Trimble Navigation Limited (Trimble) — Q1 2016 Form 10-Q
Business context and period. Trimble provides technology, software, subscription and services solutions across construction, agriculture, transportation and other industries. The unaudited quarter ended April 1, 2016; comparisons are with the quarter ended April 3, 2015. Unless stated otherwise, amounts are in millions of dollars.
Financial results and liquidity
| Metric | Q1 2016 | Q1 2015 |
|---|---|---|
| Revenue | $583.0 | $582.6 |
| Gross margin | $300.6; 51.6% | $307.2; 52.7% |
| Operating income | $29.9; 5.1% | $39.5; 6.8% |
| Net income attributable to Trimble | $19.8 | $34.1 |
| Diluted EPS | $0.08 | $0.13 |
| Operating cash flow | $113.2 | $107.2 |
- Product revenue fell 2% to $393.6; service revenue rose 1% to $101.6; subscription revenue rose 8% to $87.8.
- Cash and equivalents were $174.7 at quarter-end, versus $116.0 at fiscal 2015 year-end. Principal debt was $680.3, down from $735.2; balance-sheet debt carrying value was $674.9. The $135.0 outstanding under uncommitted facilities is classified as short-term and may be called by lenders.
- Operating cash flow increased $6.0, primarily due to lower working-capital requirements. Investing used $8.3, compared with $35.4, largely reflecting lower acquisition spending. Financing used $49.9. Cash increased $58.7 during the quarter.
- Current assets were $872.6 and current liabilities $726.8. Deferred revenue totaled $319.5, including current and non-current balances.
Changes versus prior period and segment performance
- Revenue was essentially flat, but gross margin declined 1.1 percentage points and operating income fell 24%. Net income declined 42%; the effective tax rate rose to 33% from 23%, and non-operating income shifted from $4.7 of income to $0.5 of expense.
- Engineering and Construction revenue grew 4% to $309.8 and segment operating income rose to $44.1 from $37.0, driven mainly by heavy civil growth. Field Solutions revenue fell 8% to $106.0 and operating income fell to $33.9 from $40.6 amid weak agriculture markets. Mobile Solutions revenue grew 6% to $136.3, while operating income declined to $18.9 from $20.5 due to lower-margin mix and growth investment. Advanced Devices revenue fell 22% to $30.9, partly against unusually strong prior-year sales.
- Management attributed lower consolidated margins principally to Field Solutions geographic mix and Mobile Solutions product mix. Consolidated results also reflected growth investments, higher G&A, and lower gains from divested businesses and currency-related items.
Outlook, risks, contingencies and unusual items
- No specific revenue or earnings guidance is provided in the filing. Management expects cash, operating cash generation and available borrowing under its $1.0 billion revolving facility to cover anticipated operating needs, debt service, planned capital expenditures, acquisitions and repurchases for at least 12 months.
- Management expects Mobile Solutions operating income to improve with increased revenue and better gross-margin mix, but warned that delayed deployment of large customer shipments could hurt results. It expects agricultural product sales to improve, while noting continued market weakness could further reduce Field Solutions revenue and income. Advanced Devices sales can be lumpy.
- Management continues to emphasize R&D, software and services, recurring revenue and acquisitions. International customers accounted for 51% of Q1 sales. Revenue was negatively affected by foreign exchange by $7.0, or 1%; the operating-income impact was immaterial.
- Trimble acquired two Engineering and Construction businesses for total consideration of $10.0; together they contributed less than 1% of quarterly revenue. The Omega Group asset sale generated a $2.7 gain included in other income.
- The IRS proposed $67.0 of tax, interest and penalties relating principally to valuations of transferred intellectual property for fiscal 2010–2011. Trimble disputes the assessment, is pursuing the appeals process, has made no payment and says it intends to defend its position. Unrecognized tax benefits were $56.0 at quarter-end.
- An Alaska lawsuit appeal remained undecided after the trial court overturned a $51.3 jury verdict against Trimble and entered judgment for the company. A separate shareholder case had a proposed settlement preliminarily approved, with a hearing scheduled for June 10, 2016.
- Operating lease commitments were $133.9 and unconditional purchase obligations were approximately $143.6. The filing also revised Q1 2015 foreign-currency translation and comprehensive-income figures for a prior goodwill translation error; it reported no effect on net income or cash flows and deemed prior-period errors not material.
- Management identified no material changes to the risk factors in its 2015 Form 10-K. The filing highlights exposure to macroeconomic and seasonal conditions, foreign exchange, interest rates, execution of acquisitions and customer deployments, and tax and litigation matters. Disclosure controls were assessed as effective.
Important facts for investors to verify
- Whether subscription and service growth can offset weakness in agriculture, geospatial and Advanced Devices, and whether margin pressure moderates.
- Progress and timing of large Mobile Solutions customer deployments, and the expected improvement in segment profitability.
- Cash generation and working-capital trends, including collections, inventory turns and deferred-revenue growth.
- Debt availability and terms, particularly the callable $135.0 uncommitted borrowings, covenant compliance and access to cash held overseas.
- Developments in the IRS dispute and the Alaska appeal, as well as the final outcome of the shareholder settlement.
- Effects of the disclosed financial-statement revision and future accounting-standard changes; confirm any subsequent updates in later filings.