Trimble Inc. (TRMB) Earnings Call Transcript & Summary

Great. Good morning, everybody. I'm Brian Gesuale, senior analyst here covering the industrial technology space. Really happy to have Trimble here to present their story. It's one that's seen a lot of transition over the last several years and transformation and been really constructive. The company continues to stack up mid-teen ARR growth and build a very credible software franchise across vast end markets with a lot of addressable opportunities here. We have the company's Chief Financial Officer here to take us through the story. Phil, take it away. It's going to be a hybrid presentation. So if you have some questions, think about them. It will be about half presentation, half Q&A. I'd be happy to get to some of your questions on the Q&A part.

All right. Thanks, Brian. Hopefully, you can all hear me. We're using the podium right now. So yes, Phil Sawarynski, Trimble's CFO, I will take you through High level, okay, so who is Trimble? So Trimble, we transform the way the world works. Our software and technology has been used across large global underserved, underpenetrated industries with technology. So we look at large addressable markets, primarily the 2 platforms that I'll talk about a little bit are construction and transportation and logistics. We've identified about a $72 billion addressable market in the spaces that we cover. Only about 25% of that is penetrated with technology. So we see a lot of availability for us to run as far as our growth going forward. Okay. So what are some high-level numbers for Trimble. So we exited 2025 at just under $3.6 billion of revenue. We're an asset-light model, financial model, less than 0% net working capital. Our ARR, as Brian said, we continue to grow $2.5 billion of ARR that -- and I'll show a little bit the transformation of the portfolio of the company. 1.1x net leverage. Our goal is to stay under 2.5x. That's a number we like to stay investment grade. And roughly, our calculations with the ratings agencies is about 2.5x for our internal calculations. So the balance sheet is in a really good spot at 1.1x leverage gives us a lot of flexibility. So that's the financials. On the right-hand side, you'll see some of the other quants. So we have trillions of dollars of construction spend that go through our systems. We have billions of dollars of freight that go through our systems. We have millions of users of our software and thousands of instruments in the field. So what we do that I believe is unique to Trimble is we connect the digital and the physical, the back office to the field. We have hardware in the field through our Field Systems segment. It's where our data collectors and our information is gathered. It's also where we can push digital models back to the field. I think that's unique in what we do. Millions use our software, we have large platforms where we can connect users in a collaborative way. We look at our platforms and our ecosystems. So think about multiple stakeholders being able to connect, collaborate, including third parties. And so that density of our platforms and that collaboration and that connectivity is something that's very important to us as we go forward. So here are our 3 segments that we report on, our AECO, architects, engineers, construction owners. This is really our construction software portfolio. Our Field Systems, this is our geospatial solutions, our civil construction solutions. So on the hardware side, think about machine control, hardware that goes into dozers, graders, et cetera, to be able to automatically control the blades based on the digital model that's being used. The business is now with the divestiture of the ag business, we -- is over 50% software, services and recurring. As I look on the right, the Transportation business, this is our -- where we connect our customers, again, as stakeholders within the platform. So think about a carrier and a shipper and being able to connect and collaborate to execute freight. Both North America and in Europe, we bought Transporeon in Europe, which is a platform play and are bringing those businesses together. So within those, we think about 2 sort of industry platforms, one being construction and that sort of overlaps the AECO and the Field Systems. Even though these are separate reporting segments, there's quite a bit of overlap in how the information and the data is connected and how our customers interact on those platforms. So why Trimble? What are some key capabilities that we have? I think about our expertise in our -- the industries that we serve. So construction and transportation, as I mentioned, these are large global industries. They're complex that require experts to be able to solve complex problems. I mentioned before, we solve ROI through efficiency. So think about making our customers being able to move faster, more efficiently, run their operations in a safer and greener way. So within these platforms and within our domain knowledge, we have substantial amounts of data and information. Think about calculations on critical projects or structural problems to solve. On the innovation side, we reinvest in our R&D over 17.5%. It was over $600 million last year that we reinvest. Over 1,000 active patents that we own. And I mentioned the hardware and the software that connects the field and the office with the data pipe that can go back from the digital to physical and the digital twin into the physical assets that are being built or maintained. So taking a step back on our history, we've been a very acquisitive company over the years. And I mentioned the reinvestment in R&D, a lot of organic and inorganic investments. So developed a lot of capabilities over the years. A few years ago, we started our Connect & Scale strategy, and I'll put that in a couple of different buckets. One is we take the best point solutions and the best workflows and we combine those into bundles. And what does that do? That allows our customers to buy products that resonate with them, and we look at individual personas within our customer base. In a lot of cases, those bundles are unique to Trimble. So when I think about where our competitive advantage is, we can create, again, these bundles that are unique that others can't necessarily replicate. But from those bundles, we create connected workflows. And this is solving higher order problems. So not just a single workflow within an organization or within a job, but higher order, how do we make businesses more efficient? How do we make the ecosystem and the stakeholders more efficient as we think about the collaboration. So that's where the platform comes into play, and we talk about these environments, again, with the stakeholders to be able to collaborate. So if you think about a construction project, for example, where the architect, the engineer, the contractor, the owner, they can all have a source of truth and that manifests in a digital environment. But that digital model can be created from the physical, from a 3D scanner that can create a scan of the room, a 3D model that then -- if you're looking, for example, for refurbishment or renovation of a building, you have a source of truth that everybody can collaborate on. So putting that all together, we look at this as Trimble as both an application strategy and our Connect & Scale, sorry, is our application strategy and a platform strategy. So we have the individual workflows. We connect those into the greater ecosystem for that greater level of collaboration and problem solving. And I think we can talk a little bit more, but this is actually as we think about AI within the context of the strategy, I see AI as a tool and a complementary tool to Trimble. Our strategy isn't changing. But what AI does, it allows us to provide more tools, more capabilities faster to our customers. It also allows our customers to work faster and more efficient within the platforms by leveraging the tools that we can provide. So we talked a little bit about the transformation. So I started 16 -- a little over 16 years ago. And at the time, we were primarily hardware and perpetual licenses. Over time, we've transformed the company into more recurring revenue. We've divested several of our businesses, our ag business, our mobility business and a series of other assets over time. So if we look at the transformation between 2020 and 2025, you can see the ARR from $1.3 billion to $2.4 billion. Revenue is up despite over $1 billion of divestiture revenue. You can see the recurring revenue. It's almost 2/3 now of the total. We have the most visibility we've ever had as a company into our forward-looking revenue. Software, services, recurring closing in on 80%. Gross margin improvement close to 72% from 59% and the margin expansion, the EBITDA margin expansion almost 400 basis points over that same time period. So really a transformational journey, as Brian mentioned earlier. And then the last, I mentioned this earlier, the net working capital as a percent of revenue, so asset-light model. So really like where the financial model has progressed and how it sets us up as we go forward. So I think I'll stop there as a quick overview of the company.

That sounds great. Thanks, Phil. I'm going to ask some questions. If there's any in the audience, please feel free to raise your hand, and we'll take your questions as well. Can we get another mic? While he's bringing that up, I'll ask the first question here. As a software company, it's inescapable to not bring AI into the conversation. Can you talk maybe about why you think it will be difficult for AI to disrupt Trimble, some of the opportunities AI brings Trimble and where you're at in terms of adopting these processes?

Yes. Great question. It's obviously topical. So think about a few things. I mentioned the decades of experience that Trimble has and the decades of data that we've collected, data about our customers and data from our customers. So when I think about us being well positioned in the world of AI, think about training an agent, for example, and training it on information that's not necessarily publicly available. We believe that, that can actually result in better agents that we can provide within our platforms, within our ecosystems for our customers to actually leverage versus developing their own or buying it off the shelf because ours will be more capable. I think about the trust. A lot of the things we do are mission-critical. There are systems of record, there are systems of action. And again, Trimble has earned this trust over decades of working with our customers. And so when we think about whether it's steel fabrication or concrete fab or structural design, we've got the history and experience. We've got the calculations. We have the knowledge, we have the trust of the customer to be able to do it. A lot of our customers have professional designations, right? They are putting their names and their stamps on things, and they want to make sure that they're right, right? And I think Trimble has earned that over the years to be well positioned for that. I think about the -- I think about where we're at today within the AI world. And if you look across our products, we're already there. Within our Transportation offerings, we have what's called our autonomous procurement, our autonomous quotation. These are AI forward products that we are already seeing strong bookings on. And this is to allow our customers to -- if you're a shipper to procure freight, leveraging an AI tool. If you're a carrier, you can quote freight and allows for dynamic market conditions. So again, we're already there within our SketchUp product, which is our architecture and our design. We've already deployed AI agents within that. It's early. We recently came out with now a bit of a blend of named user licenses and consumption. So within the Tekla offerings, you can buy good, better, best offerings. Within that are a certain amount of credits that you can now utilize these credits for the use of agents. And because there are already -- a certain amount is already embedded in the licensing, this is really what we're going to get customers to be able to start to use the agents that are already off the shelf and embedded in the products that we're offering. So we're already there. If I think about internal use, virtually, I think, over 90% or probably more by now of our coders are leveraging AI tools to actually develop code. So I see us moving faster. I see us reinvesting that, though, because I believe that this is about pace and about bringing more features, about bringing more capabilities to the market faster. And so that's where I see a lot of the usage as well internally is around how we can get efficiency, but where we're redeploying that capital to shorten cycle times in our product development.

Makes a lot of sense. Maybe talk a little bit about competitive intensity, your addressable market in each segment. Many investors might know an Autodesk or a Procore. How much overlap is there actually when you go to market? And really how should investors think about the broader market scape?

Yes. I'd start with -- I believe Trimble has the most breadth and depth of offerings in the industries that we serve. I think that within that, and I talked about sort of point solutions in any one of those, you can see there's potential competitors within that. Where I see Trimble's advantage is creating unique bundles and creating -- and integrating workflows. And so when we go to market and we think about a persona, what we look to do is to create bundles that are natural to you within the business and the way you operate. And by creating these bundles that in a lot of ways, are unique to Trimble, it's hard to find a natural competitor that can offer the exact same bundles and the capabilities and the connected workflows that Trimble does. And that's where I see our advantage. And part of our Connect & Scale strategy as we think about the go-to-market was we created what was called our TC1, Trimble Construction One. And this is a framework contract with our customers. And so in the past, where Trimble may have had multiple products with multiple terms and conditions and different salespeople working with customers. Now we've moved to account-based selling where the sellers have access to all the products. Now where we lower the friction is with the TC1 framework contract. And so this is one set of terms and conditions that our customers can now add products to. And this unlocks -- so we talk about a cross-sell and upsell opportunity. We identified at the company level as of Investor Day, over $1.4 billion of cross-sell and upsell opportunity to the customers we already have. And so the unlock on the go-to-market is to create these singular framework contracts. And as we -- in order to land and expand customers, and that could be starting with a single product. We tend to lead with bundles because we think that's the right answer for the customer. But even if they take a single product and start using that, that allows our sales folks in the future to go and sell and cross-sell and upsell other products to those customers as well. And we really lower the friction point because there isn't a new contract, you can just add it to the existing contract.

Great. Let's double-click on that. Help us maybe visualize some of these cross-sells where you're having particular success in the bundles that customers are adopting. Maybe think about that regionally within the segments and help maybe the audience conceptualize what you're talking about on the cross-sells.

Sure. Let's use an example in North America, one of our products, it's under the Viewpoint, it's an ERP for construction. And so we sell that. And as you can imagine, an ERP tends to be a very sticky product and it is for us as well. It's a system of record. It's right or wrong effectively. And so again, this is what's core to actually running a business. And so what we can do is add other capabilities on top of that. And so within that bundle, we can add, for example, financial modules. We can -- we did some timecard, which was an inorganic purchase. We bought a -- it's called Traqspera, which is managing time cards out in the field that can connect directly into the ERP. There's Trimble Materials, which is another inorganic, so I can talk a little bit about the tuck-in play. But we develop -- either develop internally or inorganically, these capabilities. We connect them back into, for example, the ERP. And as we add these new capabilities and go right back to the ERP customer that we already have, show them the ROI and demonstrate how those connected workflows can work, and that creates that selling motion. As we think about going to other geographies, ERPs tend to be more localized. And so when we look at Europe, it's a similar play, but it could start in a different place. So for example, our ProjectSight, which is our project management software, we've been rolling that out to other locations. That's more of a generic software, generic in the sense that it doesn't need to be localized. It can be scalable across regional boundaries. And so that could be a place where we then start with the sale of the project management software and then can add the other capabilities on that land and expand motion. We also have products like our Tekla, which is out of Finland, which has a good European base, some of our mechanical, electrical and plumbing products out of there. So the start point can be a little bit different as we think about geographies. But the playbook is the same thing is we want to start with the bundles that are relevant to the customers. And then to the extent we land those customers is continue to add other capabilities and products and go back to them for more cross-sell and upsell capabilities.

Let's maybe pivot to some of the financials. Would you help us understand how you think about through cycle growth rates for Trimble? How much of that is volume, penetration, pricing? Maybe lay out the algorithm for how people should think about that?

Yes, it's a great question. I always start with the up-leveling of the addressable market. And I mentioned this earlier, but $72 billion at the company level that's only 25% penetrated. So that tells me, one, we have room to go, and that's where we talk about the geographic expansion, where we talk about looking at different segments of the market that we may not be in that are adjacent. So that's a lot of room to run as I think about the long-term growth opportunities. Then if I double-click on that, the next is this cross-sell and upsell opportunities, the $1.4 billion at the company level, $1 billion in our AECO business, $400 million in our transportation and logistics business. And this is where, again, we can use the sales motions I just described to go and cross-sell and upsell into the customer base we already have, right? And so then we talked about a little bit our bookings. So right now, from a bookings standpoint within AECO or I guess, more in general, is about 2/3 to our existing logos and about 1/3 new. So it's not just about the cross-sell and the upsell, that tends to be the places where we focus and where the easier opportunities are. But we also want to continue to build the base. And so that is where that other 1/3 of the new logo bookings come into play. And so we're really focused on that as well. As we go forward, you mentioned volume versus price. I look at the -- we probably have, let's call it, low to mid-single-digit pricing every year, that's sort of on average, different products can be at different levels within that. We look at churn and reducing churn as I think about our net retention rates going forward. And so you put all that together into the growth algorithm. And that's how I think about it. And that's what we've done within AECO. If I look across the rest of the businesses, transportation and logistics, it's going to be the same playbook. So we brought together those -- some of the businesses under -- or all of the Transportation businesses under a single leadership. And so that AECO playbook around getting to low friction cross-sell and upsell with our customers. When we look at that $400 million of opportunities and bringing the sales teams together and incentivizing that cross-sell and the upsell, it's going to be a similar motion. Transportation is a little more behind with AECO. That was intentional. We wanted to build a lot of the systems behind the scenes and do it and work that out and get a little more consistent with that before rolling out to the rest of the company. But that's the playbook. That's Connect & Scale, and that's where you'll see this again, extend into the other businesses.

How do you think about -- obviously, the majority of your business is recurring and reoccurring in nature. How do you think about those macro variables that affect the business at the edge? Maybe talk about them by segment. Maybe an update on where you're seeing freight given some of the global events, just all of those sorts of factors that we should look for.

Yes, it's a great question. I'd say the first thing we would tend to look at as I think about construction is project backlog, which I'd characterize as healthy for our customers. And certainly, there's a lot of the data storage and the facilities that are being built. What goes along with that is infrastructure that needs to support that as well. I think about our civil construction business last year performed really well. That's within our Field Systems group. It actually crosses over civil construction is both within our AECO. That's why I mentioned we have a single platform for both. But we see the civil construction projects. I think about some of the funding, whether it be at IIJA or some of the European funds that have been passed recently as opportunities as we go forward. On the other side of the coin, there's certainly a lot of macroeconomic noise, whether it be tariffs, whether it be interest rates, geopolitical risk. So that's some things that I want to stay on top of and keep an eye on. As I look at transportation and logistics, that market -- the freight market has been -- I'd characterize it's been in a recession. It's been down but stable. In our financial modeling, we haven't been bullish on that. I think we modeled out roughly GDP growth. But what's really interesting about our transportation and logistics business, in particular, Transporeon, which is the acquisition in Europe that we did is about 2/3 of that business is, I would characterize as consumption or transactional. And what that is, is each of the -- anytime freight is procured via our platform, we monetize that. Now within that business, there's different tiering and there's a mix element to that. And so if a freight is procured via contract price, it's a small amount. It's high volume, low dollar, low euro amount. But where the capacity gets actually filled in excess of the contracted rates is through the spot market. And that gets monetized at a higher level. So that has a mix effect for us. That's a positive mix effect. And then we actually -- I mentioned our autonomous procurement, our autonomous quotation tools, which are AI tools, which actually sit on top of that and actually provide even a higher ROI for our customers. And so what does all this mean? Well, when the market does come back within freight, that just means, one, more transactions tend to flow through the system. Two, the mix tends to improve with a higher mix of the spot pricing. And then three, on top of that, we're trying to continue to push our AI tools. And so the incremental margins on that business when the market comes back is extremely high, closing in on 100%. And so that's where I really see that business being able to inflect over time. Now what are we doing in the meantime? Well, we can control what we can control, and that's not the number of -- or the amount of freight across the market. But what we have been doing is continuing to add to the density of our network. So we've talked about over 180,000 carriers and logistics service providers that are now on the platform. That's about 10,000 more than what we said at Investor Day, our shippers, think about big multinationals. We grew that by a little over 100. So we had 1,400 at Investor Day. Now we're over 1,500. So the more density we can add to that platform as the market come back, should add more transactions and add to that flywheel and the exponential growth and margin expansion within that business.

Great. Last one. The company, as you mentioned, has consummated a lot of divestitures, 23, I believe, over the last several years, 13 acquisitions as well. Where do you sit now from a capital deployment standpoint? Are there bolt-ons that you're interested in? Are there platform deals? You want to return all the capital to shareholders? Help us think about your priorities.

Yes, sure. So high level, as I think about capital allocation, first is obviously putting cash back into the business and growth. And so after that, we look at our debt profile. I mentioned we're at 1.1x leverage ratio. That's below our targeted rate. So really not looking to repay any sort of debt at this time. And so it really comes down to then, okay, what's left? And it's really around the share repurchases and M&A. And so as I think about M&A, I mentioned some of the tuck-ins. I think we want to be able to, quite frankly, accelerate our pace with the tuck-ins. We see that as a high ROI and a short time to ROI. This is where we're going to -- we buy capabilities, and I mentioned the example of Trimble Materials and Traqspera, which is, again, buying a capability and being able to quickly integrate that and then put that in the hands of our sellers to be able to now cross-sell those products into our existing customer base. We like that motion and we've seen really good demonstrated success. And I think the team has done a really good job developing a muscle on the quick integrations and being able to deploy those capabilities quickly to our customers. As I think about larger M&A, that would probably be more focused on construction software. And where I would think about that is, again, I mentioned some of the geographic expansion is where could we find a platform or capability that is a land and expand as I think about whether it's Europe or a different geography. And can we find something that's a scalable product capability platform asset, if you will, that, again, we can run that cross-sell and upsell into a customer base that maybe we're not accessing today. And so that's how we think about that. And think about similar, as I mentioned, the viewpoint as sort of that land and expand, something similar to that, not necessarily an ERP, but something that has the scale and the stickiness with those customers that again, we can run that cross-sell and upsell play off of.

Great. That takes us right to time here. Phil, thanks so much for joining us, and thank you in the audience for joining as well.