Zebra Technologies CorporationZBRANASDAQ
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Operator: Good day, and welcome to the Fourth Quarter and Full Year 2025 Zebra Technologies Corporation Earnings Conference Call. All participants will be in listen-only mode. After today's presentation, there will be an opportunity to ask questions. Please note, this event is being recorded. I would now like to turn the conference over to Michael Steele, Vice President of Investor Relations. Please go ahead. Good morning, and welcome to Zebra Technologies Corporation’s fourth quarter earnings conference call.
Michael Steele: This presentation is being simulcast on our website at investors.zebra.com and will be archived there for at least one year. Our forward-looking statements are based on current expectations and assumptions, and are subject to risks and uncertainties. Actual results could differ materially and we refer you to the factors discussed in our SEC filings. During this call, we will reference non-GAAP financial measures as we describe our business performance, with reconciliations shown at the end of this slide presentation and in our earnings press release. Throughout this presentation, unless otherwise indicated, our references to sales performance are year-on-year at constant currency and exclude results from recently acquired businesses for twelve months. This presentation will include prepared remarks from William J. Burns, our Chief Executive Officer, and Nathan Andrew Winters, our Chief Financial Officer. Bill will begin with a discussion of our fourth quarter and full year results. Nathan will then provide additional detail and discuss our outlook. Bill will conclude with progress on advancing our strategic priorities. Bill and Nathan will take your questions following the prepared remarks. Now let's turn to slide four as I hand it over to Bill. Thank you, Mike.
William J. Burns: Good morning, and thank you for joining us. We delivered fourth quarter results above our outlook driven by our team's strong execution and positive demand trends. Before discussing the quarter, I would like to briefly reflect on the progress we have made over the past year on our vision to advance intelligent operations. In 2025, we expanded our connected frontline portfolio and customer base through the Elo Touch acquisition and expanded our 3D machine vision capabilities with the Fotoneo acquisition. We advanced our market leadership with the introduction of our AI solutions for the frontline and sharpened our focus on automation by exiting our robotics business to prioritize areas where we see better growth opportunities including RFID, machine vision, and AI-powered solutions. Operationally, we delivered solid growth, generating strong free cash flow, and deepened customer and partner relationships. For the fourth quarter, we realized sales of nearly $1,500,000,000, a 10.6% increase, or 2.5% on an organic basis, from the prior year, an adjusted EBITDA margin of 22.1%, and non-GAAP diluted earnings per share of $4.33, which was 8% higher than the prior year. We drove strong results in our Asia Pacific and Latin America regions with EMEA returning to growth. Our healthcare, manufacturing, and retail and e-commerce end markets grew while transportation and logistics cycled strong compares in North America. Elo performed well in the quarter and we are pleased with the early progress on driving synergies. We realized solid earnings growth by fully mitigating existing tariffs and driving operating expense leverage through productivity initiatives while continuing to invest in our market leading solutions portfolio. For the full year, we achieved greater than 6% sales growth in line with our long-term expectations and 17% non-GAAP diluted earnings per share growth. We also generated more than $800,000,000 of free cash flow and closed on accretive acquisitions. Overall, our team executed well while navigating an uncertain environment. Our strong financial position enabled us to return significant value to shareholders with more than $300,000,000 of repurchases in Q4 and nearly $600,000,000 for the full year. Given our progress, our Board of Directors has expanded our authorization by $1,000,000,000. We will continue to execute on our disciplined and balanced capital allocation strategy prioritizing investments in our business that elevate our portfolio of solutions, while consistently returning capital to our shareholders. We are well positioned as we enter 2026 and excited about the opportunities ahead. I will now turn the call over to Nathan to review our Q4 financial results and 2026 outlook.
Nathan Andrew Winters: Thank you, Bill. Let's start with the P&L on slide six. In Q4, total company sales increased 10.6% or 2.5% on an organic basis with growth across most categories. Our Connected Frontline segment grew 3.6% led by mobile computing, and our Asset Visibility and Automation segment grew 1.3% led by printing and supplies. We realized solid performance across our regions.
William J. Burns: Asia Pacific sales increased 13% led by Japan and India,
Nathan Andrew Winters: sales increased 8% in Latin America with double-digit growth in Mexico,
William J. Burns: in EMEA, sales increased 4% with solid growth in Northern Europe and Germany. And in North America, sales declined 1%, as we cycled large order activity in the prior year partly offset by solid run-rate demand. Adjusted gross margin declined 50 basis points to 48.2% primarily due to lower services and software margins.
Nathan Andrew Winters: We fully mitigated current tariffs earlier than expected thanks to our team's successful efforts including supply chain moves, product portfolio rationalization, and price execution.
William J. Burns: Adjusted operating expense leverage improved by 60 basis points.
Nathan Andrew Winters: This resulted in fourth quarter adjusted EBITDA margin of 22.1%,
William J. Burns: non-GAAP diluted earnings per share were $4.33, an 8% year-over-year increase,
Nathan Andrew Winters: and above the high end of our outlook.
William J. Burns: In Q4, we recognized $76,000,000 of restructuring charges relating to the exit of our robotics business and productivity initiatives. Turning now to the balance sheet and cash flow on slide seven. For the full year, we generated free cash flow of $831,000,000, or a conversion rate of 102%. At year-end, we held $125,000,000 of cash with a modest debt leverage ratio of 2 and $1,200,000,000 of credit capacity.
Nathan Andrew Winters: We have been deploying capital consistent with our allocation priorities. For the full year, we repurchased $587,000,000 of stock
William J. Burns: and acquired Elo,
Nathan Andrew Winters: and Fotoneo with cash on hand and our existing credit facility.
William J. Burns: We continue to maintain excellent financial flexibility
Nathan Andrew Winters: for investment in the business and return of capital to shareholders. As Bill noted, our Board authorized an additional $1,000,000,000 of share repurchase providing a total of $1,100,000,000 after the $100,000,000 repurchase through early February.
William J. Burns: This action underscores the confidence in Zebra Technologies Corporation’s prospects for continued growth and value creation. Let's now turn to our outlook.
Nathan Andrew Winters: We entered 2026 with a solid backlog and pipeline that supports our first quarter sales growth guidance range
William J. Burns: of 11% to 15%,
Nathan Andrew Winters: including approximately 10 points of contribution from business acquisitions and favorable FX. Our first quarter adjusted EBITDA margin
William J. Burns: is expected to be between 21%–22%, and non-GAAP diluted earnings per share
Nathan Andrew Winters: are expected to be in the range of $4.05 and $4.35. For the full year,
William J. Burns: we expect sales growth to be 9%–13%,
Nathan Andrew Winters: which reflects a strong pipeline of opportunities,
William J. Burns: machine vision returning to growth, continued momentum in RFID, along with manufacturing, and a seven-point favorable
Nathan Andrew Winters: impact from acquisitions and FX.
William J. Burns: Our full year adjusted EBITDA margin is expected to be approximately 22% and non-GAAP diluted earnings per share are expected to be between $17.70 and $18.30. We are currently facing industry-wide price increases for memory components beginning in Q2. Our full year guide reflects us fully mitigating this approximately two-point headwind and driving profitable growth in 2026 through multiple initiatives, including collaborating closely with our vendors to manage supply, targeted price increases, net savings from the robotics business exit,
Nathan Andrew Winters: targeted actions to drive productivity, as well as FX favorability.
William J. Burns: Free cash flow for the year is expected to be at least $900,000,000 which reflects free cash flow conversion of approximately 100%. We are continuing to optimize our working capital levels balanced with our supply chain resilience objectives.
Nathan Andrew Winters: Please reference additional modeling assumptions on slide eight. With that, I will turn the call back to Bill. Thank you, Nathan. As we turn to slide 10,
William J. Burns: Zebra Technologies Corporation remains well positioned to benefit from secular trends to digitize and automate workflows with our innovative portfolio of solutions including purpose-built hardware, software, and services. We deliver intelligent operations by digitally connecting people, assets, and data to assist our customers
Nathan Andrew Winters: with business-critical decisions
William J. Burns: that drive meaningful outcomes. A $35,000,000,000 served market represents a significant growth opportunity. Zebra Technologies Corporation’s complementary and synergistic segments position us well to capitalize on this opportunity. The Connected Frontline provides the digital touch points necessary to improve efficiency, collaboration, and the customer experience. Our solutions include enterprise mobile computing,
Nathan Andrew Winters: interactive displays,
William J. Burns: frontline software, and AI agents. Asset Visibility and Automation gives assets a digital voice to automate environments with technology that scales through printing solutions, advanced data capture, RFID, and machine vision. Turning to slide 11. Zebra Technologies Corporation solutions enable our customers across a broad range of end markets to drive productivity and efficiency and improve the experience of their customers, shoppers, and patients. We are accelerating our investments in RFID, machine vision, and AI, further sharpening our strategic focus. Zebra Technologies Corporation is investing in RFID solutions that advance our leadership and support emerging use cases. Our next generation mobile computers embed RFID reading capabilities to prepare our customers for the increased penetration of RFID tags across the supply chain. A North America telecommunications company recently selected our new RFID-enabled mobile computers for their retail locations, replacing consumer devices. Our solution enables this customer to improve inventory accuracy and reduce shrink, as well as lowering IT support costs over the product life cycle. We are excited about the momentum we are seeing in RFID adoption and our pipeline of opportunities. We are driving new opportunities in machine vision by investing in go-to-market initiatives for deeper engagement with our customers. There are many mainstream workflows that benefit from the proven return on investment from our solutions.
Nathan Andrew Winters: For example,
William J. Burns: a large European parcel delivery company has selected Zebra Technologies Corporation’s machine vision platform to drive productivity gains by identifying and sorting parcels, eliminating bottlenecks along conveyance systems. We have a strong pipeline of machine vision opportunities and expect to return to growth in 2026. Now turning to slide 12. At the National Retail Federation trade show in January, our team, along with valued customers and partners, demonstrated how our innovative portfolio advances the AI-powered modern store through engaged associates, optimized inventory, and an elevated customer experience.
Nathan Andrew Winters: These outcomes are achieved
William J. Burns: through improved real-time inventory management, omnichannel execution, and technology-empowered workers and shoppers.
Nathan Andrew Winters: The addition of the Elo Touch business
William J. Burns: enhances the modern store experience as our combined capabilities along with AI enable us to offer additional ways to digitize operations across multiple touch points. Together with Elo, we will deliver higher customer satisfaction and complete solutions through the intersection of frontline mobility, self-service, and digital media. This value proposition extends well beyond retail, including quick-serve restaurants, hospitality, healthcare, and other industrial markets. For example, a high growth multinational fast-food restaurant recently selected Elo's self-serve kiosk at its U.S. locations to increase order size,
Nathan Andrew Winters: enable faster fulfillment,
William J. Burns: and improve order accuracy. Looking ahead, we have an opportunity to expand our business across their entire point of service platform
Nathan Andrew Winters: and also supply their international locations. Turning to slide 13.
William J. Burns: Our industry leadership puts us in a unique position to be a supplier of choice of AI solutions for the frontline of business. Our Connected Frontline and Asset Visibility and Automation segments play a critical role in enabling AI for business operations. As AI transforms the frontline of business, asset visibility becomes essential, providing a digital voice to physical assets to identify, locate, and understand condition. This real-time data provides critical insights allowing AI models to better understand the physical world which is fundamental to transforming frontline workflows across industries. Our connected frontline solutions unify a mobile workforce which, combined with our SaaS offerings, deliver the output from AI models to frontline workers providing the right information to the right person at the right time.
Nathan Andrew Winters: Global solutions will be capable of seeing,
William J. Burns: hearing, and understanding the environment while interacting with frontline workers in a conversational or vision-based way. We continue to invest in our AI solutions with our recently launched Frontline AI Suite, comprised of three components. AI Enablers are foundational to our offering, consisting of tools and APIs that empower partners and customers to build enhanced applications for mobile devices. Our AI Blueprints combine enablers into purpose-built templates that streamline multistep workflows. These blueprints integrate computer vision,
Nathan Andrew Winters: voice recognition, and sensor data
William J. Burns: to automate critical workflows such as proof of delivery, material receiving, and shelf merchandising. Zebra Companion includes agents we design and manage addressing key responsibilities including operating procedures, product knowledge, and sales enablement. Our Frontline AI Suite is a clear differentiator in the industry and enables us to meet a range of customer requirements. Our partners and customers can choose to build their own fully customized application using Enablers, elect to adopt Blueprints to more quickly address their evolving business needs, or deploy our fully functional Zebra Companion. AI Enablers are a value add to Zebra Technologies Corporation’s mobile computers, while AI Blueprints and Zebra Companion are software and service offerings with paid pilots already underway and scaled deployments expected this year. We are pleased that two prominent retail customers demonstrated the value of our Frontline AI Suite at the NRF trade show, and we look forward to building on our momentum to further elevate Zebra Technologies Corporation as the leading solutions provider
Nathan Andrew Winters: for the frontline of business.
William J. Burns: I will conclude on slide 14, which highlights end market trends driving our long-term growth opportunities across our end markets. These include several broad-based themes including labor and resource constraints, track-and-trace requirements, increased consumer expectations, and advancements in artificial intelligence.
Nathan Andrew Winters: Our customers rely on our solutions
William J. Burns: to advance their business-critical workflows and we are uniquely positioned to address the need for intelligent operations with our market-leading portfolio. I will now hand it back to Mike.
Michael Steele: Thanks, Bill. We will now open the call to Q&A. We 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. If you are using a speakerphone, to withdraw your question,
Operator: Our first question today comes from Thomas Allen Moll of Stephens. Please go ahead. Good morning and thanks for taking my questions. Good morning, Tommy. Good morning, Tommy. First one for you on memory.
Nathan Andrew Winters: Nathan, I think I heard you say that beginning in Q2, you anticipate a two-point headwind that you can fully offset. So maybe we can just unpack that a little bit. Two-point, I presume you are just referencing a two percentage point hit to
William J. Burns: gross margin
Nathan Andrew Winters: and
William J. Burns: maybe you can give us some context how that progresses from Q2 and beyond? Or
Nathan Andrew Winters: maybe you can quantify for us some of the
William J. Burns: initiatives that you have in flight to try to offset that headwind? Thank you. Yes, for sure.
Nathan Andrew Winters: No. It is correct. What we said in the statement is about two-point gross margin headwind on a gross basis, but obviously, the memory chip demand and price expectations have escalated quite a bit since the beginning of the year. But we are pursuing multiple mitigation strategies, different than what we have done before, whether this was with tariffs or semiconductors. So we recently announced price increases globally over the past week. They will be effective in March. Practically working with our suppliers around spot buys, co-planning around the demand trends as well as looking for alternative memory sources. And then a lot of work from our product teams on transitioning to some higher density memory. So, again, quite a few active work streams in process. And if you look at the impact for 2026, I mean, this is based on indicative pricing from our suppliers and where they see that going here over the next several quarters. The impact really begins in Q2 just based on the timing of those price increases, as well as what we have in inventory going into the year. But we fully expect to mitigate that within the year, and that is embedded in our guidance. About a half of that or a point is offset with just other offsets we have, whether that is the exit of the robotics business, some tailwinds from some of the lower tariff rates, as well as the actions the team has taken to mitigate the tariff exposure, as well as some of the favorability in FX. And then the other half coming through as we realize the pricing benefits into Q2 and through the second half of the year, as well as all the other mitigating actions the teams are currently working. So again, our teams have done a really great job at securing supply to meet the demand we have within the guidance. So a lot of work. It is obviously dynamic, but I think, again, we feel good about where we are at with the work streams and working closely with our supply base. Thank you. And I want to follow up on the repurchase
Nathan Andrew Winters: update you provided today. It sounds like you have already done
William J. Burns: $100,000,000 through
Nathan Andrew Winters: the year-to-date period. And so my question is with the new authorization and
William J. Burns: assuming your stock is at similar levels, is there any reason why you would not
Nathan Andrew Winters: or, excuse me, why you would slow down the recent level of repurchase?
Nathan Andrew Winters: No. If you look at, I mean, if you just take a step back, ending the year from a debt leverage around 2x, we feel great about the overall capital structure, strong cash position, balance sheet is in good shape. So, as we said, we repurchased $300,000,000 of share repurchases in the fourth quarter. We have repurchased $100,000,000 year to date leading into the call. So right now, we are targeting to do share repurchase around 50% of our full year free cash flow of $900,000,000. That will be primarily here in the first half of the year. So, again, we continue to plan to be aggressive in the market here over the next several months, and this still provides ample flexibility as we enter the back half of the year based on our cash profile for the year.
Operator: The next question comes from Guy Drummond Hardwick of Barclays.
Operator: Hi, good morning.
Guy Drummond Hardwick: Bill, I think it has been a couple of years since you have referenced the pipeline. So I guess that is very positive. So is visibility improving? But just more specifically in the near term, it appears the midpoint of your Q1 revenue guidance suggests revenues are above Q4, which is much better than seasonality. Any particular reasons for that? Is that Elo? Is it because of the pull forward from Q4 to Q3 makes an easier comparative? What other sort of issues are there? And is FX a big change sequentially?
William J. Burns: Yeah. I would say that the strong finish to the year certainly is playing into this. As we exceeded our outlook, 2025 we drove solid growth, 6% growth and then 17% EPS growth, greater than $800,000,000 of free cash flow in what was an uncertain environment through the year. Elo added two points of sales growth to the year leading to 8% growth for the full year, really advancing our offerings in the Connected Frontline segment, and then also our capabilities across engaging customers in a digital way certainly in that segment. So enhanced our modern store offering as well. We see that, as we enter 2026, there is momentum. Right? We see reacceleration of growth coming out of fourth quarter, led by manufacturing, our machine vision pipeline, momentum in RFID are all positives as we enter the year. We are seeing our customers continue to talk about investments in technology as we spent a lot of time with them at the National Retail show. Really, we are focused on higher growth opportunities across the portfolio and to drive productivity with the business, as Nate talked about, kind of offsetting memory. So I think overall, we feel good as we enter the year and that the momentum is there to
Nathan Andrew Winters: drive profitable growth in 2026.
Nathan Andrew Winters: And then, Guy, I think, if you look at the Q1 guidance, as you mentioned, in line or roughly flat from where we were in Q4. I think a couple of things in play. One, if you just look back over the last couple years, linearity has been anything but typical. So I think it is hard to say what has been typical linearity if you look back just at what has happened over the past couple years.
Nathan Andrew Winters: But also,
Nathan Andrew Winters: we did not see, as we said in our guidance for the fourth quarter, kind of a surge in year-end spends. So we did not see the same type of cyclical improvement from Q3 to Q4. And then Elo plays a small part, just not quite the same seasonality, more linear throughout the year. So I think all three of those play a factor, along with, as Bill mentioned, the demand environment, all play a factor in why Q1 is going to be in line with Q4 in the top line.
Guy Drummond Hardwick: Sorry. Just on the memory issue, do you have much visibility to the back end of the year in terms of what could be the annualized impact as we kind of exit
Nathan Andrew Winters: Yes. I mean, we have, I mean, really, the
Guy Drummond Hardwick: the year? Based on your discussions with your suppliers?
Nathan Andrew Winters: pricing we have gotten now is kind of through the middle of the year. So I think that is, you know, and obviously, that is what we have incorporated into the guide as well as some assumptions around just how that may play out in the back half. I think the way to think about it now would be you take the two points, really pull that over the second, third, and fourth quarter, and then annualize that run rate on an annual basis. So it is not that much different from what we are seeing here in our 2026 guide.
Operator: Our next question comes from Joseph Craig Giordano of TD Cowen. Please go ahead.
Operator: Hey, guys.
Operator: Good morning. Thanks for taking my questions here. Can you talk about, like, I mean, it is a fairly wide-ish, it is kind of a wide organic growth guide for the year. So maybe you could talk to scenarios and what your visibility looks like and how you are, you know, what would be required from a
Nathan Andrew Winters: from, like, a market standpoint to get to that higher end? And how, like, de-risked is the low end. Yeah. Maybe just, you know, start with the full year guide. 11% at the midpoint, 22% EBITDA margin, and double-digit EPS growth. So again, I think we feel good about the overall profile for the year. And as Bill mentioned, I think the underlying theme of that is entering the year with a strong pipeline, the momentum across different parts of our business, whether that is RFID, manufacturing, machine vision. And I think if you take a step back, we believe the guide provides a balanced view of the environment where we sit here today, including still some macro uncertainty out there, the memory component challenges, with the opportunities that we see in the market. So if you look at the 11% midpoint, about four points of that is driven by underlying demand. Elo provides five and a half points of the growth, and FX is a point and a half there. And I think visibility is pretty typical for what we see at this time of the year. So I think the range is really bound around the midpoint. It is more how we think about it in terms of circular around the midpoint. Obviously, the macro conditions, timing of deals, play a factor in kind of the balance between the low and high end of the range. But I think we are based on everything we have today.
Joseph Craig Giordano: And just a follow-up. Can you talk about price just like bigger picture? Has the
William J. Burns: has the way customers think about price of these types of electronics, like, structurally changed and maybe permanently changed? Like, is it, I mean, how much of your, how much of your revenue base now is almost like just pure pass through of weird things that have happened, right? Whether it is
Joseph Craig Giordano: whether it is tariffs or memory or etcetera. Is it just, like,
William J. Burns: more acceptable behavior now and customers kind of can accept that price is not just going to keep going down into perpetuity for, like, existing products?
Nathan Andrew Winters: Yeah, Joe. I would say that
Joseph Craig Giordano: you know, the things like tariffs and memory and others have,
William J. Burns: you know, allowed us to raise price where, you know, along with
Joseph Craig Giordano: with our competitors as well. I think you are just seeing this across the industry that it is
William J. Burns: not possible to absorb the cost of tariff or memory and we have to raise price. And I think that, look, our customers are price sensitive. We have competitors in the market. Our largest customers get our best pricing. That is just the way it works, and we continue to work with them to make sure they are seeing the value. We are adding a lot of technology to our devices, not just, you know, we are raising price because we have to on memory and tariff and others, but also, they are getting a lot of value. Right? We have added RFID to all our next generation mobile devices. We are increasing memory and
Joseph Craig Giordano: processing speeds, working with,
William J. Burns: you know, our partners in Qualcomm and Google on the OS to make sure that they can support AI models on the device. So they are seeing value in things like mobile computing. We are doing the same across the entire portfolio, adding
Joseph Craig Giordano: AI capabilities, capabilities to machine vision, continuing to enhance capabilities around scanning,
William J. Burns: printing to that portfolio. So, you know, our print portfolio, we are adding RFID. There is a lot of value as well that our customers are getting from our solution.
William J. Burns: Certainly, there is price sensitivity and competition, and that all matters. But look, we do not have a choice but to raise price when memory and tariffs and others are so significant. But I think our customers understand that. They are seeing that across not just our segment, but many others.
Nathan Andrew Winters: Yeah. And, Joe, I think if you just look back at last year, even with the price increase we did in April, it still represented a little over half a point of the full year organic growth. So still the vast majority of the growth last year was driven by underlying demand. So it clearly plays a part, but that underlying demand is still what is going to ultimately drive the top line.
Operator: The next question comes from Robert W. Mason of Baird.
Operator: Please go ahead. Yes. Good morning.
Operator: Maybe just an extension of that last question. I mean, as you think about the way you have laid out the guidance for the first quarter and how you are thinking about the balance of the year and when pricing goes into effect. Are you giving any consideration to customers trying to get in front, you know, moving projects, pulling those forward, you know, trying to get ahead of some of the price increases or just, you know, uncertainty around memory in general?
Nathan Andrew Winters: Yeah, Rob. So I think two points. On the first quarter, we are not expecting any type of pull-forward activity, or that is not incorporated into the guidance. I mean, we just announced the price increase this past week. So, obviously, what we were seeing in the pipeline of opportunities was unaffected by the price announcement here just over the past week. And just how we implement that through our distribution channel, with our partners, in terms of honoring prior pricing that we have or updating the full backlog or what is sitting with our distributors. As we have done these price increases in the past, we really have not seen a huge pull-in of demand just based on how we administer that through our channel, as well as honoring some of the PCs, price concessions we have with certain customers on deals. And then I think the other one, just as you look at the incremental price increase we announced this week, that is not been incorporated into the guide. Similar to how we thought about last year. We want to monitor the impact. We just announced it, so, obviously, that is being absorbed through the channel. So I think, as we sit here today, we thought it was the right move to say, what is really what we are seeing from the underlying demand today? And then we will update that as we go through the year in terms of how we see that as either incremental revenue or any type of trade-off with underlying demand.
William J. Burns: Yeah. I would say that maybe just to add, Rob, that, you know, talking to our partners at our channel partner conferences, we have been through North America and Asia Pacific already, and you know, the message they are sending to customers is, you know, let us talk about these major projects early. Let us get those orders in.
William J. Burns: Not the idea of to save on pricing or others, but more just to make sure we have supply for them ultimately. And I think that is the message they are sending. So I do not see people buying early because of it. I think it is just a reality of what is happening across memory. But I think it allows our partners to have the conversation early with early visibility
William J. Burns: to especially larger opportunities with our customers to make sure that they understand that, you know, the more visibility we have to demand on specific product they are looking to utilize, then we can go meet that demand with the memory we have.
Operator: Makes sense. And then, Bill, you mentioned this
Operator: return to growth in machine vision. I think historically, we are aware of where you had some maybe over-index into certain verticals. Are those the verticals that you are expecting
Joseph Craig Giordano: to see recovery in? Or do you have some new ones that you are looking to drive that return to growth? Yeah. We see that machine vision is really an integral part of the Asset Visibility and Automation segment for us. And I think that
William J. Burns: when we look at machine vision, we saw sequential growth in fourth quarter. So we feel good about that. We have seen some new wins both in, you know, as you know, the machine vision market, there are two sides of that. One is T&L. So we have seen some large
Joseph Craig Giordano: transportation and logistics wins, and the other is inside
William J. Burns: manufacturing. So we have seen at the high end of our portfolio some
Joseph Craig Giordano: you know, automobile manufacturing wins that are coming back a bit. So I think manufacturing
William J. Burns: in general on the machine vision side
Joseph Craig Giordano: recovering, in addition to T&L, is
William J. Burns: a good sign.
Joseph Craig Giordano: We expect sequential growth to continue through first half, but solid growth for the full year. I think the pipeline is, you know, we have been working hard to diversify the pipeline of customers, but
William J. Burns: everything across inspection, you know, dock door, pack bench, scan tunnel, optical character recognition, to a broad breadth of
Joseph Craig Giordano: opportunities that the team is working on. I would say as we are looking to diversify,
William J. Burns: the business, as you said, into new vertical markets. I think our value proposition is strong. We have got,
Joseph Craig Giordano: you know, we focus around ease of use, the unified software platform that we have brought across the portfolio. We have invested in go-to-market. We have changed out some leadership in the business. Acquired Fotoneo to have another offering at the high end of the market.
William J. Burns: So I think, you know,
Joseph Craig Giordano: we feel good the market is recovering overall in machine vision as manufacturing recovers and T&L spends again in that environment.
Joseph Craig Giordano: So
Joseph Craig Giordano: we see, you know, solid growth, quite honestly, into 2026. So, you know, overall, I would say we feel good.
Operator: Our next question comes from Keith Michael Housum of Northcoast Research. Please go ahead. Good morning, guys. Appreciate the opportunity. Sorry to harp on the memory issue a little bit more, but I appreciate, Nathan, the visibility through the first half of the year. But we are hearing more and more concerns along the industry that perhaps product shortages and limitations to sales in the second half of the year. Can you talk about any confidence you have that in regards to the price,
Nathan Andrew Winters: you are going to have the availability there of the products?
Operator: Yeah. Of course.
Nathan Andrew Winters: Look, I think the team, as I mentioned earlier, the team has done a great job working with suppliers. Bill mentioned, I mean, part of this message through the channel with our partners is getting the visibility on those projects to what SKU, what product do you want, and getting that visibility early. It allows us to then shape demand. So it is really around, you know, a bit of can we get the product, as much as get the right memory for the right product that we need and making sure that those precious components are going to the right product families as we build out the pipeline. So that is where the team is really focused now, shaping demand, working with our customers around the particular SKUs they are looking for around projects maybe a bit earlier than normal, so that as we build the build plan, work back through our supply chain, we are getting the right memory through the pipeline. And then the other thing the team is working actively is moving to the higher density memory, with a lot of that capacity planned to come online in the middle of the year. So part of that is also shifting to the newer memory, which, again, we expect for that supply to increase as we go to the back half of the year.
William J. Burns: I think, Keith, maybe I will just add really quick. Just strong supplier relationships is critical to this and that we know coming out of COVID, that is critical for our business. And we have worked really hard to make sure that we have got the right relationships in place with our suppliers and they are, quite honestly, guiding us through this, as Nate said. You know, months ago we had the conversation around moving to new memory that would be more readily available, and we have got early samples of that. We are working with
William J. Burns: our other suppliers to go test that and make sure that we are ready. So we are doing everything our suppliers are asking us to go do to get the most access to memory we can. And those relationships really matter ultimately. We are working closely with them. And as Nate said,
William J. Burns: on the other side of it, on the partner or customer side, to say, look, we do not want to build product and put memory in it that we do not need for customer demand. So we want to make sure we have got the right SKU, the right product,
William J. Burns: the right timing around it,
William J. Burns: and the analysis we have done so far is that we are going to mitigate the pricing, and we are going to have the supply we need. There is always some risk in that, but we feel good about where we stand today. The team has done a lot of work on this.
Operator: Okay. Great. In terms of that memory,
Operator: is it primarily the mobile computers that are at risk here? Or is it also point of sale of the Elo or the printers? Is that experiencing some of the same issues or is it really concentrated with mobile devices?
Nathan Andrew Winters: Concentrated to mobile devices. Elo and the POS and kiosk business has, you know, similar, but it is predominantly in those two portfolios. But, again, the teams there are working closely together. Our supply chains are
William J. Burns: you know, tied on exactly what we are doing from
Operator: a pricing perspective, but also a supply perspective and leveraging
William J. Burns: the strengths of both of our, you know, both Elo and
William J. Burns: core Zebra to make sure we have got
William J. Burns: supply across both.
Operator: The next question comes from Andrew Edouard Buscaglia from BNP Paribas. Please go ahead.
Operator: Hey, good morning, everyone. Good morning, Andrew.
Nathan Andrew Winters: I just wanted to get
William J. Burns: a sense of these kind of customer conversations you are having in terms of what they are thinking for 2026.
Joseph Craig Giordano: It sounds like, I mean, you have a, it sounds like you have a healthy backlog and your Q1 guidance implies some,
William J. Burns: you know, improving spending. But what are the customers saying in terms of the biggest, you know, impetus to spend here? Is it, like, in the past, you talked about clarity around tariffs. Is it, are they taking advantage of accelerating depreciation? And is there an upgrade cycle, maybe they just have not bought in so many years, and they have got to move forward this year. I would say that the, you know,
William J. Burns: customer conversations are really around the idea that they are continuing to invest in their business, you know, and that is across all verticals. We have spent, you know, even though it is early in the year, a lot of time with customers, as I mentioned, at National Retail show, but, you know, our largest T&L customers, because T&L is so critical to retail also, were at that show. We have got
Nathan Andrew Winters: you know, our healthcare show coming up in HIMSS over the next, you know, x number of weeks. So
William J. Burns: we are preparing for that. So across all verticals, our customers are really talking about continuing to invest in their business and technology. I would say that
William J. Burns: you know, we enter the year with a solid backlog and really a pipeline. We have got momentum, as Nate talked about, around
Nathan Andrew Winters: you know, our core business overall,
William J. Burns: you know, including scanning, printing,
William J. Burns: mobile computing, but also, you know, manufacturing, you know, seeing more strengths in that, which has been a focus area for us. EMEA returning to growth. I would say that the demand remains strong for Elo, so we are certainly excited about that acquisition. You know, I think that the breadth and depth of our solutions portfolio,
Operator: including the addition of Elo and
William J. Burns: the new opportunities around our AI suite and the idea that customers are thinking about how they are deploying AI at the frontline of business overall. Those conversations continue, and I think that, you know, customers are really focused on how do they serve their customers better and get better experiences, whether that is omnichannel or it is self-service or point of sale. They are talking about driving efficiencies within their business. How do I use our solutions to go do that across RFID, machine vision, and others. And I think it is how do you increase inventory visibility, which is still challenging across our customer base, and that is everything from, you know, printing to scanning to our mobile devices. So I think that, you know, we are confident in delivering solid growth in 2026. And our customers seem to be really focused on continuing to deploy technology across their business. And I would say, kind of playing their game. Right? They have got a plan. They are executing on it. And there has been really no talk about kind of anyone holding back or others. It has all been kind of positive about, you know, what are their plans for 2026 and what are the opportunities we have to work closely together.
Operator: Yeah.
Joseph Craig Giordano: Yeah. Sort of on that note, you know, a lot of people, like, looking at things like the AI effect, and certainly, your customers are trying to find ways to leverage it and, you know, reduce cost and, you know, improve productivity. I am wondering, you know, years ago, you had this Windows-based device that was shifting to Android, which prompted a big upgrade cycle. I am wondering, do you sense, like, these new AI products you are talking about, you have been talking about them for a while, could have a similar effect in terms of prompting new spending or an upgrade cycle here.
William J. Burns: Yeah. I would say that, you know, if you look at the portfolio overall in relation to AI, that, you know, we are uniquely positioned to where, you know, Zebra Technologies Corporation can position itself really to be the leading AI solutions provider for the frontline. And I say that in a couple of ways. One is that the Asset Visibility and Automation segment gives a digital voice to assets, to inventory, that is necessary to feed AI models if you are going to leverage those at the frontline of business. You have to give everything a digital voice and have visibility to be able to
Joseph Craig Giordano: to leverage the AI model.
William J. Burns: The second thing is you need something to deliver the output of the AI models, what needs to be done. You need to be able to connect that information to workers. And the way you do that is through mobile devices and our SaaS offerings like communication, collaboration, task management combined together take the output of the model and allow a worker to drive a behavior or do something: put inventory on the shelf, move something from backroom to front of room, pick up a pallet and move it to the next location, that drives ultimately the outcome in your business. That gets you to be more effective and more efficient. So it plays a critical role across our whole portfolio. Specific to mobile computing, the idea of,
Joseph Craig Giordano: you know, our latest mobile devices certainly will support
William J. Burns: memory, processing power, and others, and the software to support AI models on the device or in the cloud. And we are seeing, you know, customers move to those devices as their next generation devices, as they are beginning to refresh. So, yes, we are seeing that clearly AI will drive, you know, the upgrade of those devices ultimately. You know, higher ASPs on those devices with higher memory, and also will have an opportunity for us across the idea of Enablers and Blueprints and Companion we talked about to be able to drive AI software revenue for ourselves as well. Our next question comes from Piyush Avasthy of Citi.
Operator: Please go ahead.
Operator: Good morning, guys, and thanks for taking my questions.
Nathan Andrew Winters: Good morning. Good morning.
Piyush Avasthy: I think you mentioned the decline in gross margins due to lower service and software margins. Can we double click on software margin performance, like anything you want to call out? Is it just the investments that you guys are making that are pressuring the margins? And when we can expect that to reverse? And anything on the receptivity of the software offering that you are coming out with, like, how the customers are kind of, you know, buying or procuring those, that would be helpful.
Nathan Andrew Winters: Yeah. For sure. I think if you look at the real driver within the service and software margin impact, it is primarily, and obviously it represents the vast majority of the revenue, in the service portfolio and the just higher repair costs that we have seen over the past couple of quarters. Now, the good thing is the overall margin rate improved in the fourth quarter from where we were in Q3. But this is really due to the age of the installed base, and we are starting to see that play out in terms of driving the overall number of repairs. We expect to see that level out here as we go through the year and see the overall margin for the services and software to be flat, kind of look at it year on year throughout 2026. Specific to software, you know, the two real areas the teams are working on: one is a lot of energy and efforts going over the last couple years in unifying the platform, bringing together the architecture to ultimately lower the overall support cost that will improve margins as we go really into the back half of this year and into next, as some of that effort is starting to come to a closure in terms of transitioning customers to the unified platform. And then, like anything, then it is about scaling on that in terms of as revenue grows, getting the scale to drive gross margins further. So those are the two aspects. If you look at that line, it is really driven by service, but within software, a lot of work over the past couple years around the platform and unifying the platform, and we are getting close to the end of that activity, which then gives us some runway to improve margin as we move forward.
Piyush Avasthy: Gotcha. Helpful. And Americas was soft in Q4, and I understand that there were some really tough comps. Can you elaborate on the underlying demand environment and trends you are seeing in the region? And as you think of your 2026 guidance, based on conversations with your customers, how do you think Americas is contributing to your 2026 guidance?
William J. Burns: Yeah. I think that I would say that overall, you know, we saw relative strength in fourth quarter in North America around small and midsized business. But as we talked about, cycling larger large order activity in T&L and retail in the fourth quarter. So I think we feel good about the pipeline of opportunities that is healthy in the business. I think it really is just cycling a compare. We did not see as many large deals, very large deals, in fourth quarter as, you know, we have seen in past years. Nate talked about that a little bit in the seasonality idea. So
William J. Burns: that is really what it is about. We feel
William J. Burns: we feel across North America that all vertical markets, product areas, we see no real challenges there other than a tough compare in fourth quarter. If you talk about the other regions, I would say return to growth in EMEA, really driven by strength in North and Central Europe. I would say double-digit growth we saw, you know, so strong growth in mobile computing, print, RFID, so broad-based. And we are seeing opportunities in Europe around retail with personal shopper refresh opportunities in new. So where the North America market is really
Nathan Andrew Winters: more
William J. Burns: self-service checkout and kiosk, where, you know, Elo plays, the European market is a combination of that as well as self-scan, which is a large opportunity for us both in new customers and refresh opportunities. So those continue to move forward in EMEA. Asia Pacific saw strong growth, 13%.
Nathan Andrew Winters: Growth across most of the region.
William J. Burns: Japan and India certainly were bright spots. Those are areas where we have been investing. Certainly, the amount of manufacturing investment happening in India. We changed our go-to-market model in Japan several years ago, continue to win opportunities in Japan. Latin America, strong growth in Latin America, broad-based. I would say, you know, Brazil and Mexico outperformed with large retail deployments, but broad-based growth across Latin America. So we are not concerned at all about North America. Really, it is just truly cycling a compare. And we feel good about broad-based growth across the regions and product areas as we enter 2026. The next question comes from James Andrew Ricchiuti of Needham and Company. Please go ahead.
Michael Steele: Thanks. I know it is early. I am wondering what kind of assumptions are you baking in for the large project business this year. What kind of visibility do you have? It sounds like just based on what you are hearing and the concerns around memory that maybe these discussions are happening earlier.
William J. Burns: I would say that, you know, given the installed base, right, certainly, Zebra Technologies Corporation’s installed base overall, these very large orders are really tied to refresh cycles and activity across our customer base. And that remains an attractive opportunity for us overall. We are assuming the same, you know, a similar level of refresh activity in 2026 that we saw in 2025. And I would say remember every customer's refresh cycle is different, right? It is really driven by things like supporting new applications, driving, you know, higher processing power or memory or new features like we just talked around on AI or new features like, you know, RFID being embedded in the devices. It is driven by, you know, obsolescence of OS or the security life cycle, it is driven by technology transitions, but everyone is on a different cycle. And I would say that, you know, when customers refresh, the opportunity for us is not just the refresh cycle, but they typically buy more devices because they are extending their use cases and putting devices more in the hands of more associates overall across all industries. When we look at things like retail, the refresh cycle has really normalized over the last several years and we are seeing some retailers spread their purchases over a longer time horizon. From a T&L customer perspective, I would say they refresh at a slower pace than retail, which is typically four to five years, driven by really the fact that the devices have higher durability and are using fewer applications than we see in retail.
William J. Burns: But as you said, those discussions are,
William J. Burns: you know, with large T&L customers are progressing. We are talking to them earlier about these refreshes, and the pipeline continues to grow for multiyear deployments that, you know, likely begin in 2027. So in 2026, we would see, you know, about the same level as we saw in 2025, but this is clearly an opportunity out there for us. And
William J. Burns: we would see that, you know, as these conversations continue to progress, and progress earlier with challenges, things like memory, we get more and more visibility to time frame from our customers.
Michael Steele: And you
Operator: mentioned RFID several times. What kind of growth rate are you assuming in the RFID business this year? And are you seeing more of the activity coming from the emerging areas like food or
Nathan Andrew Winters: the traditional areas logistics and
Operator: retail.
Nathan Andrew Winters: Yeah, we see 2026 high double-digit growth continuing in RFID. We had
William J. Burns: a strong year over the last several years including 2025 and we see that continuing. The opportunities have really been broad-based all the way across the supply chain from retail to transportation and logistics to manufacturing, now opportunities in government. We are seeing, you know, clearly the move from retail apparel. We saw it move to broader merchandise inside retail. You mentioned fresh food inside grocery as a new opportunity in things like bakery and around the outside edge of the store, higher margin perishable items. We are seeing that opportunity there. Parcel within T&L remains a large opportunity. Quick-serve restaurants, you know, we think of automation always as, you know, but quick-serve restaurants are moving from pen and paper to RFID. You know, we are seeing healthcare and just broader track and trace across the supply chain. So I think that we are seeing broad-based growth. We have got number one share in fixed and handheld readers, we continue to have strength in our, we are the leaders in RFID printers, you know, across our labels business, we are seeing strength. So I think it is broad-based. I think we are continuing to see the adoption. It is why we are adding RFID capabilities to the majority of our new mobile computing devices is that customers continue to want to adopt RFID within their environment. So really broad-based and not driven by just one industry or segment, but, you know, across all the vertical markets we serve. The next question comes from Bradley Thomas Hewitt of Wolfe Research.
Operator: Please go ahead.
Operator: Good morning, guys. Thanks for fitting me in there.
Nathan Andrew Winters: Good morning, Brad. So curious how you see channel inventories as they stand today and
Bradley Thomas Hewitt: does the guide embed any meaningful changes in channel inventory levels as you progress through the year?
Nathan Andrew Winters: Right. No. We have seen channel, as we exit, we are in good shape. Pretty similar to what we saw at the end of last year, so no meaningful change. You definitely see variability quarter to quarter, just, you know, whether that is timing of deployments on their end, prepping for year-end, etcetera. So quarter to quarter, you see some variability, but I think as we look at the full year picture, no major changes in terms of days on hand, you know, measuring it on days on hand. So how much are they carrying on a daily basis? And we do not expect a material change in that as we go through the year.
Operator: Okay.
Bradley Thomas Hewitt: That is helpful. And now that the tariff situation seems to have stabilized a little bit overall, have you guys seen any change in customer willingness to go ahead with projects versus three months ago? And to what degree is any macro-driven change in customer sentiment baked into your 2026 outlook? Thank you.
Nathan Andrew Winters: I would say that, you know, customers were
William J. Burns: on the retail side, you know, a bit concerned overall about just the secondary effect of tariffs as they have, you know, had to push that through, you know, on their inventory to their customers ultimately. But I think that we are really beyond that. That is all kind of flowed through their supply chains. And they have had to raise price in the places that they have. So I would say that, you know, again, these conversations with customers today, there has not been concerns of tariffs raised. There are always, you know, challenges. There may be future challenges around trade, but we do not see those as of today. The bigger challenge we talked about multiple times in the call is probably memory that we have, you know, we are going to mitigate in the year. So I think that, you know, I think tariffs have not factored into a lot of conversations with customers at this point. This concludes our question and answer session. I would like to turn the conference back over to Mr. Burns for any closing remarks.
Nathan Andrew Winters: I would like to thank our employees and
Michael Steele: for delivering solid 2025 results. We certainly
William J. Burns: as we look ahead, are focused on advancing our portfolio of solutions and driving profitable growth across our business. Thank you, everyone. The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.