Motorola Solutions, Inc. (NYSE:MSI) Q3 2020 Earnings Conference Call - Final Transcript

Oct 29, 2020 • 05:00 pm ET

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Motorola Solutions, Inc. (NYSE:MSI) Q3 2020 Earnings Conference Call - Final Transcript

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Presentation
Executive
Greg Brown

of our business during the quarter. Orders for body worn cameras were up significantly year-over-year. Sales of fixed video to our government customers were strong. And we saw improved demand from both our public safety LMR and PCR customers versus Q2.

I'll now turn the call over to Jason to take you through our results and outlook before returning for some final thoughts.

Executive
Jason J. Winkler

Thank you, Greg. Q3 results included revenue of $1.9 billion, down 6% from a year ago, including $55 million from acquisitions. GAAP operating earnings of $352 million and operating margins of 18.9% of sales compared to 20.7% in the year-ago quarter. Non-GAAP operating earnings of $463 million, down $46 million, and non-GAAP operating margins of 24.8% down from 25.5% in the year ago quarter, due to lower sales in gross margin contribution in the Products and SI segment, partially offset by higher sales, higher gross margins, and improved operating leverage in Software & Services. GAAP operating earnings per share were $1.18 compared to $1.51 in the year-ago quarter.

Non-GAAP EPS of $1.95 versus $2.04 last year, primarily due to lower sales in the Products and SI segment, partially offset by higher sales, gross margin, and improved operating leverage in Software & Services. Opex in Q3 was $455 million, down $49 million versus last year, primarily due to lower discretionary spend and incentives, partially offset by costs related to acquisitions. The Q3 effective tax rate was 20%, compared to 23% in the year prior, a change driven primarily by higher R&D credits and a favorable U.S. federal return to provision adjustment recorded in the third quarter. Turning to cash flow, Q3 operating cash flow was $392 million, compared with $525 million in the prior year, and free cash flow was $343 million, compared with $465 million in the year prior.

The decrease in cash flow was primarily due to lower sales. Capital allocation for Q3 included $181 million for acquisitions, $109 million in cash dividends, $105 million of share repurchases, and $49 million of capex. Additionally during the quarter, we refinanced upcoming debt maturities with a new $900 million 10-year debt issuance at a rate of 2.3%. And finally, we repaid $400 million against our revolving credit facility, of which $300 million was repaid during the quarter, and $100 million subsequent to quarter end. We expect to repay the remaining $100 million balance by year end. Moving to segment results; Q3 Products and Systems Integration sales were $1.2 billion, down 14% driven by a decline in public safety LMR and PCR, partially offset by growth in video security.

Operating earnings were $219 million, or 18.9% of sales, down 330 basis points from last year, primarily due to lower sales. Some notable Q3 wins and achievements in the segment include a $44 million P25 order with a large U.S. federal customer, a $28 million P25 order for the State of Wyoming, a $20 million P25 order from the State of North Carolina, a $19 million TETRA order for a