ZEBRA TECHNOLOGIES CORP Q1 FY2025 earnings call

Key Points

• Teams executed well in Q1, delivering results above outlook. Sales exceeded $1.3 billion, a 12% y-o-y increase. Adjusted EBITDA margin was 22.3%, and non-GAAP diluted EPS was $4.02, 42% higher y-o-y.
• Made progress in returning to profitable growth, diversifying supply chain, and has a capital-light business model. Acquired FotoNeuf in Q1 to expand 3D machine vision solutions.
• Solutions help customers digitize and automate workflows across verticals like retail, transportation logistics, manufacturing, and healthcare. Examples include a large transportation logistics provider upgrading to wearable mobile computing and a North American auto parts retailer using mobile computers for inventory accuracy.

In the first quarter, Zebra Technologies saw total company sales increase approximately 12%. The asset intelligence and tracking segment sales increased 18%, while the enterprise visibility and mobility segment sales grew 9%. Regionally, North America sales grew 7%, EMEA sales grew 18%, Asia Pacific sales increased 13%, and Latin America sales grew 18%. Adjusted gross margin increased 150 basis points to 49.6%, and adjusted EBITDA margin was 22.3%, a 240 basis point increase. Non-GAAP diluted earnings per share were $4.02, 42% higher than the prior year.

Q2 Guidance

• Expect Q2 sales growth between 4% and 7%, adjusted EBITDA margin of approximately 19%, and non-GAAP diluted EPS in the range of $3.00 to $3.50.

Full-Year Guidance

• Full-year sales guidance remains between 3% and 7%. Adjusted EBITDA margin outlook is reduced to 20% to 21% due to increased tariff impact. Non-GAAP diluted EPS is in the range of $13.75 to $14.75. Free cash flow for the year is expected to be at least $700 million. Tariff impact led to a $70 million gross profit impact for the full year, $50 million higher than prior guidance.

Risks

• Exposed to US import tariffs, with an anticipated annualized gross profit impact of $80 million to $90 million after mitigation. Ongoing uncertainty in global trade policies affecting customers and supply chain operations. Need to continue monitoring and taking actions to mitigate tariffs, including shifting production and pricing adjustments.

Q: Good morning. I guess my first question just is on the demand picture. It doesn't sound like it, but did you see a change in demand throughout the quarter or going into April? And what are your clients sort of saying customers are saying about demand trends? And then I guess my second question is just around tariffs. It does sound like you're contemplating, you know, making changes to new manufacturing footprints and how to mitigate the risk of tariffs?

A: Sure, Jamie. This is Bill. We entered 2025 supported really by strong retail year-end spending, you know, in the fourth quarter that really carried into the first quarter. And that demand has remained strong through April. So we've seen, despite the global trade, you know, uncertainty overall, customers have remained positive, capital budgets remained intact, and projects continue to move forward. And, you know, but at the same time, our customers are navigating what the global trade environment really means to their businesses. But, you know, so far, to date, we haven't seen any real change in behavior by our customers. You know, overall, many of our customers, I would say, overall, are still digesting what this really means. And I think, for us, that's the reason why we decided that holding our sales outlook for the full year was the best decision, you know, for us. I'd say from a tariff perspective and global supply chains move, certainly it's a dynamic environment. You know, we've engaged, you know, certainly our network of resources, industry experts, what's happening across government affairs, and to really understand trade policy and all the uncertainty around that. We've got a dedicated team established that, you know, my the potential impact and then ultimately designs mitigation strategies. I'd say we continually assess our manufacturing footprint and have done that over the last several years to consider factors such as geopolitical stability, operational capabilities, cost overall. And we've made, you know, significant changes to diversify our supply chain over the last several years to make sure that ultimately we can serve our customers with the highest quality and lowest cost we can. So we continue to monitor the situation and make changes as necessary.

Q: Good morning, guys. Thanks for taking my questions. I think you guys highlighted strong broad-based growth across your verticals. Can you elaborate on your manufacturing market? That vertical has lagged versus other verticals. So as we think of 2025 guidance based on your conversations with your customers, do you have good visibility to signal a more sustained improvement in the underlying demand across this vertical?

A: Yeah. I'd say that, you know, if we look at the first quarter overall and year to date, you know, through April, we saw broad-based recovery continue across most of our vertical markets. You know, manufacturing is still somewhat lagging, but still up, you know, high single digits. And I would say continued, you know, improving sales trends, but, you know, of course, the global trade environment is weighing on manufacturing. But we continue to see year-on-year growth. You know, as I set up high single digits in the first quarter. But overall lagging the other sectors. You know, from a manufacturing perspective. I'd say, you know, if you look at the other verticals, retail and e-commerce were up double digits. Transportation logistics saw strong growth. You know, healthcare continues to be a strength for us. But, you know, manufacturing grew just not as fast as the other verticals.