Zebra Technologies Corporation (ZBRA) Earnings Call Transcript & Summary

Good morning, everybody. Welcome. I'm Tommy Moll, equity research analyst here at Stephens. We appreciate your coming to Nashville for our conference this fall. We also appreciate the time of all the leadership team from Zebra Technologies, who have joined us for this fireside chat. I want to introduce CEO, Anders Gustafsson, to my right, Bill Burns, Chief Products and Solutions Officer in the center of the table and Mike Steele, Vice President, Investor Relations here at the end. Gentlemen, thank you for joining us today. We appreciate the time.

Thank you.

Thank you.

So in terms of the format for our session, I have questions prepared to keep us busy for the full 45 minutes. With that said, once we get to about the 0.5 hour mark if anyone in the audience wants to ask a question direct by all means, raise your hand and fire away. But with that said, I'll start us off with some introductory questions just given this is a generalist conference, there may be some folks in the room who are new to your story or just want to start from the beginning here. So Anders, I wonder if we could unpack to start the Enterprise Asset Intelligence vision, which I believe if you can claim credit for as CEO, correct me, if I'm wrong on that, but what's the meaning in the history there? And in particular, the difference versus what you inherited when you took over the leadership role?

Yes. So that can take up 45 minutes easily. I joined Zebra as CEO, 15 years back. And at that point, we -- the company kind of defined itself as a specialty printing company. So anything printing was in scope, and that was kind of how we define ourselves. So an example, with the 3D printing or something that my previous thought was in scope and very cool. And I said 3D printing, it's different technology, different go-to-market, different customer, different applications. I'm not quite sure to accept printing or its comp. So you said we wanted to find a different way of thinking about it, I was a little bit more -- not to get quite as limiting. So we kind of reframed it around what is that we do for our customers, is that what -- that was kind of became the guiding thought and we said, what we do for our customers, we help them connect the physical world and the digital world. You scan a barcode, then as -- that asset has now communicated something about itself to an application. And we started looking at what are -- from a printing company perspective, somewhat the new areas that we could go after around that. So we can more of an Internet of Things play. And when we looked at that, we felt that the Motorola Solutions business was actually a very good complement to us. It was -- they had value both in the here and now in the industrial logic for what we could do with our say, current solution set. We had the same -- we had very complementary solutions. We were kind of [indiscernible] of a complete offering. We had the same go-to-market channels, same customers, but also we will be able to position ourselves much better to go after the future by combining because the enterprise business is much better position to go after some of those new IoT-related opportunities. And one of the great things when we combined was that the enterprise team actually had a very similar vision for the future as we did. But we said both -- neither one of us was as well equipped to executing that vision standalone. We were not quite as close to those markets and the enterprise business was part of Motorola, which was -- had more of a land mobile radio type of focus. And the Enterprise Asset Intelligence kind of the vision statement came out of that -- the work we did around that to describe what is it we're trying to do. And for those who haven't been familiar with us, Enterprise Asset Intelligence. As we define it, it's really when every frontline worker, asset and device is visible, connected and optimally utilized. This is really about how we help enable the front line of business. Our focus is very much on how we enable the -- say, the frontline worker or the front end of vision be more productive, improve customer service and so forth by connecting those workers and those workflows to applications and data. We have a framework to be called sense, analyze and act. It kind of describes a little bit of how we think about what we do. So we help our customers basically sense what's happening in the physical world, analyze that data and act on it in real time. So not kind of big data. This is more edge analytics. You're in the workflow and something happens and we help guide what you do next.

So before we get into the details here, maybe offer a couple of use cases just to crystallize what you discussed there under. So retail and e-commerce or end markets that are likely familiar to those in the audience. Maybe just give us 1 or 2 examples of some use cases there?

Yes, it's fine. I can take it. So e-commerce and retail, we think of enabling the retail associate, right? So mobile devices in the hands of a retail associate and then our new expansion area around software, software on those devices, directing tasks, allowing workers to communicate, allow them to do the most meaningful value-added task in their day through analytics. So that's one example. Another e-commerce is picking of orders inside a fulfillment center or the play into transportation and logistics, delivering those packages to our customers with our mobile devices. If we think of the fulfillment center from a print perspective, printing the labels on each of those packages are shipped from e-commerce. If we think of picking those orders at a fixed location or scanning portfolio. And as we think of automation in those environments, we think of expansion beyond software in areas like machine vision and fixed industrial scanning and then our robotics portfolio for warehouse automation all play a role kind of in e-commerce and retail that only doesn't -- you think initially a retail is front of store or e-commerce fulfillment, it extends all the way to kind of last mile delivery and all the way back into distribution centers that look like warehouses and manufacturing and T&L.

You can just -- or you could look at one very large workflow type situation that will be buy online, pick up at store, where our task management software would get the order be able to kind of prioritize how and when that order should picked, identify the right person to do that through a mobile device that frontline worker will get the pick list, download it, be able to get away finder type app to help them guide through the store and then put it in a bag, print, we used the mobile printer to print that label. The address label on the bag to enable mobile point-of-sale checkout. So you can say we can enable not all by ourselves, but we are certainly a very important instrumental part of enabling that entire workflow. And that is a workflow that basically can't be scaled without our type of solutions.

So in 2021, when you grew your top line organically by greater than 20%, a lot of investors started asking what is your through-cycle growth rate? And I know that there was a lot of pressure to come up with a revised outlook there. And so I also want to make sure we mentioned the recent, I guess, not so recent now. But the decision to raise your outlook to, I think it's 5% to 7% organically through a cycle. And that was a pretty significant step up from a prior range that I believe dates all the way back to the Motorola acquisition. So what gives you the confidence to make the move? What are some of the drivers there?

First, in 2014, we set out expected through cycle growth rate of 4% to 5%. And if you look at 2014 through 2021, we had grown at [indiscernible] I think it was approaching 6 -- over 6% organically.

Yes, near the high end of that.

Yes, high end of that. So we certainly overachieved that by meaningful, that include '21, but it was into the '20, which was a tough tough year for us and others and -- so they were just kind of through a cycle. When we looked at our going forward growth rates, we looked at our core markets growing at about 4% to 5%, and we have been able to gain share for -- and that based on independent market research. We've been able to gain share consistently pretty much every year for the last 15 years since I joined Zebra, and we thought we could continue to do that a bit. And then we've entered into 3 new expansion markets, which are all higher growth and where we are -- have a small position, and we've -- so they're small today, but we expect them to grow faster. And as they become larger, they would have a more meaningful impact. And Bill maybe you want to comment on some of those expansion markets from a growth perspective.

Yes. So I think, as Anders said, we think about our core areas. We think of adjacencies that to our core expansion areas, the 3 primary areas that we're invested in a really machine vision, Fixed Industrial Scanning, which is closely adjacent to our scanning business today. And we did 2 acquisitions in this space: 1 Adaptive Vision in the software space. And then Matrox Imaging, really the high end of machine vision in that area. The second is our software offerings, I mentioned before, so leveraging our mobile devices in the hands of retail associates around a whole suite of offerings to enable that associate. So think of collaboration software, prescriptive analytics, looking at our customers' data and taking the next best action in their business that Anders talked about before, the sense, analyze, act framework. Workforce management and task management inside retail, so that suite of software. And third area is robotics in several areas, we think of it is warehouse automation, our acquisition of Fetch Robotics. And the reason we like that asset is the whole series of robots that they have across different applications. So material movement of pallets, conveyance, moving -- using robots to move goods from one conveyance system and another, fulfillment picking, which is an application we're just bringing to market. So those are the 3 expansion areas beyond our core and the close adjacencies like tablet and smart supplies and others, we have these 3 new expansion areas, we find still with their infancy for Zebra, but great opportunity for us to grow our business beyond the core.

I want to make sure to spend some time on omnichannel and e-commerce today get into some of the details. So pretty much that was my question. Should we continue or do we need to give you a minute to be able to capture what we're saying into these mics. Okay. Okay. Maybe we're not supposed to talk about omnichannel.

I don't think so, it's second time.

Yes, I'll make sure to talk...

[indiscernible] I'm talking for the webcast.

Yes. I'll speak loudly. Yes. Okay. Correct. So I wanted to unpack some of the tailwinds that we've seen in the omnichannel and e-commerce end markets. But there's a lot of questions around what is a more fundamental secular shift in those markets ex any pandemic-related impact? And then how would you articulate the extent to which the pandemic accelerated any of those shifts? Just describe the interplay there?

Yes. So I'd say, first, that any -- all the trends around digitizing and automating workflows is a secular trend that we see across all our vertical markets and all our geographies. That is not unique to say health or omnichannel or retail. And that -- to digitize and automate workflows is very much what Enterprise Asset Intelligence is all about. This is what we've talked about since 2015 as our -- what we're doing, what we are all about. So the -- what we saw in 2020, 2021 was a real acceleration of some of those drivers that we had worked on and seen for a long time, they weren't new, they were just accelerated based on say, in 2020 was in grocery, particularly where you couldn't go into your grocery shop and pick up groceries the way you had to. You had to buy online, pick up at store or something of that kind. So they certainly provided a great acceleration of that. But I think that change in buying behaviors has continued. So what people have -- what retailers have seen now is that people are coming back to the store to shop, but they are also still using e-commerce or omnichannel or find a pick up at store. So they would buy their say, their staples online and pick it up, but then they want to walk through the store to kind of do some more impulse buying and see what's there. So they see foot traffic is up, but people are still continuing to do that. So it is, I think, a change in how consumers are shopping and engaging with retailers and it's a secular shift. It's not that this was a change that happened in 2020 and then people went back to what they did before.

So within these end markets, I want to talk about a couple of different groups of end users, starting with some of the highest profile players in e-commerce and omnichannel retail. There have been some well-publicized updates from some of those end users recently that investors always want to know what does it mean for Zebra, if anything? And maybe another point of clarification that would be helpful. I think there's some confusion around some of your large relationships with channel partners, which you highlighted in your annual reports. But the distinction between that customer concentration and the actual end users. If you could clarify, is there any end user that's actually greater than 10% of revenue? I think that's something that's commonly confused to investor community.

So I'll start with the second question, and then the first one, I'll ask Bill will also provide some color on that. But -- okay, I'll speak more into the mic here. So we have in our 10-Q and 10-K, we talked about 3 customers. I think it is that are 10% of size they are distributors. They are not end users or resellers. So these are the team that basically sells to our other resellers. They're there to hold the inventory and facilitate all our other resellers to be able to engage quickly and effectively with end users. So we have no end user customer or reseller partner who are at the 10% level. We certainly have some large great end user customers who are large. You mentioned a large e-commerce player, very good customer of Zebra and they publicized how they're pulling back this year, and they've been a big pullback for Zebra. So they were much, much larger last year, but they're still a large customer this year. Now from a resiliency perspective or robustness of our business. If you look in Q3, our retail vertical was still up even though including this large e-commerce player. So even though they were down materially, our overall retail business was up and did well. We get a lot of questions around the pull forward of demand around this. And you could argue that, that customer pull forward demand because they're now then kind of trying to grow into their capacity profile. But I've asked a lot of other retail CIOs if they have seen other themselves or others who have pulled forward demand to invest ahead of the curve, and they basically have not come up with other names. And I'll give you another example for why I think that is. And it would also be that ours and other supply chain did not allow for that to happen. If somebody came and asked us, we would like you to ship something that we need in 9 months. We would say we have other customers with urgent needs for today. We will work with you to make sure that we can deliver what you need in time but we are not in a position to send you things that you need in 9 months' time. So that and the combination of what you saw in our retail business being still up even including the large e-commerce player indicates that the rest of the industry continues to invest and do well and continues to prioritize investments in how to digitize and automate their workflows.

No, I was just going to add that I think that e-commerce is projected to continue to grow at double digits, right? So I think despite the pullback and overbuild of one of the largest e-commerce players, others are still investing, and we're continuing to see the growth there. And as Anders said, well, people have gone back to the store. They're continue to either buy online or buy online, pick up at store, and that trend hasn't changed. And our devices across the entire portfolio and the expansion areas we're playing in all play a role within that.

So let's move on to the second group of end users here, the small and midsized players in retail/omnichannel. Can you give any qualitative context there on where they are in the investment curve, maybe just by comparison to some of the larger early movers that we've already referenced? And how durable or permanent do you think that the acceleration in spend for these small and midsized customers versus, again, some of the larger players?

I mean our small business -- small, medium business, we think as a run rate continues to be strong, right? We've seen that throughout the year, which is a good sign of the underlying business. The same business that Anders has talked about is served by our partners and distributors around the globe. And we haven't seen any change there. In third quarter, we saw some large customers push out some orders into 2023. We've thought about this as being kind of as we look at the macroeconomic environment and saw some of that being cautious about our thoughts on next year and what's going to happen macroeconomically and the impacts of our business. But we see right now that run rate continues to be strong. And I think we think of it as being ultimately, no matter what happens from the macro environment, we think of our businesses continue to take share and grow faster than the market because our solutions are required. So you see either even customers that have pulled back or at difficult results, you see them pause shortly, but then invest in digitizing and automate their environments to continue to be more effective and more efficient in their business, and they need our solutions to go do that. So then they continue to invest and that's across small and large customers.

And on the small, medium side of customer business, if you look historically, there tends to be a smoother kind of growth curve, large customers, large deals can have a bigger impact on a specific quarter. But when we see strength in our SMB business, that tends to be something that's kind of continues for 4 to 6 quarters. Historically, there's not a certainty, but it's certainly as how it's worked historically.

Yes. So I want to highlight some of the operational issues that were discussed in your most recent earnings call, starting with the DC transition. So maybe just start from the beginning here. Describe this initiative, the rationale, described some of the unanticipated headwinds that flared in the third quarter, and then their impact in terms of the P&L to the extent you can quantify?

So yes, so we were in the process of changing our warehouse distribution setup in North America in Q3. That's basically for the last 6, 7 years, we've been working with an outsourced partner in the Fort Worth area, that contract was up for renewal. It basically expired at the end of Q2 of this year. So 2 years ago, end of 2020, we started to prepare for that. We started by doing a network analysis to see what is the optimum location for a warehouse for us in North America, and we concluded that the Chicago area was the optimum location. We will save a few million dollars by -- from railing things into Chicago, having a strong rail hub and a good airport. We then worked -- so we issued an RFP at the end of 2020 to look at partners to set up a facility in the Chicago area. We signed a contract with a new 3PL partner in June of 2021. So 1.5 years ago now. We invited them to come to our Fort Worth facility to study our processes and really learn how we do business. So they can tweak their WMS systems to be able to accommodate for how we do business. We then worked with them and tested in everything, and the -- we were shipping small volumes before first half of this year, out of there. But when we cut over in late Q2, early Q3, they were not able to scale to the volumes that were required. We recognized that they were not going to be able to scale quickly enough for the quarter in probably mid-August. So we then went back and renegotiated or signed up our Fort Worth facility again. We hired 90% of the total staff that we have had in the Fort Worth before. And most of those were people who had been with us before they knew our processes and so forth, but not everybody. And we've shipped a lot of -- to track a lot of things back down to Fort Worth. They scaled very nicely, but we were basically 2 weeks too late to be able to get everything out that we needed to for the quarter. So it's -- that's -- then basically why we missed. We said we highlighted 3 different areas, which was $45 million was about things we had orders, we had the products, but we couldn't just get it out because of this. Another $45 million was more based on the back-end loading we had, had in the last few quarters, partly due to the China lockdowns and then getting everything pushed at the end of Q2 and similarly into the end of Q3. We had to expedite manufacturing, expedite freight for those. So we said we didn't want to do that. So we'll let that flow into Q4, but we expect a similar kind of the push from Q4 into Q1. And then $10 million was more deferrals. Now looking forward, we now feel that the warehouse situation is working well. We shipped 70% more in October than we did in July globally and more so in North America. So we have a much better linearity. We have the capacity to kind of deal with the volumes we need to deal with. We will run the Fort Worth facility until we are confident that our new facility will function properly. We're still assessing exactly what we want to do. We potentially can do ourselves or have another partner. We also might continue to have 2 facilities. We're much larger now than we were 6 years ago when we set it up for 7 years ago, we set that up. So from a resiliency perspective, we might feel that that's better. From a cost perspective, that's negligible because we pay by the pick, not by the warehouse. So I hope that answers.

Yes, that's helpful. Yes. I also wanted to hit on the inventory that you called out as being elevated in the quarter. I think $150 million to $200 million was the range. What were the drivers there? And any corrective action taken?

Yes. So that is definitely higher than what we like to see and what do you think we need as a kind of steady state. A few different drivers. One was the warehouse transition where we had finished goods orders in the warehouse that we didn't get out. It was also that the flow of semiconductors improved faster than we had anticipated. So we got more components coming in and then more finished goods and components in that. We're -- we certainly expect to reduce that predominantly in 2023 as we tweak back our demand signals. We want to keep them probably about $600 million to $650 million of inventory now. We are a much larger business today than we were pre-pandemic. So on our inventory turns perspective, that's similar to what we had back then, but it's a little bit more in dollar terms. And we probably also want to have focus a bit more on resilience and make sure we have a bit more strategic components in inventory or any kind of upset that might happen.

Last item, in terms of the operational updates is just the air to ocean rate conversion. This is something that had been discussed for at least a year, but just refresh us on the rationale there and particularly on the execution risk? It's something that you have this elegant slide that breaks out the headwinds quarter-by-quarter on cost. But at the end of the day, you've got to change how you've been doing business for some time. And what's the execution risk there?

Yes, I can start, if you want?

Yes.

So I think that we've said there's about $190 million in cost in 2022 associated with 2 areas. One is the idea of increased prices we're paying for components on the broker market to be able to meet the demand of our customers overall. The other piece of that is getting increased freight costs overall, whether that's air or ocean that we were experiencing. But much of that is really shipping by air as opposed to ocean, meaning that as the parts were harder to come by, as Anders said, the quarters became less linear and we had no choice but to meet customer demand by shipping printers, which we shipped in the past, the vast majority of those by ocean versus air. So we've been able to put some printing products back on ocean in Q3, but it's a small portion of that. We'll accelerate that starting in Q4 as parts have become more available, we've been building more stock and then ultimately, we can put more on ocean. That's really the 2 big savings moving forward is really around the idea of parts become more available, we pay less premiums for parts. And then as we ship printing or shift printing back from air to ocean, there's significant savings. And we see that run rate, which was a total of $190 million in 2022 coming down to a run rate of about $30 million, like, is that right, in Q4.

As we exit the year...

$30 million or so, and we see that $30 million to $35 million, and we see that coming down further, significantly further in 2023 and beyond. So that continues to roll down. Some of it will impact the idea of how much can we get on ocean, how much air freight comes down, but we're working hard to eliminate those costs.

So we're here at the bottom of the hour, and I want to make sure to open it up for any questions from the audience. But there's one more topic I've been addressing with all the companies we've hosted this week, which is the potential for a recession and any planning process, you have in place. It's a dynamic where your order book is quite full. Your P&L performance would generally speaking, confirm that. At the same time, we all read the same recession-related headlines on any given day. So I'm curious as the C-suite in the boardroom, is planning for scenarios something you're doing more frequently now? Is there any kind of review process that you have in place just to start to think through the what-ifs?

Yes. So first, I'd say the demand signals today are generally quite robust and attractive for us. They're not quite as crystal clear as we'd like. The high backlog is a little bit -- makes it a little harder to clarity. And then the kind of overall economic outlook is a bit cloudier, which makes us a bit more cautious on that. But our pipelines are growing. 3 out of our 4 verticals grew in Q3. So yes. So we see the business is in a good position. It's robust. We feel as competitively positioned as it's ever been, and our customers are continuing to prioritize investments in our type of solutions around digitizing and automating workflows. But for -- but we are also taking a more cautious approach. So we don't want to be caught out by assuming things will be very robust and they turn out not to be. So we are looking at a few different scenarios. We have a playbook that we can -- from prior recessions that we can execute on. We're not executing on those playbooks yet. But now we're more being cautious and a little bit more conservative on OpEx to make sure that we don't build OpEx and the cost structure in the second half of this year. But as we get into next year, we certainly are looking at what we can do and would do. It all depends on what type of, say, recession we would expect to see. Is it short and sharp, long and shallow, we would do different things. But we have a very variable cost structure. So if you look at prior recessions, our gross margin tends to be quite robust and intact. We've outsourced manufacturing. So we don't -- we wouldn't pay for any underutilized factors, something like that. We talked about some of the tailwinds we would have from these premium supply chain costs coming down next year. Our OpEx tends to scale quite closely to revenues. And part of that is what we can do ourselves, but it's also we have a large reseller networks, and if they don't sell to things, we don't pay them. So yes, we're definitely taking a more active approach, a more cautious approach to thinking about various scenarios for 2023.

Any questions from the audience? Please feel free for you to fire away. I could keep asking my questions, but I want to give everyone a chance.

[indiscernible].

Just to repeat the question to the extent you can.

Yes. So the question is, how about further out? You talked about your expanded markets? Is there other areas further out? So I think we think of it as I said before, kind of our core markets that Anders talked about, scanning, printing, our mobile devices, we're the global leader, market share leader in each of those areas. And then we think of adjacent markets to those that grow a bit faster. So rugged tablets, where we're now #2 global market share. We think of our supplies business is smart supplies, temperature sensing in other areas in that. We think of RFID is another segment that grows faster than our core markets today as the expansion beyond just retail into transportation logistics and supply chain and others in use for RFID. So we think of those as closely adjacent to what we do today. And then we believe we're invested in 3 exciting new expansion areas that gives us a lot of room to grow. So this idea of machine vision and fix industrial scanning opens up a $3 billion market that we hadn't addressed before. The total market is probably about $6 billion. We address about $3 billion of it today through our organic investment and then the acquisition of Matrox and Adaptive Vision to both hardware and software across fixed industrial scanning very adjacent to what we're doing in scanning today, and then machine vision further out around think of vision systems. We have -- the reason we chose robotics and warehouse automation is that those workers in the warehouse today are using our devices. So they have wearable devices, they have ring scanners. They have mobile devices they're using today. And we believe that in addition to the portfolio of robots that we acquired with the Fetch acquisition, they also have a layer of software that control those robots across multiple applications. And we believe customers long term really want -- don't want a point solution. They don't want point robotic solution to move goods from one place to another, a different robotic solution to move pallets and a different robotic solution to do fulfillment. They want one across their entire footprint within a warehouse, and we believe that, that's the -- why we like this acquisition and why we're focused in the area. And this leveraging of the worker and the robot together gives you even more efficiency inside the environment. And lastly, our software. So we like the idea that our mobile devices are in the hands of retail associates today. And creating a suite of applications that enable that retail associate to be more effective, more efficient for the retailers to retain those employees longer and we can leverage our mobile devices. We can leverage it for task management and communication and workforce management and prescriptive analytics and demand planning using AI on those devices and close the loop from planning to actually execution within the store. So those are the 3 expansion areas we think about. So software, retail software today focused, warehouse robotics and automation. And then machine vision really towards manufacturing and T&L. So Fixed Industrial Scanning more T&L, machine vision, more manufacturing-oriented. So those are the 3 expansion areas that we see are just at their infancy for us at Zebra really and create a tremendous opportunity for us to grow our business beyond the core and beyond these adjacencies we think about.

[indiscernible].

Yes. I mean we don't see RFID as a replacement to barcodes. We see it as complementary. So you think of retail store is a good example where you've got something that's difficult to scan. Think of blue jeans where you have many, many different sizes and they're stacked across the -- in the retail environment. The barcodes still used to basically check that customer out ultimately, but RFID is used to look at the inventory inside the retail store. If the RFID tag is in there, you still need to scan something with a barcode. So universally, the barcode is on everything today, and we don't see those use cases going away. What we see is RFID complementing those use cases in areas like track and trace, better accuracy of inventory, there's places where RFID is used today for checkout. But still the backup to that is still using the barcode. So we don't see long-term RFID replacing the barcode. We see us doing things building products like scanners for front of store checkout that have both RFID readers and barcodes. The one advantage to an RFID tag is things like you're hearing a lot about loss prevention within retail. An RFID tag can tell you whether that item was actually purchased or not. Did it go through the point of sale and actually be sold as opposed to somebody walked out of the store with it because I can track that actual unit and piece of merchandise down to its identification to that unit itself. So if somebody brings it back and tries to return it, I know whether it's actually been sold or not. So there's other use cases beyond the barcode that RFID provides, but we don't see it replacing the barcode.

Who else? Anybody else. I have more I can ask but keep firing.

[indiscernible].

Yes. So there will be some inventory then there'll be -- in transit basically or what's in the -- on the ocean that would be higher than if your air freight. But that is still -- we would add probably about 3 weeks of inventory from that perspective. So it's not particularly talk about the inventory we currently have, that's not a particularly large part of that overall inventory.

And despite that, we're our focus is on bringing down our inventory overall.

It's certainly very cost effective, including the carrying cost of that inventory.

Well, I'll ask one more about a potential recession scenario. Notwithstanding some of the secular tailwinds you've discussed in various end markets. What are some of the more GDP-sensitive end markets, just those that are most likely to dial back spending for some period of time through a recession? Is it manufacturing maybe? Or what would you highlight as some of those that are quickest to react when you had economy turns?

Yes. I think each of our verticals and also from a geographic perspective would have slightly different characteristics. I'd say health care is probably the least recession-sensitive. Historically, I'd say retail has been probably the most economically sensitive for us as retailers tend to be pretty tactical in how they deploy capital. If you go back 6, 7 years, I would say retailers tend to think about our solution as being more tactical productivity tools and they could delay purchasing them for a quarter or maybe 2 quarters, not forever, but for some period of time. Today, I think that retail has changed in that. We are now an integral part of enabling them to achieve their own vision, their own strategies. So retailers today I can't think of a retail who does not want to build the e-commerce or omnichannel capabilities. So we are much more integrated into their larger plants than being, say, more of a tactic product productivity per tool. And when they look at how to digitize and automate those workflows, the -- that involves other solutions also. It's not just Zebra, particularly on the software side. So those implementations become a little bit more like an ERP implementation where if you have a kind of a -- if you have a difficult quarter, difficult week or something, you can go back and tell your system integration consultants that you all go home now, and I'll call you when I need you in 3 weeks later. And okay, could you come back? You can kind of dial it up and down with very much moderation. It's not something you can kind of just turn on and off. So I think my expectation is that we will be much less economically sensitive. And what you've seen also from announcements of larger retailers in the U.S. this year when they've had a more challenging quarterly report is that they have, I think to a logo, recommitted to saying we are committed to continuing to invest in our IT capabilities to ensure that they can continue to evolve the business and compete effectively with all e-commerce players and other retailers building those capabilities. It's no longer having an e-commerce omnichannel capability, it's no longer optional for brick-and-mortar retailers, if others have it, consumers will go there. So they need to -- it's not just to compete with e-commerce. It's competing with other brick-and-mortar retailers, too.

And how does manufacturing typically react through a recession scenario?

So manufacturing is about low 20% of our total business. I think the manufacturers tend to be more stable or steady for us in that the -- we don't have -- we tend not to have very large deals in manufacturers. Manufacturers tend to -- they refresh kind of an assembly line or they set up a new factory, they don't go and do what retailers or transportation logistics companies do. We want to have the same kind of footprint across our entire facility. So you think of in, say, automotive, a new -- the 2023 models come out, they retool those lines for those, but I don't go and retool other things. It's much more specific to what is being manufactured. So therefore, it tends to have less of an impact. Now we've seen manufacturers -- in health care, where our 2 fastest-growing verticals last year, and we've continued to see very good growth in manufacturing this year. So it's done very well over the last 1.5 years, I guess, 2 years.

Yes. Well, we're here at the end of our allotted time, so we can call it. But I did want to thank Anders, Bill and Mike for your time once again, and thank all of you for your interest in Zebra.

Thank you.

Thank you.