Motorola Solutions, Inc. (NYSE: MSI) today reported its earnings results for the second quarter of 2024.

“Our second quarter was excellent, with strong growth in all three technologies and record Q2 sales and operating earnings,” said Greg Brown, chairman and CEO, Motorola Solutions. “Our strong ending backlog and business momentum entering the second half of the year position us well for continued growth. As a result, we’re again raising our full-year revenue and earnings expectations.”

Key Facts:

• Sales of $2.6 billion, up 9% versus a year ago

• Products and Systems Integration sales up 15%

• Software and Services sales flat; up 11%1 excluding U.K. Home Office sales

• GAAP earnings per share ("EPS") of $2.60, up 21% versus a year ago

• Non-GAAP EPS2 of $3.24, up 22% versus a year ago

• Operating cash flow of $180 million, up $87 million versus a year ago

• Subsequent to quarter end, invested $223 million for acquisitions in Video and Command Center

  
  

OTHER SELECTED FINANCIAL RESULTS

• Revenue - Sales were $2.6 billion, up 9% from the year-ago quarter driven by growth in North America, partially offset by lower revenue in the U.K. related to the Competition and Markets Authority's ("CMA") decision to implement a prospective price control on Airwave (the "Airwave Charge Control") and the exit from the Emergency Services Network ("ESN") contract. Revenue from acquisitions was $13 million and currency headwinds were $5 million in the quarter. The Products and Systems Integration segment grew 15%, driven by growth in Land Mobile Radio Communications ("LMR") and Video Security and Access Control ("Video"). The Software and Services segment was flat, due to the impact of the Airwave Charge Control and the exit from ESN. Excluding the U.K. Home Office, Software and Services grew 11% with growth in all three technologies.

• Operating margin - GAAP operating margin was 24.5% of sales, up from 21.6% in the year-ago quarter. Non-GAAP operating margin was 28.8% of sales, up 210 basis points from 26.7% in the year-ago quarter. The increases in both GAAP and Non-GAAP operating margins was driven by higher sales, favorable mix and improved operating leverage, partially offset by the Airwave Charge Control.

• Taxes - The GAAP effective tax rate during the quarter was 23.3%, down slightly from 23.4% in the year-ago quarter. The non-GAAP effective tax rate was 23.6%, up from 22.9% in the year-ago quarter primarily driven by lower benefits from share-based compensation recognized in the current quarter.

• Cash flow - Operating cash flow was $180 million, compared to $93 million in the year-ago quarter and free cash flow was $112 million, up from $40 million in the year-ago quarter. Both the operating cash flow and free cash flow for the quarter increased due to higher earnings in the current year, net of non-cash charges, partially offset by higher employee incentive costs and higher cash taxes.

• Capital allocation - During the quarter, the company paid $163 million in cash dividends, repurchased $71 million of common stock and incurred $68 million of capital expenditures. Subsequent to quarter end, the company acquired a global provider of critical event management software for $91 million, expanding its Command Center offerings. Additionally, subsequent to quarter end, the company acquired a provider of vehicle location and management solutions for the financial services vertical within Video for $132 million. 

• Backlog - The company ended the quarter with backlog of $14.0 billion, down 2% or $318 million from the year-ago quarter. Excluding the U.K. Home Office, total backlog was up from the year-ago quarter. Products and Systems Integration segment backlog was down $482 million, or 10%, driven primarily by strong LMR shipments. Software and Services segment backlog was up $164 million, or 2%, driven by strong demand in all three technologies, partially offset by the revenue recognition for the U.K. Home Office.

NOTABLE WINS AND ACHIEVEMENTS

Software and Services

• $19M LMR services order for the Victorian State Government, Australia

• $18M LMR services order for a U.S. federal customer

• $16M mobile video award with Police Scotland

• $12M Command Center order for the Las Vegas Metro Police Department

• $11M LMR services order for American Airlines
   

Products and Systems Integration

• $32M P25 system and device order for the City of Naperville, IL

• $19M P25 system upgrade for Washington County, VA

• $18M P25 system order for a U.S. federal customer

• $17M P25 device order for a U.S. customer

• $8M fixed video order for a large U.S. state and local customer

• $6M fixed video order for Newark Public Schools
   

BUSINESS OUTLOOK

• Third quarter 2024 - The company expects revenue growth between 7% and 8% compared to the third quarter of 2023. The company expects non-GAAP EPS in the range of $3.32 to $3.37 per share. This assumes approximately 170 million fully diluted shares and a non-GAAP effective tax rate of approximately 24%.

• Full-year 2024 - The company now expects revenue growth of approximately 8%, up from its prior guidance of approximately 7%, and non-GAAP EPS of between $13.22 and $13.30 per share, up from its prior guidance of between $12.98 and $13.08 per share. This outlook assumes a fully diluted share count of approximately 171 million shares and a non-GAAP effective tax rate of approximately 23.5%.

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

U.K. HOME OFFICE UPDATE

In October 2021, the CMA 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.

In 2023, the CMA imposed a legal order on Airwave which implemented the Airwave Charge Control. After the Competition Appeal Tribunal ("CAT") dismissed the company's appeal of the CMA's final decision on December 22, 2023, the company filed an application with the United Kingdom Court of Appeal on February 13, 2024, requesting that it hear the company's appeal of the CAT judgment. On June 21, 2024, the United Kingdom Court of Appeal ordered a hearing on the company's application to be held later this year; which was subsequently set for November 11 and 12, 2024. Since August 1, 2023, revenue under the Airwave contract has been recognized in accordance with the Airwave Charge Control, and will continue to be unless the United Kingdom Court of Appeal were to reverse the CAT's judgment and overturn the Airwave Charge Control.

On March 13, 2024, the company received a notice of contract extension (the “Deferred National Shutdown Notice”) from the U.K. Home Office. The Deferred National Shutdown Notice extends the “national shutdown target date” of the Airwave service from December 31, 2026 to December 31, 2029, at the Airwave Charge Control rates.

The company's backlog for Airwave services contracted with the U.K. Home Office through December 31, 2026 was previously reduced by $777 million to align with the Airwave Charge Control. In the first quarter of 2024, as a result of the U.K. Home Office's notice of a contract extension pursuant to their Deferred National Shutdown Notice, the company has recorded additional backlog of $748 million to reflect the incremental three years of services. On April 11, 2024, the company filed proceedings in the U.K. High Court challenging the decision of the U.K. Home Office to issue the Deferred National Shutdown Notice as being in breach of applicable U.K. procurement and public law. The hearing on this matter has been set to commence on April 22, 2025. The backlog related to the incremental years of service contemplated in the Deferred National Shutdown Notice could change depending on the outcome of the proceedings.

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