Motorola Solutions, Inc. — FY2021 Form 10-K Summary
Business context and reporting period
Annual report for the fiscal year ended December 31, 2021, filed February 16, 2022. Motorola Solutions provides land mobile radio (LMR) communications, video security and access control, command center software, and related services to public safety and commercial customers. It reports two segments: Products and Systems Integration, and Software and Services.
Financial and operating metrics
| Metric | FY2021 | FY2020 |
|---|---|---|
| Net sales | $8.171 billion | $7.414 billion |
| Gross margin | $4.040 billion; 49.4% | $3.608 billion; 48.7% |
| Operating earnings | $1.667 billion; 20.4% of sales | $1.383 billion; 18.7% of sales |
| Net earnings attributable to Motorola Solutions | $1.245 billion | $949 million |
| Diluted EPS | $7.17 | $5.45 |
| Operating cash flow | $1.837 billion | $1.613 billion |
| Cash and cash equivalents at year-end | $1.874 billion | $1.254 billion |
| Long-term debt, including current portion | $5.693 billion | $5.175 billion |
| Backlog | $13.559 billion | $11.434 billion |
- Sales grew 10%. Products and Systems Integration sales increased 9% to $5.033 billion; Software and Services sales increased 13% to $3.138 billion. Both segments grew across North America and international markets.
- Operating cash flow increased; investing activities used $742 million and financing activities used $429 million. Capital expenditures were $243 million.
- Year-end current assets were $5.412 billion and current liabilities were $4.063 billion. The company had a $2.25 billion revolving credit facility maturing in 2026 and reported covenant compliance; no commercial paper was outstanding.
- Products and Systems Integration operating margin rose to 15.1% from 14.2%; Software and Services margin rose to 28.9% from 26.2%.
Material changes versus FY2020
- Revenue growth reflected higher LMR products and services, video security and access control, and command center software, as well as $130 million of favorable currency effects. Acquisitions contributed revenue in both segments.
- Net earnings and diluted EPS rose. Management attributed operating earnings growth to increased sales and gross margin contribution, particularly in Software and Services.
- Backlog increased $2.125 billion. This included a $1.7 billion addition from a four-year extension of the U.K. Airwave network contract. Approximately 55% of Products and Systems Integration backlog and 23% of Software and Services backlog was expected to be recognized as revenue in 2022.
- Cash used for acquisitions and investments was $521 million, versus $287 million in 2020. The company acquired Openpath, Envysion and 911 Datamaster during 2021.
- Debt increased to $5.693 billion. The company issued $850 million of 2.75% senior notes due 2031 and used part of the proceeds to redeem $324 million principal amount of 3.5% notes due 2023.
Outlook, risks and unusual items
- Management expected continued opportunities in LMR, cloud and hybrid software, video security, analytics, access control and integrated solutions. It expected Software and Services impacts from COVID-19 to be limited in 2022, but said supply constraints could limit LMR growth and demand could exceed available supply.
- Semiconductor shortages, higher component and freight costs, and supply-chain disruption affected operations in 2021. Management expected elevated semiconductor procurement costs into the first half of 2022 and supply constraints throughout 2022.
- Management cited ARPA funding as a positive contributor in 2021 and expected a continued positive effect in 2022. These and other outlook statements are forward-looking and subject to risk.
- Key risks include COVID-19 and economic disruption; customer and government contract cancellations; supplier concentration; cybersecurity and data privacy; regulation of AI, biometrics and spectrum; competition; acquisitions and integration; and pension funding and capital-market access. The U.K. Competition and Markets Authority opened a market investigation into the Airwave network.
- The company recorded $32 million of net reorganization charges and $236 million of intangible amortization in 2021. A $50 million property-sale gain recorded in 2020 did not recur.
- In the Hytera trade-secret and copyright case, the court reduced the jury’s $764.6 million award to $543.7 million; it also awarded $51.1 million in prejudgment interest, $2.6 million in costs and $34.2 million in attorneys’ fees. Hytera appealed, and proceedings concerning enforcement and future royalties remained ongoing.
- The company returned $1.010 billion to shareholders in 2021 through $528 million of repurchases and $482 million of dividends. The quarterly dividend was increased 11% to $0.79 per share.
Important facts for investors to verify
- Whether semiconductor availability, input costs and delivery constraints affect 2022 revenue, margins and backlog conversion as management anticipated.
- How much of the reported backlog is firm and when it converts to revenue; distinguish segment backlog from the $9.2 billion of remaining performance obligations disclosed in the notes.
- The status, enforceability and collectability of the Hytera judgments, appeal and court-ordered royalties.
- Debt maturities, particularly approximately $1.6 billion due in 2024, and the company’s cash, pension funding and capital-return plans.
- Potential effects of the Airwave market investigation and evolving privacy, AI, biometric and telecommunications regulation.
- The filing identifies estimated costs to complete system contracts as a critical audit matter; verify contract cost estimates and any future revisions. PwC reported effective internal control over financial reporting and issued an unqualified audit opinion.