Motorola Solutions, Inc. (MSI) Earnings Call Transcript & Summary

We're going to get started with the next session. I'm Matt Niknam, comm infrastructure and networking analyst here at Truist. And we're very pleased to be joined by Jack Molloy, EVP and Chief Operating Officer at Motorola Solutions. Jack, welcome to the conference.

Hey. Thanks for having me, Matt. .

So maybe just to start from a high level for investors who may be less familiar with the company, how would you describe what Motorola Solutions is today? And how do your mission-critical networks video and command center businesses work together as one ecosystem rather than 3 distinct product lines?

Yes. So I think Motorola Solutions in a word, global leader in public safety, enterprise security, and now we're a provisioner of defense security solutions around the globe. You'll hear the term and you'll hear me reference the term ecosystem. And I think it's a perfect example of we're focused on our end-user markets, providing outcomes that bring together not just the mission-critical network solution, which was fundamentally the bedrock of our company, but the command center software as well as video. It's really the culmination of convergence of voice, data, video, everything in terms of how you do incident response, if that's the NYPD, FDNY, resident here where we're at today, who are 2 great customers, but really broadening what we do, Matt, to serve border security, ministry of defenses around the world, as well as critical infrastructure, places like Duke Energy, large-scale client in the critical infrastructure space, critical infrastructure. I think the way that we have to secure all things private and public are done in a much different way today. And I think we sit in the epicenter of solving a lot of those needs for our customers.

Got it. So maybe if we can hit top priorities, what are you most focused on in terms of top priorities for the organization over the next 12 to 18 months?

The thing I'm always focused on, we're focused, in a word, it's execution. So we think a lot about we have -- we're in the 3 businesses that I just alluded to. We've got -- we're global in scale, over 125 countries around the world. thousands of salespeople, over 10,000 partners. It's executing in the day, organic growth, as we say. The second thing, that I'm personally very attuned to and very prioritized right now, is we've acquired Silvus just a little over 12 months ago, it was August 4 of 2025 we acquired. And it's all about a scale game there, not only scale from a go-to-market investments we made, research and development, but the supply investments we've made there. And similarly, we just closed D-Fend, who's the leading provisioner of cyber mitigation, counter-drone technology. In fact, most recently, they were used in 11 of 12 of the FIFA sites, focused in a similar way on bringing the revenue synergies and bringing them into the fold to make -- to help them thrive within the Motorola family as well.

So you've seen very strong order growth that translated to reaccelerating revenue growth last quarter, and I think you've got more implied in the second half of the year relative to the first half. What's genuinely different about the demand backdrop today relative to maybe a year ago across your state and local, federal and enterprise customer sets?

Yes. So we go through an exercise midyear every year and we pull -- there's a lot of data, obviously, on state budgets. Some of those, by the way, some of those budgets started in July of this year and some run on a calendar year. But the reality is, when we think about state budgets, we're in a good position. So we've seen budgets growth. But more importantly, we've seen public safety and technology within public safety grow faster than public safety in state budgets in general. Similarly, you sit and you have city budgets, some cities are in a difficult fiscal situation, but I'd elevate that to say, we often talk about the fact on our earnings calls and some of these meetings, Matt, you've heard me say it before, but we're in need to have and not a nice to have. So that sounds like a great word. But the reality is, it is. You look at next-gen 911 systems and the ability to ingest text messaging, videos, those kind of things, these are at the forefront of every urban command center and they're thinking about the investment there. You think about the investments we've made to refresh our mission-critical networks, particularly the P25 networks, and we've talked about the litany of D Series upgrades, the APX NEXT upgrades that we've gone through, and we're really pleased with that. But the last thing is it's great that we have those, but we also have the One Big Beautiful Bill, which is actually a multiyear tailwind to our business. And interestingly, the U.S. federal government had some of -- they had some older fleets in terms of not only devices but actually infrastructure as well. And I think as it lends itself into '27, we've had good success this year in '26, I think we're also in a good fiscal situation and budget situation as we play it forward federally as well.

So I think on the last call, you talked about 2027 state and local public safety budgets growing faster than overall government budgets. Software growing even faster within that. What are some of the proof points you've seen so far that inform that view?

Yes. I think -- so first of all, the here and now. We had record Q2 orders, just the print that we just had last quarter. We've had double-digit order growth on top of double-digit order growth in the first half. And we've also talked about the second half of the year product growth -- having double-digit product growth. So that's how we've guided, that's what's in the rearview mirror. But I also think it's critical to look at request for proposal activity, quoting activity, things that I kind of thought, not in a typical marketing sense top of the funnel, but things that drive. So it's a prospecting. And as you start to move these things through the funnel, what's the interest level and engagement? And what we're seeing there is obviously extremely positive across all 3 technologies. And I think one of the things that we're most proud of as we look at this year, our mission-critical networks, we've guided the fact that we're going to grow 10% to 11%, our video security business, both mobile and fixed, we've talked about that video segment growing. And then we've talked about command center software growing 15%. It's also interesting the fact that mission-critical networks is where we actually report the APX NEXT device revenue. But remember, when we talk about the ecosystem and the kind of hand feeding the glove, command center software, 15% growth now -- is now comprised of, it includes $100 million as we exit fiscal year '26 of APX NEXT applications. And that we talk about ecosystem, that's doing more. How do you connect your -- how do you extend your network? How do you get location information? Smart programming. Things that used to take weeks for municipal radio administrator. Fleets that are now done instantaneously in hours. And then we're obviously working on the next tranche of applications, things that we're doing to provide more actionable intelligence, drive more efficiency and outcome to the first responders. And so we're excited about what that brings into the future as well, Matt.

Let's talk about Silvus. So you're -- as you mentioned, a little over a year post acquisition. They did about $210 million in 1Q sales, $230 million last quarter. You've guided the year at about $850 million. Are you still capacity-constrained in 2026? And what does the Salt Lake City facility actually add once it comes online?

Yes. So as you alluded to, we've guided up. So fiscal year '26, we've guided $850 million, and our current capacity is implied in there. And so I think that's the first thing. But we have, even subsequent to our acquisition of Silvus, we've added capacity in Los Angeles, we've added another line in Culver City. Salt Lake City will come online and we'll begin to get the benefit of Salt Lake City in Q1 '27. And if you think about it, it's not -- it isn't like, hey, we've built this, and this is the capacity we have, it's modular. And I think as we'll continue to have more room to invest and build on more lines within Salt Lake City. But as we think about the growth that we're creating with more than doubling our sales force, adding to R&D to continue to distance, not only the waveform, but to distance what they call the spectrum dominance, which is a secret sauce in terms of its ability to reject detection, interception and ultimately, anti-jamming. And I think that's been -- the inflection point of that has been in the Ukraine, but then all the testing that's being done in the Department of War, I think Silvus continues to be the best-of-breed as it relates to MANET technology [indiscernible]. We're excited about what we're doing in Salt Lake City. We've already expanded in terms of L.A. And I think we're going to be very well-suited next year to continue the trend. Because what we're seeing not only here in the Department of War, but what we're seeing particularly within NATO, within the Indo-Pacific is people are thinking about, number one, they're thinking about securing their borders, they're thinking about modernizing their defense efforts. They're thinking about global conflict is not something that is on the horizon, it's something we're all dealing with today. And then more importantly, unmanned systems, UVX, surface vessels and the water, aerial vessels and unmanned systems in the air, that's an area that continues to be invested in. And I think Silvus continually in those congested and contested environments exceeds expectations and I think continues to be the market leader there.

So there's a lot of benefits obviously that I think Silvus -- accrue to Silvus being part of the broader Motorola Solutions ecosystem. So maybe we can speak a little bit about some of the changes, some of the benefits that you've introduced. And then, I guess, perhaps from a revenue synergy perspective, is there an opportunity where Silvus and the public safety business can intersect commercially, if at all?

So let's take the first part. We've -- it's interesting because this is not the first kind of adjacent vertical we entered. Some of you remember, who you've been, know our story from 2018. We weren't in the video security and access control space until we acquired Avigilon. So the first thing we thought about when we went into Silvus is, hey, defense, new market, but we've always -- we had a $1 billion business with the federal government. So we were very familiar with Silvus, their story, what we did. In fact, before we acquired Silvus, we had been looking at them for over a year and meeting with their team. First thing we did is we looked and said, hey -- they had representation in North America within the Department of Defense, but that was largely Matt, just Army and some minimal coverage in the Marines. We've done a comprehensive investment in terms of taking on all 4 branches and then we brought in some people who have branch-specific knowledge, meaning retired generals, recently retired generals and colonels, who I think give us a more fulsome representation, not only into the day-to-day business, but to position us on programs of record. So that's the first thing. We then have done some pretty expansive investment internationally. I think they had a couple of resources that lived outside the States when we acquired them. And now to my point, we've got a sales leader that we promoted within Motorola, who runs all international, and he's done an outstanding job. He's a German national, was actually in the Bundeswehr, and he's gone and systematically added to the team. So go-to-market, one piece of it. We've dialed up pretty significantly the research and development, broadened their SKU level. So I talk -- we talk about size, weight and power and the waveform, but we've also added part of Culver City, Matt, is we've also added a lower cost with more -- with some -- a little bit more minimal software added on that to get into some of the different part of the market for more of the [ attritable ] space and drone dominance and those kind of things because we think there's a market for us to play in the broader market there as well. And then last but not least, Matt, we talked about it and I won't belabor it, is just the supply capacity we've added. But as you think about it, one thing to note, we really think about Silvus categorically as defense. Public safety, we've had opportunities like things like the Super Bowl, presidential inaugurations, the Ryder Cup last year, where they get what's called a special temporary authorization to operate. But largely, there's not a spectrum that's allocated today to Silvus. So we think there's a lot of room to run in defense, both in the U.S. and internationally. That's where we've been focused. If at some point in time spectrum became available, we think there's a lot of applicable applications, but the focus today has been defense.

Got it. So we know that demand, you've talked about NATO, EU budgets, Germany, Ukraine, U.S., Indo-Pacific. How much of that is programs of record relative to maybe more urgent operational needs? And I guess what I'm getting at is how durable is the growth here if the conflict environment changes at all?

We think it's really durable because, obviously, when we bought it, if you remember, when we closed Silvus, it was just on the heels of really the new President and there was talk about, well, this war could end immediately. I think maybe it was weeks or months or we talked about -- but the reality is we have built a business that is durable. And a lot of that is, if you think about the Motorola philosophy, we've got really 2 tranches of approaches. We've got people that get up and think about long-tail visibility, for example, record or in state and local governments, strategic project, setting up statewide and anchor tenants, that's critical. And that sets the foundation for future success. And then there's the operating in the here and now. And some of these, to your point, things that are currently budgeted: conflicts, how quick can we spin something up for something that might be taking place in the Strait of Hormuz. We want to be able to meet both things. And then if you think about it, we want to broaden capabilities everywhere. We didn't even talk about some of the things we're doing spinning up resources in Latin American and places who are also going through modernization and platform modernization program. So as we think about it, I think we're set up for sustained success, We're always going to think of things holistically and strategically and make sure we can act fast in the day. But really encouraged. And I mean I would never say, hey, Silvus is a function of any isolated event. Actually, it's interesting. We think Ukraine -- one of the things we always talk about Ukraine was that, this is the inflection point for the future of warfare, meaning electronic warfare. And the way that's been tested, I think, has been, quite frankly, one of the greatest -- it's been indicative of, I think, Silvus success on all those who've witnessed the game of cat and mouse that is electronic warfare. It's power inflecting different power, it's moving frequency, all the things that takes place. And I think we've seen those things, by the way, Matt, there's a lot of those tests that are happening right now within the DOW, and Silvus continues to perform exceedingly well.

So we talked about Silvus last August. This past August, about a month ago, you closed the D-Fend acquisition. So that deal specializes in counter-drone solutions. What are the first 90 days of integration priorities? And how does the platform sit organizationally alongside Silvus?

So Silvus, we still run as a stand-alone operation. And Babak, who is the founder and CEO, is a partner to me, and he and I work closely together. But very much like we did with video. So we run that. We're doing the same play with D-Fend. Zohar, who came over, he has now, I think -- I believe this is his third company that he sold. Again, also very much like Babak, an incredible innovator. He and his team will come over and we're going to run that as a business. It's very important to think about D-Fend being different. D-Fend is actually -- endpoint for D-Fend is public safety. So think about it as keeping city safe. It's airports, it's critical infrastructure and it's entertainment venues. I mentioned FIFA, but also the U.S. Open. I was at the U.S. Open a couple of weeks ago, and it was great to see the D-Fend solution keeping Arthur Ashe Stadium and the adjacent stadium safe there. So that's kind of the end markets. We're going to run them as a business. This is significant and probably a different level of revenue synergy with our North America public safety team. Led by [ John Zidar ] and [ Michael Kai's ] international sales team, they've got relationships at every city, every county, every state who might be looking to invest in these counter-drone systems. We're going to leverage those relationships. And Zohar's got a really great sales team. But as we think about adding new resources, we can leverage the resources we have today there. Similar story internationally where we've got relationships at International Police and all the international airports as well who are looking at these kind of things. So it's great. There's 2 other things I'd highlight for D-Fend. As we were closing this, we got some really good news on the heels of the closure, and some of you may have read it, but the Department of Homeland Security had a $1.5 billion counter-drone grant program, and we were really proud of Zohar and his team. There's 2 different tranches. There's essentially system players and then there's service providers. But Zohar's team was the only cyber mitigation C-UAS vendor that actually was awarded the solution. There was other vendors that can detect and identify. But think about it, if you can detect and identify something, knowledge is important, but being able to mitigate and nullify a threat without damaging or causing any injury to the public is more important. And that's what D-Fend does. It has the ability to cyber control, cyber takeover, a drone, be it nefarious or if it's a hobbyist. But they protect the air space above the aforementioned critical infrastructure, entertainment venues, airports, et cetera, and they can land those. That's critically important as we're thinking about here, nobody want no police chief or anything. They don't want things flying in the sky, but they don't want people blowing things out of the sky and people getting injured. And I think that's where D-Fend has got a very elegant solution for what people are trying to do both here and abroad.

So let's pivot to the sort of core LMR business. D series. It's your first infrastructure refresh, I believe, in about 12 years. Infrastructure, I believe, is a little under 1/4 of the LMR business. Where are we in that cycle relative to the 40-plus state-wide U.S. networks, 10 Canadian provincial networks? And at what pace can you actually deliver every year?

Yes. So as it relates to D, think about this as -- and I've always used D series example, we've got, to Matt's point, we have 40 wide networks, 10 provincial networks. But remember, think of those as almost operators or carriers of public safety technology at the state and provincial level. Said differently, there's 1,300 P25 networks that essentially are underlying to those or connect to those state-wide networks. So you asked a question, Jack, what is it -- we've talked about D Series has really been -- I mean, I look at this as a multiyear. And I'm not talking about multiyear through the lens of 3 years. This is probably a 5 to 7-year refresh. Depending on the vintage of the system, and we just had -- we just recently, over the course of the last 12 months, State of Colorado, we've got part of the State of Michigan. But State of Michigan still has incremental D Series that they're going to be buying in a different -- they're going to roll out the state kind of in regions. And so that's an example. But everybody is funding these upgrades in a little bit different way. Everybody -- some of them are doing multiyear. Some of them, like State of Tennessee, did it, I think, in 2 phases. The City of Chicago upgraded all the radio consoles in 1 deal. But then there's a point in time where those cities and counties and states are then going to want to go upgrade to D Series. So it's a multiyear it's a multiyear kind of opportunity for us. What I would also say, it's multiyear, those things, but also our incumbency is an advantage. Because if you think about, if you're a competitor, you've now got to go identify radio sites. We may or may not have already structured long-term leases. Sometimes the customers own them, but then oftentimes those things are privatized. So I think they put us in a good example to provide good value as our customers look to refresh. But I think we're in a very good competitive standpoint as it relates to refreshing these networks that are out there in existence, to your point, 40 in the States and then all the underlying systems and then 10 provincial networks as well.