Thank you, everybody, for joining, Tim Long here at Barclays, IT Hardware Analyst. Thank you for joining us for Motorola Solutions, live by chat here. Happy to have Jason Winkler, CFO, with us, today. So Jason, thank you. Let's start.
Pleasure to be here. Thanks, Tim.
Let's, yeah, let's start off kind of little high level here. You know, last earnings call, you guys talked about, you know, kind of endorsing, about $10.5 billion, 6% top line growth, for next year. Talk about, you know, comfort around, you know, the visibility and the outlook, into next year. If we could start there.
Sure. So we did give some color next year, and $7.5 billion top line. And reminded everybody, that that includes, overcoming, some, Airwave, an incremental $200 million related to Airwave and ESN, lower revenues next year, related $150 million to the Airwave price control, as well as $85 million, lower revenues because, and completing the contract this year. So, and that gave us, an indicator on, on providing more for next year is really the nature of our business. Strong backlog position, $14.3 billion. In Q3, we printed 8% growth and strong orders, and, backlog was up 6%.
So that strength, along with the nature of our service and software business, which is over a third of our business, which gives us good predictability and the overall demand environment for our business, particularly public safety, being strong, are, are what gave us some insights into next year.
Right. Okay, yeah, let's, let's start with the public safety part of it. Talk a little bit about how, you know, what's driving this, the strong backdrop for public safety, for the company, and how do you, how do you think about macro impacts on, on that business?
Yeah, I think the need for our communications technology across public safety is clear. Our equipment, software, and services gets prioritized. The environment that which we live reminded us today that there are public safety emergencies. There's wars going on. We mentioned, for example, on the call, that this year we'll have $100 million of orders in support of Ukraine. Crime and public safety across the U.S. will be a ballot issue for the election, and Republicans and Democrats alike will try to articulate how they can continue to curtail and get ahead of some of the state of crime across the U.S. And I think that bodes well for where we're positioned in technology and the state of budgets across all of our customers. The thousands of customers that we have in North America remains very strong.
Great. Could you talk a little bit about kind of government stimulus and, you know, funding that's helping? How dependent are you on that? Is that kind of icing on top of the cake? How do you factor that in?
More, more of the latter. ARPA, $350 billion, which has been available and will be available to our customers through 2026, gets a lot of attention. But to dimensionalize it for you, last year, we booked almost $6.5 billion of orders in North America, and less than 5% of those orders were funded by ARPA. So what that means, and we grew, that 95% of the time, our customers are finding their usual budget sources as sufficient and to fuel what they need to do in terms of upgrades. The state of budgets, for example, is solid across cities, states. It certainly didn't decline as what people anticipated coming out of COVID, and it's actually gotten better.
For inflation, for example, has a positive impact on many forms of tax. So ARPA is a good backdrop, but it is definitely a minority of what our customers are using and prioritizing in their funding cycles. So we'll continue to expect the customers will prioritize us and the budget cycles to do that.
Okay, great. Digging down a level deeper into ARPA, one of the areas we're excited about is Safer Schools. That seems like it's gonna be, you know, a very big focal point for that vertical. So can you talk a little bit about what Motorola is doing for safer schools and how, you know, how you think that's gonna, you know, drive that? I think it's in your enterprise vertical, how, you know, that whole education piece significant model.
Yep, education is an important vertical, starting with all of the kids in schools and wanting them to be safe in the U.S. Starts there. In terms of a market opportunity, it's a very good one for us. It's a strong vertical for us across our video business, supplying voice communications to schools and the SROs and the officers that support them. And then, more recently, last year, no better example of what we can do for schools than SOS and rapid response through Rave, which is a panic button alert notification, can receive inputs as to also direct people where to go and how to respond. And that integration layer of Rave is really exciting for our customers. It crosses all our portfolio, video, voice, as well as the 911 center.
So we're excited about what Rave can do around schools and the investments we're making around video and AI and analytics to prevent outcomes. If you think about a feature that we have around weapons detection, a camera detects an anomaly in a perimeter. We also have an access control business. So somebody who's a bad actor could through video analytics communicate via voice could lock doors prepare proactively for that incident. So it's a very exciting space, and it's one where we continue to integrate our platform to support the parent.
Okay, great. Yeah, listen, I was at IACP, and we saw some of the demos. It's pretty, pretty powerful stuff.
Yeah.
And where are we with? Is that an area where you think the federal funding will really help budget this with the school environment?
There's a variety of funding sources. ARPA had over $100 billion to support schools as well, in addition to the $350 billion that was state local. You know, the demands from parents to schools about keeping kids safe will continue to make funding available, and these technologies to prevent outcomes, I think, are what are really important.
Okay, great. Maybe before we get into kind of the video software, businesses, talk a little bit high level about M&A. I think Motorola, it's been a part of the DNA of the company, to be acquisitive and build on areas both organically and inorganically. I think the company does a great job of making acquisitions and making them accretive. So it's been a little quieter time lately, on the M&A front. Where are you guys now, and, you know, what are some holes you need to fill, or some areas that you think might require a little bit more investment?
We have been, I think... I know we've acquired almost 40 companies in the last seven or eight years, and we built the video around Avigilon, which we acquired in 2018, and we have acquired about eight other companies to build. This year, we'll be $1.7- 1.8 billion of revenue for video. So it is an important part of our strategy. We haven't done an acquisition this year. We have had activity, Tim, and our teams are actively looking at opportunities that would complement our portfolio as we have it today. Yet we're disciplined. I think in my experience, our cost of capital, everyone's cost of capital has increased, and as buyers, we're going to remain disciplined, reflecting that the rates that we've long sought to achieve.
In many cases, I don't think the sellers have necessarily adjusted their expectations. We'll continue to be patient with a strong balance sheet as there are opportunities ahead, and we'll continue to do what I'm proud of the teams have done, which is look for assets that we can own to deliver synergies, both revenue and costs, and and meet the financial hurdles that we've got.
Okay, great. Great, you mentioned the video in there. Can you talk a little bit about it? It's obviously a business that's been very high growth, for Motorola. Talk a little bit about sustainability of growth and kind of what you see as the drivers of that, that video business.
So, video this year expects 15% growth. The market's growing into high single digits with the capturing share. That's been our true north, capturing share at a multiple since the day we bought in 2018. We've done that. A few ways that we were uniquely able to do that, Avigilon did about $400+ million in revenue the year we acquired them, near zero in government. We liked their portfolio, we liked their leadership in AI, systems orientation, much like what we do at Motorola Solutions or did then around, voice and 911. So it's been a strong fit.
But taking that very good portfolio and making it available to our sales channels, our LMR sales team, that's very, very good, and giving them the opportunity to sell to a city, state, county's video needs has been an important synergy. We've taken the business that was near zero, where now this year, in that, 17 to 18, I mentioned the revenue for video, 30% of that is going to come from government. So that is a unique opportunity that we brought and will continue to bring, in terms of driving synergies around video with sales to the government. Additionally, we've increased R&D and selling and marketing for the video parts of the business. Because when I think about the enterprise parts of the sale, critical infrastructure, education, hospital... By the way, the cameras here in are Avigilon.
Did you see them today?
I didn't see them this morning. I'll try later.
Those markets are enterprise and important for us, and we're adding salespeople because there's a $22 billion TAM in total. We see opportunity and, you know, Jack Molloy , our CTO, and his COO, and leads sales, his sales force now, the largest portion of the sales force, the largest in total, is actually video. We see opportunity, and we're resourcing it accordingly.
You mentioned the 30% coming from the government vertical. Where are we in penetration or opportunity there? Is that a number that still leaves a lot of upside potential to it?
As I mentioned, starting with zero in 2018, it's been our fastest growing. Our expectations is it will continue to be the fastest growing because of that opportunity that we have around sales synergies and meeting the needs that governments have around video solutions. And it's also a complement to the 911 center. If you think about the 911 center, they're ingesting tons of video, public, private, and the single pane of glass or the analytics or AI to help the 911 centers ingest lots of forms of video, that's the software layer. Also a leader in there in terms of the AI that we have across our video platform.
We have a new camera platform, H6A, with analytics and AI, and we just released the latest version of our VMS, ACC8. All of which continue our leadership position in AI and differentiating on the camera.
Okay. Yeah, maybe if you could expand on kind of the software and you know, the different aspects of the video business. I think it's about a third software in your video business. Just talk a little bit about how Motorola competes there and, you know, really has evolved into a more tech-savvy software type of company from what was probably, you know, an old school technology company. How did you do that, and how do you guys continue to be on the cutting edge on the, on the AI side?
So, you know, we're an engineering-based culture at Motorola. We have 20,000 employees, over 40% of them are engineers, and the majority of those 8,000 are software engineers. That's true across the firm. We've amplified our software across the LMR platforms, both new offers and monetizing it around LMR. Certainly within the 911 and command center, we've been a software business. We've continued to invest and take that to a now cloud hybrid strategy. And then finally, in video, what we liked about Avigilon when we acquired it in 2018, is it was an end-to-end sale. So when you buy Avigilon, 90% of the time, the customer is committing to very good camera portfolio, a very good software layer, and storage. There isn't a competitor that has the same breadth as us.
Now, we compete against, in the software layer for the VMS, Genetec, Milestone, a part of Canon, and we are the largest in that order, software players. None of them have the integrated solution that we do. So we like being end-to-end and continue to invest to make sure that we have not only the best on-premises portfolio, but as customers increasingly look to the cloud for their video solution, deployment needs, we equally have a portfolio there. So we're well-positioned with what we call the Avigilon Alta, which is anchored by Ava, an acquisition we made a couple of years ago, and Openpath, which does video and access control. So I think it's important that we're in a position to serve the market as it is today, as well as how it evolves.
We feel good about our position and our investments there.
Okay, great. Great. Maybe just one more on video. Talk a little bit about, you know, you mentioned synergies with your LMR business, and obviously, that's helped with the government vertical, but, you know, just talk a little bit about how video fits in broader scope, and how that provides opportunity for cross-sell. Obviously, even fixed cameras are going to be influenced by a police department or a fire department. How do those synergies work?
Yeah. So in government, the synergy is both very good sales team starts there, but also an increasing need for the technologies to be integrated. That's a product integration, right? So how are our video portfolio, how it's being integrated with our voice communications. An example of that would be our latest device in voice communication. An excellent voice device, but it's complemented by an LTE backbone that has a screen and can deliver and receive video. So there you have an example of where voice are converged, and we're in a great position for the product integrations that we continue to do. So it starts with a very good sales team and giving them in their bag the ability to sell the entirety of the portfolio of video.
What our CTO is doing to continue to integrate all of these video, LMR, as well as 911 portfolio, we think puts us in a very good position for continued growth in government.
Okay, great. Maybe let's, let's dig down on command center software a little bit. Maybe just start off, talk about kind of high-level strategy. I know you guys have built a pretty good, suite of, of products there, so maybe you could walk us through, the high-level strategy for software.
Sure. So our 911 command center business is really in any 911 center, and there's 6,000 of them in the U.S., there's a technology platform to receive the call, the 911 caller. There's a technology to route or dispatch the call to the nearest first responder, and then there's a technology for the recordization of everything that took place, from the call all the way to the case being closed. Those are the three platforms, and we have a platform. We have one in each, and we're integrating those to make it easier for customers to have a single solution. Most operations today are hybrid, where they've chosen a vendor for A, B, or C.
We're positioned well with 60% share in those 6,000 PSAPs or 911. We're seeing an increasing number of customers add a plus one or look to a more native integration, which we can provide for them. Additionally, there's an opportunity for customers to leverage the cloud. They're generally slow-moving customers. They're complex operations, no different than an ERP upgrade would be for a commercial company like ours. So they're thoughtful, but they want to see a path to the cloud. And the work that we've done to give customers the choice around today's upgrade and tomorrow's opportunity to connect to the cloud is positioning. So we'll go double digits in that business this year in 911 command center, complemented by the Rave acquisition we mentioned.
It'll be 20% all in. The market itself is growing mid-single digits, so again, we're capturing share. We like the opportunity to see that within the nine months.
Okay. Yeah, I mentioned the IACP conference. Like I said, we were there, we met with some of your competitors in this area. It just seems like a very fragmented market. So, and your market share isn't all that hot. So how do you think about it here? It sounds like you're in a lot of these concepts. It's more about, you know, selling that plus one, that plus two. How does that work? It seems like it could be a timely process, but how do you work through that?
Well, we like our starting point, right? Being there at 60% of the time with at least one. You know, the three technologies I mentioned generally are procured at different points in time. So these operations don't do the ball too. So our opportunity is to win at each of those three technology at a given customer, and that's where we're seeking to add the plus ones. Is that the next given our position ourselves, leverage our incumbency, perhaps. Explain to the customer that a native integration is far better than the work necessary and the complexities of interfaces and the like. So I think we're in a good position, and as customers look to make changes, we would seek to win more and to sustain the growth rates that we expect.
Okay, and then, you know, there's a lot more beyond these three buckets that you're describing. Where... Now, what's Motorola's aspirations to get into other, you know, software areas, scale? There's a whole other line of software that's sold into the, you know, government businesses. Where's Motorola's heading there?
We're focused on the three opportunities I mentioned around call receiving, call routing, dispatch, and CAD and records, and we see opportunities there. It would be complemented by the work that we're doing in video. Many of these 911 centers, like Chicago, for example, there's a public-private partnership where Chicago is bringing in a number of private data cameras into the single pane of glass, and the AI around telling the operators what cameras are witnessing something unusual happening, is a powerful way of augmenting humans in the loop, as ultimately, that's who's monitoring these cameras. I think the power of video, combined with our three platforms, an integrated one in command center, is where we'll remain focused. I mentioned R&D earlier, too, Tim.
I think, you know, given video and command center, which are our growth opportunities, we've pivoted, where this year, almost half of our $800 million R&D will be in support of those two lines. So that's us believing in our future, putting investment dollars in a place where we see the highest amount of growth.
Okay, great. You did mention the cloud. I think, you know, some of your competitors kind of were cloud first. You guys, I think, in command center, making that evolution now. So what's customers' appetite for cloud? What's Motorola value position? What does it mean for financial, these companies with more of a cloud-based model?
Yeah, I think we've seen a good growth. I mentioned the double-digit support growth in command center. Some of our subscription offers within that are growing faster. Customers within the 911 center are looking at cloud. They want a path. They also want the assurance and control, really in government, whether it's an LMR network, a command center operation, local government, they want control of where they're headed. They want control of the technology roadmap. Our position and Dr. Mahesh Saptharishi, our CTO, I think, invested as well as over R&D a couple of years ago for this portfolio, is give customers choices and have a well-integrated portfolio along with choices to the cloud, and that'll meet customers wherever they're at on their journey.
That can include a tier one kind of NFL cities, which are very complex operations, or it could include a tier three city that is more mild characteristics. It's important that we have a portfolio that meets those very different requirements and incorporates the possibility and the...
Okay, great. Maybe, maybe if we could touch on the PCR business a little bit. I think through COVID, it came more in the spotlight for investors. Talk a little bit about the outlook there. Where are we kind of in the, you know, macro impact areas, verticals, look stronger. The education we mentioned is in there as well, the stronger ones.
Sure. So professional and commercial radio. So most of our LMR business is focused around public safety. We do have a portfolio, lower tier, if you will, that serves enterprises, this hotel, for example. And that's about $1 billion. You're right, Tim, it's gotten to and grown above pre-COVID levels, and we see continued demand there. It's one area, as we always prioritize public safety, as we navigate and continue to navigate supply challenges with semis, public safety gets priority. And so as a result, our PCR business has grown. We've also had some challenges in getting customers the products they need when they need it. And I think as we come out of the supply chain challenges, we'll continue to see PCR get prioritized with the available componentry.
But despite the challenges it's had, in terms of supply availability, it's grown. So it's an important part of our portfolio.
Okay, great. You mentioned supply chains. Talk a little bit about where we are now. It was like, you know, there was a lot of headwind there for a while, a little bit of a tailwind, but margin impacts, product availability, things like that, where with the supply chain?
Sure. You see it in two places. So, I'll start with, you know, in 2022, we had to pay premiums to get what supply was available. You know, this is brokers and intermediaries, et cetera. A pretty extreme premium that were in our P&L in 2022. This year, fortunately, that requirement is abating, and we'll see $70 million of lower COGS in this year's P&L because we'll need to use them less. And then we've also for next year, see an opportunity for $60 million of release this year, seventy. And what that means is we're coming off of those 2022 inflated levels. Our suppliers, and keep in mind, we're competing for 40nm and above. We talked to your semi analyst last night, and there remains still tight, automotive, et cetera.
But the supply lines we have with our manufacturers are improving. They're not back to normal yet, with lead times. It should take six weeks for us to get the points that we need. Ordering, it's still... We're planning for and navigating that current environment. The good news is, we're having to spend less to get the materials we need, and the overall environment is improving, and that's what's factored into our expectations.
Okay, great. I know you love to talk about Airwave, so we might as well throw that out there. So I, I guess you're kind of in a holding pattern now. We're still waiting for, you know, final resolution and litigation to start, but detail a little bit about the financial impact you guys have faced and obviously taking it out of the numbers. Good on that, and how, how do we handicap what the outcome is?
Sure. So just to ground everybody, Airwave is, our operation of a public safety network. So the UK, 300,000 users, a really important, network customer. And the CMA, we've appealed their, price control to the CAT, Competition Appeal Tribunal. We're awaiting that decision. On the second and third, we presented our case to, and we're awaiting, the decision on our, we believe, is a strong grounds for our appeal. In the meantime, in August, so we begun to defer the revenues, assuming we'd have to live with the price control. So what that means for 2023 is $80 million revenue is being... I mentioned earlier, in addition, $150 million is expected to be deferred into 2024. I would speculate on outcome.
It's been a bit of a roller coaster in terms of timelines. But the important part, I think, is told me earlier, is that we provided the clarity for what the base case is, and have a strong appeal that we continue to argue for.
Great. Great. I think that's it for me. Really appreciate having you here and appreciate your time and-
Thanks for covering us.
-insights.
I look forward to our dialogues and appreciate the Barclays. Thank you.
Excellent. Thank you, everybody.