Q3 2019 Earnings Call
Good afternoon.
Welcome to the Motorola solutions third quarter 2019 earnings conference call.
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Now, let's turn the conference over to Tim Yocum, Vice President Investor Relations. Please go ahead.
Good afternoon, welcome to our 2019 third quarter earnings call with me today are great Brown, Chairman and CEO , Geno bone and I would say executive Vice President CFO , Jack Molloy Executive Vice President of products in sales and Kelly, Mark Executive Vice President services and software, Greg and Gino review our results alone.
And with commentary in Jacking, Kelly will join for <unk>.
We've posted in earnings presentation, a news release at Motorola solutions Dot Com slashing Dr. These materials include GAAP to non-GAAP reconciliations for your reference 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 and 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 factor section of our 2018 annual report on Form 10-K , and there are other reports and filings with the FCC.
We do not undertake any duty to update any forward looking statement.
With that I'll turn it over to great.
Thanks, Tim Good afternoon, and thanks for joining us today I'll start off by sharing a few thoughts about the overall business before Gino takes us through the results and the outlook.
So first Q3 was another strong quarter, we grew revenue 7%.
Expanded operating margins by 120 basis points generated 525 million up operating cash flow, an increase of 55% versus the prior year.
Additionally, we ended the quarter with our highest backlog position ever of 11 billion up 1.6 billion year over year and up 160 million sequentially.
Second we continue to execute well across all platforms, our land mobile radio business is on pace for another record year of sales and earnings led by North America.
Our video security business had another strong quarter revenue growth and is gaining traction government customers and our command center software business is continuing to drive revenue growth and margin expansion in our software and services segment.
And finally based on our Q3 results and our expectations for another solid performance in Q4 were once again raising our earnings per share estimates for the full year 2019.
That.
Now I'll turn the call over to Gino to provide additional details on Q3 results and outlook before returning just for some very brief closing thoughts.
Thank you Greg.
Three includes revenue of $2 billion up 7% versus last year, including $58 million of revenue from acquisitions and currency headwinds of $21 million.
Organic revenue growth was 4%.
GAAP operating earnings of $413 million up $119 million and operating margins of 20.7% themselves.
Compared to 15.8% in the year ago corridor.
non-GAAP operating earnings of 500, a $9 million up $57 million worth 13%.
And non-GAAP operating margins of 25.5% of sales up 120 basis points, driven by higher sales and gross margins.
Partially offset by higher Opex from acquisitions.
GAAP earnings per share of $1.51 compared to $1.43 in the year ago quarter.
non-GAAP EPS of $2.04 up 5% from $1.94 last year on higher operating earnings offset primarily by a higher effective tax rate.
Back in Q3 was $504 million up $40 million versus last year, primarily due to acquisitions.
Other income and expense was $39 million compared to $43 million a year ago quarter, driven primarily by a decrease in net interest expense.
The Q3 effective tax rate was 23% compared to 18% in the prior year.
The year over year increase was driven by the recognition of a favorable return to provision adjustment in the prior year.
Turning to cash flow Q3, operating cash flow was $525 million compared to $338 million in the prior year and free cash flow was $465 million compared with $292 million in the prior year.
The higher cash flow was primarily due to improved working capital a settlement payment in the prior year related to a legacy business.
And higher earnings.
Capital allocation for Q3 included $271 million in cash and equity for the acquisition of Watchguard.
$94 million in cash dividends.
$60 million of cap apps.
And we paid off the 400 million dollar term loan used to acquire a vigilant.
Additionally, we agreed to extend our strategic partnership with Silverlake.
As part of the agreement Silverlake agreed to make a new 1 billion dollar investment in Motorola solutions and settle the outstanding 800 million dollar aggregate principal investment one year I have well ahead of its maturity.
The 800 million dollar principal was settled in cash and the premium was settled was $300 million in cash and 5.5 million in shares the transaction resulted in an overall reduction to our diluted share count in the quarter.
Moving to segment results Q3 products and systems integration sales were $1.3 billion up $61 million and 5% driven by the Americas.
Revenue from acquisitions in the quarter was $27 million and currency headwinds were $9 million.
Operating earnings were $300 million or 22.2% of sales up 80 basis points from last year on higher sales and gross margins, partially offset by higher opex from acquisitions.
Some notable Q3 ones in the segment includes an award from melt Bell mobility for the largest Canadian P 25 contract in history, serving the province of Ontario.
$27 million in video security wins and education.
A 16 million dollar P 25 order from Lea County, Florida, several large awards in mobile and in car video, including $13 million for the city of Nashville, Tennessee.
And $4 million from for the Michigan State police.
$3 million in fixed video security wins for government customers.
Moving to service is moving to the services and software segment revenue was $645 billion up $71 million or 12% from last year driven by growth in the Americas any EMEA.
Revenue from acquisitions in the quarter was 31 million and currency headwinds were $12 million.
Operating earnings were $209 million worth 32.4% of sales up 170 basis points from last year, driven by higher sales and gross margin expansion.
Notable Q3 wins in the segment include a 78 million dollar P 25, multiyear service contract with the state of Michigan extending service through 2029.
A 58 million dollar P 25, multiyear statewide service contract in North America, and $11 million Command Center software suite contract with Glendale, Arizona.
And a 4 million dollar contract for a 911 system in Bogota, Colombia.
Looking at regional results Americas' Q3 revenue was $1.5 billion up 12% driven by broad based growth across all platforms.
Yes, Q3 revenue was $384 million down 1% due to large system deployments in the middle East and the prior year and currency headwinds.
Partially offset by growth in Europe .
And in Asia Pacific Q3, revenue was $158 million down, 9% or $16 million due to China and currency headwinds.
Ending backlog was $11 billion up $1.6 billion or 17% compared to last year.
Sequentially backlog was up $160 million with growth in both segments.
Services and software backlog was one point was up $1.6 billion or 26% compared to last year.
Approximately half of the increase was driven by the Americas and half by IBM yet.
The EMEA growth is primarily related to the S and airwave extensions so.
Sequentially backlog was up $34 million due to multiyear contracts in the Americas, partially offset by revenue recognition for E.S. and Airways.
Products in aside segment backlog was down $39 million or 1% compared to last year due to large system deployments during the prior year in the middle Eastern Africa, partially offset by growth.
$134 million in the Americas.
Sequentially backlog was up $126 million driven by the Americas.
Turning to our outlook, we expect Q4 sales to be up 5% to 5.5% with non-GAAP EPS between $2.75 in $2. An 80 cents. This assumes 20 million of FX headwinds at current rates a weighted average diluted share count of approximately 176 million shares.
And then effective tax rate of approximately 25%.
For the full year 2019, we now expect revenue growth of 7.25% to 7.5%.
We now expect non-GAAP EPS between $7.77 in $7, an 82 cents up from our prior guidance of $7.67 to $7.77. This full year outlook assumes $115 million of FX headwinds at current rates.
An effective tax rate of 23, and a half for Sun and a weighted average diluted share count of approximately 176 million shares.
We continue to expect full year operating cash flow to be approximately $1.7 billion I'd now like to turn the call back over to Greg.
Thank you genome.
First I'm very pleased with our Q3 results or it was another quarter of solid organic revenue growth.
Significant expansion of both gross margins and operating margins strong operating cash flow generation of over half a billion dollars and we finished their highest quarter ending backlog position ever. We also closed the acquisition of Watchguard a leader in in car and body worn video.
Second 2019 is looking to be another strong year of growth.
Led by North America, or Lamar business is positioned for a second consecutive year of record sales and our command Center software and video security businesses continue to perform very well.
Even our year to date performance and ending backlog, we're positioned for another year of record revenue earnings.
And cash flow and finally this week at the International Association of Chiefs of police here in Chicago, We had product introductions that spanned our entire mission critical portfolio.
Including our next generation Ilim, our radio apex next which is broadband enabled for mobile apps designed specifically for first responders.
And what struck me the most as I walk our booth.
How the investments in our portfolio have come together.
Not as point products or separate acquisitions, but as a fully interconnected ecosystem.
We are mission critical Communications video Security Analytics Command Center software and services, our operating seamlessly together.
And it's the power of these integrated mission critical solutions that is as me excited when I think about our future going forward.
So now I'll turn it back over to Tim and open it up for your questions. 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.
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Our first question comes from Tim along with Barclays. Please go ahead.
Thank you maybe just a.
Two I'll get it together if I can first on the on the video side guys. It sounds like last quarter, you are starting to see some traction in the education vertical I see you know do you know you went over a number of video wins kind of across different platforms in the quarter could you just talk a little bit about.
Growth, there and particularly with with the new ban and Andy a a in effect.
What are you thinking about growth for that business and then secondly on the on the call Center software side seems like there's been good traction could you talk a little talk a little bit about the trajectory of maybe getting into more piece apps and maybe selling multiple solutions to the ones that you're you're currently and how do we how do we think about that adding to two growth for the company.
Thank you.
Hey, Tim Good evening, it's Jack I'll I'll take the first question related to video.
So as we've just as we've discussed before we expect.
The video business to grow 15%. This year I will tell you Q3, the performance exceeded our expectations.
Specific to education, we had $27 million in orders in Q3, and if you remember Q2 is typically the high points. So we're really pleased with 27 million.
We got a million dollar order from the University of South Carolina, we have not done a lot higher Ed So again pleased there.
And then I think last thing is the Federal Bureau of prisons are we talked about a year kind of a year to take place for the federal government success and that was that was well in advance of what we expected a and think of that as a platform that will build on I think all these things are empowered by two things we made.
We made a pretty significant go to market investments in North America, but probably more importantly, we announced the H five camera line.
And the vigilant control center, which are software and analytics package seven dot l. focus of attention.
Unusual speed detection things like that so a lot of excitement in the market and I think you'll continue to see our momentum from there and.
Turn it over and the second half Tim It's a Kelly on the software part I'll address that first I'll just say I you know if we look at the business. We're very pleased with it our orders our revenue in our backlog growth are all exceeding the market growth rate. The teams done a great job showing the benefits the suite and the customers are definitely recognizing it a year to date as we think about it you.
Herbie reference in the past <unk> percent of so our orders and the command center that our suite related where we have sold two or more components of our software together or where weve added on to already existing pieces of software and added to that as we look at year to date were just over 25%, which is an improvement from what we've seen in the path.
It's great to see some notable customer wins, you probably saw us reference a particularly large win with Glendale, Arizona, where they bought a as a pretty much the entire sweet CAD records jail mobility, our vast solution as well and integrated those together and also customers like we see in Latin America with.
I would talk.
Colombia arc in Colombia, where we added on a 911 software system. In addition to what they already have in regards to CAD and records that they have so we're seeing good traction across the board on suites and pleased with the progress. We're seeing also in the development of what Andrew and team are doing there.
Okay, great. Thank you guys.
The next question is from Adam Tindle with Raymond James. Please go ahead.
Okay. Thanks, good afternoon, I want to start by obviously acknowledging a lot of positive to highlight here in the quarter, but Greg I'm going to be brave here and try to paying the narrative that I know has holes in it but just get it out there because I know you won't be shy to respond.
The recently announced a new apex next devices that incorporate broadband capability Firstnet interoperability and Didnt think there was you were seeing much of the use case for broadband and mission committed a critical radios and I know that element has been doing well, but product backlog is down year over year for the second quarter now I know Americas is up but video is doing well in some additional inorganic.
Contribution so some thought that this is an indication that perhaps broadband in first noticed starting to two and going to continue to have an impact on the core LM. Our business. Thank you understand that the narrative that painted there. So just wanted to give you an opportunity to respond to that.
Yes, Adam Thanks for the question I don't think the introduction of apex next.
Has anything to do with a narrative that would suggest.
LTE or specifically firstnet.
Taking a more prominent role, but specifically cannibalizing Lamar.
As you know Adam we haven't seen that in the past, we still don't see that now.
Backlog is up you know that year on year and sequentially.
By the way, it's also worth noting that the backlog is up despite some significant FX.
Headwinds that we didnt articulate, but with what malawi's to team is doing on LM are and the introduction of apex next which were excited about it may be Jack could say a few words about the feature set.
Software connect and seamless roaming.
Between LM, our and LT actually we believe extends lemar.
It's not an encroachment of Ltd. It makes lemar it makes apex next it makes private networks.
Even more compelling and I think thats represented by.
The state wide upgrades that we had this year that were almost two X the volume of previous periods, but I just don't see it that way and I think first net is complementary to alomar, just like in the UK Sn is complimentary.
To airwave, but.
I, just don't see any cannibalization or a chilling effect by the way just since we're talking about Firstnet as you know I think out I mean has it de minimis.
Impact of revenue for this year, we would see equally minimal revenue contribution from next year.
Yeah, maybe just to piggyback on on top of that I think this is an important point the as a service or the recurring revenue component of apex next we'll actually be contracted through the customer directly to Motorola and that'll be three different things that will be obviously, Greg talked a little bit about the smartconnect the ability to extend alomar capabilities for.
Insys if it was somewhat from the Cook County Sheriff's office that was at a conference in Miami they'd have capability to connect Becca that work, but to the other a really important features are called smart locate which essentially provides.
Turning to every depending on the situation every three to 15 seconds location device of an officer critical for officer safety, but maybe the most important and underrated thing is a feature called smart programming, which will essentially take what used to take weeks or months to program radios and essentially provide an out of the box experience. So really what we're doing is.
To Greg's point, extending the Lamar P 25 network, but leveraging some of the broadband technology to do complimentary technologies. The other thing to hit on is the apex next is actually a premium device. So if we think about the apex family that is that is.
Like handily bend the most.
Successful product in the history of this company this will be kind of the Cadillac if you will or the premium tier and we should think of that is kind of taken three to five years. Historically, we have a new fleet three to five years to start making will restart see most of the sales pivot to IPX next in the next gen of though so hopefully that answers.
Good question, Yeah, very helpful and it sounds like there's some potentially attractive economic models that could be associated with it as well maybe just as a quick follow up Gino product and I say operating margins look like if I'm backing into the 2019 guidance correctly, maybe towards the low end of the 22 to <unk>, 23% range for 2019.
And hoping that maybe just double click on that because I know, it's perhaps not exactly like to lake, but products gross margin in gross profit or up healthily and operating margin and operating profit or are lagging that growth a little bit I know you have a number of acquisitions weighing probably some opportunity. There. So maybe just some color. How we can think about operating leverage in that segment moving forward. Thank you.
Sure Adam Yes, the guidance suggests the lower end of that 20% to 23% range. It's important to note that gross margin is above slightly above our expectation for the full year. So really the impact is is opex related to the acquisition and frankly related to some.
Legal expense related to the Itera.
IP lawsuit ongoing this year. So those are the Jewish is very pleased with gross margin. It's opex will get after the the acquisitions and again legal expense until that that trials resolved or that actions resolved. We'll continue to include that in our guidance.
Very pleased with the performed gross margin performance.
Yes. Thank you.
Your next question is from George Notter with Jefferies. Please go ahead.
Hi, Thanks, a lot guys I guess I wanted to kind of drive towards a inorganic growth rate for backlog.
You mentioned there was an FX impact there I know, it's pretty substantial last quarter, but I'd be curious on what that number actually was and then watchguard I would imagine also.
Maybe gave you a bit of backlog benefit. There also I was wondering what what kind of contribution that might have had and then I assume the to middle east deals from a year ago are not backlog affecting as I look at year on year compares.
Yes, that's correct just so there are a couple of things there to unpack the.
The FX adjustment that Greg mentioned was 115 million dollar.
Sequential unfavorable FX adjustment getting back to your question on the organic growth rate of backlog. So that was the extent of of the adjustment.
The second question was a watchguard, yeah, and that's really minimal backlog George.
It's kind of a run rate business with very little backlog, so not much of an impact at all to our backlog.
Got it and then I'm sorry, the year on.
Can you tell me the FX impact on a year on year basis and Hey.
$200 million George.
Wow, Okay. So backlog organically I think grew nicely over 10% year on year is that roughly a ballpark.
Yes.
Great Okay Super Thanks, a lot.
Your next question is from Keith Housum wouldn't Northcoast research. Please go ahead.
Good afternoon, guys, Hey decides for a little bit. The this is the growth rates between Europe and North America, Obviously, North America is on fire now for the past two years or so it's not of a longer.
Is the difference in the growth rates more macroeconomic driven or is it more based on the proper full you have there and then perhaps you guys can touch on the growth or the opportunity with the video segment now with a vision line Watchguard and what your opportunity is outside the U.S.
Okay keep so I think the question was really around EMEA versus North America, Yeah, North America.
Just from a scale go to market scale points of presence, it's obviously, our strongest market it's up a.
Q3 was up 7% in terms of constant currency and I think as Greg articulated in the open its strength across the board its strength NRL Amar business strength in the command Center software business and our services business and obviously, we had a very good quarter.
Our video business EMEA is actually for in the third quarter were actually up 2% inorganic and organic constant currency. So some of the things we felt there obviously the headwinds we've had some FX headwinds there, but was just in Europe , two weeks ago, It or partner conference and no. There are some challenges in certain countries, but I would.
Dimensionalize Europe is still relatively steady state, where we're seeing the most pressure internationally is actually a in Asia Pac and to to kind of put that into context that 8% over overall revenue so not very material, but at the same time, we're seeing macro.
We're seeing some macro level issues, China's very small in terms of what it means from a revenue component of our country, but within the region, we're seeing some contagion.
I did have actually slowed some things down in certain areas I'd also offer that when I look at the APAC business a lot of this is on us and meaning it's on me and and our team in terms of ability to understand the process a little bit better where we might have some macro level issues that caused budget issues, we've got to see through those and we've got to execute better as well.
But as it applies to Europe Europe , it's not as strong as North America, obviously, but it's fair it's fairly fairly steady APAC is really where we've seen.
The primary weakness is irrs rolled up.
Great and just kind of expanding on that question can you just touch on your opportunities with a visual on an and watchguard outside of the U.S. and is that a factor helping to drive some a growth in the U.S. comparatively the EMEA.
Yes so.
I think we we have the in two different things individual on we have opportunity in terms of we've got to increase the number routes to market internationally. That's in Latin America, that's in Asia Pacific and Thats in Europe . The work is being done there to really get the product I'm more shelves. They were when we acquired a vigilant they were relatively their focus.
It was rightfully so in North American we've got to bring more scale to them, both with our Salesforce and our distribution partners. That's the first thing secondarily watchguard his.
Also been relatively in North America phenomenon, we actually picked up a body worn camera through the vigilant acquisition a company based auto who had acquired a company based out of Scotland that actually has a very nice solution internationally at a better price points. So we're going to look at both of those options to take the body worn.
Camera and international but.
Watchguard is really in North America solution as it stands today.
Great. Thank you.
The next question comes from Ben borrowing with Cleveland Research. Please go ahead.
Good afternoon, Thanks for taking my question.
Could you talk a little bit about the public sector sales process within command center and surveillance.
Specifically I'd be interested in your thoughts on.
The average duration of the process any generalities for how relative deal sizes would compare like that traditional alomar deal to the same type of customer.
And any high level thoughts you have on the overall competitive landscape right now based on some of the preliminary stuff that you guys are doing.
Absolutely Ben I'll start this is Jack and I think the first part of it as a selling process in a minute Kelly is going to jump in.
To provide some color the selling process in terms of the command center software is actually it's actually a fairly lengthy cycle, meaning it's typically anywhere from minimal a year to two years Theres a high level because it's a 24 by seven highly intense environment.
And you've got.
A customer base, meaning dispatchers and are high stress environment Theres, a lot of demonstrably realty in particularly as they navigate software changes. There's a lot of features that maybe were legacy features that we have to kind of deal with because it certainly affects their operating procedures in the command center. So they're typically long and I think a credit to the inorganic.
Inorganic activity that Kelly and Andrew and team have done frankly, the deal sizes are getting larger and I think as Kelly articulated we've grown the.
The level of suite services, the suite sales, which have which have contributed to that.
Kelly I think you probably do you want to anything you want to add to that.
Just on the competitive come component look if you look at the external view across any number of market studies out there references market growing around a high single digit growth rate and as we referenced in the past and it has continued to play out our software business is growing in double digits. So we're very pleased with what we're seeing in regards to the.
The growth of the business.
I'd also add competitively I think as you probably saw at IC, Pete we made a number of announcements around some additional components of our software command center software portfolio.
Very happy about what we're doing also one thing I'd highlight is the records portfolio and what we're doing there as we all know in the command center one of the biggest things that they deal with is just the inundation of data pitchers video voice that they have to handle and that records platform that we announced is something that our customers are very excited about because it provides a.
Finally, with one records platform to be able to manage data that comes in from any variety of sources. So it's not just managing body worn video or nine on one calls it's being able to compose all the data that comes into the command center and be able to manage it. So competitively we view that as something that is really unique up part of our software portfolio that no.
In else can emulate so very pleased with what we're seeing there and the customer receptivity and the feedback we're getting from them has been really great. It shows and the results.
And as a follow up looking at the broader business you talked about some of the uncertainty maybe some more macro in APAC.
You have any thoughts on a broader macro perspective as it relates to commercial alomar.
Then one last follow up Greg any update to the broader 2021 framework discussion you provided previously thanks guys.
So.
There is no updates to the broader 2021.
Approximately nine and 10.
Remember it wasn't guidance it wasn't prescriptive it was directional my phrases up into the right.
And it contemplates both.
Operating the business and continued inorganic activity.
From a 2020 standpoint, we're not going to guide the specifics.
As you would expect that will be reserved for our February call, but as I sit here today kind of high level topline revenue growth I.
I think about roughly 4%.
Which is consistent with what we said this year.
Consistent with what we said last year.
And again overall from a driver's standpoint across all three platforms Lemar in video security.
Command Center software I feel pretty good about it by the way just one other dimensional position is worth mentioning.
It may seem a little tactical but worth reminding as you all think about 2020 remember Q1, specifically is always our lightest quarter.
Q1 of this year was a record quarter.
That included 40 million of federal revenue in Q1 of 19, we do not expect to repeat in Q1 of 2020.
So high level dimensional innovation bends continued solid growth.
Obviously, a solid backlog position.
No change to the nine and 10 and 2021.
And I think that Jack and Kelly and the team and quite frankly, all the people Motorola continue to do a great job and I appreciate their efforts.
Thank you.
Thank you.
Your next question is from Paul Silverstein with Cowen. Please go ahead.
Right and just before I ask what's your questions I just want to clarify annual response in the previous question, Greg I thought I heard several one and youre, giving guidance other Hannah I think margins, so 4% revenue growth for next year.
That the 4% that you cited was that's specific to 2020.
Yes, I am not being prescriptive on the specifically on EPS and operating cash and others, but it's just meant to signal more or less to Ben's question, our view and our expectation of continued growth. We do expect growth. We do expect organic constant currency growth, we do expect cash flow growth, but just to give.
If you an anchor point and a reference point yes.
As I sit here today that kind of view of topline was about 4% very consistent with this year.
And what we said what we said this year in what we said last year.
I appreciate the soon after my two questions. One is a broad question I apologize its revisiting a number of questions earlier on the call and then a specific question. The broad question is so you said that video hardware analytics monitoring along with margins have been the two or I think certainly need to work through the key.
Upside opportunities and focuses for the company can you give us any sense of the opportunity from here over the course for the next year in terms of how much more you can do and driving margin upside as well as.
Watchguard Vas and original on in terms of how far how fast that revenue to grow I recognize you addressed things you need to do in terms of outside of us and your go to market et cetera, but any quantification you could provide specific question would be just reference us federal on passing a number of companies this quarter cited.
Very strong U.S federal revenue in the fiscal year in can you characterize what you're seeing on a useful.
What doesn't Jack take us federal first.
Yes, so us federal Weve it was not only we talked about the strength of the.
The North America business.
And you won't have a good Q3 without a very strong federal quarter, but I would also offer its been marked mcnulty and is federal team has had a very good year in 2008 in 2019, it's everything from devices.
To systems to services and it really spans a continuum of law enforcement agencies in the feds.
Civil agencies as well as are our defense bases in the communication systems, we we supplied to them. So proud of what the team accomplished in Q3, but really about a very solid 2019 and Paul just overall.
On your question, who kind of the overall business.
We do expect.
Cash flow and operating margin expansion to continue against the specifics coming on the February call I think thats largely going to come out of software and services I think Kelly and Andrew and his entire team have done a great job on platforming the business getting efficient.
Season, the business integrating the suite.
The percentage of sweet purchases and orders is slightly incrementally higher than what Kelly referenced earlier.
We talked about an operating margin in that segment software and services on the last call of 30% to 31%.
That's going to look like more like 31% for full year 19, do we expect that can improve in 2020, we do.
And Kelly and Andrew will provide me and all of US with the specifics on 2020, but also what I would say is the areas that we're playing in.
Video security.
Where we've targeted to grow three X the market.
All in 15% versus five and as Jack referenced in Q3, we were strong in Q3, and we still believe will grow at 15% for 2019 and that continues on command Center software, it's performing in the high teens.
And again for now we expect that to continue so and that's against the backdrop of an addressable market of all of these businesses land Mobile radio video security analytics and command Center software.
An addressable market, we sized at about 39 billion for 2020, So I think there's room to run.
I think malloy and fits their skier executing very well with the vigilant acquisition and the other video assets that as we aggregate and go to market in an integrated way, we'll continue that performance and I think command center software and services, which we don't talk as much about though that too is.
Renewing to run very well so there's opportunity there is a sizable addressable market.
You know the numbers that were growing on command center software and video security I think land mobile radio, including ESI end services. All then we'll continue to move forward by the way. We will also consciously move more and more land mobile radio products.
To land mobile radio infrastructure as a service.
Which will improve stickiness.
Improve annuity revenue in that segment.
And overall solidify the profile of our position competitively. So I feel good about where we are and how we're executing theres always a lot more work to do but this is a solid quarter, it's going to be it should be we expected to be a record year.
19, and then we will update you on all the specifics with those metrics in 2020.
Appreciate the response thanks.
The next question is from Brian Yoon with Deutsche Bank. Please go ahead.
Hi, Thanks for taking the question.
I wanted to follow up on the prior answer you had for a baseline a 4% revenue growth in 2020.
Can you talk about the levers there. So what do you think could drive better than expected topline is that an uptick in.
Video security adoption or new product introductions.
And is there anything we should be aware of that could pressure revenue growth from that based on I think look at this point I think it's just a prudent way.
To plan the business as we look at 2020 Malloy talked about.
North America has been great.
And the execution across pretty much all platforms, you talked about a little bit of.
International more specifically Asia Pac.
Where we see budgets being pushed out I don't think its deals lost no Asia Pac is 8% of our overall revenue and 19 and as you know China is now about a 1.5% of revenue for us. So it's not it's not significant issue, though is as the China economy slows down.
Does it have a contagion effect.
In some other adjacent or need neighboring theaters in the region. It may but also as Jack said, we on the execution side.
Can do a better job in terms of forecasting specificity and understanding budget cycles and whats available. So I think it really is just.
Best way in the prudent way, we think to plan the business.
Video security in Q3 was stronger than our expectations.
So are there areas that we could perform stronger against that view of course, there are potentially there are but at this point. We think this is the right way to think about it and dimensionalize. It again as I sit here today.
Okay, great. Thank you. Thank you.
The next question comes from semi Badri with credit Suisse. Please go ahead.
Hi, Thank you. The first question asked to do with products, just outside and I want to understand beyond the big lumpy deals. The way you generate at some of those revenues can you give us any idea on the type of radios that were sold are these higher mix are you starting to see the installed base refresh their products.
If there is a cycle where are we in that cycle or some of the growth being driven by vigilant products on the hardware side can you just unpack this a little bit more for us So can go through it.
Yes, I'll, Hey, Sammy it's Jack.
Two things so.
For the third quarter, what we've seen from products that ESI, it's both actually to your point.
Vigilant, albeit vigilant had a very good quarter, so we're going to see some of that.
As we think about the LM our products that are in there.
We had we strength really frankly in devices. So thats, a PX devices, the apex family of which we just announced kind of the next generation or the apex next.
Strength into U.S. government use public safety state and local as well as the federal government, which I just articulated had a very good quarter.
No I don't know if there's anything you'd like I think I think you answer to Jack it's really on the product side is strength across the board in in Q3 than it was in one area that was exceptional no large deal in there that drove the result was broad based actually across all platforms, but across.
It's all about.
All of the product segment the commercial the commercial business was actually up 3% in North America in Q3 as well.
So just like I, just pretty much strength across the board.
Got it. Thank you and then just a follow up question regarding Avenger lawn and some of the more software slash artificial intelligence related capabilities that the software actually has where are we in the integration cycle for specifically those capabilities into the broader command center suites.
So let me I'll take that regardless of vigil I'm one of the things that we've done we're very pleased about as we immediately taken the vigilant portfolio and to extend our public safety customers are using the vigilant we've already integrated into our command Center suite. So one of the products, which you probably saw us announced earlier in the years Commandcentral where.
For Commandcentral, where as a product which helps gives our customers a consolidated view in the command center of a situation including location of officers.
Information related to the 911 call any inputs around license plates and in addition to that it to the extent they access a visual on cameras. They can have that feed into the command center. So it's not just division we work with a lot of other video suppliers out there because it's important as being in the command center that being kind of the central point where situations.
Control that we can interface to others, but of course interface into a vigilant as something that we incorporated earlier this year. It just one of the examples of the integration components that we provided through the command center.
Great. Thank you.
This concludes our question and answer session I would like to turn the conference back over to Tim Yocum for any closing remarks.
Thanks for joining guys and we look forward to talking to most of you soon take care.
The conference has now concluded. Thank you for attending today's presentation you may now disconnect.
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