Motorola Solutions, Inc. (MSI)

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Motorola Solutions (MSI)

Q3 2012 Earnings Call

October 24, 2012 8:00 am ET

Executives

Shep Dunlap - Vice President of Investor Relations

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 of Sales and Field Operations

Analysts

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

Kulbinder Garcha - Crédit Suisse AG, Research Division

Keith M. Housum - Northcoast Research

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

Craig Hettenbach - Goldman Sachs Group Inc., Research Division

Jim Suva - Citigroup Inc, Research Division

Jeffrey T. Kvaal - Barclays Capital, Research Division

Ehud A. Gelblum - Morgan Stanley, Research Division

Matthew Hoffman - Cowen and Company, LLC, Research Division

Benjamin James Bollin - Cleveland Research Company

Blaine R. Carroll - Avian Securities, LLC, Research Division

Presentation

Operator

Good morning, and thank you for holding. Welcome to the Motorola Solutions Third Quarter 2012 Earnings 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 to introduce Mr. Shep Dunlap, Vice President of Investor Relations. Mr. Dunlap, you may begin.

Shep Dunlap

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

We have posted our earnings presentation and press release at motorolasolutions.com/investor. These materials do include a GAAP to non-GAAP reconciliation for your reference. It's important that you review these items.

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 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 thank you all for joining us today. Q3 was another excellent quarter for Motorola Solutions as we delivered consistent revenue growth, strong earnings per share growth, expanded operating margins and continued to return capital to shareholders.

This morning, we reported third quarter sales of $2.2 billion, a 3% increase over Q3 of last year. On a GAAP basis, net earnings were $0.72 per share from continuing operations, compared to $0.45 per share in the year ago quarter. Non-GAAP net earnings from continuing operations were $0.84 per share compared to $0.66 per share in the third quarter of last year, which represents a 27% increase.

For the remainder of this call, we'll reference non-GAAP financial results unless otherwise noted.

Our Government segment revenues increased 12%, a record third quarter. This reflects growth across the segment driven by a combination of factors including core market growth, new product introductions, international expansion and narrowbanding in the U.S.

Operating margins in Government improved 390 basis points year-over-year to 20.4% due to the strong top line growth, favorable sales mix and continued operating leverage as we continue to manage costs.

In our Enterprise segment, sales declined 13% from the year ago quarter including a $29 million decrease in iDEN. This segment continues to face headwinds, largely driven by the macroeconomic environment, fewer larger deals and anticipated foreign currency pressure. That said, we remain confident in our portfolio and excited about our new product introductions going forward.

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

Edward J. Fitzpatrick

Thanks, Greg. Q3 was another strong quarter. Revenue growth was 3%, consistent with our total company outlook with Government stronger, Enterprise weaker than we anticipated. Given the difficult compare from the year ago quarter, we are pleased with our top line performance. This growth came despite anticipated foreign currency headwinds of $42 million or approximately 2 percentage points.

We saw another quarter of broad-based revenue growth in our Government segment with record third quarter sales of $1.5 billion, an increase of nearly 12% from the prior year. Operating margins in the Government segment improved 390 basis points from 16.5% to 20.4%. Strong sales, favorable mix and continued cost efficiency drove this improvement.

Enterprise sales declined 13% to $632 million. Operating margin in the Enterprise segment declined to 12.2%, driven in part by sales mix and foreign currency headwinds. However, the largest driver was the sales decline as underlying expenses remained relatively flat on a year-over-year basis.

Turning to earnings. Earnings from continuing operations were $0.84 per share compared to $0.66 per share a year ago, a 27% increase, driven by improved operating performance and share repurchases. Operating expenses were $709 million or 32.9% of revenue, which represents an 80 basis point improvement from the year ago quarter.

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