Zebra Technologies Q3 2026 Earnings Call Transcript

Zebra Technologies (NASDAQ:ZBRA) reported third-quarter financial results on Tuesday. The transcript from the company’s third-quarter earnings call has been provided below.

This transcript is brought to you by Benzinga APIs. For real-time access to our entire catalog, please visit https://www.benzinga.com/apis/ for a consultation.

View the webcast at https://event.choruscall.com/mediaframe/webcast.html?webcastid=4eGrLBM3

Summary

Zebra Technologies achieved record quarterly sales, driven by strong execution and broad-based growth across its portfolio, exceeding $1.6 billion with a 22% increase year-over-year.

Adjusted EBITDA margin was 21.6%, with non-GAAP diluted earnings per share of $4.95, a 28% increase over the prior year, reflecting strong customer demand and efficient cost management.

The company raised its full-year sales growth guidance to 17%, with a full-year adjusted EBITDA margin expected at 23.5%, and non-GAAP earnings per share projected at $21.20.

Key growth areas included mobile computing, Elo Touch acquisition synergies, and AI solutions, with robust performance in transportation and logistics, healthcare, and retail sectors.

Zebra Technologies focused on advancing its innovation agenda, including the development of new AI tools and RFID capabilities, while maintaining a balanced capital allocation strategy with significant share repurchases.

Management expressed confidence in their ability to manage memory supply challenges and anticipated maintaining profitability into 2027, with plans for continued growth in AI and automation solutions.

Full Transcript

Mike (Investor Relations)

Quarter Earnings 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 risk factors discussed in our SEC filings. During this call, we will reference non-GAAP financial measures as we describe business performance, with reconciliations shown at the end of this slide presentation and in our earnings press release.

Throughout this presentation, unless otherwise indicated, our references to sales performance are year-on-year on a constant currency basis and exclude results from business acquisitions and dispositions for 12 months. This presentation will include prepared remarks from Bill Burns, our CEO, and Nathan Winters, our CFO. Bill will begin with perspective on our third quarter results, our value proposition, and strategic priorities. Nathan will then provide additional detail on our financial results and discuss our outlook, followed by Bill’s closing remarks. Then Bill and Nathan will take your questions. Now let’s turn to slide three as I hand it over to Bill.

Bill Burns (Chief Executive Officer)

Thank you, Mike. Good morning, everyone, and thank you for joining us. It was another standout quarter for Zebra. We achieved record quarterly sales and increase driven by strong execution and broad-based growth across our portfolio. These results demonstrate the durability of customer demand for our innovative solutions and the resilience of our business model, which supports our increased full-year outlook. Our results reflect the critical role Zebra plays in frontline operations from the factory floor to the point of sale.

The supply chain is becoming more complex. More than 80% of the Fortune 500 rely on Zebra and invest in digitizing and automating their workflows, bringing real-time intelligence and visibility to employees on the front line. Customers can now build upon the Zebra solution embedded in their critical workflows as they advance their physical AI journey. This creates a clear competitive advantage for Zebra, supporting our ability to deliver sustainable, profitable growth.

With that, let’s turn to slide 4 to cover our third quarter results. We delivered sales and earnings results above our expectations with broad-based growth across segments, regions, and end markets. Our connected frontline performed particularly well in the quarter, led by mobile computing and strong contribution from Elo Touch. This acquisition has performed very well in its first year, and we are on track to deliver our committed synergies. For the quarter, we generated sales exceeding $1.6 billion, growing more than 22%, or 11% on an organic basis from the prior year, an adjusted EBITDA margin of 21.6%, and non-GAAP diluted earnings per share of $4.95, a 28% increase over the prior year. We saw very strong customer demand, leading to higher-than-anticipated sales volumes. Our ongoing efforts to proactively strengthen memory supply, implement pricing action, and capture operating leverage enabled us to support this increased growth while maintaining adjusted EBITDA margin year over year.

Our strong performance and financial position support disciplined profit allocation. We repurchased $75 million of shares in Q3, bringing the year-to-date total to more than $640 million. This reflects our confidence in the business and our long-term value creation opportunity. The strength of our results and our progress managing the supply environment gives us confidence in our full-year outlook and our ability to continue to serve increasing customer demand into next year.

Moving to slide 5, I would like to share some additional details on our key end markets. We realized high single-digit growth with particularly strong sales in e-commerce and specialty stores, driven by customers’ expectations for faster delivery and expanded fulfillment options. Elo Touch continues to be a meaningful growth driver as the industry embraces self-service. Our Zebra’s Frontline AI suite also continues to gain traction. We are excited to be partnering with a large North American specialty retailer, rolling out Zebra AI Companion across all of its locations.

Transportation and logistics was our highest growth end market in Q3 as customers invest in AI-enabled mobile computing solutions to improve productivity and service levels, and we have a robust multi-year pipeline of large opportunities in manufacturing. Our high single-digit growth was driven by customers’ need for increased visibility across their operations. Electronics and food and beverage contributed meaningfully to growth. Machine vision also outperformed as we gained traction with go-to-market initiatives and our enhanced portfolio solution.

Healthcare grew double digits during the quarter, led by mobile computing as customers equip more caregivers with enterprise-grade solutions. This reflects the broader opportunity to bring real-time intelligence to the front line and improve the patient care journey. Now turning to slide 6, we continue to build on Zebra’s unique competitive positioning as the foundation for intelligent operations. AI solutions require access to frontline data in real time. Zebra plays at that intersection, capturing information from physical operations and providing actionable intelligence to the frontline. Zebra’s products are used by millions of frontline workers every day. Our customers need a practical path to scale and augment their labor resources, and they are building on Zebra’s workflow expertise and installed base of solutions as AI use cases emerge.

A retail customer in EMEA recently selected Zebra’s premium mobile computers over a competitor’s offering because of the ability to optimize AI on the device. This customer has utilized Zebra’s Frontline AI suite to help build precise product location functionality in their internally developed AI applications to drive productivity. Turning to slide 7, our results reflect the progress we are making in executing on our strategic priorities. Customers are digitizing physical operations to improve performance and are in the early stages of putting AI to work across the supply chain. Zebra is able to meet our customers wherever they are in their automation journey, and we are well positioned to solve their biggest problems.

We are also driving efficiency initiatives in our business to enhance profitability, which include operating expense leverage through cost discipline, accelerating our software development with new AI tools, and enhancing our go-to-market model to improve market coverage and efficiency. Our second priority is advancing innovation. We continue to see promising early customer traction with our Frontline AI suite, new mobile computers with RFID and optimized AI processing capabilities, as well as next-generation RFID and 3D machine vision solutions.

Our progress this year has highlighted the opportunity to deliver long-term profitable growth. Finally, our strong earnings and cash flow generation continue to enhance our financial strength and flexibility. We are executing on a balanced capital allocation strategy, prioritizing investments in our business that elevate our portfolio solutions while consistently returning capital to shareholders. Before I hand over to Nathan, let me step back and highlight what this quarter demonstrates about Zebra’s long-term investment case. Q3 reinforces our investment thesis.

We serve a $35 billion market with substantial runway as customers bring more automation and AI to physical operations. Our differentiation is meaningful. Zebra is embedded in critical workflows, and we’re well positioned to be the AI leader for the front line. Our capital-light model and strong cash generation are giving us the flexibility to invest in growth opportunities and return capital to shareholders. Together, these strengths give Zebra a durable, profitable growth model with the financial flexibility to create long-term shareholder value.

I will now turn the call over to Nathan to review our Q3 financial results, progress in navigating memory supply, and our strong fourth quarter outlook.

Nathan Winters (Chief Financial Officer)

Thank you, Bill. Let’s start with the P and L on slide 10. In Q3, total company sales increased 22.3%, or 11.3% on an organic basis, driven by continued momentum across the business and pricing actions, and we exceeded the high end of our guidance range primarily due to our ability to secure increased memory supply. Our Connected Front Line segment grew nearly 35%, including the Elo Touch acquisition, or 15% on an organic basis led by Mobile Computing. Our Asset Visibility and Automation segment grew 7% led by machine vision, printing and RFID. Performance was broad based across all of our regions, led by Mobile Computing North America. Sales increased 11% with strength in all end markets and outperformance. In Canada, EMEA sales grew 13%, led by large transportation and logistics customers with broad based growth across the region.

Asia Pacific sales increased 8%, led by Southeast Asia, South Korea and China, and Latin America sales grew 9%, led by Mexico and Brazil. Adjusted gross margin declined 220 basis points to 46%, primarily due to increased memory costs and business mix that was partially offset by favorable FX. Pricing actions mitigated nearly one half of the greater than $50 million year-on-year increase in memory costs, which was elevated primarily due to our higher-than-expected sales of mobile computers. Our 230 basis point improvement in operating leverage enabled us to hold EBITDA margins flat at 21.6%.

Non-GAAP diluted earnings per share were $4.95, a near 28% year-over-year increase, exceeding the high end of our outlook. Turning now to the balance sheet and cash flow on slide 11. Year to date, we generated $661 million of free cash flow, ending the third quarter with a modest debt leverage ratio of 1.6 times and more than $1 billion of credit capacity. We’ve been deploying capital consistent with our allocation priorities, repurchasing $46 million of stock during the past four quarters. Also note later this month we plan to refinance our credit facility, which is supposed to mature in May of 2027.

Turning to slide 12. Meeting demand in this environment requires both supply and cost management. Our scale and direct supplier co-planning give us flexibility to secure the components we need, while alternate sourcing and transitions to higher-density memory have expanded our options into 2027. Component pricing has been increasing generally as expected. Our position remains favorable relative to spot markets given our direct supplier relationships.

Our balance sheet reflects advanced stocking in memory to ensure we can serve the robust mobile computing demand in our pipeline into 2027, which is a top priority. Together these actions position us well to meet strong customer demand while protecting profitability. Let’s now turn to our outlook. We’ve entered the quarter with a strong backlog and pipeline that supports our sales growth guidance range of 10% to 14%, including approximately 150 basis points of contribution from favorable FX. Our fourth quarter adjusted EBITDA margin is expected to be approximately 22%, and non-GAAP diluted earnings per share are expected to be in the range of $5.00 and $5.40. Our fourth quarter outlook translates to full year sales growth of approximately 17%, a 2-point increase from our prior outlook.

Our full year adjusted EBITDA margin is expected to be approximately 23.5%, and non-GAAP diluted earnings per share is expected to be $21.20 based on our Q4 guide midpoint, increasing greater than 30% year on year. Our full year guide continues to reflect full mitigation of the approximately $145 million memory cost headwind, an increase of $25 million from our prior estimate due to higher sales volumes. We have been addressing this through targeted price increases along with net savings from our restructuring actions, operating leverage, and FX favorability. Free cash flow is expected to be at least $1 billion, which reflects a conversion rate of approximately 100%.

We are continuing to optimize our working capital levels balanced with our supply chain resilience objectives and elevated memory component inventory. Please reference additional modeling assumptions on slide 13. With that, I will turn the call back to Bill.

Bill Burns (Chief Executive Officer)

Thank you, Nathan. Before we turn to your questions, let me leave you with a few takeaways. Q3 demonstrated strong customer demand across our business, supporting our increased full-year outlook. Customers are leveraging Zebra’s AI-powered portfolio of solutions to improve productivity, visibility and decision making, and we remain focused on driving long-term profitable growth and shareholder value. With that, I will now turn the call back to Mike.

Mike (Investor Relations)

Thanks, Bill. We’ll now open the call for Q&A. We ask that you limit yourself to one question and one follow-up to give everyone the chance to participate.

OPERATOR

We will now begin the question-and-answer session. To ask a question, you may press star then one on your touchtone phone. If you are using a speakerphone, please pick up your handset before pressing the keys. To withdraw your question, please press star then two. At this time we will pause momentarily to assemble our roster. The first question comes from Andrew Buscaglia with BNP Paribas. Please go ahead.

Andrew Buscaglia (Analyst at BNP Paribas)

Hey, good morning everyone.

Bill Burns (Chief Executive Officer)

Morning, Andrew.

Andrew Buscaglia (Analyst at BNP Paribas)

So, just wanted to touch on the memory impact in the quarter. You say you’re now expecting 145 million incremental costs. I think last quarter you said you had expected about 120 million, but you’re sort of indicating that things are still in line with what you were expecting. So what’s the delta here? Is it more just demand picking up? So you need to procure more memory and that’s what sort of surprised you? Or can you just give us a little more detail on that thinking?

Nathan Winters (Chief Financial Officer)

Yeah. Andrew, this is Nathan again. If you look at the memory impact from 145 to 120 in our last guide, it’s entirely driven by increased mobile computing volume both to drive the upside in the quarter and the overall mix within it. That’s also some mix of the memory types and requirements from our customers because that can have an impact on pricing. But as we said on the call, the component prices are in line with our expectation. The price realization coming through the P&L is generally in line.

So again, the increase is really entirely driven by the incremental volume and mix within the portfolio.

Andrew Buscaglia (Analyst at BNP Paribas)

Okay, got it. And you indicated you’re increasing prices or you did in early October. Any way you can frame the magnitude of the increase and give us some confidence that your margins are protected into next year? How are you thinking about that?

Nathan Winters (Chief Financial Officer)

Yes, you look at the October price increase. Like any of our price increases, it varies across the different portfolios and regions, but it generates about a 15% increase on our mobile computing products with that intent of closing the gap on the memory cost impact. Really a modest impact here we’ll expect in the fourth quarter, just as those prices go throughout the market, but we expect that to drive about a point and a half impact on the top line in 2027.

In terms of the magnitude and again as we go into next year, I think the first is we’re first committed to taking any action necessary to first win in the market, but also preserve profitability. And that includes continuously looking at what prices we have to set in the market along with driving efficiencies across the business to help mitigate the memory headwind.

OPERATOR

The next question comes from Tommy Mall with Stevens. Please go ahead.

Tommy Mall (Analyst at Stevens)

Good morning and thank you for taking my questions.

Bill Burns (Chief Executive Officer)

Morning, Tommy.

Tommy Mall (Analyst at Stevens)

One more on memory here. Nathan, I think you said in the quarter you just reported that pricing offset nearly half of 50 or maybe a little bit north of 50 million. So there’s a gap there. But for the year of 145, you still expect to fully offset dollar for dollar. So is the catch up all here in Q4 or how do you bridge us there? Thank you.

Nathan Winters (Chief Financial Officer)

That’s correct. So if you look in the third quarter, it was around $50 million of cost headwind and we raised about 25 million of price. And as we said back to the beginning of the year, you know, the mitigation for the full impact not only includes the pricing actions we’ve taken through the year, which is driving around, you know, a point, a half, a point and a half a top line benefit, but also included the restructuring actions in the beginning of the year, some tariff tailwind along with the productivity we’re driving across opex.

So we knew going into the year that would take some time for our pricing actions to flow through the P&L relative to the cost impact. We relied on those other levers to mitigate for the full year. And now, as I mentioned earlier, the October price increase is really helping us set up to fully mitigate the impact on a dollar-for-dollar basis as we go into 2027.

Tommy Mall (Analyst at Stevens)

Thank you, Nathan. And as a follow-up on 2027, you’re exiting this year with organic volumes up well into the high single digits, I think is the right zip code, if we do the math. On your organic guide last quarter, you mentioned some good visibility for 2027 on big T&L refresh opportunities. Any other project commentary you could give us for next year? And just given the exit rate here, is there any reason why you shouldn’t end up toward the high end of that typical 5 to 7 kind of range for 2027?

Thank you.

Bill Burns (Chief Executive Officer)

Yeah, Tommy, I would say that, you know, we’re not providing a detailed guide to 2027 at the moment, but I would say that maybe a bit of color as you talked about, based on the pipeline of opportunities, the underlying demand we are seeing, the strength of the portfolio across all of our solutions, and as Nate just talked about with the first two questions here, securing additional memory supply, we would expect growth, as you suggested, for 2027 to be at the high end of our long-term guidance range.

And we think of profitability to be in line with kind of fourth quarter being a baseline to profitability for next year. So that’s how we see it, in line with what you were kind of outlining.

OPERATOR

The next question comes from Jamie Cook with Truist Securities. Please go ahead.

Kevin Wilson (Analyst at Truist Securities)

Hey, good morning. This is actually Kevin Wilson on for Jamie. Thanks for taking my question on memory. I’m wondering how much memory on hand increased in the third quarter and how much supply for the first half of next year is already on hand or committed. And then you talk about qualifying new suppliers, I think with a goal of five to seven qualified sources per memory type. Wondering if you could provide us an update on that effort in terms of adding useful capacity?

Nathan Winters (Chief Financial Officer)

Yeah, I mean, overall first I should have said the team’s doing a great job. Obviously it’s a dynamic environment. It changes every day in terms of what the teams are managing through both from a customer interaction as well as working with our suppliers. I think if you look at the supply perspective, again, actively working the supply pipeline and visibility over the next 18 months with our memory suppliers. And as Bill said, we have confidence in the outlook for supply as well as ability to meet demand not only here for the fourth quarter, but as we go into 2027.

I think as evidence of that, if you look at our balance sheet at the end of the third quarter, inventory did increase from Q2 to Q3 by about 90 million, and that’s entirely driven by memory supply and a bit of pricing. So not only that sets us up well here to deliver in the fourth quarter, but that is starting to give us some capacity as we go into 2027. And I think the other positive note is the team has qualified five new suppliers. We have two more expected in 2027.

So again, with that goal of getting multiple different suppliers qualified for each of our memory requirements, that gives us that flexibility as demand changes and increases to go and fulfill that and meet the underlying demand from our customers.

Kevin Wilson (Analyst at Truist Securities)

Thank you. And then for my follow-up, you mentioned outperformance in machine vision. Just maybe any color you can provide on where that outperformance came from in the quarter, where you’re winning market share, maybe how Photoneo is tracking relative to your expectations when you did that acquisition. Thank you.

Bill Burns (Chief Executive Officer)

Machine vision is an integral part of our asset visibility and automation segment, really driving automation in two primary areas, manufacturing and logistics. I’d say that in Q3 we saw particularly stronger strength in manufacturing across automotive and chip manufacturing were both strong, but we also saw strength in logistics as well. We’ve worked really hard to align our go-to-market teams and improve our focus and coordination across both manufacturing and logistics.

And the value proposition we’re bringing to the market along with the advancements in the portfolio continue to drive growth. We saw strong performance, as you asked, about Photoneo in the quarter and we continue to build a strong pipeline of opportunities for that advanced technology as well.

OPERATOR

The next question comes from Joseph Giordano with TD Cowen. Please go ahead.

Chris Grange (Analyst at TD Cowen)

Hi, good morning, this is Chris Grange on for Joe. Where did R&D land as a percentage of sales in the quarter and what level is embedded in the 4Q guide? And are you still targeting that roughly 9% for next year?

Nathan Winters (Chief Financial Officer)

Yeah, if you look in the third quarter we were just in line with about 9% with R&D as a percent of revenue. I think more broadly the team’s doing a great job of driving efficiency across the business while continuing to invest in the future. Whether that’s new AI capabilities, the sales coverage that’s really helped play a part in driving some of the growth we’re seeing in manufacturing and run rate, and making sure we have a solid pipeline of new products into the market.

And if you look at it overall for the year, OPEX will be about a point and a half improvement year on year, so driving meaningful productivity across the P&L. And we expect that to continue to progress into ’27 as we leverage AI and other technologies to drive that efficiency. And that’s including across what we’re doing from an R&D perspective. So again, I think we’re seeing nice momentum across every line of OPEX, including R&D, while continuing to invest in the future.

Chris Grange (Analyst at TD Cowen)

Great. Thank you. And are stronger mobile computing sales being driven more by the improving memory supply or underlying demand getting better? How should we separate those two?

Bill Burns (Chief Executive Officer)

Mobile computing is part of our connected frontline segment. So, you know, that segment includes mobile computing, the Elo acquisition, software, and AI solutions. And I would say, you know, strength in mobile computing really is what’s driving it. We continue to drive innovation, as you asked about R&D spending, which is allowing our mobile computing devices to continue to advance, adding functionality such as embedded RFID and AI capabilities, which is really resonating with customers.

We’re seeing the refreshes of our customer devices across retail and T&L driven by this new functionality and continued innovation. So we’re seeing strong pipeline of wins and opportunities moving forward. But mobile computing is really essential to frontline workers as our customers continue to digitize and automate their environment, and they’re just at the beginnings of deployment of AI. So I’d say strength in mobile computing really driven by investment by our customers in putting mobile devices in the hands of more associates across each of our vertical markets.

Nathan Winters (Chief Financial Officer)

The only thing I’d add is we’ve seen that demand there. If you go back to the last call, we talked about the high end of our guidance range really reflecting where we saw demand, and the constraint was around the confidence in the memory supply. So I think the good news is we’re now able to fulfill that demand for our customers by increasing the supply of memory and giving us that confidence here as we go into the fourth quarter.

OPERATOR

The next question comes from Piyush Avasti with Citi. Please go ahead.

Piyush Avasti (Analyst at Citi)

Good morning guys and thanks for taking my questions.

Bill Burns (Chief Executive Officer)

Good morning.

Piyush Avasti (Analyst at Citi)

I don’t know, Bill or Nathan, on Elo: you highlighted strong growth contribution from the business, which is good to see. It would be helpful if you could provide more context around it. Is it just the change in the underlying customer preference that is helping, or have you started to see some benefits on selling Elo under the Zebra umbrella as a more comprehensive solution? And based on the demand activity you’re seeing, would you say Elo can grow above your long-term growth framework in ’27?

Bill Burns (Chief Executive Officer)

Yeah, we’re just coming—just actually crossed our one-year anniversary, and we continue to be excited about the combined capabilities across both our portfolios. And as you suggest, it’s really around the strength of Elo’s portfolio overall, but the combination of both our portfolios together and our customer engagements. Elo realized high single-digit growth in Q3, so up towards the top end of our long-term guidance range, and we continue to see momentum into the fourth quarter.

I’d say the first year is in line with our expectations overall. We’re continuing to build the commercial pipeline. We believe that the biggest opportunity is in revenue synergies, where we’re really driving across our sales teams around the world the opportunity to leverage Zebra’s strength and customer relationships in places where Elo might not have as strong of relationships, and also bring the portfolios together as things like point of sale and customer engagement are moving more and more to Android.

And our engineering teams are working closely together. So I’d say that overall we’re seeing that the combination of the two companies is creating growth opportunities for us, and we would see position to deliver results at the high end of our guidance range.

Piyush Avasti (Analyst at Citi)

That’s great to hear. And then one on margins: I understand the higher memory cost segment, but for your asset visibility and automation segment, margins did surprise me. As I look at most of the memory challenges with the connected frontline segment, not sure if it’s relatively high investments that’s kind of going into the segment pulling the margins a bit, or if you could elaborate on that, that would be helpful. And I appreciate all the color, guys.

Nathan Winters (Chief Financial Officer)

Yeah, absolutely. So if you look at the asset visibility and automation segment, gross margin was just under 50% for the quarter. Memory does have an impact in the business unit to a lesser degree than mobile computing, but you still have flash memory and other types of memory in our machine vision business. So that did have about a two-and-a-half-point drag in the quarter, but that was offset by actually favorable mix and productivity across the rest of the operation.

So you do see a bit of memory headwind in the asset visibility segment, which is having an impact on margins within the quarter.

Bill Burns (Chief Executive Officer)

I’d say similar dynamics as we talked about overall, but it does flow into our asset visibility segment.

OPERATOR

The next question comes from Guy Hardwick with Barclays. Please go ahead.

Guy Hardwick (Analyst at Barclays)

Hi, good morning, Nathan. By my math, it seems that the $145 million memory headwind is offset by a point and a half of price, which implies about $90 million, and therefore $55 million is from all the other actions that you mentioned. Is that correct?

Nathan Winters (Chief Financial Officer)

That’s correct.

Guy Hardwick (Analyst at Barclays)

And just as a follow-up for Bill: on slide 5, you talk about a multi-year pipeline in transportation and logistics. Can you maybe expand on that a bit—about what kind of customers, how international that pipeline is, and how material could that be to top-line growth going forward?

Bill Burns (Chief Executive Officer)

Given our installed base as a market leader, refreshes represent a track of opportunity across each of our vertical markets. And, you know, I think it’s important to point out that every customer truly refreshes on kind of their own cycle. The drivers for refresh are things like processing power and memory required for things like AI on the front line, new features and functionality that our customers want to deploy like RFID, or, you know, just the age of the device with things like operating system and security lifecycle.

Our customers are deploying our new devices in both retail and T&L with RFID functionality and capabilities for AI that’s driving their upgrades of handhelds and wearable devices. If you talk about specific segments, I would say retail and e-commerce refreshes are ongoing and we’re continuing to see additional demand driven by these new capabilities like RFID and AI, wanting to put more devices in the hands of more associates to have more connectivity, collaboration, and others.

Across retail we continue to progress. T&L is the big refresh cycle that we’ve been talking about upcoming here, and Windows opportunities. We’re in active planning deployments with T&L customers—I would say around the globe. You asked about internationally: around the globe, really—which gives us confidence in what we would see across T&L as multi-year rollouts with those customers beginning in ’27. So again, that gives us confidence at the high end of our guidance range for ’27, as I talked about earlier, as this refresh cycle begins and we’re winning those opportunities.

OPERATOR

The next question comes from Rob Jamieson with Needham & Company. Please go ahead.

Rob Jamieson (Analyst at Needham & Company)

Hey, good morning. So you guys highlighted momentum in the Zebra AI Suite and some of the software things. Can you help quantify the revenue contribution from software today? And is that kind of what we’re seeing in clinical mobility—like seeing strong double-digit growth there in healthcare? Is the device-in-every-hand type trend that we’re seeing in retail now effectively translating to that end market?

Bill Burns (Chief Executive Officer)

Yeah, I’d say on the software side, low single-digit contribution overall. From an AI perspective, I would say that Zebra overall in our entire portfolio plays a part in AI, not just the software suite, but we are seeing that the Frontline AI Suite is a clear differentiator as our customers are making buying decisions. But we think AI across the portfolio, both in hardware and software, is critical. Asset visibility really provides data into AI models; the connectivity that our mobile devices and our software offerings give to be able to take the output from AI models and to be able to ultimately provide guidance or direction to frontline workers—driven by software offerings like our task management offerings, our communication and collaboration offerings, as well as our AI Suite—creates the opportunities for software growth well into the future.

So we feel good about where we’re at from a software perspective: the communication, collaboration, task management, and this AI suite of offerings, which really allows us to meet our customers wherever they’re at in the automation journey. If our customers want to develop the entire application themselves, there are hooks onto our mobile devices that allow them to easily deploy AI on those devices. If they want us to do parts of that application or that AI agent for them and wrap it into their own application, we’ll do that.

Or if they want us to build the entire application ourselves, we’ll also provide that. So marrying our software offerings and our AI offerings together and leveraging what Zebra represents—which is really collection of data to feed AI models and to drive the connected frontline workers to be able to get that work done—is really what we see as the opportunity for us. It’s hardware and software, and the fact that we have an opportunity in a physical AI world to really be the leaders in AI for the front line.

Rob Jamieson (Analyst at Needham & Company)

That’s great, thank you. And then just on capital allocation: I mean, strong free cash flow in the quarter, you guys are still buying back stock. Should we expect to pivot back towards M&A? And if so, are there any specific areas that you’re looking at, whether that’s software or hardware?

Bill Burns (Chief Executive Officer)

We really use M&A to advance our vision and strategy overall, you know, to deliver on our vision. And we continue to look for closely adjacent and synergistic assets to the portfolio we have today across connected frontline and asset visibility and automation. We look for things that are going to enhance our strategic capabilities either in go-to-market or in technology advancements. And it really, truly is focused on accelerating our growth and, at the same time, being accretive to earnings and an attractive ROI for both us and our investors.

I would say overall we’re excited about the business we have today, but we view disciplined M&A as really an opportunity to drive further long-term growth. As you said, in the short term we’ve been buying back stock, but we have the strong enough balance sheet and the free cash flow to really do both: to continue to return capital to shareholders and, at the same time, continue to explore M&A opportunities.

OPERATOR

The next question comes from Meta Marshall with Morgan Stanley. Please go ahead.

Meta Marshall (Analyst at Morgan Stanley)

Great, thanks. Maybe just to come at the question a different way, is any of the strength that you saw in mobile computer, like do you assess that as pull-forward to get ahead of price increases, or were there any particularly large contracts that were within the windows of kind of granting old pricing? Just trying to get a sense of kind of the impact to demand you think there is from those price increases, and any kind of commentary around price realization.

Bill Burns (Chief Executive Officer)

We really haven’t seen any impact on our revenue associated with, you know, pull-forward. What we see is strong, broad-based demand across, you know, all regions, all verticals, both segments. Right. So I think it’s really broad-based. Our customers continue to invest in, you know, their businesses and technology across each of the vertical markets we serve. Across retail, e-commerce, transportation and logistics, manufacturing, healthcare, all have been investing, and we really haven’t seen a pull-forward.

Demand has been strong, and we’re seeing that really broad-based both globally and across the verticals.

Meta Marshall (Analyst at Morgan Stanley)

Great, thank you.

OPERATOR

The next question comes from Keith Hussam with North Coast Research. Please go ahead.

Keith Hussam (Analyst at North Coast Research)

Thanks. Good morning, guys. Hey, guys. In terms of the memory costs here, thinking that what you’re buying today is really an impact more of 2027 numbers, but how has the pricing of memory trended over the past several months? Are we hitting a point where we’re plateauing, or is it still climbing?

Nathan Winters (Chief Financial Officer)

Yeah, Keith, it’s still increasing, not to the same degree we saw maybe through the middle part of the year. And the expectation is that it will increase as we go into the first half but start to moderate in the back half of 2027. So I think it’s still quarter to quarter. We have seen increases as we expected in those component costs, but to a lesser degree here as we’ve kind of exited the year, and the expectation as we go through the first half of the year.

Keith Hussam (Analyst at North Coast Research)

Great, thanks. And then if I just turn the demand question over to the AI devices: you know, you guys have been showing AI at the NRF for several years now, and it sounds like you have your first national retail customer adopting AI. But perhaps talk about, you know, the conversations you’re having with retailers and customers now in terms of adopting AI, your AI mobile devices, and where we are in that in terms of your prospects going forward.

Bill Burns (Chief Executive Officer)

I would say overall, we continue to win in the marketplace because of our innovation and the idea that our devices truly are enabled for AI and the use of AI models both in the cloud and on the device. And our AI suite is part of that offering. Right. The idea that, you know, as I said earlier, we can meet our customers where they’re at in their journey, meaning that some of our customers we just… The one we talked about was really around using a complete companion offering from Zebra, where we’ve developed the entire agent for them to use in retail.

Other customers around the world are using our blueprints, which is where we combine multiple functionality on the device and provide it to them in an AI agent, but they put it into a, you know, my retail store, my T&L company application on their own, but they wrap it in their own application. Other places they’re using our individual functionality, our visual elements, and putting it all together themselves. But we clearly are winning the device upgrades and the new opportunities with our customers and seeing our customers begin to upgrade devices because they want to leverage AI on those devices. All this is still in the early stages. So physical AI, AI for the frontline, super early days. But we’re winning a perspective to position our customers to deploy AI, and we’re seeing the early wins in software and others and deployments within our customers, either them deploying themselves, Keith, or us helping them deploy it all.

These are great conversations we’re having with our customers.

OPERATOR

The next question comes from Rob Mason with R.W. Baird. Please go ahead.

Rob Mason (Analyst at R.W. Baird)

Yes, good morning. A lot of my questions have been answered, but Nathan, I may have missed it, but did you actually state what you expect the memory impact to be in ’27 just based on where you’ll be exiting the year?

Nathan Winters (Chief Financial Officer)

No, we haven’t. That’s a… I think as we think about ’27, what’s important is, one, we’re confident in our ability to secure the volume needed to support growth in the business. I think that’s really important. And the current on-hand inventory includes some of that capacity, which helps give that confidence. And again, ultimately, we’re committed to taking the actions necessary to not only win in the market, preserve profitability, whether that’s additional price increases or, you know, driving efficiency.

But I think it’s too early to give exact guidance on where things will land — so many factors at play in terms of mix and obviously the volume considerations. But I think, you know, again, we have the opportunity to build upon, as Bill mentioned, where we’re at in Q4 from a profitability perspective and leverage all the levers we have across the business to continue to drive growth.

Bill Burns (Chief Executive Officer)

Rob, maybe I’ll jump in and just add to it. What hasn’t set a memory yet is that what we’re doing is working very closely with our customers to really strike the right balance. And that balance really is, you know, balancing increased component costs with our own pricing actions to protect our profitability, but also ensuring that we continue to win these largest opportunities and we maintain the long-term strategic relationships with our customers.

That’s the critical part that really hasn’t been talked about — that we’re seeing, you know, continued demand and momentum in the business. We’re working closely with our customers, you know, difficult conversations with them to strike this right balance, and I think what we’ve been able to do is really maintain margins across the business. So we feel really good about where we’re at, the conversations we’ve had with those customers, and striking the right balance and continuing to win in the marketplace, which is strategic for the long term.

Rob Mason (Analyst at R.W. Baird)

Yeah, well, that kind of feeds into my follow-up question. Bill, you talked about broad-based demand across verticals, across geographies. I’ve just, you know, it sounds like, you know, the larger project business would be healthy. I was just curious if you could shed light or just color on the run-rate business and how smaller customers are dealing with, you know, the higher pricing. Is this, you know, does it reflect the change in the mix or the models that they’re purchasing?

Bill Burns (Chief Executive Officer)

Yeah, I mean, I think our, as you know, our largest customers get our best pricing. Right. So I think the run rate has actually been strong as well. And I think, you know, maybe add a little color to the verticals. Both run rate and large deals — you know, retail e-commerce continues to be driven by, you know, e-commerce demand, omnichannel, you know, driving inventory visibility. You know, customers continue to equip more associates with more devices for productivity, communication, collaboration — the things I talked about before.

T&L, we’re beginning to continue to talk about the refresh cycle with customers around the globe, as I talked about, really around the upgrade to the refresh of last-mile deployments and RFID, and the AI functionality that was asked about before is really playing a role in us winning those opportunities to enhance worker productivity. I’d say manufacturing, again, driven by broad-based manufacturing, but electronics, food and beverage — broad-based manufacturing demand.

Healthcare has been up — again, another double-digit quarter for healthcare driven by clinical mobility. So I’d say both large, medium, and small customers are continuing, you know, to buy, and I think that, look, I think our customers don’t like the price increases, you know, but they’ve continued to know they have to invest in technology, and they’re having these same conversations with, you know, lots of vendors across all electronic equipment that leverages memory, and they understand.

OPERATOR

This concludes our question and answer session. I would like to turn the conference back over to Bill Burns for any closing remarks.

Bill Burns (Chief Executive Officer)

I’d like to thank our employees, partners, and suppliers as we delivered record sales volume in the quarter, and we continue to position ourselves for sustainable growth. We’re making excellent progress in our 2026 priorities, and we’re excited about the opportunities ahead to continue our market leadership. Have a great day, everyone.

OPERATOR

The conference has now concluded. Thank you for attending today’s presentation. You may now disconnect.

Disclaimer: This transcript is provided for informational purposes only. While we strive for accuracy, there may be errors or omissions in this automated transcription. For official company statements and financial information, please refer to the company’s SEC filings and official press releases. Corporate participants’ and analysts’ statements reflect their views as of the date of this call and are subject to change without notice.