Q2 2025 Trimble Inc Earnings Call

Thank you for standing by. My name is Greg, and I will be your conference operator. Today, at this time, I would like to welcome everyone to today's Trimble Second Quarter 2025 Financial Results Call. All lines have been placed on mute to prevent any background noise. After the speakers' remarks, there will be a question-and-answer session. If you'd like to ask a question during this time, simply press star followed by the number 1 on your telephone keypad. Once again, that's star 1. If you'd like to withdraw your question, simply press star 1 again. Thank you.

I'd now like to turn the call over to Rob painter. Chief executive officer Rob.

Welcome everyone. Before I get started our presentation and safe harbor. Statements are available on our website.

Our financial review will focus on year-over-year, non-gaap performance metrics on an organic basis.

In addition, we will focus on adjusted numbers that we believe more accurately portray the underlying performance of our business.

This means we will exclude the domestic Agriculture and Mobility businesses, as well as the 53rd week of fiscal 2024.

As reported numbers along with the reconciliation are provided in the appendix.

Our second quarter results outperformed both top and bottom line expectations, reflecting continued strong strategic execution and momentum with our Connect and Scale strategy. My congratulations and gratitude to the Trimble team and our global partners. We are raising our guidance for the full year, and Phil will walk you through the details.

Starting on slide 4, the foundation of our connect and scale strategy begins. With our best-in-class Solutions which are generally core to the day-to-day operations of our customers, delivering productivity and sustainability outcomes.

Our strategy compels us to do what we can uniquely do. That is Connecting People, connecting data, connecting workflows and connecting. Ecosystems across the construction and transportation and Logistics industry, life cycles.

Our product leaders are increasingly bundling our Solutions together and to pre-packaged product. Suites making it easier for customers to access our technology and making it easier for our sellers to reach our customers.

They are also progressing, our efforts towards subscription offerings expanding our user base. And the size of our addressable markets while simultaneously delivering us increased visibility into our business.

Strategically these business model. Transformations are connecting workflows as we move data from on premise and on machine to the cloud.

We are enabling our customers to generate better insights into their own data. While enabling us to build a unique data, set to power, our AI ambitions,

For example, in our project site project management system with AI we have processed over 1.5 million drawings with AI at a rate of over 200,000 drawings per month since our Dimensions user conference and November of 2024. This AI capability saves significant time that our customers would otherwise spend manually adding attribute data to a model.

Finally, our go to market motions, are modernizing enabled by better, underlying technology stacks and process excellence.

AI-assisted motions are increasing bookings, visibility, and unlocking cross-sell opportunities, as well as new logo expansion.

Turning the slide 5 876 million in Revenue. In the quarter up 9%, organically, 2.21 billion of ARR up 14% organically and 71 cents of eps up 15% year-over-year and higher still on an organic basis.

Software and services accounted for 79% of second. Quarter Revenue, recurring Revenue accounted for 63% of second quarter Revenue. We run negative working capital and capex is less than 1% of Revenue on a trailing 12-month basis. Our value creation algorithm is working

Looking looking forward over the next couple of years, the continued rollout and maturation of our strategy gives us conviction to deliver on our 3430 commitment by 2027 3 billion in ARR, 4 billion in revenue and 30% ebita margin.

Looking beyond the next couple of years. We are optimistic about what an AI forward future will mean to tremble. I like to characterize our right to win in this space in the form of trillions billions millions and thousands.

Trillions of dollars of construction run through Trimble, and tens of billions of freight run through Trumbull. We have millions of users of our software, and we have hundreds of thousands of instruments and machines in the field that operate on Trimble technology.

The transformation we've been making in our business over the last few years, has prepared us for this moment.

In the last weeks and months, we have taken thousands of Turbo colleagues through AI training sessions and we are deploying AI across most every function of the company.

While it's very early in the AI adoption cycle. We believe we are heading the right direction and making the right decisions to unlock the efficiency and customer value creation opportunity.

In June, we held our buy annual technology conference where 3 of our top engineering and product leaders came together to share and collaborate on our next waves of innovation. Not surprisingly AI made up about half of the content of the conference.

With that context, let's talk about each of our segments, starting with aeco and a quote from a steel fabricator and erector. Customer who said The Following

We're always 3 steps ahead of everyone else. Because of the technology we use with Trimble connect, we can visualize the entire project before it starts. We track every piece of Steel and real time and stay ahead of any potential delays.

This sentiment is indicative of the success. We are having with connecting people and connecting data in the quarter are at 1.36 billion and revenue at 350 million were both up 16%.

ACV bookings remained strong and in line with our long-term model growing in the mid- teens with a healthy gross and net retention.

The point solution level, we continue to innovate.

SketchUp won Best in Show in the Bim category at AIA 2025 and with over 4.4 million models created in the quarter SketchUp remains core to the workflow of Architects and designers around the world.

Project site added features, such as daily reporting and Erp integration which contributed to strong growth in the quarter.

At a connected workflow level, we are now delivering an office to field to office workflow and civil construction. That enables project managers to send quantity requests for Earth. Moving in our b2w track applications to cruise in the field, using our site work solution, and then following that data, back to the office for Progress tracking, which informs decision-making, and ensures accurate billing,

No guesswork, no phone calls, no manual data transfer.

Only Trimble.

This workflow example is just 1 example, that validates our strategy of driving growth through Trimble construction, 1 bundles as well as running cross-selling motions that serve existing customers with more solutions.

Once we have a customer using our ecosystem with a core solution, our strategy of adding connected Solutions multiplies, the value of customer gets and makes us an indispensable partner for a company's entire operation.

The Investments we have made into our business over the last few years are unlocking. Insights, that drive sales. Enablement and targeted marketing campaigns to reach this Market opportunity.

In combination with our transformation to operate as 1, sales organization and aec of focused on named accounts. We remain optimistic about our ongoing growth potential

moving to field systems. I'll start with a quote from a customer in Scotland. Talking about machine control.

This is our largest investment in advanced construction technology to date. The effect on productivity has been eye-opening, with one project already being 8 weeks ahead of schedule and on track to be completed in half the estimated time.

Based from model, conversions.

Are at 358 million was up, 17% driven by strength in our works. Plus machine control offering our Catalyst positioning as a service offering and Trimble Business Center.

At a product Innovation level we expanded site Works machine. Guidance to be available for tilt bucket. Attachments we expanded Trumbull ready options with a number of of of oems

And we introduced the nav. 960 guidance controller for a PTX joint, venture?

In the, in markets, we saw strength and Drilling and piling applications for renewable projects, as well as site pad preparation for data centers and warehouses.

This business is the most Global business at Trimble, and it is inspiring to see our work in action.

In the quarter, we had winds with customers and US state Departments of Transportation with mobile mapping at the Panama Canal, with Optical Solutions. With the with the Rwanda statistics Department, the Dubai municipality and the Bureau of water management and the Philippines buying Trimble gnss

with customers in Ukraine, Tanzania and turkey, buying Trimble reference stations, and with customers in China and Australia, buying our Monitoring Solutions,

Trimble is everywhere.

Moving to transportation. I'll start by quoting a customer: "Autonomous procurement has transformed our spot bid management by using AI to predict prices, enabling us to set realistic walkway prices aligned with market conditions, especially during peak seasons."

While our end Market remains in a stubborn Freight recession, we continue to grow the business with Innovation coming from products such as our AI based, autonomous procurement Solutions.

Revenue at 133, million, and ARR at 492. Million were both up 8% in the quarter.

ECB bookings were up double digit.

At a product level. We have ongoing integration efforts to connect key. Transportion products, such as visibility and autonomous procurement with our TMS offerings, which enhances user experience and further enables cross-selling efforts,

We are accelerating our rollout of the US in the US of our freight Marketplace, which enables real-time capacity sourcing for shippers. Carriers, and Brokers, we are building confidence at every turn.

with respect to the macro environment across our business, there was no discernable shift in sentiment or in market performance in the quarter, various indices inevitably 0.1 way or the other

Opportunities. Continue to outweigh the uncertainties.

In meetings with customers in the UK and Europe, energy, and defense are looking healthy in the United States. The puts and takes of the big, beautiful bill look to be net positive, including deductions on capital equipment.

Globally. We remain bullish on India and the Middle East.

At an in-market level, our construction customers generally have healthy backlogs, and they continue to hire for their project work.

In the transportation Market, we are hopeful that the market is stable to more upward catalysts than downward catalysts.

Phil over to you.

Thanks Rob.

First, I'd like to give an update regarding impacts from policy regarding tariffs. Our operations team has done an outstanding job creating a flexible and global supply network.

With the latest information to date, there's no change to the Tariff impact on our cost of goods at approximately 10 million per quarter in the field system segments.

We've implemented search charges to offset this, thus we expect no impact to profitability.

Related to the repeal of section 174 from the 1 big, beautiful bill.

We anticipated cash flow benefit of approximately 50 million in 2025 and a total additional benefit of approximately 80 million, which will be realized over subsequent years.

With regards to capital allocation, we bought back $50 million of shares in the second quarter and have approximately $323 million of authorization available.

Longer term we continue to expect at least a third of our free cash flow to be used for repurchasing shares.

On the m&a front, we continue with the small tuck-ins and in the second quarter, we acquired capabilities that we have branded Trimble materials which serves contractors by connecting the field office warehouse, teams and suppliers to streamline. The entire purchasing and materials management process.

The tuck-in Playbook is working and we are accelerating our ability to integrate, which yields a rapid return on investment by putting additional functionality in the hands of our sales teams to cross-sell, and upsell, and continue the flywheel of ARR growth.

Let's review the second quarter of 2025, starting on slide 6.

An AR was in line with her Outlook at 14% to a record. 2.21 billion.

Gross, margins expanded, 210 basis points to 70.6%, which shows our continued model progression.

We achieved ebita margins of 27.4% which is a 170 basis points expansion year-over-year.

Earnings per. Share was 71 cents for the quarter 9 cents better than our guidance.

Moving to the balance sheet and cash flow items on slide 7. Our year-to-date reported free cash flow was strong at $90 million, despite a $277 million tax payment related to the agriculture domestica.

Our balance sheet continues to be strong with 266 million of cash. And a leverage ratio of 1.4 times, which is well below our long-term Target rate of 2 and a half times.

Shifting to a segment review of the numbers before we close with guidance.

And starting with aec on slide 8.

Aeco delivered, a record. 1.36 billion of ARR. Posting 16% ARR and revenue growth for the quarter.

Operating income at 30.4% increased 400 basis points year-over-year.

For 5.

Next field systems on slide 9.

Revenue is up 3%. In the second quarter, despite approximately 200 basis points of model conversion, headwinds, and a difficult comp, with the large government order in the prior year,

field systems posted Arrow growth in line with our expectations at 17% for the quarter where we continue to successfully execute our business model conversions

Our civil construction business continues to be particularly strong.

An error growth was driven by our model conversions and sales of subscription offerings.

Field systems operating income at 30.8% increased by 190 basis points, driven by a greater mix of higher-margin, recurring revenue.

Finally transportation and Logistics on slide 10.

Revenue and ARR were up 8% for the quarter.

The segment is greater than 90% recurring Revenue following the domestic of the mobility business.

We continue to make good progress, bringing the global Transportation teams processes and systems together as we execute our connected scale strategy, which allows us to access the approximately 400 million of cross-sell and upsell opportunities within the segment.

Operating margins at 21.5% are expected to improve in the next 2 quarters as we continue to execute the strategy.

Let me turn the guidance on slide 11.

With the over performance, in the first half of the year, we are increasing the midpoint of our full year as reported, 2025 Revenue, guidance by 100 million to 3.52 billion.

We are also increasing our full year EPS midpoint Outlook by 11 cents to $2.98 and are maintaining or organic. Our growth as adjusted guidance midpoint of 14%

While the business is performing well and ahead of plan, given the lingering uncertainty with tariffs.

Foreign exchange rates and other macro factors. We are updating our guidance with a similar approach. We took in the first quarter, which we see as prudent given the unknowns of the macro environment.

From a cash flow perspective, we are in our full year view to be approximately 1 times net income after adjusting for the $277 million cash tax payment for gain on sale. On the agriculture joint venture, the approximately $35 million in M&A costs and $50 million updated benefit from the repeal of Section 174.

We continue to expect that we can deliver free cash flow greater than the non-gaap net income over the long term.

For the third quarter guidance on slide 13. We expect Revenue to be in the 850 to 890 million range and EPS of 67 cents to 75 cents.

We expect organic Revenue growth in the third quarter to be in the 4% to 9% range.

For further details regarding our guidance. Please see our earnings supplement document which can be found on our investor website.

With that. I'll turn it back to Rob.

Thank you. Phil.

The strength of the second quarter mirrored, the strength of our first quarter demonstrating confidence and momentum in our business.

We remain on a strong, footing strategically, operationally and financially.

Thanks to all our Global colleagues for their work and their dedication. We have a lot of work to do as a business to fulfill our potential and we are up to the task.

Thanks, Rob. At this time, I would like to remind everyone that in order to ask a question, please press star, then the number 1 on your telephone keypad. Once again, that’s star 1. We will pause for just a moment to compile the Q&A roster.

Okay, looks like our first question today comes from the line of Jonathan hoe with William Blair Jonathan. Please go ahead.

Hi, good morning and congratulations on the strong quarter. I was really intrigued by your AI commentary and sort of the data opportunity that you see ahead. Can you talk a little bit about how trimble's platform potentially, um, you know, benefits from, you know, adding more and more of these AI capabilities and can you talk to me, you know, how customers uh, are receiving or starting to adopt AI uh, within the marketplace?

Jonathan good morning and thanks for the, uh, thanks for the question. Um, we have a belief that that the quality of the AI is going to correlate to the quantity and quality of the underlying data. And in that respect,

Quite bullish, um, with that trillions, billions, millions, and thousands, um, coverage and commentary.

Um, that we had it. So you, it's a unique data set um, that we have in the industry. And I can say, from the time, I spend, with customers increasingly the conversations are around, helping them unlock, uh, the data that they have so that they can make better decisions and, and manage their risk. Um, in a better in a better fashion. Um, so if you put all that together, I, I leave me quite optimistic about a data forward future, um, that, uh, that we can have as a company. Now, we're quite early in this, uh, in this journey, I think all of us in this, uh, in this AI Journey.

So our main remain humble to continue to do the, do the work and make sure we've got the underlying wiring and plumbing, right? The underlying data governance, right? Um, and all this I'd say is to me, is good news in. So far, as we think about the work we've been doing over the last 5 and a half years to execute against our connect and scale strategy. Um, it has us doing the work, um, to be ready for this moment, um, unlocking that data from on-prem and on machine, to get it to the cloud connecting, uh, the data having better insights into our customers, and what they're using and what they're and what they're not using. Uh, so um, I'm very thankful for uh, the journey we started uh, these last few years.

As well going forward.

Got it. And then just as a quick follow-up in terms of, uh, tc1, you know, can you help us understand? Maybe, you know, where some of the traction is coming from in terms of bundling, the products together and particularly, I guess, what I'm interested in is is trying to understand how much of this is maybe expansionary. So its existing customers that are, are adding your more capabilities, you know, maybe from a net retention perspective, uh, or is it, is it just brand new Adoption of the of the tc1 platform? Thank you.

Uh, good question. Jonathan. If we uplevel it to the to aeco and we look at the bookings about 2/3 of the bookings um are 2, existing customers. And about 1/3 our, our new logo.

And so that probably provides, hopefully that provides a little insight um, into uh, you know, to who's doing the uptake. Let's say on tc1 as as well as the cross sell.

Uh, the cross sell motions that we have uh, when we look at some of the packages that are doing better, um we really like what we see around uh the Civil estimating and the Erp that's been a strong play for the team uh project management. Um with the Erp is also been uh a strong a strong play uh when we look at our field instruments uh and we can

To the model based, uh, design.

Uh, packages we have, uh, that's also uh, proving to be a nice workflow as well. So we yeah, for sure. Look at uh different uh, customer segments. Um, and what makes sense for them? We can pull from the data, uh, that we have, um, apropos of the first question, you, you have to see where the customers have gaps and have opportunities um, to do their work better faster. Safer, cheaper Greener through a broader adoption of the technology so tc1 becomes that commercial offering um to help us reach those customers with the breadth and depth of what we do.

Great.

Thank you.

Yes, thank you. Jonathan.

And our next question comes from the line of Kristen Owen with Oppenheimer Kristen, please go ahead.

Great. Uh good morning everyone and thank you for the question. Um you know, Rob filled strong results all around in the quarter. And last quarter, you you talked about some of the elongated cycle times just given some of that broader macro uncertainty. Um, as you look out to the remainder of the year, can you just give us an update on customer sentiment? You know, are you seeing this a couple times improve and maybe building on that last question? You know, are there areas where you're seeing some changes in that selling motion just giving some of those acute challenges for your customers around, cost management. Um, materials inflation, labor constraints Etc.

Good morning, Kristen, and thanks for the thanks for the question. I'd say, the overall customer sentiment feels, uh, pretty similar, and cute from Q2, as it did in q1. I wouldn't say that there was a market shift, um, plus or minus, and in any point in time we're always going to have puts and takes as much as many things as we do at trimol. And as many places around the world that we do business, that's probably not, um, totally a surprise. Uh, but okay, let's say, within within that, uh, you know, I was in, I spent a couple weeks in Europe, in July, and what I can hear,

What, excuse me? What I did, hear more of, um, was work around, energy, infrastructure and defense.

um, if I look at the US and with customer sentiment and where we see strength, it's um, not surprisingly in data centers, um, in our civil infrastructure,

Um, as well as in the energy that we need to, you know, to feed the, um, to the AI and the data center work, that's, uh, that's happening. So seeing you know, some positive Pockets there. I feel like there may be more reinforcement of pockets as opposed to, uh, as opposed to new as to as opposed to new pockets. And then in terms of the you know let's say it's to extend customers are facing inflationary pressures which is a real which is a real topic.

Um hey, we sell productivity and efficiency. That's the fundamentals of Trumbull. Um adopt our machine control technology.

Um, and you're doing your work 40% more productively um, use our design and Engineering tools, you build it virtually before you build it, physically and you can eliminate the rework. Before it ever happens, you're using our estimating tools and you're built and you're using those estimating tools off of highly accurate, uh, Bim models. Um, you're able to have a better handle on your underlying raw material costs, to use our project management tools and you've got a better handle um, on the labor. That's managing the work in those in those projects. So, um, I think we'd say it, we feel like we've got the right

Tools at the at the right time in the world.

Thank you for that. And then, um, I wanted to ask, um, on the the field systems strength. There, you know, that's continuing to outperform the last 2 quarters relative to expectations and and in particular some of the, the model transition that's ongoing there, you know, we often hear that in some of these more traditional applications users aren't interested in paying recurring Revenue fees for their Hardware or for their systems. So maybe, um, help debunks that or, or help us understand what's working in that model transition. And um, if you have any early indications on, um, renewal rates or anything like that, that will help us understand what that motion could look like on a go forward basis for you.

Yeah. Hey Kristen great uh, great question. Um, I'll back up to overall Trimble and then Zoom back down into to deal systems. Um, I think there's nothing like uh, math to answer your question about um, the the customers have a, willingness to adopt or an inverse of resistance to the adoption. You know, we stand um, you know, today at over a 2.2 billion and annualised, recurring Revenue that was up. Um

You know, 14% organically in the, uh, uh, in the quarter. Um, that's, uh, that's about the best proof point. I can give, you know, we were 1/3 are as a company 5 years ago, 2/3.

Uh, $2.3 billion today. Now, of course, the majority of that has been driven by...

adopt and what we see uh are is the following and then probably not it's not the exhaustive list but a few things

Um, it makes it more affordable. Um, so if when you move from capex to Opex, and we've seen this across all our businesses, when we converted models, we've seen that we've increased the size of the addressable Market, um, by virtue of that business model. Um, we had a number of, uh, competitive wins and competitive swap outs on machine control. Watching more of the machine control survey systems, uh, as well over the last, uh, couple of years and then the quarter as well. And if you're doing a swap of a, of a fleet, that's a, that's a substantial purchase. Um, and when you do it, uh, through the business model,

Excuse me, this description business model. Um you make it more affordable. Um it's more than a business model though, from a customer standpoint. Um at our best, we're selling technology assurance and so when you're able to keep the sensors in the software up to date and then when you can, we have customers who will purposely buy, um, on this model so that they can have uh, every machine up to date with the latest, um, technology and not have uh, Version Control problems or multiple, you know, ages of uh, of equipment. Um, the more we can link what we're doing in aeco and that software, uh, to the work and to the field from a customer perspective. You know, they don't care if you're an aeco business or a field system. Segments of Turbo, they're doing business with Trimble and so,

Our opportunity, uh, to in our imperative to bring, um, everything that that customer can benefit from, um, together. And if we can do that in 1, the extent to, which we can do that. In 1 package, we think, is good for the customers. And if we do right by the customers, then, um, I think we'll do, uh, we'll, we'll, uh, we'll be able to take our fair share, um, of that, uh, of that value creation. Now, there's a lot more room to run Kristen. So, um, I think this will be a much slower, uh, adoption in, uh, in the hardware business than we've seen in the software. But I'd say, you know, we're going to continue this push. We think it's the right thing to do, um, for the market and for our customers and there are just there are you know, a few not many. Um, other companies out there in the world that we pay attention to who we think we've been quite who have been quite successful with it. And so we take opportunities to learn from others.

Thank you so much.

Great. Thanks. Kristen.

And our next question comes from the line of Jason Selena with keybanc capital markets Jason, please go ahead.

Great. Thank you so much for taking our questions. This is Zane mehan on for Jason this morning. Uh Rob. I wanted to ask

About the, uh, US public sector if you could provide an update there, I know you called out a little bit of softness last quarter. And we've seen you know, peers Echo that sentiment but

Maybe any.

Any changes that you've seen um in the second quarter and you know what your expectations are going into the second half of the year. I know you called out a couple of good wins but just uh hoping for an update there. Thanks.

Thanks for the question. Yeah, on the public sector. Let's break it down at the, from the federal level and the state level at the federal level and we sell

Um, to uh, uh, defense agencies, um, as well as really more, the civilian side of the federal government. And when we're selling defense, it's typically it could be survey and machine control kit to, you know, branches of the of the military. That's typically what we're selling at a federal level. Um, and then the civilian level, think about say national parks.

um, as an example, that's Federal Business is down significantly year-over-year year to date and we would expect that for, um, the overall year, in fact, that makes us feel that much better about the results that we're posting in the, in the business, as well as in field systems because it has to overcome that, uh, that headwind

How that's going to shape. Now that the reconciliation bill is, um, done. And what that looks like going forward, I'd say Let's, uh, let's see. I would expect

Probably see more, come back in the defense side than the than the civilian side. But uh, you know stay tuned. These are multi-year programs. By the way, they can take a long time for Appropriations to happen before the programs. Um,

so there in that, respect to echoing sentiment, you've heard from others, um, but let's talk about the state level, um, at the state level,

Department of Transportation, um, are actually quite strong. Um, at the moment, there's a lot of construction happening. Of course, this does intersect the federal government. Um, because I'm talking about the, uh, the infrastructure bill,

At the moment is um, State budgets are strong, uh, and transportation, um, work. I I don't know where I lived here in Colorado. Um, can't go to many places, um, on the highway without some orange. Um, barrels love seeing those orange barrels and love seeing that Trumbull machine control and Survey kit that's out on the roads. Um, here we actually had a nice win with the State Department of Transportation to help them, do their in Colorado, to help them manage all, um, their overall assets and the state Beyond, um, the work that actually happens, um, out in the out in the field. So, that's a real bright, uh, spot. Um, is at the state level with the dots and then, uh, where we sell, uh, to other software to State, um, governments, and state and local governments. Uh, I'd say that's about the same and that's a little bit softer and elongated sales Cycles. Um, we've seen there, um, added all together and it's been a net positive with those State budgets here in the US at the dot level.

Got it very clear. Thank you. And then um follow up on tc1, roll out in Europe. Uh I know that's still early but maybe you can just give an update on you know,

How how to roll out has been going? What adoption has looked like and

You know, kind of puts and takes between Europe and North America.

Yeah good question. Uh you're right it's still early I'm in tc1 to be let's say 2 definitive uh about it.

Other than to say, when we look at the overall, tc1 booking is on a year-over-year, uh, basis for the business and, you know, they've almost, uh, doubled on a, on a yearly date, uh, or excuse me on, in the quarter. They've almost doubled actually the year to date as well. Um, doubled.

So you're in Europe as a part of that um for that uh that math to play out, I'd say the early reception feels good. Um, to me what I want to think I appreciate is that team we have in Europe um has done a nice job of um working together and collaborating from the field and the aec Oak Side work, especially where I've seen it with large projects and some of our larger customers. So, an absence of having, you know, tc1 fully uh, available fully and elegantly available, um, have done a nice job of doing the right thing to bring the portfolio to customers. So I'd say, I I remain optimistic about what tc1, uh, and how how it will do and how it will perform, especially as we continue to roll out the project management into Europe. We think that'll be uh, important for the tc1, bundle to have uh that. And then if the overlay that on

Context of energy, uh, infrastructure.

Uh defense spending, I don't know if it really does play through and places like Uki and Germany and elsewhere in Europe that would be a positive setup for tc1.

Makes sense appreciate the color. Thank you, thanks.

Thank you Zayn.

And our next question comes from the line of Robert Mason with beard Robert. Please go ahead.

Yes, good morning. Um, you know last quarter rob, you talked about um you know kind of the SMB Market was a area of relative strength uh in aeco. I was just curious how that uh held up during the second quarter and you know, how you're seeing that market um for the rest of the year. And also curious just if um you know just given maybe uptake there. If if you're tweaking your go to market to uh you know, more broadly address it

Um, hey Rob. Good morning and a good memory. You're right, uh, last quarter. SMB, we pointed out as a positive and ACO and I would say that played through uh again in the second uh in the second quarter. If there's a lot of um work on I'm talking about overall let's say in the in by the way, I'm talking to the US. Um, when I answer this question,

Um, there's a lot of work on in the US. Um, overall, of course, there's puts and takes depending on where you are in the country and what type of work you do. But overall, um, the customers have backlogged and, in many cases, those larger contractors, um, are working with, uh, more of the SMB, uh, side to execute and get all that work done. So, not a total surprise, um, to us, uh, that the relative strength that's in that part of the market. It's also a market that's under, you know, quite underserved and quite underpenetrated, which makes sense given the size of that addressable market and the low penetration overall that that's going to even be. Um, let's say doubly. So in the SMB side, 1 of the beauties of the work um that we've done both on the systems process. Um, organization side, um, our own internal transformation is we can shift resources, um, and as we move to that named account model and go to market, that's what enables it.

um, resources, uh, to find, um, the more attractive

Uh, pockets in the market, um, quicker than, um, we've ever been able to do. I would have, I would say 5 years ago, we've been probably quite slow to be able to adapt, um, to these kind of changes in the market. But when you're organized, um, around, uh, accounts, um, it is so much easier to change, uh, change those motions, um, and uh, in essence, follow the money. Now what you have to do and as SMB as a post, so let's say Enterprises, you have to be smart about how you approach those customers or you have a bit more of a mix, um, of some insight selling work. You can't put, um, people on an airplane for, you know, for every account. Um, as you move more and more down market, so the digital Market marketing motions matter, more inside, selling Mass, motions matter more. Um, that pre-sales the qualification.

Um, all of that matters more and, um, we're at a point now in this business and AEO, you know, is now 1.36 billion dollar ARR business. Um, and akko was up 16%, um, in the, uh, in the quarter and a year-over-year basis, like we've got scale to operate, um, like this, to be able to address multiple pockets in the market.

I see, I see, um, you know, a lot of discussion today and performance uh also out of the field systems but a lot of discussion. Uh, you know, on civil uh you mentioned surveying a number of times, you know, historically you've framed, you know surveying I guess, broadly as as maybe more mature from a technology adoption standpoint. And you know we keep hearing about a lot of uh you know I just call them demographic labor availability challenges in that field. I'm just curious. You know, is there is there an opportunity to maybe bend the growth profile?

Uh, upward, uh, in in that part part of the market for you.

Hey yeah, good, good question, Rob. Um and shout out to the field systems team that they had a great quarter. They've done um, really well year to date. Um, they've got a lot of transformation on um and that business. Um, I'm really proud of also what I see out of our Global dealer partner Network. We had them all, um, together in Paris for a global dealer meeting a few months ago and I'd say that level of energy enthusiasm beliefs and momentum um, and our and our dealer Channel. Um, is also gratifying, um, to see, um, to keep them. Um, let's say doing their job and doing their work, we have to continue to innovate and Supply them, the products and the solutions. Um, for them, to take to Market and in that respect and surveying, you're right. Um, we have a, a huge lack of surveyors around the world. It is a constraint to work getting done.

Now, 1 of the areas of innovation, we've had, if we take construction is in an example. Um, as you know, we continue to make the technology easier to use for the non

Licensed surveyors to be able to go out and do the work. Let's say in a building construction, um, context for example, and so by innovating, um, the, the software and the ease of use, um, of the of the technology. In other words, you don't have to understand all the underlying,

Um, technical aspects, um, of uh, of surveying. Um, to do the work, we've been able to expand the usage of the tools into market segments. Forensics is a another market segments, if you're doing an accident reconstruction, um, folks are typically, you know, if you work in, um, uh, Public Safety and you're coming out and you're doing a 3D laser scan, um, to to, to reconstruct that scene, you're not a professional surveyor. Um, you're doing the instrumentation setup. Um, you capture the survey, you bring it back to the software for the PO for the post-processing work. And so that's a form of innovation to expand the usage. Um, to other, uh, let's say players in the ecosystem now within the survey itself, you know, think about that, what is a think about, what a surveyor does, the surveyor creates a digital model of the physical Earth and and so doing they may do it in 1 of 3 ways, you know, you could have aerial

You could have mobile um, and uh, you could have terrestrial um, at an aerial level, that's I think drones. Um and that that data capture, um, mobile mapping systems have been 1 of the stronger growing. Um, segments, we've had within survey for, um, quite a few actually quite a few years now, the team's done a really nice um job um, of create a mobile mapping systems and that's a nice workflow that we can create. Because if you're doing a a mobile, um, excuse me, if you're doing an asphalt profiling, um, on a road construction,

Uh, and you use in Turbo mobile mapping technology. Then we can capture that data set, you can see where the cracks are do an asset inventory, bring that back to the office, run it through, um, the, the office applications we have and then you create a, a, let's say a set of work orders back out to the field. Um, and then, uh, for the surveyors in, in the field, doing the terrestrial

Let's say gnss like, you know, us for gnss um you know, us for a robotic total stations as Optical. Um I think about reality capture devices, these 3D laser scanners on a techn, an area of Technology called slam. Um, I mean, simultaneous location and and, and mapping that sound that's uh, this area of reality capture, we think will be a growth area that can bend that, um, curve, um, over over time. And so that's an area to look out for us in the quarters and years to come.

This is great. Very helpful. Thank you.

Great. Thanks. Robert.

And our next question comes from the line of Rob worth Hymer with Melius research Rob. Please, go ahead.

Good morning. Um, I know it's early days but the AI stuff is interesting and I wanted to ask, um, releases versus what you've got in the pipeline. Um, a little bit about your philosophy around it, where I don't know if it's, um, an investment, uh, or whether the, uh, the the cash flow is out of it, kind of are self-funding and then maybe Rob you touched on all the work you've done over the last so the team has done over the last several years on connect and scale. How is development launching Etc? Different now that you've done that for AI, thank you.

Hey Rob, good morning. Um, good question. Um, I'll see how I can do this. Uh, if I can do this in a Pity format, I think I could talk for an hour about, um, about your question. Um, you know, in the last quarter's call, we had a slide in the, in the deck as a 2 by 2 and, you know, 1 axis is where we're using, um, AI internally and then, the other axis is where it shows up more externally or excuse me. The other side of that axis is where it shows up externally. And then the other axis is, it's more driven by, um, cost efficiency or or Revenue.

Um, generating activities, uh, you know, so there's a set you're asking more about, um, uh, I think where what we're doing with customers and those releases, uh, and in that, you know, respect I can give you a number, um, of, uh, examples of what we're doing there. This looks like natural language design and, and rendering of designs and our architecture and Design Systems. Um, it's in the ER, construction Erp. It's Auto invoicing, um, and field systems for that data collection and its Point Cloud semantic, segmentation, and transportation, its autonomous, procurement and autonomous quotation is a, is a few examples of, uh, capabilities or products, um, that we have in your correct. Um, there's a much more in the pipeline than what has been, uh, been released. Um, at an internal level. I would say, gosh, it feels like, um, every function, um, in the

company, um, has work on

Um, to, to drive our own levels of efficiency and productivity, um, and quality of output. So from soft, you know, our engineers and software development to our, uh, product managers, um, creating rapid prototypes um, to our Cloud teams using it to bring infrastructure costs, um, down to cyber teams. Looking at it for a threat detection, marketing teams for um, you know, marketing copy and digital pipeline, analysis, sales Ops using it for cross sell and upsell um, analytics. Um, I could just keep going um, through, uh, you know, how our own adoption of uh, of the technology. And um to your point about the work, we've done over the last few years. Uh, it it's really made us have to uh rethink um, our own uh or say orientation to data and how we move data um, across our systems and how we have the interoperability within Trimble as well as interoperability outside.

Of, uh, of terminal, uh, as well. So, um,

I don't want to pause there. Robin, do you have a follow-up on that?

No, I mean, that's it. It's, it's exciting and it's moving fast. So that's very helpful. And then just just a related follow-up. You touched earlier on the quality of data that flows into AI models or features or whatever you want to call it. Um, how does your data and I can guess, but I'd like to hear from you differentiate from other, you know, peers and especially akko. Thank you. I'll stop.

Yeah. There's the um well I look at the breadth and depth and the breadth and depth of what we do at Trimble, right? We want to connect construction, we want to connect supply chain. We want to

Connect. Um,

Connected Forest connected utilities. Like we we think about connecting the stakeholders across the industry life cycles, we serve. Um you know arguably we've been on this path for a couple of decades and then we um accelerated that with connect and scale over the last 5 years. So that breadth and depth.

We've got data in the physical and the digital world. Like, I'd say everyone. I feel like everyone talks about connecting physical, and digital. I feel like the difference is that we can actually do it, and that's through the hardware and software and the work in the office, um, and the work and the, and the field. So, to me, there's a, a density, um, and a unique density of data. We have it's a unique, uh, quality defined quality, and skills defined as

That breadth, um, that we have um, you know, the more that you're going to think about creating an industry llm, um you're going to need. And if you have an industry llm and the big opportunities to to Really address system productivity as opposed to task productivity or system optimization as opposed to task optimization, you want that breadth and depth to be able to see the systemic uh connections uh within that industry. And so then that respect then we think we've got a unique uh access to a unique data set.

Now there's a double click on the quality of that Rob that is that there's a lot of structured and unstructured data. There's more unstructured data than there is, um, structured data and we've got to make sure we've got good data governance. Um, customers are for sure concerned about data sovereignty. Um, and

And um and the protection of that. So I'd say there's still a lot of work to be done and the underlying later layers of making sure that um

We've got uh really good quality data again. The the quality of the data is going to correlate to the quality of the output.

We'll have to think about thank you.

Thanks Rob.

And our next question comes from the line of Joshua, Tilton at Wolf, research Joshua, please go ahead.

Hey guys, thanks for uh sneaking in here, and congrats uh on a very strong uh quarter 2, 2 questions for me. If I met the first 1, um, you guys had a lot of positive commentary on SketchUp. Uh, in the prepared remarks, we did pick up, uh, I believe a price increase that went into effect in July. Uh, could you just maybe elaborate on that and uh talk to how that price increased has been received by customers?

Yeah. Hey um Josh uh, thanks for the question. I think it's early to give you like a definitive view on. Um, how it's how that's going? Uh, what I can offer. That might be more helpful as we offer a number of different subscriptions and SketchUp. The way we have a monthly subscription, we have annual subscriptions. Um uh We've sketch UPS on the App Store, uh so there's different flavors um that we have of the models and as you might be able to appreciate, um, there's an optimization factor between

Between monthly pricing and annual such that you want to get that balance, right? So that we're incenting, what we think is the right outcome um for uh for the customers, and then for our own uh, business model um, as well. And so some of that pricing change has been trying to get that. What we think is that balance right between the monthly pricing and the annual pricing we for, for sure we'd love to see customers on more of those annual uh contracts uh contracts with us. But we appreciate that. There's a role for the monthly um to fill in for certain types of users. And so we want to get that balance, right? And that pricing move we made um was reflected we think to get that optimized correctly

Sorry helpful. I mean maybe just a quick follow-up for me. Um acos obviously been a monster for you guys. It continues to be a monster this quarter. Um there was a bit of a Slowdown in the our growth compared to 1 Q. Can you just maybe high level you know give us a a elaborate a little bit more on the conviction that you have in sustaining that mid teens are growth for the full year.

Yeah, hey Josh, it's Phil, uh, let me take this 1. Um, so first of all, I'd say that the, uh, the numbers we put out there are in line, uh, with the guy in the previous guide. So, I don't think there are any any real surprises on that. Um, a point maybe a couple of things just to point out specifically, is when we do our ARR calculation, um, that's based on a recognized revenue and a quarter, um, that can vary a little bit.

A bit and I'll call it with um uh timing on how we recognize that Revenue. Um so any given quarter could move a little bit uh because of that. And so q1 was a bit higher because of the term licenses we recognize Q2 is a bit lower. I tend to look over, let's say a trailing 12 month and I think we've been pretty consistent if you look over. Uh uh, a multi quarter Horizon on that 1. Um, another piece of this is on pricing pricing for this year, um, the last couple of years with inflation, uh, we had some higher price increases particularly in the SketchUp.

Coming on the back side of like the uh, the inflation. And so that was always modeled in and uh and so again we anticipated that and that's where you see a little bit of that moderating over the the course of the year. Um,

Um, from well from q1 to Q2. And then, as we go forward, as we think about the guide, um, I will say as we think about the guide going forward, just uh, you know, I mentioned this in the prepared remarks that, uh, we are being prudent about this with the, the given macros and others and uh, Rob mentioned the the SketchUp price change. Um,

That uh, you know, being a little cautious on if there's some additional churn or not with that with that change. And so, being a little bit conservative on the back, half of the year is I think about the the carry forward on the ARR growth. But you know, if the markets, uh, continue the way they are and uh, you know, the we have a low churn um, or consistent churn and I, I should say, on, on the SketchUp pricing changes, then I'd say that we, uh, we'd be biased toward the upside of our, uh, our guide, on the, our growth, for the back, half of the year.

Makes sense and again, congrats on the great quarter.

Thanks Josh. Thanks Josh.

And our next question comes from the line of Chad, Dillard, with Bernstein Chad. Please go ahead.

Hey, good morning everyone. Um, so I was hoping you could unpack, uh, some of the trends in, uh, the quarter for AEO across, uh, you know, some of your key customer bases, Enterprise midsize small. Um, you know, where are you seeing the greatest Traction in tc1? And, you know, I guess maybe longer term, you know, which of these customer groups has the greatest, uh, you know, penetration of growth potential over the next couple of years.

Chad hey, good morning. Um with respect to the trends in aeco. Um let's take it as aeco. Bookings, to answer the question with uh with tc1.

um,

from a dollar perspective, the biggest motions tend to have a nucleus of the Erp could have a nucleus of project management.

Maybe see a nucleus of the modeling Technologies we have. Um, and then there's so then think about it. Those are the and we have, you know, we've defined over 20 plus on different pre-packaged. Um, offerings that we have. Um, but you know, that's where the centricity to those. Um, first 3 that really move the needle and probably the biggest needle, movers, um, where there's Erp in the mix. Not surprisingly,

Um, really if you think about, uh, if you think about that, um, and that's going to correlate more to the mid and large size of the market. So, we're tc1 is really moving the needles, um, where you hit 1 of those 3 motions or plays, uh, that we can, uh, that we can run, um, from a customer count, perspective from a percentage growth perspective, um, that SMB, um, is much less penetrated. And so it's not surprising to us, um, that we see, you know, gross percentages, higher, um, and those motions that are down uh, that are down Market, where we would expect to see going forward, continue traction with tc1, as we continue to globally role. Um, roll it out, further in Europe, and the asia-pacific. That'll give us more motions. I'm Phil mentioned, uh, a tuck in acquisition. We did with Trimble materials. Um, that's a great motion, for tc1, and them and then deeper linkages that we can make with the

field systems.

And we'll make with the field systems side at the business, um, as an additional, um, addressable Market opportunity, um, for us, um, to, uh, to grow, tc1, uh, bookings or or cross out bookings for that matter. You know, we can have a crossbow booking, that's not technically um TC tc1, and we'll take that as well. Um, and we just work backwards from how we best uh, can serve and reach the the customers, um, with the breadth and depth.

Of of what we've got.

A couple problem and then just a continued pulling on the thread on the AI opportunity. But I I recognize it's a little bit early but any thoughts on, you know, any changes you may need to make on your your Revenue model. Um, you know, how you approaching your your buy versus build decisions when we're thinking about this technology and then lastly, and I guess like, what's like the lowest hanging fruit right? You know from like a a development standpoint on on your end and you know from an adoption standpoint or interest standpoint you know on on the customer side like how does that intersect?

The internal and then there's the um, external facing. If we talk about, if we're a little more external facing and revenue models,

You know, we right now we're predominantly pricing. Um, it, uh, we we have these good better, best tears and then the best tier you could have ai capabilities. That's, we found that to be, um, the best way to monetize. Now in transportation, we're monetizing discreetly with autonomous procurement. And quotation is a standalone AI um products. Um, and say we're doing a lot less of um, very little um, of consumption only. It's a I do think about consumption becoming more of a monetization path in the future, you know, more so than it is today. It's 1 of the reasons we like having transportion on the portfolio is it brings that kind of DNA, um, in the house and capabilities to, to, to sell, um, on a consumption basis. So I feel like we've got optionality, um, for how we can, um, monetize going forward with respect to buy versus build Tendencies. I tend to think about that in our own adoption of AI tools and where we can use uh

Capabilities that come from the vendors. We work with, we buy a lot of software ourselves. Um, if it's already built in, I prefer that from a capital allocation perspective. Let me use what's already, um, in um, what we're buying as opposed to

Building our own um, but hey, we'll be mindful of what it costs um um because then we can ensure at times look and say, well actually do you think we could do that um, do that our ourselves? Um, and uh, at the lowest hanging fruit, you know, I could have you asked about their and certainly, there's the lowest hanging fruit opportunities internally. Um, but externally, um, as well. So, you know internally, you know, everyone talks about, um, the R&D usages I'm very optimistic about um, that intersection with

Um, product development because product development intersects product management and those um, developers. And what it may not be the lowest hanging fruit, but I'll tell you, 1 of the things. I'm really mindful of is to unlock the most out of the AI opportunity. I think it's also going to require companies, including ours to, to think about how we even structure ourselves and how do we structure teams? How do we actually rethink how work is done? Given the tools that we have? So, that's on my mind, that's not the lowest hanging fruit, I acknowledge. But I think it's important, um, that we're mindful of that to unlock um, the um opportunity and then with, with respect to the lowest hanging fruit with our customers, um, we just think about solving the customer's problems, you know, AI isn't the thing in and of itself. It's a tool. Um, we think of it as a tool to unlock.

Um, that efficiency. And if we do that and we're thinking about, um, working backwards from customer problems, I think we'll head down the right path. Um so uh thanks for the question, Chad.

Thanks Rob.

Thank you, Chad, and our final question. Today comes from the line of Tammy Zakaria with JP Morgan Tammy. Please go ahead.

Hi. Good morning. Thank you for feeding me. And I'll ask just 1 question uh excellent quarter by the way. Um so on fuel systems organic growth guide is now back to Flat. That's great to see. But your first have performance is a lot stronger than flat.

Uh, so was there any front loading by customers ahead of time that will drive a weaker back half, just just curious, how you're thinking about the back half after a very nice first half.

Hey, Tammy, it's, uh, Phil, thanks for the question. Um, yeah, I'll see there's a couple of things as we think about the back half of the year. So 1 is we keep an eye on the inventories. Uh, the inventories are in great shape at the dealers. Uh, so we haven't seen any pre-, buying ahead of uh, you know, tariffs things like that. As a matter of fact, we've seen some D stocking in our particularly, in our survey Channel. Um, so the dealer inventories look, uh, look really good from a uh, retail pull through standpoint and what's necessary, so, no concerns there. Um,

2 things on the back, half of the Year 1. I mentioned this again, you know, with the macro uncertainty and there's still some lingering, uh, tariff discussions out there. Uh, you know, we're still being prudent on the back half particularly field systems since that's a book and burn business. Um, so we're being, uh, a little bit cautious there on the guide. Um, the other thing is we started to see an inflection last year on the growth in field systems. And so the comps on a year-over-year basis. Are a little bit tougher versus the the first half of the year. Um, we haven't really seen any changes in the buying Behavior so far. Um, so this is more of us being prudent, uh, than anything else as we think about it. But again, the comps are a little bit, a little bit tougher as we think about, um, the back half of the year as well.

Great. Thank you.

Thank you, Tammy.

Conclude today's call. Thank you so much for joining and you may now disconnect have a great day, everyone.

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