Okay. Good afternoon, everyone. Welcome to the Motorola Solutions presentation, at the first day of the UBS Technology Conference. I'm joined on stage today by Motorola's Executive Vice President and Chief Financial Officer, Jason Winkler. Welcome.
Thank you, Andrew. It's good to be back here. Thank you for launching coverage. It gave me an opportunity to come back. Last year, my IR team was here. Took a lot of meetings, but we didn't have an opportunity to have this dialogue.
Yeah.
We're glad to be back at this conference.
Thanks for coming. Maybe a great place to start would be just on your LMR business. You guys have put together a string of pretty strong years to the last, pretty much post-2020, sort of high single-digit, double-digit growth in, on the product business. You gave guidance, that was ahead of my numbers by about $100 million for 2026. Maybe just start out, what does the environment look like, in public safety? How, how are the customers looking? You know, what's the outlook for that business? And maybe we can drill in after that.
Sure. It looks pretty good, as you mentioned. We, Greg, did provide some commentary, as we often do in November, about the year ahead. LMR being in a good fundamental place to grow off of some comps over the last three years, that with the product growth that we've seen of CAGR double digits, and our growth this year, as we expected, being fueled by what we described as a return to quick turn. Meaning that as we set out in the year in February and through to November, and things have actually improved, our orders growth, which in Q2 was double digits in both segments. It was the same in double digits in Q3 and included in our Q4 guide for the company for 11% growth, which is about 7%-8% organic growth, is for, again, double-digit orders growth.
What that means is demand is strong and demand, we're able now, in the supply chain environment we're in, to deliver in a timely manner to our customers, which is outstanding. As we sit here and finish the year, you know, our organic growth outlook for next year, included in that 12.6, is actually better for the company than it was or is for the year that we're wrapping up. The fundamentals, which we'll likely talk about, are strong and continue to be so for LMR, as well as for our higher growth businesses like video and command center, right?
Before I move on to the next question, I should have mentioned that we do have an app where you can ask questions, and I'll try to get to them at the end if you want. Let's break that down.
The LMR business is really made up of the device side, the infrastructure side, and then the software and services. You know, for a number of years now, you, you, well, you launched the APX NEXT, which is the, the, you're the kind of higher-end device, that's been driving an upgrade cycle. Maybe help us understand, like, in terms of the outlook for the business, what, how, how far are you into that upgrade cycle? You know, how, how much of demand is coming from the high end and, and how much further penetration do you think you can get from APX NEXT?
Sure. So APX NEXT is a device, that's industry-leading, includes not only LMR, but also LTE as a secondary network. Customers really like it.
It comes with a number of features that solve customer pain points like programming the radio, GPS, and ingesting video into the radio, which now has a screen. Very compelling. We are at a point we mentioned on the last call where this year we'll have over 200,000 subscribers on the APX NEXT Platform. That's not only a better sale for us at the time of sale, it's a little bit higher-priced device, but it also comes with this application stream. Customers pay about $300 a year for a number of features that are really important. We have product opportunities and growth in that transition, but we also have been building an applications business, accompanying it, wholly done within the company, bootstrapped. I mean, it's a value proposition to customers.
The outlook for us, included in next year's growth drivers, is that we think that the device's subscriber count on APX NEXT is gonna grow from about 200,000- 300,000. You mentioned high tier. That's generally where we start, Andrew, when we innovate on a device like APX NEXT. Soon thereafter, we price it down to value, different tiers, including down to a more value tier, and we drive out the cost of the platform at the same time. About mid this year, we're fully featured in that APX NEXT Platform being available at all customer price points. We think that's another opportunity for it to continue to grow.
Have you ever said how much of that market? I think you've said 2 million. First responder to the U.S., maybe how much the high end can, can be applicable to, or it sounds like now you've got a million.
We think the whole market is ripe for, I mean, 2 million public safety users. You know, we have a significant share, but we're not the only market participant.
Right.
If you think about that over the long term, we think that there's ample opportunity to continue to turn every customer. The other thing I'd point out is we still sell a very good Apex device, and some customers who are on contract for that device continue to choose that. We're offering them a choice.
Right.
Which is what customers in public safety want. They don't want forced migrations. They have long-term contracts. We're a respected vendor. We're in it with them together. I think this continued migration and acceleration for APX NEXT is a driver that we'll continue to see fundamentally help products as well as the applications attached, which, by the way, we report in services and software. That's the nature of their contracts. We also, the applications business around that APX NEXT Platform is part of our command center revenues. Why? Because the information that's being shared into those devices is connective tissue to the command center. It's getting the officers or responders better information, two-way communication. It's adding video. It's ingesting location. It's doing an important role in shortening the cycle for responding. It's also improving the mundane around report writing and evidence management and the like.
That's where you'll see those numbers show up. In our command center growth this year, we expect 12%. We think that's a continued opportunity for us in APX NEXT. Final point on APX NEXT, we also have a device you're probably gonna ask me about called SVX.
Sure.
We have chosen to deploy that first in an audio world-class mission-critical audio format, and customers are really embracing it. We have about 70 to date that have deployed it in an audio-first capabilities. When they did that, they chose APX NEXT to radio because the platforms are together. Yet one more reason why a customer would choose APX NEXT is to enable that very powerful SVX, which can do audio, video, 911, and the likes, which we will probably talk about more. You mentioned infrastructure. We have now introduced our third generation in P25 infrastructure. We call it the D series. Its predecessor, the G series, is a decade-plus old. Every one of our customers are thousands of customer-owned networks. You have seen us talk about networks like Tennessee, Colorado, the St. Louis area.
They're at a point in their network journey where the infrastructure's aged to a point where they're going to replace it. They're embracing LMR for another decade-plus, and they're buying infrastructure, and they're buying the services and software that get wrapped around that in the form of five and 10-year contracts. Early days on the infrastructure upgrades in North America and P25, and it'll be with us again as a driver for the business.
Right.
It's about, by the way, infrastructure's almost a $2 billion business for us, including all forms of network infrastructure. P25, TETRA, and the likes, but the bulk of it is P25.
Right. So that's like, what, like a 70/30 split divi or 80/20?
20/25. 20/25.
Yeah.
Of LMR as a total.
Right. Got it.
Percent.
You know, I think, help me, help me think about how you guys kind of talk about the long-term growth opportunity for the LMR business, sort of what the growth rates are. If I think about, you know, I think my view is to be kind of the product side, maybe 3%-4%. The services, maybe 5%-6%, something roughly. You know, as we talk about these, it sounds like infrastructure's on the verge of a big upgrade cycle. I think that you guys described it as having a large funnel. The APX NEXT is kind of, you know, really hitting its stride in terms of upgrade. I would think you'd be at the higher end of that range.
I'd see, you know, I throw out that there's also a lot of money coming in the federal government from the OBC Bill. How, you know, it seems like a good environment.
Yeah, it is a good environment. Every year has puts and takes, right? In the case of the last couple years, we've had this opportunity to unlock backlog and deliver to our customers' demand from prior periods, right? We thankfully now are in a condition where we can get the requisite supply. Part of our growth over the last couple years, that robust growth in products, was enabled through getting supply. We're now in a position where backlog, which by the way, is at a record, $14.6 billion total for the company. We talked about on the call, Greg mentioned that by year's end, product backlog, which is a subset of that $14.6 billion, which is mid-threes right now, would by the year's end be $3.5 billion to high threes.
We're comfortably trending to high threes of product backlog at this point, given what we're capturing. You know, on path to see an opportunity for a $15 billion backlog by year's end. Those are, again, favorable trends around what we see in front of us and what backlog could be into the future. The opportunities that we're seeing are across the board, services and software as well as products. In terms of the growth profile, we generally think of products as low single digits, and we think of the services and software opportunity that accompanies it as mid, and we mix those in and you get the LMR opportunity. We'll talk maybe about Silvus. Silvus complements that growth profile as well. I mean, we step back, LMR, whether it's products or whether it's services and software, mid-single-digit grower kind of business.
Okay.
Now we have Silvus, which is new, different, entire fundamentals, come to us for that market, which is defense, and that can complement that mid-single-digit growth rate within that range a little bit. It is a good opportunity.
Got it. Let’s talk about that in a second, but just, you mentioned the backlog, and the headwind that it created. I think, you know, coming into your outlook for 2026, I was a little concerned you were gonna come up short of it. You actually beat me by $100 million in line of the street. But, you know, it has been difficult trying to understand, you know, there was the backlog was built and then it was worked out over a couple of years. Is the right way to look at it? I think, I think we don't know what exactly the drawdown was until you report the fourth quarter, but maybe it's $500 million, particularly a headwind in Q1 when I think a lot of it was recognized.
The right way to think about your 2026 growth, which is a little bit lower, I think organically, ex-Silvus in the LMR business, has been historically, is just a normalization of that backlog trend. Is that the right way to think about it? You know, to our initial discussion, the actual organic trends are actually right where you wanted to be.
Yeah, I think the organic trends of double-digit products orders growth complemented by services and software orders growth of double digits as well. That is what is driving the second half growth, Q2, 3, and 4. I guess that is three quarters. That is what we would expect to be a growth driver into next year as well. Backlog complements the demand as a function of orders. I think to be in a strong backlog position, be projecting future backlog by the end of this year being higher. I just told you that.
Right.
We'll see what next year's opportunity brings, but with strong orders and the opportunity to convert those. By the way, infrastructure, we talked about that. Some of those projects are multi-quarter deployments, right? It's not as simple as shipping a device. You gotta go out, touch the customer networks, deploy, and we're gonna do that. I think that the backlog position complemented by the demanded pipeline that Molloy and his team are driving are expected to be continued drivers for us as we look into 2026. The color we gave was about $12.6 billion. That's a roughly 8% growth.
Right.
Five-ish percent organic, which is a starting point and better than where we're expecting to finish this year at the 11,650, 7.7% growth.
Right. Right. You mentioned $15 billion of backlog. I don't have the backlog number in front of me. Is that by the end of this year?
It's 14.6 right now.
Okay.
In Q3, and with the trends that we're seeing in totality as well as in products, we would envision 15, seeing a path to 15 by year's end, and that the products backlog, which has gotten a lot of attention.
Right.
Would be in the high threes.
Yeah. Great. Oh, and just before I move on, I want to Silvus, you know, obviously the federal government shutdown was an issue you guys called out on the last call. You said that if they got resolved relatively shortly after, that you would be able to meet the demand for the rest of this quarter. I mean, any thoughts on how things have worked out around the federal government in general?
Just that the government has reopened.
Sure.
We described it as a timing issue, and we're actively re-engaged with our customers around the demand that we clearly see. Many of them, the customers, the agencies, the procurement arms, they're just as excited as we are that the government's back open so that we can together come together, make the order and the delivery and the likes. The demand within our federal business, even before I think about OBBA dollars, which have yet to flow, is good. I think with the opportunities in OBBA being pointed at DHS and DoD, each of them's getting $150 billion or more of incremental funding, which we think or know is about a four-year window. Clarity on that funding, we know it's targeted in areas like defense, border, and our portfolio is used in those applications.
Video for the border, communications, those are a good match for incremental new and funding opportunities, and we'll continue to pursue those.
Right. You mentioned the Silvus acquisition. This is a pretty meaningful deal for you guys. You've renamed the LMR business sort of just generically to mission-critical networks because of this acquisition. Maybe talk about where this fits into your portfolio, you know, why you like this acquisition so much and what you think it does long-term for Motorola.
We are excited about this acquisition. I think many of our investors are too. Andrew, you and I were on the road last week in Europe, in fact, and you heard it firsthand from some of our investors about what's exciting about it. What's exciting about it is it's new for us in terms of a new market. It's defense. It's battlefield communications. It's unmanned systems. We all know what's happening to drone demand, particularly as countries like ours and overseas look to deploy drones. What Silvus does, it's a robust communications network that can empower drones. That is imperceptible, can't be jammed, can't be taken down. It's robust. It's the best in the space. We like that they're in a leadership position. Tremendous engineering, great portfolio, signed over 100 different drone platforms, great customers like Anduril and AeroVironment.
Where we see opportunity in helping them grow is through, they've got 30+ salespeople today. We're gonna add to that. We have a route to market within defense. We'll expand that, and in the R&D portfolio. We're gonna go deeper into the space that they're in, which is defense. You see a few opportunities on the public safety side as well. For the most part, the business case is about going deeper and wider into the accounts that they have. You'll see us do that and, you know, diversify their customer set. We expect 20%+ growth next year, which we mentioned on the call. The starting point this year on a calendar year basis, we've owned them since August 7, is about $500 million on a calendar year basis. We indicated that next year will be 20%, a bit more than that.
We're off to a good start. Everything that we've learned, we've diligenced them for over a year, is that we're aligned from an R&D culture, from a sales execution culture. And their founder, Babak is outstanding and built a great team, and we're working well together.
Interesting. You mentioned that you, one of the things you'd like to help them do is diversify their customer base. Can you give us a sense of the profile of their customers and where a lot of their revenue's coming from? I think you said Ukraine directly is 20%?
Yeah, about that. Ukraine has been a proving ground, clearly an innovation ground and a demand area for certain. The NATO countries that are supporting them have been as well in their own regard. It has been an opportunity for us to prove battlefield technologies, innovate, make the product better, and then sell that product, which is a custom off-the-shelf type solution to a lot of different places. We think there is opportunity to do more of that. That is in part why we are excited about the partnership. When I think about, you mentioned where we are reporting it, it is Mobile Ad Hoc Networking. They are the leader in it. It is about a $3 billion TAM. We think it is going to double in four to five years. You have high-speed data, redundant, mission-critical communications networks, MANET. Then you have land mobile radio, narrowband, very effective voice communications tools.
They share one element among others, which is RF. That is why we're reporting it together. They can serve different markets, federal versus state and local and the likes. It is a nice complement in terms of its technology and the engineering efforts that we have complement each other too.
Right. You just mentioned that you expect the TAM to double in the next three to four years.
Four to five.
What? Four to five. Sorry. What would drive that doubling? Is it?
The demand profile for drones within defense applications specifically, the number of use cases are expanding in Unmanned and Aerial Systems. The portfolio of Silvus is expanding as well from the high tier, like we starting into other parts of the portfolio so that it is a great network of choice for customers that wanna run drone systems and run them without interference.
Got it. What is, you know, I think one of the questions I've gotten plenty is sort of what this means for your, I guess, generically capital allocation priorities going forward, specifically M&A in the defense area. Is this the beginning of something? You know, you sought this company out, it seems like, acquired them. So, you know, a lot of people are curious if this is a new strategy or if this is something that just fits well with your current strategy.
It's more of the latter. We like it 'cause the tailwinds are there, as I described for defense. There's a lot of opportunity for them to grow within that $3 billion TAM. We think we can improve on the business, improve a number of areas, supply chain and things that a large-scale company like ours can provide to a startup type culture. I think it's much like Avigilon. Avigilon was, you know, a starting point that we've added about 12 portfolio companies to in video that was totally new for us. In the case of MANET networks, they have a leadership in MANET networks, but it's a form of mission-critical network. It's close to our core of LMR, and they coexist and we think that they can work well together and are a unique mission-critical networks type technology.
That's where we're recording it.
Got it. I think you've pointed out it has a 45% EBITDA margin. It leads me to ask you about kind of the margin, right? If I look at the last five years, you've taken op margins from 25 to 30 roughly. I was just looking at half of it came from gross margin, half of it came from OpEx. You know, you just printed a quarter that despite tariff pressure was up, I think pretty significantly. I think it was a record if I recall from your presentation. You know, I think we're all trying to figure out if you can keep the 40% incremental margins going. Maybe the better way to look at it if you step back is just what is driving these strong margins the last few years?
Just revenue upside or is there more to it? Is there more mix? Right? You talked about, obviously Silvus is gonna help, but you talked about a lot of the software. We haven't talked about it yet on the software, on the video and command side. There's also the applications on the mobile, mobile side as well. So what's driving that margin?
It's a combination of operating leverage for us is driven by on the products and software and services side, both. We are able to navigate the tariffs and still produce operating earnings this year. You mentioned the headwind. It's about $75 million in the second half of this year.
Yep.
We mitigated a lot of that through costs within our own portfolio, platforming, taking out vendors that were more costly than others and doing the kind of block and tackling that supply chain should be doing. ASP appreciation or mixed variable does benefit us when we customer chooses a more feature-rich device. That's benefit to the sales line and also to margins. You also mentioned it, we will probably talk about it. We should talk about Command Center. The software characteristics of Command Center, of video software and the like does help as well from the ability to improve op margins.
Right. Has any one of those segments been bigger contributors or I know you guys don't report margins by segments, but you do have a lot of transition in video and command to software.
We don't report margins by seg, by technologies.
Technology.
LMR, being the largest dollar contributor, and the high quality characteristics happening in that portfolio help. Video and Command Center are higher growers in terms of the absolute dollars they're bringing. Both are double-digit growth portfolios for us expected this year. One's growing faster and one is bigger. Together they both bring incremental dollars to the operating margin line when they're growing.
Right. Can we talk about the growth? We might as well move to those segments. We could talk about it together. What, you know, what are your, what's the growth drivers and outlook, you know, in the video business? Why don't we start there? It's the bigger of the two. Has the bigger TAM as well, which is interesting.
Yeah. It's $37 billion TAM in total this year. It's tracking to over a $2 billion business, 10%-12% growth expected this year. About 70% of that is what we call fixed video. It's cameras securing places like this or municipal government buildings, et cetera, fixed camera systems, camera systems and software. In the case of mobile, about 30% of that is body-worn cameras, in-car cameras, and license plate recognition. That's the two portfolios. Both are excellent growers. Both are benefiting from increasing cloud transition. Customers can choose to run the software themselves in an on-prem model or they can choose to have us host and deploy it in a subscription-like model.
We're growing those rates, 10%-12% in video and 12% in Command Center, the 911 business, while going through a high-quality transition to stickier revenues, which you can see in our SNS software results.
Right. Right. In the video business, are you, what, are you growing with the TAM? Are you taking share? What is, what, and I'm talking, we let's start with fixed because I know they're very different.
Of that TAM, $37 billion, you know, 90% of it is fixed. The other 10% is mobile.
Okay.
The TAM in fixed is growing, last report was, mid, mid singles.
Okay.
We're growing that at, you know, 10%-12%.
Okay.
We're, we have been outgrowing the market. That trend started with our acquisition of Avigilon. The organic growth, complemented by some portfolio enhancements along with that journey through M&A, has gotten us to a point where we're the leader in a number of technologies, including, we have a, we are the only portfolio play where we have both in fixed video, on-premises, as well as cloud. We're offering customers a choice. Some customers wanna continue on an on-prem environment. That's a growth opportunity for us. We wanted to transition to a cloud-based software deployment. The cameras are still the cameras, but it's the software deployment that will be procured differently. We have that as well. I think we've seen good growth. It's faster growth in software of the cloud-based variety in fixed video.
If in mobile video, we see a significant opportunity ahead of us in continuing to go deeper into our accounts around our latest strategy with SVX.
Let's talk about SVX. It's, you know, very interesting that you've brought the LMR piece where you're dominant into the body camera to sort of compete against another stronger player in that space. How should we think about you using LMR as a lever to win share in that space? Is that really where you're seeing the advantage and, you know, how successfully you think this can be?
There's clearly a convergence taking place between, in, in around public safety, around the 911 center. There's 6,000 of them in the U.S.. We have a presence in over 3,600, 911 centers.
Right.
There's a convergence of video, voice, data, all where a platform like ours, which is end-to-end voice, video, and 911 unrivaled, is an important place to be 'cause those 911 centers are complex operations, taking a call, routing a call, dispatching a call, recording everything that happens all the way down the evidence line. To have an integrated portfolio and the investments that we've made over a number of years to have a common UI, to have a common experience, positions us well at every customer to do something more for them. The latest is SVX. That device is a world-class audio assistant. It can do video. We have an excellent backend to accompany it that does all the things a customer needs, so they can choose now to have a single device, whereas in the world they live in today, they have two devices.
Right.
It is an opportunity for us as we look forward. In order to win in that business, you have to be in CAD or dispatch or computer aids. We are in it. It is a tough business. We serve our customers, we serve them well, and it is a differentiator. It is the nervous system of a 911 center. You have to be in that in order to aspire to serve your customers in all the ways you want to.
Okay. You mentioned that you've got the applications for the APX NEXT and that you're tying again in another area, your LMR business into CAD. Is that another part of what you're talking about?
It's another reason why we chose the revenue reporting relationship to be around what information are we monetizing? We have more opportunity there around the devices platform that we have today, world-class LMR. What can we do to enable more information at the hands of officers, first responders, paramedics to save lives and to do their jobs better? We see continued opportunity in this SVX device, which by the way, is paired uniquely with APX NEXT. That's the pipe. The applications that we can provide and do provide today are growing and the ARPU opportunity is growing as well. More sub, more number of devices, as well as more features. That's part of why we think the growth Command Center is ripe for growth.
You think, you think command center, it's doing 10%-12% this year.
Videos 10%- 12%.
Oh, so Command Center's 12%.
12%.
Is that, is that a kind of a, is that again a TAM growth or you're?
It's more than TAM. TAM's mid, mid singles again there. And how we're able to grow is off that strong platform, being in a customer, solving problems, making that natural migration versus introducing another app that you have to integrate.
Right.
It all flows through, the 911 center.
Sure. Makes sense. This has been great. Thank you so much, Jason.
Yeah. One last thing, Andrew, we, you and I were together in Europe and you had asked a number of investors around, you know.
Sure.
There's clearly, and you've made the point to me, a rotation taking place in, chasing some pretty high growth names. Right?
Sure.
Fundamentally, the growth for our company and the organic growth is improving next year. I made that point. With multiples and having contract a little bit presents opportunities for some of the investors we met with while we were on the road. It presents opportunity for us. We've bought back already $400 million this quarter in Q4, which puts us over a billion dollars. Remain convicted on the fundamentals of this business and the opportunities ahead of us. It was a great opportunity to be here and explain more about what's happening at Motorola Solutions.
Right. Fantastic. Thank you so much.
Thank you.
It's been great.