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spk11: Good afternoon, and thank you for holding. Welcome to the Motorola Solutions fourth quarter 2023 earnings conference call. Today's call is being recorded. If you have any objections, please disconnect at this time. The presentation material and additional financial tables are posted on the Motorola Solutions Investor Relations website. In addition, a webcast replay of the call will be available on our website within three hours after the conclusion of this call. The website address is www.motorolasolutions.com slash investor. All participants have been placed in a listen-only mode. You'll have an opportunity to ask questions after today's presentation. If you'd like to ask a question, please press star 5 on your telephone keypad to be placed in the queue. You may also press star 5 again to remove yourself from the queue. I would now like to introduce Mr. Tim Yochum, Vice President of Investor Relations. Mr. Yochum, you may begin your conference.
spk00: Good afternoon. Welcome to our 2023 fourth quarter earnings call. With me today are Greg Brown, Chairman and CEO, Jason Winkler, Executive Vice President and CFO, Jack Malloy, Executive Vice President and COO, and Mahesh Sattarishi, Executive Vice President and CTO. Greg and Jason will review our results along with commentary, and Jack and Mahesh will join for Q&A. We've posted an earnings presentation and news release at MotorolaSolutions.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 2022 annual report on Form 10-K, or any quarterly report on Form 10-Q, and in our other reports and filings with the SEC. We do not undertake any duty to update any forward-looking statements. And with that, I will turn it over to Greg.
spk02: Thanks, Tim, and good afternoon, and thanks for joining us today. First, Q4 was an exceptional quarter. We achieved record revenue in both segments and all three technologies, including double-digit growth in video security and command center, highlighting the strength and robust demand for our safety and security solutions that help protect people, property, and places. Additionally, we expanded operating margins for the sixth consecutive quarter, generated over $1.2 billion of operating cash, and strengthened our video security portfolio with the recent acquisition of IP Video, creator of the Halo smart sensor. Second, our full-year results were outstanding. In our products and SI segment, we grew revenue 9%. driven by strong growth in both LMR and video security, and we ended the year with record product backlog. We also expanded operating margins in the segment by 380 basis points, driven in part by higher ASPs and lower product costs. In software and services, revenue was up 10% inclusive of the airwave revenue reduction, highlighted by strong growth in video security, command center, and our services business outside of the UK. And we also generated record operating cash flow of $2 billion, up 12% versus the prior year. And finally, as we enter 2024, our robust backlog position, coupled with the continued strong demand for our safety and security solutions, positions us well for another year of strong revenue and earnings growth. And with that, I'm going to turn the call over to Jason.
spk08: Thank you, Greg. Revenue for the quarter grew 5% and was above our guidance with growth in both segments, both regions, and all three technologies. FX tailwinds during the quarter were $16 million, while acquisitions added $17 million. Gap operating earnings were $738 million, or 25.9% of sales, up from 25.6% in the year-ago quarter. Non-gap operating earnings were $870 million, up 6% from the year-ago quarter, and non-gap operating margin was 30.5%, up 10 basis points. The increase in both GAAP and non-GAAP operating earnings was driven by higher sales and lower direct material costs. GAAP earnings per share was $3.47, up from $3.43 in the year-ago quarter. Non-GAAP EPS was $3.90, up 8% from $3.60 last year. The growth in EPS was driven by higher sales and higher margins. OPEX in Q4 was $597 million, up $60 million versus last year, primarily due to higher incentives and acquisitions in the current year. For the full year 2023, revenue was $10 billion, up 10%, with strong growth in both segments and across all three technologies. Revenue from acquisitions was $98 million, and the impact of unfavorable foreign currency rates was $38 million. GAAP operating earnings were $2.3 billion, or 23% of sales, versus 18.2% in the prior year. The increase was primarily driven by lower direct material costs, higher sales, the $147 million ESN fixed asset impairment charge in the prior year, and lower intangible amortization expense in the current year. Non-GAAP operating earnings were $2.8 billion, up $416 million, and non-GAAP operating margins were 27.9% of sales, up from 26% of sales in the prior year, driven by lower direct material costs, higher sales, inclusive of higher ASPs, and improved operating leverage. GAAP earnings per share was $9.93, up 25% compared to $7.93 in the prior year, primarily driven by higher earnings and the asset impairment charge related to the exit of ESN in the prior year, partially offset by a higher effective tax rate in the current year. Non-GAAP earnings per share was $11.95, up 15% from $10.36 in 2022, on higher earnings, partially offset by a higher effective tax rate. For the full year, OpEx was $2.2 billion, up $178 million versus 2022, primarily driven by higher employee incentives and higher expenses associated with investments in video and rave. And the effective tax rate for 2023 was 21.9% compared to 20.1% in the prior year due to lower benefits from employee stock-based compensation in the current year. Turning to our cash flow, Q4 operating cash flow was $1.2 billion, driven by higher earnings, partially offset by higher cash taxes. And for the full year, we generated record operating cash flow of $2 billion and record free cash flow of $1.8 billion. The increase was driven by higher earnings, partially offset by higher cash taxes. Capital allocation for 2023 included $804 million in share repurchases, $589 million in cash dividends, and $253 million of CAFX. Additionally, during the quarter, our board of directors approved a $2 billion increase to the share repurchase program and an 11% increase in our dividend, which is the 13th consecutive year of double-digit increases. Moving next to segment results, and the products in SI segment Q4 sales were up 4% versus last year, driven by growth in LMR and video. Operating earnings were 567 million, or 30.0% of sales, up from 28.4% in the prior year, driven by higher sales and lower direct material costs. Some notable Q4 wins and achievements in this segment include a $90 million P25 system and devices order from a U.S. customer, a $67 million P25 device order for Emergency Services Telecommunications Authority in Australia, a $57 million P25 Apex Next devices order for a U.S. customer, a $38 million P25 system order for the state of Arizona Department of Public Safety, a $31 million Tetris system order for a European customer, and a $13 million fixed video order for an international customer. And for the full year, products and SI revenue was $6.2 billion, up 9% from the prior year, driven by higher sales of LMR and video. Revenue from acquisitions was $15 million, and currency headwinds were $19 million. Full-year operating earnings were $1.5 billion, or 24.3% of sales, up from 20.5% in the prior year on higher sales, inclusive of higher ASPs, and lower direct material costs. In software and services, Q4 revenue was up 7%, driven by growth in video, command center, and LMR. Revenue from acquisitions was $15 million, in the quarter and FX tailwinds were $11 million. Q4 operating earnings in the segment were $303 million and operating margins were 31.6%, down from 34.4% last year, primarily driven by the airwave revenue reduction related to the price control. Some notable Q4 highlights in the segment include a $330 million LMR managed services renewal through 2034 for Denmark's nationwide public safety communications network. A $48 million command center order for the City of Chicago's Office of Public Safety Administration. A $20 million LMR service agreement for Spokane, Washington Regional Emergency Communications. And a $19 million mobile video order from a U.S. customer. And finally, a $10 million command center order for the City and County of San Francisco. For the full year, revenue was $3.7 billion, up 10% on growth in LMR services, command center, and video. Revenue from acquisitions was $83 million and currency headwinds were $19 million. For the full year, operating earnings were $1.3 billion or 33.9% of sales, down 140 basis points versus the prior year, driven by the airway revenue reduction and higher acquisition-related expenses. Looking next at our regional results, North America revenue was $2 billion in Q4, up 6%. and $6.9 billion for the full year, up 9%, driven by growth in both segments and across all three technologies. And in international, Q4 revenue was $832 million, up 3% versus last year, driven by growth in video and LMR. And for the full year, international revenue was $3 billion, up 11% versus last year, driven by growth in LMR and video. Moving to backlog, ending backlog for Q4 was $14.3 billion, down $88 million versus last year, inclusive of approximately $1 billion of backlog reduction related to the airway price control and revenue recognition for airwave and ESN. Sequentially, backlog was down $15 million, inclusive of the airwave and ESN reduction, and $160 million of favorable FX. In the products and SI segment, ending backlog was up 93 million, or 2%, driven primarily by strong demand in North America. Sequentially, backlog was up 99 million, also driven by demand in North America. In software and services, backlog decreased 181 million from last year and 114 million sequentially. Excluding Airwave and ESN, software and services backlog was up almost $800 million versus last year, driven by strong multi-year agreements in both regions. Turning now to our outlook, we expect Q1 sales to be up approximately 8%, with non-GAAP earnings per share between $2.50 and $2.55 per share. This assumes a weighted average diluted share count of approximately 172 million shares and an effective tax rate of approximately 23%. And for the full year, we expect revenue growth of approximately 6% and non-GAAP earnings per share between $12.62 and $12.72 per share. This full-year outlook assumes a weighted average diluted share count of approximately 171 million shares and an effective tax rate between 23% and 24%. Additionally, we expect another strong year of operating cash flow, with 2024 expectations of $2.2 billion in operating cash flow. And before I turn it back to Greg, I wanted to share some additional highlights. First, I want to give you some color on the technology growth expectations that are included in the sales guidance for the year. In video security and access control, we're planning for 10% growth, which is informed by the acceleration and strong adoption of our cloud offerings. For command center, we also expect 10% growth, consistent with last year's organic growth rate. And in LMR, we expect to grow mid-single digits or high single digits when normalized for the impact of the UK Home Office. Second, I would like to share with you some exciting updates about our video business. In light of two recent partnerships that support our growth expectations, one with Jabil and another with Google. With Jabil, we've entered into a strategic manufacturing agreement where Jabil will assume responsibility for our manufacturing operations at our sites in Canada and Texas. This agreement further optimizes our video supply chain, provides redundancy, future cost savings, and scalability. Additionally, it allows us to focus on engineering, designing, and bringing to market video solutions that serve our customer security needs while continuing to enable regulatory compliance with NDAA rules for the procurement of secure equipment. And with Google, yesterday we announced a new strategic agreement with Google Cloud that harnesses the power of their latest cloud advancements to enable assistive intelligence, such as accurate and reliable video content, mapping, and other AI capabilities. Google Cloud also enables Avigilon Alta, our fast-growing cloud-native fixed video and access control platform, which we introduced a little more than a year ago. Alta combines the power of our AI analytics with the ease and simplicity of a cloud-delivered VMS that is increasingly preferred by some verticals like education. The rapid adoption in Alta contributed almost a quarter of our growth last year to total video and includes a higher subscription attachment compared to a traditional Avigilon Unity sale. And finally, we ended the year with a very strong balance sheet, including $1.7 billion in cash, a fixed rate balanced debt maturity profile, and our net debt to EBITDA ratio of 1.4 is our lowest since 2015, providing us with ample flexibility to continue to deploy capital and drive shareholder value. I'll now turn the call back to Greg.
spk02: Thanks, Jason. First, 2023 was a phenomenal year for the company. We achieved record sales in both segments and all three technologies, significantly expanded operating margins, grew earnings per share by 15%, and generated record operating cash flow of $2 billion. We also returned $1.4 billion to our shareholders through dividends and share repurchases, and we strengthened our video security portfolio with the recent acquisition of IP Video. Second, this past November, we announced our new brand narrative, Solving for Safer. This reflects our purposeful transformation centered on public safety and enterprise security and our sharpened focus on solving for safer communities, safer schools, and safer businesses. Our solutions across LMR, video security and command center that are powered by artificial intelligence enable collaboration between public safety agencies and enterprises, connecting those in need with those who can help. And while we recognize technology is not the only way to a safer future, it does play a vital role. And finally, as we enter 2024, the momentum of our business remains strong. Funding for public safety continues to be a priority. Investments we've made in the portfolio, including our Apex Next device, and, by the way, the software applications that run on this device, are driving higher ASPs for our products and strong growth in software and services. We're also seeing a noticeable acceleration of cloud adoption and video security that is driving margin accretive revenues in software and services. And with our exceptionally strong balance sheet, we have the opportunity to continue to deploy capital to drive long-term shareholder value. I'm extremely pleased how we're positioned, and I expect 2024 to be another year of strong revenue and earnings growth for our company. I'll now turn the call back over to Tim.
spk00: Thanks, 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, please remind our callers on the line how to ask a question.
spk11: The floor is now open for questions. If you have a question or comment, please press star 5 on your telephone keypad. If for any reason you would like to remove yourself from the queue, please press star 5 once again. We do ask that while you pose your question, please pick up your handset to provide optimal sound quality. The first question is from George Notter with Jefferies. Your line is now open.
spk04: Hi, guys. Thanks a lot. Hey, I have a question on the margin expansion in the business. I guess I wanted to ask about, you know, what kind of headwind you guys still had running through the business in 2023? I'm thinking about things like expedite fees and And even freight costs. I know that a lot of those fees didn't come out of the model until we kind of said burn down some backlog. So I guess I'm wondering how much of the headwind was in the 2023 numbers. And then I assume that'll be all out fully for the 2024 year. I'm just kind of wondering what kind of benefit you might get on margins there. And then just as a follow-up, second question was just on Silver Lake. I'm just curious about is there any update there on what those guys might do and how might you kind of fund the unwind of that position? Thanks a lot.
spk02: Yeah, George, so just to reconfirm, we do expect operating margin expansion for 2024. That's in part by informed continued improvement in PPV. I have to compliment Jason and the supply team and Jack's ops team did a great job exceeding what we set out as targets last year. And to remind you, we are expecting another 60 million of PPV improvement in in this year in 24. From a gross margin standpoint for the firm, we expect them to be comparable to slightly up. So I think we do a pretty good job on the operating leverage side of this business, both on gross margin and operating margin. By the way, the OPEX envelope year over year is probably going to be up about $80 million, 24 over 23, of which half is organic, $40 million, and $40 million is inorganic. As it relates to Silver Lake, really no update that they are in the final year of their second five-year pipe. It expires in September. The diluted share count is already calculated into our EPS expectations. So really nothing to report at this point. The partnership remains good, and we'll see how that plays forward for the balance of the year. By the way, we do expect, as we think about Silver Lake and the expiration of the pipe, we do expect higher interest expense this year to be about $40 million, which includes the assumption of $1.3 billion of refinancing, of which $1 billion is the Silver Lake note and $300 million is debt that expires in September of this year. Great. That's helpful. Thanks very much.
spk11: George. The next question comes from the line of Tim Long with Barclays. Your line is now open.
spk13: Thank you. Just wanted to ask a little bit on the top line. Maybe, Greg, for you, the Q1 guide looks pretty strong, but the full year is a little bit lower on growth. So maybe can you talk about visibility or what you're kind of expecting in the back half of the year as it just compares or conservatism or anything else? we need to be aware of for that little discrepancy in growth rates. And then I did want to secondly follow up on the video 10% growth. I mean, obviously the numbers are getting bigger here, but can you kind of put that in context of where you are with share gains and getting into, you know, deeper into the government verticals and getting some benefits this year from ARPA funding, say on safe schools and other areas, if you can Just put that into context with some of those drivers. That would be great. Thank you.
spk02: So let's take the full year first. I think it's important to say that, you know, I'm super proud of last year. But to your point, as we're sitting here in February, backlog is strong, but, Tim, so is the pipeline. So we're in a good-aged backlog position, but the pipeline remains strong as well, which makes me feel good. about where we sit here for the balance of the year. I'd also tell you that when we think about the full year guide, it's coming off of a Q4 that exceeded our guidance. It's coming off of a full year that exceeded our guidance. And if you anchor it to the color I gave last time at about $10.5 billion, it's about $75 million higher than that reference a quarter ago. Now, having said all that, So we guide for full year 6%. I remind you that $200 million is a headwind related to the U.K. home office. So year over year, we expect airwave revenue to be about $375 million. But if you take year over year, you add in the $200 million full year U.K. home office headwind that can normalize the year over year comparison. Additionally, one other thing worth mentioning is, and Jack talked about this earlier, A quarter ago, we had exceptionally strong revenue contribution from Ukraine of $150 million last year. And based on what's expected to be shipped in backlog, we expect that to be $50 million. So you take the year-over-year 6%. You take $200 million decrement for UK Home Office headwind. You normalize for Ukraine. And I think our growth is quite solid and a prudent guide at this point in time.
spk08: One other insight into the video growth of approximately 10% this year. Within that, we're really pleased with the cloud growth that we're seeing. True. Alta, which we talked about on the call, is a platform which is cloud native, is growing exceptionally well. We've also made a decision to rationalize some of our on-prem DMS. And the combination of that growth rate in 24 and rationalizing the VMS is about $40 million of impact in 2024. So we're continuing to grow. And, Jack, do you want to talk about the market and how we're doing in video?
spk14: Yeah, Tim, I'd also dimensionalize both. Jason alluded to it both in script and his comments. Cloud's growing, but we also – our expectations are also that are on-prem. Business is very healthy, continues to grow. As it relates to share, we believe we'll continue to take market share. You also asked a question, Tim, in government. Total government video sales that encompasses both mobile and fixed video are now at $500 million in 2023. And I would highlight our government video growth is growing faster than our overall total business. So I think... I don't think it's being driven at all by ARPA. I think it's being driven by prioritization and really building more and more efficiency and mobility within police forces as they have to contend with more and more crime.
spk02: And one other thing, just because we're still, to George's question, weaning off BPV and we'll have some commensurate benefits this year. If you take last year and this year as we're working through this supply chain and elevated inventory and improved freight and PPV, if you look at first half and second half, Tim, to your point about guide and linearity, it's very similar to last year. So I'm not concerned about anything as we sit here with our expectation for the full year performance.
spk11: Okay. Thank you very much. Thanks, Tim. The next question comes from the line of Matthew Nicknam with Dutchess Bank. Your line is now open.
spk10: Hey, guys. Thank you for taking the questions. One question, one follow-up. So just on the supply chain, I think this was alluded to a little bit, but just if you can give any more color on the latest you're seeing there and any noticeable impacts from some of the disruption we've seen on the Red Sea front, if that's impacted you guys at all in terms of costs. And then secondarily, can you just talk a little bit more about the Jabil agreements strategic rationale there and any cost implications we should keep in mind. Thank you.
spk08: I'll answer the second one first. The Jabil agreement is for them in 2024 to operate the two factories that will be transitioning to them. So not a significant change in cost profile in 24. But as we look to 25 and with our growth expectations, there will be opportunities for cost as well as an efficient way to scale the growth that we're expecting. So it was an agreement in us looking into the future. and we're very pleased with it and providing us additional redundancy as well. It'll help us scale, grow, and also manage our cost envelope as we grow.
spk02: And the Red Sea?
spk08: The Red Sea, we remain primarily on air as our mode of transportation, and so as a result, not a lot on the ocean, and the impact of higher container rates is negligible for us. So Given the state of the supply chain, while it's improving, we found that air and air rates are a good investment to make and make sure that we're getting everything we need when we need it. We've seen continued improvement from supply chain and our vendors, particularly in semiconductors, and they have some improvements to make, and we expect them to continue to improve on the deliveries of, in particular, nanometer chips of 40 nanometers and above. in some cases. So improving and working through it.
spk02: And as we work through the year, it would be our expectation at the end of the year to have overall inventory reduced again this year as things normalize and improve.
spk10: That's relative to the 827 you ended last year at? That's right.
spk08: The 827 was down 200 from its 12-month predecessor, and we expect to drive the 827 down even further by year's end as we navigate an improving environment.
spk10: Appreciate it. Thank you.
spk11: Thank you. The next question comes from the line of Adam Tindall with Raymond James. Your line is now open.
spk15: Okay, thanks. Good afternoon. Jason, I just wanted to start on backlog trends for clarification. I know reported backlog in total appears, the headline appears to be down, but I think there's a lot of impact from airwave in that. Could you just give us a sense of what backlog looks like ex-airwave? And then just as a follow-up on that topic, either Jack or Greg, or if you want to both weigh in, this is just a metric that I think investors are watching very closely because backlog builds and records have happened across tech hardware, whether it's Cisco and networking or PCs before that, and led to a sharper digestion period than initially anticipated once that backlog started softening. So I wonder if you could maybe just double-click on the current state of supply and demand and address how you think about the similarities or differences in what you're seeing in your business and the time and shape of normalization if and when that does happen. Thank you.
spk02: Yeah, I would start, Adam, and tell you that this is one of the things I'm most proud of when I look at the print for the full year. Overall backlog of $14.3 billion ending year from a year ago with absorbing – just under $800 million decrement for the calculation of airwave and the three-year plus or three-year backlog that that sits. So be able to keep that at the same level or comparable levels with that reduction is pretty significant. The other thing that gives me optimism is the exceptionally strong product backlog, that we exited Q4 and the aged backlog that we sit in the position of as we enter. But I also remind you, so I love the backlog position, but I also love the pipeline and the ongoing demand and what I see in the funnel. And when I look at Malloy and his team's conversion rates, I'm optimistic by what's in backlog. I'm also optimistic what's in pipeline.
spk08: A couple of attributes I think that are important to understand in our backlog. First, Over 95% of our backlog comes to us from our government customers and our public safety customers. And the majority of that is a direct relationship and a contractual one between us and an end customer. That is very important. And secondly, as you think about our backlog, we enter the year, much like last year, in a position where about half of our revenues for the year a little bit more than that, will come to us from backlog. And with that strength combined with the pipeline strength, that's what informs our guide for our 6% growth. Exactly.
spk15: Very helpful. Just quickly, Jason, sorry if I missed it. Did you talk about free cash flow expectations in 2024 and any benefit from working capital with the JABL agreement? I know sometimes that can have some transitional working capital that may be favorable, so free cash flow and the potential benefit.
spk08: Yeah, given the 24 is an operate-in-place kind of steady agreement, the working capital benefits are minimal in terms of that agreement. That said, we do expect working capital improvement. We talked about inventory. Our outlook for operating cash flow is $2.2 billion. That's up off of last year's record $2 billion. And within that operating cash flow, the contribution for CapEx is continues to be 15% or less. So we're expecting another strong year of cash flow.
spk11: Very helpful. Thank you. The next question comes from the line of Joseph Cardoso with JP Morgan. Your line is now open.
spk06: Hey, thanks for the question, guys. I just wanted to follow up on the last free cash flow question. I guess when I'm taking a look at it, it kind of implies that you're going to have a nice step up in free cash flow generation, which in combination exiting 2023 with, I think, $1.7 billion of cash on the balance sheet, looks like you'll have a fair bit of dry powder. Can you just help us think about the appetite in 2024 to deploy cash buybacks? I mean, should we be thinking about a more aggressive than typical nature? Any color would be appreciated. Thank you.
spk02: Just in terms of capital allocation, we always think of it, and I love the fact that we have the balance sheet that we do. Jason, in his remarks, talked about 1.4 net debt to adjusted EBITDA. So I love the opportunity, the flexibility that that gives us. I am proud of the way we are good stewards of capital, both returning it to the shareholder and share repo and dividend, but being surgical and thoughtful to accretive acquisitions as well. So you think about this cash flow, and I always think the wheel of 55-30-15. Fifty-five percent of that cash flow is available for share repo or acquisition, fungible between the two, representative of the opportunities that come our way. Thirty percent is dividend, and 15 percent, as Jason just referenced, is CapEx. Even though we made only one acquisition at the end of the year in IP video, It certainly wasn't reflective of the engagements that we had. I think there's a lot of opportunity. I love the fact that we have the organic opportunity. whether it's device refresh, public safety prioritization, ARPA funding, enterprise opportunity, video and government, you know the opportunities that are in front of us organically, which are consequential. Equally, I'm excited about acquisition opportunities that can make our portfolio stronger. particularly around either video software or services. So that's how we think about it.
spk08: The other thing that was noteworthy in 23, given the strength of our balance sheet, is that we did earn an upgrade from Moody's to BAA2. And as Greg mentioned, we'll be in the debt markets this year, refinancing $1.3 billion. And so having taken note of that strength of the cash flow in 23, as well as our expectations in 24, that'll help us as we refinance.
spk06: No, guys, we appreciate the color there. And then just for my follow-up, can we just get an update on Airwaves? I noticed in the press release, you know, it sounded like you guys have the option to file an application with the UK Courts of Appeal. Like, are you guys actually taking that step? Can you provide any color around that? And then any color in terms of the next steps beyond the filing and what other options you have at your disposal? Thanks for the question.
spk02: Yeah, we will pursue the next step, which is appealing to the UK Court of Appeals. We anticipate doing that next week. I've said all along, and we remain pretty consistent, that this whole thing is beyond unique. We still believe it's unprecedented. We think it's legally flawed, but I'm not going to whine about it. I'm consistent in our description. We're going to pursue all the avenues available to us to defend our position. So to your point, that will be the filing of the appeal to the UK Court of Appeals next week. Unclear how long that will take. You know, probably several months, but that remains to be seen. The only other thing I'd say is in public commentary, that has been made with the CMA and other parliamentary hearings, it's pretty obvious that they believe that airwave will be needed well beyond 2026. The references have been made by different parties to either needing it through 2029 or 2030. So we will continue to move forward as best we can, engaging where we can, maintaining the investments that we need to make in this network. and customer service levels is as high as they've ever been.
spk08: And just as a reminder, our current backlog with the adjustment we mentioned in Q4 has our contract with the U.K. Home Office through 2026. That's right. There's opportunity for us to serve that account beyond that.
spk06: I appreciate the colors, guys. Thanks. Thanks for all the questions.
spk11: Thank you. The next question is from the line of Tomer Zilberman. With Bank of America, your line is now open.
spk03: Hey, guys. Thank you for the question. Just wanted to start off first with ARPA. Just want to get an update what it contributed to orders this year and your expectations going into next year. I know you previously noted it was 5% contribution in 22, and I think you said in the first half of this year it was also 5%.
spk14: Yeah, Tomer, that's consistent with what we've said before. I think the key thing I would say as it relates to budgets right now is public safety, number one, public safety spending continues to get prioritized. Number two, I've just scoured through the state and local budget drafts of 2025. By and large, the situation remains very solid. Even the states that have had an influx of immigrants have actually appropriated more dollars to public safety, which is interesting. But generally speaking, when we look at it, the budget situation in state and local is very solid.
spk03: Got it. And then maybe just as a quick follow-up, I know you've touched on backlog already, but curious how the duration of the backlog has improved in the last three months and, you know, maybe the start of this year.
spk08: To begin this year, its duration is similar to slightly improved from the beginning of where we were entering last year. So the duration and the quality attributes of the backlog are as good or better than they were last year.
spk11: Got it. Thank you. The next question is from the line of Benjamin Bolin with Cleveland Research. Your line is now open.
spk05: Good afternoon, everyone. Thanks for taking the question. Greg, bigger picture question, you know, going into an election year, curious how that has any impact, if at all, on how you guys thought about 2024 in your top-line targets. And then a secondary question would be, Could you share your thoughts around the typical refresh that you see in these fixed video deployments and how you think about replacement versus net new placements in the wild and how that kind of comes together in that 10% figure that you're talking about for video growth this year? Thank you.
spk02: Yeah, Ben, in terms of the election year, it's interesting. We always talk about this, too. If you kind of look back over the history of this business, we do pretty well irrespective of a Republican or a Democratic administration. So, you know, we've had great success in 2023. We expect to have Another strong year this year, when there's a presidential change, there's always some period of transition. They'll typically operate under a continuing resolution. But in the main, generally speaking, we have a pretty solid foundational level of performance with kind of low beta risk, given the backlog and the continual high priority demand of public safety. On fixed video, and we talked about, Jason articulated the 10% target for this year. Look, I actually like the fact that we have the width and breadth of the portfolio that we do. So we have the broadest portfolio in video, fixed or mobile, prem or cloud, and we can meet the customer wherever they want to be met to buy. Most of our customers have both cloud and prem. If in fact, that there's a notable acceleration of cloud adoption, which we've seen and we are seeing, that moves more toward cloud, that's great. If that moderates the top-line growth from 15 to 10, that's okay, too, because of the long-term value of that dollar of revenue, the stickiness with the customer relationship. And as Malloy said, he and we still believe we're taking share. So we feel good about the position. In terms of refresh on cameras, Jack, maybe you want to talk about that.
spk14: Yeah, Ben, it obviously varies if they're citywide deployments, meaning outside cameras, you start to see a replacement cycle of anywhere to, you know, kind of three to five years in the networks that we manage. Internally, those upgrades are more driven by the R&D investments that the Haitian team have made around analytics. I would note one thing. The acquisition we made in Pelco, we were actually very pleased in 2023 with the growth that Pelco had. But as we think about competitive VMSs that are out there, the work that we have ahead of us this year is to go and leverage our Pelco portfolio to drive new opportunities in the camera replacement cycle.
spk09: Just one more thing to add to that is just to support our Alta growth with video, one of our initial acquisition thesis was just the ability to expand the camera portfolio that Alta supports. And something that we did towards the end of last year was to expand the entire 86SL line, which is one of the more popular lines within the Avigilon camera family, now that is entirely supported within Alta Video. And I think that's also going to help with the refresh cycles and also help with some of the transition to cloud. Unity 8, we introduced that last year. And Unity 8, one of the special things about it is it's not just an on-prem solution. It's actually an on-prem solution that can bridge into the cloud as well. So as we think about those transitions, the boundary between on-prem and cloud is a bit fuzzy and I think in a good way for us. Thanks, guys.
spk11: Thank you. Thanks, Ben. The next question comes from a line of Keith Husam with North Coast Research. Your line is now open.
spk01: Good afternoon, guys, and great job on the quarter and for the year. I guess a question for you on the IP video acquisition. Perhaps let's walk us through some of the rationale for that acquisition and perhaps where you see some cross-selling opportunities and growth opportunities going forward.
spk09: Sure. So the Halo video sensor or the Halo sensor is actually not a new thing for us. Avigilon has partnered with IP Video for quite some years. We have actually been reselling the IP Video solution. And the key reason there is that there are plenty of situations, like in schools, where video cannot be used in certain locations, but these sensors can. So think of it as the detection of smoking vape sensors, et cetera, in bathrooms, in areas where we typically do not install cameras, but become quite important from a security and a safety standpoint. Halo is sort of the leading sensor when it comes to air quality, vape sensing, audio analytics, including gunshot detection. And so as we think about really expanding our capability within education and beyond, this was just a natural fit for us to bring in and integrate more closely with our Unity and Alta platforms.
spk14: The only thing I can add on that, just in terms of cross-sell, would be that They've done very well in education. It's our role to get in and expand that business into health care, into workplaces, into transit areas where you have issues with people smoking and those kind of things as well. We think we've got the relationships to extend into those markets as well.
spk01: Okay. Makes sense. I appreciate it. A follow-up question, changing gears on you slightly here. Another conversation on PCR, and I know there's been some moving pieces throughout the year in terms of you know, getting out in some of the areas like Asia. But perhaps just give an update on where PCR stands. I know there's also some issues with supply chain earlier in the year. Any update would be helpful there. Thanks.
spk02: Yeah, PCR actually did great in 23, Keith, about $1.1 billion of revenue last year. And it was a record in full year 23. So the performance by that team was exceptional. And I would expect PCR to be comparable levels this year. That's informed into the LMR mid-single-digit technology growth or actually high single-digit when you normalize for airwave. So PCR is quite resilient and doing well.
spk01: Great. Much appreciated. Thank you.
spk11: You bet. The next question comes from the line of Louis De Palma with William Blair. Your line is now open.
spk07: Greg, Jason, Jack Mahesh, and Tim, good afternoon.
spk02: Louis, how are you doing?
spk07: Doing great. I was wondering, does Google bring any special benefits for partnering with them for ALTA versus the other companies? major cloud providers? I know you have, I think, a partnership with Azure for your command center business.
spk09: Yeah, Louis. So to begin with, Avigilon Alta Video is already on Google Cloud today. And this is really a scale story, and especially a scale around some key vectors, for example, AI. And so as we think about Expanding Alta geographically as we think about expanding Alta and more broadly video across our capability set. AI was important. Mapping capabilities was important. Low latency data delivery, video delivery was important. And we thought that Google would be a good partner as we expand our installation, our capability of deploying within Google Cloud. In terms of sort of a broader comment on this, look, there's lots of stuff happening in the cloud world today, whether that's on the AI side, core cloud services, et cetera. And we want to be able to provide our customers with the best performance at the best price point. And so this Google partnership is really part of our multi-cloud strategy at the end of it all. So that's really what drove it.
spk07: Great. And are the economics significantly different for Alta versus Unity? Are you actively pushing for one instead of the other?
spk08: We're positioned to offer our customers a choice, as Jack mentioned. We have growth expectations for both Unity, the on-prem, as well as Alta. Customers like those in education we mentioned on the call are increasingly choosing Alta. The difference between the two is really how the VMS or software layer is delivered. In the case of Alta, the VMS is delivered and deployed through the cloud under a term license. And in the case of Unity, it's an on-prem and more of a perpetual process. with a maintenance arrangement. So those are the two models we have, Jack.
spk14: Customers are – Yeah, two things there, Louie, is the purchase decision remains very dynamic up until the last, you know, call it two to three weeks of a decision. But it's interesting, as we look at win-loss data, one of the interesting things is that we've had – competitors who are more point solution providers who have been eliminated from decisions, and we've had both Alta and Unity as finalist decisions, which, again, I think speaks to the breadth and the advantage that gives us in the marketplace.
spk02: And, Louie, while the customer decides it's not so much what we push, it's what they want, and as Jack said, many customers deploy – they deploy both. Cloud fixed video is smaller from our overall revenue contribution than prem fixed video, but it's noteworthy to say that the growth of cloud fixed video is a strong multiple of the prem solution.
spk07: Yeah, and is there increasing momentum for Ulta? I think you mentioned how 25% of the growth for 2023 with video is from Ulta. Do you think that 25% is going to increase to 35% or something like that in 2024?
spk02: I don't know. It depends on what 24's growth composition ultimately ends up being. But what I will say is the cloud solution, in our case, Alta, is growing significantly faster than Prem. So it's hard to predict the composition at the end of year 24 until we see how things settle.
spk07: Excellent. That's all I have. Thanks, everyone.
spk11: Thank you, Louis. Once again, if you have a question, you may press star 5 on your telephone keypad. Our next question comes from the line of Meadow Marshall with Morgan Stanley. Your line is now open.
spk12: Hey, everyone. You've got Jamie on for me. I appreciate you taking the time. Similar to one of the earlier questions and understanding that you're still seeing strong growth and some impressive wins in the corridor, the Q4 growth and accompanying 2024 outlook and command center just looked a little bit lower than what we've been modeling. So I guess, is there any additional detail you can provide as to what you're seeing there and what's driving that outlook on 24? And then as a follow-up, how should we think about the contribution from pricing, you know, broadly in the growth outlook for 24?
spk02: And maybe we can tag-team this, but command center, that's another one I was particularly proud of because we grew 21% for the year. Now, obviously, RAVE was a key driver in that, and RAVE – has turned out to be a great acquisition for us, actually exceeding its business case. If you take that out, Jamie, and you normalize for organic growth, the organic growth is another solid year of 10% growth. And by the way, that's inclusive of the growth of a $25 million headwind in That actually represents the transitioning out of ESN. So when you think about the overall 10% growth of command center, you do have to include the normalization of the exit of ESN. That's worth $25 million, but growth remains pretty strong in that segment as well.
spk08: And in terms of growth drivers for 24, we would expect growth from both volume and price, inclusive of ASPs continuing to grow as they did in 23, as our customers adopt more of the feature-rich part of the portfolio, including Apex Next and other parts of the portfolio. We would expect that to continue, and that's included in our growth expectations.
spk12: Great. Thank you so much for the time.
spk11: Thanks, Jamie. This concludes our question and answer session. I'll now turn the floor over to Mr. Greg Brown, Chairman and Chief Executive Officer, for any additional comments or closing remarks.
spk02: Yeah, thanks. Listen, thank you for dialing in and listening. I would just close by saying that I think as we're entering 2024 or in it now in February, it's pretty clear that public safety and enterprise security have never been more important. I love the fact that we've got the broadest and most comprehensive product portfolio. I like the fact that as customers index to a more notable adoption on cloud acceleration, we're able to capitalize on that with our Alta solution. I love the fact that we have the Apex Next refresh cycle in particular continue to march forward, and that remains robust. And as was mentioned on the call, I am particularly excited about our partnership with Google. For all of the Motorola's listening in on the call, I'm really proud of you. I'm proud of our team's execution in 23, and I'm anticipating another strong year in 2024, and I appreciate everything you're doing. I look forward to catching up and talking with you and debriefing in a quarter. Thanks again for all the great work.
spk11: Ladies and gentlemen, this does conclude today's teleconference. A replay of the call will be available over the internet within three hours. The website address is www.motorolasolutions.com slash investor. We thank you for your participation and ask that you please disconnect your lines at this time.
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