Trimble Inc. — Q1 2017 Form 10-Q
Business context and period: Trimble provides technology, software and services for industries including construction, geospatial, agriculture, transportation and utilities. This unaudited quarter ended March 31, 2017; comparisons are with the quarter ended April 1, 2016. In March 2017, Trimble changed its segment reporting to Buildings and Infrastructure, Geospatial, Resources and Utilities, and Transportation; prior-period segment figures were recast.
Financial performance
| Metric | Q1 2017 | Q1 2016 |
|---|---|---|
| Revenue | $613.9 million | $583.0 million |
| Gross margin | $326.6 million; 53.2% | $300.6 million; 51.6% |
| Operating income | $56.6 million; 9.2% of revenue | $29.9 million; 5.1% |
| Net income attributable to Trimble | $50.5 million | $19.8 million |
| Diluted EPS | $0.20 | $0.08 |
| Cash from operating activities | $102.9 million | $114.4 million |
| Cash and short-term investments at quarter-end | $422.6 million | $327.2 million at fiscal 2016 year-end |
| Debt principal at quarter-end | $652.8 million | $624.8 million at fiscal 2016 year-end |
- Revenue rose 5%. Product revenue increased 3%, service 5%, and subscription 16%.
- Operating cash flow fell $11.5 million, primarily from higher working-capital needs, especially accounts receivable. Days sales outstanding increased to 59 from 55 at fiscal year-end; inventory turns were 5.0 versus 4.8.
- Investing cash outflow was $94.5 million, including $79.2 million net cash used for acquisitions and $59.0 million of short-term investment purchases, partly offset by business-sale proceeds. Financing provided $51.3 million, including debt and revolving-credit activity, stock issuance and repurchases.
Changes and segment results
- Buildings and Infrastructure revenue grew 8% to $188.1 million; segment operating income was $32.7 million, up from $22.4 million.
- Geospatial revenue declined 2% to $149.8 million, mainly due to divestitures; segment operating income rose to $27.9 million from $26.1 million.
- Resources and Utilities revenue grew 5% to $119.9 million; segment operating income increased to $42.2 million from $34.9 million.
- Transportation revenue grew 9% to $156.1 million; segment operating income increased to $24.8 million from $23.8 million. Management cited ongoing investment in new initiatives and an unfavorable product mix.
- Gross margin improvement reflected lower purchased-intangible amortization and a higher mix of software, maintenance and subscription revenue. Operating income also benefited from expense control.
Outlook, risks and unusual items
- No specific revenue or earnings guidance was provided. Management said available cash, short-term investments and borrowing capacity were expected to cover operating needs, debt service, planned capital expenditures, acquisitions and repurchases for at least 12 months.
- Management expects continued product development and investment in R&D; recurring software and service revenue is intended to improve business visibility. More than 50% of Q1 sales were to customers outside the U.S. Seasonality, macroeconomic conditions and international markets may affect results.
- Q1 included a $10.6 million gain from the sale of the ThingMagic business, recorded in other income. Three acquisitions had $98.7 million of total cash consideration; collectively they contributed less than 1% of Q1 revenue. The acquisitions and divestiture also affected reported results and cash flows.
- The effective tax rate was 23%, versus 33%, primarily due to geographic mix, stock-based compensation tax benefits and lower nondeductible expenses. An IRS dispute concerns proposed assessments of $67.0 million for fiscal 2010 and 2011; Trimble contests the remaining items after proposing settlement of certain items totaling $15.8 million. The company said existing reserves were adequate and that unrecognized tax benefits could decrease by up to $6.2 million within 12 months.
- An Alaska lawsuit was remanded for nominal damages after the state supreme court affirmed that the plaintiff had not proven damages or lost profits. The plaintiff sought rehearing. Other disclosed commitments include $110.9 million of future minimum operating lease payments and $166.3 million of unconditional purchase obligations.
- Trimble identified foreign-exchange exposure; currency translation reduced revenue by $5.2 million and increased operating income by $1.1 million in Q1. The company also disclosed upcoming accounting-standard changes, including revenue recognition adoption in fiscal 2018, whose impact it was still evaluating.
Important facts for investors to verify
- How much of revenue and margin growth reflects underlying operations versus acquisitions, divestitures, the ThingMagic gain and lower intangible amortization.
- Whether the increase in receivable days reverses and operating cash flow improves as working-capital needs normalize.
- Debt maturities, availability and terms of revolving facilities, including the short-term, uncommitted facilities callable by lenders.
- Resolution and potential financial effects of the IRS dispute and Alaska litigation.
- The eventual financial and disclosure impact of the new revenue-recognition standard.