Trimble Inc. (TRMB) Q1 2012 Earnings Report, Transcript and Summary

Good afternoon, my name is Ashley, and I will be your conference operator today. At this time, I would like to welcome everyone to the First Quarter 2012 Earnings Conference Call. [Operator Instructions] Thank you. Ms. McManmon, you may begin your conference.

Thank you. Good afternoon. Before we begin, let me remind you that any forward-looking statements made in today's call and the subsequent question-and-answer period are subject to risks and uncertainties. Trimble's actual results may differ materially from those currently anticipated due to a number of factors detailed in the company's Form 10-K and 10-Qs or other documents filed at the Securities and Exchange Commission. During this call, we will refer to a press release. The press release and additional financial statements are posted on our website at www.trimble.com. The non-GAAP measures discussed in the call are reconciled to GAAP measures in the tables to our press releases. I will now turn the call over to Steve Berglund, our CEO; and Raj Bahri, our CFO.

Good afternoon. First quarter results continue to reflect momentum and we established both symbolic and meaningful milestones in the quarter. Quarterly revenue was about $500 million for the first time in company history. Non-GAAP operating profits were above $100 million for the first time. Mobile Solutions segment margins were above 10% and most importantly, non-GAAP operating margins have returned to levels above 20%. Our markets remain workable although none have returned to pre-cash stage of robustness except for agriculture. Commercial and residential construction remains weak, although the picture on future prospects seems to be gradually brightening with the prospect of improvement later in 2012 or in 2013. In addition, Europe remains volatile and uncertain, requiring us to remain conservative in our outlook for the medium term until the continent sorts itself out politically and economically. Moreover, if the European problems are not contained, they have the potential for significant spillover effects worldwide. These conditions aside, our current market outlook remains positive by region and by industry. Our comments in January which anticipated total year revenue growth in the neighborhood of 20% were obviously reinforced by the first quarter results. Our current outlook for the year remains consistent with that earlier view with the bullishness of the first quarter balanced by some Euro-centric conservatism. The first quarter results also reflect the first time Trimble has broken out revenue by product, service and subscription categories. Raj will provide more granularity, but the results reflect service and subscription recurring revenue is more than 20% of total revenue, with gross margins above the company average. While this breakdown does not provide a complete strategic picture since it does not capture software content sold as licenses or as part of a product bundle, it is indicative of the significant changes that have taken place in our product mix over the last 5 years, as we implemented a strategy focused on providing complete solutions, targeted at vertical markets. We once again saw encouraging results in all 3 of our most strategically important segments, E&C, Field Solutions and Mobile Solutions. E&C reflected organic growth in both heavy and highway and survey instruments, as well as the effect of acquisitions. These improvements in E&C were delivered in spite of the still dormant commercial and residential construction market, slower sales in China related to the recent problems specific to railway construction and cautious decision-making by users in Europe. The Field Solutions segment again demonstrated year-to-year growth with contributions from agriculture, GIS and acquisitions. Agricultural performance reflected the strength of our product portfolio and the relatively strong agricultural economy around the world. GIS, although constrained by both governmental budgets and slower European sales, also continued to produce growth. The Mobile Solutions segment made a major contribution to the year-to-year improvement in Trimble quarterly results. Although the revenue increase was dominated by the PeopleNet acquisition, the significant year-to-year profitability improvement was a combination of both PeopleNet and improvements in the base business. Key to the improvement is the redirection of the portfolio towards vertical markets which will allow competitive differentiation, a higher value proposition and higher gross margins. This portfolio shift involves consciously refocusing away from subscale subscribers growing a limited dot on the map functionality and towards larger fleets with more demanding requirements. During this crossover period, we have -- we will therefore see a higher level of churn within one class of subscribers with offsetting growth in another class of subscribers. The overall blended segment baseline revenue will therefore camouflage this beneficial trend until 2013, when we will see higher revenue growth as the swapping-out process winds down. What we should see is relatively continuous improvement in profitability as the mix moves towards the more demanding subscribers with corresponding higher gross margins. Although most of our new wins in the segment are not press release-able, 2 recent examples that are not public are Maruti Suzuki in India, which involves managing thousands of trucks and today's announcement of our win at the U.K. Ministry of Defense, which will involve equipping a fleet of at least 12,000 vehicles. These wins are notable because they both included a demanding set of performance expectations that Trimble is well positioned to deliver. In addition, they provide some early validation of our view that it is productive to view this as a global market. Advanced Devices segment margins remain relatively strong on flat revenue. Our outlook for the year remains modest, although we have a number of long-term growth possibilities based on technologies under development. After a period in which we have made some comparatively large acquisitions, we have reinforced a solid strategic position in our core businesses. Our focus has been on establishing a full set of capabilities that will enable us to provide unique solutions to our users, as well as achieving sufficient scale to sustain global leadership status. Two recent examples illustrate different aspects of this focus. One is the acquisition of Gatewing, which is an early-stage Belgian company that provides small unmanned aerial vehicles that can be used as platforms for photogrammetric sensors. This demonstrates that geospatial sensor technology continues to evolve and provides a basis for new sources of growth. The expectation here is that cost effective airborne sensor platforms can both replace some terrestrial survey applications and more importantly, expand geospatial information solutions into a number of new applications that were previously out of bounds because of practicality or cost. By extending our position in sensor platforms, we are reinforcing our position as a complete and integrated solutions provider, bundling sensor platforms together with software that drives intelligence from net sensor data. Towards the other end of the continuum is the acquisition of SketchUp in Google. Beyond its obvious attraction as an effective tool for millions of architectural, engineering and construction users, it will play a key strategic role across a number of Trimble's core businesses. While we will postpone a detailed description of the strategy until after we have closed the transaction, we see SketchUp as a central platform for providing the grease and glue that will couple field operations with other enterprise activities. Historically, Trimble has been strongest in providing solutions based on field operations. However, we believe that technology now enables a tighter integration of those field operations with decisions being made elsewhere in the enterprise. SketchUp, together with Tekla and a number of other recent acquisitions and internal developments gives us the tools to provide these more complete solutions. Our initial focus will be on providing solutions for the cadastral, heavy civil and building construction markets. Achieving this position has added leverage to our balance sheet. While comfortable with our ability to manage anticipated post-SketchUp levels of debt, we currently expect some amount of deleveraging to take place in the next 12 months. At the same time, we expect there will be a number of smaller acquisitions over that time to ensure we retain our advantage in both capability and scale. Overall, we remain confident in our position and in our ability to execute in current market conditions and optimistic about 2012. Let me turn the call over to Raj.

Good afternoon. I will cover only the non-GAAP numbers in my prepared remarks today. Our GAAP numbers, as well as GAAP to non-GAAP reconciliation are available in today's earnings press release. Today we announced first quarter revenue of $502.3 million, up 31% as compared to the first quarter of 2011. Going forward, as Subscription and Software sales become a material part of Trimble's total revenue, we'll break up our revenue by 3 categories, Product, Service and Subscription. For the first quarter 2012, Product revenue, which includes categories such as Hardware, Software Licenses and Accessories, was $398.5 million or 79% of total revenue. Service revenue, which includes categories such as Hardware and Software Maintenance and Support, Training and Professional Services, was $57.4 million or 12% of total revenue. And Subscription revenue, which includes categories such as Subscription Service, was $46.3 million or 9% of total revenue. First quarter non-GAAP gross margins were 54.3% versus 51.9% in the first quarter of 2011. The increase was driven by a mix shift toward software and subscription sales. First quarter 2012 non-GAAP operating income of $101.7 million was up 45% as compared to the first quarter of 2011. Non-GAAP operating margin was 20.3% as compared to 18.2% in the first quarter of 2011. Non-GAAP net income of $87.3 million for the first quarter of 2012 was up 40% as compared to the first quarter of 2011. Diluted non-GAAP earnings per share in the first quarter of 2012 was $0.68 as compared to diluted non-GAAP earnings per share of $0.50 in the first quarter of 2011. The tax rate in the first quarter of 2012 was 17% compared to 16% in the first quarter of 2011. The increase was due to the expiration of federal R&D tax credit legislation in 2011. First quarter 2012 E&C revenue was $248.9 million, up 31% as compared to the first quarter 2011. The growth was driven primarily by strong sales of machine control and survey products across North America, Europe, Asia-Pacific and acquisitions. Non-GAAP operating income in E&C was $42.8 million or 17.2% of revenue as compared to $25.1 million or 13.2% of revenue in the first quarter of 2011. The improvement in operating income was due to operating leverage and higher revenue and acquisitions. First quarter 2012 Field Solutions revenue was $147.5 million, up 20% as compared to the first quarter 2011, due primarily to strong sales of agricultural and GIS products and acquisitions. Non-GAAP operating income in Field Solutions was $63 million or 42.7% of revenue, as compared to $53 million or 43.9% of revenue in the first quarter of 2011. First quarter 2012 Mobile Solutions revenue was $78.4 million, up 76% as compared to the first quarter of 2011, primarily due to the PeopleNet acquisition. Non-GAAP operating income in Mobile Solutions was $8.2 million or 10.4% of revenue as compared to an operating loss of $338,000 in the first quarter of 2011. The improvement in non-GAAP operating margin was due to PeopleNet acquisition and increased profitability from the base business. First quarter 2012 Advanced Devices revenue was $27.5 million, up 3% as compared to the first quarter of 2011. Non-GAAP operating income in Advanced Devices was $4 million or 14.4% of revenue as compared to $4.5 million or 16.9% of revenue in the first quarter 2011. In the first quarter 2012, 53% of revenue came from North America, 24% from Europe, 15% from Asia-Pacific and 8% from rest of the world. The year-over-year growth rate by region was 37% in North America, 34% in Asia-Pacific, 22% in Europe and 16% in the rest of the world. Non-GAAP operating expenses for the first quarter 2012 was $171.1 million or 34% of revenue, flat as compared to 34% revenue in the first quarter 2011. First quarter 2012 non-GAAP nonoperating income was $2.5 million versus $3.4 million in the first quarter of 2011 due primarily to greater interest expense and impact of foreign exchange transactions, partially offset by higher joint venture profitability. We finished the first quarter 2012 with $209.1 million in cash, compared to $154.6 million in the fourth quarter of 2011. Our debt level was $623.1 million on a 1.8x trailing 12-month EBITDA, compared to $564.4 million on a 1.8x trailing 12-month EBITDA in the first quarter of 2011. Our net debt level remained unchanged for the quarter. Our cash flow from operations was $67.7 million for the quarter, compared to cash flow from operations of $28 million in the first quarter of 2011. Based on our current acquisition pipeline we expect our debt level to be in the $725 million to $800 million range in the second quarter of 2012. Accounts receivable for the first quarter 2012 was $324.7 million, as compared to $275.2 million in the fourth quarter 2011. Days sales outstanding in the first quarter 2012 was 59 days, as compared to 58 days in the fourth quarter 2011 and 63 days in the year ago quarter. In reentering the first quarter 2012 was $224.7 million compared to $232.1 million in the first quarter 2011, but down by 3.8x as compared to 3.7x in the fourth quarter of 2011. Our guidance for the second quarter 2012 is for revenue between $510 million and $515 million, with GAAP earnings per share of $0.41 to $0.43, and non-GAAP earnings per share of $0.69 to $0.71. Non-GAAP guidance excludes the amortization of intangibles of $29.1 million related to previous acquisitions, anticipated acquisition cost of $5 million and anticipated impact of stock-based compensation expense of $8 million. Both GAAP and non-GAAP earnings per share of 15% to 17% tax rate, 129 million shares outstanding and interest cost of $4 million. We will now take questions at this time. Thank you.

[Operator Instructions] And our first question comes from the line of Paul Coster with JPMorgan. Paul Coster - JP Morgan Chase & Co, Research Division: A quick question on the distribution channel for your E&C product. Can you give us some sense now, Steve, where you stand in terms of building out the Caterpillar partnership?

Sure. So you're referring to the SITECHs that we're putting in place. So again, when the dust settles, is that there should be approximately 105 SITECHs in existence around the world, something on that order of magnitude. I would say it -- in all honesty that it has gone more slowly than we anticipated, simply because each one has tended to be a bit of a transaction onto itself, so it has taken time. They're coming in relatively quick succession at this point in time. So I would characterize it at this point in time, more or less is that we have more than 70 in place and basically all the rest are being worked at this point in time. So and I think, and maybe more to the point, if you look at the geographic coverage at this point in time, from a Pareto perspective, we have arrangements in place that cover what I call basically most of the major markets. And so we are starting to see the effects of SITECH, but -- we're in good shape on the SITECHs, it's just going a bit slower than we anticipated just because of the nature to create a special transaction basically each time. So -- but I think that in terms of market coverage, we're getting pretty close to having it complete. Paul Coster - JP Morgan Chase & Co, Research Division: You said you've introduced the Eurocentric conservatism into the guidance by not raising the full year. What is it you're seeing? Because the numbers look good, and I believe it's up 22% year-on-year in the first quarter. So, so far so good.

Yes. So far, so good and I think that the, we're anticipating conditions to continue until the second quarter. I think it's just essentially we have no real visibility that extends much beyond 3 months. I think we're just respecting what's going on in Europe relative to the Dutch government falling a couple weeks ago, what's going on in France and that the relatively fragile coalition around austerity in Europe is getting a little frayed at this point in time. So I think we're just being, on principle, conservative and not simply converting this into a game -- a matter of arithmetic. If you do the arithmetic, yes, it would imply that there is some upside to what we may have said in January, but I think we got to respect the situation in Europe, as all companies operating in Europe should. Paul Coster - JP Morgan Chase & Co, Research Division: Okay, my last question is, you've changed the manner in which you disclose your results by adding in product services and subs. You've also made some acquisitions in software and services recently. And I still though, when I'm talking to investors that are not familiar with the story, think the first barrier to overcome is that they still think of Trimble as a GPS product company, which obviously it isn't anymore. Can you -- what, I know it's kind of a strange forum for it, but what is Trimble now? What will it become?

Well, I think -- it may not fit in any easy category for people like you, Paul. I'm sorry about that, but I think we're fundamentally a -- we would, our self description would be we are an applications company. We're a solutions company. We look for vertical markets that are underserved by technology and we enter those markets with the capabilities we have and we solve problems. So I would call the -- if you will, kind of 5 core franchises, being: Cadastral Surveying, Heavy Civil Construction, Building Construction, Agriculture and now Transportation and Logistics. Beyond that, I would say there are category of roughly 10 or so emerging markets that would include markets like Forestry or Electrical Utilities or Railroads, where we're increasing our vertical market orientation, attempting to do the same thing as we did in Agriculture and Heavy Civil, which when I first came to the company, were more or less nonexistent. So I would describe us as being an applications company that is comparatively agnostic when it comes to technology. Yes, GPS or GNSS is still very much the core technology. You find it in most of what we do. But in reality, we have become a much broader technology company over time, simply because if we see a need, a user need, that is not being met, we will have a tendency to go establish a position and a new technology if we need to. So I'm afraid that may not be terribly helpful to you, but I think to you, but I think I would regard us as being a company that goes for, to looking for markets that are underserved by technology where we can make a difference, maybe even a transforming difference in that industry.

And our next question comes from the line of Michael Cox with Piper Jaffray.

My first question is on Europe and sitting around those concerns you referenced are the conservatism. Could you describe whether your Europe business was up year-over-year if you were to exclude acquisitions in the first quarter?

Yes, it was. And when we say Europe conservatism it's we just is as Steve said it's in the back half without having any visibility. I mean if you see our Q1 numbers are good and our Q2 guidance is also higher than what we had told you to what that expectations were. So I just want to make sure that those facts are clear.

Okay. That's helpful. And then, perhaps just some qualitative commentary, Steve, about the -- what you're seeing in the North American construction side? It sounds like maybe you're starting to see a little bit of an uptick there.

Yes. Well, I think in terms of heavy, kind of the heavy and highway, the machine control oriented business as well as the, what's called the affiliated survey instruments business. What we're seeing there is quite a strong environment. We're getting -- we saw significant growth in both of those categories in the first quarter. When it comes to building construction, the actual construction of buildings, most of what I'm referring to, let's call it as, at the levels of anecdote or -- but whereas a year ago or 2 years ago, or certainly 3 years ago, there was no optimism, there was really no dialogue. I think what you're seeing at this point in time even though it is not really necessarily turned into dollars yet, I think there is a growing belief is that for example, the rental market for rental real estate market is tightening up or is -- and there may be opportunities and money may begin to flow in projects there. I think, what the, albeit slow economic growth in the country is the demand for commercial office space or factories and such, is becoming more likely than less likely at this point in time. So I think that we're anticipating is that it may not be a major recovery anytime soon and the U.S. election may send people to the sidelines for a period of time, just waiting to see how that comes out. But I think there is a sense is that, okay unlike the conditions of 1, 2 or 3 years ago, is that there is the likelihood of some level of activity. And as I've said before, if we see any kind of recovery in that realm, our cost base is still, is already in place. So the incremental effect, the marginal effect on us if there is any kind of recovery in building construction is going to be pretty respectable when it comes to bottom line impact. So I think we're still waiting and watching, but I think that we're waiting and watching with some anticipation that sometime in the next year we're likely to start seeing the market start to show some recovery in money terms.

One last quick question. Your guidance levels, your guidance for debt levels includes about $100 million, $150 million increase quarter-over-quarter, which you said was for the acquisition pipeline. Can we assume the bulk of that is for SketchUp?

You know there are 2 or 3 acquisitions and we have not disclosed the SketchUp number, that's the mutual agreement with Google. But, every quarter we do 2 to 3 acquisitions. If you look at Q1, that's what we did. So it's all up, it is captured in that number.

Your next question comes from the line of Jonathan Ho with William Blair. Jonathan Ho - William Blair & Company L.L.C., Research Division: I just wanted to start off with the Tekla business and perhaps what you're seeing there and maybe just a viewpoint on how quickly BIM is being adopted, whether there's been any changes there or just your expectations for that?

Sure. So I think -- so first of all, Tekla is meeting the expectations that we had when the acquisition was made in the middle of last year. I think that the market is there -- they have a sensor reflecting the state of commercial -- large scale residential buildings. So it's not what I would call a robust market that Tekla is selling into. But I think the -- what we acquired when we acquired Tekla was an already existing international footprint. So if you look at Tekla, probably their relatively most robust market at this point in time that in percentage terms and to a fair extent in kind of euro terms or dollar terms, our country is like India. Tekla is having great success in India, which I think is a very positive sign for the future. So Tekla is selling on a worldwide basis, and able to take advantage of those robust growth markets that do exist out there. The other element of Tekla is the fact that it strategically it represents some opportunities for us as a company, particularly in conjunction with the recent news of SketchUp. But with Tekla, we have a professional direct selling sales force so we can think in terms of creating a comprehensive product line that includes Tekla, but also the mechanical, electrical, plumbing BIM capabilities we have with Plancal as well as the other elements of BIM 5D that we have with Meridian and their software capability. So I think that Tekla in itself represents an opportunity to go with the international markets. They're having some success in North America, but if the North American market comes back at all, and when I talk about kind of the significant marginal effects, Tekla will be one of those significant marginal effects. But I think the, maybe the point to emphasize is that Tekla is already very well represented internationally, and in cases where they're not, such as Brazil, we're leveraging off of Trimble infrastructure in place to give them a kickstart in Brazil. So stepping back and overall looking at BIM, I think it is the technology of the future for building construction. It is -- it was -- and I think in the state of rapid acceptance and then the crash came, and I think it's recovering a bit from the crash at this point in time. But it would be our anticipation that BIM becomes the foundation on which all building construction is done in the future and will, in effect, be able to revolutionize a number of building methods. So for example, if you look at the kind of cutting-edge construction, a lot of construction these days is prefab, fabricated off-site, and whole sections of the building are brought to the site and lifted into place, and BIM is the enabling technology that allows that to happen. So construction sites are going to look more and more like factories, or assembly areas more so than the traditional picture of construction, and I think BIM is the foundation for being able to do things like that. So really against the standard that we established last year, I think we're on track relative to Tekla alone, and I think we're now getting what is called a convergence on a greater concept that really gives us a lot of optimism for the next 5 years as a company in terms of what we can accomplish. Jonathan Ho - William Blair & Company L.L.C., Research Division: And just one follow-up. Can you maybe break out for us, by segment, the amount of revenue that came from acquisitions this quarter?

We didn't break it by segment, but I can give you a perspective on the total company, if you include Tekla and PeopleNet, the big acquisition, but organic was in the high teens, the growth rate.

Your next question comes from the line of Richard Valera with Needham. Richard Valera - Needham & Company, LLC, Research Division: A couple of questions on the Mobile Solutions, if I could. First of all, congratulations on getting the 10% operating margin threshold. So the question is, where do you think it can go versus is it sustainable at that level, and where do you think that can go both over the balance of this year and longer term, Steve?

Yes. So first of all, yes, it's sustainable and maintainable at this level. The only caution there would be it's a lumpy business and so my encouragement for this segment and really this segment more than any other, there may be a need periodically just to do a little smoothing, a 2-quarter average or a 3-quarter average just to get the baseline effect, because it will tend to be by the nature of it, you get a large contract that is hardware heavy at the front end. That hardware is likely -- could very well, most likely will have lower gross margins than the software content and could distort results in any given quarter, but with that caution aside, I think that we have reached threshold and what's expected to really be a threshold and we don't retreat below that threshold going forward. And then in some sense the longer-term question is the easier question to answer or the question I'll actually focus on more so than trying to predict at the segment level for the rest of the year, which is something we typically don't do. But I think if you look at the structure of the Mobile Solutions businesses and again, you're typically talking software level gross margins so you're typically, in any case, just talking about gross margins that are 60% or better. Now the thing that is not, at least in the early days, was not appropriately considered was the support cost of actually remaining in the business. So that takes a decent bite out of that gross margin just in terms of being able to support the customer base and that doesn't scale so well as, for every 1,000 subscribers you better be putting some amount of support resources in place or you're not going to provide the customer experience. But even at the, even after that effect is the marginal, the incremental effects of that gross margin are pretty heavy. And so over time as the business -- and the other aspects of the businesses should scale pretty well is whether it be R&D, or whether it be that the selling or the other G&A cost, as well as the physical infrastructure, that should scale reasonably well over time. So I would argue that you end up with a pretty high gross margin. You've got scalable expenses below the gross margin line, and as a result, I would say that over time, we should converge on certainly the company and at that new threshold value of 20% as being a reasonable expectation for this business. It will take some time to get there because we have to -- the scale effects will occur incrementally over time, but I would characterize this as being a business that should fit in reasonably well to Trimble's overall portfolio from a profitability standpoint. I just -- having learned that by going out and proclaiming before we did, I don't want to necessarily name the date on any particular margin level simply because we have not done terribly well in that prediction in the past, but I would say continual improvement, incremental improvement should be the order of the day from this point on, and over time, converging on the 20% operating margin and maybe with a couple of more quarters under our belt, and with a little bit more confidence, we can, maybe we can be a little bit more precise on when, but I would say within the next couple of years, as we should be seeing kind of 20% level start to get to be more reasonable, an expectation of 20% operating margins to become more reasonable. Richard Valera - Needham & Company, LLC, Research Division: Great, that's helpful, Steve. And then with respect to the revenue level in the business you mentioned in your prepared remarks that I think you're going to expect to continue to see higher churn as you kind of "verticalize" your business, eventually that's sort of I guess, you work through that, but trying to figure out where you're thinking of the revenue level over the near term. Do we have a baseline here in the first quarter that we should think of as maybe flattish throughout this year? Or might you see a little bit of growth as you move through the year?

I would in general, and again there are some dynamics loose in this business, so I don't want to be overly precise on something where there are as many moving parts as there are. Certainly what I would call the baseline business, which is focused on these more difficult, higher value applications, that business is growing at a reasonable clip at this point in time. It's unfortunate that we cannot press release more of that than we are. But so the baseline is going up at a fairly sharp rate. The old kind of dot on a map functionality business that we, that was kind of when we acquired @Road we acquired a lot of that, and that has become a bit of legacy. We're being very disciplined in terms of how we have -- how we handled that, and I think that over time, that business will come up late a way and it will become a lesser part of the business. And in effect, that's what's happening at this point in time. So I would say is that our general expectation for the year is that after kind of taking out the PeopleNet effect, which is pretty dominant, was pretty dominant this quarter, will be pretty dominant this coming quarter, is that we will show some growth this year, but then I would say that in 2013 we get to see the model, the real model at work and that will be more significant in 2013. Richard Valera - Needham & Company, LLC, Research Division: Okay. That's helpful. And then one final one for me if I could, Raj, any change to your assumptions about incremental margins for the overall business, relative to your last comments?

No, I think we expect around a 25% drop for the full year to the bottom line on incremental revenue. Q1 was slightly better than that.

[Operator Instructions] Our next question comes from the line of Andrea James with Dougherty & Company. Andrea James - Dougherty & Company LLC, Research Division: So what would subscription revenue have looked like, I guess, as a percent of the total even at a year ago, and what are your expectations for where it goes?

Well, a year ago we were at $23 million -- $24 million. Now we are at $46 million. So part of it is acquisitions. Part of it is some organic growth. So clearly our subscription revenue is a much bigger part of our business than it was a year ago.

And as far as where it will go, so certainly the comparison 2011 to 2012 is a little artificial just because of the acquisition effect. But certainly, we, if you look at the long baseline apples for apples at a point 5 or 6 years ago, it would have been a much smaller number relative to total revenues than it is today. So I think it does reflect the changing nature of the company. It will certainly tend to grow over time, and the reason I'm being maybe less than precise in terms of what I'm saying, is that there is, there's software sold as a product, whether it be shrink-wrapped or a license, either in conjunction with hardware or stand-alone, that's still in this SEC-mandated categorization is still in product. So to a certain level, we are indifferent in terms of whether we are selling a software license or whether we're selling it as a service. And so these descriptions do mask a little bit of that. So I would say I don't know that we have a percentage target that we would, that we've ever considered in terms of subscriptions. But I think that we see it as strategic and in basically all the Trimble businesses. So in Mobile Solutions it's certainly key, but increasingly in Engineering Construction it is becoming a fundamental element of the total solution we're selling, whether it be BIM-related or whether it be Heavy and Highway related, and even we see things like Cadastral Surveying as potentially being -- it being potentially relevant for Cadastral Surveying and even for Agriculture when we talk about the Connected Farm aspects kind of software becomes more important and some of that software will be sold in subscription form. So I don't have a good answer, in fact, because we've never actually defined it that way as a company, but it is becoming certainly strategic across the company, this kind of evolving transformation. And I would expect the service and subscription categories to continue to increase as a percentage of total company revenue. I just don't know where the -- what the endgame or the steady-state ultimately is. But they will certainly continue to grow as a percentage over time. Andrea James - Dougherty & Company LLC, Research Division: No, that is helpful. And so if you had, say, an unbundled piece of subscription revenue, what does the distribution look like that, compared to one that's bundled with a product or a service?

It won't necessarily be, you will have a tendency to be more direct, simply because the businesses that are heavy on subscription sales such as transportation and logistics tend to be more direct. But the message is that I think that it will be a mixed system. So for example, the SITECHs out there that we're creating, the SITECH dealers that we're creating on the E&C side will be selling subscriptions as part of their business. We would expect a number of other direct dealer elements of the Trimble distribution channel also to be selling subscriptions. It will have a tendency to be more direct than the product sales, but it won't be, let's call it, pure either way, but it will be mixed, but with a heavy, heavier emphasis of direct than indirect than most of our other businesses, traditional businesses have been. Andrea James - Dougherty & Company LLC, Research Division: Moving on to TMS. Are you still trimming some of your customers there and should we look at modeling that in? Or I guess the net effect is we don't really see it. Is that right? Other than the margins. Go ahead.

Yes. So I think it's the swap out. So that's why I think that there is -- we're not necessarily reflecting the underlying baselines of the business because there's the swap out that's occurring. But yes, so I think that a -- we would expect over time is the kind of the more horizontal lower functionality customers either to become a significantly lesser part of the total business or as they go look for the cheapest prices available, they may find themselves with somebody other than Trimble. So I think that will occur. But I think the largest effects will be during 2012, so I'm hoping that we're back to a baseline in 2013, it becomes a little bit more clear.

Your next question comes from the line of Ryan Connors with Janney Montgomery.

I have a couple of questions. I want to talk about the Ag business a little bit, if we could. And if you could, talk to us a little bit about the recent trends within the Ag business in terms of which product lines are driving the strength in particular if you could talk about whether it's more of the traditional guidance products or whether some of the advanced functionality like up to and including Connected Farm are starting to gain some more traction?

Sure. So certainly from a hard quantitative perspective is the mainstay of the business is still the guidance products. Those that drive tractors up and down rows in very straight, highly precise lines but at the same time, the same comment we made last quarter is still true, which is the emerging areas, the more informational oriented areas, the variable rate control software, those categories are actually growing at a significantly faster rate than the traditional. So what is taking place? It's not hugely meaningful yet because of the still strong growth and strong position of guidance. But the mix is changing in the business as the new categories of product are actually growing more, significantly more rapidly than the others. So I think 2, 3 years out it's going to be a much more balanced portfolio. But yes, the trends are loose and they're now consistent quarter after quarter. So I think we're very much encouraged by that, and what we're doing and the concept of the Connected Farm really is catching hold. We talked last quarter about U.S. Sugar as being something of a flagship and accepting and embracing the technology. So for example, the Florida operations are being recast around our technology and really around what we've been calling the Connected Farm. So I think there are other examples that are better occurring. But yes, so the trend, that is very much the trend. It's a very encouraging trend for the longer term, both in terms of growth and margin maintenance.

Okay. And then sort of slicing that data in a little different way, can you talk a little bit about aftermarket versus OEM sales in Field Solutions and what the sort of at least qualitative breakdown is there? And then specifically, in terms of aftermarket, do you kind of buy the logic that given how strong OEM machinery sales have been the last few years, that the aftermarket opportunity has really exploded? And is that kind of the right way to look at that? Is that the way you guys are looking at it in the aftermarket distribution channel?

Yes. So I think in terms of the aftermarket versus OEM mix, it is over time, evolving towards more factory fit. We anticipated that, we anticipated that 10 years ago, and it's been much slower to evolve on both the construction side and the agricultural side. But the market is still very much dominated by aftermarket sales and retrofitting on equipment after it's left the factory, and maybe a new piece of equipment, but in reality, it's been the, capability is being put on in the field. And I think that, that's going to be the way it is for some period of time, even though I think there will be a slow migration towards factory-installed. And one of the considerations here that is not yet resolved and may take some time to resolve -- it's more true on the construction side that it is on the agriculture side, but the whole concept of the mixed fleet, which is whether it be a farmer, or whether it be a contractor, there's going to be a certain amount of resistance to simply adopting whatever happens to be put on the machine in the factory, if you got machinery from multiple manufacturers, the farmer or the contractor's going to want a solution networks for all the different colors of the equipment. And so their issues are unresolved at this point in time, but I think there will -- I've got a bias towards what the answer will be, but I think there will always tend to be a strong aftermarket element of this, just to deal with a farmer or a contractor who's got a mixed fleet and who wants the best available technology for that mixed fleet, and there will be resistance to simply taking whatever's installed on the factory. So I don't know that, I think the aftermarket remains viable. I think it will continue to grow. And in places like China, we're getting very strong growth in China, for example, at this point in time, a market that we've only really touched effectively in the last 2 or 3 years. So I think it will play out somewhat differently internationally. I don't know if there's words like explosive, necessarily words that I would choose to use, but I would say there's going to be, for the time being, a robust growth in the aftermarket and I don't think it's going to disappear quickly and will not really disappear ever at all, but I think it will find a new balance over time between factory install and field install.

Okay. Great. And then just one final question from me, more of a tactical shorter-term issue, but a number of the companies in the OEM side have talked -- have had very strong quarterly results as well, and have talked about, kind of early planting season and relatively mild weather as somewhat of a factor. Do you have any sense for whether that was a factor at all in the exceptionally strong results in Field Solutions in this quarter here?

Yes, it certainly had an effect. It was -- every year is a new adventure in terms of what the weather patterns will be, and it's not just North America, it's Europe, it's Australia, it's Brazil. But I think that farmers were able to get into the field earlier this year because of the early spring or early departure of winter, or whatever it was. So I think that we got a beneficial impact in the first quarter. But that has happened and that's happening in one sense or another every year, depending on which geography we're talking about. But without a doubt, it helped our -- it helped to some degree our results in the first quarter simply because we probably got a late quarter boost that we don't typically have. But I wouldn't necessarily call it a step function sort of thing. It was just -- it added some icing onto the cake in the first quarter. And the question that I think we've got baked into our numbers is whether, okay, did that move any of the revenue from the second quarter into the first quarter, and we'll see, but I think we've anticipated that effect fairly conservatively in our second quarter numbers.

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There are no other questions? Thank you for participating, and we'll talk to you next quarter.

Thank you, ladies and gentlemen. This does conclude today's conference call. You may now disconnect.