Motorola Solutions Reports Fourth-Quarter and Full-Year Financial Results

Record Q4 and 2018 revenue, earnings per share and ending backlog

  • Revenue of $2.3 billion, up 15 percent from Q4 in the prior year; up
    15 percent for full year
  • Backlog of $10.6 billion, up $988 million or 10 percent from a year ago
  • Operating cash flow of $812 million, up $51 million from Q4 in the
    prior year
  • GAAP earnings (loss) per share (EPS) of $2.44, up from ($3.56); $5.62
    for full year, up from ($0.95)
  • Non-GAAP EPS* of $2.63, up 25 percent; $7.15 for full year, up 31
    percent

CHICAGO–(BUSINESS WIRE)–Motorola Solutions, Inc. (NYSE: MSI) today reported its earnings results
for the fourth quarter and full-year 2018. Click
here
for a printable news release and financial tables.

From strong organic revenue growth and cash generation to record EPS
and backlog, we delivered an outstanding 2018, capped by an excellent
fourth quarter,” said Greg Brown, chairman and CEO, Motorola Solutions.

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

         
    Fourth Quarter   Full Year
    Q4 2018   Q4 2017   % Change   2018   2017   % Change
Sales   $2,254   $1,957   15 %   $7,343   $6,380   15 %
GAAP            
Operating Earnings $516 $503 3 % $1,255 $1,284

(2)

%

% of Sales 22.9 % 25.7 % 17.1 % 20.1 %
EPS   $2.44   ($3.56)   N/M**   $5.62   ($0.95)   N/M
Non-GAAP
Operating Earnings $650 $566 15 % $1,740 $1,506 16 %
% of Sales 28.8 % 28.9 % 23.7 % 23.6 %
EPS   $2.63   $2.10   25 %   $7.15   $5.46   31 %
Products and Systems Integration Segment
Sales $1,670 $1,437 16 % $5,100 $4,513 13 %
GAAP Operating Earnings $405 $416

(3)

%

$854 $969

(12)

%

% of Sales 24.3 % 28.9 % 16.7 % 21.5 %
Non-GAAP Operating Earnings $483 $435 11 % $1,109 $1,026 8 %
% of Sales   28.9 %   30.3 %       21.7 %   22.7 %    
Services and Software Segment
Sales $584 $520 12 % $2,243 $1,867 20 %
GAAP Operating Earnings $111 $87 28 % $401 $315 27 %
% of Sales 19.0 % 16.7 % 17.9 % 16.9 %
Non-GAAP Operating Earnings $167 $131 27 % $631 $480 31 %
% of Sales   28.6 %   25.2 %       28.1 %   25.7 %    

*Q4 Non-GAAP EPS financial information excludes the after-tax impact of
approximately $0.19 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.

** N/M = Percent change is not meaningful due to the prior year net loss
related to tax reform

OTHER SELECT FOURTH-QUARTER FINANCIAL RESULTS

  • Revenue Fourth-quarter sales were $2.3 billion, up
    $297 million, or 15 percent from the year-ago quarter, driven by
    growth in the Americas and EMEA. Approximately $159 million was
    related to acquisitions, and $25 million was related to the adoption
    of ASC 606. The Products and Systems Integration segment grew 16
    percent driven by the Americas and EMEA. The Services and Software
    segment grew 12 percent with growth in all regions.
  • Operating margin GAAP operating margin was 22.9
    percent of sales, compared with 25.7 percent in the year-ago quarter.
    The decline was primarily due to costs related to the closure of
    certain supply chain operations in Europe and acquisition-related
    operating expenses. Non-GAAP operating margin was 28.8 percent of
    sales, compared with 28.9 percent in the year-ago quarter. Higher
    gross margins were offset by higher operating expenses related to
    acquisitions.
  • Taxes – The GAAP effective tax rate was 8.8 percent, compared
    with 223.4 percent in the year-ago quarter. The non-GAAP effective tax
    rate was 23.5 percent compared with 32.8 percent in the year-ago
    quarter. Both tax rates for the fourth quarter of 2018 were favorably
    affected by the ongoing rate reduction and by other provisional
    adjustments as a result of the U.S. Tax Cuts and Jobs Act of 2017.
  • Cash flow Operating cash flow was $812 million,
    compared with $761 million of operating cash generated in the year-ago
    quarter driven primarily by higher earnings. Free cash flow was $743
    million, compared with $740 million in the year-ago quarter on higher
    earnings partially offset by higher capital expenditures related
    primarily to the Airwave extension.
  • Capital allocation The company paid $85 million in
    cash dividends, repurchased $66 million of common stock and repaid the
    remaining $100 million on the revolving credit facility.
  • Backlog The company ended the quarter with backlog of
    $10.6 billion, up $988 million from the year-ago quarter inclusive of
    a $205 million unfavorable currency change. Services and Software
    backlog was up 18 percent or $1.1 billion primarily due to growth in
    the Americas and the Airwave contract extension through the end of
    2022. Products and Systems Integration backlog was down $116 million
    primarily on two large system deployments in the Middle East and
    Africa. Products and System Integration backlog grew in the Americas
    and AP.

OTHER SELECT FULL-YEAR FINANCIAL RESULTS

  • Revenue Full-year sales were $7.3 billion, up
    $963 million, or 15 percent driven by growth in the Americas and EMEA.
    Approximately $507 million of revenue growth was related to
    acquisitions, and $83 million was related to the adoption of ASC 606.
    The Products and Systems Integration segment grew 13 percent driven by
    the Americas and EMEA. The Services and Software segment grew 20
    percent with growth in all regions.
  • Operating margin GAAP operating margin was 17.1
    percent of sales, compared with 20.1 percent in the prior year driven
    primarily by costs related to the closure of certain supply chain
    operations in Europe, an increase to an existing environmental reserve
    related to a legacy business and higher expenses related to
    acquisitions. Non-GAAP operating margin was 23.7 percent of sales,
    compared with 23.6 percent in the prior year due to higher revenue and
    gross margin partially offset by higher operating expenses related to
    acquisitions.
  • Taxes – The GAAP effective tax rate was 12.0 percent, compared
    with 114.1 percent in 2017. The Non-GAAP effective tax rate was 21.7
    percent compared with 31.0 percent in the previous year. Both the tax
    rates for the full year 2018 were favorably affected primarily by the
    ongoing rate reduction and by other provisional adjustments as a
    result of the U.S. Tax Cuts and Jobs Act of 2017.
  • Cash flow Operating cash flow was $1.1 billion,
    compared with $1.3 billion in the prior year. Excluding the voluntary
    $500 million debt funded U.S. pension contribution in Q1, operating
    cash flow was $1.575 billion. Free cash flow was $878 million,
    compared with $1.1 billion in the prior year. Excluding the U.S.
    pension contribution in Q1, free cash flow was $1.4 billion. The
    higher cash flow, excluding the U.S. pension contribution, was driven
    primarily by higher earnings.
  • Capital allocation The company repurchased $132
    million of its common stock, paid $337 million in cash dividends and
    invested $1.2 billion in acquisitions. From a financing perspective,
    the company issued $500 million in senior unsecured debt to make a
    $500 million voluntary contribution to the U.S. pension plan in Q1.
    Additionally, the company entered into a $400 million term loan and
    borrowed $400 million under the revolving credit facility to complete
    the Avigilon acquisition in Q1. The revolving credit facility was paid
    off throughout the year. The company also repurchased 20 percent of
    the Silver Lake convertible notes for $369 million in Q3, of which
    $200 million of principal was repaid with new senior unsecured debt in
    Q4.

KEY HIGHLIGHTS

Services and Software wins

  • $1.1 billion contract extension through 2022 for the Airwave network
    in the U.K.
  • $71 million services award from Maricopa County, Arizona
  • $26 million Next Gen 911 Core Services contract in North America
  • $16 million services award in Australia

Products and Systems Integration wins

  • $47 million P25 order with Snohomish County, Washington
  • $24 million P25 order with Ingham County, Michigan
  • $16 million P25 order with Riverside County, California

BUSINESS OUTLOOK

  • First-quarter 2019 – Motorola Solutions expects revenue growth
    of approximately 11 percent compared with the first quarter of 2018.
    The company expects non-GAAP earnings in the range of $1.11 to $1.16
    per share. This assumes current foreign exchange rates, approximately
    174 million fully diluted shares and a 25 percent effective tax rate.
  • Full-year 2019 – The company expects revenue growth of
    approximately 6 to 7 percent and non-GAAP earnings per share in the
    range of $7.55 to $7.70. This assumes current foreign exchange rates,
    approximately 175 million fully diluted shares and a 25 percent
    effective tax rate.

CONFERENCE CALL AND WEBCAST Motorola Solutions will host its
quarterly conference call beginning at 4 p.m. U.S. Central Standard Time
(5 p.m. U.S. Eastern Standard Time) on Thursday, Feb. 7. 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:

           
  Fourth Quarter     Full Year
    2018   2017     2018   2017
Net sales   $2,254   $1,957     $7,343   $6,380
Gross margin $1,088   $970 $3,480   $3,024
Operating earnings   $516   $503     $1,255   $1,284
Amounts attributable to Motorola Solutions, Inc. common
stockholders
Net earnings (loss) 423 (575) 966 (155)
Diluted EPS $2.44 ($3.56) $5.62 ($0.95)
Weighted average diluted common shares outstanding   173.4   161.7     172.0   162.9

HIGHLIGHTED ITEMS AND SHARE-BASED COMPENSATION EXPENSE
The
table below includes highlighted items, share-based compensation expense
and intangible amortization for the fourth quarter of 2018.

       
(per diluted common share)   Q4 2018  
 
GAAP Earnings   $2.44  
Highlighted Items:
Share-based compensation expense 0.09
Reorganization of business charges 0.25
Intangibles amortization expense 0.22
Asset impairment 0.01
Acquisition-related transaction fees 0.03
Fair value adjustments to equity investments (0.02 )
Investment impairments 0.02
FIN 48 reserve, valuation allowance, and other (0.03 )
Adjustments to the provisional tax expense as a result of the tax
reform
  (0.38 )
Non-GAAP Diluted EPS   $2.63  

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, asset impairments, reorganization of business
charges, non-cash pension adjustments, significant litigation and other
contingencies, significant gains and losses on investments, 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 and excluding the effects of ASC 606. 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.

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 first quarter and full year of
2019. Motorola Solutions cautions the reader that the risk factors
below, as well as those on pages 8 through 20 in Item 1A of Motorola
Solutions’ 2017 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, software,
video and 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
Consolidated Statements of Operations
(In millions, except per share amounts)
     
Three Months Ended
December 31, 2018 December 31, 2017
Net sales from products $ 1,470 $ 1,233
Net sales from services   784     724  
Net sales 2,254 1,957
 
Costs of products sales 652 519
Costs of services sales   514     468  
Costs of sales 1,166 987
   
Gross margin   1,088     970  
 
Selling, general and administrative expenses 337 267
Research and development expenditures 165 154
Other charges 22 7
Intangibles amortization   48     39  
Operating earnings   516     503  
 
Other income (expense):
Interest expense, net (59 ) (47 )
Other   7     9  
Total other expense   (52 )   (38 )
Net earnings before income taxes 464 465
Income tax expense   40     1,039  
Net earnings (loss) 424 (574 )
 
Less: Earnings attributable to noncontrolling interests   1     1  
Net earnings (loss) attributable to Motorola Solutions, Inc. $ 423   $ (575 )
 

Earnings (loss) per common share:

Basic: $ 2.58 $ (3.56 )
Diluted: $ 2.44 $ (3.56 )

Weighted average common shares outstanding:

Basic 163.5 161.7
Diluted   173.4     161.7  
     
Percentage of Net Sales*
Net sales from products 65.2 % 63.0 %
Net sales from services   34.8 %   37.0 %
Net sales 100.0 % 100.0 %
 
Costs of products sales 44.4 % 42.1 %
Costs of services sales   65.6 %   64.6 %
Costs of sales 51.7 % 50.4 %
   
Gross margin   48.3 %   49.6 %
 
Selling, general and administrative expenses 15.0 % 13.6 %
Research and development expenditures 7.3 % 7.9 %
Other charges 1.0 % 0.4 %
Intangibles amortization   2.1 %   2.0 %
Operating earnings   22.9 %   25.7 %
 
Other income (expense):
Interest expense, net (2.6 )% (2.4 )%
Other   0.3 %   0.5 %
Total other expense   (2.3 )%   (1.9 )%
Net earnings before income taxes 20.6 % 23.8 %
Income tax expense   1.8 %   53.1 %
Net earnings (loss) 18.8 % (29.3 )%
 
Less: Earnings attributable to noncontrolling interests   %   0.1 %
Net earnings (loss) attributable to Motorola Solutions, Inc.   18.8 %   (29.4 )%
* Percentages may not add up due to rounding
      GAAP-2
Motorola Solutions, Inc. and Subsidiaries
Consolidated Statements of Operations
(In millions, except per share amounts)
         
Years Ended
December 31, 2018 December 31, 2017 December 31, 2016
Net sales from products $ 4,463 $ 3,772 $ 3,649
Net sales from services   2,880     2,608     2,389  
Net sales 7,343 6,380 6,038
 
Costs of products sales 2,035 1,686 1,649
Costs of services sales   1,828     1,670     1,520  
Costs of sales 3,863 3,356 3,169
     
Gross margin   3,480     3,024     2,869  
 
Selling, general and administrative expenses 1,254 1,025 1,044
Research and development expenditures 637 568 553
Other charges (income) 146 (4 ) 111
Intangibles amortization   188     151     113  
Operating earnings   1,255     1,284     1,048  
 
Other income (expense):
Interest expense, net (222 ) (201 ) (205 )
Gains (losses) on sales of investments and businesses, net 16 3 (6 )
Other   53     (10 )   7  
Total other expense   (153 )   (208 )   (204 )
Net earnings before income taxes 1,102 1,076 844
Income tax expense   133     1,227     282  
Net earnings (loss) 969 (151 ) 562
 
Less: Earnings attributable to noncontrolling interests   3     4     2  
Net earnings (loss) attributable to Motorola Solutions, Inc. $ 966   $ (155 ) $ 560  
 

Earnings (loss) per common share:

Basic: $ 5.95 $ (0.95 ) $ 3.30
Diluted: $ 5.62 $ (0.95 ) $ 3.24

Weighted average common shares outstanding:

Basic 162.4 162.9 169.6
Diluted   172.0     162.9     173.1  
         
Percentage of Net Sales*
Net sales from products 60.8 % 59.1 % 60.4 %
Net sales from services   39.2 %   40.9 %   39.6 %
Net sales 100.0 % 100.0 % 100.0 %
 
Costs of products sales 45.6 % 44.7 % 45.2 %
Costs of services sales   63.5 %   64.0 %   63.6 %
Costs of sales 52.6 % 52.6 % 52.5 %
     
Gross margin   47.4 %   47.4 %   47.5 %
 
Selling, general and administrative expenses 17.1 % 16.1 % 17.3 %
Research and development expenditures 8.7 % 8.9 % 9.2 %
Other charges 2.0 % (0.1 )% 1.8 %
Intangibles amortization   2.6 %   2.4 %   1.9 %
Operating earnings   17.1 %   20.1 %   17.4 %
 
Other income (expense):
Interest expense, net (3.0 )% (3.2 )% (3.4 )%
Gains (losses) on sales of investments and businesses, net 0.2 % % (0.1 )%
Other   0.7 %   (0.2 )%   0.1 %
Total other expense   (2.1 )%   (3.3 )%   (3.4 )%
Net earnings before income taxes 15.0 % 16.9 % 14.0 %
Income tax expense   1.8 %   19.2 %   4.7 %
Net earnings (loss)   13.2 %   (2.4 )%   9.3 %
 
Less: Earnings attributable to noncontrolling interests % 0.1 % %
Net earnings (loss) attributable to Motorola Solutions, Inc.   13.2 %   (2.4 )%   9.3 %
* Percentages may not add up due to rounding

Contacts

MEDIA CONTACT
Kate Dyer
Motorola Solutions
+224-374-3124
Kate.Dyer@motorolasolutions.com

INVESTOR CONTACT
Chris Kutsor
Motorola Solutions
+1
847-576-4995
chris.kutsor@motorolasolutions.com

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