Welcome to the Motorola Solutions First Quarter 2023 Earnings Conference Call. Today's call is being recorded. If you have any objections, please disconnect at this time. The presentation material and additional financial tables are posted on the Motorola Solutions Investor Relations website. Additionally, a webcast replay of this call will be available on our website within 2 hours after the conclusion of this call. The website address is www.motorolasolutions.com/investor. 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 2023 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 have 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 referenced 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 this conference call in the Risk Factors section of our 2022 annual report on Form 10-K or any quarterly report on Form 10-Q and in our other reports and filings with the SEC. We do not undertake any duty to update any forward-looking statements. And with that, I will turn it over to Greg.

Thanks, Tim. Good afternoon and thank you everybody for joining us today. First, let me start by just saying that Q1 was an exceptional start to the year. We achieved revenue and earnings per share above our guidance with revenue up 15% and earnings per share up 31% versus the prior year. We expanded operating margins by 470 basis points, and we had record Q1 orders, which led to record Q1 ending backlog of $14.1 billion, up 5% versus last year, inclusive of $372 million of unfavorable FX. Second, our outstanding Q1 performance was broad-based, with strong double-digit revenue growth in both segments, all three technologies and in both regions North America and international. Additionally, public safety and enterprise security remains more important than ever, which is driving demand for both our public safety and enterprise customers. And finally, based on our strong start to the year and continued robust demand, we’re raising both our revenue and earnings guidance for the full year. I’ll turn the call over to Jason to take you through results and outlook and then be back for some final thoughts.

Thank you, Greg. Revenue for the quarter grew 15% and was above our guidance with double-digit growth in both segments, both regions and in all three technologies. FX headwinds during the quarter were $45 million, while acquisitions added $42 million. GAAP operating earnings were $399 million or 18.4% of sales, up from 12.6% in the year-ago quarter. Non-GAAP operating earnings were $532 million, up 42% from the year-ago quarter and non-GAAP operating margin was 24.5%, up 470 basis points. This strong year-over-year increase in both GAAP and non-GAAP operating earnings was driven by higher sales, lower direct material costs, inclusive of lower broker spend in attaining semiconductors and improved operating leverage. GAAP earnings per share was $1.61 compared to $1.54 in the year-ago quarter. Non-GAAP earnings per share was $2.22, up 31% from $1.70 last year. The strong growth in earnings per share was driven by higher sales and margins, partially offset by a higher effective tax rate in the current year. OpEx in Q1 was $530 million, up $38 million versus last year, primarily due to acquisitions and higher incentives in the current year. Turning to cash flow. Q1 operating cash flow was a usage of $8 million and free cash flow was a usage of $62 million. The cash flow in Q1 was in line with our expectations and included a one-time cash tax payment of $70 million related to an IP reorganization we completed last year. It also reflects our strategic decision to carry higher inventories. For the full year, we continue to expect operating cash flow to be approximately $1.9 billion, with greater contributions in the second half, consistent with the shape of last year’s cash flow. The capital allocation for Q1 included $148 million in cash dividends, $140 million in share repurchases and $54 million of CapEx. Moving to our segment results, in the Products and SI segment, sales were up 18% versus last year, driven by improved supply availability and the benefit from pricing actions flowing through. Currency headwinds were $19 million and revenue from acquisitions in the quarter added $12 million. Operating earnings were $246 million or 18.9% of sales, up from 8.7% in the prior year, driven by higher sales, lower material costs, inclusive of lower broker spend and improved operating leverage. Some notable Q1 achievements in this segment include a $27 million countywide P25 system for Johnson County, Missouri, a $20 million P25 device order for a U.S. state and local customer, a $17 million P25 system for Wakulla County, Florida, a $16 million fixed video contract for a large health care system and a $15 million Apex and Apex Next devices order for the Kansas Highway Patrol. In Software and Services, revenue was up 10%, including 19% growth in Command Center and 20% growth in video. Revenue from acquisitions was $30 million in the quarter, and FX headwinds were $26 million. Operating earnings in the segment were $286 million, up 3% versus last year and operating margins were 32.9%, down from 35.2% last year on mix, higher costs from acquisitions and FX. For the full year, we expect operating margins in this segment to be comparable to last year to slightly down, driven by higher costs from acquisitions, primarily rate.

Some notable Q1 highlights in this segment include a $340 million federal IDIQ award to combine existing services and provide new LMR services to the U.S. Air Force, which has long been an important customer of ours. Given the nature of this 10-year agreement, we recorded only $11 million of backlog in the first quarter and expect backlog to be recorded ratably over time for the remainder of the contract. Additionally, we expect new services included to contribute an incremental $60 million of revenue over the 10-year period when compared to the previous service agreements. We also received a $21 million multiyear support services extension for Portugal’s nationwide Catcher system, a $10 million LMR services agreement with a federal agency and a $9 million fixed video services contract renewal with the City of Chicago. Looking at regional results. North America Q1 revenue was $1.5 billion, up 14% on strong growth in all three technologies. International Q1 revenue was $679 million, up 16% versus last year with growth in all three technologies, partially offset by unfavorable FX. Moving to backlog. Ending backlog was a Q1 record of $14.1 billion, up 5% or $623 million versus last year, inclusive of $372 million of unfavorable FX. These results were driven by strong demand across all three technologies. Sequentially, backlog was down $280 million, driven primarily by typical order seasonality in North America.

In the Products and SI segment, ending backlog was up $601 million or 15% driven primarily by strong LMR demand. Sequentially, backlog was down $186 million due to North America orders seasonality following a record backlog in Q4. In Software and Services, backlog was up $22 million compared to last year, driven by strong demand for multiyear software and services contracts in North America, partially offset by the revenue recognition for Airwave along with $329 million of unfavorable FX and the adjustment related to the exit of the ESN contract that we announced last year. Sequentially, backlog was down $94 million, driven primarily by revenue recognition for Airwave. Turning now to our outlook. We expect Q2 sales to be up 10% to 11% with non-GAAP earnings per share between $2.49 and $2.54 per share. This assumes a weighted average share count of approximately 173 million shares and an effective tax rate of approximately 24%. For the full year, we are increasing both our revenue and EPS guidance. We now expect revenue in the range of $9.725 billion to $9.775 billion, up from our prior range of $9.65 billion to $9.7 billion and we expect non-GAAP earnings per share between $11.21 and $11.29, up from our prior guidance of $11.10 and $11.22 per share. This full year outlook assumes $25 million of FX headwinds, a weighted average share count of approximately 172 million shares and an effective tax rate of 23% to 24%. As I mentioned on the last call, the increase from our 20.1% tax rate last year is due to lower tax benefits on share compensation and a higher UK tax rate in the current year, both of which combined represent an approximately $0.50 headwind in our full year earnings per share guide. The increased outlook for the full year is a reflection of the continued strength of our business and demand for our solutions.

The revenue guidance reflects expectations for strong double-digit growth in the first half as well as continued growth in the second half of the year, which comes on top of the 15% growth we saw in the second half of last year. I’ll now turn the call back to Greg. Thanks, Jason. Let me just end with a few thoughts. First and foremost, our business remains very strong. We had record Q1 orders and achieved revenue above our expectations. We expanded operating margins by 470 basis points. We ended the quarter with our highest Q1 ending backlog ever, and our public safety and enterprise customers are continuing to prioritize our solutions to help communities safe, which is driving our increased top and bottom line guidance for the full year. Second, I want to highlight two recent announcements in our Video Security business. First, we made the decision to integrate our end-to-end fixed video portfolio, consolidating the majority of our fixed video solutions under two platforms: Avigilon Alta and Avigilon Unity. Alta is our cloud-native security suite, consolidating Openpath and Ava Security, while Unity is our on-prem security suite, consolidating Avigilon and Indigo Vision. This helps streamline our go-to-market channels and further reinforces our vertical focus, particularly in government, but also education and healthcare, which combine those three now represent half of our video security revenues. Additionally, in our mobile video business, we launched our new V700-body-worn camera. The V700 is our first body-worn camera to provide broadband connectivity that facilitates integration with our market-leading in-car video solution, our Apex radios and our command center software, including live video streaming and location tracking through our aware product. And finally, our strong start to the year underlines the strength and resiliency of our business. The demand for our products and solutions that keep communities safe remains exceptionally strong. Our continued focus on cost management and inventory optimization, coupled with our previous modest pricing actions that we took earlier continues to drive margin expansion and our strong balance sheet and durable cash flows allow us to be opportunistic with the deployment of capital going forward to create long-term shareholder value. And with that, I’ll now turn it over to Tim and open it up for your questions.

Thank you, Greg. Operator, please remind our callers on the line how to ask a question.

The first question is from Tim Long with Barclays. Your line is open.

Thank you. Yes, two, if I could here. First, just looking at the second half, I know, Jason, you mentioned tough comps, but hoping you could just give a little commentary around moving parts given those pricing benefits and pretty healthy backlog still. So what are the moving parts in that second half? And then second, more specifically on video, Greg or Jack, if you could talk a little bit about, it was good to see above the full year growth rate in Q1. Could you talk a little bit about where we are with cross-sell opportunities and also opportunities in video from NDAA and RPS safe schools and things like that? Thank you.

Sure, Tim. So on the second half, so you’ll recall that last year in the second half is when the pricing actions that we implemented really began to show up in the P&L, and those really helped last year’s growth and profitability expansion in the second half. So our position today, as we look at those 15% comps is that we’re still in a supply-constrained environment. We have lead times from our suppliers. We have expectations to grow and with opportunities ahead of us for the second half with the continued demand that we have. Where the pricing actions benefited us particularly in Q1 and expect similar for Q2 is last year’s comps in the first half did not include those same pricing actions. So as we start to enter July, we’re anniversary-ing those pricing actions and still expect growth on top of those.

And Tim, specific to cross-sell, what I would do is highlight four specific verticals, starting with government. As we have attested to before, Government was a nascent business when we acquired Avigilon, we made subsequent acquisitions. But just to put it in context, we’ve kind of put the marker out there this year for a video security business that we would grow approximately 15%. We expect government to grow in the high teens. And we think we’ve got opportunities to move that. Specifically, I’d also call out healthcare, we’re really, really pleased. We won – we secured a $16 million deal with a large-scale hospital system. This was an add-on. And the beauty of that is they’re not only a video user, but they’re also a radio user. Education has been we’ve attested to the fact that numerous school systems are upgrading. Some are going with Avigilon Unity on premier systems, large-scale urban schools. But what we’re really seeing is acceleration of growth in the cloud there and the ability to do radio alert and integrate access control, LMR, our command center software product called Compass into school systems is a game changer. And then lastly is the industrial space, namely utilities. We’ve talked about the fact we’ve secured a large-scale utility in the past. We’ve done in the area of $50 million of utility. And I think as utilities start to fortify their power grids and their substations will have incremental cross-sell opportunities there, Tim. But I think the highlight is we tie it all into making sure that we incentivize our sales force to go and cross-sell, and that’s just part of the DNA now.

Okay, thank you very much.

The next question is from the line of George Notter with Jefferies. Your line is open.

Hi, guys. Thanks very much. I guess I think you guys mentioned ARPA in the last question or maybe Tim did, but what are your expectations for the ARPA benefit this year? I know that you’ve got about $400 million in orders from ARPA related projects last year, I would imagine some of that converted to revenue last year. But what do you think that might look like for 2023? Any sense? Thanks.

Yes. So George, I would say ARPA, anytime there are federal stimulus dollars are conducive, and I would say, beneficial to the business. But to kind of put it in context, it’s approximately 5% of our orders in North America last year. And that’s not to diminish it, but I would take it to a higher level. I’ve actually gone and looked in Salesforce. It’s – they’ve contributed to deals that were secured, but they were for the sole purpose of deals that were secured. I think at the end of the day, when you think about mission-critical communications or even a school, we think we’re in an area of prioritization in areas as we’ve said before, it’s a need to have, not a nice to have. So I think it’s generally conducive, but I wouldn’t necessarily say it’s the largest attributor to our success.

Got it. Great. And then just as a quick follow-on. I think the question everyone’s been asking is on supply chain, many companies, I think, are going through inventory corrections now. I mean any sense that your customers have been inventorying products or is there any risk of supply chain corrections or inventory corrections for you guys as you look forward? Thanks.

The demand from our customers remains very strong. Our backlog position is at a record level. And that includes backlog that customers are having to wait a bit longer than they’d like and we’re working through those delays in getting them products. With the results in Q1, we were able to attain a little bit better supply. We had a good quarter across LMR, Public Safety, had a good quarter with PCR. So we’re getting after this backlog position and fulfilling the customers demands, both the demand they placed on us in backlog is also the demand they place on us within the quarter. So – and our inventory position, if I shift to our balance sheet, has helped us mitigate a choppy supply environment, and we continue to be mindful of inventory and its utility in serving what remains a challenging supply environment. It’s been a helpful tool. And we do have expectations for inventory to reduce in the second half. That’s in our cash flow expectations, but it remains an important tool to navigate this environment.

Great. Thank you.

The next question comes from Meta Marshall with Morgan Stanley. Your line is now open.

Great. Thanks. And maybe just a question on the APX NEXT, you had mentioned that being targeted towards the high end and then introducing kind of the mid-tier product. I just wanted to get a sense of adoption trends of the various pieces of the portfolio and were they kind of following the customer adoption types that you expected? And then just maybe an update on Rave integration would be helpful. Thanks.

Sure, Meta. Maybe I will start with the APX NEXT, and Mahesh will speak to Rave. First of all, we are in the early innings, as we have said before. And I think it’s most important to point out that it’s a multiyear introduction for the APX NEXT. What typically happens is we have – we run the APX original and the APX NEXT line in tandem for the foreseeable future. In fact, to point that out 80% in Q1 of our device revenue was actually APX original. So we have got a coexist and strong pipeline for both of them. We have got $410 million orders since we introduced the APX NEXT. But we have just recently, last fall, introduced the N-Series radio, which starts to fill in the portfolio and now we are bringing out international P25 units to bear that will be targeted in Australia, New Zealand and Israel. All-in, with the new product, what we are seeing is kind of high-single digit ASP increases as well.

And I would also mention other parts of the portfolio, TETRA, PCR are areas where we have focused and have exciting products coming to market and receptive customers to those as well. So, we are at an important point in the targeted investments we made in and through COVID that are now producing those exciting products are also an important part of our growth drivers.

And on Rave, Rave has exceeded our initial expectations for performance. We see strong traction in education, especially higher ed, but also K-12. And as we previously talked about, Rave bridges enterprise security with public safety and with some of the initiatives that we have undertaken recently, we are making the bridge wider effectively allowing for more data and at a faster rate to go from enterprise security to public safety. So, two specific examples worth mentioning there, first, with every one of our new VESTA 911 orders, we are actually bundling Rave 911 suite. And what that includes is two-way texting, caller profile. This is information about individuals who perhaps need special assistance, facility info, which includes blueprints of a facility so that responders can respond with greater information as to what they will see when they get to the facility and very importantly, caller location. And that is going to be part of our Rave VESTA 911 offer going forward. The second is we are integrating more closely with our enterprise security solution. So, Orchestrate is a key enabler for that. And as part of our full Safety Reimagined program, we are bringing Rave much closer in terms of the ability to detect and the ability to alert using Rave alert and the ability to bridge into 911 as appropriate. So, those two together is really augmenting our path forward in terms of taking advantage of our strength in education, along with our presence with PSAPs.

Great. Thanks.

The next question comes from the line of Sami Badri with Credit Suisse. Your line is now open.

Alright. Thank you. I had a couple of questions, some of the modeling, some of the business dynamics. I will start with business dynamics first. So, one on the backlog, so there obviously are a lot of big deals. And maybe you could give us a characterization of how many of these bigger deals are expected? And then maybe taking that question a step further is if we excluded FX impact and excluded big episodic activity, are you still seeing the backlog step up, right, with more of these – your standard business motion? And then I have a follow-up.

Sami, I think I would address your inquiry. We have seen strong demand not only for big deals, but also the usual type and profile of our business. And I would point to duration. While our backlog is up and at record levels, the duration of our backlog is similar to slightly better than it was last year and it was last quarter. So, not only are we growing backlog, the opportunities we have to convert that backlog within the year are slightly better. So, that’s one of the reasons that, again, with our expectations going up for the year, it’s driven by that backlog position.

And backlog is up in the unfavorable FX to your other point of $370 million. By the way, the other thing, Sami, is even when we have a large product, much like the Air Force we talked about earlier on the call, it’s a $340 million 10-year order, only $11 million of that is logged in backlog. So, I like the composition and the duration of the backlog in addition to it being absolute and at record levels as we exit Q1.

Got it. Thank you for that. Also, Greg, Jason, if you guys could give us any kind of idea on all video revenue growth targets for 2023. And also, we appreciate the new breakout of the Avigilon segment.

So, our expectations for total video remain approximately 15%. That’s consistent with our last call. And as Jack mentioned, that growth will be even better in some of our power verticals, which represent over half of the composition of the revenue. So, video is performing to our expectations. And then Sami, to your observation of Greg’s comments around our portfolio around Alta and Unity, that’s a market-facing change that we will represent the brands and Jack’s sales team is positioned to sell video. We are in a great position to sell it either in an on-prem version, which is the way most customers buy today, but also in a cloud version. And as markets move, we are positioned extremely well.

Yes. I think a great example. I got a phone call yesterday, Sami, on that specific to a large-scale metropolitan school district. They had three finalists, two of the finalists were Avigilon Alta and Avigilon Unity. And I think that’s the power that we can meet a customer for their specific needs that no one else in the marketplace has today.

Great. Thank you very much.

Thank you.

This concludes our question-and-answer session. I will now turn the floor over to Mr. Greg Brown, Chairman and Chief Executive Officer, for any additional comments or closing remarks.

Sure. Thank you. Look, I would just say in closing, it was a great Q1, and I think it highlights the fact that what we do has never been more important. Both the demand environment and execution are strong. I am really proud of the people. I am really proud of our channel partners that achieved record Q1 orders, record Q1 backlog. Look, at the end of the day, as we exit Q1, I like our position. More importantly, I like our momentum. And then, again, this is despite the ongoing supply chain challenges that still have to sort of sell-through for the next several quarters. The fact is the intersection, as Mahesh talked about, of public safety and enterprise security, it’s critical. And we are building a safety and security technology ecosystem that connects public safety with private institutions, as you heard Jack reference in those key verticals. I couldn’t be more proud of this team. And I am optimistic and enthusiastic about the opportunity in front of us. I appreciate you joining, and I look forward to connecting up with you a quarter from now.

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