Trimble Reports Third Quarter of 2017 Results

CONDENSED CONSOLIDATED STATEMENTS OF INCOME

(In millions, except per share data)

(Unaudited)

Third Quarter of

First Three Quarters of

2017

2016

2017

2016

Revenue:

Product

$  446.1

$  384.9

$  1,297.1

$  1,185.5

Service

115.0

105.6

331.8

316.9

Subscription

108.9

93.6

316.9

274.3

Total revenue

670.0

584.1

1,945.8

1,776.7

Cost of sales:

Product

222.8

186.6

637.0

576.0

Service

46.4

40.7

141.2

126.3

Subscription

28.3

26.0

82.5

79.3

Amortization of purchased intangible assets

23.0

21.8

62.5

69.9

Total cost of sales

320.5

275.1

923.2

851.5

Gross margin

349.5

309.0

1,022.6

925.2

Gross margin (%)

52.2 %

52.9 %

52.6 %

52.1 %

Operating expense:

Research and development

92.6

86.9

272.1

266.6

Sales and marketing

100.6

88.6

295.8

282.7

General and administrative

74.0

59.2

218.4

193.1

Restructuring charges

1.3

3.5

6.5

9.8

Amortization of purchased intangible assets

17.0

15.5

46.6

47.3

Total operating expense

285.5

253.7

839.4

799.5

Operating income

64.0

55.3

183.2

125.7

Non-operating income (expense), net:

Interest expense, net

(6.3)

(6.6)

(18.4)

(19.8)

Foreign currency transaction gain (loss), net

1.6

—

3.0

(1.6)

Income from equity method investments, net

8.7

5.2

22.8

13.9

Other income (expense), net

1.6

(1.7)

12.2

1.7

Total non-operating income (expense), net

5.6

(3.1)

19.6

(5.8)

Income before taxes

69.6

52.2

202.8

119.9

Income tax provision

13.9

13.0

46.7

25.4

Net income

55.7

39.2

156.1

94.5

Less: Net loss attributable to noncontrolling interests

—

—

—

(0.2)

Net income attributable to Trimble Inc.

$    55.7

$    39.2

$     156.1

$       94.7

Earnings per share attributable to Trimble Inc.:

Basic

$    0.22

$    0.16

$       0.62

$       0.38

Diluted

$    0.22

$    0.15

$       0.61

$       0.37

Shares used in calculating earnings per share:

Basic

252.6

249.7

252.5

250.5

Diluted

253.2

257.0

253.7

CONDENSED CONSOLIDATED BALANCE SHEETS

(In millions)

(Unaudited)

Third Quarter of

Fiscal Year End

2017

2016

Assets

Current assets:

Cash and cash equivalents

$          255.0

$           216.1

Short-term investments

154.2

111.1

Accounts receivable, net

407.2

354.8

Other receivables

35.4

35.4

Inventories

254.7

218.8

Other current assets

55.4

42.5

Total current assets

1,161.9

978.7

Property and equipment, net

160.5

144.2

Goodwill

2,289.3

2,077.6

Other purchased intangible assets, net

405.8

333.3

Other non-current assets

163.2

140.0

Total assets

$       4,180.7

$        3,673.8

Liabilities and Stockholders' Equity

Current liabilities:

Short-term debt

$          135.4

$           130.3

Accounts payable

146.2

109.8

Accrued compensation and benefits

116.7

97.5

Deferred revenue

285.4

246.5

Accrued warranty expense

17.8

17.2

Other current liabilities

106.9

86.9

Total current liabilities

808.4

Long-term debt

560.4

489.6

Non-current deferred revenue

41.3

37.7

Deferred income tax liabilities

45.2

38.8

Other non-current liabilities

168.0

113.8

Total liabilities

1,623.3

1,368.1

Stockholders' equity:

Common stock

0.3

0.3

Additional paid-in-capital

1,452.0

1,348.3

Retained earnings

1,236.0

1,177.1

Accumulated other comprehensive loss

(130.8)

(219.9)

Total Trimble Inc. stockholders' equity

2,557.5

2,305.8

Noncontrolling interests

(0.1)

(0.1)

Total stockholders' equity

2,305.7

Total liabilities and stockholders' equity

$       4,180.7

$        3,673.8

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(In millions)

(Unaudited)

First Three Quarters of

2017

2016

Cash flow from operating activities:

Net Income

$  156.1

$    94.5

Adjustments to reconcile net income to net cash provided by

operating activities:

Depreciation expense

26.4

27.9

Amortization expense

109.1

117.2

Provision for doubtful accounts

1.2

2.5

Deferred income taxes

(0.2)

1.2

Stock-based compensation

45.0

40.0

Income from equity method investments

(22.8)

(13.9)

Divestiture (gain) loss, net

(8.0)

0.1

Provision for excess and obsolete inventories

3.6

12.0

Other non-cash items

(1.5)

3.9

Decrease (increase) in assets:

Accounts receivable

(34.2)

(9.9)

Other receivables

0.7

(2.7)

Inventories

(19.4)

25.7

Other current and non-current assets

(21.9)

(11.1)

Increase (decrease) in liabilities:

Accounts payable

27.8

2.7

Accrued compensation and benefits

7.5

(12.8)

Deferred revenue

29.6

32.8

Accrued warranty

0.1

(0.5)

Other liabilities

10.9

(22.6)

Net cash provided by operating activities

310.0

287.0

Cash flow from investing activities:

Acquisitions of businesses, net of cash acquired

(286.7)

(22.3)

Acquisitions of property and equipment

(26.4)

(19.7)

Purchases of equity method investments

—

(1.5)

Acquisitions of intangible assets

—

(0.3)

Purchases of short-term investments

(220.0)

(62.1)

Net proceeds from sales of businesses

20.1

10.7

Proceeds from maturities of short-term investments

84.6

—

Proceeds from sales of short-term investments

92.1

—

Dividends received from equity method investments

12.9

16.5

Other

0.5

0.1

Net cash used in investing activities

(322.9)

(78.6)

Cash flow from financing activities:

Issuance of common stock, net of tax withholdings

73.0

50.0

Repurchases and retirement of common stock

(111.5)

(102.2)

Proceeds from debt and revolving credit lines

517.0

291.0

Payments on debt and revolving credit lines

(444.3)

(351.3)

Net cash provided by (used in) financing activities

34.2

(112.5)

Effect of exchange rate changes on cash and cash equivalents

17.6

1.6

Net increase in cash and cash equivalents

38.9

97.5

Cash and cash equivalents - beginning of period

216.1

116.0

Cash and cash equivalents - end of period

$  255.0

$  213.5

REPORTING SEGMENTS

(Dollars in millions)

(Unaudited)

Reporting Segments

Buildings

Resources

and

and

Infrastructure

Geospatial

Utilities

Transportation

THIRD QUARTER OF FISCAL 2017 :

Revenue

$      214.5

$   169.7

$   114.4

$        171.4

Operating income before corporate allocations

$        52.2

$     36.7

$     26.5

$          31.2

    Operating margin (% of segment external net revenue)

24.3 %

21.6 %

23.2 %

18.2 %

THIRD QUARTER OF FISCAL 2016 :

Revenue

$      189.3

$   159.9

$     87.5

$        147.4

Operating income before corporate allocations

$        40.9

$     35.3

$     25.2

$          26.5

    Operating margin (% of segment external net revenue)

21.6 %

22.1 %

28.8 %

18.0 %

FIRST THREE QUARTERS OF 2017 :

Revenue

$      625.3

$   484.8

$   345.3

$        490.4

Operating income before corporate allocations

$      135.3

$     94.8

$   103.5

$          82.2

    Operating margin (% of segment external net revenue)

21.6 %

19.6 %

30.0 %

16.8 %

FIRST THREE QUARTERS OF 2016 :

Revenue

$      565.8

$   476.0

$   300.3

$        434.6

Operating income before corporate allocations

$      102.2

$     89.9

$     90.0

$          70.7

    Operating margin (% of segment external net revenue)

18.1 %

18.9 %

30.0 %

16.3 %

GAAP TO NON-GAAP RECONCILIATION

(Dollars in millions, except per share data)

(Unaudited)

Third Quarter of

First Three Quarters of

2017

2016

2017

2016

Dollar

% of

Dollar

% of

Dollar

% of

Dollar

% of

Amount

Revenue

Amount

Revenue

Amount

Revenue

Amount

Revenue

GROSS MARGIN:

GAAP gross margin:

$  349.5

52.2 %

$  309.0

52.9 %

$  1,022.6

52.6 %

$    925.2

52.1 %

Restructuring charges

( A )

0.3

—%

0.5

0.1 %

1.3

0.1 %

1.2

0.1 %

Amortization of purchased intangible assets

( B )

23.0

3.4 %

21.8

3.7 %

62.5

3.2 %

69.9

3.9 %

Stock-based compensation

( C )

1.1

0.2 %

0.9

0.2 %

2.8

0.1 %

2.8

0.1 %

Amortization of acquisition-related inventory step-up

( D )

2.2

0.3 %

—

—%

2.8

0.1 %

—

—%

Non-GAAP gross margin:

$  376.1

56.1 %

$  332.2

56.9 %

$  1,092.0

56.1 %

$    999.1

56.2 %

OPERATING EXPENSES:

GAAP operating expenses:

$  285.5

42.6 %

$  253.7

43.4 %

$     839.4

43.2 %

$    799.5

45.0 %

Restructuring charges

( A )

(1.3)

(0.2)%

(3.5)

(0.6)%

(6.5)

(0.3)%

(9.8)

(0.5)%

Amortization of purchased intangible assets

( B )

(17.0)

(2.5)%

(15.5)

(2.7)%

(46.6)

(2.5)%

(47.3)

(2.7)%

Stock-based compensation

( C )

(15.0)

(2.2)%

(12.4)

(2.1)%

(42.2)

(2.2)%

(37.2)

(2.1)%

Acquisition / divestiture items

( E )

0.3

—%

(0.9)

(0.1)%

(6.1)

(0.3)%

(3.4)

(0.2)%

Executive transition costs

( F )

—

—%

—

—%

—

—%

(1.0)

(0.1)%

Non-GAAP operating expenses:

$  252.5

37.7 %

$  221.4

37.9 %

$     738.0

37.9 %

$    700.8

39.4 %

OPERATING INCOME:

GAAP operating income:

$    64.0

9.6 %

$    55.3

9.5 %

$     183.2

9.4 %

$    125.7

7.1 %

Restructuring charges

( A )

1.6

0.2 %

4.0

0.7 %

7.8

0.4 %

11.0

0.6 %

Amortization of purchased intangible assets

( B )

40.0

5.9 %

37.3

6.4 %

109.1

5.7 %

117.2

6.6 %

Stock-based compensation

( C )

16.1

2.4 %

13.3

2.3 %

45.0

2.3 %

40.0

2.2 %

Amortization of acquisition-related inventory step-up

( D )

2.2

0.3 %

—

—%

2.8

0.1 %

—

—%

Acquisition / divestiture items

( E )

(0.3)

—%

0.9

0.1 %

6.1

0.3 %

3.4

0.2 %

Executive transition costs

( F )

—

—%

—

—%

—

—%

1.0

0.1 %

Non-GAAP operating income:

$  123.6

18.4 %

$  110.8

19.0 %

$     354.0

18.2 %

$    298.3

16.8 %

NON-OPERATING INCOME (EXPENSE), NET:

GAAP non-operating income (expense), net:

$      5.6

$     (3.1)

$       19.6

$       (5.8)

Acquisition / divestiture items

( E )

—

2.8

(8.9)

0.1

Non-GAAP non-operating income (expense), net:

$      5.6

$     (0.3)

$       10.7

$       (5.7)

GAAP and

GAAP and

GAAP and

GAAP and

Non-GAAP

Non-GAAP

Non-GAAP

Non-GAAP

Tax Rate %

( I )

Tax Rate %

( I )

Tax Rate %

( I )

Tax Rate %

( I )

INCOME TAX PROVISION:

GAAP income tax provision:

$    13.9

20 %

$    13.0

25 %

$       46.7

23 %

$      25.4

21 %

Non-GAAP items tax effected

( G )

11.9

14.6

37.1

36.3

Difference in GAAP and Non-GAAP tax rate

( H )

3.8

(1.1)

—

8.5

Non-GAAP income tax provision:

$    29.6

23 %

$    26.5

24 %

$       83.8

23 %

$      70.2

24 %

NET INCOME:

GAAP net income attributable to Trimble Inc

$    55.7

$    39.2

$     156.1

$      94.7

Restructuring charges

( A )

1.6

4.0

7.8

11.0

Amortization of purchased intangible assets

( B )

40.0

37.3

109.1

117.2

Stock-based compensation

( C )

16.1

13.3

45.0

40.0

Amortization of acquisition-related inventory step-up

( D )

2.2

—

2.8

—

Acquisition / divestiture items

( E )

(0.3)

3.7

(2.8)

3.5

Executive transition costs

( F )

—

—

—

1.0

Non-GAAP tax adjustments

( G ) + ( H )

(15.7)

(13.5)

(37.1)

(44.8)

Non-GAAP net income attributable to Trimble Inc

$    99.6

$    84.0

$     280.9

$    222.6

DILUTED NET INCOME PER SHARE:

GAAP diluted net income per share attributable to Trimble Inc

$    0.22

$    0.15

$       0.61

$      0.37

Restructuring charges

( A )

0.01

0.02

0.03

0.05

Amortization of purchased intangible assets

( B )

0.15

0.15

0.42

0.46

Stock-based compensation

( C )

0.06

0.05

0.17

0.16

Amortization of acquisition-related inventory step-up

( D )

0.01

—

0.01

—

Acquisition / divestiture items

( E )

—

0.01

(0.01)

0.02

Executive transition costs

( F )

—

—

—

—

Non-GAAP tax adjustments

( G ) + ( H )

(0.06)

(0.05)

(0.14)

(0.18)

Non-GAAP diluted net income per share attributable to Trimble Inc

$    0.39

$    0.33

$       1.09

$      0.88

FOOTNOTES TO GAAP TO NON-GAAP RECONCILIATION

(Unaudited)

Our non-GAAP measures are not meant to be considered in isolation or as a substitute for comparable GAAP measures. The non-GAAP financial measures included in the previous table as well as detailed explanations to the adjustments to comparable GAAP measures, are set forth below:

Non-GAAP gross margin

We believe our investors benefit by understanding our non-GAAP gross margin as a way of understanding how product mix, pricing decisions and manufacturing costs influence our business.  Non-GAAP gross margin excludes restructuring charges, amortization of purchased intangible assets, stock-based compensation and amortization of acquisition-related inventory step-up from GAAP gross margin. We believe that these exclusions offer investors additional information that may be useful to view trends in our gross margin performance.

Non-GAAP operating expenses

We believe this measure is important to investors evaluating our non-GAAP spending in relation to revenue. Non-GAAP operating expenses exclude restructuring charges, amortization of purchased intangible assets, stock-based compensation, acquisition/divestiture items associated with external and incremental costs resulting directly from merger and acquisition activities such as legal, due diligence, integration, and other required closing costs, and executive transition costs from GAAP operating expenses. We believe that these exclusions offer investors supplemental information to facilitate comparison of our operating expenses to our prior results.

Non-GAAP operating income

We believe our investors benefit by understanding our non-GAAP operating income trends which are driven by revenue, gross margin, and spending. Non-GAAP operating income excludes restructuring charges, amortization of purchased intangible assets, stock-based compensation, amortization of acquisition-related inventory step-up, acquisition/divestiture items associated with external and incremental costs resulting directly from merger and acquisition activities such as legal, due diligence, integration, and other required closing costs, and executive transition costs. We believe that these exclusions offer an alternative means for our investors to evaluate current operating performance compared to results of other periods.

Non-GAAP non-operating income (expense), net

We believe this measure helps investors evaluate our non-operating income trends. Non-GAAP non-operating income (expense), net excludes acquisition/divestiture gains/losses associated with unusual acquisition related items such as intangible asset impairment charges and gains or losses related to the acquisition or sale of certain businesses and investments. We believe that these exclusions provide investors with a supplemental view of our ongoing financial results.

Non-GAAP income tax provision

We believe that providing investors with the non-GAAP income tax provision is beneficial because it provides for consistent treatment of the excluded items in our non-GAAP presentation.

Non-GAAP net income

This measure provides a supplemental view of net income trends which are driven by non-GAAP income before taxes and our non-GAAP tax rate. Non-GAAP net income excludes restructuring charges, amortization of purchased intangible assets, stock-based compensation, amortization of acquisition-related inventory step-up, acquisition/divestiture items, executive transition costs, and non-GAAP tax adjustments from GAAP net income. We believe our investors benefit from understanding these exclusions and from an alternative view of our net income performance as compared to our past net income performance.

Non-GAAP diluted net income per share

We believe our investors benefit by understanding our non-GAAP operating performance as reflected in a per share calculation as a way of measuring non-GAAP operating performance by ownership in the company. Non-GAAP diluted net income per share excludes restructuring charges, amortization of purchased intangible assets, stock-based compensation, amortization of acquisition-related inventory step-up, acquisition/divestiture items, executive transition costs, and non-GAAP tax adjustments from GAAP diluted net income per share. We believe that these exclusions offer investors a useful view of our diluted net income per share as compared to our past diluted net income per share.

These non-GAAP measures can be used to evaluate our historical and prospective financial performance, as well as our performance relative to competitors. We believe some of our investors track our "core operating performance" as a means of evaluating our performance in the ordinary, ongoing, and customary course of our operations. Core operating performance excludes items that are non-cash, not expected to recur or not reflective of ongoing financial results.  Management also believes that looking at our core operating performance provides a supplemental way to provide consistency in period to period comparisons.  Accordingly, management excludes from non-GAAP those items relating to restructuring charges, amortization of purchased intangible assets, stock-based compensation, amortization of acquisition-related inventory step-up, acquisition/divestiture items, executive transition costs, and non-GAAP tax adjustments.  For detailed explanations of the adjustments made to comparable GAAP measures, see items (A) - ( I ) below.

( A )

Restructuring charges.Included in our GAAP presentation of cost of sales and operating expenses, restructuring charges recorded are primarily for employee compensation resulting from reductions in employee headcount in connection with our company restructurings.  We exclude restructuring charges from our non-GAAP measures because we believe they do not reflect expected future operating expenses, they are not indicative of our core operating performance, and they are not meaningful in comparisons to our past operating performance.  We have incurred restructuring expense in each of the periods presented.  However the amount incurred can vary significantly based on whether a restructuring has occurred in the period and the timing of headcount reductions.

( B )

Amortization of purchased intangible assets.Included in our GAAP presentation of gross margin and operating expenses is amortization of purchased intangible assets. U.S. GAAP accounting requires that intangible assets are recorded at fair value and amortized over their useful lives. Consequently, the timing and size of our acquisitions will cause our operating results to vary from period to period, making a comparison to past performance difficult for investors. This accounting treatment may cause differences when comparing our results to companies that grow internally because the fair value assigned to the intangible assets acquired through acquisition may significantly exceed the equivalent expenses that a company may incur for similar efforts when performed internally. Furthermore, the useful life that we use to amortize our intangible assets over may be substantially different from the time period that an internal growth company incurs and recognizes such expenses. We believe that by excluding the amortization of purchased intangible assets, which primarily represents technology and/or customer relationships already developed, it provides an alternative way for investors to compare our operations pre-acquisition to those post-acquisition and to those of our competitors that have pursued internal growth strategies. However, we note that companies that grow internally will incur costs to develop intangible assets that will be expensed in the period incurred, which may make a direct comparison more difficult.

( C )

Stock-based compensation. Included in our GAAP presentation of cost of sales and operating expenses, stock-based compensation consists of expenses for employee stock options and awards and purchase rights under our employee stock purchase plan. We exclude stock-based compensation expense from our non-GAAP measures because some investors may view it as not reflective of our core operating performance as it is a non-cash expense.   For the third quarter and the first three quarters of fiscal years 2017 and 2016, stock-based compensation was allocated as follows:

Third Quarter of

First Three Quarters of

(Dollars in millions)

2017

2016

2017

2016

Cost of sales

$                       1.1

$                       0.9

$                       2.8

$                       2.8

Research and development

2.7

2.2

7.7

6.9

Sales and marketing

2.4

2.1

7.0

6.3

General and administrative

9.9

8.1

27.5

24.0

$                     16.1

$                     13.3

$                     45.0

$                     40.0

( D )

Amortization of acquisition-related inventory step-up.  The purchase accounting entries associated with our business acquisitions require us to record inventory at its fair value, which is sometimes greater than the previous book value of the inventory. Included in our GAAP presentation of cost of sales, the increase in inventory value is amortized to cost of sales over the period that the related product is sold. We exclude inventory step-up amortization from our non-GAAP measures because it is a non-cash expense that we do not believe is indicative of our ongoing operating results. We further believe that excluding this item from our non-GAAP results is useful to investors in that it allows for period-over-period comparability.

( E )

Acquisition / divestiture items.  Included in our GAAP presentation of operating expenses, acquisition costs consist of external and incremental costs resulting directly from merger and acquisition and strategic investment activities such as legal, due diligence, integration, and other required closing costs, as well as adjustments to the fair value of earn-out liabilities.  Included in our GAAP presentation of non-operating income (expense), net, acquisition/divestiture items includes unusual acquisition, investment, and/or divestiture gains/losses. Although we do numerous acquisitions, the costs that have been excluded from the non-GAAP measures are costs specific to particular acquisitions. These are one-time costs that vary significantly in amount and timing and are not indicative of our core operating performance.

( F )

Executive transition costs.  Included in our GAAP presentation of operating expenses are amounts paid to the Company's former CFO upon his departure under the terms of his executive severance agreement. We excluded these payments from our non-GAAP measures because they represent non-recurring expenses and are not indicative of our ongoing operating expenses. We further believe that excluding the executive transition costs from our non-GAAP results is useful to investors in that it allows for period-over-period comparability.

( G )

Non-GAAP items tax effected.   This amount adjusts the provision for income taxes to reflect the effect of the non-GAAP items ( A ) - ( F ) on non-GAAP net income.   We believe this information is useful to investors because it provides for consistent treatment of the excluded items in this non-GAAP presentation.

( H )

Difference in GAAP and Non-GAAP tax rate.   This amount represents the difference between the GAAP and Non-GAAP tax rates applied to the Non-GAAP operating income plus the Non-GAAP non-operating income (expense), net.

( I )

GAAP and non-GAAP tax rate %.  These percentages are defined as GAAP income tax provision as a percentage of GAAP income before taxes and non-GAAP income tax provision as a percentage of non-GAAP income before taxes.   We believe that investors benefit from a presentation of non-GAAP tax rate percentage as a way of facilitating a comparison to non-GAAP tax rates in prior periods.