Trimble Inc (TRMB) — Q2 2021 Earnings Call Transcript

Welcome, everyone. Before I get started, a quick reminder that our presentation is available on our website, and we ask that you please refer to the safe harbor at the back. I'll begin on Page 2 with the key messages we want to convey today. In the second quarter, our team delivered outstanding results. We exceeded our expectations and delivered record ARR of $1.35 billion, up 11% year-over-year, total revenue growth of 29%, EBITDA margin of 26.4% and trailing 12-month operating cash flow of $798 million. We achieved record levels of revenue in many of our businesses, with exceptionally strong performance in machine control in civil construction, guidance in Agriculture, and Survey in Mapping. Our results demonstrate the quality of our strategy and our business model. On the basis of this strength, we are raising our guidance for the year. Turning to market conditions. The overall landscape is generally robust. Construction backlog is healthy, especially in residential and infrastructure. We remain optimistic that an Infrastructure Bill will ultimately be passed in the United States, which would further improve our long-term outlook in our Construction and Surveying businesses. In Agriculture and Forestry, commodity price strength is translating into customer buying power. In Transportation, market strength has shifted back to carriers, and this, in addition to improved execution, is translating into solid bookings growth. As discussed last quarter, we are investing in product development and go-to-market efforts around infrastructure and are stepping up investments in our agriculture business, all while continuing to invest in our Trimble Cloud Platform and our autonomy efforts. Our team is highly focused on executing our Connect & Scale 2025 strategy, which centers on building leading industry cloud platforms. Our strategy differentiates at the intersection of the physical and digital worlds. As an example, our hardware businesses allow us to capture data and execute work in the field while improving the efficiency and efficacy of workflows between the office and the field. At Trimble, we develop our strategies with an endgame backwards mindset. We balance short-term and long-term deliverables with our 3, 4, 3 operating model, 3 months, 4 quarters, 3 years. This is worth noting as quarterly comparables are skewed with COVID-19 and supply chain disruptions. We have to be able to see through the performance of any given quarter and play the long game, which we continue to believe presents a compelling secular opportunity. We are focused on metrics such as ARR, backlog, EBITDA, and cash flow as much as we focus on revenue and EPS. The combination of these metrics presents a more holistic picture of our performance. Let's turn next to Page 3 for some proof points that the Trimble Operating System, capturing strategy, people, and execution is producing results. Starting with strategy. We continue to execute on revenue transition opportunities. In Buildings and Infrastructure, our structural steel, concrete, mechanical, electrical, and plumbing businesses are hitting their stride with their business model transformations. Bookings, ARR growth, and new logo wins are evidence that the team is expanding the addressable market. In Transportation, our recurring bookings were up significantly year-over-year, also evidence that the conversion is working. On the divestiture front, we closed the sale of Manhattan Software in the second quarter and IRON Solutions early in the third quarter. Since January of 2020, we have divested or exited 8 businesses. We are focused on building our industry-leading and cloud-connected technology platforms that enable customers to transform workflows by connecting Trimble and third-party capabilities. On people, I'm pleased to report that our leadership team was recognized by our employee base as one of the top leadership teams in a Global Culture Survey. We were also recognized as a top-performing company for women and diversity, and our engineering team ranked as a global leading team. I'm proud of my colleagues and our purpose-driven culture. It’s this team that is transforming the way the world works. In addition, we strengthened our Board of Directors with the announcement that Ann Fandozzi will join our Board in the next couple of weeks. On execution, we continue to innovate. During the quarter, we announced an autonomy partnership with HORSCH. We extended our machine control platform to soil compactors, and we introduced our infrastructure BIM collaboration software in North America. In addition, one of the proof points we monitor is cross-sell annual contract value. Early wins in Construction and Transportation increase our conviction that we are on the right track with our bundled offerings. Turning to Page 4. I'm excited to announce that earlier today, we launched Trimble Ventures, our corporate venture capital arm, with a commitment of $200 million of capital. Our objective is to co-invest in Series A through Series D rounds in emerging technologies as well as in companies that will extend our industry platforms. Our co-heads of Trimble Ventures include our Treasurer, Phil Sawarynsky; and Ron Antevy, Co-Founder of our e-Builder business. In closing, it was the second quarter last year where we faced the initial and biggest uncertainty with COVID-19. While the virus and its variants remain highly concerning around the world, I want to step back and reflect on an early principle we established, which is we said we would emerge from the pandemic on a stronger relative competitive footing than when we entered the pandemic. Our results demonstrate we are doing exactly this. My gratitude to my 11,000-plus Trimble colleagues and our global partners and customers; we've got this. David, over to you.

Thank you, Rob. Let's start on Page 5 with a review of second quarter results. Second quarter revenue was $945 million, up 29% on a year-over-year basis. Currency translation added 3% and divestitures subtracted 1% for a total organic revenue increase of 27%. Customer demand was healthy, rebounding across all of our end markets at a rate stronger than we anticipated. Gross margin in the second quarter was 58.2%. Gross margins were down 70 basis points year-over-year, driven by the shift in mix in our business, with a higher percentage of hardware this quarter and the onset of product cost inflation given the disruptions we are seeing in our supply chain, partially offset by lower discounting. Adjusted EBITDA margin was 26.4%, up 70 basis points, driven by higher revenue. Operating income margins expanded 110 basis points to 24.2%. As expected, our operating costs were up meaningfully from the second quarter of last year when we had unusually low compensation expense and a very tight focus on cost control in light of the COVID lockdowns. Net income increased by 40%, and earnings per share increased by $0.20 to $0.72 per share. Our second quarter cash flow from operations was $201 million, demonstrating the continued strong cash flow generation of our business. Operating cash flow again exceeded net income in the quarter. Free cash flow was $190 million. Our net debt decreased over $225 million in the quarter, and our net debt to adjusted EBITDA ratio fell to 1. At the end of the quarter, we had the entire $1.25 billion available on our revolving credit facility and approximately $484 million in cash. With our strong balance sheet, we are well positioned to continue to invest in our business, both organically and inorganically. Turning now to Slide 6. I'll review in a bit more detail our second quarter revenue trends. As noted earlier, our ARR was up 11% in the quarter, with organic ARR growth of approximately 10%. Excluding our Transportation segment, Trimble ARR grew at a high teens rate in the quarter. Encouragingly, ARR trends in Transportation improved, with segment organic ARR approximately flat versus a year earlier. Our nonrecurring revenue streams experienced strong growth relative to the second quarter of 2020, during which our business was most negatively impacted by the COVID-19 shutdowns. Our Hardware revenue grew 47% year-over-year, driven by strong performance in Civil Construction, Geospatial, and Agriculture. From a geographic perspective, North American revenues were up 23%. In Europe, revenues were up 41%. Currency fluctuations positively impacted growth in Europe by about 9%, with the balance coming from catch-up on project activity, which had slowed in 2020, fiscal stimulus measures, and recovering demand in many end markets. Asia Pacific grew 19% year-over-year, driven by strong growth in Australia and New Zealand. The Rest of World, which includes Brazil and Argentina, was up 49% year-over-year, driven principally by strong demand from the agriculture sector. Next, on Slide 7, we highlight some of the other key metrics that we follow. Net working capital, inclusive of deferred revenue, was negative this quarter, representing approximately minus 2% of revenue on a trailing 12-month basis. Our deferred revenue grew 14% year-over-year. An important story this quarter is the growth of our backlog. Total backlog at quarter end was approximately $1.5 billion. Of that total, approximately $300 million relates to unfilled orders for hardware products. This compares with hardware backlog of about $100 million at the end of the second quarter last year, which is a more typical level for our business. In this time of both exceptionally strong customer demand and increasing supply chain pressures, our operations team did an extraordinary job, which enabled our record year-on-year Hardware revenue growth of 47%. Turning now to Slide 8 for additional detail on each of the reporting segments. Buildings and Infrastructure revenue was up 22% on an organic basis. Revenue growth was strong in both our Building and Civil Construction businesses, with Hardware revenue across the segment up greater than 40%. Segment margins were down 40 basis points, due primarily to revenue mix. Across our recurring software offerings in this segment, bookings were strong, up approximately 25% versus a year ago. Geospatial revenue was up 48% on an organic basis. We saw a rebound in demand across nearly all of the end markets for our Geospatial offerings, and our new products are generating significant customer enthusiasm. Operating margins were up 430 basis points due to strong revenue growth and the success of new products. Resources and Utilities revenue was up 32% on an organic basis. Revenue growth was strong in Precision Agriculture and Positioning Services. Margins expanded 160 basis points. Top line results in Transportation met our expectations. Revenue was up 9% on an organic basis year-on-year. The drivers of revenue growth were improved trends in both our mobility and enterprise businesses. Margins declined 170 basis points on a year-over-year basis due to increased mix of low-margin hardware and increased operating costs, but margins improved sequentially over first quarter levels. We remain confident that we are on track for continued sequential improvement as the year progresses. Turning now to our outlook for the full year. Our performance in the second quarter and the strength of our backlog give us the visibility and confidence to raise our outlook for the year. I'll point out that supply chain constraints continue to present us with meaningful uncertainty as the availability of some critical components remains unpredictable. The outlook I'll describe represents our best sense of this dynamic environment. I'll also point out that comparisons versus the quarters of 2020 are difficult to draw meaning from as the impact of the onset of COVID and the recovery following market reopenings created large swings last year. We will focus more on sequential evolution from the second quarter through to the second half. We are raising our outlook for the full year revenue to between $3.55 billion and $3.65 billion. Demand remains resilient across all of our end markets, but our Hardware revenues will likely be constrained by our ability to source key components. Note that this new revenue range incorporates our divestitures, including the recent divestitures of our Manhattan Software and IRON Solutions businesses. Divestitures will reduce our revenue growth in 2021 by a little over 100 basis points but are reflective of our increasing focus on platforms, which connect the workflows in RT end markets. Sequentially, we expect that revenue in the second half will be well above 2020 levels but below the levels we realized in the first half of 2021. The expectation of lower revenue in the second half versus the first half is entirely driven by constraints in our supply chain. We expect to end the year with hardware backlog at levels similar to the end of the second quarter. Given our strong bookings trends across our recurring software businesses, we expect organic ARR growth of approximately 10% for the full year. We anticipate that second half gross margins will be down approximately 50 to 100 basis points below second half 2020 margins, due to the net impact of product mix and cost pressures, partially offset by price increases. We are implementing price increases across many of the product lines impacted by the recent inflationary spike. But overall, the net impact on gross margins will still be adverse year-over-year for both the back half and full year 2021. We expect to experience the greatest gross margin pressure in the third quarter as we won't realize the full benefit of our price increases until the fourth quarter. Our outlook for operating margins has improved as the leverage from higher revenue more than offsets the impact of mix shift, increasing product cost inflation, and the investments we are making in support of our strategy. We now expect that operating margin for the full year 2021 will be comparable to 2020. Note that our software business model transitions from perpetual to recurring are accelerating in the back half of this year. These transitions will adversely impact operating margins by 150 to 200 basis points in the second half of 2021. Our outlook for full year earnings per share has increased to $2.45 to $2.65 per share. From a cash flow perspective, given our strong performance in the first half of 2021, we expect cash flow from operations for the full year of greater than 1.1x non-GAAP net income, with free cash flow comfortably exceeding non-GAAP net income. With that, I'll turn it over to the operator for Q&A.

This is Ashok Sivamohan on for Jerry Revich. Can you talk about the ARR growth for e-Builder and Viewpoint? And out of the growth, what proportion was from new logos?

The total ARR growth for the combination of Viewpoint and e-Builder was 17% in the quarter year-over-year. As it relates to new logos, we had actually strong performance in the quarter on new logo bookings. So it's a good sign that the Connect & Scale strategy is bearing fruit inside of Construction.

Okay. And in Resources and Utilities, one of your customers is acquiring a competitor. Can you talk about your views on the competitive landscape as it relates to Trimble?

Well, to set context for the competitive landscape, let's start with the macros in the agriculture market. As we all know, the commodity prices are high, and that is fueling a positive farmer net income. So there's an attractive backdrop against that; farmer sentiment is high, and new machine sales are strong. So the place to start is at the top level with the market conditions that are positive. And you see that playing through the results in the Resources and Utility segment, and the team did a really nice job in the quarter and really through this year. From a competitive landscape perspective, actually, what I want you to hear is that CNH is an important customer of Trimble. And so we expect that relationship to continue to go forward in a positive light, and that's been consistent with the signals that we've received thus far.

Can we talk about this $200 million venture fund? Should we think of these as moon shots? I mean how does it fit in your Connect & Scale initiatives? And then with the business leader from e-Builder kind of co-leading in, is this going to be more targeted towards the Construction side?

Jason, so the thesis behind Trimble Ventures is twofold. It's to accelerate platform investments as well as the technology ecosystem. So from a technology ecosystem, think about emerging technologies that could relate to augmented reality, it could be in blockchain, it could be in IoT, or autonomy. And that plays across all of Trimble potentially. And then from a platform perspective, Connect & Scale is synonymous with an industry platform strategy. And so I'll use the two interchangeably. We want this venture fund to participate with companies who can be part of the Trimble platform and extend the customer value and value proposition. And that also we could see playing across the breadth of Trimble. Having Ron Antevy, who comes from the e-Builder business we think is a great thing because he is a lifelong entrepreneur who plugged into the bigger company at Trimble, and we think he's got the right mindset and the network to help companies succeed inside the Trimble platform.

Okay. Great. And then one, if I can sneak in for David. It sounds like the lower discounting is being able to offset some of the higher product cost but sounds like it's still a lot of kind of a negative net impact with the mix. I guess, can you maybe provide a little more color on the level of discounting change versus the higher cost?

Jason, first thing I'd point out is that the significant majority of the impact, both on the cost and pricing side, isn't yet reflected in Q2. Its much more of the impact is in the back half of the year. We have been ratcheting down our discounting from the old prices already for a couple of quarters now. And the way to think about it is that, that ongoing reduction in discounting was sufficient to offset the most of the cost increases we had in the quarter. For the back half of the year, what's going to happen is that much more of the cost increases we're seeing for our hardware products, some of which, by the way, we believe are the majority of which we believe are temporary in nature and they're related to the dislocation of the overall supply chain. But those are kicking in, in full force now here as we entered the third quarter. We are taking top line price increases across essentially all of our hardware offerings that are impacted by the cost increases. Those kick in gradually with slightly different approaches and timing from business to business. Overall, our outlook is that the top line price increases in the second half will offset most, but not all of the cost increase, but it will be reasonably close for the full year.

Could you give us a bit more detail on the bundled offerings, the scope of those customers, the potential for follow-ons anything around the individual end markets that are really leading the way? I just want to get a sense of where that traction is, and how it might accelerate?

Colin, it's Rob. We start with our Connect & Scale strategy and the platform strategy, focusing on how our bundled offerings can provide greater value to our customers. We are primarily seeing initial success in Construction, and to a lesser extent in Transportation. We will measure our success through cross-sell annual contract value and new logos as evidence of our achievements. We're actively listening to our customers, who are expressing their desire to engage with us in this way and want us to connect various point solutions to enhance workflow productivity. I'm quite optimistic about our progress with Connect & Scale and its potential across much of our portfolio.

Okay. That's helpful. We would like to understand better the Infrastructure Bill that has just been released, which includes over $100 billion potentially allocated for roads and bridges. How does this differ for Trimble compared to past bills? What are your expectations based on your initial assessment of the contents?

Operator: We have our next question from Chad Dillard from Bernstein.

So I wanted to dig into the Agriculture investment that you talked about that you're increasing. Can you just give a little more color on that? And could you just rank order what the priorities are for that business right now?

So when we look at the Agriculture business and think about the priority investments, our leadership for going on decades now has been in the guidance side of the business. So think of the controls and guidance. We will continue to invest in that business to keep us as the leader in guidance technology. So we're increasing our level of investment there. And think positioning technologies, think about ubiquity of coverage around the world with the positioning or correction services we have, the fast convergence that we can provide to farmers to get that high level of accuracy. Think about position under canopy to provide better outcomes for farmers for positioning. So we will continue to invest in the guidance side of the business. If I move next to the Precision side of the business, I think flow controls variable rate, which we see as the next really growth frontier within the agriculture market. We’ve been investing in this for a long time. The Mueller acquisition we did a few years ago really brought us forward into this space, and we continue to see attractive opportunities there. And then the 2 other areas I would put would be autonomy. And our autonomy efforts we are developing really in the core part of Trimble that serves construction end markets and agriculture end markets. So we could eliminate redundancy and duplication of efforts by serving multiple markets. So efforts in autonomy are important to us. And by way of example, the HORSCH relationship that was announced as it puts credibility behind the efforts we have there. And then finally, I would look at the software side of the Agriculture business and the bundling. It's more than just a bundling. But if we look at the software capabilities within agriculture, it's really that operational dashboard, an operational management system for a farm, and we believe deeply in the connection of what we're doing in the office and the field, the software to hardware to physical to digital, making it easier for the farmers to buy the software, the services, and the hardware together. So there's efforts in that front.

That's helpful. And then can you just help me think through the incremental margins in the back half of the year? Am I very rough back of the envelope math, it sounds like it could be a little bit negative. So can you just walk through just the puts and takes on net price, quantifying materials, logistics cost? And then just like how quickly do you think you can raise price and push that through to your customers?

Chad, it's David. Let me share a few insights. As we look at the second half of the year, it's clear that the cost impact will occur more quickly than our price increases. I mentioned that we would mitigate most, but not all, of the cost increase through pricing in the latter half of the year. This suggests that gross margins will be more pressured in the third and fourth quarters. Another factor affecting gross margins is the business mix. We experienced significant growth of 47% in hardware, which typically has lower gross margins, and that will moderate somewhat. These are the main factors influencing the gross margin. Operating expenses are increasing for several reasons, including restoring normal compensation and bonuses, which were unusually low last year, and aligning with our targets this year. This accounts for about half of the expected rise in operating expenses. The rest is due to the investments mentioned and other costs that increase as our revenue grows. Our margins have been impacted and will continue to be affected by the subscription transition, which will be a bit more than 150 basis points in the second half of the year. All these complicated factors lead us to believe that operating margins for the full year will be roughly in line with 2020. You may recall that we previously indicated they would fall between 2019 and 2020. However, with higher-than-expected revenue, we are achieving more fixed cost leverage. I hope this provides clarity on most of the issues you were interested in.

This is Erik on for Meta. Maybe if we could just dive a bit into the bounce back you're seeing in your perpetual software business. I'm wondering if any of the strength or some of those products are tied to hardware products? And if so, to that point, could there be some headwinds to that business if hardware is seeing supply chain bottlenecks?

Erik, it's David. You're right. The meaningful majority of our perpetual software is sold together with hardware. So that's been a good news story. We do, by the way, continue to anticipate that hardware revenue will grow just year-on-year, just not as much as it did in the second quarter, and we do anticipate lower sequential revenue in the back half versus the front half. So that will have a direct correlating impact on perpetual software.

Got it. That's helpful. And then if I could squeeze in another one. As we think about some of the perpetual sales coming back, and I know ultimately, longer term the goal is to convert as much of the portfolio to subscription as possible. Is there a strategy around some of these products that are still sold on a perpetual basis? Or do they kind of fall in the category of the likely continue to be purchased on a perpetual basis?

Erik, this is Rob. Let me share an example from our Civil Construction business. We offer what we call Trimble Platform-as-a-Service, which provides technology assurance through a subscription to our machine control and guidance solution. When we sell this, it includes software that accompanies it, and there’s also the option to bundle additional office software. We’ve witnessed cases, particularly in agriculture, where large enterprise farms are purchasing what we refer to as everything as a service. These examples may not significantly impact our overall results, but they demonstrate that whether it’s a one-time sale or something that appears perpetual, it can be converted into a more regular revenue model. We believe this approach is effective as long as we offer a strong value proposition, which in construction centers around technology assurance. We will keep advancing this initiative and have primarily focused on North America in Civil Construction, but we are now expanding this strategy globally. Furthermore, regarding the software that complements the hardware you asked about, we see potential even for hardware sold as a one-time purchase, as we believe the perpetual software associated with it has the opportunity to transition to a ratable model over time.

The first one was just maybe touch a little bit on the dynamics of the bookings growth versus the ARR growth. When I look at your split and the commentary around different segment results, both in Buildings and Infrastructure and Transportation, you're noting that bookings are actually growing faster than ARR. What's driving the dynamic? Is it kind of maybe in Transportation still the churn that's kind of leaking out there? Or is it duration? Or is it just the fact that it's kind of more upfront licenses that's kind of providing the bookings growth ahead of the ARR?

Gal, it's Rob. I see the bookings growth outpacing the ARR growth as a positive sign for the business. Bookings will naturally come before ARR, and I view our bookings growth as evidence that our strategy is effective, highlighting that both our individual product strategies and our overall fundamentals are solid. It also indicates that our bundling efforts and new customer acquisition are successful. For instance, when we transition models from perpetual to subscription, we are expanding our addressable market. Take our architecture and design business, which achieved over 50% ARR growth for the sixth consecutive quarter. Such consistent growth indicates an expanding market, and these rates surpass our previous performance prior to the model change. Therefore, we will see bookings growth first, followed by ARR growth, which aligns perfectly with my expectations for our business. I'm very encouraged by this trend.

Okay. Perfect. So that indicates the potential for the ARR growth effectively in the size of the addressable market.

Exactly. The timing of when that bookings growth translates into the ARR. So you connected the dots correctly.

Yes. Absolutely. Okay. That makes sense. Last quarter, we mentioned the supply chain issues affecting growth, and the reason for not increasing guidance significantly at that time was due to those challenges. Now that you've raised the guidance considerably after the first half, how much are those supply chain issues still impacting your growth? How much could you potentially grow if there were no supply constraints, assuming demand allowed for greater growth than you currently anticipate? Can you provide a quantification of that?

Gal, it's David. Let me share a couple of points. Demand in Q2 was stronger than we expected a quarter ago. We also managed to optimize our supply chain better than anticipated. Regarding our hardware backlog, in a typical year, we would have around $100 million at the end of Q2, which was our figure last year. However, as supply chain issues emerged in Q1, it increased to about $200 million. Now, it's at $300 million. Essentially, a significant portion of that $300 million, or the additional $200 million beyond normal levels, reflects customer demand that our supply chain struggles to fulfill. I would like to assure you that we aim to address this in the latter half of the year. However, if you review our guidance, you'll find that we expect to finish the year with backlog levels similar to where they currently stand. Our lead times for some products are longer than preferred by us or our customers, and we're addressing it. It's a notable situation, and we're not alone in facing these challenges. We have navigated it better than we had anticipated, but it will limit the growth we could have seen in the second half of the year.

The first question is about your operating expenses. You mentioned that in the second half of the year, your growth investments are expected to increase by 150 to 200 basis points. Should we expect these expenses to continue to scale up as we finish the year, and will they likely carry over into next year? Additionally, regarding your compensation normalizing after last year's adjustments, is there anything we should consider about potentially resetting incentives or adjusting them to a lower level next year?

Yes. Rob, it's David. Let me frame this a little bit. If you sort of go through the outlook we gave on gross margins and operating margins, you'll see that we expect for the year operating expense to be up about $130 million plus or minus for the year. About half of that is relating to restoring compensation to a normal level, and we are beating our own benchmarks. So that will improve -- that increases comp in a way that would likely normalize next year. The remainder of it is partly just the normal cost of growth and then about 20% or so of the $130 million is relating to the growth initiatives. I'll probably look to Rob for commentary, but I will say, I think using Rob's word, this is a long game, and we're engaged in a multiyear effort to create and exploit these platforms, the digital transformation that we have underway. The spending by no means will be over, that's not what we're signaling this year. We will be spending against those initiatives next year and thereafter.

I see. Okay. Just a follow-up regarding the Geospatial business, which has shown a strong rebound compared to last year, a trend I've noticed across the industry as well. Historically, Rob, you've mentioned that this might be the most penetrated area for you from a technology standpoint. I'm curious if there's anything changing on the technology front. I know you have some new products, but is there any shift happening in the industry regarding technology? Or are your customers or channels trying to proactively prepare for potential infrastructure developments?

Yes, that's a great question, Rob. I see three key trends in the market: new product introductions, channel excellence, and positive macroeconomic factors. The team performed exceptionally well this quarter and has consistently succeeded over the past few years. I am incredibly proud of their achievements, as they are exceeding my previous expectations regarding growth potential in the market. According to the published figures, we are outperforming our competitors and peers in this sector. However, we will eventually face tougher comparisons as these numbers normalize. Regarding new product introductions, we've been highlighting several products and their rollout schedule, which provides us with opportunities for replacement cycles. Our X7 Laser Scanner, new mobile mapping system, R2 GNSS system, and TSC5 handheld data collector are all driving significant business. This segment is particularly well-positioned amid supply chain challenges because we procure components well in advance when launching new products. On the topic of channel excellence, I want to commend the sales leadership and channel development team for their efforts with our global dealer partners. They have been improving in how they manage their businesses and approach market segmentation and opportunities. Lastly, the macroeconomic environment, particularly in residential and infrastructure sectors, is contributing positively to our business. We've noticed improvements in oil and gas, especially in Texas, where there's been renewed purchasing activity. We analyze these macro factors not only concerning our current sales of surveying and mapping products in Geospatial but also how they relate to downstream civil construction products. This gives us confidence and optimism regarding the potential impact if an Infrastructure Bill is passed, which would benefit many of our other business areas.

Thank you, everyone, for joining us on the call. We look forward to speaking to you again next quarter.