Trimble Inc. — Q3 2022 Form 10-Q
Reporting period: Quarter ended September 30, 2022; comparisons are with the quarter ended October 1, 2021 and the first three quarters of 2021. Amounts are in U.S. dollars; financial figures are in millions unless noted.
Business context
Trimble provides technology, software, and services for construction and infrastructure, geospatial, resources and utilities, and transportation markets. Its strategy emphasizes connected solutions, acquisitions, and growth in software and recurring revenue. Software, maintenance, subscriptions, and services represented 58% of revenue in the first three quarters of 2022.
Key financial metrics
| Metric | Q3 2022 | Q3 2021 | First three quarters 2022 | First three quarters 2021 |
|---|---|---|---|---|
| Revenue | $884.9 | $901.4 | $2,819.8 | $2,733.1 |
| Gross margin | $515.4; 58.2% | $504.5; 56.0% | $1,602.5; 56.8% | $1,523.2; 55.7% |
| Operating income | $122.4; 13.8% | $147.5; 16.4% | $414.2; 14.7% | $433.2; 15.9% |
| Net income attributable to Trimble | $85.8 | $124.0 | $364.1 | $377.4 |
| Diluted GAAP EPS | $0.34 | $0.49 | $1.45 | $1.48 |
| Non-GAAP diluted EPS | $0.66 | $0.66 | $2.04 | $2.04 |
Q3 product revenue fell 9% year over year, while subscription revenue grew 17%; service revenue declined 1%. For the first three quarters, subscription revenue rose 16%, product revenue was roughly flat, and service revenue declined 1%. ARR was $1,546.8, up 13% year over year, or 16% excluding foreign exchange, acquisitions, and divestitures. Remaining performance obligations were approximately $1.5 billion, with 72% expected to be recognized within 12 months.
Q3 GAAP operating income and net income declined despite higher gross margin, reflecting higher operating expenses and lower divestiture gains than in the prior-year quarter. Non-GAAP operating income was $209.9 in Q3, down 2%; its margin was 23.7%, compared with 23.8%. Nine-month non-GAAP operating income was $653.7, approximately flat year over year.
Cash flow and liquidity: Operating cash flow for the first three quarters was $285.1, down from $595.2. Investing cash flow was a use of $152.2; financing cash flow was a use of $115.0. Cash declined $17.0 to $308.7 from year-end 2021. Management attributed weaker operating cash flow to lower adjusted net income, inventory purchases and payment timing, and higher bonus and tax payments, partly offset by deferred revenue growth. Current assets were $1,435.3 and current liabilities $1,445.0.
Debt: Outstanding principal was $1,593.6 at quarter-end, versus $1,300.0 at year-end 2021; balance-sheet debt, net of discounts and issuance costs, was $1,588.2. Cash was $308.7. Debt included $250.0 drawn on a new $1.25 billion revolving facility due 2027 and $43.6 under uncommitted facilities. Scheduled principal maturities include $300.0 in 2023 and $400.0 in 2024. The company reported covenant compliance and expects available cash, operations, and borrowing capacity to meet foreseeable needs.
Material changes and operating trends
- GAAP revenue decreased 2% in Q3 but increased 3% for the first three quarters. Management reported organic total revenue growth of 6% in Q3 and 9% year to date; foreign currency reduced reported revenue by 4% and 3%, respectively.
- Buildings and Infrastructure revenue grew 4% in Q3 and 8% year to date; Resources and Utilities also grew 4% and 8%. Geospatial and Transportation revenue each declined 10% in Q3. Hardware demand and dealer inventory normalization weighed on Q3 results, particularly in Europe.
- Gross margin percentage improved, helped by greater software and subscription mix and pricing. Operating expenses rose, including sales and marketing and general and administrative costs; restructuring costs were $8.2 in Q3 and $20.5 year to date.
- Unfavorable currency effects reduced revenue by $33.8 in Q3 and $81.6 year to date, and operating income by $7.7 and $18.0, respectively.
Outlook, commentary, and notable items
- Management expects organic hardware bookings and sales to be weaker for the remainder of 2022, citing slower demand in some end markets and dealer inventories returning toward normal. It expects supply-chain-related cost pressures to diminish as conditions normalize. The filing provides no clear numerical revenue or EPS guidance.
- In September, Trimble acquired Bid2Win Software for $322.1 cash consideration; it will be included in Buildings and Infrastructure. Its preliminary purchase-price allocation remains subject to final valuation.
- In May, Trimble sold several businesses, including Time and Frequency, LOADRITE, Spectra Precision Tools, and SECO accessories, for $205.3 cash and recorded a $106.9 pretax gain. Total net divestiture gains were $103.1 for the first three quarters, materially affecting reported income.
- Trimble repurchased $394.7 of shares in the first three quarters, leaving $215.3 authorized under its repurchase program. The company noted the Inflation Reduction Act’s 1% excise tax on net repurchases after December 31, 2022, but did not expect the Act to materially affect results.
- Risks and uncertainties include macroeconomic slowdown, inflation and interest rates, supply-chain and working-capital commitments, foreign exchange, the war in Ukraine, and weaker hardware demand. The company stopped sales to Russia and Belarus in Q1; related 2021 revenue was less than 2% of company revenue. It reported no material litigation and no material changes to previously disclosed risk factors.
- Unconditional purchase obligations were approximately $613.3. The company also disclosed a possible $88 increase in full-year 2022 tax payments related to capitalization of research and development costs; $65 had been paid through the first three quarters.
Important facts for investors to verify
- Whether weaker hardware bookings and normalized dealer inventories persist, especially in Europe, and how that affects reported growth and margins.
- Whether operating cash flow recovers as inventory commitments and payment timing normalize; compare cash generation with $613.3 of purchase obligations.
- Debt refinancing plans and capacity to manage 2023–2024 maturities while funding operations, acquisitions, and share repurchases.
- Final B2W acquisition valuations and integration outcomes, alongside the recurring revenue and margin contribution of the acquired business.
- ARR and remaining performance obligation conversion into recognized revenue, including the effects of foreign exchange and divestitures.
- How much reported earnings depend on divestiture gains and non-GAAP adjustments; non-GAAP measures exclude items including acquisition accounting, stock-based compensation, and restructuring costs.