November 3, 2016
Motorola Solutions Reports Third-Quarter 2016 Financial Results
Announces dividend increase of 15 percent to 47 cents per share
- Sales of $1.5 billion, up 8 percent from a year ago, including $131 million from Airwave
- Managed and Support Services up 55 percent; up 5 percent excluding Airwave
- North America up 4 percent on strength in both Products and Services
- Operating cash flow of $348 million, up 16 percent
- GAAP earnings per share (EPS) from continuing operations1 of $1.13, up 79 percent
- Non-GAAP EPS from continuing operations* of $1.37, up 67 percent
CHICAGO – Nov. 3, 2016 – Motorola Solutions, Inc. (NYSE: MSI) today reported its earnings results for the third quarter of 2016. Click here for a printable news release and financial tables.
The company also today announced that its board of directors has increased its regular quarterly dividend by 15 percent to 47 cents per share. The next quarterly dividend will be payable in cash on Jan. 13, 2017, to stockholders of record at the close of business on Dec. 15, 2016.
“Q3 was an excellent quarter,” said Greg Brown, chairman and CEO of Motorola Solutions. “I’m pleased with our revenue growth and continued strong performance in earnings and cash flow generation.”
KEY FINANCIAL RESULTS (presented in millions, except per share data and percentages)
| Q3 2016 | Q3 2015 | % Change | |||||
| Sales | $1,532 | $1,422 | 8% | ||||
| GAAP | |||||||
| Operating Earnings | $341 | $231 | 48% | ||||
| % of Sales | 22.3% | 16.2% | |||||
| EPS from continuing operations | $1.13 | $0.63 | 79% | ||||
| Non-GAAP | |||||||
| Operating Earnings | $396 | $292 | 36% | ||||
| % of Sales | 25.8% | 20.5% | |||||
| EPS from continuing operations | $1.37 | $0.82 | 67% | ||||
| Products Segment | |||||||
| Sales | $920 | $925 | (1)% | ||||
| GAAP Operating Earnings | $225 | $178 | 26% | ||||
| % of Sales | 24.5% | 19.2% | |||||
| Non-GAAP Operating Earnings | $243 | $221 | 10% | ||||
| % of Sales | 26.4% | 23.9% | |||||
| Services Segment | |||||||
| Sales | $612 | $497 | 23% | ||||
| GAAP Operating Earnings | $116 | $53 | 119% | ||||
| % of Sales | 19.0% | 10.7% | |||||
| Non-GAAP Operating Earnings | $153 | $71 | 115% | ||||
| % of Sales | 25.0% | 14.3% | |||||
*Non-GAAP financial information excludes the after-tax impact of approximately $0.24 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
OTHER SELECTED FINANCIAL RESULTS
- Revenue – Sales increased 8 percent, including $131 million in Airwave sales. Products segment sales declined 1 percent due to softness in Africa and China. The Services segment grew 23 percent including Airwave, while Managed and Support Services grew 5 percent excluding Airwave.
- Operating margin – GAAP operating margin was 22.3 percent of sales, compared with 16.2 percent in the year-ago quarter. The improvement reflects higher sales and gross margin associated with Airwave, as well as lower operating expenses. Non-GAAP operating margin was 25.8 percent of sales, compared with 20.5 percent in the year-ago quarter, driven by higher sales and gross margin as well as $27 million in lower operating expenses compared with the year-ago quarter.
- Taxes – The GAAP effective tax rate was 34 percent, compared with a tax rate of 36 percent in the year-ago quarter. The non-GAAP tax rate was 33 percent, compared with a non-GAAP tax rate of 35 percent in the year-ago quarter.
- Cash flow – The company generated $348 million in operating cash from continuing operations, reflecting an increase of $47 million from the year-ago quarter. Free cash flow2 was up $29 million to $280 million, driven by higher earnings.
- Cash and cash equivalents – The company ended the quarter with cash and cash equivalents of $1.7 billion and a net debt position of approximately $3.4 billion3. The company repurchased approximately $109 million of its common stock and paid approximately $70 million in cash dividends.
Strategic wins
- $37 million to expand a nationwide TETRA network in North Africa
- $34 million in two P25 contracts with the U.S. federal government
- $28 million for a P25 network in Latin America
- $20 million for a P25 network with U.S. utility provider Xcel Energy
- $12 million for call-taking and computer-aided dispatch (CAD) solutions, including five-year service contract with Los Angeles Police Department
- Announced plans to acquire Spillman Technologies, a provider of comprehensive law enforcement and public safety software solutions for computer-aided dispatch and records management systems. Spillman complements our high tier command center software offerings, which will help us meet the needs of a broader customer base
- Announced new APXTM 8500 P25 all-band mobile radio, updated P25 network features and IMPRESTM 2 energy management system
Motorola Solutions expects fourth quarter revenue growth of 9 to 10 percent compared with the fourth quarter of 2015. This includes approximately $120 million of Airwave revenue. The company expects fourth-quarter non-GAAP earnings per share from continuing operations in the range of $1.82 to $1.87 per share.
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, Nov 3. 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:
| Q3 2016 | Q3 2015 | |
| Net sales | $1,532 | $1,422 |
| Gross margin | 762 | 685 |
| Operating earnings | 341 | 231 |
| Amounts attributable to Motorola Solutions, Inc. common stockholders Earnings from continuing operations, net of tax |
192 |
126 |
| Net earnings | 192 | 115 |
| Diluted EPS from continuing operations | $1.13 | $0.63 |
| Weighted average diluted common shares outstanding | 169.6 | 201.3 |
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 2016.
| (per diluted common share) | Q3 2016 |
| GAAP Earnings from Continuing Operations | $1.13 |
| Highlighted Items: | |
| Share-based compensation expense | 0.07 |
| Reorganization of business charges | 0.03 |
| Intangibles amortization expense | 0.14 |
| Total Highlighted Items | 0.24 |
| Non-GAAP Diluted EPS from Continuing Operations | $1.37 |
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.
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.
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.
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 fourth quarter 2016 and incremental revenues of Airwave. Motorola Solutions cautions the reader that the risk factors below, as well as those on pages 9 through 22 in Item 1A of Motorola Solutions 2015 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 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 outsourcing of 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.
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 fourth quarter 2016 and incremental revenues of Airwave. Motorola Solutions cautions the reader that the risk factors below, as well as those on pages 9 through 22 in Item 1A of Motorola Solutions 2015 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 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 outsourcing of 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 Amounts attributable to Motorola Solutions, Inc. common shareholders
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 .
1 Amounts attributable to Motorola Solutions, Inc. common shareholders
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 .