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

Motorola Solutions, Inc. (NYSE: MSI) today reported its earnings results for the fourth quarter and full year of 2019. Click here for a printable news release and financial tables.

“Our strong Q4 results capped another year of record sales, cash flow and backlog,” said Greg Brown, chairman and CEO of Motorola Solutions. “Our momentum, particularly in video security and software & services, positions us well for another strong year.”

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

*Q4 Non-GAAP financial information excludes the after-tax impact of approximately $1.55 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 SELECT FOURTH-QUARTER FINANCIAL RESULTS

• Revenue – Fourth-quarter revenue was $2.4 billion, up $123 million or 5% primarily on strength in the Americas. Revenue from acquisitions was $82 million and currency headwinds were $17 million. The Products and Systems Integration segment was flat with growth in the Americas and AsiaPac offset by declines in EMEA related to large LMR deployments in the Middle East and Africa in the prior year. The Software and Services segment grew 21% with growth in all regions.
• Operating earnings – GAAP operating margin was 24.8% of sales compared with 22.9% in the year-ago quarter driven by higher sales and gross margin in the current quarter and higher costs related to the closure of certain supply chain operations in Europe in the prior year, partially offset by higher operating expenses related to acquisitions. Non-GAAP operating margin was 29.7% of sales, up from 28.8% in the year-ago quarter due to higher sales and gross margins, partially offset by higher operating expenses related to acquisitions.
• Other charges – The company de-risked $1 billion in pension obligations through a lump-sum window offered to certain participants of the U.S. Pension Plan. Approximately $836 million was paid out of pension plan assets to the participants who elected lump sums as part of this offer. The Company recorded a non-cash GAAP charge of $359 million in 2019 as a result of this initiative, representing the write-off of pension losses previously deferred within equity.
• Taxes- The GAAP effective tax rate was (26.4)%, compared to 8.8% in the year-ago quarter. The year over year decline in the GAAP rate was primarily due to lower profit before tax as a result of the $359 million U.S. pension settlement charge taken in the current quarter. The Non-GAAP effective tax rate was 22%, compared to 23.5% in the year-ago quarter.
• Cash flow – The company generated $795 million in operating cash, compared with $812 million in the year-ago quarter. Free cash flow was $736 million, compared with $743 million in the year-ago quarter. The year over year decline in cash flow was primarily driven by changes in working capital in the current quarter, partially offset by higher operating earnings in the current quarter.

OTHER SELECT FULL-YEAR FINANCIAL RESULTS

• Revenue – Full-year revenue was $7.9 billion, up $544 million, or 7% driven by growth in the Americas. Revenue from acquisitions was $312 million and currency headwinds were $113 million. The Products and Systems Integration segment grew 5% driven by the Americas. The Software and Services segment grew 14% driven by growth in the Americas and EMEA.
• Operating earnings – For the full year, GAAP operating margin was 20% of revenue, compared with 17.1% for the prior year. The increase was primarily driven by higher revenue and gross margin in the current year as well as an increase to an existing environmental reserve related to a legacy business booked in the prior year, partially offset by higher operating expenses related to acquisitions in the current year. Non-GAAP operating margin was 25% of revenue, compared with 23.7% for the prior year, driven by higher revenue and gross margin, partially offset by higher operating expenses related to acquisitions.
• Taxes- The 2019 GAAP effective tax rate was 13%, compared to 12% for the prior year. The Non-GAAP effective tax rate was 22.4% compared with 21.7% in the previous year.
• Cash flow – The company generated $1.8 billion in operating cash, up $748 million from the prior year. Free cash flow was $1.6 billion, up $697 million from the prior year. The increase in cash flow was driven by the impact of the $500 million debt funded pension contribution made in Q1 2018 and higher revenue and associated operating earnings in the current year.
• Backlog – The company ended the quarter with record backlog of $11.3 billion, up $659 million from the year-ago quarter. Software and Services segment backlog was up 9% or $699 million, primarily driven by growth in the Americas and the extension of the ESN contract. Products and System Integrations segment backlog was down 1% or $40 million due to declines in EMEA and AsiaPac, partially offset by growth in the Americas.
• Capital Allocation – The company invested $709 million in acquisitions, paid $379 million in dividends, and repurchased $315 million of its common stock at an average price of $137.35 per share.

NOTABLE WINS & ACHIEVEMENTS

Software and Services

• $68 million P25 multi-year service contract with State of Victoria, Australia
• $29 million P25 multi-year service contract with the state of Connecticut
• $24 million P25 multi-year service contract with the U.S. Navy
• $8 million for a Command Center Software suite order from Tulare County, California
• $6 million for a Command Center Software suite order from Irvine, California
• $6 million for a Computer Aided Dispatch system for city of Atlanta, Georgia

Products and Systems Integration

• $64 million P25 order for the State of Arkansas
• $36 million P25 order for Thurston County, Washington
• $24 million P25 order for Luzerne County, Pennsylvania
• $5 million in fixed video security wins for government customers
• Launched APX Next, our next-generation P25 radio
• Launched Avigilon AI-powered H5 camera line

BUSINESS OUTLOOK

• First-quarter 2020 – The Company expects revenue growth of approximately 2% compared with the first quarter of 2019. The company expects non-GAAP earnings per share in the range of $1.30 to $1.35 per share. This assumes current foreign exchange rates, approximately 176 million fully diluted shares, and a 20% effective tax rate.
• Full-year 2020 – The company expects revenue growth of approximately 4% and non-GAAP earnings per share in the range of $8.65 to $8.80 per share. This assumes current foreign exchange rates, between 176 and 177 million fully diluted shares and a non-GAAP effective tax rate of approximately 23%.

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) Thursday, Feb 6. The conference call will be webcast live with audio and slides at www.motorolasolutions.com/investor.

CONSOLIDATED GAAP RESULTS (presented in millions, except per share data)

A comparison of results from operations is as follows:

HIGHLIGHTED ITEMS

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

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 first quarter and full year of 2020. 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, page 45 in Item 1A of Motorola Solutions’ 2019 Third Quarter Report on Form 10-Q 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 and analytics. Our technology platforms in mission-critical communications, command center software, video security & analytics, bolstered by managed & 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. ©2020 Motorola Solutions, Inc. All rights reserved.