Q2 2024 Trimble Inc Earnings Call

Speaker Change: Thank you for standing by and welcome to the Trimble second quarter 2024 financial results conference call. All lines have been placed on mute to prevent any background noise.

Operator: After 2024 financial results, conference call, all lines have been placed on mute to prevent any background noise. After the speaker's remarks, there will be a question-and-answer session. If you would like to ask a question during this time, simply press star followed by the number one on your telephone keypad. If you would like to withdraw your question, press star one again.

Operator: 2024 Financial Results Conference Call. All lines have been placed on mute to prevent any background noise.

Operator: After the speaker's remarks, there will be a question and answer session. If you would like to ask a question during this time, simply press star followed by the number one on your telephone keypad. If you would like to withdraw your question, press star one again. I would now like to turn the call over to Rob Painter.

Speaker Change: After the speaker's remarks, there will be a question and answer session. If you would like to ask a question during this time, simply press star followed by the number 1 on your telephone keypad. If you would like to withdraw your question, press star 1 again. I would now like to turn the call over to Rob Painter.

Rob Painter: I would no like to turn the call over to Rob Painter, Trimble, President and CEO. Please go ahead. Welcome everyone. Before I get started, our presentation is available on our website, and we ask that you refer to the safe harbor at the back. Our financial commentary will reflect non-GAAP performance metrics, including organic growth comparisons, which refers to the corresponding period of last year unless otherwise noted. In addition, our P&O commentary will emphasize comparables on an as-adjusted basis, which excludes our agriculture business.

Rob Painter: Trimble President and CEO . Please go ahead.

Rob Painter: Welcome, everyone. Before I get started, our presentation is available on our website, and we ask that you refer to the safe hardware at the back. Our financial commentary will reflect non-GAAP performance metrics, including organic growth comparisons, which refer to the corresponding period of last year, unless otherwise noted. In addition, our P&L commentary will emphasize comparables on an as-adjusted basis, which excludes our agriculture business. Let's start on slide four.

Rob Painter: Welcome everyone. Before I get started, our presentation is available on our website and we ask that you refer to the safe harbor at the back.

Speaker Change: Our financial commentary will reflect non-GAAP performance metrics, including organic growth comparisons, which refer to the corresponding period of last year, unless otherwise noted. In addition, our P&L commentary will emphasize comparables on an as-adjusted basis, which excludes our agriculture business.

Rob Painter: Let's start on slide four. During the second quarter, we continue to advance our Connecting Scale strategy, which involves digitally connecting the workflows within targeted industry segments and creating scale across Trimble through shared technology platforms. Our strategy delivers outcomes in the form of unique value to our customers and sustainable value creation to our shareholders. We want to convey three key messages today. The strategy is working; the numbers reflect the execution, and the execution reflex are simplified and focused organization.

Rob Painter: During the second quarter, we continued to advance our Connect and Scale strategy, which involves digitally connecting the workflows within targeted industry segments and creating scale across Trimble through shared technology platforms. Our strategy delivers outcomes in the form of unique value to our customers and sustainable value creation to our shareholders. We want to convey three key messages today. The strategy is working, the numbers reflect the execution, and the execution reflects our simplified and focused organization. Slides 5 and 6 detail some highlight metrics. 2.11 billion of ARR grew 14%. Revenue grew 1%, and gross margins were a record 66.5%.

Rob Painter: Let's start on slide 4.

Rob Painter: During the second quarter, we continued to advance our Connect and Scale strategy, which involves digitally connecting the workflows within targeted industry segments and creating scale across Trimble through shared technology platforms.

Rob Painter: Our strategy delivers outcomes in the form of unique value to our customers and sustainable value creation to our shareholders. We want to convey three key messages today. The strategy is working, the numbers reflect the execution, and the execution reflects our simplified and focused organization.

Rob Painter: Slides 5 and 6 detail some highlight metrics. 2.11 billion of ARR grew 14 percent. Revenue grew 1 percent. Gross margins were a record 66.5 percent. EBITDA margin expanded 40 basis points to 24.6 percent, and free cash flow was strong. Revenue in the quarter was 75 percent software services recurring and 60 percent overall recurring revenue, both records for Trimble, reflecting our portfolio transformation and continued organic mix shift driven by ARR growth.

Rob Painter: Slides 5 and 6 detail some highlight metrics.

Rob Painter: 2.11 billion of ARR grew 14%, revenue grew 1%, gross margins were a record 66.5%, EBITDA margin expanded 40 basis points to 24.6%, and free cash flow was strong.

Rob Painter: Revenue in the quarter was 75% software services recurring and 60% overall recurring revenue, both records for Trimble, reflecting our portfolio transformation and continued organic makeshift driven by ARR growth.

Rob Painter: Based on the solid first half year performance, we are raising our guidance for the year. Before we turn to the performance of the segments, let me provide an update on the status of our financial audit. By way of reminder, the need for EY's re-audit over 2023 financials stemmed from concerns about the comprehensiveness and documentation of a number of our internal controls, especially around our IT systems. These concerns arose as EY prepared for a PCAOB inspection of their audit of Trimble. In April, EY began additional audit procedures relating to our 2023 financial statements using a more detailed substantive approach.

Rob Painter: Based on the solid first half year performance, we are raising our guidance for the year.

Rob Painter: EBITDA margin expanded 40 basis points to 24.6%, and free cash flow was strong. Revenue in the quarter was 75% software services recurring revenue and 60% overall recurring revenue, both records for Trimble, reflecting our portfolio transformation and continued organic makeshift driven by ARR growth. Based on the solid first half-year performance, we are raising our guidance for the year. Before we turn to the performance of the segments, let me provide an update on the status of our financial audit.

Speaker Change: Before we turn to the performance of the segments, let me provide an update on the status of our financial audit.

Rob Painter: By way of reminder, the need for EY's re-audit of our 2023 financials stemmed from concerns about the comprehensiveness and documentation of a number of our internal controls, especially around our IT systems. These concerns arose as EY prepared for a PCAOB inspection of their audit of Trimble. In April, EY began additional audit procedures relating to our 2023 financial statements using a more detailed, substantive approach.

Speaker Change: By way of reminder, the need for EY's re-audit of our 2023 financials stemmed from concerns about the comprehensiveness and documentation of a number of our internal controls, especially around our IT systems.

Speaker Change: These concerns arose as EY prepared for a PCAOB inspection of their audit of Trimble.

Speaker Change: In April , EY began additional audit procedures relating to our 2023 financial statements using a more detailed substantive approach.

Rob Painter: We are working collaboratively with EY and provide them with the substantial majority of the information they need. EY's work is nearing completion, and we expect it to wrap up within the next month or so. To date, the audit has not identified any issues which would result in a change of our financial statements.

Rob Painter: We are working collaboratively with EY and have provided them with a substantial majority of the information they need. EY's work is nearing completion, and we expect it to wrap up within the next month or so. To date, the audit has not identified any issues which would result in a change to our financial statement.

Speaker Change: We are working collaboratively with EY and have provided them with a substantial majority of the information they need. EY's work is nearing completion and we expect it to wrap up within the next month or so. To date, the audit has not identified any issues which would result in a change of our financial statements.

Rob Painter: When EY's work is complete, we will reissue our annual report for 2023 and file forms 10-Q for the first and second quarter of 2024. Based on the work to date, we anticipate that the financial results will be the same as what we have previously reported.

Rob Painter: When EY's work is complete, we will reissue our annual report for 2023 and file Forms 10-Q for the first and second quarters of 2024. Based on the work to date, we anticipate that our financial results will be the same as what we have previously reported. Let's get back to the business with a review of our segment results, starting on slide 7 with our AECO segment. The team delivered another record quarter of ARR with a terrific 18% level of ARR growth.

Speaker Change: When EY's work is complete, we will reissue our annual report for 2023 and file Forms 10-Q for the first and second quarter of 2024.

Speaker Change: Based on the work to date, we anticipate that the financial results will be the same as what we have previously reported.

Rob Painter: Let's get back to the business with the review of our segment results, starting on slide 7 with our AECO segment. The team delivered another record quarter of ARR with a terrific 18 percent level of ARR growth. The AECO segment is the tip of the sphere of our Connect and Scale strategy, and the strategy is working. We are succeeding in growing customer count with our innovative products and driving higher revenue per customer through our integrated platform offering. The A represents Architecture and Design. Here, our SketchUp product surpassed one million subscribers, an amazing milestone delivered by the team.

Rob Painter: The AECO segment is the tip of the spear of our Connect and Scale strategy, and the strategy is working. We are succeeding in growing our customer count with our innovative products and driving higher revenue per customer through our integrated platform offerings. The A represents architecture and design. Here, our SketchUp product surpassed one million subscribers, an amazing milestone achieved by the team. The E represents engineering. An example of the strategy at work here comes in the form of unique workflows that only Trimble can deliver, such as scan-to-BIM and fabrication workflows. The C represents construction.

Speaker Change: Let's get back to the business with a review of our segment results, starting on slide 7 with our AECO segment.

Speaker Change: The team delivered another record quarter of ARR with a terrific 18% level of ARR growth.

Speaker Change: The AECO segment is the tip of the spear of our Connect and Scale strategy, and the strategy is working. We are succeeding in growing customer count with our innovative products and driving higher revenue per customer through our integrated platform offering.

Speaker Change: The A represents architecture and design. Here, our SketchUp product surpassed 1 million subscribers, an amazing milestone delivered by the team.

Rob Painter: The E represents Engineering. An example of the strategy at work here comes in the form of unique workflows that only Trimble can deliver, such as Scandabem and fabrication workflows.

Speaker Change: The E represents engineering. An example of the strategy at work here comes in the form of unique workflows that only Trimble can deliver, such as scan-to-BIM and fabrication workflows.

Rob Painter: The C represents Construction. Here are recent tuck-in acquisitions that field and payment solutions have shown us that we can run repeatable land and expand players that deliver our customers fast time to value when they buy additional capabilities on top of our construction management system.

Rob Painter: Here recent tuck-in acquisitions of field and payment solutions have shown us that we can run repeatable land and expand plays that deliver our customers fast time to value when they buy additional capabilities on top of our construction management system. The O represents the owners, both private and public sector. In May, we held a user conference in Cleveland where we launched Trimble Unity, a suite of asset lifecycle management solutions that uniquely connect Trimble capabilities.

Speaker Change: The C represents Construction. Here are recent tuck-in acquisitions of field and payment solutions have shown us that we can run repeatable land and expand plays that deliver our customers fast time to value when they buy additional capabilities on top of our construction management system.

Rob Painter: The O represents the owners, both private and public sector. In May, we held a user conference in Cleveland where we launched Trimble Unity, a suite of asset life cycle management solutions that uniquely connect Trimble capabilities. Across these AECO personas, we operate a common and connected data environment, namely Trimble Connect. Connect has now initiated more than 20 million projects since inception and had over 6 billion API hits into the platform in just the first six months of 2024. On the go-to-market side, we moved the team to a named account selling model earlier this year, and we are now lining up our digital marketing efforts to better enable our sales motions.

Speaker Change: The O represents the owners, both private and public sector. In May, we held a user conference in Cleveland where we launched Trimble Unity, a suite of asset lifecycle management solutions that uniquely connect Trimble capabilities.

Rob Painter: Across these AECO personas, we operate a common and connected data environment, namely, Trimble Connect. Connect has now initiated more than 20 million projects since inception and had over 6 billion API hits into the platform in just the first six months of 2024.

Speaker Change: Across these AECO personas, we operate a common and connected data environment, namely, Trimble Connect.

Speaker Change: Connect has now initiated more than 20 million projects since inception and had over 6 billion API hits into the platform in just the first six months of 2024.

Rob Painter: On the go-to-market side, we moved the team to a named account selling model earlier this year, and we are now lining up our digital marketing efforts to better enable our sales force. In conclusion, the Connect and Scale investments we have made over the last several years have enabled us to grow and gain share. Our strategy resonates with customers looking for strong ROI. Based on our second quarter results, our pipeline, and our solid bookings performance, we see our momentum continuing.

Speaker Change: On the go-to-market side, we moved the team to a named account selling model earlier this year, and we are now lining up our digital marketing efforts to better enable our sales motions.

Rob Painter: In conclusion, the connected scale investments we have made over the last several years have enabled us to grow and gain share. Our strategy resonates with customers looking for strong ROI's. Based on our second quarter results, our pipeline and our solid bookings performance, we see our momentum continuing. We recently hired a Chief Revenue Officer for this business, which we believe will help further enable and ensure our growth and success at scale in this 1.16 billion ARR business that is already operating well above a Rule of 40 benchmark.

Speaker Change: In conclusion, the Connect and Scale investments we have made over the last several years have enabled us to grow and gain share.

Speaker Change: Our strategy resonates with customers looking for strong ROIs.

Speaker Change: Based on our second quarter results, our pipeline, and our solid bookings performance, we see our momentum continuing.

Rob Painter: We recently hired a Chief Revenue Officer for this business, which we believe will help further enable and ensure our growth and success at scale in this $1.16 billion ARR business that is already operating well above a Rule of 40 benchmark. The physical side of our business is largely conveyed in our field systems reporting segment, with key highlights on slide 8. Revenue was down, as expected, primarily related to the strength of prior year government-related sales.

Speaker Change: We recently hired a Chief Revenue Officer for this business, which we believe will help further enable and ensure our growth and success at scale in this 1.16 billion ARR business that is already operating well above a Rule of 40 benchmark.

Rob Painter: The physical side of our business is largely conveyed in our field systems reporting segment, with key highlights on slide 8. Revenue was down, as expected, primarily related to the strength of prior year government-related sales. While in market conditions have been soft in some areas, we continue to perform well with strong product and channel positions. Nowhere is this more evident than in the more than 300 million of field systems ARR. The team has been doing a great job of converting relevant software and hardware models where we have the ability to leverage our strong market position and product offerings to deliver unique value to customers.

Speaker Change: The physical side of our business is largely conveyed in our field systems reporting segment, with key highlights on slide 8.

Speaker Change: Revenue was down, as expected, primarily related to the strength of prior year government-related sales.

Rob Painter: While end market conditions have been soft in some areas, we continue to perform well with strong product and channel positions. Nowhere is this more evident than in the more than 300 million Field Systems ARR. The team has been doing a great job of converting relevant software and hardware models where we have the ability to leverage our strong market position and product offerings to deliver unique value to customers. This move has expanded our addressable market, as evidenced by delivering 17% ARR growth, nearly matching the growth in AECO. I will illustrate this through three examples, starting with our Works Plus offering in Civil Construction, which offers machine control and guidance as a service. The team delivered a record quarter of books.

Speaker Change: While in-market conditions have been soft in some areas, we continue to perform well with strong product and channel positions.

Speaker Change: Nowhere is this more evident than in the more than 300 million of Field Systems ARR. The team has been doing a great job of converting relevant software and hardware models where we have the ability to leverage our strong market position and product offerings to deliver unique value to customers.

Rob Painter: This motion has expanded our addressable market, as evident by delivering 17% ARR growth, nearly matching the growth in AECO. I will illustrate this through three examples, starting with our works plus offering and civil construction, which offers machine control and guidance as a service. The team delivered a record quarter of bookings. Second, our positioning services business has expanded our unique ability to offer globally ubiquitous and high accuracy signals from our classic geospatial and agriculture markets into automotive markets. The team delivered three design wins in the quarter to major automotive OEMs. And third, we launched the R980 GNSS survey instrument in the quarter with firmware configurations, field software, and positioning services available on a subscription basis, which expands the addressable market by lowering up front costs, enabling more customers to adopt our premium solutions.

Speaker Change: This motion has expanded our addressable market, as evidenced by delivering 17% ARR growth, nearly matching the growth in AECO.

Speaker Change: I will illustrate this through three examples, starting with our Works Plus offering in Civil Construction, which offers machine control and guidance as a service. The team delivered a record quarter of bookings.

Rob Painter: Second, our positioning services business has expanded our unique ability to offer globally ubiquitous and high-accuracy signals from our classic geospatial and agriculture markets into the automotive market. The team delivered three design wins in the quarter to major automotive OEMs. Third, we launched the R980 GNSS survey instrument in the quarter with firmware configurations, field software, and positioning services available on a subscription basis, which expands the addressable market by lowering upfront costs, enabling more customers to adopt our premium solutions.

Speaker Change: Second, our positioning services business has expanded our unique ability to offer globally ubiquitous and high-accuracy signals from our classic geospatial and agriculture markets into automotive markets.

Speaker Change: The team delivered three design wins in the quarter to major automotive OEMs.

Speaker Change: And third, we launched the R980 GNSS survey instrument in the quarter with firmware, configurations, field software, and positioning services available on a subscription basis.

Speaker Change: which expands the addressable market by lowering upfront costs, enabling more customers to adopt our premium solutions.

Rob Painter: Strategically speaking, most of the solutions we sell in this segment act as a data collection node in the physical world to provide us the unique triple ability to connect to the physical and digital world.

Rob Painter: Strategically speaking, most of the solutions we sell in this segment act as a data collection node in the physical world that gives us the unique Trimble ability to connect the physical and digital worlds. Closing our segment commentary on slide 9, transportation and logistics beat our top and bottom line expectations. Transporium delivered double-digit ARR growth, as did our maps business. Excluding the North America mobility business, organic ARR growth in the segment was 11%.

Speaker Change: Strategically speaking, most of the solutions we sell in this segment act as a data collection node in the physical world that provides us the unique Trimble ability to connect to the physical and digital worlds.

Rob Painter: Closing our segment commentary on slide nine, transportation and logistics beat our top and bottom-line expectations. Transportion delivered double-digit ARR growth, as did our maps business. Excluding the North America mobility business, organic ARR growth in the segment was 11%. While our mobility business has experienced the churn we anticipated, it is worth noting that the team delivered the largest bookings in the last few years in the quarter, which was one-half a technology upgrade with a triple and one-half a competitive displacement. Our new Instinct platform is generating positive buzz in the market, and we are having good success selling video solutions.

Speaker Change: Closing our segment commentary on slide 9, transportation and logistics beat our top and bottom line expectations.

Speaker Change: Transporium delivered double-digit ARR growth as did our maps business.

Speaker Change: Excluding the North America mobility business, organic ARR growth in this segment was 11%.

Rob Painter: While our mobility business has experienced the churn we anticipated, it is worth noting that the team delivered the largest bookings in the last few years in the quarter, which was one-half a technology upgrade with Trimble and one-half a competitive displacement. Our new Instinct platform is generating positive buzz in the market, and we are having good success selling video solutions. While the freight market remains in a recessionary environment, our Transporium business continued to win new logos in the quarter, and we continue to innovate on all our solutions, some of which will be unveiled at our user conferences in September.

Speaker Change: While our mobility business has experienced the churn we anticipated, it is worth noting that the team delivered the largest bookings in the last few years in the quarter, which was one-half a technology upgrade with Trimble and one-half a competitive displacement.

Speaker Change: Our new Instinct platform is generating positive buzz in the market and we are having good success selling video solutions.

Rob Painter: While the freight market remains in a recessionary environment, our transporium business continued to win new logos in the quarter, and we continue to innovate on all our solutions, some of which will be unveiled at our user conferences in September. In addition, we are moving down the path of product rationalization between the Trimble and Transporium businesses, as evidenced by consolidating our work on freight marketplace and visibility into one team each. We also began selling our mapping solutions into the Transporium customer base. The sum of these activities delivered 18.7% off-screen income, a solid 460 basis point increase.

Speaker Change: While the freight market remains in a recessionary environment, our Transporium business continued to win new logos in the quarter, and we continue to innovate on all our solutions, some of which will be unveiled at our user conferences in September .

Rob Painter: In addition, we are moving down the path of product rationalization between the Trimble and Transporium businesses, as evidenced by consolidating our work on the freight marketplace and visibility into one team each. We have also begun selling our mapping solutions to the Transporium customer base. The sum of these activities delivered 18.7% operating income, a solid 460 basis point margin. Before handing over to Phil to walk us through more of the numbers, I want to offer a perspective on why we see Trimble as an AI winner.

Speaker Change: In addition, we are moving down the path of product rationalization between the Trimble and Transporium businesses, as evidenced by consolidating our work on freight marketplace and visibility into one team each.

Speaker Change: We also began selling our mapping solutions into the Transborium customer base. The sum of these activities delivered 18.7% operating income, a solid 460 basis point increase.

Rob Painter: Before handing over to Phil to walk us through more of the users, I want to offer a perspective on why we see Trimble as an AI winner. Starting with our own internal usage, we now have over 2,500 engineers using GitHub Copilot, and more than 5,000 Trimble colleagues using an internal version of Microsoft Azure Open AI that we call Trimble Assistant. From a customer-facing perspective, we have data and production releases of AI capabilities in a number of areas. In AECO, we automate the extraction of PDF data into submittal logs and into estimating engines. We also transform 3D bin models into photo-realistic renderings.

Speaker Change: Before handing over to Phil to walk us through more of the numbers, I want to offer a perspective on why we see Trimble as an AI winner.

Rob Painter: Starting with our own internal usage, we now have over 2,500 engineers using GitHub Copilot and more than 5,000 Trimble colleagues using an internal version of Microsoft Azure OpenAI that we call Trimble Assistant. From a customer-facing perspective, we have beta and production releases of AI capabilities in a number of areas, and in AECO, we automate the extraction of PDF data into submittal logs and into estimating engines. We also transformed 3D BIM models into photorealistic renderings.

Speaker Change: Starting with our own internal usage, we now have over 2,500 engineers using GitHub Copilot and more than 5,000 Trimble colleagues using an internal version of Microsoft Azure OpenAI that we call Trimble Assistant.

Phil: From a customer-facing perspective, we have beta and production releases of AI capabilities in a number of areas.

Phil: In AECO, we automate the extraction of PDF data into submittal logs and into estimating engines.

Phil: We also transform 3D BIM models into photorealistic renderings.

Rob Painter: In field systems, we focus on feature extraction from 3D point clouds. In transportation, our AI solutions include customer support, autonomous procurement, and autonomous quotation systems that match shippers with carriers. We have included several examples of Trimble AI in the appendix of the slides, complete with hyperlinks.

Phil: In field systems, we focus on feature extraction from 3D point clouds. In transportation, our AI solutions include customer support, autonomous procurement, and autonomous quotation systems that match shippers with carriers.

Phil: We've included several examples of Trimble AI in the appendix of the slides, complete with hyperlinks.

Rob Painter: Our thesis on AI is that the density of domain-specific data and insight will separate the AI winners and losers. With our unique scale, that includes over $1 trillion of construction capital programs, tens of billions of dollars of freight transactions running through our systems, millions of global customers, and hundreds of thousands of instruments and machines in the physical world, we believe we have a compelling right to win in a defensible mode to continue building around our business.

Phil: Our thesis on AI is that the density of domain-specific data and insight will separate the AI winners and losers.

Phil: With our unique scale that includes over $1 trillion of construction capital programs, tens of billions of dollars of freight transactions running through our systems, millions of global customers, and hundreds of thousands of instruments and machines in the physical world, we believe we have a compelling right to win and a defensible moat to continue building around our business.

Phil Sawarynski: Phil? Thank you, Rob. As noted before, my financial commentary will emphasize comparable on an as-adjusted basis, which excludes our agriculture business. We believe that maximizing long-term free cash flow drives shareholder value. Connecting scale is our strategy, which we believe will continue to deliver recurring revenue growth, margin expansion, and all of that. Ultimately, cumulative cash flow growth. Slide 10 highlights balance sheet and cash flow dynamics. On cash flow, we are trending better than expected after considering the transaction-related impacts. Reported free cash flow in the first half of 2024 was $300 million. That includes 50 million of tax payments related to our gain on sale from the AGJV, as well as 54 million in M&A-related transaction expenses.

Phil: Phil?

Speaker Change: Thank you, Rob. As noted before, my financial commentary will emphasize comparables on an as-adjusted basis, which excludes our agriculture business.

Speaker Change: We believe that maximizing long-term free cash flow drives shareholder value. Connect and Scale is our strategy, which we believe will continue to deliver recurring revenue growth, margin expansion, and ultimately cumulative cash flow growth. Slide 10 highlights balance sheet and cash flow dynamics.

Rob Painter: Slide 10 Highlights Balance Sheet and Cash Flow Dynamics Non-GAAP operating margin is expected to be in the range of 22.5% to 23.5% and adjusted EBITDA margin in the range of 24% to 25% for the third quarter. Our EPS forecast is in the range of 58 cents to 64 cents, which is, again, consistent with our prior guidance.

Speaker Change: On Cash Flow, we are trending better than expected after considering the transaction-related impacts.

Speaker Change: Reported free cash flow in the first half of 2024 was $300 million. That includes $50 million of tax payments related to our gain on sale from the AGJV, as well as $54 million in M&A-related transaction expenses.

Phil Sawarynski: Our conversion ratio in the first half of 2024 without these items was well above our target of one time net income. We will have additional tax payments impacting future operating cash flow related to the AGJV gain on sale in our third and fourth quarters of 2024 and second quarter of 2025 since the tax payments are spread out over time. Our asset lake model continues with capital expenditures less than 2% of revenue and negative net working capital. Net debt to EBITDA after the close of the AGJV stands at less than one times, well below our long-term leverage target of two and a half times.

Speaker Change: Our conversion ratio in the first half of 2024 without these items was well above our target of one times net income.

Speaker Change: We will have additional tax payments impacting future operating cash flow related to the Ag JV gain on sale in our 3rd and 4th quarters of 2024 and 2nd quarter of 2025 since the tax payments are spread out over time.

Speaker Change: Our Asset Lake Model continues with capital expenditures less than 2% of revenue and negative net working capital.

Speaker Change: Net debt to EBITDA after the close of the AGJV stands at less than 1x, well below our long-term leverage target of 2.5x.

Phil Sawarynski: We have just under one billion in cash after paying down a term debt and the outstanding balances on our credit facilities. We intend to resume our share buy back when practical. Our capital allocation focus remains the same. We invest for we see opportunities for the highest returns. We continue to disproportionately allocate capital to our AECO business, where the bulk of our operating expense increases are in our sales and marketing engines to continue to drive ARR revenue growth and ultimately margin expansion. On the M&A front, we expect to opportunistically pursue tuck-in acquisitions primarily in the AECO segment where we can quickly integrate and bundle within Trimble Construction 1.

Speaker Change: We have just under $1 billion in cash after paying down our term debt and the outstanding balances on our credit facilities.

Speaker Change: We intend to resume our shared buyback when practical.

Speaker Change: Our capital allocation focus remains the same. We invest where we see opportunities for the highest returns.

Speaker Change: We continue to disproportionately allocate capital to our AECO business, where the bulk of our operating expense increases are in our sales and marketing engines to continue to drive ARR revenue growth and ultimately margin expansion.

Speaker Change: On the M&A front, we expect to opportunistically pursue tuck-in acquisitions, primarily in the AECO segment where we can quickly integrate and bundle within Trimble Construction 1.

Phil Sawarynski: We acquired a field human resources application in the third quarter of 2023, and we also recently acquired a payments offering branded as Trimble Pay that has been integrated with Viewpoint, and for both, we are seeing bookings well in excess of our deal models. These growth opportunities are enabled by our connective sales strategy via bundled product offerings that we put in the hands of our sellers. This is a playbook that is delivering results and is a critical part of our acquisition strategy going forward.

Speaker Change: We acquired a field human resources application in the third quarter of 2023, and we also recently acquired a payments offering branded as Trimble Pay that has been integrated with Viewpoint. And for both, we are seeing bookings well in excess of our deal models.

Speaker Change: These growth opportunities are enabled by our Connect and Sales strategy via bundled product offerings that we put in the hands of our sellers. This is a playbook that is delivering results and is a critical part of our acquisition strategy going forward.

Phil Sawarynski: With that, let's turn to slide 11 and talk about guidance for the remainder of the year. We have a 53rd week in fiscal 2024, which adds approximately 85 million of revenue and 50 million of operating income, mainly driven by term license renewals on January 1st, which falls in the fourth quarter of this year. We are increasing the midpoint of our as-reported full-year revenue guidance by 10 million, from 3.62 billion to 3.63 billion, which also overcomes foreign currency headwinds. We are also increasing the full-year earnings per share midpoint by 4 cents to $2.74 from the prior $2.70.

Speaker Change: With that, let's turn to slide 11 and talk about guidance for the remainder of the year.

Speaker Change: We have a 53rd week in fiscal 2024, which adds approximately $85 million of revenue and $50 million of operating income, mainly driven by term license renewals on January 1st, which falls in the 4th quarter of this year.

Speaker Change: We are increasing the midpoint of our as-reported full-year revenue guidance by $10 million from $3.62 billion to $3.63 billion, which also overcomes foreign currency headwinds.

Speaker Change: We are also increasing the full year earnings per share midpoint by 4 cents to $2.74 from the prior $2.70.

Phil Sawarynski: AECO revenue is slightly better than our prior guide due to the first half performance and strong bookings in the prior quarters. Field systems revenue is down slightly, and transportation is unchanged. We maintain our strong ARR growth range from 11% to 13%, driven primarily by the expectation of mid to high teens growth and AECO, offset largely by the previously disclosed turn in our North American transportation mobility business. Our even some margin for the year is expected to be between 26.7% and 27.2%. Free cash flow conversion for the year is updated to be approximately 0.75 times dead income, which includes 116 million of anticipated tax on gain from the JVI noted earlier, as well as approximately 75 million in full year M&A costs.

Speaker Change: AECO revenue is slightly better than our prior guide due to the first half performance and strong bookings in the prior quarters.

Speaker Change: Field systems revenue is down slightly and transportation is unchanged.

Speaker Change: We maintain our strong ARR growth range from 11% to 13%, driven primarily by the expectation of mid to high teens growth in AECO, offset largely by the previously disclosed churn in our North American transportation mobility business.

Speaker Change: Our EBITDA margin for the year is expected to be between 26.7% and 27.2%.

Speaker Change: Free cash flow conversion for the year is updated to be approximately .75 times debt income, which includes $116 million of anticipated tax on gain from the JV I noted earlier, as well as approximately $75 million in full year M&A costs.

Phil Sawarynski: Without these items, we would be above one-time net income for the year and an improvement from our prior guide. Let's move to our third quarter guidance on slide 12, which is consistent with our prior guide. I'll focus again on our as adjusted view excluding agriculture. Our outlook for ARR growth remains strong, with continued expectations for 11% to 13% organic growth, despite the North American transportation mobility headwind I mentioned earlier. Our total company revenue is projected to be 840 million to 880 million. On an as adjusted basis, our revenue is anticipated to grow in the range of flat to up 4% year-over-year and is showing improvement relative to the second quarter, mainly due to strong government sales in the second quarter of 2023.

Speaker Change: Without these items, we would be above one times net income for the year and an improvement from our prior guide.

Speaker Change: Let's move to our third quarter guidance on slide 12, which is consistent with our prior guide. I'll focus again on our as-adjusted view excluding agriculture.

Speaker Change: Our outlook for ARR growth remains strong, with continued expectations for 11-13% organic growth, despite the North American Transportation Mobility Headwind I mentioned earlier.

Speaker Change: Our total company revenue is projected to be $840 million to $880 million.

Speaker Change: On an as-adjusted basis, our revenue is anticipated to grow in the range of flat to up 4% year-over-year and is showing improvement relative to the second quarter, mainly due to strong government sales in the second quarter of 2023.

Phil Sawarynski: Non-Gap Operating Margin is expected to be in the range of 22.5% to 23.5%, and adjusted even the margin in the range of 24% to 25% for the third quarter. Our EPS forecast is in the range of 58 cents to 64 cents, which is again consistent with our prior guide. I would also like to point out that we included a new supplement in our materials that is available on our Investor Relations website. This is to provide a summary of our results, along with assumptions behind our guidance model in a readily available format. One more item I'd like to mention before turning it back over to Rob.

Speaker Change: non-GAAP operating margin is expected to be in the range of 22.5% to 23.5% and adjusted EBITDA margin in the range of 24% to 25% for the third quarter.

Speaker Change: Our EPS forecast is in the range of 58 cents to 64 cents, which is again consistent with our prior guide.

Speaker Change: I would also like to point out that we included a new supplement in our materials that is available on our Investor Relations website. This is to provide a summary of our results along with assumptions behind our guidance model in a readily available format.

Phil Sawarynski: As we think about the financial model in a multi-year context, I refer to our Investor Day numbers from September 2022. Our long-term target model projected that revenue would grow in the 5 to 8% range organically. Normalizing for the benefit of the extra week in fiscal year 2024, we believe with the continued shift to higher growth software, we are biased above the midpoint of this range. We also had forecasted operating leverage in the range of 30 to 35%. Given the mixed shift to software with higher growth margins, we would expect operating leverage going forward to be at or above the high end of this range.

Speaker Change: One more item I'd like to mention before turning it back over to Rob. As we think about the financial model in a multi-year context, I refer to our Investor Day numbers from September 2022.

Rob Painter: Our long-term target model projected that revenue would grow in the 5 to 8 percent range organically. Normalizing for the benefit of the extra week in fiscal year 2024, we believe with the continued shift to higher growth software, we are biased above the midpoint of this range.

Rob Painter: We also had forecasted operating leverage in the range of 30 to 35%. Given the mixed shift to software with higher gross margins, we would expect operating leverage going forward to be at or above the high end of this range.

Phil Sawarynski: Thus, we see the potential to expand operating margins in the range of 100 basis points or more annually.

Rob Painter: Thus, we see the potential to expand operating margins in the range of 100 basis points or more annually.

Phil Sawarynski: We look forward to providing more details in an update on our long-range financial plan at our Investor Day in New York City on December 10th.

Rob Painter: We look forward to providing more details and an update on our long-range financial plan at our Investor Day in New York City on December 10th. Rob, I'll turn it back over to you.

Rob Painter: Rob, I'll turn it back over to you. Thanks, Phil, and thank you to all our Trimble colleagues and partners for delivering a solid first half of the year and for demonstrating resilience and conviction as we continue to transform how we work so that we can transform how the world works.

Rob Painter: Thanks Phil, and thank you to all our Trimble colleagues and partners for delivering a solid first half of the year, and for demonstrating resilience and conviction as we continue to transform how we work, so that we can transform how the world works.

Rob Painter: I'll end with a fun fact related to the games in Paris. Our technology is leveraged for the design, engineering, and construction of many of the stadiums, such as the aquatic center, the sailing marina, the football stadium, and also for athletic housing. The Lay of Gardine building, which houses over 400 athletes, will be converted to an office building after the games conclude. On the project, our survey kit, engineering, and prefabrication technologies were used to construct a sustainable structure and to deliver it on time. Trimble Connect was used as a collaboration platform to coordinate across hundreds of users and stakeholders.

Speaker Change: I'll end with a fun fact related to the games in Paris. Our technology was leveraged for the design, engineering, and construction of many of the stadiums, such as the Aquatic Center, the Sailing Marina, the Football Stadium, and also for athletic housing.

Speaker Change: The Ley of Gardein building, which houses over 400 athletes, will be converted to an office building after the games conclude.

Speaker Change: On the project, our survey kit, engineering, and prefabrication technologies were used to construct a sustainable structure and to deliver it on time.

Speaker Change: Trimble Connect was used as a collaboration platform to coordinate across hundreds of users and stakeholders.

Rob Painter: To quote the Ben Engineering Manager on the project, I find Trimble Connect to be the best collaboration platform on the market in terms of file quality and usability. You can tell they designed the tool to be easy to use, even for non-experts.

Speaker Change: To quote the BIM engineering manager on the project, I find Trimble Connect to be the best collaboration platform on the market in terms of file quality and usability. You can tell they designed the tool to be easy to use, even for non-experts.

Operator: Operator, let's open the line to questions. Thank you. We will now begin the question and answer session. If you have dialed in and would like to ask a question, please press star, followed by the number one on your telephone keypad. If you would like to withdraw your question, simply press star one again.

Speaker Change: Operator, let's open the line to questions.

Operator: We will now begin the question and answer session. If you have dialed in and would like to ask a question, please press star followed by the number one on your telephone keypad. If you would like to withdraw your question, simply press star one again.

Speaker Change: Thank you. We will now begin the question and answer session. If you have dialed in and would like to ask a question, please press star followed by the number 1 on your telephone keypad. If you would like to withdraw your question, simply press star 1 again.

Operator: If you are called upon to ask your question and are listening via loudspeaker on your device, please pick up your handset and ensure that your phone is not on mute when asking your question.

Speaker Change: If you are called upon to ask your question and are listening via loudspeaker on your device, please pick up your handset and ensure that your phone is not on mute when asking your question.

Kristen Olen: The first question comes from Kristen Olen off Oppenheimer. Your line is open. Hi. Good morning. Thank you for taking the question, and congratulations on the nice quarter. I wanted to ask about the 18 percent AECO, ARR, head of our expectations. You lifted the guidance there. And when I look across the landscape of software categories and when you compete, it seems to me like maybe there's an opportunity for Trimble to pick up some share as we think about some of the pricing and channel shifts that we've seen. So I'm just wondering if you can help us unpack the sources of growth there.

Speaker Change: The first question comes from Kristen Owen of Oppenheimer. Your line is open.

Kristen Owen: Hi, good morning. Thank you for taking the question and congratulations on the ninth quarter.

Kristen Owen: I wanted to ask about the 18% AECO, ARR, clearly ahead of our expectations, you lifted the guidance there, and when I look across the landscape of software categories in which you compete, it seems to me like maybe there's an opportunity for Trimble to pick up some share as we think about some of the pricing and channel shifts that we've seen.

Speaker Change: So I'm just wondering if you can help us unpack the sources of growth there, you know, is it cross-sell, up-sell, new logos, price, etc. Any additional color that you can provide there would be helpful.

Kristen Olen: You know, is it cross-sell, upsell, new logos, price, etc. Any additional color that you can provide there would be helpful.

Rob Painter: Thanks, Kristen, for the question, and good morning. I mean, so let's break down a little bit there within the ARR growth. Starting with like a congrats to the team, it really was a terrific post of the number four, the quarter. About two-thirds of that growth is coming from existing customers and one-third from new logos. And so we really, for the breadth and depth of the portfolio we have, there's a great ability for us to package, cross-sell, upsell. And that comes in the form of the Trimble Construction One offering, where we now have over 20 prepackaged offerings to serve specific personas across the industry continuum.

Mesa: Thanks Kristen for the question and good morning. Mesa, let's break down a little bit there within the ARR growth, starting with like a congrats to the team. It really was a terrific

Speaker Change: About two-thirds of that growth is coming from existing customers, and one-third from new logos. So, with the breadth and depth of the portfolio we have, there's a great ability for us to package

Speaker Change: Crosso Upsell, and that comes in the form of the Trimble Construction 1 offering where we now have over 20

Speaker Change: pre-packaged offerings to serve specific personas across the industry continuum. If we look at

Rob Painter: If we look at the segments that we're serving within construction, where we see strong growth are in data centers, we see the enchoring and reshoring of work, renewable energy work. These in markets have been strong, and probably data centers have been the strongest. We actually have also had some growths and residential. So even though there's weakness there, we've seen growth there. One thing that's unique to Kristen about the data set that we have, we're managing over a trillion dollars of committed construction programs through our systems; over half a trillion through the ERP alone, is there's a lot of data we can see.

Speaker Change: The segments that we're serving within construction.

Speaker Change: Where we see strong growth are in data centers. We see the on-shoring and re-shoring of work, renewable energy work. These end markets have been strong and probably data centers have been the strongest.

Speaker Change: We actually have also had some growth in residential. So even though there's weakness there, we've seen growth there. One thing that's unique to Kristen about the data set that we have, because we're managing over a trillion dollars of committed construction.

Speaker Change: Programs through our systems, over half a trillion through the ERP alone. There's a lot of data we can see, and so in North America, we can see that jobs are up.

Rob Painter: And so in North America, we can see that jobs are up; hiring stuff that is jobs are up. We can see that the volumes are up. We can see geographic strengths within states here in the US. We can see that states like South Carolina, Florida, and Texas have been very strong. We can see states like New York and Louisiana have been weaker. So we're able to get a good insight into the market. And then with differentially across the world, North America for sure is performing better than Europe and Asia Pacific. So hope that gives you some color.

Speaker Change: hiring's up, that his jobs are up. We can see that the volumes...

Speaker Change: And then differentially across the world, North America for sure is performing better than Europe and Asia-Pacific. So I hope that gives you some color.

Kristen Olen: Thanks for that.

Kristen Olen: And you know, at my follow-up here, this is the first real conversation we've heard Trimble have about AI. You know, you're giving some of the examples at the back, which we'll have to go back and look into. But you know, one of the questions that we've seen in AI on the market has been, you know, how do you monetize it? So can you help us understand whether it's the co-pilot or utilization or the autonomous procurement?

Speaker Change: Thanks for that. My follow-up here, this is the first real conversation we've heard Trimble have about AI. You're giving some of the examples at the back, which we'll have to go back and look into, but one of the questions that we've seen in AI on the market has been, how do you monetize it?

Speaker Change: So, can you help us understand whether it's the co-pilot or utilization or the autonomous procurement? Help us understand the value creation or monetization opportunity for Trimble in leveraging that technology.

Rob Painter: Just help us understand the value creation or monetization opportunity for Trimble in leveraging that technology. Thank you. That's a great question, Kristen. We're still in the very early innings of monetization. We're paying a lot of attention to it. Now you talked about the GitHub Co-Pilot work. That's internal productivity. So the lens I have on this is there's a set of work in AI that's for making us more efficient and productive. and inside our own house. That could be how we're doing customer support using the chat bot. It is the productivity through the code development. It's getting sharper about how we do our marketing efforts, leveraging AI.

Speaker Change: That's a great question, Kristen. We're still in the very early innings of monetization.

Speaker Change: We're paying a lot of attention to it. Now, you talked about the GitHub co-pilot work. That's internal productivity. So the lens I have on this is there's a set of work in AI that's for making us more efficient and productive.

Speaker Change: and Inside Our Own House. That could be...

Speaker Change: How we're doing customer support using the chat bots, it is the productivity through the code development. It's getting sharper about how we do our marketing efforts.

Rob Painter: When we go more customer oriented, and those are the examples I had in the prepare the remarks, and then we put a slide in the appendix with some hyperlinks, so you can go look at some examples of what we're doing in the market. I'd give you a sort of two breakdowns on that. One is that we see it as some of this as part of continuous value delivery to our customers. That is their paying subscriptions. We typically get price increases every year. I think there's a reasonable expectation that we're providing incremental value, and in that sense, it's part of the offering that we do.

Speaker Change: When we go more customer oriented, and those are the examples I had in the prepared remarks, and then we put a slide in the appendix with some hyperlinks so you can go look at some examples.

Speaker Change: of what we're doing in the market. I'd give you sort of two breakdowns on that. One is that we see some of this as part of continuous value delivery.

Speaker Change: to our customers. That is, they're paying subscriptions. We typically get price increases every year. I think there's a reasonable expectation that we're providing incremental value. And in that sense, it's part of the offering that we do. The distinction I would make is when we have more breakthrough,

Rob Painter: The distinction I would make is when we have more breakthrough productivity or breakthrough value that we can provide customers, we think about what's the quantifying that value and then what's our fair share of that capture. One example I can point out is within our transparent business is the team developed autonomous procurement and autonomous quotation capabilities, and when customers are using that instead of the traditional method they've used and solutions they've used within transparent, we're monetizing that. I think at two to three times at least my quick question right to 2x factor for execution because the result is that much better for the customers.

Speaker Change: productivity or breakthrough value that

Speaker Change: We think about, okay, what's the...

Speaker Change: quantifying that value and then what's our fair share of that capture. One example I can point out is in within our Transporium business as the team developed has developed autonomous procurement and autonomous quotation capabilities.

Speaker Change: And when customers are using that instead of the traditional methods they've used and solutions they've used within Transporian, we're monetizing that at, I think, a two to three times, close to 2x factor.

Speaker Change: Poor execution because the result is that much better for the customers. So that's one example of where we're monetizing. And I'd say we're still pretty early in it. And you're right that this is certainly evolving in the monetization side of things.

Rob Painter: That's one example of where we're monetizing, and I'd say we're still pretty early in it. And you're right that this is certainly evolving in the monetization side of things.

Jason Celino: Thank you for the time. Your next question comes from the line of Jason Silino of KeyBank Capital Markets. Your line is open. Great. This is Zayn Mehan on Purge and Silino this morning. Thanks for taking my question.

Speaker Change: Thank you for the time.

Speaker Change: Your next question comes from the line of Jason Celino of KeyBank Capital Markets. Your line is open.

Speaker Change: Great. This is Zane Meehan on for Jason Celino this morning. Thanks for taking my question.

Rob Painter: Rob, for some for you with the election in the US coming up later this year, just curious to hear if you're hearing any customers laying buying decisions as a result of that, and if so, if that's contemplated in the 3Q and full year guidance. Hey, thanks for the question. Relative to the election, I mean you know you typically hear that in these periods that people do a bit of a pause, I kind of see which way the wind's going to blow and we'll see which way the wind blows. We believe we've taken that into account in the guide that we've put forward, and if you think about the guide, I'm think about the, you know, the visibility we have with the ARR business as much higher than we would have on, let's say, the hardware business, which manifests more as a book and burn. So we have visibility into the rest of the year, differential visibility.

Zane Meehan: Rob, first one for you. With the election in the U.S. coming up later this year, just curious to hear if you're hearing any customers delaying buying decisions as a result of that, and if so, if that's contemplated in the 3Q and full year guidance.

Rob Painter: Hey, thanks for the question. Relative to the election, I mean, you know, you typically hear that in these periods that people will do a bit of a pause to kind of see which way the wind's going to blow. And we'll see which way the wind blows. We believe we've taken that into account.

Rob Painter: And the guide that we've put forward, and if you think about the guide, think about the, you know, the visibility we have with the ARR business is much higher than we would have on

Rob Painter: Let's say the hardware business, which manifests more as a book and burn. So we have visibility into the rest of the year, differential visibility. Sixty percent of our revenue is now recurring as a company. Seventy-five percent of our revenue overall is software services and recurring.

Rob Painter: 60% of our revenue is now recurring as a company. 75% of our revenue overall is software services and recurring. It's certainly reasonable for us to, in all of us, I guess, to think about what the impact of the election might be on our business, whether that's around regulation or whether that's around tariffs. On which way this goes.

Rob Painter: It's certainly reasonable for us to, and all of us, I guess, to think about.

Rob Painter: What the impact of the election might be on our business, whether that's around regulation or whether that's around tariffs, depending on which way this goes. But we believe we've got this taken into account.

Rob Painter: But we believe we've got this taken into account. Okay, great. That's super helpful. Thanks.

Phil Sawarynski: And then second question, Phil, for you. On the margin side, it's nice to see the little uptick in the guide. Just curious, is that coming more from the revenue app performance, or are you getting leverage from specific line item? I'm just curious to hear further info on the margin uptick.

Speaker Change: Okay, great. That's super helpful. Thanks.

Speaker Change: And then second question, Phil, for you.

Phil: On the Martin side, it's nice to see, you know, the little uptick in the guide. Just curious, is that...

Speaker Change: Is that coming more from the revenue at performance, or are you getting leverage from a specific line item?

Speaker Change: I'm just curious to hear, you know...

Speaker Change: Further info on the margin uptick.

Phil Sawarynski: Yeah, thanks, Ian. Hey, the main reason for it's really the mixed shift is our AECO business continues to grow at a faster rate than the field systems. And we have a little bit better first half, and the booking start to flow through in the second half.

Speaker Change: Yeah, thanks, Zane. Hey, the main reason for it's really the mixed shift is our AECO business continues to

Speaker Change: to grow at a faster rate than the field systems and a little bit better.

Phil Sawarynski: And so I think what you're seeing is then that mixed shift, which obviously the gross margin on the AECO business is higher than the field systems. And so you're seeing that sort of flow through in the back half of the year. Okay, great.

Speaker Change: first half and those bookings start to flow through in the second half and so I think what you're seeing is then that mixed shift which obviously the gross margin on the AECO business is higher.

Speaker Change: Then the field systems. And so you're seeing that sort of flow through in the back half of the year.

Jerry Revich: Thank you. Your next question comes from the line of Jerry Revich of Goldman Sachs. Your line is open. Yes, hi. Good morning, everyone.

Speaker Change: Okay, great. Thank you.

Speaker Change: Your next question comes from the line of Jerry Revich of Goldman Sachs. Your line is open.

Jerry Revich: Rob, and nice to hear about the logo growth at TransformNK. Can you just expand on that? What was the logo growth in the quarter? What was the transaction counts? Can you just expand more on the performance in the quarter?

Jerry Revich: Yes, hi, good morning, everyone.

Jerry Revich: Rob, nice to hear about the logo growth at Transforian. Can you just expand on that? What was the logo growth in the quarter? What was the transaction counts?

Jerry Revich: And to the extent you have visibility on how the cadence looked into July and August for that business place?

Speaker Change: expand more on the performance in the quarter. And to the extent you have visibility on how the cadence looked into July and August for that business place.

Rob Painter: Sure, hey, let me frame this in two ways. One with the first half of the year, and then, and then secondarily with the second quarter specifically for the first half of the year, the bookings growth in the transparent business was in the mid to high teens.

Speaker Change: Sure. Hey, let me frame this in two ways. One, with the first half of the year and then secondarily with the second quarter specifically for the first half of the year, the bookings growth and the transformation business was in the mid to high.

Rob Painter: So super pleased with that performance and context of what still is a free recession. And so the way that you can grow that bookings is coming through winning deals. And in the second quarter, the team won over 250 deals. Those deals come in the form of landing dozens of new logos and also doing land and expand plays within the existing customer base. You know, there are certainly some pockets of end markets that are stronger and others that are weaker. There's been some strength coming back on the retail side. Some of the building materials have that side of the business has been lower for the business.

Speaker Change: So, I'm super pleased with that performance in context of what still is a freight recession.

Speaker Change: And so...

Speaker Change: The way then you can grow that booking is it's coming through winning deals, and in the second quarter, the team won over 250 deals.

Speaker Change: Those deals come in the form of landing dozens of new logos and also doing land and expand plays within the existing...

Speaker Change: customer base.

Speaker Change: There are certainly some pockets of end markets that are stronger and others that are weaker. There's been some strength coming back on the retail.

Speaker Change: Some of the building materials, that side of the business has been...

Rob Painter: The team also had some success getting traction here in North America as well, which we were pleased by.

Speaker Change: The team also had some success getting traction here in North America as well, which we were pleased by. And then the last thing I'll comment on is

Rob Painter: And then the last thing I'll comment on is we've got more plays happening between the transporian and triple transportation business. Still early in that, but I like what I'm seeing in terms of the teams working together. So add that up, and that's the color around the numbers.

Speaker Change: We've got more plays happening between the Transporian and Trimble's transportation business, still early in that, but I like what I'm seeing in terms of the teams working together. So add that up and that's the color around the numbers.

Rob Mason: Super, thank you.

Jerry Revich: And can I ask a similar question for Aiko? I mean, that business has been growing consistently, you know, around 17, 18%. Really, since you've acquired the builder and viewpoint, can you unpack the growth profile now? How much is the local growth that we're seeing this year versus cross selling it? And you know, how much runway do you see based on the pipeline and opportunity set to continue to deliver this pretty consistent level of growth that you've put on, I think, for about five years. Now.

Speaker Change: Super. Thank you. And can I ask a similar question for AECO? I mean, that business has been

Speaker Change: growing consistently, you know, around 17, 18%.

Speaker Change: and John . Really, since you've acquired eBuilder and Viewpoint, can you unpack the growth profile now? How much is the local growth that we're seeing this year versus cross-selling? And how much runway do you see based on the pipeline and the opportunity set?

Speaker Change: To continue to deliver this pretty consistent level of growth that you've put on, I think, for about five years now.

Rob Painter: Sure, Jerry. So the growth has about two thirds from existing customers and one third from new logo customers. And you're right, the team has consistently been posting excellent growth. And this is excellent growth at scale. I mean, AECO alone is a 1.16 billion dollar ARR business. Today, growing an ARR in the high teens operating at a rule of 44 in the quarter was over rule of 50 in the first quarter. Net retention is about 108% in the business. So a lot of good things happening in the business.

Speaker Change: Sure, Jerry. So, the growth is about two-thirds from...

Speaker Change: existing customers and one-third from new logo customers. And you're right, the team has consistently been posting excellent growth. And this is excellent growth at scale. I mean, AECO alone is a 1.16

Speaker Change: billion-dollar ARR business.

Speaker Change: today growing in ARR in the high in the high teens.

Speaker Change: Operating at a rule of 44 in the quarter, it was over rule of 50 in the first quarter. Net retention is about a hundred and eight percent in the business, so a lot of good things happening in the business.

Rob Painter: We believe we're winning because we have a unique value proposition. A value proposition is delivering productivity, quality, safety, and environmental sustainability to our customers. It's helping them solve higher order problems for customers and abilities, especially when we have the T where we have the TC one offerings available. It's from a construction one. It reduces friction in the buying process. It makes it easier for customers to do business with us. It's doing things with Trimble that you can uniquely do that is connecting work in the field and working work in the office. So when we look at the base of the customers that we have or bullish in our ability to continue growing this business, especially when I look at that two-thirds one-third split and two-thirds being from existing customers.

Speaker Change: We believe we're winning because we have a unique value proposition. A value proposition is delivering productivity, quality, safety.

Speaker Change: environmental sustainability to our customers. It's helping them solve higher order problems.

Speaker Change: For customers and abilities, especially where we have the TC1 offerings available, it's Trimble Construction 1.

Speaker Change: It reduces friction in the buying process. It makes it easier for customers.

Speaker Change: to do business with us.

Speaker Change: Doing things with Trimble that you can uniquely do, that is connecting work in the field and work in the office. So when we look at the base of the customers that we have, we're bullish in our ability to continue growing this business, especially when I look at that two-thirds, one-third split, and two-thirds being from Trimble.

Jonathan Ho: Thank you. The next question comes from the line of Jonathan Ho of William Blair. Your line is open. Hi. Good morning.

Speaker Change: existing customers.

Speaker Change: Thank you.

Speaker Change: You're welcome.

Speaker Change: The next question comes from the line of Jonathan Ho of William Blair. Your line is open.

Jonathan Ho: I just wanted to see if you could give us a little bit of additional color on, you know, the go-to-market changes that you're making around the name to count executives for Trimble Connect. And maybe help us understand how that could potentially drive faster adoption of the Trimble platform. Hi, good morning, Jonathan. So yeah, we moved in the AECO business. We moved to a name to count selling model at the beginning of the year. It was a definitely huge change for the team and for the organization. And if you think about it, if you're going to rewind, call it five, ten years ago, we might have sent multiple sellers in to talk to a given customer.

Jonathan Ho: Hi, good morning. I just wanted to see if you could give us a little bit of additional color on, you know, the go-to-market changes that you're making around the named account executives for Trimble Connect, and maybe, you know, help us understand how that could, you know, potentially drive faster adoption of the Trimble platform.

Jonathan Ho: Hi. Good morning, Jonathan. So, yeah, we moved in the AECO business. We moved to a named account selling model at the beginning of the year. It was definitely a huge change for the team and for the organization.

Rob Painter: And if you think about it, if you could rewind, call it five, 10 years ago, we might have sent multiple sellers in to talk to a given customer. Today, that moves to having one person who's accountable.

Jonathan Ho: And if you think about it, if you're going to, if you could rewind, call it five, ten years ago, we might have sent multiple sellers in to talk to a given customer. Today, that moves to having one person who's got accountability.

Rob Painter: Today, that moves to having one person who's got accountability for that account and then accountability to bring in the specialist behind her or him in order to best serve that customer and meet the breadth of needs. Now, it's one thing to have the name to count model that would be incomplete if you didn't have the product to go along with it. And that's where the bundled offerings, TC, Trimble Construction One, namely, arms those account executives with the ability to offer customers a unique value proposition. And then what's behind that are the underlying processes and systems. So we've had a lot of...

Jonathan Ho: for that account and then accountability to bring in the specialist behind her or him in order to best serve that customer and meet the breadth of needs.

Jonathan Ho: Now, it's one thing to have a named account model. It would be incomplete if you didn't have the product to go along with it. And that's where the bundled offerings, TC Trimble Construction 1.

Jonathan Ho: Namely...

Jonathan Ho: arms those account executives with the ability to offer customers a unique value proposition. And then what's behind that are the underlying processes and systems. So we've had a lot of

Rob Painter: to growth around our sales operations, or sales enablement motions, and then with the systems underneath that, we've, you know, the work and the investment we've made over these last years, has upped our game in terms of licensing and entitlement engines. As an example, then we're getting more 360-degree views of our customers, which helps all of which helps enable the sellers to go do what they do at that name-to-count level.

Jonathan Ho: I'd say growth around our sales operations, our sales enablement motions, and then with the systems underneath that.

Jonathan Ho: The work and the investment we've made over these last years has upped our game in terms of licensing and entitlement.

Jonathan Ho: Engines as an example. Then we're getting more 360-degree views of our customers, all of which helps enable the sellers to go do what they do at that named account level.

Rob Painter: Got it, and then just in terms of a follow-up, can you give us a little bit more color on the Trimble Pay or payments opportunity, and how that works from a contractual or financial perspective.

Speaker Change: Got it. And then just in terms of a follow-up, can you give us a little bit more color on the Trimble pay or payments opportunity and you know how that works from a contractual or financial perspective? Just want to understand if are these gross or net type contracts and you know what that cross-sell opportunity maybe looks like through your base. Thank you.

Rob Painter: I just want to understand, are these gross or net type contracts, and what that cross-sell opportunity maybe looks like through your base? Thank you. Yes, so we're bullish on land and expand plays within the platform that we're offering. So, when we can attach new capabilities to the existing base of solutions and customers that we have, we think that's a winning motion, and we've seen that with the two acquisitions that both Phil and I mentioned in the prepared remarks about work in the field, as well as payments. It stands to reason that payments are going to link to an ERP, and guess what we have the ERP through the Viewpoint business.

Speaker Change: solutions and customers that we have, we think that's a winning motion and we've seen that with the two acquisitions that both Phil and I mentioned in the prepared remarks about work in the field and as well as payments.

Rob Painter: So, that's the essential; it's called value proposition or essential linkage.

Rob Painter: We also have the project management systems that need to be able to pay subcontractors as a given in the industry, with the natural place for us to be, and we think a winning motion tells anything else you want to add to that. No, that's pretty good.

Jonathan Ho: the need to be able to pay subcontractors

Jonathan Ho: is a given in the industry with a natural place for us to be and we think of a winning motion. Phil, is there anything else you want to add to that?

Rob Mason: Thanks. The next question comes from the line of Rob Mason of Baird; your line is open. Yes, I wanted to rob Phil. I wanted to see if I could get a little more color just what you're seeing across your various geographic regions. And if anything changed in the regions during the quarter, your overall outlook, revenue outlook, you can see what that is. It didn't have a lot of movement.

Rob Painter: I'm just curious, though, how you're seeing the second half of the year as well in some of the regions. We've seen the most strength in North America. Actually, Europe grew on an organic basis that's going to be from the transporian business, you know, X-transporian. It's been a tougher market in Europe, but it's still holding up on a baseline. Differentially, around the world, Asia Pacific was hardest for us in the quarter. I'd say, think of a couple of places; China continues to be a harder place for us to do business in Japan. The weakness of the end makes it more expensive to do business with us.

Phil: We've seen the most strength in North America.

Speaker Change: business, you know, X-Transporion.

Speaker Change: for us to do business in Japan. The weakness of the yen makes it more expensive.

Rob Painter: There's been a couple of pockets of weakness. We're paying attention to what's happening in Australia and New Zealand, the state of the economy there. The Asia Pacific, weaker; North America, the strongest, those are the bookends. And that plays into our thinking.

Speaker Change: to do business with us. And those have been through a couple pockets of weakness. We're paying attention to what's happening in Australia, New Zealand, the state of the economy there.

Phil: So the Asia-Pacific, weaker, North America, the strongest, those are the bookends. And that plays into our thinking in the second half of the year.

Rob Painter: for a second half of the year. Very good.

Rob Mason: Rob, you made a note of some of the automotive OEM wins. We hadn't talked about that part of the business. You know, in a bit, I know historically there was some involvement with GM.

Speaker Change: Very good. Rob, you made note of some of the automotive OEM wins. We hadn't talked about that part of the business.

Rob Mason: I'm just, could you bring us up to date on where your book of business sits overall in that positioning part of the business and how many OEMs are you working with now? Yeah, good question, Rob. So, let's talk about the underlying technology itself. I mean, go back, you know, for 47-plus year history started in positioning technologies. It's positioning technologies that continue to evolve and innovate continuously over the years. We moved from, we got into what's called RTK positioning decades ago, and now we can deliver those same, which deliver corrections to create that highly accurate, ubiquitous fast convergence for that high accuracy needs, which historically had been for us in agriculture, survey, construction markets.

Speaker Change: We got into what's called RTK positioning decades ago, and now we can deliver those same, which deliver corrections to create that, you know, highly accurate, ubiquitous

Rob Painter: We can now deliver those through satellite, so you get more global ubiquity of the coverage of that. And then we ask ourselves the question of where else would these, would this high convergence high accuracy signals be a value? Automotive markets were a natural extension for us. So same technology into a new market segment whether that's your 8-S systems or on the path to autonomy or through redundancy and the other positioning technologies or sensors, say on the cars. So that's the context for it and for that market and extending the technology and the automotive market and automotive as a market that we had, we do have some history and through navigation technologies.

Phil: Markets. We can now deliver those through satellite so you get more global ubiquity of the coverage of that. And then we ask ourselves the question of where else would this high convergence, high accuracy

Phil: Signals be of value. Automotive markets were a natural extension for us. So same technology into a new market.

Phil: segment, whether that's

Phil: For ADAS systems or on the path to autonomy or its redundancy and the other positioning technologies or sensors, I should say, on the cars. So that's the context for it and for that market and extending the technology into the automotive market. And automotive is a market that we do have some history in through navigation.

Rob Painter: Now at the, you mentioned General Motors' Super Cruise program. Yes, it's exactly the same topic that we're talking about with additional OEMs. I believe it's probably less than a dozen today that we have design wins with. And then there's certainly a pipeline that's bigger than that. When you think about the design win, it can take you; it can take you a long time to get to that design win. Once you have the design win, you've got a pretty long life cycle. Actually, well very, actually I would say a very long life cycle, multi-year plus or minus seven years over that design win.

Phil: Technologies. Now at the, you mentioned General Motors, Super Cruise Program, yes it's exactly the same topic that we're talking about.

Phil: with additional.

Phil: OEMs.

Speaker Change: I believe it's probably less than a dozen today that we have design wins with, and there's certainly a pipeline that's bigger than that. When you think about the design win, it can take you a long time to get to that design win once you have the design win.

Phil: You've got a pretty long life cycle, actually, well, very, actually, I would say a very long life cycle, multi-year, call it plus or minus seven years.

Rob Painter: So, and if you kind of apply some software metrics to it, then you think about a lens of lifetime value over customer acquisition costs. It's a good business to be in. Once you can win that, once you can win that OEM.

Phil: Over that design, when so, and if you kind of apply some software metrics to it, and you think about a lens of lifetime value over customer acquisition cost, it's a good business to be in once you can win that, once you can win that OEM.

Rob Painter: Now, if I could ask, how quickly do they convert to revenue? So if the design wins in the quarter, when would you expect revenue?

Speaker Change: How, if I could ask, how quickly do they convert to revenue, so if the design wins in the quarter?

Rob Painter: It's actually very slow to get to revenue. I mean, it's good news and bad news. Bad news being it's very slow to get to, you know, would recognize that revenue. The good news is that we can recognize that revenue over a long period of time. So, I say today, it's over these last few years as we've been getting these design wins. It's had more cost associated with it than revenue in gross margins. So it's been upside down for a few years. We're getting to a point of a cumulative base. As we start to recognize that revenue.

Speaker Change: When would you expect revenue?

Speaker Change: It's actually very slow to get to revenue. I mean, it's good news and bad news. Bad news being it's very slow to get to being able to recognize that revenue.

Speaker Change: The good news is that we can recognize that revenue over a long period of time. So, to date, over these last few years, as we've been getting these design wins, it's had more costs associated with it than revenue and gross.

Speaker Change: Margin. So it's been upside down for a few years. We're getting to a point of accumulative base.

Rob Painter: It will look better over the next few years as that cumulative base steps up. It's the nature of the revenue recognition over multiple years. That 17% ARR growth in field systems has a little bit of that automotive segment, but that's not the fundamental thing yet that's growing it.

Speaker Change: As we start to recognize that revenue and it'll just it will look better over the next few years as that cumulative base

Rob Painter: And also good news is I would say that's the kind of visibility we can have years forward and field systems that we would have never had historically.

Tami Zakaria: Very good. Thank you. Your next question comes from the line of Tami Zakaria of JP Morgan. Your line is open. Hey, good morning. Thank you so much for taking the question. As the first question is on the transportation segment, I think the performance was quite impressive given the tougher compare year over year. So when I look at the first of first half performance, it's, you know, up pretty nicely, three to four percent year over year. So your guide implies, you know, zero, flat, two, low single digit growth for the full year. So, which means sequentially you're expecting some slowdown.

Speaker Change: Your next question comes from the line of Tami Zakaria of J.P. Morgan. Your line is open.

Tammy Zacharia: Okay, good morning. Thank you so much for taking the questions.

Tammy Zacharia: So the first question is on the transportation segment. I think the performance was quite impressive, given the tougher compare year over year. So when I look at the first half performance...

Speaker Change: year-over-year. So your guide implies, you know,

Tami Zakaria: Should we think about this sequence of slowdown in terms of the tougher year-over-year three or three third quarter comp, or are you expecting any softening and the demand? So just trying to understand how to think about the back half versus first step for the transportation logistic segment.

Speaker Change: In terms of the tougher year-over-year, third-quarter comp, or are you expecting any softening in the demand? So just trying to understand how to think about the back half versus first half for the transportation and logistics segment.

Phil Sawarynski: Hey Tami, it's Phil. Thanks for the question. So I mentioned this in my prepared remarks, but we've had some churn that we've already talked about in the North American mobility business. And that really starts to manifest itself in the second half. So a big portion of the second half drop that you see is really due to that. But as Rob said earlier, we're still seeing the performance around the transporting business, the maps business that's offsetting some of that. But that's really the headwind that you see in the second half is that churn that we previously disclosed.

Speaker Change: And that really starts to manifest itself in the second half. So a big portion of the second half.

Rob Painter: Rob said earlier, we're still seeing the performance around the transporium business, the maps business, that's offsetting some of that, but that's really the headwind that you see in the second half is that churn that we previously disclosed.

Tami Zakaria: Got it.

Tami Zakaria: Thanks for the clarification.

Phil Sawarynski: And then the other question is I think you spoke of some incremental investment you're making in sales and marketing to support the software centric businesses. Any update on where you are in that process? Is it mostly done, or do you expect it to continue through the rest of the year? And more importantly, should we expect this to continue through next year as well? So any color on that investment journey would be helpful.

Speaker Change: Any updates on where you are in that process? Is it mostly done or do you expect it to continue through the rest of the year? And more importantly,

Phil Sawarynski: Yeah, hey Tami, it's Phil again. So yeah, so as we talked about this from a capital allocation standpoint, we continue to pivot our resources toward the ACO business and, in particular, that sales and marketing, which ultimately drives the ARR growth and the revenue growth in the future. And so we see that continuing as long as we have the pipeline and the bookings. And the nice thing about Rule of 40 plus business there is if you do see slowdowns, we're going to easily pivot our op-x and still maintain the Rule of 40. But as long as we continue to see the growth and the opportunities there in that business, I think you'll see us continue to allocate our resources toward that.

Rob Painter: Yeah, hey Tami, it's Phil again. So yeah, so as we've talked about this from a capital allocation standpoint, we continue to pivot our resources.

Rob Painter: toward the ACO business and in particular that sales and marketing which ultimately drives the ARR growth and the revenue growth in the future.

Rob Painter: And so we see that continuing as long as, you know, we have the pipeline and the bookings.

Rob Painter: And the nice thing about, you know, rule of 40-plus business there is if we do see slowdowns, we can easily pivot our OPEX and still maintain the rule of 40. But as long as we continue to see the growth and the opportunities there in that business, I think you'll see us…

Rob Painter: Robert, thank you.

Joshua Tilton: We'll take the final question from the line of Joshua, Tillpon, Off-Wolf Research; your line is open. Hi, this is our sunny on for Josh. Thanks for taking the question. Can you just talk directly, maybe a layer deeper into what you're seeing from a demand perspective across the co-portfolio? Certain predators in the space are facing challengers and appears with one third new local contribution of growth. This isn't really impacting your business. And I sell a wide suite of products, different stakeholders, but are you seeing more demand than you saw starting this year? And is that driven by changing behavior in your testing customers?

Rob Painter: We'll take the final question from the line of Joshua Tilpon of Wolf Research. Your line is open.

Rob Painter: Hi, this is Arsenio on for Josh. Thanks for taking the question.

Arsenio: Can you just talk directly and maybe a layer deeper into what you're seeing from a demand perspective across the ecoportfolio? Certain competitors in this space are facing challenges and peers with one-third new local contribution of growth. This isn't really impacting your business.

Speaker Change: I know you sell a wide suite of products to different stakeholders, but are you seeing more demand than you saw starting this year, and is that driven by changing behavior in your existing customers? Are you seeing improving win rates versus competitors?

Joshua Tilton: Are you seeing improving win rates, risk competitors?

Joshua Tilton: And then just on transport on with, I think, spot rates improving quarter of a quarter in Europe and the transport on business getting more revenue per load in spot versus contract. Is this providing a talent in the full year? And if so, is that embedded in your guidance, Royce?

Rob Painter: Thank you. Hey, good morning, and thanks for the questions. I'll start with, this is Robert. I'll start with the AECO topic. So yeah, we have talked about the ARR growth, the two-third, one-third split coming from Crossell versus the new logo. I think the additional color I can add to your question is as follows. We spend a lot of time segmenting the market, whether that's on the end markets; you know, could be residential, non-residential, infrastructure. It's also on the customer types. We think about where we serve the architects and designers, the engineers, the construction companies, and the owners; their segmentation there.

Rob Painter: Hey, good morning and thanks for the questions. I'll start with, this is Robert, I'll start with the AECO topic. So yeah, we have talked about the

Speaker Change: Your question is as follows. We...

Rob Painter: Spend a lot of time segmenting the market, whether that's on the end markets, you know, it could be residential, non-residential infrastructure.

Rob Painter: It's also on the customer types. We think about where we serve the architects and designers, the engineers, the construction companies, and the owners, their segmentation there. There's also a level of segmentation in terms of the size of the customer.

Rob Painter: There's also a level of segmentation in terms of the size of the customer. So think about mid-market customers, think about large enterprise customers, and then lower down, think about the small, medium-sized businesses. One of the areas where we've been able to pivot is where we've seen a little bit more weakness on the mid-sized customers. We've pivoted our motions and our teams into the small and medium-sized business market here in North America. So we've got the data and the ability and the products and the go-to-market model aligned to go find the business where it is. And I think that's what one of the things that's differential about us.

Rob Painter: So think about...

Rob Painter: mid-market customers, think about large enterprise customers, and then lower down think about the small, medium-sized businesses.

Rob Painter: One of the areas where we've been able to pivot is where we've seen a little bit more weakness on the mid-sized customers. We pivoted our motions and our teams into the small and medium size.

Rob Painter: The business market here in North America. So we've got the data and the ability and the products and the go-to-market model aligned to go find the business where it is. And I think that's one of the things that's different about us. So we have a broader product offering, serving a broader ecosystem, serving more participants in that, serving it more globally. , and then being able to move our positions up or down the market depending on where more of the activity is taking place.

Rob Painter: Business Market here in North America. So, we've got the data and the ability and the products and the go-to-market model aligned to go find the business where it is. And I think that's what one of the things that's differential about us. So, we have a broader product offering, serving the broader ecosystem, serving more participants in that, serving it more globally.

Rob Painter: So we have a broader product offering, serving the broader ecosystem, serving more participants in that, serving it more globally than our peers in the industry, and then being able to move our motions up or down market, depending on where more of the activity is taking place.

Rob Painter: and our peers in the industry. And then being able to move our motions up or down market, depending on where more of the activity is taking place. We also have a channel. We've had a channel at Trimble. I mean, Trimble's history. We've got decades of managing Trimble's, if we look in the AECO business.

Rob Painter: We also have a channel. We've had a channel at Trimble; I mean Trimble's history. We've got decades of managing Trimble's; if we look at the ECO business, probably 10 to 15% of our bookings in the quarter came through our channel. So that's also a motion that we've had for a long time.

Rob Painter: We also have a channel. We've had a channel at Trimble. I mean, Trimble history. We've got decades of managing radio frequency spectrum if we look at the AECO business.

Rob Painter: Probably 10-15% of our bookings in the quarter came through our channel, so that's also a motion that we've had for a long time.

Rob Painter: And on the transport side, you asked about spot rates in Europe. They are, obviously, just marginally better. They're not better enough to be really moving the needle yet. But you're right to look at that. We do as well, and we'll continue to pay attention to that. We believe that the current rates are built into our guide.

Speaker Change: Oh, and on the Transporian side, you asked about spot rates in Europe .

Speaker Change: I would say just marginally better, they're not better enough to be really moving the needle yet.

Speaker Change: But you're right to look at that, we do as well, and we'll continue to pay attention to that. So we believe that the current rates are built into our guide. If the market were to move quicker and spot rates go up, then that would be upside for us.

Rob Painter: If the market were to move quicker and spot rates go up, then that would be upside for us. Thank you.

Operator: Thank you, ladies and gentlemen; that concludes today's call. Thank you all for joining.

Speaker Change: Thank you.

Speaker Change: You're welcome.

Speaker Change: Thank you. Ladies and gentlemen, that concludes today's call. Thank you all for joining. You may now disconnect.

Operator: You may now disconnect.

Speaker Change: ?? ?? ?? ?? ??