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Zebra Technologies Corp (ZBRA -1.52%)
Q3Â 2019 Earnings Call
Oct 29, 2019, 8:30 a.m. ET
Contents:
- Prepared Remarks
- Questions and Answers
- Call Participants
Prepared Remarks:
Operator
Good day, and welcome to the Q3 2019 Zebra Technologies Earnings Conference Call. [Operator Instructions]
I would now like to turn the conference over to Mike Steele, Vice President of Investor Relations. Please go ahead, sir.
Michael Steele -- Vice President of Investor Relations
Good morning. Thank you for joining us today. Before we begin, I need to inform you that certain statements made on this call are forward-looking and subject to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. These statements are based on current expectations and assumptions and are subject to risks and uncertainties. Actual results could differ materially due to factors discussed in our filings with the Securities and Exchange Commission.
During this call, we will make reference to non-GAAP financial measures as we describe our business performance. You can find reconciliations of our GAAP to non-GAAP results in today's earnings press release and at the end of this slide presentation. This presentation will include prepared remarks from Anders Gustafsson, our Chief Executive Officer; and Olivier Leonetti, our Chief Financial Officer. Anders will start with our third quarter highlights. Olivier will then provide more detail on the financials, discussing our fourth quarter outlook and our decision to diversify our global sourcing footprint. Anders will conclude with progress made on Zebra's Enterprise Asset Intelligence vision. Following the prepared remarks, Joe Heel, our Senior Vice President of Global Sales, will join us as we take your questions.
Also throughout this presentation, unless otherwise indicated, our references to sales growth our year over year on a constant currency basis and exclude results from the recently acquired profit, tact, explore technologies and 10 time businesses. This presentation is being simulcast on our website and investors that's zebra calm and will be archived there for at least one year.
Now I'll turn the call over to Anders.
Anders Gustafsson -- Chief Executive Officer and a director
Thank you, Mike. Good morning, everyone, and thank you for joining us. Our team executed well and drove profitable growth in the third quarter. As you can see on slide four, we reported net sales growth of 3%, which was on top of 15% growth in the prior year period; an adjusted EBITDA margin of 22.7%, a 160 basis point year-over-year improvement; and record quarterly non-GAAP diluted earnings per share of $3.43, a 19% increase from the prior year.
Growth in our North America and EMEA regions was partially offset by soft spending environment in China. However, our diversified business is enabling us to successfully navigate an uneven global macro economy. We continued to extend our lead in enterprise and enter 2020. With that, I will now turn the call over to Olivier to review our Q3 financial results and discuss our Q4 outlook and the initiative to diversify our product sourcing footprint.
Olivier Leonetti -- Chief Financial Officer
Thank you, Anders. Let us start with the P&L. As you can see on slide six, net sales grew 3.5% in the third quarter, which translated to 3% on an organic basis before the impacts of currencies and acquisitions. We saw growth in each of our reporting segments. Enterprise Visibility & Mobility segment sales increased 2.7%, led by growth in mobile computing and support services. Asset Intelligence & Tracking segment sales increased 3.5%, with growth in printing, services, location solutions and Zebra retail solutions. Turning to our regions.
In North America, cells grew 6% primarily driven by strength in mobile computing services and RFID. We saw particular strength in SK retail and transportation and logistics. EMAS sales increased 2% with quality strength in data capture, printing and services. We saw growth across must country Trees return and transportation and logistics were particularly strong and we saw continued traction in RFID. cells in our Asia Pacific region declined 5% unfairly due to macro softness in China, Latin America sales declined 2% due to fewer large orders in Mexico adjusted gross margin expanded 130 basis point from the prior year period, primarily driven by go to market discipline, cost efficiencies, and favorable business mix. All of which was partially offset by 20 basis points net impact from release four times.
Consistent with one of our key operating principles, we drove operating leverage while continuing to make prudent investments in our growth initiatives. As a result, adjusted operating expenses as a percentage of net sales improved 70 basis points from the prior period. Third quarter 2019 adjusted EBITDA margin was 22.7%, a 160 basis point increase from the prior period. We drove non-GAAP earnings per diluted share of $3.43, a 19% year-over-year increase, which includes a $0.03 EPS impact from List 4 tariffs. Turning now to the balance sheet and cash flow highlights on slide seven. We generated $376 million of free cash flow in the first nine months of 2019. This was $36 million lower than the prior year period, entirely due to the increased working capital usage in the first quarter, which we previously discussed.
Free cash flow generation in the second and third quarters was higher than the prior period, and we expect a strong finish to the year. Our 1.6x net debt-to-adjusted EBITDA ratio is near the bottom of our target range of 1.5 to 2.5x. We continue to pursue opportunities to lower our cost of debt while maintaining a flexible structure. We recently amended our credit agreement, which will lower our cost of borrowing by approximately 25 basis points as the lower pricing becomes effective in late October. This action, along with an expanded European accounts receivable factoring program, positions us for lower overall cost of debt. In Q3, we repurchased $20 million of shares under our $1 billion share repurchase authorization.
Our strong balance sheet and free cash flow profile provides us the flexibility to maintain our debt leverage target range while investing in our business, including acquisitions and returning capital to shareholders. Like many other technology companies, we have been sourcing the vast majority of our products from China. On slide eight, we provided a detailed update on the impacts of -- to Zebra from the Section 301 tariffs on products imported to the U.S. As previously mentioned, Zebra is paying a 25% tariff on List 1 through 3, which includes certain scanners, components and accessories. We have substantially mitigated these tariffs through a combination of supply chain moves and pricing adjustments. Starting midyear, we began executing on an initiative to diversify our global sourcing footprint to mitigate List 4 tariffs that were announced in August, which impacts mobile computers and printers.
We are working with our contract manufacturing partners to replicate production lines in order to move most of our U.S. volumes to broader Asia. These actions are expected to result in up to $30 million of onetime pre-tax charges through mid-2020, plus between $10 million to $15 million of capital expenditures. With these supply chain actions, along with modest price adjustments announced in September, we expect to substantially mitigate List 4 tariffs by midyear 2020. In the fourth quarter, we expect these tariffs to negatively impact gross profit by $5 million to $10 million. The impact is expected to peak in the first quarter at between $15 million and $25 million, as we realize a full quarter of impact, and should moderate through mid-2020 as we launch alternate sources of supply. Had we have taken no action, we would face greater than $100 million of annualized tariff duties. Let us turn to our outlook on slide nine. Net sales growth in Q4 2019 is expected to be between 4% and 6%, which is on top of an 11% nominal growth in the prior year period. This outlook assumes an approximately 1 percentage point positive impact from recent acquisitions and an approximately 1 percentage point negative impact from foreign currency changes.
We believe Q4 2019 adjusted EBITDA margin would be between 22% and 23%, which assumes operating expense leverage and a lower gross margin entirely attributable to a $5 million to $10 million expected net growth margin impact from List 4 tariffs. Non-GAAP diluted EPS is expected to be in the range of $3.55 to $3.75. The estimated negative net tariff impact is between $0.08 and $0.15, and we're assuming a negligible impact from share repurchases. That said, we will be opportunistic with our share repurchase program. We continue to expect that full year 2019 free cash flow will exceed $625 million. You can see our other full year 2019 modeling assumptions on slide nine. With that, I will turn the call back to Anders to discuss the progress we are making on our Enterprise Asset Intelligence vision.
Anders Gustafsson -- Chief Executive Officer and a director
Thank you, Olivier. We expect to finish the year strong despite an uneven macroeconomic environment and incremental tariffs. Now turning to slide 11. We are leveraging our deep knowledge of workflows to help businesses across many industries digitize their operations. Technology megatrends, including mobility, automation, cloud computing and the industrial Internet of Things are enabling us to drive new use cases and transform the workflows of our customers. We serve a wide range of vertical markets, including retail and e-commerce, transportation and logistics, manufacturing and healthcare as well as other attractive markets that diversify our growth opportunities. Retail continues to be a vibrant vertical end market, according to third-party research firm, IHL Group.
There's also significant investment by retailers to improve omnichannel capabilities to meet increased customer expectations. We are a trusted strategic partner with many of the leading retailers and e-tailers. Recently, a major U.S. grocer selected Zebra to roll out 39,000 of our TC52 mobile computers over the next two years. Store managers, department heads and associates will utilize them to -- for multiple in-store applications, including customer service, inventory management, out of stocks, planogram compliance, backdoor receiving and store audits. Another solution that is enabling retailers to drive a higher level of inventory accuracy is RFID, which we have been deploying to improve our customers' omnichannel capabilities. In the transportation and logistics space, we are seeing particularly strong demand for our solutions.
For most IT and operational decision-makers, labor recruitment and productivity are top challenges in the increasingly on-demand economy. With innovative solutions to drive increased productivity and efficiencies, Zebra can bring their operations to a higher level with their current workforce and resources. We have secured a substantial number of global business wins recently, including our largest deal of all time with the U.S. Postal Service, where we will help them deploy 300,000 TC77 mobile computers over the next several years. This solution will feature our Mobility DNA suite of software tools that increase worker productivity and strengthen data security. We will also provide accessories, help desk support, repairs, maintenance and software applications and development. In manufacturing, our customers are looking for trusted partners who can increase their operational visibility and efficiency.
More than 80% of manufacturers plan to implement just-in-time operations within the next five years. Being able to stock only the items they need reduces inventory cost and waste. We are pleased that 3 leading North America dairy manufacturers recently chose Zebra's new TC77 mobile computers and ZQ520 mobile printers to enhance their direct store delivery workflows. The global healthcare system is facing significant challenges, including staff shortages, rising costs and life-threatening medical errors. Health care providers are turning to Zebra's technology to improve patient safety, increase staff workflow efficiency and comply with new regulations. We were recently awarded our largest European order of healthcare-purposed TC52 mobile computers. This healthcare facility handles blood donations across more than 75 centers. We enabled the customer to automate the patient journey and benefit from our superior product and software life cycle management. Now turning to slide 12.
We are building upon our strong foundation, expanding our role as a solutions provider. Zebra is uniquely positioned to deliver Enterprise Asset Intelligence, which is our vision to enable every frontline asset and worker to be visible, connected and optimally utilized. We pursue this vision by advancing our capabilities in the sense, analyze, act framework. Our products and solutions sends data from assets, products and processes, providing a digital view of the enterprise. This information, including identity, location and status, is analyzed by growing -- by the growing set of software solutions from Zebra or our industry-leading channel partner and developer ecosystem, which then drives directed action naturally within frontline workflows.
As we discussed last quarter, our organic investments and acquisitions have been enhancing our capabilities on the sense, analyze, act spectrum. Savanna, our data intelligence platform, connects our devices and powers our intelligent edge solutions. Savanna benefits our partners and customers by providing visibility of workflows and giving perishable frontline data a home so it can be leveraged via machine learning and artificial intelligence to generate new insights that drive business performance. As we have discussed, our acquisitions are advancing this vision, including Temptime's temperature intelligence solutions and Xplore's ultra-rugged tablets.
Additionally, Profitect's prescriptive analytics solution complements a growing suite of other Zebra software applications, including Workforce Connect, MotionWorks and our VisibilityIQ managed services offering. Looking ahead, we are focused on investing in key growth areas that are adjacent to our core business and where we have the right to play. These include computer vision, machine learning, artificial intelligence and intelligent automation. Computer vision is an exciting emerging sensing technology that enables the automatic extraction and understanding of useful information from a digital image or video. Zebra currently utilizes aspects of computer vision in new offerings such as SmartPack. However, we see substantial opportunities that are not yet sufficiently addressed in the marketplace.
Because of this, we are investing in experienced engineering talent with the skill set and capabilities to address emerging computer vision use cases in various vertical markets. For example, in retail, computer vision, software and tools can be used to assess inventory levels, support shelf scanning, monitor checkout activity and enable frictionless checkout. Artificial intelligence and machine learning are critical to building out our analytical tools and capabilities. Our acquisition of Profitect and their talented team expands our relevancy deeper and wider in retail. And over time, we will expect to leverage their capabilities to address additional vertical markets. We also intend to incorporate Profitect's functionality into Savanna to further build out the analyze and act layers of the platform. The rise of computer vision and analytics is driving a wave of intelligent automation, which is also a natural extension of our vision.
Unlike repetitive automation, intelligent automation leverages our sense, analyze, act framework to improve workflow efficiency with or without human involvement. A key example is our recent venture investments in companies that specialize in the collaboration of humans and robots to fulfill orders in the warehouse. We look forward to showcasing new Zebra solutions that leverage these enabling technologies at the upcoming National Retail Federation trade show in January. Our customers' demand information about what is happening at the operational edge of their business so they can run smoother, safer and smarter. As a thought leader, Zebra is being requested by customers worldwide to address their increasingly complex business priorities. We are responding to this call by continuing to focus our investments in solutions that extend our lead in the industry, advance us as a broader solutions provider and ultimately drive shareholder value.
Now I'll hand the call back over to Mike.
Michael Steele -- Vice President of Investor Relations
Thank you, Anders. We'll now open the call to Q&A.
Questions and Answers:
Operator
[Operator Instructions] And our first question will come from Jim Ricchiuti of Needham & Company. Please go ahead.
Jim Ricchiuti -- Needham And Company -- Analyst
Thank you. Good morning I was wondering if your Q4 guidance reflects -- perhaps reflects a larger-than-normal contribution from large projects.
Anders Gustafsson -- Chief Executive Officer and a director
Our expectation for Q4 is that we will have a fairly normal distribution of large deals. We certainly don't expect there to be a higher proportion of larger deals than normal.
Jim Ricchiuti -- Needham And Company -- Analyst
Okay. That's helpful. And you cited a couple of times the strength in RFID, and I'm wondering if there's any way you can provide a little bit more color on that: the type of growth you're seeing, maybe where you're getting traction in RFID, and just your general view of that market.
Anders Gustafsson -- Chief Executive Officer and a director
Yes. RFID is enabling our customers to gain real-time visibility into their supply chains. And we're seeing an acceleration of growth in RFID due to now being able to lower the cost of implementation, having an improved level of accuracy and enhanced software capabilities for RFID generally. Companies are also much more eager to innovate around their supply chains. So that's all driving a stronger adoption for RFID. And we've invested in both the product and the go-to market sides, so we have strength in our go-to market capability, have greater reach and more skill sets in that area.
And we are seeing strong double-digit growth in our portfolio, which includes now strong performance from our fixed readers but also our handheld readers as well as industrial and mobile printers. We also have our location solutions activities. We're doing our LS. We talked of that as being up nicely in Q3. And some other newer solutions like SmartLens, that leverage RFID to be able to always be able to sense inventory in a retail store as an example. So overall, RFID solutions are getting much more traction and interest from our customers, and we're participating nicely in that growth.
Jim Ricchiuti -- Needham And Company -- Analyst
And one quick one. Was that UPS contract that you announced -- congrats on that, by the way. Were you the incumbent? Or was that a competitive win?
Anders Gustafsson -- Chief Executive Officer and a director
So the contract was with USPS, and we were not the incumbent.
Jim Ricchiuti -- Needham And Company -- Analyst
Thank you.
Operator
And our next question will come from James Faucette of Morgan Stanley. Please go ahead.
James Faucette -- Morgan Stanley -- Analyst
Hi, team You have Erik on for James. Maybe just quick. During the quarter, you had released a couple of press releases on wins in the public safety market. Is that becoming an interesting end market for you to focus on? Maybe anything we should be thinking about there?
Anders Gustafsson -- Chief Executive Officer and a director
Yes, I'll start and then I'll ask Joe Heel to add some extra color. But yes, we think the public safety market and FirstNet, as an example, are to be good incremental growth opportunities for us. Those are several hundred million dollar markets that are, today, served predominantly by either very unique purpose-built devices or consumer devices. And we believe that there is a good opportunity to introduce our type of solutions in that market. And as you've seen, we've had a few press releases where we've been able to secure wins for our Xplore tablets and our mobile computers and printers. So we see that as an attractive new growth market for us.
Joachim Heel -- Senior Vice President of Global Sales
And I would add that we've invested in resources dedicated specifically to serving the federal and state and local government entities in the United States. We also have added resources in other countries around the world to serve the market. The Xplore acquisition is brought to us some of those resources because Xplore, as you may know, already had a footprint in that particular area. And combined, those resources are a push for us into this attractive new segment.
James Faucette -- Morgan Stanley -- Analyst
It's really helpful. And then maybe just on some of the strength that you're seeing in T&L. How much of an impact are newer solutions, like SmartPack, having on that?
Anders Gustafsson -- Chief Executive Officer and a director
So first, I'll tell you, our value propositions are resonating across all our vertical markets. And all our vertical markets are up year-to-date, so we see good growth across all of them. But a number of the challenges that our customers are seeing around having to drive increased workflow efficiencies and tight labor markets, being able to provide real-time guidance to the frontline of their business and enhancing customer and patient experiences, all of those, our solutions here are much more foundational to us being able to help our customers execute on their strategies. Specifically to T&L, Q3 was a particularly strong quarter for T&L for us. We're up double digits, strong double digits. We've seen very healthy secular trends that are helping to drive our growth.
Expedited delivery, labor shortages, e-commerce overall with the sheer volume of deliveries are great drivers. And the T&L industry, they're introducing lot of automation and technology to help address these challenges. And I'd say we are uniquely positioned to help them with these needs. The warehouse transition to Android is a great driver also in the T&L space as they have lots of warehouses obviously. And I'd say in the last year, we've actually won a number of very attractive postal contracts, where the USPS being the most recent one. Our -- you asked about some of our other solutions, so I'd say our intelligent edge solutions, like SmartPack, location solution, RFID, wearables, they're all helping to demonstrate our thought leadership in the industry, and off a smaller base, they're growing quite nicely.
James Faucette -- Morgan Stanley -- Analyst
Great, thank you.
Operator
Our next question will come from Brian Drab of William Blair. Please go ahead.
Brian Drab -- William Blair -- Analyst
Morning, thanks for taking my questions. The first one, I'm just looking at the tariffs and the guidance that you gave for the first quarter and in 2020. And am I thinking about this correctly if I just do the simple math. If you have a $20 million impact from the first quarter that we're going to see maybe a 170 or 200 basis point impact on gross margin, and maybe around a $0.25 or $0.30 EPS impact? I don't know, Olivier, if you could help put a finer point on that impact.
Olivier Leonetti -- Chief Financial Officer
That's correct, Brian. Your math is correct. At the midpoint, $20 million would be a good estimate.
Brian Drab -- William Blair -- Analyst
Okay. And then just on the USPS project, congratulations on that. And over what time period do you think that those 300,000 would be deployed?
Anders Gustafsson -- Chief Executive Officer and a director
Yes. First, we're very pleased and proud of the trust that the USPS has placed on us to be their partner in this project. This project augments our relationship with them. The USPS was already a customer of other products and solutions from Zebra. This is a multiyear contract. It's the largest in our history, so we're -- I'm obviously very pleased with that. The solution involves us rolling out 300,000 TC77 mobile computers, also the full suite of our Mobility DNA software tools, other more customized software solutions as well as managed and professional services. The -- and this is a multiyear contract, as I said, so we would expect deliveries to start ramping up in the first half of next year and go on for a couple of years, few years.
Brian Drab -- William Blair -- Analyst
Okay, thanks a lot.
Operator
The next question will come from Paul Coster of JPMorgan. please go ahead.
Paul Coster -- JPMorgan -- Analyst
Yeah, thanks for taking my question. I'd like to sort of take Brian's question a little bit further on the tariff mitigation. And it looks to me like your intention is to slowly wind down the impact of the costs through 2020. Would it be fair to say that we've got something like a $50 million hit to gross margins over the course of the year, and that by the fourth quarter, you're lapping the effects of this quarter's action and will have no year-on-year degradation in gross margins?
Olivier Leonetti -- Chief Financial Officer
Actually we believe that we will have mitigated substantially the impact of tariffs by midyear next year. So as we discussed earlier, we would model $15 million to $25 million impact in Q1. The impact in Q2 would be lower and pretty much immaterial in the second half of the year.
Paul Coster -- JPMorgan -- Analyst
And is it your sense that the cost structure that you've achieved in reconfiguring the supply chain will be equal to or better than that, which you originally had in China, tariffs aside?
Olivier Leonetti -- Chief Financial Officer
On -- in aggregate, it would be about the same cost structure.
Paul Coster -- JPMorgan -- Analyst
Okay, thank you.
Operator
And the next question will come from Keith Housum of Northcoast Research. Please go ahead.
Keith Housum -- Northcoast Research -- Analyst
Pardon me Mr. house I'm Sorry. I had it on mute. In terms of understanding growth in the quarter, could you help us understand how much of that growth came from some of your more tangential products? So when you're talking about growing the product portfolio, how much of that's kind of moved from the newer products or the noncore products?
Anders Gustafsson -- Chief Executive Officer and a director
Well first, I'd say I think we executed very well in the third quarter. We had 3% growth, but that was on top of 15% growth in the Q3 2018 time frame. We did see solid performance in North America and EMEA, which was partially offset by a softer spending environment in China, which really attributed to the entire shortfall. We did see particular strength in our mobile computing portfolio and services. And from a vertical perspective, healthcare, T&L were very strong. But all verticals are up year to date. And the -- our newer solutions, they're small, off a smaller base but they're growing quite nicely overall. So we're quite pleased with how we are progressing with the -- with our intelligent edge solution set.
Keith Housum -- Northcoast Research -- Analyst
Got it. As a follow up, moving the supply chain outside of China, can you help us understand the, I guess, the experience you guys have in doing this with your contract manufacturers? And should we be concerned at all with the risk that might be associated with any issues that may pop up that may either result in additional costs or perhaps delays in the supply chain?
Anders Gustafsson -- Chief Executive Officer and a director
So we have long relationships with these partners. That's -- it's a handful of companies that we have worked with to assemble our printers, mobile computers in China so far. And we're basically staying with same partners, moving to other locations in Southeast Asia. The -- we are obviously focusing very much on both speed and making sure we can continue to have excellent quality. We're doing a number of things to minimize the risk of any disruptions.
So it's -- we are not changing the supply side on most of things. We are but changing the assembly locations, and we have a lot of experienced managers from these companies that we will augment with our own team to ramp up these facilities. So we think that this is very doable. And compared to when we outsourced our supply chain for printers back in 2010 time frame, this would be a somewhat less complex undertaking.
Olivier Leonetti -- Chief Financial Officer
And Keith, 2 additional points if I may. First, the countries where we're going to go are not greenfield countries. That's point number one. And point number two, we're duplicating lines. Meaning, we could always, at any time, keep supplying the U.S. market from our plants in China, if needed.
Anders Gustafsson -- Chief Executive Officer and a director
Great, thank you.
Operator
Our next question will come from Richard Eastman with Robert W. Baird. Please go ahead.
Richard Eastman -- Robert W Baird -- Analyst
Yes, good morning. Perhaps you could just touch on maybe the role price plays here going forward, kind of covering the delta between tariff costs and supply chain mitigation efforts. Just a thought maybe around when price -- any price increases become effective. And then is there a price contribution? Is it a point or 2 that plays into the fourth quarter revenue guide?
Anders Gustafsson -- Chief Executive Officer and a director
So the -- by far, the main aspect of our tariff mitigation strategy is to move the supply chains out of China to avoid tariffs overall. We have announced some modest price increases. But the vast majority of these savings and effort goes into the moving of the lines. We, yes, we want to make sure that we compete for the long term and that we will be able to gain share and have a competitive position in the market and continue to earn our customers' trust. So we've been very selective in how we've applied price increases. So it's a modest part of the overall mitigation. It is -- but it is somewhat mitigating the impact, but it's not offsetting the impact.
Richard Eastman -- Robert W Baird -- Analyst
Okay. And as a component of the fourth quarter revenue guide, is it as much as a point? Or is it just -- any order of magnitude there?
Olivier Leonetti -- Chief Financial Officer
It would be much lower than that, Rick.
Richard Eastman -- Robert W Baird -- Analyst
Okay. Okay. And then just a question around the U.S. postal contract. Given the accessories and the device management software and the support there, is that -- are the mobile computing sales -- or put it this way. Are the gross margins on that contract going to be similar to what we're currently delivering in EVM?
Anders Gustafsson -- Chief Executive Officer and a director
I would say the USPS contract was a competitive process, and we had to compete on both offering the best overall value to our customers, which include a superior product but also a competitive price. So the -- but we are not able to explicitly talk about the margins on specific individual deals. But rest assured that this is accretive to our P&L and adds shareholder value to us.
Richard Eastman -- Robert W Baird -- Analyst
Yes. And was that a competitive advantage against some of the device management software? And was there a competitive advantage in the bidding process for that contract that goes beyond just the hardware mobile computing product?
Anders Gustafsson -- Chief Executive Officer and a director
Yes. I think that USPS and, I would say, virtually all our customers are looking at the overall offer, and software is playing a bigger part of that, as a differentiator and something that they can leverage to minimize the cost for implementing, maintaining and supporting the fleet after it has been deployed.
Richard Eastman -- Robert W Baird -- Analyst
They're good.
Anders Gustafsson -- Chief Executive Officer and a director
Okay. Thank you.
Operator
And our next question will come from Jeff Kessler of Imperial Capital. Please go ahead.
Jeff Kessler -- Imperial Capital -- Analyst
Thank you. First question is about -- on your, I guess, on your fourth quarter and year-beginning call, you talked the -- you talked about how your consultative process had begun to grow to about -- recall about 8% or so of revenues were generated by deals that were actually negotiated almost entirely at the C-suite level. And I'm wondering if you could give us an update on the ability -- on what you've done over the course of the year in basically getting -- in basically getting a top down on the best type of contract because of -- just because of a longer-lived relationship that seems to be developing.
Anders Gustafsson -- Chief Executive Officer and a director
Yes. I don't necessarily remember the specific numbers you were quoting there. But we do have a lot of excellent relationships with the executives of many of our customers. And I think that goes back to our ability to help them solve their biggest issues, their priorities. We can help them implement their strategies much more, so they see us a much more valuable partner and, therefore, want to understand what we have to offer and how we can work together over a longer period of time, not just over delivering a specific project set. So our vision, our solution's ability to help our customers deliver on their priorities are great drivers for establishing more executive-level relationships.
Joachim Heel -- Senior Vice President of Global Sales
I would add 2 things. This is Joe Heel. Over the last two years, large deals, deals that are over $1 million have been the fastest-growing segment of our business overall. And those deals generally require that we have relationships at all levels of the organization, including at the senior levels. And so we've been developing both our sales force, our partner relationships and our relationships with our customers in such a way that they can support us winning those types of deals.
And we think we've been somewhat successful in that. The other piece that's played into that is that many of the newer solutions that we've spoken about and that Anders has mentioned earlier, things likes SmartLens or SmartPack, those are solutions aimed at solving a particular business problem. And those are generally business problems that are at the center of our customers' strategies and, therefore, have the attention of senior decision-makers in those companies. And they help us in order to build those relationships, but also to address those needs and then be successful with those types of sales.
Jeff Kessler -- Imperial Capital -- Analyst
Okay. My follow-up is when we're looking at some of the newer, smaller, faster-growing businesses, some -- obviously healthcare comes to mind and certain areas of the T&L, certain specialty areas of the T&L area. Can you talk about where gross margins had been? And where they are now relative to the rest of the company? Are they at company level yet? Or is this the type of thing where we're going to see -- hopefully, going to see improvement going that reaches or perhaps exceeds the average GM of the company?
Olivier Leonetti -- Chief Financial Officer
So Jeff, a few things. One, those new solutions, despite being expanding, are growing at a much higher rate than the company average, so faster growth. And the gross margin profile of those new solutions is higher than the company average because of, as Anders and also Joe mentioned, because of the value we're providing, the economics for both parties, our customers and ourselves, are better.
Jeff Kessler -- Imperial Capital -- Analyst
Thank you very much. I appreciate it.
Operator
Our next question will come from Andrew Buscaglia of Berenberg. please go ahead.
Andrew Buscaglia -- Berenberg -- Analyst
Hey guys Can you talk a bit about the -- your initiative to drive sales from the supplies market? Has that helped your margins this quarter? And generally, with the USPS contract, as you deliver more sales related to ancillary products, should that help your margins longer term?
Anders Gustafsson -- Chief Executive Officer and a director
So you asked about supplies and USPS, I think? So first on supplies, that's one of our adjacent markets that we put a fair bit of effort behind to make sure we can drive attractive growth. It's been growing nicely over the last several years, and we're focusing both on adding new capabilities, new differentiation that are more in line with our Enterprise Asset Intelligence vision. I would highlight then we have in sourced the capability of supplying RFID tags, so smart tags, as well as our Temptime labels, which can indicate exposure to temperature over -- either short or longer period of times.
From a margin perspective, the overall margin profile of our supplies business is a little lower than our corporate average, but not much. And we're obviously working hard to make sure that we improve both the growth rate and the margin rate for that. For USPS, it's a complete contract and includes accessories and other products. I'm not really in a position to comment specifically on the margin profile of the different subcomponents of the contract. But again, it's accretive to our bottom line and should drive attractive shareholder value returns.
Andrew Buscaglia -- Berenberg -- Analyst
Okay. And then related to -- with that USPS contract, you said it was the biggest one in your history, I believe. Are there other deals out there like this that you see as potentially moving forward over the next 12 to 18 months?
Anders Gustafsson -- Chief Executive Officer and a director
So that said, there's a -- not a lot of contracts are in one signed contract gets to be this large, but we have a lot of customers that have very large installed bases, but they tend to buy more over time versus having one contract. So there's a number of customers that have substantial installed bases that are in the same ballpark as USPS.
Andrew Buscaglia -- Berenberg -- Analyst
Okay, thank you.
Operator
Our next question will come from Jason Rodgers of Great Lakes Review. Please go ahead.
Jason Rodgers -- Great Lakes Review -- Analyst
Yes. Just wanted to ask about the share repurchase. What level you have implied in your 4Q guidance? And was that at the bottom of your range or very close to the bottom? What are your thoughts to accelerating share repurchase to help offset the tariff impact in the first half of next year?
Olivier Leonetti -- Chief Financial Officer
So Jason, we are not assuming buyback -- the impact of buyback in our EPS range. The reason for this is we believe it's the best way to really describe the operational performance of the company. Having said that, we expect to be in the marketing Q4 to our buyback program and our level of participation will depend on stock price levels. But again, no buyback impact in the EPS guide.
Jason Rodgers -- Great Lakes Review -- Analyst
Okay, thank you.
Operator
And our next question will come from Paul Coster of JPMorgan. please go ahead.
Paul Coster -- JP Morgan -- Analyst
Just want to look at the Windows to Android upgrade cycle. Where it stands? How the competitive landscape has changed, if at all, this year? And what the duration of that upgrade cycle remains to be in your opinion?
Anders Gustafsson -- Chief Executive Officer and a director
Oh, yeah, thanks for taking my second question. Yes. First, our mobile computing business continues to perform very well. We had a strong quarter in Q3, and that was on top of an exceptional quarter last year. We had several drivers that are supporting that growth. The number of new use cases continues to expand. I'll tell you our software capabilities is a great driver for this. We also seeing the consolidation of multiple devices or applications on top of our devices. Workforce Connect is a good example of that where we -- our employees used to carry a mobile computer and a PBX wireless phone. That's now been consolidated into one device, one Zebra device where the voice -- running a voice app. The trend of having a device for every worker is also a big driver.
We've seen lots of our customers want to make sure that as many of their workers are connected as they can. And today, we estimate about 1/3 of eligible employees do have a device. So we see great opportunity to continue to drive penetration deeper into our customer accounts. Specific to the Android transition, that continues to be a great catalyst for us. We -- there's -- we still estimate about 10 million legacy Windows devices in the market, and we continue to also still enjoy over 60% market share of enterprise -- Android in the enterprise. The tail side of those 10 million devices, legacy Windows devices being upgraded or refreshed to Android will probably be longer than what we had originally expected.
So the Windows devices go out of support in 2020, but we do expect that there will be certain market or use cases or customers that will continue to leverage Windows devices as there's still a fair bit of Windows devices being sold into the market. But the software capabilities of our Android portfolio is one of the drivers for switching people over. And the momentum we have in the warehouse, that's a big opportunity. That's kind of started more recently. We launched the MC33 and the MC93 products in the last year, and they are specifically kind of aiming at the warehouse space. So we expect that the Android transition will continue to be a driver for several years to come.
Paul Coster -- JP Morgan -- Analyst
Okay, thank you.
Operator
This concludes our question-and-answer session. I would like to turn the conference back over to Mr. Gustafsson for any closing remarks. Please go ahead.
Anders Gustafsson -- Chief Executive Officer and a director
Yes. As we wrap up, I want to thank the Zebra team and for our partners for delivering another quarter of strong, profitable growth. I also want to acknowledge that this week, we celebrate the fifth anniversary of the highly successful enterprise acquisition. Our team has transformed our organization and the industry, and we have a tremendous opportunity ahead of us. I appreciate everyone's dedication as we continue our journey. Have a great day, everyone.
Operator
[Operator Closing Remarks]
Duration: 54 minutes
Call participants:
Michael Steele -- Vice President of Investor Relations
Anders Gustafsson -- Chief Executive Officer and a director
Olivier Leonetti -- Chief Financial Officer
Joachim Heel -- Senior Vice President of Global Sales
Jim Ricchiuti -- Needham And Company -- Analyst
James Faucette -- Morgan Stanley -- Analyst
Brian Drab -- William Blair -- Analyst
Paul Coster -- JPMorgan -- Analyst
Keith Housum -- Northcoast Research -- Analyst
Richard Eastman -- Robert W Baird -- Analyst
Jeff Kessler -- Imperial Capital -- Analyst
Andrew Buscaglia -- Berenberg -- Analyst
Jason Rodgers -- Great Lakes Review -- Analyst
Paul Coster -- JP Morgan -- Analyst
