RSSMotorola Solutions executives expect recent acquisitions to give it a competitive edge and contribute to growth this year.
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Motorola’s acquisition of Avtec, announced in March, offers two advantages for the company, Motorola CEO Greg Brown said during an earnings call for the first quarter of 2019. The acquisition expands the markets Motorola serves by providing inroads to seaports, airports and rail ports, which are new markets for Motorola, Brown said.
Additionally, Avtec’s focus in research and development (R&D) will fit well with Motorola’s own dispatch R&D and provide economies of scale, Brown said. Motorola expects revenues of about $20 million from Avtec this year, said Gino Bonanotte, Motorola executive vice president and chief financial officer (CFO).
Brown said he thinks there is some concern among consumers about cameras containing Chinese components and that such concerns could help Avigilon, which Motorola acquired in February 2018.
“Specifically, from a components standpoint, you’re right,” Brown said. “Huawei has a silicon chip that is in a number of competitors, but if you look at the federal government and also critical infrastructure, which has many of the same attributes, yeah I think it is a growing concern. I think the NDAA takes effect in August of this year, but I think it’s clearly favorable in terms of what we’re doing with Aviligon.”
The National Defense Authorization Act (NDAA) prohibits federal agencies from procuring wireless technology and components from specific Chinese manufacturers.
Brown noted that Avigilon saw good growth in the first quarter, and is expected to grow at about 15 percent because of improved traction in federal, state and local government. When Motorola first purchased Avigilon, it was focused entirely on commercial, enterprise video solutions, but Motorola has begun directing sales and marketing resources to take it into the public-safety market, helping fuel its growth, Brown said.
The company’s recent acquisitions have helped it build out and diversify its product offerings, Brown said.
“We feel very good about the components that we have, and the width and breadth of what we’ve acquired to include 9-1-1 call-handling, CAD dispatch, records and evidence management, and we do not believe that competitively, anyone else has the width or breadth of this suite we’re building,” he said.
The company’s transition of its command center software suite to cloud-based solutions is going well, said Kelly Mark, executive vice president, services and software.
Motorola expects to have the majority of its software platform cloud ready by the end of 2020, Mark said. However, even with that transition, on-premises software will still be available.
“That transition will be gated based on our customers’ desire and how they want to execute on a deployment, but we view it as moving along quite well on that transition,” Mark said.
Motorola is also monitoring and exploring governments’ legal ability to store certain data in the cloud and will use that information to guide the future of products as needed, Mark said.
For the first quarter of 2019, Motorola reported revenue of $1.7 billion, up 13% from the year-ago quarter. Operating cash flow for the quarter was $251 million, up $751 million from the year-ago quarter. That previous year’s quarter included a $500 million voluntary debt-funded pension contribution.
Generally accepted accounting principles (GAAP) operating earnings for the quarter were $229 million, up from $171 million for the previous year, and non-GAAP earnings were $315 million, up from $260 million in the previous year’s quarter.
Revenue growth of 4 – 5% is expected in the second quarter of 2019 compared with the previous year, and revenue growth for 2019 is expected to be 6 – 7%.
“Q1 was an excellent start to what I believe will be another strong year, with first quarter records for sales, operating revenue and ending backlog,” Brown said.
Motorola’s products and systems integration segment reported GAAP earnings of $108 million, compared to $90 million from the previous year, and non-GAAP earnings of $147 million, compared to $125 million from the previous year quarter.
Key wins in the quarter for the segment were:
• An award to build a new statewide Project 25 (P25) radio system in North Dakota,
• An $25 million P25 award from the New South Wales Telco Authority in Australia, and
• An $8 million TETRA order for a utility customer in Chile.
The services and software segment reported GAAP earnings of $121 million, compared with $81 million in the previous year’s quarter, and non-GAAP earnings of $168 million, compared with $135 million from the previous year’s quarter.
Key wins in the quarter for the software segment were:
• A $17 million managed services contract with a mining customer in Latin America,
• A $7 million CAD and records contract for a large government customer in California, and
• $5 million video services renewal with the Chicago Office of Emergency Management.
The double-digit growth in sales for both segments was driven by the Americas and Europe, Middle East and Africa (EMEA), Bonanotte said.
Jack Molloy, executive vice president of product and sales, said that Brexit and a downturn in the German auto industry impacted Motorola sales, but had not had a major effect.
“Our European business is largely insulated as we’re largely a managed services company when you consider Airwave and other networks,” Molloy said. “The preponderance of our business is recurring revenue and management and support services in Europe.”
In the quarter, capital expenditures were up $25 million compared with the previous year’s quarter. That increase was primarily related to Airwave and U.K. Emergency Services Network (ESN) investments, as well as Avigilon, Bonanotte said. Motorola also spent $445 million acquiring VaaS International and $136 million acquiring Avtec in the quarter.
“I think the strength and continued performance of what we’re doing is because of the width and breadth of our product portfolio led by a healthy economy in North America but also reflecting at its fundamental base, the criticality and consistent demand for land mobile radio,” Brown said.
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