$ZBRA Zebra Technologies Q2 2025 Earnings Conference Call

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 exciting milestone in our journey to enhance the connected frontline experience through our acquisition of Elo. We'll also review our increased full-year outlook. 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 and 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 US import tariffs. For the quarter, we realized sales of $1.3 billion, a greater than 6% increase compared to the prior year, an adjusted EBITDA margin of 20.6%, a 10 basis point improvement, and non-GAAP diluted earnings per share of $3.61, which was 14% higher than the prior year. We realized strong growth in our North America, Latin America, and Asia-Pacific regions and had relative outperformance in mobile computing, scanning, and RFID. Transportation and logistics along with retail and e-commerce were our highest growth vertical end markets, with healthcare cycling a strong compare and manufacturing continuing to lag. As we enter the third quarter, demand 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 US 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, Nathan. Zebra 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 decisions. As you will see on slide 11, Zebra solutions enable our customers across a broad range of end markets to drive revenue, boost productivity and efficiency, and optimize the front line, delivering improved service to their customers, shoppers, and patients. The challenges of an on-demand economy, e-commerce growth, evolving regulations, and labor constraints require increased adoption of automation. Here are some 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 solutions. This strategic investment enables better supply chain visibility given that the majority of their vendors now RFID tag at the point of manufacture. 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 cross-dock workers with Zebra mobile computing solutions to collaborate seamlessly 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 of solutions enhances their receiving, restocking, and cold chain operations. 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% of our sales in 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 solutions, 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 that help customers transform their frontline operations by digitizing and automating workflows. Elo is a leading provider of point-of-sale solutions, kiosk, interactive displays, and touchscreen solutions. With a 50-year track record of innovation and 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 margin profile to Zebra. Elo also has a similar go-to-market approach to Zebra, offering a wide range of industry-tailored solutions that modernize point of sale, streamline self-service and payment experiences, automate kitchen and 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 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 three. 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 with 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 Mike.

Morning, Joe.

Yeah, 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 in our journey to have a leading portfolio of solutions that digitize and automate the front line of business, where we've been focused for some time. 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 by about $8 billion. So think of more customer-facing use cases. Their focus is on areas like point of sale, self-service kiosk, interactive touchscreen displays, and automation in the industrial space. I think overall, what we bring them is 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 to a global scale and reach across our go-to-market. Then, our extensive service capabilities and deep customer relationships. There are customer overlaps, especially in places like retail, but there are strengths that they have in things like quick-service restaurants where we're not as strong, but we are putting in emerging solutions like RFID into quick-service today. It gives us more of an offering there, so quick-service restaurants is a good example. We believe our strength in healthcare would help them. So there are vertical markets and geographical expansion that would bring to their portfolio overall that would allow them to expand. So think of it as more customer-facing, more self-service, more automation, and more fixed than mobile, and that adds significantly to our broad-based portfolio today.

Yeah, Joe, I'd say that demand has remained resilient through the first half despite the uncertainty around global trade policy, and 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 at from a customer perspective. Some have spread the spending out over multiple quarters, really a combination of managing their capex but probably a bit of uncertainty as well. 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. That said, our customers still remain a bit cautious. There's still, while there's been more clarity, there's still navigating the uncertain trade policies, but clarity has been certainly helping. There's also some uncertainty around macro and geopolitical. So I would say that overall, there are some positives too, things like the US 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 from customers continuing to move ahead, but also a little bit of uncertainty still out there overall. So we think our guide is pretty balanced for the second half.

Thanks, Damian. Appreciate it.

Yeah, I'd say overall that the Elo portfolio would be a bit different in the demand cycle than us. We typically see a fair amount of year-end spending by our customers. They don't see quite that much. It's more balanced throughout the year. So I think that you'll see us 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 are different competitors in the space. As they have a broad portfolio of solutions across point of sale, kiosk, and interactive displays, they face different competitors than we do today in the market. It's a fairly fragmented market, and their strength is really strong in North America overall. I would say they are one of the market leaders both in North America, EMEA, and Asia Pacific. I would say that there are additional opportunities. So while they've got good share, we think ultimately there's an opportunity to gain more share there by leveraging Zebra's relationships and our global reach. As the size company they are, you ultimately make decisions on where you're going to go next geographically. And us having a presence around the world will help us expand their product lines around the world. So differing 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 in 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.

Morning, Tommy.

Yeah, I'd say that from a second half of year, fourth quarter perspective as it relates to year-end spending, I would say that the year overall is playing out better than we expected. We saw strong growth in the first half and strong results as you saw in the second quarter, which allows us to increase our outlook. We had easier comparisons in the first half, a bit tougher comparisons in the second half, so it's kind of playing out as we expected. I would say that as we looked at the fourth quarter, 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 will be some, as we just talked about, things like the US 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 we think is prudent even though we don't have quite the visibility today, and that's why we're saying our outlook I would use the word balanced 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. The guide for Q3 we feel good about, and less certainty around Q4, but we feel good that 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 US legislation. We'd like to see Europe be a bit stronger as we're seeing softness there, but it's been mixed across the region. That's why I use the word balanced.

Yeah, so maybe the easiest example is when we've talked about 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 customer or consumer-facing for the retailer. This adds to that element of solutions. 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-service checkout, kiosk, and quick-service 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 Elo's case things like compute, touchscreen displays, and payment, all driven or focused on customer and self-service. There's also an element within retail, and I'll stick with retail for a minute, but it applies to multiple other verticals, is this idea of media networks within the store. So screens and touchscreens 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've used around mobile computing. Customers have said to us, we'd really 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 two together. So think of places where we work together would be point of sale. Their offerings would include self-service kiosk, which would marry with things like mobile device checkout or self-scanning. And then we think of new areas. So as we go to the HIMSS show for healthcare, while we're talking about mobility in healthcare, there clearly is an element around kiosk and self-service within healthcare. When we're talking about quick-service restaurants, our relationships most recently have been advanced technologies around RFID and tracking food into quick-service 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-service restaurants. 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 touchscreens associated with the manufacturing process and process management. So automation, we see it as another step to not only addressing the consumer but addressing automation in a different way beyond mobility, and the two 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.

Morning, Andrew.

Yeah, 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, the 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. 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-service and others. So we saw this with the enterprise acquisition that the more business we do together and the more vision we paint with our customers about what the future of retail looks like, what the future of T&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. It 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 will play a role not only today, but they'll play a role in AI in the future. If you look at what's being said 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 healthcare. We continue to expand the portfolio with next-generation devices across T&L as we see the refreshes coming up over the next couple of years. We're really focused on that. We've recently won a postal opportunity, a 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 with our competitor happens. That's going to take some time to play out, and we'll continue to play our game and we feel good about where we're at.

Yeah, I would say that when we looked, we see strong growth across North America, Asia, and Latin America. So geographically, strong growth with EMEA certainly being more challenged or soft. The strength globally on a global basis, I would say T&L and retail and e-commerce continue to be strengths for us. Healthcare in North America cycling some strong comparisons in mobile computing. And I would say while growing mid-single digits, manufacturing is slower than the other verticals, and certainly transportation logistics and 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 is 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 T&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 is really driven by some of the concerns around geopolitical and others. So some run rate challenge in EMEA. So overall, I would say we'd like to see the softness in EMEA abate and get a bit stronger. That's happened throughout the year. So they started okay, but we've seen more of that kind of EMEA degrade through the second quarter. North America strong really around mobile computing, data capture, RFID, so broad portfolio set. Asia-Pacific strengthened, we talked about Australia, New Zealand, India, some 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 say the one softness point is EMEA, and it's evolved probably in the second quarter. We started to see it, and we're paying close attention to it. We're staying a lot closer to our customers and making sure that as they begin to spend, we're there with them.

Yeah, 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 and in distribution, future tier distribution in the marketplaces 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 very similar go-to-market approaches that they have today. Now in places, they've got different relationships, meaning things like strength in quick-service restaurants or different places with the fragmentation of healthcare, they may be in different customers than we are and have strengths in those areas. But we're looking forward to leveraging the customer base on both sides.

Morning, Brad.

Yeah, I'd say that our capital allocation in general hasn't changed in the idea that we focus first on organic growth and the areas in which we invest in our portfolio, and we believe there are continued opportunities across the portfolio. M&A we view as strategic adjacencies to what we do, and we continue to be very selective in those assets. Something smaller in Photoneo we closed, and now something a bit larger certainly in Elo. We're excited about both, much differing sizes, but both in areas in which we see a strategic and closely adjacent to what we do. We'll continue to be inquisitive out there and continue to look for strategic M&A, but we want to get through this one first and get it integrated and brought into Zebra, and that's our near-term focus. As you've seen, we've returned $250 million in capital to shareholders as well. So I think we're trying to find the right balance between M&A, the things that are strategic for us, what's available in the market, how do we add to things like machine vision, and also in this case what we see as an important extension of what we do today on the front line of business with Elo. We'll continue to look out there, but I think that the focus in the short term is going to be really integrating the Elo team.

Good morning.

I would say that from a vertical perspective, across the different vertical markets overall, retail and e-commerce clearly a strength as I mentioned earlier, with continued strong demand both in mobility, so mobile devices, and RFID technology inside retail. I would say that T&L recovery certainly is overall kind of more normalized business across T&L. I mentioned the postal win earlier that really fits into transportation logistics for us, and some new opportunities in things like railway. Manufacturing, I would say some new areas in adjacencies that we're focused on, things like machine vision inside manufacturing with the idea of inspection. And the other area machine vision would fall back to T&L. So we're seeing a continued focus from our team. While we're seeing still challenges in manufacturing and things like EV and others, I would say that machine vision plays an important role there. So strength across the core portfolio in the areas in which we do business today, and then RFID, machine vision, and others opportunities across the different vertical markets.

Yeah, I think everybody's on a different journey of a refresh cycle within their environment. We've seen the postal win as an example of a refresh of that postal carrier in Australia, which again speaks to the fact that we continue to win in the marketplace. Over time, there'll be additional refreshes. Everybody's on a different schedule, both retail, T&L, and others. Over the next several years, we clearly have seen through COVID and today the number of mobile devices in the marketplace has increased, and that eventually will continue to be upgraded and increased along with this concept of device for all, right? Putting more devices in the hands of more associates inside the frontline workers, whatever that is T&L or manufacturing or retail or healthcare. We're seeing that move. So even the refreshes include even more devices over time. We're not guiding 2026 at the moment, but over the next several years, we see that there'll be an accelerated refresh cycle. Whether that begins in 2026 and moves into 2027, 2028, we just don't know yet. But we are tracking with our customers and making sure that we're staying close to them so that when they are ready, as in this postal example, that we're there for them.

Yeah, I mean I would say that their strength in the software certainly around the OS and what they're doing in two areas. One would be the move as I said before to Android that ties into touchscreens and displays and others for control and being able to use the Android OS. So there's hardware and software associated with their control of those devices. Point of sale, they also have the compute associated with point of sale. So the point of sale terminals are also a combination of hardware and OS and software associated with that. So like Zebra, the predominant sales mechanism is through hardware, but tremendous value in the software side of what they do today within their environment.

Yeah, I would say the breadth and depth of their portfolio, like us, the relationships they have with their customers to really understand the places in which they serve their customers today. I think that is probably one of the biggest strengths, the technology as well. So they clearly are the leader in touchscreen displays and others. They have been doing this for about 50 years, significant patent protection around it, and that's a strength they have as well. So customers clearly recognize them as one of the leaders within this market, and they remain focused on it while others are moving away from this market. They remain focused, and I think that that matters. We talked about what's happening on our competitor on the mobile device side. I think we've seen others kind of exit this market, and it creates an opportunity for them and now us.

Yeah, I would say that the overlap is relatively small. As you said, we've recently announced the kiosk. We've been happy with the success in the market, but it's a whole lot different to have a single kiosk offering and have a portfolio as we know, right? And it's the same on their side. Their mobile device has been focused more on payment, which by the way is one of their strengths that we expect to continue to leverage on the mobile device side of things. So their mobile device has been used more in the payment applications, and again small levels of revenue compared to the portfolio that we have. So the overlap is very minimal overall, and we see that being kind of a strength of the acquisition. The fact that little overlap ultimately strengthens customers, go-to-market, and others is what we saw with the enterprise acquisition, and the idea that we believe we can accelerate in the market from a revenue perspective by not having a lot of debate about which product or which area to go focus on or overlapping products or different go-to-market motions. All that helps you be successful from an acquisition perspective. We've also worked with them for some time. So they've been an OEM customer of ours. We know the team there well for many years. We have liked cultures, product portfolios that ultimately are high quality, respected in the market as being high quality hardware and software. I think that helps as well, certainly with us having conviction and certainly when customers are saying to us, 'Hey, it'd be great the two of you could get together.' That also helps.

I think from an Elo perspective, diverse customer base. So I think that similar to Zebra overall, their largest customer would be distribution right as you see with us, but from an end customer perspective, certainly larger customers that you expect in retail and quick-service and others are larger customers for them, but no 10% concentration. Overall, pretty diverse customer mix across retail, quick-service restaurants, hospitality, healthcare, industrial applications of the markets they serve overall. But some higher concentrated customers just as we see with Zebra, larger customers buy more from us.

Yeah, thanks, Brian. I think we feel good about healthcare overall. I think the cycling of the comparison in mobile computing still clearly an opportunity for us. I mean, some would say that the barcode literally is the unsung hero that makes healthcare work, right? Think of all the track and trace, the idea of identifying patients, specimens, the information input into electronic medical records that we take for granted here in the US, but it still has extensive growth around the world. Not many countries around the world have quite the extensive use of electronic medical records that we have in the US. I think things like clinical mobility playing a role. The Elo acquisition plays a role in self-service in healthcare. So we feel good about the healthcare market. We have some new devices out, a wearable device for healthcare that we're excited about that were released at the HIMSS show earlier this year. Government continues to be a focus for us around things like inventory. A large RFID win earlier this year around tracking inventory within government opportunities around inventory tracking. So we feel good about that. Public safety in Europe we see as an opportunity. We have some new devices we're releasing as public safety is moving in Europe to more 5G type networks, moving off of specialized networks to more 5G type networks, and we've got some new devices to meet the needs of European customers inside public safety. So government is the smallest vertical overall, but an opportunity for us especially as public safety evolves in Europe and as inventory becomes more important. Healthcare has been our fastest growing vertical. It just so happens tough compares, but we feel good about that market.

I'd like to thank our employees and partners for their support as we delivered strong Q2 results. Certainly look forward to welcoming the Elo team as the acquisition closes. Have a great day everyone.