Q4 2021 Trimble Inc Earnings Call

Speaker 1: At this time, all participants are in a listen-only mode.

At this time all participants are in a listen only mode. After.

After the speaker's presentation, there will be a question and answer session.

Speaker 1: After the speaker's presentation, there will be a question and answer session. To ask a question, you will need to press star.

To ask a question you will need to press Star one thing your telephone.

Please be advised that today's conference is being recorded.

Speaker 1: Please be advised that today's conference is being recorded. If you require any further assistance, please press star zero. I would now like to hand the conference over to your speaker today, Mr. Rob Painter, Chief Executive Officer of Trimble. Thank you. Please go ahead.

If you require any further assistance please press star zero.

I would now like to hand, the conference over to your Speaker today, Mr. Rob painter, Chief Executive Officer of Kimball. Thank you. Please go ahead Sir.

Welcome everyone.

Speaker 2: Welcome, everyone. Before I get started, a quick reminder that our presentation is available on our website and we ask that you please refer to the safe harbor at the back. Let's begin on page two.

Before I get started a quick reminder, that our presentation is available on our website and we ask that you. Please refer to the safe Harbor at the back.

Let's begin on page two with the following key messages.

Our team once again delivered outstanding results and did so amidst ongoing supply chain difficulties delivering total organic revenue growth of 14% and organic RBR growth.

Speaker 2: The team once again delivered outstanding results and did so amidst ongoing supply chain difficulty.

Speaker 2: delivering total organic revenue growth of 14% and organic ARR growth of 12% in the fourth quarter. We ended the year at a record level of ARR of $1.41 billion and 2021 EBITDA margin of 25.6% and operating cash flow of $751 million.

Growth of 12% in the fourth quarter we.

We ended the year at a record level of IRR of 141 billion in 2021, EBITDA margin of 25, 6% and operating cash flow of $751 million.

Reflecting on our 2021 results in comparison to our May 2018, Investor Day plan I am proud to say our team made a great deal of progress.

Speaker 2: Reflecting on our 2021 results in comparison to our May 2018 Investor Day plan, I am proud to say our team made a great deal of progress.

In May 2018, we targeted 2021, adjusted EBITDA between 23% to 24% of revenue we closed 2021 at 25, 6% EBITDA.

Speaker 2: In May 2018, we targeted 2021 adjusted EBITDA between 23 to 24% of revenue. We closed 2021 at 25.6% EBITDA. We targeted software services and recurring revenue mix at 55% of total revenue. We closed 2021 at 55%. We targeted the ratio of 2021 operating cash flow to non-GAAP net income at approximately 1.1 times, and we closed 2021 at 1.1.

Targeted software services and recurring revenue mix at 55% of total revenue. We closed 2021 at 55% we targeted the ratio of 2021 operating cash flow to non-GAAP net income at approximately one one times and we closed 2021 at one one times.

In July 2018, our net debt to adjusted EBITDA ratio stood above three times and we said we would delever below two five times today, we stand at one nine times.

Speaker 2: In July 2018, our net debt to adjusted EBITDA ratio stood above three times, and we said we would de-lever below 2.5 times. Today, we stand at 1.0.

Speaker 2: These proof points give us conviction that we are on the right strategic path with Connect&Scale 2025, that we can uniquely connect the physical and digital worlds to deliver value to our customers, and that our asset-like business model works for us here.

These proof points give us conviction that we are on the right strategic path with connect and scale 2025 that we can uniquely connect the physical and digital worlds to deliver value to our customers and that our asset light business model works for our shareholders.

Looking at current market conditions. The overall demand landscape remains robust and we enter the year with record hardware backlog and record <unk>.

Speaker 2: Looking at current market conditions, the overall demand landscape remains robust and we enter the year with record hardware backlog and record ARR.

Nevertheless, we are paying close attention to three obvious market factors interest rates supply chain and labor market dynamics.

Speaker 2: Nevertheless, we are paying close attention to three obvious market factors, interest rates, supply chain, and labor market dynamics.

While the overall landscape presents material short to midterm planning challenges what is straightforward as that the global infrastructure spend as a positive catalyst for the long term health of the business and then in difficult economic environment, our value proposition that delivers productivity and sustainability will remain a secular growth catalysts.

Speaker 2: While the overall landscape presents material short to mid-term planning challenges, what is straightforward is that the global infrastructure spend is a positive catalyst for the long-term health of the business and that in difficult economic environments, our value proposition that delivers productivity and sustainability will remain a secular growth.

Moving to page three I'll talk about the progression of our connect and scale 2025 strategy as seen through the lens of the Trimble operating system, capturing strategy people and execution.

Speaker 2: Moving to page three, I'll talk about the progression of our connect and scale 2025 strategy as seen through the lens of the Trimble operating system capturing strategy people

Speaker 2: Starting with strategy, I'll provide three proof points of our progress in the quarter.

Starting with strategy I'll provide three proof points of our progress in the quarter.

First we acquired agile assets, which provide SaaS solutions with analytical tools to manage roads bridges airports and rail assets. So customers can better plan operate and report on those assets across the lifecycle. The addition of agile asset to Trimble platform will add the App maintained model to our as designed and add.

Speaker 2: First, we acquired Agile Assets, which provide SaaS solutions with analytical tools to manage roads, bridges, airports, and rail assets so customers can better plan, operate, and report on those assets across the life cycle.

Speaker 2: The addition of Agile assets to Trimble's platform will add the as-maintained model to our as-designed and as-built data.

<unk> built a data.

Availability of this data within the model creates a robust digital twin for owners throughout the asset lifecycle, thereby providing greater predictability sustainability and lower lifetime asset costs.

Speaker 2: Availability of this data within the model creates a robust digital twin for owners throughout the asset lifecycle.

Speaker 2: thereby providing greater predictability, sustainability, and lower lifetime asset costs.

Speaker 2: Second, we have increased our ambitions in the area of sustainability, both internally with our own carbon footprint and externally through the commercialization of sustainability. We have submitted our science based targets for review and we plan to reduce greenhouse gas emissions in line with the Paris Agreement. In addition, our most recent score from the climate disclosure project went up again, marking two increases since we first submitted in 2018, and we continue to work diligently to further improve our score.

Second we have increased our ambitions in the area of sustainability, both internally with our own carbon footprint and externally through the commercialization of sustainability. We have submitted our science based targets for review and we plan to reduce greenhouse gas emissions in line with the Paris agreement. In addition, our most recent score from the climate disclosure project.

Went up again, marking two increases since we first submitted in 2018, and we continue to work diligently to further improve our score.

With an external lens customers are increasingly ask us asking us to help them think about managed and verified carbon reductions from the productivity and efficiency gains delivered through the use of our products. We have stepped up our ambition level to meet this market opportunity.

Speaker 2: With an external lens, customers are increasingly asking us to help them think about, manage, and verify carbon reductions from the productivity and efficiency gains delivered through the use of our products. We have stepped up our ambition level.

Third we have continued to transform our software and hardware business model offerings, which has translated into increased bookings and <unk>, which in turn gives us visibility into continued growth in 2022.

Speaker 2: Third, we have continued to transform our software and hardware business model offerings, which is translated into increased bookings and ARR, which in turn gives us visibility into continued growth in 2022.

Speaker 2: Our Connected Scale strategy is a platform strategy, and we are executing that strategy in part by partnering to build ecosystems. As evidence, we have a new Microsoft partnership that will first focus on construction, and we established Trimble Ventures in the third quarter and made our first venture's investment in the fourth quarter.

Our connect and scale strategy as a platform strategy and we are executing that strategy in part by partnering to build ecosystems. As evidence we have a new Microsoft partnership that will first focus on construction and we established a trimble ventures in the third quarter and made our first venture investment in the fourth quarter.

Speaker 2: Moving to people in our operating system, I start by reflecting on our purpose in the world. We are transforming and digitizing industries that support how we live, what we eat, and how we move. In a competitive labor environment, we continue to see people attracted to the Y of Trump.

Moving to people and our operating system I start by reflecting on our purpose in the world. We are transforming and digitizing industries that support how we live what we eat and how we move and a competitive labor environment. We continue to see people attracted to the why of Trimble. We went a couple of global Culture Survey awards in the <unk>.

Speaker 2: We won a couple of Global Culture Survey Awards in the fourth quarter, both for overall company culture and for diversity.

Fourth quarter, both for overall company culture and for diversity, we made demonstrable progress in our <unk> journey in 2021, and our team continues to engage in their local and global communities through company sponsored data service and through our Trimble Foundation.

Speaker 2: We made demonstrable progress in our DEI journey in 2021, and our team continues to engage in their local and global communities through company-sponsored days of service and through our Trimble foundation.

Speaker 2: We believe the intersection of a great workplace environment and a purpose-driven organization provides a solid foundation upon which to lead, grow, and compete for talent.

We believe the intersection of a great workplace environment and a purpose driven organization provides a solid solid foundation upon which to lead grow and compete for talent.

Speaker 2: We were also able to recruit Anne Fandosi to our board in 2021. And in January , we announced the addition of Tom Sweet, Dell's CFO , to our board. I'm encouraged by individuals of this global caliber and enthusiastically joining our board and contributing to our ongoing growth.

We were also able to recruit and vendors to our board in 2021 and in January We announced the addition of Tom Sweet dose CFO to our board.

<unk> by individuals in this global caliber enthusiastically, joining our board and contributing to our ongoing growth.

Moving to execution in the Trimble operating system, we saw the benefits of ongoing innovation throughout the course of 2021 and the fourth quarter. We reached a milestone of 1 million monthly active users of Trimble connect with our digital transformation efforts, making progress. We now have all of these users on common identity and entitlements.

Speaker 2: Moving to execution in the Trimble operating system, we saw the benefits of ongoing innovation throughout the course of 20...

Speaker 2: In the fourth quarter, we reached a milestone of 1 million monthly active users of Trimble.

Speaker 2: With our digital transformation efforts making progress, we now have all of these users on common identity and entitlement.

<unk>.

We launched a new Trimble dot com web presence in December the culmination of a couple of Years' worth of work to modernize this important vehicles. We've also stepped up our outbound efforts to tell our story and to reach important new audiences.

Speaker 2: We launched a new Trimble.com web presence in December , the culmination of a couple of years worth of work to modernize this important vehicle. We've also stepped up our outbound efforts to tell our story and to reach important new audiences.

We look forward to hosting some in person events in 2022, such as our transportation user conference in August and our dimensions user conference for engineering construction in November .

Speaker 2: We look forward to hosting some in-person events in 2022, such as our Transportation User Conference in August and our Dimensions User Conference for Engineering construction in November .

Speaker 2: Finally, we see our fundamental responsibility to shareholders as being capital allocates.

Finally, we see our fundamental responsibility to shareholders as being capital allocators balancing short term realities with long term possibility.

Speaker 2: balancing short-term realities with long-term possibility. To this end, we divested three businesses in 2021 on top of the four divestitures in 2020.

To this end, we divested three businesses in 2021 on top of the four divestitures in 2020.

Speaker 2: In 2022, we will disproportionately invest in areas of the company such as the infrastructure opportunity, autonomy, and our own digital transformation. We make these investments and are accelerating the transition to recurring revenue models of a number of our software businesses. In the context of a challenging supply chain environment, which is constraining our ability to meet customer demand and adding inflationary pressures.

In 2022, we will disproportionately invest in areas of the company such as the infrastructure opportunity autonomy and our own digital transformation. We make these investments and are accelerating the transition to recurring revenue models of a number of our software businesses in the context of a challenging supply chain environment.

Is constraining our ability to meet customer demand and adding inflationary pressures the step.

Speaker 2: The steps we are taking will moderate our operating leverage over the next few quarters, but will move us forward in our ability to reach the full potential of our strategy.

We are taking will moderate our operating leverage over the next few quarters, but will move us forward in our ability to reach the full potential of our strategy.

Before I turn it over to David a big Shout out to all 11500, plus Trimble team members for your ongoing dedication and execution to our global dealer partners and to our strategic partners for their efforts and to all of you in the investment community, who trust us with your capital David over to you.

Speaker 2: Before I turn it over to David, a big shout out to all 11,500 plus Trimble team members for your ongoing dedication and execution. To our global dealer partners and to our strategic partners for their efforts. And to all of you in the investment community who trust us with your capital. David, over to you.

Speaker 2: Thanks, Rob. Turning to slide four, fourth quarter revenue was $926 million, up 12% versus a year ago. Organic revenue growth was 14%.

Thanks, Rob turning to slide four fourth quarter revenue was $926 million up 12% versus a year ago.

Organic revenue growth was 14%.

Speaker 2: Our strong revenue in the quarter was enabled by the outstanding performance of our supply chain and operations team as hardware revenue grew by over 20% versus the fourth quarter of last year, notwithstanding the extraordinarily difficult supply chain environment.

Our strong revenue in the quarter was enabled by the outstanding performance of our supply chain and operations team as hardware revenue grew by over 20% versus the fourth quarter of last year, notwithstanding the extraordinarily difficult supply chain environment.

Backlog of unfilled hardware orders grew in the quarter, reflecting both the strong demand in our end markets and customers, placing orders earlier than they would have in the past.

Speaker 2: Backlog of unfilled hardware orders grew in the quarter, reflecting both the strong demand in our end markets and customers placing orders earlier than they would have in the past.

Speaker 2: Hardware backlog at the end of fourth quarter was nearly four times the level of a year ago before the supply chain challenges emerged.

Hardware backlog at the end of the fourth quarter was nearly four times the level of a year ago before the supply chain challenges emerged.

With this strong backlog, we have unprecedented visibility into demand for our hardware offerings going into 2022.

Speaker 2: With this strong backlog, we have unprecedented visibility into demand for our hardware offerings going into 2022.

<unk> grew at an organic rate of 12% driven by business model conversions strong bookings and healthy customer retention for recurring solutions in the quarter.

Speaker 2: ARR grew at an organic rate of 12% driven by business model conversions, strong bookings, and healthy customer retention for recurring solutions in the quarter.

Speaker 2: Gross margins were 57.8%, down 90 basis points sequentially from third quarter levels, and down 160 basis points from the fourth quarter of 2020.

Gross margins were 57, 8% down 90 basis points sequentially from third quarter levels and down 160 basis points from the fourth quarter of 2020.

Gross margins were impacted by the mix of hardware revenue higher inbound freight costs and our aggressive purchases of components in the broker market to support strong demand.

Speaker 3: Gross margins were impacted by the mix of hardware revenue, higher inbound freight costs, and our aggressive purchases of components in the broker market to support strong demand.

Speaker 3: Cost inflation was higher than our expectations, and the price increases we took in our hardware offerings did not fully offset an unexpectedly sharp spike in cost inflation in the quarter.

Cost inflation was higher than our expectations and the price increases we took in our hardware offerings did not fully offset an unexpectedly sharp spike in cost inflation in the quarter.

The price increases we have taken so far this year, averaging approximately 5% at the list price level across most of our hardware businesses and accompanied by reduced discounting have been accepted in the market.

Speaker 3: The price increases we have taken so far this year, averaging approximately 5% at the list price level across most of our hardware businesses, and accompanied by reduced discounting, have been accepted in the market.

Given our leading position in the markets. We serve we are confident in our ability to maintain attractive margins and we continue to adopt our pricing strategy to the cost outlook.

Speaker 3: Given our leading position in the markets we serve, we are confident in our ability to maintain attractive margins and we continue to adopt our pricing strategy to the cost outlook.

Our EBITA margin for the quarter was 24, 1%, while operating income margins were 22, 1%.

Speaker 3: Our EBITDA margin for the quarter was 24.1%, while operating income margins were 22.1%.

Speaker 3: As we expected, margins in the quarter were lower than the fourth quarter of 2020, but higher than Q4 of 2019. EPS was 62 cents.

As we expected margins in the quarter were lower than the fourth quarter of 2020, but higher than Q4 of 2019 EPS.

EPS was <unk> 62.

We generated cash flow from operations of $155 million and free cash flow of over $140 million.

Speaker 3: We generated cash flow from operations of 155 million and free cash flow of over 140 million.

Cash flow was lower than Q4 of 2020, driven by increased component inventory purchases.

Speaker 3: cash flow was lower than Q4 of 2020 driven by increased component inventory per

Turning now to slide five let's step back and review performance for the full year 2021.

Speaker 3: Turning now to slide five, let's step back and review performance for the full year 2021.

Speaker 3: In the face of unprecedented challenges stemming from the ongoing COVID disruptions, supply chain shortages, and accelerating inflation, we achieved record results across a broad range of financial networks.

In the face of unprecedented challenges stemming from the ongoing COVID-19 disruptions supply chain shortages and accelerating inflation, we achieved record results across a broad range of financial metrics.

Speaker 3: Revenue grew 16% to a record $3.66 billion, and the ARR growth improved sequentially.

<unk> revenue grew 16% to a record $3 66 billion and the IRR growth improved sequentially.

Speaker 3: While gross margins were down modestly due to both inflation and the higher growth of our hardware revenues, EBITDA and operating margins ended the year above the levels of 2020 and at record levels in Trimble's history.

While gross margins were down modestly due to both inflation and the higher growth of our hardware revenues EBITDA and operating margins ended the year above the levels of 2020 and at record levels and trembles history.

Speaker 3: Earnings per share were $2.66 of 19% versus a year ago.

Earnings per share were $2 66.

Up 19% versus a year ago.

Speaker 3: Cash flow from operations and free cash flow grew 12% and 14% respectively and has

Cash flow from operations and free cash flow grew 12% and 14% respectively.

Now on slide six from a geographic perspective revenues were up in all regions with the highest growth rate in Europe North America revenue in the quarter also grew at a double digit rate.

Speaker 3: Now on slide six, from a geographic perspective, revenues were up in all regions with the highest growth rate in Europe . North America revenue in the quarter also grew at a double digit rate.

Turning now to other key operating metrics on slide seven I will note that backlog ended the year at $1 8 billion. This is up from $1 3 billion a year ago.

Speaker 3: Turning now to other key operating metrics on slide 7. I'll note that Backlog ended the year at $1.8 billion. This is up from $1.3 billion a year ago.

While backlog in our recurring offerings continue to grow the majority of this increase came from hardware and yearend hardware backlog exceeded our expectations of a quarter ago.

Speaker 3: While backlog and recurring offerings continued to grow, the majority of this increase came from hardware, and year-end hardware backlog exceeded our expectations of a quarter ago.

Speaker 3: Our results for 2021 reflect the achievement of a meaningful milestone. On a trailing 12 month basis, our software services and recurring revenue exceeded 2 billion for the first time.

Our results for 2021 reflect the achievement of a meaningful milestone on a trailing 12 month basis, our software services and recurring revenue exceeded $2 billion for the first time.

Speaker 3: Operating cash flow of over 750 million was also a record and exceeded 1.1 times non-GAAP netting.

Operating cash flow of over $750 million was also a record and exceeded $1 one times non-GAAP net income.

Speaker 3: Turning now to our results by segment on slide eight. Revenue was at or above our expectations in all segments.

Turning now to our results by segment on slide eight revenue was at or above our expectations in all segments.

Speaker 3: Buildings and infrastructure revenue grew 14% versus prior year and 16% organically. Growth was strong across both hard...

Buildings and infrastructure revenue grew 14% versus prior year and 16% organically.

Growth was strong across both hardware and software.

Our sales of machine control solutions to civil construction customers grew by nearly 30% this quarter.

Speaker 3: Our sales of machine control solutions to civil construction customers grew by nearly 30% this quarter, despite supply chain constraints.

Despite supply chain constraints.

<unk> growth in the segment was strong with viewpoint and E builder RR together up at a mid teens growth rate sketch.

Speaker 3: ARR growth in the segment was strong with Viewpoint and eBuilder ARR together up at a mid-teens growth rate.

Sketchup IRR growth was nearly 40%, while <unk> gained momentum in our structures and MEP software businesses as they accelerated their transition to recurring revenue models in the quarter.

Speaker 3: SketchUp ARR growth was nearly 40%, while ARR gained momentum in our structures and MEP software businesses as they accelerated their transitions to recurring revenue models in the quarter.

We ended the quarter with strong bookings momentum across our DNI software businesses.

Speaker 3: We ended the quarter with strong bookings momentum across our B&I software business.

Speaker 3: Segment margins in the quarter were over 30%, representing a record fourth quarter for the segment, despite cost inflation and the higher growth of hardware revenue.

Margins in the quarter were over 30% representing a record fourth quarter for this segment despite cost inflation in the higher growth of hardware revenues and P&I are price increases more than offset the hardware cost inflation, we saw in the quarter.

Speaker 3: In B&I, our price increases more than offset the hardware cost inflation we saw in the quarter.

Geospatial segment revenue increased 15% overall and 16% on an organic basis.

Speaker 3: Geospatial segment revenue increased 15% overall and 16% on an organic basis.

Demand for our core survey of mapping portfolio remains very strong across all regions driven by strong spending and residential construction civil infrastructure and utilities.

Speaker 3: Demand for our core survey and mapping portfolio remains very strong across all regions, driven by strong spending in residential construction, civil infrastructure, and utilities.

Segment revenues also benefited from shipments against several large government contracts.

Speaker 3: Segnet revenues also benefited from shipments against several large government contracts.

Speaker 3: Operating margins were below the levels of fourth quarter 2020 and the third quarter of 2021 driven principally by a short-term mix

Operating margins were below the levels of fourth quarter 2020 in the third quarter of 2021, driven principally by a short term mix shift.

Speaker 3: The cost inflation we experienced in this segment was largely but not entirely offset by our 5% price increase in lower distance.

The cost inflation, we experienced in this segment was largely but not entirely offset by a 5% price increase and lower discounting.

Speaker 3: Resources and utilities revenue grew 18% in total and 21% organically.

Resources and utilities revenue grew 18% in total and 21% organically.

Speaker 3: Hardware backlog grew in RNU, reflective of very strong demand across the agriculture sector.

Hardware backlog grew and our anew reflective of very strong demand across the agriculture sector.

Speaker 3: The outlook for capital investment in ag remains strong, driven by high crop prices, low inventories, and high average equipment age.

The outlook for capital investment in the Agg remained strong driven by high crop prices low inventories and high average equipment age.

Speaker 3: Segment margins were below those of a year ago and sequentially below third quarter levels. Product cost insulation was particularly high in this segment as the cost of many critical components in our Ag product offerings increased substantially in the quarter. In this segment our price increases have not yet kept up with inflation and we continue to refine our pricing strategy going forward.

Segment margins were below those of a year ago and sequentially below third quarter levels product cost inflation was particularly high in this segment as the cost of many critical components in our AG product offerings increased substantially in the quarter.

In this segment of our price increases have not yet kept up with inflation and we continue to refine our pricing strategy going forward.

Speaker 3: We anticipate operating margins in this segment in the coming year to rebound from the fourth quarter 2021 levels as our price realization and mix improve.

We anticipate operating margins in this segment in the coming year to rebound from the fourth quarter of 2021 levels as our price realization and mix improve.

Consistent with our expectation coming into Q4 revenues and margins in our transportation segment were adversely impacted by supply chain challenges, both within our business and that our OEM customers.

Speaker 3: Consistent with our expectation coming into Q4, revenues and margins in our transportation segment were adversely impacted by supply chain challenges, both within our business and at our OEM customers.

Speaker 3: On the cost side we experienced meaningful component inflation and high freight costs, and we incurred costs related to realigning our product portfolio toward available components.

On the cost side, we experienced meaningful component inflation high freight costs, and we incurred costs related to realigning our product portfolio towards available components.

Speaker 3: Flow production levels at our OEM customers also constrained our revenue of both hardware and recurring services in the quarter.

Low production levels at our OEM customers also constrained our revenue of both hardware and recurring services in the quarter.

The leading indicators from our transportation business continue to give us confidence that we are on the path to better IRR and margin trends once the dynamics of the supply chain improve.

Speaker 3: The leading indicators from our transportation business continue to give us confidence that we are on the path to better ARR and margin trends once the dynamics of the supply chain improve. We grew bookings year on year once again in Q4, and our net retention is at 100%.

We grew bookings year on year once again in Q4, and our net retention is at 100%.

Our OEM customers are seeing stabilization in their own supply chain situation and we expect that orders from them, we will pick up early this year.

Speaker 3: Our OEM customers are seeing stabilization in their own supply chain situation, and we expect that orders from them will pick up early this year. Finally, on the cost side, we are introducing new products, which will support improved gross margins. For all these reasons, we project improved performance across the transportation segment and ARR revenue and margins in the back half of 2022.

Finally on the cost side, we are introducing new products, which will support improved gross margins for all these reasons, we project improved performance across the transportation segment, and <unk> revenue and margins in the back half of 2022.

Turning now to slide nine I'd like to provide our financial outlook for 2022.

Speaker 3: Turning now to slide nine, I'd like to provide our financial outlook for 2022.

Speaker 3: We expect to see continued top-line momentum. Demand from our end markets remains strong, and so far we haven't seen any signs of deceleration as a result of recent inflation and higher interest.

We expect to see continued topline momentum demand from our end markets remain strong and so far we haven't seen any signs of deceleration as a result of recent inflation and higher interest rates.

Speaker 3: Our backlog and forward-looking indicators of sentiment give us confidence in our prospects for ARR and revenue.

Our backlog and forward looking indicators of sentiment gives us confidence in our prospects for <unk> and revenue growth.

As Rob and I have mentioned, we expect the supply chain disruptions will continue to be with us through 2022 there.

Speaker 3: As Rob and I have mentioned, we expect the supply chain disruptions will continue to be with us through 2022. There are signs that the pressure on component availability will abate in the back half of the year, but our plans presume that the supply chain will not be fully restored to equilibrium until 2023.

There are signs that the pressure on component availability will abate in the back half of the year, but our plans presume that the supply chain will not be fully restored to equilibrium until 2023.

Speaker 3: With those factors in mind, we are initiating annual guidance for 2022.

With those factors in mind, we are initiating annual guidance for 2022.

Excluding the impact of any additional acquisitions or divestitures, we project full year revenue of $3 95 billion to $4 <unk> 5 billion, representing a range of growth outlook of 8% to 11%.

Our continuing transition of software offerings will present, approximately 100 basis points of headwind to revenue growth.

Speaker 3: Our continuing transition of software offerings will present approximately 100 basis points of headwind to revenue growth.

<unk> growth is expected to accelerate through the year to a mid teens rate by year end.

We expect gross margins in 2022 to be comparable to or slightly better than 2021 with sequential improvement in the back half of the year.

Speaker 3: We expect gross margins in 2022 to be comparable to or slightly better than 2021 with sequential improvement in the back half of the year.

Speaker 3: We expect that operating margins for the full year will be approximately 23%.

We expect that operating margins for the full year will be approximately 23%.

Speaker 3: Note that operating margins will be adversely impacted by the aforementioned subscription transitions as well as investments we are making in support of our strategy and the acceleration of ARR. In aggregate, these factors present a headwind operating margins of approximately 200 bases.

Note that operating margins will be adversely impacted by the afore mentioned subscription transitions as well as investments we are making in support of our strategy and the acceleration of IRR in aggregate. These factors present, a headwind to operating margins of approximately 200 basis points.

Speaker 3: Income from equity investments is projected to be approximately 30 million lower than 2021 due to higher product costs in our joint venture.

Income from equity investments is projected to be approximately $30 million lower than 2021 due to higher product costs in our joint ventures.

Net interest expense is forecast to be approximately $65 million and we project that our tax rate will be approximately 18%.

Speaker 3: Net interest expense is forecast to be approximately 65 million. And we project that our tax rate will be approximately 18%.

Netting all of this out we project to achieve EPS in the range of $2 75.

Speaker 3: netting all this out we project to achieve EPS in the range of $2.75 to $2.95.

To $2 95.

From a cash flow perspective, we projected free cash flow will once again exceed our non-GAAP net income.

Speaker 3: From a cash flow perspective, we project the free cash flow. We'll once again exceed our non-gap net in.

Our cash flow trends will be helped by the projected return towards equilibrium in the supply chain as we anticipate needing lower component inventories by the end of the year.

Speaker 3: Our cash flow trends will be helped by the projected return toward equilibrium in the supply chain as we anticipate needing lower component inventories by the end of the year.

While we are focusing our guidance on expectations for the full year I'd like to provide some color on the factors, we expect to drive quarterly trends in 2022.

Speaker 3: While we are focusing our guidance on expectations for the full year, I'd like to provide some color on the factors we expect to drive quarterly trends in 2022.

Speaker 3: Many of the normal seasonal patterns in our business are being disrupted by the impact of the constrained supply chain. So it is most helpful to think in terms of the expected sequential development from where we ended Q4 of 2021.

Many of the normal seasonal patterns in our business are being disrupted by the impact of the constrained supply chain. So it is most helpful to think in terms of the expected sequential development from where we ended Q4 of 2021.

Speaker 3: We expect revenue to grow sequentially through each quarter of the year with ARR accelerating as well.

We expect revenue to grow sequentially through each quarter of the year with IRR accelerating as well.

From a product cost perspective, we expect to see inflation through the first half of 2022 similar to what we experienced in Q4 of 2021 with meaningful improvement in the second half.

Speaker 3: From a product cost perspective, we expect to see inflation through the first half of 2022, similar to what we experienced in Q4 of 2021, with meaningful improvement in the second.

Speaker 3: As a result, gross margins are likely to be relatively flat with Q4 of 2021 through the first half of the year and meaningfully higher in the second half.

As a result gross margins are likely to be relatively flat with Q4 of 2021 through the first half of the year and meaningfully higher in the second half we expect.

Speaker 3: We expect that operating margins in the second half of the year will exceed the first half by approximately 150 base.

That operating margins in the second half of the year will exceed the first half by approximately 150 basis points.

Speaker 3: I'll close by noting that we are planning an investor day in Colorado this September . And with that, I'll turn it back over to Rob.

I'll close by noting that we are planning an investor day in Colorado. This September and with that I'll turn it back over to Rob.

We entered the Covid crisis, almost two years ago and at that time, we set an objective to exit the crisis on a stronger competitive footing.

Speaker 2: He entered the COVID crisis almost two years ago, and at that time we set an objective to exit the crisis on a stronger competitive footing.

Speaker 2: I'm proud of our accomplishments in 2021. And the progress and commitment we are making towards our Connect and Scale 2025 strategy.

I am proud of our accomplishments in 2021, and the progress and commitment we are making towards our connect and scale 2025 strategy. We are a purpose driven company, serving secular really attractive markets pursuing a differentiated strategy to connect the physical and digital worlds with a unique set of underlying capabilities, we deliver a compelling.

Speaker 2: We are a purpose-driven company serving secondarily attractive markets pursuing a differentiated strategy to connect the physical and digital worlds with a unique set of underlying capabilities.

Speaker 2: We deliver a compelling value proposition to our customers in the form of better, faster, safer, cheaper, greener. And we deliver a compelling business model to our shareholders. No doubt we expect to operate in a turbulent environment for the foreseeable future while simultaneously undergoing our own transformation.

<unk> proposition to our customers in the form of better faster safer cheaper greener and we deliver a compelling business model to our shareholders no doubt, we expect to operate in a turbulent environment for the foreseeable future while simultaneously undergoing our own transformation.

The last couple of years serve as evidence that this team has the courage and conviction to rise to the challenge operator, let's please go to Q&A.

Speaker 2: The last couple of years serve as evidence that this team has the courage and conviction to rise to the challenge. Operator, let's please go.

Speaker 1: At this time, if you would like to ask a question, press star then the number one on your telephone keypad. Again, it's star one on your telephone keypad. We'll pause for just a moment to compile the Q&A Ross.

At this time, if you would like to ask a question Press Star then the number one on your telephone keypad.

And at Star, one and your telephone keypad.

For just a moment to compile the Q&A roster.

We ask you to limit your questions to one question and one follow up.

Speaker 1: We ask you to limit your question to one question and one follow up.

Speaker 1: Your first question comes from the line of chat, dialogue from Bernstein. Your line's open, please ask your question. for a fresh and even moment in silence.

First question comes from the line of Chad Dillard from Bernstein. Your line is open. Please ask your question.

Hi, good morning, guys.

Good morning.

Yes.

Speaker 4: So my first question is just on the guidance. So what are you contemplating at the low end of your earnings guide? Because it implies about like 3% growth.

So my first question is just on the guidance.

What are you contemplating at the low end of your earnings guide because it implies about a 30% growth and so as I kind of like looking through it.

Speaker 4: And so that's kind of like looking through it. You know, first of all, it's on the revenue side at the low end, you're at 7%, but if you're talking about price realization of, you know, plus five and then AR growth in the teens, it seems like that would imply a couple of low single digit or flatish growth on hardware. So just hoping you could just kind of, just give me a sense for how are you thinking about that, that low end and the reality of hitting.

First of all on the revenue side at the low end, you're at 7%, but if you're talking about price realization of plus five and then Ah.

Growth in the teens.

Like that would imply a couple of low single digit or flattish growth on on hardware.

So just hoping you could just kind of.

Just give me a sense for how you're thinking about that low end and the reality of hitting that.

Hey, Chad, it's David Barnes.

Speaker 3: Hey, Travis David Barnes. I think the low end is 8% revenue growth. And I think your math is right. There's some pricing in there. I'll note that the revenue growth will be impacted by about 100 basis points of transition from perpetual to recurring some more. So, I'll note that the revenue growth will be impacted by about 100 basis points of transition from perpetual to recurring some more.

I think the low end.

8% revenue growth and I think your math is right. There is some pricing in there.

I will note that the revenue growth will be impacted by about 100 basis points of transition from.

Perpetual to recurring and some of our software businesses.

Speaker 3: We do expect hardware growth to moderate versus what we've seen this year will be working through the backlog. But those are some of the big...

We do expect hardware growth to moderate versus what we've seen this year, we'll be working through the backlog, but those are some of the big building blocks.

Speaker 4: Got it. Okay. And then just secondly, on your incremental margins. So the guy in supply is about 18% and during the third quarter, I believe you guys talked about being at the low and at 25% to 30%. So you're just trying to understand what changed and perhaps you could just help us bridge that gap. Sure. Sure.

Got it okay.

And then just secondly on your incremental margins.

Guidance implies about 18%.

And during the third quarter I believe you guys talked about being at the low end of 20% to 30%. So I'm just trying to understand what changed and perhaps you could just help us bridge that gap.

Sure.

The.

Ill.

The big if there's a change in there there is a bit of a change it's that we're going to see more inflation than we had anticipated in the first half of.

Speaker 3: The big, if it's a change, and there is a bit of a change, it's that we're gonna see more inflation than we and anticipated in the first half.

Speaker 3: 2022, our outlook was a little more optimistic on that front. It's now clear that the supply chain being choked up is going to last at least at some level through the end of next year. And we don't think the inflation scenario in terms of our product cost.

Of 2022, our outlook was a little more optimistic on that front.

It is now clear that the supply chain being choked up is going to last at least at some level through the end of next year and we don't think the inflation scenario in terms of our product costs.

Speaker 3: will get meaningfully better at the guidance presumed sort of plateauing at Q4 levels.

We will get meaningfully better guidance presume sort of plateauing at Q4 levels, we do expect to see some price realization I talked in the prepared remarks about margins in AG.

Speaker 3: We do expect to see some price realization. I talked in the prepared remarks about margins and ag. The sort of bad news of a lot of backlog is when you implement another price increase. You don't see it in revenue right away. So those are the principal factors that would have operating leverage lower than we had indicated earlier. But I will point out that

The sort of bad news of a lot of backlog is when you implement another price increase you don't see it in revenue.

So those are the principal factors that would have operating leverage.

Lower than we had indicated earlier.

I will point out that.

Speaker 3: The deliberate decisions were making in terms of model transition from perpetual to recurring and then the investments against our strategic initiatives. Each of those takes 100 basis points or so out of margins that we would have next year if we weren't doing those things and that would generate very healthy.

The deliberate decisions, we're making in terms of model transition from perpetual to recurring and then the investments against our strategic.

<unk> initiatives each of those takes a 100 basis points or so out of margins that we would have next year, if we weren't doing those things and that would generate very healthy operating leverage.

Speaker 2: Chad, one other piece of color on that is compared to 2022 and the mid-guide to 2019 and we're talking over 45% operating leverage over that time.

Chad one other piece of color on that as compared to 2022 in the mid guide to 2019, and we're talking over 45% operating leverage over that time.

Got it thanks I'll pass it on.

Yeah.

Speaker 1: Your next question comes from the line of Rob Werstenner from Melius Research who lines Open Peace Asher Question.

Your next question comes from the line of Rob Western There from Melius Research. Your line is open. Please ask your question.

Thank you.

Speaker 2: Thank you. There's a lot of obviously volatility in the supply chain. Could you be a little bit more specific if you're willing on what is getting better into two-h, what you have visibility on. There's some proffin strips getting better. I don't know if that's been a big headwind. And then just your general feeling is it's stable in one queue. There's obviously a lot of on the front. Pick out potential and things like that. I don't know if it started getting better already in any way.

A lot of obviously volatility in the supply chain could you be a little bit more specific if you're willing on what is getting better into two age. What you have visibility on there was some talk on ships getting better I don't know if thats been a big headwind and then just your general feeling is it stable and <unk>, there's obviously a lot of pick up potential and things like that.

Started getting better already in any ways.

Yeah, Hey, Rob I'll say that the supply chain challenges you hear a lot of talk about semiconductors, but but the issues are broader than that.

Speaker 3: Hey Rob, I'll say that the supply chain challenges, you hear a lot of talk about semiconductors, but the issues are broader than that. With regard to electronics, I would say things are already improving.

With regard to electronics I would say.

Things are already improving.

Part of that is that we.

Speaker 3: Part of that is that we, you know, several months ago, took a number of steps, including raising our outlook and making commitments with vendors, placing orders that actually impacted our cash flow. We've worked component by component. We've seen meaningful progress. We're actually seeing visibility to capacity on some of our individual constrained parts with specific vendors. So that's...

Several months ago took a number of steps including.

Raising our outlook and making commitments with vendors, placing orders that actually impacted our cash flow.

We've worked component by component we've seen meaningful.

Meaningful progress, we're actually seeing visibility to capacity on some of our individual constrained parts with specific vendors. So that's.

That's getting better and the the fruits of our effort to redesign our products around around very scarce components. All of those shows signs of improvement actually where things are sticky is now is the non electronics its cables.

Speaker 3: That's getting better and the fruits of our effort to redesign our products around very scarce components. All of those show signs of improvement. Actually, where things are stickiest now is the non-electronics. It's cables.

Speaker 3: brackets, other kinds of parts. And that is sort of the downstream impact of labor disruptions and many markets all around the world. So that probably has a...

Brackets other kinds of parts and that is sort of the downstream impact of labor disruptions in many markets all around the world. So that probably has a lot of.

Speaker 3: a longer fuse to it, but you put all that together, that adds up to the outlook we described in the prepared remarks, which is...

A longer fuse to it but you put all that together that that adds up to the outlook. We described in the prepared remarks, which is.

We will see inflation in constrained overall supply through the first half of the year it will see meaningful improvement, albeit not all the way back to normal by year end.

Speaker 3: You know, we'll see inflation and constrained overall supply through the first half of the year. And we'll see meaningful improvement, I'll be it not all the way back to normal bite.

And then begging your pardon me if youre willing to be so granular you mentioned your backlog. So you don't have pricing coming through in resources and so on the back half margin improvement is that.

Speaker 2: And then begging your partner, if you're willing to be so granular, you mentioned you have backlogs, you don't have pricing coming true and resources and so on. The back-up margin improvement is that more pricing, is that more like you assume, the exponent freight goes away, isn't more proven other things you just discussed if you're willing, and I'll stop there. Thank you.

More pricing is that more like you assume.

Freight goes away isn't more improvement and all the things you just discussed if youre willing and I'll stop there. Thank you Sir.

Speaker 3: There are many components. Looking at inflation, I think you can group it in a few buckets.

There are many components.

Looking at inflation I think you can group it in a few buckets.

Speaker 3: There's the underlying just price increases from the suppliers and from our freight providers.

There is the underlying just price increases from the.

From the suppliers and from our freight providers.

Speaker 3: And then there's expedited freight where you use air freight instead of seaborn freight for instance.

And then there's expedited freight where you use air freight instead of seaborne freight for instance.

And then there is buying components in the broker market and when you buy components from the broker market the price can be.

Speaker 3: And then there's buying components in the broker market. And when you buy components in the broker market, the price can be not a few percent higher, but multiple higher than the normal purchase price. So the outlook for improved margins in the back half of the year is that we have a lot less of the use of the broker market. We have less expedited.

Not a few percent higher but multiples higher than normal.

Purchase price so the outlook for improved margins in the back half of the year is that we have a lot less of the.

Use of the broker market, we have less expedited.

Freight we do think though that there will be underlying inflation that will that will be with us, but you will see the full impact of the price increases, including the ones. We haven't haven't taken together, where we've taken them they haven't flown through.

Speaker 3: Freight we do think though that there will be underlying inflation that will That will be with us But you'll see the full impact of the price increases including the ones we haven't Haven't taken yet or where we've taken them they haven't flown through

Speaker 3: through the backlog. And then over time, the mix of our business will improve. You know, I'll point out that our revenues were up about 12% in the quarter and our hardware revenues in Q4 were up 20. So that's not helpful to margin. And that wouldn't aid as well. So we add all that up. We think that's how we get to the meaning for better margins in the second half of the month.

Flow through the backlog.

And then over time the mix of our business.

We'll improve I'll point out that.

Our revenues were up about 12% in the quarter and our hardware revenues in Q4 were up 20, so that's not helpful to margin.

That will be made as well so we add all that up we think that's how we get to meaningfully better margins in the second half than the first half.

Okay. Thanks.

Sure.

Your next question comes from the line of Colin Rusch from Oppenheimer. Your line is open. Please ask your question.

Speaker 1: Your next question comes from the line of Colin Ross from Oppenheimer. Your line's open piece asks your question.

Thanks, So much guys I wanted to ask about the idle assets acquisition.

Speaker 5: Thanks so much guys. I want to have to go to the AdelaSat acquisition. You know, just want to get a sense of the speed of the integration into the triple platform and how you're thinking about the digital twin opportunity in terms of customer engagement and expansion of total addressable marks.

Wanted to get a sense of the speed of the integration into the Trimble platform and how youre thinking about the digital train opportunity in terms of customer engagement and expansion of total addressable market.

Hey, good morning, Collin, it's Rob.

Speaker 2: Good morning, Colin. It's Rob. So, hey, Agile assets fits perfectly into our strategy. We think it's really in the center of the bull's eye. It's a growing SaaS business and it connects well with the broader Trimble platform. So it is a growth story and we've got high conviction that we can grow this business on its own and that it can be a catalyst for the growth of other Trimble solutions.

Joe assets fits perfectly into our strategy, we think it's.

Really in the center of the Bullseye growing SaaS business and it connects well with the broader Trimble platform. So it is a growth story and we've got high conviction that we can we can grow this business on its own and that it can be a catalyst for the growth of other Trimble solutions.

When we put it in context.

Speaker 2: When we put it in context of the digital twin in the prepared remarks, we talked about this intersection point of the as maintained model with and as designed and as built. So if you think about it from the life cycle point of view, which is really central to our strategy, this...

A digital twin and prepared remarks, we talked about this intersection point.

Of the as maintained model with an app designed in and as Bill. So if you think about it from a life cycle point of view, which is really central to our strategy.

Yes.

Ads really that final step in the operations and maintenance phase and so.

Speaker 2: adds really that final step in operations and maintenance phase. And so a digital twin and its truest form is much broader than a design model. And often people will talk about it more in a design sense. We think the combination and intersection of the design with the as built with the as maintained is actually a true digital twin. And the early indication we have from joint customers and from departments of transportation is quite encouraging.

A digital twin and its truest form is much broader than a design model and often people will talk about it more on a design, we think the combination and the intersection of that design with the as built with the as maintained is actually a true digital twin and the <unk>.

Early indication, we have from joint customers and from departments of transportation is quite encouraging to us.

Speaker 5: Great. And then shifting gears to the transportation logistics business, you know, with the real progress is being made around class A, trucking moving towards autonomy and the more comprehensive software systems that were starting to see emerge in that, in that space, how are you thinking about the ball of industry strategy for a tremble in that space? It seems like there's an awful lot to do, but also a lot to shift around. And so I, that the case of change would be helpful, just in terms of your internal thought process and how you see that business of all.

Great and then shifting gears to the transportation and logistics business with the the real progress that's been made around class eight trucking moving towards autonomy.

And the more comprehensive software systems that we're starting to see emerge in that in that space. How are you thinking about evolving strategy for simple in that space. It seems like there's an awful lot to do but also a lot to shift around.

The cadence of change would be.

So just in terms of your internal thought process and how you see that business evolving for example.

Speaker 2: We see autonomy as it emerges in transportation. I'd say at some level, similar to agriculture or construction. And that is in an autonomous world, which by the way, is probably really more than more automated world in an autonomous world, the trucks still need

We see our economy as it emerges in transportation.

Say at some level similar to agriculture.

Our construction and <unk>.

That is.

And then autonomous world, which by the way is probably really more of a more automated world in an autonomous world.

The trucks still needs.

Speaker 2: to have a work plan. It still needs to understand how to route and how to navigate. It still needs to understand how to optimize within the entire fleet. It still needs...

To have a work plan it still needs to understand how to route and how to navigate.

It still needs to understand how to optimize within the entire fleet.

Still needs.

Speaker 2: to understand how to give a dynamic estimated time of arrival to the customer. It needs the brains behind it. Arguably the autonomous vehicle or dozer or tractor is a dumb node. It doesn't know what to do. It needs a work order. It needs a work plan. It needs that brains. And that.

To understand how to give dynamic estimated time of arrival.

To the to the customer.

It needs the brains behind it arguably the autonomous vehicle or does or a tractor.

If a dumb node it doesn't know what to do it needs a work order it needs a work plan.

Needs that brains and that.

Speaker 2: Intersected before we do a tremble in the office, the systems of record, the scheduling routing, dispatch, we think provide high relevance and a more automated world. In addition, there's autonomous capabilities that we can provide companies on highway. So, for instance, in our correction services business, we now have over 10 million miles that have been managed through our correction services, which are really providing ADAS capabilities.

Intersected with what we do at Trimble and the office the systems of record the scheduling routing dispatch, we think provide high relevance in a more automated world.

In addition, there is autonomous capabilities that we can provide companies on highway. So for instance in our correction services business. We now have over 10 million miles that have been managed through our correction services, which are really providing adas capabilities.

That's super helpful I'll follow up offline. Thanks.

Your next question comes from the line of Tami Zakaria from Jpmorgan. Your line is open. Please ask your question.

Speaker 1: Your next question comes from the line of Tammy Ducaria from JP Morgan. Your line is open. Please ask your question.

Speaker 6: Hi, good morning. Thanks for taking my questions. So the resource and utilities margins in the quarter came in below where we were expecting. Can you expand that a little bit?

Hi, good morning, Thanks for taking my questions.

So the resource and utilities margins.

In the quarter came in below where we were expecting.

Can you extend that I'll, let al expand on that a little bit.

Speaker 6: And why do you expect unfavorable makes in the near term? And related to that, what is your outlook for agriculture demand longer term in light of farmers moving towards vision and AI technology?

And why do you expect unfavorable mix in the near term and related to that what is your outlook for agriculture demand longer time in light of farmers are moving towards this vision and AI technologies.

I'll defer the longer term question to Rob with regard to margins Tammy.

Speaker 3: I'll defer the longer term question to Rob. With regard to margins, Tammy, there's a story both of mix and of higher input costs.

There is.

Our story, both of mix and higher input costs.

Speaker 3: There are a number of key components in our displays for guidance in agriculture, where the supply was particularly tight. I mentioned a moment ago that markets are tight. We and other providers of hardware technology have to go to the broker market to fill the needs. And in some cases, a part that would normally cost $3.

There are a number of key components in our displays for guidance and agriculture.

Where the supply was particularly tight.

I mentioned a moment ago.

Markets are tight we and other provide.

Providers of hardware technology.

I have to go to the broker market.

To fill the needs and in some cases, a part that would normally cost $3.

Speaker 3: cost $30 or $40. So it's easy to see really dramatic cost spikes that happen disproportionately in this segment. So we've taken pricing action.

Cost $30 or $40. So it's easy to see really dramatic.

Cost spikes that happen disproportionately in this segment.

Taken pricing actions, but in this particular segment the cost increases are meaningfully higher. So we're we're re looking at our pricing strategy and we're going to have to take some actions to improve our margins going forward.

Speaker 3: but in this particular segment, the cost increases are meaning we hire. So we're re-looking at our pricing strategy and we're going to have to take some actions to improve our margins going forward. We do think there's a partly a story of mix here and what we were shipping in Q4 is disproportionately on the lower end of the margin scale. So it'll get better, but no doubt we have a margin challenge to wrestle with in this segment. Rob, you want to talk about that.

We do think that there is a partly a story of mix here and what we were shipping in Q4 is disproportionately on the lower end of the margin scale. So it will get better but no doubt we have a margin challenge to wrestle with and in this segment and Rob do you want to talk about the longer term outlook.

Yes, it's actually the other thing color I can add to the to the numbers as you know the revenue.

Speaker 2: Yeah, actually the other thing color I can add to the numbers is you know the revenue.

And the segment was up over 18% IRR was in the mid teens growth agriculture hardware revenue.

Speaker 2: In the segment was up over 18%, ARR was in the mid-peen growth. Agriculture hardware revenue was above 30%.

Was above 30%.

Speaker 2: put the margins and context of the extraordinary growth we have in this business. We are making conscious choices to meet the demand, the extraordinary demand that's out there in the market. And we saw the backlog continue to grow in the business. So I really feel good about the market demand out there. And there's a correlation between extraordinary demand.

Put the margins in context of the extraordinary growth that we have in this business, we are making conscious choices to meet the demand the extraordinary demand that's out there in the market and we saw the backlog continue to grow in the business. So.

Really feel good about the market demand.

Out there and there is a correlation between the extraordinary demand in the margins. So those factors as we move forward. That's part of why we think we can that will come to equal equilibrium in terms of the ongoing outlook and agriculture, and our and our views on that.

Speaker 2: and the margins. So the factors as we move forward, that's part of why we think that will come to equilibrium.

Speaker 2: In terms of the ongoing outlook and agriculture and our views on that.

Speaker 2: You know, hey, the indicators look good at the moment in the agriculture business. So the macros are in support.

Hey, the indicators look good at the at the moment and in the agriculture business. So the macros.

<unk> support.

The growth plans that we have.

If we look at farm income.

Its projected 2021 was probably the high.

Point for farm income the expectations for farm income in 2022 are.

Our 20% to 30% above the 10 year average.

So punch line is farm income is expected to remain strong that's a U S statistic that I'm.

Speaker 2: So punchline as far men come as expected to remain strong, that's a US.

Speaker 2: statistic that I'm giving you. And that's able to outpace the increase in the input.

Then I'm, giving you.

Able to outpace the increase in the inputs.

Input prices, sorry that farmers are paying so the <unk>.

Reason that farm income can stay up is because commodity prices are up and they remain up in inventory levels remain low now look at the input prices being higher and connect that to a point of view we have on the adoption of technology on a go forward basis, that's exactly what the technology can do as it can.

Speaker 2: Connect that to a point of view we have on the adoption of technology on a go-forward basis. That's exactly what the technology can do as it can minimize and optimize the use of those inputs.

Minimized and optimize the use of those inputs.

Speaker 2: less feed, higher yield, less use of herbicide.

Less feed higher yield.

Less use of herbicide.

Speaker 2: to spots braid, which also, by the way, brings the sustainability benefit to the farm. So those factors in aggregate continue to have us bullish on the adoption of precision ag technologies going forward. And I'd say also on a global.

At a spot spray, which also by the way brings a sustainability benefit to the farm. So those factors in aggregate continue to have us bullish on the adoption of precision AG technologies going forward and I'd say also on a global basis.

Speaker 6: Understood. That's helpful. That's all from me. Thank you so much.

Understood. That's helpful. That's all from me. Thank you so much.

Welcome.

Speaker 1: Your next question comes from the line Gao Munzha from Darren Berg. Your line is open piece Asha.

Your next question comes from the line of <unk>.

Jeff from Darrin, Greg Your line is open please ask your question.

Hey, good morning, Thanks for taking my questions.

Speaker 7: Hey, good morning. Thanks for taking my questions. Maybe the first one just.

Maybe the first one.

Just.

Speaker 7: trying to understand a little bit the dynamics around the business model transitions. Maybe if you can update that a little bit, when you say expectations about 100 basis points had when...

Trying to understand a little bit the dynamics around the business model transition.

Maybe if you can update us a little bit and when you say expectations for about 100 basis points headwind.

Speaker 7: to kind of the margins and the growth next for FY22. We tried to brand that are mostly impacting that. And maybe if we look forward, how long do you think that had been still lost? And at what stage it almost becomes the tailwind as well, once you kind of cross that majority of the revenue being subscription based on some of those brands as well. Thank you.

To kind of the margins and the growth.

FY 'twenty two.

We tried to brands that are most impacting that and maybe if we look forward.

How long do you think that headwind is still locked in at what stage. It almost becomes a tailwind as well once you kind of cross that.

<unk> of the.

Our revenue being subscription based on some of those trends as well. Thank you.

Speaker 3: Sure, Gail. David, I'll look both a little bit backward and forward. So for the full year, the measurement we do indicates that the transition impact in 2021 was about a hundred basis points, negative impact to...

Sure gallons David.

I'll look both a little bit backward and forward so for the.

Full year.

The measurement, we do indicate that the transition impact in 2021 was about 100 basis points negative impact too.

Speaker 3: to revenue, that's actually less than we thought going into the year and the reason it's less is that we had higher last time buys of perpetual offerings in our structural design business.

To revenue Thats actually less than we thought going into the year and the reason it's less is that we had higher last time buys of perpetual offerings in our structural.

Design business.

So.

Speaker 3: So right now the impact, the vast majority of the impact, the 100 basis points, whether it's for full year 2021 or full year 2022 are in our building's software businesses. There's a decent chunk in the transportation business as well. Actually, we're gonna see a piece of it in the civil, civil construction software business as we roll out our platform as a service model.

Right now the impacts the vast majority of the impact the 100 basis points, whether it's for full year 2021 or full year 2022 are in our buildings software businesses. There is a decent chunk in the transportation business as well actually we're going to see a piece of it in the civil.

Civil software civil construction software business as we rollout our platform as a service model.

Speaker 3: So you asked about the longer outlook. I'll tell you that the

So you asked about the longer outlook I will tell you that the.

The if you look at our perpetual software revenue just under $500 million for 2021.

Speaker 3: If you look at our perpetual software revenue, just under 500 million for 2021, we're already at a point where 75% of that perpetual software is sold bundled with hardware. So the

We're already at a point, where 70% or 75% of that.

<unk> software is sold bundled with hardware.

So.

Speaker 3: the straight hardware software offerings are only 25% of it, by which I mean to say, we will at the end of 2022 be through the significant majority of the model transitions on the straight software.

The straight software offerings are only 25% of it by which I mean to say we will at the end of 2020 to be through the significant majority of the model transitions on the on the straight software businesses, but we are looking to transform to recurring revenue models.

Speaker 3: But we are looking to transform to recurring revenue models. The platform is a service where that's where we're moving and we'll have some meaningful revenue in civil construction this year. We also have bundled perpetual software with hardware in the surveying business and an egg.

The platform as a service, where that's where we're moving and we'll have we will have some meaningful revenue in civil construction. This year. We also have.

Bundled perpetual software with hardware in the surveying business and in AG.

And that will be further out so it's a little early to call on how long that transition will take actually thats a topic, we plan to cover off at our Investor Conference in September .

Speaker 3: And that will be further out. So it's a little early to call on how long that transition will take. Actually, that's a topic we plan to cover off at our investor conference in September . But you know, that's a less straightforward to transition than a traditional software business. You've got your bundles with hardware. You've got multiple regions and dealers. And so it's a harder problem to solve. It's likely to take several years.

But that's less straightforward to transition than a traditional software business you've got your bundled with hardware you've got multiple regions and dealers and so it's a harder problem to solve is likely to take several years.

Got you and then.

Speaker 7: got here and then maybe as a follow up when I look at the you know

Maybe as a follow up when I look at.

Yes.

Speaker 7: It still has a negative impact on the margins, but like we said, if the transition stopped today on what you were ready to transition, it seems like incremental margins are being helped. If that makes sense, if we exiled us, because if I called that correctly, we're into kind of 40s incremental margins that we had kind of that two basis, two percentage points of less than we had went to CA to what you expected and, you know, 100 basis points of that is actually coming from...

It still has a negative impact on the margins, but like we said I think if the transition has stopped today on what you've already transition it seems like incremental margins are being helped.

If that makes sense, if we're XO that if I calculate correctly waiting to kind of for these incremental margins that we had kind of that two basis.

Two percentage points.

Less of a headwind this year to what you expected 100 basis points of that is actually coming from.

Speaker 7: from business model transitions. So if I look in an organic as it is today, business as it stands and as it's already, if you weren't transitioning it, is it fair to say that the outlook for the margins would have been kind of higher than historically has been on incremental.

From a business model transitions, so if I looking at inorganic as it is today business. It already if you werent transitioning it is it fair to say that the outlook for the margins would have been higher than historically it has been on the incrementals.

Yes, so I think I'm following your Gal.

Speaker 3: Yeah, so I think I'm following you, Gal, the margins are really high on both perpetual software and recurring. The difference is that when you sell subscription, you recognize the revenue and margin over many years, rather than upfront. So I think our math is good that the conversions were doing reduce.

The margins are really high on both perpetual software and recurring the difference is that when you sell subscription you recognize the revenue and margin over many years rather than upfront.

So I think our math is good that the the conversions.

Doing reduce revenue versus if you'd stayed in the perpetual.

Speaker 3: Revenue versus if you'd stayed in the perpetual model.

Model.

By the numbers, where we're saying and it essentially all goes through to the bottom line.

Speaker 3: by the numbers we're saying and it essentially all goes through to the bottom.

Speaker 2: And Gal, just this is Rob, you're absolutely right by the math. If we were only targeting an op leverage number, you wouldn't do the transitions. That's the wrong decision to take for the customers and for the market. So you're absolutely hitting on an important point that we will all day long look to convert the business models for the long term health of the business. And I think it's more important.

And Gal just this is rob.

Youre absolutely right by the by the math.

If we were only targeting an op leverage number you wouldn't do that transitions right. That's the wrong decision to take for the customers and for the market. So you're absolutely hitting on an important point.

We will.

All day long look to convert the business models for the long term health of the business and I think it's more important.

Certainly equally important the streets looking at the growth in the IRR.

Speaker 2: It's certainly equally important that the streets looking at the growth in the ARR, the look on their cash flow, the networking capital.

Look on our cash flow the networking capital.

As factors to complement what an EBITDA percentage of an operating income percentage will tell you because it's an incomplete story.

Speaker 2: as factors to complement what an EBITDA percentage or an operating income percentage will tell you because it's an incomplete story. Right.

Right.

Q.

Your next question comes from the line of <unk> from Goldman Sachs. Your line is open. Please ask your question.

Speaker 1: Your next question comes from the line up Gary Rebitch from Goldman Sachs. Your line is open. Please ask your question.

Yes, hi, good morning, everyone.

Speaker 8: Thanks, Yuri. I wonder who you can talk about the outlook for mid teens, ARR growth exiting the year, you know, really interesting outlook considering, you know, eBuilder and Viewpoint are delivering that level of growth now. So I'm wondering what needs to happen in transportation to get to that run rate? Or are you looking for an acceleration, a further acceleration, eBuilder, in viewpoint to get there? Maybe just give us a little bit of...

Hi, Jerry.

I'm wondering if we could talk about the outlook for mid teens growth.

Growth exiting the year really interesting.

Outlook, considering E builder viewpoint are delivering that level of growth now so I'm wondering what needs to happen in transportation to get to that run rate or are you looking for.

And acceleration further acceleration E builder.

And viewpoint to get there, maybe just give us a little bit more.

Speaker 8: clarity on which rise acceleration from

Alrighty on what drives the acceleration from 11% today.

Hey, Jerry this is Rob I think that is.

Speaker 2: Hey, Jerry, this is Rob. I think that is arguably the story in this earnings release is the level of ARR growth that we exited the year with, meets the ARR projection that David went through in a prepared remarks. You can look at the backlog.

Arguably the story.

In this earnings release as the level of IRR growth that we exited the year with.

<unk>.

They are our projection that David went through in the prepared remarks, you kind of look at.

The backlog that we have the reported backlog.

Speaker 2: that's in the financials, as evidence that we have a growing amount of revenue to serve, so in other words, we've got a high level of visibility. We had strong bookings in the fourth quarter in aggregate. So yes, the e-boter and viewpoint businesses, those continue to grow ARR in the mid teens, and I'll say bookings.

That's.

That's in the financials.

As evidenced that we have a growing amount of revenue to serve so within there, which we've got a high level of visibility we had strong bookings in the fourth quarter in aggregate.

Yes, the E builder and viewpoint businesses those continue to grow <unk> in the mid teens and I will say bookings.

<unk> grew faster than that so the bookings are the forward indicator to the revenue that it will eventually be recognized now the other catalyst on top of that Jerry is that structures business that we talked about.

Speaker 2: grew faster than that. So the bookings are the forward indicator to the revenue that will eventually be recognized. Now, the other catalyst on top of that, Jerry, is that the structure's business that we talked about, where that's the Teclas structure's business that made the model conversion in 20...

That's the <unk> structures business, but.

<unk> made the model conversion in 2021 that.

Speaker 2: that will be part of that growth in 2022. Yes, we do anticipate some increase in transportation, but this projection that David made is not entirely.

That will be part of that growth.

In 2022, yes, we do anticipate some increase in transportation, but this projection that David made is not.

Entirely.

Speaker 2: dependent on it. In fact, we've rather modest expectations.

Dependent on it and in fact, we rather modest expectations on transportation. So to the extent that that is a lot better that could be a little potential upside for us. So we are squarely focused on growing the recurring revenue the digital transformation investments, we're making David talked about that almost 100 bps of investment we make any.

Speaker 2: on transportation so to the extent that that is a lot better that could be a little

Speaker 2: potential upside for us. So we are squarely focused on growing the recurring revenue, the digital transformation investments we're making. They've talked about that, you know, almost 100 bits of investment we make into that. That's the core link.

That's the correlation.

Speaker 2: to make to the ARR growth. It is an enabler of that ARR growth and we're absolutely committed to these transformation investments in order to drive these attractive revisions.

To make to the IRR growth. It is an enabler of that are our growth and we're absolutely committed to these transformation investments in order to drive these attractive revenue streams.

Speaker 3: Yeah. Rob got it right, Jerry. We're at our close to midteens in the air or growth of our businesses others than transportation. We're much lower than that in transportation. And we do project a recovery. We don't think we'll get all the way to numbers. We.

Rob got a right Gerry.

We're at or close to mid teens.

The growth of our businesses other than transportation were much lower than that in transportation.

And we do project a recovery, we don't think we'll get all the way to numbers we.

We think are good long term by the end of the year, but the the.

Speaker 3: think are good long term by the end of the year, but the the outlook presumes that we maintain and put some momentum across the businesses that are growing well now outside transportation and the transportation begins meaningful growth. So you put all that together we get to mid-deens and if we do even More than that then we'll be we'll be on the high end of our of our outlook, but that's how we get

The outlook presumes that we.

Maintain and put some momentum across the businesses that are growing well now outside transportation and the transportation begins meaningful growth. So you put all that together we get to.

Mid teens and if if we do even.

More than that then we'll be we'll be on the high end of our outlook, but thats, how we get there.

Very interesting and David based on the <unk>.

Speaker 8: Very interesting and David you know based on the numbers you shared on sketch up It sounds like user growth has tripled in that business Give or take since the transition to subscription Are you on track with that level of performance in in tecla and you know? Are you thinking about the remaining conversions that are in front of us with that type of user growth potential or were there any outliers on? to sketch up that was?

Number two you shared.

Sketchup it sounds like good user growth has tripled in that business.

We're take since the transition to subscription.

Are you on track with that level of performance in <unk> are you thinking about the remaining conversions that are in front of us with that type of user growth potential or were there any outliers on.

Sketchup.

We should be thinking about.

Speaker 3: You know, I'd be careful about extrapolating from SketchUp to all the other businesses. Certainly, the SketchUp story is an amazing one. It really is a sort of great flagship example of how changing the business model expands the addressable market. On SketchUp, it has a quasi-consumer appeal, which Tecla would not. It's a very sophisticated product.

I'd be I'd be careful about extrapolating from sketch up to all the other businesses.

Certainly the Sketchup stories that amazing one it really is.

Great flagship example of how changing the business model expands the addressable market.

On Sketchup it has a quasi consumer appeal, which.

Which tecla would not it's a very sophisticated product. So we're early days in the model conversion on Tech I don't think Youll see the expansion in the addressable market.

Speaker 3: So we're early days in the model conversion on Tecla. I don't think you'll see the expansion in the addressable market in that offering that we've had in SketchUp.

And in that offering that we've had in sketchup.

Okay. Thanks.

Yeah.

Yes, the Nexgen comes from the line of Jason Celaeno from Keybanc capital markets. Your line is open. Please ask your question.

Speaker 1: Your next action comes from the line of Jason Solino from Keyback Capital Market. Your line is open. Please ask your...

Great Hey, Rob Hey, David I appreciate it may call this time around.

Speaker 9: Great, Hey Rob, Hey David, appreciate the money call this time around.

As it relates to M&A.

Speaker 9: As it relates to M&A, you know, the business has, you know, be loved for very nicely over the past couple of years. And with these connecting scale initiatives and you know, streamlining the business, you know, how should we think about M&A strategy and specifically, you know, where larger M&A might fit in?

<unk>.

De levered very nicely over the past couple of years.

These connect and scale initiatives streamlining the business, how should we think about M&A strategy and specifically larger M&A my opinion.

In context of connect and scale I think about two dynamics one.

Speaker 2: In context of Connect and Scale, I think about two dynamics, one.

Actually I think three dynamics, one is around organic progression in the.

Speaker 2: actually think three dynamics. One is our own organic progression and the second is acquisition and the third is partnership. From our own organic progression.

The second is acquisition and the <unk> partnership from our own organic progression.

Believe we have an immense opportunity just to mine the data and the customer.

Speaker 2: We believe we have an immense opportunity just to mine the data and the customer opportunities within the house. In other words, the cross cell and the up cell within the Trimble portfolio. As evidence of that, as our Trimble construction one launch, where we're creating persona-based bundles to go after the construction industry to better serve this customer.

Customer opportunities within I'll say within the house. So in other words, the cross sell and the upsell within the timber Trimble portfolio as evidence of that is our trimble construction, one launch have where we're creating persona based budd.

Bundles to go after the construction industry to better to better serve those customers.

That's our primary use I'll say a capital allocation second from an acquisition standpoint.

Speaker 2: So that's our primary use of the capital allocation. Second from an acquisition standpoint.

We're definitely open to acquisition not for the sake of acquisition if it helps accelerate the strategy and so the two vectors that we tend to look at on.

Speaker 2: We're definitely open to acquisition, not for the sake of acquisition if it helps accelerate the strategy. And so the two vectors we tend to look at on acquisitions are one.

Acquisitions are one.

Speaker 2: called product capabilities into geographic reach.

Product capabilities into geographic reach.

Speaker 2: Sometimes it was the same, sometimes they're mutually exclusive.

Sometimes the same and sometimes they're.

They are mutually exclusive.

The majority of acquisitions, we've done over time, it looked more like tuck and then transformative and large ones. We've tended to do the larger ones every few years and I wouldn't say that's by design. It's been more by availability. So we are certainly open to that there is a bit of a bifurcation in the market where there is the really.

Speaker 2: The majority of acquisitions we've done over time have looked more like a tuck-in than transformative and large ones. We've tended to do the larger ones every few years. And I wouldn't say that's by design. It's been more by availability. So we are certainly open to that. There's a bit of a bifurcation in the market where there's the really, I'll say almost mega caps, at least mega cap defined in a turmbled context.

I say almost mega caps at least mega cap defined.

Trimble context.

Speaker 2: and then the long tail of small companies. There's not.

And then the long tail of small small companies, there's not too many in the middle So theres a bit of a scarcity of assets. So we're absolutely open to it we obviously have the balance sheet and we think we've got the right strategy. So if the fed is there we will we will pursue on the partnership angle I mentioned that because.

Speaker 2: too many in the middle. So there's a bit of a scarcity of assets. So we're absolutely open to it. We obviously have the balance sheet and we think we've got the right strategy. So if the fit is there.

Speaker 2: we will pursue. On the partnership angle, I mention that because in a platform strategy, which is what Connect and Scale is.

And our platform strategy, which is what connect and scale is.

We believe the partnerships.

Speaker 2: We believe the partnerships are more important than ever to build out that ecosystem.

More important than ever to build out that ecosystem.

Speaker 2: We have a long track record of partnerships. We've got a joint venture with Caterpillar and Civil Construction. We've got a joint venture with Healthy and Building Construction. We've got a joint venture with Nikon and our survey and mapping business. We announced that relationship with Microsoft a few months ago. We think that that is an important partnership to help us extend the reach and the capabilities of what we do. And as we open up.

We have a long track record of partnerships, we've got a joint venture.

With caterpillar and civil construction, we've got a joint venture with LTE and building construction, we've got a joint venture with Nikon and our survey and mapping business, we announced that relationship with Microsoft a few months ago. We think that that is an important partnership to help us extend the reach and the capabilities of what we do and as we open up.

Sure.

Our technology to third parties in those ecosystems to help us extend that I think that's another point of evidence of where partnerships will come into play and then I'd like to believe that those partnerships, which could also come through our Trimble ventures arm could.

Speaker 2: Our technology to third parties and those ecosystems to help us extend that, I think that's another point of evidence of where partnerships will come into play. And then I'd like to believe that those partnerships, which could also come through a Trimble Ventures arm, could become acquisition candidates.

Could become acquisition candidates down the road.

Okay interesting and then when I think about this year and the focus and investments in infrastructure and economy in digital transformation.

Speaker 9: Okay, interesting. And then when I think about this year and the focus and investments in infrastructure, autonomy and digital.

Speaker 9: Is this the correct way to think about this? Maybe at the product level, to go to market level, and then also at the backend system level? Thanks.

Is the correct way to think about this maybe.

Level of go to market level, and then also have the backend system level.

Thanks.

Alright, yes, I think thats.

Speaker 2: uh... yet i think that's uh... uh... fair way to think about it

A fair way to think about it.

The words I tend to use internally our strategy structure systems I believe an organizational structure follows the strategy and I believe the underlying systems are meant to be enablers of that structure and ultimately the strategy.

Speaker 2: The words I tend to use internally are strategy structure systems. I believe an organizational structure follows the strategy and I believe the underlying systems are meant to be enablers of that structure and ultimately the strategy. So in the strategy of connecting scale.

And the strategy.

Connect and scale.

Speaker 2: We see an enormous opportunity around the infrastructure bill. And so I think that's what you're asking about when you said infrastructure. You are like, you may have been our internal infrastructure. But if we're talking that, the IAJA.

We see an enormous opportunity around the infrastructure Bill I think thats, what youre asking about when he said infrastructure. Although you may have met our internal infrastructure, but if we're talking to.

The Iga.

We see a large opportunity there that connects to the acquisition of Agila assets to bring more aspects of trimble together to positively impact the opportunity inside of construction. So.

Speaker 2: We see a large opportunity there that connects to the acquisition of Agile assets to bring more aspects of Trimble together to positively impact the opportunity inside of construction.

Speaker 2: So within that strategy, then we organized ourselves, well, sorry, actually also on the strategy side, yes, that captures product and go-to-market. I totally agree with you. There you've got to have, and the product looks like the sweet, the collections of our technology and the go-to-market for us, as you look in the totality of Trimble, has a hybrid aspect of direct and indirect that comes together. Okay, then on the organizational structure side,

And that strategy than we organized ourselves well sorry, I actually also on the strategy side, yes that captures product and go to markets I totally agree with you there.

There you've got to have in that product looks like the suites. The collections of our technology and the go to market for us.

As you look at the totality of Trimble has a hybrid aspect of direct and indirect that comes together, Okay and then on the organizational structure side.

Speaker 2: We organize ourselves around the industry that we serve. So we have an industry leader for civil construction, for building construction, for agriculture, for survey and mapping, for transportation. So we have that single point of accountability to those end markets that we're serving. And then the underlying systems, that captures some of the digital transformation systems work that we are doing to give us that

We organize ourselves around the.

The industries that we serve so we have an industry.

Leader for civil construction for building construction for agriculture.

And mapping for transportation. So we have that single point of accountability to those to those end markets that we're serving and then the underlying systems that captures some of the digital transformation.

Systems work that we are doing to give us that.

Speaker 2: ability to better serve customers and to help us scale efficiently and effectively.

Our ability to better serve customers and to help us scale efficiently and effectively.

Excellent. Thank you.

Youre welcome.

Speaker 1: Your next question comes from the line of Rob Mason. He lines open please asher question.

Our next question comes from the line of Rob Mason Youre line is open. Please ask your question.

Yes, good morning.

Speaker 3: I guess good morning. I, Rob, you had noted the platform as a service opportunity lies ahead of you still, for the most part. How should we be thinking?

Rob you had noted the platform as a service opportunity lies ahead of you still for the most part how should we be thinking.

Speaker 3: That impacts the recurring revenue gross margin, or recurring gross margin, as that occurs, the simple math would suggest.

That impacts the recurring revenue gross margin recurring gross margin.

As that occurs.

The simple math would suggest.

Speaker 3: you know, some hardware mix flows towards that line item. But is there an opportunity for, you know, in which case I had a gross margin level?

Some hardware mix flows towards that line item.

But is there an opportunity for in which case you had a gross margin level.

The math suggests somewhat dilutive, but is there a.

Speaker 2: the math suggests somewhat dilutive, but is there an opportunity there, the strategy there?

And opportunity there the strategy there.

To make that less so than maybe base.

Speaker 2: to make that less so than maybe face value would tell you.

Face value would tell you.

Speaker 2: Yeah, let me give you the strategy set up and David can fill in the blanks on the numbers. So, platform as a service, that

Yes, let me I'll give you the strategy setup and David can fill in the blanks on the numbers so.

Platform as a service.

That's the that's the I'll say the branding name we've.

We've had on the machine control and guidance business in civil in other words think about taking that guidance business.

Speaker 2: We've had on the machine control and guidance business in the civil. In other words, think about taking that guidance business as a ratable offering. They combined hardware and software, the fundamental value proposition to the customers that of technology assurance, being able to stay on the latest.

As a ratable offering that combines hardware and software the fundamental value proposition to the customers that have technology assurance being able to stay on the latest version of sensors or software. It gives them ability to better connect to the office based solutions. We have in our connectivity solutions, we have to really round trip the <unk>.

Speaker 2: version of sensors or software gives them ability to better connect.

Speaker 2: to the office-based solutions we have and the connectivity solutions we have to really round-trip the data to and from the field to connect that physical digital, to connect the office field, connect the hardware and the software. So that's the reason and the value proposition that we pursue this. So let's take...

Data to and from the field to connect that physical digital to connect the office field connect the hardware and the software. So that's the reason and the value proposition that we pursue this so let's take a guidance system and let's just.

Speaker 2: a guidance system and let's just use round numbers and say it's a $30,000 system today that a customer buys. In that system, you're buying a set of sensors, hardware, and...

He is round numbers and say, it's a 30000 dollar system today that a customer buys in that system you are buying a set of <unk>.

Sensors hardware and embedded software.

The embedded software is actually whats driving a lot of and creates a lot of that value. It's the enabling aspect of it today now today the way. The accounting works is we would take in that $30000 example, we would take all of that revenue today.

Speaker 2: The embedded software is actually what drives a lot of and creates a lot of that value. It's the enabling aspect of it today. Today, the way the accounting works is we would take in that $30,000 example, we would take all of that revenue today.

The way the accounting works is that the value is attributed partially to software perpetual software.

Speaker 2: The way the accounting works is that the value is attributed partially to software, perpetual software, and partial to that embedded software. It tributes to perpetual software and then the rest to hardware. So that's where David refers to it as a bundle. So what we see is that more and more of the value comes through the software aspect of the offering. And so that software aspect of the offering, so the portion of that $30,000 is attributed to software. That's what we look to take.

So that embedded software attributes so perpetual software and then the rest to hardware, so thats, where David refers to it.

As a bundle so what we see is that more and more of the value comes through the software aspect of the offering and so that software aspect of the offerings. So the portion of that $30000. That's attributed to software. That's what we look to take that as one of the things we look to take ratable over time.

Speaker 2: That's one of the things we look to take ratable over time. And that's a global offering that we just announced. Now in the US, we've been doing the whole thing as a ratable service. The accounting makes you take the hardware up front, even though it's ratable. And it's that software that you can take over time. And this global offering that we now have, that's the primary offering of by the hardware up front, and then the software becomes ratable. So in the short term,

And that's a global offering that we just announced now in the U S. We have been doing the whole thing is a ratable service. The accounting makes you take the hardware upfront even though.

It's ratable and it's that software that you can take over time in this global offering that we know that we now have that's the primary offering of buy the hardware upfront and then the software becomes ratable so in the short term.

Speaker 2: I think that's a hit to margin just like you would have in any software business that moves from perpetual to ratable. What we need to then be able to demonstrate through the numbers, and it probably shows up as a term license, and therefore in the ARR number, is that we can show that ARR growth and link that to any offset in the margin. Now that's the short term. As you build a cumulative phase.

I think that that's a hit to margin just like you would have in any software business that moves from perpetual to ratable.

What we need to then be able to demonstrate that through the numbers and it probably shows up as a term license and.

And therefore in the IRR number is that we can show that <unk> growth and link that to any offset in the margin now thats. The short term as you build the cumulative base youre.

Speaker 2: Your margins flip and then you actually, as we know, get back to parity and then have the value expansion opportunity from there, just on the base offering. And that's before we talk about the upsell and the linkage to the rest of what we do. David, you had to think. No, I think you nailed it, Rob. So even when you sell a bundle of hardware and software and solutions together, just the way the accounting works is you figure out how much of the value

Your margins flip and then you actually as we know.

Get back to parity and then have the value expansion opportunity from there just on the base offering.

Before we talk about the upsell and the linkage to the rest of what we do Dave would you add anything no I think you nailed it Rob so even when you sell a bundle of hardware and.

Software and solutions together.

Just the way the accounting works as you figure out how much of the value is.

Hardware and you do recognize that upfront.

Speaker 3: hardware and you do recognize that up front. I think what

I think whats.

But the Mega trend going on here that's in the context of the model transition as Rob said, it's more and more of the value is with the software and solutions and relatively less of the hardware. So the.

Speaker 3: But the mega trend going on here that's in the context of the model transition, as Rob said, is more and more of the value is with the software and solutions and rel-

Speaker 3: So the impact on the PML of the transition whereas today, historically the way we do it, we recognize all the hardware and all the software and solutions upfront as we go readable on the software and the service.

The impact on the P&L.

The transition, whereas today historically the way we do it we recognize all the hardware and software and solutions upfront as we go ratable on the on the software and the services that will have a similar impact that it doesn't all of our other software businesses.

Speaker 3: that will have a similar impact that it does on all of our other

Speaker 3: What you'll see in the counting is the hardware still stays up front, although hardware makes up less and less of the value of the solution.

What youll see in the and the accounting is the hardware still saves upfront, although hardware it makes up less and less of the valuable solution and then when you go ratable on the on the on.

On the solution then the software part gets spread out over time.

I see I see.

Speaker 2: I see, I see. Thanks for the explanation. I'll just, you know, one quick follow up. Just David, as you think about the guidance for revenue for 22, what are you assuming

Thanks for the explanation.

Just one quick follow up just David as you think about the guidance for revenue for 'twenty. Two what are you assuming in terms of backlog reduction within that.

At 9% to 12% or so organic.

Speaker 3: Yeah, so I'll ground it in my comments in the notion that the supply chain won't get back to equilibrium, even by the end of 2022. So just round numbers, hardware backlog in a normal world is 100 million. We're at nearly four times that somewhere around 375. We're likely to get halfway back or more than halfway back, but still be well above the hundred level.

Yeah, So all grounded in my.

My comments in the notion that the.

Supply chain won't get back to equilibrium.

Even by the end of 2022, so just round numbers hardware backlog in a normal world as $100 million where it.

Nearly four times that somewhere around 375.

We're likely to get halfway back are more than halfway back, but but still be well above the 100 level.

Very good thank you.

Okay.

Your next question comes from the line of Weston Twigg from Piper Sandler. Your line is open. Please ask your question.

Speaker 1: Your next question comes from the line of Western Tweet from Piper Sandler. Your line's open please ask your question.

Speaker 2: Thanks for taking my question. I only talked about ARR this year, but really I'm wondering if you could help us understand your revenue by segment in terms of which segments may grow faster or slower than the overall top line revenue. And the reason I ask is just because you mentioned certain supply chain constraints worse than the agricultural area, and I'm just wondering how much that might slow down revenue in certain segments. Any health there would be.

Hi, Thanks for taking my question.

I know you've talked about IRR this year, but but really I'm wondering if you could help us understand.

Your revenue by segment in terms of which segments, you may grow faster or slower than the overall topline revenue and the reason I ask because just because you mentioned certain supply chain constraints worst in the agricultural area and I'm, just wondering how much that might.

Slow down revenue in certain segments. So any help there would be would be great.

Yeah.

Speaker 3: As a general friend, it's unlikely that we'll see hardware revenue outstrip total revenue like we did in the fourth quarter.

As a general trend.

Unlikely that we'll see hardware revenue outstripped total revenue like we did in the in the fourth quarter.

The other book end I'll put it that obviously, our transportation revenue trends have been more modest than the other segments and we do expect in the second half of the year.

Speaker 3: The other book end I'll put it is that obviously our transportation revenue trends have been more modest than the other segments and we do expect in the second half of the year. An uplift in transportation, but the rest of the businesses, you know, are actually quite similar in the sense that demand is very strong. Backbugs big.

An uplift in transportation, but the the.

The rest of the businesses.

Are actually quite similar in the sense that.

Demand is very strong.

Backlogs big.

Just by the numbers geospatial of these segments is most hardware related so we've just had extraordinary growth in it.

Speaker 3: Just by the numbers geospatial of these segments is most hardware related. So we've just had extraordinary growth and it's we're outgrowing by everything we can measure the market in those solutions. So you're likely to see that segment slow more than the others. But we have a really big backlog in

We're outgrowing by everything we can measure the market.

And those solutions, so youre likely to see that segment slow more than the others, but we are really big backlog in.

In civil.

Speaker 3: in construction and agriculture.

Structure in agriculture.

And.

Speaker 3: Yeah, so I think you'll see lowest growth and transportation in the first half geospatial just because it's hardware dependent will be lower and the others segment will be, we expect to be very...

Yes, so I think youll see lowest growth in transportation, particularly in the first half geospatial just because its hardware dependent will be lower than the others segments will be we expect to be very strong.

That's very helpful. Thanks, and then just to follow up real quickly.

Speaker 2: That's very helpful. Thanks. And then just to follow up real quickly, gross margin you suggested would be higher on the second half, kind of similar to Q4 through the first half. What kind of level, can you help us understand what kind of level gross margin could hit exiting the year as supply chain starts to get back to normal?

Gross margin you suggested would be high on the second half kind of similar to Q4 through the first half.

What kind of level can you help us understand what kind of level of gross margin could hit exiting the year and supply chain starts to get back to back to normal.

I think the math, probably pretty easy if we ended up.

Speaker 3: I think the math's probably pretty easy if we end up near where we were in Q4 for the first two quarters. And then we'll end the year at or maybe modestly above full year 2021. That will, I think that-

Near where we were in Q4 for the first two quarters and then we'll end the year at or maybe modestly above full year 2021.

That will.

I think that.

That gets you there.

Speaker 3: That gets you there. It will be, you know, the modeling of that won't get you to 60% but it'll get you closer than the 58 where we are now. So, perfect. That's helpful. Thank you.

It will be.

The modeling of that won't get you to 60%, but we'll get you closer than the.

Then the 58, where we are now.

Perfect. That's helpful. Thank you.

There are no further question at this time you may continue.

Thank you everyone for joining us on the call and we look forward to speaking to you next quarter. Thank you.

Speaker 9: Thank you everyone for joining us on the call and we look forward to speaking to you next quarter. Thank you.

This concludes today's conference call. Thank you for participating you may now disconnect.

Speaker 1: This concludes today's conference call. Thank you for participating in my next.

[music].

Speaker 10: This is for you.

Yes.

Yeah.

[music].

Yes.

Yes.

Thanks.

Hi.

[music].

Yes.

Yes.

Sure.

[music].

Opinion.

[music].

[music].

[music].

[music].

Speaker 1: Thank you for standing by and welcome to the Trimbo Fort Quarter and full year 2021 results. At this time all participants are in

Thank you for standing by and welcome to the Trimble.

Fourth quarter and full year 2021 results.

At this time all participants are in a listen only mode.

Speaker 1: After the speaker's presentation, there will be a question and answer session. So as a question, you will need to press star one on your telephone. Please be at my...

After the speaker's presentation, there will be a question and answer session.

So ask a question you will need to press star one on your telephone.

We used to be advised that today's conference is being recorded.

If you acquire and they forget assistance. Please press star Zero I would know.

Speaker 1: If you require any further assistance, please press star zero. I would now like to hand the conference over to your speaker today. Mr. Rob Painter, Chief Executive Officer of Cremble. Thank you. Please go ahead.

I'd like to hand, the conference back to your Speaker today, Mr. Rob painter, Chief Executive Officer of Kimball. Thank you. Please go ahead Sir.

Speaker 2: Welcome everyone. Before I get started, a quick reminder that our presentation is available on our website, and we ask that you please refer to the Save Harbor at the back. Let's begin on page two.

Welcome everyone.

Before I get started a quick reminder, that our presentation is available on our website and we ask that you. Please refer to the safe Harbor at the back.

Let's begin on page two with the following key messages.

Our team once again delivered outstanding results and did so amidst ongoing supply chain difficulties delivering total organic revenue growth of 14% and organic growth of 12% in the fourth quarter.

Speaker 2: Team once again delivered up standing results and did so amidst ongoing supply chain difficulties.

Speaker 2: Delivering total organic revenue growth of 14% and organic ARR growth of 12% in the fourth quarter. We ended the year at a record level of ARR of 1.41 billion in 2021 EBITDA margin of 25.6% in operating cash flow of 700 to 51 million.

We ended the year at a record level of <unk> of 141 billion in 2021, EBITDA margin of 25, 6% and operating cash flow of $751 million.

Reflecting on our 2021 results in comparison to our May 2018, Investor Day plan I am proud to say our team made a great deal of progress at <unk>.

Speaker 2: Reflecting on our 2021 results in comparison to our May 2018 investor day plan, I am proud to say our team made a great deal of progress.

May 2018, we targeted 2021, adjusted EBITDA between 23% to 24% of revenue we closed 2021 at 25, 6% EBITDA.

Speaker 2: In May 2018, we targeted 2021 adjusted EBITDA between 23 to 24% of revenue. We closed 2021 at 25.6% EBITDA. We targeted software services and recurring revenue mix at 55% of total revenue. We closed 2021 at 55%. We targeted the ratio of 2021 operating cashflow to non-gap net income at approximately 1.1 times. And we closed 2021 at 1.1.

We targeted software services and recurring revenue mix at 55% of total revenue, we close 2021 at 55% we targeted ratio of 2021 operating cash flow to non-GAAP net income at approximately one one times and we closed 2021 at one one times.

In July 2018, our net debt to adjusted EBITDA ratio stood above three times and we said we would delever below two five times today, we stand at one point out times.

Speaker 2: In July 2018, our net bet to adjusted EBITDA ratio stood above three times, and we said we would deliver below 2.5 times. Today, we stand at one point up.

Speaker 2: These proof points give us conviction that we are on the right strategic path with Connect and Scale 2025 that we can uniquely connect the physical and digital worlds to deliver value to our customers and that our asset like business model works for our sure.

These proof points give us conviction that we are on the right strategic path with connect and scale 2025 that we can uniquely connect the physical and digital worlds to deliver value to our customers and that our asset light business model works for our shareholders.

Looking at current market conditions. The overall demand landscape remains robust and we enter the year with record hardware backlog and record <unk>.

Speaker 2: Looking at current market conditions, the overall demand landscape remains robust, and we enter the year with record hardware backlog and record ARR.

Nevertheless, we are paying close attention to three obvious market factors interest rates supply chain and labor market dynamics.

Speaker 2: Nevertheless, we are paying close attention to three obvious market factors. Interest rates, supply chain, and labor market dynamics.

While the overall landscape presents material short to midterm planning challenges what is straightforward as that the global infrastructure spend as a positive catalyst for the long term health of the business and then in difficult economic environment, our value proposition that delivers productivity and sustainability will remain a secular growth catalyst.

Speaker 2: While the overall landscape presents material short to midterm planning challenges, what is straightforward is that the global infrastructure spend is a positive catalyst for the long-term health of the business, and that in difficult economic environments our value proposition, the delivers productivity and sustainability, will remain a secular growth.

Moving to page three I'll talk about the progression of our connect and scale 2025 strategy as seen through the lens of the Trimble operating system, capturing strategy people and execution.

Speaker 2: Moving to page three, I'll talk about the progression of our Connectance Gale 2025 strategy as seen through the lens of the Trumble Operating System. Capturing strategy, people...

Speaker 2: Starting with strategy, I'll provide three proof points of our progress in the quarter.

Starting with strategy I'll provide three proof points of our progress in the quarter.

First we acquired Agila assets, which provide SaaS solutions with analytical tools to manage roads bridges airports and rail assets. So customers can better plan operate and report on those assets across the lifecycle. The addition of agile asset to Trimble platform will add the App maintained model to our AD designed in.

Speaker 2: First, we acquired Agile assets, which provide SaaS solutions with analytical tools to manage roads, bridges, airports, and rental assets. So customers can better plan, operate, and report on those assets across the life site.

Speaker 2: The addition of AgileSet to Trimble's platform will add the AsMaintained model to our AsDesign and as built data.

<unk> built a data availability of this data within the model creates a robust digital twin for owners throughout the asset lifecycle, thereby providing greater predictability sustainability and lower lifetime asset costs.

Speaker 2: Availability of this data within the model creates a robust digital twin for owners throughout the asset life-sling.

Speaker 2: thereby providing greater predictability, sustainability, and lower lifetime asset costs.

Second we have increased our ambitions in the area of sustainability, but internally with our own carbon footprint and externally through the commercialization of sustainability. We have submitted our science based targets for review and we plan to reduce greenhouse gas emissions in line with the Paris agreement. In addition, our most recent score from the climate disclosure project.

Speaker 2: Second, we have increased our ambitions in the area of sustainability, both internally with our own carbon footprint and externally through the commercialization of sustainability. We have submitted our science-based targets for review and we plan to reduce greenhouse gas emissions in line with the Paris Agreement. In addition, our most recent score from the Climate Disclosure Project went up again, marking two increases since we first submitted in 2018 and we continue to work diligently to further improve our score.

Went up again, marking two increases since we first submitted in 2018, and we continue to work diligently to further improve our score.

Speaker 2: With an external lens, customers are increasingly asking us to help them think about, manage, and verify carbon reductions from the productivity and efficiency gains delivered through the use of our products. We have stepped up our ambition level.

With an external lens customers are increasingly ask us asking us to help them think about managed and verify carbon reductions from the productivity and efficiency gains delivered through the use of our products. We have stepped up our ambition level to meet this market opportunity.

Third we have continued to transform our software and hardware business model offerings, which has translated into increased bookings and IRR, which in turn gives us visibility into continued growth in 2022.

Speaker 2: Third, we have continued to transform our software and hardware business model offerings, which is translated into increased bookings and ARR, which in turn gives us visibility into continued growth in 2022.

Speaker 2: Our Connectance Gail strategy is a platform strategy, and we are executing that strategy in part by partnering to build ecosystems. As evidence, we have a new Microsoft partnership that will first focus on construction, and we established Trimble Ventures in the third quarter and made our first Ventures investment in the fourth quarter.

Our connected scale strategy as a platform strategy and we're executing that strategy in part by partnering to build ecosystems as evidence we have a new Microsoft partnership that will first focus on construction and we established a trimble ventures in the third quarter and made our first venture investment in the fourth quarter.

Moving to people and our operating system I start by reflecting on our purpose in the world. We are transforming and digitizing industries that support how we live what we eat and how we move and a competitive labor environment. We continue to see people attracted to the why of Trimble. We went a couple of global Culture Survey awards in the <unk>.

Speaker 2: Moving to people in our operating system, I start by reflecting on our purpose in the world. We are transforming and digitizing industries that support how we live, what we eat, and how we move. In a competitive labor environment, we continue to see people attracted to the wide of trauma.

Speaker 2: We want a couple of global culture survey awards in the fourth quarter, but for overall company culture and for diversity.

Fourth quarter, both for overall company culture and for diversity, we made demonstrable progress in our <unk> journey in 2021, and our team continues to engage in their local and global communities through company sponsored data service and through our Trimble Foundation.

Speaker 2: We made demonstrable progress in our DEI journey in 2021 and our team continues to engage in their local and global communities through company sponsored days of service and through our Trimble Foundation.

We believe the intersection of a great workplace environment and a purpose driven organization provides a solid solid foundation upon which to lead grow and compete for talent.

Speaker 2: We believe the intersection of a great workplace environment and a purpose-driven organization provides a solid foundation upon which to lead, grow and compete for talent.

Speaker 2: We were also able to recruit Anne Fandosie to our board in 2021. And in January , we announced the addition of Tom Sweet, Delos CFO to our board. I'm encouraged by individuals with this global caliber, enthusiastically joining our board and contributing to our ongoing growth.

We were also able to recruit and fantasy to our board in 2021 and in January We announced the addition of Tom Sweet Dallas CFO to our board.

<unk> by individuals in this global caliber enthusiastically, joining our board and contributing to our ongoing growth.

Moving to execution in the Trimble operating system, we saw the benefits of ongoing innovation throughout the course of 2021 and the fourth quarter. We reached a milestone of 1 million monthly active users of Trimble connect with our digital transformation efforts, making progress. We now have all of these users on common identity and entitlements.

Speaker 2: Moving to execution in the Trimble Operating System, we saw the benefits of ongoing innovation throughout the course of 2020.

Speaker 2: And the fourth quarter, re-reached a milestone of 1 million monthly active users of Trimble.

Speaker 2: With our digital transformation efforts making progress, we now have all of these users on common identity and entitlement.

<unk>.

We launched a new Trimble dot com web presence in December the culmination of a couple of Years' worth of work to modernize this important vehicle. We've also stepped up our outbound efforts to tell our story and to reach important new audiences. We look forward to hosting some in person events in 2022, such as our transportation user conference in August and our dimensions user.

Speaker 2: We launched a new Trimble.com web presence in December . The culmination of a couple of years worth of work to modernize this important vehicle. We've also stepped up our outbound efforts to tell our story and to reach important new audience.

Speaker 2: We look forward to hosting some in-person events in 2022, such as our Transportation User Conference in August , and our Dimensions User Conference for Engineering and Construction in November .

Conference for engineering construction in November .

Speaker 2: Finally, we see our fundamental responsibility to shareholders as being capital Alex.

Finally, we see our fundamental responsibility to shareholders as being capital allocators balancing short term realities with long term possibility.

Speaker 2: balancing short-term realities with long-term possibility. To this end, we divested three businesses in 2021 on top of the four divestitures in 2020.

To this end, we divested three businesses in 2021 on top of the four divestitures in 2020.

Speaker 2: In 2022, we will disproportionately invest in areas of the company, such as the infrastructure opportunity, autonomy, and our own digital transformation. We make these investments and are accelerating the transition to recurring revenue models of a number of our software businesses in the context of a challenging supply chain environment, which is constraining our ability to meet customer demand and adding inflationary pressure.

In 2022, we will disproportionately invest in areas of the company such as the infrastructure opportunity autonomy and our own digital transformation. We make these investments and are accelerating the transition to recurring revenue models of a number of our software businesses in the context of a challenging supply chain environment.

Is constraining our ability to meet customer demand and adding inflationary pressures. The steps we are taking will moderate our operating leverage over the next few quarters, but will move us forward in our ability to reach the full potential of our strategy.

Speaker 2: The steps we are taking will moderate our operating leverage of the next few quarters, but will move us forward in our ability to reach the full potential of our strategy.

Before I turn it over to David a big Shout out to all 11, 500, plus Trimble team members for your ongoing dedication and execution to our global dealer partners and to our strategic partners for their efforts and to all of you in the investment community, who trust us with your capital David over to you.

Speaker 2: Before I turn it over to David, a big shout out to all 11,500 plus triple team members for your ongoing dedication and execution to our global dealer partners and to our strategic partners for their efforts and to all of you in the investment community who trust us with your capital. David, over to you.

Speaker 3: Thanks Rob, turning to slide four, fourth quarter revenue was 926 million, a 12% versus a year ago. Organic revenue growth was 14%.

Thanks, Rob turning to slide four fourth quarter revenue was $926 million up 12% versus a year ago.

Organic revenue growth was 14%.

Our strong revenue in the quarter was enabled by the outstanding performance of our supply chain and operations team as hardware revenue grew by over 20% versus the fourth quarter of last year, notwithstanding the extraordinarily difficult supply chain environment.

Speaker 3: Our strong revenue in the quarter was enabled by the outstanding performance of our supply chain and operations team. As hardware revenue grew by over 20% versus the fourth quarter of last year, notwithstanding the extraordinarily difficult supply chain environment.

Backlog of unfilled hardware orders grew in the quarter, reflecting both the strong demand in our end markets and customers, placing orders earlier than they would have in the past.

Speaker 3: Backlog of unfilled hardware orders grew in the quarter, reflecting both the strong demand in our end markets and customers placing orders earlier than they would have in the past.

Hardware backlog at the end of the fourth quarter was nearly four times the level of a year ago before the supply chain challenges emerged.

Speaker 3: Hardware backlog at the end of fourth quarter was nearly four times the level of a year ago before the supply chain challenges emerged.

With this strong backlog, we have unprecedented visibility into demand for our hardware offerings going into 2022.

Speaker 3: With this strong backlog, we have unprecedented visibility and to demand for our hardware offerings going into 2022.

<unk> grew at an organic rate of 12% driven by business model conversions strong bookings and healthy customer retention for recurring solutions in the quarter.

Speaker 3: ARR grew at an organic rate of 12% driven by business model conversions, strong bookings, and healthy customer retention for occurring solutions in the quarter.

Speaker 3: Gross margins were 57.8% down 90 basis points sequentially from third quarter levels, and down 160 basis points from the fourth quarter of 2020.

Gross margins were 57, 8% down 90 basis points sequentially from third quarter levels and down 160 basis points from the fourth quarter of 2020.

Speaker 3: Gross margins were impacted by the mix of hardware revenue, higher inbound freight costs, and our aggressive purchases of components in the broker market to support strong demand.

Gross margins were impacted by the mix of hardware revenue higher inbound freight costs and our aggressive purchases of components in the broker market to support strong demand.

Speaker 3: Cost inflation was higher than our expectations, and the price increases we took in our hardware offerings did not fully offset, and unexpectedly sharp spike in cost inflation in the quarter.

Cost inflation was higher than our expectations and the price increases we took in our hardware offerings did not fully offset an unexpected sharp spike in cost inflation in the quarter.

The price increases we have taken so far this year, averaging approximately 5% at the list price level across most of our hardware businesses and accompanied by reduced discounting have been accepted in the market.

Speaker 3: The price increases we have taken so far this year, averaging approximately 5% at the list price level across most of our hardware businesses and accompanied by reduced discounting have been accepted in the market.

Given our leading position in the markets. We serve we are confident in our ability to maintain attractive margins and we continue to adopt our pricing strategy to the cost outlook.

Speaker 3: Given our leading position in the markets we serve, we are confident in our ability to maintain attractive margins. And we continue to adopt our pricing strategy to the cost outlook.

Our EBITDA margin for the quarter was 24, 1%, while operating income margins were 22, 1%.

Speaker 3: Our EBITDA margin for the quarter was 24.1% while operating income margins were 22.1%.

Speaker 3: As we expected, margins in the quarter were lower than the fourth quarter of 2020, but higher than Q4 of 2019. EPS was 62 cents.

As we expected margins in the quarter were lower than the fourth quarter of 2020, but higher than Q4 of 2019 EPS was <unk> 62.

We generated cash flow from operations of $155 million and free cash flow of over $140 million.

Speaker 3: We generated cash flow from operations of 155 million and free cash flow of over 140 million.

Speaker 3: CAST Flow was lower than Q4 of 2020, driven by increased component inventory per

Cash flow was lower than Q4 of 2020, driven by increased component inventory purchases.

Speaker 3: Turning now to slide 5, let's step back and review performance for the full year 2021.

Turning now to slide five let's step back and review performance for the full year 2021.

Speaker 3: In the face of unprecedented challenges stemming from the ongoing COVID disruptions, supply chain shortages, and accelerating inflation, we achieve record results across a broad range of financial met.

In the face of unprecedented challenges stemming from the ongoing COVID-19 disruptions supply chain shortages and accelerating inflation, we achieved record results across a broad range of financial metrics.

Speaker 3: revenue grew 16% to a record $3.66 billion, and the ARR growth improves sequentially.

<unk> revenue grew 16% to a record $3 66 billion and the IRR growth improved sequentially.

While gross margins were down modestly due to both inflation and the higher growth of our hardware revenues EBITDA and operating margins ended the year above the levels of 2020 and at record levels and trembles history.

Speaker 3: While gross margins were down modestly due to both inflation and the higher growth of our hardware revenues, Ibidon operating margins ended the year above the levels of 2020 and at record levels and trembles his-

Earnings per share were $2 66.

Speaker 3: earnings per share were $2.66 of 19% versus a year ago.

Up 19% versus a year ago.

Speaker 3: Cash flow from operations and free cash flow grew 12% and 14% respect.

Cash flow from operations and free cash flow grew 12% and 14% respectively.

Now on slide six from a geographic perspective revenues were up in all regions with the highest growth rate in Europe North America revenue in the quarter also grew at a double digit rate.

Speaker 3: Now on slide 6, from a geographic perspective, revenues were up in all regions

Turning now to other key operating metrics on slide seven I will note that backlog ended the year at one 8 billion. This is up from $1 3 billion a year ago.

Speaker 3: Turning now to other key operating metrics on slide 7. I'll note that backlog ended the year at 1.8 billion. This is up from 1.3 billion a year ago.

While backlog in our recurring offerings continue to grow the majority of this increase came from hardware and yearend hardware backlog exceeded our expectations of a quarter ago.

Speaker 3: While backlog and recurring offerings continue to grow, the majority of this increase came from hardware. And year end, hardware backlog exceeded our expectations of a quarter ago.

Our results for 2021 reflect the achievement of a meaningful milestone on a trailing 12 month basis, our software services and recurring revenue exceeded $2 billion for the first time.

Speaker 3: A result for 2021 reflect the achievement of a meaningful milestone. On a trailing 12 month basis or software services and recurring revenue, exceeded $2 billion for the first time.

Speaker 3: Operating cash flow of over 750 million was also a record and exceeded 1.1 times non-gap netting.

Operating cash flow of over $750 million was also a record and exceeded one one times non-GAAP net income.

Turning now to our results by segment on slide eight revenue was at or above our expectations in all segments.

Speaker 3: Turning now to our results by segment on slide 8, revenue was at or above our expectations in all segments.

Speaker 3: Buildings and infrastructure revenue grew 14% versus prior year and 16% organically. Growth was strong across both hard

Buildings and infrastructure revenue grew 14% versus prior year and 16% organically.

Growth was strong across both hardware and software.

Speaker 3: Our sales of machine control solutions to civil construction customers grew by nearly 30% this quarter, despite supply chain constraints.

Our sales of machine control solutions to civil construction customers grew by nearly 30% this quarter.

Despite supply chain constraints.

Our growth in the segment was strong with viewpoint and E builder IRR together up at a mid teens growth rate sketch.

Speaker 3: ARR growth in the segment was strong with viewpoint and e-builder ARR together up at a mid-teens growth rate.

Sketchup IRR growth was nearly 40%, while <unk> gained momentum in our structures and MEP software businesses as they accelerated their transitions to recurring revenue models in the quarter.

Speaker 3: Sketchup ARR growth was nearly 40%. While ARR gained momentum in our structures and MEP software businesses, as they accelerated their transitions to recurring revenue models in the quarter.

Speaker 3: We ended the quarter with strong bookings momentum across our DNI software business.

We ended the quarter with strong bookings momentum across our DNI software businesses.

Speaker 3: Margin's in the quarter were over 30% representing a record fourth quarter for the segment, despite cost inflation and the higher growth of hardware revenue.

Margins in the quarter were over 30% representing a record fourth quarter for this segment despite cost inflation in the higher growth of hardware revenues and P&I are price increases more than offset the hardware cost inflation, we saw in the quarter.

Speaker 3: In B&I, our price increases more than offset the hardware cost inflation we saw in the quarter.

Geospatial segment revenue increased 15% overall and 16% on an organic basis.

Speaker 3: Geospatial segment revenue increased 15% overall and 16% on an organic basis.

Demand for our core survey and mapping portfolio remains very strong across all regions driven by strong spending and residential construction civil infrastructure and utilities.

Speaker 3: Demand for our course survey and mapping portfolio remains very strong across all regions, driven by strong spending and residential construction, civil infrastructure and utility.

Segment revenues also benefited from shipments against several large government contracts.

Speaker 3: Sagnet revenues also benefited from shipments against several large government contracts.

Speaker 3: Operating margins were below the levels of 4th quarter 2020 and the 3rd quarter of 2021 driven principally by a short term mixture.

Operating margins were below the levels of fourth quarter 2020, and the third quarter of 2021, driven principally by a short term mix shift.

Speaker 3: The cost inflation we experienced in this segment was largely but not entirely offset by our 5% price increase and lower difference.

The cost inflation, we experienced in this segment was largely but not entirely offset by a 5% price increase and lower discounting.

Resources and utilities revenue grew 18% in total and 21% organically.

Speaker 3: Resources and utilities revenue grew 18% in total and 21% organic.

Speaker 3: Hardware backlog grew in R&U reflective of very strong demand across the agriculture sector.

Hardware backlog grew and our new reflective of very strong demand across the agriculture sector.

The outlook for capital investment in the Agg remains strong driven by high crop prices low inventories and high average equipment age.

Speaker 3: The outlook for capital investment in Ag Remain Strong driven by high crop prices, low inventories, and high average equipment age.

Speaker 3: Segment margins were below those of a year ago and sequentially below third quarter levels. Product cost insulation was particularly high in this segment as the cost of many critical components in our product offerings increased substantially in the quarter. In this segment, our price increases have not yet kept up with insulation and we continue to refine our pricing strategy going forward.

Segment margins were below those of a year ago and sequentially below third quarter levels product cost inflation was particularly high in this segment as the cost of many critical components in our AG product offerings increased substantially in the quarter.

In this segment our price increases have not yet kept up with inflation and we continue to refine our pricing strategy going forward.

Speaker 3: We anticipate operating margins in this segment in the coming year to rebound from the fourth quarter 2021 levels as our price realization and mix improve.

We anticipate operating margins in this segment in the coming year to rebound from the fourth quarter 2021 levels as our price realization and mix improve.

Speaker 3: Consistent with our expectation coming into Q4, revenues and margins in our transportation segment were adversely impacted by supply chain challenges, both within our business and at our OEM customers.

Consistent with our expectation coming into Q4 revenues and margins in our transportation segment were adversely impacted by supply chain challenges, both within our business and that our OEM customers on.

Speaker 3: On the cost side, we experienced meaningful component inflation, high freight costs, and we incurred costs related to realigning our product portfolio toward available components.

On the cost side, we experienced meaningful component inflation high freight costs, and we incurred costs related to realigning our product portfolio towards available components.

Slow production levels at our OEM customers also constrained our revenue of both hardware and recurring services in the quarter.

Speaker 3: Flow production levels at our OEM customers also constrained our revenue of both hardware and recurring services in the quarter.

Speaker 3: The leading indicators from our transportation business continue to give us confidence that we are on the path to better ARR and margin trends once the dynamics of the supply chain improve. We grew bookings year on year once again in Q4, and our net retention is at 100%.

The leading indicators from our transportation business continued to give us confidence that we're on the path to better IRR and margin trends once the dynamics of the supply chain improve.

We grew bookings year on year once again in Q4, and our net retention is at 100%.

Speaker 3: Our OEM customers are seeing stabilization in their own supply chain situation, and we expect that orders from them will pick up early this year. Finally, on the cross side, we are introducing new products, which will support improved Ghost margins. For all these reasons, we project and improve performance across the transportation segment, an ARR revenue and margins in the back half of 2022.

Our OEM customers are seeing stabilization in their own supply chain situation and we expect that orders from them will pick up early this year. Finally on the cost side, we are introducing new products, which will support improved gross margins for all these reasons, we project improved performance across the transportation segment, and <unk> revenue and margins in the <unk>.

Half of 2022.

Turning now to slide nine I'd like to provide our financial outlook for 2022.

Speaker 3: Turning now to Slide 9, I'd like to provide our financial outlook for 2022.

Speaker 3: We expect to see continued top-line momentum. Demand from our markets remains strong and so far, we haven't seen any signs of deceleration as a result of recent inflation and higher interest.

We expect to see continued top line momentum demand from our end markets remain strong and so far we haven't seen any signs of deceleration as a result of recent inflation and higher interest rates.

Our backlog and forward looking indicators of sentiment gives us confidence in our prospects for <unk> and revenue growth.

Speaker 3: Our backlog and forward-looking indicators of sentiment give us confidence in our prospects for ARR and revenue.

As Robyn I have mentioned, we expect the supply chain disruptions will continue to be with us through 2022 there.

Speaker 3: As Robin I have mentioned, we expect the supply chain disruptions will continue to be with us through 2022. There are signs that the pressure on component availability will abate in the back half of the year, but our plans presume that the supply chain will not be fully restored to equilibrium until 2023.

There are signs that the pressure on component availability will abate in the back half of the year, but our plans presumed that the supply chain will not be fully restored to equilibrium until 2023.

Speaker 3: With those factors in mind, we are initiating annual guidance for 2022.

With those factors in mind, we are initiating annual guidance for 2022.

Speaker 3: Excluding the impact of any additional acquisitions or divestitures, we project full-year revenue of $3.95 billion to $4.05 billion, representing a range of growth outweights of 8% to $11.

Excluding the impact of any additional acquisitions or divestitures, we project full year revenue of $3 95 billion to $4 <unk> 5 billion, representing a range of growth outlooks of 8% to 11%.

Our continuing transition of software offerings will present, approximately 100 basis points of headwind to revenue growth.

Speaker 3: Our continuing transition of software offerings will present approximately 100 basis points of headwind to revenue growth.

Speaker 3: Organic ARR growth is expected to accelerate through the year to a mid-teens rate by year-end.

Organic <unk> growth is expected to accelerate through the year to a mid teens rate by year end.

We expect gross margins in 2022 to be comparable to or slightly better than 2021 with sequential improvement in the back half of the year.

Speaker 3: We expect gross margins in 2022 to be comparable to or slightly better than 2021 with sequential improvement in the back half of the year.

Speaker 3: We expect that operating margins for the full year will be approximately 23%.

We expect that operating margins for the full year will be approximately 23%.

Note that operating margins will be adversely impacted by the afore mentioned subscription transitions as well as investments we are making in support of our strategy and the acceleration of IRR in aggregate. These factors present, a headwind to operating margins of approximately 200 basis points.

Speaker 3: Note that operating margins will be adversely impacted by the aforementioned subscription transitions as well as investments we are making in support of our strategy and the acceleration of ARR. In aggregate, these factors present a headwind operating margins of approximately 200

Income from equity investments is projected to be approximately $30 million lower than 2021 due to higher product costs in our joint ventures.

Speaker 3: Income from equity investments is projected to be approximately 30 million lower than 2021 due to higher product costs in our joint venture.

Speaker 3: Net interest expense is forecast to be approximately 65 million. And we project that our tax rate will be approximately 18.

Net interest expense is forecast to be approximately $65 million and we project that our tax rate will be approximately 18%.

Netting all of this out we project to achieve EPS in the range of $2 75.

Speaker 3: netting all this out we project to achieve EPS in the range of $2.75 to $2.95.

To $2 95.

From a cash flow perspective, we projected free cash flow will once again exceed our non-GAAP net income.

Speaker 3: Our cash flow trends will be helped by the projected return toward equilibrium in the supply chain as we anticipate needing lower component inventories by the end of the year.

Our cash flow trends will be helped by the projected return towards equilibrium in the supply chain as we anticipate needing lower component inventories by the end of the year.

While we are focusing our guidance on expectations for the full year I would like to provide some color on the factors, we expect to drive quarterly trends in 2022.

Speaker 3: While we are focusing our guidance on expectations for the full year, I'd like to provide some color on the factors we expect to drive quarterly trends in 2022.

Many of the normal seasonal patterns in our business are being disrupted by the impact of the constrained supply chain. So it is most helpful to think in terms of the expected sequential development from where we ended Q4 of 2021.

Speaker 3: Many of the normal seasonal patterns in our business are being disrupted by the impact of the constrained supply chain. So it is most helpful to think in terms of the expected sequential development from where we ended Q4 of 2021.

Speaker 3: We expect revenue to grow sequentially through each quarter of the year with ARR accelerating as well.

We expect revenue to grow sequentially through each quarter of the year with IRR accelerating as well.

Speaker 3: From a product cost perspective, we expect to see inflation through the first half of 2022, similar to what we experienced in Q4 of 2021, with meaningful improvement in the second.

From a product cost perspective, we expect to see inflation through the first half of 2022 similar to what we experienced in Q4 of 2021 with meaningful improvement in the second half.

Speaker 3: As a result, gross margins are likely to be relatively flat with Q4 of 2021 through the first half of the year and meaningfully higher in the second.

As a result gross margins are likely to be relatively flat with Q4 of 2021 through the first half of the year and meaningfully higher in the second half we expect that operating margins in the second half of the year will exceed the first half by approximately a 150 basis points.

Speaker 3: We expect that operating margins in the second half of the year will exceed the first half by approximately 150 base.

I will close by noting that we are planning an investor day in Colorado. This September and with that I'll turn it back over to Rob.

Speaker 3: I'll close by noting that we are planning an investor day in Colorado this September . With that, I'll turn it back over to Rob.

We entered the Covid crisis, almost two years ago and at that time, we set an objective to exit the crisis on a stronger competitive footing.

Speaker 2: He entered the COVID crisis almost two years ago, and at that time we set an objective to exit the crisis on a stronger competitive footing.

Speaker 2: I'm proud of our accomplishments in 2021. And the progress and commitment we are making towards our Connect and Scale 2025 strategy.

I am proud of our accomplishments in 2021, and the progress and commitment we are making towards our connect and scale 2025 strategy.

Speaker 2: We are a purpose-driven company serving secularly attractive markets, pursuing a differentiated strategy to connect the physical and digital worlds with a unique set of underlying capabilities.

We are a purpose driven company, serving secular really attractive markets pursuing a differentiated strategy to connect the physical and digital worlds with a unique set of underlying capabilities.

Speaker 2: We deliver a compelling value proposition to our customers in the form of better, faster, safer, cheaper, greener. And we deliver a compelling business model to our shareholders. No doubt we expect to operate in a turbulent environment for the foreseeable future while simultaneously undergoing our own transformation.

We deliver a compelling value proposition to our customers in the form of better faster safer cheaper greener and we deliver a compelling business model to our shareholders no doubt, we expect to operate in a turbulent environment for the foreseeable future while simultaneously undergoing our own transformation.

The last couple of years serve as evidence that this team has the courage and conviction to rise to the challenge operator, let's please go to Q&A.

Speaker 2: The last couple of years serve as evidence that this team has the courage and conviction to rise to the challenge. Operator, let's please go.

At this time, if you would like to ask a question Press Star then the number one on your telephone keypad.

Speaker 1: At this time, if you would like to ask a question, press star then the number one on your telephone keypad. Again, it's star one on your telephone keypad. We'll pause for just a moment to compile the Q&A Ross.

Dan its star one and your telephone keypad, we'll pause for just a moment to compile the Q&A roster.

We ask you to limit your questions to one question and one follow up.

Speaker 1: We ask you to limit your question to one question and one follow up.

Speaker 1: Your first question comes from the line of CAD Dillard from Bernstein. Your line is open, please ask your question.

First question comes from the line of Chad Dillard from Bernstein. Your line is open. Please ask your question.

Hi, good morning, guys.

Morning.

So my first question is just on the guidance. So what are you contemplating at the low end of your earnings guide because it implies about 3% growth.

Speaker 4: So my first question is just on the guidance. So what are you contemplating at the low end of your earnings guide? Because it implies about like 3% growth.

As I kind of like looking through it.

Speaker 4: And so I'm kind of like looking through it. You know, first of all, it's on the revenue side at the low end. You're at 7%, but if you're talking about price realization of plus five, and then AR growth in the teens, it seems like that would imply a kind of a low single digit or flatish growth on hardware. So just hoping you could just kind of give me a sense for how you're thinking about that low end and the reality of hitting.

First of all on the revenue side at the low end at 7%, but if youre talking about net price realization of plus five and then Ah.

Growth in the teens.

Seems like that would imply a low single digit or flattish growth on on hardware.

So just hoping you could just kind of.

Just give me a sense for how you're thinking about that low end and the reality of hitting that.

Hey, Chad, it's David Barnes.

Speaker 3: H.I. is David Barnes. I think the low end is 8% revenue growth. And I think your math is right. There's some pricing in there. I'll note that the revenue growth will be impacted by about 100 basis points of transition from perpetual to recurring some more.

I think the low end is 8% revenue growth and I think your math is right. There is some pricing in there.

I will note that the revenue growth will be impacted by about 100 basis points of transition from <unk>.

Perpetual to recurring and some of our software businesses.

Speaker 3: We do expect hardware growth to moderate versus what we've seen this year will be working through the backlog. But those are some of the big...

We do expect hardware growth to moderate versus what we've seen this year, we'll be working through the backlog, but those are some of the big building blocks.

Speaker 4: Got it. Okay. Um, and then just secondly, on your your incremental margins. Um, so the guidance implies about 18% um, and during the third quarter, I believe you guys talked about being at the low end of 25 to 30%. So it's just trying to understand what changed and perhaps you could, you know, just help us bridge that gap. Uh, sure.

Got it okay.

And then just secondly on your incremental margins.

Guidance implies about 18%.

And during the third quarter I believe you guys talked about being at the low end of 25%, 30%. So I'm just trying to understand what changed and perhaps you could just help us bridge that gap.

Sure.

The.

Ill.

The big if there's a change in there there is a bit of a.

Speaker 3: The big, if it's a change, and there is a bit of a change, it's that we're gonna see more inflation than we and anticipated in the first half.

Change is that we're going to see more inflation than we had anticipated in the first half of.

Speaker 3: 2022, our outlook was a little more optimistic on that front. It's now clear that the supply chain being choked up is going to last at least at some level through the end of next year, and we don't think the inflation scenario in terms of our product cost.

Of 2022, our outlook was a little more optimistic on that front.

It is now clear that the supply chain being choked up is going to last at least at some level through the end of next year and we don't think the inflation scenario in terms of our product costs.

Speaker 3: will get meaningfully better at the guidance presumed sort of plateauing at Q4 levels.

We will get meaningfully better guidance presume sort of plateauing at Q4 levels, we do expect to see some price realization I talked in the prepared remarks about margins in AG.

Speaker 3: We do expect to see some price realization. I talked in the prepared remarks about margins and ag. The sort of bad news of a lot of backlog is when you implement another price increase. You don't see it in revenue right away. So those are the principal factors that would have operating leverage lower than we had indicated earlier. But I will point out that...

The sort of bad news of a lot of backlog is when you implement another price increase you don't see it in revenue.

Right away. So those are the principal factors that would have operating leverage.

Lower than we had indicated earlier.

I will point out that.

Speaker 3: The deliberate decisions we're making in terms of model transition from perpetual to recurring and then the investments against our strategic initiatives, each of those takes 100 basis points or so out of margins that we would have next year if we weren't doing those things and that would generate very healthy up.

The deliberate decisions, we're making in terms of model transition from perpetual to recurring and then the investments against our our strategic.

<unk> initiatives each of those takes a 100 basis points or so out of margins that we would have next year, if we weren't doing those things and that would generate very healthy operating leverage.

Speaker 2: Chad, one other piece of color on that is compared to 2022 and the mid-guide to 2019 and we're talking over 45% operating leverage over that time.

Chad one other piece of color on that as compared to 2022 in the mid guide to 2019, and we're talking over 45% operating leverage over that time.

Got it thanks I'll pass it on.

Yes.

Speaker 1: Your next question comes from the line of Rob Werstenner from Melius Research. You're learning to open this asher question.

Your next question comes from the lineup Rob Wertheimer from Melius Research. Your line is open. Please ask your question.

Thank you.

Speaker 11: Thank you. There's a lot of obviously volatility in the supply chain. Could you be a little bit more specific if you're willing on what is getting better into two-h? What you have visibility on, there's some prop on strips getting better. I don't know if that's been a big headwind. And then just your general feeling is it's stable in one queue. There's obviously a lot of on-the-crown pick-out potential and things like that. I don't know if it started getting better already in any way.

There's a lot of obviously volatility in the supply chain could you be a little bit more.

Specifically, if youre willing on what is getting better into two age what you have visibility on there is some talk on ships getting better I don't know if thats been a big headwind and then just your general feeling is it stable and <unk>. There's obviously a lot of omicron pick out potential and things like that I don't know if it started getting better already in any ways.

Yeah, Hey, Rob I'll say that the supply chain challenges you hear a lot of talk about semiconductors, but but the issues are broader than that.

Speaker 3: Hey Rob, I'll say that the supply chain challenges, you hear a lot of talk about semiconductors, but the issues are broader than that. With regard to electronics, I would say things are already improving.

With regard to electronics I would say.

Things are already improving.

Part of that is that we.

Speaker 3: Part of that is that we, you know, several months ago took a number of steps, including raising our outlook and making commitments with vendors, placing orders that actually impacted our cash flow. We've worked component by component. We've seen meaningful, meaningful progress. We're actually seeing visibility to capacity on some of our individual constrained parts with specific vendors. So that's...

Several months ago took a number of steps including <unk>.

Raising our outlook and making commitments with vendors, placing orders that actually impacted our cash flow.

We've worked component by component, we've seen meaningful mean.

Meaningful progress, we're actually seeing visibility to capacity on some of our individual constrained parts with specific vendors. So thats.

That's getting better and the the fruits of our effort to redesign our products around around very scarce components. All of those show signs of improvement actually where things are sticky is now is the non electronics its cables.

Speaker 3: That's getting better and the fruits of our effort to redesign our products around very scarce components. All of those show signs of improvements. Actually, where things are stickiest now is the non-electronics. It's cables.

Speaker 3: brackets, other kinds of parts. And that is sort of the downstream impact of labor disruptions in many markets all around the world. So that probably has a...

Brackets.

Other kinds of parts and that is sort of the downstream impact of labor disruptions in many markets all around the world So that probably has.

Speaker 3: longer fuse to it, but you put all that together that adds up to the outlook we described in the prepared remarks which

A longer fuse to it but you put all that together that that adds up to the outlook. We described at the prepared remarks, which is.

We will see inflation in constrained overall supply through the first half of the year, we will see meaningful improvement, albeit not all the way back to normal by year end.

Speaker 3: You know, we'll see inflation and constrained overall supply through the first half of the year. And we'll see meaningful improvement, albeit not all the way back to normal bites.

Speaker 11: And then begging your partner, if you're willing to be so granular, you mentioned your backlogs, you don't have pricing coming true and resources and so on. The back-up margin improvement is that more pricing, is that more like you assume the exponent freight goes away, isn't more proven other things you just discussed if you're willing. And I'll stop there.

And then begging your pardon me if youre willing to be so granular you mentioned your backlog. So you don't have pricing coming through in resources and so on the back half margin improvement is that.

More pricing is that more like you assume expedited freight goes away isn't more improvement and all the things you just discussed if you will and I'll stop there. Thank you Sir.

Speaker 3: There are many components. Looking at inflation, I think you can group it in a few buckets.

There are many components.

Looking at inflation I think you can group it in a few buckets.

Speaker 3: There's the underlying just price increases from the suppliers and from our freight providers.

There is the underlying just price increases from the from the suppliers and from our freight providers.

Speaker 3: And then there's expedited freight where you use air freight instead of seaborn freight for instance.

And then there's expedited freight where you use air freight instead of seaborne freight for instance.

Speaker 3: And then there's buying components in the broker market. And when you buy components in the broker market, the price can be not a few percent higher, but multiple higher than the normal purchase price. So the outlook for improved margins in the back half of the year is that we have a lot less of the use of the broker market. We have less expedited.

Then there is buying components in the broker market and when you buy components from the broker market the price can be.

Not a few percent higher but multiples higher than normal.

Purchase price so the outlook for improved margins in the back half of the year is that we have a lot less of the.

Use of the broker market, we have less expedited.

Freight we do think though that there will be underlying inflation that will that will be with us, but youll see the full impact of the price increases, including the ones. We haven't haven't taken together, where we've taken them they haven't flown through.

Speaker 3: Freight we do think though that there will be underlying inflation that will That will be with us But you'll see the full impact of the price increases including the ones we haven't Haven't taken yet or where we've taken them they haven't flown through

Speaker 3: flowing through the backlog. And then over time, the mix of our business will improve. You know, I'll point out that our revenues were up about 12% in the quarter in our hardware revenues in Q4, up 20. So that's not helpful to margins. That will make it as well. So we add all that up. We think that's how we get to meaning free better margins in the second half of the month.

Flown through the backlog.

And then over time the mix of our business.

We will improve I'll point out that.

Our revenues were up about 12% in the quarter and our hardware revenues in Q4 were up 20, so that's not helpful to margin.

That will abate as well so we add all that up we think that's how we get to meaningfully better margins in the second half than the first half.

Okay. Thanks.

Sure.

Your next question comes from the line of Colin Rusch from Oppenheimer. Your line is open. Please ask your question.

Speaker 1: Your next question comes from the line of Colin Ross from Oppenheimer. Your lines open, please ask your question.

Thanks, So much guys I wanted to ask about the agile assets acquisition.

Speaker 5: Thanks so much, guys. I want to have to go to the Agilassus acquisition. I just want to get a sense of the speed of the integration into the triple platform and how you're thinking about the digital twin opportunity in terms of customer engagement and expansion of total addressable marks.

Wanted to get a sense of the speed of the integration into the Trimble platform and how youre thinking about the digital train opportunity in terms of customer engagement and expansion of total addressable market.

Speaker 2: Good morning, Colin. It's Rob. So, hey, Agile assets fits perfectly into our strategy. We think it's really in the center of the bull's eye. It's a growing SaaS business and it connects well with the broader Trimble platform. So it is a growth story and we've got high conviction that we can grow this business on its own and that it can be a catalyst for the growth of other Trimble solutions.

Hey, good morning, Collin, it's Rob.

Joe assets fit perfectly into our strategy. We think it's really in the center of the Bull's eye, it's growing SaaS business and it connects well with the broader terminal platform. So it is a growth story and we've got high conviction that we can we can grow this business on its own and that it can be a catalyst for the growth of.

Other terminal solutions.

When we put it in context of that.

Speaker 2: When we put it in context of the digital twin in the prepared remarks, we talked about this intersection point of the as maintained model with and as designed and as built. So if you think about it from the lifecycle point of view, which is really central to our strategy, this...

Digital twin and prepared remarks, we talked about this intersection point.

As maintained model with an app designed in and as Bill. So if you think about it from a life cycle point of view, which is really central to our strategy.

Yes.

Ads really that final step in the operations and maintenance phase and so.

Speaker 2: adds really that final step than the operations and maintenance phase. And so a digital twin and its truest form is much broader than a design model. And often people will talk about it more in a design sense. We think the combination and intersection of the design as built with the as maintained is actually a true digital twin. And of the early indication we have from joint customers and from departments of transportation is quite encouraging.

A digital twin and its truest form is much broader than a design model and often people will talk about it more in a design. We think the combination of an intersection of that design with the as built with the ads maintained is actually a true digital twin and the Earth.

Early indication, we have from joint customers and from departments of transportation is quite encouraging to us.

Speaker 5: Great. And then shifting gears to the transportation logistics business, you know, with the real progress that's being made around class A, the trucking moving towards autonomy and the more comprehensive software systems that were starting to see emerge in that space. How are you thinking about the ball of industry strategy for a tremble in that space? It seems like there's an awful lot to do, but also a lot to shift around. The case of change would be helpful just in terms of your internal thought process and how you see that business evolving.

Great and then shifting gears to the transportation and logistics business.

The real progress that's being made around class eight trucking moving towards autonomy and more comprehensive software systems that we're starting to see emerge in that in that space. How are you thinking about evolving strategy for some bullet in that space. It seems like there's an awful lot to do but also a lot to shift around the cadence of change.

Would be helpful. Just in terms of your internal thought process and how you see that business at all thanks for example.

We see our economy as it emerges in transportation I would say at some level similar to agriculture.

Speaker 2: We see autonomy as it emerges in transportation. I'd say at some level, similar to agriculture or construction. And that is...

Or construction.

That is.

Speaker 2: and an autonomous world, which by the way is probably really more than more automated world, and an autonomous world, the trucks still need...

And then autonomous world, which by the way is probably really more than more automated world in an autonomous world.

The truck still needs.

Speaker 2: to have a work plan. It still needs to understand how to route and how to navigate. It still needs to understand how to optimize within the entire fleet. It still needs...

To have a work plan it still needs to understand how to route and how to navigate.

It still needs to understand how to optimize within the entire fleet.

Still needs.

Speaker 2: to understand how to give a dynamic estimated time of arrival to the customer. It needs the brains behind it. Arguably the autonomous vehicle or dozer or tractor is a dumb node. It doesn't know what to do. It needs a work order. It needs a work plan. It needs that brains. And that-

To understand how to give a dynamic estimated time of arrival.

To the to the customer.

It needs the brains behind it arguably the autonomous vehicle or does or tractor.

If a dumb node it doesn't know what to do it needs a work order it needs to work plan.

<unk>.

<unk> and that.

Speaker 2: Intersected before we do a tremble in the office, the systems of record, the scheduling routing, dispatch, we think provide high relevance and a more automated world. In addition, there's autonomous capabilities that we can provide companies on highway. So, for instance, in our correction services business, we now have over 10 million miles that have been managed through our correction services, which are really providing ADAS capabilities.

Intersected with what we do at Trimble and the office the systems of record the scheduling routing dispatch, we think provide high relevance in a more automated world.

In addition, there is autonomous capabilities that we can provide companies on highway. So for instance in our correction services business. We now have over 10 million miles that have been managed through our correction services, which are really providing adas capabilities.

That's super helpful I'll follow up offline. Thanks.

Your next question comes from the line of Tami Zakaria from Jpmorgan. Your line is open. Please ask your question.

Speaker 1: Your next question comes from the line of Tammy Ducaria from JP Morgan. Your line is open. Please ask your question.

Hi, good morning, and thanks for taking my questions.

Speaker 6: Hi, good morning. Thanks for taking my questions. So the resource and utilities margins in the quarter came in below where we were expecting. Can you expand that a little bit?

So the resource and utilities margin.

In the quarter came in below where we were expecting.

Can you expand that I'll, let al expand.

Expand on that a little bit.

Speaker 6: And why do you expect unfearable makes in the near term? And related to that, what is your outlook for agriculture demand longer term in light of farmers moving towards vision and AI technology?

And why do you expect unfavorable mix in the near term and related to that what is your outlook for agriculture demand longer time in light of farmers moving towards vision and AI technology.

I'll defer the longer term question to Rob with regard to margins Tammy.

Speaker 3: I'll defer the longer term question to Rob. With regard to margins, Tammy, there's a story both of mix and of higher input costs.

There is.

Our story, both of mix and higher input costs.

Speaker 3: There are a number of key components in our displays for guidance in agriculture, where the supply was particularly tight. I mentioned a moment ago that markets are tight. We and other providers of hardware technology have to go to the broker market to fill the needs. And in some cases, a part that would normally cost $3.

There are a number of key components in our displays for guidance and agriculture.

Where the supply was particularly tight.

I mentioned a moment ago.

<unk> tight we and other provide.

Providers of hardware technology.

I have to go to the broker market.

To fill the needs and in some cases, a part that would normally cost $3.

Speaker 3: cost $30 or $40. So it's easy to see really dramatic cost spikes that happen disproportionately in this segment. So we've taken pricing action.

Cost $30 or $40. So it's easy to see really dramatic.

Cost spikes that happen disproportionately in this segment.

Taken pricing actions, but in this particular segment the cost increases are meaningfully higher. So we're we're re looking at our pricing strategy and we're going to have to take some actions to improve our margins going forward.

Speaker 3: but in this particular segment, the cost increases are meaningfully higher. So we're re-looking at our pricing strategy and we're gonna have to take some actions to improve our margins going forward. We do think there's a partly a story of mix here and what we were shipping in Q4 is disproportionately on the lower end of the margin scale. So it'll get better, but no doubt we have a margin challenge to wrestle with in this segment. Rob, you wanna talk about that?

We do think that there is a partly a story of mix here and what we were shipping in Q4 is disproportionately on the lower end of the margin scale. So it will get better but no doubt we have a margin challenge to wrestle with and in this segment and Rob you want to talk about the longer term outlook.

Yes, it's actually the other thing color I can add to the to the numbers is that revenue.

Speaker 2: Yeah, actually the other thing color I can add to the numbers is you know the revenue.

In the segment was up over 18% IRR was in the mid teens growth agriculture hardware revenue was above 30%.

Speaker 2: And the segment was up over 18% ARR was in the mid-peans growth. Agriculture hardware revenue was above 30%.

Speaker 2: put the margins and context of the extraordinary growth we have in this business. We are making conscious choices to meet the demand, the extraordinary demand that's out there in the market. And we saw the backlog continue to grow in the business. So I really feel good about the market demand out there. And there's a correlation between extraordinary demand.

Put that put the margins in context of the extraordinary growth. We have in this business, we are making conscious choices to meet the demand the extraordinary demand.

Out there in the market and we saw the backlog continue to grow in the business.

Really feel good about the market demand out there and there is a correlation between the extraordinary demand in the margins. So those factors as we move forward. That's part of why we think we can that'll come to equal equilibrium in terms of the ongoing outlook and agriculture, and our and our views on that.

Speaker 2: and the margins. So the factors as we move forward, that's part of why we think that'll come to equilibrium.

Speaker 2: In terms of the ongoing outlook and agriculture and our views on that.

Speaker 2: You know, hey, the indicators look good at the moment in the agriculture business. So the macros are in support.

Hey, the indicators look good at the at the moment and in the agriculture business the macros.

<unk> support.

Speaker 2: of the growth plans that we have. If we look at farm income, it's projected, 2021 was probably the high point for farm income. The expectations for farm income in 2022 are 20 to 30% above the 10%.

The growth plans that we have if we look at farm income.

Projected 2021 was probably the high.

Point for farm income the expectations for farm income in 2022 are our 20% to 30% above the 10 year average. So punch line is farm income is expected to remain strong as the U S. A statistic that than.

Speaker 2: So punchline is far men come as expected to remain strong. That's a US statistic that I'm giving you. And that's able to outpace the increase in the input.

And then I'm, giving you.

Able to outpace the increase in the inputs.

Speaker 2: that input prices, sorry that farmers are paying. So the reason that farm income can stay up is because commodity prices are up. They remain up in inventory levels remain low. Now look at the input prices being higher and

Input prices, sorry that farmers are paying so the reason that farm income can stay up is because commodity prices are up and they remain up in inventory levels remain low now look at the input prices being higher and connect that to a point of view we have on the <unk>.

Speaker 2: connect that to a point of view we have on the adoption of technology on a go-forward basis. That's exactly what the technology can do as it can minimize and optimize the use of those input.

Adoption of technology on a go forward basis, that's exactly what the technology can do with it can minimize and optimize the use of those inputs.

Speaker 2: less feed, higher yield, less use of herbicide.

Less feed higher yield.

Less use of herbicide.

Speaker 2: to spots braid, which also, by the way, brings the sustainability benefit to the farm. So those factors in aggregate continue to have us bullish on the adoption of precision ag technologies going forward. And I'd say also on a global.

To spot spray, which also by the way brings a sustainability benefit to the farm. So those factors in aggregate continue to have us bullish on the adoption of precision AG technologies going forward and I'd say also on a global basis.

Understood. That's helpful. That's all from me. Thank you so much.

Speaker 6: Understood. That's helpful. That's all from me. Thank you so much.

Welcome.

Your next question comes from the line of Linda <unk> from Darrin, Greg. Your line is open. Please ask your question.

Speaker 1: Your next question comes from the line Gao Mundo from Darren Berg. Your line is open please ashek.

Hey, good morning, Thanks for taking my questions.

Speaker 7: Hey, good morning. Thanks for taking my questions. Maybe the first one, just...

Maybe the first one.

Just.

Speaker 7: trying to understand a little bit the dynamics around the business model transitions. Maybe if you can update us a little bit, when you say expectations about 100 basis points had went.

Trying to understand a little bit the dynamics around the business model transition.

Maybe if you can update us a little bit.

When you say expectations for about 100 basis points headwind.

Speaker 7: to kind of the margins and the growth for FY22. We tried to brand that are mostly impacting that. And maybe if we look forward, how long do you think that had been still lost? And as what stage it almost becomes a tailwind as well, once you kind of cross that majority of the revenue being subscription based on some of those brands as well. Thank you.

To kind of the margins and the growth.

FY 'twenty two.

We tried to have brands that are most impacting that and maybe if we look forward.

How long do you think that headwind still.

At what stage it almost becomes a tailwind as well once you kind of cross that.

George do you have the revenue being subscription based on some of those brands as well. Thank you.

Speaker 3: Sure, Gou. David, I'll look both a little bit backward and forward. So for the full year, the measurement we do indicates that the transition impact in 2021 was about a hundred basis points, negative impact to...

Sure it's David.

I'll look both a little bit backward and forward so for the <unk>.

Full year.

The measurement, we do indicate that the transition impact in 2021 was about 100 basis points negative impact too.

Speaker 3: to revenue. That's actually less than we thought going into the year and the reason it's less is that we had higher last time buys of perpetual offerings in our structural design business.

To revenue Thats actually less than we thought going into the year and the reason it's less is that we had higher last time buys of perpetual offerings in our structural.

Design business.

Sure.

So.

Speaker 3: So right now the impact, the vast majority of the impact, the 100 basis points, whether it's for full year 2021 or full year 2022 are in our building's software businesses. There's a decent chunk in the transportation business as well. Actually, we're gonna see a piece of it in the civil, civil software, civil construction software business as we roll out our platform as a service model.

Right now the impacts the vast majority of the impact the 100 basis points, whether it's for full year 2021 or full year 2022 are in our buildings software businesses. There is a decent chunk in the transportation business as well actually we're going to see a piece of it in the civil.

Civil software civil construction software business as we rollout our platform as a service model.

Speaker 3: So you asked about the longer outlook. I'll tell you that the

So you asked about the longer outlook I will tell you that the.

The if you look at our perpetual software revenue just under $500 million for 2021.

Speaker 3: If you look at our perpetual software revenue, just under 500 million for 2021, we're already at a point where 70% or 75% of that perpetual software is sold bundled with hardware. So the...

We're already at a point, where 70% or 75% of that perpetual software sold bundled with hardware.

So the.

Speaker 3: the straight hardware software offerings are only 25% of it, by which I mean to say, we will at the end of 2022 be through the significant majority of the model transitions on the straight software.

The straight software offerings are only 25% of it by which I mean to say we will at the end of 2020 to be through the significant majority of the model transitions on the on the straight software businesses, but we are looking to transform to recurring revenue models. The.

Speaker 3: But we are looking to transform to recurring revenue models. The platform is a service where that's where we're moving and we'll have some meaningful revenue in civil construction this year. We also have...

Platform as a service, where that's where we're moving and we will have will have some meaningful revenue in civil construction. This year. We also have.

Speaker 3: bundled perpetual software with hardware in the surveying business and an egg.

Bundled perpetual software with hardware in the surveying business and in AG.

And that will be further out so it's a little early to call on how long that transition will take actually thats a topic, we plan to cover off at our Investor Conference in September .

Speaker 3: And that will be further out. So it's a little early to call on how long that transition will take. Actually, that's a topic we plan to cover off at our investor conference in September . But you know, that's a less straightforward to transition than a traditional software business. You've got your bundles with hardware. You've got multiple regions and dealers and so it's a harder problem to solve. It's likely to take several years.

But that's less straightforward to transition than a traditional software business you've got your bundled with hardware you've got multiple regions and dealers and so it's a harder problem to solve is likely to take several years.

Got you and then.

Speaker 7: got you and then maybe as a follow up when I look at the you know

As a follow up when I look at.

Okay.

It still has a negative impact on the margins, but like we said if the transition has stopped today on what you've already transition it seems like incremental margins are being <unk>.

Speaker 7: It still has a negative impact on the margins, but like we said, if the transition stops today on what you've already transitioned, it seems like incremental margins are being helped. If that makes sense, if we exiled us, because if I call it the last correctly, we're into kind of 40s incremental margins that we had kind of that two basis, two percentage points of last that we had went to see is what you expected and you know, 100 basis points of that is actually coming from...

If that makes sense, if we're XO.

If I calculate correctly waiting to kind of incremental margins that we had kind of that two basis.

Two percentage points.

Lastly, we have headwinds this year to what you expected 100 basis points of that is actually coming from.

Speaker 7: from business model transitions. So if I look in an organic as it is today, business is tense and is already, if you weren't transitioning it, to say that the outlook for the margins would have been kind of higher than historically has been on incremental.

From a business model transitions.

So if I looking at inorganic as it is today business as it stands and as it's already if you werent transitioning it is it fair to say that the outlook for the margins would have been kind of higher than historically has been on the incrementals.

Speaker 3: Yeah, so I think I'm following you, Gal, the margins are really high on both perpetual software and recurring. The difference is that when you sell subscription, you recognize the revenue and margin over many years, rather than upfront. So I think our math is good that the conversions we're doing reduce.

Yes.

I think I'm following your Gal.

The margins are really high on both perpetual software and recurring the differences that when you sell subscription you recognize the revenue and margin over many years rather than upfront.

So I think our math is good that the the conversions.

Doing reduce <unk>.

Speaker 3: Revenue versus if you'd stayed in the perpetual model.

Revenue versus if you'd stayed in the perpetual.

Model.

Hi.

Speaker 3: by the numbers we're saying and it essentially all goes through to the bottom.

By the numbers, where we're saying and it essentially all goes through to the bottom line.

Speaker 2: And Gal, just this is Rob, you're absolutely right by the math. If we were only targeting an op leverage number, you wouldn't do the transitions. That's the wrong decision to take for the customers and for the market. So you're absolutely hitting on an important point that we will all day long look to convert the business models for the long term health of the business. And I think it's more important.

And Gal just this is rob.

Youre absolutely right by the by the math.

If we were only targeting an op leverage number you wouldn't do that transitions right.

The wrong decision to take for the customers and for the market. So you are absolutely hitting on an important point that we will.

All day long look to convert the business models for the long term health of the business and I think it's more important.

Certainly equally important the streets looking at the growth in the IRR look on our cash flow the networking capital.

Speaker 2: It's certainly equally important that the streets looking at the growth in the ARR, the look on their cash flow, the networking capital.

As factors to complement what an EBITDA percentage on operating income percentage will tell you because it's an incomplete story.

Speaker 2: as factors to complement what an EBITDA percentage or an operating income percentage will tell you because it's an incomplete story. Right.

Alright.

Thank you.

Your next question comes from the line of Ravi.

Speaker 1: Your next question comes from the line up Gary Rebitch from Goldman Sachs. Your line is open. Please ask your question.

<unk> from Goldman Sachs. Your line is open please ask your question.

Yes, hi, good morning, everyone.

Hi, Jerry.

Speaker 8: I'm wondering who you can talk about the outlook for mid teens, ARR growth exiting the year, you know, really interesting outlook considering, you know, eBuilder and Viewpoint are delivering that level of growth now. So I'm wondering what needs to happen in transportation to get to that run rate or are you looking for an acceleration or further acceleration, eBuilder and Viewpoint to get there, maybe just give us a little bit.

I'm wondering if we could talk about the outlook for mid teens.

Growth exiting the year really interesting.

Considering E builder and viewpoint are delivering that level of growth now so I'm wondering what needs to happen in transportation to get to that run rate or are you looking for.

An acceleration further acceleration E builder.

And viewpoint to get there, maybe just give us a little bit more.

Speaker 8: clarity on which rise acceleration from

Clarity on what drives the acceleration from 11% today.

Speaker 2: Hey, Jerry, this is Rob. I think that is arguably the story in this earnings release is the level of ARR growth that we exited the year with. Meet the ARR projection that David went through in a prepared remarks. You can look at the backlog.

Hey, Jerry this is Rob I think that is arguably the story.

In this earnings release as the level of IRR growth that we exited the year with.

Meets their our projection that David went through in the prepared remarks.

Can look at.

The backlog that we have the reported backlog.

Speaker 2: that's in the financials, as evidence that we have a growing amount of revenue to serve. So, in other words, we've got a high level of visibility. We have strong bookings in the fourth quarter in aggregate. So, yes, the e-boter and viewpoint businesses, those continue to grow for ARR in the midteens, and I'll say bookings.

That's.

Thats in the financials.

As evidenced that we have a growing amount of revenue to serve so within the words, we've got a high level of visibility we had strong bookings in the fourth quarter in aggregate.

Yes, the E builder and viewpoint businesses those continue to grow <unk> in the mid teens and I'll say bookings.

<unk> grew faster than that so the bookings are the forward indicator to the revenue that will eventually be recognized now the other catalyst on top of that Jerry is that structures business that we talked about.

Speaker 2: grew faster than that. So the bookings are the forward indicator to the revenue that will eventually be recognized. Now, the other catalyst on top of that, Jerry, is that structures business that we talked about, where that's the Teclas structures business that made the model conversion in 20...

That's the tyco structures business that.

<unk> made the model conversion in 2021.

That will be a part of that growth.

Speaker 2: that will be part of that growth in 2022. Yes, we do anticipate some increase in transportation, but this projection that David made is not entirely.

In 2022, yes, we do anticipate some increase in transportation, but this protection that David made is not entirely.

Speaker 2: dependent on it. In fact, we've rather modest expectations.

Dependent on it and in fact, rather modest expectations on transportation. So to the extent that that is a lot better that could be a little potential upside for us. So we are squarely focused on growing the recurring revenue that digital transformation investments, we're making David talked about that almost 100 bps of investment we are making.

Speaker 2: on transportation. So to the extent that that is a lot better, that could be a little

Speaker 2: potential upside for us. So we are squarely focused on growing the recurring revenue, the digital transformation investments we're making. They've talked about that, you know, almost 100 bits of investment we make into that. That's the core link.

That that's the correlation.

Speaker 2: to make to the ARR growth. It is an enabler of that ARR growth and we're absolutely committed to these transformation investments in order to drive these attractive revisions.

To make to the IRR growth. It is an enabler of that are our growth and we're absolutely committed to.

Transformation investments in order to drive these attractive revenue streams.

Speaker 3: Yeah. Rob got it right, Jerry. We're at our post-the-mid teens in the air or growth of our businesses others than transportation. We're much lower than that in transportation. And we do project a recovery. We don't think we'll get all the way to numbers.

Rob got it right Gerry.

We're at or close to mid teens.

The growth of our businesses other than transportation were much lower than that in transportation.

And we do project a recovery, we don't think we'll get all the way to numbers we.

We think are good long term by the end of the year, but the the.

Speaker 3: think are good long term by the end of the year, but the the outlook presumes that we maintain and put some momentum across the businesses that are growing well now outside transportation and the transportation begins meaningful growth. So you put all that together we get to mid-deens and if we do even More than that then we'll be we'll be on the high end of our of our outlook, but that's how we get

The outlook presumes that we.

Maintain and put some momentum across the businesses that are growing well now outside transportation and the transportation begins meaningful growth. So you put all that together we get to.

Mid teens and if if we do even.

More than that then we'll be we'll be on the high end of our outlook, but thats, how we get there.

Very interesting and David based on the <unk>.

Speaker 8: Very interesting and David you know based on the numbers you shared on sketch up It sounds like it user growth has tripled in that business Give or take since the transition to subscription Are you on track with that level of performance in in tecla and you know Are you thinking about the remaining conversions that are in front of us with that type of user growth potential or were there any outliers on Sketch up

<unk> you shared.

Sketchup it sounds like good user growth has tripled in that business give or take since the transition to subscription.

Are you on track with that level of performance in <unk> are you thinking about the remaining conversions that are in front of us with that type of user growth potential.

Are there any outliers on.

Sketchup.

We should be thinking about.

I'd be I'd be careful about extrapolating from sketch up to all the other businesses.

Speaker 3: You know, I'd be careful about extrapolating from SketchUp to all the other businesses. Certainly, the SketchUp story is an amazing one. It really is a sort of great flagship example of how changing the business model expands the addressable market. On SketchUp, it has a quasi-consumer appeal, which Teclo would not. It's a very sophisticated product.

Certainly the Sketchup stories at Amazing one it really is.

Great flagship example of how changing the business model expands the addressable market.

On Sketchup it has a quasi consumer appeal, which.

Which tecla would not it's a very sophisticated product. So we're early days in the model conversion on Tesla I don't think Youll see the expansion in the addressable market.

Speaker 3: So we're early days in the model conversion on Tecla. I don't think you'll see the expansion in the addressable market in that offering that we've had in SketchUp.

And in that offering that we've had in sketchup.

Okay. Thanks.

Yes.

Yes, the Nexgen comes from the line of Jason Celaeno from Keybanc capital markets. Your line is open. Please ask your question.

Speaker 1: Your next option comes from the line of Jason Solino. From Keyback Capital Market, your line is open, please ask your...

Great Hey, Rob Hey, David I appreciate it Mike all the time around.

Speaker 9: Great, Hey Rob, hey David, appreciate the money call this time around.

As it relates to M&A.

Speaker 9: As it relates to M&A, you know, the business has, you know, be loved for very nicely over the past couple of years. And with these connecting scale initiatives and you know, dream-lying the business, you know, how should we think about M&A strategy and specifically, you know, where larger M&A might fit in?

<unk>.

De levered very nicely over the past couple of years.

These connect and scale initiatives streamlining the business, how should we think about M&A strategy and specifically larger M&A my opinion.

In context of connect and scale I think about two dynamics one.

Speaker 2: In context of Connect and Scale, I think about two dynamics, one.

Actually I think three dynamics, one is around organic progression in the.

Speaker 2: I actually think three dynamics. One is our own organic progression and the second is acquisition and the third is partnership. From our own organic progression.

The second is acquisition and the <unk> partnership from our own organic progression.

Speaker 2: We believe we have an immense opportunity just to mine the data and the customer opportunities within the house. In other words, the cross cell and the up cell within the Trimble Portfolio. As evidence of that, as our Trimble Construction 1 launch, we're creating for Sony-based bundles to go after the construction industry to better serve this customer.

Believe we have an immense opportunity just to mine the data and the customer custom.

Customer opportunities within I'll say within the house. So in other words, the cross sell and the upsell within the timber Trimble portfolio as evidence of that is our trimble construction.

<unk> launch, we're creating persona based.

Bundles to go after the construction industry to better to better serve those customers.

Speaker 2: That's our primary use of capital allocation. Second from an acquisition standpoint.

That's our primary use I'll say a capital allocation second from an acquisition standpoint.

We're definitely open to acquisition not for the sake of acquisition if it helps accelerate the strategy and so the two vectors that we tend to look at.

Speaker 2: We're definitely open to acquisition, not for the sake of acquisition if it helps accelerate the strategy. And so the two vectors we tend to look at on acquisitions are one.

Acquisitions are one.

Speaker 2: Product capabilities into geographic reach.

Product capabilities into geographic reach.

Sometimes the same and sometimes they're.

Speaker 2: Sometimes over to the same, sometimes they're mutually exclusive.

They are mutually exclusive.

The majority of acquisitions, we've done over time, I've looked more like tuck ins than transformative and large ones. We've tended to do the larger ones every few years and I wouldn't say that's by design thats been more by availability. So we are certainly open to that theres a bit of a bifurcation in the market where there is the really.

Speaker 2: The majority of acquisitions we've done over time have looked more like a tuck-in than transformative and large ones. We've tended to do the larger ones every few years. And I wouldn't say that's by design. It's been more by availability. So we are certainly open to that. There's a bit of a bifurcation in the market where there's the really, I think, almost mega caps, at least mega cap defined in a turmbled context.

Almost mega caps at least mega cap defined.

Trimble context.

Speaker 2: And then the long tail of small small companies. There's not

And then the long tail of small small companies, there's not too many in the middle So theres a bit of a scarcity of assets. So we're absolutely open to it we obviously have the balance sheet and we think we've got the right strategy. So if the fed is there we will we will pursue on the partnership angle I mentioned that because.

Speaker 2: too many in the middle. So there's a bit of a scarcity of assets. So we're absolutely open to it. We obviously have the balance sheet and we think we've got the right strategy. So if the fit is there.

Speaker 2: we will pursue. On the partnership angle, I mention that because in a platform strategy, which is what Connect and Scale is.

And our platform strategy, which is what connect and scale is.

We believe that partnerships are more.

Speaker 2: We believe the partnerships are more important than ever to build out that ecosystem.

More important than ever to build out that ecosystem.

We have a long track record of pork partnerships, we've got a joint venture.

Speaker 2: We have a long track record of pork partnerships. We've got a joint venture with Caterpillar and Civil Construction. We've got a joint venture with Healthy and Building Construction. We've got a joint venture with Nikon and our survey and mapping business. We announced that relationship with Microsoft a few months ago. We think that that is an important partnership to help us extend the reach and the capabilities of what we do. And as we open up,

With caterpillar and several construction, we've got a joint venture with <unk> in building construction, we got a joint venture with Nikon and our survey and mapping business, we announced that relationship with Microsoft a few months ago. We think that that is an important partnership to help us extend the reach and the capabilities of what we do and as we open up.

Sure.

Speaker 2: our technology to third parties and those ecosystems to help us extend that. I think that's another point of evidence of where partnerships will come into play. And then I'd like to believe that those partnerships, which could also come through at Trimble Ventures arm, could become acquisition candidates.

Our technology to third parties in those ecosystems to help us extend that I think that's another point of evidence of where partnerships will come into play and then I'd like to believe that those partnerships, which could also come through our Trimble ventures arm could.

Could become acquisition candidates down the road.

Okay interesting and then when I think about this year and we will focus on investments.

Speaker 9: Okay, interesting. And then when I think about this year and the focus and investments in infrastructure autonomy and digital.

Back to your economy and digital transformation.

Speaker 9: Is it the correct way to think about this? Maybe at the product level, to go to market level, and then also at the backend system level? Thanks.

Is that correct way to think about this maybe.

Level of go to market level, and then also have the backend system level.

Thanks.

Alright, yes, I think thats.

Speaker 2: Uh, yeah, I think that's a fair way to think about it. I...

A fair way to think about it.

Speaker 2: The words I tend to use internally are strategy structure systems. I believe an organizational structure follows the strategy and I believe the underlying systems are meant to be enablers of that structure and ultimately the strategy. So in the strategy of Connect and Scale,

The words I tend to use internally our strategy structure systems.

I believe in organizational structure follows the strategy and I believe the underlying systems.

Are meant to be enablers of that structure and ultimately the strategy. So in the strategy.

Of connect and scale.

Speaker 2: We see an enormous opportunity around the infrastructure bill. And so I think that's what you're asking about when you said infrastructure. You may have been our internal infrastructure, but if we're talking that the IAJA.

We see an enormous opportunity around the infrastructure Bill and so I think thats, what youre asking about when he said infrastructure. Although you may have met our internal infrastructure, but if we're talking about.

The IAA.

We see a large opportunity there that connects to the acquisition of Agila assets to bring more aspects of trimble together to positively impact the opportunity inside of construction. So.

Speaker 2: We see a large opportunity there that connects to the acquisition of agile assets to bring more aspects of Trimble together to positively impact the opportunity inside of construction.

Speaker 2: So within that strategy, then we organized ourselves, well, sorry, I actually also on the strategy side, yes, that captures product and go-to-market. So totally agree with you. There you've got to have, and the product looks like the sweet, the collections of our technology and the go-to-market for us, as you look in the totality of Trimble, has a hybrid aspect of direct and indirect that comes together. Okay, then on the organizational structure side,

Within that strategy than we organized ourselves well sorry, I actually also on the strategy side, yes that captures product and go to markets are totally agree with you there.

There you've got to have in that product looks like the suites. The collections of our technology and the go to market for us.

As you look at the totality of Trimble has a hybrid aspect of direct and indirect that comes together, Okay and then on the organizational structure side.

Speaker 2: We organize ourselves around the industry that we serve. So we have an industry leader for civil construction, for building construction, for agriculture, for survey and mapping, for transportation. So we have that single point of accountability to those end markets that we're serving. And then the underlying systems, that captures some of the digital transformation systems work that we are doing to give us that

We organize ourselves around the.

The industries that we serve so we have an industry.

Leader for civil construction for building construction for agriculture.

And mapping for transportation. So we have that single point of accountability to those to those end markets that we're serving and then the underlying systems that captures some of the digital transformation.

Systems work that we are doing to give us that.

Speaker 2: ability to better serve customers and to help us scale efficiently and effectively.

Our ability to better serve customers and to help us scale efficiently and effectively.

Excellent. Thank you.

Youre welcome.

Speaker 1: Your next question comes from the line of Rob Mason. Your line is open please, as your question.

Our next question comes from the line of Rob Mason Youre line is open. Please ask your question.

Yes, good morning.

Speaker 3: I guess good morning. I, Rob, you had noted the platform as a service opportunity lies ahead of you still for the most part. How should we be thinking?

Rob you had noted the platform as a service opportunity lies ahead of you still for the most part how should we be thinking.

Speaker 3: That impacts the recurring revenue gross margin, or recurring gross margin, as that occurs, the simple math would suggest.

That impacts the recurring revenue gross margin recurring gross margin.

As that occurs.

The simple math would suggest.

Speaker 3: you know, some hardware mix flows towards that line item. But is there an opportunity for, you know, in which case, I get a gross margin level?

Some hardware mix flows towards that line item.

But is there an opportunity for in which case you had a gross margin level.

The math suggests somewhat dilutive, but is there a <unk>.

Speaker 2: the math suggests somewhat dilutive, but is there an opportunity there, the strategy there?

And opportunity there the strategy there.

To make that less so than maybe <unk>.

Speaker 2: to make that less so than maybe face value would tell you.

Face value would tell you.

Speaker 2: Yeah, let me give you the strategy set up and David can fill in the blanks on the numbers. So, platform as a service,

Yes, let me I'll give you the strategy setup and David can fill in the blanks on the numbers so.

Platform as a service.

That's the that's the I'll say the branding name we've had on the machine control and guidance business in civil in other words think about taking that guidance business.

Speaker 2: We've had on the machine control and guidance business in the civil. In other words, think about taking that guidance business as a, as a ratable offering. They combined hardware and software, the fundamental value proposition to the customers that of technology assurance, being able to stay on the latest.

As a ratable offering that combines hardware and software the fundamental value proposition to the customers that have technology assurance being able to stay on the latest version of sensors software gives them ability to better connect to the office based solutions, we have in our connectivity solutions, we have to really round trip.

Speaker 2: version of sensors or software gives them ability to better connect.

Speaker 2: to the office-based solutions we have and the connectivity solutions we have to really round-trip the data to and from the field to connect that physical digital, to connect the office field, connect the hardware and the software. So that's the reason and the value proposition that we pursue this. So let's take...

Data to and from the field to connect that physical digital to connect the office field connect the hardware and the software. So that's the reason and the value proposition that we pursue this so let's take a guidance system and let's just.

Speaker 2: a guidance system and let's just use round numbers and say it's a $30,000 system today that a customer buys. In that system, you're buying a set of sensors, hardware and...

Use round numbers and say, it's a 30000 dollar system today that a customer buys.

That system, you are buying a set of.

Sensors hardware and embedded software.

The embedded software is actually whats driving a lot of and creates a lot of that value. It's the enabling aspect of it today now today the way. The accounting works is we would take in that $30000 example, we would take all of that revenue today.

Speaker 2: The embedded software is actually what drives a lot of and creates a lot of that value. It's the enabling aspect of it today. Today, the way the accounting works is we would take in that $30,000 example, we would take all of that revenue today.

The way the accounting works is that the value is attributed partially to software perpetual software.

Speaker 2: The way the accounting works is that the value is attributed partially to software, perpetual software, and partial, so that embedded software, it tributes to perpetual software, and then the rest to hardware. So that's where David refers to it as a bundle. So what we see is that more and more of the value comes through the software aspect of the offering. And so that software aspect of the offering, so the portion of that $30,000 is attributed to software. That's what we look to take.

So that embedded software attributes so perpetual software and then the rest to hardware, so thats, where David refers to it as.

As a bundle so what we see is that more and more of the value comes through the software aspect of the offering and so that software aspect of the offerings. So the portion of that $30000 Thats attributed to software. That's what we look to take that as one of the things we look to take ratable over time.

Speaker 2: That's one of the things we look to take ratable over time. And that's a global offering that we just announced. Now in the US, we've been doing the whole thing as a ratable service. The accounting makes you take the hardware up front, even though it's ratable. And it's that software that you can take over time. And this global offering that we now have, that's the primary offering of by the hardware up front, and then the software becomes ratable. So in the short term,

And that's a global offering that we just announced now in the U S. We have been doing the whole thing is a ratable service. The accounting makes you take the hardware upfront even though.

It's ratable and it's that software that you can take over time and this global offering that we know that we now have that as the primary offering by the hardware upfront and then the software becomes ratable so in the short term.

Speaker 2: I think that's a hit to margin just like you would have in any software business that moves from perpetual to ratable. What we need to then be able to demonstrate through the numbers, and it probably shows up as a term license, and therefore in the ARR number, is that we can show that ARR growth and link that to any offset in the margin. Now that's the short term. As you build a cumulative base,

I think that that's a hit to margin just like you would have in any software business that moves from perpetual to ratable.

What we need to then be able to demonstrate that through the numbers and it probably shows up as a term license and.

And therefore in the IRR number is that we can show that <unk> growth and link that to any offset in the margin now thats. The short term as you build the cumulative base youre.

Speaker 2: Your margins flip and then you actually, as we know, get back to parity and then have the value expansion opportunity from there, just on the base offering. And that's before we talk about the upsell and the linkage to the rest of what we do. David, you had to think. No, I think you nailed it, Rob. So even when you sell a bundle of hardware and software and solutions together, just the way the accounting works is you figure out how much of the value

Your margins flip and then you actually as we know.

Get back to parity and then have the value expansion opportunity from there just on the base offering.

Before we talk about the upsell and the linkage to the rest of what we do Dave would you add anything no I think you nailed it Rob so even when you sell a bundle of hardware and.

Software and solutions together.

Just the way the accounting works as you figure out how much of the value is.

Hardware and you do recognize that upfront.

Speaker 3: hardware and you do recognize that up front. I think what

I think whats.

But the Mega trend going on here that's in the context of the model transition as Rob said as more and more of the value is with the software and solutions and relatively less of the hardware. So the.

Speaker 3: But the mega trend going on here that's in the context of the model transition, as Rob said, is more and more of the value is with the software and solutions and rel-

Speaker 3: So the impact on the PML of the transition whereas today historically the way we do it, we recognize all the hardware and all the software and solutions upfront as we go readable on the software and the service.

The impact on the P&L.

The transition, whereas today historically the way we do it we recognize all the hardware and software and solutions upfront as we go ratable on the on the software and the services that will have a similar impact that it doesn't all of our other software businesses.

Speaker 3: that will have a similar impact that it does on all of our other

Speaker 3: What you'll see in the counting is the hardware still stays up front, although hardware makes up less and less of the value of the solution.

What youll see in the and the accounting is the hardware is still saves upfront, although hardware it makes up less and less of the valuable solution and then when you go ratable on the on the on the solution then the software part get spread out over time.

Speaker 2: I see, I see. Thanks for the explanation. I'll just, you know, one quick follow up. Just David, as you think about the guidance for revenue for 22, what are you assuming in terms of backlog reduction within that collect 9 to 12% or so? Or do you?

I see I see.

Thanks for the explanation I'll just one quick follow up just David as you think about the guidance for revenue for 'twenty. Two what are you assuming in terms of backlog reduction within that.

Call, it 9% to 12% or so organic.

Yeah, So all grounded in my.

Speaker 3: Yeah, so I'll ground it in the, my comments in the notion that the supply chain won't get back to equilibrium even by the end of 2022. So just round numbers, hardware backlog in a normal world is 100 million. We're at nearly four times that somewhere around 375. We're likely to get halfway back or more than halfway back but still be well above the 100 level.

My comments in the notion that the.

The supply chain won't get back to equilibrium.

By the end of 2022, so just round numbers hardware backlog in a normal world as $100 million where it.

Nearly four times that somewhere around 375.

We're likely to get halfway back are more than halfway back, but but still be well above the 100 level.

Very good thank you.

Okay.

Your next question comes from the line of Weston Twigg from Piper Sandler. Your line is open. Please ask your question.

Speaker 1: Your next question comes from the line of Western Twig from Piper Sandler. Your lines open, please ask your question.

Hi, Thanks for taking my question.

Speaker 2: Hi, thanks for taking my question. I only talked about ARR this year, but really I'm wondering if you could help us understand your revenue by segment in terms of which segments may grow faster or slower than the overall top line revenue. And the reason I ask is just because you mentioned certain supply chain constraints worse in the agricultural area, and I'm just wondering how much that might slow down revenue in certain segments. So any health there would be. Hey, show me,

I know you've talked about IRR this year, but but really I'm wondering if you could help us understand.

Your revenue by segment in terms of which segments, you may grow faster or slower than the overall topline revenue and the reason I ask because just because you mentioned certain supply chain constraints worst in the agricultural area and I'm, just wondering how much that might.

Slowdown revenue in certain segments. So any help there would be would be great.

Speaker 3: As a general friend, it's unlikely that we'll see hardware revenue outstrip total revenue like we did in the fourth quarter.

As a general trend.

Unlikely that we'll see hardware revenue outstripped total revenue like we did in the in the fourth quarter.

The other book end I'll put it that obviously, our transportation revenue trends have been more modest than the other segments and we do expect in the second half of the year.

Speaker 3: The other book end I'll put it that obviously our transportation revenue trends have been more modest than the other segments and we do expect in the second half of the year. An uplift in transportation, but the rest of the businesses are actually quite similar in the sense that demand is very strong. Backbugs big.

Uplift in transportation, but the.

The rest of the businesses.

Are actually quite similar in the sense that.

Demand is very strong.

Backlog is big.

Just by the numbers geospatial of these segments is most hardware related so we've just had extraordinary growth.

Speaker 3: Just by the numbers geospatial of these segments is most hardware related. So we've just had extraordinary growth and it's we're outgrowing by everything we can measure the market in those solutions. So you're likely to see that segment slow more than the others. But we have a really big backlog in

We're outgrowing by everything we can measure the market.

And those solutions, so youre likely to see that segment slow more than the others, but we are really big backlog in.

In.

Speaker 3: in construction and agriculture.

Global construction and agriculture.

And.

Speaker 3: Yeah, so I think you'll see lowest growth and transportation in the first half geospatial just because it's hardware dependent will be lower and the others segments will be, we expect to be very...

Yes, so I think youll see lowest growth in transportation, particularly in the first half geospatial just because its hardware dependent will be lower than the others segments will be we expect to be very strong.

Speaker 2: That's very helpful. Thanks. And then just to follow up real quickly, gross margin, you suggested would be higher on the second half, kind of similar to Q4 through the first half. What kind of level, can you help us understand what kind of level gross margin could hit exiting the year as supply chain starts to get back to normal?

That's very helpful. Thanks, and then just to follow up real quickly gross margin you suggested would be high on the second half kind of similar to Q4 through the first half.

What kind of level can you help us understand what kind of level of gross margin could hit exiting the year as supply chain starts to get back to back to normal.

I think the math, probably pretty easy if we ended up.

Speaker 3: I think the math's probably pretty easy if we end up near where we were in Q4 for the first two quarters and then we'll end the year at or maybe modestly above full year 2021. That will think that.

Near where we were in Q4 for the first two quarters and then we'll end the year at or May be modestly above our full year 2021.

That will.

That.

Speaker 3: That gets you there. It will be, you know, the modeling of that won't get you to 60% but it'll get you closer than the 58 where we are now. So, perfect. That's helpful. Thank you.

That gets you there it will it will be.

The modeling of that won't get you to 60%, but we'll get you closer then.

Then the 58, where we are now.

Perfect. That's helpful. Thank you.

Okay.

There are no further question at this time you may continue.

Thank you everyone for joining us on the call and we look forward to speaking to you next quarter. Thank you.

Speaker 9: Thank you everyone for joining us on the call and we look forward to speaking to you next quarter. Thank you.

This concludes today's conference call. Thank you for participating you may now disconnect.

Speaker 1: This concludes today's conference call. Thank you for participating in my next.