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 2024. For a complete discussion of our critical accounting policies and estimates, refer to the “Management’s Discussion and Analysis of Financial Condition and Results of Operations” section of the 2023 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, 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;

• Focus on delivering customer outcomes that can enable productivity, quality, safety, transparency, and environmental sustainability;

• Focus on attractive markets with significant growth and profitability potential;

• Domain knowledge and technological innovation that benefits a diverse customer base;

• Increasing focus on software and services;

• Geographic expansion with a localization strategy;

• Optimized go-to-market strategies to best access our markets; and

• Strategic and targeted acquisitions, divestitures, joint ventures, and investments.

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 $2,028.6 million, which represents growth of 23% year-over-year at the end of the first quarter of 2024. 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, growth, and profitability over time and is leading to improved visibility in our businesses. Our software, services, and recurring revenue represented 73% and 66% of total revenue for the first quarter of 2024 and 2023. Additionally, we continue to maintain focus on increasing our mix of recurring revenue, which is accelerated by the Transporeon acquisition that closed in the second quarter of 2023 and the Ag divestiture that closed in the second quarter of 2024.

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 enterprise-level customer relationships.

Throughout this “Management’s Discussion and Analysis of Financial Condition and Results of Operations” section, 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

Acquisitions and Divestitures

We acquire businesses that align with our long-term growth strategies, including our strategic product roadmap and, conversely, we divest certain businesses that no longer fit those strategies. This is demonstrated by the 11 acquisitions and 22 divestitures that we have completed since 2020, including the Transporeon acquisition and the Ag divestiture.

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On September 28, 2023, we executed a Sale and Contribution Agreement with AGCO that provided for the formation of a joint venture, called PTx Trimble, that operates in the mixed fleet precision agriculture market. The agreement was amended and restated on March 31, 2024, and the transaction closed in the second quarter of 2024. Under the terms of the agreement, we contributed our Ag business, excluding certain GNSS and guidance technologies, in exchange for $1.9 billion in cash proceeds, subject to working capital adjustments. Following the closing of this transaction, we own 15% and AGCO owns 85% of PTx Trimble. In addition to forming PTx Trimble, the parties concurrently entered into agreements that include the following: (i) long-term supply agreement for key GNSS and guidance technologies, (ii) technology transfer and license agreement, (iii) trademark license agreement, (iv) master sale and distribution agreement for positioning services, and (v) transition services agreement. Ag was reported as a part of our Field Systems segment.

In the second quarter of 2024, we derecognized the assets and liabilities that were transferred, recognized the fair value of our equity method investment, and recorded a pre-tax gain of $1.7 billion.

The formation of PTx Trimble is expected to better serve farmers with factory fit and aftermarket applications in the mixed fleet precision agriculture market to help farmers drive productivity, efficiency, and sustainability. Additionally, the transaction is expected to (i) simplify our Connect and Scale strategy, (ii) reduce risk of channel transition in the agriculture market, and (iii) enhance our financial profile and flexibility with a resulting higher mix of software, services, and recurring revenue.

In the second quarter of 2024, we repaid $1.0 billion of our variable-rate debt through use of the net proceeds and expect to use the majority of the remaining proceeds after tax to repurchase stock.

Macroeconomic Conditions

Macroeconomic conditions, including geopolitical tensions such as the ongoing military conflicts in the Middle East and between Russia and Ukraine and related sanctions, exchange rate and interest rate volatility, and inflationary pressures, will continue to evolve globally. These macroeconomic conditions have had and may continue to have a negative impact on our results of operations.

We may experience higher borrowing costs on our variable-rate debt. At the end of the first quarter of 2024, our outstanding balance of variable-rate debt was $1.2 billion, of which $1.0 billion in term loans were repaid in the second quarter of 2024. See Note 8 “Debt” and Note 14 “Subsequent Events” of this report for additional information regarding our debt and the debt repayment.

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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:

			First Quarter of
			2024						2023						Dollar Change						% Change
(In millions, except per share amounts)
Revenue:
Product			$	367.1					$	434.4					$	(67.3)					(15)%
Subscription and services			586.2						481.0						105.2						22%
Total revenue			$	953.3					$	915.4					$	37.9					4%
Gross margin			$	593.6					$	560.8					$	32.8					6%
Gross margin as a % of revenue			62.3		%				61.3		%
Operating income			$	109.2					$	137.0					$	(27.8)					(20)%
Operating income as a % of revenue			11.5		%				15.0		%
Diluted earnings per share			$	0.23					$	0.52					$	(0.29)					(56)%
Non-GAAP operating income (1)			$	234.4					$	226.1					$	8.3					4%
Non-GAAP operating income as a % of revenue (1)			24.6		%				24.7		%
Non-GAAP diluted earnings per share (1)			$	0.64					$	0.72					$	(0.08)					(11)%
Annualized Recurring Revenue (“ARR”) (1)			$	2,028.6					$	1,648.1					$	380.5					23%

(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 2024 as Compared to 2023

Revenue

Change versus the corresponding period in 2023												First Quarter of 2024
									% Change
												Product						Subscription and Services						Total Revenue
Change in Revenue												(15)		%				22		%				4		%
Acquisitions												—		%				9		%				5		%
Divestitures												(1)		%				(1)		%				(1)		%
Foreign currency exchange												1		%				1		%				—		%
Organic growth												(15)		%				13		%				—		%

Organic total revenue was flat for the first quarter.

Organic product revenue decreased for the first quarter due to Field Systems experiencing lower sales to agriculture OEMs and aftermarket customers due to slowing demand in agriculture markets and changes in our distribution network in the Ag business.

Organic subscription and services revenue for the first quarter was up primarily due to strong growth in subscription and software term licenses in AECO, and to a lesser extent, positioning services in Field Systems and Enterprise and MAPS in T&L. The recurring growth was driven by increased subscription and term license sales to new and existing customers, as evidenced by overall organic ARR growth of 13%.

Gross Margin

Gross margin and gross margin as a percentage of revenue increased for the first quarter due to the strong growth of higher margin software and subscription sales, including from organic growth and the Transporeon acquisition, and declines in lower margin agriculture hardware sales.

Operating Income

Operating income and operating income as a percentage of revenue decreased for the first quarter primarily due to increased operating expense, partially offset by revenue and gross margin expansion. Operating expense increased due to the impact of the Transporeon acquisition operating expense and increased amortization of purchased intangibles. In addition, we incurred costs associated with the Ag divestiture.

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
			2024						2023						Dollar Change						% Change
(In millions)
Research and development			$	170.2					$	159.3					$	10.9					7%
Percentage of revenue			17.9		%				17.4		%
Sales and marketing			$	146.8					$	135.4					$	11.4					8%
Percentage of revenue			15.4		%				14.8		%
General and administrative			$	134.1					$	110.7					$	23.4					21%
Percentage of revenue			14.1		%				12.1		%
Total			$	451.1					$	405.4					$	45.7					11%

R&D expense increased for the first quarter primarily due to the impact of the Transporeon acquisition. 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 first quarter primarily due to the impact of the Transporeon acquisition, and to a less extent, higher commissions.

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G&A expense increased for the first quarter primarily due to costs associated with the Ag divestiture, and to a lesser extent, the impact of the Transporeon acquisition.

Amortization of Purchased Intangible Assets

			First Quarter of
			2024						2023						Dollar Change						% Change
(In millions)
Cost of sales			$	27.8					$	23.0					$	4.8					21%
Operating expenses			26.7						11.7						15.0						128%
Total amortization expense of purchased intangibles			$	54.5					$	34.7					$	19.8					57%
Total amortization expense of purchased intangibles as a percentage of revenue			6		%				4		%

Total amortization expense of purchased intangibles increased for the first quarter primarily due to the amortization of intangibles acquired from Transporeon, which was not applicable in the prior year.

Non-Operating Income (Expense), Net

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

			First Quarter of
			2024						2023						Dollar Change						% Change
(In millions)
Divestitures gain, net			$	3.5					$	4.0					$	(0.5)					(13)%
Interest expense, net			(45.2)						(19.7)						(25.5)						129%
Income from equity method investments, net			5.6						11.4						(5.8)						(51)%
Other (expense) income, net			(0.1)						27.9						(28.0)						(100)%
Total non-operating (expense) income, net			$	(36.2)					$	23.6					$	(59.8)					(253)%

Non-operating expense, net increased for the first quarter primarily due to a foreign currency hedging gain associated with the Transporeon acquisition that was included in Other (expense) income, net in the prior year and higher interest expense from the debt incurred for the Transporeon acquisition.

Income Tax Provision

For the first quarter, our effective income tax rate was 21.6%, as compared to 19.8% in the corresponding period in 2023. The increase was primarily due to a decreased tax benefit from foreign-derived intangible income.

Results by Segment

We report our financial performance, including revenue and operating income, based on three reportable segments: AECO, Field Systems, and T&L.

Our Chief Executive Officer, who is our Chief Operating Decision Maker (“CODM”), 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 7 “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:

			First Quarter of
			2024						2023						Dollar Change						% Change
(In millions)
AECO
Segment revenue			$	339.1					$	288.1					$	51.0					18%
Segment revenue as a % of total revenue			36		%				32		%
Segment operating income			$	126.7					$	95.4					31.3						33%
Segment operating income as a % of segment revenue			37.4		%				33.1		%
Field Systems
Segment revenue			$	419.2					$	479.9					(60.7)						(13)%
Segment revenue as a % of total revenue			44		%				52		%
Segment operating income			$	98.3					$	137.4					(39.1)						(28)%
Segment operating income as a % of segment revenue			23.4		%				28.6		%
T&L
Segment revenue			$	195.0					$	147.4					47.6						32%
Segment revenue as a % of total revenue			20		%				16		%
Segment operating income			$	36.3					$	20.3					16.0						79%
Segment operating income as a % of segment revenue			18.6		%				13.8		%

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

			First Quarter of
			2024						2023
(In millions)
Consolidated segment operating income			$	261.3					$	253.1
Unallocated general corporate expenses			(26.9)						(27.0)
Amortization of purchased intangible assets			(54.5)						(34.7)
Acquisition / divestiture items			(23.9)						(7.0)
Stock-based compensation / deferred compensation			(38.8)						(35.4)
Restructuring and other costs			(8.0)						(12.0)
Consolidated operating income			109.2						137.0
Total non-operating (expense) income, net			(36.2)						23.6
Consolidated income before taxes			$	73.0					$	160.6

AECO

												First Quarter of 2024
Change versus the corresponding period in 2023												% Change
Change in Revenue - AECO												18		%
Divestitures												(1)		%
Foreign currency exchange												1		%
Organic growth												18		%

Organic revenue increased for the first quarter due to strong demand for our subscription and term license software, particularly for Structures, Viewpoint, and Architecture and Design product offerings.

Operating income and operating income as a percentage of revenue increased for the first quarter primarily due to strong organic revenue growth and gross margin expansion, partially offset by increased operating expense associated with revenue growth.

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Field Systems

												First Quarter of 2024
Change versus the corresponding period in 2023												% Change
Change in Revenue - Field Systems												(13)		%
Divestitures												(1)		%
Organic growth												(12)		%

Organic revenue decreased for the first quarter due to lower sales to agriculture OEMs and aftermarket customers from slowing demand in agriculture markets and impacts related to changes in our distribution network in the Ag business. Excluding the Ag business, Field Systems revenue was flat. The Ag business was divested in the second quarter of 2024.

Operating income and operating income as a percentage of revenue decreased for the first quarter primarily due to reduced revenue and gross margin, associated with agriculture sales declines, partially offset by operating expense control.

T&L

												First Quarter of 2024
Change versus the corresponding period in 2023												% Change
Change in Revenue - T&L												32		%
Acquisitions												29		%
Divestitures												(1)		%
Organic growth												4		%

Organic revenue increased for the first quarter primarily driven by MAPS and Enterprise subscription revenue growth.

Operating income and operating income as a percentage of revenue increased for the first quarter primarily due to the impact of the Transporeon acquisition, and to a lesser extent, organic revenue growth, and gross margin expansion.

LIQUIDITY AND CAPITAL RESOURCES

			As of
			First Quarter of						Year End
			2024						2023						Dollar Change						% Change
(In millions, except percentages)
Cash and cash equivalents (1)			$	261.6					$	238.9					$	22.7					10		%
As a percentage of total assets			2.8		%				2.5		%
Principal balance of outstanding debt			$	3,043.4					$	3,080.4					$	(37.0)					(1)		%
			First Quarter of
			2024						2023						Dollar Change						% Change
(In millions)
Net cash provided by operating activities			$	233.8					$	208.7					$	25.1					12		%
Net cash used in investing activities			(3.5)						(27.7)						24.2						(87)		%
Net cash (used in) provided by financing activities			(202.2)						583.4						(785.6)						(135)		%
Effect of exchange rate changes on cash and cash equivalents			(5.4)						2.7						(8.1)						(300)		%
Net increase in cash and cash equivalents			$	22.7					$	767.1

(1) Include $6.5 million and $9.1 million of cash and cash equivalents classified as held for sale as of March 29, 2024 and December 29, 2023.

Operating Activities

The increase in cash provided by operating activities was primarily driven by higher deferred revenue, an increase in accounts payable, and lower inventory purchases in the current quarter. The increase was partially offset by higher interest payments and higher bonus payouts.

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Investing Activities

The decrease in cash used in investing activities was primarily due to the Transporeon acquisition in the prior year

Financing Activities

The increase in cash used in financing activities was primarily driven by proceeds from our $800.0 million issuance of 2033 senior notes in the prior year and common stock repurchases in the current year.

Cash and Cash Equivalents

We believe that our cash and cash equivalents and available borrowing capacity under our existing lines of credit, along with cash provided by operations will be sufficient in the foreseeable future to meet our anticipated operating cash needs, including expenditures related to our Connect and Scale strategy, debt service, acquisitions, and any stock repurchases under the stock repurchase program.

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 29, 2024, $100.0 million was outstanding under the 2022 credit facility.

Our 2024 senior notes totaling $400.0 million are maturing in December 2024. We anticipate using a combination of cash on hand, borrowing from our existing revolvers, or new debt to repay the 2024 senior notes.

In the second quarter of 2024, we completed the Ag divestiture and received $1.9 billion of cash proceeds, subject to working capital adjustments. The total tax payment for the transaction will be $379.8 million. See Note 14 “Subsequent Events” of this report for more information about this transaction. We used a portion of the proceeds to repay $1.0 billion of term loans and expect to use the majority of the remaining proceeds after tax to repurchase stock.

Our cash requirements have not otherwise materially changed since the 2023 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 that closed in the prior 12 months. 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 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. ARR is calculated by taking our subscription and maintenance and support for the current quarter and adding the portion of the contract value of all our term licenses attributable to the current quarter, then 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 that closed in the prior 12 months. 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
						2024									2023
						Dollar			% of						Dollar			% of
(In millions, except per share amounts)						Amount			Revenue						Amount			Revenue
REVENUE:
GAAP revenue:						$	953.3								$	915.4
GROSS MARGIN:
GAAP gross margin:						$	593.6		62.3		%				$	560.8		61.3		%
Amortization of purchased intangible assets			(A)			27.8									23.0
Acquisition / divestiture items			(B)			—									0.2
Stock-based compensation / deferred compensation			(C)			4.3									3.5
Restructuring and other costs			(D)			1.4									0.3
Non-GAAP gross margin:						$	627.1		65.8		%				$	587.8		64.2		%
OPERATING EXPENSES:
GAAP operating expenses:						$	484.4		50.8		%				$	423.8		46.3		%
Amortization of purchased intangible assets			(A)			(26.7)									(11.7)
Acquisition / divestiture items			(B)			(23.9)									(6.8)
Stock-based compensation / deferred compensation			(C)			(34.5)									(31.9)
Restructuring and other costs			(D)			(6.6)									(11.7)
Non-GAAP operating expenses:						$	392.7		41.2		%				$	361.7		39.5		%
OPERATING INCOME:
GAAP operating income:						$	109.2		11.5		%				$	137.0		15.0		%
Amortization of purchased intangible assets			(A)			54.5									34.7
Acquisition / divestiture items			(B)			23.9									7.0
Stock-based compensation / deferred compensation			(C)			38.8									35.4
Restructuring and other costs			(D)			8.0									12.0
Non-GAAP operating income:						$	234.4		24.6		%				$	226.1		24.7		%

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						First Quarter of
						2024									2023
NON-OPERATING INCOME (EXPENSE), NET:
GAAP non-operating (expense) income, net:						$	(36.2)								$	23.6
Acquisition / divestiture items			(B)			(3.4)									(31.6)
Deferred compensation			(C)			(2.4)									(2.0)
Restructuring and other costs			(D)			—									1.3
Non-GAAP non-operating expense, net:						$	(42.0)								$	(8.7)
									GAAP and Non-GAAP Tax Rate %									GAAP and Non-GAAP Tax Rate %
									(G)									(G)
INCOME TAX PROVISION:
GAAP income tax provision:						$	15.8		21.6		%				$	31.8		19.8		%
Non-GAAP items tax effected			(E)			25.8									11.2
Difference in GAAP and Non-GAAP tax rate			(F)			(8.3)									(3.5)
Non-GAAP income tax provision:						$	33.3		17.3		%				$	39.5		18.2		%
NET INCOME:
GAAP net income:						$	57.2								$	128.8
Amortization of purchased intangible assets			(A)			54.5									34.7
Acquisition / divestiture items			(B)			20.5									(24.6)
Stock-based compensation / deferred compensation			(C)			36.4									33.4
Restructuring and other costs			(D)			8.0									13.3
Non-GAAP tax adjustments			(E) - (F)			(17.5)									(7.7)
Non-GAAP net income:						$	159.1								$	177.9
DILUTED NET INCOME PER SHARE:
GAAP diluted net income per share:						$	0.23								$	0.52
Amortization of purchased intangible assets			(A)			0.22									0.14
Acquisition / divestiture items			(B)			0.08									(0.10)
Stock-based compensation / deferred compensation			(C)			0.15									0.14
Restructuring and other costs			(D)			0.03									0.05
Non-GAAP tax adjustments			(E) - (F)			(0.07)									(0.03)
Non-GAAP diluted net income per share:						$	0.64								$	0.72
ADJUSTED EBITDA:
GAAP operating income:						$	109.2		11.5		%				$	137.0		15.0		%
Amortization of purchased intangible assets			(A)			54.5									34.7
Acquisition / divestiture items			(B)			23.9									7.0
Stock-based compensation / deferred compensation			(C)			38.8									35.4
Restructuring and other costs			(D)			8.0									12.0
Non-GAAP operating income:						234.4			24.6		%				226.1			24.7		%
Depreciation expense and cloud computing amortization						10.9									11.3
Income from equity method investments, net						5.6									11.4
Adjusted EBITDA						$	250.9		26.3		%				$	248.8		27.2		%

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.

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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.

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 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 costs consisting of external and incremental costs resulting directly from acquisitions, divestitures, and strategic investment activities such as legal, due diligence, integration, and other closing costs, including the acceleration of acquisition stock awards and adjustments to the fair value of earn-out liabilities. Non-GAAP non-operating expense, net, excludes one-time acquisition/divestiture charges, including foreign currency exchange rate gains/losses related to an acquisition, divestiture gains/losses, 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, business exit costs, as well as a $20 million commitment to donate to the Trimble Foundation that was paid over four quarters ending in the first quarter of 2023.

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(E).Non-GAAP items tax effected**.** This amount adjusts the provision for income taxes to reflect the effect of the non-GAAP items (A) through (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 (i) deferred tax impacts from tax amortization relating to a non-U.S. intercompany transfer of intellectual property and R&D cost capitalization impact to global intangible low-taxed income, and (ii) 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.