10-QPeriod: Q3 FY2019

Motorola Solutions, Inc. Quarterly Report for Q3 Ended Sep 28, 2019

Filed October 31, 2019For Securities:MSI

Summary

Motorola Solutions, Inc. reported strong performance for the nine months ended September 28, 2019, with a 7% increase in net sales to $2.0 billion for the third quarter and an 8% increase to $5.5 billion for the nine-month period compared to the prior year. This growth was driven by both the Products and Systems Integration segment (+5% Q3, +7% YTD) and the Services and Software segment (+12% Q3, +12% YTD), with notable contributions from acquisitions including WatchGuard, Avtec, and VaaS. Profitability saw significant improvement, with operating earnings increasing by 40% to $413 million in Q3 and 34% to $991 million year-to-date. This was supported by a higher gross margin of 50.5% in Q3 (up from 48.4% last year) and a reduction in "Other Charges" primarily due to the absence of a large environmental reserve expense recorded in the prior year. Diluted EPS also rose to $1.51 in Q3 ($3.56 YTD) from $1.43 ($3.17 YTD) in the prior year, reflecting the robust operational performance. The company continues to focus on strategic growth through acquisitions and returned capital to shareholders via share repurchases ($170 million YTD) and dividends ($281 million YTD). Financially, Motorola Solutions strengthened its balance sheet with strategic debt management, including the issuance of new convertible notes and repayment of existing debt, while maintaining a healthy operating cash flow of over $1 billion year-to-date.

Financial Statements
Beta

Key Highlights

  • 1Net sales increased by 7% to $2.0 billion in Q3 2019 and by 8% to $5.5 billion for the nine months ended September 28, 2019, compared to the prior year periods.
  • 2Operating earnings grew significantly, up 40% to $413 million in Q3 and 34% to $991 million year-to-date, driven by higher gross margins and reduced "Other Charges."
  • 3Diluted Earnings Per Share (EPS) increased to $1.51 in Q3 and $3.56 year-to-date, reflecting improved profitability.
  • 4The Services and Software segment showed strong growth with net sales up 12% in Q3 and 12% year-to-date, outpacing the Products and Systems Integration segment.
  • 5Acquisitions, including WatchGuard, Avtec, and VaaS, contributed positively to revenue growth, particularly in the Services and Software segment.
  • 6Operating cash flow for the first nine months of 2019 was $1.03 billion, a substantial increase from $263 million in the prior year, indicating strong cash generation.
  • 7The company actively managed its capital structure, including issuing $1.0 billion in new convertible notes and repurchasing $170 million of common stock and paying $281 million in dividends year-to-date.

Frequently Asked Questions

Revenue growth in the third quarter was primarily driven by a 5% increase in the Products and Systems Integration segment and a substantial 12% increase in the Services and Software segment. This growth was supported by strong demand in the Americas, contributions from recent acquisitions (VaaS, WatchGuard, Avtec), and growth in Devices and Software portfolios.

Profitability saw significant improvement. Gross margin expanded to 50.5% in Q3 2019 from 48.4% in Q3 2018, and operating earnings increased by 40% to $413 million. This was bolstered by lower "Other Charges" compared to the prior year, which included a significant environmental reserve, and improved performance across both operating segments.

Motorola Solutions continued to return capital to shareholders through share repurchases, spending $170 million year-to-date on repurchases, and paying $281 million in dividends year-to-date. The company also maintained a strong available share repurchase authority of $1.4 billion as of September 28, 2019.

The company strategically managed its debt by issuing $1.0 billion in new 1.75% senior convertible notes and using proceeds to repurchase outstanding debt, including the remaining $800 million principal amount of its 2.00% senior convertible notes. This reflects an effort to optimize its debt structure and interest expense.