Good day, and welcome to the Q3 2019 Zebra Technologies Earnings Conference Call. All participants will be in a listen only mode. After today's presentation, there will be an opportunity to ask questions. Please note this event is being recorded. I would now like to turn the conference over to Mike Steele, Vice President of Investor Relations.
Please go ahead, sir.
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 Q3 highlights. Olivier will then provide more detail on the financials, discussing our Q4 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 are year over year on a constant currency basis and exclude results from the recently acquired Profitec, Xplore Technologies and Temptime Businesses. This presentation is being simulcast on our website at investors. Zebra.com and will be archived there for at least 1 year.
Now I'll turn the call over to Anders.
Thank you, Mike. Good morning, everyone, and thank you for joining us. Our team executed well and drove profitable growth in the Q3. As you can see on Slide 4, 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 a soft spending environment in China. However, our diversified business is enabling us to successfully navigate an uneven global macro economy. We continue to extend our lead in enterprise mobile computing through the broadest and deepest portfolio offering. Enterprise workers are utilizing our mobile computers for an increasing number of use cases. We are also benefiting from leading the multi year transition to Android from the Windows operating system.
Services was a bright spot, growing double digits as we realized higher support and repair attach rates. RFID, location solutions and Zebra Retail Solutions also performed particularly well in the quarter. Operational discipline and cost efficiencies enabled us to drive profitable growth without compromising investments in our organic growth and in our employees. Also of note, we confirmed our decision to diversify the sourcing of most of our U. S.
Volumes out of China. This work together with other actions we have taken is expected to substantially mitigate the recently enacted Section 301 List 4 tariffs by mid-twenty 20. Overall, we are pleased that our value proposition and industry leading portfolio of products and solutions is resonating with customers worldwide. Our team is winning business with a broad range of leading enterprises, including our largest win in Zebra's history with the U. S.
Postal Service, which we announced this morning. We have solid momentum in our business as we finish the year 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.
Thank you, Anders. Let us start with the P and L. As you can see on Slide 6, net sales grew 3.5% in the 3rd 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 and Mobility segment sales increased 2.7%, led by growth in Mobile Computing and Support Services.
Asset Intelligence and Tracking segment sales increased 3.5% with growth in printing, services, location solutions and Zebra Retail Solutions. Turning to our regions. In North America, sales grew 6%, primarily driven by strength in mobile computing, services and RFID. We saw particular strength in healthcare, retail and transportation and logistics. EMEA sales increased 2% with relative strength in data capture, printing and services.
We saw growth across most countries. Retail and transportation and logistics were particularly strong and we saw continued traction in RFID. Sales in our Asia Pacific region declined 5% entirely due to macro softness in China. Latin America sales declined 2% due to fewer large orders in Mexico. Adjusted gross margin expanded 130 basis points 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 a 20 basis point net impact from List 4 tariffs.
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. 3rd 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 7.
We generated $376,000,000 of free cash flow in the 1st 9 months of 2019. This was $36,000,000 lower than the prior year period, entirely due to the increased working capital usage in the Q1, which we previously discussed. Free cash flow generation in the 2nd and third quarters was higher than the prior year period, and we expect a strong finish to the year. Our 1.6 times net debt to adjusted EBITDA ratio is near the bottom of our target range of 1.5 to 2.5 times. 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 20 5 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 $20,000,000 of shares under our $1,000,000,000 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 8, we provide a detailed update on the impact 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 mid year, we began executing on an initiative to diversify our global sourcing footprint to mitigate these 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 $30,000,000 of one time pretax charges through mid-twenty 20, plus between $10,000,000 to $15,000,000 of capital expenditures. With these supply chain actions, along with modest price adjustments announced in September, we expect to substantially mitigate leasehold tariffs by mid year 2020.
In the Q4, we expect these tariffs to negatively impact gross profit by $5,000,000 to $10,000,000 The impact is expected to peak in the Q1 at between $15,000,000 $25,000,000 as we realize a full quarter of impact and should moderate through mid-twenty 20 as we launch alternate sources of supply. Had we taken no action, we would face greater than $100,000,000 of annualized tariff duties. Let us turn to our outlook on Slide 9. Net sales growth in Q4 2019 is expected to be between 4% 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% 23%, which assumes operating expense leverage and a lower gross margin entirely attributable to a $5,000,000 to $10,000,000 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 are 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 $625,000,000 You can see our other full year 2019 modeling assumptions on Slide 9. With that, I will turn the call back to Anders to discuss the progress we are making on our Enterprise Asset Intelligence vision.
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 3rd party research firm IHL Group. There is also significant investment by retailers to improve omni channel 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 2 years. Store managers, department heads and associates will utilize them 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, Seebra can bring their operations to 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 5 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. Healthcare 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 enable the customer to automate the patient journey and benefit from our superior product and software lifecycle 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 at 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 Tempx Temperature Intelligence Solutions and Xplore's ultra rugged tablets.
Additionally, Profitec's prescriptive analytics solution complements a growing suite of other Zebra software applications, including Workforce Connect, MotionWorks and our Visibility IQ 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 a 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 SmartPak.
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 Profitec 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 Profitex 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 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, Seebra 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.
Thank you, Anders. We'll now open the call to Q and A. We ask that you limit yourself to one question and one follow-up so that we can get to as many of you as possible.
We will now begin the question and answer session. And our first question will come from Jim Ricchiuti of Needham and Company. Please go ahead.
Thank you. Good morning. I was wondering if your Q4 guidance reflects perhaps reflects a larger than normal contribution from large projects?
Our expectation for Q4 is that we will have a fairly normal distribution of large deals. We certainly don't expect it to be a higher proportion of larger deals than normal.
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? Thank you.
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 side. So we have strengthened our go to market capability to 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 within our LS. We talked about that as being up nicely in Q3.
And some other newer solutions like smart plans 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.
Thanks. 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?
So the contract was with USPS and we were not the incumbent.
Thank you.
And our next question will come from James Faucette of Morgan Stanley. Please go ahead.
Hi, team. We have Eric on for James. Thanks for taking our question. 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?
Yes. I will 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 $100,000,000 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. 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, but also have added resources in other countries around the world to serve the market. The Xplore acquisition has 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.
Thank you. That's really helpful. And then maybe just on some of the strength you're seeing in P and L. How much of an impact are newer solutions like SmartPak having on that?
So first, I'd say 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 in 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 and L, Q3 was a particularly strong quarter for T and 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 and L industry, they're introducing a 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 and 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 with the USPS being the most recent one. You asked about some of our other solutions. So I would say our intelligent edge solutions like SmartPak, location solution, RFID, wearables, They are all helping to demonstrate our thought leadership in the industry and offer smaller base, they're growing quite nicely.
Great. Thank
you. Our next question will come from Brian Drab of William Blair. Please go ahead.
Good morning. Thanks for taking my questions. First one, I'm just looking at the tariffs and the guidance that you gave for the Q1 and in 2020. Am I thinking about this correctly if I should do the simple math on it, if you have a $20,000,000 impact in the Q1 that we're going to see maybe 100 and 70 basis points 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.
That's correct, Brian. Your math is correct. At the midpoint, dollars 20,000,000 would be a good estimate.
Okay. 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?
Yes. First, we are very pleased and proud of the trust that the USPS has placed in us to be their partner on this project. This project augments our relationship with them. 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 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. And this is a multiyear contract, I'd say. 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.
Okay. Thanks a lot.
The next question will come from Paul Coster of JPMorgan. Please go ahead.
Yes. 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 over the course of 2020. Would it be fair to say that we've got something like a $50,000,000 hit to gross margins over the course of the year?
And that by the Q4, when you're lapping the effects of this quarter's action, it will have no year on year degradation in gross margins?
Good morning, Paul. Actually, we believe that we will have mitigated substantially the impact of tariff by midyear next year. So as we discussed earlier, we would model 15% to 25% impact in Q1. The impact in Q2 will be lower and pretty much immaterial in the second half of the year.
And is 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?
In aggregate, it will be about the same cost structure.
Okay. Thank you.
And the next question will come from Keith Housum of Northcoast Research. Please go ahead. Pardon me, Mr. Housum.
Sorry, I had on mute. Good morning, guys. In terms of understanding growth in the quarter, can you help us understand how much of that growth came from some of your more tangential products? Because you're talking about growing the product portfolio. How much of that is coming from the newer products or the non core products?
Well, first, let's say, I think we executed very well in the Q3. 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, health care, T and L were very strong, but all verticals are up year to date.
And the our newer solutions, they're smaller, offer smaller base, but they are growing quite nicely overall. So we're quite pleased with how we are progressing with our intelligent edge solution set.
Got it. As a follow-up, the moving the supply chain outside of China, can you help us understand, 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?
So we have long relationships with these partners. 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 the same partners moving to other locations in Southeast Asia. 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 disruption.
So it's we are not changing the supply side on most things. We are just 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've outsourced our supply chain for printers back in 2010 time frame, this will be a somewhat less complex undertaking.
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 1. And point number 2, we're duplicating lines, meaning we could always at any time keep supplying the U. S.
Market from our plants in China, if needed.
Our next question will come from Richard Eastman with Robert W. Baird. Please go ahead.
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 Q4 revenue guide?
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 the savings and the effort goes into the moving of the lines. We want to make sure that we compete for the long term and that we will be able to continue 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 mitigation. It is but it is somewhat mitigating the impact, but it's not offsetting the impact.
Okay. And as a component of the 4th quarter revenue guide, is it as much as a point or is it just any order of magnitude there?
It would be much lower than that, Rick.
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?
Obviously, 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 we've 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 and L and should add shareholder value to us.
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?
Yes. I think that USPS and I would say virtually all our customers are looking at the overall offer and software supporting the fleet after it's been deployed.
Very good. Okay. Thank you.
And our next question will come from Jeff Kessler of Imperial Capital. Please go ahead.
Thank you and thank you for taking my question. First question is about on your I guess on your Q4 year beginning call, you talked about the you talked about how your consultative process had begun to grow to about, quote, about 8% or so of revenues regenerated 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 your on what you've done over the course of the year in basically getting a top down omnibus type of contract because of just because of a longer lived relationship that seems to be developing? Yes.
I don't necessarily remember the specific numbers you're quoting there, but we do have a lot of excellent relationships with executives of many of our customers.
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 as 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, say. So our vision, our solutions' ability to help our customers deliver on their priorities are great drivers for establishing more executive level relationships. I would add 2 things.
This is Joe Heel. Over the
last few years, large deals, deals that are over $1,000,000 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 just mentioned earlier, things like Smart Lens or Smart Pack, those are solutions aimed at solving a particular business problem.
And those are generally business problems that are at the center of our customer 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.
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 areas of the T and 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 an improvement going that reaches or perhaps exceeds the average GM of the company?
So Jeff, few things. 1, those new solutions, despite being expanding, are growing at a much higher grade 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 John mentioned, because of the value we're providing, the economics for both parties, our customers and ourselves are better.
Our next question will come from Andrew Buscaglia of Berenberg. Please go ahead.
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?
So you asked about supplies and USPS, I think. So first on supplies, that's one of our adjacent markets that we put a favorite 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 division. I would highlight then we've in sourced the capability of supplying RFID tags, so smart tags as well as our temp time 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.
Okay. And then related 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?
So I'd say there's not a lot of contracts that are in one signed contract gets to be this large, but we have a lot of customers that have very large installed basis, but they tend to buy more over time versus having a one contract. So there's a number of customers that have substantially installed basis that are in the same ballpark as USPS.
Our next question will come from Jason Rodgers of Great Lakes Review. Please go ahead.
Yes. Just wanted to ask about the share repurchase, what level you have implied in your 4Q guidance? And with 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? Thanks.
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 market in Q4 through our buyback program and our level of participation will depend on stock price levels. But again, no buyback impact in the EPS guide.
Okay. Thank you.
And our next question will come from Paul Coster of JPMorgan. Please go ahead.
Yes. Thanks for taking my second question. Just want to look at the Windows to Android upgrade cycle, where it stands, how the competitive upgrade cycle remains to be in your opinion?
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 have several drivers that are supporting that growth. The number of new use cases continues to expand.
I'd say our software capabilities top of our devices. Workforce Connect is a good example of that where we our employees used to carry a mobile computer and a, say, PBX wireless phone. That's now being consolidated into 1 device, 1 Zebra device, where the voice running a voice app. The trend of having a device for every worker is also a big, 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 a third of eligible employees do have a device. So we see great opportunity to continue to drive We still We still estimate about 10,000,000 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, say, of those 10,000,000 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 just kind of got started more recently. We launched MC33 and 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.
Okay. Thank you.
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.
As we wrap up, I want to thank the Zebra team and our partners for delivering another quarter of strong profitable growth. I also want to acknowledge that this week we celebrate the 5th 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.
The conference has now concluded. Thank you for attending today's presentation. You may now