Motorola Solutions Reports Fourth-Quarter and Full-Year 2014 Financial Results
- Fourth-quarter sales flat from a year ago, including $27 million of unfavorable foreign currency impact
- North America sales grew 4 percent from a year ago, driven by record Product sales
- Completed $4.2 billion U.S. pension de-risking transaction, including a $1.9 billion non-recurring charge, resulting in fourth-quarter GAAP loss per share from continuing operations* of $4.02
- Non-GAAP** earnings per share (EPS) from continuing operations of $1.25 driven by North America sales growth and lower overall operating expenses
- Returned $1.5 billion to shareholders in share repurchases and dividends in the quarter; $2.9 billion for the full year
SCHAUMBURG, Ill. – Feb. 4, 2015 – Motorola Solutions, Inc. (NYSE: MSI) today reported its earnings results for the fourth quarter and full year of 2014. Click here for a printable news release and financial tables.
“Our fourth-quarter results demonstrate a solid finish to a transformational year,” said Greg Brown, chairman and CEO of Motorola Solutions. “The business continues to show signs of improvement, driven by growth in North America and significantly higher backlog. Our ongoing progress to simplify our organization and rationalize our cost structure will further position us for long-term success.”
KEY FINANCIAL RESULTS
|Fourth Quarter||Full Year|
|Motorola Solutions, Inc.|
|Operating earnings (loss) ($M)||-$1,459||$325||-549%||-$1,006||$947||-206%|
Percent of sales
|EPS from continuing operations||-$4.02||$1.12||-459%||-$2.84||$3.45||-182%|
|Operating earnings ($M)||$483||$396||22%||$1,069||$1,156||-8%|
Percent of sales
|EPS from continuing operations||$1.25||$1.37||-9%||$2.58||$3.86||-33%|
|GAAP operating earnings (loss) ($M)||-$944||$237||-498%||-$667||$639||-204%|
Percent of sales
|Non-GAAP operating earnings ($M)||$394||$283||39%||$754||$775||-3%|
Percent of sales
|GAAP operating earnings (loss) ($M)||-$515||$88||-685%||-$339||$308||-210%|
Percent of sales
|Non-GAAP operating earnings ($M)||$89||$113||-21%||$315||$381||-17%|
Percent of sales
Non-GAAP financial information excludes after-tax charges of approximately $5.27 per diluted share related to share-based compensation 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 FOURTH-QUARTER FINANCIAL RESULTS
- Revenue – Fourth-quarter sales were flat, including $27 million of unfavorable foreign currency impact, primarily reflecting growth in North America. Fourth-quarter Product sales grew 3 percent driven primarily by an improvement in devices, while Services declined 5 percent driven by lower iDEN and system integration sales.
- Operating margin – Fourth-quarter GAAP operating margin was -80 percent of sales. GAAP operating earnings were impacted by a $1.9 billion non-recurring charge related to the U.S. pension de-risking activity. Non-GAAP operating margin was 26.5 percent of sales reflecting $86 million in lower operating expenses compared with the fourth quarter of 2013, primarily due to staff reductions across all functions and lower pension and variable compensation expense.
- Taxes – The fourth-quarter 2014 GAAP effective tax rate from continuing operations resulted in a benefit of 38 percent, driven by the loss from continuing operations, as well as other benefits recorded throughout the year. The fourth quarter 2014 non-GAAP tax rate from continuing operations was 35 percent. This compares with a negative GAAP effective tax rate of 7 percent and a non-GAAP tax rate of 5 percent in the fourth quarter of 2013. The GAAP and non-GAAP tax rates in the fourth quarter of 2013 include the favorable impact of $113 million or $0.42 per share of net tax benefits associated with the recognition of certain foreign tax credits as a result of the implementation of a holding company structure for certain non-U.S. subsidiaries.
- Cash flow – The company used $700 million in operating cash from continuing operations during the quarter largely driven by incremental pension contributions of $846 million.
- Cash and cash equivalents – The company completed the sale of its Enterprise business to Zebra Technologies for $3.45 billion and ended the year with total cash of $4 billion. The company returned $1.5 billion to shareholders through share repurchases and cash dividends during the quarter and $2.9 billion for the full year.
OTHER SELECTED FULL-YEAR FINANCIAL RESULTS
- Revenue – Full-year sales declined 6 percent to $5.9 billion. The decrease in sales reflects a $302 million, or 7 percent, decrease in the Products segment driven by first-half declines in North America and lower Asia Pacific results.
- Operating margin – For the full year, GAAP operating margin was -17.1 percent of sales, driven by a $1.9 billion non-recurring charge related to the U.S. pension de-risking activities. Non-GAAP operating margin was 18.2 percent of sales, driven by $208 million in operating expense reductions for the full year. Pension expense and variable compensation were lower compared to the previous year.
- Taxes – The 2014 non-GAAP effective tax rate from continuing operations was 32 percent, compared with a non-GAAP effective tax rate from continuing operations of 2 percent in the fourth quarter of 2013. The 2013 GAAP and non-GAAP full-year tax rates include the favorable impact of $337 million or $1.25 per share of net tax benefits associated with the recognition of certain foreign tax credits as a result of the implementation of a holding company structure for certain non-U.S. subsidiaries.
- Cash flow – The company used $685 million in operating cash from continuing operations during the year largely driven by pension contributions of $1.3 billion.
- Secured significant projects that demonstrate strength in core products and services, including a $148 million statewide public safety network, radios and services agreement with the state of Michigan
- Demonstrated growing demand for services offerings with a 10-year, $62 million services agreement with Prince George’s County in Maryland; a two-year, $36 million managed services contract extension with the Victorian Mobile Data Network in Australia; a 10-year, $31 million lifecycle services agreement with Las Vegas Metropolitan Police Department in Nevada; and a multi-year, $15 million managed services contract with Forestal Mininco in Chile
- Showed strength in commercial markets with a multimillion dollar TETRA digital radio system for Dow Chemical Netherlands, a $12 million ASTRO® digital radio system for a U.S. chemical company, and a $2 million WAVE® push-to-talk over broadband contract with a Mexico petroleum company
Innovation and Product Growth
- Expanded Public Safety LTE portfolio with LEX L10 mission-critical handheld device, which comes equipped with Motorola Solutions’ new Public Safety Experience that provides first responders with the right information at their fingertips
- Introduced ASTRO 25 Cloud Core Managed Service offering, which enables public safety agencies to access the latest Project 25 land mobile radio technology as well as provide a communications platform for long-term growth and new capabilities
- Expanded MOTOTRBO™ digital portable radio portfolio with slim, lightweight SL300 and SL1600 models ideal for everyday use in industries such as education, retail, hospitality, event management and private security
- First quarter 2015 – Motorola Solutions expects a revenue decline of 2 to 4 percent compared with the first quarter of 2014. This assumes a $40 million**** unfavorable currency impact, which translates to revenue growth of -1 to 1 percent in constant currency. The company’s outlook assumes growth in North America, contraction in Europe and a decline in iDEN revenues. The company expects non-GAAP earnings per share from continuing operations in the range of $0.22 to $0.27 per share.
- Full-year 2015 – The company expects revenue to be flat to down 2 percent compared to 2014. This assumes a $160 million**** unfavorable currency impact, which translates to revenue growth of 1 to 3 percent in constant currency. The company’s outlook assumes growth in North America, contraction in Europe and a decline in iDEN revenues. The company expects non-GAAP earnings per share from continuing operations in the range of $3.15 to $3.35 per share.
****Based on currency rates as of Feb. 2, 2015.
CONFERENCE CALL AND WEBCAST
Motorola Solutions will host its quarterly conference call beginning at 7 a.m. U.S. Central Standard Time (8 a.m. U.S. Eastern Standard Time) Wednesday, Feb. 4. The conference call will be webcast live with audio and slides at www.motorolasolutions.com/investor.
CONSOLIDATED GAAP RESULTS
A comparison of results from operations is as follows:
|Fourth Quarter||Full Year|
|Net sales ($M)||$1,823||$1,817||$5,881||$6,227|
|Gross margin ($M)||912||901||2,831||3,109|
|Operating earnings (loss) ($M)||-1,459||325||-1,006||947|
|Earnings (loss) from continuing operations ($M)||-926||293||-696||939|
|Net earnings ($M)||201||343||1,299||1,099|
|Diluted EPS from continuing operations||-$4.02||$1.12||-$2.84||$3.45|
|Weighted average diluted common shares outstanding||230.5||261.2||245.6||270.5|
HIGHLIGHTED ITEMS AND SHARE-BASED COMPENSATION EXPENSE
The table below includes highlighted items and share-based compensation expense for the fourth quarter of 2014.
|(per diluted common share)||2014|
|GAAP Earnings from Continuing Operations||-$4.02|
|Share-based compensation expense||0.05|
|Reorganization of business charges||0.04|
|Tax expense on legal entity reorganization||0.04|
|Reduction in net deferred tax liability for undistributed earnings||(0.06)|
|Revaluation of deferred taxes for change in effective state tax rates||0.05|
|Pension settlement loss, including related expenses||5.15|
|Total Highlighted Items||5.27|
|Non-GAAP Diluted EPS from Continuing Operations||$1.25|
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.
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’ financial outlook for the first quarter and full year of 2015, the impact of currency rates, regional growth or contraction, iDEN revenues, and the impact of simplifying our organization and rationalizing our cost structure. Motorola Solutions cautions the reader that the risk factors below, as well as those on pages 10 through 21 in Item 1A of Motorola Solutions, Inc.’s 2013 Annual Report on Form 10-K, on Page 31 in Part II, Item 1A of Motorola Solutions, Inc.’s Quarterly Report on Form 10-Q for the period ended March 29, 2014, 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 level of demand for the company’s products; (3) the company’s ability to introduce new products and technologies in a timely manner; (4) 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; (5) the impact of foreign currency fluctuations on the company; (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; and (23) the company’s ability to return proceeds of the sale of the Enterprise business to shareholders and the timing thereof. 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.
* Amounts attributable to Motorola Solutions, Inc. common shareholders.
** Non-GAAP financial information excludes from GAAP results the effects of share-based compensation expense, intangible assets amortization expense and highlighted items.
*** Business outlook excludes share-based compensation, intangible amortization and charges associated with items typically highlighted by the company in its quarterly earnings releases.