diff --git a/src/Agent/AutopilotMonitor.Agent.V2.Core.Tests/Monitoring/SystemSignals/SubcategoryTransitionDetectionTests.cs b/src/Agent/AutopilotMonitor.Agent.V2.Core.Tests/Monitoring/SystemSignals/SubcategoryTransitionDetectionTests.cs
new file mode 100644
index 00000000..d24fa91b
--- /dev/null
+++ b/src/Agent/AutopilotMonitor.Agent.V2.Core.Tests/Monitoring/SystemSignals/SubcategoryTransitionDetectionTests.cs
@@ -0,0 +1,129 @@
+using System;
+using System.Collections.Generic;
+using System.Linq;
+using AutopilotMonitor.Agent.V2.Core.Logging;
+using AutopilotMonitor.Agent.V2.Core.Monitoring.Enrollment.SystemSignals;
+using AutopilotMonitor.Agent.V2.Core.Orchestration;
+using AutopilotMonitor.Agent.V2.Core.Tests.Harness;
+using AutopilotMonitor.Agent.V2.Core.Tests.Orchestration;
+using AutopilotMonitor.DecisionCore.Engine;
+using AutopilotMonitor.DecisionCore.Signals;
+using Xunit;
+
+namespace AutopilotMonitor.Agent.V2.Core.Tests.Monitoring.SystemSignals
+{
+    /// <summary>
+    /// Regression coverage for the previously-unreachable non-failure branch in
+    /// <c>DetectSubcategoryTransitions</c>. The branch was guarded by an inner
+    /// <c>if (isFailure)</c> that is always false once the outer
+    /// <c>isFailure || isCompletion</c> has been excluded, so every non-failure,
+    /// non-completion, non-noise transition (e.g. <c>succeeded -&gt; in_progress</c> retry)
+    /// was silently dropped — the <c>esp_provisioning_status</c> event downgraded to a
+    /// plain progress update without a <c>subcategory_state_change</c> changeType.
+    /// After the fix those transitions must surface in the event.
+    /// </summary>
+    public sealed class SubcategoryTransitionDetectionTests
+    {
+        private static readonly DateTime Fixed = new DateTime(2026, 6, 5, 9, 0, 0, DateTimeKind.Utc);
+
+        private sealed class Fixture : IDisposable
+        {
+            public TempDirectory Tmp { get; } = new TempDirectory();
+            public FakeSignalIngressSink Sink { get; } = new FakeSignalIngressSink();
+            public ProvisioningStatusTracker Tracker { get; }
+
+            public Fixture()
+            {
+                var clock = new VirtualClock(Fixed);
+                var post = new InformationalEventPost(Sink, clock);
+                var logger = new AgentLogger(Tmp.Path, AgentLogLevel.Info);
+                Tracker = new ProvisioningStatusTracker(
+                    sessionId: "S1",
+                    tenantId: "T1",
+                    post: post,
+                    logger: logger);
+            }
+
+            public IReadOnlyList<(string EventType, IReadOnlyDictionary<string, object> Data)> CapturedEvents()
+            {
+                return Sink.Posted
+                    .Where(p => p.Kind == DecisionSignalKind.InformationalEvent && p.Payload != null)
+                    .Select(p =>
+                    {
+                        var eventType = p.Payload!.TryGetValue(SignalPayloadKeys.EventType, out var et) ? et : "";
+                        var data = p.TypedPayload as IReadOnlyDictionary<string, object>
+                                   ?? (IReadOnlyDictionary<string, object>)new Dictionary<string, object>();
+                        return (eventType, data);
+                    })
+                    .ToList();
+            }
+
+            public void Dispose()
+            {
+                Tracker.Dispose();
+                Tmp.Dispose();
+            }
+        }
+
+        [Fact]
+        public void NonFailureSubcategoryTransition_IsRecorded_AndSurfacedAsStateChange()
+        {
+            using var f = new Fixture();
+
+            // First seen — Apps already succeeded.
+            f.Tracker.ProcessCategoryStatusForTest("DeviceSetupCategory.Status", @"{
+                ""categorySucceeded"": null,
+                ""AppsSubcategory"": {""subcategoryState"":""succeeded"",""subcategoryStatusText"":""Apps (Identified)""}
+            }");
+
+            // Apps regresses succeeded -> in_progress (retry). categorySucceeded unchanged (null),
+            // so processing falls through to subcategory-transition detection.
+            f.Tracker.ProcessCategoryStatusForTest("DeviceSetupCategory.Status", @"{
+                ""categorySucceeded"": null,
+                ""AppsSubcategory"": {""subcategoryState"":""in_progress"",""subcategoryStatusText"":""Apps (Downloading)""}
+            }");
+
+            var captured = f.CapturedEvents();
+            var statusEvents = captured
+                .Where(e => e.EventType == AutopilotMonitor.Shared.Constants.EventTypes.EspProvisioningStatus)
+                .ToList();
+
+            // A subcategory_state_change event must be emitted carrying the transition.
+            var transitionEvent = statusEvents.Single(e =>
+                e.Data.TryGetValue("changeType", out var ct) && (string)ct == "subcategory_state_change");
+
+            var transitions = Assert.IsType<List<Dictionary<string, string>>>(transitionEvent.Data["transitions"]);
+            var appsTransition = Assert.Single(transitions, t => t["subcategory"] == "Apps");
+            Assert.Equal("succeeded", appsTransition["previousState"]);
+            Assert.Equal("in_progress", appsTransition["newState"]);
+
+            // Non-failure transition: no failed-subcategory enrichment.
+            Assert.False(transitionEvent.Data.ContainsKey("failedSubcategories"));
+        }
+
+        [Fact]
+        public void NotStartedToInProgress_IsTreatedAsNoise_NotRecorded()
+        {
+            using var f = new Fixture();
+
+            f.Tracker.ProcessCategoryStatusForTest("DeviceSetupCategory.Status", @"{
+                ""categorySucceeded"": null,
+                ""AppsSubcategory"": {""subcategoryState"":""notStarted"",""subcategoryStatusText"":""Apps (Waiting)""}
+            }");
+
+            f.Tracker.ProcessCategoryStatusForTest("DeviceSetupCategory.Status", @"{
+                ""categorySucceeded"": null,
+                ""AppsSubcategory"": {""subcategoryState"":""in_progress"",""subcategoryStatusText"":""Apps (Downloading)""}
+            }");
+
+            var captured = f.CapturedEvents();
+            var statusEvents = captured
+                .Where(e => e.EventType == AutopilotMonitor.Shared.Constants.EventTypes.EspProvisioningStatus)
+                .ToList();
+
+            // notStarted -> in_progress is benign progress noise: no state-change event.
+            Assert.DoesNotContain(statusEvents, e =>
+                e.Data.TryGetValue("changeType", out var ct) && (string)ct == "subcategory_state_change");
+        }
+    }
+}
diff --git a/src/Agent/AutopilotMonitor.Agent.V2.Core/Monitoring/Enrollment/SystemSignals/ProvisioningStatusTracker.cs b/src/Agent/AutopilotMonitor.Agent.V2.Core/Monitoring/Enrollment/SystemSignals/ProvisioningStatusTracker.cs
index 37e9c9e8..2b2570b0 100644
--- a/src/Agent/AutopilotMonitor.Agent.V2.Core/Monitoring/Enrollment/SystemSignals/ProvisioningStatusTracker.cs
+++ b/src/Agent/AutopilotMonitor.Agent.V2.Core/Monitoring/Enrollment/SystemSignals/ProvisioningStatusTracker.cs
@@ -1164,8 +1164,11 @@ namespace AutopilotMonitor.Agent.V2.Core.Monitoring.Enrollment.SystemSignals
                 }
                 else if (!isNoise)
                 {
-                    if (isFailure)
-                        transitions.Add(new SubcategoryTransition(sub.Name, oldState, sub.State, true));
+                    // Any other real state change (e.g. succeeded -> in_progress retry,
+                    // failed -> in_progress recovery, in_progress -> notStarted reset) is a
+                    // non-failure transition. Record it so the subcategory_state_change event
+                    // carries it; without this the change is silently dropped (observability gap).
+                    transitions.Add(new SubcategoryTransition(sub.Name, oldState, sub.State, false));
                 }
             }
 
diff --git a/src/Agent/AutopilotMonitor.Agent.V2/buildcounter.txt b/src/Agent/AutopilotMonitor.Agent.V2/buildcounter.txt
index 72f91c4b..209fc0eb 100644
--- a/src/Agent/AutopilotMonitor.Agent.V2/buildcounter.txt
+++ b/src/Agent/AutopilotMonitor.Agent.V2/buildcounter.txt
@@ -1 +1 @@
-920
+923