Motorola Solutions Reports Third-Quarter 2014 Financial Results

Announces $5 billion increase to share repurchase program

  • Sales of $1.4 billion, down 5 percent from a year ago
  • GAAP earnings per share (EPS) from continuing operations* of $0.27
  • Non-GAAP** EPS from continuing operations of $0.62
  • Returned $728 million to shareholders through share repurchases and cash dividends, including the repurchase of $650 million of stock in the third quarter


SCHAUMBURG, Ill. – Nov. 4, 2014 –
Motorola Solutions, Inc. (NYSE: MSI) today reported its earnings results for the third quarter of 2014. Click here for a printable news release and financial tables.

SHARE REPURCHASE AUTHORIZATION

Today, the company also announced that its board of directors has approved a $5 billion increase to the share repurchase program following receipt of $3.45 billion from the sale of its Enterprise business, raising the total authorization since July 2011 to $12 billion. Under the company’s previously authorized $7 billion share repurchase program, $600 million remained as of the end of the third quarter of 2014. The company may continue to repurchase shares from time to time in the open market or in other privately negotiated transactions, subject to market conditions.

SUPPORTING QUOTE

“We are encouraged by third-quarter revenues and earnings as the business continues to show signs of improvement,” said Greg Brown, chairman and CEO, Motorola Solutions. “Additionally, our actions to simplify our operations and remove costs continue to yield sustainable operating expense reductions, which will further position us for long-term success.”

KEY FINANCIAL RESULTS

Third Quarter

Change

2014

2013

Motorola Solutions, Inc.
Sales ($M)

$1,436

$1,517

-5%

GAAP
Operating earnings ($M)

$207

$246

-16%

Percent of sales

14.4%

16.2%

EPS from continuing operations

$0.27

$0.98

-72%

Non-GAAP
Operating earnings ($M)

$259

$296

-13%

Percent of sales

18.0%

19.5%

EPS from continuing operations

$0.62

$1.08

-43%

Segments
Products
Sales ($M)

$921

$998

-8%

GAAP operating earnings ($M)

$141

$171

-18%

Percent of sales

15.3%

17.1%

Non-GAAP operating earnings ($M)

$175

$204

-14%

Percent of sales

19.0%

20.4%

Services
Sales ($M)

$515

$519

-1%

GAAP operating earnings ($M)

$66

$75

-12%

Percent of sales

12.8%

14.5%

Non-GAAP operating earnings ($M)

$84

$92

-9%

Percent of sales

16.3%

17.7%

Non-GAAP financial information excludes after-tax charges of approximately $0.35 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 FINANCIAL RESULTS

  • Revenue – Sales declined 5 percent to $1.4 billion primarily reflecting lower sales in North America and Asia-Pacific. Product sales declined 8 percent driven primarily by lower devices revenues, while Services declined 1 percent.
  • Operating margin – GAAP operating margin was 14.4 percent of sales; non-GAAP operating margin was 18.0 percent. These results include $43 million in lower operating expenses compared with the third quarter of 2013 primarily due to ongoing cost-reduction initiatives.
  • Taxes – The 2014 GAAP effective tax rate was 56 percent driven by a one-time $55 million adjustment. This compares with a favorable tax rate of -4 percent in the third quarter of 2013. The 2014 non-GAAP tax rate was 33 percent, compared with a favorable tax rate of -3 percent in the third quarter of 2013. The GAAP and non-GAAP tax rates in the third quarter of 2013 were favorably impacted by benefits largely associated with excess foreign tax credits on undistributed foreign earnings in that quarter.
  • Cash flow – The company used $115 million in operating cash from continuing operations during the quarter largely driven by a $397 million contribution related to the U.S. pension plan transactions announced on Sept. 25, 2014.

KEY HIGHLIGHTS

  • Reduced funding volatility associated with U.S. pension plan while preserving benefits for retirees through actions that cut pension liability by one-half, or $4.2 billion; the company expects no U.S. pension plan cash contribution requirements for the next five to six years
  • Secured significant projects including a $33 million statewide public safety system expansion with the state of Maryland, and two command and control solutions that include multi-year lifecycle services: $16 million with Loudoun County, Virginia, and $8 million Spartanburg County, South Carolina
  • Extended leadership in two key growth areas, including:
    • Public safety long-term evolution (LTE): a $21 million services project for the Los Angeles Regional Interoperable Communications System Authority (LA-RICS) network, as well as a $10-15 million project resulting from an agreement that Harris County, Texas, reached with FirstNet to move forward with the expansion of its public safety LTE deployment
    • Smart public safety: project with the city of Elgin, Illinois, for a Real-Time Crime Center solution that enables access to existing video feeds, computer-aided dispatch records and other systems to drive proactive policing and improve situational awareness at the command center
  • Demonstrated commitment to U.S. national public safety broadband LTE network with introduction of enhanced VML750 LTE Vehicle Modem, which enables roaming between public and private networks for enhanced interoperability

BUSINESS OUTLOOK***

  • Fourth quarter 2014 – Motorola Solutions expects a revenue decline of 1 to 3 percent compared with the fourth quarter of 2013, with non-GAAP earnings per share from continuing operations in the range of $1.13 to $1.19 per share. This is consistent with the company’s prior full-year outlook of low- to mid-single digit revenue decline, excluding iDEN.
  • Cost reductions – The company is ahead of schedule with operating cost reductions, expecting to achieve more than $200 million in savings in 2014 and on track to achieve approximately $300 million by the end of 2015. This will result in a total reduction in operating expenses from $2 billion in 2013 to approximately $1.7 billion for 2015.

RESULTS FROM DISCONTINUED OPERATIONS

On Oct. 27, Motorola Solutions closed the sale of its Enterprise business to Zebra Technologies, and the Enterprise business is reflected as discontinued operations. Sales from discontinued operations were $605 million in the third quarter of 2014 compared with $595 million in the year-ago quarter. The sales increase reflects strength in both North America and Europe, while supply chain and IT execution issues that had an unfavorable impact on second-quarter 2014 sales were addressed during the quarter.

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) Tuesday, Nov. 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:

Third Quarter

2014

2013

Net sales ($M)

$1,436

$1,517

Gross margin ($M)

685

765

Operating earnings ($M)

207

246

Earnings from continuing operations ($M)

66

261

Diluted EPS from continuing operations

$0.27

$0.98

Weighted average diluted common shares outstanding

248.2

265.3


HIGHLIGHTED ITEMS AND SHARE-BASED COMPENSATION EXPENSE

The table below includes highlighted items and share-based compensation expense for the third quarter of 2014.

(per diluted common share)

Third Quarter
2014

GAAP Earnings from Continuing Operations

$0.27

Highlighted Items:
Tax expense to establish foreign valuation allowance

0.22

Loss from the extinguishment of long-term debt

0.09

Reorganization of business charges

0.06

Share-based compensation expense

0.06

Pension-related transaction fees

0.03

Gain on investment

(0.04)

Revaluation of deferred taxes from change in effective state tax rates

(0.07)

Total Highlighted Items

0.35

Non-GAAP Diluted EPS from Continuing Operations

$0.62


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.

DEFINITIONS

* 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.

ABOUT MOTOROLA SOLUTIONS

Motorola Solutions is a leading provider of mission-critical communication solutions and services for public safety and commercial customers. Through leading-edge innovation and communications technology, it is a global leader that enables its customers to be their best in the moments that matter. Motorola Solutions trades on the New York Stock Exchange under the ticker “MSI.” To learn more, visit www.motorolasolutions.com. For ongoing news, please visit our newsroom or subscribe to our news feed.