Zebra Technologies Corporation (ZBRA) Q4 2014 Earnings Report, Transcript and Summary

Good morning and welcome to the Zebra Technologies Q4 2014 Earnings Release Conference Call. Joining us from Zebra Technologies are Anders Gustafsson, CEO; Dean Lindroth, Vice President of Finance; Joe Heel, Senior Vice President; Mike Terzich, Senior Vice President, Global Sales and Marketing; and Doug Fox, Vice President of 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. And I would now like to introduce Mr. Doug Fox of Zebra Technologies. Sir, you may begin. Douglas A. Fox - Treasurer & Vice President-Investor Relations: Thank you. 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 latest 10-K, which is on file with the SEC. Now, I'd like to turn the call over to Anders Gustafsson for some opening remarks. Anders Gustafsson - Chief Executive Officer & Director: Thank you, Doug, and good morning, everyone. We are pleased to report strong fourth quarter sales topping off a defining and historic year for Zebra Technologies, and culminating with the closing of the acquisition of the Enterprise business of Motorola Solutions. We entered 2015 with positive momentum and the year is off to a strong start. Before I begin, I would like to note that CFO, Mike Smiley could not be with us today. Mike had an urgent family situation that requires his attention. To assist us in answering financial questions we have Vice President of Finance, Dean Lindroth, on the call. Also, I would like to welcome Joe Heel, our Senior Vice President of Global Sales to the call. Joe joined the company last September and is responsible for driving growth across the company's entire solutions portfolio. Now Joe is traveling internationally, and is having some difficulty dialing in, but we hope to have him join us for the Q&A. Joe brings a wealth of knowledge and experience in sales for technology and services companies and has played a key role as a sales leader in six mergers over his tenure. This experience will be invaluable as we focus on a successful integration and growing our combined business. For the fourth quarter, GAAP sales were $791 million with pre-transaction Zebra contributing a record $315 million and Enterprise adding $476 million in GAAP revenues for the two months post-closing. Overall Enterprise had a much improved quarter with pro forma sales for the entire period up approximately 14% sequentially, were substantially unchanged from the year ago. On a constant currency basis, fourth quarter Enterprise sales increased in the low single digits year-over-year for the second consecutive quarter. A healthy business environment and outstanding operational execution led to robust results across multiple dimensions of the company. In pre-transaction, Zebra broad-based strength advanced sales 11% year-over-year, with continued positive momentum in our run rate business, further fulfillment of large enterprise deals and wins from existing and new customers in small package delivery and transportation and logistics. All product categories grew with record shipments of desktop printers and notable activity in mobile and tabletop printers. In addition, supplies posted its best quarter ever. In Enterprise, we scored big wins from our retail and postal customers who deployed our Android-based mobility devices, 2D imagers and RFID solutions. Considerable interest in our wireless LAN solutions from distributors and channel partners was another positive development. Our progress on multiple fronts has positioned Zebra for success in 2015 and beyond. Let me highlight some key milestones that occurred this past year. First, Android made substantial progress during the year as the industry embraced the operating system as an effective alternative to Microsoft. We now refer to 2014 as the year of Android as sales of Android products increased more than 400% for the year. With strategic investments in Android beginning in 2011, we took an early lead over the competition by introducing products, now totaling seven, on the Android operating system. Customers have embraced the operating system and have responded positively to our semi-ruggedized durable devices that integrate voice, payment, inventory and assisted-selling capabilities. During the fourth quarter, our TC70 mobile computer was successfully rolled out by a large North American home goods retailer. Next, we continued to expand our data capture business beyond lasers and further penetrated the market for 2D imagers. This high-performance technology is gaining prominence giving the increasing relevance of mobile marketing, signature capture, and document imaging applications. Throughout the year, we received large orders for our MP6000 bioptic imager and customers have responded favorably through the productivity enhancements and cost savings it delivers. Product innovation remained a key driver for the printer business. During 2014, we released 12 new printer products to serve a variety of applications, including mobility, healthcare and RFID encoding. We will continue to adapt to our customers' evolving needs by introducing new and updated products. In total, we released approximately 60 new products across the entire organization. The Location Solutions business also gained strong momentum this year. We installed our Zebra MotionWorks Sports Solution in 17 NFL stadiums for the 2014 season and our technology was in operation during this year's Pro Bowl and Super Bowl. This exposure has led to multiple business opportunities, both within sports as well as industrial manufacturing, healthcare, and other industries as companies increasingly recognized how motion management can help them improve workflow by enhancing Enterprise Asset Intelligence. Since the Enterprise acquisition closed on October 27, we have been very pleased with the progress of our integration efforts and the resulting success. Since day one, we were able to book and ship product in quantity. Our employees are energized and despite the complexities of the transaction, they have remained focused on serving our customers and partners and growing the business. The two businesses are coming together quickly with a goal of building an organization that is uniquely positioned to serve the visibility needs of partners and customers around the globe. The integration is progressing as planned with – most significantly, we completed the integration of our global sales organization in January, and we're fostering a culture that honors the heritages of both companies while embracing agility and collaboration to reach new levels of service for our customers. We're also pleased with our progress on improving operational effectiveness. In Mexico, we made significant progress in improving repair operations, which serve North America and Latin America. Reinforcing supply-chain discipline has resulted in higher on-time delivery and improved quality. We're now exceeding targets for our global service level agreements. In Asia-Pacific, we have positioned the business for growth in 2015. We installed strong sales leadership and aligned the sales organization around common goals. As a result, sales execution has significantly improved. We also ended the quarter with normal inventory levels in the region. Feedback from our regional channel partners and customers has been positive and we believe we're well-positioned to drive improved performance in 2015. Since closing the acquisition, our business has gained positive momentum as the new Zebra is strategically better and stronger. We are no longer viewed as a tactical supplier as customers appreciate our size and the focus we place on their business needs. We're achieving trusted advisor status with a growing number of customers because of the profound impact that our broad end-to-end portfolio has in our customers' entire operations. Our leadership was evident at this year's National Retail Federation Show. The NRF was one of our first opportunities to showcase the new Zebra, and we did not disappoint. We commanded the industry's attention and booth traffic was very strong with more than 250 customer engagements. I was particularly pleased with the reception of our applications and solutions, as our retail customers look to invest in technology to support their push into omni-channel, deliver a better shopper experience and build customer loyalty. Our efforts have led to multiple senior level customer engagements, and we have already seen tangible results from these discussions. During the fourth quarter, we combined several deal opportunities that we had been pursuing independently. The result was a stronger competitive offering, and our first joint wins in all regions. The current business pipeline now includes several more combined product opportunities. We continue to execute on our vision to become the global leader in providing Enterprise Asset Intelligence. Zebra enables real-time operational visibility with best-in-class hardware, software and services. Our solutions enable our customers to know the location, motion and state of their assets people and transactions, so they can make better business decisions. Zebra's broad and deep portfolio provides real-time visibility to enable better data collection, deliver more informed decisions and drive overall better results. Our solutions became increasingly relevant, given the secular megatrends of mobility, cloud computing and the Internet of Things. Our customers continue to appreciate the efficiency we provide and we will search for ways to further optimize workflow. Businesses are also recognizing that our solutions can provide the additional benefit of enhancing the customer experience. This results in a new wave of technology investments in which Zebra is poised to benefit. Now, I will turn the call over to Doug Fox, who will provide more detail on our results for the fourth quarter of 2014, guidance for the first quarter of 2015 and an overview of long-term financial objectives. I will then conclude our prepared remarks by outlining our strategic priorities for 2015. Douglas A. Fox - Treasurer & Vice President-Investor Relations: Thank you, Anders. First, let me highlight a few key points. One, we had strong business activity across both the Zebra and Enterprise; two, we maintained high gross margins after accounting for one-time adjustments; and three, adjusted EBITDA margin for the fourth quarter was 18.2%. Please note that my comments will refer primarily to non-GAAP financial results, which we have provided in the press release we issued today. In addition, we will focus on our financial future performance primarily on a non-GAAP basis. In today's press release, we have provided the non-GAAP earnings model that we will be using. Sales for the company on a non-GAAP basis totaled $796.8 million. On a pre-transaction basis, Zebra sales increased 11% to a record $315 million with strong performance across printer, supplies and service. Desktop and mobile printer shipments were particularly robust with desktop printers fulfilling large wins in transportation and logistics, and mobile printers satisfying large orders in retail. Supplies posted another record quarter exceeding $70 million for the first time. The Enterprise business contributed $482 million to sales on a non-GAAP basis for the two months that we owned it during the quarter. Enterprise sales exclude a reduction of $6.2 million for purchase accounting related to service contracts. North American sales were $341 million. The region was a source of strength for the company as all major product lines in Zebra and Enterprise recorded growth. The region experienced a robust run rate business in addition to fulfillment of large deals principally with retail customers for mobile printers and Android-based mobile computing devices for customers in transportation and logistics. In EMEA, the positive momentum continued. Sales on a combined basis were $303 million on continued favorable trends in the run rate business supplemented by several large wins in postal, T&L and retail. Sales of Zebra printers and supplies in the region were notably strong, as we continued to see growth in core countries despite lackluster economic indicators. The diversity of our business and ability to identify sectors that provide business opportunities has clearly been a benefit. In Latin America, sales were $55 million. Shipments of Zebra card printers remained robust with fulfillments of orders for two government projects in the region. We also successfully displaced a competitor, initial evidence that our strategy of cross-selling is working. Sales in Asia-Pacific were $92 million with sales of Zebra products up and pro forma Enterprise sales down from the previous year as expected. Pro forma Enterprise sales were up sequentially, however, from the third quarter indicating stabilization in the region. Inventories of Enterprise products in China reached normal levels at the end of 2014. With Zebra sales leadership now in place customers and channel partners are reengaging and we are now positioned to regain growth in the country and region. Fourth quarter gross margin adjusted by $35 million for purchase accounting adjustments was 46.6% compared with 49.6% a year ago. The decline was principally related to product mix since Enterprise products have historically carried lower gross margins than Zebra products. The gross margin on Zebra products was comparable with a year ago. Operating expenses reflect the addition of the Enterprise business. During the quarter, we incurred $66 million in acquisition and integration costs, in addition to $5.6 million in exit and restructuring costs. Operating expenses for the pre-transaction Zebra on a pro forma basis was within expectations. For the quarter, we recorded an $8.4 million foreign exchange loss, which reflects the change in value of unhedged balance sheet items. We also incurred a $2.4 million loss on forward swaps. Interest expense for the quarter totaled $56.7 million. The expense reflects an increase in debt related to funding the Enterprise acquisition, in addition to a one-time payment of $18.8 million for an unused bridge loan commitment. Non-GAAP net income of $1.15 per share was up from $0.96 per share a year ago. Adjusted EBITDA for the fourth quarter was $145 million or 18.2% of sales. Turning to the balance sheet. We ended the year with $418 million in cash and investments. Shortly after the end of the year, we used a portion of the cash for interest payments and working capital adjustments to the purchase price of the acquisition and this month, we repaid our first $50 million of our term loan. Now, let me present our guidance for the first quarter of 2015. We entered 2015 with strong positive momentum. For the first quarter, we expect total sales in the range of $870 million to $890 million for year-over-year growth of 1% to 3% on a pro forma basis. We expect a currency headwind of approximately 5% on sales versus a year ago. So on a constant currency basis, we expect pro forma sales growth of 6% to 8%. On a go forward basis, we will be providing guidance on non-GAAP earnings as we've defined in today's press release. We expect non-GAAP earnings for the first quarter in the range of $0.95 to $1.20. This forecast reflects a currency impact on EPS of approximately $0.60 per share, excluding any hedge offset. This forecast assumes gross margin in the range of 45% to 46% and operating expenses between $288 million and $291 million, including stock-based compensation expense of $8.9 million. We project adjusted EBITDA in the range of $125 million to $140 million. We expect first quarter interest expense at $48 million. For non-GAAP earnings, we will be using a tax rate of 22% on a go forward basis. Although, we will continue to issue only quarterly guidance, we want to provide some insight into our long-run financial objectives. We continue to target long-term sales growth of 4% to 5% on a constant currency basis. In addition, our objective is to achieve 18% to 20% EBITDA margin. We reiterate our target leverage ratio of less than 3 times EBITDA in three years as our top priority for using excess cash will be to pay down debt. We expect a long-term income tax rate of 20% to 22%. Thank you for your attention. I will now turn the call back to Anders for some closing remarks. Anders Gustafsson - Chief Executive Officer & Director: Thank you, Doug. The company has entered 2015 with favorable momentum, customers and channel partners are responding positively to the combined Zebra with our expanded line of industry leading innovative products and solutions. We are moving forward on plan with the integration and we remain confident in our ability to achieve $150 million in cost synergies over two years. While we remain mindful of current global currency and economic conditions, for 2015 we will focus on the following strategic priorities within our control to drive shareholder value. First, growth; second, execution; and third, transformation. Starting with growth, we have identified several key opportunities to enhance the business. First, we will actively pursue cross-selling opportunities. Our sales force has already completed cross training programs and is currently going to market to sell our expanded comprehensive portfolio. We are also now more effective at hunting and securing new business. We can execute on opportunities that would not be available independently with large strategic accounts that can benefit from the combined solutions. Today, our expanded team and portfolio have bolstered our position in targeted industries and have provided improved geographic coverage. As we've done in 2014, we will continue to support the adoption of Android. We have taken a leadership position with the operating system with initial success from high-touch sales with strategic accounts in the retail and transportation and logistics verticals. In addition to further penetrating existing accounts, we will be focused on promoting Android adoption with our channel partners as well as expanding into new verticals and geographies. The supplies business is another area we can develop further. We currently have a small share in a very large market, and we will now position ourselves with a differentiated technology solution. Excellent brand recognition supports our business in Asia-Pacific, and we continue to advance custom label sales in EMEA. We will further penetrate the healthcare wristband market, where we have realized great success. We remain committed to the wireless LAN business and believe this offers growth opportunities. The wireless LAN market is large and fast-growing as businesses look to enhance connectivity within their environments. The strength of our portfolio was demonstrated in the recent announcement that Zebra's wireless LAN solutions will be deployed in New York City's subway system. Because we have become a larger more relevant partner, we can move more aggressively into the services business. Customers need greater visibility into their assets as supply chains become increasingly complex. We will maintain focus on the quality repairs business as well as search for opportunities to attach new service agreements with existing customers. As our ecosystem grows, we see a bright future in managed services. Our second priority is execution. As we act on our growth strategy, we will remain focused on a successful integration. We are on target to achieve the $150 million in synergies by the end of 2016 with $50 million to $75 million in savings this year. We have already completed the integration of the sales force under Joe, and we have aligned the right people in the right roles. To better counsel our customers on the most appropriate solutions for their business, we have formed vertical organizations in all major markets, in retail, manufacturing, transportation and logistics and healthcare. We will also overlay this structure with product specialists offering expertise in printing, services and wireless LAN. Strategic investments will be made in growth areas to fill existing gaps. Our third priority for 2015 is transformation. We're combining two tremendous organizations with proud and rich cultures that share customers, as well as a deep appreciation for innovation. Our shared values will include commitment to integrity, respect, collaboration, agility, and innovation. As one Zebra, we will build upon the best practices of both businesses to exceed our customer's expectations. I'm pleased with our fourth quarter results and with the initial progress we have made on the integration. With a proven track record and strong emphasis on discipline and execution, Zebra is prepared to maintain strong momentum and continue creating value for our shareholders. Thank you for joining us today. I would now like to turn the call back to Doug for Q&A. Douglas A. Fox - Treasurer & Vice President-Investor Relations: 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. Thank you.

Thank you. Our first question is from Jeff Kessler from Imperial Capital.

Thank you. With regard to the growth that you showed in the legacy Zebra business, do you think it would have been 11% or 10.6% without the addition of the new Enterprise business? In other words were organic sales in the original business boosted by the fact that you had acquired the Motorola Enterprise business? Anders Gustafsson - Chief Executive Officer & Director: Right. It's obviously very difficult to dissect exactly what revenue streams came in as part or were incremental as part of the acquisition and what might have fallen out. But I'd say my sense is that we probably grew a little faster on the printer side, because of the acquisition. And I'll give you two examples of this, one, was from how Motorola had gone to market with several printer partners prior to the acquisition. I think after we announced that obviously, we became exclusive with each other. So, I think that drove some incremental revenue, I believe. And the second one, more longer-term, more strategic here, I would say, is that the relationships we have seen with our largest customers and channel partners has improved based on the acquisition. People see us now as much more of a strategic partner, who can provide insight and counsel on a much broader set of technologies than what we could do before.

Good, thank you. My follow-up question is, I'm particularly interested in your statement that, as you get your ecosystem built up amongst the various partner groups, and you've talked about the vertical markets as well as the horizontal markets that you're looking at, you are going to be moving toward greater managed services. Could you discuss how that could affect, number one, margins; but number two, how that could affect your customer stickiness and what you're going to do to try to get to that point, and what hurdles remain to you to build up this ecosystem and get these vertical and horizontal matrices together? Anders Gustafsson - Chief Executive Officer & Director: Yeah. So first, I'd say services, we see as a great long-term opportunity for us. We believe we have a number of dimensions that we can pursue to grow that business further and there was a much smaller part of the historical Zebra business versus the Enterprise business. We see services as the entire business, but maybe particular services as one where we need to have an ecosystem of partners. We don't have all the solutions for every type of situation, so we need to have ISVs come together with us. We need to have other integrators come together with us and we're certainly working to make sure that our reseller partners can also participate in the growth of services. And specific to managed services, we see that as a great way of providing a new type of value-added service to our customers that's probably more sticky and would have a more long-term effect, more of as a service type of delivery.

And these would include – some of these managed services would include what specifically? Anders Gustafsson - Chief Executive Officer & Director: Managed services would include us managing an account – management of the infrastructure. So, we would know the health of the fleet. We would be able to know how many devices are turned on. We can manage softer downloads, battery life, a number of things to basically allow the customer to be much more focused on their business and not have to be distracted with running devices.

Okay. Great. Thank you very much.

And our next question is from Keith Housum from Northcoast Research.

Good morning, guys. Thanks for the question. Hey, Doug, I want to make sure I heard you right. Did you say FX was going to be a $0.60 headwind for EPS in the first quarter? Douglas A. Fox - Treasurer & Vice President-Investor Relations: Yep. That would be excluding any hedge offset.

$0.60, wow, okay, I guess it'd be higher than what we have expected. And then if I could just drill down on your guidance of the $870 million to $890 million, that's on a constant currency basis? Douglas A. Fox - Treasurer & Vice President-Investor Relations: No.

No. No. Okay, so $870 million, $890 million. Anders Gustafsson - Chief Executive Officer & Director: Well, I'm going to let Dean answer that.

Yeah. No, the $870 million to $890 million is on a nominal basis. Within that, we're seeing Enterprise business relatively flattish. And some single-digit growth in terms of the printer product business, but no, the $870 million to $890 million is on a constant currency – excuse me, on a nominal basis. Excuse me.

Okay. And you guys...

On constant currency though you would take the growth rate that we mentioned of 1% to 3% up to about 6% to 8%.

Got you. Okay, appreciate that. And then, as we look at your restructuring cost that you had in the quarter, do you expect those to, I guess maintain the same level for the first quarter? Or will those be coming down significantly? What's your thoughts in terms of your restructuring cost, I guess, for all of FY2015?

I think directionally we're going to see some continuing trends in regard to the restructuring cost, I think from an integration cost perspective we've probably peaked and we'll start to see that number come down. But I do think on the restructuring basis, there is some additional activities yet to complete and you'll see some additional expenses there, at least in Q1 and potentially in Q2.

Okay. Thanks. And then I guess I'll jump in the queue after that. Thank you. Appreciate it.

Our next question is from Brian Drab from William Blair & Company. Brian P. Drab - William Blair & Co. LLC: Good morning, and congratulations on completing such a transformational year. Anders Gustafsson - Chief Executive Officer & Director: Thank you. Brian P. Drab - William Blair & Co. LLC: First question, I just wanted to clarify, I thought I heard – it's very early here so probably it's my mistake, but I thought I heard two different growth rates for the Enterprise business in the fourth quarter. I thought earlier in the call, you said that that business was up low single-digits on a constant currency basis, and Doug, I thought that you said that it was down slightly. Did I mishear that? Anders Gustafsson - Chief Executive Officer & Director: Yeah. That was up slightly, couple of percent on a constant currency basis. It was flat in nominal terms, and it was up 14% sequentially. Brian P. Drab - William Blair & Co. LLC: Okay. Thanks for clarifying that. And so for the first quarter, you're forecasting very solid strong growth rate, 6% to 8% for the consolidated business. So can you give us any sense for the full-year expectations for growth, could you sustain that growth rate throughout the year? Anders Gustafsson - Chief Executive Officer & Director: Yeah. As you know, we don't give annual guidance here, but we felt we certainly exited 2014 with good momentum. I think we feel we still have good momentum in the business. I'd say our customers and partners have been very supportive and leaning into this, I would say. We expect growth across the both organizations, as we think of it here now, so both Enterprise and the printing business. I'll say here we feel with the backdrop of kind of economic and FX uncertainty that the diversity of our business is really helping. We had great strength in North America, in Asia-Pac, so it's offset some by weakness in Latin America and EMEA, but we also see good strength in number of verticals, like T&L, postal, retail, healthcare, as examples. Brian P. Drab - William Blair & Co. LLC: Okay. And then just one more quick one, margins, EBITDA margins were 18.2% in the fourth quarter, we see that going to about 15% in the first quarter. Is that seasonality or can give us any sense for how to forecast that going forward?

Yeah. This is Dean. I think there's two things you want to consider. One is certainly the FX impact, has a dramatic impact on the margins that we're seeing in Q1. The other thing if you're looking sequentially from Q4, recall that Q4 is a stub period for Enterprise, although there was a disproportional amount of revenue in the quarter compared to say their operating expenses which are more linear, so you're going to get a little bit of a bump on EBITDA percentage at Q4 compared to what a more normalized quarter would look like in Q1. But having said that, I would say the predominant difference is the FX impact. Brian P. Drab - William Blair & Co. LLC: Okay. Thank you very much.

And we have a question from Jeff Kessler from Imperial Capital.

Yes, I'm wondering if you could talk about the transformation that's going on in your technology between going over to imaging from laser. To what extent is the acquisition changing your view as to what is going to be used primarily as you're scanner based over the course of the next three years to four years? Anders Gustafsson - Chief Executive Officer & Director: I don't think the acquisition really changes our view of what technology to use for data capture. Laser has been the historical – so one dimensional laser technology has been the primary use for capturing barcodes and other things historically, but going forward we see that migrating to 2D imagers. So you can do 2D barcodes and you can have other kind of signature capture and other things like that. And we have made investments, substantial investments in our 2D portfolio and we have a very strong position, it's actually been growing quite nicely for the last two years.

And which markets are these going to primarily affect? Will we start seeing them first when we start going to trade shows and watching them, where are these images going to start showing up and in which markets? Anders Gustafsson - Chief Executive Officer & Director: They're already well out there.

Okay. Anders Gustafsson - Chief Executive Officer & Director: So, this is not something that's new products just being launched. So, you'll find them in retail, healthcare; you'll find them when you check into your airline. They're all over the place.

All right. Great. Thank you. Anders Gustafsson - Chief Executive Officer & Director: Yeah.

And we have a question from Jason Rodgers from Great Lakes Review.

Hi. What's your estimate for CapEx for 2015?

CapEx, just as a reference point in 2014, for the printer business ran around 2.5% of revenue, like $30 million, $35 million. I think as we look forward for the combined company, and we're thinking sort of 2% to 3% in the percent of sales rate, but keep in mind that would exclude integration expenses, integration CapEx would be on top of it, but on a more ongoing normalized basis probably in the 2% to 3% of revenue range.

Thank you. Anders Gustafsson - Chief Executive Officer & Director: I think we targeted about $50 million for CapEx for 2015.

Thanks.

And our next question is from Keith Housum from Northcoast Research. Go ahead, Keith, with your question.

Thanks, guys. I appreciate the follow-up. If I can just drill down a little bit more on the $0.60 EPS, is this more translational or transactional impact? I guess, as I look at my model, it's a little bit higher than I would have expected. So, I guess, I will just leave it that?

What we're looking at it is, if you take the fact that we're about 35% of our businesses in the EMEA region, and roughly 90% of that or so is euro or pound affected. And from Q1 a year ago to today versus probably about a $0.24 change in the euro rate. So, we're basically just flowing through net impact of revenue less some adjustment for the fact there are some local operating expenses. So, that's really the math that gets us there, the quarter-on-quarter rate change against about 38% regional revenue exposure, less some offsets with OpEx and then tax affected of course.

Got you. So, do you guys expect gross margins then to be lower in the first quarter due to the FX then?

I'd say that's a predominant impact. Again, you have three months of Enterprise impact versus two in the fourth quarter, but FX will be the predominant impact.

Okay. And then, is there any opportunity to raise prices over in some of these regions? Anders Gustafsson - Chief Executive Officer & Director: Yeah. We're doing whatever we can to control our environment and FX is obviously one we can't, but we have an ability to control a bit more on the pricing side. So, we currently are, I guess, watching currencies very closely and we've looked at what other multinational companies have done, American multinational companies have done and other competitors and we are actively thinking about adjusting our list prices also.

Okay. From a competitive standpoint, is there any significant foreign competitors that perhaps put you at a disadvantage if you do raise your prices? Anders Gustafsson - Chief Executive Officer & Director: I think we only have one competitor really of any size that is in Europe. And it's difficult to say exactly, how they're going to behave in this, but I'd say most of our cost of goods sold are dollar denominated irrespective of geographic location. So buying microprocessors and other semiconductor parts, they tend to be dollar denominated. So even if you might have a higher level of say European labor in there that's a fairly small part. So, I don't think that, I guess, our working assumption is that there shouldn't be a huge difference, but that remains to be seen, I guess, how they react and how they behave, so I can't really speak on behalf of them.

Okay. Great. Thank you. I appreciate the follow-up.

Our next question is from Paul Coster from JPMorgan Securities.

Hi, this is Paul Chung on for Coster. Thanks for taking my question. I just wanted to ask, what is your latest thinking on channel and cross-selling synergies, does the combined company require new sales skill set, any specific incentives to call out that are directing the sales force? Anders Gustafsson - Chief Executive Officer & Director: So I'll start and then I think we'll hand over to Joe to talk a bit about that also. First as we talked about the cross-selling opportunities within our channel programs and more generally I said, we do see great opportunities to cross-sell product. I give you couple of examples here just from customer examples that we've seen over the last few months. One is a healthcare example, and you might remember before we closed the acquisition, we said that we believe that healthcare was an area that Zebra had stronger presence, and we're able to obviously benefit the Enterprise business by bringing them in. We have one large healthcare provider in North America that had selected Zebra as their preferred printer partner, but also asked us to be basically their trusted advisor and advise on use of other technologies to improve patient safety and workflow, and we worked very closely with them and brought in basically the broader sales team that could talk about the entire portfolio. And that resulted in us being able to provide them with, I think it was 1,600 MC40s and well over 500 scanners. Another example is a company in Middle East that do lot of retail and things also, but they have large dealership, they deal with over a 1,000 cars a day in those dealerships, and they brought in our location solutions business to look at an active RFID solution for tracking those vehicles, while they were in the service facilities or new cars, used cars and services. We have deployed active RFID for other large dealerships in the Middle East like that. Now as we got into that discussion, we realized that actually the best solution for this customer was to have a passive RFID solution. So instead of location solutions selling their traditional active solution, they brought in the rest of the portfolio from the Enterprise business and Zebra printing the business for passive reading and passive encoding and software services from LS. So basically we were able to sell a much more targeted solution to that customer leveraging all the different pieces of the business. So, we see great opportunities for cross selling and leveraging the channel to do that. I think, maybe, now I'll ask Joe to see if Joe has any additional comments here?

Sure. Well, thank you Anders. Among the priorities that we have given to the sales force, cross selling is the number one priority. It is obviously the low hanging fruit that we have as a joint company. And even in Q4, before we had integrated the sales forces, we had asked the sales forces to complete what we call the heat mapping exercise, which asked them to look at all of their customers to find out where we have a presence and where we do not. And as we currently speak, the sales force is going through those heat maps to sell to those, and we're seeing very good traction in terms of the ability to connect with those customers and suggest to them, that we can provide an end-to-end solution. But to your point about the skills that are required, I do see a second level of cross-selling that we can get to, which is when we not only complement the former Motorola Enterprise Solutions products with the Zebra printer products, but when we stitch them together into a solution, and that does require some additional skills that we are working to build in our sales force, that is the focus of some intensive training that is actually rolling out this next quarter in Q2 and then in Q3.

Thank you. And just one follow-up, can you talk about the pipeline of deals and how it has evolved with the combined company. We know that contracts can be lumpy, is there more of a pronounced effect with the combined business, and should we expect some resulting volatility there from quarter-to-quarter? Thanks. Anders Gustafsson - Chief Executive Officer & Director: Yeah. I think I'll start and I'll handover to Joe, again. But I'd say first that we highlighted from the beginning when we started to talk about this acquisition that the Enterprise side is more prone to large deals and hence somewhat more lumpy than the traditional Zebra business, which is more run rate oriented. I think we've seen great progression in our pipelines that have been growing with a combination of large deals and more run rate deals. So far, I think we feel that there have been an appropriate focus and understanding of those larger more lumpy deals and where they will fall in the timing. And what we need to do in order to, I guess, control the timeline over them as much as possible. And Joe, do you want to follow on.

Yeah. It is fair to say that the Zebra business has a higher run rate, and the Zebra business – the Motorola business had a higher project content. What we're trying to do is combine the best of both worlds. So, introduce a stronger run rate capability on the Motorola side, and we've seen some visibility to do that here in the first quarter. And then at the same time introduce Zebra to some of those bigger printing projects. Actually, as would have it, here in Mexico City right now, I'm working with a customer that has a very large mobile computing estate, and is looking to replace some competitive printers with ours in such a big deal. So, I think the best of both is actually the result of this cross selling effort that we're looking to achieve.

Excellent. Thank you very much.

We have another question from Jason Rodgers from Great Lakes Review.

Thanks for taking the follow-up. Just looking at the Zebra Enterprise business, just prior to the acquisition, I'm sorry looking at the thermal barcode printer business, Zebra was about, I don't know, four times the size of its nearest competitor. Looking at the new Zebra, how does the company's market share compare to its other major competitors? Anders Gustafsson - Chief Executive Officer & Director: You mean in printing specifically or across the entire portfolio?

Right, across the entire portfolio. Anders Gustafsson - Chief Executive Officer & Director: Yeah. So on the printing side nothing has really changed, although we saw one of our competitors acquire one of our smaller – one of our larger competitors acquiring one of our smaller competitors I guess, so they have gained some share, but it's still a very modest share compared to our position. On the mobile computing side, according to independent market research all these numbers are independent market research, it's not our assessment. We have a high 30%, 40% market share. Our nearest competitors probably mid to 20% market share. On the data capture side we have low to mid 30% market share and our nearest competitor is probably about 10% lower there also. So we are the clear market leader in the three largest vertical or product segments that we compete in.

That's helpful. Thank you.

Standby, we have more questions going to the queue. And we do have a question from Donald Bisson from Century Capital.

Good morning. Anders Gustafsson - Chief Executive Officer & Director: Good morning.

I'm wondering, what is your depreciation quarterly run rate? And I'm trying to get at what D&A number excluding what you're already adding back to your adjusted numbers, so just depreciation I guess?

I don't have that with me. I'd be happy to work with Doug to get that back to you after the call. I just don't have that here with me, my apologies.

Okay.

And then I'll turn it back over to you, Doug, for any closing comments. Douglas A. Fox - Treasurer & Vice President-Investor Relations: Okay. With that, first of all, thank you very much for joining us today, this morning, and we look forward to keeping you up-to-date on our progress as the year unfolds. And of course, we'll be around for additional questions following the call. Thank you very much for joining us today.

Thank you, ladies and gentlemen. That concludes today's conference. Thank you for participating. You may now disconnect.