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F500-2021-395-Motorola Solutions

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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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Afternoon, and thank you for holding. Welcome to the Motorola Solutions second quarter 2026 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 star five on your telephone keypad to be placed into the queue. You may also press star five again to remove yourself from the queue. I would now like to introduce Mr. Brian Piotrowski, Vice President of Investor Relations.

Mr. Piotrowski, you may begin your conference.

Good afternoon. Welcome to our 2026 second quarter earnings call. With me today are Greg Brown, Chairman and CEO, Jason Winkler, Executive Vice President and CFO, Jack Molloy, Executive Vice President and COO, and Mahesh Saptharishi, 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 have posted an earnings presentation and news release at motorolasolutions.com/investors. 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 2025 annual report on Form 10-K, 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. I'll now turn it over to Greg.

Thanks, Brian. Good afternoon, and thanks for joining us today. I'll start off by sharing a few thoughts about the business before Jason takes us through our results and outlook. First, Q2 was an exceptional quarter with record sales and earnings. Revenue was up 13%, driven by double-digit growth in both segments and all three technologies. Products and Systems Integration delivered an outstanding quarter, growing 15%, highlighted by mission-critical network sales that exceeded our expectations in public safety LMR, along with continued strength in Silvus. Software and Services also continues to perform well, growing 10% in the quarter. Additionally, Q2 included operating margin expansion of 140 basis points, excluding the benefit of the IEEPA tariff refunds. Second, our Q2 results and broad-based demand provide strong momentum for continued growth heading into the second half of this year, led by our APX NEXT devices and next generation D-Series infrastructure.

Our latest generation APX NEXT devices continue to redefine mission-critical reliability and are increasingly integrated with new features that leverage our entire ecosystem. On the P25 network side, interest in D-Series is growing as agencies prioritize the modernization of their core mission-critical communications platforms. Finally, demand for our safety and security ecosystem remains robust, fueled by record Q2 orders in all three technologies. As a result, we achieved a record Q2 ending backlog of $15.6 billion, which is up 11% versus a year ago. As a result of the strong Q2 performance and growing momentum, we're again raising our full-year guidance for both sales and EPS. With that, I'll now turn the call over to Jason.

Thank you, Greg. Revenue for the quarter grew 13% and was above our guidance with double-digit growth in both segments and in all three technologies, primarily driven by strong LMR demand and accelerated quickturn conversion. Revenue from acquisitions was $243 million, while foreign currency tailwinds were $35 million during the quarter, consistent with our expectations. GAAP operating earnings were $809 million or 25.8% of sales, up from 25% in the year ago quarter. Non-GAAP operating earnings were just over $1 billion, up 26% from the year ago quarter, and non-GAAP operating margin was 32.9% up 330 basis points. The increase in both GAAP and non-GAAP operating margin was driven by higher sales and improved operating leverage, inclusive of higher direct material costs and a $60 million benefit from the IEEPA refunds recorded during the quarter. Excluding the refunds, non-GAAP operating margins expanded by 140 basis points.

GAAP earnings per share was $3.33, up from $3.04 in the year ago quarter. Non-GAAP EPS was $4.41, up $0.84 or 24% from $3.57 last year. The growth in EPS was driven by higher operating earnings and a $0.25 benefit from the IEEPA refunds, partially offset by higher interest expense in the current quarter. OpEx in Q2 was $673 million, up $58 million versus last year, primarily due to acquisitions. Turning to cash flow. Q2 operating cash flow was $469 million, up $197 million from last year, and free cash flow was $414 million up $190 million. The increase in both operating and free cash flows was primarily driven by our higher earnings, partially offset by higher investments in inventory. Capital allocation for Q2 included $326 million in share repurchases at an average price of $413.53 per share, $201 million in cash dividends, and $55 million in CapEx.

During the quarter, we also entered into a definitive agreement to acquire D-Fend Solutions, an industry leader in counter-drone solutions, for $1.5 billion, which we expect to close during the second half of this year. We are targeting to close the previously announced acquisition of Bell Canada's LMR Network Services business in late Q4. Moving to segment results. In the Products and SI segment, sales were up 15% versus last year, driven by growth in MCN and video, with MCN exceeding our expectations in public safety LMR, and continued strength in Silvus. Revenue from acquisitions was $210 million, and foreign currency tailwinds were $19 million during the quarter. Operating earnings were $599 million, or 31.4% of sales, up 470 basis points from 26.7% in the prior year, driven by higher sales and improved operating leverage, inclusive of higher direct material costs and the IEEPA refunds.

Excluding the refunds, operating margin expanded 150 basis points during the quarter. Some notable Q2 wins and achievements in this segment include a $36 million P25 device and SVX order for a U.S. federal customer, a $20 million P25 device order for Atlanta, Georgia, a $17 million P25 device order for Miami-Dade Corrections in Florida. We also won three large awards for our next generation P25 infrastructure. A $52 million order from a U.S. federal customer, a $34 million order with a state and local customer in the Southeast region, and a $22 million order for St. Louis County, Missouri. All of these demonstrate the continuing customer demand for D-Series and a strong foundation for future Software and Services growth. In Software and Services, revenue was up 10% compared to last year, driven by growth across all three technologies.

Revenue from acquisitions was $33 million, and foreign currency tailwinds were $16 million in the quarter. Operating earnings in the segment were $433 million, or 35.3% of sales, up from 33.8% last year, driven by higher sales, inclusive of a favorable mix. Some notable Q2 highlights in this segment include a $24 million P25 services order for a North America energy company, a $20 million command center order for the Montana Department of Justice, a $16 million P25 services order for Fulton County, Georgia, and a $14 million command center order for Hillsborough County, Florida. During the quarter, we also secured two large wins for our mobile video ecosystem. A $25 million order with the Florida Highway Patrol, and a $24 million order with the Kansas City Police Department, successfully converting these two high-profile agencies inclusive of our core responder AI Assist capabilities.

Looking at regional results, North America Q2 revenue was $2.2 billion, up 9%, with growth across all three technologies. International Q2 revenue was $923 million, up 25% versus last year, driven by strong double-digit growth across all three technologies. Moving to backlog. Ending backlog for Q2 was $15.6 billion, up $1.5 billion, or 11%, versus last year, driven by record Q2 orders. Sequentially, backlog declined $71 million, primarily driven by revenue recognition for the U.K. Home Office. In the Products and SI segment, backlog increased $329 million versus last year due to strong demand in MCN and video. Sequentially, backlog decreased $99 million, driven by strong MCN shipments during the quarter. In Software and Services, backlog increased $1.2 billion compared to last year, driven by strong demand for multi-year contracts across all three technologies.

Sequentially, backlog increased $28 million, primarily driven by strong demand in command center and video, partially offset by revenue recognition for the U.K. Home Office. Turning next to our outlook. We expect Q3 sales growth of approximately 8%, with non-GAAP earnings per share between $4.39 and $4.44 per share. This assumes a weighted average diluted share count of approximately 168 million shares, and an effective tax rate of approximately 23%. For the full-year, we now expect revenue of approximately $12.975 billion, up from our prior guidance of $12.8 billion, along with non-GAAP earnings per share between $17.62 and $17.72 per share, up from our prior guide of $16.87 to $16.99 per share. This full-year outlook assumes a weighted average diluted share count of approximately 168 million shares and an effective tax rate between 22% and 22.5%.

It also assumes favorable FX of about $100 million, which is unchanged from our prior expectations. The $175 million raise in our full-year revenue expectations is driven by MCN, including approximately $100 million from Silvus, which we now expect to generate approximately $850 million in full-year revenue. The remainder of the increase we expect in MCN is a reflection of the continued strong demand for public safety LMR. With these increased top-line expectations, we now expect double-digit growth for both segments and all three technologies for the full-year. Products and SI is expected to now grow 11%, up from our prior guidance of 8%-9%, and Software and Services is expected to grow 11%, up from our prior guidance of 10%-11%. From a technology perspective, MCN is now expected to grow between 10% and 11%, up from our prior expectations of 8%-9%.

Video is expected to grow 11%, while in Command Center, we continue to expect approximately 15% growth. Before I turn the call back to Greg, I wanted to provide an update around tariffs and memory costs. We now expect the tariff impact to be neutral for the full-year as the IEEPA refunds we recorded in Q2 offsets the $60 million in tariff headwinds that we had planned for this year. Regarding memory, we now anticipate our direct memory spend to be approximately $150 million this year, up from $50 million last year. Our teams continue to successfully navigate this challenging supply environment, carrying higher inventory and collaborating closely with our key suppliers to secure continuity of supply. We still expect gross margins to be comparable to last year as the now improved tariff outlook I mentioned offsets the increased memory cost expectations since our last call.

For full-year operating margins, we now expect approximately 170 basis points of expansion, up from 100 basis points previously. Finally, our balance sheet remains strong and gives us plenty of headroom and flexibility on capital allocation. As we previously highlighted, we expect to raise approximately $1 billion of incremental debt in the form of senior notes and term loans to finance the D-Fend acquisition, and we still expect to finish the year with a net debt to EBITDA leverage at approximately 2x, which is similar to where we ended last year. With that, I would now like to turn the call back to Greg.

Thanks, Jason. I'd like to conclude with a few final thoughts before we open it up for Q and A. First, Q2 was superb, and I'm extremely pleased with our execution. Revenue was up 13% with significant operating margin expansion, and we drove just under $500 million in operating cash flow. Additionally, we achieved record Q2 orders and backlog, putting us in a strong position heading into the second half of this year. Second, we're seeing strength across our safety and security ecosystem. Our video business continues to perform well, particularly in mobile video, where, as Jason mentioned, we secured two significant orders from Florida Highway Patrol and Kansas City Police Department. These deals were highly competitive, and what's most encouraging is that both of these large agencies are first-time users of our body-worn camera and in-car video solutions.

Command Center continues its strong momentum as customers are increasingly adopting our software and AI Assist solutions to simplify their complex emergency response workflows. Third, Silvus is performing exceptionally well, powering leading-edge MANET connectivity for unmanned systems and battlefield communications. Pending regulatory approvals, we're also looking forward to the acquisition of D-Fend, an industry leader in counter-drone solutions, which goes beyond simple detection and differentiating itself through non-kinetic cyber takeover mitigation capabilities that are increasingly critical for public safety. When you consider Silvus' leading-edge MANET communications for defense and D-Fend's leading-edge detection and mitigation for public safety, I think we're very well-positioned to address our customers' rapidly growing needs for unmanned systems in defense and counter-drone solutions in public safety.

Finally, in addition to our strong results and momentum, our balance sheet and continued robust cash flow enable us to be flexible in how we deploy capital and drive long-term value both organically and through targeted acquisitions. I feel very good about where we are, and the increased guidance for the year reflects our confidence. I'll now turn the call back over to Brian.

Thank you, Greg. Before we begin taking questions, I would 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 line how to ask a question?

The floor is now open for questions. If you have a question or comment, please press star five on your telephone 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. Our first question will come from Tim Long with Barclays. Your line is open. Please go ahead.

Thank you. Got a question on Silvus, and then I'll follow up with one on video. For Silvus, obviously, another raise here. That's great to see, and demand seems really strong there. Greg or Jack, could you just touch upon some of the capacity increases you guys are undertaking? What does that mean for the flow of this business? Are we still limited by capacity, and what would that mean for Silvus as we look out the next year or two? Then I'll follow up after that.

Sure, Tim. Let me just dimensionalize Silvus, too, in terms of its performance. It did about $210 million in Q1, about $230 million in Q2. As you heard us on the call, we raised the year to about $850 million. Jack can talk about some of the things we're doing around capacity expansion.

Yeah, Tim. The first thing we did was within our Los Angeles site, we added capacity there, specifically a second floor. I think you read, Tim, that we announced the construction of a facility, a new manufacturing facility in Salt Lake City, which we're very excited about. Consistent with what we said before, we'll start to see the benefit of that in 2027. The increased guide for Silvus this year takes into account our current capacity, and we're living within that. I think one of the things we're also pleased with, Tim, is we've doubled the size of the sales force, it just continues to put more balls in play for us.

Okay. That's great. Thanks. Then just wanted to touch on the video business. A little bit about that mix and what that means in the quarter. Does that lead us towards a little bit more growth in the software side in the future? Anything on that mix and the take from that? Appreciate it.

Tim, you broke up a little bit. I think you're asking about the mix and performance of software versus Products and SI there?

First of all, we're very pleased with where we're at, we actually grew 12% during the quarter in total. We bumped up our guide to 11%, from 10% to 11%. Overall, performing even better than we had expected. In terms of the mix, at the half, both Software and Services and Products are performing well. S and S, software specifically for that part of the business is up double digits, and we expect software to be up double digits in the second half as well. We've seen strong camera sales. That's what's in part driving two quarters in a row now of strong products. The overall mix as we step back to the year, it reflects what we expect, the investments that Mahesh and team are making in our cloud and hybrid offer, and the increased sales coverage that Molloy has.

We're happy with where we're at. By the way, mobile video, as we mentioned on the call, mobile video also, expectations are very good.

Your next question will come from Joseph Cardoso with JPMorgan. Your line is open. Please go ahead.

Hey, good afternoon, and thanks for the question here. Maybe for my first one, and perhaps maybe I'm jumping ahead here and looking at the fourth quarter, but when I do the back of the envelope math on the implied fourth quarter revenue outlook, it embeds a pretty nice acceleration both sequentially and year-over-year. Maybe you can just help me think through the drivers behind that uptick that you guys are embedding into the guide. Maybe thinking about it from a demand perspective across the portfolio, is there anything in particular that's driving that acceleration here as we think about the exit trajectory for the year? Also maybe just a quick clarification. Are you guys including acquisitions that haven't been closed yet into that guidance? I do have a follow-up.

Joe, to answer the last part first. The guidance we're providing for the full-year and the beat and the raise reflect the assets we have today. Love the fact that we're, as Jason mentioned, guiding the year up $175 million for the full-year on top line revenue. All of that is pretty much MCN, of which $100 million is Silvus, $75 million of LMR. The confidence is also informed by the over-performance in Q2, which we beat consensus by $130 million. Why did we do that? It's because of better conversion and strong demand. That said, the second half as we look remains unchanged. We've always planned for a strong second half. That's informed by the visibility of what we have. It's informed by double-digit orders growth again, expected in Q2. Expected double-digit orders in the second half.

When you decompose our expectations, there are some specific ship acceptance and product releases around the infrastructure D-Series that are coming in Q4 that marry up with the conversion expectations of Jack's sales team, which informs that strong Q4. Lastly, I'd say, LMR is strong. LMR was stronger than we thought in Q2. By the way, we still expect the LMR business to grow in the second half of this year, 10% as well. Just really strong growth, great orders performance, and feel good about where we are now with our expectations between now and the end of the year.

Awesome color, Greg. Really appreciate all of that. Maybe as my second one here. Gross margin stepped up meaningfully in the quarter, even excluding the tariff benefit. You guys are still guiding stable gross margin outlook for the full-year. Maybe can you bridge the 2Q performance against that? What are the puts and takes relative to the headwinds from the cost inflation that you're highlighting versus maybe the tailwinds from mix and pricing levers? How does that shake out as we progress through the year to get us to this more stable gross margin outlook for the full-year? Thanks for the question.

Sure. Favorable mix has been a growth driver for us for a number of quarters, and we expect that to continue. Customers are adopting more feature-rich solutions, and that's in part what helps drive our growth. In terms of headwinds, I mentioned on the call that memory, which last year was $50 million, we now expect to be $150 million. That's up from 90 days ago. That $100 million of increase, a large part of that's going to be faced in the second half because of timing, because of inventory, and the positions we had to begin the year. That's a little color around the headwinds. With the offsets we're planning, we're still able to maintain comparable gross margins for the year and to grow OE for the company at 170 basis points, with contributions at OE from both segments.

Your next question will come from Andrew Spinola with UBS. Your line is open. Please ask your question.

Thank you. I think there's obviously a lot of interest in the second half ramp in the LMR business coming into this quarter. The second question that I typically have been getting is trying to understand if you put all this COVID backlog shifting behind us and this sharp ramp in the second half, how are we looking in terms of increases in officers or international markets, or infrastructure D-Series, anything that can drive that business to an accelerated growth rate over the medium term?

Yes, thanks for the question. Certainly coming out of the last call, there's been a lot of interest in LMR. We're pleased with where public safety LMR is, which is MCN the technology minus Silvus. We had growth in the quarter. We had continued order strength, as Greg mentioned. We overperformed on the quarter, and we increased the year $75 million, whereas now we expect this year's LMR growth to be better than last year's. We've always planned for a ramp in the second half, and that's consistent with, in part, product releases. The D-Series deals that we've been talking about, we've talked about three of them on the call and more prior to that, require staging and implementation and getting to sites. That's planned for the second half.

In addition, Jack, you've got some product releases happening in D-Series that'll make it available to more customers in the second half.

UHF should begin shipping Q4, Jason, yeah.

Nothing's changed in our expectations for first half, second half contribution. If anything, we've overperformed our expectations in the first half.

Andrew, I would say just kind of overall, when you think about the trend of Public Safety systems, or let's just call it LMR, and what those platforms afford our customers. Historically, it was always around mission-critical voice. Now with the adoption of APX NEXT, it incorporates broadband for 5G and broadband applications. Now our latest APX NEXT radio is LEO compatible, adding another band for rural coverage for low Earth orbit satellite. You have the device refreshes with APX NEXT. Now we introduce the D-Series, which is the first time we've upgraded the infrastructure in a dozen years, and that's informing part of the strong growth in Q4, given ship release of new infrastructure. Look, you're going to see us continue to do things around this multidimensional, multimodal platform called Public Safety LMR.

I just think that more and more customers see the criticality of LMR. They're making investments in LMR and MCN. We too are as well, both organically and inorganically. While we mentioned D-Fend and the announcement of that deal. D-Fend was a highly sought-after asset. It's all about leading counter-drone technology, not just detect and track and identify, but surgically do cyber takeover, which very few people do, and we think D-Fend does the best. We'll work the traps on the regulatory approvals, and there's still work to be done there. We're excited about that asset as well, which we had mentioned to you at the time we announced the deal. We expect it to be about $185 million in revenue. It has historically a CAGR revenue growth of 50% over the last three years.

As you think about LMR, as you think about critical networks, as you think about public safety platforms and the unique ecosystem and capability we're building, it's not just what we have today, but what we expect to have shortly, and that's exciting as well.

Appreciate that. One follow-up question, Greg.

AI has been in the market now. You've had a product for maybe a couple of quarters. Some of the competitors have had different types of products similar to yours, some more analytical. How is the industry accepting AI? Is it performing to expectation, both your product and across the industry in terms of acceptance and just performance?

I think it's performing well. We talk about AI in the context of embedding it in pretty much everything we do, specifically in the context of public safety around the individual personas. How does AI get implemented and productized through the lens of a public safety responder, law enforcement officer? How does it get instantiated with a dispatcher? How does it get implemented through a real-time crime center? I think Mahesh has done a great job of building it out both on-prem as well as hybrid solutions, and I think our traction is quite good.

The other thing I would say, maybe echoing one of the key points that Greg just made is. AI is no longer a nice-to-have. It's a need-to-have within each of our applications. We have taken that philosophy right from the beginning, where it's not an over-the-top solution. It is embedded deeply within each of our platforms.

Just to sort of punctuate that point, 100% of our VESTA emergency call handling solutions in Q2 were at the assist tier, which is effectively the tier of our solution that includes all the AI capabilities. The same is true across CAD records as well. It is becoming something that is key and embedded within each of those platforms. That in turn is meaningfully raising our ASPs across the board. A couple of other things that I think that we have done and we take great pride in is we introduced this notion of AI labels.

That is, I think, quite important for our customers because they would like to know what the status of data ownership is, what type of models are being used, does it run on-prem, does it run on cloud, what elements of data are used to compute various things that they are seeing from a decision standpoint. We are very transparent and open about what it is that they do, across the board, we also offer free training on demand for our customers to effectively use those capabilities in whatever workflows that they choose to use it for. We are seeing great acceptance across the board with that.

Your next question will come from Adam Tindle with Raymond James. Your line is open. Please go ahead.

Okay, thanks. Good afternoon. I just wanted to maybe start, this time last quarter, I think a lot of us were surprised by the P and SI operating margin in Q1. S and S had an upside to offset, but I think the composition of that quarter was a little different than investors thought. Here we are 90 days later with a huge rebound in P and SI margins on a sequential basis. Maybe just as a starting point, Jason, could you walk through sort of the drivers that led to this level of improvement? You've mentioned memory cost increasing. I know in the past, as you've had cost increases, it makes sense for you to start raising price to correspond with that. I wonder how you're thinking about pricing as a lever as well going forward.

Sure, Adam. Part of Q2, as we mentioned, was stronger conversion with orders brought in by the sales team that we were able to execute in. A lot of that has to do with devices. We had more devices shipments. We have a higher inventory position, by the way, that's helping us get to strong quick turn levels. It's helping us navigate the memory challenges on pricing. Part of the improvement in OpEx margin quarter-over-quarter had to do with the mix towards devices, which we were able to turn within the quarter. That's a key driver as to the over-performance and the better margins. The second part of your question around leverage that we have. Memory as a content to LMRs are pretty small. It's a more material contributor or item in video.

We have made some surgical price increases on high memory content items in video, for example, like video servers. We'll continue to look at that as an overall offset for the portfolio. Continuing to secure the supply that we need, of course, paying higher prices, but it's enabling us to meet the demand that we're seeing. We'll continue to look at it as a possibility going forward.

Got it. Maybe just continuing that thought as a follow-up. Greg, investors are looking at the product backlog being down sequentially, but also your positive commentary on the outlook for the product business in particular, and I think Jason's guidance suggests that the back half is actually going to accelerate in terms of the product growth. With product backlog down sequentially versus this acceleration implied in revenue, what are investors maybe missing if they over-fixate on the backlog trend? Thanks.

No. Look, we're thrilled. I know you're focused on the sequential, but we love the year-over-year performance. At the end of the day, this is more about, as Jason and we have said since the beginning of the year, the MSI revenue story becomes more one of conversion than backlog. Now having said that, love the fact that Q2 was another double-digit orders quarter. Love the fact that the back half on orders growth is expected to be double digits. If you want to specifically look at product backlog, look, as we sit here in August, at the end of the day, I expect product backlog to be up at the end of this year versus last year. I think backlog is a component, but the story more about our growth is overall demand, which is stronger, conversion, which is stronger, and double-digit orders growth.

Adam, to your point, the product backlog of the high threes is a strong place to be, complemented by the double-digit orders.

That's in front of us and that we've been capturing and that the pipeline supports going forward. That's the setup for how we expect things to play out in the second half of the year.

That's helpful. Congrats on an awesome quarter.

Your next question will come from George Notter with Wolfe Research. Your line is open. Please go ahead.

Hi, guys. Thanks very much. I wanted to dig into the Silvus progress a bit more. Obviously, continued to really do well. I think you said, Jack, that you increased the sales force or doubled the size of the sales force. I'm just curious, as you look out, where are you seeing opportunities? What geos? What applications? Anything more you can tell us about the underlying demand trends there and customer interest would be great. Thanks.

We could tag team it, contextually, George, I think the good news is the overall demand is driven by international demand and what I would characterize as kind of a macro global defense modernization. I think you see our growth driven by NATO countries, EU defense spending. Germany is a theater, in particular, that's strong. Obviously, Ukraine, that's in conflict. Growing demand in the U.S. and Indo-Pacific. You take that strong demand and couple it with the earlier question around capacity expansion. Jack's done a great job, more than doubling the sales force. I think you'll see supply chain efficiencies increase as well. We have the new capacity facility in Salt Lake City that comes online in early Q1. Could not be more pleased with that asset. It's been a year, like a year tomorrow or a year the following day, that we actually closed on it.

It's performing better than we thought. We knew demand would be strong. It's even stronger than we thought. I think a tip of the hat to Jack and his team and Babak and the Silvus team in L.A.. It's been superb. Thrilled to have it. It's proving out, I think, the thesis behind, we were very disciplined and intentional with that Silvus acquisition. I would say the same thing about D-Fend. We think in Silvus, it's the leading player and the leading edge technology in unmanned. Similarly, once we run the traps on the regulatory approvals, we think D-Fend is unique specifically around cyber takeover and mitigation, which is a unique characteristic, and we love both of those assets.

The only thing I'd build on is, the secret sauce here is a Spectrum Dominance 2.0 software.

Not only we talked about MANET technology being high bandwidth, which enables various forms of multimodal throughput on the battlefield, but it's anti-jam. It's a low-probability intercept and detect. Just specifically, the U.S. DOW just ran some trials, and Silvus received exceptional scoring in terms of anti-jam testing results. I think as we see in highly contested environments, when us versus our competition get put to the test, I think it's just further testament to what Babak and the technical team have built there. We've added, as we talked about being a scale player, we're invested in additional capacity, go to market. We continue to extend and invest in R&D, not only in the waveform, but in the software aspects of it. They're firing on all cylinders. I think just to echo what Greg said, we're really proud of what they've accomplished.

Your next question will come from Meta Marshall with Morgan Stanley. Your line is open. Please go ahead.

Great. Thanks. I wanted to ask a question on APX NEXT and just the software subscriptions that you're seeing kind of attached to that. In the past, you've noted somewhere around $300 per year. Just wanted to see what applications are either getting the most traction or if there's any update to that number. Then maybe as a follow-up question, just kind of any traction with the SVX. Thanks.

Sure. Thanks, Meta. You're right. We expect 300,000 subscribers by the year-end 2026. That would be up from about 200,000 by end of 2025. Strong growth. The pricing of the apps is around $300. It's gone up a little bit with the advent of some new apps, and I'll let Jack talk about where the apps that the customers like best, but it's a driver. It's now going to be almost $100 million ARR business by year's end.

Meta, in terms of those things, it's SmartConnect, which essentially enables a user who may be going out of their jurisdiction to expand their coverage capacity. SmartProgramming, location continues to be, as we think about accountability, location continues to be an application that gets consumed. Related to SVX, Mahesh may have something he wants to add. SVX traction, we're really proud. We've now got 150 customers operational with SVX. You heard Greg and Jason talk about Florida Highway Patrol and Kansas City, Missouri. Want to point out that we didn't go in and extend those customers. They're not existing customers we extended. Those were new RFPs that we secured against our competition. In addition to St. Joseph County, Indiana, who used to deal with one of our competitors, now signed on because they love the story of our full ecosystem.

That's just in North American Q2. You look at what we've done internationally, where we're over 20 countries right now in body-worn camera. Name a couple of big ones, over 20,000 users with the São Paulo Military Police, Moroccan Gendarmerie, a Nordic national police department, I think we continue to get momentum with our reach and trust that we have internationally.

The other point I'd make around APX NEXT and SVX is they are paired together. When we talk about an SVX win, that's paired with customers that are using APX NEXT. It's yet another combination that's powerful for both parts of the portfolio.

Your next question will come from Tomer Zilberman from Bank of America. Your line is open. Please go ahead.

Hey, guys. I wanted to go back to the LMR discussion. I think you mentioned earlier that you expect the segment to grow 10% in the second half. That's a really strong number. That's on par with the growth that you were seeing a couple of years ago when you had the benefit of both the North American refresh cycle and also the supply chain environment, which was driving up orders. I guess the question is, as it pertains to your commentary around APX NEXT, is that driving another cycle this time around? I think a while ago, you gave us a disclosure that APX NEXT was about 25% of public safety shipments. Is there any update to that number you can give us?

Sure. We talked about a growth driver of the second half ramp being infrastructure, which is D-Series, and the timing of the deployments and the new offer of UHF, which is coming to market. Conversion and quick turn for devices continues to be strong. It was stronger than we expected in Q2, and we expect it to be strong in the second half with continued momentum in customers choosing APX NEXT, which comes to us at a premium at the time of sale, and also with the ARR subscription that Meta just asked about.

Yeah. The only other thing that we haven't talked about is APX NEXT has historically been a police phenomenon, and a credit to Mahesh and his team, but in Q2, we announced the first APX NEXT XN, which actually puts us in the first National Fire Protection 1930 certification. We have an APX NEXT device that we can now bring to the fire market as well.

Your next question will come from James Fish with Piper Sandler. Your line is open. Please go ahead.

Thanks for taking my question. This is Ryan on for James Fish. On the drone side, any pickup in the pipeline post-World Cup? Now that you have D-Fend and Silvus as pillars here, how are you feeling about mitigation and prevention strategies that we could see MSI add organically or inorganically going forward?

Well, Ryan, we don't have D-Fend yet. We are expecting that transaction to close in the second half. Think about it. Silvus is unmanned defense. D-Fend is counter-drone technology for public safety. Different technologies and different verticals event this. I love D-Fend. It was an engagement that took multiple months, as I mentioned a few minutes ago. It's a leading-edge, highly sought-after asset. Look, we hear all these things about drones. It's one thing to detect them. A lot of people can do that. D-Fend can detect, it can track, it can identify, but then how do you mitigate it? How do you mitigate it in a public safety context or critical infrastructure context without collateral damage? You can't use bombs or bullets or kinetic. You have to find a different way.

Motorola Solutions (MSI) Q2 2026 Earnings Call Transcript

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