斑馬技術公司 (ZBRA) 2011 Q4 法說會逐字稿

Good morning, and welcome to the Zebra Technologies' 2011 fourth quarter earnings release conference call. Joining us from Zebra Technologies are -- Anders Gustafsson, CEO; Mike Smiley, CFO; Mike Terzich, Senior Vice President Global Sales and Marketing; and Doug Fox, Vice President Investor Relations. All lines will be in a listen-only mode until after today's presentation. Instructions will be given at that time in order to ask a question. At the request of Zebra Technologies, this conference call is being recorded. (Operator Instructions) At this time, I would like to introduce Mr Doug Fox of Zebra Technologies. Sir, you may begin.

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 issued this morning and are also described in Zebra's 10-K for the year-ended December 31, 2010, which is on file with the SEC. Now, let me turn the call over to Anders Gustafsson for some brief opening remarks.

Thank you, Doug, and good morning, everyone. Today, Zebra reported solid fourth quarter financial results, concluding another year of strong growth. Earnings from continuing operations advanced 20% to $0.63 per share on a 6% increase in sales to $247 million. For the fourth quarter, we maintained high profitability and generated $36 million in free cash flow.

The robust and steady run rate business in several large deals led to record sales in Europe and near-record sales in North America. Globally, record sales of Mobile and Card printers underscored solid performance in several product categories, as we helped more customers in targeted industries improve business performance by enabling them to see more and do more.

Fourth quarter results demonstrate the great value of Zebra's industry leadership. Investing in those areas that deliver the highest risk-adjusted returns, we gained share on the strength of expanded channel relationships and the more competitive line of innovative products. Our fourth quarter performance caps a very successful year for Zebra. For all of 2011, we achieved 10% sales growth, with record sales in all international regions and in multiple product lines.

Increases in gross margin and effective expense management drove operating leverage and a 2% increase in operating margin to 18.5%. We invested more than $160 million to repurchase 4.4 million shares of Zebra stock, and delivered a 32% increase in earnings from continuing operations to a record $2.40 per share. With a net gain on the sale of Navis and Proveo, net income for the year was $3.22 per share.

Operationally, we made progress on several strategic fronts. We opened new sales offices in China, Russia and Brazil, and the sales resources previously brought on board became more productive. We accelerated the pace of product introductions, with a record 13 new printer products and 10 hardware and software releases for Location Solutions in 2011. These new products enabled us to broaden our customer base in the established and new industries. We also made excellent progress in building relationships, with a broader base of customers in targeted verticals. These achievements have positioned Zebra to deliver increased shareholder value over the long-term.

I would now like to provide an overview of the highlights for the quarter by region. In North America, year-over-year sales increased 9.5%. Steady bookings throughout the period created an underlying foundation of strength for the region. Several large orders further reinforced our performance. Shipments of Mobile and desktop printers in particular supported applications for customers in retail and small package delivery.

We were also pleased with the level of orders for our recently introduced QLn Wireless Mobile printer, including one for a government labeling application. This shipment highlights the success of our take share strategy and increased focus on growing our presence in the government sector, which has historically been under served by Zebra. Customers are responding enthusiastically to the innovative features of the QLn Mobile printer, which incorporates a flexible user interface for easy configuration.

Our EMEA region was another source of strength in the fourth quarter, with sales up 5% from a year ago, to a record $88 million. In an environment with some significant economic challenges, we are particularly pleased with the achievements of our EMEA organization. 8 of 10 subregions posted year-over-year gains with notable performance in manufacturing-centric Germany, as well as France and the UK. Larger deals included shipments of Wireless Mobile printers to retail and transportation customers, Kiosk printers for banking applications, and Card Printers for government identity cards. It was also a good quarter for sales of labels and ribbon supplies in the region. Supplies and Service offer growth in our Core business, which we will be focusing on in 2012.

In Latin America, the timing of some orders and shipments contributed to a temporary moderation in sales growth to $21.6 million. Sales of Card and Mobile printers, however, were particularly notable. Banks in Venezuela are now using Zebra P100 Card printers to issue customized credit cards on demand to pre-qualified customers. Our ZXP 8 Retransfer Card printer is being used for printing secure employee IDs in Mexico. In Mobile printing, the broad range of Zebra Wireless Mobile printers will ship to help retail customers in route accounting and shelf labeling applications.

In Asia-Pacific, sales of $32.5 million reflect the slowdown in manufacturing, which affected sales of High Performance printers. The severe flooding in Thailand, which restricted several multinational companies from delivering goods to their customers was a contributing factor for the manufacturing softness. Despite these challenges in Asia-Pacific, we remain on course strategically in this important region. The addition of 35 independent software vendors has already opened new opportunities.

Recent orders include a large shipment of Table Top printers for managing fireworks, a large industry in China. We are also making excellent headway in building a greater presence in government and healthcare. From the retail perspective, the burgeoning middle class continues to make this vertical another attractive area of growth.

On the product front, we have been very pleased with the customer demand for the new printers introduced in 2011 to meet unique regional requirements. First introduced in China, we will be offering these region-specific models to customers in other geographies beginning in March of this year. Zebra's results for the fourth quarter and for all of 2011 demonstrate the success of our actions to serve more customers in retail, manufacturing, and other targeted industries. At the same time, we are building a footprint in areas that offer significant new growth prospects for Zebra, including financial services and government.

Increasingly, customers choose Zebra because of our commitment to help them manage ever more complex asset management challenges, with innovative products. The diversity of our business across products, customers, is an important foundation in our constant pursuit of shareholder value creation. As we look to 2012, Zebra is well positioned with enhanced capabilities including more sales representation in high growth regions; a fuller, more innovative product line; a robust, strategic plan for North America; and stronger, more engaged go-to-market channels.

These enhanced capabilities will enable us to better meet the increasing needs of our global customers. I would now like to turn the call over to our CFO, Mike Smiley, to provide a detailed review of fourth quarter results and guidance for the first quarter of 2012. After Mike's remarks, I will return for some brief closing comments.

Thanks, Anders. Let me highlight some of the key components of Zebra's results for the fourth quarter. My comments will principally focus on year-over-year changes in the performance of Zebra's continuing operations, which have been adjusted for the sale of Navis and Proveo. First, sales came within our guidance range on strength in North America and EMEA, partly as a result of sales and marketing strategies to expand the scope of opportunities, take share and broaden the customer base within targeted verticals.

Second, gross margin was up slightly, as year-over-year improvements in volume, overhead and freight, offset changes in product mix. Third, operating expenses included an anticipated $2 million in expenses related to our global partners conference, which we hold every three years, and continued investment in geographic expansion. And fourth, we repurchased 429,000 shares of Zebra stock during the quarter.

Let's review sales. For the quarter, sales increased 6% from $234 million last year to $247 million. Changes in foreign exchange did not have a material effect on quarterly sales versus a year ago.

By region, North America maintained a high level of business activity. Sales were up 9.5% over the previous year's fourth quarter, and only down slightly from the third quarter. Shipments of several large deals to customers in retail and small package delivery augmented steady run rate sales through distribution.

EMEA also maintained excellent business momentum. Fourth quarter sales were a record $88.4 million, up 4.5% from the prior fourth quarter, and up 4.4% sequentially. Shipments of Mobile, Card, and Kiosk products were notably strong, in addition to supplies in after-market parts and services.

Latin American sales were up 1% for the quarter, and 11% for the full year. Our fundamental outlook for this region also remains positive because of the great many opportunities continuing to develop in Brazil, Mexico and elsewhere. In Asia-Pacific, sales of Desktop, Card and Mobile printers maintained favorable momentum, up slightly year-over-year, the region grew 26% for all of 2011, aided by our investments in sales resources to build channel and customer relationships. We remain positive on the outlook for Asia-Pacific. By product category, hardware sales were up 5%. Supply sales were up 11%.

Turning to profitability, we maintained a high gross margin of 49.1%, up 20 basis points from 48.9% a year ago on favorable movements in volume, overhead absorption, and freight. These benefits offset non-favorable movement in mix, with lower proportional sales of high performance Table Top printers. Operating expenses increased 11% from a year ago, including increased compensation costs from investments in geographic regions and strategic sales efforts, as well as for our global partners conference. On a sequential basis, operating expenses increased $5 million from higher business development costs, to conference expenses, and some higher than normal employee-related insurance costs.

Fourth quarter results included approximately $2.4 million costs from some component supply constraints related to the Japan catastrophe, in the form of higher component costs, sales incentives, and freight charges. For the full year, these costs totaled $7.7 million. As we enter 2012, these costs are now behind us and our supply chain is back to normal operations.

Quarterly operating income totaled $42.1 million for 17.0% margin, adding $6 million in depreciation and amortization to the operating income totaled $48.1 million of cash earnings, or 19.5% of sales. The income tax rate for the fourth quarter was 20.1%. The decline from a year ago relates to higher profits, international jurisdictions and favorable adjustments of prior year's sales tax returns which were filed in fourth quarter of 2011. GAAP EPS from continuing operations were $0.63 per share, on 52.4 million average shares outstanding.

At the end of the fourth quarter, we had 52.3 million shares outstanding. Fourth quarter results also include a net gain of $2.2 million, or $0.04 per share as a result of finalizing taxes around the Navis and Proveo divestitures in discontinued operations. In the fourth quarter, we bought back 429,000 shares of Zebra stock. The weighted average price of the purchases was $32.24 per share. These purchases bring the year-to-date total number of shares purchased to 4.4 million shares, returning $160 million to shareholders.

The day sales outstanding declined from 52 days for the third quarter to 49 days. Inventory turns decreased from 4.4 times to 4.0 times as inventories increased due to the Japan crisis. We will be working to reduce inventories in 2012. Our distribution centers are fully replenished, following last year's supply chain disruptions and we have a more normalized product flow in our extended supply chain. Quarterly free cash flow totaled $36 million for the fourth quarter.

At the end of the quarter, we had $327 million of cash and investments on hand. Now, let's look at our first quarter forecast. We are forecasting 2012 first quarter sales of $237 million to $246 million. This guidance reflects the usual seasonality, as well as the near-term business and foreign currency conditions. Earnings are expected at $0.52 to $0.59 per share.

Our forecast assumes a consolidated gross margin in the range of 48% to 49%, primarily as a result of the lower sales volume, and the less favorable FX rate from the fourth quarter. GAAP operating expenses are forecast between $76 million and $79 million. The tax rate is estimated to be 28%. Finally, for all of 2012, we expect capital expenditures to approximate $15 million to $20 million. That concludes my formal remarks. Thank you for your attention. Now, here's Anders for some concluding comments.

Thank you, Mike. In 2011, Zebra extended industry leadership and further strengthened our strong competitive position. Our results for the fourth quarter and full year demonstrate the value of the diversity of our business, as well as our focus on innovation, investment, and execution. These factors give us great confidence in Zebra's capacity for further profitable growth and shareholder value creation. We remain positive about Zebra's future, in spite of the near-term uncertainty in business conditions. Over the past several years, Zebra has proven its ability to operate and manage the business, through changing market conditions.

We will remain agile and responsive, as we continue to invest prudently to successfully extend leadership, increase profitability, and grow capital returns. For 2012, our strategic priorities build on Zebra's foundation of strength, and our enhanced ability to meet more customer needs. We will continue to invest in those activities that deliver attractive long-term sustainable growth namely -- penetrating existing markets more deeply; expanding into new markets; intensifying product innovation; and maximizing operational effectiveness.

We have previously outlined our strategy to penetrate existing markets more deeply, with a focus on targeted industries. Our success in retail demonstrates the effectiveness of this strategy, as we have captured more business, with a broader base of customers. In 2012, we will also invest more in our core competencies of channel and product development. This will enable us to continue to be the key strategic partner of more customers, as our industry-leading products and solutions give end-users greater visibility into their operations.

Enhancing our relationships with value-added resellers, in part through our award winning partner first channel program, remains a cornerstone to this initiative and a key to our success in gaining share. At the same time, we continue to strengthen direct ties with strategic accounts and build and expand our relationships with independent software vendors and system integrators in retail, manufacturing, and healthcare. We have accelerated the pace of new product introductions, fulfilling our mission to give our customers valued assets, a digital voice.

In 2011, the many new printer and Location products we introduced have features and functionality to serve more customers, customer needs, and open new opportunities for Zebra. The products introduced last year, including Card printers and the QLn Wireless Mobile printer are gaining strong customer acceptance, based on their innovative functionality, reliability, and ease of use. For 2012, we have an ambitious lineup of products scheduled for introduction. These products cover multiple categories and incorporate new features that will enable Zebra to expand its footprint even further.

We continue to focus on expanding into new and emerging geographies as well. We recognize how much the growing consumer class in China and beyond, offers further business opportunities. Our investments in building a greater presence in China, Brazil, India, and other emerging countries are paying off nicely. Zebra has established a meaningful presence in these areas, and a platform for further expansion by vertical and customer.

Most recently, we launched our initial expansion into Russia. Our expansion plans also call for a more aggressive entry into markets traditionally underserved by Zebra, such as government. In addition to core printing applications, the government vertical gives us a great opportunity to deliver integrated solutions incorporating RFID and Location Solutions, a unique capability and advantage for Zebra over the competition. Card printing with a refreshed product line and channel engagement is another area for further growth for Zebra.

We are excited about the many important opportunities to extend leadership and deliver profitable growth. In addition to pursuing those opportunities through internal growth, we will support our strategic vision by carefully considering potential acquisitions as they arrive. Share buybacks remain another important alternative in deploying our resources, where they can earn the highest risk-adjusted returns.

Finally, we hope you will be able to join us on February 22 in Chicago for our first Analyst Day in four years. At the event, senior management will present more about the Company and we will offer attendees a greater understanding of the value and future direction of Zebra products, with an onsite product innovation fair. This concludes our prepared remarks. And I thank you for your attention this morning. I would now like to turn the call over to Doug for Q&A.

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

(Operator Instructions) Anthony Kure, KeyBanc.

I just wanted to hit on a couple things. The Latin America and Asia in the fourth quarter, sounds like there was some issues with Thailand and some timing issues. So I guess when I look forward to the first quarter guidance, if you were to break down expectations for those two regions sequentially into the first quarter, are those -- what would be the seasonality there? Are those expected to rebound into the first quarter, or stay flat? Could you just maybe provide some directional comments for those two regions?

I'll start by giving you a little bit of a better color around the regions. First, on Asia-Pacific, 2011 was a great year for us. We grew 26% for the whole region. China was up 35%, and we should also remember that Q3 tends to be seasonally the strongest quarter in Asia. In Q4, we did see some slowdown in manufacturing. We are very exposed, very strong, with the largest contract manufacturers in China, but also in other parts of Asia. These tend to be large, multinational companies. They're very sophisticated. They are probably a little quicker than most to slow down some CapEx programs if they start seeing some slowdown in volumes or exports. So that was definitely a factor for it. The Thailand situation augmented a little bit of the tightness in the supply chain in some areas. But we expect certainly that 2011 (audio break) and as we grow Asia is become much more diversified, so our manufacturing base is continuing to be a very important and strong, strong part of the business, but we are also expanding into retail, healthcare, transportation, and card business. Government is another area. So it's becoming a much more diversified business, which would be somewhat less susceptible to swings in manufacturing.

For Latin America, again, we had a very good year in 2011. We were up 11%. We are starting to see many more countries and many more products participating in growth in Latin America. We really sell every product we have. In Q4, Card, Mobile printers were probably the two most notable ones. What we did see in Latin America in Q4, though, was a push, some larger deals got either pushed into Q1 or they got broken down into smaller components. So we didn't see the full value of those deals in the fourth quarter. Our customers in Latin America, particularly in Brazil, tend also to be a bit sensitive to FX and the Brazilian real was a little stronger compared to the dollar and that tends to cause them to hold a little bit and pause and wait for a (inaudible). But generally, we see Latin America as being a very strong region, with big opportunities, a lot of investments for us. We have the Olympics, the World Cup in soccer coming up, so our view for Latin America is also to be a very good 2012 and we will continue to invest and go for taking share in both of these regions, and we do believe that we will be sequentially up in Q1.

Okay, and just a quick follow-up. Maybe this is a little bit of a housekeeping. I think, Mike, you mentioned $2.2 million gain from finalizing some taxes, dealing with Navis. Is that all in the discontinued ops, or was that in operating income? And then finally, what's the tax rate for 2012?

It's all in discontinued operations, and we're looking at a tax rate for 2012 at 28%.

Paul Coster, JPMorgan.

So revenue growth rate has been declining for several quarters now in Hardware and Supplies, and I'm also -- margins sort of feel like they are plateauing. Can you just sort of cast your eye a little bit further into the distance and give us some sense of what you think the long-term growth rate for the Company is and what margin structure you are targeting over the long-term, Anders?

Well, first, I think Q4 was the first quarter where we had revenue declines sequentially for nine quarters. We previously had nine sequential quarters of revenue growth. And we see this as more of a shorter term activity in Q1, particularly a return of more normal seasonality. We see those as we have a good pipeline for the new year and we expect that 2012 will continue to be a good year for Zebra. I think many of our customers are doing similar things to what we are doing though, now, and then sitting back until -- holding back a little bit to see how 2012 will shape up, before they let any major capital programs go through. But I think that we have proven our ability to manage the business through all sorts of environments, and we believe we are very well positioned to continue to extend our leadership in the industry and gain share, and whatever the economic environment is going to be, we expect that we will do better in the markets.

Just to your question about margins, I think a couple things you should keep in mind is we are looking at an FX margin -- FX environment with a stronger dollar, which is, negatively impacts our top line and bottom line. We also have traditionally in the first quarter, we will have higher employee-related costs, especially in North America, related to let's say 401k, Social Security, those types of things, which drives through our P&L. I think one thing that speaks well in the fourth quarter as Anders pointed out, we had a lot of manufacturing -- we weren't as strong in Asia-Pac in manufacturing. That typically is a Table Top type product, which is higher margin. And so we expect, as Anders said in Q1, that Asia-Pac and Latin America should increase. That should benefit us on the bottom line.

Okay. So let's just go back to the growth rate. The year on year growth rate has been slowing. Just wondering, we saw a cyclical recovery coming out of the 2008, 2009 slowdown. How would you characterize the cycle at the moment? And just coming back to this longer term question, what do you think your long-term top line growth rate is? Is it low single-digit, single-digit, high single-digit kind of growth, or could it even be double-digit, which you've definitely experienced in the past?

Obviously, we -- 2012 I think was -- 2010, I should say, was a bit more of a recovery or rebound from the recession in 2009. 2011 we felt was more of a normal year. But it certainly had a lot of good momentum. We characterize today's environment as being more normal -- normal seasonality for Q1. We expect that we will continue to grow meaningfully above the industry growth rate and we will talk a little bit more about that also at our Analyst Day that's coming up here next week.

Chris Quilty, Raymond James.

Just a follow-up on the focus on the government market. Is that US government specific, or internationally? And what gives you confidence that there's growth there, given some of the budget headwinds that we're obviously seeing in the Pentagon budget?

Chris, this is Mike Terzich. I'll take that. Government focus for us is global. There's different areas within the subregions that we're particularly interested in. In the United States, it has been in the area of the Department of Defense. We think we're still under penetrated there. As much as you're seeing some contraction in Defense spending, it's pushing the need for them to have greater efficiency and productivity. So our solutions actually are picking up some interest in that particular area. The other portion of government is at the state and local level, both through Refresh of some driver's license facilities that we're taking advantage of, as well as some E-citation opportunities. As the states look to effectively generate more revenue. Outside the United States, our focus has been in some of the postal areas, particularly in Europe, and we see quite a bit of opportunity in government throughout Asia-Pacific. Some of it in the form of healthcare identification cards, same thing, driver's licenses, some opportunities to work with government in the form of logistics and in the form of security.

And with regard to the -- in the North American market, historically you've worked under the AIT contract, which if I recall is now more of an open IDIQ platform rather than a winner-takes-all?

Yes. Correct.

Great. And one question for Mike on foreign exchange, can you quantify for us what sort of headwind you're factoring in here in the first quarter and not to predict foreign exchange for the year, but if you were to project that out for the balance of the year, what are we looking at in terms of headwind versus the tailwind last year?

Well, I tell you what, what I can tell you is that in the first quarter compared to the fourth quarter, we're probably hurt by about $3 million from top line down to the bottom line.

Ajit Pai, Stifel Nicolaus.

So, two questions, I think the first one is more about the growth rates. If you're just looking at what the sort of secular drivers for growth are in terms of penetration and also looking at sort of your share gains, in addition to that, are there any other drivers, which is there an eminent upgrade cycle that should be driving the whole market and that providing an opportunity within the next couple of years, or do we just base our analysis and our growth forecasts on the base of how much share we expect Zebra to take and just capacity utilization and expansion of your customers?

So, I think we believe that there's still very good growth rates in the industry. It comes from a few different areas. But first, if you look at the emerging markets, that's still largely under served market from AIDC perspective. We followed the manufacturing customers into those regions, but now as the rising middle class starts to want to do more shopping, retail, they expect better healthcare, they start using more transportation logistics companies, more parcel companies, so the nuances I guess of their economies are such that they are starting to use much more of our type of products and our type of solutions and we see that as something that's going to continue for a long time.

In our more established markets, like North America and Western Europe, we've been working hard on expanding into new verticals. We have healthcare as being one that we worked on for a while and that's been our fastest growing vertical I think for the last several years, and we see opportunities to also work with other type of partners, like independent software vendors and system integrators to position ourselves higher up in the value chain and get better access to new applications. Beyond that, I think also we see good opportunities for RFID to become a really good contributor to overall business. It is a great technology, which has lots of different use cases and I think we see more and more retailers particularly to do pilots or start to do implementations. So we would expect that to also become a bigger part of our business going forward.

So could you give us a little more color on the RFID opportunity you talked about? You said more pilots, as well as some deployment. So could you give us some color as to what as a percentage of revenue it is right now and what pace it's growing at, and any sort of, what's really driving the change after the 2003, 2004 run-up over there. It was sluggish for a long time, but now what is driving that change?

Ajit, this is Mike Terzich. As far as the contribution to the business, RFID, the path of RFID set of our businesses is still relatively small. Growth rate in absolute terms has been quite nice. What's driving the application space today is principally at the store level, the tagging of what retailers would identify as a complex SKU, right? So complexity can come in the form of sizes and color options on sweaters. You see it in the automotive centers of some of the retailers. So what is happening is a lot of this stuff is being tagged at the source of manufacturers. So a lot of it is in the international markets, but by the time it makes its journey to the store level, there is a percentage of those tags that are damaged, need to be replaced in the store. So we're seeing opportunities across some of the discount retail, as well as some of the specialty higher end retail organizations in the retagging through Mobile devices. Secondly, there is an opportunity at the source, depending on the garment manufacturers, the size and the scale of those garment manufacturers, there's opportunity for stationery Table Top printer encoders to be used in some service bureau applications to do the original tagging. So that is where the interest lies today, and we see it as kind of a narrow set of applications, typically marking goods that are higher value. So you look at sweaters, you look at shoes, tires are all stuff that can support a $0.10 RFID tag.

So would it be fair to say that right now what's driving a lot of the sales for you and the interest is more at the item level than at the pallet level that was driving things in 2003, 2004?

Yes, it's fair to say.

Got it. And when you say it's not material, would we say that it's about 2% to 3% of your overall revenues, or not even that much?

It's less than 5%.

Less than 5%, got it. Then the second question would be, just looking at the opportunities outside of your traditional businesses and also in your traditional businesses, what the competitive dynamics are. So has there been any change during this slowdown? You've had a consolidating competitor? You've had to overcome -- acquire more businesses that are broadly related, you've had some other changes in the industry as well. So have there been any change in terms of pricing or in terms of competitive intensity in your core business, and in new businesses outside of your current businesses in terms of acquisitions or are you seeing a richer pipeline of potential opportunities?

That's one question?

Lot of commas in that question.

Okay, let's -- a couple things. There are some changing dynamics. I would say this. When we went through the economic cycle of 2009 and early 2010, I think two things have happened that have benefited Zebra to a certain extent. One is that at the end-user level, I think it was an opportunity for end-users to look at cleaning house and consolidating some of their vendor choices, some of their supplier choices. And I think when that happens, typically the stronger branded products tend to do well. And I think we've picked up some business at an end-user level where they have standardized on Zebra as a technology platform across their business. That same phenomenon occurs at the channel level as well. So when you look at what happens in the broader channel ecosystem, I think channel partners go through a little bit of that same inventory. They say, boy, can we consolidate some of our vendors, simplify our business, and because of our long-standing, high quality reputation in the marketplace, I think we've picked up some competitive partner relationships that have helped us gain some of the share that Anders noted earlier.

As far as changing dynamics, there's a couple things that are interesting in the marketplace. One, financial services. This is an area particularly supportive of the rising middle class. We talked about that earlier. But in areas outside the United States, principally in Latin America, South America, we're seeing a lot of interest for the instant issuance of bank cards, debit cards, credit cards; right? There's a lot of reasons why that is of interest, principally because there's a lot of mail fraud, lot of security issues with mailing credit cards, with folks that now have a higher disposable income, the banks have figured out that they could print those at the bank branch, give it to the customer directly so they avoid the security risk, and then that customer literally leaves the bank and walks around the corner and starts using that credit card, so they like that aspect. So Zebra's Card product line is playing quite nicely into those opportunities.

And then the last that I think is worth mentioning is we are seeing some resurgence in North America. We've had two good quarters in a row, principally built off of some Refresh of our install base, which is in the manufacturing warehouse sector, and we're seeing a little bit of the automotive supply chain come back. I think some of the domestic automotive manufacturers have announced expansion of their capacity, primarily to support export demand that's coming from some of this rising middle class elsewhere. So this is good for Zebra, because our extended supply chain in automotive goes -- is very rich and it tends to be a compositive product that is our higher margin, heavier industrial product set.

And just to augment that in a couple of ways, first, I think we feel very good about our strategic positioning. So from a perspective of what's going on strategically or competitively in the industry, we feel we are very well placed, very well positioned to be able to continue to compete well and extend our lead in the industry. And we have over last few years made a number of very prudent investments, which have paid off very well into 2010, 2011 period, and they have not fully yielded all their results yet. So we expect to see further good results from those investments in 2012. And we are confident that we have gained share in the industry over last couple of years, and we fully expect that we will continue to extend our leadership position as we go forward.

Marty Moser, Northwestern Mutual.

Most of my questions have been answered, but I guess if you could provide some commentary on the Latin America push out and visibility going into next year, and then sort of the Asia-Pac, how things have looked post Chinese New Year?

Marty, I'll take that one. Okay, as far as Latin America goes, what happened a bit in the fourth quarter is we actually had our business -- we have three subregions within Latin America. It's basically Brazil, Mexico and everything in the southern cone so to speak. Our business in Mexico and Brazil was good. It was a little softer, as Anders mentioned, relative to Brazil and some of the foreign exchange issues that tend to kind of govern the pace of business a bit. In the southern cone, we were a bit softer. So the outlook for Q1, some of that business rolled off into Q1. Outlook for Q1 is we expect to see a nice rebound in the Latin America business. It's really just a speed bump a little bit in the road. And I do think that when we look at the project pipeline principally centered around Brazil and Mexico, things look pretty healthy.

So we're pretty confident we'll see improved performance in Latin America in Q1. Asia, the issue, as Anders noted, was the multinational manufacturing business in China, and a little bit of industrial manufacturing in other places, like Korea, which is also a heavy industrial region for us as well. That was a bit softer, and that was principally driven by export demand, which I think is in some ways tied to some of the Thai flooding people had an inability to produce their own goods. The contract manufacturers, as Anders mentioned, pulled back a little harder. Chinese New Year was earlier this year in January. So January was pretty much what we expected it to be in Asia. We've seen some nice rebound, as people have come back online in February, and our expectation again for Asia is that Asia will rebound from the softer Q4 that we saw.

Thanks. I guess if I could follow up, the North America business perked up a little bit. What's sort of the visibility on the pipeline for next year there?

We had a great Q4 in North America, followed by a very strong Q3. So the second half of North America, we felt very good about. We have previously said we've developed a very robust strategy for how we are going to continue to drive growth in North America, and I feel that's starting to work for us. We've invested in more strategic sales competencies to be able to be closer to our largest accounts and really understand their needs better to make sure we have the right products available at the right time for them. We are also continuing to work more closely with a number of [IACs] and system integrators to position ourselves higher up in the value chain for some of these accounts, and all of these things are starting to bear fruit for us. So we had a very strong run rate in North America in Q4, augmented by I would say a normal large deal activity, and when we look at the Q1, we see it as being kind of a normal transition to Q1. Our pipeline is healthy and growing, and we are winning good business. So we expect that 2012 will be a solid year for North America.

Keith Housum, Northcoast Research.

Looking at your SG&A for the quarter, understandably it's high and part of that is due to the $2 million of a partner conference. But you back away the $2 million and still considerably higher from sequentially third quarter and last year fourth quarter. And I believe you guys mentioned higher insurance costs as being a part of that component as well as additional investment in resources. I was hoping you might be able to spend a little bit of time on that insurance cost comment. And then perhaps how we should look at that going forward into 2012.

Let me just give you a little more color there. So we had, as you mentioned, we did have that off site meeting, which is more of a one-time occurrence and as Anders was talking about and Mike has been working on, we have been trying to build our relationships with ISV and partners, so our market development spend and business development has gone up from the prior quarter. We also had the insurance item, is really more of a health insurance item. And we are, for the most part, except some caps, we're pretty much self-insured. So to the extent -- it's tough to predict what that spend is going to be for insurance until we can sort of guess what people's health is going to be, but that was just up and we can't really guess that real well.

So part of that I guess $2 million increase quarter-over-quarter, would 0.5 of that be to the insurance component?

Probably about 0.25 of it or so.

Okay, and the rest is just in business development and investing in the resources?

Yes, exactly.

Okay, okay. Thank you.

Again, I would say that we're investing in this stuff because we feel confident this stuff's going to pay off in the long run and that's I think something we're excited about.

Greg Halter, Great Lakes Review.

Just looking at your other income for the year, about $1.9 million, I guess, on average cash of $293 million, cash and investments, works out to I think 0.6% or so. Obviously the rates are not very high out there. Just wonder what your thoughts are relative to a dividend, as well as a more aggressive share repurchase, given the fact that there's over $6 a share in cash.

Well, first I'll start with the use of cash for us and how we think of that, and we have, in 2011, we were quite aggressive on buying back, what was it? 1.4 million shares.

$160 million.

$160 million to buy back a lot of shares, 4 million, 4.4 million shares. So we've all along stated that our strategy is to be opportunistic and somewhat price-sensitive. So we stepped up our activities a lot in Q3 when the share price was trending down. We throttled back a little bit in Q4 when the share price came back quite strongly. And we think that's a good strategy for us. Most investors we talked with, they feel that's a good use for us to -- or a good way for us to return capital to shareholders, so we expect that to be the predominant way for us to continue to do this. And I think it's paid good dividends for us so far. It's been a good way for us to really accelerate EPS growth for us. Mike, is there anything else you want to say?

No, I just think we have returned a lot of cash to our shareholders and I think that's something -- we will look at all of our opportunities for investing cash on a risk-adjusted return and last year, we saw it to be very attractive.

All right, and another one for you quickly, sales to scan source, either in the quarter or the year as a percent of the total?

Yes, that was around -- well, our -- let me just put it this way. Sales to our largest shareholder was around -- vendor. (laughter) Yes, we haven't been selling to our shareholders. Sorry. Largest vendor was around 20%, as I recall.

And that's for the year, I presume?

Yes.

(Operator Instructions) Tim Mulrooney, William Blair.

My question's around your healthcare vertical. Just wondering what percent of sales is healthcare today and maybe how fast is that growing, and then are there any recent business wins or developments related to your healthcare products?

All right, Tim. I'll take that. As far as the size of the business, it is principally centered today in North America and in Europe and a lot of the business has been in the area of patient safety. As far as disclosing how big it is, we typically don't do that. It is a business though that I would say is less than 10% of our business. But it is growing rapidly and principally off of the need at the bedside level and at the hospital level to introduce more technology to improve that patient safety initiative. What makes it an interesting space for us is that it -- we're seeing great success of our HC100, which is a very specific design solution for the printing of wrist bands and that wrist band is printed in the form of a, through a cartridge, making it for easy operator use at the desk level for the nurses stations, et cetera. We enjoy 100% of the attach rate for those wrist bands that run through those devices. We've seen that now in the form of the mandates that have went through some of the UK to increase the use of automated patient identification. We're seeing more adoption in the United States. And that's since I think as the other global markets mature a bit and as the economies continue to improve where the consumers are going to put more demand on some health reform in parts of Asia, parts of Latin America, we see this kind of working its way across the globe. So we like where we're positioned.

That's great color. Thank you. And if I could just ask one more, I think in your guidance for the first quarter, did you say that FX would have a $3 million impact on the top and bottom line, or did you just say top line? Could you just clarify, please?

Yes, so effectively what the source of the FX impact is primarily, we sell in Europe a portion of our European sales in Euros. So that gets converted back to US dollars. And so effectively, that difference in FX rate just flows all the way through, for the most part, we have some Euro expenses, but it mostly flows through all the way to the bottom. So when you look at it, it's roughly a $3 million impact to both the top line and pretty much the bottom line.

Rick Johnson, Tygh.

I was on the same currency issue. When you say bottom line, do you mean operating income or net income?

Well, operating income and then you tax effect it.

Okay. I just wanted to make sure you're talking about operating income. And that is sequential? You're talking about a sequential hit, right?

Yes.

Year-over-year, is that about the same?

Yes, it's about the same.

Yes, okay. And you're using an assumption of a Euro for Q1 of what in that assumption of $3 million?

Generally, the current's sort of spot rate.

Keith Curtis, Brandt Point Capital.

I was just wondering what share count you guys were assuming in your guidance and also you referred to the industry growth rate that you guys were going to be able to grow faster than that. Just curious how you quantify the industry growth rate. Thank you.

Let me answer the first one, because that's just mechanical. It's basically flat with where we ended the quarter. There's a little bit of a change, but not much. That's sort of how we do the number. It's not meant to be an indicator on our share buybacks.

And when we talk to industry growth rates, we tend to refer back to BDC as the independent industry consultants, that predict about 6% to maybe 7% growth rate for the industry, off memory now, but 6%, maybe up to 7%.

(Operator Instructions) And there are no further questions in the queue at this time.

Okay. With that, we want to thank you for joining us today. I would like to let you know that our next regularly scheduled conference call, which will be for the first quarter, will be on April 27. So that is a Friday. The reason we're doing it on a Friday morning is because of various schedules. But just to let you know, it is on April 27. And also, to remind you, we want to remind you about our Analyst Day coming up on February 22, and either you can join us in person, let us know if you would like to attend, or we will be webcasting. Thank you.

Thank you, ladies and gentlemen. This does conclude today's conference call. You may now disconnect.