ZEBRA TECHNOLOGIES CORP (ZBRA)

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

Overview

We are a global leader in the Automatic Identification and Data Capture (“AIDC”) industry. The AIDC market consists of mobile computing, data capture, radio frequency identification devices (“RFID”), thermal barcode printing, and other workflow automation products and services. The Company’s offerings are proven to help our customers and end-users digitize and automate their workflows to achieve their critical business objectives, including improved productivity and operational efficiency, optimized regulatory compliance, and better customer experiences.

We design, manufacture, and sell a broad range of AIDC offerings, including: mobile computers, barcode scanners and imagers, RFID readers, specialty printers for barcode labeling and personal identification, real-time location systems (“RTLS”), related accessories and supplies, such as labels and other consumables, and related software applications. We also provide machine vision and self-serve touchscreen solutions; a full range of services, including maintenance, technical support, repair, managed and professional services; as well as cloud-based software subscriptions. End-users of our offerings include those in retail and e-commerce, manufacturing, transportation and logistics, healthcare, hospitality, public sector, and other industries.

We continue to evolve and advance our vision: frontline operations everywhere are digitized, automated and intelligent. Through continual innovation, we have expanded beyond the traditional AIDC market to transform activities such as factory production, packages moving through a supply chain, retail shopping, the hospital patient journey, restaurant self-service, and first responders addressing public safety and emergency situations. Data from enterprise assets, including status, condition, location, utilization, and preferences, is analyzed to provide prioritized actionable insights and optimize activities.

The Company’s operations consist of two reportable segments that provide complementary offerings to our customers: Connected Frontline (“CF”) and Asset Visibility & Automation (“AVA”).

•The CF segment is focused on unifying teams, customers, and AI agents to deliver enhanced frontline experiences. This segment brings together solutions that empower frontline workers with the information and tools they need to make smarter decisions and improve customer service. Principal product categories include mobile computing, point of sale solutions, self-service kiosks and interactive touchscreen displays, workflow optimization software solutions, and related services.

•The AVA segment provides solutions that track critical assets and automate workflows to provide the real-time, data-driven insights necessary to optimize supply chains, manufacturing, and logistics. The principal product categories include thermal barcode printing and related supplies and sensors, data capture, fixed industrial scanning, machine vision, RFID, real-time location systems (RTLS), and related services.

Second Quarter 2026 Financial Summary and Other Recent Developments

•Net sales were $1,557 million in the current quarter compared to $1,293 million in the prior year second quarter.

•Operating income was $321 million in the current quarter compared to $183 million in the prior year second quarter.

•Net income was $233 million, or $4.85 per diluted share in the current quarter, compared to net income of $112 million, or $2.19 per diluted share in the prior year second quarter.

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•We recognized a $73 million pretax benefit from the expected refund of previously paid import tariffs, with $14 million of cash received in the second quarter.

•We repurchased $568 million of common shares year to date, including $268 million in the second quarter.

IEEPA Import Tariffs:

On February 20, 2026, the U.S. Supreme Court invalidated certain import tariffs enacted in 2025 under the International Emergency Economic Powers Act (“IEEPA”). The Company is in the process of seeking the refund of its approximately $73 million of previously paid import tariffs in accordance with the process defined by the U.S. Customs and Border Protection. During the second quarter of 2026, the Company recognized the benefit of approximately $73 million in expected refunds within Cost of Sales on the Consolidated Statements of Operations, including $46 million attributed to the CF segment and $27 million attributed to the AVA segment.

See Note 12, Accrued Liabilities, Commitments and Contingencies in the Notes to Consolidated Financial Statements for further information related to this matter.

Exit & Restructuring Actions:

In the second quarter, we substantially completed our actions under the previously announced 2025 Productivity Plan and recorded an additional $8 million in severance and related costs. Cumulative one-time charges under this plan, which was initiated last year, were $37 million. We expect these actions to achieve net annualized pre-tax cost savings of approximately $35 million. The majority of the remaining obligations associated with these actions are expected to be satisfied in the second half of 2026.

See Note 7, Exit and Restructuring Activities in the Notes to Consolidated Financial Statements for further information related to the Company’s exit and restructuring actions.

Results of Operations

Consolidated Results of Operations

(amounts in millions, except percentages)

Net sales to customers by geographic region were as follows (amounts in millions, except percentages):

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Operating expenses are summarized below (amounts in millions, except percentages):

Consolidated Organic Net sales growth:

(1)Operating results reported in U.S. Dollars are affected by foreign currency exchange rate fluctuations. Foreign currency translation impact represents the difference in results that are attributable to fluctuations in the currency exchange rates used to convert the results for businesses where the functional currency is not the U.S. Dollar. This impact is calculated by translating the current period results at the currency exchange rates used in the comparable prior year period as well as removing realized cash flow hedge gains and losses from both the current and prior year periods.

(2)For purposes of computing Organic Net sales growth, amounts attributable to business acquisitions or dispositions are excluded for twelve months following or preceding the respective acquisition or disposition, respectively.

(3)Consolidated Organic Net sales growth is a non-GAAP financial measure. See the Non-GAAP Measures section at the end of this item.

Second quarter 2026 compared to Second quarter 2025

Total Net sales increased by $264 million or 20.4% compared to the prior year quarter, reflecting growth in both of our segments. Our overall sales growth reflects improved demand in all regions. Excluding the effects of foreign currency, acquisitions and dispositions, Consolidated Organic Net sales increased by 9.2%.

Gross margin increased to 53.0% for the current quarter compared to 47.6% for the prior year quarter, primarily due to the favorable impacts of IEEPA tariff recoveries and foreign currency. We also fully mitigated increased memory costs through price realization.

Operating expenses for the quarters ended July 4, 2026 and June 28, 2025 were $504 million and $433 million, or 32.4% and 33.5% of Net sales, respectively. Current quarter Operating expenses increased compared to the prior year quarter primarily due to the inclusion of operating expenses of Elo Touch, including intangible asset amortization, as well as higher employee-related costs.

Operating income was $321 million for the current quarter compared to $183 million in the prior year quarter.

Total Other expense, net decreased primarily due to net losses on long-term investments in the prior year quarter and lower foreign exchange losses in the current quarter, partially offset by higher interest expense associated with higher average debt balances.

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The Company’s effective tax rates for the three months ended July 4, 2026 and June 28, 2025 were 18.2% and 18.8%, respectively. The decrease in the effective tax rate was primarily due to tax benefits related to foreign earnings subject to U.S. taxation, pa

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Item 7.Management’s Discussion and Analysis of Financial Condition and Results of Operations

This section generally discusses fiscal 2025 and 2024 items and year-over-year comparisons between 2025 and 2024. Discussions of 2023 items and year-over-year comparisons between 2024 and 2023 are not included herein, other than within the Results of Operations by Segment which reflects the changes made to our segment reporting made in 2025. Refer to “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in Part II, Item 7 of the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2024 for that discussion.

Overview

The Company is a global leader in the Automatic Identification and Data Capture (“AIDC”) industry, ensuring frontline operations everywhere are digitized, automated and intelligent. The AIDC market consists of mobile computing, data capture, radio frequency identification devices (“RFID”), thermal barcode printing, and other workflow automation offerings. Effective in the fourth quarter of 2025, we realigned our reportable segments from the former Enterprise Visibility & Mobility (EVM) and Asset Intelligence & Tracking (AIT) segments to two new segments: Connected Frontline (“CF”) and Asset Visibility and Automation (“AVA”). Our CF and AVA segment results will also exclude share-based compensation expense from the measurement of segment operating income. Refer to Part I, Item 1 of this document for additional information.

•The CF segment is focused on unifying teams, customers, and AI agents to deliver enhanced frontline experiences. This segment brings together solutions that empower frontline workers with the information and tools they need to make smarter decisions and improve customer service. Principal product categories include mobile computing, point of sale solutions, self-service kiosks and interactive touchscreen displays, workflow optimization software solutions, and related services.

•The AVA segment provides solutions that track critical assets and automate workflows to provide the real-time, data-driven insights necessary to optimize supply chains, manufacturing, and logistics. The principal product categories include thermal barcode printing and related supplies and sensors, data capture, fixed industrial scanning, machine vision, RFID, real-time location systems (RTLS), and related services.

2025 Financial Summary and Other Recent Developments

•Net sales were $5,396 million in the current year compared to $4,981 million in the prior year.

•Operating income was $700 million in the current year compared to $742 million in the prior year.

•Net income was $419 million, or $8.18 per diluted share in the current year, compared to Net income of $528 million, or $10.18 per diluted share in the prior year.

•We repurchased $587 million of common shares, including $303 million in the fourth quarter.

Exit & Restructuring Actions:

In the fourth quarter of 2025, we announced our intention to dispose of or exit our robotics automation solutions business in an effort to better align resources with our strategic priorities. In relation to this decision, we incurred approximately $55 million in one-time costs in the fourth quarter, principally consisting of long-lived asset impairments of $45 million, including an intangible asset impairment of $34 million, a right-of-use lease asset impairment of $8 million, and property, plant and equipment impairment of $3 million. The other one-time costs consisted of employee severance and working capital-related charges. These one-time costs are classified as Exit and restructuring on the Consolidated Statement of Operations. Additional costs may be incurred in 2026, as we complete the divestiture of this business.

In the fourth quarter of 2025, the Company committed to certain organizational changes designed to generate cost efficiencies while better aligning our organizational structure with the Company’s long-term growth strategy (collectively referred to as the “2025 Productivity Plan”). The total cost under the 2025 Productivity Plan, which is expected to be substantially completed in 2026 and will primarily consist of employee severance costs, is estimated to be approximately $35- 40 million, including $21 million recognized in the fourth quarter of 2025. The costs of these actions are classified within Exit and restructuring on the Consolidated Statements of Operations.

We expect annualized pre-tax operating costs savings of at least $20 million from these actions, net of re-investment into advancing the Company’s AI product portfolio, reorganizing our sales force, and absorbing increased employee-related costs.

Acquisitions:

On September 30, 2025, the Company acquired Elo Holdings, Inc. (“Elo”) for $1,303 million in cash, net of cash on hand. Elo is an innovator of solutions that engage customers, enhance self-service, and accelerate automation across a wide range of end

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markets. The Elo acquisition expands our portfolio of self-service and consumer-facing workflow offerings. The operating results of Elo are included in the CF segment.

On February 28, 2025, the Company acquired Photoneo for approximately $62 million in cash. Photoneo is a leading developer and manufacturer of 3D machine vision offerings. The Photoneo acquisition complements and expands our machine vision offerings across several industries. The operating results of Photoneo are included in the AVA segment.

See Note 5, Business Acquisitions in the Notes to Consolidated Financial Statements for additional details.

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Results of Operations: Year Ended 2025 versus 2024 and Year Ended 2024 versus 2023

Consolidated Results of Operations

(amounts in millions, except percentages)

Net sales to customers by geographic region were as follows (amounts in millions, except percentages):

Operating expenses are summarized below (amounts in millions, except percentages):

Consolidated Organic Net sales growth:

(1)Operating results reported in U.S. Dollars are affected by foreign currency exchange rate fluctuations. Foreign currency translation impact represents the difference in results that are attributable to fluctuations in the currency exchange rates used to convert the results for businesses where the functional currency is not the U.S. Dollar. This impact is calculated by translating the current period results at the currency exchange rates used in the comparable prior year period as well as removing realized cash flow hedge gains and losses from both the current and prior year periods.

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(2)For purposes of computing Organic Net sales growth, amounts directly attributable to business acquisitions are excluded for twelve months following their respective acquisitions.

(3)Consolidated Organic Net sales growth is a non-GAAP financial measure. See the Non-GAAP Measures section at the end of this item.

2025 compared to 2024

Total Net sales increased $415 million or 8.3% compared to the prior year reflecting growth in both our AVA and CF segments associated with improved demand trends that began in the middle of 2024, along with contributions from our recent Elo and Photoneo acquisitions. Excluding the effects of foreign currency changes and acquisitions, Consolidated Organic Net sales increased by 6.2%.

Gross margin decreased to 48.1% for the current year compared to 48.4% in the prior year. The decrease was primarily due to unfavorable impacts of tariffs, net of mitigating actions, along with lower services and software margins, largely offset by volume leverage favorability. Gross margin was higher in AVA and declined in CF. As we exited 2025, the unfavorable impacts of existing import tariffs have been fully mitigated.

Operating expenses for the years ended December 31, 2025 and 2024 were $1,893 million and $1,671 million, or 35.1% and 33.5% of Net sales, respectively. Current year Operating expenses were higher than the prior year primarily due to higher employee and employee-related costs, the inclusion of operating expenses and higher acquisition and integration costs associated with recently acquired companies, and higher exit and restructuring costs primarily driven by the planned divestiture of our robotics automation solutions business. The higher employee and employee-related costs in the current year include higher share-based compensation costs, primarily driven by changes made in the current year to the timing of the annual grant and eligibility provisions as well as improved expected attainment associated with performance-based awards.

Operating income was $700 million for the current year compared to $742 million for the prior year. The decrease was due to higher Operating expenses, partly offset by higher Gross profit.

Total other expense, net, increased primarily due to non-recurring interest rate swap gains in the prior year and foreign exchange transaction losses in the current year, partly offset by lower net interest costs associated with the Company’s borrowings driven by rate favorability and higher interest income on cash equivalents in the current year.

The Company’s effective tax rates for the years ended December 31, 2025 and December 31, 2024 were 25.2% and 16.9%, respectiv

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