Motorola Solutions Reports Second Quarter 2023 Financial Results

Motorola Solutions, Inc. (NYSE: MSI) today reported its earnings results for the second quarter of 2023.

“Q2 was another exceptional quarter across the board, highlighted by double-digit revenue and operating earnings growth in both segments,” said Greg Brown, chairman and CEO. “The continued strong demand we’re seeing in all technologies and regions resulted in record second-quarter orders and record ending backlog. Our momentum entering the second half is strong and we’re again raising our revenue and earnings guidance for the full year.” 

 

OTHER SELECTED FINANCIAL RESULTS

Revenue - Sales were $2.4 billion, up 12% from the year-ago quarter driven by growth in North America and International. Revenue from acquisitions was $20 million and currency headwinds were $23 million in the quarter. The Products and Systems Integration segment grew 12%, driven by growth in Land Mobile Radio Communications ("LMR") and Video Security and Access Control ("Video"). The Software and Services segment grew 13%, driven by growth in LMR, Command Center and Video. 
Operating margin - GAAP operating margin was 21.6% of sales, up from 16.7% in the year-ago quarter and Non-GAAP operating margin was 26.7% of sales, up 350 basis points from 23.2% in the year-ago quarter.  The increase in both GAAP and Non-GAAP operating margin was driven by higher sales, inclusive of higher pricing, lower direct material costs, and improved operating leverage.
Taxes - The GAAP effective tax rate was 23.4%, down from 23.7% in the year-ago quarter. The non-GAAP effective tax rate was 22.9%, up from 22.3% in the year-ago quarter, primarily driven by a higher UK tax rate in the current year. 
Cash flow - Operating cash flow was $93 million, compared to $10 million in the year-ago quarter and free cash flow was $40 million compared to a usage of $49 million in the year-ago quarter. Both the operating cash flow and free cash flow for the quarter increased primarily due to higher earnings, net of non-cash charges and improved working capital, partially offset by higher cash taxes.
Capital allocation - During the quarter, the company repurchased $224 million of shares, paid $148 million in cash dividends, and incurred $53 million of capital expenditures.
Backlog - The company ended the quarter with record Q2 backlog of $14.3 billion, up 6% or $856 million from the year-ago quarter. Products and Systems Integration segment backlog was up $496 million, or 11%, driven primarily by strong LMR demand. Software and Services segment backlog was up $360 million or 4%, driven by an increase in multi-year software and services contracts in North America, partially offset by revenue recognition for the Airwave contract and a reduction related to the exit from the ESN contract.

NOTABLE WINS AND ACHIEVEMENTS

Software and Services

$34M video order for the Virginia State Police, which included our largest ever in-car video order
$15M LMR service agreement with City of Baltimore, MD
$13M LMR managed services agreement renewal in Latin America
$12M command center order for a U.S. federal customer
$8M LMR service agreement with a U.S. federal customer
Products and Systems Integration

$145M P25 system upgrade for Kern County, CA
$41M P25 system and device order for a U.S. federal customer
$31M P25 system expansion for Ventura County, CA
$19M P25 device order for a U.S. federal customer
$6M fixed video order for a U.S. healthcare customer
 

BUSINESS OUTLOOK

Third quarter 2023 - The company expects revenue growth of approximately 6%, compared to the third quarter of 2022. The company expects non-GAAP EPS in the range of $2.99 to $3.04 per share. This assumes approximately 172 million fully diluted shares and a non-GAAP effective tax rate between 23% and 24%.

Full-year 2023 - The company now expects revenue in the range of $9.875 billion to $9.900 billion, up from its prior guidance of $9.725 billion to $9.775 billion, and non-GAAP EPS of between $11.40 and $11.48 per share, up from its prior guidance of between $11.21 and $11.29 per share. This outlook assumes approximately $25 million in foreign exchange headwinds, approximately 172 million fully diluted shares and a non-GAAP effective tax rate between 23% and 24%.
The company has not quantitatively reconciled its guidance for forward-looking non-GAAP metrics to their most comparable GAAP measures because the company does not provide specific guidance for the various reconciling items as certain items that impact these measures have not occurred, are out of the company’s control, or cannot be reasonably predicted. Accordingly, a reconciliation to the most comparable GAAP financial metric is not available without unreasonable effort. Please note that the unavailable reconciling items could significantly impact the company’s results.

RECENT EVENTS

CMA UPDATE
In October 2021, the United Kingdom’s Competition and Markets Authority (the "CMA") announced that it had opened a market investigation into the Mobile Radio Network Services market. This investigation included Airwave, the company's private mobile radio communications network that it acquired in 2016. Airwave provides mission-critical voice and data communications to emergency services and other agencies in Great Britain.

On April 5, 2023, the CMA issued its final decision which stated it will impose a prospective price control on Airwave. The company strongly disagrees with the CMA’s final decision and it filed an appeal with the Competition Appeal Tribunal (“CAT”) on June 5, 2023. On July 31, 2023, the CMA adopted a remedies order which implements the price control set out in its final decision; however, the remedies order has been suspended until the CAT’s judgment on the company’s appeal. The CAT appeal hearing took place on August 2 and 3, 2023. Depending on the outcome, further appeals may occur throughout 2023 and 2024.

Based on the adoption of the remedies order, beginning August 1, 2023, revenue under the Airwave contract will be recognized in accordance with the prospective price control until a successful appeal. Further, as a result of the issuance of a final decision from the CMA during the quarter ended July 1, 2023, the company has tested its Airwave asset group for impairment, noting the assets are expected to be recoverable.

MACROECONOMIC EVENTS

Since the beginning of the COVID-19 pandemic, the company has navigated disruptions in its supply chain, in particular challenges in procuring certain semiconductor components along with diminished transportation capacity and higher freight costs. During 2023 the company experienced gradual improvement in the market conditions influenced by the effects of the COVID-19 pandemic and the inflationary cost environment, particularly with respect to availability of materials in the semiconductor market. Where appropriate, the company has taken pricing actions around its product and service offerings to mitigate its exposure to inflationary pressures and benefited from these adjustments during the first half of 2023, and expects to continue to benefit from such adjustments in the second half of 2023. The company continues to remain focused on improving its supplier network, engineering alternative designs and working to reduce supply shortages and effectively manage costs. In addition, the company continues to actively manage its inventory in an effort to enable continuity of supply and services to its customers, which includes making changes that diversify the footprint of its supply chain operations. The company expects to maintain elevated levels of inventory until supply conditions stabilize.

CONFERENCE CALL AND WEBCAST 

Motorola Solutions will host its quarterly conference call beginning at 4 p.m. U.S. Central Time (5 p.m. U.S. Eastern Time) on Thursday, August 3. The conference call will be webcast live at www.motorolasolutions.com/investors/. An archive of the webcast will be available for a limited period of time thereafter.