Good afternoon. My name is Terri and I will be your conference operator today. At this time, I would like to welcome everyone to the Trimble's first quarter 2018 earnings 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. I would now like to turn the call over to Mr. Michael Leyba, Director of Investor Relations.

Thanks Terri. Good afternoon everyone and thanks for joining us on the call. I am here today with Steve Berglund, our CEO and Rob Painter, our CFO. I would like to point out that our earnings release and the slide presentation supplementing today's call are available on our website at www.trimble.com as well as within the webcast and we will be referring to the presentation today. Turning to slide two of the presentation, I would like to remind you that the forward-looking statements made in today's call and the subsequent question-and-answer period are subject to risks and uncertainties. Trimble's actual results may differ materially from those currently anticipated due to a number of factors detailed in the company's Form 10-K and 10-Q or other documents filed with the Securities and Exchange Commission. The non-GAAP measures that we discuss in today's call are fully reconciled to GAAP measures in the tables from our press release. With that, please turn to slide three for an agenda of the call today. First, Steve will start with an overview of the quarter. After that, Rob will take us through the remainder of the slides, including an in-depth review of the quarter, our guidance and then we will go to Q&A. With that, please turn to slide four and I will turn the call over to Steve.

Good afternoon. The narrative for the first quarter is consistent in most ways with that of the fourth quarter and is notable for its strength across both businesses and regions. Reported revenue growth was over 20% with organic revenue growth continuing to track in double digits. Reported non-GAAP operating margins improved by more than a point versus the first quarter of last year and the improvement was even stronger after stronger after allowing for acquisition effects. We continue to operate with the most positive outlook we have had in over 10 years. Every segment and every significant region is growing and all are anticipated to continue to grow during 2018. We are also experiencing renewed higher growth in segments in which recent growth has been relatively modest, such as geospatial. We do remain observant of potential negative macro effects and volatility, most particularly in the realm of U.S. trade policy. While we are taking advantage of simultaneous vertical and regional market upswings, we continue to focus on and invest in the major multiyear secular trends that are specific to our markets. Our singular focus is on achieving leadership in the digitization of targeted mature industries and providing transformative benefits to those markets. We believe we have, in a number of cases, achieved a first-mover market position and are now at an opportune point in which the market is going through or about to go through an inflection point. In construction, we are leveraging two strong and unique Trimble attributes, our ability to connect the physical and digital worlds and our now reinforced ability to integrate data across the entire construction workflow. We believe our role in facilitating this integration in the industry is monetizable and provides us with a strong competitive position. In agriculture, we are leveraging our existing position…

Thanks Steve and good afternoon everyone. I have four main topics today. First, a quick note on our implementation of the ASC 606 standard. Second, the numbers, a review of our first quarter actuals and our second quarter guidance. All P&L metrics today will be non-GAAP numbers. Third, I will provide some additional commentary on the e-Builder and Viewpoint acquisitions and finally a preview of our upcoming Investor Day. Starting with ASC 606. We retroactively restated our results for 2016 as a total year and 2017 by quarter, which we believe provides the best set of comparative data for our investors. We believe the changes were not material on a total company basis, but naturally there were some puts and takes. All year-over-year comparisons are now against restated 2017 numbers. Page five in the presentation provides color on the context of the change and page six shows that the impact of 2017 results were reduction in total year revenue by 0.003%, operating income dollars by 2% and non-GAAP EPS by $0.03. The detailed restated results are in the press release as well as on our Investor website. As for 2018 and the impact on our first quarter results under ASC 606 as compared to ASC 605, the impact was not material. Let's start on slide seven with a review of the first quarter results. Topline and bottomline results came in ahead of plan, meeting or significantly exceeding expectations in all reporting segments. First quarter total revenue was $742 million, up 22% year-over-year. Within that, currency translation added about 4% and acquisitions added about 6%. Organic growth was approximately 12%. First quarter gross margins were 56.9%, up 40 basis points year-over-year, reflecting the underlying revenue mix. Operating income dollars increased 30% to $139 million with operating margin percentage increasing 120 basis…

[Operator Instructions]. Your first question comes from the line of Jerry Revich with Goldman Sachs.

Hi. Good afternoon everyone.

Hi Jerry.

I am wondering if you could talk about the business model for providing positioning services to automotive application? How should we think about revenue per unit? Presumably, it's a service revenue, but maybe you could frame for us the opportunities ahead and what the competitive landscape looks like?

So the correction services business is within the resources and utilities segment. And I think we have previously referenced that as crown jewel of the business at Trimble. The role of correction services today, if you look at the customer base, it primarily services the agriculture market. Secondarily, it serves the construction market. And then the third is this emergence of an automotive market. In the context of agriculture or construction, centimeters matter. In order to achieve centimeters, ubiquitously and at a fast convergence time, you actually have to subscribe to what we call these correction services and there's essentially a menu of options available for the accuracy and conversion time. Taken into the context of automotive, the context really is one of that of sensor fusion and it's the role, I would say, of absolute position because that is what the correction services are providing is absolute positioning. Now it is providing that by augmenting into the satellites with some known ground-based points, which improves the geometry plus the mathematics to correct for errors in the atmosphere to improve the accuracy of the position that's given. It is a subscription. So it's a SaaS-like business that technically a subscription business. And from a monetization standpoint and an automotive context, but really actually in all context, it's a monthly subscription. And in terms of sizing, let's say, the opportunity, certainly today the automotive slice is a very small slice of that business and it remains to be seen but we have a level optimism about the role of absolute position and how that will augment in the sense of sensor fusion with imagery and a relative position that you can get today.

Good. So thank you for the color. And then in resources and utilities, your organic growth looks like slowed this quarter compared to the run rate exiting 2017. Can you just talk about the moving pieces in terms of how organic growth played out in the quarter by region or by product line just to give us some more context on the drivers this quarter?

Sure. So the agriculture business is the largest aspect of the resources and utilities segment. The growth we have been seeing continues to be faster outside the U.S. than in the U.S. So that's the 30% plus I referenced in Brazil is predominantly driven by the agriculture business, continue to see growth in Europe and as well as Asia-Pacific in the agriculture business. The U.S. market was up slightly. It continues the pattern that we have we have seen of late. Within the segment, we also have that correction services business and that was up high single digits in the quarter. So it really came in pretty much exactly as we expected, Jerry.

Okay. Thank you.

Your next question comes form the line of Ann Duignan with JPMorgan.

Hi. Good morning or good afternoon. It's Ann Duignan.

Hi Ann.

Maybe I am just new to the story, having this ticker covered yesterday. So forgive me if this is a question that doesn't need to be asking on the call. But when you talk about operating margins up driven by volume, gross margin expansion and operating leverage, can you expand a little bit more on the gross margin expansion and the operating leverage piece? Because in my mind, those would and also be driven by volume. So what's different between volume, gross margin expansion and operating leverage?

The gross margin is reflective of the revenue mix. So you all can think of it as product mix. At a total company level, it is can be a little hard to dissect a gross margin, because of the different dynamics within the reporting segments. So if you look at the revenue breakdown, almost half software, half hardware. There is different dynamics at play. But the overall gross margins were up reflecting the underlying businesses, which is irrespective of the revenue growth or largely irrespective of the revenue growth. And then the operating leverage specifically is referring to, in this case, it's the sum of that gross margin improvement as well as cost management. And when we look at the operating leverage, we will look both at, of course, the total operating leverage that we are delivering as well as the operating leverage on the organic revenue from the business because the dynamic that we see play out within operating leverage is the acquisitions. As they come I, they tend to be dilutive to the operating leverage. And so the operating leverage at the total company level is therefore lower. And that organic operating leverage met our expectations of above 30%.

Okay. So by segment, gross margin expansion is more as mix comment and operating leverage is organic operating leverage?

Yes.

Okay. That's helpful to understand that. And then just a couple of follow-up questions on Viewpoint. Bain Capital paid $230 million for a majority stake in that asset in 2014. Can you help us understand what was the majority stake? I mean how much of Viewpoint did it own? And then post the acquisition your leverage, what's your goal in terms of how much of your debt will be fixed versus variable?

I will take the first part of the question. After being acquired Viewpoint, the majority of Viewpoint. There had been a long time owner, founder-owner and then Bain Capital came in made an investment and then took over the rest of the investment in 2014. And then after that, they also did a couple of acquisitions. So to the extent you are trying to look at a purchase price, you will end up with an incomplete analysis, if you are trying to compare that to the Trimble purchase price because quite a bit happened between 2014 and 2018. Ann, repeat the second question please?

Just your mix of debt post Viewpoint, how much would you expect to have fixed versus variable?

Well, I would say, at this point, we have the syndication or the bridge commitments from the financial institutions and that mix will sort itself out here, I would say, soon enough as we go to capital markets to take out the bridge and put in the permanent financing.

Do you have a targeted as CFO of how far you will be comfortable with being variable in this environment of rising interest rates?

Well, we would look for it, honestly when you look for a mix of different tranches of debt in terms of maturity times and rates, but it's a bit premature for me to nail down before we actually go out to the debt markets.

Okay. I appreciate the color. I will get back in line. Thanks.

Your next question comes from the line of Richard Eastman with Baird.

Hi. Good afternoon. Rob, could you talk for a minute or two on the buildings and infrastructure piece of the business? The core growth was just under 11%. I am curious could you maybe give a little color on BIM business versus civil construction business? And if there is any discernible trend difference between the two businesses going forward?

Actually, I would say there is not a particularly discernible difference. They both performed well in the in the first quarter. I think the civil business is a little bit ahead of the BIM business. The dynamics are quite probably different. So there is a few different dynamics in both of those. What's common of course is the digitization of the markets or digitization of construction. The civil engineering business today is more hardware centric and the BIM business is more software centric. We are working with civil contractors primarily and engineers in the civil engineering business and a mix of designers, engineers, contractors, especially contractors and owners in the BIM business. So some different stakeholders, but the macro theme of the digitization is the same and really the macro theme at a secular level applies to both of businesses. I would say also the other dynamic that's pretty similar is the new product introduction and the impact on the respective businesses. So for instance, the Earthworks platform in the civil engineering business continues to be a real catalyst of growth as it enables us to do many things, but one of which is to reach the excavator market and which was previously largely an untapped market. And so it's increasing essentially the addressable market of what is highest machine count in the world. And so that's one of the drivers in the civil engineering business.

Okay. And then just as a quick follow-up. When I look at the resource and utility business, maybe just a question around, have you seen anything domestically? Have you seen any buying patterns change? Or just shift relative to the dialogue that's going on in the protection side or the trade side? And then just the discussion can sometimes shutdown spending in the ag economy. And I am just curious, have you seen anything there because I am a little bit surprised, you addressed the slight growth in North America as on plan and I might have thought maybe that would been a little bit stronger here?

Well, Richard, I think the net answer for us kind of operating in the realm that we operate in, no, I don't think have seen any real impact on us in terms of the trade policy to-ing and fro-ing. I would say though that you historically taking the long view on the agriculture market, there is definitely kind of a headline factor that is involved in farmer buying patterns that you can not headline. So I would say is, in general, at this point in time people are waiting to see what might happen. But I would say at this point in time and probably for until something real does happen, people are not taking anticipatory source of actions at this point. So I think steady as she goes in that sense. And what we are seeing in our demand levels, I think, is the real market without a whole lot of speculative factor going into it.

Okay. Does that business, does the resource and utility business for the full year, is that maybe best thought of as a high single digit growth? Can it possibly get to 10% or mid-single? I am just curious because the starting spot seems a little bit lower than maybe I would have thought for the full year. Just curious how you view that segment?

I would view the segment in the mid to high single, Rick.

Okay.

I think we see enough, while the majority of the business is outside the U.S. today, the U.S. market itself, I think, is not poised for double digit with commodity prices where they are. And so in corn at the moment, even while we are seeing some replacement cycle of machines, I think it's not enough to the catalyze to double digit.

Got you. Okay. Thank you again.

Your next question comes from the line of Colin Rusch with Oppenheimer.

Thanks so much. As you guys see the growth of your asset management offerings, especially in a couple of big segments like buildings and infrastructure and then on the utility side, how are you seeing that really change your customer relationships as well as your product development roadmaps? I would love just kind of understand what that cycle starts to look like?

So to make sure I understood you, Colin, you are saying, given the nature of how the business is evolving, how our relationship is changing with customers along the way?

Yes. And integrating that with some comments around your product roadmaps and development process.

Okay. Well, from a customer segmentation standpoint, we could really apply this to almost any one of our businesses, but take it at a company level. If you do a segmentation of small, medium, large, enterprise type accounts, we can map our various businesses and on this case, I am taking it by customer size. The more you go up into enterprise level customers, so this could be the largest of contractors around the world or largest of transportation companies or the largest projects happening around the world. They tend to have a different, I will say, purchasing dynamic or relationship dynamic where they especially want to make sure they are working with Trimble and they have more single points of contact or at least a fewer points of contact. And so that's one area where we see those relationships changing. Another one and it kind of correlates to that upper end of the pyramid is professional services. So we do have some professional services capabilities at the company. And in the construction world, they tend to get deployed on these largest of projects who are really trying to figure out how to integrate all the various technologies that are available on, in this case, a construction site. And so that in itself is a very different way of engaging with a customer as a trusted advisors to how to optimize their processes and their use of technology in order to improve project delivery. And then backing into how all of the above, I would say, intersects with the product roadmaps. As you would imagine, we have customer councils, advisory councils and really in almost all of our businesses. And so it provides us an opportunity to stay close to the customers and to have a good set of advisors in that respect. And then all that meets technology. Of course, when you are in more of a software world or you are in a SaaS world, your ability to innovate can be measured in hours. And so you know where your working on a mentality of the fast fail or a minimum viable product, that's one of the specially nice things to have in a software rich business model. The pace at which you can test the development that you are doing and see what's working. So I hope that gives you a little color, Colin.

Yes. That's helpful. I will take a couple of follow-ups offline. And then the other quick question is around CapEx spending. That's up pretty significantly year-over-year. How should we think about that as we go through the balance of the year?

Well, from a total company perspective, we would love to be below 2% of revenue on CapEx and that's consistent with I usually talk about when I am talking about the company model. And then one of the biggest specific areas of spend within that CapEx is, we are building a new building, a campus that we own in Colorado and I talked about that one, I don't know if was one or two calls ago and that's where we are using 50 different Trimble technologies to help us build that building better, faster, safer, cheaper.

Okay. Thanks so much guys.

Your next question comes from the lien of Jonathan Ho with William Blair.

Hi. Good afternoon. I just wanted to start with maybe the Viewpoint and e-Builder acquisitions. You have talked about scale being an increasing differentiator in this space. Can you maybe give us a little bit more color into how to think about those market dynamics going forward?

Well, let me take a crack and maybe Rob can embellish. But I think there are maybe two considerations. One is scope and the other is scale. I think scope, as I would use it, would be kind of the breath of offering in terms of kind of what I have been referring to as the holistic solution. And the other is a matter scale, which is relative to size and kind of the ability to project. I think both are becoming increasingly relevant. So for example, scope. I think our view would be, the small to medium size general contractors really do prefer a one-stop shopping sort of solutions. So therefore scope in the sense of bringing kind of a full product range to bear and kind of being that one-stop is going to appeal to that particular segment. Whereas in terms of large general contractors or perhaps owners, large owners, there they have relative of relative degree of sophistication and kind of the one-stop shop is less preeminent there. But at the same time, the ability to deliver at scale becomes more important, just to have the capability of providing a solution in large projects becomes important. So I would say the two considerations are both scope, breadth as well as scale which is relative ability to project yourself into a situation. And scale is increasingly meaning things like professional services. Rob mentioned professional services, but it's the ability to be an effective hand-holder in a project context and really be able to deliver the goods in a changing environment. So I think that both are becoming more important, depending on kind of market context. But yes and I think both the Viewpoint and e-Builder certainly provide additional scope in terms of being more persuasive, in terms of the capabilities across the cross the continuum. But then I think that in terms of credibility with large contractors or large owners is, Rob mentioned that Trimble now has or is about to have $1 billion in relative revenue a year in construction technology, which would certainly makes us credible from the ability to be able to deliver. So yes, hopefully that's on point to your question, but that's the way I would see it.

Yes. And just maybe taking a look at the geospatial division. This looked like it was a very strong quarter and maybe a continuation on the organic side. How should we think about that on a go forward basis? Is this sustainable? Is this mainly driven by the SX10 product success? Can you just maybe give us some color in terms of how to think about that?

Yes. On a longer-term basis, I tend to characterize the geospatial segment as within the four segments as being the lower growth business. So it would tend to characterize the other three reporting segments as mid to high single digits and the geospatial business somewhere in the mid and clearly we are above the mid at the at the moment in really these last the three quarters or so. And so if I break it down on what is and what could make catalyze that to be greater than the mid single digits. So I tend to characterize it, it would be as follows. One would be the new product introductions. And the answer is yes to the SX10. It continues to be a very effective product for us. This combination of the scanner and a total station is new, new territory and we haven't seen anyone be able to match that product. And so it's getting a lot of positive press and a lot of positive use in the market. And so we would expect to see continued demand for that product. Now that's far from the only thing we do in geospatial. The other new product I would mention is the line of total stations or mechanical total stations, which we believe will position us well in the emerging markets better than we had been positioned before with that same product line. So we are able to get new feature and functionality at a lower cost and price point and that's the essence of it. So we think that technology expands a market that we can reach. And more to come in that group. So new product introduction. It's a market that's driven largely by replacement cycles. So it's acceleration or velocity in our own technology is what will drive and catalyze growth in the segment. The other parts that has been strongly growing here for really the last couple of years is that of the Applanix business, which is largely based on a set of inertial technologies and what's really been driving that has been the autonomous car programs. And that would seem to be a market that has legs to it. The slope of it, the first quarter surprised us actually just how strong that came in. We would expect that to level out a bit here in Q2 and smooth out over, call it, a trailing 12 type basis. I think it would fit the profile that in an economy that's healthy with construction and with oil and gas close to about $70 the other day, that would lead us to think that there is some positive momentum to come in that business.

[Operator Instructions]. Your next question comes from the line of Alexander Frankiewicz with Berenberg Capital.

Hi guys. Thanks for taking my questions. I just had a quick question on, at the group level, what are your expectations for growth this year from software and from hardware? If you could just split those out for me?

So I would make a good advertisement for our Investor Day coming up in a few weeks. So at the Investor Day, we will go into more detail at the product level. What I would give you a high level is that if we sort of put on the rearview mirror over the last couple years, we have been seeing the software outgrow the hardware by a pretty good clip. I think 1.5:1 over the last two, two-and-a-half years. What we saw in the last, I would say, three quarters or so is that the hardware was actually growing about as fast or actually as fast as the software part of the portfolio. And that's reflected a strength in end markets such as the civil construction market and the ag market outside the U.S. So actually a actually really good dynamic to have as far as percentages go because of course, it's the dollars you take to the bank. So on a longer-term basis, as you might imagine, we would expect the software growth to outpace the hardware. And when we come to Investor Day, then we will break it down with some are specificity by the business segments as well.

Okay. Thanks. That's helpful. And then also on the transportation segment, what, in rough percentages again, of that is attributable to the ELD mandate? And then also on that, what kind of penetration are you seeing with ELDs amongst those who have to switch over? And how much longer do you expect that tailwind to last?

Well, there's no question that ELD has been a tailwind for growth in the transportation business going on a couple of years now. If I were to size of the part of the business that's our mobility part of the business which does or largely delivers the ELD solutions and that's actually it's less than, well call that about, looking at my numbers real quick, yes, that's about half of the reporting segment that's within the PeopleNet business. But then even within the PeopleNet business, it's just a slice of the PeopleNet business. So it's a, let's call it, 20%, 25% of the business, I could say over the couple of years could probably trace something to the ELD mandate in terms of driving growth. And we are certainly seeing that in the hardware growth that's come out of that business in that they sell the hardware front and then it turns into subscription thereafter. And so, the cumulative subscriber base is growing in that business. The commentary or the narrative we have had is a very consistent narrative we have around this business is that, this just was never a cliff event where the ELD actually first phase of it went into effect in December of last year. And I think that was the question I got asked more than anything. In the second half of last year is what happens after that? I think the worry being that there would be a cliff. And we talked about a slope down in demand, but not a not a cliff because for a number of reasons. One, there is a whole series of other technologies we provide in the space. And by the way, ELD could just b e bare minimum compliance while our real differentiation happens at management of…

Okay. Thanks. And then just one quick follow-up. On the ELD subs, what kind of churn are you seeing?

Well, we don't disclose churn in this business. It's an inherently more complicated number or answer than what a simple number can provide. The first part of the mandate just went into effect. So there is very little churn that we would see on just ELD. Otherwise that would not be what we expect this soon after the first part of the mandate went into effect.

Okay. Thank you very much.

Your next question comes from the line of James Faucette with Morgan Stanley.

It's Yuuji Anderson, on for James. Thanks for taking my question. I also have a follow-up on transportation. You so all-in, can you speak a little bit to the mix you are seeing there between hardware and software there? Now that we are one quarter past the first phase of the mandate, is it fair to say that we should see substantially more software mix this year? And if so, does that kind of set up for faster operating margin expansion throughout the year?

Well, it's certainly been our narrative that as we move into a higher mix of software that we should exceed commensurate operating margin expansion in the segment. There's two segments that I would say particularly outperformed in the first quarter. And one of them was transportation. And really I think that Q1, I would probably proved with an exclamation point that this wasn't all about ELD, because it was a very strong quarter of demand in that business, which meant that it came with a lot of hardware in the quarter. So by the pure percentages of the math, I would expect that that might actually temper the percentages but improve the dollars for the overall year. So having said that, we do expect a positive trend in the transportation business as we enter, it's really in the second half of the year more so than the first half of year. So as it's the second half of the year is where I would expect to see the margin expansion, some of which is natural by the way in the fourth quarter. So you could look at the last couple of years and you could see that that's a dynamic that happens in the fourth quarter. But a step up in that, I will just characterize overall second half of the year combine that third and fourth quarter and you would see that playing out.

Okay. Got it. Thanks so much for that. And then just quickly on Europe. So it was up 38% year-over-year. I assume a lot of that had to do with Müller. But I was curious to hear a little bit more in terms of what you are seeing there between the various end markets?

So I would say, yes. Müller is based in Germany and the majority of their business is in Europe today. So that from an overall growth perspective, that was the main driver. To speak more specifically, let's say, out of or I guess I should in addition to Müller, we continue to see even if that Müller side, Germany has been good, the U.K. actually was a good quarter for us, Italy, France, Austria, Netherlands, Nordics were strong. So pretty broad-based, Yuuji.

Got it. Thanks so much.

You are welcome.

Thank you. I would now like to turn the call back over to Mr. Michael Leyba for closing remarks.

Thank you Terri and thank you everyone for attending today's call. We look forward to speaking to you next quarter.

Thank you for participating. That does conclude today's conference. You may now disconnect.