Zebra Technologies Corporation

Good day and welcome to the third quarter 2022 Zebra Technologies Earnings Conference Call. All participants will be in listen-only mode. Should you need assistance, please signal 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 like to turn the conference over to Mike Steele, Vice President of Investor Relations. Please go ahead.

Good morning and welcome to Zebra's third quarter 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 due to factors discussed in our SEC filings. During this call, we will reference non-GAAP financial measures as we describe our business performance. You can find reconciliations at the end of this slide presentation and in today's earnings press release. Throughout this presentation, unless otherwise indicated, our references to sales growth are year-over-year on a constant currency basis and exclude results from recently acquired businesses for the 12 months following each acquisition. This presentation will include prepared remarks from Anders Gustafsson, our Chief Executive Officer, and Nathan Winters, our Chief Financial Officer. Anders will begin with our third quarter results. Then Nathan will provide additional detail on the financials and discuss our fourth quarter outlook. Anders will conclude with progress made on advancing our enterprise asset intelligence vision. Following the prepared remarks, Joe Heal, our chief revenue officer, will join us as we take your questions. Now let's turn to slide four as I hand it over to Anders.

Thank you, Mike. Good morning, everyone, and thank you for joining us. For the quarter, we realized a sales decline of 3%, an adjusted EBITDA margin of 21.1%, a 60 basis point decrease, and non-GAAP diluted earnings per share of $4.12, a 9% decrease from the prior year. We were unable to fulfill all orders due to supply chain challenges related to persistent component shortages for certain products, as well as disruption in the transition to our new North American distribution center in the Chicago area. These challenges led to lower throughput than planned late in the quarter. This, along with orders from some large customers being deferred, contributed to the lower than expected results. In North America and EMEA, cycling two prior large mobile computing deployments and suspension of sales in Russia resulted in the sales declines. Our Asia Pacific and Latin America regions were bright spots in the quarter with double-digit sales growth. Globally, we realized sales growth with our small and medium-sized customers, which was more than offset by decline from our large customers. From a solutions offering perspective, we drove growth across data capture, printing, supplies, services, and software. These helped to partially offset the sales decline in mobile computing. We expanded gross margin over the prior year despite significant FX pressure, yet EBITDA margin contracted and EPS declined due to the deleveraging of operating expenses from the sales decline. We have initiated meaningful actions to address the supply chain challenges, which was the primary driver for our results. These include organizational changes and the reallocation of resources to drive improved focus and execution in our supply chain, initiating specific actions with our supply chain partners to improve operations, and extending the planned transition of our North America distribution center to mitigate execution risk. Customer demand and our order pipeline generally remains healthy, yet has slowed since late Q3. Given the macroeconomic uncertainty, we see elongated sales cycles and certain projects being deferred. As a result, we are taking a cautious approach to our Q4 sales outlook and expense management while working to right-size our working capital levels in the coming quarters to improve free cash flow conversion. At the same time, we continue to prudently invest in initiatives that advance our solutions offerings. With that, I will now turn the call over to Nathan to review our Q3 financial results in more detail and discuss our fourth quarter outlook.