Motorola Solutions Reports Fourth-Quarter, Full-Year Financials
Friday, February 02, 2018 | Comments

Motorola Solutions reported its earnings results for the fourth quarter and full year of 2017.

“We finished the year with a very strong fourth quarter, capping a record year for revenue, operating earnings, cash flow and backlog driven by continued organic growth on strength in LMR solutions," said Greg Brown, chairman and CEO of Motorola Solutions. “We are poised for continued growth in LMR and software and services."

In the fourth quarter, revenue increased 4 percent on strength in the Americas. Products segment revenue grew 1 percent. Services segment revenue grew 10 percent with growth in every region. Managed and support services increased 17 percent.

The company’s GAAP operating margin was 26.1 percent of revenue compared with 21.4 percent in the year-ago quarter, driven by higher revenue in the current quarter, as well as higher restructuring charges in the year-ago quarter. The GAAP effective tax rate was 223.4 percent compared with 32.6 percent in the year-ago quarter. Charges related to tax reform accounted for $874 million of GAAP tax expense for the quarter.

The company generated $761 million in operating cash, up $248 million from the year-ago quarter. Free cash flow was $740 million, up $287 million. Higher operating earnings and improved working capital performance drove the increase in cash flow. The company repurchased $125 million of its common stock and paid $76 million in cash dividends.

During an investor call, executives said the value of LMR networks were highlighted last year during the many natural disasters. Brown said he expects LMR to drive continued growth. The company’s acquisition of Airbus DS Communications is expected to close in the first quarter.

Brown also said the company is planning First Responder Network Authority (FirstNet) revenues in the $20 million to $40 million range for 2018. “It’s all about subscriber load,” he said. “…I hope [revenues are] above that. But we don’t know what we don’t know. The partnership with AT&T continues to go well.”

He also said video analytics is growing and public-safety and mission-critical communications companies want a solution, which is one of the reasons Motorola purchased video company Avigilon.

“The thing that’s especially attractive is this is not a commodity business,” he said. “It’s an end-to-end platform orientation. ... Much like mission-critical communications, there is a growing aversion to having a Chinese provider doing critical video surveillance and security.”

Motorola will run Avigilon as a separate subsidiary inside Motorola because executives are happy with its structure, and if the firm is appropriately managed, it will continue on a successful track, Brown said.

For the full-year 2017, revenue increased 6 percent including acquisitions. Organic revenue growth was 3 percent led by North America organic growth of 3 percent. Products segment revenue grew 3 percent led by higher North America system revenue, while the services segment increased 9 percent on managed and support services growth in all regions.

For the full year, GAAP operating margin was 20.1 percent of revenue, compared with 17.7 percent for the prior year. The increase was primarily driven by higher revenue. The 2017 GAAP effective tax rate was 114.1 percent, compared with 33.5 percent for the prior year. Charges related to tax reform accounted for $874 million of GAAP tax expense for the year.

Motorola generated $1.3 billion in operating cash, up $181 million from the prior year. Free cash flow was $1.1 billion, up $225 million from the prior year. The increase was driven by higher revenue and associated earnings. The company repurchased $483 million of its common stock, paid $307 million in cash dividends and invested $298 million in acquisitions. The company ended the year with record backlog of $9.6 billion, up $1.2 billion from the year-ago quarter. Products segment backlog was up 25 percent or $382 million, and services was up 13 percent or $860 million. LMR demand led by the Americas continues to drive the backlog growth.

Motorola highlighted several strategic wins, including a $290 million LMR system in a Middle Eastern country that recently deployed a private public-safety Long Term Evolution (LTE) system. The company also cited a $197 million seven-year LMR managed services contract extension for the Melbourne Metropolitan Radio Network in Australia, a $76 million Project 25 (P25) order from the city of Dallas, a $53 million P25 order from city of Los Angeles, a $39 million P25 order from city of Toronto and an $18 million P25 upgrade and seven-year managed services agreement with Dow Chemical.

For the first quarter, Motorola expects revenue growth of about 7 percent compared with the first quarter of 2017. For the full year 2018, the company expects revenue growth of about 5 percent. This assumes current foreign exchange rates and a non-GAAP effective tax rate of about 25 percent.

Brown declined to provide an update on the U.K. Emergency Services Network (ESN), which U.K. officials have said is expected to be further delayed. Motorola is not expecting revenue from ESN in 2018. “We’ve worked really closely with the U.K. Home Office, particularly in the fourth quarter as they go through their planning and timeline,” he said. “They will announce any changes.”

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