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.
spk08: For Q2, Paul, PCR revenue growth was 15%.
spk05: And its base last year, Paul, was 800 and something million. And so it's on, as we told you earlier, 10%, maybe slightly higher this year, which will put it still short of the 2019 reference point you just made.
spk03: All right. So the real question is, I'm sorry, go ahead.
spk07: No, Paul, I was just going to add one other point is that Q2 was a record orders quarter for PCR as well. Exactly.
spk03: Okay. Notwithstanding the macro, obviously, it sounds like the business has been shut. Given all the different variables that seem to be so positive, where's the greatest opportunity for greatest improvement from here going forward over the next 12 to 36 months? And in connection with that, I saw Hytera was not able to pay you cash in respect of the litigation. Where does that, are they being effectively shut out of the market? Where does that go from here? And finally, where's video penetration at in the public sector?
spk08: Well, let's start with Tyterra. You know, I'm kind of not surprised that they missed the deadline, the court ordered deadline to pay cash into escrow. by July 31st. They've had a pattern of denied, deflect, distract, and no action. They owe us about $680 million all in. By the way, the guidance and color we give you on the full year of 2022 and cash and cash flow assume nothing from Hytera. We filed a motion this morning that they are in contempt of court. And we'll see what the judge rules and remedies, further remedies that they apply. But I can't say I'm particularly surprised.
spk07: Paul, I think you had a question as well on video. And I would just simply say that our video and access control business is growing, you know, approximately 20% this year in 2022. We continue to invest in the portfolio extensively, both by way of our edge devices or camera, but also on our software and analytics side of the things. Cloud and mobile become increasingly important when you think about our three big acquisitions. OpenPath, who has fundamentally changed the game for us in the access control market. Ava and Calypso as well. The AI that Calypso brings and its ability to proliferate into our Pelco camera line is also a game changer. And I think you asked a question about verticals, but when we think about our top verticals, it's really government, education, healthcare, and commercial. If you remember when we acquired Avigilon in February of 2018, their government business was nascent, and now it's one of our top ones. And we think that's the benefit of the scale and the revenue synergies that our companies our sales force around the globe has been able to bring.
spk03: Okay. The real question was, I assume it's still preciously early in the government public sector in terms of video penetration.
spk07: Yeah. So I think we talked about for, first of all, just the baseline in government it's early days, but to bench analyze that business, it's approximately $430 million as our expectation this year. Think of that as two-thirds mobile video, a third fixed video.
spk03: I appreciate that.
spk08: Thanks, Paul.
spk01: Thank you. Next question comes from Louis DePalma of William Blair. Please proceed.
spk02: Greg, Jack, Jason, Mahesh, and Tim, good afternoon.
spk08: Hey, Louie, how you doing?
spk02: Great. Greg, on previous calls, you referenced how you are seeing robust demand from the education vertical. Is demand from education customers for your artificial intelligence solutions getting even stronger with this exceptionally strong guidance for this upcoming school year? following several different security incidents nationwide?
spk08: Yeah, Louie, education has been a very key vertical along with government for fixed video and access control. It has been and continues to be because of what you referenced, the need for video security perimeter detection. anomaly detection, access control, automation alerts. And I think that the demand for that broad portfolio continues to be strong and maybe perhaps is even getting stronger. And I don't know if Jack or Mahesh want to compliment on that as well.
spk07: Greg, I think you hit it. The other one is we made a significant investment into evolved technologies. And I would say stadiums and schools are are the big driver for concealed weapons detection. We know the horrific things that happened at Uvalde just earlier in the summer, and I think that's driving a converged experience to make sure that they've got the video and access control, but they also have a way to temper and test for weapons as they approach campus as well.
spk05: The other point I'd make is that our Q2 results and our increased guide for the year were driven largely by our expectations for LMR, which is about two-thirds of the increase, and video being the other third, both of which are serving education and many other verticals.
spk02: Thanks. And for Jack, these past two quarters, it appears that you won your two largest command center software orders in company history. And I think you mentioned in a prior answer that you are seeing traction with hybrid deployments on premise and in the cloud. Were any of your recent orders for your next gen 911 solution and your 911 call taking and CAD solution in the cloud? Or are these more for your traditional modules that you're seeing the success?
spk00: I'd say that there's still stronger demand for the on-premises solution for 911 and CAD. Availability and reliability being some key factors that are involved there. That said, our call handling solutions combined with our heavy investment in smart transcription, which is a cloud-hosted AI solution, citizen input, which is also a cloud-hosted way of allowing citizens to have over-the-top video input and text input into PSAPs as well for call handling. We're seeing significant traction in that space. On CAD, hybrid capabilities become very important. We are seeing aware, command central aware, frequently attached with our CAD sales. And the other thing is emphasis on mobile. For LAPD, I mentioned command central responder. The need for smartphone access to information in the field is becoming more and more important. And command central responder, along with its many capabilities, really complements both our on-premises CAD and record solutions as well. So we see that hybrid really driving adoption for the key features that are best delivered in the cloud, along with the high-value solutions that our 911 and CAD customers want.
spk02: Great. Thanks, Mahesh, and thanks, everyone.
spk08: Thanks, Louis.
spk01: Thank you. The next question comes from Paul Chung of JPMorgan. Please proceed.
spk06: Hi, thanks for taking my question. So just on the guide, how do we think about kind of the gross margin ramp in the second half? Do you still expect to be kind of flat for the year? And then same kind of question on OpEx. I may have missed it, but still up kind of 100 million for the year. And then as we think about 23, how much of kind of the gross margin pressure this year do you see as somewhat temporary in your expectations of how those margins rebound, particularly in the first half. You also have some benefits from price increases as well and how that kind of factors in. Just your early thoughts on 23.
spk05: Well, I'll start with the biggest driver of our gross margin trend this year is the higher semiconductor costs year over year. We had planned for about $100 million of year over year increase which you're seeing in the P&L through the first half. It was actually a little higher than that. And we had planned for 20 million of incremental year-over-year costs for semiconductors in the second half. It'll probably be slightly higher than that, given the higher volumes that we just guided to. So those items, again, are related to us paying a premium for semiconductors that aren't available from primary sources. So as the semiconductor market stabilizes, normalizes, there's opportunity on that as we continue to get more and more supply into the future directly from the manufacturers, which is something we're working on. In terms of gross margin trend for the year, yes, the second half will be certainly better and we'll get to approximately similar and at an OE slightly up for the year, which will cover the $100 million of OPEX, you're right, of increase that we're expecting for the year-over-year, 75 of which from the OPEX side is related to M&A. So, that's how to think about it from a P&L perspective.
spk06: Okay, great. And then just to follow up on video, you know, you're seeing some relative strength in the software and services for quite some time. So, talking about the demand trends and specific solutions you're kind of most excited about, and how do we think about that relative pace as we look further out?
spk01: Thank you.
spk07: Yeah, hey, Paul, I think so. We've talked about we expect 20% for fixed video and really for the video segment as well, approximately 20% for the full year. We've dimensionalized some of the verticals. We're having some success. You know, I think it's a story about cloud mobile analytics. The other piece of it that we probably didn't talk are some of the vertical specific things that we're doing. We acquired a company called Envision that gives us a space into quick service retail. And investments like that, as well as cloud, put us on a path where we're starting to build recurring revenue business within our video security segment as well, which is exciting.
spk04: Great, thank you so much.
spk01: Thanks, Paul. Thank you. The next question comes from Jim Suva of Citigroup. You may proceed.
spk04: Thank you, and congratulations to you and your team. Greg, when we think about strategy, and you've mentioned you had your biggest LMR contract ever, which is great, are you now at a point where the majority of your new wins Are we still at the very early part of not much is being connected? That was kind of my strategy question. Then for finance, chief finance officer question. Did you say how much impacted gross margins decommits or go into broker market was for components? And I assume when you get these big contracts, you're securing the parts right away so you don't have future price escalation as chip companies have increased pricing? Thank you.
spk08: Well, on the first part, Jim, I think we're in the early innings overall. I mean, you take a step back and think about this firm. And our addressable market now, given the industries we play in and the acquisitions we've made, it's just under $50 billion. And the guidance this year for full year informs approximately nine. So there's a lot of room to run here. While we are growing fixed video and access control at 20%, we are not the leader yet, either globally or in North America. And I think there's every opportunity for us to continue to take share and make up ground given the width and breadth of the portfolio, which I believe from an industry standpoint is unmatched. Our ability to play in fixed video and mobile video, layer on analytics, license plate recognition, and all the things that Mahesh and the technical team are doing in artificial intelligence. On LMR, the installed base gets larger. You think about roughly 13,000 different LMR networks by which we filled the footprint of infrastructure, sell devices, monetize services, upsell, refresh the device portfolio, integrate LTE into LMR for network extension and software over-the-air reprogramming and location services. And then all the things Mahesh is doing in command center software, which is premises-based, cloud-based, hybrid, and the overall backdrop of more and more criticality around public safety, enterprise security, and not having key China vendors in any of that critical infrastructure. I think there's a lot of opportunity in front of us.
spk07: The only thing I'd add Greg is I think Jim I think I heard you ask a question on cross sell it's a very important we've attacked that by way of sales sales specific incentives around command Center software. Around fixed and mobile video as well, our North America sales leader Jim mirrors has come up with the first of all, we have a tool a three dimensional tool by account. That gives us our you know kind of the lay of the land where we're doing well where we're not and where we should focus our time. And we've inserted sales around specific technology escalators. And that's, I think, served us fairly well.
spk05: And Jim, to answer your question on securing semiconductor components, we're doing so in many different ways, directly from the manufacturer through us and purchase orders all the way through long-term supply agreements. And then finally, brokers, when necessary, and therefore have a constant flow of parts I think it's important to note that Motorola and our engineering abilities, over 40% of our company are engineers. And we continually give them challenges, including if a part we know to be in constraint, they are helping find alternatives. And that alternative, then the supply chain organization can go out and procure. So it's a constant battle. And we're proud of the way the teams are collaborating and working through the environment.
spk04: Great. Thank you so much for the details.
spk08: Thank you, Jim.
spk01: Thank you. 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.
spk08: Yeah, thank you, everybody. Most especially, thank you for all the Motorola's on the call and listening. Exceptional performance. Couldn't be more proud of you. I'm proud of this company, proud of you, and proud of the purpose that we serve. I think, look, I think these results amplify and reinforce the criticality of public safety and enterprise security and the fact that in this environment, quite frankly, it's never been more important. I want to add to something Jason just said and tip my hat to everybody involved on supply chain execution. and navigating this very dynamic environment. I do think part of the overperformance in Q2 and what we're passing on for the full year is strong execution in supply chain. I think it's largely done by the engineers that Jason referenced and others on product redesign, surgical acquisition of inventory, appropriate purchases in the open market for broker parts, And a modestly, slightly better environment in Q2. But the supply chain, specifically semiconductor environment, remains challenging. Having said all that, there's more work to be done. But I do like our position and I like our momentum for the second half. We have to continue to execute. I appreciate you listening and I look forward to talking to you and joining you in a few months. Thanks, everybody.
spk01: Ladies and gentlemen, this does conclude today's teleconference. A replay of this call will be available over the internet within two hours. The website address is www.motorolasolutions.com forward slash investor. We thank you for your participation and ask that you please disconnect your line at this time.
Disclaimer