Release Date: July 30, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- Zebra Technologies Corp (ZBRA, Financial) delivered sales and earnings results above the high end of their outlook for Q2 2024.
- The company saw double-digit growth in the healthcare sector, driven by mobile computing.
- Sequential improvement in profitability was achieved due to improved gross margin and benefits from restructuring actions.
- Zebra Technologies Corp (ZBRA) raised their full-year outlook for sales and profitability based on Q2 performance and early signs of demand momentum.
- The company generated $389 million of free cash flow in the first half of 2024, improving working capital and maintaining a strong balance sheet.
Negative Points
- Total company sales were approximately flat year-over-year, reflecting only early signs of demand momentum.
- The asset intelligence & tracking segment declined by 14.4%, primarily driven by printing and RFID on challenging prior year comparisons.
- North America sales decreased by 7% due to fewer large orders in retail and transportation and logistics.
- Adjusted EBITDA margin decreased by 70 basis points year-over-year to 20.5%.
- Customers continue to exhibit cautious spending behavior on large deployments, which have not yet returned to historical levels.
Q & A Highlights
Q&A Highlights from Zebra Technologies Corp (ZBRA) Q2 2024 Earnings Call:
Q: What will it take to bring larger project activity back, and how much upside to your guidance could there be if this happens sooner?
A: (William Burns, CEO) We saw early signs of recovery in retail and e-commerce in Q1 and better-than-expected sales in Q2. However, large deal activity remains below historic levels. Customers are cautious due to market uncertainties, spreading large deployments into smaller deals over longer periods. We need more momentum in large orders to call a broader recovery.
Q: Have you experienced cost inflation in shipping rates, and how is this reflected in your guidance?
A: (Nathan Winters, CFO) We have seen a modest increase in shipping rates, particularly ocean rates, which we have included in our full-year guidance. The team is working on various actions to mitigate these costs.
Q: Can you explain the better-than-expected EVM margins this quarter?
A: (Nathan Winters, CFO) Our gross margins were the highest in three years, driven by strength in run rate and mid-tier deals, improved service and software margins, and cycling premium supply chain costs from the prior year.
Q: How are customer budgets for large deals shaping up for the rest of the year and into 2025?
A: (William Burns, CEO) Customers continue to scrutinize their budgets due to economic uncertainties. While we have a strong pipeline, the conversion rates remain lower than historical levels. We expect more clarity on year-end spending as the year progresses.
Q: Are you seeing any changes in the competitive landscape, particularly in large deals?
A: (William Burns, CEO) The competitive environment hasn't changed significantly. We continue to maintain market share and feel good about our differentiation and market position.
Q: Have you started to give distributors more products as requested, and what's the update on channel inventory?
A: (Nathan Winters, CFO) Global channel inventory remains at normalized levels. We continue to work closely with partners to ensure appropriate inventory levels based on demand.
Q: Can you provide an update on trends within RFID, Matrox, and Fetch?
A: (William Burns, CEO) RFID faced challenging comparisons but is expected to return to growth in the second half. Machine vision, particularly Matrox, is diversifying beyond semiconductor manufacturing. Fetch and other software assets are seeing early wins and are positioned for future growth.
Q: What are your thoughts on potential upgrades of devices in 2025, given the age of the installed base?
A: (William Burns, CEO) Customers are absorbing capacity built during the pandemic. We see a solid pipeline for mobile computing upgrades and new use cases, with some customers extending support agreements.
Q: How are you thinking about capital allocation given the raised free cash flow expectations?
A: (Nathan Winters, CFO) Priorities remain organic growth, M&A, and share repurchases. We have increased flexibility for share repurchases and continue to look for synergistic M&A opportunities.
Q: Can you elaborate on the strength in healthcare and EMEA regions?
A: (William Burns, CEO) Healthcare growth was driven by clinical mobility and total cost of ownership benefits. EMEA saw strength due to easier comparisons and large project wins outside of retail, despite challenges in manufacturing.
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
