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Item 7. Management’s Discussion and Analysis

2023-02-17 compared with 2022-02-23 · 209 added, 115 removed, 327 unchanged (50% of the section changed)

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Our actual results could differ materially from those discussed in the forward-looking statements.

Factors that could cause or contribute to these differences include, but are not limited to, those discussed below and those listed under “Risks Factors.” This section of this Annual Report on Form 10-K generally discusses 2021 and 2020 items and year-to-year comparisons between 2021 and 2020.

Discussions of 2019 items and year-to-year comparisons between 2020 and 2019 that are not included in this Annual Report on Form 10-K can be found in “Management's Discussion and Analysis of Financial Condition and Results of Operations” in Part II, Item 7 of our Annual Report on Form 10-K, for the year ended January 1, 2021.

Factors that could cause or contribute to these differences include, but are not limited to, those discussed below and those listed under “Risks Factors.” This section of this report generally discusses 2022 and 2021 items and year-to-year comparisons between 2022 and 2021.

Discussions of 2020 items and year-to-year comparisons between 2021 and 2020 that are not included in this report can be found in “Management's Discussion and Analysis of Financial Condition and Results of Operations” in Part II, Item 7 of our Annual Report on Form 10-K, for the year ended December 31, 2021.

EXECUTIVE LEVEL OVERVIEW

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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.

Further information on our business is presented in Part I, Item 1, “Business”.

Further information on our business is presented in Part I, Item 1, “Business” of this report.

Our growth strategy is centered on multiple elements:

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

• Strategic acquisitions;

• Venture fund investments;

• Strategic acquisitions and venture fund investments;

• Sustainability.

Our focus on these growth drivers has led over time to growth in revenue and profitability and an increasingly diversified business model.

We continue to experience a shift toward a more significant mix of recurring revenue contracts, as demonstrated by our success in driving annualized recurring revenue (“ARR”) growth of 9% year-over-year at the end of 2021.

Excluding the impact of foreign currency and acquisitions and divestitures, ARR organic growth was 12% .

This shift has positively impacted our revenue mix and growth over time and is leading to improved visibility in our businesses.

Our software, recurring revenue, and services represented 55% of total revenue for 2021.

We continue to experience a shift toward a more significant mix of recurring revenue contracts, as demonstrated by our success in driving annualized recurring revenue (“ARR”) of $1,603.7 million, which represents growth of 14% year-over-year at the end of 2022.

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.

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.

Additionally, in August 2021, we announced a newly formed strategic venture fund.

Through this fund, we expect to invest up to $200 million in early- to growth-stage companies that can accelerate innovation and effectively bring new solutions to our customers and industry.

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 7.

Impact of COVID-19 and supply chain constraints on our business

COVID-19 and variant impacts, especially related to global supply chain disruptions and parts and labor shortages, and increased worldwide demand for certain components, continued to impact our business and operations.

We are experiencing extended delivery times for certain components of our hardware products and increased freight costs.

As a result, we are making binding commitments with longer lead times and procuring components at higher prices, which may impact our flexibility to adapt to changing market conditions and product demand.

Currently, we expect these challenging supply chain conditions to persist in the near term.

Therefore, we will continue to experience delays in shipping our products and increased costs, which may reduce our revenue and gross margin and continue to increase our backlog.

Our 2021 results of operations reflect significant revenue improvement as the overall impact of COVID-19 was less pronounced.

As a result of COVID-19, the year-to-year comparison of 2020 to 2021 reflects significant distortions in growth rates as our business rebounded in 2021.

Risk Factors” for further discussion of the possible impact of the COVID-19 pandemic and its resulting effects on our business.

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 7.

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 second half of 2022, our organic hardware sales growth and bookings moderated from slowing demand in some of our end markets served by our dealer channels and also from dealer inventories moving towards lower levels due to improved product lead times and macroeconomic concerns.

The greatest impact was a decline in Europe where the impacts of foreign currency exchange rates, the ongoing military conflict in Ukraine, and energy inflation were the greatest.

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 increased customer pricing to offset inflationary pressures.

In the second half of 2022, these cost pressures lessened as component supply became more readily available.

We expect these cost pressures will continue to diminish over time as suppl y 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 has impacted 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 2022, due to the strengthening of the U.S.

dollar, year-over-year unfavorable foreign currency impacts on revenue and operating income were $114.1 million or 4% and $26.0 million or 5%.

Interest Rates Fluctuations

The global inflation rate has risen sharply, and interest rates are rising in an effort to curb inflation.

In addition to the negative impact macroeconomic conditions have had on our sales, we may experience higher borrowing costs on existing variable rate debt and future debt issuances, including financing related to the pending acquisition of Transporeon.

Ongoing Military Conflict in Ukraine

We are monitoring and responding to effects of the ongoing military conflict 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.

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.

In December 2022, we signed a definitive agreement to acquire Transporeon in an all-cash transaction valued at approximately €1.88 billion or $2.0 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.

We believe the acquisition will advance our sustainability strategy by reducing under-utilized carrier capacity and “empty miles” and increase our international footprint and long-term Transportation opportunities.

The acquisition will be funded through a combination of cash on hand and debt.

We expect this acquisition to close in the first half of 2023, subject to customary closing conditions including the receipt of merger control clearances in Austria, Germany, and Poland.

Transporeon will be reported in our Transportation segment.

In 2022, we acquired two businesses, with total purchase consideration of $379.5 million.

In the aggregate, the acquired businesses contributed less than 1% of our total revenue during 2022.

In 2022, we divested six businesses with total proceeds of $226.3 million.

For 2021 , the revenue and operating income for these divested businesses were approximately $201.7 million and $33.0 million.

For additional discussion of acquisitions and divestitures, refer to Note 3 “Acquisitions and Divestitures” of this report.

CRITICAL ACCOUNTING POLICIES AND ESTIMATES

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These critical accounting policies are impacted significantly by judgments, assumptions, and estimates used in the preparation of the consolidated financial statements, and actual results could differ materially from the amounts reported based on these policies.

Our accounting policies are more fully described in Note 1 of this Annual Report on Form 10-K.

Our accounting policies are more fully described in Note 1 “ Description of Business and Accounting Policies ” of this report.

Revenue Recognition

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however, determining whether products or services are considered distinct performance obligations that should be accounted for separately versus together may sometimes require significant judgment.

Judgment is required to determine stand-alone selling price (“SSP”) for each distinct performance obligation.

Judgment is required to determine stand-alone selling price (“SSP”) for each performance obligation.

We use a range of amounts to estimate SSP when products and services are sold separately and determine whether there is a discount to be allocated based on the relative SSP of the various products and services.

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Business Combinations and Valuation of Goodwill and Purchased Intangible Assets

We account for business combinations using the acquisition method of accounting whereby certain identifiable assets and liabilities of the acquired business and any noncontrolling interest in the acquiree are recorded at their estimated fair values as of the acquisition date.

Any purchase consideration in excess of the estimated fair values of the net assets acquired is recorded as goodwill.

Acquisition-related expenses and related restructuring costs are expensed as incurred.

When determining the fair values of certain assets acquired, liabilities assumed, and noncontrolling interests in the acquiree, we make significant estimates and assumptions, especially concerning intangible assets.

For business combinations, we allocate the purchase consideration to the assets acquired, liabilities assumed, and any noncontrolling interest based on their fair values at the acquisition date.

When determining the fair values, we make significant estimates and assumptions, especially concerning intangible assets.

Critical estimates when valuing intangible assets include expected future cash flows based on consideration of future growth rates and margins, customer attrition rates, future changes in technology and brand awareness, loyalty and position, and discount rates.

We evaluate goodwill on an annual basis or more frequently if indicators of potential impairment exist.

We utilize either a qualitative or quantitative approach to assess the likelihood of impairment on the first day of the fourth quarter.

When performing the qualitative approach, we consider macroeconomic conditions, industry and market considerations, overall financial performance, and other relevant events and factors that may impact the reporting units.

When performing the quantitative approach, we compare the reporting unit’s carrying amount, including goodwill, to the reporting unit's fair value.

Any purchase consideration in excess of the fair values of the net assets acquired is recorded as goodwill.

We evaluate goodwill on an annual basis in our fourth quarter or more frequently if indicators of potential impairment exist.

To determine whether goodwill is impaired, we first assess qualitative factors.

Qualitative factors include but are not limited to macroeconomic conditions, industry and market considerations, cost factors, overall financial performance, or other relevant company-specific events.

If it is determined more likely than not that the fair value of a goodwill reporting unit is less than its carrying amount, we perform a quantitative analysis.

Alternatively, we may bypass the qualitative assessment and perform a quantitative impairment test.

When performing a quantitative approach, we compare the reporting unit’s carrying amount, including goodwill, to the reporting unit's fair value.

The estimation of a reporting unit's fair value involves using estimates and assumptions, including expected future operating performance using risk-adjusted discount rates.

If the reporting unit's carrying amount exceeds its fair value, an impairment loss is recognized.

Intangible assets acquired individually, with a group of other assets, or in a business combination are recorded at fair value.

Our intangible assets are amortized over the period of estimated benefit using the straight-line method over the estimated useful life, which ranges from three to ten years and has a weighted-average useful life of approximately seven years.

We write off fully amortized intangible assets when those assets are no longer used.

We review intangible assets for impairment whenever events or changes in circumstances indicate that the carrying amount of those assets may not be recoverable based on their future cash flows.

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$ 1,603.7 $ 1,409.1 $ 194.6 14 %

(1) Refer to “Supplemental Disclosure of Non-GAAP Financial Measures and Annualized Recurring Revenue” of this Annual Report on Form 10-K for definitions.

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

Basis of Presentation

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Year 2022 Compared with Year 2021

Despite supply constraints and increases in our backlog, revenue increased due to strong demand for our hardware and related software, as compared with reduced demand due to the impacts of COVID-19 lockdowns in the prior year, and strong recovery in 2021 in markets across major regions.

Growth in subscription sales in many of our software businesses continued to remain strong.

Price increases, which went into effect in the second half of the year, and reduced discounting had a slighter impact on revenue growth for the year.

Product revenue increased due to strong hardware and related software sales in Geospatial, Resources and Utilities, and Buildings and Infrastructure.

To a lesser extent, Transportation sales also contributed to growth.

Service revenue was relatively flat, and subscription revenue increased primarily due to strong growth in Buildings and Infrastructure, and to a lesser extent, Resources and Utilities and Geospatial, slightly offset by a decrease in Transportation.

Change versus 2021 % Change

Change in total revenue — %

Acquisitions 1 %

Divestitures (4) %

Foreign currency exchange (4) %

Organic revenue growth - total revenue 7 %

Although organic revenue increased for fiscal 2022, it decelerated in the second half of the year due to slowing demand in some of our end markets and reductions in dealer inventory levels as a result of improved product lead times and macroeconomic concerns.

Additionally, Geospatial had unusually strong hardware sales in the previous year.

Throughout the year, software and subscription sales were strong in buildings businesses in Buildings and Infrastructure, and to a lesser extent, positioning services in Resources and Utilities and Transportation enterprise business, as evidenced by organic ARR growth of 16%.

Change versus 2021

Change in product revenue (4) %

Acquisitions — %

Divestitures (5) %

Foreign currency exchange (3) %

Organic revenue growth - product revenue 4 %

Change in service revenue (1) %

Acquisitions 4 %

Divestitures (1) %

Foreign currency exchange (4) %

Organic revenue growth - service revenue — %

Change in subscription revenue 16 %

Acquisitions 1 %

Divestitures (2) %

Foreign currency exchange (2) %

Organic revenue growth - subscription revenue 19 %

Organic product revenue increased due to term license software growth throughout the year, as well as stronger hardware and related software sales in the first half of the year.

In the second half of the year, slowing demand for our hardware and related software products impacted sales in Buildings and Infrastructure, Geospatial, and Resources and Utilities.

Organic service revenue was relatively flat.

Organic subscription revenue increased primarily due to strong growth in Buildings and Infrastructure and, to a lesser extent, in Resources and Utilities, Transportation, and Geospatial.

During 2022, sales to customers in North America represente d 53%;

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and the rest of world represented 8% of our total revenue.

No single customer accounted for 10% or more of our total revenue in 2021 and 2020.

No single customer accounted for 10% or more of our accounts receivable at the end of 2021 and 2020.

No single customer accounted for 10% or more of our total revenue or accounts receivable in 2022 and 2021.

Gross margins varied due to several factors including product mix, customer pricing, distribution channel, and product costs.

Gross margin increased primarily due to strong revenue growth.

Gross margin as a percentage of total revenue shows a slight decrease mainly due to increased mix of hardware sales and increased supply chain costs, offset by price increases and reduced discounting as well as lower intangibles amortization.

Gross margin increased primarily due to organic revenue growth in Buildings and Infrastructure and Resources and Utilities, partially offset by divestitures and unfavorable foreign currency.

Gross margin as a percentage of total revenue increased due to an increased mix of software and subscription sales, price increases, and to a lesser extent, divestitures of lower margin hardware centric businesses.

Operating Income

Operating income and operating income as a percentage of total revenue increased primarily due to strong revenue growth in Buildings and Infrastructure, Geospatial, and Resources and Utilities, partially offset by a decrease in Transportation, as well as relative operating expense containment in all segments.

Operating income decreased 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 and increased sales and marketing costs primarily related to trade shows and increased travel.

Other contributors to increased operating expense included restructuring costs, charitable donations, and higher acquisition and divestiture transaction costs partially offset by a reduction in incentive compensation.

Operating income as a percentage of revenue decreased primarily due to increased operating expense, partially offset by increased gross margin as a percentage of revenue.

Research and Development, Sales and Marketing, and General and Administrative Expenses

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Total $ 1,517.9 $ 1,412.5 $ 105.4 7 %

As a result of COVID-19 impacts, the year-to-year comparison of 2020 to 2021 reflects distortions in expense growth rates as our expenses normalized in 2021, with the biggest impact due to higher incentive compensation, including bonuses and stock-based compensation, particularly in G&A.

R&D expense increased primarily due to higher compensation expense, including incentive compensation .

We believe that the development and introduction of new products are critical to our future success, and we expect to continue active development of new products.

S&M expense increased primarily due to higher compensation expense, including incentive compensation and commissions.

G&A expense increased primarily due to higher compensation expense, including incentive compensation, and to a lesser extent, higher consulting and legal fees .

R&D expense increased primarily due to slightly higher compensation expense and the impact of acquisitions, 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 primarily due to higher compensation expense, including commissions, higher marketing costs including trade shows, higher travel expenses, and the impact of acquisitions.

These increases were partially offset by favorable foreign currency and divestitures.

G&A expense increased primarily due to investments related to our Connect and Scale strategy, charitable donations to the Trimble Foundation, and acquisition and divestiture transaction costs.

These increases were partially offset by a reduction in incentive compensation, favorable foreign currency, and divestitures.

Amortization of Purchased Intangible Assets

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

In 2021, total amortization of purchased intangibles decreased primarily due to the expiration of prior year acquisitions' amortization.

Non-Operating Income (Expense), Net

The following table shows non-operating expense, net for the periods indicated:

In 2022, total amortization of purchased intangibles decreased primarily due to the expiration of prior years’ acquisition amortization.

Non-Operating Income, Net

The following table shows non-operating income, net for the periods indicated:

2022 2021 Dollar Change % Change

(In millions)

Divestitures gain, net $ 99.0 $ 41.4 $ 57.6 139 %

Interest expense, net (71.1) (65.4) (5.7) 9 %

Income from equity method investments, net 31.1 37.7 (6.6) (18) %

Other income, net 41.3 13.4 27.9 208 %

Total non-operating income (expense), net $ 13.6 $ (24.8) $ 38.4 (155) %

In 2021, non-operating income increased primarily due to recognition of gains from the sale of businesses included in Other income, net, and to a lesser extent, lower interest costs associated with a decrease in our outstanding debt.

Other expense, net (0.8) (0.1) (0.7) 700 %

Total non-operating income, net $ 58.2 $ 13.6 $ 44.6 328 %

In 2022, non-operating income increased primarily due to higher gains from divestitures, partially offset by lower joint-venture profitability, higher interest expense due to Bridge Facility fees, and fluctuations in deferred compensation plan assets included in Other expense, net.

Income Tax Provision

In December 2021, due to a change in the Netherlands tax law, the statutory tax rate was further increased from 25.0% to 25.8% effective January 1, 2022.

Our effective income tax rates for 2022 and 2021 were 21.0% and 14.2%.

The effective income tax rate in 2022 increased compared to 2021 primarily due to a one-time tax benefit recorded in 2021 related to the revaluation of the Netherlands deferred tax assets mentioned below and lower stock-based compensation deductions during 2022.

In December 2021, due to a change in the Netherlands tax law, the statutory tax rate was increased from 25.0% to 25.8% effective January 1, 2022.

As a result, we recorded a one-time tax benefit of $14.4 million in 2021 due to the revaluation of the Netherlands deferred tax assets.

Previously in December 2020, also as a result of a Netherlands tax law change that increased Netherlands statutory tax rate from 21.7% to 25.0%, effective January 1, 2021, we recorded a one-time tax benefit of $64.0 million in 2020 due to the revaluation of the Netherlands deferred tax assets.

Our effective income tax rates for 2021 and 2020 were 14.2% and 1.1%, respectively.

The effective income tax rate in 2021 increased compared to 2020 primarily due to the smaller one-time tax benefit recorded in 2021 relating to the revaluation of the Netherlands deferred tax assets mentioned above.

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

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These results are not necessarily in conformance with U.S.

For additional discussion of our segments, refer to Note 5 of this Annual Report on Form 10-K.

For additional discussion of our segments, refer to Note 6 “Reporting Segment and Geographic Information” of this report.

The following table shows a breakdown of revenue and operating income by segment for the periods indicated:

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Consolidated operating income 510.9 561.0

Total non-operating income (expense), net 13.6 (24.8)

Total non-operating income, net 58.2 13.6

Consolidated income before taxes $ 569.1 $ 574.6

Buildings and Infrastructure

Revenue increased primarily due to strong demand for our civil construction hardware and related software and from strong recovery in markets across major regions, including strong residential construction and infrastructure spend.

Additionally, higher subscription revenue in our software businesses benefited from the continued cumulative effect of conversions from perpetual licenses to subscription offerings for existing and new customers, as well as improvements in our customer churn rate.

Segment operating income and operating income as a percentage of revenue increased primarily due to higher revenue, consistent gross margin, and operating cost containment.

Increased supply chain costs for hardware products were wholly mitigated by reduced discounting and customer price increases.

Revenue increased primarily due to strong demand for geospatial survey products, with strong recovery in markets across major regions, including strong residential construction, infrastructure, and utilities spend.

Competitive products, including the R12i, helped win business.

Segment operating income and operating income as a percentage of revenue increased primarily due to higher revenue and operating cost containment, partially offset by lower gross margin.

Gross margin was down primarily due to product mix and increased supply chain costs for hardware products, partially offset by reduced discounting and customer price increases.

Change versus 2021

Change in revenue - Buildings and Infrastructure

Acquisitions 2 %

Divestitures (5) %

Foreign currency exchange (3) %

Organic revenue growth

Organic revenue increased due to demand for our subscription and term license software recurring offerings.

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 due to relative strength in the North American construction market in the first half of 2022, partially offset by weaker hardware sales, particularly in Europe, in the second half of the year.

Despite revenue and gross margin expansion, operating income decreased primarily due to higher operating expense, unfavorable foreign currency , and divestitures.

Operating expense increased due to investments in our Connect and Scale strategy as well as higher marketing and travel costs.

Operating income as a percentage of revenue decreased primarily due to higher operating expense, partially offset by gross margin expansion due to product mix.

Change versus 2021

Change in revenue - Geospatial

Acquisitions — %

Divestitures (5) %

Foreign currency exchange (3) %

Organic revenue growth

Organic revenue decreased slightly due to unusually strong hardware sales in the prior year and the softening of hardware sales in the second half of 2022, partially offset by higher software and subscription sales.

Operating income decreased primarily due to divestitures and reduced revenue, partially offset by better gross margin due to product mix.

Operating income as a percentage of revenue was relatively flat.

Resources and Utilities

Revenue increased primarily due to continued agriculture business strength in the reseller and OEM channels in markets across major regions.

Strong market fundamentals, including favorable commodity prices, continued to fuel growth.

Segment operating income increased primarily due to higher revenue and operating expense containment.

Gross margin was down due to product mix and higher supply chain costs for hardware products, partially offset by reduced discounting and customer price increases.

Operating income as a percentage of revenue was down due to lower gross margin.

Change versus 2021

Change in revenue - Resources and Utilities 7 %

Acquisitions — %

Divestitures (1) %

Foreign currency exchange (4) %

Organic revenue growth

Organic revenue increased due to relative strength in agriculture, particularly in the OEM channel, as well as price increases, partially offset by weaker agriculture sales in the reseller channel, particularly Europe, in the second half of the year.

To a lesser extent, revenue was favorably impacted by higher subscription revenue in positioning services.

Operating income increased primarily due to organic revenue expansion, partially offset by unfavorable foreign currency, and higher operating expenses due to investments in our Connect and Scale strategy.

Operating income as a percentage of revenue was relatively flat.

Transportation

Revenue decreased slightly due to the impact of a divestiture, largely offset by continued growth in enterprise software sales.

Enterprise revenue continued to experience subscription revenue growth as the business transitions from a perpetual software license model.

Mobility sales were down due to reduced subscriber counts, partially offset by higher hardware shipments for the year.

Segment operating income and operating income as a percentage of revenue decreased slightly, primarily due to the revenue decline and a slight increase in operating expense.

Change versus 2021

Change in revenue - Transportation (5) %

Acquisitions — %

Divestitures (3) %

Foreign currency exchange (1) %

Organic revenue growth

Organic revenue decreased 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 increased primarily due to targeted cost reductions and gross margin expansion due to product mix, partially offset by divestitures and reduced revenue.

We continue to maintain focus on new product introductions and transitions to recurring revenue.

LIQUIDITY AND CAPITAL RESOURCES

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Operating Activities

The increase in cash provided by operating activities was primarily driven by higher net income adjusted for non-cash items, and higher account payables, partially offset by higher inventory purchases.

The decrease in cash provided by operating activities was primarily driven by lower net income after adjusting for non-cash items and divestiture gains, higher bonus and cash tax payments, higher accounts receivable, higher inventory purchases, and lower accounts payable associated with the timing of inventory payments.

The decreases were partially offset by an increase in deferred revenue.

Investing Activities

The decrease in cash used in investing activities was primarily due to higher net proceeds from the sale of businesses and sale of property and equipment during 2021 , partially offset by slightly higher acquisition spending in 2021.

The current year included the AgileAssets acquisition compared to the prior year, which included the Kuebix acquisition.

The increase in cash used in investing activities was primarily due to higher payments related to businesses acquired in 2022, partially offset by higher proceeds from divestitures.

Financing Activities

The increase in cash used in financing activities was primarily driven by an increase in repurchases of common stock, partially offset by a decrease in debt repayments, net of debt proceeds.

The decrease in cash used in financing activities was primarily driven by higher proceeds 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.

For debt refinancing, we anticipate we will have readily accessible capital markets in order to secure appropriate funding.

I n 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.

At the end of 2022, $225.0 million was outstanding under the 2022 Credit Facility.

In December 2022, in connection with our pending acquisition of Transporeon, we arranged to incur substantial new debt obligations, which will be drawn prior to the acquisition closing date.

These arrangements include:

• a term loan credit agreement providing for an unsecured delayed draw term loan facility in the aggregate principal amount of $1.0 billion, comprised of commitments for a 3-year tranche in the amount of $500.0 million and a 5-year tranche in the amount of $500.0 million, and

• an amendment to our 2022 Credit Facility that made $600.0 million of the existing commitments under the Credit Facility available for the pending acquisition of Transporeon and increased our maximum permitted leverage ratio following the closing of the acquisition.

Prior to arranging the above two transactions, we had entered into a 364-day bridge facility commitment letter (the “Bridge Facility”) that provided for up to €1.88 billion of commitments for term loans to fund our acquisition of Transporeon.

The Bridge Facility was reduced to €500 million by the term loan credit agreement and the amended 2022 Credit Facility.

We anticipate refinancing some or all of our outstanding indebtedness and debt commitments at or prior to their maturities, 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 bec ame effective on January 1, 2022.

In 2022, we paid $88.0 million with respect to this tax provision.

Additionally, if this provision is not deferred or repealed in 2023, we expect that cash tax payments in 2023 will be slightly lower than 2022.

Our material cash requirements include the following contractual and other obligations and cash needs:

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At the end of 2022, we had fixed lease payment obligations of $171.6 million, with $48.7 million payable within the next 12 months.

Refer to Note 7 of this Annual Report on Form 10-K for additional information regarding our leases.

At the end of 2021, we had income taxes payable of $101.6 million, with $47.1 million payable within the next 12 months.

Refer to Note 8 “ Leases ” of this report for additional information regarding our leases.

At the end of 2022, we had income taxes payab le of $64.6 million, with $23.7 million payable within the next 12 months.

The amount payable within the next 12 months includes $13.6 million representing a one-time transition tax liability as a result of the 2017 Tax Cuts and Jobs Act (the “Tax Act”).

In addition, we have unrecognized tax benefits of $75.5 million included in Other non-current liabilities, including interest and penalties.

At this time, we cannot make a reasonably reliable estimate of the period of cash settlement with tax authorities regarding this liability, and therefore, such amounts are not included in the contractual obligations table above.

Refer to Note 11 of this Annual Report on Form 10-K for additional information regarding our taxes.

At this time, we cannot make a reasonably reliable estimate of the period of cash settlement with tax authorities regarding this liability.

Refer to Note 12 “Income Taxes” of this report for additional information regarding our taxes.

Other Purchase Obligations and Commitments

Purchase obligations and commitments primarily relate to investments in our platform associated with our Connect and Scale strategy and non-cancellable inventory commitments, which increased due to the extension of lead times and the growth of our hardware business.

Purchase obligations and commitments primarily relate to investments in our platform associated with our Connect and Scale strategy and non-cancellable inventory commitments.

At the end of 2022, we had operating purchase obligations and commitments of $858.8 million, with $326.2 million payable within the next 12 months.

Refer to Note 8 of this Annual Report on Form 10-K for additional information regarding our purchase obligations and commitments.

Refer to Note 9 “Commitments and Contingencies” of this report for additional information regarding our purchase obligations and commitments.

Other than the items discussed above, we do not have any off-balance sheet financing arrangements or liabilities.

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Future interest payments total $260.5 million, with $67.3 million payable within the next 12 months.

During 2021, we repaid $251.0 million of debt, including the full repayment of our term loan, net of borrowings.

Refer to Note 6 of this Annual Report on Form 10-K for additional information regarding our debt.

During 2022, we had $224.6 million of proceeds from debt, net of the payments.

Refer to Note 7 “Debt” of this report for additional information regarding our debt.

Stock Repurchase Program

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The 2021 Stock Repurchase Program does not obligate us to acquire any specific number of shares.

Refer to Note 13 of this Annual Report on Form 10-K for additional information regarding our 2021 Stock Repurchase Program.

Because of the additional outstanding indebtedness we have and expect to incur in connection with the pending Transporeon acquisition, we have temporarily discontinued share repurchases.

Refer to Note 14 “Common Stock Repurchase” of this report for additional information regarding our 2021 Stock Repurchase Program.

EFFECT OF NEW ACCOUNTING PRONOUNCEMENTS

The impact of recent accounting pronouncements is disclosed in Note 1 of this Annual Report on Form 10-K.

S UPPLEMENTAL 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 because we believe non-GAAP financial measures provide useful information to investors and others in understanding our “core operating performance”, which excludes the effect of non-cash items and certain variable charges not expected to recur, not meaningful in comparison to our past operating performance or not reflective of ongoing financial results.

The impact of recent accounting pronouncements is disclosed in Note 1 “Description of Business and Accounting Policies” of this report.

SUPPLEMENTAL DISCLOSURE OF NON-GAAP FINANCIAL MEASURES AND ANNUALIZED RECURRING REVENUE

To supplement our consolidated financial information, we include 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 the (i) 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 7.

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.

ARR is calculated by taking our non-GAAP 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:

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Deferred compensation (C) 8.5 (6.1) (7.5)

Restructuring and other costs (D) 6.0 — —

Non-GAAP non-operating expense, net:

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INCOME TAX PROVISION (BENEFIT):

GAAP income tax (benefit) provision:

GAAP income tax provision:

$ 119.4 21.0 % $ 81.8 14.2 % $ 4.4 1.1 %

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$ 449.7 $ 492.7 $ 389.9

Non-operating income (expense), net, income tax provision (benefit), and net gain attributable to noncontrolling interests 68.3 29.9 (138.4)

Non-operating income (expense), net, income tax provision, and net gain attributable to noncontrolling interests 61.2 68.3 29.9

GAAP operating income:

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$ 841.5 $ 857.0 $ 719.6

Depreciation expense 42.2 39.7 39.4

Depreciation expense and cloud computing amortization 44.7 42.2 39.7

Income from equity method investments, net 31.1 37.7 39.4

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Non-GAAP revenue

We define Non-GAAP revenue as GAAP revenue, excluding the effects of purchase accounting adjustments.

We define Non-GAAP revenue as GAAP revenue, excluding the effects of purchase accounting adjustments for acquisitions occurring prior to 2021.

We believe this measure helps investors understand the performance of our business including acquisitions, as non-GAAP revenue excludes the effects of certain acquired deferred revenue that was written down to fair value in purchase accounting.

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Non-GAAP non-operating expense, net

We define Non-GAAP non-operating expenses, net as GAAP non-operating expenses, net, excluding acquisition/divestiture items and deferred compensation.

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.

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Non-GAAP diluted net income per share

We defined 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 define Non-GAAP diluted net income per share as GAAP diluted net income per share, excluding the effects of purchase accounting adjustments, acquisition/divestiture items, stock-based compensation, restructuring and other costs, and non-GAAP tax adjustments.

We believe our investors benefit by understanding our non-GAAP operating performance as reflected in a per share calculation as a way of measuring non-GAAP operating performance by ownership in the company.

Adjusted EBITDA

We define Adjusted EBITDA as non-GAAP operating income plus depreciation expense and income from equity method investments, net.

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 expenses.

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

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(i) Acquired deferred revenue adjustment .

We adopted ASU 2021-08 in the fourth quarter of 2021 for all acquisitions occurring in 2021, 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.

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.

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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, exclude unusual one-time acquisition/divestiture charges and/or divestiture gains/losses.

The costs that have been excluded from the non-GAAP measures are costs specific to particular acquisitions.

As a result, these are one-time costs that vary significantly in amount and timing and are not indicative of our core operating performance.

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.

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(D) Restructuring and other costs.

Non- GAAP gross margin and operating expenses exclude restructuring and other exit costs comprised of termination benefits related to reductions in employee headcount, including executive severance agreements, the closure or exit of facilities, and cancellation of certain contracts.

In addition, other costs include COVID-19 expenses incurred as a direct impact from the COVID-19 virus pandemic, such as cancellation fees of trade shows due to public safety issues, additional charges for disinfecting facilities, and personal protective equipment.

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 to be paid over four quarters.

(E) Non-GAAP items tax effected .

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Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-K

Item 7. Management’s Discussion and Analysis