Motorola Solutions(MSI) - 2024 Q1 - Earnings Call Transcript

Financial Data and Key Metrics - Revenue growth of 10% in Q1 2024, with earnings per share (EPS) growth of 27% and operating margins expanded by 220 basis points [9] - Record Q1 operating cash flow of $382 million, up $390 million year-over-year [9][18] - GAAP operating earnings were $519 million (21.7% of sales), up from 18.4% in the year-ago quarter, while non-GAAP operating earnings were $638 million (26.7% of sales), up 20% year-over-year [13] - GAAP EPS was a loss of $0.23 due to a $585 million charge related to the settlement of Silver Lake convertible notes, while non-GAAP EPS was $2.81, up 27% from $2.22 last year [15][17] - Ending backlog reached a record $14.4 billion, up $331 million year-over-year, driven by strong demand for multiyear Software and Services contracts [24] Business Segment Performance - Products and SI segment revenue grew 14% year-over-year, with operating margins increasing by 590 basis points, driven by strong demand for LMR products like APX NEXT and refreshed PCR portfolio [10][20] - Software and Services revenue grew 4%, but excluding the U.K. Home Office impact, revenue increased double-digits, driven by strong demand for LMR services and software applications in video security and command center [10][22] - Notable wins in Q1 include a $22 million P25 device order, a $16 million LMR order, and a $13 million mobile video order for North Carolina State Highway Patrol [21] Regional Performance - North America Q1 revenue was $1.7 billion, up 13%, driven by strong double-digit growth in both segments [16] - International Q1 revenue was $696 million, up 3%, with growth in video and LMR offset by lower U.K. Home Office revenues due to the Airwave charge control and exit from the ESN contract [16] - Excluding the U.K. Home Office impact, international revenue increased double-digits year-over-year in both segments [16] Company Strategy and Industry Competition - The company raised its full-year revenue and EPS guidance, expecting revenue growth of approximately 7% and non-GAAP EPS between $12.98 and $13.08 [28][29] - Investments in LMR product portfolio are driving revenue growth and margin expansion, with recurring revenues increasing due to strong demand for services [36] - The company is seeing accelerated adoption of cloud offerings, including Rave and Command Center, and is well-positioned for organic and inorganic growth [37] Management Commentary on Operating Environment and Future Outlook - Management highlighted the strong start to the year, with robust demand across all technologies and regions, leading to increased guidance for the full year [9][11] - The company expects Q2 sales to grow between 7% and 8%, with non-GAAP EPS between $2.97 and $3.02 [28] - Management remains optimistic about the durability and criticality of mission-critical LMR technology, particularly with the extension of the Airwave contract in the U.K. [57] Other Important Information - The company settled $1.59 billion of Silver Lake convertible notes in cash, eliminating potential dilution and reflecting a favorable negotiated settlement price [15] - S&P and Fitch upgraded the company's credit ratings to BBB, and the company issued $1.3 billion of debt to extend its average debt maturity to over eight years [31][32] - The company acquired Silent Sentinel, a provider of specialized long-range cameras, for $37 million net of cash [19] Q&A Session Summary Question: Video Growth and Cloud Adoption - Video growth was strong in Q1, with cloud adoption estimated to create a $40 million headwind for the full year [43][44] - Software within video is growing faster than the product side, driven by analytics, VMS, and cloud subscriptions [46] Question: LMR Growth Cycle - LMR growth is driven by strong demand for feature-rich devices like APX NEXT, with the company still in the middle of the device refresh cycle [48][50] - Applications like SmartConnect and Smart Programming are driving adoption, with customers embracing blended fleets of APX Original and APX NEXT devices [51][53] Question: Airwave Contract and CMA Situation - The U.K. Home Office extended the Airwave contract through 2029, with the company recording backlog at worst-case charge control rates while contesting the CMA decision [57][58] - No evidence of other managed services customers attempting to reprice contracts globally [60] Question: Ukraine Impact and Command Center Growth - The company maintains a $100 million headwind from reduced business in Ukraine, with no change to the full-year outlook despite the recent aid package [62][63] - Command center growth is expected to be 10% for the full year, with strong adoption of cloud-connected products [64][66] Question: Margin Expansion and Backlog Trends - Q1 margins benefited from lower supply chain costs and customer adoption of feature-rich products, with more margin improvement expected throughout the year [70][71] - Excluding the U.K. Home Office impact, total backlog is up over $500 million, with Software and Services backlog up over $600 million [80] Question: Future Margin Drivers - Future margin expansion will be driven by volume mix, surgical price increases, and disciplined OpEx management, with potential contributions from AI and operational efficiencies [72][77]