10-QPeriod: Q2 FY2023

Motorola Solutions, Inc. Quarterly Report for Q2 Ended Apr 1, 2023

Filed May 4, 2023For Securities:MSI

Summary

Motorola Solutions, Inc. (MSI) reported a strong first quarter for 2023, with net sales increasing by 15% year-over-year to $2.2 billion, and operating earnings surging by 67% to $399 million. This robust performance was driven by significant growth in both the Products and Systems Integration (+18% net sales) and Software and Services (+10% net sales) segments. The company highlighted strong customer demand, effective pricing actions to mitigate inflationary pressures, and contributions from recent acquisitions. Diluted earnings per share also saw a healthy increase to $1.61. Despite a challenging macroeconomic environment characterized by ongoing supply chain disruptions and inflationary pressures, Motorola Solutions demonstrated resilience. The company's strategic focus on its core technologies—LMR Communications, Video Security, and Command Center—along with disciplined expense management, contributed to improved profitability. While operating cash flow experienced a decline year-over-year, this was attributed to working capital changes and a one-time tax payment. The company continues to return capital to shareholders through share repurchases and dividends, maintaining a strong liquidity position.

Financial Highlights

53 data points
Beta

Revenue

$2.17B

48.2% Gross Margin

Net Income

$278.00M

12.8% Net Margin

EPS (Diluted)

$1.61

Total Assets

$12.35B

Cash & Equivalents

$1.02B

Free Cash Flow

-$8.00M

Financial Statements
Beta
Revenue$2.17B
Cost of Revenue$1.13B
Gross Profit$1.05B
R&D Expenses$210.00M
SG&A Expenses$368.00M
Operating Income$399.00M
Interest Expense$63.00M
Net Income$278.00M
EPS (Basic)$1.66
EPS (Diluted)$1.61
Shares Outstanding (Basic)167.40M
Shares Outstanding (Diluted)172.60M

Key Highlights

  • 1Net sales increased 15% to $2.2 billion, driven by strong performance in both Products & Systems Integration and Software & Services segments.
  • 2Operating earnings more than doubled, increasing 67% to $399 million, reflecting improved margins and effective cost management.
  • 3Diluted EPS grew to $1.61, up from $1.54 in the prior year's quarter.
  • 4Gross margin improved to 48.2% from 45.3%, driven by pricing actions and lower supply chain costs.
  • 5The company continues to execute its acquisition strategy, with recent integrations contributing to revenue growth.
  • 6Despite a decrease in operating cash flow to a $8 million outflow, the company maintained a strong liquidity position with $1.0 billion in cash and cash equivalents.
  • 7Motorola Solutions repurchased $140 million of common stock and paid $148 million in dividends in the quarter, demonstrating commitment to shareholder returns.

Frequently Asked Questions

The substantial increase in operating earnings was driven by higher sales across both the Products and Systems Integration ($176M operating earnings, up from $39M) and Software and Services ($223M operating earnings, up from $200M) segments. This was further supported by improved gross margins, partly due to effective pricing actions and lower supply chain costs, and a reduction in certain charges such as legal settlements and intangible amortization that were present in the prior year's comparable period.

Motorola Solutions is actively managing these challenges by improving its supplier network, engineering alternative designs, and working to reduce supply shortages. The company is also maintaining elevated inventory levels and has implemented pricing actions on its products and services to mitigate inflationary pressures. These strategies are expected to help sustain demand and manage costs throughout 2023.

The Hytera litigation regarding trade secret theft and copyright infringement continues. While a jury initially awarded significant damages, the court has reduced the judgment to $543.7 million, plus interest, costs, and attorneys' fees. Hytera has appealed the judgment and has been making quarterly royalty payments into escrow, which have been described as 'de minimis'. The financial impact of these royalties is not recognized until contingencies are resolved. Motorola Solutions received a $2 million distribution from Hytera's bankruptcy proceedings in December 2022.

Operating cash flow decreased to an outflow of $8 million in the first quarter of 2023 from an inflow of $152 million in the first quarter of 2022. This change was primarily due to higher working capital requirements and a one-time cash tax payment of $70 million related to an intellectual property reorganization completed in 2022.