Good afternoon, and thank you for holding. Welcome to the Motorola Solutions Fourth 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. A webcast replay of this call will be available on our website within 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 will have an opportunity to ask questions after today's presentation. I would now like to introduce Mr. Tim Yocum, Vice-President of Investor Relations. Mr. Yocum, you may begin your conference.

Good afternoon. Welcome to our 2022 fourth 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've posted an earnings presentation and news release at motorolasolutions.com/investor. These materials include GAAP to non-GAAP reconciliations for your reference. 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&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 Factors section of our 2021 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. I'll now turn it over to Greg.

Thanks, and 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 the outlook. First, our record Q4 results highlight the continued robust demand we're seeing for our public safety and enterprise security solutions. During the quarter, we grew revenue 17%, earnings per share of 26%, expanded operating margins by 150 basis points, and generated a record $1.3 billion of operating cash flow. Additionally, orders remained strong, which led to record ending backlog of $14.3 billion, up $800 million versus last year. Second, 2022 was an outstanding year across the board. In our Products and Systems Integration segment, we grew revenue 14% driven by strong growth in both LMR and video security, and we ended the year with record backlog, up 22% versus last year. We also expanded operating margins in the segment by 110 basis points despite higher costs related to semiconductors. In Software and Services, revenue was up 8% and 12% when normalized for FX headwinds, highlighted by double-digit growth in both video security and Command Center. And finally, as I look to 2023, we are well positioned for another year of strong revenue and earnings growth. I'll now turn the call over to Jason to take you through our results and outlook.

Thank you, Greg. Revenue for the quarter grew 17% with record fourth quarter revenue in both segments and in all three technologies. Revenue exceeded our guidance and was driven by supply chain execution during the quarter, enabling higher product revenues in LMR. FX headwinds during the quarter were $87 million, while acquisitions added $39 million. GAAP operating earnings were $692 million, up 26% versus last year, and GAAP operating margins were 25.6% compared with 23.7% in the prior year. Non-GAAP operating earnings were $822 million; GAAP operating margin was 30.4%, up from 28.9%. This was Motorola Solutions' first-ever quarter of over 30% operating margin and was driven by the higher sales in both segments and the improved operating leverage, particularly in the Products and SI segment. GAAP earnings per share was $3.43, up from $2.30 in the year-ago quarter on higher sales and on a lower effective tax rate driven primarily by a $47 million or $0.27 per share tax benefit from the release of a valuation allowance against U.S. foreign tax credits. Non-GAAP EPS was $3.60, up 26% from $2.85 last year, driven by higher sales and improved operating leverage. OpEx in Q4 was $541 million, up $21 million versus last year, primarily due to acquisitions and higher incentives. For the full-year 2022, revenue was $9.1 billion, up 12% with strong growth in both segments and across all three technologies. The impact from unfavorable currency was $216 million, and revenue from acquisitions was $121 million. GAAP operating earnings were $1.7 billion or 18.2% of sales versus 20.4% in the year prior. The decrease was primarily driven by the $147 million non-cash fixed asset impairment recognized in the current year related to our exit of ESN. Non-GAAP operating earnings were $2.4 billion, up $251 million, and non-GAAP operating margins were 26% of sales, up from 25.9% in the year prior, driven by higher sales and improved operating leverage, partially offset by higher material costs and higher expenses from acquisitions. GAAP earnings per share was $7.93, up 11% compared to the $7.17 in the year prior, driven by higher sales, a lower effective tax rate, and partially offset by the asset impairment charge related to the ESN exit and higher material costs. Non-GAAP earnings per share was $10.36, up 13% from $9.15 in 2021 on higher sales and improved operating leverage, partially offset by higher material costs. For the full year, our operating expenses were $2.1 billion, up $107 million from 2021, primarily driven by acquisitions and investments into our video business. And the effective tax rate for 2022 was 20% compared to 21% in the year prior due to higher benefits from stock-based compensation in the current year. Turning next to cash flow. Q4 operating cash flow was a record $1.3 billion, up $570 million compared with the prior year, and free cash flow was $1.2 billion, up $565 million from 2021. Our record cash flow performance during the quarter was driven by improved working capital and higher earnings. And for the full year, operating cash flow was $1.8 billion with free cash flow of $1.6 billion, consistent with the prior year. Higher earnings in 2022 were offset by the cash payments related to the increase in annual incentive payments earned in 2021 and higher inventory. Capital allocation for 2022 included $1.2 billion for acquisitions, $836 million in share repurchases at an average price of $225 per share, and $530 million in cash dividends. Additionally, during the year, we issued $600 million of new long-term debt and repaid $275 million of outstanding debt. We also increased our dividend by 11%, marking our 12th consecutive year of double-digit increases. Moving next to our segment results. In Products and SI, strong demand continued, with Q4 sales up 21%, including record revenue in both LMR and video. The currency headwinds were $43 million, and revenue from acquisitions in the quarter was $20 million. Operating earnings in Q4 were $514 million, or 28.4% of sales, up from 25.3% in the year prior, driven primarily by higher sales and operating leverage, partially offset by higher material costs. Some notable Q4 wins and achievements in this segment include several large APX NEXT device orders, including $45 million from the City of Houston, $39 million from a large U.S. customer, $30 million from the City of Dallas, and a $21 million add-on order from a large U.S. customer that previously purchased APX NEXT devices. Additionally, during the quarter, we received a $20 million APX NEXT and Command Center order from Kansas City, a $19 million P25 System order for a large international customer, and a $3 million fixed order for metro rail in Chicago. For the full year, Products and SI revenue was $5.7 billion, up 14% from the prior year, driven by higher sales of LMR and Video. Revenue from acquisitions was $53 million, and currency headwinds were $98 million. Full-year operating earnings were $1.2 billion or 20.5% of sales, up from 19.4% in the year prior on higher sales and improved operating leverage, partially offset by higher material costs. In Software and Services, Q4 revenue was up 9%, which included $44 million of FX headwinds and $19 million of revenue from acquisitions. Total software revenue was up 17%, with double-digit growth in both video and Command Center, while in LMR Services revenue was up 5% after a $39 million FX headwind. Q4 operating earnings in the segment were $308 million or 34.4% of sales, down 100 basis points from last year, driven by unfavorable mix and higher acquisition expenses. Some notable Q4 highlights in this segment include a $56 million P25 multi-year extension of the managed services operations at Interexport, which serves the Chilean National Law Enforcement Police; a $25 million P25 software upgrade renewal for a large U.S. customer; $22 million next-generation 911 expansion and renewal order for the Greater Harris County, Texas area; a $21 million system upgrade in multi-year services renewal for Lane County Oregon; a $15 million P25 and Command Center upgrade order for Columbus, Georgia; and a $15 million license plate recognition camera system expansion order from the Illinois State Police. For the full year, revenue was $3.4 billion, up 8% on growth in video, LMR services, and Command Center. Revenue from acquisitions was $68 million, and currency headwinds were $118 million. Full-year operating earnings were $1.2 billion, or 35.3% of sales, down 110 basis points versus the prior year, driven by mix and higher acquisition expenses. Looking at our regional results, North America in Q4 revenue was $1.9 billion, up 18% on strong growth in both segments and in all three technologies. For the full year, North America revenue was $6.4 billion, up 15% with double-digit growth in both segments and in all three technologies. International Q4 revenue was $808 million, up 15% versus last year with growth in all three technologies. And for the full year, International revenue was $2.7 billion, up 5%, inclusive of the significant FX headwinds. Moving to backlog, ending backlog was a record $14.3 billion, up $788 million or 6% compared to last year, inclusive of $418 million of unfavorable FX and a $99 million reduction related to the exit of the ESN contract. The backlog growth was driven by the continued record demand we're seeing across all three technologies. Sequentially, backlog was up $837 million despite the record Q4 sales, with growth in both segments. In the Products and SI segment, robust order demand in both LMR and video continues to drive record backlog, which was up $894 million or 22% compared to last year. Sequentially, Products and SI backlog was up $68 million. This was our 10th consecutive quarter of sequential backlog growth in this segment. In Software and Services, backlog was down $106 million compared to last year, which included $367 million of unfavorable FX, driven by Airwave and ESN revenue recognition and the ESN exit, partially offset by strong growth in North America multi-year services and software contracts. Sequentially, Software and Services backlog was up $769 million or 9%, driven by strong orders in North America and favorable FX adjustment from the prior quarter. Turning now to our outlook. We expect Q1 sales to be up between 12% and 13%, with non-GAAP earnings per share between $2.02 and $2.07 per share. This assumes $40 million of FX headwinds, a weighted average share count of approximately 172 million shares, and an effective tax rate of approximately 23%. For the full year, we expect sales between $9.65 billion and $9.7 billion and non-GAAP earnings per share between $11.10 and $11.22 per share. This assumes $40 million of FX headwinds, a weighted average share count of approximately 172 million shares, and an effective tax rate between 23% and 24%. We expect full-year OpEx to be up approximately $150 million versus last year, driven by acquisitions we've made and our continued investments in video. We also expect full-year operating cash flow to be approximately $1.9 billion. And finally, the reason our effective tax rate is expected to be up 300 basis points to 400 basis points over last year is due to lower excess tax benefits on share-based compensation in 2023 and a higher U.K. tax rate that takes effect in April. We're also anticipating approximately $300 million of higher cash taxes compared to last year, inclusive of a one-time $75 million tax payment that relates to an IP reorganization we did in 2022. Before I turn the call back to Greg, I wanted to update you on some strategic decisions we've made with respect to our PCR business. First, in order to further optimize our supply chain, we have moved the lowest part of PCR, which is sold to small businesses and some consumers, to a licensed model with a third-party manufacturer. As a result of this change, we will only recognize revenues equal to the margin from the product. In addition, we made a decision to exit some PCR markets in Asia. We expect these changes together to constitute an $80 million headwind to our 2023 revenues, which is fully contemplated in our full-year revenue guidance for 2023. Finally, we enter the New Year with an even stronger balance sheet. We ended 2022 with $1.3 billion of cash and a net debt to adjusted EBITDA ratio of less than 2 times. In addition, our U.S. pension is in a strong funding position with over 80% funded reflecting the numerous actions we've implemented over the last several years. We have also proactively refinanced our debt maturities with fixed-rate long-term debt and established a balanced maturity profile with an average duration of approximately eight years. All of this gives us the flexibility to continue to deliver on our capital allocation framework and be opportunistic in M&A. I'll now turn the call back over to Greg.

Thanks, Jason. First, 2022 was a phenomenal year for the company. We achieved double-digit revenue growth for the second consecutive year with record sales in both segments and all three technologies. We expanded operating margins despite the continued supply challenges related to semiconductors, and we ended the year with a record $14.3 billion of backlog, up almost $800 million versus the prior year. Second, our acquisition of Rave Mobile Safety during Q4 was our seventh acquisition last year. Rave adds approximately $70 million of annual recurring revenue for 2023 and expands the company's addressable market by approximately $7 billion. Whether it's a student or a teacher alerting public safety with the push of a button or 911 call takers coordinating a more informed response, Rave Mobile Safety amplifies the connection between our video security and Command Center portfolios. Since 2015, we've invested almost $6 billion in acquiring companies that have helped us create a broad set of public safety and enterprise security solutions. These assets have helped to accelerate our revenue growth, diversify the composition of our revenue streams, and more than quadrupled our addressable market to what we now estimate to be $60 billion. And finally, as I look ahead, the momentum of our business remains strong. The funding environment for public safety and enterprise security remains exceptional. Our investments in APX NEXT device portfolio are driving a refresh cycle that is still in the very early days, with less than 10% of customers' installed base upgraded to date. Our AI and Cloud solutions continue to help drive market-share gains in video security and command center software, and will continue to navigate the ongoing supply chain challenges. I'm extremely pleased with how we're positioned as we enter this year, and I expect it to be another year of strong revenue and earnings growth for the company. And with that, I'll now turn the call back over to Tim, and we'll take your questions.

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, would you please remind our callers on the line how to ask a question?

The floor is now open for questions. Thank you. Our first question will come from Tim Long with Barclays. Your line is now open.

Thank you. Greg, could you just give us a little sense of the backdrop? It sounds like obviously backlog was pretty strong, but talk a little bit about federal ARPA and other revenue sources? How is that starting to flow through? How are your customers taking advantage of that and what do you think that means to visibility over the next few years? And then Jason, for you on the clarification, just talk a little bit about gross margins. Maybe walk us through the next year at some point where we should be getting some bounce-back from components and logistics and maybe just touch on price increases that we've seen and how that would flow through the model and hit the gross margins next year? Thank you.

So this is Jack. I'll take the first question. I believe it was about federal funding, and I have some really good news. We received over $400 million in orders in 2022. More importantly, the $350 billion earmarked for state and local initiatives represents a multiyear funding trend. Looking ahead, we anticipate our multiyear pipeline extending through 2026 to exceed $1 billion. Some of the deals Jason mentioned were partially or fully supported by ARPA funds, demonstrating our success. Our sales team in North America has a strong grasp of funding models, and they are executing effectively, resulting in positive outcomes.

And Tim, I'll also remind you that the ARPA funding, $350 billion for state and local, $170 billion earmarked for education, but most importantly, it's multiyear funding and much of this will go into and through 2026. So, the foundation of funding and the strong environment Jack described, we capitalized in 2022 as he talked about the robustness of the funnel this year. But the best part of all is, it's multiyear dimension in nature.

And Tim, I'll take the second part of your question. So as you recall, as we navigated through 2022 and having to secure parts from brokers, last year we incurred about $165 million of higher costs for semiconductors in 2022 than 2021, that was a headwind for us. We're able to get access to some parts in Q4. That's in part what helped our Q4 performance. So as we plan for 2023 now, we anticipate still needing to run the play of buying broker parts. It still remains a difficult environment, particularly for automotive-grade semiconductors, but we do believe and are planning for about a $50 million tailwind in the total amount of dollars that we will allocate and spend to secure parts as per the plans we have in 2023. So a $50 million tailwind in 2023 relative to 2022's cost profile.

And Tim, from a gross margin perspective overall for MSI, we expect gross margins to be up in 2023. We also expect operating margins to be up in 2023.

Thank you. Our next question will come from George Notter with Jefferies. Your line is open.

Hi, guys. Thanks very much. It sort of feels like somebody forgot to tell you guys that we're in a recessionary environment. The business seems to be cranking on all cylinders here. Greg, anything you worry about in terms of a recessionary environment at all? I mean, I get it the ARPA funds are kind of backfilling maybe for any softness that you could see out over the horizon. But any thoughts about tax receipts, whether its property tax or income tax receipts ultimately slowing down a year or two from now impacting the business?

George, the answer is no, to be candid with you. The environment is strong; the funding environment, as we talked about is exceptional. Seventy-five percent of our business, as you know, is government and public safety; 25% is enterprise. We still see continued strength. This year we expect growth in all three technologies: LMR to be mid-single digits, video security to be about 15%, command center to be about 20%. And there was an article in the journal last weekend that state budgets are as flush as they had been in several years. We talked already about the multiyear funding horizon for ARPA. Now, nobody is immune from a recession. We've always been diligent in managing the expense structure of the firm. The majority of the driver of higher OpEx for this company year on year and period on period is generally acquisitions. So I think we have a great portfolio, a fantastic environment, strong demand, and we are acutely focused on continued execution, new product development, acquisition integration, and growing faster than the market versus our competitors. So now I look, sometimes they worry that I'm not worried, okay? But the team is aligned, and we feel really good about where we are. Appreciate the question.

Also, Greg...

I have a quick follow-up question. What impact are you experiencing in the business from higher pricing as we consider the growth rate looking ahead to 2023?

So, I would say the growth that we had last year, full year was driven by both volume and price increase. I'd weight it a little bit more toward volume last year. That composition that drives our growth rate overall for this year is also volume and price. And I would weight it slightly towards volume again this year. We've exercised surgically and responsibly certain price increases that we've talked about a number of times last year. So I think we're well-positioned going forward.

Thank you.

Thanks, Tim.

Thank you. Our next question will come from Adam Tindle with Raymond James. Your line is open.

Okay, thanks. Good afternoon. I wanted to start with the question, Greg. If there was any potential updates that we could give our guardrails on the potential outcomes for Airwave at this point? We understand, obviously, you've got some tailwinds to the model from managing costs and supply chain. The potential headwind looming is what could happen with Airwave. So just want to make sure that we're netting those things out and any guardrails you can give us on where that could potentially shape out?

I want to remind you that CMA's stated intention is to make a final decision soon, possibly this month or next. Our stance remains unchanged; we believe their efforts are disproportionate, unprecedented, and overreaching. The investigation is focused on Airwave and ESN. I can share that we have successfully signed a contract with the UK Home Office to exit ESN, which required a good multi-month effort on both sides. This agreement will allow us to exit ESN earlier than expected. We will have a transition services agreement in 2023, but after that, we will be out of ESN. I think this update is worth sharing since we mentioned our intention to exit in the previous quarter before finalizing the agreement. As we guide for the full year, we are factoring in an $80 million business model change related to PCR, while also anticipating continued supply constraints. It's important to note that despite reports of supply chain improvements, the situation remains largely unchanged for the industries we are in, particularly in the competition for semiconductors with industrial and automotive providers. This context shapes our guidance, and as of February 9th, we believe our outlook for the year is prudent and balanced considering all factors.

All right. And maybe just a follow-up on Rave. Obviously, spending over $0.5 billion, I'm sure there was a lot that went into that decision. Greg, I'd love for you to maybe just talk about the expected ROI in any financial metrics. Sorry, if I missed any that you could provide related to that acquisition to justify that level of capital allocation? Thank you.

Yeah, so we are very excited about the asset. And the important thing, Adam, is it's an asset that's worth more to us than anyone else. So when you think about the capital deployed against the backdrop of an addressable market that expands $7 billion and all ARR, annual recurring revenue with a run rate of $70 million, we like those attributes, their verticals. Eighty percent of the business is profiled around state and local and education, which that too is absolutely in the sweet spot of what we do and how Molloy goes to market. So the asset we're excited about, I think it's worth and we think it's worth more to us than anyone else, and we've done an extensive view of the industry as well and we're excited about what it means.

A few more things to add on this. Greg already mentioned the vertical alignment that we have here, state and local government, education, which is significant for us, healthcare, and corporate buildings. All of these are key areas where Rave plays a very important part. In Rave very critically, as we mentioned before, connects enterprise security with public safety in some very unique ways and augments both sides of the portfolio. Probably three areas, technology areas that I want to highlight. The first is Rave enhances individual safety with mobile apps. So think about that as the Rave prepared capability where people with special needs can actually create a profile and offer information ahead of potentially something happening so that the response can actually be more effective. The second is the panic button. The ability to push a button and get help as needed, benefiting from what profile was created previously as needed as well. Rave Alert, which is a mass notification capability to keep people informed. So think about that as everything that covers people's individual safety. The second area is facility preparedness. So think about the Rave facility capability where information about a facility can better inform a public safety response, including keeping responders safe and that's a very critical capability. Rave Collaborates help set up standard operating procedures for how someone should respond to various incidents ahead of when an incident actually happens. This very uniquely enables us to coordinate the ability that we have on the video security side and the command center side to make sure that the standard operating procedure along with the automation that sits behind it can orchestrate a very successful and capable response. Lastly, the third area is that it accelerates response as a whole. The Rave 911 suite provides very critical information to both 911 and dispatchers in terms of location information of where individuals are, other information, such as video directly from the site, and also Rave allows for cross-jurisdictional information sharing. You take all three of those capabilities with enterprise security and command center, it really enhances our overall portfolio. As Greg said, the one plus one here is actually much greater than two.

Thank you.

Thanks, Adam.

Thank you. Our next question will come from Meta Marshall with Morgan Stanley. Your line is open.

Great. Thanks. Maybe following up on kind of that Rave response, which was very helpful just kind of in laying out the integration. I guess just is there any timeline to kind of integrating the solution that your Video solution or Command Center could kind of interoperate more seamlessly with Rave, or is that already kind of built into the solution? Just kind of getting a sense of when the one-to-one really does become more than two and if there's any timeline to that? And then maybe just a second question. Obviously, the backlog has grown pretty significantly. Are there any meaningful changes to duration that we should just be mindful of when thinking about that backlog and how it would peel off? Thank you.

Starting with the timeline aspects, there are numerous elements that I previously mentioned which are already in place today and integrated in various ways. Our aim is to unify more of these solutions within our Command Center product portfolio, as well as the Video Security and Access Control portfolio. This will enhance our use cases and make our products more distinctive. Some key functionalities, such as connecting detection on the public safety side to an informed response on the command center side, whether that’s for 911 or dispatch, are already operational. Additionally, the capability for incident mass notifications, allowing us to alert and inform individuals during a situation, is also in place. While there is more to come, the fundamental capability where the sum is greater than its parts is available now.

On the backlog. So our backlog, not only is it up in total to the $14.3 billion, but it's up $900 million in products. The duration of our backlog is even better than it had been last year. So we're in a strong position for backlog as well as the continued expectation for the orders that we execute on during the year.

Great, thanks.

Thanks, Meta.

Thank you. Our next question will come from Sami Badri with Credit Suisse. Your line is open.

Hi, thank you very much, and congrats to what's a very robust 4Q and very robust 2023 guidance. My question has to do with the APX NEXT orders and just the typical refresh rates of public safety institutions and how they order your radios. The question is, are the ARPA funds and are the elevated levels of state and local budget catalyzing a compression in the typical refresh rate of LMR radios, which is partially explaining the strength you're seeing in LMR?

Sami, it's Jack. As I mentioned in the August call, we are just beginning the P25 upgrade cycle in North America. I want to highlight a few points: First, APX NEXT was launched at the top of the market, and we have recently expanded our portfolio to include a mid-tier APX NEXT. This addition will serve as a catalyst for many suburban and county municipalities outside major cities. Since the product was announced, we have secured $370 million in orders, including $210 million in 2022 alone. The ARPA funding is certainly speeding up the refresh cycle, reducing it from about ten years to approximately seven years. The City of Houston is a good example as they utilized mostly ARPA funds along with some of their own budget surpluses to proceed with this device. Several factors are driving this trend; agencies want to maximize their device capabilities. Extending the network for mutual events through SmartConnect enhances the user experience. For large city police departments, upgrading software and making cyber fixes, which once took 10,000 man-hours, can now be accomplished in just 10 minutes thanks to LTE compatibility. Location is also important; we've observed a significant increase in GPS provisioning capacity through our CAD networks. There is a lot of enthusiasm, especially among notable police departments, and with the launch of the mid-tier series, we expect this momentum to continue. To clarify, we processed $210 million in orders last year, and I anticipate that we will double that figure this year.

And it's fair to say that APX NEXT is probably the most successful LMR product we've launched, certainly in my tenure, and the most successful for all of the reasons that Jack talked about: private network, public network, seamless roaming, LMR to LTE, and all the operational cost savings. Yes, obviously, the funding environment helps, but the product itself is so strong in what it does and unique in its capabilities; I think that is as significant as anything.

Thank you for the insights. I have a follow-up question regarding Rave mobility. While it's clear what direction you are taking, the larger concern for analysts lies in the integration of Rave, Ava Security, and other acquisitions. It seems they will need backend integration before being offered to your customers on a wider scale for increased consumption. How close are you to being market-ready with a fully integrated backend suite that can effectively support frontend consumption?

I think we've talked about our Safety Reimagined program a few times before. A key element of the Safety Reimagine program is actually to bring all these elements together in an integrated fashion and facilitate the orchestration of incident response in a manner where that response is more effective. With that in mind, we have spent time developing a piece of software called Orchestrate, which actually starts connecting these different pieces together and very visually allows enterprise security professionals and even public safety professionals to be able to say, this is how the automation behind the scenes of events going from, say, us being able to detect visual activity in the field of view of the camera should trigger, say, an access control lockdown. That access control lockdown in turn can perhaps trigger a mass notification to people in the facility, that mass notification then, following that, triggers a call to 911, dispatchers are now informed as to where individuals are. These are capabilities that between our Collaborate platform and our Orchestrate platform we're able to do today. And as a solution, we are starting to sell Safety Reimagined as a solution.

In addition to the product integration and the roadmap that Mahesh described, I think, as Greg mentioned earlier, we're excited about Rave because it allows us to extend our sales channel to selling into public safety and education. So immediately, that organization gets the power of Jack Molloy's entire sales organization, selling the product as it is today into those accounts. And that in part is why we believe we're the most valuable owner of that asset.

Sami, I want to highlight a couple of important points. We are noticing a divergence in the video security market, especially in fixed video security. On-premises customers in certain critical infrastructure sectors prefer on-prem solutions, while another segment is increasingly shifting to the cloud for video security. We have taken steps to capitalize on this trend. Moving forward, we will be able to support both on-prem and cloud customers, allowing them to utilize the analytics we have developed within our camera portfolio. Additionally, it's noteworthy that we have acquired IndigoVision and Pelco, which combined three different VMSs that we previously had to support. We have consolidated this experience under ACC8, or Avigilon Control Center 8, our VMS. So, there has been considerable progress, and I wanted to ensure you were aware of these developments.

Awesome. Thank you very much.

Thank you.

Thank you. Our next question will come from Fahad Najam with Loop Capital. Your line is open.

Thank you for taking my question. I wanted to discuss the progression of your outlook. You're forecasting a 12% to 13% revenue growth for Q1 2023, yet your full-year guidance suggests only a 7% year-over-year growth. I understand that lead times for your supply chain remain unchanged, but the global supply chain outlook is clearly improving and may reflect positively later in the year. However, I’m curious about the consistency of your projections, as they seem to indicate a potential slowdown in the second half of the year, which appears illogical. Could you clarify your assumptions?

Sure. Fahad, I would point you to, first, the comp set from last year where in the first half, we grew at a rate of 8% and the second half a rate of almost double that. So if you look at last year's comps, it in part informs our expectations for growth this year. Secondly, we talked about this $80 million PCR business model change moving to license. The majority of that impact is occurring in the second half for us. That helps inform what we expect for growth all year, but higher growth in the first half. And as Greg mentioned, with lead times unchanged, we forecast the business based on the lead times that our suppliers commit to us, and we update it as the year progresses. Our current guide is informed by our supply commitments. We just had a summit with our top 20 suppliers yesterday and have the latest information and commitments from them, and we'll continue to work the supply environment proactively, which we did in 2022.

For my follow-up, I wanted to ask your thoughts on your revenue growth outlook for video surveillance. You've been talking 20% growth. Over the last two years, you've grown that business 30%-plus. If I'm not mistaken, the FCC has now recently announced a more extensive ban of that Dahua products that has far bigger implications, probably favorably for your business. So how should we be thinking about and how are you thinking about your video surveillance revenue growth in 2023? And how does this new SEC ban impact your business?

Our outlook for 2023 is 15% growth, although it’s important to note that this is against a challenging comparison since we grew 24% in 2022. We believe the NDAA is generally favorable for our business and will serve as a tailwind, though it likely won't have a significant impact throughout 2023. We're particularly excited about the development of our portfolio, which now includes offerings for both on-premises and cloud solutions. Additionally, it's crucial to consider where this growth is coming from; government and education are our two primary sectors, and we think they are somewhat protected in the event of an economic downturn. We also see potential in healthcare and the commercial market.

Fahad, I'd also point out that some of the higher growth rates of Video Security, like in 2022 or before, the top revenue growth rate was in part driven by acquisitions. As you normalize those acquisitions and they go into the base and you look at the underlying strength of the growth rate between 2021 and 2022 and into 2023, it's much more comparable on a year-over-year basis.

I appreciate the answer. Thank you.

Thanks, Fahad.

Thank you. Our next question will come from Paul Chung with JPMorgan. Your line is open.

Hi, thanks for taking my question. So can you talk about kind of the operating leverage benefits you're seeing in the model? And I mean, you saw kind of modest growth in OpEx despite record revenues this year and very strong organic top line. So as we think about next year, how do we think about the pace of spend, kind of incremental costs related to Rave and other acquisitions? And you also mentioned gross margins up this year. Can you expand on the magnitude of your expectations there and the shape throughout the year? And I have one follow-up.

Sure. So I'll start with OpEx. I mentioned that we expect OpEx to be up $150 million this year. The primary drivers of that are, in fact, Rave, the recent acquisition, combined with investments that we continue to make within video, which is our fastest-growing technology. In terms of leverage, we saw the leverage that we expected in the second half of 2022 on the operating line, and we expect continued operating margin expansion in 2023. I mentioned in part a $50 million tailwind in lower costs for us to attain the supply in 2023 than what we had to pay in 2022; that will largely benefit the product segment. We'll continue to expand operating margins with both the volume and price growth drivers that Greg mentioned earlier.

Okay, great. And then on free cash flow, very strong performance here to end the year and despite $300 million working capital drag. It's always nice to see very strong earnings contribution kind of driving that free cash flow. But as we look to 2023, how do we think about working capital dynamics and overall trends for 2023, which could be a record year for free cash flow? Thank you.

Sure. So we out looked $1.9 billion in operating cash flow. CapEx will be pretty similar to last year. For a number of years now, our CapEx as a percent of OCF is around 15%. It's actually less than the 20% that we have in our capital allocation model, and that's likely to continue. We are a low CapEx, asset-light kind of model. So as OCF, we expect growth in OCF, we'll have higher earnings. I did mention a $225 million higher cash tax amount that we are incorporating into 2023 as well. But we'll see good earnings growth, good cash flow growth, and we'll continue to work through inventory. Inventory has been a helpful investment for us as we navigated 2022. We'll plan and are planning for it to come down in 2023 as we fulfill record demand, but we'll continue to use it as an asset. It served us well in getting customer and meeting customer demand, but we'll continue to work through lower inventories in 2023.

Great, thank you.

Thanks, Paul.

Thank you. Our next question will come from Keith Housum with Northcoast Research. Your line is open.

Good afternoon, guys and congratulations on a great quarter and our consistent performance for you guys. As we think about your product and system integration business, obviously, we saw you guys call out a lot of the APX NEXT refreshes, but there's only one systems update that was included in that list. Can you guys kind of talk about the mix between the system upgrades versus the device upgrades that you guys are going through? Are you guys seeing more of a movement back toward your device upgrades?

We're seeing both, Keith. The one thing I'd point to is that over the past several years, our customers have been transitioning to an always current upgrade arrangement, we call it SUA. It's a more predictable arrangement for them and keeps them on their journey technology-wise. That revenue stream is more predictable for us. A large number of customers in North America are on that journey for their infrastructure needs, which is a less lumpy systems business for us. So we'll continue to see devices upgrades. We told you where we are in the early innings of that, and we'll see systems upgrades, but we'll see it come through the P&L in both a product-related upgrade and, in some cases, higher services revenue for systems upgrades.

Jason, that's a good point. This has shifted more into a recurring revenue model, and it will continue to do so. There will be opportunities in replacing base stations for these networks. However, the focus has largely moved to software, which is part of the SUA program, as Jason mentioned. Additionally, this has also fueled our Managed and Support Services business.

Great. Thanks. As a follow-up question here. The guidance here, Command Center growth expectations above 20% for 2023. Is the primary driver of that the integration of Rave? Or are you guys seeing success elsewhere starting to pay dividends?

Twenty percent includes the inorganic addition of Rave, but the rest of Command Center software is also expected to grow low double digits, which is consistent with the expectation that we had and executed too in 2022.

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

How are you?

Doing well. Related to your video division, the topic of artificial intelligence and machine learning has been in the financial mainstream recently with ChatGPT. Can you discuss how Motorola deserves to be in the conversation of leading AI vendors with some of your video analysis automation tech that you showcased at the IACP conference? And in general, how powerful are your AI tools now? How has that progressed over the past couple of years? Thanks.

Sure. So ChatGPT, the technology that I think has been in development for quite a long time, and it really benefits from lots of advances in natural language understanding, reinforcement learning, the GPT, that stands for generative pretrained transformers, and it's the third generation of that tool. Now if you kind of break that up a little bit, the natural language elements of it, think of what we do on the smart transcription side, where we understand natural language, we are able to pick out entities that address names, license plate numbers, et cetera, and then map that into a capability to fill out forms, give supervisors a heads-up when a call taker potentially needs help, et cetera. On the video side, think of it as what we're doing, where we're taking video and actually converting that to language, facilitating things like natural language searches. So being able to understand what the user is asking for and mapping that effectively into a set of results that are returned based upon our automated analysis of video. We can do that at the edge. With our acquisition of Calipsa, we're able to extend that capability into the cloud. One of the things that Calipsa with the cloud AI allows us to do is very rapidly provide this capability to multiple different cameras across the board, from our portfolios, Pelco specifically, Avigilon inclusive of that as well. So those two things together give us the capability now to say, okay, if there's particular events that are happening, we can alert on them unusual activity being another one of them. So ChatGPT, I think, is just an indicator of one element or one area of machine learning that is really advanced. We're benefiting from multiple pieces of that across video understanding, across language understanding, and audio understanding to the point where we're now implementing it across all our products. Hopefully, that's a rough answer to your question.

Thanks. That was helpful. I'm sure you could talk for dozens of hours on that topic. One more question. Last week, the city of East Chicago and Indiana announced that it was deploying a portable solar-powered video analytics platform from Avigilon. I was wondering, do you view solar-powered cameras as a significant growth area for the Motorola video group?

There are two areas I'm not entirely clear about regarding the specific opportunity you're mentioning. However, we do have Avigilon cameras that are currently used with solar platforms for deployment purposes. This typically applies to construction sites or sports events where a quick deployment solution is needed. Another area is our automatic license plate recognition solution. We launched the L6Q camera towards the end of last year. This camera is fully wireless and includes both video and radar for detection. It can be powered by solar energy or a standard AC or DC connection and is LTE capable. Thus, it is fully wireless in all aspects. We are noticing a fairly rapid adoption of this solution due to its simple installation - it is arguably the easiest video camera device to install available today.

Perfect. Exactly what I was looking for. Thanks.

Thanks.

Good afternoon, everyone. Thanks for taking the question. The first item I had is, I'm curious, could you talk through the K-12 trends that you've seen as of late, talk to maybe materiality and how some of the COVID relief funding is starting to manifest. Mahesh talked about safety reimagine, but any other types of projects that you're seeing in that space would be helpful.

Sure. I mentioned earlier that education is our largest area in Video Security and Access Control. There has been $170 billion dedicated to enhancing school safety, which continues to grow faster than our overall business, even with our 24% growth last year. School safety is a top priority for everyone. This involves not just video security but also access control and the integration of PCR radios, which provide important intelligence regarding door access. Analytics are crucial in our success within education, helping detect unusual movements, such as altercations in cafeterias. Events at stadiums also present challenges with teenagers. All these factors create significant opportunities for us. Early on, we established a dedicated team focused solely on the educational sector because we believe that having expertise and market knowledge is essential for collaborating effectively with our product group. Additionally, while public schools receive a lot of attention, we also see potential in private schools, particularly those interested in cloud solutions, an area we addressed after acquiring Ava, identifying opportunities to drive growth in the private education sector as well.

Okay. That's great. The follow-up is within Command Center, Greg, you spoke to 20% growth in 2023. Jason, I think you said ex Rave low doubles. If you look at Command Center as a percentage of mix, it's been pretty stable, about 7 points of revenue over the last several years. A lot of things going on. Could you talk a little bit about the sales motion there, the complexity of the systems and longer term, when you think that might be a bigger driver to the overall mix or grow as a percentage of the total, if you get a more widespread investment among those customers? That's it. Thank you.

I think the key point here is that the Command Central market is quite extensive. There are 6,500 public safety answering points in North America. Historically, there were three to four different request for proposal cycles involving CAD RMS, the 911 system, consoles, and radio consoles, along with the Aware platform, which is more proactive for police. We're noticing that as newer and more technology-savvy dispatchers enter the market, they prefer a unified experience. They want a single piece of software rather than juggling multiple systems with different screens and interfaces. While many might wish for a seamless transition to a unified solution akin to a Microsoft suite, the reality is that some have made recent investments, like purchasing a new RMS system just three years ago, which creates a cycle. However, we believe this presents an opportunity for us. Mahesh and his team have effectively positioned us to engage customers meaningfully. It's not an issue for us if they acquire these systems in different cycles, as long as they appreciate the experience we provide, as we see potential for margin growth there as well.

Thanks, Jack.

Looking at our performance in 2022, our SaaS growth was actually double that of our command center total revenue. Currently, about one-third of our command center software customers use at least one cloud-hosted hybrid solution. We noted Greater Harris County as one of the deals from last quarter. A key aspect of that solution was the smart transcription feature I mentioned earlier, and Greater Harris County represents our largest smart transcription deployment so far. We're seeing an increase in the adoption of hybrid solutions, which is progressing well for us.

Thanks, Mahesh.

I appreciate that. I hope I can ask a lot of questions. But on a serious note, Greg, can you clarify the guidance you will provide in organic terms? How does that look when you exclude expectations from Rave or any other potential acquisitions? How does it compare to organic growth in 2022? I assume Rave is the only or the largest inorganic component this year?

Yes, it's primarily Rave. Last year, our inorganic revenues added $121 million, and this year, it's mainly Rave with around $70 million from Rave. So that's the difference.

I appreciate that. This ties into the next question about your LMR business, which grew 9% last year following a 7.6% increase the previous year and a 3.9% rise the year before that. Historically, you've described this business as low single-digit growth, so it’s impressive to see such strong performance. In relation to your mid-single-digit guidance for LMR, I'm trying to grasp the potential for further upside. I assume the downside may be one of the factors. Could you elaborate on the key drivers behind this growth? You mentioned that PCR increased, but I don't think you provided a specific number. I assume it has returned to the $1 billion level mentioned in 2019. Can you walk us through the various contributors like APX and PCR that played a role in this robust growth and what your expectations are moving forward?

So Paul, let's start with the foundation and theme of this discussion. It highlights the strength and durability of land mobile radio as a core platform compared to LTE or cellular options. We often talk about APX NEXT; it's the top-tier device and the most successful product launch MSI has ever experienced. Customers are eager for it due to its features, LTE roaming, and over-the-air software updates that reduce their operating costs. We're also introducing the APX NEXT mid-tier refresh. In total, there are 13,000 LMR networks globally. Focusing on those in North America and the P25 standard, we have a complete device portfolio refresh led by APX NEXT for the high-end and APX NEXT for the mid-tier. Additionally, we're refreshing our TETRA portfolio and enhancing the PCR portfolio. With ARPA funding and state budgets being stronger than in years, PCR achieved its best quarter ever and returned to pre-pandemic levels, reaching about $1 billion. Despite changes in our business model around PCR exiting certain Asian markets and adjusting our revenue recognition, we anticipate growth from a record year in 2022. There's a complete device portfolio refresh with top-quality products. This is essential, not just optional, reflecting a real demand for LMR and the related platforms and features, including the integration of the Command Center and enhancements like video security and access control. As for the mid-single-digit growth expectation, it's important to note that we remain in a supply-constrained environment, with lead times similar to those from a quarter or two ago. We will update you if there are any improvements in this area, but this is what's driving our guidance.

Greg, I think you just told us that if supply permits, demand would accommodate more than that mid-single digit, 5% guidance. But my last question is, any update with respect to you all being able to collect on that not-in-substantial Hytera litigation award?

Our expectation for cash flow in fiscal 2023 assumes no collection in that year, despite them owing us about $60 million. We have collected a small amount so far. The ongoing civil trial is part of a lengthy multiyear battle against Hytera, which also faces a criminal trial starting in February 2024 at the federal level. We have asked the court to hold Hytera in contempt for not making a royalty payment. Protecting our intellectual property is crucial, and we will continue to pursue this matter. Recently, a senior engineering executive from Hytera changed his plea to guilty in the U.K. Although the process takes time and justice moves slowly, we will keep you updated. For our fiscal 2023 forecasts, we do not expect any cash collection.

I appreciate that. Guys, can I just clarify one thing going back to one more question. Greg, I think you and Jack and Jason have made the point historically previously that the new APX handsets accommodating the richer applications that require the new APX handset in order for your customers to deploy. I trust that's still the case, assuming the fact that there's a strong take-up of APX NEXT bodes well for take-up of the incremental command center software and LMR services, et cetera, and one goes hand in hand with the other.

The fact that the APX NEXT has software applications that are embedded in the capability of the device themselves. That platform is there to upgrade and add apps over time.

I appreciate it.

Yes, thank you, Paul.

All right. Thank you. This does conclude the question-and-answer session. I would now like to turn the floor back over to Greg Brown, Chairman and Chief Executive Officer, for any additional and closing remarks.

Thank you, everybody, for joining the call. I would just summarize by saying what we do has never been more important than it is now. Last year was a truly outstanding year. It was the second consecutive year of double-digit top-line revenue growth. We expanded operating margins despite the higher input costs around semiconductors. We acquired seven companies for the deployment and utilization of capital of $1.2 billion. The demand environment remains exceptionally strong heading into this year. We've got strong multiyear funding, record orders, and record backlog. The exciting part is we're at the intersection of public safety and enterprise security. The width and breadth of our technology ecosystem, I think, further fortifies our role as a trusted adviser to our customers. I want to thank every single Motorolan that's listening into this call. This is an incredible company with a very strong purpose, passion, reengineering, innovation mentality. As we heard yesterday in the supplier conference that Jason referenced, Jack, Mahesh, and I participated in, these are special people with a commitment to serve and a commitment to the community. It's above and beyond. I appreciate everybody on the call. Thank you for joining, and we look forward to updating you again in a few months. I appreciate you all.

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