Trimble Inc. (NASDAQ:TRMB) Q1 2025 Earnings Call Transcript

Trimble Inc. (NASDAQ:TRMB) Q1 2025 Earnings Call Transcript May 7, 2025

Trimble Inc. beats earnings expectations. Reported EPS is $0.61, expectations were $0.59.

Operator: Hello and welcome to Trimble First Quarter 2025 Financial Results Conference 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. [Operator Instructions] 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 and Safe Harbor Statement 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 divested agriculture and mobility businesses. We also adjust for the approximately $50 million of January 1st term license revenue that was recognized in the first quarter of 2024 but not in the first quarter of 2025 because January 1st, 2025, fell into the fiscal fourth quarter of 2024. We exited 2024 on a strong footing, strategically, operationally and financially.

The results of the first quarter of 2025 are further evidence of the strength of our business. To understand how we are positioned to navigate the uncertainty at the moment is to understand the quality of our performance in the first quarter, which can be expressed in three words; clarity, durability, and momentum. Clarity manifests as the simplification and focus we have brought to our business over the last few years. On February 8th, we closed the sale of our Transportation Mobility business to Platform Science, further solidifying our strategic focus to compete and invest where we have a natural right to win. Starting with Slide 4, durability manifests through the quality of our business model, which we intentionally transformed over the last few years.

Today, we are three quarter software, two-thirds ARR asset-light and operating with a strong balance sheet. We are in the business of selling productivity and efficiency outcomes to our customers, and our technologies are mission-critical. While visibility and predictability into the future is far from perfect, it is definitively higher and better than at any point in our 47-year history. In the first quarter, as detailed on Slide 5, momentum manifested in a beat across the board. Revenue at $841 million was up 3% organically and up 10% after adjusting for the timing of January 1. ARR at $2.11 billion was up 17% organically and was ahead of expectations across our segments. EPS at $0.61 was also ahead of expectations. Congratulations to our team and our partners.

Despite the strong start to the year and our current momentum, we are maintaining our guidance for the year as we feel the prudent move is to inject a degree of conservatism into our outlook. Tariffs are modest in our software-centric business and have thus far been offset with pricing. We will all know more in three months, and we will recalibrate at that point. One area of Trimble where we are not cautious is in our AI journey, where we are moving with a clarity of purpose to better serve our customers while further strengthening our own business operations. We’re not just talking, we are acting. In April, we held a virtual internal AI summit with nearly 2,500 internal attendees, where we spent a day reviewing priorities and work in progress.

In addition, we have OKRs throughout the company to drive execution and accountability to AI outcomes. Slide 6 provides a framework for how we think about internal and external applications of AI on one axis and delivery of cost efficiencies and revenue growth on the other axis. This framing helps us allocate capital with intention. For example, our product managers are leveraging AI to develop marketing and technical requirements documentation. Our marketers are beginning to generate sales pipeline with agents mining data from our CRM systems. Our sellers are leveraging AI for sales coaching. Our customer success teams are leveraging AI for case deflection and our software engineers are programming and testing with AI productivity tools. We are also releasing AI capabilities into our customer-facing solutions, from natural language prompted design to feature extraction out of 3D point clouds to automating invoices and even releasing stand-alone automation products to connect to carriers and shippers.

We believe we have a natural right to win and an AI forward emphatically so given the unique scope and scale of Trimble in the physical and digital world. With that in mind, let’s step back and share our view on the macros. And for words, opportunity, coupled with uncertainty. On an absolute basis, the uncertainty of tariffs and trade policy put sand in the gears and stoke fears of an economic downturn. Despite these fears, the business is resilient, and we outperformed in the quarter. On a relative basis, we look at how our business is competitively positioned. In this respect, if we hit a downturn, we believe we can outperform and win market share. Weak competitors will reduce investment or exit the market, and we have the ability to run cross-sell and upsell plays if new logo generation becomes more difficult.

At our Investor Day in December, we talked about $1.4 billion of cross-sell opportunities in the portfolio. We also have the balance sheet to continue to take subscription models to market in our software and hardware offerings, thus delivering more affordable access to our technology. In summary, this leadership team has successfully managed through challenging environments by applying a simple and consistent principle, position ourselves to exit periods of challenge on a stronger competitive footing. Year-to-date, the opportunities have outweighed the uncertainties. Across end markets and geographies, we see pockets of strength at the same time we see pockets of modest weakness. In the last few weeks, I have met inverse with dozens of global customers and partners in seven countries.

Most of them were level-headed and taking a wait-and-see approach. We have seen modest softness in the public sector in the U.S. and slightly longer sales cycles with enterprise customers. On the other hand, Germany’s announcement of infrastructure spend has been a positive. We see global strength in customer segments such as small to midsized construction companies and in industry segments such as data centers, renewables and mining. With that context, let’s talk about each of our segments, starting with AECO and a quote from an engineering customer who said the following, with all these technologies connecting together with AI and internet of things, having all your solutions under one platform just makes sense. This sentiment is indicative of the success we are having with Trimble Construction One and our cross-selling efforts.

In the quarter, ARR outperformed, up 19% to a record $1.29 billion. ACV bookings remained strong, growing in the mid-teens. Indicators we pay special attention to include ACV bookings, pipeline, net retention and the lifetime value to customer acquisition cost ratio. All these indicators are healthy at the moment. In the last weeks, we have launched the 2025 versions of our bema engineering and architecture and design solutions both of which are bringing new AI features to market. Moving to Field Systems. I’ll start with the quote from a customer talking about the value proposition of our machine control and Guidance-as-a-Service offering. The Trimble offering allows me to sleep better at night with the subscription, budgeting equipment costs on bids is easier, and it makes us more competitive.

I don’t have to worry about outdated software or communication between systems or that the technology we just spent thousands of dollars on is now obsolete. That’s a subscription advantage that is irreplaceable. The business outperformed in the quarter with particular strength in civil construction and advanced positioning. The subscription offering in the quote contributed to 25% ARR growth in the segment to a record $358 million. An interesting and important fact is that 50% of our customers who bought machine control as a service in the quarter were new logos once again affirming that smart business model transformations expand addressable markets. In early April, our field systems team was at the bauma Trade Show in Munich, where our technology was present on more than 20 OEM boots, signifying the importance of Trimble in the ecosystem and demonstrating our commitment to serve the mixed fleet.

Moving to Transportation. I’ll start by quoting a long-time customer who said, “We are impressed by the high quality of work and expertise that Trimble brings to a digitalization.” This quote is indicative of the fundamental transformation happening in our served industries, which transcends economic cycles, thus providing context for continued growth in an underlying freight recession. ARR and transportation grew 7% to a record $459 million. The split of revenue in this business is 40%; Europe, Middle East and Africa, 57% North America, and 3% rest of world, and our systems are mission-critical, which we believe provide a downside ballast of China, U.S. trade further deteriorates. With respect to KPIs in the segment, they are the same ones we think about in AECO, including ACV bookings, which exceeded our expectations in the quarter in which we expect to grow double-digits this year.

For market health, we look at tender rejection rates along with spot pricing for more real-time market conditions and both are relatively steady. In the Transporeon business, we can also see pretty clear industry segment trends. For example, in Europe, we can confirm what appears to be somewhat self-evident. The automotive segment is down while retail and construction materials are up. In summary, clarity, durability and momentum in the form of a strong start to the year gives us confidence and conviction to stay the course. Phil, over to you.

Phil Sawarynski: Thanks Rob. A few items to cover before turning to the slides. On April 25th, we filed our 2024 10-K no changes to the financials that we presented earlier this year. In addition, we recently announced a change in our auditors for the 2025 fiscal year. We’re excited to welcome KPMG as our new auditor. We thank E&Y for their service, and I want to offer a particularly large thank you to the Trimble team for all the hard work and dedication throughout and we are looking forward to a successful transition. Turning to our operations, let’s start with tariffs as they stand today. The total impact adds approximately $10 million per quarter to our cost of goods in the field Systems segment. We’ve already implemented surcharges to offset this, Thus, we expect no impact to profitability.

We are managing discretionary spend and directing capital to the most attractive market opportunities such as data centers and infrastructure while continuing to invest in the transformation and growth of our core business. We bought back $627 million of shares in the first quarter and have the remaining $373 million of authorization available. We continue to believe that repurchasing Trimble stock is an attractive opportunity for capital deployment given our share price today. With respect to M&A, we are primarily focused on small tuck-ins with opportunities for fast integration where we can quickly cross-sell and upsell our customer base, yielding a rapid return on investment without deploying significant capital. Let’s review the first quarter of 2025, starting on Slide 7.

As we noted previously, we have approximately $50 million of term license renewals that are recognized on January 1st. These happened in the first and fourth quarters of 2024, but not in the first quarter of 2025. The right way to look at the business progression is to normalize for this dynamic. Unless otherwise noted, I will be talking about our as-adjusted numbers, which remove the effects of the recent divestitures, which we further adjust for the January 1 term license renewals. As-reported numbers, along with the reconciliation are provided in the appendix. Organic revenue was up 10% and ARR was strong, up 17% to a record $2.11 billion. Gross margins expanded 180 basis points to 69.9%, and which shows our continued model progression despite the greater hardware mix with the field systems performance.

We achieved EBITDA margins of 25.9%, which is a 100 basis points expansion year-over-year. Reporting earnings per share was $0.61 for the quarter. Moving to the balance sheet and cash flow items on Slide 8. Our reported free cash flow for the quarter was $149 million, which represents a conversion rate of 1 times net income. Our balance sheet is strong with $290 million of cash and a leverage ratio of less than 1.3 times, which is well below our long-term target rate of 2.5 times from a liquidity standpoint, we are asset and working capital life and have the full $1.25 billion of availability on our revolving credit facility. Let’s shift to a segment review of the numbers before we close with guidance, starting with AECO on Slide 9. AECO delivered a record $1.29 billion of ARR, posting 19% ARR growth for the quarter.

operating income at 27.3% increased 50 basis points year-over-year. We continue to expect the segment to expand margins by about 100 basis points for the full year. The business continues to operate well above the rule of 40 and was greater than the Rule of 45 in the first quarter. Next, Field Systems on Slide 10. The Revenue was up 6% and ARR growth up 25% for the quarter, where we continue to successfully execute our business model conversions. Our civil construction business was particularly strong, and ARR was driven by positioning services and sales of subscription offerings. Overall, dealer inventories went down for the quarter for our businesses and are sized appropriately for the demand, taking into account the uncertainty in the market.

Operating income at 29.7% increased 280 basis points, driven by the increasing higher-margin recurring mix. Finally, Transportation and Logistics on Slide 11. Revenue and ARR were up 6% and 7%, respectively, for the quarter. The segment is now greater than 90% recurring revenue following the divestiture of the mobility business. We made good progress bringing the global transportation teams together in the first quarter as we execute our connected scale strategy, which allows us to access the $400 million of cross-sell, upsell opportunities within this segment. Operating margins of 21.2% are expected to improve in the next three quarters as we continue to execute the strategy. Let me turn to guidance on Slide 12. We are maintaining our full year as-reported 2025 guidance with the midpoint at $3.42 billion of revenue and $2.87 of earnings per share.

We’re also maintaining our organic ARR growth as-adjusted guidance midpoint of 14%. With the macro uncertainty Rob mentioned, we are de-risking our guidance by modestly reducing our organic revenue growth, driven mostly by non-ARR revenue in field systems and to a lesser extent, transportation. This is offset by the revenue benefits we see with the change in foreign currency exchange rates, along with the first quarter outperformance. We will revisit our guidance with second quarter results, and we expect to have greater clarity. Looking at the calendarization, the fourth quarter of 2025 benefits from January 1st in the quarter, which is expected to bring approximately $60 million of high-margin term license revenue. We provided an updated view of this calendarization in the earnings supplement on our Investor site.

On an as-adjusted basis, our EPS guide implies low to mid-teens EPS growth year-over-year, which is consistent with our long-term model. From a cash flow perspective, our full year view is updated to be 0.9 times net income after adjusting for the $253 million cash tax payment for gain on sale of the Ag JV and approximately $35 million in M&A costs. Relative to the prior guide, we are expecting higher cash taxes and one-time items. We continue to expect that we can deliver free cash flow greater than non-GAAP net income over the long-term. For the second quarter guidance on Slide 14, we expect as-reported revenue to be in the $815 million to $845 million range and EPS of $0.59 to $0.65 and which is consistent with the numbers we provided earlier in the year.

We expect organic growth in the second quarter to be in the 2% to 6% range. With that, I’ll turn it back to Rob.

Rob Painter: Durability in our business. This happened by design, not by accident. We are positioned to withstand market headwinds. Momentum. We saw ROI on mission-critical applications. Our Connected Scale strategy works, and we will continue to prosecute our strategy. Clarity of purpose. We have always managed with a mindset to exit challenging times on a stronger competitive basis than when we entered it. Control what we can control, embrace our values, follow the money, control our costs execute our OKRs, lead. Operator, let’s open the line to questions.

Q&A Session

Operator: We will now begin the question-and-answer session. [Operator Instructions] And your first question comes from the line of Kristen Owen with Oppenheimer. Kristen, please go ahead.

Kristen Owen: Hi, good morning. Thank you for taking the question and congratulations on a nice start to the year. So, Rob, I wanted to double-click on the field systems business. When I look at the results of some of your large peers, it almost seems like night and day. in terms of your relative performance and resilience even against sort of the broader macro uncertainty. So, I’m wondering if you can walk us through what’s working there? And if there are any shifts you’re seeing in the competitive environment? And then I’m going to ask my follow-up now because they’re somewhat related. You’ve restructured the CAT JV and since then, you’ve announced a number of these new OEM and distribution partners on the civil construction side. So, I’m just hoping you can contextualize those partnerships for us help us understand go-to-market strategy and how to think about that growth contribution to the portfolio over time? I know it’s a lot here.

Rob Painter: Hey Kristen, thanks for the questions and good morning. I’ll start with the addressable market view at that level. The market is large, global, underserved and underpenetrated. Customer lens, they demand solutions to serve mixed fleets. So, we start there. Then within the portfolio, what’s working, I look at the intersection of product and channel. And I think we have the best performing product in the market and the best global dealer channel in the world at a product level, it’s double-click there. For example, look at site works, and our site works line guidance supports the mid-tier machines. At bauma, we announced support for Tilt buckets on excavators, which is a need for Europe. So we continue to progress on the product side to perform and to meet the opportunities out there in the market.

For example, excavators are the largest machine count in the world, so the better we can serve and penetrate that market, the more we can grow our business. I talked about the business model a little bit in the prepared remarks that subscription offering. We see that expanding the addressable market. That’s something uniquely we can do. We look at workflow there, think about linking what we’re doing to link our B2W track product so that to what we’re doing out in the field and machine control so that we can connect production and compare it to plan and then create action out of that. That’s moving from the product or the solution up to the workflow. And then I’d be remiss not to congratulate the team. Ron and Scott, and the team have just a really consistent leadership and strategy and deserve a lot of credit for driving the business forward.

Really proud of the results that this team and our partners delivered and have been delivering. You asked about go-to-market and where we are on that. Well, the basis of our go-to market, of course, is the SCITEC channel, and it will continue to be so into the future. At an OEM level, we renewed our cat relationship last year, as you know, and a big congrats to gen and Joe in that transition, they’ve just gone at the CEO level. And in the fall, we announced a relationship with John Deere and working with their smart grid line of guidance and technology. At bauma, we announced a Leber relationship partnership for their factory ready dozers. And in fact, at bauma, we had technology on over 20 different boots. And then finally, we have established — and are establishing a set of technology outlets, four of which have already been signed up in these technology outlets are meant to expand the reach for OEMs that we’re working with, with a vision in mind to increase the adoption and penetration of the technology in the market.

So, the pieces are really working well together now. and very happy with the results of the business and proud of the team for delivering these results.

Kristen Owen: Thank you for that color. I’ll leave it there.

Rob Painter: Thank you.

Operator: And your next question comes from the line of Jason Celino with KeyBanc Capital Markets.

Devin Au: Good morning Rob, good morning Phil. This is actually Devin on for Jason Celino this morning. Thanks for taking our questions. I wanted to ask about kind of what you’re hearing from customers within AECO among construction owners and engineers? How are you thinking about their business and near-term project outlook — have you seen any noticeable increase in both the scrutiny or cell cycle elongating in the month of April? And have those trends kind of continued into May? Just any color there would be helpful.

Rob Painter: Hi, good morning. This is Rob. I’ll take the question. Overall, in AECO, it’s steady as she goes. The performance in the first quarter speaks for itself, the 19% growth in ARR and ACV bookings in the high teens. What we’ve seen into the quarter in the last few weeks is consistent in support to the guide we have and whether you want to call that for the second quarter or for the rest of the year. At any time, there are, for sure, pockets of strength and pockets of weakness. And I would say that’s true and really in any market. So, for sure, the market is dynamic and there’s a bit of heightened uncertainty. We’ve seen a little longer sales cycles from the largest customers we have, I kind of call it that enterprise level of customer.

They’re not — we haven’t seen companies changing decisions. We’ve seen them take longer to make decisions. But nothing that fundamentally moves the needle on our business when I say that. On the flip side of that, we continue to see pockets of strength, whether it’s data centers, renewables, you go over to Europe and you’ve got a different dynamic than what you have in the U.S. and with Germany announcing a potential trillion infrastructure build that’s put some wind in the sales of confidence out there in the market. So, a little bit of — I’d see some signals on both sides of it, but that’s positive, and we see opportunity through that uncertainty. And what we’ve seen quarter-to-date supports the outlook we have for the quarter and for the year.

Devin Au: That’s really helpful context. And then just a quick follow-up. I know you’ve called out a really healthy metrics that you’re seeing across the business. Organic ARR growth accelerated by 1 point in the quarter. Have you seen any maybe deals that might have gone pulled forward just because of the geopolitical challenges and concerns? But any dealers may have shifted more math other than have drove the strength in the quarter? Thanks.

Rob Painter: Yes, it’s a great question. I would separate software business from a hardware business on that. There’s such a thing as a pull forward on a software sale, I’ll take it all day long, but I don’t actually think that, that happened because we haven’t changed pricing in software would make that happen. So, it’s really more of a relevant question on the hardware business, which is less than 25% of the revenue we have in the company now. we think that there may have been a few million, like maybe less than $5 million of pull forward in the quarter. At the same time, though, it’s a really important metric we look at is our dealer inventories, and they went down in the quarter. So, the retail sales, therefore, outpaced even the wholesale sales. that we had to our channel. And just to make sure that clarifying that we sell our hardware predominantly through the dealer channels today and the software that we sell direct.

Devin Au: Thank you so much for the color and for taking my questions.

Rob Painter: Thank you.

Operator: And your next question comes from the line of Tami Zakaria with JPMorgan. Tami, please go ahead.

Tami Zakaria: Hey good morning to Team Trimble and congrats on the strong start to the year. My first question is on the $10 million tariff impact I’m assuming you’re taking pricing to offset that. Is that $10 million coming from mainly China? I’m basically trying to understand what the $10 million impact per quarter could look like if China tariffs come down from the current 145% rate? Or are there other countries in that $10 million?

Phil Sawarynski: Hey Tami, it’s Phil. Thanks for the question. So, the $10 million is really the product that comes into the U.S. and it’s mainly more of the Canada and Mexico products that aren’t USMCA compliant. Most of the China products, we get are very cables and batteries and low lower dollar items that we pass through some of that pricing there, but it’s not a big portion of our COGS, the main items that are driving that $10 million are coming from Canada and Mexico into the U.S. that are in USMCA-compliant?

Tami Zakaria: Understood. That’s clear. Thank you so much. And then my other question is — can you remind us what revenue exposure you have to federal sources and whether we should expect any impact from any dose-related cost cuts in the coming quarters?

Phil Sawarynski: Yes, we weren’t very bullish on the government business coming into the year. And so it was actually a very small amount in our original guide. We’ve actually removed a little bit more in the current guide as well. So, our exposure is very small for the rest of the year in the, call it, single-digit millions. So, if there’s any further cost will be a material impact.

Tami Zakaria: Perfect. Thank you.

Operator: And your next question comes from the line of Jonathan Ho with William Blair. Jonathan, please go ahead.

Jonathan Ho: Hi, good morning. I just wanted to understand a little bit better your comments around AI. Could you talk a little bit about what you’re seeing in terms of the potential here for customers to maybe reevaluate the solutions and how maybe this benefit simple from the competitive stance?

Rob Painter: Hey Jonathan, good morning. It’s Rob, I’ll take the question. from a competitive stance and a strategy view, the thing that is so unique about Trimble is the scope and scale of the data that we see across the industry life cycle continues, whether that’s in transportation, connecting the carriers and shippers over that plan procure execute lifecycle or it’s construction, connecting the architects engineers, contractors and owners across the life cycle for plan design to build to operate. So, that scope and scale is unique, and we talk about it in forms of trillions, millions, millions and thousands. We manage over $1 trillion of construction through Trimble. We manage tens of billings of trade through Trimble, we have millions of users of our software around the world and hundreds of thousands of instruments in the machines in the real-world use and operate on Trimble technology.

So, there’s something that’s really unique with respect to the corpus of data that we have. And we see customers increasingly talking about — they may not use the exact words, but talking about moving from task optimization to systems optimization, solving higher order problems, thinking about workflow and ecosystems, not just tasks or products. So, in an AI sense, I think this is a great setup for our company and the value that we can provide to our customers and increasingly in the customer conversations I have. They start and end by talking about data and how can they unlock more of their data and get more insights out of it. How do they operate in common and connected data environment to link Trimble and non-Trimble data together so that they can achieve the productivity, quality, safety, transparency, and sustainability they need out of their work?

So, with that all as a backdrop, I’m really bullish about the work that our teams are doing in the AI realm. And there’s a whole aspect of what we’re doing internally. You’re asking more of an external customer-facing question. And so we already are delivering capabilities that are AI-driven capabilities to our customers, whether it’s natural language based design to AI-based rendering and then design packages, whether it’s feature extraction out of 3D point cloud and geospatial context or automating the connection between procurement and quotation between shippers and carriers. So, there’s — to me, I just really pleased with the work that the team is doing, and we are still so early in our journey. So, I think it’s a great setup here for the path ahead of us.

Jonathan Ho: That makes a ton of sense. Can you also give us a bit more detail on the machine control as a service and how much of new businesses may be coming in through this? Are there any potentials to flip existing hardware customers? Any color would be appreciated. Thank you.

Rob Painter: Yes. On that one, what we saw in the quarter is really interesting. And actually, it’s not just the quarter, we’ve seen us over the last few years we’ve been doing this. The business does continue to grow. So the team had a record level of bookings that we call Works Plus is the offering. And the new logos that we won — or excuse me, the customers that we won in the quarter, 50% of them, more in fact, more than 50% were new logos. That’s super interesting and compelling to me. To me, that’s demonstrable evidence that the business model can expand the size of the addressable market. And we’ve seen that in every single software product where we’ve made these transitions, as we’ve seen the unit counts go up as it becomes more accessible.

What’s also interesting and it links to the back half of your question, is that we’ve seen it be used to in competitive swap-outs. I mean there’s really — I see an increasing level of competitive competitors that we are able to swap out and this business model contributes to — I mean, the overall strategy does as well. The business model makes it more affordable for the customers to make these fleet swaps to move to Trimble. So, and then what you should expect to see and hear from us over time is with that basis of the subscription offering, think about the land and expand plays to be able to deliver more value in the form of additional software and workflow that we can put on top of that base.

Jonathan Ho: Thank you.

Operator: And your next question comes from the line of Rob Wertheimer with Melius Research. Rob, please go ahead.

Rob Wertheimer: Thanks and good morning. I had a couple of questions just on digging in a little bit to the stickiness of the software business. And I guess the first would be just that we’re now a few quarters into slowdown, inflection decline in interest rate sensitive construction. I’m wondering if you’ve seen any material change in churn among your kind of your smaller and contractor costs, are smaller end customers of whatever restored in software construction? And then secondly, Rob, I think you touched on your scale and your ability to sort of gain share in downturns. I’m wondering if you had any expanded comments on what you were thinking might struggle in the software ecosystem, if it’s the downturn comes at the moment for things to flock to the bigger platforms? Maybe just talk about what you’re thinking about there, and I’ll stop. Thank you.

Rob Painter: Hey Rob, thanks for the question. On the stickiness of the software, I think the best place I can start would be comment where the net retention over a trailing 12-month basis is held steady at about 110%. That’s already a great number in and of itself and it’s holding steady. So, that’s the best evidence I can give in terms of gross retention and continuing to upsell and cross-sell in the portfolio. You asked about smaller customers and churn. Actually, we’ve seen more growth in the smaller customer base in the small and midsized customer base in the construction realm anyway, because that we see as a very untapped market. So actually quite bullish about the ability to increase the level of penetration in that market.

At the same time, I understand it’s logical that to think about the balance sheet of smaller players in the world compared to the larger ones. One thing that’s a ballast, I think, for the whole industry is there’s significant backlog overall. Now, as you know, that’s differential depending on which state or which part of the world you’re in, what end markets you focus on, I’m taking a broad paint brush to say that there’s a healthy amount of backlog. So it’s not the first thing we think about is liquidity, balance sheet liquidity of our smaller customers. So they’re doing well, and we see actually quite a lot of growth there. You asked about gaining share in a downturn and to put a little more color on that. So hey, the construction ecosystem, technology ecosystem is a vibrant ecosystem.

There’s a lot of really interesting companies out there. We have a venture capital arm where we’ve invested in a few companies. I think if you step back and look at that ecosystem, like most start-ups, most won’t make it. That’s the nature of the game. Those that do, I think many of them have turned out to be features as opposed to businesses that to get to that, there’s one thing to get to the first one, let’s say, $5 million of revenue. What tends to gate to a lot of those companies is go-to-market from getting to $10 million or getting to the $100 million of ARR. And that’s when you find in many cases, they really act more as features on a bigger platform, as opposed to stand-alone products. We’ve done a few tuck-ins ourselves in the last couple of years in AECO and in each case, what we’ve seen is when we put capability into our go-to-market arm, whether that’s in field HR capabilities or in payments as two examples.

We’ve significantly accelerated the size of those businesses by plugging it into our go-to-market engine. So, I would posit that in a tougher economic environment. It’s going to be harder for the smaller companies to raise money and to have the balance sheet to withstand storms if they come. And maybe they won’t come. But if they come, I think we’re in a position to do quite well and to gain share in a downturn.

Rob Wertheimer: Perfect. Thank you.

Operator: And your next question comes from the line of Chad Dillard with Bernstein. Chad, please go ahead.

Chad Dillard: Hey, good morning guys. So, what are you messaging to distributors about the tariff-driven pricing actions? How much are you raising price when does this hit? Is it search are? Is it a formal price raised? And then for the $10 million that you called out, is that do you expect to pass that entirely on? Or is there some sharing between yourself, the distributor of the customer? I’m just trying to think through that.

Rob Painter: Hey Chad, good morning and thanks for the question. It’s Rob. That’s a pretty easy answer. It’s North America only. It’s a surcharge. The surcharge level is 4%. So put 4% in context of what we might normally see as pricing in a given year. That is, let’s say, doable and we’ve seen the market move to that price. So, it’s actually quite straightforward.

Chad Dillard: Okay, simple enough. And then just on Transporeon, can you just give a little bit of color on what you saw in the market and how you’re thinking about that business for the balance of the year?

Rob Painter: Yes. Good question. So, in that business, I’d say, financial performance level, the business grew high single-digit on a year-over-year basis. When we look forward to the rest forward into 2025, we still believe we’ve got the pipeline to drive double-digit growth in the bookings of the business on a year-over-year basis, the profitability of the business increased. Increasingly, we’re not looking at it as just Transporeon, we look at it in the context of the overall segment. So, probably over time, we’ll talk less and less about Transporeon on its own, and that is because we’re connecting more of the Transporeon products, whether that’s visibility or marketplace capabilities and with our TMS or Transportation Management System capabilities that we have been doing more things together.

The organization is moving — has mostly moved actually already to a functional organization. So as we go to market, we can take the full set of capabilities in a more coherent way to market. And then I guess the other thing I can add, Chad, is within Transporeon we get an interesting view in the world of — from the shippers and what volume of goods that they’re moving. And so in the prepared remarks, when I mentioned that we can see automotive units down, that’s because there’s less automotive transports happening on the Transporeon platform. Conversely, we can see in retail and consumer products, we can see the units — the transport units continuing to grow on a year-over-year basis. So that’s — that insight can shape how we allocate capital internally for which end markets to go after in which geographies to go after.

And the Transporeon, as you know, is also a majority European-based today. And that gives us, I’d say, actually, probably a little bit incremental level of confidence for that business as compared to North America. I mean, both markets are in a freight recession. But at the moment, I like some of the setup of Europe, especially if Germany to the Infrastructure Bill.

Chad Dillard: That’s all from me. Thank you.

Operator: And your next question comes from the line of Robert Mason with Baird. Robert, please go ahead.

Robert Mason: Yes, good morning. The field systems ARR growth kind of steps off the page. It’s pretty impressive. I was going to see if you could drill down a little further into that. You called out both on the positioning service as well as the civil construction side. How did the growth shake out there? And I’m just are we working off a smaller base and some of the newer offerings driving the organic growth to that 25% level. And part of the reason I ask is it seems like we should expect some moderation through the year just based on the guidance and how we should think about cadencing there as well.

Rob Painter: Hey Rob, thanks for the question. The shift to ARR in the business has been very intentional. So, it’s for sure not by accident. The teams have done a lot of work to transition business models. We stand at $358 million of ARR. That’s a lot of ARR. And hey, that’s less than the $1.29 billion of ARR and AECO or the $459 million of ARR in the transportation and logistics businesses. That 25% has an aspect of strong execution, and I’ll come back to that. And it also has an aspect of there being us being newer in the transition. So, there is a lapping effect by the second half of the year that will bring us down to the guide that Phil put forward in that business and still to a very healthy level of growth. Another reason the like that ARR within field systems is I think over time we’ve had, there’s been a view on us as cyclicality within hardware business.

And to an extent, that’s true. At the same time, we see a secular adoption of technology. But to the extent that undertone of cyclicality this ARR provides, let’s say, mutes that level of underlying tone of cyclicality that would be in the business, which is another reason to like what we’re doing there with ARR and field systems. So, with respect to calling out some of the specific areas of growth, I talked about Works Plus, that’s machine control and guidance offering, we continue to grow there. And our survey business, we have a product or a solution called DA2 or also called Catalyst. So think of that as positioning GIS as a service application on a global basis, that continues to have very strong growth. And our positioning services business, as you know, as we deliver centimeter-level accuracy on a ubiquitous basis around the world, whether that’s on farms or the surveyors or construction sites.

That’s been a great business for us for a long time. We’ve expanded those capabilities in the automotive market. And so we see growth there in that automotive end market. Think about lane detection and safety systems there on paths towards automation. And then even we’ve got examples in our survey business of taking product and moving it fully to a ratable basis. So, a good amount of things happening, whether it’s a full offering of the entirety of the system or it’s a split hybrid offering where you’re paying a nominal amount upfront for the hardware and then the rest through the software. And at a certain level, that makes sense because increasingly, in the world, we think about software-defined systems, software-defined hardware. And I think we’re pretty well ahead of the curve in the competitive environment with the way we’re approaching this market, and the other results speak for themselves at the moment.

Robert Mason: Yes, that’s great. And just, Rob, you referenced Germany in particular, just we’ll see how their plan plays out. But could you just speak to how you think you’re positioned there? I know some of your bundles vary by region, but just in that region, in particular. And when would expect to potentially see some uplift around what you’re talking about?

Rob Painter: Yes. So, I was just in Germany at bauma and then actually was there again about a week ago at bauma, I’d really give a shout out not only to our team but our partners at SITECH, Deutsche Land. They’re just doing a terrific job executing. The team that SITECH team operates at scale. It’s the largest competitor in the market and that relative market share, I think, matters. They were able to pull off an off-site even at bauma to do an off-site to see the technology in action on a small job site. And that’s like that goes so far in terms of driving business. In fact, they did drive millions of euros of new business. And you could see that just — I would call it, the quality of the execution that I mentioned in one of the answers, the Siteworks product and bringing ability to support to buckets, which is very much a European need, including in Germany.

So giving them additional products and capabilities drives optimism in the market. Now, some of that optimism and [indiscernible] will be coming off of low lows — so I’ll take that, though, to the extent that any optimism there is a good thing. And obviously, it speaks for itself probably in the Civil business that’s going to correlate to infrastructure. Any sign of support for that regardless of the package, you’re right. It hasn’t happened yet. Let say just to talk of it is a new kind of conversation in the country and that provided — has provided a level of optimism. On the software side of the business, I’d say the market continues to be healthy and think about vertical construction in that respect and we have a number of capabilities.

There are a different set of capabilities that we have North America, it’s a little more engineering-centric than construction-centric. And there, the team really, I just think they do a nice job of controlling the things they can control, and that includes how we go to market, how we transform that and how we package our offerings through the TC1 bundle, and they all seem to be working at the moment.

Robert Mason: Very good. Thank you.

Operator: And your next question comes from the line of Jerry Revich with Goldman Sachs. Jerry, please go ahead.

Jerry Revich: Yes. Hi, good morning, everyone. Rob, if you just go back to AECO really outstanding ARR organic growth in the quarter. Can you just talk about how much TC1 contributed? What was that cross-selling contribution versus other drivers of the acceleration in an environment where a lot of businesses are not accelerating? And then just to put some context around your comments around longer sales cycle that you’re seeing, is that to imply that ARR growth for AECO could slow somewhere to the mid-teens in the second quarter based on what you’re seeing? Can we just put a finer point on just quantifying what that longer sales cycle means in your prepared remarks? Thanks.

Rob Painter: Jerry, thanks for the question. Okay. So ARR in the first quarter, up 19% ACV bookings in the high teens. If we look at this ACV bookings and double-click about two-thirds of those bookings are TC1 bookings. So, TC1 now is the majority of the bookings that we have. TC1 itself is a commercial framework for how we do business. And in some cases, you could be on a TC framework and still buying an individual solution. Let’s say, the good news within that would be the gives us an easier way to cross-sell and upsell to that customer because they already have the basis of foundational basis of the contract. Of course, what we think about most are the bundles within TC1 and there, we’ve got over 20 purpose-built bundles.

So, we continue to roll those out globally. More and more of the bundles are making their way to Europe, and all of that helps drive those TC1 bookings. The TC1 bookings themselves on a year-over-year basis were well in excess of the of the overall bookings in the queue being in the high teens. So, I just can’t stress enough how important this is to us and how good this has been for our efforts to go after that cross-sell and upsell, which at Investor Day, we quantified as about a $1 billion opportunity. So there’s a lot to like with the TC1 and what the team is doing. And then I also want to mention, it’s not just linkages within AECO, but think about TC1 linkages to field systems, linking estimating or tracking capability that may be technically in an AECO software to what we’re doing with the field instruments that show up in field systems.

The customer is not going to care about which segment of Trimble they’re doing business with. They’re doing business. with Trimble. And these are workflows that we can uniquely deliver. So, expect to see more connections of TC1 bundles into the civil market here this year and beyond. Then you asked about sales cycles I’ve seen it more on the very largest customers within AECO. Think about — to be even more specific, think about buying ERPs, construction ERPs construction ERP, if you delay your decision by some weeks, you haven’t fundamentally altered your ability to deliver value. And so it kind of doesn’t surprise me that we’ve seen a little bit of hesitation. In terms of — and that’s at the largest end of the market. And so when we see things like that happen, and we are pretty good about moving the motions to other parts that are moving faster.

So, we’ve seen more growth in small to midsize contractors. And we’ll move the people and the capital to where the business is and to where it’s ready to go. That business at the enterprise level, it hasn’t gone away. It doesn’t shape — or translate in any kind of meaningful difference of view that we have. And the nature of an ARR business is you can’t really go down all that fast, especially in the second quarter. So feel good about the business that we have in front of us and the trajectory of that. I’d say in the public sector as well, like that one, by the way, Phil commented on the business we do with the federal government. We also sell the state and local governments. And some of those have been a little bit slower, but they’ve been offset by where we’ve seen the pockets of strength, whether that’s sub industry segments or it’s a customer size segments.

So I hope that helps, Jerry gave you some color.

Jerry Revich: Super helpful, Rob. Thank you. And then in terms of P&L margins, Phil, obviously, you’ve got a transition going on with the divestiture. Can you just talk about where the quarter came in relative to your plan? It looks like maybe there’s some work to do to get to the full year guide that’s better than normal seasonality. Can you just expand on the timing of when those trended costs go away and how it’s playing out versus your plan?

Phil Sawarynski: Yes. Thanks Jerry. So, as we think about it, as you said, with the mobility divestiture, we do have some stranded costs this year. And so that we’re going to start out the year around that 21%. And then our guide is still at that 24% at the — for the year. And so we continue to see the margin improvement. So, think about transport and the bookings and strength that we had over the last year. As we talked about, that bookings takes a while to manifest because of the ramp time. So we start to see the inflection sort of as we progress throughout the year, and so that helps with the margin expansion as we continue to move throughout the year with that. As far as the stranded cost, as you know, some of that is around software contracts and other things that are hard to get out of immediately.

So that will take a little bit of time. So, we do expect that to still be a headwind in 2025. But as we start to move into 2026, along with some of the actions and things like that, we’re taking — we think it will be neutral as we go forward after 2025.

Jerry Revich: The downside of those software contracts. Thank you.

Rob Painter: All right. Well, we appear to have lost our moderator here for the call. This is Rob Painter. I just want to thank everybody for attending today’s call. And with that, we will hang up.

Operator: That concludes today’s call. You may now disconnect.