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Operator: Good day, and welcome to the First Quarter 2025 Zebra Technologies Earnings Conference Call. All participants will be in listen-only mode. Should you need assistance, please note this event is being recorded. I would now like to turn the conference over to Mike Steele, Vice President, Investor Relations.

Mike Steele: 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 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. You can find reconciliations at the end of this 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 twelve months.

This presentation will include prepared remarks from Bill Burns, our Chief Executive Officer, and Nathan Winters, our Chief Financial Officer. We will begin with a discussion of our first 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 four as I hand it over to Bill.

Bill Burns: Thank you, Mike. Good morning, and thank you for joining us. Our teams executed well in the first quarter, delivering results above our outlook. As we enter, customers navigate through an unpredictable environment. I want to begin by highlighting a few points before we cover our results in greater detail. We have made significant progress over the past eighteen months in returning to profitable growth, extending our market leadership, and advancing our portfolio of solutions. While there is macroeconomic uncertainty, our first quarter results were strong, and the demand environment has remained positive into the second quarter. We are well equipped to navigate the current landscape. Our solutions are critical in any economic environment, and we continue to expand our market reach and opportunity.

We have made substantial progress diversifying our supply chain beyond China over the past several years, and we have a capital-light business model which enables us to remain agile. We have a track record of preserving key investments in our business to accelerate long-term growth in challenging times while protecting profitability. And remain well-positioned to benefit from secular trends to digitize and automate workflows with our portfolio of innovative solutions. Now turning to Q1 results. As we discussed in our last earnings call, strong retail year-end project spending carried over into January. Demand in the quarter remained strong, driving sales growth above our guidance range. For the quarter, we realized sales exceeding $1.3 billion, a 12% increase compared to the prior year, and an adjusted EBITDA margin of 22.3%, a 240 basis point increase, and non-GAAP diluted earnings per share of $4.02, which was 42% higher than the prior year.

We realized strong broad-based growth across all major product categories and regions. We also saw double-digit growth across most of our vertical end markets, with high single-digit growth in manufacturing. From a profitability perspective, we achieved the highest quarterly gross margin in more than a decade and significant operating leverage resulting in strong improvement in profitability. As we enter the second quarter, we continue to see solid demand, and the businesses continue to perform well. However, we remain agile to changes in this dynamic environment and continue to take actions to mitigate tariffs. I will now turn the call over to Nathan to review our Q1 financial results, tariff considerations, and outlook.

Nathan Winters: Thank you, Bill. Let’s start with the P&L on Slide six. In Q1, total company sales increased approximately 12%, reflecting continued recovery in demand across our major product categories and unfavorable prior year comparisons, particularly for printing. In our services and software recurring revenue businesses, grew slightly in the quarter. Our asset intelligence and tracking segment sales increased 18%, and enterprise visibility and mobility segment sales grew 9%. We realized strong sales growth across our regions. In North America, sales grew 7% with growth in all product categories, in particular strength in data capture, print, and RFID. EMEA sales grew 18% with strength in Northern Europe. Asia Pacific sales increased 13%, led by Australia and New Zealand, and sales grew 18% in Latin America with particular strength in Mexico.

Adjusted gross margin increased 150 basis points to 49.6%, primarily due to favorable business mix and volume leverage. Adjusted operating expenses as a percent of sales improved by 100 basis points. This resulted in a first-quarter adjusted EBITDA margin of 22.3%, a 240 basis point increase versus the prior year. Non-GAAP diluted earnings per share were $4.02, a 42% year-over-year increase, and above the high end of our outlook. Turning now to the balance sheet and cash flow on slide seven. For the first quarter, we generated $158 million of free cash flow as we drove improvements in EBITDA, working capital, and inventory levels. We ended Q1 at a 1.2 net debt to adjusted EBITDA levered ratio. As our cash flow has recovered, net debt levels have moderated, and we have increased flexibility to deploy capital consistent with our allocation priorities.

We repurchased $125 million of stock in Q1 and another $75 million in April. And as a part of our continued efforts to scale our expansion in adjacent markets, on February 28, we acquired FotoNeuf, a leading 3D machine vision company based in Eastern Europe, for $62 million. This profitable business will contribute approximately 30 basis points to Zebra’s overall sales growth in 2025. Now turning to slide eight, as Bill outlined, we are well equipped to navigate the global environment. We deliver solutions that are critical to our customers in diverse end markets. Our capital-light business model has a flexible cost structure given that we outsource most manufacturing and the vast majority of our products are fulfilled through third-party distribution.

We have a strong free cash flow profile with more than $1 billion generated over the trailing four quarters. And as I just mentioned, our balance sheet is in excellent shape with nearly $900 million of cash, modest debt levels, and $1.5 billion credit capacity. We will continue to take appropriate actions to preserve profitability and prioritize business investments that improve our competitive position and create long-term value for shareholders. Due to the global nature of our supply chain, like many other electronic manufacturing companies, we are subject to recently enacted US import tariffs. On slide nine, we provide an update on the anticipated impacts from tariffs on our products imported to the United States and our efforts to mitigate them.

We are now assuming an $80 million to $90 million annualized gross profit impact after mitigating actions. This assumes the current effective rates, including the electronics and USMCA exemptions. Our mitigating actions have included shifting additional North America production out of China and approximately $80 million of recently announced annualized pricing adjustments. For the full year 2025, we are now assuming approximately $70 million gross profit impact after mitigation, with a $25 million to $30 million impact in the second quarter following the $3 million impact in Q1. We will continue to evaluate additional opportunities to mitigate US import tariffs as we monitor global trade policy. These potential actions will include additional shifting of global production, product portfolio optimization, and additional price adjustments.

Let’s now turn to our outlook. We entered the second quarter with a solid backlog and pipeline to support our sales guide and expect Q2 growth between 4% and 7%, with a net neutral impact from our most recent acquisition in FX. The weaker U.S. Dollar since our last earnings call. Our second quarter adjusted EBITDA margin is expected to be approximately 19%, which assumes impacts from US import tariffs exceeding 200 basis points, and non-GAAP diluted earnings per share expected to be in the range of $3.00 to $3.50. For the full year, we are leaving our guidance unchanged, with the exception of the direct cost of tariffs. Full-year sales guidance remains between 3% and 7% and assumes a net neutral impact from FX and recent acquisitions. Given our solid Q1 results and Q2 guidance, we would typically raise the outlook.

That said, while we have not seen any meaningful shift in customers’ purchasing behavior to date, the fluid global trade policies and related impacts on our customers remain on our radar. We are now modeling a $70 million gross profit impact from tariffs for the full year, which is $50 million higher than our prior guidance. Consequently, we are reducing our full-year adjusted EBITDA margin outlook by 100 basis points to between 20% and 21% to reflect the increased direct cost of tariffs, and non-GAAP diluted earnings per share to the range of $13.75 to $14.75. Free cash flow for the year is expected to be at least $700 million, which reflects the impact of tariffs, and applies free cash flow conversion in excess of 90%. As we continue to monitor and navigate the evolving landscape, we will remain agile and 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 ten. With that, I will turn the call back to Bill.

Bill Burns: Thank you, Nathan. Turning to Slide twelve. As we navigate the near-term uncertainty, Zebra remains well-positioned to benefit from secular trends to digitize and automate workflows with their portfolio of innovative solutions, including purpose-built hardware, software, and services. We optimize the frontline with solutions that intelligently connect people, assets, and data to help our customers make business-critical decisions. 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 our recent closing of FotoNeo, which will expand our 3D machine vision solution into manufacturing, logistics, and other key markets.

As you will see on Slide thirteen, Zebra’s solutions enable our customers across a broad range of end markets to drive revenue, boost productivity and efficiency, and optimize the frontline, delivering improved service to 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. A large transportation logistics provider increased throughput and real-time asset visibility for hands-free package handling by upgrading to our new compact all-in-one wearable mobile computing solution. A North American auto parts retailer is improving inventory accuracy through real-time cycle counts and increasing operational productivity as they deploy our new mobile computers to their store associates and drivers.

A large government agency is improving their supply chain efficiency by modernizing their warehouse and tracking of high-value cargo with Zebra’s fixed and mobile RFID solution. These projects demonstrate how customers rely on us to navigate their technology journey through our workflow expertise and commitment to innovation. At the ProMat manufacturing and supply chain change show in March, Zebra, along with our partners, showcased our expanding portfolio of solutions to enable customers to accelerate warehouse modernization with faster cycle times, improved quality, and increased visibility. We also launched the Aurora Velocity Scan tunnel, which integrates our machine vision smart cameras, RFID readers, and our Aurora software for vertical-specific use cases.

Slide fourteen highlights how Zebra addresses manufacturers’ biggest challenges. Operators are faced with increased demand for speed and accuracy while ensuring product quality. To address these challenges, decision-makers are investing in Zebra solutions to provide actionable visibility, optimize quality, and a technology-augmented workforce. Zebra is helping customers like Perris Wright, Kynae Robotics, and Bimbo Bakeries deploy and integrate our technology into their manufacturing environments, enabling work-in-progress tracking, communication and collaboration, quality control, and improved forecasting. Additionally, as manufacturing customers look to diversify their supply chains and make global production moves, Zebra can partner with them to equip their operations.

In closing, as we navigate through the near-term environment, our confidence in sustainable long-term growth is underpinned by several key themes, including labor and resource constraints, track and trace mandates, 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 our innovative solutions, serving our customers well, and driving profitable growth. I will now hand it back to Mike.

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

Operator: We will now begin the question and answer session. Our first question comes from Jamie Cook with Truist. Please go ahead.

Jamie Cook: Hi, 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. Can you just go into a little more detail about what actions you’re planning on taking? Thank you.

Bill Burns: 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.

Jamie Cook: Just one follow-up. Sorry.

Operator: Our next question comes from Piyush Avasthy with Citi. Please go ahead.

Piyush Avasthy: Good morning, guys. Thanks for taking my questions.

Bill Burns: Good morning.

Piyush Avasthy: 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?

Bill Burns: 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.

Piyush Avasthy: Got it. And I think following up on Jamie’s question, like, on your mitigation actions related to tariffs, like, you talked about shifting production from China to other global locations. Can you comment on the typical timeline and the cost that it would take to implement this? You modestly raised your CapEx expectation for this year, so maybe that explains some of it. But any additional color would be helpful.

Bill Burns: Yes. So if you look historically, just again depending on the location, it could take twelve to eighteen months depending on, you know, what location? Is there an existing location or is it a, you know, greenfield in terms of opportunity? So it depends on where the move is happening. We actually bear little of the capital expenditures. So, typically, it’s in some of the tooling costs. The large portion of that is with our manufacturing partners that we pay for over time in the bill of materials. So it’s not relatively high in terms of CapEx. I think right now, the weighing factor is we’ve had a series of actions ongoing as we entered the year. Those are all gonna be complete here, you know, within this quarter. So production moves are done and incorporated in the overall guide.

I think what we’re waiting for next is certainty around the overall policy so that we can make the best decision for the business in terms of where is, you know, the right place to move production for the long term. But we do need some clarity around, you know, where the policies land in terms of tariff impact so we can make the best decision.

Operator: Our next question comes from Brad Hewitt with Wolfe Research.

Brad Hewitt: It sounds like you guys are embedding a gross tariff headwind of about $150 million for the year before any mitigation actions. Is that correct? And then can you clarify the tariff rates you’re assuming for the various countries as well as the impact and duration of the exemptions on the mobile computers and scanners? And then also curious what you’re assuming in terms of potential factorial tariffs on electronics. Thank you.

Nathan Winters: Yes. If you look at our guide, it includes, say, you know, probably most of the boys say, what is effective as of today? It doesn’t assume any changes in the rates or exclusions to the balance of the year. So what that includes is the incremental 140% tariff on US imports from China, 10% from other Asian countries. But I think it’s important to note that most of our mobile computing portfolio includes about two-thirds of our China-sourced imports are currently exempt. With the electronics exemption from the reciprocal tariffs. But not the original 20% increase in China. And we also continue to receive USMCA free trade exemption out of our Mexico production. So it’s, you know, kinda depends on which of the portfolios in terms of where it’s produced, but that’s what’s incorporated into the guide.

So the incremental $70 million is again net of all the ongoing actions that we expect to be complete by the middle of the year as well as the increased pricing which is about $50 million in and overall, that’s $70 million to $50 million increase from our prior. So again, I think we’re, you know, that’s the best estimate we have of today, and we’ll adjust accordingly as the rates are finalized here over the coming months. But, again, it seems what’s effective today with no changes to the balance of the year?

Operator: Our next question comes from Andrew Buscaglia with BNP Paribas. Please go ahead.

Andrew Buscaglia: Morning. So for the guidance, the top line, you held that at up three to seven, but you now have changing presumably, pricing. Can you elaborate on the magnitude of the increases you expect to implement? And then any impact of volume you’re assuming for the year?

Nathan Winters: So, yeah, as you said, we’re leaving our full-year outlook unchanged with the exception of the direct cost of tariff. As Bill mentioned, the demand trends we’ve continued to be positive here into the second quarter. We haven’t seen a pullback on projects to date despite the tariff uncertainty. I think it’s also important to note we’re not assuming a material step down in demand due to any economic downturn here over the coming months. But I’d say overall, I think a cautious view of second-half sales growth given the environment and I think the other thing is, you know, the year is playing out to date as expected. We’ve had several new tailwinds but again, we just overall didn’t think it was appropriate to raise the full-year sales guide given the uncertainty.

So if you look at some of those tailwinds, I mean, obviously, the Q1 beat is a bit favorable. FX is about 100 basis points favorable from the prior guide. Pricing would have been an incremental 70, you know, 70 bps. So they all stack up. In terms of what would have been, let’s say, you know, upside to our original guidance. And effectively taken those to the bank and offset, you know, demand pressure or potential demand pressure in the second half. So you know, where our previous guide for the second half assumed mid-single-digit growth, that’s now down to low single-digit growth in the second half. Again, we just think that’s overall appropriate given the overall uncertainty in the environment.

Andrew Buscaglia: Okay. Okay. And then you commented on manufacturing. Can you comment on transportation and logistics? You’re saying you see strong growth there, although some of the headlines from the bigger transport names are pretty negative. Even UPS this morning, pulling their guidance. So yeah, can you talk a little bit more on seeing and why you’re not seeing what those headlines are implying?

Nathan Winters: Yeah. I would say that, you know, we saw double-digit growth in transportation logistics really in the first quarter. I think, you know, some of it’s explained by being a truly global business, right, inside transportation logistics. We also have postal and other carriers in there beyond just parcel delivery. I would say globally e-commerce demand continues to be positive and grow. I think there’s, you know, certain aspects of different business where there’s a shift of demand across different carriers and others and I think in your example there was clearly some business that they decided not to move forward with which is impacting their demand for parcel delivery, but then that, you know, shifts to other carriers or to, you know, e-commerce providers themselves, so then we benefit, you know, somewhere else.

So I’d say, you know, we’re seeing, you know, up double digits. Certainly, depending on what happens with the broader trade environment could impact transportation logistics moving forward. But to date, we haven’t seen, you know, any change. There’s an opportunity there as well with RFID. So beyond our core products, RFID deployments continue to grow within transportation logistics to create, you know, more efficiencies within their business and across the supply chain. So that remains another opportunity for us. So I’d say overall globally we’ve seen transportation logistics grow at double digits in the first quarter and continue to be strong as we enter the second quarter.

Operator: Our next question comes from Damian Karas with UBS. Please go ahead.

Damian Karas: Hey, good morning, everyone.

Bill Burns: Good morning, Damian.

Damian Karas: Just a follow-up question on the demand strength that you’re seeing. Just curious if you think that any of that might be related to, you know, some pull forward of demand, you know, maybe customers trying to tie up some loose ends and just get some work done before cost inflation starts ramping or, you know, your distributor partners stocking up on inventory. Maybe you can just kinda talk to that and give us a sense for, you know, where you think channel inventories are at the moment.

Bill Burns: Yeah. Maybe I’ll start and then Nate can jump in. I would say that we have not seen pull-forward behavior by our customers. Our price increases go in effect at the end of April here. Overall and we haven’t seen any change in behavior of end customers or our partners or distributors due to tariffs. I think ultimately it’s certainly weighing on sentiment and is in, you know, a lot of conversations we’re having with them or all conversations but they really haven’t changed their behavior. And I would say, inventory levels around the world that we’ve been working closely with our distributors to make sure they’ve got the right level of inventory overall as we’ve seen market recovery and we feel good about inventory levels to date.

Nathan Winters: I think Damian, the other thing that’s important to note with our distributors when the price effect goes into place, we also adjust anything they’re holding in inventory. So there’s no advantage to a distributor, you know, stocking ahead of the price increase. It’s really, you know, the market price to the end user. So, again, there’s no risk of, you know, distributors stocking up ahead of the pricing phase. It’s and again, as Bill mentioned, I think the Q1 as well as Q2 is, you know, playing out as, you know, can be expected. The beginning of the year, which again just doesn’t lead us to see any material movements in full ends.

Operator: Our next question comes from Tommy Moll with Stephens.

Tommy Moll: Good morning and thanks for taking my questions.

Bill Burns: Good morning, Tommy.

Tommy Moll: Follow-up question on the price increase. They’re effective end of April. Can you quantify or give us any detail in any other detail on conviction level and being able to stick the full amount of the increase, does it feel like as a market leader in many cases, you’re on the more aggressive side and pushing price here, or do you feel like what you’ve outlined is pretty consistent with others? Thanks.

Bill Burns: I think that we feel good about the price increases and the analytics we do around our pricing in the markets. It’s important that we have competitive pricing in the US market specifically and we’ve done a lot of work and a lot of thought around price increases and we obviously prefer not to increase price, but in this case, we have no choice. I believe it’s consistent with what our competitors are doing and what we’re seeing from them in the marketplace. Overall and I think we continue to monitor and we’ll continue to monitor where we stand from a competitive pricing perspective moving forward. They have no reason to believe they won’t stick. Certainly, our largest customers get the best pricing right in the high volumes than others and I think that we’ll continue to work with them and then be agile when it comes to pricing as we need to continue to sell value and make sure that we’re winning the opportunities out there.

But I think we feel okay about the price increases, we’d rather not have increased price. We just don’t have a choice. In this case to offset the tariffs, but we’ve been very thoughtful about it. We feel good about where we’re at. The reason we picked the end of April was to give this some time to play out and, you know, there’s been significant changes along the way is the unpredictable nature of this. So we think we’ve made the right decision. And we’ll see hopefully, quite honestly get better and in that case, we’d pull back some of the price increases if we can. Ultimately from an end market perspective that will be the right thing to go do.

Tommy Moll: Thanks, Bill. And as a follow-up, I wanted to talk about your visibility in terms of demand. Going back to last quarter, if I recall correctly, the visibility into this year was less than typical and there was some commentary you offered just around customers delaying, finalized budget decisions, etcetera. Today, has that visibility improved at all or would you characterize it in a similar fashion? Thanks.

Bill Burns: Yes. I would say it’s not as much about visibility that, you know, visibility actually has gotten better, it’s really about uncertainty at this point. So I would say that, you know, when I’m having conversations with, you know, our executives, our customers, CIOs, and others, it’s, you know, the beginning of the conversation is really around, you know, from fifteen minutes or so on just tariffs, impacts on their business, our business, the impacts on a global economy generically. And then, you know, ultimately it moves on to, you know, the projects that we’re working together on but no mention of pass cuts or pulling back. It’s really about hey, we’ve got these projects going, how are they progressing and the appreciation of them as a customer and us as a partner delivering for them.

And then ultimately, you know, the conversation switches to the future. How do we continue to talk about future technology deployments? And move ahead with them? So visibility actually had gotten better and what’s ramped up is really uncertainty from a global perspective around tariffs more than anything else and the conversations are clearly dominated by tariff, but really it’s not about pulling back or changing behavior. It’s more about just the concern and the uncertainty that’s out there today and it’s weighing on certainly their sentiment.

Operator: Our next question comes from Guy Hardwick with Freedom Capital Markets. Please go ahead.

Guy Hardwick: Hi. Good morning. Congratulations on excellent results.

Bill Burns: Thanks, Guy. Appreciate that.

Guy Hardwick: Zebra delivered double-digit organic growth. But it looks like seasonality Q1 was better than normal seasonality. Like, on a sequential basis. Perhaps you could maybe expand a little bit on which end markets or businesses did better than perhaps you would expect it given seasonality?

Bill Burns: Yeah. I’d say that, you know, we saw broad-based recovery really in Q1 overall and we delivered certainly as you said high end of our outlook. And I think we saw it when I say broad-based growth, it really was across all product categories, across all of our regions, and across all of our verticals. I would say that retail and e-commerce continued to outperform in the quarter and continues to do that through April as we continue to see strong demand. E-commerce and omnichannel continue to drive the need for inventory visibility. Enhanced productivity within retail stores and things like communication collaboration, you know, driving our mobile computing, and then ultimately, you know, us continue to win in that environment with the breadth and depth of our portfolio and our expertise in customer relationships.

I’d say transportation logistics, you know, we talked a little bit about we saw growth year on year. Manufacturing, we’ve talked a bit about already creates an opportunity. For Zebra. So we had high single digits in manufacturing, some challenging areas still within manufacturing, but represents a longer-term certainly opportunity for Zebra as we’re less penetrated inside core manufacturing in areas like machine vision and others create an opportunity for us. And then let’s say healthcare up double-digit continues to be a strength vertical market for us. Clinical mobility really driving that market, you know, improve patient safety, staff communication, collaboration, efficiency, across healthcare freight is an opportunity for us. So I would say, you know, all the verticals strong double-digit growth across each high single digits in manufacturing.

The growth was pretty broad-based so far this year and again I think is what is weighing on our customers today is all around really tariffs. I think that otherwise the business is going really, really well but we know that ultimately as this plays out in the unpredictability, you know, we’ll see what happens, but it is certainly weighing on our customer sentiment.

Guy Hardwick: Thank you.

Operator: Our next question comes from Meta Marshall with Morgan Stanley. Please go ahead.

Karanjit Vakar: Thanks for the question. This is Karanjit Vakar on for Meta. Congrats on the quarter. Just a quick question. I know there’s a lot of uncertainties and a lot of changing scenarios in terms of tariffs and macro. So just wondering how you guys are thinking about being maybe a little bit more opportunistic around gaining share? How are you thinking about potential share gains given the uncertainties?

Bill Burns: I think we continue to work closely with our customers across each of our vertical markets. As I said, we saw broad-based growth across all regions, across all products, and across all vertical markets in Q1 and through April which we feel good about. I’d say the competitive landscape hasn’t really changed and that our strength of ultimately our customer relationships, the deep vertical market expertise we have across the verticals we serve, the breadth and depth of our portfolio overall differentiates us from the competition and gives us a competitive advantage. So we believe that ultimately, you know, we’re taking share, you know, in the marketplace. Technologies such as AI create a longer-term opportunity for us competitively.

So, you know, at NRF in the first quarter, National Retail, show we launched our AI suite for mobile computing allowing our partners and development partners to and Zebra itself to build AI solutions on top of our mobile computing platforms. We announced the Zebra companion the Gen AI assistant for our mobile devices. So we’re excited about the near term where we’re winning and our competitive advantage we have there. But also in the longer term, you know, the idea of embracing as the market leader new technologies such as AI and leveraging those on our devices gives us a competitive differentiation in the market and allows us to continue to take share as we’ve been doing. So we feel good about the breadth and depth of the portfolio and current state as well as future investments we’re making in areas like AI.

Karanjit Vakar: Appreciate that. And then just a quick follow-up. I know you’ve mentioned seeing some manufacturing recovery. Just more specifically on the machine vision business, generally how does that track? How are the diversification efforts tracking? And is that being benefited at all by the manufacturing recovery that you’re seeing?

Bill Burns: Yeah. And so we say we’re, you know, excited about the FotoNeo acquisition, which was focused on 3D vision capabilities that we closed in the first quarter. They’re really a leading developer and manufacturer in 3D vision systems. They were an OEM partner of ours prior, and we’re excited about that acquisition and entering, you know, that space. I’d say, you know, machine vision declined in the quarter. That’s the one area of weakness I would say we saw, you know, driven by manufacturing. Again, manufacturing up high single digits versus double digits across the other areas. I would say that their diversification efforts continue to progress. We’ve seen, you know, better traction within North America. We’ve seen growth in our pipeline and active proof of concepts across multiple verticals, so manufacturing, retail, transportation, logistics.

So some of the other vertical markets in areas like scan tunnel, which we released a new version of it at ProMat, trade show just over the last month or so. Creates an opportunity for us beyond manufacturing as manufacturers have been lagging a bit. But I think we remain excited about the long-term opportunities. I think it’s a challenging market at the moment. So you marry, you know, less strength in manufacturing, but also just a machine vision market overall. But I think as the end market recovers, and we expand our market presence and our focus, as you said, on diversification of it, we feel good about this market medium and long term for us.

Operator: Our next question comes from Keith Housum with Northcoast Research. Please go ahead.

Keith Housum: Good morning, guys. Two questions for you. I guess, Nathan, first off with the price increases, obviously, what passing through here effective April 28th, you know, is pretty significant, especially in the mobile computing space. Compared to historical times, do you expect your ability to realize those pricing increases is better than it has been in the past? And then is there a potential, I guess, tailwind for you here and, you know, next year in 2026 assuming the price changes, you know, are staying in effect and no sooner than the changes needed after that. And then second, from a geographical basis, you know, it is surprisingly North America was actually your worst performer at 7% growth. Perhaps can you talk a little bit about how’s your strength especially in EMEA? I mean, 18% growth is pretty impressive, you know, in the current environment. Thanks.

Nathan Winters: Hey, Keith. On the first one from a price realization, you know, as Bill mentioned earlier, there’s a lot of factors that go into play, including the competitive consideration, the cost tariffs, etcetera. I think we never assume a hundred percent realization due to existing contracts, projects, or just competitive positioning. So think, you know, we’ve seen historically whether that goes back to, you know, the price increasing we did, you know, in 19 with the original tariffs or what we did during the supply chain. You know, I think we’ve been pretty consistent in terms of being able to get, you know, good realization across our run rate business. I mean, selectively, positioning it with some of our larger customers.

So I think we’ve taken that all into account in the assumption. And if we can do better and get a little bit better realization, that’s a good upside to what we embedded in the guidance and then the full-year annualized impact. And I think that the tailwind for next year quite frankly will play out as Bill mentioned, you know, depending on what changes or where the tariff landscape finally lands, we’ll adjust the pricing accordingly. So I’d say if you know, it may roll some of that back or it may have to increase just depending on where it goes. So I think it’s tough to say it’d be a tailwind. As much as we’ll continue to do what we need to offset as much of the mitigate tariff impact as possible. Whether that’s through pricing or some of the other operational actions.

Bill Burns: Maybe I’ll jump in on the markets. I would say EMEA, you know, still have to be a little careful of the percentages favorable prior year compare certainly in EMEA drove some of that growth. So I think that while all vertical, oh, sorry, all regions had strong growth in the quarter, it was oversized in EMEA really because of prior year compare. I would say, you know, growth there, the highest growth in EMEA was really Northern Europe, but, you know, large projects continue, especially in retail there. And we saw double-digit growth across, you know, most of the end markets again, manufacturing high single digits, same thing we saw globally. North America I think we felt good about North America. Strong retail deal activity, you know, strength a year ago.

So I think that, you know, year-on-year compare not as easy there. Double-digit growth across all end markets, again, except for manufacturing. I think we feel good about scanning and printing and RFID had a strong quarter in North America. So think we feel good about the growth across all regions and the percentage difference in EMEA being strong really was about prior year compare.

Operator: Our next question comes from Ken Newman with KeyBanc Capital Markets. Please go ahead.

Ken Newman: Hey, good morning guys. Thanks for squeezing me in.

Bill Burns: Good morning.

Ken Newman: So I did want to ask about the net impact impacts on tariffs this quarter. It looks like it did come in a little bit lower than you were expecting if I remember correctly. I think you were looking for a $7 million headwind, and it came in around $3 million. Can you start a little bit about the moving pieces of what drove that better performance? Was that just better price realization in the quarter? Was it some timing of action? And then just how to think about, you know, the conservatism maybe baked into the guide relative to that $25, $30 million you expect in Q2?

Nathan Winters: Again, I think it’s a couple of things at play. You know, one was, you know, the team did a phenomenal job of buying as much product as possible before the effective dates, you know, so really trying to front-end load our demands to get product in. So that definitely played a part. In terms of the actions the team has taken to front-load purchasing ahead of the increase. I think that played a portion of it. As well as just what we ultimately capitalized a bit of that on our balance sheet just from a, you know, just from a timing and inventory valuation perspective. So like, I’d say I wouldn’t call it any conservatism or intentional conservatism built into what we’ve had for Q2. Or the full year. There’s just a it’s pretty complex in terms of you look at the timing of shipments, the timing of the effective dates, and when things land on port that creates the variability.

So I think it’s our best estimate based on all those specs. What the team’s trying to do every day is mitigate as much as possible with the operational actions we have at our disposal. Very little price impact Q1. I mean, negligible in Q1 and we’ll have a little bit in Q2, but really ramp up into Q3. So really the variability in Q2 is again, just what can we realize with pulling in inventory early adjusting some of those shipment schedules to mitigate as much as possible here in the short term.

Ken Newman: That’s helpful, Nathan. And then just for my follow-up, maybe just the quick modeling question. There a way to think about how to quantify that $70 million full-year impact between the two segments? I’m guessing one segment might be a little bit heavier than the others in terms of the margin impact.

Nathan Winters: Yeah. It’s a, you know, I think from a modeling assumption here out of the gate, it’s pretty balanced. Maybe a little bit heavier weighted towards AI. The tariff rates are fully in effect for print. Where mobile computing has some of the exemptions. So a little bit more weighted towards AIT here for the year.

Operator: Our next question comes from Joe Giordano with TD Cohen. Please go ahead.

Joe Giordano: So first question just on the semiconductor and electronics exclusions. I guess it’s all fluid for sure. But at least the administration frame this as a temporary exclusion as they figure out, like, specific tariffs on that. So, like, it seems like that’s a number that at least given current commentary goes up, at some point in the future. So, like, what are you kinda teeing up to offset that if that’s the outcome?

Nathan Winters: Yeah. You’re absolutely right. So we, you know, the scope of the semiconductor tariff and I would say that, first, it’s pretty unclear of how that will be administered, you know, how that will, you know, play out from the administration. So really tough to model what the potential impact would be. But we do have semiconductor content. No different, you know, from, you know, all the other electronic companies. So there is a potential exposure. But we work with the largest semiconductor companies in the world and continue to assess their country of origin options across their supply chain to see where we have options to mitigate how we quantify, make sure we can quantify the content within our products making it under content.

So that whenever ruling is applied, we can react as quickly as possible, not only on mitigating the impact out of the gate, but also then what options do we have to mitigate over time based on those rulings. So again, yeah, it’s absolutely one that’s out there, but, you know, the team’s all over it in terms of planning as best we can. And executing whatever we can ahead of any final decision.

Joe Giordano: And then just a follow-up on the kinda like the pre-buy stuff. And we’re getting this commentary from a lot of companies, and I’m not sure how to think about it because a lot of companies we go on their earnings calls, they say that they’re buying inventory of their own stuff ahead of tariffs. But that none of their customers are doing that. Now, like, I and the behavior hasn’t changed. So, like, it just doesn’t make a ton of sense to me that all the companies are buying their own stuff to have an inventory, but none of the customers are doing the same behavior. Is there a risk that just, you know, what we think is a lack of a behavior change is just, like, weaker than expected demand is being, like, off is being, like, replenished by some pre-buy, but it doesn’t really look like pre-buy. I’m struggling with this dynamic across multiple companies right now.

Bill Burns: Yeah, Joe. I would say that, you know, you’re talking about very short amounts of time. Right? The, you know, in the past when tariffs are implemented, you had ninety or a hundred and twenty days to change inventory in the places that, you know, if you took actions, you had to get stuff, you know, on ocean very quickly. So the tariffs have been inflated very quickly. So despite us, you know, doing that, it’s minimal overall in the scheme of things. So I think you’re reading more into it just because the timing has been such that, you know, ultimately, there hasn’t been time to truly react. Things that were on the ocean already, ultimately are being exempt, but that’s, you know, very little bit. You know, you heard, you know, other companies fly, you know, Jetson and others from, you know, into the country with shipments of devices and others. But it’s ultimately minimum.

Nathan Winters: And the other one we look at is the underlying demand we’ve seen is pretty much in line, obviously, with what we expected. We know we knew our Q1 guide was a bit cautious given the uncertainty, but the quarter kinda played out where we didn’t see the surge of demand that was, you know, unexpected or out of the blue or orders, you know, large orders coming in. So, you know, could there be some of that in the run rate? But again, the year is playing out year to date kind of as we had planned, which again just supports that we’re not seeing some volatile shift in demand here just to get ahead of the tariff rates.

Operator: Our next question comes from Rob Mason with Baird. Please go ahead.

Rob Mason: Yes, good morning. Jacqueline, several calls, so I may have missed you addressing this, but when you quantify the $80 million to $90 million residual impact after your pricing actions, just assuming, you know, final decision around tariffs is the current status quo. What levers, you know, do you have to pull, would you plan to pull, to address that? Does that, you know, would you take incremental pricing or just, you know, speak to that residual amount if that’s maybe what the go-forward looks like?

Nathan Winters: Yeah. I think, Rob, I think that’s kind of we put that number out just so we can have a baseline of what the, I guess, you know, the run rate would be again, under the current tariffs scenario. But ultimately, our objective is to mitigate. Right? So I wouldn’t say that’s the perpetual number or the we don’t have other options to mitigate. It’s really waiting for policy certainty so we know which actions are the best actions to execute. So that’s, you know, again, we have a plethora of options with our manufacturing partners, around, you know, where they have capabilities around the world, to ship production and the teams are working those. We’ll obviously look at additional pricing as well as the other cost levers we have across the portfolio to fully mitigate.

So I think, again, once we have that certainty around where the rates shake out, then we can start to execute those plans and see what the timing is in terms of fully mitigating the exposure. So think that timing of when and how it plays out is the uncertainty. That annualized number we provide, which I think just to give context for what kind of run rate would be, but knowing that the ultimate goal is to fully mitigate but we just wanna make sure we make the right decisions and have clarity around that before pulling the trigger.

Rob Mason: Makes sense. Just as a quick follow-up. You know, you talked about good demand in the quarter. But your service and software revenue was kinda flattish. Is that was that anything going on there? Whether that’s a comp issue or how that compared versus your product, tangible products?

Nathan Winters: Yeah. So your our service and software has had slight organic growth. Really some part, you know, impacted by the lower mobile computing volume in 23s. We’re starting to see that play out in our service business as you would expect. But the other thing in the quarter there was just a lower number of days versus prior year, so it’s more of an order on, you know, year-on-year dynamic. So we’d expect that, you know, the growth rate to improve as we get into Q2 and the balance of the year. So some of it just, I think, timing and the nuance of the quarter, but I think a bit lower than what we’ve seen in the last couple of years is just you see now the overall install base, you know, the impact on the install base from the sales decline back in 23 mobile.

Operator: Our next question comes from James Ricchiuti with Needham and Co. Please go ahead.

Chris Grenga: Hi, good morning. This is Chris Grenga on for Jim. The deployment of Zebra companion with AI features at the anchor customer that showcased the NRF progressing in line with your expectations. And are you seeing traction with additional retailers for this offering?

Bill Burns: Yeah. I mean, I would say that, you know, we closely with announced it in our app and showed demos of it. We’re continuing to work our lighthouse customers to, you know, deploy along with them in early proof of concepts and the development continues to be on track. What we have released is our Gen AI digital assistant from the I or sorry, from that perspective was more a launch and then our proof of concepts. The AI suite for mobile computing, we did launch and is available to, you know, our own software developers and that of our partners. So that allows, you know, AI applications to be built on top of the device in the device software to be able to manage on the device. So that is released. And then, again, the companion with the assistant is in proof of concepts now working with, you know, customers to get to full deployment. So on track.

Chris Grenga: Great. And in your view, are the shifts that are impacting your customers’ global production footprint and the disruption that’s being caused by the near-term uncertainty, could those translate into tailwinds for Zebra as customers adopt more of Zebra’s technologies to enhance their tariff compliance, reduce friction, certify country of origin, things of that nature?

Bill Burns: Yes. So the production moves by our customers create so certainly an opportunity for us. We’ve seen this in Southeast Asia through the China tariffs were first implemented a number of years ago and the benefit it I do see that again, this idea of visibility throughout the supply chain and digitizing and automating the supply chain overall creates an opportunity for us in as you said track and trace and other mandates around that. So yes, it’s an opportunity when production moves take place, no matter where they are in the world, we benefit and then ultimately the long-term trend of digitizing and automating environment, supply chain visibility, across those environments. And that also plays into AI, the idea that ultimately what we fundamentally do is give assets and inventory a digital voice and circling back to your first question you know collecting ultimately real-time data that feeds AI models and then ultimately allows you to kinda sense, analyze, and then take action within your environment.

So collecting data that feeds AI models that ultimately drives action, which then would take place with things like mobile devices, you know, driving task management with employees and frontline workers, creates an opportunity for us.

Operator: The last question comes from Brad Hewitt with Wolfe Research. Please go ahead.

Brad Hewitt: Hey, thanks for fitting me back in.

Nathan Winters: No problem.

Brad Hewitt: Just in terms of capital allocation, so you stepped up the buyback in Q1. One hundred and twenty-five million. You mentioned another seventy-five million in April. Should we expect that you may look to maintain or maybe even accelerate the pace of buybacks throughout the rest of the year if the valuation remains where it is today?

Nathan Winters: Yes. As you know, we’ve been tracking, you know, higher than normal year to date at the two hundred million to take advantage of the volatility. I’d say right now, we expect we definitely expect to remain active with some level of activity for the remainder of the year, and we’ll see how to your point, the market plays out here over the next couple of months to say whether we adjust the rate of return, but we wanted to, again, take advantage of the volatility here early in the year. And as we said, wanted to commit to some level of buyback this and so we’re, you know, on pace to that. But I think a little bit higher than we would expect out of the gate with the volatile some to continue to remain active in the market for the balance of the year.

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

Bill Burns: I’d like to thank our employees and partners as they work to solve our customers’ biggest challenges. You know, we have strong conviction in the opportunities ahead for our business. Thank you, and have a great day, everyone.

Operator: Goodbye. This is now concluded. Thank you for attending today’s presentation. You may now disconnect.