Motorola Solutions Reports First-Quarter 2020 Financial Results

Organic Revenue: Organic revenue reflects net sales calculated under GAAP excluding net sales from acquired business owned for less than four full quarters. The company believes non-GAAP organic revenue growth provides useful information for evaluating the periodic growth of the business on a consistent basis and provides for a meaningful period-to-period comparison and analysis of trends in the business.

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.

The company has not quantitatively reconciled its guidance for non-GAAP metrics to their most comparable GAAP measure because the company does not provide specific guidance for the various reconciling items as certain items that impact these measures have not occurred, are out of the company’s control, or cannot be reasonably predicted. Accordingly, a reconciliation to the most comparable GAAP financial metric is not available without unreasonable effort. Please note that the unavailable reconciling items could significantly impact the company’s results.

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 second quarter 2020. Motorola Solutions cautions the reader that the risk factors below, as well as those on pages 10 through 22 in Item 1A of Motorola Solutions’ 2019 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 refresh existing and introduce new products and technologies in a timely manner; (5) 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; (6) 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; (viii) the company’s ability to access the capital markets on acceptable terms and conditions; and (ix) the ongoing COVID-19 pandemic and governmental and societal responses thereto; (7) 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; (8) the outcome of ongoing and future tax matters; (9) 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; (10) risks related to dependence on certain key suppliers, subcontractors, third-party distributors and other representatives; (11) the impact on the company's performance and financial results from strategic acquisitions or divestitures; (12) risks related to the company's manufacturing and business operations in foreign countries; (13) the creditworthiness of the company's customers and distributors, particularly purchasers of large infrastructure systems; (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 complete acquisitions or 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 use of third party vendors for various activities, including certain manufacturing operations, information technology and administrative functions; and (22) the company’s ability to settle the par value of its 1.75% 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.

ABOUT MOTOROLA SOLUTIONS

Motorola Solutions is a global leader in mission-critical communications and analytics. Our technology platforms in mission-critical communications, command center software and video security & analytics, bolstered by managed & support services, make cities safer and help communities and businesses thrive. At Motorola Solutions, we are ushering in a new era in public safety and security. Learn more at www.motorolasolutions.com.

MOTOROLA, MOTOROLA SOLUTIONS and the Stylized M Logo are trademarks or registered trademarks of Motorola Trademark Holdings, LLC and are used under license. All other trademarks are the property of their respective owners. ©2020 Motorola Solutions, Inc. All rights reserved.

GAAP-1

Motorola Solutions, Inc. and Subsidiaries
Condensed Consolidated Statements of Operations
(In millions, except per share amounts)
 
Three Months Ended
March 28, 2020 March 30, 2019
Net sales from products

$

884

$

945

Net sales from services

 

771

 

712

Net sales

 

1,655

 

1,657

Costs of products sales

 

397

 

444

Costs of services sales

 

471

 

440

Costs of sales

 

868

 

884

Gross margin

 

787

 

773

Selling, general and administrative expenses

 

341

 

327

Research and development expenditures

 

168

 

162

Other charges (income)

 

(34)

 

5

Intangibles amortization

 

53

 

50

Operating earnings

 

259

 

229

Other income (expense):
Interest expense, net

 

(52)

 

(55)

Gains on sales of investments and businesses, net

 

-

 

1

Other, net

 

17

 

10

Total other expense

 

(35)

 

(44)

Net earnings before income taxes

 

224

 

185

Income tax expense

 

26

 

33

Net earnings

 

198

 

152

Less: Earnings attributable to non-controlling interests

 

1

 

1

Net earnings attributable to Motorola Solutions, Inc.

$

197

$

151

 
Earnings per common share:
Basic

$

1.15

$

0.92

Diluted

$

1.12

$

0.86

Weighted average common shares outstanding:
Basic

 

170.6

 

164.0

Diluted

 

175.9

 

174.6

 
Percentage of Net Sales*
Net sales from products

 

53.4 %

 

57.0 %

Net sales from services

 

46.6 %

 

43.0 %

Net sales

 

100.0 %

 

100.0 %

Costs of products sales

 

44.9 %

 

47.0 %

Costs of services sales

 

61.1 %

 

61.8 %

Costs of sales

 

52.4 %

 

53.3 %

Gross margin

 

47.6 %

 

46.7 %

Selling, general and administrative expenses

 

20.6 %

 

19.7 %

Research and development expenditures

 

10.2 %

 

9.8 %

Other charges (income)

 

(2.1)%

 

0.3 %

Intangibles amortization

 

3.2 %

 

3.0 %

Operating earnings

 

15.6 %

 

13.8 %

Other income (expense):
Interest expense, net

 

(3.1)%

 

(3.3)%

Gains on sales of investments and businesses, net - % - %
Other, net

 

1.0 %

 

0.6 %

Total other expense

 

(2.1)%

 

(2.7)%

Net earnings before income taxes

 

13.5 %

 

11.2 %

Income tax expense

 

1.6 %

 

2.0 %

Net earnings

 

12.0 %

 

9.2 %

Less: Earnings attributable to non-controlling interests

 

0.1 %

- %
Net earnings attributable to Motorola Solutions, Inc.

 

11.9 %

 

9.1 %

* Percentages may not add up due to rounding

GAAP-2

Motorola Solutions, Inc. and Subsidiaries
Condensed Consolidated Balance Sheets
(In millions)
 

March 28, 2020

December 31, 2019

Assets

Cash and cash equivalents

$

1,672

$

1,001

Accounts receivable, net

 

1,122

 

1,412

Contract assets

 

958

 

1,046

Inventories, net

 

442

 

447

Other current assets

 

287

 

272

Total current assets

 

4,481

 

4,178

Property, plant and equipment, net

 

932

 

992

Operating lease assets

 

521

 

554

Investments

 

154

 

159

Deferred income taxes

 

918

 

943

Goodwill

 

2,075

 

2,067

Intangible assets, net

 

1,242

 

1,327

Other assets

 

393

 

422

Total assets

$

10,716

$

10,642

 

Liabilities and Stockholders' Equity (Deficit)

Current portion of long-term debt

$

814

$

16

Accounts payable

 

531

 

618

Contract liabilities

 

1,278

 

1,449

Accrued liabilities

 

1,256

 

1,356

Total current liabilities

 

3,879

 

3,439

 

Long-term debt

 

5,111

 

5,113

Operating lease liabilities

 

458

 

497

Other liabilities

 

2,198

 

2,276

Total Motorola Solutions, Inc. stockholders’ equity (deficit)

 

(948)

 

(700)

Non-controlling interests

 

18

 

17

Total liabilities and stockholders’ equity (deficit)

$

10,716

$

10,642

GAAP-3

Motorola Solutions, Inc. and Subsidiaries
Condensed Consolidated Statements of Cash Flows
(In millions)
 
Three Months Ended
March 28, 2020 March 30, 2019
Operating
Net earnings attributable to Motorola Solutions, Inc.

$

197

$

151

Earnings attributable to non-controlling interests

 

1

 

1

Net earnings

 

198

 

152

Adjustments to reconcile Net earnings to Net cash provided by operating activities:
Depreciation and amortization

 

99

 

95

Non-cash other (income) charges

 

(51)

 

10

Share-based compensation expenses

 

38

 

27

Gain on sales of investments and businesses, net

 

-

 

(1)

Changes in assets and liabilities, net of effects of acquisitions, dispositions, and foreign currency translation adjustments:
Accounts receivable

 

275

 

168

Inventories

 

2

 

(63)

Other current assets and contract assets

 

48

 

136

Accounts payable, accrued liabilities, and contract liabilities

 

(301)

 

(261)

Other assets and liabilities

 

(4)

 

(6)

Deferred income taxes

 

4

 

(6)

Net cash provided by operating activities

 

308

 

251

Investing
Acquisitions and investments, net

 

(36)

 

(368)

Proceeds from sales of investments and businesses, net

 

2

 

2

Capital expenditures

 

(48)

 

(66)

Proceeds from sales of property, plant and equipment

 

56

 

-

Net cash used for investing activities

 

(26)

 

(432)

Financing
Repayments of debt

 

(4)

 

(8)

Net proceeds from revolver draw

 

800

 

-

Issuances of common stock

 

5

 

45

Purchases of common stock

 

(253)

 

(145)

Payments of dividends

 

(109)

 

(93)

Net cash provided by (used for) financing activities

 

439

 

(201)

Effect of exchange rate changes on total cash and cash equivalents

 

(50)

 

22

Net increase (decrease) in total cash and cash equivalents

 

671

 

(360)

Cash and cash equivalents, beginning of period

 

1,001

 

1,257

Cash and cash equivalents, end of period

$

1,672

$

897

 
Financial Ratios:
Free cash flow*

$

260

$

185

 
*Free cash flow = Net cash provided by operating activities - Capital expenditures

GAAP-4

Motorola Solutions, Inc. and Subsidiaries
Segment Information
(In millions)
 
Net Sales
 
Three Months Ended
 
March 28, 2020 March 30, 2019 % Change
Products and Systems Integration

$

993

$

1,069

(7)%

Software and Services

 

662

 

588

13 %

Total Motorola Solutions

$

1,655

$

1,657

- %
 
 
 
Operating Earnings
 
Three Months Ended
 
March 28, 2020 March 30, 2019 % Change
Products and Systems Integration

$

92

$

108

(15)%

Software and Services

 

167

 

121

38 %

Total Motorola Solutions

$

259

$

229

13 %

 
 
Operating Earnings %
 
Three Months Ended
 
March 28, 2020 March 30, 2019
Products and Systems Integration

 

9.3 %

 

10.1 %

Software and Services

 

25.2 %

 

20.6 %

Total Motorola Solutions

 

15.6 %

 

13.8 %

Non-GAAP-1

Motorola Solutions, Inc. and Subsidiaries
Non-GAAP Adjustments (Intangibles Amortization Expense, Share-Based Compensation Expenses and Highlighted Items)
(In millions)
Q1 2020
 
Non-GAAP Adjustments Statement Line PBT
(Inc)/Exp
Tax
Inc/(Exp)
PAT
(Inc)/Exp
EPS impact
 
Intangibles amortization expense Intangibles amortization

$

53

$

13

$

40

$

0.23

Share-based compensation expenses Cost of sales, SG&A and R&D

 

38

 

9

 

29

 

0.17

Hytera-related legal expenses SG&A

 

25

 

6

 

19

 

0.11

Reorganization of business charges Cost of sales and Other charges (income)

 

18

 

4

 

14

 

0.08

Acquisition-related transaction fees Other charges (income)

 

2

 

-

 

2

 

0.01

Legal settlements Other charges (income)

 

2

 

-

 

2

 

0.01

Fair value adjustments to equity investments Other expense

 

(1)

 

-

 

(1)

 

(0.01)

Release of uncertain tax positions Other income, Income tax expense

 

-

 

1

 

(1)

 

(0.01)

Gain on sale of property, plant, and equipment Other charges (income)

 

(50)

 

(12)

 

(38)

 

(0.22)

Total impact on Net earnings

$

87

$

21

$

66

$

0.37

Non-GAAP-2

Motorola Solutions, Inc. and Subsidiaries
Non-GAAP Segment Information
(In millions)
 
Net Sales
 
Three Months Ended
 
March 28, 2020 March 30, 2019 % Change
Products and Systems Integration

$

993

$

1,069

(7)%

Software and Services

 

662

 

588

13 %

Total Motorola Solutions

$

1,655

$

1,657

- %
 
 
Non-GAAP Operating Earnings
 
Three Months Ended
 
March 28, 2020 March 30, 2019 % Change
Products and Systems Integration

$

123

$

147

(16)%

Software and Services

 

224

 

168

33 %

Total Motorola Solutions

$

347

$

315

10 %

 
 
Non-GAAP Operating Earnings %
 
Three Months Ended
 
March 28, 2020 March 30, 2019
Products and Systems Integration

 

12.4 %

 

13.8 %

Software and Services

 

33.8 %

 

28.6 %

Total Motorola Solutions

 

21.0 %

 

19.0 %

 
Non-GAAP-3
Motorola Solutions, Inc. and Subsidiaries
Operating Earnings after Non-GAAP Adjustments
(In millions)
Q1 2020
 
TOTAL Products and
Systems Integration
Software and
Services
Net sales

$

1,655

$

993

$

662

Operating earnings ("OE")

$

259

$

92

$

167

 
Above-OE non-GAAP adjustments:
Intangibles amortization expense

 

53

 

12

 

41

Share-based compensation expenses

 

38

 

27

 

11

Hytera-related legal expenses

 

25

 

25

 

-

Reorganization of business charges

 

18

 

14

 

4

Acquisition-related transaction fees

 

2

 

1

 

1

Legal settlements

 

2

 

2

 

-

Gain on sale of property, plant, and equipment

 

(50)

 

(50)

 

-

Total above-OE non-GAAP adjustments

 

88

 

31

 

57

Operating earnings after non-GAAP adjustments

$

347

$

123

$

224

 
Operating earnings as a percentage of net sales - GAAP

 

15.6 %

 

9.3 %

 

25.2 %

Operating earnings as a percentage of net sales - after non-GAAP adjustments

 

21.0 %

 

12.4 %

 

33.8 %

 

Non-GAAP-4

Motorola Solutions, Inc. and Subsidiaries
Non-GAAP Organic Revenue
(In millions)
 
Total Motorola Solutions
 
Three Months Ended
 
March 28, 2020 March 30, 2019 % Change
Net sales

$ 1,655

$ 1,657

- %
 
Non-GAAP adjustments:
Sales from acquisitions

51

3

Organic revenue

1,604

1,654

(3)%


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