摩托羅拉 (MSI) 2015 Q3 法說會逐字稿

Good morning, and thank you for holding.

Welcome to the Motorola Solutions third-quarter 2015 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.

(Operator Instructions)

I would now like to introduce Mr. Shep Dunlap, Vice President of Investor Relations.

Mr. Dunlap, you may begin your conference.

Thank you, and good morning.

Welcome to our 2015 third-quarter earnings call.

With me today are Greg Brown, Chairman and CEO; Gino Bonanotte, Executive Vice President and CFO; Mark Moon, Executive Vice President and President of Sales; and Bruce Brda, Executive Vice President, Solutions and Products.

Greg and Gino will review our results along with commentary, and Mark and Bruce will join for the Q&A session.

We have posted an earnings presentation and news release MotorolaSolutions.com/investor.

These materials include GAAP to non-GAAP reconciliations for your reference.

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 this morning's earnings news release and the comments made during this conference call, and the risk factor section of our Q3 2015 report on 10-Q, and our 2014 annual report on Form 10-K and other reports and filings with the SEC.

We do not undertake any duty to update forward looking statement.

With that, I would like to now turn it over to Greg.

Thanks, Shep, and good morning, and thanks for joining us today.

I'd like to make a few opening comments about the third quarter and the overall business before Gino takes us through the results and outlook.

First, Q3 was another solid quarter.

The core business remains resilient in several areas, North America sales grew 5%, the fourth consecutive quarter of growth, and as expected, Asia Pac returned to growth with a very strong quarter, while the Middle East continues to expand robustly.

Second, our operating discipline and cost initiatives are delivering excellent results.

During the quarter we generated 13% growth in operating earnings, and 32% growth in earnings per share, and we're now on track for approximately $200 million in OpEx savings for the full year 2015.

Finally, our focus in investments in managed and support services, smart public safety and public safety LTE continue to gain momentum.

Our manage and support services business grew solidly in constant currency, our recent acquisition of Emergency CallWorks for next-generation 911 is performing better than expected, and we're hosting new public safety LTE trials in every region in the world.

We are encouraged about the growth opportunities these areas represent, and will continue to pursue new initiatives in these areas.

I will now turn the call over to Gino to provide additional details on Q3 results and outlook before returning to provide some closing thoughts.

Thanks, Greg.

Third-quarter revenue was $1.4 billion, down 1% versus the prior-year quarter.

On a constant currency basis, sales grew 3%.

Backlog is up $681 million versus last year.

GAAP operating earnings were $231 million, while non-GAAP operating earnings were $292 million.

These non-GAAP earnings are 21% of sales, representing a 250 basis point improvement from the year-ago quarter.

GAAP EPS from continuing operations was $0.63 compared to $0.27 in the third quarter of 2014.

Non-GAAP EPS from continuing operations was $0.82, which represents a 32% year-over-year increase.

This growth was driven by our ongoing cost reduction and simplification initiatives, as well as reduced share count.

For the remainder of the call, we will reference non-GAAP financial results, including those in our outlook, unless otherwise noted.

Product segment Q3 sales were $925 million, which is flat versus the prior year but up 3% when adjusting for currency impact.

Q3 product segment operating income was $221 million, or 24% of sales, up $46 million versus the prior-year quarter, driven primarily by our cost reduction.

Product segment backlog ended the quarter at $1.3 billion, up $171 million versus last year, and up $65 million sequentially, reflecting the sixth consecutive quarterly increase.

This increase was driven by North America.

Q3 services revenue was $497 million, down 3%.

Excluding the impact of currency and iDEN, the services business grew 3%.

Services operating income was $71 million or 14% of revenue.

Lower sales volume in systems integration margin related to a few large projects were partially offset by lower OpEx.

Gross margin in managed and support services, as well as smart public safety were up.

Services backlog is $4.6 billion, up $509 million versus last year, and down $69 million sequentially, inclusive of a $60 million currency revaluation.

Customers continue to sign long-term services contracts to upgrade, maintain and manage their networks.

Total Company operating expenses from continuing operations were $396 million, down $39 million or 9% from the year-ago quarter, driven primarily by continued cost reduction activities, including the expansion of lower cost shared service centers, that have benefited from a stronger dollar.

We now expect full-year OpEx to be about $1.58 billion, a $200 million reduction from the prior year.

Other income and expense in Q3 was $34 million compared to $29 million in the year-ago quarter.

Our Q3 effective tax rate was approximately 35%.

We expect the full-year 2015 effective tax rate to be approximately 33%.

We also continue to expect our cash tax rate to remain at approximately 15% through 2019.

Cash flow from operations in the third quarter was $300 million, an increase of $415 million versus last year.

Free cash flow was $250 million.

The improvement in cash generation was primarily driven by lower pension payments and improved earnings.

We remain on track for approximately $1 billion of operating cash flow, and $800 million of free cash flow for the full year.

We repurchased $2.1 billion of stock and paid out $70 million in dividends during the quarter.

This resulted in a net debt position of $2.2 billion at the end of Q3.

Moving to regional results, North America revenue grew 5%, ahead of expectations once again, underpinned by strong product and services growth.

We posted solid growth in both state and local, as well as US federal business.

Underlying demand remained solid for our products and services, and the pipeline and backlog remain healthy.

Latin America was down on challenging macroeconomic conditions, the impact of a stronger dollar and continued iDEN declines.

While these variables were assumed in our prior outlook, the 22% decline was more than expected.

The continuing rise of the dollar, particularly in the second half of the year, is having a more pronounced translation impact in Brazil, and transactional impact in countries where US dollar-denominated sales have resulted in large double digit price increases to our customers.

The Europe and Africa region was down 23%, the region declined due to FX, the Norway implementation wind down, and weakness in Eastern Europe.

Moving to Asia Pac, the business returned to growth in the quarter, posting an increase of 14%, and was up 24% in constant currency terms.

We expect growth in Q4 due to healthy backlog growth and a strong pipeline.

Finally, the Middle East region again grew strong double digits, and backlog is up over 100% versus the year-ago quarter to approximately $400 million.

I would also like to share some brief segment highlights.

The products segment growth of 3% in constant currency was driven primarily by North America and Asia Pac.

We also delivered meaningful profitability expansion in this segment, improving operating margins by 500 basis points.

We continue to innovate, drive down cost, and simplify our business processes.

Some of the Q3 product highlights include launching our digital evidence management solution, which combines our secured cloud-based command central vault software with voice communication, body-worn video, voice recording and emergency alerts delivered in one compact device.

The recent APX 8000 digital radio launches far exceeded initial expectations for new product revenue.

This quad band device includes advanced Wi-Fi and Bluetooth functionality, which acts as a personal area network, and serves as a platform for future APX devices.

Additionally, we remain on track for a 40% SKU reduction by year end, furthering our drive for simplification.

The services segment grew 2% in constant currency and was up 3% when excluding iDEN and FX.

Focus areas of managed and support services and smart public safety were up in constant currency.

Our recent acquisition of Emergency CallWorks, which is a converged solution for next-generation 911 call-taking, that can be deployed in the cloud or on premise, continues to outperform our expectation, including several Tier 1 customer wins.

Our public safety LTE business continues to gain momentum, in addition to the two international deployments and the LA-RICS deployment.

We also have multiple large trials ongoing with international police forces, testing and utilizing our unique public safety LTE solution.

This includes interoperability between LTE and LMR networks, enabled by our WAVE technology, third-party mobile applications and broadband devices.

Now, turning to our outlook.

We expect total Company sales for Q4 to decline 6% to 8% or down 3% to 5%, including the impact of currency.

The weakness in Q4 is driven by incremental currency headwinds, which we now expect to be approximately $65 million, and further macroeconomic weakness in Latin America and Eastern Europe.

We now expect full-year revenue to be down approximately 3% or up 1% in constant currency.

We expect non-GAAP EPS of between $1.45 and $1.50 for Q4, and $3.20 to $3.25 for the full year.

I would now like to turn the call back over to Greg.

Thanks, Gino.

Let me close with a few thoughts.

First, Q3 was another solid quarter relative to our sales and earnings expectations as we performed well on a number of measures, revenue growth in North America, revenue growth in Asia Pac, and revenue growth in the Middle East.

That said, we saw increased softness and economic uncertainty in both Latin America and Eastern Europe, which are tempering our views of Q4.

Second, our execution around cost savings and capital return continues to demonstrate strong results.

We are on track for OpEx reductions of about $200 million this year, and we are planning on $125 million more in OpEx reductions for next year.

We purchased over 2 billion of our shares during Q3, which now brings us to a reduction of nearly half of our share count, just over the past four years.

Based on these efforts, we expect to see sizable free cash flow per share expansion as we move into 2016 and beyond.

Finally, we're seeing progress in our investments in innovation.

Strong initial revenues associated with the launch of the new flagship Apex 8000 digital radio, as well as the digital evidence management solution, which combines our secure cloud-based command central software with voice communications, body-worn video and voice recording, all in one device.

This is an embodiment of the way we think about innovation and bringing together devices, software and services in a streamlined solution that meets the needs and the use cases of our customer base.

I will now turn it back over to Shep.

Thanks, Greg.

Before we begin taking questions, I would like to remind callers to limit themselves to one question and one follow up so we can accommodate as many people as possible.

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

(Operator Instructions)

Kulbinder Garcha, Credit Suisse.

My question is for Greg.

In terms of what's tempering the cautiousness for the fourth quarter revenue guidance in particular, Greg, just versus three months ago, can you break down in order of importance what the drivers?

Because I looked at the exposures you have to South American and Eastern Europe and they're not massive, in terms of the overall revenues, and also the currency moves have also been happening a fair amount in the first half as well, so versus three months ago, can you speak about what has changed?

And also, there was a mention there of price increases.

Is that quite broad-based where you have been hit by currency over the last year, or is that quite a minor impact?

If you could just clarify that, that would be great.

Sure, Kulbinder.

The way we think about this is we've seeing incremental pressure in the second half of this year.

I actually mentioned this at the Bernstein conference in September.

We started to see pressure in Latin America and Eastern Europe in the August/September timeframe.

What has happened is it has become more pronounced.

I would dimensionalize it the following way: Think of it as approximately 100 million of incremental net pressure in the second half.

I would say $30 million of that is foreign exchange, Kulbinder.

$50 million is further deterioration in Latin America, remember 80% of our revenues in Latin America are US denominated, and about $20 million is further deterioration in Europe, Eastern Europe, where all of our sales our US denominated.

Some of this was mitigated in Q3 by the over performance and strong performance in both North America and Asia Pac but that is how we dimensionalize and see the pressures in the second half of the year.

I think to your point around pricing, where we are US-denominated and we have had that kind of pressure, we're seeing more of a price disparity with some of our portfolio, but in Q3 and Q4, we're taking action to adjust accordingly, but that is what has happened over the second half.

Maybe just on operating cost, is the OpEx reduction for next year, is that a new program, or is that always envisaged?

I have kind of lost count.

That is a new reduction of $125 million for next year.

The $200 million just represents the continued progress and solid execution that we announced.

There's nothing new about it, it is more of a continuation around platforming, moving from high cost to low cost, eliminating duplication and redundancies, efficiencies around the SKU reduction that Brda is leading on product simplification, but it is manifesting it very well.

And the $125 million reductions for next year are off of the full-year OpEx base this year.

More efficiencies and more effectiveness.

Thank you.

Very clear, thanks.

Rod Hall, JPMorgan.

This is Ashwin on behalf of Rod.

Could you comment on your current expectations for 2016, maybe focus to some of the trialers that could get you back on growth outlook next year?

Sure, Rod.

First of I think it is important that our view of this business, being a low to mid single digit growth business in a normalized environment, remains unchanged.

I remind you that we talked about some specifics about next year.

Norway revenue has the largest project in our Company's history winds down.

$80 million of lower revenue in 2016 versus 2015.

The good news to that is, it is a very low margin revenue, so that is the good news associated with that.

The second headwind is the $40 million of iDEN, as expected, next year in 2016 over this year, and as of today, from a spot rate FX standpoint, we probably have about $40 million of additional FX in next year.

When you put all of those ingredients into the blender, that results improbably about $60 million of pressure in Q1.

We're not going to guide, Rod, on the full year until next quarter's call, but I think it is important to note that North America we do expect to grow in 2016 at comparable levels to 2015, as they have been building backlog and executing strongly and consistently throughout 2015.

If I may have a follow up on LTE, I don't think I heard any target for next year, readdressing only $100 million for this year.

Could you clarify that, apologies if I missed that.

Do you mean on the cost reduction?

No, on LTE revenue for 2015 and 2016.

Got you, so we still expect to achieve our approximate $100 million in public safety LTE revenues for this year.

A lot of good work by Bob Schassler and the team on LA-RICS specifically, as that project completes this year.

We haven't guided specifically on a number for public safety LTE revenues in 2016, but it is fair to say, Rod, we expect it to grow next year as we continue some work on LA-RICS but also built out the larger implementations in the two Middle East countries that we are working on.

Great, thank you.

Tim Long, BMO Capital Markets.

Can we get an update on how the investment from Silver Lake last quarter, can you give us an update on some of those initiatives that investment was going to be feeding around partnerships, investments, acquisitions?

Maybe give us a sense what is going on with that?

And then I had a follow-up.

Sure, Tim.

The engagement with silver Lake has been great.

They have operationally connected into the business in a pretty seamless way, with folks, we're working on a number of work streams, I would categorize them in the consistent areas that I outlined when we first did the deal.

I would say that we are partnering around managed and support services, as well as public, smart public safety and specifically some of the software areas.

There is also an initiative we are launching with them around cost of goods, or what I would call above gross margin, both product and services.

Operationally, they have interconnected very well with the management team here on a number of work streams.

In terms of inorganic, they will work with as closely as we evaluate things that make sense, or may make sense in adjacent areas that we would feel are compelling and accretive.

But so far, so good.

Early days but very pleased with their engagement.

Thanks Greg.

Gino, just to follow-up on the gross margin line, and I think you mentioned the SKU reduction, we have been seen the gross margin slide lower the last few years here.

Just talk a little bit about whether it is SKU reduction or what else can help reverse the trend we have seen in gross margins.

Sure Tim.

The gross margin pressure we have seen this year is primarily related to large systems integration projects, a couple of projects, whose margin is lower than our overall margin.

If we look at margin across products, it is comparable in the main, to prior periods, as well as services, managed and support services, smart public safety, those margins remain healthy.

We expect gross margins to improve over time, as the projects, large projects roll off by the end of this year.

And we also, as importantly, perhaps more importantly, expect operating margin improvement as we expand our services portfolio and services business.

Thank you.

Simona Jankowski, Goldman Sachs.

Couple of questions.

The first one around first, with the RFP coming up here and vendor selection next year, can you just update us on how you are positioned, and what your expectations are, and who you think you're up against?

I think, Simona we will continue to evaluate it closely to see ultimately what requirements are codified in the final RFP, targeted by the end of the year.

Our operational engagement with FirstNet has gone well, particularly I would recognize them and think them, both FirstNet and NTIA, as we have worked all hands on deck on the LA-RICS build out and initial network completion, so I think that has gone well.

They are outlining a set of requirements, we had a meeting with them a few weeks ago.

We stay closely connected with them as they ultimately determine both the business model, the framework for the network rollout, and will determine after the final RFP is let, how we participate and choose to compete.

That will be a 2016 decision, to determine how we respond, and I think those responses are due either Q2 or Q3 of next year.

Thank you.

And then on the body cameras launch a couple of weeks ago, can you help us think through how meaningful that could be from a revenue perspective for the company?

In particular, how much of that is incremental versus substituted to your existing camera resales and how much -- how big is the opportunity potentially for adjacent software infrastructure sales around and in support of the cameras themselves?

Simona, I think of it is an incremental opportunity, and I say that because even though we sell or resell a body camera today, I think sales have been pretty muted, and not very meaningful.

This is exactly the way we have thought about innovation in that, we are less interested in competing in commodity hardware.

We're more interested in a value-add differentiation integrated solutions, so we took the back end around content management, the cloud-based solution around command central vault, obviously in a secure communications model where we are integrating it all into a speaker mic.

First responders have too much on their belt and too much on their body.

So a consolidated, integrated, encrypted superior solution, in our view, was the way to go.

Software, services and all integrated in one device.

So we feel good about it, and I view it largely as incremental.

I think the addressable market I would characterize as maybe $250 million to $300 million, and that is more restricted looking at the addressable market size of the body-worn camera, but I do think it also lends itself to your point into potential adjacencies around software as a service.

That product will be shipping in a matter of months, so we will update you accordingly.

But we feel very good about that product roll-out.

Thank you.

Pierre Ferragu, Bernstein.

Just sharing your thoughts on your guidance for Q4.

So the number you have compared a bit, below what your full year guidance was implying, and slightly below where expectations were.

Looking at it sequentially, the fourth quarter, it looks very reasonable.

And when I look at the last couple of years, you have had a very strong seasonality into year-end like it varies from Q4 and that is why they're setting new seasonal patterns.

So my question is, does that mean that this very strong Q4 pattern, that we've seen in the last couple of years, was due to various effects, and going forward we should expect more normal seasonality for the back end of the coming years?

I think to your point that when you look at suspending Q4 for a minute, and looking at second half, it is generally close to the guidance that we gave, normalized for foreign exchange.

Said another way, we still expect growth for the full year in constant currency, and the EPS is within the range that we gave at the beginning of the year, and just recently a quarter ago, although obviously now we're targeting it toward the lower end of that.

As it relates -- I think, Pierre, you will still see normal seasonality of the business, that is reflective along traditional linearity.

If I take North America specifically, even though they are having, we're not anticipating growth for North America in Q4 in part to your point, that is on a very strong comp a year ago, and North America is performing exactly as we expected.

Actually, so is Asia Pac, but North America for the full year 2015, it has actually performed stronger than we expected for the first three quarters.

They're growing backlog and building backlog along the way, and as I mentioned, North America, which is 65% or 70% of our revenue, we expect to grow in 2016 at comparable levels to 2015.

They are executing very strong and very consistently with Jack Molloy and his team.

Thank you.

Paul Silverstein, Cowen.

This is Fahad in for Paul.

I apologize, I have a few questions.

First off, on the OpEx reduction, what portion of the OpEx upside was driven by favorable FX tailwinds?

Of the $200 million for this year, about $80 million is favorable FX, which is a good guy, a tail wind, but commensurately incentives are an $80 million headwind, so they offset each other, Fahad, on the FX.

We're taking $200 million of real cost of the business this year.

Got it.

So looking at 1Q 2016, where hopefully FX is somewhat more stable, do you still foresee this $80 million of a tailwind, or does that go away?

I think FX is an issue for us, given us year on year comps.

As I mentioned, the spot rate as of this week, it is $40 million of incremental.

I think that manifests itself more in Q1 and Q2 of next year, and then should normalize based on spot rates today, but having said that, we're taking another $125 million of cost out in 2016, irrespective of fluctuations of FX.

Got it.

And then on your share buyback, can you help us understand your share buyback for 4Q and for 1Q 2016, how should we be looking at that?

Gino mentioned last call that we were targeting approximately $3.5 billion of repurchase for the full year 2015.

That is unchanged.

We obviously executed on the tender, and took a big chunk of shares out this past quarter.

I think going forward, as the balance sheet has been normalized, I think you should think about capital return along the lines of the framework that we have outlined.

Of operating cash flow which is 50% repurchase or M&A, 30% dividend, 20% CapEx is a framework of the way you should think about it, given the fact that we have normalized the balance sheet with the tender and have achieved net debt.

Going back to macro view, looking at your strength in Middle East and looking at the falling oil prices, do you see that as a headwind going into 2016?

Do you think that would change the buying patterns of your customers there and elsewhere, which are predominately based on oil imports, exports?

I think for sure that is what has tempered our view of Q4.

I don't necessarily see that changing going into 2016, so we will be guarded and measured, and we will update you on 2016.

As it relates to the region specifically for us, we talked about North America and the color around 2016.

Gino mentioned we have robust backlog in the Middle East, so even though there is pressure on oil price reductions largely in that region, we have got healthy backlog and very good visibility, I think into 2016, for that region.

Latin America, we don't see changing anytime soon, so I think our views will remain tempered exiting Q4 and into 2016.

And Europe I would dimensionalize around the Eastern Europe issue that we highlighted, and the only other thing worth mentioning specific to us, of course, is the Norway wind down on revenue.

But that is how we see it going forward.

Lastly, looking at some of these video -- integrated video solutions that you sold, can you give us an idea in terms of the number of opportunity deal pipelines that are in the foreseeable future in your pipeline?

Just give us a sense on how we should be seeing these opportunities maturing over the next year?

I think is actually, Fahad, I think it will be better to update you a quarter from now since we just made the announcement, and the product rolls out in the next 60 days.

What I will tell you is the initial feedback with the Chiefs conference here in Chicago was strong.

It was strong because they like an integrated device.

They like the fact that it has content management for crisp extraction on evidentiary and storage requirements, and they like that it is consolidating and thinking about and sensitive to what a first responder carries on his or her chest or belt.

I think it is a little premature to signal the pipeline and the quantification of it, we will update you in a quarter.

But the initial feedback and engagement has been very good, and we're in conversations with a number of customers right now.

If I could follow up on that, who are the purchasing decision makers?

Are these the sheriffs, police officer units, or are these CIOs, that are traditionally not people that you sold into?

Is the buying pattern for these solutions different from your traditional channels that you sold into?

I think it is both.

I think it's the traditional communications group as well as IT.

The IT and CIO are becoming more and more involved with the procurement of public safety, given the complexity of these IP networks, the sophistication of software.

And that is a good thing, because our engagement, as we think about North America in particular, we have had our direct sales force talking smart public safety, talking about managed services, talking about the command center, talking about next generation 911, so it is not an unnatural extension, it is a logical extension, given our distribution and go-to-market strategy.

All right.

Next question, please?

Mike Hogan, Raymond James.

Quite a few of them have actually been answered so what have left is really just housekeeping.

I was wondering if you would, I know you said it, I think I missed a number, but would you please repeat the backlog number that you have for this year?

The backlog number as of the end of Q3?

Yes, that is correct.

$6 billion and the growth year-over-year was 13% or $680 million.

Growth in the products segment for the sixth straight quarter, and services growth was basically flat, including a $60 million FX adjustment.

Thank you.

Did you provide or would you provide any free cash flow expectations for the full year of 2015?

For 2015, we said we remain at free cash flow of approximately $800 million, and operating cash flow of approximately $1 billion.

Okay, great.

That's all I needed.

Thank you.

Keith Housum, Northcoast Research.

As it relates to the gross margin improvement in products, as I look at it outside of fourth quarter, it's probably one of your best quarters in a while, do we look at that in percent of roughly 57%, is that roughly sustainable over the next several quarters, or is that a new level we should be thinking about?

I think you need look at the composition of Q3 and the performance of North America, and specifically some of the products in North America.

We mentioned the APX 8000 launch in the market reception to the 8000 launch.

So the profile in Q3, the mix skewed a bit to North America, and skewed a bit to full-featured products.

Got you.

Appreciate the color.

As we look, follow-up question for you on Eastern Europe, as you looked at what developed over the quarter, I guess to provide a more color on the pressure in Eastern Europe, and expectations of that perhaps beyond just the fourth quarter?

Clearly currency continued, the ruble continue to devalue 90% year-over-year incremental 30% in the second half of the year.

So we saw continuing pressure.

Greg mentioned that in Eastern Europe, we are predominately USD based, so we are seeing some pricing pressures, particularly at the low end, and we expect that to continue, based on macroeconomic conditions.

We mentioned oil, there was a question around oil, as well as political turmoil right now in Russia, so we expect that to continue into 2016.

Thank you.

Appreciate it.

Andrew DeGasperi, Macquarie Capital.

Just quickly, in Asia Pac, really good results.

I was wondering if you could maybe break it down by region, where was your strongest area?

Thanks.

Actually we have performed very consistently in Asia PAC throughout the year.

We exited last year with good backlog and good visibility to pipeline.

We talked about still being down year over year in the first half, but returning to growth in the third and fourth quarter, which is exactly what we have done.

That is really despite some FX pressure in Australia.

Probably about $35 million and about $50 million of FX pressure throughout the region.

In terms of the overall region, we have actually performed very consistently throughout the region.

We think about it, we talked about the past, the region being China, Australia and the rest of Asia.

It is the composition.

That has continued to be pretty much the case.

We have had some declines, as you know, in Australia.

Again they have been facing the FX pressures.

China has continued to perform as expected for us, so we were pleased with that.

For the full year, we think we will meet our expectations, actually grow slightly in actual dollars, and grow low double digits in constant currency.

Pleased with the execution throughout Asia.

Great, thanks.

Ben Bollin, Cleveland Research.

I wanted to go back to the cost of goods initiative.

In the past, you have talked a little bit about some platform strategies, warehousing, ODM strategies, and now you're talking about a bit about Silver Lake and what they might be able to help you with.

Can you tell us what you have achieved thus far, what you think is left, and what that can do to the broader business?

I will have Bruce jump in on this too, but I think that the SKU reduction work has gone exceptionally well.

We have talked about, we're on track to reduce our SKUs by about 40%.

I think the platforming of the systems and product business, led by Brda, has also gone very well to achieve economies of scale in cost of goods.

When we think of the cost of goods initiative, or we will call it above gross margin, I think the engagement with Silver Lake and work will yield higher benefit on services above gross margin than necessarily product above gross margin.

As we think about the deployment of services people, we think about their utilization, their load-balancing, their productivity, software and system and IT tools that we use to track the services organization, that are more sophisticated and capable today for MSI than even 18 months ago with utilizing software like Flexera and others around feature functionality and service deployment.

I kind of look at that engagement with Silver Lake more yielding services above gross margin efficiencies than necessarily a product cost of goods itself, because of a lot of work that we have done already.

A follow-up, last year in the 10-K when you did report the backlog, I believe the percentage that was expected to be recognized in the next 12 months was 33%, and I think that was up from 32% the year prior.

Can you talk to how that percentage has trended through the three quarters of the year, if it has been through expectations, if you have seen any big deviations in that percentage?

Trending to expectations, haven't seen any deviations and we will update you at the end of the year on our aging and expectations for 2016.

A think the stronger performance in North America through the first three quarters was really sales in the quarter that were orders converted into revenue in the quarter.

Our backlog aging has performed really as we expected.

Thank you.

It appears we have no further questions.

I will return the floor back to Mr. Shep Dunlap, Vice President of Investor Relations, for any additional or closing remarks.

Thanks.

As mentioned at the outset, we have made a number of forward-looking statements during the call including outlook related to sales, EPS, cost, operating leverage, cash flow above operating free cash flow and gross margins, as well as effective and cash tax rates, currency and growth by region and product.

As well as capital return and share repurchase and public safety LTE revenues.

That is it, thanks, we look forward to speaking with all of you soon.

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.

Have a wonderful day.