Guidance and Demand Trends
Q: How do you see demand progressing through the year?
A: We are cautious about the demand environment, expecting modest sequential improvement as we move through the second half of 2024. Our Q1 guide is down 17% to 20% sequentially but improves from Q4 as we are not assuming any additional distributor destocking. The full-year guide's 1% growth at the midpoint is entirely driven by the 2023 destocking, with the market flat or slightly down in Q2 and slightly up in the second half. Given the lack of visibility and firm commitments in the pipeline, we believe this is appropriate. -

Long-term Growth Outlook
Q: Is there any change to your long-term 5%-7% growth guidance?
A: No, we remain confident in our long-term growth rate of 5% to 7% over the cycle. Current sales declines are due to a cyclical bottom accentuated by the pandemic. We believe the secular trends to digitize and automate customer operations remain intact, and we are well-positioned to continue being the market leader and to take share as markets recover. -

Margin Outlook
Q: Can you discuss your margin guidance and any pressures?
A: For the full year, our EBITDA margin guidance is 19%, increasing to 20% in the second half and heading into 2025. This is about 1 point higher than 2023, driven by favorable pricing, lower premium supply chain costs, and some volume leverage. The restructuring benefits of approximately $60 million are offset by increased incentive compensation costs. We expect modest sequential improvements in gross margin throughout the year, primarily driven by these factors. - - -

Backlog and Destocking
Q: Can you update us on destocking and backlog trends?
A: In Q4, we experienced about $20 million to $25 million more incremental destocking than originally guided, but this was offset by higher demand, allowing us to come in above our guidance midpoint. We believe destocking is largely behind us, setting us up well for 2024. Our backlog has improved sequentially entering Q1, driven by uptick in year-end spend, particularly retail-related orders, bringing us back to pre-pandemic levels. - -

Share Gains and Opportunities
Q: Where do you see opportunities for share gains?
A: We see significant opportunities across our vertical markets. Retail is likely returning first, with customers showing optimism and engaging with our modern store initiatives. In transportation and logistics, we help customers address labor constraints and supply chain visibility, with opportunities in technologies like RFID. Manufacturing is an area where we are less penetrated, and we are offering new solutions in machine vision and robotic automation. Additionally, healthcare presents opportunities to automate workflows and connect assets, patients, and staff. -

Software and Services Growth
Q: What are your expectations for software and services growth?
A: Software and services are recurring revenue streams that have outperformed our broader product portfolio. We are seeing strong attach rates on mobile devices and have introduced our Work Cloud software, combining multiple assets to enhance productivity in retail through communication, collaboration, task management, and demand planning. We are also focusing on improving margins and profitability in these areas, and we expect continued growth in 2024. -

Supply Commitments and One-time Charges
Q: What's the status of your long-term supply commitments and the $10 million expense?
A: The $10 million expense was a one-time charge in Q4, associated with canceling and deferring purchase commitments from a 2021 contract with one supplier. This action is behind us, with no structural changes to our costs moving forward. We have made significant progress, with a 75% decrease in some long-term purchase commitments, and are focusing on managing components with our Tier 1 manufacturers to optimize inventory and flexibility. -

Underpenetrated Markets
Q: How are you approaching opportunities in underpenetrated markets like Japan and government?
A: We see significant opportunities in markets where we have lower shares. In Japan, we have won contracts with the largest postal carrier and retailer, and we're engaging with major system integrators and cellular carriers. We've adjusted our channel strategy and hired a new sales leader to focus on expanding beyond retail and postal. In the U.S. government sector, we have a new sales leader refocusing on government opportunities, including public safety, by building our partner community and expanding our reach. -

RFID and Machine Vision Opportunities
Q: What do you expect from RFID and machine vision technologies in 2024?
A: We continue to see strong interest in RFID across many verticals, expanding beyond retail apparel into track and trace, supply chains, parcel tracking, baggage tracking, manufacturing, and healthcare. We have the broadest RFID solution set and have experienced strong double-digit growth in RFID, including in 2023. In machine vision, we focus on manufacturing (automotive, food and beverage) and transportation logistics (warehouse and distribution). With our acquisitions of Matrox and Adaptive Vision, we offer a broad, differentiated solution, combining hardware and software to enable easy automation upgrades for our customers. We believe both RFID and machine vision represent tremendous opportunities for growth. -

Strategies to Stimulate Demand
Q: Are you implementing strategies to stimulate new product demand amid customers sweating assets?
A: Yes, we are working closely with customers who are using devices longer than normal to encourage upgrades. Drivers for upgrades include technology transitions like 4G to 5G, faster WiFi (WiFi 6), and OS upgrades, as older devices eventually lose support for new Android releases and security patches. We're also expanding use cases by adding functionalities like facial recognition, integrated RFID, and showcasing future capabilities like generative AI on devices. Additionally, we are offering combined software and hardware solutions as a service, such as wearable devices with task management and collaboration tools, providing an OpEx-based recurring revenue model that can be more appealing in the current environment. -

Interest Expense and Refinancing Opportunities
Q: Are you considering refinancing to reduce interest expense?
A: We feel good about our current debt position and cost of borrowing, which includes all crediting and banking fees. We are always looking at opportunities to refinance if it makes sense given the environment, but currently, we don't feel at a disadvantage relative to our debt cost position. -

R&D Expense Outlook
Q: How should we think about R&D expense cadence through the year?
A: The sequential decline from Q3 to Q4 was due to cost actions and timing. We expect R&D expenses to increase slightly in 2024 as we reset compensation plans, including incentive compensation. Typically, the first half is more front-end loaded due to project timing, while Q4 is lighter due to holidays. We anticipate a similar trajectory throughout the year with a potential uptick from resetting comp plans. -

Shipping Issues Impact
Q: Are overseas shipping issues impacting your business?
A: We are monitoring escalating tensions in the Red Sea, which primarily impact our printing business into EMEA shipped via ocean through the Suez Canal. Most of our products are shipped by air or ocean to the U.S. West Coast. Currently, we expect a modest impact on extended lead times in EMEA and a negligible impact on margins in Q1. We have mitigation plans in place pending further escalation. -

Capital Deployment Priorities
Q: With improving free cash flow, what are your capital deployment priorities?
A: We are prioritizing debt paydown of our variable rate debt in the short term, as we ended the quarter at 2.5x debt leverage, the high end of our target range. We expect the debt leverage ratio to increase slightly in the first half due to profitability comparisons but decline in the second half. As always, we will reassess capital deployment opportunities, including share buybacks or M&A, as the year progresses. -

Additional Cost Savings Potential
Q: Is there more room to take out R&D expenses after Q1?
A: The decline in R&D expenses from Q3 to Q4 was due to cost actions already taken. While we expect expenses to increase slightly in 2024 due to resetting compensation plans, we anticipate a similar trajectory through the year. We have not indicated additional cost reductions in R&D beyond what has been planned. -