摩托羅拉 (MSI) 2017 Q4 法說會逐字稿

Good afternoon, and thank you for holding.

Welcome to the Motorola Solutions Fourth Quarter 2017 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 3 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. Chris Kutsor, Vice President of Investor Relations.

Mr. Kutsor, you may begin your conference.

Thank you, and good afternoon.

Welcome to our 2017 Fourth Quarter and Full Year Earnings Call.

With me today are Greg Brown, Chairman and CEO; Gino Bonanotte, Executive Vice President and CFO; Bruce Brda, Executive Vice President, Products and Solutions; and Jack Molloy, Executive Vice President, Worldwide Sales and Services.

Greg and Gino will review our results along with commentary, and Bruce and Jack will join for the Q&A portion of the call.

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

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

During the call, we reference non-GAAP financial results, including those in our outlook unless otherwise noted.

A number of forward-looking statements will be made during this presentation and during the Q&A portion of the call.

These statements are based on current expectations and assumptions that are subject to a variety of risks and uncertainties.

Actual results could differ materially from these forward-looking statements.

Information about such -- information about factors that could cause such differences can be found in today's earnings news release and the comments made during this conference call, in the Risk Factors section of our 2016 annual report on Form 10-K and in our other reports and filings with the SEC.

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

With that, I'll turn it over to Greg.

Thanks, Chris.

Good afternoon, and thanks for joining us today.

I'd like to share a few thoughts about the overall business before Gino takes us through the results and the outlook.

First, Q4 was an outstanding quarter, capping a very strong year.

We grew Q4 revenue 4%, driving higher earnings and cash flow on the continued strength of our land mobile radio solutions led by North America.

We see continued demand across both our government and commercial customers around the world reflected in our recent results and our record backlog.

Second, 2017 was a record year for sales, operating earnings, cash flow and backlog, demonstrating the earnings power of our land mobile radio platforms.

In addition to growing the full year revenue 6% with growth in every region, we grew operating earnings 9%, grew EPS 11% and we grew operating cash flow 16%.

Finally, I'm very pleased with our competitive position moving forward.

I expect our LMR platform business to provide continued growth while also driving additional managed services expansion and further differentiating our command center software strategy.

So now I'd like to turn the call over to Gino to provide additional details on Q4 results and outlook before returning to provide some final thoughts.

Thank you, Greg.

Q4 results include revenue of $2 billion, up 4% from last year and organic revenue up 2%.

GAAP operating earnings were $511 million, up $108 million from last year.

Non-GAAP operating earnings were $576 million, up $35 million or 6% from the year-ago quarter, and operating margins were 29.4% of sales, up 70 basis points from last year.

GAAP earnings per share was a loss of $3.56 compared to earnings of $1.43 in the year-ago quarter.

The loss reflects onetime charges of $874 million related to recent U.S. tax reform.

The charges are primarily 2 items: $471 million related to the valuation allowance on foreign tax credits; and $366 million related to the remeasurement of U.S. deferred tax assets at a lower rate.

Non-GAAP EPS was $2.10, up 3% from last year.

Ending backlog was $9.6 billion, up $1.2 billion from last year.

Products segment backlog was up $382 million or 25%, and services segment backlog was up $860 million or 13%.

For the full year, revenue grew 6% with growth in every region and organic revenue grew 3%.

Products segment revenue grew 3%, led by higher North America system sales and growth in commercial products.

Services revenue grew 9% with Managed and Support Services growth in every region.

Operating earnings were $1.6 billion, up $125 million or 9% compared to 2016.

Earnings per share grew 11% to $5.46, and operating cash flow was $1.3 billion, up $181 million from last year.

Moving to Product segment results for Q4.

Q4 Product sales were $1.23 billion, up 1% versus the prior year, driven by growth in North America LMR systems and global commercial products.

Q4 product operating income was $425 million or 34.5% of sales, up 130 basis points from last year, driven by higher sales and lower OpEx.

Product backlog ended the quarter at $1.9 billion, up $382 million or 25% from last year.

This is the 13th consecutive quarter of year-over-year growth.

Sequentially, backlog was up $140 million or 8%.

The year-over-year and sequential backlog growth was driven by North America and EMEA.

Q4 Services revenue was $724 million, up 10% from last year with growth in every region.

Managed and Support Services grew 17%, inclusive of $32 million from acquisitions.

Services operating income was $151 million or 20.9% of revenue, up 50 basis points from last year on higher sales and mix to Managed and Support Services partially offset by OpEx from acquisitions.

Services backlog ended at $7.7 billion, up $860 million from last year, inclusive of airwave runoff.

Sequentially, Services backlog is up $567 million or 8% on continued strong demand in North America, EMEA and Asia Pac.

Total OpEx in Q4 was $397 million, down $11 million or 3% from the year-ago quarter, inclusive of $15 million from acquisitions.

For the full year, operating expenses were $1.49 billion, inclusive of $45 million of OpEx from acquisitions.

Other income and expense in Q4 was $46 million compared to $41 million in the year-ago quarter.

The Q4 effective tax rate was 32.8% compared to 30.7% in the year-ago quarter, resulting in $11 million of higher tax expense.

The full year 2017 effective tax rate was 31%.

Q4 operating cash flow was $761 million, an increase of $248 million from last year, driven by higher operating earnings as well as improved working capital.

Free cash flow was $740 million, up $287 million.

We ended Q4 with $1.3 billion in cash, and during the quarter, we repurchased $125 million of stock at an average price of $91.95 and paid dividends of $76 million.

Capital allocation in 2017 was $1.3 billion.

This included $298 million of acquisitions, $370 million of dividends, $227 million of CapEx and $483 million of share repurchases at an average price of $85.32.

In total, our share repurchase program has retired 53% of our shares at an average cost of $58.59.

Finally, in Q1 of 2018, we are planning a debt-funded $500 million pension contribution that takes advantage of the recent tax legislation.

This funding pushes any further cash contributions to our U.S. pension plan until minimally 2024, likely beyond.

In addition, this planned contribution drove a 2017 tax deduction at 35% versus 21%, providing an MPV of approximately $60 million.

Turning to our outlook.

We expect Q1 revenue growth of approximately 7% and organic growth of 5%, including approximately $40 million from currency tailwinds.

Non-GAAP EPS is expected to be between $0.83 and $0.88.

This assumes current exchange rates and an average diluted share count of approximately 169 million shares.

For the full year, we expect revenue growth of approximately 5% with organic growth of approximately 4.5% with currency tailwinds of approximately $130 million.

Non-GAAP EPS is expected to be in the range of $6.50 to $6.65.

The outlook does not include the pending Airbus PlantCML or Avigilon acquisitions.

Airbus PlantCML was expected to close in Q1, and Avigilon is expected to close in Q2.

Full year operating expenses are expected to be down again by approximately $20 million from 2017, inclusive of $20 million of OpEx from completed acquisitions and inclusive of $30 million in higher OpEx from currency headwinds.

We expect the full year 2018 effective tax rate to be approximately 25% and our cash tax rate to remain at approximately 15% for 2018 and 2019.

2018 operating cash flow is expected to be approximately $1.4 billion, excluding the $500 million debt funded pension contribution previously mentioned.

Moving to regional results.

The Americas grew 6% in Q4 and 7% for the full year.

This broad-based growth was driven by P25 systems, multi-year Managed and Support Services and commercial products.

Backlog is up $915 million from last year with double-digit growth in both Products and Services year-over-year as customers continue to invest in their LMR solutions.

EMEA declined 2% in Q4 on the completion of a large LTE implementation in the prior year.

For 2017, EMEA was up 5% on growth in Products and Services and backlog is up $131 million versus last year.

Asia Pac grew 1% for the quarter and 1% for the year, driven by growth in both Products and Services.

Backlog is up $195 million primarily on services growth.

I'd also like to share some brief segment highlights.

First, in our Product segment, during Q4, we were awarded a $290 million contract for an LMR system in a Middle Eastern country that recently deployed a private public safety LTE system.

This significant investment in LMR is the latest example of customers further validating that LTE and LMR are complementary technologies.

We also won several large LMR deals in North America during the quarter, including a $76 million P25 order for the city of Dallas, a $53 million P25 order for the city of Los Angeles and a $39 million P25 order for the city of Toronto.

In our Services segment, we continue to see demand by our customers for multi-year support contracts for their LMR systems.

A few notable Q4 awards include a $197 million 7-year managed Services contract extension for the Melbourne Metropolitan Radio Network in Australia; a $40 million 5-year managed services contract in Victoria, Australia; and an $18 million 7-year managed services contract with Dow Chemical.

I'd also like to mention a few full year operational highlights.

During 2017, we launched 85 new products while reducing our device SKUs by 55%.

We also launched new or expanded services offerings across devices, commercial infrastructure and LTE.

We completed the acquisition of Kodiak Networks, adding a carrier-integrated cellular push-to-talk solution for mobile operators around the world.

We signed the FirstNet partnership agreement with AT&T to provide software applications, devices and services for public safety customers on the FirstNet network.

And finally, we completed the acquisition of Interexport, a provider of managed services for communications systems to public safety and commercial users in Chile.

I'd now like to turn the call back over to Greg.

And thanks, Gino.

Let me just close with a few thoughts.

First I'm very, very proud of the 2017 results we posted as a direct result of our employees' dedication and focus and efforts in delivering unmatched technology and unmatched service to our global customers, many of whom put their lives on the line every single day.

Second, I'm especially pleased with our momentum moving forward.

Our record backlog reflects the continued strong demand for LMR led by North America, and we're making continued progress in growing our software and services business as well.

And finally, we announced today a definitive agreement to acquire Avigilon, a leader in advanced video surveillance and analytics.

Adding Avigilon's end-to-end video capabilities and analytics for our commercial and public safety customers provides not only another key workflow stream to our solutions offering but it also significantly expands the total addressable market that we serve today, paving the way for additional future growth.

The management team here remains acutely focused on continuing to grow this firm profitably and for the long term.

And now I'll turn it back over to Chris.

Thanks, Greg.

(Operator Instructions) Operator, would you please remind callers how to ask a question?

(Operator Instructions) Our first question is coming from George Notter with Jefferies.

I guess, I was curious about the bigger spending environment around public safety LMR.

I guess, I'm thinking more about the United States.

It seems like state and local tax receipts have to be very, very strong.

I assume that's a good tailwind for your business.

I want to ask about federal tax receipts also.

We've got tax reform, and I guess, I'm imagining the tax receipts will be lower going forward.

But can you just talk about the environment and how it's changing with tax reform for your LMR business?

It's Jack.

So I guess, first of all, for -- from a state and local perspective, you're spot on.

I think what you've seen -- I'll reference the fact that North America grew in 2015, 2016 and '17 both in terms of revenue and backlog.

I think that's testament to the strength of the demand drivers in public safety and state and local.

From a federal perspective, similar story.

We had a great year in 2016, and frankly, we slightly beat that slightly in 2017.

The demand drivers right now in the federal government are really twofold.

We have a defense team.

We're seeing continued spending in the defense around military base communications.

That's been a strong story and then what we look at domestically here both from a law enforcement and a border patrol perspective, again, the demand and a lot of the -- a lot of what the Trump administration is doing in terms of planning, those things have looked to be beneficial for us as well.

We enter 2018, frankly, in federal in a better backlog position than we did in 2017.

Our next question comes from Tim Long with BMO Capital Markets.

Yes.

A question and a clarification.

First, on -- Greg, if you could just touch on FirstNet.

I think, last time, you were talking $40 million to $60 million of revenues this year.

Obviously, all the states opted in, and AT&T seems to be talking pretty aggressively about deployment.

So just talk to us a little bit about what the changes over the last few months have meant as far as your outlook for that business for the year.

And then secondly maybe for Gino.

Just looking at the full year guidance, it seems to imply gross margin down a little bit this year.

Could you just talk a little bit about the gross margin outlook and what might be potentially pushing that lower?

So thanks for the questions.

In terms of FirstNet, our role hasn't changed.

We're still going to provide mission-critical software applications in LMR interoperability and services.

But to your point, right now the starter pistol has been fired, and it's all about subscriber load.

So we are pleased that all 56 states and territories opted in, but now it's game on.

Our current planning actually for this year on FirstNet revenues are about $20 million to $40 million.

I wouldn't overinterpret that one way or the other.

In fact, I hope it's above that.

But just from a prudent planning standpoint, I wanted to set those goalposts as more reflective of where we are today.

We just don't know what we don't know.

The partnership with AT&T continues to work well and go well, but that's our expectation from a FirstNet standpoint at this point in time.

Hey, Tim, it's Gino.

On gross margins, gross margins, our expectation of 2018 gross margins are flat comparable to 2017.

And in 2017, the -- we had comparable gross margins in both the Products and Services segment versus the prior year and the margin reduction for MSI in total was simply a result of the mix to Services.

And we talked about the gross margin profile in Services, which includes systems integration to be slightly less than Product.

So we see 2018 margins comparable to 2017.

Our next question comes from Vijay Bhagavath with Deutsche Bank.

So my question is around -- Greg, when you talk to your top customers and your sales teams, what are they telling you in terms of spending intentions, Fed, state and local agencies for this year versus last year?

And then what priorities are your customers assigning to software command control versus devices and network?

And then quickly, this event this year, like the Olympics, the World Cup soccer, would these be incremental opportunities for you in public safety?

Just on the third point, I think that the opportunities and the events that you outlined are incorporated already into our guidance for fiscal 2018.

One of the things and we referenced this last time that with the natural disasters, the hurricanes, the fires in California, I also think continually reinforce and remind the absolute, always-on reliable criticality without substitution of land mobile radio systems.

But Jack mentioned a little bit about state and local demand and federal demand just a few minutes ago, and I think we see it continued to be strong.

And Bruce, on the command center, maybe you want to mention a few things on that front.

Sure.

Thanks, Vijay.

If you think about the command center software applications, 9-1-1, CAD, records, dispatch and then analytics around it, we are -- currently, we built out that portfolio through acquisition or organically, and we're really going through the hard work now of integrating that into a single suite.

We have seen very good progress on cross-sell activities.

I'll note between Spillman and ECW as an example, they serve the same size tier 2, tier 3 marketplaces.

We've seen great progress on cross-sell, and we're beginning to see early suite sale accomplishments as well.

So we're really pleased with the progress that we're making.

More work to do.

But so far, it's really working well.

Our next question comes from Keith Housum with Northcoast Research.

Mind if I just drill down more into the acquisition you guys announced today with Avigilon in terms of like the current customer overlap that they -- you guys have together.

And is this taking you to new markets?

And why do you guys [maybe make] this acquisition versus your current technology?

So can you just provide some more color along those lines?

Would be great.

Sure, Keith.

So taking a step back, the strategic rationale on this is -- and we're pretty enthusiastic -- is, first of all, video surveillance and analytics is growing.

It's growing rapidly.

Second, the total addressable market is in well in excess of $10 billion or $11 billion and then some.

And third, video continues to be a growing proponent, a growing requirement of public safety customers and critical infrastructure customers that want a solution and would like Motorola to provide it.

The thing that's especially attractive to me is this is not a commodity business.

As you've seen the other actions that we've taken with the portfolio over time, I'm not interested in commodity businesses.

I'm not interested in commodity margins.

I like a market leader with an end-to-end platform orientation, and we believe this end-to-end video surveillance suite of cameras, analytics, video management and video storage is particularly strong.

Now we're -- as Gino said earlier, it's EPS neutral, and it's not included in our 2018 guidance.

But Avigilon is a public company on the Canadian exchange, and you can go back and kind of look at their revenue growth and the kind of execution they've had.

The other thing I'd say is it's -- there's a lot of point solutions in this business.

We're an end-to-end platform choice, and we believe we have a distinct advantage or we will have when we close this acquisition around faster deployment than competitive products.

And the thing especially I love is the channel synergies.

So this can fit very neatly and nicely, and we can take this portfolio into global public safety because they've been enterprise centric to date largely.

We could take it into U.S. Military.

We could take it into U.S. federal.

We could take it into our large direct sales force that serve enterprises in the commercial markets.

So it's got very attractive channel synergies.

And lastly, quite frankly, much like mission-critical communications, I think there is a growing aversion to having a Chinese provider do critical video surveillance and security.

And I think that trend will lend itself well to us as well.

Our next question comes from Stanley Kovler with Citi Research.

I just wanted to ask you guys about just the trends in the backlog and how we should think about conversions you've been adding a lot to the backlog recently.

Can you help us understand what the aging of that is and how that will hit the Services line on the revenue side going forward?

And I have a follow-up.

Okay, great.

Stanley, this is Gino.

So the backlog increase, let's first start with 2018 agings entering into 2018.

We're better aged than we were a year ago, 12 months ago.

The duration, I think you're getting at to the duration of backlog.

The duration on the Products backlog hasn't changed.

I think you can go back and track that duration to revenue, and it's been consistent for the past several years.

On the Services side, the duration is a little bit longer as we continue to sign multi-year agreements.

I referenced 7- and 5-year agreements, in some cases, 15-year services agreement, and the duration, clearly, of that backlog is a bit longer.

And as a follow-up, I just wanted to ask you on the Avigilon acquisition.

Looking back at their margin structure, especially the operating margins, they have much faster revenue growth but lower margins.

How should we think about folding that business into your model?

Is the revenue growth essentially offsetting margin from a gross profit dollar contribution standpoint?

Or are there OpEx synergies as well in that?

So I think it's too early to comment on how to think about it from a model perspective.

We'll update you after the close, but I do think that -- by the way, we expect to run this business self-contained as a separate subsidiary inside of Motorola Solutions.

So we're very pleased with the structure of the organization, the talent quality, the patent portfolio, the distribution channels, and we want to be very mindful that, I think, appropriately managed going forward, this will continue on a very successful track that they've demonstrated of execution.

I think this is about building an end-to-end platform, adding another leg to the stool for public safety over existing distribution channels and brand by Motorola Solutions and giving them more scale to accelerate their growth.

Hey, Stanley, this is Gino.

Just -- I'll just reiterate something Greg said a few minutes ago.

The expectation of Avigilon from an EPS perspective in 2018 would be a push.

It is a push as well for the PlantCML business.

We expect both Plant and Avigilon to be accretive 2019 and beyond.

Our next question comes from Andrew DeGasperi with Macquarie.

First, Greg, maybe could you comment on ESN?

We've been hearing there's some additional delays in building out in rural areas.

And then, Gino, maybe of Avigilon quickly.

I noticed that the breakdown of revenues geographically seems to be showing a slowdown in the U.S. but growing very fast in Europe and Asia.

Do you see the opportunity essentially a turnaround in the U.S. business while also benefiting from those other tailwinds?

On ESN, I don't really have any current update at this point in time.

I'm just simply saying we worked really closely with the U.K. Home Office, particularly in Q4, as they go through some of their planning and regeneration of time line.

I think that, quite frankly, I thought the relationship is -- has strengthened in the last several months.

I was out in London either late November and December.

We've had dedicated teams working very closely together, and I think it'd be more appropriate if we let -- to let them announce any kind of changes to their schedule.

What I would tell you is that we are not planning on, in our '18 guidance, any material revenue contribution from ESN.

And Andrew, this is Gino on growth.

We'll clearly give you more details at the FAM and certainly after close.

But the only thing I'd point you to is their compounded annual growth rate of 37%.

Greg mentioned the TAM -- 37% from 2012 through 2016.

Greg mentioned the TAM.

You can see the revenue number.

So aside from just ups and downs, we absolutely see continued growth in the Americas, and I think in conjunction with our distribution organization, we see growth and revenue synergies, frankly, in the rest of the world.

We're very excited about the acquisition.

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

Greg and Gino, can you remind us prior to the CAD 100-plus million a quarter you're going to get from Avigilon, yes, I trust video today is a fairly small piece, but surveillance and analytics in total, what is that organic revenue today?

I think the proxy, and what we've said from a software perspective, command perspective, what we said publicly is approximately $300 million.

Now I wouldn't disaggregate it further to video.

That is the total number for the software business, but that's currently where we are from a software perspective at least in the command center.

We have -- really, the only camera business we have right now is the body-worn business, which is a relatively small percentage of our revenue.

I don't know if this is the right way to look at it, but I -- from a cursory look at the numbers, it looks like Avigilon doesn't break out hardware from software.

They do one number.

Any insight you can share with us in terms of that revenue stream you're going to be bringing on?

How much of that is software versus the body cams?

Yes.

I think, Paul, it's a little early for that.

We'll give more detail at FAM and when we close, and we'll disaggregate it a bit more.

All right.

One last question if I may.

Things seem to be going so well.

In terms of the greatest variables, levers for better or worse as you look at '18 and beyond, I trust it's on the revenue line.

You've done such a good job with OpEx.

It sounds like gross margin, there's not a lot of room either way.

If, in fact, it is revenue, what would be the variables that could drive significant upside or downside, the most prominent ones?

I would answer it this way.

I mean, I think we're pretty prudent to begin with in the way we guide the firm in Q1 and an annualized basis.

So you never can tell of course, but I think we've pretty effectively risk adjusted our thinking around Q1 and the full year both from a revenue standpoint and an EPS standpoint.

I'm particularly comforted by the performance of the record backlog and the composition of the aged backlog that Gino referenced being higher going into '18 than '17.

The environment is strong right now.

Geopolitically, we grew in every region, and it looks like we have the opportunity to grow in every region again.

And we're anchored by North America, which continually performs very strongly.

Second, I think I really like the performance in the low-end LMR business or what we also refer to as the commercial markets group.

I think Molloy's team and Brda's product team have performed exceptionally well there, and we're executing quite well.

I mean, we've made changes on people.

We've moved more front facing, bag carrying, quota carrying people to the front lines.

We continue to prudently manage OpEx.

And we're, I think, doing a better job globally around our channel management.

Now that's not meant to be a commercial because there's a lot more work to do, but I think the foundation of growth, the durability of earnings, the visibility we have on the business positions us quite well for 2018.

Our next question comes from Ben Bollin with Cleveland Research.

The first one, there's been some references to the better positioning of the aged backlog.

I know in the K, you'll give us a percentage of Product and Service backlog you expect to recognize.

Can you give us that percentage now?

And then my follow-on, I know the company -- it sounds like you've implemented a number of dedicated sales initiatives in the commercial end market pursuing specific verticals.

Could you take us through a little bit of what you've done and if you feel like there's more opportunity, where you could do that in other verticals or if you're seeing additional verticals come online beyond oil and gas and heavy industry, things like that?

Ben, I'll take -- this is Jack.

I'll take the second half of the questions related to commercial markets.

I'll answer it by saying, when I previously led the North American business, I came in, in 2015 and we had all of $7 million in total backlog in that market.

We had a small skunkworks team.

I believe it was less than 10 people.

They were appointed just really at oil and gas market, which, as you know, is highly cyclical.

Subsequent to that, we built a team that's gone after the utility market, which has been our highest performing market in commercial in the last 2 years in North America.

A year ago, we scaled into transportation logistics, in manufacturing, and we've got a sizable team really -- and really been really focused at the Fortune kind of 300 level.

We think that's where we play most.

And we've also got an incredible force multiplier in terms of our channel, and they have done an outstanding job in covering the small-, mid-sized business for us in North America.

Now pivot to internationally, we've just stood up a commercial markets team, enterprise selling team in the Europe and the Middle East as well.

Again, oil, large manufacturing and the couriers there is the target and so to your point, moving from just an oil and gas practice into really a multi-manufacturing environment, where really Bruce's portfolio scales quite well.

So I think feel pretty good about the coverage that we've built.

And I think, Gino, [there was a question]...

Yes.

There was -- Ben, this is Gino.

We're really not in a position to disclose any elements of the K right now.

But I wouldn't suspect you'll see anything surprising in the K. As I said, we're in a better-aged backlog position, and that extends to both Products and Services.

We'll go back to George Notter with Jefferies.

I guess, I wanted to ask you about the managed services initiative.

Certainly, it's very interesting for you guys in that it expands the TAM around your LMR business.

I saw that it was up 17% this year.

Can you just talk about some of the moving parts inside that initiative?

What are customers saying?

What's receptivity look like?

How does the pitch kind of work for them?

;

George, it's Jack.

So good question by the way.

Kelly Mark leads our Global Managed and Support Service business.

I think Kelly has done a great job.

So here's really -- there's really an inflection point in the market.

We've seen this exist in the last kind of, call it, 5 to 6 years.

Historically, a good deal of our customers maintain their own network, and think about these are labor union employees.

They come at a pretty significant cost to the employee base.

And it was really an analog world.

Our -- we supplied our own parts, essentially supplied all the parts around systems.

The world through P25 has pivoted to really IP-based networks, a lot of third-party components, which has driven the sophistication and frankly, the complexity of the networks, which has opened the door for us because they're so -- they're quite sophisticated to maintain.

The other part of it is this whole thing about having 24-hour -- 24/7 maintenance and more importantly, potentially looking to move on to statewide network off just having regional control your network, which has really opened the door for managed services as well.

We've invested in NOCs around the world, network operation centers.

And so really, frankly, it's been a long slog in terms of North America, and it's been an organic story.

But around the world, we've also gone out, as Greg and Gino has outlined, and acquired operators as well.

But all in, every region grows.

Every region for managed support center will not only grow but as we've kind of said before grow in the mid- to high-single digits.

Great.

And can you tell me what percentage of the Services business that might account for now?

Just out of curiosity.

40% approximately, 40% to 45%.

Our final question comes from Keith Housum with Northcoast Research.

Just a little housekeeping here.

In terms of the share repurchase program that you guys have, obviously, some cash needs with the pension contribution and the Avigilon acquisition.

Is there any thoughts in terms of what your share repurchase activity will be in FY '18?

Yes.

And we -- as we've said -- good question, Keith.

As -- now that we've kind of normalized the balance sheet, the capital allocation framework, as we've suggested, would be 50% of cash flow used for either share repurchase or M&A.

Given that we plan to close PlantCML in Q1 and Avigilon sometime in Q2, we are using cash on hand as well as short-term debt to fund the Avigilon acquisition.

So as a result, our plan on share repurchase is very little in 2018, probably about $75 million this year.

And that's just to cover dilution, but the remaining capital will be deployed.

The remaining cash will be deployed to close those acquisitions.

Great.

Makes sense.

And if I can sneak one more in here.

R&D popped up here in the fourth quarter.

Any way to think about that going forward?

Or is this a little bit more opportunity to invest in R&D this quarter versus what you expect for '18?

I wouldn't interpret it one thing or another.

Really, it's probably really more opportunistic, although overall from an OpEx standpoint, as Gino mentioned earlier, we expect to drive OpEx down even further in '18.

And that's inclusive of acquisitions that have been completed already, which has $20 million of OpEx that comes with it, and it includes the $30 million headwind from foreign exchange.

So we will continue to do what we need to do surgically but impactfully around OpEx.

George, one point of correction.

Managed and Support Services is a part of the overall composition of Services.

It's not 45%.

It's actually 65% or 2/3 of that revenue.

I will now turn the floor back over to Mr. Chris Kutsor, Vice President of Investor Relations, for any additional or closing remarks.

Thank you.

Let me just add a quick reminder of our upcoming Financial Analyst Day, February 27, in Chicago.

Information about it can be found on our Investor Relations website.

So with that, thank you and good night.

Ladies and gentlemen, this does conclude today's teleconference.

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