Motorola Solutions (MSI) 3 May 182018 Q1 Earnings call transcript

Good afternoon and thank you for holding. Welcome to the Motorola Solutions First 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. opened the will placed would I like introduce to now Mr. Investor President Chris Kutsor, of Vice Relations. Mr. Kutsor, begin conference. your you may

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

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

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

expect grew First, an organic region organically a XXXX. an we growth revenue organic X%. and Total I be to America outstanding what with for QX excellent North was XX%, XX%, of quarter in every revenue up by led and strong foundation grew

region. increases over which by strong $XX with provides XXXX and and raising revenue we for our We EPS our the remainder call continues This LMR to X%, continued guidance results on performance, quarter the $X.XX our we're growth the of backlog. and with we returning momentum full-year growth I'll strong ended of Gino X.X%, expect market finally, the for acquisition now before includes exceptionally thoughts. expect grew $X.XX. currency revenue revenue We up prior about to and growth both approximately now outlook, of XXXX Second, coupled billion-plus, total record guidance XX%, closing full-year the business now to higher of details addressable EPS EPS about organic beyond. in to and year. throughout provide additional XX% of constant And every some We turn grew perform versus well. by which Avigilon, QX on for of

favorable excludes of ASC Thank XXX. million adoption Organic was accounting X%, you, $XX acquisitions revenue, changes, of including acquisitions revenue revenue including up of of include last versus the the $X.X currency $XX year, up and FX. million accounting standard Greg. billion, XX%. of and up QX $XX constant XX% results million from related in revenue Organic was revenue which to

in reduction been expenses. as commissions revenue. operating presented adopted as of company The the reported primary had Starting quarter, QX, the was MSI change the sales ASC commission, which XXX. for reclassification are third-party a these During of now historically

and and million, America segment Product every the primarily from $XXX up XX%. sales of of quarter up QX operating year-ago $X.X approximately EMEA. incremental the the quarter. revenue XXth year. of Non-GAAP the up adoption For QX. last down XX% revenue the $XX And by million EPS, $XXX million down the by from backlog earnings XX.X% $XXX This per standard GAAP last Products last at from up occurred Non-GAAP is ASC XXX year last Products incremental product or up XXX. points was Products by or up quarter from GAAP higher was million $XXX $XXX million billion versus operating operating consecutive sales. margins expect segment which XXX up XX% million, or ASC growth were were growth. operating year-over-year was quarter. XX% from of sales, backlog million, billion, last Ending of Sequentially, XX% we $X.XX XX% basis backlog Products $X or income backlog was billion, earnings QX year. the million the was up from $XXX last of was driven from from were of basis earnings and year, year, approximately year. driven adoption million, full last XX.X% $X.XX, in points and or million was segment Services were ended $XX in XXX up up EPS $X.XX, accounting North sales, region. year, segment last $XXX $XXX share $X.XX year. America up primarily XX% $X.X was $X.X XX% $X.XX year. versus North backlog driven million in backlog

up million to on inclusive $XXX at last business. points last Services $XXX region. and and year, software X%. Turning by or Services acquisitions, Services in XX from primarily million $XX Total was FX quarter. growth. year-ago last of acquisitions. or up driven Services in Services. XX.X% versus by investments XX% million XX% $XXX recurring revenue backlog million year grew year, Support basis or our OpEx added $XX & of to XX higher R&D is Managed $XXX the litigation, growth & Services. from million million, in million, of basis payments with QX adoption related Acquisitions $XX margins income up The $XX $XXX down continued Support OpEx cost added million $XX Services every in $XXX million, was up XX% higher legal Support driven offset the were to Hytera underlying business. backlog the incentive added the XXX & from $X.X sales, Managed Gross by ended billion, ASC Managed is with and up related million. from reductions was Sequentially, balance QX associated operating to costs million, FX points

of acquisitions and million approximately $X.XX $X.X of For XXX. result ASC as the full of approximately related versus year, billion the year. is $XXX The OpEx billion a to $XX million expect of approximately change OpEx last driven we adoption by

related $XXX a $XX of XX%. incentive collection was million prior million flow approximately rate of it's an and last a in to approximately in judgment versus Net of the a was lower pension, is $XXX operating cash India of Iridium the Free result of down ERP Plant. worth was implementation order settlement outflow million was also to noting payment $X.X pension We continue advantage year. $X.X $XX million the which from compared year. expect expect year-ago includes of that the interest related million. higher flow $XXX expenses in $XX a $XX some flow as continue legacy effective and expense had in $XXX And $XX was of operating we a cash of to million and underlying lower Normalized XXXX. the versus cash last cash a year, million million cash to billion million QX legal business in year million Capital and income Avigilon take $XX year. QX contribution; versus billion million acquisitions to payments, expenditures million we $XX was million of to Other of tax taxes; for decline attributable XXXX. spend legislation; in accelerated flow expense $XX related ago. were new a to $XX IT to negative now the million costs The The the compared million the by to quarter. to operating be $XX tax for in $XX QX

was senior U.S. plan. which $XXX pension of quarter, to we debt, the issued the During million unsecured contributed

$XXX and Plant. Avigilon and as million cash $XXX use our as credit also acquisitions from the of secured well revolver, debt of million fund prepayable short-term on We hand to

Additionally, million. $XX $XX at price million average we repurchased of stock of of an $XXX.XX dividends paid and

to Turning outlook. our

We are raising XXXX. our revenue and guidance for EPS

be We with expect organic of QX approximately X%. approximately sales to growth up XX%,

$XX Also from currency EPS of up $X.XX, from year net XXXX guidance $X.XX. $X.XX. lower XX% rate of Plant of in expense is approximately Meeting approximately This of Financial of X%, guidance $X.XX a for to versus effective provided the tailwinds, and up million $XXX approximately $X.XX with in guidance. EPS, $X.XX expect be to contemplated constant million higher prior approximately guidance. between This points is count XX% EPS. and of average and million Revenue now ASC with with the from EPS of approximately share our of from diluted tax updated assumes expected expected an XXX approximately growth We XX%. approximately the now $X.XX is revenue to tailwinds prior approximately adoption approximately from February revenue XXX Analyst XXX of This is growth $XX of interest XX guidance prior of organic growth outlook a $XXX versus our and of and $X.XX our shares weighted full at currency XX%, we X%, million full-year EPS expect now of repurchases. to of Avigilon $X.XX in be Organic up is guidance. to February. share million basis $XXX approximately prior We currency our includes million

Americas in by commercial The demand serving driven for Looking up services, was results. public and revenue products strong safety of XX%, growth at with Americas organic North regional and customers. X% growth LMR was America.

both $XX shipment million up finally, backlog while Services, strength favorable Asia Products and Additionally, period. was Pac, $XXX million across was revenue large $X including X% we on in from have strong and region of a is that shipment year-over-year. approximately on in included growth up and was shipment Services, both the QX FX was single had the in This largest including XX% And also backlog EMEA up ship XXXX. demand. not until in million approximately from year-over-year. QX to million Backlog Services rates, FX. in expected later customer favorable was $XX up And Products QX revenue up was any

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

by our the is a another proof is not of radio. First, mobile new yet State the of backlog, point statewide of build award, in Florida safety multi-year public network. land were to selected This and we which manage reflected longevity

in the with with contract Additionally, a we Services $XX Support & Managed Managed U.S. LTE County Latin we system Managed LEX for in global award of $XX million Services Florida, including won contract of Maryland, LXX in the Services device contract for Miami-Dade million million Indiana, Petrobras a the & Support with State announced State a for $X FirstNet networks, mission-critical America, Support upgrade & million the broadband a and $XX handheld a PXX

a leader in a Plant, we center of Finally, Greg. Avigilon, Next-Generation to and and surveillance the advanced leader over call closed video to back I'd turn software in now acquisition the like command XXX. and analytics;

Thanks, Gino.

thoughts. close just me with two Let

raising a organic our record in XX% I'm further which pleased backlog our overall and full-year position, was of growth with XX%, my QX great reinforces particularly of guidance. First, confidence start but with growth

on you update ongoing, been to ago this Office Airwave with I our months UK our and last discussions want referenced at have couple I Since progress Financial and Meeting, of Analyst active a Home our contract. the Second, productive. our

the the contract believe And five by extended be to As a call that, now back to Airwave result, Chris. years. with turn or over will like more we I'd

Thank you, Greg.

and themselves question a taking please callers Before to limit we question? you would callers how I'd questions, begin one follow-up. to to ask remind remind Operator, our like to one

for is floor The open Certainly. Thank you. questions. now

ahead. Our first question is coming Please go Sachs. with from Goldman Matt Cabral

Wanted to ask Thank about growth. you. organic Yeah.

biggest versus strength that ago? strong of more saw year. XX Can you to just question. bit very the of expand days start little then upside the you sources the on So, what's clearly, just and And behind second the part a

of bit balance So, for we little get through the decel the X% full-year a as guidance for the implies organic of year. a

conservatism of thinking this just should are in any Just or there it's the big about, are we we year more drivers that if if be given where at point? wondering

the on think we're which in contextually overall that first the I is for Matt, QX I the performance just strong, our reflected think raising is and year. part both in demand full embedded why

shipment, had ever But in QX. largest the larger remains the overall than company absent in we that's that, that shipment in great. largest That worth even the four QX it's next noting had Now, demand history we've was and solid. of a times quite the

to half for normalize the think you about that, kind X%, that, when look you and first half is is first If do second and growth more year. full organic informative half of I it's And year half, X%. full constant second is X% currency

and coming of think our out position QX backlog I aged position backlog supplements that. overall record

too deceleration the linearity look year. normalized it wouldn't a We get We a don't it of I up. caught large as look at throughout So demand for at more that as constant order.

Got Airwave. up talking closed out follow so, your my it. remarks about then, And you for Greg, prepared

there second, And and Is think about on five you talked will there? that we that curious years increase be first, that thing in Airwave a Services think when do the Or the Just, is will the you that additional to backlog. any get Omnicom through? resolution finite that about? from ultimately just come when will

is First finalize think next is overall in the extension And contemplated segment our not to backlog. that's look any backlog part, that agreement this would I quarter that quarter. Services the contemplated in or backlog of agreement the either expectation we of extension or

right. Thank you. All

You bet, Matt.

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

guys. opportunity. Appreciate afternoon, Good the

look for time? & great they've an going your an Support think and early rise Obviously, should margins (XX:XX) Services at been quarter. to Is well margins. As we increasing Services Managed Services a the forward? gross How about quarter had opportunity at there those we this the

this Yeah. Gino. is Keith,

Our margin exclude in expansion the margin revenue, million be we for even for is Product for up ASC if incremental segment. $XX XXX. to Clearly, expectation XXXX with slightly, of that's the

to Services it expect way think to about we up margin So gross is year-over-year. be the

We margin and, expect they comparable expect to Product overall, we XXXX were do in what in XXXX. margins to expansion be

Jack. Kelly work a Yes, is that ago. Services well doing delivery, the days few Mark on and on We good of cost as really goods I as cost think of some side and reviewed

up on (XX:XX) specifically be we expect So, last to the this Services gross Services year do work Good over margin, gross margin year.

Great. Appreciate script. FirstNet FirstNet, in I anything FirstNet of thoughts just a color. that? you. the didn't in new for And we Motorola's guess and hear Any about follow-up the On on the involvement progress

FirstNet contribution We continue minimal from work had it relates with activity. to We virtually closely QX as revenue, any AT&T. none, to in

May. million. at of a a talked to look there's $XX We of QX. revenue I $XX know about good to annual have is guidance work lot done. know million be Candidly, in I work we're We done. lot of being

talk to about our with But As opportunity, for with I revenue closely I to work low partner we're we more continue Jack our think end of on that guidance and anchored this be AT&T. going the XXXX. and customers towards

Great. Thank you.

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

hear can't Vijay, we you.

Vijay, you Do my your on us And line is open. ahead. mute? Vijay. have Go apologies,

is Your open. line

hear Yes. me guys Can you now? Yeah.

and a and from acquisitions management into Thanks. marketing we point look lens, few you and marketing seem in very the as and also ramp next a process do to Greg, your question acquisitions, view year mind Avigilon over waterfall the through from you and rest speaking the to, ramp might thought and view, thought I from both to through the or Hi. Sorry, how this Plant do how this of on the interesting. was process Good of sales plan of your year next and like MSI complex, myself. through get My a also course the years? the should of it afternoon. year. these have then to take to the I'd Yeah. like, is Holdings, product you how how point

Yeah.

with days I'll Avigilon. a – start Early Vijay, been impressed. Jack. start company. great very it's I'll is with Avigilon So,

alluded significant we've I we've think a previous the this revenue that operating they time in thing creation before. kept around were got as synergy. spent of has company And Obviously, our is really the call, Greg couple as we opportunities. as to

States Fed's into or sell the Avigilon First the the the space. and space, United either federal Federal foremost, not did military Government.

or as throughout a sales Federal channel using really that obviously, Government. direct to our conduit we're opportunities have force a We And market. the

market. like with Detroit second The Green probably is XX XX in the thing like, safe the we're after. closely safety enterprise to list work going and of lot projects, and of working Light public also A world, Avigilon the America kind in the with we've cities that. targeted them got And last throughout or U.S. both these, industry that piece on really is the XXX a or heavy city, kind and we're of looking of Fortune companies North but

got great company. Avigilon opportunities. growth perspective, our for we comparable We've are think XXXX So, We as obviously in about modeled to Avigilon we've them from rates an talked XXXX.

Was that a the was follow-on, also think I And Vijay? you (XX:XX) there question. Were

Yeah.

around more think, been and mean, yeah, should through revenues. as team, was the company OpEx. year? That credit about I the the a much the you think we a this doing course item I has said, how of honestly, job, percentage follow-on better line on OpEx of to

Vijay, $XX So, change. to billion business and from acquisitions we XXXX. The expect we ASC million accounting and OpEx be million this the the comes Gino. XXX, which $XX to $X.XX underlying $X.X full-year, billion from expect is continue XXXX. Avigilon, in million is the to from versus Approximately be Plant of From down from approximately that $XXX

Yeah. Perfect. Thank you.

Thank Vijay. you,

Notter Our next Jefferies. question with comes Please go from ahead. George

believe piece smaller of it growth does know of at, a high-teens the at it's of combined little This that growth and more it's now business George. guess I Kyle the state think a taking lot. was running bit the Avigilon a kind that in, for Thanks rate for market layered rate. a I question. Thanks on to want guys. I but Hi, about ask is steady it least that what I to the company? you how

just see to you XXXX? company how So, kind the Thanks. combined get of of year the and XXXX growth see on can your if wanted into the through thoughts I end

a couple of things. Kyle, Yeah.

As C, Jack federal working critical verticals. with just we other of the and can B, extend, reach and A, commercial our referenced, partners; with ways markets, business; oil, team I think the expand there's gas with: direct the utilities, a into Avigilon number sales in global

modeling Look, growth I contemplated year. last revenue our double-digit a what's a is and in company. way to this growth comparable think full-year we're public were the they business

seen You've what did. they

the $XXX way. on demand mean, the by to prudent Video modeling is were they think Vancouver be is ahead get That rate don't we no the very headlights. is our question publicly traded I in current there. think there's kind growth million expectation want our $XXX I million, and strong. out of I the pretty Exchange. business But to of

I we'll the between the there's between of year. think accordingly execution you update tremendous end and synergies now and

Thanks. company historically had more I sales? of changed Great. know has terms to for commercial the much government. that Avigilon, versus that total much exposure changed And obviously, that percent I know Has been Avigilon? exposure XX%. a to as commercial of XX% that your in And how sector you've

to commercial public XX% safety. and I think markets overall. safety XX% running and public open-field on mean, and early opportunity about I government federal it's too tell. we're Obviously, is the

it's a I composition early clearly opportunity is there. se, too but revenue think per the to predict

the and terms backlog? last the Airbus of much quick have acquisitions XXX one one. quantification a ASC And impact then, of Thanks. in on you backlog? do Okay. And Avigilon backlog add to the How did

activity. Avigilon come of Kyle, Yeah. is tremendous doesn't in-quarter a backlog. with It's Gino. this amount

Plant XXX backlog a was was about and over million backlog in of $XXX ASC minimal. million. – So oh, little a last there reduction was The the was $XXX it

looking results, a And Really Thanks fantastic the more. great. to Thanks. lot. congrats on quarter. Okay, forward so hearing

Kyle. Thanks, right. All

a QX. think for backlog of were this robust I It We from with the and where was indicator, what another we're is very pleased QX backlog. very demand into normal is in It which declines trends positively Yeah. seeing. overall flat, business, terms seasonally

Yeah. Thanks. Sure, great.

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

Adam Koban question. Tindle. Thanks for taking This my is Hey, guys. for Mike on

on bit Just more little a Avigilon.

chiefly sales there's So of in if I'm then any I maybe follow-up. what And government the transferring from force's your might be focus investments just if or into like more see one in you wondering have there's more kind commercial? obstacles any future

we're Yeah. jump And than But basically I'll do. we as I intact see keeping a a different let referenced, They as too. obstacles. Avigilon And jump in thing wholly-owned Jack subsidiary. do Jack don't any

invest disrupt to This a So is I add unintendedly all want capital very is to We We the want people or put to top-line want about obstacles. well-run to or sales it. Avigilon to more. don't to organizational company. add growth. force. any We operational want

I in a to necessary Jack's Molloy, been channel which light federal. given is think And that's under facilitate capital and sits story, direct, of the indirect to So Gino growth it. it the both by green investment the why myself provide and it's front

enterprise They've follow-on. market perspective, and Yeah. And one serves from a that very job. market commercial superb do Greg, maybe just channel well. so Mike, frankly, got a an that they

and lift don't can a at So company on They the they securities them, we better, business they space. on public turned But maybe we focused provide business they think were about. of haven't companies incremental that enterprise because safety. interestingly enough, the kind some smaller talked focused do found I industry heavy much

Cleveland of cities. country. and as public the done we City is video done the the network We've largest well. have network, the project manage Detroit Now, Chicago's video Obviously, we which in safety large

well So about we safety and at and frankly, as as, that terms think and We public – and government applies open And we really uplift our market, this. sales there's have frankly, in team we talked James knows government look space. to a very is of only I think obviously, public it Avigilon. Henderson safety

– about hit sites touched color. about And it FirstNet, expect? I expectations what wondering acceleration then, Thanks. like I do XXXX. them. Got on they XX,XXX just said you. I And looked like were that you planning AT&T, about was kind that just Thanks. that view maybe your you if know think you as for recently how was an of they in Great to

far overall to as the expected relation how as in it you along Just ramping is go? process to moving of wondering kind how

lens of device in LMR the safety between software partner, through us, push-to-talk FirstNet mainly ways; and the interoperability provides contribution LTE. economic applications; sales, three device sales; remember, mission-critical thirdly, Well, public and

they some AT&T push-to-talk to our us, them talked report uplift FirstNet. we And I speak and only million contribution won't it revenue traction end. $X on And around push-to-talk FirstNet push-to-talk. referenced, users their matters QX. low about $XX to own anchoring as impact toward utilizing is again, of that simply on reported $XX recently, and now that But, mainly our can on results. to for Now, and ability for through million expectation virtually view are Jack the as was economic related relates guidance end provide reflects to QX in the the or we're more based on current the us, FirstNet's what

Got you. I all you. That's got, guys. Thank Thanks. Great.

Okay.

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

very taking Thank for much questions. you my Yes.

imagine I year Avigilon First think Product in exited to business, that what it you that recurring. lower recurring? much, about out how business? be it a proportion, does do good do how last as up, impact we Service And doesn't we would the component layer I know with the but split to it's from the probably of evolves. XX%

and a we of Avigilon recurring Motorola by out coming Solutions as revenue XX% way, course little an just was is like. recurring. primarily Product the which standpoint, enterprise, QX overall of our from Overall, very has

little very recurring has Now Avigilon revenue.

we Avigilon, inherent as annual recurring more year, number full of factored gets may and the absent trends little like business. revenue that that contemplated But the bit. into compress So, the a revenue

contracts rate? is revenue higher in it growth the nature originates Service of you're recurring entering Or that the trend the into? the And

growth by I driven think rate. it's higher primarily Managed & Support a Services

Got it. very you Thank much.

strong. Which organic way by XX% was contribution. the was QX, XX% It in with

Got it. Thank you.

you. Thank

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

prepared a be question comments, to attached about potential shipment those happened that the shipments And out, has large is, supposed you much. received that Service year there to of does shipments, kind in very the very implementing, up rolling to using, expected? mentioned was great? large In those in for QX a also My which year. is testing, earlier open other the also which later your because element again something Thanks they'll you earlier customer be in than the them potentially happening

that I believe Jack. referenced was the the it's had shipment were remarks. We through alleviate some always and customer in Jim, million and we into were to large revenue opportunity going $XX in And bureaucratic work the Greg the the able the challenges year. through. that around prepared factored question We within

moved no, obviously, so, that we that million, the timing. was quarter. But turned we the into accelerated year full and deal shouldn't as that in QX. based revenue early just the And the on into first the $XX project of something think We

any do think you to that And his I other question was, see Services content shipment. could attach that

Minimal.

Okay.

It was device sale. a

So it's minimal.

Thanks Okay. and details all clarification. the appreciate I much. so

no any or closing at the Vice will Thank Mr. time. remarks. for you. this Gentlemen, turn further additional it appears I over floor we have Relations, back to questions Investor Chris Kutsor, President of

this you time. for for it will Thank think I your afternoon. that do

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