Q4 2024 Trimble Inc Earnings Call
Krista: Ladies and gentlemen, thank you for standing by. My name is Krista and I will be your conference operator today. At this time, I would like to welcome everyone to the Trimble fourth quarter 2024 earnings conference call.
Krista: 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.
Krista: If you would like to ask a question during this time, simply press star followed by the number one on your telephone keypad. And if you'd like to withdraw that question, again, press star one.
Speaker Change: Thank you, and I will now like to turn the conference over to Rob Painter, President and CEO. Rob, you may begin.
Rob Painter: Welcome everyone. Before I get started, our presentation is available on our website, and please refer to the Safe Harbor Statement.
Speaker Change: Starting on slide 4, we ended the year on an emphatically strong note. As reported, fourth quarter revenue at $983 million, ARR at $2.26 billion, and EPS at $0.89 were all above the midpoint of our guidance.
Speaker Change: On an as-adjusted basis, revenue was up 9% for the quarter and 6% for the year, with ARR up 16%. Gross margins at 71.7% represent the first time that we have crossed the 70% level.
Kudos to our global colleagues and partners.
Speaker Change: Phil will walk us through additional details of as-adjusted performance and his commentary, which is necessary to set the correct baseline for fiscal 2025.
Speaker Change: Moving to slide 5, our performance in the fourth quarter capped a transformative year for Trimble.
Speaker Change: For those newer to the Trimble story, we call our strategy Connect and Scale.
Speaker Change: Our technology is digitizing and transforming work in the construction, geospatial, and transportation industries. These markets are large, global, underserved, and underpenetrated with a combined addressable market of over $70 billion.
Speaker Change: We have also transformed our business model in the process, delivering compelling and compounding financial returns.
Speaker Change: On an as-reported basis, between 2019 and 2024, ARR increased from $1.2 billion to over $2.26 billion.
Speaker Change: Recurring revenue doubled as a percent of overall revenue to 62 percent and overall software and services increased to 76 percent of revenue.
Speaker Change: Gross margins in 2024 at 68.2% have increased over 1,000 basis points.
Speaker Change: All of this has translated into over 400 basis points of EBITDA improvement, with 2024 ending at 27.2%.
Speaker Change: At our Investor Day in December, we outlined the progression and direction of our strategy, detailing our right to win at the intersection of product, technology, and go-to-market. We laid out our 3-4-30 ambition through 2027 to deliver $3 billion of ARR, $4 billion of revenue, and 30% EBITDA margins.
Speaker Change: By delivering transformative outcomes for our customers, we are poised to deliver compelling returns to our shareholders.
Speaker Change: Today I'll highlight the last few months of Connect and Scale's strategic progression in three areas. First, product and go-to-market through the lens of our customers. Second, technology innovation. And third, capital allocation.
Speaker Change: In the fourth quarter, we engaged with thousands of our customers and partners. Our Dimensions User Conference, which focuses on the engineering and construction industry, had more than 7,000 registered attendees.
Speaker Change: We ran sessions on-site at the venue and off-site at a purpose-built proving ground where we could demonstrate our field solutions in the dirt.
Speaker Change: We had the opportunity to showcase our product innovation progression as we move from point solutions to workflow to ecosystems
Speaker Change: This progression uniquely leverages the vast installed base we have across the life cycle continuum of the engineering and construction industry.
Speaker Change: At the off-site venue, pictured on the cover slide, more than 25 of our OEM partners demonstrated on-board and off-board technology, serving a large array of machine types, and we were able to showcase our unique office-to-field workflow connectivity.
Speaker Change: The unique value we are offering to the ecosystem is evidenced by the strong growth in ARR in both AECO and field systems.
Speaker Change: Further evidence of this unique value is in the record level of ACV bookings in AECO in the quarter.
Speaker Change: In transportation, we see and hear our customers asking us to address similar opportunities as our construction customers. They increasingly seek data-rich solutions delivered in a common and connected data environment.
Speaker Change: For example, the Transporian business achieved an all-time record level of bookings in both the fourth quarter and the year. When the freight markets return to growth, this business is well positioned to showcase its true financial potential.
Speaker Change: On the technology innovation front, we continue to progress state-of-the-art and core positioning technologies along with connectivity, collaboration, and visualization. We believe we are well positioned to be a winner in the data-centric and AI-forward world, leveraging trillions, billions, millions, and thousands.
Trillions of dollars of construction programs run through Trimble.
Speaker Change: Tens of billions of freight run through Trimble. We have millions of users of our software, we manage millions of miles of our roadways, and we have hundreds of thousands of instruments and machines out in the field, in the real world, operated by Trimble technology.
Speaker Change: Over the last few months, we have increased the adoption of AI to fuel our own productivity, creativity, and to drive profit expansion.
Speaker Change: Finally, I'll cover three topics on the capital allocation front, starting with the divestiture of our mobility business, which we closed on February 8th.
Speaker Change: We are a significant shareholder in platform science and we refreshed an ongoing and important commercial relationship with their team to link telemetry with our broad set of capabilities including dispatch, scheduling, routing, navigation, maintenance, visibility, freight procurement, and more.
Speaker Change: We are accounting for this investment under the cost method of accounting where our investment will be represented on our balance sheet rather than the non-GAAP P&L.
Second, we remain committed to executing our share buyback plan.
Speaker Change: We continue to believe that repurchasing Trimble stock is an attractive opportunity for capital deployment given our share price today As further evidence of our commitment today, we are announcing that our board increased our repurchase authorization to 1 billion dollars
Speaker Change: Third, given the strength and momentum in the underlying business, and particularly the success we have demonstrated executing our TC1 platform strategy in AECO, we intend to play offense on the acquisition front.
Speaker Change: Tuck-in opportunities that can quickly integrate and be put in the hands of our sellers are the most obvious category, building on the success we have had with such moves over the past few years.
Speaker Change: We will also opportunistically consider larger opportunities should they present themselves, particularly in construction software.
Speaker Change: Though the bar will be high, anchored in our disciplined focus on ROI and compared to the returns we can generate from buying back our own shares.
Speaker Change: Trumbull enters 2025 with a balance sheet well below our leverage targets with continued strong free cash flow generation and with shares trading at levels we find attractive.
Speaker Change: Collectively, this gives us a range of good options to consider as we drive value for shareholders.
Phil, over to you.
Speaker Change: As we message throughout the process, there is no change to our filed financial results.
Speaker Change: Our full attention is now focused on working with our audit provider to complete the 2024 audit. The good news is that the 2024 audit work builds on the 2023 work. The challenge is that because of the 2023 filing delays, the timeline is compressed.
Speaker Change: We are likely to file our 2024 10-K after the March 4th due date and are working to file within the 15-day extension that is allowed under SEC rules. At this time, we believe any delays to our filing would be solely due to the tight time frame.
Speaker Change: We are, of course, working hard and doing everything we can to file our 10K on time.
Speaker Change: Let's review the fourth quarter and the year for 2024 starting on slide 6. Unless otherwise noted, I will be talking about our as-adjusted numbers, which remove the effects of the recent divestitures and the 53rd week, including the January 1st term license renewals.
Speaker Change: As reported numbers, along with a reconciliation, are provided in the appendix.
Speaker Change: Organic revenue was up 9% for the quarter and 6% for the year, with ARR up 16%. We achieved EBITDA margins of 27.8% for the quarter and the year, both of which expanded nearly 100 basis points.
Speaker Change: Reported EPS was at $0.89 for the quarter and $2.85 for the year. The reason we didn't see an even larger EPS outperform was primarily due to additional incentive compensation accruals and additional sales commissions.
Speaker Change: Moving to the balance sheet and cash flow items on slide 7. Our reported free cash flow for the year was $498 million, which represents a conversion rate of .71 to net income.
Speaker Change: Adjusting for $204 million of M&A-related tax payments and transaction costs, cash flow is over $700 million with a conversion rate of approximately one times.
Speaker Change: Our balance sheet is strong, with over $700 million of cash and a leverage ratio of less than 1x, which is well below our long-term targeted rate of 2.5x.
Speaker Change: Let's shift to a segment review of the numbers before we close with guidance, starting with AECO on slide 8.
Speaker Change: 18% AOR growth for the quarter and the year, and operating income at 31.2% for the quarter and the year.
Speaker Change: This is a scaled business nearing $1.3 billion of ARR and revenue and operating well above the Rule of 40. In fact, it was greater than a Rule of 45 for both the quarter and the full year.
Speaker Change: ACV bookings increased over 20% in the quarter providing momentum to our ongoing commitment to grow ARR at our long-term model rate in the mid-teens.
Speaker Change: We are especially pleased with the ongoing performance of our Trimble Construction One offerings as well as the level of growth in cross-selling and up-selling initiatives.
Next, field systems on slide 9.
Speaker Change: While for the year revenue is slightly down on an organic basis, it inflected positively in the second half of the year and was up 2% in the fourth quarter. Of particular note, ARR growth at 21% for the quarter and the year demonstrates the intentionality of our business model conversions.
Speaker Change: In almost every business where we have implemented these changes, we have seen the addressable market expand.
Speaker Change: It should also be noted that the recurring revenue conversions were 150 basis points headwind to 2024 annual revenue growth. Thus, the two must be looked at in combination.
Speaker Change: Finally, transportation and logistics on slide 10. Revenue and ARR were up 8% both for the quarter and the year, led by growth above the segment average from our MAPS business and the Transporian business. Operating margins were 24.1% for the year.
Speaker Change: Transporian continues to deliver in a challenging freight environment with strong double-digit bookings growth for the year, including several cross-sells with North American customers as the Connect and Scale playbook is being replicated in the transportation segment.
Speaker Change: Before we turn to guidance, let's set context with a few considerations related to tariffs and foreign currency translation.
Speaker Change: Based on what we know today, we have not modeled any impact of new tariffs into our guidance.
Speaker Change: Given the software centricity of Trimble today and the geographic diversity of our revenue and supply chains, we are confident we can navigate the environment with minimal financial impact.
Speaker Change: With respect to foreign currency, our EPS has historically been naturally hedged against currency moves given our global workforce.
Speaker Change: However, with the growth in AECO and Transporian outside the U.S., we now expect a slight amount of foreign currency translation headwind to flow through to EPS.
Speaker Change: For 2025 guidance on slide 11, the midpoint of our as-reported guidance is $3.42 billion and $2.87 EPS. This includes one month of mobility with approximately $20 million in revenue and under a penny of EPS.
Speaker Change: On an as-adjusted basis, our EPS guide implies low to mid-teens' EPS growth year-over-year, consistent with our long-term model.
Speaker Change: Our guidance assumes the strong U.S. dollar holds, and we have incorporated into our guidance full-year foreign currency impacts on revenue of minus $50 million, ARR of minus $30 million, and EPS of approximately minus 4 cents.
Speaker Change: Relative to our initial fiscal 2025 guidance we provided in December at our Investor Day, on a constant currency basis we have raised our revenue and EPS guidance.
Speaker Change: For first quarter guidance on slide 13, we expect as reported revenue to be in the $794 to $824 million range and EPS $0.55 to $0.61.
Speaker Change: We have provided an updated view of calendarization in the earnings supplement on our Investor site which is in line with what we shared at Investor Day.
Speaker Change: On an as-adjusted basis, organic growth for the first quarter is in the minus 1% to plus 3% range.
Speaker Change: Please note that there is no January 1st in our 2025 fiscal first quarter. It was in the fourth quarter of 2024.
Speaker Change: Also note that the January 1st of 2026 will occur in the fourth quarter of fiscal 2025.
Speaker Change: Both revenue and operating margins are expected to trend up in both absolute and percentage terms as we move throughout the year, reflecting the fact that our portfolio is now more heavily weighted to the growing recurring revenue business models and less impacted by seasonality in field systems.
With that, I'll turn it back to Rob.
Rob Painter: Thanks, Phil. I appreciate that the vestitures and the 53rd week make comparables a bit difficult. We encourage you to refer to the supplement on our website where we outline the moving parts.
Rob Painter: To keep things simple, whether we are talking on an as-reported or an as-adjusted basis, the message is the same. We ended 2024 on a strong note with a significant beat on our numbers, and we are carrying that momentum into 2025 with raised guidance on a constant currency basis.
Rob Painter: I'll close with a reflection on confidence and humility. Confidence at every turn is what we deliver to our customers, improving performance and unlocking insights with technology.
Rob Painter: As we execute our Connect and Scale strategy in 2025 and beyond, we are confident in our ability to execute the strategy and excited about the opportunities in front of us.
Rob Painter: We are also humble as we navigate the uncertainty in the current environment.
Rob Painter: Our highly experienced and values-driven team is hard at work to achieve the potential of Trimble. I'll close by extending my gratitude to our colleagues, partners, and shareholders for their ongoing support. Operator, let's open the line to questions.
Speaker Change: Thank you. We will now begin the question and answer session. If you would like to ask a question, please press star 1 on your telephone keypad to raise your hand and join the queue. And if you'd like to withdraw that question, again press star 1.
Speaker Change: Your first question comes from a line of Jason Salino with KeyBank Capital Markets. Please go ahead.
That's it for me. So first, Heather.
Speaker Change: Rob, I'm curious how you're thinking about the current, you know, macro environment. You know, there's there's pushes and pulls and wondering if you've had a chance to, you know, gauge sentiment among your owners and construction type customers.
Speaker Change: Hey Jason, good morning. Thanks for the question. You broke up there at the beginning, but I think you're asking about the current macro environment, I think with a bias towards what we're hearing.
and construction.
Speaker Change: In that respect, I'd say geographically, North America continues to be the strongest of the geographies where we participate.
Speaker Change: If I look within North America, you probably won't be surprised to hear that segments such as data centers, energy,
Speaker Change: Markets are good verticals for us. They're performing well sentiment remains Strong in those respects. We see differences would say within the United States the southeast tends to outperform
Speaker Change: geographically relative to most other states. You know, you follow the money, there's still the infrastructure bill, the CHIPS.
There's a lot of backlog that contractors have.
Speaker Change: With respect to contractors in the backlog, there are fewer new projects that the contractors have. So they're working down their backlogs. What we see from our own data is that our customers are hiring. And as they're hiring, that's a catalyst for the adoption.
Speaker Change: of technology. So you're right, there are some puts and takes both within North America and around the world, but the overall sentiment remains healthy.
Okay, and then related to tariffs...
Speaker Change: especially with some of your AECO segments, they would be sensitive to different price changes or perceived price changes. Thanks.
Speaker Change: Hey Jason, excuse me, it's Phil. So on the tariffs, if you remember, we're about three-quarters now, software services recurring, and so our exposure is really a lot smaller than it would have been in the past to those.
Speaker Change: We believe it's a relatively small impact and our supply chain and our operations team is well prepared for some contingency plans that we see just offsetting that. What we haven't really modeled in is, you know, there hasn't been a lot of explicit
Speaker Change: and things like that as we think more globally. So right now, we do have confidence in our operations team. We have a global supply chain. We have opportunities and contingency plans that we can enact, depending on what manifests.
Speaker Change: Just to be clear, we have looked at it and we don't believe there's a material impact on the financials based on the information we've seen so far.
Speaker Change: Your next question comes from the line of Kristen Owen with Oppenheimer. Please go ahead.
Hi, good morning. Thank you for taking the question.
Speaker Change: Just given some of the changes that you made in 2024 around the commercial organization, bundling, how you're thinking about the contribution of new logos versus cross-sell, up-sell in that 2025 framework?
Good morning, Kristen. It's Rob. I'll take the question.
Speaker Change: We see about two-thirds from existing customers and probably a little bit less than a third from new logos.
Investor Day, you'll remember we...
Speaker Change: 2025 with the business. And you're right that the investments that we've made and the underlying systems, the transformation we've taken into the product as well as to the go-to-market side of the house positions us well to start to go or to continue to tackle this opportunity.
Speaker Change: That's actually a good segue into my second question, which is a little bit more of a big picture question.
Speaker Change: In the prepared remarks, you mentioned some of the AI agents you've been deploying internally.
Speaker Change: Can you expand on how you're thinking about operating efficiency opportunities? You know, we've been hearing examples of 100 to 200 basis points of sound margin by applying AI to internal functions. How would you benchmark that opportunity internally for Trimble?
Speaker Change: I think the 100 to 200 basis points that you hear on operational efficiencies strikes me as aspirational as opposed to currently delivered.
Speaker Change: So I think if you really break down the operations, you know, you've got...
Speaker Change: Let's just take it by the P&L. You've got COGS. Let's see. You've got R&D. You've got G&A.
Speaker Change: Some of the ROI already would be in the R&D function. And if you think about internal usage in R&D, tend to think software, and the majority of our engineers are software engineers.
Speaker Change: And then within that, double-click again and break down the software development lifecycle, the efficiencies you can see on...
Speaker Change: QA and testing is, I think, different than what you see in development, is different than what you see in hosting, is different than what we see in
Speaker Change: provisioning. So I think it's important to double click. So QA testing, I'd say the probably the highest ROI we can see.
Speaker Change: from using GitHub Copilot. On the development side, you know, we probably see, you know, we talk about, call it five to ten percent productivity and, you know, you're measuring that by more lines of code checked in, but, you know, that's not a perfect measure, of course. It's just having more lines.
Speaker Change: of Code Checked In. We see it in the marketing functions, internally driving more automation. We see product managers using it to help create the marketing requirements documents as well as the product specific, more technical product specifications.
Speaker Change: On the cost of goods sold we can see efficiencies with how we're supporting our customers providing more self
Speaker Change: help tools along the way. So a good number of activities that we have in motion. I think that level of operating efficiency that you mentioned, that range, is a good aspirational target. But I would say we don't, I can't say that I can quantify that today, Kristen.
Thank you so much for the time.
You bet.
Speaker Change: Your next question comes from the line of Jonathan Ho with William Blair. Please go ahead.
Hello, good morning.
Jonathan Ho: Robert, I wanted to just build on your comments around the data centricity of Trimble's platform, particularly around the AI opportunity. And can you speak
Jonathan Ho: why your data is unique and what you can do with that data for your customers. It was just going to be new products or enhancements of the existing products just trying to understand you know how Trimble is positioned for this revolution. Thank you.
Thank you, Jonathan. Good morning.
Jonathan Ho: What I see that's unique about the data reflects what's unique about Trimble, and that is our products and services that connect the physical and the digital world.
Jonathan Ho: That means connecting work in the field and work in the office. That means connecting the hardware and the software of Trimble. So if we take the engineering and construction industry,
Jonathan Ho: Think about that for a moment. The field systems business that we have combined with AECO is incredibly unique.
We've been pursuing
Jonathan Ho: where we can connect users' data workflow across the stakeholders of that industry. So today, when we have our AECO business, that's architects, engineers, contractors, and owners. Each of those is over a $200 million.
Jonathan Ho: business on its own within each of those pillars today. So there's the unique ability to connect field office, there's a unique ability to link the stakeholders across the industry lifecycle continuum, that lifecycle being from plan to design to build.
Jonathan Ho: to operate. That creates a unique corpus of data, and as our customers increasingly are asking us to help them solve their higher-order problems to unlock the data that they have, with trimble and non-trimble data, by the way,
Jonathan Ho: represents a lot of the conversations I'm in with our customers, and I'd say particularly, probably our bigger customers. So then what we can do with that data that we have is we can develop unique sets of workflows. It reflects in the unique partnerships.
Jonathan Ho: That we have so say a unique workflow move from scan to BIM. It could be
Jonathan Ho: We're doing workflow with digital supply chains, that's linking modeling and estimating, that's linking payments and ERP systems, that's thinking about progress to plan in a civil construction context.
Jonathan Ho: There's just an enormous amount of possibilities and a bright future I see for us. And I would say, in that baseball analogy, it's probably batting practice. We're that early in the game.
Thank you.
Speaker Change: Excellent. That's really helpful. Just as a follow-up, any thoughts around the U.S. federal government? Can you give us a sense of how big or small that is in terms of contribution and any potential impacts there? Thank you.
Speaker Change: On the federal government side, the orders we predominantly have are in field systems today for us. So it's the survey equipment, GIS mapping equipment, machine control, tends to be the biggest.
a consumer of what we sell to the federal government.
Speaker Change: We've had, for a few years, it feels like government by continuing resolution, that's made it even more lumpy than we had seen in the past.
Speaker Change: When we look into 2025 and the guide that we have there, what you'll see is that field systems
is effectively a flat guide.
Speaker Change: if we were to take the federal business and do an apple to apple on it. We also have subscription conversions, by the way, happening in field systems.
Speaker Change: we'd be up over 300 basis points, or sorry, no, 3% organic growth.
Speaker Change: if we adjusted for that. So, what I'm saying is we see the federal government, we're projecting that to be down for us in 2025 relative to 2024, and still a very important customer for Trimble.
Great, thank you.
Speaker Change: Your next question comes from the line of Chad Dillard with Bernstein. Please go ahead.
We missed you.
Chad Dillard: some of the accounting questions and, you know, just wanted to get a better sense for, you know, like where you are in re-accelerating that and how to think about that contribution to growth in 2025. And if you can just update the roadmap for, you know, how you're thinking about it now.
Speaker Change: Good morning, Chad. Thanks for the question. So, I continue to feel really good about Thermal Construction 1.
Speaker Change: and the success that we're having with that. Part of that success, as you note, is regional rollouts.
Speaker Change: So North America, Europe, Asia-Pacific, so think about it in that order. I think we're in a good spot in Europe as we roll that out, especially coming into this year after our sales kickoffs. I'd say Asia-Pacific still has...
Speaker Change: I'd say is coming next in a more meaningful way. So Europe is the focus on.
Speaker Change: on the rollout of that, and that's incorporated into our thoughts for the segment. We continue to get very good feedback from ...
Speaker Change: our customers around the world on that. One of the things you do as you go region to region is we have different types of capabilities by region, so it's not one global answer for TC1. And so, you know, we continue to dial in.
Speaker Change: the bundles that make sense for the regions and take the feedback from our customers on what they need and what they're looking for from us.
Speaker Change: And we saw that reflected in the bookings performance at the end of the fourth quarter. The team did a terrific job posting a very strong growth and ECD bookings on a year-over-year basis. So feeling good about it, Chad.
Great, that's helpful.
Speaker Change: And then just any bookings color you can share, at least for the fourth quarter for that business.
Rob Painter: Yeah, sure, Chad. So this is Rob. I'll take that. I'll take that one.
Speaker Change: On field systems overall, if we think about the close of the year in the fourth quarter on an as-adjusted basis, we were up 2% organic. If we exclude that federal business, we were up 3.5%. So I look to that as a marker for where we are with what we'll call the field sales.
Speaker Change: And so in the field, the team is growing organically, and we project that going into next year. In the fourth quarter, ARR was up 21%, and so the bookings also reflected.
Speaker Change: that level of strength of performance. In fact, Fields is the fastest, the highest ARR grower on a year-over-year business. The team's done a tremendous job of working the business models, tremendous enough that that creates a headwind to the revenue growth as we complete those conversions.
Speaker Change: So if we look into 2025, the revenue guide is flat, but if we were to adjust for that Fed and the subscription conversions, which are a headwind to the revenue growth, you know, we'd be up over 300 basis points.
Speaker Change: of growth in our guide for 2025. Now within the portfolio and field systems, think about three pillars that we have in that business. So the civil infrastructure business that we have, I'll come back to that second as our geospatial survey.
Speaker Change: business, and third is what we call advanced positioning. In advanced positioning think of the
Speaker Change: positioning services that we offer, right, that centimeter level accuracy ubiquitous around the world, that actually has the most recurring revenue in that pillar and that we expect to continue.
Speaker Change: to grow next year, and that's certainly in our thoughts in the ARR guide that we have. From the civil business, that pillar, we expect growth. That's the punchline. So we expect civil infrastructure business.
Speaker Change: to be a grower for us, had a strong fourth quarter. We like what we've seen coming in here to the beginning of the year in the business. And we've seen it actually globally, so the business is growing, it is performing. There's a number of catalysts for that. Of course, what we sell is productivity when you put the guidance equipment.
Speaker Change: Our guidance technology on the iron out in the field, like fundamental productivity, 30-40% productivity, you know, moved the dirt right the first time as a profound.
Speaker Change: value proposition. Customers continue to have problems finding labor. We can make an inexperienced operator good and a good operator great by using
Speaker Change: The team's done a nice job as well of product innovation, which we were able to showcase at our user conference. So we have a new
Speaker Change: relatively, I should say, new product BX992 and that helps us reach the mid-tier machine control market. So a number of activities on a number of fronts and it's leading into nice performance from that business. By implication then we expect
Speaker Change: of the pillars, we expect the survey business to be flat to down into next year, but that's also where we have a lot of that federal business.
Great, thank you.
Speaker Change: Your next question comes from the line of Jerry Rivitch with Goldman Sachs. Please go ahead.
Speaker Change: Hi, yes, this is Cleon for Jerry. First one for me, can you flesh out the performance of Transporo and what was organic growth in the corridor of local growth retention rates?
Speaker Change: Hey, good morning Clay. This is Rob. I'll take that question. Hey, the Trans4AM team did a terrific job of sort of controlling what they can control. The macros continue to be
Rob Painter: difficult and watch it really globally in the freight and the freight market with transporting is European centric.
Rob Painter: where that market is challenged. However, in a very good way, the team had record fourth quarter bookings, they had record bookings for the year. Phil mentioned over 20% bookings growth for the year. So that is...
reflects both existing customers and new logos.
Rob Painter: We've won many new logos throughout the year, some of the biggest company names you'll find in any vertical.
Rob Painter: And then the team's done a nice job of cross-selling within that. So, we look at the sum, and by the way, on the product side, that team has probably done some of the most innovative things relative to AI, both for our own internal usage as well as...
external.
Rob Painter: capabilities. We have an autonomous procurement, autonomous quotation offering that's getting nice uptake and the team is doing a nice job of also working to bring capabilities from Europe into North America and then we've done some product consolidation globally.
Speaker Change: as well to drive efficiencies and some synergies within that. So as Phil said in his comments, when the freight markets turn, this business is positioned to perform well and to be able to demonstrate the financial potential of this business.
Speaker Change: Thanks. And switching gears here, how do you view the product vitality of the geospatial and heavy civil portfolio? I believe you touched on a little bit of the last question, but just a few more colors there.
Speaker Change: So the team, I think, does a really nice job of innovation. And just to put a broader context on that, you know, over the last five years.
Speaker Change: Trimble's put about $2.5 billion into research and development. So we don't just talk like empty talk about innovation. We're putting our money where our mouth is, both AECO, transportation, and field systems. So if I think about ...
Speaker Change: product vitality within the portfolio. I'll take those three pillars. If we take our civil business, you know, I talked about BX992 or SiteWorks as a technology, that's getting us to new machine types and new price points.
Speaker Change: If I look at our survey business, the team launched last year the R980, and that has improved communications over the prior version of the R12i, which
Speaker Change: It was an innovation in and of itself. If I looked in the advanced positioning pillar, the team last year had launched Ionoguard, and that's correcting for errors in the atmosphere.
Speaker Change: So you can solar cycles that we've had to get accurate, highly accurate performance which you need particularly like in the mines and in the field and agriculture.
Speaker Change: To have that ubiquitous accuracy is very difficult to do and the team really just had some really novel innovation. So innovation is really driving, drives a refresh for our customers of their own technology.
Speaker Change: So I like what I'm seeing from the team and like what they're working on. I talked about hardware innovation but I should also mention the software innovation across that portfolio and that's reflected in that 21% ARR growth that we had in the fourth quarter.
Speaker Change: I'm really excited about what the team is doing and reality capture. Like these days, data is not the.
Speaker Change: We're flooded with data. It's information that we need. And so Trimble's in the business of collecting enormous data sets.
Speaker Change: and the software activities are converting that data into information, into actionable information. So in a reality capture...
Speaker Change: you can you apply AI on that to do feature extraction and then this and then from that feature extraction to create actionable workflows back out in the field. So a lot of good things happening in the business.
Thanks, I appreciate it.
You're welcome.
Speaker Change: Your next question comes from the line of Joshua Tilton with Wolf Research. Please go ahead.
Joshua Tilton: Hey guys, thanks for thanks for squeezing me in here. I I actually have a multi-parter on the construction business and then just a quick follow-up on transportation side
Joshua Tilton: I guess I'm trying to understand, maybe diving a little bit deeper, are you seeing any change in demand from the construction and market post-election here in the States?
And then the second part of that question is...
Speaker Change: You did make it a point to highlight the potential for some larger acquisitions, specifically focused on construction. Is there anything that you feel that's missing from the TC1 bundle or the construction portfolio today that you guys are most interested in? And then I've got a follow-up.
Hey Josh, good morning.
Speaker Change: around, but I think overall we're in a wait and see mode. I haven't seen any kind of fundamental
Speaker Change: movement, let's say, on new projects coming out. So let's wait and see.
Speaker Change: I'd say ask the same question next quarter, and maybe we'll have some more data to be able to provide at that time on that, because we, you know, about a third of construction in the U.S. is running through our system. So I think we would have a pretty good view on what's coming, both at the contractor level, as well as the owner level.
Speaker Change: In terms of the M&A side within construction, to answer your question...
Speaker Change: I think about it in a couple of respects. One axis is geography and the other is, I'll call it, is really more product oriented.
Speaker Change: at a geographic level, you know, when we talk about our term construction one offering, it's really a commercial framework. We have different capabilities around the world. We don't have the exact same capabilities around the world, and so we look geographically.
Speaker Change: Let's say take a construction ERP system, and construction ERP has done extraordinarily well for us in a number of markets, most notably North America. We don't have a construction ERP, I'll take Central Europe, or you could say Southeast Asia, you could say India.
we'll look at those markets and...
Speaker Change: And where we think we can stitch together a good offering begs the question built by a partner, right? So we'll go through that analysis, and we do go through that ourselves for how to geographically expand and even strengthen the offering from a product capability.
Speaker Change: side and gaps. I think a little bit less, I don't think about gaps so much to the extent that there's gaps.
Speaker Change: That's where tuck-ins can come into play. Often the tuck-ins are really more features than they are independent businesses that fit really well within the business.
Speaker Change: our platform offering. Also think about it on the axis of segmentation. So let's say if we play
Speaker Change: in one tier of the market, let's say in one business that we play more mid and large contractor, within that segmentation, we'll ask the question, okay, if we want to play more in, let's say, the small mid, how would we do that, or if we want to play in the largest of the large?
Speaker Change: How would we do that? Do we extend the product offering or could we go acquire an installed base and then bring in the rest of the capabilities that we have to link, bundle, cross-sell?
Speaker Change: and Upsell. So that's the way we think about it, Josh. It's not, I'm not being overly specific on purpose, but hopefully that helps frame how we go about it.
Josh: It definitely helps. Maybe just a quick follow-up on the transportation side. I think it's clear like Transporion booking is still pretty solid even though freight market remains challenged. How do we how do we think about what bookings for this business or for Transporion will look like when the freight market recovers?
Good question.
Josh: Actually, that's a good question. I think that on the bookings growth itself,
It would be...
Josh: probably pretty similar. It's not obvious to me that it would be that much higher.
Josh: Okay, you know, the right sentiment is better, and there's more spend available. You would think that would be a positive catalyst. But we actually have quite a reasonably low barrier to entry with our model, because it's a transactional model.
Josh: And so in a transactional model, really the more fundamental thing in a freight recovery is more, and by the way, economic recovery translates into a freight market recovery, is more transactions happening for each of the customers that we already have. And that's where, and we've seen this in the business historically.
Josh: as when you come out of a down cycle, you can have a very fast recovery or a very fast improvement. I mean, it's already a very good business, so a very fast improvement. Think operating leverage when I say that, and the nature of the gross margins are in.
Speaker Change: in the 80s in that business. So you drive a really nice inflection in the number of transport executions or loads moving on our on our system and you can drop a significant amount of operating leverage quickly. So I would look more at that Josh than I would the bookings.
Hey!
Speaker Change: It makes sense. Thank you guys and congrats on the quarter.
Thank you. Thanks.
Speaker Change: Your next question comes from the line of Tammy Zakaria with J.P. Morgan. Please go ahead.
Hi, good morning. This is Ishan on behalf of TAMI.
Thank you. Bye. Bye.
Speaker Change: And the way we're thinking about that is we've talked earlier about the $625 million that was remaining on the prior, and that's an amount related to the
proceeds from the ag
J.B.
Speaker Change: talked about executing. And so the way I think about that is between Q1 and Q2, probably two-thirds of it hitting Q1 and about a third of it hitting Q2.
Speaker Change: And then beyond that with the remaining $375 million, what I talked about on Investor Day was at or above a third of the free cash flow is going back to share repurchases, so I think the way to think about that.
Speaker Change: is, you know, roughly $700 million, let's call it, of free cash flow, and a third of that $200 million a year, and so that's roughly $50 a quarter that I would expect once we get past that initial $625. That's the way I think about modeling it.
Speaker Change: And I think your question on the M&A is, again, it depends on the M&A, but right now with what we're focused primarily on the tuck-ins...
Speaker Change: We believe we have plenty of firepower to continue to do the tuck-in work on the M&A. If we do something bigger, we do believe we still have more than enough capacity to do that. And just a reminder, our targeted leverage rate over the long term is about two and a half times.
Speaker Change: And we're well, well underneath that. We're well below 1x right now. So we have plenty of room on our balance sheet.
Speaker Change: Yeah, good question. So at Investor Day, just to walk through the Delta, we had about, relative to Investor Day, we had about a 40 million dollar FX headwind on revenue.
Speaker Change: and so the puts and takes where we were roughly $3.4 billion is what we guided at Investor Day.
Speaker Change: Our current guide as reported is 3.42, and so add $20 million for the mobility, for one month of the mobility business that we had in January before we closed on that.
Rob Painter: to offset the effects on the organic growth. And I'd say that it's really across primarily the AECO and the field systems businesses with the performance that Rob talked about in civil and the performance in AECO, especially coming out at the end of the year with really strong performance continuing into 2025.
Great, thank you so much.
Sure.
Speaker Change: Your next question comes from the line of Robert Mason with Baird. Please go ahead.
Yes, good morning, Rob.
Speaker Change: Pretty helpful. So just, you know, taking that that you've provided, it looks like within your segments, and I'll speak, you know, field systems, your margins are up about 100 basis points on kind of flat organic growth.
Speaker Change: And then in the transportation business, margins are kind of flat on high single-digit core growth.
Speaker Change: Could you bridge those two dynamics if I'm interpreting that correctly? I would have thought field systems needed to absorb some channel investment, so that's probably a good outcome, but just the T&L margins.
being flat, is that the right interpretation?
Speaker Change: We've shifted some of the margins that were in our equity investment income line into the OPEX. So we sell product into the JV and we changed some of the margins and pricing on that. And so that actually helps improve...
Speaker Change: the margins in the field systems business. Now, some of that is actually offset by what you said, which was the investment in the channel build out. And so we do get some upside there because of the economic shift.
Speaker Change: And then on the transportation business, I think the big item that's a headwind there is really the FX.
Speaker Change: So, the Transporian is all Euro-denominated and is profitable, and so when we translate that back, given the strong U.S. dollar, that actually creates a decent headwind for the transportation segment.
Speaker Change: So, I think Forsett Hedwin, you called out, that's disproportionately in T&L then.
Speaker Change: It's primarily T&L and AECO. AECO, given the growth, and particularly in Europe...
Speaker Change: doesn't have a big footprint like we do in field systems and so it's both transportation and and ACO but yeah transporian because of the size of that and all Eurodenominator that's a it's a big portion of it
Speaker Change: Sure. Just as a quick follow-up, I think you touched on some of the geographic strength calling out North America, but could you add a little color or context of what you are seeing in Asia-Pacific and in Europe?
Hey, Rob. This is Rob. Good morning.
Speaker Change: I'd say the toughest market on the other bookend, probably China and Japan are challenged. Japan to the FX is particularly difficult in that market. And then in between you're gonna have Australia, New Zealand, but India is the standout positive.
There we go. Thank you.
Speaker Change: And ladies and gentlemen, that does conclude our question and answer session. And that does conclude today's conference call. Thank you for your participation and you may now disconnect.