Q3 2021 Trimble Inc Earnings Call
Good day and thank you for standing by welcome to Trimble third quarter 2021 results at this time all participants lines are in a listen only mode.
After the speaker's presentation, there will be a question and answer session.
To ask a question during the session you will need to press star one on your telephone please.
Please be advised that today's conference is being recorded.
It didn't scale 2025 strategy.
Our results also demonstrate the quality of the Trimble team and I want to give a special shout out to all our colleagues led by Leo Lambertson, who are helping us manage through the supply chain challenges on the basis of this collective strength, we are raising our annual earnings guidance, Despite a tightening supply chain environment.
Let's start with market conditions, where the overall landscape remains robust construction backlog is healthy, especially in residential and infrastructure translating to strengthen our geospatial and buildings and infrastructure reporting segments, we remain.
We're optimistic that the infrastructure Bill will ultimately be passed in the United States, which would bolster our long term outlook and our construction and surveying businesses starting at some point in 2023 with.
We have been and are building product and go to market capabilities ahead of this opportunity I'm, especially proud of the role of Trimble has played in leading policy advocacy and supportive technology adoption. Most specifically around advanced digital construction management systems, which provide state departments of transportation with access to funding to help them accelerate adopt.
<unk>, a proven digital design and construction technologies, we will continue our commitment and support to the nation's federal Highway administration and state departments of transportation and their pursuit of achieving sustainable and state of the art project delivery.
In agriculture, and forestry commodity price strength continues to translate into customer buying power and our backlog remains strong.
We are tracking inventory levels of major AG products, which remain in a healthy position and provide some line of sight to continued foreign financial strength, which we see as an important counterbalance to rising input costs.
On the policy front, we have been advocating for a legislative legislative proposal called SB $27 50 precision Agriculture loan program Act in the United States that provides low cost loans to farmers to incentivize adoption of precision AG technologies.
Outside the United States, we also see positive conditions, including ongoing subsidies and we are beginning to see more policies that promote the use of technology to increase environmental sustainability.
In transportation, we had another quarter of solid bookings growth improve customer retention and higher operating margins in September we announced a strategic relationship with Procter <unk> Gamble, which will shape. The development of an agile procurement collaboration platform and will in turn complement our existing set of supply chain focused solutions.
It looks like expediting contracting and onboarding processes to increase the velocity of business transactions, while enabling more efficient movement of freight.
I'm also pleased to report that we were the first major technology provider to certify in Canada for the Canadian ELD mandate evidence of the positive shift in product delivery in the business.
On the downside supply chain is especially disruptive to the operations of many of our trucking customers and will likely constrain our ability to see our execution progression flow through the near term P&L.
Let's turn to page three and talk some about some notable progression of our connect and scale 2025 strategy seen through the lens of the Trimble operating system, capturing strategy people and execution.
To set context, our strategy as an industry platform strategy that manifest in bringing the best of Trimble together with ecosystem partners to transform industries that support how we live what we eat and how we move.
On the heels of Cop 26, we are also convinced that we can have a profoundly positive impact on addressing climate change through the use of technology.
As a proof point of our strategy. We are excited to have announced on October 27th the formation of a strategic partnership with Microsoft to build market and sell our industry cloud platforms and solutions that connect people technology tasks data processes and industry life cycles. Our initial focus will be to build a trimble construction.
Cloud powered by Microsoft Azure Importantly, we will also partner on joint go to market strategies to globally deliver these cloud innovations.
As an additional strategic proof point at our annual user conference for our viewpoint construction management software business, we announced the transition of viewpoints branding to Trimble.
At this user conference. We also launched Trimble construction one is shown on page four which extends the capabilities of viewpoints current SaaS software suite with new and exciting capabilities from other parts of the Trimble software portfolio and.
In addition to the viewpoint financial and operational management capabilities Trimble construction, one incorporates trembles estimating and detailing solutions as well as Trimble has advanced project management offering and a single integrated package, which is now being sold by multiple Trimble divisions. Our direction is clear we will continue to expand.
The capabilities of the Trimble construction, one platform for our civil and building customers to further connect the physical and digital worlds across construction field and office workflows.
On people, we continue to be recognized as a top company culture and fast company recognized us as the best workplace for innovators in an increasingly competitive job market melding Trembles mission with our innovative culture is top of mind for our talent attraction and retention efforts as evidence of the attractiveness of Trimble in September we <unk>.
Jennifer Lin as Chief platform Officer, and Poppy Crumb, as our Chief Technology Officer, both World Class talent, who see and believe in our vision and the potential of Trimble.
On execution, we continue to innovate our Amex 50 mobile scanner launched in the third quarter as did a beta release of Sketchup for iPad and we continue to enhance the capabilities of our best in class high accuracy correction services, which enable positioning down to centimeter levels globally.
We are investing heavily in our own digital transformation, which will provide the system and process fuel to deliver are increasingly connected solutions in an efficient and scalable way.
Before I turn the call over to David I want to talk about how we are operating in leading in the current environment, which presents both volatility and unprecedented opportunity.
For years, we have talked about our 343 operating model three months four quarters three years.
See the role of Trimble leadership is being stewards of capital allocation on behalf of our shareholders, where we balance short term realities with long term possibility as we move towards closing out 2021 and into 2022, we will continue to support the incremental investments we are putting towards our digital transformation autonomy and infrastructure opportunities.
We have high conviction that these investments will create new sustainable and differentiated long term growth opportunities for Trimble and we remain bullish on the long term secular opportunity for digital technology to make our customers more successful productive and sustainable we.
We will have the courage to look through near term supply chain disruptions and upfront cost of our digital transformation and to hold ourselves accountable to progressing our connect and scale strategy David over to you.
Thank you Rob let's start on slide five with a review of third quarter results.
Third quarter revenue was $901 million up 14% on a year over year basis.
Currency translation added, 1% and divestitures subtracted, 2% for a total organic revenue increase of 15%.
Gross margin in the third quarter was 58, 7% down 10 basis points year over year, reflecting several factors, including higher product and freight costs in our supply chain offset by increased pricing and lower discounting.
Adjusted EBITDA margin was 25, 9% down 90 basis points year over year, driven by higher operating expenses and investments in the business.
Operating margin was 23, 8% down 40 basis points year over year, but still up over 300 basis points versus the pre COVID-19 third quarter of 2019.
Operating expenses last year were unusually low in a number of areas including compensation expense.
Net income dollars increased by 10% and earnings per share increased by six.
To <unk> 66 per share.
Our third quarter cash flow from operations was $166 million and free cash flow was $156 million.
Cash flow was down modestly year over year in the quarter as we are purchasing inventory in response to strong demand and supply chain shortages.
Operating cash flow was up 23% on a year to date basis with a conversion ratio to net income above one one times.
Our net debt declined $88 million in the quarter and our net debt to adjusted EBITDA ratio fell to 0.9 times.
During the third quarter, we repurchased $100 million of common stock.
At the end of the quarter, we had the entire one 5 billion available on our revolving credit facility and approximately $513 million in cash.
Our balance sheet is strong and we are well positioned to invest in our business, both organically and through acquisitions that will accelerate the implementation of our strategy.
Turning now to slide six I'll review in more detail, our third quarter revenue trends as.
As mentioned earlier <unk> was up 8% in aggregate and was up 11% organically on a year over year basis, 11% rate excludes the impact of foreign exchange and our recent divestitures of Iron solutions, Manhattan Real estate solutions and construction logistics.
All three of these divested businesses had a recurring revenue component, but were in areas outside of our strategic roadmap.
Our nonrecurring revenue streams grew with hardware up 18% year over year and perpetual software growing 19%.
Our hardware growth was driven by strong performance in civil construction, geospatial and agriculture or.
Hardware growth contributed to perpetual software growth as some of our hardware offerings are bundled with perpetual software.
From a.
Graphic perspective, North American revenues were up 11%.
In Europe revenues were up 18%.
Pacific was up 5% year over year and the rest of the world was up 33% driven principally by strong demand from the agriculture sector in Brazil.
Next on slide seven we highlight some of the key metrics, we follow and I'll start with IRR, while total company IRR grew 11% organically on a year over year basis.
Excluding transportation grew at a mid teens rate in the quarter.
Net working capital inclusive of deferred revenue continued to be negative representing approximately minus 2% of revenue trailing 12 month basis, notwithstanding an acceleration in purchases of component inventory during Q3.
Research and development on a trailing 12 month basis was 15% of revenue and our deferred revenue grew 17% year over year.
Our backlog at the end of the third quarter was $1 6 billion up from $1 $5 billion, a quarter earlier and up over 30% year over year.
While growth in our backlog is an indicator of momentum in their business. It is also reflective of the shortages and extended delivery times that we're experiencing for many key components in our hardware products.
Of our $1 6 billion in backlog just under $340 million relates to our hardware offerings up from about $100 million in hardware backlog, a year ago and $38 million higher than at the end of Q2.
We expect supply chain constraints for many key components to extend well into 2022.
Let's turn now to slide eight for additional detail on each of the reporting segments buildings and infrastructure revenue was up 12% on an organic basis.
Revenue growth was strong in both our building and civil construction businesses and organic <unk> was up in the high teens in the quarter.
Geospatial revenue was up 23% on an organic basis, driven principally by strong performance in our core branded survey equivalent.
Margins were up 60 basis points due to both revenue growth and operating cost control.
Resources and utilities revenue was up 23% on an organic basis, we experienced double digit growth in each of our precision agriculture and positioning services offerings.
Margins in resources, and utilities contracted 330 basis points and were hardest hit by product cost inflation in the quarter.
Financial results in transportation showed progression in a number of areas revenue was up 3% on an organic basis year over year, but grew less than we expected due to supply chain challenges both in our operations and our customers' businesses.
Margins expanded 410 basis points year over year.
Turning now to page nine for our updated outlook for the full year, we are raising our expectation for full year revenue with a new range of $3 $5 9 billion to $3 64 billion representing growth for the full year in the mid teens and single.
Single digit year over year growth in the fourth quarter.
End market demand is even stronger than we thought it would be a quarter ago, but supply chain constraints will likely cause our backlog to remain at or above the increased levels from the end of Q3.
<unk> growth at the company level is trending as we anticipated driven by strong bookings and subscription transition and we expect organic growth of greater than 10% in the fourth quarter and a strong entry point going into 2022.
Gross margins in the fourth quarter are likely to be about flat sequentially with the third quarter and increasing mix of software. We will have a favorable impact on sequential gross margin trends, but this benefit will be offset by an anticipated decline in hardware margins.
In aggregate, we now expect that the net impact of accelerating hardware cost inflation and our recent price increases will be modestly negative to hardware margins in Q4.
Building off our strong third quarter results our outlook for operating margins continues to improve and we now expect operating margins for the full year 2021 will be above 2020.
Operating margins in the fourth quarter of this year will likely be lower than the fourth quarter of 2020, driven both by higher hardware component costs year on year and by higher operating expense as Opex was unusually low in 2020, and we are now ramping up investments against our strategy.
Our outlook for full year earnings per share has increased to $2 61 to.
To $2 69.
Representing growth of approximately 17% to 21% year over year.
We continue to expect operating cash flow greater than one one times net income and free cash flow greater than one times net income, reflecting the strong cash generate of aspects of our business model.
I'd like to comment briefly on the outlook in the fourth quarter for our transportation segment as Rob mentioned earlier, the leading indicators for this business are strong with growing bookings of recurring solutions sequentially, improving customer retention in our mobility business and increasing signs that our connected transportation strategy is resonating with customers.
<unk>.
Nevertheless factors related to the global supply chain and the extraordinary pressure on the transportation industry will negatively impact our business momentum in the short run.
Our OEM business will be constrained by customer manufacturing challenges.
And the aftermarket business will be slowed by the fact, the trucking companies are reluctant to take assets off the road for technology upgrades at a time of high transportation prices and extraordinary asset utilization we.
We believe that these constraints will be resolved over time, and we remain confident in the turnaround of this business, but the pace of improvement of revenue and.
And profitability will be lower than we had earlier projected.
With regard to 2022, we don't plan to give detailed guidance until our year end earnings release, but we can characterize some of the drivers that we see now and their expected impact on revenue and.
Margins.
Demand across our end markets remains strong and we believe that strength will sustain at least through the end of 2022, our customers' need for digital solutions to optimize their workflows has never been stronger and these customers have the money and the desire to invest.
We expect organic growth to accelerate in 2022 building off the momentum we have now an aided by continued model transitions and the growing sale of connected recurring solutions.
The supply chain environment remains our biggest challenge and that challenge is predicted to be with us for several more quarters.
From a cost perspective, we anticipate that inflation and our hardware businesses will be sustained through the first quarters of 2022, driven both by higher component costs and higher cost of getting products shipped to our manufacturers and distribution centers is the goal of our pricing strategy to offset the impact of inflation on our hardware gross.
<unk> and that pricing strategy continues to evolve.
Rob referenced in his remarks, the investments we are making against our digital transformation we.
We anticipate that as we get through this investment cycle in 2022, and then as our software businesses continue their transition to recurring revenue models are operating leverage will be lower in 2022, then we expect over the longer term.
The investments we are making in our digital transformation are at the core of unlocking the potential of our platform strategy and we expect to end 2022 with business processes and systems that will accelerate our ability to transform the way we go to market and the way our customers do their work with that I'll turn it over to the operator for Q&A.
As a reminder to ask a question you will need to press star one on your telephone.
We withdraw your question press, the panty and please standby, while we compile the Q&A roster.
Your first question is from Ann Duignan of Jpmorgan. Your line is open.
Yes, hi.
Maybe you could talk a little bit more about that.
For 2022, and what you see across the different segments. I know you said in some of your opening comments that you didn't expect an infrastructure bill to pass.
If that doesn't happen with that influence your outlook for 2022 at all.
Okay.
And also in Geospatial and then.
I mentioned in agriculture.
We're continuing to see farmer.
Sentiment data line on higher input costs, not just in the U S. But also in Brazil.
So maybe talk about some of the pluses and minuses that youre seeing out there as you look to 2022.
Damn markets. Thank you.
Hi, and thanks for the question.
This is Rob so I'll give you kind of a walk around the end markets.
And some of the positives and some of the potential gotcha is that we're looking out for in the things that we're looking out for that could be to the negative would be around supply chain inflation and labor availability and of course all of those things correlate.
The geospatial and construction side, we see strength in residential residential and infrastructure work right now we see on the commercial side strength in submarkets, such as data centers and hospitals.
We believe theres indicators at the residential work will drive light industrial work.
As it relates to the infrastructure Bill and if it if it doesn't pass we would see a benefit of infrastructure Bill really in 2023. So we really don't expect anything in 2022 of course, if there is a sentiment aspect thats hard.
To quantify but are are.
But we remain optimistic and I spent some time in Washington, a couple of weeks ago.
And to that to that end.
When I think about construction and I think about the labor side of it as a potential downside the benefit of technology is that it can make an inexperienced operator, good morning, geospatial market a robotic total station can turn a two person operation into a one person operation on the AG side, what's positive or commodity.
Rice's and it looks like the harvest early data on the harvest would suggest.
Lower harvest.
Holdup commodity prices and then we index that against the ending stocks are the are the inventory.
As you said absolutely input inflation I think is what.
Starting to dent the optimism.
On the pharma front.
With that input inflation, so I look at the value proposition of the technology. So a spot spray technology can reduce the use of.
Herbicide herbicide.
A really big deal or the variable rate can reduce the.
Reduced the use of the other inputs and as we now also have a positive environmental sustainability benefit.
At a geographic level.
The subsidy policies tend to be more consistent and higher outside the United States, So that tends to be.
<unk> provides a balanced let's say to the to the overall market, but we are absolutely paying.
Paying attention to all of this at some point alright.
We will have to have an impact.
On the transportation side, what we see is strength than spot pricing I mean, we even seen it from our own rates on transportation as David talked about where they are where they have gone up.
A downside driver availability.
And in the market and availability of trucks coming out of the Oems. So carriers are having trouble actually adding capacity and when I think about our technology lends on that.
On average driver effectively uses around seven hours of their clock per day, our strategy is to drive a more connected supply chain.
That means dynamic schedules with shippers on the receiver to better optimize waste a driver hours, we provide better routing and navigation solutions onto opt to create efficiencies.
<unk> trip management.
Fundamentally we want to get at more accurate order load information.
For the for the customers.
That can increase the network optimization. So there's puts and takes as highway van and we think that.
Technology has a role really in almost any market condition.
Yeah.
Your next question is from Jason <unk> of Keybanc capital markets. Your line is open.
Hi, This is Ashley Devin on for Jason Thanks for taking my questions.
First one I have on construction.
I'm just wondering if you could provide an update on I guess.
E builder and viewpoint I know that you guys rebranded.
But any color on growth and growth drivers there would be helpful.
Yeah.
Hi, Thanks for the question so the combined AOR growth between the two businesses.
17% year over year.
Another great quarter of execution between the two businesses.
As you noted with the rebranding.
We're especially optimistic around the terminal construction one offering.
We converted over.
And our customers to the.
Turbo construction in one offering sold in dozens of new.
Logos onto the offering in the quarter on bookings.
Bookings that creates.
Later down the road.
The value proposition.
And the awareness from the customers is quite encouraging.
And we've seen that in the bookings for some time now on which now starts to work now plays through the after the <unk> expansion.
Great. That's helpful and just one more and staying on construction and yeah definitely encouraged to see the connecting connected construction one platform, but just wanted to ask.
Are you in terms of like market opportunity are you still mainly displacing legacy systems and paper based processes out there or.
Are you seeing meaningfully more interest from contractors and owners looking for a more connected solution.
There is both it's a good question.
From a market overall market perspective, really the secular opportunity in construction technology and by the way I would say this in our other end markets as well, but these markets are large they are global to underserved and underpenetrated by technology. So the move to Digitization.
<unk> value proposition that delivers productivity quality safety efficiency transparency and environmental sustainability. So theres a positive catalyst for technology to be adopted and at some level, yes that is replacing paper based systems.
That exists or let's say just the mental based systems that exist and we are seeing demonstrable interest from customers in the connected solutions that we offer and I've had a chance to talk to a number of the customers personally some that are showing us how they're already taking our technology.
And connecting the various solutions to improve their workflow and one of the things. They do is not only connect terminal workflow, but on a trimble environment that can provide actually a common data environment, we can connect.
In an open and really agnostic way.
To the other technology that our customers use it as our customers operate and as you know in the construction industry is fragmented therefore, the technology tends to be a bit fragmented as well and so our ability and approach to connect terminal in non terminal solutions is very top of mind for customers and of course Covid has also been a catalyst from our.
<unk> perspective is so much of what we do can uniquely connect the work in the office and the field that connects the hardware and the software and ultimately that physical and digital.
Great Great that's great to hear thank.
Thank you.
Okay.
Your next question is from Rob Wertheimer with Melius. Your line is now open.
Hi, Thank you and Rob Thanks for that answer I'd actually like to follow up on a couple of the points you were making there.
On the future of Digitization of the construction I Wonder just.
This is a very large opportunity do you feel like there's an acceleration is there a tipping point where were visible in next two or three years or X timeframe, where you have to be digital or youre not there just a general sense on how fast that market is moving and then do you think it's coalescing around two or three sort of platforms yourselves being one of them.
That's kind of the construction one idea or is that too aggressive a statement.
A hodgepodge of a bunch of different different assets, maybe just asking you to assess the competitive.
Platform dynamic as well thank you.
Hi, Robyn Thanks for the question from a tipping point perspective.
An acceleration perspective.
I think the numbers would prove the acceleration of the adoption of technology in and if we were to get an infrastructure bill which by the way we talk about that in a U S context.
We say construction led recovery really globally in many markets and so <unk>.
That's a really nice project in the UK Graham Parry in Paris. The rail project is expected to be a very large project large projects happening in Saudi in Australia continues to have some big development. So.
We see the fundamentals on the macros, providing an ability to accelerate it.
Really.
The move to halfway.
Halfway Digitization Covid I really do feel has accelerated that.
Kind of perhaps haven't inflected.
Many of our customers weren't unable to actually go out to the field like they used to go to do or they realize the need to be cloud connected and cloud enabled when they werent going to their offices with frequent as frequently and we think that has helped us drive more bookings.
And the business to the cloud offerings and as it relates to a tipping point and that's a really good question thats a bit of a crystal ball I think one of the catalyst.
Create a tipping point would be if we see more.
More.
More of this driven from owners and I'll say as well as I'll say as well as regulators.
Maybe I really mean policy when I say that so from an owner perspective, that's actually the premise of why we did the E builder acquisition can sue fundamentally has the most at stake on our projects late or over budget of course, thats the owner and so we help them manage their capital programs from a policy and a regulatory perspective.
Where we have a point of view as we think they will take the U S infrastructure Bill as an example, I mean this is a generational opportunity to increase the competitiveness of the United of the infrastructure in the United States.
And we can deliver that infrastructure, 20%, 30% cheaper through the use of technology. So it just makes sense.
So if more of this and if we can increase the level of wearing awareness.
Im certainly an advocate that theres a policy measure here are certainly encouragement measure and Thats why I talked about that digital construction management Act because it provides an incentive for parties to adopt technology. So I would tell you. We're all staying tuned for that one if there is something thats sort of fundamentally creates an acceleration on that on the tipping point.
Part of it and then you asked about platforms, Rob and on the platform side I think it is logical to think that there would be some coalescing around a few platforms I mean as you said the industry is.
Rather fragmented.
Not the only.
Technology platform out there actually I think there needs to be interoperability between those technology platforms and that very much shapes, how we build our technology. It is.
Underlying fundamental belief that we have.
Thank you.
Youre welcome.
Your next question is from Jonathan Ho of William Blair. Your line is now open.
Hi, Good afternoon, I wanted to maybe start out with some of the supply chain issues can you talk a little bit about.
Maybe what the increases in lead times look like for your customers and have you seen any potential losses, just given the extended backlog and.
Essentially delivery times.
Hey, Jonathan its David.
The.
The lead times vary a lot by product.
But historically.
Our lead times have been very short measured in a few days.
And there are many times that so weeks and in some cases.
Many weeks or a few months.
And sort of Thats, the math of the backlog that youre seeing as far as the competitive dynamics.
In a very few isolated cases, we can identify where we've lost business to a competitor that can supply more quickly typically they are competing at the lower end of the market.
And in some cases those customers have come back, but I think the.
Generally our competitors are.
<unk> at least similar pressure to what we have and we don't believe.
That this has had an adverse impact on our share trends in fact and in our.
Our hardware businesses, where we can see numbers that are published by our peers or competitors there as evidenced in many of those segments that were that were gaining share. We also haven't seen a meaningful amount of orders being canceled.
Because of the lead times are extended.
So it's something we're watchful for.
Lucky as Rob said in his comments have a really capable.
The operations team has done a remarkable job getting supply in this very difficult environment.
Excellent and then just as a follow up just given the strength in your AG business. I'm wondering are you seeing a change in the types of products that you're selling into that market, especially relative to historically when it was sort of focused on guidance systems are you seeing sort of that broader digital transformation happening.
In this segment as well thank you.
Hey, Jonathan it's Rob I'll take that one I'd say the product mix is relatively stable at the at the moment, what I would say, we're doing a better job of connecting.
The software and the hardware and the correction services and to the offerings that we have some more of that bundling at a point of sale and making ourselves easier to do business with and we have picked up some new.
OEM customers along the way and then we've seen some strength in particular strength in various geographies. So in the quarter, Brazil was very strong for us Russia.
It was also very strong for us so theres I think theres pockets geographic pockets.
We're able to increase the penetration of but in terms of a discernible shift in the overall mix of the portfolio not really at this point.
Great. Thank you.
Your next question is from Jerry Revich of Goldman Sachs. Your line is open.
Yes, hi, good afternoon, and good evening.
I was wondering Robert if you wouldn't mind expanding on.
Recurring bookings growth you folks outlined in your prepared remarks and transportation.
Positive tone you have shrunk.
Rotation in a while can you just unpack that what part of the business driving the recurring growth.
The churn rates look like.
On the legacy business, where we're working through the headwinds.
Sure Hi, Jerry Thanks for the question.
Within the transportation.
Inspiration both loss.
Historically talked about three legs on the stool the.
The technology stack.
The first being that we provide mapping routing navigation engines.
And we provide the back office technology.
For trucking companies and third that we provide the field mobility.
Tools for for companies and.
In terms of the booking and then those are the three historic legs of that store and then over the last couple of years, we've moved as well to address the shipper side of the market, whereas historically the strength is on the carrier side. So on the carrier side of the business, where we see books.
<unk> growth is.
As in a couple of places so first.
And that.
Back office ERP systems, we call it transportation management system, and we're moving that business to a recurring model. So theres a model conversion that's happening in there and we have seen evidence that we're increasing the size of the addressable market, which means we are reaching some customers that we hadn't previously reached and thats.
<unk> and <unk>.
90% plus bookings growth on a year over year basis, and that part of the business.
Seeing as while on the mobility side, which is really more of the <unk> part of the business as we have seen some life.
They're both through.
There are two things one.
Sure.
Increasing penetration in existing customers as some of our existing customers actually many of them are adding capacity given our market in fact, they would like to add more capacity in many cases aren't able to actually get the vehicles are the drivers to do it but that's the one area, where we see growth.
And the others is we do see some.
Logos coming back to us, which is which has been a really good sign for us still a long way to go.
But I'm just I'm liking, what I'm seeing from the team and the pace.
The team and the trajectory on that Canadian ELD certification was a nice proof point that we're not just talking about these things that we are actually also or are delivering that mapping routing navigation business has had many many years of double digit recurring revenue growth, which means bookings continue to grow strong and continue to.
Do a great job quarter in and quarter out and add it up and that got to the commentary in the script.
You ask Gerry churn rates as well.
Sure Yeah, Yeah. Please.
Yeah on the churn rate side I'd characterize it in net retention and net retention was above 100% in the quarter, which is obviously a great sign for us.
It's really nice to hear about the inflection there.
In buildings and infrastructure I know you have really good visibility on the perspective pipeline and bookings can you talk about if you've seen an acceleration in those lead indicators that you track for E builder viewpoint, given the labor shortages et cetera could we actually see it.
There are accelerate further from the stronger rate that we're running at <unk>.
So.
Yes, actually we do think we can accelerate.
The level of IRR growth actually across the company and then that being the biggest contributor rally to that growth.
It absolutely is something that we have a line of a reasonable line of sight to after the current bookings growth as we plan that business forward, we'll think about in any given quarter or year for that matter.
Whats quote unquote in the bank and then what's the go get when we think about that go get then you can measure the pipeline you have.
And then measure the qualified leads you have against that so you kind of just keep working backwards from that equation and then do you have the horsepower to go.
And positively affect pipeline.
And turn it into a booking which eventually turns into the the revenue. In addition, Jerry another catalyst for us coming into next year is.
Our structures business the old <unk> business, the steel concrete business of that.
In the summer, we stopped selling perpetual licenses.
So in.
In fact, we sold more perpetual this year than we had anticipated and now that we're after almost entirely off the perpetual that.
Just by the math will provide a catalyst for.
Our ACD bookings, which will turn into <unk>, so that alone would be a catalyst to.
Our growth in that business looking into next year.
Thanks, Rob.
Youre welcome.
Your next question is from Weston Twigg of Piper Sandler Your line is open.
Hi, Thanks for taking my question actually I have two.
Allow it first just the geospatial segment.
<unk> been growing really strongly and I was wondering if you could help us just get a feel for those trends through next year, how sustainable is this rate of growth.
Hi, This is Ravi thanks for the question.
Kudos to the geospatial team the latest innovation that went to market in the.
In the third quarter was <unk> 50 mobile mapping system.
On the heels of just really many innovations over the last few quarters between seven laser scanner the <unk> G NSS receiver really nice.
Run for this the business has.
I would say a pretty good amount of <unk>.
Backlog associated with it as we look forward into 2022, we think that.
We do have the wind at our backs and that we can continue to grow the business notwithstanding.
Both that we've had in that business in 2022 or 2021 excuse me.
No I don't see that that wasn't progresses, we'd set a few years ago.
This was.
We thought of it is our most mature of the businesses.
We have in it.
It.
It has proved more than more than once lately to be the one of the fastest growers within trimble on a year over year basis, So really a lot of excellent innovation and as well our go to market team has just done an outstanding job with the channel channel management around around the world.
And I would expect that to temper back somewhere closer into the company average of a six to nine organic range as we go into next year and I would take that as a <unk>.
Starting point.
That's very helpful. Thank you and then the other question I had.
You mentioned the Cop 26 conference.
The discussions around there.
And with all the severe weather events this year and how it impacted your customers I'm wondering if you could maybe discuss just some of your broader revenue opportunities with respect to climate change adaptation, specifically thinking about <unk>.
Cultural all construction infrastructure customers.
And maybe outline.
Broadly speaking.
How that revenue opportunity could ramp.
Thank you for that question, so I am I am.
I'm excited and I'm actually quite inspired by the ability for Trimble to play a fundamental a positive impact.
Fundamentally positive role in and impacting climate change now the truth of the matter is is that our products and our technology.
<unk> has had a positive environmental sustainable sustainability benefit for as long as we have been around.
And it's been a byproduct of the productivity and efficiency that our that our customers generate.
What I see as an opportunity is that comes more and more to the forefront.
Some cases, its as our customers have more reporting to do themselves whether they realize that now some of them do or whether they don't we see that coming and then we see an ability to take hold and move into that space. If you take agriculture. As an example, we do have a small business in AG.
Essentially runs a carbon marketplace.
We get calls from customers or potential customers asking for help in certifying the offsets that they're buying so think about are we tend to talk about our agriculture business, but we also have a nice forestry business. These are two places that are hugely important in this in this conversation.
And so.
Big companies are making their own commitments and buying offsets.
They don't want a high bad offsets and so we're encouraged by the types of calls that we're getting because it's giving us conviction of where we take our our product roadmap to positively impact us.
And if I think about the construction space.
Our structures business, so the steel part of the structures business.
Well, we did an announcement a couple of weeks ago, something that I think is pretty compelling as we can.
We continue.
From a design perspective, essentially to design for sustainability of to understand the carbon load that a building has during that design and engineering phase for many years, we've had a pre design product to help you understand let's say the energy consumption profile of a building.
And as the users of the buildings on let's say if there becomes regulatory pressure on this to design with carbon in mind. The constructive models that we provide a term will have a profoundly.
Positive ability to impact designing and maintaining and operating with sustainability in mind. So.
We're actually putting some resources to this because.
All of us at <unk>, our board sees some really interesting opportunities.
At some point will turn into commercial opportunities now that they turn into commercial opportunity to do something discreet and separate or are they part of the existing technologies. We have I would say there I don't know.
But boy you follow what's going on.
And you've got a I've got to believe that there is some some material business for us to have here.
That's really helpful and thanks for all the effort in that category for sure. Thank you.
Your next question is from Chad Dillard with Bernstein. Your line is open.
Hi, good evening guys.
Okay.
So I don't want to go back to Trimble construction, one I was hoping you could give a little more context on kind of where it belongs in our product portfolio.
Yes.
First question is just on just how much overlap is to have versus your current product offering.
And then maybe you could talk about your initial sales whether youre seeing more come from conversions versus new customers and then secondly.
To what extent does this new platform expand the opportunity to bundle.
Chad This is Rob I'll take the question so.
Where to start our terminal construction one offering.
Essentially right now can take what we do at <unk>.
<unk>.
And at viewpoint years ago, we moved from selling I'll call. It an ERP only an office based solution to moving to selling a combined team and field solutions, I think project management and field mobility tools and when we call it.
<unk>, one and where he caught in OTF office team field offering. So it moved from a point solution to a bundled viewpoint solution and now that next step is in the Trimble construction one with the first release of it that brings in.
Many aspects of our MEP business, a mechanical electrical plumbing business, where we're able to bring in.
Detailer, an estimator workflows into the product offering.
And then from there we have a basis, where we can continue to expand across other architectural and engineering workflows and products that we have so by and large it's taking what we do already and having a better packaging.
Around that and making it easier for our customers to consume the technology from a technology perspective, it's better integration tighter integration between our solutions.
That we have.
Our customers have been asking for this.
So we're really excited to be able to start delivering upon it I would say it's just the start its version one of terminal construction. One there is many other capabilities that we believe we can bring into that both from a civil perspective as well as a vertical.
Our construction perspective, and the nature of the conversions, we have thus far are predominantly with the existing customers and moving them over but we did get.
A few dozen new logos.
Logos during the quarter on terminal construction, one it's very much a persona based growth platform, we think about personas and architectural engineering persona, we think about the contractor persona, we think about an owner persona and then we will.
We migrate over time, we will get be able to get more and more I'll say specific and targeted to delivering construction timber terminal construction one to those individual persona. So I'd really say the start of much more to come and the more that we can net.
The data the users and the workflow across this that <unk> got the opportunity to move into richer.
Data AI opportunities in there. It gets then another level of exciting so the more we can connect.
What we've got for our customers to more of that will create solutions down down the road.
Yes.
Great Thanks for that.
And then second question more so on your hardware business just trying to understand the progression of price cost maybe you can just like walk us through.
The price cost balance was one in Q2 Q3, Q I think you said <unk>, it's negative and then I guess most importantly.
Where do we go from here for sure.
Remember correctly there is a portion of your business that is under a kind of like longer term contracts and when do those.
Anniversary up get up.
For renegotiation.
Hey, Chad let me give.
To give you some perspective and I'll sort of ground my comments and what we mentioned last time and.
In this very uncertain world. We we were estimating that for the full year 2021, we'd have inflation in aggregate.
About 6% of our $600 million in Cogs. So that's $36 million were definitely running north of that.
We're probably about $10 million more in.
Core product and freight inflation than we were anticipating and we've.
We've adopted our pricing strategy all year in response to our best guess of where things are you're right. There is some latency in.
When you can make a decision and implement the strategy and it really differs by business and customer.
Some cases, we can implement a price increase by smarter and less discounting some cases theres a surcharge that is possible in some cases, you have to wait for list price.
But I would say our pricing.
Momentum has kept up with the inflation outlook that we started with but we're running behind.
Inflation's hotter than we believe so.
Your understanding is correct, where we're behind.
Inflation now, even though the pretty much the full impact of our price increase.
Came through in Q4 will be modestly negative not hugely modestly negative going forward, it's a very tough world to guess cost inflation.
And we think it's not going to get better soon.
We're optimistic that won't get a lot worse, we have some more work to do on the pricing.
Front, but I would say in aggregate it is still our view that over time, we can.
Offset the inflation cost impact with pricing, it's just going to take us into.
Next year to do that.
Thank you.
Okay.
Your next question is from Colin Rusch Oppenheimer. Your line is now open.
Hi, Good afternoon. This is Christian on for Colin Thank you for taking the question.
Just wanted to follow up on some of the commentary around the connect and scale and sort of the acceleration of that spend into 2022 I'm. Just wondering if you can provide an update on sort of the internal processes that you're going through where you stand on those and.
The metrics around identifying what that opportunity set is based on the multi product customers.
Hey, Kristen this is rob from.
Let's say to put context around where we're spending.
The money digitally our own digital transformation.
And we believe through that digital transformation that that will in turn lead to an ability to scale our revenue growth, particularly the revenue sorry, the recurring revenue growth and the bump in the growth of bundled offerings.
We do believe there'll be an infrastructure bill that comes and even if it doesn't come we believe there is a fundamental ability for us to.
To play a positive impact.
Within infrastructure.
To have it be built better faster safer cheaper greener. So we've been we have been putting more resources to that which we in turn things.
Will help us grow the business and we take out both the short term and a long term view when we come to extent the questions around how we actually come to that.
Answer.