Q1 2022 Motorola Solutions Inc Earnings Call
Yeah.
Thanks, Tim Good afternoon, and thanks for joining us today I'm going to start off by sharing a few thoughts about the overall business before Jason takes us through our results.
And our outlook.
First I'm really pleased with our strong start to the year as we achieved sales and earnings per share above our guidance in spite of the challenging macroeconomic and supply chain environments that we continue to navigate.
During the quarter, we saw record Q1 orders and record Q1 sales.
Highlighted by our video security and access control business, which grew 21% and revenue with even higher growth in orders. We also finished the quarter with a record Q1, ending backlog of $13 4 billion up 19% versus last year.
Second we continue to see strong demand across all three technologies driven in part by a robust funding environment for our customers in land mobile radio we're seeing continued investment in regional and statewide and even country wide networks. It further reinforces the longevity and criticality of this.
Technology.
And in our higher growth areas of video and command Center software our investments in cloud and artificial intelligence are differentiating us from our competitors.
Software revenue was up 17% during the quarter, including 28% growth in software for our video security and access control business and 9% growth in command Center software.
And finally, our expectation for full year guidance remains unchanged.
As the years progressed as this year has progressed, we've seen incremental headwinds related to higher freight costs, a stronger dollar and the dilutive impact of the Ava security acquisition. However, these headwinds are being offset by further pricing actions stronger demand.
Favorable mix and targeted cost reductions.
Now I'll turn the call over to Jason to take you through our results and outlook before returning for some final thoughts.
Thanks, Greg our Q1 results included revenue of $1 9 billion up 7% and above our guidance driven primarily by better than anticipated supply for LMR revenue from acquisitions was $17 million and currency headwinds were $18 million GAAP operating.
During earnings of $239 million and operating margins of 12, 6% compared to 16, 8% of sales in the year ago quarter, non-GAAP operating earnings of $374 million down $37 million or 9% from the year ago quarter, and non-GAAP operating margins of 19.
8% of sales down from 23, 2%. This decline in operating earnings was primarily due to the $50 million of higher semiconductor costs that we outlined on our last call related to the acquiring critical supply in the secondary market for semiconductors. Additionally, we saw higher freight cost.
Driven by elevated air freight rates.
And higher operating expenses related to acquisitions, partially offset by higher sales.
GAAP earnings per share of $1 54, compared to $1 41 in the year ago quarter. The increase was primarily due to a deferred tax benefit in the current quarter related to the reorganization of intellectual property.
non-GAAP EPS of $1 70 per share compared to $1 87 last year, a decrease primarily due to the operating earnings impact I described related to higher semiconductor and freight costs and increased operating expenses from acquisitions, partially offset by higher sales and a lower tax rate.
Opex in Q1 was $492 million up $37 million versus last year, primarily due to higher expenses related to M&A investments in video and higher selling costs commensurate with our higher sales.
Turning next to cash flow Q1, operating cash flow was $152 million compared with $370 million in the prior year and free cash flow was $98 million compared to $318 million in the prior year. The decrease in cash flow was primarily due to our planned increase in inventory as we invest to meet the strong.
Products demand, we're seeing from our customers in video and LMR.
Capital allocation for Q1 included $493 million in share repurchases $134 million paid in cash dividends and $54 million of Capex. Additionally, during the quarter, we closed the acquisitions of Eva security for $387 million and Tetra, Ireland for $120 million.
And subsequent to quarter end, we acquired Calypso a leader in cloud based advanced video analytics for $40 million and just earlier today, we announced the acquisition of video Tech a global supplier of Pan tilt zoom and explosion proof cameras for 22 million video tech enhances our portfolio of NDAA.
<unk>.
Fixed video cameras.
Moving next to our segment results Q1 products and system integration sales were $1 1 billion up 9% driven by anticipated strong growth in video and better supply availability in LMR revenue.
Acquisition from acquisitions in the quarter was $7 million and currency headwinds were $8 million.
Operating earnings were $96 million or eight 7% of sales down from 12, 9% in the prior year, driven by the $50 million of higher semiconductor costs and higher freight.
<unk> previously mentioned, partially offset by higher sales.
Some notable Q1 wins and achievements in this segment include an over $60 million nationwide P 25 order for Taiwan National Police.
$20 million or <unk> 25 upgrade orders for Los Angeles Unified School District.
$14 million Tetra upgrade for the Israeli railroads.
$11 million P 25 expansion for a large U S customer and a $5 million video order for a large U S public school system.
Moving next to our software and services segment Q1 revenue was $789 million up 4% from last year.
Revenue from acquisitions was $10 million and currency headwinds were also $10 million.
Growth in this segment was driven by video Security and command Center software, while LMR services was approximately flat as expected due to the impact of a tough comp related to customers P. 25 system upgrades that were concentrated in the first quarter of 2021 due to the COVID-19 delays throughout 2002.
'twenty.
And the impact of unfavorable FX.
Operating earnings were $278 million or 35% of sales down 170 basis points from last year, driven by a change in year over year mix and higher M&A operating expenses, partially offset by higher sales for the full year, we still expect software and services revenue growth of 10% and we expect operating margins that are.
Comparable to last year with the dilutive impact of recent M&A offset by pricing and improved operating leverage.
Some notable Q1 highlights in this segment include $27 million Command Center software order for a customer in Latin America, but $20 million U S federal multi year service contract orders.
$8 million Command Center software record management order for the city of Phoenix, and an $8 million services agreement with the city of Chicago.
During the quarter, we grew our video security and access control software revenue by 28%.
And subsequent to the quarter end, we launched the public safety threat Alliance, a cyber security information sharing an intelligence hub for the public safety community.
Looking next at our regional results North Carolina, North America, Q1 revenue was $1 3 billion up 10% on growth across all three technologies International Q1 revenue was $587 million flat versus last year with growth in video security and command Center software offset by.
Decline in LMR due to FX, we saw growth in Latin America, and Asia Pac, while Europe was slightly down primarily due to FX.
Moving to backlog ending backlog was a Q1 record of $13 4 billion up 19% or $2 1 billion compared to last year driven by the Airwave extension recorded in the fourth quarter of 'twenty, one and increased demand across all three technologies.
Sequentially backlog was down $115 million, driven primarily by the Airwave and ESN revenue burn during the quarter, partially offset by growth in LMR and video products.
Software and security software and services backlog was up $1 3 billion compared to last year, driven by the Airwave extension and a $320 million increase in multi year services and software backlog in North America.
Sequentially backlog was down $221 million or 2% driven primarily by revenue recognition for airwave and ESN during the quarter and typical order seasonality in North America.
<unk> Si backlog was $852 million compared to last year and up $106 million sequentially, driven primarily by strong LMR and video demand in both regions.
We entered the year with a record backlog position and approximately $2 2 billion of our beginning backlog in the products segment was scheduled to be delivered in 2022 with over two thirds of this amount expected to be delivered in the first half. We saw continued strong demand for new orders during the quarter.
With a record Q1 orders total that included comprehensive pricing actions, we implemented across our portfolio in January we.
We expect these new orders at higher prices together with higher volumes in the second half to lead to a significant profitability ramp throughout the year.
Turning to our outlook, we expect Q2 sales to be up between four and 5% with non-GAAP EPS between $1 83, and $1 88 per share.
This assumes approximately $50 million of FX headwinds a diluted share count of approximately 173 million shares and an effective tax rate of 22% to 23%.
It also includes $50 million a year over year increased cost that we described on our last earnings call related to elevated material cost for semiconductor supply from secondary markets.
For the full year, we are maintaining our prior revenue guidance of 7% growth in non-GAAP EPS guidance between $9 80, and $9 95 per share. Despite the significant strengthening of the U S. Dollar since our last call. We now expect FX to be a headwind of $170 million for the year.
Up $110 million from our prior guidance.
This outlook now assumes a diluted share count of approximately 173 million shares.
Just on the timing of our share repurchases in the year and an effective tax rate of 21 to 21, 5%.
Additionally, our full year operating cash flow guidance for approximately $1 9 billion and full year opex expectations of approximately a $100 million increase over last year are also unchanged inclusive of the new acquisitions, we announced.
Offset by targeted reductions we're making.
Before I turn the call back to Greg I wanted to reiterate some of the proactive measures we have been taking to navigate this dynamic environment.
<unk>.
Amid strong demand.
We've taken further pricing actions across various parts of our portfolio, which we expect to benefit our second half of the year.
We remain cost disciplined with targeted opex cost planned while funding our recent acquisitions.
We are strategically investing in inventory to maximize the parts availability to fulfill the strong demand that we're seeing and finally, we continue to be good stewards of capital maintaining a strong balance sheet to be opportunistic and deploying capital on acquisitions and shareholder returns.
I would now like to turn the call back to Greg.
Thanks, Jason I thought I would end with a few thoughts on the business.
First business remains really strong.
Despite the ongoing macroeconomic and semiconductor challenges, we had record Q1 orders and sales that drove results above our expectations. We ended the quarter with our highest Q1 ending backlog ever and.
In our higher growth businesses and video security and command Center software continue to grow at a multiple of their overall markets.
Second our healthy balance sheet and durable cash flow provides us with the flexibility to be opportunistic in our deployment of capital during the quarter. We closed two additional acquisitions I'm excited about <unk>.
Ireland the provider of Ireland's nationwide digital radio service for first responders is a business we've had our eye on for a while actually and it adds to our strong LMR managed services business.
And Eva security, a scalable secure and flexible cloud solution provides customers with the benefits of an enterprise grade video security solution, while minimizing the physical footprint of their security infrastructure.
<unk> complements our on Prem offerings in fixed video security and provides us with the flexibility to meet our customers where they are with options for both cloud or on Prem solutions.
And finally, while the macroeconomic environment remains turbulent alike.
I like our position.
We're a leader in the markets. We serve we provide need to have solutions that are critical for customers. We continue to invest heavily in R&D and all of this provides us with the ability to take continued pricing actions to manage higher cost pressures. Additionally, we have strong predictable cash flows that allow.
US to continue to invest in our growth businesses, while simultaneously returning capital to shareholders in the form of share repurchases and dividends I will now turn the call back over to Tim.
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.
The floor is now open for questions. If you have a question or comment. Please press star one on your telephone keypad. If for any reason you would like to remove yourself from the queue. Please press star two.
Do ask me why you pulled your question. Please pick up your handset to provide optimal sound quality.
Sure.
The first question is from Keith Wholesome with Northcoast Research. Your line is now open.
Good afternoon, guys I appreciate the opportunity here.
Like you guys have been able to navigate the supply chain challenges fairly well I know that you guys are the $50 million extra cost for the first quarter, but can you guys talk about the supply visibility into supply for the rest of the year. Obviously, there's been a lot of upheaval things going on in Shanghai recently, but any updated thoughts on where supply chain stands today.
Hey, Keith I think.
Our view of supply chain is pretty much unchanged.
From where it was a quarter ago, it's still very challenging.
We go through a week by week negotiations and discussions with critical suppliers on allocations on the good news side I think we were more successful in Q1.
Getting some critical parts sooner than expected and I think that drove an informed our over performance.
In Q1, the overall environment around semiconductor constraints remains challenging.
I think Keith realistically, we expect those challenges to exist.
Throughout the rest of 2022.
And Keith you mentioned the $50 million in Q1, it's another $50 million in Q2, so as we set out the year and described in the last call 100 million is elevated costs that we're incurring to buy these parts at a premium in the first half, but the second half is only $20 million. That's in part driven by the elevated costs that we faced last.
Year, so the comp, but secondly in terms of our supply and while our teams are doing to increase the.
The number of Substitutable parts of the engineering and quality teams are doing a good job in finding alternative parts and doing well in that and we've also shifted to air as our primary means of freight that's what's elevating our freight cost a little bit to get the parts in a timely fashion.
So essentially that Dr constraints cheap semiconductor constraints largely unchanged.
As Jason Dimensionalize, although freight.
Has incrementally gotten worse as we shift more ocean to air.
And the overall cost is higher than was anticipated.
On our last call, but anticipated and included in our full year guidance.
Got you just as a follow up you guys had a really strong first quarter for bookings.
Is there the capability. Despite the challenges are you able to get enough supply to get over and above your guidance. If the demand was there.
Yes.
Our guidance for the quarter and the year is a compilation of the demand and then matched to the supply that we.
Have any foresee in terms of delivery, so nothing's changed there.
Over performed in Q1, largely because we were able to get the supply and allocate it purposely to parts of the portfolio like public safety that are important to customers. They also happen to have slightly higher asps.
Got you thanks, guys. Good luck.
Thanks Keith.
Yeah.
Thank you Keith the next question is from the line of George Notter with Jefferies.
You May proceed.
Hi, guys. Thanks, very much I guess I wanted to just quickly on our full year guidance youre, keeping the 7%, but it seems like Theres a lot of moving parts in there and I'm just wondering how that all kind of nets out. So you have $110 million of additional FX headwinds you've got a bunch of new M&A deals in here.
Pricing has gone up I guess.
Wondering what it looks like when you kind of Peel all of that back as your guidance better or worse than maybe you thought three months ago.
You mentioned 110, and FX, that's absolutely correct the incremental M&A that's.
That we've acquired since we last talked to $60 million.
Additionally, <unk>.
Net new <unk> net new revenue in the period. Additionally in terms of you mentioned price we're absolutely.
Looking at that and have made.
Some changes across the portfolio.
And the third item is favorable mix so what we.
We prioritize and allocate our supply too.
Yes.
We acquired Eva.
And Eva is about <unk> 10, dilutive to EPS for the full year. So net net we've got incremental headwinds as you talked about George of FX incremental headwinds with freight.
Some M&A.
Higher costs than our last call, but that's balanced out by favorable mix, particularly as we index towards higher tier shipments.
We continue to take pricing actions I think tax rate will be a little bit better and.
Share count will be lower so all in all and.
And by the way at the end of the day I think demand is as strong or maybe even stronger today.
Day than it was back in February .
Got it and then just continuing on that.
Could you give us a sense for the magnitude of the pricing increases and I think you said January was the time you instituted those is that is that correct and then when do you think those will be fully in the model.
So we've been looking at price for a number of quarters. The most recent ones where January I mentioned on the call that the backlog that we began the year with was $2 2 billion, that's largely going to fuel. The first half. So the orders January onwards, or are going to fuel the second half and Thats, where we are most recent.
<unk> actions are when I think about products the segment.
In terms of what's driving the growth we expect this year for our product segment of mid single digit growth within LMR. The driver is largely price.
And mix favorability and then within video, which is the higher growth part, it's price and volume that are driving the growth we expect there.
Got it alright Super Thank you very much.
Thanks George.
Thank you George.
Next question is from the line of Paul Silverstein with Cowen.
Your line is now open.
Oh, please check the issue you are not immediate.
My apologies.
Guys I apologize if you answered this in your prepared remarks, but with the improvement in some of your key sectors in.
And your professional in a particular business or do you think that translates to an improved outlook hospitality is obviously improved significantly oil gas prices are up, albeit I'm not sure how much that's improved that industry, but are you seeing any improvement there.
So with with TCR, we expect it to grow this year mid single digits. It was flat in Q1, the demand for PCR is very robust the limiting our gating item is supply around PCR. So Jack if you want to talk about markets.
Well I think the two markets that we've seen the most profound rebound kind of post COVID-19 event.
Are transportation and hospitality I think the next to follow will be commercial real estate as we get people back to work in major cities, we're starting to see upgrades even in our building, we'll see upgrades on the communications front, there, but it's really been air and hospitality this year.
For my follow up I. Appreciate you just increased prices, but everybody sighting stepped up component costs any thoughts you can share on longer term margins, where they are.
Hi, Brent.
On the gross margin.
Sure so headline inflation, we're navigating it like all companies and have been planning for a significant inflation number that we've been seeing we have to use.
<unk> cost.
Inflation items that we believe are temporary one we're paying a premium for semiconductors that arent available directly from the manufacturer and getting them through alternative secondary markets.
That's a $120 million that was in the P&L. This year as we get after that critical supply.
Secondly, the freight levels that we're incurring this year are also.
Air rates are frankly high they've got higher after the Ukraine.
Invasion and they remain high so those are two temporary items that are we're navigating around.
As well as general inflation.
Yes, and Paul I would also say that.
Taking all those things into account, we still expect full year gross margins to be comparable.
For MSI in operating margins.
To be slightly up for full year 2022.
Great I appreciate it thank you.
Thank you Paul.
The next question is from the line of meta Marshall with Morgan Stanley . Your line is now open.
Great. Thanks.
Maybe starting I know it is you guys talked about strong order activity kind of across the board, but just wanted to get a sense of was there any changes by region. So anything notable in the Europe region may be more specifically.
Maybe start with that and then I have a follow up question.
Sure I think so.
It applies to Europe first of all I just wanted to remind you that half of our revenue in Europe is actually recurring revenue. So think large scale managed service businesses in Q1.
Internationally, we would have been up 3% were up 3% in constant currency, so really the FX headwind that Jason alluded to.
Really impacted Europe to the greatest extent.
But I would say this our challenges in Europe , and really quite frankly in international are not demand related demand remains very robust.
It remains very robust in Europe , not only in video security and access control, but our command center software as well as our land mobile business.
So I think the biggest challenge I would say is really currency right now and meta just as a footnote.
As it relates to Russia.
Contextually, we've exited that market.
It was pretty de Minimis for us to begin with full year revenue on Russia last year was $25 million.
So we've exited that market we don't have.
Overall, our solution employees in that theater any longer so just as a footnote I thought there could be helpful as well.
Perfect very helpful. And then maybe just on the I just wanted to get a sense of you guys. Obviously spoke to growing backlog just how much of the growing backlog as a result of supply chain challenges and inability to ship versus just some longer term contracts coming in.
And that's it for me.
Doherty of our backlog is from direct customers governments agencies, thousands of customers, who order as as the procurement cycles.
Rent them and so we believe that.
And to be a very strong signal for their demand. We also have a channels business.
Where channel inventories are very low and our channel partners are placing orders on us to replenish that inventory so our our demand signal from our both our direct customers and our indirect customers is pretty clean and as Jack mentioned is growing in both sides of the business.
Perfect. Thanks, Congrats guys.
Thanks meta.
Thank you meta. The next question is from the line of Sam <unk> with Credit Suisse. Your line is now open.
Great. Thank you.
Hoping you could elaborate on ARPA contribution I know you guys, but.
A couple of cents is there a sense in your press release could you just walk us through contribution from explicitly ARPA that you guys are estimating.
Hayes.
Santos Jack first of all I want to we've said it before but it's important to first of all point out that ARPA will be a multi year phenomenon. So our team is actually when we look at our pipeline, which is our sales funnel, we've actually seen a three times increase over this period last year. So that's great and a lot of that is really directed at the $350 million and stay.
And local which really we've never had a problem.
As it relates to where it need to have business, but what it really does it draws clarity to how those those deals get funded and so we'll be in that for the next 253 years. The second area, where it's been very helpful. With our fixed video security and access control business, particularly around the education vertical where people are really trying to as they bring kids back to school trying to make sure those.
Places are safe actually investing in things like can see a weapon's technology with our evolved partnership as well.
So we think the money is pointed which is 170 billion. There will also be.
Full benefit us over the course of the next three years as well.
Got it and then just as a follow up maybe for you Jack again any update on body worn camera or <unk> cameras that go onto the vehicles like first responder vehicles could you give us an update on that in growth rates or any.
Any kind of comments on market share.
Absolutely. So first of all as it relates to is.
As it relates to the body worn.
<unk> talked about last year from a from a market share context last year, we doubled our orders in 2000 2021 doubled our orders in a market that certainly didn't double so we felt like we took share as it relates to Q1 2022, our orders were up double digit and I think most importantly, they were up double digit against a comp whereby last year weaker.
65% and orders in Q2, and I think the only thing I'd add is we had announced our as a service offer last year, we've actually seen acceleration in customers' willingness to choose the cloud there. So we've said before we think that the market wants an alternative we've got good relationships internationally in North America are continuing our team continues to fight for.
Their fair share and then some.
Thank you add to that.
Yes.
And pipeline rate last year. It started shipping a few months ago, a little bit earlier this year.
And 500, we'd consider to be <unk>.
<unk> leap up from our prior generation before R E.
And it builds upon a lot of the goodness of the Ferrari had for Ari.
The Watchguard legacy really.
Has evolved with a lot of customer feedback critically for the <unk> hundred we have added some.
Significant new AI capabilities. This is a platform that is really meant to deliver AI capabilities at launch we launched it with two capabilities effectively officer and passenger safety, but in addition, LPR as well and the LPR Scream actually contributes to the other sets of LPR cameras, we have in our portfolio.
These feed into one of the largest the industry's largest license plate databases that we have.
Now, we're exceeding 50 billion plate.
<unk> and to give you an idea of like the rate at which it gets refreshed in Q1 of this year.
We accounted for about $2 4 billion plate reader and to give you an understanding of the frequency at which we're growing here compared to the previous year, we doubled the play create so overall from a mobile video standpoint, and an LCR standpoint, we're doing fantastic.
Thank you.
Thank you Sam.
The next question is from the line of Ben Bolan with Cleveland Research. Your line is now open.
Thanks for taking the question good afternoon, everyone.
And the first question I was hoping you could share any thoughts around customer priorities with respect to command Center software.
Refresh and just talk to any execution.
We're seeing how do you think youre doing how it's developing kind of where it's going and then I had a follow up for Greg.
Sure.
So the first point is that we are we are growing faster than the market, we're taking market share.
Over half of our orders last quarter in Q1.
Our suite orders effectively we either added on to existing Budd.
Bundles for B customers bought more than one.
And J.
Jason mentioned two of our larger opportunities.
Bitt.
The <unk> Unified School district, they bought.
The cat and record solution, but not only are we seeing synergies now with our software suite, but one of the key reasons to buy there was location data integration from our LMR side as well and that.
Had a profound impact in that opportunity the city of Phoenix opportunity that Jay.
Jason mentioned was driven by the national.
<unk> based reporting criteria that the CD needed to comply with and that along with the fact that we are now integrating with.
Aware solution for real time, situational awareness that added a lot of synergy to that opportunity as well.
We had our summit.
In April .
The summit was the largest software summit, we've ever had in Motorola history 1600 attendees over 300 classes at user group sessions, we had representation across all user types going from call to keep closure. There are some important themes that we hit there first.
<unk> theme and really what resonated there was cyber security, we talked about the public safety threat Alliance that we launched.
Quite recently and as a consequence of us talking about the public safety threat Alliance.
Within the first two weeks of the creation of it we've had over 50 members sign up to be part of that and we expect that to rapidly increase we also talked extensively about our innovations and user experience given the thesis given the user that were represented there and some of the as an example, some of the AI.
<unk>.
<unk> talked about that really resonated with our customers smart transcription is something that we've talked about previously, but smart transcription as become more than just a transcription.
A speech to text transcription.
But it really has become an application platform for us that we have built alongside our customers. So not only is transcription of second pair of years that makes sure that the cost take or doesn't miss anything we have not been able to add capabilities, where smart transcription allows the call take or to benefit from the experience of other callers.
Who have responded to similar sorts of events so to be able to search were similar.
Cause that others have responded to and for them to be better informed and responding to new types of events. So smart transcription has actually become an experienced base for existing customers on top of that based upon customer feedback we've added capabilities for supervisors to know when to to support the call take or during our call as well and lastly.
Extending this do now recognizing when call takers are under stress so.
Smart transcription as the capability has really expanded our capacity to to add applications for our command Center software suite and the last part that I mentioned here is that mobile has become a significant part of what we have talked about as well we've invested heavily in mobile Cc Responder command Central Responder has now both on iOS and Android.
Instance, supporting our on Prem and our.
Our cloud installed hybrid being a key priority there and with our customer in Western Australia. We recently launched our Caerphilly application that was done in collaboration with Apple and.
And the Western Australia police and the very first public safety application to be launched for Carpellate all of this by the way.
Very much consistent with our hybrid strategy and we're seeing a fair amount of traction there.
Yeah.
That's great. Thanks for all that color.
The follow up for you, Greg when you step back and kind of look at.
The world and clearly awareness.
Plus demand environment and at some point.
Supply starts to catch up but I'm interested in how you think about monitoring D&B.
The inbound orders and ensuring that customers aren't running out there and placing a lot of orders maybe with multiple vendors, perhaps ordering more than they need and just kind of taking what comes first.
How do you think about that obviously I think it's more PCR related but just curious any thoughts you have there and that's it for me. Thank you.
Then I was just going to say the last part that you said I think it is more PCR related I think the way we do that is I think malloy and John Zadar. During this time work really closely with the channel partners, particularly in North America.
On prioritization on active conversations on transparency on what they really need versus what they may think they want.
To try to eliminate any kind of artificial forecasting.
I think it's a reflection of the relationships, we have with the channel partners.
And I have to tip my hat to Johnson, <unk>, who runs that organization under Malloy.
I think the way you sort through that is the efficacy.
The authenticity of the conversations with the partners. During these tough times and I think malloy and his team are doing that Craig the only thing I'd add to that is and Youre right.
The PCR channel by the way. It's also important to note that a lot of a lot of our partners are carry one brand so theyre not putting orders in against the second one the second thing.
As government customers don't have the wherewithal, meaning they have a limited budget. They are not able to cut multiple purchase orders against the same budget line item. So we wouldn't have any inflation in orders on there. There is an end customer within for instance, Cook County, It hits. The highway Department of the Sheriff's Department. They've got line item 32 is $1 million they can't spend that.
Twice, so we know that there's clarity of funding there.
Thanks.
Expense.
Yes.
Thank you Ben.
The next question is from <unk> <unk> with loop capital.
Line is now open.
Thank you for taking my question I have two clarification as opposed to the correct you'd get to my question.
It was the FX headwind in the quarter.
And also you highlighted about.
170 million in FX headwinds the revenue, but what's the I'm, assuming there was a benefit to the Opex line.
Maybe tell us what benefit do you see.
Opex.
The FX.
So the answer to the first question is within the quarter was $18 million.
FX and FX in general.
We have some offsets within opex.
Two.
Mitigate the effects of the gross margin dollars lost.
So there are some relief if you will on Opex.
But in total the $110 million.
Degradation in.
From last call to this call comes with an OE impact that we are mitigating through price through cost targets and through allocation to higher mix.
Got it.
I wanted to ask you on the component shortages, maybe if you can double click on that and maybe provide us a color what.
Has improved what has not improved what has gotten worse.
Maybe you can give us a bit of clarity on.
What's your line of sight as you clearly thinking that tingle improve but can you just give us some color on what portfolio getting most impacted by component shortages.
Yes, Fahad I would say as it relates to semiconductor constraints, because thats really what were referring to I don't think we see it improving I think we see it.
As a constant challenge through throughout the remainder of 2022, what improved in Q1 was successfully navigating in negotiating and get some getting some increased allocation on some key parts with some key suppliers that moved it from Q2 into Q1.
One that allowed us to over perform the way, we did top and bottom in Q1, I would say the semiconductor constrained environment remains unchanged I E still challenging we think it will be through the remainder of the year. It is primarily around land mobile radio but.
Quite frankly video security is not immune completely either but we are managing those accordingly.
Okay.
Within the <unk> portfolio are you seeing a more adverse impact on your higher margin PCR in LMR apex next portfolio.
Just kind of color on what.
Within your portfolio.
Portfolio being more and more feedback and what is it all universal.
Excuse me I think.
The part of LMR, that's the most challenged as PCR.
We have a lot of common semiconductor parts that go into all types of radios.
So we are working closely with customers around favorable mix in particular North America.
Oftentimes higher tier devices that allow us allow us to ship those and fulfill those orders quicker than others. So the main part of the LMR portfolio I think that feels that the.
The most acutely is probably TCR the only thing I'd add on the high tier and apex apex next is.
The complexity of both products in the joint Engineering, we do and the supply lines. We have for semiconductors are unique to those products and we are doing.
Good job in getting the security of that supply lines. So there are some commonalities.
But also some uniqueness and our key suppliers and public safety LMR are doing a good job of getting us what we need.
I appreciate the answer thank you.
Thank you Bob.
Thank you Fahad.
The next question is from the line of Louis Dipalma with William Blair.
Your line is now open.
Yeah.
Greg, Jason Jack and Mahesh good afternoon from Sunny Chicago.
Louie how are you doing finally, signing.
Doing great.
Thank you for taking my question.
The William Blair team heard very positive commentary.
<unk> open path.
Solutions that the commercial real estate Tech conference in San Diego. So I was wondering can you discuss your growth strategy.
Our access control in general and.
Also I wanted to note that during a quarter it seem that Stanley solvent access technologies division for $900 million and related to it.
Strategy do you expect to be as active.
Access control acquisitions as you have bandwidth with video acquisition.
Okay. Louis I'll start and <unk> may want to color in some lines I think first of all as it relates to fixed video security and access control, we've taken a premise and a look at the market to say, we want to make sure we meet our customers for where they are so it started with a vigilant which is an on prem end to end solution we've invested in.
Visual on cloud services, but they had a legacy access control business as well actually that group that business was actually the highest growth within the vigilant portfolio. One point in time, but we really saw a move to cloud and mobility, particularly as people think.
Smartphones capability to access a building of several key card in.
I would also tell you that open path has seen.
It's al kicked its business case due to the fact that there is a shortage on card readers right now like a lot of things with it. So that's really accelerated our growth into the cloud for open path. So.
I think you will hear a lot of good things the other piece with open path as I said is it's cloud native which is different to the most so we think we've got a pretty good strategy as it relates to both in terms of a buyer wants a cloud solution or open path I mean, not the cloud solution or an on Prem solution mesh anything you want to add to that.
Northern pass team launched the.
Video intercom reader.
As well and Thats sort of is a signal in terms of the convergence between video and access control more broadly if you look at the architecture of open path to cloud native.
With endpoints on friends like readers.
But also the ability to.
Tackle existing leaders support that migration from on Prem to cloud <unk> is a very similar model as well where it can be either entirely cloud native or support.
Mixed in between as well the combination of Avon and open pads gives us the opportunity to converge many of the security and access control use cases and expand that ecosystem. So we see a strong solution. There that's end to end for security needs.
Great.
That's it from me thanks, everyone.
Thanks Louie.
Thank you Louis.
The next question is from the line of Jim Suva with Citigroup. Your line is now open.
Thank you a question for Greg Greg on your prepared comments, you mentioned improved funding is that coming from the stimulus plans or from property taxes and the reason why I ask is you know.
A lot of property taxes or at least where I am here in Silicon Valley, California, reassessed each year. So people are.
Bracing for a big property tax inflow, maybe in six or nine months from our big property tax hit in six or 12 months from now so I would assume that a lot of your budgets are more stimulus.
But or maybe travel and tourism, improving as opposed to real estate property taxes, and if so does that mean that there is still kind of a second round of improved funding that's coming in.
Yeah, Hey, Jim It's Jack maybe I'll take that one so we look at there is if you remember there's really three primary budgets, excluding federal stimulus and those are operating expense budgets that our annualized so those things pay for things like maintenance replacement of radios those kinds of things that's the first piece.
At the second of which is actually 911 funding. So a lot of what a lot of the portfolio. Our command center software budgets those get set.
And those monies are allocated in a different way. So it's a different funding stream. The third as you said, our real estate and property taxes. There is more of an ebb and flow to those things and quite frankly, historically, we don't see a big uptick in those things because public safety need to have not a nice to have those are prioritized on annual basis, and it's really capital or operating expense.
And it's 911 now what's really benefited us as I pointed out earlier and you heard Greg in his prepared remarks is the 350 billion for state and local and 170 billion directed at schools. Those are new funding that has created new opportunities in all aspects of our portfolio.
In terms of state and local budget cycles, and I'll remind everyone. We have thousands of customers in North America.
A common changeover in year is around July one so they will look at available.
Funds as well as stimulus and set their priority. So we will see what those budgets look like but all indications are with the backstop of funding that will continue.
You get real tactical Theres also something there's also spot taxes, which are specialized purchase things and they do special taxes are raised money for Countywide systems as well, that's the only kind of one off.
Great. Thank you so much for the details and clarifications congratulations.
Jim.
Thank you Jim.
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.
Yes, I just want to close thank you for that opportunity I want to close by thanking all of the Motorola solutions people around the world.
For their commitment resolve perseverance.
In what in what was a strong Q1.
Despite the fluid and dynamic environment.
Demand remains exceptionally strong.
The customer funding environment remains robust, we continue to make investments in software and video and as Jason and others outlined this call. We continue to take action to offset higher costs I would just say this.
Macroeconomic turbulence and uncertainty presents opportunity.
And we will continue to deploy capital against the backdrop of those opportunities that present themselves. Thank you for joining us we look forward to talking to you again in a few months and again to.
All the Motorola people. Thank you. Thank you. Thank you much appreciated.
Ladies and gentlemen, this does conclude today's teleconference. A replay of this call will be available over the internet in approximately two hours. The website address is www Motorola solutions Dot com slash investor.
Thank you for your participation and ask you. Please disconnect your lines at this time.
Okay.
Yeah.