Motorola Solutions, Inc. (MSI) Q2 2011 Earnings Report, Transcript and Summary

Good morning, and thank you for holding. Welcome to the Motorola Solutions' Second Quarter 2011 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. Shep Dunlap, Vice President of Investor Relations. Mr. Dunlap, you may begin your conference.

Thank you. Good morning. Welcome to our conference call to present Motorola Solutions' second quarter results. With me this morning are Greg Brown, Chairman and Chief Executive Officer, Motorola Solutions; Ed Fitzpatrick, Executive Vice President and Chief Financial Officer; and Mark Moon, Executive Vice President, Sales and Field Operations. Greg and Ed will review our second quarter results along with commentary, and Mark will join us for Q&A. We have posted an accompanying earnings presentation and press release in motorolasolutions.com/investor, and I encourage you to review these materials. A number of forward-looking statements will be made during this presentation. Forward-looking statements are any statements that are not historical facts. These forward-looking statements are based on current expectations of Motorola Solutions, and we can give no assurance that any future results or events discussed in these statements will be achieved. Any forward-looking statements represent our views only as of today and should not be relied upon as representing our views as of any subsequent date. Forward-looking statements are subject to a variety of risks and uncertainties that could cause our actual results to differ materially from the statements contained in this presentation. I would now like to turn the call over to Greg.

Thanks, Shep, and good morning, and thank you for joining us today. I'm very pleased with our second quarter results as we delivered strong revenue growth with increased profitability. Highlights for the quarter included better-than-expected Enterprise growth across major product lines, solid performance in our Government business, continued operating leverage and numerous examples that illustrate our ability to deliver solutions to our customers to help them be their best in the moments that matter. This morning, Motorola Solutions reported sales in the second quarter of $2.1 billion, an increase of 6% from Q2 of last year. On a GAAP basis, net earnings were $0.17 per share from continuing operations compared to $0.01 in the year-ago quarter. Non-GAAP net earnings from continuing operations were $0.57 per share compared to $0.37 per share in Q2, a 54% increase. Our Government segment posted sales growth of 4% as our public safety customers continue to choose our solutions to help them achieve their mission-critical needs. We also saw improved operating earnings, excluding highlighted items in this segment versus the year-ago quarter. In our Enterprise segment, operating earnings also improved and sales increased 11% from the year-ago quarter, marking another quarter of excellent growth across enterprise mobile computing, advanced data capture and our wireless LAN businesses. Last quarter, we indicated that we would provide greater clarity on capital allocation within 90 days. This morning, we made 2 very important announcements along these lines. First, I'm pleased to share with you that the Board of Directors has approved a quarterly cash dividend of $0.22 a share, with the first dividend payable October 14 to shareholders of record on September 15. Second, our board has approved the share repurchase program of $2 billion through the end of 2012. These announcements reflect the confidence we have in both our strategy and growth opportunities, while providing a meaningful return of capital to our shareholders. As announced yesterday, I'm also delighted to welcome Ken Dahlberg to our Board of Directors. Ken was formerly Chairman and CEO of SAIC, a $10 billion engineering and technology applications company. He has leadership experience working with government and enterprise customers while at SAIC, as well as a number of other senior executive roles in a few other Fortune 200 companies. We look forward to the addition of Ken and the wealth of knowledge and business expertise that he brings to the table. I'll now turn it over to Ed Fitzpatrick to discuss our financial results, as well as additional perspective on capital allocation. I'll then return to discuss the operational highlights and provide additional perspective on our business.

Thanks, Greg. Sales for the quarter grew 6% year-over-year, driven by strong demand in Enterprise, continued growth in Government and better-than-expected growth in EMEA and Asia Pacific. Revenue growth continued in our Government business with second quarter sales of $1.3 billion, an increase of 4% from the prior year. The Enterprise business delivered another excellent quarter, as its sales grew 11% to $747 million driven by very positive demand in EMEA, as well as strength in our Asia region. On a GAAP basis, earnings from continuing operations, net of taxes, were $58 million and EPS was $0.17 per share. These GAAP results include the impact of a net charge for legal matters for $48 million or $0.08 per share and costs associated with the retirement of $540 million of debt and a quarter-end expense of $81 million or $0.14 per share. Non-GAAP earnings were $0.57 per share compared to $0.37 per share a year ago. For the rest of this call, we refer to non-GAAP financial measures. Operating expenses of 35.5% represent a 110 basis point decline from the year-ago quarter. We also achieved our previously stated target of removing separation-related G&A overhang costs to the first half of this year. With our increased sales growth outlook for the full year, we expect operating expenses in the second half to be consistent with our Q2 run rate, which reflects an improvement on a percentage of sales basis as we become more efficient, continue to drive operating leverage. Our operating earnings for the second quarter were $315 million or 15.3% of sales compared to $267 million or 13.8% in Q2 2010. This 18% increase in operating earnings on 6% sales growth was driven by increased sales and gross margin, while holding operating expenses in check. We're extremely pleased with this demonstrated…

Thanks, Ed. In Government, our sales for the quarter were $1.3 billion, up 4% over Q2 2010. Growth was solid in the Americas and strong in Asia. Profitability for this segment also improved with operating earnings representing 13.3% of sales this quarter compared to 12.5% in Q2 of last year. This increase in operating earnings was driven by higher gross margins and our ability to grow revenues faster than operating costs. Our continued growth in Government demonstrates that public safety and mission critical communications remain a priority. In ASTRO, our market-leading P25 platform, notable wins during the quarter included the city of Fort Worth for $39 million and Bucks County, Pennsylvania for $37 million. We were also awarded a contract with the Israeli National Police for $34 million and a multi-million dollar contract with several agencies of the U.S. Department of Justice. This past quarter, we demonstrated our leadership in TETRA at the TETRA World Congress held in Budapest, Hungary. We showcased our comprehensive TETRA portfolio, including mission critical radios, intrinsically safe devices for hazardous environments and covert radios for surveillance operations. We also celebrated reaching a milestone of 1.5 million TETRA radios shipped, and our Dimetra IP 7.1 infrastructure with companion mobile radios was the first to earn a certificate for interoperability on TETRA Enhanced Data Services, which is the mobile data standard that can be deployed in wide-area mission critical environments. During the quarter, we were awarded multi-million dollar TETRA contracts for the state of Lower Saxony, Germany and Shenzhen police in support of the World University Games to be held in August. Another factor that contributes to our Government sales growth is that our solutions enable greater efficiency and return on investment for public safety agencies. And our solutions extend beyond voice communications. For example, our video…

Thanks, Greg. Before we begin taking questions, we want to remind callers to limit themselves to one question and one follow-up so that we can accommodate as many participants as possible. Operator, please instruct our callers on how to ask a question.

[Operator Instructions] Our first question comes from Craig Hettenbach with Goldman Sachs.

Greg, you mentioned in the Government space solid growth in North America. Any specific programs or business activity that's helping you to continue to grow despite what remains a challenging backdrop for public spending?

Nothing specific, Craig. I think it's just a general continued prioritization of mission critical public safety even in the U.S., where there's headwinds and environmentally from an overall Government standpoint. But as our customers look at the return on investment and the utilization of technology, which could be beyond traditional radios to use as a workforce multiplier to make first responders more productive, we continue to get the nod and we're pleased with that.

And any change in visibility in that space?

I think it's pretty consistent, and our backlog sequentially is approximately flat. So between our performance and our visibility on backlog, that has factored into the guidance we've given in Q3 and for the full year.

Okay. And then as my follow-up in the Enterprise, you noted strong growth in EMEA. Most of the tech companies we're seeing struggle a bit with growth in that region. So any color you can provide there in terms of some of the growth drivers?

Again, I think it revolves around what we do is pretty unique with mobile computing and scanning and barcoding. So retailers, transportation, logistics are using it for productivity gains. So as they look to be more efficient and productive, they're looking to deploy our technology or expand it or upgrade it, and we're very pleased. It's exceeded my expectations, the performance on the Enterprise for the past several quarters and we continue to see those trends.

Our next question comes from Tavis McCourt with Morgan Keegan. Tavis McCourt - Morgan Keegan & Company, Inc.: Greg, I wonder if you could comment on the backlog in the Government business, was that up or down? And then also you mentioned another win for private LTE, I think you said Mississippi this quarter. And what I'm wondering is to what degree are these early contract wins, these customers betting on future federal reimbursement, or is this coming out of kind of the existing public safety budget that they have already?

So backlog was generally flat sequentially. And in terms of the public safety LTE awards, they are using the existing available what's called BTOP grants, so in San Francisco BayRICS, in Harris County and now with the state of Mississippi, those are existing grants that have been filed for and extended, and they're taking advantage of those available funds to pursue the buildout of LTE and we just -- we're pleased with announcing the Mississippi win in terms of an award just in the past week or 2. Tavis McCourt - Morgan Keegan & Company, Inc.: Just a follow-up on that. Are those existing grants that are available for all municipalities?

Well, there's a BTOP grant process, so individual municipalities and states have to file for it and there's pending applications. I think it's public information. So If you looked under BTOP, you would see I believe what's been filed for and what's pending. So that's what we're selling into right now.

Our next question comes from Jeff Fidacaro with Susquehanna.

Great. Just as a follow-up on the LTE, Greg, can you talk a little bit about the pipeline you've seen in the past. You talked about it being about $1 billion based on these BTOP awards and some visibility. Can you talk about the change there and any updates?

So the funnel remains $1 billion, actually it's grown a little bit. It's more than $1 billion. And it's not just BTOP grants in the U.S. It's -- we look at the funnel for public safety LTE and we're working on things in the United States. But quite frankly, there's significant opportunity in the Gulf States and the Middle East region, and when you aggregate the collective opportunities in both those areas, we exceed $1 billion of life cycle opportunity that we're still working and responding to.

And maybe just an update on the timing of -- you're seeing sort of a significant ramp in that funnel. Is it still later 2012?

Yes. I think it's late 2012 and more revenue materiality actually in 2013. But we continue to work the opportunities and we feel pretty good about the opportunity that's in front of us.

Our next question comes from Ehud Gelblum with Morgan Stanley.

A couple of questions. First of all, just a clarification, if you can give us a sense. I'm assuming iDEN was down, you made that comment Greg that Latin America iDEN was down. Just want to make sure that iDEN was down.

Yes, iDEN was down.

Okay. In the guidance you've given for Q3 and clearly Q2, a lot of the strength came out of the Enterprise side and it sounds like EMEA with that particular courier vertical you're talking about. When you look at your Q3 guidance, which is about $100 million higher than what the Street had, are you seeing the same strength in Enterprise or is that a mix of Enterprise and Government? And what are the drivers that lead you to, I'm assuming there's some Government in there because it's a nice, hefty number. And then flowing that through to Q4, the implication of the full year guidance is that Q4 is pretty much in line with kind of what the Street had, and I'm wondering if that was just kind of leading some extra -- some dry gunpowder? Or given the strength of Q3, and again if you can give us a little bit color of the composition, why not move a little Q4? And of course, I have a follow-up.

So our guidance -- I'll take the middle one first. Our guidance actually, Ehud, represents strength in both. Expected strength in both Government and Enterprise. iDEN was down a double-digit decline, which was expected and we signaled, so there wasn't a surprise there. In terms of the Q3 guidance of 7% to 8%, it's a reflection of what we expect to be pretty good growth in both segments. And for the full year, we guided to 16.5% operating margin. And as you can see, 5.5% to 6% all in for the full year. I take your point on Q4, but there's nothing more to comment on other than it's a byproduct of the residual left after we do Q3, and we'll continue to update you along the way.

Do you have visibility beyond one quarter? Or is that you just don't necessarily -- you will get there, you will have better visibility. Right now, you don't necessarily know because the trajectory of Q2 and Q3 would suggest that Q4 should be up as well.

No, I think we do have pretty good visibility, primarily referenced by the consistency and backlog. And when you think about the longer sales cycle of what we do, there's a pretty high predictability forward-looking. Now remember, as Mark Moon has talked about and Ed as well, we come into a quarter probably having to sell approximately and ship 20% to close out to be successful in that quarter, so the visibility of approximately 80% is strong, but all those ingredients are incorporated into what we're guiding.

And so, Ehud, just to add to what Greg had said, obviously the growth is higher than what we had in prior quarters and we said it is in both. And I'd say probably more so -- if you look at improvement and where the growth is coming from, I'd say it's more Government than Enterprise. Enterprise growth is staying strong. I'd say the Government growth is a bit better than we had in prior quarters. And then on the --I think Greg covered the forward-looking, which is fine.

Great. Can I squeeze one thing in about the dividend or should I...

Sure, go ahead. You're on a roll.

Okay. The $0.22 dividend, given your cash flow you can afford more. I understand wanting to have a cash balance that might be higher than other people would like because you want to be able to fund things and have cash on hand. But as far as ongoing, you've got $1.5 billion in EBITDA, your free cash flow before -- your operating cash flow before CapEx is $900 million to $1 billion a year. You can afford more than $0.96 a year. And why did you stop there?

I'd say, Ehud, the way we look at it -- and that's one of the reasons we did a combination of things here, both the dividend and the share repurchase. The share purchase addresses more of the, a, the cash on hand and returning that to shareholders that we think is appropriate. The dividend, we look at really more as an ongoing item and look at that more as part of our ongoing cash flow, how do we think about allocating that. If you looked at the Slide 11 on the presentation that we went through, we gave you a better framework for how we're thinking about that as a percentage of the total going forward. And something in that range, 1/3 or just less than 1/3 of our cash flow. In a go-forward basis, it makes a lot of sense to us and really lines us up, I'd say, with some other financial peers that we're looking at in the industry. It seems about right.

Our next question comes from Jeff Kvaal with Barclays Capital. [Technical Difficulty] Jeff, we are unable to hear you at this time. Our next question comes from Jim Suva with Citi Investment Research.

When we look at the operating margins of 16.5%, can you let us know, have all the overhang cost reductions already been fully utilized? I mean, those from the spinout and the breakup of Motorola Mobility and Motorola Solutions. Or there's still a little bit more to come? And one would think that actually with higher sales and the way that things are progressing that actually 16.5% to be honest may be conservative. Can you just kind of comment around what's going on there and should we actually expect to see some expansion as time progresses on that?

So on the overhang cost, I mentioned on the call that we did execute what we planned to do for the cost overhang and removing that. There's some of that still based on timing we'll not fully realize this year and some of that will come in the next year, but we feel pretty good about executing what we thought we were going to on removing those costs. So the full year impact that we talked about approximately $150 million or so taken on the full year run rate, we feel pretty good about that. So the second part of the question, could you repeat the second part?

Yes, just going forward, I mean, it seems like linearity of this quarter just reported wouldn't have a full quarter impact of those cost removals or the benefit. And so it seems like maybe your operating margins of 16.5% -- what I'm really getting to is, it seems like there's actually more room for expansion there. Can you just comment on that?

No, I'd say, we'd factored that in, we factored in the full year impact of the savings and the impact of the second half and the guidance we've given you reflects that. I think taking the operating earnings up from 16% to 16.5% to the 16.5%, the high end of that range reflects those savings of getting fully baked in. So I feel pretty good about that. And as we said, the full year impact as we move forward, we've talked about a range of 16% to 18% on operating earnings, we believe that the cost reductions we've taken this year will help us to continue to improve the operating earnings as we get into 2012 and beyond.

Yes, and Jim, I would just draw your attention to the fact that we are clearly demonstrating operating leverage in total but also in both the Government and Enterprise segments. Operating expenses of 35.5% represent a 110 basis point decline from Q2 of 2010. And you should think about OpEx dollars in the second half of this year that will be consistent with the Q2 run rate. So as a percentage, below gross margin, as a percentage of costs, they will continue to improve and we'll continue to drive leverage. But 16.5% is what you should think about would be appropriate all in on the operating margin for the full year.

Our next question comes from Larry Harris with CL King & Associates. Lawrence Harris - CL King & Associates, Inc.: I saw that the Enterprise business, I believe, is developing an Android-based device and I was wondering if you could discuss the strategy why you're doing Android. Is it demand from customers? And could we expect eventually an equal number of Android in Windows-based devices?

So, Larry, today, we're 100% Microsoft on Windows Embedded Handheld operating system, and Microsoft remains clearly our anchor tenant strategic partner. I think it's timing that as we look to provide a ruggedized specific tablet in the industrial applications that we sell into, whatever vertical it may be, a version of Android will provide a little bit greater functionality than its side-by-side competitor with Windows Embedded Handheld. You should not interpret because we anticipate having one Android tablet that we're going to move from Microsoft to Google. Instead, it's really a representation of the timing and the available software applications that can be extended into form factors that we need for industrial application. Over time, I think that we've spent a lot of time very closely with Microsoft and I would expect it to maintain a very close strategic relationship with them. We probably offer both, but make no mistake we're still very, very dependent on Microsoft. Lawrence Harris - CL King & Associates, Inc.: Understood. And a question on the D Block I guess there's an objective of getting some legislation through Congress by mid-September. Obviously, they've got a lot on their plate right now. If it were to be delayed, would it have an impact on the results for next year?

So I remain pretty confident that additional spectrum will be made available for public safety. You're right, there's a lot of moving parts. Washington is an interesting environment right now. But we'll have to see what comes out of there, specifically in terms of legislation and/or timing. I wouldn't speculate on that beyond that. Remember there's about 20-plus waivers in the 700MHz band for the PSST where we're working and there's existing BTOP grants per an earlier question that we continue to sell into. So I still believe at the end of the day in one form or another, additional spectrum will be extended to public safety sometime over the next several months, and we'll see how it goes.

Our next question comes from Peter Misek with Jefferies & Company. Peter Misek - Jefferies & Company, Inc.: Just a question regarding competitive dynamics. When we spoke to a bunch of municipalities and states, we noticed that there seemed to have been a rise in competitive dynamics, particularly in the radio and government side. Can you please walk us through how you think that's impacting your business pricing? And why do you lose if you do lose a large city or municipality?

So I think the -- my view, and I'll let Mark Moon comment on it, I think the competitive dynamics for our business have remained relatively constant. We continue to work small, mid and large deals. If we lose a deal, there can be a variety of different reasons why. Some of these large tenders are complex, they have a prime contractor, a subcontractor. There's sometimes a substantial amount of nonpublic safety radio content or public safety equipment which, with other cost of goods components and respective margins, have to be balanced. But I wouldn't suggest that there's a significant change in the competitive dynamics of our business over the last few quarters.

Yes, Greg, I would completely agree with that. I think when we think about the breadth of our portfolio, the competitors are very different when we're talking about Enterprise and Government and we're talking about regionally specific competitors. But really the only change that we've seen, as Greg just kind of alluded to, would be on the mega projects or the large projects. And entrants a little more of systems integrators, other kinds of folks that are trying to offer a number of third parties as part of their solution. But again, to the point to date, that has also happened in the past and we continue to compete that way. We continue to compete very effectively. And I think when we look at our ASPs and other things, they continue to hold very, very steady. So we don't really see -- I mean, obviously, we're going to always watch for competition, but I don't see a change in dynamics around that environment. Peter Misek - Jefferies & Company, Inc.: If I could offer or ask one quick follow-up. Just in terms of China, I guess, struggle to see how to frame that opportunity or how to think of the runway there. Is that a market where you can go to market independently? Do you have to partner? And how should we sort of frame the Chinese opportunity? Obviously, a huge opportunity, a lot of folks on public safety recently. I would think that would a huge fertile ground for you.

Fortunately, for the Motorola we've had a long reputation in China, so we continue to have very good success in China. And to the point that you just made, it is strong growth. And as Greg referenced and Ed referenced earlier about the growth in Asia Pacific region, within that region we continue to have even stronger growth in China. We would anticipate we would continue to do that. We are able to do business as a stand-alone entity there. But as we go forward, we will continue to also look for partners to further grow that business there because as you know, there is always a trend in China for localization, so we will continue to adjust as necessary. But right now our track record, and when we look at the future, is very strong in China.

[Operator Instructions] Our next question comes from Matt Thornton with Avian Securities.

A couple of questions. I guess, first, Greg, I think I heard you mention that iDEN was down year-on-year. But can you give us any sense as to how that tracked sequentially or versus plan? And then Ed, the $300 million payment to Motorola Mobility, is that still expected? I mean, can you remind us what the timing might be or what triggers that payment?

On your first question, iDEN was down about 20% sequentially and a little bit more than that, about 22% year-over-year as expected and tracking to our plans for this year on what we thought it would yield.

And on the Motorola Mobility item, as you know, as we disclosed in the past, the payments to Mobility relate to repatriation activities that we're able to complete. And as you've seen -- we'll see in our Q as it's filed I think at some point near term here, there is a payment that's due to them for the first tranche of that, that we were able to repatriate. And I won't comment on the future as it will relate to our success in getting some of that cash back from these international locations. But those payments will start near term here.

Okay. Terrific. And then just one follow-up, if I could Ed, you talked about -- on maintaining that 2 to 2.5x debt-to-EBITDA ratio, maintaining $1.5 billion to $2 billion in U.S. cash. Are those metrics or frameworks that we can continue to use indefinitely here or are they coming down?

I would say that's our current goal to get to that range. As you saw, we did make nice progress this quarter with the deleveraging that took place, the $540 million of debt. So the 2%, 2.5% is our current frame. And I'd say on the cash side of it, we're working to continue to mitigate that, right. What is the minimal cash to run the business, and we're making good progress there. And I'd say -- what I'll tell you is we'll update you on any change to that as we move forward.

And just to add on that, and Ed and I have worked very closely on this. But as you think about our company moving forward, we remind you that we'll be paying down the $600 million of debt that comes due in November. And as we think about the firm, our company, we think about it in comparison to multi-industry companies. So we look at the multi-industry competitive peer group in terms of how we are expected to perform. And in the context of a broader capital allocation framework, we will continue to delever the $600 million. We also have a reasonable pension obligation that we'll continue to fulfill and do the required funding. But I think over time, when you think about the net debt position of the multi-industry comps that we look at, over time that's what I think we move toward. So we were focused on the adjusted debt to adjusted EBITDA in transition, to delever the firm, to solidify and maintain the investment-grade rating, but forward-looking through the windshield, we'll probably look more around net debt and migrate to where we are to a composition that's more in line with our multi-industry peers on that metric going forward.

And that will take some time.

Our next question comes from Richard Kramer with Arete Research.

Just following on from that since you mentioned the M&A as one of the options for allocating capital. Could you give us a sense of your thoughts on allocation between the Government and the Enterprise portions? You're already market leader in Government. Maybe you could lay out whether any M&A there would make sense or maybe even hurt your position? And your thoughts on the Enterprise space, which I think seeing many of your peers right now is extremely volatile. And then a quick one for Greg. Are you seeing TETRA become more widely deployed in the U.S. or North America generally? And if that happens, is that going to cause a sort of step change in competitiveness in the North American market as you see it?

So the answer to the second question is, no. We do not see TETRA being deployed on any scale in the U.S. P25 is the standard that's been in the U.S. defined for interoperable voice public safety for well over a decade. It's adopted, it's been widely adopted in local, state, federal -- all the federal agencies. And so it's an existing standard that they buy into. We have seen an instance where TETRA was considered, and I actually think might have been awarded in a nonpublic safety example but that I do not see TETRA in North America in the public safety market. In terms of acquisitions, remember we believe and we had said before we do not have any significant gaps in the current portfolio. We've spent a meaningful amount of time divesting the noncore businesses, so we can get to this and strengthen this industry-leading franchise in both Government and Enterprise. The common thread, and there are many between Government and Enterprise, is the high return on investment, ruggedized, customized specific that help us deliver these solutions in moments that matter, whether it's a public safety moment that matter or in critical -- mission critical application for business. We will look at opportunities. We'll be very disciplined in our evaluation. We have a specific return on invested capital threshold. But obviously, now our current prioritization is returning capital to shareholders, but we'll always continue to scan any opportunities that may come forward.

Okay. And just as a quick follow-up given all the noise in other parts of the industry about intellectual property and you obviously have a large patent portfolio, which is maybe hard to deploy in public safety but might be more interesting for Enterprise. Do you see opportunities for getting any sort of material levels of income from your royalties or your patent portfolio going forward? Or is that just going to remain as you've said before something that's a competitive differentiator but not a source of income?

I think more of the latter. It's a competitive differentiator but probably not a source of meaningful proactive income. Remember, we had a very extensive perpetual royalty-free cross with our colleagues at Motorola Mobility. So with the 30-plus -- 30,000-plus patents and that were granted or pending, we have a perpetual cross with all the IPR that was developed pre-separation -- actually up to a year after we spin Mobility. So we feel we have an excellent, solid and very large IPR defensive portfolio. When you look at solutions, we have 10,000 patent granted or pending. And when you look at our core businesses around mobile computing, RFID, 802.11 WLAN, mission critical public safety, we feel very good about that positon. But as you think about the financial contribution and operating leverage of our firm going forward. I wouldn't be thinking about intellectual property as being some kind of new material revenue stream. It's more going to be in line with the delivery of the traditional business that we've described.

We'll take our final question today from Deepak Sitaraman with Crédit Suisse. Deepak Sitaraman - Crédit Suisse AG: Greg and Ed, can you maybe give us a sense of the portion of R&D across both your segments that you spent on nonrevenue-generating projects? I would imagine there's a higher portion of that on the Government side. But I'm just trying to gauge where there's perhaps more operating leverage in the model going forward?

So we spent about $1 billion a year on R&D. We are very measured and disciplined in our portfolio management process in prioritizing R&D spend against return on invested capital within both Government and Enterprise. For every $1 billion of R&D, we're generating at least historically about $4 billion of gross margin so the leverage is very strong. The only thing I would point you to in terms of where we spent a reasonable amount of R&D with no return to date, but it was a thoughtful and purposeful thing to do was public safety LTE. So for the last 3 years, we've been investing in infrastructure, in core software applications, in interoperable gateways and pushing on an expansion of our portfolio of LTE devices that, per an earlier question, we have virtually de minimis LTE revenue contribution to date in '11. We don't expect it to be significant in 2012 either. It will be more meaningful in 2013. So that was R&D that was purposely spent in advance of the multibillion-dollar opportunity that we see both in the States and in the Middle East, but that's the thing that comes to mind to your question.

I think more broadly though, if you're talking about how do we think about innovation versus supporting our current products, we have a very specific target of a percentage of our R&D that goes towards new product introductions. So we won't get into that, but I'd say it's a meaningful percentage of our R&D going forward and the teams are pretty robust and rigorous about making sure that we're spending on new products as opposed to supporting old. Deepak Sitaraman - Crédit Suisse AG: Okay. That's very helpful. Just a quick follow-up, if I may. Now that the decision has been made with regard to capital allocation, Greg, perhaps can you just talk us through what else you may have considered when you were looking at the various options? Specifically, how did you think about whether or not to lever up the balance sheet? And is that something that's still on the table for some point down the road?

So we looked at all options on capital allocation, took a very holistic and comprehensive approach. Again, we were -- we looked at our unique opportunity with excess cash and recognized that and have talked about that in the past. And we also looked at our multi-industry financial peers as the comparative group to think about a framework by how we can productively return capital in the future. Given where we are, and we are still delevering and we'll pay down the $600 million of debt in November, and we are still funding at the required level our pension, we still have work to do in improving our adjusted debt to adjusted EBITDA. So that's really our prioritization at this point in time. And we expect to do that and progress through the remainder of the year. We'll update you next year. But over time, over time, it is appropriate to think about us moving more toward a net debt position of our multi-industry peers, but I think it's a very measured progression. And Ed and I are in lockstep in terms of how we'll do this and when we'll do it. And we're very pleased with the dividend, the quarterly dividend, the $2 billion share repurchase over the next 17 months, and we'll keep you informed along the way. But I think the top headline is that we have a strong franchise that generates meaningful operating cash, and we'll deploy it in a very thoughtful way against the disciplined ROIC threshold.

Thank you. This concludes the Q&A session for today's conference. I will now turn the floor back over to Mr. Shep Dunlap, Vice President of Investor Relations for any additional or closing remarks.

All right. Thank you. I want to remind everyone of the details outlining highlighted items, our GAAP to non-GAAP P&L reconciliations and other financial information can be found on our www.motorolasolutions.com/Investor Relations website. An audio replay, together with a copy of today's slides will also be available on the site shortly after the conclusion of this call. During this call, we have made a number of forward-looking statements within the meaning of applicable federal securities law. Forward-looking statements are any statements that are not historical facts. These forward-looking statements are based on the current expectations of Motorola Solutions, and we can give no assurance that any future results or events discussed will be achieved. Any forward-looking statements represent our views only as of today and should not be relied upon as representing our views as of any subsequent date. Such forward-looking statements include, but are not limited to, our comments and answers relating to the following topics, timing and ability to repurchase shares under the share repurchase program, our ability to pay future dividends; our long-term framework for capital allocation; future sales growth by segment and region; earnings per share guidance, future tax rates and cash tax rates; expectations for operating expenses, operating earnings; operating margins; profitability; as well as the amount of other income and expense; expected cash position; repatriation; improvements on working capital management; demand trends for Motorola Solutions businesses and products; the growth opportunity for our services model; future strategic plans; the availability of government funding and spectrum for public safety. Because forward-looking statements involve risks and uncertainties, Motorola Solutions' actual results could differ materially from these stated in the forward-looking statements. Information about the factors that could cause and in some cases have caused such differences can be found in this morning's press release on Pages 12 through 25 and Item 1-A of our 2010 annual report on Form 10-K on Page 46 and Item 1A of our first quarter quarterly report on Form 10-Q and Motorola Solutions' other SEC filings.

Ladies and gentlemen, this does conclude today's teleconference. A replay of this call will be available over the Internet in approximately 3 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.