Motorola Solutions Q3 2021 Earnings Call Transcript

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Provided by Quartr
November 3, 2021

Key Takeaways

  • Quarterly Performance: Q3 revenue rose 13%, non‐GAAP EPS grew 21%, operating margins expanded 150 bps, and backlog reached a record $11.4 billion (up 7%).
  • Technology Growth: Land Mobile Radio sales increased 11%, Video Security & Access Control jumped 26%, and Command Center Software revenue climbed 13%, all showing broad‐based demand.
  • Supply Chain Headwinds: Component shortages and higher freight costs limited Q4 revenue by an estimated $100 million and are expected to persist through at least H1 2022.
  • Acquisitions & Capital Allocation: Closed the OpenPath acquisition ($297 million) and Envision deal ($124 million), invested in Evolve, repurchased $137 million in shares, and paid $120 million in dividends.
  • Upgraded Guidance & Cash Flow: Full‐year sales growth is now guided to 10 – 10.25% and EPS to $9.00 – 9.04, with expected 2021 operating cash flow of $1.825 billion and Video & Access Control set to exceed 30% growth.
AI Generated. May Contain Errors.
Earnings Conference Call
Motorola Solutions Q3 2021
00:00 / 00:00

There are 15 speakers on the call.

Operator

Good afternoon and thank you for holding. Welcome to the Motorola Solutions Third 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.

Operator

In addition, a replay of this call will be available approximately 3 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 after today's presentation. I would now like to introduce Mr. Tim Yocum, Vice President of Investor Relations.

Operator

Mr. Yocum, you may begin your conference.

Speaker 1

Good afternoon. Welcome to our 2021 Q3 earnings With me today are Greg Brown, Chairman and CEO Jason Winkler, Executive Vice President and CFO Jack Molloy, Executive Vice President, Worldwide Products, Sales and Services and Mahesh Sathoresi, Senior Vice President and CTO, Software Enterprise and Mobile Video. Greg and Jason will review our results along with commentary and Jack and Mahesh will join for Q and A. We've posted an earnings presentation and news release

Speaker 2

at motorolasolutions.com

Operator

/

Speaker 1

investors. These materials include GAAP to non GAAP reconciliations for your reference. And during the call, we'll reference non GAAP

Speaker 3

Thank you, sir. Our first question comes from the line of David. Please go ahead.

Speaker 1

Thank you, sir. Good morning, everyone. Good morning, everyone.

Speaker 3

Good morning, everyone. Good morning, everyone. Good morning, everyone. Good morning, everyone. Good morning, everyone.

Speaker 3

Good morning, everyone. Good morning, everyone. Good morning, everyone. Good morning, everyone.

Speaker 1

Good morning, everyone. Good morning, everyone. Good morning, everyone. These statements are based on current expectations and assumptions that are subject to a competitive risk and uncertainties. Actual results could differ materially from these forward looking statements.

Speaker 1

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 ks and in our other reports and filings with the SEC, We do not undertake any duty to update any forward looking statement. And with that, I'll turn it over to Greg.

Speaker 4

Thanks, Tim, and good afternoon, and thanks, everybody, for joining us today. I'm going to start off by sharing a few thoughts about the overall business before Jason takes us through our results and our outlook. First, Q3 results highlight the continued strong demand we're seeing across the business. We grew revenue 13%, earnings per share 21% and expanded operating margins by 150 basis points. Additionally, we ended the quarter with a record Q3 backlog of $11,400,000,000 up 7% from last year.

Speaker 4

2nd, we saw strong growth in all three technologies during the quarter. In LMR, revenue was up 11% while a very challenging supply chain environment. In Video Security and Access Control, revenue was up 26% driven by strong broad based demand for both our fixed and mobile video offerings. And in command center software, revenue was up 13% as we continue to expand within our existing installed base and win new customers. And finally, based on our strong Q3 results and Our expectations for the remainder of the year were again raising our full year guidance for both sales and EPS.

Speaker 4

I'm now going to turn the call over to Jason to take you through our results and outlook before returning for some final thoughts.

Speaker 5

Thanks, Greg. Our Q3 results included revenue of $2,100,000,000 up 13%, including $15,000,000 from acquisitions and $25,000,000 from favorable Currency rates. GAAP operating earnings of $451,000,000 and operating margins of 21.4 percent compared to 18.9% in the year ago quarter. Non GAAP operating earnings of $555,000,000 up $92,000,000 or 20 percent from the year ago quarter and non GAAP operating margins of 26.3 percent of sales, up from 24.8 percent driven by higher sales, higher gross margins and improved operating leverage in both of our segments. GAAP earnings per share of $1.76 compared to $1.18 in the year ago quarter.

Speaker 5

The increase was primarily due to higher sales, Higher gross margins and improved operating leverage as well as a loss related to the refinancing of long term debt that occurred in the Q3 of 2020. Non GAAP EPS of $2.35 compared to $1.95 last year, primarily due to higher sales, higher gross margin and improved operating leverage again in both segments. OpEx in Q3 was $496,000,000 up $41,000,000 versus last year, primarily due to higher compensation related to incentives and higher expenses related to acquisitions. Turning to cash flow. Q3 operating cash flow was $376,000,000 compared with $392,000,000 In the prior year, while free cash flow was $315,000,000 compared with $343,000,000 in the prior year, The decrease in cash flow was primarily due to an increase in working capital inclusive of our higher inventory, partially offset by higher earnings.

Speaker 5

Year to date operating cash flow was $1,100,000,000 up $225,000,000 compared with last year And free cash flow was $959,000,000 up $201,000,000 over last year. The increase in cash flow year to date was primarily driven by higher earnings, partially offset by higher cash taxes paid during this year. Our capital allocation in Q3 included $137,000,000 in share repurchases at an average price of $234.18 $120,000,000 in cash dividends and $61,000,000 of CapEx. Additionally, during the quarter, we closed the acquisition of OpenPath, A leader in cloud based access control solutions for $297,000,000 we invested $50,000,000 in equity securities of Evolve, whose technology powers our concealed weapons detection solution. And subsequent to quarter end, we acquired Envision, a leader in enterprise video security and business analytics for $124,000,000 net of cash.

Speaker 5

Moving next to our segment results. Q3 Products and System Integration sales were $1,300,000,000 up 14%, driven by strong growth in LMR and video security. Revenue from acquisitions in the quarter was $12,000,000 Operating earnings were $273,000,000 or 20.6 percent of sales, up from 18.9 percent in the year prior on higher sales, higher gross margins and improved operating leverage. Some notable Q3 wins and achievements in this segment include $72,000,000 of P25 Orders from a large U. S.

Speaker 5

Federal customer, a $70,000,000 TETRA order from the German Navy, A $45,000,000 TETRA upgrade from a large EMEA customer, a $43,000,000 P25 order from a large North America customer, A $22,000,000 P25 upgrade from Metro Sao Paulo in Brazil and also during the quarter, We grew our video security and access control product revenue by 23%. Moving to the Software and Services segment, q3 revenue was $782,000,000 up 11% from last year, driven by growth in LMR Services, Video Security and Command Center Software. Revenue from acquisitions in the quarter was $3,000,000 Operating earnings were $282,000,000 or 36 Sales, up 140 basis points from last year, driven by higher sales, higher gross margins and improved OpEx leverage. Within this segment, some notable Q3 wins included a $41,000,000 command center software contract with a large U. S.

Speaker 5

State and local customer, $31,000,000 P25 multiyear extension with a customer in North America, a $17,000,000 push to talk over broadband multiyear renewal

Speaker 3

with a large U. S.

Speaker 5

Customer, a $7,000,000 Command Central Suite and video security order with the city of Yonkers, New York, which expanded off of a prior body worn camera win. During the quarter, we grew our video security and access control software revenue by 32%. Additionally, we've launched the M500, the first in car video system enabled by artificial intelligence. Moving next to our regional results. Q3 North America revenue was $1,400,000,000 up 14% on growth in LMR, Video Security and Command Center Software.

Speaker 5

International Q3 revenue was 658,000,000 up 10%, also driven by LMR, video security and command center software. We saw strong growth in EMEA and Latin America during the quarter, While in Asia Pac, we continue to experience headwinds related to COVID-nineteen lockdowns in various countries. Moving to backlog. Ending backlog was a Q3 record of $11,400,000,000 up $710,000,000 compared to last year, driven primarily by growth in North America. Sequentially, backlog was up $144,000,000 also driven primarily by growth in North America.

Speaker 5

Software and services backlog was up by revenue recognition on Airwave and ESN over the last year. Sequentially, backlog was down 112,000,000 driven primarily by revenue recognition for Airwave and ESN during the quarter, partially offset by growth in services and software contracts in North America. Products and SI backlog was up $704,000,000 compared to last year and $256,000,000 sequentially, driven primarily by LMR growth in both regions. Turning next to our outlook. We now expect full year sales to be up 10% to 10.25% compared to our prior guide of 9.5 to 10%.

Speaker 5

And we now expect full year earnings per share between $9 $9.04 per share, up from our prior guide of $8.88 to $8.98 per share. This increased outlook includes the video security and access control Technology growing greater than 30%. It also includes our current view of supply chain conditions, FX spot rates and an effective tax rate of 21.5 percent along with a diluted share count of 174,000,000 shares. And finally, we now expect full year OpEx to be $1,950,000,000 inclusive of our 2 latest acquisitions, OpenPath and Envision, and we expect full year operating cash flow to be approximately 1,825,000,000 up $25,000,000 from our prior estimate. With that, I'd like to now turn the call back over to Greg.

Speaker 5

Thanks, Jason.

Speaker 4

I thought I would end with a few thoughts as we conclude the call and before we open it up for questions. First, our results for the quarter were outstanding, and I'm extremely proud of how the team is executing through a very tough supply chain environment. We achieved record Q3 sales, operating earnings and EPS, expanded operating margins by 150 basis points and finished the quarter with 2nd, I want to share some color on what we're actually seeing in the 2 segments. In Products and SI, demand for both our LMR and Video Security solutions remained robust, Highlighted by the strong revenue growth in Q3 and record ending backlog, supply chain constraints continue to impact our LMR business And in particularly, our PCR business as demand outpaced our ability to obtain supply in Q3 and we expect we'll continue to do so in Q4. In Software and Services, we continue to see strong demand, which is driving revenue growth and improved profitability.

Speaker 4

In fact, as we finish the year, we now expect operating margin to increase by 200 basis points year over year for the segment. Our customers continue to increase their investment in our value added services And in software, while we now expect Command Center Software revenue growth to be low double digits, our Video Security and Access Control Software revenue growth will likely be greater than 35% this year and is the fastest growing area within our software portfolio. Finally, as I look ahead, I'm encouraged by how we're positioned. Our strong Q3 backlog in both segments provides us with Significant demand visibility. We're expanding our relationships within our existing installed base to provide more software and services.

Speaker 4

The customer funding is as good as I've seen it and our NDAA compliant manufacturing in North America is providing a key differentiator for our fixed video solutions. And while we expect the challenging supply chain environment to be with us through at least the first half of next year, We're still planning for another year of strong revenue, earnings and cash flow growth in 2022. And I'll now turn the call back over to Tim.

Speaker 1

Thank you, Greg. Before we begin taking questions, I'd like to remind callers to limit themselves to one question and one follow-up to accommodate as many

Operator

Thank you. The floor is now open for questions. Thank you. Our first question is coming from Tim Long with Barclays. Please go ahead.

Speaker 6

Thank you. Maybe just one on the video and access control. Obviously, 30% plus really Strong this year. Could you talk a little bit about sustainability as we look into next year? And what do you think some of the Real guideposts we should be watching as far as drivers, NDAA, FCC, any other things That could lead to market share gains there.

Speaker 6

And then the follow-up on the command center software side, low double digits, I think Yes, there have been some views that could be better than that. So maybe can you talk a little bit about what needs to be done For that business to reaccelerate from these levels, is it winning new customers? Is it more stimulus? Is it more The bundled sales, if you could give us some color on that too, that would be great. Thank you.

Speaker 4

Yes. Tim, on video, It's just it's phenomenal execution by Molloy and the entire management team. As you know, it's our largest addressable market, now expected to grow over 30%. By the way, organically, it's probably a little over 20%, So still really strong robust growth. We've rounded out the portfolio.

Speaker 4

We've refreshed the product portfolio. I think Jack and team have done a great job investing in go to market and increasing our R and D in a downturn market. I think video continues to be more and access control continues to be more and more important with our customers and more of a need to have Then a nice to have. As you referenced, the NDAA is helpful for sure around federal procurement as well as the eligibility for federal grant money. And look with the SEC, as you know and as you referenced, there's Pending legislation has been done.

Speaker 4

It's awaiting Biden's signature. If President Biden signs it, when and if he does, that authorizes the FCC to proceed with the rulemaking they've undertaken, which would evaluate Chinese vendors in the entire enterprise market. So that clearly would be Significant as well. Don't know the timing for that, but that would be a tailwind if that were to materialize. I don't know if Jack you want to add anything about the overall demand profile.

Speaker 7

Just the only other thing. I think first of all new product introduction both in terms of cameras but also moving Pivoting the capability for the move to the cloud. I think also you look at it from an acquisition standpoint, we've acquired OpenPath, It was really quite frankly a game changer from the Access Control standpoint. This week, Tim, we announced the acquisition of Envision. So you can look at that as a way for us to get more vertically focused in terms of our solution.

Speaker 7

And as Greg's talked about in the past, one of the reasons we acquired HELCO and IndigoVision was to add greater international scale. We've invested heavily in go to market North America. I think the next frontier will be in Europe, Middle East and Africa.

Speaker 4

And as it relates to command center software, candidly, Tim, in retrospect, the target was maybe a little overly ambitious. But having said that, We're still growing at 1.5x the market. So we're taking share. It's growing double digits. Q3 was particularly good on orders and the backlog composition is a little bit longer in duration Incorporating some things around NextGen 911 and annual recurring revenue.

Speaker 8

And just in terms of Specific things that we're doing, a core tenant for us is always to meet customers where they are. That's part of our product strategy. Many of our customers have invested in some sophisticated IT infrastructure on premises and they would like to continue to benefit from those investments, But they also know that certain cloud capabilities are just better. Those capabilities are just better delivered through the cloud. And we want to give the customers the flexibility to choose and to move to the cloud in their own timeline.

Speaker 8

And so With relation to that, we're offering flexibility in deployment via hybrid offerings and we're doing 3 specific things there. 1, we're offering our On prem solutions inclusive of CAD and Records on a subscription basis, we're going to be integrating the capabilities Both existing and new capabilities in CommandCentral Cloud with our on prem solutions to allow Regardless of whether the solution is deployed on prem or whether it's in the cloud, we're integrating cybersecurity monitoring as a service into both those solutions as a whole. I think all that Combined really accelerates adoption of cloud capabilities across all our customers.

Speaker 9

Okay, great. Thank you. Thank you, Tim. Thanks,

Operator

Tim. Your next question comes from Sami Badri with Credit Suisse. Please go ahead.

Speaker 10

Hi, thank you. First, around this time of every single year, you should give us out year Initial takes or views. Greg, I was hoping you'd give us any kind of guidepost for revenue or EPS growth or even margin. And then the second question I have is actually on just U. S.

Speaker 10

Federal and what percentage of revenue that was in the quarter and what the

Speaker 4

Please, Sammy guide 2022 per se, but I will tell you that kind of as we sit here today, We're thinking tough supply chain environment. By the way, Q3 was a tough. I'm proud of the quarter. I'm proud of the print, but it was tough. And Q4 is tough as well.

Speaker 4

So I think that Q3, Q4 from a supply chain standpoint It's the toughest we've experienced. We still expect it to be difficult and challenging first half of twenty twenty two, at least first half of twenty twenty two. So that's kind of the backdrop. Having said that, I think about revenue growth at this point high level of about 7% And maybe further dimensionalization of software and services revenue growth of around 10%, that's high level. Our current thinking obviously details to follow in a quarter from now.

Speaker 4

It would also Our expectation and goal to expand operating margins, but in 2022 in the face of higher input costs as well. That's kind of some high level color.

Speaker 5

And Sami, to mention like the second part of your question with respect to Fed, it's roughly 8% of our revenues. We're having another strong year in Fed like last year. So 8% of revenues is its contribution to us. It's one in totality, it's one of our largest customers.

Speaker 10

Perfect. Actually, I had one follow-up and maybe this is for Mahesh. It's about the M500 in car video system enabled by AI. Do you guys have any competitors that actually do this right now at least with an installed base like yours and even a rollout or even go to Product like yours?

Speaker 8

No WatchGuard for the past 10 years has been the leader in car video, And the M500 is really a product of all the insights and the excellent feedback we've gotten from Those customers and candidly, I think the M500 improves upon the core features of the 4RE, which is the current In car video solution from WatchGuard, we improved on our synchronized playback capability, which is something that

Speaker 2

I'll take

Speaker 8

the integration with our body worn camera and our in car video solution so that, you can get a perspective of what's happening in the incident In a time synchronized manner, this is something that is very unique to what we do. Record after the fact is a very unique capability that we have within the WatchGuard portfolio and we have a dedicated display capability in the product, which is something that We've gotten excellent feedback from our customers on it allows you to both record, review and tag video with a dedicated display. In addition to that, what M500 brings to the table is ALPR capabilities, ALPR capabilities not just with watch list, But also integrated with our LEARN platform, which has the largest database of plate treats out there that's time and location stamped, which allows for great real time forensics and investigation capability. And to the rear camera in the M500 platform, we have added Passenger analytics capabilities, so that when a passenger is detected, we can actually effectively trigger recordings as an option configurable within the system. The platform itself is AI enabled to the point where now we can add new capabilities in the future via simple firmware So it's actually future proof for our customers as well.

Speaker 8

So all in, this is a very unique and a powerful in car video platform that's a product of all the That we have gained over the past 10 years.

Speaker 5

And Greg, perhaps if I could elaborate on this about 7% growth

Speaker 7

next year. Yes,

Speaker 5

sure. As we look at next year and plan for it, The linearity we're looking at for Q1 is more consistent with 2019, about 21%. In fact, the 20 first half or the entirety of the linearity of that year looks to be a better indicator for what

Speaker 11

we see

Speaker 5

in terms of supply chain and the planning we're doing for the business.

Speaker 10

Got it. Thank you.

Speaker 4

Thanks, Sami.

Operator

Our next question comes from Kyle McNealy with Jefferies. Please go ahead.

Speaker 12

Hi, guys. Thanks very much for the question. I'm on here for George Notter. This was a really strong result for product backlog coming out of the quarter. It looks like you've had a good quarter for the number of larger LMR deals and that seems to be driving, and you had a good portion from U.

Speaker 12

S. And international. So wondering if you can comment on what's driving the volume of larger deals? Like is there something specific, or a trend that's kind of Going on in the near term or is this general continued macro recovery after the pandemic eases Worldwide, and I'm also wondering if you expect that momentum to continue based on your view of the pipeline? Thanks.

Speaker 7

Yes, Kyle. So to your point, it's been a very good first three quarters of the year. We actually expect That performance will continue. We're sitting on record backlog, up $631,000,000 year over year. And that's not only Historically, we'd look at that and say that's a North America phenomenon.

Speaker 7

I think the strength of the story here is its North America performance, so its large scale device refresh, It's statewide infrastructure upgrades, some of which were in further discussions through ARP funding, which will play out over the course of the next few years, but also internationally. We had we've received we've been a receipt of 2 large orders from the German defense as well as a Romanian Great as well. So, again, we've been really pleased with the performance to date. We expect that performance to continue.

Speaker 5

Yes. Demand is definitely exceeding supply. And the other thing about our backlog, particularly in products Approximately half of it is expected to turn into revenue within 12 months. So there is a longer duration impact of some of the deals Jack mentioned where we're Deploying, implementing and they benefit the revenue stream over a longer period of time.

Speaker 4

Yes. And Kyle, just the last thing I'd say is, As I said in my prepared remarks, demand is strong and our demand visibility is good. In addition to the backlog that Jack articulated And the linearity that Jason just said, taking a step back, this is more than just pent up demand. It's a reflection of what we do is a need to have 1st is a nice to have. The funding environment, as I referenced, both budgets and stimulus is strong.

Speaker 4

We've refreshed

Speaker 3

A lot

Speaker 4

of the portfolio on the product side, we've made a conscious investment in go to market channels And feet on the street, we've continued to acquire. We've got the benefit of the National Defense Authorization Act. More revenue is software and services oriented. So I think there's a lot of different Positive ingredients in the blender here that continue to fuel our growth going forward.

Speaker 12

Okay, great. Thanks very much. And one follow-up. Do you Not sure if you mentioned it, but do you have an update on the run rate of the PCR business now and maybe an outlook for continued recovery and the outlook for PCR?

Speaker 4

Yes. I think PCR is where the supply chain challenge is most acute. It grew in Q3. It will grow For the full year, Kyle, probably as we match supply and demand and it's fluid, it will we expect it to end up about mid to high single digit growth With a reasonable chunk of delinquent backlog for us to execute against in 2022.

Speaker 12

Okay, great. Thanks very much.

Operator

Our next question comes from Adam Tindle with Raymond James. Please go ahead.

Speaker 2

Okay. Thanks. Good afternoon. I wanted to start on the product System Integration margin expansion, operating profit grew at double the rate of revenue basically and had nice margin expansion in that segment. I wouldn't consider this an industry where you'd get short term pricing power benefit to hit margins positively.

Speaker 2

So just maybe looking for some more color On the PSI margin expansion, and then as an extension to that question, if I look at that segment, before COVID, it was Hello to mid-20s operating margin. Clearly not going to finish there in 2021 based on your guidance, but maybe some of the gating factors to Getting back to those historical operating margins in that segment would be helpful.

Speaker 5

Sure. So one thing that's we're pleased with the operating margin expansion in products. One thing that we are benefiting from is the prioritization of our portfolio to public safety. So, that's a favorable mix element around margins and ASPs. As Greg mentioned and Jack, we're constrained more so in PCR, which is a bit on the lower tier.

Speaker 5

So favorable mix is definitely improving what you see in Q3. We're pleased with the OE performance on the year. I would also remind you that as we began the year and planned this year at the OE line for the We were facing $100,000,000 year over year increase in incentives as we reset the plans to 100% coming off of last year where we only paid half. So the bulk of that $100,000,000 for the year is in the product segment. So we're Expanding operating margins despite overcoming that additional P and L burden.

Speaker 5

In terms of its outlook, we're Continuing to manage through higher input costs, higher freight, but our plans with the growth that we've talked about, we will continue Even in the face of higher supply costs to expand operating margins in that segment.

Speaker 2

Got it. And maybe as a follow-up, Greg, I'm going to take a stab since it's been in the public domain on Airwaves. Any Potential comments you could make on developments. Investors have long considered you kind of double hedged because of both Airwave and ESN, but Wondering if they should be considering the potential risk of losing that hedge? And secondly, you're not afraid to get creative.

Speaker 2

I'm just wondering if there's maybe any sort of Alternative ownership structures like a JV or something like that, that you're considering. So I know it's a tough topic, but anything that you can give us would be helpful. Thank you.

Speaker 4

I appreciate the question. So just to remind you, I think you know, Adam, that the contract for Airwave runs through all of next year through 2022. ESN, under its current construct, runs through all of 2024, we've been in active conversations with the U. K. Home office.

Speaker 4

They have expressed the desire to extend the Airwave contract. That's underpinned the ongoing We also obviously are involved with the CMA and are adhering to the process that Dave outlined. I think the process will take several months. It will go into well into 2022. There's really nothing more to Say on it on that front, other than we continue to make the investments in the network as well to keep it current, to keep it reliable, The service levels to the end user customer and no disruption to that are the absolute utmost importance, and we'll continue the dialogue With both the U.

Speaker 4

K. Home office in the CMA and I am hopeful that we'll have constructive outcomes, but We'll see how it plays out over the next several months. But I do appreciate you bringing it up.

Speaker 2

Understood. Very helpful. Thanks, Greg.

Speaker 4

Thanks, Adam.

Operator

Our next question comes from Keith Howson with Northcoast Research, please go ahead.

Speaker 1

Hi, this is Trevor filling in for Keith. I have a couple of questions about the Supply chain. So how have the supply chain challenges evolved since the last quarter? Do you expect them to worsen before improving? Or from your perspective, said the supply chain challenges have peaked?

Speaker 4

It's a great question, Trevor. I think the most acute challenges we've had year to date were Undoubtedly in Q3. I think they're continuing in Q4. So, if I look at 2021, Definitely the most pain on supply chain we've experienced is in Q3 and we expect to experience in Q4. I think the environment will be rugged and challenging through the first half, at least the first half of twenty twenty two And that's informing obviously the guide for the remainder of the year, although we're raising top and bottom and it informs the linearity that Jason referred Too early around Q1.

Speaker 5

And I'd also add in terms of what we're doing to manage through a difficult environment. Number 1, we're prioritizing our customer needs and that starts with public safety. Additionally, Motorola has world class engineering across the organization. Jack's team It's helping think through alternative designs where engineers very quickly find parts that are available when one part is constrained. So our teams are doing a good job there.

Speaker 5

Each one of us here on the call have supplier relationships, that we have sea level dialogues going on so that we can get our allocations. And finally, we're carrying higher inventory as well to manage the environment.

Speaker 1

Okay, great. Thank you very much.

Speaker 4

Thanks, Trevor.

Operator

Our next question comes from Louis DiPalma with William Blair, please go ahead.

Speaker 9

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

Speaker 4

How are

Speaker 9

you? Excellent. LMR product revenue increased by A healthy 12% this quarter after an 18% increase last quarter despite the referenced Supply chain issues. Can you give us a sense on what you think your penetration is for your APX Next Radio, your MXP 600 TETRA and your recently announced Turbo, I think you Launched the APX Next in the fall of 2019. So a lot of investors are just wondering like what inning are we in for The respective upgrade cycles for these different product refreshes that you have had over the past couple of years.

Speaker 7

So, Louis, first let's attack the Apex NEXT piece. It's very early days. We're really, really pleased. So we announced it in Teane, obviously, last year during the COVID year, I would say we had, the market was somewhat stalled In the first and second quarter, we've seen a significant ramp up in terms of orders since then. But all day long, we've talked about you've heard me make Before that it's typically a 3 to 5 year cycle where we start getting some material refresh within our customers' base.

Speaker 7

You asked about an inning. I'd say we're in the top of the second inning potentially. We have room to run here in terms of Apex Next. The second question was related to the MXP 600 in Europe. And it's again very early days.

Speaker 7

We've had some market success. But the interesting thing to point out for both the APXNEXT as well as the MXP is those were designed for very high tier part of the market. So that's attractive, but the reality is we're going to be feathering in mid tier and entry tier on both the Apex Next line as well as the MXP line. So We're really encouraged by that because that starts to get to the meat of the market, so to speak. So I think that handles your question.

Speaker 9

Great. And you spoke about the supply chain headwinds persisting through the first half of twenty twenty two. Do you think These issues result in a deceleration in the recent revenue rate or Should we forecast for like sustained revenue growth for the next 3 quarters.

Speaker 5

So Louie, I think our comments or my comments around the linearity that we're planning for reflect Our views of the supply chain, particularly for Q1 and the first half of next year, limiting our ability to fulfill the very good demand that's there. And yes, for things to improve in the second half and to have a good year that Greg mentioned of Planning for about 7% in total revenue growth.

Speaker 2

Great. Thanks.

Speaker 9

Thanks, Louie.

Operator

Our next question comes from Paul Silverstein with Cowen and Company. Please go ahead.

Speaker 13

Thanks guys. Appreciate you taking the questions. First off, if I missed it, I apologize, but what was the supply chain impact in Q3 and what do you expect it to be in Q4 Or in terms of quantifying it both the revenue impact and the margin impact?

Speaker 5

So in terms of Q3, our results and the growth that we had, except for PCR, which was limited in its ability, We were able to match the supply with the demand pretty well in Q3. As we look to Q4 and the constraints that we have Embedded in our guidance for the year and therefore Q4, about $100,000,000 of revenue is limited, It could have been there had we had the requisite supply. That's our current estimate in terms of an impact to Q4. That said, we're still growing greater than we thought and guided to last time, now 10% to 10.25%, but that $100,000,000 is our current estimate as to, had we had better supply, what more we could have done in Q4.

Speaker 13

Jason, am I doing the math right, that's about if I translate that down to EPS, it's about $0.18 impact?

Speaker 4

Depends on the mix, obviously.

Speaker 5

Yes, it depends on the mix and a large part of that is PCR. So it's probably a little left of center. But in general, You can do the math as you've done around what its contribution could be. I'd add further color around the supply chain costs that we are seeing. In order to get the requisite supply, there are increasing costs.

Speaker 5

I've mentioned freight before. Many companies like us are facing higher freight costs. The number that we're embedding in the P and L this year for higher premiums is nearly $45,000,000 on the year with a lot of that in the second half. And then as I look to Q4 and the plans we put together for Q4, having to buy and get these materials not only through expedited freight, but also Through other means, through brokers and distribution and the like is adding about $20,000,000 of pressure to what we had planned for Q4. So Those things are in the mix too.

Speaker 5

We're doing what's necessary to get the supply that we can get.

Speaker 13

Jason, I apologize. You're expecting $20,000,000 pressure Q4 from freight costs or from elevated component costs?

Speaker 5

Components is the $20,000,000 number in Q4. Freight is an annual number, Paul, that we've been bearing all along and on its annual basis, it's $45,000,000 about $20,000,000 in the first $25,000,000 in the second half, that's the freight higher costs. You know, you've the ocean And air both are exorbitant prices right now and we're having to mix to more faster delivery methods, Which is causing higher freight costs as well.

Speaker 13

All right. But it sounds like it's a 1% to 1.5%. If I assume $10,000,000 to $15,000,000 impact in Q4 from freight, it's about $30,000,000 $35,000,000 all in. That looks like it's about a 1.5% There's point adverse impact, if I did the math right.

Speaker 5

The numbers that we've shared are estimates within what we're facing. So I think you've got Correctly captured, yes.

Speaker 4

Yes, I think you're in the zip code.

Speaker 13

All right. I appreciate it. It sounds pretty meaningful between revenue and margin, not surprisingly. My other question is also Just clarifications, you all have said that if I remember correctly, I think you said public sector video in Q2 had $330,000,000 plus run rate annual run rate up from $300,000,000 previously. I'm hoping you could update us.

Speaker 13

And I think similarly you'd said Mobile cameras, body worn cameras in 2Q was up 80% year over year. That was an acceleration over 60% previously. I was hoping you could update that growth rate.

Speaker 4

Yes, I think and Jack can jump in. I think the $330,000,000 you referenced was an estimate for 2021 for Public Sector Contribution and I think we're holding to that number. So I don't think we have an update on that front. And on body worn, Jack, I don't know if you want to?

Speaker 7

Paul, body worn. So record unit shipments in Q3, really pleased with that. We've talked about Effective with the customers, our customers want an alternative. We think we filled that really well. The other thing I'd Say is we're uniquely positioned internationally given our scale and global presence.

Speaker 7

We talked about the French MOI. They've actually put subsequent orders in the Q3. Mahesh just referenced M500. So we think We're in a good position right now in body worn and in car.

Speaker 13

All right. Just one last quick one for me. In terms of pricing environment, in supply constraints, I'd be surprised it got worse and won't be surprised it got better. But any insight you can shed on what you're seeing and what you're seeing competitively?

Speaker 5

Yes. We've been looking carefully at our portfolio throughout the year. We've made a few surgical adjustments in LMR, primarily in North America and also in fixed video. We'll continue to look at that. Another opportunity for us is we have constant new product Releases and oftentimes as Jack mentioned Apex NEXT for example, we typically release at the higher part of the portfolio and with that presents A mix opportunity to offset some of the costs that we discussed earlier.

Speaker 5

So we'll continue to look at it carefully and of course monitoring What is a very competitive end market that we're in, in both LMR and fixed video. Great.

Speaker 13

I appreciate the responses. Thank you.

Speaker 3

Thank you, Paul.

Operator

Our next question comes from Ben Bollin with Cleveland Research, please go ahead.

Speaker 9

Thank you. Good afternoon, everyone. Thanks for taking my question. Greg or Jack, I was hoping you could take us through a little bit about what you're seeing with America Rescue Plan funding to date, how you think it might have manifested thus far? And then, the second part of the question is, I'd be interested in any thoughts you have about how customers are looking at this money Within each piece of your business, so within surveillance radio, even command center, how you think it's influencing their behavior?

Speaker 9

That's it for me. Thank you.

Speaker 7

Okay. So first of all, Greg said it earlier, and I think it's always important to point out that we're in a unique position because really what we do is all need to have. It's not nice to have. So I kind of decomposed the American Rescue Plan conversation into a few different things. We have public safety, And that's everything from P25 statewide and local networks to command center software.

Speaker 7

We're in pretty consistent dialogue with our customers regularly in Public Safety who had what we call shovel ready projects or things that maybe would have been a mid tier kind of mid term need, and we're in conversations on how they may fund those things now. The other benefit is state and local receipts, actually, particularly at the state level, revenues are up as well. So Greg made a comment earlier about funding environment. The funding environment, I would say, Doing business in public safety in 28 years, it's the best I've ever seen as well. So I would say we're in a really good position there both on the P25 landscape, Infrastructure upgrades and devices as well as command center software.

Speaker 7

Our teams the one thing our sales team does, we think they're really good at technology. We think they're better And they're experts at getting deals funded. So we think that's going to benefit us there. The second thing I would say, the other technology sleeve It's going to benefit significantly as video security and access control. If you think about education alone school funding, 170 $1,000,000,000 pointed to that market.

Speaker 7

And really when kids have come back to school, the first thing they're talking about is they're talking about how do we bring them back in a safe manner. One of the things our team did over the COVID, we talked about this was to write COVID dashboards. So if you connect to Avigilon Cloud Services, you get our COVID Dashboard gives social distancing, who went through what door. This is all really pertinent information. We think our school superintendents, security directors I'm really interested in our technology here.

Speaker 7

The last thing I would say is there's money being pointed at airports and transit, dollars 35,000,000,000 As they reopen, Many of them are upgrading both the radio networks. We've got opportunities for PCR with all the major airlines as well as their consoles in the command center space. And then ultimately also video security, how do they protect the perimeter security, how do they get better information. So I would say across all three of our technology continuum well as our services business, the money, the environment, we're in a good spot and we think our sales team is poised to execute.

Speaker 4

And Ben, when you total up those buckets within the rescue plan that Jack just described, it's over a half $1,000,000,000,000 that is available to our end users, dollars 350,000,000,000 in state and local, by the way, that's multiyear and goes through the end Of 2024. So, hence, why we both see and believe that the environment multiyear and what we're seeing in the pipeline

Operator

Our next question comes from Fahad Najam with MKM Partners. Please go ahead.

Speaker 11

Thank you for taking my question. First, a clarification. Can you remind me what revenue was from acquisitions in the quarter?

Speaker 5

Yes. In total, I'll give it to you by segment real quick. It was In products, it was $12,000,000 and in services and software, it was only 3,000,000

Speaker 11

Appreciate it. Thank you. Now to my question, if I look at your LMR Business overall, while PSI sales have obviously accelerated, the software and services, the cash rate remains in the $550,000,000 $545,000,000 quarterly run rate. Should we see kind of like An increase in the software and services from the increased product from the increased PSI sales In future quarters, is it just because you're selling new equipment and the software services hasn't quite attached to it yet? So we should expect some meaningful acceleration in software and services revenue for LMR in fiscal 2022?

Speaker 5

So, Fahad, this year for products, for example, we're expecting mid to high, probably closer to high single digit growth. Services and Software is low double digits. There is some leading indicator as products grow. You're right, there's some services attached to it that come after the sale. The bulk, however, of our services and software growth is around not product Attached, but rather command center software, video software and things like software upgrade programs and the likes that are on Existing install basis.

Speaker 5

So, those are the key drivers within S and S. It's less product attached. It's more The unique offerings we have and the value propositions around services and software that are driving the low double digit growth in services and software.

Speaker 11

Got it. And the same question on the video surveillance. There The software and services portion of the video service market is clearly growing a lot faster. Just trying to understand the dynamics there. What's driving the software attach rates or services in video versus PSI sales?

Speaker 11

Just kind of trying to help us understand the dynamics there, please.

Speaker 5

So with respect to video, in the disaggregation within services and software, the video number within services and software is largely software. It's a minimally services business because we go through distribution partners, integrators and the like. So think of that video software number within S and As being predominantly software, things like our video management system, VMS, ACC and others, Our offers within in car video are what's more in that case, it's real pure software and a terrific business, Somewhat product attached, but also stand alone in terms of how we sell it.

Speaker 7

It's the analytics. It's the AI at the edge. It's all the things We do. I made mention earlier that we've invested into our Avigilon cloud services. We've now got meaningful connections on that and that will be another way Customers to get upgrades and I think make keeping current on software, software maintenance more dynamic as well.

Speaker 5

Yes. In particular, that connections to the cloud and the work that Jack's doing with his team are leading to many new business opportunities, 100 of thousands of cameras, thousands of sites and the business is really moving in that direction to cloud enabled.

Speaker 7

And the last thing thought I'd say on that is you hear Greg talk a lot about acquisitions. I'll hit again on Envision. That's approximately $25,000,000 in recurring revenue there. You think about OpenPath, Which is an access control recurring revenue model access control. And so there we're reenvisioning that business as well.

Speaker 7

So I just those are other things that really are more We're driven recurring revenue model business and that's really where we're pushing the business.

Speaker 11

Appreciate the answers. Thank you.

Speaker 4

Thanks, Von.

Operator

Our next question comes from Meta Marshall with Morgan Stanley. Please go ahead.

Speaker 14

Hi, team. This is Eric on for Meta. Thanks for taking our question and congrats on another great quarter. Understand this is a small deal relative to everything else, but maybe if we could dive in a little bit on the command Senator Diehl you saw with the City of Yonkers. I'm wondering like what drove their upgrade to Command Central?

Speaker 14

Was that Timing of refresh with what they already had, were they looking to integrate their body camera deployment? And then you also noted the fixed The video portion of that, are they integrating fixed video into the CommandCentral deployment? And are there other similar deals in the pipeline that You're looking at that you can work with customers maybe as they take advantage of some of their funding?

Speaker 7

I'll take a first stab at this. But at the customer level, Yonkers is a very progressive, technologically savvy police Chief and command staff, this started I want to say this probably started 9 the discussion started probably sometime mid last year, Originally around the mobile video and they've added obviously to that in the command center space. And I think what they're thinking about is they're leveraging how is Information sharing, so everything from digital evidence management to how that's shared seamlessly through the rest of the command center. I don't know if Nehesh, there's anything else you'd add on to that, but

Speaker 3

Yes.

Speaker 4

And I think you

Speaker 11

can think about this almost as

Speaker 8

across the incident life cycle, we have products Today that touch on every aspect of that incident lifecycle. Fixed video from vigilant really gives you that pre incident view, but also gives you that view during the incident Integrated into our video management solution, but also coming into our CommandCentral Aware platform as well. Then you have CommandCentral Suite products across the board, then you have vigilant ALPR solution that was part of that equation as well to enable fast investigations, leveraging both the fixed camera solution, but also ALPR cameras as well. BodyOne cameras feeding into Same evidence platform adding to the mix and then mass notification was also part of the story there. So all that Together, it really gives you a view of an integration between those products, really enabling Effective incident response and I think that was really the value to Yonkers.

Speaker 14

Thank you. And I mean, when you just see the market and those types of deals, do you expect more of a consolidation that way? It seems that it would make Sense, but also understand not everyone is tech savvy as maybe their police chief. What can you do from a Sales motion perspective to kind of bring in more deals like that?

Speaker 7

So two things. Mahesh Yusek Made a comment and this is something that Mahesh and I talk about all the time. It's meet customers where they are. So some customers have a different they're on different Investment journey. Some may want to buy from different vendors.

Speaker 7

What we're incenting our sales team to do, and this is really important, this actually started in 2020, Is incenting them and they have a chance to make some pretty significant incentives to sell full suite integrated networks where they're using all pieces of our command center software That's the goal. We think they've got the right relationships and what they'll need to do is go continue to execute on that and find more and more Yonkers.

Speaker 3

Just to

Speaker 8

add to that, so 75% of our orders in Q3 where either new customers ordering more than one of our platforms or adding to existing Motorola solutions, really leveraging that tight integration between them all.

Operator

Our next question comes from Jim Suva with Citigroup. Please go ahead.

Speaker 1

Thank you. Mine will be pretty easy. The first one is, Greg, you said something and my ears didn't quite catch it, maybe you can clarify. You said really preliminary, preliminary really early looks for next year. I heard a 7% then I think I heard a 10%, But I wasn't sure if you're breaking down product services or company wide, if you could just clarify that.

Speaker 1

Then I have

Speaker 3

one other little clarification.

Speaker 4

Sure, Jim. Yes. No, I was talking about 7% revenue growth in 2022, Full company view and then software and services being around 10% revenue growth Within that envelope, that's kind of what we see at this point in time and then the details and more color we'd give a quarter from now.

Speaker 1

So that was easy. So my second easy part is and then I'll be done. Your outlook, you raised your revenues for the full year And for Q4, but then the EPS you raised it, but not as much as the EPS beat. Is that all Tributed to additional shipping costs or is there something else in Q4 as to why earnings wouldn't be as much as the beat that

Speaker 5

Jim, it's Jason. It's some of what I discussed earlier with Paul around supply chain costs. But additionally, It is a higher OpEx in Q4 for funding the 2 acquisitions that we just brought into the fold of OpenPath And Envision, which is driving our envelope to $19.50 for the year. Those are we're very happy to fund those within the OpEx line, great companies. That's also a factoring into the math that you're doing.

Speaker 1

Thank you and thanks so much for the details on the calls.

Speaker 4

Thank you, Jim.

Operator

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

Speaker 4

Thank you. Listen, I just want to say thank you to the whole management team, but also to all the employees In MSI, I mean, there's so many good things going on, but it's a tough environment. I want to thank the people on the front line, The sales organization that's really executing well and contributing to Q3 record backlog supply, You hear it with every company, you hear it all the time, but the supply chain environment, as we said, challenging in Q3 remains challenging in Q4. And I just think the team here in mixing and matching and there's more fluidity And uncertainty in supply chain in Q3 and Q4 than we've had in prior periods. And I think the adaptability Staying in touch and close touch with key suppliers.

Speaker 4

I appreciate all that. Everybody on the support teams and back office and support functions, In particularly HR, and Karen Dunning and Terry Bell, because we have it's a tough environment. We have vaccine mandate compliance requirements. We're always following rules and regulations By facility and by state and Karen and Terry, Mark Hacker, phenomenal. I'm thrilled with Q3 And the results across the board, I'm proud that we're able to, for 3 consecutive quarters, raise top and bottom line.

Speaker 4

And I think we're really well positioned going into 2022 despite the challenges we have, but we'll stick together like we always do. We'll be flexible And we'll continue to be steadfast and focused and I appreciate everybody's contribution onward and upward and thank you everybody.

Operator

Ladies and gentlemen, this does conclude today's teleconference. A replay of this call will be available over the Internet approximately 3 hours. The website address is www.motorolasolutions.com/investor. We thank you for your participation and we ask that you please disconnect your lines at this time.

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