Business context and reporting period
Trimble Navigation Limited, which provides positioning, software and workflow solutions across construction, agriculture, transportation and other markets, reported its unaudited first quarter of fiscal 2013, ended March 29, 2013. The comparable quarter ended March 30, 2012. Fiscal 2013 is a 53-week year; fiscal 2012 was a 52-week year. Unless otherwise noted, financial amounts below are in U.S. dollars.
Financial performance
| Metric | Q1 2013 | Q1 2012 | Change |
|---|---|---|---|
| Revenue | $556.1 million | $502.3 million | Up 11% |
| Gross margin | $286.9 million; 51.6% | $259.2 million; 51.6% | Margin unchanged |
| Operating income | $56.5 million; 10.2% of revenue | $59.8 million; 11.9% | Down $3.4 million |
| Net income attributable to Trimble | $49.8 million | $50.8 million | Down about 2% |
| Diluted EPS | $0.19 | $0.20 | Down $0.01 |
| Operating cash flow | $37.4 million | $67.7 million | Down $30.3 million |
| Cash and cash equivalents | $143.6 million | $157.8 million at fiscal year-end 2012 | Down $14.2 million |
| Total debt | $920.4 million | $911.2 million at fiscal year-end 2012 | Up $9.3 million |
Product revenue rose 4% to $412.8 million; service revenue rose 42% to $81.6 million; and subscription revenue rose 33% to $61.7 million. Higher revenue and gross profit were offset at the operating-income level by greater operating expenses, including acquisition-related intangible amortization. Interest expense rose to $5.1 million from $3.9 million. The 10% effective tax rate, versus 17%, included a $3.6 million discrete benefit associated with the American Taxpayer Relief Act and reinstated R&D tax credit.
Cash used in investing was $76.4 million, including $65.2 million for business acquisitions and $14.9 million for property and equipment. Financing provided $28.2 million, including $113.0 million of debt proceeds and $104.0 million of debt repayments. Management attributed the lower operating cash flow principally to increases in receivables and inventory, partly offset by higher deferred revenue. Accounts-receivable days sales outstanding increased to 64 from 57 at fiscal year-end; inventory turns remained 4.1.
Material changes and segment results
- Engineering and Construction: Revenue increased 7% to $266.9 million; segment operating income rose 7% to $43.0 million. Building construction growth was partly offset by weaker survey markets and softness in Europe and Australia.
- Field Solutions: Revenue was essentially flat at $147.5 million; segment operating income declined 5% to $59.5 million. Agriculture growth was offset by declines in GIS, including effects of U.S. government spending and weather-related delays.
- Mobile Solutions: Revenue increased 41% to $110.2 million and segment operating income rose 57% to $11.6 million, reflecting organic transportation and logistics growth and the TMW acquisition.
- Advanced Devices: Revenue rose 15% to $31.6 million and segment operating income rose 94% to $6.5 million, supported by sales of higher-margin timing devices.
Revenue growth also reflected acquisitions completed within the preceding year. The filing highlights TMW Systems, ALK Technologies, Penmap, Vico Software, REF TEK, Logicway, WinEstimator, GEOTrac, SketchUp and Gatewing. Acquisitions contributed to higher R&D, sales and marketing, general and administrative costs, and purchased-intangible amortization. GAAP operating income fell while non-GAAP operating income increased 8% to $110.3 million; non-GAAP diluted EPS was $0.38 versus $0.34. These non-GAAP measures exclude specified items, including purchased-intangible amortization, stock compensation, restructuring and acquisition costs.
Outlook, risks and unusual items
- Management gave no specific quarterly or full-year revenue or earnings guidance in the supplied filing text. It said cash, together with available credit, should meet anticipated operating needs, debt service, planned capital expenditures and stock purchases for at least the next 12 months.
- Planned capital expenditures include a facility in Westminster, Colorado, an Oracle ERP upgrade, and equipment and expansion-related spending. Management noted that the second fiscal quarter has historically been the strongest, largely due to construction seasonality, although acquisitions may reduce seasonality.
- The $1.4 billion unsecured 2012 credit facilities include a $700 million term loan and a $700 million revolving facility. The company reported compliance with its financial covenants. Key covenants require minimum interest coverage of 3.5 to 1 and impose maximum leverage ratios that tighten to 3 to 1 beginning September 27, 2013.
- Risks and sensitivities discussed include collection and working-capital performance, seasonal and weather-related demand, economic and government-spending conditions, foreign-exchange movements, acquisition integration and valuation adjustments, and compliance with debt covenants. The company reported no material change to the risk factors in its 2012 Form 10-K and no material legal proceedings beyond routine matters.
- Foreign-exchange movements increased quarterly revenue by $1.1 million, with an immaterial operating-income impact. The company reported a 2-for-1 stock split in March 2013; historical share and per-share amounts were adjusted retrospectively.
Most important facts for investors to verify
- How much of revenue and earnings growth is organic versus acquired, particularly in Mobile Solutions, and whether acquired businesses meet expected performance.
- Whether the decline in operating cash flow and increase in DSO and inventory are temporary or indicate sustained working-capital pressure.
- Progress on operating margins as acquisition-related amortization and operating expenses remain elevated; review GAAP results alongside the company’s non-GAAP adjustments.
- Debt repayment capacity and covenant headroom as leverage limits tighten, including the availability and terms of undrawn credit.
- The sustainability of the unusually low 10% tax rate, given the discrete tax benefit and geographic earnings mix.