Trimble Inc.

Thank you for standing by. My name is Greg, and I will be your conference operator today. At this time, I would like to welcome everyone to today's Trimble second quarter 2025 financial results 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'd like to ask a question during this time, simply press star followed by the number one on your telephone keypad. Once again, star one. And if you'd like to withdraw your question, simply press star one again. Thank you. I'd now like to turn the call over to Rob Painter, Chief Executive Officer. Rob?

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. As reported numbers, along with the reconciliation, are provided in the appendix. Our second quarter results outperformed top and bottom line expectations, reflecting continued strong strategic execution and momentum with our Connect and Scale strategy. My congratulations and gratitude to the Trimble team and our global partners. We are raising our guidance for the full year, and Phil will walk you through the details. Starting on slide four, the foundation of our Connect and Scale strategy begins with our best-in-class solutions, which are generally core to the day-to-day operations of our customers, delivering productivity and sustainability outcomes. Our strategy compels us to do what we can uniquely do, that is, connecting people, connecting data, connecting workflows, and connecting ecosystems across the construction and transportation and logistics industry life cycles. Our product leaders are increasingly bundling our solutions together into pre-packaged product suites, making it easier for customers to access our technology and making it easier for our sellers to reach our customers. They are also progressing our efforts towards subscription offerings, expanding our user base and the size of our addressable markets, while simultaneously delivering us increased visibility into our business. Strategically, these business model transformations are connecting workflows as we move data from on-premise and on-machine to the cloud. We are enabling our customers to generate better insights into their own data while enabling us to build a unique data set to power our AI ambitions. For example, in our project site project management system with AI, we have processed over 1.5 million drawings, with AI at a rate of over 200,000 drawings per month since our Dimensions User Conference in November of 2024. This AI capability saved significant time that our customers would otherwise spend manually adding attribute data to a model. Finally, our go-to-market motions are modernizing, enabled by better underlying technology stacks and process excellence. AI-assisted motions are increasing bookings visibility and unlocking cross-sell opportunities, as well as new logo expansions. The sum of these activities plays a strong role in our current results. Turning to slide five, $876 million in revenue in the quarter, up 9% organically, $2.21 billion of ARR, up 14% organically, and $0.71 of EPS, up 15% year-over-year, and higher still on an organic basis. Software and services accounted for 79% of second quarter revenue. Recurring revenue accounted for 63% of second quarter revenues. We run negative working capital, and CapEx is less than 1% of revenue on a trailing 12-month basis. Our value creation algorithm is working. Looking forward over the next couple of years, the continued rollout and maturation of our strategy gives us conviction to deliver on our 3-4-30 commitment by 2027. $3 billion in ARR, $4 billion in revenue, and 30% EBITDA margin. Looking beyond the next couple of years, we are optimistic about what an AI-forward future will mean to Trimble. I like to characterize our right to win in this space in the form of trillions, billions, millions, and thousands. Trillions of dollars of construction run through Trimble. Tens of billions of freight run through Trimble. We have millions of users of our software, and we have hundreds of thousands of instruments and machines in the field that operate on Trimble technology. The transformation we've been making in our business over the last few years has prepared us for this moment. In the last weeks and months, we have taken thousands of Trimble colleagues through AI training sessions, and we are deploying AI across most every function of the company. While it's very early in the AI adoption cycle, we believe we are heading the right direction and making the right decisions to unlock the efficiency and customer value creation opportunity. In June, we held our biannual technology conference, where 300 of our top engineering and product leaders came together to share and collaborate on our next waves of innovations. Not surprisingly, AI made up about half of the content of the conference. With that context, let's talk about each of our segments, starting with AECO and a quote from a steel fabricator and erector customer who said the following. We're always three steps ahead of everyone else because of the technology we use. With Trimble Connect, we can visualize the entire project before it starts. We track every piece of steel in real time and stay ahead of any potential delays. This sentiment is indicative of the success we are having with connecting people and connecting data. In the quarter, ARR at $1.36 billion and revenue at $350 million were both up 16%. ACV bookings remained strong and in line with our long-term model, growing in the mid-teens, with a healthy growth in net retention. At the point solution level, we continue to innovate. SketchUp won best in show in the BIM category at AIA 2025, And with over 4.4 million models created in the quarter, SketchUp remains core to the workflow of architects and designers around the world. ProjectSite added features such as daily reporting and ERP integration, which contributed to strong growth in the quarter. At a connected workflow level, we are now delivering an office-to-field-to-office workflow in civil construction that enables project managers to send quantity requests for earth moving in our B2W track applications to crews in the field using our SiteWorks solution and then flowing that data back to the office for progress tracking, which informs decision-making and ensures accurate billing. No guesswork, no phone calls, no manual data transfer. Only Trimble. This workflow example is just one example that validates our strategy of driving growth through Trimble Construction One bundles, as well as running cross-selling motions that serve existing customers with more solutions. Once we have a customer using our ecosystem with a core solution, our strategy of adding connected solutions multiplies the value a customer gets and makes us an indispensable partner for a company's entire operation. The investments we have made into our business over the last few years are unlocking insights that drive sales enablement and targeted marketing campaigns to reach this market opportunity. In combination with our transformation to operate as one sales organization and AECO focused on named accounts, we remain optimistic about our ongoing growth potential. Moving to field systems, I'll start with a quote from a customer in Scotland talking about machine control. This is our largest investment in advanced construction technology to date, and the effect on productivity has been eye-opening, with one project already being eight weeks ahead of schedule and on track to be completed in half the estimated time. The business outperformed in the quarter, with particular strength in civil construction. Revenue at $393 million was up 3%, despite the 200 basis point headwind based from model conversions. ARR at $358 million was up 17%, driven by strength in our Works Plus machine control offering, our Catalyst positioning as a service offering, and Trimble Business Center. At a product innovation level, we expanded SiteWorks machine guidance to be available for tilt bucket attachments, We expanded Trimble Ready options with a number of OEMs, and we introduced the NAV 960 guidance controller for a PTX joint venture. In the end markets, we saw strength in drilling and piling applications for renewable projects, as well as site pad preparation for data centers and warehouses. This business is the most global business at Trimble, and it is inspiring to see our work in action. In the quarter, we had WENs, with customers in U.S. State Departments of Transportation with mobile mapping, at the Panama Canal with optical solutions, with the Rwanda Statistics Department, the Dubai Municipality, and the Bureau of Water Management in the Philippines buying Trimble GNSS, with customers in Ukraine, Tanzania, and Turkey buying Trimble reference stations, and with customers in China and Australia buying our monitoring solutions. Trimble is everywhere. Moving to transportation, I'll start by quoting a customer who said, autonomous procurement has transformed our spot bid management by using AI to predict prices, enabling us to set realistic walkaway prices and align with market conditions, especially during peak seasons. While our end market remains in a stubborn freight recession, we continue to grow the business with innovation coming from products such as our AI-based autonomous procurement solution. Revenue at $133 million, and ARR at 492 million were both up 8% in the quarter. ACV bookings were up double digit. At a product level, we have ongoing integration efforts to connect key Transporium products, such as visibility and autonomous procurement with our TMS offerings, which enhances user experience and further enables cross-selling efforts. We are accelerating our rollout in the U.S. of our freight marketplace, which enables real-time capacity sourcing for shippers, carriers, and brokers. We are building confidence at every turn. With respect to the macro environment across our business, there was no discernible shift in sentiment or in-market performance in the quarter. Various indices inevitably point one way or the other. Opportunities continue to outweigh the uncertainties. In meeting with customers in the UK and Europe, energy and defense look healthy. In the United States, the puts and takes of the one big beautiful bill look to be net positive, including deductions on capital equipment. Globally, we remain bullish on India and the Middle East. At an in-market level, our construction customers generally have healthy backlogs, and they continue to hire for their project work. In the transportation market, we are hopeful that the market is stabilized with more upward catalysts than downward catalysts. Phil, over to you.

Thanks, Rob. First, I'd like to give an update regarding impacts from policy. Regarding tariffs, our operations team has done an outstanding job creating a flexible and global supply network. With the latest information to date, there's no change to the tariff impact on our cost of goods at approximately $10 million per quarter in the field system segment. We've implemented surcharges to offset this, thus we expect no impact to profitability. Related to the repeal of Section 174 from the One Big Beautiful Bill, we anticipate a cash flow benefit of approximately $50 million in 2025 and a total additional benefit of approximately $80 million, which will be realized over subsequent years. With regards to capital allocation, we bought back $50 million of shares in the second quarter and have approximately $323 million of authorization available. Longer term, we continue to expect at least a third of our free cash flow to be used for repurchasing shares. On the M&A front, we continue with the small tuck-ins, and in the second quarter, we acquired capabilities that we have branded Trimble Materials, which serves contractors by connecting the field, office, warehouse teams, and suppliers to streamline the entire purchasing and materials management process. The tuck-in playbook is working, and we are accelerating our ability to integrate which yields a rapid return on investment by putting additional functionality in the hands of our sales teams to cross-sell and up-sell and continue the flywheel of ARR growth. Let's review the second quarter of 2025, starting on slide 6. Organic revenue growth exceeded our outlook at 9%, driven by outperformance in all three segments, and ARR was in line with our outlook at 14% to a record $2.21 billion. Gross margins expanded 210 basis points to 70.6%, which shows our continued model progression. We achieved EBITDA margins of 27.4%, which is a 170 basis points expansion year over year. Reported earnings per share was 71 cents for the quarter, nine cents better than our guidance. Moving to the balance sheet and cash flow items on slide seven, Our year-to-date reported free cash flow was strong at $90 million despite a $277 million tax payment related to the agriculture divestiture. Our balance sheet continues to be strong with $266 million of cash and a leverage ratio of 1.4 times, which is well below our long-term target rate of 2.5 times. Shifting to a segment review of the numbers before we close with guidance and starting with AECO on slide 8. AECO delivered a record $1.36 billion of ARR, posting 16% ARR and revenue growth for the quarter. Operating income at 30.4% increased 400 basis points year over year. This business continues to operate above the rule of 45. Next, field systems on slide nine. Revenue is up 3% in the second quarter despite approximately 200 basis points of model conversion headwinds and a difficult comp with the large government order in the prior year. Field systems posted ARR growth in line with our expectations at 17% for the quarter, where we continue to successfully execute our business model conversions. Our civil construction business continues to be particularly strong, and ARR growth was driven by our model conversions and sales of subscription offerings. Field systems operating income at 30.8% increased 190 basis points, driven by a greater mix of higher margin recurring revenue. Finally, transportation and logistics on slide 10. Revenue and ARR were up 8% for the quarter. The segment is greater than 90% recurring revenue following the divestiture of the mobility business. We continue to make good progress bringing the global transportation teams, processes, and systems together as we execute our connect and scale strategy, which allows us to access the approximately 400 million of cross-sell and up-sell opportunities within the segment. Operating margins at 21.5% are expected to improve in the next two quarters as we continue to execute the strategy. Let me turn to guidance on slide 11. With the overperformance in the first half of the year, we are increasing the midpoint of our full year as reported 2025 revenue guidance by 100 million to 3.52 billion. We are also increasing our full year EPS midpoint outlook by 11 cents to $2.98 and are maintaining our organic ARR growth as adjusted guidance midpoint of 14%. While the business is performing well and ahead of plan, Given the lingering uncertainty with tariffs, foreign exchange rates, and other macro factors, we are updating our guidance with a similar approach we took in the first quarter, which we see as prudent given the unknowns of the macro environment. From a cash flow perspective, we are increasing our full year view to be approximately one times net income after adjusting for the $277 million cash tax payment for gain of sale in the agriculture JV, the approximately $35 million in M&A costs, and $50 million updated benefit from the repeal of Section 174. We continue to expect that we can deliver a free cash flow greater than the non-GAAP net income over the long term. For the third quarter guidance on slide 13, we expect revenue to be in the $850 to $890 million range and EPS of $0.67 to $0.75. We expect organic revenue growth in the third quarter to be in the 4 percent to 9 percent range. For further details regarding our guidance, please see our earnings supplement document, which can be found on our investor website. With that, I'll turn it back to Rob. Thank you, Phil.