In the first quarter, Trimble's connect and scale strategy was successful with all three segments performing better than expected. The company saw growth in ARR, as-adjusted revenue, gross margins, EBITDA margin, and free cash flow. The presentation is available on their website and they ask listeners to refer to the safe harbor at the back. The company's financial commentary will focus on non-GAAP metrics and exclude their agriculture business. The CEO, Rob Painter, will lead the conference call and there will be a question and answer session after the speaker's remarks.

In the second paragraph, the company confirms their previous guidance for the year and highlights their recent divestitures and joint venture. They also mention their new reporting segments and their focus on software services and recurring revenue. The AECO segment is specifically highlighted for its success in connecting users, data, and workflows, and for making Trimble easier to do business with.

The company experienced success in the first quarter, with record bookings and a significant increase in ARR and margin expansion. They have shifted their go-to-market team to an account based selling model and expanded their offerings to include Trimble Construction One. The physical side of their business, focused on industrial IOT, is also performing well with a hybrid selling model and a 50-50 revenue split between hardware and software. Despite mixed market conditions, the company remains optimistic about sub-segments such as reshoring and on-shoring, EV and battery plants, data centers, and renewable energy projects.

Trimble, a company in the transportation and logistics industry, is seeing strength in the same sub-segments as AECO, particularly in infrastructure spending. However, there are pockets of economic weakness in Europe and Asia Pacific, which is affecting OEM retail unit sales and residential construction. The company is closely monitoring U.S. GDP growth and global interest rates to understand their impact on capital purchases. In the first quarter, the company saw record bookings, driven by the recent acquisition of Transporeon. The Transporeon team has reorganized their strategy and is delivering innovation, such as AI-driven products, which have been successful in a tough market environment. The company is also cross-selling their map solutions to Transporeon's European customer base. Trimble remains confident in the potential of Transporeon and will continue to invest in its growth.

The 4% organic revenue growth in the segment was driven by the enterprise and MAPS teams, with double digit growth. The segment has consistently expanded margins since the end of 2021, and with the inclusion of Transporeon, margins expanded by 480 basis points in the quarter. Phil Sawarynski, the incoming CFO, believes that maximizing long-term free cash flow is key to creating shareholder value. In the quarter, free cash flow was strong at $227 million, and the company's asset-like model and negative working capital continue to support this. Pro forma net debt to EBITDA stands at one, and the company has just under $1 billion in cash after paying down debt. The company's priority for capital allocation remains investing in the business for high returns, such as digital transformation in AECO. Over $1 billion in debt was retired in early April.

Trimble has announced an $800 million share repurchase authorization and executed $175 million of buybacks in the first quarter. They plan to pursue tuck-in acquisitions in the AECO segment and have had success with this strategy in the past. However, their 10-Q filing will be delayed due to an internal review by their auditor, EY, and they will need to amend their 10-K. The annual shareholders meeting will also be postponed until EY completes their work. Trimble is committed to resolving this issue quickly and has provided guidance for the second quarter and the rest of the year.

The company is reaffirming their initial guidance for 2024, despite negative currency moves. They are still early in the year and their global end market environments are dynamic. The company expects as-adjusted organic revenue growth in the second half of the year to be consistent with the first half. The company's outlook for ARR growth remains strong, driven by mid-to-high teens growth in AECO ARR. Overall, the company's total company full year organic revenue growth outlook is in the 4% to 7% range.

The company's revenue and margin outlook for the year remains unchanged, with expected growth in the AECO segment and margin improvements in construction software and transportation. The company's EPS forecast also remains the same, with plans to use proceeds from a joint venture transaction for share repurchases and paying down debt.

The company expects to have a free cash flow of 0.85 times its non-GAAP net income for the year, with the second quarter having the lowest cash flow due to seasonal factors and high acquisition expenses. The company's guidance for 2024 shows consistent organic growth between the first and second half of the year, with lower growth in the second quarter due to the timing of term license sales in the AECO segment.

In the fourth quarter, term license revenue is expected to increase due to the inclusion of the 53rd week in the fiscal year. ARR is considered the best measure of growth in AECO. Term license revenue is highly profitable, with higher profitability in the first and fourth quarters. The field system segment had strong sales in the second quarter but expects lower revenue in the third quarter. Overall, third quarter revenue is expected to be similar to the second quarter, with the fourth quarter being the high point for the year due to the 53rd week. Operating and EBITDA margins are expected to follow the same trends. Trimble's strategy is to connect users and workflows across industries through its industry platform and data strategy. More details will be provided at the investor day event in December.

The company aims to collect comprehensive data sets and create a competitive advantage for their business. The financial controls issue is being addressed by the company and their auditors, with no impact on the accuracy of their financial statements. The company's leadership team is committed to resolving the issue and ensuring compliance with audit standards.

Trimble's auditor, EY, is conducting enhanced audit procedures to confirm the company's financial numbers. This process may take more than a month, but Trimble has no reason to believe that their numbers will change. In terms of bookings, Trimble Construction One saw strong growth, with 80% of North American bookings coming from this offering. The company's overall bookings also saw over 20% growth in the quarter.

Rob Painter, CEO of AECO, discusses the company's growth and the breakdown of new versus existing customers. He notes that about two-thirds of growth comes from existing customers and one-third from new customers. The company's offering is expanding the addressable market, allowing them to reach smaller and mid-size companies. On the macro side, there is good growth in on-shoring, renewables, and data centers, but residential and trade are more challenged. The company has data within their systems that shows an increase in hiring in the non-residential space, with the largest growth in the Midwest and Southeast regions.

Jonathan Hull asks Rob Painter about the convergence of ARR and total revenue growth for Trimble. Rob explains that this has already occurred in AECO and transportation and logistics, but will remain separated in field systems due to its hardware business. Rob also discusses the strong performance of Transporean and the team's success in cross-selling solutions and growing network participants.

In the second quarter, the company saw a significant increase in new logos and product development, despite a difficult economic climate. However, the team executed well and had an outstanding first quarter. The margin outlook for the second quarter is lower due to a drop in term license sales, merit raises, and other factors.

The company is expecting 100 basis points of additional operating expenses due to investments in the AECO business, sales and marketing, and R&D. The remaining expenses are for a term license. The company is seeing acceleration in ARR across all segments and the acquisition of Transporeon will further drive growth. However, the company is maintaining its outlook for ARR and is focused on maintaining a balance between lifetime customer value and customer acquisition cost.

Rob Painter, CEO of Trimble, explains that the company plans to invest in their AECO segment by allocating resources to sales and marketing, R&D, and systems investments. They use a lifetime value over customer acquisition cost ratio of three to determine when to invest in the business, and currently, the ratio is well above that. This, along with their strong financial performance, indicates that they should continue to invest in the AECO market. When asked about the future growth potential of the AECO segment, Painter explains that it will come from a combination of existing customers, new products, and new customers.

The market for construction technology is large and underpenetrated, with a multi-trillion dollar size. The company is well positioned to tap into this market due to its solutions that improve productivity and sustainability. They have a strong presence in the industry and are investing in systems that will make it more efficient to go to market, allowing them to tap into new customers and unlock additional revenue. However, the majority of revenue is expected to come from existing customers through cross-selling and up-selling.

The speaker discusses the current state of the equipment side of the business and its correlation to the OEMs. They note that while the European economy is struggling, their Europe business has performed well. The company is focused on serving the aftermarket and mixed fleet, rather than being driven by new unit sales. They also mention the low penetration of technology in machine types like excavators.

The speaker discusses the potential for technology adoption in the civil construction industry and highlights their independent survey mapping business. They also mention a recent win for their Transporeon business in North America and how it was not the original thesis for the acquisition, but they see it as an additive opportunity. They also mention a successful customer example using their autonomous quotation product.

The company is focusing on introducing new capabilities to the North America market, such as autonomous quotation and real-time visibility. They have also combined teams from different regions to create a global opportunity. The hardware and perpetual software gross margin trend has been impacted by the resident ag, but the company plans to transition to more recurring revenue models, which will have a gross margin impact.

The company is transitioning to a subscription-based model, which will result in near-term headwinds to gross margins. This is reflected in the 13% ARR growth in the first quarter. The transition could result in a 200 to 300 basis point headwind in the long term. The AECO revenue line item will always have a term component due to the six to six accounting method, and the extra revenue in this segment is due to the extra week in the year and the renewals with term licenses tied to them.

The 53rd week in 2025 accounted for a large portion of term licenses in the AECO segment, which will continue to be a part of the business due to its complexity. The new segmentation has changed how the company thinks about and operates the business, providing a simpler and more focused approach for value creation. The AECO segment now operates with over a billion dollars in ARR.

The company has shifted to a scaled ARR software business model, which has allowed for a broader focus on processes and systems across various departments. This includes bringing the survey and civil construction businesses under one leadership, leading to better R&D capabilities and improved sales efficiency. The company now has three leaders overseeing these regions instead of six, which has resulted in better management of dealers and improved capital allocation. The transportation segment has undergone the least amount of change.

The speaker discusses the progress and changes made by the company over the past few years, highlighting key metrics such as ARR, recurring revenue, EBITDA, and gross margins. They mention the positive impact of the recent resegmentation and express confidence in achieving continued growth and value in the future, with a focus on ARR and free cash flow.

The speaker discusses the growth strategy for the company over the next three years, including continued ARR growth, improved gross margins, and increased EBITDA. They also mention the importance of driving free cash flow and the recent sale of a Transporeon solution to a North American customer. They clarify that the same salesperson can sell both the Trimble and Transporeon solutions and that the ACV has increased to over $400,000.

The company has a go-to-market strategy where a named account seller is responsible for bringing in a sales engineer or specialist from Transporeon to help with the sales process. This is similar to their strategy for selling Trimble Construction One. The speaker also mentions an upcoming Investor Day in December where they will provide a formal update on their multi-year targets. They will continue to provide updates in the meantime, but the baseline is already known.

The company has a baseline for its EBITDA and ARR growth, and expects to see a 100 bps gross margin improvement each year. This could lead to a positive outlook for 2027, with more details to be provided in December. The conference call has ended.

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