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    Motorola Solutions (MSI)

    Q2 2024 Earnings Summary

    Reported on Jan 10, 2025 (After Market Close)
    Pre-Earnings Price$398.58Last close (Aug 1, 2024)
    Post-Earnings Price$399.52Open (Aug 2, 2024)
    Price Change
    $0.94(+0.24%)
    • Motorola Solutions raised its full-year revenue growth guidance to approximately 8%, up from prior guidance of approximately 7%, driven by strong demand, a robust orders pipeline that is $1 billion higher than last year, and increased funding from state and federal sources. The company expects continued products growth in the second half of the year. ,
    • Operating margin expansion is now expected to be approximately 100 basis points for the full year, up from prior expectations of 75 basis points, due to supply chain improvements, higher sales, favorable mix, and cost reductions. The company is realizing benefits from supply improvements, with a $70 million improvement in costs relative to semiconductors, exceeding the prior expectation of $60 million. ,
    • Video software business grew 24% in Q2, with cloud adoption growing exponentially higher, contributing to overall expected 12% growth in the video segment, inclusive of recent M&A. The company is gaining market share in video security and access control and expects to continue this trend, supported by strong growth in cloud offerings and investments in software, analytics, and mobile video solutions. ,
    • Heavy reliance on government contracts poses risks, as approximately 95% of backlog comes from government direct sales. Any cuts or delays in government budgets could significantly impact revenue.
    • International growth is decelerating, with Q2 revenue up only mid-single digits excluding the U.K. Home Office impact, suggesting potential macroeconomic challenges and slower demand outside North America.
    • The transition from on-premises to cloud solutions in the video business is causing a $40 million revenue headwind for the year, potentially pressuring growth in this key segment.
    1. LMR Growth and Outlook
      Q: How is the LMR business performing and what's the outlook?
      A: Demand for LMR products and services remains strong, with a 19% LMR product growth in Q2 driven by improved supply chain lead times. The outlook for LMR has been raised from mid to mid- to high single-digit growth for the year, reflecting continued strong traction with devices and services.

    2. Cash Flow Guidance and Confidence
      Q: How confident are you in achieving the cash flow guidance?
      A: The operating cash flow expectation has been increased from $2.2 billion to $2.25 billion for the year. Strong cash flow generation is expected in the back half, typically significant in Q4, with improvements in inventory and working capital contributing.

    3. M&A Opportunities and Capital Allocation
      Q: What's the outlook on M&A activities and capital allocation?
      A: The M&A funnel is quite active with interesting opportunities, and the company has balance sheet capacity to pursue them. Capital allocation follows a framework of 55% between share repurchases and M&A, 25% dividends, and 15% CapEx.

    4. Backlog and Orders Pipeline
      Q: How should we view the backlog performance?
      A: Total backlog is up year-over-year when excluding the U.K. Home Office, with product backlog remaining healthy at $4.3 billion, though decreased in Q2 due to improved supply lead times. The orders pipeline is about $1 billion higher than a year ago, indicating strong demand.

    5. Gross Margins and Cost Improvements
      Q: How are gross margins evolving with supply chain improvements?
      A: Supply chain improvements contributed to better gross margins, with expectations of 100 basis points operating margin expansion for the year, up from 75 basis points. The company is seeing an improvement in costs, trending towards a $70 million reduction relative to semiconductors and PPV, up from the initial $60 million expectation.

    6. Shift to Cloud in Video Business
      Q: How is the shift from on-premises to cloud impacting the video business?
      A: There's a $40 million headwind this year due to customers moving from on-premises to cloud. In Q2, video software business grew 24%, with cloud adoption growing exponentially higher. Cloud offerings like Avigilon Alta are gaining strong traction due to ease of deployment and enhanced capabilities.

    7. U.K. Home Office Dispute
      Q: What's the update on the U.K. Home Office dispute?
      A: The U.K. Court of Appeal has agreed to hear the case on November 11 and 12, a new development from the previous quarter. Currently, operations continue under the imposed charge control, and the full-year guidance includes this impact.

    8. International Business Outlook
      Q: How is the international business performing compared to North America?
      A: International business grew mid-single digits in Q2. Despite a slight deceleration, there are great opportunities, especially in Europe and Australia, with potential in government and enterprise markets outside the U.S..

    9. APX NEXT Device Adoption
      Q: How is customer adoption of the APX NEXT radios progressing?
      A: Customers are receptive to the APX NEXT radios, with positive reviews from multiple large-scale police departments. The devices will account for less than 25% of public safety device shipments this year, indicating significant upgrade potential ahead.

    10. Video Product Growth and Market Share
      Q: Is the current video product growth sufficient to meet goals?
      A: The company is comfortable with mid-single-digit growth in video products, focusing on gaining market share, which it achieved last year and expects to do again. Higher growth is seen in cloud offerings, emphasizing end-to-end solutions with products, software, and services.

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