Trimble Navigation Limited — Q1 FY2015 10-Q
Business context and period. The filing covers the quarter ended April 3, 2015; the comparable quarter ended April 4, 2014. Trimble provides technology, software, and services for industries including construction, agriculture, transportation, and utilities. Fiscal 2015 and 2014 are both 52-week years.
Financial performance
| Metric | Q1 FY2015 | Q1 FY2014 |
|---|---|---|
| Revenue | $582.6 million | $604.7 million |
| Gross margin | $307.2 million; 52.7% | $326.9 million; 54.1% |
| Operating income | $39.5 million; 6.8% of revenue | $75.7 million; 12.5% of revenue |
| Net income attributable to Trimble | $34.1 million | $68.6 million |
| Diluted EPS | $0.13 | $0.26 |
| Operating cash flow | $107.2 million | $83.4 million |
- Revenue mix: product $400.6 million, service $100.9 million, and subscription $81.1 million. Year over year, product revenue declined 9%, while service rose 8% and subscription rose 18%.
- Segment revenue and operating income: Engineering and Construction $299.3 million and $37.0 million; Field Solutions $115.3 million and $40.6 million; Mobile Solutions $128.2 million and $20.5 million; Advanced Devices $39.8 million and $15.2 million.
- Cash used in investing was $35.4 million, including $36.9 million for acquisitions and $10.6 million for property and equipment, partly offset by $12.6 million in business-sale proceeds. Cash used in financing was $65.2 million.
- Cash and equivalents were $145.7 million at quarter-end. Total debt was $663.4 million, versus $738.4 million at FY2014 year-end. Current debt was $133.1 million and non-current debt $530.3 million. The company reported compliance with its credit-facility covenants.
- Current assets were $917.0 million and current liabilities $698.3 million. Accounts receivable days sales outstanding increased to 60 from 58; inventory turns were 4.0 versus 3.9.
- Management’s non-GAAP measures showed operating income of $96.8 million and diluted EPS of $0.28, compared with $128.2 million and $0.39, respectively, in Q1 FY2014. These measures exclude specified items and are not GAAP results.
Changes, outlook, and notable matters
- GAAP revenue fell 4% year over year. Engineering and Construction revenue declined 3% and Field Solutions declined 17%; Mobile Solutions grew 8% and Advanced Devices 3%. Management cited agricultural-market softness, foreign exchange, weather, and oil-price-related regional weakness. Engineering and Construction results also reflected lower gross margin and acquisition-related challenges.
- Gross margin and operating margin contracted; management attributed lower operating income primarily to revenue shortfalls in Engineering and Construction and Field Solutions and weaker Engineering and Construction gross margin. Operating expenses for R&D, sales and marketing, and G&A totaled $248.4 million, up from $231.2 million.
- Foreign exchange reduced Q1 revenue by $24.7 million and operating income by $2.5 million, according to management. The company identifies the Euro as its most significant currency exposure and uses forward contracts to manage certain short-term exposures.
- Trimble acquired four businesses for reported purchase consideration of $37.8 million; management said the acquired businesses contributed less than 1% of quarterly revenue in aggregate. Separately, MD&A describes total consideration of $34.6 million for the quarter’s acquisitions; the filing text does not explain this difference clearly.
- Management said cash and available credit were expected to cover operating needs, debt service, planned capital expenditures, and planned repurchases for at least the next 12 months. It gave no specific revenue or earnings guidance. Historically, Q2 has been the strongest quarter due to construction seasonality, although recurring software and subscription revenue may moderate seasonality.
- The company issued $400 million of 4.75% senior notes due 2024 and had a $1.0 billion revolving credit facility, with $133 million outstanding. It also had $133 million outstanding on uncommitted facilities that lenders may call at any time. Foreign subsidiaries held $122.8 million of cash.
- The IRS proposed $67.0 million in tax, interest, and penalties concerning 2010–2011 intercompany intellectual-property valuations. Trimble disputes the adjustment, filed a protest, and said it intends to contest it; no payment had been made. The company reported $43.7 million of unrecognized tax benefits at quarter-end.
- Pending LightSquared-related lawsuits seek $1.9 billion in damages from multiple defendants, including Trimble. The company believes the claims are without merit and intends to defend them; it cautioned that an unfavorable outcome could materially affect results, liquidity, or financial position. A separate shareholder suit concerning change-of-control provisions in the credit agreement seeks non-monetary relief.
Investor verification points
- Track whether Field Solutions and Engineering and Construction recover, and whether Mobile Solutions’ growth and recurring-revenue mix continue.
- Verify the drivers and persistence of the sharp decline in GAAP operating income and gross margin, including acquisition-related costs and performance.
- Monitor cash conversion, receivables, debt maturities, the callable uncommitted borrowings, and compliance with credit-facility covenants.
- Follow the IRS dispute and LightSquared litigation for changes in estimated exposure or status.
- Reconcile the filing’s $37.8 million acquisition purchase-consideration figure with MD&A’s $34.6 million figure.