Trimble Inc (TRMB) — Q1 2025 Earnings Call Transcript

Welcome everyone. Before I get started, our presentation and Safe Harbor Statement are available on our website. Our financial review will focus on year-over-year non-GAAP performance metrics on an organic basis. In addition, we will focus on adjusted numbers that we believe more accurately portray the underlying performance of our business. This means we will exclude divested agriculture and mobility businesses. We also adjust for the approximately $50 million of January 1st term license revenue that was recognized in the first quarter of 2024 but not in the first quarter of 2025 because January 1st, 2025, fell into the fiscal fourth quarter of 2024. We exited 2024 on a strong footing, strategically, operationally, and financially. The results of the first quarter of 2025 are further evidence of the strength of our business. To understand how we are positioned to navigate the uncertainty at the moment is to understand the quality of our performance in the first quarter, which can be expressed in three words; clarity, durability, and momentum. Clarity manifests as the simplification and focus we have brought to our business over the last few years. On February 8th, we closed the sale of our Transportation Mobility business to Platform Science, further solidifying our strategic focus to compete and invest where we have a natural right to win. Starting with Slide 4, durability manifests through the quality of our business model, which we intentionally transformed over the last few years. Today, we are three-quarters software, two-thirds ARR asset-light and operating with a strong balance sheet. We are in the business of selling productivity and efficiency outcomes to our customers, and our technologies are mission-critical. While visibility and predictability into the future is far from perfect, it is definitively higher and better than at any point in our 47-year history. In the first quarter, as detailed on Slide 5, momentum manifested in a beat across the board. Revenue at $841 million was up 3% organically and up 10% after adjusting for the timing of January 1. ARR at $2.11 billion was up 17% organically and was ahead of expectations across our segments. EPS at $0.61 was also ahead of expectations. Congratulations to our team and our partners. Despite the strong start to the year and our current momentum, we are maintaining our guidance for the year as we feel the prudent move is to inject a degree of conservatism into our outlook. Tariffs are modest in our software-centric business and have thus far been offset with pricing. We will all know more in three months, and we will recalibrate at that point. One area of Trimble where we are not cautious is in our AI journey, where we are moving with clarity of purpose to better serve our customers while further strengthening our own business operations. We're not just talking, we are acting. In April, we held a virtual internal AI summit with nearly 2,500 internal attendees, where we spent a day reviewing priorities and work in progress. In addition, we have OKRs throughout the company to drive execution and accountability to AI outcomes. Slide 6 provides a framework for how we think about internal and external applications of AI on one axis and delivery of cost efficiencies and revenue growth on the other axis. This framing helps us allocate capital with intention. For example, our product managers are leveraging AI to develop marketing and technical requirements documentation. Our marketers are beginning to generate sales pipeline with agents mining data from our CRM systems. Our sellers are leveraging AI for sales coaching. Our customer success teams are leveraging AI for case deflection, and our software engineers are programming and testing with AI productivity tools. We are also releasing AI capabilities into our customer-facing solutions, from natural language prompted design to feature extraction out of 3D point clouds to automating invoices and even releasing stand-alone automation products to connect to carriers and shippers. We believe we have a natural right to win and an AI-forward emphasis given the unique scope and scale of Trimble in the physical and digital world. With that in mind, let's step back and share our view on the macros. And for words, opportunity, coupled with uncertainty. On an absolute basis, the uncertainty of tariffs and trade policy put sand in the gears and stoke fears of an economic downturn. Despite these fears, the business is resilient, and we outperformed in the quarter. On a relative basis, we look at how our business is competitively positioned. In this respect, if we hit a downturn, we believe we can outperform and win market share. Weak competitors will reduce investment or exit the market, and we have the ability to run cross-sell and upsell plays if new logo generation becomes more difficult. At our Investor Day in December, we talked about $1.4 billion of cross-sell opportunities in the portfolio. We also have the balance sheet to continue to take subscription models to market in our software and hardware offerings, thus delivering more affordable access to our technology. In summary, this leadership team has successfully managed through challenging environments by applying a simple and consistent principle, position ourselves to exit periods of challenge on a stronger competitive footing. Year-to-date, the opportunities have outweighed the uncertainties. Across end markets and geographies, we see pockets of strength at the same time we see pockets of modest weakness. In the last few weeks, I have met in person with dozens of global customers and partners in seven countries. Most of them were level-headed and taking a wait-and-see approach. We have seen modest softness in the public sector in the U.S. and slightly longer sales cycles with enterprise customers. On the other hand, Germany's announcement of infrastructure spend has been a positive. We see global strength in customer segments such as small to midsized construction companies and in industry segments such as data centers, renewables, and mining. With that context, let's talk about each of our segments, starting with AECO and a quote from an engineering customer who said, the following, with all these technologies connecting together with AI and internet of things, having all your solutions under one platform just makes sense. This sentiment is indicative of the success we are having with Trimble Construction One and our cross-selling efforts. In the quarter, ARR outperformed, up 19% to a record $1.29 billion. ACV bookings remained strong, growing in the mid-teens. Indicators we pay special attention to include ACV bookings, pipeline, net retention, and the lifetime value to customer acquisition cost ratio. All these indicators are healthy at the moment. In the last weeks, we have launched the 2025 versions of our bema engineering and architecture and design solutions both of which are bringing new AI features to market. Moving to Field Systems. I'll start with the quote from a customer talking about the value proposition of our machine control and Guidance-as-a-Service offering. The Trimble offering allows me to sleep better at night with the subscription, budgeting equipment costs on bids is easier, and it makes us more competitive. I don't have to worry about outdated software or communication between systems or that the technology we just spent thousands of dollars on is now obsolete. That's a subscription advantage that is irreplaceable. The business outperformed in the quarter with particular strength in civil construction and advanced positioning. The subscription offering in the quote contributed to 25% ARR growth in the segment to a record $358 million. An interesting and important fact is that 50% of our customers who bought machine control as a service in the quarter were new logos once again affirming that smart business model transformations expand addressable markets. In early April, our field systems team was at the bauma Trade Show in Munich, where our technology was present on more than 20 OEM booths, signifying the importance of Trimble in the ecosystem and demonstrating our commitment to serve the mixed fleet. Moving to Transportation. I'll start by quoting a long-time customer who said, We are impressed by the high-quality work and expertise that Trimble brings to digitalization. This quote is indicative of the fundamental transformation happening in our served industries, which transcends economic cycles, thus providing context for continued growth in an underlying freight recession. ARR in transportation grew 7% to a record $459 million. The split of revenue in this business is 40%; Europe, Middle East, and Africa, 57% North America, and 3% rest of world, and our systems are mission-critical, which we believe provide a downside ballast if China, U.S. trade further deteriorates. With respect to KPIs in the segment, they are the same ones we think about in AECO, including ACV bookings, which exceeded our expectations in the quarter in which we expect to grow double-digits this year. For market health, we look at tender rejection rates along with spot pricing for more real-time market conditions and both are relatively steady. In the Transporeon business, we can also see pretty clear industry segment trends. For example, in Europe, we can confirm what appears to be somewhat self-evident. The automotive segment is down while retail and construction materials are up. In summary, clarity, durability, and momentum in the form of a strong start to the year gives us confidence and conviction to stay the course. Phil, over to you.

Thanks Rob. A few items to cover before turning to the slides. On April 25th, we filed our 2024 10-K with no changes to the financials that we presented earlier this year. In addition, we recently announced a change in our auditors for the 2025 fiscal year. We're excited to welcome KPMG as our new auditor. We thank E&Y for their service, and I want to offer a particularly large thank you to the Trimble team for all the hard work and dedication throughout and we are looking forward to a successful transition. Turning to our operations, let's start with tariffs as they stand today. The total impact adds approximately $10 million per quarter to our cost of goods in the Field Systems segment. We've already implemented surcharges to offset this. Thus, we expect no impact on profitability. We are managing discretionary spend and directing capital to the most attractive market opportunities such as data centers and infrastructure while continuing to invest in the transformation and growth of our core business. We bought back $627 million of shares in the first quarter and have the remaining $373 million of authorization available. We continue to believe that repurchasing Trimble stock is an attractive opportunity for capital deployment given our share price today. With respect to M&A, we are primarily focused on small tuck-ins with opportunities for fast integration where we can quickly cross-sell and upsell our customer base, yielding a rapid return on investment without deploying significant capital. Let's review the first quarter of 2025, starting on Slide 7. As we noted previously, we have approximately $50 million of term license renewals that are recognized on January 1st. These happened in the first and fourth quarters of 2024, but not in the first quarter of 2025. The right way to look at the business progression is to normalize for this dynamic. Unless otherwise noted, I will be talking about our as-adjusted numbers, which remove the effects of the recent divestitures, which we further adjust for the January 1 term license renewals. As-reported numbers, along with the reconciliation, are provided in the appendix. Organic revenue was up 10% and ARR was strong, up 17% to a record $2.11 billion. Gross margins expanded 180 basis points to 69.9%, and which shows our continued model progression despite the greater hardware mix with the field systems performance. We achieved EBITDA margins of 25.9%, which is a 100 basis points expansion year-over-year. Reporting earnings per share was $0.61 for the quarter. Moving to the balance sheet and cash flow items on Slide 8. Our reported free cash flow for the quarter was $149 million, which represents a conversion rate of 1 times net income. Our balance sheet is strong with $290 million of cash and a leverage ratio of less than 1.3 times, which is well below our long-term target rate of 2.5 times from a liquidity standpoint, we are asset and working capital light and have the full $1.25 billion of availability on our revolving credit facility. Let's shift to a segment review of the numbers before we close with guidance, starting with AECO on Slide 9. AECO delivered a record $1.29 billion of ARR, posting 19% ARR growth for the quarter. Operating income at 27.3% increased 50 basis points year-over-year. We continue to expect the segment to expand margins by about 100 basis points for the full year. The business continues to operate well above the rule of 40 and was greater than the Rule of 45 in the first quarter. Next, Field Systems on Slide 10. The Revenue was up 6% and ARR growth up 25% for the quarter, where we continue to successfully execute our business model conversions. Our civil construction business was particularly strong, and ARR was driven by positioning services and sales of subscription offerings. Overall, dealer inventories went down for the quarter for our businesses and are sized appropriately for the demand, taking into account the uncertainty in the market. Operating income at 29.7% increased 280 basis points, driven by the increasing higher-margin recurring mix. Finally, Transportation and Logistics on Slide 11. Revenue and ARR were up 6% and 7%, respectively, for the quarter. The segment is now greater than 90% recurring revenue following the divestiture of the mobility business. We made good progress bringing the global transportation teams together in the first quarter as we execute our connected scale strategy, which allows us to access the $400 million of cross-sell, upsell opportunities within this segment. Operating margins of 21.2% are expected to improve in the next three quarters as we continue to execute the strategy. Let me turn to guidance on Slide 12. We are maintaining our full year as-reported 2025 guidance with the midpoint at $3.42 billion of revenue and $2.87 of earnings per share. We're also maintaining our organic ARR growth as-adjusted guidance midpoint of 14%. With the macro uncertainty Rob mentioned, we are de-risking our guidance by modestly reducing our organic revenue growth, driven mostly by non-ARR revenue in field systems and to a lesser extent, transportation. This is offset by the revenue benefits we see with the change in foreign currency exchange rates, along with the first quarter outperformance. We will revisit our guidance with second quarter results, and we expect to have greater clarity. Looking at the calendarization, the fourth quarter of 2025 benefits from January 1st in the quarter, which is expected to bring approximately $60 million of high-margin term license revenue. We provided an updated view of this calendarization in the earnings supplement on our Investor site. On an as-adjusted basis, our EPS guide implies low to mid-teens EPS growth year-over-year, which is consistent with our long-term model. From a cash flow perspective, our full year view is updated to be 0.9 times net income after adjusting for the $253 million cash tax payment for gain on sale of the Ag JV and approximately $35 million in M&A costs. Relative to the prior guide, we are expecting higher cash taxes and one-time items. We continue to expect that we can deliver free cash flow greater than non-GAAP net income over the long term. For the second quarter guidance on Slide 14, we expect as-reported revenue to be in the $815 million to $845 million range and EPS of $0.59 to $0.65 which is consistent with the numbers we provided earlier in the year. We expect organic growth in the second quarter to be in the 2% to 6% range. With that, I'll turn it back to Rob.

Durability in our business. This happened by design, not by accident. We are positioned to withstand market headwinds. Momentum. We saw ROI on mission-critical applications. Our Connected Scale strategy works, and we will continue to prosecute our strategy. Clarity of purpose. We have always managed with a mindset to exit challenging times on a stronger competitive basis than when we entered it. Control what we can control, embrace our values, follow the money, control our costs, execute our OKRs, lead. Operator, let's open the line to questions.

Hi, good morning. Thank you for taking the question and congratulations on a nice start to the year. So, Rob, I wanted to double-click on the field systems business. When I look at the results of some of your large peers, it almost seems like night and day, in terms of your relative performance and resilience even against sort of the broader macro uncertainty. So, I'm wondering if you can walk us through what's working there? And if there are any shifts you're seeing in the competitive environment? And then I'm going to ask my follow-up now because they're somewhat related. You've restructured the CAT JV and since then, you've announced a number of these new OEM and distribution partners on the civil construction side. So, I'm just hoping you can contextualize those partnerships for us help us understand go-to-market strategy and how to think about that growth contribution to the portfolio over time? I know it's a lot here.

Thank you for the questions and good morning. I'll begin by discussing the addressable market, which is extensive, global, underserved, and underpenetrated. From a customer perspective, there is a demand for solutions that address mixed fleets. We see success at the intersection of product and channel, where we believe we offer the best performing product in the market along with the best global dealer channel. For instance, our siteworks product line caters to mid-tier machines, and our recent announcement at bauma regarding support for Tilt buckets on excavators addresses a specific need in Europe. We’re advancing our products to capture market opportunities, particularly in the excavator segment, which is the largest machine category globally. Enhancing our service in this area can significantly drive our business growth. In my prepared remarks, I touched on our business model and the expansion of our subscription offering, which broadens our addressable market. We aim to connect our B2W track product with field activities and machine control to align production with planning and drive actionable insights. I also want to acknowledge the consistent leadership and strategy from Ron, Scott, and the team for progressing the business. I'm proud of the results achieved by this team and our partners. Regarding our go-to-market strategy, the SCITEC channel remains central to our approach, and we renewed our relationship with CAT last year. Congratulations to Gen and Joe on that transition at the CEO level. We also announced a partnership with John Deere focused on their smart grid technology. Additionally, at bauma, we established a partnership with Leber for their factory-ready dozers and showcased our technology at over 20 booths. We're in the process of establishing technology outlets, with four already signed, designed to enhance our presence with OEMs and increase technology adoption in the market. Overall, the various parts of our strategy are functioning well together, and I’m pleased with our business results and the team's efforts.

Thank you for that color. I'll leave it there.

Thank you.

Good morning Rob, good morning Phil. This is Devin on for Jason Celino this morning. Thanks for taking our questions. I wanted to ask about what you're hearing from customers in AECO among construction owners and engineers. How are you viewing their business and the near-term project outlook? Have you noticed any significant increase in scrutiny or an elongation of the sales cycle in April? And have those trends continued into May? Any insights you could provide would be helpful.

Good morning. This is Rob. I'll address your question. Overall, in AECO, the situation remains stable. The performance in the first quarter is impressive, with a 19% growth in ARR and ACV bookings in the high teens. Recent weeks have shown consistency that aligns with our guidance, whether looking at the second quarter or the rest of the year. While there are definitely areas of strength and weakness, which is common in any market, the overall market is dynamic and somewhat uncertain. We've observed longer sales cycles from our largest enterprise customers. They are not changing decisions, just taking more time to reach them. However, this doesn’t significantly impact our business. On the positive side, we still see strength in areas like data centers and renewables. In Europe, the situation differs from the U.S., especially with Germany announcing a potential trillion-dollar infrastructure project, which has bolstered confidence in the market. There are encouraging signals on both sides, and we remain optimistic despite the uncertainty. What we've seen so far supports our outlook for both the quarter and the year.

That's really helpful context. And then just a quick follow-up. I know you've called out a really healthy metrics that you're seeing across the business. Organic ARR growth accelerated by 1 point in the quarter. Have you seen any maybe deals that might have gone pulled forward just because of the geopolitical challenges and concerns? But any dealers may have shifted more math other than have driven the strength in the quarter? Thanks.

Yes, it's a great question. I would separate the software business from a hardware business on that. There's such a thing as a pull forward on a software sale, I'll take it all day long, but I don't actually think that, that happened because we haven't changed pricing in software would make that happen. So, it's really more of a relevant question on the hardware business, which is less than 25% of the revenue we have in the company now. We think that there may have been a few million, like maybe less than $5 million of pull forward in the quarter. At the same time, though, it's a really important metric we look at is our dealer inventories, and they went down in the quarter. So, the retail sales, therefore, outpaced even the wholesale sales that we had to our channel. And just to make sure that clarifying that we sell our hardware predominantly through the dealer channels today and the software that we sell direct.

Thank you so much for the color and for taking my questions.

Thank you.

Hey good morning to Team Trimble and congrats on the strong start to the year. My first question is on the $10 million tariff impact I'm assuming you're taking pricing to offset that. Is that $10 million coming from mainly China? I'm basically trying to understand what the $10 million impact per quarter could look like if China tariffs come down from the current 145% rate? Or are there other countries in that $10 million?

Hey Tami, it's Phil. Thanks for the question. So, the $10 million is really the product that comes into the U.S. and it's mainly more of the Canada and Mexico products that aren't USMCA compliant. Most of the China products we get are very cables and batteries and lower dollar items that we pass through some of that pricing there, but it's not a big portion of our COGS. The main items that are driving that $10 million are coming from Canada and Mexico into the U.S. that aren't USMCA-compliant.

Understood. That's clear. Thank you so much. My other question is if you could remind us about your revenue exposure to federal sources and whether we should anticipate any impact from potential dose-related cost cuts in the upcoming quarters?

Yes, we weren't very bullish on the government business coming into the year. And so it was actually a very small amount in our original guide. We've actually removed a little bit more in the current guide as well. So, our exposure is very small for the rest of the year in the, call it, single-digit millions. So, if there's any further cost will be a material impact.

Perfect. Thank you.

Hi, good morning. I just wanted to understand a little bit better your comments around AI. Could you talk a little bit about what you're seeing in terms of the potential here for customers to maybe reevaluate the solutions and how maybe this benefit from the competitive stance?

Hey Jonathan, good morning. It's Rob, and I'll address your question. From a competitive and strategic perspective, what sets Trimble apart is the extensive scope and scale of the data we manage throughout the industry lifecycle, whether in transportation by linking carriers and shippers or in construction by connecting architects, engineers, contractors, and owners from planning through to operation. This unique scope and scale are significant, as we handle over $1 trillion in construction, manage tens of billions in trade, have millions of software users worldwide, and support hundreds of thousands of instruments utilizing Trimble technology in real-world applications. There's something distinctive about the volume of data we possess. We're noticing that customers, although not using the exact terms, are increasingly discussing the shift from task optimization to systems optimization, focusing on broader workflow and ecosystems rather than just individual tasks or products. This positions us well in an AI context, as we can offer valuable insights and help customers unlock more of their data. They often seek ways to operate in a connected data environment, merging Trimble and non-Trimble data to improve productivity, quality, safety, transparency, and sustainability. With this context, I'm optimistic about the progress our teams are making in the AI field. We're already providing AI-driven capabilities to our customers, such as natural language-based design, AI-rendering, feature extraction from 3D point clouds, and automating procurement and quotation processes between shippers and carriers. I'm really impressed with our team's efforts, and we are still in the early stages of this journey, setting the stage for our future progress.

That makes a ton of sense. Can you also give us a bit more detail on the machine control as a service and how much of new businesses may be coming in through this? Are there any potentials to flip existing hardware customers? Any color would be appreciated. Thank you.

Yes, what we observed in the quarter is quite intriguing. In fact, it's not limited to just this quarter; we've experienced this over the past few years. The business continues to grow. Our team achieved record bookings for our offering called Works Plus. Interestingly, over 50% of the new customers we acquired this quarter were new logos. This is particularly compelling evidence that our business model can expand the addressable market size. We've noticed this trend across all our software products as we transition and increase unit counts, making them more accessible. Additionally, it's noteworthy that we've successfully executed competitive swap-outs. We're seeing a growing number of competitors that we can replace, and our business model plays a significant role here. It allows customers to more affordably make fleet transitions to Trimble. Moving forward, you can expect us to discuss how our subscription offering supports land and expand strategies, enabling us to provide more value through additional software and workflows on top of the foundational services.

Thank you.

Thanks and good morning. I had a couple of questions just on digging in a little bit to the stickiness of the software business. And I guess the first would be just that we're now a few quarters into slowdown, inflection decline in interest rate-sensitive construction. I'm wondering if you've seen any material change in churn among your kind of your smaller and contractor costs, are smaller end customers of whatever restored in software construction? And then secondly, Rob, I think you touched on your scale and your ability to sort of gain share in downturns. I'm wondering if you had any expanded comments on what you were thinking might struggle in the software ecosystem, if it's the downturn comes at the moment for things to flock to the bigger platforms? Maybe just talk about what you're thinking about there, and I'll stop. Thank you.

Hey Rob, thanks for the question. On the stickiness of the software, I think the best place I can start would be comment where the net retention over a trailing 12-month basis is held steady at about 110%. That's already a great number in and of itself and it's holding steady. So, that's the best evidence I can give in terms of gross retention and continuing to upsell and cross-sell in the portfolio. You asked about smaller customers and churn. Actually, we've seen more growth in the smaller customer base in the small and midsized customer base in the construction realm anyway, because that we see as a very untapped market. So actually quite bullish about the ability to increase the level of penetration in that market. At the same time, I understand it's logical to think about the balance sheet of smaller players in the world compared to the larger ones. One thing that's a ballast, I think, for the whole industry is there's significant backlog overall. Now, as you know, that's differential depending on which state or which part of the world you're in, what end markets you focus on, I'm taking a broad paint brush to say that there's a healthy amount of backlog. So it's not the first thing we think about is liquidity, balance sheet liquidity of our smaller customers. So they're doing well, and we see actually quite a lot of growth there. You asked about gaining share in a downturn and to put a little more color on that. So hey, the construction ecosystem, technology ecosystem is a vibrant ecosystem. There's a lot of really interesting companies out there. We have a venture capital arm where we've invested in a few companies. I think if you step back and look at that ecosystem, like most start-ups, most won't make it. That's the nature of the game. Those that do, I think many of them have turned out to be features as opposed to businesses that to get to that, there's one thing to get to the first one, let's say, $5 million of revenue. What tends to gate to a lot of those companies is go-to-market from getting to $10 million or getting to the $100 million of ARR. And that's when you find in many cases, they really act more as features on a bigger platform, as opposed to stand-alone products. We've done a few tuck-ins ourselves in the last couple of years in AECO and in each case, what we've seen is when we put capability into our go-to-market arm, whether that's in field HR capabilities or in payments as two examples. We've significantly accelerated the size of those businesses by plugging it into our go-to-market engine. So, I would posit that in a tougher economic environment, it's going to be harder for the smaller companies to raise money and to have the balance sheet to withstand storms if they come. And maybe they won't come. But if they come, I think we're in a position to do quite well and to gain share in a downturn.

Perfect. Thank you.

Hey, good morning guys. So, what are you messaging to distributors about the tariff-driven pricing actions? How much are you raising price when does this hit? Is it surge are? Is it a formal price raise? And then for the $10 million that you called out, is that do you expect to pass that entirely on? Or is there some sharing between yourself, the distributor of the customer? I'm just trying to think through that.

Hey Chad, good morning and thanks for the question. It's Rob. That's a pretty easy answer. It's North America only. It's a surcharge. The surcharge level is 4%. So put 4% in context of what we might normally see as pricing in a given year. That is, let's say, doable, and we've seen the market move to that price. So, it's actually quite straightforward.

Okay, simple enough. And then just on Transporeon, can you just give a little bit of color on what you saw in the market and how you're thinking about that business for the balance of the year?

The financial performance of the business grew at a high single-digit rate year-over-year. Looking ahead to 2025, we anticipate the pipeline will enable us to achieve double-digit growth in bookings on a year-over-year basis, and profitability has increased. We're increasingly viewing Transporeon within the context of the overall segment rather than in isolation. Over time, we will likely discuss Transporeon less as a standalone entity because we are integrating more of its products, such as visibility and marketplace capabilities, with our Transportation Management System capabilities. The organization has primarily transitioned to a functional structure, allowing us to present a comprehensive set of capabilities in a more unified manner. Additionally, within Transporeon, we gain valuable insights from shippers regarding the volume of goods they transport. For instance, I mentioned in my prepared remarks that we're observing a decline in automotive units due to fewer automotive transports on the Transporeon platform. Conversely, in the retail and consumer products space, transport units continue to grow year-over-year. This insight helps us determine how to allocate capital internally for targeting specific end markets and geographies. Transporeon remains predominantly Europe-based, which gives us a bit more confidence in that business compared to North America. Both markets are currently facing a freight recession, but I see some favorable conditions in Europe, particularly regarding the Infrastructure Bill in Germany.

That’s all from me. Thank you.

Yes, good morning. The field systems ARR growth kind of steps off the page. It's pretty impressive. I was going to see if you could drill down a little further into that. You called out both on the positioning service as well as the civil construction side. How did the growth shake out there? And I'm just are we working off a smaller base and some of the newer offerings driving the organic growth to that 25% level. And part of the reason I ask is it seems like we should expect some moderation through the year just based on the guidance and how we should think about cadencing there as well.

Hey Rob, thanks for the question. The shift to ARR in the business has been very intentional. So, it's for sure not by accident. The teams have done a lot of work to transition business models. We stand at $358 million of ARR. That's a lot of ARR. And hey, that's less than the $1.29 billion of ARR and AECO or the $459 million of ARR in the transportation and logistics businesses. That 25% has an aspect of strong execution, and I'll come back to that. And it also has an aspect of there being us being newer in the transition. So, there is a lapping effect by the second half of the year that will bring us down to the guide that Phil put forward in that business and still to a very healthy level of growth. Another reason to like that ARR within field systems is I think over time we've had, there's been a view of us as cyclicality within hardware business. And to an extent, that's true. At the same time, we see a secular adoption of technology. But to the extent that undertone of cyclicality this ARR provides, let's say, mutes that level of underlying tone of cyclicality that would be in the business, which is another reason to like what we're doing there with ARR and field systems. So, with respect to calling out some of the specific areas of growth, I talked about Works Plus, that's machine control and guidance offering, we continue to grow there. And our survey business, we have a product or a solution called DA2 or also called Catalyst. So think of that as positioning GIS as a service application on a global basis, that continues to have very strong growth. And our positioning services business, as you know, as we deliver centimeter-level accuracy on a ubiquitous basis around the world, whether that's on farms or the surveyors or construction sites. That's been a great business for us for a long time. We've expanded those capabilities in the automotive market. And so we see growth there in that automotive end market. Think about lane detection and safety systems there on paths towards automation. And then even we've got examples in our survey business of taking product and moving it fully to a ratable basis. So, a good amount of things happening, whether it's a full offering of the entirety of the system or it's a split hybrid offering where you're paying a nominal amount upfront for the hardware and then the rest through the software. And at a certain level, that makes sense because increasingly, in the world, we think about software-defined systems, software-defined hardware. And I think we're pretty well ahead of the curve in the competitive environment with the way we're approaching this market, and the other results speak for themselves at the moment.

Yes, that's great. And just, Rob, you referenced Germany in particular, just we'll see how their plan plays out. But could you just speak to how you think you're positioned there? I know some of your bundles vary by region, but just in that region, in particular. And when would expect to potentially see some uplift around what you're talking about?

Yes. I was recently in Germany at bauma and again just a week ago. I want to commend not only our team but also our partners at SITECH and Deutsche Land for doing an excellent job. The SITECH team operates at a large scale and is the biggest competitor in the market, which is significant for our relative market share. They organized an off-site event at bauma to showcase the technology in action on a small job site, which effectively drives business. In fact, they generated millions of euros in new business. You could really see the quality of execution, particularly with the Siteworks product and our ability to support various needs, which is especially relevant in Germany. Providing them with additional products and capabilities fosters a positive outlook in the market. Some of that optimism stems from recovering from significant lows, and any positive sentiment is beneficial. It certainly correlates with the Civil business related to infrastructure. While we haven't seen any concrete support for that yet, the ongoing discussions signify a new type of conversation in the country, which is encouraging. Regarding the software side of the business, the market remains healthy, especially in vertical construction, where we have a range of capabilities. Our North American strategy is a bit more engineering-focused compared to construction-focused. The team is doing well in managing what they can control, including our market approach, transformation, and packaging of our offerings through the TC1 bundle, all of which seem to be effective at this time.

Yes. Hi, good morning, everyone. Rob, if you just go back to AECO really outstanding ARR organic growth in the quarter. Can you just talk about how much TC1 contributed? What was that cross-selling contribution versus other drivers of the acceleration in an environment where a lot of businesses are not accelerating? And then just to put some context around your comments around longer sales cycle that you're seeing, is that to imply that ARR growth for AECO could slow somewhere to the mid-teens in the second quarter based on what you're seeing? Can we just put a finer point on just quantifying what that longer sales cycle means in your prepared remarks? Thanks.

Thank you for the question, Jerry. In the first quarter, our ARR increased by 19%, with ACV bookings in the high teens. Approximately two-thirds of these bookings are from TC1, which has now become the majority of our bookings. TC1 serves as a commercial framework for our operations, and it's possible for customers to be on this framework while still purchasing individual solutions. This situation actually benefits us, as it provides an easier pathway for cross-selling and upselling since there is already a foundational contract in place. We are particularly focused on the bundles within TC1, of which we have over 20 specifically designed options. We're actively rolling these out on a global scale, with more bundles reaching Europe, contributing positively to our TC1 bookings. Year-over-year, TC1 bookings significantly outpaced the overall bookings, which are also growing in the high teens. The success of TC1 is crucial for us, supporting our efforts in cross-selling and upselling, which we estimate represents around a $1 billion opportunity. Additionally, it's important to consider that TC1 also facilitates connections between AECO and field systems, integrating estimating and tracking capabilities within AECO software with our field instruments. Customers won't differentiate between the segments of Trimble; they engage with Trimble as a whole, and we can deliver unique workflows. Expect to see more TC1 bundle integrations into the civil market this year and moving forward. Regarding sales cycles, we have noticed some hesitation among our largest customers in AECO, particularly when it comes to purchasing construction ERPs. A delay in decision-making at this scale won't greatly impact value delivery, which explains the observed hesitance. However, we are adapting quickly by shifting resources to other sectors that are growing faster, particularly small to midsize contractors. The enterprise-level business continues, and its presence significantly balances our perspective on growth. The nature of an ARR business means we aren't likely to experience a drastic downturn, especially in the second quarter. We are optimistic about our current business and its trajectory. In the public sector, including our work with federal, state, and local governments, while some segments may be slower, we've seen strength in specific industries and customer sizes that have offset this. I hope this provides clarity, Jerry.

Super helpful, Rob. Thank you. And then in terms of P&L margins, Phil, obviously, you've got a transition going on with the divestiture. Can you just talk about where the quarter came in relative to your plan? It looks like maybe there's some work to do to get to the full year guide that's better than normal seasonality. Can you just expand on the timing of when those trended costs go away and how it's playing out versus your plan?

Yes, thank you, Jerry. As we consider the situation with the mobility divestiture, we do have some stranded costs this year. We expect to start the year around 21% and maintain our guidance at 24% for the year. We continue to see improvements in margin, especially in transport and bookings, which have shown strength over the past year. However, it takes time for those bookings to materialize due to the ramp-up period. We anticipate seeing an inflection as the year progresses, which will contribute to margin expansion. Regarding stranded costs, some are related to software contracts and other obligations that are difficult to exit quickly, so this will take time to resolve. We expect this to remain a headwind in 2025, but as we move into 2026 and implement some actions, we believe the impact will stabilize and become neutral after 2025.

The downside of those software contracts. Thank you.

All right. Well, we appear to have lost our moderator here for the call. This is Rob Painter. I just want to thank everybody for attending today's call. And with that, we will hang up.