Presentation for Trimble. I'm Rob Mason, the senior analyst covering advanced industrial equipment, of which Trimble is a key part of the coverage. And just real quickly on Trimble, we think of Trimble as driving efficiency in core workflows in several key industries with very domain-specific solutions linking the physical and the digital.
Happy to have with me up on stage, Phil Sawarynski, who's the CFO of Trimble. Phil is going to walk through a couple of slides, give us a quick overview of Trimble, and then we'll jump right into Q&A.
Thanks, Rob. Let's get started, seen the legal disclaimer there. How many of you know Trimble and how many of you are just learning Trimble? Let's ask the first one. How many know Trimble? Okay. So how many are learning Trimble? Okay.
So let me give you -- let me talk to this slide a little bit. And what I'll do is I'll talk about past, present and future, how we think about Trimble. So I've been in the company over 15 years, where we started 40-plus years ago around precise locations, so think GPS, GNSS technology. And we started off mainly more hardware business, perpetual licenses, and we grew over time. We did a lot of acquisitions. We grew organically. And over the years, we had arguably the greatest depth and breadth of products in some of the industries that we serve. And this time, we've been in construction for a long time. We've been in agriculture and other businesses.
And so over that period of time, again, we've had these -- a lot of product out there and a lot of solutions. And so that naturally lend itself to is circa 2018, 2020 is what we started to do is do our Connect & Scale strategy. And what that means is connecting our solutions from a data standpoint, which makes it easier for our customers. So I think in terms of if you're a general contractor and you have multiple products, you want to have them connected. You're trying to solve problems and create high ROI across your business and how you operate. And so the connection of the data, how it flows, how you get insights and information and your action upon that provides a really high ROI.
And so what we started to do is actually connect -- start to connect those workflows. We also did was trying to make it easier to do business with our customers. When you have distinct products and point solutions, you may have multiple contracts, you have multiple terms and conditions. And so we want to make it easier, but we also wanted to give our sales teams the insights on the customers, what they were buying and what they should be buying. So part of the Connect & Scale strategy was going to connect to the data and the information and the workflows for our customers. But it's also us in the back end is connecting the system so that we have full visibility into our customers and allow us to create these cross-sell and these upsell opportunities.
And so you see here on the slide, when we talked at Investor Day across our construction and our transportation and logistics business, we believe we have about $1.4 billion of opportunity just selling existing products to our existing customers. And so this Connect & Scale strategy and the digital infrastructure that we've been putting in place is an enabler to unlock that.
When we think about the opportunity as longer term, our total for the business, there's over $70 billion of addressable market, of which only about 25% is penetrated. So that gives us a lot of opportunity to continue to grow in the spaces that we're at. So what does that result when we think about today? Over $2 billion of ARR, growing double digits and with higher gross margins and continuing to expand over time. So over this time, too, we've done some portfolio moves. So I mentioned agriculture. We sold that business into a JV with AGCO. We sold a 15% stake.
We recently -- earlier this year, we closed on our mobility business, which was in our transportation group and sold that to Platform Science, which we own 32.5% of that combined entity. So we've also transformed the portfolio over this time. And in 2025, we're almost 80% software services recurring with about 20% still hardware and perpetual. We do believe it's important to have that connectivity between the field and the office, the digital and physical because data is moving. You're doing the data collection in the field. You're moving it back to the office to actually create your design, create your work in construction.
And then you take that information, you put it back in the field because you actually have to build a physical offering. So we think that's important and a competitive advantage and a unique product portfolio that Trimble only has. So you see that manifesting itself. The portfolio changes, the Connect & Scale strategy, you see the growth in the business. And the opportunities we have to continue to grow. So that's today.
In our Investor Day in December, when we talk about the future, we see our goals on here. We use the 3430 sort of construct, which is $3 billion of ARR, $4 billion in revenue and 30% EBITDA margins by the end of 2027. So those are our financial goals as we think about the future.
Next slide, here are some specifics at the company level on the financials. And so what's interesting about this is if you look at the revenue slide, and I'll go back to like 2021, $3.6 billion, and this is as reported. So sort of in 3 years, you see, that's only flat revenue. Well, that's as reported. It doesn't include the divestitures with Ag. Mobility is in the '24 number. But call it, look at those scenarios, but then look to the right and look at the recurring revenue and how we've transformed the company. from 2021, $1.4 billion to $2.2 billion in that same time frame.
So really, what I'd point out in this slide is the transformation of the company, the expansion in the EBITDA margins. You see the growth in the EPS per share. So that's the present state. And then as I talked about the future state in 2027, we continue to see the growth in the software. We continue to see the gross margin expansion with the operating leverage that ultimately manifests itself into EBITDA margin expansion.
So just quickly double-clicking here on the businesses themselves. So we do have 3 businesses, our AECO software business, and this is pretty much all the recurring revenue business. But you can see the reach that we have when I talked about the products earlier and what we had built over time from our -- from the start of the company. We have over $1 trillion of funding going through our technology. So there's a lot, a lot of the construction spend going through Trimble. We have a significant amount of the ENR customers. So again, this is where we have the reach. We have -- our heritage has allowed us to unlock now this cross-sell and upsell opportunities with existing customers, and that's the $1 billion you can see there.
Our Field Systems is about 50% hardware now and 50% software services recurring. We continue to transition our perpetual licenses in the Field Systems business to ratable over time. And so we talked about at Investor Day, there's a 200 to 300 basis points of headwind on revenue because we're consciously converting our perpetual offerings into subscriptions.
And on the Transportation and Logistics, you can see the density we have, for example, in our Transporeon business, over 1,400 shippers, over 150,000 carriers in that platform. So we have the depth, the breadth and the reach and the products within the customers. And again, this is what gives us the ability to continue to cross-sell to upsell and continue in the growth that we put out there at Investor Day. So I think that's my high level fly-through of Trimble.
Perfect. We'll dive right in. Send your questions up, if you have any, we'll work those in.
Phil, let's just maybe touch on the current business environment first, just what you're seeing in the first quarter that you reported came in better than you expected on several metrics. But at the same time, maybe out of prudence, you kind of held the guide. Just maybe speak to the puts and takes that you're seeing in the marketplace right now.
Yes. We -- again, we had a good quarter. We were above our guide on revenue. And so it was a good quarter. I think we're cautious just like everybody else. Come April when there was a lot of tariff discussions, Liberation Day. And it just -- when we think about the tariffs themselves at the last earnings call, so I think about it sort of twofold. One is the direct impact because we do have the hardware business. But as I said, it's only about 20% of Trimble now. And so our exposure is much less just in general around that.
But when you double-click on what the tariff exposure was, as we said it's about $10 million a quarter. So relatively small around a $3.4 billion revenue business company. And we're offsetting that with surcharges. So the net impact on the financials is small. So that's sort of the direct impact on tariffs. The bigger question is the indirect tariff. What happens with the macros, what happens with the sentiment.
So in April and when we went through our earnings call, we saw pockets of opportunity. So I'd say we still see project backlog. Our civil construction business on the hardware, our AECO business performed in Q1. But there is -- you saw some more of a sentiment, which is just a cautiousness around what does that mean for the back half of the year and particularly in our Field Systems business, which is more of a book and burn business. And that's where there could be a little bit more discretionary spending around that business.
Customers just potentially worry about cash flow and sort of being a little bit conservative on sort of capital spend. And so with that macro uncertainty and given particularly the tariff situations, we just want to be conservative on our guide at that point and just see how things manifest itself and are obviously eager to update on our next earnings call based on what we're seeing.
Very good. You already touched on it, Connect & Scale, the business model transformation, everything that's happened there to date. A lot of that has been internal facing just in terms of get the infrastructure, the internal plumbing rewired at Trimble to go forward with this type of business model. Where do you stand on that part of the effort, just kind of the heavy lifting on that side?
Yes, great question. So there's sort of multiple facets. So where we started was with our AECO software business. We thought that was the biggest opportunity out of the gate. We also wanted to create proof points for ourselves along the way. And so we started in the AECO business. And so we're further along in that. We've rolled out our strategy and what we call our DX, which is sort of the digital infrastructure to support the Connect & Scale strategy. And what that is, is really taking these individual legal entities and ERPs, combining them so that we can create a single, what we call our Trimble Construction One framework contract.
And so what we want to do is put customers on that framework contract so that as we cross-sell and upsell, we can just add those to the existing contract as opposed to having separate contracts. So again, reducing the friction there, creating -- being able to create natural bundles that make sense for our customers out of the gate. So that was -- that's where we started with the digital infrastructure.
And so North America -- if I think about geographies now, we did North America. We -- obviously, you've seen the success that we've had there around the execution. We've recently rolled that out into Europe. And so we're doing a similar sort of motion in Europe, which is a TC1 contract and being able to cross-sell and upsell into Europe. The next step for AECO is going to be the APAC region. So we're still going to be rolling that out in the future.
And then when I think about the other businesses, we still are going to be looking at our Field Systems business and our Transportation and Logistics business and then rolling out a similar type of framework. Field Systems is a little different because that has an indirect go-to-market. So there's some nuances there. Transportation and Logistics is very similar to AECO. So we expect to have something really similar as far as the build-out and what we're doing within Transportation and Logistics and replicating what we did in AECO. So those are sort of the main blocks from a geographic standpoint and from a business standpoint.
But there's a lot of other things that we're doing as well. We're continuing to advance on our e-commerce solutions to allow much more self-servicing from our customers. Think about adding additional licenses and being able to administer your licenses from a single portal and be able to add and move users without having to call Trimble, for example. So there's a bunch of other work around the periphery that we're continuing to do as well as we move forward to make it ourselves much easier to do business with from a customer standpoint. And it also reduces some of our costs because it's less touch points for us, the more the customers can self-serve.
Okay. Just around that cost bucket of the transformation itself, is there incremental cost each year as you progress? Or is that cost kind of rolling backwards? Or where do we stand on that?
Yes. So when -- as you can imagine, by doing this big of a digital transformation, there's a lot of capital cost that has to be amortized. So sort of that's in the outlook and the numbers we provided. I would actually expect that over time, that we actually become more efficient because if you think about trying to manage multiple -- significant amount of ERPs, significant amount of legal entities, if you can bring that into a single standardized process and systems, that should actually give us some good OpEx leverage as we go forward.
So again, you sort of have some puts and takes. You're adding on some of the capital costs as you amortize that. But then I would expect us to get more efficient relative to where we stand to offset that as we go forward.
Yes. One of the dynamics from the transformation has been the shift towards more software, less hardware. But at the same time, hardware is a critical component of the overall solution, probably a differentiating component of the Trimble solution. How do you think about, one, where to put the differentiation in your solution, whether it needs to be in the hardware or the software? And then how does that compare to the competitive landscape that you face in this business?
Yes. I think you hit it on the first, which is we believe it's a competitive advantage to have both. And so you have to be relevant in both. And so our investments, we continue to invest and innovate into our hardware. We have our SX10 that we came out with, which is completely innovative combined scanner total station that was never out there. So we want to have the innovation on the hardware side, we continue to innovate and add capabilities, particularly around AI when we think about software. So I think it's an and, not an or. And because they're both important.
We've got the more capabilities we have in the field to be able to do the scanning, the reality capture that we can then take that and we can move that into a Trimble Connect, which is our collaboration tool. So the architects, the engineers, the contractors and the owners can all collaborate and see a model that is -- we call it source of truth, but it's a singular model that everybody can work off of or you can comment, you can collaborate off of. And so we want to have the capabilities on both sides of things as we think about where we're allocating capital.
The -- just to touch on the AECO segment, which is mostly -- almost exclusively software, I suppose. Long string of kind of high teens growth ARR type growth in that business multiple quarters now. Can you just kind of talk about the underpinnings of that growth? What's driving -- how much is upsell, new logos, price? And how was the -- how does that mix shift, if at all, on the look forward?
Yes, great question. So currently, roughly from a booking standpoint, we're about 2/3 existing logos, 1/3 new logos. And I think part of this is the low-hanging fruit and some of the things I talked about with Connect & Scale and getting the visibility into the customers and just putting that capability into our sales team's hand, Mark Schwartz, who runs the business has done a great job where our account -- our product-based sellers are now under a single sales team and they're account-based selling.
So they have -- all the products to be able to sell those customers and having the visibility of what are we selling to a customer today, what should we be selling to that customer and what should they be using and being able to go to those customers and show them the ROI between, again, the connected workflows and also the bundling and why it's easier and having a suite of products at the Trimble level it will give you a higher ROI as you think about running your business versus just looking at single point solutions. So that's a really powerful tool. And I think that starts to manifest itself in sort of that 2/3, 1/3 because that's -- I think that's a lower friction sale right now to be able to go after.
And as I think about just then sort of up-leveling that on the growth, which is where you started, I start with the addressable market and the penetration. We said at Investor, it's about -- for AECO, it's about a $50 billion addressable market. It's only 20% penetrated. So we see that opportunity is to be able to continue to grow in the -- just from a penetration standpoint as we continue to innovate and add more capabilities that also gives us additional runway.
So I think about it, first of all, what's the addressable market? And is this a market share play? Maybe a little bit, but it's largely a penetration play, and we just need to adopt -- or have the customers adopt more and more of the technology and maybe one of the things I'll point out on that as a good example is we came out at our Dimensions, which is our user conference in November with Project Site, which is our project management software, and we came out with a free version of that.
And the point of that was to actually get customers that were potentially using spreadsheets or less sophisticated technology to manage their projects to give them an opportunity to very easily onboard them. They can be up and running in a very short amount of time. They can use the technology and to get them to start to understand that there are high ROI solutions out there versus what they've been using. And so this is really one of the ways that we're actively pursuing trying to get higher penetration of some of our products.
Yes. Maybe along that line, you commented on the first quarter that SMB, small, medium-sized, you had greater traction or you saw greater traction. Is that a direct correlation to that? Or do you think it's just where they are in the buying cycle? These are smaller deals, maybe larger deals, selling cycles are a little more elongated in this environment? Just kind of tie that whether it is the freemium version or project site...
Yes. And that one from the freemium version, I think that one we really -- we're counting the success in the number of accounts that we're bringing on. And the way it works is you've got a couple of projects that you can -- you're limited to. So we want to get folks onboard, understand the technology and then eventually, you have to -- we monetize it by either moving to the paid version or your churn. So I think we're still early on from a monetization standpoint there. But what we are seeing is we've got a couple of thousand additional new accounts. So we are seeing customers sign up for it, right, which we see as a really positive proof point.
And so -- but going back to your question, so where we see the puts and takes, what we talked about is earlier, what we saw was this elongated sales cycles with the macro uncertainty, particularly large enterprise customers and in our owner segment, some of the state and local DOTs, we saw those being a little bit elongated and a little bit different. The larger customers tend to already have some sort of technology and they're looking at potentially replacing it. And so just the nature of some conservatism is just -- let's see what the market is going to do and the macros are going to do because I don't necessarily need to change right now because I already have something. And so I think that's where we saw some of that.
On the DOT side, the local DOT side, it was uncertainty around Fed funding and what was going to actually flow. And so just trying to understand where -- what was going to happen from that standpoint. So we saw a little bit slower sales cycles there that we talked about. But you're right, where we saw the -- a lot of the opportunity within the AECO is with the SMB contractors. And part of that is adopting new technology because they typically haven't applied a lot of technology.
And so when you think about moving up and continuing to -- if they're growing their business is applying more technology, we sell ROI. And so once you're getting them in the door, whether it's via the free version of project site or just having the conversations with them, they're seeing the benefit of that. And we can see the penetration there and where we saw the success in Q1.
Maybe just last question around AECO. It has -- it's almost pure software from a segment standpoint, Rule of 45 type business already today. But it's EBITDA margins, segment margins, maybe below some software pure plays, but it's also the area you're getting the highest growth. How do we think about -- how you're balancing growth investments versus margin expansion in that segment?
Well, we definitely believe that the highest value is growing the ARR business due to the compounding effect over time with our net retention rates. And so what we're purposely allocating our capital from an expense standpoint into the AECO business because that's the highest growth rate. We had 19% ARR growth in Q1, and we want to continue that growth rate. there. So we're purposely putting a disproportionate amount. And actually, if you look at the incremental OpEx at the company level, the vast majority of that is actually going into the AECO business to drive the ARR growth.
And so we see that as the path to significant value creation for the company. And so that's why you see a little bit -- maybe you're not seeing the EBITDA margin because we're making a conscious decision to drive that. But I think you really need to look at the ARR growth versus the revenue growth, 17% versus 19% at the business level. But yes, that's been our focus, and we believe that, again, that's the highest value.
The Field Systems segment, more balanced in terms of hardware, software, but also in this last quarter, you had 25% ARR growth in that business, too. So it stepped up. Just how are you thinking about -- and that's also a segment you've made some changes in the go-to-market channel strategies. Can you speak about how you expect those to play out here over the next year or 2, what the end result will be from those changes?
Yes. So it's a good one -- this -- let me unpack the ARR first in the Field Systems. So there's a couple of things that are driving that. We were 25% for Q1 was the growth. And I think about it a couple of [indiscernible]. There's new products that are coming out of the gate, and we're just offering as a subscription. We did that last year. And so that actually had a big boost because you can only buy it as a subscription. We're starting to lap ourselves this year on that. And so we believe that we're going to moderate to more like the mid-teens this year for that as we go throughout the year. There's also conversions that we're doing.
And I mentioned this earlier, but we have a lot of perpetual licenses that we're converting to term and ultimately subscriptions. It's about 200 to 300 basis points of headwind on the revenue growth. So we're also doing some of that conversion, but we believe that mid-teens sort of growth is at the long term. And throughout the '27, I think we're sort of low to mid-teens as we see things moderate in that business. But there is a little bit of some specific dynamics over the past year, which is why that we had that 25% growth in Q1.
Yes. And to the extent you've broadened your ability to touch OEMs in that business, how should we think about those newer OEMs starting to ramp up as well as their channel and aftermarket exposures.
Yes. So what Rob is alluding to is we did -- we've had a long-term relationship with Caterpillar. We have a JV with them. And over time, we continue to evolve that contract and the relationship. Last year, we had a shared vision of more technology adoption in the machines. And so we changed the contract a little bit because what we -- what Trimble wanted to do is really we want to lead from the technologies standpoint. When you think about the customers, our customers, a lot of our contractors have mixed fleets. And what they'd like to do is actually standardize on the technology. And so what we've done is we're working on expanding the Trimble distribution network.
Previously, a lot of our aftermarket in the civil construction would go through SITECH, which were arms of the Caterpillar dealers. And what we're doing is we're expanding that now into what we call a Trimble technology outlets, which allows us to better address the mixed fleets by putting technology on other OEM products and allowing our general contractors that have mixed fleets to actually be able to standardize on Trimble technology regardless of what the brand is.
And so -- and on the flip side is -- Caterpillar is pushing to get more factory adoption on the technology, which we think is a win-win for both of us because ultimately, what we're trying to do is serve the customers and really drive technology to them and preferably the Trimble technology as being their unified platform.
Yes. I want to touch on the Transportation segment real quickly. You had double-digit bookings growth in the Transporeon part of that business. What's that mostly driven by? Because that serves a market that the freight market has not been all that vibrant, both here and in Europe. So have you been able to drive kind of double-digit bookings growth?
It's a similar theme is that there's a penetration play that there's a significant amount of freight that's not driven through our platform in Europe. And for those of you that aren't familiar, we bought a company called Transporeon a few years ago. It's a European-based company. But it's really connecting shippers and carriers and being able to reduce friction in the transactions to be able to move freight, particularly in Europe. And so what -- where a lot of the bookings growth is we continue to work with the shippers and the carriers and want to continue to grow the density of that platform.
And as you said, we're in a freight recession effectively and have been for a while, but we've continued to grow, which I think is just a testament to the business and the leadership there. But really, what we're focused on is we want to come out of any sort of recession, a better company and a stronger company. And so focusing on the bookings growth, it's certainly helping in the near term that's manifesting itself in the revenue growth. But we really think long term because as we get out of a freight recession and we start to see the growth, about 2/3 of the Transporeon business is transactional. So when that volume growth goes up, we monetize each transaction that is procured through the -- through our platform.
So as the volume goes up, that's incremental revenue, and that's where we can see a disproportionate amount of both revenue growth and then that's really high margin because the incremental cost to deliver that is very, very small. And so that's where really we want to position ourselves right now so that one is obviously for the near term, but we also think about things in the long term. And we believe that once that -- once we exit a freight recession in Europe that, that really can provide an inflection on that business.
Yes. In the last minute, Phil, I want to just touch on capital allocation. Historically, Trimble, as you noted, has been very acquisitive. Where does M&A fit into the capital strategy at the moment? What are you trying to achieve with M&A?
It's absolutely part of our DNA as a company. We'll continue to do M&A. What we've been focusing on right now are smaller tuck-ins. And so part of the strategy as we think about and I use Viewpoint as an example, is it's a foundational ERP product. And what we can do is find new capabilities via inorganic, bring those in very quickly, integrate them in the system. And that now gives another capability for our sellers to go right back to our existing customers, say now we have an integrated offering. Here's a capability. It has a high ROI. You have a TC1 contract. We can easily add this new capability to your contract, and that gives us the ability to cross-sell and upsell with new capabilities.
So smaller very tightly...
That's the playbook that we've been operating on.
Okay. Very good. We are at time. We'll break there. There is a breakout session in the Astra A room if you have any additional questions. Thank you.
Thank you.
