30 Oct Motorola Solutions Reports Third-Quarter 2019 Financial Results
Company raises full-year earnings outlook
Revenue of $2.0 billion, up 7% from a year ago
GAAP earnings per share (EPS) of $1.51, up 6%
Non-GAAP EPS* of $2.04, up 5%
Backlog of $11.0 billion, up $1.6 billion or 17% from a year ago
Generated $525 million of operating cash flow, up 55%
CHICAGO–(BUSINESS WIRE)–Motorola Solutions, Inc. (NYSE: MSI) today reported its earnings results for the third quarter of 2019. Click here for a printable news release and financial tables.
“Q3 was another excellent quarter of revenue growth and cash generation,” said Greg Brown, chairman and CEO of Motorola Solutions. “Our ending backlog and continued strong business performance position us well to finish the year with record sales, earnings and cash flow.”
KEY FINANCIAL RESULTS (presented in millions, except per share data and percentages)
Q3 2019
Q3 2018
% Change
Sales
$1,994
$1,862
7%
GAAP
Operating Earnings
$413
$294
40%
% of Sales
20.7%
15.8%
EPS
$1.51
$1.43
6%
Non-GAAP*
Operating Earnings
$509
$452
13%
% of Sales
25.5%
24.3%
EPS
$2.04
$1.94
5%
Products and Systems Integration Segment
Sales
$1,349
$1,288
5%
GAAP Operating Earnings
$258
$183
41%
% of Sales
19.1%
14.2%
Non-GAAP Operating Earnings*
$300
$276
9%
% of Sales
22.2%
21.4%
Services and Software Segment
Sales
$645
$574
12%
GAAP Operating Earnings
$155
$111
40%
% of Sales
24.0%
19.3%
Non-GAAP Operating Earnings*
$209
$176
19%
% of Sales
32.4%
30.7%
*Non-GAAP financial information excludes the after-tax impact of approximately $0.53 per diluted share related to share-based compensation, intangible assets amortization expense and highlighted items. Details on these non-GAAP adjustments and the use of non-GAAP measures are included later in this news release.
OTHER SELECTED FINANCIAL RESULTS
Revenue – Sales were $2.0 billion, up $132 million, or 7% from the year-ago quarter, driven by growth in the Americas. Revenue from acquisitions was $58 million, and currency headwinds were $21 million in the quarter. The Products and Systems Integration segment grew 5%, and the Services and Software segment grew 12%. Both segments were driven by growth in the Americas, partially offset by unfavorable currency rates.
Operating margin – GAAP operating margin was 20.7% of sales, up from 15.8% in the year-ago quarter. The improvement was primarily due to higher sales and gross margin in the current year, as well as costs related to an increase to an existing environmental reserve booked in the prior year, partially offset by higher operating expenses related to acquisitions. Non-GAAP operating margin was 25.5% of sales, up from 24.3% in the year-ago quarter due to higher sales and gross margin, partially offset by higher operating expenses related to acquisitions.
Taxes- The GAAP effective tax rate was 23%, compared with 8% in the year-ago quarter. The non-GAAP effective tax rate was 23% compared with 18% in the year-ago quarter. Both the GAAP and non-GAAP tax rates were higher in the current year due to the recognition of favorable return-to- provision adjustments in the prior year.
Cash flow – Operating cash flow was $525 million, compared with $338 million in the year-ago quarter. Free cash flow was $465 million, compared with $292 million in the year-ago quarter. Cash flow for the quarter increased year over year primarily due to improved working capital, a settlement payment in the prior year related to a legacy business, and higher earnings.
Capital allocation – During the quarter, the company paid $271 million in cash and equity to acquire WatchGuard Inc., paid $94 million in cash dividends, and incurred $60 million of capital expenditures. Additionally, we extended our strategic partnership with Silver Lake with a new $1 billion five-year convertible note. In exchange, we settled the outstanding $800 million note with 5.5 million shares and $1.1 billion in cash, of which $600 million was paid subsequent to quarter-end. The transaction resulted in an overall reduction to our diluted share count in the quarter. The company also paid off the $400 million term loan used to acquire Avigilon.
Backlog- The company ended the quarter with backlog of $11.0 billion, up $1.6 billion from the year-ago quarter. Services and Software backlog was up 26% or $1.6 billion due to growth in EMEA and the Americas. Products and Systems Integration segment backlog was down 1% or $39 million primarily due to two large system deployments in the Middle East and Africa in the prior year, partially offset by growth in the Americas.
NOTABLE WINS
Services and Software
$78 million P25 multi-year service contract with State of Michigan, extending service through 2029
$58 million P25 multi-year statewide service contract in North America
$11 million command center software suite contract with Glendale, Arizona
$4 million for a 911 system in Bogota, Colombia
Products and Systems Integration
The largest Canadian P25 award in history serving the province of Ontario
$27 million in video security wins in education
$16 million P25 order from Lee County, Florida
Several large awards in mobile and in-car video including $13 million for city of Nashville, Tennessee and $4 million for the Michigan State Police
$3 million in fixed video security wins for government customers
BUSINESS OUTLOOK
Fourth-quarter 2019 – Motorola Solutions expects revenue growth of 5% to 5.5% compared with the fourth quarter of 2018. The company expects non-GAAP earnings per share in the range of $2.75 to $2.80. This assumes current foreign exchange rates, approximately 176 million fully diluted shares and an effective tax rate of approximately 25%.
Full-year 2019 – The company now expects revenue growth of 7.25% to 7.5%. The company now expects non-GAAP earnings per share in the range of $7.77 to $7.82, up from the prior guidance of $7.67 to $7.77. This assumes current foreign exchange rates, approximately 176 million fully diluted shares and an effective tax rate of approximately 23.5%.
CONFERENCE CALL AND WEBCAST Motorola Solutions will host its quarterly conference call beginning at 4 p.m. U.S. Central Daylight Time (5 p.m. U.S. Eastern Daylight Time) on Wednesday, Oct. 30. The conference call will be webcast live at www.motorolasolutions.com/investor.
CONSOLIDATED GAAP RESULTS (presented in millions, except per share data)
A comparison of results from operations is as follows:
Q3 2019
Q3 2018
Net sales
$1,994
$1,862
Gross margin
1,007
901
Operating earnings
413
294
Amounts attributable to Motorola Solutions, Inc. common stockholders
Net earnings
267
247
Diluted EPS
$1.51
$1.43
Weighted average diluted common shares outstanding
176.4
172.6
HIGHLIGHTED ITEMS AND SHARE-BASED COMPENSATION EXPENSE
The table below includes highlighted items, share-based compensation expense and intangible amortization for the third quarter of 2019.
(per diluted common share)
Q3 2019
GAAP Earnings
$1.51
Highlighted Items:
Intangibles amortization expense
0.22
Share-based compensation expense
0.13
Reorganization of business charges
0.08
Fair value adjustments to equity investments
0.08
Loss from the extinguishment of long-term debt
0.03
Investment impairments
0.02
Acquisition-related transaction fees
0.01
Gain from the extinguishment of 2.00% senior convertible notes
(0.02
)
Gain on legal settlement
(0.02
)
Non-GAAP Diluted EPS
$2.04
USE OF NON-GAAP FINANCIAL INFORMATION
In addition to the GAAP results included in this presentation, Motorola Solutions also has included non-GAAP measurements of results. The company has provided these non-GAAP measurements to help investors better understand its core operating performance, enhance comparisons of core operating performance from period to period and allow better comparisons of operating performance to its competitors. Among other things, management uses these operating results, excluding the identified items, to evaluate performance of the businesses and to evaluate results relative to certain incentive compensation targets. Management uses operating results excluding these items because it believes this measurement enables it to make better period-to-period evaluations of the financial performance of core business operations. The non-GAAP measurements are intended only as a supplement to the comparable GAAP measurements and the company compensates for the limitations inherent in the use of non-GAAP measurements by using GAAP measures in conjunction with the non-GAAP measurements. As a result, investors should consider these non-GAAP measurements in addition to, and not in substitution for or as superior to, measurements of financial performance prepared in accordance with generally accepted accounting principles.
Highlighted items: The company has excluded the effects of highlighted items including, but not limited to, acquisition-related transaction costs, tangible and intangible asset impairments, restructuring charges, certain non-cash pension adjustments, legal settlements and other contingencies, gains and losses on investments and businesses, and the income tax effects of significant tax matters, from its non-GAAP operating expenses and net income measurements because the company believes that these historical items do not reflect expected future operating earnings or expenses and do not contribute to a meaningful evaluation of the company’s current operating performance or comparisons to the company’s past operating performance. For the purposes of management’s internal analysis over operating performance, the company uses financial statements that exclude highlighted items, as these charges do not contribute to a meaningful evaluation of the company’s current operating performance or comparisons to the company’s past operating performance.
Share-based compensation expense: The company has excluded share-based compensation expense from its non-GAAP operating expenses and net income measurements. Although share-based compensation is a key incentive offered to the company’s employees and the company believes such compensation contributed to the revenue earned during the periods presented and also believes it will contribute to the generation of future period revenues, the company continues to evaluate its performance excluding share-based compensation expense primarily because it represents a significant non-cash expense. Share-based compensation expense will recur in future periods.
Intangible assets amortization expense: The company has excluded intangible assets amortization expense from its non-GAAP operating expenses and net earnings measurements, primarily because it represents a non-cash expense and because the company evaluates its performance excluding intangible assets amortization expense. Amortization of intangible assets is consistent in amount and frequency but is significantly affected by the timing and size of the company’s acquisitions. Investors should note that the use of intangible assets contributed to the company’s revenues earned during the periods presented and will contribute to the company’s future period revenues as well. Intangible assets amortization expense will recur in future periods.
Free cash flow: Free cash flow represents operating cash flow less capital expenditures. We believe that free cash flow is also useful to investors as the basis for comparing our performance and coverage ratios with other companies in our industries, although our measure of free cash flow may not be directly comparable to similar measures used by other companies.
Organic Revenue: Organic revenue reflects net sales calculated under GAAP excluding net sales from acquired business owned for less than four full quarters. The company believes non-GAAP organic revenue growth provides useful information for evaluating the periodic growth of the business on a consistent basis and provides for a meaningful period-to-period comparison and analysis of trends in the business.
Details of the above items and reconciliations of the non-GAAP measurements to the corresponding GAAP measurements can be found at the end of this press release.
The company has not quantitatively reconciled its guidance for non-GAAP metrics to their most comparable GAAP measure because the company does not provide specific guidance for the various reconciling items as certain items that impact these measures have not occurred, are out of the company’s control, or cannot be reasonably predicted. Accordingly, a reconciliation to the most comparable GAAP financial metric is not available without unreasonable effort. Please note that the unavailable reconciling items could significantly impact the company’s results.
BUSINESS RISKS
This news release contains “forward-looking statements” within the meaning of applicable federal securities law. These statements are made pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995 and generally include words such as “believes,” “expects,” “intends,” “anticipates,” “estimates” and similar expressions. The company can give no assurance that any actual or future results or events discussed in these statements will be achieved. Any forward-looking statements represent the company’s views only as of today and should not be relied upon as representing the company’s views as of any subsequent date. Readers are cautioned that such forward-looking statements are subject to a variety of risks and uncertainties that could cause the company’s actual results to differ materially from the statements contained in this release. Such forward-looking statements include, but are not limited to, Motorola Solutions’ financial outlook for the fourth quarter and full year of 2019. Motorola Solutions cautions the reader that the risk factors below, as well as those on pages 9 through 21 in Item 1A of Motorola Solutions’ 2018 Annual Report on Form 10-K and in its other SEC filings available for free on the SEC’s website at www.sec.gov and on Motorola Solutions’ website at www.motorolasolutions.com, could cause Motorola Solutions’ actual results to differ materially from those estimated or predicted in the forward-looking statements. Many of these risks and uncertainties cannot be controlled by Motorola Solutions, and factors that may impact forward-looking statements include, but are not limited to: (1) the economic outlook for the government communications industry; (2) the impact of foreign currency fluctuations on the company; (3) the level of demand for the company’s products; (4) the company’s ability to refresh existing and introduce new products and technologies in a timely manner; (5) exposure under large systems and managed services contracts, including risks related to the fact that certain customers require that the company build, own and operate their systems, often over a multi-year period; (6) negative impact on the company’s business from global economic and political conditions, which may include: (i) continued deferment or cancellation of purchase orders by customers; (ii) the inability of customers to obtain financing for purchases of the company’s products; (iii) increased demand to provide vendor financing to customers; (iv) increased financial pressures on third-party dealers, distributors and retailers; (v) the viability of the company’s suppliers that may no longer have access to necessary financing; (vi) counterparty failures negatively impacting the company’s financial position; (vii) changes in the value of investments held by the company’s pension plan and other defined benefit plans, which could impact future required or voluntary pension contributions; and (viii) the company’s ability to access the capital markets on acceptable terms and conditions; (7) the impact of a security breach or other significant disruption in the company’s IT systems, those of its partners or suppliers or those it sells to or operates or maintains for its customers; (8) the outcome of ongoing and future tax matters; (9) the company’s ability to purchase sufficient materials, parts and components to meet customer demand, particularly in light of global economic conditions and reductions in the company’s purchasing power; (10) risks related to dependence on certain key suppliers, subcontractors, third-party distributors and other representatives; (11) the impact on the company’s performance and financial results from strategic acquisitions or divestitures; (12) risks related to the company’s manufacturing and business operations in foreign countries; (13) the creditworthiness of the company’s customers and distributors, particularly purchasers of large infrastructure systems; (14) the ownership of certain logos, trademarks, trade names and service marks including “MOTOROLA” by Motorola Mobility Holdings, Inc.; (15) variability in income received from licensing the company’s intellectual property to others, as well as expenses incurred when the company licenses intellectual property from others; (16) unexpected liabilities or expenses, including unfavorable outcomes to any pending or future litigation or regulatory or similar proceedings; (17) the impact of the percentage of cash and cash equivalents held outside of the United States; (18) the ability of the company to pay future dividends due to possible adverse market conditions or adverse impacts on the company’s cash flow; (19) the ability of the company to complete acquisitions or repurchase shares under its repurchase program due to possible adverse market conditions or adverse impacts on the company’s cash flow; (20) the impact of changes in governmental policies, laws or regulations; (21) negative consequences from the company’s use of third party vendors for various activities, including certain manufacturing operations, information technology and administrative functions; and (22) the company’s ability to settle the par value of its 1.75% senior convertible notes in cash. Motorola Solutions undertakes no obligation to publicly update any forward-looking statement or risk factor, whether as a result of new information, future events or otherwise.
ABOUT MOTOROLA SOLUTIONS
Motorola Solutions is a global leader in mission-critical communications. Our technology platforms in communications, command center software, video security solutions and managed and support services make cities safer and help communities and businesses thrive. At Motorola Solutions, we are ushering in a new era in public safety and security. Learn more at www.motorolasolutions.com.
MOTOROLA, MOTOROLA SOLUTIONS and the Stylized M Logo are trademarks or registered trademarks of Motorola Trademark Holdings, LLC and are used under license. All other trademarks are the property of their respective owners. ©2019 Motorola Solutions, Inc. All rights reserved.
GAAP-1
Motorola Solutions, Inc. and Subsidiaries
Condensed Consolidated Statements of Operations
(In millions, except per share amounts)
Three Months Ended
September 28, 2019
September 29, 2018
Net sales from products
$
1,196
$
1,151
Net sales from services
798
711
Net sales
1,994
1,862
Costs of products sales
501
516
Costs of services sales
486
445
Costs of sales
987
961
Gross margin
1007
901
Selling, general and administrative expenses
359
323
Research and development expenditures
172
158
Other charges
11
80
Intangibles amortization
52
46
Operating earnings
413
294
Other income (expense):
Interest expense, net
(54
)
(59
)
Gains on sales of investments and businesses, net
–
6
Other, net
(11
)
29
Total other expense
(65
)
(24
)
Net earnings before income taxes
348
270
Income tax expense
80
22
Net earnings
268
248
Less: Earnings attributable to non-controlling interests
1
1
Net earnings attributable to Motorola Solutions, Inc.
$
267
$
247
Earnings per common share:
Basic
$
1.60
$
1.52
Diluted
$
1.51
$
1.43
Weighted average common shares outstanding:
Basic
166.7
162.6
Diluted
176.4
172.6
Percentage of Net Sales*
Net sales from products
60.0
%
61.8
%
Net sales from services
40.0
%
38.2
%
Net sales
100.0
%
100.0
%
Costs of products sales
41.9
%
44.8
%
Costs of services sales
60.9
%
62.6
%
Costs of sales
49.5
%
51.6
%
Gross margin
50.5
%
48.4
%
Selling, general and administrative expenses
18.0
%
17.3
%
Research and development expenditures
8.6
%
8.5
%
Other charges
0.6
%
4.3
%
Intangibles amortization
2.6
%
2.5
%
Operating earnings
20.7
%
15.8
%
Other income (expense):
Interest expense, net
(2.7
)%
(3.2
)%
Gains on sales of investments and businesses, net
–
%
0.3
%
Other, net
(0.6
)%
1.6
%
Total other expense
(3.3
)%
(1.3
)%
Net earnings before income taxes
17.4
%
14.5
%
Income tax expense
4.0
%
1.2
%
Net earnings
13.4
%
13.3
%
Less: Earnings attributable to non-controlling interests
0.1
%
0.1
%
Net earnings attributable to Motorola Solutions, Inc.
13.4
%
13.3
%
* Percentages may not add up due to rounding
GAAP-2
Motorola Solutions, Inc. and Subsidiaries
Condensed Consolidated Statements of Operations
(In millions, except per share amounts)
Nine Months Ended
September 28, 2019
September 29, 2018
Net sales from products
$
3,260
$
2,993
Net sales from services
2,251
2,096
Net sales
5,511
5,089
Costs of products sales
1,435
1,383
Costs of services sales
1,365
1,314
Costs of sales
2,800
2,697
Gross margin
2,711
2,392
Selling, general and administrative expenses
1035
918
Research and development expenditures
505
472
Other charges
26
123
Intangibles amortization
154
140
Operating earnings
991
739
Other income (expense):
Interest expense, net
(165
)
(163
)
Gains on sales of investments and businesses, net
4
16
Other, net
(22
)
45
Total other expense
(183
)
(102
)
Net earnings before income taxes
808
637
Income tax expense
180
91
Net earnings
628
546
Less: Earnings attributable to non-controlling interests
3
2
Net earnings attributable to Motorola Solutions, Inc.
$
625
$
544
Earnings per common share:
Basic
$
3.78
$
3.36
Diluted
$
3.56
$
3.17
Weighted average common shares outstanding:
Basic
165.3
162.0
Diluted
175.7
171.6
Percentage of Net Sales*
Net sales from products
59.2
%
58.8
%
Net sales from services
40.8
%
41.2
%
Net sales
100.0
%
100.0
%
Costs of products sales
44.0
%
46.2
%
Costs of services sales
60.6
%
62.7
%
Costs of sales
50.8
%
53.0
%
Gross margin
49.2
%
47.0
%
Selling, general and administrative expenses
18.8
%
18.0
%
Research and development expenditures
9.2
%
9.3
%
Other charges
0.5
%
2.4
%
Intangibles amortization
2.8
%
2.8
%
Operating earnings
18.0
%
14.5
%
Other income (expense):
Interest expense, net
(3.0
)%
(3.2
)%
Gains on sales of investments and businesses, net
0.1
%
0.3
%
Other, net
(0.4
)%
0.9
%
Total other expense
(3.3
)%
(2.0
)%
Net earnings before income taxes
14.7
%
12.5
%
Income tax expense
3.3
%
1.8
%
Net earnings
11.4
%
10.7
%
Less: Earnings attributable to non-controlling interests
0.1
%
–
%
Net earnings attributable to Motorola Solutions, Inc.
11.3
%
10.7
%
* Percentages may not add up due to rounding
GAAP-3
Motorola Solutions, Inc. and Subsidiaries
Condensed Consolidated Balance Sheets
(In millions)
September 28, 2019
December 31, 2018
Assets
Cash and cash equivalents
$
1138
$
1,246
Restricted cash
2
11
Total cash and cash equivalents
1140
1,257
Accounts receivable, net
1295
1293
Contract assets
921
1012
Inventories, net
460
356
Other current assets
338
354
Total current assets
4,154
4,272
Property, plant and equipment, net
963
895
Operating lease assets
561
–
Investments
159
169
Deferred income taxes
866
985
Goodwill
2,006
1514
Intangible Assets
1,331
1230
Other assets
333
344
Total assets
$
10,373
$
9,409
Liabilities and Stockholders’ Equity
Current portion of long-term debt
$
617
$
31
Accounts payable
557
592
Contract liabilities
1,223
1263
Accrued liabilities
1,259
1,210
Total current liabilities
3,656
3,096
Long-term debt
5,112
5,289
Operating lease liabilities
499
–
Other liabilities
2,190
2,300
Total Motorola Solutions, Inc. stockholders’ equity (deficit)
(1,101
)
(1,293
)
Non-controlling interests
17
17
Total liabilities and stockholders’ equity
$
10,373
$
9,409
Contacts
MEDIA CONTACTKate Dyer
Motorola Solutions
+1 224-374-3124
[email protected]
INVESTOR CONTACTTim Yocum
Motorola Solutions
+1 847-576-6899
[email protected]
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