Good day and thank you for standing by. Welcome to Trimble Third Quarter 2021 results. At this time, all participants’ lines are in a listen-only mode. After the speaker’s presentation, there will be a question-and-answer session. To ask a question during the session, [Operator's Instruction]. Please be advised that today's conference is being recorded. [Operator's Instruction]. I would now like to head call over to your speaker today, Mr. Rob Baker, President and Chief Executive Officer. Please go ahead.

Welcome everyone. Before I get started, a quick reminder that our presentation is available on our website and we ask that you please refer to the Safe Harbor at the back. I'll begin on Page two with the key messages we want to convey today. In the Third Quarter, our team once again delivered outstanding results and did so within an incredibly difficult supply-chain environment. We exceeded our expectations and delivered record ARR of 1.36 billion up 8% year-over-year, and up 11% on an organic basis. Total revenue growth of EBITDA margin of 25.9%, and trailing 12-month operating cash flow of $784 million. We achieved record third quarter levels of revenue in many of our businesses. With another exceptionally strong quarter in machine control and civil construction, guidance in agriculture and Survey and Mapping. For results demonstrate the strength of the underlying market recovery and the quality of our execution against our Connect & Scale 2025 strategy. Our results also demonstrate the quality of the Trimble team. And I want to give a special shout-out to all our colleagues, led by Leah Lamberton, who are helping us manage through the supply chain challenges on the basis of this collective strength, we are raising our annual earnings guidance despite a tightening supply chain environment. With start with market conditions where the overall land scape remains robust. Construction backlog is healthy, especially in residential and infrastructure, translating to strengthen in our Geospatial and buildings and infrastructure reporting segments. We remain optimistic that the Infrastructure Bill will ultimately be passed in the U.S., which would bolster our long-term outlook in our construction and surveying businesses, starting at some point in 2023. We have been and are building product and go-to-market capabilities ahead of this opportunity. I'm especially proud of the role Trimble has…

Thank you, Rob. Let's start on Slide 5 with a review of third quarter results. Third quarter revenue was $9101 million up 14% on a year-over-year basis. Currency translation added 1% in divestitures subtracted 2% for a total organic revenue increase of 15%. Gross margin in the third quarter was 58.7% down 10 basis points year-over-year, reflecting several factors including higher product and freight costs in our supply chain, offset by increased pricing and lower discounting.

Adjusted EBITDA margin was 25.9% down 90 basis points year-over-year, driven by higher operating expenses and investments in the business. Operating margin was 23.8% down 40 basis points year-over-year, but still up over 300 basis points versus the pre-COVID third quarter of 2019. Operating expenses last year were unusually low in a number of areas, including compensation expense. Net income dollars increased by 10% and earnings per share increased by $0.06 to $0.66 per share. Our third quarter cash flow from operations was a 166 million and free cash flow was a 156 million. Cash flow was down modestly year-over-year in the quarter. As we are purchasing inventory in response to strong demand and supply chain shortages. Operating cash flow is up 23% on a year-to-date basis, with a conversion ratio to net income above 1.1 times. Our net debt declined 88 million in the quarter, and our net debt-to-adjusted EBITDA ratio fell to 0.9 times. During the third quarter we repurchased a $100 million of common stock.

At the end of the quarter, we had the entire $1.25 billion available in our revolving credit facility and approximately $513 million in cash. Our balance sheet is strong and we are well-positioned to invest in our business, both organically and through acquisitions that will accelerate the implementation of our strategy. Turning now to Slide 6, I will review in more detail our third quarter revenue trends. As mentioned earlier our ARR was up 8% in aggregate and was up 11% organically on a year-over-year basis. The 11% rate excludes the impact of foreign exchange and our recent divestitures of IRON Solutions, Manhattan Real Estate Solutions, and Construction Logistics. All three of these divested businesses had a recurring revenue component, but we're in areas outside of our strategic roadmap. Our non-recurring revenue streams grew with hardware up 18%

Year-over-year and perpetual software growing 19%. Our hardware growth was driven by strong performance in civil construction Geospatial and Agriculture. Our hardware growth contributed to perpetual software growth. As some of our hardware offerings are. Bundled with perpetual software. From a geographic perspective, North American revenues were up 11% in Europe, revenues were up 18%. Asia-Pacific was up 5% year-over-year and the rest of the world was up 33%, driven principally by strong demand from the agriculture sector in Brazil. Next on Slide 7, we highlight some of the key metrics we follow, and I'll start with ARR. While total Company ARR grew 11% organically on a year-over-year basis, ARR excluding transportation, grew at a mid-teens rate in the quarter. Networking capital, inclusive of deferred revenue, continued to be negative, representing approximately -2% of revenue on a trailing 12 month basis. Notwithstanding an acceleration in purchases of component inventory during Q3. Research and development on a trailing 12 month basis was 15% of revenue, and our deferred revenue grew 17% year-over-year. Our backlog at the end of the third quarter was $1.6 billion up from $1.5 billion a quarter earlier, and up over 30% year-over-year. While growth on our backlog is an indicator of momentum in the business, it is also reflective of the shortages and extended delivery times that we are experiencing for many key components in our hardware products. Of our 1.6 billion in backlog, just under $340 million relates to our hardware offerings, up from about a $100 million in hardware backlog a year ago, and $38 million higher than the end of Q2. We expect supply chain constraints for many key components to extend well into

2022. Let's turn now to Slide 8 for additional detail on each of the reporting segments. Buildings and Infrastructure revenue was up 12% on an organic basis. Revenue growth was strong in both our building and civil Construction businesses and organic ARR was up in the high teens in the quarter. Geospatial revenue was up 23% on an organic basis, driven principally by strong performance in our core branded survey equipment’s. Margins were up 60 basis points due to both revenue growth and operating costs control. Resources and utilities revenue was up 23% on an organic basis. We experienced double-digit growth in each of our precision agriculture and positioning services offerings. Margins in resources and utilities contracted 330 basis points and were hardest hit by product cost inflation in the quarter. Financial results in transportation show ed progression in a number of areas. Revenue was up 3% on an organic basis year-over-year, but grew less than we expected due to supply chain challenges, both in our operations and our customers' businesses. Margins expanded 410 basis points year-over-year. Turning now to Page 9 for our updated outlook for the full year. We are raising our expectation for full-year revenue with a new range of $3.59 billion to $3.64 billion, representing growth for the full year in the mid-teens and single-digit year-over-year growth in the fourth quarter. End market demand is even stronger than we thought it would be a quarter ago. But supply chain constraints will likely cause our backlog to remain at or above the increased levels from the end of Q3. Air or growth at the Company level is trending as we anticipated, driven by strong bookings and subscription transition. And we expect organic [Indiscernible] growth of greater than 10% in the fourth quarter and a strong entry point…

[Operator's Instructions] Your first question is from Ann Duignan of JPMorgan. Your line is open.

Yes. Hi. Maybe you could talk a little bit more about the outlook for 2022 and what you see across the different segments. I know you said in some of your opening comments that you do expect an infrastructure built path. If that doesn't happen would that influence your outlook for 2022 at all for buildings and also Geospatial? And then the [Indiscernible] in Agriculture which continue to see farmer sentiment decline on higher input costs, not just in the U.S, but also in Brazil. So maybe talk about some of the pluses and minuses that you're seeing out there as you look to 2022, and the end-markets. Thank you.

Hi, and thanks for the questions. This is Rob. So I'll give you a walk around the end markets and some of the positives and some of the potential gotchas that we're looking out for. And the things we're looking out for that could be to the negative would be around supply chain inflation in labor availability and of course, all of those things correlate. On the Geospatial and Construction side, we see strength in residential and infrastructure work right now we see on the commercial side strengthen sub-markets such as data centers and hospitals. We believe there’s an indicator that the residential work will drive light industrial work as it relates to the infrastructure bill and if it doesn't pass, we would see a benefit of the infrastructure bill really in 2023. So we really don't expect anything in 2022. Of course, there's a sentiment aspect that's hard to quantify, but are -- but we remain that optimistic and I spent some time in Washington a couple of weeks ago to that end. And when I think about construction and I think about the labor side of it as a potential downside. The benefit of technology is that it can make an inexperienced operator good. Our Geospatial market or robotic total station can turned to person operation into a one person operation. On the Ag side, what's positive our commodity prices, it looks like the harvest -- early data on the harvest would suggest a lower harvest, which would hold up commodity prices and then the index that against the ending stocks or the inventory. As you said, absolutely input inflation, I think is what's starting to dent the optimism on the farmer front. With that input inflation, though I look at the value proposition of the of the…

Your next question is from Jason Celino of KeyBanc Capital Markets. Your line is open.

Hi, this is actually Devin on for Jason, potentially taking my questions. First one I have on construction. Just wondering if you could provide an update on I guess, e-Builder and viewpoint. I know that you guys re-branded, but any color on EAR growth and growth drivers there would be helpful.

Hi, thanks for the question. So the combined ARR growth between the 2 businesses was set up plus 17% year-over-year. So another great quarter of execution between the 2 businesses. As you noted with the rebranding, we are especially optimistic around the Trimble Construction One offering. We converted over a 1,000 customers to the Trimble Construction One offering. Sold dozens of new logos onto the offering in the quarter and that -- bookings that creates ARR later down the road but the value proposition and the awareness from the customers is quite encouraging. And we've seen that in the bookings for some time now and which now plays through the ARR expansion.

Great, that's helpful. And just one more, and staying on construction and you are definitely encourage to see the connected construction. On platform, but just want to ask are you -- in terms of like market opportunity, are you still mainly displacing these legacy systems that they were based processes out there or are you seeing meaningfully more interest from contractors and owners looking for a more connected solution?

There are both. It's a good question. From a market -- overall market perspective, really the secular opportunity and construction technology, by the way, I would see this in our other end markets as well. Is that these markets are large. They're global, they're underserved, and they are underpenetrated by a technology. So the move to digitization provides a value proposition that delivers productivity, quality, safety, efficiency, transparency, the environmental sustainability. So there's a positive catalyst for technology to be adopted. And at some level, yes, that is replacing paper-based systems. That exists or let’s says just the mental based systems that exist. And we are seeing demonstrable interest from customers in the connected solutions that we offer and I've had a chance to talk to a number of the customers personally, some that are shown us how they're already taking our technology and connecting the various solutions to improve their workflow. And one of the things they do is not only connect a Trimble workflow, but an Trimble environment that can provide actually accommodate environment. We can connect in an open and really agnostic way to the other technology that our customers use. Customers operated as you know, in the construction industry is fragmented. Therefore, the technology tends to be a bit fragmented as well. And so our ability in approach to connect Trimble and non-Trimble solutions is very top-of-mind for customers. And of course, COVID has also been a catalyst from a digitization perspective. So much of what we do, can uniquely connect the work in the office and the field that connects the hardware and the software and ultimately that physical and digital.

Great, that’s good to hear. Thank you.

Your next question is from Rob Wertheimer of [Indiscernible]. Your line is now open.

Hi, thank you. And Rob, thanks for that answer. I actually would like to follow-up on a couple of points you were making there. Just on the future of digitalization [Indiscernible] construction, I wondered -- there's a very large opportunity. Do you feel like there is an acceleration? Is there a tipping point where we're visible in the next 2 or 3 years or X time frame where you have to be digital or you're not there? Just a general sense on how fast that market is moving. And then do you think it's coalescing around 2 or 3 sort of platforms, yourselves being one of them. And that's kind of the Construction one idea or is that too aggressive statement? And it's still a hodgepodge of a bunch of different assets, maybe just asking you to assess the competitive platform dynamic as well. Thank you.

Hi Rob and thanks for the question. From a tipping point perspective and an acceleration perspective, I think the numbers would prove the acceleration of the adoption of technology. And if we were to get an infrastructure bill, which by the way, we're talking about that in a U.S. context. But we see a construction lead recovery really globally in many markets. And so HS2 is a really nice project in the U.K., [Indiscernible] and Paris. The rail project is expected to be a very large project, and there's large projects happening and Saudi and Australia continues to have some big development. We see the fundamentals in the macro's providing ability to accelerate it. I think, really, the move to have the digitization, COVID I really do feel has accelerated that perhaps hasn't inflected so many of our customers were unable to actually go out to the field like they used to go to do or they realize the need to be Cloud connected in Cloud -enabled when they weren't going to their offices at frequent, as frequently. And we think that's helped us drive more bookings in the business to the cloud offerings. And as it relates to a tipping point that's a really good question. That's a bit of a crystal ball. I think one of the catalysts that could create a tipping point, would be if we see more of this driven from owners. And I will say as well as regulators and maybe I really mean policy when I say that. So from an owner perspective, that's actually the premise of why we did the e-Builder acquisition because who fundamentally has the most at stake when a project's late or over budget, of course it's the owner and so we help them manage their capital programs.…

Thank you.

You're welcome.

Your next question is from Jonathan Ho of William Blair. Your line is now open.

Hi, good afternoon. I wanted to maybe start out with some of the supply chain issues. Can you talk a little bit about maybe what the increases in lead times look like for your customers and have you seen any potential losses given the extended backlog and potentially delivery times?

Hey, Jonathan, it's David. The lead times vary a lot by product, but historically, our lead times have been very short measured in a few days. And there are many times that, so weeks and in some cases, many weeks or a few months, and that's the math of the backlog that you're seeing. As far as the competitive dynamics, in a very few isolated cases, we can identify where we've lost business to a competitor that can supply more quickly. Typically they are competing at the lower end of the market and in some cases those customers have come back. But I think the generally our competitors are experiencing at least similar pressure to where we have and we don't believe that this has had an adverse impact on our share trends. In fact, in our hardware businesses where we can see numbers that are published by our peers or competitors. There is evidence in many of those segments that we're gaining share. We also haven't seen a meaningful amount of orders being canceled because the lead times are extended. So it's something we're watchful for. We're lucky as Rob said in his comments, have a really capable of. Operations team that has done a remarkable job getting supply in this very difficult environment.

Excellent. And then just as a follow-up, just given the strength in your Ag business, I'm wondering, are you seeing a change in the types of products that you're selling into that market, especially relative to historically when it was sort of focused on guidance systems? Are you seeing sort of that broader digital transformation happening in this segment as well? Thank you.

Hey Jonathan. It's Rob, I'll take that one. I'd say the product mix is relatively stable at the moment. What I would say, we're doing a better job of is connecting the software and the hardware and the correction services into the offerings that we have some more of that bundling at a point-of-sale and making ourselves easier to do business with. We have picked up some new OEM customers along the way, and then we've seen some strength in -- particular strength in various geographies. So in the quarter Brazil was very strong for us. Russia was also very strong for us. So there's, I'd say there's pockets, geographic pockets, where we're able to increase the penetration. In terms of a discernible shift in the overall mix of the portfolio. Not really at this point.

Great. Thank you.

Next question is from Jerry Revich of Goldman Sachs. Your line is open.

Hi, good afternoon, and good evening. I was wondering, Rob, if would you mind expanding on the recurring bookings growth you folks outlined in your prepared remarks and transportation, I think it's the most positive tone you've [Indiscernible] transportation in a while. Can you just unpack that? What part of the business is driving the recurring growth and what do the churn rates look like on the legacy business where we're working through the headwinds. Thanks.

Sure. Hi, Jerry thanks for the question. Within the transportation business, historically talked about 3 legs on the stool though the technology stack. The first being that we provide mapping, routing, navigation engines. Second, that we provide the back office technology for trucking companies. And third, that we provide the field mobility tools for companies. In terms of the booking and then those are the 3 historic legs of that stool. And then over the last couple of years, we've moved as well to address the shipper side of the market whereas historically this strength is on the carrier side. On the carrier side of the business, where we see the bookings, growth is in a couple of places. So first in that [Indiscernible] ERP systems, we called it a Transportation Management System and we're moving that business to a recurring model. So there's a model conversion that's happening in there. And we have seen evidence that we're increasing the size of the addressable market, which means we're reaching some customers that we hadn't previously reached. And that's translating into 20% plus bookings growth on a year over year basis in that part of the business. What we're seeing as well on the mobility side, which is really more of the EOD part of the business. As we have seen, some life there, both through two things. 1,... increasing penetration and existing customers as some of our existing customers, actually many of them are adding capacity given the market. In fact, they would like to add more capacity in many cases aren't able to actually get the vehicles are the drivers to do it, but that's one area where we see growth. And the others as we do see some logos are coming back to us, which has been a really good sign for us. Still a long way to go, but I'm liking what I'm seeing from the team, and the pace of the team, and the trajectory and that Canadian ELD certification was a nice proof point that we're not just talking about these things, that we are actually also are delivering. That mapping, routing, navigation business has had many, many years of double-digit recurring revenue growth, which means bookings continue to grow strong and they continue to do a great job in quarter-in and in quarter-out. [Indiscernible] up and that got to the commentary on the script. You asked Jerry about the churn rate as well.

[Indiscernible]

Yeah. On the churn rate side, I'd characterize it in net retention, and net retention was above 100% in the quarter, which is obviously a great sign for us.

It's really nice to hear about the inflection there and you know in buildings and infrastructure, I know you have really good visibility on the prospective pipeline and bookings. Can you talk about if you've seen an acceleration in those lead indicators that you track for e-Builder and viewpoint, given the labor shortages, etc. Could we actually see ARR accelerate further from the strong rate that we're running at in 3Q.

So, yes, actually we do think we can accelerate the level of our growth actually across the Company. And then that being the biggest contributor really to that growth, it absolutely -- it's something that we have a line of -- reasonable line of sight to after the current bookings growth as we plan the business forward, we'll think about in any given quarter or a year for that matter, what's quote-on-quote in the bank and then what's the go-get when we think about that go-get than you can measure the pipeline you have and then you measure the qualified leads you have against that. So you kind of just keep working backwards from that equation and then do you have the horsepower to go and possible effect the pipeline and to turn it into a booking which eventually turns into the revenue. In addition, Jerry another catalyst to rest coming into next year is, our structures business. So that will [Indiscernible] business, the steel concrete business, so that in the summer, we stopped selling perpetual licenses. And so -- in fact, we sold more perpetual this year than we had anticipated and now that we're off the -- almost entirely off the perpetual, that just by the math will provide a catalyst for ARR our [Indiscernible] bookings, which will turn into ARR so that alone would be a catalyst to our ARR growth in that business looking into next year.

Thanks, Rob.

You're welcome.

Your next question is from Weston Twigg of Piper Sandler. Your line is open.

Hi, thanks for taking my questions. Actually I have 2, if you'll allow it. First, just the Geospatial segment has been growing really strongly. And I'm just wondering if you could help us just get a fuel for those trends through next year, how sustainable is this rate of growth?

Hi, this is Rob. Thanks for the question. Big kudos to the Geospatial team. The latest innovation that went to market in the third quarter was the MX50 Mobile Mapping System. And that's on the heels just really many innovations over the last few quarters between the X7 Laser Scanner our [Indiscernible] receiver a really nice run for this. The business has I'd say a pretty good amount of backlog associated with it. As we look forward into 2022, we think that we do have the [Indiscernible] at our backs and that we can continue to grow the business. Now the stunning growth that we've had in that business in 2022 or 2021, excuse me. No, I don't see that that wouldn't progress as we've said a few years ago, we -- that this was we think thought of it as our most mature of the businesses that we have and it has proved to more than once lately to be the -- one of the fastest growers within Trimble on a year-over-year basis, so really a lot of excellent innovation. And as well, our go-to-market team has just done an outstanding job with the channel management around the world. And I would expect that to temper back somewhere closer into the Company average of the 6 to 9 organic range as we go into next year. I would take that as a starting point.

That's very helpful. Thank you. And then the other question I had, you mentioned the cop 26 conference, the discussions around there, and with all the severe weather events this year and how this impacted your customers, I'm wondering if you could maybe discuss some of your broader revenue opportunities with respect to climate change adaptation. Specifically, thinking about some of your agricultural construction infrastructure customers. And maybe outweighing broadly speaking, how that revenue opportunity could ramp.

Oh, thank you for that question. So I'm excited and I'm actually quite inspired by the ability Trimble to play a fundamentally positive impact, or a fundamentally positive role in impacting climate change. Now, the truth of the matter is that our products and our technology have had a positive environmental, sustainability benefit for as long as we have been around. I mean, it's been a byproduct of the productivity and efficiency that our customers generate. What I see as an opportunity is that comes more and more to the forefront. In some cases, it's just our customers have more reporting to do themselves. Whether they realize it now, some of them do and or rather they don't, we see that coming and then we see an ability to go to move into that space. If you take Agriculture as an example, we do have a small business in Ag that essentially runs a carbon marketplace. We get calls from customers or potential customers asking for help in certifying the offsets that they're buying. Think about our -- we tend to talk about our Agriculture business, but we also have a nice forestry business. These are two places that are hugely important in this conversation. And so as big companies are making their own commitments and buying offsets, they don't want to buy bad offsets. And so we're encouraged by the types of calls that we're getting because it's giving us conviction of where we take our product road map to positively impact us. I mean, if I think about the construction space, our structures business, so the steel part of the structures business. We did an announcement a couple of weeks ago of something that I think is pretty compelling as we can continue from a design perspective, essentially to design for sustainability, to understand the carbon load that a building has during that design and engineering phase. For many years, we've had a pre -design product to help you understand, let's say the energy consumption profile of a building. And as the users of the buildings on let's say, if there becomes regulatory pressure on this, to design with carbon in mind, the constructible models that we provide at Trimble have a profoundly positive ability to impact designing and maintaining and operating with sustainability in mind. So we're actually putting some -- our resources to this. Because I see, all of us at Trimble see or board sees some really interesting opportunities that at some point will turn into commercial opportunities. Now that they turn into commercial opportunities is something discrete and separate, or are they part of the existing technologies we have? I would see there I don't know. But you follow what's going on and you've got -- I've got to believe that there's some material business for us to have here.

That's really helpful and thanks for all the effort in that category for sure. Thank you.

Thank you.

Your next question is from Chad Dillard of Bernstein. Your line is open.

Hi, good evening, guys.

Hi.

I actually want to go back to Trimble Construction 1, I was hoping you can give a little bit more context on where it belongs in the prior portfolio. My first question is just on just how much overlap does it a have versus your current product offering and then maybe you could talk about at least like your initial sales, whether you're seeing more come from conversions versus new customers. And then secondly, it to extend to this new platform expand the opportunity to [Indiscernible].

Chad, so this is Rob, I'll take the question. So where to start? Our Trimble Construction 1 offering, essentially right now can take what we do at viewpoint. I mean, at viewpoint, years ago, we moved from selling, I'll call it an ERP on an office - based solution to moving to selling a combined team and Field Solutions, so think, project management and field mobility tools. And we called it viewpoint one and then we caught an [Indiscernible] office team field offerings. So it moved from a point solution to a bundled viewpoints solution and now that next step is and to Trimble Construction 1, what the first release of it. That brings in many aspects of our MEP business. So it's mechanical, electrical, plumbing business and we're able to bring in detail or an estimator workflows into the product offering. And then from there, we have a basis where we can continue to expand across other architectural and engineering workflows and products that we have. So by and large, it's taking what we do already and having a better packaging around that. Making it easier for our customers to consume the technology. From a technology perspective, it's better integration, tighter integration between the solutions that we have. Our customers have been asking for this, and so we're really excited to be able to start delivering upon it. I would say it's just the start. It's Version 1 of Trimble Construction 1. There are many other capabilities that we believe we can bring into that both from a civil perspective as well as a vertical construction perspective. And the natures of the conversions we have thus far are predominantly with the existing customers and moving them over. But we did get a few dozen new logos during the quarter on Trimble Construction 1. It's very much a persona based growth platform. We think about personas and in architectural engineering work persona, we think about a contractor persona. We think about an owner persona. And then we'll as we migrate over time will get -- be able to get more and more. I'll say specific and targeted to delivering Construction, Trimble Construction 1, to those individual persona. So I'd really say the start of much more to come and the more that we connect the data, the users, and the workflow across this data be gets the opportunity to move into richer data, AI opportunities. And there it gets then another level of exciting so the more we can connect what we've got for our customers, the more of that will create solutions down the road.

Great, thanks for that. Second question, more so on your hardware business, just trying to understand the progression of price cost and maybe you can just walk us through what the price cost balance. It was 1Q, 2Q, 3Q. I think you said for 4Q, it's negative and then I guess most importantly, where do we go from here for this year? If I remember correctly, there's a portion of your business that is under [Indiscernible] longer-term contracts and when do those anniversary up get up for a renegotiation.

Hey, Chad, let me give you some perspective and all sort of ground. My comments in what we mentioned last time, when this very uncertain world we were estimating that for the full year 2021, we'd have inflation in aggregate of about 6% of our $600 million in COGS, so that's $36 million. We're definitely running north of that. We're probably about $10 million more in product and freight inflation than we were anticipating. And we've adopted our pricing strategy all year in response to our best guess of where things are. You're right there's some latency in -- when you can make a decision and implement the strategy, and it really differs by business and customer. In some cases, we can implement a price increase by smarter and less discounting. Some cases there's a surcharge that's possible, some cases, you have to wait for a list price. But I would say our pricing momentum has kept up with the inflation outlook that we started with. But we're running behind because inflations [Indiscernible] than we believe. So your understanding is correct. We're behind inflation now. Even though the pretty much the full impact of our price increase came through in Q4 will be modestly negative, not hugely modestly negative. Going forward it's a very tough world to guess cost inflation. And we think it's not going to get better soon. We're optimistic it won't get a lot worse. We have some more work to do on the pricing front, but I would say in aggregate, it is still our view that over time we can offset the inflation costs impact with pricing. It's just going to take us into next year to do that.

Thank you.

Your next question is from Colin Rusch of Oppenheimer. Your line is now open.

Hi. Good afternoon. This is Christian on for call, thank you for taking the question. Just. And to follow up on some of the commentary around the connection Scale and sort of the acceleration of that spend into 2022, just wondering if you can provide an update on sort of the internal processes that you're going through where you stand in those and any metrics around identifying what that opportunity set is based on the multi-product customers.

Well, hey, Kristen, this is Rob from let's say, to put context around where we're spending the money, digital -- around digital transformation, and we believe through that digital transformation that that will in turn lead to inability to scale our revenue growth, particularly the recurring revenue growth and the growth of bundled offerings. We do believe there'll be an Infrastructure Bill that comes and even if it doesn't come, we believe there is a fundamental ability for us to play a positive impact within infrastructure to have it is built better, faster, safer, cheaper, greener. So we've been -- we have been putting more resources to that which we in turn think will help us grow the business. And we take up both the short-term and long-term view when we come to extent the questions around how we actually come to that answer. And we believe it's the right thing to do for the business. But I think it'll only have answered half your questions, so sorry. Tell me what else we can help with. [Indiscernible]

The internal processes, where you are in that process of identifying where you can create synergies internally, how you're going to market more efficiently. Just sort of connecting the internal data backbone. An update there would be really helpful.

From an internal perspective there, actually, I like the progress we've made through our annual strategy exercise as we do each of our major franchises. I'm have defined there what Connect and scale means to them. And our industry. Cloud strategies are Platform strategies that relationship with Microsoft. And we think is a really big deal for us and where we take the business going forward. We've got demonstrable success on digital transformation efforts with some of the underlying plumbing that we're putting in place. So things, like, common identity, licensing, entitlement engines, which really are just the call of the must-haves table stakes for where we're going as an organization. Most of our businesses of identified where they see cross-sell, up-sell opportunity within the customer -- within, I'll say common customer personas. So I like the work that we're doing and in preparation, I wish it could come faster. How about these things do have a bit of a natural course they take.

And then if I could, the follow-up to a previous question related to the hardware sales versus our growth. Just wondering, given the strength that you've seen in hardware over the last, call it year or so. How we should think about that as a precursor for ARR growth. Thank you very much.

Well, most of the ARR that we have is independent of the hardware, where I would say there is a potential precursor as we've talked before about our machine control and guidance business and our -- and civil construction that obviously has hardware and software associated with it and where we've moved to a recurring offering there. So to the extent that that influx and we see more adoption of that and we have been seeing more adoption of that regardless of how the accounting has treated on it from a practical perspective, it does become more recurring and have an ability to drive that. In addition, the more we connect that hardware and the software that they have overall, there, I think we see a large installed base of customers or have our hardware that would benefit also by connecting [Indiscernible] to office software to combine with a field hardware. So I do think there's an opportunity there, Christian.

Your next question is from Meta Marshall of Morgan Stanley. Your line is open.

Hi team, this is Erik [Indiscernible]. Thanks for squeezing us in. Maybe, just a follow-up on that last question, when we think about some of the incremental investment you're planning over the next year. I was going through this process of connecting more of the assets that whether they were acquired over time or kind of built separately at all, impacted your appetite for M&A? Just wondering if that is a factor.

No, I'd say it hasn't impacted it all. We will look at acquisitions where we think it can accelerate this strategy, and have a positive impact on Connect & Scale and building out our industry platforms. We also think more of these days is about partnership, and I think Microsoft is a good example of that there's multiple paths to get to this strategy.

Thank you. I mean, maybe if I could squeeze in one more. You talked about the high-teens growth in viewpoint e-Builder, but when we look at overall subscription growth, somewhat flattening organically. Can you help us understand what areas of subscription grew somewhat slower? Is that mostly related to the transportation segment or there are any other factors?

Transportation segment.

Got it. Thank you.

Your next question is from Ed Magi Berenberg Capital. Your line is open.

Hi, guys. This is Ed Magi on for Gal Munda. My question relates to the Microsoft partnership with Construction 1, how much of this is technology partnership versus go-to-market efforts? And what do you estimate the timing for GA for this I'd love to hear some examples of new products that could follow after. Thanks.

Hi, this is Rob. I'll take the question and thanks for the question. So technology and go-to-market from and from a GA perspective on the on both of those intersecting -- I think next year, mid-to-late, next year would be about the time to think about GA. And then before then from a technology perspective, we get, I'll say incentives and help to move technology that we have. So it helped us accelerate the velocity and the development efforts. So we get some help on the technology side, there. Our nature of relationship does give us a better pricing on the Cloud cycles that we consume. And then yes, the idea is to build the Construction Cloud powered by Azure. And in doing so, we believe there are some unique and novel things that we can bring to that construction Cloud and just think about the breadth and depth of what we do at Trimble. And now mapped out at a go-to-market perspective, you've got tens of thousands of sellers between Microsoft and Partner network on top of the sellers that we have on a global scale and quickly get a sense of why I am very excited about the opportunities to help us with reach and scale. as a result of this relationship. And we do think that there's some really interesting technologies to combine between the two companies and stay tuned for more on that in time.

[Indiscernible] the question and congrats to the quarter.

Thank you.

Your next question is from Rob Mason of [Indiscernible]. Your line is now open.

Yes. Good evening. Thanks for taking the question. I'll try to be real quick here. I just wanted to clarification first the commentary around Connect and Scale investments for this year. Could you confirm, did you say that you thought you would be back on model with respect to incremental margins in 2023 or did I hear that correctly.

Hey, Rob, It's David. So I think I'd characterize our comments is sort of broad outlook to 2022, little early to talk about 2023, But just add a little more color. We are in an investment mode in the areas that Rob talked about in digital transformation, in autonomy, and in our major accounts. Go to market activities, which are all really critical to take advantage of the strategic opportunity we have. And those are likely to result in OpEx, growth next year ahead of revenue growth. So I think we'll have, if you look back to the 2018 Investor Conference and the objective stated was operating leverage in the 25% to 30% range. I think we'll be in that range, but in 2022 at the lower end. And then I think it's logical to expect that we will have some of the positive benefit of that beginning in 2023. But I'll be cautious about making it firm prediction now.

Sure, sure. Maybe the follow-on that is, if there was some news in the quarter around where you do have some autonomy exposure. Customer, they're planning to ramp some of the technology they leveraged from you. And how should we think about when that does happen, if it happens when -- is that more step function or is that more linear with, I guess the volumes around that?

[Indiscernible] take more linear with volumes.

Okay. Very good.

No questions at this time. I would like to return the call back to Michael Leyba, for further comments.

That concludes our call, everyone. Thank you very much and we'll talk to you next quarter.

Thanks, everybody.

This concludes today's conference. Thank you for participating, you may now disconnect.