Trimble Inc. (TRMB) Q1 2013 Earnings Report, Transcript and Summary

Good afternoon. My name is Angela and I will be your conference operator today. At this time, I would like to welcome everyone to the Trimble First Quarter 2013 Earnings Conference Call. [Operator Instructions] Thank you, Ms. McManmon, Director of Investor Relations, you may begin.

Thank you. Good afternoon. This afternoon, we will refer to non-GAAP measures, which are reconciled to GAAP measures in our earnings press release and web tables on our website at www.trimble.com. We'll also make forward-looking statements, including our expectations for second quarter 2013 financial results. We wish to caution you that these statements are predictions and that actual events may differ materially. The periodic reports that we file from time to time with the Securities and Exchange Commission, including the company's Form 10-K and 10-Q, discuss important factors that could cause actual results to differ materially from those contained in our forward-looking comments. A replay of this call is available by phone and on our website. Dial-in information is contained in our earnings press release. With that, I'll turn the call over to Steve.

Good afternoon. Although our first quarter revenue was disappointing, we do not believe the fundamentals in our market have changed, and our long view of growth and profitability remains unchanged. Our guidance entering the quarter was intended to be conservative and reflected the cautious buying behavior we were observing in our markets coming out of 2012, what we did not adequately anticipate in the guidance where the effects of the U.S. sequester, harsh weather conditions that continued into late spring in North America and Europe, and worsening economic conditions in Australia. The uncertainties we encountered in the first quarter have influenced our guidance for the second quarter, which reflects what we consider to be a conservative perspective that assumes terrible days of uncertainties. We are receiving some early encouragement as partial first month results in April are significantly stronger than at the same point in January. Although our view of the second half of the year has to be highly conditional at this point, we believe we have a path for delivering full-year earnings consistent with our original beginning of the year expectations and second half revenue consistent with our original expectations for the back half. The sequester had a meaningful negative impact on E&C and Field Solutions segment revenue, although it is impossible to pinpoint precisely what the full magnitude of sequester effects. Company-wide, our identifiable sales to the U.S. government generally run at between $50 million and $50 million -- $50 million and $55 million a year. Beyond that quantifiable level, the U.S. government provides direct or indirect funding for a significant number of our users who provide goods and services to all levels of government. The range of responses coming from U.S. agencies in response to the sequester has been variable. In some cases, federal agencies have effectively shut down buying activities until the end of the second quarter with the implication of catch-up purchasing after that. In other cases, there has been no clear indication. This general confusion has created a chilling effect on the extensive food chain our providers of goods and services to the government, making it hard to separate an intention to buy from the intention to buy coupled with the ability to buy. In the short term, this chilling effect is impacting our survey and GIS businesses, both of which had difficulties in the quarter. The flat year-to-year Field Solutions revenue reflected a decline in GIS revenue, which is dependent on government funding sources, and single-digit growth in agriculture revenue. The agriculture revenue story vary geographically. Revenue outside of North America increased by over 30% year-to-year, but declined in North America. We believe the North America decline's largely attributable to a very late planting season. Although Europe grew, its growth rate was also impacted by the late spring. To provide some context, the April 21 USDA weekly crop cargo set update estimates that the 18 states that account for 92% corn acreage had planted 4% of the acreage. The 4% planting coverage this year compares to 26% at the same point in 2012 and a 5-year average of 16%. The picture is very much the same for spring wheat. The 6 days that account for 99% of wheat acreage have planted 7% of the acreage as of April 21. This compares to 52% in 2012 in a 5-year average of 24%. Although commodity farm -- although current farm commodity prices may be adding to a depressed farm psychology, we believe they are secondary to the weather factor. The split by agriculture and product category also reinforces the view better issues in agriculture are circumstantial and not structural. Out-of-guidance and information management products provided double-digit growth year-to-year. The lower-priced manual guidance products was the category that struggled compared to the prior year. These products represent more of a real-time impulse buy compared to out-of-guidance and information management, which require a more extended and deliberate buying process not closely tied to real-time field conditions. With conditions not yet suitable for field work, the farmer has likely deferred the buying decision of these manual guidance products until field conditions improve. The other factor, which gives us real-time support for cautious optimism for agriculture, is that our positioning the services business, which sells correction signals for precision agriculture GPS receivers, is currently spiking against any previous baseline, the entrances that we are seeing pent-up demand surfacing as farmers return to the field. Our assessment is that while the second quarter outcome will depend on how long weather conditions linger, we do expect agriculture will return to double-digit growth in the second half of the year. The relatively slow growth in the E&C segment reflected different stories among product categories. Building construction, which is centered on our initiatives, is generally staging a rebound from a 5-year market coma, driven by revival in the residential and commercial market. While it is premature to call the market robust, it is generally allowing us to grow at levels we haven't seen in years. Survey revenue was down year-to-year and reflected varying regional conditions. North America provided some growth but was limited by government spending in the late spring. Europe, China and Australia were all down year-to-year. China's issues are related to the transition of governmental leadership and may be short-term. Australia's are result of the mining recession. Europe's problems relate to its ongoing economic challenges, although a harsh winter also impacted activity. Even so, the market signals for survey are mixed. The distribution channel is not generally describing the market in overtly stressful terms and there seems to be a potential backlog of projects awaiting approval. In addition, our spare parts sales, which topogically, should be an early indirect indicator of an increased need for capacity are running at levels we haven't seen since at least 2008, having several grew slowly year-to-year with double-digit growth in North America and core market conditions in Europe and Australia. Both North America and Europe were impacted by the late spring with the resulting delay in construction activity. In addition, European conditions continue to reflect the weak economy. The Australian markets slowed with the falloff in mining activity. Even so, there appears to be a significant plan but unfunded project backlog, which could be released depending on Australian national elections in the second half of the year. Heavy civil spending was also impacted in the first quarter by the Bauma trade show, which was held in April in Munich. Bauma is the largest construction show in the world and is held every 3 years. It almost certainly pushed some buying out of the first quarter into the second quarter. Our overall expectation is that E&C will generate better results in the second half of the year. Mobile Solutions revenue was up 41% for the total year and non-GAAP operating margins improved to 11.3%. While year-to-year comparisons are influenced by acquisition effects, the underlying trend line for this segment remains positive, particularly for the transportation and logistics market. With the recent acquisitions of TMW and ALK, we now have a unique and comprehensive solution for transportation companies, which we can leverage. Strategically, this business has never looked stronger. Advanced Devices, again, broke its steady-state profile and grew by 15% year-to-year with strong operating margins. This relatively uncommon phenomenon resulted from particularly strong -- and for our RFID, GPS and timing components and modules. Overall, our initial assumptions for total year 2013 have been challenged. Our original assumption was that 2012 results could provide a basic template for assessing 2013 with an adjustment for a worsened outlook for the European market. Our overall competitive product and marketing position remains, if anything, better than it was a year ago. Our second quarter guidance reflects uncertainty about how the effects of the first quarter will map onto the second quarter. The overall mood of the market seems to be in an in between state, expressing neither alarm nor much exuberance. Needless to say, the state is hard to quantify accurately. Given the ambiguity in the environment, we are taking cost containment steps to protect the financial model with the intention that core organic margins will improve under all foreseeable scenarios. Our basic franchise remains strong and will provide healthy growth over the long term. With the current environmental ambiguity, it is in some ways easier to predict 3 years out than it is 3 months out. Let me turn the call over to Raj.

Good afternoon. As a reminder, I will cover the non-GAAP numbers today. The GAAP numbers, as well as a recommendation from GAAP to non-GAAP are dictated in our earnings press release. Today, we announced first quarter 2013 revenue of $556.1 million, up 11% as compared to the first quarter of 2012. First quarter 2013 non-GAAP operating income of $110.3 million was up 8% as compared to the first quarter of 2012. Non-GAAP operating margin was 19.8% of revenue as compared to 20.3% of revenue in the first quarter of 2012. Acquisitions were a drag on operating margins primarily due to the impact of deferred revenue haircuts, which should correct itself in the back half of the year. Non-GAAP net income of $97.9 million was up 12% as compared to the first quarter of 2012. Diluted non-GAAP earnings per share were $0.38 compared with the diluted non-GAAP earnings per share of $0.34 in the first quarter of 2012. The tax rate was 10% for the quarter, reflecting the R&D tax credit legislation that was passed in the first quarter of 2013 and was retroactive to 2012. E&C revenue was $266.9 million, up 7% as compared to the first quarter of 2012. Growth in E&C revenue came primarily from global sales of building construction products and heavy, highway products in U.S., offset by softer sales in Europe and Australia. E&C non-GAAP operating margin was $45.8 million or 17.2% of revenue as compared to $42.8 million or 17.2% of revenue in the first quarter of 2012. Field Solutions revenue was $147.5 million, flat as compared to the first quarter of 2012. There was moderate growth in agricultural products sales offset by decline in the sale of GIS products. Field Solutions non-GAAP operating income was $60.2 million, up 40.8% of revenue as compared to $63 million or 42.7% of revenue in the first quarter of 2012. Non-GAAP operating margin was down primarily due to product mix of GIS sales. Mobile Solutions revenue was $110.2 million, up 41% as compared to the first quarter of 2012 due primarily to higher service and subscription revenue and the impact of acquisitions. Mobile Solutions in non-GAAP operating income was $12.5 million or 11.3% of revenue as compared to $8.2 million or 10.4% of revenue in the first quarter of 2012. The increase in non-GAAP operating margin was primarily due to leverage from increased revenue and product mix, including higher subscription revenue. Advanced Devices revenue was $31.6 million, up 15% as compared to the first quarter of 2012, primarily due to stronger sales embedded in timing devices. Non-GAAP operating income in Advanced Devices were $7.3 million or 22.2% of revenue as compared to $4 million or 14.4% of revenue in the first quarter of 2012. The improvement in non-GAAP operating margin was due to leverage on higher revenue and product mix. In the first quarter of 2013, 55% of revenue came from North America, 24% from Europe, 14% from Asia Pacific and 7% from the rest of the world. The year-over-year growth by region was 15% in North America, 2% in Asia Pacific, 10% in Europe and 3% the rest of the world. Non-GAAP operating expense for the first quarter of 2013 was $197.6 million or 35.5% of revenue, up from 34.1% of revenue in the first quarter of 2012 due primarily to acquisitions. Non-GAAP non-operating expense was $2.5 million, down as compared to $2.5 million in non-operating income in the first quarter of 2012, primarily due to less profitability from joint ventures and higher interest expenses. We finished the first quarter 2013 with $143.6 million in cash compared to $157.8 million in the fourth quarter of 2012. Our debt level was $920.4 million on a multiple of 2.1x trailing 12-month adjusted EBITDA. Cash flow from operations was $37.4 million versus $67.7 million in the first quarter of last year due to higher working capital needs. The higher working capital needs were driven by higher accounts receivables, reflecting the linearity of the quarter and the seasonal buildup inventories. Both our timing issues and cash flow in the second quarter should be strong as these self-correct. Accounts receivables for the first quarter 2013 was $388.9 million as compared to $324.7 million in the first quarter 2012. Day sales outstanding in the first quarter of 2013 was 64 days as compared to 57 days in the fourth quarter of 2012, and 59 days in the year-ago quarter, up due to linearity of sales and acquisitions. Inventory in the first quarter of 2013 was $260.6 million compared to $240.5 million in the fourth quarter of 2012, higher due to seasonal build and lower than forecasted sales. Deferred revenue at the end of the first quarter was at all-time high of $198 million, reflecting the mix shift to more software and service products. Moving on to guidance for the second quarter of 2013, we expect revenue between $570 million and $580 million, with GAAP earnings per share of $0.18 to $0.20 and non-GAAP earnings per share of $0.36 to $0.38. Non-GAAP guidance excludes amortization of intangible of $39.1 million related to previous acquisitions, anticipated acquisition cost of $4 million and anticipated impact of stock-based compensation expense of $9.2 million. Both GAAP and non-GAAP earnings per share assume a 16% to 18% tax rate and 260 million shares outstanding. Thank you, and we'll now take your questions.

[Operator Instructions] And your first question comes from the line of Rich Valera with Needham & Company. Richard Valera - Needham & Company, LLC, Research Division: A couple of questions. The first, with respect to being able to potentially hit your original revenue targets in the back half, what gives you the confidence that the effects of the sequester that hit you in the first half will be mitigated or gone by then? I'm trying to understand the ag side of it, that seems like somewhat of a temporary phenomena than a more timing issue. But the sequester one seems like potentially more problematic to predict.

Yes, and I think they were assuming that the sequester effect will hang around into the second half of the year, but we think that other parts of the business can take up the slack. So I would say GIS will struggle through the entire year. We generally don't talk much about GIS, but it is a comparable sizable business, quite profitable, but it is very much tied to government sources of funding, not just in the U.S., but around the world. So I think there is some ability for GIS to come back internationally outside of the U.S. But I think that we have to assume that GIS will probably struggle for the year because I think funding sources, whether they be federal, state or local, are probably suspiciously absent for them. So I think we've already assumed that. I think survey, which is also exposed, we're not assuming, let's call, a strong comeback. But I think that there is, again, there are international markets, there are places outside of the U.S. that we anticipate some recovery. And we also -- there was the combined effect, both in North America and in Europe, weather seems to be an easy cop-out, but in reality, the weather conditions really gave us arguably the harshest winter in Europe in 40 or 50 years and with some parts of the U.S. that wasn't too far from that. So we'll get some bounce as surveyors and others can get out in the field. But we're not -- the second half forecast is not really based on the sequester going away, and magically, I think it's getting better. We do expect a strong comeback in ag because we do believe that it was largely weather-related in North America in effect, and as I've said, as the international growth there was strong. Building construction is, seems to be gaining momentum and so we're anticipating growth there. And in heavy construction, we did not have a typical quarter for it either. A lot of that related to weather as well. And -- but we are gaining traction in the SITECH distribution channel. So we expect those factors to offset what's called the sequester effects, which, to some extent, have been baked into our original view of the world. I think the effects were stronger than we anticipated. And then we have the Mobile Solutions side providing some relative momentum as well. So we think that in the back half, we can compensate for any lingering sequester effects is the bottom line here. Richard Valera - Needham & Company, LLC, Research Division: How about on the mining side? Can you give us an estimate of your exposure to the mining vertical throughout your different businesses and what your expectations are for a new recovery in the mining sector?

Yes. So we're not particularly exposed directly to mining. Part of the arrangement with Caterpillar, now going back to the first JV, which is more than 10 years ago, was that we don't market machine control for mining increment directly to the mining company. So it is not a direct market for us. Where we're seeing the effects, primarily in Australia and South Africa at this point in time as mines generally require roads and infrastructure being put into service for mines. And so that's where we're seeing the effects. It's not so much directly from the mines themselves, but the secondary effects of the infrastructure being put in to support the mines. So that was not an easy call to say when that will pass. I think there is a general consensus that there is an election in Australia in the second half of the year. There are a lot of projects, not mining related, but infrastructure projects that seem to be lined up, waiting for approval in Australia. And depending on what the election -- how the election turns out, a lot of those might be released later in the year. But we're not counting on the, what's called the -- an early revival in mining. But the effects are also secondary, not primary. Richard Valera - Needham & Company, LLC, Research Division: Great. And a final one for me. It sounded like you're seeing improving momentum as you move through April relative to what you saw in the March quarter. Can you talk about which segments, vertical geographies are, in fact, picking up relative to the first quarter levels?

I think compared to the first quarter, just as we had what was uncommon for us in the first quarter, was a -- talking about multiple businesses struggling. I think it can be said as that in the first few weeks of April that most of the businesses that had difficulties, including survey, for example, in the first quarter are showing early strength in the second quarter compared to where we were after a few weeks in January. So it's pretty much across the board.

Your next question comes from Michael Cox with Piper Jaffray.

As you've talked about the outlook for 2013 in previous calls, you described it as a double-digit revenue growth year. And given the challenges you're facing the first half of the year, do you still feel comfortable with that assessment for the full year given the recovery you are anticipating in the back half?

Well, I think I'll let you do the arithmetic. You got the first quarter, we've given guidance for the second quarter and we're basically, when we talk about meeting the profile for the back half of the year as being consistent with what we said in January, that would tend to imply that we believe the second half of the year will be in the realm of 10% to 15% we had implied in January. So I think the arithmetic is comparatively straightforward.

Okay. And the comments on cost containment efforts, can you quantify those? And given that this is -- as you're laying this out a couple of quarter phenomenon, why take efforts to cut cost if the outlook -- longer-term outlook is still the same?

That's certainly an internally logical question. But I think it's just the factors that, okay, we're stating a belief in our expectations that our numbers roll off to for the second half of the year. I think the environment is still uncertain in terms of lingering effects of this, that or the other thing. And so I think that our first priority is to secure the financial model. And to secure the financial model, we've taken cost out. We've had a reduction in force already. We have cut back on discretionary spending just to ensure that whatever happened does happen the second quarter and in the second half of the year, that we're not compromising the financial model of the company. So if by implication, as if we do indeed do what we say we're going to do relative to revenue in the second half, that's going -- well, we've more or less secured as an upside bottom line on a scenario in the second half. But let's just call it the precautionary on our part and our commitment to securing the financial model, and just recognizing that the environment remains uncertain and preparing ourselves for just about anything.

Okay. And then one last quick question on the Bauma show. I know in years past or quarters past, you called out expenses related to some of these large trade shows. Will there be a margin hit to E&C in the June quarter for that?

The big hit in Bauma, it's not as big as I mentioned that -- so but the Q2 revenue for E&C should be higher than Q1 as some of construction picks up. So I expect that the margins of E&C should improve from Q1 to Q2. Both trend factors should be higher revenue, and then as Steve mentioned, we have taken some precautionary cost measures as well. And so Bauma, yes, Bauma, just to give you that rough number, maybe a couple of million dollars expense in Q2.

And parenthetically, I think relative to Bauma, Bauma is a trade show where you are allowed to sell off the floor. The environment at Bauma was first of all, robust. And we had a good selling show off the floor in Bauma. Hopefully, that's indicative of the market, but -- so there'll be both, hopefully, a revenue kicker, as well as a cost kicker.

Your next question comes from Jonathan Ho with William Blair. Jonathan Ho - William Blair & Company L.L.C., Research Division: Just in terms on the BIM market and some of the improvements that you saw in construction, can you just give us a little bit more color in terms of how you're seeing that play out for the rest of the year and maybe to shed some thoughts around construction just given the sequestration impacts?

Sorry, but which impact? Jonathan Ho - William Blair & Company L.L.C., Research Division: Sequestration.

Okay. So I think first of all, in terms of construction, outside of kind of a survey, which is related to construction, if kind of a sequester environment hangs on through full year -- okay, we're likely to see some effects in particularly heavy civil. The U.S. has been underinvesting in infrastructure for some period of time and okay, at some point, Congress and the President are going to have to deal with that. So I think there's a longer-term issue here just in terms of underinvestment and probably, every individual in Washington will acknowledge that the country is underinvested in infrastructure, they simply cannot find an effective mechanism to deal with it. But I think -- and so I would say for beyond the effects of survey, I would say that the sequester is not yet a primary consideration for construction. What we are seeing both in the U.S. and internationally relative to construction, let's call it vertical construction, the construction of structures, is a relatively -- well, it's an improving environment. Again, it's nothing like 2006 or 2007. Maybe we'll never see those times again, but it is certainly better than the last 4 or 5 years that we've seen. So there are projects, there is a strong desire to invest in technology because the economics in construction still remain pretty Darwinian, is that for any kind of project comes up, the number of competing contractors for that project are likely to be 3x what you would've seen in say, 2007, 2008. So on the face of it, the economics are pretty brutal and contractors really have to cut deep in order to get the bid, which makes the technology very attractive both on the infrastructure side and on the vertical construction side. And really, I think the market premise for us is that only those contractors who embrace the technology will get the advantages, and therefore, be able to compete effectively in this fairly brutal market. So I think there is going to be a recognition that this is no longer nice to have but is absolutely vital, whether that be them or whether it'd be machine control or whether it'd be what we call the connected construction sites. So I think putting in, in jeopardy more sorts of terms, I think the crossing of the causal events is occurring now. And I think that it's getting a -- if I were -- opinion for it, I would say it would be a tidal wave of change in construction but there might be rhetorical overkill. But I think what we're seeing here is a fundamental change in the marketplace, and I think it will ultimately lead to kind of a restructuring in construction. But so I think there's a strong secular force towards the technology becoming a requirement not just, again, a nice to have. And I think that the market from the commercial and residential side, the market is continuing to heal. The market's continuing to start to show more, maybe more animal spirits, I think, projects are coming online, projects are being funded, projects are being initiated, which is where we come in. So I think the environment is improving, but I think there is another realm relative to the technology that's growing independent of the market conditions. Jonathan Ho - William Blair & Company L.L.C., Research Division: Got it. And just one sort of broader question on the agriculture market. If the planting season is delayed, does that potentially lead to an extension of the planting season in terms of just into more the third quarter, which is tradition, like it's offered as a shift in seasonality or is an agriculture effect?

So I think it shifts the seasonality from the first quarter into the second quarter. If we start talking the third quarter, we're talking about probably subsidy in plant size and such. But I think last year, for example, we had an elongated season where it started early and continued -- so we got an early start last year, so it's actually longer than normal last year. I think this year, it has been -- it'll be a much more truncated process where farmers just haven't been able to get out into the field until maybe the last week or so in a serious fashion in North America. So I think it'll be, let's call it more activity in a shorter period of time, but I don't think it necessarily gets -- the back end doesn't necessarily get extended out. I think there's going to be a whole lot more activity in the second quarter whereas it would historically have happened in the first quarter and the second quarter. Jonathan Ho - William Blair & Company L.L.C., Research Division: Fair enough. And last question would be, what was your organic growth rate on the quarter?

So organic means, as we said, organic growth rate is probably going to be in the low single-digits in the first quarter.

Your next question comes from Andrea James with Dougherty & Company. Andrea James - Dougherty & Company LLC, Research Division: Can you talk a little bit about what's going on and what you're seeing in the emerging markets, including China and Brazil?

Yes, so we're talking specifically about China and Brazil, is China certainly grew for us in the quarter. It grew significantly in E&C, but GIS actually struggled a bit in China in addition to North America. It struggled a bit in China. But overall, China grew for us. So I think China is going through something of a transition at this point in time. There's a lot of discussion about their macroeconomic situation. I think more to the point for us, whether they -- China grows at 3% or 7% or some other number doesn't necessarily make a whole lot of difference to us because it's more or less unbounded penetration potential. So I think the macroeconomics don't necessarily matter all that much to us in terms of where there's 1 number versus another. I think that there -- what we've seen for maybe the last year in China is with the change in government, both pre leading up to it and now, I think after the change in government occurred, things are still sorting out. So what we're seeing is certain things like relatively slow payment on projects simply because a new regime is taking place. So I think from our standpoint, China's taking a little bit of a pause. It did grow for us in the quarter year-to-year and we -- our fundamental outlook hasn't changed on China. But in terms of kind of gearing up and going on new projects, that is still in kind of a transition phase. I think that will sort itself out over the next 3 to 6 months. So China's still fundamentally a positive for us. Brazil also grew for us year-to-year, maybe heavy emphasis on agriculture in Brazil. Brazil is one of the prime markets for agriculture. It is becoming more and more important for us from an E&C perspective as Brazil, I think in the last few years, has gone to understand that its economic growth is going to be limited if it does not invest in infrastructure. So I would say that there is a significant commitment, newfound commitment in Brazil for infrastructure build, which will serve us. I think again, kind of maybe something of a parallel story to China, but kind of the Brazilian economy seems to be going through a bit of a hiatus at this point in time, struggling a little bit to kind of refine the significant growth rates that they've had until fairly recently. But for us, agriculture is a booming market for E&C infrastructure. There's a commitment to build infrastructure, so over the next few years, Brazil should be a very strong market for us on E&C as well. So we're bullish on both countries. Whatever the macroeconomics are, we think we've got a growth path in both countries. Andrea James - Dougherty & Company LLC, Research Division: And for my second question, I guess I would've thought that some of the positives that you've got going on such as construction recovery and more verticalization ag, that would've offset some of what is negatively impacting the first half. And so my question is, does your confidence in the back half of the year come more from the sense that the negative impacts on the first half will mitigate or is that these positive trends will, I guess, show stronger fruit in the back half?

Well, I think it's a combination of both. So certainly, we're not expecting a transformation either for GIS, which will continue to be a problem for the total year probably, nor survey, which will probably recover in the second half of the year but I think within limits. I think we're looking at construction, so there's a -- there are clear trends for it. We're looking to agriculture to recover in the second half of the year pretty strongly. We're looking at the Mobile Solutions to continue whether it's become a secular trend there. So I think that the changes in strategy, for example, things like SITECH, things like the verticalization of -- that we've undertaken in construction will show progression, will add some momentum. But probably, the numbers are still kind of small enough as they may not move the needle. The other thing lurking in the background, which, given the issues of first quarter, didn't seem worthy to really articulate, that some of these smaller businesses that are operating in what we call the emerging businesses, things like railroads where we put a -- over the last few years, we put a significant corporate focus on railroads. Our sales to railroads, whether it be the Ministry of Rail in China, whether it be Doichiban [ph], whether it be some of the big southern in U.S., whether it be light rail in any number of cities, our sales of railroads in the first quarter were up very strong, approaching triple digits in year-to-year in first quarter. Small numbers but starting to add momentum. And I think we can start to point to what's called maybe not equal in traction from a numerical standpoint, but we can start to point to traction in categories like electrical utilities, like water management, like forestry, some of these smaller businesses that we're helping to become kind of franchise businesses for us. So those are adding momentum, not necessarily enough to kind of really be talking points in terms of moving the needle, but they are starting to add positive momentum to the underlying story of the company.

Your next question comes from Ryan Connors with Janney Montgomery Scott.

I had a question on -- a couple of questions on the ag business. And one of the things that's changed over the last 12 months is that Monsanto entered the precision planting side of the business. And so my question is given that the sales of planting-related products are concentrated in the first quarter, did the presence of that aggressive new player presumably trying to gain some share and whatnot, I mean did that have any impact at all on the quarter in your opinion?

No. So -- I mean Monsanto is pursuing a, call it -- or is articulating, let's call, a large strategy. I would say they got no effect on our first quarter. I mean it is -- they are not yet a factor in the precision agriculture market. And in reality, I think that the Monsanto larger question about the future of ag probably is more of a 3- to 5-year sort of question in terms of as agriculture becomes, let's call, a bigger -- big data sort of opportunity. I think that's what Monsanto and others are putting in us for that matter, are talking about here. But so I don't think Monsanto's not a factor in the first quarter at all.

Okay. And then the other question is just on the OEM side of your business. Sales have actually looked pretty good for the OEMs that have reported numbers so far, and obviously, Case New Holland out this morning was pretty good growth numbers in unit volumes. So my question is, did that impact -- how does your OEM business compare with your aftermarket business in the quarter and how that impact the numbers?

Well, we're a mix of selling factory installed units and the aftermarket. And I articulated relative to the kind of the breakdown by product category to at least indirectly deal with that point, is the upscale products, the automatic items are -- where the system takes control of the steering, takes control of the throttle, as well as information into our products, we're comparatively strong. Those did grow meaningful double digits in the quarter, which would be largely related -- let's call it the factor that would relate to kind of keeping OEM as an indicator. That will be consistent where we had issues where the more aftermarket-centric products, the annual guidance where it's essentially self-install, it doesn't control the steering but simply gives the operator kind of turn left, turn right queues. That, I think, is much more of a box sell. A farmer walks into a feed store or some other form of retail potentially locked up with a box under his or her arm and then self-installs. Well, when they're not in the field, they're not motivated to do that. So I would say it's actually -- it may not appear instantly. I would say our results are actually consistent with what others are reporting at this point.

Your next question comes from Eli Lustgarten with Longbow.

Just a couple of tax things. How much was the R&D tax credit in the quarter? Because I think I missed it. And what tax rate should we be using for the full year? I know you said 16% to 18% this second quarter.

Yes, for the rest of the quarter, used -- for the rest of the year is I used 16% to 18%. And we got a full benefit of last year in our Q1 tax rate because of the legislation was retroactive to January of last year. So in other words, roughly 4 points of benefit -- 4 to 5 points of benefit because of that in the Q1 tax rate, which will not repeat itself in Q2.

But in Q1, it would've been 14% to 15% without it.

Yes.

Okay. Then just a clarification. You talked about the mining business, I understand the peripheral. But how big a business is Australia and South Africa for you, and how much is at stake at this point?

We don't disclose by country, but kind of net change to our original guidance to what we actually produce, the effect Australia and South Africa accounted for clearly a portion of the mix.

So it's a good portion of mix, okay.

And I'm not describing it as a majority, but it was a significant element in the mix.

And you factored that your guidance for the rest of the year assumes that, that stays relatively stable, I assume, pretty much at this point?

Yes.

And the question I -- the ag business, I understand the domestic side, I know we don't worry about that. How big a business -- as it seem quite -- how big a business is Brazil for ag at this point? Could that business should just take off like crazy? I mean Brazil's ag is very, very strong.

Yes, and the fact is when I talk about -- when I say that ag outside of North America grew at over 30%, there are really -- you look at kind of 3 places. It's the old standbys of Australia and Brazil and then Europe is becoming a significant factor there as well. So ag did grow in Australia. It did grow in Brazil and it did grow in Europe.

And the portion that's not -- non-North American ag would be 1/4 of the business or something like that? That would...

Yes. Again, we kind of talk about segments, we don't talk about any individual revenue by geography. And let's just say it's a -- the international has become a very significant portion of agriculture.

Yes, okay. Because I mean the strength should be quite good and U.S. should catch up. There's no reason why [indiscernible] in that business. And in Mobile Solutions, I guess the acquisitions are driving most of it. Do you have any idea -- you said some idea what the underlying organic growth in that business and we're going to anniversary the acquisition shortly. I just wonder if that what we should be expecting for the rest of the year there.

Yes, I mean I think, again, we're -- telling it segment level and not necessarily providing guidance by segment either. I think, yes, the 41% year-to-year growth was, obviously, a lot of that was acquisition. But organically, these businesses are growing nicely. And so I would say even as we lap the acquisitions, we should still see some significant growth going into kind of the anniversary events.

You said, yes, we should be able to do double-digit in that business?

I said -- I think I used the word significant. So we'll articulate more when we get to those anniversary dates.

Your next question comes from Ian Ing with Lazard Capital Markets.

Steve, could you talk more about this sequester overhang in the second half? Is it really concerns on negative headlines that would affect sentiment or was it more the actual planned sequestration cuts that could play out and have an impact on customers?

Well, I think there is a primary and a -- yes, there's a primary effect and then there's a secondary effect. The primary effect is comparatively easy to see. The secondary effect, when it comes to both survey and GIS, is harder to determine whether it's sequester or whether it's just simply a lack of local funding or some interplay between the 2. So I think that our relative forecast, in the second half, we think is conservative and is -- assumes that the sequester effects continue to remain. So I think that in -- so I think there's 1 scenario the sequester seems to start to paint, and there seems -- if it -- the sequester affects -- or at least the uncertainty related to the sequester effects are -- anticipated by the end of the second quarter, I think the first -- the second half takes on 1 characteristic. If the uncertainty discontinues into the second half, it takes on a different set of characteristics. So right now, we believe that second half of the year essentially is the conservative sequester lingers into the second half of the year. There are a number of U.S. federal agencies that are saying we're simply shutdown in terms of new buying until -- through June. We'll talk to you again in July. Now, that would seem to indicate that there's been, let's just call it an initial reaction, which is simply figuring it out but doing nothing while they figure it out. So sequester doesn't mean that the funding has evaporated, but there seems to be a relative state of paralysis, in many cases, in terms of how to deal with it. So I think the uncertainty -- even if the sequester remains, I think there will be a decline in uncertainty. People will start, in the government, will start to figure out how to do business under sequester. I don't know that they've done that yet. And so I think there will be a decline in uncertainty, which will improve the situation somewhat as a level of uncertainty starts to return to the marketplace even in a diminished state. If the sequester is refunded, okay, that kind of leads into a different realm. But I think what we're basically assuming is if the sequester remains, that there will be greater less uncertainty as people actually figure out how to operate within sequester with the diminished funding levels. But there will be some funding available again at a diminished level.

The certainty of known cuts would be a positive. Okay..

Yes.

And for my follow-up on gross margins, had a bit of an uptick in this quarter. How should we think of gross margins in the near term? Is it largely mix driving that or is it more licensing and software or emerging market mix?

Yes, I think as I said, gross margin should continue to inch up every year as our software businesses and our subscription businesses, which tend to have high gross margin, are becoming a bigger part of our portfolio. So we do expect that phenomenon to play out throughout the year. Our gross margin should be higher versus last year.

Your next question is a follow-up from Andrea James with Dougherty & Company. Andrea James - Dougherty & Company LLC, Research Division: I just had a quick one on your visibility and growing subscription revenue. I know you guys are a low backlog business, but I was just wondering if you could talk about how visibility's changed for you and also whether the growing TMS segment gives you a little bit more insight into kind of what's coming down the pipeline?

Yes, I suppose in a whimsical fashion, I could say is, I guess, the first quarter proved that we have not yet become a high-visibility company in terms of what's coming at us. So, yes. So I think there's certainly our -- with close to $200 million of deferred revenue in the balance sheet, that element is becoming much more predictable. But statistically, we're still very much a book-and-burn business. And so I think call -- I think it would be too early for me to declare us to become a more predictable company in that regard, yes. Things like Mobile Solutions, even E&C, are becoming more of a backlog business for as we engage more and more with the -- at the enterprise level with large customers, we're getting -- we're changing what's called the tempo of -- or I suppose, the tempo of how we're doing business. So we, in some senses, we're getting better at visibility as we get into more and more key accounts into the mix. But there is still a very large portion of the business. The majority of the business is still basically hundreds of thousands of transactions, worth of hundreds of thousands of practitioners or companies. And so there's still a volatile element here. So I think it's too early to declare us as becoming a more of a backlog with predictability sort of business. It is moving in that direction, but it's still a -- we're still fundamentally a book-and-burn business.

Your next question comes from Rich Valera with Needham & Company. Richard Valera - Needham & Company, LLC, Research Division: A quick 1 on Advanced Devices. You noted it was unusually strong in the first quarter. How should we think about that for the balance of the year? I know you don't want to give segment guidance, but should we kind of continue to think about it sort of flattish relative to last year outside of that strong first quarter?

Yes, I think that's probably the safest way to view Advanced Devices. It will have its moments. It's the remnants of what is the kind of the true OEM portion of the business. And so it will have spikes, it will have its quarters, we just had 1 of those. But I think overall, it is a relatively quiet, profit-producing, cash-producing business and unlikely to take on, let's call it secular growth characteristics. So I would say kind of viewing it as part of the background as a relatively flattish, steady-ish growth business, is probably the right way to view it.

And at this time, you have no further questions. I'll turn it back over to you for any closing remarks.

No closing remarks other than to say talk to you next quarter, hopefully, a better quarter. Thank you.

Ladies and gentlemen, this concludes today's conference call. You may now disconnect.