TRMB Trimble Inc. - 10-K

Item 1A. Risk Factors

RISKS AND UNCERTAINTIES

You should carefully consider the following risk factors, in addition to the other information contained in this report and in any other documents to which we refer you in this report, before purchasing our securities. The risks and uncertainties described below are not the only ones we face.

Risks related to our business

We operate globally and are subject to significant risks in many jurisdictions, including risks related to adverse economic, political, regulatory, and other global and regional conditions

We have operations in many countries, and a significant portion of our revenue is derived from countries outside of the United States. As a result, our business, financial condition, and results of operations, including our ability to design, develop, or sell products, has been and may continue to be adversely affected by a number of factors outside of our control, including:

• global and local economic conditions, such as inflation and recession;

• the strength of the engineering, construction, and transportation markets;

• the demand and cost of commodities;

• imposition of new and changing tariffs, which can increase supply costs, create difficulties in forecasting, and affect our business operations;

• imposition of other new and evolving trade barriers, including trade sanctions, duties, and import or export licensing requirements or restrictions;

• government restrictions on our operations in any country, or restrictions on our ability to repatriate earnings from a particular country;

• differing employment practices and labor issues and the challenges and costs of staffing and managing a global workforce;

• volatile geopolitical conditions, including significant regional military conflicts and political and economic instability, in countries where we do business;

• compliance with differing local laws and regulations, including those relating to privacy, labor, and local content;

• ineffective legal protection of our IP rights in certain countries or difficulties procuring or enforcing our IP rights;

• local business and cultural factors that differ from our normal standards and practices, which can include longer payment cycles and difficulties in enforcing agreements and collecting receivables in certain foreign jurisdictions;

• fluctuations in currency rates; and

• uncertainty regarding social, political, immigration, tax, and trade policies in the U.S. and abroad.

A significant trade disruption or the establishment or increase of any trade barrier in any area where we do business—such as through increased tariffs imposed on imports into the U.S. and any resulting retaliatory actions taken by other countries—could increase the cost of our products, which could adversely impact the margin that we earn on sales, make our products more expensive for customers, or create uncertainty around demand for certain types of products, which could make our products less competitive and reduce customer demand or result in supply chain delays. Uncertainty persists around the ongoing heightened trade tensions between the U.S. and its trading partners, the resulting threats and imposition of tariffs (including those intended for foreign policy objectives), and their impacts on the global economy. If ther e were a deterioration in the global economy, the economies of the countries or regions where our customers are located or do business, or the industries that we or our customers serve, the demand for our products and services would likely decrease. In addition, government or customer efforts, attitudes, laws, or policies may lead to non-U.S. customers favoring domestic suppliers that could compete with or replace our products, which would also have an adverse effect on our business. Changes in economic conditions and political uncertainty surrounding international trade also make it difficult to make financial forecasts. Any of the foregoing factors could adversely affect our business, financial condition, and results of operations.

We have experienced disruption in our supply chain and related events, and are subject to ongoing supply chain risks

We are dependent upon a limited number of contract manufacturers for the manufacture, testing, and assembly of certain products and specific suppliers for a number of our critical components. These arrangements can generally be terminated with a limited notice. We are also dependent on a number of suppliers as the sole source of certain materials. Our current reliance on a limited group of contract manufacturers and suppliers involves risks, including the potential inability to obtain products or components to meet customers’ delivery requirements, reduced control over pricing and delivery schedules, and discontinuation of or increased prices for certain components. In addition, substantial increases in demand for certain commodities and components by major AI companies, who are able to pay high prices and acquire significant portions of the available supply, have made it difficult and more expensive to obtain certain commodities and components, and such challenges could continue unless there are increases in supply or decreases in demand by such companies for the affected commodities and components.

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Further, certain components used in our products require long lead times for ordering, and if we do not accurately forecast the need for such components, we may end up with component shortages or excess inventory.

Geopolitical conditions and their impact on our suppliers and international trade in general have previously led to shortfalls in available components we need to make products as well as increased costs to obtain components, to make products, and to transport components and products. The disruptions included extended delivery times for certain components of our hardware products and increased freight costs. Catastrophic events, such as pandemics, acts of war, or natural disasters, and their resulting impacts can also cause shortfalls in available components, as we experienced during the global supply chain shortage in 2021 and 2022. These disruptions had an adverse effect on our ability to meet customer demand, which resulted in delays in shipping products to customers and dealers.

Future disruptions could occur as a result of any number of events, such as:

• inflationary cost increases;

• trade restrictions, tariffs, or duties;

• the imposition of new regulations, quotas, or embargoes on components;

• a scarcity of, or significant increase in the price of, raw materials or required components for our products;

• fluctuations in currency exchange rates;

• third-party interference in the integrity of the products sourced through the supply chain;

• severe weather conditions or natural disasters; and

• civil unrest, military conflicts, geopolitical developments, war, or terrorism.

Any other circumstance that would require us to seek alternative sources of supply or to manufacture, assemble, and test such components internally could significantly delay our ability to ship our products, which could damage relationships with current and prospective customers and could harm our reputation and brand as well as our results of operations.

Lastly, due to supply chain issues, we have in the past and may in the future accumulate excess inventories if we inaccurately forecast demand for our products, or if dealers are unable to work through their excess inventory.

If we are unable to effectively integrate, streamline, and manage our diverse and complex businesses and operations, our ability to generate growth and revenue from new or existing customers may be adversely affected

Because our operations are diverse and complex, our personnel resources and infrastructure could become strained, and our reputation in the market and our ability to successfully manage and grow our business may be adversely affected. The size, complexity, and diverse nature of our business and the expansion of our product lines and customer base have placed increased demands on our management and operations, and future growth may place additional strains on our resources in the future. Our ability to effectively compete and to manage our planned future growth will depend on, among other things, the following:

• maintaining continuity in our senior management and key personnel;

• increasing the productivity of our existing employees;

• attracting, retaining, training, and motivating our employees, particularly our technical and management personnel;

• deploying our solutions using third-party information systems, which may require changes to our applications, documentation, and operational processes;

• improving our operational, financial, and management controls;

• improving our information reporting systems and procedures; and

• successfully implementing AI initiatives, with proper controls, to assist with achieving these objectives.

We have increasingly diversified and modified the nature and mix of our businesses, both organically and by acquisitions and divestitures. As a result, an increasing amount of our business involves business models that require managerial techniques and skill sets that are different from those required to manage our historical core businesses.

Pursuant to our Connect & Scale strategy, we are continuing to invest substantial resources in integrating our product offerings and transitioning our businesses to common core services and systems to achieve economies of scale, simplify our operations, and improve the customer experience. These efforts may result in disruptions to our operations, which could have an adverse effect on our customers, may cost more than we anticipate increasing our expenses, and take longer than planned.

These factors could have an adverse impact on our business, financial condition, and results of operations.

Changes in our software and subscription businesses may adversely affect our revenue

An increasing portion of our revenue is generated through subscription revenue, which includes SaaS and new subscription services for integrated solutions. Our customers have no obligation to renew their agreements for our subscription services after the expiration of their initial contract period, which typically ranges from one to three years , so we must continually provide compelling solutions, improvements, and customer support to retain customer subscriptions .

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Our customer acquisition and renewal rates may decline or fluctuate as a result of a number of factors, including customer preferences and budgetary constraints, overall economic conditions, competitive products and emerging AI offerings, and customer satisfaction or dissatisfaction with our products and services. Customer satisfaction with our products and services is affected by a variety of factors, such as security, reliability, performance, concerns about data privacy, current subscription terms, customer preference, and industry adoption. If customers do not renew their contracts for our products, our subscription revenue will decline, and our financial results will suffer.

Our subscription models provide our customers with the right to access certain of our software in a hosted environment or use downloaded software for a specified subscription period. Market acceptance of such offerings is affected by a variety of factors, such as security, reliability, performance, current license terms, customer preference and industry adoption, social/community engagement, customer concerns with entrusting a third party to store and manage their data, public concerns regarding privacy, and the enactment of restrictive laws or regulations. If we are unable to successfully market and support our subscription offerings, our business, financial condition, and results of operations could be adversely impacted.

We continually re-evaluate our software licensing programs and subscription programs, including specific license models, delivery methods, and terms and conditions. Changes to our licensing programs and subscription programs, including the introduction of new subscription services for integrated solutions that include hardware, the timing of the release of enhancements, upgrades, maintenance releases, the term of the contract, discounts, and promotions, could impact the timing of the recognition of revenue for our products, and adversely affect our cash flow, business, financial condition, and results of operations.

We have identified material weaknesses in our internal control over financial reporting, and if our remediation of such material weaknesses is not effective, it could impact our ability to produce timely and accurate financial statements or comply with applicable laws and regulations.

In the course of preparing our consolidated financial statements as of and for the fiscal year ended December 29, 2023, as included in the Annual Report on Form 10-K for the period ended December 29, 2023 (the “2023 Form 10-K”), we had identified a material weakness related to business combination accounting. A material weakness is a deficiency, or combination of deficiencies, in internal control over financial reporting, such that there is a reasonable possibility that a material misstatement of our annual or interim financial statements will not be prevented or detected on a timely basis.

After filing the 2023 Form 10-K with the SEC, management re-evaluated the effectiveness of our internal control over financial reporting and identified additional material weaknesses in internal control over financial reporting. The Company delayed the filing of its Quarterly Reports on Form 10-Q for the first, second, and third quarters of 2024 until the assessment of the impacts was complete. As a result of the delayed filings, the Company had received notices from the Nasdaq Stock Market LLC (“Nasdaq”) indicating that the Company was not in compliance with Nasdaq Listing Rule 5250(c)(1) (the “Listing Rule”), which requires listed companies to timely file all required periodic financial reports with the SEC. Due to the time required to prepare and file the prior delayed reports, the Company delayed the filing of its Annual Report on Form 10-K for the fiscal year ended January 3, 2025 (the “2024 Form 10-K”).

The Company filed its Amendment No. 1 on Form 10-K/A to the 2023 Form 10-K and its Quarterly Reports on Form 10-Q for the first, second, and third quarters of 2024 with the SEC on January 16, 2025, and the 2024 Form 10-K with the SEC on April 25, 2025. Those filings disclosed additional material weaknesses as described more fully therein. After the filings, the Company regained compliance with the Listing Rule. As a result of our previous failure to timely meet our SEC reporting obligations, we are unable to use Form S-3 for twelve months after that date, which will end in April 2026. This could make accessing the capital markets during this period more costly or less efficient.

Our management, under the oversight of the Audit Committee, has been taking actions to remediate the material weaknesses in our internal control over financial reporting; as described more fully in Part II, Item 9A, “Controls and Procedures” of this report. Unless otherwise described herein, the material weaknesses will not be considered remediated until the applicable remedial controls operate for a sufficient period of time and management has concluded through testing that these controls are operating effectively. If we are not able to successfully remediate these material weaknesses, there is a reasonable possibility that a material misstatement of our annual or interim financial statements will not be prevented or detected on a timely basis. Moreover, if we uncover additional material weaknesses, our financial statements may be inaccurate, and we may be unable to comply with our SEC filing obligations, which could prevent us from using Form S-3 or result in a Nasdaq delisting. In addition, we may be unable to access the capital markets or repurchase our stock if we are not current with our SEC filing obligations.

We may not be able to continue to enter into or maintain important alliances and distribution relationships

We believe that in certain business areas, our success will depend on our ability to form and maintain alliances with industry participants. Our failure to form and maintain such alliances on commercially acceptable terms, or the preemption or disruption of such alliances by the actions of competitors, could adversely affect our ability to sell our products to customers. Our

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relationships with substantial industry participants such as Caterpillar, Nikon, Hilti, and AGCO are likely to evolve over time based upon the changing business needs and objectives of the parties. Evolution of our business strategies and diversification of product portfolios may lead to increased competition with our strategic allies, placing additional pressure on these relationships. Since these strategic relationships contribute to significant ongoing business in certain of our important markets, changes or disruptions in these relationships could adversely affect our sales.

Continuing to develop and expand robust distribution channels is important for maintaining and increasing sales in our dynamic and evolving markets. To do so successfully, we must, together with our partners, continue to invest in developing the sales, marketing, support, and infrastructure requirements for a robust distribution channel. The time and expense required for sales and marketing organizations of our channel partners to become familiar with our product offerings, including our new product developments, and newer types of offering, such as subscription programs for integrated solutions that include hardware, software maintenance, and other recurring services, may make it more difficult to introduce those products to end users and delay end-user adoption, which could result in lower revenue.

As market conditions and our business strategies evolve, we must also evolve our distribution and go-to-market strategies. Our efforts to further develop and expand dealer networks may not be successful, and could cause conflict in our channels or disrupt dealer coverage within specific geographic or end-user markets, which could cause difficulties in marketing, selling, or servicing our products and have an adverse effect on our business, financial condition, and results of operations. We utilize dealer networks to market, sell, and service many of our products in our Field Systems segment. Dealers who carry products that compete with our products may focus their inventory purchases and sales efforts on goods provided by competitors due to industry demand or profitability. Such sourcing decisions can adversely impact our business, financial condition, an d results of operations.

Investing in and integrating new acquisitions or divesting businesses could be costly, place a significant strain on our management systems and resources, or fail to deliver expected outcomes

From time to time, we have divested businesses, including the sale of our agricultural business to a joint venture with AGCO and the sale of our Mobility business to Platform Science. We expect to undertake additional divestitures from time to time in the future. Any such divestiture may result in:

• a disruption of our business;

• reduced synergies, including the loss of scale or key employees;

• impairment of customer relationships; and

• reductions in the breadth of our product offerings.

Divestitures may adversely impact our results if we are unable to offset the dilutive impacts from the loss of revenue associated with the divested products or businesses, or mitigate overhead costs allocated to those businesses. We could also experience higher than expected transaction costs and business sale losses, or post-closing disputes with buyers of our divested businesses, which may adversely affect our business, financial condition, and results of operations. Additionally, we typically agree to certain commercial arrangements with buyers, including to provide certain transitional services and support when we divest a business, and we may face disputes and significant, unanticipated costs in providing such services.

For significant divestitures, these transitional services can take up considerable corporate resources and attention, which may adversely affect our other businesses, operations, and results. In some cases, we have retained an equity position in the entities to which we divest our business units. We have limited control over such entities and the value of such equity stake could decline over time.

We have acquired a number of businesses, and we intend to continue to acquire other businesses. Acquisitions entail numerous risks, including:

• potential inability to successfully integrate acquired operations and products or to realize cost savings or other anticipated benefits from integration;

• loss of key employees or customers of acquired operations;

• difficulty of assimilating geographically dispersed operations and personnel of the acquired companies;

• potential disruption of our business or the acquired business;

• unanticipated expenses related to acquisitions;

• unanticipated difficulties in conforming business practices, policies, procedures, internal controls, and financial records of acquisitions with our own business;

• impairment of relationships with employees, customers, vendors, distributors, or business partners of either an acquired company or our own business;

• inability to accurately forecast the performance of recently acquired businesses, resulting in unforeseen adverse effects on our operating results;

• potential liabilities, including liabilities resulting from known or unknown compliance or legal issues, associated with an acquired business; and

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• adverse accounting impact to our results of operations because of purchase accounting treatment and the business or accounting practices of acquired companies.

Any such effects from acquisitions could be costly and place a significant strain on our management systems and resources.

As a result of acquisitions, we have significant assets that include goodwill and other purchased intangibles. The testing of goodwill and intangibles for impairment under GAAP requires us to make significant judgments and assumptions. Changes in business conditions or in the prospects or results of operations of the acquired business could require adjustments to the valuation of these assets resulting in impairments that would adversely affect our results. In addition, changes in the operating results or the valuation of companies in which we have investments may have a direct impact on our financial statements or could result in our having to write down the value of such investment.

Acquisitions may not yield expected synergies, may not grow, scale, or advance our business strategy as expected, may fall short of expected return-on-investment targets, or may not prove successful or effective for our business. Companies that we acquire may operate with different cost and margin structures, which could further cause fluctuations in our operating results and adversely affect our business, financial condition, and results of operations.

We have non-controlling stakes and ongoing commercial relationships with businesses that we have divested, including a joint venture (JV) with AGCO, which are subject to various risks, including the failure to realize intended benefits, unanticipated challenges, and other uncertainties

In April 2024, we contributed our precision agriculture business (“Ag”) , excluding certain Global Navigation Satellite System (“GNSS”) and guidance technologies, to a JV with AGCO, of which we retained a 15% stake. The risks and uncertainties associated with the JV include that (i) we may fail to realize the anticipated benefits of our non-controlling stake in the JV, (ii)  the benefits from the various agreements entered into concurrently with forming the JV (including long-term supply agreements) will be dependent upon the JV’s ability to successfully develop, market and distribute products, (iii) unanticipated factors may arise that affect the cost of operating the JV as a standalone business, and (iv) the development of technology synergies will depend on the level of research and development spending and the success of future innovation.

We also maintain a minority, non-controlling interest in Platform Science, a private company that acquired our Mobility business in February 2025, and we continue to provide products and services to Platform Science under various commercial relationships. The value of our minority equity interest in Platform Science, as well as the commercial benefits that we may realize from our commercial relationships, will depend upon the performance of Platform Science and the Mobility business, which we do not control.

We face substantial competition in our markets, which could decrease our revenue and growth rates

Our markets are highly competitive, and we expect that both direct and indirect competition will increase in the future. Our overall competitive position depends on a number of factors including the price, quality, and performance of our products, the effectiveness of our distribution channel and direct sales force, the level of customer service, the development of new technology, and our ability to participate in emerging markets. AI functionality is becoming increasingly important, and if we do not develop and expand our AI capabilities on pace with our competitors, our product offerings may fall behind. Generative AI may also enable other parties to rapidly develop products and functionality that compete with our product offerings. Within each of our markets, we encounter direct competition from other GNSS, software, optical, and laser suppliers, and competition may intensify from various larger U.S. and non-U.S. competitors and new market entrants. Our products, which commonly use GNSS for basic location information, may be subject to competition from alternative location technologies such as simultaneous location and mapping technology. In our software and subscription services businesses, we face competition from a group of large, well-established companies, particularly in the areas of design software, enterprise resource planning (“ERP”) solutions, and collaboration and project management offerings. Our integrated hardware and software products may be subject to increasing competition from mass market devices such as smartphones and tablets used in conjunction with relatively inexpensive applications, which have not been heavily used for commercial applications in the past.

These competitive developments may require us to rapidly adapt to technological and customer preference changes, including those related to cloud computing, mobile devices, new computing platforms, and, increasingly, AI technology. Such competition can result in price reductions, reduced margins, or loss of market share, any of which could decrease our revenue and growth rates. We believe that our ability to compete successfully in the future against existing and additional competitors will depend largely on our ability to execute our strategy to provide products with significantly differentiated features compared to currently available products. We may not be able to implement this strategy successfully, and our products may not be competitive with other technologies or products that may be developed by our competitors, many of whom have significantly greater financial, technical, manufacturing, marketing, sales, and other resources than we do.

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If we are unable to attract and retain qualified personnel, our business could be harmed

Our continued success depends, in part, on our ability to hire and retain qualified personnel, advance our corporate strategy, and preserve the key aspects of our corporate culture. Because our future success is dependent on our ability to continue to enhance and introduce new products, we are particularly dependent on our ability to hire and retain qualified engineers, including in areas of technology such as GNSS, software programming, information systems, data analytics, and AI. In addition, to increase revenues, we may be required to increase the size and productivity of our sales and channel management groups. Competition for qualified employees in our major locations can be intense. Our inability to hire and retain qualified management and skilled personnel, particularly engineers, salespeople, and key executive management, could disrupt our development efforts, sales results, business relationships, and our ability to execute our business plan and strategy on a timely basis and could materially and adversely affect our business, financial condition, and results of operations. In addition, any future reductions in force or other restructuring intended to improve operational efficiencies and operating costs, may adversely affect our ability to attract and retain qualified personnel.

Equity grants are a critical component of our current compensation programs. If we fail to grant equity competitively, we may have difficulty attracting and retaining critical employees.

Risks related to our technology and products

Our products are highly technical and may contain undetected errors, product defects, or security vulnerabilities

Our products are highly technical and complex and, when deployed, may contain errors, defects, or security vulnerabilities. We must develop our products quickly to keep pace with the rapidly changing market, and we have a history of frequently introducing new products. Products and services as sophisticated as ours could contain undetected errors or defects, especially when first introduced or when new models or versions are released. Such occurrences could result in damage to our reputation, lost revenue, diverted development resources, increased customer service and support costs, warranty claims, and litigation.

We warrant that our products will be free of defects for various periods of time, depending on the product. In addition, certain of our contracts include epidemic failure clauses. If invoked, these clauses may entitle the customer to return or obtain credits for products and inventory, or to cancel outstanding purchase orders even if the products themselves are not defective.

Errors, viruses, or bugs may be present in software or hardware that we acquire or license from third parties and incorporate into our products or in third-party software or hardware that our customers use in conjunction with our products. Our customers’ proprietary software and network firewall protections may corrupt data from our products or create difficulties in implementing our solutions. Changes to third-party software or hardware that our customers use in conjunction with our software could also render our applications inoperable. Any errors, defects, or security vulnerabilities in our products or any defects in, or compatibility issues with, any third-party hardware or software or customers’ network environments discovered after commercial release could result in loss of revenue or delay in revenue recognition, loss of customers, theft of trade secrets, data or intellectual property, and increased service and warranty cost, any of which could adversely affect our business, financial condition, and results of operations.

Undiscovered vulnerabilities in our products alone or in combination with third-party hardware or software could expose them to hackers or other unscrupulous third parties who develop and deploy viruses and other malicious software programs that could attack our products. Actual or perceived security vulnerabilities in our products could harm our reputation and lead some customers to return products, reduce or delay future purchases, or use competitive products.

Our internal and customer-facing systems, and systems of third parties we rely upon, may be subject to cybersecurity breaches, disruptions, or delays

A cybersecurity incident in our own systems or the systems of our third-party providers may compromise the confidentiality, integrity, or availability of our own internal data, the availability of our products and websites designed to support our customers, or our customer data. Computer hackers, foreign governments, cybercriminals, or cyber terrorists may attempt to or succeed in penetrating our network security and our website. The growing availability of AI tools has increased the sophistication of attacks, enabling more convincing phishing schemes, automated vulnerability discovery, and the rapid creation of novel malware. Additionally, due to geopolitical tensions, we and our third-party vendors may be vulnerable to a heightened risk of cybersecurity attacks, phishing attacks, viruses, malware, ransomware, hacking, or similar breaches and incidents from nation-state actors or affiliated actors, including attacks that could materially disrupt our systems and operations, supply chain, and ability to produce, sell, and distribute our products and services. Unauthorized access to our proprietary business information or customer data may be obtained through break-ins, sabotage, breach of our secure network by an unauthorized party, computer viruses, computer denial-of-service attacks, exploitation of zero-day vulnerabilities, employee theft or misuse, breach of the security of the networks of our third-party providers, or other misconduct. Additionally, outside parties may attempt to fraudulently induce employees or users to disclose user credentials or other sensitive or confidential information to gain access to data.

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We have experienced security breaches in the past, and despite our efforts to maintain the security and integrity of our systems, it is impossible to eliminate this risk. Because the techniques used by computer hackers who may attempt to penetrate and sabotage our network security or our website change frequently, they may take advantage of weaknesses and vulnerabilities in third-party software, hardware and other technology or standards, of which we are unaware or that we do not control, and these weaknesses may not be recognized until after such attempts have been launched against a target. We may be unable to anticipate or counter these techniques. It is also possible that unauthorized access to customer data or confidential information may be obtained through inadequate or ineffective security controls used by our customers, vendors, or business partners. Efforts to prevent hackers from disrupting our service or otherwise accessing our systems are expensive to develop, implement, and maintain. Such efforts require ongoing monitoring and updating as technologies change, and efforts to overcome security measures become more sophisticated, and may limit the functionality of, or otherwise adversely impact our service offering and systems. A cybersecurity incident affecting our systems may also result in theft of our intellectual property, proprietary data, or trade secrets, which would compromise our competitive position, reputation, and operating results. We also may be required to notify regulators about any actual or perceived personal data breach (including the EU Lead Data Protection Authority) as well as the individuals who are affected by the incident within strict time periods.

The systems we rely upon also remain vulnerable to damage or interruption from a number of other factors, including access to the internet, the failure of our network or software systems, or significant variability in visitor traffic on our product websites, earthquakes, floods, fires, power loss, telecommunication failures, computer viruses, human error, and similar events or disruptions. Some of our systems are not fully redundant, and our disaster recovery planning is not sufficient for all eventualities. Our systems are also subject to intentional acts of vandalism. Despite any precautions we may take, the occurrence of a natural disaster, a decision by any of our third-party hosting providers to close a facility we use without adequate notice for financial or other reasons, or other unanticipated problems at our hosting facilities could cause system interruptions and delays, and result in loss of critical data and lengthy interruptions in our services.

We rely on our information systems and those of third parties for activities such as processing customer orders, delivery of products, hosting and providing services and support to our customers, billing and tracking our customers, hosting and managing our customer data, and otherwise running our business. Any disruptions or unexpected incompatibilities in our information systems and those of the third parties upon whom we rely could have a significant impact on our business.

An increasing portion of our revenue comes from SaaS solutions and other hosted services in which we store, retrieve, communicate, and manage data that is critical to our customers’ business systems. Disruption of our systems that support these services and solutions could cause disruptions in our customers’ systems and in the businesses that rely on these systems. Any such disruptions could harm our reputation, create liabilities to our customers, hurt demand for our services and solutions, and adversely impact our business, financial condition, and results of operations.

We are dependent on new products and services, and if we are unable to successfully introduce them into the market or to effectively compete with new, disruptive product alternatives, our customer base may decline or fail to grow as anticipated

Our future revenue stream depends to a large degree on our ability to bring new products and services to market on a timely basis. We must continue to make significant investments in research and development to continue to develop new products and services, enhance existing products, and achieve market acceptance of such products and services. AI functionality is becoming increasingly important, and we must continue to develop and expand our AI capabilities. We may encounter problems in the future in innovating and introducing new products and services. Our development-stage products may not be successfully completed or, if developed, may not achieve significant customer acceptance. Development and manufacturing schedules for technology products are difficult to predict, and we might not achieve our goals as to the timing of introducing new technology products, or we could encounter increased costs. The timely availability and cost-effective production of these products in volume and their acceptance by customers are important to our future success. If we are unable to introduce new products and services, if other companies develop competing technology products and services, or if we do not develop compelling new products and services, our number of customers may not grow as anticipated, or may decline, which could harm our operating results.

Many of our offerings are increasingly focused on software and subscription services. The software industry is characterized by rapidly changing customer preferences, which require us to address multiple delivery platforms, new mobile devices, and cloud computing. Lifecycles of software products can be short, and this can exacerbate the risks associated with developing new products. The introduction of third-party solutions embodying new, disruptive technologies, the potentially transformative impact of AI, and the emergence of new industry standards could make our existing and future software solutions and other products obsolete or non-competitive. If we are not able to develop software and other solutions that address the increasingly sophisticated needs of our customers, or if we are unable to adapt to new platforms, technologies, including AI, or new industry standards that impact our markets, our ability to retain or increase market share could be adversely affected, harming our business, financial condition, and results of operations.

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Our use of artificial intelligence, or AI, and generative AI tools presents risks and challenges that could adversely affect our business and require that we incur substantial costs

We use AI and generative AI tools in our products, services, and operations, including customer service, data analytics, product development, and code creation. AI is a rapidly evolving and disruptive technology, and the long-term implications of its use are still uncertain. We expect that the increasing adoption and use of AI technologies will continue to accelerate and have significant impacts on our business and the industries we serve. Our use of AI exposes us to a unique and rapidly evolving set of risks, including the following:

• Our AI strategy requires substantial investment in technology and talent, and there can be no assurance that our investments will be beneficial to our business. Our competitors may incorporate AI more quickly or successfully, and our solutions could become less competitive as a result.

• AI-related laws and regulations in the U.S. and other countries are rapidly evolving and are subject to significant uncertainty, and could impose significant compliance costs, restrict certain AI applications, or require us to alter our AI-related practices.

• AI may produce erroneous or misleading content, and outputs that infringe on the IP or data privacy rights of others. Although we take measures to address the accuracy and appropriate use of generative AI content, including through internal AI policies and training, these efforts may not always be successful.

• Any failure by our personnel, contractors, or partners to adhere to our AI policies, or otherwise use AI in an inappropriate manner, could result in violations of confidentiality obligations and laws or regulations, jeopardize our IP rights, expose us to data privacy risks, or expose our products or business systems to defects and malware.

If we fail to navigate these challenges effectively, we could suffer reputational, technical, or competitive harm and our business and results of operations could be negatively affected.

Some of our products rely on third-party technologies including open-source software, which could result in product incompatibilities or harm availability of our products and services

We license software, technologies, and intellectual property underlying some of our software from third parties. The third-party licenses we rely upon may not continue to be available to us on commercially reasonable terms, or at all, and the software and technologies may not be appropriately supported, maintained, or enhanced by the licensors, resulting in development delays. Some software licenses are subject to annual renewals at the discretion of the licensors. In some cases, if we were to breach a provision of these license agreements, the licensor could terminate the agreement immediately. To the extent that the licensed software or technology is embedded in our products, the loss of licenses or a substantial increase in the cost of the license for, or the lack of support and maintenance of, such third-party software or technology could result in increased costs, delays in software releases or updates, or suspension of sales, until such issues have been resolved.

We also incorporate open-source software into our products. Although we monitor our use of open-source software, the terms of many open-source licenses have not been interpreted by U.S. courts, and there is a risk that such licenses could be construed in a manner that could impose unanticipated conditions or restrictions on our ability to market or sell our products or to develop new products. In such event, we could be required to seek licenses from third parties in order to continue offering our products, to disclose and offer royalty-free licenses in connection with our own source code, to re-engineer our products, or to discontinue the sale of our products in the event re-engineering cannot be accomplished on a timely basis, any of which could adversely affect our business, financial condition, and results of operations.

We are dependent on proprietary technology, which could result in litigation that could divert significant valuable resources

Our future success and competitive position are dependent upon our proprietary technology, and we rely on patent, trade secret, trademark, and copyright laws to protect our intellectual property. The patents owned or licensed by us may be invalidated, circumvented, infringed, or challenged. The rights granted under these patents may not provide competitive advantages to us. Any of our pending or future patent applications may not be issued within the scope of the claims sought by us, if at all.

Despite our efforts to protect our intellectual property rights, unauthorized parties may attempt to copy or otherwise obtain our software or develop software with the same functionality or to obtain and use information that we regard as proprietary. Others may develop technologies that are similar or superior to our technology, duplicate our technology, or design around the patents owned by us. In addition, effective copyright, patent, and trade secret protection may be unavailable, limited, or not applied for in certain countries. The steps taken by us to protect our technology might not prevent the misappropriation of such technology.

The value of our products relies substantially on our technical innovation in fields in which there are many current patent filings. Third parties may claim that we or our customers (some of whom are indemnified by us) are infringing their intellectual property rights. For example, individuals and groups may purchase intellectual property assets for the purpose of asserting claims of infringement and attempting to extract settlements from us or our customers. As new patents are issued or are brought to our attention by the holders of such patents, it may be necessary for us to secure a license from such patent holders, redesign

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our products, or withdraw products from the market. In addition, the legal costs and engineering time required to safeguard intellectual property or to defend against litigation could become a significant expense of operations. Any such litigation could require us to incur substantial costs and divert significant valuable resources, including the efforts of our technical and management personnel, which could harm our business, financial condition, and results of operations.

We are dependent on the availability and unimpaired use of allocated bands within the radio frequency spectrum; our products may be subject to harmful interference from new or modified spectrum uses

Our GNSS technology is dependent on the use of satellite signals and on terrestrial communication bands. International allocations of radio frequency are made by the International Telecommunications Union (“ITU”), a specialized technical agency of the United Nations. These allocations are further governed by radio regulations that have treaty status and which may be subject to modification every two to three years by the World Radio Communication Conference. Each country also has regulatory authority over how each band is used in the country. In the United States, the Federal Communications Commission (“FCC”) and the National Telecommunications and Information Administration share responsibility for radio frequency allocations and spectrum usage regulations.

Any ITU or local reallocation of radio frequency bands, including frequency band segmentation and sharing of spectrum, or other modifications of the permitted uses of relevant frequency bands, may materially and adversely affect the utility and reliability of our products and have significant adverse impacts on our customers, both of which could reduce demand for our products. For example, in 2020 the FCC approved a proposal by a private party to repurpose spectrum adjacent to the authorized GNSS bands for terrestrial wireless operations throughout the United States, which would have created harmful interference to GNSS receivers. The Company opposed this proposal, along with other participants in commercial and governmental sectors that rely on the use of GNSS in their critical activities. The private party involved ultimately disclaimed any plans to implement such terrestrial operations, but this proposal or similar ones could be revived in the future and other countries have considered proposals for use of frequencies that could cause harmful interference to our products. Such interference could degrade our product performance, damage our customer relationships, and require us to make expensive changes to our network of receivers.

Many of our products use other radio frequency bands, such as the public land mobile radio bands, together with the GNSS signal, to provide enhanced GNSS capabilities, such as real-time kinematics precision. The continuing availability of these non-GNSS radio frequencies is essential to provide enhanced GNSS products to our precision survey, and construction machine controls markets. In addition, transmissions and emissions from other services and equipment operating in adjacent frequency bands or in-band may impair the utility and reliability of our products. Any regulatory changes in spectrum allocation or in allowable operating conditions could have a material adverse effect on our business, financial condition, and results of operations.

Many of our products rely on GNSS technology, GPS and other satellite systems, which may become degraded or inoperable and result in lost revenue

GNSS technology, GPS satellites, and their ground support systems are complex electronic systems subject to electronic and mechanical failures and possible intentional disruption. Many of the GPS satellites currently in orbit have outlived their expected lifespans and are subject to damage by the hostile space environment in which they operate. If a significant number of satellites were to become inoperable, there could be a substantial delay before they are replaced with new satellites. A reduction in the number of operating satellites below the 24-satellite standard established for GPS may impair the utility of the GPS system and the growth of current and additional market opportunities. In addition, natural phenomena such as solar storms, software updates to GPS satellites and ground control segments, and infrequent known constellation-related events, such as GPS week number rollover, may adversely affect our products and customers. We depend on public access to open technical specifications in advance of system updates to mitigate these problems, which may not be available or complete.

We are dependent on the continued operation of GPS, which is one of the principal GNSS currently in operation. The GPS constellation is operated by the U. S. government, which is committed to maintenance and improvement of GPS. If supporting policies were to change, or if user fees were imposed, it could have an adverse effect on our business, financial condition, and results of operations.

Many of our products also use signals from systems that augment GPS, such as the Wide Area Augmentation System and National Differential GPS System, and satellites transmitting signal corrections data on mobile satellite services frequencies utilized by our RTX corrections services. Some of these augmentation systems are operated by the U.S. government and rely on continued funding and maintenance of these systems. Any curtailment of the operating capability of these systems or limitations on access to, or use of the signals, or discontinuance of service could result in degradation of our services or product performance, with an adverse effect on our business, financial condition, and results of operations.

Many of our products use satellite signals available globally from the Russian GLONASS, China’s BeiDou, and the European Galileo GNSS Systems. Other countries have developed regional GNSS systems, such as India’s NavIC and Japan's QZSS,

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which we support in some products. National or European authorities may provide preferential access to signals to companies associated with their markets, including our competitors, which could harm our competitive position. Geopolitical tensions could also result in the restriction of our usage of such satellite signals. Use of non-U.S. GNSS signals are also subject to FCC regulation and to restrictions based upon international trade or geopolitical considerations. From time to time, government officials and other interested parties have questioned whether continued use of the Russian GLONASS and Chinese BeiDou GNSS signals violates FCC rules and policies. If use of these signals was restricted by the U.S. government, we would be unable to develop and offer timely and competitive commercial products using these systems, or obtain timely and equal access to service signals, this could impact the performance of our products, harm our competitive position, and result in lost revenue.

Regulatory risks

Compliance with international and U.S. laws and regulations that apply to our international operations can be complex, and exposes us to various risks related to potential non-compliance

As a global company, our business is subject to a complex and evolving set of international and U.S. laws and regulations, including export control laws, import and trade restrictions or sanctions, anti-bribery laws, anti-competition regulations, data privacy requirements, labor relations laws, and tax laws.

Many of our products are subject to U.S. export law restrictions that limit the destinations and types of customers to which our products may be sold or that require an export license in connection with sales outside the United States. Given the complexity of these laws, there is a heightened risk that some provisions may be breached, either intentionally or inadvertently. Also, we may be held liable for actions taken by our local dealers and partners. Violations of these laws and regulations could result in fines, criminal sanctions against us or our employees, and prohibitions or conditions on the conduct of our business or our ability to offer our products in one or more countries.

We operate in many parts of the world that have experienced significant governmental corruption to some degree. In response to foreign corruption, some countries have adopted anti-corruption and anti-bribery laws, such as the U.S. Foreign Corrupt Practices Act (FCPA) and the U.K. Bribery Act. In certain circumstances, strict compliance with anti-bribery laws may conflict with local customs and practices. We may be subject to competitive disadvantages to the extent that our competitors are able to secure business, licenses, or other preferential treatment by making payments to government officials and others in positions of influence or through other methods that relevant law and regulations prohibit us from using. Our success depends, in part, on our ability to anticipate these risks and manage these difficulties.

Changes in any of these areas could increase our compliance burden, raise our operating costs, or require us to alter our business practices. Violations of these diverse regulatory systems could result in financial penalties or operational disruptions and could harm our brand, our international expansion efforts, our ability to attract and retain employees, and our business, financial condition and results of operations.

We are subject to evolving and potentially conflicting data privacy and data security laws in the United States and other jurisdictions, which could involve substantial costs and adversely impact our business

We collect, process, and store sensitive data, including personal information, for our customers and for our own business operations. As a result, we are subject to a complex and evolving patchwork of data privacy and data security laws and regulations in the United States and other jurisdictions in which we operate. These include the EU Data Act, Europe's General Data Protection Regulation (GDPR), which carries fines of up to 4% of global annual revenue, and a growing number of comprehensive state-level privacy laws in the U.S., including the California Privacy Rights Act (CPRA) and similar legislation in other states. These laws and regulations impose numerous obligations on our business, including those relating to the collection, use, disclosure, transfer, destruction, and security of personal information. The requirements under these laws are often complex, vary by jurisdiction, and can be subject to unclear or conflicting interpretations, as well as a lack of interpretive guidance from regulators.

In addition, our use of AI and machine learning relies on access to large datasets, which creates novel data privacy challenges. Evolving laws and regulations governing AI may impose new restrictions on how we collect and use data to train our models, potentially limiting our ability to innovate.

As a global company, we regularly transfer personal data across borders. These international transfers of personal data are subject to significant regulatory scrutiny, which present ongoing compliance challenges and can complicate our business transactions and operations. In addition, some countries are considering or have passed legislation that requires local storage and processing of data, including geospatial data, which could impact our ability to deliver cloud-based solutions in an efficient manner.

Amendments and revisions to existing data privacy legislation, and other developments impacting data privacy and data protection may require us to modify our data processing practices and policies, increase the complexity of providing our products and services and cause us to incur substantial costs in an effort to comply. Failure to comply with these data privacy

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and data security laws and regulations may lead to significant fines, private litigation, reputational harm, and business interruption.

We are subject to the impact of governmental and other certifications processes and regulations, which could adversely affect our products and our business

We market many products that are subject to governmental regulations and certifications before they can be sold. As we develop and enhance features which support automated and autonomous operation of our products, we are increasingly subject to functional safety regulation. Conformité Européenne (CE) certification is required for GNSS receivers and data communications products, which must also conform to the European harmonized GNSS receiver requirements and the radio equipment directive to be sold in the European community. In the future, the U.S., European, or other governmental authorities may propose GPS receiver testing and certification for compliance with published GPS signal interface or other specifications. Governmental authorities may also propose other forms of GPS receiver performance standards, which may limit design alternatives, hamper product innovation, or impose additional costs. Some of our products that use integrated radio communication technology require product type certification and some products require an end user to obtain licensing from the FCC and other national authorities for frequency-band usage. Compliance with evolving product regulations in our major markets could require that we redesign our products, cease selling products in certain markets, and increase our costs of product development. An inability to obtain required certifications in a timely manner could adversely affect our ability to bring our products to market and harm our customer relationships. Failure to comply with evolving requirements could result in fines and limitations on sales of our products.

Financial and tax risks

Our debt could adversely affect our cash flow and prevent us from fulfilling our financial obligations

At the end of 2025, our total debt, comprised of senior notes, was $1.4 billion. When our senior notes mature, we will have to utilize significant resources to repay these senior notes or seek to refinance them. If we decide to refinance the senior notes, we may be required to do so on different or less favorable terms, which may adversely affect our results of operation. Any downgrade by credit rating agencies could adversely affect our cost of borrowing, limit our access to the capital markets, or result in more restrictive covenants in future debt agreements.

Our outstanding indebtedness could have other important consequences, such as:

• decreasing our business flexibility, limiting access to capital, and/or increasing our borrowing costs;

• requiring us to dedicate a portion of our cash flow from operations and other capital resources to debt service, thereby reducing our ability to fund working capital, capital expenditures, general corporate purposes, and other cash requirements, particularly if the ratings assigned to our debt securities by rating organizations were revised downward;

• increasing our vulnerability to adverse economic and industry conditions;

• reducing our ability to make investments and acquisitions, which support the growth of the company, or to repurchase shares of our common stock; and

• limiting our flexibility in planning for, or reacting to changes and opportunities in our industry, which may place us at a competitive disadvantage.

There are various financial covenants and other restrictions in our debt instruments, including a requirement to timely file our SEC reports. If we fail to comply with any of these requirements, the related indebtedness (and other unrelated indebtedness) could become due and payable prior to its stated maturity, and we may not be able to repay the indebtedness that becomes due. A default under our debt instruments may also significantly affect our ability to obtain additional or alternative financing.

Our ability to make scheduled payments or to refinance our obligations with respect to indebtedness will depend on our operating and financial performance, which in turn, is subject to prevailing economic conditions and to financial, business, and other factors beyond our control. A portion of our outstanding debt has interest rates that float based on prevailing interest rates, and we may incur additional variable-rate debt in the future. Such rates tend to fluctuate based on general economic conditions, general interest rates, Federal Reserve rates, and the supply of and demand for credit in the relevant interbanking market. If interest rates increase, our interest expense will also increase as would the costs of refinancing existing indebtedness or obtaining new debt.

Significant increases in our level of indebtedness could impact the ratings assigned to our debt securities by rating organizations, which in turn would increase the interest rates and fees that we pay in connection with our indebtedness.

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Changes in our effective tax rate may reduce our net income in future periods

We are subject to income and other taxes in the United States and numerous foreign jurisdictions. Significant judgment is required to determine and estimate worldwide tax liabilities. While we believe our tax positions are consistent with the tax laws in the jurisdictions in which we conduct our business, it is possible that these positions may be contested or overturned by jurisdictional tax authorities, which may have a significant impact on our global provision for income taxes. Our effective tax rate is primarily subject to the geographic mix of earnings, statutory rates, intercompany transfer pricing, and enacted tax laws.

A number of factors may increase our future effective tax rates, including:

• the jurisdictions in which profits are determined to be earned and taxed;

• the resolution of issues arising from tax audits with the U.S. and foreign tax authorities;

• changes in our intercompany transfer pricing methodology;

• changes in the valuation of our deferred tax assets and liabilities;

• increases in expense not deductible for tax purposes, including transaction costs and impairments of goodwill in connection with acquisitions;

• changes in the realizability of available tax credits;

• changes in share-based compensation;

• changes in tax laws or the interpretation of such tax laws; and

• changes in generally accepted accounting principles.

The jurisdictions where we do business may change tax laws, regulations, and interpretations on a prospective or retroactive basis and these potential changes could adversely affect our effective tax rates and impact our financial results.

The Organization of Economic Cooperation and Development (“OECD”) introduced, and member countries agreed to, a framework that imposes a minimum tax of 15% to certain multinational enterprises. To date, certain member countries have implemented the framework, and while the impact to our fiscal year 2025 financial results was minimal, we will continue to monitor and evaluate the implications.

We are currently in various stages of multiple year examinations by U.S. federal, state, and foreign taxing authorities. If taxing authorities of any jurisdiction were to successfully challenge a material tax position, we could become subject to higher taxes and our earnings could be adversely affected.

We may be affected by fluctuations in currency exchange rates

Approximately half of our revenue is derived from sales to customers outside of the U.S., and we are potentially exposed to adverse as well as beneficial movements in currency exchange rates. Historically, the majority of our revenue contracts are denominated in U.S. Dollars, with the most significant exception being Europe, where we invoice primarily in Euro. Additionally, a portion of our expenses, such as the cost to manufacture and costs of personnel, are denominated in foreign currencies, primarily the Euro. An increase in the value of the dollar could increase the real cost to our customers of our products in those markets outside the U.S. where we sell in dollars, and a weakened dollar could increase the cost of local operating expenses, procurement of raw materials from sources outside the U.S., and overseas capital expenditures. We also conduct certain investing and financing activities in local currencies. Our foreign exchange forward contracts reduce, but do not eliminate, the impact of currency exchange rate movements; therefore, changes in exchange rates could harm our business, financial condition, and results of operations.

Risks related to ownership of our stock

Our stock price is volatile

The market price of our common stock has been, and may continue to be, highly volatile. During 2025, our stock price ranged fro m $52.91 to $87.50. A variety of factors can cause the price of our common stock to fluctuate, potentially substantially, including:

• quarterly fluctuations in our actual or anticipated operating results and order levels;

• announcements and reports of developments related to our business, financial statements and performance, our major customers and partners, and the industries in which we compete, or the industries in which our customers compete;

• delays in filing our SEC reports;

• security breaches;

• acquisition, divestiture, and joint venture announcements;

• new products or product enhancements (including AI) announced or introduced by us or our competitors;

• disputes with respect to developments in patents or other intellectual property rights;

• developments in our relationships with our partners, customers, and suppliers;

• the imposition of tariffs or other trade barriers;

• political, economic, or social uncertainty;

• general conditions in the worldwide economy;

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• catastrophic or geopolitical events, including global pandemics; and

• acts of terrorism.

In addition, the stock market in general and the markets for shares of “high-tech” companies in particular have frequently experienced extreme price fluctuations, which have often been unrelated to the operating performance of affected companies.

Our annual and quarterly performance fluctuates, which can adversely impact our stock price

Our operating results have fluctuated and can be expected to continue to fluctuate in the future on a quarterly and annual basis as a result of a number of factors, many of which are beyond our control. Results in any period could be affected by:

• changes in market demand;

• competitive market conditions;

• supply chain disruptions;

• the amount of inventory that our dealer networks carry;

• the timing of recognizing revenue;

• fluctuations in foreign currency exchange rates;

• the cost and availability of components;

• the mix of our customer base and sales channels;

• the mix of products sold;

• pricing of products;

• execution of objectives and key results;

• changes in the U.S. or foreign policies on taxes, trade, tariffs, or spending;

• geopolitical tensions and uncertainties;

• regional responses and restrictions related to global pandemics;

• the number of weeks in a fiscal period, which may differ period over period; and

• other risks, including those described below.

Seasonal variations in demand for our products may also affect our quarterly results. For instance, construction equipment revenue has historically been the highest in early spring. If we do not accurately forecast seasonal demand, we may be left with unsold inventory or have a shortage of inventory, which could adversely impact our business, financial condition, and results of operations.

Due in part to the buying patterns of our customers, a portion of our hardware revenue occurs from orders received and immediately shipped to customers in the last few weeks and days of each quarter, while our operating expense tends to remain fairly predictable. These patterns could harm our operating results if for any reason expected sales are deferred, orders are not received, or shipments are delayed a few days at the end of a quarter.

The price of our common stock could decline substantially in the event any of these risks result in our financial performance being below the expectations of public market analysts and investors, which are based on historical and predictive models that are not necessarily accurate representations of the future.

General risk factors

Claims and lawsuits against us, negative regulatory outcomes, or other events that adversely affect our reputation, could harm our business

We are subject to a variety of claims and lawsuits. Adverse outcomes in some or all of these claims may result in significant monetary damages or injunctive relief that could adversely affect our ability to conduct business. Litigation and other claims are subject to inherent uncertainties, and the outcomes can be difficult to predict. Management may not adequately reserve for a contingent liability, or may suffer unforeseen liabilities, which could then adversely affect the results of a financial period. A material adverse impact on our consolidated financial statements could occur for the period in which the effect of an unfavorable final outcome becomes probable and reasonably estimable which, if not expected, could harm our business, financial condition, and results of operations.

Our ability to attract and retain investors, customers, and employees could be adversely affected by damage to our reputation resulting from various events including litigation or regulatory outcomes, as well as failure to deliver minimum standards of service, quality, and security; compliance failures; employee misconduct or unethical behavior; unintended breach of confidential information; or the activities of our customers and commercial partners. Such events, and the resulting damage to our reputation, could harm our business, financial condition, and results of operations.

Catastrophic events or geopolitical conditions could disrupt our operations

Acts of war, acts of terrorism or civil unrest, natural disasters, pandemics, and other catastrophic events, especially any events that affect our larger markets or GNSS signals or systems, could have a material adverse impact on our business. The threat of

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terrorism and war and heightened security and military activity in response to such a threat, or any future acts of terrorism or hostilities, may involve a redeployment of the satellites used in GNSS or interruptions of the system. Civil unrest, local conflicts, or other political instability may adversely impact regional economies, cause work stoppages or trade interruptions, or result in limitations on business transactions with the affected jurisdictions. To the extent that such interruptions result in delays or the cancellation of orders, disruption of the manufacturing or shipment of our products, or reduced demand for our products, these interruptions could have a material adverse effect on our business, financial condition, and results of operations.

Geopolitical tensions and military conflicts, including the effects of significant trade barriers and sanctions on the world economy and markets, possible retaliatory cyber-attacks, and supply chain disruptions, have contributed to increased market volatility and uncertainty, and could adversely affect our business and renew the prior supply chain challenges that we have faced in the past. Sanctions, embargoes, regional instability, geopolitical shifts, and adverse effects on macroeconomic conditions, could lead to the unavailability and increased cost of raw materials, supplies, freight, and labor, and negatively affect currency exchange rates and our suppliers, customers, and potential consumer demand for our products, all of which could have a negative effect on our business, financial condition, and results of operations.

In response to the imposition of significant new tariffs on the importation of goods from various countries, we have restructured our global fulfillment network, moving away from a largely centralized inventory in the U.S. to maintaining more commodity, component, and product inventory in several regions around the world. This change has introduced new risks and challenges regarding local inventory management, procurement, and product distribution. Any disruption or damage to our facilities, operations, or inventory at our regional fulfillment sites, whether as a result of natural disasters or other catastrophic events, could impair our ability to fulfill orders for our hardware products, which would negatively affect our results of operations.

Any of our primary locations may be vulnerable to the adverse effects of climate change. The increasing frequency and impact of extreme weather events on critical infrastructure in the U.S. and elsewhere have the potential to disrupt our business, the business of our third-party suppliers, and the business of our customers, which could negatively affect our financial condition and results of operations.

Sustainability matters and related reporting obligations may cause us to incur additional expenses or adversely affect our business or reputation

We are subject to domestic and international laws and regulations relating to sustainability matters, which may include specific, target-driven disclosure requirements or obligations. Complying with these regulations and obligations may involve significant expense. We also communicate certain sustainability-related initiatives, goals, and/or other matters in our annual Sustainability Report, on our website, and elsewhere, and some of our investors and customers have expectations regarding sustainability-related matters. Our disclosures on these matters and the standards we set for ourselves, or a failure to meet these standards or expectations, may influence our reputation and the value of our brand and could adversely affect our business, financial condition, and results of operations.

Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations

The following discussion should be read in conjunction with the consolidated financial statements and the related notes. The following discussion contains forward-looking statements that reflect our plans, estimates, and beliefs. 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 “Risk Factors.” This section of this report generally discusses 2025 and 2024 items and year-to-year comparisons between 2025 and 2024. Discussions of 2023 items and year-to-year comparisons between 2024 and 2023 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 January 3, 2025.

EXECUTIVE LEVEL OVERVIEW

Trimble is a leading technology solutions and platform provider, enabling office professionals and field workers to connect their workflows and industry lifecycles, driving a more productive, efficient, and sustainable future. With a focus on the industries that build, maintain, and move the world, the comprehensive depth and breadth of our solutions are transforming the way the world works, making it easier for Trimble customers to focus on what matters—getting the job done right.

Our representative customers include asset owners; general and specialty contractors; architects, engineers and designers; surveyors; energy and utility companies; transportation shippers and carriers, as well as state, federal, and municipal governments. Further information on our business is presented in Part I, Item 1, “Business” of this report.

Our growth strategy is centered on multiple elements:

• Continue to execute on our Connect & Scale strategy;

• Deliver customer outcomes that can enable productivity, quality, safety, transparency, and environmental sustainability;

• Focus on software and services;

• Address attractive markets with significant growth and profitability potential;

• Capitalize on domain knowledge and technological innovation that benefit a diverse customer base;

• Drive geographic expansion with a localization strategy;

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

• Pursue strategic and targeted acquisitions, divestitures, joint ventures, and investments.

Our focus on these growth drivers has led to sustained revenue and profitability, evolving into a more streamlined and resilient 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 $2,392.3 million, which represents growth of 6% year-over-year at the end of 2025. Excluding the impact of foreign currency, acquisitions, and divestitures, organic ARR growth was 14%. 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 79% and 76% of total revenue for 2025 and 2024. Additionally, we continue to maintain focus on increasing our mix of higher margin recurring revenue, which was accelerated by the Ag divestiture that closed in the second quarter of 2024 and the Mobility divestiture that closed in the first quarter of 2025.

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 7.

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 13 acquisitions and 23 divestitures that we have completed since 2020.

Mobility Divestiture

On February 8, 2025, we completed the sale of our Mobility business to Platform Science in exchange for equity ownership interests with a fair value of $253.9 million. The fair value was based on unobservable inputs, including discounted cash flow projections, market comparables, and an option pricing model. Following the closing of the transaction, we own, or have rights

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to acquire, 32.5% of Platform Science’s expanded business comprised of (i) shares of preferred stock, with certain liquidation preferences, that represent 28.5% ownership, and (ii) common stock warrants allowing us the rights to acquire 4% of additional ownership.

Upon closing of the transaction, we deconsolidated $277.3 million of net assets including $145.3 million of goodwill, and we recorded our equity investment at its fair value under the measurement alternative election, which represents a non-cash investing activity. As a result, we recognized a cumulative, pre-tax loss of $30.6 million from the held for sale date in the third quarter of 2024 to the closing date. Mobility was reported as a part of our T&L segment.

The combined business aims to enhance driver experience, fleet safety, efficiency, and compliance by combining two cutting-edge in-cab commercial vehicle ecosystems.

Ag Divestiture

On April 1, 2024, we completed the sale and contribution of our Ag business to AGCO in exchange for $1.9 billion of cash proceeds and an equity ownership interest in PTx Trimble, a JV that was formed by Trimble and AGCO, with a fair value of $275.6 million. The fair value was based on a combination of the equity value, primarily the transaction price, and an option pricing model for a put and call option. Following the closing of the transaction, we own 15% of the JV.

Upon closing of the transaction, we deconsolidated $457.3 million of net assets, including $357.4 million of goodwill, and we recorded our equity investment at its fair value under the equity method of accounting, which represents a non-cash investing activity. As a result, we recognized a pre-tax gain of $1.7 billion in the second quarter of 2024, which includes the gain for our retained 15% ownership interest in the JV. The sale and contribution of the Ag business excluded certain GNSS and guidance technologies. Ag was reported as a part of our Field Systems segment.

Macroeconomic Conditions

Macroeconomic conditions continue to present significant challenges globally, driven by geopolitical tensions, tariff and trade policies, exchange rate and interest rate volatility, and persistent inflationary pressures. The heightened trade tensions and related imposition of tariffs and export control restrictions between the United States and its trading partners, the extent and duration of these tariffs, and their impact on global economic conditions remain uncertain and depend on various factors, including international negotiations, policy responses, potential exemptions, and shifts in global supply and demand. If there was a deterioration in the global economy, the economies of the countries or regions where our customers are located or do business, or the industries that we or our customers serve, the demand for our products and services may decrease. We are closely monitoring global trade developments. Our strategy to shift away from a hardware-centric businesses towards a more significant mix of recurring revenue is intended to mitigate any potential negative impacts on our business operations.

CRITICAL ACCOUNTING POLICIES AND ESTIMATES

The preparation of financial statements and related disclosures in conformity with U.S. GAAP requires us to make judgments, assumptions, and estimates that affect the reported amounts of assets, liabilities, revenue, costs of sales, operating expenses, and related disclosures. We consider the accounting policies described below to be our critical accounting policies. 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 “Description of Business and Accounting Policies” in Item 8 of this report.

Revenue Recognition

Revenue is recognized upon transfer of control of promised products or services to customers in an amount that reflects the consideration we expect to receive in exchange for those products or services. Revenue is recognized net of allowance for returns and any taxes collected from customers. We enter into contracts that may include various combinations of products and services, which are generally capable of being distinct and accounted for as separate performance obligations; however, determining whether promised products or services are accounted for as separate performance obligations may require significant judgment.

Judgment is also required to determine standalone selling prices (“SSP”) for promised goods or services. We use a range of amounts to estimate SSP and determine whether there is a discount to be allocated based on the relative SSP of the various products and services. We estimate SSP considering multiple factors including but not limited to, our internal cost, pricing practices, sales channel, competitive positioning, and overall market and business environments. As our offerings and markets change, we may be required to reassess our estimated SSP and, as a result, the timing and classification of our revenue could be affected.

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Income Taxes

We are a U.S.-based multinational company operating in multiple U.S. and foreign jurisdictions. Judgment is required in evaluating our uncertain tax positions and determining our provision for income taxes. We consider many factors when evaluating and estimating our tax positions and tax benefits, which may require periodic adjustments and may not accurately forecast actual tax audit outcomes. Determining whether an uncertain tax position is effectively settled requires judgment. Changes in recognition or measurement of our uncertain tax positions would result in the recognition of a tax benefit or an additional charge to the tax provision.

Income taxes are accounted for under the liability method, whereby deferred tax assets or liability account balances are calculated at the balance sheet date using current tax laws and rates in effect for the year in which the differences are expected to affect taxable income. A valuation allowance is recorded to reduce the carrying amounts of deferred tax assets if we believe it is more likely than not such assets will not be realized.

We are subject to the periodic examination of our domestic and foreign tax returns by the IRS, state, local, and foreign tax authorities who may challenge our tax positions. We regularly assess the likelihood of adverse outcomes from these examinations in determining the adequacy of our provision for income taxes.

Goodwill, Divestitures, and Intangible Assets

When acquiring a business, we allocate the purchase consideration to the assets acquired (including intangible assets) and liabilities assumed based on their fair values at the acquisition date. Any purchase consideration in excess of the fair values of the net assets acquired is recorded as goodwill.

When divesting a business, a significant portion of the gain or loss may be impacted by the goodwill allocated to the divested business and the fair value of any equity interests acquired in exchange for the disposal group. We allocate a portion of the applicable reporting unit’s goodwill to the divested business using the ratio of the fair value of the divested business compared to the fair value of the reporting unit. The fair value of the reporting units, divested businesses, and acquired equity interests is generally determined using a combination of the discounted cash flow method and the guideline company method. The significant assumptions used in the discounted cash flow model to estimate the fair values include certain assumptions that form the basis of the forecasted results, specifically, revenue, revenue growth rates, and discount rates. These significant assumptions are forward looking and could be affected by future economic and market conditions.

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.

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. The estimated future cash flows are primarily based on assumptions about expected future operating performance.

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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:

Dollar Change

% Change

(In millions, except per share amounts)

Revenue:

Product

Subscription and services

Total revenue

Gross margin

Gross margin as a % of revenue

Operating income

Operating income as a % of revenue

Diluted earnings per share

Non-GAAP operating income (1)

Non-GAAP operating income as a % of revenue (1)

Non-GAAP diluted earnings per share (1)

Annualized Recurring Revenue (“ARR”) (1)

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

Basis of Presentation

We use a 52 to 53-week fiscal year ending on the Friday nearest to December 31, which for 2025 was January 2, 2026. 2025 was a 52 -week year, and 2024 was a 53 -week year . 2026 will be a 52-week year.

2025 Compared to 2024

Revenue

Change versus 2024

% Change

Product

Subscription and Services

Total Revenue

Change in Revenue

Acquisitions

Divestitures

Organic growth

Note that the fiscal year of 2025 began on January 4, 2025 compared to the fiscal year of 2024, which began on December 30, 2023. This significantly impacted overall Company year-over-year comparisons, particularly for AECO organic subscription and services, due to: (a) the recognition in the first quarter of 2024 for January 1 annual software term license renewals (“January 1 software renewals”), and (b) the recognition of an additional week of subscription and services revenue in the fourth quarter of 2024, resulting from the 53-week year. For the total Company, the organic impact of the software renewals and additional week in 2024 was an approximate 2% negative impact on revenue growth for 2025.

Total organic revenue increased due to subscription and services growth, partially offset by the January 1 software renewals and the additional week.

Organic product revenue slightly decreased due to lower demand in surveying and positioning products, partially offset by strong end-user demand for Civil Construction solutions.

Organic subscription and services revenue increased primarily due to strong software term license and subscription growth across all segments, particularly in AECO. The increase was partially offset by the impact from the January 1 software renewals and the additional week.

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Gross Margin

Gross margin and gross margin as a percentage of revenue increased due to the improved mix of higher margin subscription and software term license sales, lower intangible amortization expense due to fully amortized intangibles, as well as the divestiture of lower margin businesses.

Operating Income

Operating income and operating income as a percentage of revenue increased primarily due to organic revenue and gross margin expansion, and to a lesser extent, lower acquisition and divestiture transaction expenses, partially offset by the loss of divestiture income. In addition to organic revenue and gross margin expansion, operating income as a percentage of revenue was favorably impacted by the loss of lower margin divestiture income.

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:

Dollar Change

% Change

(In millions)

Research and development

Percentage of revenue

Sales and marketing

Percentage of revenue

General and administrative

Percentage of revenue

Total

R&D expense decreased primarily due to divestitures, partially offset by increased compensation expenses. We believe that developing and introducing 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 marketing and consulting expenses related to revenue growth, as well as higher compensation expense, including commissions, partially offset by the impact of the divestitures.

G&A expense decreased primarily due to higher consulting and transaction expenses in the prior year and the impact of the divestitures, partially offset by additional software and technology expenses to support our Connect & Scale strategy and higher compensation expense.

Amortization of Purchased Intangible Assets

The following table shows amortization of purchased intangible assets for the periods indicated:

Dollar Change

% Change

(In millions)

Cost of sales

Operating expenses

Total amortization expense of purchased intangibles

Total amortization expense of purchased intangibles as a percentage of revenue

In 2025, total amortization expense of purchased intangibles decreased primarily due to the expiration of prior years’ acquisition amortization.

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Non-Operating (Expense) Income, Net

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

Dollar Change

% Change

(In millions)

Divestitures gain, net

Interest expense, net

Loss from equity method investments, net

Other loss, net

Total non-operating (expense) income, net

Non-operating expense, net increased primarily due to the Ag divestiture gain in the prior year.

Income Tax Provision

Our effective income tax rate for 2025 and 2024 were 16.8% and 25.0%. The decrease in the tax rate was primarily due to gains from the Ag divestiture in 2024.

The OBBBA, signed into law on July 4, 2025, includes changes to U.S. federal tax regulations. We have accounted for its tax implications during 2025 based on our current interpretation of the legislation, and the impact to our 2025 tax rate is immaterial. The Company continues to evaluate the impact of the OBBBA and currently believes it will not have a material impact on our future effective income tax rate.

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 operating decision maker (“CODM”) views and evaluates operations based on the results of our reportable operating segments under our management reporting system. These results are not necessarily in conformance with U.S. GAAP. For additional discussion of our segments, refer to Note 8 “Segment and Geographic Information” in Item 8 of this report.

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

Dollar Change

% Change

(In millions)

AECO

Segment revenue

Segment revenue as a % of total revenue

Segment operating income

Segment operating income as a % of segment revenue

Field Systems

Segment revenue

Segment revenue as a % of total revenue

Segment operating income

Segment operating income as a % of segment revenue

Segment revenue

Segment revenue as a % of total revenue

Segment operating income

Segment operating income as a % of segment revenue

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

(In millions)

Total segment operating income

Unallocated general corporate expenses

Amortization of purchased intangible assets

Acquisition / divestiture items

Stock-based compensation / deferred compensation

Restructuring and other costs

Consolidated operating income

Total non-operating (expense) income, net

Consolidated income before taxes

AECO

Change versus 2024

% Change

Change in Revenue - AECO

Foreign currency exchange

Organic growth

Organic revenue increased due to strong demand for subscription offerings. Revenue benefited from cumulative growth along with an expansion of customers across many products, with the largest impacts resulting from Construction Management Systems, Architecture & Design, and MEP solutions. The increase was partially offset by an approximate 5% negative impact from the January 1 software renewals and the additional week.

Operating income and operating income as a percentage of revenue increased primarily due to revenue and gross margin expansion, partially offset by the January 1 software renewals and additional week. Operating income as a percentage of revenue for 2025 was relatively flat.

Field Systems

Change versus 2024

% Change

Change in Revenue - Field Systems

Acquisitions

Divestitures

Organic growth

Organic revenue increased primarily due to strong end-user demand and competitive wins for Civil Construction solutions. The increase was partially offset by lower demand in Surveying.

Operating income and operating income as a percentage of revenue increased primarily due to organic revenue and gross margin expansion, partially offset by the loss of Ag divestiture income. In addition to organic revenue and gross margin expansion, operating income as a percentage of revenue was favorably impacted by the loss of lower margin Ag divestiture income.

Change versus 2024

% Change

Change in Revenue - T&L

Acquisitions

Divestitures

Foreign currency exchange

Organic growth

Organic revenue increased primarily driven by MAPS and Transporeon subscription revenue growth, partially offset by the impact from the prior year’s additional week. The impact of the additional week was an approximate 1% negative impact on segment revenue growth for 2025.

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Operating income decreased primarily due to the loss of Mobility divestiture income. Operating income as a percentage of revenue increased primarily due to the loss of lower margin Mobility divestiture income.

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LIQUIDITY AND CAPITAL RESOURCES

At the End of Year

Dollar Change

% Change

(In millions, except percentages)

Cash and cash equivalents (1)

As a percentage of total assets

Principal balance of outstanding debt

Years

Dollar Change

% Change

(In millions)

Net cash provided by operating activities

Net cash (used in) provided by investing activities

Net cash used in financing activities

Effect of exchange rate changes on cash and cash equivalents

Net (decrease) increase in cash and cash equivalents

(1) Includes $9.0 million of cash and cash equivalents classified as held for sale as of January 3, 2025.

Operating Activities

The decrease in cash provided by operating activities was primarily driven by higher tax payments related to the Ag divestiture, and to a lesser extent, higher incentive bonus payments. The decrease was partially offset by lower interest payments.

Investing Activities

The increase in cash used in investing activities was primarily related to the $1.9 billion of proceeds received from the Ag divestiture in the prior year.

Financing Activities

The decrease in cash used in financing activities was primarily driven by the $1.7 billion repayment of debt in the prior year, offset by $688.4 million higher cash paid in repurchases of common stock compared to the prior 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 additional software and technology expenditures related to our Connect & Scale strategy, debt service, acquisitions, and any stock repurchases under the stock repurchase program.

In December 2025, we entered into a credit agreement for a five-year unsecured revolving loan facility in an aggregate principal amount of $1.25 billion (the “2025 Credit Facility”), which replaced the 2022 credit facility (the “2022 Credit Facility”). The 2025 Credit Facility contains an option to increase the borrowing to up to $1.75 billion with lender approval. As of January 2, 2026, there was no outstanding debt under the 2025 Credit Facility.

In the second quarter of 2024, we completed the Ag divestiture and received $1.9 billion of cash proceeds, subject to working capital adjustments. Approximately half of the proceeds were used in 2024 to pay down debt and make a tax payment of $122.0 million related to the divestiture transaction. The remaining proceeds were used in 2025 to repurchase stock and pay the remaining $277.4 million final tax payment for the Ag divestiture, which was made during the second quarter of 2025.

The recently enacted OBBBA permanently repeals the domestic R&D capitalization requirement. As a result, we expect cash tax reductions of approximately $53 million in 2025 and approximately $53 million in 2026.

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

Leases

We have operating leases primarily for certain of our major facilities, including corporate offices, research and development facilities, and manufacturing facilities. Operating leases represent undiscounted lease payments and include short-term leases. At the end of 2025, we had fixed lease payment obligations of $208.8 million, with $46.7 million payable within the next 12 months. Refer to Note 10 “Leases” in Item 8 of this report for additional information regarding our leases.

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Tax Payable

At the end of 2025, we had income taxes payable of $17.7 million, which are payable within the next 12 months.

In addition, we have unrecognized tax benefits of $79.7 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. Refer to Note 14 “Income Taxes” in Item 8 of this report for additional information regarding our taxes.

Other Purchase Obligations and Commitments

Purchase obligations and commitments primarily relate to non-cancellable agreements with certain software and service providers and inventory commitments. At the end of 2025, we had operating purchase obligations and commitments of approximately $519.3 million, with $303.7 million payable within the next 12 months. Other than the items discussed above, we do not have any off-balance sheet financing arrangements or liabilities.

Debt

At the end of 2025, we had outstanding fixed-rate senior notes with varying maturities for an aggregate principal amount of $1.4 billion. Future interest payments total $439.5 million, with $78.2 million payable within the next 12 months. Refer to Note 9 “Debt” in Item 8 of this report for additional information regarding our debt.

Stock Repurchase Program

In December 2025, the Board of Directors approved the December 2025 Program to repurchase our common stock of up to $1.0 billion, which replaces the prior February 2025 Program approved in the first quarter of 2025. We may repurchase stock from time to time through accelerated stock repurchase programs, open market transactions, privately negotiated transactions, block purchases, tender offers, or other means. The stock repurchase program does not obligate us to acquire any specific number of shares. Refer to Note 16 “Common Stock Repurchase”  in Item 8 of this report for additional information regarding our stock repurchase program.

EFFECT OF NEW ACCOUNTING PRONOUNCEMENTS

The impact of recent accounting pronouncements is disclosed in Note 1 “Description of Business and Accounting Policies” in Item 8 of this report.

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 measures. 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 certain 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 7.

In addition to providing non-GAAP financial measures, we disclose 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 revenue 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:

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Years

Dollar

Dollar

(In millions, except per share amounts)

Amount

Revenue

Amount

Revenue

REVENUE:

GAAP revenue:

GROSS MARGIN:

GAAP gross margin:

Amortization of purchased intangible assets

Stock-based compensation / deferred compensation

Restructuring and other costs

Non-GAAP gross margin:

OPERATING EXPENSES:

GAAP operating expenses:

Amortization of purchased intangible assets

Acquisition / divestiture items

Stock-based compensation / deferred compensation

Restructuring and other costs

Non-GAAP operating expenses:

OPERATING INCOME:

GAAP operating income:

Amortization of purchased intangible assets

Acquisition / divestiture items

Stock-based compensation / deferred compensation

Restructuring and other costs

Non-GAAP operating income:

NON-OPERATING EXPENSE, NET:

GAAP non-operating (expense) income, net:

Acquisition / divestiture items

Deferred compensation

Restructuring and other costs

Non-GAAP non-operating expense, net:

Tax Rate %

Tax Rate %

INCOME TAX PROVISION:

GAAP income tax provision:

Non-GAAP items tax effected

Non-GAAP income tax provision:

NET INCOME:

GAAP net income:

Amortization of purchased intangible assets

Acquisition / divestiture items

Stock-based compensation

Restructuring and other costs

Non-GAAP tax adjustments

Non-GAAP net income:

DILUTED NET INCOME PER SHARE:

GAAP diluted net income per share:

Amortization of purchased intangible assets

Acquisition / divestiture items

Stock-based compensation

Restructuring and other costs

Non-GAAP tax adjustments

Non-GAAP diluted net income per share:

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Years

ADJUSTED EBITDA:

GAAP operating income:

Amortization of purchased intangible assets

Acquisition / divestiture items

Stock-based compensation / deferred compensation

Restructuring and other costs

Non-GAAP operating income:

Depreciation expense and cloud computing amortization

Income from equity method investments, net

Adjusted EBITDA

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, stock-based compensation, deferred compensation, and restructuring and other costs. We believe our investors benefit by understanding our non-GAAP gross margin as a way of understanding how product mix, pricing decisions, and manufacturing costs influence our business.

Non-GAAP operating expenses

We define Non-GAAP operating expenses as GAAP operating expenses, excluding the effects of amortization of purchased intangible assets, acquisition/divestiture items, stock-based compensation, deferred compensation, and restructuring and other costs. We believe this measure is important to investors evaluating our non-GAAP spending in relation to revenue.

Non-GAAP operating income

We define Non-GAAP operating income as GAAP operating income, excluding the effects of amortization of purchased intangible assets, acquisition/divestiture items, stock-based compensation, deferred compensation, and restructuring and other costs. We believe our investors benefit by understanding our non-GAAP operating income trends, which are driven by revenue, gross margin, and spending.

Non-GAAP non-operating expense, net

We define Non-GAAP non-operating expense, net as GAAP non-operating (expense) income, 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 the GAAP income tax provision adjusted for the tax effects of the non-GAAP pre-tax adjustments (A) through (D), excluding certain tax charges and benefits such as net deferred tax impacts resulting from tax amortization related to a non-U.S. intercompany transfer of intellectual property and certain acquisitions, deferred tax impacts from global intangible low-taxed income, significant reserve releases upon the expiration of statute of limitations and audit closures, and tax law changes. We believe this measure helps investors because it provides for consistent treatment of excluded items in our non-GAAP presentation.

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.

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Adjusted EBITDA

We define Adjusted EBITDA as non-GAAP operating income plus depreciation expense, cloud computing amortization, and income from equity method investments, net, excluding our proportionate share of items such as goodwill impairment, amortization of purchased intangibles, stock-based compensation, and restructuring costs. 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, amortization of purchased intangibles and cloud computing costs, and income from equity method investments, net.

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 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 costs composed of termination benefits related to reductions in employee headcount, closure or exit of facilities, and cancellation of certain contracts, and other costs composed of one-time incremental expenses resulting from the re-audit and related remediation of control deficiencies . Non-GAAP non-operating expense net, excludes our proportionate share of items recorded in income from equity method investment items, such as goodwill impairment, amortization of purchased intangibles, stock-based compensation, and restructuring costs.

(E). Non-GAAP items tax effected . This amount represents the income tax effect of non-GAAP pre-tax adjustments, excluding certain tax charges and benefits, which reconcile the GAAP income tax provision to the non-GAAP income tax provision.

(F). Tax rate percentages . These percentages are defined as GAAP income tax provision as a percentage of GAAP income before taxes and non-GAAP income tax provision as a percentage of non-GAAP income before taxes.

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