10-QPeriod: Q1 FY2018

Motorola Solutions, Inc. Quarterly Report for Q1 Ended Mar 31, 2018

Filed May 4, 2018For Securities:MSI

Summary

Motorola Solutions, Inc. reported strong first-quarter 2018 results, with net sales increasing 15% year-over-year to $1.5 billion, driven by solid demand in both its Products and Services segments across all regions. The company completed two significant acquisitions during the quarter: Avigilon Corporation for $974 million and Plant Holdings, Inc. for $237 million, which are expected to enhance its security and surveillance and command center software portfolios, respectively. Despite an increase in operating expenses, including acquisition-related costs and higher R&D, net earnings attributable to Motorola Solutions, Inc. grew to $117 million, or $0.69 per diluted share, compared to $77 million, or $0.45 per diluted share, in the prior year. This improvement was significantly aided by a lower effective tax rate due to the U.S. Tax Cuts and Jobs Act. Key financial activities during the quarter included a substantial use of cash for operating activities, primarily due to a $500 million contribution to the company's U.S. pension plan. The company also returned $150 million to shareholders through dividends and share repurchases. Motorola Solutions ended the quarter with a strong liquidity position, though cash and cash equivalents decreased due to operational and investing activities. The company continues to repurchase shares under its authorized program, with $1.6 billion remaining. Investors should note the impact of adopting the new revenue recognition standard (ASC 606), which influenced the presentation of contract assets and liabilities, and accelerated some revenue recognition. While acquisitions contributed to sales growth, they also increased operating expenses and goodwill on the balance sheet. The company's effective tax rate is expected to remain lower due to the recent tax reforms.

Financial Highlights

55 data points
Beta

Revenue

$1.47B

45.6% Gross Margin

Net Income

$117.00M

8.0% Net Margin

EPS (Diluted)

$0.69

Total Assets

$9.05B

Cash & Equivalents

$858.00M

Free Cash Flow

-$500.00M

Financial Statements
Beta
Revenue$1.47B
Cost of Revenue$799.00M
Gross Profit$669.00M
R&D Expenses$152.00M
SG&A Expenses$279.00M
Operating Income$171.00M
Interest Expense$54.00M
Net Income$117.00M
EPS (Basic)$0.73
EPS (Diluted)$0.69
Shares Outstanding (Basic)161.40M
Shares Outstanding (Diluted)170.60M

Key Highlights

  • 1Net sales increased 15% year-over-year to $1.47 billion, driven by growth in both Products and Services segments.
  • 2Completed two strategic acquisitions: Avigilon Corporation for $974 million and Plant Holdings, Inc. for $237 million, expanding security and command center software capabilities.
  • 3Net earnings attributable to Motorola Solutions, Inc. rose to $117 million ($0.69 per diluted share) from $77 million ($0.45 per diluted share) in the prior year.
  • 4Effective tax rate decreased significantly to 16% in Q1 2018 from 35% in Q1 2017, largely due to the U.S. Tax Cuts and Jobs Act.
  • 5Operating cash flow was negative $500 million, primarily impacted by a $500 million contribution to the U.S. pension plan.
  • 6Investments in acquisitions totaled $1.1 billion, while capital expenditures were $41 million.
  • 7Returned $150 million to shareholders via dividends ($84 million) and share repurchases ($66 million) during the quarter.

Frequently Asked Questions

The 15% increase in net sales to $1.47 billion was primarily driven by solid global demand across both the Products and Services segments. Acquisitions, including Avigilon and Plant Holdings, contributed $49 million, and favorable foreign currency rates added $39 million. The adoption of ASC 606 also contributed $15 million to net sales.

The acquisitions of Avigilon and Plant Holdings, for a combined $1.21 billion, significantly expanded Motorola Solutions' portfolio in security/surveillance and command center software. These acquisitions contributed to the increase in net sales and also led to an increase in goodwill ($590 million) and intangible assets ($508 million for Avigilon alone) on the balance sheet. Operating expenses also increased due to integration and transaction costs.

Operating cash flow decreased from a positive $142 million in Q1 2017 to a negative $500 million in Q1 2018. This substantial change was primarily due to a $500 million voluntary contribution made to the company's U.S. pension plan during the quarter. Other factors included higher incentive payments and tax payments, offset by a significant cash inflow in Q1 2017 from the recovery of financial receivables.

The adoption of ASC 606, effective January 1, 2018, generally refined revenue recognition principles. For certain system contracts, it allows for earlier revenue recognition as control of devices and accessories transfers at a point in time. Software sales revenue recognition is also accelerated. The standard also led to reclassifications on the balance sheet, with the creation of 'contract assets' and 'contract liabilities', and a $15 million increase in net sales for the quarter compared to prior accounting standards.