Motorola Reports Financials, Predicts Continued LMR Growth
Friday, August 04, 2017 | Comments

Motorola Solutions reported higher revenue and earnings for the second quarter, and executives said they continue to see customers invest in Project 25 (P25) for the long term.

During the second quarter, Motorola had sales of $1.5 billion, up 5 percent from a year ago. Products sales were up 6 percent, driven primarily by P25 LMR systems. The company has backlog growth of $265 million from a year ago.

“Q2 was an outstanding quarter of revenue and EPS (earnings per share) growth driven primarily by our LMR business,” said Greg Brown, chairman and CEO of Motorola Solutions. “Additionally, I’m pleased with our strong backlog position and recent acquisitions that provide the foundation for continued success."

Sales increased 5 percent, driven by 7 percent growth in the Americas region in the second quarter compared with second-quarter 2016. Europe, Middle East and Africa (EMEA) had 1 percent less revenue in the quarter compared with the second quarter of 2016, while revenue in Asia Pacific increased 2 percent compared with the same quarter in 2016.

The services segment grew 3 percent, driven by the Americas, with global managed and support services growth of 3 percent despite $20 million of Airwave currency headwinds.

Motorola’s GAAP operating margin was 17.2 percent of sales, compared with 15.7 percent in the year-ago quarter. The improvement reflects higher sales volume and lower other costs. As expected, the sales increase was offset by lower gross margin associated with higher systems mix in North America, as well as the Airwave currency headwinds.

The company generated $173 million in operating cash, a decrease of $119 million from the year-ago quarter. Free cash flow was $120 million, down $81 million. Cash flow for the quarter was down because of timing of higher working capital primarily associated with the implementation of a new enterprise resource planning (ERP) system. Year-to-date operating cash flow and free cash flow were higher than the prior year driven by higher earnings.

The company ended the quarter with cash and cash equivalents of $805 million and a net debt position of about $3.7 billion. The company repurchased about $80 million of its common stock and paid approximately $77 million in cash dividends. Additionally, the company announced the acquisition of Airbus DS Communications, which executives said strengthens its command center software portfolio.

The company highlighted several P25 contract wins, including a $43 million contract for P25 devices in a major U.S. city; $40 million for a P25 system in Broward County, Florida; $24 million for a P25 system with a large utility in the Northeast; a $19 million contract for a P25 system covering three Kentucky counties that includes a 10-year services agreement; and $10 million for P25 devices in Australia. Motorola also said it won a $160 million 10-year managed and support services agreement in Canada.

Brown said LMR revenue continues to be strong and steady, especially in North America, which accounts for two-thirds of the firm’s revenue. “We feel good about the demand for LMR,” he said. “Obviously it’s pretty strong this quarter, and we had a strong Q4 of last year. When these LMR platforms go in, they go in for the long term, which you then load with subscribers and typically with 10- to15-year maintenance agreements.”

Motorola also certified a public-safety Long Term Evolution (LTE) device, the LEX F10, for the AT&T First Responder Network Authority (FirstNet) network. During an investor call, Brown said Motorola expects $40 million to $60 million in revenue in 2018 from its agreements with AT&T for FirstNet.

“We feel good about the relationship with AT&T,” Brown said on the call. “We feel good that all states have opted in so far. We have an agreement signed with AT&T that’s new since our last earnings call … We view the FirstNet opportunity as incremental; we don’t count on any revenue this year.

“The success of FirstNet will depend on the actual penetration … and time will tell. We feel good about our portfolio and our uniqueness in the space and our relationship with AT&T.”

Brown said he expects the first revenue from the FirstNet partnership to be around LMR to LTE interoperability. He also predicts revenue in 2018 from LTE devices and applications.

Brown said that Motorola has won five major public-safety LTE contracts — Los Angeles Regional Interoperable Communications System (LA-RICS), FirstNet, the U.K. Emergency Services Network (ESN) and two Middle Eastern contracts — and it continues to see investment in LMR alongside those LTE deployments.

“Public-safety LTE will be data focused, while mission-critical voice will continue to be provisioned over P25,” he said.

In the United Kingdom, Motorola staff is working to deploy and test software and other deliverables. The U.K. ESN LTE network is slated to start mid-2018. “We have work to do on our end, and we’re staying close to EE and the U.K. Home Office,” he said.

Brown said the Home Office selected to go with LTE for group communications and TETRA as a direct mode solution. “We will compete for the TETRA device business, but that opportunity hasn’t surfaced yet,” he said.

For the third quarter, Motorola expects revenue growth of 3 to 4 percent compared with the third quarter of 2016. For the full year, the company expects revenue growth of about 3 to 4 percent versus the prior outlook of approximately 2 percent.

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