Zebra Technologies Corporation

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'd now like to turn the conference over to Mike Steele, Vice President, Investor Relations. Please go ahead.

Good morning and welcome to Zebra's fourth 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 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. 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 performance are year over year on a constant currency basis and exclude results from acquired businesses for the 12 months following the acquisition. This presentation will include prepared remarks from Bill Burns, our Chief Executive Officer, and Nathan Winters, our Chief Financial Officer. Bill will begin with our fourth quarter results and actions we are taking. Nathan will then provide additional detail on the financials and discuss our 2024 outlook. Bill will conclude with progress we are making on advancing our enterprise asset intelligence vision. Following the prepared remarks, Bill and Nathan will take your questions. Now let's turn to slide four as I hand it over to Bill. Thank you, Mike. Good morning and thank you for joining us.

Today we will discuss our results the demand environment, and progress on actions we are taking to optimize our cost structure and drive sales as demand recovers. As expected, our fourth quarter performance was impacted by continued broad-based softness across our end markets and regions, which resulted in a significant decline in sales and profitability. For the quarter, we realized sales of $1 billion, a 33% decline from the prior year. An adjusted EBITDA margin of 15.4%, a seven-point decrease, and non-GRAP diluted earnings per share of $1.71, a 64% decrease from the prior year. Although we experienced declines across all product categories, services and software were a bright spot in the quarter. From a sequential perspective, we realized Q4 sales growth from Q3 as demand trends stabilized. Overall profitability was primarily impacted by expense deleveraging on lower sales volumes and a charge to renegotiate a supplier contract. However, as a result of our cost restructuring actions and inventory management initiatives, we realize a significant sequential improvement in profitability and free cash flow. Turning to slide five, I'd like to update you on our actions to address and mitigate the impacts of the current demand environment and position ourselves for long-term growth. As referenced in our earnings release, we have expanded the scope of our previously announced cost reduction plan and now expect $120 million of net annualized operating savings, an increase of $20 million from our last update, which we expect to implement by mid-2024. Our previously announced actions were substantially completed in the fourth quarter and enable us to realize approximately $50 million of savings in 2023. On the supply front, we continue to work with our contract manufacturers to draw down component inventories, and we are substantially complete with renegotiations of long-term supply commitments. In Q4, we renegotiated a 2021 agreement with a key electronic component supplier incurring a $10 million expense. The revised agreement cancels a portion of the multi-year volume commitment and increases purchasing flexibility. We have also reallocated resources to accelerate growth in under-penetrated markets, including Japan, along with government and manufacturing sectors, and to address new automation use cases with RFID and machine vision. We expect our actions to improve profitability and drive sales growth as our end markets recover. We saw double-digit declines across each of our end markets for both Q4 and full year, as many customers navigate a challenging environment and absorb capacity they built out during the pandemic to address the spike in e-commerce activity. On slide six, we highlight secular trends that we expect to drive long-term growth, including labor and resource constraints, real-time supply chain visibility, track and trace mandates, and increased consumer expectations. These are all focused areas in my conversations with our customers. Entering 2024, distributor inventories are aligned with current demand. Although we are seeing some improvement in order activity, we are not yet seeing signs of a broad market recovery and remain cautious in our planning. Consequently, we continue to take an agile approach to navigating this uncertain environment and remain disciplined with respect to our cost structure and capital allocation. I will now turn the call over to Nathan to review our Q4 financial results and discuss our 2024 outlook.