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We affirm our free cash flow projection for the year of approximately 1x non-GAAP net income, reflecting in part our plan to reduce inventory levels. Shortly after the close of the Transporeon acquisition, our pro forma net leverage stood at approximately 3.25x with approximately $3.1 billion in net debt. The debt we raised in connection with our Transporeon acquisition carries an interest rate of approximately 6.3%, in-line with our expectations at the time the deal was announced.
Given our current cash flow projections, we expect to end 2023 with leverage under 3x. We said in our announcement of the Transporeon acquisition that we expected to restore leverage to below 2.5x within 18 months to 24 months following the acquisition.
cutting leverage after Transporeon
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2023 Q1
7 May 23
We continue to expect the gross margins will expand in the range of 300 basis points for the year versus 2022, coming down sequentially in the second quarter and then progressing up again in the second half of the year.
GM guidance for up 300bp in 2022
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2023 Q1
7 May 23
Resources and Utilities segment, revenue was down organically as expected. Like our other hardware centric businesses,
resources/utilities down (hardware centric)
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2023 Q1
7 May 23
Transportation
transportation
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2023 Q1
7 May 23
buildings and infrastructure
buildings/infrsastructuture
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2023 Q1
7 May 23
Backlog of 1.6 billion was up slightly versus the prior quarter and down from 1.7 billion a year ago. Hardware and perpetual software related backlog was down 200 million year-over-year, driven by our dramatically improved lead times. Recurring related backlog was up over 100 million year-over-year and up 40 million sequentially due to our growing bookings of recurring solutions.
backlog down on execvution
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2023 Q1
7 May 23
Our dealers reduced their inventories as expected in the first quarter of this year and we estimate that dealer inventory reductions accounted for roughly 40 million or nearly half of our product revenue decline
40m of the deckine was from deaer inv reductions
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2023 Q1
7 May 23
The first category is products, while the second category is subscriptions and services.
Product revenue consists of hardware offerings, and our non-recurring perpetual software, while subscription and services revenue is predominantly recurring. In presenting our revenue in this way, we are being responsive to investors who increasingly think of our growth separately in recurring and non-recurring revenues. We think this new presentation is better aligned with our strategy going forward.
new reporring of revenue
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2023 Q1
7 May 23
Gross margins in the first quarter benefited from a high level of term license renewals in several of our software businesses so we expect some moderation from this high level in the coming quarters.
GM good, but will moderate
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2023 Q1
7 May 23
Our organic revenue decline in the first quarter is entirely attributable to reductions in dealer inventories.
Gross margins were exceptionally strong in the quarter.
GM strong but dealers reducing inventory
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2023 Q1
7 May 23
Since we announced the deal in December, demand in Europe has slowed. And the mix has shifted towards a greater percentage of contract over spot transactions, which are monetized at a lower rate.
Our guidance reflects what we believe is a de-risked 2023 level of dollar denominated revenue, approximately 10% below what we communicated in December.
While this is disappointing there are also positive signals. Bookings are still expected to grow well over 30% for the year. Market share is holding, customer churn is almost non-existent and our tax rate assumption improved and cross-selling opportunities with Trimble are looking stronger than they did just a few months ago.
transporeon disapointment
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2023 Q1
7 May 23
transportation
transportation
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2023 Q1
7 May 23
resources and utilities
resaources & utilities
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2023 Q1
7 May 23
geospatial
geospatial
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2023 Q1
7 May 23
In our introduction of an all-in-one system for on machine excavator guidance insight serving, demonstrates that we can continue to expand the size of the addressable market by virtue of reaching new machine categories
expanding addressable market
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2023 Q1
7 May 23
n North America, we see strength in infrastructure and non-residential construction such as data centers, renewable energy, and manufacturing, slightly offset by pressure on residential.
infrastructire end market
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2023 Q1
7 May 23
I recognize that consensus numbers and the trading algorithm both still focus on total revenue and EPS.
While these figures are important, they are secondary in relevance to ARR and cash flow, which are much more closely tied to fundamental value creation. Revenue and margins were both above expectations we set with the investor community back in February.
figures ahead
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2023 Q1
7 May 23
EBITDA is our other key P&L metric, and we delivered EBITDA of 27.2%, also slightly ahead of our expectations, which was driven by record gross margins of 64.2%
margin good
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2023 Q1
7 May 23
Cash flow was down year-on-year principally as a result of an increase in our inventories and a change in U.S tax legislation, both of which we expect to normalize over time.
fcf -- inv and rax legislation
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2022 Q4
7 Mar 23
Our cash flow forecast for this year now assumes that amortization of R&D costs under Section 174 of the U.S tax code will not be repealed within a time frame that will allow us to recover the accelerated tax payments that we made in 2022.
While we believe that there is bipartisan support for this change, we are less confident than we were a quarter ago that this legislation will pass soon enough to help us this year. By way of reminder, this issue impacts the timing of tax payments and has an immaterial impact on our tax rate. If Section 174 is repealed within the next several months, our free cash flow would benefit by approximately $150M.
cf assumptions
Transcript
2022 Q4
7 Mar 23