Q4 2022 Motorola Solutions Inc Earnings Call
For the full year 2022 revenue was $9 1 billion up 12% with strong growth in both segments and across all three technologies the impact.
From unfavorable currency was $216 million and revenue from acquisitions was $121 million <unk>.
GAAP operating earnings were $1 7 billion or 18, 2% of sales versus 24% in the year prior.
Increase was primarily driven by the $147 million noncash.
Noncash fixed asset impairment recognized in the current year related to our exit of ESN.
non-GAAP operating earnings were $2 4 billion up $251 million and non-GAAP operating margins were 26% of sales up from 25, 9% in the year prior driven by higher sales and improved operating leverage partially offset by higher material costs and higher expenses.
From acquisitions.
GAAP earnings per share was $7 93.
Up 11% compared to the $7 17 in the year prior driven by higher sales, a lower effective tax rate and partially offset by the asset impairment charge related to the ESN exit and higher material costs.
non-GAAP earnings per share was $10 36.
<unk>, 13% from $9 15 in 2021 on higher sales improve and improved operating leverage partially offset by higher material costs.
For the full year, our operating expenses were $2 1 billion up $107 million from 2021, primarily driven by acquisitions and investments into our video business.
And the effective tax rate for 'twenty, two was 20% compared to 21% in the year prior due to higher benefits from stock based compensation in the current year.
Turning next to cash flow Q4, operating cash flow was a record $1 3 billion up $570 million compared with the prior year and free cash flow was $1 2 billion up $565 million from from 2021.
Our record cash flow performance during the quarter was driven by improved working capital.
And higher earnings and.
And for the full year operating cash flow was $1 8 billion with free cash flow of $1 6 billion consistent with the prior year higher earnings in 2022 were offset by the cash payments related to the increase in annual incentive payments earned in 2021 and higher inventory.
Capital allocation for 2022 included $1 2 billion for acquisitions $836 million in share repurchases at an average price of $225 per share and $530 million in cash dividends.
Additionally, during the year, we issued $600 million of new long term debt and repaid $275 million of outstanding debt. We also increased our dividend of 11% or 12 consecutive year of double digit increases.
Moving next to our segment results in products and Si strong demand continued with Q4 sales up 21%, including record revenue in both LMR and video currency headwinds were $43 million and revenue from acquisitions in the quarter was $20 million.
Operating earnings in Q4 were $514 million or 28, 4% of sales up from 25, 3% in the year prior driven primarily by higher sales and operating leverage partially offset by higher material costs. Some notable Q4 wins and achievement. In this segment include several large.
Apex next device orders, including $45 million from the city of Houston $39 million from a large U S customer 30 million from the city of Dallas, and a $21 million add on order from a large U S customer that previously purchased apex next devices. Additionally, during the quarter we received.
A $20 million apex next in command Center order from Kansas City, a $19 million P 25 system order for a large international customer.
And a $3 million fixed order for Metro rail in Chicago.
For the full year products and Si revenue was $5 7 billion up 14% from the prior year driven by higher sales of LMR and video.
Revenue from acquisitions was $53 million and currency headwinds were $98 million.
Full year operating earnings were $1 2 billion or 25% of sales up from 19, 4% in the year prior on higher sales and improved operating leverage partially offset by higher material costs.
In software and services Q4 revenue was 9% up 9%, which included $44 million of FX headwinds and $19 million of revenue from acquisitions total software revenue was up 17% with double digit growth in both video and command center, while in LMR services revenue was up five.
Sent after a $39 million FX headwind.
Q4 operating earnings in the segment were $308 million or 34, 4% of sales down 100 basis points from last year, driven by unfavorable mix and higher acquisition expenses.
Some notable Q4 highlights in this segment include a $56 million P 25, multi year extension of the managed services operations at inter export which serves the Chilean national law enforcement police.
A $25 million P 25 software upgrade renewal for a large U S customer.
$22 million next generation 911 expansion.
And renewal order for the Greater Harris County, Texas area.
$21 million system upgrade and multiyear services renewal for Lane County, Oregon.
$15 million 25, and command center upgrade order for Columbus, Georgia.
And a $15 million license plate recognition camera system expansion order from the Illinois State police.
For the full year revenue was $3 4 billion up 8% on growth in video LMR services and command center revenue from acquisitions was $68 million and currency headwinds were $118 million full.
<unk> full year operating earnings were $1 2 billion or 35, 3% of sales down 110 basis points versus the prior year, driven by mix and higher acquisition expenses.
Looking at our regional results North America in Q4 revenue was $1 9 billion up 18% on strong growth in both segments and in all three technologies for the full year North America revenue was $6 4 billion up 15% with double digit growth in both segments and in all three technology.
<unk>.
International Q4 revenue was $808 million up 15% versus last year with growth in all three technologies and for the full year International revenue was $2 7 billion up 5% inclusive inclusive of the significant FX headwinds.
Moving to backlog ending backlog was a record $14 3 billion up $788 million or 6% compared to last year inclusive of $418 million of.
Unfavorable FX and a $99 million reduction related to the exited the ESN contract.
Backlog growth was driven by the continued record demand we're seeing across all three technologies sequentially backlog was up 837 million. Despite the record Q4 sales with growth in both segments.
In the products and Si segment robust order demand in both LMR and video continues to drive record backlog, which was up $894 million or 22% compared to last year sequentially.
Sequentially products, and Si backlog was up $68 million.
This was our 10th consecutive quarter of sequential backlog growth in this segment.
In software and services backlog was down $106 million compared to last year, which included $367 million of unfavorable FX driven.
Driven by Airwave, and ESN revenue recognition and the ESN exit partially offset by strong growth in North America, multi year services and software contracts.
Sequentially software and services backlog was up $769 million or 9% driven by strong orders in North America and favorable FX adjustment from the prior quarter.
Turning now to our outlook, we expect Q1 sales to be up between 12%, 13% with non-GAAP earnings per share between $2, two and $2 <unk> per share. This assumes $40 million of FX headwinds a weighted average share count of approximately 172 million shares and an effective tax.
Rate of approximately 23%.
For the full year, we expect sales between 965, and $9 7 billion and non-GAAP earnings per share between $11 10, and $11 22 per share.
This assumes $40 million of FX headwinds.
Our weighted average share count of approximately 172 million shares.
And an effective tax rate between 23 and 24% we.
We expect full year opex to be up approximately $150 million versus last year, driven by acquisitions, we've made and our continued investments in video and.
And we expect full year operating cash flow of approximately $1 9 billion.
And finally, the reason our effective tax rate is expected to be up 3% to 400 basis points over last year is due to lower excess tax benefits on share based compensation in 2023, and a higher U K tax rate the tax effect in April we're also anticipating approximately $300 million of higher cash taxes.
Compared to last year inclusive of a one time $75 million tax payment that relates to an IP reorganization, we did in 2022.
And before I turn the call back to Greg I wanted to update you on some strategic decisions, we've made with respect to our PCR business.
First in order to further optimize our supply chain, we have moved the lowest part of PCR, which is sold the small businesses and some consumers.
To a license model with a third party manufacturer as a result of this change we will only recognize revenues equal to the margin from the product.
In addition, we made a decision to exit some PCR markets in Asia.
We expect these changes together to constitute an $80 million headwinds to our 'twenty two 'twenty three revenues, which is fully contemplated in our full year revenue guidance for 2023.
And finally, we enter the new year with an even stronger balance sheet. We ended 2022 with $1 3 billion of cash and a net debt to adjusted EBITDA ratio of less than two times in.
In addition, our U S pension is in a strong funding position with over 80% funded reflecting the numerous actions we've implemented over the last several years.
We are also proactively refinanced our debt maturities with fixed rate long term debt and has established a balanced maturity profile with an average duration of approximately eight years. All of this gives us the flexibility to continue to deliver on our capital allocation framework and be opportunistic in M&A.
I'll now turn the call back over to Greg.
Thanks, Jason.
First 2022 was a phenomenal year for the company, we achieved double digit revenue growth for the second consecutive year with record sales in both segments and all three technologies.
We expanded operating margins. Despite the continued supply challenges related to semiconductors, and we ended the year with a record $14 3 billion of backlog up almost $800 million versus the prior year.
Second our acquisition of rave mobile safety. During Q4 was our seventh acquisition last year rave adds approximately $70 million of annual recurring revenue for 2023 and expands the company's addressable market by approximately 7 billion.
Whether its a student or a teacher alerting public safety with the push of a button or 911 call takers coordinating a more informed response rave mobile safety amplifies the connection between our video security and command Center portfolios.
2015, we've invested almost $6 billion in acquiring companies that have helped us create a broad set of public safety and enterprise security solutions.
These assets have helped accelerate our revenue growth diversified the composition of our revenue streams and more than quadrupled, our addressable market to what we estimate to be 60 billion.
And finally as I look ahead, the momentum of our business remains strong.
Funding environment for public safety and enterprise security remains exceptional our investments in apex next device portfolio are driving a refresh cycle that is still in the very early days with less than 10% of customers installed base upgraded to date, our AI and cloud solutions continue to help drive.
Market share gains and video security and command Center software and we will continue to navigate the ongoing supply chain challenges I am extremely pleased with how we're positioned as we enter this year and I expect it to be another year of strong revenue and earnings growth for the company and with that I'll now turn the call back over to Tim.
And we will take your questions.
Thanks, Greg before we begin taking questions I'd like to remind callers to limit themselves to one question and one follow up to accommodate as many participants as possible.
Operator would you please remind our callers on the line how to ask a question.
Yes, Sir.
The floor is now open for questions.
We 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 Q, we do ask that you pose your question you pick up your handset to provide optimal sound quality.
Thank you and our first question will come from Tim long with Barclays. Your line is now open.
Thank you.
Greg maybe could you just give us a little sense of.
Yes, the backdrop it sounds like obviously your backlog is pretty strong, but talk a little bit about kind of federal.
And other revenue sources, how is that starting to flow through how.
How are your customers taking advantage of that what do you think that means to visibility over the next few years.
Then Jason for you on the clarification, just talk a little bit about gross margins, maybe walk us through the next year at some point, we should be getting some.
<unk> back from components and logistics.
And maybe just touch on price increases that we've seen and how that would flow through the <unk>.
The model and hit gross margins next year. Thank you.
So this is Jack I'll take the first question I think it was regarding the federal funding, but really good news. So we had over $400 million of orders in 2022.
But I think most importantly, the 350.
One 1 billion that was allocated state and local is a multi year funding phenomenon. So we look at our multiyear funnel out through 2026 at being north of $1 billion.
Some of the deals adjacent sided.
Were funded in part or in and completely funded by ARPA dollar. So we've had good success. Our team is really our sales team in North America, and a traditional really understands funding models and I think they are working well and we've seen good results and Tim I'll also remind you that the ARPA funding 350 billion for state and local.
170 billion earmarked for education, but most importantly, its multi year funding.
And much of this will go into and through 2026, So that foundation of funding and Thats. The strong environment. Jack described we capitalized in 2022 as he talked about the robustness of the funnel this year, but the best part of all of US it's multiyear.
Dimension in nature.
And Tim I'll take the second part of your question. So as you recall as we navigated through 2022 and having to secure parts from brokers.
That year 2022 last year, we incurred about $165 million.
Of higher <unk>.
Cost for semiconductors in 'twenty to 'twenty, one that was a headwind for us.
We're able to get access to some parts in Q4, that's in part what helped our Q4 performance. So as we plan for 'twenty three now.
We anticipate still needing to run the play.
Buying broker parts, it's still remains.
Difficult environment, particularly for automotive grade semiconductors, but we do believe and are planning for about a $50 million tailwind a total amount of dollars that we will allocate and spend to.
To secure parts.
The plans we have in 'twenty, three so $50 million tailwind in 'twenty three relative to 'twenty twos cost profile and Tim from a gross margin perspective overall for MSI, we expect gross margins to be up in 2023. We also expect operating margins to be up in 2023.
Okay. Thank you guys.
Tim.
Thank you.
Our next question will come from George Notter with Jefferies. Your line is open.
Hi, guys, thanks very much.
It sort of feels like somebody forgot to tell you guys that were in a recessionary environment and the business seems to be cranking on all cylinders here.
Greg anything you worry about in terms of recessionary environment at all I mean, I get it the ARPA funds are kind of back filling maybe for any softness that you could see out over the horizon, but.
Any thoughts about tax receipts, whether it's.
Property tax or income tax receipts, ultimately slowing down a year or two from now impacting the business.
George the answer is no to be candid with you.
The environment is strong the funding environment as we talked about is exceptional 75% of our business as you know as government and public safety, 25% is enterprise.
We still see continued strength.
This year, we expect.
Growth in all three technologies LMR to be mid single digits video security to be about 15% command center to be about <unk>.
20% so.
There was an article in the journal last weekend.
The state budgets are as flush as they had been in several years, we've talked already about the multi year funding horizon for ARPA now nobody is immune from a recession, we have always been diligent in managing the expense structure of the firm. The majority of the driver of higher Opex for this company year on year and period on period.
As generally acquisitions. So I think we have a great portfolio, a fantastic environment strong demand and we are acutely focused on continued execution, new product development acquisition integration and growing faster than the market versus our competitors. So.
Now I'd look.
Sometimes I worry that I'm not worried okay, but.
But the team is aligned and we feel really good about where we are I. Appreciate the question also Greg got it and then just one quick follow up if I could.
<unk>.
What kind of impact are you getting in the business from higher pricing just thinking about the growth rate as we look out to 2023.
So I would say the growth that we had last year full year was driven by both volume and price increase.
I'd waited a little bit more towards volume last year that composition that drives our growth rate overall for this year is also volume and price.
And I would weight it slightly toward volume again this year, we've exercised surgically and responsibly certain price increases that we've talked about a number of times last year. So I think we're well positioned going forward.
Thank you offer insights into our PCR business, which.
2022 grew nicely.
Now back to 2019 levels.
And a part of our backlog our unfulfilled orders for us or delays are in PCR. So we have sizable amount of our PCR backlog and demand, which we will continue to fulfill into 'twenty three and it's a great point, Jason because despite the fact that we had a great PCR Q4 <unk>.
Really strong growth for the full year to Jason's point back to 2019 pre pandemic levels.
And he referenced an $80 million PC oriented headwind, which represents a business model change.
Even with those all those ingredients into the blender, we still are expecting PCR growth for 2023.
Great. Thank you.
Thank you.
Thank you.
Our next question will come from Adam Tindle with Raymond James Your line is open.
Okay. Thanks, Good afternoon, I wanted to start with the <unk>.
Question, Greg if there was any potential updates that we could give or guardrails on the potential outcomes for airwave at this point, we understand obviously, you've got some tailwind to the model from managing costs and supply chain.
The potential headwind looming as what could happen with the Airwave. So just wanted to make sure that we're netting those things out and any guardrails, you can give us on where that could potentially shape out.
And what I'd say is I would remind you that.
Their stated intention is to make a final decision.
This month, maybe it's next month, but it's relatively soon.
We remain unchanged in our finding and belief that with full conviction that.
Their effort is disproportionate it's unprecedented its overreaching.
So our view on that is unchanged now recall the investigation. The market investigation is grounded around airwave and ESN what I can update you on is that we have successfully signed a contract with the UK home office.
Exit ESN.
I think it was a good.
Multi months effort, where both of US are satisfied that will result, Adam and us execute exiting ESN earlier than anticipated. We are doing a transition services agreement in 2023, but then effectively after 2023, we are out of ESN.
So I think that is.
An update that's that's worthy of.
Sharing because a quarter ago, we talked about our intention to do that but that was before we actually codified and sign the agreement now having said all that I think look.
As we guide the full year, we guide the full year with the $80 million business model change around PCR, We guide the year, both top and bottom with.
With continued supply constraints and I think it's important to know that because.
There's a lot of reports that supply chain is a lot better but for the businesses that we're in.
And we can meet compete primarily with industrial providers or automotive for the semiconductors that we're contending for it's not that changed lead times actually are largely unchanged. So that informs our guidance as well and as we sit here.
On February nine we think all in it's a prudent and balanced view of the year all things considered.
Yeah.
Alright, and then maybe I'll just follow up on rave, obviously spending over half a billion dollars I'm sure. There was a lot that went into that decision Greg I'd Love for you to maybe just talk about the expected ROI and any financial metrics, sorry, if I missed any of that you could provide related to that acquisition to justify that level of capital allocation. Thank you.
Yes. So we are very excited about the asset.
And the important thing Adam is its an asset thats worth more to us.
Than anyone else. So when you think about the capital deployed against the backdrop of an addressable market that expands 7 billion and all <unk> annual recurring revenue with a run rate of $70 million.
That we like those attributes.
They're verticals, 80% of the business is profiled around state and local and education, which that too is absolutely in the sweet spot of what we do and how malloy goes to market. So the asset we're excited about.
I think it's worth and we think it's worth more to us than anyone else and we've done an extensive view of the industry as well and.
We're excited about what it means.
Few more things to add on this.
Greg already mentioned the vertical alignment that we have here at state and local government education, which is significant for us health care and corporate buildings. All of these are key areas, where <unk> plays a very important part and ray very critically as we mentioned before connect enterprise security.
With public safety and some very unique ways and augments both sides of the portfolio, probably three areas technology areas that I want to highlight the first is rave enhances individual safety with mobile apps. So think about that as the right prepared capability, where people with special needs can actually.
A profile and offer information ahead of potentially something happening. So that'd be response can actually be more effective. The second is a panic button the ability to push a button and get help as needed benefiting from what profile was created previously as needed as well, we're able alert, which is a mass notification capability to keep people informed.
So think about that is everything that covers people People's safety individual safety. The second area is facility preparedness. So think about the right facility capability with information about our facility can better inform our public safety response, including keeping responder safe and that's very critical.
Ability graig collaborate helps setup standard operating procedures of how someone should respond for various incidents ahead of women incident actually happens. This very uniquely enables us to coordinate the ability that we have on the video security side and the command center side to make sure that the standard.
Operating procedure, along with the automation that sits behind it can orchestrate a very successful and capable response and lastly, the third area is that it accelerates response is a whole array of 901 suite provides very critical information to both 911 and just factors in terms of location information of where individuals are.
Other information to this video directly from the site and also revel loss for cross jurisdictional information sharing you take all those three capabilities with enterprise Security and command center, it really enhances our overall portfolio and as Greg said.
One plus one is actually much greater than two.
Thank you.
Thanks, Adam.
Thank you.
Our next question will come from meta Marshall with Morgan Stanley . Your line is open.
Great. Thanks, maybe following up on kind of that range of response.
It was very helpful. Just kind of a N laying out the integration I guess just is there any timely.
Timeline to kind of integrating the solutions.
Was that your video solution, our command center could kind of inter operate more seamlessly with rave or is that already kind of built into the solutions just kind of getting that set up.
When when the one to one really does become more than two and if there is any timeline to that and then maybe the second question.
Obviously, the backlog has grown pretty significantly are there any meaningful changes to duration that we should just be mindful of when thinking about that backlog and how it would peel off thank you.
Maybe just starting with the timeline elements. There are many elements of what I just outlined is that already exist today and they are integrated in various ways.
What we would like to do and this is the future looking element of it where we unify more of these solutions within our command center product portfolio, but also the video security and access control portfolio and that is to come and that it helps us enhance the use cases and make our products more differentiated but some of the key capabilities in terms of being able to connect.
A detection that happens on the public safety side and Thats, leading to an informed response on the command center side, whether that's my number one our dispatch those capabilities exist today and along with the incident mass notification capability being able to appropriately alert people informed people during <unk>.
Situation all of those capabilities exist today, so there's more to come on this but the base capability, where the one plus one is greater than two that's today.
On the backlog so our backlog not only is it up in total to the $14 3 billion, that's up $900 million in products.
The duration of our backlog is even better than it had been last year. So.
We're in a strong position for backlog as well as the continued expectation for the orders that we execute on during the year.
Great. Thanks.
Thanks Melissa.
Thank you.
Our next question will come from Sami Badri with credit Suisse. Your line is open.
Yeah.
Hi, Thank you very much and congrats too.
Very robust for Q and very robust 2023 guidance.
My question has to do with the apex next orders and just.
A typical refresh rates of public safety institutions and how they order your radios. The question is.
Are the ARPA funds and are the elevated levels of state and local budget Catalyzing a compression in the typical refresh rate of LMR radios, which is partially explaining the strength youre seeing in LMR.
Sami it's Jack.
So as I said I believe it was in the August call that we're in the early innings of the $2 25 upgrade cycle in North America, a couple of things to point out number one apex next was introduced at the highest tier of the market and Thats, where its been focus just recently named the second half of 2022, we filled in that portfolio. So that we have.
Mid tier apex next available at ended up itself will be an accelerant for a lot of what you would call suburban and county municipalities outside of the Big cities.
We've done $370 million order of orders since the product was announced to.
To give you a feel for the accelerant $210 million of orders in 2022 and without question. The ARPA funding will be an accelerant to.
It used to be a 10 year refresh cycle, we've seen that pull into like a seven year refresh cycle, but I point, you to the city of Houston.
That actually leverage.
Largely ARPA funds, but actually use some budgets that they had surpluses in their own budget to move forward with this device I think theres a few things that are really driving this people want to do more with their device and so clearly the ability to extend our network as people go to do mutual aid events smart connect.
The owner experience I mean, a big city police department, it's tough to get technicians, it used to take them 10.
10000 man hours to actually upgrade.
Software cyber fixes and those kind of bug refreshes that can be done in 10 minutes now leveraging the LTV LTE compatibility and the last thing is location matters and what we've seen is GPS and provisioning that capability, even through our CAD or CAD networks.
<unk> been a big add for our customers and so there's clearly been a lot of excitement you've seen a lot of very marquee police departments and I think with the net with the mid tier series launching I think we're going to continue to see that accelerant and just just to be clear, we did $210 million of orders last year I expect to do double that tissue.
And it's fair to say I think I think apex next is probably the most successful LMR product. We've launched certainly in my tenure and the most successful for all of the reasons that Jack talked about private network public network seamless roaming LMR to LTE and all the operational.
Cost savings, yes, obviously, the funding environment helps but the product itself is so strong and what it does and unique in its capabilities.
That is as significant as anything.
Got it thank you for giving us color. The one other follow up question.
I think we can clearly see where you guys are going with with rave mobility, but I think the bigger question for analysts is when we look at rave when we look at either security and we looked at a bunch of these other acquisitions you have made they all look like they're going to have to be integrated on the backend and then offered in a much more broader way to a lot of your customers are much bigger.
Type of consumption model.
How far are we how.
How far away are you guys from offering this or being market ready with a fully integrated suite in the backend that can really service the front end consumption side.
So I think we've talked about our safety a re imagined program a few times before.
And a key element of that safety or imagine program is actually to bring all these elements together.
In an integrated fashion and facilitate.
The orchestration of.
Incident response in a manner, where that responses more effective.
So with that in mind, we have actually spent time developing a piece of software called orchestrate, which actually starts connecting these different pieces together and very visually allows.
Enterprise security professionals, and even public safety professionals to be able to say this is how the automation behind the scenes events going from say us being able to detect that been visually in the field of view of a camera.
Sugar SaaS access control locked down that access control lockdown in turn.
Perhaps trigger a mass notification to people in the facility that mass notification.
Then following that triggers a call to 911 dispatchers are now informed as to where individuals are this is these are capabilities that between our collaborate platform. Our orchestrate platform, we're able to do today and I think as a solution. We are starting to sell safety re imagined as a solution and <unk>.
Turning to the product.
And the roadmap that <unk> has described I think as Greg mentioned earlier, we're excited about <unk> because it allows us to extend our sales channel to.
Selling into public safety and education. So immediately that organization gets the power of Jack noise entire sales organization selling the product as it is today into those accounts and that in part is why we believe we are.
The most valuable owner of that asset.
Just a couple of other points I think are important to point out.
We see the video security market in particular fixed video security.
There really is a little bit of divergence in terms of you of on Prem customers. They want an on prem solution for certain critical infrastructure markets and then <unk> seen in other market that without question from Vms, but from a video security, but also from an access control standpoint that are starting to accelerate the cloud we've done a couple of things to take advantage. So moving forward, we're going to have the.
<unk> deliver if you're an on prem customer or you're a cloud customer you'll be able to leverage the analytics that we've cultivated within our camera portfolio. That's important the other thing Thats important as you remember we also acquired Indigo vision in telco and we had we had.
Three different essentially VNS is that we had to support we've unified that experience under ACC eight a visual on control center eight.
Which is which is our vms. So there has been progress to your point I just wanted to make sure I understood a couple of those things as well.
Awesome. Thank you very much thank.
Thank you.
Thank you.
Our next question will come from Fahad <unk> with loop capital. Your line is open.
Thank you for taking my question.
I wanted to kind of look at the linearity of your outlook.
Outlook, you're guiding <unk> 'twenty, two that we need to grow.
So it's gonna percent, yet full year youre guiding.
<unk>, 7% year on year.
Yes.
Kind of I understand <unk> titled <unk> for your supply chain, but.
You know.
The global supply chain outlook is indeed, improving.
You might.
Yes.
So I'm trying to question the linearity that shows.
Youre, implying implies almost like a slowdown in the second half of the year.
One.
Counter intuitive so can you walk me through your assumptions.
Sure Fahad I would point you to first the comp set from last year, where in the first half we grew at a rate of 8% in the second half a rate of almost double that so if you look at last year's comps within part informs our expectations for growth. This year Secondly, we talked about this $80 million PCI.
Our business model change moving to license the majority of that impact is occurring in the second half for us.
That helps inform.
What we expect for growth all year, but.
Higher growth in the first half.
And as Greg mentioned with lead times unchanged, we forecast the business based on the lead times that are suppliers commit to us and we updated as the year progresses.
And our current guide is informed by our supply commitments. We just had a summit with our top 20 suppliers yesterday and have the latest information and commitments from them and we'll continue to work the supply environment proactively, which we did in 2022.
Yeah.
For my follow up I wanted to ask your thoughts on your <unk>.
Revenue growth outlook for video surveillance.
<unk> been talking 20% growth, but over the last two years, you've grown that business 30 plus percent.
Not mistaken the FCC has now recently I know, it's a more wider Ben.
We've been in dialogue.
That has big implications.
I believe favorably for your business. So how should we be thinking about how are you thinking about your video some deals.
Revenue growth in 2003, and how does this new FCC ban impact your business.
Sure so hard so.
Our outlook for the 2023 is 15% growth, but I would point out 15% off of a pretty significantly difficult comp we grew 24% in 2022.
We've kind of said in general we think the NDAA.
As generally conducive and we think it's.
Within the mix, it's a tailwind to the business.
But we don't think it's going to have any real profound impact over the course of 2023, but we're really excited particularly as the things I just outlined our portfolio is coming together, we now have offerings for an on Prem standpoint, as well as a cloud standpoint.
But again I think 15% I also think it's important to take a look at where we're getting that.
Where we are generating that growth government and education of our two largest verticals and we think there is there are a little bit insulated in terms of if there is any kind of economic slowdown and the other piece of it is health care in the commercial market space as well.
Thought I'd also point out that some of the higher growth rates of video security like in 2022 or before the top revenue growth rate was in part driven by acquisitions.
As you normalize those acquisitions and they go into the base and you look at the underlying strength of the growth rate between 'twenty, one and 'twenty two and into 'twenty three.
More comparable on a year over year basis.
I appreciate the answers. Thank you thanks Bob.
Thank you.
Our next question will come from Paul Chung with Jpmorgan. Your line is open.
Hi, Thanks for taking my question.
Can you talk about kind of the operating leverage benefits youre seeing in the model.
I mean, you saw some modest growth in Opex despite record revenues this year.
Very strong organic top line. So as we think about next year, how do we think about the pace of spend kind of incremental costs related to rave and other other acquisitions.
And you also mentioned gross margins up this year can you expand on the magnitude.
What are your expectations, there and the shape throughout the year and I have one follow up.
Sure. So I'll start with Opex I mentioned that we expect opex to be up $150 million. This year. The primary drivers of that are in fact rave.
Recent acquisition combined with investments that we continue to make within video, which is our fastest growing technology.
In terms of leverage we saw the.
The leverage that we expected in the second half of 2022.
On the operating line and we expect continued operating margin expansion in 'twenty three I mentioned in part.
$50 million of a tailwind in lower cost for us to attain the supply.
'twenty three and then.
What we had to pay in 'twenty, two that will largely benefit the product segment and will continue to expand operating margins.
With the both the volume and price.
Growth drivers that Greg mentioned earlier.
Okay, Great and then on free cash flow in a very strong performance here to end the year. Despite.
$300 million working cap drag.
It's always nice to see very strong earnings contribution and driving that free cash flow, but as we look to 'twenty three how do we think about working cap dynamics and overall trends for.
For 'twenty three which.
There could be a record year for free cash flow. Thank you.
Sure so.
We outlook $1 9 billion in operating cash flow Capex will be pretty similar to last year.
For a number of years now our capex as a percent of Ocs is around 15%, it's actually less than the 20% that we have in our.
Capital allocation model and Thats likely to continue we are a low capex asset light model.
So ocs, we expect growth in OCI will have higher earnings I did mentioned $225 million higher cash tax amount.
The amount that we are incorporating into 2023.
As well, but we will see good earnings growth good cash flow growth.
And we will continue to work through inventory inventory has been a.
Helpful investment for us as we navigated 2022 <unk>.
We will plan and are planning for it to come down in 'twenty three as we fulfill record demand, but we'll continue to use it as an asset its served us well and getting customer and meeting customer demand, but we'll continue to work through lower inventories in 'twenty three.
Yeah.
Great. Thank you.
Thanks, Paul.
Thank you. Our next question will come from Keith <unk> with Northcoast Research. Your line is open.
Good afternoon, guys and congratulations on a great quarter and our consistent performance for you guys.
We think about your systems.
<unk> business. Obviously, we saw you guys called out a lot of the apex, <unk> refreshes, but theres only one systems update.
That was included at risk can you guys kind of talk about the mix between the system upgrades versus or the <unk>.
Device upgrades that you guys are going through and are you guys seeing more of a moving back toward a device upgrades.
We're seeing both Keith the one thing I'd point to is that over the past several years, our customers have been transitioning to an always current upgrade arrangement we call. It an SUA, it's a more predictable arrangement for them and keeps them on their journey technology wise.
That revenue stream is.
Predictable for us and a large number of customers in North America are on that journey for their infrastructure needs, which.
Ah is a less lumpy systems business for us. So we'll continue to see devices upgrades. We told you where we are in the early innings of that and we will see systems upgrades, but we'll see it come through the P&L in both our product related upgrade but in some cases.
Higher services revenue for systems upgrades at Jason Thats, a good point. It's also this is pivoted more into a recurring revenue model and it will there'll be elements of it in terms of replacing base stations for these networks that will continue to be an opportunity for us, but largely it's come into software, meaning it's an SUA program as Jason.
Find out but also it's been it's been an accelerant for our managed and support services business as well.
Great. Thanks.
As a follow up question here.
Guidance Here Command Center.
Growth expectations above 20% for 2023 is the primary driver of that is the integration of rave or are you guys seeing success elsewhere, that's starting to pay dividends.
20% includes the inorganic addition of rain, but the rest of command Center software also expected to grow low double digits.
Which is consistent with the expectation that we had an executed two in 2022.
Great. Thanks appreciate it.
Thank you.
Our next question will come from Louie Dipalma with William Blair. Your line is open.
Yeah.
Okay.
Louis Please make sure that you're on mute.
Yeah.
I'm, Greg, Jason Jack Mahesh and Tim Good afternoon.
Are you there.
Yeah.
Well related to your video Division.
The topic of artificial intelligence and machine learning has been in the financial mainstream recently with chat G. P. T can you discuss how motorola deserves to be in the conversation of leading AI vendors with some of your video analysis automation.
<unk> tact that you showcased at the ICP conference and in General how powerful are your AI tools now and how has that progressed over the past couple of years.
Yes.
Sure.
So.
GPT is a technology that I think has been in development for.
Quite a long time and it really benefits from advances in natural language understanding.
Reinforcement learning.
GPT there is chance for generative pre trained transformers.
Third generation of.
That tool now if you kind of break that up a little bit.
Natural language elements of it.
Of what we do on the smart transcription side, where we understand natural language, we are able to pick out.
Entities, let's address the names license plate numbers et cetera, and then map that into.
Our capability to fill out forms supervisors, a heads up when a call take a potentially needs help et cetera on the video side think of it as what we're doing where we're taking video.
And actually converting that to language, so facilitating things like natural language searches so being able to understand what is the user asking for and mapping that effectively into a set of results that a return base.
Upon our automated analysis.
Video and we're able to do that at the edge and with our acquisition of Calypso were able to extend that capability into the cloud and one of the things the calypso with the cloud AI allows us to do is very rapidly provide this capability to multiple different cameras across the board across all our portfolio is telco specifically.
Jalan inclusive of that as well so those two things together give us the capability now to say okay. If there is particular events that are happening.
Can alert on them unusual activity being another one of them. So <unk> I think is just an indicator of one element or one area of machine learning that is really advanced we're benefiting from multiple pieces of that across video understanding across language understanding.
And audio understanding to the point, where we're now implementing it across all of our products. So.
Hopefully that's a rough answer to your question.
Thanks that was helpful. I'm sure you could talk for dozens of hours on that topic, one more question last week.
Yes last week with the city of <unk>.
<unk>.
Chicago, and Indiana announced that it was deploying portable solar powered video analytics platform from Amit.
Okay.
I was wondering.
Do you view solar powered cameras as a significant growth area for the Motorola video group.
So there is probably two areas.
Entirely sure the specific opportunity youre talking about but more broadly we do have a vigilant cameras that are deployed today with.
Solar platform for Cook deploy applications. Many times this is for construction sites for.
Sort of sports events that happen our concert events that happen and you need a rapidly deploy solution that is one part of it the other part of it is on our <unk>.
<unk> license plate recognition solution, we introduced the <unk> SKU.
Camera towards the end of last year and that is a fully wireless solution. So it is a camera that is equipped with both video and radar as a detection mechanism. It is solar powered it can be solar powered or it can be.
Howard.
Irregular AC or DC connection.
It also is LTE capable so it is fully wireless and all of those capabilities and we are seeing a fairly rapid uptake in that solution because of its ease of install it is what it is probably the easiest to install a video camera device out there today.
Perfect exactly what I was looking for thanks.
Thanks Louie.
Okay.
Thank you.
Our next question will come from Ben Bollin with Cleveland Research. Your line is open.
Good afternoon.
Everyone. Thanks for taking the question.
Hi.
The first item I had is I'm curious.
Could you talk through the K through 12 trends that you've seen as of late.
Talk to you, maybe materiality and how.
How some of the Covid relief funding is starting to manifest.
It has talked about shape safety re imagined, but any other types of projects that youre seeing in that space would be helpful.
Yeah.
Sure so.
Hinted out earlier, but education is.
Our largest vertical in terms of video security and.
And access control Theres about $170 billion allocated to funding school safety.
And.
Which continues to outpace as much a week or 24% last year education continues to even outpace our growth in the overall business.
It's one that school safety is paramount to what everyone's doing and satellite video security its access control, but it also brings in PCR radios and their ability to inter operate to provide intelligence in terms of if theres, an ingress egress out of the door.
There's things that happen in analytics play a huge role in driving a lot of our education success in terms of unusual motion detection, if theres, an altercation into cafeteria think of things like that stadiums things happen with teenage kids in stadiums and those kind of things. So all of those things are kind of culminated in a great opportunity one of the things we did.
Early days as we actually went out.
Hired a team did all they do is get up and focus everyday on the educational space because one of our core beliefs. Here is we believe domain expertise market knowledge matters in terms of going back and work with the product group and making sure we're making the right definition to the other thing I would add.
Public schools get a lot of attention, but one of the one of the reasons. We looked at Eva is we actually looked at a lot of private schools, who actually want out a cloud solution. We didn't have a solution before we bought Eva and we've identified opportunities to accelerate growth in the private education system as well there.
Okay.
Great.
The follow up is within a command center, Greg you spoke to a 20% growth in 23 States and I think you said ex rate low doubles.
If you look at command center as a percentage of mix, it's been pretty stable about seven points of revenue over the last several years.
A lot of things going on.
Could you talk a little bit about the sales motion there the complexity of the systems.
Longer term.
When you think that might be.
Bigger driver to the overall mix or grow as a percentage of the total if you get a more widespread investment among those customers. That's it. Thank you.
Okay.
Yes, I think.
Primary thing I'd point to there as we have seen.
You have to think about the command center central market in terms of it.
Very widespread they're 6500 public safety answering points in North America, and what you see taking place I think where we've talked about is you've got historically you had three to four different RFP cycles, meaning CAD RMS yet a 911 system.
Consoles and radio consoles in some respect as well as the aware platform, which is more of a proactive mechanism to look at place and what we're seeing I think particularly as we start to see newer.
Probably more technology savvy dispatchers enter the market they want a unified experience. They want to look at a piece of software that is commonality instead of looking at four different things operating with multiple different screens at different ways to interface with the technology. So I know that everybody would like this thing just to turn on and everybody go to kind of a Microsoft suite the reality.
Is.
They've made investments I don't know, maybe just bought a new RMS system three years ago, and there is a cycle to that but we think there is a cycle and it's a benefit to us and I think one of the things that <unk> and his team have done a great job as they put us in a position to go have a conversation with the customer it isn't bad for us if they buy those things in three different cycles, because they buy them.
From us as long as they like the experience we deliver we think there is a margin opportunity there as well.
Thanks Jack.
Could you just.
Got it.
<unk> exactly.
Sure.
Just looking at how we performed over 2022.
Actually two times that of command center total revenue.
Our revenue and today about a third of our command Center software.
Software customers are actually.
They have at least one cloud or hosted hybrid solution in the mix there.
And then we mentioned greater Harris County is one of the deals.
Year.
Last quarter.
An important element of that solution was the smart transcription solution that I mentioned previously and greater Harris County is actually the largest smart transcription deployment to date and so we're seeing more adoption of hybrid solutions going into that and thats growing well.
Well for us.
Thanks, guys.
Yeah.
Thank you our last question will come from Paul Silverstein with Cowen Your line is open.
I appreciate that I hope you're doing less ability, we asked an awful lot of questions.
But on a serious note.
The guidance Youll do.
In organic terms loosely translated to stripping out what youre expecting from roofs or any other contemplated acquisitions and how does that compare to organic growth and 22.
I assume right was the only or the biggest inorganically looser.
Yes, it's largely rave last year inorganic revenues contributed $121 million to our.
And this year, it's largely the rave.
Around 70 plus million from rates. So that's the that's the bridge.
So you don't have in that guidance youre not putting you in anything in terms of prospective acquisitions other than <unk>, which was closed and that's obviously us a fair deal with us through more acquisitions.
Its the business as we see it and have it today that's right.
Alright, I appreciate it and which ties into the next question Youre all in more businesses grew 9% loss Youre following seven 6% growth the year before and three one year before that for business that historically was characterized understandably.
It's low single digits. So we came off a very strong year and that even strong growth.
In terms of relative to the mid single digit guidance on Omar.
Just trying to understand upside potential to that I assume the announcer loosens lumen with trying to understand central can you just review I know you've touched on this throughout the call, but can you review what were the key drivers in that Mr. <unk> was up I don't think you gave us some number I assume was back up to $1 billion level. Because you referenced 19, I think that was the level.
But can you go through the various drivers apex future et cetera that contributed to the awfully strong growth.
So Paul I'd say, let's start foundational informatics Lee I think it's a statement about the strength and durability of land mobile radio first and foremost as a platform.
LMR versus an LTE or cellular alternative number one number two we talk a lot about apex next apex next being the premier high tier device. Most successful product launch MSI has ever had.
Where customers are clamoring for it given the feature functionality the LTE roaming deal over the year software efficiency that eliminates or minimize their operating expense and then we're taking apex next and we're introducing the apex next mid tier refresh. So you think about.
More broadly there is 13000 LMR networks around the world you take a subset of that within our North American centric than <unk> 25, and you have a whole device portfolio refresh high end led by apex next mid tier than apex mid tier by the way, we're refreshing detached poor.
Folio as well and we've continued to add and enhance the PCR portfolio. Then you add the backdrop of ARPA funding.
And state budgets that are as strong as they've been in years.
And Pcr.
Up.
The best quarter, it's ever had in Q4 and it has returned to pre debt pre pandemic levels and to your point, it's back to about $1 billion.
And even with the business model.
Change around PCR exiting certain countries in Asia, recognizing margin instead of.
Full top end revenue, we still expect.
To grow off of a record 2022. So you have device portfolio refresh best in class product. This is a need to have not a nice to have that is not just a slogan that's a reality.
And the demand for LMR writ large and the platforms and the feature functionality that comes with that not to mention the integration of command center and things like video security and access control are powering. This technology forward now why mid single digit because I remind you were still in a supply constrained environment lead.
<unk> are still the same as they were a quarter or two ago. If there's relief on that front or that changes throughout the year, we'll inform you, but that's what's driving that guidance.
Greg I think you just told us.
If supply permits to men would accommodate more than that mid single digit 5% guidance.
My last question.
With respect to you all being able to collect on a not insubstantial Pfizer Litigation Award.
Work in progress by the way, it's worth saying, Paul that our expectation for cash flow.
In fiscal 2023 assumes no collection in that year, they owe us about $680 million.
Collected some are relatively de minimis.
Mt.
Our trials the civil trial, they have a 21 count criminal trial that begins at the Doj federal level in February of 2024.
We've asked the court to hold high terror in contempt for failing to make a royalty payment look it's a long slog.
It's a multiyear.
Fight against high Terror, but it's the right thing to do we're going to protect the intellectual property of this firm we will see how it plays out we had by the way.
Their defendant switches please.
And pled guilty in the U K, that's the senior engineering executive for high Terror that reported to the CEO .
He changed since <unk> several months ago to guilty.
So I know it takes a long in the wheels of justice grind relatively slowly but.
We'll stay tuned and update you accordingly, but in terms of our forecasting or assumptions for fiscal 'twenty. Three there is zero from a cash standpoint.
No I appreciate that it does can I just clarify we will be going back to the homework question, Greg I think you and Jeff and Jason have made the point historically previously that.
The new <unk> com.
Comedy the richer applications that require the new apex.
In order for your customers to deploy our trust us to chase. The fact that there's a strong take up of duplex niche bodes well take up of the incremental commence sooner.
If we're in a little more services.
So one goes hand in hand.
Yeah.
So the fact that the apex next.
Has software applications that are embedded in the capability of the devices themselves.
That platform is there to upgrade and add apps overtime.
Okay I appreciate it.
Yes, Thank you Paul.
Alright, thank you.
This does conclude the question and answer session I would now like to turn the floor back over to Greg Brown, Chairman and Chief Executive Officer for any additional and closing remarks.
Thank you everybody joining the call I would just summarize by saying.
What we do has never been more important than it is now I mean last year was a truly outstanding year second consecutive year of double digit topline revenue growth, we expanded operating margins. Despite the higher input costs around semiconductors, we acquired seven companies.
<unk>.
For the deployment and utilization of capital of 1 billion to the demand the demand environment remains exceptionally strong.
Heading into this year, we've got strong multiyear funding we've got record orders, we got record backlog. The exciting part is we are at the intersection of public safety and enterprise security and the width and breadth of our technology ecosystem.
Think further fortifies our role as a trusted adviser to our customers I want to thank every single Motorola's that's listening into this call.
This is an incredible company with this very strong.
Purpose passion.
Reengineering innovation mentality.
And as we heard yesterday in the supplier conference that Jason referenced in JAK mutation I participated in.
Is there a special people.
With a commitment to serve and a commitment to the community. It's it's above and beyond I appreciate everybody on the call. Thank you for joining and we look forward to updating you again.
In a few months I appreciate you all.
Ladies and gentlemen, this does conclude today's teleconference a.
A replay of this call will be available over the internet with two hours.
The website address is www dot Motorola solutions dotcom for what slash investor.
Thank you for your participation and ask that you. Please disconnect your lines at this time.
[music].