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F500-2021-395-Motorola Solutions

Headquartered in Chicago, the data communications and telecommunications equipment provider is the legal successor of the old Motorola Inc. founded in 1928.

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The data communications and telecom equipment manufacturer serves more than 100,000 customers in more than 100 countries.

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Motorola Solutions has its roots in Illinois-based Motorola Inc., a technology pioneer that produced the first car radios in the 1930s, the transceiver astronauts used to communicate during the moon landing, and the first handheld mobile phones in the 1970s. Motorola Solutions, created when the company split in two in 2011, sells communications and security products for businesses and public safety agencies. The company’s two business segments, products and systems Integration, and software and services, sell products such as two-way radios, security cameras, and “command center” software for emergency 911 systems to more than 100,000 customers that include law enforcement, hospitals, and sports stadiums.

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Motorola Solutions (MSI): Company Profile, Stock Price, News, Rankings

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Motorola Solutions

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Good afternoon, and thank you for holding. Welcome to the Motorola Solutions second quarter twenty twenty five earnings conference call. Today's call is being recorded. If you have any objections, please disconnect at this time. The presentation material and additional financial tables are posted on the Motorola Solutions Investor Relations website.

In addition, a webcast replay of this call will be available on our website within three hours after the conclusion of this call. The website address is www.motorolasolutions.com/investor. All participants have been placed in a listen only mode. You will have an opportunity to ask questions after today's presentation. If you would like to ask a question, please press 5 on your telephone keypad to be placed in the queue.

You may also press 5 again to remove yourself from the queue. I would now like to introduce Mr. Tim Yocum, Vice President of Investor Relations. Mr. Yocum, you may begin your conference.

Good afternoon. Welcome to our twenty twenty five second quarter earnings call. With me today are Greg Brown, Chairman and CEO Jason Winkler, Executive Vice President and CFO Jack Malloy, Executive Vice President and COO and Mahesh Saptarishi, Executive Vice President and CTO. Greg and Jason will review our results along with commentary, and Jack and Mahesh will join for Q and A. We've posted an earnings presentation and news release at motorolasolutions.com/investor.

These materials include GAAP to non GAAP reconciliations for your reference. During the call, we reference non GAAP financial results, including those in our outlook unless otherwise noted. A number of forward looking statements will be made during this presentation and during the Q and A portion of the call. These statements are based on current expectations and assumptions that are subject to a variety of risks and uncertainties. Actual results could differ materially from these forward looking statements.

Information about factors that could cause such differences can be found in today's earnings news release, in the comments made during this conference call, in the Risk Factors section of our 2024 Annual Report on Form 10 ks or any quarterly report on Form 10 Q and in our other reports and filings with the SEC. We do not undertake any duty to update any forward looking statements. And with that, I will turn it over to Greg.

Thanks, Tim, and good afternoon, and thanks for joining us today. I'll begin with a few thoughts on the business before turning it over to Jason. First, Q2 was another outstanding quarter with record Q2 revenue and earnings per share that exceeded our guidance as we continue to see strong customer demand across all areas of the business. Revenue was up 5% in the quarter, highlighted by 15% growth in software and services. We also expanded operating margins by 80 basis points, which led to record Q2 operating earnings and strong operating cash flow growth, which was a record for the first half of this year.

Second, investments in public safety and security continue to be a priority for our customers, highlighted by our record Q2 orders, up 27% versus last year, inclusive of 10% growth in products. We also ended the quarter with over $14,100,000,000 of backlog, including $10,700,000,000 of software and services backlog, which is our highest S and S backlog ever and up $1,000,000,000 versus last year. And finally, based on our strong Q2 results and our increased expectation for the remainder of the year, we're raising our full year guidance for sales, earnings per share, and operating cash flow. Now I'll turn the call over to Jason, who will take us through the results and outlook before I return for some final thoughts.

Revenue for the quarter grew 5% and was above our guidance with growth in all three technologies. Foreign currency tailwinds during the quarter were $9,000,000 while acquisitions added $39,000,000 GAAP operating earnings were $692,000,000 or 25% of sales, up from 24.5 in the year ago quarter. Non GAAP operating earnings were $818,000,000 up 8% from the year ago quarter, and non GAAP operating margin was 29.6%, up 80 basis points, driven by higher sales and improved operating leverage. GAAP earnings per share was $3.04 up from $2.6 in the year ago quarter. Non GAAP EPS was $3.57 up 10% from $3.24 last year, driven by higher sales and operating margins as well as a lower diluted share count in the current year.

OpEx in Q2 was $615,000,000 up $22,000,000 versus last year, primarily due to acquisitions. Turning to cash flow. Q2 operating cash flow was $272,000,000 up $92,000,000 versus last year, and free cash flow was $224,000,000 up $112,000,000 The increase in year over year cash flow was primarily driven by higher earnings and improved working capital. And for the first half of the year, operating cash flow was a record 783,000,000, up 39% versus the 2024. For the full year, we're raising our operating cash flow expectations to $2,750,000,000 up 15% from last year and is inclusive of $75,000,000 of transaction fees related to the Silvisax acquisition as well as incremental interest to financing the deal.

Capital allocation for Q2 included $218,000,000 in share repurchases at an average price below $415 a share, dollars 182,000,000 in cash dividends, and $48,000,000 of CapEx. And subsequent to the quarter end, we closed the Silvis acquisition for $4,400,000,000 of upfront consideration, which was primarily funded through $2,000,000,000 of long term notes that we issued in Q2 and $1,500,000,000 of new term loans drawn subsequent to quarter end. The remaining consideration of $900,000,000 was settled through a combination of cash on hand and issuance of commercial paper. Moving to our segment results in Products and SI, sales of $1,700,000,000 was flat compared to the year prior, while operating earnings of $442,000,000 or 26.7% of sales was comparable, inclusive of additional tariff costs and continued investments in video during the current year, offset by lower material costs. Some notable q two wins and achievements in this segment include an $82,000,000 p 25 system upgrade for Tri County systems in the Saint Louis region, a $30,000,000 p 25 device order for the city of Miami, Florida, a $22,000,000 p 25 system upgrade for the state of Michigan, a $15,000,000 fixed video order for a US federal customer, and an $11,000,000 p 25 device order for the Las Vegas Metro Police Department.

In software and services, revenue was up 15% compared to last year, driven by strong growth across all three technologies. Revenue from acquisitions was $39,000,000 in the quarter. Operating earnings in the segment were 376,000,000 or 33.8% of sales, up from 32.3% last year driven by higher sales and improved operating leverage partially offset by acquisitions. Some notable Q2 highlights in SNS include a $44,000,000 command center order for a US state and local customer, a $29,000,000 p 25 system upgrade and LMR services order for the city of Chicago, a $12,000,000 LMR cybersecurity order for the state of Victoria, Australia, an $11,000,000 services order for the state of New Mexico, and finally, a $9,000,000 LMR services order for a US federal customer. Looking next at our regional results.

North America Q2 revenue was $2,000,000,000 up 6% on growth in all three technologies. International Q2 revenue was $738,000,000 up 4% versus last year, driven by growth in LMR. Moving to backlog. Ending backlog for Q2 was $14,100,000,000 up $150,000,000 versus last year and up $19,000,000 sequentially, driven by strong demand, including record Q2 orders, which were up double digits in both of our segments. In the Products and SI segment, ending backlog decreased $9.00 $2,000,000 versus last year and $172,000,000 sequentially due to continued strong LMR shipments.

In Software and Services, backlog increased $1,000,000,000 compared to last year and $191,000,000 sequentially, driven by strong demand for multiyear contracts across all three technologies and the impact of foreign currency, partially offset by revenue recognition for The U. K. Home office. Turning next to our outlook. We expect Q3 sales growth of approximately 7% with non GAAP EPS between $3.82 and $3.87 per share.

This assumes a weighted average diluted share count of approximately 169,000,000 shares and an effective tax rate of approximately 24%. For the full year, we now expect revenue of approximately $11,650,000,000 or 7.7% growth, up approximately $250,000,000 from our prior guidance of 5.5% growth and expect non GAAP EPS between $14.88 and $14.98 per share, up from our prior guidance of $14.6.64 dollars to $14.74 This full year outlook assumes an effective tax rate of approximately 23, which is unchanged, and now assumes a weighted average diluted share count of approximately 169,000,000 shares. Before I turn the call back to Greg, I'd like to share a few thoughts regarding the Silvis transaction. First, when we announced the transaction in May, we shared the strong financial profile of Silvis with expectations of $475,000,000 of full year 'twenty five revenue at approximately 45% adjusted EBITDA margin. Our full year outlook assumes $185,000,000 of revenue contribution from Silvis this year, representing the stub period following the transaction closed yesterday.

It also assumes that Silvis will be slightly dilutive for EPS in q three and neutral for 2025. Second, as it relates to our three technologies, we are expanding our LMR technology category to include Silvis under the new name of mission critical networks or MCN. With the inclusion of Silvis, this year, we expect NCN MCN to grow mid single digits. And from a segment perspective, the majority of the business will be reported under products and systems integration. And finally, our balance sheet remains strong following the acquisition of Silvis and the financing plan I described earlier, and all three rating agencies have affirmed our BBB level ratings.

We maintain a balanced maturity profile with approximately eight years of duration and an average coupon of just under 4.6% on our senior notes. Strong growth in our earnings power and cash generation has significantly expanded our leverage capacity, which we expect to continue to grow with Syllvis, providing us flexibility to deliver on our capital allocation framework, which includes share repurchases as well as additional acquisitions. With that, I'd like to turn the call back to Greg.

Thanks, Jason. First, I'm very pleased with our Q2 results, which highlight the durability of our business and the strength of our portfolio.

We continue to invest both organically and inorganically in solutions that are continuing to provide us with sustainable long term growth. Some recent examples include our announcement of SCX, which is a first of its kind video remote p 25 speaker mic that converts to secure voice, video, and AI and eliminates the need for a separate body worn camera. We started shipping SVX just a few weeks ago, and the customer feedback has been strong. Since the launch, we've received orders from over 30 agencies with the majority coming from customers that do not currently use a Motorola body camera, highlighting the opportunity we have to capture future market share in The U. S.

Public safety body worn camera space. In drones and unmanned systems, we've made several investments this year that allow us to capitalize on this fast growing space. With our acquisition of Syllvis, we're now a leader in mobile ad hoc networks, which provides the high speed infrastructure less communications backbone for unmanned systems in the air, on the ground, and in the water that have become increasingly important in today's defense environment as well as border security and public safety. In drone as a first responder, our strategic alliance with Brink provides us with an American made, purpose built, public safety drone that allows customers to reduce emergency response times and deliver critical supplies to those in need. And in drone detection, our alliance with SkySafe integrates their advanced solutions into our command center software and allows customers to detect, identify, track, and analyze drone activity.

And finally, we've introduced our next generation ASTRO p 25 LMR infrastructure featuring our d series base stations and AXIS consoles, which bring many benefits, including increased capacity, improved energy efficiency, and greater interoperability through leveraging complementary technologies such as low Earth orbit satellites. We received several large orders this quarter, including from the St. Louis Tri Counties and the State Of Michigan, and we're building a strong pipeline of large multiyear network refresh opportunities with expanded scope in software and services that we expect to convert to orders over the next several years. Second, I'm very encouraged by our differentiated approach to AI. We began utilizing AI when we entered the fixed video space several years ago to solve complex video security problems with AI enabled cameras and video management software, and it continues to be an important driver of growth in video software, which actually grew 25% in Q2 and has grown over 20% annually over the last five years.

Our investments in AI have continued to expand, and just a few months ago, we announced our public safety AI platform Assist, which is built around the objective of helping everybody involved in the incident workflow, from nine eleven call takers to frontline responders make better decisions and save precious time. This comprehensive approach allows us to do things no one else is doing in key areas such as AI assisted report writing, where our AI solution leverage a holistic view of the incident, including the 911 call, dispatch, and responder voice communications, as well as body worn video recording. When implementing AI, we're also making sure that we continue to build trust both with our customers and the communities they serve, which is reflected in our recent launch of AI labels in Industry First. These labels provide transparency as to what, how, and where AI is used in customer workflows, which is a critical step in the path of product trust and adoption and further differentiates us from our competitors in this area. And finally, I'm very excited about the Syllvis acquisition, which is the culmination of discussions that lasted more than a year.

When allocating capital for acquisitions, we remain committed to a very disciplined approach, prioritizing long term value creation for our shareholders. With Silvis, we're acquiring a technology leader in a rapidly growing industry that's seen impressive customer adoption and has a very strong financial profile. Their business complements our leadership in LMR and video and provides us with opportunities to leverage our strong customer relationships. Additionally, I'm particularly excited about the exceptional engineering and technical talent that the Silvis team brings us, and I look forward to working closely with them to drive meaningful revenue and earnings growth for years to come. And with that, Aaron, I'll turn the call over to Tim and open it up to questions.

Thank you, Greg. Before we begin taking questions, I'd like to remind callers to limit themselves to one question and one follow-up to accommodate as many participants as possible. Operator, would you please remind our callers on the

The floor is now open for questions. If you have a question or comment, please press star five on your telephone keypad. Line is now open.

Good afternoon, everyone. Thanks for the question. Greg, maybe I just wanted to start off. Last quarter, you put out this mid $3,000,000,000 product backlog bogey out there for year end, which based on the 2Q orders looks like you're well on track to. Maybe you can just take a moment and talk about, on a product level, where you're seeing this growth in the product orders across your portfolio.

Obviously, it sounds like the P25 devices are doing well. You mentioned a couple of deals on the base stations, as well as anything else that you can think of that you think is really driving the momentum there. And then as you think about that bogey that you put out for year end, how are you feeling about momentum tracking towards that bogey, and particularly any update just given now that you have Silvis under development? It sounds like that's gonna be levered towards product side. And thank you. And then I have a follow-up.

Yep. So, Joe, in regards to the, you know, the ZIP code of mid Threes in product backlog, which I mentioned last quarter, if anything, I feel, as good. I actually feel better about that. And just to be clear, that color did not include anything associated with Syllvis. So I still feel very good about the mid threes, even better than I did in May.

And you're right, coming out of q two with 27% record orders, 10% of that in product, I feel really good about that. I think, the strong q two orders was driven on the product side by LMR device refresh, by LMR infrastructure, and the ASTRO NEXT V series and Apex consoles I mentioned. We've also had strong fixed video orders, and one of the largest fed orders we've ever had in regards to Silent Sentinel. So it was multi product. And on software and services, we had one of our largest command center orders ever at 44,000,000.

So it was across the board, really good strength coming out of q two, which further supplements even more confidence in, quote, unquote, the mid threes or slightly better.

No. I appreciate the thoughts there. Sounds sounds wonderful. You know? And maybe as my second question, it it's more of a big picture question. Like, obviously, it's been, like, a little bit more than a month since we've had the beautiful bill get passed. There's various programs in Europe that are aiming funds towards areas that look right for Motorola, particularly now with Syllis under the covers here. Know? So just maybe one, curious as you look across these opportunities, where are you feeling most excited about, and then in both The US as well as internationally, and if there's any difference between, like, the opportunities between the two areas? And then two, how you think investors should think about the timing around these opportunities materializing for Motorola?

And then, I mean, just just to kinda hit it on the nose, are you seeing any of these opportunities trickling into your orders today? Trickling into what? Orders. Okay.

So let's start with Syllvis. I mean, look, we love Syllvis. We spent a lot of time on it as a team. You know, I've heard from some people that said, you know, this this thing actually looks too good to be true. And we spent a lot of time on it, and we love the fact that it's a market leader.

We love the fact that it was the tip of the spear and has been tested from an efficacy and a performance and a scale standpoint in Ukraine. You know, we expect Syllvis to grow about 20% in 2026. It's EPS neutral for the stub period this year, and we expect it to be at least 20% sorry, 20¢ accretive in 2026. And I love the fact that, look, Silvis powers a number of defense and military drone platforms, including Anderol and Aero AeroVironment, and it's certified with over a 100 leading manufacturers. When I think about the revenue contribution, particularly around Ukraine and Silvis, you mentioned Europe and international, we expect the revenue from Ukraine as it relates to Sylvus revenue expectations this year to be less than 15% of overall revenues, and we expect Ukraine revenue for Silvis next year to be even less than that.

So I like the fact that it's driven by, a wide base of US defense ex Ukraine and unmanned systems, and I think there'll be a lot of attention and interest in European allies, to invest in technologies that, I think Silvis will be front and center as an opportunity. As it relates to the one big beautiful bill, and maybe, Jack, you you might wanna talk about that a little bit.

Sure, Joe. I think the first thing I'd address is think of the one big beautiful bill. It's funding over the next four years.

So it's a four year horizon, and it's good news for Motorola. From a DOD standpoint, they've increased funding a $150,000,000,000, which would have been good before, but it's even better now that we've acquired Syllvis, and as Greg just articulated, their defense border and unmanned, systems trajectory. Also, there's money in there, another $70,000,000,000 for customs and border, to customers to a big customer of ours as well as ICE, another 75,000,000,000. A lot of that funding is being directed at refreshing technology, both video, secure communications, and and services as well. The last thing I'd say, which probably has been underappreciated is for our enterprise customers.

Think of our PCR channel, the accelerated depreciation of CapEx provides them an opportunity to go talk to manufacturing, healthcare customers and the like, and go talk about refreshing their network and some of the tax benefits that they have. So we're excited about the one big beautiful bill. I would add the final piece of it is the timing of it, given it was signed on July 4, and that there's a 90 We're day expecting a lot of some of that funding to actually kick in in early Q4 this year, and that's implied in our guide.

Yep. Got it. Thank you, Greg. Thank you, Jack. Appreciate all the color.

The next question is from the line of Andrew Spanola with UBS. Your line is now open.

Thank you. I want to follow-up on the question on Syllvis. The question I've gotten mostly is people are trying to understand why Syllvis. And it's interesting, it reminds me a little bit about Avigilon because when you made that acquisition, it wasn't clear why you wanted to be in video. It obviously became a much bigger part of public safety.

So are you thinking about Silvis that way? Do you see this technology becoming something much bigger to public safety and it's going be incorporated into your LMR technology longer term? Or is this a new avenue that you're going down and we're going to see you investing more in defense tech and acquiring more and creating a new business line?

How should we think about it? Yeah, Andrew, I think about it as, first, I love the fact that it's a market leader. And it's a market leader that gives us exposure to a market we don't participate in today. Unmanned systems in the air, in the water, on the ground. So, it's new.

Having said that, it's video and data centric. So it's all about ad hoc, high speed infrastructure less mobile and data and video communications. We see it in defense. We see it on border security. Obviously, to your point, we see it in mission critical deployments, primarily on the battlefield and adjacencies where there's intense conflict.

But having said that, we also see it as complementary complementary to LMR and, complementary to video. We lead in land mobile radio infrastructure and devices. This gives us an opportunity to let to lead in infrastructure less ad hoc mesh networks. Given both Syllabus and our heritage in LMR have a radio frequency or RF centricity, I like the fact that I think there's a one plus one equals three proposition in terms of expansion to new markets. This is a great, great product.

I think one of the limiting factors of their growth is their ability to to reach outside The United States and capitalize on a global print footprint where, like in Motorola Solutions, Malloy has people in dozens and dozens and dozens of countries. So, I think in the federal business, internationally, it's a new market, but I also think of it as complementary as well to LMR and video. And, you know, maybe you wanna talk, Mahesh, a little bit about the thinking, not just in what they do today, but some of the possibilities going forward.

So besides really offering, highly resilient communication, the other element of Syllabus is spectrum monitoring. And, it's probably very important to talk about in the context of drones, being able to detect drones in this case. So as part of our overall drone strategy, the ability to detect drones not just with radar, which is the most common way of detecting drones today, but also through RF, we believe really enhances and make positions us very uniquely in that space. The other very important element about Syllabus is that it's and Greg mentioned this, It's data oriented communication, and it allows for any IP device to be attached to it, including cameras.

So we believe that there's an opportunity there with cameras as well that's coming in the future.

The the only thing I'd add, and as we've discussed, Greg, is that similar to Motorola Solutions, our LMR business as well as our video security business, there's an opportunity to add recurring revenues by way of service providing, just given the nature of the customer base as I agree.

The next question is from the line of Keith Housum with Northcoast Research. Your line is now open.

Good afternoon, guys. Hey. Question for you on, maybe a little bit off the wall here, but the base station, that you guys are introducing here. I don't remember perhaps last time you actually introduced a a new base station here. And is there a pent up demand here that could perhaps be, a little bit more of a growth driver than some of us are thinking here?

Yeah. So, you're right, Keith. It's been, I think I'm gonna you're you're jogging my memory here, but I think it has been, it was probably about it was about twelve years ago when we last had our base station. But, the D Series, which we're talking about, does a few things. Number one, better capacity, provides better coverage, but also it leverages less capacity.

So think of it as a green base station, less energy consumption, which a lot of our customers have been asking for. It also adds a layer of redundancy with low earth orbit capability, to extend in certain places. But, we're really pleased. And I think, as Greg said, we've got a few big wins out of the gate. We had wins in the state of Ohio.

We had wins with the state of Michigan, who's one of the largest LMR customers. And the way to think about it is, you know, we've got a significant footprint of statewide, countywide, citywide networks that all need now to be refreshed. It'll be a multiyear phenomenon in terms of that growth. The other thing to think about is this continues to build, this continues to extend our capabilities and need for us to deliver more services for our customers, meaning cybersecurity services, which are up substantially for us this year, as well as new software monetization services for the new D Series station. The last piece of it, we're really pleased is the access, which gives us a new dispatch console through these investments we've made.

And an example of that is the city of Chicago, really proud, our hometown, we went and displaced a competitor and had a significant pickup in a command center win by way of Access Console. So again, great opportunity for us. I think it's multi year horizon, but also lends itself to new service selling capabilities as well. And Keith, most of our customers are on software agreements that keep them current and ready. What this opportunity presents is in a hardware refresh with a lot of attributes, and to Jack's point, comes with yet another opportunity to sell them additional software and services around that new new hardware.

So we view it as benefiting us long term for sure.

Great. Appreciate it. And then if I could just ask one follow-up question on on the backlog. Obviously, there's lot of focus on that recently.

But how do we look at the backlog, makeup of that? Is it similar to the disaggregation of revenue you guys have in the presentation here? Or is there a different mix we should be thinking about within that backlog?

Well, most of the backlog within S and S, services and software, comes from LMR. So I'd say the the power hitter in our backlog contribution, particularly for S and S, is LMR because of the nature of our long term contracts and the services and software business that we've built over the years.

That would be one indicator. And then, you know, the size of LMR, includes even in products. It's our largest business. So I I think those two things give you some insights around the makeup of of backlog. And to Greg's point earlier, as we began the year, we expected quick turn to accelerate, and it's done that with our record q two orders and 10% growth in products, and we expect that growth to continue into the second half.

That's long been a part of our outlook, and our outlook's improved.

The next question is from the line of Tim Long with Barclays. Your line is now open.

Thank you. Two quick ones, if I can. Greg, you talked about SCX and some of their early momentum, understanding it's only been out a month or so. Could you guys talk a little bit about what you think that will do from a ramp revenue ramp perspective as well as impacting maybe the upgrade cycle to APEX NEXT, number one. And number two, if you can talk about the video business.

Still strong growth there, very much driven by the software side. The hardware piece of that still kind of flat to low single digit type of growth. I get there's a cloud impact, but maybe can you just touch a little bit on the product side there and and what we could expect to see to potentially reaccelerate growth there? Thank you.

Yeah. Just on the SPX, and Jack and Mahesh can jump in, but as I mentioned, first of I'd say the orders are outpacing our expectations. That's number one. Number two, I love it because we're not selling a product per se, we're selling an ecosystem, and that's just not hyperbole, but SPX is anchored and runs off of an APEX NEXT. We upgraded that device.

We upgraded it to dual banded to include LTE, four g, or five g to get all the benefits of a dual banded radio, and you see us enhancing that. We're driving more applications and recurring revenue off of the APEX NEXT, and now we have the speaker mic, which is tied to every radio we sell virtually, and it displaces the need for a body camera. It's kinda like if you want an iPod, buy a body camera. But if you want a multidimensional full function device, you would just go with the SDX. And SDX is really an ingestion point that does a lot more than just body cam, which is why I referenced earlier.

It's the tipping point that ingests more information on situational awareness AI around dispatch information around nine one one, audio logs around the radio p 25 system, as well as the body cam video. So, it does more than that, And I like the early traction. It'll take time. I also like the fact that we're right in the middle of going through FedRAMP certification process. So, that continues to go well, and I'm optimistic about the timeline for that, which will in turn open up more opportunities for us as well.

Greg, the, the rest of the portfolio, as I think about internationally in the body worn cameras that we've been refreshing, we've made some some pretty significant wins in Romania, Scotland, France, Bulgaria, a number of agencies in The UK. So our international body worn camera business, which is not SVX attached to Apex Next, which is more North America Right. Continues to do well also.

And perhaps the last thing I'll say on SVX is we believe we're creating a new category here. This is a body worn assistant versus a body worn camera. It's not just recording evidence. It is all about capabilities like translation. And SVX is a gateway into assist, so you can ask questions about either situational awareness questions.

It's integrated to assist chat. So at the end of the day, we're creating a new category here. It's not just a body worn camera.

And I think, Tim, the last piece of it is just related to the fixed video business. Really pleased with our q two performance, and I'd say refreshed portfolio largely with Alta, Alta leading the engine, meaning our cloud business driving, that growth. And I think we continue to see incremental investments we make in our go to market team continue, to expand our reach, not only here in The US and in Canada, but also overseas. We've made surgical investments, in Europe and in Australia, we're starting to see the benefits of those investments that we've made, there as well. And those investments continue to show up, in higher software growth within video.

While the category of video or the technology, we expect to grow 10 to 12%, the software portion of that continues to grow much faster.

Next question is from the next question is from the line of Meta Marshall with Morgan Stanley. Your line is now open.

Great. A couple of smaller questions for me. Just on you guys have been talking about kind of this software transition, particularly on the video side of the business. Is that any meaningful headwind to revenue growth at this point, clearly kind of helping the the backlog transition? So just a question there.

And then just second, kind of any update on, Apex Next, adoption rates? Thanks.

So on cloud adoption within video, as Jack mentioned, we continue to see the fastest growth within our cloud platform of Alta. Orders are greater than sales. Although we're able to manage through the deferred revenue transition, we haven't outlined a number this year as to what that is because we're managing through it and still printing significant growth. So I'd say cloud is on path in video. And then the second question in terms of Apex Next adoption, Jack? Yeah.

Sure. So Apex Next, couple of things. Q two, let's start there. Double digit order growth with Apex Next.

We just spoke about SVX, but it's important to note that the SVX is exclusive to the Apex Next family, which helps, which, you know, from the collaborative aspect there, benefits both SVX as well as Apex Next. The last thing that I would note that we talked about before is it's also driving our application service business. So for every Apex Next radio, and we've got greater 90% attachment rate, it's $300 a radio and application services per year. So we continue to see the benefit. I think SVX has also been a tailwind in terms of customers making that conversion and looking to move from Apex Original to Apex Next.

The next question is from the line of Amit Daryanani with Evercore ISI. Your line is now open.

Thanks. And I just have two as well. Maybe to start with, operating margins came in better than our end street expectations. So can you just touch on, a, what the tariff headwinds were in the quarter for you folks? And then b, just what's the durability of the lever that helped the operating margins here?

Yeah. Thank you. So gross margins were were up on higher SNS sales, and operating margins were up on both margins in SNS as well as leverage elsewhere. So an update on tariffs. We are estimating that this year's tariff impact will be about 80,000,000 down from the 100,000,000.

That's in part due to mitigation exercise, medic mitigations and other things that have changed. We began seeing the tariff impact in late q two. Most of that 80,000,000 is in front of us in the second half. So the operating margin expansion that you saw didn't have a significant impact from tariffs. It was more core to the business on improved mix and S and S.

And Amit, we a quarter ago, we said gross margins would be comparable for the year. We now expect gross margins to be up year on year. And to your point on operating margin expansion, we envision about 100 bps, 100 basis points expansion year over year. And that improvement is coming not just from the addition of Syllabus, but from also the core business. Both are helping gross margins and operating margins this year. Exactly.

Super helpful. And then maybe just shift gears a bit. Can you just talk about how do you think you're positioned to address sort of this growing focus in the unmanned systems market as you go forward? And how big do think this can eventually become for you folks? I get Silvas gives you a really good presence there, but just want to understand, like, know, on longer term, how big do you think this unmanned systems market can get? And then maybe somewhat specific, do you think Silvers enables you to participate in, like, some of the initiatives that the Pentagon has, like, replicated or the DIU autonomy pushes they're making? Thank you.

Well, Amit, let me just talk about the TAM first. We see the TAM for unmanned at about $3,000,000,000, and growing, probably one of the fastest growing TAMs we have now with the addition of Syllvis now in the portfolio. And we would expect that TAM not be surprised to double it in the next four

years. And maybe just focusing a bit on drones, per se, if you think about our drone strategy right now, we have we have three elements to it. There's drone as a first responder. This is our strategic alliance with Brink, in North America. We also have a solution for international.

Given the increased FAA waivers in 2025, we see that as a significant force and that strategic alliance with Brink, I think, is important. And we see our mission critical networks, Syllabus in particular, also integrating with Brink in that scenario. For communications, we just talked about it. I think Syllabus is dominant in terms of being able to be the most resilient communication mechanisms, low probability of detection, low probability of intercept for drones, which I think is a key driver and that continues to grow. And finally, drone detection and forensics. We have a partnership with SkySafe. And as I mentioned before, with Silvis, we have the ability to detect drones leveraging their spectrum monitoring functionality as well. So across those three things for drones as a specific instance of unmanned systems, that is our strategy there.

K. The next question is from the line of Ben Bollin with Cleveland Research Company. Your line is now open.

Good afternoon, everyone. Thank you for taking the question. The first one, I'm interested in your thoughts on what the Syllvis sales motion looks like. Could you maybe compare and contrast it to your existing sales motion? And any preliminary thoughts you have on getting your existing sales teams up to speed and out there accelerating this and driving more attach? And then I have a follow-up.

Sure. So their sales motion, they've had it's amazing the success that that team has had. When we first started a year ago, they had a relatively small sales team that was largely focused, in The US. And some of The US sales resources focused outside the Continental United States would call on bases, etcetera, in Europe and other points abroad. It's a direct sales motion largely, given the size and the strategic level of of the selling process.

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