Motorola Solutions Reports Fourth-Quarter and Full-Year Financial Results

Company Achieves Record Q4 and Full-Year Sales, Earnings Per Share and Backlog

Sales of $2.7 billion, up 17% from Q4 in the prior year; up 12% for full year
- Products and Systems Integration sales grew 21% in Q4; up 14% for full year
- Software and Services sales grew 9% in Q4; up 8% for full year
Record backlog of $14.3 billion, up $788 million or 6% versus a year ago
Generated record $1.3 billion of operating cash flow in Q4; $1.8 billion for full year
GAAP Q4 earnings per share (EPS) of $3.43, up 49% versus a year ago; $7.93 for full year
Non-GAAP Q4 EPS* of $3.60, up 26% versus a year ago; $10.36 for full year, up 13%

CHICAGO--(BUSINESS WIRE)--Motorola Solutions, Inc. (NYSE: MSI) today reported its earnings results for the fourth quarter and full year of 2022. Click here for a printable news release and financial tables.

“2022 was an outstanding year, with record sales in both segments and all three technologies,” said Greg Brown, chairman and CEO of Motorola Solutions. “We achieved all-time Q4 records in sales, operating earnings, earnings per share and cash flow, highlighting the strong demand we continue to see for our public safety and enterprise security solutions. Our record backlog and a robust funding environment position us exceptionally well going forward.”

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

	Fourth Quarter						Full Year
	Q4 2022		Q4 2021		% Change		2022		2021		% Change
Sales	$2,706		$2,320		17	%	$9,112		$8,171		12	%
GAAP
Operating Earnings	$692		$549		26	%	$1,661		$1,667		—	%
% of Sales	25.6	%	23.7	%			18.2	%	20.4	%
EPS	$3.43		$2.30		49	%	$7.93		$7.17		11	%
Non-GAAP*
Operating Earnings	$822		$670		23	%	$2,368		$2,117		12	%
% of Sales	30.4	%	28.9	%			26.0	%	25.9	%
EPS	$3.60		$2.85		26	%	$10.36		$9.15		13	%
Products and Systems Integration Segment
Sales	$1,810		$1,495		21	%	$5,728		$5,033		14	%
GAAP Operating Earnings	$454		$320		42	%	$913		$760		20	%
% of Sales	25.1	%	21.4	%			15.9	%	15.1	%
Non-GAAP Operating Earnings*	$514		$378		36	%	$1,172		$976		20	%
% of Sales	28.4	%	25.3	%			20.5	%	19.4	%
Software and Services Segment
Sales	$896		$825		9	%	$3,384		$3,138		8	%
GAAP Operating Earnings	$238		$229		4	%	$748		$907		(18	)%
% of Sales	26.6	%	27.8	%			22.1	%	28.9	%
Non-GAAP Operating Earnings*	$308		$292		5	%	$1,196		$1,141		5	%
% of Sales	34.4	%	35.4	%			35.3	%	36.4	%

*Non-GAAP financial information excludes the after-tax impact of approximately $0.17 for Q4 and $2.43 for FY per diluted share related to highlighted items, including share-based compensation expenses and intangible assets amortization expense. Details regarding these non-GAAP adjustments and the use of non-GAAP measures are included later in this news release.

OTHER SELECT FOURTH-QUARTER FINANCIAL RESULTS

Revenue - Fourth-quarter sales were $2.7 billion, up 17% from the year-ago quarter driven by growth in North America and International. Revenue from acquisitions was $39 million, and currency headwinds were $87 million. The Products and Systems Integration segment increased 21% due to growth in land mobile radio (LMR) and video security and access control (Video). The Software and Services segment grew 9% driven by growth in LMR services, Video and Command center.
Operating margin - GAAP operating margin was 25.6% of sales, up from 23.7% in the year-ago quarter. Non-GAAP operating margin was 30.4% of sales, up from 28.9% in the year-ago quarter. The increase in both GAAP and non-GAAP operating margin was primarily driven by higher sales in both segments and improved operating leverage in the Products and Systems Integration segment.
Taxes - The GAAP effective tax rate was 11.0%, down from 22.4% in the year-ago quarter driven primarily by higher benefits in the current year related to a partial release of a valuation allowance recorded on the U.S. foreign tax credits carryforward and higher stock-based compensation. The non-GAAP effective tax rate was 21.2%, compared to 22.3% in the year-ago quarter, driven by higher benefits from stock-based compensation in the current year.
Cash flow - Operating cash flow was $1.3 billion, up $570 million compared to the year-ago quarter. Free cash flow was $1.2 billion, up $565 million compared to the year-ago quarter. The increase in both operating and free cash flow was driven by improvements in working capital and higher earnings.
Capital allocation - During the quarter, the company paid $132 million in dividends, repurchased $87 million of its common stock and incurred $73 million in capital expenditures. Additionally, the company closed the acquisitions of Rave Mobile Safety and FutureCom Systems Group for $553 million and $30 million, net of cash acquired, respectively.

OTHER SELECT FULL-YEAR FINANCIAL RESULTS

Revenue - Full-year sales were $9.1 billion, up 12% driven by growth in North America and International. The Products and Systems Integration segment grew 14% primarily due to higher sales of LMR and Video. The Software and Services segment grew 8% driven by growth in Video, LMR services and Command center. The impact of unfavorable currency rates was $216 million and sales from acquisitions was $121 million.
Operating margin - For the full year, GAAP operating margin was 18.2% of sales, compared to 20.4% for the prior year. The decrease was primarily driven by a fixed asset impairment charge of $147 million related to the exit from the Emergency Services Network (ESN) contract in the U.K. and higher stock based compensation in the current year. Non-GAAP operating margin was 26.0% of sales, up from 25.9% in the prior year, driven by higher sales and improved operating leverage, partially offset by higher material costs and expenses from acquisitions.
Taxes - The 2022 GAAP effective tax rate was 9.8%, down from 19.5% in the prior year driven primarily by a discrete deferred tax benefit as a result of the taxable reorganization of our intellectual property in the current year, a benefit from a partial release of the valuation allowance recorded on the U.S. foreign tax credit carryforward and the benefit from higher stock based compensation in the current year. The non-GAAP effective tax rate was 20.1%, down from 21.0% in the previous year, primarily driven by the benefit from higher stock based compensation in the current year.
Cash flow - The company generated $1.8 billion in operating cash and free cash flow was $1.6 billion in both the current and prior years. Higher earnings generated in the current year were offset by an increase in working capital and higher incentive payments.
Capital allocation - In 2022, the company paid $1.2 billion, net of cash acquired, for seven acquisitions, repurchased $836 million of its common stock at an average price of $225 per share and paid $530 million in dividends. The company also issued $600 million of long-term debt and repaid $275 million of outstanding long-term debt.
Backlog - The company ended the year with record backlog of $14.3 billion, up $788 million from the prior year. Products and Systems Integrations segment backlog was up 22% or $894 million driven by record LMR product orders. Software and Services segment backlog was down 1% or $106 million, primarily driven by revenue recognition for the Airwave and ESN contracts, $367 million of unfavorable currency rates, and a reduction relating to the exit from the ESN contract, partially offset by growth in multi-year software and services contracts in North America.

NOTABLE WINS & ACHIEVEMENTS IN Q4

Software and Services

$56M P25 multi-year managed service extension of the Interexport contract for the Chilean National Law Enforcement Police
$25M P25 software upgrade agreement renewal for a large U.S. customer
$22M NG911 expansion and renewal for Greater Harris County, TX
$21M system upgrade and multi-year services renewal for Lane County, OR
$15M P25 and command center upgrade agreement extension order for Columbus, GA
$15M license plate recognition camera system expansion order for the Illinois State Police

Products and Systems Integration

$45M P25 APX NEXT devices order for the city of Houston, TX
$39M P25 APX NEXT devices order for a large U.S. customer
$30M P25 APX NEXT devices order for the city of Dallas, TX
$21M add-on P25 APX NEXT devices order for a large U.S. customer
$20M P25 APX NEXT devices and command center order for Kansas City, MO
$19M P25 system order for a large international customer
$3M fixed video order for Metra Rail

BUSINESS OUTLOOK

First-quarter 2023 - The company expects revenue growth between 12% and 13% compared to the first quarter of 2022. The company expects non-GAAP earnings per share in the range of $2.02 to $2.07 per share. This assumes approximately $40 million in foreign exchange headwinds, approximately 172 million fully diluted shares, and an effective tax rate of approximately 23%.
Full-year 2023 - The company expects revenue in the range of $9.65 billion to $9.7 billion and non-GAAP earnings per share in the range of $11.10 to $11.22 per share. This assumes approximately $40 million in foreign exchange headwinds, approximately 172 million fully diluted shares and a non-GAAP effective tax rate of 23% to 24%.

The company has not quantitatively reconciled its guidance for forward-looking non-GAAP measurements in this news release to their most comparable GAAP measurements 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 measurement is not available without unreasonable effort. Please note that the unavailable reconciling items could significantly impact the company’s results.

RECENT EVENTS

CMA UPDATE

In October 2021, the United Kingdom’s Competition and Markets Authority (the CMA) announced that it had opened a market investigation into the Mobile Radio Network for the Police and Emergency Services. This investigation affects Airwave, the company’s private mobile radio communications network that it acquired in 2016. Airwave provides mission-critical voice and data communications to public emergency service agencies in Great Britain. In October 2022, the CMA published a provisional decision with its findings regarding competition and proposed remedies. The company disagrees with the CMA’s provisional decision and will continue to work with the CMA to demonstrate the value of the Airwave network and pursue its legal avenues to protect Airwave’s contractual position.

ESN MATTERS

During the year ended December 31, 2022, the company signed a mutual agreement with the Home Office for the company to exit the ESN contract early, inclusive of twelve months of transition services through the end of 2023. During the third quarter of 2022, the company determined that the future service potential of the ESN communications systems contract was limited, based on the company's intention to terminate the contract in advance of the contracted service term. The company thus recorded a fixed asset impairment loss of $147 million related to assets constructed and used in the deployment of the contract.

MACROECONOMIC EVENTS

During fiscal year 2022, the company operated under challenging market conditions, influenced by events such as those discussed below. For a more complete discussion of the risks the company encounters in its business, please refer to Part I. Item 1A. “Risk Factors” in the company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2021 and Part II. Item 1A. “Risk Factors” in the company’s Quarterly Report on Form 10-Q for the fiscal quarter ended October 2, 2022.

Russia-Ukraine Conflict

During the first quarter of 2022, in response to Russia's invasion of Ukraine, the company suspended all sales, provision of services and shipments of its products to Russia and Belarus, which did not constitute a material portion of the company's business. For the year ended December 31, 2021, the company's net sales in Russia and Belarus were less than $25 million. However, throughout 2022, the company indirectly experienced impacts from the Russia-Ukraine conflict (as further described below). While the company does not anticipate that the current posture of the Russia-Ukraine conflict will materially and adversely affect its results of operations, the conflict is still ongoing and has had, and may continue to have, a significant impact on the global macroeconomic and geopolitical environments, including increased volatility in capital and commodity markets, rapid changes to regulatory conditions (including the use of sanctions), supply chain and operational challenges for multinational corporations, inflationary pressures and an increased risk of cybersecurity incidents.

COVID-19, Supply Chain Disruptions & Inflationary Cost Environment

Throughout 2022, the company's supply chain was, and continues to be, impacted by global issues related to the effects of the COVID-19 pandemic, the Russia-Ukraine conflict and the inflationary cost environment, particularly with respect to materials in the semiconductor market, including part shortages, increased freight costs, diminished transportation capacity and labor constraints. This has resulted in disruptions in the company's supply chain, as well as difficulties and delays in procuring certain semiconductor components. Cost increases were driven by elevated lead times and increased material costs, in particular the need to purchase semiconductor components from alternative sources, including brokers. While the company continued to navigate supply chain constraints in 2022, the company anticipates the broader impact of inflationary pressures and increased material and supply chain costs and disruptions (including elevated costs to procure materials within the semiconductor market) to continue into 2023. However, the company expects global transportation costs to improve in 2023 as compared to 2022. The company is closely monitoring supply chain disruptions and continues to remain focused on improving its supplier network, engineering alternative designs and working to reduce supply shortages. The company also continues to actively manage its inventory in an effort to minimize supply chain disruptions and enable continuity of supply and services to its customers, and the company expects to maintain elevated levels of inventory until supply constraints have been remediated.

In order to combat rising inflation in the U.S., the Federal Reserve has raised interest rates multiple times since the beginning of 2022. The increase in U.S. dollar interest rates and overall market conditions led to significant strengthening of the U.S. dollar against many other global currencies in 2022. The strong U.S. dollar negatively impacted cash generated from the company's foreign operations in 2022, driven by revenues and costs that are denominated in foreign currencies. The company expects fluctuations in the value of U.S. dollar relative to other currencies to continue to impact its operating cash flows and net earnings throughout 2023.

Although the macroeconomic environment continued to introduce challenges during 2022, the company is encouraged by customer demand for the company's products and services. Specifically, in the Software and Services segment, with the largely recurring nature of the business and its strong backlog position, the company expects that the impact to operating margin will be limited during 2023. While the company was encouraged by strong backlog and growth in the Products and Systems Integration segment throughout 2022, which the company expects to continue to grow during 2023, supply constraints continue to impact the company's business and the company expects demand for its products will continue to outpace its ability to obtain semiconductor component supply throughout 2023. Where appropriate, the company has taken pricing actions around its product and service offerings to mitigate exposure to inflationary pressures on its businesses and benefited from these adjustments during 2022. The company expects to further benefit from such adjustments throughout 2023. Further, demand continues to be supported with ongoing sources of government funding, including the American Rescue Plan Act of 2021 ("ARPA"), which is intended to provide economic stimulus. The company experienced the positive impact of the ARPA funding on its business and results of operations throughout 2022 and anticipate that the ARPA will continue to have a positive impact on the company's business in 2023.

CONFERENCE CALL AND WEBCAST Motorola Solutions will host its quarterly conference call beginning at 4 p.m. U.S. Central Standard Time (5 p.m. U.S. Eastern Standard Time) on Thursday, February 9. The conference call will be webcast live with audio and slides at www.motorolasolutions.com/investor. An archive of the webcast will be available for a limited period of time thereafter.

CONSOLIDATED GAAP RESULTS (presented in millions, except per share data)
A comparison of results from operations is as follows:
	Fourth Quarter		Full Year
	2022	2021	2022	2021
Net sales	$2,706	$2,320	$9,112	$8,171
Gross margin	1,351	1,183	4,229	4,040
Operating earnings	692	549	1,661	1,667
Amounts attributable to Motorola Solutions, Inc. common stockholders
Net earnings	589	401	1,363	1,245
Diluted EPS from continuing operations	$3.43	$2.30	$7.93	$7.17
Weighted average diluted common shares outstanding	171.9	174.2	171.9	173.6

USE OF NON-GAAP FINANCIAL INFORMATION

In addition to the results presented in accordance with accounting principles generally accepted in the U.S. ("GAAP") included in this news release, Motorola Solutions also has included non-GAAP measurements of results, including free cash flow, non-GAAP operating earnings, non-GAAP EPS, non-GAAP operating margin, non-GAAP tax rate and organic revenue. 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 that of its competitors. Among other things, management uses these operating results, excluding the identified items, to evaluate performance of its businesses and to evaluate results relative to certain incentive compensation targets. Management uses operating results excluding these items because it believes these measurements enable it to make better period-to-period evaluations of the financial performance of its 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, GAAP measurements.

Reconciliations: Details and reconciliations of such non-GAAP measurements to the corresponding GAAP measurements can be found at the end of this news release.

Free cash flow: Free cash flow represents net cash provided by operating activities less capital expenditures. The company believes that free cash flow is useful to investors as the basis for comparing its performance and coverage ratios with other companies in the company's industries, although the company's measure of free cash flow may not be directly comparable to similar measures used by other companies. This measure is also used as a component of incentive compensation.

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 organic revenue 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.

Non-GAAP operating earnings, non-GAAP EPS and non-GAAP operating margin each excludes highlighted items, including share-based compensation expenses and intangible assets amortization expense, as follows:

Highlighted items: The company has excluded the effects of highlighted items including, but not limited to, acquisition-related transaction fees, tangible and intangible asset impairments, reorganization of business charges, certain non-cash pension adjustments, legal settlements and other contingencies, gains and losses on investments and businesses, Hytera-related legal expenses, gains and losses on the extinguishment of debt 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.

Hytera-Related Legal Expenses: On March 14, 2017, the company filed a complaint in the U.S. District Court for the Northern District of Illinois (the “Court”) against Hytera Communications Corporation Limited of Shenzhen, China; Hytera America, Inc.; and Hytera Communications America (West), Inc. (collectively, “Hytera”), alleging trade secret theft and copyright infringement and seeking, among other things, injunctive relief, compensatory damages, and punitive damages. On February 14, 2020, the company announced that a jury decided in the company's favor in its trade secret theft and copyright infringement case. In connection with this verdict, the jury awarded the company $345.8 million in compensatory damages and $418.8 million in punitive damages, for a total of $764.6 million. On December 17, 2020, the Court denied the company’s motion for a permanent injunction, finding instead that Hytera must pay the company a forward-looking reasonable royalty on products that use the company’s stolen trade secrets. As the parties were unable to agree on a reasonable royalty rate, the Court entered an order favorable to the company on December 15, 2021, and, consistent with the company's requests, set royalty rates for Hytera's sale of relevant products from July 1, 2019 forward. On July 5, 2022, the Court ordered that Hytera pay into a third-party escrow on July 31, 2022, the royalties owed to the company based on the sale of relevant products from July 1, 2019 to June 30, 2022. Hytera failed to make the required royalty payment on July 31, 2022. On August 1, 2022, Hytera filed a motion to modify or stay the Court’s previous July 5, 2022 royalty order. On August 3, 2022, the company filed a motion seeking to hold Hytera in civil contempt for violating the royalty order by not making the required royalty payment in July. Hytera made quarterly royalty payments on October 31, 2022 and January 31, 2023.

In response to the Court's decision to award the company $764.6 million in compensatory and punitive damages, Hytera motioned for certain equitable relief, which the Court granted on January 8, 2021, reducing the $764.

Contacts

MEDIA CONTACT
Alexandra Reynolds
Motorola Solutions
+1 312-965-3968
Alexandra.Reynolds@motorolasolutions.com

INVESTOR CONTACT
Tim Yocum
Motorola Solutions
+1 847-576-6899
Tim.Yocum@motorolasolutions.com

Read full story here

First published on Fri, Feb 10, 2023

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