ZBRA
#Q1 outlook is strong for all regions and all product families.
I think the strong momentum we had in Q4 is carrying into the first quarter here also.
The strengthening on a percentage year-over-year growth also has to do a little bit ---+ we had a weaker compare in Q1 of last year.
First, PartnerConnect, we launched PartnerConnect, a new channel program, in Q2 of last year.
It has now been basically working for nine months or so.
We are very pleased with how it has gone.
It has been well-received as a good structure, good program.
We were able to gain share wallet with our channel partners through 2016.
I am quite pleased with that, because going through all the complexities of our integration and be able to gain share at the same time, I think it's quite an achievement.
So the channel program is working very well.
Second part ---+ I forgot the second part of the question.
The inventory levels.
Inventory levels, yes.
We target about 50, 55 days of inventory with our channel partners.
We have stayed close to those targets for the year.
And we entered 2017 with an appropriate inventory position with our distribution partners across the world.
We feel that is healthy.
It is good.
That is correct.
$20 million [in lending cogs] is what would we believe we will realize.
We have a fair amount of line of sight of that number.
And in addition, as we implement our new ERP system, and we do that in the middle of this year, we believe we will have further opportunities to increase operational leverage in the <UNK>.
Our markets have always has been competitive.
That is not new.
I think we have mentioned we have had the same concept of some pockets of elevated promotional activities in earlier calls, also.
And our approach continues to be one where we are trying to respond in a very disciplined way.
We want to have flexibility to go after deals that we think are worth winning and that we need to win, but we do it with a strong focus on driving profitable share gains.
We gained share in the past year, but the one metric side that are really trying to maximize is to drive profitable growth and maximize the value of the enterprise over the long term.
So we want to make sure that we are prudent in how we pursue those things and disciplined in our approach.
Good morning.
Retail has always been a strong vertical for Zebra.
And I think we are very well-positioned to capitalize on the transformation that's currently going on, driven by e-commerce and omnichannel.
Our traditional brick and mortar customers are recognizing the need for them to invest more in our type of technologies to drive improvements and enable them to compete against e-commerce.
Investments to drive the greater customer experiences enable different delivering modalities, such as buy online and pick up in-store.
But also to drive against greater efficiencies to enable them to compete on price with others.
We also had several large retailers in the US publicly talk about their strategy of stepping up investments in technology to do just that.
We have also seen traditional e-commerce players investing meaningfully in our type of solutions to enable them to scale efficiently and also to be able to offer new cross-customer offerings.
So I think that bodes well for us.
And our portfolio to address retail, both brick and mortar and e-commerce, is very strong.
The TC50 fund, Mobile Computer, that we launched in Q4, that was the fastest ramping product in the history of the <UNK>.
It was a great success for us; and at NRF, we also showed a couple other products that you might have seen.
Like [MP]7000, the flatbed scanner that is very competitive that is coming out this year.
And the SmartSense solution that <UNK> also referred to here.
Also, I would say we feel good about being able to add additional customers through the years.
In 2016, we added a lot of new customer names, both traditional brick and mortar customers, as well as e-commerce customers.
And this all gives us confidence that momentum will continue into 2017.
I think I would say that we have ---+ we are essential for retailers.
If retailers want to implement an omnichannel type of strategy, I think that getting that increased visibility into their in-store visibility, being able to effectively guide people to do the pickup and the self checkouts in the store, are capabilities that are essential for them to have and we do offer that.
Now many things that retailers do are broader projects.
And we are not the only thing that is in it, so there are certainly other solutions that go into that too.
But I do believe that we are considered to be a strategic partner to many of our largest retail customers because they see the value in the essence of what we do.
Also, bear in mind that our go-to-market strategy inherently is one of partnering.
So you'll find us, in many cases, partnering with many of those solution providers that either provide checkout solutions or payment solutions.
And indeed, if you look at many of the most prominent solutions that were showcased at NRF, you will see there is either a Zebra inside or there is a Zebra partnership involved there.
That is deliberately part of our strategy.
No, for Q1, I think we tend to give you an outlook for the <UNK> and we give you some color for each of the regions.
I think we have gone through some of the regions here already this morning and for the products, but we don't really break it down by all its components.
Good morning, <UNK>.
We gave you two numbers on purpose.
One which is a gross margin number.
We believe that this gross margin number was slightly increased in 2017.
And we also gave you an EBITDA number of 18% to 19%, so you can predict what the OpEx is, And we did it this way for a reason.
We want to adjust the OpEx of the enterprise based upon the trajectory of the business.
That is why we model it this way.
However, the integration effort is actually well on its way.
We believe that we're going to hit our various commitments.
And in addition, the implementation of our new ERP system midyear will give us the opportunity to deliver additional operational leverage.
Let me answer indirectly to your question, <UNK>.
We don't know for sure what the new tax reform will include.
So we've spent, actually, a fair amount of time with our teams internally, with our business partners, with our various advisors.
And we believe that we have the ability to mitigate the impact of a new tetra form.
Looking at the way the supply chain is structured is one lever.
That is not the only lever.
We have not disclosed how exactly, on purpose.
It is obviously competitive information.
And we could restructure the supply chain in order to achieve our goals, which is to make a tax reform neutral.
There are a few things we can do.
We don't want to be definitive for obvious reasons.
We don't know really what the tax law is going to be.
But we have various scenarios, and all of them, we believe, will be a ---+ will lead to a neutral impact for the new tax reform.
To give you a little bit more color, maybe just a ---+ our supply chain is probably very similar, I suspect, to most electronics supply chains.
So we have a significant footprint of manufacturing assembly in Asia.
But we also have it in Mexico and we have all our converting and a lot of our services activities in the US.
But that only gives the current footprint.
There are certainly things that we can do to mitigate any impacts on any border adjustment taxes, but we still don't know what they look like or anything.
We are working on how would we respond to various scenarios.
So the TC51 ---+ we think of it as a midrange Android all-touch device.
It certainly met an unmet ---+ or satisfied an unmet need in the market, because otherwise we would not have had that kind of launch or that kind of ramp, right.
I think we got it right from a form factor, from a functionality perspective; we got the latest and greatest operating system drop with chipsets and so forth in there.
It was a very compelling product when it came out and we are still seeing very good feedback from customers about it.
We were down at HMS this past week, also, which is the healthcare show, and had a great interest from healthcare providers in that product and we are coming out with a special healthcare version of the TC51.
But the Q4 launch was primarily aimed at retailers.
So mostly, say, brick and mortar retailers who are working on omnichannel type of solutions and also to help them have a more compelling customer experience by arming their sales associates with better tools to engage with their customers.
I would add two things in terms of the pent-up demand opportunity, which I think TC51 squarely hit.
On the one hand, retail and the need to compete with e-commerce that this device enables in a number of different directions.
On the other hand, bear in mind this transition of operating systems which is still ongoing.
And many of our customers, whether they are in retail, healthcare, or other verticals are looking to make that transition and are waiting, or have been waiting, for the compelling opportunity to do that.
And TC51, I think, struck that nerve and hit that opportunity squarely, which is why it has been such a successful launch.
Maybe one more point to say.
There has been a lot of conversations or concern over the years around consumer encroachment.
And the TC51 certainly ---+ I think the first customer we had was a very large consumer device user, where we were able to basically win them to switch over to our devices.
So this is a great way for us to compete against the consumer devices, also.
Absolutely.
At the end of Q3, we were planning a tax rate for the year of 26%.
That was an estimate.
That was based upon a forecast, assuming a mix of profit by legal entities or tax jurisdictions.
When we closed the year based upon the mix of the profit, based upon additional work we did as part of the year-end process, the tax rate for the year moved from 26% to 23%, and we had to [book] the full impact in the Q4 quarter, which was about $0.16.
Now to answer to your second question, in terms of tax rate for 2017, we believe that low- to mid-20s will be a good planning assumption.
We still think 4% to 5% growth rate or a target is an appropriate target for us over a cycle.
If you look at our performance over the last two years, we have actually hit that level.
It did not come exactly the way we had expected.
So we had almost 10% in constant currency growth in 2015 and we were just a tad of growth in 2016.
So our business is a bit more cyclical than we might enjoy.
It tends to drive it towards a good number over time.
Again, we feel we have a good diversified business with many avenues and levers to pull in order to achieve our growth.
And we generated the kind of growth we did in the last two years while we were going through a very complex integration.
I think it's a testament to our execution, and we still feel that, that's an appropriate target for us.
And that's what we're going for.
I'll start.
And then <UNK> can help out here also, who talks to customers even more frequently.
I would say the momentum around the Android migration is continuing strongly or strengthening.
Remember, two years back when we first merged our businesses, at that point there was the largest most advanced customers that were doing it.
I think now we see, depending on the vertical, but retail; I would say all large deals in retail tend to be Android today.
Healthcare is very much moving in that direction.
So we are seeing greater traction in our channel with Android.
We always talked about how the largest, most advanced customers would be leading the charge.
And that smaller customers won't have necessarily the resources or the know-how to switch as quickly.
That is still the case.
If you go down into smaller companies, they are probably more likely to continue to buy what they have already have.
But we are putting together a different type of both educational material and other offers to make it as easy as possible for customers to switch.
If you go back to the TC8000 device that we launched for a warehouse application in the beginning of 2016, that was the first generation of Android device in that environment.
That means that our customers have to rewrite and [pour] some of their applications to run on that device.
So it is a little bit of a barrier to ---+ early adoption is a bit higher.
But once you start having ---+ move your applications over, now it's much easier to just continue to expand and have a greater ---+ we use a broader part of our portfolio in those areas.
Another viewpoint on the opportunity is, if you go back two years ago, we said there is about 15 million mobile computers out there that need to make the transition from legacy operating systems to either Android or an alternative.
And you can do the math of what has been sold in the meantime, but our synthesis would be that the majority of that opportunity is still out there.
And we think that there are at least two, but probably two critical things needed to unlock that opportunity.
One of which we think we have hit with products like the TC51.
We need a compelling offering in value proposition that gets customers over that hurdle.
And things like TC51, which is surrounded with the types of software and services that people expected from the legacy operating systems ---+ those are now in the market and present and giving customers the confidence to move that way.
The other one, though, that is important and that is the focus of our growth opportunity this year, is that our channel partners, which are the majority of the way that we sell, they need to embrace this solution as well.
And they need to either take their customers along, and in some cases take their applications, many of the applications that customers run come from those channel partners, and they need to move those over to Android.
That is the focus for us this year, and we see a lot of growth opportunity ahead of us from that.
I am not too sure we will speak about step function, but clearly the implementation of one ERP will allow us now to be really focused on optimizing the P&L further.
If you look at the kind of synergies we have generated to date, there were the obvious one ---+ adjudication in product road maps, supply chains.
But we believe as a Management Team that we could go to another level in the second half of the year, gradually, and then forward.
The vast majority will be, correct.
Yes.
So you are right.
We believe we should be going down by half a turn between the end of 2016 and the end of 2017.
Our target is to reach investment-grade rating as soon as possible.
We believe that we will achieve that rating once we have a ratio of debt-to-EBITDA ratio of about three.
Once we achieve that level we want to look at the best options to maximize return for our shareholders.
That can take various forms: repaying more debt or allocating excess cash to shareholders in other ways.
So we want to keep options open based upon what will be best for our shareholders.
Thank you all for participating on our call today.
We look forward to speaking with you again soon.
