Q3 2019 Earnings Call
Good day and welcome to the Q3 2019 Zebra Technologies earnings Conference call. All participants will be in listen only mode. So you need assistance. Please signal conference specialist by pressing the star key followed by zero. After today's presentation, there would be an opportunity to actually questions. Please note. This you've been is being recorded our knowledge.
To turn the conference over to Mike still 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 Exchange Commission.
During this call will make reference to non-GAAP financial measures as we described 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 the 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.
And this will conclude with progress made on zippers enterprise asset intelligence vision.
Following their 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 a references to sales growth our year over year on a constant currency basis and it's good results from recently acquired profit tact Xplore technologies and sometimes businesses.
This presentation was being simulcast on our website and investors that Super Dot com and will be archived there for at least one year.
Now I'll turn the call over to Anderson.
Thank you Mike.
Good morning, everyone and thank you for joining us.
Our team executed well and drove profitable growth in the third quarter.
Yes, 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.
Adjusted EBITDA margin of 22.7%.
160 basis points 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 stopped 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 poor 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, that's we realized higher support and repair attach rates.
Our if I'd location solutions and see about 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 the actions we have taken is expected to to substantially mitigate the recently enacted section three UAN leased for tariffs by mid 2020.
Overall, we are pleased that our value proposition and industry, leading portfolio products and solutions.
He is resonating with customers worldwide.
Our team is winning business with a broad range of leading enterprises.
Routing our largest win in see bras history with the U.S. Postal service, which we announced this morning.
We have solid momentum in our business. That's we finished the year and enter 2020 .
With that I will now turn to called over to Libbey up to review, our Q3 financial results and discuss our Q4 outlook and the initiative to diversify our product sourcing footprint.
Think drawn down let the stopped was the kidnapped.
As you can see on slide six net sales grew 3.5% into third quarter.
Which translate it to treat the send an inorganic basis before the impacts of currencies and acquisitions.
We saw growth in each of our reporting segments.
Entre price that visibility in mobility segment sales increased 2.7% led by growth in mobile computing and support services.
I said entity Jensen tracking segment sales increased 3.5% with growth in Queen Kink, seven seas location solutions and Zebra recap solutions.
Turning to our regions in North America satellite grew 6%, primarily driven by strength in mobile computing Savvis season have if I'd.
We sold but you could us ranking NASCAR weekend and transportation and logistics.
Yes, that's increased 2%, we sort of teach strength in data capture printing and services.
We saw growth across most countries.
We can and transportation and logistics were particularly strong and we saw continued traction you know if I'd.
Sadly in our Asia Pacific region declined 5% I'm paddle lead you to macro softness in China.
Latinos costs have declined 2% due to your logic all does in Mexico.
I just that gross margin expanded 130 basis point from the prior year period.
Multi driven by go to market discipline cost efficiencies and fiberboard be snack mix off which was partially upset by 20 basis point net impact from released four types.
Consistent with one of our key operating principles, we drove operating leverage while continuing to make prudent investments in our gross initiatives.
As a result, adjusted operating expenses I suppose sent that's something that's has improved 70 basis <unk> basis points from the probably yet.
That's quarter 2019, I just had to be done marching was 22.7% a 160 basis point increase from to probably your payout.
We drove non-GAAP earnings per diluted share of tweedle, <unk> and 43 cents, a 19% yell, but yet increase which includes.
We send bps impact from at least four topics.
Turning now to what about on she didn't catch for highlights on slide seven.
We generated we had good and $76 million <unk> free cash flow into first nine months off 2019.
This was $56 million lower than the prior yet.
Entirely due to the increased working capital usage into first quarter, which we previously discussed.
Free cash flow generation into second quarter in the second and set quotas, what how are Ya benda, probably a pair yet and we expect strong finish to the yet.
Oh, Wow 1.6 times net debt to adjusted EBITDA ratio is near the bottom of our target French off 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 we lower our cost of borrowing by approximately 25 basis points.
The lower pricing becomes effective in late October .
These actions.
Along with an expanded your p. and accounts receivable factoring program positions us for low while overhaul cost of that.
[noise] entry tweet repurchased $20 million of shares under our 1 billion dollar share repurchase authorization.
Oh, it's strong balance sheet and free cash flow profile provides us the flexibility to maintain all debt leverage target trench, 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 all products from China.
On slide eight we provide a detailed update on DM backed off is to see bra from the section to your one topics.
On products important to do this.
As previously mentioned Zebra, Spain, <unk>, 25% toffee or at least one to treat which includes set that's kind of components and accessories.
We have substantially mitigated these types to accomplish enough supply chain moves and pricing adjustments.
Stopping need yeah. We begin we began executing on an initiative to do that she find all will grow by sourcing footprint to mitigate these four types that we announced in August which impacts mobile computers and printers.
We're working with our contract manufacturing partners to hit pretty Kate public sometimes you know the to move most Oh, you asked the volumes to broader Asia.
These actions are expected to reserved it up to that cheat and you didn't all of those off one time tax charges to meet 2020 .
Last between $10 million to $15 million of capital expenditures.
With these supply chain actions, along with more that's the price adjustments and not since September we expect to substantially mitigate needs for top meets bomb Bgs 2020 .
In the fourth quarter, we expect these studies to negatively impact gross profit by $5 million to $10 million.
The impact is expected to be into first quarter I'd between 15 and $25 million I should we realized.
A food cost off and back end should moderate to.
Meet 2020 as we launch I Tonight, So systems Chicago.
I'd, we take and no action, we would face greater than $100 million of annualized talky duties.
That's that's down to our outlook on slide nine.
Let's set across each true for 2019 is expected to be between four and 6%, which he is on top off an 11% no nominal growth in the prior year period.
This outlook assumes an approximately 1% touch point positive impact from recent acquisitions and then approximately one that's such a best in touch point negative impact from foreign currency changes.
We believe it Q4 2019, adjusted EBITDA margin would be between 22, and 23%, which assumes operating expense leverage and the lower gross margin entirely attributable to a $5 million to $10 million I expect that net gross margin.
Impact from at least four types.
non-GAAP diluted the P. S is expected to be the Renshaw Tweedy, <unk> and 55 cents to treat <unk> and 75 cents.
Do you estimate it may get cheaper net Heath impact is between eight and 15 cents.
And we are assuming a negligible impact from share repurchases that said, we would be opportunistic with our share repurchase program.
We continue to expect that full yet when she 19 free cash flow will exceed $625 million.
You can see our full year 2019 modeling assumptions on slide nine.
With that I, we tend to court back to on this to discuss the progress we're making on our enterprise asset intelligence vision.
Thank you Olivia.
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 digitized then operations.
Technology Mega trends, including mobility automation cloud computing and industrial Internet of things are enabling us to drive new use cases and transformed to work for most of our customers.
We serve a wide range of vertical markets, including retail and e-commerce .
Transportation and logistics.
And you're factoring.
In health care.
Well, it's other attractive markets that diversify our growth opportunities.
Retail continues to be a vibrant worked at the end market. According to third party research firm IDH L. group.
There's 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 Etailers.
Recently, a major U.S. grocers selected see brought to roll out 39000, all parties, if if the to mobile computers over the next two years.
Store managers Department heads and associates, we do to utilize them too for multiple in store applications, including customer service inventory management out of stocks Planogram compliance backdoor, receiving and store audits.
Another solution that is any of the retailers to drive a higher level of inventory accuracy is RF I'd, which we have been deploying to improve our customers omni channel capabilities.
In the transportation and logistics space, we are seeing particularly strong demand for our solutions.
For most I see an operational decision makers.
Neighbor recruitment and productivity or top challenges in the increasingly on demand economy.
With innovative solutions to drive increased productivity and efficiencies see Brett 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 deployed 300000, Tc seven to seven 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.
The 80% of manufacturers plans 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 three leading North America dairy manufacturers recently chose see breast new Tc seven to seven mobile computers, and the Q Fivetwenty mobile printers to enhance their direct store delivery workflows.
The global Health care system is facing significant challenges, including staff shortages rising costs and life threatening medical errors.
Healthcare providers are turning to see breast technology to improve patient safety increased staff workflow efficiency and comply with new regulations.
We were recently awarded our largest European order of health care purpose piece, if if the two mobile computers.
This health care facility handles blood donations across more than seven to five centers.
We enabled 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 the solutions provider.
You bet is uniquely positioned to deliver enterprise asset intelligence, which is our ambition to enable every frontline acid and worker to be visible connected and optimally utilized.
We pursue this vision by advancing our capabilities in the sense and life Act the framework.
Our product and solutions sensor 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.
Savannah, our data intelligence platform connects our devices empowers our intelligent edge solutions.
Savannah benefits, our partners and customers by providing visibility a workflows and giving perishable frontline data at home. So it can be leveraged buyout machine learning and artificial intelligence to generate new insights that drive business performance.
As we have discussed our acquisitions are advancing this vision, including 10 times temperature intelligence solutions and explores ultra rugged tablets.
Additionally, profit, Texas prescriptive analytics solution complements a growing suite the other cebra software applications, including workforce connect motion works and obviously, but at the eye to 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, it's an exciting emerging sensing technology that enables the automatic extraction and understanding of useful information from a digital image or video.
Steve I currently utilizes aspects of computer vision in new offerings, such as smart back.
However, we see substantial opportunities that are not yet sufficiently addressed in the marketplace.
Because of this we are investing inexperienced engineering talent with the skill set and capabilities to address emerging computer vision use cases in there I guess vertical markets.
For example in retail computer vision softer and tools can be used to assess inventory levels support shelf scanning monitor checkout activity and enable friction less checkout.
Artificial intelligence and machine learning or critical to building out our analytical tools and capabilities.
Our acquisition of profit text and their talented team experience, our relevancy deeper and wider in retail.
And overtime, we will expect to leverage their capabilities to address additional vertical markets.
We also intend to incorporate profit takes functionality into Savannah.
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 ambition.
Unlike repetitive automation.
Intelligent automation Leverages, our sense analyze act framework to improve workflow efficiency with or without the 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 Cebra 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.
That's a thought leader see price 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 and industry advanced 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. The Q1 day, we ask that you limit yourself to one question on one follow up so that we can get to as many of you as possible.
We will now begin the question and answer session to actually question you May Press Star then one on your Touchtone phone.
We're using a speakerphone please pick up your handset before passing the keys to withdraw your question. Please press Star then to at this time, well pause momentarily to assemble roster.
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 a perhaps reflects a larger than normal contribution from a large projects.
Our our expectation for Q4 is that we will have a fairly normal distribution of large.
Large deals are certainly don't expect there to be a higher proportion of larger deals to normal.
Okay. That's helpful I and I you cited a couple of times the strength in our outside the 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 RF side D. and just your general view of that market.
Thank you.
Yes, our interface, enabling our customers to gain a real time visibility into their supply chains, and we're seeing an acceleration of growth growth in order for the due to now being able to lower the cost of implementation, having an improved level of accuracy and enhanced soft.
Capabilities for four or if any generally companies are also much more eager to innovate around their supply chains. So that's all driving as stronger adoption for four or five deep and we've invested in both the product and the go to market sides to be have a strengthen our goal.
To market capable to have greater reach more more skill sets in that area and.
We're seeing strong double digit growth in our portfolio, which includes now strong performer pro forma smart fixed readers, but also a handheld reserves as well this industrial and mobile printers.
We.
Also have the our location solutions activities, we didn't know LS, we talked without us being up nicely in Q3.
And some other newer solutions like smartly, instead leverage or if I need to be able to.
Always be able to two cents inventory in a retail store as an example, so but overall our for these solutions are are.
Getting much more traction the interest from our customers and we participating nicely that growth.
Hey, one quick one was that you P.S. contract that you announced congrats on that by the way, where you can comment or was that a competitive win.
So the the contact list with U.S.P.S.
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 you have Eric on for James Thanks for taking my question, maybe just quick during the quarter you. It released a couple press releases on wins in the public safety market is that becoming an interesting and market for you to focus on maybe anything we should be thinking about there.
Yep.
I'll start and then not ask Joe heel to.
Some extra color, but yes, we think the public safety market and.
First net that's an example are to be good.
Incremental growth opportunities for US you know 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's a good opportunity to introduce our type of solutions in in that market and as you've seen we've had a.
You press releases, where we've been able to to secure wins for our explore tablets and mobile computer some printers. So.
So we see that I served as an attractive new growth market for us.
Yes, I would that excuse me that.
We've invested in resources dedicated specifically to serving the.
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 explore acquisition has brought to us some of those resources because explore 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 TNL, how much of an impactors newer solutions like smartpak, having on that.
So first a I'd say, our our value propositions are resonating across all our our vertical markets and all our vertical markets are up year to date. So we see good growth across all of them.
Number of of the challenge just that customers are seeing around the having to drive increased workflow efficiencies in tight labor markets being able to provide real time guidance to the frontline over their business and enhancing customer and patient experiences.
Although those our solutions here are much more foundational to.
US being able to help our customers execute on their strategies.
Specific usually two to TNL you know Q3 was a particularly strong quarter for 14, oclaros rough double digits strong double digits.
We've seen very.
Healthy secular trends that are helping to drive our growth.
But I did do every labor shortages.
Commerce overall, we did the via sheer volume of deliveries are a great.
Drivers.
And the TNL industry, they're introducing lot of automation technology to help address these challenges and I'd say, we are uniquely positioned to help them with these needs.
You know the warehouse transition to two Android is.
Great and driver also in the Tino space as they have lots of warehouses obviously.
And I'd say the last year, we've we've actually want a number a very attractive postal contracts with the U.S.P.S. being.
The most recent one.
Are you asked asked about some of our other solutions. So I'd say, our intelligent edge solutions like Smartpak indication solution or a study where both they're all.
Helping to demonstrate our thought leadership in the industry and office 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 question.
The first time I'm, just looking at the tariffs and the guidance that you gave for the.
First quarter, and then 2020 <unk> and my thinking about this correctly question to that simple math and if you have a 20 million impacting the first quarter.
That we're going to see maybe a 170 or 200 basis point impact on gross margin and.
Maybe around a 25 or 30 cents keep yes impact I don't know Olivier if you could help put a finer point on that impact.
That's correct Brian Your your mind your math is correct at the midpoint 20 million would be a good estimate.
Okay. Okay. Thanks, and then.
Just on the U.S.P.S. project congratulations on that.
And you know over what time period do you think that.
It was 300000 would be deployed.
Yeah first we're very pleased and proud of all the the trust that the U.S. PSS placed on us to be that partner on this project.
This party augment our relationship with them they would help us gas was already customer of other products and solutions from from Zebra.
Yeah. This is a multi year contract.
It's the largest in our history. So we're obviously very pleased with that.
The solution involves us rolling out 300000, TC 77 mobile computers are also the full suite of our mobility DNA software tools.
Other more customized software solutions, that's why less managed and professional services the.
And the this is a multi year content per se. So we would expect deliveries to start ramping up into first half of next year and go on for a for a couple of years few years.
Okay. Thanks, a lot.
The next question will come from Paul coaster of JP Morgan. Please go ahead.
Yeah. Thanks for taking my questions I'd like to so it's like Brian's question, a little bit further on the tariff mitigation and it looks to me like to your intention is to slowly one down the impacts over the course of 2020 would it be fair to say that we've got something like $50 million hits the gross.
Margins over the course of year and that by the fourth quarter when you're lapping the effects of this quarter's action it will have no.
Here on the degradation in gross margins.
Good good morning, Port actually we believe that we we laugh mitigated substantially de impact aftahi by mid year next yeah.
So as we discussed or we would more than 15 to 25 and pack in Q1 D impacting Q2 would be lower and pretty much in metro <unk> in the second half of the.
Israel since the the cost structure, but you've achieved in reconfiguring the supply chain will be.
Equal to or better than that which you originally had in China tariffs and saw it.
On in aggregate he would be about the same cost structure.
Okay. Thank you.
And then next question will come from Keith how some of Northcoast research. Please go ahead.
Pardon me Mr. Howsam.
Sorry, I've had a good morning, guys in terms of understanding growth in the quarter guilt must understand how much of that growth came from some of your it more tangential products that you're talking about growing the proper folio, how much of that kind of moved from at the newer products or the non core products.
Well first lets say I think we executed very well in the third quarter, we had no 3% growth, but that was on top of 15% growth into in there.
Q3 2018 timeframe.
We did see solid performance or you know in North America, and EEMEA, which was partially offset by a softer spending environment in China, which really attributed to the entire.
The shortfall.
We did see particular strength in our mobile computing portfolio and services.
And from a virtual perspective health care TNL were very strong, but all verticals are up year to date.
And the the.
Our our newer solutions to their smaller first off a smaller base, but they are growing quite nicely. Overall. So we were quite pleased with how we are progressing with the with the.
Without intelligent edge solutions set.
Got it as a follow up you know the moving the supply chain outside of China can you help us understand the I guess lead experience you guys haven't done this with your a contract manufacturers and should we can lekas be concerned at all with the risk that might be associated with any issues that may pop up that may either resulting <unk>.
Total costs are proud installation the supply chain.
So we have a long relationships with with the these partners. That's it's a handful of companies that we have worked with to a simple our printers mobile computers in China, So far and we especially staying with the same partners moving to other locations in southeast Asia. The.
Yes, we are obviously focusing very much coming on board speed and it makes you making sure. We can continue to have excellent quality, we're doing a number of things to minimize the risk of any disruption sites. We are we're not changing to the supply save almost thinks we are just shakes change can be summed it locations and we have a lot of experienced.
Managers from from these companies that we will augment without own team to the to ramp up. These facilities. So we think that this is a very doable then compared to when we've outsourced our supply chain.
For printers back in 2010 timeframe this will be up.
Somewhat less complex undertaking and Keith to two additional points if I may fast the countries, where we're going to go on not Greenfield countries. That's point number one and funded the two when duplicating lines, meaning we could always at any time keep supplying to U.S. market from all our plan C.
In China if needed.
Great. Thank you.
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 the delta between turf cause and and supply chain mitigation efforts.
Just a thought maybe around one price or you know any price increases become effective and then is there a a price contribution is it a point or two that that plays into the fourth quarter revenue guide.
So the.
You know I've done by far the main aspect of our tariff mitigation strategy is to.
Moving the supply chains out of China to avoid tariffs overall.
We have announced some modest price increases.
But the the vast majority of the of the leaves the savings and effort goes into the moving off the lines.
We.
Yeah, 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 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.
Okay, and there's a as a component of the fourth quarter revenue guide is it is it as much as a point or is it just any.
Order magnitude there.
It would be Metro why then that trick okay. Okay.
And then just a just a question around the U.S postal contract.
Given the accessories in that and the device management software in the support there.
You said it other mobile computing sales or put it this way other other gross margins on that a contract going to be.
Similar to what we're currently delivering.
In the M.
[noise], but obviously the U.S. gas contract was a competitive process and we had to compete on both off offering the best overall value to our customers, which include a superior product, but also a competitive price so I'd be.
We.
But we're not.
Able to too expensive you talked about the margins on specific individual deals, but rest assured that this is accretive accretive to our PNM and should add shareholder value to to us.
And it was was that a competitive advantage against some of the a device management software and.
Was there a competitive advantage in the bidding process.
For the four that contract you know that goes beyond just the hardware mobile computing front it.
Yes, I think that ill.
Sps and I would say.
Virtually all all our customers are looking at the overall offer and softer staying in a bigger part of that this a differentiator and something that they can leverage to minimize the cost for you can implement things maintaining and supporting defeat after the spin deployed.
Good okay. Thank you.
[noise] 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 fourth quarter and you're beginning call you talked about the.
You talked about how you're cancel your consultation of.
Your consultation process.
Had begun to.
Begun to grow to about.
Quote about 8% or so.
Revenues for generated by by deals that were actually negotiated.
Almost entirely at the C suite level and I'm wondering if you could give us an an update on on the ability on your on what you've done over the course of the year in basically getting in basically getting a a top down a top down omni bust type of contract.
Because of just because of a longer longer lived relationship that seems to be developing.
Yeah, I don't necessarily remember the these specific numbers, you're quoting there but I.
We do have a.
Lot of excellent relationships with executives of many of our customers I think that goes back to you know our ability to help then solve their biggest issue. So their priorities now we can help them implement their strategy is much more so they see us a much more valuable partner and therefore.
And what we have to offer and how we can work together over over longer period of time, not just over double it didnt delivering a specific.
Project say, so our our vision.
Our solutions ability to help our customers deliberate on their priorities are a great drivers for for establishing what executive level relationships.
I would I would add two things. This is Joe heel over the last few years large deals deals that are over a million dollars 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.
Salesforce, our partner relationships and our relationships with our customers and touch away that they can support us winning those types of deals and we think we've been somewhat successful in that.
The other piece Thats played into that is that many of the newer solutions that we've spoken about and that enters just mentioned earlier things like smart lens are smartpak. Those are solutions aimed at solving a particular business problem and those are generally business problems. The dart the center of our customer strategies, and therefore have the attention of senior.
Our 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 and with those types of sales.
My follow up is.
If and when we're looking at some of the.
Some of the newer smaller faster growing businesses.
Some of the C. healthcare comes to mind and certain areas of the TNL certain specialty areas of the TNL area can you talk about.
Can you talk about where gross margins had been where they are now relative to the rest of the company are they at our they add company level, yet or is this the type of thing where we're going to see hopefully hopefully going to see an improvement going that that reaches or perhaps exceed yes.
Gee GM of the company.
So Jeff few things one those new solutions despite being.
Expanding our green not a much higher grade rate than the company I've read show Foster growth.
And the gross margin profile of the US New solutions these higher than the company average because as a on das and also Joe mentioned because of the value we're providing.
Do you could it makes for both parties, our customers and outside of some better.
Okay great.
Thank you very much I appreciate it.
Our next question will come from Andrew Buscaglia of Berenberg. Please go ahead.
Hey, guys.
Can you talk a bit about the you're so you're initiative to drive sales from the supplies market.
That has that helped your margins this quarter and and generally with the U.S.P.S. contract as we deliver more.
More sales related to ancillary products should that help your margins longer term.
So.
You asked about supplies and U.S., yes, I think so first on supplies that's up.
One of our.
Adjacent markets that we put the favorable effort behind it to make sure. We can we can drive attractive growth.
It's been growing nicely over the last several years, some we've we've refocused and both on.
Adding new capabilities new.
Differentiation that are more in line without enterprise asset Intelligence Division I would highlight than we've in sourced the capability all the.
Supplying autophagy tags, so smart tags as well as our attempt time.
Labels, which Michigan indicate.
Exposure to temperature over either short or longer periods of times.
From a margin perspective, you know the the overall margin portfolio the profile of our supplies business is a little lower than our corporate average, but not much and we obviously working hard to make sure that we improve of both the growth rate and the margin rate for that.
For for U.S.P.S. Yeah.
It's a complete contract and that includes accessories and other products.
Not really in a position to comment specifically on the margin profile of the different sub components of the contract, but you know again.
It's it's accretive to our bottom line and should drive attractive shareholder value returns.
Okay, and then I'm really you know with that.
He has contract it instead of the biggest one your history I believe.
Are there other deals out there like this that you you know you see it potentially moving forward over next 12 to 18 month.
So I said there there's.
Yeah.
Not a lot of contracts that are in 111 signed contract gets to be this large but we have a lot of customers that have very large installed basis, but they tend to.
By more overtime versus having one no one contract. So there's a number of customers that have substantially installed bases that are in the same ballpark S.U.S. guess.
Okay. Thank you.
Our next question will come from Jason Rodgers of Great Lakes Review. Please go ahead.
Yes, that's what it asks about the share repurchase what level you have implied in your Fourq, you guided and with that 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're not assuming a buyback or the impact of buyback in our E. P. S. French the reason for days, we believe it's the best way.
To really described the operational performance of the company, having said that.
We expect to be in the market in Q4, two our buyback program and our level of occupation would depend on stock price levels, but again, no buyback impact EPS guide.
Okay. Thank you.
[noise] and our next question will come from Paul coaster of JP Morgan. Please go ahead.
Yeah. Thanks for taking my second question just want to look up the the windows to Android upgrade cycle, where it stands how the competitive landscape.
Has changed if it so this year and some you know what the duration of the upgrade cycle remains to be in your opinion.
Yes first.
Hi, mobile computing business continues to perform very very well, we had a strong core 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 to expand.
I'd say, our software capabilities as a greater driver for this.
We're also seeing.
Consolidation of multiple devices or applications on top of our our devices workforce connect is a good example of that where.
We.
Our employees used to carry a mobile computer and a save PBX wireless phone. That's now been consoles into one one device one zebra device, where the voice.
Running at most 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 the 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 penetration deeper into our customer accounts.
Specific to the Android transition that that continues to be great catalyst for us.
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 the.
They did the tail say all of those 10 million devices legacy windows devices being upgraded to refresh shoe Android will probably be longer than what we had originally expected so be windows devices go out of support in 2020, but we do expect that there will be certain may.
Good to use cases of customers that will continue to to.
Leverage windows device assess there's still a fair bit a windows devices being sold into the market.
But you know the software capabilities of our Android portfolio as one of the drivers for for switching people over and the the.
The momentum we have in the warehouse that's a big opportunity. That's just kind of got started more recently, we launched MC 33, and MC 93 products.
The last year and they are.
Specifically cannot aiming at the at the warehouse space. So we expect that the Android transition will continue to be a driver for 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. at least Austin for any closing remarks. Please go ahead.
As we wrap up I want to think the Cebra team and our partners for delivering another quarter of strong profitable growth.
I also want to acknowledge that this week, we celebrate the fiftyth 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 disconnect.