Welcome to the Zebra Technologies 2013 Third Quarter Earnings Release Conference Call. Joining us from the Zebra Technologies, are Anders Gustafsson, CEO; Mike Smiley, CFO; Mike Terzich, 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 your 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 now like to introduce Mr. Doug Fox of Zebra Technologies. Sir, you may begin.

Good morning. 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 we 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.

Thank you Doug and good morning everyone. Today I am pleased to report that Zebra achieved record third quarter sales of $263 million, and earnings of $0.77 per share excluding $0.01 per share in accident restructuring costs and acquisitions expenses. Sales increased 5% from a year ago and we're up $10 million sequentially. Sales increased in all geographic regions with new records in North America and Asia Pacific. Zebra's results reflect an improvement in business conditions throughout many of our customer verticals and geographies. While weakness continues in certain areas including Southern Europe and Brazil, our run rate business through distribution partners remained steady throughout the quarter. In addition our pipeline of large enterprise deals began to improve. Also encouraging was an increase in profitability during the third quarter. Gross margin approached 49% with an improved product mix over the second quarter of this year. On a sequential basis average unit prices increased $20 as manufacturing customers stepped up purchases of high performance printers. At the same time we maintained effective management over costs with recurring operating expenses up only $2 million from a year ago but down 2 million from the second quarter. With continued effective management over working capital Zebra generated a solid $41 million in quarterly free cash flow. We also returned almost $30 million to shareholders during the quarter in the foremost stock buybacks. Year to date our stock buybacks have returned $58 million to shareholders. The diversity of our business across geographies, products and customers continued to yield results in our core business. The positive momentum that we’re building positions us well to drive future growth with our long term strategic investments and sustainable competitive advantages across our entire platform. In North America shipments increased to manufacturing and retail customers. We also experienced some return…

Thank you, Anders. Let me highlight some of the key components of Zebra’s third quarter results; first, sales increased in all four geographic regions from year ago; second, gross margin went down from peak levels a year ago increased to 4 percentage point from the second quarter; and third, operating expenses remained well controlled. Let’s take a look at sales. For the quarters, sales increased 4.6% from $252 million last year to a record $263.5 million. Foreign exchange had a positive impact on sales of $1.1 million net of hedges. Sales for North America increased 2.1% from year ago and we’re up 4.7% from the second quarter. In the region, growth in supplies and aftermarket products offset a year-over-year decline in printer sales. In EMEA growth in multiple printer categories and supplies led to a 4.7% sales increase in a seasonally slower period for the region. 10 out of 13 sub-regions had year-over-year growth. Latin America registered a slight sales increase of 0.2%. Higher shipments in Mexico and other parts of Latin America were offset by declines in Brazil, Argentina and Venezuela. Sales growth of 13.8% in Asia-Pacific to a record $42 million was broad based with nearly every sub-region contributing to the improvement. Growth in table top and desktop printers was notably strong with increasing sales to manufacturing customers as well as into retail and healthcare. By product category, hardware sales advanced 2% from a year ago and we’re up $7.8 million from the second quarter. Hardware sales have now increased sequentially for two consecutive quarters with record sales of high performance printers in the third quarter. Supplies maintained a high sales trajectory of 12% for the quarter. Sales in this category were broad based to customers in multiple industries and we view supplies as a continued growth category…

Thank you, Mike. Our third quarter financial results reflect the strength of Zebra’s extended industry leadership in an improving business environment. We have consistently leveraged our scale, financial strength and global presence to wheel the more formidable company in an attractive industry. Companies worldwide are continually seeking better ways to identify tack and manage their assets to improve their operations and gain competitive advantage. Zebra is well positioned to assist our customers in gaining greater visibility into their operations and extended supply chains. We will continue to benefit from these important trends by first understanding our customers’ needs for improving visibility into their operations. Second; innovating around their needs by developing products and solutions that help them meet their business goals. Third; penetrating more deeply the existing markets reserve and to enter new markets with attractive growth opportunities. And lastly, driving for greater excellence to deliver improved customer service, and optimize our own operational efficiency. Zebra has multiple avenues for further growth in our core business. These opportunities include building on our success with developing stronger relationships with strategic accounts primarily in North America and Western Europe. In Asia Pacific and other developing territories we will further diversify our business with customers in retail, healthcare and government. And worldwide we will expand into new industries such as sports and entertainment. Product innovation is also cornerstone of Zebra’s long-term success and growth. In supplies our focus remains on products that offer a clearly differentiated value-added solution such as LaserBand wristbands. Some including thermal wristbands printed on Zebra HC100 printers and ribbons from card printing offer attractive energy streams as well. Geographic expansion also holds growth opportunities for our supplies business which is currently concentrated in North America and Western Europe. Innovation in our printers remains high as well. To date, we…

Thank you, Anders. Before we open the call to your questions let me ask that you limit yourself to one question and one follow-up. In addition, Mike and I will be available after the call for any further discussion.

Thank you. We will now begin the question-and-answer session. (Operator Instructions) Greg Halter from Great Lakes Review.

Good morning. I just wanted to ask about the R&D spend obviously so far as you’ve mentioned 15 printers, platforms, not platforms, but 15 printers so far this year with others coming and the R&D was about flat for this quarter on a year-over-year basis and it could be some timing there, but I just wondered if you could characterize what you see on the R&D spend going forward either dollars or percent of sale?

This is Mike Smiley. I think that one of things you got to be careful as when you do year-over-year comparisons, the spend can be a function of when products is coming to the market because you end up with a lot of certifications and stuff that might expand the spend a little bit and one period versus the other, so there is a little bit lumpiness in there. As we go forward, our expectation is that R&D as a percentage of revenue would moderate a little bit because we expect the top line to grow faster than the engineering spend overtime. I think as Anders talked about we have got the Zatar product and we have got the MotionWorks and we’re hoping that will build our top line at much faster rate than our R&D. Anders, if you want to say anything on that?

Yes, Mike, for us having a vibrant product portfolio is absolutely critical like for any technology company and we do pay a lot of attention to make sure that our investment ratios are in line with what we feel the return will be also. We believe that the investments we made over the last several years in new product development have been well spent. We’re seeing the improvements in the business and both are driving reputation as the most innovative premium brand in the market as well as the market share gains we have been able to drive. So it is an important part of our strategy but obviously we’re also very sensitive to making sure that we have the right kind of ratios to deliver proper earnings leverage in the P&L.

All right and one follow-up for you on the new product Zatar, I see it’s up to five devices free and then over five, $1.99 per month per device on the introductory period. Just wondering how that will work going forward if you have given that consideration and what kind of profitability in terms of margins you expect out of this, I would presume pretty high since it seems to be an app-based software system?

First, we are very excited about what Zatar can do; it’s an open cloud-based way to help our customers to connect specially any in all devices to all sorts of Internet applications. I think the best analogy for Zatar is probably is the Facebook for devices, users likely Facebook, the Facebook page knows all their critical information; they have the ability to connect to other third party applications and to other people. The same goes for Zatar as the platform it basically is the Facebook page for devices enabling it to connect to all sorts of other applications and devices and creates much of a networked world. It is a software as a service, so revenue ramp a little less than it would be for sold as equipment but over time it should provide a steadier business with steady growth and good profitability.

It does seem like it’s a easy product to use at least based on the descriptions that I’m reading or at least get started with.

At the intend this that we’ve really worked hard on differentiating ourselves to make it easy to use; that is one of the things that want to make sure we can convey and make people feel that this is a product or solution that you don’t have to study the user manual for day but you would be able to get up running pretty quickly.

Thank you.

Okay, Paul Coster, J.P. Morgan.

Anders, you talked about an improving pipeline in the enterprise space. Can you just give us some color around that? You never have much visibility but it sounds like it is improving. What is filling that pipeline up?

In Q3 we were first encouraged by the broad based strength we saw in the business across all verticals and regions and the macro environment is also getting better but it’s still somewhat choppy. But our pipeline of larger deals has strengthened and it varies a little bit by region what we see it in but in the U.S. and North America, retail and manufacturing have been probably the two strongest driver for larger deals. Healthcare is also been a bright spot for us where business is up 61% year-over-year. In Asia, we did see also a strengthening in our large deal pipeline primarily driven out of manufacturing I would say, so China, Korea were two of the stronger areas there were lot of manufacturing customers appear to be little less dependent on exports to Europe today and investing now in new expansions to both satisfy new products coming out but also new volume. And in Europe I think we had a very steady business, we have had nicely improving trends for all of 2013. Large deals were up but it was probably more of a broad based run rate business than the characterized by large deals. And Mike Terzich, maybe you want to add something?

Paul you know the other aspect of this I think for us has been the pipeline is clearly improving as Anders noted I think it standard grade now for us principally in Asia and North America we’re still seeing that choppiness in Latin America and a bit in EMEA. Now in North America what we’ve seen has been an improvement particularly in retail I think there is a piece of this that’s kind of borne out of necessity so to speak. I think there is a lot of retail customers have sitting on the sideline for a long time as they’ve kind of sorted out what is happening and their retail space with mobility with credit card adoption and chip and pin adoption and platform changes. So, we’re starting to see that late up a little bit the grip on that and that’s fueling some business as is manufacturing and then I think out of Asia it's pretty much what Anders has said it. So, we’re seeing kind of return to the traditional manufacturing space which is very good for us because it’s a mix of product that is much more stationary than it is mobile.

If you can elaborate little bit on what’s filling up in that pipeline all the bigger deals. What kind of timeline do you have in between the pipeline filling up and the closing of the pipeline and then subsequent delivery and then, this was, I had another question which is related to stores on the competitive landscape within of couple of mergers this year or acquisitions this year which look like they may be changing the competitive landscape.

As far as the timing of the pipeline I think it is pretty much, its reflective in some of the guidance that you’ll see for the fourth quarter clearly from the timing perspective we’re feeling better about what we see. We measure our pipeline in both value and in volume and those are two intricate pieces of data that we look at very closely on any given quarter. So, what we are seeing is more deals and the value of those deals is increasing in size. What we’ve been reporting in the last couple of calls has been that value and that volume has been little bit more tepid. I think, people had previously been taking some positions where they've been truncating some of these deals and segmenting them into smaller increments, I think they have a little bit more forward confidence in their business at present where the value of those opportunities is increasing, so I may turn it back to Anders for some additional comments.

On the competitive landscape I said, I don’t think we feel that the competitive landscape has changed materially over the last year or so, we’ve had many strong competitors for a long time now, in a somewhat tighter economic environment like we have now I think the competition gets to be a bit more intense, but I think we can stand up well to that with our scale and the breadth of our portfolio and relationships, we certainly see tougher times as a good opportunity for us to expand our leadership position in the industry and our customers are responding well to our messages around how we can help them increase visibility into their supply chain and they like to do business with leaders particularly in tough times with companies that have the financial strength to continue to invest in product development and make sure that their investment's going to be relevant several years from now. If you're referring to Honeywell Intermec merger we haven't seen that make any changes to our competitive landscape yet.

Keith Housum, Northcoast Research

[Indiscernible]. The first question I have for you guys, in terms of the supply business should we expect that growth going forward is that reflected already in the guidance the growth that we're seeing this quarter.

Yes obviously the guidance we've given is inclusive of the entire business but we feel very good about our supplies business we've executed on the basically the same strategy now for, since 2009 so four years, we had 12% increase in Q3 which we feel very good about, that's certainly much faster than the market rate for the supplies, market growth rate for the supplies business, it's been a very broad-based strength from the business but primarily centered around North America, Western Europe and Mexico, those are the areas that we have a strong supply presence. Most of the other parts of the world we have a very modest presence. but we're focusing very much we can show we have innovative value added products that differentiate us from our competition and gives us a chance to generate more of a premium price, premium margin for these products, and we are also investing in making sure that we drive cost reductions in these areas as this is a very much cost sensitive business. So we invest to make sure we can drive down the cogs for our product. Healthcare's been a great vertical market for our supplies business and LaserBand is an acquisition we’re very pleased with how that's been performing for us for the last year, and we continue to be very optimistic about these business and see opportunities to both expand geographically as well as expand our portfolio.

Okay, great, thanks, I guess what I was really asking you there was that there's a growth going forward is that going to be consistent with the growth that we’ve seen this quarter for supply.

I think we want to limit our future outlook to what we said here for the company as a whole and not start really giving, dissecting that into all the components.

Okay, all right that's fair and as you look at the line up of printers were there any particular segments of portfolio that outperformed others or any segments that were particularly weaker.

It was a strong, most of our product lines performed well, I would say there's one to highlight it would be the high end of our printers, the table top, now that line has been a bit more subdued in the last couple of quarters that had a strong performance in Q3, that would be the one to highlight I think.

Michael Kim, Imperial Capital.

Could you provide an update on more POS and especially with north American retailers are you seeing an uptake on the mobile receipt printers and maybe more broadly how that might change the mix on your retail vertical over time and then behind that ASPs relative to the corporate average and then volume opportunity.

Okay Michael this is Mike Terzich, I'll start, I’ll turn it over to Anders and Mike Smiley for some additional comments but as far as mobile point of sale space is concerned what we are seeing is clearly there is a very high level of interest from a variety of tier 1, tier 2 and even kind of tier 3 retail customers, everybody is certainly looking at the deployment of mobility payment solutions in their business they're all at various stages of consideration so it is a space that we see in the long-term having some significant growth prospects, for us we have been carving out where we think we can rightfully play from a niche within that space and we’re centered more in that tier two, tier three retail application space, so we have got some percolating interest from a variety what we would consider to be national, meaningful, accounts but not necessarily the very large retail accounts, they are generally going to stay with the traditional people that offer some payment and solutions. And I think our outlook is that this is going to continue to grow in momentum and opportunity. And secondly, for us, there is a field service component to the mobile point of sales side that plays very naturally to where Zebra is centered today. So when you think about the ability to take payment in the field after services rendered that's a natural adjacent fee for where we fell today both from a channel perspective and with our solutions. Let me turn it back to Anders for some additional comments.

I think the strategic backdrop I say for mobile point of sale continues to be very attractive, retailers are by and large focusing a lot on how to improve the customer experience. And make sure that they don't get kind of disaggregated by retailers and mobile point of sale is an important point of that. They really want to make sure they can drive a much more interesting engagement between the sales person in the store and the customer. When retailer goes and starts to point this usually if it's certainly a larger department store or something it's not across the entire store, it's more department by department. So it’s starting with modest growth I think here now, but it feels like this will be a bigger trend.

And then switching gears Anders you talked a little about MotionWorks, the Sports Solution. What are your thoughts on turning some of the pilots into commercial deployments and you're relative the investment that you put in developing the solution when we might be able to collect some operating leverage?

We're very excited about MotionWorks, we think it's a unique solution that offers very high degree of accuracy in real time and the value proposition is both for the fan experience and most sports leagues are very eager to make sure they get seats and get people out of their living rooms and their 65 inch TVs to actually go to the arenas. And our solution can really help them with providing much more interesting statistics and analytics for people who are at the game. But also offers all the coaches a lot of opportunities to offer more insights. We're obviously working hard on trying to convert the trials we have, the pilots we have. I am not going to speculate today about exactly how quickly that can happen and when that will happen, but it will be starting with a limited number of actual live deployments and then we will grow from there. So from the revenue impact in our 2014 P&L it's going to start small grow but it’s not going to have a huge impact on a $1 billion base.

And then turning to Asia-Pac is it your expectation that the increase in demand for high performance table top and these higher end printer opportunities will sustain through the balance of the year or was there some unusual activity in the third quarter that drove some of that increase in purchasing?

It's Mike Terzich again. No I think our expectation is relative, we see some consistency in the fourth quarter outlook for Asia relative to that high performance entered the marketplace. That is principally for us a core products set that we sell more broadly in China and Korea and given the pipeline and the opportunities we see at present. And given the fact that if you really dial the clock back a little bit, if you look at the last several quarters in China it had been to Anders point somewhat subdued, we see that people have waited while to expand production lines and refresh some of the aging equipment and we think that will continue into the fourth quarter.

Greg Halter, Great Lakes Review.

I got the age old question for you regarding capital deployment. So $585 million was your peak cash in investment second quarter of '06, we had about $466 million now. Since 2000 you spent about -- not spent you have returned about $913 million to shareholders. And just wondered what we can look going forward because the cash seems to continue to build even though you are buying back stock.

We're obviously very cash generative as a company and we have been able to generate very healthy -- cash flows for the past several years. But our buybacks have been quite substantial too. I think we bought back about $600 million worth of shares since the beginning of 2008. So that's a big number. But we’re always looking for the best ways for us to deploy our cash and returning cash to shareholders is an important part of our overall strategy. And we think that doing that through buybacks has been a good strategy for us good results, and we expect to continue that. But we're also looking at expanding our business through acquisitions we’ve talked about that on many calls here now however strategy around the acquisition hasn’t changed but I must say I think we’re seeing more attractive opportunities than we did in the past that we’d like to pursue. Primarily in three buckets you can say or Rhonda expanding our printer business, looking at our supplies business and some other near adjacencies. But a first filter we have for this is always making sure there is a strong strategic that we can add something to that business and then looking at the highest return from the risk of adjusted basis for those investments.

And there is some investors out there who look at strong cash flow companies like Zebra and then those companies and certainly this would be within the board’s consideration look at dividend and then raising that dividend every year for 10, 20, 30, 50 years and so forth. Just wondering if that something that comes up in board discussions and what made the argument against a dividend policy? Thanks.

So we do talk about the dividends with our board several times a year so there is very much an ongoing discussion. So far we felt that the returning cash to shareholders has been a top priority the vehicle by which we’ve returned cash has been little less important and we felt that buying back shares has been the most appropriate way for us to do that so far.

Okay, we have Tim Mulrooney, William Blair.

Good morning guys. So a dividend isn’t necessarily out of the question but for now you guys are focused on returning cash to shareholders through a buyback?

Yes.

And then in last quarter’s conference call you indicated that retail spending in your international businesses such as EMEA was stronger than in North America. But this quarter you mentioned that you saw strong shipments to national retailers. Beyond those two retailers generally speaking are you seeing capital spending improve in North American retail?

Tim, this is Mike Terzich. We are and I think part of that goes back to earlier comment I think in North America I think the challenge has been that retailers have been sitting on some of their IT assets for what we would consider to be an abnormally longer period of time. I think as they have gotten greater confidence and perhaps the near term economic outlook if you look at retail, the holiday season forecast that was just recently published it points to a more bullish outlook. I think we’re starting to see a relaxing of some of those constraints and so yes we’re seeing a return on some retail capital spend.

Okay, great. Thank you guys.

Greg Halter.

Hello again guys, and one last one for you. Wonder if you could detail the sales from your three largest customers in the quarter?

Yes, I can do that Greg. Right now the largest customer by percentage of sales is 17.5 followed by 12.9% and 12.6% for the third customers those are the three customers about 10%.

Thank you very much.

(Operator Instructions) And we have Carr Lanphier, Morningstar.

So it looks like you saw some sequential sales improvements on higher prices and then strong year-to-year sales improvements on higher volumes. Can you just talk a little bit about the price elasticity you’re seeing across geographies?

For us I guess price elasticity if you compare it to the two similar products to the same and not across the entire portfolio but would say we have global worldwide price lists and we stay pretty close to our list price and standard discounts to the same type of partners. So prices doesn’t vary for the same product very much across geographies but we have more a broader low end offering for China and other emerging markets. So we’ve released in the last several years a handful of products, five to six products that are specifically aimed for emerging markets. So there you see us offering more of a lower end products but they’re also been built for those markets, so the cost points are also much lower.

And I would add I think that we end up with through the company by the way so as our supplies grows again our supplies business doesn’t have a big pull for OpEx but it also has a little bit lower gross margin. So that that affects our overall gross margins for the business. And also on the more printer side sometimes when we have large deals which attract little bit competitive we will make sure we win those deals and that’s reflected in our gross margins too.

And in regards to the supply, I think that maybe a little more homogenous across the geographies, is there any sort of discrepancy basically between contracts in this areas? Can you use supplies to kind of through that in as a sweetener or how do you kind of treat supplies pricing?

Carl, this is Mike Terzich. We do, in some cases we do have the opportunity where we have bundled supplies with a hardware specific fail and in certain cases we can leverage one or both and in some cases we actually even leverage a service contract to break with service contract as part of a larger opportunity. I do think that going back to our focus on supplies has been we principally center in high value marking opportunity, so by and large well, to Mike Smiley’s comment, our gross margin profile of our supplies businesses is not to the level of our hardware business where we tend to focus in high value marking. We stay out of a lot of the commodity paper site of the business, which gets very low margin, very price intensive space. That’s not our focus.

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Okay. Thank you very much everybody for joining us today. I’d like to just let you know that our next regularly scheduled quarterly conference call will be on February 19. So until then thank you very much and have a great day.