Ladies and gentlemen, thank you for standing by. My name is Krista and I will be your conference operator today. At this time, I would like to welcome everyone to the Trimble Fourth Quarter 2024 Earnings 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.

Welcome everyone. Before I get started, our presentation is available on our website, and please refer to the Safe Harbor Statement. Our financial commentary will reflect non-GAAP performance metrics, including organic growth comparisons, which refer to the corresponding period of the prior year, unless otherwise noted. In addition, our P&L commentary will emphasize comparables on an as-adjusted basis, which excludes our agriculture business, our recently divested mobility business, and the extra week that we had in the fourth quarter of 2024. Starting on Slide 4, we ended the year on an emphatically strong note. As reported, fourth quarter revenue at $983 million, ARR at $2.26 billion, and EPS at $0.89 were all above the midpoint of our guidance. On an as-adjusted basis, revenue was up 9% for the quarter and 6% for the year, with ARR up 16%. Gross margins at 71.7% represent the first time that we have crossed the 70% level. Kudos to our global colleagues and partners. Phil will walk us through additional details of as-adjusted performance in his commentary, which is necessary to set the correct baseline for fiscal 2025. Moving to Slide 5, our performance in the fourth quarter capped a transformative year for Trimble. For those newer to the Trimble story, we call our strategy Connect and Scale. Our technology is digitizing and transforming work in the construction, geospatial, and transportation industries. These markets are large, global, underserved, and under-penetrated with a combined addressable market of over $70 billion. By executing our strategy, We have simplified, focused, and strengthened Trimble. We now report under three segments, with leadership perfectly aligned to this structure. We have also transformed our business model in the process, delivering compelling and compounding financial returns. On an as-reported basis, between 2019 and 2024, ARR increased from $1.2 billion to over…

Thanks, Rob. On January 16, we filed our 2023 amended 10-K along with our 10-Qs for the first, second and third quarters of 2024. As we messaged throughout the process, there is no change to our filed financial results. Our full attention is now focused on working with our audit provider to complete the 2024 audit. The good news is that the 2024 audit work builds on the 2023 work. The challenge is that because of the 2023 filing delays, the timeline is compressed. We are likely to file our 2024 10-K after the March 4 due date and are working to file within the 15-day extension that is allowed under SEC rules. At this time, we believe any delays to our filing would be solely due to the tight timeframe. We are, of course working hard and doing everything we can to file our 10-K on time. Let's review the fourth quarter and the year for 2024 starting on Slide 6. Unless otherwise noted, I'll be talking about our as-adjusted numbers, which remove the effects of the recent divestitures in the 53rd-week including the January 1 term license renewals. As reported numbers, along with the reconciliation are provided in the Appendix. Organic revenue was up 9% for the quarter and 6% for the year with ARR up 16%. We achieved EBITDA margins of 27.8% for the quarter and the year, both of which expanded nearly 100 basis points. Reported EPS was at $0.89 for the quarter and $2.85 for the year. The reason we didn't see an even larger EPS outperform was primarily due to additional incentive compensation accruals and additional sales commissions. Moving to the balance sheet and cash flow items on Slide 7. Our reported free cash flow for the year was $498 million, which represents a…

Thanks, Phil. I appreciate that divestitures and the 53rd week make comparables a bit difficult. We encourage you to refer to the supplement on our website where we outline the moving parts. To keep things simple, whether we are talking on as reported or an as-adjusted basis, the message is the same. We ended 2024 on a strong note with a significant beat on our numbers, and we are carrying that momentum into 2025 with raised guidance on a constant currency basis. I'll close with a reflection on confidence and humility. Confidence that every turn is what we deliver to our customers, improving performance and unlocking insights with technology. As we execute our Connect and Scale strategy in 2025 and beyond, we are confident in our ability to execute the strategy and excited about the opportunities in front of us. We are also humble as we navigate the uncertainty in the current environment. Our highly experienced and values-driven team is hard at work to achieve the potential of Trimble. I'll close by extending my gratitude to our colleagues, partners and shareholders for their ongoing support. Operator, let's open the line to questions.

Thank you. And we will now begin the question-and-answer session. [Operator Instructions] Your question comes from the line of Jason Celino with KeyBanc Capital Markets. Please go ahead.

[indiscernible] Rob, I'm curious how you're thinking about the current macro environment. There's pushes and pulls and we're wondering if you've had a chance to gauge sentiment among your owners and construction type customers?

Hi, Jason, thanks for the question. You broke up there at the beginning, but I think you are asking about the current macro environment, I think with a bias towards what we're hearing in construction. In that respect, I'd say, geographically North America continues to be the strongest of the geographies where we participate. If I look within North America, you probably won't be surprised to hear that segments such as data centers, energy markets are good verticals for us. They are performing well, sentiment remains strong in those respects. We see differences, I would say, within the United States. The Southeast tends to outperform geographically relative to most other states. You follow the money, there is still the infrastructure bill, the Chips Act. There's a lot of backlog that contractors have. Now with respect to contracts in the backlog, there are fewer new projects that the contractors have. So they are working down their backlogs. What we see from our own data is that our customers are hiring. And as they are hiring, that's a catalyst for the adoption of technology. So you're right, there are some puts and takes both within North America and around the world, but the overall sentiment remains healthy.

Okay. And then related to tariffs, it sounds like you are not modeling any financial impact. Is it because you don't know, and it is still kind of a wait and see? It's just I think that especially with some of your AECO segments, they would be sensitive to different price changes or perceived price changes? Thanks.

Hi, Jason, it's Phil. So on the tariffs, if you remember, we're about three quarters now, software services recurring. And so our exposure is really a lot smaller than it would have been in the past to those. On the more discrete items around Canada and Mexico that have been out there and now have been delayed, we believe it is a relatively small impact. And our supply chain and our operations team is well prepared for some contingency plans that we see just offsetting that. What we haven't really modeled in is there has been a lot of explicit answers, let us say, on the tariffs as we go forward when we think about any sort of reciprocal impacts and things like that as we think more globally. So right now, we do have confidence in our operations team. We have a global supply chain. We have opportunities and contingency plans that we can enact depending on what it manifest. But just to be clear, we have looked at it, and we don't believe there's a material impact on the financials based on the information we've seen so far.

Your next question comes from the line of Kristen Owen with Oppenheimer. Please go ahead.

Hi, good morning. Thank you for taking the question. I wanted to start with the 2025 guidance, the AECO ARR growth expectations in the mid-teens. Just given some of the changes that you made in 2024 around the commercial organization, bundling, how you are thinking about the contribution of new logos versus cross-sell, up-sell in that 2025 framework?

Hi, good morning, Kristen, it is Rob. I will take the question. We see about two-thirds from existing customers and probably a little bit less than [one-third] (ph) from new logos. So at Investor Day, you'll remember we talked about what we see as a $1 billion opportunity and cross-sell, up-sell within the portfolio. And that's consistent with that view, we have coming into 2025 with the business. And you are right that the investments that we've made and the underlying systems, the transformation we've taken into the product, as well as to the go-to-market side of the house, position us well to start to go -- or to continue to tackle this opportunity.

That's actually a good segue into my second question, which is a little bit more of a big picture question. You mentioned in the prepared remarks, Rob some of the AI agents that you've been deploying internally, can you expand on how you are thinking about operating efficiency opportunities? We've been hearing examples of 100 to 200 basis points of sound margin by applying AI to internal functions. How would you benchmark that opportunity internally for Trimble?

I think the 100 to 200 basis points that you hear in operational efficiencies, strikes me as aspirational as opposed to currently delivered. So I think if you really break down the operations, you've got -- just take it by the P&L, you've got COGS, let's say you've got R&D, you've got G&A and you have sales and marketing. And I think they are differential within each of those. I think we're -- it's probably easiest to see some of the ROI already would be in the R&D function. And if you think about internal usage in R&D, tend to think software and the majority of our engineers are software engineers these days. And then within that double-click again and break-down the software development life cycle, the efficiencies you can see on QA and testing is, I think different than what you see in development, is different than what you see in hosting, is different than what we see in provisioning. So I think it's important to double click. So QA testing, I'd say probably the highest ROI we can see from using GitHub CoPilot. On the development side, we probably see we talk about, call it 5% to 10% productivity and you are measuring that by more lines of code checked in, but that's not a perfect measure, of course, it is just having more lines of code checked in. We see it in the marketing functions internally driving more automation. We see product managers using it to help create the marketing requirements documents, as well as the product -- more technical product specifications. On the cost of goods sold, we can see efficiencies with how we're supporting our customers, providing more self-help tools along the way. So a good number of activities that we have in motion. I think that level of operating efficiency that you mentioned that range is a good aspirational target. But I would say, we don't -- I can't say that I can quantify that today, Kristen.

Great. Thank you so much for the time.

Your next question comes from the line of Jonathan Ho with William Blair. Please go ahead.

Hello, good morning. Rob, I wanted to just build on your comments around the data centricity of Trimble's platform, particularly around the AI opportunity. And can you speak to why your data is unique and what you can do with that data for your customers? Is this going to be new products or enhancements of existing products? Just trying to understand how Trimble is positioned for this revolution? Thank you.

Thank you, Jonathan, and good morning. What I see that is unique about the data reflects what's unique about Trimble, and that is our products and services to connect the physical and the digital world. That means connecting work in the field and work in the office. That means connecting the hardware and the software of Trimble. So if we take engineering and construction industry, think about that for a moment, the field systems business that we have combined with AECO is incredibly unique. We've been pursuing industries where we can connect users data workflow across the stakeholders of that industry. So today, when we have our AECO business, that's architects, engineers, contractors and owners. Each of those is over a $200 million business on its own within each of those pillars today. So there is a unique ability to connect field office. There's a unique ability to link the stakeholders across the industry life cycle continuum. That life cycle being from plan to design, to build, to operate. That creates a unique corpus of data. And as our customers increasingly are asking us to help them solve their higher order problems to unlock the data that they have at -- Trimble and non-Trimble data, by the way that we believe, positions us in a unique fashion and certainly represents a lot of the conversations I'm in with our customers, and I'd say particularly probably our bigger customers. So what we can do with that data that we have is we can develop unique sets of workflows. It reflects in the unique partnerships that we have. So say, a unique workflow move from scan to BIM, it could be – we are doing workflow with digital supply chains, that's linking to modeling and estimating, that's linking payments and ERP systems, that's linking about progress to plan in a civil construction context. There's just an enormous amount of possibilities in a bright future I see for us. And I would say in that baseball analogy, it's probably batting practice, or that early in the game.

Excellent. That's really helpful. Just as a follow-up, any thoughts around the U.S. federal government. Can you give us a sense of how big or small that is in terms of contribution and any potential impacts there? Thank you.

Yes. Hey, on the federal government side, so those -- the orders we predominantly have are in field systems today for us. So it is the survey equipment, GIS mapping equipment, machine control, tends to be the biggest consumer of what we sell to the federal government. The federal government work is naturally lumpy with -- we've had for a few years, it feels like government by continuing resolution. That's made it even more lumpy than we had seen in the past. When we look into 2025 and the guide that we have there, what you will see is that field systems is effectively a flat guide. If we were to take the federal business and do an apple-to-apple on it -- we also have subscription conversions by the way, happening in field systems, we would be up over 300 basis points -- sorry, 3% organic growth. if we adjusted for that. So what I'm saying is we see the federal government, we are projecting that to be down for us in 2025 relative to 2024 and still a very important customer for Trimble.

Great. Thank you.

Your next question comes from the line of Chad Dillard with Bernstein. Please go ahead.

My question is on the TC1 regional rollout. I think you guys had some momentum early next year pause to focus on some of the accounting questions. And I just wanted to get a better sense for like where you are in reaccelerating that and how to think about that contribution to growth in 2025? And maybe if you can just update the road map for how you are thinking about it now?

Hi, good morning Chad, thanks for the question. So we continue to feel really good about Trimble Construction One and the success that we are having with that. Part of that success, as you note, is regional rollouts of that. So North America, Europe, Asia Pacific, so think about it in that order. I think we are in a good spot in Europe as we roll that out, especially coming into this year after our sales kick-offs. I'd say Asia Pacific still has – it is coming next in a more meaningful way. So Europe is the focus on the rollout of that and that's incorporated into our thoughts for the segment. We continue to get very good feedback from our customers around the world on that. One of the things you do as you go region to region is we have different types of capabilities by region, so it is not one global answer for TC1 and so we continue to dial in the bundles that make sense for the regions and take the feedback from our customers on what they need and what they are looking for from us and we saw that reflected in the bookings performance at the end of the fourth quarter. The team did a terrific job posting very strong growth and ACV bookings on a year-over-year basis. So feeling good about it, Chad.

That's helpful. And then just shifting gears over to field systems. So you are guiding organic revenue growth to flat, but I wanted to get a little bit more color on Civil infrastructure in 2025, what's embedded for that business? Can you talk about what contribution some of the recent changes in terms of channel dynamics that you may see? And then just any bookings color you can share at least for the fourth quarter for that business?

Yes. Sure Chad. This is Rob. I will take that one. On Field Systems overall, if we think about the close of the year in the fourth quarter on an as-adjusted basis, we were up 2% organic. If we exclude that federal business we are up 3.5%, and so I look to that as a marker for where we are -- with what we'll call the field sales. And so in the field, the team is growing organically, and we project that going into next year. In the fourth quarter, ARR was up 21%. And so the bookings also reflected that level of strength of performance in fact, [indiscernible] fastest, highest ARR grower on a year-over-year business. The team has done a tremendous job of working the business models. Tremendous enough that, that creates a headwind to the revenue growth as we complete those conversions. So if we look into 2025, the revenue guide is flat. But if we were to adjust for that Fed and the subscription conversions, which are a headwind to the revenue growth, we'd be up over 300 basis points of growth in our guide for 2025. Now within the portfolio in Field Systems, think about three pillars that we have in that business. So the civil infrastructure business that we have, I'll come back to that; second, is our geospatial survey business; and third is what we call advanced positioning. Advanced positioning, think of the positioning services that we offer right that centimeter level accuracy ubiquitous around the world that actually has the most recurring revenue in that pillar and that we expect to continue to grow next year, and that's in our -- certainly in our thoughts in the ARR guide that we have. From the Civil business, that pillar we expect growth. That…

Great. Thank you.

Your next question comes from the line of Jerry Revich with Goldman Sachs.

This is Clay on for Jerry. First one for me. Can you flush out the performance of Transporeon? What was organic growth in the quarter and logo growth retention rate?

Hi, good morning Clay. This is Rob. I'll take that question. The Transporeon team did a terrific job, obviously, with controlling what they can control. The macros continue to be difficult and well, actually really globally in the freight market with Transporeon as a European-centric business where that market is challenged. However, in a very good way, the team had record fourth quarter bookings. They had record bookings for the year. Phil mentioned over 20% bookings growth for the year. So that is -- reflects both existing customers and new logos. We won many new logos throughout the year. Some of the biggest company names you'll find in any vertical. And the team has done a nice job of cross-selling within that. So we looked at the sum -- and by the way, on the product side teams, that's probably -- that team has done some of the most innovative things relative to AI, both for our own internal usage as well as external capabilities. We have an autonomous procurement, autonomous quotation offering that's getting nice uptake and the team is doing a nice job and also working to bring capabilities from Europe into North America. And then we've done some product consolidation globally as well to drive efficiencies and some synergies within that. So as Phil said in his comments when the freight markets turn this business is positioned to perform well and to be able to demonstrate the potential of -- the financial potential of this business.

Great. And switching gears here. How do you view the product vitality of the geospatial and heavy civil portfolio, I believe you touched on a little bit on the last question, but just some color there.

So the team, I think, does a really nice job of innovation. And just to put a broader context on that, over the last five years, Trimble has put about $2.5 billion in the research and development. So we don't just talk -- like empty talk about innovation. We're putting our money where our mouth is, both AECO Transportation and Field Systems. So if I think about product vitality within the portfolio, I'll take those three pillars. If we take our Civil business, it's -- I talked about BX992 or the site works as a technology, that's getting us to new machine types and new price points. If I look at our survey business, the team launched last year, the R980 and that has improved communications over the prior version of the R12, which was an innovation in and of itself. If I looked in advanced positioning pillar, the team last year had launched IonoGuard, and that's correcting for errors in the atmosphere. So you can do the solar cycles that we've had to get accurate -- highly accurate performance, which you need, particularly like in the mines and in the field, in agriculture, to have that ubiquitous accuracy is very difficult to do, and the team really just had some really novel innovation. So innovation is really driving -- drives a refresh for our customers of their own technology. So like what I'm seeing from the team and like what they are working on. I talked about hardware innovation, but I should also mention the software innovation across that portfolio, and that's reflected in that 21% ARR growth that we had in the fourth quarter. I think I'm really excited about what the team is doing and reality capture. These days, data is not the topic. We got -- we're flooded with data. It is information that we need. And so Trimble is in the business of collecting enormous data sets and the software activities are converting that data and information and actionable information. So in reality capture you can apply AI on that to do feature extraction and then from that feature extraction to create actionable workflows back out in field. So a lot of good things happening in the business.

Thanks I appreciate it.

You’re welcome.

Your next question comes from the line of Joshua Tilton with Wolfe Research. Please go ahead.

Hi guys. Thanks for squeezing me in here. I actually have a multi-parter on the construction business and then just a quick follow-up on transportation side. I guess I'm trying to understand, maybe diving a little bit deeper. Are you seeing any change in demand from the construction end market post-election here in the states? And the second part of that question is you did make it a point to highlight the potential for some larger acquisitions, specifically focused on construction. Is there anything that you feel that is missing from the TC1 bundle or the construction portfolio today that you guys are most interested in? And then I got a follow-up.

Hi, Josh good morning, on the change in demand since the election or -- since the election or since President came into office, nothing discernible is the punch-line. I mean you hear sentiment, you hear expectations of are we going to have onshoring, reshoring, or supply chain is going to move around. But I think overall, we are in a wait -- more in a wait-and-see mode. I haven't seen any kind of fundamental movement, let us say, on new projects coming out. So let's wait and see and as they ask the same question next quarter, and maybe we'll have some more data to be able to provide at that on that because we – about one-third of construction in the U.S. is running through our system. So I think we would have a pretty good view on what's coming, both at the contractor level, as well as the -- as well we owner level. In terms of the M&A side within construction to answer your question, I think about it in a couple of respects. One access is geography. And the other is, I call it, is really more product-oriented. At a geographic level, when we talk about our Trimble Construction One offering, it's really a commercial framework, we have different capabilities around the world. We don't have the exact same capabilities around the world. And so we look geographically -- let's say, take a construction ERP system and construction ERP has done extraordinarily well for us in a number of markets, most notably North America. We don't have a construction ERP. I'll take Central Europe -- or you could say Southeast Asia, you could say, India. We will look at those markets and where we think we can stitch together a good offering, it begs the question…

It definitely helps. Maybe just a quick follow-up on the transportation side. I think it's clear like Transporeon bookings still pretty solid, even though freight market remains challenged. How do we think about what bookings for this business or for Transporeon will look like when the freight market recovers?

Good question. Actually, that is a good question. I think that on the bookings growth itself would be probably pretty similar. It is not obvious to me that it would be that much higher. I mean, okay other than -- okay, the right sentiment is better and there's more spend available, you would think that would be a positive catalyst. But we actually have quite a reasonably low barrier to entry with our model because it is a transactional model. And so in a transactional model, really the more fundamental thing in the freight recovery is more -- and by the way, economic recovery that translates into a freight market recovery is more transactions happening for each of the customers that we already have. And that's where -- and we've seen this in the business historically, as when you come out of a down cycle, you can have a very fast recovery or a very fast improvement. I mean it is already a very good business, a very fast improvement. I think operating leverage when I say that, and the nature of the gross margins are [indiscernible] in that business. So you drive a really nice inflection in the number of transport executions or loads moving on our system, and you can drop a significant amount of operating leverage quickly. So I would look more at that, Josh, than I would the bookings.

Makes sense. Thank you guys. And congrats on the quarter.

Thank you.

Your next question comes from the line of Tami Zakaria with JPMorgan. Please go ahead.

Hi, good morning. This is [indiscernible] on behalf of Tami. I had two questions. The first is around the share repurchase authorization. Do you have a plan in terms of quarterly cadence? Or do you expect to complete the entire authorization this year? And on a related note, if -- as you mentioned your plans on M&A, how would that impact the share repurchase for the year, if at all?

Yes. Thanks for the question. This is Phil. So as we noted earlier, we just replaced our existing authorization with a new $1 billion authorization. And the way we are thinking about that is we've talked earlier about the $625 million that was remaining on the prior, and that's an amount related to the proceeds from the [Ag JV] (ph). And so we're still anticipating, let's call it, over Q1 and Q2 to initiate repurchases focused on that first $625 million that we've already talked about executing. And so the way I think about that is between Q1 and Q2, probably two-thirds of it hit in Q1 and about one-third of it hit in Q2. And then beyond that, with the remaining $375 million, what I talked about at Investor Day was at or above one-third of the free cash flow, is going back to share repurchases. So I think the way to think about that is roughly $700 million, let's call it, of free cash flow and one-third of that $200 million a year and so that's roughly $50 million a quarter that I would expect once we get past that initial $625 million. That's the way I think about modeling it. And I think your question on the M&A is, again it depends on the M&A. But right now, with what we are focused primarily on the tuck-ins, we believe we have plenty of firepower to continue to do the tuck-in work on the M&A. If we do something bigger, we do believe we still have more than enough capacity to do that. And just a reminder, we -- our targeted leverage rate over the long term is about 2.5 times, and we're well, well underneath that. We are well below 1 times right now. So we have plenty of room on our balance sheet.

Great. That's super helpful. And my second question is around the FY '25 guide compared to your initial outlook laid out in the Investor Day which areas have actually led to the positive change in the organic revenue guidance in constant currency basis?

Yes, good question. So at Investor Day, just to walk through the delta, we had about -- relative to Investor Day, we had about a $40 million FX headwind on revenue. And so the puts and takes were roughly $3.4 billion is what we guided at Investor Day. Our current guide as reported is $3.42 million. And so add $20 million for the mobility -- for one month of the mobility business that we had in January before we closed on that. And then that $40 million that we had a headwind of FX, think about that as the effective increase to offset the FX on the organic growth. And I'd say that it's really across primarily the AECO and the Field Systems businesses with the performance that Rob talked about in Civil and the performance in AECO, especially coming out the end of the year with really strong performance continuing into 2025.

Great. Thank you so much.

Your next question comes from the line of Robert Mason with Baird. Please go ahead.

Yes, good morning Rob, Phil. So I appreciate all the level of detail to get us level set given all the moving pieces, adjusted numbers, pretty helpful. So just taking that you provided, it looks like within your segments, and I'll speak Field Systems, your margins are up about 100 basis points on kind of flat organic growth. And then in the Transportation business, margins kind of flat on high single-digit core growth. So can you bridge those two dynamics, if I'm interpreting that correctly? I would have thought Field Systems needed to absorb some channel investments, so that is probably a good outcome, but just the P&L margins being flat, is that the right interpretation?

Yes. So Rob, it's Phil. One at a time. So on the Field Systems, we talked about this before with some of the changes to the JV -- with the CAT JV. We've shifted some of the margins that were in our equity investment income line into the OpEx. So we sell product into the JV, and we changed some of the margins and pricing on that. And so that actually helps improve the margins in the Field Systems business. But some of that is actually offset by what you said, which was the investment in the channel build-out. And so we do get some upside there because of the economic shift. And then on the transportation business, I think the big item that is a headwind there is really the FX. So the Transporeon is all euro-denominated and is profitable. And so when we translate that back given the strong U.S. dollar, that actually creates a decent headwind for the transportation segment.

So I think, $0.04 headwind you called out that's disproportionately in P&L then?

It is primarily T&L and AECO. AECO, given the growth and particularly in Europe, doesn't have a big footprint like we do in field systems. And so it is both Transportation and AECO. But yes, Transporeon because of the size of that and all euro-denominated, it is a big portion of it.

Sure. And just as a quick follow-up. I think you touched on some of the geographic strength calling out in North America. But could you add a little color or context to what you are seeing in Asia Pac in Europe?

Hi, Rob, this is Rob. Good morning. In what India -- India is doing especially well. I'd say that's the highlight in the region. I'd say the toughest market on the other book end, probably China and Japan, are challenged. Japan to -- the FX is particularly difficult in that market. And then in between, you are going to have Australia, New Zealand. But India does standout positive.

Thank you. And ladies and gentlemen, that does conclude our question-and-answer session, and that does conclude today's conference call. Thank you for your participation, and you may now disconnect.