Q1 revenue grew by 10%, with earnings per share increasing by 27%. Operating margins expanded by 220 basis points.
Generated a record Q1 operating cash flow of $382 million.
Ended the quarter with a backlog of $14.4 billion, marking a $300 million increase from the previous year.
Segment Performance
Products and Systems Integration (SI) segment saw a 14% revenue increase and operating margins grew by 590 basis points.
Software and Services segment revenue grew by 4%, with double-digit growth excluding U.K. Home Office revenues.
Key Business Moves
Announced a price increase for .com domains effective September 1, 2024, from $9.59 to $10.26.
Expects China’s challenging market conditions to continue impacting revenue and domain growth negatively in 2024.
Financial Details and Projections
GAAP operating earnings were $519 million, or 21.7% of sales, with non-GAAP operating earnings at $638 million.
Non-GAAP EPS rose to $2.81, a 27% increase from the previous year.
Operating cash flow in Q1 was a record $382 million.
Ended Q1 with a backlog increase to $14.4 billion, driven by demand for multiyear software and services contracts.
Acquisitions and Capital Allocation
Completed the acquisition of Silent Sentinel for $37 million.
Capital allocation included $163 million in cash dividends, $46 million of CapEx, and $39 million in share repurchases.
Future Outlook
Raised both revenue and earnings guidance for the full year, expecting revenue growth of approximately 7%.
Non-GAAP earnings per share forecast adjusted to between $12.98 and $13.08.
Strategic Moves
Settled Silver Lake convertible notes entirely in cash, avoiding dilution to share count.
Received credit rating upgrades from S&P and Fitch, reflecting a strong business and balance sheet.
Question and Answer
Video Business Performance
Question
Can you discuss the impact of customer movements to cloud on the video business and the high software services percentage in the quarter?
Answer
The company is seeing increased adoption of Avigilon Alta and cloud services, which is estimated to be a $40 million headwind for full-year growth but had a positive impact on Q1 performance.
The growth in software within the video segment is a trend driven by exciting developments in analytics, VMS, software products, and mobile video, all complemented by cloud subscriptions.
LMR Growth and Cycle
Question
Can you provide insights into the LMR product and services growth and where the company is in the cycle, particularly with APX NEXT and device refresh?
Answer
The company is extremely pleased with the performance of LMR products and services, with continued strong demand and above-expectations growth rates.
The growth is driven by the entire APX segment, including APX NEXT, APX Originals, TETRA, and PCR, with device refresh and adoption of feature-rich devices contributing to revenue and margin expansion.
The company is still in the middle of the game on device refresh, with a lot more potential for growth.
Additional Insights
APX NEXT adoption is driven by applications, with features like location, network extension, SmartConnect, and Smart Programming appealing to customers, including state patrols and the Department of Transportation.
Customers are embracing a blended fleet approach, with a mix of APX Original and APX NEXT devices.
Airwave Contract Renewal and CMA Situation
Question
Can you provide an update on the Airwave contract renewal, the CMA situation, and the ongoing court case and appeal?
Answer
The company recorded the backlog of the Airwave extension for years ‘27, ‘28, and ‘29 at charge control rates, which are being contested.
The company has appealed the CMA’s final decision to the Court of Appeal and expects clarity on the case in May or June, but will continue to defend its position on the circumstances and conditions of the Airwave extension.
Managed Services Customer Relationships
Question
Is there any evidence of other managed services customers attempting to reprice contracts with the company in other parts of the world?
Answer
No, the situation with Airwave and the U.K. is considered unique, and there is no evidence of similar actions from managed services customers in other regions.
Business Impact of Ukraine Situation
Question
Has the recent aid package and developments in Ukraine changed the company’s view on the $100 million headwind previously mentioned?
Answer
The company’s view on the full-year guidance and the $100 million headwind from Ukraine remains unchanged.
The headwind is primarily expected in the second half of the year, which informs the seasonality implied in the Q2 and full-year guidance.
The company is actively engaged on multiple fronts related to the Ukraine situation and is pleased with the Foreign Aid Bill but maintains its guidance.
Command Center Growth and ESN Impact
Question
Has the company’s outlook on the contribution of the Command Center business to growth this year changed?
Answer
The company remains enthusiastic about the Command Center business and still expects 10% growth for the full year.
Q1 Command Center growth would have been in handsome double digits if normalized for the U.K. Home Office impact, and the full-year guidance implies even higher growth when normalized for ESN.
The company recently held its largest summit with over 1,300 customers, launched VESTA NEXT refreshed products, and is seeing strong traction and adoption of cloud-connected products and Rave Command Center products.
Product Segment Margins and Future Outlook
Question
Can you elaborate on the drivers behind the strong margins in the Product segment, the remaining benefit from pricing and supply chain improvements, and the outlook for 2024 and beyond?
Answer
The $60 million benefit from lower broker costs (PPV) is a full-year number, with more to come in future quarters.
The company is experiencing the need to use far fewer brokers, and supply chain improvements from direct vendors are helping obtain parts at the right prices, contributing to margin improvements.
The company expects gross margins to be up slightly and operating margins to be up about 75 basis points in 2024, driven by volume mix, surgical price increases, refresh of the device portfolio, and ongoing OpEx discipline.
The company is committed to driving operating margin improvement through disciplined use of AI in product analytics and customer service, while maintaining a focus on growth and taking market share.
Backlog Trends and Airwave Impact
Question
Can you provide more insights into the backlog trends, particularly when excluding the impact of Airwave, and how to interpret the sequential decline in backlog?
Answer
Excluding the impact of the U.K. Home Office on a multi-quarter basis, total backlog is up over $500 million, and S&S backlog is up over $600 million.
The sequential decline in backlog is partially due to the $748 million related to the Airwave extension and a reduction in backlog from pricing controls for years ‘24, ‘25, and ‘26, but the core business at the Home Office is growing.
