Good morning. My name is Paul Chung, and thank you for joining this morning's session. I'm pleased to have with me Bill Burns and Nathan Winters, CEO and CFO of Zebra. Welcome.
Thank you.
Thank you.
Just to get us started, can you, Bill, maybe provide a kind of brief overview of the business?
Yeah, sure. you know, Zebra empowers organizations through our vision of Enterprise Asset Intelligence, which really means giving a digital voice to assets and frontline workers ultimately to provide, you know, visibility, connectivity, and then ultimately take the next best action within, you know, our customers' businesses. In that case, it's really about, you see us in everyday life. You see us at, you know, front of store checkout with, you know, scanning. You see us with package delivery, you know, mobile devices in the hands of packages that get delivered to your home, e-commerce picking, hospital wristbands or scanning your labels inside hospitals. In everyday life, you see Zebra is mission critical to our customers.
We've, you know, entered some new areas, most recently around robotics and e-commerce picking, along with mobile devices and robots working together. Machine vision and fixed industrial scanning is a new market that we entered, and then retail software leveraging those mobile devices I mentioned before inside, you know, retail environments to engage associates around things like task management, workforce management, collaboration and others. You know, today, you know, our primary businesses are mobile devices, mobile computers, as we call them, scanners, printers, and then these three new areas, adjacencies such as tablet, RFID, new areas we're invested in. You know, ultimately we make, you know, supply chains smarter and give visibility to them.
We make retail associates, you know, more engaged and we allow for, you know, ease of picking and warehouse and automation within manufacturing and T&L.
Great. Thanks for that. Let's talk about what has happened in the past couple of years. Expand on the business and the step-up of revenues during the pandemic. You know, what kind of drove demand then? Maybe talk about the USPS contract and some of those larger deals that came about.
Yeah. I'd say that, you know, during the pandemic, the trends that we were seeing, you know, prior to the pandemic, to digitize and automate customers' environments, ultimately, you know, some customers accelerated their investments, so they were well on that journey of, you know, e-commerce or buy online, pick up in store, you know, omnichannels, we call it, within retail. Those that were ahead on that journey continued to invest, you know, during the pandemic. The customers that, you know, were further behind, invested significantly during that timeframe. Those secular trends continue. I would say that the challenge today is really around, you know, visibility and retail, you know, overall has been, you know, pulling back on spending, especially CapEx on large orders has been the challenge that we've seen most recently.
In first quarter, our other vertical markets, transportation, logistics, manufacturing, healthcare, all grew in first quarter. Clearly retail's been more challenging. Our larger orders have been the biggest challenge most recently. I think while customers absolutely believe they need to continue to address the labor challenges through technology, they need to continue to invest in technology in their business, they need to serve their customers better through technology, they're making tough decisions in the short term about their business, which is creating challenges around visibility for us. You know, we guided that, you know, in second quarter and full year because of that lack of visibility. I think it's really around large orders. Our smaller orders were continuing to grow in first quarter. We saw towards the end of Q1, those begin to moderate as well.
It's all really about the macro environment. The trends that we saw through the pandemic continue. People spent more money, you know, during that to invest in technology, and now they're holding back based on concerns around macro. We feel strong about our business ultimately. We've been able to continue to maintain or take share across each one of our market segments. We believe we're making the right investments in the right technology areas. We saw places where we were challenged around supply chain, customer loyalty, and those customers come back and buy from Zebra. We feel good about the business overall, but in the short term, we're clearly feeling the challenges around visibility, you know, within the macro environment.
Gotcha. you know, as we look beyond kind of 2023, you did kind of step up your top line guidance to that 5% - 7% mark. you know, is this going to be mostly organic beyond 2023, can we get back into those ranges pretty quickly?
Yeah. We, you know, we updated our long-term guidance to 5%-7% over a cycle, we still believe in that range once we get out of the current economic cycle. As Bill mentioned, if you look at the markets we serve, you know, whether that's the regions, the verticals, it's a $30 billion market for us across whether it's our core businesses, the adjacent and expansion. As Bill mentioned, we're excited about the long-term prospects of each of those. Even in some of the markets where we have a higher market share, we still believe there's segments within the market where we're under-penetrated and have an opportunity to grow our market share, even as each of those markets continue to expand within themselves.
Again, we still believe in that long-term guide, and we'll get back there once we get through the current economic state.
Gotcha. Let's jump right into AIT. You know, it's performed very well the past two years and even into to 1Q. Can you talk about the trends you're seeing in that business?
I mean, AIT includes our printing portfolio, our supplies portfolio, and then some of our services portfolio tied to that. You know, from a print perspective, you know, we think of printing as really the first place where you give something a digital voice, right? You print a barcode, you print a label that ultimately has an RFID tag embedded in it. That really is the start of a digital journey for, you know, an asset within. You know, retail or transportation logistics, you know, manufacturing is, you know, we see. We continue to see, you know, growth across our printing portfolio. We see that growing 4%-5% is, you know, in the, you know, once we're through the macroeconomic cycle we're in today, as Nate talked about, the 5%-7%.
Overall, I think that, you know, our printing business has benefited from the acquisition, the enterprise acquisition. Marrying our scanning and mobile computing portfolio to print has allowed us to take about 10 points of share over that time frame. You know, in printing, we continue to see loyalty, as I said before, from our customers. We saw a strong Q1 on the backs of, you know, a year ago, challenging environment around parts and being able to supply printers, but we've seen our customers come back and us continue to maintain or grow share within that market. Whole range of printing portfolio all the way from, you know, tabletop to desktop to mobile to RFID printers.
You know, we continue to be the leader in that space, and we feel good about that business, you know, longer term.
Talk about the relative strength across some of your verticals like retail logistics and then maybe across regions as well in AIT.
I would say that, you know, from an AIT perspective, North America and EMEA remain strong. I think, you know, across the portfolio, as I said, we had, you know, easier compare in first quarter with challenges in supply chain last year. You know, I would say that, you know, mobile computing is probably the most impacted by vertical and retail, overall, I would say, compared to print or scanning. Again, print and scan had some other supply chain challenges in the first half of last year. I think that, you know, overall from a vertical segment, you know, generically not just AIT, as I said earlier, you know, retail down in first quarter. The rather vertical segments, T&L, manufacturing, healthcare were all up across the portfolio.
You know, we feel good about that. I think that ultimately we're still seeing the weighing of large deals across the portfolio which really tie more to mobile computing than AIT. The run rate business has continued, you know, to be strong in first quarter. It started to moderate towards the end of first quarter. We're seeing that moderation continue, which, you know, put some challenges on our distribution, right? We sell through tier to distribution. You know, in that case, when the end market's slow, our distributors pull back a little bit harder to pull back, you know, on inventory from their side. We typically see kind of an oversized pullback, and then they begin to buy again as they get their inventory kind of right sized for the demand they're seeing.
You talked about the run rate for AIT has stepped up to that $1.4 billion-$1.7 billion today. You know, as we move through this year, how do we think about that pace for that business and any kind of key indicators you look for?
Yeah. I mean, I think we look at a lot of different, you know, macro indicators across the business. You know, IT device spending. You know, we look at spending across CapEx, you know, across our customer base. We look at new technology inflections like RFID that's, you know, driving our RFID printer business. You know, there's several indicators we look for, and there's no reason for us to believe that we don't continue to maintain or grow share within our printing portfolio. Our supplies are a great recurring revenue stream and attached to our printing business, so we feel good about that. The 4%-5% growth rate, you know, and an opportunity to continue to take share or to enter underserved markets. As Nate said, there's still opportunities for us.
You know, we're number one in the marketplace, but we're not number one everywhere, and we don't have the same exact share across all the geographies or across all the vertical markets. That creates an opportunity for the entire portfolio.
If you look within the portfolio, there's the Temptime business which we acquired in 2019 that does time temperature monitoring, so they can monitor, you know, has a drug been outside of its stated range of temperature for a period of time? Now looking at how do you embed that technology within our core supplies, whether that's RFID. We're also seeing a ton of operational synergies. It's now the headquarters or COE for our North America supplies business. So both, you know, from an R&D perspective, we're still excited about the future, as well as we've been able to generate quite a bit of operational synergies with that acquisition, back a few years ago.
Cool. Let's jump into EVM. 2021 was a very, very strong year. You're seeing some retracement back here and run rate in 2023. What's going on in this business?
I'd say that, you know, the EVM portfolio includes our scanning and mobile computing portfolio and then the services associated with it. Includes our tablet portfolio and the new areas we're investing in. I think, you know, we're seeing overall is the biggest challenge is clearly retail, as I mentioned before, it's really around, you know, larger orders, you know, from our customers. They're still continuing to buy, you know, product, but the large projects we're seeing delayed, you know, within our customer environment. I think the sales teams have had, you know, challenges around, you know, really visibility of those projects with our customers. You know, those projects continue to move out in time is the real challenge. We haven't seen customers cancel orders, they continue to move ahead and complete those orders.
You saw, you know, Lowe's, despite their, you know, challenging environment, they had a rollout plan, and they completed that rollout in first quarter. Right now they're seeing challenges around their, you know, top line, which means they'll likely pull back on CapEx, but they moved ahead and finished that project as they announced with their earnings yesterday. Once somebody starts a project, they continue that rollout, and then they continue to buy additional devices after that. What we've seen is new projects, you know, being really moved out in time, and then the visibility of when that happens really comes down to our customers making, you know, tough economic decisions around their business and saying, Hey, I've just got to pull back in CapEx. My top line isn't what I think it's gonna be. I'm concerned about the macroeconomic environment.
Let's wait on that project. That project will come back, and the timing of that is the challenge that we've seen. I'd say retail is the biggest challenge around, you know, our mobile device portfolio today. Our scanning run rate business continues to, you know, be strong. As I said, through Q1, we saw it moderate at the end of Q1, just like our printing portfolio. That moderation continues in Q2. Again, we believe the strength of the core portfolio overall grows to 4%-5%, you know, moving forward, and we feel good about the portfolio we have. We feel good about the share we have. We see it in our competitors' results. Ultimately, we're doing better to them, and we see it in the share, you know, opportunities, share of distributor wallet. We feel good about our competitive position. It's all about macro.
Okay, great. RFID, you called out for relative strength. You know, how large is that contribution today, kind of the margin profile and expectations for that business?
You know, I would say RFID today is, you know, low single digits, you know, revenue for us, but an exciting, you know, market. We're seeing RFID move from retail into, you know, the entire supply chain and backing up into all the way to manufacturing. The idea of having more visibility across supply chains is driving, you know, RFID opportunity. We've recently had our largest win ever in RFID, really a transportation logistics provider that's gonna track every package with an RFID, you know, label through their system to get the right package on the right truck for delivery to their end customers. We're seeing RFID move from retail into supply chain, into specific areas of transportation logistics. We're seeing it in things like quick serve restaurants that, you know, it's all about labor savings.
It's all about automatic reads. You know, there's a place for both, you know, barcode reading and RFID tagging go together. You still can't eliminate the barcode. You still need the barcode reading on eaches. You still need it because of the RFID tag. There's not RFID readers everywhere, so we get that question a lot. The idea of RFID, we're the leader in RFID readers today, readers and printers across the portfolio. We feel good about the growth of that segment. It grows faster than our core markets. That's one of the reasons why you see us talk about our core markets at 4%-5%, but then overall, the growth rate of 5%-7% is areas like tablets and RFID, bioptic scanning grow faster than our core.
Right. You mentioned some key partners you're leveraging, but why hasn't RFID kinda taken off more so in your mind? I mean, tags have gotten so economical now.
I think that's one of the reasons why you're seeing that, you know, RFID continue to be more use cases. Tags have not only come down in price but also have become more sophisticated, where you can use tags on more items than you could in the past. The reads are better, more accuracy, you know, when reading those. I think that you're also seeing, you know, We have a lot of partners in RFID space across the different vertical markets we serve, and we have a lot of independent software vendors that we work with as well to develop software applications for those. The, you know, inside of quick serve restaurants, for instance, someone may develop the software to go along with that counting when items come into the back of a quick serve restaurant.
Without that software to enable it's an interesting idea, but you really need to be able to track and ultimately have software to support the application of RFID. I think that we're seeing, you know, the use of tags not only in price but also in the idea of how you can use tags today, you know, and read rates become more accurate. I think you're seeing more of a need for visibility across a supply chain, and I think you're seeing the adoption of more software vendors writing, you know, more code to have applications around it, which is enabling the use cases, you know, within our customers' environments.
Gotcha. You know, how do we think about kind of some of the recurring aspects of your business? You mentioned software. You have supplies and, you know, the hardware piece as well, but how do we think about some of the recurring.
Yes, if you look at the makeup of the portfolio, service and software represents mid-teen percent of the business, so about 15% of the company. Within that software is low to mid-single digit percent of the portfolio, which has a recurring nature, both in our software contract or service contracts as well as the as-a-service offerings. Supplies, which is again recurring like, so once you're designed in, once you've won that business, it's, you know, it's a recurring revenue stream. It's about 10% of the portfolio. Our hardware side, we have a few instances where we have a recurring billing model, but that's, I'd say more of a one-off.
Again, it has a similar sense of there's a replacement cycle for each one of our products that varies based on the product type and use case from several years to a printer in the right environment could last, you know, 10+ years . It quite depends on the use case and environment where the product's at in the portfolio.
Gotcha. Let's jump to Matrox Imaging. How's that business now grown now that you guys have acquired that business? How successful has some of the cross-selling opportunities been for that business? You know, how are you kinda leveraging your distribution channel for that part of the business?
I'd say, you know, beyond our mobile computing, scanning, and printing portfolios and RFID, we're the leaders, tablets. Where we leave in the portfolio, there's three new investment areas that I talked about earlier: machine vision, fixed industrial scanning, retail software, leveraging those mobile devices in the hands of retailers, and then ultimately, robotics, cobots working with humans in applications like goods transport or material movement. In machine vision, fixed industrial scanning, we did two acquisitions in this space as well as an organic investment. Adaptive Vision and our Matrox acquisitions, Married on top of our organic investment in fixed industrial scanning. Think of fixed industrial scanning market really more focused on T&L. Think of conveyance, of fast barcode reading inside transportation logistics.
Think of a machine vision more focused on the manufacturing area. We feel good about both those acquisitions, Adaptive Vision being a smaller acquisition in the software space, and then Matrox being at the very high end of the market to marry with our portfolio of fixed industrial scanning that we developed out of our scanning team, at the lower end of the market, so they kind of converge together. That acquisition gave us a full portfolio of products across fixed industrial scanning, smart cameras, all the way to the very high-end of vision systems. It's gone well so far. We're happy with the results we're seeing. We're diversifying that business into some new areas. Being a private business, they only made so much investment in go-to-market.
We are leveraging our go-to-market teams around the world and the relationships we have within transportation, logistics, and manufacturing. It may not be the exact same persona or the exact same buyer, but we have relationships with those customers, you know, today. We're leveraging that, you know, across the portfolio. We're building more channel partners. We're using a channel partner strategy where we go to, just like we do in our core business, some customers we sell to direct, many we sell through channel partners, and we've got a channel partner program associated with machine vision and fixed industrial scanning as well. We've been able to sign up a lot of partners today.
The feedback early on was, "Okay, Zebra, your organic investment doesn't quite give me everything I need. It's more at the low end of the portfolio with fixed industrial scanning and smart cameras. I really like to see and partner with somebody with a wider portfolio." That's why those acquisitions made sense. We're excited about one of these. This is one of the three expansion areas, you know, robotics, this, and retail software that we're excited about that marries closely to the, you know, our core portfolio, is closely adjacent in those areas and we can leverage those channel partners and customers that we have today.
Yeah. If you could expand on the robotics of Fetch is also a big acquisition. Talk about your philosophy of kind of being the one-stop shop for all your needs.
Yeah. I mean, I think.
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The Fetch, you know, acquisition, what we liked about Fetch was the idea that they've got FetchCore software, and think of it as software that controls a series of different robots and different applications. Think of material movement on line side replenishment inside manufacturing, or moving pallets from one location to another, or e-commerce picking or fulfillment, where you're picking, you know, to robots each items, you know, within an environment. We believe ultimately, customers want a single robotic control system to control multiple different types of robots within their environment, as opposed to point solutions. You know, goods transport was the main focus area for both pallet and smaller goods within Fetch's primary focus area. Fulfillment was an application they're building out, and we're still building that out, fulfillment application out.
We're seeing, you know, early traction in that. You know, it's small business today. It's a fast-growing market that, you know, we can leverage the mobile devices that are used inside the picking environment today or manufacturing environment today, and wearables and others to work robots and humans work together. That's why we're excited about that. We're leveraging our entire portfolio, as you saw in some of the latest trade shows around, you know, ProMat and others, where we're leveraging the fixed industrial scanning and machine vision portfolio along with robotics together to create, you know, solutions for our customers, or provide those solutions to our partners that are creating those end-to-end solutions like conveyance and others.
We think that again, the relationships we have across T&L, manufacturing, e-commerce today, we can leverage those with both robotics as well as machine vision and fixed industrial scanning. Same goes inside retail. Those relationships we have with retailers that are using our mobile devices, we can leverage those relationships to sell more retail software.
Cool stuff. Let's jump into margins. You know, supply chain costs have come down materially. You're one of the few that have split out kind of the supply chain costs, made it easy for us analysts. You know, talk about, you know, how do we think about margins in the range for this year? Can we be in that 48% even despite some of the pressure top line?
No, as you said, we don't, we don't have a specific guide for the year on gross margin, but we do believe there's opportunity to continue to expand gross margin, particularly as we exit the year and go into 2024. Supply chain costs, like many, was a big headwind for the past couple years, and we did isolate what we called our premium costs, which were really around what was costs to freight around the world, as well as we had to go on the market and buy components on the spot market at sometimes 10x-50x our contractual price. In 2021, for reference, that was a $180 million headwind in the business. That today and for the full year guide for 2022 is around $40 million.
We're starting to see that come back through in gross margin, and we expect that to really dissipate as we go exit the year. Hopefully don't have to talk about it as we go into 2024.
Okay.
I think the one thing I'd say just in terms of broader margin, if you look at where we ended our guide for the year at 22% EBITDA, it's about a 50 basis points increase from where we were in 2019. That's with, you know, still about 70 bps impact from supply chain costs. As well, over the last two years, we've had a 150 basis point headwind in FX. I think both from OpEx leverage as well as the underlying gross margin of the business remains healthy. We just, you know, once we get past the supply chain and we feel like there's continued opportunity to expand, particularly as we grow other parts of the portfolio that have an inherently higher margin, such as machine vision and software.
Talk about that product mix and how that kind of informs your view of the longer term kind of gross margin outlook. Separately, will there be any kind of residual costs related to supply chain in your view moving forward?
It is the last one. I don't, you know, from a residual cost. You know, as soon as I say we don't think there'll be any residual cost, there'll be some supply disruption tomorrow that would change that view. As we see it today, a lot of what we need to deliver in terms of improving that, the supply chain costs, we can control. A big factor that is our printing business. During the peak of the pandemic or during the peak of the supply chain challenges, we air shipped all of our printers, where historically we'd ship 80% of those on ocean. Getting that back on ocean is we're on the path of that, and Q2 will deliver about 40%-60% on ocean. That's again, something we can control and monitor.
What we're buying on the spot market is down to almost diminimus amounts in the second quarter. Again, we feel about the controllable aspects we have around the supply chain costs, and this is the first time in a while that we're actually seeing deflation, mild deflation in our bill of material from our suppliers. I think we're hopefully over the curve, and again, that's can be a real driver of margin accretion as we move forward. Look, I think as mix as Bill mentioned, the expansion businesses, while small, both represent as they grow and scale and mature, real margin opportunity. It's just gonna take some time for it to see it, just given the relative size of the business.
Right.
Again, I think there's plenty of opportunity within the core, to continue to expand margin rates.
Right. 'Cause Matrox is quite accretive.
Right. Just on the OpEx space, you've stepped down the pace, here. Were you kinda cutting back on spend and finding that shoring up profitability there?
It just as referenced since 2019 to where we ended the year in 2022, we scaled OpEx by two points over that time period. We did a nice job of scaling the business, driving efficiency as we grew the company, and about one point of that was in G&A. We really benefit from a couple things. One, we have one ERP minus some of our newest acquisitions. We have one distribution network for the entire portfolio, whether that's service, AIT or EVM. Here recently, just with the macro conditions, in the fourth quarter, we announced a restructuring plan that's as of $25 million cost here year to date.
Really focused on optimizing our real estate portfolio, as well as some modest headcount reductions, where we think there's some opportunity to continue to drive efficiency, and productivity across the team. Again, we like to think of we manage it appropriately in the good times so that we don't have to take such aggressive actions. Obviously, like everyone, we're trying to be cautious around where we're adding, where we're spending discretionary money given the overall environment.
On overall kinda EBIT margins, talk about the, you know, the relative strength between AIT and EVM. You know, how will those kind of evolve over time?
Yeah. I think, you know, between the two segments, we think there's opportunity to grow EBITDA margins in both. If you look at AIT, a lot of that'll come in particular around supply chain costs, just given that dynamic of such a heavy burden, they were paying by air freighting heavy large top printers, moving that to ocean so that they'll get the real outsized benefit of that. And then on the EVM portfolio, that's where we have most of the new expansion businesses. Again, just that's where you'll see more of the mix impact. Like I said earlier, they both benefit from each other, so there's not a. You know, they don't have separate ERPs, separate distribution networks. You know, if one's growing faster than the other, they both get the benefits of that leverage across the portfolio.
As we think about when scale returns, you know, where can EBITDA margins longer term tap out or expand to?
We haven't given a long-term guide of where we, you know, where we think the max is or where it's gonna tap out. We don't, again, have. We don't think there's a ceiling or an absolute max that you can do, particularly with, again, the infrastructure we have, how we're organized, as well as the accretive nature of the expansion businesses that, again, we think from an EBITDA margin, have a lot of tailwind as they grow and scale in size. Again, I think there's plenty of opportunity to grow in EBITDA margin.
Okay. Let's move on to cash flow. You know, how do we think about inventory levels as we exit the year, and any other kind of improvements we can see across working cap?
Yeah. You know, inventory went from an environment where it was impossible to find parts that had long lead times, and if you wanted a part, you had to put a long-term supply agreement in place. Really in the second half, third, fourth quarter, lead times improved just as the same time as demand. Our demand was starting to moderate. Today we're sitting on probably $200 million more of inventory than we think we optimally need. Most of that is in components, not in finished goods. This is, you know, components that were at our Tier 1 suppliers that will ultimately be produced and consumed. We have a tiger team focused on it.
You know, the team went from finding parts, redesigning to design new parts in, to now switching it to redesign to consume the parts we have. I think the team's done a nice job of renegotiating with our suppliers, extending lead times, pushing out, canceling where they can. It feels like, you know, we're swimming up upstream a little bit. As every action comes, The demand started, you know, as we talked about last quarter, kind of made that a bigger challenge. We'll make a dent in it this year, a little bit longer than we anticipated, given the overall macro demand.
It's, I think we look at that as a real tailwind for free cash flow, particularly as we go into the later part of this year and next year, as that starts to come down. I think overall, when we look at from a cash perspective, we still target 100% free cash flow conversion for the business. We added that to our long-term incentive plan this year as a management team. Fundamentally, we don't think anything's, you know, different about our business. We just need to work through the inventory cyclicality, as well as, by 2024, we'll work past the settlement arrangement. That's about a $45 million. There's a $45 million cash disbursement a quarter for the settlement we arranged last year.
Cash tax is a bit of a burden this year with the changes in R&D amortization. Again, quite a few headwinds here in the short term, but again, fundamentally, we'll get back to where we need to be on a 100% free cash flow conversion, and that's what we're committed to.
Can you remind the audience, when does that $45 million go away?
In first quarter of 2024.
Okay.
Yep.
I'll open the floor up for questions. I have a couple more here, seeing if anyone has any questions. Okay, net leverage. Here he goes.
In the RFID business. That seems like a secular growth business. Are you seeing macro slowdowns and push-outs there, or does that seem quite robust? In your machine vision area, are you competing with companies like Cognex? Is that sort of maybe on the high end? Is that what you're going after there?
On RFID, we're still continuing to see deployments RFID despite the challenges around macro. Some of those are, you know, in transportation logistics, as I mentioned before, as an example, or manufacturing, which have been continued to invest. The biggest, you know, We've seen more challenges around retail, which, you know, already has deployed, you know, RFID. We're seeing the new areas of RFID continue to grow despite the macro challenges. The machine vision and fixed industrial scanning portfolio does compete with, you know, Cognex, KEYENCE, and others, so formidable competitors in this space. That space, you know, continues to offer long-term growth, you know, above our core portfolio. We think there's opportunities just in that growth in that segment. There's lots of The market is very fragmented.
While everybody talks about, you know, the top players in the space, the fragmentation of that space creates an opportunity for Zebra to play in that, you know, area.
On printing of the tags, like, Impinj does the chips, Avery Dennison does something, then you kind of print it in a little package in a sticker, sort of at the local on-premise warehouse, then they put it on the stuff. Is that how that works?
Yep, for the most part. We're Our portfolio includes both handheld readers, fixed readers, and then printing, RFID printers. The printers are, you know, traditionally used for replacement tags. You know, source tagging is the least expensive way to tag in manufacturing. Those tags sometimes come off. They're ripped off, those kind of things, so replacement tags. In the T&L applications, we're actually printing the labels in that application. Depends on the application. In retail, you've got it right where, you know, source tagging is typically done at the manufacturer with someone else's tags. Ultimately, we're printing replacement tags in retail. In other applications, we're actually printing the tags themselves.
Thanks. Last one, are the margins in your RFID business, kind of the same for readers and printers as the rest of your readers and printers? Are they better? Are they worse?
A bit better, I would say.
Bit better. Yep.
Thanks.
Net leverage, in very good shape. Where would you be comfortable on leverage levels if the kind of right acquisition came along?
We've stated that our target is to be below 2.5 x debt leverage. That gives us, you know, ample room from where we're at, as well as, you know, we have the ability to go above that from a financing. If we were to go above the 2.5, it would be a very targeted action plan to get below 2.5x within a given period of time. Again, even with that gives us plenty of ample opportunity to be acquisitive, and look for opportunities, with the leverage we have today.
Great. We have a minute left. Bill, if you want to leave us with, what's kind of misunderstood about the story. What aren't people appreciating?
No, I think.
About the Zebra story?
I think we feel good about the business overall. I think that, you know, as we talked about, our core portfolio around printing, scanning, mobile computing, we're the market leaders today. We've got, you know, expansion areas that we've invested in, sort of close adjacencies in tablet and RFID and others that grow faster than our core. The new expansion areas, while they're small businesses for us, have tremendous potential around machine vision, fixed industrial scanning, and retail software. We're excited about the portfolio. We're clearly being impacted by the macro environment, you know, at the moment, you know, specifically large orders, specifically retail, today. I think that we'll see a broader, you know, moderation of some of the growth rates and visibility remains the short-term challenge that we face.
We feel good about the business. I think you'll see us continue to take share. I think we'll continue to win in the marketplace and beat our competition in places where we compete. We feel good.
Great. Well, thank you for your time today.
Great.
Thanks.