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 quarter of 2023. 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 2022 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 $1,648.1 million, which represents growth of 12% year-over-year at the end of the first quarter of 2023. Excluding the impact of foreign currency, acquisitions, and divestitures, ARR organic growth was 13%. This shift toward recurring revenue has positively impacted our revenue mix and growth over time and is leading to improved visibility in our businesses. 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. In our Resources and Utilities segment, we are currently in the process of further building out our agriculture independent dealer network.

Throughout this “Management’s Discussion and Analysis of Financial Condition and Results of Operations”, we refer to organic revenue growth, which is a non-GAAP measure. For a full definition of ARR, organic ARR, and organic revenue growth as used in this discussion and analysis, refer to the “Supplemental Disclosure of Non-GAAP Financial Measures and Annualized Recurring Revenue” found later in this Item 2.

Impact of Recent Events on Our Business

Macroeconomic conditions, including geopolitical tensions, such as the ongoing military conflict between Russia and Ukraine and related sanctions, exchange rate and interest rate volatility, and inflationary pressures, will continue to evolve globally. In the first quarter of 2023, our organic hardware sales declined and bookings moderated as dealers moved towards lower levels of inventories due to improved product lead times and macroeconomic concerns. Geospatial, Buildings and Infrastructure, and Resources and Utilities all had strong hardware sales in the prior year. Amid macroeconomic concerns, the greatest revenue decline was in Europe.

Supply Chain

Due to extended component lead times, we have made binding commitments over a longer horizon for certain components, and this has increased our inventory levels. Although we do expect inventory levels to normalize, macroeconomic conditions, including rising interest rates, could negatively impact the timing of inventory normalization.

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Foreign Currency Fluctuations

We generate over half of our revenue from sales to customers outside of the U.S. In the first quarter of 2023, due to the strengthening of the U.S. dollar, year-over-year unfavorable foreign currency impacts on revenue and operating income were $15.7 million or 1% and $4.5 million or 3%.

Interest Rates Fluctuations

The global inflation rate has risen sharply, and interest rates are rising in an effort to curb inflation. These macroeconomic conditions have had and are expected to have a negative impact on our results of operations. Additionally, we may experience higher borrowing costs on variable-rate debt. In the second quarter of 2023, we borrowed $1.2 billion of variable-rate debt in conjunction with the Transporeon acquisition.

Acquisitions and Divestitures

We acquire businesses that align with our long-term growth strategies including our strategic product roadmap and, conversely, we divest certain business that no longer fit those strategies.

Subsequent to the first quarter of 2023, on April 3, 2023, we acquired all of the outstanding shares of Transporeon, in an all-cash transaction valued at approximately €1.9 billion or $2.1 billion. Transporeon, a Germany-based company, is a leading cloud-based transportation management software platform that connects key stakeholders across the industry lifecycle to positively impact the optimization of global supply chains, in alignment with our Connect and Scale strategy. Transporeon will be reported in our Transportation segment. We will include the financial results of Transporeon in our Consolidated Financial Statements beginning in the second quarter of 2023. See Note 12 “Subsequent Events” of this report for details.

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:

			First Quarter of
			2023						2022						Dollar Change						% Change
(In millions, except per share amounts)
Revenue:
Product			$	434.4					$	566.8					$	(132.4)					(23)%
Subscription and services			481.0						426.9						54.1						13%
Total revenue			$	915.4					$	993.7					$	(78.3)					(8)%
Gross margin			$	560.8					$	549.6					$	11.2					2%
Gross margin as a % of revenue			61.3		%				55.3		%
Operating income			$	137.0					$	156.9					$	(19.9)					(13)%
Operating income as a % of revenue			15.0		%				15.8		%
Diluted earnings per share			$	0.52					$	0.44					$	0.08					18%
Non-GAAP operating income (1)			$	226.1					$	233.1					$	(7.0)					(3)%
Non-GAAP operating income as a % of revenue(1)			24.7		%				23.5		%
Non-GAAP diluted earnings per share (1)			$	0.72					$	0.73					$	(0.01)					(1)%
Annualized Recurring Revenue (“ARR”) (1)			$	1,648.1					$	1,472.4					$	175.7					12%

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

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First Quarter of 2023 as Compared to 2022

Revenue

												First Quarter of
Change versus the corresponding period in 2022												2023
												% Change
Change in Total Revenue												(8)		%
Acquisitions												1		%
Divestitures												(5)		%
Foreign currency exchange												(1)		%
Organic growth - Total Revenue												(3)		%

Organic revenue for the first quarter decreased due to reductions in dealer inventory levels as a result of improved product lead times and macroeconomic concerns. Geospatial, Buildings and Infrastructure, and Resources and Utilities all had strong hardware sales in the prior year. The decrease was offset by strong subscription and software term license sales for buildings businesses in Buildings and Infrastructure, and to a lesser extent, positioning services in Resources and Utilities, as evidenced by overall organic ARR growth of 13%.

												First Quarter of
Change versus the corresponding period in 2022												2023
												% Change
Change in Product Revenue												(23)		%
Acquisitions												1		%
Divestitures												(8)		%
Foreign currency exchange												(1)		%
Organic growth - Product Revenue												(15)		%
Change in Subscription and Services Revenue												13		%
Acquisitions												2		%
Divestitures												(1)		%
Foreign currency exchange												(2)		%
Organic growth - Subscription and Services Revenue												14		%

Organic product revenue decreased for the first quarter due to lower dealer demand for our hardware and related perpetual software, which impacted sales in Buildings and Infrastructure, Geospatial, and Resources and Utilities. Organic subscription and services revenue for the first quarter was up primarily due to strong growth in subscription and software term licenses in Buildings and Infrastructure, and to a lesser extent, Resources and Utilities.

Gross Margin

Despite a decline in revenue, gross margin and gross margin as a percentage of revenue increased for the first quarter due to an increased mix of higher margin software and subscription sales, including the divestiture of lower margin hardware businesses, declines in supply chain costs, and pricing increases.

Operating Income

Operating income decreased slightly for the first quarter primarily due to a decline in revenue and increased operating expense, partially offset by gross margin expansion. Operating expense increased primarily from higher research and development and general and administrative costs, including investments related to our Connect and Scale strategy.

Operating income as a percentage of revenue decreased for the first quarter 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:

			First Quarter of
			2023						2022						Dollar Change						% Change
(In millions)
Research and development			$	159.3					$	140.3					$	19.0					14%
Percentage of revenue			17.4		%				14.1		%
Sales and marketing			$	135.4					$	131.9					$	3.5					3%
Percentage of revenue			14.8		%				13.3		%
General and administrative			$	110.7					$	101.5					$	9.2					9%
Percentage of revenue			12.1		%				10.2		%
Total			$	405.4					$	373.7					$	31.7					8%

R&D expense increased for the first quarter primarily due to higher compensation expense, including incentive compensation, partially offset by divestitures and favorable foreign currency impacts. 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 slightly for the first quarter primarily due to higher travel and marketing costs, partially offset by divestitures and favorable foreign currency impacts.

G&A expense increased for the first quarter primarily due to higher donations and increased SaaS costs, partially offset by bad debt expense associated with Russia recorded in the prior year.

Amortization of Purchased Intangible Assets

			First Quarter of
			2023						2022						Dollar Change						% Change
(In millions)
Cost of sales			$	23.0					$	22.5					$	0.5					2%
Operating expenses			11.7						12.1						(0.4)						(3)%
Total amortization expense of purchased intangibles			$	34.7					$	34.6					$	0.1					—%
Total amortization expense of purchased intangibles as a percentage of revenue			4		%				3		%

Total amortization expense of purchased intangibles was relatively flat for the first quarter.

Non-operating Income (Expense), Net

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

			First Quarter of
			2023						2022						Dollar Change						% Change
(In millions)
Interest expense, net			$	(19.7)					$	(16.0)					$	(3.7)					23%
Income from equity method investments, net			11.4						9.7						1.7						18%
Other income (expense), net			31.9						(12.1)						44.0						(364)%
Total non-operating income (expense), net			$	23.6					$	(18.4)					$	42.0					(228)%

Non-operating income, net increased for the first quarter primarily due to a $27.6 million foreign currency hedging gain associated with the Transporeon acquisition and higher net gains from divestitures, both included in Other income (expense), net. The increase was partially offset by higher interest expense, net due to the new 2033 Senior Notes.

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Income Tax Provision

For the first quarter, our effective income tax rate was 19.8%, as compared to 20.4% in the corresponding period in 2022. The decrease was primarily due to an increase in tax benefits from foreign-derived intangible income, partially offset by a one-time tax benefit from a deferred tax liability write-off in 2022.

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 5 “Segment Information” of this report.

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

			First Quarter of
			2023						2022						Dollar Change						% Change
(In millions)
Buildings and Infrastructure
Segment revenue			$	399.5					$	397.6					$	1.9					—%
Segment revenue as a % of total revenue			44		%				40		%
Segment operating income			$	113.3					$	120.7					(7.4)						(6)%
Segment operating income as a % of segment revenue			28.4		%				30.4		%
Geospatial
Segment revenue			$	152.4					$	207.5					(55.1)						(27)%
Segment revenue as a % of total revenue			16		%				21		%
Segment operating income			$	37.3					$	57.9					(20.6)						(36)%
Segment operating income as a % of segment revenue			24.5		%				27.9		%
Resources and Utilities
Segment revenue			$	208.6					$	229.9					(21.3)						(9)%
Segment revenue as a % of total revenue			23		%				23		%
Segment operating income			$	79.1					$	75.1					4.0						5%
Segment operating income as a % of segment revenue			37.9		%				32.7		%
Transportation
Segment revenue			$	154.9					$	158.7					(3.8)						(2)%
Segment revenue as a % of total revenue			17		%				16		%
Segment operating income			$	23.4					$	9.2					14.2						154%
Segment operating income as a % of segment revenue			15.1		%				5.8		%

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

			First Quarter of
			2023						2022
(In millions)
Consolidated segment operating income			$	253.1					$	262.9
Unallocated general corporate expenses			(27.0)						(29.8)
Amortization of purchased intangible assets			(34.7)						(34.6)
Acquisition / divestiture items			(7.0)						(3.9)
Stock-based compensation / deferred compensation			(35.4)						(25.0)
Restructuring and other costs			(12.0)						(12.7)
Consolidated operating income			137.0						156.9
Total non-operating income (expense), net			23.6						(18.4)
Consolidated income before taxes			$	160.6					$	138.5

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Buildings and Infrastructure

												First Quarter of
Change versus the corresponding period in 2022												2023
												% Change
Change in Revenue - Buildings and Infrastructure												—		%
Acquisitions												3		%
Divestitures												(6)		%
Foreign currency exchange												(2)		%
Organic growth												5		%

Organic revenue increased for the first quarter 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. The increase was offset by lower civil construction hardware sales as dealers worked through their inventories.

Operating income and operating income as a percentage of revenue decreased for the first quarter primarily due to increased operating expense, partially offset by gross margin expansion. Operating expense increased for the first quarter due to increased compensation expense, travel, and investments, including our Connect and Scale strategy.

Geospatial

												First Quarter of
Change versus the corresponding period in 2022												2023
												% Change
Change in Revenue - Geospatial												(27)		%
Divestitures												(9)		%
Foreign currency exchange												(2)		%
Organic growth												(16)		%

Organic revenue decreased for the first quarter due to strong surveying hardware sales in the prior year as well as dealers continuing to work through their inventories in the current quarter. There was also slowing demand in some of the end user markets.

Operating income and operating income as a percentage of revenue decreased for the first quarter primarily due to reduced revenue, partially offset by gross margin expansion.

Resources and Utilities

												First Quarter of
Change versus the corresponding period in 2022												2023
												% Change
Change in Revenue - Resources and Utilities												(9)		%
Acquisitions												1		%
Divestitures												(1)		%
Foreign currency exchange												(1)		%
Organic growth												(8)		%

Organic revenue decreased for the first quarter due to strong agricultural hardware sales in the prior year as well as dealers continuing to work through their inventories in the current quarter. The decrease was partially offset by higher subscription revenue in positioning services.

Despite reduced revenue, operating income and operating income as a percentage of revenue increased for the first quarter primarily due to gross margin expansion, partially offset by higher operating expense. Operating expense was higher due to investments, including our Connect and Scale strategy.

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Transportation

												First Quarter of
Change versus the corresponding period in 2022												2023
												% Change
Change in Revenue - Transportation												(2)		%
Divestitures												(4)		%
Foreign currency exchange												(1)		%
Organic growth												3		%

Organic revenue increased for the first quarter primarily driven by a large component sale and to a lesser extent, enterprise subscription revenue growth.

Operating income and operating income as a percentage of revenue increased for the first quarter primarily due to gross margin expansion and targeted cost reductions. We continue to maintain focus on new product introductions and transitions to recurring revenue.

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LIQUIDITY AND CAPITAL RESOURCES

			First Quarter of						Year End
As of			2023						2022						Dollar Change						% Change
(In millions, except percentages)
Cash and cash equivalents			$	1,038.1					$	271.0					$	767.1					283		%
As a percentage of total assets			13.0		%				3.7		%
Principal balance of outstanding debt			$	2,100.0					$	1,525.0					$	575.0					38		%
			First Quarter of
			2023						2022						Dollar Change						% Change
(In millions)
Net cash provided by operating activities			$	208.7					$	153.0					$	55.7					36		%
Net cash used in investing activities			(27.7)						(13.4)						(14.3)						107		%
Net cash provided by (used in) financing activities			583.4						(109.7)						693.1						(632)		%
Effect of exchange rate changes on cash and cash equivalents			2.7						1.6						1.1						69		%
Net increase in cash and cash equivalents			$	767.1					$	31.5

Operating Activities

The increase in cash provided by operating activities was primarily driven by lower accounts receivable, lower inventory purchases, and lower bonus payouts. The increase was partially offset by a decrease in deferred revenue due to the timing of billings.

Investing Activities

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

Financing Activities

The increase in cash provided by financing activities was primarily driven by proceeds from our $800.0 million issuance of 2033 Senior Notes in the current year and common stock repurchases in the prior year, partially offset by higher repayment of revolving credit facilities.

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 acquisitions.

Our 2022 Credit Facility allows us to borrow up to $1.25 billion, with an option to increase the borrowings up to $1.75 billion with lender approval. As of March 31, 2023, no amounts were outstanding under the 2022 Credit Facility.

Our 2023 Senior Notes totaling $300.0 million are maturing in June 2023. We anticipate using a combination of cash on hand and available credit facilities to pay off this debt.

Subsequent to the first quarter of 2023, we acquired Transporeon, which was funded through a combination of $1.0 billion of term loans, $225.0 million drawn on the 2022 Credit Facility, as amended, and a portion of the 2033 Senior Notes, see Note 12 “Subsequent Events” of this report.

As a result of R&D cost capitalization, our tax cash costs in 2022 were approximately $88.0 million higher than they would have been had R&D costs continued to be expensed up front for tax purposes. If this provision is deferred or repealed, we expect to get a significant portion of this $88.0 million returned to us as a refund. In 2023, we are expecting to pay approximately $64.0 million relating to this provision. The majority relates to Federal tax liability and will be paid during the fourth quarter of 2023, as we qualified for payment postponement under the IRS relief initiative for California disaster area taxpayers.

Our cash requirements have not otherwise materially changed since the 2022 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.

Organic revenue growth is a non-GAAP measure that refers to revenue excluding the impacts of (i) foreign currency translation, and (ii) acquisitions and divestitures. We believe organic revenue growth provides useful information in evaluating the results of our business because it excludes items that are not indicative of ongoing performance or impact comparability with the prior year. We provide a reconciliation tables showing the change in revenue growth to organic revenue growth in the “Results of Operations” section found earlier in this Item 2.

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 taking our recurring revenue for the current quarter and adding the portion of the contract value of all of our term licenses attributable to the current quarter, and dividing that sum by the number of days in the quarter and then multiplying that quotient by 365. Organic ARR refers to annualized recurring revenue excluding the impacts of (i) foreign currency translation, and (ii) acquisitions and divestitures. ARR and organic ARR should be viewed independently of revenue and deferred revenue as they are performance measures and are 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:

						First Quarter of
						2023									2022
						Dollar			% of						Dollar			% of
(In millions, except per share amounts)						Amount			Revenue						Amount			Revenue
REVENUE:
GAAP revenue:						$	915.4								$	993.7
GROSS MARGIN:
GAAP gross margin:						$	560.8		61.3		%				$	549.6		55.3		%
Amortization of purchased intangible assets			(A)			23.0									22.5
Acquisition / divestiture items			(B)			0.2									—
Stock-based compensation / deferred compensation			(C)			3.5									2.2
Restructuring and other costs			(D)			0.3									1.1
Non-GAAP gross margin:						$	587.8		64.2		%				$	575.4		57.9		%
OPERATING EXPENSES:
GAAP operating expenses:						$	423.8		46.3		%				$	392.7		39.5		%
Amortization of purchased intangible assets			(A)			(11.7)									(12.1)
Acquisition / divestiture items			(B)			(6.8)									(3.9)
Stock-based compensation / deferred compensation			(C)			(31.9)									(22.8)
Restructuring and other costs			(D)			(11.7)									(11.6)
Non-GAAP operating expenses:						$	361.7		39.5		%				$	342.3		34.4		%
OPERATING INCOME:
GAAP operating income:						$	137.0		15.0		%				$	156.9		15.8		%
Amortization of purchased intangible assets			(A)			34.7									34.6
Acquisition / divestiture items			(B)			7.0									3.9
Stock-based compensation / deferred compensation			(C)			35.4									25.0
Restructuring and other costs			(D)			12.0									12.7
Non-GAAP operating income:						$	226.1		24.7		%				$	233.1		23.5		%
NON-OPERATING INCOME (EXPENSE), NET:
GAAP non-operating income (expense), net:						$	23.6								$	(18.4)
Acquisition / divestiture items			(B)			(31.6)									8.9
Deferred compensation			(C)			(2.0)									3.3
Restructuring and other costs			(D)			1.3									0.1
Non-GAAP non-operating expense, net:						$	(8.7)								$	(6.1)

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						First Quarter of
						2023									2022
									GAAP and Non-GAAP Tax Rate %									GAAP and Non-GAAP Tax Rate %
									(G)									(G)
INCOME TAX PROVISION:
GAAP income tax provision:						$	31.8		19.8		%				$	28.2		20.4		%
Non-GAAP items tax effected			(E)			11.2									18.1
Difference in GAAP and Non-GAAP tax rate			(F)			(3.5)									(4.1)
Non-GAAP income tax provision:						$	39.5		18.2		%				$	42.2		18.6		%
NET INCOME:
GAAP net income:						$	128.8								$	110.3
Amortization of purchased intangible assets			(A)			34.7									34.6
Acquisition / divestiture items			(B)			(24.6)									12.8
Stock-based compensation / deferred compensation			(C)			33.4									28.3
Restructuring and other costs			(D)			13.3									12.8
Non-GAAP tax adjustments			(E) - (F)			(7.7)									(14.0)
Non-GAAP net income:						$	177.9								$	184.8
DILUTED NET INCOME PER SHARE:
GAAP diluted net income per share:						$	0.52								$	0.44
Amortization of purchased intangible assets			(A)			0.14									0.14
Acquisition / divestiture items			(B)			(0.10)									0.05
Stock-based compensation / deferred compensation			(C)			0.14									0.11
Restructuring and other costs			(D)			0.05									0.05
Non-GAAP tax adjustments			(E) - (F)			(0.03)									(0.06)
Non-GAAP diluted net income per share:						$	0.72								$	0.73
ADJUSTED EBITDA:
GAAP net income:						$	128.8								$	110.3
Non-operating income (expense), net and income tax provision						8.2									46.6
GAAP operating income:						137.0									156.9
Amortization of purchased intangible assets			(A)			34.7									34.6
Acquisition / divestiture items			(B)			7.0									3.9
Stock-based compensation / deferred compensation			(C)			35.4									25.0
Restructuring and other costs			(D)			12.0									12.7
Non-GAAP operating income:						226.1									233.1
Depreciation expense and cloud computing amortization						11.3									10.5
Income from equity method investments, net						11.4									9.7
Adjusted EBITDA						$	248.8		27.2		%				$	253.3		25.5		%

Non-GAAP Definitions

Non-GAAP gross margin

We define Non-GAAP gross margin as GAAP gross margin, excluding the effects of amortization of purchased intangible assets, acquisition/divestiture items, 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 amortization of purchased intangible assets, 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 amortization of purchased intangible assets, 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.

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Non-GAAP non-operating expense, net

We define Non-GAAP non-operating expense, net as GAAP non-operating income (expense), 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 amortization of purchased intangible assets, 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 amortization of purchased intangible assets, 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.

Explanations of Non-GAAP adjustments

(A).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, including foreign currency exchange rate gains/losses related to an acquisition, divestiture gains/losses, and strategic investment impairments. 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, Bridge Facility fees, as well as a $20 million commitment to donate to the Trimble Foundation that was 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

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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.