Q2 2023 Motorola Solutions Inc Earnings Call
Press Investor.
These materials include GAAP to non-GAAP reconciliations for your reference and during the call we reference non-GAAP financial results, including those in our outlook unless otherwise noted.
A number of forward looking statements will be made during this presentation and during the Q&A portion of the call. These statements are based on current expectations and assumptions that are subject to a variety of risks and uncertainties actual results could differ materially from these forward looking statements.
Information about factors that could cause such differences can be found in today's earnings news release and the comments made during this conference call in the risk factors section of our 2022 annual report on Form 10-K, or any quarterly report on Form 10-Q, and in our other reports and filings with the SEC.
We do not undertake any duty to update any forward looking statements and with that I'll turn it over to Greg.
Thanks, Tim and good afternoon, and thanks, everybody for joining us today.
First Q2 was another outstanding quarter with revenue and earnings per share both exceeding our guidance.
In software and services revenue was up 13% and operating earnings were up 15%.
Driven by strong growth across all three technologies and in products and systems integration continued robust demand and improved supply chain availability led to a 12% growth in revenue and a 52% growth in operating earnings in the segment.
Additionally, we ended the quarter with record Q2, ending backlog of $14 3 billion.
Approximately $850 million versus last year, and also up approximately 200 million sequentially.
Second our exceptional performance during the quarter was broad based with double digit revenue growth in both segments, both regions and in all three technologies, including 20% growth in command center and 17% growth in video security.
We also saw record Q2 orders in both segments during the quarter driven by customers' priority prioritizing technology investments to strengthen public safety and enterprise security and finally based on our Q2 results and the continued strong demand we're seeing across the business, we're again raising.
Our full year guidance for both sales and earnings per share I'll now turn the call over to Jason.
Thank you Greg revenue for the quarter grew 12% and was above our guidance with double digit growth in both segments, both regions and in all three technologies FX headwinds during the quarter were $23 million, while acquisitions added $20 million.
GAAP operating earnings were $518 million or 21, 6% of sales up from 16, 7% in the year ago quarter.
non-GAAP operating earnings were $641 million up 29% from the year ago quarter, and non-GAAP operating margin was 26, 7% up 350 basis points.
The strong year over year increase in both GAAP and non-GAAP operating earnings was driven by higher sales inclusive of our higher prices pricing lower direct material costs and improved operating leverage.
GAAP earnings per share was $2 15, compared to $1 33 in the year ago quarter non.
non-GAAP EPS was $2 65 up.
Up 28% from $2 seven last year.
This strong growth in EPS was driven by higher sales and margins, partially offset by a higher effective tax rate in the current year.
Opex in Q2 was $555 million up $53 million versus last year, primarily due to increased expenses from acquisitions.
Investments in video and higher employee related incentives in the current year.
Turning to cash flow Q2, operating cash flow was $93 million up $83 million versus last year and free cash flow was $40 million up $89 million the.
The increase in year over year cash flow was primarily driven by higher earnings and improved working capital, partially offset by higher cash taxes for.
For the full year, we continue to expect approximately $1 9 billion of operating cash flow linearity of our cash flow is expected to be consistent with last year with higher earnings and improved working capital driving increased cash flow in the second half.
As we previously highlighted this year's cash flow includes approximately $300 million of additional cash taxes compared to last year inclusive of a one time $70 million tax payment that relates to an IP reorganization that we did in 2022.
Capital allocation in Q2 included $224 million in share repurchases $148 million in cash dividends and $53 million of Capex.
Moving to segment results in the products and Si segment sales were up 12% versus last year, driven by improved supply availability in the current year and the benefit from pricing actions continuing to flow through.
Currency headwinds were $10 million and revenue from acquisitions in the quarter was 2 million.
Operating earnings were $285 million or <unk> 19, 8% of sales up from 14, 6% in the prior year driven by higher sales lower material costs inclusive of lower broker spend for semiconductors.
And improved operating leverage from.
Some notable Q2 wins and achievements in this segment include $145 million $2 25 system upgrade for Kern County, California.
$41 million P 25 system and device order for a U S federal customer about $31 million P. 25 system expansion for Ventura County, California, a $19 million 25 device order for a U S federal customer and a $6 million fixed video order for a large U S health care customer.
In software and services revenue was up 13%, including 20% growth in command center, a 19% growth in video.
Revenue from acquisitions was $18 million in the quarter and FX headwinds were $13 million.
Operating earnings in the segment were $356 million up 15% versus last year and operating margins were 36, 9%.
Up from 36, 1% last year.
On higher sales and improved operating leverage partially offset by higher costs from acquisitions.
Some notable Q2 highlights in this segment include a $34 million video order for the Virginia State Police, which included our largest in car video order ever at.
$15 million Palomar services agreement with city of Baltimore, Maryland.
$13 million managed services agreement for LMR and a renewal in Latin America.
$12 million Command Center order for our U S federal customer and an $8 million LMR service agreement with another U S federal customer.
Looking at regional results for the company North America Q2 revenue was $1 6 billion up 11% on strong growth in all three technologies International Q2 revenue was $762 million up 16% versus last year driven by growth in LMR and video partially.
Offset by unfavorable FX.
Moving to our backlog ending backlog was a Q2 record of $14 3 billion up 6% or $856 million versus last year, driven by strong demand in all three technologies sequentially.
Sequentially backlog was up $211 million driven by record Q2 orders in both segments and the products and Si segment, ending backlog was up $496 million or 11% year over year and up $100 million sequentially, driven primarily by strong LMR demand.
Software and services backlog was up $360 million compared to last year, driven by strong demand for multi year software and services contracts in North America, partially offset by revenue recognition for airwave and the adjustment related to the ESN contract exit.
Sequentially backlog was up $111 million driven by record Q2 orders in this segment.
Turning next to our outlook, we expect Q3 sales to be up approximately 6% with non-GAAP earnings per share between $2 99, and $3 <unk> per share. This assumes a weighted average diluted share count of approximately 172 million shares and an effective tax rate between 23 and 'twenty four.
Percent.
For the full year, we are again, increasing both our revenue and EPS guidance. We now expect revenue in the range of $9 875.
$9 9 billion up from our prior range of $9 75 to $9 775 billion and we expect non-GAAP earnings per share between $11.40 and $11 48 per share up from our prior guidance of $11 21 to $11 29 per share.
This full year outlook assumes $25 million of FX headwinds.
Our weighted average share count of approximately 172 million shares and an effective tax rate of 23% to 24%.
Before turning it back to Greg I wanted to provide some color on a few financial topics.
First an update on the CMA and Airwave.
As we've stated previously we strongly disagree with the CMA is final decision.
Earlier this week the CMA issued its remedies order regarding implementation of their final decision effective.
On August one.
This procedural next step does not change our position regarding the ongoing appeal process and our strong belief in our case.
However from an accounting perspective, beginning August one we will now defer revenue for the amount above the remedies order price control until the appeals process has been completed this.
This deferral and resulting lower revenue from Airwave for the remainder of the year is fully incorporated into our increased revenue and earnings guidance for the year.
Second earlier this week Moody's upgraded our credit from to be a two from <unk> III. This higher credit rating underscores the strength of our balance sheet, including the strong liquidity position, our balanced debt maturity profile significantly improved pump pension status along.
Along with a track record of consistently growing earnings and cash flow.
And finally, our increased guidance for the for the year highlights the strength of our business as we enter the second half our backlog is exceptionally strong driven by robust customer demand and based on our current pipeline and supply chain environment, We expect backlog to remain strong going forward. Additionally, the expected lower semiconductors, we are.
<unk> in February the cost related to the semiconductors, coupled with the pricing adjustments in our own portfolio that were implemented in the second half of last year are driving the significant full year margin expansion of approximately 175 basis points that is implied in our increased guidance.
I'll now turn the call back to Greg Jason Thank you very much.
First our exceptional Q2 results highlight the continued strong momentum we're seeing across the business. We grew revenue double digits in both segments both regions and in all three technologies, we expanded operating margins by 350 basis points and we achieved record Q2 orders, which led to.
Our highest ending backlog ever for a second quarter and is driving our increased guidance for the full year.
Second we continue to leverage our global installed base to sell more value added software and services to our customers during the quarter software and services revenue was up 13% with strong growth in all three technologies. We also achieved record Q2 orders in this segment highlighted by our largest in car video.
Order ever from the Virginia State police that included automated license plate recognition and digital evidence management.
And with our recent rave acquisition, we've made significant advances in integration across our ecosystem, which is driving strong pipeline demand for rave together with our command center products and finally I just wanted to spend a little time and provide some color on artificial intelligence.
Recognized AI and the potential impact it could have on our customers back a few years ago, when we acquired <unk> and its AI capabilities and we've seen and continue to see this technology driving opportunity for both our business and our customers.
I along with generative AI plays an important role in our solutions to help keep communities safe from actively analyzing live video and alerting humans when something important happens to assisting a 911 call with our live translation solution to automatically redacting evidence. These advancements improve response.
Times, which can help save lives while also enhancing privacy for those involved AI will continue to enhance how our solutions help protect people property and places.
With our ongoing investments in deep expertise, we're very well positioned in this space and we expect to see increased adoption of these technologies from public safety enterprises, and private organizations alike for a more proactive approach to safety and security I'll now turn the call back to Tim.
We'll open it up for your questions.
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.
Yeah.
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.
We do ask that you pose your question. Please pickup your handset to provide optimal sound quality.
Yeah.
The first question is from Tim long with Barclays.
Your line is now.
Thank you.
I'll start with the clarification, Jason then one for you.
Greg.
Pretty impressive you're raising numbers despite the change in accounting for Airwave.
Just wanted to clarify there.
We got the new revenue.
Level.
That was mandated and that you guys are accounting can you just talk a little bit about expenses. I think you guys have run that network pretty efficiently. So should we assume a comparable expense level to how things have been running or.
Does something changed on that side.
Yeah.
The EPS impact and then for Greg Greg If you could just talk a little bit about macro it sounds like everything is going pretty well, but if you could just hit on kind of what you're seeing from the government customers and.
To what extent youre, starting to see federal and ARPA type of dollars flowing into the business that'd be great. Thank you.
Thanks, Tim so.
Our expectations for Airwave revenues this year with the now deferred revenue effective August one for about $480 million of revenue from Airwave that'll be down from about 560 last year.
To answer your question on cost that we run that network and provide a service level I wouldn't anticipate significant cost changes our cost to run that network and deliver the services.
Are what they are so we are deferring about $80 million of revenue this year.
And still raising.
Our guidance from the last time, we were together by about $140 million and to Jason's point, the $80 million reduction due to accounting and the required treatment of that from $5 60 to $4 80 is obviously all in the back half of the year starting August one running through the remainder of the year as in terms of expenses and.
We continue to invest in airwave by the way Tim just a few months ago. The end users gave us feedback and network performance and reliability, which was as high as we've ever achieved on Airwave. So we're proud of that and we continue to maintain and invest on behalf of our end users in terms of macro.
High high high level.
The business is as good as I've ever seen it.
The demand drivers are strong Jack has talked about and we'll talk a little bit about today, if you want about device refresh and interestingly Tim.
Malloy mentioned last year, we try to attract demand against the orders achieved last year and we believe as best we can tell less than 5%.
Of our orders last year were tagged due to ARPA through the first half of this year. We also believe it's less than 5% as well. So the nice thing about this is we're seeing demand drivers around public safety video security access control Command Center.
Software and services, that's really underpinning environmental and overall demand sure ARPA helps but as best we can tell it's fairly minimal I would agree with that Craig the only thing I'd add to that.
And I think you highlighted the benefits from a product standpoint, but from an SNS standpoint of year over year, we had a $360 million increase in backlog in addition to that.
We were in receipt of a contract from the state of Illinois for a $300 million frame agreement for a 10 year period for services.
Incremental and Thats not reflected in our backlog Tim So I think that's just another another proof point too.
The conversations we're having with customers really resonate for their needs right now.
Okay. Thank you very much appreciate it.
Tim.
And our next question comes from George Notter from Jefferies.
Your line is open.
Hi, guys. Thanks, very much I guess I wanted to ask about margins and profitability.
At one point you guys were looking for about a $50 million.
Benefit this year on lower brokerage fees and expedite fees.
I guess I'm wondering if that's still the expectation for this year and then also I'm curious about what the overall level of broker fees and expedite fees youre carrying for this year would look like and when do those step back down would that be a 2024 event or when do you see relief there. Thanks.
Hi, George Thanks for the question so.
We began the year with an expectation for $50 million of lower costs related to premiums through brokers were trending a bit better than that we're on path to about a $60 million year over year benefit.
Largely in the first half we're still spending.
Some investments on brokers as we look into next year, we would expect that.
Comparable benefit level of about $60 million into 2024 for brokers again, the supply chain environment remains fluid, it's incrementally better, but we're still using the same tools, we've been using for over a year to make sure that we get the supplies that we need.
<unk>.
The level of commitment from our suppliers is strong.
But their lead times remain elevated still and so from time to time, we will use PPV. This secure the parts to match the record demand that we're seeing and I do have to say thanks to for all the engineers and Motorola because as we manage PPV and to Jason's point will achieve now $60 million.
A little higher than $50 million target and that would.
That would be our goal for next year as well another $60 million.
A lot of the engineers and Motorola have done real time under <unk> leadership and.
And Scott and others, they've done product redesign.
A way that has allowed us to substitute parts in a matter of months that also have allowed the company to be adept in firm and responsive to our customers and I just want everybody to know on the engineering community. How grateful we are for that because they were they have been superstars.
Got it and then just as a follow up if I.
If I do the math I think youre still carrying about $150 million in annualized expedite fees or brokers fees is that right.
For this year.
This year's envelope is going to be a little less than that.
It's more important that we as we look at next year's envelope.
Reducing by $60 million, that's our current thinking.
As we go through supply planning, there's other offsets that are always in the mix around direct materials cost some positive some unfavorable so as we look to next year, we see a $60 million benefit, particularly related to this opportunity from broker fees.
Great. Okay. Thanks, very much appreciate it.
Thanks George.
We'll take our next question from Adam Tindle with Raymond James Your line is open.
Okay. Thanks, Good afternoon, I just wanted to start on.
Airwave, just a clarification.
Admittedly I think were all outside of our core competency and trying to read through these legal documents here, but.
Identified I think the price control for example was just north of $200 million in U S. Dollars. So I guess the first question would be just to understand how you came up with that $80 million headwind and then secondly.
What absent the appeal.
That number would go to in 2024 as we try to think about shaping our models for the worst case scenario.
Yeah. So first of all the beginning date of the deferral for revenue was consistent with the remedies order, which is August one to the end of the year, that's the approximately $80 million.
If you do the math on that for next year.
Approximately another $100 million step down.
There are a variety of inputs that go into us servicing airwave.
The usage of the network the onetime events that go with the network the number of user communities that subscribe as well as Ah.
Inflation and other variables.
That go into how much revenue we recognized from the contract all of those things together last year of $5 60. This year on path to 480, and then you can do the math on the price control into next year for approximately another $100 million.
<unk> decline for the full year for the whole year.
And Adam what I'd say is.
I think this process is proceeding as expected.
So we knew that.
The CMA issued a final decision in Q2, we knew it would be followed by our remedies order statutorily. They could've gone until October to do that as late as October .
They did it now.
In light of the remedies implementation order that requires the accounting treatment. Jason just described it doesn't change at all our belief and our confidence in this case by the way the hearing the appeal to the competition Appeals Tribunal was yesterday and today. So that part is done as well now.
We will wait to see what they rule on the appeal you know, we have said and I've said, we've been very consistent.
We think this action is unprecedented overreaching it effectively is.
Opening up and already agreed on binding legal contract.
But we'll see how it plays out in the meantime, we've deferred the revenue through the end of this year.
As required and to articulate and quantify what it could be if nothing else changed it would be another approximately $100 million.
Deferral or reduction of Airwave on a full year basis next year.
Okay, and then $100 million on revenue.
That also be about approximately that on the EBIT line or any way to think for us to think about EBIT on a $100 million.
So as I mentioned with Tim on our cost structure.
Need to run this network Havent changed so the lower revenue largely tracks to our lower margin amount as well.
Got it okay. It makes sense.
Then.
Absent that obviously, Greg as you mentioned the rest of the businesses running incredibly incredibly well, notably the Tsi segment over 50% operating income growth on 12% revenue growth.
Looking at our first half margin near 20%, which is.
No I think maybe even unprecedented for that segment in total for the first half. So I guess a question on that would be how do you see the margin trajectory of that piece of the business I know, it's been through a lot whether it was COVID-19 pandemic and all of that I wonder if you're coming out the other side with maybe a structurally improved margin profile and how youre thinking about the trajectory.
<unk> of that piece of business. Thanks.
First of all I would say that and again I compliment the team Jason Jack on the improved gross margins both on cost of goods as well as as you know we've taken a series of pricing actions, starting last year and coming into this year, we view those pricing actions as sticky not transient.
So the margin profile is better in terms of growth.
Of LMR and the technology, we've guided for the full year mid single digits, we still expect that to be appropriate full year guidance, we're coming off some monster comps in the first half of this year and by the way the Airwave accounting treatment of the $80 million.
<unk> or deferral in revenue is in the back half of this year that would be reflected in the LMR technology, having said that.
I'm Super proud of the gross margin expansion and operating margin expansion and while obviously were sitting in August . So it's too early to talk about 2024, but it would be my and our expectations to grow operating margins in 2024 as well.
So it's important to note also in terms of the first half performance and you're right. We had significant margin expansion in products. That's off of last year's first half, which included our highest broker costs as well as last year's first half didn't include our own pricing increases so effective July one of last year.
Our second half you saw significant on good growth significant margin step up in the second half. That's continued through the first half of this year and as we look to growth in our second half of this year, we will still have margin increases over that was records from last year.
And really that's a function of when we implemented the price increases and when the PPV or higher broker costs have come out of.
Our product set.
Got it thank you.
Thanks, Adam.
Yeah.
And well move next to it that <unk> from Cleveland Research. Your line is open.
Thanks, I appreciate you guys taking the question.
Greg I was hoping you could.
Made the comment about the overall funding environment being so healthy.
And I'm not trying to get to the guide into 2024, but I'm interested how you think about just public sector funding overall the sources of.
Net income to public sector. How do you think that's evolving as you look out over into 'twenty four and beyond.
Well I like number one to your point Ben Thanks for the question.
The underlying demand drivers of the business are strong.
Absent funding then you get the funding and I talked about the as best we can tell the percentage orders.
In terms of order volume attributed to ARPA.
Is 5% or less the other thing I like it.
Is the multi year nature of state and local funding, which as you know 350 billion in.
And the inflation reduction Act and 170 billion of education, which is an absolutely prioritized vertical for us and what Jack Molloy and his team are doing.
So.
We're not going to guide on 'twenty four but.
The fact that we had the fact that we had the print we had and record Q2 orders and record Q2, ending backlog and improved 12 month duration of backlog and the other thing Malloy and I track is pipeline right. So what's the pipeline and funnel what's the <unk>.
<unk> coming in at the top how are we doing on order conversion and velocity.
When Jack and I look at that that's favorable as well and in terms of the health of the overall state and local budgets. They remained strong to Greg and I think I think what I would say there is when we think about top of the pipeline being coating bottom of the pipeline being orders and then the most important metric is the velocity between those two.
Our velocity remains consistent in fact, it's improved and we've seen a growing number of of quoting so I think that portends well to 2024. The other thing that I think has lost a lot of people. When you think about government funding, we've talked about ARPA, but when you think about personal income tax corporate income tax and sales tax those those three funding streams have all been there.
Beneficiary for government from inflation, so inflation for that means they get more tax receipts in and their costs haven't necessarily gone in parallel and I think I think a lot of people don't necessarily understand that but I just wanted to mention that so all things and I think the funding environment and government remains very strong.
That's helpful. I appreciate that and then Jack I was hoping you could take us through how you see K through 12 developing if.
If you could speak to.
The significance of the deal sizes themselves the nature of the projects that Youre seeing just any thoughts there would be helpful. That's it for me. Thank you.
So K through 12 as Theres really two technologies, it's video security and access control.
And depending on the type of school district, we have seen an acceleration into our Alta vigilant also which is cloud, but we've also got larger school districts that continue to buy unity, but the K through 12 education in general we've put the marker in that our video business is growing 15% K through 12 and at the EU market is surpassing that grew.
Both level it did last year and it continues to grow through the first half of this year.
Robustly and I think some of that is the beneficiary of ARPA funding, but I think a lot of it is really much more it's much more secular around school security and that is getting prioritized over above everything else.
One more thing maybe to add to that is.
Just from a safety re imagine standpoint, we're also integrating rave along with orchestrates in rave.
We now have.
Integrations going into aware with a panic button.
We also have the capacity to integrate weapons detection. We also launched weapons detection for the schools market. So all in all we have other headwinds.
<unk> coming with us there.
The whole story from school security standpoint.
H.
Thanks, guys.
Thanks Brent.
We'll take our next question from Joseph Cardoso with J P. Morgan Your line is now open.
Yeah.
Hey, good afternoon, and thanks for the question just one for me.
Maybe this is just kind of a broader picture question.
Got it that's sort of a normal seasonality in the back half at least relative to pre Covid era. However at the same time you guys are staring at a much larger backlog now can you just walk us through the puts and takes around that why youre not seeing better seasonal trends as we kind of go through the back half and I guess, particularly just given that you are seeing better supply headwind.
Our sorry, seeing supply handling things, even more broadly just curious whatever thoughts you have on that thank you.
Yes Joseph.
I'm sure Jason will jump in as well, but I.
I remind you that you're right normally this business.
<unk> is typically Q3 and Q4 weighted in.
Seasonally dense I think thats unchanged, but remember.
We're guiding an increase in top and bottom even with the $80 million of Airwave deferral in the back half.
And another $50 million.
<unk> PCR light business model change, Jason can elaborate on that so that's $130 million.
The revenue growth that needs to be incorporated into the second half guide, but still informs and allows us to raise and on the bottom.
S line.
We have an incremental 30.
Tax headwind 50 for the year, we had 20.
Headwind first half 30.
Of EPS structural tax headwind back half so as you incorporate those ingredients into the blender.
It shouldnt take away or distract at all that the demand is strong the raise is strong and the momentum is strong.
Business model change and a low end PCR we mentioned in February we've gone to a model, where we only recognize the margin and the revenue and the product no longer the Cogs. So it's.
OE neutral, but did change the revenue line that was.
A way to focus our business on higher value efforts.
So thats something into choice, we project that we did in February and it's working out quite well.
The other thing I would point you to is the lead times from our key semiconductor manufacturers and the commitments they give us for getting us the products and the semiconductors, we need support the increased guide and continue to represent opportunity for us as we go forward, but we.
We get commitments from them and we plan the business and how much revenue, we can unlock out of backlog based on that.
Okay got it thanks I appreciate all the color there.
Thank you Joseph.
Next question comes from Keith Thompson with Northcoast Research Your line is open.
Good afternoon, guys and great results in an appropriate guide.
Greg as we look at your software and services margins hitting almost 37%. This quarter I guess the question is where can those margins go to and maybe some color on the incremental margins for every book of business brought in to help us kind of cleared a picture.
Well we.
We had previously said Keith Thanks for the question that on the full year, we thought we could achieve comparable margins. We had great SNS performance in Q2, and we thought we could have for the full year as we told you a quarter ago comparable maybe slightly down but I thought we were shooting for comparable operating margins in light of the required accounting treatment on Irwin.
And the decrement of $80 million starting August one.
That falls obviously.
To SNS and the requisite profitability that Jason articulated so now and we now expect SNS operating margins accounting for that deferral.
To be down.
On operating margin year over year basis.
In terms of the next year, it's too early to guide for that and we have to see ultimately what's decided with the competition Appeals Tribunal appeal and what the disposition of Airwave is.
From a financial perspective.
That said, we continue to make improvements on synergies in platforming SNS, maybe mahesh could talk a little bit about that we're doing some successful core castration and integration to get.
The software sleeves, more integrated and working a little bit more seamlessly in a little bit more efficiently, so theres opportunity Keith but it would be premature to quantify at this time.
Alright, I appreciate that also are plentiful.
I'm sorry go ahead.
So across our platforms.
It is cloud or on Prem.
Greater synergies in terms of core technology stack, we are optimizing some of our client delivery capabilities and really focusing.
A lot of ease of install as well so all of that translates.
Hopefully a good game for us.
Gotcha. Thank you and then coming back to the CMA ruling in the appeals process I guess Gregg what's the next steps assuming that you guys lose on appeal can you provide perhaps a rough timeline about how this plays out here over the next year or two.
Well in terms of the appeal it would be our expectation.
That the cat rules on the appeal by the end of Q3.
I don't really want to get into hypotheticals on if this then that but we have been consistent Keith that said, we will exercise all legal avenues available to us. So the next step after the cat.
If the cat rules against us would be us taking to this to the U K court of Appeals.
And that would be after the capital ruling I don't know the timeline.
What they would do what happens there is they have to decide.
Up or down whether they would actually hear the case I don't know the timeline that they have available to them in terms of the window to decide so this will go on a few more months and hopefully we can give you more clarity on the next earnings call.
Great. Thank you.
Thanks Keith.
Once again, if you have a question you May press star one on your telephone keypad.
Next to meta Marshall from Morgan Stanley .
Your line is open.
Great. Thanks, just a couple of questions for me.
First.
Obviously, the backlog continues to grow I guess I just wanted to make sure is there anything that we used to be mindful of a peak quarter for our product.
Just in terms of as the supply chain clears and less forward orders or is this just really a result.
Kind of strike.
Strength of multiyear orders, maybe that's the first question and then as the second question.
Traction on kind of bringing apex next.
Market or just kind of adoption trends that you're seeing there. Thanks.
Our expectation for backlog and specifically product backlog is for it to remain strong through.
Through the duration of the year, that's a function of our expectations for continued strong inbound orders as well as the amount of backlog that we can unlock with the available componentry that we need.
And related to apex next.
We are now we had a very strong quarter of new orders in terms of Q2, we received another $80 million now, bringing it close to a half of $500 million.
Apex next.
And when I look at the complexion of those orders, it's not just big cities, but it's starting to hit into the tier two cities as well. So we're really pleased with the with.
With the performance of that product line.
Great. Thanks.
Expensive.
Our next question comes from the line of Louie Dipalma with William Blair. Your line is open.
Greg, Jason Jack Mahesh <unk>, Tim and good afternoon.
So how are you.
Doing excellent. Thank you.
As it relates to the.
The LMR device refresh last quarter, you discussed how 80% of LMR radio orders were for your older.
Radio despite how API nex has had the strongest demand any new radio that you have ever introduced and how it was introduced way back in October 19.
Why are so many customers still adopting in the older age.
Platform and still confidence that the upgrade cycle for apex next well still potentially be.
The full effect, even a decade from now.
So.
So just a couple of points. The first of which is think about the government procurement cycle, which is one to say it's long cycle is long years, we did not announce the mid tier apex next until Q3 late Q3 of 2022, so what.
That's really a function of a byproduct of when it was announced what was actually able to be quoted at that point in time.
But without question, we're seeing acceleration to the numbers I just $80 million in a quarter on the new orders that type in the striation of customers that are buying those devices. So the.
The other piece of it just historically speaking having worked here long enough to see probably three pretty large scale device refreshes. It typically takes three years three to five years post launch to start to alleviate and move those legacy versions down and through through the cycle.
Great.
It seems that.
The House Committee has approved.
15 billion dollar next generation 911 funding Bell and on this topic.
The status of the integration of <unk> wireless with your best.
Solution and hesitant.
The adoption of rave accelerated.
As a result of the combination with with Motorola have you to stop <unk> ability to generate orders from the education vertical in an enterprise vertical.
Absolutely so.
We as of last quarter, we are now bundling the ray of 91, one suite along with our Vesta U S sales. So it comes part of that.
In addition to that we have.
Been actively working on.
Remember as a as an important bridge for us from enterprise security to public safety, and we're adding more and more leads to that bridge with every integration that we do here divesting integration is definitely one of those I mentioned, the panic button integration with aware being another one.
We are integrating Raven to orchestrate, which now type that in with the video and access control pieces as well so together rave not plugged into public safety more effectively.
And then Raven aware together.
Actually allows us to connect.
Instances of CAD as well so dispatchers.
Instances can communicate with each other as well so as you look at the install base that we have invested as you look at the installed base that we have in school K 12 schools with video and access control, we're leveraging all of that by bringing that together as the bridge between.
Public safety and enterprise security gets wider.
Great. Thanks, Mahesh and lastly for me do you have any thoughts on the reported Tetra cyber security vulnerabilities.
Yeah.
Sure.
So I think the first thing is.
At Sea is the primary spokesman and custodian for the Tetra standard in conjunction with the critical Communications authority.
Europe .
What was reported I think its first first.
First thing I'd like to point out is what we reported is there was no weakness is found in the public safety algorithms. There's three algorithms tier one tier one is actually for general use it's a little bit more open due to export control issues.
But theres been no exploitation of operational networks that we know of.
And essentially.
Subsequent to those findings, which were which we knew about even into late last year.
Theres been software patches.
And then upgrades to the algorithms that have been done subsequent to that so.
This was actually paid this was a research tank done out of the Netherlands, who actually did the testing.
Yes, its something we knew about we had a primarily weakness was in general use and I think it's been.
It's been Remediated since then.
Great. So it's been resolved already.
Yes, our view, yes, thanks Louie.
Okay.
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.
Thanks, everybody. Thanks for joining us, but just in closing I want to make sure I. Thank all the employees and the people and Motorola solutions worldwide and all of our channel partners worldwide.
Proud of you and we're proud of you most especially what you do how you do it in the execution.
I said in the call you heard from Jason in the Haitian Jack.
This business is performing as well as I've ever seen it demand is strong it is strong for what we do public safety enterprise security and I like what we're doing to meet that demand and exceed that demand with the execution of what we do and what we're doing on the portfolio reinvention.
Device refresh we talk a lot about apex next and all the great work done there, but there's also great work being done on video security and access control that the Haitians doing around 911 command center and while we're doing that and running the business and lowering PPD costs and incrementally improving supply chain.
And engineering in real time doing product redesign, we're expanding gross margins were expanding operating margins, we have a record Q2 for orders.
We ended Q2 with record backlog, we talked about the duration of backlog being stronger.
And Jack talked about the pipeline activity.
And the order velocity and conversion, it's excellent and Jason talked about that we expect backlog to be strong for the balance of the remainder of the year. The last two things I'd say is we referenced that a little bit we just talked about rates I'm really proud of the acquisitions. We've made the integration work that's been done.
Organizationally and strategically but also technically.
And those acquisitions are performing at or above.
What we expected we have I loved the upgrade we just got we have a strong balance sheet. We continue to be disciplined in capital allocation and I think we have an excellent opportunity in front of us I appreciate you joining us.
We'll talk to you again in a few months. Thank you.
Ladies and gentlemen, this does conclude today's teleconference.
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Yeah.
Okay.