Thank you for standing by, and welcome to the Trimble Second Quarter 2024 financial results conference call. [Operator Instructions] I would now like to turn the conference over to Rob Painter, Trimble President and CEO. Please go ahead.

Welcome, everyone. Before I get started, our presentation is available on our website, and we ask that you refer to the safe harbor at the back. Our financial commentary will reflect non-GAAP performance metrics, including organic growth comparisons, which refer to the corresponding period of last year, unless otherwise noted. In addition, our P&L commentary will emphasize comparables on an as-adjusted basis, which excludes our agriculture business. Let's start on Slide 4. During the second quarter, we continued to advance our connect and scale strategy, which involves digitally connecting the workflows within targeted industry segments and creating scale across Trimble through shared technology platforms. Our strategy delivers outcomes in the form of unique value to our customers and sustainable value creation to our shareholders. We want to convey three key messages today; the strategy is working, the numbers reflect the execution, and the execution reflects our simplified and focused organization. Slides 5 and 6 detail some highlight metrics. $2.11 billion of ARR grew 14%. Revenue grew 1%. Gross margins were a record 66.5%. EBITDA margin expanded 40 basis points to 24.6%, and free cash flow was strong. Revenue in the quarter was 75% software services recurring, and 60% overall recurring revenue, both records for Trimble, reflecting our portfolio transformation and continued organic mix shift driven by ARR growth. Based on the solid first half year performance, we are raising our guidance for the year. Before we turn to the performance of the segments, let me provide an update on the status of our financial audit. By way of reminder, the need for EY’s re-audit over 2023 financials stems from concerns about the comprehensiveness and documentation of a number of our internal controls, especially around our IT systems. These concerns arose as EY prepared for a PCAOB inspection of their audit…

Thank you, Rob. As noted before, my financial commentary will emphasize comparables on an as-adjusted basis, which excludes our agriculture business. We believe that maximizing long-term free cash flow drives shareholder value. Connect and scale is our strategy, which we believe will continue to deliver recurring revenue growth, margin expansion, and ultimately cumulative cash flow growth. Slide 10 highlights balance sheet and cash flow dynamics. On cash flow, we are trending better than expected after considering the transaction-related impacts. Reported free cash flow in the first half of 2024 was $300 million, that includes $50 million of tax payments related to our gain on sale from the AG JV, as well as $54 million in M&A-related transaction expenses. Our conversion ratio in the first half of 2024 without these items was well above our target of 1x net income. We'll have additional tax payments impacting future operating cash flow related to the AG JV gain on sale in our third and fourth quarters of 2024 and second quarter of 2025, since the tax payments are spread out over time. Our asset-light model continues, with capital expenditures less than 2% of revenue and negative net working capital. Net debt to EBITDA after the close of the AG JV stands at less than 1x, well below our long-term leverage target of 2.5x. We have just under $1 billion in cash after paying down our term debt and the outstanding balances on our credit facilities. We intend to resume our share buyback when practical. Our capital allocation focus remains the same. We invest where we see opportunities for the highest returns. We continue to disproportionately allocate capital to our AECO business where the bulk of our operating expense increases are in our sales and marketing engines to continue to drive ARR, revenue growth,…

Thanks, Phil, and thank you to all our Trimble colleagues and partners for delivering a solid first half of the year and for demonstrating resilience and conviction as we continue to transform how we work so that we can transform how the world works. I'll end with a fun fact related to the games in Paris. Our technology was leveraged for the design, engineering, and construction of many of the stadiums, such as the aquatic center, the sailing marina, the football stadium, and also for athletic housing. The Les Gradins building, which houses over 400 athletes, will be converted to an office building after the games conclude. On the project, our survey kit, engineering, and prefabrication technologies, were used to construct a sustainable structure and to deliver it on time. Trimble Connect was used as a collaboration platform to coordinate across hundreds of users and stakeholders. To quote the BIM engineering manager on the project, I find Trimble Connect to be the best collaboration platform on the market in terms of file quality and usability. You can tell they designed the tool to be easy to use, even for non-experts. Operator, let's open the line to questions.

[Operator Instructions] The first question comes from Kristen Owen of Oppenheimer. Your line is open.

Hi, good morning. Thank you for taking the question, and congratulations on the nice quarter. I wanted to ask about the 18% AECO ARR, clearly ahead of our expectations. You lifted the guidance there, and when I look across the landscape of software categories in which you compete, it seems to me like maybe there's an opportunity for Trimble to pick up some share as we think about some of the pricing and channel shifts that we've seen. So, I'm just wondering if you can help us unpack the sources of growth there. Is it cross-sell, upsell, new logos, price, et cetera? Any additional color that you can provide there would be helpful.

Thanks, Kristen, for the question and good morning. So, let's break down a little bit there within the ARR growth, starting with a congrats to the team. It really was a terrific post of a number for the quarter. About two thirds of that growth is coming from existing customers and one third from new logos. And so, we really - for the breadth and depth of the portfolio we have, there's a great ability for us to package cross-sell, upsell, and that comes in the form of the Trimble Construction One offering where we now have over 20 pre-packaged offerings to serve specific personas across the industry continuum. If we look at the segments that we're serving within construction, where we see strong growth are in data centers. We see the onshoring and reshoring of renewable energy work. These end markets have been strong, and private data centers have been the strongest. We actually have also had some growth in residential. So, even though there's weakness there, we've seen growth there. One thing that's unique too, Kristen, about the data set that we have, because we're managing over $1 trillion of committed construction programs through our systems, over $0.5 trillion through the ERP alone, is there's a lot of data we can see. And so, in North America, we can see that jobs are up. Hiring's up. That is jobs are up. We can see that the volumes are up. We can see geographic strengths within States here in the US. We can see that States like South Carolina, Florida, Texas, have been very strong. We can see states like New York and Louisiana have been weaker. So, we're able to get a good insight into the market. And then differentially across the world, North America for sure is performing better than Europe and Asia Pacific. So, hope that gives you some color.

Thanks for that. And my follow-up here, this is the first real conversation we've heard Trimble have about AI. You’re giving some of the examples at the back, which we'll have to go back and look into, but one of the questions that we've seen in AI on the market has been, how do you monetize it? So, can you help us understand whether it's the Copilot or utilization or the autonomous procurement? Just help us understand the value creation or monetization opportunity for Trimble in leveraging that technology. Thank you.

Yes, it's a great question, Kristen. We're still in the very early innings of monetization. We're paying a lot of attention to it. Now, you talked about the GitHub Copilot work. That's internal productivity. So, the lens I have on this is, there's a set of work in AI that's for making us more efficient and productive inside our own house. That could be how we're doing customer support using the chat bots. It is the productivity through the code development. It's getting sharper about how we do our marketing efforts, leveraging AI when we go more customer-oriented, and those are the examples I had in the prepared remarks, and then we put a slide in the appendix with some hyperlinks so you can go look at some examples of what we're doing in the market. I'd give you sort of two breakdowns on that. One is that we see it as - some of this is part of continuous value delivery to our customers. That is, they're paying subscriptions. We typically get price increases every year. I think there's a reasonable expectation that we're providing incremental value. And in that sense, it's part of the offering that we do. The distinction I would make is when we have more breakthrough productivity or breakthrough value that we can provide customers, we think about, okay, what's the - quantifying that value and then what's our fair share of that capture? One example I can point out is in - within our Transporeon business, is the team has developed autonomous procurement and autonomous quotation capabilities. And when customers are using that instead of the traditional methods they've used and solutions they've used within Transporeon, we're monetizing that at I think of 2x to 3x (indiscernible) to 2x factor for execution because the result is that much better for the customers. So, that's one example of where we're monetizing, and I'd say we're still pretty early in it. And you're right that this is certainly evolving in the monetization side of things.

Thank you for the time.

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

Great. This is Zane Meehan on per Jason Celino this morning. Thanks for taking my question. Rob, first one for you. With the elections in the US coming up later this year, I'm just curious to hear if you're hearing any customers delaying buying decisions as a result of that, and if so, if that's contemplated in the 3Q and full-year guidance?

Hey, thanks for the question. Relative to the election, I mean, you typically hear that in these periods, that people will do a bit of a pause to kind of see which way the wind's going to blow, and we'll see which way the wind blows. We believe we've taken that into account in the guide that we've put forward. And if you think about the guide, think about the visibility we have with the ARR business is much higher than we would have on let's say the hardware business, which manifests more as a book-and-burn. So, we have visibility into the rest of the year, differential visibility. 60% of our revenue is now recurring as a company. 75% of our revenue overall is software services and recurring. It's certainly reasonable for us to - and all of us, I guess, to think about what the impact of the election might be on our business, whether that's around regulation or whether that's around tariffs, depending on which way this goes. But we believe we've got this taken into account.

Okay, great. That's super helpful. Thanks. And then second question, Phil, for you. On the margin side, it's nice to see the little uptick in the guide. Just curious, is that coming more from the revenue outperformance or are you getting leverage from specific line item? Just curious to hear further info on the margin uptake.

Yes, thanks, Zane. Hey, the main reason for really the mix shift is our AECO business, continues to grow at a faster rate of the - than the field systems. And we have a little bit better first half and those bookings start to flow through in the second half. And so, I think what you're seeing is then that mix shift, which obviously the gross margin on the AECO business is higher than the field systems. And so, you're seeing that sort of flow through in the back half of the year.

Okay, great. Thank you.

Your next question comes from the line of Jerry Revich of Goldman Sachs. Your line is open.

Yes. Hi good morning, everyone. Rob, nice to hear about the logo growth at Transporeon. Can you just expand on that? What was the logo growth in the quarter? What was the transaction count? Can you just expand more on the performance in the quarter and to the extent you have visibility on how the cadence looked into July and August for that business, please?

Sure. Hey, let me frame this in two ways, one with the first half of the year, and then secondarily with the second quarter specifically. For the first half of the year, the bookings growth in the Transporeon business was in the mid to high teens. So, super pleased with that performance in context of what still is a freight recession. And so, the way then you can grow that bookings is coming through winning deals. And in the second quarter, the team won over 250 deals. Those deals come in the form of landing dozens of new logos and also doing land and expand plays within the existing customer base. There are certainly some pockets of end markets that are stronger and others that are weaker. There's been some strength coming back on the retail side. Some of the building materials have - that side of the business has been lower for the business. The team also had some success getting traction here in north America as well, which we were pleased by. And then last thing I'll comment on is we've got more plays happening between the Transporeon and Trimble Transportation business. Still early in that, but I like what I'm seeing in terms of the teams working together. So, add that up and that's the color around the numbers.

Super. Thank you. And can I ask a similar question for AECO. I mean, that business has been growing consistently around 17%, 18% really since you've acquired E-Builder and Viewpoint. Can you unpack the growth profile now? How much is the logo growth that we're seeing this year versus cross-selling, and how much runway do you see based on the pipeline and opportunity set to continue to deliver this pretty consistent level of growth that you've put on I think for about five years now?

Sure, Jerry. So, the growth is about two thirds from existing customers and one third from new logo customers. And you're right, the team has consistently been posting excellent growth. And this is excellent growth at scale. I mean, AECO alone is a $1.16 billion ARR business today, growing ARR in the high teens, operating at a rule of 44 in the quarter. It was over rule of 50 in the first quarter. Net retention is about 108% in the business. So, a lot of good things happening in the business. We believe we're winning because we have a unique value proposition. The value proposition is delivering productivity, quality, safety, environmental sustainability to our customers. It's helping them solve higher order problems for customers and ability, especially when we have the TC - where we have the TC One offerings available. That's Trimble Construction One. It reduces friction in the buying process. It makes it easier for customers to do business with us. It's doing things with Trimble that you can uniquely do, that is connecting work in the field and work in the office. So, when we look at the base of the customers that we have, we're bullish in our ability to continue growing this business, especially when I look at that two-third, one-third split, and two thirds being from existing customers.

Thank you.

The next question comes from the line of Jonathan Hull of William Blair. Your line is open.

Hi, good morning. Just wanted to see if you could give us a little bit of additional color on the go-to-market changes that you're making around the named account executives for Trimble Connect, and maybe help us understand how that could potentially drive faster adoption of the Trimble platform.

Hi. Good morning, Jonathan. So, yes, we moved - in the AECO business, we moved to a named account selling model at the beginning of the year. It was definitely a huge change for the team and for the organization. And if you think about it, if you're going to - if you sort of rewind, call it five, 10 years ago, we might have sent multiple sellers in to talk to a given customer. Today, that moves to having one person who's got accountability for that account, and then accountability to bring in the specialist behind her or him in order to best serve that customer and meet the breadth of needs. Now, it's one thing to have named account model that would be incomplete if you didn't have the product to go along with it. And that's where the bundled offerings, TC - Trimble Construction One, namely arms those account executives with the ability to offer customers a unique value proposition. And then what's behind that are the underlying processes and systems. So, we've had a lot of, I'd say, growth around our sales operations, our sales enablement motions. And then with the systems underneath, the work and the investment we've made over these last years has, let's say, upped our game in terms of licensing and entitlement engines as an example. Then we're getting more 360-degree views of our customers, which helps - all of which helps enable the sellers to go do what they do at that named account level.

Got it. And then just in terms of a follow-up, can you give us a little bit more color on the Trimble Pay or payments opportunity and how that works from a contractual or financial perspective? Just want to understand, are these gross grosser net type contracts, and what that cross-sell opportunity maybe looks like through your base. Thank you.

Yes. So, we're bullish on land and expand plays within the platform that we're offering. So, when we can attach new capabilities to the existing base of solutions and customers that we have, we think that's a winning motion. And we've seen that with the two acquisitions that both Phil and I mentioned in the prepared remarks about work in the field and as well as payments. It stands to reason that payments are going to link to an ERP, and guess what, we have the ERP through the Viewpoint business. So, that's the essential, let's call it value proposition or essential linkage. We also have the project management systems, the need to be able to pay subcontractors as a given in the industry with a natural place for us to be, and we think a winning motion. Phil, is there anything else you want to add to that?

No, that was pretty good. Thanks.

The next question comes from the line of Rob Mason of Baird. Your line is open.

Yes. morning Rob, and Phil. I wanted to see if I could get a little more color just what you're seeing across your various geographic regions, and if anything changed in the regions during the quarter. Your overall outlook, revenue outlook, we can see what that is. It didn't have a lot of movement. I'm just curious though how you're seeing the second half of the year as well in some of the regions.

Yes, we're seeing the most strength in North America. Actually, Europe grew on an organic basis. That's going to be from the Transporeon business. Ex-Transporeon, it's been a tougher market in Europe, but I’d just say, it’s still holding up on a baseline. Differentially, around the world, Asia Pacific was hardest for us in the quarter, and I'd say think of a couple of places. China continues to be a harder place for us to do business. In Japan, the weakness of the yen makes it more expensive to do business with us, and those have been sort of a couple if pockets of weakness. We're paying attention to what's happening in Australia, New Zealand, the state of the economy there. So, the Asia Pacific, weaker. North America, the strongest. Those are the bookends. And that plays into our thinking in the second half of the year.

Very good. Rob, you made note of some of the automotive OEM wins. We hadn't talked about that part of the business in a bit. I know historically there was some involvement with GM. Could you bring us up to date on where your book of business sits overall in that positioning part of the business, and how many OEMs are you working with now?

Yes, good question, Rob. So, let's talk about the underlying technology itself. I mean, you go back for our 47-plus year history, started in positioning technologies. As positioning technologies have continued to evolve and innovate continuously over the years, we moved from, or we got into what's called RTK positioning decades ago, and now we can deliver those same - which deliver corrections to create that highly accurate ubiquitous fast convergence for that high accuracy need, which historically had been for us in agriculture, survey, construction markets. We can now deliver those through satellite, so you get more global ubiquity of the coverage of that. And then we asked ourselves the question of where else would this high convergence, high accuracy signals be of value? Automotive markets were a natural extension for us. So, same technology into a new market segment, whether that's for ADAS systems or on the path to autonomy or it's redundancy into other positioning technologies or sensors, I should say, on the cars. So, that's the context for it and for that market and extending the technology into the automotive market. And automotive is a market that we had - we do have some history in through navigation technologies. Now, you mentioned General Motors’ Super Cruise program. Yes, it's exactly the same topic that we're talking about with additional OEMs. I believe it's probably less than a dozen today that we have design wins with, and then there's certainly a pipeline that's bigger than that. When you think about the design win, it can take you a long time to get to that design win. Once you have the design win, you've got a pretty long lifecycle, actually, well, very - actually, I would say a very long lifecycle, multi-year call it plus or minus seven years over that design win. And if you kind of apply some software metrics to it and you think about the lens of lifetime value over customer acquisition costs, it's a good business to be in once you can win that OEM.

If I could ask, how quickly do they convert to revenue? So, if your design wins in the quarter, when would you expect revenue?

It's actually very slow to get to revenue. I mean, it's good news and bad news, bad news being it's very slow to get to being able to recognize that revenue. The good news is that we can recognize that revenue over a long period of time. So, I'd say to date over these last few years as we've been getting these design wins, it's had more cost associated with it than revenue and gross margins. So, it's been upside down for a few years. We're getting to a point of a cumulative base as we start to recognize that revenue. And it'll just - it will look better over the next few years as that cumulative base steps up, as it's the nature of the revenue recognition over multiple years. That 17% ARR growth in field systems has a little bit of that automotive segment, but that's not the fundamental thing yet that's growing it. And also, good news as I would say, that's the kind of visibility we can have years forward in field systems that we would've never had historically.

Very good. Thank you.

Your next question comes from the line of Tami Zakaria of J.P. Morgan. Your line is open.

Hey, good morning. Thank you so much for taking the questions. So, the first question is on the transportation segment. I think the performance was quite impressive given the tougher compare year-over-year. So, when I look at the first half performance, it's up pretty nicely, 3% to 4% year-over-year. So, your guide implies a zero - flat to low single-digit growth for the full year. So, which means sequentially you're expecting some slowdown. Should we think about this sequential slowdown in terms of the tougher year-over-year third quarter comp, or are you expecting any softening in the demand? So, just trying to understand how to think about the back half versus first half for the transportation and logistics segment.

Hey, Tammy, it's Phil. Thanks for the question. So, I mentioned this in my prepared remarks, but the - we've had some churn that we've already talked about in the North American mobility business, and that really starts to manifest itself in the second half. So, a big portion of the second half drop that you see is really due to that. But as Rob said earlier, we're still seeing the performance around the Transporeon business, the maps business that's offsetting some of that, but that's really the headwind that you see in the second half is that churn that we previously disclosed.

Got it. Thanks for the clarification. And then the other question is, I think you spoke of some incremental investments you're making in sales and marketing to support the software-centric businesses. Any updates on where you are in that process? Is it mostly done, or do you expect it to continue through the rest of the year? And more importantly, should we expect this to continue through next year as well? So, any color on that investment journey would be helpful.

Yes. Hey, Tammy, it's Phil again. So, yes, so as we talked about this from a capital allocation standpoint, we continue to pivot our resources toward the AECO business, and in particular that sales and marketing, which ultimately drives the ARR growth and the revenue growth in the future. And so, we see that continuing as long as we have the pipeline and the bookings. And the nice thing about rule of 40 plus business there is if we do see slowdowns, we can easily pivot our OpEx and still maintain a rule of 40. But as long as we continue to see the growth and the opportunities there in that business, I think you'll see us continue to allocate our resources toward that.

Got it. Thank you.

We'll take the final question from the line of Joshua Tilton of Wolfe Research. Your line is open.

Hi, this is Arseni on for Josh. Thanks for taking the question. Can you just talk directly, maybe a layer deeper into what you're seeing from a demand perspective across the AECO portfolio. Certain competitors in this space are facing challenges, and appears with one third new logo contribution to growth, this isn't really impacting your business. I know you sell a wide suite of products to different stakeholders, but are you seeing more demand than you saw starting this year, and is that driven by changing behavior in your existing customers, or are you seeing improving win rates versus competitors? And then just on Transporeon, with I think spot rates improving quarter-over-quarter in Europe and the Transporeon business getting more revenue per load in spot versus contract, is this providing a tailwind into full-year? And if so, is that embedded in your guidance release? Thank you.

Hey, good morning, and thanks for the questions. I'll start with - this is Robert. I'll start with the AECO topic. So, yes, we have talked about the ARR growth, the two-third, one-third split coming from cross-sell versus the new logo. I think the additional color I can add to your question is as follows. We spend a lot of time segmenting the market, whether that's on the - I’ll call it the end markets, it could be residential, non-residential, infrastructure. It's also on the customer types. We think about where we serve the architects and designers, the engineers, the construction companies and the owners, their segmentation there. There's also a level of segmentation in terms of the size of the customer. So, think about mid-market customers, think about large enterprise customers, and then lower down, think about the small medium-sized businesses. One of the areas where we've been able to pivot is where we've seen a little bit more weakness on the mid-size customers. We pivoted our motions and our teams into the small and medium-sized business market here in North America. So, we've got the data and the ability and the products and the go-to-market model aligned to go find the business where it is. And I think that's one of the things that's differential about us. So, we have a broader product offering, serving the broader ecosystem, serving more participants in that, serving it more globally than our peers in the industry, and then being able to move our motions up or down market depending on where more of the activity is taking place. We also have a channel. We've had a channel at Trimble, I mean, Trimble's history. We've got decades of managing Trimbles. If we look in the AECO business, probably 10% to 15% of our bookings in the quarter came through our channel. So, that's also a motion that we've had for a long time. Oh, and on the Transporeon side, you asked about spot rates in Europe. They are, I would say just marginally better. They're not better enough to be really moving the needle yet. But you're right to look at that. We do as well, and we'll continue to pay attention to that. So, we believe that the current rates are built into our guide. If the market were to move quicker and spot rates go up, then that would be upside for us.

Thank you.

Thank you. Ladies and gentlemen, that concludes today's call. Thank you for joining. You may now disconnect.