Trimble Reports Second Quarter 2019 Results
SUNNYVALE, Calif., July 31, 2019 /PRNewswire/ -- Trimble Inc. (NASDAQ: TRMB) today announced financial results for the second quarter of 2019.
Second Quarter 2019 Financial Summary
Second quarter 2019 GAAP revenue of $854.8 million was up 9 percent as compared to the second quarter of 2018. Second quarter 2019 non-GAAP revenue of $855.8 million was up 8 percent as compared to the second quarter of 2018.
Buildings and Infrastructure revenue was $339.9 million, up 22 percent. Geospatial revenue was $164.4 million, down 11 percent. Resources and Utilities revenue was $152.7 million, up 5 percent. Transportation revenue was $198.8 million, up 9 percent. Segment revenues reflect the results of Trimble's reportable segments under its management reporting system and are non-GAAP measures.
GAAP operating income was $109.7 million, up 23 percent as compared to the second quarter of 2018. GAAP operating margin was 12.8 percent of revenue as compared to 11.4 percent of revenue in the second quarter of 2018.
GAAP net income was $94.6 million, up 48 percent as compared to the second quarter of 2018. GAAP diluted earnings per share were $0.37 as compared to GAAP diluted earnings per share of $0.25 in the second quarter of 2018.
Non-GAAP operating income of $174.7 million was up 7 percent as compared to the second quarter of 2018. Non-GAAP operating margin was 20.4 percent of revenue as compared to 20.7 percent of revenue in the second quarter of 2018.
Non-GAAP net income of $133.8 million was up 3 percent as compared to the second quarter of 2018. Non-GAAP diluted earnings per share were $0.53 as compared to non-GAAP diluted earnings per share of $0.51 in the second quarter of 2018.
The GAAP tax rate for the quarter was 18 percent as compared to 19 percent in the second quarter of 2018, and the non-GAAP tax rate was 20 percent as compared to 19 percent in the second quarter of 2018.
Operating cash flow for the first two quarters of 2019 was $325.5 million, up 22 percent as compared to the first two quarters of 2018. Deferred revenue for the second quarter of 2019 was $452.4 million, up 27 percent as compared to the second quarter of 2018.
"Our second quarter results met expectations despite greater uncertainties," said Steven W. Berglund, Trimble's president and chief executive officer. "Although we anticipate market ambiguities to persist for the remainder of 2019, the business model transformation remains on track. Software, services, and recurring revenue grew by 22 percent in the quarter."
Forward Looking Guidance
For the third quarter of 2019, Trimble expects to report GAAP revenue between $789 million and $819 million and GAAP earnings per share of $0.24 to $0.28, and non-GAAP revenue between $789 million and $819 million and non-GAAP earnings per share of $0.45 to $0.49. GAAP guidance assumes a tax rate of 20 percent and non-GAAP guidance assumes a tax rate of 20 percent. Both GAAP and non-GAAP earnings per share assume approximately 254 million shares outstanding. For the fiscal year of 2019, Trimble expects to report GAAP revenue between $3.251 billion and $3.311 billion and GAAP earnings per share of $1.10 to $1.18, and non-GAAP revenue between $3.255 billion and $3.315 billion and non-GAAP earnings per share of $1.91 to $1.99. GAAP guidance assumes a tax rate of 18 percent and non-GAAP guidance assumes a tax rate of 20 percent. Both GAAP and non-GAAP earnings per share assume approximately 254 million shares outstanding. A reconciliation of the non-GAAP measures to the most directly comparable GAAP measures and other information relating to these non-GAAP measures are included in the supplemental reconciliation schedule attached.
Investor Conference Call / Webcast Details
Trimble will hold a conference call on July 31 at 2:00 p.m. PT to review its second quarter 2019 results. An accompanying slide presentation will be made available on the "Investors" section of the Trimble website, www.trimble.com, under the subheading "Events & Presentations." The call will be broadcast live on the web at http://investor.trimble.com. Investors without internet access may dial into the call at (800) 528-9198 (U.S.) or (702) 928-6633 (international). The passcode is 1082008. The replay will also be available on the web at the address above.
Use of Non-GAAP Financial Information
In addition to financial information prepared in accordance with GAAP, this press release also contains certain non-GAAP financial measures based upon management's view of performance, including:
-- Non-GAAP revenue
-- Non-GAAP recurring revenue
-- Non-GAAP operating income
-- Non-GAAP operating margin
-- Non-GAAP net income
-- Non-GAAP diluted earnings per share
-- Non-GAAP tax rate
Trimble uses Non-GAAP Recurring Revenue as a component of its performance measure Annualized Recurring Revenue in order to provide investors with a supplementary indicator of the value of the Company's current recurring revenue contracts. For the second quarter of 2019, recurring revenue on a GAAP basis was $272.4 million, and non-GAAP recurring revenue was $273.4 million, which excluded $1.0 million related to the elimination of the deferred revenue adjustment in connection with acquisitions.
Segment data reflects the results of Trimble's reportable segments under its management reporting system. Segment revenue and operating income are consistent with the respective non-GAAP measures discussed below and in the attached supplemental schedules. Investors are encouraged to review the specific non-GAAP measures, which Trimble uses along with a reconciliation to the nearest comparable GAAP measures and the explanation for why these non-GAAP measures provide useful information to investors regarding the financial condition and results of operations and why management chose to exclude selected items, which can be found at the end of this press release. Additional financial information about Trimble's use of non-GAAP results can be found on the investor relations section of Trimble's website at: http://investor.trimble.com.
Annualized Recurring Revenue
In addition to providing financial measures, Trimble provides an Annualized Recurring Revenue (ARR) performance measure. Annualized Recurring Revenue is calculated by dividing Non-GAAP Recurring Revenue for the current quarter by the number of days in the quarter, and multiplying by 365. Annualized Recurring Revenue should be viewed independently of revenue and deferred revenue as it is a performance measure and is not intended to be combined with or to replace either of those items.
About Trimble
Trimble is transforming the way the world works by delivering products and services that connect the physical and digital worlds. Core technologies in positioning, modeling, connectivity and data analytics enable customers to improve productivity, quality, safety and sustainability. From purpose built products to enterprise lifecycle solutions, Trimble software, hardware and services are transforming industries such as agriculture, construction, geospatial and transportation and logistics. For more information about Trimble (NASDAQ:TRMB), visit: www.trimble.com.
Safe Harbor
Certain statements made in this press release are forward-looking statements within the meaning of Section 21E of the Securities Exchange Act of 1934, as amended, and are made pursuant to the safe harbor provisions of the Securities Litigation Reform Act of 1995. These statements include expectations for future financial market and economic conditions, the ability to deliver revenue, earnings per share and other financial projections that Trimble has guided for the third quarter of 2019, and fiscal 2019, including the expected tax rate, anticipated impact of stock-based compensation expense, amortization of intangibles related to previous acquisitions, anticipated acquisition costs, debt issuance costs, restructuring charges, the anticipated number of diluted shares outstanding, the Company's long-term growth targets and operating margins. These forward-looking statements are subject to change, and actual results may materially differ due to certain risks and uncertainties. Trimble's expected tax rate and current expected income are based on current tax law, including current interpretations of the Tax Cuts and Jobs Act of 2017 ("TCJA"), and may be affected by evolving interpretations of TCJA, the jurisdictions in which profits are determined to be earned and taxed, changes in the estimates of credits, benefits and deductions, the resolution of issues arising from tax audits with various tax authorities, including payment of interest and penalties, and the ability to realize deferred tax assets. The Company's results may be adversely affected if the Company is unable to market, manufacture and ship new products, obtain new customers, or effectively integrate new acquisitions. The Company's results would also be negatively impacted by adverse geopolitical developments, weakening in the macro environment, foreign exchange fluctuations, critical part supply chain shortages, the imposition of barriers to international trade, and a further softening in the agricultural sector. Any failure to achieve predicted results could negatively impact the Company's revenue, cash flow from operations, and other financial results. The Company's financial results will also depend on a number of other factors and risks detailed from time to time in reports filed with the SEC, including its quarterly reports on Form 10-Q and its annual report on Form 10- K. Undue reliance should not be placed on any forward-looking statement contained herein. These statements reflect the Company's position as of the date of this release. The Company expressly disclaims any undertaking to release publicly any updates or revisions to any statements to reflect any change in the Company's expectations or any change of events, conditions, or circumstances on which any such statement is based.
FTRMB
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(In millions, except per share data)
(Unaudited)
Second Quarter of
First Two Quarters of
2019 2018 2019 2018
---
Revenue:
Product $
521.1 $
531.0 $
1,009.5 $
1,028.8
Service 174.6 136.1 333.8 264.9
Subscription 159.1 118.4 313.1 234.0
Total revenue 854.8 785.5 1,656.4 1,527.7
Cost of sales:
Product 257.0 250.2 487.7 485.6
Service 69.3 59.6 133.3 119.2
Subscription 44.1 29.1 88.5 57.0
Amortization of purchased
intangible assets 23.8 23.9 48.0 47.0
Total cost of sales 394.2 362.8 757.5 708.8
Gross margin 460.6 422.7 898.9 818.9
Gross margin (%) 53.9
% 53.8
% 54.3
% 53.6
%
Operating expense:
Research and development 119.6 110.1 237.8 219.4
Sales and marketing 128.8 112.8 256.2 234.9
General and administrative 79.9 89.4 162.7 171.0
Restructuring charges 2.9 2.2 6.4 3.8
Amortization of purchased
intangible assets 19.7 18.7 39.8 36.1
Total operating expense 350.9 333.2 702.9 665.2
Operating income 109.7 89.5 196.0 153.7
Non-operating income (expense), net:
Interest expense, net (20.6) (18.6) (42.5) (28.1)
Foreign currency transaction gain
(loss), net (1.0) (3.0) (1.9) 0.7
Income from equity method
investments, net 12.9 9.5 21.7 14.4
Other income, net 14.4 1.8 17.3 5.2
Total non-operating income
(expense), net 5.7 (10.3) (5.4) (7.8)
Income before taxes 115.4 79.2 190.6 145.9
Income tax provision 20.8 15.1 33.6 23.1
Net income 94.6 64.1 157.0 122.8
Net gain attributable to
noncontrolling interests - 0.1 0.2
Net income attributable to Trimble
Inc. $
94.6 $
64.1 $
156.9 $
122.6
Earnings per share attributable to Trimble Inc.:
Basic $
0.38 $
0.26 $
0.62 $
0.49
Diluted $
0.37 $
0.25 $
0.62 $
0.49
Shares used in calculating diluted earnings per
share:
Basic 251.7 249.5 251.6 249.1
Diluted 254.0 252.2 254.0 252.7
CONDENSED CONSOLIDATED BALANCE SHEETS
(In millions)
(Unaudited)
Second Quarter of Fiscal Year End
As of 2019 2018
--- ---
Assets
Current assets:
Cash and cash equivalents $
199.6 $
172.5
Accounts receivable, net 516.8 512.6
Other receivables 30.0 33.2
Inventories 287.9 298.0
Other current assets 87.1 72.8
Total current assets 1,121.4 1,089.1
Property and equipment, net 214.1 212.9
Operating lease right-of-use assets 133.6
Goodwill 3,541.9 3,540.0
Other purchased intangible assets, net 654.5 744.3
Deferred costs, non-current 41.1 41.3
Other non-current assets 169.5 148.8
Total assets $
5,876.1 $
5,776.4
Liabilities and Stockholders' Equity
Current liabilities:
Short-term debt $
229.3 $
256.2
Accounts payable 148.4 147.6
Accrued compensation and benefits 140.8 169.2
Deferred revenue 408.1 348.4
Accrued warranty expense 14.9 15.3
Other current liabilities 133.7 118.5
Total current liabilities 1,075.2 1,055.2
Long-term debt 1,513.6 1,712.3
Deferred revenue, non-current 44.3 38.8
Deferred income tax liabilities 78.7 73.8
Income taxes payable 73.3 71.3
Operating lease liabilities 109.1
Other non-current liabilities 156.6 150.2
Total liabilities 3,050.8 3,101.6
Stockholders' equity:
Common stock 0.3 0.3
Additional paid-in-capital 1,649.7 1,591.9
Retained earnings 1,354.4 1,268.3
Accumulated other comprehensive loss (180.4) (186.1)
Total Trimble Inc. stockholders' equity 2,824.0 2,674.4
Noncontrolling interests 1.3 0.4
Total stockholders' equity 2,825.3 2,674.8
Total liabilities and stockholders' equity $
5,876.1 $
5,776.4
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In millions)
(Unaudited)
First Two Quarters of
2019 2018
---
Cash flow from operating activities:
Net income $
157.0 $
122.8
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation expense 20.3 17.2
Amortization expense 87.8 83.1
Deferred income taxes 4.7 (17.0)
Stock-based compensation 33.5 34.3
Income from equity method investments, net of dividends (11.5) (1.5)
Other, net (0.3) 8.2
(Increase) decrease in assets:
Accounts receivable, net (7.7) (6.0)
Inventories 7.4 (21.8)
Other current and non-current assets 1.5 (5.3)
Increase (decrease) in liabilities:
Accounts payable 3.8 9.6
Accrued compensation and benefits (28.5) (6.6)
Deferred revenue 64.9 71.1
Other current and non-current liabilities (7.4) (20.3)
Net cash provided by operating activities 325.5 267.8
Cash flow from investing activities:
Acquisitions of businesses, net of cash acquired 4.6 (532.9)
Acquisitions of property and equipment (38.5) (36.0)
Purchases of short-term investments - (24.0)
Proceeds from maturities of short-term investments - 6.2
Proceeds from sales of short-term investments - 196.8
Other, net 14.1 5.1
Net cash used in investing activities (19.8) (384.8)
Cash flow from financing activities:
Issuance of common stock, net of tax withholdings 13.4 21.7
Repurchases of common stock (59.0) (53.0)
Proceeds from debt and revolving credit lines 530.2 1,527.8
Payments on debt and revolving credit lines (756.6) (1,157.1)
Other, net (7.3) (1.8)
Net cash provided by (used in) financing activities (279.3) 337.6
Effect of exchange rate changes on cash and cash equivalents 0.7 (8.1)
Net increase in cash and cash equivalents 27.1 212.5
Cash and cash equivalents - beginning of period 172.5 358.5
Cash and cash equivalents - end of period $
199.6 $
571.0
REPORTING SEGMENTS
GAAP TO NON-GAAP RECONCILIATION
(In millions)
(Unaudited)
Reporting Segments
Buildings and Geospatial Resources and Transportation
Infrastructure Utilities
SECOND QUARTER OF FISCAL 2019 :
Revenue $
339.0 $
164.4 $
152.6 $
198.8
Acquired deferred revenue
adjustment (A) 0.9 0.1
Non-GAAP revenue $
339.9 $
164.4 $
152.7 $
198.8
Operating income before corporate
allocations $
85.3 $
31.1 $
45.4 $
32.9
Acquired deferred revenue
adjustment (A) 0.9 0.1
Amortization of acquired
capitalized commissions (F) (1.6)
Non-GAAP operating income before
allocations $
84.6 $
31.1 $
45.5 $
32.9
Operating margin (% of segment external 25.2 18.9 29.8 16.5
net revenue) % % % %
Non-GAAP Operating margin (% of segment 24.9 18.9 29.8 16.5
Non-GAAP external net revenue) % % % %
SECOND QUARTER OF FISCAL 2018 :
Revenue $
274.3 $
184.4 $
145.0 $
181.8
Acquired deferred revenue
adjustment (A) 3.4 0.3 0.1
Non-GAAP revenue $
277.7 $
184.4 $
145.3 $
181.9
Operating income before corporate
allocations $
67.4 $
41.6 $
42.3 $
31.1
Acquired deferred revenue
adjustment (A) 3.4 0.3 0.1
Amortization of acquired
capitalized commissions (F) (0.5) (0.1)
Non-GAAP operating income before
allocations $
70.3 $
41.6 $
42.5 $
31.2
Operating margin (% of segment external 24.6 22.6 29.2 17.1
net revenue) % % % %
Non-GAAP Operating margin (% of segment 25.3 22.6 29.2 17.2
Non-GAAP external net revenue) % % % %
Reporting Segments
Buildings and Geospatial Resources and Transportation
Infrastructure Utilities
FIRST TWO QUARTERS OF 2019 :
Revenue $
631.0 $
325.6 $
311.9 $
387.9
Acquired deferred revenue
adjustment (A) 3.6 0.3
Non-GAAP revenue $
634.6 $
325.6 $
312.2 $
387.9
Operating income before corporate
allocations $
146.7 $
60.5 $
96.4 $
64.1
Acquired deferred revenue
adjustment (A) 3.6 0.3
Amortization of acquired
capitalized commissions (F) (3.2) (0.1)
Non-GAAP operating income before
allocations $
147.1 $
60.5 $
96.6 $
64.1
Operating margin (% of segment external 23.2 18.6 30.9 16.5
net revenue) % % % %
Non-GAAP Operating margin (% of segment 23.2 18.6 30.9 16.5
Non-GAAP external net revenue) % % % %
FIRST TWO QUARTERS OF 2018 :
Revenue $
499.0 $
358.9 $
304.2 $
365.6
Acquired deferred revenue
adjustment (A) 5.9 0.6 0.2
Non-GAAP revenue $
504.9 $
358.9 $
304.8 $
365.8
Operating income before corporate
allocations $
110.9 $
78.9 $
94.0 $
61.5
Acquired deferred revenue
adjustment (A) 5.9 0.6 0.2
Amortization of acquired
capitalized commissions (F) (0.9) (0.2)
Non-GAAP operating income before
allocations $
115.9 $
78.9 $
94.4 $
61.7
Operating margin (% of segment external 22.2 22.0 30.9 16.8
net revenue) % % % %
Non-GAAP Operating margin (% of segment 23.0 22.0 31.0 16.9
Non-GAAP external net revenue) % % % %
GAAP TO NON-GAAP RECONCILIATION
(Dollars in millions, except per share data)
(Unaudited)
Second Quarter of
First Two Quarters of
2019 2018 2019 2018
Dollar
% of Dollar
% of
Dollar % of
Dollar % of
Amount Revenue Amount Revenue Amount Revenue Amount Revenue
REVENUE:
GAAP revenue: $
854.8 $
785.5 $
1,656.4 $
1,527.7
Acquired deferred revenue
adjustment (A) 1.0 3.8 3.9 6.7
Non-GAAP
revenue: $
855.8 $
789.3 $
1,660.3 $
1,534.4
GROSS MARGIN:
GAAP gross $
460.6 53.9 $
422.7 53.8 $
898.9 54.3 $
818.9 53.6
margin: % % % %
Acquired deferred revenue
adjustment (A) 1.0 3.8 3.9 6.7
Restructuring charges (B) 0.6 0.2 0.4
Amortization of purchased
intangible assets (C) 23.8 23.9 48.0 47.0
Stock-based compensation (D) 1.4 1.1 2.7 2.2
Acquisition /divestiture items (E) 2.0
Non-GAAP gross $
486.8 56.9 $
452.1 57.3 $
953.7 57.4 $
877.2 57.2
margin: % % % %
OPERATING EXPENSES:
GAAP operating $
350.9 41.1 $
333.2 42.4 $
702.9 42.4 $
665.2 43.5
expenses: % % % %
Restructuring charges (B) (2.9) (2.2) (6.4) (3.8)
Amortization of purchased
intangible assets (C) (19.7) (18.7) (39.8) (36.1)
Stock-based compensation (D) (15.8) (15.8) (30.8) (32.1)
Acquisition /divestiture items (E) (2.0) (8.1) (3.1) (22.1)
Amortization of acquired
capitalized commissions (F) 1.6 0.6 3.3 1.1
Non-GAAP
operating % % % %
expenses: $
312.1 36.5 $
289.0 36.6 $
626.1 37.7 $
572.2 37.3
OPERATING INCOME:
GAAP operating $
109.7 12.8 $
89.5 11.4 $
196.0 11.8 $
153.7 10.1
income: % % % %
Acquired deferred revenue
adjustment (A) 1.0 3.8 3.9 6.7
Restructuring charges (B) 2.9 2.8 6.6 4.2
Amortization of purchased
intangible assets (C) 43.5 42.6 87.8 83.1
Stock-based compensation (D) 17.2 16.9 33.5 34.3
Acquisition /divestiture items (E) 2.0 8.1 3.1 24.1
Amortization of acquired
capitalized commissions (F) (1.6) (0.6) (3.3) (1.1)
Non-GAAP
operating % % % %
income: $
174.7 20.4 $
163.1 20.7 $
327.6 19.7 $
305.0 19.9
NON-OPERATING INCOME (EXPENSE), NET:
GAAP non-
operating income
(expense), net: $
5.7 $
(10.3) $
(5.4) $
(7.8)
Acquisition /divestiture items (E) (13.1) 0.7 (12.8) (2.1)
Debt issuance costs (G) 6.7 6.7
Non-GAAP non-
operating
expense, net: $
(7.4) $
(2.9) $
(18.2) $
(3.2)
GAAP and GAAP and GAAP and GAAP and
Non-GAAP Non-GAAP Non-GAAP Non-GAAP
Tax Rate % Tax Rate % Tax Rate % Tax Rate %
(J)
(J) (J) (J)
INCOME TAX PROVISION:
GAAP income tax $
20.8 18 $
15.1 19 $
33.6 18 $
23.1 16
provision: % % % %
Non-GAAP items tax effected (H) 9.3 15.4 20.7 24.4
Difference in GAAP and Non-GAAP
tax rate (I) 3.4 7.6 9.9
Non-GAAP income $
33.5 20 $
30.5 19 $
61.9 20 $
57.4 19
tax provision: % % % %
NET INCOME:
GAAP net income
attributable to
Trimble Inc.: $
94.6 $
64.1 $
156.9 $
122.6
Acquired deferred revenue
adjustment (A) 1.0 3.8 3.9 6.7
Restructuring charges (B) 2.9 2.8 6.6 4.2
Amortization of purchased
intangible assets (C) 43.5 42.6 87.8 83.1
Stock-based compensation (D) 17.2 16.9 33.5 34.3
Acquisition /divestiture items (E) (11.1) 8.8 (9.7) 22.0
Amortization of acquired
capitalized commissions (F) (1.6) (0.6) (3.3) (1.1)
Debt issuance costs (G) 6.7 6.7
Non-GAAP tax adjustments (H)+(I) (12.7) (15.4) (28.3) (34.3)
Non-GAAP net
income
attributable to
Trimble Inc.: $
133.8 $
129.7 $
247.4 $
244.2
DILUTED NET INCOME PER SHARE:
GAAP diluted net
income per share
attributable to
Trimble Inc.: $
0.37 $
0.25 $
0.62 $
0.49
Acquired deferred revenue
adjustment (A) 0.01 0.01 0.03
Restructuring charges (B) 0.01 0.01 0.03 0.02
Amortization of purchased
intangible assets (C) 0.17 0.17 0.34 0.33
Stock-based compensation (D) 0.07 0.07 0.13 0.13
Acquisition /divestiture items (E) (0.04) 0.03 (0.04) 0.09
Amortization of acquired
capitalized commissions (F) (0.01)
Debt issuance costs (G) 0.03 0.02
Non-GAAP tax adjustments (H)+(I) (0.05) (0.06) (0.11) (0.14)
Non-GAAP diluted
net income per
share
attributable to
Trimble Inc.: $
0.53 $
0.51 $
0.97 $
0.97
Third Quarter of 2019
Fiscal Year 2019
Low End High End Low End High End
FORECASTED DILUTED NET INCOME PER SHARE:
Forecasted GAAP
diluted net
income per share
attributable to
Trimble Inc.: $
0.24 $
0.28 $
1.10 $
1.18
Acquired deferred revenue
adjustment (A) 0.02 0.02
Restructuring charges (B) 0.01 0.01 0.05 0.05
Amortization of purchased
intangible assets (C) 0.16 0.16 0.66 0.66
Stock-based compensation (D) 0.08 0.08 0.31 0.31
Acquisition /divestiture items (E) 0.01 0.01 0.04 0.04
Amortization of acquired
capitalized commissions (F) (0.01) (0.01) (0.03) (0.03)
Non-GAAP tax adjustments (H)+(I) (0.04) (0.04) (0.24) (0.24)
Forecasted non-GAAP
diluted net income
per share
attributable to
Trimble Inc.: $
0.45 $
0.49 $
1.91 $
1.99
FOOTNOTES TO GAAP TO NON-GAAP RECONCILIATION
To help investors understand Trimble's past financial performance and future results, as well as its performance relative to competitors, Trimble supplements the financial results that the Company provides in accordance with generally accepted accounting principles, or GAAP, with non-GAAP financial measures. These non-GAAP measures can be used to evaluate Trimble's historical and prospective financial performance, as well as its performance relative to competitors. The Company's management regularly uses supplemental non-GAAP financial measures internally to understand, manage, and evaluate the business, and to make operating decisions. These non-GAAP measures are among the primary factors management uses in planning for and forecasting future periods. Trimble believes that these non-GAAP financial measures reflect an additional way of viewing aspects of the Company's operations that, when viewed with GAAP results, provide a more complete understanding of factors and trends affecting the business. Further, Trimble believes some of the Company's investors track "core operating performance" as a means of evaluating performance in the ordinary, ongoing, and customary course of the Company's 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 Trimble's core operating performance provides a supplemental way to provide consistency in period to period comparisons.
The method the Company uses to produce non-GAAP results is not computed according to GAAP and may differ from the methods used by other companies including industry peer companies, limiting the usefulness of these measures for comparative purposes.
Our non-GAAP results are not meant to be considered in isolation or as a substitute for comparable GAAP measures and should be read only in conjunction with Trimble's consolidated financial statements prepared in accordance with GAAP. 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 revenue
We believe this measure helps investors understand the performance of our business, as non-GAAP revenue excludes the effects of certain acquired deferred revenue that was written down to fair value in purchase accounting. Management believes that excluding fair value purchase accounting adjustments more closely correlates with the ordinary and ongoing course of the acquired company's operations and facilitates analysis of revenue growth and business trends.
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 the effects of acquired deferred revenue that was written down to fair value in purchase accounting, restructuring charges, amortization of purchased intangible assets, stock-based compensation, and acquisition/divestiture items associated with the acceleration of acquisition stock options from GAAP gross margin. We believe that these adjustments 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, and acquisition/divestiture items associated with external and incremental costs resulting directly from merger and acquisition activities such as: legal, due diligence, integration, and other costs including the acceleration of acquisition stock options, adjustment to the fair value of earn-out liabilities, and the effects of certain acquired capitalized commissions that were eliminated in purchase accounting from GAAP operating expenses. We believe that these adjustments 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 the effects of purchase accounting adjustments to certain acquired deferred revenue and acquired capitalized commissions, restructuring charges, amortization of purchased intangible assets, stock-based compensation, and acquisition/divestiture items from GAAP operating income. We believe that these adjustments 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, gains or losses related to the acquisitions or sale of certain businesses and investments, and debt issuance costs. 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 the effects of purchase accounting adjustments to certain acquired deferred revenue and acquired capitalized commissions, restructuring charges, amortization of purchased intangible assets, stock-based compensation, acquisition/divestiture items, debt issuance costs, and non-GAAP tax adjustments from GAAP net income. We believe our investors benefit from understanding these adjustments 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 the effects of purchase accounting adjustments to certain acquired deferred revenue and acquired capitalized commissions, restructuring charges, amortization of purchased intangible assets, stock-based compensation, acquisition/divestiture items, debt issuance costs, and non-GAAP tax adjustments from GAAP diluted net income per share. We believe that these adjustments 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 the effects of purchase accounting adjustments to certain acquired deferred revenue and acquired capitalized commissions, restructuring charges, amortization of purchased intangible assets, stock-based compensation, acquisition/divestiture items, debt issuance costs, and non-GAAP tax adjustments.
(A) Acquired deferred revenue adjustment.
Purchase accounting generally
requires us to write-down acquired
deferred revenue to fair value. Our
GAAP revenue includes the fair value
impact from purchase accounting for
post-contract support and
subscriptions contracts assumed in
connection with our acquisitions.
The non-GAAP adjustment to our
revenue is intended to reflect the
full amount of such revenue. We
believe this adjustment is useful to
investors as a measure of the
ongoing performance of our business
and facilitates analysis of revenue
growth and business trends.
(B) 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.
(C) 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, this 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.
(D) 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 second
quarter and first two quarters of
fiscal years 2019 and 2018, stock-
based compensation was allocated as
follows:
Second Quarter of First Two Quarters of
(Dollars in millions) 2019 2018 2019 2018
Cost of sales $
1.4 $
1.1 $
2.7 $
2.2
Research and development 4.0 3.2 7.5 6.3
Sales and marketing 3.1 2.4 5.8 4.7
General and administrative 8.7 10.2 17.5 21.1
Total stock-based compensation
expense $
17.2 $
16.9 $
33.5 $
34.3
(E) Acquisition / divestiture items. Included in our
GAAP presentation of cost of sales and 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 closing costs including
the acceleration of acquisition stock options and
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) Amortization of acquired capitalized commissions.
Purchase accounting generally requires us to
eliminate capitalized sales commissions balances
as of the acquisition date. Our GAAP sales and
marketing expenses generally do not reflect the
amortization of these capitalized sales
commissions balances. The non-GAAP adjustment to
increase our sales and marketing expenses is
intended to reflect the full amount of
amortization related to such balances as though
the acquired companies operated independently in
the periods presented. We believe this adjustment
to sales and marketing expenses is useful to
investors as a measure of the ongoing performance
of our business.
(G) Debt issuance costs. Included in our non-
operating income (loss), net this amount
represents incurred costs in connection with a
bridge facility we put in place for the Viewpoint
acquisition, costs associated with the issuance
of new credit facilities and our senior notes
issued in 2018 that were not capitalized as debt
issuance costs and a write-off of debt issuance
costs for terminated and/or modified credit
facilities. We excluded the debt issuance cost
write-off from our non-GAAP measures. We
believe that investors benefit from excluding
this item from our non-operating income to
facilitate an evaluation of our non-operating
income trends.
(H) Non-GAAP items tax effected. This amount adjusts
the provision for income taxes to reflect the
effect of the non-GAAP items (A) - (G) 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.
(I) 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. We believe that
investors benefit from excluding this amount from
our non-GAAP income tax provision because it
facilitates a comparison of the non-GAAP tax
provision in the current and prior periods.
(J) GAAP and non-GAAP tax rate percentages. 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.
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SOURCE Trimble Inc.
