Trimble Inc (TRMB) — Q4 2024 Earnings Call Transcript

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 $2.26 billion. Recurring revenue doubled as a percent of overall revenue to 62%, and overall software and services increased to 76% of revenue. Gross margins in 2024 at 68.2% have increased over 1000 basis points. All of this has translated into over 400 basis points of EBITDA improvement with 2024 ending at 27.2%. At our Investor Day in December, we outlined the progression and direction of our strategy, detailing our right to win at the intersection of product, technology, and go-to-market. We laid out our ambitions through 2027 to deliver $3 billion of ARR, $4 billion of revenue, and 30% EBITDA margins. By delivering transformative outcomes for our customers, we are poised to deliver compelling returns to our shareholders. Today, I'll highlight the last few months of Connect and Scale strategic progression in three areas. First, product and go-to-market through the lens of our customers. Second, technology innovation. And third, capital allocation. In the fourth quarter, we engaged with thousands of our customers and partners. Our Dimensions user conference, which focuses on the engineering and construction industry, had more than 7,000 registered attendees. We ran sessions on-site at the venue and off-site at a purpose-built proving ground where we could demonstrate our field solutions in the dirt. We had the opportunity to showcase our product innovation progression as we move from point solutions to workflow to ecosystems. This progression uniquely leverages the vast installed base we have across the life cycle continuum of the engineering and construction industry. At the off-site venue, pictured on the cover slide, more than 25 of our OEM partners demonstrated onboard and offboard technology, serving a large array of machine types, and we were able to showcase our unique office-to-field workflow connectivity. The unique value we are offering to the ecosystem is evidenced by the strong growth in ARR in both AECO and Field Systems. Further evidence of this unique value is in the record level of ACV bookings in AECO in the quarter. In transportation, we see and hear our customers asking us to address similar opportunities as our construction customers. They increasingly seek data-rich solutions delivered in a common and connected data environment. While the freight market macros remain challenged, our team is doing a good job controlling what we can control. For example, the Transporeon business achieved an all-time record level of bookings in both the fourth quarter and the year. When the freight markets return to growth, this business is well-positioned to showcase its true financial potential. Complementing the product direction is the innovation that has taken hold with our go-to-market initiatives across the company, which have never been better aligned to unlock the potential of Trimble. On the technology innovation front, we continue to progress state-of-the-art and core positioning technologies, along with connectivity, collaboration, and visualization. We believe we are well-positioned to be a winner in the data-centric and AI-forward world, leveraging trillions of dollars of construction programs run through Trimble. Tens of billions of freight run through Trimble. We have millions of users of our software. We manage millions of miles of our roadways, and we have hundreds of thousands of instruments and machines out in the field in the real world operated by Trimble technology. Over the last few months, we have increased the adoption of AI to fuel our own productivity, creativity, and to drive profit expansion. We've been launching agents to better support customers, product managers, and our sellers. The potential is exciting, and we will continue to lean into the technology to drive both internal efficiencies and amplify customer value. Finally, I'll cover three topics on the capital allocation front. Starting with the divestiture of our mobility business, which we closed on February 8. We are a significant shareholder in platform science and we refreshed an ongoing and important commercial relationship with their team to link telemetry with our broad set of capabilities, including dispatch scheduling, routing, navigation, maintenance visibility, freight procurement, and more. We are accounting for this investment under the cost method of accounting, where our investment will be represented on our balance sheet rather than the non-GAAP P&L. Second, we remain committed to executing our share buyback plan. We continue to believe that repurchasing Trimble stock is an attractive opportunity for capital deployment given our share price today. As further evidence of our commitment, today, we are announcing that our Board increased our repurchase authorization to $1 billion. Third, given the strength and momentum in the underlying business and particularly the success we have demonstrated executing our TC1 platform strategy in AECO, we intend to play offense on the acquisition front. Tuck-in opportunities that can quickly integrate and be put in the hands of our sellers are the most obvious category, building on the success we have had with such moves over the past few years. We will also opportunistically consider large opportunities should they present themselves, particularly in construction software. Though the bar will be high, anchored in our disciplined focus on ROI and compared to the returns we can generate from buying back our own shares. Trimble enters 2025 with a balance sheet well below our leverage targets with continued strong free cash flow generation and with shares trading at levels we find attractive. Collectively, this gives us a range of good options to consider as we drive value for shareholders. Phil, over to you.

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 conversion rate of 0.71 to net income. Adjusting for $204 million of M&A-related tax payments and transaction costs, cash flow was over $700 million with a conversion rate of approximately 1 time. Our balance sheet is strong with over $700 million of cash and a leverage ratio of less than 1 time, which is well below our long-term targeted rate of 2.5 times. Let's shift to a segment review of the numbers before we close with guidance. Starting with AECO on Slide 8. We saw 18% ARR growth for the quarter and the year and operating income at 31.2% for the quarter and the year. This is a scaled business nearing $1.3 billion of ARR and revenue and is operating well above the Rule of 40. In fact, it was greater than a Rule of 45 for both the quarter and the full year. ACV bookings increased over 20% in the quarter, providing momentum to our ongoing commitment to grow ARR at our long-term model rate in the mid-teens. We are especially pleased with the ongoing performance of our Trimble Construction One offerings, as well as the level of growth in cross-selling and up-selling initiatives. Next, Field Systems on Slide 9. While for the year, revenue was slightly down on an organic basis, it inflected positively in the second half of the year and was up 2% in the fourth quarter. Of particular note, ARR growth at 21% for the quarter and the year demonstrates the intentionality of our business model conversions. In almost every business where we have implemented these changes, we have seen the addressable market expand. It should also be noted that the recurring revenue conversions were a 150 basis points headwind to 2024 annual revenue growth, thus the two must be looked at in combination. It should further be noted that the team executed on these transitions while increasing operating income margins to 30.1% for the year. Finally, Transportation and Logistics on Slide 10. Revenue and ARR were up 8% both for the quarter and the year, led by growth above the segment average from our MAPS business and the Transporeon business. Operating margins were 24.1% for the year. Transporeon continues to deliver in a challenging freight environment with strong double-digit bookings growth for the year, including several cross-sells with North American customers, as the Connect & Scale playbook is being replicated in the Transportation segment. Before we turn to guidance, let us set context with a few considerations related to tariffs and foreign currency translation. Based on what we know today, we have not modeled any impact of new tariffs into our guidance. Given the software centricity of Trimble today and the geographic diversity of our revenue and supply chains, we are confident we can navigate the environment with minimal financial impact. With respect to foreign currency, our EPS has historically been naturally hedged against currency moves given our global workforce. However, with the growth in AECO and Transporeon outside the U.S., we now expect a slight amount of foreign currency translation headwind to flow through to EPS. For 2025 guidance, on Slide 11, the midpoint of our as-reported guidance is $3.42 billion and $2.87 EPS. This includes one month of mobility with approximately $20 million in revenue and under $0.01 of EPS. On an as-adjusted basis, our EPS guidance implies low-to-mid teens EPS growth year-over-year, consistent with our long-term model. Our guidance assumes the strong U.S. dollar holds, and we have incorporated into our guidance a full-year foreign currency impacts on revenue of minus $50 million, ARR of minus $30 million, and EPS of approximately minus $0.04. Relative to our initial fiscal 2025 guidance we provided in December at our Investor Day, on a constant currency basis, we have raised our revenue and EPS guidance. For first-quarter guidance on Slide 13, we expect as-reported revenue to be in the $794 million to $824 million range and EPS $0.55 to $0.61. We have provided an updated view of calendarization in the earnings supplement on our investor site, which is in-line with what we shared at Investor Day. On an as-adjusted basis, organic growth for the first quarter is in the minus 1% to plus 3% range. Please note that there is no January 1 in our 2025 fiscal first quarter. It was in the fourth quarter of 2024. Adjusting for this would result in first-quarter 2025 organic growth of approximately 8% at the midpoint. Also note that January 1, 2026 will occur in the fourth quarter of fiscal 2025. Both revenue and operating margins are expected to trend up in both absolute and percentage terms as we move throughout the year, reflecting the fact that our portfolio is now more heavily weighted to the growing recurring revenue business models and less impacted by seasonality in field systems. With that, I'll turn it back to Rob.

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 an 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.

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 with 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 manifests. 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.

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's Rob. I'll address your question. We estimate that around two-thirds of our growth will come from existing customers, with the remaining one-third from new clients. At Investor Day, we mentioned a $1 billion opportunity related to cross-selling and upselling within our portfolio. This perspective aligns with our expectations as we approach 2025. Additionally, the investments we've made in our systems and the transformation of our product and go-to-market strategies position us effectively to pursue and continue addressing 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 believe the target of 100 to 200 basis points for operational efficiencies seems more aspirational than something currently achieved. If we analyze operations through the profit and loss perspective, we can identify areas such as cost of goods sold, research and development, general and administrative expenses, and sales and marketing. Each of these areas has its own variations. The return on investment from R&D is arguably the most evident, particularly in our software development processes, which most of our engineers are focused on. If we delve deeper into the software development lifecycle, the efficiencies seen in quality assurance and testing differ from those in development, hosting, and provisioning. Therefore, it’s essential to analyze this closely. The highest ROI we observe comes from using GitHub CoPilot in QA testing. In development, we estimate a productivity increase of about 5% to 10%, measured by the number of lines of code checked in, although this is not a perfect metric. Additionally, we are seeing more automation in our internal marketing functions and product managers utilizing it to draft marketing requirements and technical product specifications. Concerning the cost of goods sold, we see efficiencies in how we support our customers by offering more self-help tools. While we have numerous initiatives underway, the level of operating efficiency you mentioned serves as a reasonable aspirational benchmark. However, I am not in a position to quantify that at this time.

Great. Thank you so much for the time.

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 stands out about the data we have reflects what's unique about Trimble, which is our ability to connect the physical and digital worlds. This includes linking work done in the field with work carried out in the office and connecting our hardware and software. Focusing on the engineering and construction industry, our field systems business combined with AECO is exceptionally unique. We have been targeting industries where we can integrate users' data workloads among various stakeholders. Currently, our AECO business includes architects, engineers, contractors, and owners, each representing over $200 million individually within these sectors. There is a distinctive capacity to connect field operations and office functions, as well as to bring together stakeholders throughout the entire industry life cycle, from planning to design, building, and operating. This generates a rich source of data. As our customers increasingly seek our assistance to address complex issues and unlock both Trimble and non-Trimble data, we believe this positions us uniquely and reflects a significant portion of my discussions with our larger customers. The data we possess allows us to create specialized workflows, which are evident in our unique partnerships. For example, workflows transitioning from scan to BIM, engaging in digital supply chains that connect modeling and estimating, linking payments with ERP systems, and addressing progress in civil construction are all part of this potential. I envision a bright future filled with numerous possibilities for us, akin to being in batting practice 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. On the federal government side, our primary orders are for field systems. This includes survey equipment, GIS mapping equipment, and machine control, which are the main products we provide to the federal government. The nature of federal government work is often inconsistent, and we have experienced something akin to government work under a continuing resolution for the past few years, making it even more erratic than before. Looking ahead to 2025, our guidance indicates that field systems will remain stable. If we conduct a direct comparison of our federal business and account for subscription conversions in field systems, we would see over 3% organic growth. However, we are projecting a decline in federal government work for 2025 compared to 2024, although it remains a vital customer for Trimble.

My question is on the TC1 regional rollout. I think you guys had some momentum early next year but paused to focus on some of the accounting questions. And I just wanted to get a better sense for 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 roadmap 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, this is Rob. I will address that. Regarding Field Systems overall, at the end of the year in the fourth quarter, we experienced a 2% organic increase on an adjusted basis. Excluding the federal business, that figure rises to 3.5%. This serves as a benchmark for our field sales. Our team is growing organically in the field, and we anticipate this trend will continue into next year. In the fourth quarter, our Annual Recurring Revenue was up 21%, reflecting strong performance in bookings, making it our fastest-growing segment year-over-year. The team has effectively navigated our business models, which has created a headwind for revenue growth as we finalize those conversions. Looking to 2025, our revenue guidance is flat, but if we adjust for the federal business and subscription conversions, which are impacting revenue growth, we would see an increase of over 3%. In Field Systems, we focus on three key areas: civil infrastructure, geospatial survey, and advanced positioning. The advanced positioning services we provide offer centimeter-level accuracy worldwide and generate the most recurring revenue in that sector, which we expect to continue growing next year, as outlined in our ARR guidance. We also anticipate growth from the civil infrastructure sector, which performed well in the fourth quarter and shows promise as we enter the new year. Globally, the business is seeing growth, driven by several factors. Our technology enhances productivity significantly, often improving efficiency by 30% to 40% when our guiding equipment is used effectively. Customers are facing challenges in finding labor, and our technology can improve the skills of inexperienced operators and enhance the capabilities of skilled ones. Our team has made great strides in product innovation, showcased at our user conference with our new BX992 product, aimed at the tier machine control market. Overall, multiple initiatives are driving solid performance in this sector. However, we expect the survey business to remain flat to down in the coming year, largely due to the impact of federal business.

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 great job managing what they could control. The broader macroeconomic conditions remain challenging, particularly in the freight market where Transporeon operates as a European-centric business. Despite this, the team achieved record bookings in the fourth quarter and for the entire year, with over 20% growth in bookings. This growth included both existing customers and new ones, with several major companies onboarded throughout the year. The team also excelled in cross-selling. Additionally, they've developed innovative AI-related products for internal and external use, including an autonomous procurement and quotation offering that has been well received. They are working on integrating capabilities from Europe into North America and have undertaken global product consolidation to enhance efficiencies and synergies. As Phil noted, when freight markets improve, this business is well-positioned to showcase its financial potential.

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.

The team is doing an excellent job with innovation. Over the past five years, Trimble has invested around $2.5 billion in research and development, demonstrating our commitment to innovation beyond just words. This is evident in both our AECO Transportation and Field Systems segments. When I consider product vitality within our portfolio, I think about three main pillars. In our Civil business, we have made strides with the BX992 and Siteworks technology, which are enabling new machine types and price points. In our survey business, last year we introduced the R980, which enhances communication compared to the previous R12 model, itself a significant innovation. In the advanced positioning area, we launched IonoGuard last year, which helps correct atmospheric errors, allowing for highly accurate performance crucial for applications like mining and agriculture. Achieving widespread accuracy is a challenge, but the team's innovative efforts are impressive. Innovation is refreshing our customers' technology. I'm pleased with the team's progress. Beyond hardware innovation, we also have significant software advancements reflected in our 21% Annual Recurring Revenue growth in the fourth quarter. I'm excited about what the team is accomplishing, particularly in reality capture. While data is abundant, what we truly need is useful information. Trimble focuses on gathering large data sets and transforming them into actionable insights. In reality capture, AI can be used for feature extraction, leading to actionable workflows in the field. There are many positive developments occurring in the business.

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. Regarding the change in demand since the election, there hasn't been anything noticeable. We hear varying sentiments and expectations about onshoring, reshoring, and supply chain shifts, but overall, we're in a wait-and-see phase. I haven't observed any significant movement in terms of new projects. We'll have to wait for more information, and perhaps next quarter we can offer additional insights, as around one-third of construction in the U.S. flows through our system. We would have good visibility on what’s ahead from both contractors and owners. On the M&A side within construction, I consider a couple of aspects. One is geographic access, and the other is product-oriented. With our Trimble Construction One offering, we have different capabilities globally, not all the same. For example, we have a construction ERP system that has performed exceptionally well in North America, but we don’t have one in Central Europe or Southeast Asia or India. We'll evaluate those markets to see where we can create a solid offering, which leads to the question of whether to build or partner. We analyze how to expand geographically and enhance product capabilities. I don’t focus too much on gaps, but where there are opportunities, tuck-ins can come into play, often as features rather than distinct businesses that integrate well within our platform. We also consider segmentation. If we focus on mid to large contractors, we may explore how to engage more with small to mid-sized businesses or the largest contractors. This might involve extending our product offerings or acquiring an existing base and integrating our additional capabilities for cross-selling. That’s our approach, Josh. I’m being intentionally broad, but I hope this provides some context on our strategy.

It definitely helps. Maybe just a quick follow-up on the transportation side. I think it's clear that Transporeon bookings are still pretty solid, even though the 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. I believe that the growth in bookings will likely remain similar. While it's clear that the current sentiment is improving and there is increased spending, I'm not convinced that it will significantly boost our numbers. Our transactional model has a low barrier to entry, and what really drives freight recovery is the increase in transactions from our existing customers. Historically, we've seen that as we emerge from downturns, there can be rapid improvements in business. The nature of our business already performs well, and when conditions improve, we can quickly enhance the number of transport executions or loads on our system, resulting in substantial operating leverage. So, I think it's more important to focus on that rather than just the bookings.

Hi, good morning. This is Tami on behalf of Jerry. 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, as you mentioned your plans on M&A, how would that impact the share repurchase for the year, if at all?

Yes, thank you for the question. This is Phil. As we mentioned earlier, we have replaced our previous authorization with a new $1 billion authorization. We are considering the remaining $625 million from the previous plan, which is associated with the proceeds from the joint venture. We expect to start repurchases in Q1 and Q2, mainly focusing on that initial $625 million. I anticipate that about two-thirds of this will occur in Q1 and one-third in Q2. For the remaining $375 million, my earlier comments at Investor Day suggested that at least one-third of our free cash flow would be allocated to share repurchases. With an estimated $700 million in free cash flow, that translates to approximately $200 million a year, or about $50 million a quarter, after we move beyond the initial $625 million. Regarding M&A, it will depend on the specific deals, but currently, our focus is mainly on smaller acquisitions, and we believe we have sufficient capacity to pursue these opportunities. For larger acquisitions, we are confident that we have ample capacity as well. Additionally, our long-term targeted leverage rate is around 2.5 times, and we are currently significantly below that, at less than 1 time, giving us plenty of flexibility 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, that’s a good question. At Investor Day, we discussed a $40 million foreign exchange headwind on revenue. Initially, we provided guidance of approximately $3.4 billion. Our current guidance stands at $3.42 billion, which includes an additional $20 million from one month of the mobility business we had in January before finalizing the closure. The $40 million headwind in foreign exchange should be seen as a necessary increase to counterbalance the FX impact on organic growth. The primary improvements are seen in the AECO and Field Systems businesses, along with the strong performance in Civil and AECO, particularly as we wrapped up last year and continue into 2025.

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, it's Phil. So regarding the Field Systems, we've previously discussed some changes with the CAT joint venture. We've moved some margins from our equity investment income line into operating expenses. We sell products into the joint venture and adjusted some margins and pricing, which actually helps enhance the margins in the Field Systems business. However, this improvement is partially offset by the investments in channel development you mentioned. On the transportation side, the main challenge is related to foreign exchange. The Transporeon is entirely euro-based and profitable, but when we convert that back given the strong U.S. dollar, it becomes a significant 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.

Hi, Rob, this is Rob. Good morning. India is performing particularly well, and I would highlight that as a key point in the region. Conversely, the most challenging markets are likely China and Japan. Japan is facing significant difficulties due to foreign exchange issues. In the middle, we have Australia and New Zealand, but India definitely stands out positively.