Trimble Inc.

Thank you for standing by. My name is Bailey and I will be your conference operator today. At this time, I would like to welcome everyone to the Tremble third quarter 2025 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, again, press star and 1. I would now like to turn the call over to Rob Painter, President and CEO. You may begin.

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 of our slide presentation. Okay, let's get to it. Our third quarter results delivered a top and bottom line beat, and we are once again raising guidance for the year. The story of Turnbull this year can be summarized in three words, clarity, durability, and momentum. That message continues today, driven by the purposeful execution of our Connect and Scale strategy. Our strategy continues to guide our own transformation, delivering transformative outcomes to our global customers and in positioning us well to deliver on our 2027 financial commitments. We're also carrying this momentum forward with the Trimble brand. Earlier this year, we launched our NASCAR partnership with RFK Racing. And last week, we announced our partnership with Liverpool Football Club. This isn't just a sponsorship. LFC will employ Trimble Technology in the design and construction of its world-class infrastructure. That's Connect and Scale in action. Turning to slide five, the numbers clearly reflect our execution. We delivered $901 million in revenue in the quarter, up 11%. Our ARR grew 15% to $2.31 billion, with a notable 17% increase in our AECO segment. EPS at 81 cents was up 16% year-over-year and higher still on an organic basis. The structural quality of our model is self-evident. Recurring revenue accounted for 63% of third quarter revenue and software and services for 78% of our total. As you will see from the results in skilled systems, the physical solutions of Trimble are uniquely empowering workflows by connecting the work between the office and the field with rich mission-critical data sets. Before turning to the segments, I want to briefly address three topics we've heard many of you asking about over the last few weeks. First, the impact of the US federal government shutdown. We correctly anticipated lower government revenue early in the year and have been able to contain the impact on the business, which we previously quantified as single-digit millions in the back half of 2025. The second topic is the impact of AI on vertical software. In short, we see a net opportunity We believe we are uniquely positioned to capitalize on this transformation for three key reasons. First, AI is a logical extension of Connect and Scale, not a separate initiative. We've been working with AI for years, and we are already connecting physical and digital solutions, workflows, and ecosystems. We believe AI will be adopted inside industry platforms like ours as a natural extension of the data coming out of the mission-critical systems we build today. We're not chasing a new market. We're leveraging our core assets. Second, our industries are inherently difficult to disrupt. We operate in physical industries like construction and transportation, and they're fragmented and complex. This requires deep domain expertise, extensive go-to-market capabilities, and a trusted partner that can bridge the office and the field. The unique corpus of data that flows through our ecosystems each and every day, combined with our deep industry relationships, creates a powerful competitive moat that a new pure play AI company cannot easily replicate. Third, we are already executing on this opportunity. We remain humble to the potential for disruption and are hard at work integrating AI across our business. We're using it to drive internal efficiencies and accelerate our product innovations. We view AI as a powerful tool to enhance our value proposition and extend our leadership. Expect us to drive productivity over time. The third topic is the strong demand for AI data centers. Many of our customers have significant global backlogs and continue to invest to service them, with an emphasis on speed of delivery. This is clearly reflected in our ACB bookings performance. We have the benefit of serving a diversity of end markets, infrastructure, residential, energy, commercial, onshoring and reshoring of manufacturing, and more. Our business is resilient because we are not dependent on any single project type, contractor profile, or end market. Okay, let's turn to the segments, starting with AECO. The team delivered another outstanding quarter. ARR at $1.42 billion and revenue at $358 million were both up 17%. Our ACV bookings remain strong and in line with our long-term model, and we continue to see strong engagement and expansion with our core commercial customer base, with net retention excluding SketchUp at approximately 110%. Market feedback continues to validate our value proposition to connect workflows and integrate ecosystems to address higher order problems, create connected data environments, and facilitate multi-sided marketplace business models. In the quarter, we launched SketchUp 2026, which is now enabling real-time viewing, which in turn enhances collaboration and usage. We launched ProjectSite, which is our AI-enabled project management solution, into Europe and Australia. Our unique Trimble workflows are linking design and reality capture. They're linking scan to BIM and digitizing site layout, delivering step function levels of quality and productivity to our customers. In October, we held a user conference with our owner and public sector customers, showcasing our latest innovations in our suite of asset lifecycle management solutions. We sit in a unique spot to help asset owners digitize their capital program management, as well as their permitting and operational asset management needs. This digitization enables us to provide AI-driven insights that solve real problems. Moving to field systems, the business outperformed in the quarter, with particular strength, again, in civil construction. Kudos to the team. This is the industrial IoT of our business, our data collection node in the physical world. Revenue at $409 million was up 8%. ARR at $386 million was up 18%, driven by strength across our geospatial and civil solutions. At a product and workflow level, An example of our continued mixed fleet innovation comes from our announcement with Vermeer and their pile drivers. The solution we enable automatically moves the physical machine to the precise location of a pile according to the digital project plan, then optimizes the depth of the pile with minimal operator input. The system allows one operator to complete the task of driving piles, which otherwise would be a two- or three-person job. Productivity and quality, that's Trimble at work. Our latest AI innovations are now offering automated point cloud classification and inspection analysis tools to quality control as-built construction. In addition, we continue to expand our points of distribution to help better drive adoption of technology in the market. In September, we held our first Trimble Dimensions in Australia, enabling us to showcase our innovations to almost 1,000 attendees in Brisbane. Next week, we're excited to be back in Las Vegas to host our flagship Trimble Dimensions user conference for all our AECO and Field Systems customers, where we will showcase new workflow solutions along with our latest AI innovations. The reach of this business into the physical world is near ubiquitous. The sampling of customers and projects, one in a quarter, spans the globe. Rail projects in Japan, airports in Quebec and Colorado, transportation authorities in Norway, Paris, and the US State Department of Transportation, survey agencies in Thailand and Saudi Arabia, as well as wins with automotive and autonomous mining OEMs. Moving to transportation, ARR at 501 million was up 7%, delivering profitable growth in a challenged freight market. In September, we held a European user conference in Amsterdam, an inspiring forum with representation from some of the largest and most important companies in the world in attendance, many of whom were new customers. At the end of this month, we'll be in New Orleans for our North American user conference. To give a sense of connected scale and action here, we start with critical customer problems, network optimization, empty miles, driver retention, maintenance, and fuel management. Our ecosystem strategy enables interoperability to help companies achieve a more holistic view of their supply chain, leading to better planning and execution. This breadth of data enables AI to learn and forecast future processes. enabling predictive analytics for demand, capacity, and potential disruptions. As an example of this strategy in action, we announced and launched our freight marketplace offering with Procter & Gamble as our anchor shipper customer. We are building the next generation of an intelligent and responsive supply chain. With that, I'll hand it over to Phil to walk us through more of the numbers, including our updated full-year guidance.

Thanks, Rob. Let me start with some comments regarding capital allocation. During the third quarter, we repurchased $50 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. This leaves approximately $273 million under our current repurchase authorization. Longer term, we continue to expect at least a third of our free cash flow to be used for repurchasing shares. Our M&A strategy remains focused on strengthening our core market positions. We look for opportunities in high growth areas such as construction software with a particular emphasis on token acquisitions, smaller strategic purchases that integrate quickly and enhance our existing platforms to deliver a rapid return on investment. Let's review the third quarter of 2025 starting on slide six. Organic revenue growth at 11% exceeded the high end of our outlook, driven by the strength of AECO Anfield Systems, with transportation and logistics continuing to grow in a challenging freight market. ARR was in line with the top end of our outlook at 15% to another record of $2.31 billion. The consistent growth in our recurring revenue base provides a predictable and resilient foundation for our business. Gross margins expanded 90 basis points to 71.2%, showcasing our continued model progression. We achieved EBITDA margins of 29.9%, which is a 160 basis points expansion year-over-year. Reported earnings per share was $0.81 for the quarter, $0.10 better than the midpoint of our guidance, and $0.06 above the high end of our guidance. Moving to the balance sheet and cash flow items on slide seven. Our year-to-date reported free cash flow remains strong, at $206 million when considering the $277 million cash tax payment paid in the second quarter, which was related to the agriculture divestiture. Our balance sheet is a source of strength and financial flexibility, with $233 million of cash and a leverage ratio of 1.2 times, which is well below our long-term target rate of 2.5 times. Moving to a segment review of the numbers before we close with guidance. and starting with AECO on slide eight. AECO delivered a record 1.42 billion of ARR, posting 17% ARR and revenue growth for the quarter. Operating income at 31.8% increased 270 basis points year over year. This business continues to operate well above the rule of 40, reflecting a balance of high growth and profitability. Next, field systems on slide nine. Revenue was up 8% in the third quarter, despite approximately 150 basis points of model conversion headwinds. The segment posted another strong quarter of ARR growth at 18%, where we continue to successfully execute our business model conversions and deliver and expand capabilities that are subscription-based. Field systems operating income at 33.4% increased 40 basis points, driven by a greater mix of higher margin recurring revenue. Finally, transportation and logistics on slide 10. The segment delivered revenue growth of 4% and ARR growth of 7%. We continue to make excellent progress on our connected scale strategy, which will unlock a cross-sell and up-sell opportunity we size at approximately 400 million within this segment. Operating margins expanded 10 basis points year-over-year to 25.8%. Let me turn to guidance on slide 11. With the strong performance in the third quarter, We are increasing the midpoint of our full year as reported 2025 revenue guidance by $45 million to $3.565 billion. We are also increasing our full year EPS midpoint outlook by $0.10 to $3.08 and are maintaining our organic ARR growth midpoint at 14%. From a cash flow perspective, we are holding to our full year view to be approximately one times net income after adjusting for the $277 million cash tax payment related to the sale of the agriculture business and the approximately $30 million in M&A costs. We continue to expect that we can deliver a free cash flow greater than non-GAAP net income over the long term. Before turning the call back to Rob, I want to connect these results to our long-term vision. Our execution to date in 2025 reinforces our confidence in achieving our fiscal 2027 targets, which we refer to as our 3-4-30 framework. That is $3 billion in ARR, $4 billion in revenue, and 30% EBITDA. An early look at 2026 revenue has us in the mid to high single digit range. We look forward to providing more details regarding 2026 in February. Back to you, Rob.

We are committed to ending the year on a high note and positioning ourselves for another year of growth and strategic progression in 2026. This confidence is rooted in our strategy and the conviction of our team. To our colleagues and partners, I thank you for your dedication and results. To our customers, thank you for your confidence and tremble. To the investment community, thank you for your interest and support. Operator, let's open the line to questions.

At this time, I would like to remind everyone in order to ask a question, press star and then the number one on your telephone keypad. Your first question comes from the line of Jason Celino with KeyBank Capital Markets. Your line is open.

Hey, great. Thank you. You know, nice to see the quarter here. I think, Rob, you addressed it a little bit, but can you maybe talk a little bit more about the government shutdown impact? I think you said the word contained and, you know, you'd already maybe baked some, some impact into the second half, but maybe elaborate a little bit.

Yeah. Good morning, Jason. And thanks for the question. Yeah. I think good news is that the beginning of the year, we correctly anticipated that it would, would be lower to, uh, to book in the impact we're talking about and quantify it. We're talking single digit millions in the back half of, uh, of this year. So, you know, the business, I'd say, all around this is outperformed clearly to contain this. And I will advertise that we are hoping that the government opens back up here soon.

Yep. Yeah, absolutely. I think we all are. And then on the AECO side, nice to see the strengths again. You know, we'd love to get more granularity on some of the strengths. Perhaps maybe you could break it down into different segments, you know, the A, the C, and the O, you know, and what's driving kind of the confidence to sustain, you know, ARR growth at these levels. Thank you.

Sure. So if we look at each component of the A, the E, the C, and the O, each one is over $230 million of ARR now, so a strong balance across that portfolio. The C is the largest of the components that we have. I'd say the performance is broad-based and strong, and the whole portfolio is growing. But to go through it in a little more specificity, in the quarter, Our BIM and engineering solutions, which really fit mostly in the E, were the standout performers growth there. Strong product and go-to-market execution came together nicely. You know, TC1 bundles and cross-sell is a big part of that. I'd say the second call-out is the construction portfolio. We call that construction management solutions internally. The project management solution project site is doing really, really well for us. We took that into Europe, actually specifically into Benelux in the quarter, as well as Australia and New Zealand. And then we'll see that in the fourth quarter rollout further into Europe. And then the construction aspect is largely the viewpoint ERP, which continues to perform and grow and have competitive wins and be a really good anchor tenant for our TC1 and cross-sell plays.

Perfect. Thank you again.

You're welcome. Your next question comes from the line of Guy Hardwick with Barclays. Your line is open.

Hi. Hi. Good morning.

Morning, Guy.

Hi. Thanks for the early look on 2026. I think you said mid to high single-digit range, and I think consensus is seven, so that looks solid, but perhaps it's a bit of an unfair question, but how do you feel about 2026 as that stepping stone to 2027? the 2027 framework? Do you feel kind of ahead or behind in any sort of metrics?

Hey, Guy, it's Phil. Thanks for the question. So I mentioned that the 2027, I think with the performance to date, we obviously, if nothing else, it improves our confidence around those numbers. And we're still early, obviously, on 2026, so just previewed that mid to high single-digit growth rate. But we're going to continue to go through our planning process. We'll give another update, obviously, with more details next turning call.

And just as a follow-up, in terms of the Q4 revenue guide, obviously, it's a little ahead. Is there anything going on in terms of incrementals? Perhaps the incrementals are maybe a little bit lower than I would have expected.

Sorry, Guy, is that on the revenue growth? Sorry, what are your...

for guidance in terms of the margins relative to the revenue, in terms of the revenue growth.

Hey, Guy, this is Rob. I think it's pretty well in line. You know, I think you're following probably the guide on the revenue delta versus the EPS guide if you're looking at the midpoints. We continue to invest in the business, so if we're looking forward into, you know, where we want to be with bookings in 26, We like where we sit right now, so then we can put the pedal on, say, the marketing investments in the business, the continued underlying systems and process work that we're doing, which is part of helping us accelerate the bookings work that we want to get going early in 26, so we get the 26 number, so that we get the 27 ARR in line with the 3430 model.

Okay, got it. Thank you.

Your next question comes from the line of Jonathan Ho. Your line is open.

Hi, good morning. Trimble has long been an adopter of AI, and based on your commentary, can you talk a little bit about where your customers are at in terms of their interest in using AI in their everyday workflows? And maybe perhaps remind us of your data moats as well in the space.

Hey, Jonathan. Good morning. Well, hey, on the data moat side, if I start with that, you know, you've heard me reference before trillions, billions, millions, and thousands, trillions of dollars of construction run through Trimble, billions, tens of billions of freight run through Trimble, millions of users of our software, hundreds of thousands of instruments and machines in the physical world run on Trimble. That's a unique corpus. of data at Trimble, and we think of that in context of connecting users, stakeholders, and that data across the industry lifecycle continues, and that enables a progression from optimizing tasks to optimizing systems. It's a different category of problems we can solve, and in that respect, AI as a force multiplier for what one can do with the data. The first question you had was around customer adoption of AI and maybe even say readiness for AI. Is that correct? Is that what you're asking? Yes. Yeah. As you'd expect, I mean, there's a pretty good differential in the customer base on that given the number of customers we serve. But there's no question from the time I spend in the field around the world and the time with our operators that it is increasingly part of customer conversation. I'd say there's a fair amount of it that's curiosity-driven, trying to understand how can they actually get more out of their data, really putting in context of the problems they're trying to solve. as they need to do their work better, faster, safer, cheaper, and greener. And so our customers are asking, how can they unlock their data? How can AI be a part of accelerating, be a force multiplier for that? But I'd say the most progressive customers are really doing some interesting things and really helping show us the way. We're not enamored with AI for the sake of we're enamored with the problems that we can solve through the adoption and application of technology. And in that respect, we see customers who are working with the abilities that we provide for them to do, let's say, in construction, natural language design, to do auto-invoicing if you're a contractor on the ERP, working to automate RFIs, and submittals driving significant time savings around that. And transportation, the autonomous procurement, and autonomous quotation products continue to grow. So I feel like we're very early in the game at the customer level, and I like where we are positioned as a company in terms of the readiness and the work we're doing to help lead our customers and lead the industry.

Perfect. And Phil, just for a quick follow-up with your 15% ARR growth, can you maybe provide some additional color to unpack the composition of that growth between new customer acquisition, net expansion, pricing, anything that's changed in terms of the composition of that growth over time? Thank you.

Hey, thanks, Jonathan. I think it's been pretty consistent as we talked about, which is about one-third new logo, two-thirds within ACO. And so I think that's been pretty consistent. And the 15% has been consistent with the last couple of quarters as well. So I would say, if nothing else, treat the word with consistency with the model and what we're seeing. Thank you.

Your next question comes from the line of Joshua Tilton with Wolf Research. Your line is open.

Hi, this is Arseny on for Josh. I just wanted to kind of unpack the acceleration in ACO Organic ARR. It looked really strong going into the back half. And then just as a follow-up question, there's been new partnerships with OEMs, and that is kind of expanding outside of kind of the Caterpillar JV that you guys have been involved with. Is that getting more eyes on the TC1 suite, and is that getting better coverage? existing lens into new logos that you guys haven't really had that access to before. Thanks.

Hey, Arsenio. Good morning. This is Rob. Thanks for the question. I'll take the AECO organic growth. One thing I can point out is we're getting better marketing insight in the business. So the systems investments we've been making and process investments we've been making for years continue to pay off and we continue to roll out functionality. So the ability for us to get insights into the data we have, let's say, about our customers. When I say about our customers, to understand who they are, what are they buying, what other motions can we rerun to reach them. Cross-sell performance continues to do better, and that is absolutely enabled by the underlying processes and systems. And let me say, the team, the people, the execution, they're really raising the bar and achieving that growth, and kudos to everyone on that team. Relative to the partnerships, that you referenced, you know, that hits in the field systems arena. And there I'd say shout out to our civil construction team in particular just had an absolutely terrific quarter. They've had a terrific, terrific year. Progress at the product level, progress at the go-to-market level. You know, where you're hitting is more the go-to-market level. And at the go-to-market level, there's two things to highlight. One is OEM relationships. So in the quarter, we announced a relationship with Vermeer on their pile drivers, with Cabalco on their 2D earthworks for North America, with Hyundai, Trimble Ready applications for dozers in North America. So that's one aspect of reaching the mixed fleet market. The other, which is specifically what you're referencing, is we call them Trimble technology outlets. That work is ahead of the plan that we've had. And really, the... core principle we have with our joint venture partner is to reach the market. So we have an absolutely aligned vision to reach the market. For us, that means it's a mixed fleet market and to reach a mixed fleet market, we need to have relationships with OEMs as well as with those dealers in the world that can help us reach machine types and colors that we weren't previously fully reaching. So really, really good execution from the team. Thanks for the question.

Your next question comes from the line of Nae Naeng with Brennenburg. Your line is open.

Hi, thank you for taking my question. I have two please. The first one is on the transition growth headwinds in your fuel systems business units. I think it's about 1.5 percentage points this quarter. It's about 2 percentage points last quarter. There's a bit of a deceleration there. I was wondering if you could remind us how long should we expect these growth headwinds to continue and kind of linking to your qualitative 2026 guide, that improvement in top line growth compared to 25. Is it as a result of slower growth headwinds in the substitution transition in the field systems, or will it come from elsewhere? And I'll wait for the second question later if that's okay.

Hey, Ney. Thanks for the question. Yes, we expect the transitions within field systems to continue through the next couple of years, through 27, which is what we talked about at Investor Day as far as our anchor year. So expect those to continue. throughout the next couple of years. And then your second question was on the growth. So yes, conversions, we mentioned that. And I think we also start to lap ourselves in 2026 with the solid year that we've so far been putting up this year. So I think that, but as I talked about before, if nothing else, we just increase our confidence around the 2027 numbers.

I was very clear with my question on the growth for 26. Clearly what you're guiding for 26 will be higher than what you're guiding for 25. That growth profile uplift,

is it coming from any of the particular segments is it as a result that we'll see slower growth headwinds from the substitution transition is that where the growth uplift is coming from hey guy um so we're not actually guiding higher 26 higher than 25. if i look at our as adjusted uh revenue growth for this year it's uh It's about 9%. And so that guide for next year actually is, we said the mid to high single digits.

Okay, understood. Thank you.

Your next question comes from the line of Tammy Zacharia with JP Morgan. Your line is open.

Hey, good morning. Thank you so much. I wanted to ask you about the leverage ratio. It's 1.2 turns. Is that the right number, or would you consider levering up to buy back stocks, or are you waiting for any opportunistic acquisition? So, any thoughts on the leverage ratio as it sits here today at, you know, almost at all-time lows?

Hey, Tammy. Thanks for the question. Yeah. So as we think about the capital and particularly the balance sheet, obviously we focus on the highest ROI and we first and foremost are investing back in the business to be able to continue to drive the ARR growth. And then as we think about where other places, we talked about M&A and the tuck-ins in particular, we like that play and we'll continue to do that with the main focus within the construction software assets. We're committed to over a third of our free cash flow going back to the shareholders via the share buybacks. So as we look going forward, we always sort of look across the spectrum of where the best use and the best ROI of our capital is at any given time, and we'll put that to the best use.

Understood. Thank you. And my next question is on operating margins. So operating margin, you raised the expectation, it seems like, or it's coming in better than what we thought it would be initially when we started the year. So if you're expecting to grow mid to high single-digit next year from a top-line perspective, should we expect similar year-over-year improvement in operating margins, or any color on how we should think about that metric?

Yeah, thanks, Tammy. We just put the top line for 2026, the mid to high single digit as a revenue guide. We'll get into more detail as we think about the EPS and the margins in the earnings call the next time, but we're not going much deeper than at this point beyond the revenue.

That's fair. Thank you.

Your next question comes from the line of Kristen Owen with Oppenheimer. Your line is open. Good morning.

Congratulations on the nice quarter. So Rob, since you kind of opened up the box a little bit here on the discussion of AI disintermediation and SaaS, I'm wondering if you can maybe double click on that a bit. You know, particularly where you feel like given the diversity of the portfolio, do you have more of a moat against that disintermediation in certain categories and you know, as you assess the portfolio, are there areas where you do maybe see some vulnerabilities where you need to adjust?

Hey, Kristen, thanks for the question, and good morning. Relative to the moat and, let's see, particular strengths and weaknesses, let me characterize it as follows. You know, in totality, there's the trillions, billions, millions, and thousands, which is already referenced. You could call that, you think of that as the size of the Where I believe we most strongly compete and differentiate is by connecting our solutions in the field and the office. That's connecting the hardware and software of Trimble to truly connect the physical and the digital world. And the flywheel of solutions at Trimble moves from the point solution to the bundle, to the workflow, to ecosystems. And the value delivery as you move along that flywheel is differential and transformative. It's additive as you move through that. And so through selling, this is one of the reasons I like selling the bundles and the TC1 frameworks and the cross-sell, whether it's in transportation or field systems or in ACO, is you're changing the nature of how customers are using their technology. And the more value that customers get out of the technology, the more they're going to stay with you. I mean, that's what customer success is. So the strongest ability we have to compete on the moat is when customers are using multiple solutions. When they're using AI that we're embedding into our technology and also separate from the technology to get more out of what they're buying from us. We do that, and I have high confidence that we retain the moat and we grow the business. And not only for the net retention, but it's a new logo game that I believe that we can get. And of course, there's the unlocking of the billion dollar cross-sell in construction and $400 million in transportation. I'd say we're And whether I call it weakness or whether I call it humility, I think we absolutely, I know we need to stay humble to the market around us. It moves so fast. And there's no question that at the moment there's startups and there's well-funded startups. There's the incumbents in the market. I mean, all of us have AI ambitions. So we can't sit still. Like to me, that would be the risk is if we sit still and we don't have the courage to move and to act. Now, good news is I believe we do have the courage to move and to act through this moment. And, you know, the last question we had around how are we thinking about op leverage coming into next year is one of the reasons we want to be cautious not to get ahead of ourselves on the margin progression is we want to make sure we're investing in this business to unlock this AI opportunity. And I think we can do that and very much be within the framework of the 3-4-30 model we put out for 2027. And I think the way to ensure that we then get the next years beyond that, the attractive growth, is to ensure that we're doing this upfront investment correctly into the business.

Holly Leichter- Really appreciate that color and my follow up question is more on the the the here and now, I want to ask you about the transportation and logistics business. Holly Leichter- And obviously some some continued good growth they're not really seeing much of an inflection in the in the end market. Holly Leichter- You know, is there anything on the horizon that you see either from a macro perspective, or maybe from the temporal portfolio perspective, like this freight marketplace introduction. It gives you some optimism for that business going into 2026.

Yeah, great question. So, hey, let's say, I think about control what we can control. I don't see meaningful green shoots right in front of us, whether it's the rest of the year in 2026 at the macro level. So our planning assumption is the same market we've got. And by the way, I hope I'm wrong about that, but that feels like the safe assumption and feels to calibrate with customers in Europe and North America. So in that respect, to control what we control, that's our own execution. I look at the, let's say, take the op margins this year, you know, first half versus second half. Second half, you know, we see 400 basis point improvement in the margins in the business. Okay, we can control We can control that. We're growing, as you can see from the quarter, with the 7% ARR growth. in the quarter, that's clearly outperforming the end market growth. That's within our control. And then the double click on that gets into the product set that we have. Like you said, freight marketplace. In the quarter, we had, I think it's the largest booking we've had of taking our mapping technology which is into the Transporian customer base in Europe and vice versa. We had the largest Transporian booking in North America that the companies had to date. So those are elements that are within our control that, you know, give me optimism that we can do better with what we have in our portfolio. You know, at a 500 million ARR level, you know, this makes us one of the largest transportation supply chain technology companies in the world.

Thank you so much.

And as a reminder, I would like to remind everyone that if you would like to ask a question, press star and the number one on your telephone keypad. Your next question comes from the line of Chad Diller with Bernstein. Your line is open.

Hey, good morning, everyone. So I just want to spend some time on the field systems business and particularly your OEM strategy. Um, maybe, can you talk about the cam expansion that you're seeing, you know, post, you know, being freer to do more business with, uh, you know, other OEMs, um, maybe you can remind us, you know, what the OEM versus distribution split is and, you know, what the growth differential is. Uh, but also, you know, from like a product development and a sales perspective, um, what do you need to do differently, uh, versus before to win?

Yeah, thanks, Chad. This is Rob. I'll take this one. Hey, at the OEM level, we've always been able to work with OEMs. That's actually not a new aspect of the joint venture. And so I should just continue to reinforce that that's not new. Let's say what's new within the OEM strategy is our own ability to put a differential level of resources to meet their needs. And then to be more specific, because I think this is a big unlock in the OEM world, is the nature of how their adopting and implementing technology particularly specifically within machine control which is to say you could have open interfaces something closer to an open standard that the oems adopt to in order to put on machine control technology or you have oem by oem technology in other words proprietary it is very difficult for trimble and our peers and competitors and very inefficient when it's OEM by OEM and very separate. We're actually very much in favor of, you know, a singular approach to that, which means, hey, our competitors and peers would have the same access as us to working with OEMs. I believe we win with the quality of our solution, with the breadth of the portfolio, and in the linkage into the larger ecosystem that we have, both in the software and field systems and AECO. That's where we're really in my opinion, most unique and different. So we are putting more expense, operating expense, investment, R&D, into serving the OEMs so that they've got access to our technology. Where we, of course, as you know, where we really focus ultimately is in the aftermarket. I mean, that's where the predominant volume comes from. And so, like I mentioned, a Trimble Ready dozer option a few minutes ago And what that means when it's terminal ready is it's pre-wired and plumbed such that in the aftermarket we can come and access that technology. You also asked about product development. Here the team has done really well. If you think about the machine fleet and you think about machine control, we tend to think about dozers and graders. But excavators remain a single-digit penetrated market. And so the technology continues to serve, I'd say, that mid-tier level of machines, so unlocking an addressable market. When we do that, this is a few months ago, but we announced putting... Machine guidance now supports tilt buckets. That's something that the European customers need. In the quarter, we released some new technology called RoadWorks 3D for pavers. Pavers, obviously, is a specialty piece of equipment. So larger reach into the available market. And then at the sales level, the team is doing a really nice job. And by the way, I should say our partners are doing a terrific job. around the world of accessing the market. So, strength and performance in all dynamics.

Great. That's a helpful caller. Maybe just sticking with field systems, more of a modeling question. So, if I look at the implied guidance in the fourth quarter, it looks like we're taking a step down on growth. And it's trying to think through, like, what that means from an exit rate perspective, you know, just given that you're guiding to, you know, continued growth in the 26th at an enterprise level.

Hey, Chad. So yeah, so good question. So in field systems, a couple of things. One is we had a really good fourth quarter in 2024. In particular, we had some larger government orders. And so we're not seeing those, as Rob mentioned before, a very small amount in the forecast. And so that's part of the downward pressure on the field systems growth year over year, or a large part, I should say. Thank you.

Your next question comes from the line of Jonathan Ho with William Blair. Your line is open.

Hi, thanks for letting me come back onto the queue. I just wanted to maybe dig into some of your federal government comments, but from a slightly different angle. I think you're pursuing FedRAMP certification. And so just wanted to understand what you see as kind of the opportunity set, what the timing could look like for that, and potentially whether sort of the shutdown slows down anything on the FedRAMP side. Thank you.

Hey, Jonathan, specifically on the, actually let me talk about a couple things. On the federal side, the business we do within federal, you could think of DOD work and civilian work. Just looking forward, it won't be a surprise, we would see stronger opportunities on the DOD side than on the civilian side. And let's see how this plays out. We'll do better when the government I guess I'm knocking wood when the government reopens. If we open with a budget passed omnibus bill, that's better than if we continue to govern by the CRs, the continuing resolution. So just a little bit more color there in how we think about looking forward into 2026 on the overall federal level. With FedRAMP specifically and going after the certifications, You know, yes, there's a federal business, but reality is we wouldn't do this if the opportunity was only in the federal business. We think about it as a security posture, which is increasingly important to all customers. So, you know, the Fed ramp to one customer is security as a service to another set of customers. So we think it's an important set of work to do. in a world that's got very, let's say, complex data security, data sovereignty requirements around the world. It's a good hygiene and a good posture to have. And yes, then, oh, by the way, we think that it could be business at the federal government. We weren't planning any revenue in that for FedRAMP in the government in 2026. So there's really nothing to see there as I think about the state of the government at the moment. And we'll keep plugging away at it, but we also, you know, see our customer, you know, by the way, but a customer may often do both federal work and private work. Maybe actually all of them do that, do both. And more and more, you know, they're asking themselves, do they want to operate with FedRAMP certified technology in one part of the business and not in another? You know, all things equal, they'd rather just operate with one set of security procedures and protocols throughout their business. It's a significant investment to do this.

That makes a ton of sense. And just a quick follow-up in terms of your SketchUp business. We've picked up some price increases that took place a little bit earlier in the third quarter. I just wanted to understand sort of the impact there and how you think about SketchUp in terms of lead generation as well. Thank you.

Hey, so on the pricing dynamic, or actually it's even bigger than a pricing dynamic, you know, we have multiple paths to market. We sell e-commerce. We sell through direct sales to enterprise customers. We sell on the app store. You can get SketchUp. And we invite you to go buy some licenses. Each one of those could offer monthly discounts. services or annual contracts. There's an optimization routine because what's our goal is to penetrate the market, to reach the market, to reach the customers where they are. And so you've got to get the balance right and optimize the monthly and the annualized pricing such that you get the incentives right. We would like to have more people using the and doing the annual license with us. And we think we got that balance right now. So those were some of the pricing dynamics of optimizing that balance that we talked about on the last call. We think we got them We think we got them right relative to lead generation for the rest of the business. Actually, there's some good cross-sell plays that happen in some of the bundling plays. One of the ones that I think is the most compelling at the moment is reality capture and SketchUp. So think about collecting 3D point clouds out in the field, and you need to do something with that data that's collected. Well, what you can do is bring that data into SketchUp. And whether you're collecting an as-built that you didn't need to, let's say, design or do a remodel of, boom, it's right there in SketchUp natively integrating with the field data collection that we're doing. So that's just one example, but there's many examples where SketchUp is linked very nicely to the rest of the portfolio.

Thank you. You're welcome.

And your next question comes from the line of May 9 with Brennanburg. Your line is open.

Thank you for letting me back on as well. I've just got a follow-up question on the operation leverage point. If we look at the year-to-date, your growth margin expansion, the year-on-year expansion dropped through to your EBIT margin expansion. I think it's tracking around 45%. Almost half of the growth margin expansion, we're seeing that as a benefit coming to an EBIT. That rate is an improvement from about 30%. achieved in the last two years. I just wanted to understand from you, how should we think about this margin expansion drop through and growth margins to EBIT going forward as more of your top line growth will be driven by a higher growth margin in software businesses? Thank you.

Yeah. Hey, thanks for the follow-up. Hey, at Investor Day, the frame we put on operating leverage was 30% to 40%. Yes, we've been tracking ahead of that, but we think about it on a multi-year baseline, so we still hold the 30 to 40%. It's not lost on us that with the higher gross margins, and those continue to go up in the business. By the way, in the last five years, 1200 basis point increase in gross margins, 1200 basis points. That is structural improvement and transformation. in the business model of Trimble. So yes, we have, you could say, the natural abilities of the business model to be at the upper end of that 30 to 40. The balance that we've got that we'll get right and we will work towards is making sure we're continuing to invest in this moment. I'll say in this AI moment, simultaneously, we can get unlocks of productivity in our business, and we have areas where we want to differentially invest. in order to get ourselves either ready or to accelerate the work that we're doing. We're playing the long game. So I don't want to reset the expectation of that 30 to 40 range. We'll guide 2026. Phil will put that framework out next quarter. So we're not ready to say where we want to be within that. But you can see the growth in the business. And we feel confident enough where we are now to giving you a preview of 26, and that is a stepping stone to 2027. I'll just say one other comment given whether it's the operating leverage comment on Q4. Remember the moving parts as you're doing the modeling, you know, a 53rd week that we had last year. You know, we have chunks of term licenses that hit on January 1, and our January 1 hits in the fourth quarter of this year. And so the supplementary material that the team puts out, I highly encourage you to spend time with that and walk through that, and we can do that in the callbacks as well.

That's very helpful. Thank you very much.

Thank you so much to everyone for joining us today. This does conclude today's conference call. You may now disconnect.