This conference call transcript was computer generated and almost certianly contains errors. This transcript is provided for information purposes only.EarningsCall, LLC makes no representation about the accuracy of the aforementioned transcript, and you are cautioned not to place undue reliance on the information provided by the transcript.
spk09: Good afternoon, and welcome to the Motorola Solutions Third Quarter 2019 Earnings Conference Call. All participants will be in listen-only mode. Should you need assistance, please signal a conference specialist by pressing the star key followed by zero. After today's presentation, there will be an opportunity to ask questions. To ask a question, you may press star, then one on your telephone keypad. To withdraw your question, please press star, then two. Please note, this event is being recorded. I would now like to turn the conference over to Tim Yocham, Vice President of Investor Relations. Please go ahead.
spk01: Good afternoon. Welcome to our 2019 Third Quarter Earnings Call. With me today are Greg Brown, Chairman and CEO, Gino Bonanotte, Executive Vice President and CFO, Jack Malloy, Executive Vice President of Products and Sales, and Kelly Mark, Executive Vice President Services and Software. Greg and Gino will review our results along with commentary, and Jack and Kelly will join for Q&A. We've posted an earnings presentation and news release at motorolosolutions.com slash investor. These materials include gap to non-gap reconciliations for your reference. And during the call, we reference non-gap financial results, including those in our outlook unless otherwise noted. A number of forward-looking statements will be made during this presentation and during the Q&A portion of the call. These statements are based on current expectations and assumptions that are subject to a variety of risks and uncertainties. Actual results could differ materially from these forward-looking statements. Information about factors that could cause such differences can be found in today's earnings news release, in the comments made during this conference call, in the risk factor section of our 2018 Annual Report on Form 10K, and in our other reports and filings with the SEC. We do not undertake any duty to update any forward-looking statement. And with that, I'll turn it over to Greg.
spk04: Thanks, Tim. Good afternoon, and thanks for joining us today. I'll start off by sharing a few thoughts about the overall business before Gino takes us through the results and the outlook. So first, Q3 was another strong quarter. We grew revenue 7%, expanded operating margins by 120 basis points, and generated $500 million of operating cash flow, an increase of 55% versus the prior year. Additionally, we ended the quarter with our highest backlog position ever of $11 billion, up $1.6 billion year over year, and up $160 million sequentially. Second, we continue to execute well across all platforms. Our land mobile radio business is on pace for another record year of sales and earnings led by North America. Our video security business had another strong quarter of revenue growth and is gaining traction with government customers. And our command center software business is continuing to drive revenue growth and margin expansion in our software and services segment. And finally, based on our Q3 results and our expectations for another solid performance in Q4, we're once again raising our earnings per share estimates for the full year 2019. And with that, I'll now turn the call over to Gino to provide additional details on Q3 results and outlook before returning just for some very brief closing thoughts.
spk03: Thank you, Greg. Q3 includes revenue of $2 billion, up 7% versus last year, including $58 million of revenue from acquisitions and currency headwinds of $21 million. Organic revenue growth was 4%. Gap operating earnings of $413 million, up $119 million in operating margins of .7% of sales, compared to .8% in the year ago quarter. Non-GAP operating earnings of $509 million, up $57 million, or 13%. And non-GAP operating margins of .5% of sales, up 120 basis points, driven by higher sales and gross margins, partially offset by higher op-acks from acquisitions. Gap earnings per share of $1.51, compared to $1.43 in the year ago quarter. Non-GAP EPS of $2.04, up 5% from $1.94 last year, on higher operating earnings offset primarily by a higher effective tax rate. Op-acks in Q3 was $504 million, up $40 million versus last year, primarily due to acquisitions. Other income and expense was $39 million, compared to $43 million in the year ago quarter, driven primarily by a decrease in net interest expense. The Q3 effective tax rate was 23% compared to 18% in the prior year. The -over-year increase was driven by the recognition of a favorable return to provision adjustment in the prior year. Turning to cash flow, Q3 operating cash flow was $525 million, compared to $338 million in the prior year. Free cash flow was $465 million, compared with $292 million in the prior year. The higher cash flow was primarily due to improved working capital, a settlement payment in the prior year related to a legacy business, and higher earnings. Capital allocation for Q3 included $271 million in cash and equity for the acquisition of $94 million in cash dividends, $60 million of cap-ex, and we paid off the $400 million term loan used to acquire a Vigilon. Additionally, we agreed to extend our strategic partnership with Silver Lake. As part of the agreement, Silver Lake agreed to make a new $1 billion investment in Motorola and settle the outstanding $800 million aggregate principal investment one year ahead of its maturity. The $800 million principal was settled in cash, and the premium was settled with $300 million in cash and $5.5 million in shares. The transaction resulted in an overall reduction to our diluted share count in the quarter. Moving to segment results, Q3 products and systems integration sales were $1.3 billion, up $61 million or 5% driven by the Americas. Revenue from acquisitions in the quarter was $27 million, and currency headwinds were $9 million. Operating earnings were $300 million or .2% of sales, up 80 basis points from last year higher sales and gross margins, partially offset by higher op-ex from acquisitions. Notable Q3 wins in the segment include an award from Bell Mobility for the largest Canadian P25 contract in history, serving the province of Ontario. $27 million in video security wins in education. A $16 million P25 order from Lee County, Florida. Several large awards in mobile and in-car video, including $13 million for the city of Nashville, Tennessee, and $4 million for the Michigan State Police, and $3 million in fixed video security wins for government customers. Moving to the services and software segment, revenue was $645 million, up $71 million or 12% from last year, driven by growth in the Americas and the MEA. Revenue from acquisitions in the quarter was $31 million, and currency headwinds were $12 million. Operating earnings were $209 million or .4% of sales, up 170 basis points from last year, driven by higher sales and gross margin expansion. Notable Q3 wins in the segment include a $78 million P25 multi-year service contract with the state of Michigan, extending service through 2029. A $58 million P25 multi-year statewide service contract in North America. An $11 million command center software suite contract with Glendale, Arizona. And a $4 million contract for a 911 system in Bogota, Colombia. Looking at regional results, America's Q3 revenue was $1.5 billion, up 12% driven by broad-based growth across all platforms. The MEA Q3 revenue was $384 million, down 1% due to large system deployments in the Middle East in the prior year and currency headwinds partially offset by growth in Europe. And in Asia Pacific, Q3 revenue was $158 million, down 9% or $16 million due to China and currency headwinds. Ending backlog was $11 billion, up $1.6 billion or 17% compared to last year. Sequentially, backlog was up $160 million with growth in both segments. Services and software backlog was up $1.6 billion or 26% compared to last year. Approximately half of the increase was driven by the Americas and half by EMEA. The EMEA growth is primarily related to the ESN and AirWave extensions. Sequentially, backlog was up $34 million due to multi-year contracts in the Americas, partially offset by revenue recognition for ESN and AirWave. Products and SI segment backlog was down $39 million or 1% compared to last year due to two large system deployments during the prior year in the Middle East and Africa, partially offset by growth of $134 million in the Americas. Sequentially, backlog was up $126 million driven by the Americas. Turning to our outlook, we expect Q4 sales to be up 5% to .5% with non-GAP EPS between $2.75 and $2.80. This assumes 20 million of FX headwinds at current rates, a weighted average diluted share count of approximately 176 million shares, and an effective tax rate of approximately 25%. For the full year of 2019, we now expect revenue growth of .25% to 7.5%. And we now expect non-GAP EPS between $7.77 and $7.82, up from our prior guidance of $7.67 to $7.77. This full year outlook assumes $115 million of FX headwinds at current rates, an effective tax rate of 23.5%, and a weighted average diluted share count of approximately 176 million shares. We continue to expect full year operating cash flow to be approximately $1.7 billion. I'd now like to turn the call back over to Greg.
spk04: Thank you, Gino. First, I'm very pleased with our Q3 results. It was another quarter of solid organic revenue growth, significant expansion of both gross operating margins and operating margins, strong operating cash flow generation of over half a billion dollars, and we finished with our highest quarter ending backlog position ever. We also closed the acquisition of WatchGuard, a leader in in-car and body worn video. Second, 2019 is looking to be another strong year of growth. Led by North America, our LMR business is positioned for a second consecutive year of record sales, and our command center software and video security businesses continue to perform very well. Given our year to date performance and ending backlog, we're positioned for another year of record revenue, earnings, and cash flow. And finally, this week at the International Association of Chiefs of Police here in Chicago, we had product introductions that spanned our entire mission critical portfolio, including our next generation LMR radio, Apex Next, which is broadband enabled for mobile apps designed specifically for first responders. And what struck me the most as I walked our booth was how the investments in our portfolio have come together, not as point products or separate acquisitions, but as a fully interconnected ecosystem, where mission critical communications, video security and analytics, command center software and services are operating seamlessly together. And it's the power of these integrated mission critical solutions that has me excited when I think about our future going forward. So now I'll turn it back over to Tim and open it up for your questions.
spk01: Thank you, Greg. Before we begin taking questions, I'd like to remind callers to limit themselves to one question and one follow-up to accommodate as many participants as possible. Operator, would you please remind our callers on the line how to ask a question?
spk09: To ask a question, you may press star then one on your touchtone phone. If you are using a speakerphone, please pick up your handset before pressing the keys. To withdraw your question, please press star then two. At this time, we will pause momentarily to assemble our roster. Our first question comes from Tim Long with Barclays. Please go ahead.
spk11: Thank you. Maybe just two, I'll get it together if I can. First, on the video side, guys, it sounds like last quarter you were starting to see some traction in the education vertical. I see, you know, Gino, you went over a number of video wins kind of across different platforms in the quarter. Could you just talk a little bit about growth there and particularly with the new ban and NDAA in effect, what are you thinking about growth for that business? And then secondly, on the call center software side, it seems like there's been good traction. Could you talk a little bit about the trajectory of maybe getting into more PSAPs and maybe selling multiple solutions to the ones that you're currently in and how do we think about that adding to growth for the company? Thank you.
spk05: Hey, Tim. Good evening. It's Jack. I'll take the first question related to video. So as we've discussed before, we expect the video business to grow 15% this year. I will tell you Q3, the performance exceeded our expectations. Specific to education, we had $27 million in orders in Q3. And if you remember, Q2 is typically the high point, so we're really pleased with $27 million. We got a million-dollar order from the University of South Carolina. We had not done a lot in higher ed, so again, please err. And then I think the last thing is the Federal Bureau of Prisons. We talked about a year, kind of a year to take place for the federal government success, and that was well in advance of what we expected. And think of that as a platform that we'll build on. I think all these things are empowered by two things. We made pretty significant -to-market investments in North America, but probably more importantly, we announced the H5 camera line and the Avigilon Control Center, which are software and analytics package 7.0, focus of attention, unusual speed detection, things like that. So a lot of excitement in the market, and I think you'll continue to see our momentum from there and turn it over on the second hand.
spk10: Tim, it's Kelly. On the software part, I'll address that. First, I'll just say, you know, we look at the business, we're very pleased with it. Our orders, our revenue, and our backlog growth are all exceeding the market growth rate. The team's done a great job showing the benefits of the suite, and the customers are definitely recognizing it. Year to date, as we think about it, you've heard me reference in the past, you know, percent of our orders in the command center that are suite related, where we have sold two or more components of our software together or where we've added on to already existing pieces of software and added to that. As we look at it year to date, we're just over 25%, which is an improvement from what we've seen in the past. It's great to see some notable customer wins. You probably saw us reference a particularly large win with Glendale, Arizona, where they bought pretty much the entire suite, CAD, records, jail, mobility, our vast solution as well, and integrated those together. And also customers like we see in Latin America with Bogota, Colombia, in Colombia, where we added on a -1-1 software system in addition to what they already have in regards to CAD and records that they have. So we're seeing good traction across the board on suites and pleased with the progress we're seeing also in the development of what Andrew and team are doing there.
spk09: Okay, great. Thank you, guys. The next question is from Adam Tindall with Raymond James. Please go ahead.
spk06: Okay, thanks. Good afternoon. I want to start by obviously acknowledging a lot of positives to highlight here in the quarter. But Greg, I want to be brave here and try to paint a narrative that I know has holes in it, but just get it out there because I know you won't be shy to respond. You recently announced the new Apex Next devices that incorporate broadband capability, first net interoperability, and didn't think you were seeing much of a use case for broadband and mission-critical radios. And I know that LMR has been doing well, but product backlog is down year over year for the second quarter now. I know Americas is up, but video is doing well and some additional inorganic contribution. So some thought that this is an indication that perhaps broadband and first net is starting to and going to continue to have an impact on the core LMR business. I think you understand the narrative that's painted there, so just want to give you an opportunity to respond to that.
spk04: Yeah, Adam, thanks for the question. I don't think the introduction of Apex Next has anything to do with a narrative that would suggest LTE or specifically first net taking a more prominent role, but specifically cannibalizing LMR. As you know, Adam, we haven't seen that in the past. We still don't see that now. Backlog is up. You know that year on year and sequentially. By the way, it's also worth noting that the backlog is up despite some significant effects, headwinds that we didn't articulate. But with what Malloy's team is doing on LMR and the introduction of Apex Next, which we're excited about, and maybe Jack could say a few words about the feature set, software connect and seamless roaming between LMR and LTE actually, we believe, extends LMR. It's not an encroachment of LTE. It makes LMR, it makes Apex Next, it makes private networks even more compelling. And I think that's represented by the statewide upgrades that we had this year that were almost 2X the volume of previous periods. But I just don't see it that way. And I think first net is complementary to LMR, just like in the UK, ESN is complementary to Airwave, but I just don't see any cannibalization or chilling effect. By the way, just since we're talking about first net, as you know, I think, Adam, it has a de minimis impact of revenue for this year. We would see equally minimal revenue contribution from next year.
spk05: Yeah, maybe just to piggyback on top of that, I think this is an important point. The LTE as a service or the recurring revenue component of Apex Next will actually be contracted through the customer directly to Motorola. And that will be three different things. It will be, obviously, Greg talked a little bit about the smart connect, the ability to extend LMR capabilities. For instance, if it was someone from the Cook County Sheriff's Office that was at a conference in Miami, they'd have capability to connect back into the network. But two of the other really important features are called smart locate, which essentially provides pinged every depending on the situation, every three to 15 seconds location device of an officer critical for officer safety. But maybe the most important and underrated thing is a feature called smart programming, which will essentially take what used to take weeks or months to program radios and essentially provide an out of the box experience. So really what we're doing is to Greg's point, extending the LMR P25 network, but leveraging some of the broadband technology to do complementary technologies. The other thing to hit on is the Apex Next is actually a premium device. So if we think about the Apex family that has quite candidly been the most successful product in the history of this company, this will be kind of the Cadillac, if you will, or the premium tier. And we should think of that as kind of taken three to five years historically when we have three to five years to start making where we start seeing most of the sales pivot to Apex Next and the next gen of those. So hopefully that answers your question.
spk06: Yeah, very helpful. And it sounds like there's some potentially attractive economic models that could be associated with it as well. Maybe just as a quick follow up, Gino product and SI operating margins look like if I'm backing into the 2019 guidance correctly, maybe towards the low end of the 22 to 23 percent range for 2019 and hoping that maybe just double click on that because I know it's perhaps not exactly like to like, but products gross margin and gross profit are up healthily and operating margin and operating profit are lagging that growth a little bit. And you have a number of acquisitions weighing probably some opportunity there. So maybe it's just some color how we can think about operating leverage in that segment moving forward. Thank you.
spk03: Sure, Adam. Yes, the guidance suggests the lower end of that 22 to 23 percent range. It's important to note that gross margin is above slightly above our expectation for the full year. So really, the impact is is is OpEx related to the acquisition and frankly related to some legal expense related with to the high care of IP lawsuit ongoing this year. So those are the two issues very pleased with gross margin. It's OpEx will get after the the acquisitions and again, legal expense until that that trial is resolved or that actions resolved. We'll continue to include that in our guidance. Very pleased with the performance gross margin performance. Yep, thank you.
spk09: The next question is from George Nodder with Jeffries. Please go ahead.
spk02: I think a lot, guys, I guess I wanted to kind of drive towards an organic growth rate for backlog. You mentioned there was an effect impact there. I know it's pretty substantial last quarter, but I'd be curious on what that number actually was. And then WatchGuard, I would imagine also maybe gave you a bit of backlog benefit there. Also, I was wondering what kind of contribution that might have had. And then I assume the two Middle East deals from a year ago are not backlog affecting as I look at year on year compares.
spk03: Yeah, that's correct. Just so there are a couple of things there to unpack the the effects adjustment that Greg mentioned was one hundred and fifteen million dollar sequential unfavorable effects adjustment. Getting back to your question on the organic growth rate of backlog. So that was the extent of of the adjustment. The second question was a WatchGuard
spk04: question. Yeah, and
spk03: that's really minimal backlog, George. It's kind of a run rate business with very little backlog. So not much of an impact at all to our backlog.
spk02: God. And then I'm sorry, the year on. Can you tell me the effects impact on a year on year basis? And it's two
spk03: hundred
spk02: million dollars, George. Wow. OK, so backlog organically, I think, grew nicely over 10 percent year on year. Is that roughly the ballpark? Yes. OK, super. Thanks a lot.
spk09: The next question is from Keith Howsam with North Coast Research. Please go ahead.
spk08: Good afternoon, guys. I just want to explore a little bit the difference in the growth rates between Europe and North America. Obviously, North America is on fire now for the past two years or so, if not a little longer. Is the difference in the growth rates more macroeconomic driven or is it more based on the proper facility you have there? And then perhaps you guys can touch on the growth or the opportunity with the video segment now with a visual on watch garden, what your opportunity is outside of the US.
spk05: OK, Keith, so I think the question was really around a media verse North America. Yeah, North America, just from a scale, go to market scale, points of presence. You know, it's obviously our strongest market. It's up. You know, Q3 was up seven percent in terms of constant currency. And I think as Greg articulated in the open, it's strength across the board, its strength in our LMR business, strength in the command center, software business and our services business. And obviously, we had a very good quarter in our video business. AMIA is actually for in the third quarter, we're actually up two percent in organic constant currency. So some of the things we felt are obviously the headwinds. We've had some effects headwinds there, but it was just in Europe two weeks ago at our partner conference. And, you know, there are some challenges in certain countries, but I would I would dimensionalize Europe is still relatively steady state. Where we're seeing the most pressure internationally is actually in Asia pack and to to kind of put that in the context, it's eight percent of our overall revenue. So not very material. But at the same time, we're seeing macro. We're seeing some macro level issues. China is very small in terms of what it means from a revenue component of our country. But within the region, we're seeing some contagions that have actually slowed some things down in certain areas. I'd also offer that when I look at the APAC business, a lot of this is on us. And meaning it's on me and and our team in terms of ability to understand the process a little bit better, where we might have some macro level issues that cause budget issues. We've got to see through those and we've got to execute better as well. But as it applies to Europe, Europe, it's not as strong as North America, obviously. But it's fair. It's fairly steady. APAC is really where we've seen the primary weakness as the years rolled on.
spk08: Great. And just kind of expanding on that question, can you just touch on your opportunities with the visual on and watch guard outside of the US? And is that a factor helping to drive some of the growth in the US compared to the EMEA?
spk05: Yes. So I think we we have two different things in a vigil on. We have opportunity in terms of we've got to increase the number of routes to market internationally. That's in Latin America, that's in Asia Pacific, and that's in Europe. The work is being done there to really get the product on more shelves. They were when we acquired a vigil on, they were relatively their focus was rightfully so in North America. And we've got to bring more scale to them, both with our sales force and our distribution partners. That's the first thing. Secondarily, watch guard has also been relatively in North America phenomenon. We actually picked up a body worn camera through the vigilant acquisition, a company based out of who had acquired a company based out of Scotland that actually has a very nice solution internationally at a better price point. So we're going to look at both of those options to take the body worn camera in international. But, you know, watch guard is really a North America solution as it stands today.
spk09: Great, thank you. The next question comes from Ben Barron with Cleveland Research. Please go ahead.
spk13: Good afternoon. Thanks for taking my question. Could you talk a little bit about the public sector sales process within command center and surveillance? Specifically, I'd be interested in your thoughts on the average duration of the process, any generalities for how relative deal sizes would compare to like a traditional LMR deal to the same type of customer. And any high level thoughts you have on the overall competitive landscape right now based on some of the preliminary stuff you guys are doing?
spk05: Absolutely, Ben, I'll start. This is Jack, and I think the first part of it is a selling process. And I'm going to Kelly's going to jump in to provide some color. The selling process in terms of the command center software is actually it's actually a fairly lengthy cycle, meaning it's it's typically anywhere from minimal a year to two years. There's a high level because it's a 24 by seven, a highly intense environment. And you've got, you know, a customer base, meaning dispatchers in our high stress environment, there's a lot of demonstrability. And particularly as they navigate software changes, there's a lot of features that maybe were legacy features that we have to kind of deal with, because it certainly affects their operating procedures in the command center. So they're typically long. And I think a credit to the inorganic, inorganic activity that Kelly and Andrew and team have done, frankly, the deal sizes are getting larger. And I think as Kelly articulated, we've grown the level of suite services, the suite sales, which have which have contributed to that. Kelly, I think you probably you want to anything you want to add to that?
spk10: Yeah, just on the competitive component, you know, look, if you look at the external view across any number of market studies out there, references market growing around a high single digit growth rate. And, you know, as we referenced in the past and it has continued to play out, our software business is growing in double digits. So we're very pleased with what we're seeing in regards to the the growth of the business. You know, I'd also add competitively, I think, you know, as you as you probably saw at IACP, we made a number of announcements around some additional components of our software command center, software portfolio. Very happy about what we're doing. Also, one thing I'd highlight is the records portfolio and what we're doing there. As we all know, in the command center, one of the biggest things that they deal with is just the inundation of data, pictures, video, voice that they have to handle in that records platform that we announced is something that our customers are very excited about because it provides them an opportunity with one records platform to be able to manage data that comes in from any variety of sources. So it's not just managing body worn video or 911 calls. It's being able to compose all the data that comes into the command center and be able to manage it. So competitively, we view that as something that is really a unique part of our software portfolio that no one else can emulate. So very pleased with what we're seeing there and the customer receptivity and the feedback we're getting from them has been really great. And it shows in the results.
spk13: And as a follow up, looking at the the broader business, you talked about some of the uncertainty, maybe some more macro and APAC. Do you have any thoughts on a broader macro perspective as it relates to commercial LMR? And then one last follow up, Greg, any update to the broader 2021 framework discussion you've provided previously? Thanks, guys.
spk04: So, you know, there's no updates to the broader 2021, approximately nine and 10. Remember, it wasn't guidance. It wasn't prescriptive. It was directional. My phrase is up and to the right. And it contemplates both operating the business and continued inorganic activity. You know, from a 2020 standpoint, we're not going to guide the specifics, as you would expect. That will be reserved for our February call. But, you know, as I sit here today, kind of high level, top line revenue growth, you know, I think about roughly four percent, which is consistent with what we said this year, consistent with what we said last year. And again, overall, from a driver's standpoint across all three platforms, LMR and video security and command center software, I feel pretty good about it. By the way, just one other dimensionalization that's worth mentioning may seem a little tactical, but worth reminding, as you all think about 2020, remember, Q1 specifically is always our lightest quarter. Q1 of this year was a record quarter that included 40 million of federal revenue in Q1 of 19 that we do not expect to repeat in Q1 of 2020. So high level dimensionalization, continued solid growth, obviously a solid backlog position, no change to the nine and 10 in 2021. And I think that Jack and Kelly and the team and, quite frankly, all the people at Motorola continue to do a great job, and I appreciate their efforts.
spk13: Thank you.
spk04: Thank you.
spk09: The next question is from Paul Silverstein with Cowan. Please go ahead.
spk07: Greg and Gina, before I ask my two questions, I just want to clarify in your response to the previous question, Greg, I thought I heard you say on the one hand, you weren't giving guidance. On the other hand, I think I heard you say 4% revenue growth for next year. Was that the 4% that you cited? Was that specific to 2020?
spk04: Yeah, I'm not being prescriptive on, you know, specifically on EPS and operating cash and others, but it's just meant to signal, more or less to Ben's question, our view and our expectation of continued growth. We do expect growth. We do expect organic constant currency growth. We do expect cash flow growth. But just to give you an anchor point and a reference point, yes, as I sit here today, the kind of view of top line was about 4%, very consistent with this year and what we said what we said this year and what we said last year.
spk07: I appreciate that. So now for my two questions, one is a broad question. I apologize, it's revisiting a number of questions earlier in the call and then a specific question. The broad question is, to the extent that video hardware analytics and monitoring along with margins have been the two, or I think certainly these two are two of the key upside opportunities and focuses for the company, can you give us any sense of the opportunity from here over the course of the next year in terms of how much more you can do in driving margin upside as well as watch guard baths and a vigilante in terms of how far, how fast that revenue can grow? I recognize you addressed the things you need to do in terms of outside of the US and your go to market, etc., but any quantification you could provide. And then the specific question would be, you just referenced US federal in passing. A number of companies this quarter cited very strong US federal revenue in the fiscal year end. Can you characterize what you're seeing out of US federal?
spk04: Why doesn't Jack take US federal first?
spk05: Yeah, so US federal, we've it was not only we talked about the strength of the North America business and you wouldn't have a good Q3 without a very strong federal quarter. But I would also offer it's been, you know, Mark McNulty and his federal team has had a very good year in 2008, in 2019. It's everything from devices to systems to services. And it really spans a continuum of law enforcement agencies in the feds, civil agencies, as well as our our defense bases and the communication systems we we supply to them. So proud of what the team accomplished in Q3, but really have had a very solid 2019.
spk04: And Paul, just overall on your question of kind of the overall business, we do expect cash flow and operating margin expansion to continue against the specifics coming on the February call. I think that's largely going to come out of software and services. I think Kelly and Andrew and his entire team have done a great job on platforming the business, getting efficiencies of the business, integrating the suite, the percentage of suite purchases and orders is slightly incrementally higher than what Kelly referenced earlier. We talked about an operating margin in that segment, software and services on the last call of 30 to 31 percent. That's going to look like more like 31 percent for full year 19. Do we expect that can improve in 2020? We do. And Kelly and Andrew will provide me and all of us with the specifics on 2020. But also what I would say is the areas that we're playing in video security, where we've targeted to grow three X the market, all in 15 percent versus five. And as Jack referenced in Q3, we were strong in Q3, and we still believe we'll grow at 15 percent for 2019. And that continues on command center software. It's performing in the high teams. And again, for now, we expect that to continue. So and that's against the backdrop of an addressable market of all of these businesses, land, mobile radio, video security and analytics and command center software of an addressable market. We size it about 39 billion for 2020. So I think there's room to run. I think Malloy and Kudzerski are executing very well with the Avigilon acquisition and the other video assets that as we aggregate and go to market in an integrated way, we'll continue that performance. And I think command center software and services, which we don't talk as much about, though, that too is continuing to run very well. So there's opportunity. There's a sizable addressable market. You know the numbers that we're growing on command center software and video security. I think land mobile radio, including SI and services all in, will continue to move forward. By the way, we will also consciously move more and more land mobile radio product to land mobile radio infrastructure as a service, which will improve stickiness, improve annuity revenue in that segment. And overall, solidify the profile of our position competitively. So I feel good about where we are and how we're executing. There's always a lot more work to do, but this is a solid quarter. It's going to be it should be. We expect it to be a record year in 19. And then we'll update you on all the specifics with those metrics in 2020.
spk07: Appreciate
spk04: the response.
spk07: Thanks,
spk04: Rick.
spk09: The next question is from Brian Yoon with Deutsche Bank. Please go ahead.
spk12: Hi, thanks for taking the question. I wanted to follow up on the prior answer you had for a baseline of 4% revenue growth in 2020. Can you talk about the levers there? So what do you think could drive better than expected top line? Is it an uptick in video security adoption or new product intros? And is there anything we should be aware of that could pressure revenue growth from that baseline?
spk04: I think, look, at this point, I think it's just a prudent way to plan the business. As we look at 2020, Malloy talked about North America has been great and the execution across pretty much all platforms. He talked about a little bit of international, more specifically, Asia PAC, where we see budgets being pushed out. I don't think it's deals lost. Now, Asia PAC is 8% of our overall revenue in 2019. And as you know, China is now about .5% of revenue for us. So it's not it's not significant. The issue, though, is as the China economy slows down, does it have a contagion effect in some other adjacent or neighboring theaters in the region? It may. But also, as Jack said, we on the execution side can do a better job in terms of forecasting, specificity and understanding the budget cycles and what's available. So I think it really is just the best way and the prudent way we think to plan the business. You know, video security in Q3 was stronger than our expectations. So are there areas that we could perform stronger against that view? Of course, there are potentially there are. But at this point, we think this is the right way to think about it and dimensionalize it again, as I sit here today.
spk12: OK, great. Thank
spk04: you.
spk12: Thank
spk04: you.
spk09: The next question comes from Sammy Badry with Credit Suisse. Please go ahead.
spk14: Hi, thank you. The first question has to do with products, just SI. And I want to understand beyond the big lumpy deals, the way you generated some of those revenues. Could you give us any idea on the type of radios that were sold? Are these higher mix? Are you starting to see the install base refresh their products? If there is a cycle, where are we in that cycle? Or some of the growth being driven by a vigilante products on the hardware side? Can you just unpack this a little bit more for us so we can go through it?
spk05: Yeah, I'll. Hey, Sammy, it's Jack. Two things, so for the third quarter, what we've seen from products and SI, it's both actually, to your point, a vigilante, albeit a vigilante had a very good quarter. So we're going to see some of that is we think about the LMR products that are in there. We had we strength really, frankly, in devices. So that's APX devices, the Apex family, of which we just announced kind of the next generation or the Apex next. And that's strength in the US government, US public safety, state and local, as well as a federal government, which I just articulated, had a very good quarter. You know, Gino, I don't know if there's anything you'd like. Yeah, I think I think you answered, Jack. It's really on
spk03: the product side is strength across the board. And in Q3, there was in one area that was exceptional. No large deal in there that drove the results. It was broad based actually across all platforms. But across all all the product segment,
spk05: the commercial the commercial business was actually up three percent in North America and Q3 as well. So, you know, just like just pretty much strength across the board.
spk14: Got it. Thank you. And then just the follow up question regarding a vigilante and some of the more software slash artificial intelligence related capabilities that the software actually has. Where are we in the integration cycle for specifically those capabilities into the broader command center suite?
spk10: Sammy, I'll take that in regards to a vigilante. One of the things that we've done, we're very pleased about, is we have immediately taken the vigilante portfolio. And to the extent our public safety customers are using the vigilante, we've already integrated into our command center suite. So one of the products which you probably saw announced earlier in the year is Command Central Wear. Command Central Wear is a product which helps gives our customers a consolidated view in the command center of a situation, including location of officers, information related to the 911 call, any inputs around license plates. And in addition to that, if to the extent they access a vigilante cameras, they can have that feed into the command center. So it's not just a vigilante. We work with a lot of other video suppliers out there because it's important as being in the command center. So that being kind of the central point where situations are controlled that we can interface to others. But of course, interfacing to a vigilante is something that we incorporated earlier this year. It's just one of the examples of the integration components that we've provided through the command center. Great. Thank you.
spk09: This concludes our question and answer session. I would like to turn the conference back over to Tim Yochum for any closing remarks.
spk01: Thanks for joining, guys, and we look forward to talking to most of you soon. Take care.
spk09: The conference is now concluded. Thank you for attending today's presentation. You may now disconnect.
Disclaimer