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Obligations
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(Address of principal executive offices) (Zip Code)
(i408) i481-8000
(Registrant’s telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. iYesý No ¨
Indicate by check mark whether the registrant has submitted electronically every Interactive
Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). iYesý No ¨
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company,
or an emerging growth company. See definition of “large accelerated filer”, “accelerated filer”, “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act. (Check one):
iLarge Accelerated Filer
ý
Accelerated Filer
¨
Non-accelerated
Filer
¨
Smaller Reporting Company
i☐
Emerging Growth Company
i☐
If
an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ¨
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No iý
Securities
registered pursuant to Section 12(b) of the Act:
Title of each class
Trading Symbol(s)
Name of each exchange on which registered
iCommon Stock, $0.001 par value per share
iTRMB
iNASDAQ
Global Select Market
As of August 2, 2022, there werei247,657,418 shares of Common Stock, par value $0.001 per share, outstanding.
This Quarterly Report on Form 10-Q contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934, which are subject to the “safe harbor” created by those sections. These statements include, among other things:
•impact of supply chain shortages and disruptions, as well as general inflationary pressures, on our costs and operations;
•potential impact of volatility and conflict in the political and economic environment, including the Russian invasion of Ukraine and its direct and indirect impact on our business;
•impact
of the COVID-19 pandemic, including upon global or local macroeconomic conditions, our supply chain, our results of operations, and estimates or judgments;
•the portion of our revenue expected to come from sales to customers located in countries outside of the U.S.;
•a continued shift in revenue towards a more significant mix of software and recurring revenue, including subscription, maintenance and support, and service revenue;
•our belief that increases in recurring revenue, including from our software and subscription solutions, will provide us with enhanced business visibility over time;
•our belief that our cash and cash equivalents, together with borrowings under the commitments for our credit
facilities and senior notes, will be sufficient in the foreseeable future to meet our anticipated operating cash needs, debt service, and planned capital expenditures;
•any anticipated benefits to us from our acquisitions and our ability to successfully integrate the acquired businesses;
•fluctuations in interest rates and foreign currency exchange rates;
•our belief that our gross unrecognized tax benefits will not materially change in the next twelve months;
•our growth strategy, including our focus on historically underserved large markets, the relative importance of organic growth versus strategic acquisitions, and the reasons that we acquire businesses;
and
•our discretion to conduct, suspend, or discontinue our stock repurchase program subject to the discretion of our management.
The forward-looking statements regarding future events and the future results of Trimble Inc. (“the Company” or “we” or “our” or “us”) are based on current expectations, estimates, forecasts, and projections about the industries in which we operate, our current tax structure, including where our assets are deemed to reside for tax purposes, and the beliefs and assumptions of our management. Discussions containing such forward-looking statements may be found in “Management’s Discussion and Analysis of Financial Condition and Results of Operations” section of this Form 10-Q. In some cases, forward-looking statements
can be identified by terminology such as “may,”“will,”“should,”“could,”“predicts,”“potential,”“continue,”“expects,”“anticipates,”“future,”“intends,”“plans,”“believes,”“estimates,” and similar expressions. These forward-looking statements involve certain risks and uncertainties that could cause actual results, levels of activity, performance, achievements, and events to differ materially from those implied by such forward-looking statements, including but not limited to those discussed in this report under the section entitled “Risk Factors” and elsewhere, and in other reports we file with the Securities and Exchange Commission (“SEC”), specifically the most recent Form 10-K for 2021 (the “2021 Form 10-K”), our Quarterly Report on Form 10-Q for the quarterly period ended April
1, 2022, and in other reports we file with the SEC, each as it may be amended from time to time. These forward-looking statements are made as of the date of this Quarterly Report on Form 10-Q. We reserve the right to update these forward-looking statements for any reason, including the occurrence of material events, but assume no duty to update these statements to reflect subsequent events.
Preferred
stock, $ii0.001/ par value; ii3.0/
shares authorized; iiiinone///
issued and outstanding
i—
i—
Common
stock, $ii0.001/ par value; ii360.0/
shares authorized; ii247.6/ and ii250.9/
shares issued and outstanding at the end of the second quarter of 2022 and year end 2021
i0.2
i0.3
Additional
paid-in-capital
i1,987.7
i1,935.6
Retained
earnings
i2,145.7
i2,170.5
Accumulated
other comprehensive loss
(i239.1)
(i161.7)
Total
stockholders' equity
i3,894.5
i3,944.7
Total
liabilities and stockholders' equity
$
i6,919.5
$
i7,099.6
See
accompanying Notes to the Condensed Consolidated Financial Statements.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – UNAUDITED
NOTE 1. iOVERVIEW
AND ACCOUNTING POLICIES
i
Basis of Presentation
The Condensed Consolidated Financial Statements include our results of our consolidated subsidiaries. Intercompany accounts and transactions have been eliminated. Noncontrolling interests represent the noncontrolling stockholders’ proportionate share of the net assets and results of operations of our consolidated subsidiaries.
We
use a 52- to 53-week year ending on the Friday nearest to December 31. Both 2022 and 2021 are 52-week years. The second quarter of 2022 and 2021 ended on July 1, 2022 and July 2, 2021. Unless otherwise stated, all dates refer to these periods.
i
Use of Estimates
We prepared our interim Condensed Consolidated Financial Statements that accompany these notes in conformity with U.S. GAAP, consistent in all material respects with those applied in our Form 10-K filed with the U.S. Securities
and Exchange Commission on February 23, 2022 (the “2021 Form 10-K”).
The interim financial information is unaudited, and reflects all normal adjustments that are, in our opinion, necessary to provide a fair statement of results for the interim periods presented. This report should be read in conjunction with our 2021 Form 10-K that includes additional information about our significant accounting policies and the methods and assumptions used in our estimates.
The preparation of financial statements in accordance with U.S. generally accepted accounting principles (“GAAP”) requires us to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. Estimates and assumptions are used for revenue recognition, including determining the nature and timing of satisfaction of performance
obligations and determining standalone selling price (“SSP”) of performance obligations, provision for credit losses, sales returns reserve, inventory valuation, warranty costs, investments, acquired intangibles, goodwill and intangible asset impairment analysis, other long-lived asset impairment analysis, stock-based compensation, and income taxes. We base our estimates on historical experience and various other assumptions we believe to be reasonable. Actual results that we experience may differ materially from our estimates.
i
Recently
issued Accounting Pronouncements not yet Adopted
There are no recently issued accounting pronouncements applicable to us not yet adopted.
Recently Adopted Accounting Pronouncements
There are no recently adopted accounting pronouncements.
NOTE 2. iSTOCKHOLDERS’ EQUITY
Stock
Repurchase Activities
In August 2021, our Board of Directors approved a new share repurchase program (“2021 Stock Repurchase Program”) authorizing up to $i750.0 million in repurchases of our common stock. Under the 2021 Stock Repurchase Program, the share repurchase authorization does not have an expiration date and supersedes and replaces the $i600.0 million
share repurchase authorization approved by our Board of Directors in November 2017 (“2017 Stock Repurchase Program”), of which $i50.7 million was remaining and cancelled.
Under the 2021 Stock Repurchase Program, we may repurchase shares from time to time through open market transactions, privately-negotiated transactions, accelerated stock repurchase plans, or by other means. The timing and actual number of any shares repurchased will depend on a variety
of factors, including market conditions, our share price, other available uses of capital, applicable legal requirements, and other factors. The 2021 Stock Repurchase Program may be suspended, modified, or discontinued at any time at the Company’s discretion without notice.
During the second quarter and first two quarters of 2022, we repurchased approximately i3.1 million and i4.6 million
shares of common stock in open market purchases at an average price of $i65.38 and $i66.42 per share for a total of $i200.0 million
and $i304.7 million under the 2021 Stock Repurchase Program. At the end of the second quarter of 2022, the 2021 Stock Repurchase Program had remaining authorized funds of $i305.3 million.
There were ino stock repurchases during the second quarter of 2021. During the first two quarters of 2021, we repurchased approximately i0.6 million
shares of common stock in open market purchases at an average price of $i71.24 per share for a total of $i40.0 million
under the 2017 Stock Repurchase Program.
Stock repurchases are reflected as a decrease to common stock based on par value and additional-paid-in-capital, based on the average book value per share for all outstanding shares calculated at the time of each individual repurchase transaction. The excess of the purchase price over this average for each repurchase was charged to retained earnings. Common stock repurchases under the program were recorded based upon the trade date for accounting purposes.
NOTE 3. iINTANGIBLE
ASSETS AND GOODWILL
Intangible Assets
i
The following table presents a summary of our intangible assets:
Second
Quarter of 2022
Year End 2021
Gross
Gross
Carrying
Accumulated
Net Carrying
Carrying
Accumulated
Net Carrying
(In
millions)
Amount
Amortization
Amount
Amount
Amortization
Amount
Developed product technology
$
i948.5
$
(i729.3)
$
i219.2
$
i1,011.9
$
(i748.2)
$
i263.7
Customer
relationships
i632.7
(i427.0)
i205.7
i667.8
(i428.9)
i238.9
Trade
names and trademarks
i45.6
(i38.6)
i7.0
i48.0
(i45.0)
i3.0
Distribution
rights and other intellectual property
i9.2
(i8.2)
i1.0
i10.0
(i9.0)
i1.0
$
i1,636.0
$
(i1,203.1)
$
i432.9
$
i1,737.7
$
(i1,231.1)
$
i506.6
/i
The
estimated future amortization expense of intangible assets at the end of the second quarter of 2022 was as follows:
(In millions)
2022 (Remaining)
$
i58.4
2023
i112.5
2024
i89.1
2025
i55.6
2026
i49.3
Thereafter
i68.0
Total
$
i432.9
/
Goodwill
i
The
changes in the carrying amount of goodwill by segment for the first two quarters of 2022 were as follows:
Buildings and Infrastructure
Geospatial
Resources
and Utilities
Transportation
Total
(In millions)
Balance as of year end 2021
$
i2,141.4
$
i403.6
$
i440.8
$
i995.7
$
i3,981.5
Decrease
from the sale of businesses
(i23.9)
(i6.9)
i—
(i6.9)
(i37.7)
Foreign
currency translation and other adjustments
(i33.8)
(i11.4)
(i8.5)
(i4.1)
(i57.8)
Balance
as of the end of the second quarter of 2022
In May 2022, we completed the sale of the Time and Frequency, LOADRITE, Spectra Precision Tools, and SECO accessories businesses to Precisional LLC, an affiliate of The Jordan Company (“TJC”), for $i204.1 million
in cash, subject to a working capital adjustment. These businesses are reported as part of our Buildings and Infrastructure and Geospatial segments. Upon the closing of the transaction, we recognized a pre-tax gain of $i105.7 million and wrote off $i98.4 million
of net assets primarily comprised of $i40.6 million of inventory, $i25.4 million
of accounts receivable, and $i30.8 million of goodwill.
In connection with the sale of these businesses, we and TJC entered into a transition services agreement (“TSA”) for us to provide certain services to TJC on a cost-reimbursement basis. The costs and reimbursements associated with the TSA were immaterial for the second quarter of 2022.
NOTE
5. iINVENTORIES
i
The components of inventory, net were as follows:
Second
Quarter of
Year End
As of
2022
2021
(In millions)
Raw materials
$
i127.6
$
i129.6
Work-in-process
i9.9
i12.4
Finished
goods
i234.2
i221.3
Total
inventories
$
i371.7
$
i363.3
/
NOTE
6. iSEGMENT INFORMATION
We determined our operating segments based on how our Chief Operating Decision Maker (“CODM”) views and evaluates operations. Our reportable segments are described below:
•Buildings and Infrastructure. This segment primarily serves customers working in architecture, engineering, construction, and operations and maintenance.
•Geospatial.
This segment primarily serves customers working in surveying, engineering, and government.
•Resources and Utilities. This segment primarily serves customers working in agriculture, forestry, and utilities.
•Transportation. This segment primarily serves customers working in long haul trucking and freight shipper markets.
The following Reporting Segment tables reflect the results of our reportable operating segments under our management reporting system. These results are not necessarily in conformity with U.S. GAAP. This is consistent with the way the CODM evaluates each of the segment's performance and allocates resources.
The disaggregation of revenue by geography is summarized in the tables below. Revenue is defined as revenue from external customers attributed to countries based on the location of the customer and is consistent with the Reporting Segment tables above.
Reporting
Segments
Buildings and Infrastructure
Geospatial
Resources and Utilities
Transportation
Total
(In millions)
Second
Quarter of 2022
North America
$
i242.9
$
i87.9
$
i64.3
$
i117.8
$
i512.9
Europe
i84.0
i61.3
i97.7
i18.4
i261.4
Asia
Pacific
i49.9
i32.8
i13.5
i7.6
i103.8
Rest
of World
i5.8
i11.7
i39.3
i6.3
i63.1
Total
segment revenue
$
i382.6
$
i193.7
$
i214.8
$
i150.1
$
i941.2
Second
Quarter of 2021
North America
$
i212.2
$
i97.2
$
i60.4
$
i123.3
$
i493.1
Europe
i101.0
i72.2
i93.6
i25.1
i291.9
Asia
Pacific
i45.8
i39.5
i15.1
i7.6
i108.0
Rest
of World
i5.8
i10.8
i28.4
i7.3
i52.3
Total
segment revenue
$
i364.8
$
i219.7
$
i197.5
$
i163.3
$
i945.3
First
Two Quarters of 2022
North America
$
i474.8
$
i171.3
$
i123.3
$
i241.9
$
i1,011.3
Europe
i196.3
i132.5
i211.7
i40.1
i580.6
Asia
Pacific
i96.8
i74.8
i32.7
i15.0
i219.3
Rest
of World
i12.3
i22.6
i77.0
i11.8
i123.7
Total
segment revenue
$
i780.2
$
i401.2
$
i444.7
$
i308.8
$
i1,934.9
First
Two Quarters of 2021
North America
$
i412.0
$
i169.7
$
i114.0
$
i247.8
$
i943.5
Europe
i195.3
i132.6
i199.4
i44.8
i572.1
Asia
Pacific
i89.4
i77.0
i36.1
i15.3
i217.8
Rest
of World
i11.2
i22.1
i53.2
i12.1
i98.6
Total
segment revenue
$
i707.9
$
i401.4
$
i402.7
$
i320.0
$
i1,832.0
/
Total
revenue in the United States as included in the Condensed Consolidated Statements of Income was $i467.4 million and $i443.3 million for the second quarter of 2022 and 2021, and
$i914.4 million and $i850.1 million for the first two quarters of 2022 and 2021. No single customer or country other than the United States accounted for
10% or more of Trimble’s total revenue.
NOTE 7. iDEBT
i
Debt
consisted of the following:
Second Quarter of
Year End
Instrument
Date
of Issuance
2022
2021
(In millions)
Effective interest rate
Senior Notes:
2023
Senior Notes, i4.15%, due June 2023
June 2018
i4.36%
$
i300.0
$
i300.0
2024
Senior Notes, i4.75%, due December 2024
November 2014
i4.95%
i400.0
i400.0
2028
Senior Notes, i4.90%, due June 2028
June 2018
i5.04%
i600.0
i600.0
Unamortized
discount and issuance costs
(i5.9)
(i6.8)
Total
debt
$
i1,294.1
$
i1,293.2
Less:
Short-term debt
i300.0
i—
Long-term
debt
$
i994.1
$
i1,293.2
/
Each
of our debt agreements, including our credit facilities, requires us to maintain compliance with certain debt covenants, all of which we complied with at the end of the second quarter of 2022.
At the end of
the second quarter of 2022, our debt maturities based on outstanding principal were as follows (in millions):
Year Payable
2022 (Remaining)
$
i—
2023
i300.0
2024
i400.0
2025
i—
2026
i—
Thereafter
i600.0
Total
$
i1,300.0
/
Senior
Notes
All of our senior notes are unsecured obligations. Interest on the senior notes is payable semi-annually in June and December of each year. Additional details are unchanged from the information disclosed in Note 6, “Debt” of the 2021 Form 10-K.
Credit Facilities
In March 2022, we entered into a credit agreement (the “2022 Credit Facility”) maturing in March 2027. The 2022 Credit Facility provides for a five-year, unsecured revolving credit facility in the aggregate principal amount of $i1.25 billion,
and permits us, subject to the satisfaction of certain conditions, to increase the commitments for revolving loans by an aggregate principal amount of up to $i500.0 million. The interest rate and commitment fees are based on our current long-term, senior unsecured debt ratings, our leverage ratio, and certain specified sustainability targets. As of July 1, 2022, ino
amounts were outstanding under the 2022 Credit Facility.
Uncommitted Facilities
At the end of the second quarter of 2022, we had itwo $i75.0
million, ione €i100.0 million, and ione
£i55.0 million revolving credit facilities, which are uncommitted (the “uncommitted facilities”). Generally, these uncommitted facilities may be redeemed upon demand. Borrowings under uncommitted facilities are classified as short-term debt in the Condensed Consolidated Balance Sheet.
The
following table summarizes the fair values of financial instruments at fair value on a recurring basis for the periods indicated and determined using the following inputs:
Fair
Values as of the end of the Second Quarter of 2022
Fair Values at the end of 2021
Quoted prices in Active Markets for Identical Assets
Significant Other Observable Inputs
Significant Unobservable Inputs
Quoted prices in Active Markets for Identical Assets
Significant Other Observable Inputs
Significant Unobservable Inputs
(In
millions)
(Level I)
(Level II)
(Level III)
Total
(Level I)
(Level II)
(Level III)
Total
Assets
Deferred
compensation plan (1)
$
i33.4
$
i—
$
i—
$
i33.4
$
i44.7
$
i—
$
i—
$
i44.7
Derivatives
(2)
i—
i0.7
i—
i0.7
i—
i0.1
i—
i0.1
Total
assets measured at fair value
$
i33.4
$
i0.7
$
i—
$
i34.1
$
i44.7
$
i0.1
$
i—
$
i44.8
Liabilities
Deferred
compensation plan (1)
$
i33.4
$
i—
$
i—
$
i33.4
$
i44.7
$
i—
$
i—
$
i44.7
Derivatives
(2)
i—
i0.1
i—
i0.1
i—
i0.2
i—
i0.2
Contingent
consideration (3)
i—
i—
i—
i—
i—
i—
i12.8
i12.8
Total
liabilities measured at fair value
$
i33.4
$
i0.1
$
i—
$
i33.5
$
i44.7
$
i0.2
$
i12.8
$
i57.7
(1)
Represents a self-directed, non-qualified deferred compensation plan for certain executives and other highly compensated employees included in Other non-current assets and Other non-current liabilities on our Condensed Consolidated Balance Sheets. The plan is invested in actively traded mutual funds and individual stocks valued using observable quoted prices in active markets.
(2) Represents forward currency exchange contracts that are included in Other current assets and Other current liabilities on our Condensed Consolidated Balance Sheets.
/
(3) Represents
arrangements to pay the former owners of certain companies that we acquired that are included in Other current liabilities on our Condensed Consolidated Balance Sheets. The fair values are estimated using scenario-based methods or option pricing methods based upon estimated future revenues, gross margins, or other milestones.
Additional Fair Value Information
The total estimated fair value of all outstanding financial instruments that are not recorded at fair value on a recurring basis (debt) was approximately $i1.3 billion
and $i1.4 billion at the end of the second quarter of 2022 and at the end of 2021.
The fair value of the senior notes was determined based on observable market prices in less active markets and is categorized accordingly as Level II. The fair values do not indicate the amount we would currently have to pay to extinguish the debt.
NOTE 9. iDEFERRED REVENUE AND REMAININGPERFORMANCE OBLIGATIONS
Deferred Revenue
i
Changes
in our deferred revenue during the second quarter and first two quarters of 2022 and 2021 were as follows:
Second Quarter of
First
Two Quarters of
(In millions)
2022
2021
2022
2021
Beginning balance of the period
$
i703.9
$
i618.9
$
i631.8
$
i613.8
Revenue
recognized
(i127.2)
(i132.4)
(i361.8)
(i379.6)
Billing
and other net activities
i108.5
i119.6
i415.2
i371.9
Ending
balance of the period
$
i685.2
$
i606.1
$
i685.2
$
i606.1
/
Remaining
Performance Obligations
At the end of the second quarter of 2022, approximately $i1.6 billion of revenue is expected to be recognized from remaining performance obligations for which goods or services have not been delivered, primarily subscription, software, and software maintenance, and to a lesser extent, hardware and professional services contracts. We expect to recognize $i1.2 billion
or i74% of our remaining performance obligations as revenue during the next i12 months and the remainder thereafter.
NOTE
10. iEARNINGS PER SHARE
Basic earnings per share is computed based on the weighted-average number of shares of common stock outstanding during the period. Diluted earnings per share is computed based on the weighted-average number of shares of common stock outstanding during the period plus additional shares of common stock that would have been outstanding if potentially dilutive securities had been issued. Potentially dilutive common shares include outstanding stock options, restricted stock units, contingently issuable shares, and shares to be
purchased under our employee stock purchase plan.
i
The following table shows the computation of basic and diluted earnings per share:
Second
Quarter of
First Two Quarters of
2022
2021
2022
2021
(In millions, except per share amounts)
Numerator:
Net
income attributable to Trimble Inc.
$
i168.0
$
i138.9
$
i278.3
$
i253.4
Denominator:
Weighted-average
number of common shares used in basic earnings per share
i249.2
i251.5
i250.0
i251.3
Effect
of dilutive securities
i1.5
i2.7
i1.7
i2.9
Weighted-average
number of common shares and dilutive potential common shares used in diluted earnings per share
i250.7
i254.2
i251.7
i254.2
Basic
earnings per share
$
i0.67
$
i0.55
$
i1.11
$
i1.01
Diluted
earnings per share
$
i0.67
$
i0.55
$
i1.11
$
i1.00
Antidilutive
weighted-average shares
i2.1
i0.1
i1.5
i0.2
/
Antidilutive
stock-based awards are excluded from the calculation of diluted shares and diluted earnings per share because their impact would increase diluted earnings per share.
NOTE 11. iINCOME TAXES
For the second quarter, our effective income tax rate was i24.2%,
as compared to i14.5% in the prior year. For the first two quarters, our effective income tax rate was i22.7%, as compared to i15.4%
in the prior year. The increases were primarily associated with current quarter divestiture gains and a prior year rate decrease due to a one-time tax benefit from a foreign deferred tax asset.
We and our subsidiaries are subject to U.S. federal, state, and foreign income taxes. Currently, we are in different stages of multiple year examinations by various state and foreign taxing authorities. While we believe our reserves are more likely than not to be adequate to cover final resolution of all open tax matters, it is reasonably possible that future obligations related to these matters could arise.
Unrecognized tax benefits of $i51.8 million and $i42.3
million at the end of the second quarter of 2022 and at the end of 2021, if recognized, would favorably affect the effective income tax rate in future periods. At the end of the second quarter of 2022 and at the end of 2021, we accrued interest and penalties of $i10.2 million and $i9.2
million. Although timing of the resolution and/or closure of audits is not certain, we do not believe that our gross unrecognized tax benefits would materially change in the next twelve months.
NOTE 12. iCOMMITMENTS AND CONTINGENCIES
Commitments
At the end of the second quarter of
2022, we had unconditional purchase obligations of approximately $i685.1 million. These unconditional purchase obligations primarily represent open non-cancellable purchase orders for material purchases with our vendors and investments in our platform associated with our Connect and Scale strategy.
Litigation
From time to time, we are involved in litigation arising in the ordinary course of
our business. There are no material legal proceedings, other than ordinary routine litigation incidental to the business, that we or any of our subsidiaries is a party, or that any of our or our subsidiaries’ property is subject.
ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
CRITICAL
ACCOUNTING POLICIES AND ESTIMATES
There have been no material changes to our critical accounting policies and estimates during the first two quarters of 2022. For a complete discussion of our critical accounting policies and estimates, refer to “Management’s Discussion and Analysis of Financial Condition and Results of Operations” section of the 2021 Form 10-K.
RECENT ACCOUNTING PRONOUNCEMENTS
For a summary of recent accounting pronouncements applicable to our Condensed Consolidated Financial Statements, refer to Note 1 “Overview and Accounting Policies” of this Form 10-Q.
EXECUTIVE LEVEL OVERVIEW
We are a leading provider of technology solutions that enable professionals and field mobile workers to improve or transform their work processes. Our
comprehensive work process solutions are used across a range of industries including architecture, building construction, civil engineering, geospatial, survey and mapping, agriculture, natural resources, utilities, transportation, and government. Our representative customers include construction owners, contractors, engineering and construction firms, surveying companies, farmers and agricultural companies, energy and utility companies, trucking companies, and state, federal, and municipal governments.
Our growth strategy is centered on multiple elements:
•Executing on our Connect and Scale strategy;
•Increasing focus on software and services;
•Focus on attractive markets with significant growth and profitability potential;
•Domain
knowledge and technological innovation that benefit a diverse customer base;
•Geographic expansion with localization strategy;
•Optimized go-to-market strategies to best access our markets;
•Strategic acquisitions;
•Venture fund investments; and
•Sustainability.
Our focus on these growth drivers has led over time to growth in revenue and profitability and an increasingly diversified business model. We continue to experience a shift toward a more significant mix of recurring revenue contracts, as
demonstrated by our success in driving annualized recurring revenue (“ARR”) of $1,512.5 million, which represents growth of 12% year-over-year at the end of the second quarter of 2022. Excluding the impact of foreign currency, acquisitions, and divestitures, ARR organic growth was 15%. This shift has positively impacted our revenue mix and growth over time and is leading to improved visibility in our businesses. Our software, maintenance, subscriptions, and services represented 56% of total revenue for the first two quarters of 2022. As our solutions have expanded, our go-to-market model has also evolved with a balanced mix between direct,
distribution, and OEM customers as well as an increasing number of enterprise level customer relationships.
For a full definition of ARR as used in this discussion and analysis, refer to the “Supplemental Disclosure of Non-GAAP Financial Measures and Annualized Recurring Revenue” later in this Item 2.
Impact of Recent Events on Our Business
Inflation, Supply Chain, Foreign Currency Fluctuations, and Russia’s Invasion of Ukraine
In the first two quarters of 2022, we continued to experience inflationary cost increases in certain components of our hardware products due to supply chain disruptions resulting from parts and labor shortages and an increase in worldwide demand for components. Over the past year, we have continued to increase customer pricing to offset inflationary pressures. Due to
extended component lead times, we have made binding commitments over a longer horizon for certain components. This may impact our working capital in the short term; however, we expect supply chain conditions to normalize over time.
Our year-to-date results were negatively impacted by foreign currency fluctuations due to strengthening of the U.S. dollar. In the second quarter and first two quarters of 2022, unfavorable revenue impacts from foreign currency exchange rates were $28.5 million and $47.8 million.
In the first quarter of 2022, we stopped selling to Russia and Belarus customers and
wrote off uncollected customer receivables and inventory located in these countries. In the second quarter of 2022, we terminated business operations in Russia and Belarus. To date, asset impairments and severance costs were not material to our consolidated financial statements. Total revenue associated with Russia and Belarus customers, either sold directly or indirectly through resellers or OEMs, was less than 2% of our total Company revenue for 2021.
Business Divestitures
In the second quarter of 2022, we completed the sale of the Time and Frequency, LOADRITE, Spectra Precision Tools, and SECO accessories businesses to Precisional LLC, an affiliate of The Jordan Company. Prior to the sale, the operating results were previously reported in our Buildings and Infrastructure and Geospatial segments. For additional discussion of
this divestiture, refer to Note 4 “Divestitures” of this Form 10-Q.
Additionally, we completed the sale of Beena Vision to Wabtec Corporation in the second quarter of 2022, which was part of the Transportation segment. The proceeds were immaterial.
Both of these divestitures are in line with our strategy to focus on core areas of our long-term growth and strategic product roadmap.For 2021, the revenue and operating income for these businesses was approximately $185.0 million and $37.0 million.
For the second quarter of 2022, as compared to 2021, divestitures reduced revenue and operating income by $37.9 million and $10.8 million.
RESULTS
OF OPERATIONS
Overview
The following table shows revenue by category, gross margin and gross margin as a percentage of revenue, operating income and operating income as a percentage of revenue, diluted earnings per share, and annualized recurring revenue compared for the periods indicated:
Second
Quarter of
First Two Quarters of
2022
2021
Dollar Change
% Change
2022
2021
Dollar Change
% Change
(In millions, except per share amounts)
Revenue:
Product
$
564.5
$
594.9
$
(30.4)
(5)%
$
1,186.1
$
1,134.3
$
51.8
5%
Service
158.0
162.1
(4.1)
(3)%
319.1
324.4
(5.3)
(2)%
Subscription
218.7
188.2
30.5
16%
429.7
373.0
56.7
15%
Total
revenue
$
941.2
$
945.2
$
(4.0)
—%
$
1,934.9
$
1,831.7
$
103.2
6%
Gross
margin
$
537.5
$
525.4
$
12.1
2%
$
1,087.1
$
1,018.7
$
68.4
7%
Gross
margin as a % of revenue
57.1
%
55.6
%
56.2
%
55.6
%
Operating income
$
134.9
$
144.8
$
(9.9)
(7)%
$
291.8
$
285.7
$
6.1
2%
Operating
income as a % of revenue
14.3
%
15.3
%
15.1
%
15.6
%
Diluted
earnings per share
$
0.67
$
0.55
$
0.12
22%
$
1.11
$
1.00
$
0.11
11%
Non-GAAP
revenue (1)
$
941.2
$
945.3
$
(4.1)
—%
$
1,934.9
$
1,832.0
$
102.9
6%
Non-GAAP
operating income (1)
$
210.7
$
228.6
$
(17.9)
(8)%
$
443.8
$
437.8
$
6.0
1%
Non-GAAP
operating income as a % of Non-GAAP Revenue(1)
22.4
%
24.2
%
22.9
%
23.9
%
Non-GAAP diluted earnings per share (1)
$
0.64
$
0.72
$
(0.08)
(11)%
$
1.38
$
1.38
$
—
NM
Annualized
Recurring Revenue (“ARR”) (1)
$
1,512.5
$
1,348.9
$
163.6
12%
N/A
N/A
N/A
N/A
(1)
Refer to“Supplemental Disclosure of Non-GAAP Financial Measures and Annualized Recurring Revenue” of this Form 10-Q for definitions.
Second Quarterand First Two Quartersof 2022 as Compared to 2021
Revenue
Second
Quarter of
First Two Quarters of
Change versus the corresponding period in 2021
2022
2022
% Change
% Change
(In
millions)
Change in total revenue
—
%
6
%
Acquisitions
1
%
1
%
Divestitures
(4)
%
(3)
%
Foreign
currency exchange
(3)
%
(3)
%
Organic growth
6
%
10
%
For this table and similar tables below, percentages may not sum
due to rounding.
Excluding acquisitions, divestitures, and unfavorable foreign currency, revenue for the second quarter and first two quarters was up due to organic growth in hardware, software, and subscription sales in Building and Infrastructure and Resources and Utilities. Geospatial organic revenue was slightly down for the second quarter and was impacted by supply chain constraints and unusually strong sales in the prior year, including new product introductions. For the first two quarters, Geospatial organic revenue, particularly software sales, was up, which contributed to overall growth.
By revenue category, product revenue decreased for the second quarter primarily due to divestitures, which were hardware centric, partially offset by hardware sales in Buildings and Infrastructure and Resources and Utilities. Product
revenue increased for the first two quarters primarily due to hardware and software growth in Buildings and Infrastructure, Resources and Utilities, and Geospatial, partially offset by divestitures of $35.0 million. Service revenue was relatively flat. Subscription revenue increased for the second quarter and first two quarters primarily due to strong growth in Buildings and Infrastructure and, to a lesser extent, in Resources and Utilities, Geospatial, and Transportation. All revenue categories were impacted by unfavorable foreign currency.
Gross Margin
Gross margin increased for the second quarter and first two quarters primarily due to organic revenue growth in Buildings and Infrastructure and Resources and Utilities, partially offset
by divestitures and unfavorable foreign currency. Gross margin as a percentage of revenue increased for the second quarter and first two quarters due to an increased mix of software and subscription sales across all segments, slightly offset by supply chain cost impacts in Resources and Utilities, which lessened in the second quarter due to customer price increases.
Operating Income
Operating income decreased for the second quarter due to divestitures and unfavorable foreign currency, partially offset by organic revenue and gross margin expansion. Operating expense was higher due to investments related to our Connect and Scale strategy, including increased headcount and consulting, as well as sales, marketing, and travel costs as COVID-related lockdowns subsided. Operating income increased for the first two quarters primarily due to revenue and gross margin
expansion, partially offset by divestitures and unfavorable foreign currency.
Operating income as a percentage of revenue decreased for the second quarter and first two quarters primarily due to increased operating expense, partially offset by increased gross margin as a percentage of revenue.
Research and Development, Sales and Marketing, and General and Administrative Expense
The following table shows research and development (“R&D”), sales
and marketing (“S&M”), and general and administrative (“G&A”) expense along with these expenses as a percentage of revenue for the periods indicated:
Second
Quarter of
First Two Quarters of
2022
2021
Dollar Change
% Change
2022
2021
Dollar Change
% Change
(In millions)
Research
and development
$
140.1
$
138.3
$
1.8
1%
$
280.4
$
267.7
$
12.7
5%
Percentage
of revenue
14.9
%
14.6
%
14.5
%
14.6
%
Sales and marketing
$
138.9
$
125.2
$
13.7
11%
$
270.8
$
247.6
$
23.2
9%
Percentage
of revenue
14.8
%
13.2
%
14.0
%
13.5
%
General and administrative
$
106.9
$
99.6
$
7.3
7%
$
208.4
$
185.0
$
23.4
13%
Percentage
of revenue
11.4
%
10.5
%
10.8
%
10.1
%
Total
$
385.9
$
363.1
$
22.8
6%
$
759.6
$
700.3
$
59.3
8%
R&D
expense increased for the second quarter and first two quarters primarily due to higher compensation expense, partially offset by favorable foreign currency, favorable deferred compensation fluctuations, and divestitures. We believe that the development and introduction of new solutions are critical to our future success, and we expect to continue the active development of new products.
S&M expense increased for the second quarter and first two quarters primarily due to higher compensation expense, including commissions, and, to a lesser extent, higher travel and marketing costs, partially offset by favorable foreign currency and divestitures.
G&A expense increased for the second quarter
and first two quarters primarily due to higher compensation and consulting costs related to our Connect and Scale strategy and charitable donations to the Trimble Foundation, partially offset by lower stock-based compensation, favorable deferred compensation fluctuations, and divestitures. In addition, the first two quarters of 2022 was impacted by higher bad debt expense associated with Russia and Belarus customers in the first quarter of 2022.
Amortization of Purchased Intangible Assets
Second
Quarter of
First Two Quarters of
2022
2021
Dollar Change
% Change
2022
2021
Dollar Change
% Change
(In millions)
Cost
of sales
$
21.0
$
22.0
$
(1.0)
(5)%
$
43.5
$
44.1
$
(0.6)
(1)%
Operating
expenses
11.3
13.0
(1.7)
(13)%
23.4
26.7
(3.3)
(12)%
Total amortization expense of purchased intangibles
$
32.3
$
35.0
$
(2.7)
(8)%
$
66.9
$
70.8
$
(3.9)
(6)%
Total
amortization expense of purchased intangibles as a percentage of revenue
3
%
4
%
3
%
4
%
Total
amortization expense of purchased intangibles decreased for the second quarter and first two quarters due to the expiration of prior quarters’ acquisition amortization.
The components of non-operating income, net, were as follows:
Second
Quarter of
First Two Quarters of
2022
2021
Dollar Change
% Change
2022
2021
Dollar Change
% Change
(In millions)
Divestitures
gain, net
$
106.0
$
20.4
$
85.6
420%
$
97.1
$
22.4
$
74.7
333%
Interest
expense, net
(15.3)
(16.6)
1.3
(8)%
(31.3)
(33.5)
2.2
(7)%
Income
from equity method investments, net
5.8
10.0
(4.2)
(42)%
15.5
21.8
(6.3)
(29)%
Other income (expense), net
(9.8)
3.8
(13.6)
(358)%
(13.0)
3.4
(16.4)
(482)%
Total
non-operating income, net
$
86.7
$
17.6
$
69.1
393%
$
68.3
$
14.1
$
54.2
384%
Non-operating
income, net increased for the second quarter and first two quarters primarily due to the net gain from the sale of five businesses in the second quarter, slightly offset by fluctuations in deferred compensation plan assets included in Other income (expense), net, and lower joint-venture profitability.
Income Tax Provision
For the second quarter, our effective income tax rate was 24.2%, as compared to 14.5% in the prior year. For the first two quarters, our effective income tax rate was 22.7%, as compared to 15.4% in the prior year. The increases were primarily associated with current quarter divestiture gains and a prior year rate decrease due to a one-time tax benefit from a foreign deferred tax asset.
Results
by Segment
We report our financial performance, including revenue and operating income, based on four reportable segments: Buildings and Infrastructure, Geospatial, Resources and Utilities, and Transportation.
Our Chief Executive Officer (chief operating decision maker) views and evaluates operations based on the results of our reportable operating segments under our management reporting system. For additional discussion of our segments, refer to Note 6 “Segment Information” of this Form 10-Q.
Excluding acquisitions, divestitures, and unfavorable foreign currency,
organic revenue increased for the second quarter and first two quarters primarily due to strong demand for our civil construction hardware and related software licenses resulting from relative strength in residential construction spend. The increase was also due to higher term license and subscription revenue growth in our software businesses, and to a lesser extent, price increases. The increase in subscription revenue resulted from higher sales to new and existing customers as well as conversions from perpetual software to recurring offerings.
Operating income decreased for the second quarter primarily due to divestitures and unfavorable foreign currency, partially offset by revenue and gross margin expansion. Additionally, operating expense was higher due to investments, including our Connect and Scale strategy; sales; marketing;
and travel costs. Operating income increased for the first two quartersprimarily due to revenue and gross margin expansion, partially offset by divestitures and unfavorable foreign currency. Operating income as a percentage of revenue decreased for the second quarter primarily due to increased operating expense, partially offset by gross margin expansion. Operating income as a percentage of revenue for the first two quarters was relatively flat.
Geospatial
Second
Quarter of
First Two Quarters of
Change versus the corresponding period in 2021
2022
2022
% Change
% Change
(In
millions)
Change in segment revenue
(12)
%
—
%
Divestitures
(4)
%
(2)
%
Foreign
currency exchange
(3)
%
(3)
%
Organic growth
(5)
%
5
%
Excluding divestitures and unfavorable foreign currency, organic revenue
decreased for the second quarter due to supply chain constraints and unusually strong sales in the prior year, including new product introductions. For the first two quarters, Geospatial organic revenue, particularly software sales, was up, which contributed to overall growth.
Operating income decreased for the second quarter primarily due to divestitures and organic revenue declines and higher operating expense due to investments, including our Connect and Scale strategy; marketing; and travel costs. Gross margin expansion partially offset the decreases. Operating income for the first two quarters was relatively flat. Operating income as a percentage of revenue for the second quarter and first two quarters was relatively flat.
Excluding divestitures and unfavorable foreign currency, organic revenue increased for the second quarter and first two quarters primarily due to continued relative strength in agriculture, particularly in the OEM channel in the second quarter. Despite higher farmer input costs, market fundamentals, including favorable commodity prices, continued to support agriculture revenue growth. To a lesser extent, revenue was favorably impacted by customer price increases.
Operating income was relatively flat for the second quarter and first two quarters. Divestitures and unfavorable foreign currency were largely offset by revenue expansion. Operating expense was higher due to investments, including our Connect and Scale strategy, as well as travel
costs. Operating income as a percentage of revenue decreased for the second quarter and first two quarters primarily due to gross margin percentage decrease associated with increased supply chain costs; the supply chain impacts lessened in the second quarter due to customer pricing increases.
Transportation
Second
Quarter of
First Two Quarters of
Change versus the corresponding period in 2021
2022
2022
% Change
% Change
(In
millions)
Change in segment revenue
(8)
%
(4)
%
Divestitures
(2)
%
(1)
%
Foreign
currency exchange
(1)
%
(1)
%
Organic growth
(5)
%
(1)
%
Excluding divestitures and unfavorable foreign currency, organic
revenue decreasedfor the second quarter and first two quartersprimarily driven by lower mobility hardware sales to North American customers. Enterprise revenue continued to experience term license and subscription revenue growth as the business transitions from a perpetual software license model.
Operating income and operating income as a percentage of revenue was relatively flat for the second quarter and first two quarters. Revenue declines were largely offset by gross margin expansion, including targeted cost reductions. We continued to maintain focus on new product introductions and transitions to recurring revenue.
Effect
of exchange rate changes on cash and cash equivalents
(14.4)
(1.9)
(12.5)
658
%
Net increase in cash and cash equivalents
$
24.4
$
246.7
Operating
Activities
The decrease in cash provided by operating activities was primarily driven by higher inventory purchases and lower accounts payable associated with the timing of inventory payments, higher tax payments, driven in part by a second quarter payment associated with the Tax Cuts and Jobs Act of 2017, and lower accrued compensation associated with bonus payouts in the first quarter, offset by higher deferred revenue.
Investing Activities
The increase in cash provided by investing activities was primarily due to higher proceeds from divestitures.
Financing Activities
The increase in cash used in financing activities was primarily driven by an increase in common stock repurchases, partially offset by a decrease in debt repayments, net of debt proceeds.
Cash
and Cash Equivalents
We believe that our cash and cash equivalents and borrowings, along with cash provided by operations will be sufficient in the foreseeable future to meet our anticipated operating cash needs, expenditures related to our Connect and Scale strategy, debt service, and any stock repurchases under the stock repurchase program. In addition, in March 2022, we entered into a five-year, unsecured revolving loan facility for borrowings up to $1.25 billion, which replaced the 2018 Credit Facility. The 2022 Credit Facility contains an option to increase the borrowings up to $1.75 billion with lender approval. As of July 1, 2022, no amounts were outstanding under the 2022 Credit Facility.
We anticipate refinancing some or all of our outstanding indebtedness at or prior to its maturity, which could
involve us accessing the capital markets.
A provision enacted in the Tax Cuts and Jobs Act of 2017 related to the capitalization of research and development costs for tax purposes became effective on January 1, 2022. If this provision is not deferred, our full year 2022 tax payments are expected to increase by an estimated $90 million. In the second quarter, we made a partial payment of $40 million for this liability.
Our cash requirements have not otherwise materially changed since the 2021 Form 10-K.
SUPPLEMENTAL DISCLOSURE OF NON-GAAP FINANCIAL MEASURES AND ANNUALIZED RECURRING REVENUE
To supplement our consolidated financial information, we included non-GAAP financial measures, which are not meant to be considered in isolation or as a substitute for comparable GAAP. We believe non-GAAP financial measures provide useful information to investors and others in understanding our “core operating performance”, which excludes (i) the effect of non-cash items and certain variable charges not expected to recur; and (ii) transactions that are not meaningful in comparison to our past operating performance or not reflective of ongoing financial results. Lastly, we believe that our core operating performance offers a supplemental measure for period-to-period comparisons and can be used to evaluate our historical and prospective financial performance, as well
as our performance relative to competitors. In addition to providing non-GAAP financial measures, we disclose Annualized Recurring Revenue (“ARR”) to give the investors supplementary indicators of the value of our current recurring revenue contracts.
ARR represents the estimated annualized value of recurring revenue, including subscription, maintenance and support revenue, and term license contracts for the quarter. ARR is calculated by adding the portion of the contract value of all of our term licenses attributable to the current quarter to our non-GAAP recurring revenue for the current quarter and dividing that sum by the number of days in the
quarter and then multiplying that quotient by 365. ARR should be viewed independently of revenue and deferred revenue, as it is a performance measure and is not intended to be combined with or to replace either of those items.
The non-GAAP financial measures, definitions, and explanations to the adjustments to comparable GAAP measures are included below:
GAAP diluted net income per share attributable to Trimble Inc.:
$
0.67
$
0.55
$
1.11
$
1.00
Purchase
accounting adjustments
(A)
0.13
0.13
0.27
0.27
Acquisition / divestiture items
(B)
(0.39)
(0.06)
(0.34)
(0.05)
Stock-based
compensation / deferred compensation
(C)
0.13
0.14
0.24
0.25
Restructuring and other costs
(D)
0.04
0.02
0.09
0.02
Non-GAAP
tax adjustments
(E) - (F)
0.06
(0.06)
0.01
(0.11)
Non-GAAP diluted net income per share attributable to Trimble Inc.:
$
0.64
$
0.72
$
1.38
$
1.38
ADJUSTED
EBITDA:
GAAP net income attributable to Trimble Inc.:
$
168.0
$
138.9
$
278.3
$
253.4
Non-operating
income, net, income tax provision, and net gain attributable to noncontrolling interests
(33.1)
5.9
13.5
32.3
GAAP operating income:
134.9
144.8
291.8
285.7
Purchase
accounting adjustments
(A)
32.3
34.0
66.9
68.8
Acquisition / divestiture items
(B)
7.3
6.6
11.2
10.1
Stock-based
compensation / deferred compensation
(C)
26.2
38.3
51.2
67.0
Restructuring and other costs
(D)
10.0
4.9
22.7
6.2
Non-GAAP
operating income:
210.7
228.6
443.8
437.8
Depreciation expense
11.0
10.7
21.5
21.0
Income
from equity method investments, net
5.8
10.0
15.5
21.8
Adjusted EBITDA
$
227.5
24.2
%
$
249.3
26.4
%
$
480.8
24.8
%
$
480.6
26.2
%
Non-GAAP
Definitions
Non-GAAP revenue
We define Non-GAAP revenue as GAAP revenue, excluding the effects of purchase accounting adjustments for acquisitions occurring prior to 2021. We believe this measure helps investors understand the performance of our business including acquisitions, as non-GAAP revenue excludes the effects of certain acquired deferred revenue that was written down to fair value
in purchase accounting. Management believes that excluding fair value purchase accounting adjustments more closely correlates with the ordinary and ongoing course of the acquired
company’s operations and facilitates analysis of revenue growth and trends.
Non-GAAP gross margin
We define Non-GAAP gross margin as GAAP gross margin, excluding the effects of purchase accounting adjustments, stock-based compensation, deferred compensation, and restructuring and other costs.We believe our investors benefit by understanding our non-GAAP gross margin as a way of understanding how product mix, pricing decisions, and manufacturing costs influence our business.
Non-GAAP operating expenses
We define Non-GAAP operating expenses as GAAP operating expenses, excluding the effects of purchase accounting adjustments, acquisition/divestiture items, stock-based compensation, deferred compensation, and restructuring
and other costs. We believe this measure is important to investors evaluating our non-GAAP spending in relation to revenue.
Non-GAAP operating income
We define Non-GAAP operating income as GAAP operating income, excluding the effects of purchase accounting adjustments, acquisition/divestiture items, stock-based compensation, deferred compensation, and restructuring and other costs.We believe our investors benefit by understanding our non-GAAP operating income trends, which are driven by revenue, gross margin, and spending.
Non-GAAP non-operating expense, net
We define Non-GAAP non-operating expenses, net as GAAP non-operating expenses, net, excluding acquisition/divestiture items, deferred compensation, and restructuring and other costs.We
believe this measure helps investors evaluate our non-operating expense trends.
Non-GAAP income tax provision
We define Non-GAAP income tax provision as GAAP income tax provision, excluding charges and benefits such as net deferred tax impacts resulting from the non-U.S. intercompany transfer of intellectual property, tax law changes, and significant one-time reserve releases upon the statute of limitations expirations. We believe this measure helps investors because it provides for consistent treatment of excluded items in our non-GAAP presentation and a difference in the GAAP and non-GAAP tax rates.
Non-GAAP net income
We define Non-GAAP net income as GAAP net income, excluding the effects of purchase accounting adjustments, acquisition/divestiture items, stock-based
compensation, restructuring and other costs, and non-GAAP tax adjustments.This measure provides a supplemental view of net income trends, which are driven by non-GAAP income before taxes and our non-GAAP tax rate.
Non-GAAP diluted net income per share
We define Non-GAAP diluted net income per share as GAAP diluted net income per share, excluding the effects of purchase accounting adjustments, acquisition/divestiture items, stock-based compensation, restructuring and other costs, and non-GAAP tax adjustments.We believe our investors benefit by understanding our non-GAAP operating performance as reflected in a per share calculation as a way of measuring non-GAAP operating performance by ownership in the company.
Adjusted EBITDA
We define Adjusted EBITDA as non-GAAP operating income plus depreciation expense and income from equity method investments, net.Other companies may define Adjusted EBITDA differently.Adjusted EBITDA is not intended to purport to be an alternative to net income or operating income as a measure of operating performance or cash flow from operating activities as a measure of liquidity. Adjusted EBITDA is a performance measure that we believe offers a useful view of the overall operations of our business because it facilitates operating performance comparisons by removing potential differences caused by variations unrelated to operating performance, such as capital structures (interest expense), income taxes, depreciation and
amortization expenses.
(A).Purchase accounting adjustments. Purchase accounting adjustments consist of the following:
i.Acquired deferred revenue adjustment. We adopted ASU 2021-08 in the fourth quarter of 2021 for all acquisitions occurring in 2021 and going forward, which requires the application of ASC 606, Revenue from Contracts
with Customers, to recognize and measure contract assets and contract liabilities on the acquisition date. For acquisitions occurring prior to 2021, non-GAAP revenue excludes the adjustment to our revenue as a result of measuring the contract liability at fair value on the acquisition date.
ii.Amortization of acquired capitalized commissions. Purchase accounting generally requires entities to eliminate capitalized sales commissions balances as of the acquisition date. Non-GAAP operating expenses exclude the adjustments that eliminate the capitalized sales commissions. For acquisitions
occurring prior to 2021, non-GAAP operating expenses exclude the adjustment of acquired capitalized commissions amortization.
iii.Amortization of purchased intangible assets. Non-GAAP gross margin and operating expenses exclude the amortization of purchased intangible assets, which primarily represents technology and/or customer relationships already developed.
(B).Acquisition / divestiture items. Non-GAAP gross margin and operating expenses exclude acquisition costs consisting of external and incremental costs resulting directly from merger and acquisition and strategic investment activities such as legal, due diligence, integration, and other closing costs, including the acceleration of acquisition stock options and adjustments to the fair
value of earn-out liabilities.Non-GAAP non-operating expense, net, excludes unusual one-time acquisition/divestiture charges as well as divestiture and strategic investment gains/losses. These are one-time costs that vary significantly in amount and timing and are not indicative of our core operating performance.
(C).Stock-based compensation / deferred compensation. Non-GAAP gross margin and operating expenses exclude stock-based compensation and income or expense associated with movement in our non-qualified deferred compensation plan liabilities.Changes in non-qualified deferred compensation plan assets, included in non-operating expense, net, offset the income or expense in the plan liabilities.
(D).Restructuring
and other costs. Non-GAAP gross margin and operating expenses exclude restructuring and other exit costs comprised of termination benefits related to reductions in employee headcount, including executive severance agreements, the closure or exit of facilities, and cancellation of certain contracts.In addition, in 2022, other costs include a one-time charge for Russia and Belarus customer receivables and inventory, as well as a one-time $20 million commitment to donate to Trimble Foundation to be paid over four quarters.
(E).Non-GAAP items tax effected. This amount adjusts the provision for income taxes to reflect the effect of the non-GAAP items
(A) - (D) on non-GAAP net income.
(F).Difference in GAAP and Non-GAAP tax rate. This amount represents the difference between the GAAP and non-GAAP tax rates applied to the non-GAAP operating income plus the non-GAAP non-operating expense, net. The non-GAAP tax rate excludes charges and benefits such as net deferred tax impacts resulting from a non-U.S. intercompany transfer of intellectual property and significant one-time reserve releases upon statute of limitations expirations.
(G).GAAP and non-GAAP tax rate percentages. These percentages are defined as GAAP income tax provision as a percentage of GAAP income before taxes and non-GAAP income tax provision as a percentage of non-GAAP income before taxes.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
We are exposed to market risk related to changes in interest rates and foreign currency exchange rates. We use certain derivative financial instruments to manage these risks. We do not use derivative financial instruments for speculative purposes. All financial instruments are used in accordance with policies approved by our board of directors.
Market Interest Rate Risk
There have been no significant changes to our market interest rate risk assessment since December 31, 2021. For discussion of financial market risks related to changes in interest rate, refer to “Quantitative and Qualitative Disclosures about Market Risk” section of the 2021 Form 10-K.
Foreign
Currency Exchange Rate Risk
We operate in international markets, which expose us to market risk associated with foreign currency exchange rate fluctuations between the U.S. Dollar and various foreign currencies, the most significant of which is the Euro. In addition, volatile market conditions could result in changes in exchange rates.
Historically, the majority of our revenue contracts are denominated in U.S. Dollars, with the most significant exception being Europe, where we invoice primarily in Euro. Additionally, a portion of our expenses, primarily the cost to manufacture, cost of personnel to deliver technical support on our products and professional services, sales and sales support, and research and development are denominated in foreign currencies, primarily the Euro.
Revenue
resulting from selling in local currencies and costs incurred in local currencies are exposed to foreign currency exchange rate fluctuations, which can affect our operating income. As exchange rates vary, operating income may differ from expectations. In the second quarter and first two quarters of 2022, unfavorable impacts from foreign currency exchange rates were $28.5 millionand $47.8 million on revenue and $5.5 million and $10.3 million on operating income.
We enter into foreign currency forward contracts to minimize the short-term impact of foreign currency exchange rate fluctuations on cash, debt, and certain trade and intercompany receivables and payables, primarily denominated in Euro,
New Zealand Dollars, British Pound, Brazilian Real, and Canadian Dollars. These contracts reduce the exposure to fluctuations in foreign currency exchange rate movements, as the gains and losses associated with foreign currency balances are generally offset with the gains and losses on the forward contracts. These instruments are marked-to-market through earnings every period and generally range from one to two months in maturity. We do not enter into foreign currency forward contracts for trading purposes. We occasionally enter into foreign currency forward contracts to hedge the purchase price of some of
our larger business acquisitions. Foreign currency forward contracts outstanding at the end of the second quarter of 2022 and at the end of 2021 are summarized as follows (in millions):
The management, with the participation of our Chief Executive Officer and Chief Financial Officer, has evaluated the effectiveness of our disclosure controls and procedures (as such term is defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended (the “Exchange Act”)) as of the end of the period covered by this report. Based on such evaluation, our Chief Executive Officer and Chief Financial Officer have concluded that, as of the end of such period, our disclosure controls and procedures are effective.
(b) Internal Control Over Financial Reporting.
There have not been any changes in our internal control over financial reporting (as such term is defined in Rules 13a-15(f) and 15d-15(f) under
the Exchange Act) during the quarter to which this report relates that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
From time to time, we are involved in litigation arising out of the ordinary course of our
business. There are no material legal proceedings, other than ordinary routine litigation incidental to the business, to which we or any of our subsidiaries is a party or of which any of our or our subsidiaries' property is subject.
ITEM 1A. RISK FACTORS
There have been no material changes to our risk factor disclosures since our 2021 Form 10-K and our Quarterly Report on Form 10-Q for the quarter ended April 1, 2022. The risk factors described in the 2021 Form 10-K and our Quarterly Report on Form 10-Q for the quarter ended April
1, 2022, are not the only risks we face. Additional risks and uncertainties not currently known to us or that we currently deem to be immaterial also may materially and adversely affect our business, financial condition, or operating results.
ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
(a) None.
(b) None.
(c) The following table provides information relating to our purchases of equity securities for the second quarter of 2022:
Total
Number of Shares Purchased
Average Price Paid per Share
Total Number of Shares Purchased as Part of Publicly Announced Program
Maximum Approximate Dollar Value of Shares that May Yet Be Purchased Under the Program
On August 19, 2021, our Board of Directors approved a new share repurchase program (“2021 Stock Repurchase Program”) authorizing up to $750.0 million in repurchases of our common stock. The 2021 Stock Repurchase Program went into effect immediately after being announced, does not have an expiration date, and replaces and supersedes the $600.0 million share repurchase authorization approved by our Board of Directors in November 2017, of which $50.7 million was remaining and has been cancelled.
Under the 2021 Stock Repurchase Program, we may repurchase shares from time to time, subject to business and market conditions and other investment opportunities, through open market transactions, privately-negotiated transactions, accelerated stock repurchase plans, or by other means. The
timing and actual number of any shares repurchased will depend on a variety of factors, including market conditions, our share price, other available uses of capital, applicable legal requirements, and other factors. The 2021 Stock Repurchase Program may be suspended, modified or discontinued at any time at the Company’s discretion without notice.
We have filed, or incorporated into the Report by reference, the exhibits listed on the accompanying Index to Exhibits immediately preceding the signature page of this Form 10-Q.
The following financial statements from the Company’s Quarterly Report on Form 10-Q for the quarter ended July 1, 2022, formatted in Inline XBRL, tagged as blocks of text and including detailed tags:
(i) Condensed Consolidated Balance Sheets,
(ii)
Condensed Consolidated Statements of Income,
(iii) Condensed Consolidated Statements of Comprehensive Income,
(iv) Condensed Consolidated Statements of Stockholders' Equity,
(v) Condensed Consolidated Statements of Cash Flows, and
(vi) Notes to Condensed Consolidated Financial Statements.
104
The cover page from this Report on Form 10-Q, formatted in Inline XBRL.
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
