10-QPeriod: Q2 FY2018

Motorola Solutions, Inc. Quarterly Report for Q2 Ended Jun 30, 2018

Filed August 3, 2018For Securities:MSI

Summary

Motorola Solutions, Inc. (MSI) reported a strong second quarter and first half of 2018, demonstrating robust revenue growth and improved profitability. Net sales for the second quarter increased by 18% year-over-year to $1.8 billion, driven by solid demand across its global operations. For the first half of the year, net sales grew by 16% to $3.2 billion. This growth was significantly fueled by strategic acquisitions, particularly Avigilon and Plant, which contributed substantially to the expansion of the Services and Software segment. Profitability also saw a notable increase, with net earnings attributable to Motorola Solutions, Inc. rising to $180 million ($1.05 per diluted share) in Q2 2018, up from $131 million ($0.78 per diluted share) in Q2 2017. The company benefited from improved gross margins, favorable foreign currency rates, and the adoption of new accounting standards (ASC 606). Despite an increase in operating expenses related to acquisitions and the adoption of ASC 606, overall financial performance remained strong. The company also continues to actively manage its capital structure, returning value to shareholders through dividends and share repurchases, while maintaining a healthy liquidity position.

Financial Highlights

54 data points
Beta

Revenue

$1.76B

46.7% Gross Margin

Net Income

$180.00M

10.2% Net Margin

EPS (Diluted)

$1.05

Total Assets

$8.88B

Cash & Equivalents

$941.00M

Free Cash Flow

$425.00M

Financial Statements
Beta
Revenue$1.76B
Cost of Revenue$938.00M
Gross Profit$822.00M
R&D Expenses$162.00M
SG&A Expenses$316.00M
Operating Income$273.00M
Interest Expense$63.00M
Net Income$180.00M
EPS (Basic)$1.11
EPS (Diluted)$1.05
Shares Outstanding (Basic)162.20M
Shares Outstanding (Diluted)171.70M

Key Highlights

  • 1Net sales increased by 18% to $1.8 billion in Q2 2018 and by 16% to $3.2 billion in the first half of 2018, driven by strong global demand and strategic acquisitions.
  • 2Net earnings attributable to Motorola Solutions, Inc. rose to $180 million ($1.05 per diluted share) in Q2 2018, compared to $131 million ($0.78 per diluted share) in Q2 2017, reflecting improved profitability.
  • 3The Services and Software segment showed significant growth, with net sales increasing by 27% in Q2 2018, boosted by acquisitions like Plant and Kodiak Networks.
  • 4Gross margin improved to 46.7% of net sales in Q2 2018 from 46.1% in Q2 2017, attributed to better margins in services, ASC 606 adoption, and favorable mix.
  • 5The company repurchased approximately 0.6 million shares for $66 million during the first half of 2018 and paid $168 million in dividends, demonstrating commitment to returning capital to shareholders.
  • 6Motorola Solutions completed the acquisition of Avigilon Corporation for $974 million, a move expected to enhance its security and surveillance solutions portfolio.
  • 7The effective tax rate decreased significantly to 20% in Q2 2018 and 19% for the first half of 2018, primarily due to the U.S. Tax Cuts and Jobs Act.

Frequently Asked Questions

Revenue growth was primarily driven by strong global demand across both the Products and Systems Integration and Services and Software segments. Strategic acquisitions, notably Avigilon and Plant, played a significant role in expanding the Services and Software segment. Favorable foreign currency rates and the adoption of ASC 606 also contributed to the reported sales increases.

Profitability improved significantly. Net earnings attributable to Motorola Solutions, Inc. increased to $180 million ($1.05 per diluted share) in the second quarter of 2018, up from $131 million ($0.78 per diluted share) in the same period of 2017. This improvement was due to higher sales, better gross margins, lower non-operating expenses, and a lower effective tax rate.

The adoption of ASC 606 on January 1, 2018, primarily affected the presentation of revenue, contract assets, and contract liabilities. For the Q2 and first half of 2018, ASC 606 contributed to reported sales increases ($24 million in Q2, $39 million in H1) and gross margin improvements. It also led to a reclassification of balances on the balance sheet and a change in how third-party sales commissions are classified, impacting Selling, General and Administrative expenses.

The company maintained a healthy liquidity position with $941 million in cash and cash equivalents as of June 30, 2018. While operating activities showed a net cash use of $75 million in the first half of 2018 (largely due to a $500 million pension plan contribution), this was offset by strong financing activities, including significant debt issuance to fund acquisitions. The company also has a $2.2 billion revolving credit facility available.