Zebra Technologies - Q3 2013
November 5, 2013
Transcript
Operator (participant)
Good morning. Welcome to the Zebra Technologies 2013 Third Quarter Earnings Release Conference Call. Joining us from Zebra Technologies are Anders Gustafsson, CEO, Mike Smiley, CFO, Mike Terzich, Senior Vice President, Global Sales and Marketing, and Doug Fox, Vice President, Investor Relations. All lines will be in a listen-only mode until after today's presentation. Instructions will be given at the time in order to ask a question. At the request of Zebra Technologies, this conference call is being recorded. Should anyone have any objections, please disconnect at this time. At this time, I would like to introduce Mr. Doug Fox of Zebra Technologies. Sir, you may begin.
Doug Fox (VP of Investor Relations)
Good morning. Thank you for joining us today. Certain statements made on this call will relate to future events or circumstances and therefore will be forward-looking statements within the meaning of the Securities Litigation Reform Act of 1995. Words such as expect, believe, and anticipate are a few examples of words identifying a forward-looking statement. Forward-looking information is subject to various risks and uncertainties, which could significantly affect expected results. Risk factors were noted in the news release we issued this morning and are also described in Zebra's Form 10-K for the year ended December 31st, 2012, which is on file with the SEC. Now, let me turn the call over to Anders Gustafsson for some brief opening remarks.
Anders Gustafsson (CEO)
Thank you, Doug, and good morning, everyone. Today, I am pleased to report that Zebra achieved record third quarter sales of $263 million and earnings of $0.77 per share, excluding $0.01 per share in exit and restructuring costs and acquisition expenses. Sales increased 5% from a year ago and were up $10 million sequentially. Sales increased in all geographic regions, with new records in North America and Asia Pacific. Zebra's results reflect an improvement in business conditions throughout many of our customer verticals and geographies. While weakness continues in certain areas, including Southern Europe and Brazil, our run rate business through distribution partners remained steady throughout the quarter. In addition, our pipeline of large enterprise deals began to improve. Also encouraging was an increase in profitability during the third quarter. Gross margin approached 49%, with an improved product mix over the second quarter of this year.
On a sequential basis, average unit prices increased $20 as manufacturing customers stepped up purchases of high-performance printers. At the same time, we maintained effective management over costs, with recurring operating expenses up only $2 million from a year ago, but down $2 million from the second quarter. With continued effective management over working capital, Zebra generated a solid $41 million in quarterly free cash flow. We also returned almost $30 million to shareholders during the quarter in the form of stock buybacks. Year to date, our stock buybacks have returned $58 million to shareholders. The diversity of our business across geographies, products, and customers continued to yield results in our core business. The positive momentum that we are building positions us well to drive future growth with our long-term strategic investments and sustainable competitive advantages across our entire platform. In North America, shipments increased to manufacturing and retail customers.
We also experienced some return of large enterprise deals. Specifically, our focus on strategic accounts led to higher shipments to two large national retailers during the quarter. Healthcare stood out as an area of particularly high growth, as we increasingly benefit from healthcare organizations investing more in solutions that improve patient safety and our success in developing more effective routes for Zebra products to meet their needs. We are also encouraged with our performance in EMEA. While sales in parts of Southern Europe remained subdued, strong growth in France, Italy, Benelux, and the Nordic countries led to 5% growth in the region. Product shipments were notably strong to customers in retail, transportation, and postal. They include initial shipments of printers to the Italian Post, as well as card printers to the Government of Ghana.
We also began shipping Zebra RFID printer encoders to major European sporting goods retailers who will be using RFID to better manage merchandise throughout their enterprise. In healthcare, we had greater than 80% growth in thermal patient wristbands, driven by the successful rollout of our HC100 wristband printer beyond the U.K. In Latin America, strong card printer shipments, including to Chile for bank credit cards and Mexico for driver's licenses, complemented a steady run rate business. Strength in Mexico and other parts of the region offset some weakness in Brazil, Argentina, and Venezuela. In Asia Pacific, sales exceeded $40 million for the first time. A firm tone of business throughout the quarter in nearly all subregions included increased shipments of high-performance printers to manufacturing customers in China and South Korea.
We also expanded sales to customers in transportation and logistics and healthcare, as well as postal organizations in South Korea and Australia. A category of significant strength during the quarter was our supplies business, which increased in all geographic regions. On an organic basis, consolidated sales growth was 12% to $62 million, a new company record. Shipments of wristbands for patient ID were notably robust. In addition, during the quarter, a large resort in the Bahamas selected our HC100 wristband printer and Z-Band Splash wristbands to improve guest experience by managing access and enabling cashless point-of-sale purchases. We see these value-added features as growing trends in the hospitality and entertainment industries. In labels, our IQ Color labels gained momentum. This innovative material enables the printing of spot color on thermal labels to help retailers improve efficiency in their price markdown activities.
We also had excellent growth in labels and ribbons through our ZipShip program, which carries more than 500 products in stock for immediate shipment. Zebra's third quarter results demonstrate the leverage we have built into Zebra's core business. Our investments are enabling us to drive deeper into manufacturing, retail, transportation, and logistics, while enabling greater reach in attractive under-penetrated industries such as healthcare. Our results show that more companies are turning to Zebra as their strategic partner in helping them identify, track, and manage their critical assets across their supply chains. Now, our CFO, Mike Smiley, will provide a detailed review of third quarter results and guidance for the fourth quarter of 2013. After Mike's remarks, I will return for some brief closing comments.
Mike Smiley (CFO)
Thank you, Anders. Let me highlight some of the key components of Zebra's third quarter results. First, sales increased in all four geographic regions from a year ago. Second, gross margin, while down from peak levels a year ago, increased a full percentage point from the second quarter. Third, operating expenses remained well controlled. Let's take a look at sales. For the quarter, sales increased 4.6% from $252 million last year to a record $263.5 million. Foreign exchange had a positive impact on sales of $1.1 million net of hedges. Sales for North America increased 2.1% from a year ago and were up 4.7% from the second quarter. In the region, growth in supplies and aftermarket parts offset a year-over-year decline in printer sales. In EMEA, growth in multiple printer categories and supplies led to a 4.7% sales increase in a seasonally slower period for the region.
10 out of 13 subregions had year-over-year growth. Latin America registered a slight sales increase of 0.2%. Higher shipments in Mexico and other parts of Latin America were offset by declines in Brazil, Argentina, and Venezuela. Sales growth of 13.8% in Asia Pacific to a record $42 million was broad-based, with nearly every subregion contributing to the improvement. Growth in tabletop and desktop printers was notably strong, with increasing sales to manufacturing customers as well as into retail and healthcare. By product category, hardware sales advanced 2% from a year ago and were up $7.8 million from the second quarter. Hardware sales have now increased sequentially for two consecutive quarters, with record sales of high-performance printers in the third quarter. Supplies maintained a high sales trajectory of 12% for the quarter.
Sales in this category were broad-based to customers in multiple industries, and we view supplies as a continued growth category for Zebra as we look ahead. Revenue from services and software also advanced for the quarter, up 11%. Services, including repair operations and warranty, are another area of focus for Zebra, as investments are expanding these operations worldwide. For the third quarter, gross margin was 48.8%, down from the peak margin of 50.4% a year ago. Product mix and higher freight and overhead costs were offset by lower product costs. Sales and marketing, engineering, and administrative expenses were up 2.5% over a year ago. The 6% growth in sales and marketing relates to increased personnel-related expenses. We had a moderation in growth in engineering expenses, which were up only 1.7% for the quarter.
Quarterly operating income of $46.8 million, plus depreciation and amortization of $7.9 million, totaled $54.7 million of cash earnings, or $1.08 of cash EPS. The effective income tax rate for the third quarter was 18%. The rate reflects the impact of a greater proportion of our income that is generated in regions with lower tax rates. Earnings totaled $0.76 per share, including a reduction of $0.01 per share for acquisition expenses and exit and restructuring costs on 50.9 million average shares outstanding. At the end of the third quarter, we had 50.6 million shares outstanding. For the third quarter, inventories declined $2.5 million from the second quarter. We are now down $27 million from their peak in the fourth quarter of 2011. Net receivables are up approximately $5 million from the second quarter, primarily because of the timing and billing of shipments.
During the quarter, we returned $30 million to shareholders with a buyback of 642,000 shares of Zebra stock at a weighted average price of $46.59 per share. We ended the period with $466 million of cash investments, with approximately half held in foreign accounts, all of which are invested in U.S. dollar-denominated securities. Now, let's look at the fourth quarter forecast. We are forecasting 2013 fourth quarter sales in the range of $263 million-$273 million. Earnings are expected in the range of $0.72-$0.82 per share. Our forecast assumes a consolidated gross margin in the range of 48%-49%. Operating expenses are forecast between $81 million-$83 million. The forecast also assumes an effective income tax rate of 19.5%. That concludes my formal remarks. Thank you for your attention. Now, here's Anders for some concluding comments.
Anders Gustafsson (CEO)
Thank you, Mike. Our third quarter financial results reflect the strength of Zebra's extended industry leadership in an improving business environment. We have consistently leveraged our scale, financial strength, and global presence to build a more formidable company in an attractive industry. Companies worldwide are continually seeking better ways to identify, track, and manage their assets to improve their operations and gain competitive advantage. Zebra is well positioned to assist our customers in gaining greater visibility into their operations and extended supply chains. We will continue to benefit from these important trends by, first, understanding our customers' needs for improving visibility into their operations. Second, innovating around their needs by developing products and solutions that help them meet their business goals. Third, penetrating more deeply the existing markets we serve and to enter new markets with attractive growth opportunities.
And lastly, driving for greater excellence to deliver improved customer service and to optimize our own operational efficiency. Zebra has multiple avenues for further growth in our core business. These opportunities include building on our success with developing stronger relationships with strategic accounts, primarily in North America and Western Europe. In Asia Pacific and other developing territories, we will further diversify our business with customers in retail, healthcare, and government. And worldwide, we will expand into new industries such as sports and entertainment. Product innovation is also a cornerstone of Zebra's long-term success and growth. In supplies, our focus remains on products that offer a clearly differentiated value-added solution, such as LaserBand wristbands. Some, including thermal wristbands printed on Zebra HC100 printers and ribbons from card printing, offer attractive annuity streams as well.
Geographic expansion also holds growth opportunities for our supplies business, which is currently concentrated in North America and Western Europe. Innovation in our printers remains high as well. To date, we have introduced 15 printer-related products. In the fourth quarter, we will be introducing the ZD500R RFID desktop printer. Its compact size makes it ideal for use in retail and healthcare applications in locations where space is limited. It will also be our first RFID printer with Link-OS, our new software platform that makes the printer significantly easier to integrate, operate, and manage from anywhere in the world. Looking ahead, we have a robust product pipeline as we move into 2014. Important technology trends, including the Internet of Things, Big Data, and Cloud Computing, are presenting new areas to Zebra for growth and high investment returns.
These opportunities build on Zebra as a trusted business partner with domain expertise and resources to bring new value-added tools to help our customers gain greater visibility into their operations. Let me now highlight some areas of recent progress. Zebra's history in barcodes and RFID, which are building blocks of the Internet of Things, positions Zebra to help deliver the next generation of visibility solutions. Last week, at the Internet of Things forum in Barcelona, we launched Zatar, an open cloud-based service to connect and control devices, including Zebra printers. Zatar simplifies connecting and managing devices so companies can focus on getting the most out of the data these devices can provide. It is the first user-centered IoT platform that is scalable and makes data easy to share to promote collaboration and efficiency.
Built as a software-as-a-service subscription model, the platform is designed specifically to serve enterprises and the supply chain. Zatar is a natural extension of Zebra's footprint with our enterprise customers. We are now starting to deploy Internet of Things solutions. With Zatar, we expect to be able to expand the portfolio or share a wallet with current and potential customers, facilitate additional business opportunities in existing and adjacent markets, and provide current and new channel partners additional options to bring value to their customer relationships. A recent report by Morgan Stanley predicts that 75 billion devices will be connected to the Internet by the end of this decade. The platform gives enterprise customers the tools to better manage their visible value chains worldwide. Finally, we recently installed the Zebra MotionWorks sports solution at the practice field for the Detroit Lions.
Our proprietary sports software identifies and tracks players on the field in real time with high levels of accuracy. The data and analytics generated by MotionWorks will give the Lions coaches deeper insight into player and team performance. This installation follows the two pilots currently in place with the NFL at Ford Field in Detroit and at Candlestick Park in San Francisco. Our third quarter results clearly demonstrate our ability to create shareholder value, as well as take advantage of our financial strength and scale to build a business for long-term success. Our investments in developing stronger channels and securing tighter engagements with strategic customers are generating positive results. We are driving deeper into targeted verticals where the adoption of solutions incorporating Zebra products is enhancing visibility across company value chains. These investments are helping us to extend our industry leadership and deliver increasing returns.
While pursuing our growth goals, we will continue to manage operating expenses responsibly. We will also direct our resources to those areas that will deliver the highest returns on our investments for the long-term benefit of our shareholders. We are optimistic about Zebra's future. The outlook is bright as we follow a proven strategy to create shareholder value. Zebra, together with our partners, is building a smarter, more connected global business community. Thank you for your attention today. I would now like to turn the call back to Doug for Q&A.
Doug Fox (VP of Investor Relations)
Thank you, Anders. Before we open the call to your questions, let me ask that you limit yourself to one question and one follow-up. In addition, Mike and I will be available after the call for any further discussions.
Operator (participant)
Thank you. We will now begin the question-and-answer session. If you have a question, please press star, then one on your touchtone phone. If you are using a speakerphone, you may need to pick up the handset first before pressing the numbers. Once again, if you have a question, please press star, then one on your touchtone phone. Please wait while the questions register. Greg Halter from Great Lakes Review.
Greg Halter (Equity Analyst)
Yes, good morning.
Mike Smiley (CFO)
Hey, Greg.
Mike Terzich (SVP, Global Sales and Marketing)
Good morning.
Mike Smiley (CFO)
Good morning.
Greg Halter (Equity Analyst)
Hi. Just wanted to ask about the R&D spend. Obviously, so far, as you mentioned, 15 printers platforms, not platforms, but 15 printers so far this year with others coming. The R&D was about flat for this quarter on a year-over-year basis. There could be some timing there. Just wondered if you could characterize what you see on the R&D spend going forward, either dollars or percent of sales.
Mike Smiley (CFO)
Yeah, this is Mike Smiley. I think that one of the things you've got to be careful of is when you do year-over-year comparisons, the spend can be a function of when product is coming to the market because we end up with a lot of certifications and stuff that might expand the spend a little bit in one period versus the other. So there's a little bit of lumpiness in there. As we go forward, our expectation is that R&D, as a percentage of revenue, will moderate a little bit because we expect the top line to grow faster than the engineering spend over time. I think that, as Anders talked about, we've got the Zatar product and we've got the MotionWorks, and we're hoping that will help build our top line at a much faster rate than our R&D.
Anders, I don't know if you want to say anything on that.
Anders Gustafsson (CEO)
Yeah, mate. For us, having a vibrant product portfolio is absolutely critical, like for any technology company. And we do pay a lot of attention to make sure that our investment ratios are in line with what we feel the return will be also. But we believe that the investments we made over the last several years in new product development have been well spent. We've seen the improvements in the business in both driving our reputation as the most innovative premium brand in the market, as well as the market share gains we've been able to drive. So it is an important part of our strategy, but obviously, we're also very sensitive to making sure that we have the right kind of ratios to deliver proper earnings leverage in the P&L.
Greg Halter (Equity Analyst)
All right. One follow-up for you on the new product, the Zatar. I see it's up to 5 devices free and then over $5.99 per month per device on the introductory period. Just wondered how that will work going forward if you've given that consideration and what kind of profitability in terms of margins you expect out of this. I would presume pretty high since it seems to be an app-based software system.
Anders Gustafsson (CEO)
Yeah. First, we're very excited about what Zatar can do. It's an open cloud-based way to help our customers to connect basically any and all devices to all sorts of Internet applications. I think the best analogy for Zatar is probably it's the Facebook for devices. So users, like with Facebook, the Facebook page knows all their critical information. They have the ability to connect to other third-party applications and to other people. The same goes for Zatar as a platform. It basically is the Facebook page for devices, enabling it to connect to all sorts of other applications and devices and creates a much more of a networked world. It is a software-as-a-service, so revenue ramp will be a little less than it would be if we sold it as equipment. But over time, it should provide a steadier business with steady growth and good profitability.
Greg Halter (Equity Analyst)
It does seem like it's an easy product to use, at least based on the descriptions that I'm reading, or at least get started with.
Yeah. The intent is that we've really worked hard on differentiating ourselves to make it easy to use. That is one of the things that we wanted to make sure we could convey and make people feel that this is a product or a solution that you don't have to study the user manual for days, but you will be able to get up and running pretty quickly.
Thank you.
Operator (participant)
Okay. Paul Coster, JPMorgan.
Paul Coster (Analyst)
Yes, thanks for taking my question. Anders, you talked about an improving pipeline in the enterprise space. Can you just give us some color around that? You never have much visibility, but it sounds like it is improving. What's filling that pipeline up?
Anders Gustafsson (CEO)
So in Q3, we were first encouraged by the broad-based strength we saw in the business across all verticals and regions. The macro environment is also getting better, but it's still somewhat choppy. Our pipeline of larger deals has strengthened. It varies a little bit by region, what we see in it. In the U.S., in North America, retail and manufacturing have been probably the two strongest drivers for larger deals. Healthcare has also been a bright spot for us where business was up 61% year-over-year. In Asia, we did see also a strengthening in our large deal pipeline, primarily driven out of manufacturing, I would say.
So China, Korea were two of the stronger areas there where a lot of manufacturing customers appear to be a little less dependent on exports to Europe today and investing now in new expansions to both satisfy new products coming out, but also new volume. And in Europe, I think we had a very steady business. We've had nicely improving trends for all of 2013. Large deals were up, but it was probably more of a broad-based run rate business than characterized by large deals. And Mike Terzich, maybe you want to add something?
Mike Terzich (SVP, Global Sales and Marketing)
Sure. Paul, the other aspect to this, I think, for us has been the pipeline is clearly improving, as Anders noted. I think it's centered right now for us principally in Asia and North America. We're still seeing that choppiness in Latin America and a bit in EMEA. Now, in North America, what we've seen has been an improvement, particularly in retail. I think there's a piece of this that's kind of borne out of necessity, so to speak. I think there is a lot of retail customers have been sitting on the sideline for a long time as they've kind of sorted out what is happening in the retail space with mobility, with credit card adoption and chip and PIN adoption and platform changes. So we're starting to see that lighten up a little bit, the grip on that, and that's fueling some business, as is manufacturing.
Then I think out of Asia, it's pretty much what Anders had said. We're seeing kind of a return to the traditional manufacturing space, which is very good for us because it's a mix of product that is much more stationary than it is mobile.
Paul Coster (Analyst)
Just if you can elaborate a little bit on what's filling up that pipeline. Are they bigger deals? What kind of timeline do you have between the pipeline filling up and the closing out of the pipeline and then subsequent delivery? And then I had another question, which is unrelated. Just what's your latest thoughts on the competitive landscape? We've seen a couple of mergers this year or acquisitions this year, which look like they may be changing the competitive landscape a bit. Thank you.
Mike Terzich (SVP, Global Sales and Marketing)
Very cool. Thanks for clarifying. Okay. As far as the timing of the pipeline, I think it is pretty much reflective in some of the guidance that you see for the fourth quarter. So clearly, from a timing perspective, we're feeling better about what we see. We measure our pipeline in both value and in volume. Those are two intricate pieces of data that we look at very closely on any given quarter. So what we are seeing is more deals, and the value of those deals is increasing in size. What we've been reporting the last couple of calls has been that value and that volume has been a little bit more tepid. I think people had previously been taking some positions where they've been truncating some of these deals and segmenting them into smaller increments.
I think they have a little bit more forward confidence in their business at present, where the value of those opportunities is increasing. So let me turn it back to Anders for some additional comments.
Anders Gustafsson (CEO)
On the competitive landscape, I said I don't think we feel that the competitive landscape has changed materially over the last year or so. We've had many strong competitors for a long time now. In a somewhat tighter economic environment like we have now, I think the competition gets to be a bit more intense. I think we can stand up well to that with our scale and the breadth of our portfolio and relationships. We certainly see tougher times as a good opportunity for us to expand our leadership position in the industry. Our customers are responding well to our messages around how we can help them increase visibility into their supply chain.
They like to do business with leaders, particularly in tough times, with companies that have the financial strength to continue to invest in product development and make sure that their investment is going to be relevant several years from now. If you're referring to Honeywell Intermec merger, we haven't seen that make any changes to our competitive landscape yet.
Paul Coster (Analyst)
All right. Thank you.
Operator (participant)
Okay. Keith Housum, Northcoast Research.
Dominic Archella (Analyst)
Hi, guys. Thanks for taking my call and congratulations on the quarter. This is Dominic Archella for Keith Housum.
Mike Terzich (SVP, Global Sales and Marketing)
Hey, Dominic.
Dominic Archella (Analyst)
Hey. The first question I have for you guys, in terms of the supply business, should we expect that growth going forward? Is that reflected already in the guidance, the growth that we're seeing this quarter?
Anders Gustafsson (CEO)
Yeah. Obviously, the guidance we've given is inclusive of the entire business. But we feel very good about our supplies business. We've executed on basically the same strategy now since 2009, so four years. We had a 12% increase in Q3, which we feel very good about. That's certainly much faster than the market rate for the supplies, market growth rate for the supplies business. It's been a very broad-based strength from the business, but primarily centered around North America, Western Europe, and Mexico. Those are the areas where we have a strong supplies presence. Most of the other parts of the world, we have a very modest presence. But we're focusing very much on making sure we have innovative value-added products that differentiate us from our competition and gives us a chance to generate more of a premium price, premium margin for these products.
We are also investing in making sure that we drive cost reductions in these areas, as this is very much a cost-sensitive business. So we are investing in making sure we can drive down the COGS for our products. Healthcare has been a great vertical market for our supplies business, and the LaserBand acquisition. We're very pleased with how that's been performing for us for the last year. We continue to be very optimistic about this business and see opportunities to both expand geographically as well as expand our portfolio.
Dominic Archella (Analyst)
Okay. Great. Thanks. Yeah. And I guess what I was really asking there was, does the growth going forward, is that going to be consistent with the growth that we've seen this quarter for supplies?
Anders Gustafsson (CEO)
I think we want to limit our future outlook to what we said here for the company as a whole and not start really dissecting that into all the components.
Dominic Archella (Analyst)
Okay. All right. That's fair. And as you look at the lineup of printers, were there any particular segments of the portfolio that outperformed others or any segments that were particularly weaker?
Anders Gustafsson (CEO)
It was strong. Most of our product lines performed well. I would say if there's one to highlight, it would be the high end of our printers, the tabletop. That line had been a bit more subdued in the last couple of quarters. That had a strong performance in Q3. That would be the one to highlight, I think.
Dominic Archella (Analyst)
Okay. Okay. Great. Okay. Well, thank you very much and congrats on the quarter.
Anders Gustafsson (CEO)
Thank you.
Operator (participant)
Michael Kim, Imperial Capital.
Michael Kim (Senior Research Analyst)
Hi. Good morning, guys.
Mike Terzich (SVP, Global Sales and Marketing)
Morning.
Mike Smiley (CFO)
Morning.
Michael Kim (Senior Research Analyst)
Could you provide an update on mobile POS and especially with North American retailers? Are you seeing an uptake on the mobile receipt printers? And maybe more broadly, how that might change the mix on your retail vertical over time? And then behind that, ASPs relative to the corporate average and then volume opportunity.
Mike Terzich (SVP, Global Sales and Marketing)
Okay. Michael, this is Mike Terzich. I'll start and turn it over to Anders and Mike Smiley for some additional comments. But as far as mobile point of sale space is concerned, what we are seeing is clearly there's a very high level of interest from a variety of tier one, tier two, and even kind of tier three retail customers. Everybody is certainly looking at the deployment of mobile payment solutions in their business. They're all at various stages of consideration. So it is a space that we see in the long term having some significant growth prospects. For us, we have been carving out where we think we can rightfully play from a niche within that space. And we're centered more in that tier two, tier three retail application space.
So we've got some percolating interest from a variety of what we would consider to be national, meaningful accounts, but not necessarily the very large retail account. They're generally going to stay with the traditional people that offer some payment solutions. And I think our outlook is that this is going to continue to grow in momentum and opportunity. And secondly, for us, there is a field service component to the mobile point of sale side that plays very naturally to where Zebra is centered today. So when you think about the ability to take payment in the field after service is rendered, that's a natural adjacency for where we sell today, both from a channel perspective and with our solutions. And let me turn it back to Anders for some additional comments.
Anders Gustafsson (CEO)
Yeah. I think just the strategic backdrop, I say, for mobile point of sale continues to be very attractive. Retailers are, by and large, focusing a lot on how to improve the customer experience and make sure that they don't get disaggregated by e-tailers. And mobile point of sale is an important part of that. They really want to make sure they can drive a much more interesting engagement between the salesperson in a store and a customer. And when a retailer goes and starts deploying this, usually if it's certainly a larger department store or something, it's not across the entire store. It's more department by department. So it's starting with modest growth, I think, here now, but it feels like this will be a bigger trend.
Michael Kim (Senior Research Analyst)
Great. And then switching gears, Anders, you talked a little about MotionWorks, the sports solution. What are your thoughts on turning some of the pilots into commercial deployments and relative to the investment that you've put in developing this solution when we might be able to expect some operating leverage?
Anders Gustafsson (CEO)
Yeah. We are excited about MotionWorks. We think it's a unique solution that offers a very high degree of accuracy in real time. The value proposition is both for the fan experience. Most sports leagues are very eager to make sure they get kind of butts in seats and get people out of their living rooms and the 65-inch TVs to actually go to the arenas. Our solution can really help them with providing much more interesting statistics, analytics for people who are at the game, but also offers all the coaches a lot of opportunities to offer more insights. We are obviously working hard on trying to convert the trials we have and the pilots we have.
I'm not going to speculate today about exactly how quickly that can happen and when that will happen, but it will be starting with a limited number of actual live deployments, and then we will grow from there. So from a revenue impact on our 2014 P&L, it's going to start small and grow a bit, but it's not going to have a huge impact on a $1 billion base.
Michael Kim (Senior Research Analyst)
Got it. And then turning to Asia-Pac, is it your expectation that the increase in demand for high-performance tabletop and these higher-end printer opportunities will sustain through the balance of the year, or was there some unusual activity in this third quarter that drove some of that increase in purchasing?
Mike Terzich (SVP, Global Sales and Marketing)
Michael, it's Mike Terzich again. No, I think our expectation is relative, we see some consistency in the fourth quarter outlook for Asia relative to that high performance end of the marketplace. That is principally for us the core product set that we sell more broadly in China and Korea. And given the pipeline and the opportunities we see at present, and given the fact that if you really dial the clock back a little bit, if you look at the last several quarters in China, it had been, to Anders' point, somewhat subdued. We see that people have waited a while to expand production lines and refresh some of the aging equipment, and we think that'll continue into the fourth quarter.
Michael Kim (Senior Research Analyst)
Okay. Great. Thank you very much.
Anders Gustafsson (CEO)
Thank you.
Operator (participant)
Greg Halter, Great Lakes Review.
Greg Halter (Equity Analyst)
Hello again.
Anders Gustafsson (CEO)
Hello.
Greg Halter (Equity Analyst)
Age-old question for you regarding capital deployment. I show $585 million was your peak cash investment second quarter of 2006. You're at about $466 million now. Since 2000, you've spent about—not spent—you've returned about $913 million to shareholders. And just wondered what we can look for going forward because the cash seems to continue to build even though you're buying back stock.
Anders Gustafsson (CEO)
We are always very cash-generative as a company, and we've been able to generate a very healthy cash flow for the past several years. But our buybacks have been quite substantial too. I think we bought back about $600 million worth of shares since the beginning of 2006. Sorry, since 2008, since the beginning of 2008. So that's a big number. But we're always looking for the best ways for us to deploy our cash. And returning cash to shareholders is an important part of our overall strategy. And we think that doing that through buybacks has been a good strategy for us, good results. And we expect that to continue that. But we're also looking at expanding our business through acquisitions. We've talked about that on many calls here now. Our strategy around acquisitions hasn't changed.
But I must say, I think we are seeing more attractive opportunities than we did in the past that we'd like to pursue, primarily in three buckets, you can say, around expanding our printer business, looking at our supplies business, and some other near adjacencies. But the first filter we have for this is always making sure there's a strong strategic fit that we can add something to that business. And then looking at the highest return on a risk-adjusted basis for those investments.
Greg Halter (Equity Analyst)
Okay. And there's some investors out there who look at strong cash flow companies like Zebra, and then those companies, and certainly this would be within the board's consideration, look at dividend and then raising that dividend every year for 10, 20, 30, 50 years, and so forth. Just wonder if that's something that comes up in board discussions and what may be the argument against a dividend policy? Thanks.
Anders Gustafsson (CEO)
We do talk about dividends with our board several times a year. It is very much an ongoing discussion. So far, we've felt that returning cash to shareholders has been a top priority. The vehicle by which we return cash has been a little less important, and we felt that buying back shares has been the most appropriate way for us to do that so far.
Operator (participant)
Okay. We have Tim Mulrooney, William Blair.
Tim Mulrooney (Equity Research Associate)
Good morning, guys.
Mike Terzich (SVP, Global Sales and Marketing)
Morning.
Tim Mulrooney (Equity Research Associate)
Morning. So a dividend isn't necessarily out of the question, but for now, you guys are focused on returning cash to shareholders through a buyback?
Anders Gustafsson (CEO)
Yes.
Tim Mulrooney (Equity Research Associate)
Then in last quarter's conference call, you indicated that retail spending in your international businesses such as EMEA was stronger than in North America. This quarter, you mentioned that you saw strong shipments to two national retailers. Beyond those two retailers, generally speaking, are you seeing capital spending improve in North American retail?
Mike Terzich (SVP, Global Sales and Marketing)
Tim, this is Mike Terzich. We are. I think part of that goes back to earlier comment. I think in North America, I think the challenge has been that retailers have been sitting on some of their IT assets for what we would consider to be an abnormally longer period of time. I think as they have gotten greater confidence in perhaps the near-term economic outlook, if you look at retail, the holiday season forecast that was just recently published, it points to a more bullish outlook. I think we're starting to see a relaxing of some of those constraints. So yes, we're seeing a return of some retail capital spending.
Tim Mulrooney (Equity Research Associate)
Okay. Great. Thank you, guys.
Operator (participant)
Greg Halter.
Greg Halter (Equity Analyst)
Hello again, guys. One last one for you. I wonder if you could detail the sales from your three largest customers in the quarter.
Anders Gustafsson (CEO)
Yeah. I can do that, Greg. Right now, the largest customer by percentage of sales is 17.5%, followed by 12.9% and 12.6% for the third customer. Those are the three customers above 10%.
Greg Halter (Equity Analyst)
Thank you very much.
Anders Gustafsson (CEO)
Very welcome.
Operator (participant)
And once again, if you have a question, please press star, then one on your touch-tone phone. And we have Carl Landseadel, Morningstar.
Carr Lanphier (Associate Equity Analyst)
Hi, good morning. Congratulations on the great quarter.
Anders Gustafsson (CEO)
Thanks.
Mike Smiley (CFO)
Thank you.
Carr Lanphier (Associate Equity Analyst)
It looks like you saw some sequential sales improvements on higher prices and then strong year-to-year sales improvements on higher volumes. Can you just talk a little bit about the price elasticity you're seeing across geographies?
Mike Smiley (CFO)
For us, I guess, price elasticity, if you compare it to similar products to the same, not across the entire portfolio, but I would say we have global, worldwide price lists, and we stay pretty close to our list price and standard discounts to the same type of partners. Prices doesn't vary for the same product very much across geographies. We have a broader low-end offering for China and other emerging markets. We've released in the last several years a handful of products, 5, 6 products that are specifically aimed for emerging markets. So there you see us offering more of a lower-end product, but they're also being built for those markets. So the cost points are also much lower.
Anders Gustafsson (CEO)
Yeah. I would add, I think that we end up with, for the company, by the way, so as our supplies grow, again, our supplies business doesn't have a big pull for OpEx, but it also has a little bit lower gross margin. So that affects our overall gross margins for the business. And also on the more printer side, sometimes when we have large deals which attract a little bit more competitive, we will make sure we win those deals, and that's reflected in our gross margins too.
Carr Lanphier (Associate Equity Analyst)
Gotcha. Okay. Thanks. And in regards to the supplies, I think that may be a little more homogeneous across the geographies. Is there any sort of discrepancy basically between contracts necessarily? Can you use supplies to kind of throw that in as a sweetener, or how do you kind of treat supplies pricing?
Mike Terzich (SVP, Global Sales and Marketing)
Carl, this is Mike Terzich. We do. In some cases, we do have the opportunity where we have bundled supplies with a hardware-specific sale. And in certain cases, we can leverage one or both. And in some cases, we actually even leverage a service contract, a break-fix service contract as part of a larger opportunity. I do think that going back to our focus on supplies has been we principally center in high-value marking opportunities. So by and large, while to Mike Smiley's comment, our gross margin profile of our supplies business is not to the level of our hardware business, where we tend to focus in high-value marking, we stay out of a lot of the commodity paper side of the business, which gets very, it's very low margin, very price-intensive space. That's not our focus.
Carr Lanphier (Associate Equity Analyst)
Got it. Thanks very much, guys. I appreciate it.
Operator (participant)
We have no further questions. I turn the call over back to Doug Fox.
Doug Fox (VP of Investor Relations)
Okay. Thank you very much, everybody, for joining us today. I'd like to just let you know that our next regularly scheduled quarterly conference call will be on February 19th. So until then, thank you very much, and have a great day.