Trimble Inc.

harbor at the back. Our financial commentary will reflect non-gap performance metrics, including organic growth comparisons, which refer to the corresponding period of last year unless otherwise noted. Strategic progression takes place as a series of a thousand little steps, periodically punctuated by non-linear moves and events. Reflecting on the quarter and the year, 2023 represented a transformative year for Trimble. Within the portfolio, the Transporean Acquisition and the announcement of the Agriculture Joint Venture with AGCO represent two of the larger moves in the history of our company. Reflecting on our Connect and Scale strategy over a five-year timeframe, the structural improvement in the business is self-evident and is the result of methodical work over the last few years by our colleagues and partners. Annualized recurring revenue finished 2023 at a record $1.98 billion, up 13% organically, and represents the single biggest lever we have to increase shareholder value. This compares with ARR of $1.1 billion five years ago. Recurring revenue was 49% of our total revenue in 2023 and 53% in the fourth quarter, versus 31% in 2018. Remaining performance obligations closed the year at $1.8 billion. Gross margin closed at a record 64.7% in 2023. up 470 basis points over 2022. This compares to 58% five years ago. This is definitive structural improvement. EBITDA margin closed at a record 26.6% for the year. In dollars, we crossed the threshold of $1 billion of EBITDA. This compares to EBITDA of 22.6% five years ago. Operating leverage has been 44% over a five-year timeframe. We are running with negative working capital and we closed with free cash flow of $555 million, up 60% over prior year. Our ARR and low capital intensity punctuate the difference between industrial technology and industrial. While the evolution of our financial metrics during our transformation have been compelling, the bigger takeaway is how this positions the company today for success now and in the future. Trimble has never been in a better position to help our customers succeed with solutions that address the growing intersection of the physical and digital worlds. We are eager to leverage our strong market position and unique assets to drive continued profitable growth in software and technology-enabled services, to expand margins, and to showcase our ability to increase the company's overall returns through smart capital allocations. We believe this framework is the winning formula for a world-class industrial technology company, and we believe executing against this plan will allow Trimble to unlock and sustainably compound value for shareholders. With that structural context, let's turn to slide three and talk about a three-fold framework that guides our capital allocation priorities, looking back on 2023 and forward into 2024. First, we remain committed to executing our Connect and Scale strategy. Over the last several years, our P&L investments have been heavily biased towards our software assets in architecture, engineering, construction, and owners, which we refer to as AECO. This focus is driven by the size and immediacy of the secular opportunity. Our transformation of AECO software represents the tip of the spear for the company and increasingly provides a template for how we will operate across all of Trimble. Looking at tactical proof points of progression, let's start with our product strategies. Trimble Construction 1, or TC1, can be thought of as a commercial framework around prepackaged bundled offerings. In the fourth quarter, we doubled the number of these prepackaged offerings by serving more users across more vertical segments. Nearly half of our AECO bookings in the fourth quarter were TC1 bookings. We come into 2024 with a strong portfolio, and we will learn, adapt, and expand these offerings. As we connect more of our data and workflows, we will continue to expand these offerings powered by the investments we have been making in our underlying systems and enhanced by our process transformation. After a couple of years of hard work, we can now see a 360 degree view of our customer set, which unlocks marketing and selling insights to enhance our go to market motion with more advanced marketing and selling strategies that are more efficient and cost effective. We will continue to roll out functionality in 2024 and we will expand the capabilities across more geographies and more of the product portfolio. And it goes further because product, systems, and process work have to link to an aligned go-to-market organization in order to turn possibility into a reality. As measured by cross-sell activity, more than 20% of 2023 annualized contract value, or ACV bookings, and AECO were cross-sell bookings. In the fourth quarter, this number accelerated to over 25%. This didn't happen by accident. The acceleration comes from a packaging of solutions across business lines and is enabled by our digital transformation. We are winning on the breadth of capability. To put this into further context, the AECO teams delivered over 30% ACV bookings growth in 2023 and had a record fourth quarter. Slide 4 shows a number of quotes from our customers who continue to give us positive feedback about our direction. We are delivering lifecycle value and uniquely connecting workflows, all while making ourselves easier to do business with. As we come into 2024, we are moving towards an account-based selling model, which will further align ourselves to sell TC1 and cross-sell offerings. This capital allocation is working, and is built on our strategy around the construction continuum that has been accelerated by successful M&A over the last 10 years. Back to slide three. The second of our three capital allocation priorities is to further simplify and focus our business. In the last four years, we have divested 21 businesses that did not meet the must-have threshold of a connect and scale business, namely the ability to further a connected industry solution while delivering compelling and sustainable financial results. In early 2024, we divested a small water metering business and a dealer business that we owned in Germany. We continue to look for areas where we can further simplify our portfolio, which goes beyond divestitures. We have reduced thousands of SKUs in the last couple of years and turned a number of standalone products into features within larger bundled solutions. In September, we announced our joint venture with Agco, which naturally led us to rethink how we organize ourselves, which, in turn, unlocked an ability for us to further simplify and focus our teams. In the second half of 2023, we undertook $50 million of run rate cost reductions, $10 million ahead of our commitment in November, recognizing that we needed to say no to more things so that we could further focus the organizations. Given the pending AGCO JV and the new organizational structure that officially went into effect in January, we reorganized the business under three pillars, AECO, field systems, and transportation and logistics. This structure brings similar businesses together, enhancing our ability to achieve scale and growth. The new organization in place is already off to a good start, and hats off to the team for executing these changes seamlessly. Beginning with the first quarter, we will naturally resegment our reporting results to reflect the way we view our business. And when we do this, we will simultaneously be able to deliver an increased level of clarity on our business models that many of you have been seeking. Slide five provides an overview of the direction we are going with these three segments while providing a bit of color on the software and recurring revenue centricity of each segment. Returning again to slide three, Let's talk about the third of our three capital allocation priorities, which is return the capital to shareholders. In September, when we announced the JV, we communicated our plan to pay down debt and return capital to shareholders via a buyback. In the fourth quarter, we executed $100 million of buyback. On January 30th, our board approved a new buyback authorization of $800 million, replacing the remaining authority under the prior plan. We reiterated our intention to pay down $1.1 billion of debt and communicated that our near-term intentions on M&A are to focus on tuck-in opportunities. These capital allocation priorities sit against the backdrop of our day-to-day execution. They also sit within a context of what we are seeing in our end markets across the global economy. Geographically speaking, North America has been overall healthy. Europe remains quite challenged. The agriculture and transportation markets face macro headwinds, a result of commodity prices and overcapacity in trucking. The engineering and construction markets have proved to be more resilient, with puts and takes across subsegments. Control what we control is the operating theme in place. We deliver an enduring value proposition in the form of productivity, quality, safety, transparency, and environmental sustainability. Record bookings in parts of the business, such as AECO software and Transporium, demonstrate the durability of the business. David, over to you.

Thank you, Rob. Slide 6, 7, and 8 cover the financial highlights for the quarter and the year. Organic revenue growth in the fourth quarter was plus 3%, and for the year was plus 1%. Excluding the agriculture business, growth was 6% in the fourth quarter and 4% for the year. Standout metrics for 2023 include a 470 basis point improvement in gross margin and $555 million in free cash flow, enabled by profit growth and the success of our efforts to bring inventory levels down. With net debt at $2.8 billion, we remain ahead of the deleverage plan we put in place at the time of the Transporean acquisition. We have paid down $268 million of the debt incurred to finance the deals. We ended the year with net leverage of 2.8 times, only modestly above our long-range target of 2.5 times. The JV with AGCO is pending regulatory approval, and we continue to expect that the transaction will close in the first half of this year. For modeling purposes, we have assumed that the deal closes early in the second quarter. With debt paydown following the AGCO JV transaction close, our leverage will be below two times. Slide nine covers revenue trends by geography and business model. 1.98 billion of ARR is the standout highlight, up 24% year on year, and up 13% on an organic basis. Product revenues, which are non-recurring and predominantly are bundled hardware and perpetual software, were down 3% year on year. Excluding agriculture, product revenues were down less than 1%, reflecting the stabilization of these businesses Now the dealer inventories have come well down from their peak in early 2022. Dealer inventories are now broadly aligned with dealers' business outlook, and our sales trends going forward are expected to track underlying demand trends. By geography, growth in North America reflects the relative strength that Rob referenced earlier. APAC revenues were strong, driven by growth in Australia and India. Revenues were down organically in Europe, reflecting challenging macroeconomic conditions across many of the end markets we serve there. Slide 10 breaks down performance at the segment level. In buildings and infrastructure, the highlight in the quarter was the strong performance of our recurring revenue offerings. Bookings in our AECO software businesses increased over 30% year-on-year, driven in part by the strong cross-sell and TC1 performance, which Rob mentioned earlier. Aided by the bookings performance, Segment ARR grew year-on-year by just under 20%, with net retention over 110% and at the highest levels this business has seen. Segment revenues of non-recurring offerings, principally machine control for civil construction customers, were relatively flat year-on-year, resulting in total segment revenue up organically by 10%. Segment margins were up by 290 basis points year-on-year, driven both by fixed cost leverage and by the mixed shift toward higher margin software offerings. In geospatial, revenues grew organically by 1%. A revenue in this segment breaks down across three broad categories, field sales to end users, government business, and OEM business. Sales of our core survey and mapping products to end users returned a meaningful growth in the quarter, reflecting a healthier state of dealer inventories and improving underlying market conditions. Offsetting the strong end user growth, component sales to OEMs were down as we lapped some unusually large shipments a year ago. Segment margins were up by 180 basis points, driven principally by lower component input costs versus year-ago levels. In resources and utilities, organic revenue for the quarter was down year-on-year by 4%. Excluding sales of products to agriculture customers, resources and utilities revenues were up by approximately 10%. Segment operating margins were lower year-on-year by 160 basis points, driven principally by lower revenue. In transportation, revenue was up 1% organically. Segment organic ARR was up mid-single digit as growth in our transportation enterprise software and maps businesses offset the anticipated impact of churn in our North American mobility offerings. Transporian remains an inorganic comparison and the highlight in the quarter for Transporean was achieving a record level of bookings, up over 20% versus prior year. We are encouraged by the sales performance of the team in light of the difficult macro dynamics in Transporean's core European market. Segment margins increased year on year by 610 basis points, reflecting the higher margins of Transporean and margin progression in the balance of the segment. Let's move now to 2024 guidance on slide 11. I will focus on our performance excluding our agriculture business and including on a go-forward basis our more limited exposure to ag as a 15% owner of the JV and a supplier of products to the JV. For the sake of completeness, we show on page 11 two views, a reported view with the ag business included through the first quarter of 2024 and an as-adjusted view without the agriculture business which will ultimately be operated within the JV. The outlook for ARR growth remains strong, driven by momentum across our AECO software businesses. We expect full-year organic growth rates in the 11% to 13% range off our year-end 2023 levels of $1.98 billion. As-adjusted organic revenues are expected to grow for the year in the 4% to 7% range. Please note that our fiscal 2024 will include 53 weeks, and the extra week will include will increase full year and fourth quarter revenues by approximately 85 million. On an as-adjusted basis, we expect margins to improve with EBITDA margins between 26.5 percent and 27.5 percent. This represents margin improvement year on year of between 100 and 200 basis points. The margin improvement will come from a combination of improved software mix and the impact of the cost actions we took coming out of 2023. From a cash flow perspective, we expect full-year cash flow of approximately .85 times non-GAAP net income. Excluding the costs relating to our AGCO JV transaction and the impact of the 53rd week, free cash flow is estimated to be approximately equal to non-GAAP net income. Our base cash flow forecast assumes no change in tax legislation. A bill moving through the U.S. Congress will, if enacted, restore the immediate expensing of R&D for tax purposes. If passed, this legislation would improve incrementally our cash outlook for 2024 by approximately $130 million. Our EPS forecast for the year reflects the beneficial impact of our plan deleveraging following the close of the AGCO JV and up to $800 million of share repurchase. We expect EPS for the year in the range of $2.60 to $2.80. I'll finish by offering a few comments on how our guidance for 2024 breaks out by quarter and by segment. We expect organic revenue growth to be strongest in buildings and infrastructure. Software businesses in buildings and infrastructure are expected to grow in the mid to high teens with product related businesses up slightly, leading to organic revenue growth for the full year between 11 and 13%. Buildings and infrastructure organic growth includes approximately 70 million from the 53rd week. We plan to accelerate model conversions from perpetual to subscription software tied with hardware in our civil construction business. Geospatial revenue is expected to be down slightly on an organic basis, with growth in field sales and survey offset by lower sales to U.S. federal customers, where business tends to be lumpy from year to year. We will also accelerate model conversions from perpetual to subscription software in our survey and mapping business. Resources and utilities, as adjusted organic growth, will be up in the high single digits, led primarily by continued growth in our positioning services business. Transportation revenues are expected to be up in the mid single digits for the year and relatively flat on an organic basis, with growth in transporium offset by lower North American mobility revenue. We expect reduced hardware revenue in mobility as we are intentionally pivoting that business away from lower margin hardware sales to OEMs, instead focusing on the higher value added data flows. From an operating margin perspective, we expect to grow margins year over year in the buildings and infrastructure and resources and utility segments. Transportation margins will be up slightly, while geospatial segment margins are expected to be down year over year due to changes in customer and product mix. For the first quarter, let's turn to slide 12 for additional color. On an as-adjusted basis, we expect organic growth between 2 percent and 6 percent, and an EBITDA margin between 26 and 27 percent. Buildings and infrastructure is expected to drive most of the organic growth in the first quarter, with low single-digit growth in geospatial. As-adjusted resources and utilities is expected to post high single-digit revenue growth in the first quarter. During the first quarter, we expect to see softness in ag. Weakness in the global ag market is certainly a factor, but the bigger driver is the expected impact of the transition in our distribution strategy. Transportation revenues in the quarter are expected to be down modestly on an organic basis. Overall, we expect sequential improvement in transportation segment organic growth rates as the year progresses, driven by gradually improving end market conditions and the inclusion of Transporean in our organic trends beginning in the second quarter. As Rob mentioned earlier, we are moving to implement a new segment reporting structure that reflects our updated organization and the way we will evaluate our businesses and allocate capital going forward. Our plan is to publish more details on our new segment reporting structure later in the first quarter, with financials going back two years and the perspective on how our 2024 annual guidance cascades to the new segments. We will have a separate conference call with investors to review that information when it is available. Rob, I'll turn it back over to you.

Thanks, David. We were busy in the fourth quarter preparing ourselves to come into 2024 with a running start. We were with over 10,000 customers at Trimble user conferences in September, October, and November. We recommitted to our capital allocation priorities undertook cost reduction, prepared to reorganize the company, and made our numbers for the quarter. We plan to host an investor day later in the year to discuss the evolution of the business and to provide investors with more financial detail, including updated targets. I will end by taking a moment to welcome Ron Narcissian and Kara Sprague to the Trimble Board, two fantastic additions. Operator, we can now open the line to questions.