's, I think, quite a bit of waste, as you would expect within a grocery environment around produce. So being really able to understand is that loaf of bread? How old is it really? And the only way to know that is with RFID because you have a unique identifier with that product. And you would think in some cases, it's not -- what are the economics around paying for that extra for an RFID chip. Well, that's still better than throwing it away, right, because it's expired and not utilized.

So by having that information, there's a lot they can do around shaping demand, make sure they're buying the right amount of whatever the item is, promotions, all the things grocery stores can do -- grocers and retailers can do to move product when it's near expiration. So those type of applications, I think, are continuing to grow. And I think the beauty is once -- if you're a supplier and you're -- you've seen these large announcements from some large retailers requiring everyone to be -- all their goods to be tagged. Well, if they -- now if you're the garment provider tagging everything, going to multiple different stores, you may look around your environment, a store who doesn't have RFID readers and go, you know what, 40%, 50% of the articles I have in my store are already tagged.

Now all I need is a reader to take advantage of the productivity I can get. So I think some of this proliferation of things being tagged, a lot of other retailers are looking at it going, "Oh, I can now take advantage of that. So obviously, we're continuing to innovate around the portfolio, different types of fixed readers, moving to new chipsets. But again, back to what I said earlier, a lot of this is around working together at the ecosystem to make sure we're providing the solution for the customer and whatever that -- the one challenge is in is every customer is a bit unique. the application they want, the software that's required.

So some of that's the scope can very pinpointed to a workflow within a customer. And that's the role of an ISV, right, software provider or the independent software providers can provide. But then we all need to work with them to make sure our solutions work together. So I think that's the -- there's still some of that underlying demand, but also a lot of work just making sure we can bring that ecosystem together to provide the right solution.

All right. Any other questions? I'll continue. Can we talk about machine vision? I think you mentioned a return to growth in 2026. Bill mentioned a strong pipeline of opportunities, but this is a vertical where you expect longer-term double-digit growth potential. Based on your customer conversations and the project activity that you see, do you have enough visibility to get to that double-digit growth framework this year? And you have made some acquisitions in your machine vision portfolio. Would you say your portfolio is "Ready?"

Yes. We've -- we still remain excited about the long-term prospects for machine vision. Obviously, we made significant investments over the last several years from an M&A perspective and organic investment. And unfortunately, I think there's been a lot of market headwinds and in particular, the markets where particularly our Matrox acquisition had some real strength, semiconductor -- also where we placed some of our bets around electrification and automotive was a huge opportunity that quickly evaporated.

And so now we're starting to see, I think, both the underlying market improve. You're seeing that from others in the market and the work we've done over the last 2 years to -- it's a long sales cycle. You got to create the relationship, win a proof of concept, be designed in and then you get the real tailwinds for years to come. And that takes time. And now we're starting to see finally that pay off, right? The work around, you're seeing some traction in automotive again. The semiconductor customers are starting to recover and seeing some progress and some momentum in T&L.

So again, where we've focused over the last couple of years have now started -- you're starting to see that traction both in the underlying recovery as well as those actions. And I think we look at the portfolio today, we feel good about where it's at in terms of being able to compete. We have to pick our spots. But the nice thing about the machine vision market, it's fairly -- it's fragmented from a competitive standpoint. There's also multiple different layers from 3D to fixed scanning to smart cameras.

So it's not just as one ubiquitous market. There's a lot of different submarkets where you can go and have success. And there's a lot of white space, right? It just as the overall market grows. So I think the one area we look at is scale is absolutely critical. So there's multiple ways to drive scale. So I think that's where we're focused at is executing, delivering and then understanding where and how we can continue to scale our business to compete as most effectively as possible.

Helpful. And one on Elo. You have had Elo for some time in your portfolio. How do you feel about the cost and sales synergies that you initially telegraphed? On your earnings call, you mentioned some wins for Elo. I think you have mentioned potential benefits of running it under the Zebra umbrella and integrating with your own offerings to sell your customers a more comprehensive solutions. Maybe if you can update us on how that is progressing.

No, we're still excited about the acquisition. I mean, in 5 months. I mean, the focus for the last 5 months, quite frankly, was finish the year strong, execute and deliver what we needed to at year-end and get through the holidays. But the teams, I'd say, super impressed with the management team, continue to be great cultural fit. You're seeing teams work together naturally around back to memory, sharing their supply chain, our supply chain, what are we doing? Where can we help with our scale with some of the memory providers, but they also have some different things they're doing that we can leverage across our portfolio.

So you're seeing those things just naturally happen. We have a combined incentive plan for our sales team to make sure that both sides are incentivized to drive opportunities and leads for the other portfolio. And we've already confirmed $10 million -- we committed to $25 million of synergies by year 3, and we already confirmed $10 million, meaning we know where it is, how we're going to drive it. And the teams are executing that. So I think we feel great about the progress here out of the gate. And we got to show us, I'll call it, a sneak peek of how we think about the portfolio in the future at NRF, where you have interactive displays, self-service kiosk, working with mobility.

And obviously, there's a lot of work kind of putting that together and the opportunity to have the pane of glass across the storefront, whether that's mobility in the hands of workers, touchscreens, kiosks and all operating on the same operating platform where the applications, the security, the maintenance can all be run. Today, those are on 2 different applications, 2 different instances. And the work to be able to combine those, that's what our customers are asking for and have asked for a long time. That's the reason we launched our own kiosk last year. So again, I think that's down the pipeline in terms of from an R&D integration. We're really excited about the differentiation that can bring to market that no one else has the ability to offer.

Helpful. And can we spend some time on your portfolio strategy? We talked about Elo, you're exiting Robotics business. Maybe talk about like why that no longer fits the portfolio. You have done some M&A in machine vision space. You're obviously very close to your customers. So what other opportunities are there to help your customers from a portfolio additional product standpoint? And as you think of M&A pipeline, what are the top 1 or 2 areas of interest?

I think on Robotics, it was pretty straightforward. The market never really evolved as we anticipated when we did the acquisition back in '21, which was obviously just a lot of momentum at that time around what autonomous robots could do. But the unit economics on a deployment and the profitability around that were pretty challenging. And as we took a step back and said, look at the losses we were incurring each year and being able to shut it down, sell some of the assets, give that money back to shareholders in terms of improved profitability and then really focus our efforts around, like I said, where we think there's big automation plays that we have a right to play, and we see a lot of momentum, and we've talked about those RFID, machine vision and AI.

So it's just -- again, and we still supply a lot of robotics companies. Photoneo is the eyes for a lot of robotics automation. So for arms that are going and doing the picking, they need to be able to have 3D sensing to see what they're picking, and that's what our Photoneo camera does. We still have a position in several robotics companies within our venture portfolio. So we'll still keep an eye on it, see how the market plays out. But just I think for the portfolio today, it just made sense to be with someone else and for us to focus our energy and effort.

Got you. And then tying that to capital deployment priorities, you are generating good free cash flow and your leverage is not too high. You just announced $1 billion of share repurchase authorization. In the near term, should we expect you to balance share repurchases and debt profile? Or can you be more aggressive on M&A?

Yes. Maybe just before that, on the M&A strategy, I think it's -- just to touch on that, it's one where we're going to continue to look for assets that are closely adjacent, synergistic with the portfolio we have, where we can really scale within the existing businesses of our Connected Frontline, Asset Visibility & Automation in higher growth markets that have -- we can drive an attractive return on investment. We think both Elo and Photoneo were good examples of that. But that being said, we laid out in our last earnings guide that we plan to give -- buy back 50% of our free cash flow in terms of share buybacks, primarily here in the first half of the year.

So I think just given where the stock -- our stock price is at, given our debt leverage is at 2x, we're very comfortable there that we'll get back almost 100% of our free cash flow here in the first half as share buybacks. And that still puts us in a good position as we enter the second half of the year with another $450 million of free cash flow to generate plenty of capacity for M&A opportunities that may arise in the second half, maybe a little bit of debt paydown, just debt obligations, but again, no -- we don't feel any compelling need to pay down a significant amount of debt here in the near term.

Got you. I'll pause for another second. Any questions from the audience?

All right. So this is a question we are asking like every company. What are the top 2 or 3 innovations and structural changes affecting your company over the next 5 years? And are these -- are there any emerging industry trends that are perhaps being overlooked in your current discourse?

Yes. That's -- it's an interesting question. The way I thought about it was I don't think it's any different. If I look out over the next 5 years, I'd say different than what the past 5 years from an industry and innovative perspective, meaning our customers -- I mean, every company is out looking at how you drive productivity, how do you digitize, automate workflows, provide a better customer experience, and that's what we do for our customers across multiple vertical -- the vertical markets we serve.

And I think the technology evolves and adapts. I mean we talked about RFID. I mean that's evolved significantly over the last 15 years to where it's at today. And we're going to continue to innovate around the portfolio based on those needs of our customers. So that's obviously not changing, right? I think just from that need to continue to do it, but that's not different than what our company is built around, which is how do you adapt to those changes in our customers and what they're looking for and making sure that we're their supplier of choice and a strategic partner as they're thinking about those challenges.

All right. I think you're kind of almost on time. So we appreciate you spending time with us. Appreciate it.

Thank you.

Thanks, everyone.

Good day, and welcome to the Fourth Quarter and Full Year 2025 Zebra Technologies Earnings Conference Call. [Operator Instructions] Please note, this event is being recorded. I would now like to turn the conference over to Mr. Mike Steele, Vice President of Investor Relations. Please go ahead.

Good morning, and welcome to Zebra's fourth quarter earnings conference call. This presentation is being simulcast on our website at investors.zebra.com and will be archived there for at least one year. Our forward-looking statements are based on current expectations and assumptions and are subject to risks and uncertainties.

Actual results could differ materially, and we refer you to the factors discussed in our SEC filings. During this call, we will reference non-GAAP financial measures as we describe our business performance with reconciliations shown at the end of this slide presentation and in our earnings press release.

Throughout this presentation, unless otherwise indicated, our references to sales performance are year-on-year on a constant currency basis and exclude results from recently acquired businesses for 12 months. This presentation will include prepared remarks from Bill Burns, our Chief Executive Officer; and Nathan Winters, our Chief Financial Officer.

Bill will begin with a discussion of our fourth quarter and full year results. Nathan will then provide additional detail and discuss our outlook. Bill will conclude with progress on advancing our strategic priorities.

Following the prepared remarks, Bill and Nathan will take your questions. Now let's turn to Slide 4 as I hand it over to Bill.

Thank you, Mike. Good morning, and thank you for joining us. We delivered fourth quarter results above our outlook, driven by our team's strong execution and positive demand trend. Before discussing the quarter, I'd like to briefly reflect on the progress we have made over the past year on our vision to advance Intelligent Operations.

In 2025, we expanded our connected frontline portfolio and customer base through the Elo Touch acquisition and expanded our 3D machine vision capabilities with the Photo Neo acquisition. We advanced our market leadership with the introduction of our AI solutions for the front line, sharpened our focus on automation by exiting our robotics business to prioritize areas where we see better growth opportunities, including RFID and machine vision and AI-powered solutions.

Operationally, we delivered solid growth, generating strong free cash flow and deepen customer and partner relationships. For the fourth quarter, we realized sales of nearly $1.5 billion, a 10.6% increase or 2.5% on an organic basis from the prior year, and adjusted EBITDA margin of 22.1% and non-GAAP diluted earnings per share of $4.33, which was 8% higher than the prior year.

We drove strong results in our Asia Pac and Latin America regions, with EMEA returning to grow. Our health care, manufacturing and retail and e-commerce end markets grew, while Transportation and Logistics cycled strong compares in North America.

Elo performed well in the quarter, and we are pleased with the early progress on driving synergies. We realized solid earnings growth by fully mitigating existing tariffs and driving operating expense leverage through productivity initiatives while continuing to invest in our market-leading solutions portfolio.

For the full year, we achieved greater than 6% sales growth, in line with our long-term expectations and 17% non-GAAP diluted earnings per share growth. We also generated more than $800 million of free cash flow and closed on accretive acquisitions. Overall, our team executed well while navigating in a certain environment.

Our strong financial position enabled us to return significant value to shareholders with more than $300 million of repurchases in Q4 and nearly $600 million for the full year. Given our progress, our Board of Directors has expanded our authorization by $1 billion.

We will continue to execute on our disciplined and balanced capital allocation strategy, practicing investments in our business that elevate our portfolio of solutions while consistently returning capital to our shareholders. We are well positioned as we enter 2026 and excited about the opportunities ahead.

I will now turn the call over to Nathan to review our Q4 financial results and 2026 out.

Thank you, Bill. Let's start with the P&L on Slide 6. In Q4, total company sales increased 10.6% or 2.5% on an organic basis with growth across most categories. Our Connected Frontline segment grew 3.6%, led by mobile computing, our asset visibility and Automation segment grew 1.3%, led by printing and supplies.

We realized solid performance across our regions. Asia Pacific sales increased 13%, led by Japan and India, Sales increased 8% in Latin America with double-digit growth in Mexico. In EMEA, sales increased 4%, with solid growth in Northern Europe and Germany. And in North America, sales declined 1% as we cycled large order activity in the prior year, partly offset by solid run rate demand. Adjusted gross margin declined 50 basis points to 48.2%, primarily due to lower services and software margins.

We fully mitigated current tariffs earlier than expected, thanks to our team's successful efforts, including supply chain moves, product portfolio rationalization and price execution. Adjusted operating expense leverage improved by 60 basis points. This resulted in fourth quarter adjusted EBITDA margin of 22.1%.

Non-GAAP diluted earnings per share were $4.33, an 8% year-over-year increase and above the high end of our outlook. In Q4, we recognized $76 million of restructuring charges relating to the exit of our robotics business and productivity initiatives.

Turning now to the balance sheet and cash flow on Slide 7. For the full year, we generated free cash flow of $831 million or a conversion rate of 102%. At year-end, we held $125 million of cash with a modest debt leverage ratio of 2 and $1.2 billion of credit capacity.

We have been deploying capital consistent with our allocation priorities. For the full year, we repurchased $587 million of stock and acquired Elo and Photo Neo with cash on hand and our existing credit facility. We continue to maintain excellent financial flexibility for investment in the business and return of capital to shareholders. As Bill noted, our Board authorized an additional $1 billion of share repurchase, providing a total of $1.1 billion after the $100 million repurchased through early February.

This action underscores the confidence in Zebra's prospects for continued growth and value creation. Let's now turn to our outlook. We entered 2026 with a solid backlog and pipeline that supports our first quarter sales growth guidance range of 11% to 15%, including approximately 10 points of contribution from business acquisitions and favorable FX.

Our first quarter adjusted EBITDA margin is expected to be between 21% and 22%. And non-GAAP diluted earnings per share are expected to be in the range of $4.05 and $4.35.

For the full year, we expect sales growth between 9% and 13%, which reflects a strong pipeline of opportunities, machine vision returning to growth, continued momentum in RFID along with manufacturing and a 7-point favorable impact from acquisitions and FX. Our full year adjusted EBITDA margin is expected to be approximately 22% and non-GAAP diluted earnings per share are expected to be between $17.70 and $18.30.

We are currently facing industry-wide price increases for memory components beginning in Q2. Our full year guide reflects us fully mitigating this approximately 2-point headwind and driving profitable growth in 2026 through multiple initiatives, including collaborating closely with our vendors to manage supply targeted price increases, net savings from the Robotics business exit, targeted actions to drive productivity as well as FX favorability.

Free cash flow for the year is expected to be at least $900 million which reflects free cash flow conversion of approximately 100%. We are continuing to optimize our working capital levels, balanced with our supply chain resilience objectives. Please reference additional modeling assumptions on Slide 8.

With that, I will turn the call back to Bill.

Thank you, Nathan. As we turn to Slide 10, Zebra remains well positioned to benefit from secular trends to digitize and automate workflows and with our innovative portfolio of solutions, including purpose-built hardware, software and services. We deliver intelligent operations by digitally connecting people, assets and data to assist our customers with business critical decision that drive meaningful.

The $35 billion served market represents a significant growth opportunity. Zebra's complementary and synergistic segments position us well to capitalize on this opportunity. The connected front line provides the digital touch points necessary to improve efficiency, collaboration and the customer experience.

Our solutions include enterprise mobile computing, interactive displays, frontline software and AI agents. Asset visibility and automation gives assets a digital voice to automate environments with technology that scale through printing solutions, advanced data capture, RFID and machine vision.

Turning to Slide 11. Zebra solutions enable our customers across a broad range of end markets to drive productivity and efficiency and improve the experience of their customers, shoppers and patients. We are accelerating our investments in RFID, machine vision and AI further sharpening our strategic focus.

Zebra is investing in RFID solutions that advance our leadership and support emerging use cases. Our next-generation mobile computers, embed RFID reading capabilities to prepare our customers for the increased penetration of RFID tags across the supply chain.

A North America telecommunications company recently selected our new RFID-enabled mobile computers for the retail location, replacing consumer devices. Our solution enables this customer to improve inventory accuracy and reduce shrink as well as lowering IT support costs over the product life cycle.

We're excited about the momentum we are seeing in RFID adoption and our pipeline of opportunities. We are driving new opportunities in machine vision by investing in go-to-market initiatives for deeper engagement with our customers. There are many mainstream workflows that benefit from the proven return on investment from our solutions.

For example, a large European parcel delivery company has selected Zebra's machine vision platform to drive productivity gains by identifying and sorting parcels, eliminating bottlenecks along conveyance systems. We have a strong pipeline of machine vision opportunities and expect to return to growth in 2026.

Now turning to Slide 12. At the National Retail Federation trade show in January, our team, along with valued customers and partners demonstrated how our innovative portfolio advances the AI-powered modern store through engaged associates optimized inventory and an elevated customer experience.

These outcomes are achieved to improve real-time inventory management, omnichannel execution and technology empowered workers and shoppers. The addition of the Elo Touch business enhances the modern store experience as our combined capabilities, along with AI, enable us to offer additional ways to digitize operations across multiple touch points.

Together with Elo, we will deliver higher customer satisfaction and complete solutions through the intersection of frontline mobility, self-service and digital media. This value proposition extends well beyond retail, including quick-serve restaurants, hospitality, health care and other industrial markets.

For example, a high-growth multinational fast food restaurant recently selected Elo self-serve kiosk at its U.S. location to increase order size, enable faster fulfillment and improve order accuracy. Looking ahead, we have an opportunity to expand our business across their entire point of service platform and also supply their international locations.

Turning to Slide 13. Our industry leadership which is in a unique position to be a supplier of choice of AI solutions for the front line of business. Our connected frontline and asset visibility and automation segments play a critical role in enabling AI for business operations. As AI transforms the front line of business, asset visibility becomes essential, providing a digital voice to physical assets to identify, locate and understand condition.

This real-time data provides critical insights, allowing AI models to better understand the physical world, which is fundamental to transforming frontline workflows across industries. Our connected Frontline solutions unify a mobile workforce, which combined with our SaaS offerings, deliver the output from AI models to frontline workers, providing the right information to the right person at the right time.

Global Solutions will be capable of seeing, hearing and understanding the environment while interacting with frontline workers in a conversational or a vision-based way. We continue to invest in our AI solutions with our recently launched frontline AI suite comprised of 3 components: AI enablers are foundational to our offering, consisting of tools and APIs thinner power partners and customers to build enhanced applications for mobile devices.

Our AI blueprints combined enablers into purpose-built templates that streamline multi-step workflows, these blueprints integrate computer vision, voice recognition and sensor data to automate critical workflows such as proof of delivery, material receiving and shelf merchandising.

Zebra Companion includes agents, we design and manage addressing key responsibilities, including operating procedures, product knowledge and sales enablement. Our frontline AI suite is a clear differentiator in the industry, enable us to meet a range of customer requirements.

Our partners and customers can choose to build their own fully customized application using enablers, elect to adopt blueprints to more quickly address their evolving business needs or deploy our fully functional Zebra companion age. AI enablers are a value-add to Zebra's mobile computers, while AI Blueprints and Zebra companion our software and service offerings with pay pilots already underway and scale deployments expected this year.

We are pleased that 2 prominent retail customers demonstrated the value of our frontline AI suite at the NRF trade show and we look forward to building on our momentum to further elevate Zebra as the leading solutions providers for the front line of business.

I'll conclude on Slide 14, which highlights end market trends driving our long-term growth opportunities across our end markets. These include several broad-based themes, including labor and resource constraints, track and chase requirements, increased consumer expectations and advancements in artificial intelligence.

Our customers rely on our solutions to advance their business-critical workflows and we are uniquely positioned to address the need for intelligent operations with our market-leading portfolio. I will now hand it back to Mike.

Thanks, Bill. I'll now open the call to Q&A. We ask that you limit yourself to 1 question and 1 follow-up to give everyone a chance to participate.

[Operator Instructions] Our first question today comes from Tommy Moll of Stephens.

First one for you on memory, Nathan, I think I heard you say that beginning in Q2, you anticipate a 2-point headwind that you can fully offset. So maybe we can just unpack that a little bit. To point, I presume you're just referencing a 2 percentage point hit to gross margin. And maybe you can give us some context how that progresses from Q2 and beyond? Or maybe you can quantify for us some of the initiatives that you have in flight to try to offset that headwind.

Yes, for sure. No, that's correct. So what we said in the statement. It's about 2-point gross margin headwind on a gross basis. But obviously, the memory chip demand and price expectations have escalated quite a bit since the beginning of the year. .

But we are pursuing multiple mitigation strategies. It's no different than what we've done before, whether this was with tariffs or semiconductors. So we recently announced price increases globally. Over the past week, they'll be effective in March, practically working with our suppliers around spot buys, co-planning around the demand trends as well as looking for alternative memory sources and then a lot of work from our product teams on transitioning to some higher density memory.

So again, quite a few active work streams in process and if you look at the impact for 2016, I mean, this is based on indicative pricing from our suppliers and where they see that going here over the next several quarters. The impact really begins in Q2 just based on the timing of those price increases as well as what we have in inventory going into the year.

But we fully expect to mitigate that within the year, and that's embedded in our guidance, about half of that or 1 point is offset with just the other offsets we have in the business, whether that's the exit of the robotics business, some tailwinds from some of the lower tariff rates as well as the actions the team has taken to mitigate the tariff exposure as well as some of the favorability in FX.

And then the other half coming through with the -- as we realize the pricing benefits into Q2 and through the second half of the year as well as all the other mitigating actions the teams are currently working. So again, and our teams have done a really great job of securing supply to meet the demand we have within the guidance.

So a lot of work is obviously a dynamic, but I think, again, we feel good about where we're at with the work streams and working closely with our supply base.

And I want to follow up on the repurchase update you provided today. It sounds like you've already done $100 million through the year-to-date period. And so my question is with the new authorization?

And assuming your stock is at similar levels, is there any reason why you wouldn't -- or excuse me, why you would slow down the recent level of repurchase.

So if you look -- I mean, if you just take a step back, ending the year from a debt leverage around 2x. We feel great about the overall capital structure, strong cash position balance sheet is in good shape. So as we said, we repurchased $300 million of share repurchases in the fourth quarter.

We have repurchased $100 million year-to-date leading into the call. So right now, we're targeting to do share repurchase around 50% of our full year free cash flow of $900 million. That will be primarily here in the first half of the year. So again, we continue to plan to be aggressive in the market here over the next several months.

And this still provides ample flexibility as we enter the second half of the year based on our cash profile for the year.

The next question comes from Guy Hardwick of Barclays.

Bill, I think it's been a couple of years since you've referenced the pipeline. So I guess that's a very positive. So is visibility improving, but just more specifically in the near term, appears the midpoint of your Q1 revenue guidance suggests revenues are above Q1 revenues above Q4, which is much better than seasonalities.

Any particular reasons for that? Is that Elo? Is it because of the pull-forward from Q4 to Q3 makes an easier comparative. What other sort of issues are there? And is FX a big change sequentially?

Yes. I'd say that the strong finish to the year certainly is playing into this as we exceeded our outlook. 2025, we drove solid growth, 6% growth and then 17% EPS growth greater than $800 million of free cash flow in what was in a certain environment through the year. Elo added 2 points of sales growth. So to the year, leading to 8% growth for the full year, really advancing our offerings in the connected frontline segment.

And then also our capabilities across engaging customers in a digital way, certainly, in that segment, so enhanced our modern store offering as well. We see that as we enter '26, that there's momentum, right, is that we see reacceleration of growth coming out of fourth quarter led by manufacturing, our machine vision pipeline, momentum in RFID are all positives as we entered the year.

We're seeing our customers continue to talk about investments in technology as we spend a lot of time with them at the National Retail show really, we're focused on higher growth opportunities across the portfolio and to drive productivity within the business, as Nate talked about, kind of offsetting memory so I think overall, we feel that good as we enter the year and that the momentum is there to drive profitable growth in 2026.

Then, Guy, I think if you look at the Q1 guidance, as you mentioned, in line or roughly flat from where we were in Q4. I think a couple of things in play. One, if you just look back over the last couple of years, linearity has been anything but typical. So I think it's hard to say what has been typical linearity, if you look back, just what's happened over the past couple of years.

But also we didn't see, as we said in our guidance for the fourth quarter, kind of a surge in year-end spend. So we didn't see the same type of cyclical improvement from Q3 to Q4. And then Elo plays a small part, just not quite the same seasonality more linear throughout the year. So I think all 3 of those play a factor in why along with just, as Bill mentioned, the demand environment all play a factor in why Q1 is in line with Q4 and the top line.

Sorry, just on the memory issue. Do you have much visibility to the back end of the year in terms of what could be the annualized impact as we kind of exit the year based on your discussions with your suppliers?

Yes. I mean we -- I mean, really, the pricing we've gotten now is kind of through the middle of the year. So I think that's and obviously, that's what we've incorporated into the guide as well as some assumptions around just how that may play out in the back half. .

I think the way to think about it now would be if you take the 2 points really pull that over the back -- second, third and fourth quarter and then annualize that run rate on an annual basis. So it's not that much different from what we're seeing here in the -- from our '26 guide.

Our next question comes from Joe Giordano of TD Cowen.

Can you talk about like -- I mean, it's a fairly wide dish. It's kind of a wide organic growth guide for the year. So maybe you could talk to like scenarios and what your visibility looks like and how your -- what would be required from a from like a market standpoint to get to that higher end and how like derisk is the low end?

Maybe just start with the full year guide, 11% at the midpoint, 22% EBITDA margin and double-digit EPS growth. So again, I think we feel good about the overall profile for the year. And as Bill mentioned, I think the underlying theme of that is entering the year with a strong pipeline the momentum across different parts of our business, whether that's RFID, machine manufacturing machine vision.

And I think if you take a step back, we believe the guide provides a balanced view of the environment where we sit here today, including still some macro uncertainty out there, the memory component challenges with the opportunities that we see in the market.

So if you look at the 11% midpoint about 4 points of that is driven by underlying demand. Elo provides 5.5 points of the growth and FX is 1.5 points in there. And I think visibility is pretty typical for what we see at this time of the year. So I think the range is really bound around the midpoint. It's more how we think about it in terms of circular around the midpoint.

Obviously, the macro conditions timing of deals all play a factor in kind of the balance between the low and high end of the range. But I think we're confident in the full year outlook based on everything we have today.

And just a follow-up. Can you talk about price just like bigger picture. Has the way customers think about price of these types of electronics like structurally change and maybe permanently changed?

Is it -- I mean, how much of your revenue base now is almost like just pure pass-through of weird things that have happened, right, whether it's tariffs or memory or et cetera, is it just like more acceptable behavior now and customers kind of that can accept that price isn't just going to keep going down until like perpetuity for like existing products?

Yes, Joe, I'd say that the things like tariffs and memory and others allowed us to raise price where along with our competitors as well. I think you're just seeing this across the industry that it's not possible to absorb the cost of tariff or memory and we've got to raise price. And I think that -- look, our customers are price sensitive. We have competitors in the market.

Our largest customers get our best pricing. That's just the way it works. And we continue to work with them to make sure -- they're seeing the value. We're adding a lot of technology to our devices, not just -- we're raising price because we have to on memory and tariff and others, but also they're getting a lot of value, right?

We've added RFID to all our next-generation mobile devices. We're increasing memory and processing speeds, working with our partners in Qualcomm and certainly Google on the OS to make sure that they can support AI models on the device. So they're seeing value in things like mobile computing.

We're doing the same across the entire portfolio, adding AI capabilities, capabilities to machine vision, continuing to enhance capabilities around scanning our print portfolio, we're adding RFID printing to that portfolio. So there's a lot of value as well that our customers are getting from our solution. Certainly, there's price sensitivity and competition, and that all matters.

But look, we don't have a choice but to raise price when memory and tariffs and others are so significant. But I think our customers understand that. They're seeing that across not just our segment, but many others.

And Joe, if you just look back at last year, even with the price increase we did in April, it still represented a little over 0.5 point of the full year organic growth. So still the vast majority of the growth last year was driven by underlying demand. So it clearly plays a part, but that underlying demand is still what drives -- what's going to ultimately drive the top line.

The next question comes from Rob Mason of RW Baird.

Maybe just an extension of that last question. I mean as you think about the way you've laid out the guidance for the first quarter and how you're thinking about the balance of the year and when pricing goes into effect, are you giving any consideration to customers trying to get in front -- moving projects pulling those forward, trying to get ahead of some of the price increases or just uncertainty around memory in general?

Yes, Rob. So I think 2 points. On the first quarter, we're not expecting any type of pull forward activity or that's not been incorporated into the guidance. I mean we just announced the price increase this past week.

So obviously, what we were seeing in the pipeline of opportunities was unaffected by the price announcement here just over the past week and just how we implement that with -- through our distribution channel with our partners in terms of honoring prior pricing that we have or updating the full backlog or what's sitting with our distributors.

As we've done these price increases in the past, we really haven't seen a huge pull in of demand just based on how we administer that through our channel as well as honoring some of the PC price concessions we have with certain customers on deals.

And then I think the other one, just as you look at the incremental price increase were announced this week, that's not been incorporated into the guide similar to how we thought about last year. We want to monitor the impacts. We just announced it. So obviously, that's being absorbed through the channel.

So I think as we sit here today, we thought it was the right move to say, what's really what we're seeing from the underlying demand today. And then we'll update that as we go through the year in terms of how we see that as either incremental revenue or any type of trade-off with underlying demand.

Yes, I'd say maybe just to add, Rob, that talking to our partners at our channel partner conferences, we've been through North America and Asia Pacific already. And the message they're sending to customers is let's talk about these major projects early. Let's get those orders in, not the idea of to save on pricing or others, but more just to make sure we've got supply rhythm ultimately.

And I think that's the message they're sending. So I don't see people buying early because of it. I think it's just a reality of what's happening across memory, but I think it allows our partners to have the conversation early with early visibility to especially larger opportunities with our customers to make sure that they understand that the more visibility we have, the demand on the specific product they're looking to utilize, then we can go meet that demand with the memory we have.

Makes sense. And then, Bill, you mentioned this return to growth in machine vision. I think historically, you were aware of where you had some maybe overindexing two certain verticals -- are those the verticals that you're expecting to see recovery in? Or do you have some new ones that you're looking to, to drive that return to growth?

Yes. We see that machine vision as really an integral part of the asset visibility and automation segment for us. And I think that -- the -- when we look at Machine Vision, we saw sequential growth in fourth quarter. So we feel good about that. We've seen some new wins, both in -- as you know, the machine vision market, there's 2 sides of that.

One is T&L. So we've seen some large transportation logistics wins and the other inside manufacturing. So we've seen at the high end of our portfolio, some automobile manufacturing wins. So that coming back a bit. So I think manufacturing in general, on the machine vision side recovering in addition to T&L is a good sign.

We expect sequential growth to continue through first half, but solid growth for the full year. I think the pipeline is we've been working hard to diversify the pipeline of customers, but everything across inspection, doctor, pack bench, stand tunnel optical character recognition to a broad breadth of opportunities that the team is working on, I would say, as we're looking to diversify the business, as you said, into new vertical markets.

I think our value proposition is strong. We've got -- we focus around ease of use, the unified software platform that we've brought across the portfolio. We've invested in go-to-market. We've changed out some leadership in the business, acquire Photo Neo to have another offering at the high end of the market.

So I think we feel good the market is recovering overall is in machine vision is manufacturing covers and P&L spend again in that environment. So we see solid growth, quite honestly, into 2026. So overall, I'd say we feel good.

Our next question comes from Keith Housum of Northcoast Research.

Sorry to harp on the memory issue a little bit more. But I appreciate, Nathan, the visibility through the first half of the year, but you were hearing more and more concerns along the industry to perhaps product shortages. And limitations to sales in the second half of the year. Can you talk about any confidence you have regardless of the price that you're going to have the availability there of the products?

Yes, of course. Look, I think the team, as I mentioned earlier, the team has done a great job working with supply. As Bill mentioned, part of this message through the channel with our partners is getting the visibility on those projects to what skew, what product you want and getting those visibility early allows us to then shape demand.

So it's really around a bit of can we get the product as much as get the right memory for the right product that we need and making sure that, that precious components are going to the right product families as we build out the pipeline.

So that's where the team is really focused on now is that's a shaping demand, working with our customers around the particular SKUs they're looking for around projects, maybe a bit earlier than normal. So that as we build the build plan, work back through our supply chain, we're getting the right memory through the pipeline.

And then the other thing the team is working actively is moving to the higher-density memory, which a lot of that capacity plans to come online in the middle of the year. So part of that is also shifting to the newer memory, which, again, we expect for that supply to increase as we go to the back half of the year.

I think, Keith, maybe just to -- I'll add really quick. Just strong supplier relationships is critical to this and that we know coming out of COVID, that's critical for our business, and we worked really hard to make sure that we've got the right relationships in place with our suppliers and their quite honestly, guiding us through this.

As Nate said, we've -- months ago, we had the conversation around moving to new memory that would be more readily available, and we've got early samples of that. We're working with our other suppliers to go test that and make sure that we're ready. So we're doing everything our suppliers are asking us to go do to get the most access the memory we can.

And those relationships really matter. And ultimately, we're working closely with them. And as Nate said, on the other side of it, on the partner on the customer side to say, look, we don't want to build product and put memory in it that we don't need for customer demand.

So we want to make sure we got the right SKU, the right product, the right timing around it. And the analysis we've done so far is that we're going to mitigate the pricing and we're going to have the supply we need. There's always some risk in that. We feel good about where we stand today. The team has done a lot of work on this.

Okay. Great. In terms of the memory, is it primarily the mobile computers are at risk here? Or is it also a point of sale with Elo or the printers. Is that experiencing some of the same issues? Or is it really concentrated mobile devices?

Concentrated in mobile devices, Elo and the POS and kiosk business has similar, but it's predominantly in those 2 portfolios. But again, the teams there are working closely together. Our supply chains are tied on exactly what we're doing from a pricing perspective but also a supply perspective and leveraging the strengths of both of our both Elo and core Zebra to make sure we've got supply across mode.

The next question comes from Andrew Buscaglia from BNP Paribas.

I just wanted to get a sense of the kind of customer conversations you're having in terms of what they're thinking for 26. It sounds like -- I mean, you have -- it sounds like you have a healthy backlog and our Q1 guidance implies some improving spending. But what is the -- what are the customers are saying in terms of the biggest impetus to spend here? Is it like in the past, you talked about clarity around tariffs.

Is it -- are they taking advantage of accelerating depreciation? And is there an upgrade cycle, maybe they just haven't bought in so many years and they got to move forward this year?

I'd say that the customer conversations are really around the idea that they're continuing to invest in their business. and that's across all verticals. We've spent -- even though it's early in the year, a lot of time with customers is -- I mentioned a national retail show, but our largest T&L customers because P&O's critical to retail also were at that show.

We've got our health care show coming up in HIMSS over the next x number of weeks. So we're preparing for that. So across all verticals, our customers are really talking about continuing to invest in their business and technology I would say that we entered the year with a solid backlog.

And really a pipeline, we've got momentum, as Nate talked about, around our core business overall, including scanning, printing, mobile computing but also manufacturing seeing more strength than that, which has been a focus area for us. EMEA returning to growth I would say that the demand remains strong for Elo.

So we're certainly excited about that acquisition. I think that the breadth and depth of our solutions portfolio, including the addition of Elo and the new opportunities around our AI suite and the idea that customers are thinking about how are they deploying AI at the front line of business overall.

Those conversations continue. And I think that customers are really focused on how do they serve their customers better and get better experiences, whether that's omnichannel or it's self-service or point of sale, they're talking about driving efficiencies within their business, how do we lose our solutions to go do that across RFID, machine vision and others.

And I think it's how do you increase inventory visibility, which is still challenging across our customer base, and that's everything from printing the scanning to our mobile devices. So I think we're confident in delivering solid growth in '26. And our customers seem to be really focused on continuing to deploy technology across their business. And I would say, kind of playing their game, right?

They've got a plan. They're executing on it, and there's been really no talk about kind of anyone holding back or others. It's all been kind of positive about what are their plans for '26 and what are the opportunities we have to work closely together.

Sort of on that note, a lot of people looking at things like the AI effect. And certainly, your customers are trying to find ways to leverage it and reduce costs and improve productivity. I'm wondering, years ago, you had this window based devices shifting to Android, which prompted a big upgrade cycle. I'm wondering, do you sense like these new AI products you're talking about, you've been talking about with them for a while, could have a similar effect in terms of prompting new spending or an upgrade cycle here?

Yes, I would say that if you look at the portfolio overall in relation to AI, that we're uniquely positioned to where brick can present itself really to be the leading AI solutions provider for the frontline. And I say that in a couple of ways.

One is that the asset visibility and automation segment gives a digital voice to assets to inventory that's necessary to feed AI models if you're going to leverage those at the front line of business. You have to have -- give everything a digital voice and have visibility to be able to leverage the AI model.

The second thing is you need something to the output of the IM models, what needs to be done. You need to be able to connect that information to workers. And the way you do that is through mobile devices and our SaaS offerings like communication, collaboration, past management combined together, take the output of the model and allows a worker to drive behavior or do something, put inventory in the shelf, move something in the back room to front room, pick up a pallet and move it to the next location.

That drives ultimately the outcome in your business that gets you to be more effective and more efficient. So it plays a critical role across our whole portfolio. Specific to mobile computing, the idea of we've -- our latest mobile devices certainly will support memory, processing power and others and the software to support AI models on the device or in the cloud.

And we're seeing customers move to those devices as their next-generation device as they're beginning to refresh. So yes, we're seeing that clearly AI will drive the upgrade of those devices ultimately higher ASPs on those devices with higher memory and also will have an opportunity for us across the idea of enablers and blueprints and Companions we talked about to be able to drive AI software revenue for ourselves as well.

Our next question comes from Piyush Avasthy of Citi.

I think you mentioned a decline in gross margins due to lower service and software margins. can we double-click on software margin performance? Like anything you want to call out? Is it just the investments that you guys are making that's pressuring the margins and when we can expect that to reverse?

Like and anything on the receptivity of the software offering that you are coming out with like how the customers are kind of buying and procuring those, that would be helpful.

Yes, for sure. I think if you look at -- the real driver within the service and software margin impact is primarily -- and obviously, it represents the vast majority of the revenue is in the service portfolio and the just higher repair costs that we've seen over the past couple of quarters. Now that -- the good thing is the overall margin rate improved in the fourth quarter, improved from where we were in Q2 and Q3, but this is really due to the age of the installed base, and we're starting to see that play out in terms of driving the overall number of repairs.

We expect to see that level out here as we go through the year and see that the overall margin for the services and software to be flat, kind of you look at it year-on-year throughout 2016. Specific to software, the 2 real things that teams are working on. One is a lot of energy and effort is going over the last couple of years.

And so this is unifying the platform, bringing together kind of the architecture to ultimately lower the overall support costs that will improve margins as we go really into the back half of this year and into next as some of that effort is starting to come to a closure in terms of transitioning customers to the unified platform.

And then like anything, then it's about scaling on that in terms of as revenue grow, getting the scale to drive gross margins further. So I think those are the 2 aspects. If you look at that line, it's really driven by service, but within software, a lot of work over the past couple of years around the platform and unifying the platform, and we're getting close to the end of that activity, which then gives us some runway to improve margins as we move forward.

Got you. Helpful. And Americas was soft in 4Q and I understand that there were some really tough comps. But can you elaborate on the underlying demand environment and trends you're seeing in the region? And as you think of your 2026 guidance, like based on your conversations with your customers, how do you think America is contributing to your 2016 guidance?

Yes. I think I would say that overall, we saw relative strength in fourth quarter in North America around small and midsized business. But as we talked about cycling large order activity in T&L and retail in the fourth quarter. So I think we feel good about the pipeline of opportunities that is healthy in the business.

I think it really is just cycling a compare. We didn't see is large deals, very large deals in fourth quarter is that we've seen in past year, Nate talked about that a little bit in the seasonality idea. So that's really what it's about. We feel across North America that all vertical markets, all product areas, we see no real challenges there rather than a tough compare in fourth quarter.

If you talk about the other regions, I would say, return to growth in EMEA, really driven by strength in North and Central Europe. I'd say, double-digit growth. We saw strong growth in mobile computing print RFID, so broad-based. We're seeing opportunities in Europe around retail, with personal shopper refresh opportunities in news.

So where the North America market is really more self-service checkout in kiosks, where Elo plays, the European market is a combination of that as well as self scan, which is a large opportunity for us, both in new customers and refresh opportunities. So those continue to move forward in EMEA.

Asia Pac saw a strong growth, 13% and across growth across most of the region. Japan and India, certainly, were bright spots. Those areas are places where we've been investing. Certainly, the amount of manufacturing investment happening in India, we've changed our go-to-market model in Japan several years ago, continue to win opportunities in Japan. Latin America, strong growth in Latin America, broad-based.

I would say, Brazil and Mexico outperformed with large retail deployments, but broad-based growth across Latin America. So we're not concerned at all about North America, it really is just truly cycle compare. And we feel good about broad-based growth across the regions and product areas as we enter 2026.

The next question comes from Jim Ricchiuti of Needham & Company.

I know it's early, I'm wondering what kind of assumptions are you baking in for the large project business this year what kind of visibility do you have? It sounds like just based on what you're hearing and the concerns around memory that maybe these discussions are happening earlier?

I'd say that the -- given the installed base, right, certainly, Zebra's installed base overall, that these large -- very large orders are really tied to refresh cycles and activity across our customer base. And that remains an attractive opportunity for us overall.

We're assuming the same -- a similar level of refresh activity in '26 that we saw in '25. And I'd say, remember that every customer's refresh cycle is different, right? It's really driven by things like supporting new applications, driving higher processing power memory or new features like we just talked around on AI or new features like RFID being embedded in the devices is driven by obsolescence of OS or the security life cycle.

It's driven by technology transitions, but everyone is on a different cycle. And I'd say that when customers refresh, the opportunity for us is not just the refresh cycle, but they typically buy more devices because they're extending their use cases and putting devices more in the hands of more associates overall across all industries.

When we look at things like retail, the refresh cycle has really normalized over the last several years. And we're seeing some retailers spread their purchases over a longer time horizon. From a T&L customer perspective, I would say they refresh a slower pace than retail, which is typically 4 to 5 years driven by really the fact that the devices have higher durability and are using fewer applications than we see in retail.

But as you said, those discussions are with large T&O customers are progressing. We're talking to them earlier about these refreshes and the pipeline continues to grow for multiyear deployments that likely begin in '27.

So in 2016, we'd see about the same level as we saw in '25, but this is clearly an opportunity out there for us. And we would see that the -- as these conversations continue to progress, and progress earlier which challenges things like memory, we get more and more visibility on the time frame from our customers.

You mentioned RFID several times. What kind of growth rate are you assuming in the RFID business this year? And are you seeing more of the activity coming from the emerging areas like food or the traditional areas, logistics and retail.

Yes. We see 26 high double-digit growth continuing in RFID. We had a strong year in over the last several years, including 2025, and we see that continuing. The opportunities have really been broad-based, all the way across the supply chain from retail to transportation logistics to manufacturing now opportunities in government.

We're seeing clearly the move from retail apparel. We saw it move to broader merchandise inside retail, you mentioned fresh food inside grocery is a new opportunity in things like bakery and around the outside edge of the store, higher-margin perishable items, we're seeing the opportunity there.

Parcel within T&L remains a large opportunity, quick-serve restaurants. We think of automation always is -- but [indiscernible] restaurants are moving from pen and paper to RFID. We're seeing health care and just broader track and trace across the supply chain.

So I think that we're seeing broad-based growth. We've got #1 share in fixed and handheld readers. We continue to have strength in our -- we're the leaders in RFID printers across our labels business, we're seeing strength. So I think it's broad-based. I think we're continuing to see the adoption. It's why we're adding RFID capabilities to the majority of our new mobile computing devices is that customers continue to want to adopt RFID within their environment.

So really broad-based and not driven by just one industry or segment, but across all the vertical markets we serve.

The next question comes from Brad Hewitt of Wolfe Research.

So curious how you see channel inventories as they stand today? And does the guide embed any meaningful changes in channel inventory levels as you progress through the year?

Brad, no, we've seen channel inventories as we exit. We're in good shape, pretty similar to what we saw at the end of last year. So no meaningful change you definitely see variability quarter-to-quarter, just whether that's timing of deployments on their end, prepping for year-end, et cetera.

So quarter-to-quarter, you see some variability, but I think as we look at the full year picture, no major changes in terms of days -- measuring it on days on hand. So how much are they carrying on a daily basis, and we don't expect a material change in that as we go through the year.

Okay. That's helpful. And now that the tariff situation seems to have stabilized a little bit overall. Have you guys seen any change in customer willingness to go ahead with projects versus 3 months ago? And to what degree is any macro-driven change in customer sentiment baked into your 2026 outlook?

I'd say that customers were on the retail side, a bit concerned overall about just the secondary effect of tariffs as they've had to push that through on their inventory to their customers ultimately. But I think that we're really beyond that. That's all kind of flowed through their supply chains, and they've had to raise price in the places that they have.

So I'd say that, again, these conversations with customers today, there hasn't been concerns of tariff raised. There's always challenges. There may be future challenges around trade, but we don't see those as of today. The bigger challenge as we talked about multiple times in the call is probably memory that we're going to mitigate in the year.

So I think that I think tariffs have not factored into a lot of conversations with customers at this point.

This concludes our question-and-answer session. I would like to turn the conference back over to Mr. Burns for any closing remarks.

I'd like to thank our employees and partners for delivering a solid 2025 results. We certainly -- as we look ahead, we're focused on advancing our portfolio of solutions and driving profitable growth across our business. Thank you, everyone.

The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.

Okay. Great. Thank you, everyone, coming to Arizona and coming to our Annual UBS Global Technology and AI Conference. My name is Zach Walljasper. I'm a part of the U.S. multi-industrial team here at UBS. I'm joined on the stage by Nathan Winters, CFO of Zebra Technologies. Only housekeeping item is I have the iPad up here, so people are allowed to put questions to the app. And then I'll try and incorporate them best I can throughout the Q&A.

So without further ado, Nathan, let's maybe get rolling. So on the last earnings call, the team talked about how demand in the second half of the year is kind of playing out as expected. Can you maybe just talk to us a little bit about what you're seeing across the end markets? And then as we like look closer to 2026, what kind of end markets could have relative strength versus relative weakness?

So as we mentioned, the second half is playing out as we expected going all the way back to what we saw in the pipeline and the opportunities in July -- the July-August time frame, modest shift somewhat between the quarters. But really, what we see is our customers who had projects in the pipeline are moving forward with those projects and executing towards that. I think what we were obviously anticipating and what we haven't seen come through fruition is an acceleration of projects.

I think some of that goes back to the uncertainty in the market, what they were kind of waiting to see kind of where their customers are going to behave here for their holiday season. But outside of that, it's largely playing out. And the strengths of the business have really been consistent for the last couple of quarters. I mean North America has had a really great year with retail and e-commerce leading the charge, but we've seen good stability in growth out of T&L and manufactured has grown slightly, but lagging a little bit from a growth perspective. But North America has had a strong year. Asia Pacific has had a really great year. And a lot of that is based on the investments we made over the last several years to expand our presence in markets like Japan, Southeast Asia and India. Australia has had a really strong year.

And then Latin America, Q3 was the largest quarter, Latin America's had and any quarterly revenue in the company's history. So Latin America, again, had a nice recovery throughout the year. I think the pockets of weakness have really been focused in from a regional perspective around Europe. And markets like Germany, which have been impacted from a manufacturing perspective, the retail market in France, again, which is a large market for us, has been down this year.

So Europe has really been kind of from a market, the big headwind. But look, as we go into '26, we're excited about the growth profile of the company. I think there's still -- if you look at the secular trends to digitize and automate workflows and drive productivity, that's remained unchanged. I think, which is pretty consistent regardless of the market, companies need to drive productivity. And we're the solutions provider who can help them do that across different verticals and applications.

So we think about areas like RFID, where we've seen double-digit growth, that continuing into next year. A lot of the aspects of our machine vision business have stabilized here in the back half, and we expect growth as we go into '26. And then the large opportunity we have around our mobile computing installed base and seeing those refresh opportunities in the pipeline are starting to become real, particularly as we look out to next year. And then what we've had on the portfolio on RFID and AI, which we can talk about later. I think just again, adds new capabilities around the portfolio that our customers are really excited about.

All right. Sounds good. So it's a good recap in terms of like end markets where we're this year, where we're going next year. But obviously, you guys aren't the only company in your industry. So maybe you can just talk about any notable elements in terms of the competitive environment, anything including your larger competitors?

There's been, I'd say, no real meaningful change in the competitive landscape over the last several years. Obviously, it varies depending on the market. which we play in. But I think our core business remains largely unchanged. And we feel really good about the competitive positioning of the portfolio. We continue to win new opportunities and take share, particularly in our core markets. And I think our vision around intelligent operations and making every workflow digitized, automated, really resonates with our customers. And if you look at the portfolio today from mobile computing to machine vision, RFID and now you embed AI, we can have a pretty broad conversation with our customers around how do we help meet their biggest challenges. The Elo acquisition adds new capabilities around that frontline consumer-facing experience, which we didn't have before. So again, no one else really has that portfolio breadth that they can drive with our largest customers.

Got it. Got it. Okay. Next question. I'll be remiss to not talk about AI, hence it being AI conference. So how is AI playing a part in the evolution of your solutions? And what is the status currently of Companion and kind of the AI suite offering?

AI is, we think about it as a real positive catalyst for growth for the business. I mean if you start with what do we do every day, it's give assets and people a digital voice. So whether that's an asset through any stage of the supply chain, a worker in terms of the task they're working on and how they're operating, collecting all that data at the edge. Feeding AI models that allow our customers to make better informed decisions around their supply chain or their workforce that's at the heart of what we do. And so we see that as a real catalyst for growth across the breadth of the portfolio. And then if you look at the companions or agents we built, these are -- again, where we have a unique position to really drive applications for frontline workers that's, quite frankly, not a focus for a lot of the other AI applications.

So how do you, again, an agent that can allow a brand-new store associate to become just as well trained as a store associate with 5 years of experience. How do you quickly get the -- how do I process a return for something that was purchased online without a receipt? Without asking your supervisor or looking at a manual. A large language model can give that information back real time based on customers' SOPs or how do you provide a better consumer experience.

So if you're looking for something -- and I don't know what the right answer is. I can not only ask the large -- ask the generative AI model, which you'd say anyone can do that. But mirroring that -- partnering that with the customers' information around what products do you have in stock? What's the picture of that product, so you know what you're looking for? What's the price point and where is it exactly located and it's in stock. That's kind of combining the power of generative AI with unique proprietary information for those customers and building those applications is something we're excited about.

And so as we look into next year, we're doing a bunch of proof of concepts with customers around different use cases throughout the course of '25. It's commercializing those next year, and that could be in the form of a subscription model where we build, maintain the model. It could just be helping design and build and they maintain it or it could be simply those are something they want to do on their own, and we have the API back into the mobile computer. But ultimately, not only that enhancing the value of the portfolio, but they may ultimately need a new mobile computer with the latest chipset and operating system to manage those applications, which will drive a refresh or a new purchase in the future. So again, we're pretty excited about what that can mean for the company and how it can help position us with our customers.

So that's something that's a good transition. If we take a step back, the company went through a big growth phase in 2021, 2022 and now we're 3, 4 years away from that period. How should we think about the installed base and the refresh cycles that go into -- obviously, we just talked about AI as part of it. But kind of what are the product drivers, I guess, going forward?

Yes. So if you look -- going back, say, the last 5 years since 2020 has been anything but unusual usual cycle. And obviously, the -- this condensed acceleration not only refreshes but -- of technology adoption in '21 and 2022. To meet the needs of e-commerce, buy online, pickup store, which obviously benefited our business tremendously. And then like many others, a few years of absorbing that capacity that was built out and then getting back to growth over the last 12 to 18 months that we've experienced.

So if you look at today, our mobile computing installed base from that point in time to today has grown 35%, which is in line with the long-term CAGR. It just all happened to happen in a 2-year time frame, but that really opens up that opportunity for a refresh. And again, every refresh for every customer is a little bit different. And even within a customer environment, they could have what's front of store, back of store, a warehouse, last mile delivery could have its own unique refresh cycle.

So not every customer has this unique kind of ubiquitous refresh. And so we have that mapped out with every one of our large customers. Some of the drivers of when those refreshes are going to occur are outside of our control. Meaning, they're going through their own business challenges. They're going through their own restructuring. They have ERP upgrades that aren't going to -- you're not going to do an upgrade, why you're doing something like that? And then it's really around the value we bring to the portfolio that that's ultimately what they're looking for.

So we think of things like RFID embedded on a device or as we talked about, the new AI applications and the chipsets required. Again, these are all things that, again, open up new opportunities and kind of incite the refresh and give them a reason to refresh beyond, hey, it's been a long time. So again, we think of -- we don't see it as another concentration happening where you're going to have 1 or 2 years and wait another 5, but more of a driving long-term sustained growth over the next several years, and we're excited about that opportunity.

That's great. I think you guys are doing a good job in terms of not relying on the installed base to drive growth. You guys look into RFID and machine vision as other vectors of growth. Can you tell us a little more about what you're seeing there and the ultimate journey you guys have like in those areas?

Both RFID and machine vision are incredibly important pieces of the portfolio. Starting with RFID, we have the broadest set of RFID solutions in the market. I mean we're the market leader in RFID readers. So think fixed infrastructure and mobile readers. Our printing portfolio that will print tags for our customers in multiple different environments as well as the actual tag itself. Now we don't produce the chip, we don't produce the inlay, but you're printing those and bringing them together and obviously reading them throughout the journey of the product. And it's grown double digits. That business has grown double digits for the last couple of years, and we expect that growth to continue.

So it now represents mid-single digit percentage of the company. And something we're, again, excited about because it just opens up new use cases in ways companies can automate different workflows that just weren't possible previously. Whether that's trying to detect theft as items are leaving. So that you can update your perpetual inventory system real time or tracking fresh food and understanding what's fresh to limit spoilage.

I mean those are just, again, new use cases that continue to emerge around the technology. And then on machine vision, we spent a lot of time building out the portfolio we have today from organic investments, acquisitions over the last several years, including the Photoneo acquisition earlier this year that brought us 3D vision capabilities. So one of the leaders around vision systems for guided robotic arms. So think of the eyes for a robot in different picking applications. So we feel really good about the portfolio we have today.

Obviously, it's been challenged, like many others in the industry, Matrox had a substantial part of their business around the semiconductor industry. And we knew that it was going to go through a cyclical downturn. I'd say this one has just been a little longer and deeper than we had anticipated. As well as some of the challenges the automotive industry has gone through have been a little bit painful. But both of those, we see bottoming out and starting to see a little bit of uptick, particularly around the semiconductor space.

And then the work we've done around investments in diversifying that portfolio and adding new logos into different use cases, dock door capabilities, scan tunnels and things like T&L, have been smaller and have been able to offset those headwinds. But I think we see that now as a growth vector and you get some tailwinds on kind of the core part of that business. We're pretty excited about what that can do as we go into '26 and beyond.

Nice. Maybe just stay on RFID machine vision for a second. You guys are obviously a little newer to the industry. How are you guys looking to differentiate yourselves and kind of compete and where do you kind of see yourselves adding value in the industry?

Yes. So we've really spent a lot of time on 2 areas. One, I think ease of use -- and one of the challenges with -- I think in the machine vision world is, it's one thing to have the camera and build it, but how do you -- an easily configurable back end. So that you don't need a fully trained design engineer to set it up. So how do you make it easy to set up at the front line.

So a lot of work around the ease of use being able to upgrade from a fixed industrial camera to a fully functioning machine vision camera with just software. And then our software portfolio, I think, is really the crown jewel in terms of we bought a company called Adaptive Vision. Matrox brought a library to us and consolidating that library has been pretty powerful, and we've seen a lot of growth there from a software.

So we feel like we have a portfolio that can compete. Photoneo gets us into 3D, which is an emerging space. And I think what the great thing about the industry is it's a big market. There's plenty of white space, meaning you don't need to win head-to-head and displace competition if they're the kind of incumbent. You can go win a new application, a new workflow in an incumbent account, and that's where the team has been focused, and there's plenty of those opportunities to go out and win.

So again, we feel like we have a portfolio that can compete and win in the market. And again, there's -- it's a pretty fractured market out as well around the world that gives us opportunities to compete, not just with those market leaders.

Got it. Next, we shift gears a little bit to Elo. So Elo obviously recently closed. I think, maybe first, could you just give a quick background what Elo is? And then what's kind of the strategic rationale for the acquisition? And how -- again, how does that kind of fit into your kind of differentiation, moving closer to the frontline worker.

Yes. So maybe take a step back, we've been in discussions and talking with Elo for several years now. So this has been a company that on again, off again. So we know them quite well and have a pretty long history in terms of trying to find an opportune time to bring the companies together. And at its core, they are very similar to what we are in terms of our core business. And I think we see a lot of opportunities from a synergy perspective. They sell to the same not only end users, but the same personas or departments within our accounts. They have the same distribution model. Their top distributor is our top distributor, similar manufacturing and operations as we have.

So again, it just felt like a natural fit into the portfolio and really builds out our connected frontline experience. So now you have -- you take the expertise around Zebra's enterprise mobility and automation, partner that with Elo's touchscreen and self-service capabilities. And now you can offer kind of one pane of glass, one experience for our customers front of store retail and then take that into the same thing from a quick-serve restaurant, even the new health care environment where self-serve is becoming a more important aspect. Again, it was just a natural fit into the portfolio. And then we look at the synergy we can drive not only just from a cost perspective because of those operating models as we integrate the businesses, but also geographic expansion is a huge opportunity.

Elo was really focused around North America and rightfully so around the opportunity they had. But we think of markets like India, Australia, where we have infrastructure, relationships. We can quickly take Elo to market in those places or where they have the infrastructure, but just haven't had the kind of focus we have on markets like Germany or the U.K. So again, we think there's -- we committed to $25 million of synergies over the first 3 years, and the team has already got some nice wins in the books even 1 or 2 months in now around the cost synergies. And then it's really around how do you bring the singular operating platform to our customers. So that they do things like digital media, new applications, even AI for the front line.

You can have that seamless experience, whether you're working -- either you're looking at a self-serve kiosk doing point-of-sale or talking to a store associate, you can have that seamless experience across all those, and we think that's a really powerful advantage we'll have in the market.

It may be helpful just like really quick, is there a good example you could talk about. Like I imagine like I walk in front of store, touch touchscreen like, hey, maybe I want this sandwich. And then it connects to the back of the store, like, hey, we know how much inventory we have. Is that kind of like the view? Like any kind of examples you can maybe help illustrate for us?

Yes. I think the value Elo has seen as they deployed some of the self-serve kiosks in some of the quick-serve restaurants is not only you get the -- I think what we all see is now they don't need someone at the register taking orders, which is a labor productivity. But the real value they've seen is the actual ticket price or the dollar price per ticket has increased. We're much more apt to supersize the meal or add a milkshake when we're pushing buttons, and we see it on the picture, then we are asking for it with someone at the cash register.

So the ticket unit, the unit price per ticket has actually increased in a lot of those instances. So again, that's value to our customers as they deploy those self-service capabilities. So I think that's kind of -- that's part of value creation. It's more than just saving on the labor and trying to do line blocking and those types of things. There's some real added economic value you get and what the -- with those experiences that have implemented it.

That's great. Super clear. We're going to switch gears again back to tariffs. So I think about earlier in the year, that was shaping to kind of be a big headwind. And I wouldn't say like we are -- moved past all yet, but we're definitely in a better environment than maybe 8, 9 months ago. So can you just talk about the progress that you guys made as a company? And then as we go into 2026, kind of where are we and the status of it and the progress that the company has made?

I'm super proud of what the team has been able to execute on this year. I mean we went back -- I mean, we've been working on tariff mitigations going back to 2018. So from the original tariffs to today, we do start with -- at that point, 80%, 85% of our North America volume was produced in China. That will be less than 20% in 2026. So that's obviously been a long road of diversifying our supply chain, which quite frankly was necessary for beyond just tariff mitigation, but also just a resilient, sustainable supply chain. And I think the other thing the team did is going back to November of last year, what do we need to do to prepare for whatever kind of came out of Liberation Day. And so thinking about where we're going to raise prices across product families, what additional portfolios needed to move. And if you -- now the net of it, this year, we'll have about $25 million of net costs because of tariffs, and that will be fully mitigated as we go into Q1.

So now it turns into a $25 million tailwind as we go into 2026. And I think the -- what we've been able to prove whether it was back in '18, '19 or today is mitigating whatever might happen in the future is putting a plan in place to mitigate that P&L impact on I think in a reasonable time frame is obviously the goal, and I think the team has done a great job executing that.

Got you. I think -- if I think back through the meetings today, and I think a lot of discussions we've had in the last couple of months, I think a lot of the focus has been on organic growth, but not as much focus on driving profitability. So going from here and going forward, how do you think about kind of gross margin and EBITDA margin expansion opportunities from here? If I think about gross margin, EBITDA margins, probably closer to the higher end of maybe historical range. So like where can we go from here?

Yes. We have a track record of driving profitable growth. That's obviously something the team is absolutely focused on. We expect to deliver 50 basis points of EBITDA rate expansion annually with 5% to 7% revenue growth. And we have multiple levers to do that. I mean, first and foremost, every day, driving incremental productivity. AI as a tool that can help us do that. And we're doing that, as you would expect, in terms of where AI can drive efficiency within our operation. But also we just get a ton of value from scaling on our fixed cost structure, whether that's our distribution capabilities, our finance ERP.

I mean that gives us a ton of leverage and you just naturally get that margin expansion as revenues grow. And then as we've entered new markets, whether it's machine vision or software with inherently higher gross margins, that helps. And then you go into 2026, it's -- hopefully, for now, and it stays this way, tariffs may become a tailwind on margin expansion as we go into '26. And then adding Elo, which has a very similar margin profile and driving $25 million of synergies now over the next couple of years will be an additional tailwind. So again, we don't see the business as having a cap in terms of what we can do from an EBITDA rate percentage, but it's something we just got to keep at and we believe we have a lot of runway here as we move forward.

Great. I'll just take a quick pause. If there are any more questions on the app, I'm happy to ask on your behalf. I mean maybe just on gross margin. The last couple of weeks, there's been a lot of questions about this memory costs that are coming up. What can that mean for Zebra? Is it like a nonfactor? Or is this something we keep an eye out as we go forward?

The memory pricing is definitely a factor. We're not immune to the inflationary pressure. Obviously, memory is a component of our mobile computing business. But I'd say at this point, it's manageable. With the type of memory we use and the inflation we're seeing. It's -- I'd say it's -- if any given year, there's always multiple factors that -- inflationary, deflationary -- and memory to go in every 2 years, you get one or the other. So I think it's nothing within today that we're seeing that we can't manage within the bounds of the portfolio, and the team is actively working with our supply base and getting ahead of it as much as they possibly can. And so we'll have to manage that as we go into next year, but it's -- I think it's manageable at this point in time.

Got you. Great. Before I kind of hit the last few questions, one thing I want to circle back to is our first question about kind of end markets. And I know a lot of customers have seen some maybe uncertainty in terms of putting the bigger orders in. If we could just zero in on what uncertainty is. Like what would you need to see change for you to go from uncertainty to more certainty?

Yes. Obviously, uncertainty can mean a lot to where you're at and what your business is. I think what we've seen though from our customers is, it's not as if they pulled back on what they were expecting to spend. I mean again, the year has played out largely as we've expected from the projects that were in the pipeline have largely moved forward. If anything, you may have seen projects be spread out over a longer period of time, but that's kind of been the same case all year. So it hasn't been a change here in the back half. What we haven't experienced is accelerating projects that may be out there in the next year or the next 12 months and saying, hey, I have extra cap -- I have extra budget availability or, hey, my year is going great. I feel better about the business. Let me accelerate projects in the pipeline. That's what we haven't seen.

I think a lot of that does have to do with uncertainty. And I think for -- again, it's all in the eyes of the beholder. And I gave the example of getting a tweet of the tariff rate changing 2 weeks before you do an earnings call is never a good feeling in terms of where that is. But I think whether it's certainty around tariffs, inflation, interest rates, whatever it might be, they don't all have to be perfect. They don't have to be tailwinds.

So I think some of that just is certainly abating, will help clear the air as we go into next year. But I think the team is now focused on what can we control around driving growth across the portfolio irregardless of the economic condition, how do we drive that value to our customers. So they see the need to move forward that refresh as we go into next year, and that's where the team is focused on. On driving that growth here regardless of the economic condition next year.

Okay. Great. And then next question is capital allocation. Apparently, the stock has obviously been in pressure this year, given the large acquisition and stock pressure, what is kind of the current outlook in terms of capital allocation?

Our capital allocation priorities remain unchanged. One, it's continuing to invest organically in the business. We invest around 10% of revenue in R&D. So it's obviously making sure we maintain our competitive position, our leading market share across our core business and continuing to invest in new technologies like we've done recently in AI.

Obviously, M&A is a vector for growth. And we -- look, we're excited about what Elo brings. We're equally excited about on a smaller scale what Photoneo brings in terms of new technologies around machine vision, and we're going to continue to look for opportunities to expand the portfolio and leverage M&A. And as you mentioned, we felt it was important given where the stock price was, given the acquisition to make a forward commitment around share repurchases over the next 12 months.

So that's something we've not historically done in terms of committing the $500 million over the next 12 months. And we've been as active as possible here in the short term given the price dislocation. So yes, look, I think the good news is between our free cash flow, the balance sheet is in great shape. The capacity we have to invest more, doesn't prevent us from either taking advantage of opportunities from an M&A or continue to return capital as we move throughout next year.

Got you. As we kind of -- a few minutes on the hour here. When we -- for 2026 there's a combination of factors that are both in the company's control and sort of outside the company's control. But from your seat as CFO, like what are you kind of most excited about in terms of that can transpire kind of in the next 12 months from an end market perspective, is something in the company's control, or probably realistically the combination thereof. But what are you kind of most looking forward to and from your seat?

I think first and foremost, it's the evolution of our AI offerings. Again, we think we have a unique position to really be the AI leader for the front line, right? I mean we're not building large language models. This is building unique applications that drive value for frontline workers for frontline applications that we can uniquely provide because of our position with mobile -- our mobile computing position. So that's something I think we're really excited about. We're going to continue to invest in. RFID is another one, again, just with the new use cases that are out there and the momentum in the market around RFID is, I think, the second. And I think the third is driving a successful integration with Elo.

I mean it's the largest acquisition we've had in a bit. It drives a meaningful amount of new revenue for the company. We think there's some really exciting opportunities as we get particularly in the later part of next year once we get the commercial engine ramping up to get some incremental growth as we go into the back half and into 2027 on that acquisition. So I think those -- all 3 of those are things that we can control, exciting opportunities both for the near term as well as setting ourselves up for long-term growth.

Got you. One of the questions that came in. Incremental investment into machine vision. How do you guys like think about like whether that would be needed or not? Or how do you feel, I guess, about the level of investment currently in the business? And then how do you think about where maybe you need to make incremental?

We think we have the appropriate amount of investment in the business today. We've invested a lot around go-to-market capabilities. So again, think about how do you diversify out of some of those end markets that we talked about earlier, requires incremental go-to-market investments. Obviously, we do a lot of that with our channel partners, but it still requires us to have the specialist in the field driving that demand, working with our channel partners. So -- but look, as we see new opportunities, whether that's a geographic market, a use case technology, we're going to continue to invest because we -- again, we're big believers in that long-term opportunity that it has.

So -- but for right now, I think we feel it's now about how do we generate a return on the investment made up to this point. And then I think there'll be more opportunities to go from there. But I think that's -- we feel good about the balance of the portfolio and where we've had investments to date. But it's something we're always constantly looking for where can we add incrementally as those opportunities present themselves.

Great. With that, time is now closed. So I appreciate you coming on the stage and answering for everyone in the audience here. Appreciate it so much.

Thanks, Zach.

All right. Good morning, everyone. I'm Tommy Moll, research analyst here at Stephens. We appreciate your taking the time to come to Nashville to attend our conference this week. One of the companies I cover here is Zebra Technologies. We're delighted to host from the company, the CFO, to my left, Nathan Winters, as well as Mike Steele, Vice President of Finance and Investor Relations seated here in the front row. Nathan and Mike, thank you for taking the time to come to Nashville this week. We appreciate the insight.

Yes, it's great to be here.

So for those in the audience who don't know Zebra very well yet, I've got about 20 minutes of high-level Q&A prepared to give a pretty good I hope overview of what the company does. The second half of our session though, we should lean in to the extent we can on audience participation. So if you have any question, by all means shoot up a hand. If you have 3 questions you want to ask, ask all 3, the more interactive, the better. But just to kick us off here, Nathan, the company vision here is to enable intelligent operations. That was a new one for me. You used to have a different way of describing the business, but I was corrected and so sketch for us, what do you mean when you talk about enabling intelligent operations? What is that reference and what is the history here?

Yes. So the -- I think the history is our vision we had talked about asset intelligence or enterprise asset intelligence going back to the Motorola acquisition in 2015. And to some extent, we kind of -- I think that term was somewhat made up at the time, where -- and obviously, the portfolio has dramatically changed from where we were 10 years ago. And so I think now the vision around intelligent operations, think of enabling frontline operations everywhere to be digitized, automated and intelligent, which is how we've talked about the company for the last couple of years. And so it's just formalizing that, and we thought it was time, again, with the portfolio, how we talk about the company, how we think about the opportunity is restating the vision to -- to actually how we talk about it and how we think about it from the vernacular we used over a decade ago.

And I think it was -- yes, it was last quarter, perhaps associated with this new branding, you had a resegmentation where you reallocated some of your businesses from one segment to the other, which I know you know, but I will say again today, analysts get really, really excited or grumpy when we see one of those around earnings. But I want to give you a chance to tell us what should we take here? Clearly, you're also communicating the business differently to the investing audience. And so what would you highlight for us here?

So we again, resegmented from 2 new operating segments: connected frontline, asset visibility and automation. Again, similar to the strategy and the vision around intelligent operations, it's -- I'd say it's really more of reflecting what the company is today versus what it was 10 years ago around the segments and give us a more intuitive way to talk about the company the old segments, quite frankly, were just combinations of different products, and that's how we really talked about the company versus now talking about what's the strategy around a connected frontline, how do you bring the portfolio together to be a better experience for our customers on that connect of mobile computing.

Now with Elo tied to software and AI to bring a better experience to the frontline worker. And then on asset visibility, again, it's how do you give assets to digital voice, whether that's through RFID tag, a barcode and then visibility throughout the supply chain, whether that's with, again, RFID, machine vision or scanning. So again, a better way to talk about the company, I think a more intuitive way. So we can talk about what's happening in those segments that I think makes logical sense versus jumping directly into product by product. And appreciating it was a lot of change at once, but it kind of coincided with the new vision, a little to do with the Elo acquisition. It was more just with the new vision where we at. We thought it was appropriate to get it out there. And kind of reset things as we go into 2026.

You've mentioned Elo a couple of times, so I want to make sure to hit on that. It was a $1.3 billion deal closed last month. And some of the key served verticals there like retail and hospitality, Zebra has been known for a while in terms of automating the frontline workforce. Elo historically had been known more for automating interactions with the end customer like in a point-of-sale context. What's the strategic rationale for bringing these 2 together?

Yes. So the really, the strategic rationale is about how do you enhance that frontline experience, as I just mentioned. I mean, we've -- and we've known Elo now -- we've been looking at Elo as a potential target for several years. Just the timing finally came together around the right time and the right valuation. They have a very similar business model to our core business, meaning they sell through Tier 2 distribution, the personas within the customers, meaning the buyers are very similar from our traditional core products and Elo. So just the overlap and synergies, again, we were on a diligence call and you just say they are us in terms of how they operate, how they run their business. So it's, again, a very natural fit within the portfolio, $400 million of revenue. It's incremental accretive on day 1. We can drive material synergies from both cost but also commercially in terms of expanding their portfolio outside the U.S.

But the real value proposition comes from think of if today, if you have Zebra mobile computers and then you have, whether it's Elo or some other type of digital display self-serve checkout point of sale. They are likely -- well, they are run on 2 different -- even if they're Android, 2 different Android instances, which means you're maintaining 2 different instances, your security patching both from 2 different vendors. If you have the same application that you want to run both on a fixed and mobile device, it has to be maintained in 2 instances. Well, now over time, we can bring those together and provide that uniform back platform to support both fixed and mobile applications. Customers have been asking for this. We launched a kiosk last year organically, our KC50. And it was really around a request from customers saying, "Hey, we love the Android platform. We use it across all of our mobile applications. We'd like to add these fixed applications on that same platform, how can you help us do it. And so obviously, this gives us a way to accelerate it.

They bring to us a presence in quick-serve restaurant, which we like in terms of identifying incremental opportunities. We're excited about taking Elo globally. They've been predominantly in North America, different parts of Eastern -- or excuse me, Western Europe, but we look at markets like Australia, India, Germany, very small presence, where we can leverage our infrastructure and our commercial relationships to gain some real traction here over the next couple of years. So again, we're really excited about driving meaningful growth for the company and really just a natural fit into the core portfolio.

Let's talk about the demand environment here, Nathan. Last year, around this time, phrase is being thrown around, included continued momentum, broadening recovery this year, or I should say, this most recent earnings season, you talked about uneven macro signals. A lot of investors, in particular, leading up to third quarter earnings were looking for any sign of a recovery in some of the short-cycle markets here in North America in particular. Is there anything you can point to? Where does it feel like we sit in the cycle today?

Yes. If I take a step back, what I would say is the long-term secular trends we see in the business remain intact, meaning go back to the need to digitize and automate workflows and how customers are thinking about driving productivity hasn't changed. The conversations we're having with our customers are the same. I think what we -- when we've see an uneven demand, you look at our Q3 results, I think, are a perfect picture of it, meaning really strong results out of North America, particularly in retail and e-commerce. Asia Pacific had another strong growth quarter. Our Latin America business, which is relatively small had its highest quarterly revenue in the history of the company, which again, all positives. But on the other side, you see declines in Europe, kind of tepid demand across the region particularly in markets like Germany, French retail, in particular.

So large markets of ours that are challenged. And then think about manufacturing, kind of, again, lagging growth across the portfolio. So -- and then you just overshadow this with, I'd say, just the macro uncertainty, whether that's what's going on from a geopolitical perspective or tariffs here there? What's the rate and we see that playing out with our customers in terms of how they're thinking about their capital purchases and then what's the consumer going to behave here at the end of the year. So that we see as uneven demand, real pockets of strength and that continued demand and continued momentum again, with some areas of the portfolio that are still lagging and struggling here in the moment.

So you mentioned the customer capital planning cycle. In a typical year-end period, so I'm thinking calendar year-end here, how much visibility do you have on the size and in particular, the timing of customer deployments for the following year? And how does this year compare in terms of that visibility?

I'd say this year compares similar to prior years in terms of one of the key ingredients our teams use with our largest, most strategic customers is we have a 2- to 3-year road map with every one of them in terms of how are they thinking about their budget cycle, the refreshes of the portfolio where are we at from a technology perspective in terms of what additional features, functionality and offerings we can bring to their environment. And that's no different, right? And that obviously leads out to what kind of looks like could be 26 projects versus 27 and 28. So that feels very, very similar. I think where you -- it's still back to just the certainty of when they're going to move forward. And quite frankly, sitting here today, it's the same situation we're in every year, which is there's a pipeline of 12 projects.

We need 4, 5 or 6 to have a good year. I don't know which one of the 4, 5 or 6 they're going to move forward, but you had confidence that they ultimately will. And we've had years in the past, whether it's 2018 or 2021, where we get more than our fair share within that year and projects are accelerated or moved ahead, whatever -- whatever you might call it. And we've had years in '23 and early part of '24, where they can be pushed out or deferred and delayed. So I think it's again, the conversations are still ongoing and happening. You'd like to get to a point where there's a bit more certainty around the overall economic environment, whether that's tariffs, interest rates, whatever it might be.

So that customers can move ahead. I mean if you look at this year's example, I mean, this year is playing out pretty much as we expected. The guidance has been relatively unchanged. If I look at first half, second half, this is more or less how we how we planned the year. And so projects that were in the pipeline have kind of moved ahead if they were in the budget, customers aren't backing away or pulling back on those projects. But what we're not seeing is, I think because of that uncertainty is accelerating and spending more, meaning they're not moving ahead with something that might be in next year's plan or on the cusp from above the line, below the line.

And that's -- I think that's where we haven't seen either the acceleration we were hoping for and that many were hoping for, which is kind of that -- again, some of that uncertainty abating so that folks move ahead with those projects. It doesn't mean they're not out there. It doesn't mean they're not in the pipeline that the teams are actively working. It's -- but we've got to find the right moment for those customers to move forward.

Yes. You mentioned the first half versus second half dynamic, Nathan. And this is a question I've gotten a lot from investors, so I want to lay it out and let you let you attack it head on here. But point taken that the second half outlook hasn't changed meaningfully, it does sound like there was some shift in terms of volumes that maybe came in 3Q versus originally you had penciled in 4Q. The point is the implied 4Q trend is a flattish volume environment. And so the question I've gotten a lot is what are we to make of that? The big picture message is, think about it in terms of the halves, but the leading-edge indicator is that flattish trend in 4Q. I don't think you were wanting to communicate something going forward with that outlook necessarily, but I do get asked the question, and so to the extent you can help us unpack it, we'd appreciate it.

Yes. Like I said earlier, that's definitely not the intent. Again, I think the Q4 guide we think was and believe is still balanced given the macro uncertainty. You see that with some of the more recent earnings announcements that have come out. And so what you see in the macro economy. With the pipeline we had going into the quarter around where customers were planning or thinking they would spend some of their year-end budget, which effectively is flat to where it was in the prior year, which was a relatively strong Q4 in 2024. So I think the current quarter just reflects what we're seeing here in the quarter and there's a lot of moving parts and uncertainty out there.

But look, I think I'll go back to long-term, we still believe in the fundamental growth drivers of the company, the pipeline of opportunities we have, the conversation around with our customers. And you look back on the year, we'll deliver 6%, nearly 6% organic growth, 17% EPS growth for the year. On top of that, we'll fully mitigate tariffs, which I'm sure we'll talk about exiting going into '26. We've deployed $300 million of share buyback through the year and committed to another $500 million over the next 12 months. I think we added -- adding the Elo acquisition gives us a scaled $400 million of revenue that's accretive on day 1.

So again, we feel good about the execution in the year. Obviously, we'd love to have a -- see a higher growth rate here in the quarter. But look, I think we're executing and when the customers are there. I mean the good news about our business is if those budgets open up, if they see year-end spend coming strong and they have some budget to spend, we're one of the first places they call because we can deliver a pretty short timeframe, whether that's end of this year or early next year, but we can capitalize on that upside if and when it comes and then keep executing and be there for our customers, and that's going to deliver the long-term growth we expect.

So if we zoom out a bit to the served market growth rates that you've talked about, 5% to 7% is the long-term compound annual growth rate. This is another common question I get from investors. If you use a pre-pandemic gear as a base, let's just say, 2018 or 2019 and look at that average compound rate through, let's say, 2025. You're going to come in a little bit light of that 5% to 7% range. The year you start and the analysis can change the answer dramatically because there was quite a bit of volatility in between those 2 points in time. But just for that first cut that a lot of investors take where you come in a little bit light of the 5%, how would you address the skepticism there?

Yes. And maybe just to start with the overall 5% to 7% construct. If you look at how you break that down, we've got our core business includes our mobile computing business, data capture, printing. If you include Elo in that now, it's a $20 billion served market. We're the market leader across the portfolio, and we expect that to grow 4% to 5% again, over the cycle. And we think of -- even as a market leader, plenty of opportunities to continue to take market share and grow whether that's geographic expansion in places like Japan, Southeast Asia, where we have lesser market share or places like manufacturing or what has driven a lot of our growth over the last several years within mobile computing is how do you enable more frontline workers with technology with different form factors. Again, not every frontline worker like a greeter needs a fully ruggedized TC7, might a little bit overkill for that application.

So having different form factors where you still want the technology, so you can have the communication, the customer service that enables those are all again incremental opportunities we see within that -- opportunities we see in that 4% to 5%. Then you have our near adjacencies. So think ruggedized tablets, our supplies business, I think more importantly, the RFID business, which has grown double digits here for the last couple of years, again, growing high single-digit mix. And then the expansion business, whether that's software or now really predominantly around the machine vision business, growing multibillion-dollar markets, still a relatively small part of the portfolio, but growing over time, double digits. So it's the mix of that to get to the 5% to 7%. Now if you look back over the last 5 years, we always say over a cycle, and the only thing about the last 5 years, it's been anything but a normal cycle, meaning we've had obviously, 2 extraordinary years in '21 and 2022. I mean '20 to '21, we grew $1 billion from $4.5 to $5.5 million in 1 year.

And then coming out of that, you had absorption of all that capacity built out across the industry. And again, a gradual recovery out of that, but still, I'd say, not back to fully recovered, whether we look at areas like manufacturing that still lag behind pockets within T&L. I mean, obviously, a lot of the T&L providers are going through a lot of restructuring and recalibrating of their business. And I'd say we're still not back to what I would say a normalized level of large deal kind of refresh activity. We've had a few, but a lot of those refreshes that happened in '21 and 2022 are still out there is incremental opportunity.

So look, we look at where we're at today moving forward around the 5% to 7%, I'd say a couple of key drivers. One, if you look at our mobile computing business, still the largest portfolio, it grew -- the installed base grew 35% from 2019 to today which kind of puts you in that 5% to 6% CAGR. Obviously, a lot of that happened in a 2-year timeframe. But that's a huge installed base to mine, to refresh, and we think of opportunities, again, to drive that sustainable growth here over the coming years.

RFID and machine vision are a more meaningful part of the business today. Both with, again, we think, double-digit growth opportunities as we look out. And then I'll go back to no matter where you are in the technology adoption, we provide the tools that enable customers to digitize, automate, drive productivity and efficiency across their business. And again, that's not going away. So that still gives us that belief that you can always pick the point you want to start from to start the analysis, but we look here moving forward that there's no reason we shouldn't be able to continue to grow 5% to 7% and drive attractive earnings growth on top of that.

Any questions from the audience so far? All right. Well, feel free to shoot up a hand and ask anything on your mind as we progress here. Nathan, you mentioned tariffs. At the peak the expectation you had for gross profit headwinds in 2025 was $70 million. Most recently, you revised that down to less than $25 million. So suffice to say, there's been some progress in mitigating the impact there. What are some of the moves you made here in terms of both price and cost. And as you move forward? Is it fair to assume that you've essentially mitigated all of the headwind, assuming no change to current policy?

I think this is one we're really proud of in terms of -- I think the team has done a phenomenal job of being proactive going back into late last year as kind of once you kind of knew where the pendulum is swinging from an administration to start thinking ahead of what moves do we need to make because these aren't easy transitions, but -- we will substantially mitigate this year, kind of the net $25 million impact substantially mitigate as we go into '26. And that's a combination of the price actions we took in April, which are generating about a $60 million of annualized benefit. Plus, we'll go to less than 20% of our North America volumes now out of China, which was over 80% pre-pandemic.

So again, a lot of work diversifying the supply chain, moving around different parts of Southeast Asia, I think not only has it helped mitigate the tariff exposure, but also, I think, built a more resilient supply chain in terms of having multiple sources and multiple areas to produce that, I think as we've learned, it's there will be something next and not having that production diversified isn't that good thing from a long-term sustainability. So -- and the team has done a good job working with our suppliers to drive productivity and pricing where we can to help additionally offset. So I think we have a tracker going back to whether it's 2018, '19, mitigating and doing this here now within less than 12 months. And it's still obviously a dynamic environment. Hopefully, as we were talking to investor earlier, we don't have to talk about it next year, but that -- but I think the team is ready for whatever might come, we'll take action to preserve profitability and mitigate as short as a timeframe as humanly possible.

I want to talk about AI. What are some examples you can give where you have deployed the technology in your organization and where do you feel you sit on this journey?

Within the organization? Yes, I'm really excited. We're -- I think the team -- we started out early on building our own applications in terms of letting teams kind of utilize the tool, using whether it's Microsoft Copilot now using Gemini enterprise from Google. We have a our service center, repair depot, our repair centers have used this a lot in terms of driving incremental productivity. And look, I think where I sit here today is I think it's just a journey in terms of how you drive incremental productivity from Excel to a macro to an RPA now to how do you leverage AI for the next evolution. I mean we're using it in how do we prepare for earnings calls in terms of what questions could be asked, what's the right way to answer.

So a good Copilot to help out Mike in terms of how we prep about potential questions. We're using it in how do we provide better service on internally on -- I have a question about AP. I have a question about T&E, I don't need to ask a finance person, I can go directly to large language model to get that answer and response. So again, there's a lot of -- and then we're looking at different applications of how can you automate different parts of AP that are more complex and whatnot. So -- and then the team is using it across our software development of again, how you drive real productivity and how we think about how we develop our own internal software. So I think there's a lot of great momentum, both bottoms up and tops down around folks being curious of how can help provide -- again, I think if everyone is 10% more productive across 10,000 people, that's pretty powerful force multiplier.

And if you think about your early initiatives to commercialize the technology for your customers? What are some examples you can give? And what's the pipeline look like?

Yes. So I think we're -- again, we're really excited about the opportunity we have delivering AI solutions to our customers. And we think we're uniquely positioned to help deliver that for frontline applications. We're not going to be the large language model hyperscaler, but developing applications that are unique and pointed towards a frontline worker. We're in a unique position to that, given our presence, particularly with our mobile computing platform. And we demonstrated some of this early at NRF last year, so the National Retail Federation trade show in January. We have multiple active proof of concepts in the market in terms of -- we think about our Zebra companion agent. So think of how do you provide better product recommendations, again, with a device, you don't have to be connected to the cloud, which is obviously a pretty big expense.

If you have a bunch of store associates connecting to the cloud every time you tap into the model. But what wine do you recommend if you're an associate working in a wine store, how can you give that real-time product? What's a good cabernet that's at a price point of X. You don't hope you find the right guy or gal, you can -- someone can provide that. At NRF target showed a similar, which is they told the story around a store associate who is a high schooler happens to be walking down the baby aisle. A mother asked what's a good formula for a baby with an upset stomach terrified high schooler today, tomorrow could be someone who goes, what's a good formula, not only gets the response but gets a picture, what shelf is it on? If it's not on the shelf, what's the price point and being able to do that real time at their fingertips.

The other one that's, I think, pretty exciting is taking a picture of a shelf instantaneously, you can get -- there's 3 items out of stock, send the task directly to the back of store to be fulfilled. No one needs to touch that workflow, what thing needs a price check. So again, take a picture, it can give you the 10 tasks and automate those directly to who's the right person to execute. And then there's some really cool applications for frontline delivery that we're piloting with some large T&L providers of again, proof of delivery. Obviously, when a package is delivered is an important deal and one thing is to take a picture and upload it. It's another thing, but you still have to check the box around proof of delivery that, that package was delivered to Nathan's doorstep. What if you just take the picture with the package with Nathan's door, and it knows it was my door. That was the right package, and it automatically completes that workflow without that delivery driver touching another button.

So think of 20, 30 seconds, times every package, it's pretty -- again, it's a lot of productivity you can generate. So again, those are all just, I'd say, different applications. And I think the beauty is no different than what we do with anything. Some of these are going to be -- customers are going to do that themselves and build it themselves, and that's okay. We're going to provide the APIs and the platform to do that on. We may develop some of that ourselves for those customers or could be partners doing it. And I think that's the beauty of the portfolio and the interoperability across those different applications that ultimately, if they're doing it on our platform, that means they need our mobile computer. That probably means they need a new mobile computer with a higher processor and more memory in terms of an uplift and a higher price. As well as monetizing -- again, that's kind of what we're working through is what's the monetization model where we develop it, we maintain it. What's that monetization model look like that's going to be for certain customers as well.

I want to pause again in case anyone in the audience wants to shoot up at hand and ask a question, please do. All right. We'll keep going here. You've mentioned RFID a couple of times, Nathan. That one, I think, has created some confusion among investors over the years. So maybe level set for us as to why you're excited about the trend there?

Yes. I mean, look, we think RFID is a great growth opportunity. It's been growing double digits now for the last several years. And if you look, we have one of the broadest, if not the broadest set of portfolio around RFID in the market, meaning we have fixed and mobile readers printers that can print the tags with the inlays and embedded chips. We have our own tag business. And then we have a work with a whole host of ISV partners that can provide the solution that tie it all together. And look, I think we -- whether it's an Impinj and Avery or others in the market, we partner with them, sometimes compete a little bit, but I think it's all within our best interest to expand the market -- the addressable market, identify new use cases together because we don't produce a chip. We're not the inlay provider, but we want to read all of those and we do and work together on how do you bring those best solutions to our customers so that they can realize the value and continue to further adopt the technology.

So I think about -- and it's unlocking use cases that just quite frankly aren't available without it, meaning RFID is one of the only things where you can, again, think of theft and now I can -- we can read with proximity going, not just read it, but no, is it walking out the door or in the door because just reading it and seeing it in general, doesn't tell you a lot. But if I know it's walking out the door, I'm not -- we're not preventing theft -- but if you know it's walking out the door, you know whether it was purchased or not, you can immediately update your perpetual inventory system which is critically important if someone is thinking about buying something online, thinking there's one on the shelf, and it's not really because someone just stole it, right? And so that's a use case, quite frankly, only RFID enables because you can see it and read it real time as it walks out the door. And again, inventory accuracy on the shelf is a huge revenue driver or lost revenue for our customers.

And so those are the kind of use cases or think about produce, which seems fairly odd of why produce or fresh would be an area for RFID. But think of end of life, what do you need to replace? Is that bread old? The barcode will tell you it's bread, what type of bread, but only unique RFID identifier will know that bread has been there for 2 weeks. And whether that's stale or not. And so produce and fresh has been a new use case that a lot of folks are looking at because it's a pretty high cost in terms of turnover and waste in the produce section. But now if you know real time how long those fresh items are there and when to move them and when to discount them and do all those different things. Again, that's a use case that I don't say only, but that RFID unlocks that you just didn't have as an option before.

And how about the concern that it's a substitute for your core barcode business.

Yes. Every use case we look at, it's complementary, not cannibalizing the barcode, right? So if you think both of those examples you still need the barcodes somewhere in the supply chain to do that point transaction scan, the RFID labels damaged. You still need to have that barcode on there, is it? So again, I think the number -- and then just the sheer value of most of the barcodes at this point are almost printed on the label as part of the process, basically at no cost. Again, every of those applications, they tend -- they coexist together and RFID is just enabling some new application use case that wasn't possible with just the barcode because of the ability to read without line of sight directly to the label.

Let's talk about another technology that you've added to the portfolio in recent years, machine vision. Can you just sketch for us your competitive positioning there? And we're now well into the Matrox integration. But to the extent you can give an update, that would be great..

Yes. So look, if I think about all the different expansion opportunities, machine vision is still one that we're very excited about long-term. If you look at the history, we've started with organic investments in fixed industrial scanning. So I think kind of one step beyond kind of a barcode reader a scanner, meaning reading barcodes at a high velocity from a fixed infrastructure. We added Adaptive Vision, which is a small software company, which has been an incredible asset that we acquired a couple of years ago to expand the library we have in the software platform. Matrox really brought us, I think high-end inspection, so semiconductor, automotive presence around that high-end inspection.

And then Photoneo, we added earlier this year really specialized in 3D visioning. So one of the faster-growing markets, but their special was think of guided robotic arms and being the eyes for a guided robot where to go pick in a bin. It's not -- the robot is doing the picking, but the Photoneo is kind of the camera saying, here's the depth and where to go pick. So we now feel like we have, again, a comprehensive portfolio that we can go compete and win. And the strategy even back to the Matrox acquisition has been diversifying. Matrox has a really strong presence in semiconductor as well as automotive, which have been through secular challenges here over the last couple of years. And that's very similar to others in the industry. But the focus has been on how do you expand into other new logos. And it's a long game you have to play there, meaning if you're a customer is one of the other -- one of our competitors.

You don't just go rip out all the cameras and replace. Something has to go pretty wrong to be -- to do that because it's -- obviously, it's a large disruption in your operation. So where you got to go win is new use cases, when those with proof of concepts, demonstrate the value of that use case, traditional land and expand, right? And I think the team has done a great job of building beachheads across new logos, demonstrating the value. We think -- the reason we like to Photoneo is it's a differentiated technology that, again, allows us to build relationships and then expand into accounts. And we think about the portfolio we have today can compete across a spectrum of applications. We've invested a lot in go-to-market with the partner community and now we need kind of the semiconductor market to stabilize, which we're starting to see, to be nice to see automotive, get back to growth, both of those go back to growth and with the kind of, I'd say, expansion we've seen across other use cases, I think sets us up for, again, get back to some nice growth here over the coming years.

Let's talk about manufacturing for a minute, Nathan. That was one of the areas you called out is relatively weak or subdued. And I'm just curious, have things gotten worse there? Or is it -- would you characterize it maybe just as stable at a low base and there's probably a different answer you want to get for North America versus Europe. So if you can, that would be great.

Manufacturing is where you look kind of long-term, all the secular trends are ripe for what we need and what we want to see in our business, meaning automation of the factory floor, track and trace across the supply chain, the need to automate to offset labor, right, the relocation of manufacturing around the world is always a new opportunity to embed yourself. So again, all of those are, again, strong secular trends of why we believe manufacturing is going to be a long-term growth driver for the company. I think that -- then you have the offset, which is the cyclical and you see it with PMI and just -- I think that's where you really see the uncertainty of the economy playing through with our manufacturing customers in terms of being hesitant to do big capital purchases or move forward on projects.

And it's again, it's not as if it's declining. It's just not growing the way we've just kind of seen 1% growth. So it's kind of just been muted, stable growth not what we'd expect coming out of '23 and '24, where we like to see kind of more of a kind of normal market growth rate in that mid-single digit. So it's just been muted stable growth over the last, call it, 1 year, 1.5 years. And again, I think you kind of see that in that secular trend balanced with the cyclical volatility. And it's somewhat global. You definitely see areas of pockets. Germany, in particular, kind of parts of Europe, automotive, we definitely feel across automotive, both in our machine vision and our core business. But look, I think this is where you have to play the long game. And again, go back to those secular drivers for -- across that vertical market, all favor what we do. We're in a good position to do that and you just got to kind of work through kind of here the short-term uncertainty and challenges.

Health care hasn't been discussed, so let's do that now. Typically, we would think of that as a high growth, but small contributor to revenue. Describe some of the factors that would limit the adoption rate there.

The limiting adoption, let's say, just more of the inherent nature of health care, meaning everything moves a little bit slower in terms of adopting technology, very different in terms of -- look, the beautiful thing about retail, e-commerce, even T&L, particularly around last mile delivery is they want a singular platform across their entire operating environment. I mean you don't want half of your stores in North America on an old version and the other half on a new, you want to get them all to the same platform so you have the same training, the same consumer experience across your operation. Health care, it still feels like you're going hospital to hospital, department to by apartment to get things fully deployed, and it's -- but look, -- and I've spent a lot of time with that industry, and so it's very similar to what it was probably a decade ago.

But we have a portfolio of solutions that are custom built -- custom to health care, meaning they can withstand the cleaning requirements. They can stand -- they're purpose-built for health care. The need for the mobility, the efficiency, the communication across all the different departments within the health care environment are very similar to what you see in other vertical markets. It's just a longer adoption cycle penetration cycle. So we're still excited about that from a long-term growth, but I think that's exactly what it's going to be just long-term stable growth and penetrate kind of one account at a time. Look, I'd love to be in a world where you see it grow 2x in a year, just unless something fundamentally changes in that industry. I just -- so look, I think we're still the long-term believer in it. Elo actually add some new capabilities around again, check-in in a hospital.

So there's some new applications there that they're excited about. They're starting to see in the health care environment. So look, it's going to be an important part of the portfolio, an important part of the growth, but I think it's not going to be your needle mover in a year where it's doubling in the size over a 12-month time horizon.

Last question, and then we'll call it here. You've referenced omnichannel retail and e-commerce, a couple of times, Nathan, there was a cycle there where early in the pandemic, as you referenced earlier, there were some big years of growth, and then there was a period of digesting some of the excess capacity more recently, the trends there have been pretty positive. And so where would you say we are in that build and absorb cycle?

It's I think we've fully absorbed the capacity constraints of '23 and '24. And I'll give you a couple of anecdotes and examples around that. I mean, the beautiful thing about the business is if you have a large installed base at any customer, whether that's front of store, back of store, last mile. If they have a large installed base, they're buying new mobile computers every quarter, kind of a nice run rate business, which comes from adding new employees, new use cases around the fringes in terms of, hey, we gave it for our last mile delivery drivers.

Now we wanted for the UPS store, right, as an example, or the postal store, carrier store. Adding new use cases along the way. Look, over time, these things are lost, damaged beyond repair for their own faults. And so they need to buy more units to just keep their fleet up to date. And that's just a good recurring revenue that comes kind of out of these large installed base. And we're seeing that activity. I mean, that's part of what drove the recovery here over the last 12 to 18 months is getting back to that, I'll call it, normal level of business for those in large installed bases. I think the other one I went back to this year, we saw projects that were in the pipeline that they had budgeted. They moved forward with in terms of moving forward. So we didn't see pushouts delays, whether it was tariff or budget related nor do we see -- as we mentioned earlier, acceleration of projects because they said, "Hey, things are great, let's move -- let's accelerate projects that are in the pipeline.

And a lot of active conversations around where is the technology, what -- the refresh, it's not just about, hey, the device is so old, it's time because the battery is dying. It's about what incremental value, what are the new features it opens up over time, that might have been 4G, 5G, Wi-Fi 6? Or now it's how do you embed -- how we've embedded RFID on the device that opens up new applications or the more computing power that opens up those AI opportunities that I mentioned earlier. So those conversations are actively ongoing. And I think once you get some of this uncertainty behind us, there's a lot of added value that comes with refreshing your portfolio to the technology we have today to the offerings we have today.

And we believe that's just going to provide more of that long-term growth driver here over the coming years that we're excited about.

Nathan, we appreciate your time today and for everyone in the audience. We appreciate your interest in Zebra. I'm now the only thing between you and lunch. So I'm going to bow out. Thanks, everybody.

Yes. Thank you.

Good day, and welcome to the Third Quarter 2025 Zebra Technologies' Earnings Conference Call. [Operator Instructions] Please note this event is being recorded. I would now like to turn the conference over to Mike Steele, Vice President, Investor Relations. Please go ahead.

Good morning, and welcome to Zebra's third quarter earnings conference call. This presentation is being simulcast on our website at investors.zebra.com and will be archived there for at least 1 year.

Our forward-looking statements are based on current expectations and assumptions and are subject to risks and uncertainties. Actual results could differ materially, and we refer you to the factors discussed in our SEC filings. During this call, we will reference non-GAAP financial measures as we describe our business performance. You can find reconciliations at the end of the slide presentation and in today's earnings press release. Throughout this presentation, unless otherwise indicated, our references to sales performance are year-on-year on a constant currency basis and exclude results from recently acquired businesses for 12 months.

This presentation will include prepared remarks from Bill Burns, our Chief Executive Officer; and Nathan Winters, our Chief Financial Officer. Bill will begin with a discussion of our third quarter results, Nathan will then provide additional detail and discuss our outlook. Bill will conclude with progress on advancing our strategic priorities. Following the prepared remarks, Bill and Nathan will take your questions.

Now let's turn to Slide 4 as I hand it over to Bill.

Thank you, Mike. Good morning, and thank you for joining us. Our team executed well in the third quarter, delivering results above our outlook driven by solid demand, lower-than-expected tariffs and strong operating expense leverage. For the quarter, we realized sales of $1.3 billion, a 5% increase from the prior year, an adjusted EBITDA margin of 21.6%, a 20 basis point improvement, and non-GAAP diluted earnings per share of $3.88, which was 11% higher than the prior year.

We realized solid growth in our Asia Pacific, Latin America and North America regions and had relative outperformance in printing, mobile computing and RFID. Our retail and e-commerce end market was a bright spot. Healthcare cycled a strong compare and manufacturing remained relatively soft. We achieved double-digit earnings growth by driving operational efficiencies as we continue to invest in our leading portfolio of solutions. While we see growth across most of our business, our customers continue to navigate in uncertain macro environment, resulting in uneven demand across some geographies and vertical markets.

As we look at our broader business prospects, we are excited about our profitable growth opportunities, including our recent acquisition of Elo Touch Solutions which enables us to accelerate our vision for the connected frontline. Our strong balance sheet and free cash flow profile also enables us to commit $500 million to share repurchases over the next 12 months as we drive long-term value for our shareholders.

I will now turn the call over to Nathan to review our Q3 financial results and Q4 outlook.

Thank you, Bill. Let's start with the P&L on Slide 6. In Q3, total company sales increased approximately 5%, with growth across most product categories and services and software recurring revenue business grew modestly in the quarter. Our Enterprise Visibility & Mobility segment grew 2%, led by mobile computing, and our Asset Intelligence & Tracking segment grew 11%, led by RFID and printing.

As we disclosed in our earnings press release this morning, please note that effective in the fourth quarter, we are reporting under 2 new segments: Connected Frontline and Asset Visibility & Automation. Bill will cover how this view aligns to our strategy and how we manage the business. Historical results have been recast in the appendix.

We realized strong sales growth across most of our regions. In North America, sales grew 6% with double-digit growth in mobile computing and RFID, offsetting weakness in Canada. Asia Pacific sales increased 23%, led by Australia, New Zealand and India. Sales increased 8% in Latin America with broad-based growth across the region. In EMEA, sales declined 3%. Regional performance was mixed, with softness in Germany, balanced with relative strength in Northern Europe.

Adjusted gross margin declined 90 basis points to 48.2%, primarily due to higher U.S. import tariffs. Adjusted operating expenses as a percent of sales improved by 110 basis points. This resulted in second quarter adjusted EBITDA margin of 21.6%, a 20 basis point year-on-year improvement. Non-GAAP diluted earnings per share were $3.88, an 11% year-over-year increase and above the high end of our outlook.

Turning now to the balance sheet and cash flow on Slide 7. Year-to-date, we generated $504 million of free cash flow. As of the end of Q3, we held more than $1 billion of cash with a modest debt leverage ratio of 1 and $1.5 billion credit capacity. We have been deploying capital consistent with our allocation priorities. Through October year-to-date, we have repurchased more than $300 million of stock and acquired 3D machine vision company, Photoneo and Elo Touch Solutions with cash on hand and our existing credit facility.

We continue to maintain excellent financial flexibility for investment in the business and return of capital to shareholders. And as Bill highlighted, we are planning $500 million of share repurchases through the third quarter of 2026.

On Slide 8, we provide an update on the anticipated impact from tariffs on our products imported to the United States and our progress on mitigation. For the full year 2025, we're now assuming approximately $24 million for gross profit impact after mitigation with a $6 million net impact expected in Q4, which is an improvement from our prior guidance. Our forecast assumes the current effective rates and exemptions remain in place. We have a track record of successfully navigating supply chain challenges, including tariffs and expect to substantially mitigate the current U.S. import tariffs entering 2026 as a result of actions taken by our team, including previously announced pricing adjustments, yielding about 1 point of sales growth, reducing U.S. imports from China to less than 20%, rationalizing our product portfolio and strong progress on driving overall supply chain efficiency and resilience.

Let's now turn to our outlook. We anticipate between 8% and 11% sales growth in the fourth quarter, including approximately 850 basis points of contribution from our Elo and Photoneo acquisitions and favorable FX. Our second half demand assumptions have not changed from our prior business update. Our fourth quarter adjusted EBITDA margin is expected to be approximately 22% which assumes a $6 million net impact from U.S. import tariffs and non-GAAP diluted earnings per share is expected to be in the range of $4.20 to $4.40.

Our fourth quarter outlook translates to full year sales growth of approximately 8%. Our full year adjusted EBITDA margin is expected to be approximately 21.5% and non-GAAP diluted earnings per share is expected to be approximately $15.80, based on our Q4 guide, a 17% year-on-year increase. Please reference additional modeling assumptions shown on Slide 9.

With that, I will turn the call back to Bill.

Thank you, Nathan. As we turn to Slide 11, Zebra remains well positioned to benefit from secular trends to digitize and automate workflows and with our portfolio of innovative solutions, including purpose-built hardware, software and services. Our solutions intelligently connect people, assets and data to assist our customers with business-critical decisions. I would like to spend a minute on our new reporting segments. CVR operates in a greater than $35 billion served addressable market encompassing the Connected Frontline and Asset Visibility & Automation.

Each segment has a 5% to 7% organic growth profile over a cycle, supported by megatrends, including artificial intelligence, mobile and cloud computing and the on-demand economy. The Connected Frontline is about equipping the front line of business with tools and digital touch points necessary to drive efficiency, optimize collaboration and improve the consumer experience. Our solutions portfolio includes enterprise mobile computing, rugged tablets, frontline software and AI agents.

Our acquisition of Elo adds key capabilities in self-service and point of sale, increasing our addressable market in this segment to greater than $20 billion. Asset Visibility & Automation is primarily focused on digitizing environments and automating operations across the supply chain through advanced data capture, printing, machine vision, RFID and other solutions. These are complementary and synergistic segments that digitize and automate operations and solve our customers' biggest challenge.

Turning to Slide 12. Zebra's solutions enable our customers across a broad range of end markets to drive productivity and efficiency and improve service to their customers, shoppers and patients. I would like to highlight RFID, which has been a consistent bright spot in our portfolio, growing double digits over the past several years. As a market leader, we are encouraged by the continued momentum we are realizing. Our largest customers in retail and e-commerce as well as transportation logistics and manufacturing have been expanding their adoption of Zebra's RFID solutions to additional workflows and categories due to the improved business outcomes they are achieving.

Supply chain visibility, inventory accuracy, increased productivity, improved profitability and reduced waste are key outcomes that are driving increased adoption of the technology deeper into all end markets. RFID continues to be an important area of growth for us, enhancing our broader set of solutions offerings and demonstrating how our evolving portfolio enables us to solve increasingly complex challenges.

Turning to Slide 13. Our industry leadership puts us in a unique position to be the supplier of choice of AI solutions for the frontline. We can deliver an entirely new experience for frontline workers through mobile computing, coupled with wearable solutions and the cognitive capabilities of AI. Imagine handheld and wearable solutions that can see, hear and understand the environment while interacting with the frontline worker in a conversational way. This is the direction AI for the front line is headed and we are starting this journey with our Zebra companion offerings.

We are excited by the opportunity to transform the way work gets done as we collaborate with our strategic partners across the AI ecosystem. Last month, more than 100 senior leaders of companies representing a variety of industries attended our inaugural frontline AI Summit. During the event, we presented our AI vision and the benefits can bring to our customers to accelerate AI adoption and impact across their frontline operations. We have active pilots with our customers, validating the benefits of our new AI solution.

A specialty retailer is actively utilizing in advanced pilot of our AI companion agents to provide assistance with product recommendations, resulting in better sales conversions and upsells, faster employee onboarding and elevated shopping experience. We believe that our AI agents will be attractive to any customer who strives to improve the productivity and effectiveness of their frontline associates.

A large transportation logistics company is digitizing and accelerating proof of delivery with immediate feedback and enhanced compliance powered by our on-device AI suite. A digitized environment, leveraging AI is fundamental to transforming workflows across a multitude of industries. These are early examples of the significant benefits our AI solutions can deliver to our customers and elevate Zebra, as a leading AI solutions provider for the front line of business. We are looking forward to demonstrating our solutions with the National Retail Federation trade show in January.

Turning to Slide 14. We are excited about the opportunity to enhance the connected frontline experience with our recent acquisition of Elo Touch Solutions. Our combined capabilities enable us to offer more ways to digitize operations across more touch points and drive increased business with our enterprise customers. Elo is a pioneer in touchscreen technology and a leading provider of point-of-sale solutions self-serve kiosks interactive displays and industry tailored offerings. Elo's modular solutions deliver cross-generational compatibility and their enterprise-ready platform and software tools seamlessly integrate into customers' existing ecosystem.

Together, we can deliver better customer experiences through the intersection of frontline mobility and self-serve technology. This acquisition further elevates our strategic positioning across retail, hospitality, picks of restaurants, healthcare and manufacturing through the breadth and depth of our complementary portfolio of solutions. Over time, Zebra will offer a common platform across mobile and fixed digital touch points that improve frontline efficiency. Together with Elo, we are better positioned to deliver a complete solution and leverage AI to empower associates and elevate consumer experience.

In closing, our confidence in sustainable long-term growth is underpinned by several themes that drive demand for our solutions, including labor and resource constraints, track and trace requirements, increased consumer expectations, advancements in artificial intelligence and the need for intelligent operations. We are well positioned to address these critical requirements in our customers' operations with our leading portfolio of solutions.

As we move forward, we remain focused on advancing our industry leadership with our innovative solutions that digitize and automate our customers' workflows and driving profitable growth. I'll now hand it back to Mike.

Thanks, Bill. We'll now open the call to Q&A. We'll have to 1 question and 1 follow-up to give everyone the chance to participate.

[Operator Instructions] The first question comes from Andrew Buscaglia with BNP Paribas.

So demand trends seem strong and -- are relatively strong in Q3. And I noticed your Q4 guidance implies organic growth somewhat decelerating. I know you're facing a tough comp, but I'm wondering if you can kind of walk through what you see demand-wise and just additional commentary by end market would be helpful.

Yes. I would say that if we look at Q3, the team executed well, driving sales near the high end of our outlook. And that was backed up by kind of solid demand across the business. I would say the second half is really playing out as we expected with some customers that bought products early to deliver their peak season a bit earlier than we had originally expected. I would say that if you look across the regions, we saw solid growth across North America, AsiaPac and Latin America. If we think of the vertical markets, really, the quarter was led by retail and e-commerce from an end market perspective.

And as we called out in Q2, weakness in EMEA continued through Q3. I would say from a product perspective, relative strength in mobile computing and printing, and RFID a bright spot. But I would say overall, second half is playing out as we expected, just the timing of those orders coming a little early into Q3.

I see, helpful. And can you comment on EVM, the growth was rather modest in the quarter. What are you seeing specifically in that segment? And can we still expect that to grow exiting the year?

I would say EVM from a mobile computing perspective, we saw strong growth in with large deals in North America, Asia Pacific and Latin America continue to be positioned for long-term growth and opportunities across mobile computing, including device in the hands of more associates overall. Next-generation product deliverables around wearables and RFID technology. We continue, as we talked about in the prepared remarks, an opportunity mid- to longer term inside AI as we see opportunities there to leverage AI in the front line.

I would say that from a data capture perspective, which is also the other element of EVM, the largest -- the second largest element of that is we saw decline based on a difficult compare, I would say, across the scanning portfolio. So I think that really was the story of EVM, a combination of strong mobile computing, but difficult compare from a scanning perspective, which then impacted overall EVM in Q3.

The next question comes from Piyush Avasthy with Citi.

With the understanding that you're not providing 2026 guidance, but it would be helpful if you could provide some puts and takes on the construct itself, like how different or similar to 2026 be from your long-term financial targets? I know that visibility is somewhat limited, and there is still some macro uncertainty but based on your conversations with your clients, how would you characterize the demand outlook heading into '26 across your different verticals?

Yes, I'd say today, while our customers remain cautious in the near term, and we're experiencing some uneven demand across different environments, think EMEA and then overall places like Canada, so we're seeing uneven demand manufacturing from a vertical market perspective across our different vertical markets. Our solutions basically remain fundamental to our customers, and they remain essential for digitizing and automating environment. So longer term, AI represents an opportunity to continue to advance our solutions and we're well positioned to drive sustainable, profitable growth into next year is what I'd say.

Got it. And you guys mentioned digital AI features, again, like I understand it's like very early, but how soon can these features become a catalyst for growth for the company? I think you have talked about a refresh cycle at some point. Do you think -- do you get the sense that there is demand and appetite from your customers to invest in software, which means when the next refresh cycle comes, it translates to not only hardware upgrade, but also like strong software? Any comments there?

Yes. I would say from an AI perspective, we see 2 opportunities as you've called out. One is certainly the hardware environment with next-generation handheld devices, coupled with we're the leader today in wearable technology inside the enterprise. So we see that playing out as the way AI is delivered to the front line. It starts with mobile devices, and it's likely coupled with wearable technology from a hardware perspective. We're in pilot now, as we talked about in our prepared remarks with our Zebra companion and our AI suite overall in different applications with customers in retail and T&L, as we talked about.

So that creates a software opportunity for us across our AI agents and early customer pilots or they're seeing significant value to those. I would say first revenues likely in '26 and then ramping in '27 and beyond is where we'd see is we're want to get through the pilots, demonstrate the value to our customers ultimately and then begin to drive revenue and scale those into our customers. But the opportunity, as you said, is in 2 areas: hardware, upgrade of those hardware, new hardware in the idea of wearable and then ultimately in software as well.

The next question comes from Damian Karas with UBS.

I was wondering if you could maybe speak a little bit to the large project funnel, what you're seeing out there, what conversations you're having? Has there been any -- obviously, the fourth quarter, it doesn't appear you're expecting much large project activity, but just in terms of the funnel, is there any increase in customer conversations? And any hope that maybe you could see some of that stuff get awarded in the fourth quarter or likely going to be waiting some time longer?

Yes, I'd say is as we've talked about, I would say the demand trajectory has remained pretty consistent with our outlook from the prior quarter. And I would say customers have generally maintained their capital spending for the most part and projects continue to move forward. I would say some have -- and I think we talked about this last quarter as well, some have spread projects and purchases over multiple quarters, again, driven by caution that still remains out there is our customers are navigating the global macro uncertainty and specifically some of the ultimate ramifications to the certain trade policy that's in place today.

I would say this has driven this uneven demand across some verticals and geographies. But we feel good about the business overall and continuing to extend our lead. But the demand environment hasn't changed much. I think we saw some orders earlier in the year than we anticipated. We continue to monitor our customers in not only opportunities for year-end, but what's happening across EMEA, the tariff situation, government shutdowns. So there's a lot of things happening in Q4 that we feel good about our guide being balanced for the quarter and overall.

That makes sense. And Bill, on your point about some of this pull forward demand, in the third quarter, any particular reason why you think some orders might have come in earlier in the second half anything to do with tariffs or sort of price optimization on the part of your customers? Just curious why that might be.

Yes. No, I would say, again, the timing is always isn't always exact, right? And we anticipated Q3, we call the guide for that. We overachieved that guide really is -- some customers just need a product earlier to meet their peak demand. I think that's a good thing, right? We're seeing e-commerce demand, retail continue to be strong in Q3, and I think that drove some earlier orders. I wouldn't call it pull in as much as just timing of the need for the product when they would have normally ordered a bit later. They said, "Hey, I'd like to have this product earlier to meet the Q3 demand for peak" and I think that's the balance between Q3 and Q4, it's just played out in a timing perspective.

I think the demand is as we expected. I mean, I think we feel good about the year overall. We're going to deliver almost 6% organic revenue growth, 17% EPS growth. So the year is kind of playing out as we expected as well. So I think we feel good. It's just timing, not really pull in as much.

The next question comes from Tommy Moll, Stephens.

For the fourth quarter, I want to unpack the assumption around budget flush. So maybe we could take it in 2 parts. Can you quantify what you're assuming for Elo from a top line perspective in Q4? And then if we back that out, what does the sequential quarter-over-quarter look like there? I think typically, you see some year-end flush, but I just want to hear you talk about what you're assuming for this year?

Yes, Tom, I'll take that. I think, as Bill mentioned, we're -- I would say the first thing is holding the full year organic growth rate consistent to what we had guided back in August, and we believe that provides a balanced view of the current environment that Bill had talked about relative and with some of the -- some of those orders being realized a bit earlier ahead of the quarter. So if you look at our Q4 guide, 9.5% growth, as we said in the prepared remarks, about 8.5 points of that is just due to the Elo as well as Photoneo and FX. Elo, we have in the guide of $100 million, so in line with what we had talked about last quarter in terms of their overall revenue profile.

And we're getting about a point on price, which really leaves that organic demand flat if you look at it from a year-on-year perspective. And I'd say the way to think about it is we see year-end spend to similar levels as we saw last year. As you recall, we had a nice year-end as we exited 2024, and we're seeing similar levels of spend and pipeline here as we as we go towards the year-end. So that's obviously 1 we're playing close attention to as well as, as Bill mentioned, monitoring what's going on within Europe, the government shutdown and everything else is going around the world. But I think that's the way to think about the Q4, which is excluding FX, pricing and M&A, you really have kind of a flat demand really driven by that year-end project spend being at similar levels to last year.

Thank you, Nathan. I wanted to ask about RFID. You framed some of the recent success there. There's been a pretty high-profile announcement recently in the fresh category from one of the omnichannel leaders. I'm curious, are you able to comment if your business should benefit from that recent update or maybe if you're not, anything you can do to comment on forward visibility on RFID, are there things in your pipeline that are continuing to suggest some of those elevated growth rates?

Yes, I'd say, Tommy, we clearly have seen strong double-digit growth rates on RFID over the past several years, and we continue to see a pipeline of opportunity across the entire supply chain, whether it's across retail or now T&L continues to deploy projects across RFID manufacturing, government. I would say in retail, we're seeing grocery, as you said, fresh opportunities. So in retail beyond general merchandise opportunities into quick-serve restaurants into health care. So I would say the broader track and trace across supply chains across multiple verticals, all creates growth opportunities for us.

As you know, we're the -- we have the broadest set of RFID solutions in the market today across fixed and handheld readers across near new releases of our mobile computing devices that have RFID integrated within them, our printing portfolio, the labels associated with that, so all of that allows us to continue to be excited about RFID and moving forward. And yes, I think things like fresh and grocery and others just create more and more demand for our solutions. I think the customers that have deployed solutions to date continue to see value and continue to expand the use cases that they've deployed already inside their environment. So RFID, I think, continues to be growth driver for us moving forward.

The next question comes from Keith Housum with Northcoast Research.

I just want to unpack a little bit more of your commentary regarding AI and the opportunity there, understanding that the long game here. It sounds like the opportunity from a hardware perspective is adding more wearable devices but also perhaps an acceleration of the refresh cycle. I guess, one, is that true? And then second, will these devices in the AI world, will they need a more higher ended compared to what perhaps you're using today?

Yes. So I think you hit it spot on. I think the opportunity is certainly with higher premium devices, higher-end devices, which we'd look to drive higher ASPs and over time, we would see that being a driver for the refresh cycle as new technology would be that. So I think faster processor, more memory on mobile devices. We see that we're the global leader today in wearable technology for enterprise, and we see there's an opportunity there as well to pair, think body cam type devices with a mobile device, things that can sense the environment, see the environment.

So we'll be leveraging the mobile device in certain applications, but also wearable technology could be almost watch like technology that we've released recently as well. So different form factors and wearables as we're seeing across the customer base today. So hardware clearly, mobile computing and wearable and then software offering. So I think if we kind of wind all the way back Zebra solutions of digitizing and automate the environment become kind of fundamental for collecting data on the front line that allows this sense analyze act, right, since what's happening at the point of productivity so you can analyze it with AI and take the next best action within your business.

So our solutions fundamentally drive models in AI. That's what we do provide data to get to start there, AI is used throughout multiple solutions today across different applications of software, robotics, 3D quality inspection today. So traditional AI used across our portfolio. The revenue you talked about from mobile devices and wearables and then software on top of that. So think of our Zebra companions and what we're doing in our AI suite that layers on top of software offerings on the mobile device to either manage those models for our customers. So I think models on the device need to be managed or think of it actually applications that Zebra provides in the idea of AI agent, all create opportunities for us. And as I said, likely first revenues in '26 and scaling from there.

Great. I appreciate that detail. And just as a follow-up, is retail and e-commerce, probably we're on a fifth or sixth quarter at least of contributing to the growth of the company. Is there a visibility to how long that's sustainable? And you look at historical information, is it usually over the 2-year period of these things could go through your refresh cycle, then kind of another vertical is going to be expected to kind of take over and drive growth from there?

Yes. Not necessarily. I would say that we've seen strength in retail and e-commerce, but you got to remember that e-commerce continues to grow, right? So the -- we talked about some of this product being used for peak, it really driven some of that by the e-commerce players as they continue to deploy devices to meet peak demand. I would say this whole idea of refresh cycle, everyone is on a different timeframe and cycle, whether that's retail or T&L or postal or others. And they're all on their own cycle, meaning that every retailer is on a different cycle and every e-commerce is more -- they don't do that same type of refresh. They buy over time. But I would say T&L the same way.

So I don't think it switches from 1 vertical to the other. I think, look, we'd like all geographies in all vertical markets to be up all at the same time. It just doesn't quite work that way. Today, we're seeing strength in retail and e-commerce. Transportation logistics has gone to more normalized levels, and we're seeing growth there. Manufacturing is pretty flat, tough compare in healthcare. So I think that while we'd like to see everything up in the right all the time, I don't think there's a transition away from retail and e-commerce to something else. I think we'd like to see growth across all of them. And there's no reason why not. But I think things like manufacturing remains pretty challenging in the short term.

The next question comes from Jamie Cook with Truist Securities.

I guess my first question, just the margin divergence between the 2 segments, asset intelligence in tracking, the margins seem to be doing better this year, whereas last year, the 2 segments were flat. So just if you could sort of unpack that as tariffs hitting 1 of those segments more than the other. And then I know you talked about being able to cover tariffs for the most part in 2026. Any nuances on how would it impact the segments? And I guess we can talk about it within the new segmentation, but any color on that for 2016 as well.

Yes, Jamie, I wouldn't say there's anything specific driving the gross margin difference between the 2 verticals in terms of unique. I think just some of that is a bit of a mix within the portfolio. You see the strong growth in AIT. So you're getting nice volume leverage there across our printing portfolio. That's also where you have the RFID growth kind of coming through in terms of the higher margin profile. So I think so much just timing of mix between the portfolios. As Bill mentioned, data capture was down in Q3 in the EVM segment, which has, again, nice operating -- or nice gross margin profile.

So again, I think that more just mix within the portfolio quarter-to-quarter versus, let's say, a fundamental shift between the two. Yes, and I think as we mentioned, we expect to fully mitigate tariffs as we go into next year. So you'd expect maybe a modest amount in Q1 but fully mitigated as we go into the second quarter with some additional actions the team has been working. Again, I think the -- primarily that will be benefiting within the AIT segment. So that's, again, where we have across EVM, that's where we have the mobile computing exemption today. So most of that benefit you'll see in AIT as we cycle into next year with some of the additional actions we have planned later this year and early part of next.

Okay. I guess. And then just my second question, just on Elo. So I think you said for the fourth quarter, that contributes $100 million in revenues, which is in line with the $400 million of annual sales that you talked when you announced the acquisition last quarter. Any thoughts -- I mean, I think that's a business that you've said has grown 5% to 7% through the cycle similar to you guys. Any thoughts on Elo as you're thinking about 2026?

Yes. I would say that we continue to be excited about the acquisition. It certainly further positions us as a strategic partner to our customers across multiple vertical markets. And the breadth and depth of their portfolio married with ours gives us more strategic partnering opportunities with our customers overall. I would say that as you said, similar growth profile to Zebra, similar value proposition as well.

Purpose-built hardware, enterprise-ready platform just like our Mobility DNA software tools that seamlessly integrate into an enterprise environment. All those are the reasons why our customers buy mobile computing from us. And it's the same reason why customers buy Elo Solutions. We closed in early Q4, I would say, performing as expected in overall at the moment, and we don't see any change to that. We see opportunities into next year, including continued POS rollout or point-of-sale rollout solutions at a very large retailer.

We continue to see new opportunities and new wins from their business in the self-serve kiosks and some of the largest quick-serve restaurants around the world. We're continuing -- we're working closely with them, our teams together and progressing our operational synergies, both on the revenue and the cost side, and those are early days, but progressing as we expected. So we feel good overall about their business, their growth profile as we enter Q4 or go through Q4 and then into '26.

The next question comes from Meta Marshall with Morgan Stanley.

This is Mary on for Meta. I have 2 questions for you. The first is on the pricing actions related to tariffs. So given the pricing actions that we're taking to offset the tariff costs, what kind of impact are you seeing from these pricing actions on customer demand? And then my second question is on the OBBBA tax impact. Can you walk us through how the OBBBA is expected to impact your effective tax rate and cash taxes going forward?

Yes. So on the first one, I may speak the pricing impact, so we're seeing some nice benefit from the pricing actions we announced back earlier this year. So we increased from our prior guide, the expected annual benefit, which we now expect to be around $60 million or 1 point of growth on an annual basis from our prior guide of $40 million. So again, nice momentum here as we worked through the third quarter in terms of overall price realization. I'd say we haven't really seen that dramatic of an impact on demand. I mean, as Bill mentioned, the year has pretty much played out as we expected, both from first half, second half.

So we haven't seen a major shift or pullback in demand. And I think what we hear from our channel partners is that the pricing actions we've taken are in line with a lot of our competitors across the industry where tariffs have had an impact. So again, we feel good about the momentum there. And again, as we said, trying to fully mitigating the impact of the current tariffs as we go into next year.

If you look at the impact on the new tax bill, as we said in the last guide, this year, we expect about a $50 million, $60 million reduction in our cash taxes due to the ability to amortize the current R&D -- deduct R&D and the full amount of that. We expect about over $200 million over the next 2 years, a little over $200 million in the next 2 years of incremental cash benefit from the change in the tax bill. But it did result -- if you noticed in our guide, we increased our expected tax rate to 18%. Part of that is just reflecting the impact of the tax bill with some of the new permanent rate effects as well as the shift in income. So a modest impact on the overall tax rate, but again, a bigger benefit on the lower cash taxes expected over the next 2 years.

The next question comes from Joe Giordano with TD Cowen.

So when you talked last year into the fourth quarter, I felt like you had guided in a way that took the market risk largely out, right? Or you were guiding to things that were in hand in backlog and kind of volumes came in better than you expected and there was upside to your guide. Now this quarter, you're talking about flows similar to last year, but is that element of like we're not baking in much in terms of what we're not seeing directly in the market? Is that still a fair way to characterize like the nature of how you're guiding? And just curious what the EPS accretion you have from Elo in there is? And then I have a follow-up.

Maybe I'll start and hand to Nate. I would say that, Joe, overall, customers are generally moving ahead with planned projects. I would say they're hesitant to accelerate future projects based on kind of macro uncertainty and the trade policy and the secondary impact of the trade policy clearly on their business. Parcel slowing, for instance, in transportation logistics because of the trade policy, right, is an example of that. So I think while they're generally moving ahead, there's -- we haven't seen an acceleration of projects or moving in projects based on this uncertainty. But I think the discussions with our partners and customers hasn't fundamentally changed.

That's why we're saying the demand trajectory feels about the same as it did when we talked last quarter and the need for our solutions certainly hasn't changed as you saw some buying early in peak to be able to meet their demands at our customers. So we're still essential. A lot of it's about timing. So I think we saw above the -- close to the high end of our guide for Q3, I think we see Q4 playing out as we expected for the year. I mean, again, as I said earlier, nearly 6% organic revenue growth, 17% EPS growth for the year. But I think that overall, I think the macro environment and the trade policy uncertainty and the ramifications of their business is having customers hold back a little bit on, do I advance future projects.

Joe, maybe a little additional color. I think I'd characterize the guide we had last year, which was, to your point, we assumed very little year-end spend in terms of above and beyond what we kind of had a clear line of sight to. And obviously, that came in better than expected as we exited the year, where this year, we're assuming a similar level of year-end spend as we did last year. So obviously, some of that we have in hand, but the team has to go convert pipeline here over the next 6 weeks -- 6 to 8 weeks to close out the year. So I think rate -- that's how I characterize the difference between this year's guide and last year is in terms of those expectations around year-end.

And then just your question on Elo EPS impact, it's about $0.10. So if you look at the -- for the full year, we raised the guide about $0.30, some of that better tariffs basically split 1/3, 1/3, 1/3 between lower tariff, Elo and a little bit of favorability on overall interest rates and share count.

And then the follow-up, and we kind of talked about this a little bit, but as you think into next year, I'm not trying to pin you down, but like as we're coming off, you had a big COVID deployments that you had kind of a multiyear decline as we're kind of bouncing modestly off that, like what reasons, if any, would you kind of like talk us off of thinking that next year at least from where we're sitting now, like shouldn't be at least in the range that you would see in a cycle?

Yes. I mean again, we're not guiding to '26 as you acknowledged. I think that today, we're clearly seeing customers remain a bit cautious in the near term and because of that, we're seeing some uneven demand environments overall. EME example, manufacturing across different vertical segments. In some cases, it's just tough compares in case of DCS. But I'd say we feel good about driving sustainable, profitable growth into next year across the business. And I think we've got to play out Q4 here, and we'll provide more guidance come first quarter.

The next question comes from Rob Mason with Baird.

Bill, I just wanted to touch on thinking about demand as you go into next year or finish up fourth quarter. A couple of your geographies, you've already talked about EMEA being softer. We saw some of that in the second quarter and it continued on here. I'm just curious maybe what the month-to-month or quarterly trend look like in that region as you enter the fourth quarter? And then also if you could address maybe conversely, just Asia Pac, that's been double digit now for, I guess, 5 quarters. Is that broadening out your customer base there? Is it kind of project specific? I'm just kind of curious what's driving the strength and how you see Asia Pac as you look forward as well.

Yes, maybe cover all the geographies. I would say North America strength in mobile computing and printing tough compare in DCS, we talked about. Peak demand as we're already covered in retail and e-commerce in Q3, a bit of pull in there. Continued strength in RFID as we talked about the use cases there, large and mid-tier customers and orders were up in North America. I would say, again, as we talk about trade policy Canada demand softer in Q3 in North America. EMEA, I would say, about the same as we saw in Q2, when we called out. It's really mixed performance in EMEA, if I added color.

I would say Northern Europe continues to do well in retail and transportation logistics, where places like Germany in manufacturing or France retail continues to be challenged. I'd say mixed throughout EMEA, but ultimately down in Q3. Asia Pacific, you called it out, strong growth in Asia Pacific. We talked about opportunities around the world and leveraging our go-to-market. And we talked about the investment in Japan. So Japan was a strength as we focused in that -- focused there, new applications in the postal service in Japan, where we won early device wins for postal carriers. Now we're deploying devices in post offices.

So again, speak to the strength of our go-to-market organization, shifting resources into places where we have lower market share and want to drive growth. So that's a good example in Asia. Another is India. So we continue to see growth in the India market as others have called out as well, I think around the globe stronger GDP in India Australia and New Zealand continues to be a strength in Asia. So we feel good there.

We don't talk a lot about it, but Latin America, record quarter in Latin America and broadband strength in the Latin America region. So we feel good about Latin America, even though we don't talk a lot about it typically. So that's kind of the spread and the difference across the different geographies.

That's helpful. Just as a follow-up, you -- obviously, you talked about taking your -- or committed to share repurchases over the next 12 months. You did -- you have seen the stock comp tick up. Nathan, I was just curious if you could kind of address that, how that will trend? Any thoughts into '26 and kind of what's driving the increase in the stock comp?

Yes. So I think 2 things. We talked earlier in the year was somewhat of just a change in the design of the plan that had us accelerate some of the expense within the P&L. So no change in the overall comp. But just from an accounting perspective, we had to accrue a bit more of it early in the year. So as you see that play out over the next couple of years, you'll see the offset. And then this quarter in particular was just a true-up with coming out of our strat plan, truing up the performance and some of the performance shares and doing kind of accumulative catch-up.

So I think this year -- this quarter was a bit of an anomaly in terms of the higher expense, and we expect that to normalize back out as we go into Q4 and then next year start to more normalize back to historical levels. Again, this year had some changes based on the accounting change as well as now just the true-up on the performance shares.

The next question comes from Guy Hardwick with Barclays.

A great job on the supply chain, navigating supply chain challenges. Once it stands out that you intend to take China to below 20% of U.S. imports. Where do you think that goes to long term? And what do you think the kind of the footprint of contract manufacturers will look like, say, a year from now?

Yes. I can take that. I think, look, as you mentioned, I think the team has done a phenomenal job over the last, really, you'd probably say 6 years driving that from -- as you talked about over 80% concentration for North America and China now down to 20% and below that as we go into next year. Look, I think there'll be a certain portion that will remain for -- it's hard to see an exit, just particularly around some of the components that are really there's only 1 source for those. And we still use those and need to import those for service or -- and those types of things.

So we're probably getting close into the teams where you start to get a outside of some major shifts in component manufacturing, you kind of hit a baseline there. So again, I think what we focused on is broader resilience, making sure we have multiple options, whether that's with our supply base with our contract manufacturers so that, again, whether it's tariffs or any other natural disaster what you might have as a resilient supply chain that we can mix and move production around the world to navigate those challenges because that's the 1 thing I think we've learned over the last 5 years is that there will be something, and we need to have a resilient supply chain to manage through those. And again, I think the team has done a great job of balancing resilience with cost to get us to the footprint we have today.

And just as a follow-up. I know, Bill, you answered a couple of questions on this, but what point does technological obsolescence on the installed base in EMC actually force customers to drive to upgrade if they really want to benefit from a genetic AI, whether it's your products or whether it's super products or other people's products?

Yes. I think that if you're -- again, it creates an opportunity -- AI creates an opportunity for technology-driven refresh on the mobile devices as you want to move to faster processing speeds and more memory if you want to run the models on the device, which we're seeing many of our customers want to do. We see a combination of leveraging AI on the device and leveraging AI in the cloud, just spending depending on the specific application. But in both cases, we think this leads in attributes to the refresh cycle upcoming.

The number of mobile devices continues to grow in the marketplace since pre-pandemic. And we see that our customers all upgrade on different refresh cycles and this will be another reason to go do that. Things like health of their device, longevity, how long it's been in the marketplace, devices just get broken, they get older and others. Technology moves on. Cybersecurity is another driver. But from a technology perspective, AI is going to be 1 of those.

I think we see the refresh cycle opportunity as being really multiyear and driven by driving sustainable growth for our growth profile as a company, and we don't see it the kind of pandemic-based compressed concentrated acceleration cycle, we see it more driving sustainable growth for us as a business, and there will be lots of factors into that and AI will be one of them.

The next question comes from Brad Hewitt with Wolfe Research.

So as it relates to the $500 million buyback do you expect to execute over the next 4 quarters, what dynamic is that number? Should we think of that as more of a minimum threshold and then how do you think about cadence of deployment and why not execute this as an ASR?

Yes. So again, right now, we're just committed to the $500 million, we'll see that. I think the best way to think about that is spread out over the next 4 quarters, and we'll be dynamic. Well, taking advantage of opportunities that we see in the volatility in the stock. But again, making sure we show more of that consistent return over the next several quarters and really wanted to commit to that, given we've been kind of silent on the commitment as we move into future periods. But we felt like it was the right time to make that commitment given the overall profile we have and our debt leverage ratio here as we exit the year.

And I think we just think that doing it through the open market right now provides more of a benefit, lets us more manage the return and the timing of that versus uploading upfronting through an ASR.

Okay. That's helpful. And then as we think about the Q4 outlook, it looks like the implied incremental margins are about 25%, both on a year-over-year basis and sequential basis. compared to typical 30% plus incrementals. So I guess curious, just is that margin outlook embedding a little bit of conservatism? Or is there anything that you would expect to limit the drop through in Q4?

No, I think the only thing typically, in Q4, we see a little bit higher mix of large deals. So you see a little bit of a mix dynamic as we go from Q3 to Q4. But nothing unusual, I'd say, from a timing or margin profile within either 1 of the quarters to call out.

The next question comes from Brian Drab with William Blair.

Can you talk a little bit more about the machine vision business? And I know you talked about softness in manufacturing. How has that business been doing? And then kind of the bigger picture is, are there any of these other like RFID and other growth engine type businesses that you'd call out that are in that double-digit growth range or high single-digit range that are being the growth drivers that we want them to be?

Yes, I would say that from a machine vision perspective, we saw growth in machine vision software as we've got leveraging our differentiation in our software across machine vision. I would say, overall, machine vision declined in the quarter for us, really pressured in the areas in which we compete. So we've seen now stabilization in kind of semiconductor manufacturing, where we're embedded in those solutions. So that's a positive news moving forward, but certainly negative in the quarter.

And then some new areas that we had -- the focus of the go-to-market team has been diversification away from semiconductor manufacturing into new markets. One of those markets was a lot of spend was happening in new builds of EV auto manufacturing, but that has now slowed. So another driver of the weak quarter. I would say that our focus is really on go-to-market initiatives to expand specific markets that are growing and leverage our advanced technology into use cases where we're leveraging this strength of our software portfolio, along with things like 3D vision to be able to win new opportunities and customers and to be able to then get a footprint in those customers and expand it from there. That's really the focus of our go-to-market teams.

We're excited about this market longer term, clearly doing more in manufacturing from our perspective is important to us, and we think that continues to be an opportunity for us. We talked about RFID already, RFID continues to be a strength for us across the vertical markets, I would say, inside other segments. I think the tablet opportunity within our mobile computing is another opportunity for us. I think the next generation of task management in software is an area we've been focused. So we're a leader in task management software. We see next-generation opportunities to that as we evolve task management into more communication collaboration with our customers to drive software growth over time, leverage with our mobile devices.

The last question comes from Katie Flesher with KeyBanc.

I just had 1 question just to kind of go back to the margins for 4Q. Is there anything that we should think about for the segments that's different from this quarter? Or is it fair to assume that those margins are pretty steady?

Yes, they're pretty steady between the segments between Q3 and Q4. So I wasn't really don't see any major changes around the gross margin profile between the segments quarter-to-quarter.

This concludes our question-and-answer session. I would like to turn the conference back over to Bill Burns for any closing remarks.

Yes, I'd like to thank our employees and our partners as they delivered a strong Q3 results. And ultimately, I would like to extend a warm welcome to the Elo team as we kick off our exciting journey together moving forward.

The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.

Good day, and welcome to the Zebra Second Quarter 2025 earnings conference call. [Operator Instructions]. Please note this event is being recorded. I would now like to turn the conference over to Mike Steele, Vice President, Investor Relations. Please go ahead.

Good morning, and welcome to Zebra's Second Quarter Earnings Conference Call. This presentation is being simulcast on our website at investors.zebra.com and will be archived there for at least 1 year.

Our forward-looking statements are based on current expectations and assumptions and are subject to risks and uncertainties. Actual results could differ materially, and we refer you to the factors discussed in our SEC filings.

During this call, we will reference non-GAAP financial measures as we describe our business performance. You can find reconciliations at the end of this slide presentation and in today's earnings press release. Throughout this presentation, as otherwise indicated, our references to sales performance are year-on-year on a constant currency basis and exclude results from recently acquired businesses for 12 months.

This presentation will include prepared remarks from Bill Burns, our Chief Executive Officer; and Nathan Winters, our Chief Financial Officer. Bill will begin with a discussion of our second quarter results. Nathan will then provide additional detail and discuss our revised outlook. Bill will continue with progress on advancing our strategic priorities, including the pending acquisition of Elo Touch Solution we announced this morning. Following the prepared remarks, Bill and Nathan will take your questions. Now let's turn to Slide 4, as I hand it over to Bill.

Thank you, Mike. Good morning, and thank you for joining us. In addition to our second quarter highlights and financial results, we will discuss this morning's announcement of the [indiscernible].

Before we get into the details of the quarter, let me spend a moment on the acquisition that drives profitable growth and elevates our market leadership. Elo Solutions engage consumers, enhance self-service and deliver automation across a wide range of end markets. This combination strengthens Zebra's portfolio of solutions, enables us to advance our strategic priorities.

Now turning to our Q2 results. Our team executed well in the second quarter, delivering results exceeding our outlook, with solid demand across the business and lower-than-expected U.S. import tariffs. For the quarter, we realized sales of $1.3 billion, a greater than 6% increase compared to the prior year, adjusted EBITDA margin of 20.6%, a 10 basis point improvement and non-GAAP diluted earnings per share to $3.61 [indiscernible] year.

We realized strong growth in our North America, Latin America and Asia Pacific regions and had relative outperformance in mobile computing and transportation logistics, along with retail and e-commerce were our highest growth vertical end markets, with health care cycling a strong compare and manufacturing continuing to lag.

As we enter the third quarter, and has been resilient. However, we remain cautious as our customers navigate through uncertain trade policy. Additionally, we expect the recently passed tax legislation to be constructive for some of our U.S. customers, although it is too early to assess the impact on demand. I will now turn the call over to Nathan to review our Q2 financial results, tariff considerations and outlook.

Thank you, Bill. Let's start with the P&L on Slide 6. In Q2, total company sales grew by more than 6%, reflecting recovery in demand across our major product categories. Our services and software recurring revenue business grew slightly in the quarter. We had similar growth rates in both of our financial segments. We realized strong sales growth across most of our regions.

In North America, sales grew 8% with double-digit growth in mobile computing and RFID. Asia Pacific sales increased 20%, led by Australia, New Zealand and India. Sales grew 11% in Latin America, with growth across the region. In EMEA, we cycled strong comparisons, particularly in mobile computing with a sales decline of 1%.

Adjusted gross margin declined 70 basis points to 47.9%, primarily due to higher U.S. import tariffs than last year. Adjusted operating expenses as a percent of sales improved by 80 basis points. This resulted in second quarter adjusted EBITDA margin of 20.6%, a 10 basis point increase versus the prior year. Non-GAAP diluted earnings per share were $3.61, a 14% year-over-year increase and above the high end of our outlook.

Turning now to the balance sheet and cash flow on Slide 7. Year-to-date, we generated $288 million of free cash flow. We have been deploying capital consistent with our allocation priorities. We repurchased $250 million of stock year-to-date, and our recent $62 million acquisition of Photoneo as well as this morning's acquisition announcement, support our continued efforts to scale in adjacent markets.

Our balance sheet is in excellent shape, with $872 million of cash at the end of Q2, a modest 1.2% net debt to adjusted EBITDA leverage ratio and $1.5 billion of credit capacity, providing ample flexibility to fund the $1.3 billion pending acquisition of Elo later this year.

Due to the global nature of our supply chain, like many other electronic manufacturing companies, we are subject to U.S. import tariffs. On Slide 8, we provide an update on the anticipated impact from tariffs on our products imported to the United States and our efforts to mitigate them.

For the full year 2025, we are now assuming approximately $30 million of gross profit impact after mitigation, with a $10 million net impact in the third quarter, following a $12 million impact in the first half of the year. Our forecast assumes the current effective rates remain in place, including the electronics and USMCA exemptions. This implies a $40 million annualized gross profit impact which is less than half of our previous expectation, primarily due to a lower rate on China imports.

Our mitigating actions to date have included shifting additional production out of China and approximately $40 million of annualized pricing adjustments. North America imports from China are now expected to represent 20% of the mix by year-end. We will continue to evaluate additional opportunities to mitigate U.S. import tariffs as we monitor global trade policy development. These potential actions include additional shifting of global production, product portfolio optimization and price adjustments.

Let's now turn to our outlook. We entered the third quarter with a backlog and pipeline to support our sales guide of between 2% and 6% growth, with a 30 basis point favorable impact from the acquisition of Photoneo and a neutral impact from FX.

Our third quarter adjusted EBITDA margin is expected to be approximately 21%, which assumes a $10 million net impact from U.S. import tariffs and non-GAAP diluted earnings per share is expected to be in the range of $3.60 to $3.80. We are raising our full year sales growth guidance range by a full point which is now expected to be between 5% and 7%, including approximately 50 basis points of combined favorability from FX and the Photoneo acquisition.

We are now expecting a $30 million gross profit impact from tariffs, net of mitigations for the full year, which is $40 million favorable to our prior guidance. We are also raising our full year adjusted EBITDA margin by a full point to 122% and increasing our non-GAAP diluted earnings per share to a range of $15.25 to $15.75.

Additionally, we are raising our free cash flow guide for the year to at least $800 million, which reflects the anticipated benefit of recently enacted U.S. tax legislation and implies free cash flow conversion of approximately 100%. We continue to work on further optimizing our working capital levels, balanced with our supply chain resiliency initiatives. Please reference additional modeling assumptions shown on Slide 9. With that, I will turn the call back to Bill.

Thank you, Nathan. [ He ] remains well positioned to benefit from secular trends to digitize and automate workflows with our portfolio of innovative solutions, including purpose-built hardware, software and services. Our solutions intelligently connect people, assets and data to help our customers make business critical, boost productivity and efficiency and optimize the front line, delivering improved service to their customers, shoppers and patients.

The challenges of an on-demand e-commerce growth, evolving regulations and labor constraints require increased adoption of automation. Here are some of the recent examples of customers transforming their workflows at various stages of their automation journey. An athletic retailer in the United Kingdom recently launched the initial phase of their RFID journey to improve inventory accuracy by equipping their store associates with Zebra mobile RFID solution. This strategic investment enables better supply chain visibility given that the majority of their vendors [ detag ] at the point of a [indiscernible]. We continue to see strong interest from customers in leveraging RFID across the supply chain.

A North American logistics company is focused on moving freight more effectively by equipping their drivers and [ crossed-out workers ] with Zebra mobile computing solutions to collaborate [ CMS ] across their operations. Additionally, a large North American food distributor recently began a technology upgrade of their Zebra mobile computers, tablets and mobile printers to improve the efficiency and productivity of their distribution centers.

Our market-leading portfolio solution enhances their receiving [indiscernible] and cold chain operation. These are a few of the many examples that demonstrate how customers rely on us to navigate their technology journey leveraging our commitment to innovation and workflow expertise.

Innovation remains central to our industry leadership, and we have consistently reinvested approximately 10% in the research and development to advance our portfolio of solutions. We augment our organic efforts with strategic acquisitions that advance our vision as evidenced by the recent acquisition of Photoneo, which expanded our 3D machine vision solution as well as the pending acquisition of Elo.

Turning to Slide 12. The acquisition of Elo will enable us to expand our portfolio of solutions to help customers transform their frontline operations by digitizing and automating workflows. Elo is a leading provider of point-of-sale solution, kiosks, interactive displays and touchscreen solutions with a 50-year track record of innovation in more than 400 patents operating in an $8 billion market.

The company generates approximately $400 million of annual revenues with a similar sales growth and EBITDA margin profile to Zebra. Elo also has a similar go-to-market approach to Zebra, offering a wide range of industry tailors that modernize point of sale, streamline self-service and payment experiences, automated kitchen industrial workflows and optimize production and process management.

Our leadership in hardware, software and services for the frontline worker will be augmented by Elo's consumer-facing offerings to deliver a unified connected frontline experience. Together, we will pursue attractive market and geographic expansion opportunities while delivering a comprehensive software differentiated portfolio that enables customers to better address emerging use cases.

The continued growth of retail media networks and the deployment of AI-based agents on the front line are examples of new opportunities that Zebra and Elo can pursue together. The Elo acquisition is expected to be immediately accretive to earnings once the transaction closes and we expect to generate an incremental $25 million of annual EBITDA synergies by year 3.

In closing, our confidence in sustainable long-term growth is underpinned by several key themes that drive demand for our solutions, including labor and resource constraints, track and trace requirements, increased consumer expectations, advancements in artificial intelligence and the need for real-time supply chain visibility. As we move forward, we remain focused on advancing our industry leadership where innovative solutions that digitize and automate our customers' workflows, serving our customers well and driving profitable growth. We are well positioned to expand our addressable market as we add complementary solutions to our portfolio that elevate our capabilities to serve our customers. I will now hand the call back to the [indiscernible].

Thanks, Bill. We'll now open the call to Q&A. [Operator Instructions].

[Operator Instructions] Our first question comes from Joe Giordano with TD Cowen.

Maybe I'll start on the acquisition. Can you kind of tell me how do these -- how does that technology kind of tie in with yours? Like where are they doing things that you couldn't do on your own? What's the customer overlap kind of look like in terms of leveraging that?

Yes, sure, Joe. I got it. I would say, overall, first of all, we're really excited about the acquisition. It really represents the next step and we see, as our journey to have a leading portfolio of solutions and automate the front line of business where we've been focused for certainly some time. And I think that what Elo brings us is a market-leading portfolio of self-service and customer-facing solutions that really expands our addressable market to $8 billion.

So think of more customer-facing use cases. Overall, their focus is that on areas like point-of-sale, self-serve kiosks, interactive touchscreen displays, automation in the industrial place. And I think overall, what we bring them is that we bring our complementary solutions to what they do in things like point-of-sale and others. Our global reach allows us to expand their offerings beyond their strength in North America and what they have in EMEA today and smaller in Asia Pacific, but really take them through a global scale and reach across our go-to-market.

And then overall, our extensive service capabilities -- our deep customer relationships, there are customer overlaps, especially in places like retail, but there's strengths that they have in things like quick-serve restaurants where we're not as strong, but are putting in emerging solutions like RFID and the quick serve today but it gives us more of an offering there. So quick serve restaurants is a good example.

We believe our strength in health care would help them. So there's vertical markets and geographical expansion that would bring to their portfolio overall that would allow them to expand. So think of it is more customer-facing, more self-service, more automation and more fixed than mobile, and that adds significantly to our broad-based portfolio today.

That's great. Maybe you guys have done a nice job of kind of withholding judgment on the second half in terms of volumes until you see what's going on with your typical seasonal flows, you don't want to commit to them until you have them in firm backlog. Now as we sit here in August, -- we see the guide. But how are you feeling about the ability of your customers to kind of release budgets and kind of move forward with things? Like what do you think is kind of inherent in your guide now in the second half?

Yes. Joe, I'd say that demand has remained resilient through the first half despite the uncertainty around global trade policy and that customers have generally maintained their capital spending levels and moved ahead with the projects that they had planned for the year. So we're seeing that, and we're happy with where things are out from a customer perspective.

Some have spread some of the spending out over multiple quarters, really a combination of managing their CapEx, but probably a bit of uncertainty as well. We've seen that from a increase -- we've increased our outlook for the full year really based on the strong second quarter results and then the backlog and pipeline that we see going into the second half that supports second half growth overall.

And I'd say that all that said, our customers still remain a bit cautious. There's still -- while there's been more clarity, they're still navigating the on [indiscernible] certain trade policies, but clarity has been certainly helping. And there's certainly some uncertainty around macro and geopolitical.

So I would say that overall, the -- there are some positives, too, things like the U.S. tax legislation could be a benefit to us, but it's too early to tell. So we think, overall, that our guide for the full year, while we're increasing it, makes a lot of sense, and it's pretty balanced to what we're seeing from a positive, certainly from customers continuing to move ahead, but also little a bit of uncertainty still out there overall. So we think our guide is pretty balanced for second half.

Our next question comes from Damian Karas with UBS.

One. Congrats on the deal.

Thanks, Damian. Appreciate it.

Just a follow-up question on Elo. Could you talk about how their business cyclicality has compared with Zebra historically? And I think you're moving into a little bit more of a competitive space compared to your core mobility solutions. So could you just maybe talk a little bit about Elo's market share and how that has progressed over time?

Yes. I'd say overall that the Elo portfolio would be a bit different in the demand cycle than us where we typically see a fair amount of year-end spending by our customers, they don't think quite that much. It's more balanced throughout the year. So I think that you'll see us that kind of spread some of our year out ultimately and not put as much in the fourth quarter from a cyclicality perspective, I think that's positive.

I would say, yes, there's different competitors in the space as they have a broad portfolio of solutions across point-of-sale and kiosks, interactive displays. There are different competitors than we face today in the market. It's a fairly fragmented market, and their strength is really strong in North America overall.

I would say is one of the market leaders, both in North America. EMEA and Pac, I would say that there's additional opportunities. So where they've got good share, we think ultimately, there's an opportunity to gain more share there. by leveraging Zebra's relationship and our global reach. As the size company they are, you ultimately make decisions on where you're going to go next geography-wise. And us having a presence around the world will help us expand their product lines around the world.

So different competitors, yes, some of the same channel partners. So some of the same distributors and value-added resellers that we leverage around the globe are the same. Some of the customers are the same, but many are different as well, and we're excited to enter markets as well that they've got strength and that we don't today. So we see revenue synergies as well as cost synergies as we talked about in the release, and we're excited about working together as they really give us more of a consumer-facing offering to add to our portfolio.

That's helpful. And Bill, I think you mentioned the one big beautiful bill legislation and that should have a positive impact on North America. Just curious, is that kind of Zebra's internal assessment? Or are you maybe hearing that in your dialogue with customers, they're becoming increasingly positive and maybe even you're seeing that reflected in your funnel activity in North America?

Damian, I can jump in and address that. I think we're not hearing it directly from our customers. I think like many, including ourselves, you're digesting it and understanding what is the impact from a cash perspective, particularly around the R&D deductibility in year 1 as well as the ability to deduct the first year or 100% of the capital expenditure in year 1.

So my guess is like us assessing what that means for your business and that ultimately then turns into how do you want to allocate that capital. That could lead to more capital purchases in the back half of the year, but we're not hearing it directly from customers, just more noting that, that is an opportunity as we go through the back half, but I think it's going to take some time for folks to understand it, make sure they then allocate where they want to put the capital, and I understand when you receive the cash back in terms of future payments here in the back half of the year or what it might mean even as you go into '26 in terms of capital that might be available to spend.

Our next question comes from Tommy Moll with Stephens.

Bill, I think I heard you use the term balanced for the approach to your second half outlook and I wanted to follow on that and ask what you're assuming on large deal conversion. Maybe just related to what you saw in the second quarter as well would be helpful.

Yes. I'd say that from a second half of year kind of fourth quarter perspective as it relates to kind of year-end spending, I would say that the year overall is playing out better than we expected and that we saw strong growth in the first half and strong results, as you saw in second quarter, which allows us to increase our outlook.

And we had easier comparisons in the first half, a bit tougher comparison in second half. So you're kind of playing out as we expected. I would say that as we look to fourth quarter that overall that we factored in some year-end spending about the same levels as we had last year because while we don't have visibility yet to it, it's too early for that.

We know there would be some as we just talked about, things like the U.S. legislation around the big beautiful bill could help with CapEx spending year-end. And certainly, as customers have remained cautious through the year, we could see additional year-end spending. But we factored some in, which is we don't even though we don't have quite the visibility today.

And that's why we're saying, you know, in our outlook, I would use the word balance, as you said, really with the opportunities we see a bit of uncertainty out there, but clarity coming through on tariffs. And then we haven't talked about it yet, but we're seeing some softness in Europe. Certainly, a mixed result across Europe, and I would say that's kind of weighing in as well.

So we're trying to find the right balance of second half and the guide for Q3, we feel good about and less certainly customers will spend some year-end money, if they're being conservative, maybe there's some upside to that. There are some things out there like the U.S. legislation. We see -- like to see Europe be a bit stronger as we're seeing softness there, but it's been a mixed across the region. That's why I used the word balance.

And then on Elo, you've mentioned a couple of times that there's a big market. You can go after now that's more consumer-facing. And I'm interested to get a little more of the strategy there.

It's -- I don't know if it's an entirely new direction for Zebra, but it's slightly different emphasis than what you've discussed historically. So are there some changing in that market that draw you to it? Or what's some of the thinking behind the scenes here?

Yes. So maybe the easiest example is we've talked about kind of the modern store from a Zebra perspective, really powered by AI and the idea that we think of engaged associates in a retail store, and then we think of inventory accuracy. And the last is kind of customer consumer facing for the retailer. This adds to that element of solutions.

And today, our mobile devices, for instance, are used for payment. Our mobile devices are used in Europe extensively. We're the market leader in things like self-scan, but ultimately, the buying experience also includes self-serve checkout, kiosks and quick-serve restaurants.

There's a move to serve customers not just through mobility tablets and mobile devices with payment on them, but also in fixed touchscreens and in payment and point of sale that includes in the Elo's case, things like compute and touchscreen displays and payment all driven or focused on customer and self-service. So there's also an element within the -- in retail, and I'll stick to retail for a minute, but it applies to multiple other verticals is this idea of media networks within the store.

So screens and touch screens and displays, ultimately that are driven by Android today as well. So both the combination of Windows and Android, but Android is becoming more prevalent to drive those technologies and the platform we used around mobile computing, customers have said to us we would like to see that same Android platform used across our fixed screen technology and touchscreens in the store that we use in your mobile devices. And they've actually represented some of this to us saying it'd be interesting if you could pull those 2 together.

So think of places where we work together would be point-of-sale. Their offerings would include self-service kiosks, which would marry with things like mobile device checkout or self-scanning and then we think of new areas. So as we go to at the show for health care [indiscernible] in health care, there clearly is an element around POS and self-serve within health care.

When we're talking about fixed [indiscernible] or restaurants, our relationships most recently have been advanced technologies around RFID and tracking food into quick-serve restaurants. They're controlling both the customer interface, but also the production of food and others inside the kitchen. So think of process management inside quick-serve restaurants.

So it's closely adjacent to what we do in manufacturing, we talk about tablets on the production floor, but there's also fixed screen elements to that and touch screens associated with the manufacturing process and process management, so automation. So we see it as another step to not only addressing the consumer but addressing automation in a different way beyond mobility and the 2 are coming together with operating systems such as Android. So that's why we see overlapping customers overlapping markets and places where we can take their solutions globally.

Our next question comes from Andrew Buscaglia with BNP Paribas.

I wanted to ask on just to gauge how you're viewing tariffs from here. Obviously, you saw some de-escalation intra-quarter in China. But there are still like -- there is still uncertainty with how this plays out. So I'm wondering, maybe number one, are you concerned or have you consulate -- what are you seeing in terms of the potential exemptions picking and/or going away -- any other, I don't know, further tariff escalation you're aware of that you're monitoring? And what can you do to offset those?

Yes, Andrew, I think -- and Bill mentioned this earlier, obviously, progress has been made since our last update. But as you noted, it remains a dynamic environment. And I think I think we're looking at it as it's probably going to remain a dynamic environment for the -- for a period of time.

So it's just one of those where we continuously work with our trade and industry partners to understand what they're hearing, what they're seeing, how are others [indiscernible] so that we can get as much intelligence as possible. And we have a dedicated team that wakes up every day, keeping a pulse on where things are at. And as news breaks, making sure we have a position to react, but also as we said, to some extent, we want to play our game in terms of continuing to have a diversified supply base that is both can react to tariffs but also just have broader sustainable supply chain, right, so that -- and resilient supply chain.

So we're managing -- we have a playbook that the team is executing to that has a bunch of different options available to us that we can execute here particularly as we get more clarity as we go through the balance of the year. So I'd say, as it relates to exemptions or other changes in rates, that you don't see in the news or that's not breaking. So we -- again, we're -- I think we look at that as what are the options available from pricing to other geographical moves, but ultimately making sure we have a resilient and sustainable supply chain for years to come, and that's where we stay focused.

Okay. Okay. Fair enough. And then I wanted to get your take on competition and your potential for market share gains. You're seeing one of your biggest competitor across many different business lines, somewhat get deemphasized by its current company. So I'm wondering, do you see a pathway for more share gains going forward? And what's your take on what's going on competitively?

Yes, I would say that not much different overall, quite honestly, except for the announcement that you mentioned with our competitor. I think that our strong customer relationships vertical market expertise we have, the breadth and depth of our portfolio, our commitment to our customers and continuing to invest in innovation along with them, expanding the portfolio.

I think from the acquisition perspective, clearly, it elevates our strategic position with our customer to be doing more business with them in areas that they're focused like self-serve and others. So we saw this with the Enterprise acquisition, the more business we do together, the more vision we paint with our customers about what the future of retail looks like, what the future of P&L looks like, what the future of manufacturing looks like and have a breadth and depth of a portfolio that expands our relationships, and that's one of the reasons we like this acquisition, allows us to continue to remain relevant, important and add to the future direction of our customers and a voice that ultimately they rely on as a trusted partner.

So we feel pretty good about where we're at competitively. The portfolio is as strong as it's ever been. We continue to add to the portfolio, new areas such as wearables, right? It will play a role not only today, but they'll play a role in AI in the future. If you look what's being set out there around what the future AI device looks like. It's likely a mobile device augmented with something that's wearable. So we've got new wearable offerings for both retail and health care.

We continue to expand the portfolio with next-generation devices across P&L as we see the refreshes coming up over the next couple of years. We're really focused on that. We recently won a postal opportunity, large [ postal ] opportunity in Australia, which again speaks to our strength in postal and having the right device in T&L as these refreshes come up. So we feel good competitively ultimately, and what happens, happens. So that's going to take some time to play out and play our game, and we feel good about where we're at.

Our next question comes from Jim Ricchiuti with Needham & Company.

You noted some softness in Europe. I'm wondering what changes have you seen in the various subsectors of the market more broadly, whether any changes in the overall retail, retail automation, e-commerce logistics areas versus, say, 3 months ago?

[ You can see ] that when we look at 2 certainly strong growth across North America, Asia Pac and Latin America. So geography-wise, strong growth with EMEA certainly being more challenged or softness. The strength globally, on a global basis, I would say, T&L and retail and e-commerce continue to be a strength for us. health care in North America cycling some strong comparison in mobile computing. And I would say, while growing mid-single digits, manufacturing is slower than the other and certainly transportation sits in retail.

When I look at the regions, I would say, as you asked specifically about EMEA, I would say that cycling strong prior year compares in mobile computing. So that's clearly a factor. But I think overall, we're seeing kind of mixed performance across EMEA. So strength in places like Northern Europe and particularly in -- particularly in P&L, but we're seeing softness in auto manufacturing some of the retail sectors in France is a good example where we're seeing a bit challenging. Some of the run rate, we think, really driven by some of the concerns around kind of geopolitical and tariff and others, so some run rate challenge in EMEA.

So overall, I would say we'd like to see EMEA the softness in EMEA kind of abate and get a bit stronger. That's happened throughout the year. So we started okay, but we've seen more of that kind of EMEA degrade through second quarter. North America, strong really around mobile computing, data capture RFID, so broad portfolio set. Asia Pacific strengthened. We talked about Australia and New Zealand, India, new applications around RFID in places like India around transportation, such as rail.

So we're excited about that as RFID continues to play an important role in the portfolio. So I'd say the one softness point is EMEA, and it's evolved probably in second quarter, we're starting to -- we began to see it. And we're paying close attention to it. We're a lot of -- seeing a lot of close to our customers and making sure that as they begin to spend, we're there with them.

Got it. Just congratulations, by the way, on the Elo announcement. Just curious, the way they go to market are stayed working with similar channel partners that you work with? Or is this a different versus some of your products?

Yes, very similar from a channel perspective and go-to-market, meaning that they work closely with the end customer as we do and then fulfill through value-added distributors in distribution -- future distribution in the marketplace that they ultimately serve. They sell direct as well. So really very much on top of what we do today. Their largest distributor in North America is our largest distributor in North America. So in that case, right on top of each other.

So I think that [indiscernible], so very similar go-to-market approaches that they have today. Now in places, they've got different relationships, meaning things like strength inputs or restaurants or different places with the fragmentation of health care, they may be in different customers than we are and have strong strength in those areas, but we're looking forward to leveraging the customer base on both sides.

next question comes from Brad Hewitt with Wolfe Research.