The operator welcomes listeners to the Trimble Fourth Quarter and Full Year 2023 Results Conference Call. CEO Rob Painter reflects on the company's transformation and strategic progression over the past year, including the Transporeon acquisition and agriculture joint venture with AGCO. He highlights the company's record annualized recurring revenue, recurring revenue as a percentage of total revenue, remaining performance obligations, gross margin, and EBITDA margin, all of which have shown significant improvement over the past five years.

The company has seen significant growth in EBITDA and free cash flow over the past five years and has a strong market position in industrial technology. The company is focused on using its unique assets to drive profitable growth in software and technology-enabled services, expand margins, and increase overall returns through smart capital allocation. The company's three-fold framework guides its capital allocation priorities, with a focus on executing its Connect & Scale strategy and transforming its AECO software as a template for future operations.

Trimble Construction One (TC1) has been successful in expanding its pre-packaged offerings, with nearly half of AECO bookings in the fourth quarter being TC1 bookings. The company plans to continue expanding these offerings and leveraging their investments in underlying systems and process transformation. This has enabled them to have a 360-degree view of their customer set, leading to more advanced marketing and selling strategies. In 2023, more than 20% of ACV bookings were cross-sell bookings, with this number accelerating in the fourth quarter. This success is attributed to the packaging of solutions across business lines and enabled by digital transformation. Customer feedback has also been positive, with the AECO teams delivering over 30% ACV bookings growth in 2023 and a record fourth quarter.

The company is focused on delivering value to its customers and improving its business processes. They are shifting towards an account-based selling model and simplifying their portfolio by divesting non-essential businesses and reducing SKUs. The recent joint venture with AGCO has led to a reorganization of the company into three pillars, allowing for better scale and growth opportunities.

The new organization has successfully implemented changes and will now report results in a more clear and segmented manner. The company's third capital allocation priority is to return capital to shareholders, with a recent buyback of $100 million and a new authorization for $800 million. The company plans to pay down debt and focus on smaller M&A opportunities. The company is facing challenges in certain global markets, but remains focused on controlling what they can and delivering value to customers.

In the financial highlights for the quarter and year, organic revenue growth was 3% and 1% respectively, with standout metrics including a 470 basis point improvement in gross margin and $555 million in free cash flow. The pending JV with AGCO is expected to close in the first half of the year, which will bring net leverage below 2 times. Revenue trends by geography and business model show a standout ARR of $1.98 billion, up 24% year-on-year. Product revenues, excluding agriculture, were down less than 1% due to stabilized dealer inventories.

The paragraph discusses the geographic performance of the company, with strong growth in North America and APAC, but a decline in Europe due to challenging macroeconomic conditions. The Buildings and Infrastructure segment saw strong performance in recurring revenue offerings and an increase in bookings, leading to a 10% organic revenue growth. The Geospatial segment also saw growth, driven by sales to end users, but offset by a decline in sales to OEMs. The Resources and Utilities segment saw a 4% decline in organic revenue. Overall, segment margins were up due to a mix shift towards higher margin software offerings and lower input costs.

In the Resources and Utilities segment, revenues were up by 10% excluding sales to agriculture customers, but operating margins decreased due to lower revenue. In the Transportation segment, revenue increased by 1%, with mid-single digit growth in transportation enterprise software and MAPS businesses. Transporeon achieved record bookings despite difficult market conditions in Europe. Segment margins increased due to higher margins in Transporeon and margin progression in the rest of the segment. For 2024, the company expects strong ARR growth driven by AECO software businesses, with organic growth rates of 11-13%. Excluding the agriculture business, as-adjusted organic revenues are expected to grow by 4-7%. The company also expects margins to improve, with EBITDA margins between 26.5% and 27.5%. The fiscal year will include 53 weeks, which will increase revenues by $85 million.

The company expects to see a margin improvement of 100-200 basis points in 2024, driven by a better software mix and cost-cutting measures. Cash flow is expected to be 0.85 times non-GAAP net income, with the potential for improvement if tax legislation is passed. The company also plans to deleverage and repurchase shares, leading to an EPS range of $2.60 to $2.80. Organic revenue growth is expected to be strongest in the Buildings and Infrastructure segment, with mid to high teens growth in software and slight growth in product-related businesses. Geospatial revenue is expected to be down slightly due to lower sales to U.S. federal customers.

In addition to accelerating model conversions from perpetual to subscription software in their survey and mapping business, the company expects high-single digit growth in their positioning services business. They anticipate mid-single digit growth in transportation revenues, but flat organic growth due to a shift away from lower-margin hardware sales. Operating margins are expected to grow in the Buildings and Infrastructure and Resources and Utilities segments, while the Geospatial segment may see a decline due to changes in customer and product mix. For the first quarter, the company expects organic growth of 2-6% and an EBITDA margin of 26-27%. Buildings and Infrastructure and Resources and Utilities are expected to drive most of the growth, while the Ag market may be weak due to a transition in distribution strategy. Transportation revenues are expected to decline slightly, but the company anticipates improvement in organic growth rates as the year progresses.

The company is implementing a new segment reporting structure and plans to release more details on it in the first quarter. They have been busy preparing for the future and plan to host an Investor Day later in the year. The company also announced two new additions to their board. The first question in the Q&A section was about the first quarter guidance and the company explained that there are some moving pieces, with Ag being the main driver of revenue growth. The company also mentioned that they have been busy with cost reduction and reorganizing.

Rob discusses the company's momentum in Q1 and the stabilization of their supply chains. He also mentions two dynamics to consider within the Resources and Utilities segment, including market sentiment and the transition of the relationship. He explains that there may be a gap during the transition but is confident in the progress being made. Kristen then asks about the long-term plans after the AGCO JV.

Rob Painter, the CEO of Trimble, discusses the company's momentum in their TC1 platform and how it can be used as a framework for other areas of the business. He mentions the success of the digital transformation work in the construction software segment and how it can be applied to other parts of the company, such as the field systems business. He also talks about the growth in annual recurring revenue (ARR) in these areas and how they are using ideas and frameworks from TC1 to drive growth and transition to subscription-based models in other hardware businesses.

The organizational change at Trimble has resulted in a restructuring that will bring cost savings and other opportunities. The company has reoriented leaders, with Mark Schwartz now in charge of the AECO software segment and Ron Bisio in charge of the hardware businesses. This realignment has also led to a focus on cutting back on lower ROI projects. The company is confident that these changes will lead to continued growth and success.

The company made changes to its revenue potential and investments, such as reprioritizing capital allocation and moving cloud investments closer to the business. These changes have led to organizational efficiency and improved performance in the fourth quarter. Regarding Transporeon, the company saw good bookings and retention rates, but the European economy is a headwind to the business model.

Rob Painter, CEO of Trimble, discusses the company's focus on controlling what they can control and shares some statistics, including a record quarter for bookings, high retention rates, and strong margins. He also mentions the impact of new products and global product integration. When asked about the macroenvironment, Painter notes that North America is the strongest region, while Europe remains a challenge. Asia Pacific is steady.

The construction industry is seeing strength in certain subsegments such as infrastructure and data centers, but residential construction is struggling globally. The freight and agriculture markets are also facing challenges. However, Trimble's business model has become more predictable and has a high level of visibility, with $1.98 billion in contracted ARR. The company's distribution partnership realignment is ongoing, but the specific impact on the Agriculture segment is unclear.

Rob Painter discusses the realignment of distribution and the integration planning with the team for the new partners coming into the mix. Tami Zakaria asks about the progress of the digital platform, and David Barnes explains that they are currently at 15% and will likely reach 35% by early 2024. They are rethinking the scope and focus of their digital transformation.

The company is expanding its digital platform and focusing on software businesses, with a priority on the AECO business. The operating margin is expected to improve by 80-180 basis points, driven by structural improvements and increased bookings.

The company is well-positioned to increase its gross margin as it continues to grow its business. The software-centric businesses have a higher gross margin compared to product-based businesses, and this mix shift is a primary driver of operating margin expansion. The 53rd week of the year will bring in an additional $85 million in revenue, but other factors such as the lumpiness of government contracts and model conversions may offset this benefit.

The speaker discusses the strong bookings growth in the company's construction software business, which is expected to continue in 2024 due to the business's large ARR and potential for cross-selling and up-selling. The speaker also mentions the positive impact of Trimble Construction One, which allows for easier scaling and unlocks bundled offerings for customers.

The company has created an environment where they work together to help scale customer usage of their products with less friction. This has resulted in faster deal closures and a greater share of wallet captured from new logos. The TC1 agreements have accelerated and now make up 50% of the bookings in the fourth quarter, with 25% of those bookings coming from cross-selling. The company plans to expand TC1 to more regions and portfolios, and believes they can continue to grow bookings in the AECO space at a healthy double-digit level. There are both existing and new customers adopting TC1, and the conversions from on-prem to the cloud are driving uplifts and changing the nature of the offering.

The company is seeing positive results from their pricing and value-based mechanisms, with healthy uplifts and new customer wins. They are expecting a 100-200 basis point margin improvement in 2024, with the divestiture of the Ag business having a negative impact of 70 basis points on operating margins. This improvement is primarily driven by gross margin improvements due to changes in mix.

The company has seen cost reductions but has also added resources to drive growth in their AECO business, which has seen significant bookings and ARR growth. The company is reallocating their operating capital to focus on the highest-return and highest-growth business. The net retention ratio in the AECO business is near 110%, indicating strong customer lifetime value and acquisition costs. The recent segment reorganization will allow for better distribution and go-to-market strategies, particularly in the field systems division.

The Field Systems division, which includes the Geospatial and machine control businesses, has been streamlined under one leader, Ron Bisio. This has resulted in more efficient allocation of resources and a focus on long-term dealer development. It has also led to a reduction in product SKUs by 10% in the company.

In this paragraph, the speaker discusses the company's approach to their GNSS portfolio and how they have restructured their product and go-to-market strategies. They also mention being open to divesting certain aspects of the business in order to simplify their portfolio. The speaker explains that they consider both the financial profile and strategic attractiveness of a business when deciding whether to divest it.

The speaker discusses how they evaluate the strength of individual businesses and products within their portfolio. They aim to make the overall company stronger and will divest any businesses that do not contribute to this goal. They give an example of a recent divestiture and mention that they will provide more information on their 2024 guidance with the new reporting segments.

The speaker is discussing the growth rates of the company's three segments over the next three to five years. They mention that they will provide more specific information at the next Investor Day and refer to a slide in the presentation that gives a sizing of each segment's revenue for 2024. They also mention that driving double-digit annualized recurring revenue growth is a top priority and that the Field Systems segment has historically had a CAGR of 4-6%. The speaker suggests looking at past data for a more accurate view of future growth.

The speaker discusses the Transportation business and the recent addition of Transporeon to the portfolio. They mention that the company is on track to reach a 60% recurring revenue business by 2024, which is earlier than previously projected. The questioner asks about the strong bookings quarter for Transporeon and the sustainability of growth in the European market. The speaker also addresses the decision to de-emphasize hardware sales to OEMs and the potential impact on the flow of data.

The speaker discusses their company's customer conference and the impressive array of large companies that use their technology in various industries. They mention the difficult market environment and how their technology can drive efficiencies and productivity for their customers. Despite lower bookings, they believe they are maintaining or gaining market share. The speaker also mentions the cyclical nature of freight markets and how they have stabilized but may not necessarily be increasing. They have confidence in the team and the potential for strong business growth after a freight recession.

The speaker discusses the potential for increased revenue in the future and the decision to de-emphasize hardware in the Transportation segment due to changing technology and low margins. They also mention the difference in data priorities between OEMs and customers.

The paragraph discusses the importance of data feed for customers who operate mixed fleets of equipment. It also mentions the need for a gateway to bring customers onto a more functional telematic solution, regardless of whether it is Trimble or another company's solution. The paragraph concludes by stating that this flexibility is important for the market.

This summary was generated with AI and may contain some inaccuracies.