Motorola Solutions, Inc. (MSI)

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Motorola Solutions (MSI)

Q4 2012 Earnings Call

January 23, 2013 8:00 am ET

Executives

Shep Dunlap

Gregory Q. Brown - Chairman, Chief Executive Officer and Chairman of Executive Committee

Edward J. Fitzpatrick - Chief Financial Officer and Executive Vice President

Mark F. Moon - Executive Vice President and President of Sales & Product Operations

Analysts

Pierre Ferragu - Sanford C. Bernstein & Co., LLC., Research Division

Jim Suva - Citigroup Inc, Research Division

Kulbinder Garcha - Crédit Suisse AG, Research Division

Tavis C. McCourt - Raymond James & Associates, Inc., Research Division

Ehud A. Gelblum - Morgan Stanley, Research Division

Jeffrey T. Kvaal - Barclays Capital, Research Division

John Barta - Northcoast Research

Matthew Hoffman - Cowen and Company, LLC, Research Division

Benjamin James Bollin - Cleveland Research Company

Presentation

Operator

Good morning, and thank you for holding. Welcome to the Motorola Solutions Fourth Quarter 2012 Earnings Conference Call. Today's call is being recorded. If you have any objections, please disconnect at this time.

The presentation material and additional financial tables are currently posted on the Motorola Solutions' Investor Relations website. In addition, a replay of this call will be available approximately 3 hours after the conclusion of this call over the Internet. The website address is www.motorolasolutions.com/investor.

[Operator Instructions]

I would now like introduce Mr. Shep Dunlap, Vice President of Investor Relations. Mr. Dunlap, you may begin your conference.

Shep Dunlap

Thank you, and good morning. Welcome to our call to discuss fourth quarter and full year results. With me this morning are Greg Brown, Chairman and CEO; Ed Fitzpatrick, Executive Vice President and CFO; and Mark Moon, Executive Vice President and President, Sales and Product Operations. Greg and Ed will review our fourth quarter results along with commentary, and Mark will join us for the Q&A session.

Earlier this morning, we posted an earnings presentation and press release at motorolasolutions.com/investor. These materials include GAAP to non-GAAP reconciliations for your reference. It's important to review these materials.

A number of forward-looking statements will be made during this presentation. Forward-looking statements are any statements that are not historical facts. These forward-looking statements are based on the current expectations of Motorola Solutions, and we can give no assurance that any future results or events discussed in these statements will be achieved.

Any forward-looking statements represent our views only as of today and should not be relied upon as representing our views as of any subsequent date. Forward-looking statements are subject to a variety of risks and uncertainties that could cause our actual results to differ materially from the statements contained in this presentation.

And with that, I'd like to turn the call over to Greg.

Gregory Q. Brown

Thanks, Shep. Good morning, and thanks for joining us today. Q4 was another great quarter for Motorola Solutions. These quarterly results capped another very strong year for our company. 2012 marked a number of key accomplishments: solid sales growth, operating earnings expansion and double-digit EPS growth, strong cash flow and significant capital return to our shareholders.

Q4 highlights included record sales and operating earnings, continued leadership and innovation with new product launches and the acquisition of Psion. This morning, we reported fourth quarter sales of $2.4 billion, an increase of 6% from Q4 of last year. On a GAAP basis, net earnings from continuing operations were $1.18 per share compared to $0.54 in the year-ago quarter.

Non-GAAP net earnings from continuing ops were $1.10 per share compared to $0.87 per share in Q4 of last year, a 26% increase. For the full year, we posted revenue growth of approximately 6% while increasing non-GAAP operating earnings by 9%. For the remainder of the call, we'll reference non-GAAP financial results unless otherwise noted.

Our Government business revenues increased 10% for the quarter. We saw strength across the portfolio, driven by double-digit growth in ASTRO and TETRA. Government sales increased 12% for the full year. Our growth was driven by a number of factors including the analog-to-digital transition, aging public safety infrastructure, U.S. narrowbanding and our broadest and most competitive portfolio ever.

In our Enterprise business, sales decreased 3% from the year-ago quarter, including the anticipated decline in iDEN. On a full year basis, Enterprise revenue declined 5% as many large customers postponed deployments in the face of soft economic conditions and uncertainty. We do believe that the challenges in this segment were more cyclical than structural.

I'll now turn it over to Ed to discuss our financial results in more detail, then I'll return to discuss operational highlights and provide additional thoughts on our business performance.

Edward J. Fitzpatrick

Thanks, Greg. Q4 sales grew 6%, in line with our expectations. This marks yet another quarter of improved operating leverage as our disciplined cost management and targeted investments continued to yield operating margin expansion. On a full year basis, revenue grew 6% to $8.7 billion, while operating earnings as a percent of revenue was 17.3%. This represents a 9% increase in operating earnings from 2011. EPS in the fourth quarter was $1.10, which represents a 26% increase. For the full year, we delivered a 23% increase in earnings per share.

In Government, we continue to see robust growth as fourth quarter sales totaled $1.7 billion, an increase of 10% from the prior quarter. 2012 full year Government revenues grew 12% to $6 billion. Sales for the Enterprise business decreased by 3% to $733 million in Q4. Excluding the impact of the Psion acquisition, Q4 revenues declined 12%. For the full year 2012, the Enterprise business posted revenues of $2.7 billion, declining 5% year-over-year. This decline was driven by the macroeconomic environment and constrained IT spend; fewer large deals in areas that were strong last year, such as transportation and logistics; and unfavorable FX.

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