Zebra Technologies - Q1 2013
May 2, 2013
Transcript
Operator (participant)
Good morning, and welcome to the Zebra Technologies 2013 first quarter earnings release conference call. Joining us from Zebra Technologies are Anders Gustafsson, CEO; Mike Smiley, CFO; Mike Terzian, Senior Vice President, Global Sales and Marketing; and Doug Fox, Vice President, Investor Relations. All lines will be in a listen-only mode until after today's presentation. Instructions will be given at that time in order to ask a question. At the request of Zebra Technologies, this conference call is being recorded. Should anyone have any objections, please disconnect at this time. At this time, I would like to introduce Mr. Doug Fox of Zebra Technologies. Sir, you may begin.
Douglas Fox (Head of Investor Relations)
Thank you, and good morning, everyone. Thank you for joining us today. Certain statements made on this call will relate to future events or circumstances, and therefore will be forward-looking statements within the meaning of the Securities Litigation Reform Act of 1995. Words such as expect, believe, and anticipate are a few examples of words identifying a forward-looking statement. Forward-looking information is subject to various risks and uncertainties, which could significantly affect expected results. Risk factors were noted in the news release issued this morning and are also described in Zebra's 10-K for the year ended December 31, 2012, which is on file with the SEC. Now, let me turn the call over to Anders Gustafsson for some brief opening remarks.
Anders Gustafsson (CEO)
Thank you, Doug, and good morning, everyone. Today, Zebra reported first quarter sales of $237 million and earnings of $0.46 per share, including $0.04 per share in exit and restructuring costs and acquisition expenses. While results fell short of our expectations and our guidance range for the quarter, which is seasonally the slowest period of the year for Zebra, we executed well on our strategy and advanced our industry leadership position. We entered the second quarter encouraged by a much improved pace of business and a growing pipeline of revenue opportunities. We expect this favorable environment to translate into a sequential increase of $9 million-$21 million in second quarter sales. In addition, important opportunities to expand our business in the second half of the year are developing.
These opportunities span the range of Zebra products, including thermal printers, supplies and service, as well as new growth platforms such as mobile point of sale, or POS, and location solutions. After several periods of solid performance in North America, the first quarter experienced a soft run rate business in the first half of the quarter and slow large deal activity with key retailers. Consequently, some of our distribution channel partners made conservative decisions to aggressively reduce inventories. While the second half of the quarter was much, much improved, the pickup was not enough to fully overcome the slower start to the year. Our performance in EMEA, Asia Pacific, and Latin America was largely within expectations. Although business conditions in EMEA remain challenged, all of our international regions experienced a steady run rate business, indicating continued investment in asset visibility solutions by local customers.
Overall, our geographic diversity continued to benefit Zebra through an uncertain business climate, as ongoing strength in several countries helped to offset weakness in others. We remain optimistic about Zebra's opportunities for growth and long-term success, while staying watchful over uncertain business conditions in various regions worldwide. We will remain nimble in this environment by optimizing our cost structure and allocating our resources appropriately. By doing so, we are able to free up capacity to invest in additional important, high return business development opportunities. Our focus on improving operational effectiveness is reflected in the $1.9 million charge for exit and restructuring costs. These charges include moving additional supply chain functions within closer proximity of our China manufacturing base, redirecting our global sales and marketing resources to deliver on the greatest opportunities, and optimizing worldwide support functions.
As we have noted in the past, we continue to pursue a vision and drive growth through five strategic pillars. First, intensify innovation. Second, expand into new markets. Third, maximize operational effectiveness. Fourth, penetrate existing markets further. And lastly, inspire our people and culture. I will now highlight some areas of progress in the first quarter relative to our pillars. We continue to maintain a high level of innovation, a key element of our strategy that positions Zebra for improving performance in all our regions. During the quarter, we introduced four new innovative printer products, which will help drive growth in established and adjacent markets and applications. To support emerging opportunities in mobile point of sale, we introduced the lightweight iMZ220 and iMZ320 wireless mobile receipt printers, both certified for use with Apple's proprietary Bluetooth technology.
We also strengthened our mobile printer line with the QLn420, a high-performance model with multiple applications across a wide range of industries. All three incorporate Link-OS, our innovative operating system that pairs a powerful software development kit and software apps with smart Zebra devices. The operating system allows users to easily integrate, manage, and maintain Zebra's suite of printers over the cloud from remote locations. During the first quarter, we also strengthened our line of Zebra card printers with the introduction of the ZXP 7. Designed for secure, high-performance use, the ZXP 7 is receiving an excellent reception from channel partners and customers. First installations of ZXP 7 card printers include applications for driver's licenses in Argentina and Colombia, as well as personal ID solutions for Princess Cruises, Brown University, and a major retail customer.
In North America, our activities to penetrate existing markets further are enabling Zebra to serve more customers in targeted industries with our full range of products and solutions. Healthcare stood out as a bright spot for Zebra in the region, with sales of printers, wristbands, and other supplies nearly doubling. Our growth in healthcare has, in part, been the result of increased deployments of our technologies by hospitals investing to better meet the requirements under the Affordable Care Act to improve patient safety. We've also positioned Zebra for further growth in this segment. During the quarter, we further renewed supply chain contracts with hospital group purchasing organizations. We doubled our investment in sales resources dedicated to healthcare and also expanded our investment with a major Chicago-based provider of technology solutions to healthcare.
In retail, we continue to serve more customers with a broader range of industry-specific solutions. Mobile point of sale is the latest of an expanding array of solutions that offers retailers improved opportunities to enhance the shopping experience and build brand loyalty. While early in its rollout, we have a nicely developing pipeline for mobile POS solutions that we expect will convert to sales later this year. Government and education are other areas where we have expanded our business. The first quarter wins for student IDs and driver's licenses with the ZXP 7 card printer are an early indication of success in this attractive area for growth. In EMEA, investments to diversify our business across more countries have mitigated the challenges in the region. During the quarter, Turkey, where we invested to increase sales coverage, performed well.
We also had favorable growth in Italy, where we were pleased with a competitive win for a large order of Zebra MZ mobile printers, services, and supplies from the Italian Postal Service. We also won our biggest RFID project in Germany to date. To improve production efficiency and quality, Europe's largest kitchen manufacturer is converting its production and logistics from barcode to RFID this year. Soon, every kitchen component will be identified and tracked with an RFID tag to optimize asset visibility through the entire production process. In Latin America, our investments to expand into new markets with greater sales coverage led to solid performance in Chile, Peru, and Colombia. In Mexico, a resurging manufacturing sector led to strong growth as well. These gains more than offset a year-over-year sales decline in Brazil, where general business conditions remain sluggish.
In Asia Pacific, we experienced improved business activity in Korea, Australia, and other subregions. In China, reduced shipments to a still challenged manufacturing sector were partially offset with sales to new customers in retail, government, and transportation and logistics sectors. We are pleased with our progress in diversifying our business in China as its economy evolves towards being more consumer focused. The new products we introduced within the past 2 years have helped us gain share and brand leadership. Greater activity in China and Asia Pacific broadly gives us confidence of an improving trend in the region. Lastly, we are making steady progress in location solutions, an area where we expect growth. During the first quarter, Zebra shipped its 1 millionth active RFID tag, an important milestone, which further positions Zebra as the clear leader in active RFID.
Based on a number of significant pilots that are underway, we are encouraged about the growth of this product line, reflecting the value of the real-time visibility our products provide and the tangible impact of our ongoing investments in R&D and innovation. During the first quarter, we secured business for Zebra real-time location solutions from customers, including automotive manufacturers and suppliers. These companies are finding meaningful value in the real-time visibility Zebra delivers in their manufacturing processes and in managing their extended supply chains. Zebra's progress on several fronts positions the company for high growth and returns. We will continue to invest in our proven strategy, which is enabling us to penetrate existing markets more deeply and expand into new markets, technologies, and applications.... We are optimistic that the results of these efforts will become more apparent as the year progresses.
Now I will ask our CFO, Mike Smiley, to provide a detailed review of first quarter results and guidance for the second quarter of 2013. After Mike's remarks, I will return for some brief closing comments.
Mike Smiley (CFO)
Thank you, Anders. Let me highlight some of the key components of Zebra's results for the first quarter. My comments will principally focus on year-over-year changes in the performance of Zebra's operations. First, anticipated sales declines in Europe and Asia Pacific were partially offset by sales growth in North America and Latin America regions. Second, gross margin was most affected by product mix and sales volumes. Third, operating expenses increased from higher wages and other employee-related expenses, as well as exit and restructuring costs. Let's take a look at sales. For the quarter, sales declined 2.8% from $243.9 million last year to $236.9 million this year. The impact of foreign exchange, net of hedges, was not material.
In EMEA, sales declined 10% from peak sales a year ago, as expected, primarily the result of weak economic conditions in the region. Sales for North America increased 1%. From a product point of view, printer and other hardware sales were down in the region. Supply sales, which include labels, wristbands, and ribbons, remained on a strong year-over-year upward trend. As mentioned earlier, weak sales in the first half of the quarter triggered inventory reductions by our distributors, accounting for most of our difference. In Asia Pacific, sales were down 1% from a year ago. Manufacturing in Asia Pacific was affected by economic weakness in Europe, again, consistent with our expectations. Latin American sales advanced 4%, benefiting from our geographic diversification and improved manufacturing environment in Mexico. By product category, hardware sales declined 8%, which was partially offset by 14% growth in supplies.
While a portion of the supplies growth was due to the LaserBand acquisition, sales of thermal-based supplies were also up. On a year-over-year basis, average printer unit prices declined from $503 to $469, principally because of mix. Product mix and volume also had the largest impact on gross margin. For the first quarter, gross margin was 47.7%, compared with 49.2% last quarter, last year. Operating expenses increased 9% from a year ago. Much of the increase was due to higher employment-related expenses. Year-over-year, the LaserBand and StepOne acquisitions, which occurred in the second half of last year, accounted for a portion of the SG&A expense increase, plus the additional $1.1 million of amortization.
Operating expenses also include $1.9 million in Exit and Restructuring Costs, which added 2.4 percentage points to the year-over-year growth, as well as $482,000 in acquisition expenses. Quarterly operating income of $20 million, plus depreciation and amortization of $7.4 million, totaled $35.5 million of Cash Earnings, or $0.69 cash EPS. The effective income tax rate for the first quarter was 18.2%. The rate reflects the impact of a greater proportion of our income that is generated in lower taxed regions, as well as recognition of a $400,000 R&D tax credit in the U.S. Earnings totaled $0.46 per share, including a reduction of $0.04 per share for acquisition expenses and Exit and Restructuring Costs on 51.4 million average shares outstanding.
At the end of the first quarter, we had 51 million shares outstanding. In total, we generated $22 million of free cash flow, in part by improved management of Zebra's inventories by $7 million from the end of 2012. The day sales outstanding increased slightly from 64 days to 65 days. During the quarter, we returned $4 million to shareholders in the form of stock buybacks. We ended the period with $418 million of cash investments, with about $200 million held in foreign accounts. Now let's look at our second quarter forecast. We are forecasting 2013 second quarter sales in the range of $246 million-$258 million. Our current deal pipeline, backlog, and level of activity support this outlook.
Earnings are expected at $0.58 to $0.67 per share on a GAAP basis, or $0.60 to $0.70 per share on a pro forma basis before estimated restructuring charges of $0.02 per share. Our forecast assumes a consolidated gross margin in the range of 48% to 49%. Operating expenses are forecast between $79 million and $81 million, including the incremental expense from LaserBand and StepOne, but before estimated restructuring charges of $1.8 million. The forecast also assumes an effective income tax rate of 21%, which continues to reflect the benefit of our legal entity structure we put in place, affecting our foreign operations last year. This concludes my formal remarks. Thank you for your attention. Now, here's Anders for some concluding comments.
Anders Gustafsson (CEO)
Thank you. Thank you, Mike. Although the first quarter was challenging, we remain confident in the second quarter and beyond. Near term, we are experiencing a growing pipeline, and the current pace of business should translate into sequential growth in all geographic regions. By consistently following a well-defined strategy, we have continued to extend our industry leadership. Our business execution, financial strength, and innovation have resulted in stronger relationships with more customers worldwide. As we pursue our growth goals, we will continue to exercise effective control over operating expenses to drive greater efficiencies and direct resources to those areas that will deliver the highest returns on our investment. We will also execute stock buybacks and pursue acquisitions for the benefit of our shareholders.
Longer term, we are optimistic that meaningful new returns on our investments in new incremental areas of growth will become increasingly evident as we progress through 2013. These areas build on the strength and brand of our core business. They also further move Zebra into new adjacencies, which are expanding the total available market for Zebra's products and solutions, such as mobile POS and cloud-based applications through our Link-OS operating system. RFID is another attractive area of growth, as customers in a broad range of industries are recognizing the gains in visibility that solutions built around this technology can offer. This week, at the RFID Journal Live Industry Conference, we highlighted two important customers, Vail Resorts and GEA Farm Technologies, that are utilizing RFID in innovative ways to enhance the customer experience, integrate with social media, and increase the productivity and efficiency of operations.
At the show, we also announced the planned introduction of our newest passive RFID printer encoder, the ZD500R. This compact desktop unit offers great performance in a small footprint and incorporates Link-OS for enhanced printer operation. We also recently released our Material Flow Wireless Replenishment Starter Kit. Utilizing active RFID technology, Material Flow provides real-time visibility on the plant floor, so manufacturers can respond quickly to changes in inventory, production status, and customer requests. Material Flow can help decrease on-hand inventories, improve asset utilization, and reduce labor costs. To conclude, we continue to have great confidence in our business and the strategy we are following to create shareholder value. Zebra, together with our partners, is working to build a smarter, more connected global business community. Increasingly, the Internet of Things and other emerging technology trends are creating new incremental revenue opportunities for Zebra.
We also remain optimistic about our core business, where we are building stronger relationships with key strategic customers and enabling better penetration of established and new industries. Thank you for your attention today. We look forward to providing you with regular updates on our progress through 2013. I would now like to turn the call back to Douglas for Q&A.
Douglas Fox (Head of Investor Relations)
Thank you, Anders. Before we open the call to your questions, let me ask that you limit your questions to one question and one follow-up. In addition, Mike and I will be available after the call for any further discussions.
Operator (participant)
Okay. Ladies and gentlemen, if you would like to ask a question, please press zero one on your telephone keypad. Once again, if you'd like to ask a question, please press zero one on your telephone keypads. Please stand by while we hold for questions. Okay, now our first question comes from Steven Stone. Please go ahead.
Steven Stone (Analyst)
Good morning.
Anders Gustafsson (CEO)
Morning.
Douglas Fox (Head of Investor Relations)
Morning, Steven.
Steven Stone (Analyst)
Just, I guess my first question here is: Can you give us our, the expectations you have for mobile POS and RFID? Are these becoming more meaningful to kind of revenue and bottom line now?
Anders Gustafsson (CEO)
Well, if I start with RFID, you know, we see continued steady progress on RFID generally. You know, we've moved from a few years back, primarily testing the technology with our customers, to now we're testing the applications and the business case. So most applications now are more niche oriented. You know, they're more closed loop oriented. But we see good traction, particularly in retail, but also in other manufacturing segments around, particularly around automotive. But it's still a pretty small part of our business, and it is somewhat lumpy as part of that, but we certainly see an upward trend, and we have good, great confidence that it will become a growing part of our business.
Steven Stone (Analyst)
Okay.
Anders Gustafsson (CEO)
I guess to talk about mobile POS also. I guess I would frame that in maybe around more of our total investments we made in growth areas over the last few years. You know, we have a portfolio of investments that we are pursuing, and many of those are more focused on the core part of our business. You know, so expanding into new geographic regions, increasing the cadence of new product introductions. That, I think, has been working out very well over the last few years. We feel very, very strongly, though, that those have helped us accelerate revenue and certainly accelerate share gain in the industry. But we also have some other investments that are, you know, a bit more into adjacencies than the core.
Here, we talk about some of the software activities we're doing. I guess RFID will be part of that, and mobile point of sale is also part of that. And we feel that we are well on track with, relative to our own plans for realizing good returns on these programs. But it, you know, they are more, you know, embryonic, you can say in some respects. They will take longer for them to come to fruition, but the pipeline around, so I'll say particularly mobile point of sales, is very attractive. We have quite a few meaningful deals that we hope to be able to close in the second half of this year.
Steven Stone (Analyst)
Okay. My other question here is: what is your outlook on the acquisitions, kind of the pipeline and also the competitive market? How does that look?
Anders Gustafsson (CEO)
Well, you know, we are, you know, we're always looking for the, for to invest in the opportunities with the highest risk-adjusted returns. And, you know, our primary first goal for that, our top priority, is really to invest in organic growth. We think that has the, you know, that is the highest risk-adjusted return we can find. Next, we have buybacks and acquisitions. You know, we are actively looking at a number of acquisition opportunities, but they must meet our financial criteria and also pass through our strategic hurdles, make sure that they really do fit the business and are something that will accelerate our ability to execute on our strategy or better enable us to execute on our strategy.
Steven Stone (Analyst)
Okay. If I could sneak just one more question. What is the percentage of sales from your largest customers?
Mike Smiley (CFO)
Yeah, this is Mike. So we list three customers. Customer A is 16.6%, customer we call B is 12%, and customer we call C is 11.9%. In comparison, for 2012, a year ago, which you'd probably look at, Customer A was 21.5%, Customer B was 11%, and Customer C was 9.7%.
Steven Stone (Analyst)
Okay, thank you.
Mike Smiley (CFO)
Yep.
Operator (participant)
Okay, our next question comes from Brian Drab. Please go ahead.
Brian Drab (Equity Research Analyst - Industrial Technology)
Good morning.
Mike Smiley (CFO)
Morning, Brian.
Anders Gustafsson (CEO)
Good morning.
Brian Drab (Equity Research Analyst - Industrial Technology)
Good morning. Just first question, can you talk a little bit more about what happened in North America and whether the weakness was weighted more toward manufacturing or retail, or were you able to discern what end markets were most challenged?
Anders Gustafsson (CEO)
Well, so North America, we would say we had a, you know, slower start than we expected. You know, the run rate business generally was somewhat weaker than we would have expected, and there was also fewer large deal activity going on. I think as we entered Q1, you know, globally, but particularly in North America, I think the business community was quite hesitant to commit to spending money in Q2. I think it took longer for most businesses to hand out operating budgets to their business units, and that kind of got us off to a slower start than we had expected. Retail, you know, had been a very strong vertical for us in 2012.
It was a bit more of a mixed bag in Q1, but we do expect retail to be a growth engine for us, over the, you know, the long, the longer term and the rest of this year. You know, retailers are particularly interested, I think, in investing both in technology to help improve the operations, but also to help improve the shopping experience and build the brand as they have to compete against the online retailers. So we've seen a lot of benefit from that. I think healthcare was the other market that we would probably highlight here. It was a bright spot for us.
We almost doubled the revenues in healthcare, and that was very much a result of the investments we've made in building that vertical over the last, you know, three or four years. Mike, anything to add from you?
Mike Smiley (CFO)
Brian, this is, excuse me, this is Mike Terzian. Let me add a little color on and tease apart a little bit what happened in North America from both the run rate and from our key retail business. On the run rate side, you know, as you know, over the past several quarters, we've talked about one of the assets that we have is our large install base, particularly in what we call the big iron, heavy metal products. And we saw perhaps a little bit of the tail end of a pretty robust refresh rate that had been going on for most of 2012, carried into 2013, perhaps not at the level that we were expecting.
On the key retail side, you know, our business in retail, quite a bit of that business is tied to our mobile devices, which are also tied to what is happening on the terminal side of the business. And as you know, Microsoft is going through a revision of their mobile device operating platform. I think retailers, in general, that have terminals tied to a lot of those mobile devices are a little bit in a wait-and-see mode as that gets sorted out. And that's been going on, I think, for a couple quarters. I think if you look back historically, you know, the last couple of quarters, our large opportunity retail business has been a little sluggish, and that continued, but we do see some changes in the wind as it relates to the second quarter.
Brian Drab (Equity Research Analyst - Industrial Technology)
Okay, thanks for all of that, good detail. And then just one modeling question here. I didn't see in the press release your typical disclosure of how much impact FX had on the top line, and I don't know if you said it yet on the call. So could you talk about that, and then also what you expect in the second quarter in terms of a top-line impact from FX?
Mike Smiley (CFO)
Yeah, good question. There was really no FX impact in the first quarter, and we're not really expecting much of an impact in the second quarter at all.
Brian Drab (Equity Research Analyst - Industrial Technology)
Okay. Thank you.
Mike Smiley (CFO)
Yep.
Operator (participant)
Okay, our next question comes from Mr. Michael Kim. Please go ahead.
Michael Kim (Analyst)
Hi, good morning, everyone.
Mike Smiley (CFO)
Morning.
Anders Gustafsson (CEO)
Morning.
Michael Kim (Analyst)
So just turning back to North America, you know, can you talk a little about the tone you're hearing from the distribution channel? You know, given that, you know, they had aggressively brought down their channel inventories, are you seeing sort of a similar aggressive rebuild of the channel inventories? You know, do they feel better about the demand environment?
Anders Gustafsson (CEO)
Yes, I think that, you know, Q1 was a bit unusual generally for us here. You know, the first month of the quarter is normally the you know, the slowest. But, and we do about 50% of our business in the last month of the quarter. You know, this year, and as I think in Q1, particularly, or, you know, Q1s generally, January is particularly difficult to use as a guide for the rest of the quarter, because it does take much longer, some years for businesses to kind of hand out their their budgets. And what we saw in Q1 was kind of globally, a pretty weak start from the from the...
But our international regions were able to recover and build that up, you know, bring that business back in the second half of the quarter, or particularly in March. In North America, that did not happen, particularly because some of our distribution channel partners were a little skittish about, you know, the overall economic situation and did not want to be caught out, with too much inventory if the markets weren't going to come back the way we had hoped. So they decided to really bring down inventories quite aggressively.
Michael Kim (Analyst)
Okay. And then, you know, just in terms of implications for the guidance, if we look at sort of the midpoint of the range, that, you know, seems to imply that the hardware business, the printer business, sort of recovers at sort of the same run rate that you saw, you know, let's call it second half of last year. Is that, you know, sort of the right way to think about the hardware business?
Anders Gustafsson (CEO)
Yeah, I think so. And, you know, we're expecting that the sales in and sales out from our distribution partners will be neutral in the quarter. We're not expecting there to be any, you know, we're not factoring in any changes in inventory, particularly.
Michael Kim (Analyst)
Okay, great. And then just turning towards the product mix and ASPs. You know, are you seeing, you know, maybe a fundamental change in customer demand in terms of, you know, the mix of products that they're looking at? Is it, you know, focused more now on mobile and desktop and, you know, maybe less on high performance?
Anders Gustafsson (CEO)
Yeah, the AUP, as you said, has been, is driven primarily by mix for us. And we had a little less of our high-end product line go through. And we've done lots of work over the last quarter and, you know, the prior quarters now to really try to understand very clearly what is driving it and what are the conclusions from this. And so far, I mean, the conclusions we have is that the pricing within each of our product family is very stable. You know, there's a very modest price erosion over time. But some of our newer, more low-end products are growing much faster than the, you know, historical product portfolio we had. So we're seeing a stronger growth in the low end of the portfolio, and so the mix then becomes lower priced.
But we're also spending a lot of effort making sure we are aggressively taking cost out of those products so that the gross margin of those products should be kind of within the band of normalcy as we see it for gross margins.
Mike Smiley (CFO)
You know, we did talk a little bit about the mix relative to the geographic split. So if you kind of go back to the previous comments around some of the North America refresh, which tends to be centered on manufacturing and warehousing. And if you look at what's happened globally, within EMEA, you know, some constraint in the German market, which is a very heavy industrial manufacturing market for us. And then you add in factor in China, which has we have been leveraging off of multinational manufacturing. That actually kind of accelerated a little bit more of a distortion in the mix.
And so to Anders' point, while we're seeing some new business opportunity, and that tends to be in some of the mobile desktop space, as those markets kind of re-correct or rewrite themselves, we think the mix will actually become a little richer. It's actually reflected that way for us in our second quarter.
Michael Kim (Analyst)
Great. And then, last question, you know, can you talk a little about the cadence or anticipate cadence of new product introductions? I think last year you had 14. Looks like you're off to a good start with four this quarter, but, you know, would you anticipate to be, you know, above that 14, you know, that you guys achieved last year?
Anders Gustafsson (CEO)
Yeah, our expectation is that we will launch a similar amount of new products in 2013 as we did in 2012. You will probably see a slightly higher emphasis around software. So, you know, the Link-OS software platform that we talked about here now, we're going to have several releases of that coming out in the year. So the emphasis will move slightly more towards software, but you should expect a similar cadence on new product introductions going forward.
Michael Kim (Analyst)
Great. Thank you very much.
Operator (participant)
Okay, our next question comes from John Barta. Please go ahead.
John Barta (Private Investor)
Yeah, hi, and thank you for taking my question. I guess on the OpEx side, you know, each line item was up quite a bit while revenue was down. Can you provide a little more additional color on, you know, what were the puts and takes there?
Mike Smiley (CFO)
Yeah, this is Mike Smiley. You know, there's a couple of things that are going on. You know, first of all, we have, we did do those StepOne and LaserBand acquisitions, which drove a little bit of increase. The other thing I would say is that when you compare year-over-year, right, we end up with, we end up giving our withholding and those types of things happen in the first quarter. They happen in both quarters, but we also have
... the fact that we've had more raises come out in the first quarter, that sort of increases first quarter to first quarter. We also had increase in some headcount over and above the LaserBand and the StepOne acquisition, mostly in areas that we're trying to invest and grow in, which is in the sales and marketing and the engineering. For example, engineering resources in China, our supply chain resources in China, and then some sales and marketing resources. So most of it is really, as I mentioned before, employee-related expenses.
John Barta (Private Investor)
Okay. And then more of a housekeeping question. You know, could you just restate the long-term growth margin goal or target?
Anders Gustafsson (CEO)
Our long-term growth margin target has not changed from you know, prior quarters. We say high 40% to 48%-50% is our expected target range.
Mike Smiley (CFO)
Yeah, and I think we would classify the results for this quarter lowish. I don't think this is what we would view as in the what we were expecting long run.
John Barta (Private Investor)
All right. Thank you.
Mike Smiley (CFO)
Yep.
Operator (participant)
Okay, and, ladies and gentlemen, once again, if you would like to ask a question, you can press zero one on your telephone keypad. And with that, our next question comes from Greg Halter. Please go ahead.
Greg Halter (Analyst)
Yeah, thank you, and good morning.
Anders Gustafsson (CEO)
Morning.
Greg Halter (Analyst)
On your combined cash and investment holdings of $417 or slightly over, what was the return on that in the quarter?
Mike Smiley (CFO)
It was like 0.7% or something. It's very low.
Greg Halter (Analyst)
Okay. And given there was only, I think, $4 million repurchased of shares, just wonder what your thoughts are going forward, given the cash earning, not a whole lot, and $400+ million of cash.
Anders Gustafsson (CEO)
Yeah, we, you know, we've always kind of said that we view, you know, stock buybacks as, you know, one of the key uses of cash for us. And if you look historically, we've, you know, returned quite a lot of cash through stock buybacks, you know, over the last five years. I think we've reduced our share capital by the third. This quarter, we, you know, we also always said that we want to be opportunistic in when we buy back shares. And in Q1, if, you know, there was such a strong momentum behind the share price, it felt like that would be chasing the share price up. And, we rather, you know, have the patience to wait for right opportunities.
You know, you go back to Q3, 2011, where we bought, like, 1.8 million shares in one quarter. So we've, I think we've shown that we are willing to do that at the right opportunities.
Greg Halter (Analyst)
All right. And one other quick one. Customer A had a pretty good drop, about five points, I guess, on a year-over-year basis. Would that explain the comments in your... partially explain the comments in your release regarding the slowdown of North America and channel partners and so forth?
Mike Smiley (CFO)
Yeah, it would.
Anders Gustafsson (CEO)
It would not necessarily explain the slowdown in, you know, the sales out of total market, which was quite strong, but it would indicate that that's where a inventory correction took place.
Greg Halter (Analyst)
All right. Thank you.
Operator (participant)
Okay, our next question comes from Paul Coster. Please go ahead.
Paul Coster (Equity Research Analyst)
Yeah, thanks for taking my question. Anders, you seem to be indicating that growth will accelerate somewhat in the second half of this year, which for a book and ship business, you know, is difficult to do, but you seem quite confident, and that it, somehow or another, is also going to sort of express something new at the company. What, what's going on? Why do you have such good visibility into this improvement in the second half of the year? And what is the message that you're trying to convey here regarding the change at Zebra?
Anders Gustafsson (CEO)
Well, first, I guess, we are giving guidance for the next quarter. We talked about kind of larger deal pipeline being stronger and expecting some good things from that come out. But the focus really of the comments are on Q2. And, you know, the guidance we've given is, you know, the way we put that together is very much in line with how we put together guidance for, like, the 23 quarters that I have been part of doing this.
And I feel that the, you know, the bookings trend so far this quarter, the pipeline we have, the conversations we have with our customers, which I feel is getting more constructive, is lending itself to that, to be a reasonable forecast that with the same risk profile, I would say, as we normally have in our forecasts.
Paul Coster (Equity Research Analyst)
Okay. In your Analyst Day from last year, I think you talked about a sort of growth aspiration. What was that? And do you think that can be achieved this year?
Anders Gustafsson (CEO)
So the way we laid it out at our analyst meeting in, I think it was March or February 2012, was that we saw a market growth, a base market growth of 6%-7%, based on VDC's, you know, independent analyst research. And we said we think we could grow 2% to 3% faster than the market. In 2012, I don't think we've seen official market data yet, but I'm confident the market did not grow 6%-7%, but I believe that we grew our market share quite substantially. So at least that piece of it, I think we got right.
For 2013, you know, it's clearly harder to achieve a higher single-digit growth for the year when we have a, you know, weak first quarter. But we do feel that the... over the next, you know, several years, that when, you know, when the markets become more, say, even, you know, as I was saying, the last few years, we've had some really, really good years and some really crappy years. But I think in a normalized economic environment, I believe that we should be able to high, you know, get into the higher single digits growth rates.
Paul Coster (Equity Research Analyst)
All right. Thank you.
Operator (participant)
Okay. Now I'll turn it back to our speakers for our closing remarks.
Mike Smiley (CFO)
Okay, thank you, everybody, for joining us today. We look forward to keeping in touch with you as we progress through 2013. Have a good day.
Operator (participant)
Thank you, ladies and gentlemen. This conference is now concluded.