Motorola Solutions, Inc.

phone keypad. If for any reason you would like to remove yourself from the queue, please press star five once again. We do ask that while you pose your question, please pick up your handset to provide optimal sound quality. Thank you. And our first question comes from Tim Long with Barclays.

Tim Long Thank you. Yeah, I was hoping I could start with, you know, the strong performance in video in command center. Both those, those product lines seem to be above growth rate. So you talk a little bit about kind of what, what drove that was there one timers in there, particularly in video with the big order that was discussed and, you know, any, any updates on outlooks there. And then I had a follow-up on mission critic, mission critical networks after that. Thank you.

Thanks, Tim. And yes, it was a strong start to the year for videos. You mentioned 16% growth. Growth drivers in there include body-worn cameras, ALPR, our Unity platform, and of course, Alta, which is our cloud-based platform, continuing to lead the way with growth. Much of that's aligned to the continued investments that Jack's made in the team. I wouldn't point to any one particular deal, but a couple of the deals we talked about that are new wins for us, including Duke and the large one that we mentioned for a fitness, Jack, you and your team, Did a tremendous job on those. And it's pretty broad based, Tim.

Tim, the only thing I'd add, I think Jason hit it. The only thing is Alta has been a game changer in terms of vertical market served. You know, we weren't really in retail before. And as we alluded to with the big national fitness chain, that's an example, I think, of what you'll come to expect from us moving forward. We've been very intensive on education, public safety, critical infrastructure. But I think there's a broader market that we can serve with Alta and with the investments we've made and go to market.

And the second half of your question, Tim, also a strong start to our command center technology with 27% growth. That was driven in part by some tier one cities coming online for our next generation 911, which Mahesh and team have delivered. Those customers have made some pretty significant commitments to us given the roadmap that Mahesh has.

I think on top of that, I'd say that we also moved to a hybrid subscription model for our CAD solutions and our record solutions last year. Those customers went live and we're seeing the dividends of that play out as well at this point. The last thing I would say is that we introduced assist suites last quarter and we're seeing excellent product market fit there. 100% of our 911 Vesta next call handling solutions had assist dispatcher suite associated with it. So that was a great win for us as well.

Okay. And I just wanted to follow up on the mission critical networks. It sounds like, you know, service is exceeding and you raised numbers there as well. You know, revenues were down year over year in the quarter. So maybe talk about, you know, what's going on in the, in the LMR product area to start the year. Thank you.

Sure. So there, Tim, it's as we expected, where Q1 in particular has a series of comps behind it. Our Q1's pretty strong in the LMR business. And so we were expecting that, prepared for that. Sylvus is continuing to exceed our expectations. I would also point you to demand, which is a function of orders. Our double digit product orders growth inclusive of LMR is our fourth quarter in a row of capturing that level of demand and is anchored around our expectations for growth in the second half within MCN and LMR inclusive growth to accelerate, which is much like last year.

And Tim, I would just add and further unpack that. You know, when you decompose products and specifically LMR, remember we're also going against a couple of years of prior comps that are double digit, which is a reflection of the normalization of semiconductor supply that in Q1 and one more quarter this quarter this year, we will be through. So that's another anomaly that we're playing through, but love the fact that we've had four consecutive orders of double digit product growth. And quite frankly, we expect full year double digit orders growth in products as well. So it is as expected. That's a reflection of the linearity you see.

And the raise that we mentioned on the call, the $100 million, while $75 million is related to Silvis, the other $25 is from really the public safety business broadly. So our expectations have increased.

Okay. Thank you. Thanks, Tim.

The next question will come from the line of Matt Nicknam with Truth Securities.

Hey, guys. Thanks so much for taking the question. I guess to the point of accelerating growth, particularly in the back half of the year, I'm just curious if you can talk to visibility and confidence level you have towards achieving the guide more in terms of supply and getting enough at hand to be able to ship. And then on a related note, just on gross margins, I know you guys reaffirmed the expectation to grow off-income margins by about 100 basis points. I'm wondering if there's maybe a little bit more leverage against the OpEx, or how are you thinking about gross margins relative to scaling past OpEx to get there? Thanks.

Sure. So on the demand side, you can see it in our product backlog, which actually increased sequentially. Strong public safety orders, as well as strong video orders included in that. In terms of our ability to continue to attain the supply to match those strong demand profiles, those double-digit quarters that we've talked about, we are getting the supply we need. In some cases, we're having to pay a little bit more for it, in particular memory. But our supply lines are lined up to the demand profile that we have today and what we expect to be there in the second half. And despite the higher costs we mentioned on the call, that we still expect to grow operating earnings for the segments. Each segment will contribute to that 100 basis point expansion.

Pipeline, Matt, the only thing I'd tell you is, you know, given you have a full understanding of public safety being, you know, a significant part of our business, it is a long sales cycle in public safety, which is a good thing for us because it gives us visibility in terms of deals, not only deals we propose, but deals approval, they go to county board city commission state budget office. And so, uh, we have a, we have a high degree of confidence, uh, that'll in our outlook for the year.

Thank you. Our next question will come from the line of Joseph Cardoso with JP Morgan. Joseph, your line is open.

Hey, thanks for the question. Good evening, everyone. Maybe just wanted to circle back on Silvis. You know, it's great to see the upside to the outlook here. I mean, I'm just wondering if we could take a step back and really just touch on how you guys are seeing the opportunity pipeline build for this business relative to when we last spoke. And then the second aspect of that question is, as we considered your ability to capture this demand, can you talk about your manufacturing footprint here and how we should think about that as a potential gating factor, if at all, to potential further upsides around this business? And then I have a follow-up. Thank you.

Yeah, I think it's since we closed on Sylvus in August of last year, as we sit here today, it's definitely exceeding our expectations. I think that what you're seeing in the print in Q1 and the overall guide to $750 million is a reflection of the increased investment that we're making in go-to-market. The sales force for Sylvus is already doubled. with Jack and his team making investments. We're seeing demand increase as well internationally. I think when you dimensionalize the $750 million annually, the majority of that is coming from international demand in multiple theaters. And when we acquired it, we always thought it was best-in-class technology. The other thing we're doing is putting more coals on the fire on R&D. for differentiation and technology refresh so we keep that lead and further extend our differentiation. Yeah, and just to build on that, Greg, if you think about it, there's really three facets in R&D. Number one, it's a spectrum-dominant software, which is ultimately Sylvus' secret software. It's what differentiates us to the other M&A providers in the world of electronic warfare. Very critical. The second thing from an R&D standpoint is we've had a big focus on reduction of size, weight, and power. In January, we introduced the Streamcaster 5200, which has gotten rave reviews not only in the DOD, but also within the NATO space. and that is now our smallest full-featured MAN-A radio. And then the last thing is the spectrum sensing capability. When you think about counter UAS, this is a handheld tactical radio at the edge that can sense RF and has spectrum awareness. So for the modern warfighter and what's happening in various theaters around the world, it's also being used there. So we're really pleased. I think the last thing, and and we talk about investment, Greg nailed the go-to-market, is we have already increased our supply capacity in California. And we're going to let you know we're going to be adding a geo-redundant site that will bring on incremental capacity in 2027.

And the other place you'll see our expectations having increased for Sobis is in the earn-out that we structured, which is a win-win. We mentioned on the call that it's gone up to be now an expected payout of just over $100 million. that reflects the increase in what we expect the business to perform under the earn out structure. So aligned there as well.

No, that's awesome color guys. I appreciate all of that. And then maybe Greg, last quarter, I think you talked about your expectations to expand product backlog exiting 2026. I mean, as we sit here today, product backlog is already, you know, had a, excellent point for you to execute on that. So maybe just given kind of, I mean, you've somewhat already talked about a lot of these or talked about the kind of the demand you're seeing and the momentum in the business, but as you sit here today relative to 90 days ago and that expectation around kind of building backlog through the year, you know, how are you feeling better or worse, you know, in terms of achieving that and any sense of direction there would be, would be great and kind of the drivers behind it.

From 90 days ago, stronger. Stronger because, as you recall, Joe, I guided last call. I gave color that I actually thought product backlog would decline. It didn't decline. It increased sequentially. And it increased because, yes, in part to Sylvus, but also public safety LMR and a little bit of video. So that was a pleasant surprise that obviously increases the floor, gives us more confidence. In addition to that, Q1 is not only record backlog, but record orders. So between those two records and product backlog coming in stronger than expected, yes, I and we feel better. And I think the rhythm of the business is good across the portfolio. You saw the start to video, 16%, command center, 27%. We incrementally increased as part of the $100 million, 12.7 to 12.8, the guidance around mission critical networks. When I think across all three technologies in both segments, Joe, I feel good. I feel very good about where we are, the pipeline in front of us, and the visibility we have. We have to execute. We'll stay focused on that. But yeah, it was a pleasant surprise. And I think it's a reflection of the durability and longevity of LMR, which is foundational. The ecosystem with AI being connected throughout all product emergency workflows. And we're seeing that resonate with our customers. The summit The summit feedback was outstanding just a few weeks ago in Orlando. So product backlog end of year, I expect it to be at comparably strong levels from where we are now.

No, that's great to hear. Thanks for the question.

Thank you.

Thank you. Our question now comes from the lineup. He's wholesome with North post research. Your line is open.

Good afternoon, guys. Hey, Jason, can you remind me, your software and services number, how much of that is recurring, Rev, or what's the percentage that is recurring?

We view and have asserted that software and services is our proxy for recurring. Sorry, Keith. So really, in our view, the definition of it is it is recurring.

OK. So what we see here in this quarter is really a significant step up.

year over year and that will be able to carry that through for the rest of the year um the growth that we're seeing correct well we've got it to uh sns uh a performance being a little less than the 18 it started off at as we mentioned on the command center side there are some activations that come with uh a recurring true up we mentioned those three to four with tier one cities that are large that were in the command centers uh uh keith So those are now live, and that was in part what was in the 27% as well as in the 18%. But we are very excited about the growth prospect of S&S as we look forward.

Okay, appreciate that. And then do you guys still expect double-digit order growth for the year? I think that was commentary you guys provided last quarter. Yep, yep. Okay, great. Thanks, guys. Turn it back over. Thank you, Keith.

Our next question comes from Ben Bolin with Cleveland. Your line is open.

Thank you. Good afternoon, everyone. I appreciate you taking the question. Greg, I was hoping you could comment, or Jack, a little bit about what you see happening with the timing of Congress passing funding for DHS. Any influence on the backlog, REBREC, during the quarter, or how that flows through to the model for the remainder of the year?

Yeah, Ben, no, we're monitoring, obviously, what's happening in D.C. Listen, as it relates to federal, we had a great 2025. We expect growth, comparable growth in 2026. If you think about it, everybody, all agencies are funded except for ICE and CBP, who basically have a pretty significant budget tailwind through the One Big Beautiful Bill Act, and I think that's important to To point out, I would also remind you that we had a $148 million DHS order in Q1 that was funded through the OB3 Act, not only an APEX Next, but also an SVX order tethered to that. So as we play it forward, we think we're in a great budget situation with the federal government. We're always monitoring what happens in D.C., but we think it's immaterial, and we think it's all implied within our guide for 2026.

In a follow-up, when we think about near-term opportunity associated with World Cup, how should we think about that capture opportunity or the incrementality of that for 2Q and beyond?

Sure. So we've had, so I just remind everybody with the World Cup, and we're working with all those cities, And we've generated business in all those cities. A lot of that, more than half of that money was earmarked for counter UAS systems that were not in place in the stadiums. But with the other monies that were available, we have seen Apex Next refreshes. We've seen a significant, and this is important, a significant amount of business for us within the Smart Connect. So think about it connecting public safety to private stadium systems. We've had business there. All of that, you know, it's been generally conducive, but it hasn't been a big driver of the business. In fact, it's been about $40 million all in with the World Cup city sites.

Thanks, Jack.

Thank you. Our next question will be from Andrew Spinola with UBS. Your line is now open.

Thank you. I think you had another fairly large SVX win this quarter in the press release in your federal business. I'm wondering if you can just comment on the momentum in that, the SVX product line, and specifically highlight why you're so bullish on the federal business, what you're seeing there, what that opportunity looks like.

Sure. We've said the market wants an alternative. We're really excited, but I think we're more excited because of the demand signals we're seeing from our customers. To your point, we secured a significant DHS order, as I just alluded to, with SVX tethered with APXX. But to date now, we've seen 100 customers with SVX. And I think the most important metric that we're following is 30% of those customers are utilizing video. We've completed some deployments, namely Arlington, Texas. By the way, that's That's a World Cup site. Buckeye, Arizona and Marion County, Florida as well. Playing it forward, we're monitoring weekly the pipeline. We've got hundreds of quotes out to customers that want an alternative and they're looking to continue. Our sales team continues to look to work to seed the device into the marketplace. And just the 30 customers utilizing video are doing so with AI assist. And oftentimes, as you know, we're doing it with one device, not two, because it's converged with the body cam and the remote speaker mic. We're doing it with compelling total cost of ownership, which is much more affordable and attractive. And by the way, we're doing it now and can move back end data pretty easily in a matter of depending upon the size of the repository. But we can easily switch a customer with the incumbent provider over to Motorola Solutions with SVX and ASSIST and migrate that back-end data and all of evidence management, since it's owned by the customer, in a matter of many times weeks and sometimes a couple of months, but we are doing it now on a regular basis.

Maybe related to that as well, with narrative assistance attached to our command central records management platform today, Just compared to December, we have seen an 800% increase in the number of completed reports that are generated with ASSIST. So the adoption of these technologies has also increased quite dramatically.

Interesting. Just one other question, one follow-up, separate question. Thinking through Q1 to Q2 trends in mission critical on the product side, How should we think about Sylvus in general? Obviously, it's in a pretty strong growth ramp. Is there any reason to think that there's either seasonality from quarter to quarter or was Q1 stronger? How should we think about modeling that in Q2?

Well, I would first say, again, demand is strong and orders are strong. We talked about the additional investments in go-to-market and R&D and the capacity expansion that Beloit's team is taking. I think when you take a look and step out and look annually, it isn't exactly a linear business. Projects are an important part of this business, which don't necessarily allow you to take a quarter and just extrapolate times four. But we do feel good about the shape of the year. We continue to invest. And at the end of the day, as we sit here in May, I consider and we consider the guide prudent. And we'll update you again in August. But demand is really strong. Thanks, Andrew.

Great. Our next question will come from George Nutter with Wolf Research. George, your line is open.

Hey, guys. Thanks very much. I was just curious about the backlog metrics look really good. I'm wondering if there's any change in the duration of orders, you know, anything that might help kind of skew that backlog metric up. I'm just trying to understand how much I can rely on that backlog metric as a gauge for future growth.

Thanks. No change to where we were positioned on the backlog from this point last year, both in terms of when we expect it to shift, George, but also the duration on things like S&S, which you know is a multi-year. So we look at backlog as a function of informing our guide, as well as looking forward to what we will earn in orders, quick turn, which is also an important part. And again, much like last year, our setup here as we sit here today is for a strong backlog position complemented by continued strong orders is what's informing our guide and our raise.

Okay, super. That's great. And then one other one, I was just curious about the Bell Canada LMR acquisition. Any sense for what that would look like financially? Is it accretive? How much revenue would that drive? Anything else you can tell us there would be great.

Well, it'll bring to us approximately $100 million of the recurring services, managed services operations, which you know that we do elsewhere across the globe. It's a number of underlying customers. There's potential to serve those customers better and deeper in other areas. But the starting point is the $100 million of recurring services. managed services business, which again, and again, we expect to close that in Q4. We'll have some more details on that as we close.

Thanks a lot. Appreciate it.

Thank you. Our question now comes from Meta Marshall with Morgan Stanley. Your line is now open.

Great. Thanks so much. Appreciate the question. And just maybe a question just in terms of kind of what was driving some of the strength that you saw in video in the quarter that would be helpful and maybe as a starting point.

As I mentioned earlier, Ameta, we're pleased with our video performance, both in orders and sales. We had strong camera sales, which you can see in the products number. We had strong Unity sales. And SDX, which we mentioned and Jack highlighted some of those deals, is a driver as well. So overall, strong performance in video to start the year.

Got it. And then just an apology that this has already been asked, just in terms of kind of thinking about LMR product for the remainder of the year,

um just in terms of kind of you know now that we're past some of the tougher comps just how to think about that thanks yeah we we talked about some of the double-digit comps from uh previous q1s of a couple of years i think to this quarter and probably meta next quarter as well next quarter will complete what we believe is the normalization post semiconductors supply. So we expect a more robust growth in the back half of the year. And when you think about organic growth, primarily grounded in emission critical networks and LMR, we expect it to be stronger annually for the full year, uh, 26 over 25. And we like the double digit orders for product and the pipeline that, that Jack's team continues to provide. So, uh, I feel very good about the position of, uh, of mission critical networks and specifically LMR underneath it.

Great. Thanks so much.

Thank you.

Our next question comes from a line of Tomer Zilberman with Bank of America Security. Your line is open.

Hey, guys. Maybe another question on the competitive landscape. Axon announced that they're entering the 911 call center market through two acquisitions. I think that was just about a month ago. So I guess the question really is, how do you see that landscape of command center evolving, and is there any concerns that they're going to be a lot more competitive, given you kind of already interact with them in the mobile body-worn camera market?

Well, I mean, we could tag-team it, but my view is to date, We haven't seen a material change in the competitive landscape. I'm well aware of what they announced. And suffice to say that we had visibility and opportunities as well. But we like what we have. We like what we're building. We like the fact that we're in over 60% of the 6,000 public safety answering points today. And we like the fact that we have the widest and broadest portfolio. Remember, you want to do prem, you could do prem. You want to do cloud, you can do cloud, but we also not just do both. We give you a hybrid solution to allow you to migrate from one to the other. That's unique in the market and no one else provides that. And then when you overlay AI assist, and a lot of people talk about AI, but we've been more quiet, but pretty pervasively intentional of putting it throughout our portfolio into the role-based suites. We announced Responder. We announced dispatcher. Just think about the way Mahesh's team is embedding AI through all of public safety emergency workflow. And then when you look at it from a voice standpoint and the success we've had with SVX and video being activated with assist in little over 30% of those, I'd very much like the position we're in.

The other thing to emphasize here, Tomer, is that we're not just an over-the-top solution here. Remember, a PSAP has three significant applications. There's 911, there's CAD, and there are consoles. And one of the things we're doing with ASSIST, which is encompassing the dispatcher suite, is to address the connectivity via AI among those three. And as I mentioned before, every one of our Vesta Next sales last quarter was went with the ASSIST dispatcher suite. So that's a very important element of it. The other thing I'll say is that at Summit this year, we had a record number of attendees. We had double the number of AI breakout sessions that we had previously. And it was centered around really pushing the notion of the connectivity that ASSIST brings to bear across our applications, almost exactly like Greg explained. We also introduced Hyper at Summit, and Hyper was received incredibly well, bringing non-emergency call automation into the mix. And Hyper is also now tightly integrated with our 911 solutions as well. So when you think about it, assist and AI is not just an over-the-top thing for us. It is really the fabric with which our applications and our ecosystem function together. So I think we're competitively set up quite well.

Got it. Thanks. Thanks, Tilmer.

Once again, if you have a question, you may press star five on your telephone keypad. Our next question will come from Ryan Abbott with Piper Sandler.

Hi, guys. Thanks for taking my question. I'm on for Jim Fish. The first question is, is on the SVX wins, What are customers liking? Like what's driving those wins? And what does the pipeline look like going forward? Can I have a follow-up to that?

Yeah, I'll start. I think, Ryan, what we've seen, customers like, first of all, I think it's a multi-source, body-worn, AI-driven assistant. It's not a body-worn camera. It looks, I think, as Mahesh just laid out, we look at things end-to-end. It extracts video from the command center. There's better knowledge base information. that's provisioned to a police officer when they get on the site. And so it's that. But I think we can't, you can never walk away from the fact that just the audio, which blew me away, has blown the customers away when they look at it in terms of voice and just what that means to the device too. The last piece of it that I would say is when we're talking to people making financial decisions, is no longer, it's not, you don't have, you don't need two cell phone bills. I think you're getting more and more value from the hub at the edge, which is the Apex radio. And I think that's the economic value that it provides as well.

Maybe a few things just on the technical side to add there. Quite a few of radio users use earpieces. And when you use the earpiece, the body one camera, if it's separate and distinct from the radio system itself does not capture that audio. It is a significant contributor to what an officer sees and hears, which feeds into our assisted narrative and other AI functionality. The SVX actually combines all of that together. In addition, from a connectivity standpoint, uh we leverage not just we don't need a separate connectivity piece in the uh in the body one camera the body one assistant it is tied to our apex next unit so the tco advantage there is quite significant as well so we see this uh as an incredibly powerful solution and last but not least on on the digital evidence management aside our redaction solution assisted with ai has been powerful. Our customers love it. The speed with which you can redact is incredible. We often hear what used to take 35 hours before now takes one hour. And that's a significant advantage for our customers. The time-saving is powerful. I think the user experience all in all is very compelling for SVX.

Great. Thank you. And then on service margins, are they still about in the 40%-ish range? And what should we see flowing through to next year?

We talked about EBITDA margins of about 45% for this year. Yes, Sylvus is performing at that level, actually, at the moment, perhaps a little bit stronger. And that's after the investments we've made in R&D and go-to-market. So particularly pleased about its not only top line growth and robust orders, but the maintenance and continuity of the profitability profile that it's affording itself as well. Thank you. Thank you, Ryan.

Thank you. Our final question will come from Amit Daryanani. Your line is open with Evercore ISI.

I guess. You know, you announced the Exxon and Hyper as well as the Bell Canada. I guess, how are you guys thinking about using M&A the rest of the year to address any more competitive gaps? And then how are you trying to balance that versus continuing organic R&D investment? Thank you.

Well, the good news is the balance sheet position we're in is really strong. And we reaffirmed obviously today our expectation to generate approximately $3 billion in operating cash flow. You know that when you think about CapEx, the dividend, and M&A, it's about 60-30-10. 60% we can do share repo, 30% dividend, 10% CapEx. So I think we are sitting in a position, we've purchased, we've bought back $118 million of shares in Q1 as we sit here today, just under 250 million of share buyback to date, but a lot of flexibility ahead, both inorganically and organically. I think the investments we're making in the product portfolio, command center, video, fixed, prem, mobile, hybrid, cloud, as well as Sylvus, as well as LMR on D-series infrastructure refresh. First time we've done that in over a dozen years. The continued device refresh, the network layered resiliency. We have a lot of opportunity in front of us and good optionality would net that to EBITDA sitting a little over two. So I think we have a lot of powder and I think we have a lot of opportunity. I don't think we have any quote unquote gaps per se. Bell Canada being a great example, that's an extension of a core business that expands the Canadian public safety footprint. That's core of what we do. We know how to monetize services. We know how to upgrade the infrastructure. We know how to do device refresh, and we know how to load applications on that P25 infrastructure and device footprint over time. We'll see how it unfolds, but there's a lot of flexibility and optionality that's in front of us from here looking to the rest of the year.

Thank you. This concludes our question and answer session. I will now turn the floor over to Mr. Greg Brown, Chairman and Chief Executive Officer, for any additional comments or closing remarks.

Yeah, I simply want to say thank you to all the motor ones and our partners for a great start to the year. I think we're really well positioned to execute on the increased expectations we outlined on the call. We just see continued strong, robust demand, not just in a strong pipeline, but again, coming out of Q1, record backlog, fantastic order performance, and we like the portfolio investments making that are clearly resonating with customers, as Mahesh referenced just a few weeks ago with one of the best testimonials there with almost 2,000 people in Orlando. We've got a strong balance sheet, strong and robust cash generation, and a lot of flexibility and opportunity in front. So excited about what's next and look forward to catching up with all of you on the next call in August. Thanks for dialing in.

This does conclude today's teleconference. A replay of this call will be available over the internet within three hours. The website address is www.motorolasolutions.com forward slash investors. We thank you for your participation and ask that you please disconnect your lines at this time.