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spk10: Thank you for standing by and welcome to the TRIMBLE Second Quarter 2024 Financial Results Conference Call. All lines have been placed on mute to prevent any background noise. After the speaker's remarks, there will be a question and answer session. If you would like to ask a question during this time, simply press star followed by the number one on your telephone keypad. If you would like to withdraw your question, press star one again. I would now like to turn the call over to Rob Painter, TRIMBLE President and CEO. Please go ahead.
spk12: Welcome everyone. Before I get started, our presentation is available on our website and we ask that you refer to the safe harbor at the back. Our financial commentary will reflect non-GAAP performance metrics, including organic growth comparisons, which refer to the corresponding period of last year, unless otherwise noted. In addition, our P&L commentary will emphasize comparables on an as adjusted basis, which excludes our agriculture business. Let's start on slide four. During the second quarter, we continued to advance our connect and scale strategy, which involves digitally connecting the workflows within targeted industry segments and creating scale across TRIMBLE through shared technology platforms. Our strategy delivers outcomes in the form of unique value to our customers and sustainable value creation to our shareholders. We want to convey three key messages today. The strategy is working, the numbers reflect the execution and the execution reflects our simplified and focused organization. Slides five and six detail some highlight metrics. 2.11 billion of ARR grew 14%, revenue grew 1%, gross margins were a record 66.5%, EBITDA margin expanded 40 basis points to .6% and free cash flow was strong. Revenue in the quarter was 75% software services recurring and 60% overall recurring revenue, both records for TRIMBLE, reflecting our portfolio transformation and continued organic makeshift driven by ARR growth. Based on the solid first half year performance, we are raising our guidance for the year. Before we turn to the performance of the segments, let me provide an update on the status of our financial audit. By way of reminder, the need for EY's re-audit of our 2023 financials stems from concerns about the comprehensiveness and documentation of a number of our internal controls, especially around our IT systems. These concerns arose as EY prepared for a PCAOB inspection of their audit of TRIMBLE. In April, EY began additional audit procedures relating to our 2023 financial statements, using a more detailed substantive approach. We are working collaboratively with EY and provided them with a substantial majority of the information they need. EY's work is nearing completion and we expect it to wrap up within the next month or so. To date, the audit has not identified any issues, which would result in a change of our financial statements. When EY's work is complete, we will reissue our annual report for 2023 and file forms 10Q for the first and second quarter of 2024. Based on the work to date, we anticipate that the financial results will be the same as what we have previously reported. Let's get back to the business with a review of our segment results. Starting on slide seven with our AECO segment. The team delivered another record quarter of ARR with a terrific 18% level of ARR growth. The AECO segment is the tip of the spear of our connect and scale strategy and the strategy is working. We are succeeding in growing customer count with our innovative products and driving higher revenue per customer through our integrated platform offering. The A represents architecture and design. Here, our SketchUp product surpassed 1 million subscribers, an amazing milestone delivered by the team. The E represents engineering. An example of the strategy at work here comes in the form of unique workflows that only Trimble can deliver, such as scan the BIM and fabrication workflows. The C represents construction. Here are recent tuck-in acquisitions of field and payment solutions have shown us that we can run repeatable land and expand plays that deliver our customers fast time to value when they buy additional capabilities on top of our construction management system. The O represents the owners, both private and public sector. In May, we held a user conference in Cleveland where we launched Trimble Unity, a suite of asset lifecycle management solutions that uniquely connect Trimble capabilities. Across these AECO personas, we operate a common and connected data environment, namely Trimble Connect. Connect has now initiated more than 20 million projects since inception and had over 6 billion API hits into the platform in just the first six months of 2024. On the -to-market side, we moved the team to a named account selling model earlier this year, and we are now lining up our digital marketing efforts to better enable our sales motions. In conclusion, the connect and scale investments we have made over the last several years have enabled us to grow and gain share. Our strategy resonates with customers looking for strong ROIs. Based on our second quarter results, our pipeline and our solid bookings performance, we see our momentum continuing. We recently hired a chief revenue officer for this business, which we believe will help further enable and ensure our growth and success at scale in this 1.16 billion ARR business that is already operating well above a rule of 40 benchmark. The physical side of our business is largely conveyed in our field systems reporting segment with key highlights on slide eight. Revenue was down as expected, primarily related to the strength of prior year government-related sales. While end market conditions have been soft in some areas, we continue to perform well with strong product and channel positions. Nowhere is this more evident than in the more than 300 million of field systems ARR. The team has been doing a great job of converting relevant software and hardware models where we have the ability to leverage our strong market position and product offerings to deliver unique value to customers. This motion has expanded our addressable market as evidenced by delivering 17% ARR growth, nearly matching the growth in AECO. I will illustrate this through three examples, starting with our Works Plus offering in civil construction, which offers machine control and guidance as a service. The team delivered a record quarter of bookings. Second, our positioning services business has expanded our unique ability to offer globally ubiquitous and high accuracy signals from our classic geospatial and agriculture markets into automotive markets. The team delivered three design wins in the quarter to major automotive OEMs. And third, we launched the R980 GNSS survey instrument in the quarter with firmware configurations, field software and positioning services available on a subscription basis, which expands the addressable market by lowering upfront costs, enabling more customers to adopt our premium solutions. Strategically speaking, most of the solutions we sell in this segment act as a data collection node in the physical world to provide us the unique tremble ability to connect to the physical and digital world. Closing our segment commentary on slide nine, transportation and logistics beat our top and bottom line expectations. Transporion delivered double digit ARR growth, as did our maps business. Excluding the North America mobility business, organic ARR growth in the segment was 11%. While our mobility business has experienced the churn we anticipated, it is worth noting that the team delivered the largest bookings in the last few years in the quarter, which was one half a technology upgrade with tremble and one half a competitive displacement. Our new Instinct platform is generating positive buzz in the market and we are having good success selling video solutions. While the freight market remains in a recessionary environment, our Transporion business continued to win new logos in the quarter and we continue to innovate on all our solutions, some of which will be unveiled at our user conferences in September. In addition, we are moving down the path of product rationalization between the tremble and Transporion businesses, as evidenced by consolidating our work on freight marketplace and visibility into one team each. We also began selling our mapping solutions into the Transporion customer base. The sum of these activities delivered .7% operating income, a solid 460 basis point increase. Before handing over to Phil to walk us through more of the numbers, I want to offer a perspective on why we see tremble as an AI winner. Starting with our own internal usage, we now have over 2,500 engineers using GitHub Copilot and more than 5,000 tremble colleagues using an internal version of Microsoft Azure OpenAI that we call tremble assistant. From a customer facing perspective, we have beta and production releases of AI capabilities in a number of areas. In AECO, we automate the extraction of PDF data into submittal logs and into estimating engines. We also transform 3D BIM models into photorealistic renderings. In field systems, we focus on feature extraction from 3D point clouds. In transportation, our AI solutions include customer support, autonomous procurement, and autonomous quotation systems that match shippers with carriers. We've included several examples of tremble AI in the appendix of the slides, complete with hyperlinks. Our thesis on AI is that the density of domain specific data and insight will separate the AI winners and losers. With our unique scale that includes over $1 trillion of construction capital programs, tens of billions of dollars of freight transactions running through our systems, millions of global customers, and hundreds of thousands of instruments and machines in the physical world, we believe we have a compelling right to win and a defensible mode to continue building around our business. Phil? Thank
spk02: you, Rob. As noted before, my financial commentary will emphasize comparables on an as-adjusted basis, which excludes our agriculture business. We believe that maximizing long-term free cash flow drives shareholder value. Connect and Scale is our strategy, which we believe will continue to deliver recurring revenue growth, margin expansion, and ultimately cumulative cash flow growth. Slide 10 highlights balance sheet and cash flow dynamics. On cash flow, we are trending better than expected after considering the transaction-related impacts. Reported free cash flow in the first half of 2024 was 300 million. That includes 50 million of tax payments related to our gain on sale from the AGJV, as well as 54 million in &A-related transaction expenses. Our conversion ratio in the first half of 2024 without these items was well above our target of one-times net income. We will have additional tax payments impacting future operating cash flow related to the AGJV gain on sale in our third and fourth quarters of 2024 and second quarter of 2025 since the tax payments are spread out over time. Our asset-late model continues with capital expenditures less than 2% of revenue and negative net working capital. Net debt to EBITDA after the close of the AGJV stands at less than one times, well below our long-term leverage target of two and a half times. We have just under one billion in cash after paying down our term debt and the outstanding balances on our credit facilities. We intend to resume our share buyback when practical. Our capital allocation focus remains the same. We invest where we see opportunities for the highest returns. We continue to disproportionately allocate capital to our AECO business where the bulk of our operating expense increases are in our sales and marketing engines to continue to drive ARR revenue growth and ultimately margin expansion. On the M&A front, we expect to opportunistically pursue tuck in acquisitions primarily in the AECO segment where we can quickly integrate and bundle within Trimble Construction 1. We acquired a field human resources application in the third quarter of 2023 and we also recently acquired a payments offering branded as Trimble Pay that has been integrated with Viewpoint. And for both, we are seeing bookings well in excess of our deal models. These growth opportunities are enabled by our connect and sales strategy via bundled product offerings that we put in the hands of our sellers. This is a playbook that is delivering results and is a critical part of our acquisition strategy going forward. With that, let's turn to slide 11 and talk about guidance for the remainder of the year. We have a 53rd week in fiscal 2024 which adds approximately 85 million of revenue and 50 million of operating income mainly driven by term license renewals on January 1st which falls in the fourth quarter of this year. We are increasing the midpoint of our as reported full year revenue guidance by 10 million from 3.62 billion to 3.63 billion which also overcomes foreign currency headwinds. We are also increasing the full year earnings per share midpoint by 4 cents to $2.74 from the prior $2.70. AECO revenue is slightly better than our prior guide due to the first half performance and strong bookings in the prior quarters. Field systems revenue is down slightly and transportation is unchanged. We maintain our strong ARR growth range from 11% to 13% driven primarily by the expectation of mid to high teams growth in AECO offset largely by the previously disclosed churn in our North American transportation mobility business. Our EBITDA margin for the year is expected to be between .7% and 27.2%. Free cash flow conversion for the year is updated to be approximately 0.75 times that income which includes 116 million of anticipated tax on gain from the JV I noted earlier as well as approximately 75 million in full year M&A costs. Without these items we would be above one times net income for the year and an improvement from our prior guide. Let's move to our third quarter guidance on slide 12 which is consistent with our prior guide. I'll focus again on our as adjusted view excluding agriculture. Our outlook for ARR growth remains strong with continued expectations for 11 to 13% organic growth despite the North American transportation mobility headwind I mentioned earlier. Our total company revenue is projected to be 840 million to 880 million. On an as adjusted basis our revenue is anticipated to grow in the range of flat to up 4% year over year and is showing improvement relative to the second quarter mainly due to strong government sales in the second quarter of 2023. Non-GAAP operating margin is expected to be in the range of .5% to .5% and adjusted EBITDA margin in the range of 24% to 25% for the third quarter. Our EPS forecast is in the range of 58 cents to 64 cents which is again consistent with our prior guide. I would also like to point out that we included a new supplement in our materials that is available on our investor relations website. This is to provide a summary of our results along with assumptions behind our guidance model in a readily available format. One more item I'd like to mention before turning it back over to Rob. As we think about the financial model in a multi-year context, I refer to our investor day numbers from September of 2022. Our long-term target model projected that revenue would grow in the five to 8% range organically. Normalizing for the benefit of the extra week in fiscal year 2024, we believe with the continued shift to higher growth software, we are biased above the midpoint of this range. We also had forecasted operating leverage in the range of 30 to 35%. Given the mixed shift to software with higher gross margins, we would expect operating leverage going forward to be at or above the high end of this range. Thus, we see the potential to expand operating margins in the range of 100 basis points or more annually. We look forward to providing more details and an update on our long-range financial plan at our investor day in New York City on December 10th. Rob, I'll turn it back over to you.
spk12: Thanks, Phil, and thank you to all our Trimble colleagues and partners for delivering a solid first half of the year and for demonstrating resilience and conviction as we continue to transform how we work so that we can transform how the world works. I'll end with a fun fact related to the games in Paris. Our technology is leveraged for the design, engineering, and construction of many of the stadiums, such as the Aquatic Center, the Sailing Marina, the Football Stadium, and also for athletic housing. The L'Eau Gardein building, which houses over 400 athletes, will be converted to an office building after the games conclude. On the project, our survey kit, engineering, and prefabrication technologies were used to construct a sustainable structure and to deliver it on time. Trimble Connect was used as a collaboration platform to coordinate across hundreds of users and stakeholders. To quote the BIM engineering manager on the project, I find Trimble Connect to be the best collaboration platform on the market in terms of file quality and usability. You can tell they designed the tool to be easy to use, even for non-experts. Operator, let's open the line to questions.
spk10: Thank you. We will now begin the question and answer session. If you have dialed in and would like to ask a question, please press star followed by the number one on your telephone keypad. If you would like to withdraw your question, simply press star one again. If you are called upon to ask your question and are listening via loudspeaker on your device, please pick up your handset and ensure that your phone is not on mute when asking your question. The first question comes from Kristin Owen of Oppenheimer. Your line is open.
spk06: Hi, good morning. Thank you for taking the question, and congratulations on the next quarter. I wanted to ask about the 18% AECO ARR, clearly ahead of our expectations. You lifted the guidance there. And when I look across the landscape of software categories in which you compete, it seems to me like maybe there's an opportunity for Trimble to pick up some share as we think about some of the pricing and channel shifts that we've seen. So I'm just wondering if you can help us unpack the sources of growth there. Is it cross-sell, up-sell, new logos, price, et cetera? Any additional color that you can provide there would be helpful.
spk12: Thanks, Kristin, for the question, and good morning. And, May, so let's break down a little bit there within the ARR growth, starting with a congrats to the team. It really was a terrific post of a number for the quarter. About two thirds of that growth is coming from existing customers, and one third from new logos. So we really, with the breadth and depth of the portfolio we have, there's a great ability for us to package cross-sell, up-sell, and that comes in the form of the Trimble Construction 1 offering, where we now have over 20 pre-packaged offerings to serve specific personas across the industry continuum. If we look at the segments that we're serving within construction, where we see strong growth are in data centers. We see the on-shoring and reshoring of work, renewable energy work. These in markets have been strong, and probably data centers have been the strongest. We actually have also had some growth in residential, so even though there's weakness there, we've seen growth there. One thing that's unique to Kristen about the data set that we have, because we're managing over a trillion dollars of committed construction programs through our systems, over half a trillion through the ERP alone, is there's a lot of data we can see. And so in North America, we can see that jobs are up, hiring's up, that is jobs are up. We can see that the volumes are up. We can see geographic strengths within states here in the US. We can see that states like South Carolina, Florida, Texas have been very strong. We can see states like New York and Louisiana have been weaker. So we're able to get a good insight into the market. And then, differentially, across the world, North America for sure is performing better than Europe and Asia Pacific. So I hope that gives you some color.
spk06: Thanks for that. And my follow-up here, this is the first real conversation we've heard Trimble have about AI. You're giving some of the examples at the back, which we'll have to go back and look into. But one of the questions that we've seen in AI on the market has been, how do you monetize it? So can you help us understand, whether it's the copilot or utilization or the autonomous procurement, just help us understand the value creation or monetization opportunity for Trimble in leveraging that technology. Thank you. That's
spk12: a great question, Kristen. We're still in the very early innings of monetization. We're paying a lot of attention to it. Now, you talked about the GitHub copilot work. That's internal productivity. So the lens I have on this is there's a set of work in AI that's for making us more efficient and productive inside our own house. That could be how we're doing customer support using the chat bots. It is the productivity through the code development. It's getting sharper about how we do our marketing efforts leveraging AI. When we go more customer oriented, and those are the examples I had in the prepared remarks, and then we put a slide in the appendix with some hyperlinks so you can go look at some examples of what we're doing in the market. I'd give you two breakdowns on that. One is that we see it as some of this is part of continuous value delivery to our customers. That is they're paying subscriptions. We typically get price increases every year. I think there's a reasonable expectation that we're providing incremental value. And in that sense, it's part of the offering that we do. The distinction I would make is when we have more breakthrough productivity or breakthrough value that we can provide customers, we think about, okay, what's the quantifying that value and then what's our fair share of that capture? One example I can point out is within our Transporion business, is the team has developed autonomous procurement and autonomous quotation capabilities. And when customers are using that instead of the traditional methods they've used and solutions they've used within Transporion, we're monetizing that at I think of two to three times, close to 2X factor for execution because the result is that much better for the customers. So that's one example of where we're monetizing. And I'd say we're still pretty early in it. And you're right that this is certainly evolving in the monetization side of things.
spk06: Thank you for the time.
spk09: Your next question
spk10: comes from the line of Jason Celino of KeyBank Capital Markets, your line is open.
spk11: Great, this is Zane Meehan on for Jason Celino this morning. Thanks for taking my question. Rob, first one for you, with the election in the US coming up later this year, I'm just curious to hear if you're hearing any customers delaying buying decisions as a result of that. And if so, if that's contemplated in the three Q and full year guidance. Hey,
spk12: thanks for the question. Relative to the election, I mean, you typically hear that in these periods that people will do a bit of a pause to kind of see which way the wind is gonna blow. And we'll see which way the wind blows. We believe we've taken that into account in the guide that we've put forward. And if you think about the guide, think about the visibility we have with the ARR business is much higher than we would have on, let's say the hardware business which manifests more as a book and burn. So we have visibility into the rest of the year, differential visibility, 60% of our revenue is now recurring as a company, 75% of our revenue overall as software services and recurring. It's certainly reasonable for us to, and all of us, I guess to think about what the impact of the election might be on our business, whether that's around regulation or whether that's around tariffs, depending on which way this goes. But we believe we've got this taken into account.
spk11: Okay, great, that's super helpful, thanks. And then second question, Phil, for you, on the marketing side, it's nice to see that a little uptick in the guide. Just curious, is that coming more from the revenue app performance or are you getting leverage from specific line item? Just curious to hear further info on the margin uptick.
spk02: Yeah, thanks, Ian. Hey, the main reason for it's really the mixed shift is our AECO business continues to grow at a faster rate than the field systems and we have a little bit better first half and those bookings start to flow through in the second half. And so I think what you're seeing is then that mixed shift which obviously the gross margin on the AECO business is higher than the field systems. And so you're seeing that sort of flow through in the back half of the year.
spk01: Okay, great, thank you.
spk09: Your next question
spk10: comes from the line of Jerry Revich of Goldman Sachs. Your line is open.
spk07: Yes, hi, good morning, everyone. Rob, nice to hear about the logo growth at Trans4NK. Can you just expand on that? What was the logo growth in the quarter? What was the transaction talents? Can you just expand more on the performance in the quarter and to the extent you have visibility on how the cadence looked into July and August for that business, please?
spk12: Sure, hey, let me frame this in two ways. One, with the first half of the year and then secondarily with the second quarter specifically. For the first half of the year, the bookings growth in the Trans4NK business was in the mid to high teens. So super pleased with that performance in context of what still is a freight recession. And so the way then you can grow that bookings, it's coming through winning deals. And then the second quarter, the team won over 250 deals. Those deals come in the form of landing dozens of new logos and also doing land and expand plays within the existing customer base. There are certainly some pockets of end markets that are stronger and others that are weaker. There's been some strength coming back on the retail side. Some of the building materials that side of the business has been lower for the business. The team also had some success getting traction here in North America as well, which we were pleased by. And then last thing I'll comment on is we've got more plays happening between the Trans4NK and Trimble Transportation business. Still early in that, but I like what I'm seeing in terms of the teams working together. So add that up and that's the color around the numbers.
spk07: Super, thank you. And can I ask a similar question for AECO? I mean, that business has been growing consistently, around 17, 18%, really since you've acquired eBuilder and Viewpoint, can you unpack the growth profile now? How much is the logo growth
spk00: that
spk07: we're seeing this year versus cross-selling and how much runway do you see based on the pipeline and opportunities that continue to deliver this pretty consistent level of growth that you've put on, I think, for about five years now?
spk12: Sure, Jerry. So the growth is about two thirds from existing customers and one third from new logo customers. And you're right, the team has consistently been posting excellent growth and this is excellent growth at scale. I mean, AECO alone is a $1.16 billion ARR business today, growing in ARR in the high teens. Operating at a rule of 44 in the quarter, is over a rule of 50 in the first quarter. Net retention is about 108% in the business. So a lot of good things happening in the business. We believe we're winning because we have a unique value proposition. A value proposition is delivering productivity, quality, safety, environmental sustainability to our customers. It's helping them solve higher order problems. For customers, an ability, especially when we have the, where we have the TC1 offerings available, it's Trimble Construction One. It reduces friction in the buying process. It makes it easier for customers to do business with us. It's doing things with Trimble that you can uniquely do, that is connecting work in the field and work in the office. So when we look at the base of the customers that we have, we're bullish in our ability to continue growing this business, especially when I look at that two thirds, one third split and two thirds being from existing customers.
spk01: Thank you. You're welcome.
spk09: The next question
spk10: comes from the line of Jonathan Ho of William Blair. Your line is open.
spk08: Hi, good morning. Just wanted to see if you could give us a little bit of additional color on the -to-market changes that you're making around the named account executives for Trimble Connect and maybe help us understand how that could potentially drive faster adoption of the Trimble platform.
spk12: Hi, good morning, Jonathan. So yeah, we moved in the AECO business, we moved to a named account selling model at the beginning of the year. It was definitely a huge change for the team and for the organization. And if you think about it, if you're going to, if you rewind, call it five, 10 years ago, we might've sent multiple sellers in to talk to a given customer. Today, that moves to having one person who's got accountability for that account and then accountability to bring in the specialist behind her or him in order to best serve that customer and meet the breadth of needs. That's one thing to have a named account model that would be incomplete if you didn't have the product to go along with it. And that's where the bundled offerings, TC Trimble Construction One, namely, arms those account executives with the ability to offer customers unique value proposition. And then what's behind that are the underlying processes and systems. So we've had a lot of, I'd say growth around our sales operations or sales enablement motions. And then with the systems underneath that, the work and the investment we've made over these last years has, let's say, upped our game in terms of licensing and entitlement engines. As an example of them, we're getting more 360 degree views of our customers, which helps, all of which helps enable the sellers to go do what they do at that named account level.
spk08: Got it. And then just in terms of a follow-up, can you give us a little bit more color on the Trimble pay or payments opportunity and how that works from a contractual or financial perspective? Just wanna understand if are these gross or net type contracts and what that cross-sell opportunity maybe looks like through your base. Thank you.
spk12: Yeah, so we're bullish on land and expand plays within the platform that we're offering. So when we can attach new capabilities to the existing base of solutions and customers that we have, we think that's a winning motion. And we've seen that with the two acquisitions that both Phil and I mentioned in the prepared remarks about work in the field as well as payments. It stands to reason that payments are going to link to an ERP and guess what? We have the ERP through the viewpoint business. So that's the essential, let's call it value proposition or essential linkage. We also have the project management systems. The need to be able to pay subcontractors is a given in the industry with a natural place for us to be and we think of a winning motion. Tell us anything else you wanna add to that?
spk01: No, that's pretty good.
spk09: The next question comes from the line of Rob Mason of
spk10: Baird, your line is open.
spk03: Oh yes, go to one of Rob and Phil. I wanted to see if I could get a little more color just what you're seeing across your various geographic regions and if anything changed in the regions during the quarter. Your overall outlook, revenue outlook, can see what that is. It didn't have a lot of movement. I'm just curious though how you're seeing the second half of the year as well in some of the regions.
spk01: And we're seeing the most
spk12: strength in North America. Actually Europe grew on an organic basis that's gonna be from the Transporion business. X Transporion, it's been a tougher market in Europe but it's still holding up on a baseline. Differentially around the world, Asia Pacific was hardest for us in the quarter. I'd say think of a couple places. China continues to be a harder place for us to do business. In Japan, the weakness of the yen makes it more expensive to do business with us and those have been a couple pockets of weakness. We're paying attention to what's happening in Australia and New Zealand, the state of the economy there. So the Asia Pacific weaker, North America the strongest. Those are the bookends. And that plays into our thinking in the second half of the year.
spk03: Very good. Rob, you made note of some of the automotive OEM wins. We hadn't talked about that part of the business in a bit. I know historically there was some involvement with GM. Could you bring us up to date on where your book of business sits overall in that positioning part of the business and how many OEMs are you working with now?
spk12: Yeah, good question, Rob. So let's talk about the underlying technology itself. I mean, go back for a 47 plus year history started in positioning technologies. As positioning technologies have continued to evolve and innovate continuously over the years, we moved from, or we got into what's called RTK positioning decades ago and now we can deliver those same, which deliver corrections to create that highly accurate, ubiquitous fast convergence for that high accuracy needs, which historically have been for us in agriculture, survey, construction markets. We can now deliver those through satellite. So you get more global ubiquity of the coverage of that. And then we ask ourselves the question of where else would this high convergence, high accuracy and signals be of value? Automotive markets were a natural extension for us. So same technology into a new market segment, whether that's for ADAS systems or on the path to autonomy or its redundancy and the other positioning technologies or sensors, let's say on the cars. So that's the context for it and for that market and extending the technology into the automotive market. And automotive is a market that we had, we do have some history in through navigation technologies. Now at the, you mentioned General Motors, Super Cruise program. Yes, it's exactly the same topic that we're talking about with additional OEMs. I believe it's probably less than a dozen today that we have design wins with. And then there's certainly a pipeline that's bigger than that. When you think about the design win, it can take you a long time to get to that design win. Once you have the design win, you've got a pretty long life cycle, actually, well, very, actually I would say a very long life cycle, multi-year, call it plus or minus seven years over that design win. And if you kind of apply some software metrics to it, and you think about a lens of lifetime value over customer acquisition costs, it's a good business to be in once you can win that OEM.
spk03: If I could ask, how quickly do they convert to revenue? So if the design wins in the quarter, when would you expect revenue?
spk12: It's actually very slow to get to revenue. It's good news and bad news. Bad news being it's very slow to get to, you know, to recognize that revenue. The good news is that we can recognize that revenue over a long period of time. So I'd say to date over these last few years, as we've been getting these design wins, it's had more costs associated with it than revenue and gross margin. So it's been upside down for a few years. We're getting to a point of accumulative base as we start to recognize that revenue. And it'll just, it will look better over the next few years as that cumulative base steps up. So it's the nature of the revenue recognition over multiple years. That 17% ARR growth in field systems has a little bit of that automotive segment, but that's not the fundamental thing yet that's growing it. And also good news is I would say that's the kind of visibility we can have years forward in field systems that we would have never had
spk01: historically. Very good, thank you.
spk10: Your
spk09: next question
spk10: comes from the line of Tammy Zekaria of JP Morgan, your line is open.
spk05: Hey, good morning. Thank you so much for taking the questions. As to the first question in the transportation segment, I think the performance was quite impressive given the tougher compare year over year. So when I look at the first half performance, it's up pretty nicely three to 4% year over year. So your guiding flies, a zero flat to low thing, did you grow for the full year? So which means sequentially you're expecting some slowdown. Should we think about this sequential slowdown in terms of the tougher year over year, three year, third quarter comp, or are you expecting any softening in the demand? So just trying to understand how to think about the back half versus first half for the transportation and logistics segment.
spk02: Hey Tammy, it's Phil, thanks for the question. So I mentioned this in my prepared remarks, but we've had some turn that we've already talked about in the North American mobility business. And that really starts to manifest itself in the second half. So a big portion of the second half drop that you see is really due to that. But as Rob said earlier, we're still seeing the performance around the transport business, the maps business, that's offsetting some of that. But that's really the headwind that you see in the second half is that turn that we previously disclosed.
spk05: Got it, thanks for the clarification. And then the other question is, I think you spoke of some incremental investments you're making in sales and marketing to support the software centric businesses. Any updates on where you are in that process? Is it mostly done or do you expect it to continue through the rest of the year? And more importantly, should we expect this to continue through next year as well? So any color on that investment journey would be helpful.
spk02: Yeah, hey, Tammy, it's Phil again. So yeah, so as we talked about this from a capital allocation standpoint, we continue to pivot our resources toward the ACO business and in particular that sales and marketing, which ultimately drives the ARR growth and the revenue growth in the future. And so we see that continuing as long as, we have the pipeline and the bookings. And the nice thing about a rule of 40 plus business there is if we do see slowdowns, we can easily pivot our OPEX and still maintain a rule of 40. But as long as we continue to see the growth and the opportunities there in that business, I think you'll see us
spk01: continue
spk02: to reallocate
spk01: our resources toward that.
spk09: Got it, thank you. We'll take the final question from the line of
spk10: Joshua Tilpan of Wolf Research, your line is open.
spk04: Hi, this is Arsenio for Josh. Thanks for taking the question. Can you just talk directly maybe a layer deeper into what you're seeing from a demand perspective across the ACO portfolio? Certain competitors in this space are facing challenges and appears with one third new local contribution of growth. This isn't really impacting your business. And I sell a wide suite of products, different stakeholders, but are you seeing more demand than you saw starting this year? And is that driven by changing behavior in your existing customers? Are you seeing improving win rates versus competitors? And then just on TransporeON with, I think, spot rates improving quarter over quarter in Europe and the TransporeON business getting more revenue for load and spot versus contract, is this providing a tailwind into the full year? And if so, is that embedded in your guidance? Thank you.
spk12: Hey, good morning and thanks for the questions. I'll start with, this is Robin, I'll start with the AECO topic. So yeah, we have talked about the ARR growth, the two-third, one-third split coming from Crossel versus the new logo. I think the additional color I can add to your question is as follows. We spend a lot of time segmenting the market, whether that's on what's called the end markets, could be residential, non-residential infrastructure. It's also on the customer types. We think about where we serve the architects and designers, the engineers, the construction companies, and the owners, their segmentation there. There's also a level of segmentation in terms of the size of the customer. So think about mid-market customers, think about large enterprise customers, and then lower down, think about the small, medium-sized businesses. One of the areas where we've been able to pivot is where we've seen a little bit more weakness on the mid-sized customers. We've pivoted our emotions and our teams into the small and medium-sized business market here in North America. So we've got the data and the ability and the products and the -to-market model aligned to go find the business where it is. And I think that's one of the things that's differential about us. So we have a broader product offering, serving the broader ecosystem, serving more participants in that, serving it more globally than our peers in the industry, and then being able to move our emotions up or down market depending on where more of the activity is taking place. We also have a channel. We've had a channel at Trimble. I mean, Trimble's history, we've got decades of managing Trimbles. If we look in the AECO business, probably 10% to 15% of our bookings in the quarter came through our channel. So that's also a motion that we've had for a long time. Oh, and on the transporian side, you asked about spot rates in Europe. They are, I would say, just marginally better. They're not better enough to be really moving the needle yet, but you're right to look at that. We do as well, and we'll continue to pay attention to that. So we believe that the current rates are built into our guide. If the market were to move quicker and spot rates go up, then that would be upside for us.
spk04: Thank you.
spk09: Thank you. Ladies and
spk10: gentlemen, that concludes today's call. Thank you all for joining. You may now disconnect.
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