Motorola Solutions, Inc. Price & Performance (MSI)

And during the call, we reference non GAAP 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 and A portion of 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 Factors section on our 2023 Annual Report on Form 10 ks, 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. Thanks, Tim, and good afternoon, and thanks for joining us today. Going to start off by sharing a few thoughts about the overall business before Jason takes us through results and our outlook. First Q4 was another exceptional quarter.

We achieved record revenue in both segments in all three technologies, including double digit growth in video and command center, highlighting the depth and breadth of our safety and security ecosystem that helps us protect people, property and places. Additionally, we generated Q4 record operating earnings in both segments and ended the year with record backlog of $14,700,000,000 up $438,000,000 inclusive of $226,000,000 of unfavorable currency rates. Second, our full year results were outstanding. Product and SI, revenue was up 10% driven by growth in both LMR and video, we also expanded operating margins in the segment by three eighty basis points Driven in part by continued favorable mix to our feature rich devices, and lower material costs. In software and services, revenue was up 5% or 13% excluding UK home office, driven by strong growth in video, command center and our LMR services businesses outside of The U. S. We also grew earnings per share 16% operating cash flow by 17%, and strengthened our safety and security offerings with four acquisitions in our video and command centered technologies, and subsequent to quarter end, we announced that we've entered into a definitive agreement to acquire Theatro, a maker of AI and voice powered communication and digital workflow software, for frontline workers.

And finally, as we enter 2025, the continued robust demand for our solutions coupled with our record backlog and healthy balance sheet positions us well for another year of strong revenue, earnings per share and cash flow growth And with that, I'll now turn the call over to Jason. Thanks, Greg. Revenue for the quarter grew 6% and was above our guidance with growth in both segments and all three technologies.

Revenue from acquisitions was $37,000,000 and the impact of favorable foreign currency rates was $6,000,000 GAAP operating earnings were $814,000,000 or 27% of sales up from 25.9% in the year ago quarter, driven primarily by a recovery Non GAAP operating earnings were $916,000,000 up 5% from the year ago quarter and non GAAP operating margin was 30.4% versus 30.5% in the year ago quarter GAAP earnings per share was $3.56 up from $3.47 in the year ago quarter. Non GAAP EPS was $4.04 up 4% from $3.9 last year driven by higher sales and favorable mix. OpEx in Q4 was $652,000,000 up $55,000,000 versus the prior year, primarily due to higher employee incentives investments in video and higher expenses from acquisitions. For the full year 2024, revenue was $10,800,000,000 up 8% with strong growth in both segments and across all three technologies. Revenue from acquisitions was $95,000,000 and the impact of unfavorable foreign currency rates was $2,000,000 GAAP operating earnings were $2,700,000,000 or 24.8% of sales versus 23% in the prior year. Non GAAP operating earnings were $3,100,000,000 up $358,000,000 and non GAAP operating margins were 29% of sales, up from 27.9% of sales in the prior year driven by higher sales, favorable mix and lower direct material costs.

Partially offset by the Airwave charge control and the impact of acquisitions. GAAP earnings per share was $9.23 in the prior year, primarily due to the $3.42 per share pre tax loss booked in Q1 related to the accounting treatment for the settlement of the Silver Lake convertible notes. Non GAAP EPS was $13.84 up 16% from $11.95 in 2023, driven primarily by higher earnings For the full year, OpEx was $2,400,000,000 up $197,000,000 versus 2023, primarily driven by higher employee incentives, higher expenses associated with acquisitions and higher legal costs inclusive of the CMA appeal. And the effective tax rate for 2024 was 22%, compared to 21.9% in the prior year. Turning to cash flow, Q4 operating cash flow was $1,100,000,000 down from $1,200,000,000 in the prior year as the linearity of cash generation improved. And resulted in full year record operating cash flow of 2,400,000,000.0 and record free cash flow of 2,100,000,000.0 The 17% year over year operating cash flow increase was driven by higher earnings and marks the second consecutive year of double digit operating cash flow growth.

Capital allocation in 'twenty four included $654,000,000 in dividends dollars $282,000,000 for acquisitions, dollars $244,000,000 in share repurchases and $257,000,000 of CapEx. We also used $593,000,000 of cash to settle the Silver Lake convertible premium in Q1.

And increased our dividend by 11% in November was our fourteenth consecutive year of double digit increases. Moving to segment results and products, Q4 sales were up 3% versus last year, driven by growth in LMR and video. Revenue from acquisitions was $11,000,000 in the quarter, while the impact of favorable foreign currency rates was 1,000,000 Operating earnings were $594,000,000 or 30.5% of sales, up from 30% in the prior year driven by higher sales, favorable mix and lower direct material costs.

Some notable wins and achievements in this segment include a $53,000,000 P25 device order from a U. S. State and local customer, $52,000,000 P25 system and device order for a Canadian customer a $36,000,000 P25 device order for Broward Sheriff's Office in Florida dollars 33,000,000 P25 system order from the Kentucky State Police, a $32,000,000 P25 device order a $16,000,000 fixed video order. For Duke Energy. And for the full year Products and SI revenue was $6,900,000,000 up 10% from the prior year, driven by higher sales in LMR and video. Revenue from acquisitions was $43,000,000 and the impact of unfavorable foreign currency rates was 2,000,000 All year operating earnings were $1,900,000,000 or 28.1% of sales, up from 24.3% in the prior year on higher sales, favorable mix, and lower direct material costs.

In software and services, Q4 revenue was up 11% driven by growth in all three technologies. Revenue from acquisitions was $26,000,000 while the impact of favorable foreign currency rates was $5,000,000 Q4 operating earnings in this segment were $322,000,000 and operating margins were 30.3% of sales down from 31.6% last year primarily driven by acquisitions. Some notable Q4 highlights in this segment include $329,000,000 ten year services renewal for Melbourne, Australia's LMR network, as $160,000,000 five year LMR managed services renewal from Norway's nationwide public safety network a $68,000,000 LMR services order for a U. S. State and local customer a $40,000,000 command center order from the Scottish Fire Services, and finally, a $16,000,000 fixed video order for the Sao Paulo State Government In Brazil, For the full year, S and S revenue was $3,900,000,000 up 5% compared to last year.

When excluding The UK home office, revenue grew 13% with the growth Revenue from acquisitions was $52,000,000 during the year. Full year operating earnings were $1,200,000,000 or 30.8% of sales, down three ten basis points versus the prior year driven by the Airwave charge control, and higher expenses associated with acquired businesses during the year. Looking at regional results, North America revenue was $2,200,000,000 dollars in Q4, up 9 percent and $7,800,000,000 for the full year, up 13%. Driven by growth in both segments and in all three technologies.

International Q4 revenue was $8.00 $7,000,000 down 3% versus last year, primarily driven by lower Ukraine revenue in the current year and our exit from ESN which was in the year ago quarter. Offset by growth in video and command center. For the full year, international revenue was 3,000,000,000 down 2%. Excluding The UK home office, international revenue was up mid single digits, driven by growth in all three technologies. Moving next to backlog. Ending backlog for Q4 was $14,700,000,000 up $438,000,000 versus last year, inclusive of $226,000,000 of foreign currency headwinds Sequentially, backlog was up $6.00 2,000,000 inclusive of $319,000,000 of foreign currency headwinds. And in the Products and SI segment, ending backlog was down $858,000,000 driven primarily by strong LMR shipments during the year. Sequentially backlog was down 46,000,000 primarily driven by unfavorable FX. And software and services backlog increased $1,300,000,000 from last year and $648,000,000 sequentially. The growth was driven by strong demand in all three technologies, inclusive of foreign currency headwinds of $195,000,000 dollars year over year and $281,000,000 sequentially. Turning next to our outlook. We expect Q1 sales to be up between 55.5%, with non GAAP EPS between $2.98 and $3.03 per share. This assumes approximately $25,000,000 in foreign exchange headwinds $171,000,000 diluted shares and a non GAAP effective tax rate of approximately 21%.

And for the full year, we expect revenue growth of approximately 5.5% Inclusive of our expectations for $120,000,000 of FX headwinds, driven by the U. S. Dollar strength and for non GAAP earnings per share between $14.64 and $14.74 per share. The full year outlook also assumes 171,000,000 shares and a non GAAP effective [indiscernible] of approximately 23%. Additionally, the outlook assumes tariff rates that are in effect [indiscernible] And finally, we with respect to cash flow, we expect to generate $2,700,000,000 in OCF which we would expect make 2025 our third consecutive year of double digit operating cash flow growth. And before I turn it over to Greg, I wanted to share just a few other things. First, with The U. K. Home office headwinds behind us on a full year basis, and the strong momentum we are seeing in cloud adoption and SaaS we expect our SNS segment growth to be high single digits. Or double digits when normalized for FX. And on the product segment, we are expecting low to mid single digit growth coming off a record 2024.

Secondly, I would provide you with some color on the technology growth In video, we're planning for another strong year of approximately 10% to 12% growth Inclusive of the increased cloud adoption we're seeing from our customers, In Command Center, we're planning for 12% growth driven in part by continued strong adoption And in LMR, we expect low to mid single digit growth, inclusive of the majority of the FX headwinds that I mentioned earlier. And finally, I'd highlight the strength of our balance sheet. Which includes over $2,000,000,000 in cash at year end a fixed rate debt maturity profile with no significant maturities until 2028 and a solid investment grade credit rating. All of which gives us significant flexibility in capital allocation. Greg, I'd like to turn it back to you. Thanks, Jason. And let me just end with some final thoughts. First, 2024 was another exceptional year for the company. We achieved record sales in both segments in all three technologies, significantly expanded operating margins, grew EPS by 16% generated record operating cash flow of $2,400,000,000 up 17% from the prior year And we also returned almost $1,500,000,000 to our shareholders through dividends, share repurchases and the settlement of the Silver Lake convertible note at less than $320 a share, and we added four acquisitions within our video and command center technologies.

Second, the investments we're making in software and services continue to drive strong recurring revenue growth for the company. Software and services revenue was up 13% during the year, excluding U. K. Home office. Command center video and our suite of applications running on our APAC Next family of devices. We also finished the year with SNS backlog of $10,600,000,000 up 14% including record backlog in all three technologies which is informing our guide for another strong year of growth in 2025. And finally, as we enter this year, we're very well positioned for another outstanding year. Our customers are continuing to invest in LMR, for the long term, highlighted by the numerous large multiyear contracts that we received over the last year We're also seeing strong interest in our latest generation D Series ASTRO infrastructure, which is creating a healthy pipeline of upgrade opportunities and is a further testament to the foundational longevity of this technology. And additionally, the upgrade cycle to our Apex Next family of devices continues to drive product and recurring revenue growth via the applications that are on each device. And in video and command center, we continue to see robust demand and are expecting another year of double digit growth in both of those technologies well.

Finally, our healthy cash generation and strong balance sheet with a net debt to EBITDA ratio of 1.1 probably the lowest we've seen in almost a decade provides us with significant flexibility to deploy and drive value for our shareholders in our total addressable market which is now approximately $72,000,000,000 So now I'll give the call back to Tim and we can take your questions. Thank you, Greg.

Before we begin taking questions, I'd like to remind callers to limit themselves to one question 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?

The floor is now open for questions. Thank you. The first question is from Tim Long with Barclays. Your line is now open. Hi. This is Elisa on for Tim. I just wanted to quickly touch base on with all the recent Trump administration, federal spending shifts and Doge, are you guys seeing any impact in terms of customer behavior or timing of then I had one follow-up to that.

No, we're not. I think that my view and our view of Doge, we like the opportunity where the government is deploying that organization to get after kind of frivolous and wasteful spending which I think is a good thing overall. But in direct answer to your question, we're not seeing any changes in customer behavior as a result of that effort. At this point in time.

Okay. That's helpful. And then just one follow-up on the video piece. Given the 10% to 12% is inclusive of customers move to the cloud. How many how should we think about if there wasn't a move to the cloud, would the growth be a point or two higher if we didn't count those headwinds as customers move to the cloud? How should we think about the growth rate for video with the move to cloud?

What we love the fact that customers are moving to the cloud. We offer solutions for both prem and cloud. We talked about it last year that there was pretty good acceleration to the cloud. We are seeing a continuation of that. 10% to 12% even with the cloud adoption which of course kind of smooths out revenue rec So we see it as a favorable trend. We like the continued momentum. And we think we're well positioned. And the cloud adoption continues in other parts of the portfolio. Absolutely. Command center and the work that MASH has done there. So and with the further integration of video and command center and the likes, we view that the cloud adoption of our customers to be a strengthened indicator across really the entire platform degree.

Thank you. Next question comes from Meta Marshall with Morgan Stanley. Hi, this is Mary on for Meda. Another question on [indiscernible] What are you seeing in terms of the federal budget approval and any upside from immigration efforts and any expectation of Ukraine revenue?

In this year. Yes. By the way, just as it relates to Ukraine, Really no revenue expectation for this year. We had about $80,000,000 last year So we don't have expectations for really any Ukrainian revenue at this point. 2025. Most of the Ukraine revenues were in PCR. That's true. And Mary, most of our engagement with the federal government is [indiscernible] And DoD. And I would say DoD, it's base security. Think of enterprise security at base security operations. Multiyear pipeline. We've got P25 both systems and device opportunities. I think it's important to highlight that yesterday, we were given a go ahead in FedRAMP high classification which enables us to sell Apex next Our application services on Apex Next, we're excited about that. Because actually that will open up incremental opportunities to sell high tier devices into said agencies. And then the last thing I'd highlight is video engagement. Government is outpaced video security growth for the company. And federal government has certainly been an area of brightness for us. And I think the engagement with our customers with the new administration continues very positive. And if you think about video all in, all in for us, it was a little over $550,000,000 last year in the government vertical.

The government vertical remains our largest for video and we expect in 2025 all in video growth to grow faster than the 10% to 12% for the technology as a whole.

Great. Thank you.

Thank you.

Our next question comes from Joseph Cardoso with JPMorgan. Your line is now open.

Hey, thanks for the question.

I guess maybe just wanted to follow-up on that last one and just maybe it's more of a clarification, but Greg, we saw some interviews towards the end of the year.

Essentially post the election, you're sounding a little bit more positive about the operating operating environment, highlighting some of the topics and focus around police and border Motorola, obviously. And obviously, we see the rhetoric out there, but just curious like could you just dimensionalize like how tangible this is today in terms of potentially maybe upside to like spending across maybe some of those areas of focus. And if you're actually seeing it, in orders or at least is there any early discussions with customers that is kind of tied into maybe that upside around that and then I have a quick follow-up for Jason. Sure, Joe. Well, so let's start with kind of since we last talked in November, and I gave high level color of 5% to 6% all in for the firm We guided obviously at 5.5%. But when you incorporate the expectations for $120,000,000 of FX, it's actually a stronger view today in February than I had in 2025 than I had in November. So I think also the positive feeling about the year is informed not just by the record backlog, but by the pipeline. The pipeline continues to grow.

So with the pipeline growing, and the setup for this year, I feel pretty good about where we are. I think that in addition to growing the top line 5.5%, absorbing We expect gross margins to be comparable to slightly up We still expect operating margin expansion And that's inclusive of about $25,000,000 of headwind associated with higher interest and a little bit of a higher tax rate. So all in Joe, I kind of like the setup orientation around public safety around border security and the work they've done tactically since then, since election, end to now is generally favorable. [indiscernible] they're looking at and I got an earlier question about Doge. Look, they're looking about efficiencies and workflow and a lot of what we do public safety and security speaks to workflow efficiencies, and doing more with less. So I feel good about where we are. And we'll operate accordingly with this administration. Now that's great, Greg. Thank you for the insights there. And then maybe just a quick one for Jason on the tariffs. Can you maybe just quantify how much of a headwind you're embedding from a tariff impact And then the second part of that is any way you can kind of help us think about if you're more biased to any of the particular regions that are under the scope here?

Sure. Thanks. So clearly supply chain is an ever changing environment. Having tackled semiconductor challenges over the last two years, now it's tariffs.

We like our footprint, the flexibility of it. And where we're positioned. Outside The USA, we're in Mexico. Malaysia and then Canada in that order. China is not a risk for us. The three zero one tariffs we've navigated with minimal impact because we don't have operations or manufacturing there.

So as we look forward and the guide we gave was reflective of the tariff rates that we're paying today. We'll continue to monitor and navigate with flexibility in the footprint we have.

ROI based decisions with facts on the ground as they present themselves So continue to be nimble in that regard.

And Joe, just an adder, even though it's a tariff kind of slash supply chain question, Jason's team and Chad Workham did a great job over the last year or two We did end up benefiting $65,000,000 to $70,000,000 of PPV benefit, which we said we would achieve last year Baked into the forward looking guidance for this year, we're expecting PPV benefit of about $25,000,000 that would help you kind of dimensionalize the current trend in that regard. Thanks Bill.

Our next question comes from Keith Housman with Northcoast Research. Your line is now open.

Good afternoon, guys. Hopefully, Jason or Rick, can you guys unpack the Theatro acquisition a little bit more for us in terms of what it brings to the table in terms of its capabilities and how you plan on expanding the business from here? Yes, Keith. So in terms of revenue contributions, we expect it to close this year. It will be pretty small. We will record it and it will be part of our command center offer.

We're really excited about the technology that it represents and I think Mahesh is best positioned to give you some insights as to why. Keith, for frontline workers, eyes up hands free, is important, but they would like to benefit from AI as well. And audio ends up being a very significant interface into AI And Theatro has an entire solution that is turnkey today specifically optimized for frontline worker workflows They're very strong in retail, and we feel like we can expand them into other markets as well. So we're pretty excited. Great. Appreciate it. And then I can just expand, Jason, on the tariff question from before. I know what your commentary was, tariffs are in place today, but it sounds like Canadian and Mexico tariffs could be on a I'm becoming really quick. Is it possible to kind of give us some context of what that perhaps would mean for you guys? I think with the flexible footprint Keith, we would first of all, need to understand what the tariffs are. We're working through that as well as where and how we would switch positioning. So the tariffs that have been [indiscernible] In terms of what's in our guide, it's the tariffs that are in effect right now.

And as early as today, there was mention of more, we'll continue to work through those and see what options we have to navigate the footprint we have. We as you know, we use global manufacturing footprint across EMS that can afford us flexibility.

Could take some investment, could take a little time.

But we'll continue to monitor this But what's reflected now is on in paper right now.

Okay. Thank you. Thanks, Keith.

Our next question comes from Louis DePalma with William Blair. Your line is now open.

Greg, Jason, Jack, Mahesh and Tim, good afternoon.

Hey, Louie. How are you? [indiscernible] Well, there's been a lot of questions on DOGE, which relates federal spending and efficiency I was wondering how is the local and state spending environment right now in The U. S. I think it was a year or two years ago You said it was the strongest spending environment that you've ever seen, Greg. But how would you categorize it now two years later?

Yes. Hey, Louie, it's Jack. First of all, I think the most important point here is what's happening in urban American cities across the country. Public safety technology continues to get prioritized. So that's the overarching narrative. As it applies to funding, it's still a very good I'd say it's a great funding environment. If you think about it, local revenues essentially come from income sales and property taxes there's been a tailwind and actually inflation has put more money into state and local coffers as it relates to that. In addition, nine eleven funding, the environment strong there. So 2025 looks to be historically and I've been in doing business in state and local for twenty five years. It's as good as an environment as Greg articulated two, two years ago. I agree.

And I think the point is we look at a lot of things. Our pipeline, as Jason and Greg indicated, continues to be strong. But we're also looking at bottom of funnel things, quoting and activity, which is up substantially year over year. And I think that's a measure not only of sales activity but customer demand and what they need to keep their municipality safe.

Thanks. Thanks, Jack. And on several earnings calls and for fireside chat. Mahesh, you have discussed a Motorola robust investments in AI for like video preventive alerts and nine eleven transcription and many other applications I was wondering, the LMR side, Apple has launched Apple Intelligence at the edge And does Motorola have plans to also bring AI apps to your edge radios beyond what you already have? Is that a big focus area for the company? So if I maybe take a step back there, Louis, Today, like you take a generative AI model, a large language model of some sort, You can get it to summarize, you can chat with it, etcetera. It's pretty easy to implement those capabilities. But taking it to the mission critical problem set is quite different and it's much harder. Specifically because you are not catering to the typical circumstances, you're actually catering to the somewhat typical and atypical circumstances. And oftentimes those atypical circumstances are actually the life critical problems that we deal with. When it comes to AI for us, we actually already played not just in the cloud, Most of them run vision transformers and other AI technologies, both mainly for computer vision type of applications.

So as we think about what we do on the radio side, we introduced Vicky quite a few years ago along with Apex Next. And we feel like that combined with generative AI capabilities gets us more capabilities and we are thinking about that and we are planning for it. Audio quality ends up being a very significant part of it and that we believe is a a significant strength of Apex Next. And our radio products as a whole. So there's a lot to be excited about that.

Great. And are you using like AI to improve the existing high audio quality of your your LMR network, We use AI actively for background noise cancellation and we also use it to improve the audio codec at along with a beam steering for the multiple microphones we have on our RSMs.

Excellent. Thanks. That was exactly what I was looking for. Thanks, Mahesh. [indiscernible] Our next question comes from Tomur Zipperman with Bank of America.

Your line is now open.

Hey, guys. [indiscernible] looking at the P and L, it looks like your the product portion of your video security business actually ticked up this quarter.

I just wanted to see what the trends were there specifically around video security products Yes. So you're picking up on it right. It did grow in Q4. And as we mentioned last quarter, the solution of NVIDIA is not only products, it also software And the software rate of growth within video has for the entirety of '24 grew faster than that of products. So the product growth we're pleased with in Q4. Represents a bit more cameras. And contribution towards products and the software that's embedded with them follows.

Understood. And maybe as a follow-up, as asking about backlog. I guess more philosophically, where do you think the product portion of your backlog not where it ends up, but this year, but going forward over the next few years, do you get back to a roughly $3,000,000,000 historical level or because there's an increase video security portion, does that have elevated levels versus historical Well, the video part of our business, which is growing and we expect this year to be over $2,000,000,000 is largely a quick turn business and doesn't come from backlog. So that is changing the mix of what we would expect to do. But I think stepping back, demand continues to be strong. It's reflective in not only our backlog position, but also a growing pipeline. And this quick turner in your orders is something that in any year is important to be a contributor to our outlook expectation. So it's both backlog and pipeline. Exactly.

Understood. Thank you very much.

Thanks, Tomer. 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.

So I just want to say thank you. To all the people and the partners in Motorola Solutions that made this past year A great year I appreciate everything you do. As importantly or more importantly, I appreciate what you continue to do As we start this year, with a growing pipeline, a strong balance sheet and operating company where safety and security remains prioritized. With a lot of our end user customers. And I think that informs our excitement about the year. Informs our prudent guide [indiscernible] it leads me to anticipate another year of record revenue, of record earnings, and I love the fact that we're set up and we expect a third consecutive year of double digit operating cash flow. I also do want to point out and thank all the people Associated with the LA fires and the terrorist attack in New Orleans, By the way, there's some employees that were impacted within our company by those tragedies But every single time something like that occurs, inevitably, I hear from Jack and the team about cow And I'm reminded around the criticality of our solutions that we sell in all things public safety and mission critical communications.

And I appreciate that. You for joining us today. With our team in May, and I appreciate you. Thanks.

This does conclude today's teleconference. A replay of this call will be available over the Internet within three hours. The website address is www.motorolasolutions.com/investor Motorola. We thank you for your participation and ask that you please disconnect your lines at this time.