Zebra Technologies Corporation

Good day and welcome to the Q1 2020 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.

Before we begin, I need to inform you that certain statements made on this call are forward-looking and subject to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. These statements are based on current expectations and assumptions and are subject to risks and uncertainties. Actual results could differ materially due to factors discussed in our filings with the Securities and Exchange Commission. During this call, we will make reference to non-GAAP financial measures as we describe our business performance. You can find reconciliations of our GAAP to non-GAAP results in today's earnings press release and at the end of this slide presentation. This presentation will include prepared remarks from Anders Gustafsson, our Chief Executive Officer, and Olivier Leonetti, our Chief Financial Officer. Anders will begin with our first quarter results, then Olivier will provide additional detail on the financials and discuss our outlook. Anders will conclude with opportunities to advance our enterprise asset intelligence vision and trends we are seeing in our end markets. Following the prepared remarks, Joe Heal, our Senior Vice President of Global Sales, will join us as we take your questions. Also, throughout this presentation, unless otherwise indicated, our references to sales growth are year-over-year on a constant currency basis and exclude results from the recently acquired Cortexica, TempTime, and Profitec businesses for the 12 months following each acquisition. This presentation is being simulcast on our website at investors.zebra.com, and will be archived there for at least one year. Now I'll turn the call over to Anders.

Thank you, Mike. Good morning, everyone, and thank you for joining us. First, I would like to say that our top priority at this time is the health and well-being of our employees, customers, and partners. We are grateful to all of the frontline workers especially those sacrificing their personal safety so that all of us can continue to live and work safely through this challenging time. Those on our customers' front lines are heroes, serving in hospitals, grocery stores, delivery vehicles, warehouses, and other parts of the essential supply chains that help keep our lives as normal as possible. Many Cebra employees are also on the front line, supporting the build and repair of products and solutions that are essential to our customers doing their jobs safely and efficiently. To all those heroes, we say thank you. The financial results we published this morning reflect a challenging first quarter environment. We realized a net sales decline of 1%, adjusted EBITDA margin of 19.1%, which contracted by 200 basis points. and non-GAAP diluted earnings per share of $2.67, a 9% decrease from the prior year. We had a strong start to the year, and January and February generally played out to our expectations. However, late in the quarter, as COVID-19 evolved into a global pandemic, we experienced significant supply chain disruption, including product manufacturing delays, restrictions on transportation of goods, and a temporary closure in late March of a key distribution center supplying the Americas. We took extraordinary steps to produce and supply our mission-critical products to customers around the world. Our team was agile, pivoting our resources quickly to closely monitor the situation and take bold action. For example, We chartered planes to expedite product delivery from China to North America and Europe to meet customer commitments. Despite best efforts, we were unable to completely fulfill our order book in the quarter, resulting in a high backlog as we entered Q2. Production in China is now returning to normal, and we have stabilized our global supply chain through mitigating actions. In addition to the supply chain challenges, we saw softer demand through the channel globally, and China's sales were very weak with COVID-19 exasperating trends that had already been soft due to trade tensions. However, in any environment, enterprises worldwide utilize our solutions to address the evolving needs of their customers. In this changing environment, our solutions have become even more necessary for our customers. I would like to highlight a few notable Q1 wins supporting critical use cases in omnichannel, e-commerce, and healthcare. One of the world's largest mass merchants purchased 40,000 of our ZQ6 series mobile printers to address a number of front of store use cases, including online store pickup, pharmacy fulfillment, and shelf tagging. Additionally, we deployed several thousand TC5 series mobile computers to a large e-commerce player in Asia. This follows our competitive takeaway win last year of their printing and scanning business. With COVID-19, this e-tailers demand is growing exponentially. They have been hiring staff and we are working with them on additional solutions. In healthcare, we supported the NHS Nightingale Foundation temporary hospital in the UK. We provided and installed solutions supporting the identification and flow of COVID-19 patients. Nurses at NHS have also been using our TC5 series healthcare mobile computers to arrange virtual visits between patients and their loved ones. As expected, transitory effects of tariffs and expedited shipping expenses weighed heavily on Q1 gross margin and EPS. We have taken decisive actions to mitigate this impact, which drove operating expense leverage despite lower sales volume. We continue to remain agile and take appropriate action as results are pressured due to this challenging macro environment. With that, I will now turn the call over to Olivier to review our Q1 financial results and discuss our outlook.