Trimble Inc 10-Q for FY2023 Q2
Trimble Inc. (TRMB)
10-Q
2023-08-04
For: 2023-06-30
View Original
Added on
April 11, 2026
About this 10-Q
Trimble Inc filed this 10-Q on August 4, 2023, covering the quarter ended June 30, 2023 (FY2023 Q2).
Headline figures
Quarter ended June 30, 2023, as reported in this filing, compared with the same period a year earlier where the filing states it.
- Revenue
- $993.6M
- up 5.6% from $941.2M a year earlier
- Net income
- $44.6M
- down 73.5% from net income of $168M a year earlier
- Diluted EPS
- $0.18
- down 73.1% from $0.67 a year earlier
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended | |||||
| or | |||||
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from _____ to _____ | |||||
Commission file number: 001-14845
(Exact name of registrant as specified in its charter)
(State or other jurisdiction of incorporation or organization) | (I.R.S. Employer Identification Number) | |||||||
(Address of principal executive offices) (Zip Code)
(720 ) 887-6100
(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. Yes ý 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). Yes ý 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):
| ý | Accelerated Filer | ¨ | |||||||||
| Non-accelerated Filer | ¨ | Smaller Reporting Company | |||||||||
| Emerging Growth Company | |||||||||||
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 ý
Securities registered pursuant to Section 12(b) of the Act:
| Title of each class | Trading Symbol(s) | Name of each exchange on which registered | ||||||
As of Jul 31, 2023, there were 248,321,667 shares of Common Stock, par value $0.001 per share, outstanding.
SPECIAL NOTE ON FORWARD-LOOKING STATEMENTS
This report 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:
•general US and global macroeconomic outlook, including slowing growth, inflationary pressures, and increases in interest rates;
•economic disruptions caused by potential impact of volatility and conflict in the political and economic environment;
•our belief that inflationary cost pressures will diminish over time as supply chain conditions continue to normalize;
•fluctuations in foreign currency exchange rates;
•the cyclical nature of our hardware revenue and our expectation that our inventory levels will normalize over the next four quarters;
•our expectations that we will experience less seasonality in the future;
•the portion of our revenue expected to come from sales to customers located in countries outside of the U.S.;
•our plans to continue to invest in research and development to actively develop and introduce new products and to deliver targeted solutions to the markets we serve;
•our shift towards a more significant mix of recurring revenue;
•our belief that increases in recurring revenue will provide us with enhanced business visibility over time;
•risks associated with our growth strategy, focusing on historically underserved large markets;
•any anticipated benefits or impact to our results of operations and financial conditions from our acquisitions and our ability to successfully integrate the acquired businesses;
•our belief 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, debt service, expenditures related to our Connect and Scale strategy, and any acquisitions;
•tax payments or refunds related to research and development (“R&D”) costs;
•our belief that our gross unrecognized tax benefits will not materially change in the next twelve months; and
•our commitments to environmental, social, and governance matters.
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, 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 report. 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 2022 (the “2022 Form 10-K”) 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 report. 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.
TRIMBLE INC.
FORM 10-Q for the Quarter Ended June 30, 2023
TABLE OF CONTENTS
| Page | ||||||||
| PART I. | ||||||||
| ITEM 1. | ||||||||
| ITEM 2. | ||||||||
| ITEM 3. | ||||||||
| ITEM 4. | ||||||||
| PART II. | ||||||||
| ITEM 1. | ||||||||
| ITEM 1A. | ||||||||
| ITEM 2. | ||||||||
| ITEM 3. | ||||||||
| ITEM 4. | ||||||||
| ITEM 5. | ||||||||
| ITEM 6. | ||||||||
3
PART I – FINANCIAL INFORMATION
ITEM 1. CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
| Index | |||||
| Page | |||||
4
TRIMBLE INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
| As of | As of | ||||||||||
| Second Quarter of | Year End | ||||||||||
| 2023 | 2022 | ||||||||||
| (In millions, except par value) | |||||||||||
| ASSETS | |||||||||||
| Current assets: | |||||||||||
| Cash and cash equivalents | $ | $ | |||||||||
| Accounts receivable, net | |||||||||||
| Inventories | |||||||||||
| Other current assets | |||||||||||
| Total current assets | |||||||||||
| Property and equipment, net | |||||||||||
| Operating lease right-of-use assets | |||||||||||
| Goodwill | |||||||||||
| Other purchased intangible assets, net | |||||||||||
| Deferred income tax assets | |||||||||||
| Other non-current assets | |||||||||||
| Total assets | $ | $ | |||||||||
| LIABILITIES AND STOCKHOLDERS' EQUITY | |||||||||||
| Current liabilities: | |||||||||||
| Short-term debt | $ | $ | |||||||||
| Accounts payable | |||||||||||
| Accrued compensation and benefits | |||||||||||
| Deferred revenue | |||||||||||
| Other current liabilities | |||||||||||
| Total current liabilities | |||||||||||
| Long-term debt | |||||||||||
| Deferred revenue, non-current | |||||||||||
| Deferred income tax liabilities | |||||||||||
| Income taxes payable | |||||||||||
| Operating lease liabilities | |||||||||||
| Other non-current liabilities | |||||||||||
| Total liabilities | |||||||||||
Commitments and contingencies (Note 12) | |||||||||||
| Stockholders' equity: | |||||||||||
Preferred stock, $ | |||||||||||
Common stock, $ | |||||||||||
| Additional paid-in-capital | |||||||||||
| Retained earnings | |||||||||||
| Accumulated other comprehensive loss | ( | ( | |||||||||
| Total stockholders' equity | |||||||||||
| Total liabilities and stockholders' equity | $ | $ | |||||||||
See accompanying Notes to the Condensed Consolidated Financial Statements.
5
TRIMBLE INC.
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(UNAUDITED)
| Second Quarter of | First Two Quarters of | ||||||||||||||||||||||
| (In millions, except per share amounts) | 2023 | 2022 | 2023 | 2022 | |||||||||||||||||||
| Revenue: | |||||||||||||||||||||||
| Product | $ | $ | $ | $ | |||||||||||||||||||
| Subscription and services | |||||||||||||||||||||||
| Total revenue | |||||||||||||||||||||||
| Cost of sales: | |||||||||||||||||||||||
| Product | |||||||||||||||||||||||
| Subscription and services | |||||||||||||||||||||||
| Amortization of purchased intangible assets | |||||||||||||||||||||||
| Total cost of sales | |||||||||||||||||||||||
| Gross margin | |||||||||||||||||||||||
| Operating expense: | |||||||||||||||||||||||
| Research and development | |||||||||||||||||||||||
| Sales and marketing | |||||||||||||||||||||||
| General and administrative | |||||||||||||||||||||||
| Restructuring | |||||||||||||||||||||||
| Amortization of purchased intangible assets | |||||||||||||||||||||||
| Total operating expense | |||||||||||||||||||||||
| Operating income | |||||||||||||||||||||||
| Non-operating income (expense), net: | |||||||||||||||||||||||
| Divestitures gain, net | |||||||||||||||||||||||
| Interest expense, net | ( | ( | ( | ( | |||||||||||||||||||
| Income from equity method investments, net | |||||||||||||||||||||||
| Other income (expense), net | ( | ( | |||||||||||||||||||||
| Total non-operating income (expense), net | ( | ( | |||||||||||||||||||||
| Income before taxes | |||||||||||||||||||||||
| Income tax provision | |||||||||||||||||||||||
| Net income | $ | $ | $ | $ | |||||||||||||||||||
| Earnings per share: | |||||||||||||||||||||||
| Basic | $ | $ | $ | $ | |||||||||||||||||||
| Diluted | $ | $ | $ | $ | |||||||||||||||||||
| Shares used in calculating earnings per share: | |||||||||||||||||||||||
| Basic | |||||||||||||||||||||||
| Diluted | |||||||||||||||||||||||
See accompanying Notes to the Condensed Consolidated Financial Statements.
6
TRIMBLE INC.
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(UNAUDITED)
| Second Quarter of | First Two Quarters of | ||||||||||||||||||||||
| 2023 | 2022 | 2023 | 2022 | ||||||||||||||||||||
| (In millions) | |||||||||||||||||||||||
| Net income | $ | $ | $ | $ | |||||||||||||||||||
| Foreign currency translation adjustments, net of tax | ( | ( | |||||||||||||||||||||
| Net change related to derivatives and other, net of tax | ( | ( | |||||||||||||||||||||
| Comprehensive income | $ | $ | $ | $ | |||||||||||||||||||
See accompanying Notes to the Condensed Consolidated Financial Statements.
7
TRIMBLE INC.
CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(UNAUDITED)
| Common stock | Retained Earnings | Accumulated Other Comprehensive Loss | Total Stockholders’ Equity | ||||||||||||||||||||||||||||||||||||||||||||
| Shares | Amount | Additional Paid-In Capital | |||||||||||||||||||||||||||||||||||||||||||||
| (In millions) | |||||||||||||||||||||||||||||||||||||||||||||||
| Balance at the end of 2022 | $ | $ | $ | $ | ( | $ | |||||||||||||||||||||||||||||||||||||||||
| Net income | — | — | — | — | |||||||||||||||||||||||||||||||||||||||||||
| Other comprehensive income | — | — | — | — | |||||||||||||||||||||||||||||||||||||||||||
| Issuance of common stock under employee plans, net of tax withholdings | — | ( | — | ||||||||||||||||||||||||||||||||||||||||||||
| Stock-based compensation | — | — | — | — | |||||||||||||||||||||||||||||||||||||||||||
| Balance at the end of the first quarter of 2023 | $ | $ | $ | $ | ( | $ | |||||||||||||||||||||||||||||||||||||||||
| Net income | — | — | — | — | |||||||||||||||||||||||||||||||||||||||||||
| Other comprehensive income | — | — | — | — | |||||||||||||||||||||||||||||||||||||||||||
| Issuance of common stock under employee plans, net of tax withholdings | — | ( | ( | — | ( | ||||||||||||||||||||||||||||||||||||||||||
| Stock-based compensation | — | — | — | — | |||||||||||||||||||||||||||||||||||||||||||
| Balance at the end of the second quarter of 2023 | $ | $ | $ | $ | ( | $ | |||||||||||||||||||||||||||||||||||||||||
| Common stock | Retained Earnings | Accumulated Other Comprehensive Loss | Total Stockholders’ Equity | ||||||||||||||||||||||||||||||||||||||||||||
| Shares | Amount | Additional Paid-In Capital | |||||||||||||||||||||||||||||||||||||||||||||
| (In millions) | |||||||||||||||||||||||||||||||||||||||||||||||
| Balance at the end of 2021 | $ | $ | $ | $ | ( | $ | |||||||||||||||||||||||||||||||||||||||||
| Net income | — | — | — | — | |||||||||||||||||||||||||||||||||||||||||||
| Other comprehensive loss | — | — | — | — | ( | ( | |||||||||||||||||||||||||||||||||||||||||
| Issuance of common stock under employee plans, net of tax withholdings | — | ( | — | ( | |||||||||||||||||||||||||||||||||||||||||||
| Stock repurchases | ( | — | ( | ( | — | ( | |||||||||||||||||||||||||||||||||||||||||
| Stock-based compensation | — | — | — | — | |||||||||||||||||||||||||||||||||||||||||||
| Balance at the end of the first quarter of 2022 | $ | $ | $ | $ | ( | $ | |||||||||||||||||||||||||||||||||||||||||
| Net income | — | — | — | — | |||||||||||||||||||||||||||||||||||||||||||
| Other comprehensive loss | — | — | — | — | ( | ( | |||||||||||||||||||||||||||||||||||||||||
| Issuance of common stock under employee plans, net of tax withholdings | — | ( | ( | — | ( | ||||||||||||||||||||||||||||||||||||||||||
| Stock repurchases | ( | ( | ( | ( | — | ( | |||||||||||||||||||||||||||||||||||||||||
| Stock-based compensation | — | — | — | — | |||||||||||||||||||||||||||||||||||||||||||
| Balance at the end of the second quarter of 2022 | $ | $ | $ | $ | ( | $ | |||||||||||||||||||||||||||||||||||||||||
See accompanying Notes to the Condensed Consolidated Financial Statements.
8
TRIMBLE INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
| First Two Quarters of | ||||||||||||||||||||
| (In millions) | 2023 | 2022 | ||||||||||||||||||
| Cash flow from operating activities: | ||||||||||||||||||||
| Net income | $ | $ | ||||||||||||||||||
| Adjustments to reconcile net income to net cash provided by operating activities: | ||||||||||||||||||||
| Depreciation expense | ||||||||||||||||||||
| Amortization expense | ||||||||||||||||||||
| Deferred income taxes | ( | ( | ||||||||||||||||||
| Stock-based compensation | ||||||||||||||||||||
| Change in fair value of derivatives | ( | ( | ||||||||||||||||||
| Divestitures gain, net | ( | ( | ||||||||||||||||||
| Other, net | ||||||||||||||||||||
| (Increase) decrease in assets: | ||||||||||||||||||||
| Accounts receivable, net | ( | |||||||||||||||||||
| Inventories | ( | |||||||||||||||||||
| Other current and non-current assets | ( | ( | ||||||||||||||||||
| Increase (decrease) in liabilities: | ||||||||||||||||||||
| Accounts payable | ( | ( | ||||||||||||||||||
| Accrued compensation and benefits | ( | |||||||||||||||||||
| Deferred revenue | ( | |||||||||||||||||||
| Other current and non-current liabilities | ( | |||||||||||||||||||
| Net cash provided by operating activities | ||||||||||||||||||||
| Cash flow from investing activities: | ||||||||||||||||||||
| Acquisitions of businesses, net of cash acquired | ( | |||||||||||||||||||
| Purchases of property and equipment | ( | ( | ||||||||||||||||||
| Net proceeds from divestitures | ||||||||||||||||||||
| Other, net | ( | |||||||||||||||||||
| Net cash (used in) provided by investing activities | ( | |||||||||||||||||||
| Cash flow from financing activities: | ||||||||||||||||||||
| Issuance of common stock, net of tax withholdings | ( | ( | ||||||||||||||||||
| Repurchases of common stock | ( | |||||||||||||||||||
| Proceeds from debt and revolving credit lines | ||||||||||||||||||||
| Payments on debt and revolving credit lines | ( | ( | ||||||||||||||||||
| Other, net | ( | ( | ||||||||||||||||||
| Net cash provided by (used in) financing activities | ( | |||||||||||||||||||
| Effect of exchange rate changes on cash and cash equivalents | ( | |||||||||||||||||||
| Net (decrease) increase in cash and cash equivalents | ( | |||||||||||||||||||
| Cash and cash equivalents - beginning of period | ||||||||||||||||||||
| Cash and cash equivalents - end of period | $ | $ | ||||||||||||||||||
See accompanying Notes to the Condensed Consolidated Financial Statements.
9
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
NOTE 1. OVERVIEW AND ACCOUNTING POLICIES
Basis of Presentation
The Condensed Consolidated Financial Statements include our results of our consolidated subsidiaries. Intercompany accounts and transactions have been eliminated.
We use a 52- to 53-week year ending on the Friday nearest to December 31. Both 2023 and 2022 are 52-week years. The second quarter of 2023 and 2022 ended on June 30, 2023 and July 1, 2022. Unless otherwise stated, all dates refer to these periods.
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 17, 2023 (the “2022 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 2022 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.
Change in Presentation
During the first quarter of 2023, we changed the presentation of revenue and cost of sales in the Condensed Consolidated Statements of Income. This change was made to better reflect our Connect and Scale strategy and business model evolution with a continued shift toward a more significant mix of recurring revenue, which includes subscription, maintenance and support, recurring transactions, and term licenses. As such, we revised our presentation, including (a) the combination of subscription and services into one line item, and (b) moving term licenses from product to subscription and services. The subscription and services line item is more aligned with our performance measures, how we manage our business, and is helpful to investors and others to better understand our results.
Previously, we presented revenue and cost of sales on three lines as follows:
•product, which included hardware and software licenses (both perpetual and term licenses);
•service, which included hardware and software maintenance and support and professional services;
•subscription, which included Software as a Service (“SaaS”), data, and hosting services.
The revised categories are as follows:
•product, which includes hardware and perpetual software licenses;
•subscription and services, which includes SaaS, data, and hosting services, as well as term licenses, hardware and software maintenance and support, and professional services.
Prior period amounts have been revised to conform to the current period presentation. This change in presentation did not affect the total revenue or total cost of sales. The effect of the changes on the Condensed Consolidated Statements of Income for the second quarter and first two quarters of 2022 were as follows:
10
| Second Quarter of 2022 | First Two Quarters of 2022 | ||||||||||||||||||||||||||||||||||
| (In millions) | |||||||||||||||||||||||||||||||||||
| As Previously Reported | Effect of Change in Presentation | As Reported Herein | As Previously Reported | Effect of Change in Presentation | As Reported Herein | ||||||||||||||||||||||||||||||
| Revenue: | |||||||||||||||||||||||||||||||||||
| Product | $ | $ | ( | $ | $ | $ | ( | $ | |||||||||||||||||||||||||||
| Subscription and services | — | — | |||||||||||||||||||||||||||||||||
| Service | ( | — | ( | — | |||||||||||||||||||||||||||||||
| Subscription | ( | — | ( | — | |||||||||||||||||||||||||||||||
| Total revenue | $ | $ | — | $ | $ | $ | — | $ | |||||||||||||||||||||||||||
| Cost of sales: | |||||||||||||||||||||||||||||||||||
| Product | $ | $ | ( | $ | $ | $ | ( | $ | |||||||||||||||||||||||||||
| Subscription and services | — | — | |||||||||||||||||||||||||||||||||
| Service | ( | — | ( | — | |||||||||||||||||||||||||||||||
| Subscription | ( | — | ( | — | |||||||||||||||||||||||||||||||
| Amortization of purchased intangible assets | — | — | |||||||||||||||||||||||||||||||||
| Total cost of sales | $ | $ | — | $ | $ | $ | — | $ | |||||||||||||||||||||||||||
Recently issued Accounting Pronouncements not yet Adopted
There are no recently issued accounting pronouncements applicable to us not yet adopted.
Recently Adopted Accounting Pronouncements
NOTE 2. COMMON STOCK REPURCHASE
In August 2021, our Board of Directors approved a new stock repurchase program (“2021 Stock Repurchase Program”), authorizing up to $750.0 million in repurchases of our common stock. The 2021 Stock Repurchase Program’s authorization does not have an expiration date.
Under the 2021 Stock Repurchase Program, we may repurchase stock 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 stock repurchased will depend on a variety of factors, including market conditions, our stock 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. At the end of the second quarter of 2023, the 2021 Stock Repurchase Program had remaining authorized funds of $215.3 million.
Because of the additional outstanding indebtedness we incurred in connection with the Transporeon acquisition, beginning in the fourth quarter of 2022, we have temporarily discontinued our stock repurchases. See Note 3 “Acquisition” of this report for information regarding our acquisition of Transporeon.
During the second quarter and first two quarters of 2022, we repurchased approximately 3.1 million and 4.6 million shares of common stock in open market purchases at an average price of $65.38 and $66.42 per share for a total of $200.0 million and $304.7 million under the 2021 Stock Repurchase Program.
NOTE 3. ACQUISITION
On April 3, 2023, we acquired all of the issued and outstanding shares of TP Group Holding GmbH and Sixfold GmbH, which owned Transporeon, in an all-cash transaction. Transporeon is a Germany-based company and leading cloud-based transportation management software platform that connects key stakeholders across the industry lifecycle to positively impact the optimization of global supply chains, which aligns with our Connect and Scale strategy. We believe the acquisition will increase our international footprint and long-term Transportation opportunities. We also believe it will advance our sustainability strategy by reducing under-utilized carrier capacity and “empty miles”. Transporeon is reported as part of our Transportation segment.
11
The total purchase consideration was €1.9 billion or $2.1 billion, which included the repayment of outstanding Transporeon debt of $339.6 million. The acquisition was funded through a combination of cash on hand and debt. See Note 7 “Debt” of this report for more information.
Purchase Price Allocation
The fair value of identifiable assets acquired and liabilities assumed was determined under the acquisition method of accounting for business combinations. The excess of purchase consideration over the fair value of net tangible and identifiable intangible assets acquired was recorded as goodwill. The fair value of intangible assets acquired is generally determined based on a discounted cash flow analysis.
The following table summarizes the consideration transferred to acquire Transporeon and the preliminary allocation of the purchase price among the assets acquired and liabilities assumed, as well as the estimated useful lives of the identifiable intangible assets as of the date of the acquisition. The allocation of the purchase price is still preliminary as we finalize deferred income taxes, certain tangible assets and liabilities acquired, and valuations of intangible assets. Preliminary estimates will be finalized within one year of the acquisition date.
| (In millions) | Fair Value as of the Acquisition Date | Estimated Useful Life | ||||||
| Total purchase consideration | $ | |||||||
| Net tangible assets acquired: | ||||||||
| Cash and cash equivalents | ||||||||
| Accounts receivable, net | ||||||||
| Other current assets | ||||||||
| Non-current assets | ||||||||
| Accounts payable | ( | |||||||
| Accrued compensation and benefits | ( | |||||||
| Deferred revenue | ( | |||||||
| Other current liabilities | ( | |||||||
| Non-current liabilities | ( | |||||||
| Total net tangible assets acquired | ||||||||
| Intangible assets acquired: | ||||||||
| Customer relationships | ||||||||
| Developed product technology | ||||||||
| Trade name | ||||||||
| Total intangible assets acquired | ||||||||
| Deferred tax liability | ( | |||||||
| Fair value of all assets/liabilities acquired | ||||||||
| Goodwill | $ | |||||||
Goodwill consists of growth potential, synergies, and economies of scale expected from combining Transporeon’s operations with ours, together with the highly skilled and valuable assembled workforce. We do not expect the goodwill to be deductible for income tax purposes.
Financial Information
The Condensed Consolidated Statements of Income for the second quarter and first two quarters of 2023 include revenue of $40.5 million and net loss of $14.6 million resulting from Transporeon since the acquisition date, which includes the effects of purchase accounting, primarily amortization of intangible assets and other adjustments.
We incurred approximately $23.5 million and $25.7 million of acquisition costs related to Transporeon in the second quarter and first two quarters of 2023, which were expensed as incurred in General and administrative expense.
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Pro Forma Financial Information
The pro forma financial information presented in the following table was computed by combining the historical financial information of Trimble and Transporeon along with the effects from business combination accounting and the associated debt resulting from this acquisition as if the companies were combined on January 1, 2022. This information is presented for informational purposes only, and is not necessarily indicative of the operating results that would have occurred if the acquisition had been consummated as of that date. This information should not be used as a predictive measure of our future financial position, results of operations, or liquidity.
| Second Quarter of | First Two Quarters of | ||||||||||||||||||||||
| 2023 | 2022 | 2023 | 2022 | ||||||||||||||||||||
| (In millions) | |||||||||||||||||||||||
| Total revenue | $ | $ | $ | $ | |||||||||||||||||||
| Net income | |||||||||||||||||||||||
NOTE 4. INTANGIBLE ASSETS AND GOODWILL
Intangible Assets
The following table presents a summary of our intangible assets:
| Second Quarter of 2023 | Year End 2022 | ||||||||||||||||||||||||||||||||||
| Gross | Gross | ||||||||||||||||||||||||||||||||||
| Carrying | Accumulated | Net Carrying | Carrying | Accumulated | Net Carrying | ||||||||||||||||||||||||||||||
| (In millions) | Amount | Amortization | Amount | Amount | Amortization | Amount | |||||||||||||||||||||||||||||
| Developed product technology | $ | $ | ( | $ | $ | $ | ( | $ | |||||||||||||||||||||||||||
| Customer relationships | ( | ( | |||||||||||||||||||||||||||||||||
| Trade names and trademarks | ( | ( | |||||||||||||||||||||||||||||||||
| Distribution rights and other intellectual property | ( | ( | |||||||||||||||||||||||||||||||||
| $ | $ | ( | $ | $ | $ | ( | $ | ||||||||||||||||||||||||||||
The estimated future amortization expense of intangible assets at the end of the second quarter of 2023 was as follows:
| (In millions) | |||||
| 2023 (Remaining) | $ | ||||
| 2024 | |||||
| 2025 | |||||
| 2026 | |||||
| 2027 | |||||
| Thereafter | |||||
| Total | $ | ||||
Goodwill
The changes in the carrying amount of goodwill by segment for the first two quarters of 2023 were as follows:
| Buildings and Infrastructure | Geospatial | Resources and Utilities | Transportation | Total | |||||||||||||||||||||||||
| (In millions) | |||||||||||||||||||||||||||||
| Balance as of year end 2022 | $ | $ | $ | $ | $ | ||||||||||||||||||||||||
| Additions due to acquisitions | |||||||||||||||||||||||||||||
| Foreign currency translation and other adjustments | |||||||||||||||||||||||||||||
| Balance as of the end of the second quarter of 2023 | $ | $ | $ | $ | $ | ||||||||||||||||||||||||
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NOTE 5. INVENTORIES
The components of inventory, net were as follows:
| Second Quarter of | Year End | ||||||||||
| As of | 2023 | 2022 | |||||||||
| (In millions) | |||||||||||
| Raw materials | $ | $ | |||||||||
| Work-in-process | |||||||||||
| Finished goods | |||||||||||
| Total inventories | $ | $ | |||||||||
NOTE 6. SEGMENT 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.
| Reporting Segments | |||||||||||||||||||||||||||||
| Buildings and Infrastructure | Geospatial | Resources and Utilities | Transportation | Total | |||||||||||||||||||||||||
| (In millions) | |||||||||||||||||||||||||||||
| Second Quarter of 2023 | |||||||||||||||||||||||||||||
| Segment revenue | $ | $ | $ | $ | $ | ||||||||||||||||||||||||
| Segment operating income | |||||||||||||||||||||||||||||
| Second Quarter of 2022 | |||||||||||||||||||||||||||||
| Segment revenue | $ | $ | $ | $ | $ | ||||||||||||||||||||||||
| Segment operating income | |||||||||||||||||||||||||||||
| First Two Quarters of 2023 | |||||||||||||||||||||||||||||
| Segment revenue | $ | $ | $ | $ | $ | ||||||||||||||||||||||||
| Segment operating income | |||||||||||||||||||||||||||||
| First Two Quarters of 2022 | |||||||||||||||||||||||||||||
| Segment revenue | $ | $ | $ | $ | $ | ||||||||||||||||||||||||
| Segment operating income | |||||||||||||||||||||||||||||
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| Reporting Segments | |||||||||||||||||||||||||||||
| Buildings and Infrastructure | Geospatial | Resources and Utilities | Transportation | Total | |||||||||||||||||||||||||
| (In millions) | |||||||||||||||||||||||||||||
As of the end of the Second Quarter of 2023 | |||||||||||||||||||||||||||||
| Accounts receivable, net | $ | $ | $ | $ | $ | ||||||||||||||||||||||||
| Inventories | |||||||||||||||||||||||||||||
| Goodwill | |||||||||||||||||||||||||||||
| As of Year End 2022 | |||||||||||||||||||||||||||||
| Accounts receivable, net | $ | $ | $ | $ | $ | ||||||||||||||||||||||||
| Inventories | |||||||||||||||||||||||||||||
| Goodwill | |||||||||||||||||||||||||||||
A reconciliation of our condensed consolidated segment operating income to condensed consolidated income before income taxes was as follows:
| Second Quarter of | First Two Quarters of | ||||||||||||||||||||||
| 2023 | 2022 | 2023 | 2022 | ||||||||||||||||||||
| (In millions) | |||||||||||||||||||||||
| Consolidated segment operating income | $ | $ | $ | $ | |||||||||||||||||||
| Unallocated general corporate expenses | ( | ( | ( | ( | |||||||||||||||||||
| Amortization of purchased intangible assets | ( | ( | ( | ( | |||||||||||||||||||
| Acquisition / divestiture items | ( | ( | ( | ( | |||||||||||||||||||
| Stock-based compensation / deferred compensation | ( | ( | ( | ( | |||||||||||||||||||
| Restructuring and other costs | ( | ( | ( | ( | |||||||||||||||||||
| Consolidated operating income | |||||||||||||||||||||||
| Total non-operating income (expense), net | ( | ( | |||||||||||||||||||||
| Consolidated income before taxes | $ | $ | $ | $ | |||||||||||||||||||
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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 2023 | |||||||||||||||||||||||||||||
| North America | $ | $ | $ | $ | $ | ||||||||||||||||||||||||
| Europe | |||||||||||||||||||||||||||||
| Asia Pacific | |||||||||||||||||||||||||||||
| Rest of World | |||||||||||||||||||||||||||||
| Total segment revenue | $ | $ | $ | $ | $ | ||||||||||||||||||||||||
| Second Quarter of 2022 | |||||||||||||||||||||||||||||
| North America | $ | $ | $ | $ | $ | ||||||||||||||||||||||||
| Europe | |||||||||||||||||||||||||||||
| Asia Pacific | |||||||||||||||||||||||||||||
| Rest of World | |||||||||||||||||||||||||||||
| Total segment revenue | $ | $ | $ | $ | $ | ||||||||||||||||||||||||
| First Two Quarters of 2023 | |||||||||||||||||||||||||||||
| North America | $ | $ | $ | $ | $ | ||||||||||||||||||||||||
| Europe | |||||||||||||||||||||||||||||
| Asia Pacific | |||||||||||||||||||||||||||||
| Rest of World | |||||||||||||||||||||||||||||
| Total segment revenue | $ | $ | $ | $ | $ | ||||||||||||||||||||||||
| First Two Quarters of 2022 | |||||||||||||||||||||||||||||
| North America | $ | $ | $ | $ | $ | ||||||||||||||||||||||||
| Europe | |||||||||||||||||||||||||||||
| Asia Pacific | |||||||||||||||||||||||||||||
| Rest of World | |||||||||||||||||||||||||||||
| Total segment revenue | $ | $ | $ | $ | $ | ||||||||||||||||||||||||
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NOTE 7. DEBT
Debt consisted of the following:
| Second Quarter of | Year End | ||||||||||||||||||||||||||||
| Instrument | Date of Issuance | 2023 | 2022 | ||||||||||||||||||||||||||
| (In millions) | Effective interest rate | ||||||||||||||||||||||||||||
| Senior Notes: | |||||||||||||||||||||||||||||
Senior Notes, | June 2018 | $ | $ | ||||||||||||||||||||||||||
Senior Notes, | November 2014 | ||||||||||||||||||||||||||||
Senior Notes, | June 2018 | ||||||||||||||||||||||||||||
Senior Notes, | March 2023 | ||||||||||||||||||||||||||||
| Credit Facilities: | |||||||||||||||||||||||||||||
| 2022 Revolving Credit Facility, due March 2027 | September 2022 | ||||||||||||||||||||||||||||
| Term Loan, due April 2026 | April 2023 | ||||||||||||||||||||||||||||
| Term Loan, due April 2028 | April 2023 | ||||||||||||||||||||||||||||
| Uncommitted Credit Facilities, floating rate | |||||||||||||||||||||||||||||
| Unamortized discount and issuance costs | ( | ( | |||||||||||||||||||||||||||
| Total debt | $ | $ | |||||||||||||||||||||||||||
| Less: Short-term debt | |||||||||||||||||||||||||||||
| Long-term debt | $ | $ | |||||||||||||||||||||||||||
Debt Maturities
At the end of the second quarter of 2023, our debt maturities based on outstanding principal were as follows (in millions):
| Year Payable | |||||
| 2023 (Remaining) | $ | ||||
| 2024 | |||||
| 2025 | |||||
| 2026 | |||||
| 2027 | |||||
| Thereafter | |||||
| Total | $ | ||||
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, except for the interest on the 2033 senior notes payable in March and September. Additional details are unchanged from the information disclosed in Note 7 “Debt” of the 2022 Form 10-K.
During the second quarter of 2023, the $300 million senior notes due June 2023 matured and were repaid in full.
2033 Senior Notes
In March 2023, we issued an aggregate principal amount of $800.0 million in senior notes that will mature in March 2033. The proceeds were partly used to finance our acquisition of Transporeon. The interest is payable semi-annually in March and September of each year, commencing in September 2023.
Credit Facilities
2022 Term Loan Credit Agreement
On December 27, 2022, we entered into a $1.0 billion unsecured, delayed draw term loan credit agreement comprised of commitments for a 3-year tranche of $500.0 million and a 5-year tranche of $500.0 million. On April 3, 2023, both term loans were drawn to fund the acquisition of Transporeon.
Prepayments are allowed without penalty and cannot be reborrowed.
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2022 Credit Facility and Amendment
In March 2022, we entered into a credit agreement maturing in March 2027. The 2022 credit facility provides for a five-year , unsecured revolving credit facility in an aggregate principal amount of $1.25 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 $500.0 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.
On December 27, 2022, we entered into an amendment to the 2022 credit facility that made up to $600.0 million of the existing commitments available for the acquisition of Transporeon and increased our maximum permitted leverage ratio following the closing of the acquisition. On April 3, 2023, we borrowed $225.0 million as part of the proceeds to finance the acquisition. For additional information related to the Transporeon acquisition, see Note 3 “Acquisition” of this report.
As of June 30, 2023, $400.0 million was outstanding under the 2022 credit facility, as amended.
Uncommitted Facilities
At the end of the second quarter of 2023, we had two $75.0 million, one €100.0 million, and one £55.0 million revolving credit facilities, which are uncommitted. Generally, these uncommitted facilities may be redeemed upon demand. Borrowings under the uncommitted facilities are classified as short-term debt in the Condensed Consolidated Balance Sheet. As of June 30, 2023, $4.3 million was outstanding under the uncommitted facilities.
Covenants
The 2022 term loan credit agreement and 2022 credit facility, as amended, contain customary covenants including, among other requirements, limitations that restrict the Company’s and its subsidiaries’ ability to create liens and enter into sale and leaseback transactions, and restrictions on the ability of the subsidiaries to incur indebtedness. Further, both debt agreements contain financial covenants that require the maintenance of maximum leverage and minimum interest coverage ratios. At the end of the second quarter of 2023, we were in compliance with the covenants for each of our debt agreements.
NOTE 8. FAIR VALUE MEASUREMENTS
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 2023 | Fair Values at the end of 2022 | ||||||||||||||||||||||||||||||||||||||||||||||
| 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) | $ | $ | $ | $ | $ | $ | $ | $ | |||||||||||||||||||||||||||||||||||||||
Derivatives (2) | |||||||||||||||||||||||||||||||||||||||||||||||
Contingent consideration (3) | |||||||||||||||||||||||||||||||||||||||||||||||
| Total assets measured at fair value | $ | $ | $ | $ | $ | $ | $ | $ | |||||||||||||||||||||||||||||||||||||||
| Liabilities | |||||||||||||||||||||||||||||||||||||||||||||||
Deferred compensation plan (1) | $ | $ | $ | $ | $ | $ | $ | $ | |||||||||||||||||||||||||||||||||||||||
Derivatives (2) | |||||||||||||||||||||||||||||||||||||||||||||||
| Total liabilities measured at fair value | $ | $ | $ | $ | $ | $ | $ | $ | |||||||||||||||||||||||||||||||||||||||
(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, and for 2022, a treasury rate lock contract, all that are included in Other current assets and Other current liabilities on our Condensed Consolidated Balance Sheets.
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At the end of 2022, derivative assets included foreign currency exchange contracts and a treasury rate lock contract, both related to the acquisition of Transporeon and associated debt and were settled in the first two quarters of 2023. See Note 10 “Fair Value Measurements” of the 2022 Form 10-K for additional details.
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 $3.2 billion and $1.5 billion at the end of the second quarter of 2023 and the end of 2022.
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. DEFERRED REVENUE AND REMAINING PERFORMANCE OBLIGATIONS
Deferred Revenue
Changes in our deferred revenue during the second quarter of 2023 and 2022 were as follows:
| Second Quarter of | First Two Quarters of | ||||||||||||||||||||||
| (In millions) | 2023 | 2022 | 2023 | 2022 | |||||||||||||||||||
| Beginning balance of the period | $ | $ | $ | $ | |||||||||||||||||||
| Revenue recognized from prior year-end | ( | ( | ( | ( | |||||||||||||||||||
| Billings net of revenue recognized from current year | |||||||||||||||||||||||
| Ending balance of the period | $ | $ | $ | $ | |||||||||||||||||||
Remaining Performance Obligations
At the end of the second quarter of 2023, approximately $1.6 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 $1.2 billion or 71 % of our remaining performance obligations as revenue during the next 12 months and the remainder thereafter.
NOTE 10. EARNINGS 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 securities include outstanding stock options, restricted stock units, contingently issuable stock, and stock to be purchased under our employee stock purchase plan.
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| Second Quarter of | First Two Quarters of | ||||||||||||||||||||||
| 2023 | 2022 | 2023 | 2022 | ||||||||||||||||||||
| (In millions, except per share amounts) | |||||||||||||||||||||||
| Numerator: | |||||||||||||||||||||||
| Net income | $ | $ | $ | $ | |||||||||||||||||||
| Denominator: | |||||||||||||||||||||||
| Weighted-average number of common shares used in basic earnings per share | |||||||||||||||||||||||
| Effect of dilutive securities | |||||||||||||||||||||||
| Weighted-average number of common shares and dilutive potential common shares used in diluted earnings per share | |||||||||||||||||||||||
| Basic earnings per share | $ | $ | $ | $ | |||||||||||||||||||
| Diluted earnings per share | $ | $ | $ | $ | |||||||||||||||||||
Antidilutive weighted-average shares (1) | |||||||||||||||||||||||
(1) 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. INCOME TAXES
For the second quarter, our effective income tax rate was 22.4 %, as compared to 24.2 % in the corresponding period in 2022. For the first two quarters, our effective income tax rate was 20.5 %, as compared to 22.7 % in the prior year. The decreases were primarily due to an increase in tax benefits from foreign-derived intangible income, favorable geographic mix of earnings, and a tax charge associated with prior year divestiture gains, partially offset by lower stock-based compensation deductions.
NOTE 12. COMMITMENTS AND CONTINGENCIES
Commitments
At the end of the second quarter of 2023, we had unconditional purchase obligations of approximately $731.7 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.
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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 2023. 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 2022 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 report.
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 benefits a diverse customer base;
•Geographic expansion with a 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 as demonstrated by our success in driving annualized recurring revenue (“ARR”) of $1,882.9 million, which represents growth of 24% year-over-year at the end of the second quarter of 2023. Excluding the impact of foreign currency, acquisitions, and divestitures, ARR organic growth was 14%. This shift toward recurring revenue has positively impacted our revenue mix and growth over time and is leading to improved visibility in our businesses. Additionally, we continue to maintain focus on new product introductions and transitions to recurring revenue as evidenced by the Transporeon acquisition.
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. In our Resources and Utilities segment, we are currently in the process of further building out our agriculture independent dealer network.
Throughout this “Management’s Discussion and Analysis of Financial Condition and Results of Operations”, we refer to organic revenue growth, which is a non-GAAP measure. For a full definition of ARR, organic ARR, and organic revenue growth as used in this discussion and analysis, refer to the “Supplemental Disclosure of Non-GAAP Financial Measures and Annualized Recurring Revenue” found later in this Item 2.
Impact of Recent Events on Our Business
Macroeconomic conditions, including geopolitical tensions, such as the ongoing military conflict between Russia and Ukraine and related sanctions, exchange rate and interest rate volatility, and inflationary pressures, will continue to evolve globally. In the first two quarters of 2023, as compared to the prior year, our organic hardware sales declined and bookings moderated as dealers moved towards lower levels of inventories due to improved product lead times and macroeconomic concerns. Geospatial, Buildings and Infrastructure, and Resources and Utilities all had strong hardware sales in the prior year.
Supply Chain
Due to previously extended component lead times, we made binding commitments over a longer horizon for certain components. We expect that our inventory levels will normalize over the next four quarters. However, as inventory levels
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continue to normalize, macroeconomic conditions, including rising interest rates and inflation, could negatively impact the timing of inventory normalization.
Foreign Currency Fluctuations
We generate over half of our revenue from sales to customers outside of the U.S. Due to the strengthening of the U.S. dollar, year-over-year unfavorable foreign currency impacts on revenue and operating income for the first two quarters of 2023 were $18.4 million or 1% and $6.3 million or 2%. Impacts for the second quarter of 2023 were minimal.
Interest Rates Fluctuations
The global inflation rate has risen sharply, and interest rates are rising in an effort to curb inflation. These macroeconomic conditions have had and are expected to have a negative impact on our results of operations. Additionally, we may experience higher borrowing costs on variable-rate debt. In the second quarter of 2023, we borrowed $1.2 billion of variable-rate debt in conjunction with the Transporeon acquisition.
Acquisitions and Divestitures
We acquire businesses that align with our long-term growth strategies including our strategic product roadmap and, conversely, we divest certain business that no longer fit those strategies.
On April 3, 2023, we acquired all of the outstanding shares of Transporeon in an all-cash transaction valued at €1.9 billion or $2.1 billion. Transporeon is a Germany-based company and leading cloud-based transportation management software platform that connects key stakeholders across the industry lifecycle to positively impact the optimization of global supply chains, which aligns with our Connect and Scale strategy. By combining Transporeon’s operations with ours, we expect economies of scale and meaningful synergies such as acceleration of recurring revenue, expansion of the addressable market, cross-sell opportunities, and enhanced productivity and sustainability solutions for our customers. Transporeon is reported in our Transportation segment. We have included the financial results of Transporeon in our Consolidated Financial Statements in the second quarter of 2023.
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 | ||||||||||||||||||||||||||||||||||||||||||||||
| 2023 | 2022 | Dollar Change | % Change | 2023 | 2022 | Dollar Change | % Change | ||||||||||||||||||||||||||||||||||||||||
| (In millions, except per share amounts) | |||||||||||||||||||||||||||||||||||||||||||||||
| Revenue: | |||||||||||||||||||||||||||||||||||||||||||||||
| Product | $ | 490.5 | $ | 531.0 | $ | (40.5) | (8)% | $ | 924.9 | $ | 1,097.8 | $ | (172.9) | (16)% | |||||||||||||||||||||||||||||||||
| Subscription and services | 503.1 | 410.2 | 92.9 | 23% | 984.1 | 837.1 | 147.0 | 18% | |||||||||||||||||||||||||||||||||||||||
| Total revenue | $ | 993.6 | $ | 941.2 | $ | 52.4 | 6% | $ | 1,909.0 | $ | 1,934.9 | $ | (25.9) | (1)% | |||||||||||||||||||||||||||||||||
| Gross margin | $ | 604.5 | $ | 537.5 | $ | 67.0 | 12% | $ | 1,165.3 | $ | 1,087.1 | $ | 78.2 | 7% | |||||||||||||||||||||||||||||||||
| Gross margin as a % of revenue | 60.8 | % | 57.1 | % | 61.0 | % | 56.2 | % | |||||||||||||||||||||||||||||||||||||||
| Operating income | $ | 93.6 | $ | 134.9 | $ | (41.3) | (31)% | $ | 230.6 | $ | 291.8 | $ | (61.2) | (21)% | |||||||||||||||||||||||||||||||||
| Operating income as a % of revenue | 9.4 | % | 14.3 | % | 12.1 | % | 15.1 | % | |||||||||||||||||||||||||||||||||||||||
| Diluted earnings per share | $ | 0.18 | $ | 0.67 | $ | (0.49) | (73)% | $ | 0.70 | $ | 1.11 | $ | (0.41) | (37)% | |||||||||||||||||||||||||||||||||
Non-GAAP operating income (1) | $ | 231.0 | $ | 210.7 | $ | 20.3 | 10% | $ | 457.1 | $ | 443.8 | $ | 13.3 | 3% | |||||||||||||||||||||||||||||||||
Non-GAAP operating income as a % of revenue(1) | 23.2 | % | 22.4 | % | 23.9 | % | 22.9 | % | |||||||||||||||||||||||||||||||||||||||
Non-GAAP diluted earnings per share (1) | $ | 0.64 | $ | 0.64 | $ | — | NM | $ | 1.35 | $ | 1.38 | $ | (0.03) | (2)% | |||||||||||||||||||||||||||||||||
Annualized Recurring Revenue (“ARR”) (1) | $ | 1,882.9 | $ | 1,512.5 | $ | 370.4 | 24% | N/A | N/A | N/A | N/A | ||||||||||||||||||||||||||||||||||||
(1) Refer to “Supplemental Disclosure of Non-GAAP Financial Measures and Annualized Recurring Revenue” of this report for definitions.
22
Second Quarter and First Two Quarters of 2023 as Compared to 2022
Revenue
Change versus the corresponding period in 2022 | Second Quarter of 2023 | First Two Quarters of 2023 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| % Change | % Change | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Product | Subscription and Services | Total Revenue | Product | Subscription and Services | Total Revenue | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Change in Revenue | (8) | % | 23 | % | 6 | % | (16) | % | 18 | % | (1) | % | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Acquisitions | — | % | 12 | % | 6 | % | 1 | % | 7 | % | 4 | % | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Divestitures | (3) | % | (1) | % | (3) | % | (6) | % | (1) | % | (4) | % | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Foreign currency exchange | — | % | (1) | % | — | % | (1) | % | (1) | % | (1) | % | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Organic growth | (5) | % | 13 | % | 3 | % | (10) | % | 13 | % | — | % | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Organic growth increased 3% for the second quarter and was flat for the first two quarters, with strong growth coming from recurring revenue. The breakdown by category is as follows:
Organic product revenue decreased for the second quarter and first two quarters due to reductions in dealer inventory levels as a result of improved product lead times and macroeconomic concerns. The decreases were mainly in Buildings and Infrastructure and Resources and Utilities. Geospatial organic product revenue decreased for the first two quarters for the same reason but increased for the second quarter due to higher demand for surveying products.
Organic subscription and services revenue for the second quarter and first two quarters was up primarily due to strong growth across all segments, particularly for Buildings and Infrastructure. The recurring growth was driven by increased subscription and term license sales to new and existing customers, as evidenced by overall organic ARR growth of 14%.
Gross Margin
Gross margin and gross margin as a percentage of revenue increased for the second quarter and first two quarters due to strong growth of software and subscription revenue, favorable pricing and costs, as well as a higher margin mix within our product offerings.
Operating Income
Operating income and 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 gross margin expansion. Operating expense increased primarily associated with the Transporeon acquisition, including acquisition costs and higher amortization of purchased intangible assets. In addition, we incurred higher research and development and general and administrative costs, including investments related to our Connect and Scale strategy.
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 | ||||||||||||||||||||||||||||||||||||||||||||||
| 2023 | 2022 | Dollar Change | % Change | 2023 | 2022 | Dollar Change | % Change | ||||||||||||||||||||||||||||||||||||||||
| (In millions) | |||||||||||||||||||||||||||||||||||||||||||||||
| Research and development | $ | 174.8 | $ | 140.1 | $ | 34.7 | 25% | $ | 334.1 | $ | 280.4 | $ | 53.7 | 19% | |||||||||||||||||||||||||||||||||
| Percentage of revenue | 17.6 | % | 14.9 | % | 17.5 | % | 14.5 | % | |||||||||||||||||||||||||||||||||||||||
| Sales and marketing | $ | 155.3 | $ | 138.9 | $ | 16.4 | 12% | $ | 290.7 | $ | 270.8 | $ | 19.9 | 7% | |||||||||||||||||||||||||||||||||
| Percentage of revenue | 15.6 | % | 14.8 | % | 15.2 | % | 14.0 | % | |||||||||||||||||||||||||||||||||||||||
| General and administrative | $ | 141.3 | $ | 106.9 | $ | 34.4 | 32% | $ | 252.0 | $ | 208.4 | $ | 43.6 | 21% | |||||||||||||||||||||||||||||||||
| Percentage of revenue | 14.2 | % | 11.4 | % | 13.2 | % | 10.8 | % | |||||||||||||||||||||||||||||||||||||||
| Total | $ | 471.4 | $ | 385.9 | $ | 85.5 | 22% | $ | 876.8 | $ | 759.6 | $ | 117.2 | 15% | |||||||||||||||||||||||||||||||||
23
R&D expense increased for the second quarter and first two quarters primarily due to higher compensation expense and the impact of the Transporeon acquisition, partially offset by divestitures and favorable foreign currency impacts. 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 the impact of the Transporeon acquisition and higher marketing and consulting costs, partially offset by divestitures and favorable foreign currency impacts.
G&A expense increased for the second quarter and first two quarters primarily due to the impact of the Transporeon acquisition, including higher transaction costs, increased SaaS costs, and higher compensation expense, partially offset by divestitures.
Amortization of Purchased Intangible Assets
| Second Quarter of | First Two Quarters of | ||||||||||||||||||||||||||||||||||||||||||||||
| 2023 | 2022 | Dollar Change | % Change | 2023 | 2022 | Dollar Change | % Change | ||||||||||||||||||||||||||||||||||||||||
| (In millions) | |||||||||||||||||||||||||||||||||||||||||||||||
| Cost of sales | $ | 30.2 | $ | 21.0 | $ | 9.2 | 44% | $ | 53.2 | $ | 43.5 | $ | 9.7 | 22% | |||||||||||||||||||||||||||||||||
| Operating expenses | 31.9 | 11.3 | 20.6 | 182% | 43.6 | 23.4 | 20.2 | 86% | |||||||||||||||||||||||||||||||||||||||
| Total amortization expense of purchased intangibles | $ | 62.1 | $ | 32.3 | $ | 29.8 | 92% | $ | 96.8 | $ | 66.9 | $ | 29.9 | 45% | |||||||||||||||||||||||||||||||||
| Total amortization expense of purchased intangibles as a percentage of revenue | 6 | % | 3 | % | 5 | % | 3 | % | |||||||||||||||||||||||||||||||||||||||
Total amortization expense of purchased intangibles increased for the second quarter and first two quarters primarily due to amortization of intangibles acquired from the Transporeon acquisition, which were not applicable in the prior year.
Non-operating Income (Expense), Net
The components of non-operating income (expense), net, were as follows:
| Second Quarter of | First Two Quarters of | ||||||||||||||||||||||||||||||||||||||||||||||
| 2023 | 2022 | Dollar Change | % Change | 2023 | 2022 | Dollar Change | % Change | ||||||||||||||||||||||||||||||||||||||||
| (In millions) | |||||||||||||||||||||||||||||||||||||||||||||||
| Divestitures gain, net | $ | 1.1 | $ | 106.0 | $ | (104.9) | (99)% | $ | 5.1 | $ | 97.1 | $ | (92.0) | (95)% | |||||||||||||||||||||||||||||||||
| Interest expense, net | $ | (46.7) | $ | (15.3) | $ | (31.4) | 205% | (66.4) | (31.3) | (35.1) | 112% | ||||||||||||||||||||||||||||||||||||
| Income from equity method investments, net | 8.0 | 5.8 | 2.2 | 38% | 19.4 | 15.5 | 3.9 | 25% | |||||||||||||||||||||||||||||||||||||||
| Other income (expense), net | 1.5 | (9.8) | 11.3 | (115)% | 29.4 | (13.0) | 42.4 | (326)% | |||||||||||||||||||||||||||||||||||||||
| Total non-operating income (expense), net | $ | (36.1) | $ | 86.7 | $ | (122.8) | (142)% | $ | (12.5) | $ | 68.3 | $ | (80.8) | (118)% | |||||||||||||||||||||||||||||||||
Non-operating expense, net increased for the second quarter and first two quarters primarily due to lower net gains from divestitures and higher interest expense from the new debt associated with the Transporeon acquisition. The increases were partially offset by fluctuations in the deferred compensation plan assets included in other income (expense), net. Additionally, other income (expense), net for the first two quarters of 2023 included a $27.6 million foreign currency hedging gain related to the Transporeon acquisition.
Income Tax Provision
For the second quarter, our effective income tax rate was 22.4%, as compared to 24.2% in the corresponding period in 2022. For the first two quarters, our effective income tax rate was 20.5%, as compared to 22.7% in the prior year. The decreases were primarily due to an increase in tax benefits from foreign-derived intangible income, favorable geographic mix of earnings, and a tax charge associated with prior year divestiture gains, partially offset by lower stock-based compensation deductions.
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 report.
24
The following table is a summary of revenue and operating income by segment compared for the periods indicated:
| Second Quarter of | First Two Quarters of | ||||||||||||||||||||||||||||||||||||||||||||||
| 2023 | 2022 | Dollar Change | % Change | 2023 | 2022 | Dollar Change | % Change | ||||||||||||||||||||||||||||||||||||||||
| (In millions) | |||||||||||||||||||||||||||||||||||||||||||||||
| Buildings and Infrastructure | |||||||||||||||||||||||||||||||||||||||||||||||
| Segment revenue | $ | 410.0 | $ | 382.6 | $ | 27.4 | 7% | $ | 809.5 | $ | 780.2 | $ | 29.3 | 4% | |||||||||||||||||||||||||||||||||
| Segment revenue as a % of total revenue | 41 | % | 41 | % | 43 | % | 40 | % | |||||||||||||||||||||||||||||||||||||||
| Segment operating income | $ | 105.8 | $ | 101.4 | 4.4 | 4% | $ | 219.1 | $ | 222.1 | (3.0) | (1)% | |||||||||||||||||||||||||||||||||||
| Segment operating income as a % of segment revenue | 25.8 | % | 26.5 | % | 27.1 | % | 28.5 | % | |||||||||||||||||||||||||||||||||||||||
| Geospatial | |||||||||||||||||||||||||||||||||||||||||||||||
| Segment revenue | $ | 192.9 | $ | 193.7 | (0.8) | —% | $ | 345.3 | $ | 401.2 | (55.9) | (14)% | |||||||||||||||||||||||||||||||||||
| Segment revenue as a % of total revenue | 19 | % | 20 | % | 18 | % | 21 | % | |||||||||||||||||||||||||||||||||||||||
| Segment operating income | $ | 67.1 | $ | 57.8 | 9.3 | 16% | $ | 104.4 | $ | 115.7 | (11.3) | (10)% | |||||||||||||||||||||||||||||||||||
| Segment operating income as a % of segment revenue | 34.8 | % | 29.8 | % | 30.2 | % | 28.8 | % | |||||||||||||||||||||||||||||||||||||||
| Resources and Utilities | |||||||||||||||||||||||||||||||||||||||||||||||
| Segment revenue | $ | 196.0 | $ | 214.8 | (18.8) | (9)% | $ | 404.6 | $ | 444.7 | (40.1) | (9)% | |||||||||||||||||||||||||||||||||||
| Segment revenue as a % of total revenue | 20 | % | 23 | % | 21 | % | 23 | % | |||||||||||||||||||||||||||||||||||||||
| Segment operating income | $ | 61.3 | $ | 73.0 | (11.7) | (16)% | $ | 140.4 | $ | 148.1 | (7.7) | (5)% | |||||||||||||||||||||||||||||||||||
| Segment operating income as a % of segment revenue | 31.3 | % | 34.0 | % | 34.7 | % | 33.3 | % | |||||||||||||||||||||||||||||||||||||||
| Transportation | |||||||||||||||||||||||||||||||||||||||||||||||
| Segment revenue | $ | 194.7 | $ | 150.1 | 44.6 | 30% | $ | 349.6 | $ | 308.8 | 40.8 | 13% | |||||||||||||||||||||||||||||||||||
| Segment revenue as a % of total revenue | 20 | % | 16 | % | 18 | % | 16 | % | |||||||||||||||||||||||||||||||||||||||
| Segment operating income | $ | 30.8 | $ | 11.8 | 19.0 | 161% | $ | 54.2 | $ | 21.0 | 33.2 | 158% | |||||||||||||||||||||||||||||||||||
| Segment operating income as a % of segment revenue | 15.8 | % | 7.9 | % | 15.5 | % | 6.8 | % | |||||||||||||||||||||||||||||||||||||||
The following table is a reconciliation of our consolidated segment operating income to consolidated income before taxes:
| Second Quarter of | First Two Quarters of | ||||||||||||||||||||||
| 2023 | 2022 | 2023 | 2022 | ||||||||||||||||||||
| (In millions) | |||||||||||||||||||||||
| Consolidated segment operating income | $ | 265.0 | $ | 244.0 | $ | 518.1 | $ | 506.9 | |||||||||||||||
| Unallocated general corporate expenses | (34.0) | (33.3) | (61.0) | (63.1) | |||||||||||||||||||
| Amortization of purchased intangible assets | (62.1) | (32.3) | (96.8) | (66.9) | |||||||||||||||||||
| Acquisition / divestiture items | (26.5) | (7.3) | (33.5) | (11.2) | |||||||||||||||||||
| Stock-based compensation / deferred compensation | (42.1) | (26.2) | (77.5) | (51.2) | |||||||||||||||||||
| Restructuring and other costs | (6.7) | (10.0) | (18.7) | (22.7) | |||||||||||||||||||
| Consolidated operating income | 93.6 | 134.9 | 230.6 | 291.8 | |||||||||||||||||||
| Total non-operating income (expense), net | (36.1) | 86.7 | (12.5) | 68.3 | |||||||||||||||||||
| Consolidated income before taxes | $ | 57.5 | $ | 221.6 | $ | 218.1 | $ | 360.1 | |||||||||||||||
Buildings and Infrastructure
25
| Second Quarter of 2023 | First Two Quarters of 2023 | |||||||||||||||||||||||||
| Change versus the corresponding period in 2022 | % Change | % Change | ||||||||||||||||||||||||
Change in Revenue - Buildings and Infrastructure | 7 | % | 4 | % | ||||||||||||||||||||||
| Acquisitions | 3 | % | 3 | % | ||||||||||||||||||||||
| Divestitures | (2) | % | (4) | % | ||||||||||||||||||||||
| Foreign currency exchange | — | % | (1) | % | ||||||||||||||||||||||
Organic growth | 6 | % | 6 | % | ||||||||||||||||||||||
Organic revenue increased for the second quarter and first two quarters due to strong demand for our subscription and term license software and good net retention. The increases resulted from higher sales to new and existing customers as well as conversions to recurring offerings. Perpetual software revenue increased due to civil construction software passcode unlocks. The increase in organic revenue was offset by lower civil construction hardware sales as dealers worked through their inventories.
Operating income increased for the second quarter primarily due to higher revenue and gross margin expansion, offset by increased operating expense associated with revenue growth as well as investments, including our Connect and Scale strategy. Operating income as a percentage of revenue was relatively flat for the second quarter. Operating income and operating income as a percentage of revenue decreased for the first two quarters due to increased operating expense, partially offset by higher revenue and gross margin expansion.
Geospatial
| Second Quarter of 2023 | First Two Quarters of 2023 | |||||||||||||||||||||||||
| Change versus the corresponding period in 2022 | % Change | % Change | ||||||||||||||||||||||||
| Change in Revenue - Geospatial | — | % | (14) | % | ||||||||||||||||||||||
| Divestitures | (4) | % | (7) | % | ||||||||||||||||||||||
| Foreign currency exchange | — | % | (1) | % | ||||||||||||||||||||||
| Organic growth | 4 | % | (6) | % | ||||||||||||||||||||||
Organic revenue increased for the second quarter primarily from increased surveying hardware sales, due in part to a large government sale. Organic revenue decreased for the first two quarters due to lower hardware and related perpetual software sales as dealers continue to work through their inventories.
Operating income and operating income as a percentage of revenue increased for the second quarter primarily due to higher revenue, gross margin expansion, and strong operating expense control. Operating income for the first two quarters decreased due to decreased revenue, partially offset by gross margin expansion and strong operating expense control. Operating income as a percentage of revenue increased for the first two quarters.
Resources and Utilities
| Second Quarter of 2023 | First Two Quarters of 2023 | |||||||||||||||||||||||||
| Change versus the corresponding period in 2022 | % Change | % Change | ||||||||||||||||||||||||
Change in Revenue - Resources and Utilities | (9) | % | (9) | % | ||||||||||||||||||||||
| Acquisitions | — | % | 1 | % | ||||||||||||||||||||||
| Divestitures | (1) | % | (1) | % | ||||||||||||||||||||||
| Foreign currency exchange | — | % | (1) | % | ||||||||||||||||||||||
| Organic growth | (8) | % | (8) | % | ||||||||||||||||||||||
Organic revenue decreased for the second quarter and first two quarters from weaker dealer aftermarket sales due in part to robust market strength in the first half of 2022. Dealer sales were also impacted by changes in our dealer aftermarket distribution network. The declines were partially offset by an increase in OEM sales.
Operating income decreased for the second quarter and first two quarters primarily due to decreased revenue and higher operating expense, partially offset by gross margin expansion. Operating income as a percentage of revenue decreased for the second quarter and increased slightly for the first two quarters.
26
Transportation
| Second Quarter of 2023 | First Two Quarters of 2023 | |||||||||||||||||||||||||
| Change versus the corresponding period in 2022 | % Change | % Change | ||||||||||||||||||||||||
Change in Revenue - Transportation | 30 | % | 13 | % | ||||||||||||||||||||||
| Acquisitions | 27 | % | 13 | % | ||||||||||||||||||||||
| Divestitures | (3) | % | (4) | % | ||||||||||||||||||||||
| Organic growth | 6 | % | 4 | % | ||||||||||||||||||||||
Organic revenue increased for the second quarter and first two quarters primarily driven by enterprise and MAPS subscription revenue growth and higher hardware sales from Europe and Brazil Mobility.
Operating income and operating income as a percentage of revenue increased for the second quarter and first two quarters primarily due to the impact of the Transporeon acquisition, as well as organic revenue growth, gross margin expansion, and targeted cost reductions.
LIQUIDITY AND CAPITAL RESOURCES
| Second Quarter of | Year End | ||||||||||||||||||||||
| As of | 2023 | 2022 | Dollar Change | % Change | |||||||||||||||||||
| (In millions, except percentages) | |||||||||||||||||||||||
| Cash and cash equivalents | $ | 237.3 | $ | 271.0 | $ | (33.7) | (12) | % | |||||||||||||||
| As a percentage of total assets | 2.5 | % | 3.7 | % | |||||||||||||||||||
| Principal balance of outstanding debt | $ | 3,204.3 | $ | 1,525.0 | $ | 1,679.3 | 110 | % | |||||||||||||||
| First Two Quarters of | |||||||||||||||||||||||
| 2023 | 2022 | Dollar Change | % Change | ||||||||||||||||||||
| (In millions) | |||||||||||||||||||||||
| Net cash provided by operating activities | $ | 351.1 | $ | 201.8 | $ | 149.3 | 74 | % | |||||||||||||||
| Net cash (used in) provided by investing activities | (2,050.2) | 172.3 | (2,222.5) | (1290) | % | ||||||||||||||||||
| Net cash provided by (used in) financing activities | 1,662.0 | (335.3) | 1,997.3 | (596) | % | ||||||||||||||||||
| Effect of exchange rate changes on cash and cash equivalents | 3.4 | (14.4) | 17.8 | (124) | % | ||||||||||||||||||
| Net (decrease) increase in cash and cash equivalents | $ | (33.7) | $ | 24.4 | |||||||||||||||||||
Operating Activities
The increase in cash provided by operating activities was driven by a reduction in inventory purchases, incentive compensation payouts, accounts receivable, and tax payments. The increase was partially offset by a decrease in deferred revenue due to the timing of billings.
Investing Activities
The increase in cash used in investing activities was primarily due to the Transporeon acquisition and reduced proceeds from divestitures.
Financing Activities
The increase in cash provided by financing activities was driven by proceeds from our $800.0 million issuance of the 2033 senior notes, borrowings of $1.0 billion in term loans in the current year, and common stock repurchases occurring in the prior year. The increase was partially offset by the repayment of the 2023 senior notes.
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, debt service, expenditures related to our Connect and Scale strategy, and any acquisitions.
Our 2022 credit facility allows us to borrow up to $1.25 billion, with an option to increase the borrowings up to $1.75 billion with lender approval. As of June 30, 2023, $400.0 million was outstanding under the 2022 credit facility.
Our 2023 senior notes totaling $300.0 million matured and were paid in June 2023.
27
In the second quarter of 2023, we acquired Transporeon, which was funded through a combination of $1.0 billion of term loans, $225.0 million drawn on the 2022 credit facility, as amended, and the 2033 senior notes, see Note 3 “Acquisition” of this report.
As a result of R&D cost capitalization for tax purposes, our tax cash costs in 2022 were approximately $88.0 million higher than they would have been had R&D costs continued to be expensed upfront for tax purposes. If this provision is deferred or repealed, we expect to get a significant portion returned to us as a refund or use it as a tax credit in future years. In 2023, we are expecting to pay approximately $66.0 million relating to this provision. The majority relates to Federal tax liability and will be paid during the fourth quarter of 2023, as we qualified for payment postponement under the IRS relief initiative for California disaster area taxpayers.
Our cash requirements have not otherwise materially changed since the 2022 Form 10-K.
28
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.
Organic revenue growth is a non-GAAP measure that refers to revenue excluding the impacts of (i) foreign currency translation, and (ii) acquisitions and divestitures. We believe organic revenue growth provides useful information in evaluating the results of our business because it excludes items that are not indicative of ongoing performance or impact comparability with the prior year. We provide a reconciliation tables showing the change in revenue growth to organic revenue growth in the “Results of Operations” section found earlier in this Item 2.
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. ARR is calculated by taking our subscription, maintenance and support, and recurring transaction revenue for the current quarter and adding the portion of the contract value of all of our term licenses attributable to the current quarter, and dividing that sum by the number of days in the quarter and then multiplying that quotient by 365. Organic ARR refers to annualized recurring revenue excluding the impacts of (i) foreign currency translation, and (ii) acquisitions and divestitures. ARR and organic ARR should be viewed independently of revenue and deferred revenue as they are performance measures and are 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:
| Second Quarter of | First Two Quarters of | ||||||||||||||||||||||||||||||||||||||||
| 2023 | 2022 | 2023 | 2022 | ||||||||||||||||||||||||||||||||||||||
| Dollar | % of | Dollar | % of | Dollar | % of | Dollar | % of | ||||||||||||||||||||||||||||||||||
| (In millions, except per share amounts) | Amount | Revenue | Amount | Revenue | Amount | Revenue | Amount | Revenue | |||||||||||||||||||||||||||||||||
| REVENUE: | |||||||||||||||||||||||||||||||||||||||||
| GAAP revenue: | $ | 993.6 | $ | 941.2 | $ | 1,909.0 | $ | 1,934.9 | |||||||||||||||||||||||||||||||||
| GROSS MARGIN: | |||||||||||||||||||||||||||||||||||||||||
| GAAP gross margin: | $ | 604.5 | 60.8 | % | $ | 537.5 | 57.1 | % | $ | 1,165.3 | 61.0 | % | $ | 1,087.1 | 56.2 | % | |||||||||||||||||||||||||
| Amortization of purchased intangible assets | (A) | 30.2 | 21.0 | 53.2 | 43.5 | ||||||||||||||||||||||||||||||||||||
| Acquisition / divestiture items | (B) | 0.2 | — | 0.4 | — | ||||||||||||||||||||||||||||||||||||
| Stock-based compensation / deferred compensation | (C) | 4.1 | 3.1 | 7.6 | 5.3 | ||||||||||||||||||||||||||||||||||||
| Restructuring and other costs | (D) | (1.0) | — | (0.7) | 1.1 | ||||||||||||||||||||||||||||||||||||
| Non-GAAP gross margin: | $ | 638.0 | 64.2 | % | $ | 561.6 | 59.7 | % | $ | 1,225.8 | 64.2 | % | $ | 1,137.0 | 58.8 | % | |||||||||||||||||||||||||
| OPERATING EXPENSES: | |||||||||||||||||||||||||||||||||||||||||
| GAAP operating expenses: | $ | 510.9 | 51.4 | % | $ | 402.6 | 42.8 | % | $ | 934.7 | 49.0 | % | $ | 795.3 | 41.1 | % | |||||||||||||||||||||||||
| Amortization of purchased intangible assets | (A) | (31.9) | (11.3) | (43.6) | (23.4) | ||||||||||||||||||||||||||||||||||||
| Acquisition / divestiture items | (B) | (26.3) | (7.3) | (33.1) | (11.2) | ||||||||||||||||||||||||||||||||||||
| Stock-based compensation / deferred compensation | (C) | (38.0) | (23.1) | (69.9) | (45.9) | ||||||||||||||||||||||||||||||||||||
| Restructuring and other costs | (D) | (7.7) | (10.0) | (19.4) | (21.6) | ||||||||||||||||||||||||||||||||||||
| Non-GAAP operating expenses: | $ | 407.0 | 41.0 | % | $ | 350.9 | 37.3 | % | $ | 768.7 | 40.3 | % | $ | 693.2 | 35.8 | % | |||||||||||||||||||||||||
| OPERATING INCOME: | |||||||||||||||||||||||||||||||||||||||||
| GAAP operating income: | $ | 93.6 | 9.4 | % | $ | 134.9 | 14.3 | % | $ | 230.6 | 12.1 | % | $ | 291.8 | 15.1 | % | |||||||||||||||||||||||||
| Amortization of purchased intangible assets | (A) | 62.1 | 32.3 | 96.8 | 66.9 | ||||||||||||||||||||||||||||||||||||
| Acquisition / divestiture items | (B) | 26.5 | 7.3 | 33.5 | 11.2 | ||||||||||||||||||||||||||||||||||||
| Stock-based compensation / deferred compensation | (C) | 42.1 | 26.2 | 77.5 | 51.2 | ||||||||||||||||||||||||||||||||||||
| Restructuring and other costs | (D) | 6.7 | 10.0 | 18.7 | 22.7 | ||||||||||||||||||||||||||||||||||||
| Non-GAAP operating income: | $ | 231.0 | 23.2 | % | $ | 210.7 | 22.4 | % | $ | 457.1 | 23.9 | % | $ | 443.8 | 22.9 | % | |||||||||||||||||||||||||
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| Second Quarter of | First Two Quarters of | ||||||||||||||||||||||||||||||||||||||||
| 2023 | 2022 | 2023 | 2022 | ||||||||||||||||||||||||||||||||||||||
| NON-OPERATING INCOME (EXPENSE), NET: | |||||||||||||||||||||||||||||||||||||||||
| GAAP non-operating income (expense), net: | $ | (36.1) | $ | 86.7 | $ | (12.5) | $ | 68.3 | |||||||||||||||||||||||||||||||||
| Acquisition / divestiture items | (B) | (0.9) | (106.3) | (32.5) | (97.4) | ||||||||||||||||||||||||||||||||||||
| Deferred compensation | (C) | (1.7) | 7.0 | (3.7) | 10.3 | ||||||||||||||||||||||||||||||||||||
| Restructuring and other costs | (D) | — | — | 1.3 | 0.1 | ||||||||||||||||||||||||||||||||||||
| Non-GAAP non-operating expense, net: | $ | (38.7) | $ | (12.6) | $ | (47.4) | $ | (18.7) | |||||||||||||||||||||||||||||||||
| GAAP and Non-GAAP Tax Rate % | GAAP and Non-GAAP Tax Rate % | GAAP and Non-GAAP Tax Rate % | GAAP and Non-GAAP Tax Rate % | ||||||||||||||||||||||||||||||||||||||
| (G) | (G) | (G) | (G) | ||||||||||||||||||||||||||||||||||||||
| INCOME TAX PROVISION: | |||||||||||||||||||||||||||||||||||||||||
| GAAP income tax provision: | $ | 12.9 | 22.4 | % | $ | 53.6 | 24.2 | % | $ | 44.7 | 20.5 | % | $ | 81.8 | 22.7 | % | |||||||||||||||||||||||||
| Non-GAAP items tax effected | (E) | 30.2 | (5.7) | 41.4 | 12.4 | ||||||||||||||||||||||||||||||||||||
| Difference in GAAP and Non-GAAP tax rate | (F) | (9.8) | (11.4) | (13.3) | (15.5) | ||||||||||||||||||||||||||||||||||||
| Non-GAAP income tax provision: | $ | 33.3 | 17.3 | % | $ | 36.5 | 18.4 | % | $ | 72.8 | 17.8 | % | $ | 78.7 | 18.5 | % | |||||||||||||||||||||||||
| NET INCOME: | |||||||||||||||||||||||||||||||||||||||||
| GAAP net income: | $ | 44.6 | $ | 168.0 | $ | 173.4 | $ | 278.3 | |||||||||||||||||||||||||||||||||
| Amortization of purchased intangible assets | (A) | 62.1 | 32.3 | 96.8 | 66.9 | ||||||||||||||||||||||||||||||||||||
| Acquisition / divestiture items | (B) | 25.6 | (99.0) | 1.0 | (86.2) | ||||||||||||||||||||||||||||||||||||
| Stock-based compensation / deferred compensation | (C) | 40.4 | 33.2 | 73.8 | 61.5 | ||||||||||||||||||||||||||||||||||||
| Restructuring and other costs | (D) | 6.7 | 10.0 | 20.0 | 22.8 | ||||||||||||||||||||||||||||||||||||
| Non-GAAP tax adjustments | (E) - (F) | (20.4) | 17.1 | (28.1) | 3.1 | ||||||||||||||||||||||||||||||||||||
| Non-GAAP net income: | $ | 159.0 | $ | 161.6 | $ | 336.9 | $ | 346.4 | |||||||||||||||||||||||||||||||||
| DILUTED NET INCOME PER SHARE: | |||||||||||||||||||||||||||||||||||||||||
| GAAP diluted net income per share: | $ | 0.18 | $ | 0.67 | $ | 0.70 | $ | 1.11 | |||||||||||||||||||||||||||||||||
| Amortization of purchased intangible assets | (A) | 0.25 | 0.13 | 0.39 | 0.27 | ||||||||||||||||||||||||||||||||||||
| Acquisition / divestiture items | (B) | 0.10 | (0.39) | — | (0.34) | ||||||||||||||||||||||||||||||||||||
| Stock-based compensation / deferred compensation | (C) | 0.16 | 0.13 | 0.29 | 0.24 | ||||||||||||||||||||||||||||||||||||
| Restructuring and other costs | (D) | 0.03 | 0.04 | 0.08 | 0.09 | ||||||||||||||||||||||||||||||||||||
| Non-GAAP tax adjustments | (E) - (F) | (0.08) | 0.06 | (0.11) | 0.01 | ||||||||||||||||||||||||||||||||||||
| Non-GAAP diluted net income per share: | $ | 0.64 | $ | 0.64 | $ | 1.35 | $ | 1.38 | |||||||||||||||||||||||||||||||||
| ADJUSTED EBITDA: | |||||||||||||||||||||||||||||||||||||||||
| GAAP net income: | $ | 44.6 | $ | 168.0 | $ | 173.4 | $ | 278.3 | |||||||||||||||||||||||||||||||||
| Non-operating income (expense), net and income tax provision | 49.0 | (33.1) | 57.2 | 13.5 | |||||||||||||||||||||||||||||||||||||
| GAAP operating income: | 93.6 | 134.9 | 230.6 | 291.8 | |||||||||||||||||||||||||||||||||||||
| Amortization of purchased intangible assets | (A) | 62.1 | 32.3 | 96.8 | 66.9 | ||||||||||||||||||||||||||||||||||||
| Acquisition / divestiture items | (B) | 26.5 | 7.3 | 33.5 | 11.2 | ||||||||||||||||||||||||||||||||||||
| Stock-based compensation / deferred compensation | (C) | 42.1 | 26.2 | 77.5 | 51.2 | ||||||||||||||||||||||||||||||||||||
| Restructuring and other costs | (D) | 6.7 | 10.0 | 18.7 | 22.7 | ||||||||||||||||||||||||||||||||||||
| Non-GAAP operating income: | 231.0 | 210.7 | 457.1 | 443.8 | |||||||||||||||||||||||||||||||||||||
| Depreciation expense and cloud computing amortization | 12.5 | 11.0 | 23.8 | 21.5 | |||||||||||||||||||||||||||||||||||||
| Income from equity method investments, net | 8.0 | 5.8 | 19.4 | 15.5 | |||||||||||||||||||||||||||||||||||||
| Adjusted EBITDA | $ | 251.5 | 25.3 | % | $ | 227.5 | 24.2 | % | $ | 500.3 | 26.2 | % | $ | 480.8 | 24.8 | % | |||||||||||||||||||||||||
Non-GAAP Definitions
Non-GAAP gross margin
We define Non-GAAP gross margin as GAAP gross margin, excluding the effects of amortization of purchased intangible assets, acquisition/divestiture items, 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.
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Non-GAAP operating expenses
We define Non-GAAP operating expenses as GAAP operating expenses, excluding the effects of amortization of purchased intangible assets, 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 amortization of purchased intangible assets, 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 expense, net as GAAP non-operating income (expense), 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 amortization of purchased intangible assets, 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 amortization of purchased intangible assets, 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, cloud computing amortization, 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 of purchased intangibles and cloud computing costs.
Explanations of Non-GAAP adjustments
(A).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, including foreign currency exchange rate gains/losses related to an acquisition, divestiture gains/losses, and strategic investment impairments. 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
31
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 costs comprised of termination benefits related to reductions in employee headcount and closure or exit of facilities, executive severance agreements, business exit costs, as well as a $20 million commitment to donate to the Trimble Foundation that was 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
Our cash equivalents consisted primarily of interest and non-interest bearing bank deposits as well as bank time deposits. The main objective of these instruments is safety of principal and liquidity while maximizing return, without significantly increasing risk. Due to the nature of our cash equivalents that are readily convertible to cash, we do not anticipate any material effect on our portfolio due to fluctuations in interest rates.
In the second quarter of 2023, we borrowed $1.2 billion of variable-rate debt in conjunction with the Transporeon acquisition. At the end of the second quarter of 2023, our outstanding balance of variable-rate debt was $1.4 billion. We are exposed to market risk due to the possibility of changing interest rates. While not predictive, a hypothetical 50 basis point increase in interest rates on our variable-rate debt would result in an increase of approximately $7.1 million in annual interest expense.
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 2023, unfavorable impacts from foreign currency exchange rates were $2.7 million and $18.4 million on revenue and $1.9 million and $6.3 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, Canadian Dollars, New Zealand Dollars, Brazilian Real, and British Pound. 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. We occasionally enter into foreign currency forward contracts to hedge the purchase price of some of our larger business acquisitions. In connection with the acquisition of Transporeon, we entered into foreign currency exchange rate contracts to minimize foreign currency fluctuations on the €1.9 billion purchase price, which were settled on April 3, 2023.
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Our foreign currency contracts are marked-to-market through earnings every period and generally range in maturity from one to two months, or from four to six months for acquisitions. We do not enter into foreign currency contracts for trading purposes. Foreign currency forward contracts outstanding at the end of the second quarter of 2023 and at the end of 2022 are summarized as follows (in millions):
| Second Quarter of 2023 | Year End 2022 | ||||||||||||||||||||||
| Nominal Amount | Fair Value | Nominal Amount | Fair Value | ||||||||||||||||||||
| Forward contracts: | |||||||||||||||||||||||
| Purchased | $ | (113.1) | $ | (0.5) | $ | (77.9) | $ | — | |||||||||||||||
| Sold | 46.5 | 0.3 | 130.6 | 0.2 | |||||||||||||||||||
| Foreign currency exchange contract related to acquisition | — | — | 1,999.4 | 10.4 | |||||||||||||||||||
ITEM 4. CONTROLS AND PROCEDURES
(a) Disclosure Controls and Procedures.
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.
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
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 2022 Form 10-K. The risk factors described in the 2022 Form 10-K 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) None.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None.
ITEM 4. MINE SAFETY DISCLOSURES
None.
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ITEM 5. OTHER INFORMATION
ITEM 6. EXHIBITS
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 report.
EXHIBIT INDEX
| Exh. No. | Description of Exhibit | Filed or furnished herewith or incorporated by reference to: | ||||||
| 3.1 | Exhibit 3.1 to Form 8-K filed October 3, 2016 | |||||||
| 3.2 | Exhibit 3.1 to Form 8-K filed June 6, 2023 | |||||||
| 10.1 | Filed herewith | |||||||
| 31.1 | Filed herewith | |||||||
| 31.2 | Filed herewith | |||||||
| 32.1 | Furnished herewith | |||||||
| 32.2 | Furnished herewith | |||||||
| 101 | The following financial statements from the Company’s Quarterly Report on Form 10-Q for the quarter ended June 30, 2023, 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 | |||||||
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SIGNATURES
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.
TRIMBLE INC. (Registrant) | |||||
| By: | /s/ DAVID G. BARNES | ||||
| David G. Barnes Chief Financial Officer (Authorized Officer and Principal Financial Officer) | |||||
DATE: August 4, 2023
35
Execution Version
AMENDMENT NO. 2 TO CREDIT AGREEMENT
THIS AMENDMENT NO. 2 TO CREDIT AGREEMENT dated as of April 28, 2023 (this “Amendment”) is entered into among Trimble Inc., a Delaware corporation (“Company”), the Lenders party hereto and Bank of America, N.A., as Administrative Agent. All capitalized terms used herein and not otherwise defined herein shall have the meanings given to such terms in the Credit Agreement (as defined below).
RECITALS
WHEREAS, Company, the Lenders and the Administrative Agent entered into that certain Credit Agreement dated as of March 24, 2022 (as amended, restated, amended and restated, supplemented or otherwise modified from time to time prior to the Amendment No. 2 Effective Date, the “Existing Credit Agreement”; the Existing Credit Agreement, as amended pursuant to this Amendment, the “Credit Agreement”); and
WHEREAS, Company has requested that the Lenders and Administrative Agent amend the Existing Credit Agreement as set forth below;
AGREEMENT
NOW, THEREFORE, in consideration of the premises and the mutual covenants contained herein, and for other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties hereto agree as follows:
1.Amendment. Each of the parties hereto agrees that, effective on the Amendment No. 2 Effective Date (as defined below), Section 5.02(d) of the Existing Credit Agreement shall be amended and restated in its entirety as follows:
“(d) Sustainability Information. With respect to each calendar year (commencing with the calendar year ending 2022), as soon as available and in any event by the earlier of (i) the date that is 5 days after the date on which the Company delivers its KPI Metrics Reports (as defined in the Sustainability Schedule) to the Administrative Agent and (ii) the date that is 210 days following the end of such calendar year, a Sustainability Pricing Certificate for the most recently-ended calendar year; provided, that, for any calendar year the Company may elect not to deliver a Sustainability Pricing Certificate, and such election shall not constitute a Default or Event of Default (but such failure to so deliver a Sustainability Pricing Certificate by the end of such 5-day period or 210-day period (as applicable) shall result in the Sustainability Revolving Commitment Fee Adjustment and the Sustainability Margin Adjustment being applied as set forth in the Sustainability Schedule in respect of situations where the Sustainability Pricing Certificate is not so delivered by the end of such period).”
2.Condition Precedent. This Amendment shall be effective upon satisfaction of the following condition precedent (the date such conditions precedent are satisfied, the “Amendment No. 2 Effective Date”):
(a)The Administrative Agent shall have received counterparts of this Amendment, executed and delivered by Company, Administrative Agent and the Required Lenders (provided that the requirements of this clause (a) may be satisfied by customary written evidence reasonably satisfactory to Administrative Agent (which may include electronic transmission of a signed signature page) that such party has signed a counterpart to this Amendment).
3.Miscellaneous.
(a)The Existing Credit Agreement (as amended hereby), and the obligations of Company thereunder and under the other Loan Documents, are hereby ratified and confirmed and shall remain in full force and effect according to their terms. Except as expressly set forth
#96821889v3
herein, this Amendment shall not be deemed to be an amendment or modification of any other provisions of the Existing Credit Agreement or any other Loan Document or any right, power or remedy of the Lenders, nor constitute a waiver of any provision of the Existing Credit Agreement, any other Loan Document, or any other document, instrument and/or agreement executed or delivered in connection therewith or of any Default or Event of Default under any of the foregoing, in each case, whether arising before or after the date hereof or as a result of performance hereunder or thereunder. This Amendment shall constitute a “Loan Document”.
(b)The Company (a) acknowledges and consents to all of the terms and conditions of this Amendment, (b) affirms all of its obligations under the Loan Documents and (c) agrees that this Amendment and any documents executed in connection herewith do not operate to reduce or discharge its obligations under the Credit Agreement or the Loan Documents.
(c)The Company hereby represents and warrants as follows:
(i)The execution and delivery by the Company of the Amendment and the performance by the Company of its obligations hereunder have been duly authorized by all necessary corporate (or equivalent) actions on the part of the Company.
(ii)The Company has the requisite power and authority and legal right to execute and deliver the Amendment and to perform its obligations hereunder. The Amendment constitutes a legal, valid and binding obligation of the Company, enforceable against the Company in accordance with its terms, except as enforceability may be limited by bankruptcy, insolvency or similar laws affecting the enforcement of creditors’ rights generally and by equitable principles (regardless of whether enforcement is sought in equity or at law).
(iii)The representations and warranties of the Company set forth in Article III of the Credit Agreement are true and correct (i) in the case of the representations and warranties qualified as to materiality, in all respects and (ii) otherwise, in all material respects, in each case on and as of the date hereof, except in the case of any such representation and warranty that expressly relates to a prior date, in which case such representation and warranty is true and correct on and as of such prior date.
(iv)At the time of and immediately after giving effect to this Amendment, no Default or Event of Default has occurred and is continuing.
(d)This Amendment may be executed in any number of counterparts, each of which when so executed and delivered shall be an original, but all of which shall constitute one and the same instrument. Delivery of an executed counterpart of this Amendment by telecopy shall be effective as an original and shall constitute a representation that an executed original shall be delivered. This Amendment may, if agreed by the Administrative Agent, be in the form of an Electronic Record and may be executed using Electronic Signatures (including, without limitation, facsimile and .pdf) and shall be considered an original, and shall have the same legal effect, validity and enforceability as a paper record. This Amendment may be executed in as many counterparts as necessary or convenient, including both paper and electronic counterparts, but all such counterparts are one and the same Amendment. For the avoidance of doubt, the authorization under this paragraph may include, without limitation, use or acceptance by the Administrative Agent of a manually signed paper Communication which has been converted into electronic form (such as scanned into PDF format), or an electronically signed Communication converted into another format, for transmission, delivery and/or retention. Notwithstanding anything contained herein to the contrary, the Administrative Agent is under no obligation to accept an Electronic Signature in any form or in any format unless expressly agreed to by the Administrative Agent pursuant to procedures approved by it; provided, further, without limiting the foregoing, (a) to the extent the Administrative Agent has agreed to accept such Electronic Signature, the Administrative Agent shall be entitled to rely on any such Electronic Signature without further verification and (b) upon the request of the Administrative Agent any Electronic Signature shall be
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promptly followed by a manually executed, original counterpart. For purposes hereof, “Electronic Record” and “Electronic Signature” shall have the meanings assigned to them, respectively, by 15 USC §7006, as it may be amended from time to time.
(e)THIS AMENDMENT AND THE RIGHTS AND OBLIGATIONS OF THE PARTIES HEREUNDER AND ANY CLAIMS, CONTROVERSY, DISPUTE OR CAUSE OF ACTION (WHETHER IN CONTRACT OR TORT OR OTHERWISE) BASED UPON, ARISING OUT OF OR RELATING TO THIS AMENDMENT SHALL BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH, THE LAW OF THE STATE OF NEW YORK.
[remainder of page intentionally left blank]
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Each of the parties hereto has caused a counterpart of this Amendment to be duly executed and delivered as of the date first above written.
TRIMBLE INC.
By: /s/ DAVID G. BARNES
Name: David G. Barnes
Title: Chief Financial Officer
[Signature Page to Amendment No. 2 to Credit Agreement]
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BANK OF AMERICA, N.A.,
as a Lender
as a Lender
By: /s/ KURT FUESS
Name: Kurt Fuess
Title: Vice President
Title: Vice President
[Signature Page to Amendment No. 2 to Credit Agreement]
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GOLDMAN SACHS BANK USA,
as a Lender
By: /s/ Keshia Leday
Name: Keshia Leday
Title: Authorized Signatory
[Signature Page to Amendment No. 2 to Credit Agreement]
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WELLS FARGO BANK, NATIONAL ASSOCIATION,
as a Lender
By: /s/ GAMBO AUDU
Name: Gambo Audu
Title: Vice President
[Signature Page to Amendment No. 2 to Credit Agreement]
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TD BANK, N.A.
as a Lender
By: /s/ BERNADETTE COLLINS
Name: Bernadette Collins
Title: SVP
[Signature Page to Amendment No. 2 to Credit Agreement]
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SUMITOMO MITSUI BANKING CORPORATION,
as a Lender
By: /s/ IRLEN MAK
Name: Irlen Mak
Title: Director
[Signature Page to Amendment No. 2 to Credit Agreement]
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The Bank of Nova Scotia,
as a Lender
By: /s/ LUKE COPLEY
Name: Luke Copley
Title: Director
[Signature Page to Amendment No. 2 to Credit Agreement]
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PNC BANK, NATIONAL ASSOCIATION,
as a Lender
By: /s/ DIANE TRUONG
Name: Diane Truong
Title: Vice President
[Signature Page to Amendment No. 2 to Credit Agreement]
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U.S. Bank National Association
as a Lender
By: /s/ PATRICK MUN
Name: Patrick Mun
Title: SVP
[Signature Page to Amendment No. 2 to Credit Agreement]
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JPMORGAN CHASE BANK N.A.,
as a Lender
By: /s/ RYAN ZIMMERMAN
Name: Ryan Zimmerman
Title: Executive Director
[Signature Page to Amendment No. 2 to Credit Agreement]
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Nordea Bank ABP, New York Branch
as a Lender
By: /s/ OLA ANDERSSEN
Name: Ola Anderssen
Title: First Vice President
By: /s/ ANDERS HOLMGAARD
Name: Anders Holmgaard
Title: Managing Director
[Signature Page to Amendment No. 2 to Credit Agreement]
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KBC Bank NV, New York Branch,
as a Lender
By: /s/ NICHOLAS FIORE
Name: Nicholas Fiore
Title: Managing Director
By: /s/ FRANK PAYNE
Name: Frank Payne
Title: Managing Director
[Signature Page to Amendment No. 2 to Credit Agreement]
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ACKNOWLEDGED AND AGREED:
BANK OF AMERICA, N.A.,
as Administrative Agent
as Administrative Agent
By: /s/ DAVID J. SMITH
Name: David J. Smith
Title: Vice President
Title: Vice President
[Signature Page to Amendment No. 2 to Credit Agreement]
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Exhibit 31.1
CERTIFICATION OF CHIEF EXECUTIVE OFFICER PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002
I, Robert G. Painter, certify that:
1.I have reviewed this quarterly report on Form 10-Q of Trimble Inc.;
2.Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3.Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4.The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
a)Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
b)Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
c)Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
d)Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and
5.The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):
a)All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
b)Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.
| Date: | August 4, 2023 | /s/ Robert G. Painter | ||||||
| Robert G.Painter | ||||||||
| Chief Executive Officer | ||||||||
Exhibit 31.2
CERTIFICATION OF CHIEF FINANCIAL OFFICER PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002
I, David G. Barnes, certify that:
1.I have reviewed this quarterly report on Form 10-Q of Trimble Inc.;
2.Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3.Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4.The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
a)Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
b)Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
c)Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
d)Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and
5.The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):
a)All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
b)Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.
| Date: | August 4, 2023 | /s/ David G. Barnes | ||||||
David G. Barnes | ||||||||
| Chief Financial Officer | ||||||||
Exhibit 32.1
CERTIFICATION OF CEO PURSUANT TO 18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the Quarterly Report on Form 10-Q of Trimble Inc. (the “Company”) for the period ended June 30, 2023 as filed with the Securities and Exchange Commission on the date hereof (the “Report”), Robert G.Painter, as Chief Executive Officer of the Company, hereby certifies, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, to the best of his knowledge, that:
(1)the Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934, and
(2)the information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.
| /s/ Robert G.Painter | ||
| Robert G.Painter | ||
| Chief Executive Officer | ||
August 4, 2023 | ||
Exhibit 32.2
CERTIFICATION OF CFO PURSUANT TO 18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the Quarterly Report on Form 10-Q of Trimble Inc. (the “Company”) for the period ended June 30, 2023 as filed with the Securities and Exchange Commission on the date hereof (the “Report”), David G. Barnes, as Chief Financial Officer of the Company, hereby certifies, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, to the best of his knowledge, that:
(1)the Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934, and
(2)the information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.
| /s/ David G. Barnes | ||
David G. Barnes | ||
| Chief Financial Officer | ||
August 4, 2023 | ||