Upgrade to SI Premium - Free Trial

Motorola Solutions Reports First-Quarter 2017 Financial Results

May 4, 2017 4:10 PM

Company completes Interexport acquisition, raises full year EPS outlook

HIGHLIGHTS

CHICAGO--(BUSINESS WIRE)-- Motorola Solutions, Inc. (NYSE: MSI) today reported its earnings results for the first quarter of 2017. Click here for a printable news release and financial tables.

SUPPORTING QUOTE

“Q1 was a strong quarter and an excellent start to the year,” said Greg Brown, chairman and CEO of Motorola Solutions. “I’m very pleased with our momentum going forward.”

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

Q1 2017 Q1 2016 % Change
Sales $1,281 $1,193 7 %
GAAP
Operating Earnings $176 $100 76 %
% of Sales 13.7% 8.4%
EPS $0.45 $0.10 350 %
Non-GAAP
Operating Earnings $224 $166 35 %
% of Sales 17.5% 13.9%
EPS $0.71 $0.52 37 %
Product Segment
Sales $703 $702 — %
GAAP Operating Earnings $89 $51 75 %
% of Sales 12.7% 7.3%
Non-GAAP Operating Earnings $101 $84 20 %
% of Sales 14.4% 12.0%
Services Segment
Sales $578 $491 18 %
GAAP Operating Earnings $87 $49 78 %
% of Sales 15.1% 10.0%
Non-GAAP Operating Earnings $123 $82 50 %
% of Sales 21.3% 16.7%

*Non-GAAP financial information excludes the after-tax impact of approximately $0.26 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.

KEY HIGHLIGHTS

Strategic wins

Innovation and investments in growth

BUSINESS OUTLOOK

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, May 4. 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:

Q1 2017 Q1 2016
Net sales $1,281 $1,193
Gross margin 570 502
Operating earnings 176 100
Amounts attributable to Motorola Solutions, Inc. common stockholders
Earnings, net of tax 77 17
Net earnings 77 17
Diluted EPS $0.45 $0.10
Weighted average diluted common shares outstanding 169.9 177.0

HIGHLIGHTED ITEMS AND SHARE-BASED COMPENSATION EXPENSE

The table below includes highlighted items, share-based compensation expense and intangible amortization for the first quarter of 2017.
(per diluted common share) Q1 2017
GAAP Earnings $0.45
Highlighted Items:
Share-based compensation expense 0.06
Reorganization of business charges 0.09
Intangibles amortization expense 0.16
Gain on legal settlement (0.15 )
Building impairment 0.05
Non-US pension settlement loss 0.05
Sale of investments (0.01 )
Acquisition-related transaction fees 0.01
Total Highlighted Items $0.26
Non-GAAP Diluted EPS $0.71

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, 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. Specifically in regards to its restructuring plans, the company has incurred significant restructuring charges as it reduced operating expenses in the past four years.

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.

Constant Currency: The company evaluates its results of operations on both an as reported and a constant currency basis. The constant currency presentation, which is a non-GAAP measure, excludes the impact of fluctuations in foreign currency exchange rates. The company calculates constant currency percentages by converting its current period local currency results using prior-period exchange rates, and then comparing these adjusted values to prior period reported results.

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 second quarter and full year of 2017 and the enhancement of the company’s offerings through acquisitions. 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 2016 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) 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; (6) 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; (7) the outcome of ongoing and future tax matters; (8) 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; (9) risks related to dependence on certain key suppliers, subcontractors, third-party distributors and other representatives; (10) the impact on the company's performance and financial results from strategic acquisitions or divestitures, including the acquisition of Airwave; (11) risks related to the company's manufacturing and business operations in foreign countries; (12) the creditworthiness of the company's customers and distributors, particularly purchasers of large infrastructure systems; (13) 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; (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 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; (22) the impact of the sale of the company’s legacy information systems, including components of the enterprise resource planning (ERP) system and the implementation of a new ERP system; and (23) 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

DEFINITIONS

1

Q1 Non-GAAP financial information excludes the after-tax impact of approximately $0.26 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 in this news release.

2

Free cash flow represents operating cash flow less capital expenditures

3

Net debt represents cash and cash equivalents less long-term debt, including current portion

ABOUT MOTOROLA SOLUTIONS

Motorola Solutions (NYSE: MSI) creates innovative, mission-critical communication solutions and services that help public safety and commercial customers build safer cities and thriving communities. For ongoing news, visit www.motorolasolutions.com/newsroom or subscribe to a news feed.

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. ©2017 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
April 1, 2017 April 2, 2016
Net sales from products $ 703 $ 702
Net sales from services 578 491
Net sales 1,281 1,193
Costs of products sales 347 366
Costs of services sales 364 325
Costs of sales 711 691
Gross margin 570 502
Selling, general and administrative expenses 232 234
Research and development expenditures 135 135
Other charges (9 ) 20
Intangibles amortization 36 13
Operating earnings 176 100
Other income (expense):
Interest expense, net (51 ) (49 )
Gains (losses) on sales of investments and businesses, net 3 (21 )
Other (8 ) (8 )
Total other expense (56 ) (78 )
Net earnings before income taxes 120 22
Income tax expense 42 5
Net earnings 78 17
Less: Earnings attributable to noncontrolling interests 1 —
Net earnings attributable to Motorola Solutions, Inc. $ 77 $ 17

Earnings per common share:

Basic $ 0.47 $ 0.10
Diluted $ 0.45 $ 0.10

Weighted average common shares outstanding:

Basic 164.2 174.5
Diluted 169.9 177.0
Percentage of Net Sales*
Net sales from products 54.9 % 58.8 %
Net sales from services 45.1 % 41.2 %
Net sales 100.0 % 100.0 %
Costs of products sales 49.4 % 52.1 %
Costs of services sales 63.0 % 66.2 %
Costs of sales 55.5 % 57.9 %
Gross margin 44.5 % 42.1 %
Selling, general and administrative expenses 18.1 % 19.6 %
Research and development expenditures 10.5 % 11.3 %
Other charges (0.7 )% 1.7 %
Intangibles amortization 2.8 % 1.1 %
Operating earnings 13.7 % 8.4 %
Other income (expense):
Interest expense, net (4.0 )% (4.1 )%
Gains (losses) on sales of investments and businesses, net 0.2 % (1.8 )%
Other (0.6 )% (0.7 )%
Total other expense (4.4 )% (6.5 )%
Net earnings before income taxes 9.4 % 1.8 %
Income tax expense 3.3 % 0.4 %
Net earnings 6.1 % 1.4 %
Less: Earnings attributable to noncontrolling interests 0.1 % — %
Net earnings attributable to Motorola Solutions, Inc. 6.0 % 1.4 %
* Percentages may not add up due to rounding
GAAP-2
Motorola Solutions, Inc. and Subsidiaries
Condensed Consolidated Balance Sheets
(In millions)
April 1, 2017 December 31, 2016
Assets
Cash and cash equivalents $ 766 $ 967
Restricted cash 63 63
Total cash and cash equivalents 829 1,030
Accounts receivable, net 1,070 1,410
Inventories, net 345 273
Other current assets 829 755
Total current assets 3,073 3,468
Property, plant and equipment, net 820 789
Investments 237 238
Deferred income taxes 2,198 2,219
Goodwill 737 728
Intangible Assets 878 821
Other assets 197 200
Total assets $ 8,140 $ 8,463
Liabilities and Stockholders' Equity
Current portion of long-term debt $ 44 $ 4
Accounts payable 433 553
Accrued liabilities 1,908 2,111
Total current liabilities 2,385 2,668
Long-term debt 4,414 4,392
Other liabilities 2,378 2,355
Total Motorola Solutions, Inc. stockholders’ equity (deficit) (1,050 ) (964 )
Noncontrolling interests 13 12
Total liabilities and stockholders’ equity $ 8,140 $ 8,463
Financial Ratios:
Net cash (debt)* $ (3,629 ) $ (3,366 )
*Net cash (debt) = Total cash - Current portion of long-term debt - Long-term debt
GAAP-3
Motorola Solutions, Inc. and Subsidiaries
Condensed Consolidated Statements of Cash Flows
(In millions)
Three Months Ended
April 1, 2017 April 2, 2016
Operating
Net earnings attributable to Motorola Solutions, Inc. $ 77 $ 17
Earnings attributable to noncontrolling interests 1 —
Net earnings 78 17
Adjustments to reconcile Net earnings to Net cash provided by operating activities:
Depreciation and amortization 80 62
Non-cash other charges 15 11
Non-U.S. pension settlement loss 9 —
Share-based compensation expense 17 17
Losses (gains) on sales of investments and businesses, net (3 ) 21
Deferred income taxes 23 35
Changes in assets and liabilities, net of effects of acquisitions, dispositions, and foreign currency translation adjustments:
Accounts receivable 368 277
Inventories (69 ) (4 )
Other current assets (59 ) (43 )
Accounts payable and accrued liabilities (307 ) (363 )
Other assets and liabilities (10 ) (17 )
Net cash provided by operating activities 142 13
Investing
Acquisitions and investments, net (106 ) (1,053 )
Proceeds from sales of investments and businesses, net 53 481
Capital expenditures (68 ) (51 )
Net cash used for investing activities (121 ) (623 )
Financing
Repayment of debt (1 ) (1 )
Net proceeds from issuance of debt — 673
Issuance of common stock 22 40
Purchase of common stock (178 ) (64 )
Payment of dividends (77 ) (71 )
Net cash provided by (used for) financing activities (234 ) 577
Effect of exchange rate changes on cash and cash equivalents 12 (7 )
Net decrease in cash and cash equivalents (201 ) (40 )
Cash and cash equivalents, beginning of period 1,030 1,980
Cash and cash equivalents, end of period $ 829 $ 1,940
Financial Ratios:
Free cash flow* $ 74 $ (38 )
*Free cash flow = Net cash provided by operating activities - Capital Expenditures
GAAP-4
Motorola Solutions, Inc. and Subsidiaries
Segment Information
(In millions)
Net Sales
Three Months Ended
April 1, 2017 April 2, 2016 % Change
Products $ 703 $ 702 —%
Services 578 491 18 %
Total Motorola Solutions $ 1,281 $ 1,193 7 %
Operating Earnings
Three Months Ended
April 1, 2017 April 2, 2016 % Change
Products $ 89 $ 51 75 %
Services 87 49 78 %
Total Motorola Solutions $ 176 $ 100 76 %
Operating Earnings %
Three Months Ended
April 1, 2017 April 2, 2016
Products 12.7 % 7.3 %
Services 15.1 % 10.0 %
Total Motorola Solutions 13.7 % 8.4 %

Non-GAAP-1

Motorola Solutions, Inc. and Subsidiaries
Non-GAAP Adjustments (Intangibles Amortization Expense, Share-Based Compensation Expense and Highlighted Items)
Q1 2017
Non-GAAP Adjustments Statement Line PBT

(Inc)/Exp

Tax

Inc/(Exp)

PAT

(Inc)/Exp

EPS impact
Share-based compensation expense Cost of sales, SG&A and R&D $ 17 $ 6 $ 11 $ 0.06
Reorganization of business charges Cost of sales and Other charges 19 4 15 0.09
Intangibles amortization expense Intangibles amortization 36 9 27 0.16
Gain on legal settlement Other charges (42 ) (16 ) (26 ) (0.15 )
Building impairment Other charges 8 — 8 0.05
Non-US pension settlement loss Other charges 9 — 9 0.05
Sale of investments Sale of Investment or Business (Gain) or Loss (3 ) (1 ) (2 ) (0.01 )
Acquisition-related transaction fees Other charges 1 — 1 0.01
Total impact on Net earnings $ 45 $ 2 $ 43 $ 0.26
Non-GAAP-2
Motorola Solutions, Inc. and Subsidiaries
Non-GAAP Segment Information
(In millions)
Net Sales
Three Months Ended
April 1, 2017 April 2, 2016 % Change
Products $ 703 $ 702 —%
Services 578 491 18 %
Total Motorola Solutions $ 1,281 $ 1,193 7 %
Non-GAAP Operating Earnings
Three Months Ended
April 1, 2017 April 2, 2016 % Change
Products $ 101 $ 84 20 %
Services 123 82 50 %
Total Motorola Solutions $ 224 $ 166 35 %
Non-GAAP Operating Earnings %
Three Months Ended
April 1, 2017 April 2, 2016
Products 14.4 % 12.0 %
Services 21.3 % 16.7 %
Total Motorola Solutions 17.5 % 13.9 %
Non-GAAP-3
Motorola Solutions, Inc. and Subsidiaries
Operating Earnings after Non-GAAP Adjustments
Q1 2017
TOTAL Products Services
Net sales $ 1,281 $ 703 $ 578
Operating earnings ("OE") $ 176 $ 89 $ 87
Above-OE non-GAAP adjustments:
Share-based compensation expense 17 11 6
Reorganization of business charges 19 13 6
Intangibles amortization expense 36 6 30
Acquisition-related transaction fees 1 — 1
Gain on legal settlement (42 ) (30 ) (12 )
Building impairment 8 6 2
Non-US pension settlement loss 9 6 3
Total above-OE non-GAAP adjustments 48 12 36
Operating earnings after non-GAAP adjustments $ 224 $ 101 $ 123
Operating earnings as a percentage of net sales - GAAP 13.7 % 12.7 % 15.1 %
Operating earnings as a percentage of net sales - after non-GAAP adjustments 17.5 % 14.4 % 21.3 %

MEDIA CONTACT

Tama McWhinney

Motorola Solutions

+1 847-538-1865

[email protected]

or

INVESTOR CONTACT

Chris Kutsor

Motorola Solutions

+1 847-576-4995

[email protected]

Source: Motorola Solutions, Inc.

Categories

Press Releases

Next Articles