Zebra Technologies Q3 2026 Earnings Call Transcript

Quartr
Provided by Quartr
November 3, 2026

Key Takeaways

  • Positive Sentiment: Record Q3 performance: Sales exceeded $1.6 billion, up 22.3% year over year (11.3% organically), while non-GAAP EPS rose 28% to $4.95, surpassing company expectations on broad-based demand.
  • Positive Sentiment: Zebra raised its full-year outlook to approximately 17% sales growth and $21.20 in non-GAAP EPS, with fourth-quarter EPS guided to $5.00–$5.40 and free cash flow expected to reach at least $1 billion.
  • Positive Sentiment: Demand is particularly strong for mobile computing, transportation and logistics, healthcare, machine vision, and Elo Touch; management cited a robust multi-year pipeline of global transportation and logistics refresh projects beginning in 2027.
  • Positive Sentiment: The company reported progress securing memory supply, including five newly qualified suppliers and additional inventory, supporting its ability to meet mobile-computing demand into 2027; management expects 2027 growth at the high end of its 5%–7% long-term range.
  • Negative Sentiment: Memory costs increased by more than $50 million year over year in Q3 and are expected to create a $145 million full-year headwind, contributing to a 220-basis-point decline in adjusted gross margin; pricing actions and productivity savings are intended to fully offset the impact.
AI Generated. May Contain Errors.
Earnings Conference Call
Zebra Technologies Q3 2026
00:00 / 00:00

Transcript Sections

Skip to Participants
Operator

Good day, and welcome to the third quarter 2026 Zebra Technologies earnings conference call. All participants will be in listen-only mode. Should you need assistance, please signal a conference specialist by pressing the star key followed by zero. 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 Mike Steele, Vice President, Investor Relations. Please go ahead.

Mike Steele
Mike Steele
VP of Investor Relations at Zebra Technologies

Good morning, and welcome to Zebra's third 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 risk factors discussed in our SEC filings. During this call, we will reference non-GAAP financial measures as we describe business performance, with reconciliation 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 on a constant currency basis and exclude results from business acquisitions and dispositions for 12 months. This presentation will include prepared remarks from Bill Burns, our CEO, and Nathan Winters, our CFO.

Mike Steele
Mike Steele
VP of Investor Relations at Zebra Technologies

Bill will begin with perspective on our third quarter results, our value proposition, and strategic priorities. Nathan will then provide additional detail on our financial results and discuss our outlook, followed by Bill's closing remarks. Then Bill and Nathan will take your questions. Now let's turn to slide three as I hand it over to Bill.

Bill Burns
Bill Burns
CEO at Zebra Technologies

Thank you, Mike. Good morning, everyone, and thank you for joining us. It was another standout quarter for Zebra. We achieved record quarterly sales and increased earnings, driven by strong execution and broad-based growth across our portfolio. These results demonstrate the durability of customer demand for our innovative solutions and the resilience of our business model, which supports our increased full-year outlook. Our results also reflect the critical role Zebra plays in frontline operations. From the factory floor to the point of sale, the supply chain is becoming more complex. More than 80% of the Fortune 500 rely on Zebra as they invest in digitizing and automating their workflows, bringing real-time intelligence and visibility to employees on the frontline. Customers can now build upon the Zebra solution embedded in their critical workflows as they advance their physical AI journey.

Bill Burns
Bill Burns
CEO at Zebra Technologies

This creates a clear competitive advantage for Zebra, supporting our ability to deliver sustainable, profitable growth. With that, let's turn to slide four to cover our third quarter results. We delivered sales and earnings results above our expectations, with broad-based growth across segments, regions, and end markets. Our Connected Frontline segment performed particularly well in the quarter, led by mobile computing and strong contribution from Elo Touch. This acquisition has performed very well in its first year, and we are on track to deliver our committed synergies. For the quarter, we generated sales exceeding $1.6 billion, growing more than 22%, or 11% on an organic basis from the prior year, an adjusted EBITDA margin of 21.6%, and non-GAAP diluted earnings per share of $4.95, a 28% increase over the prior year. We saw very strong customer demand, leading to higher-than-anticipated sales volume.

Bill Burns
Bill Burns
CEO at Zebra Technologies

Our ongoing efforts to proactively strengthen memory supply, implement pricing actions, and capture operating leverage enabled us to support this increased growth while maintaining adjusted EBITDA margin year-over-year. Our strong performance and financial position also support our disciplined approach to capital allocation. We repurchased $75 million of shares in Q3, bringing the year-to-date total to more than $640 million. This reflects our confidence in the business and our long-term value creation opportunity. The strength of our results and our progress managing the supply environment gives us confidence in our full-year outlook and our ability to continue to serve increasing customer demand into next year. Moving to slide five, I would like to share some additional details on our key end markets.

Bill Burns
Bill Burns
CEO at Zebra Technologies

In retail, we realized high single-digit growth with particularly strong sales in e-commerce and specialty stores, driven by customers' expectations for faster delivery and expanded fulfillment options. Elo Touch continues to be a meaningful growth driver as the industry embraces self-service. Our Zebra Frontline AI Suite also continues to gain traction. We are excited to be partnering with a large North American specialty retailer, rolling out Zebra AI Companion across all of its locations. Transportation & Logistics was our highest growth end market in Q3, as customers invest in AI-enabled mobile computing solutions to improve productivity and service levels, and we have a robust multi-year pipeline of large opportunities. In manufacturing, our high single-digit growth was driven by customers' need for increased visibility across their operations. Electronics and food and beverage contributed meaningfully to growth.

Bill Burns
Bill Burns
CEO at Zebra Technologies

Machine vision also outperformed as we gained traction with go-to-market initiatives and our enhanced portfolio of solutions. Healthcare grew double digits during the quarter, led by clinical mobility as customers equip more caregivers with enterprise-grade solutions. This reflects the broader opportunity to bring real-time intelligence to the front line and improve the patient care journey. Now turning to slide six, we continue to build on Zebra's unique competitive positioning as the foundation for intelligent operations. AI solutions require access to frontline data in real time. Zebra plays at that intersection, capturing information from physical operations and providing actionable intelligence to the front line. Zebra's products are used by millions of frontline workers every day. Our customers need a practical path to scale and augment their labor resources, and they are building on Zebra's workflow expertise and installed base of solutions as AI use cases emerge.

Bill Burns
Bill Burns
CEO at Zebra Technologies

A retail customer in EMEA recently selected Zebra's premium mobile computers over a competitor's offering because of the ability to optimize AI on the device. This customer has utilized Zebra's Frontline AI Suite to help build precise product location functionality in their internally developed AI applications to drive productivity. Turning to slide seven. Our results reflect the progress we are making in executing on our strategic priorities. Customers are digitizing physical operations to improve performance and are in the early stages of putting AI to work. Across the supply chain, Zebra is able to meet our customers wherever they are in their automation journey, and we are well-positioned to solve their biggest problems.

Bill Burns
Bill Burns
CEO at Zebra Technologies

We are also driving efficiency initiatives in our business to enhance profitability, which include operating expense leverage through cost discipline, accelerating our software development with new AI tools, and enhancing our go-to-market model to improve market coverage and efficiency. Our second priority is advancing innovation. We continue to see promising early customer traction with our Frontline AI Suite, new mobile computers with RFID and optimized AI processing capabilities, as well as next-generation RFID and 3D machine vision solutions. Our progress this year has highlighted the opportunity to deliver long-term profitable growth. Finally, our strong earnings and cash flow generation continue to enhance our financial strength and flexibility. We are executing on a balanced capital allocation strategy, prioritizing investments in our business that elevate our portfolio of solutions while consistently returning capital to shareholders.

Bill Burns
Bill Burns
CEO at Zebra Technologies

Before I hand over to Nathan, let me step back and highlight what this quarter demonstrates about Zebra's long-term investment case. Q3 reinforces our investment thesis. We serve a $35 billion market with substantial runway as customers bring more automation and AI to physical operations. Our differentiation is meaningful. Zebra is embedded in critical workflows, and we are well-positioned to be the AI leader for the front line. Our capital-light model and strong cash generation are giving us the flexibility to invest in growth opportunities and return capital to shareholders. Together, these strengths give Zebra a durable, profitable growth model with the financial flexibility to create long-term shareholder value. I will now turn the call over to Nathan to review our Q3 financial results, progress in navigating memory supply, and our strong fourth quarter outlook.

Nathan Winters
Nathan Winters
CFO at Zebra Technologies

Thank you, Bill. Let's start with the P&L on slide 10. In Q3, total company sales increased 22.3%, or 11.3% on an organic basis, driven by continued momentum across the business and pricing actions. We exceeded the high end of our guidance range, primarily due to our ability to secure increased memory supply. Our Connected Frontline segment grew nearly 35%, including the Elo Touch acquisition, or 15% on an organic basis, led by mobile computing. Our Asset Visibility & Automation segment grew 7%, led by machine vision, printing, and RFID. Performance was broad-based across all of our regions, led by mobile computing. North America sales increased 11%, with strength in all end markets and outperformance in Canada. EMEA sales grew 13%, led by large transportation and logistic customers with broad-based growth across the region. Asia Pacific sales increased 8%, led by Southeast Asia, South Korea, and China.

Nathan Winters
Nathan Winters
CFO at Zebra Technologies

Latin America sales grew 9%, led by Mexico and Brazil. Adjusted gross margin declined 220 basis points to 46%, primarily due to increased memory costs and business mix that was partially offset by favorable FX. Pricing actions mitigated nearly one half of the greater than $50 million year-on-year increase in memory costs, which was elevated primarily due to our higher-than-expected sales of mobile computers. Our 230 basis point improvement in operating leverage enabled us to hold EBITDA margins flat at 21.6%. Non-GAAP diluted earnings per share were $4.95, a near 28% year-over-year increase, exceeding the high end of our outlook. Turning now to the balance sheet and cash flow on slide 11.

Nathan Winters
Nathan Winters
CFO at Zebra Technologies

Year to date, we generated $661 million of free cash flow, ending the third quarter with a modest debt leverage ratio of 1.6x and more than $1 billion of credit capacity. We've been deploying capital consistent with our allocation priorities, repurchasing $946 million of stock during the past four quarters. Also note, later this month, we plan to refinance our credit facility, which is scheduled to mature in May of 2027. Turning to slide 12. Meeting demand in this environment requires both supply and cost management. Our scale and direct supplier co-planning give us flexibility to secure the components we need, while alternate sourcing and transitions to higher density memory have expanded our options into 2027. Component pricing has been increasing generally as expected, and our position remains favorable relative to spot market rates given our direct supplier relationships.

Nathan Winters
Nathan Winters
CFO at Zebra Technologies

Our balance sheet reflects advanced stocking and memory to ensure we can serve the robust mobile computing demand in our pipeline into 2027, which is a top priority. Together, these actions position us well to meet strong customer demand while protecting profitability. Let's now turn to our outlook. We have entered the quarter with a strong backlog and pipeline that supports our sales growth guidance range of 10%-14%, including approximately 150 basis points of contribution from favorable FX. Our fourth quarter adjusted EBITDA margin is expected to be approximately 22%, and non-GAAP diluted earnings per share are expected to be in the range of $5 and $5.40. Our fourth quarter outlook translates to full year sales growth of approximately 17%, a two-point increase from our prior outlook.

Nathan Winters
Nathan Winters
CFO at Zebra Technologies

Our full year adjusted EBITDA margin is expected to be approximately 23.5%, and non-GAAP diluted earnings per share is expected to be $21.20 based on our Q4 guide midpoint, increasing greater than 30% year on year. Our full year guide continues to reflect full mitigation of the approximately $145 million memory cost headwind, an increase of $25 million from our prior estimate due to higher sales volumes. We have been addressing this through targeted price increases, along with net savings from our restructuring actions, volume leverage, and FX favorability. Free cash flow is expected to be at least $1 billion, which reflects a conversion rate of approximately 100%. We are continuing to optimize our working capital levels, balanced with our supply chain resilience objectives and elevated memory component inventory. Please reference additional modeling assumptions on slide 13.

Nathan Winters
Nathan Winters
CFO at Zebra Technologies

With that, I will turn the call back to Bill.

Bill Burns
Bill Burns
CEO at Zebra Technologies

Thank you, Nathan. Before we turn to your questions, let me leave you with a few takeaways. Q3 demonstrated strong customer demand across our business, supporting our increased full year outlook. Customers are leveraging Zebra's AI-powered portfolio of solutions to improve productivity, visibility, and decision-making, and remain focused on driving long-term profitable growth and shareholder value. With that, I will now turn the call back to Mike.

Mike Steele
Mike Steele
VP of Investor Relations at Zebra Technologies

Thanks, Bill. We will now open the call for Q&A. We ask that you limit yourself to one question and one follow-up to give everyone the chance to participate.

Operator

We will now begin the question and answer session. To ask a question, you may press star then one on your touch-tone phone. If you are using a speakerphone, please pick up your handset before pressing the keys. To withdraw your question, please press star then two. At this time, we will pause momentarily to assemble our roster. The first question comes from Andrew Buscaglia with BNP Paribas. Please go ahead.

Andrew Buscaglia
Andrew Buscaglia
Analyst at BNP Paribas

Hey, good morning, everyone.

Nathan Winters
Nathan Winters
CFO at Zebra Technologies

Morning, Andrew.

Andrew Buscaglia
Andrew Buscaglia
Analyst at BNP Paribas

Just wanted to touch on the memory impact in the quarter. You say you are now expecting $145 million in incremental costs. I think last quarter you had said you had expected about $120 million, but you are sort of indicating that things are still in line with what you were expecting. What is the delta here? Is it more just demand picking up, so you need to procure more memory, and that is what sort of surprised you? Can you just give us a little more detail on that thinking?

Nathan Winters
Nathan Winters
CFO at Zebra Technologies

Yeah, Andrew, this is Nathan. No, again, if you look at the memory impact from $145 million to $120 million in our last guide, it is entirely driven by increased mobile computing volume, both to drive the upside in the quarter and the overall mix within it. I would say there is also some mix of the memory types and requirements from our customers, because that can have an impact on pricing. But as we said on the call, the component prices are in line with our expectation. The price realization coming through the P&L is generally in line. Again, the increase is really entirely driven by the incremental volume and mix within the portfolio.

Andrew Buscaglia
Andrew Buscaglia
Analyst at BNP Paribas

Okay, got it. You indicated you are increasing prices in early, or you did in early October. Any way you can frame the magnitude of the increase and give us some confidence that your margins are protected into next year? How are you thinking about that?

Nathan Winters
Nathan Winters
CFO at Zebra Technologies

Yeah, you look at the October price increase, like any of our price increases, it varies across the different portfolios and regions, but it generates about a 15% increase on our mobile computing products. With that intent of closing the gap on the memory cost impact, really a modest impact here we will expect in the fourth quarter, just as those prices go throughout the market. But we expect that to drive about a point and a half impact on the top line in 2027 in terms of the magnitude. Again, as we go into next year, I think we are first committed to taking any action necessary to first win in the market, but also preserve profitability. That includes continuously looking at what prices we have to set in the market, along with driving efficiencies across the business to help mitigate the memory headwind.

Operator

The next question comes from Tommy Moll with Stephens. Please go ahead.

Tommy Moll
Tommy Moll
Analyst at Stephens

Good morning, and thank you for taking my questions.

Bill Burns
Bill Burns
CEO at Zebra Technologies

Morning, Tommy.

Tommy Moll
Tommy Moll
Analyst at Stephens

One more on memory here. Nathan, I think you said in the quarter you just reported that pricing offset nearly half of $50 million or maybe a little bit north of $50 million. There is a gap there, but that for the year of $145 million, you still expect to fully offset dollar for dollar. Is the catch-up all here in Q4, or how do you bridge us there? Thank you.

Nathan Winters
Nathan Winters
CFO at Zebra Technologies

That is correct. If you look in the third quarter, it was around $50 million of cost headwind, and we realized about $25 million of price. As we said back at the beginning of the year, the mitigation for the full impact not only includes the pricing actions we have taken through the year, which is driving around a point and a half of top-line benefit, but also included the restructuring actions in the beginning of the year, some tariff tailwind, along with the productivity we are driving across OpEx. Knowing going into the year that it would take some time for our pricing actions to flow through the P&L relative to the cost impact, we relied on those other levers to mitigate for the full year.

Nathan Winters
Nathan Winters
CFO at Zebra Technologies

As I mentioned earlier, the October price increase is really helping us set up to fully mitigate the impact on a dollar-for-dollar basis as we go into 2027.

Tommy Moll
Tommy Moll
Analyst at Stephens

Thank you, Nathan. As a follow-up on 2027, you are exiting this year with organic volumes up well into the high single digits, I think is the right zip code if we do the math on your organic guide. Last quarter, you mentioned some good visibility for 2027 on big T&L refresh opportunities. Any other big project commentary you could give us for next year? Just given the exit rate here, is there any reason why you shouldn't end up toward the high end of that typical five to seven kind of range for 2027? Thank you.

Bill Burns
Bill Burns
CEO at Zebra Technologies

Yeah, Tommy, I would say that we're not providing a detailed guide to 2027 at the moment, but I would say that maybe a bit of color, as you talked about, based on the pipeline of opportunities, the underlying demand we are seeing, the strength of the portfolio across all of our solutions, and as Nate just talked about with the first two questions here, securing additional memory supply, we would expect growth, as you suggested, for 2027 to be at the high end of our long-term guidance range. We think of profitability to be in line with kind of fourth quarter being a baseline to profitability for next year. So, that's how we see it, in line with what you were kind of outlining.

Operator

The next question comes from Jamie Cook with Truist Securities. Please go ahead.

Kevin Wilson
Kevin Wilson
Analyst at Truist Securities

Hey, good morning. This is actually Kevin Wilson on for Jamie. Thanks for taking my question. On memory, I'm wondering how much memory on hand increased in the third quarter, and how much supply for the first half of next year is already on hand or committed. Then you talked about qualifying new suppliers, I think with a goal of five to seven qualified sources per memory type. Wondering if you could provide us an update on that effort in terms of adding useful capacity.

Nathan Winters
Nathan Winters
CFO at Zebra Technologies

Yeah, I mean, overall, I mean, first I should have said the team's doing a great job. Obviously, it's a dynamic environment, and it changes every day in terms of what the teams are managing through, both from a customer interaction as well as working with our suppliers. I think if you look at the supply perspective, again, actively working the supply pipeline and visibility over the next 18 months with our memory suppliers. As Bill said, we have confidence in the outlook for supply as well as the ability to meet demand, not only here for the fourth quarter, but as we go into 2027.

Nathan Winters
Nathan Winters
CFO at Zebra Technologies

I think as evidence of that, if you look at our balance sheet at the end of the third quarter, inventory did increase from Q2 to Q3 by about $90 million, and that's entirely driven by memory supply and a bit of pricing. Now that sets us up well here to deliver in the fourth quarter, but that is starting to give us some capacity as we go into 2027. I think the other positive note is the team has qualified five new suppliers. We have two more expected in 2027. Again, with that goal of getting multiple different suppliers qualified for each of our memory requirements, that gives us that flexibility as demand changes and increases to go and fulfill that and meet the underlying demand from our customers.

Kevin Wilson
Kevin Wilson
Analyst at Truist Securities

Thank you. For my follow-up, you mentioned outperformance in machine vision. Just maybe any color you could provide on where that outperformance came from in the quarter, where you're winning market share, maybe how Photoneo is tracking relative to your expectations when you did that acquisition. Thank you.

Bill Burns
Bill Burns
CEO at Zebra Technologies

Machine vision is an integral part of our Asset Visibility & Automation segment, really driving automation in two primary areas, manufacturing and logistics. I'd say that in Q3, we saw particularly strong, particular strength in manufacturing across automotive and chip manufacturing were both strong, but we also saw strength in logistics as well. We've worked really hard to align our go-to-market teams and improve our focus and coordination across both manufacturing and logistics. The value proposition we're bringing to the market, along with the advancements in the portfolio, continue to drive growth. We saw strong performance, as you asked about Photoneo in the quarter, and we continue to build a strong pipeline of opportunities for that advanced technology as well.

Operator

The next question comes from Joseph Giordano with TD Cowen. Please go ahead.

Chris Grenga
Chris Grenga
Analyst at TD Cowen

Hi, good morning. This is Chris Grenga for Joe. Where did R&D land as a percentage of sales in the quarter, and what level is embedded in the 4Q guide, and are you still targeting that roughly 9% for next year?

Nathan Winters
Nathan Winters
CFO at Zebra Technologies

Yeah, if you look in the third quarter, we were just in line with about 9% with R&D as a percent of revenue. I think more broadly, the team's doing a great job of driving efficiency across the business while continuing to invest in the future, whether that's new AI capabilities, the sales coverage that's really helped play a part in driving some of the growth we're seeing in manufacturing and run rate, and making sure we have a solid pipeline of new products into the market. If you look at it overall for the year, OpEx will be about a point and a half improvement year-on-year, so driving meaningful productivity across the P&L. We expect that to continue to progress into 2027 as we leverage AI and other technologies to drive that efficiency. That's including across what we're doing from an R&D perspective.

Nathan Winters
Nathan Winters
CFO at Zebra Technologies

Again, I think we're seeing nice momentum across every line of OpEx, including R&D, while continuing to invest in the future.

Chris Grenga
Chris Grenga
Analyst at TD Cowen

Great. Thank you. Are stronger mobile computing sales being driven more by the improving memory supply or underlying demand getting better? How should we separate those two?

Bill Burns
Bill Burns
CEO at Zebra Technologies

Mobile computing is part of our Connected Frontline segment. That segment includes mobile computing, the Elo acquisition, software, and AI solutions. I would say, strength in mobile computing really is what's driving it. We continue to drive innovation, as you asked about R&D spending, which is allowing our mobile computing devices to continue to advance, adding functionality such as embedded RFID and AI capabilities, which is really resonating with customers. We're seeing the refreshes of our customer devices across retail and T&L driven by this new functionality and continued innovation. We're seeing strong pipeline of wins and opportunities moving forward. Mobile computing is really essential to frontline workers as our customers continue to digitize and automate their environment, and they're just at the beginnings of deployment of AI.

Bill Burns
Bill Burns
CEO at Zebra Technologies

I'd say strength in mobile computing really driven by investment by our customers in putting mobile devices in the hands of more associates across each of our vertical markets.

Nathan Winters
Nathan Winters
CFO at Zebra Technologies

The only thing I'd add is, we've seen that demand there. If you go back to the last call, we talked about the high end of our guidance range really reflecting where we saw demand, and the constraint was around the confidence in the memory supply. I think the good news is now we're able to fulfill that demand for our customers by increasing the supply of memory and giving us that confidence here as we go into the fourth quarter as well.

Operator

The next question comes from Piyush Avasthy with Citi. Please go ahead.

Piyush Avasthy
Piyush Avasthy
Analyst at Citi

Good morning, guys, and thanks for taking my questions.

Bill Burns
Bill Burns
CEO at Zebra Technologies

Good morning.

Piyush Avasthy
Piyush Avasthy
Analyst at Citi

Bill or Nathan, like one on Elo, like you highlighted strong growth contribution from the business, which is good to see. It would be helpful if you could provide more context around it. Is it just a change in the underlying customer preference that is helping growth, or have you started to see some benefits on selling Elo under the Zebra umbrella as a more comprehensive solution? Based on the demand activity you're seeing, would you say Elo can grow above your long-term growth framework in 2027?

Bill Burns
Bill Burns
CEO at Zebra Technologies

Yeah, we're just coming, just actually crossed our one-year anniversary, and we continue to be excited about the combined capabilities across both our portfolios. As you suggest, it's really around the strength of Elo's portfolio overall, but the combination of both our portfolios together and our customer engagements. Elo realized high single-digit growth in Q3, so up towards the top end of our long-term guidance range, and we continue to see momentum into the fourth quarter.

Bill Burns
Bill Burns
CEO at Zebra Technologies

I'd say the first year in line with our expectations overall, so the commercial pipeline that we're continuing to build, we believe that the biggest opportunity is in revenue synergies, where we're really driving across our sales teams and around the world the opportunity to leverage Zebra's strength and customer relationships in places where Elo may not have as strong of relationships, and also bring the portfolios together as things like point of sale and customer engagement is moving more and more to Android, and our engineering teams are working closely together. I'd say that overall, we're seeing that the combination of the two companies together is creating growth opportunities for us, and we would see Elo positioned to deliver results at the high end of our guidance range.

Piyush Avasthy
Piyush Avasthy
Analyst at Citi

That's great to hear. Then one on margins. I understand the higher memory cost headwind, but for your Asset Visibility & Automation segment, margins did surprise me a bit, as I was associating most of the memory challenges with Connected Frontline segment. Not sure if it's relatively high investments that's kind of going into the segment that's kind of pulling the margins a bit, but if you could elaborate on that would be helpful. I appreciate all the color, guys.

Nathan Winters
Nathan Winters
CFO at Zebra Technologies

Yeah, absolutely. If you look at the Asset Visibility & Automation segment, in gross margin, just under 50% for the year, or for the quarter, excuse me. Memory does have an impact in the business unit, to a lesser degree than mobile computing, but you still have flash memory and other types of memory in our machine vision business. That did have about a 2.5 point drag in the quarter, but that was offset by actually favorable mix and productivity across kind of the rest of the operation. So you do see a bit of memory headwinds in the Asset Visibility segment, which is having an impact on margins within the quarter. But I'd say similar dynamics as we talked about overall, but it does flow into our Asset Visibility segment.

Operator

The next question comes from Guy Hardwick with Barclays. Please go ahead.

Guy Hardwick
Guy Hardwick
Analyst at Barclays

Hi, good morning. Nathan, by my math, it seems that the $145 million memory headwind is offset by, I think you said a 1.5 points of price, which implies about $90 million, and therefore, $55 million is from all the other actions that you mentioned. Is that correct?

Nathan Winters
Nathan Winters
CFO at Zebra Technologies

That is correct.

Guy Hardwick
Guy Hardwick
Analyst at Barclays

Okay. Just as a follow-up for Bill, on slide five, you talk about multi-year pipeline in Transportation & Logistics. Can you maybe expand on that a bit, about what kind of customers, how international that pipeline is, and how material could that be to top-line growth going forward?

Bill Burns
Bill Burns
CEO at Zebra Technologies

Given our installed base as the market leader, refreshes represent attractive opportunity across each of our vertical markets. I think it is important to point out that every customer truly refreshes on their own cycle. The drivers for refresh are things like processing power and memory required for things like AI on the frontline, new features and functionality that our customers want to deploy, like RFID, or just the age of the device with things like operating system and security lifecycle. Our customers are deploying our new devices in both retail and T&L with RFID functionality and capabilities for AI that is driving their upgrades of handhelds and wearable devices.

Bill Burns
Bill Burns
CEO at Zebra Technologies

If you talk about specific segments, I would say retail and e-commerce refreshes are ongoing, and we are continuing to see additional demand driven by these new capabilities like RFID and AI, wanting to put more devices in the hands of more associates to have more connectivity, collaboration, and others across retail. We continue to progress T&L as the big refresh cycle that we have been talking about upcoming here, and we are winning those opportunities. We are in active planning deployments with T&L customers, I would say, around the globe.

Bill Burns
Bill Burns
CEO at Zebra Technologies

You asked about internationally. Internationally, I would say around the globe, really, which gives us confidence in what we would see across T&L as multi-year rollouts with those customers beginning in 2027. So again, that gives us confidence at the high end of our guidance range for 2027, as I talked about earlier, as this refresh cycle begins and we are winning those opportunities.

Operator

The next question comes from Rob Jamieson with Needham & Co. Please go ahead.

Rob Jamieson
Rob Jamieson
Analyst at Needham & Co

Hey, good morning. You guys highlighted momentum in the Zebra AI Suite and some of the software things. Can you help quantify the revenue contribution from software today? Is that what we are seeing in clinical mobility? Seeing strong double-digit growth there in healthcare, is the device in every hand type trend that we are seeing in retail now effectively translating to that end market?

Bill Burns
Bill Burns
CEO at Zebra Technologies

Yeah, I'd say on the software side, low single-digit contribution overall. From an AI perspective, I would say that Zebra overall, our entire portfolio plays an important part in AI, not just the software suite. We are seeing that the Frontline AI Suite is a clear differentiator as our customers are making buying decisions. We think AI across the portfolio, both in hardware and software, is critical. Asset Visibility & Automation really providing data into AI models, the connectivity that our mobile devices and our software offerings give to be able to take the output from AI models and to be able to ultimately provide guidance or direction to frontline workers, driven by software offerings like our task management offerings, our communication and collaboration offerings, as well as our AI Suite, creates the opportunities for software growth well into the future.

Bill Burns
Bill Burns
CEO at Zebra Technologies

We feel good about where we're at from a software perspective, the communication, collaboration, task management, and this AI Suite of offerings, which really allows us to meet our customers wherever they're at in the automation journey. If our customers want to develop the entire application themselves, there's hooks onto our mobile devices that allow them to easily deploy AI on those devices. If they want us to do parts of that application or that AI agent for them and wrap it into their own application, we'll do that. Or if they want us to build the entire application ourselves, we'll also provide that.

Bill Burns
Bill Burns
CEO at Zebra Technologies

So, marrying of our software offerings and our AI offerings together and leveraging what Zebra represents, which is really collection of data to feed AI models and to drive the Connected Frontline workers to be able to get that work done, is really what we see the opportunity for us. It's hardware and software, and the fact that we have an opportunity in a physical AI world to really be the leaders in AI for the frontline.

Rob Jamieson
Rob Jamieson
Analyst at Needham & Co

That's great. Thank you. Then just on capital allocation, I mean, strong free cash flow in the quarter. You guys are still buying back stock. Should we expect to pivot back towards M&A? If so, are there any specific areas that you're looking at, whether that's software or hardware?

Bill Burns
Bill Burns
CEO at Zebra Technologies

Yeah, we really use M&A to advance our vision and strategy overall is to deliver on our vision. We continue to look for closely adjacent and synergistic assets to the portfolio we have today across Connected Frontline and Asset Visibility & Automation. We look for things that are going to enhance our strategic capabilities, either in go-to-market or in technology advancements. It really truly is focused on accelerating our growth and at the same time being accretive to earnings and an accretive ROI for both us and our investors. I would say overall, we are excited about the business we have today, but we view disciplined M&A as really an opportunity to drive further long-term growth.

Bill Burns
Bill Burns
CEO at Zebra Technologies

As you said, in the short term, we have been buying back stock, but we have the strong enough balance sheet and the free cash flow to really do both, is to continue to return capital to shareholders and at the same time continue to explore M&A opportunities.

Operator

The next question comes from Meta Marshall with Morgan Stanley. Please go ahead.

Meta Marshall
Meta Marshall
Analyst at Morgan Stanley

Great. Thanks. Maybe just to come at the question a different way, is any of the strength that you saw in mobile computers, like, do you assess that as pull forward to get ahead of price increases, or were there any particularly large contracts that were within the windows of kind of granting old pricing? Just trying to get a sense of kind of the impact to demand you think there is from those price increases and any kind of commentary around price realization. Thanks.

Bill Burns
Bill Burns
CEO at Zebra Technologies

Yeah, we really haven't seen any impact on our revenue associated with pull forward. What we see is strong broad-based demand across all regions, all verticals, both segments. I think it's really broad-based. Our customers continue to invest in their businesses and technology across each of the vertical markets we serve, across retail, e-commerce, T&L, manufacturing, healthcare. All have been investing, and we really haven't seen a pull forward. Demand has been strong, and we're seeing that really broad-based both globally and across the verticals.

Meta Marshall
Meta Marshall
Analyst at Morgan Stanley

Great. Thank you.

Operator

The next question comes from Keith Housum with Northcoast Research. Please go ahead.

Keith Housum
Keith Housum
Analyst at Northcoast Research

Thanks. Good morning, guys. Hey, guys, in terms of the memory costs here, thinking that what you're buying today is really going to impact more of 2027 numbers, but how has the pricing of memory trended over the past several months? Are we hitting a point where we're plateauing, or is it still climbing?

Nathan Winters
Nathan Winters
CFO at Zebra Technologies

Yeah, Keith, it's still increasing, not to the same degree we saw maybe through the middle part of the year. The expectation is that it will increase as we go into the first half, but start to moderate in the back half of 2027. I think it's still quarter to quarter, we have seen increases as we expected in those component costs, but to a lesser degree here as we've kind of exited the year and the expectation as we go through the first half of the year.

Keith Housum
Keith Housum
Analyst at Northcoast Research

Great. Thanks. If I just turn the demand, the question over to the AI devices. You guys have been showing AI at the NRF for several years now, and it sounds like you have your first national retail customer adopting AI. Perhaps talk about the conversations you're having with retailers and customers now in terms of adopting AI, your AI mobile devices, and where we are on that in terms of the process going forward.

Bill Burns
Bill Burns
CEO at Zebra Technologies

I would say overall, we continue to win in the marketplace because of our innovation and the idea that our devices truly are enabled for AI and the use of AI models, both in the cloud and on the device. Our AI Suite is part of that offering, right? The idea that, as I said earlier, we can meet our customers where they're at in their journey, meaning that some of our customers, the one we talked about was really around using a complete Companion offering from Zebra, where we've developed the entire agent for them to use in retail.

Bill Burns
Bill Burns
CEO at Zebra Technologies

Other customers around the world are using our Blueprints, which is where we combine multiple functionality on the device and provide it to them in an AI agent, but they put it into my retail store, my company application on their own, but they wrap it in their own application. Other places, they're using our individual functionality, our individual elements, and putting it all together themselves. We clearly are winning the device upgrades and the new opportunities with our customers, and seeing our customers begin to upgrade devices because they want to leverage AI on those devices. All this is still in the early stages.

Bill Burns
Bill Burns
CEO at Zebra Technologies

Physical AI for the frontline, super early days, but we're winning from a hardware perspective to position our customers to deploy AI, and we're seeing the early wins in software and others and deployments within our customers, either them deploying themselves, Keith, or us helping them deploy it. All these are great conversations we're having with our customers.

Operator

The next question comes from Rob Mason with RW Baird. Please go ahead.

Rob Mason
Analyst at RW Baird

Yes, good morning. One of my questions has been answered, but Nathan, I may have missed it, but did you actually state what you expect the memory impact to be in 2027, just based on where you'll be exiting the year?

Nathan Winters
Nathan Winters
CFO at Zebra Technologies

No, we haven't. I'd say, I think as we think about 2027, I think what's important is, one, we're confident in our ability to secure the volume needed to support growth in the business. I think that's really important. And the current on-hand inventory I talked about earlier includes some of that capacity, which helps give that confidence. Again, I think ultimately we're committed to taking the actions necessary to not only win in the market, preserve profitability, whether that's additional price increases or driving efficiency, but I think too early to give exact guidance on where things will land. So many factors at play in terms of mix, and obviously the volume considerations.

Nathan Winters
Nathan Winters
CFO at Zebra Technologies

But I think, again, we have the opportunity to build upon, as Bill mentioned, where we're at in Q4 from a profitability perspective, and leverage all the levers we have across the business to continue to drive growth.

Bill Burns
Bill Burns
CEO at Zebra Technologies

Rob, maybe I'll jump in and just add to it. What hasn't been said on memory yet is that, what we're doing is working very closely with our customers to really strike the right balance. And that balance really is balancing increased component costs with our own pricing actions, right, to protect our profitability, but also ensuring that we continue to win these largest opportunities and we maintain the long-term strategic relationships with our customers. That's the critical part that really hasn't been talked about, that we're seeing continued demand and momentum in the business. We're working closely with our customers, difficult conversations with them to strike this right balance. And I think what we've been able to do is really maintain margins across the business.

Bill Burns
Bill Burns
CEO at Zebra Technologies

We feel really good about where we're at and the conversations we've had with those customers and striking the right balance and continue to win in the marketplace, which is strategic for the long term.

Rob Mason
Analyst at RW Baird

Yeah. Well, that kind of feeds into my follow-up question, Bill. You talked about broad-based demand across verticals, across geographies. It sounds like the larger project business would be healthy. I was just curious if you shed light on just color on the run rate business and how smaller customers are dealing with the higher pricing. Does it reflect the change in the mix or the models that they're purchasing?

Bill Burns
Bill Burns
CEO at Zebra Technologies

Yeah, I mean, I think our, as you know, our largest customers get our best pricing. I think the run rate has actually been strong as well, and I think to maybe add a little color to the verticals, both run rate and large deals, retail, e-commerce continues to be driven by e-commerce demand, omni-channel, driving inventory visibility. Customers continue to equip more associates with more devices for productivity, communication, collaborations, the things I talked about before. T&L, we're beginning to continue to talk about the refresh cycle with customers around the globe, as I talked about, really around the upgrade to the refresh of last mile deployments and RFID and the AI functionality that was asked about before is really playing a role in us winning those opportunities to enhance worker productivity.

Bill Burns
Bill Burns
CEO at Zebra Technologies

I'd say manufacturing, again, driven by broad-based manufacturing, but electronics, food and beverage, broad-based manufacturing demand. Healthcare has been up, again, another double-digit quarter for healthcare, driven by clinical mobility. So I'd say both large, medium, and small customers are continuing to buy, and I think that, look, I think our customers don't like the price increases, but they continue to know they have to invest in technology, and they're having these same conversations with lots of vendors across all electronic equipments that leverage memory, and they understand.

Operator

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

Bill Burns
Bill Burns
CEO at Zebra Technologies

I'd like to thank our employees, partners, and suppliers as we delivered record sales volume in the quarter, and we continue to position ourselves for sustainable growth. We're making excellent progress in our 2026 priorities, and we're excited about the opportunities ahead to continue our market leadership. Have a great day, everyone.

Operator

The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.

Executives
Analysts
Powered by Quartr