August 5, 2015
Motorola Solutions Reports Second-Quarter 2015 Financial Results
- Sales of $1.4 billion, down 2 percent, including $53 million of unfavorable foreign currency impact
- North America sales grew 5 percent, driven primarily by Product segment sales
- GAAP earnings per share (EPS) from continuing operations1 of $0.72
- Non-GAAP* EPS from continuing operations of $0.68 driven by lower overall operating expenses
- Generated $140 million in operating cash flow and $92 million in free cash flow2
- Silver Lake to invest $1 billion in company to further accelerate growth of smart public safety solutions and services businesses
- Company intends to commence tender offer to repurchase up to $2 billion of common stock
SCHAUMBURG, Ill. - August 5, 2015 - Motorola Solutions, Inc. (NYSE: MSI) today reported its earnings results for the second quarter of 2015. Click here for a printable news release and financial tables.
“The company delivered double-digit earnings and free cash flow per share growth in the second quarter, driven by strong North America results and improved operating leverage,” said Greg Brown, chairman and CEO of Motorola Solutions.
“We believe the partnership with Silver Lake will accelerate growth in our smart public safety solutions and services businesses and represents a strong vote of confidence in our company’s strategy. We also announced our intent to repurchase up to $2 billion of our stock through a tender offer. These steps reflect our confidence in the future value of our business while allowing us to maintain considerable financial flexibility to pursue further growth.”
KEY FINANCIAL RESULTS (presented in millions, except per share data and percentages)
|Q2 2015||Q2 2014||% Change|
|% of Sales||18.6%||9.9%|
|EPS from continuing operations||$0.72||$0.30||140%|
|% of Sales||19.0%||14.4%|
|EPS from continuing operations||$0.68||$0.47||45%|
|GAAP Operating Earnings||$171||$95||80%|
|% of Sales||19.7%||10.7%|
|Non-GAAP Operating Earnings||$176||$133||32%|
|% of Sales||20.3%||15.0%|
|GAAP Operating Earnings||$83||$43||93%|
|% of Sales||16.6%||8.5%|
|Non-GAAP Operating Earnings||$84||$68||24%|
|% of Sales||16.8%||13.4%|
* Non-GAAP financial information excludes the after-tax impact of approximately $0.04 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 declined 2 percent, including $53 million of unfavorable foreign currency impact. Sales increased 2 percent in constant currency. These results reflect 5 percent growth in North America driven by increased product sales. Overall product sales declined 2 percent due to currency headwinds and weakness in Europe and Africa and Latin America, while Services declined 1 percent primarily due to unfavorable currency impact and lower iDEN revenue.
- Operating margin - GAAP operating margin was 18.6 percent of sales in the second quarter of 2015, compared with 9.9 percent in the second quarter of 2014; non-GAAP operating margin was 19.0 percent of sales, compared with 14.4 percent in the second quarter of 2014. These results were driven by $69 million in lower operating expenses compared with the second quarter of 2014, due largely to cost reduction and simplification initiatives across all categories as well as lower pension expense and a stronger dollar.
- Taxes - The second quarter of 2015 GAAP effective tax rate was 30 percent. This compares with a tax rate of 20 percent in the second quarter of 2014, which included $30 million of net tax benefit associated with the net reduction in previously unrecognized tax benefits. The second quarter of 2015 non-GAAP tax rate was 35 percent, compared with a tax rate of 25 percent in the second 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 $140 million in operating cash from continuing operations during the quarter, reflecting an increase of $22 million over the prior year. Free cash flow was $92 million in the quarter. The increase was largely driven by improved earnings and lower pension contributions.
- Cash and cash equivalents - The company ended the quarter with cash and cash equivalents of $3.1 billion and a net debt position of approximately $300 million4. The company repurchased $285 million of common stock in the second quarter of 2015 and paid $72 million in cash dividends.
- Backlog - The company grew sequential backlog for the third straight quarter, ending at $6 billion. These results were primarily due to growth in North America, Asia Pacific and the Middle East regions.
STRATEGIC PARTNERSHIP WITH SILVER LAKE
Silver Lake, the global leader in technology investing, intends to invest $1 billion in Motorola Solutions to accelerate the company’s growth of smart public safety solutions and services businesses through strategic partnerships, investments, and acquisitions. As part of the partnership with Silver Lake, Egon Durban and Greg Mondre, managing partners of Silver Lake, will be appointed to Motorola Solutions’ board of directors when the transaction closes, which is expected to occur in the third quarter of 2015.
COMPANY ANNOUNCES INTENTION TO COMMENCE TENDER OFFER
Motorola Solutions also announced today that its board of directors approved proceeding with a tender offer to repurchase up to $2 billion of common stock (subject to a customary increase if the tender offer is oversubscribed). The company intends to commence a modified "Dutch Auction" tender offer at a specified price range to be determined. The company expects to commence the tender offer on or about August 7.
The company will fund the tender offer with a combination of existing cash on the company’s balance sheet and a portion of the proceeds from the $1 billion strategic investment by Silver Lake.
After these actions, the company will maintain robust liquidity and a strong balance sheet and investment grade credit ratings.
Significant wins in core business
- $112 million P25 system upgrade for King County in Washington covering 39 cities and 25,000 radio users. By leveraging the customer’s existing technology, the system upgrade will remain cost-effective and will keep the system fully operational and at the current release until the year 2039.
- $45 million of orders with two law enforcement agencies for the APX 8000, the company’s newest P25 radio that integrates LMR and broadband via WiFi enabling customers to continually and efficiently upgrade their devices over-the-air with new software features
- $29 million contract with Bell Mobility for a province-wide P25 system, subscribers, and 10 years of hardware and software support for the government of New Brunswick in Canada
Significant wins in key growth areas
- $153 million of multi-year managed and lifecycle services contracts for 10 customers in North America, Asia and Europe
- $66 million in key vertical expansion areas of petro-chemical and utility industries, with four separate customers worldwide
- $12.5 million purchase from the U.S. Federal Government for WAVE push-to-talk software application related to the company’s recent acquisition of Twisted Pair
Innovation and investments in growth
- Opened multi-tenant network operations center in North America to support managed services growth
- Strengthened Smart Public Safety analytics offerings by partnering with Wynyard Group on big data analysis to help customers solve crimes faster and more efficiently
- Announced new line of intrinsically safe TETRA radios specifically built for safety in hazardous working conditions in target verticals of Oil & Gas, Fire & Rescue, Mining and Airports
- Third quarter 2015 - Motorola Solutions expects a revenue decline of 1 to 3 percent compared with the third quarter of 2014. This assumes a $50 million unfavorable currency impact5, which translates to revenue of flat to 2 percent in constant currency. The company expects non-GAAP earnings per share from continuing operations in the range of $0.68 to $0.73 per share.
- Full-year 2015 - The company revenue outlook remains unchanged as revenue is expected to be flat to down 2 percent compared to 2014. This outlook translates to revenue growth of 1 to 3 percent in constant currency. The company still expects non-GAAP earnings per share from continuing operations in the range of $3.20 to $3.40 per share.
CONFERENCE CALL AND WEBCAST
Motorola Solutions will host its quarterly conference call beginning at 7:30 a.m. U.S. Central Daylight Time (8:30 a.m. U.S. Eastern Daylight Time) Wednesday, August 5. The conference call will be webcast live with audio and slides at http://investors.motorolasolutions.com/.
CONSOLIDATED GAAP RESULTS (presented in millions, except per share data)
A comparison of results from operations is as follows:
|Q2 2015||Q2 2014|
|Amounts attributable to Motorola Solutions, Inc. common stockholders
Earnings from continuing operations
|Diluted EPS from continuing operations||$0.72||$0.30|
|Weighted average diluted common shares outstanding||209.5||256.2|
HIGHLIGHTED ITEMS AND SHARE-BASED COMPENSATION EXPENSE
The table below includes highlighted items, share-based compensation expense and intangible amortization for the second quarter of 2015.
|(per diluted common share)||Q2 2015|
|GAAP Earnings from Continuing Operations||$0.72|
|Share-based compensation expense and intangible amortization||0.06|
|Reorganization of business charges||0.05|
|Non-U.S. pension curtailment gain||(0.15)|
|Total Highlighted Items||(0.04)|
|Non-GAAP Diluted EPS from Continuing Operations||$0.68|
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.
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 applicable federal securities laws 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 third quarter and full year of 2015, including the impact of currency rates, as well as statements relating to the investment by Silver Lake and the use of the proceeds and benefits thereof, the intent to commence a tender offer and our intent to maintain liquidity and investment grade ratings. 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, 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 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 outsourcing of various activities, including certain business 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; (23) the satisfaction of the conditions to closing the investment by Silver Lake; (24) the the ability of Motorola Solutions to commence and complete the intended tender offer for its shares, including the amount of such tender offer ; and (25) the ability of Motorola Solutions to maintain liquidity and an investment grade rating. 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.
ADDITIONAL INFORMATION REGARDING THE TENDER OFFER
This communication is for informational purposes only, is not a recommendation to buy or sell Motorola Solutions common stock, and does not constitute an offer to buy or the solicitation to sell shares of Motorola Solutions common stock. The tender offer described in this communication has not yet commenced, and there can be no assurances that Motorola Solutions will commence the tender offer on the terms described in this communication or at all. The tender offer will be made only pursuant to the Offer to Purchase, Letter of Transmittal and related materials that Motorola Solutions expects to file with the Securities and Exchange Commission upon commencement of the tender offer. STOCKHOLDERS ARE URGED TO CAREFULLY READ THE OFFER TO PURCHASE, LETTER OF TRANSMITTAL AND RELATED MATERIALS WHEN THEY BECOME AVAILABLE BECAUSE THEY CONTAIN IMPORTANT INFORMATION, INCLUDING THE VARIOUS TERMS OF, AND CONDITIONS TO, THE TENDER OFFER, THAT STOCKHOLDERS SHOULD CONSIDER BEFORE MAKING ANY DECISION REGARDING TENDERING THEIR SHARES. Once the tender offer is commenced, stockholders will be able to obtain a free copy of the tender offer statement on Schedule TO, the Offer to Purchase, Letter of Transmittal and other documents that Motorola Solutions will be filing with the Securities and Exchange Commission at the Commission’s website at www.sec.gov. Additional copies of these materials may be obtained for free by contacting Motorola Solutions at 1303 E. Algonquin Road, Schaumburg, Illinois, 60196, Attn: Investor Relations or Alliance Advisors, LLC, the information agent for the tender offer, at 855-737-3180.
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
4Net debt represents cash and cash equivalents less long-term debt, including current portion
5 Based on currency rates as of August 3, 2015.
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 .