Description

Buy Motorola Solutions Inc. (ticker: MSI)

Summary

Motorola Solutions (MSI) is a somewhat underfollowed, steady GARP compounder. 

When you hear of Motorola, you might think of the old school flip phones.  Back in 2011, Motorola split into the consumer mobile phone biz (including cable modems and TV set top boxes), and Motorola solutions (enterprise oriented products).  In May 2012, Google acquired Motorola Mobility for $12.5bn, mainly to get their patent portfolio and try their hand at cell phones.   Google sold the cable modem and set top box business to Arris.  Then Google sold Motorola Mobility to Lenovo for $2.9bn,  clearly it was a disaster acquisition.  

Basically, Motorola Solutions is a supplier of walkie talkies and related infrastructure/software/services to governments (e.g. police, firefighters, first responders) and companies.  You might think that walkie talkies are going away, but you’d be very wrong.  These devices are extremely sticky, robust, integrated, and mission critical.  Cell phones simply can’t get the job done in many of these situations.  Cell phones don’t have the ruggedness, battery life (MSI products can last for 12+ hours under heavy use), reliability, and integration that MSI’s products have.  

MSI frequently builds and operates the wireless networks that their walkie talkies operate on, which are far more reliable and hardened to withstand natural disasters, power outages, floods, fires, etc. 

MSI trades at 24x 2022 P/E, 1.3% dividend yield, 16x EBITDA

This has generally been a steady, HSD % revenue compounder, and low teens % CAGR EPS compounder,  with generally little macro sensitivity to its business.  The stock has had a 14% pullback lately as well. 

I think there’s 25%+ upside over the next year from mid-teens EPS growth (my #s are a few % above consensus), 10% multiple expansion, and the small dividend. And continued teens compounding over time in general.

They have by far the dominant market position (with around 70-80% market share in US first responder walkie talkies), stable and durable growth, consistent execution, strong cash flow generation, reasonable/cheap valuation vs. comps, and smart capital allocation (good combination of financially accretive tuck-in M&A. dividend, and buyback)

I think estimate upside will come from faster video growth and more market share gains in body cams as they take share from Axon.  Plus, they’ll be a beneficiary from Biden’s stimulus efforts and whatever comes from the Build Back Better plan, as states and municipalities can generally use the money to improve their first responder and communication infrastructure.  

Also, supply chains getting better will also help their commercial business bounce back (which is still down 20-30% from pre-COVID levels).  MSI has been prioritizing their emergency services customers, and hence much of the commercial demand has been unmet.  That should improve as supply chains normalize.  Their commercial biz has plenty of hospitality, travel, and entertainment exposure, which also has room to recover. 

Valuation multiples should also re-rate higher as software and services become a larger part of the business (software, services and video are now 50%+ of revenues), and as margin continue to expand. 

I’ve done some expert calls and channel checks recently that point to MSI’s continued strength and innovation in the space, as well as upside across their segments as supply chains improve and from stimulus.  Also from continued upgrading and evolution of customer systems from a very outdated levels 

Company Description

Motorola Solutions, Inc. is a leading global provider of mission-critical communication devices, infrastructure, and services for governments and enterprises. The company was founded September 25, 1928! and is headquartered in Schaumburg, Illinois. It operates through two segments: Products and Services. 

• The Product segment designs, manufactures, sells, and provides services around voice and data communications systems, security products (portable and fixed radios and video cameras) and applications. It also sells public safety communications systems, commercial two-way radio systems, and software

• The Services segment provides a full set of service offerings for government, public safety, and commercial communication networks. Offerings include command center software, video software solutions, managed services, maintenance and support, integration services, and lifecycle support services

MSI participates in three core markets: 

• Mission critical communications (“Land Mobile Radio” - i.e. walkie talkies and LTE based products)

• Primarily focused on land mobile radio (LMR) for voice connectivity and LTE for broadband level services. Key customers are largely in the public sector. MSI operates 13,000 major LMR networks globally 

• MSI's exposure to government customers (~75% of total revenue) comes largely from mission critical communications use cases, most heavily leveraged for law enforcement and public safety personnel

• 

• Command center software

• Largely services the public sector and is characterized by significant customized contracts with municipalities, coordinating police, fire, and emergency medical services (EMS)

• Implemented in 3,500+ (of ~6,000) 911 centers in America. It is an ERP system used to manage 911 calls, dispatch services, and records/evidence management. MSI software unifies the entire workflow. Current systems are very outdated and requires significant upgrading (for example, 911 call centers are mostly a voice operation, and cannot receive data and text).  There’s a long tailwind of modernization left

• Current systems are outdated. Dispatchers perform 7 tasks at once, on 6-8 screens, multiple keyboards, multiple siloed applications. 75% of 911 call centers can’t receive a text. ~10k more lives could be saved each year if 911 could get to callers one minute faster 

• Video security and analytics

• Utilized by both public and private customers. Includes fixed video (70% of this segment), mobile video (in-car dash cam and body cam), analytics and video software

• For example, for critical infrastructure around airports, stadiums, hospitals, and schools, the fixed video capability is integrated with land mobile video that’s feeding alarms and alerts into a 911 center. It enables the customer to detect, analyze and communicate breaches and potential crimes without any human intervention 

• This is a focus area for MSI with attractive growth opportunities, expected to grow 30% this year 

MSI’s overall implied market share is ~45%, skewed higher to government customers. Over ~80% of MSI's product business is related to LMR/push-to-talk radio sales, implying ~45% market share of the total $11bn mission critical SAM identified by the company. Key competitors in mission critical communications LMR are L3Harris Technologies, Hytera, Airbus SE, and Kenwood Corporation.

Revenue Breakdown

Industry Overview 

Land Mobile Radio (LMR) is the leading technology powering push-to-talk mission critical use cases. ~80% of the push-to-talk technology market in North America leverages LMR technology rather than cellular. Although cellular push-to-talk usage is increasing at a ~50% faster rate (12% CAGR expected through 2027 vs. 8% LMR CAGR), the bulk of the market is likely to remain serviced by LMR for the foreseeable future. 

This speaks to the overall differentiation of LMR as a means of mission critical voice communication, even as cellular technology continues to improve. Government / law enforcement is the largest customer set in the market, accounting for ~38% of total spending on push-to-talk technology in North America. Enterprise / commercial verticals including transportation & logistics, travel & hospitality, energy & utilities, manufacturing, and construction account for the remaining ~62%

For first responders, they need a product that can last an entire day under heavy use.  Something that has readily accessible buttons and speakers so they aren’t fumbling around with a touchscreen when they’re in a dire situation (BTW, the touchscreens are specialized so they work well with gloves).  The devices need to be easily upgradeable and serviced as well.  They also have to integrate with the overall command center software and tools.  These products are designed with police, firefighters, etc. in mind. 

Public safety market is in need of technology modernization as next-generation technology can improve transparency and efficacy of public safety personnel. Specific technology advances include more advanced location-enabled / integrated radio capabilities, LMR/LTE voice interoperability, video integration, and software efficiency. For example, police can now do automated background/ID/license plate checks, voice operate their handsets, etc.  

MSI is the incumbent supplier in LMR, command center software, records and evidence management, and video security products, which gives them a lot of upsell and cross sell opportunities (e.g. software, and body cams). MSI’s long-standing relationships with states and municipalities gives the company leverage into growing technology adoption categories (e.g. location accuracy, real-time video, AI/video analytics, integrated software/control).

For example, in many states and countries (e.g. Norway, UK, Nebraska, Florida, Illinois, Pennsylvani, etc.)  Motorola built and operates their entire first responder network.  Motorola has built 47 statewide networks in the US

Historically, law enforcement spending generally increases over time. Even in years following the last major macroeconomic downturn in the US, police department budgets continued to grow and recent stimulus packages have included specific funds to cover gaps in state and local budgets, with relative spend on law enforcement capturing a consistent ~3% of overall state and local budgets.

For commercial customers, there are many reasons why walkie-talkies are needed instead of cell phones.  For example, if you’re a security guard or maintenance person in a massive office building, or hotel, in many locations you won’t get reliable wifi or cell service, especially when you’re in deep basements.   MSI’s products are on lower spectrum frequencies and higher power (which provides better penetration and propagation).

Many retailers, I believe even Apple Stores, use Motorola products. 

If you’re at a concert with unreliable wireless service, the roadies can use the walkie talkies to talk to each other reliably and quickly using device to device communication.  So they don’t require any existing infrastructure. 

MSI is also a quasi re-opening trade.  A meaningful chunk of their customers are in the entertainment, travel, hospitality, events, space.  That was under pressure of course through COVID.  As that goes away, these customers will come back and buy more product as well.  

Investment Thesis

• Land Mobile Radio (LMR) network is indispensable for secure and encrypted public safety usage

• LMR remains the backbone of push-to-talk mission critical communications

• LMR networks are costly to deploy, which result in very sticky installed base.  MSI often builds and operates these networks for municipalities.  E.g. they are putting in the base stations, repeaters, towers, antennas and the whole ecosystem.  This isn’t something that is easily done by anyone. 

• Network replacement cycles are usually 10-15 years, with customers adding additional sites and coverage capacity

• Devices are on average refreshed every 7 years, leading to steady upgrade cycles and growth. 

• Total LMR network costs include configurations, hardware, land, network management systems and software. Contracts often last over a decade and implementations are highly customized 

• LMR offers sticky/durable installed based with predictable cash flow and earnings  

• LMR network provides fail-safe reliability during natural disasters with fewer network operating sites and lower power requirements

• Complete network outage can still be managed by device-to-device communication capabilities. Used for public safety communications in areas such as law enforcement, fire, and EMS  

• For example, during the recent Hurricane Ida, cellular/LTE networks in the same areas experienced significant outages. It reinforces the notion that LTE (and AT&T’s FirstNet) cannot provide a like-for-like replacement for LMR

• 28% of LTE cell sites were down after Hurricane Ida made landfall across 101 counties that were declared a disaster areas

• Between 60-100% of cell sites were down in the evacuation areas 

• LMR performed as expected and consistent with past natural disasters. Even when a LMR site is down, users can operate in device-to-device mode (without needing infrastructure), whereas cellular/LTE cannot do so  

• There was concern many years ago that AT&T’s FirstNet (their emergency first responder nationwide network), would disrupt Motorola.  But it hasn’t at all.  There have been no good LTE/mobile product that have challenged Motorola’s dominance.  If anything, LTE has helped Motorola add and upsell new features on its products, like data, voice operated, automatically scanning ID cards, automatic background checks, etc. 

• LMR network base stations have generators that work for a week (vs. cellular carrier base stations only having 2 hours of battery backup).  The network can still operate if multiple sites fail, or work device-to-device if the network fails

• MSI is the incumbent technology provider with strong relationships that is well positioned to capture growth in next-gen technology implementation 

• MSI provides technology into use cases where trusted reliability and performance is a requirement for participation, creating a defensible moat, particularly with security sensitive buyers from government agencies. MSI has benefitted from the anti-Chinese sentiment. The National Defense Authorization Act banned US government from procuring products from Hytera, Huawei, ZTE, Hikvision and Dahua (#1 and #2 in fixed video market), which has became a secular tailwind for MSI.  There’s a lot of share shift to gain there

• As the market moves to integrate real-time video streaming to supplement radio feedback in the command center, MSI is well positioned to capture consolidation of software share which will strengthen its competitive moat 

• Last quarter, MSI’s video security segment grew by 40% y/y, and its growth outlook has improved to 30% per year from 20%+ previously

• Hivision is growing around 15-20%,  so MSI is taking share and benefitting 

• MSI is benefitting from the Federal Stimulus Programs (such as Cares Act and American Rescue Plan) which include $350bn for state and local funding, $170bn for school funding, and $38bn for airports and transportation through end of 2024

• States will get hundreds of billions of more funding in the recent and upcoming stimulus that can indirectly be used for MSI solutions 

‘=

• Attractive margin profile, consistent performance track record, and compelling capital allocation framework 

• Consistent operating efficiency gains and share repurchases 

• Operating margins has increased from 16.7% in FY11 to 24.8% in FY20

• MSI was primarily focused on LMR hardware (80% of rev in 2015), overtime it has pivoted towards more software and services offerings (now 50% of rev)

• Margins should continue to improve as software grows faster and become bigger part of the rev mix. Software business margins also continues to improve, it was 34% in 2020, and expected to be close to 36% this year 

• In 2021, expects to drive 50% of rev from video security, command center software and services

• Diluted shares reduced by ~50% since 2011, from 340mm in FY11 to 174mm in FY20

• Returned $20bn via share repo and dividends over the past 10 years 

• Recurring revenue is ~40% of total mix  

• MSI has focused its acquisitions on video security and analytical software, which offers faster growth potential 

• Current leverage is around 2x, offers balance sheet flexibility to execute more technology focused M&A

• $5.2bn in debt, $1.3bn in cash

• Targets net leverage of 2-2.5x to maintain its investment grade ratings  

• 50% of operating cash flow for M&A and share repurchase, 30% for dividend, 20% for CapEx 

• Company has been through several rounds of activist scrutiny (Carl Icahn, ValueAct, Silver Lake) and optimized its cost structure and divested non-core businesses

Financials, Valuation & Upside Potential

Overall, it's a HSD rev compounder and 10%-low teens EPS compounder. Plus a 1.3% dividend yield,  which I think will slowly accelerate from the above tailwinds. 

The revenue growth is driven by continued price hikes, refresh cycles to higher tech devices (e.g. adding data and video capabilities), selling extra services and software on top of their equipment (e.g. 911 / command center upgrades -  the majority of police stations still only rely on voice and legacy systems), embedded escalators in their service contracts, and video growth. 

Management has been great at executing and shifting the biz to higher growth areas, expanding margins, making smart tuck-in acquisitions.   Their biz is now 50% services, software, and video,  which are faster growing, more recurring, and higher margin.  I think that will continue to boost their growth and margin over time and also be a tailwind for their valuation multiple. 

MSI will have extra tailwinds as public spending bounces back and could benefit from the infrastructure bill as local governments modernize their systems.  Plus governments around the world are shifting away from Chinese products given national security concerns, giving them more share / TAM.   

And they're getting into body cams. Body cams are dominated by Axon, but MSI has a lot of room to take share given their relationship and integration with police departments.  I think it’s an easy cross sell 

Years ago, people were afraid FirstNet (AT&T's wireless first responder network) would take share,  however it hasn't at all and actually has provided incremental rev opportunities.  The FirstNet devices and network aren't reliable enough or rugged enough.  First responders don't want to switch from their current ecosystem.  MSI is now adding 4G/5G capability which enables data, video, etc. to their devices and getting extra rev and margin

• Next major device upgrade cycle will drive growth above current street estimates

• MSI just recently released the APX NEXT, which is a dual-mode radio, which can seamlessly transition between LTE and LMR networks 

• The next major upgrade is in radio devices adopting LTE enabled features and interoperability between LMR and VoIP, which will be a catalyst for device upgrades that come at a higher ASP

• The upgrade will provide more data and multi-media capabilities (such as real-time video streaming, device data sharing, more advanced camera technology, and solution-oriented software offerings)

• Overall, the LMR market is expected to grow at ~9% CAGR through 2025 per TechNavio reports

• MSI had traded at a premium to the market pre-COVID given attractive growth and software opportunities

• Recent growth headwinds were driven by project delays due to the pandemic, which should normalize going forward 

I think there's 25-30% upside over the next year from the mid teens EPS growth over the next year (slightly higher than cons), and 10% from some multiple expansion as growth accelerates and software/services/video/body cams become a bigger part of their biz. 

There’s negligible short interest

Cap structure

$1.7bn cash

$6bn debt

$40bn mkt cap

Comps

MSI is a little under the radar partly because of the company name (people think it's the old Motorola phones) and it falls through the cracks coverage wise since it's a bit unique. It’s covered by a lot of telco equipment analysts and hence it’s typically compared to a bad set of comps

MSI’s exposure to government vertical is more positive than peers, given stable nature of the installed base that is relatively less subject to macro disruptions, and it offers higher barriers to entry. Networking names such as TRMB, ZBRA, ANET with secular growth and higher software mix trade at 25-34x NTM P/E. 

While MSI trades at 24x 2022 P/E, i.e. some upside relative to peers, despite what I think is a better business

Axon trades at 70x P/E, 8.4x revs, and 42x EBITDAfor 20% rev growth.  Of course not entirely comparable

Risks

• In July, UK’s Competition and Markets Authority (CMS) indicated that it may investigate MSI’s role in the Airwave (UK’s first responder network) and ESN Public Safety networks. A decision to open a formal investigation will be announced sometime in September

• Motorola purchased Airwave, they run the radio network in the UK 

• The UK is alleging because Motorola owns and operates the LMR network and wont bid on building 4G network.  They have no incentive to build out their 4G network (this is a silly argument,  they sold it to MSI in the first place)

• Airwave is very similar to firstnet,  UK is building their version of firstnet.  MSI is allocated some of the build.  There are other equipment vendors

• They'd build towers and pieces like that that help operate the network;  don't need as many radios,  to make the network as efficient and lower cost

• Airwave does something like $200mm of recurring subscription revs (3% of total),  it's a piece of LMR services segment

• The UK is just trying to make sure they’re getting a good price.  However this is sort of an unfair tact the UK is taking.  They sold the biz (got cash upfront), and now squabbling over the service revs

• MSI will still get something off this, but it’s a negotiation as usual with any government

• Key man risk

• CEO Greg Brown is very well regarded

• Tail risk that LMR might get replaced by cellular/LTE

• Reliability and mission critical nature are not replicable under LTE, especially direct device-to-device communications 

• Losing out in the next generation tech adoption < which I think is very unlikely  

• Reduction in law enforcement spending 

• Low likelihood that they will cut technology spending, which should help offer greater transparency and visibility 

• The majority of the top 50 US police department budgets held stable into 2021 despite calls for reductions of police funding and state and local budget challenges. Cuts are largely focused on payroll and overtime costs 

Background on LMR and FirstNet

The ruggedized handheld devices that can withstand years of abuse in challenging

environments. While LMR devices can cost up to $2,500/unit, the life span of a device

can run as long as 10 years.

LMR radios operate on dedicated licensed spectrum – reserved for public safety workers only. This is a key asset vis-à-vis cellular technology. In the case of an emergency situation, it’s vital that public safety workers have access to the network; and

Echo cancellation – emergency environments can be noisy. Echo cancellation removes background noise from the transmission.

Additional safety attributes – such as Ruthless Pre-emption, which allows certain safety workers (such as the Chief of Police) to pre-emptively gain access to the network at the expense of less-critical public safety workers. Other safety attributes include the ability to hit an emergency SOS button on the device.

MSI 5 year

MSI since 1980

Recent mgmt takeaways from Barclays in Dec 2021

What’s Incremental

·      Public Safety spend environment robust. Management noted that the backdrop for funding is probably the strongest they have ever seen.  government stimulus injections (CARES Act, ARPA) have created a favorable spend environment this year, and heading into 2022+. Most notably, ARPA will inject roughly half a trillion stimulus into state and local, education and airports/transit. MSI has not seen a significant number of ARPA deals close yet, which we believe standard as larger deals can take longer to close. We also believe the stimulus is notable due to the propensity for governments to push to the right funding deadlines. Recall, MSI is still indirectly receiving CARES Act funds (which originally were supposed to only go through 2020).

·      Margin leverage remains. Despite significant margin expansion over the past few years, largely driven by the Software & Services segment, management still expects further margin upside heading into 2022+. MSI is on track to post 36% operating margins for its Software & Services segment this year, and we believe with the segment expected to grow ~10% in 2022, that further margin enhancement lies ahead. It’s also important to note that Products & Systems Integration operating margins are expected to expand this year, but are still not back to 2019 levels. We believe there’s a path to further margin expansion as the Products & Systems Integration segment grows to 2019 levels and beyond.

·      Video poised for continued growth, Access Control complementary. The Video segment is expected to become an over $1.2Bn business for MSI by FY21 end. Management sees customers’ need for video growing and they are positioning their business to take further share in the ~$18Bn market. In fact, MSI’s video business is now the #2 in North America (behind Axis). The favorable regulatory backdrop, increased sales force, and push into the government market are all factors behind this year’s expected >20% organic growth for the business. The Access Control piece of the Video segment is roughly $4Bn of the $18Bn TAM, and better positions MSI in the entirety of the market. MSI’s Access Control solutions drive additional camera sales, as they complement cameras in buildings and provide a more total security solution.

·      Command Center still growing faster than the market. Although management walked down the FY21 20% growth expectations for the business last Q, management expects the business to grow low double-digits this year, which is roughly 1.5x the market growth. The fragmented market, certain customer delays and customer preferences to move to a more hybrid model (vs 100% cloud) were cited as factors in the walk down in growth expectations. However, we believe the business should continue to grow and eventually inflect as MSI penetrates the overall install base further and cloud adoption accelerates.

·      PCR (commercial customers) remains a pressure point, though supply lines increasing. From a pandemic standpoint, the PCR business was the hardest hit business initially and is the one hardest hit by supply chain issues. Management has seen a bit of recovery, and believe the business will eventually get back on track. The demand recovery has been strong, however, supply has not been able to match available demand. MSI prioritizes Public Safety (in terms of supply), which we believe prudent, but that continues to pressure PCR’s supply lines. We expect next year to remain challenging, however, management is seeing opportunities to increase supply lines. It’s important to note that they are doing as good as, if not better than, the competition, in terms of meeting customer demands.

What to do with the stock

·      We remain Overweight on MSI as we see strength in LMR and growth in Video and Software & Services, despite the supply chain constraints.

Channel checks / expert calls:

Product quality:

MSI´s products are perceived as solid, probably as the best in the industry, especially for radio. MSI´s services are perceived as high value and priced accordingly. Competition is very good, especially in enterprise and mid market.

MSI has a wide portfolio and therefore many competitors. Generally the products are strong and the company aims to be no 1 or 2 in the various markets. Generally their products and services are well liked. In most areas their competitors are smaller so can appear to be more flexible and faster moving.

Budgets:

Government budgets and spending are improving,  stimulus will help.  Many grants are going live soon

Public safety budgets are usually prioritised and are often the last things to be reduced. Stimulus and grants always help in the sale process as customer often have to ‘use it or lose it’ when it comes to spending.

Body cam opportunity:

Their body cam business is perceived as incipient but targeted in the right direction. Other software they can upsell is Avigilon´s ACC7, additional analytics & AI. Other services include integration and financial services that the can add to the equation

Body cam represents a platforming opportunity onto which MSI could attach a lot of their suite.

As the landscape for LEO safety continues to be a top concern for municipalities, there is great opportunity for the MSI body cam solution.

Body cam are a significant opportunity. MSI is not no 1 by market share but is winning significant contracts. Evidence Management is an upsell opportunity and this provides a good source of recurring license based revenue.

Axon owns 80% of the market,  10% is other vendors, and 10% hasn't rolled out yet. 

Axon is already collecting digital evidence,  build on command center evidence, and looping into body cam.   MSI has some in 911 call center, and radios, try to sell more records, etc. depends who wins the consolidation.  Both can be successful. More body cam live streaming into the dispatch center.  They’re trying to see what can make law enforcement more efficient and more effective.  

Yes, it’s a definite opportunity though their biz in the area is still small and they are competing against a large competitor in the space with other added value to law enforcement customer - Axon (but also others). Yes they have other software solutions and offering which connect to it but are still working to fill a competitive gap vs. Axon which is leading the cloud based offering for the segment and by now has developed additional vertical

Supply Chain:

Severe impact from supply chain, with all manufacturers, 8-11 week and longer delivery lead times are not uncommon. Except for Hytera

Yea there have been shortages, mostly for commercial customers. There's a lot of pent up demand for their products, in re-opening sectors

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Recent Barclays channel checks

Supply chain constraints pressuring PCR. Many VARs referenced delayed shipments as cause for general lack of PCR device supply. Expanding backlogs are common, as many indicated a notable spike in commercial/enterprise demand over the past few weeks (after a relatively weak 1H), with delayed shipments hampering order fulfillments. Supply vagaries seem to be concentrated around the lower-tech devices (majority PCR segment), as none mentioned Public Safety customers (who utilize higher-tech devices) prey to these issues.  

We believe the deteriorating supply chain will limit LMR upside potential this year, keeping FY21 PCR expectations ~+8%. However, this year’s lost growth should be next year’s gain – many VARs highlighted a lack of cancelled orders, with customers understanding of the supply situation. We expect heightened FY22 PCR growth expectations, assuming supply pressures ease, thus accelerating order fulfillment.

Analytics driving video interest. Many of the VARs we spoke to carry Avigilon products and were able to give us helpful insight. Although MSI’s entrance into the video business began ~3 years ago with the acquisition of Avigilon, many of the VARs we spoke with (who historically focused on MSI’s land mobile radio solutions) noted they are relatively new in selling MSI’s video portfolio. Interestingly, many noted an increasing skew of inbound interest compared to VARs educating the customer base. Both increased funding and MSI’s video analytics portfolio were highlighted as the main drivers for interest around video.

We believe customer budgets will continue to become more accessible to video cameras and analytics as customers increasingly look for ways to heighten transparency, improve efficiency, and shift video utilization from reactive to more proactive applications.

Model from MS

Catalyst

Faster video / security camera growth (as they take more share from Hikvision)

More market share gains in body cams as they take share from Axon. 

Tailwinds from Biden’s stimulus efforts and whatever comes from the Build Back Better plan, as states and municipalities can generally usesome of the money to improve their first responder and communication infrastructure.  

Supply chains getting better will also help their commercial business bounce back (which is still down 20-30% from pre-COVID levels).  MSI has been prioritizing their emergency services customers, and hence much of the commercial demand has been unmet.  That should improve as supply chains normalize.  Their commercial biz has plenty of hospitality, travel, and entertainment exposure, which also has room to recover. 

Valuation multiples should also re-rate higher as stickier and faster growing software and services become a larger part of the business (software, services and video are now 50%+ of revenues), and as margin continue to expand. 

Continued accretive and smart tuck-in M&A that expands growth and margins