MSI - Earnings call transcript Q3 2018 | Motorola Solutions, Inc.

Due to licensing restrictions, you must log in to view earnings call transcripts.

Operator

Good afternoon and thank you for holding. Welcome to the Motorola Solutions third quarter 2018 earnings conference call. Today's call is being recorded.

If you have any objections, please disconnect at this time. The presentation material and additional financial tables are currently posted on the Motorola Solutions Investor Relations website.

of the will over conclusion replay three available the a after hours of addition, this be call approximately Internet. In this call address website is The www.motorolasolutions.com/investor. mode, been At your for the in participants time, following line have this a be all questions listen-only and presentation. open the will placed would I like introduce to now Mr. Investor President Chris Kutsor, of Vice Relations. Mr. Kutsor, begin conference. your you may

Chris Kutsor

& President, motorolasolutions.com/investor. Brown, Executive Services you. and CFO; and results Executive With Kelly me and materials call. Good quarter non-GAAP to These and third posted your will earnings Jack Bonanotte, Vice Executive along for join afternoon Thank Molloy, Kelly review Gino are Jack presentation and Chairman Q&A. Greg We've President, XXXX include GAAP Vice & our Sales; Software. CEO; welcome for Greg will an President Vice reconciliations to and at with reference. our release & and today commentary, Products earnings Gino news Mark,

unless our to now and forward-looking over during could Greg. Report cause those we Annual And undertake During during duty reference made call, any and outlook, Q&A release conference be and this will any such forward-looking in this section the A XXXX comments portion results, presentation differences made uncertainties. it XX-K during non-GAAP Information including number call. the filings results statements statement. the can from the current call, of are of be Risk based the in not and do assumptions found otherwise I'll that, news differ to our of in financial and are could to today's on about and statements. earnings factors the with Form statements a that of these and Factors other risks SEC. expectations forward-looking subject materially variety reports We with update These that turn on Actual noted.

Gregory Q. Brown

through joining overall and the the thanks before Gino Chris, afternoon, now us the about for takes business a outlook. few us thoughts I'll Thanks, results today. good share and

First, cash another strong We grew segments. continued quarter. generated grew more to revenue compared year both QX on XX%, and in was last EPS XX%, strength

Second, the share over State $X.X based turn last yet and compared over award. $X.XX. to earnings record I'll QX and backlog, in for $X additional we're Florida finally, $X Airwave sits does and billion I'm is now at to call the year, encouraged growth, full And for returning of or $X.X details raising which of to ending expect to related outlook QX range our thoughts. of on include to the before some a now We to outlook, our our Gino not per backlog QX with up billion, ESN performance, continued billion over and now earnings again closing be extensions, year. the expected the results on provide

Gino A. Bonanotte

EPS and up X% basis million, in you, a XX.X% earnings QX adoption the excludes X%, of Thank Organic Integration were of includes $XX XX%, to and million was was QX million, million per up and XXX acquisitions billion, was were Systems million, up to $XXX Services revenue systems XX% well primarily earnings, XX% constant X%. Integration last as or the accounting from revenue to rate. on from of XXX. year, backlog integration America. were lower QX year, few of to Products down sales, year, million, or associated earnings due lower in accounting margins on growth revenue QX $XXX points North a operating XX% million down a acquisitions was $XXX up and of was $X.XX and X% were gross $XXX $X.X Non-GAAP or acquisitions. as higher million, earnings reserve. $X.X or last and Operating million, Ending operating changes, primarily GAAP SI revenue, and higher up revenue XX% Systems the revenue. $XXX year. was on to environmental large last with up from and increase tax legacy projects. $XXX earnings an record, revenue XX.X% GAAP or from million, $X.XX, backlog Greg. OpEx higher and from $X.XX, related from billion, last from due quarter Products Non-GAAP last Products up points $X.XX Software up last to up sales, basis $X.X and was including ASC margins $XX were down and organic related from which on acquisitions, billion, share year, XX acquisitions up year-ago year compared standard on year. operating a backlog $XX $XXX currency. of last

were operating quarter up at sales XXXX full-year million, revenue segment of X% XXX mix. million, growth up gross Products or Products basis was year, X%. million, QX up margins last million, year, for Sequentially, million, be or $XXX year, $XXX backlog from XX% growth SI ended in last backlog the with expect versus every and and billion, We points from Services or $X.X $XX Services region. in margin to higher XX.X% Software regions. by approximately SI or operating includes and last and the favorable with and from up was all acquisitions. $XXX $XXX million sales, segment driven earnings This XX%. $XXX Software

at Software margins million, $XXX the is acquisitions driven Asia-Pac. Airwave Services including Software operating XX%, be revenue backlog was XXXX approximately versus the by and million Services and Total approximately from in quarter, ended to full-year continue segment $XXX X% last Americas XXXX million up $XX million, year, XXX. full-year or expect to billion, year-ago of due down QX expect ASC approximately Sequentially, X%, the XX%. to backlog and and recognition. up OpEx $XXX We of $X.X for and margins

$X.X compared $XX million quarter. expect to compared year-ago $XX full the $XX million, was interest XX% booked we due expense return was share-based the related $XX QX expense continue in the XX% benefits a to to billion. approximately was XXXX year, tax income Net For compensation. million, million in OpEx compared and adjustments year, of year to Other tax reform, to The provision quarter, tax to and ago. rate last effective to

to Turning cash cash $XXX last million, compared flow, QX operating driven The million was working and flow $XXX improved higher to increase earnings was capital. year. by

year, in lower and $X.X IT expect $XX last with lower excluding flow million to continue cash was for by contribution approximately $XXX expenditures $XXX We estate. QX. the flow Free were the in Capital compared real operating pension million million. in billion spending year on cash

debt, the XX% convertible The for $XXX repaid Lake in conversion repurchased Silver premium with the with cash senior $XXX and was of we paid Additionally, principal of new QX million. note $XXX unsecured was million in million QX. early

with We also was repaid $XXX $XXX facility fully credit quarter, million subsequent Avigilon paid million the repaid during the associated was to the remaining acquisition, million $XXX revolving and quarter-end.

Additionally, million bank we with in $XXX acquisition expect loan Avigilon to currently XXXX. term repay the the associated

driven and Looking was QX approximately and The center up demand growth services, XX% $XXX Americas revenue solutions. is up was at products segments. regional results, EMEA $XXX million QX software, up command million. growth also Products and revenue by region revenue LMR strong in year-over-year. and And Airwave was up video both and for million was backlog of last backlog in XX% X%, saw revenue with in in to compared Asia-Pac, approximately of Software SI. approximately Backlog $XXX is down down year, segments. offset is recognition. and $XXX growth Services million over inclusive by both

of up effective approximately to outlook, be share average our sales $X.XX. of expect XXX XX%. headwinds FX and rates, $X.XX diluted between XX%, an $XX current approximately approximately QX rate million we a count to assumes of tax and at shares, Turning EPS non-GAAP with million weighted This

$X.XX. average year, up For EPS count approximately share This tax $X.XX approximately of growth the revenue expect million we rate effective continue and full XX.X%. $X.XX now We from assumes a weighted XX.X%. shares of an approximately $X.XX, of expect diluted of XXX to to non-GAAP to

minimal from reflects exposure our tariffs, guidance very impacts of an Our to limited China. expectation given

to end I'd Finally, highlights. notable with some like

network Indiana; unified awarded in were replace Virginia records over emergency valued City contract million and of Chesterfield Europe; to digital City Vault sources TETRA back to turn a would – now the Indianapolis management variety PXX records dispatch management and an at existing content over now across and a device from network During evidence quarter, million $XX and records County and Vegas a wide computer-aided existing the in evidence; and a of and for CommandCentral management a to million $XX we an a upgrade management, into software dispatch computer-aided experience management and solution, from providing Vault CommandCentral Marion our consolidates Las County, order from control, call call $XX handling, command evidence the the our of million Greg. single solution. from our to platform. I and like contract for applications customers' XX-year with integrates $XX of the and order

Gregory Q. Brown

Gino. thanks, And

Let me close a few with thoughts.

very I'm pleased by radio our perform land to services products, and were Avigilon strong results We acquisition America. North and our ahead that software, mobile with First, expectations. continues led QX demand across see of the

finally, for Second, I expansion, potential the recurring business while and segment. segment of do, power position. like earnings excited work forward. wins strong more highlight about command recent ahead, competitive And suite. as this And our Software we're continued the and good feel I as well, of I our about momentum QX look end-to-end seeing to software center going there's remain our Services margin with in was that I traction revenue, and our another the quarter Services

serving vibrant We compelling of markets. have portfolio large addressable a segments

a now durable cash continued focused strong provide execution, on I'll flows back the call turn We Chris. that shareholder healthy to have and flexibility team over a balance consistent for sheet, growing returns.

Chris Kutsor

Thank you, Greg.

would I'd we questions, remind people one line a and as to accommodate Before the like so a how callers begin can to themselves remind to please question possible. follow-up, question? you that we to Operator, on ask callers as our taking limit many

Operator

is open Thank now questions. you. floor The for

coming is question ahead. from first Please Notter go with Our George Jefferies.

George C. Notter

is through off in of right? imply margin. guidance, QX you look kind I at something walk kind quarter, margin operating conservatism, seems I a you your kind years would helpful. some XX% operating And then number strong guidance. Thanks. math can ago, XX% it guys of is to wanted look profitability get but through margins thanks back to year operating costs earnings, a some it. guys. a the as carrying you're to of operating that even the Just the QX. rate, revenue that And eyes? tax Hey, that at or Hey, or of If I two lot, like these there, shares, where Is be looks It's in deals? talk M&A with it seasonally of about by somewhat at ago higher were looking maybe start I your a

Gino A. Bonanotte

is and little George, ASC right, That obviously. XXX that operating margin up, the well. as of related it's at Yeah, bit Gino. looks is remind this and acquisitions, are about percentage to you down I'll a Earnings acquisitions

George C. Notter

it. Got

then Okay. bit on QX, modeling and in outlook Got how you put what about for the tax and of up Can it. for just modeling Thanks. higher kind your you I you're maybe kind rate, little forward? here in what's And then going than tax rate then see about the a think QX. of going we QX rate even talk there certainly on guys it, talked and you tax

Gino A. Bonanotte

Yeah.

from a with maybe to perspective, it's start instructive So, rate tax QX.

XX% QX, tax About year. is versus the half related of legislation. to So that, George, XX% last

compensation. and estimate The provision other between half split deemed stock dividends to is and return

we as into next we and XX% for to XX%. guided rate, year the somewhere we is look our as the XX.X% tax little forward, year, bit, So a full expectation ETR the look

items. little was of So, rate on based a lower bit those QX couple

George C. Notter

Great.

it you. I'll on. pass Okay. Thank

Gino A. Bonanotte

Thanks.

Operator

from comes Adam question Please ahead. Tindle Raymond go next Our with James.

Adam Tindle

acknowledge profit profit margin gross good faster this Okay. solid, Products it but drivers evening. dollars, some guidance been Maybe to growing Thanks Services trend. non-GAAP there's leverage follow-up. start, was And but to first the operating well, sounds wanted and OpEx touch looks Software, just then about Thanks. that reverse still this suggests It you and to think talk how have margin dollar growth like a margins the will I continue. is and just very the about QX could in as you than maybe on where and like this I that's have declining. since on timing

Gino A. Bonanotte

is Gino. Sure. Adam, this

of we an from the Really, little There's it's increase ASC grow the related revenue but acquisitions. that business, and offset The continue also a from acquisitions, those OpEx we'll acquisition-related, of beginning So year. will XXX, as bit clearly, to to the the is the the OpEx. expectations incremental changed start haven't perspective. base in

(XX:XX) the way in was – and and [P&SI] [P&SI] the Integration, think frankly PS&I margin additional to well frankly, in acquisitions question part includes the (XX:XX) perspective, operating business, so some current the OpEx. Systems cost drive second the obviously for includes (XX:XX). margin continue as We costs a Yeah, from in PS&I the based base both and acquisitions, on from (XX:XX) PS&I VGM about From offset reductions perspective (sic) (sic) (sic) [P&SI] by of now it gross increases a also a is volumes. of [ph] to the

So we year XX%. mentioned do – [P&SI] expand, comments end PS&I to – expect end and to (sic) in at prior approximately gross margin my the (XX:XX) the I to I year expect think we

expand anywhere and expect to We that XXX in points basis XXXX. between XXX

Adam Tindle

of is How quick company? Greg, new rest business wanted a I a follow-up, know some the I as got you've integrated just Software. bit ask to the into And little on imagine you credit more that a that's not an that? the it, something you sale would optionality, some or about and there's there, would strategic giving separation market's IPO Okay. like for think segmentation, if whether or

Gregory Q. Brown

I our software. I and Software business. importance think I critical about Adam, pretty of driven it's with command integrated – think No, by I think the center And think, the it's

think mobile our business, software our business of think integrate of of legs center I of I video three business, three. Avigilon, or that think think land I I our all the around stool, and So, of through services wrap then command and radio

revenue proxy said, of pretty So that for is we've much as firm. the segment recurring a

and inherits on side, the good I now our as Kelly and I with beyond. QX, a operating you about, segment integration Bruce feel saw Andrew in business whole, entire the frankly, think gross with segment performance margin XXXX, the obviously quite Software expansion this retirement. Sinclair and Brda's its in and think talked strong as and and for interrelatedness about there's margin Gino sure I

company a our integrated way an it's key and from part perspective. very think I I think of a So, in it strategy, about

Adam Tindle

Got it, thank you.

Gregory Q. Brown

Sure.

Operator

from Our go Housum comes question next Research. Please Northcoast with Keith ahead.

Keith Housum

Good get evening, the for opportunity to gentlemen. here. Thanks question a

about is within it forward. think there's that challenges on how business there's just the it's and but some your we a Avigilon, and about that in months, little as bit doing, thoughts thoughts progressing. six some, given competitive about Chinese lot quarters a Just Obviously advantage, is how on been hands been two plus of now (XX:XX) business going color competitors,

John P. Molloy

It's Keith, Okay. Jack.

announced So in expectations. frankly quarters, the in this a two through terms early two of little Avigilon, February obviously than we of more acquisition bit year, quarters business, our has exceeded

at about the growing We're market's $XX rate. a the growth essentially So growth has billion that X% which tripling market. in ex-China, been rate

investments as the We continued are leverage that business see and make go-to-market, continue and in in for portfolio XXXX. we into growth to well, making investments and

So it's performing well. very

Gregory Q. Brown

Hikvision of for sure, state the the I National with so speak, I'd that the given surveillance, even And local. legislation Federal video the on market, the to that add with Act, we've around especially and sales for – and had specifically the any Defense prohibits procurement think, traction, recent thought, cycle Authorization is and we than content opportunity both Chinese originally greater Dahua, haven't

Feel Remember, So to contained running distribution, very our also investing and Jack I'm pleased to note way portfolio that development as is important in a product we're about operating lead. subsidiary, investing but fully with go-to-market further the it's we're it we're and acquisition. investing. in extend We're it. good

Keith Housum

will there to the that? Great. ESN, should just change and monetize might for can think about it gears able the for as we to All look we start? about how when you be follow-up when right, anything a factors slightly that at ESN Is here

Gregory Q. Brown

by they the know the I just of time. signing in comment. of but Agreement I piece Airwave $X.XX the is and the And year. still in end backlog. signed through we at a reflected not down, CAN same ESN extension. extensions. backlog would – the anticipate that about extension, my for – is about ESN, Airwave be ESN, marker to what Airwave, We're three-year talked that about you (XX:XX), billion put None the that mentioned a targeting contract So are is extension call

specifically, XXXX. I for which is modest your question, expectations think our for is reasonably ESN

I the work definition monetization Airwave that traction of final the A billion. for get will and about $X.XX to and three-year Home is Feel good utilization by take the some clear but of great Office. think extension deals. pretty cut and it and lot of dry team with here agreement, UK those both

Keith Housum

Great. Thank you.

Gregory Q. Brown

Sure.

Operator

Suva Jim question ahead. go next Citi. with comes Our from Please

Joshua Kehoe

Jim. the for our in taking seeing competitive Americas Kehoe APAC? heightened you are is Thanks provide drove and more Josh what this questions. for growth any on pressure some EMEA? Can detail in year-over-year Hi, on And you

John P. Molloy

Okay, Josh.

Services So, it's government grown (XX:XX) and both that's We've I board. the the the Product America's the well mean, anchor that both LMR well across (sic) as portfolio year. then and space, And performed continued, as really very well Avigilon. obviously, to really business, great North in commercial for the very all performance and point it's in Software business, the Americas, and the QX, performed SI. it of [Products] really and that

backlog as good X% traction the of and Systems obviously, Avigilon, they're there, Americas. up the Integration, Products story the well. but really In in EMEA, and is been So up it's then

pretty We've the frankly, Asia-Pac really. business And performed. both largest balanced Asia-Pac, grown our in has this So of theaters in year. story

Asia-Pac and China every as really, well well. the well but grow twice that In the everybody fact, in within, China we and us remind is our competition bit perform in Asia-Pac, to for largest in in in Australia tenancy for as frankly, Australia, surrounding a that as exceptionally us. continue so big region. Australia. China, in frankly, anchor Asia-Pac frankly, more That's of than we've little area, but would I we in pressure is had we theater plan to performs our operate but some business fact,

Gregory Q. Brown

I and the think that's key. Yeah,

I led Australia. strategy think by our Asia-Pac largely is

against about overall As of firm. relates to represents really our overall it of as and China, X% not it's revenue. anticipated, the the significant China composition

about do a effort, product development. have and part do manufacturing We Mainland don't XXX distribution. sales It China, We in concerted do about go-to-market not as employees multiyear we is and support of and a in very more sales China.

Joshua Kehoe

backlog? you in any change are Thanks. your duration the And of Great. seeing

Gino A. Bonanotte

No, began change as our the service No multiyear to backlog offering. Josh. Gino. we – This duration offering service the of is

be in represented that in Integration, Services, of So and duration we little But bit Products of expectation no our to Services XXXX extension a certainly years. did the would duration a Systems Software. change of see over as that revenue multiple in and either realized or backlog in

Operator

Thank you.

Our next comes Bhagavath from Please Vijay Deutsche go question with Bank. ahead.

Vijay Bhagavath

afternoon, Yeah, good Gino and Greg. hey,

Gregory Q. Brown

are How you?

Vijay Bhagavath

had Avigilon a question. My clearly of next into business heading the pillars question's services and drivers I the of the bigger in growth just on and years. Command/Control The or the also software context over next – picture managed few the year are

qualitative of as we some drivers Thanks. So should how the of lens we head give these just us two growth into important year. think new

Gregory Q. Brown

actually, of platforms. we're I our all Yeah, much growing pretty think across

revenue very FX no momentum, QX and that's currency we're low-single-digit very to is but a feel and of business. record contemplates thinking, Look, our You can it Avigilon, the next year. $XX high-single-digit mobile (sic) and is also And is Services is thinking next that a good about Software going not with I comparable contribution segment as and and year, our [Products] growth million way business. current year. meaningful well. Product all-in, good Services revenue radio business of we specifically for I'm growth current about our feel talked with backlog, think land pleased (XX:XX) this generally thinking current revenue next constant about headwinds but organic year on about Integration Software, XXXX, the but Systems be to And very about FirstNet guide the our currently

at of Now, current will have comparable that and having thinking. year, performance said always QX from XXXX a look we that much I be than that, kind for our But being linearity lighter as think standpoint, full we that's to XXXX. normal, the

Vijay Bhagavath

Very helpful. for... Okay. quick follow-on A

Gino A. Bonanotte

Gino. this Vijay, is

half the Just year. very FX the next quickly, is first headwind that in preponderance of

Gregory Q. Brown

point. Good

Vijay Bhagavath

and Okay. of as OpEx once percentage what's your again quick thought next Gino, heading on on we Thanks. follow-on how year? process a think into should revenue

Gino A. Bonanotte

Vijay, XXXX, can so all on to Yeah, elements I'm expect same. I of sure you but not the guide the more of think we're going

R&D, the as As we'll of Jack terms disciplined attention continue go-to-market very but Greg both you we expect specifically of like. rigorous can terms the and in you looks detailed on in XXXX and OpEx what a into in XXXX. to to and call, investments more acquisition, mentioned, And Avigilon view go in give forward next of

Vijay Bhagavath

you. Thank Okay.

Gregory Q. Brown

Vijay. Thanks,

Operator

comes Coster Please with next Our ahead. from JPMorgan. question go Paul

Paul Coster

quarter. Perhaps of us my Couple characterize of questions. environmental other for see you some picayune jumps the is there's Amongst something Thanks it this just that that I an ones, we'll forma taking number this about some charge see expense, (XX:XX)? more pro please. this what sense reserve can adjustments, and of? Is give

Gino A. Bonanotte

No, the legacy should see $XX is, but Yeah, from And expect Paul, year represents Scottsdale, our if to to you costs, you additive perspective look is not about this really, at related a it longstanding Gino. million, Arizona. one of cost XXXX, per is is cost any in site a businesses $XX EPA million $XXX,XXX. the This more. is additive about in what

need change both then the extension groundwater XXXX and that there's rate of vapor really in we So Scottsdale, related a beyond to we that is to monitoring also in discount the monitoring. used. do And cost an intrusion

expect any So this additional going you certainly from reserves and expect cash-out term, item different don't anywhere near perspective, position any particular we a cash shouldn't the in on forward.

Paul Coster

got $XX reorganization it. of And then got this Okay, charges. we quarter million

expense? ongoing think was this long Why sort XQ that rather should How in and it nature one-time does for? on than I go in of So we consider XQ. both an

Gino A. Bonanotte

and that to for related the that don't don't we expect, we it's again. organizations expect we restructured, Yeah, recur restructuring, certainly really Paul, to

the column (XX:XX). why So that's in it's

Paul Coster

done. that's So

after So this we again that point? shouldn't see

Gino A. Bonanotte

QX but may mean certainly did Yeah. in may restructuring we we Certainly, QX. there do, I and other the not that be restructuring

Paul Coster

helpful. Okay. very Thank Got you That's it. much. right. All

Gino A. Bonanotte

Certainly.

Operator

Capital Markets. Please Long go with BMO Our next from question comes Tim ahead.

Timothy Patrick Long

you. Thank

ask and a on then a there LMR Just the follow-on Gino. just for business, two-parter to wanted

large that continue that, contemplated on And in area, launches Any time? move inflection that? And a then Florida obviously LMR the quarter more some you've new margin just we think being the little deal improvement Just, product was I or opportunities this deals other or in big two, talked – out past are at any one. the there related about to here, to for see bit Thank to Software bit we when little any in you. a line? gross or follow-on comments as start Gino, a more to the should

John P. Molloy

Hey, take Tim, the one and to it's first I'll Gino. the Jack. baton then pass

all, is first So think I talked deals. project. first state-wide was Florida, a to in we've frankly question State which part It big the awarded. the of that the legacy customer Harris biggest intro, of been Obviously, related the was Greg's of about we

multiple portfolio new we very with state-wide team's The that pursuit frankly, of. it's executed we're comment the LMR we've fact that very the have we and business couple that to other well that project have a product the I upgrades that remains, would So introductions. in robust. got tether

have announced horizon from but as both some here not we've to in a center yet, XXXX software, the on but related well. there, also our We devices lot a got command nice the things new product

on the business. horizon, PCR revenue very state the Project times, market very culmination very excited I that the think, think it's drivers, XX to new exciting product in good being for poised, coupled with and of local and sales situation budget But So, I take up, the Federal to so is team market. receipts us, the

Gino A. Bonanotte

and On margin, Gino. to the gross is this correct? was is Tim, that Software, And Services question specific

Timothy Patrick Long

as (XX:XX)... of it's improves, Yeah, overall, that do just but, Yes. yeah, particularly mix think in how kind about – we

Gino A. Bonanotte

Sure.

XXX as in combination we expansion and Services in margin in versus Software. we me clearly move result Services about And as expect our XXXX Software. talked clearly a see with into margin be points. will We And versus to in margin overall forward expansion XXXX to continued in continued last gross year, both, XX% operating of expect we and So We approximately for expect expansion margin expansion XXXX. let start XXXX. basis That's that well. XX% but expectation

Timothy Patrick Long

very you Okay. Thank much.

Gregory Q. Brown

Thanks, Tim.

Operator

the back I of to floor any for will Mr. or additional turn Relations, Kutsor, President Investor remarks. Chris Vice now closing over

Chris Kutsor

for call. conclude you Thank will your time. That today's

Operator

this available We in gentlemen, The replay be call and and today's for lines Have Internet at approximately day. address great the three time. A please thank a your Ladies disconnect your hours. over you ask this of does will website is that teleconference. this you conclude participation, www.motorolasolutions.com/investor.

Motorola Solutions (MSI) 1 Nov 182018 Q3 Earnings call transcript