Trimble Inc. — Q1 2022 Form 10-Q
Business context and reporting period. Trimble provides technology solutions, including hardware, software and services, to construction, geospatial, agriculture, utilities and transportation markets. This unaudited quarter ended April 1, 2022; comparisons are with the quarter ended April 2, 2021. Dollar amounts are in millions unless stated otherwise.
Financial performance
| Metric | Q1 2022 | Q1 2021 | Change |
|---|---|---|---|
| Revenue | $993.7 | $886.5 | Up 12% |
| Gross margin | $549.6; 55.3% | $493.3; 55.6% | Amount up 11%; rate down 0.3 percentage points |
| Operating income | $156.9; 15.8% | $140.9; 15.9% | Amount up 11%; rate down 0.1 points |
| Net income attributable to Trimble | $110.3 | $114.5 | Down 4% |
| Diluted GAAP EPS | $0.44 | $0.45 | Down $0.01 |
| Operating cash flow | $153.0 | $228.2 | Down $75.2 |
- Product revenue rose 15% to $621.6; subscription revenue rose 14% to $211.0; service revenue declined 1% to $161.1. Software, maintenance, subscriptions and services together represented 56% of revenue.
- Annualized recurring revenue (ARR), a company-defined non-GAAP operating measure, increased 12% to $1,472.4; organic ARR growth excluding currency and acquisition/divestiture impacts was 14%. Non-GAAP diluted EPS was $0.73 versus $0.66, and non-GAAP operating margin was 23.5% versus 23.6%. These measures are not substitutes for GAAP results.
- Segment revenue: Buildings and Infrastructure $397.6, up 16%; Geospatial $207.5, up 14%; Resources and Utilities $229.9, up 12%; Transportation $158.7, up 1%. Resources and Utilities operating income fell 6%, with margin declining to 32.7% from 39.0%; other segments reported higher operating income.
- Net income declined despite higher operating income, principally as net non-operating expense increased to $18.4 from $3.5, including a divestiture-related loss and deferred-compensation-plan asset fluctuations. The effective tax rate rose to 20.4% from 16.6%, partly because the prior-year period included a one-time foreign tax refund benefit.
- Cash and cash equivalents were $357.2 at quarter-end, up $31.5 from year-end 2021. Investing cash outflow was $13.4; financing cash outflow was $109.7, including $104.7 of share repurchases. Operating cash flow fell year over year due mainly to higher receivables and inventory purchases and lower accrued compensation, partly offset by higher deferred revenue.
- Debt principal was $1,300.0, with $1,293.7 reported as long-term debt net of unamortized costs. Current assets were $1,565.5 and current liabilities $1,247.0. The current ratio was approximately 1.26. The company reported compliance with debt covenants.
Material changes, outlook and risks
- Revenue growth reflected strong demand for hardware and related software, term licenses and subscriptions, and some customer price increases. Supply constraints and a larger backlog continued to delay product shipments and increase costs. Management said gross-margin pressure in Resources and Utilities was largely offset by margin expansion in Buildings and Infrastructure.
- Management cited component and freight inflation, parts and labor shortages, and supply-chain disruption. Longer-lead-time purchase commitments may weigh on working capital and reduce flexibility; price increases were initiated to offset inflation, but further cost or shipment pressures could affect revenue and margins. Unfavorable foreign exchange reduced Q1 revenue by $19.3 and operating income by $4.8.
- Trimble stopped sales to Russia and Belarus in Q1 and recorded $5.7 of write-offs for uncollected receivables and inventory there. Those markets represented less than 2% of 2021 revenue. Management expected current demand and backlog to offset most of the 2022 revenue loss, but warned that escalation could worsen supply-chain and inflation pressures.
- After quarter-end, Trimble agreed to sell its Time and Frequency, LOADRITE, Spectra Precision Tools and SECO accessories businesses, and separately its BeenaVision business. The transactions were expected to close in Q2 2022, subject to customary conditions, with combined proceeds of approximately $216.5, subject to working-capital adjustments. The businesses generated approximately $185 of 2021 revenue and $37 of operating income.
- Management stated that cash, operating cash flow and available borrowing capacity should be sufficient for foreseeable operating needs, strategy-related expenditures, debt service and planned repurchases. A new five-year, unsecured $1.25 billion revolving facility was entered into on March 24, 2022, with an option to increase commitments by up to $500 million subject to conditions; none was drawn at quarter-end.
- If the tax-law requirement to capitalize research and development costs for tax purposes is not deferred, management estimated full-year 2022 tax payments could increase by approximately $70. The company had $752.2 of unconditional purchase obligations, primarily vendor purchase orders and investments in its Connect and Scale platform.
- No material legal proceedings were reported beyond routine litigation. The filing describes ongoing state and foreign tax examinations; management believed reserves were adequate and did not expect gross unrecognized tax benefits to change materially in the next 12 months. Disclosure controls were judged effective, with no material change in internal control over financial reporting reported.
- No specific revenue, earnings or margin guidance was provided in the supplied filing text. Management described continued focus on recurring revenue, software and services, strategic markets, acquisitions and its Connect and Scale strategy.
Important facts for investors to verify
- Whether supply constraints, shipping delays, inflation and pricing actions continue to affect backlog, working capital and gross margins.
- Progress and final terms of the announced divestitures, including closing dates, proceeds and the effect on future reported revenue and operating income.
- Cash conversion and inventory levels, given the year-over-year decline in operating cash flow and the increase in inventory from year-end.
- The timing and cost of refinancing the $300 million 2023 and $400 million 2024 senior notes, and any impact of interest rates on future borrowing costs.
- Whether the potential $70 million increase in 2022 tax payments occurs, and developments in tax examinations and unrecognized tax benefits.
- Performance of recurring revenue and ARR, while considering that ARR is company-defined and does not replace GAAP revenue or deferred revenue.