Trimble Navigation Limited (Trimble Inc.) — Q3 2012 Form 10-Q
Reporting period: Quarter ended September 28, 2012; fiscal 2012 was a 52-week year. Financial statements are unaudited. Amounts below are in U.S. dollars.
Business context and results
Trimble provides positioning-enabled hardware, software, services and subscriptions for markets including construction, agriculture, surveying and mobile asset management. It reports four segments: Engineering and Construction, Field Solutions, Mobile Solutions, and Advanced Devices.
| Metric | Q3 2012 | Q3 2011 | First 3 quarters 2012 | First 3 quarters 2011 |
|---|---|---|---|---|
| Revenue | $504.8m | $417.4m | $1,524.6m | $1,208.9m |
| Gross margin | $262.9m (52.1%) | $211.6m (50.7%) | $789.7m (51.8%) | $611.8m (50.6%) |
| Operating income | $63.5m (12.6%) | $32.4m (7.8%) | $182.2m (12.0%) | $127.7m (10.6%) |
| Net income attributable to Trimble | $53.4m | $28.0m | $157.9m | $121.4m |
| Diluted EPS | $0.42 | $0.22 | $1.23 | $0.96 |
Quarterly revenue grew 21%; nine-month revenue grew 26%. Product, service and subscription revenue were respectively $386.9m, $64.2m and $53.6m in Q3, up 16%, 44% and 35% year over year. Management attributed growth to organic expansion and acquisitions; foreign exchange partly offset growth. Higher software and subscription mix supported gross-margin expansion, partly offset by increased purchased-intangible amortization.
Segments and material changes
- Engineering and Construction: Q3 revenue $287.2m, up 19%; operating income $68.5m versus $42.6m. Growth was led by heavy/highway and vertical construction products; survey sales were weaker, primarily due to European conditions.
- Field Solutions: Q3 revenue $103.0m, up 13%; operating income $36.0m versus $31.0m. Management cited continued strength in agriculture.
- Mobile Solutions: Q3 revenue $83.8m, up 44%; operating income $8.2m versus $2.5m. Growth reflected PeopleNet’s organic growth and acquisition-period comparison effects.
- Advanced Devices: Q3 revenue $30.7m, up 13%; operating income $5.7m versus $4.0m, supported by timing and embedded-device sales.
Nine-month growth also reflects acquisitions, including Tekla (acquired in July 2011) and PeopleNet; reported comparisons are therefore not wholly organic. Fiscal 2012 acquisitions included Logicway, WinEstimator, GEOTrac, SketchUp, Gatewing, Plancal and StruCad. Acquisition-related intangible amortization rose to $89.3m for the first three quarters, from $56.7m a year earlier. GAAP operating income also includes acquisition costs of $14.4m for the period.
Cash flow, debt and liquidity
- Operating cash flow for the first three quarters was $243.9m, up from $161.8m. Investing used $388.0m, including $355.5m for acquisitions; financing provided $131.3m. Cash decreased $12.8m from year-end 2011.
- At September 28, cash was $141.8m versus $154.6m at fiscal year-end 2011. Total debt was $643.1m versus $564.4m; reported current and non-current debt were $89.9m and $553.2m.
- Current assets were $778.0m and current liabilities $485.1m. Accounts receivable was $320.9m, inventories $234.3m and deferred revenue $127.6m. Days sales outstanding remained 58; inventory turns improved to 4.0 from 3.8.
- Management said cash and available credit were expected to cover operating needs, debt service, planned capital expenditures and stock repurchases for at least 12 months. The company was compliant with its credit-facility covenants at quarter-end.
Outlook, risks and unusual items
- The filing provides no specific revenue or earnings guidance. Management expected continued product development and identified planned spending for a Westminster, Colorado facility, an Oracle ERP upgrade and other capital needs.
- On October 2, 2012, after quarter-end, Trimble acquired TMW Systems for approximately $334m in cash, financed through its existing credit facility. This subsequent acquisition is not included in Q3 results.
- Credit-facility covenants require minimum interest coverage of 3.5-to-1 and maximum leverage of 3-to-1, with a temporary acquisition-related leverage allowance. The facility also restricts certain borrowing, acquisitions, investments, dividends and repurchases.
- Management cited exposure to foreign-exchange movements, particularly the euro; currency movements reduced revenue by $12.4m in Q3 and $26.8m for the first three quarters, with an immaterial operating-income impact. The business is also subject to seasonal demand and general economic conditions.
- The Q3 effective tax rate was 19%, versus 9% a year earlier, primarily reflecting geographic mix and expiration of federal R&D credits. No material legal proceedings or material changes to previously disclosed risk factors were reported. Disclosure controls were deemed effective.
- Other obligations include $76.8m of future operating lease commitments and $82.7m of unconditional purchase obligations. Acquisition holdbacks, recorded earn-outs and additional potential earn-out payments were also disclosed.
Key facts for investors to verify
- How much of revenue and profit growth was organic versus acquired, especially in Mobile Solutions and Engineering and Construction.
- Whether margins and cash generation can be sustained as amortization, integration costs and acquisition-related debt increase.
- The effect of the TMW acquisition on debt, covenant headroom, interest expense and future reported results.
- Accounts-receivable collection, inventory levels, purchase commitments and the conversion of deferred revenue into cash.
- Exposure to European economic conditions, foreign-exchange changes, tax examinations and the timing and amount of contingent acquisition payments.