Motorola Solutions, Inc. New 2026 Q2 Earnings Call

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&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&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 & 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 3 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 2 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 & 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 & 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%.