MSI

• Quarterly Financial & Operational Results

  • Q2 delivered 13% year-over-year revenue growth, record orders, and record backlog, generating just under $500 million in operating cash flow
  • Operating margins expanded meaningfully sequentially from Q1, driven by stronger order conversion and favorable product mix
  • IEPA tariff refunds recorded in Q2 fully offset planned full-year $60 million in tariff headwinds, resulting in a neutral full-year tariff impact

• Product & Strategic Milestones

  • Strength across the entire safety and security ecosystem, with growing adoption of AI-integrated software solutions for emergency response workflows
  • Sylvus, a leading MANET connectivity provider for unmanned systems and battlefield communications, continues to outperform on demand. Capacity expansions include a second floor added at the existing Los Angeles facility, with a new manufacturing facility under construction in Salt Lake City that will come online in 2027; the sales force has been doubled to drive further growth
  • The DFEND (counter-drone solutions) acquisition is pending regulatory approval. DFEND is an industry leader differentiated by its non-kinetic cyber takeover drone mitigation capability, and is expected to generate ~$185 million in annual revenue with a 50% 3-year historical CAGR
  • The new D-series LMR infrastructure, the first infrastructure upgrade in 12 years, will launch UHF variants in Q4 2024, enabling broader customer adoption. APEX Next radios have been updated for LEO satellite compatibility for improved rural coverage, and a new certified variant for the fire department market has been launched
  • AI is embedded into all core public safety platforms: 100% of Q2 Vesta emergency call handling solutions sold included the AI-enabled assist tier, and AI adoption is meaningfully increasing average selling prices across the portfolio

• Capital Allocation & Balance Sheet

  • The balance sheet remains strong, with planned incremental $1 billion in senior notes and term loan debt to finance the DFEND acquisition
  • Full-year end net debt to EBITDA is expected to remain ~2x, unchanged from the end of 2023, preserving flexibility for organic investment and targeted acquisitions

• Full-year total revenue guidance was raised by $175 million, with $100 million of the uplift from Sylvus and $75 million from LMR, driven by stronger than expected Q2 performance and demand
  • Full-year operating margin expansion guidance was raised to 170 basis points, up from the prior expectation of 100 basis points
  • Gross margins are expected to remain comparable to 2023, as improved tariff outlook offsets higher memory costs
  • Full-year direct memory spend is now expected to be approximately $150 million, up from $50 million in 2023 and up from prior 2024 guidance
  • Sylvus full-year 2024 revenue guidance is raised to $850 million, with expected strong double-digit order growth in the second half
  • Video business full-year growth guidance was raised from 10% to 11%, with software revenue expected to grow double-digit in the second half
  • LMR is expected to grow 10% in the second half of 2024, with full-year growth better than 2023
  • A strong Q4 revenue acceleration is embedded in guidance, driven by scheduled D-series infrastructure product launches, ship acceptance, and higher order conversion, aligned with historical planning for a stronger second half

1. Sylvus (Unmanned & Defense Communications): Generated $210 million revenue in Q1 and $230 million in Q2, with full-year 2024 revenue guidance raised to $850 million. It contributed $30 million to the Q2 consensus beat and $100 million of the full-year revenue uplift, accounting for ~57% of the full-year upward revenue revision. The business is growing on the back of strong global defense modernization demand and share gains. 2. Safety & Security (Video & Command Center): Total segment revenue grew 12% in Q2, with full-year growth guidance raised from 10% to 11%. Software and services revenue for the video business is up double-digit year-to-date, with double-digit growth also expected in the second half. Mobile video and body-worn camera sales are particularly strong, with large wins at first-time public safety agency customers. Command Center software and AI solutions are growing approximately 15% annually. 3. Land Mobile Radio (LMR / Public Safety Mission Critical Networks): LMR outperformed expectations in Q2, contributing $100 million to the Q2 consensus beat and $75 million of the full-year revenue upward revision, accounting for ~43% of the full-year uplift. Full-year LMR growth is expected to be better than 2023, with 10% growth projected for the second half of 2024. Infrastructure makes up less than 25% of the LMR business, with growing demand for the new D-series infrastructure refresh.

• Higher memory costs: Memory costs are expected to be $100 million higher year-over-year in 2024, with the majority of the incremental cost impact hitting the second half of the year, which offsets gross margin tailwinds from mix and pricing
  • The DFEND acquisition is still pending regulatory approval, with remaining work to complete before closing expected in the second half
  • Capacity constraints currently limit near-term Sylvus growth, with new large-scale manufacturing capacity not coming online until 2027

Q: What capacity expansions are underway at Sylvus, is growth still limited by capacity, and what is the outlook for the next 1-2 years? What is the growth mix between software/hardware in the video business, and will software grow faster long-term? / A: Sylvus added capacity at its Los Angeles site and is building a new Salt Lake City facility that will add capacity starting in 2027. Current year guidance already accounts for existing available capacity. The sales force has been doubled to drive higher demand. For video, total revenue grew 12% in Q2 with full-year growth guidance raised to 11%. Both hardware/software are performing well: software revenue is up double digits year-to-date and is expected to remain double-digit in the second half, with strong hardware camera sales also driving growth. Investments in cloud/hybrid offerings and increased sales coverage are aligned with long-term mix expectations. (632 characters)

Q: What drivers underpin the Q4 acceleration implied by full-year guidance, are unclosed acquisitions included, and what explains stable full-year gross margins despite strong Q2 gross margin performance? / A: The full-year guidance only includes organic revenue from currently owned assets, not the pending DFEND acquisition. The Q4 acceleration was always planned, supported by strong Q2 overperformance and expected double-digit second half order growth. Specific drivers include D-series infrastructure product launches and scheduled ship/acceptance scheduled for Q4, as well as stronger than expected LMR growth. Stable full-year gross margins reflect a balance between tailwinds from favorable product mix and headwinds from higher memory costs: $100 million in incremental memory costs will mostly hit the second half, offsetting Q2 strength. (587 characters)

Q: What is the long-term growth outlook for LMR after the current second half ramp, and how is AI being adopted in your product portfolio? / A: Long-term LMR growth is supported by the new D-series infrastructure, which is the first refresh in 12 years. There is pent-up demand, and D-series deployments will be a multi-year catalyst extending into the 2030s, as most large network upgrades are multi-year projects. New D-series features include improved energy efficiency and satellite resiliency, and customers sign multi-year software/service contracts with infrastructure purchases. AI is now a required capability embedded in all platforms, not an add-on: 100% of Q2 emergency call handling solutions sold include AI, which is driving higher ASPs. The company provides transparent AI labeling and free customer training, and adoption is stronger than expected. (621 characters)

Q: How will the DFEND acquisition benefit from the Motorola Solutions footprint, similar to Sylvus? Do you see potential to replicate Sylvus's strong growth? / A: Just like with Sylvus, Motorola's brand equity, existing global public safety and defense customer installed base, and expanded go-to-market motion will accelerate DFEND's growth faster than it could achieve independently. Motorola's scale improves supply chain efficiency, manufacturing capacity, and government affairs capabilities, while cultural alignment (especially around RF innovation) supports successful integration. DFEND has unique best-in-class surgical cyber takeover drone mitigation with no collateral damage, which fills a key gap in Motorola's public safety portfolio, and we expect to replicate the successful Sylvus growth trajectory after regulatory closing. (513 characters)