Trimble Navigation Limited (Trimble Inc.) — Form 10-Q Summary
Business context and reporting period
Trimble provides positioning, hardware, software and related services across engineering and construction, agriculture and mapping, mobile workforce and asset management, and advanced technology markets. This unaudited filing covers the third quarter ended September 27, 2013, and the first three quarters of fiscal 2013. Fiscal 2013 is a 53-week year; the comparable 2012 periods were in a 52-week year.
Financial performance
| Metric | Q3 2013 | Q3 2012 | First three quarters 2013 | First three quarters 2012 |
|---|---|---|---|---|
| Revenue | $556.5m | $504.8m | $1,688.9m | $1,524.6m |
| Gross margin | $295.1m; 53.0% | $262.9m; 52.1% | $884.4m; 52.4% | $789.7m; 51.8% |
| Operating income | $63.0m; 11.3% | $63.5m; 12.6% | $184.4m; 10.9% | $182.2m; 12.0% |
| Net income attributable to Trimble | $54.5m | $53.4m | $158.9m | $157.9m |
| Diluted EPS | $0.21 | $0.21 | $0.61 | $0.62 |
| Operating cash flow | Not reported separately for the quarter | $278.4m | $243.9m |
Q3 revenue grew 10% year over year; service revenue rose 33% and subscription revenue 29%, while product revenue grew 4%. For the first three quarters, revenue increased 11%. The company attributed growth principally to Engineering and Construction and Mobile Solutions, including acquired businesses and organic growth. Gross margin improved, supported by higher-margin software, maintenance and subscription sales; higher acquired-intangible amortization partly offset the improvement.
Cash and equivalents were $115.3m at September 27, 2013, down from $157.8m at fiscal year-end 2012; restricted cash was $6.7m. Total debt was $809.1m, down from $911.2m, including $105.2m classified as current. The company generated $278.4m from operations and used $256.4m in investing, including $200.4m for acquisitions and $57.6m for property and equipment. Financing activities used $62.4m; cash declined $42.5m over the first three quarters.
Material changes versus comparable periods
- Q3 GAAP operating income was approximately flat despite revenue growth; operating margin declined 1.3 percentage points to 11.3%, primarily reflecting higher operating expenses and acquired-intangible amortization.
- For the first three quarters, GAAP operating income rose only 1% while revenue rose 11%; operating margin fell to 10.9% from 12.0%. Non-GAAP operating income increased to $348.8m from $312.3m, and non-GAAP diluted EPS rose to $1.14 from $1.04. These company-defined non-GAAP measures exclude specified items, including amortization, stock compensation and acquisition costs.
- Mobile Solutions revenue increased 35% in Q3, driven by the TMW acquisition and organic transportation and logistics growth. Field Solutions revenue declined 3%, with GIS weakness tied to reduced government funding; its segment operating margin also decreased.
- Debt fell as repayments exceeded new borrowing. Cash provided by operating activities increased by $34.5m year over year for the first three quarters, while acquisition spending was lower than in the comparable 2012 period.
Outlook, management commentary, risks and unusual items
- No specific revenue, earnings or EPS guidance is provided in the filing. Management stated that cash, together with borrowing availability under the credit facility, should be sufficient for anticipated operating needs, debt service, planned capital expenditures and stock repurchases for at least the next 12 months.
- Management expects continued product development. It noted that seasonal patterns may affect segment revenue, although acquisitions could reduce historical seasonality. It identified continued GIS-market weakness and the need to develop existing and new markets as relevant business considerations.
- The $1.4bn 2012 Credit Facility includes leverage and interest-coverage covenants; the company reported compliance at quarter-end. Weighted average interest rates were 1.32% on current debt and 1.70% on non-current debt. The filing describes customary restrictions and default provisions.
- Goodwill was $1,938.9m and net purchased intangible assets were $621.7m. Amortization of purchased intangibles was $41.6m in Q3; estimated remaining-fiscal-2013 amortization was $41.6m. Certain acquisition valuations remain provisional and may change.
- Two lawsuits connected to LightSquared seek $1.9bn in damages from Trimble and other defendants; a second, similar action was filed November 1, 2013. Trimble says the claims are without merit and intends to defend itself. The filing does not quantify a probable loss or provide a clear estimate of Trimble’s potential exposure.
- The company recorded $1.3m for a litigation settlement related to a pre-acquisition agreement in Q3. Unrecognized tax benefits were $44.2m; the company did not expect a material change in the next 12 months. It reported no material change to its risk-factor disclosure and said disclosure controls were effective.
Important facts for investors to verify
- How much reported growth reflects acquisitions versus organic growth, particularly in Mobile Solutions, and whether growth persists.
- Whether Field Solutions stabilizes as GIS demand remains affected by reduced government funding, and how segment margins develop.
- How acquired-intangible amortization, acquisition spending and integration affect GAAP margins and earnings relative to company-defined non-GAAP results.
- Debt repayment capacity, covenant headroom, cash availability and working-capital trends; accounts-receivable days outstanding rose to 59 from 57 at fiscal year-end.
- Developments in the LightSquared lawsuits, including any change in claimed damages, legal status or potential financial exposure.