Q2 2024 Motorola Solutions Inc Earnings Call

and thanks for joining us today. I'll start off by sharing a few thoughts about the overall business before Jason through our results and outlook.

Gregory Brown: Before JCP to our results and outlook. First, Q2 was another outstanding quarter with record Q2 revenue and operating earnings. For products in SI, revenue was up 15%, and operating earnings were up 56%, driven by continued strong demand and favorable mix within LMR products. In software and services, revenue was flat, excluding the home office.

First, Q2 was another outstanding quarter with record Q2 revenue and operating earnings.

Products and SI revenue was up 15% and operating earnings were up 56% driven by continued strong demand and favorable mix within LMR products.

Gregory Brown: In the UK, revenue was up 11%, driven by strength in all three technologies. And we also increased earnings per share by 22 percent, generated $180 million of operating cash flow, and ended the quarter with $14 billion of backlog, positioning us well for continued growth. Second, I'm encouraged by the continued momentum we're seeing across the business. In video security, revenue was up 10%, driven by growth in both our fixed and mobile video solutions and increased investment in software and services.

And we also increased earnings per share by 22%, generated $180 million of operating cash flow, and ended the quarter with $14 billion of backlog, positioning us well for continued growth.

In video security, revenue was up 10%, driven by growth in both our fixed and mobile video solutions and increasing in software and services.

Gregory Brown: In Command Center, revenue increased 9% as customers continue to adopt our solutions that help them effectively accelerate the response and resolution of incidents. And in LMR, revenue increased 9% inclusive of the UK home office headwinds driven by LMR products as well as managed and support services. And finally, based on our Q2 results, robust demand, and continued prioritization for safety and security by our customers, we're again raising both our revenue and earnings guidance for the full year. I'll now turn the call over to Jason.

In Command Center, revenue increased 9% as customers continue to adopt our solutions that help them effectively accelerate response and resolution of incidents.

And in LMR, revenue increased 9% inclusive of the UK home office headwinds, driven by LMR products as well as managed and support services.

And finally, based on our Q2 results, robust demand, and continued prioritization for safety and security by our customers, we're again raising both our revenue and earnings guidance for the full year. I'll now turn the call over to Jason.

Jason Winkler: Thank you, Greg. Revenue for the quarter grew 9% and was above our guidance, with strong growth in all three technologies. Acquisitions added $13 million, while FX headwinds were $5 million, during the quarter. Gap operating earnings were $644 million, or 24.5% of sales, up from 21.6% in the year-ago quarter. Non-gap operating earnings were $758 million, up 18% from the year-ago quarter, and non-gap operating margin was 28.8%, up 210 basis points driven by higher sales, favorable mix, and improved operating leverage, partially offset by airwave charge control. Gap earnings per share were $2.60, up from $2.15 in the year-ago quarter.

Jason: Thank you, Greg. Revenue for the quarter grew 9% and was above our guidance with strong growth in all three technologies. Acquisitions added $13 million while FX headwinds were $5 million during the quarter.

Speaker Change: Gap earnings per share was $2.60, up from $2.15 in the year ago quarter.

Jason Winkler: Non-gap earnings per share was $3.24, up 22% from $2.65 last year. The growth in EPS was driven by higher sales and margins and a lower diluted share count, partially offset by a higher effective tax rate in the current quarter. OPEX in Q2 was $593 million, up $38 million versus last year, primarily due to higher employee incentives and acquisitions. Turning to cash flow, U2's operating cash flow was $180 million, up $87 million versus last year. And free cash flow was $112 million, up $72 million. These increases were primarily driven by higher earnings, partially offset by higher employee incentives and higher cash taxes.

Speaker Change: non-GAAP earnings per share was $3.24, up 22% from $2.65 last year.

Speaker Change: Turning to cash flow, Q2 operating cash flow was $180 million, up $87 million versus last year, and free cash flow was $112 million, up $72 million. These increases were primarily driven by higher earnings, partially offset by higher employee incentives and higher cash taxes.

Jason Winkler: Our year-to-date operating cash flow was $562 million, up from $85 million in the previous year on higher earnings and significantly improved working capital. And we now expect operating cash flow for the full year to be $2.25 billion, an increase of $50 million versus our prior expectations and double-digit growth expectations over last year. Capital allocation for Q2 included $163 million in cash dividends.

Speaker Change: And, we now expect operating cash for the full year to be $2.25 billion, an increase of $50 million versus our prior expectations, and double-digit growth expectations over last year.

Jason Winkler: 71 million in share repurchases and 68 million in CapEx. Subsequent to the quarter-end, we also closed two acquisitions for a total of $223 million. The first is a global provider of critical event management software that expands our command center presence internationally and also complements our RAVE acquisition.

Speaker Change: Subsequent to the quarter end, we also closed two acquisitions for a total of $223 million.

Jason Winkler: The second is a provider of vehicle location and management solutions that further builds on our leadership in providing mobile video solutions for the financial services sector. We expect these acquisitions to generate approximately $15 to $20 million of revenue per quarter, primarily in video, and to be slightly dilutive in the second half of this year. Moving to segment results and products in SI, sales were up 15% versus last year, driven by continued demand along with improvements in supply in LMR.

Jason Winkler: Currency headwinds were $2 million, and revenue from acquisitions contributed $12 million. Operating earnings were $445 million, or 26.8% of sales, up from 19.8% in the prior year driven by higher sales, a favorable mix, and improved operating leverage. Some notable Q2 wins and achievements in this segment include a $32 million P25 system and device order for the City of Naperville, Illinois; a $19 million P25 system upgrade for Washington County, Virginia; an $18 million P25 system order for a U.S. federal customer; a $17 million P25 device order for a U.S. customer; an $8 million fixed video order for a large state and local customer; and Revenue was flat compared to last year.

Jason Winkler: Excluding the UK Home Office, revenue was up 11%, driven by strength in all three technologies. Revenue from acquisitions was $1 million in the quarter, and FX headwinds were $3 million. Operating earnings in the segment were $313 million, or 32.3% of sales, down from 36.9% last year due to the revenue reduction related to the airwave charge control, which was partially offset by improved operating leverage elsewhere in the segment. Excluding the UK Home Office, software and services operating margins increased during the quarter on higher sales and improved operating leverage.

Speaker Change: Operating earnings in the segment were $313 million or 32.3% of sales, down from 36.9% last year due to the revenue reduction related to the airwave charge control, which was partially offset by improved operating leverage elsewhere in the segment.

Jason Winkler: Some notable Q2 highlights in the segment include a $19 million LMR order for the Victorian state government in Australia, an $18 million LMR order for a U.S. federal customer, a $12 million command center order for the Las Vegas Metro Police Department, and an $11 million LMR order for American Airlines. And finally, we received a $16 million mobile video award with Police Scotland. This award was part of a $30 million investment made by Police Scotland to procure body-worn cameras, LMR radios, and mobile application software, demonstrating their recognition of the strength of our integrated ecosystem.

Speaker Change: Some notable Q2 highlights in this segment include a $19 million LMR order for the Victorian state government in Australia, an $18 million LMR order for a U.S. federal customer, a $12 million command center order for the Las Vegas Metro Police Department,

Speaker Change: This award was part of a $30 million investment made by Police Scotland to procure body-worn cameras, LMR radios, and mobile application software, demonstrating their recognition of the strength of our integrated ecosystem.

Jason Winkler: Looking at regional results, North America Q2 revenue was $1.9 billion, up 17% on growth in all three technologies. International Q2 revenue was $711 million, down 7% versus last year due to the impact of airwave charge control.

Speaker Change: Looking at regional results, North America Q2 revenue was $1.9 billion, up 17% on growth in all three technologies.

Speaker Change: International Q2 revenue was $711 million, down 7% versus last year due to the impact of the airwave charge control. Excluding the UK Home Office, international revenue was up mid-single digits with growth in all three technologies.

Jason Winkler: Excluding the UK Home Office, international revenue was up mid-single digits with growth in all three technologies. Moving to backlog, ending total backlog for Q2 was $14 billion, a decrease of approximately $300 million or 2% versus last year. Excluding the UK Home Office, total backlog was $12.5 billion, up from $12.4 billion last year. And the products in the S.I.

Speaker Change: Moving to backlog, ending total backlog for Q2 was $14 billion, a decrease of approximately $300 million or 2% versus last year. Excluding the UK Home Office, total backlog was $12.5 billion up from $12.4 billion last year.

Jason Winkler: Segment ending backlog decreased $482 million versus last year and $308 million sequentially driven by strong LMR shipments as supplier lead time improvements enabled us to ship additional products earlier in the year and improve our sales linearity, and software and services backlog increased to $164 million compared to last year, driven by multi-year software and services contracts across all three technologies, partially offset by 12 months of revenue recognition from the UK Home Office. sequentially, backlog was down $129 million, primarily driven by the quarterly revenue recognition for the UK Home Office.

Speaker Change: And the products in SI segment ending backlog decreased $482 million versus last year and $308 million sequentially, driven by strong LMR shipments as supplier lead time improvements enabled us to ship additional products earlier in the year and improve our sales linearity.

Speaker Change: And software and services backlog increased to $164 million compared to last year, driven by multi-year software and services contracts across all three technologies, partially offset by 12 months of revenue recognition from the UK Home Office.

Speaker Change: Sequentially, backlog was down $129 million, primarily driven by the quarterly revenue recognition for the UK Home Office.

Jason Winkler: Turning next to our outlook, we expect Q3 sales growth between 7% and 8%, with non-gap earnings per share between $3.32 and $3.37 per share. This assumes a weighted average diluted share count of approximately $170 million, and an effective tax rate of 24%. For the full year, we are again increasing both our revenue and earnings-per-share guidance. We now expect revenue growth of approximately 8%, up from our prior guidance of approximately 7%.

Speaker Change: Turning next to our outlook, we expect Q3 sales growth between 7 and 8 percent, with non-GAAP earnings per share between $3.32 and $3.37 per share.

Speaker Change: This assumes a weighted average diluted share count of approximately 170 million shares and an effective tax rate of 24 percent.

Speaker Change: For the full year, we are again increasing both our revenue and earnings per share guidance. We now expect revenue growth of approximately 8%, up from our prior guidance of approximately 7%.

Jason Winkler: And we expect non-GAAP earnings-per-share between $13.22 and $13.30 per share, up from our prior guide of $12.98 to $13.08 per share. The full-year outlook assumes a weighted average diluted share count of approximately 171 million shares and an effective tax rate of approximately 23.5%.

Speaker Change: And we expect non-GAAP earnings per share between $13.22 and $13.30 per share, up from our prior guide of $12.98 to $13.08 per share.

Gregory Brown: It also assumes operating margin expansion of approximately 100 basis points, up from our prior expectation of 75 basis points, driven by higher sales. And finally, before turning the call back to Greg, I wanted to share some insights regarding our increased expectations for the year. In video, we now expect approximately 12% of growth for the full year, inclusive of the recent M&A. Video continues to be an exciting opportunity for us with new products like ACC-8, our video management system, H6 cameras, our latest AI-enabled video recorder, and both cloud and on-premises offerings.

Speaker Change: In video, we now expect approximately 12% of growth for the full year, inclusive of the recent M&A.

Speaker Change: Video continues to be an exciting opportunity for us with new products like ACC8, Video Management System, H6 cameras, our latest AI-enabled video recorder, and both cloud and on-premises offers.

Gregory Brown: And for LMR, we're increasing our expectations to mid to high single-digit growth for the full year, which includes the headwinds related to the UK Home Office that we communicated at the beginning of the year. On the continued strength of LMR, I point to a couple of important drivers. First, in LMR services, we have a significant installed base, and our customers are increasingly relying on our expanded services offerings, such as cyber and software upgrade agreements, as they continue to invest in their networks for the long term.

Speaker Change: And for LMR, we're increasing our expectations to mid to high single digit growth for the full year, which includes the headwinds related to the UK Home Office that we communicated at the beginning of the year.

Speaker Change: First, in LMR services, we have a significant install base, and our customers are increasingly relying on our expanded services offerings, such as cyber and software upgrade agreements, as they continue to invest in their networks for the long term.

Speaker Change: And second, an LMR product's strong demand for feature-rich devices continues to drive growth and margin expansion.

Speaker Change: For example, we have thousands of public safety customers who are on multi-year technology refresh cycles. These customers are increasingly adopting advanced devices like our APEX Next family of devices.

Gregory Brown: First, our Q2 results highlight the continued momentum we're seeing across the business. We achieved strong revenue growth in all three technologies. We significantly increased operating margins, grew earnings per share by 22%, and we generated $180 million of operating cash flow. Second, we're continuing to use our strong cash flow and healthy balance sheet to create shareholder value and invest for continued growth.

Gregory Brown: And second, an LMR product's strong demand for feature-rich devices continues to drive growth and margin expansion. For example, we have thousands of public safety customers who are on multi-year technology refresh cycles. These customers are increasingly adopting advanced devices like our APEX Next family of devices. I'll now turn the call back over to Greg. Thanks, Jason, and let me just close with a few thoughts. First, our Q2 results highlight the continued momentum we're seeing.

Speaker Change: I'll now turn the call back over to Greg. Thanks, Jason. And let me just close with a few thoughts.

Greg: First, our Q2 results highlight the continued momentum we're seeing across the business. We achieved strong revenue growth in all three technologies. We significantly increased operating margins, grew earnings per share by 22%, and we generated $180 million of operating cash flow.

Greg: Second, we're continuing to use our strong cash flow and healthy balance sheet to create shareholder value and invest for continued growth.

Gregory Brown: Year-to-date, we've spent a little over $700 million to reduce our diluted share count, inclusive of the Silver Lake convertible note and share repurchases, and we've invested more than $250 million in acquisitions, adding solutions like long-range cameras, Vehicle Location, and Critical Event Management Software.

Speaker Change: Year-to-date, we've spent a little over $700 million to reduce our diluted share count. Inclusive of the Silver Lake convertible note and share repurchases, and we've invested more than $250 million on acquisitions, adding solutions like long-range cameras.

Operator: We also expect to spend approximately $850 million on R&D this year focused on expanding our powerful safety and security offerings across the business, and we recently announced the opening of the R&D center in Cork, Ireland, which will focus on designing software for the company's comprehensive land mobile radio portfolio. These investments enhance our powerful ecosystem where video, radio, and software work together to improve situational awareness, automate response, and more efficiently manage evidence across the various devices and platforms used by security personnel.

Greg: Vehicle Location and Critical Event Management Software.

Greg: We also expect to spend approximately $850 million of R&D this year focused on expanding our powerful safety and security offerings across the business, and we recently announced the opening of the R&D center in Cork, Ireland, which will focus on designing software for the company's comprehensive land mobile radio portfolio.

Speaker Change: These investments enhance our powerful ecosystem where video, radio, and software work together to improve situational awareness, automate response, and more efficiently manage evidence across the various devices and platforms used by security personnel.

Operator: And finally, as we enter the second half of the year, I really like how we're positioned. Our solutions have never been more important for customers as they continue to prioritize safety and security. We're seeing increased adoption of our cloud offerings in video and command center, which drove record Q2 backlog in those respective technologies. And we've launched several new products, including Bestinext, our new cloud-based 9-1-1 call handling solution, and our MXP-660 Tetra radio, which is the Apex Next equivalent for the Tetra market, providing both LMR and LTE capabilities in the same device.

Greg: And finally, as we enter the second half of the year, I really like how we're positioned.

Greg: Our solutions have never been more important for customers as they continue to prioritize safety and security. We're seeing increased adoption of our cloud offerings in video and command center, which drove record Q2 backlog in those respective technologies. And we've launched several new products.

Greg: including Bestinext, our new cloud-based 911 call handling solution, and our MXP-660 TetraRadio.

Greg: which is the Apex Next equivalent for the Tetra market, providing both LMR and LTE capabilities in the same device.

Operator: All of this is driving continued demand and an orders pipeline that's now about a billion dollars higher than it was at this point last year, positioning us very well for growth going forward. And with that, I'll turn the call back over to Tim.

Greg: All of this is driving continued demand and an orders pipeline that's now about a billion dollars higher than it was at this point last year, positioning us very well for growth going forward. And with that, I'll turn the call back over to Tim.

Tim: Thank you, Greg. Before we begin taking questions, I'd like to remind callers to limit themselves to one question and one follow-up to accommodate.

Alyssa Shreves: The floor is now open for questions. If you have a question or comment, please press star five on your telephone keypad. If for any reason you would like to remove yourself from the queue, please press star five once again. We do ask that, while you pose your question, you pick up your handset to provide optimal sound quality. Thank you. The first question is from Tim Long from Barclays. Your line is now open.

Speaker Change: We do ask that while you pose your question, please pick up your handset to provide optimal sound quality. Thank you.

Speaker Change: The first question is from Tim Long from Barclays. Your line is now open.

Gregory Brown: Hi, this is Alyssa Shreves on for Tim Long. I just wanted to check in, given the outperformance we've been seeing in LMR, what inning are we in in the LMR refresh cycle? We've had two strong quarters on the back of strong quarters from the year prior. Just how should we kind of think about the business moving into 2-H? And then I had a quick follow-up.

Tim: Hi, this is actually Alyssa Shreves on for Tim Long.

Alyssa Shreves: I just wanted to check in.

Jason Winkler: Yeah, I think, look, we're really pleased with the device refresh and the newer portfolio that we continue to release globally. But I think, when I think of the Apex Next family of devices, it accounts, we think it'll account for less than a quarter of the public safety device shipments this year. So that dimensionalizes the kind of opportunity for that. And by the way, we also, as I mentioned in the remarks, have just announced its equivalent, the MXP660, for Tetra, which opens up Europe and the international market.

Speaker Change: Yeah, I think, look, we're really pleased with the device refresh and the newer portfolio that we continue to...

Speaker Change: to release globally. I think, when I think of the Apex Next family of devices, it accounts, we think it'll account for less than a quarter of the public safety device shipments this year.

Tim: So that dimensionalizes kind of the opportunity for that, and by the way, we also, as I mentioned in the remarks, also just announced its equivalent, the MXP-660.

Jason Winkler: And that's a brand new product, which takes the combination of LMR and LTE capabilities to one device. So I think that is a contributing factor. But the demand for LMR, both products, services, devices, and, writ large, the whole technology portfolio remains quite strong.

Tim: for Tetra, which opens up Europe and the international market, and that's a brand new product.

Tim: which takes the combination of LMR and LTE capabilities to one device. So I think that is a contributing factor, but the demand for LMR, both product

Tim: Services, Devices, and writ large, the whole technology portfolio remains quite strong.

Alyssa Shreves: And Alyssa, we mentioned during the call that our outlook for LMR as a whole, as a technology this year, has gone from mid to mid to high. That will include growth in both products for the year, as well as in software and services ex-home office. So, strong growth drivers across. And within the quarter and within the first half, with the supply chain improvements that we saw, products, and LMR products specifically, we were able to attain more supply, and lead times improved, which in part drove the performance for the first half in LMR products.

Tim: And Alyssa, we mentioned during the call that our outlook for LMR as a whole, as a technology this year, has gone from mid to mid to high. That'll include growth in both products for the year, as well as software and services ex-home office.

Tim: Strong Growth Drivers Across.

Tim: and within the quarter and within the first half with the supply chain improvements that we saw.

Tim: We were able to obtain more supply and lead times improved, which in part drove the performance for the first half in LMR products.

Jason Winkler: Thanks. And then just a quick follow-up on the video business: has there been any change in terms of what you've been seeing with customer cadence, with customers moving from on-premises to cloud?

Speaker Change: Q. Just a quick follow-up on the video business. Has there been any change in terms of what you've been seeing with customer cadence, with customers moving from on-prem to cloud?

Alyssa Shreves: So, we talked about a $40 million headwind, Melissa, this year, kind of incorporating the prem-to-cloud momentum that you just referenced. In Q2, our video software business grew 24%, but cloud and cloud adoption were exponentially higher than that. So, quite frankly, it's performing as expected, and cloud adoption remains very strong. Great, thank you so much.

Speaker Change: Thank you.

Speaker Change: So, we talked about a $40 million headwind, Alyssa, this year, kind of incorporating the prem-to-cloud momentum that you just referenced. In Q2, our video software business...

Speaker Change: Group 24%. Cloud and cloud adoption was exponentially higher than that, so quite frankly it's performing as expected and cloud adoption remains very strong.

Alyssa Shreves: Great, thank you so much.

Alyssa Shreves: Thank you.

Matt Niknam: The next call comes from the line of Matt Nikam at Deutsche Bank. Your line is now open.

Speaker Change: The next call comes from the line of Matt Nikam at Deutsche Bank. Your line is now open.

Unknown Speaker: Unknown Speaker Hey guys, thanks for taking the question. The first question is on M&A. Greg, I think you've been vocal about, I guess, perhaps an increasing number of opportunities, perhaps more willingness on the part of prospective sellers in the marketplace. We talked about the two deals you've recently done. I'm just curious if you can maybe give us a little bit more of an overview in terms of what you're seeing, the latest out there in the M&A front and potential opportunities.

Speaker Change: Unknown Attendee Perhaps an increasing number of opportunities, perhaps more willingness on the part of prospective sellers. In the marketplace, we talked about the two deals.

Matt Nickum: I'm just curious if you can maybe give us a little bit more of an overview in terms of what you're seeing, the latest out there in the M&A front, and potential opportunities.

Unknown Speaker: And then, secondarily, maybe a follow-up on cash flow. So the guide for this year is for about $2.25 billion. You've done, I believe, $562 million year to date. So can you just talk a little bit about the visibility and confidence in that second half ramp? And, in particular, how we should think about working capital in that context.

Speaker Change: And then secondarily, maybe a follow-up on cash flow. So the guide this year...

Gregory Brown: Thank you.

Jason Winkler: Well, just on the second one, first, we increased our operating cash flow expectations from $2.2 billion to $22.5 billion. I think that's a reflection of the confidence you're asking about in our ability to generate cash flow. Remember also the linearity of the way cash flow is generated by this business. Overwhelmingly, it's typically back capped, actually even more heavily weighted in Q4, and we expect the linearity of the cash flow generated and the yield associated with it to be reflective of that as well.

Gregory Brown: Actually, Greg, it's even better linearity this year with our first half. We're strongly ahead of where we were last year, and our inventory working capital has come down. But you're right, the back half is usually a significant cash flow contributor, and we're well on the path to the two and a quarter on the M&A.

Matt Niknam: On the M&A front, Matt, you know, we like the two acquisitions we made. We like the fact, and you know I think we're pretty good stewards of capital, and we always think about the deployment of capital along a framework of 55-25-15, 55% fungible between share repo and opportunistic M&A, 25% dividend, 15% capex. That's kind of a reference framework.

George Notter: I do think the M&A funnel, even at this point, for us, is quite active, and there are some interesting opportunities. Like anything, we'll see if they materialize, but I like the way the business is performing and the underlying demand drivers organically reflective of the portfolio we have. Equally, I am energized by the opportunity as it presents itself from an M&A funnel standpoint. But we'll see. We certainly have the balance sheet capacity, with net debt to net EBITDA of about one and a half and a recent upgrade to BBB a quarter ago. So I like the firepower we have, but we'll remain very disciplined and focused on how and where we deploy it.

Speaker Change: and a recent upgrade to BBB a quarter ago, so I like the firepower we have, but we'll remain very disciplined and focused on how and where we deploy it.

Gregory Brown: The next question comes from George Notter from Jeffreys. Your line is now open.

George Notter: Hi, thanks very much. I wanted to ask about the backlog. I guess I'm trying to better understand how we should think about backlog, Greg. There are puts and takes here. I think you said it was down sequentially but up year-on-year when we exclude the UK airwave situation. I think in the year-ago quarter, you had some big, chunky orders also. There may be some other puts and takes I'm missing as well, but can you kind walk me through how we should look at your backlog performance this quarter?

Speaker Change: I think in the year ago quarter you had some big chunky orders also, there may be some other puts and takes I'm missing as well, but can you kind of walk me through how we should look at your backlog performance this quarter?

Gregory Brown: Sure, so first of all, it's a good question George. Total backlog is up, as Jason referenced year over year when you exclude the home office. That's kind of one reference point. Product backlog, while it deteriorated in Q2, deteriorated because supply lead times improved really a lot faster than we thought, which informed the 19% print on LMR product growth in Q2. Having said that, the product backlog remains pretty healthy at like four billion, actually 4.3 billion off of a record comp the previous year.

Speaker Change: Product backlog, while it deteriorated in Q2, it deteriorated because supply lead times improved really a lot faster than we thought, which informed the 19% print on LMR product growth in Q2. Having said that...

Gregory Brown: And as a referenced pipeline, the orders pipeline at this point is about a billion higher than a year ago, which I think is quite informative as well. Having said all that, you put the ingredients all into the blender.

Speaker Change: The orders pipeline at this point is about a billion higher.

Speaker Change: than a year ago, which I think is quite...

Speaker Change: informative as well. Having said all that, you put ingredients all into the blender.

George Notter: We expect total backlog comparable to slightly up from a record last year. So, all in all, I feel pretty good about it. The linearity is a little lumpy and bumpy, given the accelerated supply lead times that improved dramatically in Q2. But overall, I feel pretty good.

Gregory Brown: George, you're right. Last Q2, we did have two significant product-related orders. The combination of Kern County, California, as well as a Ukraine order was almost $200 million in that quarter, two sizable, significant deals in last year's comp. Good point.

Speaker Change: As well as a Ukraine order, we're almost $200 million in that quarter, two sizable, significant deals in last year's comp. Good point.

George Notter: Got it. And then I assume, really, no impact from M&A or FX on backlogs.

Gregory Brown: FX was fairly de minimis.

George Notter: Got it. And then M&A, I assume also De Minimis.

Speaker Change: And then M&A, I assume, also De Minimis.

Speaker Change: Yeah, exactly.

Joseph Cardoso: The next question is from the line of Joseph Cardoso with J.P. Morgan. Your line is now open.

George: Thanks, George.

Joseph Cardoso: Hey, thanks for the question. I guess just the first one for me, you know, gross margins in the quarter tracked a lot better than what was anticipated. And if I look historically, you've been able to expand margins from 2Q levels to the year. But I guess if my math is right on the guide, it would imply a bit more of a muted cadence than what we've typically seen. Can you maybe just help understand what is driving that and whether there's anything under the hood in 2Q that we should be appreciating as an outlier?

Speaker Change: My math is right on the guide, it would imply a bit more of a muted cadence than what we've typically seen. Can you maybe just help understand what's driving that and whether there's anything under the hood in 2Q that we should be appreciating as an outlier? And then I have a follow-up.

Jason Winkler: And then I have a follow-up. Thanks.

Speaker Change: Sure. So within the first half at operating margin, I'll start there. We're pleased with our margin performance. We saw

Joseph Cardoso: Sure, so within the first half at operating margin, I'll start there. We're pleased with our margin performance. We saw good growth in supplier lead times improving pretty significantly during the quarter and really in the first half as well. And we talked about on the call that at operating margin, we'll see 100 bps of expansion for the year, that's up from 75. Within the mix, gross margins will remain comparable, and we'll continue to invest in OPEX, whereby now, for the year, with the acquisitions that we've announced, our OPEX envelope is expected to be about $130 million more than last year. So, good progress on operating margin expansion and healthy gross margins to help drive that.

Speaker Change: Good growth on supplier lead times improving pretty significantly during the quarter and really in the first half as well. And we talked about on the call that at operating margin we'll see 100 bps.

Speaker Change: of expansion on the year that's up from 75. Within the mix, gross margins will remain comparable and we'll continue to invest in OPEX.

George: Whereby now, for the year, with the acquisitions that we've announced, our OPEX envelope is expected to be about $130 million more than last year. So good progress on operating margin expansion and healthy gross margins to help drive that.

Gregory Brown: God, I appreciate the color there, Jason. And then maybe for my follow-up, and this is a bit of a big-picture one, but, you know, you talked about the LMR install base and specifically the opportunity to address more services opportunities there. I'm curious if you could parcel that out a bit more, and how big of an opportunity that could be for Motorola to better monetize that install base that you have. And how do you see that materializing over time? And maybe just lastly, and maybe this is a silly question, but, like, is this an area where you could potentially acquire? Or is that just far-fetched, given your position and other variables?

Speaker Change: Lastly, and maybe this is a silly question, but, like, is this an area where you could potentially acquire, or is that just far-fetched given your position and or other variables? Thanks for the question, guys.

Joseph Cardoso: Thanks for the question, guys.

Gregory Brown: So the big picture from a services standpoint, I think we've got growth opportunities in a number of different areas. Number one, cyber.

Speaker Change: Yeah, so a big picture from a services standpoint, I think...

Speaker Change: We've got growth opportunities in a number of different facets. Number one, cyber. Our networks, particularly the public safety P25 networks in the United States.

Gregory Brown: Our networks, particularly the public safety P25 networks in the United States, Canada, and certain countries abroad, we've got opportunities, and our customers have asked us to step up in that capacity. The second piece of it is just the scope, just general scope increases across the board globally. The third piece of it is that we manage various networks. We're in discussions right now with two different European countries and a network in South America that we manage for extension. And to every one of those, it's not apples for apples; it's usually apples plus something. So we're encouraged by the opportunities in front of us from a services standpoint.

Speaker Change: Canada and certain countries abroad, we've got opportunities and our customers have asked us to step up.

Gregory Brown: And then just on potential M&A in the services areas of LMR, is that an opportunity as well? Or is that kind of

Speaker Change: And then just on potential M&A in the services areas of LMR, is that an opportunity as well or is that kind of far-fetched?

Gregory Brown: I think it's relatively rare. The last one we did on the services side was Tetra Ireland. We always look for opportunities there, obviously that's of interest to us. That's our power alley and what we do well in provisioning and delivering and owning and operating LMR networks. There could be an opportunity or two but uh... we'll see uh... but I think they're more They're not typically Run Raider every year; they're every few years an opportunity.

Speaker Change: I think it's relatively rare.

Speaker Change: We always look for opportunities there, obviously, that's of interest.

George: That's our power alley and what we do well in provisioning and delivering and own and operating LMR networks. There could be an opportunity or two, but you know, we'll see. But I, they're more...

Speaker Change: They're not typically Run Raider every year, they're every few years an opportunity.

Gregory Brown: The only other thing I'd add is that on these managed service networks, we don't typically just look at those through the lens of LMR. Those actually provide us a platform to go and do things like body-worn cameras as a service within national police agencies as well, and fixed video contracts that we're looking to start to provide as a service as well. So there's a little bit of a flywheel effect when we get those service opportunities.

George: The only other thing I'd add...

George: is just on these managed service networks.

Speaker Change: Those, we don't typically just look at those through the lens of LMR. Those actually provide us a platform to go and do things like body worn as a service with the national police agencies as well. Sticks video contracts that we're looking to start to provide as a service as well. So there's a little bit of a flywheel effect when we get those service opportunities.

Adam Tindle: The next question is from the line of Adam Tindle with Raymond James. Your line is now open.

Gregory Brown: Okay, thanks. Good afternoon.

Speaker Change: Okay, thanks. Good afternoon. Greg, I just wanted to maybe touch on the product revenue growth trajectory from here. If I look at the guidance, obviously this has been a very, very strong segment for multiple years now. We're going to start getting into the mid to high single digits in Q4, if my math is right, trying to back into this.

Adam Tindle: Greg, I just wanted to maybe touch on the product revenue growth trajectory from here. If I look at the guidance, obviously, this has been a very, very strong segment for multiple years now. We're going to start getting into the mid to high single digits in Q4, if my math is right, trying to back into this. And I know that you'll give a greater look into 2025 on the next call, typically, but as I kind of try to map out the trajectory of product revenue growth, do you see a scenario where we're potentially going to have more of a soft landing, or do you think there could be a Negative Beyond.

Speaker Change: And I know that you'll give, you know, a greater look into 2025 on the next call, typically. But as I kind of, you know, try to map out the trajectory of product revenue growth.

Speaker Change: Do you see a scenario where we're, you know, potentially going to have more of a soft landing or do you think there could be a greater digestion where, you know, growth could end up turning negative beyond Q4?

Gregory Brown: Yeah, look, I would say this, and it's stepping back. The Demand. The Orders Pipeline, The Backlog. State and local funding, which is good and looks to be good again in 2025, the continued funding environment at the federal level. I mean, Adam, there are a lot of variables here, device refresh, systems, and services scope. Love the growth. As Jason referenced, we raised it for LMR from mid to mid to

Speaker Change: Yeah, look, I would say this, kind of stepping back, the demand...

Speaker Change: The Orders Pipeline, The Backlog.

Adam: State and local funding, which is good and looks to be good again in 2025, the continued funding environment at the federal level, I mean, Adam, there's a lot of variables here, device refresh, systems and services scope.

Adam: Love the growth. As Jason referenced, we raised it for LMR from mid to mid to high. That's informing the full year raise.

Gregory Brown: That's informing the full year raise to approximately 8%. And I see continued runway here. Now, you're right; we're obviously not going to talk about 2025. Q2 was particularly strong again because component supply drove improved lead times faster than we thought.

Adam: to approximately 8%.

Adam: And I see continued runway here. Now, you're right, we're obviously not going to talk.

Adam: about 2025. Q2 was particularly strong again because component supply

Adam Tindle: We still, Adam, expect continued product growth in the second half of the year. So look, I like the way the business is running, but not just for the quarter. I like the momentum we have for the balance of this year, and we'll see what happens next year. But I really like the position we're in, and we'll probably give you some color high level on the next quarter, as you referenced to inform 2025.

Adam: drove improved lead times faster than we thought. We still, Adam, expect continued products growth in the second half of the year.

Adam: So, look, I like the way the business is running, but not just for the quarter. I like the momentum we have for the balance of this year, and we'll see what happens next year. But I really like the position we're in.

Speaker Change: And we'll probably give you some color, high level, on the next quarter as you referenced to Inform 2025.

Adam Tindle: I think we might have Mahesh on the call in case he wants to weigh in, but I'd be curious, you know, what is driving the tipping point, you know, to really accelerate that adoption now? Also, how would you evaluate the competitive environment and Motorola's differentiation, And then lastly, sorry, this is a multi-parter, you know, how the financials are impacted in a cloud sale versus a non Are we in a situation where we might have, you know, some cannibalization or change to finance?

Speaker Change: Got it. That's helpful and fair. Maybe just as a follow-up on the increased adoption of cloud in video and command center, and I think we might have Mahesh on the call in case he wants to weigh in, but I'd be curious, you know, what is driving the tipping point, you know, to really inflect that adoption now?

Adam: Also, how you would evaluate the competitive environment and Motorola's differentiation in the cloud portion versus the non-cloud portion.

Mahesh Saptharishi: Sure, Adam. To begin with, I think one of the reasons why Avigilon has historically been strong is that we offer an end-to-end solution, which is video plus access control, tightly integrated. And that end-to-end solution, in many ways, gets amplified with a cloud story. It's one where the installation, the configuration, and the ability to deploy with the least amount of hardware bits on site become that much more attractive. So we see that as one of the reasons why, starting with our smaller customers but now very quickly going into much larger installations as well, we see a preference and a drift towards the cloud.

Speaker Change: Sure, Adam. To begin with, I think...

Speaker Change: One of the reasons why Avigilon has historically been strong is because we offer an end-to-end solution.

Speaker Change: which is video plus access control, tightly integrated. And that end-to-end solution, in many ways, gets amplified with a cloud story. It's one where the installation, the configuration...

Mahesh Saptharishi: And then on top of that, there are also capabilities, AI services, and additional capabilities that we're able to deliver via the cloud to augment what we already do at the edge. And that's also a motivator here as well. I'd say that's, in many ways, one of the things that's driving cloud growth, which, as Greg already said, while video software itself is growing at 24%, cloud software, very specifically, is actually growing even faster.

Speaker Change: And then on top of that, there are also capabilities, AI services, and additional capabilities that we're able to deliver via the cloud to augment what we already do at the edge, and that's also a motivator here as well. So that's...

Speaker Change: I think that's, in many ways, one of the things that's driving the cloud growth, which, as Greg already said, while software, video software itself is growing at 24%, cloud software, very specifically, is actually growing even faster.

Gregory Brown: Yeah, and I think that the growth rate, the strong cloud adoption of what we call Vigilante Alta, which is the cloud version of Vigil on Unity being prem, is a reflection of the success of the OpenPath acquisition and of Ava and the successful integration for combined video and access control under the cloud with Mahesh's leadership and Alex Kazrani. So part of the other, quote unquote, to quote you, inflection point of our continued growth is the successful, not only acquisitions, but the integration, the yield, and the benefits associated with our cloud platform. I think the team's doing quite well.

Greg: Yeah, and I think that the growth rate, the strong cloud adoption of what we call a Vigilon Alta, which is the cloud version of Vigilon Unity being prem, is a reflection of the success of Vigilon Unity.

Greg: for combined video and access control under the cloud with Mahesh's leadership and Alex Kazrani.

Jack: The only thing I'd add, Adam, is our cloud connector is a differentiator with our customers. It enables our customers to keep their cameras and move their move to cloud VMS. It's a great point. It's not a closed system. And I think that's a big value proposition differentiator between us and our cloud competition. You're right, Jack. That's exactly right.

Speaker Change: The only other thing I'd add, Adam, is our cloud connector is the differentiator with our customers. It enables our customers to keep their cameras.

Jack: That's exactly right. Like many of our competitors in this space, our direct-to-cloud cameras are actually standards compliant, and they don't get locked out if that access isn't available.

Adam Tindle: Adam, the second question: part of your question had to go with the financial model. It actually was the third question, but go ahead.

Speaker Change: [inaudible]

Speaker Change: Adam, the second part of your question had to go with the financial model. It's actually the third question, but go ahead. Both on-prem and cloud for us are solid business models. They're value propositions to customers.

Jason Winkler: Both on-prem and cloud, for us, are solid business models. They're value propositions to customers. Of course, we've planned for the $40 million impact of the cloud acceleration. That's on track. And both have a good margin structure. And, as you know, cloud comes with a stickiness with the term license that, upon renewal, leads to even greater renewal. So we're pleased with both models.

Speaker Change: Of course, we've planned for the $40 million impact of the cloud acceleration that's on track.

Speaker Change: And both have a good margin structure, and as you know, cloud comes with a stickiness with the term license that upon renewal leads to even greater renewal. So we're pleased with both models.

Gregory Brown: Greg, you know I always get my money's worth. Appreciate it. Absolutely, Adam. Fire away. No problem.

Speaker Change: Greg, you know I always get my money's worth. Appreciate it. Absolutely, Adam. Fire away. No problem.

Ben Bollin: The next question is from the line of Ben Bollin with Cleveland Research. Your line is now open.

Speaker Change: The next question is from the line of Ben Bollin with Cleveland Research. Your line is now open.

Jason Winkler: Good evening, everyone. Thanks for taking the questions. Jason, I wanted to go back to the product gross margin. If you exclude mix from the discussion, where would you say you are on the progress with respect to reducing the BOM, supply chain efforts, any logistics optimization? What have you seen? What are your thoughts on where you're at and what might be left there?

Speaker Change: Jason, I wanted to go back to the product gross margin. If you exclude...

Ben Bollin: mix from the discussion. Where would you say you are on the progress with respect to reducing the bomb, supply chain efforts, any logistics optimization? What have you seen? What are your thoughts on where you're at and what might be left there?

Jason Winkler: Yeah, so we mentioned that supply continues to improve and did so in Q2. If I think about the financial benefits that we're planning for and are showing up, we talked about the year's guide when we opened in February about having about a $60 million improvement in costs relative to semiconductors and PPV. We're actually, on a year-by-year basis, probably trending closer to $70 million.

Jason Winkler: And by the way, that benefit is in both the first half and the second half. So we're seeing the benefit of prices as well as premiums coming down. In terms of product or mix, we continue to see favorable mix. We see volume growth complemented by mix. Both are helpful in terms of the growth drivers you've seen.

Ben Bollin: That's great. In the last one for me, Greg or Jack, could you remind us of the overall mix of, within backlog, what you see from commercial and public safety and how you would just remind us of the integrity of those orders versus maybe a more traditionally enterprise-focused order? Thanks.

Gregory Brown: Yeah, the backlog composition is not almost 95% government direct. Why that's important is our direct sales force that has a clean line of sight to that backlog, and it's not the channel. And given the funding of vehicles and procurements

Speaker Change: Yeah, the backlog composition is almost 95% government direct. Why that's important is our direct sales force, it's a clean line of sight to that backlog and it's not on the channel.

Gregory Brown: And given the funding of vehicles and procurements within the government, governments order according to their prioritization, and they issue a PO to a company like us directly. They don't subsequently order from someone else. And we are fulfilling that backlog, and our backlog, as Jack mentioned, 95% plus comes from our public safety direct customers.

Amit Daryanani: The next question is from the line of Amit Daryanani from Evercore. Your line is now open. Hi, this is actually

Speaker Change: Thanks, everyone.

Speaker Change: The next question is from the line of Amit Daryanani from Evercore. Your line is now open.

Irvin Liu: Hi, this is actually Irvin Liu on behalf of AMI, and thank you for the question. I wanted to double-click on the international business. I think the overall growth in Q2 was mid-single digits, and that was a deceleration versus a quarter ago, and this is all excluding any sort of U.K. home office impact. Any sense on how the overall macro and or demand backdrop for international compares versus North America? And in the longer term, should we expect the international mix to expand as a percentage of total?

Speaker Change: Hi, this is actually Irvin Liu on for AMI, and thank you for the question.

Irvin Liu: I wanted to double click on the international business, I think, you know, overall growth.

Jason Winkler: I think we think international is a great opportunity. I mean, if you think about it, it's up single digits in Q2 outside of the home office. There are really three things.

Speaker Change: I think we think international is a great opportunity. I mean, if you think about it, it's up single digits in Q2 outside of the home office.

Jason Winkler: We've got, within Europe, a very large managed and support service business there. We've just announced a new device, as Greg alluded to earlier, the MXP660, which not only elongates our customers' investment in that managed support service but brings another opportunity from a device standpoint. Australia continues to be a market that we perform quite well. But the other piece, there are two other elements.

Speaker Change: There's really three things. We've got, within Europe , a very large managed and support service business there. We've just announced a new device, as Greg alluded to early, being the MXP660, which not only elongates our customers' investment in that managed support service, but brings another opportunity from a device standpoint.

Speaker Change: Australia continues to be a market that we perform quite well.

Jason Winkler: Within our video business, we've talked about it before, but mobile video, we compete exceedingly well. Mahesh's team has recently brought out a new device to market, another VB device. We talked about Scotland.

Speaker Change: But the other piece, there's two other elements within our video business.

Speaker Change: We've talked about it before, but mobile video, we compete exceedingly well. Mahesh's team has recently brought out a new device to market, another VB device. We talked about Scotland. We've got great opportunities both within the government space.

Jason Winkler: We've got great opportunities both within the government space but also in the enterprise space outside of the United States. So international continues to be a great market. We've got great leadership there, and I think we all collectively feel really good about opportunities for growth.

Speaker Change: but also in the enterprise space outside of the United States. So international continues to be a great market. We've got great leadership there. I think we all collectively feel really good about our opportunities for growth.

Irvin Liu: And I know Amit and the UN team know this, but just to remind everybody, our international revenues, almost 75% of them come from EMEA, Australia, and New Zealand. That's our strength, that's where we build networks, that's where we have flywheels of growth, and those are great markets for us, for Jack and his team.

Speaker Change: And I know Amit and UN team know this, but just to remind everybody, our international revenues, almost 75% of them come from EMEA, Australia, and New Zealand. That's our strength, that's where we build networks.

Speaker Change: That's where we have flywheels of growth and those are great markets for us, for Jack and his team.

Gregory Brown: Got it. And maybe as a follow-up, I also wanted to just get an update on the UK Home Office. I'm not sure if there's anything new to report versus a quarter ago, but can you just walk us through a range of potential outcomes? There's actually one new.

Speaker Change: Got it and maybe as a follow-up I also wanted to just get an update on the UK Home Office. I'm not sure if there's anything new to report versus a quarter ago but can you just walk us through a range of potential outcomes?

Gregory Brown: There's actually one new point from a quarter ago, and that is just a good question to level the playing field. You know the dispute. It's been ongoing. It's been several years.

Speaker Change: There's actually one new point from a quarter ago and that is just a good question to level set, you know the dispute, it's been ongoing, it's been several years.

Gregory Brown: We believe the CMA ruling was unfounded. We think it's disproportionate. We think it's unprecedented. You've heard us talk about that. We appealed that. We lost, so we appealed to the Competition Appeals Tribunal. And we lost.

Speaker Change: We believe the CMA ruling was unfounded, we think it's disproportionate, we think it's unprecedented. You've heard us talk about that. We appealed that.

Gregory Brown: So the only last option as it relates to this dispute and the imposition of the charge control was the UK Court of Appeal, which is their highest court in the UK. And the noteworthy item is that they decided to hear the case. So that's a new development. That hearing is November 11th and 12th. It's impossible to predict what that is. But that is something that's new from when we talked about this a quarter ago.

Speaker Change: We lost. So we appealed to the Competition Appeals Tribunal, and we lost. So the only last option as it relates to this dispute...

Speaker Change: on the imposition of the charge control was the UK Court of Appeal which is their highest court in the UK and the noteworthy item is they decided to hear the case.

Speaker Change: So that's a new development. That hearing is November 11th and 12th.

Speaker Change: Impossible to predict.

Gregory Brown: I just want to remind you that as it relates to Q2, the rest of this year, the full year of this year, we are operating under kind of draconian, disproportionately excessive discounts. So that's, We're raising the full year, inclusive, of that worst-case charge control for this year. What happens in the future, I don't know. I am pleased that the UK Court of Appeal will give this the appropriate audience and review, and we'll see where it goes from there. The next question is from the line of Rodney McFaul with North Coast Research.

Speaker Change: what that is.

Speaker Change: But that is something that's new from when we talked about this a quarter ago. I just want to remind you that as it relates for Q2, the rest of this year, the full year of this year, we are operating under kind of the draconian, disproportionately excessive discount.

Speaker Change: So that's...

Speaker Change: We're raising the full year inclusive.

Rodney McFaul: The next question is from the line of Rodney McFaul with North Coast Research. Your line is now open. Hey, everyone, and thanks for taking my question.

Speaker Change: The next question is from the line of Rodney McFaul with North Coast Research. Your line is now open.

Unknown Speaker: Unknown Speaker Hey everyone, and thanks for taking my question. So I was wondering if you could provide some color on the customer transition to more premium versions of

Rodney McFaul: Apex Next Radios

Speaker Change: Have they been receptive? And then just any color in terms of the premium on price compared to legacy versions of the product. Thanks.

Jack: I guess from an experience standpoint, we've gotten very positive reviews. We've had multiple large-scale police departments that have made the transition to Apex Next and the Apex Next family. The first thing is we contemplate, one of the things we always think about when we develop a product is ease of use. I think we nailed that.

Speaker Change: I guess from an experience standpoint, we've gotten...

Speaker Change: We've gotten very positive reviews. We've had multiple large-scale police departments that have made the transition to Apex Next and the Apex Next family. The first thing is we contemplate one of the things we always think about when we develop product disease abuse. I think we nailed that.

Jack: You know, the LTE capabilities enable them to get radios programmed and refleeted, you know, I don't want to say instantaneously, but something that took them weeks and months can now be done in a day. Which is a positive thing. It also gives them the capability to extend the network's coverage. And what we've seen is a phenomenon is that we've got a lot of customers that have mixed fleets. And it enables those transitions to happen as well.

Speaker Change: You know, the the LTE capabilities enable them to get radios programmed and refleeted. You know, I don't want to say instantaneously, but with something that took them weeks and months can now be done in a day, which is a positive thing. It also gives them the capability to extend the network coverage.

Speaker Change: And what we've seen as a phenomenon is we've got a lot of customers that have mixed fleets.

Jack: Last but not least, we talk about our command center business, but the Apex Next and its ability to put through higher bandwidth workflows is also very complementary to our command central suite, or command center suite, rather. So, you know, we think we've heard really positive things. As Greg and Jason articulated, about 25% of those devices that will ship this year are Apex Next. So we are in a multi-year phenomenon as it relates to the upgrade.

Speaker Change: and it enables those transitions to happen as well. Last but not least, we talked about our command center business, but the APEX Next...

Speaker Change: and its ability to put through higher bandwidth workflows is also very complimentary to our command central.

Speaker Change: We've heard really positive things, as Greg and Jason articulated, about 25% of those devices that will ship this year are APEX Next, so we are in a multi-year phenomenon as it relates to the upgrade.

Speaker Change: Got it. Thank you.

Louis Dipla: Our next question is from the line of Louis Dipla from William Blair. Your line is now open. Thanks.

Speaker Change: Our next question is from the line of Louis Dipla from William Blair. Your line is now open.

Louis Dipla: Thanks, and Greg, Jason, Jack, Mahesh, and Tim, good afternoon. How are you doing, Louie? Great.

Louis Dipla: Thanks, and Greg, Jason, Jack, Mahesh, and Tim, good afternoon.

Gregory Brown: I'm following up on several questions regarding the LMR product strength. Should we expect the year over year growth rate for the LMR product line to be volatile, or is this mid teens level durable and going deeper? Are customers upgrading their radios on the normal? 6 to 7 year upgrade cycle, or are the features for APX and APX Next so compelling that many customers are upgrading early to get the LTE and the programmable devices, which may be driving an acceleration?

Speaker Change: How you doing, Louie?

Louis Dipla: Great. I'm following up on the several questions regarding the LMR product strength.

Louis Dipla: Should we expect the year-over-year growth rate for the LMR product line to be volatile?

Speaker Change: This mid-teens level durable and and going deeper

Speaker Change: Are Customers Upgrading?

Louie: Their radios on the normal.

Speaker Change: 6 to 7 year upgrade cycle or are the features for APX and APX Next so compelling?

Speaker Change: That many customers are upgrading early to get the LTE and the programmable devices, which may be driving an acceleration.

Gregory Brown: So a couple of things just Louis to ground you on the 15% kind of pop the clutch on LMR product growth in Q2 was a reflection of lead times, component supply lead times that improved quicker than we thought. So that's why the exceptionally strong 15% print in Q2.

Louie: So a couple of things, just Louis to ground you, the 15% kind of pop the clutch LMR product growth in Q2 was a reflection.

Gregory Brown: of lead times, component supply lead times that improved quicker than we thought. So that's why the exceptionally strong 15% print in Q2.

Gregory Brown: Secondly, for the annual year-over-year growth rate, we're saying it's mid to high single digits for LMR. Up from mid, I think that that improvement is in part because of continued strong traction with devices. I do think you're right. I think, on average, it's about an eight-year plus or minus device renewal or refresh.

Gregory Brown: Secondly, for the annual year-over-year growth rate, we're saying it's mid to high.

Gregory Brown: single digits for LMR. Up from mid, I think that that improvement is in part because of continued strong traction with devices. I do think you're right. I think on average, it's about an eight year plus or minus.

Gregory Brown: device renewal or refresh. I think that's still in the zip code, as it relates to a North America refresh. But, you know, I'll give you an anecdote. I was at a large city

Gregory Brown: I think that's still in the zip code as it relates to a North America refresh. But, you know, I'll give you an anecdote. I was in a large city.

Gregory Brown: Last week, I met with a senior commander and spent some time with him, and he had his Apex Next, I had no idea he would have that. He had his Apex Next device on his desk when we were talking. I said, "What do you think of that?". And I know this sounds anecdotal and self-promotional, but it's just it's really not.

Louie: Last week.

Gregory Brown: with a senior commander and spent some time with him. And he had his Apex Next. I had no idea he would have that. He had his Apex Next device.

Gregory Brown: On his desk, when we were talking, I said, what do you think of that?

Gregory Brown: He talked about what Jack represents. The over-the-air reprogramming, having a control channel that you can hear everything about it, the video display capability, LTE along with LMR, the adoption rate and the acceptance, and the feature functionality that that device brings, which allows us to price, for Value, it has been really, really good. And we're just getting started in the European and international market with the brand new MXP 660, so think of that as the Apex Next equivalent for Europe and beyond.

Speaker Change: And I know this sounds anecdotal and a self-promotion, it's just, it's really not. He talked about what Jack referenced.

Gregory Brown: The Over-The-Air Reprogramming, having a control channel that you can hear everything about it.

Speaker Change: The video display capability, the LTE along with LMR, the adoption rate and the acceptance, and the feature functionality that that device brings, which allows us to price.

Gregory Brown: for value.

Louie: has been really, really good. And we're just getting started in the European and international market with the brand new MXP 660, which think of that as the Apex Next equivalent.

Gregory Brown: So I think, look, I love the position we're in. We have thousands of installed networks. We're monetizing the services, as Jack talked about, with an expanding scope. We're upselling things like cyber security, and it's a really good situation, and I think that I like the hand we have.

Gregory Brown: for Europe and beyond. So I think look, I love the position we're in.

Gregory Brown: We have thousands of installed networks. We're monetizing the services as Jack talked about with expanding scope

Gregory Brown: We're upselling things like cybersecurity, and it's a really good situation, and I think that I like the hand we have.

Gregory Brown: Great. And in the past, Greg and Jason, you've provided cumulative APX Next orders. Have you guys passed the $1 billion mark in terms of your cumulative APX Next orders?

Gregory Brown: Great, and in the past, Greg and Jason, you've provided cumulative APX Next orders. Have you guys passed the $1 billion mark in terms of your cumulative APX Next orders?

Gregory Brown: Let's talk about orders. We used to refer to cumulative orders.

Gregory Brown: I think the more important metric that we've shared is that this year, our APEX devices Total Revenues, but less than a quarter of those will come from the Apex Next family. So Jack and his team are still selling a very good Apex radio. Our customers expect it. They don't like forced migrations. They want graceful migrations, and Jack's point about mixed fleets illustrates that. So we have a long way ahead of us, and in the almost $2 billion of devices that we'll make for public safety, less than 25% of them are going to come this year from Apex Next.

Gregory Brown: Talking about orders, we used to reference cumulative orders. I think the more important metric that we've shared is that this year our APEX devices

Total Revenues

Gregory Brown: Less than a quarter of those will come from the Apex Next family.

Gregory Brown: So, Jack and team are still selling a very good Apex radio. Our customers expect it.

Jack: They don't like forced migrations. They want graceful migrations, and Jack's point about mixed fleets evidence is that.

Gregory Brown: So, we have a long way ahead of us, and in the almost $2 billion of devices that we'll do for public safety, less than 25% of them are going to come this year from ApexNext.

Meta Marshall: The next question is from the line of Meta Marshall with Morgan Stanley. Your line is now open.

Meta Marshall: The next question is from the line of Meta Marshall with Morgan Stanley . Your line is now open.

Mahesh Saptharishi: Great. Maybe as a first question, you know, just in terms of a lot of the acquisitions you've done over the past year, where are you in terms of the integration of those acquisitions? Are you kind of integrating those teams in order to kind of get better leverage across the platform or across the customer base?

Mahesh Saptharishi: Great, maybe as a first question, you know, just in terms of a lot of the acquisitions you've done over the past

Speaker Change: You know, where are you in terms of integration?

Mahesh Saptharishi: of those acquisitions or you kind of integration of those teams in order to kind of get better leverage across the platform or across the customer.

Mahesh Saptharishi: Yeah, I'll let Mahesh since the acquisitions are primarily in video and command center, maybe you could speak to the integration progress. Sure. And maybe

Speaker Change: Maybe that's the first question. Thanks.

Mahesh Saptharishi: Yeah, I'll let Mahesh, since the acquisitions are primarily in video and command center, maybe you could speak to the integration progress. Sure. And maybe just to start out where, Greg, you left off with Alta, so Alta was our brand for OpenPath and Ava, which is effectively...

Mahesh Saptharishi: Sure, and maybe just to start out where Greg left off with Alta. So Alta is our brand for OpenPath and Ava, which is effectively our cloud-based access control solution and our cloud-based video management solution, both being critical to our portfolio. Both, under Alex Khazrani, were brought together as Alta, and now we are able to integrate the capabilities of both access control and video in, I think, fairly unique and powerful ways, ones that our customers are really appreciating and that are evidenced by the uptake in the market.

Mahesh Saptharishi: Our cloud-based access control solution and our cloud-based video management.

Mahesh Saptharishi: solution both being

Mahesh Saptharishi: critical to our portfolio.

Mahesh Saptharishi: both under Alex Kazrani were brought together as Alta.

Mahesh Saptharishi: And now, we are able to integrate the capabilities of both access control and video in, I think, in fairly unique and powerful ways, ones that our customers are really appreciating and evidenced by the uptake in the market.

Mahesh Saptharishi: Beyond that, Rave is one of those critical elements that's a glue between public safety and enterprise security, and it integrates not just with 911 and CAD solutions but also with our enterprise security solutions, effectively video, both Alta and Unity. I think that plays a fairly significant role, and we're seeing the impact of that ecosystem going forward as well. Pelco, we rationalized our video management platforms into one, with the on-premise solution being the Unity video management solution, and our camera platforms across all our brands really operate on basically a shared infrastructure with the best of many things that each brand brought to the table, integrated, and offered across the board.

Mahesh Saptharishi: Beyond that, RAVE would be the other big piece here, and RAVE is one of those critical elements that's a glue between public safety and enterprise security, and RAVE integrated not just with

Mahesh Saptharishi: 9-1-1 and CAD solutions, but also integrated with our enterprise security solutions, effectively video.

Mahesh Saptharishi: both Alta and Unity. I think that plays a fairly significant role and we're seeing that impact of that ecosystem.

Mahesh Saptharishi: going forward as well.

Mahesh Saptharishi: PELCO, we rationalized our video management platforms into one, with the on-prem solution being the Unity video management solution. And our camera platforms across all our brands really operate on basically a shared infrastructure with the best of...

Mahesh Saptharishi: Many things that each brand brought into the table, integrated and offered across the board. So I think that's...

Mahesh Saptharishi: So I think that speaks to some of the key integration examples. Silent Sentinel is well on its way right now, and as Noggin comes into play here, which has incident management, which is a key piece of the puzzle for us, Noggin will complement both our fixed video portfolio, but it will also complement Rave quite nicely as well.

Mahesh Saptharishi: That speaks to some of the key integration examples. Silent Sentinel is well on its way right now. And as Noggin comes into play here, which has incident management, which is a key piece.

Mahesh Saptharishi: of the Puzzle for Us Noggin will complement both our fixed video portfolio, but it will also complement Rave quite nicely as well.

Gregory Brown: I think just the only thing I'd add to that, Meta, the only thing I'd add is what I think about this company and look back over the last several years. I do think that M&A and successful acquisitions, financially from an accretion standpoint, and a strategic impact standpoint, and our ability to integrate and retain talent. Mahesh's Exhibit A, Alex Ghazrani, the CEO of OpenPath, and Todd Pyatt, the CEO of Rave, not just retaining them, but having them in contributive senior executive roles that can facilitate and drive integration in addition to the competencies within Core Motorola. I'm really pleased. I think it's going quite well.

Gregory Brown: I think just the only thing I'd add to that, Meta, the only thing I'd add is when I think about this company and look back over the last several years...

Gregory Brown: I do think that M&A and successful acquisition...

Gregory Brown: Financially, from an accretion standpoint, and a strategic impact standpoint, and our ability to integrate.

Gregory Brown: and Retain Talent, Mahesh's Exhibit A.

Gregory Brown: Alex Ghazrani, the CEO of OpenPath, Todd Pyatt, the CEO of Rave, not just retaining them, but having them in contributory senior executive roles.

Gregory Brown: that can facilitate and drive integration in addition to the competencies within core Motorola. I'm really pleased. I think it's going quite well.

Meta Marshall: Great, maybe piggybacking on that answer, you know, just how are you guys thinking about capital allocation, given that M&A has been such a successful part of the strategy?

Speaker Change: Great, maybe piggybacking on that answer, you know, just how are you guys thinking about capital allocation, just given that M&A has been such a successful part of the strategy?

Gregory Brown: Well, we got off to a fast start in the first half of this year, with effectively a little over 700 million in share repurchases and the conversion on the Silver Lake settlement, which is great. Nick, the Silver Lake settlement, memory tells me, was like 318 and 314 a share. We did 71 million share repurchases in Q2 at 348 and change.

Gregory Brown: Well, we got off to a fast start in the first half of this year.

Gregory Brown: with effectively a little over 700 million in share repurchase.

Gregory Brown: and the Convert on the Silver Lake Settlement, which is great. Nick, the Silver Lake Settlement, memory tells me, was like 318...

Gregory Brown: So I always liked the way we deploy capital, I think pretty thoughtfully and opportunistically against the discounted share, the discounted cash flow, and the value of the company going forward. And, you know, we've now done 40 acquisitions, plus or minus over the last nine or 10 years; we just completed two that we referenced in Q2. And to your point, Meta, the M&A funnel is attractive. So we will be opportunistic along with deploying that 2.25 billion of operating cash flow 55% share repo or acquisitions fungible between the two with a 25% dividend and 15% capex. So, we're well on our way and...

Gregory Brown: And, you know, we've now done 40 acquisitions, plus or minus, over the last...

Gregory Brown: nine or ten years. We just completed two that we referenced in Q2. And to your point, Meta, the M&A funnel is attractive. So we will be opportunistic along deploying that 2.25

Gregory Brown: I like, and by the way, I like deploying capital internally on R&D too. So $850 million of R&D is giving us the widest and broadest product portfolio through three technologies: land, mobile, radio, video, and command center, which is in turn powering a unique competitive differentiating safety and security ecosystem. So when I think about the deployment of capital organically, I like the returns. When I think about returning it to the shareholder and the value we've created and the float that we've contracted, I like that. And when I look at the opportunities ahead, potentially for acquisition, I'm optimistic about some opportunities that may present themselves.

Gregory Brown: So, we're well on our way, and...

Gregory Brown: And by the way, I like deploying the capital internally in R&D, too.

Gregory Brown: Giving us the widest and broadest product portfolio through three technologies with land mobile radio, video, and command center.

Gregory Brown: competitive differentiating safety and security ecosystem. So when I think about the deployment of capital organically, I like the returns. When I think about returning it to the shareholder and the value we've created.

Gregory Brown: And the float that we've contracted, I like that. And when I look at the opportunities ahead potentially for acquisition, I'm optimistic about some opportunities that may present themselves.

Meta Marshall: Great, thanks so much. Thanks, Meta.

Operator: Once again, if you have a question, you may press star 5 on your telephone keypad. The next question is from the line of Tomer Zilberman of Bank of America. Your line is now open.

Tomer Zilberman: Thanks, Meta.

Speaker Change: The next question is from the line of Tomer Zilberman of Bank of America. Your line is now open.

Tomer Zilberman: Hey guys, I wanted to touch on some questions that were asked earlier, but maybe ask them a little bit differently. In the video security portfolio, specifically the product portion, you've been growing that roughly mid-single digits over the last few quarters. Are you comfortable with that growth going forward, or do you expect that to re-accelerate to hit your overall 12% growth for that segment?

Tomer Zilberman: Hey guys, I wanted to touch on some questions that were asked earlier, but maybe ask them a little bit differently.

Tomer Zilberman: In the video security portfolio, specifically the product portion, you've been growing that roughly mid-single digits over the last few quarters. Are you comfortable with that growth going forward, or do you expect that to re-accelerate to hit your overall 12% growth for that segment?

Gregory Brown: Well, when I look back at, to your point, the previous few quarters, we're in the zip code of product video performance. So, I like that consistency.

Gregory Brown: Well, when I look back at the, you know, to your point, the previous few quarters, we're in the zip code of product video performance.

Gregory Brown: The most important thing is really talking about market share, and we gained market share last year in video security and access control as categories. We expect to gain market share again this year. The fact that the growth rate is much higher in the cloud, as we signaled earlier, is great, And the product video performance quarter to quarter, I think, is fine in that zip code and against the backdrop of overall market growth. So, you know, I like where we are and I like the continued execution. Also, keep in mind

Gregory Brown: So, I like that consistency. The most important is really talking about market share. And we gained market share last year in video security and access control as a category. We expect to gain market share again this year.

Gregory Brown: The fact that the growth rate is much higher in cloud, as we signaled earlier, I think is great. And the product video performance quarter to quarter, I think is fine in the zip code and against the backdrop of the overall market growth.

Gregory Brown: Also, keep in mind this is an end-to-end systems or solutions business, and customers buy the entirety of the portfolio from us, products, software, and services. And some of the areas we've made investments in are in software. So whether it's cloud, whether it's analytics, services, and or mobile video, those are some of the investments we've made. And so to see software growing faster than products is commensurate.

Gregory Brown: So, you know, I like where we are and I like the continued execution.

Gregory Brown: Also, keep in mind this is an end-to-end systems or solutions business and customers buy the entirety of the portfolio from us, products, software, services.

Gregory Brown: And some of the areas we've made investments are in software. So whether it's cloud, whether it's analytics, services, and mobile video, those are some of the investments we've made. And so to see software growing faster than products is commensurate with that.

Tomer Zilberman: Got it. And maybe as a follow-up moving to your implied 4Q guidance. So the implied EPS came in a few cents short of Shreed expectations. Just curious as to your thoughts on the margin setup as we go into the second half of the year, especially for Q. Thank you.

Tomer Zilberman: And maybe as a follow-up, moving to your implied 4Q guidance, so the implied EPS came in a few cents short of SHRED expectation, just curious as to your thoughts on the margin set up as we go into the second half of the year, especially 4Q. Thank you.

Jason Winkler: Yeah, so, with the raise on the year and the higher volumes offset by a few dilutive cents from the acquisitions we've made, the raise is the performance of Q2 as well as the acquisitions reflecting the 8% total growth.

Jason Winkler: Yeah, so, you know, with the raise on the year and the higher volumes offset by a few dilutive cents from the acquisitions we've made,

Jason Winkler: The raise is the performance of Q2 as well as the acquisitions reflecting the 8% total growth.

Gregory Brown: Yeah, I mean, we passed through the beat in Q2. And obviously, that informs the full-year raise pretty nicely, but also, there's M&A is slightly dilutive of a couple of cents as well, but we like the position we're in.

Gregory Brown: Yeah I mean we passed through the beat in Q2 and obviously that informs the full-year raise pretty nicely but also there's M&A is slightly dilutive of a couple of cents as well but like the position we're in.

Gregory Brown: 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.

Gregory Brown: Yeah, I just want to say thank you to everybody listening on the call. Obviously, thank you to everybody joining the call, but also, thank you to all the Motorola Solutions people and our channel partners and our distributors worldwide. I appreciate everything you've done for an exceptional quarter.

Gregory Brown: Yeah, I just want to say thank you for everybody listening on the call. Obviously, thank you for everybody joining the call, but also thanks.

Gregory Brown: For all the Motorola Solutions people and our channel partners and our distributors worldwide Appreciate everything you've done for an exceptional quarter and probably more important than the quarter is the momentum

Gregory Brown: And probably more important than the quarter is the momentum that this quarter informs for the back half of the year and how we'd like to finish the year strong. I think I think our solving for safer narrative continues to resonate and gain traction, and I think that's representative of the results.

Gregory Brown: that this quarter informs for the back half of the year and how we'd like to finish the year strong. I think our solving for safer narrative continues to resonate and gain traction. I think that's representative in the results.

Gregory Brown: The customer prioritization for putting an emphasis and a priority on safety and security is self-evident, and as I mentioned, the order pipeline is up pretty significantly from a period ago. At this point last year, I mentioned about a billion dollars. Finally, I think, as I've been asked about capital allocation, I like the strength of our balance sheet. I like the fact that our operating cash flow is expected to grow double digits again for the second year in a row.

Gregory Brown: the customer prioritization

Gregory Brown: for putting an emphasis and a priority on safety and security I think is self-evident and as I mentioned the orders pipeline is up pretty significantly from a period ago at this point last year reference about a billion dollars so

Gregory Brown: And finally, I think, you know, as I've been asked about capital allocation, I like the strength of our balance sheet. I like the fact that our operating cash flow is expected to grow double digits again for the second year in a row. And look, I think the performance of the business

Gregory Brown: And look, I think the performance of the business. The Organic Investment, the acquisitions, and the firepower of the balance sheet, look, I think it provides us with good flexibility to continue to execute and drive shareholder value going forward. And I appreciate everybody for what you're doing and how you're helping onward and upward. And I appreciate everything you've done.

Gregory Brown: The Organic Investment.

Gregory Brown: The acquisitions and the firepower of the balance sheet.

Gregory Brown: Look, I think it provides us good flexibility to continue to execute and drive shareholder value going forward. And I appreciate...

Operator: This concludes today's teleconference. A replay of this call will be available over the internet within three hours. The website address is www.MotorolaSolutions.com forward slash.

Operator: This does conclude today's teleconference. A replay of this call will be available over the Internet within three hours.