Trimble Inc. (TRMB) Q1 2008 Earnings Report, Transcript and Summary

Good afternoon. My name is Kerry and I will be your conference operator today. At this time, I would like to welcome everyone to the first quarter 2008 earnings conference call. [Operator Instructions]. I would now like to turn the conference over to Willa McManmon, Director of Investor Relations for Trimble. Thank you, Ms. McManmon, you may begin your conference.

Thank you. Good afternoon. Before we review the quarter, let me remind you that during the call we will make projections or other forward-looking statements regarding future events or the future financial performance of the Company. The words intend, expect, plan or similar expressions are intended to identify forward-looking statements. We wish to caution that such statements are subject to risks and uncertainties that could cause actual events or results to differ materially. Important factors relating to our business, including factors that could cause actual results to differ from our forward-looking statements, are disclosed in our Form 10-Q, 10-K and other filings with the SEC. The Company assumes no obligation to update these forward-looking statements to reflect actual results or changes in assumptions or other factors. I'd also like to ask that during the question-and-answer period, you limit yourself to two questions so that we can cover all of the questions. Thank you. Steve?

Good afternoon. Trimble generated strong financial results in the March quarter based on exceptional performance from our agriculture business and continued robust international growth in all segments. Year-over-year revenue growth of 24% enabled us to continue our expansion of non-GAAP operating margin, which was further enhanced by a structural drop in our tax rate versus expectations. Our first quarter performance, the tax rate effect and our expectations for the remainder of the year will allow Raj to maintain our general revenue outlook for the year while raising our annual earnings guidance. The quarter reflected the evolving Trimble business portfolio. Because of the higher growth rates in mobile solutions and field solutions over the last several years, the Engineering & Construction segment fell to less than 55% of total revenue in the quarter, down from 65% in the first quarter two years ago. Beyond that, the significant majority of E&C sales are outside the US, which means that only approximately 20% of Trimble's total revenue is directly exposed to the slowdown in the U.S. construction market. The elements of our Agriculture story remain consistent, and are centered on strong commodity prices, the need to mitigate high input costs for fuel and fertilizer and strong product innovation. Beyond those factors, we're seeing a rapid evolution of the market beyond our historical core geographies of North America, Brazil and Australia with new regions such as Europe, growing at triple-digit rates. We believe, we can sustain strong performance in this business for the foreseeable future, because the underlying market drivers are not likely to subside and since we believe the addressable market remains less than 30% penetrated worldwide. For the entire company, international growth remains a key and growing element of our strategy. Today, the survey instruments business is our only truly internationalized business with roughly a third of its revenue falling into each of the geographic categories of North America, Europe and rest of world. We continue to push each of our other businesses towards this profile to take advantage of major worldwide trends, which includes the massive infrastructure build out taking place in emerging economies, the increasing pressure to increase food output and the growing emphasis on environmentally friendly practices. We're seeing and expect to continue to see very strong growth in China, India, Russia, Eastern Europe, the Middle East, Africa, central Asia and Southeast Asia. The three logical questions for us relating to first quarter performance revolve around sequential development in the Mobile Solutions segment, US market conditions in the Engineering & Construction segment and margins in the Engineering & Construction segment. Let me address each of these and leave a more detailed explanation to Raj. In the January call, we discussed the special circumstances that led to the very strong results for the Mobile Solutions segment in the fourth quarter and urged that it not be used as a new baseline for the business. The fourth quarter included a number of large contracts for which we were able to recognize the revenue within the quarter. In the first quarter we did not have those same beneficial effects. While the first quarter reflected year-over-year progression in Mobile Solutions operating margins, they are not yet at the targeted level. The largest impact on operating margins in the Mobile Solutions segment continues to be the field, service and direct store delivery business, which generated a quarterly loss of over $1 million and is taking approximately 3 margin points off the table for the segment. We came to the conclusion in early 2007 that we did not have a compelling product solution for this market and, effectively, we withdrew from that market until we did. We began to roll out our new platform product, the mobile application platform product, the mobile application platform, which I've been referring to as V4, late in 2007 and are beginning to build a sales pipeline. Because this is generally an enterprise sale it will take some time to fully develop the pipeline into a revenue stream. We're being patient in this effort because we consider this to be a significant opportunity for us to use this product platform to access between 7 million and 10 million mobile workers worldwide. We also believe that in the MAP platform, we have a compelling offering that can achieve a significant competitive advantage as we roll out its full capabilities. We have already landed a premiere consumer packaged goods company as our flagship account for the product. Another area where we expect significant operating margin expansion is from @Road. We have intensified our efforts to bring @Road up to the operational and financial standards of the rest of Trimble during the last six months. These efforts are focused on reducing churn, improving customer satisfaction, establishing clearer developmental priorities, increasing selling productivity and achieving greater synergies with the rest of Trimble. This should accelerate the improvement in operating margins we have already seen from @Road. Another source of future margin expansion in the Mobile Solutions segment is in R&D spending. We are consciously driving R&D spending at a hot level, near 20% of revenue in order to extend and internationalize our products. As R&D spending converges on a more typical Trimble profile, we expect that we can add multiple margin points to segment results. With the combined effects of turning the Field Service business into a contributor, achieving @Road's profit potential and bringing R&D costs into line with our model, we believe we are on a credible path to bring this segment to our target operating margin of greater than 20%. In the first quarter, we continued to see slower conditions in the US construction market, which impacted the E&C growth rate in the first quarter. The slower results in the US are a result of the combination of a slower economy, which is impacting new construction starts, a late spring in some parts of the US and the decision by uncertain contractors to defer buying decisions until there's a greater understanding of the extent of the troubles in the financial markets. These market issues continue to be counteracted by continuing strong growth in international markets. Our internal planning and guidance for the rest of the year presumes the US market does not recover and that we will face a difficult construction market for the rest of the year. While acknowledging the general lack of clarity on the state of the economy, and also acknowledging that it could get worse, we also believe we may have reasons for guarded optimism for the E&C segment in the second half of the year. This view is based on the potential that if the uncertainty associated with the financial crisis subsides, we can deal with the underlying recessionary conditions more effectively. In addition, we have action plans underway in the market that can also have a significant beneficial effect. Uncharacteristically for us, E&C operating margins as a percentage of revenue declined year-to-year. Some of this was a matter of the relative measurement framework as the operating margins for E&C in the first quarter of last year reflected an increase of 6 points from 2006, which represented a non-sustainable benchmark. Some of this was environmental as rapidly fluctuating exchange rates materially affected the operating margin metric as E&C has significant elements of its cost structure outside the US. Some of it was internal as our cost structure has become somewhat misaligned with the level of revenues. We have begun aggressive cost containment actions to restore the balance between revenue and cost and we should be returning to our traditional pattern of margin progression within the segment during the year. Stepping back beyond the current economic confusion, we remain comfortable and confident with our multiyear outlook. Our story remains centered on being a highly innovative Company that brings compelling value to significant unpenetrated markets. Short term, we are reaffirming the 2008 picture based on our best updated judgment of current circumstances and what we believe we can do to mitigate economic conditions. Let me turn the call over to Raj.

Good afternoon. In the first quarter of 2008, revenue was $355.3 million, up approximately 24% from revenue of $285.7 million in the first quarter of 2007. Operating income was $58 million, up 48% from the first quarter of 2007. Operating margins in the first quarter of 2008 were 16.3% compared to 13.7% in the first quarter of 2007. Excluding amortization of intangibles, in-process research and development, the impact of stock-based compensation expense, our restructuring and amortization of acquisition-related inventory step-up, non-GAAP operating income of $73 million grew by 32% compared to the first quarter of 2007. Non-GAAP operating margins were 20.5% in the first quarter of 2008, up from 19.4% in the first quarter of 2007. We dropped 25% of the increase in revenue due to operating income line. Net income for the first quarter of 2008 was $40.1 million, up 40% compared to net income of $28.7 million in the first quarter of 2007. Diluted earnings per share for the first quarter of 2008 were $0.32, up 35% from the diluted earnings per share of $0.24 in the first quarter of 2007. The tax rate for the first quarter of 2008 was 33% compared to 32% in the first quarter of 2007. Trimble's tax rate was lower than forecasted due to the implementation of a global supply chain structure which is expected to result in a structural tax rate of 33% for fiscal 2008 and beyond. Adjusting for the amortization of intangibles, in-process research and development, impact of stock-based compensation expenses, non-GAAP net income of $50.1 million for the first quarter of 2008 was up 26% compared to non-GAAP net income of $39.6 million in the first quarter of 2007. Non-GAAP earnings per share for the first quarter of 2008 were $0.40, up 22% from non-GAAP earnings per share of $0.33 in the first quarter of 2007. In the first quarter of 2008, we continued to see strong revenue growth internationally, with 54% of revenue in North America, 26% in Europe, 13% in Asia-Pacific, and 7% in the rest of the world. This represents growth rates of 16% in North America, 25% in Europe, 54% in Asia Pacific and 54% in rest of the world. I will now discuss the results by segment, both on an underlying and reported basis. Please note that segment operating income excludes general corporate expenses, amortization of intangibles, amortization of acquisition-related inventory step-up and in-process research and development. In addition, for each segment, non-GAAP operating income excludes the impact of stock-based compensation expense. First-quarter 2008 earnings in Engineering & Construction revenue was $194.2 million, up approximately 11% when compared to revenue of $175.6 million in the first quarter of 2007 with strong international sales. First-quarter 2008 operating income for E&C was $37 million or 19% of revenue compared to $42.2 million or 24% of revenue in the first quarter of 2007. Non-GAAP operating income in E&C was $37.9 million or 19.5% of revenue in the first quarter of 2008 compared to $43 million or 24.5% of revenue in the first quarter of 2007. We expected first-quarter comps to be difficult given that margins in the first quarter of 2007 expanded by 6 points year-over-year from 18.7% to 24.5%, clearly an unsustainable trend. The decline in operating margin in the first quarter was due primarily to unfavorable foreign currency exchange rates, the impact of recent acquisitions and product mix. In anticipation of a continuing slow U.S. economy, we're taking steps to reduce our costs to generate improved margins regardless of the state of the economy. We currently expect E&C operating margins to expand year-over-year in the back half of 2008. First quarter 2008 Field Solutions revenue was $88 million, up approximately 73% when compared to revenue of $51 million in the first quarter of 2007. Sales were strong across all regions and product lines, with the majority of the increase coming from the Agriculture business. First-quarter 2008 operating income in TFS was $35.1 million or 39.9% of revenue compared to $16.6 million or 32.6% of revenue in the first quarter of 2007. Non-GAAP operating income in TFS was $35.3 million or 40.1% of revenue in the first quarter of 2008 compared to $16.8 million or 33% of revenue in the first quarter of 2007. Operating margin expansion was due primarily to high revenue. First-quarter 2008 Mobile Solutions revenue was $44 million, up approximately 47% when compared to revenue of $29.9 million in the first quarter of 2007. First-quarter 2008 operating income in TMS was $2.5 million or 5.6% of revenue compared to $1 million or 3.4% of revenue in the first quarter of 2007. Non-GAAP operating income in TMS was $3.9 million or 8.8% of revenue in the first quarter of 2008 compared to $1.8 million or 5.9% of revenue in the first quarter of 2007. Operating margin expansion was driven by higher subscription revenues and operating synergies, which were partially offset by higher new product development costs. Non-GAAP operating margins declined sequentially because the fourth quarter of 2007 benefited from completion of a large customer contract. Additionally, in the first quarter of 2008, the DSD business continued to be a drag on the margin with the loss of over $1 million in this business. In spite of the inherent lumpiness of the overall business and the DSD impact, we expect to improve operating margins in the TMS segment for the full year with margin improvement in each of the quarters except the second quarter of 2008. First-quarter 2008 Advanced Devices revenue was $29.1 million, approximately flat when compared to revenue of $29.3 million in the first quarter of 2007. First-quarter 2008 operating income in Advanced Devices was $4.7 million or 16.1% of revenue compared to $3.3 million or 11.4% of revenue in the first quarter of 2007. Non-GAAP operating income in Advanced Devices was $5 million or 17.3% of revenue in the first quarter of 2008 compared to $3.7 million or 12.6% of revenue in the first quarter of 2007. Margins improved due to product mix. Total non-GAAP operating expenses for the first quarter of 2008 came in at $107.7 million or 30.3% of revenue compared to 32.2% of revenue in the first quarter of 2007. Non-operating income for the first quarter of 2008 was $1.8 million versus $2.9 million in the first quarter of 2007, due primarily to lower interest income on lower average cash balances and slightly lower income from the CTCT joint venture. Now, turning to the balance sheet, we finished the first quarter of 2008 with $71.4 million in cash, compared to $103.2 million in the fourth quarter of 2007. In the quarter, the cash balance declined as we paid $39.6 million for acquisitions and spent $25.9 million to buyback 968,000 shares of Trimble's stock at an average purchase price of $26.7 million. Debt remains flat at approximately $61 million in the first quarter, but it should be noted that we are paying off $35 million of additional debt in the month of April. In the first quarter, net accounts receivable were $280.7 million, compared to $239.9 million in the fourth quarter of 2007. DSOs were flat at 72 days versus last year. They increased by two days versus Q4 of 2007 due to the inherent seasonality of ag and construction sales skewed to March. In the first quarter of 2008, our deferred revenue balance was $68.5 million, compared to $65.3 million in the fourth quarter of 2007. Inventory was $148.5 million, compared to $143 million in the fourth quarter of 2007. Turns were essentially flat at four times. Let me discuss our guidance before we take our questions. In the second quarter of 2008, Trimble expects revenue to grow 14% to 16%, compared to second quarter of 2007 with revenue between $374 million and $379 million. We expect second quarter 2008 GAAP earnings per share between $0.36 and $0.38 and non-GAAP earnings per share between $0.44 and $0.46. Non-GAAP guidance for the second quarter of 2008 excludes the amortization of intangibles of $10.9 million related to previous acquisitions and the anticipated impact of stock-based compensation expense of $3.9 million. Both GAAP and non-GAAP guidance use a 33% tax rate and assume 125.9 million shares outstanding. We have modified our full year 2008 guidance to incorporate our current outlook for the year as well as the lower tax rate. Revenue is expected to grow 15% to 17% versus previous guidance of 14% to 17% revenue growth. Full year non-GAAP earnings per share expected to be $1.50 to $1.55 versus previous guidance of $1.39 to $1.44. Thank you. We will now take questions. Question and Answer

[Operator Instructions]. And your first question comes from Corey Tobin with William Blair.

Hi, guys. Congratulations on a very nice quarter.

Thanks, Corey.

A couple of quick questions if I could. You mentioned in the E&C segment some impact from foreign exchange. Can you just walk us through exactly some sort of feeling for what the magnitude of the impact was there and how that plays out in your P&L?

Corey, the way it works is that the dollar has weakened, primarily against the euro, and our revenues get a slight uplift because of that, but we have a lot of operating expenses and R&D expenses in Europe. So we get hurt when we translate those expenses back to the US dollars. So net-net on the bottom line we get a slight hurt with nothing -- none of that revenue increase falling to the bottom line. So, hence, our margins get depressed because of that.

Okay, and is there any way that -- can you quantify the benefit to the top line from the foreign exchange?

For the total Company, it was around 3 to 4 percentage points.

Total Company about 3% to 4%.

3 points, around 3 points, yes.

Okay.

Three points of growth.

Great. And then one other if I may, in terms of visibility, can you give any comment on whether or not the visibility has remained about the same in what you've seen in prior years or given the challenges that you've highlighted in the E&C and the domestic business, has the visibility declined in any material way?

I would tend to characterize it as being much the same. Depending on the market, it's been variable. So, I would say in general, Mobile Solutions tends to be roughly a little bit better because there's a more discernible pipeline to be looked at. The quarter in which the business may fall is a little bit hypothetical at times, which is why we urge people to look at us in that segment more on a rolling basis than any given quarter. But for the E&C segment, for Field Solutions, I would describe it as basically being the same. I think the first quarter was particularly difficult from a visibility standpoint because I think as I said before, I think there's -- although I guess the recession has been called yet, let's call a recession. There are recessionary conditions out there which are affecting our business. But then, I think there is a bit of a headline factor which also works in. So, for example, in the first quarter, is, we left the CONEXPO show, which was the major US construction show that's held every three years, we left it feeling pretty good. That was on a Friday. On Monday, Bear Stearns news hit. And I believe that it actually shocked buying behavior. I think buying decisions instantly reverted from a Procurement Officer to the Vice President or the President. And so I think that made visibility in the first quarter a tougher at the very end of the quarter. But I would say aside from things like that is that the visibility remains pretty much as it always has been. I don't think it's necessarily gotten worse.

Great, so would you say by the end of the quarter, in terms of sort of linearity, the linearity of the quarter was obviously more front-end loaded toward January and February?

No. Typically in the E&C segment is there is a very strong end of quarter seasonality as a contractor's and surveyors, for that matter, are able to get out in the field, which tends to be the last three weeks of March. There does tend to be a very heavy seasonality kick at the end of the quarter. Because we think in part because of the headline effect from Bear Stearns plus the general background, we didn't see quite the kick that we normally see at the end of March. We've taken that depressed level and we baked that into the rest of the year, but I think some of this is as the relative panic about whether the financial system is falling apart maybe starts to pass as we're going to move back into what I would call a more normal buying behavior, which net-net from the way we have it positioned at this point in time might give us some lift.

And then last one if I could, and just continuing this thought, referring per your guidance that it hasn't deteriorated more since the end of the quarter but rather it stabilized or improved?

Sorry, can you say that again, Corey?

Just inferring from your guidance that it hasn't deteriorated more since the end of the quarter but rather has stabilized or improved? Is that a safe way to look at it?

Well, it's only a few weeks into April. I wouldn't necessarily want to characterize it. Let me just say that in terms of in terms of the outlook for the year, we have taken an awfully dim view of the US for the rest of the year and built that into our internal model, so, that's what we are reacting to, that's what we are reacting on, which is a pretty ugly view of the US economy for the rest of the year. And again, I think that if we can get through some of these factors and there gets to be a sense as hey, we're dealing with a traditional recession, not something worse as I think there's some potential lift.

Okay, great. Thank you.

Your next question comes from Yair Reiner with Oppenheimer and Company.

Hi, Yair from Oppenheimer. Just to follow-up with the last question, have you seen any kind of spillover from kind of the commercial side into the customers who would traditionally be characterized as heavy in highway as a slowdown across the board or are there still some pockets of relative strength in the US?

I would say that it's still, strangely enough, there are still what I would call pockets in the US And to be honest, the anecdotes are not nearly as negative, as the background economic news in the country is that frankly we have a dealer channel out there that is more optimistic in general with ups and downs, but is more optimistic than maybe we are postured as a Company at this point in time. So I would say there are regions in the country where construction activity is up from -- general sense of construction activity is up from last year. There are others where it's down, there are others where it's confused and there are others that may be saying actually showing relatively a stable environment, so I would say conditions are variable across the US.

And in terms of cutting back on some of the expenses to bring the year-on-year kind of margin kind of into the positive growth, what are some of the steps you plan to take?

Well, to be honest, most of the steps have already been taken, so our view as a Company, the people who run P&Ls in this Company are fundamentally modelers and we've worked to the model. And that's when we got surprised a bit in the first quarter, we took immediate action. So, the actions have taken place across a large number of cost categories; also, in terms of headcount and other cost categories, but we've already taken the actions that we intend to take in E&C, and we believe we've already reset the bar.

Okay. One final question then I will get back into queue. Cash flow from operations was a bit light, given the strong top line, a lot of little things down the cash flow statement, any kind of general remarks about when you expect that to reverse?

Yeah. It's already reversed; as I mentioned in my call, that we, in the month of April, we have paid down in one month only $35 million of debt. So we had a little bit of a higher increase in the working capital in Q1; that impacted our cash flow slightly, but it was reversed in Q2. As I mentioned in April, we had a strong cash flow generation, leading to the debt reduction of $35 million.

Thank you.

Your next question comes from Jeff Evanson with Dougherty and Company.

Good afternoon, and thanks for taking my questions. Let's see here. Steve, you mentioned that kind of mid-March, coming back from CONEXPO, things kind of started to weaken. Now, we are now well over halfway through April. Are you seeing things coming back in April? What are you seeing in April here on E&C?

Let me be real careful here, just because circumstances are still, I would say, volatile out there. Let's just say that there is nothing we have seen in April that has caused our level of discomfort to rise. Consider that a negative something or another, but negative to a negative. But effectively, I'm not going to declare that any kind of inflection point in April. But thus far in April, we've seen nothing that causes us to increase our level of concern. I'm not declaring any kind of comfort yet, but thus far in April, things are not going badly.

Does that mean no change from the back half of March?

I would say, again, too short of a time period. Again, I think that March -- first of all I have a personal belief system; the Company is acting to a different belief system. My personal belief system is this Bear Stearns news rattled the markets, rattled buying behavior and changed buying behavior more or less instantly. Just to causing a sharp contraction until we kind of in the sense of a contractor or a company saying until we understand what's going on out there, let's hold back on buying. So I think there was a headline factor in there. That's my personal belief system. Again, as a Company, we're acting as though the conditions we saw at the end of March will continue throughout the year and we're building our cost structure around that.

Raj, you talked about an FX impact to the top line, 3% or maybe a little more impact to growth. I'm assuming that had the most favorable impact to the E&C division. Is that correct?

Well, E&C is our most internationalized division, and ag to a certain extent because ag is becoming fairly international as well, with a lot of sales growth in ag as well. So I would say E&C and ag.

Okay. And I'm going to try to slip in number three here. Usually, you talk about incremental margins. Not hearing that today. I'm assuming that they are weak. So if you could give us your thoughts on what did you calculate?

Jeff, I think you just missed it.

The incremental margins I talked about was we drop 25% off our margins to the bottom line, so our incremental margins as a Company are very strong. Our operating margins improved by more than 100 basis points in this quarter.

Okay.

So the answer is 25%, Jeff.

Great, thanks a lot, guys.

You bet.

Your next question comes from Peter Friedland with Soleil.

Hi, two questions. First, on the ag markets, you had phenomenal growth in Q1; and would you expect that level of growth to continue throughout the year, or was there something specific to Q1 that boosted the sales in the quarter?

So I think, we're not going to call the growth rate for a particular segment for the year, but as I said in my script, we don't see any -- in terms of the general environment, there was nothing unique about the first quarter. What we're seeing here is a market for underlying basic reasons taking off; we're well positioned to take advantage of that. And so, we're looking forward for the foreseeable future to just call it a very robust agriculture business here.

And then within the E&C segment, was there any product line or product area that fared better in the weaker economic environment, or was it across -- talking about the weakness in the US was there weakness across the board?

I think it was -- I wouldn't call out any particular product one versus the other. I think that the -- if you look, at back at what we've been saying now for a year, probably, since the first quarter last year, we saw comparative slowing in survey instruments first, and then later in the year, construction. So what we're seeing on survey instruments at this point in time, in the US and only in the US; international is a totally different story. In the US is what we're now comparing ourselves against was a baseline to last year that was already under pressure, so the year-to-year comparisons are actually getting easier in survey instruments. And, to the extent that we are showing some relative optimism for the second half of the year, when we get into the third and fourth quarters is, again, the baseline for construction is going to be -- or the comparison to the prior year is going to get easier for us in the second half of the year. We had exceptionally strong growth in construction last year. And so it's just a real tough benchmark that we're comparing ourselves against on the construction. So I would say survey and kind of for arithmetic reasons or the like, had a relatively easier time construction maybe had a tougher time. But construction just had a hugely difficult baseline to compare itself against to the prior year, and that starts to return to kind of more of a steady state in the third quarter.

Great, thank you.

Your next question comes from Ajit Pai with Thomas Weisel Partners

Good afternoon. Quick question about the M&A environment, when you're looking -- you have been very acquisitive in the past and usually it's been relatively small sort of technology-based acquisitions and then you've made a couple of fairly large ones. Given the current environment right now, is your pipeline of acquisitions getting richer or are the things that you see that opportunistically as things slow, or get volatile that would like to be belonging to a company like Trimble and fits in with your portfolio? And also the lending environment for you, are you seeing any of your lenders raising the cost of capital for you folks in case you need to access the credit?

I'll let Raj answer the second question. In terms of the M&A question, I think overall, I would like to be evasive and relatively opaque on the issue. I really don't want to comment on what may or may not be happening on the M&A front. Other than to confirm is that we expect our traditional style of M&A to be continued into the future, generally comparatively small to medium-sized acquisitions that fill in strategic needs either to establish a market beachhead or to fill a product or a technology gap, when it turns out to be more cost-effective or more timely to acquire as opposed to do it inside. So, I'm just going to be deflecting the whole question onto Raj relative to the lending question.

So we have a revolving line of credit that we can draw on immediately up to $300 million and can expand it to $400 million. And that line is very solid and continues to be in place. The lending rates are basically based off LIBOR and it's 50 basis points to 75 basis points higher depending upon our EBITDA at that point of time. So, yeah, we have a very good solid line of credit and interest rates are very favorable on that line of credit.

Right, and then just looking at the receivables, was there any pattern that you observed in the quality of your receivables over the quarter?

No. The aging continues to be excellent on these receivables. In Q2, if you look at the last five years, Q1 receivables go up versus Q4 of the prior year because agriculture and construction tends to be a March phenomenon. A lot of sales come out in March, so if you look at -- so that seasonality played out. We went from we increased it by two days. And if you look at last year same time, there was also an increase of three days from Q4 of 2006 to Q1 of 2007.

Okay, thank you.

Your next question comes from Paul Coster with JPMorgan.

Hi, it's actually Mark Strauss on behalf of Paul. Just one quick question within Mobile Resource Management, are you still running two data centers supporting that?

We are. We are running multiple data centers, that's when I talk to the synergies between Trimble and @Road, we still have further work to do there, and that's in the planning stages at this point. So, the answer is yes.

Okay. That's all we have. Thank you.

Your next question comes from Andrew Spinola with Needham.

Thanks. A question about the TFS operating margin, is it safe to assume that the 40% in the first quarter is basically because you are running very hot right now, maybe you have to make some investments in that business that might weigh on the margins going forward? And sort of maybe if that assumption is correct, do you have a sense of what a more normalized operating margin is in that business, is it 2007? Any color you can give on that.

Maybe Raj can talk in some details, but let me just say, let me caution you on making judgments based on any given quarter in that business because it is a highly seasonal business. So, that margin will flop around a little bit over the course of the year just for nothing other than seasonal factors. But Raj, do you have anything else to add?

Yes. What I would tell you is, yes, the margins will fluctuate based on seasonality. But as a whole, we model the Company to generate around 20 to 25% of incremental revenue falls to the bottom line. So, you'll see margins fluctuating around by segment and business units. But what you'll see consistently and you have seen in the last four or five years is, every quarter we have dropped on an average of 25% of incremental revenue to the bottom line. And we continue to plan to do that this year as well.

Got it. And just one other question on the Advanced Devices in the quarter, the revenue was a little weak, was that a one-quarter issue? Was that expected to rebound? Can you just provide some color there? Thanks.

Yes. So Advanced Devices is largely our components business. And there, it's a business that is typically characterized by unit volumes go up and average selling prices because of the competitive nature of that market tend to come down, so it's generally hard to, at least historically hard to get a lot of revenue growth out there. So I think that, let's just say in terms of the annual guidance, in terms of our actual strategic view, we're not looking for huge amounts of revenue growth out of the Advanced Devices segment. So I would say is, I'm not predicting a major shift for the rest of the year. I would say is it will tend to bounce around a little bit just because of the nature of the market. But again, I'm not putting high growth expectations at all on that business. We're managing it conservatively for cash and earnings, but not looking at, at least at this point in time for significant revenue growth out of it.

Got it. Thanks.

Your next question comes from Scott Sutherland with Wedbush Morgan Securities.

A couple of questions. First, on the E&C, I think you mentioned last quarter [multiple speakers]

Can you hear me?

Yes, we can hear you.

I think last quarter you mentioned in the E&C that it was domestically flat on a year-over-year basis. Can you talk about what it was in Q1 and maybe what you're looking for the rest of the year? It sounds like at least the back half of the year, the comps have become easier domestically.

Well, again, we're not going to talk to guidance by individual segment. I would characterize -- I would characterize the first quarter as a down quarter for us compared to the prior year in E&C in the U.S. And how much of that is what I would call underlying recession and how much of that is what I would call this headline factor I guess we'll have to sort out. But it was a down quarter for us in the quarter.

You talked a lot about cutting back some costs in the E&C segment, but you're also pursuing the international opportunities, which there is growth. Can you discuss where you're seeing some international markets that are growing that you haven't yet penetrated well in both the E&C and Agriculture? And can you actually redeploy internal resources toward those markets or was it just cutting back in some areas and hiring in other areas?

Yes, so, I mean I think we are in a sense redeploying resources all the time. So, you've seen us over the last couple of years do things like open offices in Bangkok. You've seen us add a software development center, a service center, and well a factory in China. And so, increasingly, we are shifting the mix of resources to take advantage of the international, or at least the growth in resources are heavily being weighted towards the international realm at this point in time. So I think -- I might not be terribly precise on this -- but I think right now, the headcount of the Company is now 40% or more international. And with the @Road acquisition, for example, we now have a software development center in India. So, I think building physical presence assists the marketing effort. So, I think we're committed to investing internationally as rapidly as we can work and as prudently as we can. So, I think that net-net, I'm talking about cutting back but we're cutting back let's call it on a selective basis, and business by business, we're making judgments. But we're not backing off at all from the areas that need investment. And so we are -- what we're doing is tweaking ourselves back into the model that we think is sustainable for E&C.

And I wanted to just clarify my question -- a part of my question. You mentioned in Agriculture Field Solutions, you're seeing some opportunities now in Europe beyond Brazil, Australia and U.S. Can you talk about in E&C where you are not yet pursuing opportunities where there is good construction infrastructure build out?

Yes. Okay, so I mean in terms of penetration international, so in my script, I talked to the fact that Survey Instruments is really the only business that kind of at this moment is affecting an international profile that we're targeting and they still have work to do themselves. But I would say in terms of construction and agriculture, in terms of unpenetrated markets, where there is still significant potential internationally. For Agriculture, pick anyplace outside of Brazil, outside of Australia and outside of North America and that, in my view, is still very much unpenetrated territory. And, in terms of Construction, I would start with Eastern Europe and then it gets to be pretty much everywhere outside of North America, Japan and Europe is what I would call largely unpenetrated territory for Construction. So, I think there is a colossal upside for us over the next few years as a Company if we can execute.

Okay. Great, that's helpful.

Okay. Thank you.

Your next question comes from Alex Blanton with Ingalls & Snyder. Alex Blanton - Ingalls & Snyder: Hi, good afternoon. I had to get off for a minute so you might have covered this. But, you mentioned early on that the market is only 30% penetrated. And could you elaborate on that? What market are you really talking about here? What do you mean by 30% penetrated?

Yes, so the specific comment was relating to agriculture. So, on a worldwide basis we believe Agriculture, in spite of horrendous growth over the last couple of years, we still believe we are less than 30% penetrated worldwide. So, the comment was specific to Agriculture. Alex Blanton - Ingalls & Snyder: Oh, just to the AG market?

Yes. Alex Blanton - Ingalls & Snyder: And how -- have you looked ahead to say how much time will go by before its fairly fully penetrated or are we talking five years, 10 years, or what are the parameters?

I'm not sure we have that level of precision. And again, we're surprising ourselves by how intensely productive the agriculture market is at this point in time for us. But I would say is that for the next five years, for Agriculture or Construction, for the high-end survey instruments we sell, I don't think for virtually any market Trimble is in, is that the word saturation or product replacement cycles is going to be part of our vocabulary for at least five years, pretty much across the board. Alex Blanton - Ingalls & Snyder: And this agriculture market is becoming global now, it's not --

Yes. So, until really almost now, it has been a market that has been focused in North America, U.S. and Canada, Brazil and Australia. It just those three regions accounted -- two countries and one region accounted for a vast percentage of the agriculture sales. What we're announcing is Europe growing at a very, very fast rate. We're seeing other areas of the world growing. And we've begun -- we actually believe China is a market for us and so we've begun to deploy resources in China. So, it's not a manner -- the China question is, okay, you're saving labor? Well, what we're not saving is labor. What we're enabling is a lower use of input costs, fuel and fertilizer, which are becoming very expensive; and, therefore, what we're seeing is a whole new economics coming into play that were not available in -- well, just last year, even. So, what we're seeing is that smaller -- that our solution for agriculture is becoming economic for smaller and smaller farms just because of the increased natural gas, which drives fertilizer costs and the increased fuel costs; we're able to add enough productivity for smaller farms that essentially our market has grown even in places like the U.S. in the last year, just because of the increase in fuel and fertilizer costs. Alex Blanton - Ingalls & Snyder: Okay. Thank you.

This concludes today's Q&A session. I would now like to turn the conference over to Steve Berglund.

Okay. Well, that's it. I appreciate your attending and talk to you next quarter. Thank you.

This concludes today's conference. You may now disconnect.