Trimble Inc (TRMB) — Q4 2025 Earnings Call Transcript

Welcome, everyone. Before I get started, our presentation and safe harbor statements 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 the divested agriculture and mobility businesses as well as the 53rd week of fiscal 2024. For the fourth quarter, we will also adjust for the timing of January 1 term license renewals. As reported numbers, along with the reconciliation are provided in the appendix of our slide presentation. Okay. Let's get to it. Our fourth quarter results delivered a top and bottom line beat, punctuating a strong close to a strong year and positioning us well to deliver in 2026 and through the 2027 plan we presented at our last Investor Day. The results of the quarter and the year demonstrate the durability of our focused portfolio and the compounding returns of our Connect & Scale strategy. As shown on Slide 4, we delivered $970 million in revenue in the quarter, up 9%. For the year, revenue was $3.57 billion, up 10%. Our ARR grew 14% to $2.39 billion with a notable 16% increase in our AECO segment and a 20% increase in Field Systems. Earnings per share of $1 in the quarter was up 12% and $3.13 for the year, up 10%. Both were even higher on an organic basis. Connect & Scale is both an application and a platform strategy. As Slide 5 visualizes, our applications manifest as best-in-class hardware and software solutions, whereas platform manifests through connected workflows and ecosystems. Said another way, an application solves one problem, whereas a platform connects people, data, and workflows to address system complexity. Furthermore, a platform empowers an ecosystem where customers and partners can build and extend offerings and integrated workflows. Platforms get stronger and more valuable as more people use them, creating a network effect where all participants benefit. With this in mind, we allocate capital along this continuum of product development, go-to-market, and the underlying systems and processes to unlock our full potential. By connecting the hardware and software of Trimble to connect the office and the field, we are connecting the physical and digital worlds. In turn, we are delivering solutions that increasingly compound customer outcomes by leveraging unique data, connected solution capabilities, and our unmatched go-to-market reach. We see AI as a force multiplier that accelerates value delivery along this entire flywheel. Slide 6 illustrates the financial outcomes of disciplined execution since we began our Connect & Scale journey in 2020. We have expanded recurring revenue as a percentage of total revenue from 40% to 65%. Software and services now represent 79% of total revenue. We have expanded gross margins by 1,300 basis points, which has given us tremendous degrees of freedom to invest for our future growth while expanding EBITDA margins by 400 basis points. With this context in mind, let's turn to a review of the segments, starting with AECO. The team delivered another outstanding quarter. ARR at $1.48 billion was up 16% and revenue at $454 million was up 15%. Our ACV bookings remained strong with the team delivering a record quarter with cross-sell and upsell motions continuing to gain momentum as evidenced by net retention in our core commercial base at approximately 110%. I'll highlight three examples of ongoing strategic progression in project management, collaboration, visualization, and AI. In project management, our decision to allocate capital here over the last couple of years is yielding results. We delivered over 40% growth in bookings and over 50% growth in ARR. Throughout the year, we added hundreds of new customers and began our international expansion. Ease of use, natively built workflow integrations, and bundled selling motions are driving growth and adoption. We're excited about our growth potential in project management and have our 2026 sales motions aligned to continue to win here. Trimble Connect has transcended its origins as a collaboration and model viewer to become the unifying pillar of our construction platform strategy. Connect turns field data such as point clouds and imagery from a job site into actionable insights in the office. It also takes detailed designs from the office to the field for fabrication, layout, and installation. By capturing the as-built reality from the field and fusing it with design models, we are creating the definitive digital record of the physical world. This positions Trimble not just as a tool provider but as the data platform of record for the entire built environment. With respect to AI, Hensel Phelps, whom we highlighted during our Dimensions keynote, estimates they are saving millions of dollars in labor hours with our submittals AI agent that automates processing of the data and paperwork-intensive aspect of construction. In MEP estimating, we've deployed AI to identify and count electrical components directly from construction drawings, replacing a manual takeoff process. This feature already has thousands of monthly active users and delivers over a 50% productivity gain and is generating millions of dollars of incremental ARR. In addition, we have created in-app AI assistance into many of our products, some of which are orchestrating multi-agent workflows, and we can already measure tens of thousands of conversations in case deflection rates of up to 20%. 2026 will be a year where we accelerate our agentic AI releases. Stepping back to look at a set of metrics of performance and progression, Slide 7 provides a 2025 refresh on the segment composition. The key takeaways here include a well-balanced and diversified set of customers being served with each pillar of the business having greater than $230 million of ARR, a geographic split that is centric to capturing the North American opportunity while demonstrating a compelling global opportunity to expand reach, and a revenue mix that is almost entirely recurring. Slide 8 goes further to give a set of annual KPI updates that mark proof points against the growth drivers we put forward at Investor Day. I'll start with three KPIs that demonstrate the power of the $1 billion-plus cross-selling opportunity we see in Construction, starting with the data point that only 20% of our customers currently buy more than one product, a clear sign of penetration opportunity. Next, customers with more than three products grew 18%, demonstrating our ability to run land and expand plays. Finally, more than 70% of our ACV bookings came from cross-sell and upsell motions, demonstrating that our customers value the breadth and depth of Trimble solutions. In addition, the significance of Trimble Connect was demonstrated by an 18% growth in the number of projects in Connect. Moving to Field Systems. The physical business of Trimble outperformed in the quarter with particular strength once again in Civil Construction. Revenue at $379 million was up 4% and ARR at $409 million was up 20%. Kudos to the Field Systems team. They did an exceptional job in 2025, demonstrating the strength of our innovation and execution and continuing to lay the foundation for Connect & Scale to differentiate at the intersection of the physical and digital worlds. I'll highlight a few examples of unique Trimble value delivery that Field Systems enables, starting with our customer, JE Dunn, one of the largest and most sophisticated North American general contractors who self-performs their concrete work. They work with Trimble software in the office to create precise 3D design models, then utilize Trimble augmented reality to see those models in context in the field. They deploy Trimble total stations to lay out these models in the physical world and Trimble 3D laser scanners to capture as-built data for quality control, all of which is coordinated through Trimble Connect to create a digital twin. This unique Trimble workflow that links work in the office and the field is driving productivity and quality while eliminating millions of dollars in rework, which in turn is significantly reducing their carbon footprint. Beyond self-perform concrete workflows, we have advanced our piling automation workflows for solar farm construction, and we developed a mass hall workflow to automate the infrastructure building process for mines as well as for large commercial and industrial sites. AI acts as a force multiplier on top of these unique workflows from AI classification of large data sets we collect in the field to analytics across transportation infrastructure, building construction, mining, and utilities to optimize workflows and enable our customers to make better decisions. This isn't just a vision; we already have tens of terabytes of reality capture data that have been uploaded to Trimble Connect, and we expect to double that in 2026. Stepping back to look at a set of metrics of performance and progression, Slide 9 provides a 2025 refresh on the segment composition. The key takeaways here include a well-balanced and diversified set of capabilities we take to market from GNSS and optical surveying instruments to inertial navigation and our unique positioning services that support precise positioning and navigation to our on and off-machine Civil Construction automation portfolio. Field Systems is our most global business, and we continue to develop product and distribution to reach the global opportunity. Finally, the revenue composition demonstrates a significant milestone in 2025. The segment is now over 50% software and services, and 26% of our revenue is now recurring. Slide 9 also lays out a set of KPIs against the growth drivers we put forward at Investor Day. During the year, our business model conversions continue to expand our addressable market as evidenced by the fact that approximately half of our sales of machine control as a service are to new customers. It's the same phenomenon we see with our Trimble Catalyst subscriptions, where we are reaching new users and customers with this more affordable offering. Moving to Transportation. ARR at $508 million was up 7% and revenue at $136 million was up 4%. We continue to grow despite the challenged freight market. To highlight a couple of examples of Connect & Scale at work, I'll start with our unique ability to cross-sell within the portfolio. From the perspective of a customer, they don't see divisions within the business. They see a set of capabilities. And those capabilities come in the form of carrier TMS, shipper TMS, dock and yard scheduling, final mile, maintenance, mileage, navigation, fuel tax reporting, freight audit, and beyond. Cross-selling looks like selling fleet maintenance into our TMS base or selling mapping into our European customer base or selling shipper TMS capabilities from Transporeon into the North American market. In parallel, we continue to natively integrate the data flows across these capabilities, and we apply AI as a force multiplier to deliver outcomes that we are uniquely positioned to deliver given the breadth and depth of the global customer base and data set we touch. Another example of being better together comes in the form of freight marketplace. In the third quarter, we announced Procter & Gamble as an anchor tenant. In December, we won the business of one of the world's leading beverage companies to manage their U.S.-based spot, mini bid, and strategic procurement. By bringing billions of dollars of additional shipper freight spend into our marketplace, we believe we are well positioned to capture additional business with the leading global shippers by connecting them with vetted carrier freight capacity. Stepping back to look at a set of metrics of performance and progression, Slide 10 provides a 2025 refresh on the segment composition, which is almost entirely recurring revenue. The segment is well balanced with the carrier and shipper-centric solutions and geographically balanced between Europe and North America. During the year, we expanded the power of our multisided marketplace as evidenced by the addition of over 10,000 carriers and over 100 shippers. We also demonstrated the ability to grow our existing customers as evidenced by double-digit growth of Transporeon customers doing more than EUR 1 million of ARR and MAPS and Enterprise customers doing both $100,000 and $1 million in ARR. With that, Phil, I'll turn it over to you.

Thanks, Rob. Let me start with capital allocation, which remains disciplined and consistent. During the fourth quarter, we repurchased approximately $148 million worth of shares, a direct reflection of our confidence in the long-term value of our business and our commitment to delivering shareholder returns. We retained a substantial $925 million under our current repurchase authorization, which gives us flexibility for opportunistic buybacks. Longer term, we continue to expect at least 1/3 of our free cash flow to be used for repurchasing shares as we look to provide returns for our shareholders. Our M&A strategy remains focused on strengthening our core market positions. We continue to screen for opportunities in high-growth capabilities that we integrate into our platforms, primarily in construction software with an emphasis on tuck-in acquisitions. Let's review the fourth quarter of 2025, starting on Slide 11. We delivered organic revenue growth of 9%, which exceeded our outlook, driven by the continued strength of AECO and Field Systems and with Transportation & Logistics demonstrating resilience and positive growth within a constrained freight market. ARR was toward the top end of our outlook at 14% to a record $2.39 billion. The continued growth in our recurring revenue base provides a predictable and resilient foundation for our business. Gross margins expanded to 74.6%, and we achieved EBITDA margins of 33.5%. Both were aided by January 1 term license renewals. Reported earnings per share was $1 for the quarter, $0.05 better than the midpoint and above the high end of our guidance. Our 2025 full-year results serve as validation of the progression of our financial model and confidence that we are on a trajectory to deliver our long-term model as presented at Investor Day of $3 billion in ARR, $4 billion of revenue, and 30% EBITDA margins in 2027. For the full year, organic revenue growth of 10% surpassed the high end of our outlook. Gross margins expanded 150 basis points to 71.7%, and EBITDA margins expanded 150 basis points to 29.3%. EPS for the year was $3.13 and above the high end of our guide and well above our long-term model of low to mid-teens growth when adjusting for the Ag divestiture. Moving to the balance sheet and cash flow items on Slide 12. Our year-to-date reported free cash flow remains strong at $361 million when considering the $307 million of tax payments and other costs primarily related to divestitures. We exited the year with a strong balance sheet that provides financial flexibility with $253 million of cash and a leverage ratio of 1.1x, which is well below our long-term target rate of 2.5x. Moving to a segment review of the numbers. Let's start with AECO on Slide 13. AECO continues to perform and exceeded expectations with a record $1.475 billion of ARR, posting 16% ARR growth and 15% revenue growth for the quarter. Operating margin was at 44% and was aided by January 1 term license renewals. For the full year, both AECO revenue and ARR grew at 16%, and operating margin was at 34.2%. Next, Field Systems on Slide 14. Revenue was up 4% in the fourth quarter while absorbing model conversions to recurring revenue. The continued execution resulted in another strong quarter of ARR growth at 20%, and operating margin was 30%. For the full year, revenue was up 5%, ARR up 20%, and operating margin expanded 100 basis points to 31.1%. Finally, Transportation & Logistics on Slide 15. In a freight environment that remains muted, the segment delivered revenue growth of 4% and ARR growth of 7% for the quarter. Operating margins were at 22.9%. For the full year, revenue grew 5%, ARR grew 7%, and operating margin was at 22.9%. Operating margin for both the quarter and the full year were slightly down year-over-year, primarily due to stranded costs related to the Mobility divestiture. Turning to Slide 16. Let's look ahead to 2026. The midpoints of our 2026 full year guidance are $3.86 billion in revenue, which represents approximately 7.5% growth and $3.52 EPS. We expect ARR growth at 13% and EBITDA margins to expand approximately 50 basis points to 29.8% as our model delivers strong operating leverage while allowing us to reinvest for future growth. From a cash flow perspective, we expect free cash flow to be approximately 1x net income and that we can deliver free cash flow greater than the non-GAAP net income over the long term. Slide 17 breaks down these metrics by segment. The trajectory across all 3 segments remains fully aligned to deliver the Investor Day company targets for 2027. Finally, regarding our first quarter outlook on Slide 18. Our revenue midpoint at $905 million, which is approximately 8% growth, EPS midpoint at $0.71 and ARR growth at 13%. We expect EBITDA margins at 26.6%, which is a 70 basis points expansion year-over-year.

Thanks, Phil. I'll close with a reflection on the compounding benefits of our Connect & Scale strategy. The fruits of what we see today are the result of years of past work by the Trimble team. Unlocking the power of compounding takes patience and conviction to be just a little bit better every day. The strength and momentum we carry into 2026 gives us confidence that we have yet to see the biggest gains for what's possible when we connect people, data, workflows, and ecosystems in construction and transportation. That same principle of compounding applies to our financial returns, and that flywheel is turning. My gratitude to the Trimble team and partners as well as our investors who continue to support our strategy. Operator, let's open the line to questions.

I wanted to ask about the Field Systems ARR growth. It's really impressive to see it accelerate to 20%. Maybe can you speak to some of the strength you saw in the quarter? And then when we think about guidance, it's assuming kind of deceleration in 2026 to that low to mid-teens. Is that just a function of tough comp? Or is there some dynamic with kind of the transition we should know about?

Jason, it's Rob here. With the growth in the quarter, and you're right, it was impressive growth from the team. We continue to see strong performance in the machine control guidance as a service. We continue to see growth actually in providing corrections into the automotive market and Geospatial. We see growth in our Catalyst, which is positioning as a service. The software conversions continue to drive growth across the board strength. Relative to the guide in 2026, there is a lapping effect as we've started the conversions and have been early in them; there's just a natural mathematical effect on that. So really continue at the fundamental level to expect to see strong growth in that. And when you up level to the segment level, Field Systems crossed a threshold now of being over 50% software and services for the year. So very happy about that.

Okay. Wonderful. And then the construction and architecture industry seems very suitable for agentic given the many stakeholders and historically siloed processes. But the industry has historically been pretty slow at adopting technology. Can you discuss how you think the industry will ramp adoption of agentic and how that might compare with maybe other industries? And then as Trimble launches these new agentic features, how are you're looking to monetize them?

Good question. We think that Trimble platforms are the exact right place for customers to adopt the agentic workflows that we can enable, as opposed to doing them outside of a Trimble platform. So we're already that system of record that becomes a system of intelligence. We already have a unique data set resident inside of Trimble that customers want to unlock. And when I spend time with customers, increasingly they're talking about how do they unlock more out of the data they have and how do they get AI usage on top of that data to help them address the challenges and the opportunities that exist in the industry. So we think the best way to speed up the adoption in the industry of agentic AI is doing it on top of the existing platforms and solutions that they're already buying from us where we have that trusted relationship and a unique and I think proprietary data set upon which to build.

Jason, this is Phil. I wanted to add to your question about monetization. With SketchUp, we've introduced new AI agents and started implementing a credit system for their use. This is still in early stages, but as we consider monetization, we're moving more towards a consumption model.

Congrats on a strong end to the year. I'll start with a pretty high-level one, maybe for next year. I think coming into this year, there were some puts and takes on some conservatism in the guidance for '25. How do we think about what those puts and takes are for the guidance that you just set for '26? Maybe a little more specifically, like what are you assuming for the macro? What are you assuming around Fed? Like how do we think about some of those inputs in the outlook for this year?

Josh, thanks for the question. I'll start, and Phil, you can add on. 2025 was clearly a very strong year of progression for us strategically, operationally, built on what was also a strong 2024. When we think about 2026, we're also thinking about that in a longer-term context through the 2027 model we put forward at Investor Day. At a macro level, we don't really see any fundamental differences in the market. So we're expecting and planning really a pretty consistent environment that's out there, and we can talk through the puts and takes on that. That includes, for example, at the U.S. federal government level, really a very muted amount of business there in Transportation at the macro level, expect to continue to see a more challenged freight market. And if we look in Construction, we see pockets of strength in data centers and infrastructure build. We see it in shipbuilding. We see it in onshoring, reshoring of manufacturing. Really, those are trends that we've been seeing here for the last couple of years. So we continue to progress the strategy. We take that forward into the guide. And inside that guide, we want to make sure we leave ourselves room to operate the business comfortably and to be able to reinvest back into the business, and that flows into our point of view at both the ARR growth and revenue growth down through the op margins.

Super helpful. And maybe just like one more bit of a narrow follow-up. In AECO, I know the deck says over 70% of ACV bookings with existing customers. But when we think about, I guess, just under 30% of ACV bookings coming from new, where are those new customers coming from? Like why are they choosing you over the competition? And maybe just remind us what did that look like in the past?

Let's discuss the sources of our new customers. We observe this from two perspectives: geographic and product-level. Our business is very global, with over half of our AECO revenue coming from North America. This contrasts with the global construction market, indicating we have significant opportunities to acquire new customers outside of North America, which is reflected in our results. If we look more closely at specific products, such as bundled offerings like project management, we added hundreds of new clients in 2025, contributing to the 50% ARR growth we mentioned. This demonstrates our dual approach: enhancing product penetration while expanding geographically. Customers are opting for Trimble because we have nearly five decades of experience in creating leading, specialized solutions for the markets we serve. Additionally, Trimble Construction One has significantly boosted this adoption. When customers purchase through Trimble Construction One or our platform, they are obtaining a suite of integrated solutions that effectively address workflow challenges. We are uniquely positioned to bridge the gap between office and fieldwork and to connect hardware and software throughout Trimble, merging the physical and digital realms. This comprehensive approach is driving our bookings from both new and existing customers.

Rob, I wanted to follow up here on Slide 8. Really appreciate a lot of these KPIs and giving some visibility into this. One of the questions that I have for you, though, is if I take some of these data points around net retention, the new logos versus existing customers, and I want to roll that up into a comprehensive ARR growth algorithm that sort of points us to the mid-teens guidance that you've provided for 2026. How do I think about those individual moving parts, how much is price, how much is account accretion, etc. How do we take these KPIs and really contextualize them in the guidance?

Yes, Kristen, thanks for the question. Let's work backwards from the guidance, which suggests mid-teens growth in annual recurring revenue, consistent with what we presented at Investor Day. To understand net retention, we start with gross retention, where churn is in the mid-single-digit range. Additionally, 70% of annual contract value bookings come from existing customers through both cross-sell and upsell, with a higher ratio of upsell. We continue to penetrate our existing customer base, and when we cross-sell, it creates further upsell opportunities. This establishes a flywheel effect. Pricing is relatively modest, in the low single-digit range, contributing to overall net retention. We also have statistics indicating the number of customers using multiple products and the increase in customers with more than three products, which support the cross-sell and upsell aspects of net retention.

Okay. Great. Maybe just one additional clarification there. On the activity rate, were we to see a pickup in construction activity or infrastructure activity, how would that integrate into the algorithm? And then I have a separate follow-up.

Any increase in overall new construction would definitely benefit us. We would notice it in our bookings before it reflects in the annual recurring revenue. So you could think of that as a positive trend we might comment on in 2027 rather than 2026. We are focusing on areas like Europe, specifically looking at infrastructure in Germany as a potential source for additional business. Another promising area could be residential; if interest rates decrease and the residential market revitalizes, that could be a positive we anticipate seeing more in 2027 rather than 2026, impacting both AECO and Field Systems. That’s how I view the activity rate. I believe you had one more follow-up question.

Yes. Sorry. The other follow-up here is the AI question. Maybe just framing it in terms of the context of how your customers are looking to adapt their business models. I mean we've heard some large integrated E&C customers publicly discussing their ambitions to bring in their own AI-enabled solutions. So I'm just trying to understand where Trimble sits in that discussion. That's my follow-up.

Yes. We manage trillions of dollars in construction and tens of billions in freight through Trimble. We have millions of Trimble software users and hundreds of thousands of instruments and machines operating in the physical world through our platform, giving us a significant global presence. Our customer base spans from small businesses to the largest enterprises globally. As you look at this spectrum, you'll find that customers have different levels of AI ambitions and resources to invest in those initiatives. Large enterprise customers are particularly focused on enhancing efficiency and extracting more insights from their data, viewing AI as a means to achieve that. At Trimble, we function as the core system of record and intelligence, enabling a connected data environment with Trimble Connect. There’s a vast amount of data—both physical and digital—stored within our systems, and our customers are eager to leverage this data and integrate non-Trimble data as well. Given the fragmented nature of the industry and technology landscape, we maintain an open approach to third-party solutions to enrich these data sets, thus empowering our customers. We see ourselves as a natural partner in our customers' AI endeavors, helping them build and expand their initiatives on top of our platform. Additionally, we fully expect our customers to initiate their own AI projects utilizing the data they have from Trimble, which creates opportunities for us to develop more automated workflows, alleviating the need for customers to do it on their own. Overall, we view this as a significant opportunity.

Let me echo congratulations as well. Given your changes in mix to recurring, how do we think about sort of the broader convergence between your ARR growth and overall revenue growth given that mix shift? And what are some of the puts and takes for that to happen?

Thank you, Jonathan, for the question. At the segment level, it's clearer to analyze because AECO and Transportation & Logistics have really aligned, which impacts their ARR and revenue growth rates. There's a potential fluctuation of around 100 basis points, but I consider that insignificant. The distinction lies mainly with Field Systems, where there is a gap between the two. In this area, the revenue was $379 million for the quarter, while the ARR was $409 million, leading to over $1.5 billion in annual revenues. This represents a smaller part of the segment, with ARR being in the mid-20s as a percentage of total revenue. We are actively working on conversions within Field Systems, focusing on software transitions as we introduce our perpetual software, and converting to recurring revenue. Additionally, we're addressing the hardware component of the business, with an expected headwind of about 150 basis points in Field Systems due to these conversions, which we anticipate will continue into 2026. Furthermore, I believe we will be discussing similar developments in 2027, as we plan to maintain our steady course.

Got it. And then just in terms of agentic AI, I just wanted to ask more broadly whether you see sort of stronger adoption in your base in 2026? Does this maybe look like a turning point? And how does your margin structure look like for sort of agentic AI revenue relative to SaaS revenue?

I think the strategic adoption in our customer base in 2026 will for sure correlate to the rollout we have of agentic AI capabilities. I think you're going to see a lot more from us in 2026. So much of what we've been doing, call it, the last 18 months, I'd call it more of the infrastructure building and beta applications out. And Phil mentioned an AI capability a few minutes ago. So we have capabilities in the market, but actually not a lot relative to what's in the pipeline for us. So what you're going to see us releasing this year, we expect to turn into adoption in the customer base. And then building on Phil's earlier comments on the monetization, we're going to expect to see more consumption in that. We also monetize through the tiers, the tiered offerings like good, better, best tiers. And so we've put AI capabilities in those best of the tiers. So we want to incent and motivate adoption at that level. So there's a hybrid of where it's both recurring and consumption. And we're still learning here how to get that mix right. Relative to the margins and say, the incremental margins, of course, AI, agentic AI, generative AI does have a variable cost associated with it. It's not for free. So the unit economics are, of course, different in an AI forward world, which, by the way, we think is something that favors the position that we have as a company and having capabilities like within Transporeon. It was already a consumption model. 60% of that revenue through Transporeon is consumption, 40% is subscription. This is a muscle that we already have in the company. So we're not starting from scratch and having to learn how to do consumption. So again, just to summarize, a mix of within the subscriptions as well as consumption.

The first one I have is around the agentic AI rollout that's coming through later this year. Really excited about them looking forward to them. I'm just wondering, are there any particular areas within the software portfolio that you would focus on these AI agents between AECO and T&L and then even within AECO, which stage of the life cycle, construction life cycle that you would look to focus on?

Thanks for the question. Yes, I believe you will see more from us in 2026. You're right to mention AECO and Transportation & Logistics. When we consider the life cycle of AECO, we expect to see developments across the entire sector; it’s not limited to any specific area of our business. The same applies to Transportation & Logistics, where we see numerous opportunities to implement technology and capabilities. You'll hear about a wide range of applications from us. I see AI as a force multiplier, a natural extension of our current efforts to assist our customers in delivering their work more effectively, efficiently, safely, and sustainably. It's about integrating it deeply into our existing projects to enhance results for our customers. Additionally, we have significant internal initiatives aimed at optimizing our own operations, including in research and development, customer service, and marketing workflows to support our sales teams in expanding their pipelines. Therefore, both internal and external applications are quite extensive.

Got it. That's really helpful. And my second question is also again related to AI. I was wondering if you could share with us the technology infrastructure readiness for these AI features kind of similar to the investments that you've made in your technology stack to be cloud-ready, the investment you made in the last few years. Would you need to do similar level of investments in the technology to be AI-ready going forward? Or are you already quite there?

I think we're already on a path with the technology readiness. I mean we're going to continue to invest in that. And inside the guide that we put forward in that operating leverage is we've left ourselves room to make sure that we're continuing to innovate in the solutions and then within the platform capabilities of Trimble. I think the very good news is we're not just starting on this. So we've been investing the last couple of years. So there's a run rate aspect to this. A lot of what we've been doing in the last couple of years, I would really categorize it more as having built the infrastructure, the wiring, and the plumbing of an agentic platform upon which we can, at a more scalable level, build the actual agentic workflows. So there is a good amount of laying of pipe and wire that we've been doing, really a lot in 2025, much more so than 2024, which is why we believe we're positioned to be able to accelerate releases in 2026.

I'm sorry if I missed it, but I wanted to get an update on TC1. Could you remind us if it's available globally everywhere now? And are all software solutions in AECO are on it? If not, what's the timeline?

You were breaking up a little bit, but I think I understood the gist of the question. Trimble Construction One continues to be a strong driver of growth in the business, particularly in bookings. The majority of our annual recurring revenue in AECO is under a TC1 agreement, which serves as a commercial framework agreement. We have rolled TC1 out in Europe, and we are still in the process of expanding it in the Asia Pacific region. This geographical expansion gives us confidence in our future growth. TC1 acts as a commercial framework that reduces friction in cross-selling. With a TC1 agreement, customers may start with one or two products in a pre-packaged bundle. Once the framework agreement is established, it simplifies the purchase of additional applications from Trimble due to a unified set of terms and conditions. This makes it easier for both sellers and customers, establishing a solid foundation for further growth, and we see significant potential for continued expansion.

Rob, you mentioned the model conversion burden in the Field Systems business. I remember at the start of the year, we discussed a headwind due to changes in the Cat JV. However, machine control remained strong throughout the year. I'm interested to know if the headwind was a couple of points as expected and if that was your actual experience. How does that affect this year '26?

Rob, thank you for the question. The straightforward answer is yes, it occurred as we anticipated. The main factor was software conversions, and it was entirely supplemental to our machine control guidance as a service, which we refer to as Works Plus for our customers. This initiative has proven to be even more successful than we expected, influencing some of the challenges related to those conversions in revenue. However, I want to emphasize a positive aspect: this isn't merely a challenge; it actually adds to the conversions. When we examine the machine control guidance offering, we've noted that 50% of our wins come from new clients, which signifies an expansion of our addressable market. This isn't a hindrance to growth; it represents additional business that we are gaining. This was also a factor contributing to the increase we observed in ARR compared to the previous year. I'm genuinely excited about how these business model conversions are aiding us in expanding our customer base and increasing usage and penetration within those customers. There’s really a dual positive aspect to this. Lastly, during these model conversions, bundling additional hardware and software capabilities becomes easier. For example, if a customer is involved in civil estimating and wants to integrate that with their ERP system and the machines they have in the field, we can provide a more streamlined bundled offering that connects the office with the field. This is reflected in our two reporting segments, AECO and Field Systems, but from the customer's perspective, it's simply Trimble.

That's good insight, Rob. Phil, your overall margin guidance for '26 indicates that, as expected, there seems to be more basis points expansion anticipated in the T&L segment compared to the other two. You mentioned stranded costs earlier. Is that indicative of reducing some of those stranded costs? Additionally, could you provide a bit more detail on the lack of margin expansion in Field Systems if there are any investments taking place there?

Yes. Thanks, Rob. So yes, we anticipate with the growth in the T&L business that we can continue to put high leverage off of that business to be able to expand. There is an element of the stranded costs, as you're correct, as we enter the year. We expect to get some of that out throughout the year, which will also help with margins in T&L. And then overall, at the company level, I mentioned this for the '26 guide, we do expect about 50 basis points of expansion at the EBITDA. So as Rob mentioned earlier, what's nice about our financial model is we're able to reinvest in the business for the growth but also show the margin expansion with the operating leverage.

Just wondering if you could point to any contribution to ARR or ACV from AI products, whether it's agentic AI or AI products so far, whether it's in reality capture autonomous procurement or anything else? And I have a follow-up.

We see that autonomous procurement within Transportation is likely the product we discussed the most for 2025. It stands alone as a distinct product generating significant revenue. Phil highlighted a recent launch from SketchUp in the Architecture sector, which falls under AECO. Although it’s early, we observed a strong influx of new customers when we launched in the fourth quarter, and this service operates on a monthly subscription model. If we consider the percentage of revenue linked to AI, we’re discussing well over $100 million in business at Trimble that is somehow driven by AI features. Reflecting on our tiers of offerings, we are integrating more AI capabilities. Reality capture, which primarily resides within the Field Systems segment, presents exciting potential because surveyors are essentially creating digital models of the physical earth. They gather vast amounts of data not just for collection's sake but to convert it into actionable insights. This process moves data increasingly to the cloud, where automated feature extraction can take place. This automated feature extraction represents a form of AI, and we can market this capability due to the efficiencies gained through automating the processing of large data sets. After processing these substantial data sets, which are indeed AI-enabled, we transition that information into subsequent workflows. This unique capability at Trimble allows us to extend the workflow from the field back to the office and then back out to the field again.

That's great. As a follow-up, Rob, you mentioned earlier the efficiencies gained from using AI internally. Trimble has demonstrated significant leverage over R&D and G&A this quarter and throughout the year. How much do you believe AI has played a role in that? Also, could you give us an idea of how much you can contribute in 2026?

If we examine the situation closely, we can see variations in performance across different areas. In terms of cost of goods sold, we’ve noticed a reduction in certain business segments within AECO of up to 20%. This enables our customer support team to focus on more complex issues, resulting in improved productivity and efficiency. In R&D, more than 95% of our engineers are actively utilizing the technology, which has led to significant boosts in productivity, allowing for increased development of both customer-facing features and essential infrastructure. This infrastructure work is critical for managing data connections and organizing data taxonomies, as well as investing in cybersecurity and other necessary implementations for seamless workflows. In sales and marketing, we record all our sales calls and apply AI to offer feedback and coaching, enhancing the skills of our sales team. Our upgraded marketing technology stack, set to launch in 2025, will help generate leads for our sellers using AI across our data sets. Additionally, at the general and administrative level, we anticipate achieving greater efficiencies in the coming years while continuing to invest. Our bookings growth, which translates to annual recurring revenue growth, indicates the importance of ongoing investments in the business. We are committed to developing an AI platform that our customers will want to engage with. We are mindful of the competitive market landscape, and while we feel strong and confident in our offerings, we remain grounded and committed to continuous improvement and growth.

Just a simple one here. You did guide to significant growth in your free cash flow generation in 2026. Even when we take out that cash tax payment, can you just contextualize the free cash flow growth for us? And then given what's happened in the vertical SaaS space year-to-date, how you're thinking about deploying that cash?

Kristen, this is Phil. There are a couple of key points to address. First, we're experiencing profit growth for the year primarily due to our free cash flow. You mentioned not facing a tax headwind this year, which is accurate. Additionally, we benefit from the repeal of the 174 million, resulting in lower cash taxes that will positively impact our numbers in 2026. Regarding your second question about cash usage, I want to start by highlighting our capital allocation strategy, which centers on delivering the highest returns for our shareholders. We consider share repurchases and mergers and acquisitions after reinvesting in the company, as we've outlined in our P&L discussions. Looking towards 2026 and beyond, our plans for cash will mainly involve repurchases or M&A activities.