Q3 2024 Motorola Solutions Inc Earnings Call
during this conference call, in the risk factor section of our 2023 annual report on Form 10-K, or any quarterly report on Form 10-Q, and in our other reports and filings with the SEC. Not undertake any duty to update any forward-looking statements. And with that, I'll turn it over to Greg.
Greg: Thanks Tim and good afternoon and thanks for joining us today. I'm going to share a few thoughts before Jason takes you through our results and outlook. First, Q3 was another outstanding quarter with record Q3 revenue and earnings per share that exceeded our guidance.
Jason: Revenue was up 9% in the quarter, highlighted by 11% growth in products and SI, and 7% growth in software and services inclusive of the UK home office revenue reduction.
Jason: We also expanded operating margins year-over-year for the ninth consecutive quarter, increased earnings per share by 17%, and generated record Q3 operating cash flow of over $750 million.
Jason: Second, demand for our solutions remains robust as we achieved record Q3 orders in all three of our technologies. In LMR, we continue to see customers investing for the long term, with many choosing us to provide software upgrades and value-added services on their networks.
Jason: via multi-year agreements, as well as upgrading their devices to our latest Apex Next family of radios.
Jason: and in our video and command center technologies, the powerful integration of our software applications across our ecosystem.
is driving strong demand and contributing to record-ending backlog.
and software and services. And finally.
Jason: Based on our Q3 results and the strong momentum we see across the business, we're again raising our estimates for revenue, earnings per share, and cash flow for the full year. And with that, I'll turn the call over to Jason.
Jason: Thank you, Greg. Revenue for the quarter grew 9% and was above our guidance with growth in both segments, both regions, and all three technologies.
Jason: Acquisitions added $36 million during the quarter, while FX headwinds were $4 million. Gap operating earnings were $711 million, or 25.5% of sales, up from 25% in the year-ago quarter.
Jason: Non-GAAP operating earnings were $830 million, up 12% from the year-ago quarter. A non-GAAP operating margin was 29.7%, up 70 basis points, driven by higher sales, favorable mix, and lower direct material costs.
Jason: Partially offset by the airwave charge control, higher expenses related to investments in video and higher employee incentives.
Jason: Gap earnings per share was $3.29, up from $2.70 in the year-ago quarter.
Non-GAAP EPS was $3.74, up 17% from $3.19 last year.
Jason: The growth in EPS was driven by higher sales, favorable mix, and a lower effective tax rate. OPEX in Q3 was $617 million, up $66 million versus last year, primarily due to continued investments in video and higher employee incentives.
Jason: Turning to our cash flow, Q3 operating cash flow was $759 million, up $45 million versus last year, and free cash flow was $702 million, up $53 million. The increase in year-over-year cash flow was primarily driven by higher earnings.
Jason: For the full year, we are again raising our operating cash flow guide. We now expect full year operating cash flow of approximately $2.3 billion, up from our previous guide of $2.25 billion.
Jason: Capital allocation in Q3 included $164 million in cash dividends, $31 million in share repurchases, and $57 million in CapEx.
Jason: Additionally, we closed and funded two acquisitions that we announced on our previous earnings call for $223 million.
Jason: Settled $313 million of 4% senior notes that were due within the quarter And subsequent to quarter end, we acquired 3TC, an international provider of command center software solutions for $22 million
Jason: Moving to our segment results, in the products and SI segment, sales were up 11% versus last year, driven primarily by growth in LMR. Revenue from acquisitions in the quarter was $11 million, while FX headwinds were $1 million.
Jason: Operating earnings were $522 million or 29.3% of sales, up from 26.1% in the prior year, driven by higher sales, favorable mix, and lower direct material costs.
Jason: Some notable Q3 wins and achievements in this segment include an $88 million P25 system and device order for a customer in North Africa.
Jason: A $31 million P-25 system for a U.S. state and local customer. A $31 million P-25 system for a county in Wisconsin. A $25 million P-25 system expansion order for Tennessee's statewide network.
Jason: A $23 million P25 device order for a U.S. federal customer and a $4 million fixed video order for a U.S. federal customer.
Jason: In software and services, revenue was up 7% compared to last year. And when excluding the UK Home Office, revenue grew 13%, with growth in all three technologies. Revenue from acquisitions was $25 million in the quarter, and FX headwinds were $3 million.
Jason: Operating earnings in this segment were 308 million or 30.6 percent of sales down from 34 percent last year due to the impact of the airway charge control.
Jason: Some notable Q3 highlights in the segment of S&S include a $30 million command center order for the state of Utah,
Jason: An $18 million mobile video order for Sao Paulo's state government in Brazil.
Jason: and a $24 million command center order from Maricopa County Sheriff's Office, which is a significant win, highlighting the demand for our new recurring license model. The solution purchased included our CAD and records platform as well as numerous cloud-connected capabilities, including the RAVE Suite.
Jason: We also were awarded three large LMR contract renewals during the quarter. $191 million from the U.S. Navy, over $100 million for South Carolina Statewide Network, and $84 million for the Federal Law Enforcement Agency.
Jason: Less than $30 million of these $375 million of contracts is in our Q3 ending backlog, with the remainder to be recorded radibly over the term of the contracts.
Jason: Looking at regional results next, North America Q3 revenue was $2 billion, up 13% on growth in all three technologies.
Jason: International Q3 revenue was 783 million, up 1% versus last year, driven by growth in all three technologies, offset by the UK Home Office revenue reduction. Excluding the UK Home Office, our international revenue grew high single digits.
Jason: Moving to our backlog. Ending backlog for Q3 was $14.1 billion, down 178 million or 1% versus last year due to strong LMR shipments and revenue recognition for the UK Home Office, partially offset by multi-year software and service agreements and favorable FX.
Jason: Sequentially, backlog was up $135 million, or 1%, driven by strong growth in multi-year service and software contracts in North America and favorable FX, partially offset by strong LMR shipments and revenue recognition for the UK Home Office.
Jason: In the products and SI segment, backlog decreased 712 million versus last year and 151 million sequentially driven by strong LMR shipments.
Jason: In software and services backlog increased $534 million compared to last year, and $286 million sequentially, driven by strong demand for multi-year software and services contracts, favorable FX, partially offset by revenue recognition for the UK Home Office.
Turning next to our Outlook.
Jason: For the full year, we now expect revenue growth of 8.25%, up from our prior guidance of approximately 8%, and we expect non-GAAP earnings per share between $13.63 and $13.68 per share, up from our prior guidance of $13.22 per share to $13.30 per share.
Jason: This full-year outlook assumes a weighted average diluted share count of approximately 171 million shares and an effective tax rate of approximately 22.5 percent.
Jason: Additionally, we now expect full-year OPEX of approximately $2.4 billion, driven by higher employee incentives aligned to our performance, increased legal spend inclusive of the CMA appeal process, and acquisitions.
Speaker Change: And finally, before turning the call back to Greg, I would like to share a couple insights on our segments.
Speaker Change: The strong demand we're seeing for our technologies and our performance is reflected in both of our segments. In products and SI, the improved supply chain environment has helped us expand margins while normalizing supplier lead times have enabled us to improve our customer delivery times.
Speaker Change: And in S&S, we've grown double digits year-to-date, excluding the impact of the UK Home Office, which began in August of last year.
Speaker Change: In LMR, our customers continue to choose us as a trusted partner to invest in their networks through long-term, multi-year agreements. And in video and command center, cloud solutions continue to grow at a faster pace than on-prem. And the investments we've made in the portfolio position us
Well, for this to continue.
Speaker Change: Finally, our strong cash generation liquidity profile, together with a net debt to EBITDA ratio of 1.4, gives us significant flexibility in our capital allocation strategy. And I'll turn the call back over to Greg.
Thanks, Jason. Let me end with a few thoughts.
Greg: First, I'm really pleased with how we continue to execute. During the quarter, we generated strong revenue growth in both segments, expanded operating margins by 70 basis points,
Greg: grew EPS by 17%, generated over $750 million of operating cash flow, and we achieved record Q3 orders in all three technologies.
Greg: Second, as customers continue to invest in leading edge technologies, our solutions integrating voice, video, and data across public safety and enterprise workflows are becoming increasingly more important to them.
Greg: Adoption of our command center and video applications that leverage cloud and AI continues to accelerate, which in turn is driving higher recurring revenue in those respective technologies.
Greg: And in LMR, we're also seeing strong adoption for the broadband-enabled applications.
Greg: on our Apex Next family of radios. Many of these new applications were on display last month at the annual IACP conference in Boston, and the customer feedback from the event has been overwhelmingly positive.
Greg: And finally, as we look to close out another record year, I feel really good about the business and our opportunities for continued growth.
The prioritization of safety and security remains robust.
Greg: We're continuing to add value for our customers through new offerings. Our end markets remain resilient.
Greg: and our strong balance sheet with the lowest net debt to EBITDA ratio in almost a decade.
Speaker Change: positions us well for organic and inorganic investments to drive long-term shareholder value. I'll now turn the call back over to Tim.
Speaker Change: Craig, 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, could you please remind callers on the line how to ask a question?
Thank you.
Speaker Change: 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, please pick up your handset to provide optimal sound quality. Thank you.
Speaker Change: The first question is from Ben Bolin with Cleveland Research. Your line is unmuted. Please ask your question.
Good afternoon, everyone. Thanks for taking the question.
Greg, if I recall, I think in prior years...
Speaker Change: At the end of 3Q, you've given some thoughts into subsequent to forward year You shared some thoughts big picture on funding and you know growth overall Curious if you have any more granularity about how you're thinking about 25 as we're going into it
Speaker Change: and any individual perspectives within LMR Surveillance Command Center within that and then have a follow-up.
Speaker Change: Ben, thanks for the question. You're right. I think, look, as we sit here in November, I think the color I would give you looking forward to next year is revenue growth of, I'd say, five to six percent.
Speaker Change: as we sit here today. That's a prudent view, but that's our that's our current thinking.
Speaker Change: I think that as it relates to this year, you know, supply chain lead times normalized faster, which is a good thing.
which drove a strong 2024.
Speaker Change: Demand remains strong. As I mentioned just now in comments with both Jason and I, I'm particularly pleased, really pleased.
Speaker Change: that we had record Q3 orders in all three technologies. And as we think about, you know, kind of exiting this year into next year, we now expect total backlog to be up versus a quarter ago when we said comparable to slightly up.
Speaker Change: And while we won't dimensionalize the individual technologies and we'll give you more color in February, I would expect, obviously we expect revenue growth in both S&S and products. High level, I see software and services growing about 2x.
Products in SI.
for 2025.
Speaker Change: But I like the overall backlog position, which we now expect to be up.
Love the record, orders physician, exiting Q3. And if anything...
Speaker Change: I feel better today than I was a quarter ago, obviously both about the full year 24 and the momentum heading into next year.
and we'll give you the details in February.
Speaker Change: and Greg, I'd add that we expect operating margin expansion as well within S&S.
Speaker Change: Next year, in 2025, we'll have the financial comparability of this year having had the airwave price control relative to next year, so the S&S segment will have a clean comp.
Speaker Change: and we'll continue to do what it's done, which is grow and grow operating leverage. And then secondly, even within products, while this year in 24 we had a $70 million benefit for lower semiconductor or PPV relief,
Speaker Change: We'll have about $20 million and the tail end of it into next year, which should also help operating margins as well. That's right. So Ben, high level, 5% to 6% next year, sitting here in November, software and services growing about 2x product, and as Jason just appropriately added.
Speaker Change: We expect continued operating margin expansion and expected cash flow growth with a much smaller PPV contribution in 2025. Thanks for the question.
Speaker Change: That's great. One follow-up for me would be, where are your thoughts, where we stand today on the mix of recurring revenue and how you feel about that going forward. That's it for me. Thank you.
Speaker Change: Yeah, as you know, we talk about software and services as kind of a proxy for recurring revenue. That's kind of why I mentioned our thinking about 2025 with the UK Home Office financially from a comp standpoint.
Speaker Change: pretty much being normalized through the comparable previous periods, we now expect S&S.
to grow about 2x product.
Speaker Change: We also see continued adoption on cloud, particularly around video, and we also see more cloud adoption on command center. We think both those trends are favorable, so recurring revenue is healthy.
Speaker Change: and then re-occurring revenue around device refresh and multi-year services is strong as well. And the backlog that supports the recurring nature of that business within S&S is at record levels and continues to grow. Exactly.
Thanks, guys. Have a great night.
Thank you, Ben.
Speaker Change: Our next question comes from Adam Tindall with Raymond James. Please unmute. Your line is unmuted. Please ask your question.
Adam Tindall: Okay, thanks. Good afternoon, Greg. I just wanted to ask now that we're post-election, I think there's been some confusion from investors on rhetoric regarding potentially reducing public sector spending and the potential impact to MSI. You know, I'm just recalling the last Trump regime was actually fairly helpful to state and local and your core customer base, but it might be a good opportunity to clear the air here. I'm sure you reviewed potential impacts from a variety of outcomes, just expected results and impact on your business from the election, understanding it'll be a dynamic situation, and I have a follow-up.
Yeah, first I think that
Speaker Change: State and local budgets remain very healthy and strong, as Jack could opine on if he wants to jump in. As I talked about, the end-user markets are strong, 70% North America.
Speaker Change: From a Trump administration, I think it's positive that thematically he has been consistent in prioritizing public safety and looking to mitigate crime in large cities.
and also stem the tide of
Speaker Change: an open border on immigration, which would require probably headcount and technology deployment to help on both those fronts.
Speaker Change: The administration's referred to tariffs, high level. I remind you that, you know, we're pretty unique as it relates to China specifically.
Speaker Change: We have de minimis revenue exposure to China, less than 1%, and minimal exposure to them from an end market perspective. And with the Trump administration, we like the fact that there looks like there's certainty now of continuity of corporate tax.
Speaker Change: rate continuity and continuation, which allows a predictable environment, which is always good, I think, from a capital allocation standpoint.
Speaker Change: and the last thing I'd say is thematically I think it'll be a more favorable M&A environment.
Speaker Change: versus the current administration. So all ingredients into the mix with this administration coupled with the continuity of robust state and local budgets, I think it's positive.
Speaker Change: The only thing I'd add just on that, Adam, is, as you know, state and local...
Speaker Change: but have essentially been funded and it's been a tailwind in terms of inflation. Income tax...
Speaker Change: has been benefited. We've seen income tax coffers drive up, property taxes have gone up, and that's been beneficial to state and local government. And then sales tax, revenues are up, which means budgets are up. So
Speaker Change: The revenues are a good order as Greg articulated the prioritization on our spending is in good order And I think as we said the last administration We had good years and between 2016 and 2020 as well
Thanks, Adam.
Speaker Change: Our next question will come from Joseph Cardoso with JP Morgan. Your line is open. Please ask your question.
Joseph Cardoso: Hi, good afternoon, or good evening, gents. Just apologies, I've been jumping on a couple calls this evening, but maybe just one question for me. And maybe you already had this asked, but curious if you could flesh out any color if it was already asked.
Joseph Cardoso: Can you just provide an update on where you're expecting the backlog to exit this year from last quarter I think you said to slightly up and maybe more specifically curious if you could flush out any color on contribution from product and services.
Joseph Cardoso: and maybe more specifically on the product side, how you're thinking about the drivers from a portfolio perspective there, just even the easing of the supply chain you're seeing and the drawdown in the backlog you're seeing today. Thanks for the question guys.
Speaker Change: Thanks for the question. So yeah, on the last call, we indicated that by year's end this year, we would have expected backlog, total backlog to be comparable to slightly up. As we update you on this call with the strong Q3 orders we had with records in all three technologies, we now expect that the total backlog for the company ending this year
Speaker Change: will be up, and it will be up from last year's record levels.
Thank you.
Speaker Change: The indicators around backlog continue to be strong, supported by the sales funnel and the work that the team's doing in a strong demand environment.
Speaker Change: In terms of its composition, it's largely consistent with what it's been.
Speaker Change: And backlog is an important part of how we plan for any one given year.
Speaker Change: I mentioned earlier, S&S is at record levels and continues to grow. And product backlog remains healthy at over 4 billion as well. So we're on track to end the year up from last year.
Thanks, appreciate the color guys. Thanks, Joseph.
Thank you. Thank you.
Speaker Change: Our next question will come from Tim Long with Barclays. Your line is open. Please ask your question.
Hi, this is Alyssa Shreveson for Tim Long.
Speaker Change: I had just two quick questions. Gross margins were, I think, a record for this quarter. How should we kind of think about gross margins now, moving forward, kind of giving supply chain normalization? You have the apex next product cycle. Is there kind of anything we should be aware of in terms of Q4 and kind of moving into next year? And then I have a follow-up.
Speaker Change: Alyssa, I would point you to the fact that the PPV 70 million of relief is largely behind us.
Speaker Change: in Q3 ending, and next year I mentioned on the color that it's pretty small. It's around 20 million. The margin profile...
Speaker Change: But for those items, it continues to be positive in terms of a mixed variable. And with the advent of some of our newer Apex Next devices, and we're
Speaker Change: early stage on the conversion to those, we would expect continued opportunities for favorable mix. And then complimented by the OPEX update that we gave.
Speaker Change: Thinking about operating margins continuing to grow. We will have a bit higher OPEX this year. The biggest driver of that is our incentive structure is aligned to our now higher performance.
Speaker Change: So that's helpful. And then just a quick follow-up. You know, you noticed some nice federal wins in products in SI this quarter. Can you kind of dimensionalize how large is the federal business now? Thank you so much.
Speaker Change: Last year it was around 900 million. It's growing this year and I'll remind everybody that the 900 million is distributed across two components.
Speaker Change: DOD, and then of course, DHS, law enforcement, civil and the likes. But Jack, if you wanna talk, you had a strong close to the federal business in Q3. That's in part what drove our.
Speaker Change: Q3 overperformance? Yeah, we did. I think a strong close, highlighted by a couple of the services orders, but also a strong device refresh. We continue to get uptake from Apex to Apex Next.
Speaker Change: customers. The other thing we're really excited about is we begin shipping the D-series which gives us a number
Speaker Change: another another refresh cycle from an infrastructure standpoint as well, so
Speaker Change: opportunities there, as well as the federal, U.S. federal government has been a growth engine for us from a video security standpoint.
Speaker Change: very good quarter. The last thing I'd leave you with is that the way the schedule is aligned is we got off to a good start to Q4 with the federal government in terms of new orders as well. And the other nice thing Alyssa is I think Jill Balshoon who works for Malloy has done a great job.
Speaker Change: As Jason mentioned, we expect it to be over 900 million.
Speaker Change: in revenue this year. The other nice thing, and I'll call it out to what we just talked about earlier, there's two orders comprised in federal for the U.S. Navy and U.S. law enforcement that are about $275 million.
of which less than
20 to 30 million are even recorded in backlog.
Speaker Change: based on the way we record backlog and kind of amortize it over a period of time that's reflected more of the way the projects are funded. So in addition to the strength in federal, over $900 million, the strong close, the strong order activity, I think it's even better in that some of these recent large orders
Speaker Change: You know, 90% of them are not reflected in backlog, given the way we record it.
That's helpful. Thank you so much.
Go to Beadaholique.com for all of your beading supply needs!
Speaker Change: Our next question will come from George Notter with Jeffreys. Your line is open. Please ask your question.
Speaker Change: Hey guys, it's Brendan on for George. Thanks for taking my question. Wanted some color around the video business for next year. You guys decided the $40 million headwind for 2024. Any idea if that's going to grow for next year? As customers continue to shift to the cloud?
of our portfolio, both fixed and mobile.
prem, on-prem, and cloud. We did talk about.
Customer Acceleration Toward Cloud and Capitalizing.
Speaker Change: on what we have there. But that's really all the detail we'd give you at this point in terms of 2025. Having said that, we're on track and expect to meet the full year guidance we gave on video for this year, for 2024, which is another good thing.
Speaker Change: Awesome. And then just one more for me. Last quarter, you guys talked about 25% of shipments coming from Apex Next. Is that still the right way to think about it? Or is this continued mixed shift? Is there any upside there from the last couple quarters of strength? Thanks.
Speaker Change: You're right, last quarter we did talk about how our devices business, it was about 25% of it was coming a little less from Apex Next.
Speaker Change: That's largely still the case in Q3, and as we look forward, with only 25% of the devices we're shipping today of that variety, there's a long opportunity ahead of us.
for continuing to deliver those devices to customers.
Speaker Change: And I think that's just Jason hit it. I think that just speaks that this is a multi-year horizon of an opportunity for us That's really what the 25% you'll continue to see opportunities. We just reviewed it with the team as we look through 20 You know 25 26 we'll start to see a continued shift in momentum into apex next
Speaker Change: Yeah, internationally, we launched the MXP-660. Think of that as the the Tetra Apex Next, if you will. And we'll start to see a pickup in that. We're already seeing orders, but we'll see a pickup in that in 2025.
Thank you.
Speaker Change: Our next question comes from Amit Daryaniani from Evercore. Your line is open. Please ask your question.
Amit Daryanani: Thanks a lot. Good afternoon, everyone. I have two as well. You just posted up on the video product line item. I think your product revenues in video were down like 3% year-over-year. Can you just talk about what drove the decline? Because one of your peers I think reported recently and their number was, they reported up double digits in that segment. So I'm just trying to reconcile the difference. Is it
Amit Daryanani: Mostly just regions or markets and maybe just talk about what drove the decline in the video side. Thank you
Speaker Change: Yes, I think the question was specific to video products. I want to first of all highlight the fact that our expectations for the full year
for the Video Security Remain Unchanged.
Speaker Change: A lot of other folks. Thank you so much. Thanks. Thank you. Thanks, everybody. Thanks for joining us. Take care. Bye. Bye. Bye. Bye. Bye. Bye. Bye. Bye. Bye. Bye. Bye. Bye. Bye. Bye. Bye. Bye. Bye. Bye. Bye. Bye. Bye. Bye.
Speaker Change: Part of that, part of the dynamic here is higher software attachment rate, and think about that, our H6A, which is our AI-related camera, the ACC8, we're seeing more software attachment as well as with Pelco, the Elevate, the cloud analytics platform there. This is, I think, just a little bit of a trend that we're seeing reflective of the momentum to the cloud.
Speaker Change: The last thing I'd highlight is within video security, there's also a mobile security reported in our numbers. And last year, we had a 24% growth in terms of mobile video products, which presented, from a product standpoint, a little bit of a lumpy comp that we were measured against.
So, I admit, Jack's right, higher software content.
Speaker Change: you know, the 24% component, previous base comp, and then, as we said, aggressive adoption of cloud, I think Mahesh, we view favorably.
That's right. And on the.
Speaker Change: mobile video aspect that Jack highlighted. Sixty percent of our customers today are as a service and that's a big part of this as well.
Speaker Change: Perfect, that's really helpful. And then, you know, Greg, when you were talking about just
Speaker Change: you know, things post-election, you sort of talked about a more favorable M&A environment, I think, in your answer. I'd love to understand, as you think about 25 and maybe even beyond that,
Speaker Change: This capital allocation for you changed fundamentally under a different administration versus what you've had before, and how do you start to think about M&A going forward versus what you've done in the past? I'm clearly wondering, like, are there larger deals that you were perhaps hesitant to do because you thought you couldn't get them through the finish line that you might be more open to doing now? Let me just understand how this cap allocation, M&A appetite changed under a different administration. Thank you.
Speaker Change: It's a good question. I was describing more the M&A environment from a macro standpoint. I don't think it changes per se for us.
Speaker Change: Even though we've only done a couple of deals, I will tell you, we and I have been as engaged on M&A this year as ever before. The funnel is robust.
Speaker Change: The opportunities are numerable, and as you know, the Capital Allocation Framework, 55, 25, 15, 55% of operating cash flow is always available in a normalized way to either do share repo,
Speaker Change: or inorganic acquisition. We've been in a number of conversations and I think the environment's healthy. My commentary around the Trump administration was more around the leadership in the FTC and the overall climate. I don't think it changes.
Speaker Change: Much for us this year versus next year in the sense that I think the M&A environment is attractive
Speaker Change: The reasons we haven't gotten some things done, I think are because we wanna not just do the right thing, but do it the right way. Make sure we are getting something that can generate long-term value, has cultural compatibility, we can deliver on the synergies, we minimize technical debt.
Speaker Change: We can integrate it into the architecture. It's flexible around cloud adoption. We can retain talent. We can add talent. But, you know, we've invested over $6 billion of inorganic acquisition.
Speaker Change: over the last nine years, and as I mentioned, I think the opportunities are significant and I'm optimistic about that. And coupled with what Jason mentioned,
Speaker Change: Right, our balance sheet also is in as good a shape as it's been in a long time With net debt to EBITDA and the ratio being as good as it's been in about 10 years So I think the dry powder
Speaker Change: The opportunities, the engagements are very good. I think the environment's good for us today and I think it will be as good, maybe incrementally more favorable tomorrow.
Thank you very much.
Thank you.
Speaker Change: Our next question comes from Rodney McFall with North Coast Research. Your line is open, please ask your question.
Speaker Change: Hey guys, thanks for taking my question. Just a quick one on the recent acquisition of 3TC. I don't believe this is your first UK Control Room software acquisition. So just curious, what does this provide for you and how does this work with your prior acquisitions? Thanks.
Speaker Change: Rodney, the control room solutions that we sell in the U.S.
That's growing for us.
Speaker Change: 3TC is part of that. There are two components to it. One's called integrated call control systems and the other part is CAD and CAD is what
Speaker Change: 3TC provides. And we have actually been selling 3TC as an integrated part of our control room solutions for a while. And this acquisition just enables us to bring that in-house, improve our margins, and also give us the right platform for growth going forward.
Speaker Change: Got it. Thanks. Thanks for that. I guess just a quick follow up. I'm just curious on command center adoption in the US. What's the what's the penetrate penetration right there.
Speaker Change: And what is the barrier to growing that business faster? And maybe just some color on how that business is going internationally. Thanks.
Speaker Change: So, this, we are now number one both in CAD and records in North America.
Speaker Change: Cloud is starting to catch on. Maricopa County Sheriff's Office deal that Jason mentioned is I think a key part of what we're seeing both in terms of
Speaker Change: More customers preferring a recurring revenue model, a subscription model, and adding on.
Speaker Change: SAS solutions on top of it. Overall, over 60% of our customers today have at least one cloud-attached component, and that's continuing to grow. And we expect to see a full 9% growth this year for Command Center.
Got you. Thanks. Thanks for taking my questions.
Speaker Change: So just to add on market share, I mean the market's growing less than that. I think the command center outlook for the year is 10%. Q3 was 9%. But we're taking those numbers, we're taking shares. The market's not growing at those rates. So positive with the cloud investments.
Speaker Change: Our next question comes from Tomer Zilberman from Bank of America. Your line is open, please ask your question.
Tomer Zilberman: Hey guys, thank you for the questions. Maybe going back to some of the earlier backlog questions that were asked, when you think about the, and maybe I'm getting ahead of myself here, but when you think about the 25 guide for 5 to 6% growth
Tomer Zilberman: And how does that impact your thoughts around the LMR growth rate? Do you think that we still sustain that mid-to-high single-digit growth rate going into next year?
The End
Speaker Change: So, we do expect LMR to grow, to mature, to dimensionalize.
Speaker Change: We talked about total backlog. We now expect it to grow up year over year. That's a good thing.
Product backlog remains healthy.
Speaker Change: even sequentially it's still north of four billion. I think the record orders in all three technologies, although in this case in the context
of your question LMR, record orders is another favorable indication.
Speaker Change: So, too early to give you that dimensionalization, but I feel good about the momentum of the business, the segment momentum of the business, and the technology momentum of the business.
Speaker Change: and maybe that gives you a little bit more granularity. It may not fully scratch the itch, but that's the best I can give you, but we'll update you in February.
Speaker Change: Sure, no worries. And maybe asking another question, shifting gears a bit.
Speaker Change: You've talked before about getting more aggressive on a subscription sales and if I'm not mistaken I think you've informed your sales force.
Speaker Change: to try and sell everything now as a subscription. Just wanted to talk about how that's going, any changes in the go-to-market that you're making to enable that. I believe you put the Rave CEO as head of subscription sales. So just any commentary you can give on trends you see there.
Tomer Zilberman: Yeah, just to clarify, Tomer, we're not pushing quote-unquote everything as a subscription.
Tomer Zilberman: What I would tell you, if you think about SaaS or cloud...
Tomer Zilberman: I mean, we talked about video, and Avigilon Alta growing exponentially faster than Prem Video. We like that trend.
Tomer Zilberman: We talked about command center just a few minutes ago Which we've always offered as a hybrid solution, which I think is really good because it allows customers to evolve at their pace
Tomer Zilberman: And we see, and Mahesh just talked about, increased adoption around command center cloud.
Tomer Zilberman: Things, yes, like rave, but also things like call handling. And we also talked about even though apex next family of devices shift is less than 25%.
Tomer Zilberman: I love the fact that a lot of those Apex Next family shipments
Tomer Zilberman: come with the broadband adoption of applications. We love that. A, it's recurring revenue. B, it's sticky. And C, it provides connective tissue with those critical applications in the Apex NEC device.
Tomer Zilberman: that communicate and interoperate with the command center and the integrated workflow applications that Mahesh is building. So we didn't wave a wand and said.
Force everything fast. We meet our customers where they are
Tomer Zilberman: Video recurring and cloud is growing fast, a number faster as a multiple than prem. Love the adoption of Command Center, love the Apex Next application broadband apps uptick and adoption rate. We think those trends are favorable.
Got it. Thank you so much.
Thanks, Thelma.
Speaker Change: Once again, if you have a question, you may press star five on your telephone keypad.
Speaker Change: Our next question comes from Metta Marshall with Morgan Stanley. Your line is now open. Please ask your question.
Great, thanks.
Speaker Change: You guys noted strong traction with the MXP-660 earlier in the call, kind of ramping in 2025, but just any way to kind of contextualize that versus some of the ramps we've seen.
Speaker Change: throughout the Apex Next portfolio. And then just as a second question, any kind of change to how you guys are viewing kind of resolution?
of kind of the U.K. Home Office airwave-type situations. Thanks.
Yeah, Meta, in terms of the MXP-660...
Speaker Change: I think the horse just left the starting gate and is kind of coming through the first turn a little bit.
So, a little too early to kind of...
Speaker Change: extrapolate or give you any kind of predictive traction. We love the fact
Speaker Change: that it's an available option in European markets now that capitalizes on broadband, both for LMR and 4G integrated into one device that gives you enhanced location, broadband applications, over-the-air software reprogramming and roaming on an LMR, Tetra, and or 4G network. So we love all the available features that that brings, but it's still early.
Speaker Change: In terms of the UK, there's a hearing next Monday, Tuesday.
Speaker Change: in the UK on our multi-year challenge to the CMA and the cap ruling.
Speaker Change: Really nothing to report. The hearing will take place Monday, Tuesday.
Speaker Change: After that, they'll reach some decision. My expectation is a decision either by the end of the year or early 2025 that would give us a little more color that in turn we would, of course.
Speaker Change: share with you transparently, but it's the long winding road of challenging what we think is an unlawful action that was taken on a contract, a binding multi-year agreement that we had with the UK Home Office. So stay tuned.
Great, thanks.
Thanks, Mehta.
Speaker Change: Our next question comes from Bryce Sandberg with William Blair. Your line is open. Please ask your question.
Hey everyone, good afternoon and thanks for the question.
Speaker Change: Another one on M&A, as you look out at the market, are there any particular product or market areas that you're focusing on or that look particularly attractive or is it kind of broad-based across the portfolio?
I think it's primarily around video software and services.
Speaker Change: You know that that we focus on from a product standpoint or a more less product more category I think it's a it's an active funnel. We've had engagements with multiple companies of varying sizes
Speaker Change: but those are kind of the lanes that we continue to pursue and our conversations are around video software services.
Great, thank you.
Thanks, folks.
Speaker Change: 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.
Greg Brown: Yeah, thanks. I just, first of all, want to thank all the...
Greg Brown: the employees of Motorola Systems, particularly our sales and support teams.
Greg Brown: for driving record Q3 orders. The other thing I would be remiss in not recognizing, especially this past quarter after severe hurricanes of Helene and Milton that were devastating, I'm proud of our people, I'm proud of our channel partners that worked tirelessly and around the clock.
Greg Brown: to ensure that our systems were up and available as they always are in these devastating natural disasters. I appreciate all of their hard work.
And then lastly, I would just say I'm encouraged.
Greg Brown: As we are sitting here in November, with what the rest of the year holds, and the momentum I see into next year, are vibrant and market.
Greg Brown: We expect the year to close with total backlog up off of record levels.
Greg Brown: and I'm encouraged by the continued high demand and the active engagements around the globe. I appreciate all the Motorola employees, channel partners and everybody that does their part in having to spend a great quarter and us continuing our momentum. I really appreciate it.
Speaker Change: This video is a derivative work of the Touhou Project. Any resemblance to anyone, living or dead, is coincidental and unintentional. Thank you for watching.
Speaker Change: A B C D E F G A B C D E F G A B C D E F G A B C D E F G A
Do Do Do