Motorola Solutions Reports First-Quarter 2019 Financial Results

Motorola Solutions, Inc. (NYSE: MSI) today reported its earnings results
for the first quarter of 2019. Click here
for a printable news release and financial tables.

“Q1 was another outstanding quarter, with record first-quarter revenue,
operating earnings and ending backlog,” said Greg Brown, chairman and
CEO of Motorola Solutions. “We are well positioned for 2019 with
continued demand across our platforms.”

KEY FINANCIAL RESULTS (presented in millions, except per share
data and percentages)

* Includes voluntary $500M debt-funded U.S. pension contribution in Q1
2018
**Non-GAAP financial information excludes the after-tax impact
of approximately $0.42 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 were $1.7 billion, up $189 million, or
  13% from the year-ago quarter, driven by growth in the Americas and
  EMEA. Revenue from acquisitions was $137 million in the quarter. The
  Products and Systems Integration segment grew 12%, and the Services
  and Software segment grew 14%. Both segments were driven by growth in
  the Americas and EMEA.
• Operating margin – GAAP operating margin was 13.8% of
  sales, compared with 11.6% in the year-ago quarter. The improvement
  was primarily due to higher sales and gross margin, partially offset
  by higher operating expenses related to acquisitions. Non-GAAP
  operating margin was 19.0% of sales, compared with 17.7% in the
  year-ago quarter due to higher sales and gross margin partially offset
  by higher operating expenses related to acquisitions.
• Taxes – The GAAP effective tax rate was 18%, compared with 16%
  in the year-ago quarter. The non-GAAP effective tax rate was 20%
  compared with 19% in the year-ago quarter. Rates were favorably
  impacted by tax benefits on excess share-based compensation.
• Cash flow – Operating cash flow was $251 million,
  compared with $500 million of operating cash outflow in the year-ago
  quarter. Free cash flow¹ was $185 million, compared with
  $541 million of free cash outflow in the year-ago quarter. Cash flow
  for the quarter increased due to a $500 million voluntary pension
  contribution in the prior year, timing of annual incentive payments,
  higher earnings and improved working capital.
• Capital allocation – The company invested $445 million
  of cash and equity to acquire VaaS International Holdings and $136
  million in cash for Avtec, Inc., repurchased $145 million of common
  stock, paid $93 million in cash dividends and $66 million of capital
  expenditures.
• Backlog – The company ended the quarter with backlog of
  $10.4 billion, up $781 million from the year-ago quarter. Services and
  Software was up 14% or $885 million due to growth in EMEA and the
  Americas. Products and Systems Integration segment backlog was down 3%
  or $104 million due to large projects in the Middle East and Africa in
  the prior year, partially offset by growth in the Americas.

KEY HIGHLIGHTS

Services and Software wins

• $17 million managed services contract with a mining customer in Latin
  America
• $7 million computer-aided dispatch (CAD) and records contract for a
  large government customer in California
• $5 million video services renewal with the Chicago Office of Emergency
  Management

Products and Systems Integration wins

• Selected by North Dakota for a new statewide P25 radio system
• $25 million P25 win with New South Wales Telco Authority
• $8 million TETRA order for a utility customer in Chile

BUSINESS OUTLOOK

• Second-quarter 2019 – Motorola Solutions expects revenue growth
  of approximately 4 to 5% compared with the second quarter of 2018. The
  company expects non-GAAP earnings in the range of $1.55 to $1.60 per
  share. This assumes current foreign exchange rates, approximately 176
  million fully diluted shares and an effective tax rate of
  approximately 24%.
• Full-year 2019 – The company continues to expect revenue
  growth of approximately 6 to 7% and now expects non-GAAP earnings per
  share in the range of $7.60 to $7.72, up from the prior guidance of
  $7.55 to $7.70. This assumes current foreign exchange rates,
  approximately 176 million fully diluted shares and an effective tax
  rate of 24 to 25%.

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, May 2. The conference
call will be webcast live at www.motorolasolutions.com/investor.

CONSOLIDATED GAAP RESULTS (presented in millions, except per
share data)
A comparison of results from operations is as
follows:

HIGHLIGHTED ITEMS AND SHARE-BASED COMPENSATION EXPENSE
The
table below includes highlighted items, share-based compensation expense
and intangible amortization for the first quarter of 2019.

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 including, but not limited to, acquisition-related
transaction costs, tangible and intangible asset impairments,
restructuring charges, non-cash pension adjustments, significant
litigation and other contingencies, significant gains and losses on
investments, and the income tax effects of significant tax matters, 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. For the
purposes of management’s internal analysis over operating performance,
the company uses financial statements that exclude highlighted items, as
these charges 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 second quarter and full year of
2019. Motorola Solutions cautions the reader that the risk factors
below, as well as those on pages 9 through 21 in Item 1A of Motorola
Solutions’ 2018 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; and (viii) the company’s ability to access the
capital markets on acceptable terms and conditions; (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 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 Free cash flow represents operating cash flow less capital
expenditures.

ABOUT MOTOROLA SOLUTIONS

Motorola Solutions is a global leader in mission-critical
communications. Our technology platforms in communications, command
center software, video and 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. ©2019 Motorola Solutions, Inc. All rights reserved.

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