Earnings Call Transcript - MSI Q2 2021

Operator, Operator

Good afternoon and thank you for holding. Welcome to the Motorola Solutions Second Quarter 2021 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 currently posted on the Motorola Solutions Investor Relations website. In addition, a replay of this call will be available approximately three hours after the conclusion of this call over the Internet. The website address is www.motorolasolutions.com/investor. At this time, 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.

Tim Yocum, VP of Investor Relations

Good afternoon. Welcome to our 2021 second quarter earnings call. With me today are Greg Brown, Chairman and CEO; Jason Winkler, Executive Vice President and CFO; Jack Molloy, Executive Vice President of Worldwide Products Sales and Services; and Mahesh Saptharishi, Senior Vice President and CTO, Software Enterprise & Mobile Video. 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'll 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 2020 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.

Greg Brown, Chairman and CEO

Thanks, Tim. Good afternoon and thanks for joining us today. I'll start off by sharing a few thoughts about the overall business before Jason takes us through our results and our outlook. First, Q2 was an excellent quarter. We grew revenue by 22%, earnings per share by 49%, and operating cash flow by 86% versus the prior year. Additionally, we expanded operating margins by 220 basis points and ended the quarter with $11.2 billion of backlog, up 7% versus last year and a record for Q2. Second, we saw strong demand in both segments of our business during the quarter in Products and Systems Integration. Revenue was up 44% and operating margins expanded by 270 basis points, driven by growth in our LMR and video security technologies, and in Software and Services, revenue was up 19% and operating margins expanded by 210 basis points on growth in LMR services, video security, and command center software. This strong broad-based performance highlights the strength of our business and the value of our mission-critical integrated ecosystem. Finally, based on the strong backlog and momentum that we're seeing across our business, we're raising our full-year guidance for both sales and earnings per share. I'll now turn the call over to Jason to take you through our results and outlook before returning for some final thoughts.

Jason Winkler, Executive Vice President and CFO

Thank you, Greg. Our Q2 results included revenue of $2 billion, up 22%, including $47 million from acquisitions and $66 million from favorable FX. GAAP operating earnings were $370 million, and operating margins were 18.8% of sales, compared to 13.5% in the year-ago quarter. Non-GAAP operating earnings of $482 million were up $123 million or 34% from the year-ago quarter and non-GAAP operating margins of 24.4% of sales, up from 22.2%, driven by higher sales and improved operating leverage in both segments, inclusive of higher costs related to employee incentive compensation this year. GAAP earnings per share were $1.69 compared to $0.78 in the year-ago quarter. This increase was primarily due to increased sales volume and improved operating leverage. A lower tax rate related to the release of valuation allowance and lower reorganization charges in the current quarter. Non-GAAP earnings per share were $2.07 compared to $1.39 last year, primarily due to higher sales and improved operating leverage in both segments. OpEx in Q2 was $477 million, up $51 million versus last year, primarily due to higher compensation-related incentives and higher expenses related to acquisitions. Turning to cash flow, Q2 operating cash flow was $388 million, compared with $209 million in the prior year, and free cash flow was $326 million compared with $155 million in the prior year. These increases in cash flows were primarily due to higher sales and working capital improvements, partially offset by higher cash taxes. Capital allocation for Q2 included $121 million in cash dividends, $102 million in share repurchases at an average price of $206.85 per share, and $62 million of CapEx. Additionally, during the quarter, we issued $850 million of new long-term debt and redeemed $324 million of outstanding senior notes due in 2023. Subsequent to the quarter end, we acquired Openpath, a leader in cloud-based access control solutions for $297 million, and we invested $50 million in equity securities of Evolve, whose technology powers our concealed weapons detection solution. Moving to our segment results, Q2 products and Systems Integration sales were $1.2 billion, up 24%, driven by strong growth in LMR and video security. Revenue from acquisitions in the quarter was $38 million. Operating earnings were $194 million or 16.2% of sales, up from 35.5% in the prior year and higher sales and improved operating leverage inclusive of higher costs related to incentive compensation. Some notable Q2 wins and achievements in this segment include a $37 million P25 order for the Kentucky State Police, our $36 million P25 upgrade for a state in the US, a $30 million P25 order from Marta in Atlanta, a $29 million P25 device order for a large US state, and a $5 million video security order. Our largest single fixed video order from a US federal customer to date. Moving to the Software and Services segment, Q2 revenue was $773 million, up 19% from last year, driven by growth in LMR services, video security, and command center software. Revenue from acquisitions in the quarter was $9 million. Operating earnings were $288 million or 37.2% of sales, up 210 basis points from last year, driven by higher sales, higher gross margins, and improved operating leverage and also inclusive of higher compensation-related incentives this year. Some notable Q2 wins in this segment include an $18 million French MOI body-worn camera frame agreement, a $15 million license plate recognition software extension with a US-based customer, a $10 million P25 multi-year services extension for Ohio's statewide network, and a $10 million P25 maintenance renewal with the US federal customer. Additionally, we launched command central suite, public safety's first cloud native 911 call-to-case closure solution. Looking at our regional results, North America Q2 revenue was $1.3 billion, up 20% on growth in LMR, video security, and command center software. International Q2 revenue was $659 million, up 25%, also driven by LMR, video security, and command center software. We saw strong growth in EMEA during the quarter, while in Asia Pacific, growth was minimal as the region continues to navigate impacts from COVID-19. Moving to backlog, ending backlog was a Q2 record of $1.2 billion, up $741 million compared to last year, driven by $660 million of growth in North America and $81 million of growth internationally. Sequentially, backlog was down $57 million driven by revenue recognition on the Airwave and ESN, partially offset with growth in LMR products. Software and Services backlog was up $257 million compared to last year, primarily driven by North America multi-year service contracts, and sequentially backlog was down $130 million driven again primarily by the revenue recognition for Airwave and ESN. Products and SI backlog was up $484 million compared to last year and $73 million sequentially, driven primarily by LMR growth in both regions. Turning to our outlook, we expect Q3 sales to approximately be up 10%, with non-GAAP EPS between $2.09 and $2.14 per share. This assumes FX at current rates, a weighted average diluted share count of approximately 174 million shares, and an effective tax rate of 23% to 24%. For the full year, we now expect sales to be up between 9.5% and 10%, an increase from our prior guide of 8% to 9%, and we now expect full year non-GAAP EPS between $8.88 and $8.98 per share, up from our prior guidance of $8.70 to $8.80 per share. This increased outlook incorporates the ongoing supply chain constraints, primarily in LMR, and assumes FX at current rates, a weighted average share count of approximately 173 million shares, and an effective tax rate of approximately 22%. I would now like to turn the call back over to Greg.

Greg Brown, Chairman and CEO

Thanks, Jason. I thought I'd end with a few thoughts as we conclude the call. First, our results for the quarter were excellent. We achieved Q2 record sales, operating earnings, and EPS, expanded operating margins, grew our video security technologies by 66%, and achieved strong growth in LMR and command center software technologies as well. Additionally, we finished the quarter with record Q2 ending backlog and a robust pipeline that we expect to drive growth for the remainder of the year, inclusive of the continued supply chain challenges that we're navigating primarily in LMR. Second, in video security, demand remains strong. We've continued investing in this area, even during the early days of the pandemic, and these investments have positioned us well to capture the increased demand we are now seeing from our customers. Additionally, we just announced our acquisition of Openpath, a leader in cloud-based access control solutions. Openpath is disrupting the access control industry and extending our value proposition in the $15 billion video security market. As a result, we're also renaming the technology within our revenue disaggregation from video security and analytics to now video security and access control to reflect these investments and the future of video and access control convergence. Finally, as I look to the second half of the year, I'm encouraged by our execution across all the businesses. In LMR, customers are looking to invest in their networks, including several statewide upgrades, and we're gaining traction with our APX NEXT device designed for the highest tier of public safety requirements. In video security and command center software, we're leveraging our large installed base and go-to-market footprint to drive continued strong growth. With respect to ESG, we recently released our 2020 Corporate Responsibility Report, which highlights our strategy and performance. Our work in this critically important area has been recognized by Forbes, who named us one of the best employers for diversity, and Barron's, who named us one of the most sustainable companies. I'm proud of what our teams are doing and look forward to further progress as we continue to deliver mission-critical solutions that create value for employees, customers, communities, and our shareholders. And with that, I'll now turn the call back over to Tim.

Tim Yocum, VP of Investor Relations

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.

Operator, Operator

Our first question will come from Tim Long from Barclays. Please go ahead.

Tim Long, Analyst

Thank you. Maybe just two if I could first, could you touch a little bit on the command center software side? Maybe just give us a little update on how you're penetrating the peace apps and how the kind of suite sales are going with more than one or two software modules to the customer base? And then second, on the video side, it looks like there's been a lot of traction and wins internationally on the body-worn side. Can you talk a little bit about the US market where I guess over the next few years, maybe there'll be more bids coming up? So could you just talk a little bit about how you could further penetrate the US market there? Thank you.

Greg Brown, Chairman and CEO

Yes, on command center software. We continue to, Tim, make good progress. Our growth rate in Q2 is increasing over Q1. The penetration of new customers also continues to expand from a suite standpoint. I think the number of customers in Q2 ordering the suite is comparable or about 25%. We stated last time a quarter ago. But we continue to make solid progress on multiple fronts on the command center software slide, and overall I think I'm pretty pleased.

Jack Molloy, Executive Vice President, Worldwide Products Sales and Services

Tim, it's Jack. Hello. Maybe just to follow on to that. I think the other thing, as it relates to command center software, just from an environmental standpoint, I think there is some excitement both with our sales teams and our customer engagement, just in terms of our, we have an on-prem solution that we actually have a path to the cloud for customers. I think being able to meet them for where they want to be will be effective for us. So just a couple of updates there, Tim, with other body-worn business. We had talked the previous three quarters that we had grown our orders north of 60%. We actually grew north of 80%. Tim, we doubled our body-worn camera shipments through the first half of the year over the first half of 2020, and it looks like from the data we've looked at, and it's just early which end, but it looks like we continue to take share through Q2.

Tim Long, Analyst

Thank you.

Sami Badri, Analyst

Hi, thank you. I have a couple of questions. Greg, first, and maybe Jack, could you give us an update on PCR. And how much that contributed to your very high growth rate in LMR in the quarter? And then the second question is, I was hoping you could give us more color on Openpath on how much revenue it contributed to the business and was Openpath profitable before you guys acquired and started integrating?

Greg Brown, Chairman and CEO

So in terms of PCR, you kind of taking a step back, obviously we've raised the full year again for the second time, Sami. If you look at this from a segment level, our performance is strong in both segments. Software and services is stronger. But we had given color that we thought product and SI would grow mid-single digits for the full year, our raise is driven by product and SI now being expected to grow mid to high-single digits for the full year. That stronger growth is driven primarily by video, but also by LMR. In Q2, PCR had a great quarter, strong double-digit growth, but it's also the area, as Jason referenced, that's probably the most supply constrained. So if I think about your question about expectations for PCR growth over the full year, I'd like to think about it mirroring the mid to high-single digits for the product and SI segment overall. Q2 was much stronger than that, but in the second half we have to continue to navigate supply constraints, and that's informing our expectations and guidance for the full year PCR. On Openpath, it's not profitable for the remainder of the year. Full year, the stub revenue period, it's probably about $5 million of incremental revenue in the second half of this year, the last five months, and it's a nickel dilutive. But having said that, I am super excited about this acquisition. I think it's leading edge around cloud-based multi-factor authentication access control. I love the products. I love the architecture. I love the management team and the leadership team. Mahesh was instrumental in guiding this along with Raj and John Kedzierski, and couldn't be more pleased with the integration.

Mahesh Saptharishi, Senior Vice President and CTO

Within the Avigilon portfolio, we have always had access control; access control, in fact, has been one of the fastest-growing product portfolios within Avigilon. It is an on-prem solution. The on-prem solution connects to third party leaders, controllers, and panels as appropriate. We are open is going is really a mobile-first approach and a cloud-native approach. The user experience that we see in the future for access control is one where authorized users never realize that the door is locked in the first place. It's frictionless. It is contactless, and from that standpoint, Openpath complements our Avigilon access control solution well, and together, I think we have a good solution going forward.

Greg Brown, Chairman and CEO

Just to address your question about the revenue, it's about $0.05 dilutive to EPS this year. And in $5 million in revenue in the second half.

Sami Badri, Analyst

Okay, perfect. Thank you.

Meta Marshall, Analyst

Hi team, this is Eric on for Meta. Thanks for taking our question and congrats on another great quarter. Maybe sticking on some of the fixed video side when we think about that large federal deal you won. Are there other federal deals in the pipeline you're looking at now? Is that an area where demand is picking up with a lot of the federal funding and things we talked about last quarter? Just wondering on that and then maybe if we could also talk about the enterprise side and if open more opportunities in the enterprise piece. It looked like their presence was probably stronger there. So anything on that? Thank you.

Greg Brown, Chairman and CEO

Sure. So are there more big opportunities in the federal government? Yes, I would tell you the federal government is ripe with opportunities. There's opportunities by way of an NDA. There are opportunities that our go-to-market teams have created. Also, the Pelco acquisition, if you recall from a year ago, had federal contracts in place, so there's opportunities there. The federal government, as part of the overall government market, is one of the three largest growth vectors for us in fixed video. The second part of your question, I believe, Eric, can you just repeat it?

Jack Molloy, Executive Vice President, Worldwide Products Sales and Services

So enterprise. Yes, so just a reminder, our video security and access control business is still really roughly 70% to three quarters enterprise. So OpenPath, as Mahesh very eloquently alluded to, will, I think form a path to accelerate converged opportunities between video security and access control. Our customers more and more, COVID taught us that they want the ability to remote monitor networks. They want frictionless access control. I think the marriage of those two things together will only open up more and more doors in the enterprise for us.

Greg Brown, Chairman and CEO

Eric, a quarter ago, Jack talked about fixed video government revenues being about $300 million. Maybe a little bit more. I think as we sit here today. The government contribution for all-in video revenue is closer now to $330 million to $340 million. And again, the demand we see is really strong. We had 66% growth in Q2. About 40% of that was organic, and again to inform our full-year raise, we now expect video security technology to be, we said it was 20% plus. We now expect approximately 30%, with organic growth being a little bit more than 20% of that. So really good performance by the whole portfolio.

Unidentified Analyst, Analyst

Awesome. Thank you.

George Notter, Analyst

Hi guys. Thanks very much. I guess I wanted to ask about the supply chain constraints. It's obviously a recurring theme through earning season here, but can you talk about what kind of revenue impact it might have had this quarter and then also the margin impact, and then how do you see that going forward? Thanks a lot.

Greg Brown, Chairman and CEO

Thanks for the question. So the supply environment that we've been navigating all year is primarily around LMR and, as Greg mentioned, specifically most around PCR. Our supply situation did improve incrementally in Q2, and in our guidance for the second half, we've contemplated continuing to have to navigate supply chain-related constraints. Those are factored into our full-year guidance in our second half. So we expect to have to navigate through them. We're working with key suppliers. A handful of suppliers, handful of critically important parts. We're making progress. The teams are doing well. We have executive relationships that are helping us prioritize and our suppliers recognize that our equipment is critically important to first responders. So we have had good success in getting prioritization. Regarding the cost side, despite the challenging environment, we have not seen material input costs rise significantly in the first half. Of course, we plan every year for material cost reductions. Those are becoming more challenging to achieve. That said, we didn't see a big material cost driver in the first half. We'll navigate through some small increases in the second half. One area in the P&L that we are absorbing higher costs is freight; if you control for the volume and the growth that we've had, we're seeing rate increases whereby the first half absorbed $20 million more than would have been expected on higher growth, which is a reflection of higher air freight and the shift to shorter supply chains and elongated lead times, et cetera, which we're navigating. So that's where we've seen the one input cost rise isn't freight.

Jason Winkler, Executive Vice President and CFO

Yes. And just to put a bow on it, George, I think that what's informing our full-year raise for the year is demand, not necessarily any improvement in the supply chain. Although, as Jason just talked about, I think he and his team did a very nice job in hand-to-hand combat working through Q2, but we have our work to do with key suppliers for the back half of the year. Again, this is primarily around PCR, but I think that view is contemplated into our full-year guidance.

George Notter, Analyst

Got it. And then, Greg, real quickly; you mentioned the raise on expectations for the full year. I think you're getting a tailwind from FX here. Certainly, you had some in Q2. I'm not sure how much of that was already in the plan. But it feels like you're going to continue to get some benefit. Is that part of the full-year raise on guidance or no?

Greg Brown, Chairman and CEO

Not much. The FX benefit when you take a look at the full year was much more weighted to the first half. So that's not really driving; it's a component, but it's not as much as it was in the first half. We had, I think, a $100 million in the first half tailwind, and if I look back half Q3, Q4 that tailwind is more like approximately $40 million.

Jason Winkler, Executive Vice President and CFO

So it hasn't changed much from the last time we shared those numbers, and it's always been first half tailwind more so than second half.

Paul Silverstein, Analyst

Thanks, Greg. And Jason, I think you all had previously characterized demand as increasing month by month just quarter-by-quarter but ongoing improvement. Is that moderating as we proceed further and further into the pandemic? Or perhaps not out of the pandemic, what are you seeing from a linearity perspective?

Greg Brown, Chairman and CEO

Well, I mean obviously in terms of overall demand, demand is strong, Paul; it represents itself in Q2's results. I recognize the comp of it being a COVID quarter. But also guiding in Q3, a double-digit top-line revenue print of 9.5 to 10 is strong and that's being driven in large part by record backlog. So it's a really good demand environment, it's incrementally better. And look, if I take a step back, high level. I see demand strong. I see the funding environment for our customers, and this is in North America-centric comment, but that's where two-thirds of our revenue is. And with the stimulus and $350 billion available to state and local and then other money available to education and FEMA and other areas, there is literally hundreds of billions available to our end-user customers through the end of 2024, some of the outlying timeline. So demand is strong, funding is strong, backlog is at record Q2, and we're also getting traction with new products that we invested in during the downturn. I think a lot of video security technology and that's double-digit growth rate in Q2, and the overall raised to now approximately 30% for video security technology, of which over 20% is organic, is driven by new product investment. We also talked about new product APX NEXT, we're continuing new product on command center software both prem and cloud. New product investment inorganically with cloud-based access control. So, Paul, again, there is a lot of work to do, and we want to be easy in the saddle in the second half and navigate these supply chain challenges, but there's a lot of positives that I see.

Jason Winkler, Executive Vice President and CFO

Paul, even in the parts of our business that are less backlog driven, for example, video is about pipeline; it's about execution within the quarter, and the 40% organic growth in Q2 and our outlook for now 30% growth for that business on the year is a function of higher pipeline as well as executing and delivering within the quarter on that part of the business.

Greg Brown, Chairman and CEO

The other thing that we've seen is that we saw a lot of our competitors furlough selling resources during COVID. We actually continued to push forward, put the pedal to the metal, and hired more, particularly in the video security space. As we look back to that 12, 9 months after the fact, we think without a doubt that's created great opportunity and it's created our ability to go take market share in that space.

Paul Silverstein, Analyst

Can I just follow up? The massive amount of federal work Jason that's on the docked albeit not yet passed and may not pass. Are your customers, first responder agencies already talking to you about allocating funds? Are they waiting for the actual dollars to flow?

Jason Winkler, Executive Vice President and CFO

So, Paul, what I would say is, think of government money in two buckets. We don't even talk about the CARES Act money anymore, but by the way CARES Act money was available last year that we benefited from, and it's available through the end of this year that we're benefiting from. I would say that the results we printed so far largely don't even include a stimulus money that I just articulated, which is $350 billion of state local, $170 billion in education, $38 billion in airport and transit, et cetera. But those conversations to your question, Paul, are absolutely beginning to take hold with our go-to-market sales organization for both this year and multi-year planning.

Louie DiPalma, Analyst

Greg, Jason, Mahesh, and Tim. Good afternoon. Greg, can you talk about the prevalence of the access control market for the education vertical specifically? It seems that you've invested a lot in the education vertical with Avigilon, and security with access control has increased in importance with the multitude of gun-related incidents. Is this a major opportunity for Motorola, and do you plan to continue being acquisitive in order to grow your share of the access control market?

Jack Molloy, Executive Vice President, Worldwide Products Sales and Services

So Louie, it's Jack. I'll start and I think Mahesh will have some things to add into my comments. First of all, education is one of our top, it's our second largest vertical in terms of growth right now in video security and access control. Front and center to what every school superintendent and school safety is thinking about is the safety of their kids. We talk about the convergence of video security and access control, but there is also the ability to converge two-way radio through our safety reimagined platform that we're selling to schools. Greg just talked about the federal funds that have been pointed to schools; it's historic in terms of schools, it has been one of the biggest problems always had their interest. But there is a funding and now we've got interest married with funding. We also put together a specialized sales team that just talks to school superintendents every day, and we think that overlay team has helped us accelerate opportunities. Mahesh, from a technology standpoint, is there anything you want to add?

Mahesh Saptharishi, Senior Vice President and CTO

I think going on that, there is, we just launched our Motorola Solutions concealed weapons detection solution, which is a key part of the story. When you think about it in the context of access control, it's not just who are you, are you authorized to be there, but also what risk you pose. So this complements our Access Control solution really well.

Louie DiPalma, Analyst

Great, thanks. Thanks, everyone.

Trevor Bowers, Analyst

Hi guys, congrats on the quarter, and thanks for taking my question. You mentioned on the last call and also earlier today that it looks like you're taking share in the body-worn camera market. What would you say is driving the success in that space?

Greg Brown, Chairman and CEO

So, I think first of all, customers want an alternative. It's been a market primarily led by one company, and they want an alternative. But I think in public safety, trusted relationships matter. We've been in business for, as you know, over 90 years, we've got trusted relationships throughout the state and local market. We also bear the advantage of having a very large international footprint, and we think that's obviously been beneficial to us as well. We've got things we're working on in terms of new products, both in terms of body-worn cameras and in-car solutions. But again, we think it's an area around police transparency and accountability that will continue to get focus and funding, and we think there's an opportunity for two players in the market, and we're capitalizing accordingly.

Mahesh Saptharishi, Senior Vice President and CTO

Maybe one other thing that I would add is, as Jack mentioned previously, we meet our customers' needs where they are. And so having both an on-premises solution along with the cloud solution really matters here as well.

Trevor Bowers, Analyst

Okay, great. And then, what sort of long-term impact would you say the pandemic has had on Motorola's go-to-market approach? For example, do you expect there to be less travel and entertainment spending in the future or maybe more efficiencies as a result of new sales and delivery methods? How should we think about that going forward?

Greg Brown, Chairman and CEO

Great question. Think pivot to digital. I think digital marketing in our spend to try to get customers, particularly customers that have needs that we may be unaware of, that's one. We've pivoted and continue to grow our inside sales force, not only in the US but abroad. We think that's critically important, and we've also just become more efficient in terms of not only our frontline selling teams but our all-powerful sales engineers; how do you get more leverage and get more tactical acumen in the moments that matter with their customers? And that's truly been something that we've pivoted to. With all that said, we do have fairly large-scale enterprise or government sales, and it's going to take some face-to-face engagement. So we're still going out and seeing customers, but we've just driven to be more efficient, and we don't think it's as much about time traveling and selling time that was a legacy way to think about it; we think about and I measure our teams in terms of engagement time now, and so that's really where we've seen the pivot.

Trevor Bowers, Analyst

Okay, great. Thanks a lot and congrats again.

Ben Bollin, Analyst

Yes, afternoon, guys, thanks for taking the question. Greg, you've talked about the framing for the American Rescue Plan Act and the amount of money there. What's your perspective on when you see the sweet spot of that spending if you think about your sales cycles with how it typically flows? And do you have any thoughts on how it might be influencing customer behavior in the different segments - radio, surveillance, command center?

Greg Brown, Chairman and CEO

So, Ben, first of all, thanks for the question. I think the sweet spot starts and I mean just very early innings in the back half of this year, and it's a multi-year run. So state and local funding, the $350 billion runs through December of 2024. The $38 billion or $40 billion for airports and transit runs through 2024. There is $7 billion plus for broadband connectivity that runs through September of 2030. It's a long runway. So I don't necessarily think there's going to be a part of the clutch quarter for multi-month period. I think it's going to be strong and reasonably consistent over the next few years. I think it helps; I actually think it helps across the suite of what we provide. It helps public safety LMR primarily, P25, and the sustainability of multi-year service contracts that elongate these platforms and allows us to do subscriber and radio refresh like APX NEXT over a multi-year period. I think it clearly helps video, whether it's fixed video or body-worn for state and local county municipalities. We talked about the benefits around education, and quite frankly, I think money can flow around 911, PSEP, and command center software as well. So I think it's a lift for all three; hard to dimension which one is more of a benefit, but it's clearly favorable to the products and solutions that we have and I like to position.

Jason Winkler, Executive Vice President and CFO

Sure. In terms of recurring, our proxy for recurring is the segment that is software and services, which I believe this quarter was 38% of total revenues. That includes a lot of different varieties of recurring business, including service renewals, subscriptions, etc., and that was up significantly and has been growing, as you know, even during the pandemic, and it is growing at a rate that's very positive with earnings expansion at ROE. This year, we believe now at 170 basis points of operating earnings expansion within the services, the software, and services segment. So not only growing but expanding profitability. On the technology side, from that same disaggregation, you can see that video is a strong driver, as well as command center software, and that LMR is performing well as well with up mid-single digits.

Ben Bollin, Analyst

Thanks, everyone.

Fahad Najam, Analyst

Thank you for taking my question. Given the very favorable backdrop that you just highlighted, if I understood you correctly, glad that some of the funding from 2020 is beginning to flow through right now. But by chance, some programs like the EFG program are getting funding from that we're past the calendar 2020, so we have yet to see the benefit of all the ERA and the stimulus spending. Why not take the opportunity to update us on the long-term model? It clearly looks like your 9-10 model is a bit conservative; you probably can make it eight to ten now, given the expansion in operating margin from favorable software.

Greg Brown, Chairman and CEO

Fahad, thank you. So look, this is a strong environment; demand is strong and the environment is generally favorable. But we are still in a pandemic, and we see that, by the way, popping up, not just with the Delta variant and different policies within the US, but we've seen it in supply chain; we've seen it in factories; we've seen it in other countries. We want to be prudent and mindful around the current environment that we're in, and while demand is strong and funding is good, and there's a lot of reasons to be optimistic and encouraged, we just want to be very mindful and aware of what we don't know and the uncertainty that I think is informing and incorporated into the remainder of the full year. I do think that there'll be time, Fahad, over time to update all of you in 2022. By the way, I think we're likely going to have an Analyst Day. We're targeting doing that in Q1 of next year as we get through this fiscal year, as we get through the large implications of the pandemic, as we get to a point where hopefully the FDA gives general approval for the vaccine, as we get to where many more populations and countries are vaccinated and herd immunity is achieved. We just think that's a better environment to give an update at that point in time. So I'm not going to, I appreciate your interest and not going to update the model per se yet, but I like where we're positioned for the back half of the year, and I think we've got some good momentum to build on.

Fahad Najam, Analyst

I appreciate the answer. I have a follow-up question regarding the government video, which you mentioned is about $300 million. Can you provide some insight into the size of the mobile sector and its growth potential? It appears to be expanding even more rapidly than your fixed video access control business.

Greg Brown, Chairman and CEO

Just two things. Video; first of all, Fahad, on the $300 million. We're now updating that today where we expect the video revenue to government customers now to be about $330 million to $340 million. We talk about the addressable market of video security and access control of being about $15 billion, by the way, that's a 2021 addressable market number that grows next year. It's inclusive of fixed video, it's inclusive of body-worn video, it's inclusive of in-car video and the commensurate VMS software and cloud-based revenues. So it's an all-in number, remember with the acquisition of Avigilon, which is fixed video; the acquisition of Pelco fixed video; the acquisition of IndigoVision fixed video, that fixed video is the predominant amount of revenue contribution within the technology disaggregation that we characterize. Just to give you a reminder.

Jason Winkler, Executive Vice President and CFO

So at the total level of all video, the rock split between what is fixed video and what is mobile video at the $1 billion plus part of our business is growing. We believe at 30% this year, and that's our increased expectations. It's 70% fixed and 30% mobile. Both are growing nicely.

Fahad Najam, Analyst

Can you share with us how fast is mobile, is that late in the quarter? How fast is mobile growing? Is it like high 15?

Greg Brown, Chairman and CEO

I would just say this in terms of data points; remember, Q2 was, I know it's 66% all-in, 40% of it was organic. And again, to inform our full-year raise, we now expect video security technology to be; we said it was 20% plus. We now expect approximately 30%, with organic growth being a little bit more than 20% of that. So really good performance by the whole portfolio.

Jason Winkler, Executive Vice President and CFO

Yes, absolutely, and I appreciate the insights you’re providing, Greg. As we think about our segment performance, we are seeing solid growth in both fixed and mobile video products. Our focus on body-worn cameras remains strong, and we anticipate continued growth there as well.

Fahad Najam, Analyst

Appreciate the answers. Thank you.

Jim Suva, Analyst

Thank you. And great job really executing through such a turmoil time of COVID, supply chain issues and things like that. Looking ahead, is it possible that as hopefully, we get mass immunity and COVID hopefully dies down, and people return back to the office in meetings in person, is it possible that command center business and installations could actually accelerate just because it's been so hard to meet with people and do testing and show all the bells and whistles of your solutions? And also with the government stimulus coming in, or is that just not the way to think about how things could roll out in let's say the next year or two?

Greg Brown, Chairman and CEO

Jim, I would think about it that as we printed the first half of the year in Q2 and look at the second half, and basically what you're describing are the trends. I really see video security and access control leading the way, which is why we're raising the technology view from what we thought would be a full-year 20% plus performance to approximately 30%. That's driving the segment guide products and SI from mid to high. So I think if you're thinking about an anchor tenant of incremental growth from current expectations of where we were, I think it's led by video security, and then at the second area, I'd actually say is LMR. And those two areas are driving the increased momentum. With command center software, while it's our smallest component, we're still growing at greater the industry rate. So I'm pleased about that. But we also are offering both on-prem and cloud, and we've got organic work to do on the internal development on cloud. But I think, Jim, looking forward, I think a video security, access control and LMR as being more of an incremental drivers from a trend standpoint.

Jim Suva, Analyst

Thank you so much, and again congratulations to you and your full teams.

Operator, Operator

This concludes our question-and-answer session. I will turn the floor back over to Greg Brown, Chairman and CEO, for any additional or closing remarks.

Greg Brown, Chairman and CEO

Thank you, everybody. Listen, I'm really pleased with Q2's results and the execution we were able to achieve. And I just want to take the opportunity to thank my team and to thank all the people in Motorola Solutions. You delivered, you produced, you were unflinching, you're resilient, and I'm super proud of you. I think the other thing, I'm proud of is, we've continued to invest in this business. We did it in the throes of COVID last year. Jack referenced it; we continued to do that. I think in part, some of the benefits we're able to demonstrate. The second raise of the year is driven by, in the ongoing investment decisions we've made. And lastly, I thought, so I like our momentum. I like the momentum as we enter this back half of the year, particularly pleased with the increased strength of video security, but I'm also proud of the fact that now approximately half of our revenue for the full year will be derived from video security and software and services, and that's a much different proposition and disposition than where we were several years ago. So I just want to thank everybody, my team. I'm proud of you, and we've got a lot of work to do, and we know what we need to do in the back half. So thank you.

Operator, Operator

Ladies and gentlemen, this does conclude today's teleconference. A replay of this call will be available over the Internet in approximately three 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.