Good afternoon. My name is Kelly and I will be your conference operator today. At this time, I would like to welcome everyone to the Trimble Second Quarter 2014 Earnings Conference Call. [Operator Instructions] Jim Todd, you may begin your conference.

Good afternoon. I'm here today with: Steve Berglund, our CEO; and Francois Delepine, our CFO. Before we begin, I'd like to remind you that the forward-looking statements made in today's call and the subsequent Q&A 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-Ks and 10-Qs or other documents filed with the Securities and Exchange Commission. During this call, we will refer to a press release, which is available, along with additional financial information 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 release. Now let me turn the call over to Steve.

Good afternoon. The second quarter again consisted of a two-part story. The first part of the story is agriculture, which continues to operate in a constrained market with revenue down single digits year-to-year. The second part of the story is everything outside of the Field Solutions segment, which had revenue growth of over 14% and non-GAAP operating earnings growth of approximately 40%. The net of the 2 stories produced total company revenue of over 11% and a significant improvement in the financial model, with non-GAAP gross margins growing to 58.5% and non-GAAP operating margin improving to 23.2%. Most of the revenue growth was organic with little acquisition effect. An implicit side effect of the current accelerated development of the company outside of agriculture is that we are becoming more balanced and less reliant on agriculture. Overall, the market picture continues to improve but with qualifications. The U.S. is trending up, but in a comparatively constrained way. The status of the U.S. Highway Bill has been a major source of ambiguity and is muting the willingness to make investments in the heavy civil and geospatial markets. Europe is demonstrating more signs of life and probably provides us with upside in the next year. This judgment is still tentative and the second order effects of the geopolitics of Russia and Ukraine may dampen the appetite for investment around Europe. In their own right, Russian and Ukraine are meaningful markets for agriculture and we're a growing market for E&C. The environment has grown difficult in Russia and has reduced our short-term expectations there. Ukraine is still accessible, but priorities have shifted away from spending in our categories. Neither market is likely to give us much in the next year. While not particularly material in the short term, a sustained freeze in the Russian…

Thank you, Steve. Good afternoon, everyone. As Steve mentioned, the quarter was stronger than expected with continued growth in Engineering and Construction, Mobile Solutions and Advanced Devices, along with mixed performance in the Field Solutions segment. I'd like to remind you that, unless otherwise noted, the operating results I will discuss will be on a non-GAAP basis. The reconciliations from GAAP to non-GAAP numbers is available in our earnings press release, along with the financial data by segment. Unless otherwise indicated, growth rates are meant to be year-over-year growth rates. So let's now discuss the results for the second quarter. Total revenue was $642 million, up over 11% year-over-year. For the second quarter in a row, we experienced broad-based growth in the quarter in the majority of our businesses with exception of our agriculture business. Most of the growth in the quarter was organic in nature. Engineering and Construction grew by 17% with continued strength in buildings, heavy civil and geospatial. Field Solutions revenue was down 1% with agriculture revenue down in the mid-single digits offset by growth in GIS revenue. Mobile Solutions grew 6% with double-digit growth from the transportation and logistics business. Advanced Devices repeated with another strong quarter growing 17% driven by strength in multiple businesses in the portfolio. The Q2 revenue by geography was 53% coming from North America, 25% from Europe, 15% from Asia Pacific and 7% from the rest of the world. Growth rates by region were 6% in North America, 20% in Europe, 15% in Asia Pacific and 16% in the rest of the world. Note that the underlying European growth rate was enhanced by a positive revenue recognition event involving a distributor. The growth in North America came primarily from Engineering and Construction and Mobile Solutions, offset by a single-digit decline in…

[Operator Instructions] Your first question comes from the line of Paul Coster of JPMorgan. Paul Coster - JP Morgan Chase & Co, Research Division: So perhaps if you could just give us a little bit of a sense of how the business mix is changing. You talked about the software, hardware maintenance and service mix. I'm particularly interested inside the E&C space and what if anything that means in terms of future margin expansion?

Yes, so I think there is definitely a, let's call it, a strategic secular trend involved here and -- which is -- which will move towards the greater services bundle [ph] and greater software component. The trend has been in place for a number of years and I think is, if anything, accelerating at this point in time. So I think the general trend, directionally anyway, is towards a generally higher gross margin business within E&C and with the expectation that we can continue to show progress at the operating line. I think the one caveat there would be -- I think gross margin is interesting within the company from a direct -- kind of a directional sense but is largely an arithmetic outcome from the mix of business. In the script, I mentioned the fact that we anticipated a higher professional services content within the company, and in particular E&C that will probably push the margin around a bit. And so from an ROIC standpoint, that would still be a strong business, but it may change the nature of the margin. But I will say directionally, is the nature of the business is towards more software, more services and I would intend to say towards a higher gross margin content as we add more and more software value and then, again, that should translate into operating. Paul Coster - JP Morgan Chase & Co, Research Division: Can I just sort of press, maybe Francois, a little bit and see if he could give us -- share with us what percentage of revenue now is recurring, what percentage of revenue is, in total, is software and related services.

Yes, I don't have those numbers handy here to share. I don't think we've shared that historically. I think we're looking at it -- I mean, I mentioned at the Analyst Day we're starting to do a bit more analysis to kind of understand our trends and billings and recurring revenue and the impact on deferred revenue, et cetera. But we don't plan to kind of communicate those kinds of elements at this point. We may do it next year, but we're doing some analysis at this point on that.

Paul, I think there's a bit of a point here and again, referring back to the script here a little bit, is that in kind of the engagement with the contractor, kind of within the E&C context, is increasingly, we're having the conversation about the needs of a project. Now that may include hardware, that may include software, that may include services. But increasingly, kind of the differentiation in terms of what's hardware, what's software, what services will tend to get a little bit blended is what we're bringing is a value, a bundle to contractor, really increasingly focused on a single project. And so I think that from our internal architecture in terms of how we think about things, it's really the kind of the share of the wallet concept around the project more so than what's recurring, and what SaaS [ph], what's that [ph], but I think it's really -- we'll see how it develops but I think over the next few years, it's going to be more of a concept of share of wallet than per se, let's call it, a discrete breakout between different kind of product categories.

You're next question comes from the line of Jonathan Ho from William Blair. Jonathan Ho - William Blair & Company L.L.C., Research Division: Just wanted to start out with your assumptions around Field Solutions for the balance of the year. And how maybe we should be thinking about modeling it relative to your performance so far in the first half of this year. I just want to make sure that we're thinking about it sort of the right way just given your commentary.

Well, I think in general, we're -- the biggest driver, at least in terms of volatility, at the moment is agriculture. We're -- our current outlook with a fair amount of qualification is flattish but I think that in terms of the range of outcomes for the company are kind of largely driven by a range of outcomes on agriculture. So I would say the general expectation is flattish, but acknowledging that there is a fair amount of volatility that kind of creates a kind of a tails around that distribution both sides of that expectation. Jonathan Ho - William Blair & Company L.L.C., Research Division: Got it. And just a little bit more detail. I think you guys talked about some distributor revenue recognition in the EMEA region. Just wanted to get a little bit more detail or maybe the amount of that revenue recognition and where that's coming from.

Yes. So it came from -- essentially, you can think of it as a large increase to a distributor credit line as a result of increasing the capital that the distributor was able to secure to summarize it. And the impact on the European growth rate was about half of that growth rate.

You're next question comes from the line of Andrea James of Dougherty & Company. Andrea James - Dougherty & Company LLC, Research Division: Monsanto recently communicated, I guess, a similar philosophy to you guys in terms of ag becoming a big data solution. And I was just wondering if you see their shift in investment toward more software solutions in the ag space as a competitive threat or more of an endorsement of what you guys are doing there.

Sorry, Andrea, who was that? Andrea James - Dougherty & Company LLC, Research Division: Monsanto.

Monsanto. Well, Monsanto has clearly been, for some time now, been voicing, kind of, a vision of the market, that is really focused on kind of let's call it, big data sort of orientation. So I think that it's really, really too soon to kind of start -- talk about hard characterization of anybody in the marketplace to a fair extent, both we and they, and as well as others are talking about an emerging future, elements of the product and elements of the solution are emerging all the time. But I think in terms of kind of as of today, the revenues associated with it are comparatively small. So I think that it's too early to kind of come up with competitor versus collaborators, sorts of definitions for anyone. I think the market is still emergent and still fairly slippery in terms of its ultimate definitions here. So I'll avoid the characterization question at this point in time. I would say is that certainly Monsanto is -- has a presence in the market, it has a brand, it has a reasonable level of domain and so I think that it is a player. But I wouldn't want to necessarily characterize it one way or the other at this point in time. What we're attempting to do is put together all the elements of the solution and to bring it to the marketplace and we'll see how the marketplace evolves. Andrea James - Dougherty & Company LLC, Research Division: Okay. And then just flipping over to your Q3 guidance. It looks like you're looking for a 7% sequential decline. But if I look back historically, you almost never have a Q3 sequential decline except maybe during the recession of '09. So I was just wondering, what -- could you just maybe take us a little bit more through how you kind of came up with the guidance and the puts and takes there?

Yes. So let me take that one. I think if you look at the last couple of years actually, we did have a sequential decline from Q2 to Q3, not of that magnitude, but probably about half of that magnitude. And then if you look at the revenue recognition, in fact, we just mentioned and you take that out and look at the sequential change that way, and you look at the -- if you were to pick the high end of our range and look at that compared to Q2, you get to about the same type of dynamics, seasonal dynamics. So we're being relatively circumspect about our guidance here in the second -- in the third quarter, and we -- that's how we came up with the range. I mean, as Steve said, there's still some fair amount of risk in ag and so that's kind of built into our guidance as well. Andrea James - Dougherty & Company LLC, Research Division: That actually really is helpful. Just one more for me and then I'll get out of line. I'm kind of -- kind of characterize what's going on in the whole world. You guys have so many puts and takes, Russia, bad; India is good. Is India's infrastructure investment enough to sort of move the needle and maybe offset some of what's going on in Russia right now? Or can you just help characterize in terms of dollars or ranking, what's good and what's bad, globally?

Yes. Well, I think that -- the way I characterized it in the script was, okay, kind of generally, most of the emerging economies are comparatively kind of going sideways, not really bad. The only one, not that it's an emerging economy, but the only economy out there that I would characterize as bad, at this point in time, is Australia which is causing us some problems, particularly in E&C. But you walk around the world and I would say whether it be China or Brazil or South Africa or India or any or the rest of them, I would say characterize them as being workable but not great. I wouldn't characterize any of them as being great. Clearly, the mode in Russia is quite negative at this point in time, and we're seeing the outcome. Now Russia, as a needle mover for us, as a company, isn't all that large. It's meaningful for ag, it has a significant amount of potential for ag as it does for E&C. So I think Russia is more of a -- the perspective of Russia is more of a 2- or 3-year or 4-year view in terms of, okay, if this kind of freeze continues, it could potentially take 1 point or 2 off of -- or some level of growth off of the next 2 or 3 years. But it isn't -- I wouldn't expect us to be necessarily focusing on Russia over the next few quarters as being a necessarily a needle mover for the company. Now I would also, in the next year or 2, probably put India in much the same category, which is India is more nascent, it's more prospective, it's more a set of possibilities than it is a potential source of dollars for us in the next year or 2. India obviously has great potential. India, for the last couple of years, has been a little hard to decipher because it's been comparatively indecisive around its economic policy. That seems to have resolved itself or at least there seems to be a higher level of decisiveness, a higher level of purpose in India. If India does decide to move on infrastructure, it has the potential to be a significant addition of revenue to us, particularly in E&C, although I would not discount the possibilities in agriculture either. But just the lead time would say, okay, that's got to be a 2- or 3-year sort of perspective not a 12-month perspective in India. So I would say both markets are more future events as looking ahead to the next 12 months than anything that's going to be, particularly meaningful for us in the next 12 months.

[Operator Instructions] Your next question comes from the line of Ian Ing of MKM Partners.

So in construction, you've got some nice productivity solutions with contractors, they're understanding the benefits. What's the role of subcontractors here as you enable the contractors? Is there an additional sale for the subcontractor, are you cannibalizing some of the sub kind of opportunities? And the reason I asked is some of your construction site collateral does talk about enabling people to do their own site positioning and surveying, basically, avoiding subcontracting, that type of workouts.

Yes. So well, without a doubt, there's kind of a web of relationships here. And so I would say is what we're doing -- well, particularly on the building side, the vertical construction more so than the infrastructure heavy civil kind of dirt moving, but certainly when it comes to constructing buildings or constructing structures, there is a multitiers here and I would say that were equally relevant for kind of the -- all elements here. So there are really 2 different categories of contractors, I'm simplifying outrageously here. But there are self-perform contractors who, more or less, keep all the operations in-house. And then there are other contractors who make active use of subcontractors who basically get the umbrella contract and then subcontract out to a number of other contractors. The technology is relevant in all cases. I think there is an argument to be made is that the self-perform contractor may be able to better utilize the technology because they have more control over all the operations and can achieve maybe a more optimal model. But the way we're organized is we look to the individual trades. So we have a business that is, what we call, MEP, mechanical, electrical, plumbing, which really is focused on the individual trades, the subcontractors, if you will, and performing work for the contractor. But I would say the ecosystem that involves contractors and subcontractors is a little bit more complicated in terms of, okay, who's getting the economic benefits of the technology and how are they being shared? And in that case, across the board, the owner would have some interest in that as well. So I think that, again, I think that over the next few years, it's a little bit of an interesting experiment to see just how the sharing of the benefits of the technology actually occur. But I would say it's the subcontractors, as well as contractors are actively engaged in the technology and our relative hope and our relative expectation is that increasingly, the owner is going to drive down through the general contractor, down through the subcontractors, down to the trades and actually start to mandate what the technology environment is going to be and expect everyone to conform to the same architecture from a technology standpoint and you see that happening. I think that the trend will accelerate over the next few years.

And then North American E&C. It seems like some pretty nice secular trends you're exposed to. I mean, this is even despite the stop-gap funding of the federal highway trust fund and some pretty negative global headlines. So is there anything in your mind that could take takes things off that track in E&C in North America at this point?

Well, I think North America is on a track. The things that could happen in the next 6 to 12 months that would give us upside lift implicitly I think that maybe the bias is towards the upside if these things occur. One would be if Congress does come back either lame duck session or post new Congress and actually puts in multiyear funding -- or let's call it permanent funding for the highway infrastructure, I think that would be relatively huge for us. I think it would be kind of igniting of animal spirits that haven't been seen for a while in this country. So that's one discrete event. I think Europe -- one's got to be a little careful in describing Europe, but certainly in the last few months, we have seen kind of more points of light in Europe than we've seen for some period of time. Germany is the key element in Europe. But around Europe, including places like Spain, we started to see points of light. If Europe starts to find itself back on the economic growth path, I think again, that could be a potentially significant lift to us. I'd say the other discrete event that could again, fairly quickly change the mood for us to a more positive mood is that Australia actually started to make kind of recovery noises. Australia, for us, is -- kind has a disproportionate effect. Australia, on the E&C side, is a very well-developed market in spite of the relatively low population, they have a significant uptake of technology. And right now the picture there is fairly dismal. So we'll -- so I'd say in general, we're kind of operating at a baseline here, and that there is probably kind of statistically a possibility that as a few things start to improve, we're going to see the benefit on a worldwide basis. The rest of the world is probably okay as it is. We could see -- we'd like to see more growth out of Brazil. We'd like to see China on a little bit more of an unambiguous path but we're actually generating some pretty significant growth out of some these countries now and I think those are workable. But Europe, Australia and the Highway Bill are probably 3 discrete events that could make life significantly better for us in the next year.

Okay. And if I can fit in one last question on the ag side. It seems like there's some things like commodity prices that are pushing along this equipment and solutions ag cycle. I mean, should we think of Trimble as outperforming the equipment solutions cycle or outperforming on underperforming in line [ph]?

I would -- there's my historical answer, which I'm being careful about using at this point in time. So generally, I would say in agriculture, in a list off [ph] -- of a little bit of a better environment from a commodity price is I would generally expect us to outperform, simply because we're selling cost reduction, we're selling productivity. We're not selling capacity so I think historically, we've been fairly resistant to lift off [ph] the down cycle in ag, but I think the current mood, particularly in North America with some spillover into Europe, commodity price is just kind of depressed. So I would say kind of -- I would still expect us to outperform. But right now, we're struggling more than we have historically in kind of a down cycle.

Your next question comes from the line of Eli Lustgarten of Longbow.

Just a quick follow-up on when we talk about the drop in revenue between the second and third quarter, I think you mentioned statistically, when you look at it, it looks a lot bigger than, I guess, than what we're used to. Is that mostly in E&C and Advanced Devices, or is it pretty well spread across the thing? And the second thing, when we talk about the way profitability might change by sector given the change in volume that's going to take place.

Yes. So we don't really -- can't provide specific guidance by...

I'm not looking for precision, I'm just trying to look for -- get an idea of how it's coming -- you're taking 7.5% out of your volume in a timetable that's a little bit strange, so I just...

Yes, so again, you've got to -- I don't know if maybe you've missed the earlier comment, right. We had an event with the revenue recognition in Europe that essentially was a boost to Q2. And without that essentially, we would have been just about to the higher -- to the high end of our guidance for Q2. So if you take that out and look at Q2 to Q3 change, it's not as big of a drop as it seems. And I think we have...

That was within E&C, right?

What's that?

That was within E&C?

That was in Europe and about 90% of it was in E&C. A little bit of -- 90% of it.

What does that do to the operating profitability, the 25% that we saw in that? I mean, did that drive -- what would the profitability have been normalized if we didn't have that boost?

I think on the total company, it's a little bit more than 0.5%.

So they have in the total company. But what would the profitability of the Engineering and Construction sector have looked like? It came in at a very high number -- it's much higher than I think anybody expected it, 24% [ph]. What might have that number looked like as we talk about to -- probably in the mid...

We haven't done that exact math, but E&C is half of the company. So the impact would probably be double, about double in terms of...

So it'd be at least 1% or so. And therefore, when we look at the third quarter, are we looking at profitability going back down to low -- to the 20%, 21% level or can we come close to the adjusted number in the quarter?

I mean, we're -- we -- you can come back into [ph] our expectations from our EPS guidance on that. I mean, we're -- we have factored in our expectation the various impact that we had in Q2 and when we look at our forecast for Q3, we made some judgments and we have an EPS range that expresses that, if you will.

Eli, I would kind of urge against kind of this put and take, yes, the put and take. Yes, there was an effect in the second quarter for simply getting into the change of business we're getting into bigger wants here and there. So every quarter, there is a discrete effect. I would say it's fundamentally the second quarter stands on its own and I think, yes, there were some puts and takes there, but I would say is that fundamental performance was not drastically swung one way or the other by this -- by this effect in Europe. In reality, the effect -- the negative side of that effect it was an accumulation. So what we saw was a negative effect implicitly in the first quarter and in the fourth quarter. I don't think we saw the benefit in the third quarter. So I think it's just smoothed out so I'd advise against, let's call it a whole lot of kind of minute kind of puts and take here because...

Yes, it doesn't change the whole story. The only reason to call it out really is the kind of impact on the European growth rates and that was to explain the 20%. But other than that, it doesn't change the overall story.

And just as a follow up there, just on the Advanced Devices. Is that a sustainable rate that we're seeing or is it -- become more meaningful?

Yes, I think in the long term, we don't expect that business to certainly be a double-digit growth, but they have been doing pretty well. Not clear if we can repeat the performance in Q3 that we had in Q2. But that business has been going strong this year.

You're next question comes from the line of Brett Wong of Piper Jaffray.

First, on the software subscription side of things. The mix kind of the declined in the first quarter and was flat this quarter, but you mentioned you expect the mix of software subscription to increase over time. What gives you confidence in that expectation?

Sorry, that didn't come through totally clearly, can you actually restate the question?

Yes, sure. Sorry about that. Just wondering how your confidence or where you get your confidence in this expectation that the service and subscription revenue as a percent of the total is going to increase as we look forward giving that it declined in the first quarter and was flat this quarter.

Well, okay. First of all, I mean, the statement would be on a multiyear basis. So in any given quarter, given seasonal effects and whatever, so I think it's very potentially dangerous to kind of try to draw strategic judgments from what is happening in any given quarter. So I think that, certainly, in terms of level of activity, in terms of marketing activity, I think that, certainly, in a strategic sense, in a multiyear sense, is that yes, the confidence is quite strong. The model is occurring. I would actually say, okay, Brett, on a year-to-year basis, the trend is clear. And I would look in terms of quarter-to-quarter sequential effect, I would look to the seasonal effects of what business is strong in that quarter versus not strong in the quarter. So I think there's sort of arithmetic there. But certainly, our entire strategy, in terms of coming to market, is increasingly built on a bundle of value that does increase subscription and services. So yes, we're confident and I would actually say, okay, the year-to-year, quarter-to-quarter, year-to-year comparison is typically more reliable than a sequential comparison just given the seasonality of the business, plus the characterization, the SEC kind of defines how we report these particular categories and [indiscernible] software is -- can either be regard -- viewed as a product or it can be viewed as a service, depending on whether -- how it's being delivered and we're relatively indifferent in terms of how it's being delivered. We'll let the customer tell us how the customer wants it delivered. So some of these categories are a little arbitrary just in terms of what's happening in terms of the marketplace.

Okay. On another note, can you provide any more specifics on the acquisition contribution in the quarter and how that compared to the contribution from a year ago?

Well, I think we more or less called it comparatively de minimis. If you look at the year-to-year increase, the significant majority of the revenue increase was significant majority, the profitability increase was organic. And the effects of acquisition were comparatively de minimis in terms of the growth, something on the order of 1 point or something like that might have been acquisition, all in.

And there are no further questions at this time. I turn the call back over to the presenters.

Okay. Thanks for participating. We'll talk to you next quarter.

Thank you.