Item 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

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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 three 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 report.

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 benefits a diverse customer base;
Geographic expansion with a 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 as demonstrated by our success in driving annualized recurring revenue (“ARR”) of $1,546.8 million, which represents growth of 13% year-over-year at the end of the third quarter of 2022. Excluding the impact of foreign currency, acquisitions, and divestitures, ARR organic growth was 16%. This shift towards recurring revenue 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 58% of total revenue for the first three 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

Macroeconomic conditions, including the war in Ukraine and related sanctions, exchange rate and interest rate volatility, and inflationary pressures, will continue to evolve globally. In the third quarter of 2022, our organic hardware sales growth and bookings moderated from slowing demand in some of our end markets served by our dealer channel and also from dealer inventories moving towards normalized levels as a result of improved supply chain output. The greatest impact was a decline in Europe where the impacts of foreign currency exchange rates, the war in Ukraine, and energy inflation were the greatest. We currently expect that our organic hardware bookings and sales will be weaker for the remainder of 2022.

Supply Chain

Over the past year, we experienced inflationary cost increases for 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. In response, we have increased customer pricing to offset inflationary pressures. In the third quarter of 2022, these cost pressures lessened

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as component supply became more readily available. We expect these cost pressures will diminish over time as supply chain conditions continue to normalize. Additionally, over the past year, due to extended component lead times, we made binding commitments over a longer horizon for certain components. This may impact our working capital in the short term; however, we expect supply dynamics and customer demand to normalize over time.

Foreign Currency Fluctuations

We generate over half of our revenue from sales to customers outside of the U.S. In the third quarter and first three quarters of 2022, due to the strengthening of the dollar, year-over-year unfavorable foreign currency impacts on revenue were $33.8 million or (4)% and $81.6 million or (3)%.

War in Ukraine

We are monitoring and responding to effects of the ongoing war in Ukraine. 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, which was 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. We are focused on providing products and support to non-sanctioned Ukrainian customers and contributing to relief efforts.

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 3 “Acquisitions and Divestitures” of this report.

In the third quarter of 2022, we completed the sale of Construction Telematics Solutions to MiX Telematics, and in the second quarter of 2022, we completed the sale of Beena Vision to Wabtec Corporation, which are both part of the Transportation segment. The proceeds for both divestitures were immaterial.

We divest certain businesses or assets that no longer fit with our long-term growth and strategic product roadmap. For 2021, the revenue and operating income for these divested businesses were approximately $201.7 million and $33.0 million.

Acquisitions

In the third quarter of 2022, we acquired Bid2Win Software, LLC (“B2W”) for $322.1 million. B2W will be reported in our Buildings and Infrastructure segment. For additional discussion of this acquisition, refer to Note 3 “Acquisitions and Divestitures” of this report.

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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:


	Third Quarter of									First Three Quarters of
	2022			2021			Dollar Change		% Change	2022			2021			Dollar Change		% Change
(In millions, except per share amounts)
Revenue:
Product	$	503.9		$	551.2		$	(47.3)	(9)%	$	1,690.0		$	1,685.5		$	4.5	—%
Service	158.3			159.9			(1.6)		(1)%	477.4			484.3			(6.9)		(1)%
Subscription	222.7			190.3			32.4		17%	652.4			563.3			89.1		16%
Total revenue	$	884.9		$	901.4		$	(16.5)	(2)%	$	2,819.8		$	2,733.1		$	86.7	3%

Gross margin	$	515.4		$	504.5		$	10.9	2%	$	1,602.5		$	1,523.2		$	79.3	5%
Gross margin as a % of revenue	58.2		%	56.0		%				56.8		%	55.7		%
Operating income	$	122.4		$	147.5		$	(25.1)	(17)%	$	414.2		$	433.2		$	(19.0)	(4)%

Operating income as a % of revenue	13.8		%	16.4		%				14.7		%	15.9		%

Diluted earnings per share	$	0.34		$	0.49		$	(0.15)	(31)%	$	1.45		$	1.48		$	(0.03)	(2)%


Non-GAAP revenue (1)	$	884.9		$	901.4		$	(16.5)	(2)%	$	2,819.8		$	2,733.4		$	86.4	3%
Non-GAAP operating income (1)	$	209.9		$	214.7		$	(4.8)	(2)%	$	653.7		$	652.5		$	1.2	—%
Non-GAAP operating income as a % of Non-GAAP Revenue(1)	23.7		%	23.8		%				23.2		%	23.9		%
Non-GAAP diluted earnings per share (1)	$	0.66		$	0.66		$	—	NM	$	2.04		$	2.04		$	—	NM

Annualized Recurring Revenue (“ARR”) (1)	$	1,546.8		$	1,363.6		$	183.2	13%	N/A			N/A			N/A		N/A

(1) Refer to “Supplemental Disclosure of Non-GAAP Financial Measures and Annualized Recurring Revenue” of this report for definitions.

Third Quarter and First Three Quarters of 2022 as Compared to 2021

Revenue


	Third Quarter of		First Three Quarters of
Change versus the corresponding period in 2021	2022		2022
	% Change		% Change

Change in Total Revenue	(2)	%	3	%
Acquisitions	1	%	1	%
Divestitures	(5)	%	(3)	%
Foreign currency exchange	(4)	%	(3)	%
Organic growth - Total Revenue	6	%	9	%

For this table and similar tables below, percentages may not sum due to rounding.

Organic revenue for the third quarter and first three quarters was up due to growth in hardware, software, and subscription sales in Building and Infrastructure and Resources and Utilities. Geospatial organic revenue was up due to growth in software and related maintenance and support as well as subscriptions, largely offset by a decrease in hardware sales.

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	Third Quarter of		First Three Quarters of
Change versus the corresponding period in 2021	2022		2022
	% Change		% Change

Change in Product Revenue	(9)	%	—	%
Acquisitions	—	%	—	%
Divestitures	(8)	%	(5)	%
Foreign currency exchange	(4)	%	(3)	%
Organic growth - Product Revenue	3	%	8	%

Change in Service Revenue	(1)	%	(1)	%
Acquisitions	4	%	3	%
Divestitures	(1)	%	(1)	%
Foreign currency exchange	(5)	%	(4)	%
Organic growth - Service Revenue	1	%	—	%

Change in Subscription Revenue	17	%	16	%
Acquisitions	1	%	1	%
Divestitures	(1)	%	(2)	%
Foreign currency exchange	(3)	%	(2)	%
Organic growth - Subscription Revenue	20	%	19	%

Organic product revenue increased for the third quarter and first three quarters due to hardware and software sales in Buildings and Infrastructure and Resources and Utilities. However, slowing demand, particularly in Europe, and dealer inventories moving toward normalized levels impacted hardware sales in Buildings and Infrastructure, Geospatial, and Resources and Utilities in the third quarter. Organic service revenue was relatively flat. Organic subscription revenue increased for the third quarter and first three quarters primarily due to strong growth in Buildings and Infrastructure and, to a lesser extent, in Resources and Utilities, Geospatial, and Transportation.

Gross Margin

Gross margin increased for the third quarter and first three quarters primarily due to organic revenue growth in Buildings and Infrastructure and Resources and Utilities, and to a lesser extent, Geospatial, partially offset by divestitures and unfavorable foreign currency. Gross margin as a percentage of revenue increased for the third quarter and first three quarters due to an increased mix of software and subscription sales and price increases.

Operating Income

Operating income decreased for the third quarter and first three quarters primarily due to, divestitures and unfavorable foreign currency, partially offset by organic revenue and gross margin expansion. Additionally, operating expense increased due to investments related to our Connect and Scale strategy, increased sales and marketing costs, charitable donations, restructuring costs, and acquisition and divestiture transaction costs, partially offset by a reduction in incentive compensation in the third quarter.

Operating income as a percentage of revenue decreased for the third quarter and first three quarters primarily due to increased operating expense, partially offset by increased gross margin as a percentage of revenue.

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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:


	Third Quarter of									First Three Quarters of
	2022			2021			Dollar Change		% Change	2022			2021			Dollar Change		% Change
(In millions)
Research and development	$	127.0		$	132.5		$	(5.5)	(4)%	$	407.4		$	400.2		$	7.2	2%
Percentage of revenue	14.4		%	14.7		%				14.4		%	14.6		%
Sales and marketing	$	137.1		$	125.5		$	11.6	9%	$	407.9		$	373.1		$	34.8	9%
Percentage of revenue	15.5		%	13.9		%				14.5		%	13.7		%
General and administrative	$	109.6		$	85.2		$	24.4	29%	$	318.0		$	270.2		$	47.8	18%
Percentage of revenue	12.4		%	9.5		%				11.3		%	9.9		%
Total	$	373.7		$	343.2		$	30.5	9%	$	1,133.3		$	1,043.5		$	89.8	9%

R&D expense decreased for the third quarter primarily due to a reduction in incentive compensation, favorable foreign currency, and divestitures. R&D expense increased for the first three quarters primarily due to higher compensation expense, partially offset by favorable foreign currency 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 third quarter and first three quarters primarily due to higher compensation expense, including commissions, and higher travel and marketing costs, partially offset by favorable foreign currency and divestitures.

G&A expense increased for the third quarter and first three quarters primarily due to investments related to our Connect and Scale strategy, charitable donations to the Trimble Foundation, and acquisition and divestiture transaction costs, partially offset by a reduction in incentive compensation in the third quarter, favorable foreign currency, and divestitures.

Amortization of Purchased Intangible Assets


	Third Quarter of									First Three Quarters of
	2022			2021			Dollar Change		% Change	2022			2021			Dollar Change		% Change
(In millions)
Cost of sales	$	19.9		$	22.0		$	(2.1)	(10)%	$	63.4		$	66.1		$	(2.7)	(4)%
Operating expenses	11.1			12.3			(1.2)		(10)%	34.5			39.0			(4.5)		(12)%
Total amortization expense of purchased intangibles	$	31.0		$	34.3		$	(3.3)	(10)%	$	97.9		$	105.1		$	(7.2)	(7)%


Total amortization expense of purchased intangibles as a percentage of revenue	4		%	4		%				3		%	4		%

Total amortization expense of purchased intangibles decreased for the third quarter and first three quarters due to the expiration of prior quarters’ acquisition amortization.

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Non-operating Income, Net

The components of non-operating income, net, were as follows:


	Third Quarter of							First Three Quarters of
	2022		2021		Dollar Change		% Change	2022		2021		Dollar Change		% Change
(In millions)
Divestitures gain, net	$	6.0	$	19.1	$	(13.1)	(69)%	$	103.1	$	41.5	$	61.6	148%
Interest expense, net	(15.6)		(15.9)		0.3		(2)%	(46.9)		(49.4)		2.5		(5)%

Income from equity method investments, net	6.8		8.5		(1.7)		(20)%	22.3		30.3		(8.0)		(26)%
Other income (expense), net	(1.7)		(2.5)		0.8		(32)%	(14.7)		0.9		(15.6)		(1733)%
Total non-operating (expense) income, net	$	(4.5)	$	9.2	$	(13.7)	(149)%	$	63.8	$	23.3	$	40.5	174%

Non-operating income, net decreased for the third quarter primarily due to lower net gain from divestitures. Non-operating income, net increased for the first three quarters primarily due to higher net gain from divestitures, 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 third quarter, our effective income tax rate was 27.2%, as compared to 20.9% in the prior year. The increase was primarily associated with divestiture gains and a lower stock-based compensation deduction benefit. For the first three quarters, our effective income tax rate was 23.8%, as compared to 17.3% in the prior year. The increase was primarily due to the same factors in the third quarter as well as a one-time tax benefit from a foreign deferred tax asset in the prior year.

On August 16, 2022, the U.S. federal government enacted the Inflation Reduction Act (“IRA”) of 2022. The IRA includes a 15% corporate alternative minimum tax effective in 2024 for certain large corporations, a 1% excise tax on net share repurchases after December 31, 2022, and several tax incentives to promote clean energy. We do not expect the provisions of the IRA to have a material impact on our financial results.

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 report.

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The following table is a summary of revenue and operating income by segment compared for the periods indicated:


	Third Quarter of									First Three Quarters of
	2022			2021			Dollar Change		% Change	2022			2021			Dollar Change		% Change
(In millions)
Buildings and Infrastructure
Segment revenue	$	363.6		$	349.7		$	13.9	4%	$	1,143.8		$	1,057.6		$	86.2	8%
Segment revenue as a % of total revenue	41		%	39		%				41		%	39		%
Segment operating income	$	96.7		$	100.6		(3.9)		(4)%	$	318.8		$	301.1		17.7		6%
Segment operating income as a % of segment revenue	26.6		%	28.8		%				27.9		%	28.5		%
Geospatial
Segment revenue	$	184.2		$	205.4		(21.2)		(10)%	$	585.4		$	606.8		(21.4)		(4)%
Segment revenue as a % of total revenue	21		%	23		%				21		%	22		%
Segment operating income	$	61.5		$	64.9		(3.4)		(5)%	$	177.2		$	179.7		(2.5)		(1)%
Segment operating income as a % of segment revenue	33.4		%	31.6		%				30.3		%	29.6		%
Resources and Utilities
Segment revenue	$	191.7		$	184.8		6.9		4%	$	636.4		$	587.5		48.9		8%
Segment revenue as a % of total revenue	22		%	20		%				22		%	21		%
Segment operating income	$	64.2		$	60.6		3.6		6%	$	212.3		$	211.2		1.1		1%
Segment operating income as a % of segment revenue	33.5		%	32.8		%				33.4		%	35.9		%
Transportation
Segment revenue	$	145.4		$	161.5		(16.1)		(10)%	$	454.2		$	481.5		(27.3)		(6)%
Segment revenue as a % of total revenue	16		%	18		%				16		%	18		%
Segment operating income	$	16.0		$	15.3		0.7		5%	$	37.0		$	36.5		0.5		1%
Segment operating income as a % of segment revenue	11.0		%	9.5		%				8.1		%	7.6		%

The following table is a reconciliation of our consolidated segment operating income to consolidated income before taxes:


	Third Quarter of				First Three Quarters of
	2022		2021		2022		2021
(In millions)
Consolidated segment operating income	$	238.4	$	241.4	$	745.3	$	728.5
Unallocated general corporate expenses	(28.5)		(26.7)		(91.6)		(76.0)
Purchase accounting adjustments	(31.0)		(33.2)		(97.9)		(102.0)
Acquisition / divestiture items	(9.1)		(0.2)		(20.3)		(10.3)
Stock-based compensation / deferred compensation	(31.7)		(32.1)		(82.9)		(99.1)
Restructuring and other costs	(15.7)		(1.7)		(38.4)		(7.9)
Consolidated operating income	122.4		147.5		414.2		433.2
Total non-operating (expense) income, net	(4.5)		9.2		63.8		23.3
Consolidated income before taxes	$	117.9	$	156.7	$	478.0	$	456.5

Buildings and Infrastructure


	Third Quarter of		First Three Quarters of
Change versus the corresponding period in 2021	2022		2022
	% Change		% Change

Change in Revenue - Buildings and Infrastructure	4	%	8	%
Acquisitions	3	%	2	%
Divestitures	(8)	%	(5)	%
Foreign currency exchange	(3)	%	(3)	%
Organic growth	12	%	14	%

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Excluding acquisitions, divestitures, and unfavorable foreign currency, organic revenue increased for the third quarter and first three quarters due to strong demand for our subscription and term license software. The increases resulted from higher sales to new and existing customers as well as conversions from perpetual software to recurring offerings. Civil construction hardware and related software license revenue increased resulting from relative strength in the North American construction market and price increases, partially offset by weaker hardware sales in Europe.

Operating income decreased for the third quarter primarily due to divestitures and unfavorable foreign currency, partially offset by revenue and gross margin expansion. Operating income increased for the first three quarters primarily due to revenue and gross margin expansion, partially offset by divestitures and unfavorable foreign currency. Additionally, operating expense increased for the third quarter and first three quarters due to investments, including our Connect and Scale strategy, as well as increased sales and marketing costs. Operating income as a percentage of revenue decreased for the third quarter and first three quarters primarily due to increased operating expense, partially offset by gross margin expansion.

Geospatial


	Third Quarter of		First Three Quarters of
Change versus the corresponding period in 2021	2022		2022
	% Change		% Change

Change in Revenue - Geospatial	(10)	%	(4)	%

Divestitures	(7)	%	(4)	%
Foreign currency exchange	(4)	%	(3)	%
Organic growth	1	%	4	%

Excluding divestitures and unfavorable foreign currency, organic revenue increased slightly for the third quarter and first three quarters due to higher software and subscription sales and price increases, partially offset by the effect of unusually strong hardware sales in the prior year, as well as weaker hardware sales, particularly in Europe, in the third quarter.

Operating income decreased for the third quarter and first three quarters primarily due to divestitures and unfavorable foreign currency, partially offset by organic revenue growth and gross margin expansion. Operating income as a percentage of revenue for the third quarter and first three quarters was relatively flat.

Resources and Utilities


	Third Quarter of		First Three Quarters of
Change versus the corresponding period in 2021	2022		2022
	% Change		% Change

Change in Revenue - Resources and Utilities	4	%	8	%

Divestitures	—	%	(1)	%
Foreign currency exchange	(6)	%	(5)	%
Organic growth	9	%	14	%

Excluding divestitures and unfavorable foreign currency, organic revenue increased for the third quarter and first three quarters due to relative strength in agriculture, particularly in the OEM channel, as well as price increases, partially offset by weaker sales in the European reseller channel and the loss of the Russian market. To a lesser extent, revenue was favorably impacted by higher subscription revenue in positioning services.

Operating income increased for the third quarter and first three quarters primarily due to organic revenue expansion, partially offset by divestitures, unfavorable foreign currency, and higher operating expenses. Operating expense was higher due to investments, including our Connect and Scale strategy, as well as increased sales and marketing costs. Operating income as a percentage of revenue increased for the third quarter due to revenue and gross margin expansion. Operating income as a percentage of revenue decreased for the first three quarters primarily due to gross margin percentage decrease associated with increased supply chain costs.

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Transportation


	Third Quarter of		First Three Quarters of
Change versus the corresponding period in 2021	2022		2022
	% Change		% Change

Change in Revenue - Transportation	(10)	%	(6)	%

Divestitures	(4)	%	(2)	%
Foreign currency exchange	(2)	%	(1)	%
Organic growth	(4)	%	(2)	%

Excluding divestitures and unfavorable foreign currency, organic revenue decreased for the third quarter and first three quarters primarily driven by lower mobility hardware sales to North American customers. Enterprise subscription revenue continued to experience growth as the business transitions from a perpetual software license model.

Operating income and operating income as a percentage of revenue improved for the third quarter and first three quarters primarily due to gross margin expansion and targeted cost reductions, partially offset by divestiture and revenue declines. We continue to maintain focus on new product introductions and transitions to recurring revenue.

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LIQUIDITY AND CAPITAL RESOURCES


	Third Quarter of			Year End
As of	2022			2021			Dollar Change		% Change
(In millions, except percentages)
Cash and cash equivalents	$	308.7		$	325.7		$	(17.0)	(5)	%
As a percentage of total assets	4.4		%	4.6		%
Principal balance of outstanding debt	$	1,593.6		$	1,300.0		$	293.6	23	%

	First Three Quarters of
	2022			2021			Dollar Change		% Change
(In millions)
Net cash provided by operating activities	$	285.1		$	595.2		$	(310.1)	(52)	%
Net cash (used in) provided by investing activities	(152.2)			51.0			(203.2)		(398)	%
Net cash used in financing activities	(115.0)			(363.2)			248.2		(68)	%
Effect of exchange rate changes on cash and cash equivalents	(34.9)			(7.5)			(27.4)		365	%
Net (decrease) increase in cash and cash equivalents	$	(17.0)		$	275.5

Operating Activities

The decrease in cash provided by operating activities was primarily driven by lower net income after adjusting for non-cash items and divestiture gains, as well as higher inventory purchases and lower accounts payable associated with the timing of inventory payments. Additionally, there were higher bonus and cash tax payments. The decreases were partially offset by an increase in deferred revenue.

Investing Activities

The increase in cash used in investing activities was primarily due to the B2W acquisition, partially offset by higher proceeds from divestitures.

Financing Activities

The decrease in cash used in financing activities was primarily driven by higher proceeds, net of repayment of revolving credit facilities, which was used in part to fund the B2W acquisition, partially offset by an increase in common stock repurchases.

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 September 30, 2022, $250.0 million was 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 $88 million. In the third quarter, we paid $25 million, and for the first three quarters of 2022, total payments made were $65 million for this liability.

Our cash requirements have not otherwise materially changed since the 2021 Form 10-K.

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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:


		Third Quarter of								First Three 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:		$	884.9			$	901.4			$	2,819.8			$	2,733.1
Purchase accounting adjustments	(A)	—				—				—				0.3
Non-GAAP revenue:		$	884.9			$	901.4			$	2,819.8			$	2,733.4
GROSS MARGIN:
GAAP gross margin:		$	515.4	58.2	%	$	504.5	56.0	%	$	1,602.5	56.8	%	$	1,523.2	55.7	%
Purchase accounting adjustments	(A)	19.9				22.0				63.4				66.4
Stock-based compensation / deferred compensation	(C)	3.4				2.7				8.7				7.3
Restructuring and other costs	(D)	(0.1)				—				1.0				0.2
Non-GAAP gross margin:		$	538.6	60.9	%	$	529.2	58.7	%	$	1,675.6	59.4	%	$	1,597.1	58.4	%
OPERATING EXPENSES:
GAAP operating expenses:		$	393.0	44.4	%	$	357.0	39.6	%	$	1,188.3	42.1	%	$	1,090.0	39.9	%
Purchase accounting adjustments	(A)	(11.1)				(11.2)				(34.5)				(35.6)
Acquisition / divestiture items	(B)	(9.1)				(0.2)				(20.3)				(10.3)
Stock-based compensation / deferred compensation	(C)	(28.3)				(29.4)				(74.2)				(91.8)
Restructuring and other costs	(D)	(15.8)				(1.7)				(37.4)				(7.7)
Non-GAAP operating expenses:		$	328.7	37.1	%	$	314.5	34.9	%	$	1,021.9	36.2	%	$	944.6	34.6	%
OPERATING INCOME:
GAAP operating income:		$	122.4	13.8	%	$	147.5	16.4	%	$	414.2	14.7	%	$	433.2	15.9	%
Purchase accounting adjustments	(A)	31.0				33.2				97.9				102.0
Acquisition / divestiture items	(B)	9.1				0.2				20.3				10.3
Stock-based compensation / deferred compensation	(C)	31.7				32.1				82.9				99.1
Restructuring and other costs	(D)	15.7				1.7				38.4				7.9
Non-GAAP operating income:		$	209.9	23.7	%	$	214.7	23.8	%	$	653.7	23.2	%	$	652.5	23.9	%
NON-OPERATING INCOME (EXPENSE), NET:
GAAP non-operating income, net:		$	(4.5)			$	9.2			$	63.8			$	23.3
Acquisition / divestiture items	(B)	(5.6)				(19.0)				(103.0)				(41.8)
Deferred compensation	(C)	0.2				0.2				10.5				(4.0)
Restructuring and other costs	(D)	—				—				0.1				—
Non-GAAP non-operating expense, net:		$	(9.9)			$	(9.6)			$	(28.6)			$	(22.5)

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				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:		$	32.1	27.2	%	$	32.7	20.9	%	$	113.9	23.8	%	$	79.0	17.3	%
Non-GAAP items tax effected	(E)	22.3				10.1				34.7				29.6
Difference in GAAP and Non-GAAP tax rate	(F)	(18.4)				(6.3)				(33.9)				1.9


Non-GAAP income tax provision:		$	36.0	18.0	%	$	36.5	17.8	%	$	114.7	18.3	%	$	110.5	17.5	%
NET INCOME:
GAAP net income attributable to Trimble Inc.:		$	85.8			$	124.0			$	364.1			$	377.4
Purchase accounting adjustments	(A)	31.0				33.2				97.9				102.0
Acquisition / divestiture items	(B)	3.5				(18.8)				(82.7)				(31.5)
Stock-based compensation / deferred compensation	(C)	31.9				32.3				93.4				95.1
Restructuring and other costs	(D)	15.7				1.7				38.5				7.9
Non-GAAP tax adjustments	(E) - (F)	(3.9)				(3.8)				(0.8)				(31.5)
Non-GAAP net income attributable to Trimble Inc.:		$	164.0			$	168.6			$	510.4			$	519.4
DILUTED NET INCOME PER SHARE:
GAAP diluted net income per share attributable to Trimble Inc.:		$	0.34			$	0.49			$	1.45			$	1.48
Purchase accounting adjustments	(A)	0.13				0.13				0.39				0.40
Acquisition / divestiture items	(B)	0.01				(0.07)				(0.33)				(0.12)
Stock-based compensation / deferred compensation	(C)	0.13				0.12				0.38				0.37
Restructuring and other costs	(D)	0.06				0.01				0.15				0.03
Non-GAAP tax adjustments	(E) - (F)	(0.01)				(0.02)				—				(0.12)
Non-GAAP diluted net income per share attributable to Trimble Inc.:		$	0.66			$	0.66			$	2.04			$	2.04
ADJUSTED EBITDA:
GAAP net income attributable to Trimble Inc.:		$	85.8			$	124.0			$	364.1			$	377.4
Non-operating income (expense), net, income tax provision, and net gain attributable to noncontrolling interests		36.6				23.5				50.1				55.8
GAAP operating income:		122.4				147.5				414.2				433.2
Purchase accounting adjustments	(A)	31.0				33.2				97.9				102.0
Acquisition / divestiture items	(B)	9.1				0.2				20.3				10.3
Stock-based compensation / deferred compensation	(C)	31.7				32.1				82.9				99.1
Restructuring and other costs	(D)	15.7				1.7				38.4				7.9
Non-GAAP operating income:		209.9				214.7				653.7				652.5
Depreciation expense and cloud computing amortization		11.4				10.2				32.9				31.2

Income from equity method investments, net		6.8				8.5				22.3				30.3
Adjusted EBITDA		$	228.1	25.8	%	$	233.4	25.9	%	$	708.9	25.1	%	$	714.0	26.1	%

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

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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, cloud computing amortization, 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 of purchased intangibles and cloud computing costs.

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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 costs comprised of termination benefits related to reductions in employee headcount and closure or exit of facilities, executive severance agreements, costs incurred in exiting business activities in Russia and Belarus, other business exit costs, as well as a $20 million commitment to donate to the Trimble Foundation to be paid over four quarters beginning in the second quarter of 2022.

(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.

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