Good day, and welcome to the Third Quarter 2018 Zebra Technologies Earnings Release Conference Call. Please note this event is being recorded. I would now like to turn the conference over to Mike Steele, Vice President of Investor Relations. Please go ahead.

Good morning, and thank you for joining us today. Before we begin, I need to inform you that certain statements made on this call are forward-looking and are subject to the Safe Harbor provisions of the Private Securities Litigation Reform Act of 1995. These statements are based on current expectations and assumptions and are subject to risks and uncertainties. Actual results could differ materially due to factors discussed in our filings with the Securities and Exchange Commission. During this call, we will make reference to non-GAAP financial measures as we describe business performance. You can find reconciliations of our GAAP to non-GAAP results in today's earnings press release and at the end of this slide presentation. This presentation will include prepared remarks from Anders Gustafsson, our Chief Executive Officer; and Olivier Leonetti, our Chief Financial Officer. Anders will begin by discussing our third quarter highlights. Olivier will then provide more detail on the financials and discuss our fourth quarter outlook. Anders will conclude with progress made on Zebra's strategic priorities. Following the prepared remarks, Joe Heel, our Senior Vice President of Global Sales, will join us as we take your questions. Also, throughout this presentation, unless otherwise indicated, our references to sales growth are year-over-year on a constant currency basis and exclude results from the recently acquired Xplore Technologies business. This presentation is being simulcast on our website at investors.zebra.com and will be archived there for at least one year. Now, I'll turn the call over to Anders.

Thank you, Mike. Good morning, everyone, and thank you for joining us. Our team delivered exceptional third quarter results with strong performance across the business, resulting in record sales and profits. Sales, EBITDA margin and earnings per share all exceeded our outlook. As you can see on slide 4, we reported net sales growth of nearly 17% or 15% on an organic basis; an adjusted EBITDA margin of 21.1%, a 190 basis point year-over-year improvement; non-GAAP diluted EPS of $2.88, a 54% increase from the prior year; and $194 million of cash flow from operations. We achieved strong, broad-based growth across the business, including double-digit sales growth in North America, EMEA, Asia-Pacific as well as all of our key vertical markets. We grew each of our major product and services categories including mobile computing, data capture, our specialty printing portfolio, supplies and support services. Demand continues to be strong from our direct customer relationships and through the channel. Additionally, in the third quarter, we closed on the acquisition of Xplore Technologies, a leading enterprise-grade tablet manufacturer. This acquisition positions us as the leading provider of enterprise tablet solutions, an underpenetrated and relatively fast-growing category for Zebra. We have been significantly expanding profit margins while at the same time investing in our employees and initiatives to drive sustainable growth. Our leading portfolio of solutions, strong order backlog and pipeline of opportunities support a strong finish to the year and provide solid momentum into 2019. With that, I will now turn the call over to Olivier to review our financial results and to discuss our 2018 outlook.

Thank you, Anders. Let us begin with a walk through the P&L. As you can see on slide 6, net sales grew 16.7% in the third quarter, which translated to 15.1% on an organic basis before the impacts of currencies and acquisitions. We saw solid results in each of our reporting segments across all regions and the primary vertical markets that we serve. Enterprise Visibility & Mobility segment sales increased 18.8%, led by especially strong demand in mobile computing. Asset Intelligence & Tracking segment sales increased 8.1%, driven by solid growth in printing solutions. Turning to our regions. Sales growth in North America was 18%, driven by outperformance in our mobile computing, data capture and printing categories. We saw particular strength in retail and e-commerce, as well as transportation and logistics. EMEA sales increased 10% with strength across most geographies and all major product categories. We continue to see especially strong demand in retail and e-commerce, transportation and logistics as well as healthcare. Sales in our Asia-Pacific region were up 20% with broad-based strength. Most countries grew double-digits. We saw exceptional strength in India and Australia, and our China business has recovered from weaknesses earlier this year. Latin America sales increased 6%. We saw particular strength in printing solutions. All sub-regions grew with the exception of Brazil due to election-related uncertainty. Adjusted gross profit increased $76 million or 18%. Adjusted gross margin increased 40 basis points, primarily driven by continued improvement in our go-to-market execution, favorable business mix shift in the AIT segment and favorable foreign currency exchange impacts. These factors were partially offset by a higher volume of relatively lower margin, large orders. Adjusted operating expenses increased $27 million from the prior-year period, primarily reflecting growth in the business, higher incentive compensation expense due to improved business performance and…

Thank you, Olivier. We are very pleased with the progress we made in the third quarter, and we are on track for a strong finish to the year. As you see on slide 11, we remain focused on our key priorities to build upon our industry leadership and drive shareholder value. First, we continue to outpace the competition through our innovation, unmatched scale and strong relationships with customers and partners. We saw strong broad-based demand for our products and solutions. Several areas that have been driving solid growth include our family of Android mobile computers and software, mobile voice and data communications applications, tabletop printers and our RFID solutions. We have gained meaningful market share across our business this year, and we continue to invest in the core portfolio to further differentiate our offering. We had a record number of launches across our product and solutions categories in the third quarter, including the next generation of several popular Android mobile computer solutions. We continue to see robust demand from retailers, as we help them to implement their omni-channel shopping and fulfillment strategies. We have also experienced increasing demand from transportation and logistics as well as manufacturing customers, as the Android mobile computer adoption rate accelerates. Second, we are focused on driving growth in attractive markets where we can leverage our competitive advantages. We plan to scale existing categories where we are underpenetrated and operationalize entry into new markets that advance us as a solutions provider. We expect to gain traction in these markets through both organic and inorganic investments. In the third quarter, we acquired Xplore Technologies, which significantly enhances our product lineup and provides a complete enterprise tablet portfolio. Representing our first acquisition in nearly four years, Xplore's offerings serve existing vertical markets for Zebra and provide inroads into…

Thank you, Anders. We'll now open the call to Q&A. We ask that you limit yourself to one question and one follow-up so that we can get to as many of you as possible.

Our first question comes from Jim Ricchiuti with Needham & Company. Please go ahead. James Ricchiuti - Needham & Co. LLC: Thank you. Good morning. Two questions. One, a little bit more long term in nature, we're seeing increasingly articles about cashier-less stores, increased automation in retail as well as logistics. And I'm just wondering if you could talk about the conversations you might be having with some of your retailers and potentially logistics customers as you think about some of the newer products and when we might see more meaningful contributions from these and how they tie into their plans?

Yeah. First, when people hear automation, the – their minds tend to go to kind of robotics. But when we think about automation, we kind of define it as intelligent automation and that's automation that automates the data capture, the analysis of the data, the decision or action part of it. So, it's a little bit more broader, more intelligent focus on it. So, for us, it's a kind of continuum of making the workers more productive, but moving all the way up to using robots or smart infrastructures to deliver kind of those insights or execute on those. But intelligent automation for us is a big net opportunity. It is a natural extension of our EAI strategy, and we have – it leverages the same critical capabilities as EAI, and we see a good number of opportunities in each of the, kind of, the segments; of sense, analyze, act, the different stages there. But we help our customers solve business problems, and we do that with making humans more productive, using robots or having smart infrastructures that can automate different tasks for them. So, it's a continuum for us. And you look at some of our newer solutions like SmartLens. It is a smart infrastructure, we call it, right. Or I'll start with historically how retailers have taken inventory and execute on that workflow. They started out going out just manually count what's on the shelves, then they used mobile computers with reading barcodes and adding up the items, kind of automatically but manually then telling somebody else to go and replenish it. Then, with RFID, you can do it somewhat more automated. But with SmartLens, you can now totally automate that workflow and in real-time know at all times what merchandise you have on the shelves. And when it reaches a certain threshold, you automatically generate – the system automatically generates a purchase order or a work order to replenish that on the shelf, and that can be done by a human or by a robot. So, this is very much an automated activity, and that can also be a part of a frictionless checkout store. I don't think there's one technology that can solve all those use cases. Cameras can do a lot of things, but cameras aren't going to be the best way of telling what – a pair of jeans from another pair of jeans, different sizes and so forth. So, we see that we have a lot of different type of solutions to help to drive that automation. And net-net, we see it as a big opportunity for Zebra and it's kind of the sweet spot for EAI, and we are quite excited about what we do there. James Ricchiuti - Needham & Co. LLC: And is this an opportunity that you see really beginning to contribute incremental revenues either late fiscal – late 2019 or is it something looking out to calendar 2020?

So, we are getting some revenue from this today but it's off a smaller base, so good growth but off a smaller base. So, we expect that to continue to grow nicely. I'm not going to try to predict kind of when the knee in the curve will occur. But we do see that as something that will contribute more and more to our growth as we go along. James Ricchiuti - Needham & Co. LLC: Thanks very much.

And our next question comes from Jason Rodgers with Great Lakes Review. Please go ahead.

Yes. Obviously, some very strong growth, especially in the EVM segment. Wondering if you could talk about the impact of large mobile computing. Are you expecting those to play out in the fourth quarter and going into next year?

Yeah. We had – across all our product segments, we have very broad-based strength across products, across regions, across our vertical markets. And so, we're clearly very pleased with the performance we had in Q3. Mobile computing was particularly strong this quarter. And I think we're also executing well across the entire value chain, which is driving both the revenue growth as well as some of the margin expansions that we're seeing. So, specifically for mobile computing, there was – had an exceptional quarter quite frankly, I think, in mobile computing, double-digit growth in all regions, strong performance in both the channel and in our direct sales activities. We're seeing some new trends now that – and our Android devices are not just having new deployments, but we're starting to replace some of our original first implementations of Android devices back in 2014. We're also seeing a trend that many of our customers are starting to consolidate a number of applications and devices onto our mobile computers. So, you can take – in retail, somebody would have a mobile computer that would have a, say, Wi-Fi cordless phone and other devices like that, and they are trying to put most of those onto one single device to get less weight on the person, but also give greater (00:27:14) effectiveness and efficiencies. So, there's a lot of new good ways of – that we see driving growth for us here. I think the depth and breadth of our portfolio is a definite competitive advantage for us, and we have invested materially and also innovating on top of the device. So, Mobility DNA is a big differentiator. It's a lot of tools and utilities that makes it easier to deploy and manage devices. OVS gives unprecedented visibility and manageability of the devices…

Thank you for the detail there. And just as a follow-up, looking at the long-term sales growth targets that you laid out, would you expect to achieve those next year despite the difficult comps you'll have in EVM?

So, we are always challenging ourselves to maximize our profitable growth. We've been making a lot of investments – organic investments in driving profitable growth for – not just for 2018, but for 2019 and beyond. We won't be providing any outlook for 2019 today. But we have a strong conviction in our growth opportunities and that's not changing. We feel we have a very strong competitive position, a very diversified business and we have many levers to pull in order to drive growth including EI and automation that we talked about earlier.

Thank you.

And our next question comes from Brian Drab with William Blair. Please go ahead. Brian P. Drab - William Blair & Co. LLC: Hi. Good morning. Congrats on the great results. Just following on that Android question, did – I'm not sure (00:30:34) answer if you mentioned where you think you are in terms of – talk about the 15 million devices and maybe there are about 10 million left in a recent comment you made. Where – can you quantify where we are in that transition from Windows to Android?

Yeah. I'll start, and I'll let Joe comment on it here also. We – I think when we first started talking about this, we mentioned we estimated there was about 15 million Windows devices in the market. I think earlier I said we estimated to be about 10 million left today to be upgraded. And as we upgrade old Windows devices, there are still new Windows devices being deployed. So, the pool of legacy Windows devices is still pretty substantial. So, we believe we still have a lot of runway to pursue. And also, some of that I think as I talked about of somewhat shorter lifecycle and a consolidation of new applications onto the devices are driving new use cases for Android.

Yeah. This is Joe Heel. I might add that we're thinking about the Android transition now as multiple waves where we are in the retail which was clearly the leading edge of the adoption is most of the large retailers have now adopted Android. But we're seeing T&L and manufacturing warehousing spaces in particular just ramping up, which also coincides with some of the product launches that we are putting into the market. The second thing is that the adoption in T&L and manufacturing will likely have a longer tail than we're seeing in retail, as there are bigger transitions that need to occur in order for those verticals to adopt. For example, applications that need to be rewritten. And then, third, what's adding I think to our excitement is that we are seeing refreshes already of the original retail adoption. So, if you overlay all of those three adoption curves, you can – you'll get a more differentiated picture of where we are and in particular of the potential still ahead. Brian P. Drab - William Blair & Co. LLC: Okay. Thanks. That's really helpful. And then, second question, just on tariffs, can you just go through where your manufacturing base is, Jabil (00:33:13) and otherwise and how – what percentage of the incoming components that are made in China actually fall on a list on one of these tariff lists? And maybe just give us a little more granularity about why you're not seeing that much impact from tariffs.

Yeah. The tariff situation is clearly very dynamic and fluid situation today. Zebra like – like many other companies, we import a substantial number of products from China. But only a fraction of our products are impacted today. So, that limits it to certain data capture products and some other accessories. So, for 2018, the impact is quite modest. For January 1 of next year, when the tariffs go up to 25% on some parts, we have a taskforce or working group that is cross-functional working group within Zebra that's working with a lot of our supply chain partners to basically assess all possible actions that we can take to mitigate the impact of tariffs. So, that would include things like changing supply chains to outside of China, setting them up somewhere outside of China, bringing in new sources of supply, changing product specs to be able to avoid certain things. Also, we're considering doing some price adjustments to mitigate some of that impact. Some of those actions will be immediate or have immediate benefit and some of them will take a little bit longer like moving a supply chain so – but we feel we're all over this and have a good plan for how to attack it. Brian P. Drab - William Blair & Co. LLC: Okay. Thank you very much.

And our next question comes from Jeff Kessler with Imperial Capital. Please go ahead.

Thank you. I know you're not going to go into 2019 numbers. But what I'm interested in is, with the momentum that you have right now in certain – not just in certain product categories, but in certain verticals that have come to the floor in the last couple of quarters, I'm wondering what you see for 2019 as perhaps, number one, the driving horizontal markets that you'll be – that you see and the driving vertical markets that you see that might be a little bit different than in 2018?

Jeff, what will be different in 2019 versus 2018?

Yes. Both in terms of vertical markets but also in terms of some of the horizontal capabilities that you have out there, too.

Yeah. So, starting on the horizontals, thinking of that more as the product side, we obviously now have Xplore Technologies as part of our lineup. I think that's a great addition to our portfolio. It fills out the, say, more limited tablet portfolio we had before and it opens up new opportunities and new verticals that we didn't really serve very well before, like government and public safety, oil and gas and so forth. Generally, we have a very strong portfolio across our main product categories. So, we feel that our portfolio is probably as strong as it has been for a long time, and we continue to release a lot of new products. So, we feel we have a good position from that. And our, say, EAI type new solutions, our new intelligent edge solutions are also starting to ramp and we are bringing more of those to market. So, from a horizontal perspective, I think we're well-placed. There's always more things we could have. But I think this gives us a good toolbox to go out and talk to our customers about the ways we can help them improve their businesses. From a vertical perspective, I think the – maybe there's a change from 2018 to 2019. It will be how we see manufacturing maybe particularly stepping up and becoming a faster growing vertical. The last couple of quarters manufacturing has been growing faster than it had for the prior – in the prior year or so. It's the – it had been a laggard in the Android transition, but it's one of the larger opportunities for converting old Windows devices now to Android. We have launched several new products that are particularly aimed at manufacturing like some of our new tabletop printers and they've been very well…

Okay. Thank you. My second question is a little more subtle but it's how – essentially, it's focused on how you bring in more product in a vertical market from your lead product. I'm assuming that, in different vertical markets, you have a lead product that has gotten you in there. Which vertical markets have benefited the most from the fact that you have either a 4G opportunity for them or you have an Android opportunity for them or you have for that matter a – just something that cuts down on inventory mismanagement that brings in much more business from the rest of the vertical?

Yeah. We put a lot of emphasis around the better together story after we combined with the Enterprise business. So, how can we make sure that our printers, mobile computers and scanners kind of work better together? We're not trying to make them work worse with anybody else's, but we want them to work better with our solutions. And we've worked also very hard with our resellers to make sure that they focus on selling the full portfolio. And the resellers that do that, they are growing substantially faster than resellers that are focusing more on a single type of product. So, I'll let Joe fill in maybe a little bit more on specific examples within the verticals. But this is an area that we put a lot of emphasis around to figure out how do we maximize this.

That would be great.

Yeah. Let me give you some other – from the beginning, after we completed the acquisition of the Enterprise Solutions business, cross-selling has been a big focus for us, right? So, when you talk about a lead product, it sometimes differed. In some cases, it may have been a mobile computer that we were strong in and we brought in printing. And in some cases, it was printing. But let me give you some more specific examples. Healthcare is a very good one. Anders mentioned it already. Our strongest position in healthcare originally was in the printing space, right? We had printers in particular for wristbands and we've really leveraged that substantially into mobile computing. As electronic medical records emerged, we went to those same hospitals and we showed them how they could then use that information that was on the wristband, but also combine with other use cases in order to improve the productivity and deliver better patient care. Another one that's very current, Anders alluded to it earlier, is we have in many retailers positioned our mobile computers as lead products and they've used them for productivity applications, such as inventory management. They're discovering that those same devices with a software upgrade can be used to communicate within the store, an application for which they currently spend money on other products in many cases. And they could actually reduce their operating budgets by having our products take on more of those use cases. So, that gives us an opportunity to augment our presence with software. And a third one that I think we're particularly excited about is, if you look at the solutions areas that we've been looking at. So, take for example RFID in retailers that are deploying RFID. We have a strong presence today with our handheld RFID readers, which are typically a mobile computer combined with a sled (00:43:29) and many of those same retailers are now in the pilots with us looking at the infrastructures like SmartLens, where they could then go beyond what the handheld reader allows them to do and have continuous real-time visibility to their inventory that SmartLens provides. So, there's maybe three examples.

All right. Great. Thank you very much. I appreciate that for additional color.

Your next question comes from Keith Housum with Northcoast Research. Please go ahead.

Good morning, guys, and congratulations on another strong quarter.

Thank you.

Just following up on the tariffs really quick as I can, was there any pull-forward of revenue in this quarter and do you anticipate any in the fourth quarter? And then, second to that is what's your end customers – what are they saying in terms of demand in terms of what their impact kind of (00:44:23) from how they're being impacted by tariffs and how can it impact their underlying business and how much that translates to business with you guys?

Yeah. First, on the pull-forward one, that's certainly an easier question for us to answer. So, there was no pull-forward into Q3, and we're not forecasting any pull-forward into Q4. We manage our – the inventory position with our distributors very carefully. We tend to have them in a relatively narrow band or days of hand of inventory. We don't want them to be sitting on too much inventory. We certainly want them to have too little inventory. And they're all in – within that relatively narrow band of inventory. So, we feel that we've – there's no particularly pre-buying to take advantage of this, and we don't expect that to be the case in Q4 either. With respect to what our end customers are saying and how that might impact us, I think it's fair to say that, so far, they have not really asked too much of this. And it is very much depending I think on what happens after this and we don't want to speculate about any possible list (00:45:36) or anything like that. I think the current tariffs that are in place we would see as having modest impact on the business, and we can largely mitigate that effect. So, we are talking to our customers about what we are doing to help mitigate it. And so far, I think they have been comfortable that we have a good plan for what we're doing to minimize the impact on their business.

Okay. Appreciate it. And just for a follow-up and changing gears on to your services and software which I think you guys would say is one of your underpenetrated markets, obviously, hardware has had some exceptional growth over the past year. But is there a place in your head that you believe that software and services will start growing above the hardware growth? And do you expect it to ramp up? Is this a year out, two years out? I guess, the progress that you're seeing on software and services, where do you stand in terms of where you'd be perhaps a year ago?

Yeah. So, the – we do a lot more software than people probably recognize. And if you look at our engineers, the vast, vast majority of our engineers are software engineers. And if you look at this kind of value that we deliver in a mobile computer or printer or even scanner, it's very largely driven by the software. Look at Link-OS in printing it makes it go (00:46:57) from being a less sophisticated printer to a much more connected, good network citizen in our customers' networks. We have a number of other solutions that are also leveraging much more software. So, if you look at SmartLens, SmartPack, a lot of those types of things, our OVS solution is a pure software solution, we monetize those in a variety of different ways. But it still has often a hardware component to them because they – we often deliver that specialized software with a specialized piece of hardware as a solution. And our customers have been, I think, particularly keen for us to do it that way. But we are always looking at opportunities for us to have more of a pure software revenue stream and move into more of as-a-service type of delivery mechanisms also.

Yeah. Maybe the other thing, Keith, to notice, we think of our software very much as a part of a solution. And so, all the solutions that we have been talking about for some time we are in pilot with many of our customers, those have substantial elements of software in them that we will intend to sell as a solution. So, if you look for the growth of those solutions, I think that will be the best indicator of when the software starts to take hold.

Yeah. I guess, that's the question is – if I look at the numbers now, it doesn't look like they've really taken hold yet. Is it a quarter or two out, or is this still perhaps a year or two out where we'll start to seeing the software and services line starts really to ramp up?

Yeah. Keith, you mentioned it. Services and software are bundled together. So, you cannot truly conclude. But what I would say – and this is from a lower base, our software business, when we are able to split it from hardware, is going at a multiple of the hardware growth, but from a lower base.

Okay. Thank you.

And our last question today will come from Paul Coster with JPMorgan. Please go ahead.

Hi. Thanks. This is Paul Chung on for Coster. Thanks for taking my questions. So, first off, you exceeded EBITDA margin expectations this quarter and most likely for the year. So, what's your kind of initial view on the pace of expansion in 2019? And what are some puts and takes there? Your integration costs are finally mostly behind you. But do you see kind of more opportunistic costs? Are you kind of comfortable with your OpEx levels here?

So, as we have indicated before, we believe we have the ability to improve our EBITDA rate. We want to manage rate, but also dollars. So, at some stage in the year, we will increase EBITDA dollar at the expense of rate. But we believe we have the ability to leverage the P&L either on the gross margin line or on the OpEx line, while keep investing in our business as we have done now for a period of time.

Okay. And is there any update regarding your long-term target?

Not at this stage. As Anders indicated, we feel we have a strong conviction about our business, and we'd come back to you with more detailed numbers for 2019 when we close the quarter in Q4. But we clearly have opportunities to scale and improve.

Right. And then, my other question, now that you've kind of hit your leverage targets, should we expect the Zebra of old, where most of your free cash went to share buybacks. It looks like you may hit north of $600 million in free cash in 2019 by my calcs. Thank you.

Your calculation is correct. The team has done – the Zebra team has done a great job at managing the company for cash and profitable growth. We will reach the bottom of our leverage target by the end of this year. As you sense from the call and as you sense from the results we have been posting for now a number of quarters, we feel very excited by the end markets we serve and by the competitive position of our company in those markets and we see as a result exciting opportunities either organic or inorganic to invest in our business. We believe we have many opportunities to deliver by investing in our business. We have many opportunities to deliver an attractive return. Share buyback and dividend would be contemplated, and they are not off the table but you sense where our focus is.

Thank you. Appreciate it.

And this will conclude our question-and-answer session. I would like to turn the conference back over to Mr. Gustafsson for any closing remarks.

Yeah. So, as we wrap up, I want to thank the Zebra team and our partners for an exceptional quarter. We expect to close the year strong and are well positioned into 2019. So, have a great day, everyone.

The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.