Motorola Solutions Reports Third-Quarter Financial Results
Thursday, October 31, 2019 | Comments

Motorola Solutions reported its earnings results for the third quarter. Sales were $2 billion, up $132 million, or 7% from the year-ago quarter, driven by growth in the Americas.

Revenue from acquisitions was $58 million, and currency headwinds were $21 million in the quarter. The products and systems integration segment increased 5%, and the services and software segment grew 12%. Both segments were driven by growth in the Americas, partially offset by unfavorable currency rates.

GAAP operating margin was 20.7% of sales, up from 15.8% in the year-ago quarter. The improvement was primarily because of higher sales and gross margin in the current year, as well as costs related to an increase to an existing environmental reserve booked in the prior year, partially offset by higher operating expenses related to acquisitions.

The GAAP effective tax rate was 23%, compared with 8% in the year-ago quarter. Tax rates were higher in the current year due to the recognition of favorable return-to-provision adjustments in the prior year.

Operating cash flow was $525 million compared with $338 million in the year-ago quarter. Free cash flow was $465 million compared with $292 million in the year-ago quarter. Cash flow for the quarter increased year over year primarily because of improved working capital, a settlement payment in the prior year related to a legacy business, and higher earnings.

During the quarter, the company paid $271 million in cash and equity to acquire WatchGuard, paid $94 million in cash dividends, and incurred $60 million of capital expenditures. Additionally, Motorola extended its strategic partnership with Silver Lake with a new $1 billion five-year convertible note. The transaction resulted in an overall reduction to the company’s diluted share count in the quarter. The company also paid off the $400 million term loan used to acquire Avigilon.

The company ended the quarter with backlog of $11 billion, up $1.6 billion from the year-ago quarter. Services and software backlog was up 26% or $1.6 billion  because growth in Europe, Middle East and Africa (EMEA) and the Americas.  Products and systems integration segment backlog was down 1% or $39 million primarily because of two large system deployments in the Middle East and Africa in the prior year, partially offset by growth in the Americas.

In the services and software segment, Motorola highlighted a $78 million Project 25 (P25) multi-year service contract with state of Michigan, extending service through 2029. The company also noted a $58 million P25 multiyear statewide service contract in North America; and $11 million command center software suite contract with Glendale, Arizona; and $4 million for a 9-1-1 system in Bogota, Colombia.

The products and systems integration segment highlighted the largest Canadian P25 award in history serving the province of Ontario; $27 million in video security wins in education; a $16 million P25 order from Lee County, Florida; several large awards in mobile and in-car video including $13 million for city of Nashville, Tennessee, and $4 million for the Michigan State Police; and $3 million in fixed video security wins for government customers.

Motorola Solutions expects fourth-quarter revenue growth of 5% to 5.5% compared with the fourth quarter of 2018. For full-year 2019, the company now expects revenue growth of 7.25% to 7.5%.

"Q3 was another excellent quarter of revenue growth and cash generation," said Greg Brown, chairman and CEO of Motorola Solutions. “Our ending backlog and continued strong business performance position us well to finish the year with record sales, earnings and cash flow.”

During the third-quarter earnings call, executives again highlighted the continuing transition to services revenue. Gino Bonanotte, Motorola executive vice president and chief financial officer (CFO), specifically noted the APX NEXT device the company launched earlier this month. The next-generation Project 25 (P25) radio includes Long Term Evolution (LTE) features that offer a potential monthly service fee directly to Motorola.

Brown said the company sees the most pressure globally from the Asia-Pacific region. Although it’s a small percentage of the company’s revenue, as China’s economy slows, it can affect other Asian markets.

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