Good afternoon, and thank you for holding. Welcome to the Motorola Solutions First Quarter 2022 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 this call will be available on our website approximately two hours after the conclusion of this call. The website address is www.motorolasolutions.com/investor. All participants have been placed in a listen-only mode. You’ll have an opportunity to ask questions after today’s presentation. I would now like to pass the conference over to Mr. Tim Yocum, Vice President of Investor Relations. Mr. Yocum, you may begin your conference.

Welcome to our 2022 first quarter earnings call. With me today are, Greg Brown, Chairman and CEO; Jason Winkler, Executive Vice President and CFO; Jack Molloy, Executive Vice President and COO; and Mahesh Saptharishi, 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 posted an earnings presentation and news release at motorolasolutions.com/investor. These materials include GAAP to non-GAAP reconciliations for your reference. 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&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 and the comments made during the conference call, in the Risk Factors section of our 2021 Annual Report on Form 10-K 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'll turn it over to Greg.

Thanks, Tim. Good afternoon, and thanks for joining us today. I'm going to start off by sharing a few thoughts about the overall business before Jason takes us through our results and our outlook. First, I'm really pleased with our strong start to the year, as we achieved sales and earnings per share above our guidance despite the challenging macroeconomic and supply chain environment that we continue to navigate. During the quarter, we saw record Q1 orders and record Q1 sales, highlighted by our video security and access control business, which grew 21% in revenue with even higher growth in orders. We also finished the quarter with a record Q1 ending backlog of $13.4 billion, up 19% versus last year. Second, we continue to see strong demand across all three technologies, driven in part by a robust funding environment for our customers. In land mobile radio, we're seeing continued investment in regional, statewide, and even countrywide networks that further reinforces the longevity and critical nature of this technology. In our higher growth areas of video and command center software, our investments in cloud and artificial intelligence are differentiating us from our competitors. Total software revenue was up 17% during the quarter, including 28% growth in software for our video security and access control business and 9% growth in command center software. Finally, our expectation for full-year guidance remains unchanged. As this year has progressed, we've seen incremental headwinds related to higher freight costs, a stronger dollar, and the dilutive impact of the Ava Security acquisition. However, these headwinds are being offset by further pricing actions, stronger demand, favorable mix, and targeted cost reductions. I'll now turn the call over to Jason to take you through our results and outlook before returning for some final thoughts.

Thanks, Greg. Our Q1 results included revenue of $1.9 billion, up 7% and above our guidance, driven primarily by better than anticipated supply for LMR. Revenue from acquisitions was $17 million and currency headwinds were $18 million. GAAP operating earnings of $239 million and operating margins of 12.6% compared to 16.8% of sales in the year ago quarter. Non-GAAP operating earnings of $374 million, down $37 million or 9% from the year ago quarter and non-GAAP operating margins of 19.8% of sales, down from 23%. This decline in operating earnings was primarily due to the $50 million of higher semiconductor costs that we outlined on our last call, related to acquiring critical supply in the secondary market for semiconductors. Additionally, we saw higher freight costs driven by elevated air freight rates and increased operating expenses related to acquisitions, partially offset by higher sales. GAAP earnings per share of $1.54 compared to $1.41 in the year ago quarter. The increase was primarily due to a deferred tax benefit in the current quarter related to the reorganization of intellectual property. Non-GAAP EPS of $1.70 per share compared to $1.87 last year, a decrease primarily due to the operating earnings impact I described related to higher semiconductor and freight costs and increased operating expenses from acquisitions, partially offset by higher sales and a lower tax rate. Operating expenses in Q1 were $492 million, up $37 million versus last year, primarily due to higher expenses related to M&A, investments in video, and higher selling costs commensurate with our higher sales. Turning next to cash flow. Q1 operating cash flow was $152 million, compared with $370 million in the prior year, and free cash flow was $98 million compared to $318 million in the prior year. The decrease in cash flow was primarily due to our planned increase in inventory as we invest to meet the strong product demand we're seeing from our customers in video and LMR. Capital allocation for Q1 included $493 million in share repurchases, $134 million paid in cash dividends, and $54 million of CapEx. Additionally, during the quarter we closed the acquisitions of Ava Security for $387 million and TETRA Ireland for $120 million. Subsequent to quarter-end, we acquired Calipsa, a leader in cloud-based advanced video analytics for $40 million. Just earlier today, we announced the acquisition of Videotec, a global supplier of pan-tilt-zoom and explosion-proof cameras for $22 million. Videotec enhances our portfolio of NDAA compliant fixed video cameras. Moving next to our segment results. Q1 Products and System Integration sales were $1.1 billion, up 9%, driven by anticipated strong growth in video and better supply availability in LMR. Revenue acquisition from acquisitions in the quarter was $7 million and currency headwinds were $8 million. Operating earnings were $96 million or 8.7% of sales, down from 12.9% in the prior year, driven by the $50 million of higher semiconductor costs and higher freight costs previously mentioned, partially offset by higher sales. Some notable Q1 wins and achievements in this segment include an over $60 million nationwide P25 order for Taiwan National Police, $20 million of P25 upgrade orders for Los Angeles Unified School District, a $14 million TETRA upgrade for the Israeli railways, $11 million P25 expansion for a large US customer, and a $5 million video order for a large US public school system. Moving next to our Software and Services segment. Q1 revenue was $789 million, up 4% from last year. Revenue from acquisitions was $10 million and currency headwinds were also $10 million. Growth in this segment was driven by video security and command center software, while LMR services was approximately flat as expected due to the impact of a tough comp related to customers' P25 system upgrades that were concentrated in the first quarter of 2021 due to the COVID delays throughout 2020 and the impact of unfavorable FX. Operating earnings were $278 million or 35% of sales, down 170 basis points from last year, driven by a change in year-over-year mix and higher M&A operating expenses, partially offset by higher sales. For the full year, we still expect software and services revenue growth of 10%, and we expect operating margins that are comparable to last year with the dilutive impact of recent M&A offset by pricing and improved operating leverage. Some notable Q1 highlights in this segment include a $27 million command center software order for a customer in Latin America, a $20 million US federal multi-year service contract order, an $8 million command center software record management order for the City of Phoenix, and an $8 million services agreement with the City of Chicago. During the quarter, we grew our video security and access control software revenue by 28%. Following the quarter-end, we launched the Public Safety Threat Alliance, a cybersecurity information-sharing and intelligence hub for the public safety community.

Looking next at our regional results. North America Q1 revenue was $1.3 billion, up 10% with growth across all three technologies. International Q1 revenue was $587 million, flat versus last year with growth in video security and command center software, offset by a decline in LMR due to FX. We saw growth in Latin America and Asia-Pac, while Europe was slightly down, primarily due to FX. Moving to backlog. Ending backlog was a Q1 record of $13.4 billion, up 19% or $2.1 billion compared to last year, driven by the Airwave extension recorded in the fourth quarter of ‘21 and increased demand across all three technologies. Sequentially, backlog was down $115 million, driven primarily by the Airwave and ESN revenue burn during the quarter, partially offset by growth in LMR and video products. Software and Services backlog was up $1.3 billion compared to last year, driven by the Airwave extension and a $320 million increase in multiyear services and software backlog in North America. Sequentially, backlog was down $221 million or 2%, driven primarily by revenue recognition for Airwave and ESN during the quarter and typical order seasonality in North America. Products and System Integration backlog was $852 million compared to last year and up $106 million sequentially, driven primarily by strong LMR and video demand in both regions. We entered the year with a record backlog position, and approximately $2.2 billion of our beginning backlog in the product segment was scheduled to be delivered in 2022, with over two-thirds of this amount expected to be delivered in the first half. We saw continued strong demand for new orders during the quarter with a record Q1 orders total that included comprehensive pricing actions we implemented across our portfolio in January. We expect these new orders at higher prices together with higher volumes in the second half to lead to a significant profitability ramp throughout the year.

Turning to our outlook. We expect Q2 sales to be up between 4% and 5% with non-GAAP EPS between $1.83 and $1.88 per share. This assumes approximately $50 million of FX headwinds, a diluted share count of approximately 173 million shares, and an effective tax rate of 22% to 23%. It also includes $50 million of year-over-year increased costs that we described on our last earnings call related to elevated material costs for semiconductor supply from secondary markets. For the full year, we are maintaining our prior revenue guidance of 7% growth and non-GAAP EPS guidance between $9.80 and $9.95 per share despite the significant strengthening of the US dollar since our last call. We now expect FX to be a headwind of $170 million for the year, up $110 million from our prior guidance. This outlook now assumes a diluted share count of approximately 173 million shares based on the timing of our share repurchases in the year and an effective tax rate of 21% to 21.5%. Additionally, our full-year operating cash flow guidance for approximately $1.9 billion and full-year OpEx expectations of approximately $100 million increase over last year are also unchanged, inclusive of the new acquisitions we announced, offset by targeted reductions we're making. Before I turn the call back to Greg, I wanted to reiterate some of the proactive measures we've been taking to navigate this dynamic environment. First, amid strong demand, we've taken further pricing actions across various parts of our portfolio, which we expect to benefit in the second half of the year. We remain cost disciplined with targeted OpEx cost planned, while funding our recent acquisitions. We are strategically investing in inventory to maximize the parts availability to fulfill the strong demand that we're seeing. Finally, we continue to be good stewards of capital, maintaining a strong balance sheet to be opportunistic and deploying capital on acquisitions and shareholder returns. I would now like to turn the call back to Greg.

Thanks, Jason. I thought I would end with a few thoughts on the business. First, business remains really strong despite the ongoing macroeconomic and semiconductor challenges. We had record Q1 orders and sales that drove results above our expectations. We ended the quarter with our highest Q1 ending backlog ever, and our higher growth businesses in video security and command center software continue to grow at a multiple of their overall markets. Second, our healthy balance sheet and durable cash flow provide us with the flexibility to be opportunistic in our deployment of capital. During the quarter, we closed two additional acquisitions I'm excited about: TETRA Ireland, the provider of Ireland's nationwide digital radio service for first responders is a business we've had our eye on for a while, actually, and it adds to our strong LMR managed services business, and Ava Security, which is a scalable, secure and flexible cloud solution that provides customers with the benefits of an enterprise-grade video security solution while minimizing the physical footprint of their security infrastructure. Ava complements our on-prem offerings in fixed video security and provides us with the flexibility to meet our customers where they are with options for both cloud or on-prem solutions. Finally, while the macroeconomic environment remains turbulent, I like our position. We're a leader in the markets we serve. We provide must-have solutions that are critical for customers. We continue to invest heavily in R&D, and all of this provides us with the ability to take continued pricing actions to manage higher cost pressures. Additionally, we have strong predictable cash flows that allow us to continue to invest in our growth businesses while simultaneously returning capital to shareholders in the form of share repurchases and dividends. I'll now turn the call back over to Tim.

Thank you, Greg. Before we begin taking questions, I'd like to remind callers to limit themselves to one question and one follow-up to accommodate as many participants as possible. Operator, would you please remind our callers on the line how to ask a question?

The floor is now open for questions. Thank you. The first question is from Keith Housum with Northcoast Research. Your line is now open.

Good afternoon, guys. I appreciate the opportunity here. It sounds like you guys have been able to navigate the supply chain challenges fairly well. I know you got $50 million in extra costs for the first quarter, but can you guys talk about the supply visibility into supply for the rest of the year? Obviously, there have been a lot of upheaval, things going on in Shanghai recently, but any updated thoughts on where the supply chain stands today?

Hey, Keith. I think our view of the supply chain is pretty much unchanged from where it was a quarter ago. It's still very challenging; we go through week-by-week negotiations and discussions with critical suppliers on allocations. On the good news side, I think we were more successful in Q1 getting some critical parts sooner than expected, and I think that drove our overperformance in Q1. The overall environment around semiconductor constraints remains challenging. I think, Keith, realistically we expect those challenges to exist throughout the rest of 2022.

And Keith, you mentioned the $50 million in Q1, there's another $50 million in Q2. So as we set out the year and described in the last call, that $100 million is elevated costs that we're incurring to buy these parts at a premium in the first half, but the second half is only $20 million. That's partly driven by the elevated costs that we faced last year with comp. In terms of our supply and what our teams are doing to increase the number of substitutable parts, the engineering and quality teams are doing a good job in finding alternative parts. Additionally, we've also shifted to air as our primary means of freight, and that's what's elevating our freight costs a little bit to get the parts in a timely fashion.

The semiconductor constraint is largely unchanged. As Jason outlined, although freight has incrementally gotten worse as we shift more from ocean to air, and the overall cost is higher than was anticipated on our last call, but it is anticipated and included in our full-year guidance.

Got you. Just as a follow-up, you guys had a really strong first quarter for bookings. Despite the challenges, are you able to get enough supply to exceed your guidance if the demand was there?

Our guidance for the quarter and the year is a compilation of the demand and the match to the supply that we have and foresee in terms of delivery. So nothing has changed there. We overperformed in Q1, largely because we were able to get the supply and allocate it purposely to parts of the portfolio, like public safety that are important to customers, and they also happen to have slightly higher ASPs.

Got you. Thanks, guys. Good luck.

Thanks, Keith.

Thank you, Keith. The next question is from the line of George Notter with Jefferies. You may proceed.

Hi guys. Thanks very much. I guess I wanted to just quiz you on the full year guidance. You're keeping the 7%, but it seems like there is a lot of moving parts in there. I'm just wondering how it all nets out. So you have $110 million of additional FX headwinds; you've got a bunch of new M&A deals in here; pricing has gone up. I'm just wondering what it looks like when you peel all that back? Is your guidance better or worse than maybe you thought three months ago?

You mentioned that $110 million in FX; that's correct. The incremental M&A that we've acquired since we last talked is $60 million additionally.

Of net new revenue in the period.

Additionally, in terms of pricing, we're absolutely looking at that and have made some changes across the portfolio. And the third item is favorable mix. So that’s where we prioritize and allocate our supply.

We acquired Ava, and Ava is about $0.10 dilutive to EPS for the full year. So, net-net, we've got incremental headwinds, as you talked about, George—FX, incremental headwinds with freight, some M&A, higher costs than our last call. But that's balanced out by favorable mix, particularly as we index toward higher tier shipments. We continue to take pricing actions. I think the tax rate will be a little bit better, and share count will be lower. All in all, I think demand is as strong or maybe even stronger today than it was back in February.

Got it. And then just continuing on that. Could you give us a sense of the magnitude of the pricing increases? I think you said January was when you instituted those. Is that correct? When do you think those will be fully in the model?

So we've been looking at price for a number of quarters; the most recent changes were in January. I mentioned on the call that the backlog that we began the year with was $2.2 billion; that's largely going to fuel the first half. So the orders from January onwards are going to fuel the second half, and that's where our most recent pricing actions are. I think about products; the segment that’s driving growth we expect this year for our product segment is mid-single-digit growth. Within LMR, the driver is largely price and mix favorability. In video, which is the higher growth part, it's price and volume that are driving the expected growth.

Got it. All right. Super. Thank you very much.

Thanks, George.

Thank you, George. The next question is from the line of Paul Silverstein with Cowen. Your line is now open. Paul, please check the issue; you are now muted.

My apologies. Guys, I apologize if you answered this in your prepared remarks, but with the improvement in some of your key sectors in your professional communications radio business, are you seeing that translate to an improved outlook? Hospitality has obviously improved significantly, oil and gas prices are up, albeit I'm not sure how much that's improved that industry, but are you seeing any improvement there?

So with PCR, we expect it to grow this year mid-single digits; it was flat in Q1. The demand for PCR is very robust; the limiting or gating item is supply around PCR. So Jack, if you want to talk about markets.

Paul, I think that the two markets that we've seen the most profound rebound post-COVID have been air transportation and hospitality. I think the next to follow will be commercial real estate as we get people back to work in major cities. We're starting to see upgrades even in our buildings. We’ll see upgrades on the communication front there, but it's really been air and hospitality this year.

Yeah. For my follow-up, I appreciate you just increased prices, but everybody is citing stepped-up component costs. Any thoughts you can share on longer-term margins—where they go and in what timeframe on the gross line?

Sure. So headline inflation—we're navigating it like all companies and have been planning for a significant inflation number that we've been seeing. We have two cost inflation items that we believe are temporal. First, we're paying a premium for semiconductors that aren't available directly from the manufacturer and getting them through alternative secondary markets; that's a $120 million expense that is in the P&L this year as we address that critical supply. Secondly, the freight levels that we're incurring this year—air rates have gotten higher; they got higher after the Ukraine invasion and they remain high. These two items are temporary pressures we're managing around, along with general inflation.

Paul, I would also say that taking all those things into account, we still expect full-year gross margins to be comparable for MSI, and operating margins to be slightly up for the full year 2022.

Great. I appreciate it. Thank you.

Thank you, Paul. The next question is from the line of Meta Marshall with Morgan Stanley. Your line is now open.

Great, thanks. Maybe starting, I noticed you guys talked about strong order activity kind of across the board, but just wanted to get a sense of whether there were any changes by region. So anything notable in the European region, maybe more specifically. Maybe I start with that and then I have a follow-up question.

Sure, Meta. I think as it applies to Europe, first of all, I just want to remind you that half of our revenue in Europe is actually recurring revenue, so think large-scale managed service businesses. In Q1, internationally, we were up 3% in constant currency. The FX headwind that Jason alluded to really impacted Europe to the greatest extent. However, our challenges in Europe—and frankly, in international markets—are not demand-related. Demand remains very robust, especially in video security and access control, as well as our command center software and land mobile business. So the biggest challenge we face is, I would say, currency right now.

As a footnote, as it relates to Russia, contextually we've exited that market. It was pretty minimal for us to begin with; full-year revenue in Russia last year was $25 million. We've exited that market, and we don't have Motorola Solutions employees in that theater any longer. So, just as a footnote, I thought that could be helpful as well.

Perfect. Very helpful. And then maybe just on the growing backlog you guys obviously spoke to, just how much of the growing backlog is a result of supply chain challenges and inability to ship versus just some longer-term contracts coming in? Thanks. And that's it for me.

The majority of our backlog is from direct customers—governments, agencies, thousands of customers who order as their procurement cycles permit them. We believe that to be a very strong signal for their demand. We also have a channels business where channel inventories are very low, and our channel partners are placing orders on us to replenish that inventory. So our demand signal from our direct customers and our indirect customers is pretty clear. As Jack mentioned, it is growing on both sides of the business.

Perfect. Thanks. Congrats, guys.

Thanks, Meta.

Thank you, Meta. The next question is from the line of Sam Badri with Credit Suisse. Your line is now open.

Great, thank you. I was hoping you could elaborate on your ARPA contribution. I know you guys put a couple of senses in your press release; can you just walk us through the contribution from explicitly ARPA that you guys are estimating?

Hey, Sam, it's Jack. First of all, I want to — we said it before, but it's important to first of all point out this, ARPA will be a multi-year phenomenon. Our team is actually—when we look at our pipeline, which is our sales funnel, we've seen a three-time increase over this period last year. That’s great. A lot of that is really directed at the $350 billion in state and local funding, which really we've never had a problem with as it relates to where we need to have business, but it really draws clarity to how those deals get funded. We'll be in that for the next 2.5, three years. The second area where it's been very helpful is with our fixed video security and access control business, particularly around the education vertical where people are really investing in things like concealed weapons technology with our evolved partnership. We think the money, at this point, which is $170 billion there, will also benefit us over the course of the next three years as well.

Got it. And then just as a follow-up, maybe for you Jack again. Any update on body-worn cameras or fixed cameras that go on to the vehicles like first responder vehicles? Could you give us an update on that and growth rates or any comments on market share?

Absolutely. So first of all, as it relates to body-worn, I talked about last year from a market share context; we doubled our orders in 2021 in a market that certainly didn't double. We felt like we took share. As it relates to Q1 2022, our orders were up double-digit. Most importantly, those were up double-digit against a comp, where we grew 65% in orders in Q2. I think the only thing I'd add is we announced our as-a-service offer last year, and we've seen acceleration in customers' willingness to choose the cloud there. We've said before we think that the market wants an alternative, and in North America, our team continues to fight for their fair share.

Let me just add to that. We launched the M500 last year, and it started shipping earlier this year. The M500 we consider to be a significant leap up from our prior generation products. It builds upon a lot of feedback we have from our customers. Importantly, for the M500, we have added substantial new AI capabilities. This platform is meant to deliver real AI capabilities at launch, focused on officer and passenger safety, along with ALPR as well. The ALPR stream contributes to other sets of ALPR cameras we have in our portfolio. These feed into one of the largest industry license plate databases we maintain. Right now, we're exceeding a $50 billion plate rate, and in Q1 of this year, we accounted for about $2.4 billion plate rate. To give you an idea of the frequency at which we are growing here compared to the previous year, we doubled the plate rate. Overall, from a mobile and ALPR video standpoint, we're performing exceptionally well.

Thank you.

Thank you, Sami. The next question is from the line of Ben Bollin with Cleveland Research. Your line is now open.

Thanks for taking the question. Good afternoon, everyone. The first question, I was hoping you could share any thoughts around customer priorities with respect to command center software and refresh? Just talk about any execution you're seeing; how you think you're doing; how it's developing; and where it's going. And then I had a follow-up for Greg.

Sure. The first point is that we are growing faster than the market, and we're taking market share. Over half of our orders last quarter in Q1 were suite orders, effectively either adding on to existing bundles or customers buying more than one. Jason mentioned two of our larger opportunities. The LA Unified School District bought our CAD and record solution; one of the key reasons to buy there was location data integration from our LMR side, which had a significant impact on that opportunity. The City of Phoenix opportunity Jason mentioned was driven by the national incident-based reporting criteria that the city needed to comply with. Also, we are now integrating with the Aware solution for real-time situational awareness. That added a lot of synergy to that opportunity as well. We had our summits in April, the largest Software Summit in Motorola history with 1,600 attendees and over 300 classes and user group sessions, representing all user types going from call to case closure. Some important themes emerged there. First was cybersecurity—this resonated significantly with our customers, especially with the Public Safety Threat Alliance that we launched. Within the first two weeks of the creation of it, we've had over 50 members sign up, and we expect that to increase rapidly. We talked extensively about our innovations in user experience. For example, smart transcription has become more than just a transcription application; it has turned into a platform for us, aiding call takers in a variety of ways. We're also extending this to recognize when call takers are under stress. Mobile has become a significant part of our strategy as well. We've invested heavily in mobile command center responder, now available on iOS and Android. With our customer in Western Australia, we launched a CarPlay application in collaboration with Apple, making it the first public safety application to be available for CarPlay. All of this aligns with our hybrid strategy, and we're seeing considerable traction there.

That's great. Thanks for that color. For my follow-up, Greg, when you step back and look at the world, we are in a surplus demand environment, and at some point supply starts to catch up. I'm interested in how you monitor inbound orders to ensure that customers are not ordering more than they need and just taking what comes first. How do you handle that? Obviously, I think it's more PCR-related, but I’m curious about any thoughts you have there. That's it from me. Thank you.

Ben, I was just going to say the last part that you said. I think it is more PCR related. We work closely with channel partners, particularly in North America, working on prioritization, active conversations, and transparency, determining what they genuinely need versus what they may think they want in order to eliminate any artificial forecasting. It is a reflection of the relationships we maintain with our channel partners. I tip my hat to John Zidar, who runs that organization under Molloy. The efficacy and authenticity of the conversations with the partners during this time is how we sort through that.

The only thing I'd add to that is it's important to note that many of our partners carry one brand; they aren't placing orders against multiple ones. Additionally, government customers don’t have the leeway; they have a limited budget and cannot cut multiple purchase orders against the same budget line item. Therefore, we wouldn’t see any inflation in orders there as there’s an end customer that needs to operate within a tight budget.

Thanks.

Thank you, Ben.

Thank you, Ben. The next question is from Fahad Najam with Loop Capital. Your line is now open.

Thank you for taking my question. I have two clarifications first, before I can get to my question. What was the FX headwind in the quarter? Also, you highlighted about $170 million in FX headwinds in revenue, but what's the—I’m assuming there is a benefit to the OpEx line. Can you maybe tell us what benefit you're seeing on OpEx from FX?

The answer to the first question is that within the quarter, it was $18 million in FX. On FX in general, we have some offsets within OpEx to mitigate the effects of the gross margin dollars lost. There is some relief, if you will, on OpEx. But in total, $110 million degradation in— from last call to this call comes with an OE impact that we are mitigating through price, through cost targets, and through allocation to higher mix.

Got it. I wanted to ask you about the component shortages, maybe provide us some color on what has improved, what has not improved, and what has gotten worse? Can you give us a bit of clarity on what your line of sight is? You are clearly thinking things will improve, but can you just give us some color on what portfolio is most impacted by component shortages?

Yeah. Fahad, I would say as it relates to semiconductor constraints, because that's really what we're referring to, I don’t think we see it improving. It remains a constant challenge throughout the remainder of 2022. What improved in Q1 was successfully navigating and negotiating to get some key parts allocated sooner than expected, which allowed us to overperform top and bottom in Q1. I would say that the semiconductor constraint environment remains unchanged, i.e., still challenging. It is primarily around land mobile radio, but quite frankly, video security is not completely immune either, and we are managing those accordingly.

Within the LMR portfolio, are you seeing more adverse impact on your higher margin PCR and LMR —APX NEXT portfolio? Just provide some insight on what is being more adversely impacted or if it's universal.

The PCR is the part of the LMR portfolio that feels the most challenge, as we have numerous common semiconductor components across all types of radios. We're working closely with customers around favorable mix—particularly in North America—to ship and fulfill those orders more quickly. The key part of the LMR portfolio that feels the most acute impact is probably PCR.

The only thing I'd add on the high tier and APX. APX NEXT is the complexity of those products, and the joint engineering we undertake, as well as the supply lines we have for semiconductors, are unique to those products. We're doing a good job in ensuring the security of those supply lines, so there are some commonalities, but also some uniqueness in our key suppliers, and public safety LMR is ensuring that we receive what we need.

I appreciate the answer. Thank you.

Thank you, Fahad.

Thank you, Fahad. The next question is from the line of Louie DiPalma with William Blair. Your line is now open.

Greg, Jason, Jack and Mahesh, good afternoon from sunny Chicago.

Louie, how are you doing?

Doing great. Thank you for taking my question. The William Blair team heard very positive commentary about Openpath solutions at the Commercial Real Estate Tech Conference in San Diego. I was wondering if you could discuss your growth strategy for access control in general. Also, I wanted to note that during the quarter it seems Stanley sold its access technologies division for $900 million. Related to your strategy, do you expect to be as active with access control and acquisitions as you have been with video acquisitions? Thanks.

Okay, Louie, I'll start, and Mahesh may want to add some context. First, as it relates to fixed video security and access control, we've taken a comprehensive look at the market to ensure we meet our customers where they are. It began with Avigilon, which is an on-prem end-to-end solution. We've invested in Avigilon cloud services, but they had a legacy Access Control business too. At one point, that business was actually the highest growth area within the Avigilon portfolio, but we have increasingly seen a move to cloud services and mobility. People want smartphone capabilities for building access instead of old keycards. In addition, Openpath is performing exceptionally well due to a shortage of card readers right now, which has accelerated growth into the cloud for Openpath. I think you'll hear more about the strategy. The other piece with Openpath, as I said, is its cloud-native capabilities, which differ from most others. We believe we have a solid strategy regarding customers needing either a cloud or on-prem solution. Mahesh, is there anything you'd like to add?

Yeah. I think the Openpath team launched a video intercom reader in Q1 as well, which signals the convergence between video and access control more broadly. The architecture of Openpath, cloud-native with endpoints on-prem, like readers, also supports existing readers and helps with migration from on-prem to cloud. Ava has a similar model, where it can be entirely cloud-native or support a mix in between. The combination of Ava and Openpath gives us the opportunity to convert many of the security and access control use cases and expand that ecosystem. We see a strong end-to-end solution built around our security needs.

Great. That's perfect. That's it from me. Thanks, everyone.

Thanks, Louie.

Thank you, Louie. The next question is from the line of Jim Suva with Citigroup. Your line is now open.

Thank you. A question for Greg. On your prepared comments, you mentioned improved funding; is that coming from stimulus plans or property taxes? The reason why I ask is that a lot of property taxes are reassessed each year, so people are bracing for a big property tax inflow in six or nine months. I would assume that a lot of your budgets are more related to stimulus but—does that mean that there is still a type of second round of improved funding coming in?

Yeah. Hey, Jim, it's Jack. Maybe I'll take that one. We look at the three primary budgets that exclude federal stimulus: operating expense budgets, which are annualized; they cover maintenance and replacement of radios, and those are the first piece. The second of which is actually 911 funding, from which our command center software budgets stem. Those are allocated differently. The third is real estate and property taxes, which tends to ebb and flow and, historically, we don’t see a significant uptick from those. Public safety is viewed as a necessity, prioritized annually, mainly from capital or operating expense and 911. The key benefit for us, as pointed out earlier, is the $350 billion directed at state and local funds and $170 billion directed at schools. These create new funding opportunities across all aspects of our portfolio.

In terms of state and local budget cycles, I'll remind everyone, we have thousands of customers in North America. A common changeover in the year is around July 1st, so they will establish priorities considering available funds as well as stimulus. We will see what those budgets look like, but all indications suggest strong backing will continue.

To get real technical, there are also spot taxes, which are specialized purchase taxes that can raise money for county-wide systems.

Great. Thank you so much for the details and clarifications. Congratulations.

Thank you, Jim. 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. I just want to close—thank you for that opportunity. I want to close by thanking all of the Motorola Solutions people around the world for their commitment and perseverance in what was a strong Q1. Despite the fluid and dynamic environment, demand remains exceptionally strong. The customer funding environment remains robust. We continue to make investments in software and video. As Jason and others outlined in this call, we continue to take action to offset higher costs. I would say this; macroeconomic turbulence and uncertainty presents opportunity, and we will continue to deploy capital against the backdrop of those opportunities that arise. Thank you for joining us. We look forward to talking to you again in a few months. And again, to all the Motorola people—thank you, thank you, thank you. Much appreciated.

Ladies and gentlemen, this does conclude today's teleconference. A replay of this call will be available over the Internet in approximately two hours. The website address is www.motorolasolutions.com/investor. We thank you for your participation, and ask you please disconnect your lines at this time.