Motorola Solutions, Inc. ($MSI)

Good morning, everyone, and thank you for joining us. For our first session today in the morning, we have the CEO of Motorola, Greg Brown. Greg, thanks for joining us. Always great to have you here.

Thanks for having me.

So Greg, maybe I wanted to start with a little bit of an open-ended question. You're approaching your 20th year as CEO, a tenure that spanned across transformations across different technologies, even different macros, so maybe just starting from there, how would you characterize where we are today, both on the technology side, macro side? And how does that compare to previous points across your tenure, particularly as it relates to Motorola's positioning and prospects looking forward?

I think without going through a history lesson, taking a step back, I think this is one of the stronger periods from an overall demand standpoint and from a positioning of Motorola Solutions standpoint. We've worked hard over the years to get the assets -- the people, the end user markets curated in a way that we're a mission-oriented company around public safety and now I'll call it new defense or national security. And I really like the assets we've been able to acquire. I love the organic development on the product side. The people in Motorola Solutions are a really good mix, Joe, of organically developed executives as well as either newly hired or newly acquired. So I think about a total addressable market as approximately $85 billion. We're in the backdrop now as we sit here in May of 2026 against strong demand. We've had 4 consecutive quarters of double-digit order growth. I like our position in as Mahesh has built out organic product development in the AI designed around Persona. So you think about -- we're embedding AI in emergency workflow from incoming call to case closure and all of the points in between, whether it's a call taker, a dispatcher, first responder an RTCC operator or an investigator. So you ask how do I feel about our setup and on our journey, I love our AI position love the width and breadth of the asset portfolio in video, fixed and mobile cloud and prem, hybrid, we meet customers where they are. And the 2 other things that I'm excited about is Silvus, which was our biggest acquisition for about $4.5 billion adds an addressable new market of $3 billion. So this is the market leader in the high-end unmanned systems. It's used pretty pervasively in Ukraine. So it's tested technology, and we're getting good traction and conversations with Silvus in other theaters. That acquisition it certainly appears at this point to be one of our best, and we'll see how it plays out. And by the way, LMR, I love where we are in LMR. You know the device refresh strategy we're on. For the first time, we're refreshing the infrastructure side, D series, which we haven't done in a dozen years. And we're adding resilient layers of network protection to these 13,000-plus networks in LMR where your radio can do LMR, LTE 5G, WiFi and now Starlink. So an officer, we help connect regardless of their location. And even though we had negative organic revenue growth in Q1 on the LMR side. We expect that to continue in Q2, this one too, Joe. But Q2 will this quarter will mark the last of the difficult comps coming out of supply chain normalization. So I feel pretty good. I think gross margins for this full year will be comparable and that's in the face of higher memory. That's in the face of some headwinds on tariff. I think our growth rate organically is a firm will be about -- we expect it to be 9% to 10%. And in the second half of the year, driven largely by mission-critical networks. Silvus is performing, as I like to say, all lights are green on the cockpit. So I really I like to set up.

No, that's good to hear, and lots of stuff to unpack there. But if I could, maybe you talked about how you were feeling about the setup for the year or for Motorola going forward. Maybe I can flip that on the head and bring it a little bit near term. What are you hearing from customers, right? You just had your annual summit in Orlando, where are you seeing customers prioritizing today, which area of the portfolios is most resonating with them?

I guess that's -- I'm glad you asked a follow-up and I don't mean to be -- this is not CEO speak. I actually feel good about the whole portfolio. I like the underlying strength we're seeing in LMR, and I like the setup for the back half of the year after we finish this difficult Q2 comp, which I think is the last in the line of difficult comps, as I mentioned. I like the Silvus demand. I like -- look, in Q1, we grew Command Center 27%. Now that was exceptionally strong due to 3 or 4 deployments on Tier 1 metro deployments, but the overall funnel is great. I really like the performance in video, we guided 10% to 11% this year. We came out of the gate at 16% in Q1. I was at in Orlando, the software Summit, we had over 1,600 customers. And I talked to a lot of -- there was 2 sets of customers. We had call takers and dispatchers, remember, there's a little over 6,000 public safety answering points in the country. We are in over 60% of those with a software product. and talking to those users, their enthusiasm for what we're doing was exceptionally high. We tripled the number of breakout sessions for AI. We have the responder AI assist suite, and we're the only one that have the dispatcher, AI assist. And they like what we're doing. They like the ease of the use and deployment of how we're putting AI throughout emergency workflow. And then I had an executive session with about 40 to 50 chiefs where in a separate room, unplugged, they can ask me anything they want. And we have a good back and forth. By the way, just to be anecdotal. One of the people -- one of the chiefs in the room a few weeks ago I texted last night because it looks like they will be selecting us for a competitive SVX deployment. They looked at Axon, they looked at 2 other competitors. They looked at Motorola Solutions. And given the SVX, which is the combined body camera, remote speaker, Mike AI assistant along with -- so total cost of ownership is 50% less. One device, Mahesh and team can migrate the back-end digital evidence management in a matter of weeks. It was a very good competitive win, and I'm talking to him at 3:00 today to give him my personal reassurances around the deployment, which will be later this year. So long-winded answer, at the executive chief level, I think the conversations are strong at the user level, call handler dispatcher, I think they're robust. And I think people appreciate, and I know first responders and the lease officers appreciate the resiliency that we're building in to further fortify and strengthen the criticality of LMR. It's good. It's very good.

No, got it. I mean great to hear all that detail. Maybe just double-clicking on Silvus now. You've raised guidance multiple times. You're expanding manufacturing, which we'll touch on later. But maybe just on the demand side, can you walk us through how the pipeline has evolved since you closed the deal, how it's diversifying across customers, geos, end markets and are we really seeing demand getting pulled forward, right? I think the drone opportunity, if I was talking to anyone 2 years ago, they would have expected it to be more of a 2030 story. It seems like that's got pulled forward. So maybe just talk about that dynamic.

We have -- I think Jack Molloy and team and Babak, the Founder, CEO, have done a really good job. And by the way, it's important before I just mention a few metrics around Silvus. When we target that kind of acquisition, yes, it's about the addressable market. Yes, it's about the technology. Yes, it's about new defense extension opening up a market and what that presents as a firm in terms of mission-critical in this case, M&A networking, but it's also about talent and people, not just the founder but the executive team, engineering, supply chain product design, really strong team, many of them educated out of UCLA, hence the location in L.A. And I think they have fit in quite well with Motorola with an RF, radio frequency, centricity and a cultural compatibility. So you take the internal talent of Motorola along with the acquired talent of Silvers. And what I told them and what I tell other people that I'm talking to now that are potential M&A targets, we're a big company, but we're a small company. So yes, we have a lot of people, 23,000, but there's a handful of people that jump on the call and make a quick decision. And back in this case, for Silvus, I want you to be part of that team. So we've doubled the sales force. We've added capital into R&D capacity. We've doubled the capacity of building Silvus product in L.A. by adding a second floor. Demand is really strong. We announced the facility in Salt Lake City, 165,000 square feet, 200-plus new jobs in Salt Lake City. I think that facility should come online early 2027. So we can reduce lead times and meet demand. I think demand continues to be obviously strong in Ukraine. We've gotten some initial orders as a result of the Israeli Iranian conflict. The growth for Silvus is largely internationally driven. We have higher engagement with NATO countries. We referenced a big order in Q1, which was just under $80 million out of Germany. We've also had some orders as it relates to Silvers out of the U.K. So this new warfare and these conflicts are unfortunate, obviously, in Ukraine and Iran. But you've read about it, you've seen enough about it that warfare, electronic warfare is entirely different than what it was 3 or 4 years ago. and all things drone, all things navigating unmanned systems, either in the air or in the water. And Silvus is the market leader and in the sweet spot that governs these high-capacity anti-jamming threat detection, low probability of intercept, low probability of Detect in a highly scalable, low latency environment. So I think it's strong across the board.

And so you mentioned expanding manufacturing sales, et cetera. and you've doubled capacity thus far. Can you just talk about how you're thinking about keeping pace with the demand that you're seeing on the supply side of things? And then maybe just a quick follow-up on the Salt Lake expansion. How are you thinking about that in terms of capacity unlock for you guys?

So what people -- and I'm sure you're thinking about this, right, they're single, let me get this straight. He's doubled capacity is at $750 million a year, add the square footage, what's the exponential growth in capacity? How does that inform the revenue line? Tell me what that does to my model. I want it easy in the saddle a little bit. But I think it will reduce lead times for sure. The lead times are too long and customers want that product quickly. it will be -- I don't want to give you a number. I actually don't know the exact number, but obviously, will be an exponential capacity expansion that will allow us to continue to meet the strong demand we're seeing it's a pretty robust funnel of opportunity. But the most important thing for us is we've got to reduce the lead times and get this product in the hands of customers sooner. .

No, fair enough. One of the big questions I get from investors is they're just not as familiar with the Silvus business. So maybe you can just walk us through the programs that you've recently won, put some context around them, what's the typical deal structure look like? How much is hardware versus software, the duration of the contract, are you sole source those type of avenues in terms of how these deals kind of form and what they look like? And how should we think about year 2 and year 3 of one of these deals?

It is largely hardware. I think it's about 90% -- 85% or 90% hardware, 10% or 15% software. The deals are -- some come in from the U.S. Fed team here. Domestically, the majority of our growth is being derived more than 50%. I think it's closer to 60% plus internationally. The size of the deals dramatically differ just like an LMR deal. It could be a couple of million, it could be tens and tens of millions. The Germany order for $78 million is multiple quarters. So it's largely hardware upfront minimal recurring afterward as you think about the dimensionalization of the rev rec. But that's kind of the composition of what we're seeing. A. Lot of conversation with NATO countries, a lot of conversation around border protection. And remember, Silvus is, for us, is a defense play. It is not a public safety play. There's not spectrum here in the states to use Silvus for public safety. That's okay. That wasn't contemplated when we made that acquisition. The total addressable market we talked about being $3 billion. We expect that addressable market to double in 4 to 5 years. So a lot of good growth opportunity for us Again, I think we've raised it 3x in terms of the annual revenue outlook, and it remains real strong, Joe, at this point. And as I guided a couple of weeks ago, at $750 million, but it's strong.

Got it. And can you just talk about the potential around cross-sell opportunities? Obviously, you talked about kind of entering aggressively the defense vertical. How is that looking from a cross-sell, upsell type of opportunity for you guys?

By the way, I didn't answer the other question fully the first one. We sell Silvus largely direct, but we are also in over 100 OEM platforms where we are subbed into, whether it's aero environment, and oral or others. So I like being in the reference architecture for high-end M&A against the competitive landscape. What was your...

Cross-sell?

Cross-sell. Yes, Germany is a good opportunity. We -- so even before Silvus, Michael Kaae runs our international organization. Joe Balchune runs U.S. Fed. We sell into MODs with ministers of defense with the existing Motorola Solutions product category. So we could sell into Italy MOD, Germany, MOD, U.K. MOD OI is police, MOD is defense. We know a lot of the customers for NATO countries in MOD, and we have helped broker introductions of Silvus into those defense departments Germany being a very good example, where I think cross-sell is high and there'll be other theaters as well.

Got it. Maybe moving off Silvus going to the broader video portfolio and just taking kind of a step back a lot of investors come to us and there's this perceived notion that there's a lot of increased competition, whether it's from some of your public peers or even some of the private folks in the field. Maybe just -- can you touch on that and discuss the competitive landscape as you see it today? And then I have a follow-up there.

Sure. I think it's fragmented competition. It depends on what theater Obviously, let's take the Chinese competitors first. Hikvision and Dahua. They're not a competitive threat per se for new deals in the U.S. and in North America, given the North America Defense Authorization Act, which basically prohibits Hikvision and Dahua from being procured for new procurements into the states for federal government, either end-user contracts or Fed funds. The concern around those 2 companies is similar to Huawei and others, where the U.S. government is reticent to allow Chinese content. They think perhaps related to CCP to be in comms, video surveillance, critical infrastructure so that's a favorability for us from a competitive landscape in North America. We compete against a fixed video primarily axis, which is a division of Cannon, Verkada is a cloud competitor, a pure-play cloud competitor. Internationally, Axis. We see the Chinese competition most acutely, as you would imagine, in Asia. But Axis and Verkada are the -- and Hanwha out of South Korea are the primary competitors for the remainder of theaters around the world. I think of prem and I think of cloud. We compete well in both. We believe we are taking share in cloud with Avigilon Alta, growing faster than Verkada historically. And we like the fact, Joe, that we can meet customers where they are. If you want a prem solution, we have that. If you want a cloud solution, we have that. If you have a hybrid environment, you may have a Unity server, which is prem oriented and 60 cameras and decide the next 30 you want cloud. We can put cloud connectors at the edge device on the camera and the customer can run a hybrid environment. I think the team -- again, this is a good team where we've hired a couple of executives from the outside and from competitors underneath Alex Castaneda, who runs North America, came out of Zebra, knows channel because video is largely a channel sale. So you have to have the right channel mix. You have to have the right channel relationships. You have to tweak and understand compensation. So I like our setup. No one has in video the width and breadth of our portfolio, not only in fixed but in mobile and mobile being in car body cam. Nobody has that portfolio. And I think this 16% growth and really strong start in Q1 is a testament to that. So I don't see the competitive landscape it hasn't materially changed from now versus several quarters ago. If anything, we have gotten a little stronger on the product side.

No. Got it. And you mentioned something there in terms of the breadth of the portfolio. It does seem like anecdotally, the competitive or the broader landscape is moving to this more portfolio approach that you guys have been doing for a while now. I guess, what are you seeing from the customer side as they look at your portfolio, particularly now with AI kind of layering and being more pervasive across the portfolio, particularly on the video side or specifically on the video side. Is that starting to resonate more?

Definitely. It's resonating -- the customers like the choices that they have with us. They very much like AI being embedded throughout all product categories. And if you go and think about video or command center deployment inside the context of public safety, they love it being embedded from an end-to-end emergency workflow standpoint. And I think that Mahesh, the deployment team, Todd Piett, Johan running AI and others the improvements that we've made in terms of product performance, speed of deployment, better quality, I do think it's resonating.

Got it. And maybe just on that point, SVX seems to be one of the products that does this convergence across multiple avenues, right? So maybe -- and you mentioned already a win or win in the pipeline. But can you just talk to what you're seeing on the demand side? And one of the questions that we get on the SPX product is how much of this is just speaker, Mike, how many of these are competitive takeouts versus greenfield opportunities just because of some of the subsidies that are coming through. So maybe walk us through what you guys are seeing on the...

Yes, it's one of my favorite products at Mahesh has developed. Because if you think about it, and let me just back up, I always we just had a Board meeting Monday. And I said, when I think about what makes MSI special? What's the competitive advantage I think we bring. I think we bring 3 things. I think we bring balance sheet. Now there's a lot of bigger companies that are more cash and well capitalized, especially in the world of AI hyperscalers. That's not what I'm talking about. When I look at the landscape of public safety competitors in that spectrum, our balance sheet is an advantage, not just because we're only 2:1 net debt-to-EBITDA but because we expect to generate as an investment-grade company, $3 billion of operating cash flow. That gives us powder and opportunity to continue to invest organically to extend the product leads that we believe we have. It allows us to give good shareholder return, increasing the dividend double digits, which we've historically done every year since the creation of buy back shares. The stock dropped stair stepped down after Q1. We've been aggressively buying back shares. We -- right as we sit here today, it bought back just under $400 million year-to-date. So the capital allocation flexibility that the #1 advantage of balance sheet in a public safety context affords us as consequential. The second thing that I think makes us special is I would call it brand equity. And more specifically, I mean, the relationships, the stickiness of MR and the relationships that we provision in addition to that incumbent technology, we're not selling devices. I've been in that movie. It's not a very pleasant movie. We're selling systems. LMR mission-critical systems that are bespoke infrastructure curated around that specific customer, devices, software, encryption, monetized services built around the workflow for LAPD, NYPD, Chicago PD, Dallas Fire Department, and so disintermediation or a substitution is very hard. So let's build on an ecosystem whether it's command center or video and integrate it and orchestrated with these mission-critical networks that we are the best in providing. So advantage #1, balance sheet, advantage #2, brand equity relationships, by that, I mean the bifurcation of the incumbent systems and the relationships. And then the third advantage is the critical networks themselves. And that brings me to -- so we're not interested in selling a device, a camera. We designed an integrated device, a multipurpose device. You don't need to, you have one. What's it grounded in? It's actually grounded in mission-critical voice. Not cellular voice, which is subject to the vagaries of a cellular network that can be either congested or grow out of service, but fully encrypted always on redundant 59s encrypted secure voice. So that device powered by AI, by the way, is doing secure voice body video, back-end digital evidence management and the thing, Joe, that makes it special is it is multisource ingestion of situational awareness. It can take body video, take VIX video. It can take CAD information where we are a market leader and because it's grounded in LMR voice, it can do the radio LMR traffic recording logs and aggregate all of those multi sources to give the best widest view of situational awareness information to a dispatcher or an investigator at a total cost of ownership that is about half of what the other choice is. So hence, by the way, my anecdotal comment a few minutes ago to the chief I'm talking to this afternoon, he looked at those alternatives. He understood the value proposition and the difference. They have a mission-critical LMR network, a P25 network from Motorola. And I said, you can buy another body camera. You can buy an iPad if you want. I don't know why you would think about it across the spectrum of what we add and provide from a full ecosystem standpoint and total cost of ownership. So we've had over 100 different customers procure the SPX. But as we said in Q1, about 30 of those are also activating and provisioning the video. Now what I like about that is once you see the SVX, the customer can turn the video on whenever they want. So they may have a contract that's running with the other guys for 2 more years. That's okay. see the SVX when that other contracts expire, you don't need to renew it. You can go right over activate the video on the already purchased remote speaker mic activating that second feature on video, and we move in the back-end digital evidence management and migrate those customers over.

Got it. Let me just pause there and see if there's any questions in the room, please raise your hand. There's one upfront. Wait for the mic, please.

As the complexity of the business starts to grow, and it's always been fairly complex, but how do you start to think about protecting margins in the midst of that complexity?

Good question. I think that we do have a good DNA in the firm around -- look, I always tell the team, revenue growth is fine. It can be A, B or C. But you got to grow operating cash flow. You got to grow operating margins and you got to hold or take share. That's what compounder companies do. We do expect operating margin expansion of 50 bps this year. By the way, that's in the face of memory cost more than doubling -- a little more than doubling as we updated on the earnings call. That's also with tariff headwinds of, I think it's $60 million in the first half of this year. But our team figures it out. And I'm proud of that. By the way, even with the challenges in the vagaries around memory costs, increased freight with the Strait of Hormuz or moves marginally, we can largely absorb that. We also expect gross margins to still be comparable year-over-year, '26 over '25. So while we have your word, the complexity of the business, I also see that as a lot of levers as well available to us. On -- we -- by the way, we've increased inventory. That was an intentional decision that's running higher than it was from a working capital standpoint a year ago. Part of that is the addition of Silvus, but part of that was intentional to try to get in front of DRAM and flash memory escalation costs and prebuy inventory. I think we do a source, we can reengineer parts when we need to. And also, by the way, given our market leadership, we have pricing power in certain cases. And if I specifically think about video and memory cost, we've increased the prices of cameras and servers to keep pace with what's happening in the market. So we don't erode margin. So I think the financial team, the operating team -- the executive team understands the criticality of margins. And for this year, we expect gross margins to be comparable but continued -- actually, we expect operating margins to be up 100 bps this year. I stand corrected, you were trying to give me the evil eye here. It's 100 bps, I should know that. What else?

After you win a contract with L.A. or New York or the big cities across the country, what's the max life of the radios where the entire department has to turn them over?

What's the max what?

Life of the radios where the entire department has to turn them over.

So on average, a radio in North America gets replaced about every 8 years. When you have a large customer like New York or L.A., it takes several years to upgrade the entire force, they pace it. Sometimes it's paced to the reflection of the budget dollars that's available to them. But that's about the dimensions of the longevity of a radio, and it takes several years to upgrade.

It's not just one big part [indiscernible]

Years and years and years. And that's the other thing I like about this business, 13,000-plus land mobile radio networks. To your point, sir, thousands of contracts. So there's not an over density or concentration from a vulnerability standpoint. They're all distributed and disseminated. And they're accruing and expanding and upgrading infrastructure or a certain number of devices at a variety of different paces. So that lends itself well from a lower beta standpoint. And when we look at backlog and we have a sense of the aging and the durability, it provides a solid robust platform for us to continue to grow.

So you talked about hardware and software as they are also a component of this to the deployment to the actual user. And then the last part also is the aftermarket part of it where you have units that are need of service or what have you. So what is the entire bundle where you can harvest revenue and profit from?

Well, we -- remember, as we report the firm, we have total revenue we reported in the segments, product and SI, product and installation, software and services and then we disaggregate through the 3 technologies, mission-critical networks, which is LMR plus Silvus, Command Center, which is all primarily the PSAP or public safety answering point solutions from call taker to evidentiary management and then all things video. We can monetize the hardware price -- we monetize software and services. Many of our service contracts have cost of living increases, where depending upon what inflation is, we can recover cost. We've increased surgically price where we are largely providing either a new product or a larger scope. By the way, another thing that comes to mind is we talk about these land mobile radio networks and we talk about all the devices out there and we record the revenue and product and S&S software and services. But there's 200,000-plus devices that are using now an applications ecosystem on the radio, that's not too dissimilar than what you do with your Apple App store. It's not as sexy, it doesn't have all these applications, but for mapping location over-the-air programming, it's $300 a year per device. And we've said we expect about 300,000 of those users for public safety radios to be using the apps. That's another area to monetize, implementing cybersecurity protection, another area to monetize -- so if I -- you asked in the first question about the history of the firm and have not, number one, not a consumer company, B2B. Our North Star is mission-critical. Mission-critical what? Mission-critical networks for public safety and defense, mission-critical AI embedded through emergency workflows and getting away from individual devices where there's no competitive moat, and having a system end-to-end orientation, where you can monetize, customize and provide unique services to each customer. And under a financial envelope revenue growth, operating cash flow growth, operating margin expansion. And I think we have done reasonably well, but what excites me more is the opportunity in front of us from where we sit today because I think the market is there and the capability and capacity from people and product on our end is there to seize it as well.

Thank you, Greg. I think we're out of time. So thank you, everyone. Thank you, Greg. Thank you.