10-QPeriod: Q3 FY2018

Motorola Solutions, Inc. Quarterly Report for Q3 Ended Sep 29, 2018

Filed November 2, 2018For Securities:MSI

Summary

Motorola Solutions, Inc. reported a solid third quarter for 2018, with net sales increasing by 13% year-over-year to $1.9 billion. This growth was driven by strong performance in both the Products and Systems Integration segment (+10%) and the Services and Software segment (+22%), with acquisitions contributing significantly to the latter's expansion. Net earnings attributable to Motorola Solutions, Inc. rose to $247 million ($1.43 per diluted share) from $212 million ($1.25 per diluted share) in the prior year quarter. The company is actively managing its capital structure, evidenced by the repurchase of $200 million in principal amount of convertible notes and ongoing share repurchases and dividend payments. Despite a significant increase in "Other Charges," primarily due to an environmental reserve charge and amortization of intangibles from recent acquisitions, the company's overall financial position remains robust. Management expects continued growth, particularly within the Services and Software segment, and maintains confidence in the company's liquidity.

Financial Highlights

54 data points
Beta

Revenue

$1.86B

48.4% Gross Margin

Net Income

$247.00M

13.3% Net Margin

EPS (Diluted)

$1.43

Total Assets

$8.96B

Cash & Equivalents

$851.00M

Free Cash Flow

$338.00M

Financial Statements
Beta
Revenue$1.86B
Cost of Revenue$961.00M
Gross Profit$901.00M
R&D Expenses$158.00M
SG&A Expenses$323.00M
Operating Income$294.00M
Interest Expense$62.00M
Net Income$247.00M
EPS (Basic)$1.52
EPS (Diluted)$1.43
Shares Outstanding (Basic)162.60M
Shares Outstanding (Diluted)172.60M

Key Highlights

  • 1Net sales increased 13% to $1.9 billion for the third quarter of 2018, driven by strong performance across both segments and contributions from acquisitions.
  • 2Services and Software segment showed robust growth of 22%, indicating a successful expansion strategy.
  • 3Net earnings attributable to Motorola Solutions, Inc. rose to $247 million, or $1.43 per diluted share, up from $212 million, or $1.25 per diluted share, in the prior year quarter.
  • 4The company repurchased $200 million of its convertible notes and continued its share repurchase program and dividend payments, returning capital to shareholders.
  • 5Operating earnings decreased from $347 million to $294 million, impacted by higher "Other Charges" including an environmental reserve and increased SG&A due to acquisitions.
  • 6The adoption of ASC 606 (new revenue recognition standard) had a positive impact on net sales and gross margin in the quarter.
  • 7Goodwill and intangible assets significantly increased due to acquisitions, notably Avigilon and Plant Holdings.

Frequently Asked Questions

Revenue growth was primarily driven by a 10% increase in the Products and Systems Integration segment and a significant 22% increase in the Services and Software segment. Acquisitions, particularly Avigilon and Plant Holdings, contributed substantially to this growth, especially within the Services and Software segment. Favorable foreign currency rates and the adoption of the ASC 606 revenue recognition standard also positively impacted net sales.

Motorola Solutions actively managed its capital structure during the quarter. This included repurchasing $200 million of its principal convertible notes, repaying $200 million of its revolving credit facility, and continuing its share repurchase program and dividend payments. The company also issued an additional $200 million of 4.60% Senior notes due 2028. Overall, long-term debt increased, reflecting strategic financing activities to support acquisitions and operations.

Other Charges significantly impacted profitability, increasing to $126 million in Q3 2018 from $47 million in Q3 2017. This increase was primarily due to a $57 million charge for environmental remediation efforts related to a legacy business and $46 million in amortization of intangibles from recent acquisitions. These charges, along with higher SG&A expenses from acquired businesses, contributed to the decrease in operating earnings.

The adoption of ASC 606, a new revenue recognition standard, had a positive impact on the financial results. For the third quarter, it contributed $19 million to net sales and improved gross margin. This was largely due to changes in revenue recognition for certain contracts, such as devices and accessories, which now recognize revenue earlier. It also impacted the presentation of selling, general, and administrative expenses due to the change in classification of third-party sales commissions.