Motorola Solutions, Inc. (MSI)

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Motorola Solutions (MSI)

Q1 2011 Earnings Call

April 28, 2011 8:00 am ET


Shep Dunlap -

Edward Fitzpatrick - Chief Financial Officer and Senior Vice President

Mark Moon - SVP, Government and Commercial Markets, Motorola

Gregory Brown - Chief Executive Officer, President, Director and Chairman of Executive Committee


Peter Misek - Jefferies & Company, Inc.

Matthew Thornton - Avian Securities, LLC

Deepak Sitaraman - Cr├ędit Suisse AG

Jim Suva - Citigroup Inc

Tavis McCourt - Morgan Keegan & Company, Inc.

Jeffrey Fidacaro - Susquehanna Financial Group, LLLP

Brian Modoff - Deutsche Bank AG

Ehud Gelblum - Morgan Stanley

Pierre Ferragu - Sanford C. Bernstein & Co., Inc.

Avi Silver - Credit Agricole Securities (USA) Inc.



Good morning, and thank you for holding. Welcome to the Motorola Solutions First Quarter 2011 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. In addition, a replay of this call will be available approximately 3 hours after the conclusion of this call over the Internet. The website address is [Operator Instructions] I would now like to introduce Mr. Shep Dunlap, Vice President of Investor Relations. Mr. Dunlap, you may begin your conference.

Shep Dunlap

Thank you. Good morning. Welcome to our conference call to present Motorola Solutions' first quarter results. With me this morning are Greg Brown, President and Chief Executive Officer of Motorola Solutions; Ed Fitzpatrick, Senior Vice President and Chief Financial Officer; and Mark Moon, Senior Vice President, Sales and Field Operations. Greg and Ed will review our first quarter results along with commentary, and Mark will join us for Q&A. We have posted an accompanying earnings presentation and press release in, and I encourage you to review these materials.

A number of forward-looking statements will be made during this presentation. Forward-looking statements are any statements that are not historical facts. These forward-looking statements are based on the current expectations of Motorola Solutions, and we can give no assurance that any future results or events discussed in these statements will be achieved.

Any forward-looking statements represent our views only as of today and should not be relied upon representing our views as of any subsequent date. Forward-looking statements are subject to a variety of risks and uncertainties that could cause our actual results to differ materially from the statements contained in this presentation.

I will now turn the call over to Greg.

Gregory Brown

Thanks, Shep. Good morning, and thank you, all, for joining us today. I'd like to start by saying that I'm very pleased with our first quarter results as we delivered excellent revenue growth with improved profitability and cash flow. Highlights for the quarter included sustained global demand across all regions, improved operating earnings, disciplined expense management and important examples that demonstrates our purpose, which is to help customers be their best in the moments that matter.

This morning, Motorola Solutions reported sales in the first quarter of $1.9 billion, an increase of 8% from Q1 of last year. On a GAAP basis, net earnings were $1.06 per share from continued operations compared to $0.29 in the year-ago quarter. Non-GAAP net earnings from continuing operations, which exclude intangible amortization, stock compensation and highlighted items were $0.54 per share, a 64% increase from $0.33 per share in Q1 of last year. Our Government segment posted sales growth of 5% with improved operating margins, demonstrating continued resiliency and demand for our public safety solutions. In the Enterprise segment, sales increased 14% from last year, with higher operating margins as we saw robust demand for our solutions from customers across all the major geographies we serve.

I'm now going to turn the call over to Ed Fitzpatrick to discuss our financial results as well as reporting changes. I'll then return to discuss operational highlights and provide a little additional color on the business. Ed?

Edward Fitzpatrick

Thanks, Greg. Before I review the financial performance, let me briefly highlight some changes we made to our reporting. On April 14, we filed an 8-K with updated financial information for Motorola Solutions' historical GAAP and non-GAAP financial results presented in two product segments: Government and Enterprise. Our Government segment includes our two-way radio business and our public safety systems business. The Enterprise segment includes enterprise mobile computing, scanning devices, wireless broadband systems, RFID data capture solutions and our iDEN infrastructure business. This new segment format provides further details and insight into our sales and operating earnings performance. In addition, the 8-K includes pro forma cash flow statements for 2008 through 2010.

Now on to our financial results for the quarter. Sales for the quarter grew 8% year-over-year, driven by Enterprise business strength, continued resiliency in Government and growth in all regions. Sales growth continued in our Government business, with first quarter sales of $1.2 billion, an increase of 5% from the prior year. Enterprise sales demonstrated sustained momentum as the segment grew 14% to $695 million, driven by robust demand in the EMEA and stronger-than-expected demand for iDEN.

Although iDEN sales increased in Q1 compared to last year, we still expect the full year decline for this business. On a GAAP basis, earnings from continuing operations net of taxes were $365 million, and EPS was $1.06 per share. Non-GAAP earnings were $0.54 per share compared to $0.33 per share a year ago. For the rest of this call, we will refer to non-GAAP financial measures.

Gross margin percentage in the quarter was 50.3%, up from 49.3% in the same quarter last year. The increase in gross margin was due to favorable product mix in both segments. Operating expenses of $681 million were roughly flat in absolute dollar terms compared to the year-ago quarter. We continue to focus on expense management and executing our previously disclosed plan to reduce G&A costs while making the necessary investments in R&D and go-to-market capabilities. We are on target for removing separation-related G&A overhang cost by the end of Q2.

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