Motorola Solutions, Inc. — Q1 2021 Form 10-Q
Reporting period: Three months ended April 3, 2021, compared with the three months ended March 28, 2020. Balance-sheet figures are as of April 3, 2021, compared with December 31, 2020. Amounts are in U.S. dollars; financial statement amounts are in millions unless otherwise noted.
Business context
Motorola Solutions provides mission-critical communications, video security and analytics, and command center software. It reports two segments: Products and Systems Integration, and Software and Services. Q1 results are not necessarily indicative of full-year results; the company notes that sales have historically been higher in the fourth quarter.
Financial results
| Metric | Q1 2021 | Prior-year quarter | Change |
|---|---|---|---|
| Net sales | $1,773 | $1,655 | Up 7% |
| Gross margin | $860; 48.5% | $787; 47.6% | Margin up 0.9 percentage points |
| Operating earnings | $298; 16.8% margin | $259; 15.6% margin | Up 15% |
| Net earnings attributable to Motorola Solutions | $244 | $197 | Up 24% |
| Diluted earnings per share | $1.41 | $1.12 | Up 26% |
| Cash provided by operating activities | $370 | $308 | Up $62 |
Product sales were $926 million and service sales were $847 million. Net sales increased $118 million, including $32 million from favorable currency rates and $48 million from acquisitions. Products and Systems Integration sales rose 2% to $1,015 million, while Software and Services sales rose 15% to $758 million. Segment operating earnings were $77 million and $221 million, respectively; segment operating margins were 7.6% and 29.2%.
Gross-margin improvement reflected Software and Services growth and mix, and improved Products and Systems Integration project mix. Lower SG&A helped results, partly offset by higher R&D and other charges. Net earnings also benefited from lower total other expense, including higher other income.
Cash, debt and liquidity
- Cash and cash equivalents were $1.320 billion, up from $1.254 billion at year-end. Total debt was approximately $5.175 billion, including $1.0 billion of 1.75% convertible notes due in 2024; the company reported no commercial paper outstanding. Cash less debt was approximately $3.9 billion.
- Operating cash flow was $370 million; investing activities used $52 million and financing activities used $256 million. The company reported $71 million of operating-cash-flow benefit from a contract-specific receivables discounting facility.
- Current assets were $3.942 billion and current liabilities were $3.095 billion. Stockholders’ equity remained a deficit of $478 million.
- A new $2.25 billion unsecured revolving credit facility matures in March 2026, replacing a $2.2 billion facility due in 2022. The company was in compliance with its financial covenants and said it had adequate resources for expected working capital and capital expenditures over the next 12 months.
Material changes and unusual items
- Revenue growth was led by Software and Services, including LMR services, Video Security and Analytics, and Command Center Software. North American public-safety LMR product sales were affected by supply constraints.
- Other charges were $79 million versus $19 million. The comparison included a $50 million property-sale gain in the prior-year quarter that did not recur; Q1 2021 included $7 million of operating-lease asset impairments. Reorganization charges were $16 million, with $18 million of employee-separation charges partly offset by reversals.
- The company repurchased approximately 1.0 million shares for $170 million and paid $121 million in dividends. After quarter-end, the board authorized a $2.0 billion increase in repurchase authority, bringing remaining authority to $2.5 billion.
- Remaining performance obligations were $7.2 billion: $3.3 billion in Products and Systems Integration and $3.9 billion in Software and Services. The company expects to recognize $1.6 billion and $1.5 billion, respectively, over the next 12 months.
Outlook, risks and contingencies
The filing provides no specific full-year revenue or earnings guidance. Management said the negative effects of COVID-19 had begun to ease; it expected limited 2021 effects on Software and Services sales and margins, citing recurring revenue and backlog, and expected Video Security and Analytics to continue growing during the rest of 2021. Management also cited strong LMR backlog, while noting supply constraints in public-safety LMR products. The potential business impact of the American Rescue Plan Act was still being evaluated.
Risks include continuing COVID-19 and broader economic and political uncertainty, supply constraints, currency and interest-rate exposure, and execution of cost reductions and acquisitions. The company reported a $543.7 million court judgment against Hytera after the original award was reduced; further rulings were favorable to Motorola Solutions, but collection, the precise prejudgment interest, and a forward-looking royalty rate remained unresolved. Hytera U.S. affiliates were in Chapter 11 proceedings. Management cautioned that an unfavorable resolution of legal matters could materially affect results, liquidity or financial condition.
Key facts for investors to verify
- Whether growth and margin improvements persist, particularly in Software and Services, and whether LMR supply constraints ease.
- How much operating cash flow depends on receivables sales and whether working-capital trends remain favorable.
- Debt, cash availability, covenant compliance and capital returns after the expanded repurchase authorization and subsequent dividend payment.
- Timing, collectability and ultimate value of the Hytera judgment, interest award and future royalty.
- Whether management issues quantified full-year guidance and how COVID-19, the American Rescue Plan Act and other market conditions affect demand.