filings.toolsItem 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
72K characters. Original on sec.gov · Markdown
Item 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
CRITICAL ACCOUNTING POLICIES AND ESTIMATES
There have been no material changes to our critical accounting policies and estimates during the first two quarters of 2022. For a complete discussion of our critical accounting policies and estimates, refer to “Management’s Discussion and Analysis of Financial Condition and Results of Operations” section of the 2021 Form 10-K.
RECENT ACCOUNTING PRONOUNCEMENTS
For a summary of recent accounting pronouncements applicable to our Condensed Consolidated Financial Statements, refer to Note 1 “Overview and Accounting Policies” of this Form 10-Q.
EXECUTIVE LEVEL OVERVIEW
We are a leading provider of technology solutions that enable professionals and field mobile workers to improve or transform their work processes. Our comprehensive work process solutions are used across a range of industries including architecture, building construction, civil engineering, geospatial, survey and mapping, agriculture, natural resources, utilities, transportation, and government. Our representative customers include construction owners, contractors, engineering and construction firms, surveying companies, farmers and agricultural companies, energy and utility companies, trucking companies, and state, federal, and municipal governments.
Our growth strategy is centered on multiple elements:
- Executing on our Connect and Scale strategy;
*•*Increasing focus on software and services;
-
Focus on attractive markets with significant growth and profitability potential;
-
Domain knowledge and technological innovation that benefit a diverse customer base;
-
Geographic expansion with localization strategy;
-
Optimized go-to-market strategies to best access our markets;
-
Strategic acquisitions;
-
Venture fund investments; and
-
Sustainability.
Our focus on these growth drivers has led over time to growth in revenue and profitability and an increasingly diversified business model. We continue to experience a shift toward a more significant mix of recurring revenue contracts, as demonstrated by our success in driving annualized recurring revenue (“ARR”) of $1,512.5 million, which represents growth of 12% year-over-year at the end of the second quarter of 2022. Excluding the impact of foreign currency, acquisitions, and divestitures, ARR organic growth was 15%. This shift has positively impacted our revenue mix and growth over time and is leading to improved visibility in our businesses. Our software, maintenance, subscriptions, and services represented 56% of total revenue for the first two quarters of 2022. As our solutions have expanded, our go-to-market model has also evolved with a balanced mix between direct, distribution, and OEM customers as well as an increasing number of enterprise level customer relationships.
For a full definition of ARR as used in this discussion and analysis, refer to the “Supplemental Disclosure of Non-GAAP Financial Measures and Annualized Recurring Revenue” later in this Item 2.
Impact of Recent Events on Our Business
Inflation, Supply Chain, Foreign Currency Fluctuations, and Russia’s Invasion of Ukraine
In the first two quarters of 2022, we continued to experience inflationary cost increases in certain components of our hardware products due to supply chain disruptions resulting from parts and labor shortages and an increase in worldwide demand for components. Over the past year, we have continued to increase customer pricing to offset inflationary pressures. Due to extended component lead times, we have made binding commitments over a longer horizon for certain components. This may impact our working capital in the short term; however, we expect supply chain conditions to normalize over time.
Our year-to-date results were negatively impacted by foreign currency fluctuations due to strengthening of the U.S. dollar. In the second quarter and first two quarters of 2022, unfavorable revenue impacts from foreign currency exchange rates were $28.5 million and $47.8 million.
In the first quarter of 2022, we stopped selling to Russia and Belarus customers and wrote off uncollected customer receivables and inventory located in these countries. In the second quarter of 2022, we terminated business operations in Russia and Belarus. To date, asset impairments and severance costs were not material to our consolidated financial statements. Total revenue associated with Russia and Belarus customers, either sold directly or indirectly through resellers or OEMs, was less than 2% of our total Company revenue for 2021.
Business Divestitures
In the second quarter of 2022, we completed the sale of the Time and Frequency, LOADRITE, Spectra Precision Tools, and SECO accessories businesses to Precisional LLC, an affiliate of The Jordan Company. Prior to the sale, the operating results were previously reported in our Buildings and Infrastructure and Geospatial segments. For additional discussion of this divestiture, refer to Note 4 “Divestitures” of this Form 10-Q.
Additionally, we completed the sale of Beena Vision to Wabtec Corporation in the second quarter of 2022, which was part of the Transportation segment. The proceeds were immaterial.
Both of these divestitures are in line with our strategy to focus on core areas of our long-term growth and strategic product roadmap. For 2021, the revenue and operating income for these businesses was approximately $185.0 million and $37.0 million.
For the second quarter of 2022, as compared to 2021, divestitures reduced revenue and operating income by $37.9 million and $10.8 million.
RESULTS OF OPERATIONS
Overview
The following table shows revenue by category, gross margin and gross margin as a percentage of revenue, operating income and operating income as a percentage of revenue, diluted earnings per share, and annualized recurring revenue compared for the periods indicated:
| Second Quarter of | First Two Quarters of | ||||||||||||||||||||||||||||||||||||||||||||||
| 2022 | 2021 | Dollar Change | % Change | 2022 | 2021 | Dollar Change | % Change | ||||||||||||||||||||||||||||||||||||||||
| (In millions, except per share amounts) | |||||||||||||||||||||||||||||||||||||||||||||||
| Revenue: | |||||||||||||||||||||||||||||||||||||||||||||||
| Product | $ | 564.5 | $ | 594.9 | $ | (30.4) | (5)% | $ | 1,186.1 | $ | 1,134.3 | $ | 51.8 | 5% | |||||||||||||||||||||||||||||||||
| Service | 158.0 | 162.1 | (4.1) | (3)% | 319.1 | 324.4 | (5.3) | (2)% | |||||||||||||||||||||||||||||||||||||||
| Subscription | 218.7 | 188.2 | 30.5 | 16% | 429.7 | 373.0 | 56.7 | 15% | |||||||||||||||||||||||||||||||||||||||
| Total revenue | $ | 941.2 | $ | 945.2 | $ | (4.0) | —% | $ | 1,934.9 | $ | 1,831.7 | $ | 103.2 | 6% | |||||||||||||||||||||||||||||||||
| Gross margin | $ | 537.5 | $ | 525.4 | $ | 12.1 | 2% | $ | 1,087.1 | $ | 1,018.7 | $ | 68.4 | 7% | |||||||||||||||||||||||||||||||||
| Gross margin as a % of revenue | 57.1 | % | 55.6 | % | 56.2 | % | 55.6 | % | |||||||||||||||||||||||||||||||||||||||
| Operating income | $ | 134.9 | $ | 144.8 | $ | (9.9) | (7)% | $ | 291.8 | $ | 285.7 | $ | 6.1 | 2% | |||||||||||||||||||||||||||||||||
| Operating income as a % of revenue | 14.3 | % | 15.3 | % | 15.1 | % | 15.6 | % | |||||||||||||||||||||||||||||||||||||||
| Diluted earnings per share | $ | 0.67 | $ | 0.55 | $ | 0.12 | 22% | $ | 1.11 | $ | 1.00 | $ | 0.11 | 11% | |||||||||||||||||||||||||||||||||
| Non-GAAP revenue (1) | $ | 941.2 | $ | 945.3 | $ | (4.1) | —% | $ | 1,934.9 | $ | 1,832.0 | $ | 102.9 | 6% | |||||||||||||||||||||||||||||||||
| Non-GAAP operating income (1) | $ | 210.7 | $ | 228.6 | $ | (17.9) | (8)% | $ | 443.8 | $ | 437.8 | $ | 6.0 | 1% | |||||||||||||||||||||||||||||||||
| Non-GAAP operating income as a % of Non-GAAP Revenue(1) | 22.4 | % | 24.2 | % | 22.9 | % | 23.9 | % | |||||||||||||||||||||||||||||||||||||||
| Non-GAAP diluted earnings per share (1) | $ | 0.64 | $ | 0.72 | $ | (0.08) | (11)% | $ | 1.38 | $ | 1.38 | $ | — | NM | |||||||||||||||||||||||||||||||||
| Annualized Recurring Revenue (“ARR”) (1) | $ | 1,512.5 | $ | 1,348.9 | $ | 163.6 | 12% | N/A | N/A | N/A | N/A | ||||||||||||||||||||||||||||||||||||
(1) Refer to “Supplemental Disclosure of Non-GAAP Financial Measures and Annualized Recurring Revenue” of this Form 10-Q for definitions.
Second Quarter and First Two Quarters of 2022 as Compared to 2021
Revenue
| Second Quarter of | First Two Quarters of | |||||||||||||||||||||||||
| Change versus the corresponding period in 2021 | 2022 | 2022 | ||||||||||||||||||||||||
| % Change | % Change | |||||||||||||||||||||||||
| (In millions) | ||||||||||||||||||||||||||
| Change in total revenue | — | % | 6 | % | ||||||||||||||||||||||
| Acquisitions | 1 | % | 1 | % | ||||||||||||||||||||||
| Divestitures | (4) | % | (3) | % | ||||||||||||||||||||||
| Foreign currency exchange | (3) | % | (3) | % | ||||||||||||||||||||||
| Organic growth | 6 | % | 10 | % |
For this table and similar tables below, percentages may not sum due to rounding.
Excluding acquisitions, divestitures, and unfavorable foreign currency, revenue for the second quarter and first two quarters was up due to organic growth in hardware, software, and subscription sales in Building and Infrastructure and Resources and Utilities. Geospatial organic revenue was slightly down for the second quarter and was impacted by supply chain constraints and unusually strong sales in the prior year, including new product introductions. For the first two quarters, Geospatial organic revenue, particularly software sales, was up, which contributed to overall growth.
By revenue category, product revenue decreased for the second quarter primarily due to divestitures, which were hardware centric, partially offset by hardware sales in Buildings and Infrastructure and Resources and Utilities. Product revenue increased for the first two quarters primarily due to hardware and software growth in Buildings and Infrastructure, Resources and Utilities, and Geospatial, partially offset by divestitures of $35.0 million. Service revenue was relatively flat. Subscription revenue increased for the second quarter and first two quarters primarily due to strong growth in Buildings and Infrastructure and, to a lesser extent, in Resources and Utilities, Geospatial, and Transportation. All revenue categories were impacted by unfavorable foreign currency.
Gross Margin
Gross margin increased for the second quarter and first two quarters primarily due to organic revenue growth in Buildings and Infrastructure and Resources and Utilities, partially offset by divestitures and unfavorable foreign currency. Gross margin as a percentage of revenue increased for the second quarter and first two quarters due to an increased mix of software and subscription sales across all segments, slightly offset by supply chain cost impacts in Resources and Utilities, which lessened in the second quarter due to customer price increases.
Operating Income
Operating income decreased for the second quarter due to divestitures and unfavorable foreign currency, partially offset by organic revenue and gross margin expansion. Operating expense was higher due to investments related to our Connect and Scale strategy, including increased headcount and consulting, as well as sales, marketing, and travel costs as COVID-related lockdowns subsided. Operating income increased for the first two quarters primarily due to revenue and gross margin expansion, partially offset by divestitures and unfavorable foreign currency.
Operating income as a percentage of revenue decreased for the second quarter and first two quarters primarily due to increased operating expense, partially offset by increased gross margin as a percentage of revenue.
Research and Development, Sales and Marketing, and General and Administrative Expense
The following table shows research and development (“R&D”), sales and marketing (“S&M”), and general and administrative (“G&A”) expense along with these expenses as a percentage of revenue for the periods indicated:
| Second Quarter of | First Two Quarters of | ||||||||||||||||||||||||||||||||||||||||||||||
| 2022 | 2021 | Dollar Change | % Change | 2022 | 2021 | Dollar Change | % Change | ||||||||||||||||||||||||||||||||||||||||
| (In millions) | |||||||||||||||||||||||||||||||||||||||||||||||
| Research and development | $ | 140.1 | $ | 138.3 | $ | 1.8 | 1% | $ | 280.4 | $ | 267.7 | $ | 12.7 | 5% | |||||||||||||||||||||||||||||||||
| Percentage of revenue | 14.9 | % | 14.6 | % | 14.5 | % | 14.6 | % | |||||||||||||||||||||||||||||||||||||||
| Sales and marketing | $ | 138.9 | $ | 125.2 | $ | 13.7 | 11% | $ | 270.8 | $ | 247.6 | $ | 23.2 | 9% | |||||||||||||||||||||||||||||||||
| Percentage of revenue | 14.8 | % | 13.2 | % | 14.0 | % | 13.5 | % | |||||||||||||||||||||||||||||||||||||||
| General and administrative | $ | 106.9 | $ | 99.6 | $ | 7.3 | 7% | $ | 208.4 | $ | 185.0 | $ | 23.4 | 13% | |||||||||||||||||||||||||||||||||
| Percentage of revenue | 11.4 | % | 10.5 | % | 10.8 | % | 10.1 | % | |||||||||||||||||||||||||||||||||||||||
| Total | $ | 385.9 | $ | 363.1 | $ | 22.8 | 6% | $ | 759.6 | $ | 700.3 | $ | 59.3 | 8% | |||||||||||||||||||||||||||||||||
R&D expense increased for the second quarter and first two quarters primarily due to higher compensation expense, partially offset by favorable foreign currency, favorable deferred compensation fluctuations, and divestitures. We believe that the development and introduction of new solutions are critical to our future success, and we expect to continue the active development of new products.
S&M expense increased for the second quarter and first two quarters primarily due to higher compensation expense, including commissions, and, to a lesser extent, higher travel and marketing costs, partially offset by favorable foreign currency and divestitures.
G&A expense increased for the second quarter and first two quarters primarily due to higher compensation and consulting costs related to our Connect and Scale strategy and charitable donations to the Trimble Foundation, partially offset by lower stock-based compensation, favorable deferred compensation fluctuations, and divestitures. In addition, the first two quarters of 2022 was impacted by higher bad debt expense associated with Russia and Belarus customers in the first quarter of 2022.
Amortization of Purchased Intangible Assets
| Second Quarter of | First Two Quarters of | ||||||||||||||||||||||||||||||||||||||||||||||
| 2022 | 2021 | Dollar Change | % Change | 2022 | 2021 | Dollar Change | % Change | ||||||||||||||||||||||||||||||||||||||||
| (In millions) | |||||||||||||||||||||||||||||||||||||||||||||||
| Cost of sales | $ | 21.0 | $ | 22.0 | $ | (1.0) | (5)% | $ | 43.5 | $ | 44.1 | $ | (0.6) | (1)% | |||||||||||||||||||||||||||||||||
| Operating expenses | 11.3 | 13.0 | (1.7) | (13)% | 23.4 | 26.7 | (3.3) | (12)% | |||||||||||||||||||||||||||||||||||||||
| Total amortization expense of purchased intangibles | $ | 32.3 | $ | 35.0 | $ | (2.7) | (8)% | $ | 66.9 | $ | 70.8 | $ | (3.9) | (6)% | |||||||||||||||||||||||||||||||||
| Total amortization expense of purchased intangibles as a percentage of revenue | 3 | % | 4 | % | 3 | % | 4 | % | |||||||||||||||||||||||||||||||||||||||
Total amortization expense of purchased intangibles decreased for the second quarter and first two quarters due to the expiration of prior quarters’ acquisition amortization.
Non-operating Income, Net
The components of non-operating income, net, were as follows:
| Second Quarter of | First Two Quarters of | ||||||||||||||||||||||||||||||||||||||||||||||
| 2022 | 2021 | Dollar Change | % Change | 2022 | 2021 | Dollar Change | % Change | ||||||||||||||||||||||||||||||||||||||||
| (In millions) | |||||||||||||||||||||||||||||||||||||||||||||||
| Divestitures gain, net | $ | 106.0 | $ | 20.4 | $ | 85.6 | 420% | $ | 97.1 | $ | 22.4 | $ | 74.7 | 333% | |||||||||||||||||||||||||||||||||
| Interest expense, net | (15.3) | (16.6) | 1.3 | (8)% | (31.3) | (33.5) | 2.2 | (7)% | |||||||||||||||||||||||||||||||||||||||
| Income from equity method investments, net | 5.8 | 10.0 | (4.2) | (42)% | 15.5 | 21.8 | (6.3) | (29)% | |||||||||||||||||||||||||||||||||||||||
| Other income (expense), net | (9.8) | 3.8 | (13.6) | (358)% | (13.0) | 3.4 | (16.4) | (482)% | |||||||||||||||||||||||||||||||||||||||
| Total non-operating income, net | $ | 86.7 | $ | 17.6 | $ | 69.1 | 393% | $ | 68.3 | $ | 14.1 | $ | 54.2 | 384% |
Non-operating income, net increased for the second quarter and first two quarters primarily due to the net gain from the sale of five businesses in the second quarter, slightly offset by fluctuations in deferred compensation plan assets included in Other income (expense), net, and lower joint-venture profitability.
Inco****me Tax Provision
For the second quarter, our effective income tax rate was 24.2%, as compared to 14.5% in the prior year. For the first two quarters, our effective income tax rate was 22.7%, as compared to 15.4% in the prior year. The increases were primarily associated with current quarter divestiture gains and a prior year rate decrease due to a one-time tax benefit from a foreign deferred tax asset.
Results by Segment
We report our financial performance, including revenue and operating income, based on four reportable segments: Buildings and Infrastructure, Geospatial, Resources and Utilities, and Transportation.
Our Chief Executive Officer (chief operating decision maker) views and evaluates operations based on the results of our reportable operating segments under our management reporting system. For additional discussion of our segments, refer to Note 6 “Segment Information” of this Form 10-Q.
The following table is a summary of revenue and operating income by segment compared for the periods indicated:
| Second Quarter of | First Two Quarters of | ||||||||||||||||||||||||||||||||||||||||||||||
| 2022 | 2021 | Dollar Change | % Change | 2022 | 2021 | Dollar Change | % Change | ||||||||||||||||||||||||||||||||||||||||
| (In millions) | |||||||||||||||||||||||||||||||||||||||||||||||
| Buildings and Infrastructure | |||||||||||||||||||||||||||||||||||||||||||||||
| Segment revenue | $ | 382.6 | $ | 364.8 | $ | 17.8 | 5% | $ | 780.2 | $ | 707.9 | $ | 72.3 | 10% | |||||||||||||||||||||||||||||||||
| Segment revenue as a % of total revenue | 41 | % | 39 | % | 40 | % | 39 | % | |||||||||||||||||||||||||||||||||||||||
| Segment operating income | $ | 101.4 | $ | 104.1 | (2.7) | (3)% | $ | 222.1 | $ | 200.5 | 21.6 | 11% | |||||||||||||||||||||||||||||||||||
| Segment operating income as a % of segment revenue | 26.5 | % | 28.5 | % | 28.5 | % | 28.3 | % | |||||||||||||||||||||||||||||||||||||||
| Geospatial | |||||||||||||||||||||||||||||||||||||||||||||||
| Segment revenue | $ | 193.7 | $ | 219.7 | (26.0) | (12)% | $ | 401.2 | $ | 401.4 | (0.2) | —% | |||||||||||||||||||||||||||||||||||
| Segment revenue as a % of total revenue | 20 | % | 23 | % | 21 | % | 22 | % | |||||||||||||||||||||||||||||||||||||||
| Segment operating income | $ | 57.8 | $ | 66.1 | (8.3) | (13)% | $ | 115.7 | $ | 114.8 | 0.9 | 1% | |||||||||||||||||||||||||||||||||||
| Segment operating income as a % of segment revenue | 29.8 | % | 30.1 | % | 28.8 | % | 28.6 | % | |||||||||||||||||||||||||||||||||||||||
| Resources and Utilities | |||||||||||||||||||||||||||||||||||||||||||||||
| Segment revenue | $ | 214.8 | $ | 197.5 | 17.3 | 9% | $ | 444.7 | $ | 402.7 | 42.0 | 10% | |||||||||||||||||||||||||||||||||||
| Segment revenue as a % of total revenue | 23 | % | 21 | % | 23 | % | 22 | % | |||||||||||||||||||||||||||||||||||||||
| Segment operating income | $ | 73.0 | $ | 70.5 | 2.5 | 4% | $ | 148.1 | $ | 150.6 | (2.5) | (2)% | |||||||||||||||||||||||||||||||||||
| Segment operating income as a % of segment revenue | 34.0 | % | 35.7 | % | 33.3 | % | 37.4 | % | |||||||||||||||||||||||||||||||||||||||
| Transportation | |||||||||||||||||||||||||||||||||||||||||||||||
| Segment revenue | $ | 150.1 | $ | 163.3 | (13.2) | (8)% | $ | 308.8 | $ | 320.0 | (11.2) | (4)% | |||||||||||||||||||||||||||||||||||
| Segment revenue as a % of total revenue | 16 | % | 17 | % | 16 | % | 17 | % | |||||||||||||||||||||||||||||||||||||||
| Segment operating income | $ | 11.8 | $ | 12.8 | (1.0) | (8)% | $ | 21.0 | $ | 21.2 | (0.2) | (1)% | |||||||||||||||||||||||||||||||||||
| Segment operating income as a % of segment revenue | 7.9 | % | 7.8 | % | 6.8 | % | 6.6 | % | |||||||||||||||||||||||||||||||||||||||
The following table is a reconciliation of our consolidated segment operating income to consolidated income before taxes:
| Second Quarter of | First Two Quarters of | ||||||||||||||||||||||
| 2022 | 2021 | 2022 | 2021 | ||||||||||||||||||||
| (In millions) | |||||||||||||||||||||||
| Consolidated segment operating income | $ | 244.0 | $ | 253.5 | $ | 506.9 | $ | 487.1 | |||||||||||||||
| Unallocated general corporate expenses | (33.3) | (24.9) | (63.1) | (49.3) | |||||||||||||||||||
| Purchase accounting adjustments | (32.3) | (34.0) | (66.9) | (68.8) | |||||||||||||||||||
| Acquisition / divestiture items | (7.3) | (6.6) | (11.2) | (10.1) | |||||||||||||||||||
| Stock-based compensation / deferred compensation | (26.2) | (38.3) | (51.2) | (67.0) | |||||||||||||||||||
| Restructuring and other costs | (10.0) | (4.9) | (22.7) | (6.2) | |||||||||||||||||||
| Consolidated operating income | 134.9 | 144.8 | 291.8 | 285.7 | |||||||||||||||||||
| Total non-operating income, net | 86.7 | 17.6 | 68.3 | 14.1 | |||||||||||||||||||
| Consolidated income before taxes | $ | 221.6 | $ | 162.4 | $ | 360.1 | $ | 299.8 |
Buildings and Infrastructure
| Second Quarter of | First Two Quarters of | |||||||||||||||||||||||||
| Change versus the corresponding period in 2021 | 2022 | 2022 | ||||||||||||||||||||||||
| % Change | % Change | |||||||||||||||||||||||||
| (In millions) | ||||||||||||||||||||||||||
| Change in segment revenue | 5 | % | 10 | % | ||||||||||||||||||||||
| Acquisitions | 1 | % | 2 | % | ||||||||||||||||||||||
| Divestitures | (6) | % | (4) | % | ||||||||||||||||||||||
| Foreign currency exchange | (3) | % | (2) | % | ||||||||||||||||||||||
| Organic growth | 13 | % | 15 | % |
Excluding acquisitions, divestitures, and unfavorable foreign currency, organic revenue increased for the second quarter and first two quarters primarily due to strong demand for our civil construction hardware and related software licenses resulting from relative strength in residential construction spend. The increase was also due to higher term license and subscription revenue growth in our software businesses, and to a lesser extent, price increases. The increase in subscription revenue resulted from higher sales to new and existing customers as well as conversions from perpetual software to recurring offerings.
Operating income decreased for the second quarter primarily due to divestitures and unfavorable foreign currency, partially offset by revenue and gross margin expansion. Additionally, operating expense was higher due to investments, including our Connect and Scale strategy; sales; marketing; and travel costs. Operating income increased for the first two quarters primarily due to revenue and gross margin expansion, partially offset by divestitures and unfavorable foreign currency. Operating income as a percentage of revenue decreased for the second quarter primarily due to increased operating expense, partially offset by gross margin expansion. Operating income as a percentage of revenue for the first two quarters was relatively flat.
Geospatial
| Second Quarter of | First Two Quarters of | |||||||||||||||||||||||||
| Change versus the corresponding period in 2021 | 2022 | 2022 | ||||||||||||||||||||||||
| % Change | % Change | |||||||||||||||||||||||||
| (In millions) | ||||||||||||||||||||||||||
| Change in segment revenue | (12) | % | — | % | ||||||||||||||||||||||
| Divestitures | (4) | % | (2) | % | ||||||||||||||||||||||
| Foreign currency exchange | (3) | % | (3) | % | ||||||||||||||||||||||
| Organic growth | (5) | % | 5 | % |
Excluding divestitures and unfavorable foreign currency, organic revenue decreased for the second quarter due to supply chain constraints and unusually strong sales in the prior year, including new product introductions. For the first two quarters, Geospatial organic revenue, particularly software sales, was up, which contributed to overall growth.
Operating income decreased for the second quarter primarily due to divestitures and organic revenue declines and higher operating expense due to investments, including our Connect and Scale strategy; marketing; and travel costs. Gross margin expansion partially offset the decreases. Operating income for the first two quarters was relatively flat. Operating income as a percentage of revenue for the second quarter and first two quarters was relatively flat.
Resources and Utilities
| Second Quarter of | First Two Quarters of | |||||||||||||||||||||||||
| Change versus the corresponding period in 2021 | 2022 | 2022 | ||||||||||||||||||||||||
| % Change | % Change | |||||||||||||||||||||||||
| (In millions) | ||||||||||||||||||||||||||
| Change in segment revenue | 9 | % | 10 | % | ||||||||||||||||||||||
| Divestitures | (1) | % | (1) | % | ||||||||||||||||||||||
| Foreign currency exchange | (5) | % | (4) | % | ||||||||||||||||||||||
| Organic growth | 15 | % | 16 | % |
Excluding divestitures and unfavorable foreign currency, organic revenue increased for the second quarter and first two quarters primarily due to continued relative strength in agriculture, particularly in the OEM channel in the second quarter. Despite higher farmer input costs, market fundamentals, including favorable commodity prices, continued to support agriculture revenue growth. To a lesser extent, revenue was favorably impacted by customer price increases.
Operating income was relatively flat for the second quarter and first two quarters. Divestitures and unfavorable foreign currency were largely offset by revenue expansion. Operating expense was higher due to investments, including our Connect and Scale strategy, as well as travel costs. Operating income as a percentage of revenue decreased for the second quarter and first two quarters primarily due to gross margin percentage decrease associated with increased supply chain costs; the supply chain impacts lessened in the second quarter due to customer pricing increases.
Transportation
| Second Quarter of | First Two Quarters of | |||||||||||||||||||||||||
| Change versus the corresponding period in 2021 | 2022 | 2022 | ||||||||||||||||||||||||
| % Change | % Change | |||||||||||||||||||||||||
| (In millions) | ||||||||||||||||||||||||||
| Change in segment revenue | (8) | % | (4) | % | ||||||||||||||||||||||
| Divestitures | (2) | % | (1) | % | ||||||||||||||||||||||
| Foreign currency exchange | (1) | % | (1) | % | ||||||||||||||||||||||
| Organic growth | (5) | % | (1) | % |
Excluding divestitures and unfavorable foreign currency, organic revenue decreased for the second quarter and first two quarters primarily driven by lower mobility hardware sales to North American customers. Enterprise revenue continued to experience term license and subscription revenue growth as the business transitions from a perpetual software license model.
Operating income and operating income as a percentage of revenue was relatively flat for the second quarter and first two quarters. Revenue declines were largely offset by gross margin expansion, including targeted cost reductions. We continued to maintain focus on new product introductions and transitions to recurring revenue.
LIQUIDITY AND CAPITAL RESOURCES
| Second Quarter of | Year End | ||||||||||||||||||||||
| As of | 2022 | 2021 | Dollar Change | % Change | |||||||||||||||||||
| (In millions, except percentages) | |||||||||||||||||||||||
| Cash and cash equivalents | $ | 350.1 | $ | 325.7 | $ | 24.4 | 7 | % | |||||||||||||||
| As a percentage of total assets | 5.1 | % | 4.6 | % | |||||||||||||||||||
| Principal balance of outstanding debt | $ | 1,300.0 | $ | 1,300.0 | $ | — | — | % | |||||||||||||||
| First Two Quarters of | |||||||||||||||||||||||
| 2022 | 2021 | Dollar Change | % Change | ||||||||||||||||||||
| (In millions) | |||||||||||||||||||||||
| Net cash provided by operating activities | $ | 201.8 | $ | 428.8 | $ | (227.0) | (53) | % | |||||||||||||||
| Net cash provided by investing activities | 172.3 | 42.9 | 129.4 | 302 | % | ||||||||||||||||||
| Net cash used in financing activities | (335.3) | (223.1) | (112.2) | 50 | % | ||||||||||||||||||
| Effect of exchange rate changes on cash and cash equivalents | (14.4) | (1.9) | (12.5) | 658 | % | ||||||||||||||||||
| Net increase in cash and cash equivalents | $ | 24.4 | $ | 246.7 |
Operating Activities
The decrease in cash provided by operating activities was primarily driven by higher inventory purchases and lower accounts payable associated with the timing of inventory payments, higher tax payments, driven in part by a second quarter payment associated with the Tax Cuts and Jobs Act of 2017, and lower accrued compensation associated with bonus payouts in the first quarter, offset by higher deferred revenue.
Investing Activities
The increase in cash provided by investing activities was primarily due to higher proceeds from divestitures.
Financing Activities
The increase in cash used in financing activities was primarily driven by an increase in common stock repurchases, partially offset by a decrease in debt repayments, net of debt proceeds.
Cash and Cash Equivalents
We believe that our cash and cash equivalents and borrowings, along with cash provided by operations will be sufficient in the foreseeable future to meet our anticipated operating cash needs, expenditures related to our Connect and Scale strategy, debt service, and any stock repurchases under the stock repurchase program. In addition, in March 2022, we entered into a five-year, unsecured revolving loan facility for borrowings up to $1.25 billion, which replaced the 2018 Credit Facility. The 2022 Credit Facility contains an option to increase the borrowings up to $1.75 billion with lender approval. As of July 1, 2022, no amounts were outstanding under the 2022 Credit Facility.
We anticipate refinancing some or all of our outstanding indebtedness at or prior to its maturity, which could involve us accessing the capital markets.
A provision enacted in the Tax Cuts and Jobs Act of 2017 related to the capitalization of research and development costs for tax purposes became effective on January 1, 2022. If this provision is not deferred, our full year 2022 tax payments are expected to increase by an estimated $90 million. In the second quarter, we made a partial payment of $40 million for this liability.
Our cash requirements have not otherwise materially changed since the 2021 Form 10-K.
SUPPLEMENTAL DISCLOSURE OF NON-GAAP FINANCIAL MEASURES AND ANNUALIZED RECURRING REVENUE
To supplement our consolidated financial information, we included non-GAAP financial measures, which are not meant to be considered in isolation or as a substitute for comparable GAAP. We believe non-GAAP financial measures provide useful information to investors and others in understanding our “core operating performance”, which excludes (i) the effect of non-cash items and certain variable charges not expected to recur; and (ii) transactions that are not meaningful in comparison to our past operating performance or not reflective of ongoing financial results. Lastly, we believe that our core operating performance offers a supplemental measure for period-to-period comparisons and can be used to evaluate our historical and prospective financial performance, as well as our performance relative to competitors. In addition to providing non-GAAP financial measures, we disclose Annualized Recurring Revenue (“ARR”) to give the investors supplementary indicators of the value of our current recurring revenue contracts.
ARR represents the estimated annualized value of recurring revenue, including subscription, maintenance and support revenue, and term license contracts for the quarter. ARR is calculated by adding the portion of the contract value of all of our term licenses attributable to the current quarter to our non-GAAP recurring revenue for the current quarter and dividing that sum by the number of days in the quarter and then multiplying that quotient by 365. ARR 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.
The non-GAAP financial measures, definitions, and explanations to the adjustments to comparable GAAP measures are included below:
| Second Quarter of | First Two Quarters of | ||||||||||||||||||||||||||||||||||||||||
| 2022 | 2021 | 2022 | 2021 | ||||||||||||||||||||||||||||||||||||||
| Dollar | % of | Dollar | % of | Dollar | % of | Dollar | % of | ||||||||||||||||||||||||||||||||||
| (In millions, except per share amounts) | Amount | Revenue | Amount | Revenue | Amount | Revenue | Amount | Revenue | |||||||||||||||||||||||||||||||||
| REVENUE: | |||||||||||||||||||||||||||||||||||||||||
| GAAP revenue: | $ | 941.2 | $ | 945.2 | $ | 1,934.9 | $ | 1,831.7 | |||||||||||||||||||||||||||||||||
| Purchase accounting adjustments | (A) | — | 0.1 | — | 0.3 | ||||||||||||||||||||||||||||||||||||
| Non-GAAP revenue: | $ | 941.2 | $ | 945.3 | $ | 1,934.9 | $ | 1,832.0 | |||||||||||||||||||||||||||||||||
| GROSS MARGIN: | |||||||||||||||||||||||||||||||||||||||||
| GAAP gross margin: | $ | 537.5 | 57.1 | % | $ | 525.4 | 55.6 | % | $ | 1,087.1 | 56.2 | % | $ | 1,018.7 | 55.6 | % | |||||||||||||||||||||||||
| Purchase accounting adjustments | (A) | 21.0 | 22.1 | 43.5 | 44.4 | ||||||||||||||||||||||||||||||||||||
| Stock-based compensation / deferred compensation | (C) | 3.1 | 2.6 | 5.3 | 4.6 | ||||||||||||||||||||||||||||||||||||
| Restructuring and other costs | (D) | — | 0.2 | 1.1 | 0.2 | ||||||||||||||||||||||||||||||||||||
| Non-GAAP gross margin: | $ | 561.6 | 59.7 | % | $ | 550.3 | 58.2 | % | $ | 1,137.0 | 58.8 | % | $ | 1,067.9 | 58.3 | % | |||||||||||||||||||||||||
| OPERATING EXPENSES: | |||||||||||||||||||||||||||||||||||||||||
| GAAP operating expenses: | $ | 402.6 | 42.8 | % | $ | 380.6 | 40.3 | % | $ | 795.3 | 41.1 | % | $ | 733.0 | 40.0 | % | |||||||||||||||||||||||||
| Purchase accounting adjustments | (A) | (11.3) | (11.9) | (23.4) | (24.4) | ||||||||||||||||||||||||||||||||||||
| Acquisition / divestiture items | (B) | (7.3) | (6.6) | (11.2) | (10.1) | ||||||||||||||||||||||||||||||||||||
| Stock-based compensation / deferred compensation | (C) | (23.1) | (35.7) | (45.9) | (62.4) | ||||||||||||||||||||||||||||||||||||
| Restructuring and other costs | (D) | (10.0) | (4.7) | (21.6) | (6.0) | ||||||||||||||||||||||||||||||||||||
| Non-GAAP operating expenses: | $ | 350.9 | 37.3 | % | $ | 321.7 | 34.0 | % | $ | 693.2 | 35.8 | % | $ | 630.1 | 34.4 | % | |||||||||||||||||||||||||
| OPERATING INCOME: | |||||||||||||||||||||||||||||||||||||||||
| GAAP operating income: | $ | 134.9 | 14.3 | % | $ | 144.8 | 15.3 | % | $ | 291.8 | 15.1 | % | $ | 285.7 | 15.6 | % | |||||||||||||||||||||||||
| Purchase accounting adjustments | (A) | 32.3 | 34.0 | 66.9 | 68.8 | ||||||||||||||||||||||||||||||||||||
| Acquisition / divestiture items | (B) | 7.3 | 6.6 | 11.2 | 10.1 | ||||||||||||||||||||||||||||||||||||
| Stock-based compensation / deferred compensation | (C) | 26.2 | 38.3 | 51.2 | 67.0 | ||||||||||||||||||||||||||||||||||||
| Restructuring and other costs | (D) | 10.0 | 4.9 | 22.7 | 6.2 | ||||||||||||||||||||||||||||||||||||
| Non-GAAP operating income: | $ | 210.7 | 22.4 | % | $ | 228.6 | 24.2 | % | $ | 443.8 | 22.9 | % | $ | 437.8 | 23.9 | % | |||||||||||||||||||||||||
| NON-OPERATING INCOME (EXPENSE), NET: | |||||||||||||||||||||||||||||||||||||||||
| GAAP non-operating income, net: | $ | 86.7 | $ | 17.6 | $ | 68.3 | $ | 14.1 | |||||||||||||||||||||||||||||||||
| Acquisition / divestiture items | (B) | (106.3) | (20.7) | (97.4) | (22.8) | ||||||||||||||||||||||||||||||||||||
| Deferred compensation | (C) | 7.0 | (2.7) | 10.3 | (4.2) | ||||||||||||||||||||||||||||||||||||
| Restructuring and other costs | (D) | — | — | 0.1 | — | ||||||||||||||||||||||||||||||||||||
| Non-GAAP non-operating expense, net: | $ | (12.6) | $ | (5.8) | $ | (18.7) | $ | (12.9) | |||||||||||||||||||||||||||||||||
| GAAP and Non-GAAP Tax Rate % | GAAP and Non-GAAP Tax Rate % | GAAP and Non-GAAP Tax Rate % | GAAP and Non-GAAP Tax Rate % | ||||||||||||||||||||||||||||||||||||||
| (G) | (G) | (G) | (G) | ||||||||||||||||||||||||||||||||||||||
| INCOME TAX PROVISION: | |||||||||||||||||||||||||||||||||||||||||
| GAAP income tax provision: | $ | 53.6 | 24.2 | % | $ | 23.5 | 14.5 | % | $ | 81.8 | 22.7 | % | $ | 46.3 | 15.4 | % | |||||||||||||||||||||||||
| Non-GAAP items tax effected | (E) | (5.7) | 8.8 | 12.4 | 19.5 | ||||||||||||||||||||||||||||||||||||
| Difference in GAAP and Non-GAAP tax rate | (F) | (11.4) | 6.7 | (15.5) | 8.2 | ||||||||||||||||||||||||||||||||||||
| Non-GAAP income tax provision: | $ | 36.5 | 18.4 | % | $ | 39.0 | 17.5 | % | $ | 78.7 | 18.5 | % | $ | 74.0 | 17.4 | % | |||||||||||||||||||||||||
| NET INCOME: | |||||||||||||||||||||||||||||||||||||||||
| GAAP net income attributable to Trimble Inc.: | $ | 168.0 | $ | 138.9 | $ | 278.3 | $ | 253.4 | |||||||||||||||||||||||||||||||||
| Purchase accounting adjustments | (A) | 32.3 | 34.0 | 66.9 | 68.8 | ||||||||||||||||||||||||||||||||||||
| Acquisition / divestiture items | (B) | (99.0) | (14.1) | (86.2) | (12.7) | ||||||||||||||||||||||||||||||||||||
| Stock-based compensation / deferred compensation | (C) | 33.2 | 35.6 | 61.5 | 62.8 | ||||||||||||||||||||||||||||||||||||
| Restructuring and other costs | (D) | 10.0 | 4.9 | 22.8 | 6.2 | ||||||||||||||||||||||||||||||||||||
| Non-GAAP tax adjustments | (E) - (F) | 17.1 | (15.5) | 3.1 | (27.7) | ||||||||||||||||||||||||||||||||||||
| Non-GAAP net income attributable to Trimble Inc.: | $ | 161.6 | $ | 183.8 | $ | 346.4 | $ | 350.8 | |||||||||||||||||||||||||||||||||
| DILUTED NET INCOME PER SHARE: | |||||||||||||||||||||||||||||||||||||||||
| GAAP diluted net income per share attributable to Trimble Inc.: | $ | 0.67 | $ | 0.55 | $ | 1.11 | $ | 1.00 | |||||||||||||||||||||||||||||||||
| Purchase accounting adjustments | (A) | 0.13 | 0.13 | 0.27 | 0.27 | ||||||||||||||||||||||||||||||||||||
| Acquisition / divestiture items | (B) | (0.39) | (0.06) | (0.34) | (0.05) | ||||||||||||||||||||||||||||||||||||
| Stock-based compensation / deferred compensation | (C) | 0.13 | 0.14 | 0.24 | 0.25 | ||||||||||||||||||||||||||||||||||||
| Restructuring and other costs | (D) | 0.04 | 0.02 | 0.09 | 0.02 | ||||||||||||||||||||||||||||||||||||
| Non-GAAP tax adjustments | (E) - (F) | 0.06 | (0.06) | 0.01 | (0.11) | ||||||||||||||||||||||||||||||||||||
| Non-GAAP diluted net income per share attributable to Trimble Inc.: | $ | 0.64 | $ | 0.72 | $ | 1.38 | $ | 1.38 | |||||||||||||||||||||||||||||||||
| ADJUSTED EBITDA: | |||||||||||||||||||||||||||||||||||||||||
| GAAP net income attributable to Trimble Inc.: | $ | 168.0 | $ | 138.9 | $ | 278.3 | $ | 253.4 | |||||||||||||||||||||||||||||||||
| Non-operating income, net, income tax provision, and net gain attributable to noncontrolling interests | (33.1) | 5.9 | 13.5 | 32.3 | |||||||||||||||||||||||||||||||||||||
| GAAP operating income: | 134.9 | 144.8 | 291.8 | 285.7 | |||||||||||||||||||||||||||||||||||||
| Purchase accounting adjustments | (A) | 32.3 | 34.0 | 66.9 | 68.8 | ||||||||||||||||||||||||||||||||||||
| Acquisition / divestiture items | (B) | 7.3 | 6.6 | 11.2 | 10.1 | ||||||||||||||||||||||||||||||||||||
| Stock-based compensation / deferred compensation | (C) | 26.2 | 38.3 | 51.2 | 67.0 | ||||||||||||||||||||||||||||||||||||
| Restructuring and other costs | (D) | 10.0 | 4.9 | 22.7 | 6.2 | ||||||||||||||||||||||||||||||||||||
| Non-GAAP operating income: | 210.7 | 228.6 | 443.8 | 437.8 | |||||||||||||||||||||||||||||||||||||
| Depreciation expense | 11.0 | 10.7 | 21.5 | 21.0 | |||||||||||||||||||||||||||||||||||||
| Income from equity method investments, net | 5.8 | 10.0 | 15.5 | 21.8 | |||||||||||||||||||||||||||||||||||||
| Adjusted EBITDA | $ | 227.5 | 24.2 | % | $ | 249.3 | 26.4 | % | $ | 480.8 | 24.8 | % | $ | 480.6 | 26.2 | % |
Non-GAAP Definitions
Non-GAAP revenue
We define Non-GAAP revenue as GAAP revenue, excluding the effects of purchase accounting adjustments for acquisitions occurring prior to 2021. We believe this measure helps investors understand the performance of our business including acquisitions, 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 trends.
Non-GAAP gross margin
We define Non-GAAP gross margin as GAAP gross margin, excluding the effects of purchase accounting adjustments, stock-based compensation, deferred compensation, and restructuring and other costs. 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 operating expenses
We define Non-GAAP operating expenses as GAAP operating expenses, excluding the effects of purchase accounting adjustments, acquisition/divestiture items, stock-based compensation, deferred compensation, and restructuring and other costs. We believe this measure is important to investors evaluating our non-GAAP spending in relation to revenue.
Non-GAAP operating income
We define Non-GAAP operating income as GAAP operating income, excluding the effects of purchase accounting adjustments, acquisition/divestiture items, stock-based compensation, deferred compensation, and restructuring and other costs. We believe our investors benefit by understanding our non-GAAP operating income trends, which are driven by revenue, gross margin, and spending.
Non-GAAP non-operating expense, net
We define Non-GAAP non-operating expenses, net as GAAP non-operating expenses, net, excluding acquisition/divestiture items, deferred compensation, and restructuring and other costs. We believe this measure helps investors evaluate our non-operating expense trends.
Non-GAAP income tax provision
We define Non-GAAP income tax provision as GAAP income tax provision, excluding charges and benefits such as net deferred tax impacts resulting from the non-U.S. intercompany transfer of intellectual property, tax law changes, and significant one-time reserve releases upon the statute of limitations expirations. We believe this measure helps investors because it provides for consistent treatment of excluded items in our non-GAAP presentation and a difference in the GAAP and non-GAAP tax rates.
Non-GAAP net income
We define Non-GAAP net income as GAAP net income, excluding the effects of purchase accounting adjustments, acquisition/divestiture items, stock-based compensation, restructuring and other costs, and non-GAAP tax adjustments. 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 diluted net income per share
We define Non-GAAP diluted net income per share as GAAP diluted net income per share, excluding the effects of purchase accounting adjustments, acquisition/divestiture items, stock-based compensation, restructuring and other costs, and non-GAAP tax adjustments. 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.
Adjusted EBITDA
We define Adjusted EBITDA as non-GAAP operating income plus depreciation expense and income from equity method investments, net. Other companies may define Adjusted EBITDA differently. Adjusted EBITDA is not intended to purport to be an alternative to net income or operating income as a measure of operating performance or cash flow from operating activities as a measure of liquidity. Adjusted EBITDA is a performance measure that we believe offers a useful view of the overall operations of our business because it facilitates operating performance comparisons by removing potential differences caused by variations unrelated to operating performance, such as capital structures (interest expense), income taxes, depreciation and amortization expenses.
Explanations of Non-GAAP adjustments
(A).Purchase accounting adjustments**.** Purchase accounting adjustments consist of the following:
i.Acquired deferred revenue adjustment. We adopted ASU 2021-08 in the fourth quarter of 2021 for all acquisitions occurring in 2021 and going forward, which requires the application of ASC 606, Revenue from Contracts with Customers, to recognize and measure contract assets and contract liabilities on the acquisition date. For acquisitions occurring prior to 2021, non-GAAP revenue excludes the adjustment to our revenue as a result of measuring the contract liability at fair value on the acquisition date.
ii.Amortization of acquired capitalized commissions. Purchase accounting generally requires entities to eliminate capitalized sales commissions balances as of the acquisition date. Non-GAAP operating expenses exclude the adjustments that eliminate the capitalized sales commissions. For acquisitions occurring prior to 2021, non-GAAP operating expenses exclude the adjustment of acquired capitalized commissions amortization.
iii.Amortization of purchased intangible assets. Non-GAAP gross margin and operating expenses exclude the amortization of purchased intangible assets, which primarily represents technology and/or customer relationships already developed.
(B).Acquisition / divestiture items**.** Non-GAAP gross margin and operating expenses exclude acquisition costs consisting 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. Non-GAAP non-operating expense, net, excludes unusual one-time acquisition/divestiture charges as well as divestiture and strategic investment gains/losses. These are one-time costs that vary significantly in amount and timing and are not indicative of our core operating performance.
(C).Stock-based compensation / deferred compensation**.** Non-GAAP gross margin and operating expenses exclude stock-based compensation and income or expense associated with movement in our non-qualified deferred compensation plan liabilities. Changes in non-qualified deferred compensation plan assets, included in non-operating expense, net, offset the income or expense in the plan liabilities.
(D).Restructuring and other costs. Non-GAAP gross margin and operating expenses exclude restructuring and other exit costs comprised of termination benefits related to reductions in employee headcount, including executive severance agreements, the closure or exit of facilities, and cancellation of certain contracts. In addition, in 2022, other costs include a one-time charge for Russia and Belarus customer receivables and inventory, as well as a one-time $20 million commitment to donate to Trimble Foundation to be paid over four quarters.
(E).Non-GAAP items tax effected**.** This amount adjusts the provision for income taxes to reflect the effect of the non-GAAP items (A) - (D) on non-GAAP net income.
(F).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 expense, net. The non-GAAP tax rate excludes charges and benefits such as net deferred tax impacts resulting from a non-U.S. intercompany transfer of intellectual property and significant one-time reserve releases upon statute of limitations expirations.
(G).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.
Previous: Item 1. CONDENSED CONSOLIDATED FINANCIAL STATEMENTS · Next: Item 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK