Motorola Solutions(MSI) - 2024 Q1 - Quarterly Results

markdown [First-Quarter 2024 Financial Results](index=1&type=section&id=First-Quarter%202024%20Financial%20Results) [Key Financial Highlights](index=1&type=section&id=Key%20Financial%20Highlights) Motorola Solutions reported record Q1 revenue of **$2.4 billion** and non-GAAP EPS of **$2.81**, leading to raised full-year guidance Q1 2024 Key Financial Results (in millions, except EPS) | Metric | Q1 2024 | Q1 2023 | % Change | | :--- | :--- | :--- | :--- | | **Sales** | $2,389 | $2,171 | 10% | | **GAAP Operating Earnings** | $519 | $399 | 30% | | **GAAP EPS** | ($0.23) | $1.61 | (114)% | | **Non-GAAP Operating Earnings** | $638 | $532 | 20% | | **Non-GAAP EPS** | $2.81 | $2.22 | 27% | - The GAAP EPS of **($0.23)** includes a significant non-operating loss of **($3.42)** per share due to the settlement accounting for the Silver Lake convertible debt[2](index=2&type=chunk) - The company achieved record Q1 operating cash flow of **$382 million**, a substantial increase from a usage of **$8 million** in the prior year, and ended the quarter with a record backlog of **$14.4 billion**[2](index=2&type=chunk)[4](index=4&type=chunk) - Strategic activities in the quarter included credit rating upgrades to BBB by S&P and Fitch, the issuance of **$1.3 billion** in long-term debt, the cash settlement of the Silver Lake convertible debt, and the acquisition of Silent Sentinel, a provider of long-range cameras[2](index=2&type=chunk)[4](index=4&type=chunk) [Segment Performance](index=1&type=section&id=Segment%20Performance) Products and Systems Integration sales grew **14%**, Software and Services **4%** (**12%** adjusted), with varied segment operating margins Q1 2024 Segment Sales and Non-GAAP Operating Earnings (in millions) | Segment | Q1 2024 Sales | YoY Change | Q1 2024 Non-GAAP OE | YoY Change | Q1 2024 Non-GAAP OE Margin | | :--- | :--- | :--- | :--- | :--- | :--- | | Products and Systems Integration | $1,490 | 14% | $370 | 50% | 24.8% | | Software and Services | $899 | 4% | $268 | (6)% | 29.8% | - Products and Systems Integration growth was driven by land mobile radio (LMR) communications and video security and access control (Video)[4](index=4&type=chunk) - Software and Services growth was driven by Video and Command Center solutions, but was partially offset by lower revenue from the U.K. Home Office due to the Airwave price control (the "Charge Control") and the exit from the Emergency Services Network (ESN) contract[4](index=4&type=chunk) [Other Selected Financial Results](index=2&type=section&id=Other%20Selected%20Financial%20Results) Non-GAAP operating margin improved to **26.7%**, operating cash flow reached **$382 million**, and total backlog hit **$14.4 billion** - Non-GAAP operating margin increased by **220 basis points** to **26.7%**, driven by higher sales, favorable mix, and improved operating leverage, which was partially offset by the U.K. Airwave Charge Control[4](index=4&type=chunk) - Operating cash flow was **$382 million**, compared to a usage of **$8 million** in Q1 2023 Free cash flow was **$336 million**, compared to a usage of **$62 million** in the prior-year quarter[4](index=4&type=chunk) - During the quarter, the company paid **$163 million** in dividends, repurchased **$39 million** of stock, and settled the Silver Lake convertible debt for **$1.59 billion** in cash[4](index=4&type=chunk) - Total ending backlog reached a record **$14.4 billion**, up **2%** YoY Software and Services backlog grew **$404 million** (**4%**), while Products and Systems Integration backlog declined **$74 million** (**2%**), primarily due to unfavorable foreign exchange rates[4](index=4&type=chunk) [Business Outlook](index=3&type=section&id=Business%20Outlook) [Q2 2024 and Full-Year 2024 Guidance](index=3&type=section&id=Q2%202024%20and%20Full-Year%202024%20Guidance) Motorola Solutions raised full-year 2024 guidance to **7%** revenue growth and **$12.98**-**$13.08** non-GAAP EPS, with Q2 outlook provided Q2 2024 Guidance | Metric | Guidance | | :--- | :--- | | Revenue Growth (YoY) | 7% to 8% | | Non-GAAP EPS | $2.97 to $3.02 | Updated Full-Year 2024 Guidance | Metric | New Guidance | Prior Guidance | | :--- | :--- | :--- | | Revenue Growth (YoY) | Approx. 7% | Approx. 6% | | Non-GAAP EPS | $12.98 to $13.08 | $12.62 to $12.72 | [Business & Operational Updates](index=3&type=section&id=Business%20%26%20Operational%20Updates) [Notable Wins](index=3&type=section&id=Notable%20Wins) The company secured significant LMR, Command Center, and P25 device orders across U.S. and international markets - **Software and Services Wins:** - **$25M** LMR services order for Douglas County, Colorado - **$25M** LMR services order for U.K. Department of Health - **$18M** Command Center order for San Francisco - **$14M** LMR services order for Lithuania - **$11M** LMR services order for São Paulo State Police, Brazil[8](index=8&type=chunk) - **Products and Systems Integration Wins:** - **$22M** P25 device order for large U.S. customer - **$16M** LMR order for an international customer - **$13M** LMR order for State of Tennessee - **$13M** mobile video order for North Carolina State Highway Patrol[8](index=8&type=chunk) [U.K. Home Office Update](index=3&type=section&id=U.K.%20Home%20Office%20Update) U.K. Home Office extended Airwave contract to 2029, adding **$748 million** to backlog, amidst ongoing CMA price control appeals - The CMA imposed a price control (the "Charge Control") on the Airwave network The company's appeal was dismissed by the Competition Appeal Tribunal (CAT), and it has now applied to the U.K. Court of Appeal to hear the case[8](index=8&type=chunk) - On March 13, 2024, the U.K. Home Office issued a Deferred National Shutdown Notice, extending the Airwave service from Dec 31, 2026, to Dec 31, 2029, at the reduced Charge Control rates[9](index=9&type=chunk) - As a result of the contract extension, the company recorded an additional **$748 million** in backlog in Q1 2024 The company has filed proceedings in the U.K. High Court to challenge the extension notice[10](index=10&type=chunk) [Legal Proceedings](index=5&type=section&id=Legal%20Proceedings) [Hytera Litigation Update](index=5&type=section&id=Hytera%20Litigation%20Update) Motorola Solutions continues Hytera litigation, securing a **$56 million** escrow payment and a worldwide sales injunction under appeal - The company was previously awarded a judgment against Hytera, which was later reduced to **$543.7 million** plus interest, costs, and fees The company is pursuing collection through the legal process[18](index=18&type=chunk) - After Hytera failed to make a court-ordered royalty payment, the court found Hytera in contempt, leading to a **$56 million** payment into a third-party escrow in September 2023 The funds will not be recognized until all contingencies are resolved[20](index=20&type=chunk) - In Q1 2024, a U.S. court found Hytera in contempt for not withdrawing competing litigation in China and issued a worldwide sales injunction on all Hytera radio products This injunction has been temporarily stayed pending an appeal by Hytera[22](index=22&type=chunk) [Financial Statements & Reconciliations](index=4&type=section&id=Financial%20Statements%20%26%20Reconciliations) [Use of Non-GAAP Financial Information](index=4&type=section&id=Use%20of%20Non-GAAP%20Financial%20Information) The company uses non-GAAP measures to present core operating performance, excluding non-recurring or non-operational items - Management uses non-GAAP measures to evaluate business performance and for incentive compensation targets, believing they enable better evaluation of the core business by excluding certain items[12](index=12&type=chunk) - Key exclusions from non-GAAP metrics include share-based compensation, intangible assets amortization expense, and various highlighted items like reorganization charges, legal settlements, and gains/losses on debt extinguishment[17](index=17&type=chunk)[24](index=24&type=chunk)[25](index=25&type=chunk) - Hytera-related legal expenses are excluded from non-GAAP results as of 2020 because management believes they are no longer part of "normal and recurring" legal expenses after the initial jury award[23](index=23&type=chunk) [Consolidated GAAP Financial Statements](index=9&type=section&id=Consolidated%20GAAP%20Financial%20Statements) GAAP statements show a **$39 million** net loss from debt extinguishment, **$13.3 billion** total assets, and **$382 million** operating cash flow [Condensed Consolidated Statements of Operations](index=9&type=section&id=Condensed%20Consolidated%20Statements%20of%20Operations) Q1 2024 net sales were **$2.39 billion** with **49.9%** gross margin, but a **$609 million** expense led to a **$39 million** net loss Q1 2024 vs Q1 2023 Statement of Operations (in millions) | Metric | Q1 2024 | Q1 2023 | | :--- | :--- | :--- | | Net sales | $2,389 | $2,171 | | Gross margin | $1,192 | $1,046 | | Operating earnings | $519 | $399 | | Total other expense | ($609) | ($41) | | Net earnings (loss) attributable to MSI | ($39) | $278 | [Condensed Consolidated Balance Sheets](index=10&type=section&id=Condensed%20Consolidated%20Balance%20Sheets) Total assets were **$13.3 billion**, cash **$1.5 billion**, with debt shifting from current to long-term due to financing Balance Sheet Highlights (in millions) | Account | March 30, 2024 | Dec 31, 2023 | | :--- | :--- | :--- | | Total current assets | $5,521 | $5,725 | | Total assets | $13,326 | $13,336 | | Current portion of long-term debt | $313 | $1,313 | | Long-term debt | $5,994 | $4,705 | | Total Motorola Solutions, Inc. stockholders' equity | $521 | $724 | [Condensed Consolidated Statements of Cash Flows](index=11&type=section&id=Condensed%20Consolidated%20Statements%20of%20Cash%20Flows) Net cash from operations was **$382 million**, a strong recovery driven by debt extinguishment and working capital improvements Cash Flow Summary (in millions) | Activity | Q1 2024 | Q1 2023 | | :--- | :--- | :--- | | Net cash provided by (used for) operating activities | $382 | ($8) | | Net cash used for investing activities | ($47) | ($53) | | Net cash used for financing activities | ($512) | ($263) | | Net decrease in total cash and cash equivalents | ($193) | ($303) | [GAAP to Non-GAAP Reconciliations](index=12&type=section&id=GAAP%20to%20Non-GAAP%20Reconciliations) This section details GAAP to non-GAAP reconciliations, quantifying adjustments for debt extinguishment and share-based compensation [Free Cash Flow Reconciliation](index=12&type=section&id=Free%20Cash%20Flow%20Reconciliation) Q1 2024 free cash flow was **$336 million**, from **$382 million** operating cash flow less **$46 million** capital expenditures Q1 2024 Free Cash Flow (in millions) | Metric | Amount | | :--- | :--- | | Net cash provided by operating activities | $382 | | Capital expenditures | ($46) | | **Free cash flow** | **$336** | [Net Earnings and EPS Reconciliation](index=13&type=section&id=Net%20Earnings%20and%20EPS%20Reconciliation) GAAP to non-GAAP EPS reconciliation adjusts **($0.23)** GAAP loss to **$2.81** non-GAAP EPS, mainly from **$3.42** debt extinguishment add-back Q1 2024 EPS Reconciliation (GAAP to Non-GAAP) | Description | Per Share Amount | | :--- | :--- | | **GAAP Diluted EPS** | **($0.23)** | | Loss from extinguishment of Silver Lake Debt | $3.42 | | Share-based compensation expenses | $0.32 | | Intangible assets amortization expense | $0.23 | | Other adjustments (net) | $0.17 | | Income tax expense on adjustments | ($1.10) | | **Non-GAAP Diluted EPS** | **$2.81** | [Operating Earnings by Segment Reconciliation](index=15&type=section&id=Operating%20Earnings%20by%20Segment%20Reconciliation) Total GAAP operating earnings of **$519 million** adjusted to **$638 million** non-GAAP, with segment-specific adjustments Q1 2024 Operating Earnings Reconciliation (in millions) | Segment | GAAP OE | Total Adjustments | Non-GAAP OE | | :--- | :--- | :--- | :--- | | Products and Systems Integration | $310 | $60 | $370 | | Software and Services | $209 | $59 | $268 | | **Total** | **$519** | **$119** | **$638** | [Organic Revenue Reconciliation](index=16&type=section&id=Organic%20Revenue%20Reconciliation) Q1 2024 organic revenue was **$2.379 billion**, a **10%** YoY growth, after adjusting for **$10 million** in acquisitions Q1 2024 Organic Revenue (in millions) | Metric | Amount | | :--- | :--- | | Net sales | $2,389 | | Sales from acquisitions | ($10) | | **Organic revenue** | **$2,379** | [Net Sales Adjusted for U.K. Home Office Reconciliation](index=17&type=section&id=Net%20Sales%20Adjusted%20for%20U.K.%20Home%20Office%20Reconciliation) Software and Services net sales grew **12%** excluding U.K. Home Office, with total company net sales up **14%** adjusted Q1 2024 Net Sales Adjusted for U.K. Home Office (in millions) | Metric | Amount | YoY Change | | :--- | :--- | :--- | | Software and Services net sales | $899 | 4% | | Less: U.K. Home Office net sales | ($101) | N/A | | **S&S net sales adjusted for U.K. Home Office** | **$798** | **12%** |