Michael A. Steele - Zebra Technologies Corp.

Anders Gustafsson - Zebra Technologies Corp. Olivier Leonetti - Zebra Technologies Corp.

Joachim Heel - Zebra Technologies Corp.

James E. Faucette - Morgan Stanley & Co.

LLC Richard Eastman - Robert W. Baird & Co., Inc.

Jason A. Rodgers - Great Lakes Review Saliq Jamil Khan - Imperial Capital LLC Brian P.

Drab - William Blair & Co. LLC Matthew Cabral - Goldman Sachs & Co.

Keith Housum - Northcoast Research Partners LLC Paul Coster - JPMorgan Securities LLC Michael Morosi - Avondale Partners LLC

Good morning and thank you for joining us. Today's conference call and slide 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 fourth quarter highlights and key drivers of the results and progress made in 2016. Olivier will then provide more detail on the financials and discuss our outlook for 2017.

Anders will conclude with discussion of 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.

This presentation is being simulcast on our website at investors.zebra.com and will be archived there for at least one year. Before we begin, I need to inform you that certain statements made on this call include forward-looking statements, which are subject to the Safe Harbor provisions of the Private Securities Litigation Reform Act of 1995.

These statements reflect the company's current expectations concerning future events and are subject to a number of factors and uncertainties that could cause actual results to differ materially. A detailed discussion of these factors and uncertainties is contained in the company's 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 the slide presentation.

Also, our financial results include the divested wireless LAN business through October 2016. In this presentation, our references to organic sales growth for the consolidated company, the Enterprise segment, our services business and all regions are in a constant currency basis and exclude the sales results from the wireless LAN business in both 2016 and the prior year.

Now, I'll turn the call over to Anders.

Thank you, Mike. Good morning, everyone, and thank you for joining us.

As you see on slide 4, we delivered solid results in the fourth quarter, thanks to strong execution by our team and disciplined cost management. For the quarter, we reported net sales of $944 million at the high-end of our guidance range, with organic growth of 3.5%.

We drove gross margin expansion and reduced operating expenses. And we achieved a 19% adjusted EBITDA margin, reflecting a 310 basis point improvement over the prior year, resulting in non-GAAP EPS of $1.93, a 48% increase from the prior year period.

A few additional highlights during the quarter include solid growth in our largest region, North America, led by strength in retail; a record quarter in our mobile computing, led by the strongest product launch in our history with our new TC51 Mobile Computer; a return to growth in our printing business; and sales growth in our Latin America region in a very challenging macroeconomic environment. For the full-year, we paid down $382 million in debt, significantly exceeding our goal of $300 million.

This was driven by increased earnings, excellent working capital management and proceeds from the sale of our non-core wireless LAN business. As a result, we are well on our way to exceeding our two-year goal of $650 million in debt pay-down.

We have seen steady improvement over the past year. We returned to organic sales growth in the fourth quarter after a challenging start to 2016, while also driving improved profitability and cash flow.

At the same time, we have been extending our leadership position by continuing to deliver innovative solutions that create value for our customers. As shown on slide 5, our improved performance was a direct result of the successful execution of our strategic priorities in 2016.

First, we gained market share and grew margin and profits in an improving global environment, while also prudently managing our cost structure. While we have seen pockets of elevated promotional activity, we have remained disciplined yet flexible in our approach.

In our services business, we delivered solid gross margin expansion and low single-digit organic sales growth by successfully executing on our operational plan. Zebra's positioning with customers and partners remains unmatched.

We announced a number of new offerings that further differentiated us as the leader in Enterprise Asset Intelligence or EAI. Key introductions throughout the year include refreshed and strengthened mobile computing and data capture devices for warehouse, storefront and field mobility use cases.

These devices have enhanced capabilities and applications that enterprises require to optimally run their operations. Our mobile devices are supported by Zebra's Mobility DNA suite, which layers enterprise-rich features on top of the standard Android platform.

As a result of our early strategic investments in Android, we are ahead of the competition and have the broadest portfolio in the industry. Today, nearly half of our mobile computing shipments are Android-based devices.

With more than 14 million legacy Windows-enabled mobile computers in the market today, Zebra has a significant opportunity to gain additional share over the next several years, as Microsoft phases out support of its legacy mobile operating system. In 2016, we launched Asset Visibility Services or AVS as an extension to our OneCare managed service portfolio.

Designed to increase mobile computer and printer performance, AVS offers insight into device health, utilization and availability, resulting in increased productivity and operational efficiency. We also introduced Trailer Load Analytics, which enables our customers in the transportation and logistics space to monitor and optimize load efficiency.

Second, we continue to successfully manage our overall cost structure through tight controls on spending. With regard to our investment in the business to drive growth, we have employed a disciplined R&D process focused on identifying opportunities with the highest potential to strengthen our core portfolio and EAI solutions.

Third, we made excellent progress on improving free cash flow, lowering operating cash levels and retiring debt balances. Finally, we are harnessing the strength of the Zebra brand to further extend our leadership position in EAI, and we are delivering on our financial objectives.

Upon execution of our global ERP implementation, which is scheduled for mid-year, our transition to One Zebra will be complete. With that, let me now turn the call over to Olivier to review our financial results in greater detail and provide our 2017 outlook.

Thank you, Anders. It is a privilege to be part of the Zebra team and its long successful history.

I am excited about the opportunities in front of us. As a reminder, all references to organic sales growth for the consolidated company, the Enterprise segment and all regions are on a constant currency basis and exclude the sales results from the wireless LAN business in both 2016 and the prior year.

Let us begin with a walk through the P&L. As you can see on slide 6, adjusted net sales in the fourth quarter were $944 million, up 3.5% on an organic basis.

Solid fourth quarter sales performance was driven by our innovative portfolio resulting in strength across most regions. Enterprise segment sales of $617 million increased approximately 4% on an organic basis.

Sales on mobile computers increased due to strength in retail and demand for our new devices. Pre-transaction Zebra sales were $327 million, up approximately 3% on a constant currency basis.

As Anders highlighted, we returned to growth in printing in Q4, led by solid growth in mobile printing. Sales of supplies were higher, while sales in our location solutions business were lower.

Turning to our regions, organic sales growth in North America was 6%, driven by strength in mobile computing, mobile printing and services. We saw particular strength in retail.

EMEA sales decreased 2% from a year ago on an organic basis. While underlying trends were solid, we cycled a significant sale in the prior year period to a large customer in the UK.

Sales in Asia Pacific were up 5% on an organic basis, including the adverse impact of the previously communicated printer price concessions of nearly $2 million. We also continued to see strong growth trends in China.

As Anders highlighted, Latin America sales increased 12% on an organic basis, which was a sharp reversal from the steep year-on-year decline during the first three quarters of the year. This was driven by strong growth in Mexico, resulting from our team's efforts to stimulate growth in a very challenging environment.

Adjusted gross margin of 46.1% was 90 basis point higher than the prior year period. We benefited from our continued focus on cost reduction and additional improvement in services margin.

Adjusted operating expenses declined by $24 million, primarily due to the benefit of our productivity initiatives and expense controls, as well as the sale of our non-core wireless LAN business. Fourth quarter 2016 adjusted EBITDA margin was 19%, a 310 basis point increase from 15.9% in the prior year period.

This was driven by higher gross margins and disciplined operating expense management, partially offset by approximately 10 basis points due to foreign currency impacts. Finally, it is worth highlighting that our full-year 2016 EBITDA margins will have been approximately 3 percentage points higher using currency rates as of the Enterprise acquisition in 2014.

Non-GAAP earnings per diluted share increased to $1.93 in the fourth quarter compared to $1.30 in the prior year period. A lower tax rate impacted by tax adjustments and changes in profitability mix by jurisdictions positively impacted fourth quarter 2016 non-GAAP EPS by approximately $0.16.

Acquisition and integration cost related to the Enterprise acquisition declined throughout 2016. We expensed $27 million in Q4 and expect continued sequential declines in spending through the first half of 2017 as we complete the integration.

For the second half of 2017, we expect integration expenses to be minimal. Turning now to the balance sheet and cash flow highlights on slide 7, we ended the fourth quarter with $156 million in cash, which includes $98 million held outside the U.S.

Zebra has strong liquidity and no borrowings on our $250 million revolving credit facility. At year-end, we had $2.6 billion of long-term debt on the balance sheet, which is 65% fixed rate, including nearly $700 million of floating to fixed LIBOR swaps against our term loan.

In December, we successfully completed our second repricing of the year on our $1.7 billion term loan, reducing the spread by an additional 75 basis point and saving approximately $13 million of annualized interest expense. Strong cash flow, repatriation of international cash and net cash proceeds from the sale of the wireless LAN business enabled $382 million in principal payments on our term loan during 2016.

Our net-debt-to-adjusted-EBITDA ratio decreased to 4 times as of year-end, down from 5.1 times as of the close of the Enterprise acquisition. Capital expenditures were $77 million for the full-year 2016, down from $122 million in 2015, primarily due to lower spending on integration and real estate.

We generated $295 million of free cash flow in 2016, which was a significant improvement from the prior year. The key drivers of this improvement were working capital optimization, reduced integration and restructuring cost, improved margins and lower capital spending.

With respect to the wireless LAN transaction, we netted $29 million of cash proceeds in the fourth quarter after transaction fees, escrow, taxes and other adjustments. With respect to foreign exchange, for 2017, we implemented a rolling four quarter program to hedge the euro in order to mitigate the impact of exchange rate volatility.

As a reminder, approximately one-quarter of our total company sales are denominated in euros, and it is the only currency where we have material exposure to sales, profitability and cash flow. Slide 8 shows our path to financial deleveraging.

We expect to exceed our original goal of $650 million of debt pay-down for the 2016 and 2017 two-year period. Our top priority for cash flow and excess cash balances is to aggressively pay down the acquisition debt to achieve an investment grade credit rating.

We entered the first quarter of 2017 with a solid sales backlog and healthy pipeline of opportunities. These facts, along with the assumption of the continuation of a gradually improving macro environment, give us cautious optimism for our outlook.

On slide 9, you will see that for the first quarter of 2017, we expect the change in adjusted net sales to be between negative 2% and positive 1% on a nominal basis. Organic sales growth is expected to be between 3% and 6%, which excludes the adverse impact of 4 percentage points from wireless LAN, as well as the adverse impact of 1 percentage point from changes in foreign currency rates.

We expect organic sales growth to moderate through the balance of 2017, considering the year-over-year comparisons to our improving results through 2016. First quarter 2017 adjusted EBITDA margin is expected to be approximately 17%, which assumes flat to higher gross margin and lower operating expenses relative to the fourth quarter of 2016.

Non-GAAP diluted EPS is expected to be in the range of $1.20 to $1.40. For the full-year 2017, we expect low single-digit organic sales growth.

This outlook exclude the adverse impact of 3 percentage points from wireless LAN, as well as the adverse impact of 1 percentage point from changes in foreign currency rates. Full-year 2017 adjusted EBITDA margins are expected to be in the range of 18% to 19%, including an 80 basis point adverse impact from year-on-year foreign currency changes.

Our full-year outlook assumes slightly higher gross margin rate compared to the prior year period due to continued productivity improvements, offset by impacts of foreign currency changes. We also expect lower operating expenses due to cost efficiencies, as we complete the integration of the company, as well as from the sale of the wireless LAN business.

For 2017, we expect debt pay-down to exceed free cash flow and to be back-end loaded in the year. Our goal is to pay-down at least $300 million of debt, which is supported by higher EBITDA, lower integration expenses, lower interest cost and reduced cash balances required to operate the business.

Our teams made great progress in 2016 to optimize cash conversion metrics. However, we do not expect working capital to be a source of cash this year.

Please reference additional full-year 2017 modeling assumptions on slide 9. With that, I would turn the call back to Anders.

Thank you, Olivier. In 2016, we successfully completed our planned integration milestones, executed in a challenging global environment, extended our market leadership, and ended the year in a position of strength.

We are staying ahead of an evolving technology landscape through focused investment and close collaboration with our customers and partners. Building on this strong foundation, we are focused on several areas to further solidify our leading positions globally and to drive growth.

First, we are leveraging our scale, innovation and relationships with customers and partners to extend our leadership with the most innovative portfolio of Enterprise solutions and sensing technologies in the market. Second, we are advancing our Enterprise Asset Intelligence vision by capitalizing on key technology trends and leveraging Zebra's deep knowledge of the markets we serve.

Third, we are executing on the final phase of the Enterprise integration, which includes harmonizing and streamlining back-office systems and processes. And fourth, we are enhancing Zebra's financial strength by increasing profitability, improving cash flow and optimizing our capital structure.

Now, turning to slide 11, connecting the physical and digital worlds to increase visibility into business operations and workflows is the essence of the Intelligent Enterprise. We are uniquely positioned to capitalize on this opportunity by leveraging our deep market expertise and key megatrends such as mobility, cloud computing and the proliferation of smart devices.

According to industry experts, within three years, 30% of hospitals will be running on real-time healthcare systems that will leverage location, identification and mobility for clinicians, patients and assets; 15% of global retail sales will occur online, requiring new fulfillment solutions, such as our industry-leading wearable computing and picking solutions; more than 40% of the global manufacturing workforce will be comprised of mobile workers that need access to real-time data to run their operations; and 15% of shipments within T&L will be instant delivery, requiring new levels of visibility throughout their transportation networks. Our solutions directly address these trends and will provide a significant source of growth for us.

Slide 12 highlights the key industries we serve. In 2016, we launched a number of solutions that transformed the way our customers do business to enable a more Intelligent Enterprise.

Our software, services, analytics and hardware are used to connect customers' assets, systems and people, giving their entire operation a digital voice. As a result, we have increased strategic engagement with customers, which is translating into new growth opportunities for Zebra.

For example, in retail and e-commerce, we are seeing transformation driven by several trends including mobility, inventory visibility and multi-channel fulfillment. These trends have the common thread of delivering on increased customer expectations.

Both online and brick-and-mortar retailers realize the vital need to invest in technology that provides the improved levels of visibility and functionality necessary to thrive in an evolving environment. A recent Zebra survey highlighted the increasing demands of the retail shopper.

We found that nearly two-thirds of shoppers are willing to make purchases from stores that provide better customer services and more than 40% of shoppers agree that they have a better experience in stores where sales associates use the latest technology to assist customers. This means retailers need to delight their customers and equip their associates with the tools necessary to provide better in-store experiences, including real-time inventory visibility.

Our solutions are doing just that. At the National Retail Federation Trade Show in January, we launched a revolutionary new EAI solution for the retail sector called SmartSense.

This solution leverages multi-technology sensors, a data analytics engine and applications to identify and track the journey and location of merchandise, as well as associates and shoppers. SmartSense enables our retail customers to increase sales, deliver a superior omni-channel experience, and reduce, shrink, theft and operational costs.

Outside of retail, Zebra's recent Warehouse Vision Study found that more than 40% of respondents cited the need to reduce delivery times as a top driver of investment in their supply chain. This could include a wide variety of Zebra solutions.

In healthcare, patient identification and timely treatment are critical success factors. Smart, non-invasive technology that provide hospitals real-time tracking, evaluation and feedback is crucial to enable better patient outcomes.

In closing, our 2016 performance underscores our ability to extend our leadership in the market in any macroeconomic environment. The real-time visibility that Zebra solutions provide is a key competitive differentiator for us.

They enable our customers to improve their operating efficiency, comply with regulations and deliver a superior level of customer service. We are well positioned to meet our objectives in 2017 and beyond.

We are excited by the opportunities ahead to drive value to our customers and for our shareholders. Finally, I would like to conclude by thanking our employees for their strong commitment and many contributions to help us realize our One Zebra vision.

And with that, I'll hand the call back to Mike Steele.

Thanks 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. Operator, please instruct our callers on how to ask a question.

Thank you very much. I just had a couple of questions.

First, it seems like the business is accelerating pretty nicely or at least showing good on December quarter-end and initial outlook for both the hardware and printing businesses on the back of new products and initiatives. Can you talk about how you're thinking about the evolution of that growth and prospects as we go through 2017?

I'm just trying to understand what's built into your guidance and formulation of it. And then, the second question is, longer term, how are you thinking about the need – or if there is a need for you to increase your investment in the software and services to better deliver more complete solutions to your customers?

Thanks.

Sure, I'll start here. So, first on the outlook, we ended 2016 on a position of strength.

We saw great momentum build throughout 2016. We obviously had a tough start, but momentum continued to grow and 2016 ended strongly, right.

And that momentum, I think, has been continuing into the first part of 2017. All four regions did perform very well in Q4, and our products – also all our product families performed well.

And I think we are well positioned to continue to drive growth here. So, I think we entered 2017 with the strongest product portfolio we've had in a very long time, and I feel very good about the competitiveness of our solutions.

And we're getting very good feedback from our customers and partners on both the line-up of solutions that we have, as well as the progress on the integration, as we're working our way through that. As we entered 2017, we also had a higher backlog than we had last year.

So, that gives us an extra confidence, and a robust pipeline of new opportunities. So, based on all of that, I feel that our 2017 outlook is prudent as we see things today.

And as you look through the year, maybe the comps get a little tougher, but we feel that this is a prudent and good outlook. But we also see that we have a very strong foundation from which we can grow and continue to extend our leadership.

And do you want to...

Well, this is Joe Heel speaking. Your second question was around the software and services?

Yeah. What I was going to say on that one was – we certainly recognize that software will become a more prominent part of our portfolio.

So far, we have created a software organization and a software BU within the company. It's a smaller organization today, but we're looking to make some smart investments to both – gain some greater knowledge and put some investments behind some very compelling opportunities.

We are certainly looking – if you think of our mobile computing platform around Mobility DNA as an example also, we have – we are doing a lot things around software to make sure that our devices are as smart and connected as they can be, so we can use them to both generate data to fuel other type of applications and use cases. And on the printing side, I'd say one of our biggest differentiator is Link-OS, which is our real-time operating system, which makes the printer a smart and intelligent network device or network citizen.

So, we are working on developing more use cases and more applications that we can satisfy by – that are closely related to our devices.

And perhaps to add and point out some of the things that were mentioned earlier, that our proof points of the importance of software and services as we evolve towards solutions around Enterprise Asset Intelligence, we mentioned the launch of OVS and AVS, which are services that we are now providing to give visibility to the status of our devices, which enables our customers to manage them in a much more effective way. We also mentioned the SmartSensing (34:10) solution, which was launched at NRF, which is a combination of hardware, software and services needed in order to provide retailers with visibility.

And another example was the TLA solution that we're providing to logistics customers, again, one that includes hardware, software and services needed to optimize doctor (34:33) operations. So, those are some examples of how we think that software and services are central to our long-term targets for growth.

All right, thanks.

Hi, first question just is around EMEA. Could you just kind of speak to maybe where we ended up in local currency or constant currency for the full-year in EMEA?

And then just kind of maybe speak to the tone of business, tone of demand there. The macro picture seems to be continuing to improve.

And I'm just curious, as you move into 2017, what your expectations might be for that region.

So, I'll start first with maybe more like setting the context around EMEA, and then Olivier will follow-up with the specific numbers for you. But the underlying trends in EMEA has been very positive.

We had a rich mix of wins with existing and new customers in Q4. Retail was strong.

T&L was also strong. The TC51 Mobile Computer launch went very well in Europe, and we had some big wins with important customers there.

So, as we look at 2017, we do expect to continue to see positive trends as we go out the year and continue to drive growth from Europe.

And in terms of performance for EMEA in local currency, it would have been a decline, a slight decline, maybe in the range of zero to 1%.

Okay. And then, when we look into 2017, I'm curious the local currency with all adjustments with the wireless LAN business, the thought is a low single-digit revenue growth for 2017 is maybe what the thought process is now.

Anders, if you were to maybe identify two upsides to that, what might those be? For instance, would that be U.S.

retail spending or how could we see some upside to that low single-digit kind of adjusted outlook, revenue outlook?

Let me start by giving you a sense of a little bit more broadly maybe on the outlook here. So, we ended 2016 strong and we see that momentum coming in.

Well, we are well positioned for growth across our regions and with our products. The business is quite diversified, and we have a number of different avenues or levers to pull to achieve growth.

There are areas of the business that I consider to be somewhat under-penetrated, I would call, supplies, services and healthcare to be some of those. And I would say also our Enterprise Asset Intelligence vision, that's something that is compelling to customers and generates a lot of interest, and we have a number of new attractive offerings in that area.

So, when we go back and look at our 2017 outlook, I think it is prudent based on everything we know today. There's obviously some level of upside or downside, however you look at it, that can happen.

But as we see things today, we think that this is a prudent outlook.

Okay, okay. All right, thank you.

Yes. A question on the organic growth forecast for the first quarter.

It seems like you're looking for a little bit of acceleration from the fourth quarter, and I wonder if you could talk about where you're seeing that. Is it anywhere in particular or just across the board?

Our Q1 outlook is strong for all regions and I'd say all product families. So, I think the strong momentum we had in Q4 is carrying into the first quarter here also.

And the strengthening on, say, a percentage year-over-year growth also has to do a little bit with we had a weaker compare in Q1 of last year.

And wonder if you can comment on your distributor inventory levels and the progress you're making with the new channel program.

Yeah. So, first PartnerConnect, we launched PartnerConnect, our new channel program, in Q2 of last year.

It's now been basically working for nine months or so. We're very pleased with how it's gone.

I think it's been well received as a good structure, a good program. We were able to gain share of wallet with our channel partners through 2016.

And like I say, I'm quite pleased with that, because going through all the complexities of our integration and be able to gain share at the same time, I think is quite an achievement. And so, yeah, so the channel program I think is working very well.

The second part – I forgot the second part of the question.

The inventory levels.

The inventory levels.

Inventory levels, yeah. So, we target about 50, 55 days of inventory with our channel partners.

And we've stayed close to those targets for the year, and we've entered 2017 with an appropriate inventory position with our distribution partners across the world. So, we feel that's healthy.

It's good.

And then, just looking at the synergies realized, $50 million, in 2016 from ES, is $20 million still the target for 2017 and is there anything additional that you can realize in 2018?

So, that's correct. $20 million, mainly in COGS, is what we believe we will realize.

We have a fair amount of line of sight of that number. And in addition, as we implement our new ERP system and we'll do that in the middle of this year, we believe we will have further opportunities to increase operational leverage in the company.

And then, if I could just squeeze one more in, you mentioned during the prepared remarks about pockets of elevated promotional activity. Is that something new that you've seen from past quarters, and maybe if you could say where you're seeing that and what you're doing to address it?

Thank you very much.

So, our markets have always been competitive, right, so that's not new. And I think we've mentioned we've had the same concept of some pockets of elevated promotional activities in earlier calls also.

And our approach continues to be one where we're trying to respond in a very disciplined way. We want to have flexibility to go after deals that we think are worth winning and that we need to win, but we do it with a strong focus on driving profitable share gains.

That's our – we gained share in the past year, but our – the one metric, say, that we're trying to really maximize is to drive profitable growth and maximize the value of the Enterprise over the long-term. So, we want to make sure that we are prudent in how we pursue those things and disciplined in our approach.

Thanks very much.

Hi. Good morning, Anders.

Good morning.

Anders, when you were at NRF, what gave you confidence that the retailers are willing to open up the wallets and invest in these new retail technologies over the next 12 months to 18 months?

Yeah. Retail has always been a strong vertical for Zebra, and I think we're very well positioned to capitalize on the transformation that's currently going on, driven by e-commerce and omni-channel.

Our traditional, say, brick-and-mortar customers are recognizing the need for them to invest more in our type of technologies to drive improvements and enable them to compete against e-commerce. So, investments to drive greater customer experiences, enable different delivery modalities such as buying online and pick up in-store, but also to drive just greater efficiencies to enable them to compete on price with others.

And we also see – and we have had several, I think, large retailers in the U.S. publicly talk about their strategy of stepping up investments in technology to do just that.

We also see traditional e-commerce players investing meaningfully in our type of solutions to enable them to scale efficiently and also to be able to offer new customer offerings. So, I think that bodes well for us.

And our portfolio to address retail, both brick-and-mortar and e-commerce, is very strong. The TC51 Mobile Computer that we launched in Q4, that was the fastest ramping product in the history of the company.

It really was a great success for us. And at NRF, we also showed a couple of other products that you might have seen, so like MP7000 (44:26), it's a flatbed scanner that's very competitive, that's coming out this year, and the SmartSense solution that Joe also referred to here.

And also, I'd say we feel good about being able to add additional customers through the year. So, in 2016, we added a lot of new customer names, both traditional brick-and-mortar customers as well as e-commerce customers.

And I guess this all gives us confidence that momentum will continue into 2017.

And then, Anders, as you kind of walk around the booth at NRF, one of the things that you saw over the last couple of years was there are payment solution providers, asset tracking solution providers or scanners and printers solution providers that were out there. So, where do you believe the Zebra technology ranks in the purchasing priority for the retailers?

And wherever you believe it ranks, how do you actually improve that ranking as well, so they're more likely – the retailers are more likely to go ahead and adopt the Zebra technology as opposed to the payment solution technology that's out there?

Yeah. I think I will say that we have – we are essential for retailers.

If retailers want to implement an omni-channel type of strategy, I think that getting that increased visibility into what their – the in-store visibility, being able to effectively guide people to do the pick-up and the self-checkout and so forth in the store are capabilities that are essential for them to have. And we do offer that.

Now, many things that retailers do are broader projects, and we are not the only thing that's in it. So, there are certainly other solutions that goes into that too.

But I do believe that we are considered to be a strategic partner to many of our largest retail customers, because they see the value and the essence of what we do. Maybe, Joe, you can add something.

Yeah. Also, bear in mind that our go-to-market strategy inherently is one of partnering.

So, you will find us, in many cases, partnering with many of those solution providers that either provide checkout solutions or payment solutions. And indeed, if you look at many of the most prominent solutions that were showcased at NRF, you'll see that there's either a Zebra inside or there's a Zebra partnership involved there.

So, that's deliberately part of our strategy.

Okay. And just one last question on my end.

To get to the organic growth outlook of 3% to 6%, could you kind of break-down what the outlook looks like for the different geographies?

No, for Q1, I think we tend to give you an outlook for the company, and we give you some color for each of the regions. I think we've gone through some of the regions here already this morning and for the products.

But we don't really break it down by all its components.

Great. Thank you.

Thank you.

Hi, good morning and thanks for taking my questions. Just wanted to...

Good morning.

Good morning. Just wanted to start with just a quick question on OpEx for 2017.

I guess we should be modeling OpEx in terms of dollars to be down in 2017. Just wondering if you could give us a better sense for how much those dollars should be down and how it breaks down in terms of benefits from restructuring and productivity versus how much OpEx was associated with the wireless LAN business.

Good morning, Brian. We gave you two numbers on purpose, one which is a gross margin number.

We believe that this gross margin number will slightly increase in 2017. And we also gave you an EBITDA number of 18% to 19%.

So, you can deduct what the OpEx is. And we did it this way for a reason.

We want to adjust the OpEx of the Enterprise based upon the trajectory of the business. That's why we model it this way.

However, the integration effort is actually well on its way. We believe that we're going to hit our various commitments.

And in addition, the implementation of our new ERP system mid-year will give us the opportunity to deliver additional operational leverage.

Okay, great. Okay, that's helpful.

Thanks. And then, I guess this is just sort of theoretical, I guess, at this point, but there's a lot of discussion around tax policy changes, of course.

And I was wondering if you could just give us an update in terms of how much of your manufacturing is done overseas. I know the Legacy Zebra business manufacturing went to Jabil, and how much of the Motorola Enterprise business is done overseas and just the total – if you look at your total manufacturing footprint, what percent of that is overseas?

Let me answer indirectly to your question, Brian. So, we don't know for sure what a new tax reform will include.

So, we have spent actually a fair amount of time with our teams internally, with our business partners, with our various advisors, and we believe that we have the ability to mitigate the impact of a new tax reform. Looking at the way the supply chain is structured is one lever.

That's not the only lever.

Yeah. So, I understand it's not the only lever.

I'm just wondering, could you help us at all – if we did focus on this one lever for a second, what – how much of the manufacturing is done overseas? I guess – I understand that the Legacy Zebra, most of it is done at Jabil.

But do you reveal how much of the Motorola business – I'm just not as familiar with that side of the business in terms of the manufacturing footprint.

So, we haven't disclosed how exactly on purpose. It's obviously competitive information.

And we could restructure the supply chain in order to achieve our goals, which is to make tax reform neutral. So, there are few things we can do.

We don't want to be definitive for obvious reasons. We don't know really what the tax law is going to be.

But we have various scenarios, and all of them, we believe, would be – will lead to a neutral impact for the new tax reform.

Got it.

But to give you a little bit more color maybe as to – our supply chain is probably very similar, I suspect, to most electronics supply chains. So, we have a significant footprint of manufacturing and also assembly in Asia, but we also have it in Mexico.

And we have all our converting and a lot of our services activities in the U.S. But that only – that gives you kind of the current footprint.

There are certainly things that we can do to mitigate any impacts of any border-adjustment taxes, but we still don't know what they look like or anything. But we are working on how would we respond to various scenarios.

Okay. Thanks very much and congrats on the solid quarter.

Thank you.

Yeah, thank you. So, it sounds like the TC51 is off to a pretty good start.

Can you just talk a little bit about where you've seen the biggest traction so far and if you think there was any meaningful amount of pent-up demand that you had heading into the launch of that product?

Yeah. So, the TC51 is a – we think of it as a mid-range Android all-touch device.

It certainly met an unmet – or satisfied an unmet need in the market, because otherwise we wouldn't have had that kind of launch or that kind of ramp, right. So, I think we got it right from a form factor, from a functionality perspective.

We got kind of the latest and greatest operating system drop (53:04), chipsets and so forth in there. So, it was a very compelling product when it came out, and we're seeing – still seeing very good feedback from customers about it.

We were down at the HIMSS this past week also, which is the healthcare show, and had a great interest from healthcare providers in that product. And we're coming out with a special healthcare version of the TC51.

But the Q4 launch was primarily aimed at retailers, so mostly say brick-and-mortar retailers who are working on omni-channel type of solutions, and also to help them to have a more compelling customer experience by arming their sales associates with better tools to engage with their customers.

Yeah. I would add two things in terms of the pent-up demand opportunity that I think TC51 squarely hit.

On the one hand, retail and the need to compete with e-commerce that this device enables in a number of different directions. On the other hand, bear in mind this transition of operating systems, which is still ongoing.

And many of our customers, whether they're in retail, healthcare or other verticals, are looking to make that transition and are waiting for or have been waiting for the compelling opportunity to do that. And TC51, I think, struck that nerve and hit that opportunity squarely, which is why it's been such a successful launch.

Yeah. Maybe one more point to say also there's been a lot of conversations or concern over the years around consumer encroachment, and the TC51 certainly – I think the first customer we had was a very large consumer device user, where we were able to basically win them to switch over to our devices.

So, I think we – this is a great way for us to compete against the consumer devices also.

Great. And then, as my follow-up, I hate to ask a question on tax rate.

But I guess just given the magnitude of the difference, can you give us a little bit more detail on what drove the benefit in the fourth quarter and just the right level that we should be thinking about just on an ongoing basis as we go throughout 2017?

Absolutely. So, at the end of Q3, we were planning a tax rate for the year 26%.

So, that was an estimate that was based upon the forecast, assuming a mix of profit by legal entities or tax jurisdictions. So, when we closed the year, based upon the mix of the profit, based upon additional work we did as part of the year-end process, the tax rate for the year moved from 26% to 23%.

And we had to book the full impact in the Q4 quarter, which was about $0.16. Now, to answer to your second question in terms of tax rate for 2017, we believe that low to mid-20s will be a good planning assumption.

Thank you.

Good morning, gentlemen. Thanks for taking my question, and congratulations on the execution during the year.

Anders, can you revisit your long-term growth rate of 4% to 5%? Obviously, printers came off of an incredible stretch here in 2015, with double-digit growth for several years.

But since then, it looks like the growth rate has been much lower. Do you still think the 4% to 5% long-term growth rate over the cycle is the right way to think about it?

Yeah. We still think 4% to 5% growth rate or the target is an appropriate target for us over the cycle.

If you look at our performance over the last two years, we have actually hit that level. It didn't kind of come exactly the way we had expected.

So, we had almost 10% in constant currency growth in 2015, and we were just a tad of growth in 2016. So, our business is a bit more cyclical than we might enjoy, but it tends to drive it towards a good number over time.

But again, we feel we have a good diversified business with many avenues and levers to pull in order to achieve our growth. And generating the kind of growth we did in the last two years, while we were going through a very complex integration, I think is a testament to our execution.

And we still feel that that's an appropriate target for us and that's what we're going for.

Great, thanks. And then if I can follow-up, I think you guys have addressed this a little bit in the previous question regarding TC51.

But the mobile – the Microsoft operating systems now, the Internet of Things operating system's out there. You still have the legacy system, which is to be end of lifed in 2020.

But obviously, you guys have a huge advantage with the Android portfolio. Are you seeing a shift now where the retailers and the other companies that were hesitant to move toward Android, are they now making the evaluation and starting to make the move or can you speak to the operating system environment for mobile computers?

Yeah. I'll start and then Joe can help out here also, who talks to customers even more frequently.

I'd say the momentum around the Android migration is continuing strongly or strengthening. If you remember, two years back, when we first merged our businesses, at that point, there was the largest, most-advanced customers that were doing it.

I think now we see – depending on the vertical, but retail, I'd say, all large deals in retail tend to be Android today. Healthcare is very much moving in that direction.

So, we're seeing greater traction in our channel with Android, but we always talked about how the largest, most-advanced customers will be leading the charge and that smaller customers won't have necessarily the resources or the know-how to switch as quickly, and that's still the case. If you go down into smaller companies, they're probably more likely to continue to buy what they already have.

But we are putting together a different type of both educational material and other offers to make it as easy as possible for customers to switch. If you go back to the TC8000 device that we launched for kind of warehouse applications in the beginning of 2016, that was the first generation of Android device in that environment.

That means that our customers have to rewrite and (1:00:10) some of their applications to run on that device. So, the barrier to early adoption is a bit higher.

But once you start having – move your applications over, now it's much, much easier to just continue to expand and use a broader part of our portfolio in those areas.

So, another viewpoint on the opportunity is, if you go back two years ago, we said there's about 15 million mobile computers out there that need to make the transition from legacy operating systems to either Android or an alternative. And you can do the math of what's been sold in the meantime, but our synthesis would be that the majority of that opportunity is still out there.

And we think that there are at least two, but probably two critical things needed to unlock that opportunity, one of which we think we have hit with products like the TC51. You need a compelling offering and value proposition, right, that gets customers over that hurdle.

And things like TC51, which is surrounded with the types of software and services that people expected from those legacy operating systems, those are now in the market and present and giving customers the confidence to move that way. The other one, though, that's important and that is the focus of, I think, our growth opportunity this year is that channel partners, which are the majority of the way that we sell, they need to embrace this solution as well and they need to either take their customers along and, in some cases, take their applications.

Many of the applications that customers run come from those channel partners, and they need to move those over to Android. That is a focus for us this year, and we see a lot of growth opportunity ahead of us from that.

Great. Thank you.

Yeah. Just one question, Olivier, when you are One Zebra and what will actually happen in terms of the TSAs and should there be a kind of step-function reduction in OpEx in the second half once you cross that threshold?

I'm not too sure we will speak about step-function. But clearly, the implementation of one ERP will allow us now to be really focused on optimizing the P&L further.

If you look at the kind of synergies we have generated to-date, they were the obvious ones, duplication in product roadmap, supply chains. But we believe as a management team that we could go to another level in the second half of the year gradually and then forward.

Okay. And will all of the TSAs be eliminated by the second half of the year?

The vast majority will be, correct, yes.

Okay, thank you.

Hi, guys. Thanks for taking the questions.

First, with respect to leverage, it looks like this year, you're targeting maybe another half-turn or so in terms of net-debt-to-EBITDA. Longer term, you've talked about being investment grade.

But I wondered if you could just give a little bit more color in terms of those leverage targets. And once you're there, how does that change your cash allocation thought process?

So, you're right, we believe we should be going down by half a turn between the end of 2016 and the end of 2017. Our target is to reach investment grade rating as soon possible.

We believe that we will achieve that rating once we have a ratio of – debt-to-EBITDA ratio of about 3 times. Once we achieve that level, we want to look at the best options to maximize return for our shareholders, and that can take various forms, repaying more debt or allocating excess cash to shareholders in other ways.

So, we want to keep options open based upon what will be best for our shareholders.

Very good. And then, a little bit longer term, we're looking at the automation of supply chains and distribution centers and having an impact on head count longer term.

How do you view that as both a challenge and an opportunity and how does Zebra's EAI fit into that broader automation trend? And longer term, how would that impact your mix of hardware and software analytics sales?

Yeah. So, we see that as an opportunity for Zebra today in – some conversations around retail, where they've been trying to do certain things and automate certain things.

And when that has happened, it's invariably led to more use of our type of technology in order to enable that kind of automation. So, we see that we are in the central part of enabling a warehouse or a factory, whatever that is, to be much more automated.

Some of the things that we're working on for release later this year or in 2018 are specifically aimed at making people much more effective and efficient in how they do their jobs in those types of environments.

That's very good. Thank you.

Thank you all for participating on our call today. We look forward to speaking with you again soon.