Nathan Winters
Chief Financial Officer at Zebra Technologies
Thank you, Anders. Let's start with the P&L on Slide 6. In Q3, adjusted net sales declined 4%, including the impact of currency and acquisitions and down 3.2% on an organic basis, primarily due to supply chain challenges and lower sales to large customers. Our Asset Intelligence & Tracking segment increased 12.4%, driven by double-digit growth in both printing and supplies as product availability has continued to generally improve.
Enterprise Visibility & Mobility segment sales declined 8.8% due to supply chain bottlenecks, including component shortages. We realized particularly strong growth in data capture solutions, including RFID, as well as rugged tablets. We also drove growth across services and software with strong service attach rates and attractive software offerings. Performance was mixed across our regions.
Asia-Pacific sales grew 20% with broad-based strength across the region, including China. Latin America sales increased 10% with exceptional growth in Mexico. And in North America and EMEA, sales decreased 9% and 2% respectively due to the supply chain challenges, lower sales to large customers and the suspension of sales in Russia. Adjusted gross margin increased 80 basis points to 45.8% due to favorable business mix and lower premium supply chain costs, partially offset by unfavorable FX.
Adjusted operating expenses increased due to acquisitions and delevered by 60 basis points due to the sales decline. Third quarter adjusted EBITDA margin was 21.1%, a 60 basis point decrease from the prior year period due to expense deleveraging on lower sales. Non-GAAP earnings per diluted share was $4.12, a 9.5% year-over-year decrease.
Turning now to the balance sheet and cash flow highlights on Slide 7. For the first nine months of 2022, we generated $170 million of free cash flow, which was significantly lower than last year, primarily due to a higher use of working capital due to elevated inventory and sales volume shifting to later in the quarter. Higher incentive compensation payments given our exceptional 2021 performance and $90 million of previously announced settlement payments. We made $50 million of share repurchases and invested $6 million in venture investments in the third quarter. We ended the quarter at a comfortable 1.7 times net debt to adjusted EBITDA leverage ratio and with more than $1.2 billion of capacity on our revolving credit facility.
On Slide 8, we highlight that premium supply chain costs have improved from peak levels. The actions we have taken to redesign products, targeted price increases, as well as the improving freight capacity have enabled us to reduce purchases on the spot market and reduce the freight cost impact. We are on plan to move printer shipments to ocean from air late this year and into early 2023. For the full year 2022, we now expect approximately $190 million of premium supply chain costs over pre-pandemic 2019 levels, a $10 million reduction from our prior outlook.
In Q3, we incurred premium supply chain costs of $30 million as compared to the pre-pandemic baseline, which was favorable to what we had anticipated in our prior outlook. In total, Q3 transitory items had a combined favorable gross margin impact of $14 million year-over-year, and in Q4 are expected to be approximately $35 million, which is a nearly $30 [Phonetic] million reduction year-on-year.
Let's now turn to our outlook. Q4 sales are expected to be approximately flat from the prior year period, with a range of negative 2% to positive 1% growth. As compared to our prior outlook, the lower sales growth is driven by softening demand, continued supply chain challenges and currency headwinds. We are confident in this guide given our relatively strong order backlog, improved quarter-to-date shipment activity and actions taken to stabilize North American distribution. We estimate a two-point additive impact from recently acquired businesses and a four-point negative impact from foreign currency changes.
As a reminder, approximately 25% of our global sales are denominated in euros. We anticipate Q4 adjusted EBITDA margin to be between 22% and 23%, which is an increase from both the prior year and the prior quarter. Given our tempered view of the demand environment, we are taking a conservative approach to managing operating expenses while preserving strategic growth investments. Non-GAAP diluted EPS is expected to be in the range of $4.50 to $4.80.
We now expect our free cash flow to be at least $400 million for the year, which we have significantly reduced from our prior outlook due to lower profits and elevated inventory levels that we will be working down into 2023 as we rationalize safety stock and execute on our North America distribution transition. Sales seasonality has improved to more normalized levels in Q4, which should drive the peak cash flow quarter for 2022. Please reference additional modeling assumptions shown on Slide 9.
With that, I will turn the call back to Anders to discuss how we are advancing our Enterprise Asset Intelligence vision with our customers.