Motorola Reports Q1 Financials, Expects 5-Year Airwave Contract Extension
Thursday, May 03, 2018 | Comments

Motorola Solutions reported first quarter financial results with sales of $1.5 billion, up 15 percent from a year ago, with growth in all geographic regions. Executives also offered updates on public-safety Long Term Evolution (LTE) contracts including the U.K. Emergency Services Network (ESN) and the U.S. First Responder Network Authority (FirstNet).

The company also reported organic revenue growth of 10 percent, and North American organic growth of 8 percent. Motorola had a backlog of $9.6 billion, up $1.1 billion or 13 percent from a year ago. The company also finalized its acquisitions of Avigilon and Airbus DS Communications.

“Q1 was outstanding,” said Greg Brown, chairman and CEO of Motorola Solutions. “Our record Q1 backlog position and acquisition of Avigilon provide a strong foundation for continued revenue and earnings growth.”

About $49 million of revenue growth was related to acquisitions, including $22 million from the acquisitions of Airbus DS Communications and Avigilon. In addition, $15 million was related to the adoption of accounting standard ASC 606. The products segment sales grew 14 percent with growth in every region. The services segment grew 15 percent with growth in every region.

Brown said he expects the Airwave TETRA mission-critical voice contract with the U.K. Home Office to be extended for five or more years. He said the extended contract should be finalized in this quarter or next. U.K. Home Office officials didn't respond to a request for a comment by press time.

When Motorola acquired Airwave at the end of 2015, the U.K. government’s Emergency Services Mobile Communications Program (ESMCP) planned to replace the Airwave private network from mid-2017 as contracts expired with the ESN public-safety LTE network.

However, delays have plagued the ESN, with a U.K. House of Commons committee hearing saying last year that ESN may miss its targeted December 2019 delivery date. In February, Motorola Solutions and Vodafone agreed on a plan to keep the Airwave voice network operational through at least 2020, while the U.K. Home Office said a report with a revised timeline and budget for the ESN should be available by end-July.

The company reported “virtually zero” FirstNet revenue in the first quarter. Last year Motorola said the company is planning FirstNet revenues for 2018 in the $20 million to $40 million range. In an earnings call May 3, Brown said FirstNet revenues will be on the low end of that guidance for the year.

Motorola’s GAAP operating margin was 11.6 percent of sales, compared with 13.5 percent in the year-ago quarter. The decline reflects higher transaction costs related to acquisitions and a $52 million collection of a legal judgment in the prior year, offset by higher sales volume and higher gross margin.

Operating cash flow was negative $500 million, versus $142 million of operating cash generated in the year-ago quarter. Free cash flow was negative $541 million, versus $74 million of free cash flow generated in the year-ago quarter. Cash flow for the quarter was down due to a $500 million debt-funded U.S. pension contribution, higher cash tax payments, higher incentive payments and a $52 million collection of a legal judgment in the prior year offset by lower capital expenditures associated with the company's enterprise resource planning (ERP) software implementation in the prior year.

The company paid $1.1 billion for acquisitions, repurchased $66 million of its common stock and paid $84 million in cash dividends.

The company ended the quarter with backlog of $9.6 billion, up $1.1 billion from the year-ago quarter. Products segment backlog was up 11 percent or $166 million, and services was up 14 percent or $973 million. LMR demand led by the Americas continues to drive backlog growth, a company statement said.

The company highlighted several contracts, including its selection by the state of Florida to build and manage a new statewide public-safety network. The company also won a $20 million contract for additional managed and support services for the state of Indiana, $15 million for a four-year services contract for the state of Maryland and $6 million for a two-year services contract for Petrobras, a petroleum company in Latin America. The company also won a $15 million contract for a Project 25 (P25) system in Miami-Dade County, Florida.

In the second quarter, Motorola Solutions expects revenue growth of about 15 percent, with organic growth of about 4 percent, compared with the second quarter of 2017. The company now expects full-year revenue growth of about 14 percent, up from the prior outlook of 10 to 11 percent provided Feb. 27.

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