Motorola Solutions Reports Second-Quarter 2019 Financial Results

Company raises full-year revenue and earnings outlook

  • Revenue of $1.9 billion, up 6% from a year ago
  • GAAP earnings per share (EPS) of $1.18, up 12%
  • Non-GAAP EPS* of $1.69, up 16%
  • Backlog of $10.9 billion, up $1.5 billion or 16% from a year ago
  • Generated $251 million of operating cash flow

CHICAGO–(BUSINESS WIRE)–Motorola Solutions, Inc. (NYSE: MSI) today reported its earnings results for the second quarter of 2019. Click here for a printable news release and financial tables.

Our outstanding Q2 results highlight the strength of our business and the value of our unique public safety ecosystem,” said Greg Brown, chairman and CEO of Motorola Solutions. “Our strong revenue and earnings growth in the quarter, combined with our record ending backlog, position us well for continued growth in the second half of 2019 and beyond.”

KEY FINANCIAL RESULTS (presented in millions, except per share data and percentages)

 

Q2 2019

Q2 2018

% Change

Sales

$1,860

$1,760

6%

GAAP

 

 

 

Operating Earnings

$349

$273

28%

% of Sales

18.8%

15.5%

 

EPS

$1.18

$1.05

12%

Non-GAAP

 

 

 

Operating Earnings

$444

$378

17%

% of Sales

23.9%

21.5%

 

EPS

$1.69

$1.46

16%

Products and Systems Integration Segment

 

 

 

Sales

$1,238

$1,189

4%

GAAP Operating Earnings

$201

$175

15%

% of Sales

16.2%

14.7%

 

Non-GAAP Operating Earnings

$242

$226

7%

% of Sales

19.5%

19.0%

 

Services and Software Segment

 

 

 

Sales

$622

$571

9%

GAAP Operating Earnings

$148

$98

51%

% of Sales

23.8%

17.2%

 

Non-GAAP Operating Earnings

$202

$152

33%

% of Sales

32.5%

26.6%

 

*Non-GAAP financial information excludes the after-tax impact of approximately $0.51 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 $1.9 billion, up $100 million, or 6% from the year-ago quarter, driven by growth in the Americas. Revenue from acquisitions was $33 million, and currency headwinds were $37 million in the quarter. The Products and Systems Integration segment grew 4%, and the Services and Software segment grew 9%. Both segments were driven by growth in the Americas, partially offset by unfavorable currency rates.
  • Operating margin GAAP operating margin was 18.8% of sales, up from 15.5% in the year-ago quarter. The improvement was primarily due to higher sales and gross margin, partially offset by higher operating expenses related to acquisitions. Non-GAAP operating margin was 23.9% of sales, up from 21.5% in the year-ago quarter due to higher sales and gross margin, partially offset by higher operating expenses related to acquisitions.
  • Cash flow Operating cash flow was $251 million, compared with $425 million in the year-ago quarter. Free cash flow was $188 million, compared with $384 million in the year-ago quarter. Cash flow for the quarter decreased year over year primarily due to the timing of incentive payments made in 2019 versus 2018. For the first half of 2019, operating cash flow and free cash flow were higher versus the first half of 2018 primarily driven by a $500 million voluntary pension contribution in the prior year and higher earnings.
  • Capital allocation The company paid $94 million in cash dividends, incurred $63 million of capital expenditures and repurchased $25 million of common stock. From a debt perspective, the company issued $650 million of new 10 year senior unsecured notes and used the proceeds to repurchase existing notes, resulting in an extended weighted average debt maturity profile.
  • Backlog The company ended the quarter with backlog of $10.9 billion, up $1.5 billion from the year-ago quarter. Services and Software backlog was up 24% or $1.5 billion due to growth in EMEA and the Americas, partially offset by unfavorable changes in currency rates. Products and Systems Integration segment backlog was down 2% or $48 million primarily due to two large system deployments in the Middle East and Africa in the prior year and unfavorable changes in currency rates, partially offset by growth in the Americas.

NOTABLE WINS

Services and Software

  • Signed $200 million ESN service extension through the end of 2024
  • $60 million P25 multi-year service contract with the state of Tennessee, extending service through 2028
  • $59 million five-year contract extension to provide license plate data and analytical software
  • $5 million records management contract with Baltimore County

Products and Systems Integration

  • $60 million P25 additional orders for statewide system in North Dakota
  • $46 million P25 order from Oakland County, Michigan
  • $34 million P25 order from Washington Metropolitan Area Transit Authority
  • $5 million of public safety video security contracts in Broward County, FL and the Cleveland metro area
  • Several multi-million dollar video security wins in education

BUSINESS OUTLOOK

  • Third-quarter 2019 – Motorola Solutions expects revenue growth of approximately 6.5% compared with the third quarter of 2018. The company expects non-GAAP earnings per share in the range of $1.91 to $1.96. This assumes current foreign exchange rates, approximately 177 million fully diluted shares and an effective tax rate of approximately 25%.
  • Full-year 2019 – The company now expects revenue growth of 7 to 7.5%, up from the prior guidance of 6 to 7%. The company now expects non-GAAP earnings per share in the range of $7.67 to $7.77, up from the prior guidance of $7.60 to $7.72. This assumes current foreign exchange rates, approximately 176 million fully diluted shares and an effective tax rate of 24 to 25%.

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 Thursday, Aug. 1. 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:

 

Q2 2019

Q2 2018

Net sales

$1,860

$1,760

Gross margin

931

822

Operating earnings

349

273

Amounts attributable to Motorola Solutions, Inc. common stockholders

 

 

Net earnings

207

180

Diluted EPS

$1.18

$1.05

Weighted average diluted common shares outstanding

176.1

171.7

HIGHLIGHTED ITEMS AND SHARE-BASED COMPENSATION EXPENSE

The table below includes highlighted items, share-based compensation expense and intangible amortization for the second quarter of 2019.

(per diluted common share)

Q2 2019

 

 

GAAP Earnings

$1.18

Highlighted Items:

 

Intangibles amortization expense

0.23

 

Loss from the extinguishment of long-term debt

0.18

 

Share-based compensation expense

0.13

 

Reorganization of business charges

0.05

 

Legal settlements

0.01

 

Investment impairments

0.01

 

Sale of a business

(0.01

)

FIN48 releases

(0.02

)

Fair value adjustments to equity investments

(0.07

)

 

 

Non-GAAP Diluted EPS

$1.69

 

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, non-cash pension adjustments, litigation 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.

Adjusted operating cash flow: Adjusted operating cash flow information reflects operating cash flow under GAAP excluding a $500 million voluntary, debt-funded U.S. pension contribution in the first quarter 2018. The company has excluded the impact of this contribution because the company believes that this item does not reflect expected future operating cash flows and does not contribute to a meaningful evaluation of the company’s current operating cash flow performance or comparisons to the company’s past operating cash flow performance.

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 nearest 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 third 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 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
June 29, 2019 June 30, 2018
Net sales from products

$

1,118

 

$

1,042

 

Net sales from services

 

742

 

 

718

 

Net sales

 

1,860

 

 

1,760

 

Costs of products sales

 

490

 

 

485

 

Costs of services sales

 

439

 

 

453

 

Costs of sales

 

929

 

 

938

 

Gross margin

 

931

 

 

822

 

Selling, general and administrative expenses

 

351

 

 

316

 

Research and development expenditures

 

170

 

 

162

 

Other charges

 

9

 

 

18

 

Intangibles amortization

 

52

 

 

53

 

Operating earnings

 

349

 

 

273

 

Other income (expense):
Interest expense, net

 

(56

)

 

(58

)

Gains (losses) on sales of investments and businesses, net

 

3

 

 

(1

)

Other

 

(21

)

 

13

 

Total other expense

 

(74

)

 

(46

)

Net earnings before income taxes

 

275

 

 

227

 

Income tax expense

 

67

 

 

46

 

Net earnings

 

208

 

 

181

 

Less: Earnings attributable to non-controlling interests

 

1

 

 

1

 

Net earnings attributable to Motorola Solutions, Inc.

$

207

 

$

180

 

Earnings per common share:
Basic

$

1.25

 

$

1.11

 

Diluted

$

1.18

 

$

1.05

 

Weighted average common shares outstanding:
Basic

 

164.9

 

 

162.2

 

Diluted

 

176.1

 

 

171.7

 

 
Percentage of Net Sales*
Net sales from products

 

60.1

%

 

59.2

%

Net sales from services

 

39.9

%

 

40.8

%

Net sales

 

100.0

%

 

100.0

%

Costs of products sales

 

43.8

%

 

46.5

%

Costs of services sales

 

59.2

%

 

63.1

%

Costs of sales

 

49.9

%

 

53.3

%

Gross margin

 

50.1

%

 

46.7

%

Selling, general and administrative expenses

 

18.9

%

 

18.0

%

Research and development expenditures

 

9.1

%

 

9.2

%

Other charges

 

0.5

%

 

1.0

%

Intangibles amortization

 

2.8

%

 

3.0

%

Operating earnings

 

18.8

%

 

15.5

%

Other income (expense):
Interest expense, net

 

(3.0

)%

 

(3.3

)%

Gains (losses) on sales of investments and businesses, net

 

0.2

%

 

(0.1

)%

Other

 

(1.1

)%

 

0.7

%

Total other expense

 

(4.0

)%

 

(2.6

)%

Net earnings before income taxes

 

14.8

%

 

12.9

%

Income tax expense

 

3.6

%

 

2.6

%

Net earnings

 

11.2

%

 

10.3

%

Less: Earnings attributable to non-controlling interests

 

0.1

%

 

0.1

%

Net earnings attributable to Motorola Solutions, Inc.

 

11.1

%

 

10.2

%

* 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)
 

Six Months Ended

June 29, 2019

June 30, 2018

Net sales from products

$

 

2,063

 

$

 

1,842

 

Net sales from services

 

1,454

 

 

1,385

 

Net sales

 

3,517

 

 

3,227

 

Costs of products sales

 

934

 

 

867

 

Costs of services sales

 

879

 

 

869

 

Costs of sales

 

1,813

 

 

1,736

 

Gross margin

 

1,704

 

 

1,491

 

Selling, general and administrative expenses

 

676

 

 

594

 

Research and development expenditures

 

333

 

 

314

 

Other charges

 

14

 

 

44

 

Intangibles amortization

 

102

 

 

94

 

Operating earnings

 

579

 

 

445

 

Other income (expense):
Interest expense, net

 

(111

)

 

(104

)

Gains on sales of investments and businesses, net

 

4

 

 

10

 

Other

 

(12

)

 

16

 

Total other expense

 

(119

)

 

(78

)

Net earnings before income taxes

 

460

 

 

367

 

Income tax expense

 

100

 

 

69

 

Net earnings

 

360

 

 

298

 

Less: Earnings attributable to non-controlling interests

 

2

 

 

1

 

Net earnings attributable to Motorola Solutions, Inc.

$

 

358

 

$

 

297

 

Earnings per common share:
Basic

$

 

2.18

 

$

 

1.83

 

Diluted

$

 

2.04

 

$

 

1.73

 

Weighted average common shares outstanding:
Basic

 

164.4

 

 

161.7

 

Diluted

 

175.3

 

 

171.1

 

 
Percentage of Net Sales*
Net sales from products

 

58.7

%

 

57.1

%

Net sales from services

 

41.3

%

 

42.9

%

Net sales

 

100.0

%

 

100.0

%

Costs of products sales

 

45.3

%

 

47.1

%

Costs of services sales

 

60.5

%

 

62.7

%

Costs of sales

 

51.5

%

 

53.8

%

Gross margin

 

48.5

%

 

46.2

%

Selling, general and administrative expenses

 

19.2

%

 

18.4

%

Research and development expenditures

 

9.5

%

 

9.7

%

Other charges

 

0.4

%

 

1.4

%

Intangibles amortization

 

2.9

%

 

2.9

%

Operating earnings

 

16.5

%

 

13.8

%

Other income (expense):
Interest expense, net

 

(3.2

)%

 

(3.2

)%

Gains on sales of investments and businesses, net

 

0.1

%

 

(0.3

)%

Other

 

(0.3

)%

 

0.5

%

Total other expense

 

(3.4

)%

 

(2.4

)%

Net earnings before income taxes

 

13.1

%

 

11.4

%

Income tax expense

 

2.8

%

 

2.1

%

Net earnings

 

10.2

%

 

9.2

%

Less: Earnings attributable to non-controlling interests

 

0.1

%

%

Net earnings attributable to Motorola Solutions, Inc.

 

10.2

%

 

9.2

%

* Percentages may not add up due to rounding
GAAP-3
Motorola Solutions, Inc. and Subsidiaries
Condensed Consolidated Balance Sheets
(In millions)
 
June 29, 2019 December 31, 2018
Assets
Cash and cash equivalents

$

953

 

$

1,246

 

Restricted cash

 

11

 

 

11

 

Total cash and cash equivalents

 

964

 

 

1,257

 

Accounts receivable, net

 

1,206

 

 

1,293

 

Contract assets

 

913

 

 

1,012

 

Inventories, net

 

424

 

 

356

 

Other current assets

 

324

 

 

354

 

Total current assets

 

3,831

 

 

4,272

 

Property, plant and equipment, net

 

940

 

 

895

 

Operating lease assets

 

567

 

 

 

Investments

 

175

 

 

169

 

Deferred income taxes

 

913

 

 

985

 

Goodwill

 

1,852

 

 

1,514

 

Intangible Assets

 

1,332

 

 

1,230

 

Other assets

 

364

 

 

344

 

Total assets

$

9,974

 

$

9,409

 

Liabilities and Stockholders’ Equity
Current portion of long-term debt

$

28

 

$

31

 

Accounts payable

 

544

 

 

592

 

Contract liabilities

 

1,187

 

 

1,263

 

Accrued liabilities

 

1,117

 

 

1,210

 

Total current liabilities

 

2,876

 

 

3,096

 

Long-term debt

 

5,315

 

 

5,289

 

Operating lease liabilities

 

504

 

 

 

Other liabilities

 

2,233

 

 

2,300

 

Total Motorola Solutions, Inc. stockholders’ equity (deficit)

 

(970

)

 

(1,293

)

Non-controlling interests

 

16

 

 

17

 

Total liabilities and stockholders’ equity

$

9,974

 

$

9,409

 

Contacts

MEDIA CONTACT

Michael Shore

Motorola Solutions

+1 847-867-4221

Michael.Shore@motorolasolutions.com

INVESTOR CONTACT

Tim Yocum

Motorola Solutions

+1 847-576-6899

Tim.Yocum@motorolasolutions.com

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