All right. Good afternoon, everyone. This is Tami Zakaria, Head of Machinery Engineering and Construction Equity Research at JP Morgan. It is my pleasure to introduce Trimble CEO, Rob Painter, and SVP of AECO, Mark Schwartz. Thank you, Rob and Mark, for joining us today. Rob, I'll start with you. Given we just came out of earnings, maybe it would be helpful to hear from you, a state of the union sort of speech in terms of what were the key highlights from the quarter, what are the things you're looking forward to for the rest of the year?
Well, good afternoon, and Tami, thanks for hosting this conversation and hosting us here today. The message of Q1 actually is quite similar to the message we've had the preceding eight quarters, which is one of momentum, focus, and clarity. Momentum in the form of the results, we can come back to that. Focus in the portfolio, we've made conscious choices with our capital allocation to invest and focus where we believe we've got the strongest right to win. Over the last, let's say, five years, we've divested 24 businesses and really focused our efforts on our construction and transportation franchises. That also is like clarity of purpose and the capital allocation we have against that.
The momentum, it was a beat and raise in the quarter, we exceeded top and bottom line expectations. Strong performance across actually the three segments, reporting segments of Trimble, we call it, think of as construction software in the form of the AECO segment, construction hardware in the form of Field Systems, and our Transportation and Logistics business. Double digit top line and top-line revenue and ARR growth in that mid-teens level. Strong performance for us on the top line, continue to generate operating leverage against that as well. Really a nice quarter, nice start to the year, which we think sets us up well for the rest of the year.
Perfect. Let's go back to the basics for a bit. We know Connect and Scale has been a core strategy. Can you refresh why the need for Connect and Scale and related to that, how does TC1 fit into that strategy?
To understand our strategy of Connect and Scale, presumes a baseline understanding of Trimble, which I'm guessing there's a mix of that in the room. Some of you, I know you very well, I've known you for a long time, others some are new faces in the room. Trimble's a 48-year-old company. I'm only the third CEO in 48 years. That's a pretty remarkable feat in of itself, particularly in a public context. That's given us a great deal of continuity in the strategy, that leadership continuity also reflects in strategic continuity. I'm 20 years working at Trimble. I've grown up in the business. In that respect, I am the ultimate insider who came into the role in January of 2020.
We pivoted the strategy to what we call Connect and Scale in January 2020 because we had a recognition that of the old adage, what got you here won't get you there. We had spent the better part of call it 2000 through 2015, 2016 timeframe being very acquisition heavy. We'd had been pursuing a strategy to connect construction and connect supply chains throughout that timeframe. Arguably, what we spent a lot of time doing was acquiring component capabilities across the industry lifecycle continuums that we serve. When we pivoted to the Connect and Scale strategy, at one level, it's actually very simple. We've got the right pieces, make them work better together. We're gonna connect the data, we're gonna connect people, those stakeholders, we're gonna connect workflow, and we're gonna connect ecosystems.
That's the connect. Scale is taking the actions to ensure that we can efficiently and effectively grow and pursue a global opportunity to do that. There's a longitudinal baseline, a progression in time that got us to that moment in January 2020 when we inflected to the Connect and Scale strategy that has served us well over the last five, six years. If I reflect on that for a moment, if that's okay.
Of course.
To reflect on the progression in that timeframe. We made conscious decisions on the portfolio so that we exited a number of businesses. We made conscious decisions on the business models at Trimble. If I look at Trimble from five years ago to today, you know, five years ago, we were 40%-something software. Today, 79% software. You know, we're software and hardware, and proudly so. That ability for us to connect the physical and digital world is connecting the hardware and software of Trimble so that we can connect work in the office and work in the field. And that software percentage has gone up to 79%. We now sit at about 2/3 of our total revenue is recurring revenue.
We closed Q1 at $2.435 billion of ARR. It was up 13% year-over-year. That's pretty rare territory to be operating at that scale. Over that timeframe of the last five years, we increased gross margins from 58% to 72%. That's a structural transformation of the company. We increased EBITDA over 500 basis points over that timeframe. We continue to do so in a very asset light manner. We run negative working capital, CapEx less than 1% of revenue. We produce that free cash flow that we have the ability to, you know, invest back into the business and or pursue buybacks as well along that continuum. Connect and Scale has been a gosh, quite a transformation for us as an organization.
Actually, I think it was a natural progression, in that transformation. We see it in the results of that first quarter.
Perfect. I think you launched TC1 in the APAC region recently. What are some of the initial wedge products in that region, and what has to happen for cross-sell, upsell economics to match North America in APAC?
I'll get us started, and then I'll let Mark contribute to this. He runs the AECO business. I'm really proud of what Mark and his team have done to transform the motions that we have in the AECO business and a lot of credit to him. The TC1 , our Trimble Construction One, think of it as a commercial framework. We do a lot of things at Trimble, software and hardware. We see that as virtuous. The breadth and depth of what we have, we think is very unique and provides a basis, a foundation of a right to win in the market. When we go to serve a customer, we wanna make it easy for customers to do business with us. That's the scale in Connect and Scale.
We see the world, I see the world a lot through product bundles. TC1 is simply a commercial offering. We have over 20 prepackaged bundles that we can take to our customers. It's making it easier for the customers to consume the technology of Trimble that serves the needs that they have, and we're able to construct it and architect it in a way that we do so on a persona-based level. Because at Trimble, we serve architects, we serve engineers, and we serve contractors, mechanical, electrical, plumbing, steel, concrete, the subcontractors. We serve the general contractors. We serve owners. We have a number of solutions like, you know, to serve each of those personas. We want to make it easy for those personas, those customers, to access our technology.
There's a set of product motions that we have in place that do that through the bundling. I like to say, what do I like better than the bundle? It's the rundle. It's the recurring revenue bundle. We've changed those business models over time. You see that reflected in the ARR progression I talked about. Of course, what we like better than the rundle is the trundle. It's the Trimble recurring revenue bundle. Right, the bundle, the rundle, the trundle. That's the business model. It's one thing to have the product motion, but business happens at the intersection, we think, at product and go-to-market. We've had to align the go-to-market motions to ensure that we could deliver that product motion at scale to meet the global opportunity.
A lot of credit to the team for what they've done. We transitioned to having one selling organization move to named account user model such that those sellers then are accountable and responsible to deliver everything that Trimble can do in order to help solve that customer's problems. The challenges that customers face in this industry take some form of doing the work better, faster, safer, cheaper, and greener. Get the product motion right, get the go-to-market motion right, that's where the magic happens. That magic we see happening, unlocking cross-sell opportunity. When you do as many things as we do, as many capabilities as we can bring to bear for customers, where you can really see that show up is bringing more of what we do to that customer.
That's why when we look at the net retention ratio stacks, we pay so much attention to what kind of cross-sell are we driving. At a company level, when we put out our last Investor Day model in December of 2024, we articulated a path to over $1 billion of cross-sell we see within the AECO business and over $400 million in transportation. Where Mark, I'll transition to you is, talk about the global rollout of that and where do we start and where we've gotten to most recently?
Yeah. I mean, Asia Pacific is the natural, I would say, finishing spot for the digital transformation work that we had been going through, you know, since 2021, rolling out these systems, processes, organizational design, and technology to drive our go-to-market function. Why was Asia Pacific last in that rollout would be because that was where we had the least amount of global capabilities of software. Over the years, we've expanded our capabilities to be able to deliver, and thus TC1 was the natural delivery mechanism to onboard at this time. We've rolled that out now. Historically, in Asia Pacific, we would've been dealing with our engineering product lines like Tekla, as well as SketchUp, so heavily design and engineering-oriented.
Recently, we've brought project management into Asia Pacific and we have other capabilities coming down the pike. We've shifted the contracting mechanism now to be TC1 and finish the organizational design in that area to help continue to grow the business with the same success we've seen in Europe and in North America.
TC1 , is there a target to roll out a similar platform or strategy in Field Systems and transportation and logistics, or are those two segments not suited for that kind of, strategy?
They're very much suited for the strategy. We'll probably call it something different, so I'm not wedded to the name. I guess Trimble Construction One wouldn't go over so well in transportation market. We won't call it that, but the essence of the bundled capabilities, you know, we already have the ability to do that within Field Systems with Mark's business. You know, half of our Field Systems segment is software already today. We're predominantly selling that through channel, our channel partners, and in Mark's business in AECO, predominantly selling that direct. If you're a customer of Trimble and you're buying from both, let's call it both sides of the house, you don't care about an internal distinction.
You always work backwards from the customer, and we're having, we think some pretty good success with that already, within Field Systems, and I believe there's a lot of room to run for us. I would still say we're relatively early in the game. We're not at the beginning of it, but we're not yet in the middle of it. Transportation, I think that manifests as being also probably pretty reasonably early in the game. You know, we measured, you know, last year more than 20% of our bookings were cross-sell bookings. We're doing it already without all the in that side of the business without all the, I'll say, enabling mechanisms completely dialed in, and I'm okay with that.
Actually, I'm encouraged by that because I can already see what we're doing without all of the cylinders firing.
Perfect. I'm gonna switch to a question that I've gotten a lot since your earnings call, and I thought it would be a great place to ask that question so everybody gets to hear the answer.
Is this AI?
It is. On the SketchUp Claude platform, the partnership, who owns the data and the outputs created through the workflow and what specific guardrails are in place around data access, retention, model training and you know, the whole nine yards?
Yeah. I'll start. Mark, why don't you add on to this as well? Hey, we see this as very virtuous, what we've done and one of many things that you'll see from us in time. If you have no idea what I'm talking about right now, we launched a service inside of Claude where you can create a SketchUp model. If you don't know what SketchUp is, think of architecture and design model, a 3D model. Through natural language prompting, I can create a SketchUp model, a beginning of a SketchUp model in Claude. To do that, I have to have a Trimble ID. That means you're a Trimble customer, and we know who you are.
You create that model in Claude, and you download it, and you import it into our SketchUp design package. Like, to make the model usable, you need to have it in an authoring tool, and we are that authoring tool in SketchUp. To us, we see it as a path, at least early on, where we'd like to see us reaching new customers, a set of users that weren't using us before. The professional-grade user of the, of SketchUp in this example, they're using SketchUp to do their work. It's not You don't do your work or complete your work with a model. You need to collaborate on that model with a set of stakeholders inside and outside your organization. You need to do professional-grade analysis.
Could be daylight analysis, energy modeling, structural detailing, rendering that you can't do inside that LLM. We see it as an entry path to what we think could create some new addressable market for us. Through that Trimble identity, we know who the customers are. We can see what they're doing once the models come into SketchUp. There's a natural sort of product-led growth path that we think we can take those users and customers on over time. Now if we go back to the data question, on, you know, the model is the customer's model, Anthropic can see the natural language prompting that's happening inside of Claude. In that respect, they see the queries there.
We actually understand the context of it and what you're doing with that model once you bring it into our authoring tool, which is where we think the value lies, in it. Did I leave anything out?
No. I mean, I would just add that, you know, the model creation is in a proprietary format that only works in SketchUp. When you talk about the data, what's actually being created is Claude's interacting with our MCP servers to create this file that's a proprietary Trimble format that then can only be used in a Trimble system and authoring to take it the next step of the way. Yeah, again, we look at it as, like, reaching more customers in an under-penetrated market, learning more about what they're trying to do with the technology and the capability, and then being able to interact with them and upsell other products once we understand what they're trying to do and how they're using digital construction technology to accomplish whatever task they're after.
For us, it's a great visibility mechanism. It's yet another way to get our technology out there. We still have plenty of moats and barriers up to help protect the core as we look and explore these new routes to market and new ways to reach more users.
Another thing, Tami, if I can just add to that is, within the SketchUp tool itself, and by the way, any of the other software applications we have, there's a you can have a SketchUp AI subscription today, an add-on subscription. You know, for that professional user, we see them using our AI capabilities within the tool they're already using as an extension of that.
Follow-up question on that. You talk about credits and tokens for SketchUp AI. What are you learning from usage and credit consumption? Are users consistently exhausting credits? Is the number of credits being used coming down as the models get more efficient? What does that imply for pricing and packaging down the line?
I'll start with the last part first. What I would expect to see from Trimble on a go-forward basis is a higher percentage of hybrid business models, consumption-oriented models, which should hardly be a surprise to the audience. If you're not thinking about it, you're not thinking. The good news is it's not a hypothetical for us. We already deliver easily a couple hundred million dollars of our revenue through some form of consumption, whether that's transaction-based. We have a hybrid model, that's SketchUp AI as an add-on subscription with certain credits that come with it. We think about good, better, best tiers.
That's actually been the starting point and foundation where we drive customers who wanna use the AI features into the best version of the product that is on that named user license. It stands to reason, though, over time, I expect to see more of the hybrid base in the monetization. What we see so far through this, and it's early, so to draw any definitive conclusions, I think would be misplaced. What we see right now is the credits are being consumed, so that's good news 'cause they're being used. They're not being over-consumed or under-consumed. You know, clearly we wanna track the direction of travel on that.
You know, we don't see it like the in a good, better, best tier, by the way, it was not really charging on the token or a credit. You know, you in a way you expect like the gym membership. You know, you're you got a few people who show up all the time. You're not making so much on them, but you got a lot of people that pay that membership, and they're not there every day. Like, it all works out. In a good, better, best tiering, like you see some form of that, a Trimble form of that. If you go pure hybrid, there's a certain amount.
There's the nature of that activity, you can get, like, really good data, and it's the telemetry actually which becomes super valuable to be able to track how people are using the product. We'll learn, and we'll figure out how to, you know. I would totally expect that we will see that pricing adapt over time.
I want to move on to Document Crunch, but before I do that, if anybody has any questions in the room, feel free to raise your hand, and we'll get a mic to you so you can ask your question. Regarding Document Crunch, which you acquired recently, I think it's an AI-powered risk management category, if I remember correctly. What is the first integration workflow you plan to deliver inside TC1 , and what is the rollout timeline?
The first order of business, of course, is integrating the group into the broader Trimble and getting the go-to-market motion running, which has been our focus through the M&A process. Now that we're kind of through that, and it's off and running, we're focused on the technology integration into the broader ecosystem. The first places we're looking at is to bring that contract intelligence through to our different stakeholders in the field, one through Trimble Connect, and two through ProjectSight. Those user bases out in the field that need to interact with the contract and intelligence layer on top of the contract every day as they're dealing with compliance, payments, progress reports, change orders. All of that is relevant and interacted with through the field applications and collaboration. That's where we're looking to enable first.
You know, we should be well on our way to having that out in the market, you know, inside, you know, of 90 to 180 days, we should see the first inkling of that.
Understood. Just to dumb it down a little bit, is it gonna be an add-on bundle, trundle, bundle? Like what, how would you layer it on to TC1 ?
The visibility into the contract is think about that like today we have collaborators that we don't charge for. People that wanna interact with the data we already have, but not create data and or do the work. There's an element of users out there that will be collaborators. They'll just need to see the contract or see the risk associated with the contract that they're trying to comply with. When it comes to interacting with the contract or interacting with the compliance layer, and gaining intelligence for that's charged for today on a project basis.
Understood. Staying on AI, beyond Document Crunch, what other, sort of AI-first categories, adjacent to execution workflows are you most interested in building? Is it scheduling risk, cost forecasting? What are most AI friendly?
The horizontal workflows that are less construction-specific in nature are actually the easiest to enable. As we think about scheduling, which even in construction, you're still dealing with Kanban boards and Gantt charts, that's fairly easy to enable in an AI-first way, in a predictive way, especially when we have the proprietary set of how the data decisions are made to adjust schedules and adjust the forward-looking schedule and how you might react to different contractors moving around in a complex ecosystem. I view that as one of the easiest for us to AI enable in the future. I also look at things like change order management and other derivatives of the contract that operate off of the compliance layer of a contract to be also AI enabled.
I look at things that are more platformy, and less construction-specific that can help really accelerate our capability set and be agent first.
If I may, maybe for the benefit of the room, trying to sit in your shoes, you know, this was a tuck-in acquisition. we have the breadth and depth as a real strength of Trimble. I talk about that in terms of trillions, billions, millions and thousands. We have trillions of dollars of construction run through Trimble systems, tens of billions of freight run through Trimble systems, millions of users of our software around the world, hundreds of thousands of instruments and machines in the real physical world, the physical world, operate, are managed by Trimble. That's pretty darn unique, that breadth and depth.
We serve surveyors in the field, we serve the architects, the engineers, the general contractors, the subcontractors, and the owners across that project life cycle from the planning feasibility phase through design, bid, build, operate. Like, there's a breadth and depth that we have. With the go-to-market reach we have and the bundling mechanisms we have, it stands to reason that we have a real opportunity for land and expand plays off of the capability set we have. We aim to do, we'd love to do one a quarter of the land and expand plays. We've been shy of that. We've been probably closer to three of these a year. We've really been talking about this one more because we see this as creating a whole new category.
We think there's more that can be done with that. In the context of the trillions of construction that run through us, the tens of millions of projects that sit in Trimble collaboration, common and connected data environments and the reach we have of project management. So much of that contract management and AI-based risk management that sits at the core of Document Crunch touches that breadth of that capabilities. You think about tens of thousands of customers that we think are applicable for this solution, then yeah, we get excited about that and run it through the go-to-market motions. That's what I think you'd wanna see from us, is where can we create velocity out of new capabilities that we can bring in.
This is just a very good one of many land and expand plays we wanna run.
Any questions in the room? I wanted to ask about AECO, which had another strong quarter, and I think you're targeting mid-teens ARR through 2028, right?
Seven.
2027. We're not too far from that. What are some of the leading indicators of any potential acceleration or slowdown in ARR from your seat?
Actually the formula's pretty simple. You know, we start with looking at the addressable market. The markets we serve are large, global, underserved, and under-penetrated. The market itself has a secular adoption of technology. The digitization that's taking place at Trimble. You can see by read-through of peers that we're generally growing. That to me sort of confirms the secular. You know, construction, we think trust we all understand it's a multi-trillion dollar industry, so it's a large industry. Most of us probably understand the data shows that this industry is a technology laggard, which fits the narrative of the secular adoption of technology. We like what we see there in terms of you gotta be in the right market.
Now when we get closer to the coal face of executing, and looking at the ARR growth, okay, well, how are you gonna grow ARR? Well, you gotta book. When we talk about ACV bookings, you know, contract value bookings, what do you gotta have to have the bookings? Well, just, you gotta have obviously the right product set. I've walked through that of where we think we're unique and different. Then at the go-to-market motion, you know, we talk in terms of people, pipeline, and productivity. People, you gotta have the feet on the street. You still do have to have sellers out there working with customers.
When you look at the pipeline, think of, you know, when we moved to named account user model on the marketing side, that looks like account-based marketing strategies. I think we still have a lot of room to run in terms of the marketing sophistication at Trimble. We're not interested anymore in being a house of brands. We wanna be a branded house. Trimble first. That's what customers expect from us. We are doing more work to get that Trimble brand out there, that name recognition, supporting that brand, not the house of, you know, many brands that we've acquired over time. We see that pipeline growing to support that. Then process, like we look for efficiencies.
We look for significant productivity out of the team, every year that measures double-digit for what we expect, which we think is reasonable given the value proposition of what we offer and how much more technology-enabled we've made that whole process along the way. Do that math. The market's there. You've got the formula to deliver, and we can put the feet on the street, and we can run plays like the tuck-in acquisitions that just, you know, give us the new thing to talk about. Now I haven't even said AI, and then what happens when we can solve bigger problems for our customers.
Let's talk about Field Systems. The first quarter was very strong, and your full-year guide sort of implies moderation.
Is that realism? Is that conservatism? Do you see reasons to be cautious, rest of the year? Explain the implied moderation.
Yeah, it's a good question. It's a fair question. It's the strongest performance I've ever seen in the business. I'm 20 years at working at the company, so hats off to the team in Field Systems who's delivering on a global basis across the portfolio. Most particularly, within the civil construction space, just outstanding performance. Not only is the work going well on the channel side and that reach to market, on the product side continue to create new relationships with OEMs, continue to extend capabilities on new machine types, continue to extend reach through third parties. We opened up the ecosystem where there's some functionality that we're not getting to fast enough ourselves, that we've got partners that can help us.
All of those have us in a position where the data we see says that we're increasing our market share so that, you know, we are outgrowing the market. Like, the team is really executing well. Play that forward through the rest of the year, I think about it in two respects. Hey, on a longitudinal basis over the last few years, it's been a strong CAGR in the business, and that strong in this case that we define as that mid to high single digit. We had that segment as 200 basis points of headwind with model conversions that we're still working through in Field Systems. We're through that by and large in AECO and in the Transportation business.
I look out at the rest of the year. I'd say I've been doing this for a few years now. I think it's a mistake to raise a guidance after a first year. It'd be very cautious when you do so. We had a very modest raise of that guide, so it was less than the beat. Thus Tami's question is relevant to say, okay, why is that? Is it the level of prudence and caution in the market? My answer is I wanna ensure we've got freedom to operate the business and not get ahead of ourselves. Let's see what happens with interest rates. Let's see what happens in the trade war moves. That is really the story.
No pull forward in demand, from the first quarter. We didn't see that.
Trimble technology outlets, you've talked about it at the Analyst Day too. How many do you have now? What's the end target, and why this strategy now?
Yeah, you work backwards from the market opportunity, and we believe there's an opportunity to better reach customers, meet them where they are. I would say virtually every contractor in the world operates some, operates a mixed fleet, a rainbow color of iron. You meet very, very few companies. I don't know if it depends how you define the equipment. I would argue I've never met a customer who operates only on one brand. To meet the customers where they are, we believe it's a natural extension of the strategy to work with more partners around the world. To meet their, like, so some of the dealers that we've signed up have been John Deere dealers, or a Komatsu dealer, or a Case dealer.
Probably more of them than not have been John Deere construction dealers. By signing them up, we're meeting the demand for those, that John Deere equipment if it's a John Deere dealer. Like again, meeting that customer where they are, where they're buying, and we're seeing success in that conversion to Trimble machine control technology. We're very open for the customer to have multiple choices. You know, we're not the only choice on the market. We believe we've got the best value proposition, I'm open because we're confident. Like, we wanna be in that mix and meet, again, the customers where they are. I think we've press released probably 10- 12 of them. We've got more than that's the number of dealers.
They have hundreds of, you know, out, like, retail locations as well. We call them Technology Outlets. They're not selling everything we do. We're going brand on just for that brand of equipment with the ones that we sign up.
Transportation Logistics, the freight markets are finally looking up after almost three years. Are you seeing green shoots, and do you see this as the start of possibly a new upcycle in freight markets?
Well, it's actually been four years of a freight recession. You know, we have seen spot rates higher in Europe and North America. We've seen capacity exit the market. Put, you know, all those factors together, and it looks like there's some indications in the market that we haven't seen in a few years. I think after a few years, I'm conditioned to say, "I wanna see a few more months or quarters stitched together before I'd be willing to, you know, lift an arm." Let's see. There are some indicators we haven't seen in a while. You know, let's end on that optimistic note.
Before we end, one question, a quick one. given where your stock price is, any updated thoughts on capital allocation?
Oh, yeah. All right, great question. It's both an easy and a difficult question. Our default policy on capital allocation starts with the belief that we're paid to put capital to its highest and best use. We've got guardrails around that. We want to maintain investment grade. We've said publicly we wanna put at least a third of our free cash flow to buyback. Now you're within that frame. We went through the math earlier, and where we produce cash flow or guide would have us, you know, call it over $800 million or $800± million of free cash flow this year. We just, you know, we did an acquisition we talked about with Document Crunch, we'll preserve some freedom of movement on acquisitions, particularly the tuck-in s.
Managing attention, because I can, I can do the math on the free cash flow yield on Trimble shares today. It's you know, there's for sure a healthy tension of looking at more buyback, and the first quarter reflected that. We did over $300 million in buyback in the first quarter, and that would be, you know, that would be well ahead of the we call it an annual target in one quarter. I think it was a recognition that there's value there for shareholders.
Awesome. Thank you so much, Rob. Thanks, Mark.
Thank you, Tami.
Thank you.
Thank you.