- Sales of $1.4 billion, down 1 percent from a year ago, including $54 million of unfavorable foreign currency impact
- North America sales grew 5 percent, driven by both Products and Services segment sales
- GAAP earnings per share (EPS) from continuing operations1 of $0.63
- Non-GAAP EPS from continuing operations* of $0.82, resulting in growth of 32 percent
- Generated $300 million in operating cash flow and $250 million in free cash flow2
- Returned more than $2.1 billion to shareholders through share repurchases and cash dividends, including the repurchase of approximately $2.1 billion of stock in the quarter
SCHAUMBURG, Ill. – Nov. 4, 2015 – Motorola Solutions, Inc. (NYSE: MSI) today reported its earnings results for the third quarter of 2015. Click here for a printable news release and financial tables.
“Our business showed resilience in the third quarter despite a mixed global economic environment and significant currency headwinds,” said Greg Brown, chairman and CEO of Motorola Solutions. “We delivered a strong quarter of 32 percent earnings per share growth, additional cost reductions and more than $2 billion of capital return. We believe we are well positioned for significant growth in operating earnings and free cash flow per share.”
KEY FINANCIAL RESULTS (presented in millions, except per share data and percentages)
% of Sales
EPS from continuing operations
% of Sales
EPS from continuing operations
GAAP Operating Earnings
% of Sales
Non-GAAP Operating Earnings
% of Sales
GAAP Operating Earnings
% of Sales
Non-GAAP Operating Earnings
% of Sales
*Non-GAAP 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.
OTHER SELECTED FINANCIAL RESULTS
- Revenue – Sales decreased 1 percent, including $54 million of unfavorable foreign currency impact. Sales grew 3 percent in constant currency terms. These results reflect 5 percent growth in North America, which delivered improvements in both Products and Services sales in state and local governments along with strong performance in the U.S. Federal business. Overall company product sales were flat due to currency headwinds and weakness in the Latin America region. The Services business declined 3 percent primarily due to currency headwinds, lower iDEN revenue and a decline in systems integration revenues in Norway.
- Operating margin – GAAP operating margin was 16.2 percent of sales in the third quarter of 2015, compared with 14.4 percent in the third quarter of 2014; non-GAAP operating margin was 20.5 percent of sales, compared with 18.0 percent in the third quarter of 2014, reflecting $39 million in lower operating expenses compared with the third quarter of 2014, due to the company’s cost reduction initiatives, lower pension expense and a stronger dollar.
- Taxes – The third quarter of 2015 GAAP effective tax rate was 36 percent. This compares with a tax rate of 56 percent in the third quarter of 2014, which included a $55 million tax expense related to a valuation allowance. The third quarter of 2015 non-GAAP tax rate was 35 percent, compared with a tax rate of 33 percent in the third quarter of 2014. The full-year non-GAAP tax rate is expected to be approximately 33 percent. The full-year cash tax rate3 is expected to be approximately 15 percent.
- Cash flow – The company generated $300 million in operating cash from continuing operations during the quarter, reflecting an increase of $415 million over the prior year. Free cash flow was $250 million in the quarter. The increase was largely driven by $397 million in lower pension contributions and improved earnings performance.
- Cash and cash equivalents – The company ended the quarter with cash and cash equivalents of $2.2 billion and a net debt position of approximately $2.2 billion4. The company repurchased approximately $2.1 billion of its common stock in the third quarter of 2015 and paid approximately $70 million in cash dividends.
- $50 million for a nationwide Project P25 digital land mobile radio (P25) system for the state police force in northern Africa covering approximately 50 sites and more than 5,000 subscribers
- $45 million extension to complete the build-out and final phase of a multiyear, statewide network upgrade in the eastern United States
- $24 million contract for a P25 system that provides a combined, inter-operable radio solution for the Texas cities of Mesquite, Garland, Rowlett and Sachse covering nearly 400,000 people
- Multiple U.S. Smart Public Safety Solutions wins including computer-aided dispatch, Next Gen 911, and expansion of Intelligence Led Public Safety solutions
Innovation and investments in growth
- Launched the company’s first three-in-one combination body-worn video camera, radio speaker and microphone, and new, cloud-based content management system. The end-to-end video solution, the Si500/Si300 and CommandCentral Vault, combines the company’s secure, digital evidence management software with voice communications, body-worn video, voice recording and emergency alerting delivered in one compact device.
- Growing new product revenue well ahead of expectations with the launch of the APX 8000 radio. The enhanced functionality of being a multiband device with Wi-Fi and Bluetooth enables personal area networks that access the Internet of Things and serves as a platform for future APX devices.
- Leading public safety LTE trials with multiple international police forces in every region to provide high-speed broadband capabilities and securely distribute situational-aware content to and from officers on the front lines with command centers, utilizing interoperability between LTE and land-mobile radio (LMR) networks enabled by Motorola Solutions WAVE technology, third-party mobile applications, broadband devices and video.
Fourth quarter 2015 – Motorola Solutions expects a revenue decline of 6 to 8 percent compared with the fourth quarter of 2014. This assumes a $65 million5 unfavorable currency impact, which translates to a revenue decline of 3 to 5 percent in constant currency. The company expects non-GAAP earnings per share from continuing operations in the range of $1.45 to $1.50 per share. This outlook is driven primarily by further weakness in Latin America and incremental currency pressure.
CONFERENCE CALL AND WEBCAST
Motorola Solutions will host its quarterly conference call beginning at 7:30 a.m. U.S. Central Standard Time (8:30 a.m. U.S. Eastern Standard Time) Wednesday, Nov. 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:
Amounts attributable to Motorola Solutions, Inc. common stockholders
Diluted EPS from continuing operations
Weighted average diluted common shares outstanding (see footnote 6)
HIGHLIGHTED ITEMS AND SHARE-BASED COMPENSATION EXPENSE
The table below includes highlighted items, share-based compensation expense and intangible amortization for the third quarter of 2015.
(per diluted common share)
GAAP Earnings from Continuing Operations
Share-based compensation expense
Reorganization of business charges
Intangibles amortization expense
Impairment of corporate aircraft
Total Highlighted Items
Non-GAAP Diluted EPS from Continuing Operations
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 (and any reversals of highlighted items recorded in prior periods) 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.
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: We evaluate our 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. We calculate constant currency percentages by converting our 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.
This press 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’ expected full-year non-GAAP tax rate, full-year cash tax rate and financial outlook for the fourth quarter and full year of 2015, including the impact of currency rates. Motorola Solutions cautions the reader that the risk factors below, as well as those on pages 9 through 20 in Item 1A of Motorola Solutions, Inc.’s 2014 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/investor, 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 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 our partners or suppliers or those we sell to or operate or maintain for our 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; (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 Trademark Holdings, LLc.; (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 outsourcing of various activities, including certain manufacturing operations, information technology and administrative functions; (22) the impact of the sale of the company’s enterprise 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 the 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.
1 Amounts attributable to Motorola Solutions, Inc. common shareholders
2 Free cash flow represents operating cash flow less capex
3 Cash tax rate represents taxes paid divided by pre-tax income
4 Net debt represents cash and cash equivalents less long-term debt, including current portion
5 Based on currency rates as of Nov. 2, 2015
6 $1B convertible notes issued in Q3 are expected to be settled in cash, and therefore the diluted shares are calculated on only the number of shares which would be issuable, based on the amount by which the average stock price exceeds the conversion price of $68.50