ZBRA

Zebra Technologies Corporation (ZBRA)

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Zebra Technologies Corporation (ZBRA)

Q3 2012 Earnings Call

November 6, 2012 11:00 am ET

Executives

Douglas A. Fox – Vice President, Treasurer

Anders Gustafsson – Chief Executive Officer

Michael C. Smiley – Chief Financial Officer

Michael H. Terzich – Senior Vice President, Global Sales and Marketing

Analysts

Paul Coster – JPMorgan Securities LLC

Keith M. Housum – Northcoast Research Partners LLC

Greg W. Halter – Great Lakes Review

Anthony C. Kure – KeyBanc Capital Markets

Brian Drab – William Blair & Co. LLC

Presentation

Operator

Good morning and welcome to the Zebra Technologies 2012 Third Quarter Earnings Release Conference Call. Joining us from Zebra Technologies are Anders Gustafsson, CEO; Mike Smiley, CFO; Mike Terzich, Senior Vice President, Global Sales and Marketing; and Doug Fox, Vice President, Investor Relations.

All lines will be in a listen-only mode until after today’s presentation. Instructions will be given at that time in order to ask a question. At the request of Zebra Technologies, this conference call is being recorded. Should anyone have any objections, please disconnect at this time.

At this time, I would like to introduce Mr. Doug Fox of Zebra Technologies. Sir, you may begin.

Douglas A. Fox

Thank you. Good morning. Thank you for joining us today. Certain statements made on this call will relate to future events or circumstances and therefore will be forward-looking statements within the meaning of the Securities Litigation Reform Act of 1995. Words such as expect, believe and anticipate are a few examples of words identifying a forward-looking statements.

Forward-looking information is subject to various risks and uncertainties, which could significantly affect expected results. Risk factors were noted in the news release issued this morning and also described in Zebra’s 10-K for the year ended December 31, 2011, which is on file with the SEC.

Now, let me turn the call over to Anders Gustafsson for some brief opening remarks.

Anders Gustafsson

Thank you, Doug, and good morning everyone. Disciplined execution in a challenged business environment led to solid third quarter performance for Zebra. Earnings from continuing operations were up 9% reaching a record $0.69 per share excluding a non-cash charges, sales which declined a slight half a percentage points to $252 million or up 1% on a constant currency basis.

Steady strength in North America where we achieved record sales including increased demand for high performance and other tabletop printers offset softness in Europe. An improved mix with a boost in tabletop printer sales contributed through a sequential increase in average unit prices. Even with economic headwinds, customers maintain their investments in solutions that help them drive operational efficiencies and generate incremental sales.

Zebra products are vital in helping our customers realize the improved business performance by allowing them to make smarter decisions by gaining greater visibility into their extended value chains. Either by our take share and expansion strategies, more companies are turning to Zebra for the hard ROI benefits those solutions deliver. We also achieved a solid performance by generating operating leverage in the business.

Gross margin exceeded 50%. Operating expenses declined from the prior quarter, including the incremental expenses related to the acquisition of LaserBand in July. Earnings also benefited from a lower effective tax rate on operations.

Our cash generating capabilities continued the pace. For the quarter we generated $58 million in free cash flow and returned $15 million to shareholders with the repurchase of another 400,000 shares. So far this year we have returned $40 million to shareholders with the purchase of $1 million shares as Zebra continues to demonstrate great capacity for increasing shareholder value.

Zebra’s third quarter performance highlights the value of our diversity across geographies, products and industries. It also demonstrates the success of our business strategies to create greater differentiation between Zebra and its competitors. Our enduring strength coupled with extending our industry leadership makes us optimistic about Zebra’s future.

As discussed on previous calls, Zebra together with our partners is looking to create the smarter, more connected business community. We are pursuing this vision through five strategic pillars; one, intensify innovation, two, expand into new markets, three, maximize operational effectiveness, four, penetrate existing markets further and lastly, inspire our people and culture.

Let me now discuss some areas of notable progress. First, the pace of innovation remains high at Zebra. As a reminder, we introduced a ZT200 Series of tabletop printers during the second quarter. Positive customer reception to this new platform has made the ZT200 one of the best product launches for Zebra in the recent company history. This new platform delivers great value and performance all backed by Zebra’s reputation for product reliability and durability.

Importantly, the ZT200 along with future printers will incorporate link OS, a new and innovative ecosystem that makes our printers smarter, simplifies integration and ensures high performance. Link OS will expertise our time to market with innovative products that support emerging technology opportunities such as the Internet of Things. It should also reduce costs both in terms of product development for Zebra and lower integration and operating costs for end users. Advancements such as these are increasing Zebra’s value to its channel partners and customers alike.

Second, we are expanding into new markets with existing solutions. Over the past several years we’ve had great success with our HC100 wristband printer, which delivers improved patient safety and compliance in healthcare. During the third quarter we also introduced a model geared towards hospitality and leisure. Increasingly, hotel and events staff are turning to wristbands for enhanced operational efficiency. Improved guest identification enables better management over counterfeit prevention and theft control in leisure and entertainment venues.

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