Trimble Inc. (TRMB) Earnings Call Transcript & Summary

All right. Go ahead and get started. Well, my name is Clarke Jeffries. I'm part of the tech research practice here at Piper Sandler. Very pleased to have Phil Sawarynski, CFO of Trimble. Thanks for coming to Nashville.

Thanks. Good to be here again.

Yes. Fantastic. Well, let's maybe just start with some brief overview of where the Trimble business stands in 2026, and then we'll get right into it with some segment questions.

Yes, great. So I would characterize 2026 is really a year of continued execution across the business. And maybe to step back and give a little bit of context to that statement, I really like where Trimble is. I think -- as I think about sort of the growth drivers and the thesis around us around the markets, the strategy, the execution and the execution by the right management team, so when I think about the markets, large global underserved, underpenetrated markets for Trimble. At our Investor Day late 2024, we indicated $72 billion of addressable market that's only 25% penetrated across Trimble. So that says that there's a lot of ability for us to continue to grow, continue to drive our offerings and our applications, particularly in the world of AI that I'll talk about in a little bit. The right strategies, we started on our Connect & Scale strategy, and this is connecting workflows, connecting data via our ecosystems and our platforms. We have a platform within engineering and construction, which connects both the digital and the physical, which is unique, I think, for Trimble and also within our transportation and logistics business. And so we have the right strategy. We identified over $1.4 billion of cross-sell opportunities with products that we have with the customers we have today, and that was actually as of Investor Day in 2024. Since then, we continue to build more capabilities organically and inorganically and be able to continue to have more options to be able to cross-sell those offerings. And then how does that manifest in 2026? Well, it's the execution of that plan and that strategy in the market. And so in Q2, for example, we -- the company was -- had a 10% revenue growth. That was despite about a $14 million headwind due to tariffs. So we had some tariff refunds, which were counter revenue, but we were up 10%. Our ARR has been up 12% in the quarter. Our EPS was 21% growth year-over-year. And if I think back to our original guide for the year, we're up $65 million. We've guided now plus $65 million on revenue for the year and another $0.13 plus $0.13 EPS, which gives us a 17% EPS growth. So continue to execute on the market conditions, continue to execute with our strategy and delivering the results in '26.

Yes. Fantastic. Well, let's dive into AECO. Big part of the story, 60% of ARR, $1 trillion of capital project value managed through the platform. But also a mid-teens grower organically historically, and you've been able to do that mid- to high teens ARR growth basis for years. How would you frame, how you've been able to do that so durably? Lots of investors sort of try to pattern match Trimble to the rest of construction software. I don't think that, that really is constructive. But maybe let's talk about Trimble Construction One, the bundling effort and the #1 drivers of durable mid-teens organic growth.

Yes. Great question. And just to put it in context, we -- the Trimble AECO business has grown mid-teens or higher for 28 straight quarters. And we're doing that at scale. We're just under $1.6 billion of ARR coming out of Q2. So this goes back to what I just talked about earlier, which is -- the market size is there. Our capabilities are there. We focus on execution on our go-to-market. We unlock that cross-sell opportunity, which we're seeing in the business. We continue to add more and more capabilities to the business to unlock even more and more cross-sell. So the business has really been -- I think the market is there and the business has been executing. And as we think about going forward, some particular that's probably topical now is AI, which I think we're really, really set up very well as a company to be a leader and continue to be a leader as we think about AI and additional unlock for us as we go forward. And when I think about our platform, so I mentioned both the AECO and the transportation platform, so what makes Trimble unique and how do I think about our competitive moats and our moat? It's trusted data. We have trusted data within our ecosystems. The domain context, these are very large and complex industries that we're in. These are complex problems to be solved. We have the domain knowledge. I mentioned the connection to the office in the field from an engineering and construction standpoint. We have the hardware in the field to be able to move the dirt, build the buildings that hardware also connects back into the back office where you have the digital twin. And so we think about a continuum where the digital to physical can move back and forth. And so I really like that setup. And how do we see it in action? Well, we continue to see within our Trimble Connect platform, the growing amount of users, projects, data and the engagement through the platform. And so all that lends itself to that opportunity in front of us.

Yes. Well, certainly, it was many years ago, a lot of -- it was an acquisition-driven portfolio in AECO. We've now gotten to the point where it's very much distance from inorganic contribution. The first largest acquisition since 2023 came with Document Crunch. And so there might be a little bit of a change here with what AI can do in terms of creating new opportunities in the segment. So what's interesting about the Document Crunch business? What drove you to bring that capability in-house? And when you think about have we gotten to the point where a lot of the bundling efforts it's an execution game from now on, and you can maybe go back to thinking about expansion of the portfolio, whether AI is the catalyst or not?

Well, I think it's both to your last statement. We want to continue to add capabilities, both organically and inorganically, and we think about that regularly. We've done a lot of the tuck-ins. We like that play. We quickly can take capabilities and integrate them into our systems and put them in the hands of our sellers to be able to have more cross-sell and upsell opportunities with the customers. So we really like that play. Document Crunch is really pleased. The business is at or ahead of the models that we put out. It's an AI forward risk management solution, which is one of the biggest concerns within construction. I think the average disputes in construction are close to $60 million now. So it's a big number, takes, I think, north of 12 months to resolve these. So it takes a lot of time and effort from our customers. So how do we get more proactive with our customers in risk managing their construction projects to get in front of these types of disputes to save time, save money and action upon them proactively versus reactively. So I really like the business. I really like the people and the team that's come along with the business. They're an AI-forward team and are really helping us as we continue to move forward in this age of AI and continue to up our game and there's opportunity to deliver the products and the capabilities to our customers.

And one thing that was interesting to me was this launch of Trimble Financials. I'm very curious what was the opportunity to do that now and why a stand-alone subscription. I think a lot of investors would think about construction software as you're chasing the ENR 400 and you're tracing them with everything you can possibly sell. So it is interesting to see maybe taking that ERP heritage around the long-standing brands that you have on the financial management side and then kind of going after some smaller entities. So maybe we could talk a little bit about that solution. And then do you see them as customers that can actively transition to the existing products in the portfolio when they get past $10 million of revenue?

Yes. It's a great question. I'm really excited about this product. So as we think about that, we're where is that addressable market that's not adopting technology. And we see that in a lot of the smaller customers or midsized customers, maybe they're still using spreadsheet or they don't have bespoke accounting people or job costing capabilities, and they're doing everything manual. And so Trimble Financials is a way to tap into that market. Number one is get more customers that aren't in the Trimble ecosystem into the Trimble ecosystem, continue to create that network density within our platforms. But as they grow, grow with Trimble. So number one is as they get bigger, moving into more sophisticated products, if it's in our ERP, for example, that we have within our Viewpoint products and moving them up to higher and more capable products. So that's one path. The other path is building -- continuing to build a customer base that we can have other relevant products that we can bring into from the cross-sell opportunity that I mentioned before. So we're really excited about that. We actually did a year or so ago, a free version of our project site, which is, again, a similar type of approach where we can go into a market with a free version that has some limited projects to be able to access and bring more and more Trimble customers into our ecosystem.

And just rounding out ACO, biggest obvious opportunities in AI that you think could be the most material use cases, whether that be 12 to 24 months?

Yes. It's a really great question. What I really like is the team has been leaning really heavily into AI. When we think about our product development, I'd say, broadly speaking, across Trimble, it's not just the product development, it's back office and others. when I think about those opportunities. But again, I go back to -- I think that AI is really -- it can increase our platform value. The more folks that are in the platform, the density, this is where people go to work, they go to collaborate within our platforms. Having more AI capabilities only makes our customers do the work better, more productive. In some ways, if they're having a hard time finding labor or people, for example, can they augment their own processes to be able to move faster and be able to get more done with less. So I think that, again, the Trimble's core capabilities that platform plays, the data density and the context that we have within very complex industries, I think it lends itself really well to applying AI and enhancing the value we can provide to customers.

Yes. And will those transition to field systems, I mean, this is probably the perfect example of a model transition story in terms of historically a hardware-driven business, various methods of go-to-market, 30% plus margins, I'll say, even though it's a hardware business. But that was because you disaggregated software and hardware and you were still selling software attached to hardware in a lot of instances. Now it's moving to Hardware as a Service. Maybe we can talk about where growth comes from in that industry. I think you've talked about as being 50% from existing solutions, 50% from model conversions. Is that largely still true? And how do you expect that mix of model conversions versus existing to trend from here?

Yes. As you're talking specifically about the ARR and the conversions from our perpetual licenses into more subscriptions and term licenses. So we've been on a journey in that business for a few years now and said at Investor Day is 200 to 300 basis points of headwind to revenue in that business as we convert more and more. There's still an opportunity as we go forward to continue to convert in that business. But it's been performing very well, grew at 20% the last 2 years of ARR. Now there were some specific attach we were attaching our RTX product, which is a subscription product, and that created a tailwind for the last 2 years. We knew coming into this year that it would moderate a bit, which we expected, and it's showing that trend for the ARR growth this year. But what I find really interesting and exciting as well in that business is we've been bundling hardware and software into an offering that's a subscription offering and been doing very well there. But what's even more exciting to me is that it's actually unlocking additional TAM for us that we're seeing. And some of the numbers are around 50% of our new bookings in that product are with new logos and new customers, right? So we're able to unlock again, some more addressable market by having a subscription offering with the hardware and the software. And so we really like to see -- like the progress of that and have good optimism as we go forward.