David G. Barnes
Chief Financial Officer and Senior Vice President at Trimble
Thank you, Rob. Let's start on slide five with a review of first quarter results. First quarter revenue of $994 million was up 14% organically year-on-year. Changes in foreign exchange rates subtracted 2% to revenue growth, resulting in reported growth of 12%. The strong revenue performance was broad-based. Approximately 2/3 of our 14% organic revenue growth came from volume, with the remaining 1/3 driven by the impact of price increases we have taken in the past year. Software and recurring revenue increased as expected, and hardware revenue was better than expectations, driven by the success of our operations team and getting more product through our supply chain. Gross margin in the first quarter was 57.9%, down 50 basis points year-over-year, reflecting higher product and freight costs in our supply chain, partially offset by increased pricing and improved software margins.
Adjusted EBITDA margin was 25.5%, down 60 basis points year-over-year, driven primarily by lower gross margins and, to a lesser extent, higher operating expenses from our strategic investments and a return to normalized expense levels. Operating margin was 23.5%, down 10 basis points year-over-year. Net income dollars increased by 11%, and earnings per share increased by $0.07 to $0.73 per share. Our first quarter cash flow from operations was $153 million and free cash flow was $139 million. Cash flow was down year-over-year in the quarter as we continue to build inventory and as a result of our incentive plan payouts following very strong performance versus our 2021 objectives. Deferred revenue grew 14%, reflecting continued strong growth in recurring revenue streams. The underlying working capital dynamics in our business remains strong, and we expect that our net working capital will remain near 0 as the year progresses even in this difficult supply chain environment.
Our net debt declined over $30 million in the quarter, and our net debt to adjusted EBITDA ratio remains around 1.0. Turning now to slide six. I'll review in more detail our first quarter revenue trends. ARR was up 12% in aggregate and up 14% organically. Our nonrecurring revenue streams grew with hardware up 11% year-over-year and perpetual software growing 8%. Our hardware growth was driven by strong performance in civil construction, geospatial and agriculture. Our hardware growth contributed to perpetual software growth as some of our hardware offerings are bundled with software. From a geographic perspective, North America revenues were up 11%. In Europe, revenues were up 14%. Asia Pacific was up 5% year-over-year, and the rest of the world was up 31%. Next, on slide seven, we highlight some of the key metrics that we follow.
Organic ARR in Buildings and Infrastructure, Geospatial and Resources and Utilities all grew in the teens or above, while transportation ARR growth was in the mid-single digits and improved sequentially. Net working capital, inclusive of deferred revenue, continued to be negative despite the build in inventory during the first quarter. Research and development on a trailing 12-month basis was 14.5% of revenue, with approximately 2/3 of our R&D investments going into software development. Of our $1.7 billion in backlog, approximately $345 million represents hardware backlog, down modestly from year-end 2021 levels but still well above our historical norms. Supply chain constraints continue to be very dynamic in nature, but our team made good progress in the quarter working around constraints and executing well in a challenging environment.
Let's turn now to slide eight for additional detail on each of the reporting segments. Buildings and Infrastructure revenue was up 18% on an organic basis. Revenue growth was strong in both our Building and Civil Construction businesses, and organic ARR was up in the high teens in the quarter. Geospatial revenue was up 16% on an organic basis driven by strong performance in our survey and mapping business. Resources and Utilities revenue was up 16% on an organic basis driven by continued strength in agriculture in Europe, South America and the United States. Financial results in transportation showed progression in a number of areas. Revenue was up 2% on an organic basis year-over-year, and organic ARR growth improved for the third quarter in a row. We continue to progress on the conversion of our transportation enterprise software business to recurring revenue models and made good progress on development of a new product in our mobility business, which we believe will improve both margins and competitiveness when it is launched later this year.
We continue to project improved momentum in margins and ARR growth in our Transportation segment in the fourth quarter. Turning now to slide nine. I'd like to provide our updated financial outlook for 2022. As Rob highlighted earlier, demand remains broadly strong across the end markets we serve. High inflation, rising interest rates and the impact of the war in Ukraine are, of course, impacting sentiment around the world, but we don't see meaningful signs that these developments are reducing current demand for our offerings. Our backlog of $1.7 billion, which reflects historically high levels of hardware backlog and growth in our recurring revenue offerings, gives us significant visibility through the balance of 2022. We continue to expect supply chain challenges into 2023, although we are increasingly optimistic that we will see component availability improve in the second half of this year.
With that backdrop, I'll talk through our updated guidance. Our recently announced divestitures and the strengthening of the value of the U.S. dollar will both impact our financial results for the balance of 2022, so I'll focus first on organic trends. The key message here is that our organic outlook for ARR, revenue and earnings have all improved. We are raising the midpoint of our organic revenue guidance by $30 million with an updated range of $3.99 billion to $4.07 billion. That revised view reflects an organic outlook for revenue growth of 10% to 12%. The midpoint of our organic EPS forecast has increased by $0.06 with a new EPS range of $2.85 to $3. We are raising our outlook for organic ARR growth to above 15%. Our full year outlook reflects our expectation that organic revenue growth will be in the mid-teens in our Buildings and Infrastructure and Resources and Utility segments where demand remains very strong and backlog is high.
Geospatial organic growth is expected to moderate from the first quarter pace and be in the mid- to high single-digit range for the year against 27% growth in 2021. We expect that our Transportation segment will see low single-digit organic growth for the year with meaningful improvement by the fourth quarter when our initiatives to improve retention and grow ARR take hold. The table on page nine of our presentation bridges this organic outlook through the impacts of the changes in exchange rates and our upcoming divestitures. The U.S. dollar has appreciated significantly versus the euro and other major currencies in the last 90 days. Assuming that exchange rates remain where they are now, we estimate the impact on our revenue from our last outlook of approximately $45 million.
We expect that the divestitures will close in the second quarter and will reduce our 2022 revenues by approximately $145 million. 60% of the revenue impact is in Buildings and Infrastructure, 30% in Geospatial, and 10% in transportation. As a result, our updated full year revenue guidance incorporating the impact of divestitures and recent changes in exchange rates is $3.80 billion to $3.88 billion. We now expect gross margins to be up approximately 100 basis points for the full year with the majority of that improvement coming in the second half. This reflects our view that the pricing actions we are taking will more than offset inflation in the second half. Our outlook for full year operating margins has increased to a range of 23% to 23.5%. Embedded in this outlook is the assumption that operating margins will be adversely impacted by our ongoing subscription transitions as well as the investments we are making in support of our Connect and Scale strategy and the acceleration of ARR.
In aggregate, these factors present a headwind to operating margins of approximately 200 basis points for the year. Our outlook for the margin impact of subscription transitions and strategic investments is unchanged from what we presented a quarter ago. The divestitures will reduce full year EPS by approximately $0.11 and recent changes in foreign exchange rates will impact our earnings per share outlook by about $0.03, resulting in a revised full year EPS range of $2.71 to $2.86. Hardware makes up the substantial majority of the revenue of the divested businesses, and as a result, the divestitures will not have a meaningful impact on ARR trends. Looking to 2023 and beyond, we expect that the divestitures will be accretive to both revenue growth and operating margins.
More strategically, our business post divestitures will be more centered on our platform strategy and our mix of ARR and software will be higher. Forecast for income from equity investments and net interest cost is unchanged. Our tax rate guidance has increased to a range of 18.5% to 19%. From a cash flow perspective, we project that free cash flow will be approximately equal to our non-GAAP net income with stronger performance in the second half of the year. This forecast reflects our view that our inventory levels will grow modestly and that the U.S. Congress will take action to permit the continued upfront deduction of R&D expenses. If the legislation is not passed and R&D costs are capitalized for tax purposes, then our 2022 cash flow outlook will be adversely impacted by approximately $70 million. Note that the tax capitalization of R&D cost has no meaningful impact on our book tax rates, only the timing of cash payments.
A few words on the quarterly dynamics we expect for the balance of this year. The supply chain issues have disrupted the normal seasonal patterns in our business. While the second quarter would normally be our largest quarter in absolute revenue, that is not what we expect this year. After the impact of divestitures and recent currency movements, we expect second quarter revenue to be down slightly versus the second quarter of 2021, which was unusually strong. Following the second quarter, we expect revenue to increase sequentially through the third and fourth quarters, reflecting gradual normalization in the supply chain, higher prices and increasing software and recurring growth. From a gross margin perspective, we expect second quarter gross margins to be consistent with the first quarter and then the increase in the second half of the year as our additional pricing actions take effect.
Driven by improved price realization and revenue mix, we expect gross margins will be approximately 250 basis points higher in the second half of the year compared to the first half, and operating margins will be approximately 200 basis points higher in the second half of 2022 versus the first half. We forecast second quarter earnings per share to be below second quarter 2021 earnings per share with double-digit year-on-year EPS growth in the back half of the year even after the impact of the divestitures. Most importantly, we have increased confidence in the drivers of our organic ARR progression for the remainder of the year.
Rob, back to you.
