10-QPeriod: Q2 FY2016

Motorola Solutions, Inc. Quarterly Report for Q2 Ended Apr 2, 2016

Filed May 6, 2016For Securities:MSI

Summary

Motorola Solutions, Inc. (MSI) reported net sales of $1.193 billion for the first quarter of 2016, a 2% decrease compared to $1.223 billion in the same period of 2015. This decline was primarily driven by lower sales in the Products segment, impacted by foreign currency fluctuations and macroeconomic pressures in certain regions, partially offset by growth in North America. The Services segment saw a modest increase in net sales, largely due to the significant acquisition of Guardian Digital Communications Limited (GDCL). Earnings from continuing operations attributable to Motorola Solutions, Inc. were $17 million ($0.10 per diluted share) for the first quarter of 2016, a substantial decrease from $87 million ($0.40 per diluted share) in the prior year. This reduction was influenced by a decrease in gains on sales of investments and businesses, lower gross margins in the Products segment, and higher "Other Charges" related to the GDCL acquisition, which included transaction fees and increased intangible amortization. Despite the revenue and earnings decline, the company continued to return capital to shareholders through dividends and share repurchases, while also managing operating expenses through cost-saving initiatives.

Financial Highlights

55 data points
Beta

Revenue

$1.19B

42.1% Gross Margin

Net Income

$17.00M

1.4% Net Margin

EPS (Diluted)

$0.10

Total Assets

$9.05B

Cash & Equivalents

$1.94B

Free Cash Flow

$13.00M

Financial Statements
Beta
Revenue$1.19B
Cost of Revenue$691.00M
Gross Profit$502.00M
R&D Expenses$135.00M
SG&A Expenses$234.00M
Operating Income$100.00M
Interest Expense$53.00M
Net Income$17.00M
EPS (Basic)$0.10
EPS (Diluted)$0.10
Shares Outstanding (Basic)174.50M
Shares Outstanding (Diluted)177.00M

Key Highlights

  • 1Net sales decreased by 2% to $1.193 billion in Q1 2016 compared to Q1 2015, driven by a 7% decline in the Products segment, partially offset by a 6% increase in the Services segment.
  • 2Earnings from continuing operations attributable to Motorola Solutions, Inc. dropped significantly to $17 million ($0.10/share) in Q1 2016 from $87 million ($0.40/share) in Q1 2015.
  • 3The company completed the acquisition of Guardian Digital Communications Limited (GDCL) for approximately $1.0 billion, which is expected to diversify its global managed and support services.
  • 4Gross margin percentage declined to 42.1% in Q1 2016 from 44.8% in Q1 2015, primarily due to lower volumes and unfavorable foreign currency impacts in the Products segment.
  • 5Selling, General, and Administrative (SG&A) expenses decreased by 8.6% to $234 million, and Research & Development (R&D) expenses decreased by 15.1% to $135 million, reflecting cost-saving initiatives.
  • 6Net cash provided by operating activities decreased sharply to $13 million in Q1 2016 from $156 million in Q1 2015.
  • 7The company returned $135 million to shareholders in Q1 2016 through dividends and share repurchases.

Frequently Asked Questions

The acquisition of GDCL, completed in February 2016, significantly impacted the Services segment, contributing $61 million in net sales and driving its overall growth. However, it also resulted in increased "Other Charges" of $33 million, including $13 million in transaction fees and $13 million for intangible amortization, which negatively affected operating earnings. The acquisition was funded through a $675 million term loan and approximately $400 million of international cash.

Net sales decreased by 2% primarily due to a 7% decline in the Products segment, influenced by unfavorable foreign currency exchange rates, macroeconomic pressures in Latin America and AP, and lower volumes. Earnings from continuing operations saw a substantial decrease due to lower gross margins in the Products segment, a significant reduction in gains from sales of investments and businesses, and higher "Other Charges" related to the GDCL acquisition. These factors were partially offset by cost-saving initiatives reducing SG&A and R&D expenses.

Motorola Solutions is actively pursuing cost-saving initiatives, which led to a decrease in SG&A expenses by 8.6% and R&D expenses by 15.1% in Q1 2016. The company also returned $135 million to shareholders through dividends ($71 million) and share repurchases ($64 million) during the quarter. A significant share repurchase program remains with $1.0 billion of authority available.

The company expects its Services segment to grow at a higher rate than its Products segment. While the Services segment has a lower gross margin percentage, overall operating margins are expected to expand. The iDEN business, a legacy technology, is experiencing a continued downward trend in sales and is expected to impact gross margins within the Services segment.