Motorola Solutions Reports Third-Quarter 2018 Financial Results

DEFINITIONS

1 Free cash flow represents operating cash flow less capital expenditures.

ABOUT MOTOROLA SOLUTIONS

Motorola Solutions (NYSE: MSI) is a technology company that provides mission-critical communications, software and video solutions that help build safer cities and thriving communities. Public safety and commercial customers globally depend on the company’s two-way radios, broadband technology, video surveillance and analytics solutions, services and software to keep them connected, from extreme to everyday moments. Learn more at http://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. ©2018 Motorola Solutions, Inc. All rights reserved.

GAAP-1
Motorola Solutions, Inc. and Subsidiaries
Condensed Consolidated Statements of Operations
(In millions, except per share amounts)
       
Three Months Ended
September 29, 2018   September 30, 2017
Net sales from products $ 1,151 $ 989
Net sales from services   711     656  
Net sales 1,862 1,645
 
Costs of products sales 516 428
Costs of services sales   445     423  
Costs of sales   961     851  
Gross margin   901     794  
 
Selling, general and administrative expenses 323 259
Research and development expenditures 158 141
Other charges 80 8
Intangibles amortization   46     39  
Operating earnings   294     347  
 
Other income (expense):
Interest expense, net (59 ) (52 )
Gains on sales of investments and businesses, net 6
Other   29     (9 )
Total other expense   (24 )   (61 )
Net earnings before income taxes 270 286
Income tax expense   22     73  
Net earnings 248 213
 
Less: Earnings attributable to noncontrolling interests   1     1  
Net earnings attributable to Motorola Solutions, Inc. $ 247   $ 212  
 

Earnings per common share:

Basic $ 1.52 $ 1.30
Diluted $ 1.43 $ 1.25

Weighted average common shares outstanding:

Basic 162.6 162.3
Diluted   172.6     169.0  
     
Percentage of Net Sales*
Net sales from products 61.8 % 60.1 %
Net sales from services   38.2 %   39.9 %
Net sales 100.0 % 100.0 %
 
Costs of products sales 44.8 % 43.3 %
Costs of services sales   62.6 %   64.5 %
Costs of sales   51.6 %   51.7 %
Gross margin   48.4 %   48.3 %
 
Selling, general and administrative expenses 17.3 % 15.7 %
Research and development expenditures 8.5 % 8.6 %
Other charges 4.3 % 0.5 %
Intangibles amortization   2.5 %   2.4 %
Operating earnings   15.8 %   21.1 %
 
Other income (expense):
Interest expense, net (3.2 )% (3.2 )%
Gains on sales of investments and businesses, net 0.3 % %
Other   1.6 %   (0.5 )%
Total other expense   (1.3 )%   (3.7 )%
Net earnings before income taxes 14.5 % 17.4 %
Income tax expense   1.2 %   4.4 %
Net earnings 13.3 % 12.9 %
 
Less: Earnings attributable to noncontrolling interests   0.1 %   0.1 %
Net earnings attributable to Motorola Solutions, Inc.   13.3 %   12.9 %
 
* Percentages may not add up due to rounding
GAAP-2

Motorola Solutions, Inc. and Subsidiaries

Condensed Consolidated Statements of Operations

(In millions, except per share amounts)

       
Nine Months Ended
September 29, 2018   September 30, 2017
Net sales from products $ 2,993 $ 2,540
Net sales from services   2,096     1,883  
Net sales 5,089 4,423
 
Costs of products sales 1,383 1,167
Costs of services sales   1,314     1,202  
Costs of sales   2,697     2,369  
Gross margin   2,392     2,054  
 
Selling, general and administrative expenses 918 760
Research and development expenditures 472 413
Other charges 123 (11 )
Intangibles amortization   140     111  
Operating earnings   739     781  
 
Other income (expense):
Interest expense, net (163 ) (154 )
Gains on sales of investments and businesses, net 16 3
Other   45     (20 )
Total other expense   (102 )   (171 )
Net earnings before income taxes 637 610
Income tax expense   91     188  
Net earnings 546 422
 
Less: Earnings attributable to noncontrolling interests   2     2  
Net earnings attributable to Motorola Solutions, Inc. $ 544   $ 420  
 

Earnings per common share:

Basic $ 3.36 $ 2.57
Diluted $ 3.17 $ 2.48

Weighted average common shares outstanding:

Basic 162.0 163.2
Diluted   171.6     169.3  
     
Percentage of Net Sales*
Net sales from products 58.8 % 57.4 %
Net sales from services   41.2 %   42.6 %
Net sales 100.0 % 100.0 %
 
Costs of products sales 46.2 % 45.9 %
Costs of services sales   62.7 %   63.8 %
Costs of sales   53.0 %   53.6 %
Gross margin   47.0 %   46.4 %
 
Selling, general and administrative expenses 18.0 % 17.2 %
Research and development expenditures 9.3 % 9.3 %
Other charges 2.4 % (0.2 )%
Intangibles amortization   2.8 %   2.5 %
Operating earnings   14.5 %   17.7 %
 
Other income (expense):
Interest expense, net (3.2 )% (3.5 )%
Gains on sales of investments and businesses, net 0.3 % 0.1 %
Other   0.9 %   (0.5 )%
Total other expense   (2.0 )%   (3.9 )%
Net earnings before income taxes 12.5 % 13.8 %
Income tax expense   1.8 %   4.3 %
Net earnings attributable to Motorola Solutions, Inc.   10.7 %   9.5 %
 
* Percentages may not add up due to rounding
GAAP-3
Motorola Solutions, Inc. and Subsidiaries
Condensed Consolidated Balance Sheets
(In millions)
       
September 29, 2018 December 31, 2017
Assets
Cash and cash equivalents $ 839 $ 1,205
Restricted cash   12     63  
Total cash and cash equivalents 851 1,268
Accounts receivable, net 1,179 1,523
Contract assets 917
Inventories, net 367 327
Other current assets   350     832  
Total current assets   3,664     3,950  
 
Property, plant and equipment, net 892 856
Investments 176 247
Deferred income taxes 949 1,023
Goodwill 1,541 938
Intangible Assets 1,297 861
Other assets   444     333  
Total assets $ 8,963   $ 8,208  
 
Liabilities and Stockholders' Equity
Current portion of long-term debt $ 337 $ 52
Accounts payable 456 593
Contract liabilities 1,127
Accrued liabilities   1,168     2,286  
Total current liabilities   3,088     2,931  
 
Long-term debt 5,095 4,419
Other liabilities 2,175 2,585
 
Total Motorola Solutions, Inc. stockholders’ equity (deficit) (1,411 ) (1,742 )
 
Noncontrolling interests   16     15  
 
Total liabilities and stockholders’ equity $ 8,963   $ 8,208  
GAAP-4
Motorola Solutions, Inc. and Subsidiaries
Condensed Consolidated Statements of Cash Flows
(In millions)
       
Three Months Ended
September 29, 2018   September 30, 2017
Operating
Net earnings attributable to Motorola Solutions, Inc. $ 247 $ 212
Earnings attributable to noncontrolling interests   1     1  
Net earnings 248 213
Adjustments to reconcile Net earnings to Net cash provided by operating activities:
Depreciation and amortization 89 88
Non-cash other charges 44 8
Non-U.S. pension settlement loss 21
Share-based compensation expense 19 16
Gains on sales of investments and businesses, net (6 )
Changes in assets and liabilities, net of effects of acquisitions, dispositions, and foreign currency translation adjustments:
Accounts receivable, contract assets and contract liabilities (20 ) (152 )
Inventories 24 29
Other current assets (180 ) (129 )
Accounts payable and accrued liabilities 170 152
Other assets and liabilities (38 ) (12 )
Deferred income taxes   (12 )   36  
Net cash provided by operating activities   338     270  
Investing
Acquisitions and investments, net (5 ) (243 )
Proceeds from sales of investments and businesses, net 11 102
Capital expenditures   (46 )   (85 )
Net cash used for investing activities   (40 )   (226 )
Financing
Repayment of debt (215 ) (9 )
Issuance of common stock 80 33
Purchases of common stock (100 )
Payments of dividends (84 ) (76 )
Settlement of conversion premium on convertible debt   (169 )    
Net cash used for financing activities   (388 )   (152 )
   
Effect of exchange rate changes on cash and cash equivalents       20  
Net decrease in cash and cash equivalents (90 ) (88 )
Cash and cash equivalents, beginning of period   941     805  
Cash and cash equivalents, end of period $ 851   $ 717  
 
Financial Ratios:
Free cash flow* $ 292 $ 185
 
*Free cash flow = Net cash provided by operating activities - Capital Expenditures
GAAP-5
Motorola Solutions, Inc. and Subsidiaries
Condensed Consolidated Statements of Cash Flows
(In millions)
       
Nine Months Ended
September 29, 2018   September 30, 2017
Operating
Net earnings attributable to Motorola Solutions, Inc. $ 544 $ 420
Earnings attributable to noncontrolling interests   2     2  
Net earnings 546 422
Adjustments to reconcile Net earnings to Net cash provided by operating activities:
Depreciation and amortization 267 254
Non-cash other charges 50 29
Non-U.S. pension settlement loss 46
Share-based compensation expense 53 49
Gains on sales of investments and businesses, net (16 ) (3 )
Changes in assets and liabilities, net of effects of acquisitions, dispositions, and foreign currency translation adjustments:
Accounts receivable, contract assets and contract liabilities 186 81
Inventories 61 (83 )
Other current assets (137 ) (142 )
Accounts payable and accrued liabilities (170 ) (178 )
Other assets and liabilities (596 ) 11
Deferred income taxes   19     99  
Net cash provided by operating activities   263     585  
Investing
Acquisitions and investments, net (1,158 ) (383 )
Proceeds from sales of investments and businesses, net 90 174
Capital expenditures   (128 )   (206 )
Net cash used for investing activities   (1,196 )   (415 )
Financing
Repayment of debt (412 ) (15 )
Net proceeds from issuance of debt 1,295
Proceeds from financing through capital leases 7
Issuance of common stock 139 61
Purchases of common stock (66 ) (358 )
Payments of dividends (252 ) (230 )
Payments of dividend to non-controlling interest (1 ) (2 )
Settlement of conversion premium on convertible debt   (169 )    
Net cash provided by (used for) financing activities   534     (537 )
   
Effect of exchange rate changes on cash and cash equivalents   (18 )   54  
Net decrease in cash and cash equivalents (417 ) (313 )
Cash and cash equivalents, beginning of period   1,268     1,030  
Cash and cash equivalents, end of period $ 851   $ 717  
 
Financial Ratios:
Free cash flow* $ 135 $ 379
 
*Free cash flow = Net cash provided by operating activities - Capital Expenditures
GAAP-6
Motorola Solutions, Inc. and Subsidiaries
Segment Information
(In millions)
 
Net Sales
     
Three Months Ended
       
September 29, 2018 September 30, 2017 % Change
Products and systems integration $ 1,288 $ 1,174 10 %
Services and software   574     471   22 %
Total Motorola Solutions $ 1,862   $ 1,645   13 %
     
Nine Months Ended
     
September 29, 2018 September 30, 2017 % Change
Products and systems integration $ 3,429 $ 3,076 11 %
Services and software   1,660     1,347   23 %
Total Motorola Solutions $ 5,089   $ 4,423   15 %
 
 
Operating Earnings
     
Three Months Ended
     
September 29, 2018 September 30, 2017 % Change
Products and systems integration $ 183 $ 266 (31 )%
Services and software   111     81   37 %
Total Motorola Solutions $ 294   $ 347   (15 )%
     
Nine Months Ended
     
September 29, 2018 September 30, 2017 % Change
Products and systems integration $ 449 $ 553 (19 )%
Services and software   290     228   27 %
Total Motorola Solutions $ 739   $ 781   (5 )%
 
 
Operating Earnings %
     
Three Months Ended
   
September 29, 2018   September 30, 2017
Products and systems integration 14.2 % 22.7 %
Services and software 19.3 % 17.2 %
Total Motorola Solutions   15.8 %   21.1 %
     
Nine Months Ended
   
September 29, 2018 September 30, 2017
Products and systems integration 13.1 % 18.0 %
Services and software 17.5 % 16.9 %
Total Motorola Solutions   14.5 %   17.7 %

Non-GAAP-1

Motorola Solutions, Inc. and Subsidiaries
Non-GAAP Adjustments (Intangibles Amortization Expense, Share-Based Compensation Expense and Highlighted Items)
 
Q1 2018
         
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 $ 4 $ 13 $ 0.08
Reorganization of business charges Cost of sales and Other charges 13 3 10 0.06
Intangibles amortization expense Intangibles amortization 41 8 33 0.19
Loss on legal settlements Other charges 1 1 0.01
Loss on derivative instruments related to Avigilon purchase Other expense 14 4 10 0.06
Release of FIN 48 reserve Income tax expense 1 (1 ) (0.01 )
Sale of investments (Gain) or Loss on Sales of Investments and Businesses, net (11 ) (3 ) (8 ) (0.05 )
Acquisition-related transaction fees Other charges 17 5 12 0.07
       
Total impact on Net earnings $ 92 $ 22 $ 70 $ 0.41
 
Q2 2018
 
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 $ 4 $ 13 $ 0.08
Reorganization of business charges Cost of sales and Other charges 25 6 19 0.10
Intangibles amortization expense Intangibles amortization 53 12 41 0.23
Avigilon purchase accounting adjustment Cost of sales 10 3 7 0.04
Sale of investments (Gain) or Loss on Sales of Investments and Businesses, net 1 1 0.01
Loss on foreign currency related to Avigilon purchase Other expense 1 1 0.01
FIN 48 reserve Income tax expense (1 ) 1 0.01
State audit settlement Income tax expense 12 (12 ) (0.07 )
       
Total impact on Net earnings $ 107 $ 36 $ 71 $ 0.41
 
Q3 2018
 
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 $ 19 $ 5 $ 14 $ 0.08
Reorganization of business charges Cost of sales and Other charges 25 6 19 0.11
Intangibles amortization expense Intangibles amortization 46 10 36 0.21
Avigilon purchase accounting adjustment Cost of sales 9 2 7 0.04
Gain from the extinguishment of convertible debt Other income (6 ) (6 ) (0.03 )
Fair value adjustments to equity investments Other income (7 ) (2 ) (5 ) (0.03 )
Loss on legal settlement Other charges 2 1 1 0.01
Environmental reserve expense Other charges 57 14 43 0.25
Sale of investments (Gain) or Loss on Sales of Investments and Businesses, net (6 ) (1 ) (5 ) (0.03 )
Return-to-provision adjustments as related to federal tax reform Income tax expense 16 (16 ) (0.10 )
       
Total impact on Net earnings $ 139 $ 51 $ 88 $ 0.51
Non-GAAP-2
Motorola Solutions, Inc. and Subsidiaries
Non-GAAP Segment Information
(In millions)
 
Net Sales
         
Three Months Ended
       
September 29, 2018 September 30, 2017 % Change

Products and systems integration

$ 1,288 $ 1,174 10 %
Services and software   574     471   22 %
Total Motorola Solutions $ 1,862   $ 1,645   13 %
     
Nine Months Ended
     
September 29, 2018 September 30, 2017 % Change
Products and systems integration $ 3,429 $ 3,076 11 %
Services and software   1,660     1,347   23 %
Total Motorola Solutions $ 5,089   $ 4,423   15 %
 
 
Non-GAAP Operating Earnings
     
Three Months Ended
     
September 29, 2018 September 30, 2017 % Change
Products and systems integration $ 276 $ 285 (3 )%
Services and software   176     127   39 %
Total Motorola Solutions $ 452   $ 412   10 %
     
Nine Months Ended
     
September 29, 2018 September 30, 2017 % Change
Products and systems integration $ 627 $ 591 6 %
Services and software   463     349   33 %
Total Motorola Solutions $ 1,090   $ 940   16 %
 
 
Non-GAAP Operating Earnings %
     
Three Months Ended
   
September 29, 2018 September 30, 2017
Products and systems integration 21.4 % 24.3 %
Services and software 30.7 % 27.0 %
Total Motorola Solutions   24.3 %   25.0 %
     
Nine Months Ended
   
September 29, 2018 September 30, 2017
Products and systems integration 18.3 % 19.2 %
Services and software 27.9 % 25.9 %
Total Motorola Solutions   21.4 %   21.3 %
Non-GAAP-3
Motorola Solutions, Inc. and Subsidiaries
Operating Earnings after Non-GAAP Adjustments
 
Q1 2018
           
    TOTAL

Products and

Systems Integration

 

Services and

Software

Net sales $ 1,468 $ 952 $ 516
Operating earnings ("OE")   $ 171   $ 90   $ 81  
 
Above-OE non-GAAP adjustments:
Share-based compensation expense 17 12 5
Reorganization of business charges 13 9 4
Intangibles amortization expense 41 1 40
Acquisition-related transaction fees 17 12 5
Loss on legal settlements   1     1      
Total above-OE non-GAAP adjustments 89 35 54
         
Operating earnings after non-GAAP adjustments   $ 260   $ 125   $ 135  
     
Operating earnings as a percentage of net sales - GAAP 11.6 % 9.5 % 15.7 %
Operating earnings as a percentage of net sales - after non-GAAP adjustments   17.7 %   13.1 %   26.2 %
 
Q2 2018
     
    TOTAL

Products and

Systems Integration

 

Services and

Software

Net sales $ 1,760 $ 1,189 $ 571
Operating earnings ("OE")   $ 273   $ 175   $ 98  
 
Above-OE non-GAAP adjustments:
Share-based compensation expense 17 12 5
Reorganization of business charges 25 19 6
Intangibles amortization expense 53 10 43
Avigilon purchase accounting adjustment   10     10      
Total above-OE non-GAAP adjustments 105 51 54
         
Operating earnings after non-GAAP adjustments   $ 378   $ 226   $ 152  
     
Operating earnings as a percentage of net sales - GAAP 15.5 % 14.7 % 17.2 %
Operating earnings as a percentage of net sales - after non-GAAP adjustments   21.5 %   19.0 %   26.6 %
 
Q3 2018
     
    TOTAL

Products and

Systems Integration

 

Services and

Software

Net sales $ 1,862 $ 1,288 $ 574
Operating earnings ("OE")   $ 294   $ 183   $ 111  
 
Above-OE non-GAAP adjustments:
Share-based compensation expense 19 13 6
Reorganization of business charges 25 19 6
Intangibles amortization expense 46 11 35
Avigilon purchase accounting adjustment 9 9
Loss on legal settlement 2 1 1
Environmental reserve expense   57     40     17  
Total above-OE non-GAAP adjustments 158 93 65
         
Operating earnings after non-GAAP adjustments   $ 452   $ 276   $ 176  
     
Operating earnings as a percentage of net sales - GAAP 15.8 % 14.2 % 19.3 %
Operating earnings as a percentage of net sales - after non-GAAP adjustments   24.3 %   21.4 %   30.7 %
Non-GAAP-4
Motorola Solutions, Inc. and Subsidiaries
Non-GAAP Organic Revenue
Total Motorola Solutions
         
Three Months Ended
       
    September 29, 2018 September 30, 2017 % Change
Net sales   $ 1,862   $ 1,645   13 %
 
Non-GAAP adjustments:
Acquisitions (149 ) (4 )
ASC 606 impact   (19 )    
Organic revenue   1,694     1,641   3 %
Less foreign exchange impact     9      
Organic revenue in constant currency   $ 1,703   $ 1,641   4 %
     
Nine Months Ended
     
    September 29, 2018 September 30, 2017 % Change
Net sales   $ 5,089   $ 4,423   15 %
 
Non-GAAP adjustments:
Acquisitions (356 ) (9 )
ASC 606 impact   (58 )    
Organic revenue   4,675     4,414   6 %
Less foreign exchange impact     (56 )    
Organic revenue in constant currency   $ 4,619   $ 4,414   5 %

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