Tim Yocum:

Good afternoon. Welcome to our 2024 second quarter earnings call. With me today are Greg Brown, Chairman and CEO; Jason Winkler, Executive Vice President and CFO; Jack Molloy, Executive Vice President and COO; and Mahesh Saptharishi, Executive Vice President and CTO. Greg and Jason will review our results along with commentary, and Jack and Mahesh will join for Q&A. We've posted an earnings presentation and news release at motorolasolutions.com/investor. These materials include GAAP to non-GAAP reconciliations for your reference. And during the call, we reference non-GAAP financial results including those in our outlook unless otherwise noted. Number of forward-looking statements will be made during this presentation and during the Q&A portion of the call. These statements are based on current expectations and assumptions that are subject to a variety of risks and uncertainties. Actual results could differ materially from these forward-looking statements. Information about factors that could cause such differences can be found in today's earnings news release, in the comments made during this conference call, in the Risk Factors section of our 2023 Annual Report on Form 10-K or any Quarterly Report on Form 10-Q and in our other reports and filings with the SEC. We do not undertake any duty to update any forward-looking statements. And with that, I'll turn it over to Greg.

Jason Winkler:

Thank you, Greg. Revenue for the quarter grew 9% and was above our guidance with strong growth in all three technologies. Acquisitions added $13 million, while FX headwinds were $5 million during the quarter. GAAP operating earnings were $644 million or 24.5% of sales, up from 21.6% in the year ago quarter. Non-GAAP operating earnings were $758 million, up 18% from the year ago quarter and non-GAAP operating margin was 28.8%, up 210 basis points, driven by higher sales, favorable mix and improved operating leverage partially offset by the Airwave Charge Control. GAAP earnings per share was $2.60, up from $2.15 in the year ago quarter, non-GAAP earnings per share was $3.24, up 22% from $2.65 last year. The growth in EPS was driven by higher sales and margins and a lower diluted share count, partially offset by a higher effective tax rate in the current quarter. OpEx in Q2 was $593 million, up $38 million versus last year, primarily due to higher employee incentives and acquisitions. Turning to cash flow. Q2 operating cash flow was $180 million, up $87 million versus last year, and free cash flow was $112 million, up $72 million. These increases were primarily driven by higher earnings partially offset by higher employee incentives and higher cash taxes. Our year-to-date operating cash flow was $562 million, up from $85 million in the previous year on higher earnings and significantly improved working capital. And we now expect operating cash flow for the full-year to be $2.25 billion, an increase of $50 million versus our prior expectations and double-digit growth expectations over last year. Capital allocation for Q2 included $163 million in cash dividends, $71 million in share repurchases and $68 million of CapEx. Subsequent to the quarter end, we also closed two acquisitions for a total of $223 million. The first is a global provider of critical event management software that expands our command center presence internationally and also complements our Rave acquisition. The second is a provider of vehicle location and management solutions that further builds on our leadership in providing mobile video solutions for the financial services sector. We expect these acquisitions to generate approximately $15 million to $20 million of revenue per quarter primarily in video and to be slightly dilutive to the second half of this year. Moving to segment results in Products and SI, sales were up 15% versus last year, driven by continued demand along with improvements in supply in LMR. Currency headwinds were $2 million in revenue from acquisitions contributed $12 million. Operating earnings were $445 million or 26.8% of sales, up from 19.8%, in the prior year, driven by higher sales, favorable mix and improved operating leverage. Some notable Q2 wins and achievements in this segment include a $32 million P25 system and device order for the city of Naperville, Illinois, a $19 million P25 system upgrade for Washington County, Virginia, an $18 million P25 system order for a U.S. Federal customer, a $17 million P25 device order for a U.S. customer, an $8 million fixed video order for a large state and local customer and a $6 million video order for Newark Public Schools in New Jersey. In Software and Services, revenue was flat compared to last year, excluding the UK Home Office, revenue was up 11%, driven by strength in all three technologies. Revenue from acquisitions was $1 million in the quarter, and FX headwinds were $3 million. Operating earnings in the segment were $313 million or 32.3% of sales, down from 36.9% last year due to the revenue reduction related to the Airwave Charge Control, which was partially offset by improved operating leverage elsewhere in the segment. Excluding the UK Home Office, software and services operating margins increased during the quarter on higher sales and improved operating leverage. Some notable Q2 highlights in this segment include a $19 million LMR order for the Victorian State Government in Australia, an $18 million LMR order for a U.S. Federal customer, a $12 million Command Center order for the Las Vegas Metro Police Department, an $11 million LMR order for American Airlines. And finally, we received a $16 million mobile video award with Police Scotland. This award was part of a $30 million investment made by Police Scotland to procure body-worn cameras, LMR radios and mobile application software, demonstrating their recognition of the strength of our integrated ecosystem. Looking at regional results. North America Q2 revenue was $1.9 billion, up 17% on growth in all three technologies. International Q2 revenue was $711 million, down 7% versus last year due to the impact of the Airwave Charge Control. Excluding the UK Home Office, international revenue was up mid-single digits with growth in all three technologies. Moving to backlog. Ending total backlog for Q2 was $14 billion, a decrease of approximately $300 million or 2% versus last year. Excluding the UK Home Office, total backlog was $12.5 billion, up from $12.4 billion last year. In the Products and SI segment ending backlog decreased $482 million versus last year and $308 million sequentially, driven by strong LMR shipments as supplier lead time improvements enabled us to ship additional products earlier in the year and improve our sales linearity. In software and services backlog increased $164 million compared to last year, driven by multi-year software and services contracts across all three technologies, partially offset by 12 months of revenue recognition from the UK Home Office. Sequentially, backlog was down $129 million, primarily driven by the quarterly revenue recognition for the UK home office. Turning next to our outlook. We expect Q3 sales growth between 7% and 8%, with non-GAAP earnings per share between $3.32 and $3.37 per share. This assumes a weighted average diluted share count of approximately 170 million shares and an effective tax rate of 24%. For the full-year, we are again increasing both our revenue and earnings per share guidance. We now expect revenue growth of approximately 8%, up from our prior guidance of approximately 7%, and we expect non-GAAP earnings per share between $13.22 and $13.30 per share, up from our prior guide of $12.98 to $13.08 per share. The full-year outlook assumes a weighted average diluted share count of approximately 171 million shares and an effective tax rate of approximately 23.5%. It also assumes operating margin expansion of approximately 100 basis points, up from our prior expectation of 75 basis points, driven by higher sales. And finally, before turning the call back to Greg, I wanted to share some insights regarding our increased expectations for the year. In video, we now expect approximately 12% of growth for the full-year, inclusive of the recent M&A. Video continues to be an exciting opportunity for us with new products like ACC 8 video management system, H6 cameras, our latest AI-enabled video recorder and both cloud and on-premises offers. And for LMR, we are increasing our expectations to mid to high single-digit growth for the full-year, which includes the headwinds related to the UK Home Office that we communicated at the beginning of the year. On the continued strength of LMR, I'd point to a couple of important drivers. First, in LMR services, we have a significant installed base, and our customers are increasingly relying on our expanded services offerings such as cyber and software upgrade agreements as they continue to invest in their networks for the long-term. And second, in LMR products, strong demand for feature-rich devices continues to drive growth and margin expansion. For example, we have thousands of public safety customers who are on multi-year technology refresh cycles. These customers are increasingly adopting advanced devices like our APX NEXT family of devices. I'll now turn the call back over to Greg.

Tim Yocum:

Thank you, Greg. Before we begin taking questions, I'd like to remind callers to limit themselves to one question and one follow-up to accommodate as many participants possibly. Operator, would you please remind our callers on the line on how to ask a question.

Alyssa Shreves:

Hi. This is actually Alyssa Shreves on for Tim Long. I just wanted to check in given the outperformance we've been seeing in LMR, what inning are we in, in the LMR refresh cycle? We've had two strong quarters on the back of strong quarters from the year prior. Just how should we kind of think about the business moving into 2H? And then I had a quick follow-up.

Jason Winkler:

And Alyssa, we mentioned during the call that our outlook for LMR as a whole of the technology this year has gone from mid to mid-to-high. That will include growth in both products for the year as well as software and services, ex-home office. So strong growth drivers across. And within the quarter and within the first half, with the supply chain improvements that we saw, products and LMR products specifically, we were able to attain more supply and lead times improved which in part drove the performance for the first half in LMR products.

Greg Brown:

So we talked about a $40 million headwind, Alyssa, this year kind of incorporating the prem to cloud momentum that you just referenced. In Q2, our video software business grew 24%. Cloud and cloud adoption was exponentially higher than that. So quite frankly, it's performing as expected and cloud adoption remains very strong.

Greg Brown:

Thank you.

Matt Niknam:

Hey guys. Thanks for taking the question. First question is on M&A. Greg, I think you've been vocal around, I guess, perhaps an increasing number of opportunities, perhaps more willingness on the part of prospective sellers in the marketplace. You talked about the two deals you've recently done. I'm just curious if you can maybe give us a little bit more of an overview in terms of what you're seeing, the latest out there in the M&A front and potential opportunities. And then secondarily, maybe a follow-up on cash flow. So the guide this year is for about $2.25 billion you've done, I believe, $562 million year-to-date. So can you just talk a little bit about the visibility and confidence in that second half ramp? And I guess, in particular, how we should think about working capital in that context? Thank you.

Jason Winkler:

Actually, Greg, it's even better linearity this year with our first half. We're strongly ahead of where we were last year as inventory working capital have come down. But you're right, the back half is usually significant cash flow contributors, and we're well on path to the 2.25.

Operator:

The next question comes from George Notter from Jefferies. Your line is now open.

Greg Brown:

Sure. So first of all, it's a good question, George. Total backlog is up, as Jason referenced year-over-year when you exclude the home office. That's kind of one reference point. Product backlog, while it deteriorated in Q2, it deteriorated because supply lead times improved really a lot faster than we thought, which informed the 19% print on LMR product growth in Q2. Having said that, product backlog remains pretty healthy at like $4 billion – actually $4.3 billion off of a record comp the previous year and as a referenced pipeline, the orders pipeline at this point is about $1 billion higher than a year ago, which I think is quite informative as well. Having said all that, you put ingredients all into the blender. We expect total backlog comparable to slightly up off of a record last year. So all in all, I feel pretty good about it. The linearity is a little lumpy and bumpy given the accelerated supply lead times that improved dramatically in Q2. But overall, I feel pretty good.

Greg Brown:

Good point.

Greg Brown:

FX was fairly de minimis.

Greg Brown:

Yes, exactly.

Greg Brown:

Thanks, George.

Joseph Cardoso:

Hey, thanks for the question. I guess just first one for me. Gross margins in the quarter tracked a lot better than what was anticipated. And if I look historically, you've been able to expand margins from 2Q levels through the year. But I guess if my math is right on the guide, it would imply a bit more of a muted cadence than what we've typically seen. Can you maybe just help us understand what is driving that and whether there's anything under the hood in 2Q that we should be appreciating as an outlier? And then I have a follow-up. Thanks.

Joseph Cardoso:

Got it. I appreciate the color there, Jason. And then maybe for my follow-up, and this is a bit of a big picture one, but you talked about the LMR installed base and specifically the opportunity to address more services opportunity there. Curious if you could parcel that out a bit more? And how big of an opportunity that could be for Motorola to better monetize that installed base that you have and how do you see that materializing over time? And maybe just lastly, and maybe this is a silly question, but like is this an area where you could potentially acquire? Or is that just farfetched given your position and or other variables? Thanks for the question guys.

Joseph Cardoso:

And then just on potential M&A in the services areas of LMR, is that an opportunity as well? Or is that kind of farfetched?

Jack Molloy:

The only other thing I'd add is just on these managed service networks. We don't typically just look at those through the lens of LMR. Those actually provide us a platform to go and do things like body-worn as a service within national police agencies as well. Text and video contracts that we're looking to start to provide as a service as well. So there's a little bit of a flywheel effect when we get those service opportunities.

Adam Tindle:

Okay. Thanks. Good afternoon. Greg, I just wanted to maybe touch on the product revenue growth trajectory from here. If I look at the guidance, obviously, this has been a very, very strong segment for multiple years now. We're going to start getting into the mid to high-single digits in Q4, if my math is right, trying to back into this. And I know that you'll give a greater look into 2025 on the next call typically. But as I kind of try to map out the trajectory of product revenue growth, do you see a scenario where we're potentially going to have more of a soft landing? Or do you think there could be a greater digestion where growth could end up turning negative beyond Q4?

Adam Tindle:

Got it. That's helpful and fair. Maybe just as a follow-up on the increased adoption of cloud in video and command center, and I think we might have Mahesh on the call and in case he wants to weigh in. But I'd be curious what is driving the tipping point to really inflect that adoption now? Also how you would evaluate the competitive environment and Motorola's differentiation in the cloud portion versus the non-cloud portion? And then lastly – I'm sorry, this is a multi parter. How the financials are impacted in a cloud sale versus a non-cloud sale? Are we in a situation where we might have some cannibalization or change to financials if this happens? Thanks.

Greg Brown:

Yes. And I think that the growth rate – the strong cloud adoption of what we call Avigilon Alta, which is the cloud version, Avigilon Unity being prem is a reflection of the success of the Openpath acquisition and Ava and the successful integration for combined video and access control under the cloud with Mahesh's leadership and Alex Kazerani. So part of the other "new infection" point of our continued growth is the successful not only acquisitions, but the integration and the yield and the benefits associated with our cloud platform. I think the team is doing quite well.

Greg Brown:

You're right, Jack.

Jason Winkler:

Adam, the second question – part of your question you had to go with the financial model?

Jason Winkler:

Both on-prem and cloud for us are solid business models. They're value propositions to customers. Of course, we've planned for the $40 million impact of the cloud acceleration that's on track. And both have a good margin structure. And as you know, cloud comes with the stickiness with the term license that upon renewal leads to even greater renewal. So we're pleased with both models.

Greg Brown:

Absolutely, Adam, fire away. No problem.

Benjamin Bollin:

Good evening, everyone. Thanks for taking the question. Jason, I wanted to go back to the product gross margin. If you exclude mix from the discussion, where would you say you are on the progress with respect to reducing the BOM supply chain efforts, any logistics optimization? What have you seen? What are your thoughts on where you're at and what might be left there?

Benjamin Bollin:

That’s great. And then last one for me. Greg or Jack, could you remind us on the overall mix of within backlog, what you see from commercial and public safety and how you would – just remind us on the integrity of those orders versus maybe a more traditionally enterprise-focused order? Thanks.

Jason Winkler:

And given the funding vehicles and procurements within government, governments order according to their prioritization and they issue a PO to a company like us directly, they don't subsequently order from someone else. And we are fulfilling that backlog. And our backlog, as Jack mentioned, 95% plus comes from our public safety direct customers.

Jason Winkler:

Thanks, Ben.

Irvin Liu:

Hi. This is actually Irvin Liu on for Amit. And thank you for the question. I wanted to double-click on the international business. I think overall growth in Q2 was mid-single digits, and that was a deceleration versus a quarter ago. And this is all excluding any sort of U.K. Home Office impact. Any sense on how the overall macro and/or demand backdrop for international compares versus North American. In the longer term, should we expect international mix to expand as a percentage of total?

Jason Winkler:

And I know, Amit, and you and team know this, but just to remind everybody, our international revenues over – almost 75% of them come from EMEA, Australia and New Zealand. That's our strength. That's where we build networks. That's where we have flywheels of growth, and that – those are great markets for us for Jack and his team.

Greg Brown:

There's actually one new point from a quarter ago, and that is just – it's a good question to level set, you know the dispute, it's been ongoing. It's been several years. We believe the CMA ruling was unfounded. We think it's disproportionate. We think it's unprecedented. You've heard us talk about that. We appealed that. We lost. So we appealed to the Competition Appeals Tribunal and we lost. So the only last option as it relates to this dispute, on the imposition of the charge control was the U.K. Court of Appeal, which is their highest court in the U.K. And the noteworthy item is they decided to hear the case. So that's a new development. That hearing is November 11 and 12, impossible to predict what that is, but that is something that's new from when we talked about this a quarter ago. I just want to remind you that as it relates for Q2, the rest of this year, the full-year of this year, we are operating under kind of the draconian disproportionately excessive discount. So that's – we're raising the full-year inclusive of kind of that worst-case charge control for this year. What happens in the future? Don't know. I am pleased that the U.K. Court of Appeal will give this the appropriate audience and review, and we'll see where it goes from there.

Rodney McFall:

Hey, everyone. And thanks for taking my question. So I was wondering if you could provide some color on the customer transition to more premium versions of APX NEXT radios. Have they been receptive? And then, just any color on – in terms of the premium on price compared to legacy versions of the product? Thanks.

Rodney McFall:

Got it. Thank you.

Louie DiPalma:

Thanks. And Greg, Jason, Jack, Mahesh, and Tim, good afternoon.

Louie DiPalma:

Great. I'm following up on the several questions regarding the LMR product strength. Should we expect the year-over-year growth rate for the LMR product line to be volatile? Or is this mid-teens level durable. And going deeper, are customers upgrading their radios on the normal six to seven-year upgrade cycle? Or are the features for APX and APX NEXT so compelling that many customers are upgrading early to get the LTE and the programmable devices, which may be driving an acceleration?

Louie DiPalma:

Great. And in the past, Greg and Jason, you've provided cumulative APX NEXT orders, have you guys passed the $1 billion mark in terms of your cumulative APX NEXT orders?

Jason Winkler:

I think the more important metric that we've shared is that this year, our APX devices total revenues less than a quarter of those will come from the APX NEXT family. So Jack and team are still selling a very good APX radio. Our customers expect it. They don't like forced migrations. They want graceful migrations. And Jack's point about mixed fleets evidence is that. So we have a long way ahead of us. And in the almost $2 billion of devices that will do for public safety, less than 25% of them are going to come this year from APX NEXT.

Meta Marshall:

Great. Maybe as a first question, just in terms of a lot of the acquisitions you've done over the past year, where are you in terms of integration of those acquisitions? Or you kind of integration of those teams in order to kind of get better leverage across the platform or across the customer base? Maybe that's the first question.

Mahesh Saptharishi:

Sure. And maybe just to start out where, Greg, you left off with Alta. So Alta was our brand for Openpath and Ava, which is effectively our cloud-based access control solution and our cloud-based video management solution, both being critical to our portfolio. Both under Alex Kazerani were brought together as Alta. And now we are able to integrate the capabilities of both access control and video I think in fairly unique and powerful ways, ones that our customers are really appreciating and evidenced by the uptake in the market. Beyond that, Rave would be the other big piece here and Rave is one of those critical elements that's a glue between public safety and enterprise security, and Rave integrated not just with 911 and CAD solutions, but also integrated with our enterprise security solutions, effectively video, both Alta and Unity. I think that plays a fairly significant role, and we're seeing that impact of that ecosystem going forward as well. Pelco, we rationalized our video management platforms into one with the on-prem solution being the Unity video management solution. And our camera platforms across all our brands really operate on basically a shared infrastructure with the best of many things that each brand brought into the table, integrated and offered across the board. So I think that speaks to some of the key integration examples. Silent Sentinel is well on its way right now. And as Noggin comes into play here, which has incident management, which is a key piece of the puzzle for us. Noggin will complement both our fixed video portfolio, but it will also complement Rave quite nicely as well.

Meta Marshall:

Great. Maybe piggybacking on that answer. Just how are you guys thinking about capital allocation just given that M&A has been such a successful part of the strategy?

Meta Marshall:

Great. Thanks so much.

Operator:

[Operator Instructions] The next question is from the line of Tomer Zilberman of Bank of America. Your line is now open.

Greg Brown:

Well, when I look back at the – to your point, the previous few quarters, we're in the ZIP code of product video performance. So I like that consistency. The most important is really talking about market share. And we gained market share last year in video security and access control is a category. We expect to gain market share again this year. The fact that the growth rate is much higher in cloud as we signaled earlier, I think, is great. And the product video performance quarter-to-quarter, I think, is fine in the ZIP code and against the backdrop of the overall market growth. So I like where we are, and I like the continued execution.

Tomer Zilberman:

Got it. And maybe as a follow-up, moving to your implied 4Q guidance. So the implied EPS came in a few cents short of Street expectations. Just curious as to your thoughts on the margin set up as we go into the second half of the year, especially 4Q? Thank you.

Greg Brown:

Yes. I mean we passed through the beat in Q2. And obviously, that informs the full year raise pretty nicely. But also there's – M&A is slightly dilutive of a couple of cents as well, but we like the position we're in.

Greg Brown:

Yes. I just want to say thank you for everybody listening on the call. Obviously, thank you for everybody joining the call. But also thanks for all the Motorola Solutions people and our channel partners and our distributors worldwide appreciate everything you've done for an exceptional quarter. And probably more important than the quarter is the momentum that quarter – this quarter informs for the back half of the year and how we'd like to finish the year strong. I think our solving for safer narrative continues to resonate and gain traction. I think that's representative in the results. The customer prioritization for putting an emphasis and a priority on safety and security I think, is self-evident. And as I mentioned, the orders pipeline is up pretty significantly from a period ago. At this point last year, referenced about $1 billion. And finally, I think as I've been asked about capital allocation, I like the strength of our balance sheet. I like the fact that our operating cash flow is expected to grow double digits again for the second year in a row. And look, I think the performance of the business, the organic investment, the acquisitions and the firepower of the balance sheet, look, I think it provides us good flexibility to continue to execute and drive shareholder value going forward. And I appreciate everybody on what you're doing and how you're helping onward and upward, and I appreciate everything you've done.

Gregory Brown:

Thanks, Jason. And let me just close with a few thoughts. First, Q1 was outstanding across the Board. We achieved strong revenue growth in all three technologies. We significantly increased operating margins. We generated record Q1 operating backlog -- operating cash flow and our strong ending backlog positions us well going forward. As a result, we're raising our expectations for both revenue and earnings for the full year.

Operator:

[Operator Instructions] The first question is from Tim Long with Barclays.

Jason Winkler:

And Tim, on the second part of your question, you're right, software within video is growing faster than the product side. That's a trend we've been seeing. And keep in mind, it's not just Alta, it's all of the exciting developments that we have around analytics. Both of our VMSs, our software products are recorded there. Mobile video is also there, all complemented by cloud subscription. So that's a very important and fast-growing part of our business. Now the LMR piece.

Gregory Brown:

Yes. I think -- look, I can't be more pleased with the performance of LMR products and services. And Jack talked about the continued strong demand last quarter, it's the same as this quarter. In terms of APX NEXT, as an example, a lot of customers are indexing and in Q1 indexed to more feature-rich devices which helped drive revenue and quite frankly, Tim, margin expansion.

John Molloy:

The only thing Tim I'd add on top of that is, as just Greg pointed out, it's the breadth of the portfolio is a strength. But what's particularly driving the APX NEXT adoption are the applications. So in the quarter, in Q1, we secured two large state patrols as well as one Department of Transportation, as you think about what drives those, it's location. It's the ability to extend the network vis-a-vis SmartConnect and SmartProgramming with large fleets, their ability to reprogram and the like in a more expeditious fashion, so.

John Molloy:

Exactly, right. In fact, all three of those customers have APX Original and like 1/3 of those are APX NEXT.

Operator:

The next question is from the line of George Notter with Jefferies.

Gregory Brown:

Yes. Thanks, George. So we recorded the backlog of the extension of years '27, '28 and '29, because in March, we received notice from the U.K. Home Office for the extension of Airwave. Aside from our disputes, let's put that off to the side for a minute. I think it confirms our belief all along in the durability, longevity and quite frankly, criticality of mission-critical LMR, particularly in this case, Airwave. So it reaffirms the long-standing need of how critical that technology is, and that's one of the best performing from a network performance standpoint, emergency networks in the world.

George Notter:

Got it. And then just as a quick follow-up. Any evidence that there's any spread of other managed services customers looking at trying to reprice contracts with you guys anywhere else in the world?

Operator:

[Operator Instructions] The next question is from the line of Meta Marshall with Morgan Stanley.

Gregory Brown:

Our view on the full year and what's informing our raise does not change from what we updated you on the Ukraine situation last year. We did talk about $100 million, Jack referenced that about $100 million headwind. By the way, that headwind still exists. It's primarily in the second half of this year, which informs kind of the seasonality that's implied in both Q2 and our full year guide. By the way, we remain in game, I'm thrilled. We're thrilled that the Foreign Aid Bill got passed for $95 billion and Molloy's team remains actively engaged on multiple fronts. But our view in terms of the full year guide is unchanged from what we said last time.

Gregory Brown:

Still very enthusiastic about Command Center overall as a category. We still expect 10% growth for the full year. By the way, I might add that remember, ESN in the way we record revenue was in the Command Center technology bucket. So Q1 would have grown handsome double digits normalized for U.K. Home Office. And quite frankly, when you look at the 10% guide implied for Command Center for the full year, it's a number higher than that when you normalize for ESN as well. And you may want to mention just some of the other things going on.

Operator:

The next question is from the line of Adam Tindle with Raymond James.

Gregory Brown:

And in terms of margins, we -- by the way, this year, we do expect gross margins to be up slightly, and we also now expect operating margins to be up about 75 basis points. As we think about it holistically and kind of on a pro forma basis, we think the levers of volume mix, which we're enjoying now, some surgical price increases, primarily around services, where we have contracts that have appropriate cost of living mechanisms built into multiyear services contracts. And as they come due we will be disciplined in making sure we're recovering appropriate cost increases that come and hit the firm.

Adam Tindle:

Okay. And maybe just a quick follow-up. I know that was a 2-parter, but I'll do a quick follow-up since I'm going to get asked on this tonight. Backlog trends. Obviously, we've got a record here. But correct me if I'm wrong, I think that $14.4 billion includes $748 million of incremental backlog on Airwave. It may be unfair to strip that out, but if we do, it's down about $500 million sequentially. And I know there's some seasonality to that, but that's kind of 2x its normal seasonality. What would that concern of stripping that out and looking at kind of a worse than typical seasonal decline in backlog be missing? And how do you think about backlog trends from here?

Operator:

I will pause for a few seconds to see if we have any additional questions. This concludes our question-and-answer session. I will now turn the floor over to Mr. Greg Brown, Chairman and Chief Executive Officer for any additional comments or closing remarks.

Operator:

This does conclude today's teleconference. A replay of this call will be available over the Internet within 3 hours. The website address is www.motorolasolutions.com/investor. We thank you for your participation and ask that you please disconnect your lines at this time.

Tim Yocum:

Good afternoon. Welcome to our 2023 fourth quarter earnings call. With me today are Greg Brown, Chairman and CEO; Jason Winkler, Executive Vice President and CFO; Jack Molloy, Executive Vice President and COO; and Mahesh Saptharishi, Executive Vice President and CTO. Greg and Jason will review our results along with commentary, and Jack and Mahesh will join for Q&A. We've posted an earnings presentation and news release at motorolasolutions.com/investor. These materials include GAAP to non-GAAP reconciliations for your reference. And during the call, we reference non-GAAP financial results including those in our outlook unless otherwise noted. Number of forward-looking statements will be made during this presentation and during the Q&A portion of the call. These statements are based on current expectations and assumptions that are subject to a variety of risks and uncertainties. Actual results could differ materially from these forward-looking statements. Information about factors that could cause such differences can be found in today's earnings news release, in the comments made during this conference call, in the Risk Factors section of our 2022 Annual Report on Form 10-K or any quarterly report on Form 10-Q and in our other reports and filings with the SEC. We do not undertake any duty to update any forward-looking statements. And with that, I will turn it over to Greg.

Jason Winkler:

Thank you, Greg. Revenue for the quarter grew 5% and was above our guidance with growth in both segments, both regions and all three technologies. FX tailwinds during the quarter were $16 million, while acquisitions added $17 million. GAAP operating earnings were $738 million or 25.9% of sales, up from 25.6% in the year-ago quarter. Non-GAAP operating earnings were $870 million, up 6% from the year-ago quarter. And non-GAAP operating margin was 30.5%, up 10 basis points. The increase in both GAAP and non-GAAP operating earnings was driven by higher sales and lower direct material costs. GAAP earnings per share was $3.47, up from $3.43 in the year-ago quarter. Non-GAAP EPS was $3.90, up 8% from $3.60 last year. The growth in EPS was driven by higher sales and higher margins. OpEx in Q4 was $597 million, up $60 million versus last year, primarily due to higher incentives and acquisitions in the current quarter -- current year. For the full year 2023, revenue was $10 billion, up 10% with strong growth in both segments and across all three technologies. Revenue from acquisitions was $98 million and the impact of unfavorable foreign currency rates was $38 million. GAAP operating earnings were $2.3 billion or 23% of sales versus 18.2% in the prior year. The increase was primarily driven by lower direct material costs, higher sales, the $147 million ESN fixed asset impairment charge in the prior year and lower intangible amortization expense in the current year. Non-GAAP operating earnings were $2.8 billion, up $416 million and non-GAAP operating margins were 27.9% of sales, up from 26% of sales in the prior year, driven by lower direct material costs, higher sales, inclusive of higher ASPs and improved operating leverage. GAAP earnings per share was $9.93, up 25% compared to $7.93 in the prior year, primarily driven by higher earnings and the asset impairment charge related to the exit of ESN in the prior year, partially offset by a higher effective tax rate in the current year. Non-GAAP earnings per share was $11.95, up 15% from $10.36 in 2022. On higher earnings, partially offset by a higher effective tax rate. For the full year OpEx was $2.2 billion, up $178 million versus 2022, primarily driven by higher employee incentives and higher expenses associated with investments in Video and Rave. And the effective tax rate for 2023 was 21.9% compared to 20.1% in the prior year due to lower benefits from employee stock-based compensation in the current year. Turning to our cash flow. Q4 operating cash flow was $1.2 billion, driven by higher earnings, partially offset by higher cash taxes. And for the full year, we generated record operating cash flow of $2 billion, and record free cash flow of $1.8 billion. The increase was driven by higher earnings, partially offset by higher cash taxes. Capital allocation for 2023 included $804 million in share repurchases, $589 million in cash dividends and $253 million of CapEx. Additionally, during the quarter, our Board of Directors approved a $2 billion increase to the share repurchase program and an 11% increase in our dividend, which is the 13th consecutive year of double digit increases. Moving next to segment results. In the Products and SI segment, Q4 sales were up 4% versus last year, driven by growth in LMR and Video. Operating earnings were $567 million or 30.0% of sales, up from 28.4% in the prior year, driven by higher sales and lower direct material costs. Some notable Q4 wins and achievements in this segment include a $90 million P25 system and device order from a US customer. A $67 million P25 device order for emergency services telecommunications authority in Australia. A $57 million P25 APX NEXT devices order for a US customer. A $38 million P25 system order for the State of Arizona Department of Public Safety. A $31 million TETRA system order for a European customer. And a $13 million fixed video order for an international customer. And for the full year, Products and SI revenue was $6.2 billion, up 9% from the prior year, driven by higher sales of LMR and Video. Revenue from acquisitions was $15 million and currency headwinds were $19 million. Full year operating earnings were $1.5 billion or 24.3% of sales, up from 20.5% in the prior year on higher sales, inclusive of higher ASPs and lower direct material costs. In Software and Services, Q4 revenue was up 7%, driven by growth in Video, Command Center and LMR. Revenue from acquisitions was $15 million in the quarter and FX tailwinds were $11 million. Q4 operating earnings in the segment were $303 million and operating margins were 31.6%, down from 34.4% last year, primarily driven by the Airwave revenue reduction related to the price control. Some notable Q4 highlights in the segment include a $330 million LMR managed services renewal through 2034 for Denmark's nationwide public safety communications network. A $48 million Command Center order for the city of Chicago's Office of Public Safety Administration. A $20 million LMR service agreement for Spokane Washington Regional Emergency Communications and a $19 million mobile video order from a US customer. And finally, a $10 million command center order for the city and County of San Francisco. For the full year, revenue was $3.7 billion, up 10% on growth in LMR services, Command Center and Video. Revenue from acquisitions was $83 million and currency headwinds were $19 million. For the full year, operating earnings were $1.3 billion or 33.9% of sales, down 140 basis points versus the prior year, driven by the Airwave revenue reduction and higher acquisition related expenses. Looking next at our regional results. North America revenue was $2 billion in Q4, up 6% and $6.9 billion for the full year, up 9%, driven by growth in both segments and across all three technologies. And in international, Q4 revenue was $832 million, up 3% versus last year, driven by growth in Video and LMR. And for the full year, international revenue was $3 billion, up 11% versus last year, driven by growth in LMR and Video. Moving to backlog. Ending backlog for Q4 was $14.3 billion, down $88 million versus last year, inclusive of approximately $1 billion of backlog reduction related to the Airwave price control and revenue recognition for Airwave and ESN. Sequentially, backlog was down $15 million, inclusive of the Airwave and ESN reduction and $160 million of favorable FX. In the Products and SI segment, ending backlog was up $93 million or 2% driven primarily by strong demand in North America. Sequentially, backlog was up $99 million, also driven by demand in North America. In Software and Services, backlog decreased $181 million from last year and $114 million sequentially. Excluding Airwave and ESN, Software and Services backlog was up almost $800 million versus last year, driven by strong multi-year agreements in both regions. Turning now to our outlook. We expect Q1 sales to be up approximately 8%, with non-GAAP earnings per share between $2.50 and $2.55 per share. This assumes a weighted average diluted share count of approximately 172 million shares and an effective tax rate of approximately 23%. And for the full year, we expect revenue growth of approximately 6% and non-GAAP earnings per share between $12.62 and $12.72 per share. This full year outlook assumes a weighted average diluted share count of approximately 171 million shares and an effective tax rate between 23% and 24%. Additionally, we expect another strong year of operating cash flow with 2024 expectations of $2.2 billion in operating cash flow. And before I turn it back to Greg, I wanted to share some additional highlights. First, I want to give you some color on the technology growth expectations that are included in the sales guidance for the year. In Video Security and Access Control, we're planning for 10% growth, which is informed by the acceleration and strong adoption of our cloud offerings. For Command Center, we also expect 10% growth consistent with last year's organic growth rate. And in LMR, we expect to grow mid-single digits or high single digits when normalized for the impact of the UK Home Office. Second, I would like to share with you some exciting updates about our Video business, in light of two recent partnerships that support our growth expectations, one with Jabil and another with Google. With Jabil, we've entered into a strategic manufacturing agreement where Jabil will assume responsibility for our manufacturing operations at our sites in Canada and Texas. This agreement further optimizes our video supply chain, provides redundancy, future cost savings and scalability. Additionally, it allows us to focus on engineering, designing and bringing to market video solutions that serve our customers' security needs, while continuing to enable regulatory compliance with NDAA rules for the procurement of secure equipment. And with Google, yesterday, we announced a new strategic agreement with Google Cloud that harnesses the power of their latest cloud advancements to enable assistive intelligence, such as accurate and reliable video content, mapping and other AI capabilities. Google Cloud also enables Avigilon Alta, our fast growing cloud native fixed video and access control platform, which we introduced a little more than a year ago. Alta combines the power of our AI analytics with the ease and simplicity of a cloud delivered VMS that is increasingly preferred by some verticals like education. The rapid adoption in Alta contributed almost a quarter of our growth last year to total video and includes a higher subscription attachment compared to a traditional Avigilon Unity sale. And finally, we ended the year with a very strong balance sheet, including $1.7 billion in cash, a fixed rate balance debt maturity profile and our net debt to EBITDA ratio of 1.4 is our lowest since 2015, providing us with ample flexibility to continue to deploy capital and drive shareholder value. I'll now turn the call-back to Greg.

Tim Yocum:

Thanks, Greg. Before we begin taking questions, I'd like to remind callers to limit themselves to one question and one follow-up to accommodate as many participants as possible. Operator, please remind our callers on the line how to ask a question.

George Notter:

Hi, guys. Thanks a lot. I have a question on the margin expansion in the business. I guess I wanted to ask about what kind of headwind you guys still had running through the business in 2023, I'm thinking about things like expedite fees and even freight costs. I know that a lot of those fees didn't come out of the model until you guys had burned down some backlog. So I guess I'm wondering how much of the headwind was in the 2023 numbers and then I assume that'll be all out fully for the 2024 year. I'm just kind of wondering what kind of benefit you might get on margins there. And then just as a follow-up, second question was just on Silver Lake. I'm just curious about, is there any update there and what those guys might do? And how might you kind of fund the unwind of that position? Thanks a lot.

George Notter:

Great. That's helpful. Thanks very much.

Tim Long:

Thank you. Just wanted to get little bit on the top line. Maybe, Greg, for you. The Q1 guide looks -- it looks pretty strong. But the full year is a little bit lower on growth. So maybe can you talk about visibility or what you're kind of expecting in the back half of the year? Is it just compares conservatism or anything else we need to be aware of that little discrepancy in growth rates? And then, I did want to secondly, follow-up on the video, 10% growth. I mean, obviously the numbers are getting bigger here, but can you kind of put that in context of where you are with share gains and getting into -- deeper into the government verticals and getting some benefits this year from ARPA funding say on Safe Schools and other areas. If you can just put that into context with some of those drivers, that would be great. Thank you.

Jason Winkler:

One other insight into the video growth of approximately 10% this year. Within that, we're really pleased with the cloud growth that we're seeing. Alta which we talked about on the call, the platform is, which is cloud native is growing exceptionally well. We've also made a decision to rationalize some of our on-prem VMS. And the combination of that growth rate in '24 and rationalizing the VMS is about $40 million of impact in 2024. So we're continuing to grow. And, Jack, do you want to talk about the market and how we're doing in Video?

Greg Brown:

Tim, one other thing, just because we're still to George's question weaning off PPV, and we'll have some commensurate benefits this year. If you take last year and this year, as we're working through the supply chain and elevated inventory and an improved freight in PPV, if you look at first half and second half, Tim, to your point about guide and linearity, it's very similar to last year. So I'm not concerned about anything as we sit here with our expectation for the full year performance.

Greg Brown:

Thanks, Tim.

Matthew Niknam:

Hey, guys. Thank you for taking the questions. One question, one follow-up. So just on the supply chain, I think this was alluded to a little bit, but just if you can give any more color on the latest you're seeing there and any noticeable impact from some of the disruption we've seen on the Red Sea front, if that's impacted you guys at all in terms of costs. And then secondarily, can you just talk a little bit more about the Jabil agreement, strategic rationale there and any cost implications we should keep in mind? Thank you.

Matthew Niknam:

And the Red Sea?

Jason Winkler:

And as we worked through the year, it would be our expectation at the end of the year to have overall inventory reduced. Again, this year, as things normalize and improve.

Greg Brown:

That's right. The $827 million was down $200 million from its 12 month predecessor and we expect to drive $827 million down even further by year's end as we navigate an improving environment.

Jason Winkler:

Thank you.

Adam Tindle:

Okay. Thanks. Good afternoon. Jason, I just wanted to start on backlog trends for a clarification. I know reported backlog in total appears, the headline appears to be down, but I think there's a lot of impact from Airwave in that. Could you just give us a sense of what backlog looks like ex-Airwave. And then just as a follow-up on that topic, either Jack or Greg or if you want both weigh in, this is just a metric that I think investors are watching very closely because backlog builds and records have happened across tech hardware, whether it's Cisco in networking or [PCEs] (ph) before that and led to a sharper digestion period than initially anticipated once that backlog started softening. So wondering if you could maybe just double click on the current state of supply and demand and address how you think about the similarities or differences in what you're seeing in your business and the time and shape of normalization, if and when that does happen. Thank you.

Jack Molloy:

Couple of attributes I think that are important to understanding our backlog. First, over 95% of our backlog comes to us from our government customers and our public safety customers. So, and the majority of that is a direct relationship and a contractual one between us and an end customer. That is very important. And secondly, as you think about our backlog, we entered the year much like last year in a position where about half of our revenues for the year, a little bit more than that will come to us from backlog. And with that strength combined with the pipeline strength, that's what informs our guide for our 6% growth.

Adam Tindle:

Very helpful. Just quickly, Jason, I'm sorry if I missed it, did you talk about free cash flow expectations in 2024 and any benefit from working capital with the Jabil agreement? I know sometimes that can have some transitional working capital that may be favorable. So free cash flow and the potential benefit.

Adam Tindle:

Very helpful. Thank you.

Joseph Cardoso:

Hey. Thanks for the question, guys. I just wanted to follow-up on the last free cash flow question. I guess when I'm taking a look at it, it kind of implies that you're going to have a nice step-up in free cash flow generation, which in combination, exiting 2023 with I think, $1.7 billion of cash on the balance sheet. Looks like you'll have a fair bit of dry powder. Can you just help us think about the appetite in '24 to deploy cash, buybacks, M&A? Like should we be thinking about a more aggressive than typical nature? Any color would be appreciated. Thank you.

Jason Winkler:

The other thing that was noteworthy in '23 given the strength of our balance sheet is that we did earn an upgrade from Moody's to be Aa2. And as Greg mentioned, we will be in the debt markets this year refinancing $1.3 billion. And so, having taken note of that strength of the cash flow in '23 as well as our expectations in '24, that will help us as we refinance.

Greg Brown:

Yeah, we will pursue the next step, which is appealing to the UK Court of Appeals. We anticipate doing that next week. I've said all along and we remain pretty consistent that this whole thing has -- is beyond unique. We still believe it's unprecedented. We think it's legally flawed. But I'm not going to whine about it. I'm consistent in our description. We're going to pursue all the avenues available to us to defend our position. So to your point, that will be the filing of the appeal to the UK Court of Appeals next week. Unclear how long that will take. Probably, several months, but that remains to be seen. The only other thing I'd say is in public commentary that has been made with the CMA and other parliamentary hearings, it's pretty obvious that they believe that Airwave will be needed well beyond 2026. The references have been made by different parties to either meeting it through 2029 or 2030. So we will continue to move forward as best we can, engaging where we can, maintaining the investments that we need to make in this network and customer service levels as high as they've ever been.

Greg Brown:

That’s right.

Joseph Cardoso:

I appreciate the color, guys. Thanks. Thanks for all the questions.

Tomer Zilberman:

Hey, guys. Thank you for the question. Just wanted to start off first with ARPA. I just wanted to get an update when it contributed to orders this year and your expectations going into next year. I know you previously noted, it was 5% contribution in '22 and I think you said in the first half of this year was also 5%.

Tomer Zilberman:

Got it. And then maybe just as a quick follow-up. I know you touched on backlog already, but curious how the duration of the backlog has improved in the last three months and maybe the start of this year?

Tomer Zilberman:

Got it. Thank you.

Benjamin Bollin:

Good afternoon, everyone. And thanks for taking my question. Greg, bigger picture question. Going into an election year, curious how that has any impact if at all on how you guys thought about 2024 in your top line targets? And then a secondary question would be, could you share your thoughts around the typical refresh that you see in the fixed video deployment and how you think about replacement versus net new placements in the wild and how that kind of comes together in that 10% figure that you're talking about for video growth this year? Thank you.

Jack Molloy:

Yeah. Ben, it obviously varies if there city wide deployments, meaning outside cameras, you start to see a replacement cycle of anywhere kind of three to five years in the networks that we manage. Internally, those upgrades are more driven by the R&D investments that Mahesh and team have made around analytics. I would note one thing, the acquisition we made in telco, we're actually very pleased in 2023 with the growth that Telco had. But as we think about competitive VMSs that are out there, the work that we have ahead of us this year is to go and leverage our telco portfolio to drive -- to drive new opportunities in the camera replacement cycle.

Benjamin Bollin:

Thanks, guys.

Operator:

The next question comes from the line of Keith Housum with Northcoast Research. Your line is now open.

Jason Winkler:

Sure. So the HALO Video sensor, our [health HALO] (ph) sensor is actually not a new thing for us. We have -- Avigilon had partnered with IPVideo for quite some years. We've actually been reselling the IPVideo solution. And the key reason there is that there are plenty of situations like in schools where video cannot be used in certain locations, but these sensors can. So think of it as the detection of smoking vape sensors, et cetera in bathrooms, in areas where we typically do not install cameras. But become quite important from a security and a safety standpoint. HALO is sort of the leading sensor when it comes to air quality, vape sensing, audio analytics including gunshot detection. And so as we think about really expanding our capability within education and beyond, this is just a natural fit for us to bring in and integrate more closely with our Unity and Alta platforms.

Keith Housum:

Okay. Makes sense. Helpful. I appreciate it. Small question, changing gears, slightly here. No conversation on PCR and I know there's been some moving pieces throughout the year in terms of getting out of some of the areas like Asia, but perhaps just give an update on where PCR stands and I know there was also some issues with supply chain earlier in the year. Any update would be helpful there. Thanks.

Keith Housum:

Great. Much appreciated. Thank you.

Operator:

The next question comes from the line of Louie DiPalma with William Blair. Your line is now open.

Greg Brown:

Louie, how you doing?

Jack Molloy:

Yeah, Louie. So, to begin with, Avigilon Alta Video is already on Google Cloud today. And this is really a scale story and especially a scale around some key vectors, for example, AI. And so as we think about expanding Alta geographically. As we think about expanding Alta, and more broadly video across our capability set, AI was important, mapping capabilities was important, low latency data delivery, video delivery was important. And we thought that Google would be a good partner as we expand our installation, our capability of deploying within Google Cloud. In terms of sort of more a broader comment on this. Look, there's lots of stuff happening in the cloud world today, whether that's on the AI side, core cloud services, et cetera. And we want to be able to provide our customers with the best performance at the best price point. And so this Google partnership is really part of our multi-cloud strategy at the end of it all. So that's really what drove it.

Greg Brown:

We're positioned to offer our customers a choice. As Jack mentioned, we have growth expectations for both Unity, the on-prem as well as Alta, customers like those in education, we mentioned on the call are increasingly choosing Alta. The difference between the two is really how the VMS or software layers delivered. In the case of Alta, the VMS is delivered and deployed to the cloud under a term license. And in the case of Unity, it's an on-prem and more of a perpetual with a maintenance arrangement. So, those are the two models we have. Jack, customers are…

Greg Brown:

And Louie, while the customer decides, it's not so much what we push, it's what they want. And as Jack said, many customers deploy -- they deploy both. Cloud fixed video is smaller from our overall revenue contribution than prem fixed video, but it's noteworthy to say that the growth of cloud fixed video is a strong multiple of the prem solution.

Greg Brown:

I don't know, it depends on what '24's growth composition ultimately ends up being. But what I will say is the cloud solution, in our case Alta is growing significantly faster than prem. So it's hard to predict the competition -- the composition at end of year '24 till we see how things settle.

Greg Brown:

Thank you, Louie.

Unidentified Analyst:

Hey, everyone. You've got [Jamie] (ph) on for Meta. I appreciate you taking the time. Similar to one of the earlier questions and understanding that you're still seeing strong growth and some impressive wins in the quarter, the Q4 growth and accompanying 2024 outlook in Command Center just looked a little bit lower than what we had been modeling. So, I guess is there any additional detail you can provide as to -- as to what you're seeing there and what's driving that outlook on '24? And then as a follow-up, how should we think about the contribution from pricing broadly in the growth outlook for '24?

Jason Winkler:

And in terms of growth drivers for '24, we would expect growth from both volume and price Inclusive of ASPs continuing to grow as they did in '23 as our customers adopt more of the feature-rich part of the portfolio, including APX NEXT in other parts of the portfolio, we would expect that to continue and that's included in our growth expectations.

Greg Brown:

Thanks, Jamie.

Greg Brown:

Yeah, thanks. Listen, thank you for dialing-in and listening. I would just close by saying that, I think as we're entering 2024 or in it now in February, it's pretty clear that public safety and enterprise security have never been more important. I love the fact that we've got the broadest and most comprehensive product portfolio. I like the fact that as customers index to a more notable adoption on cloud acceleration, we're able to capitalize on that with our Alta solution. I love the fact that we have the APX NEXT refresh cycle in particular continue to march forward and that remains robust. And as was mentioned on the call, I am particularly excited about our partnership with Google. For all of the [Motorolas] (ph) listening-in on the call. I'm really proud of you. I'm proud of our team's execution in '23 and I'm anticipating another strong year in 2024 and I appreciate everything you're doing. I look-forward to catching-up and talking with you and debriefing in a quarter. Thanks again for all the great work.

Tim Yocum:

Good afternoon. Welcome to our 2023 third quarter earnings call. With me today are Greg Brown, Chairman and CEO; Jason Winkler, Executive Vice President and CFO; Jack Malloy, Executive Vice President and COO and Mahesh Saptharishi, Executive Vice President and CTO. Greg and Jason will review our results along with commentary and Jack and Mahesh will join for a Q&A. We posted an earnings presentation and news release at motorolasolutions.com/investor. These materials include GAAP to non-GAAP reconciliations for your reference. And during the call we referenced non-GAAP financial results including those in our outlook unless otherwise noted. A number of forward-looking statement will be made during this presentation and during the Q&A portion of the call. These statements are based on current expectations and assumptions that are subject to a variety of risks and uncertainties. Actual results could differ materially from these forward-looking statements. Information about the factors that can cause such differences can be found in today's earnings news release, in the comments made during this conference call in the risk factor section of our 2022 Annual Report on Form 10-K or any quarter The report on form 10-Q, and in our other reports and filings with the SEC. We do not undertake any duty to update any forward-looking statements. And with that, I'll turn it over to Greg.

Jason Winkler :

Thank you, Greg. Revenue for the quarter grew 8% and was above our guidance with growth in both segments both regions and all three technologies. FX tailwinds during the quarter were $13 million while acquisitions added $19 million. GAAP operating earnings were $639 million or 25% of sales up from 15.7% in the year ago quarter, which had the impact of the $147 million fixed asset impairment charge related to our exit from the ESN contract in the UK. Non-GAAP operating earnings were $741 million, up 10% From the year ago quarter and non-GAAP operating margin was 29%, up 50 basis points driven by higher sales, lower material costs and improved operating leverage partially offset by a higher mix of international product shipments and the revenue deferral related to Airwave. GAAP earnings per share was $2.70, up from $1.63 in the year ago quarter, which has the impact of the ESN asset impairment. Non-GAAP EPS was $3.19 up 6% from $3 per share last year. The growth in EPS was driven by higher sales and margins, partially offset by the Airwave deferral and a higher effective tax rate in the current year. OpEx in Q3 was $551 million, up $29 million versus last year primarily due to acquisitions and higher employee incentives in the current year. Turning to cash flow, Q3 operating cash flow was $714 million up $326 million versus last year and free cash flow was $649 million of $331 million. The increase in year-over-year cash flow was primarily driven by higher earnings and improved working capital. And with our Q3 year-to-date operating cash flow of $799 million, up significantly from last year, we are solidly on track to deliver on our $1.9 billion of operating cash flow outlook for this year. Capital allocation for Q3 included $147 million in cash dividends $322 million in share repurchases and $65 million of CapEx. Moving to segments. In the Products and SI segment, sales were up 5% versus last year driven by growth in both LMR and video. Currency tailwinds were $4 million, and revenue from acquisitions in the quarter was $1 million. Operating earnings for the segment were $420 million or 26.1% of sales, up from 24.5% in the prior year driven by higher sales, lower direct material costs and improved operating leverage, partially offset by mix. Some notable Q3 wins and achievements in the Product segment include a $75 million P25 device order for a U.S. federal customer, a $55 million P25 System order for a Southeast Asia customer, a $42 million P25 device order for the Texas Department of Public Safety, a $30 million P25 device order for a U.S. federal customer, a $20 million P25 device order for Indiana State Police and a $3 million fixed video expansion order for a U.S. federal customer. In software and services, revenue was up 12% inclusive of the Airwave deferral with 31% growth in Command Center and 15% growth in Video. Revenue from acquisitions was $18 million in the quarter, and FX tailwinds were $9 million. Operating earnings in the segment were $321 million, up 7% versus last year and operating margins were 34%, down from 35.7% last year. Excluding the Airwave deferral, operating margins for the segment were up, driven by higher sales and improved operating leverage. Some notable Q3 highlights in this segment include a $23 million LMR service agreement for a large European customer, a $23 million service agreement for East Bay regional communication systems in California, a $20 million LMR service agreement for the Los Angeles Police Department, a $12 million command center order for Tarrant County 911 District in Texas and an $8 million body-worn camera order for the Metro Nashville Police. Looking at our regional results. North America Q3 revenue was $1.8 billion, up 6% on growth in all three technologies. International Q3 revenue was $773 million, up 13% versus last year driven by growth in LMR and Video. Moving to backlog. Ending backlog was a Q3 record of $14.3 billion, up 6% or $764 million versus last year, inclusive of $321 million of favorable currency rates driven by strong demand in North America. Sequentially, backlog was down $4 million, inclusive of $125 million of unfavorable FX, driven by the revenue recognition of Airwave, partially offset by strong demand in North America. In Products and SI, ending backlog was up $62 million or 1% versus last year, driven primarily by strong demand in North America. And sequentially, backlog was up $80 million, also driven by strong demand in North America. In Software and Services, backlog increased $702 million compared to last year, inclusive of $294 million of favorable FX driven by strong demand for multiyear software and services contracts in North America, partially offset by the revenue recognition for Airwave. Sequentially, backlog was down $84 million, driven by unfavorable FX of $96 million, partially offset by growth in multiyear Software and Services contracts in North America. Turning next to our outlook. We expect Q4 sales growth of approximately 4%, with non-GAAP EPS between $3.60 and $3.65 per share. This assumes a weighted average share count of approximately 171 million shares and an effective tax rate of approximately 24%. For the full year, we are again increasing both our revenue and earnings guidance. We now expect revenue in the range of $9.93 billion to $9.945 billion, up from our prior range of $9.875 billion to $9.9 billion, and we expect non-GAAP earnings per share between $11.65 and $11.70, up from our prior guide of $11.40 to $11.48 per share. The full year outlook assumes $40 million of FX headwinds, up $25 million from our prior guidance. A weighted average diluted share count of approximately 172 million shares and an effective tax rate of approximately 23%. Before I turn the call back to Greg, I'd like to highlight two points. In addition to the strength of our LMR and Video business, our Command Center portfolio performed well during the quarter. In Q3, we achieved strong growth, complemented by a robust contribution from Rave, an acquisition, which continues to exceed our expectations. Secondly, our supply chain execution navigating extended lead times for some semiconductors and reducing broker purchases continues to drive year-over-year cost savings. We now expect the impact of lower broker purchases to be a $70 million tailwind for this year, up from our prior estimate of $60 million. As a result, we now expect full year operating margin expansion of approximately 200 basis points, up from our prior guidance of 175 basis points. I'll now turn the call back to Greg.

Tim Yocum :

Thank you, Greg. Before we begin taking questions, I'd like to remind callers to limit themselves to 1 question and 1 follow-up to accommodate as many participants as possible. Operator, would you please remind our callers on the line how to ask a question?

Tim Long :

Yeah, the two, if I could. First, maybe on the Command Center and Software side, pretty strong, obviously, with Rave, a part of that. Could you maybe Greg talk a little bit about what's driving that addition of Rave seems to be positive. Is it adding to ability to cross-sell some of the different platforms or -- just a little bit more color on what's driving that and how Rave ties into that? And then the second one, on the backlog still being record, it's pretty impressive. Most companies are seeing backlog coming down. So a little color there and maybe how that makes you feel about next year as far as growth? Do you think you can kind of sustain the type of growth rates you're seeing this year? Thank you.

Mahesh Saptharishi :

Full year, I would say that we still expect our growth to be 20%. Look, our core platforms, that's NG-911, CAD, Records Aware, are all doing well as well. As Jason read out in the script, St. Charles, Missouri, just refreshed their call handling solution and adopted our [indiscernible] routing. And you see us solution, Western Australia Police refreshed their CAD. There's also an ecosystem story here. Rave is certainly performing well above our expectations. Arizona is now the 15th state to sign on to Rave Alert. It's a statewide mass notification system. And as we're doing that, we're also refreshing all the call handling instances across the PSAPs in Arizona. And our call handling system integrated with Rave as appropriate here as well. When you think about a city like Glendale, Glendale now brings in radio, brings in CAD 911, Rave, et cetera, now into a state-of-the-art real-time crime center, all integrated with Aware. And now you can think about orchestration when major incidents happened on the heels of things like active shooter incidents, et cetera, that benefit from the fact that the ecosystem allows you to now respond much faster.

Greg Brown :

Yeah. And Tim, as it relates to 2024, obviously, we'll wait until February to give specifics on any kind of detailed guidance. I would tell you, as we sit here today from a high level, we would estimate revenue, again, kind of back of the cocktail napkin to be about $10.5 billion at this point as we sit here today. By the way, that's inclusive of $250 million of incremental revenue headwinds, about $200 million of that out of the UK home office. We've talked to you about that before. The deferral of Airwave representing a little bit over $100 million, the balance of that being the formal exit of ESN for a total of $200 million related to the UK Home Office and anticipated FX headwinds of about $50 million. So high level, as I sit here today and take a look -- that's kind of how I would dimensionalize next year and filling in more detail when we get together in February.

Greg Brown :

Thank you, Tim.

George Notter :

Hi, guys. Thanks very much. Greg, you mentioned the UK I guess I was wondering what the latest and greatest is out of the UK. I know you guys were going through the CAD tribunal process. I think the release today references that you still haven't heard back. I think you had expected to hear back after a number of weeks. And so wondering what's going on there. I'm wondering if the delay in being back with you is potentially good news. But what do you think is going to happen there? And what does it look like in terms of the appeal processes if that CAD tribunal process did not work out?

George Notter :

Got it. And then just as a quick follow-up. I assume the -- I understand that you guys have made the adjustment in terms of your financials and expectations. But I assume that contract is still going as is while we wait for the CAD tribunal to make a vision and then potentially other appeals processes. Is that correct? Are you taking the price it now?

George Notter :

Thank you.

Operator:

The next question is from the line of Keith Housum with Northcoast Research. Your line is now open.

Jason Winkler :

Keith, thanks for the question. The supply chain environment for our needs for chips, which I'll remind everyone is for generally 40 nanometers and above is improving, although it's not to levels of normality. For example, lead times for certain chips are now approaching 25-26 weeks where they had been double that, but in a normal environment, they should be 15 or 16. So improvements, yes, and that's what's helping us drive the favorability of now $70 million in the P&L, but still some opportunity to improve further, and that's what's incorporated into our expectations for Q4 that we'll continue to use the tools that we've been using for a number of quarters now, looking for substitutes, working with our supplier partners and using the available supply that we can find at lower prices.

Jason Winkler :

Yeah. Next year, as we told you on the last call, we're planning for about $60 million of '24 incremental PPP relief over '23. So we still have opportunity to capture there and expect that in the P&L. And again, that aligns to our expectations that things will continue to improve into '24.

Greg Brown :

Yeah. Well, we certainly are in great shape from a balance sheet standpoint and the firepower to do some things inorganically. It's ironic, Keith, because here was sitting in November, and we have not done an acquisition yet to date. That is certainly not for a lack of an active and a fulsome funnel, but we've been pretty diligent and quite frankly, some sellers have been reluctant at prices that we thought would be more reasonably valued. That's okay. Having said that, do I anticipate some continued M&A tuck-in activity, I do and the team, Raj, Mahesh, Jack, Jason, Michael, Anas [ph] are actively working that funnel. I think we still probably emphasize in general, services and video security and access control as areas of probably higher priority than others that we would look to do inorganically. And if there's something larger for us to consider, we would evaluate that as well clear eyed, but balance both financially and strategically, and we'll see what comes.

Greg Brown :

Thanks, Keith.

Adam Tindle :

Okay, thanks. Good afternoon. Congrats on the results. Greg, I wanted to start with backlog, again, record levels. Just I guess the heart of the question would be how long do you think this can continue? Do you think we're going to exit this year with record backlog again? Or when do you expect to see maybe some level of attenuation or normalization slowing in backlog based on what your business looks like right now?

Adam Tindle :

Got it. Okay. And then as we think about that backlog converting to revenue, obviously, supply chain is still challenged, but starting to get better, and I'm wondering what that could ultimately mean for 2024 growth in various scenarios. Obviously, I'm not guiding to that. I hear you on the 10/5 [ph], but if supply were to kind of free up in a blue-sky scenario, are you looking at high single-digit growth or better? What are the kind of the different scenarios based on potential backlog converting to revenue?

Adam Tindle :

Okay. Yeah. Understood. I know you like to stay conservative, which I think we all appreciate. Maybe just 1 final point on this for Jason. As this backlog comes through, can you maybe speak to the margin profile of that? I can't remember if you're a FIFO or LIFO, but there may be some benefit from higher priced backlog coming through and would think that would potentially help margins moving forward. But any finer point you can put on the mechanics of that would be helpful. Thanks.

Greg Brown :

And I think we do expect operating margin next year.

Adam Tindle :

Okay. Appreciate the clarification. Thanks, guys.

Operator:

The next question comes from the line of Tomer Zilberman with Bank of America. Your line is now open.

John Molloy :

Sure. Thanks, Tomer. So first of all, I want to highlight the fact that we're actually really pleased with Q3 because the 8% is against the backdrop of a comp last Q3 of 33%. So our full year expectations remain unchanged. It's really a linearity story. And I think leaving that, I think we take a look at it and say, from an alignment standpoint from the portfolio investments, we just announced the H6A camera. We're now shipping the ACC8, which is a unified video management solution. And then more importantly, if you think about the verticals that we serve, it's government, which has shown resilience in funding, it's education is health care and industrial, which has actually grew 17% for us this quarter. We're really pleased, and we think there's good synergies on the investments we're making in the markets that we serve.

John Molloy :

Actually 8%, over 33%.

Tomer Zilberman :

Got it. And if I can just follow up. In terms of your 4Q and your fiscal guidance, I'm sure this is just something more with language than anything your 4Q guidance of 4% implies the higher end of your revamped fiscal guidance, while the low end of your fiscal guidance would imply around 3.5% growth for 4Q. So can you just talk about what would draw -- what could happen that would draw that incremental 0.5 point weakness?

Tomer Zilberman :

Great. Thank you.

Operator:

The next question comes from the line of Meta Marshall with Morgan Stanley. Your line is now open.

Mahesh Saptharishi :

Just to start out with on the integration piece, we announced a quarter ago, I believe, at this point, where we are bundling Rave with all our new Vesta offers going forward. There's an integration between our call handling solution and Rave as well. We have deeper penetration into the education market with our integration with Orchestrate and with our Video solutions, panic button being a big part of it. We integrated the Panic Button Rave elements with Aware, the command center Aware, for real-time prime center. So all of that acts as a very positive synergy, and I think that helps with the really accelerating rate adoption across the board.

Jason Winkler :

And just to remind everybody, the size and scale of our federal business last year was 7% of our total revenues. This year, it's trending slightly higher than that. It's an important market for us. And it remains an area of focus, but it's smaller than state and local.

Meta Marshall :

Great. Thank you.

Unidentified Analyst:

Good afternoon. Thanks for taking the question. This is Brian [indiscernible] on for Ben. I was wondering if you could update us on the APX NEXT refresh cycle, kind of where we are in that and how you see that playing out into '24 and '25?

Unidentified Analyst:

Okay. And one follow-up, if I could, on the Surveillance business. I think you called out incremental verticals getting involved there, but we would love to hear your perspective on the mix between commercial and public sector and surveillance and kind of how that's shifted and where it's going?

Unidentified Analyst:

Thank you.

Joe Cardoso :

Hey, good afternoon. And thanks for the questions. I actually just want to follow up on the APX NEXT comment and the momentum you're seeing there in combo with the LMR growing mid-single digits. We're just coming up against some quarters with tough compares. So I just wanted to -- just curious or maybe it's more of a clarification. If you think that mid-single-digit growth is sustainable even on top of the difficult compares over the next couple of quarters? And then I have a follow-up. Thank you.

Joe Cardoso :

Got it. That's great. And then my follow-up actually on free cash flow. You had another solid quarter here. It appears that tailwinds are materializing, example being the elevated levels of inventories that we've seen over the past couple of quarters, that's coming down a bit. I guess if we take a step back and we starting to cycle past some of the choppy free cash flow generation we've seen over the past couple of quarters, just given kind of that dynamic macro environment and returning more to a consistency type of level we've seen in the past relative to conversions. Any thoughts on whether the level of shareholder return can be maintained or accelerated going forward, just given working capital, improving the momentum behind the business, et cetera? Thanks, guys.

Joe Cardoso :

Got it. Thanks for all the color.

Operator:

[Operator Instructions]. This concludes our question-and-answer session. I'll now turn the floor over to Mr. Greg Brown, Chairman and Chief Executive Officer for any additional comments or closing remarks.

Operator:

Ladies and gentlemen, this does conclude today's teleconference. A replay of the call will be available over the Internet within three hours. The website address is www.motorolasolutions.com/investor. We thank you for your participation and ask that you please disconnect your lines at this time.

Tim Yocum:

Good afternoon. Welcome to our 2023 second quarter earnings call. With me today are Greg Brown, Chairman and CEO; Jason Winkler, Executive Vice President and CFO; and Jack Molloy, Executive Vice President and COO; and Mahesh Saptharishi, Executive Vice President and CTO. Greg and Jason will review our results along with commentary, and Jack and Mahesh will join for Q&A. We posted an earnings presentation and news release at motorolasolutions.com/investor. These materials include GAAP to non-GAAP reconciliations for your reference. And during the call, we reference non-GAAP financial results, including those in our outlook, unless otherwise noted. A number of forward-looking statements will be made during this presentation and during the Q&A portion of the call. These statements are based on current expectations and assumptions that are subject to a variety of risks and uncertainties. Actual results could differ materially from these forward-looking statements. Information about factors that could cause such differences can be found in today’s earnings news release and the comments made during this conference call in the Risk Factors section of our 2022 annual report on Form 10-K or any quarterly report on Form 10-Q and in our other reports and filings with the SEC. We do not undertake any duty to update any forward-looking statements. And with that, I’ll turn it over to Greg.

Jason Winkler:

Thank you, Greg. Revenue for the quarter grew 12% and was above our guidance with double-digit growth in both segments, both regions and in all three technologies. FX headwinds during the quarter were $23 million, while acquisitions added $20 million. GAAP operating earnings were $518 million or 21.6% of sales, up from 16.7% in the year ago quarter. Non-GAAP operating earnings were $641 million, up 29% from the year ago quarter and non-GAAP operating margin was 26.7%, up 350 basis points. The strong year-over-year increase in both GAAP and non-GAAP operating earnings was driven by higher sales, inclusive of our higher prices, pricing, lower direct material costs and improved operating leverage. GAAP earnings per share was $2.15 compared to $1.33 in the year ago quarter. Non-GAAP EPS was $2.65, up 28% from $2.07 last year. This strong growth in EPS was driven by higher sales and margins, partially offset by a higher effective tax rate in the current year. OpEx in Q2 was $555 million, up $53 million versus last year, primarily due to increased expenses from acquisitions, investments in video and higher employee-related incentives in the current year. Turning to cash flow. Q2 operating cash flow was $93 million, up $83 million versus last year, and free cash flow was $40 million, up $89 million. The increase in year-over-year cash flow was primarily driven by higher earnings and improved working capital, partially offset by higher cash taxes. For the full year, we continue to expect approximately $1.9 billion of operating cash flow. The linearity of our cash flow is expected to be consistent with last year with higher earnings and improved working capital driving increased cash flow in the second half. Also, as we previously highlighted, this year’s cash flow includes approximately $300 million of additional cash taxes compared to last year, inclusive of a one-time $70 million tax payment that relates to an IP reorganization that we did in 2022. Capital allocation in Q2 included $224 million in share repurchases, $148 million in cash dividends and $53 million of CapEx. Moving to segment results. In the Products and SI segment, sales were up 12% versus last year, driven by improved supply availability in the current year and the benefit from pricing actions continuing to flow through. Currency headwinds were $10 million and revenue from acquisitions in the quarter was $2 million. Operating earnings were $285 million or 19.8% of sales, up from 14.6% in the prior year, driven by higher sales, lower material costs, inclusive of lower broker spend for semiconductors and improved operating leverage. Some notable Q2 wins and achievements in this segment include $145 million P25 system upgrade for Kern County, California. A $41 million P25 system and device order for a U.S. federal customer, a $31 million P25 system expansion for Ventura County, California, a $19 million P25 device order for a U.S. federal customer and a $6 million fixed video order for a large U.S. healthcare customer. In Software and Services, revenue was up 13%, including 20% growth in Command Center and 19% growth in Video. Revenue from acquisitions was $18 million in the quarter, and FX headwinds were $13 million. Operating earnings in the segment were $356 million, up 15% versus last year and operating margins were 36.9%, up from 36.1% last year. On higher sales and improved operating leverage, partially offset by higher costs from acquisitions. Some notable Q2 highlights in this segment include a $34 million video order for the Virginia State Police, which included our largest in-car video order ever, a $15 million LMR services agreement with City of Baltimore, Maryland, a $13 million managed services agreement for LMR and a renewal in Latin America; a $12 million Command Center order for a U.S. federal customer and an $8 million LMR service agreement with another U.S. federal customer. Looking at regional results for the company, North America Q2 revenue was $1.6 billion, up 11% on strong growth in all three technologies. International Q2 revenue was $762 million, up 16% versus last year, driven by growth in LMR and Video, partially offset by unfavorable FX. Moving to our backlog. Ending backlog was a Q2 record of $14.3 billion, up 6% or $856 million versus last year, driven by strong demand in all three technologies. Sequentially, backlog was up $211 million, driven by record Q2 orders in both segments. In the Products and SI segment, ending backlog was up $496 million or 11% and year-over-year and up $100 million sequentially, driven primarily by strong LMR demand. In Software and Services, backlog was up $360 million compared to last year, driven by strong demand for multiyear software and services contracts in North America, partially offset by revenue recognition for Airwave and the adjustment related to the ESN contract exit. Sequentially, backlog was up $111 million, driven by record Q2 orders in the segment. Turning next to our outlook. We expect Q3 sales to be up approximately 6% with non-GAAP earnings per share between $2.99 and $3.04 per share. This assumes a weighted average diluted share count of approximately 172 million shares and an effective tax rate between 23% and 24%. For the full year, we are again increasing both our revenue and EPS guidance. We now expect revenue in the range of $9.875 billion to $9.9 billion, up from our prior range of $9.725 billion to $9.775 billion, and we expect non-GAAP earnings per share between $11.40 and $11.48 per share up from our prior guidance of $11.21 to $11.29 per share. This full year outlook assumes $25 million of FX headwinds, a weighted average share count of approximately 172 million shares and an effective tax rate of 23% to 24%. Before turning it back to Greg, I wanted to provide some color on a few financial topics. First, an update on the CMA and Airwave. As we’ve stated previously, we strongly disagree with the CMA’s final decision. Earlier this week, the CMA issued its remedies order regarding implementation of their final decision effective on August 1. This procedural next step does not change our position regarding the ongoing appeal process and our strong belief in our case. However, from an accounting perspective, beginning August 1, we will now defer revenue for the amount above the remedies order price control until the appeals process has been completed. This deferral and resulting lower revenue from Airwave for the remainder of the year is fully incorporated into our increased revenue and earnings guidance for the year. Second, earlier this week, Moody’s upgraded our credit from two Baa2 from Baa3. This higher credit rating underscores the strength of our balance sheet, including the strong liquidity position, our balanced debt maturity profile, significantly improved pension status, along with a track record of consistently growing earnings and cash flow. And finally, our increased guidance for the year highlights the strength of our business as we enter the second half. Our backlog is exceptionally strong, driven by robust customer demand. And based on our current pipeline and supply chain environment, we expect backlog to remain strong going forward. Additionally, the expected lower semiconductors we articulated in February, the cost related to these semiconductors coupled with the pricing adjustments in our own portfolio that were implemented in the second half of last year are driving the significant full year margin expansion of approximately 175 basis points. That is implied in our increased guidance. I’m now turning the call back to Greg.

Tim Yocum:

Thanks, Greg. Before we begin taking questions, I’d like to remind callers to limit themselves to one question and one follow-up to accommodate as many participants as possible. Operator, would you please remind our callers on the line how to ask a question?

Tim Long:

Thank you. I’ll start with the clarification, Jason, one for you, Greg. Jason, yes, pretty impressive, you’re raising numbers despite the change in accounting for Airwave. Just wanted to clarify there we got the new revenue level that was mandated and that you guys are accounting to. Can you just talk a little bit about expenses? I think you guys have run that network pretty efficiently. So should we assume a comparable expense level to how things have been running? Or is does something change on that side on the EPS impact? And then for Greg, if you could just talk a little bit about macro, it sounds like everything’s going pretty well, but if you could just hit on kind of what you’re seeing from the government customers and to what extent you’re starting to see federal and ARPA type of dollars flowing into the business. That’d be great. Thank you.

Greg Brown:

And to Jason’s point, the $80 million reduction due to accounting and the required treatment of that from $560 million to $480 million is obviously all in the back half of the year starting August 1, running through the remainder of the year. As in terms of expenses and investment, we continue to invest in Airwave by the way, Tim just a few months ago the end users gave us feedback and network performance and reliability, which was as high as we’ve ever achieved on Airwave. So we’re proud of that and we continue to maintain and invest on behalf of our end users. In terms of macro, high level the business is as good as I’ve ever seen it. The demand drivers are strong. Jack has talked about, and we’ll talk a little bit about today if you want about device refresh. And interestingly, Tim, Molloy mentioned last year, we try to track demand against the orders achieved last year, and we believe as best we could tell less than 5% of our orders last year were tagged due to ARPA. Through the first half of this year, we also believe it’s less than 5% as well. So the nice thing about this is, we’re seeing demand drivers around public safety, video security, access control, command center, software and services that’s really underpinning environmental and overall demand sure ARPA helps, but as best we could tell, it’s fairly minimal.

Tim Long:

Okay. Thank you very much. Appreciate it.

Operator:

And our next question comes from George Notter from Jefferies. Your line is open.

Jason Winkler:

Hi George, thanks for the question. So we began the year with an expectation for $50 million of lower costs related to premiums through brokers. We’re trending a bit better than that. We’re on path to about a $60 million year-over-year benefit largely in the first half. We’re still spending some investments on brokers. As we look into next year, we would expect to comparable benefit level of about $60 million into 2024 for brokers. Again, the supply chain environment remains fluid. It’s incrementally better, but we’re still using the same tools we’ve been using for over a year to make sure that we get the supplies that we need. The level of commitment from our suppliers is strong but their lead times remain elevated still. And so from time to time we will use PPV [ph] to secure the parts to match the record demand that we’re seeing.

George Notter:

Got it. And then just as a follow-up, if I do the math, I think you’re still caring about $150 million in annualized expedite fees or brokers fees. Is that right for this year?

George Notter:

Great. Okay. Thanks very much. Appreciate it.

Operator:

We’ll take our next question from Adam Tindle with Raymond James. Your line is open.

Jason Winkler:

Yes. So first of all, the beginning date of the deferral for revenue is consistent with the remedies order, which is August 1 to the end of the year. That’s the approximately $80 million. If you do the math on that for next year it would – it’d be approximately another $100 million step down. There are a variety of inputs that go into us servicing Airwave, the usage of the network, the one-time events that go with the network, the number of user communities that subscribe as well as inflation and other variables that go into how much revenue we recognize from the contract. All those things together last year $560 million, this year on path to $480 million and then you can do the math on the price control into next year for approximately another $100 million decline.

Jason Winkler:

For the full year, correct.

Adam Tindle:

Okay. And that $100 million on revenue, would that also be about approximately that on the EBIT line or any way to think for us to think about EBIT on that a $100 million?

Adam Tindle:

Got it. Okay. Makes sense. And then absent that, obviously Greg, as you mentioned, the rest of the business is running in incredibly well. Notably, the PSI segment over 50% operating income growth on 12% revenue growth and I’m looking at a first half margin near 20%, which is I think maybe even unprecedented for that segment in total for the first half. So I guess a question on that would be how do you see the margin trajectory of that piece of the business? I know it’s been through a lot whether it was COVID and pandemic and all that. I wonder if you’re coming out the other side with maybe a structurally improved margin profile and how you’re thinking about the trajectory of that piece of business. Thanks.

Jason Winkler:

So it’s important to note also in terms of the first half performance, and you’re right, we had significant margin expansion in products. That’s off of last year’s first half, which included our highest broker costs as well as last year’s first half didn’t include our own pricing increases. So effective July 1 of last year in our second half, you saw significant on good growth, significant margin step up in the second half. That’s continued through the first half of this year. And as we look to growth in our second half this year, we’ll still have margin increases over those records from last year. And really that’s a function of when we implemented the price increases and when the PPV or higher broker costs have come out of our product set.

Greg Brown:

Thanks, Adam.

Ben Bollin:

Thanks. I appreciate you guys taking the question. Greg, I was hoping you could – you made the comment about the overall funding environment being so healthy. And I’m not trying to get you to guide into 2024, but I’m interested how you think about just public sector funding overall, the sources of income to public sector and how you think that’s evolving as you look out over into 2024 and beyond.

Jack Molloy:

Thank you, Greg. And I think what I would say there is when we think about top of the pipeline being quoting, bottom of the pipeline being orders, and then the most important metric is the velocity between those two. The our velocity remains consistent. In fact, it’s improved and we’ve seen a growing number of quoting. So I think that portends well to 2024. The other thing that I think is lost in a lot of people when we think about government funding, we’ve talked about ARPA. But when you think about personal income tax, corporate income tax and sales tax, those three funding streams have all been the beneficiary for government from inflation. So inflation for them means they get more tax receipts in. And their costs haven’t necessarily gone in parallel. And I think a lot of people don’t necessarily understand that, but I just wanted to mention that. So all things in, I think the funding environment and government remains very strong.

Jack Molloy:

So, well, K-12 is – there’s really two technologies. It’s video security and access control. And depending on the type of school district, we’ve seen an acceleration into our Alta, Avigilon Alta, which is cloud, but we’ve also got larger school districts that continue to buy Unity. But the K-12 education in general, we put the marker in that our video business is growing 15% K-12 and the EDU market is, is surpassing that growth level. It did last year, and it continues to grow through the first half of this year very robustly. And I think some of that’s the beneficiary of ARPA funding, but I think a lot of it is really much more – it’s much more secular around school security and that it’s getting prioritized over everything else.

Greg Brown:

Good point, Mahesh.

Operator:

We’ll take our next question from Joseph Cardoso with J.P. Morgan. Your light is open.

Greg Brown:

Yes. Joseph, just – I’m sure Jason will jump in as well, but I remind you that, you’re right. Normally, this business is typically Q3 and Q4 weighted and seasonally dense. I think that’s unchanged. But remember, we’re guiding an increase in top and bottom, even with the $80 million of Airwave deferral in the back half and another $50 million of PCR light business model change. Jason can elaborate on that. So that’s $130 million of revenue growth that needs to be incorporated into the second half guide, but still informs and allows us to raise. And on the bottom EPS line we have an incremental $0.30 tax headwind, $0.50 for the year. We had $0.20 headwind, first half $0.30 of EPS structural tax headwind back half. So as you incorporate those ingredients into the blender, it shouldn’t take away or distract at all that the demand is strong, the raise is strong and the momentum is strong.

Greg Brown:

And the choice, we…

Joseph Cardoso:

Yes. Got it. Thanks. Appreciate all the color there.

Operator:

Next question comes from Keith Housum with Northcoast Research. Your line is open.

Greg Brown:

Well, we had previously said, Keith, thanks for the question that on the full year, we thought we could achieve comparable margins. We had great S&S performance in Q2 and we thought we could have for the full year, as we told you a quarter ago, comparable maybe slightly down, but I thought we were shooting for comparable operating margins in light of the required accounting treatment on Airwave and the decrement of $80 million starting August 1. That falls obviously to SNS and the requisite profitability that Jason articulated. So I’ve now and we now expect S&S operating margins accounting for that deferral to be down on an operating margin year-over-year basis. In terms of next year, it’s too early to, to guide for that. And we have to see ultimately what’s decided with the Competition Appeal Tribunal appeal and what the disposition of Airwave is from a financial perspective. That said, we continue to make improvements on synergies and platforming S&S, maybe Mahesh could talk a little bit about that. We’re doing some successful orchestration and integration to get the software sleeves more integrated and working a little bit more seamlessly and a little bit more efficiently. So there’s opportunity, Keith, but it would be premature to quantify at this time.

Mahesh Saptharishi:

Across our platform…

Mahesh Saptharishi:

So across our platforms whether that’s cloud or on-prem we are exercising greater synergies in terms of core technology stack. We are optimizing some of our cloud delivery capabilities and really focusing a lot on ease of install as well, so all of that translates to hopefully a good game for us.

Greg Brown:

Well, in terms of the appeal, it would be our expectation that the CAT rules on the appeal by the end of Q3. I don’t really want to get into hypotheticals on if this, then, that, but we have been consistent, Keith, that said, we will exercise all legal avenues available to us. So the next step after the CAT, if the CAT rules against us would be us taking to this to the UK Court of Appeals. And that would be after the CAT ruling. I don’t know the timeline of what they would do. What happens there is they have to decide up or down whether they would actually hear the case. I don’t know the timeline that they have available to them in terms of the window to decide. So this will go on a few more months and hopefully we can give you more clarity on the next earnings call.

Greg Brown:

Thanks, Keith.

Meta Marshall:

Great. Thanks. Just a couple questions for me. First, obviously the backlog continues to grow. I guess, I just want to make sure is there anything that we should be mindful of a peak quarter for product just in terms of as the supply chain clears and less forward orders? Or is this just really a result of kind of strength of multi-year orders, maybe as the first question. And then as a second question, just traction on kind of bringing APX NEXT into the mid-market or just kind of adoption trends that you’re seeing there? Thanks.

Jason Winkler:

And related to APX NEXT, Meta, we are now – we had a very strong quarter of new orders. In terms of Q2, we received another $80 million now bringing it close to a half of $500 million in APX NEXT. And when I look at the complexion of those orders, it’s not just big cities, but it’s starting to hit into the Tier 2 cities as well. So we’re really pleased with the performance of that product line.

Jason Winkler:

Thanks, Meta.

Louie DiPalma:

Greg, Jason, Jack, Mahesh, and Tim, good afternoon.

Louie DiPalma:

Doing excellent. Thank you. As it relates to the LMR device refresh last quarter you discussed how 80% of LMR radio orders were for your older APX radio, despite how APX NEXT has had the strongest demand of any new radio that you have ever introduced and how it was introduced way back in October 19. Why are so many customers still adopting the older APX platform and does this instill confidence that the upgrade cycle for APX NEXT will still potentially be in full effect even a decade from now?

Louie DiPalma:

Great. And it seems that The House committee has approved a $15 billion next-generation 911 funding bill. And on this topic, what is the status of the integration of Rave Wireless with your VESTA solution? And has the adoption of Rave accelerated as a result of the combination with Motorola? Have you juiced up Rave’s ability to generate orders from the education vertical and enterprise vertical?

Louie DiPalma:

Great. Thanks, Mahesh. And lastly for me, do you have any thoughts on the reported TETRA cybersecurity vulnerabilities?

Louie DiPalma:

Great. So it’s been resolved already. Thanks.

Louie DiPalma:

Thanks.

Greg Brown:

Thanks, everybody. Thanks for joining us, but just in closing, I want to make sure I thank all the employees and the people in Motorola Solutions worldwide and all of our channel partners worldwide. I’m proud of you and we’re proud of you, most especially what you do, how you do it, and the execution. I said in the call, you heard from Jason and Mahesh and Jack, this business is performing as well as I’ve ever seen it. Demand is strong. It’s strong for what we do, public safety, enterprise security. And I like what we’re doing to meet that demand and exceed that demand with the execution of what we do and what we’re doing on the portfolio reinvention and device refresh. We talk a lot about APX NEXT and all the great work done there, but there’s also great work being done on video security and access control that Mahesh is doing around 911 command center. And while we’re doing that and running the business and lowering PPV costs and incrementally improving supply chain and engineering in real time doing product redesign, we’re expanding gross margins, we’re expanding operating margins. We have a record Q2 for orders. We end Q2 with record backlog. We talked about the duration of backlog being stronger. And Jack talked about the pipeline activity and the order velocity and conversion. It’s excellent. And Jason talked about that we expect backlog to be strong for the balance of the remainder of the year. The last two things I’d say is we referenced it a little bit, we just talked about Rave. I’m really proud of the acquisitions we’ve made, the integration work that’s been done organizationally and strategically, but also technically. And those acquisitions are performing at or above what we expected. We have – I love the upgrade. We just got, we have a strong balance sheet. We continue to be disciplined in capital allocation, and I think we have an excellent opportunity in front of us. I appreciate you joining us, and we’ll talk to you again in a few months. Thank you.

Tim Yocum:

Good afternoon. Welcome to our 2023 first quarter earnings call. With me today are Greg Brown, Chairman and CEO; Jason Winkler, Executive Vice President and CFO; Jack Molloy, Executive Vice President and COO; and Mahesh Saptharishi, Executive Vice President and CTO. Greg and Jason will review our results along with commentary and Jack and Mahesh will join for Q&A. We have posted an earnings presentation and news release at motorolasolutions.com/investor. These materials include GAAP to non-GAAP reconciliations for your reference. And during the call, we referenced non-GAAP financial results, including those in our outlook, unless otherwise noted. A number of forward-looking statements will be made during this presentation and during the Q&A portion of the call. These statements are based on current expectations and assumptions that are subject to a variety of risks and uncertainties. Actual results could differ materially from these forward-looking statements. Information about factors that could cause such differences can be found in today’s earnings news release and the comments made during this conference call in the Risk Factors section of our 2022 annual report on Form 10-K or any quarterly report on Form 10-Q and in our other reports and filings with the SEC. We do not undertake any duty to update any forward-looking statements. And with that, I will turn it over to Greg.

Jason Winkler:

Thank you, Greg. Revenue for the quarter grew 15% and was above our guidance with double-digit growth in both segments, both regions and in all three technologies. FX headwinds during the quarter were $45 million, while acquisitions added $42 million. GAAP operating earnings were $399 million or 18.4% of sales, up from 12.6% in the year ago quarter. Non-GAAP operating earnings were $532 million, up 42% from the year ago quarter and non-GAAP operating margin was 24.5%, up 470 basis points. This strong year-over-year increase in both GAAP and non-GAAP operating earnings was driven by higher sales, lower direct material costs, inclusive of lower broker spend in attaining semiconductors and improved operating leverage. GAAP earnings per share was $1.61 compared to $1.54 in the year ago quarter. Non-GAAP earnings per share, was $2.22, up 31% from $1.70 last year. The strong growth in earnings per share was driven by higher sales and margins, partially offset by a higher effective tax rate in the current year. OpEx in Q1 was $530 million, up $38 million versus last year, primarily due to acquisitions and higher incentives in the current year. Turning to cash flow. Q1 operating cash flow was a usage of $8 million and free cash flow was a usage of $62 million. The cash flow in Q1 was in line with our expectations and included a onetime cash tax payment of $70 million related to an IP reorganization we completed last year. It also reflects our strategic decision to carry higher inventories. For the full year, we continue to expect operating cash flow to be approximately $1.9 billion, with greater contributions in the second half, consistent with the shape of last year’s cash flow. The capital allocation for Q1 included $148 million in cash dividends, $140 million in share repurchases and $54 million of CapEx. Moving to our segment results, in the Products and SI segment, sales were up 18% versus last year, driven by improved supply availability in the current year and the benefit from pricing actions flowing through. Currency headwinds were $19 million and revenue from acquisitions in the quarter added $12 million. Operating earnings were $246 million or 18.9% of sales, up from 8.7% in the prior year, driven by higher sales, lower material costs, inclusive of lower broker spend and improved operating leverage. Some notable Q1’s achievements in this segment include a $27 million countywide P25 system for Johnson County, Missouri, a $20 million P25 device order for a U.S. state and local customer, a $17 million P25 system for Wakulla County, Florida, a $16 million fixed video contract for a large health care system and a $15 million Apex and Apex Next devices order for the Kansas Highway Patrol. In Software and Services, revenue was up 10%, including 19% growth in Command Center and 20% growth in video. Revenue from acquisitions was $30 million in the quarter, and FX headwinds were $26 million. Operating earnings in the segment were $286 million, up 3% versus last year and operating margins were 32.9%, down from 35.2% last year on mix, higher costs from acquisitions and FX. For the full year, we expect operating margins in this segment to be comparable to last year to slightly down, driven by higher costs from acquisitions, primarily rate. Some notable Q1 highlights in this segment include a $340 million federal IDIQ award to combine existing services and provide new LMR services to the U.S. Air Force, which has long been an important customer of ours. Given the nature of this 10-year agreement, we recorded only $11 million of backlog in the first quarter and expect backlog to be recorded ratably over time for the remainder of the contract. Additionally, we expect new services included it to contribute an incremental $60 million of revenue over the 10-year period when compared to the previous service agreements. We also received a $21 million multiyear support services extension for Portugal’s nationwide Catcher system, a $10 million LMR services agreement with a federal agency and a $9 million fixed video services contract renewal with the City of Chicago. Looking at regional results. North America Q1 revenue was $1.5 billion, up 14% on strong growth in all three technologies. International Q1 revenue was $679 million, up 16% versus last year with growth in all three technologies, partially offset by unfavorable FX. Moving to backlog. Ending backlog was a Q1 record of $14.1 billion, up 5% or $623 million versus last year, inclusive of $372 million of unfavorable FX. These results were driven by strong demand across all three technologies. Sequentially, backlog was down $280 million, driven primarily by typical order seasonality in North America. In the Products and SI segment, ending backlog was up $601 million or 15% driven primarily by strong LMR demand. Sequentially, backlog was down $186 million due to North America orders seasonality following a record backlog in Q4. In Software and Services, backlog was up $22 million compared to last year, driven by strong demand for multiyear software and services contracts in North America, partially offset by the revenue recognition for Airwave along with $329 million of unfavorable FX and the adjustment related to the exit of ESN contract that we announced last year. Sequentially, backlog was down $94 million, driven primarily by revenue recognition for Airwave. Turning now to our outlook. We expect Q2 sales to be up 10% to 11% with non-GAAP earnings per share between $2.49 and $2.54 per share. This assumes a weighted average share count of approximately 173 million shares and an effective tax rate of approximately 24%. For the full year, we are increasing both our revenue and EPS guidance. We now expect revenue in the range of $9.725 billion to $9.775 billion, up from our prior range of $9.65 billion to $9.7 billion and we expect non-GAAP earnings per share between $11.21 and $11.29, up from our prior guidance of $11.10 and $11.22 per share. This full year outlook assumes $25 million of FX headwinds, a weighted average share count of approximately 172 million shares and an effective tax rate of 23% to 24%. As I mentioned on the last call, the increase from our 20.1% tax rate last year is due to lower tax benefits on share comp and a higher UK tax rate in the current year, both of which combined represent an approximately $0.50 headwind in our full year earnings per share guide. The increased outlook for the full year is a reflection of the continued strength of our business and demand for our solutions. The revenue guidance reflects expectations for strong double-digit growth in the first half as well as continued growth in the second half of the year, which comes on top of the 15% growth we saw in the second half of last year. I’ll now turn the call back to Greg.

Tim Yocum:

Thank you, Greg. [Operator Instructions] Operator, please remind our callers on the line how to ask a question.

Tim Long:

Thank you. Yes, two, if I could here. First, just looking at the second half, I know, Jason, you mentioned tough comps, but hoping you could just give a little commentary around moving parts given those pricing benefits and pretty healthy backlog still. So what are the moving parts in that second half? And then second, more specifically on video, Greg or Jack, if you could talk a little bit about, it was good to see above the full year growth rate in Q1. Could you talk a little bit about where we are with cross-sell opportunities and also opportunities in video from NDAA and RPS safe schools and things like that? Thank you.

Jack Molloy:

And Tim, specific to cross-sell, what I would do is highlight four specific verticals, starting with government. As we have attested to before, Government was a nascent business when we acquired Avigilon, we made subsequent acquisitions. But just to put it in context, we’ve kind of put the marker out there this year for a video security business that we would grow approximately 15%. We expect government to grow in the high teens. And we think we’ve got opportunities to move that. Specifically, I’d also call out healthcare, we’re really, really pleased. We won – we secured a $16 million deal with the large-scale hospital system. This was an add-on. And the beauty of that is they’re not only a video user, but they’re also a radio user. Education has been we’ve attested to the fact that numerous school systems are upgrading. Some are going with Avigilon Unity on prime systems, large-scale urban schools. But what we’re really seeing is acceleration of growth in the cloud there and the ability to do radio alert and integrate access control, LMR, our command center software product called Compass into school systems is a game changer. And then lastly is the industrial space, namely utilities. We’ve talked about the fact we’ve secured a large-scale utility in the past. We’ve done in the area of $50 million of utility. And I think as utilities start to fortify their power grids and their substations will have incremental cross-sell opportunities there, Tim. But I think the highlight is we tie it all into making sure that we incent our sales force to go and cross-sell, and that’s just part of the DNA now.

Operator:

The next question is from the line of George Notter with Jefferies. Your line is open.

Jack Molloy:

Yes. So George, I would say ARPA, anytime there’s federal stimulus dollars are conducive, and I would say, beneficial to the business. But to kind of put it in context, it’s approximately 5% of our orders in North America last year. And that’s not to diminish it, but I would take it to a higher level. I’ve actually gone and looked in Salesforce. It’s – they’ve contributed to deals that were secured, but they for the sole purpose of deals that were secured. I think at the end of the day, when you think about mission-critical communications or even a school, we think we’re in an area of prioritization in areas as we’ve said before, it’s a need to have, not a nice to have. So I think it’s generally conducive, but it’s – I wouldn’t necessarily say it’s the largest attributor to our success.

Greg Brown:

The demand from our customers remains very strong. Our backlog position is at a record level. And that includes backlog that customers are having to wait a bit longer than they’d like and we’re working through those delays in getting them products. With the results in Q1, we were able to attain a little bit better supply. We had a good quarter across LMR, Public Safety, had a good quarter with PCR. So we’re getting after this backlog position and fulfilling the customers demands, both the demand they placed on us in backlog is also the demand they place on us within the quarter. So – and our inventory position, if I shift to our balance sheet, has helped us mitigate a choppy supply environment, and we continue to be mindful of inventory and its utility in serving what remains a challenging supply environment. It’s been a helpful tool. And we do have expectations for inventory to reduce in the second half. That’s in our cash flow expectations, but it remains an important tool to navigate this environment.

Operator:

[Operator Instructions] The next question comes from the line of Meta Marshall with Morgan Stanley. Your line is now open.

Jack Molloy:

Sure, Meta. Maybe I will start with the APX NEXT, and Mahesh will speak to Rave. First of all, we are in the early innings, as we have said before. And I think it’s most important to point out that it’s a multiyear introduction for the APX NEXT. What typically happens is we have – we run the APX original and the APX NEXT line in tandem for the foreseeable future. In fact, to point that out 80% in Q1 of our device revenue was actually APX original. So, we have got a coexist and strong pipeline for both of them. We have got $410 million orders since we introduced the APX NEXT. But we have just recently, last fall, introduced the N-Series radio, which starts to fill in the portfolio and now we are bringing out international P25 units to bear that will be targeted in Australia, New Zealand and Israel. All-in, with the new product, what we are seeing is kind of high-single digit ASP increases as well.

Greg Brown:

And on Rave, Rave has exceeded our initial expectations for performance. We see strong traction in education, especially higher ed, but also K-12. And as we previously talked about, Rave bridges enterprise security with public safety and with some of the initiatives that we have undertaken recently, we are making the bridge wider effectively allowing for more data and at a faster rate to go from enterprise security to public safety. So, two specific examples worth mentioning there, first, with every one of our new VESTA 911 orders, we are actually bundling Rave 911 suite. And what that includes is two-way texting, caller profile. This is information about individuals who perhaps need special assistance, facility info, which is blueprints a facility so that responders can respond with greater information as to what to see – what they will see when they get to the facility and very importantly, caller location. And that is going to be part of our Rave VESTA 911 offer going forward. The second is we are integrating more closely with our enterprise security solution. So, Orchestrate is a key enabler for that. And as part of our full Safety Reimagined program, we are bringing Rave much closer in terms of the ability to detect and the ability to alert using Rave alert and the ability to bridge into 911 as appropriate. So, those two together is really augmenting our path forward in terms of taking advantage of our strength in education, along with our presence with PSAPs.

Operator:

The next question comes from the line of Sami Badri with Credit Suisse. Your line is now open.

Jack Molloy:

Sami, I think I would address your inquiry. We have seen strong demand not only big deals, but also the usual type and profile of our business. And I would point to duration. While our backlog is up and at record levels, the duration of our backlog is similar to slightly better than it was last year and it was last quarter. So, not only are we growing backlog, the opportunities we have to convert that backlog within the year are slightly better. So, that’s one of the reasons that, again, with our expectations going up for the year, it’s driven by that backlog position.

Sami Badri:

Got it. Thank you for that. Also, Greg, Jason, if you guys could give us any kind of idea on all video revenue growth targets for 2023. And also, we appreciate the new breakout of the Avigilon segment.

Jack Molloy:

Yes. I think a great example. I got a phone call yesterday, Sami, on that specific to a large-scale metropolitan school district. They had three finalists, two of the finalists were Avigilon Alta and Avigilon Unity. And I think that’s the power that we can meet a customer for their specific needs that no one else in the marketplace has today.

Jack Molloy:

Thank you.

Greg Brown:

Sure. Thank you. Look, I would just say in closing, it was a great Q1, and I think it highlights the fact that what we do has never been more important. Both the demand environment and execution is strong. I am really proud of the people. I am really proud of our channel partners that achieved record Q1 orders, record Q1 backlog. Look, at the end of the day, as we exit Q1, I like our position. More importantly, I like our momentum. And then, again, this is despite the ongoing supply chain challenges that still have to sort of sell-through for the next several quarters. The fact is the intersection, as Mahesh talked about, of public safety and enterprise security, it’s critical. And we are building a safety and security technology ecosystem that connects public safety with private institutions, as you heard Jack reference in those key verticals. I couldn’t be more proud of this team. And I am optimistic and enthusiastic about the opportunity in front of us. I appreciate you joining, and I look forward to connecting up with you a quarter from now.

Tim Yocum:

Good afternoon. Welcome to our 2022 fourth quarter earnings call. With me today are Greg Brown, Chairman, and CEO; Jason Winkler, Executive Vice President, and CFO; Jack Molloy, Executive Vice President, and COO; and Mahesh Saptharishi, Executive Vice President and CTO. Greg and Jason will review our results, along with commentary and Jack and Mahesh will join for Q&A. We've posted an earnings presentation and news release at motorolasolutions.com/investor. These materials include GAAP to non-GAAP reconciliations for your reference. And during the call, we reference non-GAAP financial results including those in our outlook unless otherwise noted. A number of forward-looking statements will be made during this presentation and during the Q&A portion of the call. These statements are based on current expectations and assumptions that are subject to a variety of risks and uncertainties. Actual results could differ materially from these forward-looking statements. Information about factors that could cause such differences can be found in today's earnings news release, in the comments made during this conference call, in the Risk Factors section of our 2021 Annual Report on Form 10-K, or any quarterly report on Form 10-Q, and in our other reports and filings with the SEC. We do not undertake any duty to update any forward-looking statements. I'll now turn it over to Greg.

Jason Winkler:

Thank you, Greg. Revenue for the quarter grew 17% with record fourth quarter revenue in both segments and in all three technologies. Revenue exceeded our guidance and was driven by supply chain execution during the quarter, enabling higher product revenues in LMR. FX headwinds during the quarter were $87 million, while acquisitions added $39 million. GAAP operating earnings were $692 million, up 26% versus last year and GAAP operating margins were 25.6% compared with 23.7% in the prior year. Non-GAAP operating earnings were $822 million [Technical Difficulty] GAAP operating margin was 30.4%, up from 28.9%. This was Motorola Solutions' first ever quarter of over 30% operating margin and was driven by the higher sales in both segments and the improved operating leverage, particularly in the Products and SI segment. GAAP earnings per share was $3.43, up from $2.30 in the year-ago quarter on higher sales and on a lower effective tax rate driven primarily by a $47 million or $0.27 per share tax benefit from the release of a valuation allowance against U.S. foreign tax credits. Non-GAAP EPS was $3.60, up 26% from $2.85 last year, driven by higher sales and improved operating leverage. OpEx in Q4 was $541 million, up $21 million versus last year, primarily due to acquisitions and higher incentives. For the full-year 2022, revenue was $9.1 billion, up 12% with strong growth in both segments and across all three technologies. The impact from unfavorable currency was $216 million and revenue from acquisitions was $121 million. GAAP operating earnings were $1.7 billion or 18.2% of sales versus 20.4% in the year prior. The decrease was primarily driven by the $147 million non-cash fixed asset impairment recognized in the current year related to our exit of ESN. Non-GAAP operating earnings were $2.4 billion, up $251 million and non-GAAP operating margins were 26% of sales, up from 25.9% in the year prior, driven by higher sales and improved operating leverage, partially offset by higher material costs, and higher expenses from acquisitions. GAAP earnings per share was $7.93, up 11% compared to the $7.17 in the year prior, driven by higher sales, a lower effective tax rate and partially offset by the asset impairment charge related to the ESN exit and higher material costs. Non-GAAP earnings per share was $10.36, up 13% from $9.15 in 2021 on higher sales, improved -- and improved operating leverage, partially offset by higher material costs. For the full year, our operating expenses were $2.1 billion, up $107 million from 2021, primarily driven by acquisitions and investments into our video business. And the effective tax rate for 2022 was 20% compared to 21% in the year prior, due to higher benefits from stock based compensation in the current year. Turning next to cash flow. Q4 operating cash flow was a record $1.3 billion, up $570 million compared with the prior year, and free-cash-flow was $1.2 billion, up $565 million from 2021. Our record cash-flow performance during the quarter was driven by improved working capital and higher earnings. And for the full year, operating cash flow was $1.8 billion with free cash flow of $1.6 billion, consistent with the prior year. Higher earnings in 2022 were offset by the cash payments related to the increase in annual incentive payments earned in 2021 and higher inventory. Capital allocation for 2022 included $1.2 billion for acquisitions, $836 million in share repurchases at an average price of $225 per share, and $530 million in cash dividends. Additionally, during the year we issued $600 million of new long-term debt and repaid $275 million of outstanding debt. We also increased our dividend to 11%, our 12th consecutive year of double-digit increases. Moving next to our segment results. In Products and SI, strong demand continued with Q4 sales up 21%, including record revenue in both LMR and video. The currency headwinds were $43 million and revenue from acquisitions in the quarter was $20 million. Operating earnings in Q4 were $514 million or 28.4% of sales, up from 25.3% in the year prior, driven primarily by higher sales and operating leverage, partially offset by higher material costs. Some notable Q4 wins and achievements in this segment include several large APX NEXT device orders, including $45 million from the City of Houston, $39 million from a large U.S. customer, $30 million from the City of Dallas, and a $21 million add-on order from a large U.S. customer that previously purchased APX NEXT devices. Additionally, during the quarter, we received a $20 million APX NEXT and Command Center order from Kansas City, a $19 million P25 System order for a large international customer, and a $3 million fixed order for metro rail in Chicago. For the full year, Products and SI revenue was $5.7 billion, up 14% from the prior year, driven by higher sales of LMR and Video. Revenue from acquisitions was $53 million and currency headwinds were $98 million. Full-year operating earnings were $1.2 billion or 20.5% of sales, up from 19.4% in the year prior on higher sales and improved operating leverage, partially offset by higher material costs. In Software and Services, Q4 revenue was 9% -- up 9%, which included $44 million of FX headwinds, and $19 million of revenue from acquisitions. Total software revenue was up 17% with double-digit growth in both video and Command Center, while in LMR Services revenue was up 5% after a $39 million FX headwind. Q4 operating earnings in the segment were $308 million or 34.4% of sales, down 100 basis points from last year, driven by unfavorable mix and higher acquisition expenses. Some notable Q4 highlights in this segment include a $56 million P25 multi-year extension of the managed services operations at Interexport which serves the Chilean National Law Enforcement Police; a $25 million P25 software upgrade renewal for a large U.S. customer; $22 million next generation 911 expansion, and renewal order for the Greater Harris County, Texas area; $21 million system upgrade in multiyear services renewal for Lane County Oregon; a $15 million P25 and command center upgrade order for Columbus, Georgia; and a $15 million license plate recognition camera system expansion order from the Illinois State Police. For the full year, revenue was $3.4 billion, up 8% on growth in video LMR services and command center. Revenue from acquisitions was $68 million and currency headwinds were $118 million. Full-year operating earnings were $1.2 billion or 35.3% of sales, down 110 basis points versus the prior year, driven by mix and higher acquisition expenses. Looking at our regional results. North America in Q4 revenue was $1.9 billion, up 18% on strong growth in both segments and in all three technologies. For the full year, North America revenue was $6.4 billion, up 15% with double-digit growth in both segments and in all three technologies. International Q4 revenue was $808 million, up 15% versus last year with growth in all three technologies. And for the full-year, International revenue was $2.7 billion, up 5% inclusive of the significant FX headwinds. Moving to backlog. Ending backlog was a record $14.3 billion, up $788 million or 6% compared to last year, inclusive of $418 million of unfavorable FX and a $99 million reduction related to the exit of the ESN contract. The backlog growth was driven by the continued record demand we're seeing across all three technologies. Sequentially, backlog was up $837 million, despite the record Q4 sales with growth in both segments. In the Products and SI segment, robust order demand in both LMR and video continues to drive record backlog, which was up $894 million or 22% compared to last year. Sequentially, Products and SI backlog was up $68 million. This was our 10th consecutive quarter of sequential backlog growth in this segment. In Software and Services, backlog was down $106 million compared to last year, which included $367 million of unfavorable FX, driven by Airwave and ESN revenue recognition and the ESN exit, partially offset by strong growth in North America multi-year services, and software contracts. Sequentially, Software and Services backlog was up $769 million or 9% driven by strong orders in North America and favorable FX adjustment from the prior quarter. Turning now to our outlook. We expect Q1 sales to be up between 12% and 13%, with non-GAAP earnings per share between $2.02 and $2.07 per share. This assumes $40 million of FX headwinds, a weighted average share count of approximately $172 million shares, and an effective tax rate of approximately 23%. For the full year, we expect sales between $9.65 billion and $9.7 billion and non-GAAP earnings per share between $11.10 and $11.22 per share. This assumes $40 million of FX headwinds, a weighted average share count of approximately $172 million shares and an effective tax rate between 23% and 24%. We expect full-year OpEx to be up approximately $150 million versus last year, driven by acquisitions we've made, and our continued investments in video. And we expect full year operating cash flow of approximately $1.9 billion. And finally, the reason our effective tax rate is expected to be up 300 basis points to 400 basis points over last year is due to lower excess tax benefits on share-based compensation in 2023 and a higher U.K. tax rate that takes effect in April. We're also anticipating approximately $300 million of higher cash taxes compared to last year, inclusive of a one-time $75 million tax payment that relates to an IP reorganization we did in 2022. Before I turn the call back to Greg, I wanted to update you on some strategic decisions we've made with respect to our PCR business. First, in order to further optimize our supply chain, we have moved the lowest part of PCR, which is sold to small businesses and some consumers to a licensed model with a third-party manufacturer. As a result of this change, we will only recognize revenues equal to the margin from the product. In addition, we made a decision to exit some PCR markets in Asia. We expect these changes together to constitute an $80 million headwinds to our 2022 -- 2023 revenues, which is fully contemplated in our full-year revenue guidance for 2023. And finally, we enter the New Year with an even stronger balance sheet. We ended 2022 with $1.3 billion of cash and a net debt to adjusted EBITDA ratio of less than 2 times. In addition, our U.S. pension is in a strong funding position with over 80% funded reflecting the numerous actions we've implemented over the last several years. We have also proactively refinanced our debt maturities with fixed-rate long-term debt and established a balanced maturity profile with an average duration of approximately eight years. All of this gives us the flexibility to continue to deliver on our capital allocation framework and be opportunistic in M&A. I'll now turn the call back over to Greg.

Tim Yocum:

Thanks, Greg. Before we begin taking questions, I'd like to remind callers to limit themselves to one question and one follow-up to accommodate as many participants as possible. Operator, would you please remind our callers on the line how to ask a question?

Tim Long:

Thank you. Greg, maybe could you just give us a little sense of the backdrop, it sounds like obviously backlog was pretty strong, but talk a little bit about kind of federal ARPA and other revenue sources? How is that starting to flow through? How are your customers taking advantage of that and what do you think that means to visibility over the next few years? And then Jason, for you on the clarification, just talk a little bit about gross margins. Maybe walk us through the next year at some point we should be getting some bounce-back from components and logistics and maybe just touch on price increases that we've seen and how that would flow through the model and hit the gross margins next year? Thank you.

Jason Winkler:

And Tim, I'll also remind you that the ARPU funding, $350 billion for state and local, $170 billion earmarked for education, but most importantly, it's multiyear funding and much of this will go into and through 2026. So, the foundation of funding and the strong environment Jack described, we capitalized in 2022 as he talked about the robustness of the funnel this year. But the best part of all is, it's multiyear dimension in nature.

Jason Winkler:

And Tim, from a gross margin perspective overall for MSI, we expect gross margins to be up in 2023. We also expect operating margins to be up in 2023.

Jason Winkler:

Thanks, Tim.

George Notter:

Hi, guys. Thanks very much. It sort of feels like somebody forgot to tell you guys that we're in a recessionary environment. The business seems to be cranking on all cylinders here. Greg, anything you worry about in terms of a recessionary environment at all? I mean, I get it the ARPA funds are kind of backfilling maybe for any softness that you could see out over the horizon. But any thoughts about tax receipts, whether its property tax or income tax receipts ultimately slowing down a year or two from now impacting the business?

Jason Winkler:

Also Greg...

Greg Brown:

So, I would say the growth that we had last year, full-year was driven by both volume and price increase. I'd weight it a little bit more toward volume last year. That composition that drives our growth rate overall for this year is also volume and price. And I would weight it slightly towards volume again this year. We've exercised surgically and responsibly certain price increases that we've talked about a number of times last year. So, I think we're well-positioned going forward.

Jason Winkler:

Greg, the other thing that I’d offer insights into are our PCR business which in 2022 grew nicely. It's now back to 2019 levels. And a part of our backlog or unfulfilled orders for us or delays are in PCR. So we have a sizable amount of PCR backlog and demand, which we will continue to fulfill into 2023.

George Notter:

Okay. Thank you.

Operator:

Thank you. Our next question will come from Adam Tindle with Raymond James. Your line is open.

Greg Brown:

So what I'd say is, I'd remind you that CMA their stated intention is to make a final decision this month, maybe it's next month, but it's relatively soon. We remain unchanged in our finding and belief that with full conviction that their effort is disproportionate, it's unprecedented, it's overreaching. So our view on that is unchanged. Now recall the investigation -- the market investigation is grounded around Airwave and ESN. What I can update you on is that, we have successfully signed a contract with the UK Home Office to exit ESN. I think it was a good multi-month effort where both of us are satisfied, that will result, Adam, in us exiting ESN earlier than anticipated. We are doing a transition services agreement in 2023, but then effectively after 2023 we are out of ESN. So, I think that is an update that's worthy of sharing because a quarter ago we talked about our intention to do that, but that was before we actually codified and signed the agreement. Now having said all that, I think, look, as we guide the full-year we guide the full-year with the $80 million business model change around PCR. We guide the year both top and bottom with continued supply constraints and I think it's important to know that, because there's a lot of reports that supply chain is a lot better but for the businesses that we're in and we compete primarily with industrial providers or automotive for the semiconductors that we're contending for, it's not that changed, lead times actually are largely unchanged. So that informs our guidance as well and as we sit here, on February 9th, we think all-in, it's a prudent and balanced view of the year all things considered.

Greg Brown:

Yeah, so we are very excited about the asset. And the important thing, Adam, is it's an asset that's worth more to us than anyone else. So when you think about the capital deployed against the backdrop of an addressable market that expands $7 billion and all ARR, annual recurring revenue with a run rate of $70 million that we like those attributes, their verticals. 80% of the business is profiled around state and local and education, which that too is absolutely in the sweet spot of what we do and how Molloy goes to market. So the asset we're excited about, I think it's worth and we think it's worth more to us than anyone else and we've done an extensive view of the industry as well and we're excited about what it means.

Adam Tindle:

Thank you.

Operator:

Thank you. Our next question will come from Meta Marshall with Morgan Stanley. Your line is open.

Jack Molloy:

Just starting with the timeline elements. There are many elements of what I just outlined that already exist today, and they are integrated in various ways today. What we would like to do, and that's -- this is the future-looking element of it where we unify more of these solutions within our Command Center product portfolio, but also the Video Security and Access Control portfolio. And that is to come, and that it helps us enhance the use cases and make our products more differentiated. But some of the key capabilities in terms of being able to connect a detection that happens on the public safety side, and that's leading to an informed response on the command center side, whether that's 911 or dispatch, those capabilities exist today. And along with the incident, mass notification capability, being able to appropriately alert people, inform people during a situation, all those capabilities exist today. So there's more to come on this, but the base capability where the one plus one is greater than two, that's today.

Meta Marshall:

Great, thanks.

Operator:

Thank you. Our next question will come from Sami Badri with Credit Suisse. Your line is open.

Jack Molloy:

Sami, it's Jack. So as I said, I believe it was in the August call that we're in the early innings of the P25 upgrade cycle in North America. A couple of things to point out. Number one, APX NEXT was introduced at the highest tier of the market, and that's where it's been focused. Just recently, meaning the second half of 2022, we've filled in that portfolio. So now we have a mid-tier APX NEXT available. That in and of itself will be an accelerant for a lot of what you call suburban and county municipalities outside of the big cities. We've done $370 million of orders since the product was announced. To give you a feel for the accelerant, $210 million of orders in 2022. And without question, the ARPA funding will be an accelerant to -- it used to be a 10-year kind of refresh cycle, we've seen that pull into like a seven-year refresh cycle. But I'd point you to the City of Houston that actually leverage largely ARPA funds, but actually use some budgets that they had surpluses in their own budget to move forward this device. I think there's a few things that really driving this. People want to do more with their device. And so, clearly, the ability to extend the network as people go to do mutual [indiscernible] events, SmartConnect, the owner experience. I mean a big city police department, it's tough to get technicians. It used to take them 10,000 man hours to actually upgrade software, cyber fixes and those kind of bug refreshes, that can be done in 10 minutes now, leveraging the LTE compatibility. And the last thing is location matters. And what we've seen is GPS provisioning that capability even through our CAD networks has been a big add for our customers. And so there's clearly been a lot of excitement. You've seen a lot of very marquee police departments. And I think with the mid-tier series launching, I think we're going to continue to see that accelerant. And just to be clear, we did $210 million of orders last year. I expect to do double that this year.

Sami Badri:

Got it. Thank you for giving us color. The one other follow-up question is, I think we can clearly see where you guys are going with Rave mobility. But I think the bigger question for analysts is when we look at Rave, when we look at Ava Security, and we look at a bunch of these other acquisitions you have made, they all look like they're going to have to be integrated on the back end and then offered in a much more broader way to a lot of your customers for much bigger type of consumption model. How far away -- how far away are you guys from offering this or being market-ready with a fully integrated suite in the back end that can really service the front-end consumption side?

Jason Winkler:

In addition to the product integration and the road map that Mahesh described, I think, as Greg mentioned earlier, we're excited about Rave because it allows us to extend our sales channel to selling into public safety and education. So immediately, that organization gets the power of Jack Molloy's entire sales organization, selling the product as it is today into those accounts. And that in part is why we believe we're the most valuable owner of that asset.

Sami Badri:

Awesome. Thank you very much.

Operator:

Thank you. Our next question will come from Fahad Najam with Loop Capital. Your line is open.

Jason Winkler:

Sure. Fahad, I would point you to, first, the comp set from last year where in the first half, we grew at a rate of 8% and the second half a rate of almost double that. So if you look at last year's comps, it in part informs our expectations for growth this year. Secondly, we talked about this $80 million PCR business model change moving to license. The majority of that impact is occurring in the second half for us. That helps inform what we expect for growth all year, but higher growth in the first half. And as Greg mentioned, with lead times unchanged, we forecast the business based on the lead times that our suppliers commit to us, and we update it as the year progresses. And our current guide is informed by our supply commitments. We just had a summit with our top 20 suppliers yesterday and have the latest information and commitments from them. And we'll continue to work the supply environment proactively, which we did in 2022.

Jack Molloy:

Sure, Fahad. So our outlook for the 2023 is 15% growth. But I'd point out 15% off a pretty significantly difficult comp, we grew 24% in 2022. We've kind of said in general, we think the NDAA is generally conducive. And we think it's -- within the mix, it's a tailwind to the business. But we don't think it's going to have any real profound impact over the course of 2023. But we're really excited, particularly as the things I just outlined. Our portfolio is coming together. We now have offerings from an on-prem standpoint as well as a cloud standpoint. But again, I think 15%, I also think it's important to take a look at where we're getting that -- where we're generating that growth. Government and education are two largest verticals. And we think they're a little bit insulated in terms of if there is any kind of economic slowdown. And the other piece of it is health care and the commercial market space as well.

Fahad Najam:

I appreciate the answer. Thank you.

Operator:

Thank you. Our next question will come from Paul Chung with JPMorgan. Your line is open.

Jason Winkler:

Sure. So I'll start with OpEx. I mentioned that we expect OpEx to be up $150 million this year. The primary drivers of that are, in fact, Rave, the recent acquisition, combined with investments that we continue to make within video, which is our fastest-growing technology. In terms of leverage, we saw the leverage that we expected in the second half of 2022 on the operating line, and we expect continued operating margin expansion in 2023. I mentioned in part, $50 million of a tailwind in lower costs for us to attain the supply in 2023, then what we had to pay in 2022, that will largely benefit the product segment. And we'll continue to expand operating margins with both the volume and price growth drivers that Greg mentioned earlier.

Jason Winkler:

Sure. So we out looked $1.9 billion in operating cash flow. CapEx will be pretty similar to last year. For a number of years now, our CapEx as a percent of OCF is around 15%. It's actually less than the 20% that we have in our capital allocation model, and that's likely to continue. We are a low CapEx asset light kind of model. So as OCF, we expect growth in OCF, we'll have higher earnings. I did mentioned $225 million higher cash tax amount that we are incorporating into 2023 as well. But we'll see good earnings growth, good cash flow growth, and we'll continue to work through inventory. Inventory has been a helpful investment for us as we navigated 2022. We'll plan and are planning for it to come down in 2023 as we fulfill record demand, but we'll continue to use it as an asset. It served us well in getting customer and meeting customer demand, but we'll continue to work through lower inventories in 2023.

Greg Brown:

Thanks, Paul.

Keith Housum:

Good afternoon, guys and congratulations on a great quarter and our consistent performance for you guys. As we think about your product and system integration business, obviously, we saw you guys call out a lot of the APX NEXT refreshes, but there's only one systems update that was included in that list. Can you guys kind of talk about the mix between the system upgrades versus the device upgrades that you guys are going through? And are you guys seeing more of a movement back toward your device upgrades?

Jack Molloy:

Jason, that's a good point. It's also -- this is pivoted more into a recurring revenue model and it will. There'll be elements of it in terms of replacing base stations for these networks that will continue to be an opportunity for us. But largely, it's come into software, meaning, it's an SUA program, as Jason pointed out, but also it's been -- it's been an accelerant for our Managed and Support Services business as well.

Jason Winkler:

20% includes the inorganic addition of Rave, but the rest of Command Center software also expected to grow low double digits, which is consistent with the expectation that we had and executed too in 2022.

Operator:

Thank you. Our next question will come from Louie DePalma with William Blair. Your line is open. Louis, please make sure that you're unmuted.

Greg Brown:

How are you?

Mahesh Saptharishi:

Sure. So ChatGPT, the technology that I think has been in development for quite a long time, and it really benefits from lots of advances in natural language understanding, reinforcement learning, the GPT, that stands for generative pretrained transformers, and it's the third generation of that tool. Now if you kind of break that up a little bit, the natural language elements of it, think of what we do on the smart transcription side, where we understand natural language, we are able to pick out entities that addresses names, license plate numbers, et cetera, and then map that into a capability to fill out forms, give supervisors a heads-up when a call taker potentially needs help, et cetera. On the video side, think of it as what we're doing, where we're taking video and actually converting that to language, so facilitating things like natural language searches. So being able to understand what is the user asking for and mapping that effectively into a set of results that are returned based upon our automated analysis of video. And we're able to do that at the edge. And with our acquisition of Calipsa, we're able to extend that capability into the cloud. And one of the things that Calipsa with the cloud AI allows us to do is very rapidly give -- provide this capability to multiple different cameras across the board, across all our portfolios, Pelco specifically, Avigilon inclusive of that as well. So those two things together give us the capability now to say, okay, if there's particular events that are happening, we can alert on them unusual activity being another one of them. So ChatGPT, I think, is just an indicator of one element or one area of machine learning that is really advanced. We're benefiting from multiple pieces of that across video understanding, across language understanding and audio understanding to the point where we're now implementing it across all our products. So hopefully, that's a rough answer to your question.

Mahesh Saptharishi:

So there's probably two areas, I'm not entirely sure of the specific opportunity you're talking about. But more broadly, we do have Avigilon cameras that are deployed today with solar platforms for [indiscernible] deploy applications. Many times, this is for construction sites for sort of sports events that happen or concert events that happen and you need a rapidly deploy solution. That is 1 part of it. The other part of it is on our automatic license plate recognition solution. We introduced the L6Q camera towards the end of last year. And that is a fully wireless solution. So it is a camera that is equipped with both video and radar as a detection mechanism. It is solar powered. It can be solar powered or it can be powered with a regular AC or DC connection. It also is LTE capable. So it is fully wireless in all its capabilities. And we are seeing a fairly rapid uptake in that solution because of its ease of install -- it is probably the easiest to install a video camera device out there today.

Greg Brown:

Thanks. Louie.

Ben Bollin:

Good afternoon, everyone. Thanks for taking the question. The first item I had is, I'm curious, could you talk through the K-12 trends that you've seen as of late, talk to maybe materiality and how some of the COVID relief funding is starting to manifest. Mahesh talked about safety reimagine, but any other types of projects that you're seeing in that space would be helpful.

Ben Bollin:

Okay. That's great. The follow-up is within Command Center, Greg, you spoke to 20% growth in 2023. Jason, I think you said ex Rave low doubles. If you look at Command Center as a percentage of mix, it's been pretty stable, about 7 points of revenue over the last several years. A lot of things going on. Could you talk a little bit about the sales motion there, the complexity of the systems and longer term, when you think that might be a bigger driver to the overall mix or grow as a percentage of the total, if you get a more widespread investment among those customers? That's it. Thank you.

Ben Bollin:

Thanks, Jack.

Ben Bollin:

Thanks, Mahesh.

Paul Silverstein:

I appreciate that. I hope [indiscernible] last I could ask an awful lot of questions. But on a serious note, Greg, the guidance you'll give in organic terms, what does that translate to stripping out what you're expecting from Rave or any other contemplated acquisitions? And how does that compare to organic growth in 2022? I assume Rave is the only -- or the biggest inorganic piece this year?

Paul Silverstein:

You don't have -- in that guidance, you're not putting in anything in terms of prospective acquisitions other than Rave that was disclosed, and it's obviously less, a fair deal less than what acquisitions contributed?

Paul Silverstein:

All right. I appreciate that. And which ties into the next question, your LMR business just grew 9% last year following 7.6% growth the year before and 3.9% a year before that for a business that you historically have characterized understandably, I think it's low single digit. And so it came off a very strong year and had even strong growth. In terms of -- relative to the mid-single-digit guidance on LMR, I'm trying to understand the upside potential [indiscernible] assume the downside of this is one of the -- I'm trying to understand upside potential. Can you just review -- I know you've touched on it throughout the call, but can you review what were the key drivers in that? You mentioned that PCR was up. I don't think you gave us a number. I assume it was back up to the $1 billion level that you referenced in 2019. I think that was the level. But can you go through the various drivers, APX, PCR, et cetera, that contributed to that awfully strong growth? And what you're expecting going forward?

Paul Silverstein:

Greg, I think you just told us that if supply permits, demand would accommodate more than that mid-single digit, 5% guidance. But my last question, any update with respect to you all being able to collect on that not in substantial Hytera litigation award?

Paul Silverstein:

I appreciate that. Guys, can I just clarify one thing going back to 1 more question. Greg, I think you and Jack and Jason have made the point historically previously that the new APX handsets accommodating the richer applications that require the new APX handset in order for your customers to deploy. I trust that's still the case, assuming the fact that there's a strong take-up of APX NEXT bodes well for take-up of the incremental command center software and LMR services, et cetera, and so one goes hand in hand with the other.

Paul Silverstein:

I appreciate it.

Operator:

All right. Thank you. This does conclude the question-and-answer session. I would now like to turn the floor back over to Greg Brown, Chairman and Chief Executive Officer, for any additional and closing remarks.

Operator:

Ladies and gentlemen, this does conclude today's teleconference. A replay of this call will be available over the Internet within two hours. The website address is motorolasolutions.com/investor. We thank you for your participation and ask that you please disconnect your lines at this time.

Tim Yocum:

Good afternoon. Welcome to our 2022 third quarter earnings call. With me today or Greg Brown, Chairman and CEO; Jason Winkler, Executive Vice President and CFO; Jack Molloy, Executive Vice President and Chief Operating Officer; and Mahesh Saptharishi, Executive Vice President, CTO. Greg and Jason will review our results along with commentary; and Jack and Mahesh will join for Q&A. We've posted an earnings presentation and news release at motorolasolutions.com/investor. These materials include GAAP to non-GAAP reconciliations for your reference. And during the call, we reference non-GAAP financial results, including those in our outlook, unless otherwise noted. A number of forward-looking statements will be made during this presentation and during the Q&A portion of the call. Statements are based on current expectations and assumptions that are subject to a variety of risks and uncertainties. Actual results could differ materially from these forward-looking statements. Information about factors that could cause such differences can be found in today's earnings news release and the comments made during this conference call, in the Risk Factor section of our 2020 annual report on Form 10-K or any other quarterly report on Form-10Q and in our other reports and filings with the SEC. We do not undertake any duty to update any forward-looking statement. And with that, I'll turn it over to Greg.

Jason Winkler:

Thank you, Greg. Revenue for the quarter grew 13% and was above our guidance with record third quarter revenue in both segments. We also saw growth across all three technologies led by 33% growth in video security and access control. In LMR, which grew 9%, our supply chain execution during the quarter enabled us to ship additional product revenue. FX headwinds during the quarter were $66 million, while acquisitions added $32 million. GAAP operating earnings were $373 million inclusive of $147 million non-cash fixed asset impairment charge recognized during the quarter related to the now planned exit from the ESN contract. GAAP operating margins were 15.7%. Non-GAAP operating earnings were $676 million, up 22% from the year ago quarter. And non-GAAP operating margin was 28.5%, up from 26.3%. This increase in operating margin was driven by higher sales, higher gross margins, and improved operating leverage, particularly in the Products and SI segment. GAAP earnings per share were a $1.63 compared to a $1.76 per share in the year ago quarter, primarily due to the impairment charge related to the expected early exit of the ESN contract. Non-GAAP EPS was $3 per share, up 28% from $2.35 last year. This strong growth in EPS was driven by higher sales in margins, as well as a lower affected tax rate related to higher benefits from stock comp recognized in the current year. OpEx in Q3 was $521 million up $25 million versus last year, primarily due to acquisitions. Turning to cash flow Q3 operating cash flow was $388 million, up $12 million compared with the prior year. And free cash flow was $318 million up $3 million. For the full year we expect operating cash flow to be approximately $100 million lower than our prior guidance, primarily due to our continued investment in inventory, which is helping us execute in a dynamic supply chain environment and deliver against the continued record demand we're seeing in video security and LMR. Capital allocation for Q3 included $132 million in cash dividends, $94 million in share repurchases and $70 million of CapEx. Additionally, during the quarter, we closed the acquisition of Barrett Communications, a specialty supplier of high frequency and tactical communications equipment for $18 million net of cash. Moving to segment results in the Products and SI segment, we continue to see strong demand across both LMR and video. Sales during the quarter, were up 15% versus last year and orders were up 29%, including record Q3 orders for both LMR and video. Currency headwinds were $28 million and revenue from acquisitions in the quarter contributed $13 million. Operating earnings were $375 million or 24.5% of sales up from 20.6% in the prior year, driven primarily by higher sales and operating leverage, partially offset by higher material costs. The impact from our pricing actions increased in Q3 as expected, and we continue to expect full year operating margins in this segment to be higher than last year. Some notable Q3 wins and achievements in the segment include an order in Israel valued at over $400 million for a duration of 25 years. This unique system integration project also includes over $30 million of fixed video equipment and software, and is our single largest order ever for Avigilon. $165 million P25 System and APX NEXT devices award received from Miami-Dade County that includes a new customer for us in the state of Florida; a $67 million P25 order from Southeastern Pennsylvania Transit Authority; a $45 million P25 order from a customer in Africa; a $29 million P25 devices order from a U.S. federal customer, an $18 million TETRA order from a customer in Europe, and a $5 million fixed video order from a major transportation company in North Africa. In Software and Services revenue was up 8%, which includes $38 million of FX headwinds and $19 million of revenue from acquisitions. Total software revenue was up 17% driven by strong demand in video, while in LMR services revenue was up 4% after $33 million of FX headwinds. Operating earnings in the segment were $301 million or 35.7% of sales, down 30 basis points from last year driven by higher acquisition expenses. Some notable Q3 highlights in the segment include two large multi-year LMR service renewals, a $43 million won with the State of Maryland and $15 million with the City of Phoenix. Also, a $17 million push-to-talk over broadband order from a customer in the Middle East, a $7 million command center software renewal with Will County, Illinois, a $4 million body-worn camera order for the Texas Department of Public Safety, and a $4 million command center software suite order for Ellis County, Texas. Looking at regional results, North America Q3 revenue was $1.7 billion, up 16% on growth in all three technologies. International Q3 revenue was $686 million, up 4% versus last year with growth in all three technologies, partially offset by unfavorable FX. Moving to our backlog, ending backlog was a Q3 record of $13.5 billion, up 19% or $2.1 billion compared to last year, inclusive of approximately $826 million of unfavorable FX and a $99 million orders reduction related to the planned exit from the ESN contract. The growth was driven by the Airwave extension recorded in the fourth quarter of 2021, and increased demand across all three technologies. Sequentially backlog was up $87 million driven by several large orders received during the quarter, partially offset by $411 million of unfavorable FX and the $99 million adjustment for ESN. In the Products and SI segment, robust order demand in both LMR and video continues to drive record backlog, which was up $1.2 billion or 35% compared to last year. Sequentially, backlog was up $513 million, which was our ninth consecutive quarter of sequential backlog growth in this segment. In Software and Services backlog was up $876 million compared to last year, driven by the Airwave extension and a $288 million increase in multi-year services and software contracts in North America, partially offset by $722 million of unfavorable FX and the adjustment related to ESN. So sequentially backlog was down $426 million or 5% driven primarily by unfavorable FX, the ESN adjustment and revenue recognition for Airwave and ESN during the quarter. Turning now to our outlook, we expect Q4 sales to be up approximately 9% with non-GAAP earnings per share, between $3.40 and $3.45 per share. This assumes $90 million of FX headwinds, a weighted average share count of approximately 172 million shares, and an effective tax rate of approximately 23%. For the full year, we are increasing both our revenue and EPS guidance again. We now expect revenue growth between 9.25% and 9.5% up from our prior guidance of 8%. And we expect non-GAAP earnings per share to be between $10.17 and $10.22 per share, up from our prior guidance of $10.03 to $10.13 per share. This updated guidance now includes full year FX headwinds of $220 million, up $50 million from our prior guidance, a weighted average share count of approximately 172 million shares and an effective tax rate of approximately 20.5%. This now also assumes $150 million of higher costs for the full year related to the procurement of semiconductors from secondary markets at a premium. This is a $30 million increase over what we indicated earlier in the year and supports the increased revenue included in our updated guidance today. And finally, as I reflect on where we stand today with just two months left in another dynamic year, I'm encouraged with how our teams have been navigating the supply chain environment and overcoming the impact of a historically strong U.S. dollar. At the beginning of the year, we expected currency headwinds to have a $60 million translation impact on our full year revenues. The full year FX headwind has increased by $160 million since then. The decisions we've made to carry higher inventory pay premiums for semiconductors and the pricing actions we implemented have enabled us to drive higher product revenues that not only offset these significant FX headwinds and but have materially increased our revenue and EPS expectations during the year. I'll now turn the call back over to Greg.

Tim Yocum:

Thank you, Greg. Before we begin taking questions, I'd like to remind callers to limit themselves to one question and one follow-up to accommodate as many participants as possible. Operator, would you please remind our callers on the line how to ask a question?

Unidentified Analyst:

This is [indiscernible] on for Tim Long. I have two questions, if I may. You guys had mentioned in your release and prepared remarks about exiting your ESN contract. And just kind of trying to get a little bit more color there, is that just managing the contract? Or would that also be inclusive of the Kodiak revenue? And is there anything more you think you'll need to kind of concede in negotiations with the home office? And then just kind of given the raised guidance now, how should we kind of high level think about 2023 expectations? Thank you.

Jason Winkler:

Lisa, if I could also add color to your question around ESN. So the revenues this year for ESN are going to be approximately $65 million. That includes some of the MCPTT as well as the integration and the project. As Greg mentioned, with the exit of the contract, that will go to zero in 2024. We're working through as part of the negotiation, what transition services and what that looks like in terms of revenue for next year. So we'll update you on that as it concludes. But $65 million in this year's top line results from ESN.

Greg Brown:

Thanks Lisa.

George Notter:

Hi, guys, thanks very much and congratulations on all the growth and crisp execution here. I guess, I wanted to just keep going on the same line of questioning. Does the exit of the ESN contract help you in the renegotiation with Airwave? Obviously, you're negotiating with the home office and the CMA. I presume about a revised contract extension, but is this a negotiating point in that negotiation? How do you see it?

George Notter:

Got it, okay. Thank you very much. Appreciate it.

Erik Lapinski:

Hi, thanks. Congrats on the quarter. I wanted to go back a little bit to the supply chain piece and just to make sure I fully understand some of the dynamics. It sounds like maybe things haven't really improved, but you did see a pretty good ramp in hardware sales during the quarter and maybe you're able to at least get supply but at a higher price. So maybe if you could just give us a bit of an update on exactly kind of where you feel like we are in the supply environment. And then as we think about that in the context of backlog, just trying to understand a little bit better, we just hardware backlog ramped a lot. Was that due to supply constraints? Is that due to just a factor of kind of the growth you're seeing in shipping times? And just maybe some more details there would be really helpful. Thank you.

Jason Winkler:

I would add, Greg, that on the automotive front, most of the LMR componentry that we are looking to get is in 40 nanometers and greater that supports what's going on in automotive and heavy industry. And we’re having success in getting what we need. The $30 million incremental is not only a good business decision, it also aligns to customer prioritization and us needing to fulfill backlog that customers have been waiting for. So in particular, this quarter in Q3 and again in Q4, we anticipate strong PCR shipments where we’re getting to parts of the portfolio that had been delayed in getting componentry for. So PCR, for example, this year, while we thought it could grow here or would grow with constraints of 15% last quarter for the year. We now anticipate it’s going to grow 20%. So we’re getting access to the components necessary to unlock some of that PCR backlog as an example.

Jason Winkler:

It can be a competitive advantage in this market for sure.

Jason Winkler:

Thank you.

Ryan Cui:

Hi. This is Ryan Cui on for Sami. Thanks for taking the question. So I have two questions. First is, can you remind us how many round of price increase have been done so far? And is there another round of price increase should we like expected considering the alike inflation level of tax.

Ryan Cui:

Got you. I appreciate that. If I can squeeze in another one. So are you seeing any like signs of like potential slowdown, especially in the EU market considering the broad like concern from macroeconomic risk?

Jason Winkler:

Right, just to piggyback on that, when you really – when you think about our business outside of public safety, our next biggest vertical is education, which obviously given the initiatives around safe schools, around access control, analytics, that’s been a hot market and there’s not only funding through the American Rescue Plan, there’s also funding being pointed at that through the Bipartisan Safe Cities Act, which directly addresses access, egress, ingress issues at schools.

Operator:

We now turn to Adam Tindle from Raymond James. Your line is open.

Greg Brown:

No, I’m sorry. I’m sorry, keep going on. We want to get everything to the other. Go ahead. I’m sorry.

Greg Brown:

Yes. On the first question, I don’t think we ever looked at ESN as a hedge. We were asked way back when to bid on it. We did. I think we’ve fulfilled our deliverables. We’ve been fully committed to this project. And we’ve worked closely with the customer. And again, what I said, they’re – obviously, they’re interrelated Airwave and ESN. They’re the same customer and ESN has plans to be a certain network by the UK home office. But I never viewed ESN as a hedge. I viewed it as building a lot to from MSI and delivering on the expectations they had for us. As the discussions advance this year and more recently in the past quarter, I think there’s a mutual agreement. It’s the right thing to do to exit. Now the original contract, it was expiring at the end of 2024 anyway. So I think we both felt it was the right thing to do. As Jason said $65 million of revenue about this year and goes to zero in 2024. And for next year, it’s obviously less than $65 million, but that has to be worked out in a final agreement with transition terms that predicate exactly what that looks like for next year.

Greg Brown:

And Adam, I’d point to you to the U.S. where we are a subcontractor to AT&T for all things FirstNet, which is a 4G now evolving to 5G, high-speed LTE network, and we participate in that. And at the same time, we continue to grow and build LMR here domestically in the states. And in fact, we see record demand for LMR here in the U.S., while simultaneously participating in FirstNet. So I don’t see it as a hedge, and I don’t see it as a trade-off per se.

Jason Winkler:

We view the price increases on our products as stickier than the $150 million of temporary market conditions that really are driven by brokers and third-parties extracting maximum value in a scarce commodity play right now. So we’ve had good success in looking through the portfolio and engaging with our customers, and we’ll continue to procure the parts that we need to at the parts – at the prices that are market driven right now. But as we look forward, there’s opportunity there.

Adam Tindle:

Is there a simple way to think about the price spend? I mean the $150 million is really easy for us to understand. Is there a way to think of price was x dollars in 2022 and an incremental x dollars in 2023? Or is it just too complicated to do that?

Adam Tindle:

Understood. Thank you.

Operator:

We now turn to Fahad Najam from Loop Capital. Your line is open.

Jason Winkler:

$99 million of contract value was reduced. So that’s a reduction in backlog. Yes.

Jason Winkler:

That’s right. Yes, the decision to exit the ESN contract as most probable reduced our backlog by $99 million for future contracts as well as we had a non-cash charge of $147 million off the balance sheet, corresponding to our project and the delivery. Those are the two numbers that I think are most relevant to financially what we’ve decided is the most likely outcome.

Greg Brown:

Sure. So it’s always important to probably take it back and point out that what we do, it’s a need to have and not a nice to have. But with that said, we’ve got $200 million year-to-date through Q3 in revenue that’s tied in some way to the American Rescue Plan. The bigger thing to point to is this is a multiyear phenomenon, the ARP funds run through 2024 in all likelihood, some element of that will be extended as well.

Greg Brown:

You’re right. Yes. Good clarification.

Jason Winkler:

Thank you.

Paul Chung:

Hi. Thanks for taking my questions. So you mentioned you feel comfortable with that $9.5 billion in 2023 initially. Can you kind of expand on the pace of growth you expect between segments? Can we still see that 20% type growth and video and as we start to think about gross margins for next year, can you kind of quantify the uplift, we should kind of expect it? Hopefully you start to see some component pricing come down and supply chain costs also come down?

Paul Chung:

Got it. Appreciate that. And then to follow-up on free cash flow guide that kind of implies a record ramp here in 4Q. What are some risks here across working cap to hitting that guide and your visibility into cast flows and are you starting to see some component pricing even a bit helping in 2023? Thank you.

Paul Chung:

Got it. Very helpful. Thank you.

Operator:

Our next question comes from Keith Housum from Northcoast Research. Your line is open.

Greg Brown:

Yes. Thank you Keith. Again decision that came out was provisional. We don't expect a final decision until early next year. To your question, it's worth mentioning that after a final decision there is then a remedy implementation phase that actually takes a few more months to sort out what the final ruling is in terms of how to implement. I think, I think statutorily that has to be done no later than I think it's nine or 10 months after the final decision. So that takes time to do that. I told you that we are convicted in our position and while we are obviously going to continue to work with the CMA and the customer. We think the founding's in the provisional are unfounded and overreaching and unprecedented. By the way it's worth also mentioning there is a notation in the actual provisional decision that includes an potential invitation for the home office and us to agree to a different arrangement than what the CMA has proposed. That's explicit and referenced embedded in the provisional. We would certainly be open to that conversation, and so we'll see how things develop, but there's several more months to go here.

Greg Brown:

I think you were clipping in and out, but I think that the direction of your question is the kind of the inertia against some Chinese suppliers adding to our growth this year? I think the answer is yes, but actually it's kind of measured because remember under the NDAA, the National Defense Authorization Act at the fed level it prohibits future procurement from Huawei, Hytera, Hikvision, Dahua, ZTE it is not a rip and replace. So I don't think there's the pop the clutch moment of big growth there, which is the same thing in terms of the NDAA provision around grant money. The other positive move that could help as a potential tailwind kind of circumstantially will be the Secure Equipment Act at the FCC level, which by the way could be as early as November, but it also could take more time. But if the FCC follows along the lines or contours of the NDAA, that could potentially prohibit in the case of LMR, Hytera procurement. And in the case of video security Hikvision and Dahua future procurement for the enterprise, that would be favorable. So clearly it’s a favorable trend, but – and I think it's a contributor but I don't think it's an overwhelming driver to the results we're printing to date.

Greg Brown:

Thanks, Keith.

Jim Suva:

Thank you very much. Education, you highlighted great on your comments, which is great to hear. Can you give us a little bit of insights about like percent of sales now versus an importantly outlook? It seems like that's a growing area. I mean, just recently our school PTA had a meeting talking about the situation of putting in technology and I actually recommended your type of products and – but it's a long discussion. And so can you talk about kind of the timeline there of what you're seeing? And the profitability, I assume continues to increase as certain other school districts start to seed solutions to other school districts. And it kind of starts to self market itself at some point, but the initial kickoff seems pretty hard? Thank you so much.

Jason Winkler:

And this is also an area of investment as we further integrate all of our portfolio in and around Safer Schools. Mahesh, maybe you could talk about some of the things we're doing to integrate the portfolio, so to better position our portfolio to keep schools safe.

Jim Suva:

Thank you so much for the details and congratulations.

Operator:

This concludes our question-and-answer session. I'll not turn the floor over to Mr. Greg Brown, Chairman and Chief Executive Officer for any additional comments or closing remarks.

Operator:

Ladies and gentlemen, this does conclude today's teleconference. A replay of this call will be available over the internet within two hours. The website address is www.motorolasolutions.com/investor. We thank you for your participation and ask that you please disconnect your lines at this time.

Tim Yocum:

Good afternoon. Welcome to our 2022 second quarter earnings call. With me today are Greg Brown, Chairman and CEO; Jason Winkler, Executive Vice President and CFO; Jack Molloy, Executive Vice President and COO; and Mahesh Saptharishi, Executive Vice President and CTO. Greg and Jason will review our results along with commentary, and Jack and Mahesh will join for Q&A. We posted an earnings presentation and news release at motorolasolutions.com/investor. These materials include GAAP to non-GAAP reconciliations for your reference. And during the call, we reference non-GAAP financial results, including those in our outlook, unless otherwise noted. A number of forward-looking statements will be made during this presentation and during the Q&A portion of the call. These statements are based on current expectations and assumptions that are subject to a variety of risks and uncertainties. Actual results could differ materially from these forward-looking statements. Information about factors that could cause such differences can be found in today's earnings news release and the comments made during this conference call in the Risk Factors section of our 2021 annual report on Form 10-K or any quarterly report on Form 10-Q and in our other reports and filings with the SEC. We do not undertake any duty to update any forward-looking statements. I'll turn the call over to Greg.

Jason Winkler:

Thank you, Greg. Revenue for the quarter was up 9% and above our guidance with record second quarter revenue in both segments. We saw strong growth across all 3 technologies, led by over 20% growth in both Video and Command Center Software. In LMR, which grew 5%, we were able to secure more critical parts, particularly later in the quarter, which enabled us to ship more product. Acquisitions during the quarter added $34 million and FX headwinds were $44 million. GAAP operating earnings were $358 million, and operating margins were 16.7%. Non-GAAP operating earnings were $497 million, up $15 million or 3% from the year ago quarter, and non-GAAP operating margins were 23.2%, down from 24.4%. The decline in operating margins was due to the higher semiconductor costs we outlined on our prior calls related to acquiring critical supply in the secondary market, together with higher freight costs and higher operating expenses related to acquisitions, partially offset by higher sales. GAAP earnings per share was $1.33 compared to $1.69 per share in the year ago quarter. The decrease was primarily due to a discrete tax benefit recognized in the prior year and higher direct material costs in the current year. Non-GAAP EPS was $2.07, flat versus last year. The higher sales and operating earnings generated in the current quarter were offset by the higher direct material costs I mentioned previously, along with higher operating expenses related to acquisitions. OpEx in Q2 was $502 million, up $25 million, primarily due to acquisitions. Turning to cash flow. Q2 operating cash flow was $10 million compared with $388 million in the prior year, and free cash flow was a usage of $49 million compared to $326 million generated in the prior year. In Q2 and the first half of the year, our cash flow has been primarily impacted by 2 items

Tim Yocum:

Thank you, Greg. [Operator Instructions]. Operator, would you please remind our callers on the line how to ask the question.