Trimble Inc. Stock

Hello, everyone. Thank you for joining us, and welcome to the Trimble Third Quarter 2026 Financial Results Call. [Operator Instructions]

I will now hand the conference over to Rob Painter, President and Chief Executive Officer. Please go ahead.

Welcome, everyone, and thanks for joining today.

Before I get started, our presentation and safe harbor statements are available on our website. Our financial review will focus on year-over-year non-GAAP performance metrics on an organic basis.

Let's start with our 3 key messages on Slide 5. First, financial performance. We are delivering short-term and long-term value creation for our customers and for our shareholders. For years, we've talked about our 343 operational cadence where we embrace the end of managing to the short and the long term with 3 months, 4 quarters, 3 years in mind. Second, our right to win. Strategy is the art of doing the things you can uniquely do to win in the market. That manifests as our Connect & Scale strategy, which is a platform strategy. The opportunity is immense as we connect the physical and digital worlds in our served markets. Third, AI. On top of our right to win, the market opportunity compounds with the investment we are making in AI to deliver differential outcomes, thereby accelerating and reinforcing connect and scale. We're excited about our future.

Today, we'll walk through progression on each of these 3 topics, starting with financial performance on Slide 6, where I will hit a few highlights. In the quarter, we delivered both revenue and EPS in line and above the midpoint of our guidance range against a backdrop of a challenging supply chain environment and a tepid European market, both offset by strength in the U.S. kudos to our teams and partners as they continue to well outperform the global market. For the full year, we are holding our revenue guide and slightly increasing our EPS guide. Our full year guidance points to greater than 9% organic revenue growth, EBITDA margins expanding to approximately 30% and EPS growth in the mid- to high teens. All of which demonstrates the strength of our innovation and execution.

I want to emphasize that our EBITDA margin performance is 1 year ahead of our last Investor Day model. In addition, we initiated a set of efficiency and cost reduction measures that will enable us to expand margins while simultaneously increasing our investment in AI native innovation. AI is inspiring us to redesign how we work across the company from go-to-market to product development to customer success. ARR was modestly below our expectations, and we are updating our full year ARR outlook. AECO growth remains robust, and that is important because AGCO represents approximately 65% of our ARR. AECO ARR organic growth was 13% compared to 14% in the first half of the year. We expect similar strength in the fourth quarter. This would result in net new ARR of greater than $200 million, an increase against 2025, and we are pleased with that consistent execution.

In Field Systems, which is 15% of the company's ARR, we are experiencing headwinds in the second half of 2026 from 3 discrete items. First, as we discussed last quarter, the intentional shift of a white label product line to our own solution is a $20 million drag to ARR growth for the year. Exiting the product line is the right decision as we were reselling a third-party offering at very low margins, and we are confident in our ability to regain the margin and revenue. Second, growth in our positioning services business, which provides high accuracy, reliable location data and real-time GNSS positioning across a number of industries has slowed meaningfully in the agriculture market, particularly in South America. Third, ARR growth reflected lower-than-anticipated subscriptions on our bundled positioning services offerings across geospatial and civil construction as first year attached cohorts came up for renewal.

To put this into a broader perspective, our team has grown ARR by more than 40% over the last 2.5 years, and we are growing our most strategic offerings. For example, our machine control as a service offering grew ACV bookings in the quarter by more than 50%, generating a significant share of new logos in the process. Another example is Trimble Business Center where we have more than doubled named account users through conversions of support and maintenance to subscription. In Transportation & Logistics, ARR growth was slightly below our first half where the European freight market remains somewhat mixed. Our gross customer retention in Transporeon is close to 100% and ARR grew approximately 9%, but volumes and spot price mix were below levels we saw earlier in the year, which impacts our ARR.

Turning to Slide 7. Let's pivot to review how AI compounds the value of our connected scale strategy and how we progressed and delivered in the quarter across 3 pillars: Connect, Scale and AI. Starting with the first pillar of Connect. Our strategy is anchored by connection where ground truth forged in the field is connected to best-in-class capabilities in the office. To give an example of innovation delivered in the quarter in construction, the field systems team announced the launch of our ST30 smart target, a new generation surveying system. This system breaks new ground by integrating optical and subscription-based GNSS functionality into a single smart target solution. The ST30 integrates with our field office and cloud software solutions to provide trustworthy and traceable accuracy, while its tilt compensation adds both productivity and safety to enhance the overall integrity of collected data.

The integrated GNSS will be available next year as an upgrade and will streamline site operations and allow users to work beyond the constraints of optical line of sight. What that means for the strategy is we further extend the reach of capturing more ground truth with higher fidelity and we connected to our office software to enrich workflows, and we extend functionality for subscription upgrades. The team also launched the first of our next-generation Maxwell 8-based GNSS receivers. These receivers were launched in response to the growing prevalence of intentional jamming and spoofed signals. Trimble continues to lead the way in delivering resilient precise positioning solutions demonstrating market leadership and providing ground truth to our global customers.

Within this pillar of Connect, we are connecting high-value workflows that solve higher order customer problems. Take construction, we are unifying data across the broadest range of stakeholders in our industries, architects and designers, engineers, contractors and owners from concept to completion. Value grows as participants connect as the network effects of our platform take hold. You can see an example of this on Slide 8, with our customer, MJ Church in the U.K., where they ran the M27 Junction 10 project with Trimble Connect as its operational heartbeat, tank survey, design, machine control and mixed reality into a federated model, dozens of file formats were unified. Digital models for each phase move from the office to the field instantly. Every shift began with a virtual walk-through and the team finished 1 day ahead of a 9-day possession. They are repeating the approach on the A47 road. Only Trimble is delivering value like this.

In Transportation & Logistics, we held user conferences in both Europe and the U.S., where we had the opportunity to showcase dozens of innovations to thousands of customers and partners and where customers were able to share how they are leveraging our technology to make their businesses better. A prime example is how we are connecting back office route planning directly to in-cab execution. Processing over 5.5 billion routing request monthly, we recently introduced advanced batch analytics and preferred route settings in PC Miler web services platform for both shippers and carriers. This allows fleets to analyze lane profitability in the office and push that exact optimized route directly to the driver's copilot navigation app.

Guaranteeing this level of execution consistency not only improves driver safety, but also significantly enhances our TMS offerings by ensuring those back office systems are powered by reliable ground truth execution data from the road. Another example is our latest expansion of Trimble Docking Yard, which tackles the costly disconnects and manual guesswork that occur, the moment a truck reaches a facility. We are bringing the entire yard cycle into one connected flow, starting before the truck even arrives. Our real-time slot management and carrier portal align appointments with actual facility capacity, while our real-time yard management provides site teams with early visibility and the changing ETAs to resolve disruptions before they become delays. Reductions in waiting time means customers need less trucks to move the same amount of freight, thus optimizing asset utilization and helping address the driver shortage problem.

Let's move to the second pillar on Slide 7 and talk about scale, where we hold a structural data advantage at the intersection of the physical and digital worlds. Within Trimble Systems resides deep context and domain knowledge that cannot be replicated. Trillions of dollars of construction projects, billions of dollars of freight spend, millions of users of our software and millions of transactions running through our platforms and hundreds of thousands of machines and instruments in the real physical world. The scale of this footprint is expanding, and the value of this data is compounding. One of the most important parts of my job is spending time with customers around the world. What I increasingly hear from them is a desire to unlock more from their data.

I also hear them emphasizing the importance of trust in a world that is moving fast. Trust and data, trust and models, trust and security, trust at scale. This is exactly what our customers expect when they buy from Trimble. Because our customers connect to their most sensitive data, only to a platform they trust, our approach to managing AI risk is anchored on recognized frameworks, standards and regulations. In Construction, the Trimble Connect platform has long held compliance and risk management certifications, including ISO 27001 and SOC 2 Type 1 and I'm proud to say that we have reached initial implementation status for FedRAMP moderate. As we layer Agentic AI into and throughout the platform's capabilities, our commitment to trust, safety and security remain our #1 priority.

Trimble's approach to managing AI risk is anchored on recognized international standards, frameworks and regulations. The Trimble Connect platform has passed independent third-party audits for ISO 42001 and with official certification expected later this month. If that sounds like a lot, it is, we take governance and resilience at global scale seriously, and we are confident and competitively distinguishes Trimble. Within this pillar of scale, resides conviction that if you're going to be a platform company, you have to have an open and extensible ecosystem that others can build on and upon, which you can compound value for network participants.

In transportation & Logistics, this is at the very core of what Transporeon provides for the business, a multisided marketplace with thousands of third-party integration, running tens of millions of transactions per year. In construction, we hold our Trimble Dimensions user conference next week, where we expect over 7,000 attendees, both on-site at the conference and at our off-site demonstration test site. On-site, we will hold our first-ever developer Summit within the conference where we have hundreds of registrants and dozens of sessions scheduled. At our off-site, we will showcase how we have expanded our partnerships with OEMs as well as providers of automation and autonomy. These ecosystem extensions are built on top of our market leading grade control engine. And all of this data is capable of flowing into Trimble Connect where its impact can be amplified.

Speaking of amplification, let's move to our third pillar, AI. AI is not an abstract add-on at Trimble. It is directly grounded in physical site reality. By capturing spatial ground truth in the field and feeding it seamlessly into our industry platforms, our connected data becomes the trusted data layer for physical industries where AI compounds its value by making that data uniquely actionable. With intention, our near-term focus is to broaden and deepen adoption, engagement and customer productivity while building the foundation for monetization as usage patterns mature.

In Transportation & Logistics, we recently launched Arc Agent, a transportation industry AI platform that connects to live data sources and build skills on top of them such as connecting live vehicle GPS telemetry with remaining driver hours of service and then correlating that with TMS dispatch and warehouse dock schedules to trigger automated exception resolutions. In the quarter, we launched in-cab AI-based driver intelligence as well as Appian fleet assistant for real-time fleet optimization. Over the last few quarters, I have talked about our autonomous freight marketplace solutions for procurement and quotation. Year-to-date revenue is up over 20% in this category, and our bookings growth shows significant potential for strong revenue growth next year, demonstrating the value behind automating spot market carrier selection and rate negotiation.

In Construction, we are extending the Trimble Connect platform with a unified and deeply integrated agentic AI layer so agents can be built and governed to take action with the same truck, security and permissions as the rest of Trimble. Customers will increasingly reach those agents through a single front door, Trimble Assist, inside the products they already use. I'll give a number of examples of AI and action across our construction applications this quarter, starting with project management, where our 360 capture solution automatically overlay site photos to 2D drawings, eliminating manual photo tagging for field teams. Paired with an AI-powered punch list capability for the closeout inspections that catch unfinished work, field staff can cut walk times from over 2 hours to about 20 minutes.

Document controllers and project engineers can now set up drawings in a few seconds with AI title block processing, down from 2 minutes. In MEP, our expanded live count AI takeoff has processed more than 3 million symbols across more than 300,000 monthly drawings. A feature release this quarter lets estimators train AI models on their own company symbol libraries, cutting manual take off time by more than 60%, and AI takeoff adoption among estimating users tripled from 6% to 19% of monthly active users. For surveyors, new AI feature extraction and Trimble Business Center detects pavement distress and checks curve and ADA ramp compliance without manual field review. In Steel & Concrete, monthly active users of the Tekla model assistant beta grew more than 50% in the quarter with actions in Tekla Structures succeeding more than 95% of the time.

In risk and compliance management, auto red lining sessions and Document Crunch more than tripled versus Q2. Finally, in financials, customers using our ERP AI assistants have by our estimate, saved more than 200,000 hours by automating 300,000 payroll runs, 750,000 invoices and 150,000 expense receipts. This translates into millions of dollars of labor savings which we view as crucial in an industry plagued by labor shortages. The innovation is exciting to witness and it gets even more impressive when considering the potential to leverage this data at the platform level.

Trimble Connect is our construction platform, and Slide 9 shows a visual of how we are connecting stakeholders across the construction continuum. In the third quarter alone, the Trimble Connect platform handled more than 30 billion API calls, up more than 25%, representing the importance customers and developers place on integration with Trimble's ecosystem. Behind that, the platform added more than 1 million projects in the quarter. In the last 12 months, almost 5 million projects were added to Connect and our reality capture platform service grew ingested data volume by 55%. With that application and platform progression in mind, we believe agents work at their best when deeply integrated into the products, data and services our customers already use customized to their full context, trustworthy with privacy built in rather than bolted on and easily created and shared across an organization.

Think of a customer interacting with this Trimble scheduling agent that inherits the user's permissions, the company's business rules and the project context, all stored and managed within the Trimble Connect platform. With access to data and bulls from across the platform, the agent can reason on ground truth data extracted from the contracts, BIM, estimates and metals, ERP, field sensors and more to monitor the project schedule and deliver actionable insights that are bespoke to the stakeholders whose ability to deliver outcomes is amplified by the intelligence that only Trimble can deliver.

To emphasize the point on our market approach, our near-term priority is to compound adoption and customer value with monetization following through subscriptions, add-ons, consumption and other models as usage patterns mature. We are exactly where we expected to be, which includes making our Trimble Connect platform capabilities accessible through a unified agentic AI layer. While we scale the ability for our customers to more effectively utilize credits as a consumption currency for AI and API usage at scale.

I'll close my comments on this AI pillar with a comment on efficiencies within our own 4 walls. We should go without saying that the strong majority of committed code we produce is now AI generated. We see development teams working on greenfield activities, cutting development cycles down by months and quarters. To get the most of leveraging AI efficiencies is a human topic, not so much a technology topic. The key is not applying a new technology to an old architecture, rather, it's applying a new technology to a new architecture. We are in flight around reorganizing more of our product development teams around a new architecture, one that we believe will unlock velocity at scale while doing so in a leaner fashion.

Phil will now take you through what this means for the Trimble model. Phil, over to you.

Thanks, Rob. Let me start with reviewing our third quarter numbers on Slide 11. We posted revenue of $967 million, up 7% and earnings per share at $0.86, in line and above the midpoint of our guidance. We delivered record ARR of $2.564 billion, up 10%. Gross margins were lower by 70 basis points to 70.5% due to higher hardware mix. Finally, we achieved strong EBITDA margins of 28.8%, which was toward the high end of our guidance range.

Moving to the balance sheet and cash flow items on Slide 12. Our reported free cash flow remained strong at $644 million through the first 3 quarters. Our balance sheet provides financial flexibility with $215 million of cash and a leverage ratio of 1.2x, which is well below our long-term target ratio of 2.5x. We repurchased $224 million of shares in the quarter and have $768 million remaining on our repurchase authorization. Since the beginning of 2025, we have repurchased over $1.4 billion worth of stock.

Next, let's review segment details on Slide 13. AECO delivered another strong quarter with a record $1.636 billion of ARR posting 13% ARR growth and 9% revenue growth for the quarter. Operating margin increased 170 basis points to 33.5% and is on track to deliver approximately 36% operating margin for the year, which is 100 basis points ahead of our prior expectations and a terrific milestone. Field Systems ARR was up 5% and revenue was up 7% in the quarter, with continued strength in Civil Construction and Geospatial. Operating margin was 29.5%, Transportation & Logistics delivered 5% ARR growth, 2% revenue growth and 50 basis points of operating margin expansion to 26.3%.

Turning to Slide 15, let's review our updated outlook for the year. We are maintaining the midpoint of our 2026 full year revenue guidance at $3.925 billion despite headwinds from foreign exchange and to a lesser extent, a small divestiture. This represents greater than 9% organic growth. We are also slightly increasing the midpoint of our earnings per share guidance to $3.66, which represents approximately 17% growth. We expect ARR growth at approximately 10% compared to our prior outlook of 12% to 14%, primarily due to the market impacts we discussed affecting the positioning services and transportation businesses. We maintain our EBITDA margin guidance of approximately 30%. We expect free cash flow to be approximately 0.9x non-GAAP net income and we continue to expect free cash flow to be greater than non-GAAP net income over the long term.

Slide 16 breaks down the full year metrics by segment. AECO is a scaled, growing and attractive margin business with over $1.6 billion of ARR. We are guiding revenue growth in the low teens and ARR growth of approximately 13%. Driven by the strong performance this year, we are raising our operating margin target for AECO by 100 basis points to 36%. In Field Systems, we expect revenue growth in the high single digit, ARR growth in the low single digits and operating income of 30%. We expect Transportation & Logistics revenue and ARR to grow in the mid-single digits, and we increased the operating income margin expectation to 25%.

With respect to discrete fourth quarter guidance, let's turn to Slide 17. We are setting the midpoints of our guidance at $1.046 billion for revenue, up 8%, earnings per share at $1.16, up 16% and ARR growth at approximately 10%. We expect EBITDA margins between 34% and 35%, which at the midpoint is approximately 100 basis points expansion from the prior year.

Before turning back to Rob, I would like to talk briefly about 2027 on 3 fronts, starting first with ARR. Our updated 2026 exit growth rate represents a good starting point with no expected deceleration next year. Our second is to point out the absence of a January 1 in our 2027 fiscal year, which will occur in fiscal 2028 rather than the fourth quarter of fiscal 2027, when a material amount of term license revenue is recognized due to renewals. This calendar impact means we will have a headwind to 2027 revenue and operating income growth of approximately $90 million. ARR and free cash flow will be unaffected. When adjusting for this dynamic, we expect revenue to be in line with our long-term plan. The third item relates to the efficiencies Rob mentioned earlier. We believe these operational moves will enable us to deliver strong earnings per share growth next year. Excluding the $90 million operating income impact from the absence of January 1, we expect EPS growth at the high end of our long-term algorithm of low to mid-teens growth. We will dial in the model further on our fourth quarter earnings call in February.

Back to you, Rob.

Thanks, Phil. Overall, I am pleased with our performance in the quarter, notwithstanding the near-term ARR headwinds. I'm confident and energized by the progress we are making to accelerate our right to win, excited about the customer engagement we are building across our platform and inspired by the momentum we are building with AI releases grounded in physical site reality.

Next week, November 9 through 11, we will showcase our latest construction innovations at our Trimble Dimensions user conference at the Venetian in Las Vegas, including our first Developer Summit. Thank you to our Trimble team, our global partners and our shareholders for your ongoing support. Operator, let's open the line to questions.

[Operator Instructions] Your first question from the line of Jason Celino with KeyBanc Capital Markets.

Maybe an obvious question. I think you mentioned seeing some tepid European market trends. Was this comment more broad-based? Or was it more specific to the AECO segment. It's just I saw the AECO ARR growth guide come down a little bit. So curious if that was the main driver for that.

Jason, it's Rob. With respect to Europe, we saw it more in field systems and in the Transporeon side of the transportation business, the AECO business, very solid. And really, that's a hold of the view we have on the AECO. So all good there.

Okay. All right. And then, Rob, I think you mentioned an interesting stat. You said that API calls were up 25%. I thought that was an interesting data point. I imagine the growth drivers of API calls are obviously new customer growth, product expansion and then customers using their own agents or using your agents. Maybe can you give us a frame of reference on maybe how much this data point might have uptick versus past trends? And then remind us how you're monetizing API usage.

Jason, good question. With respect to the API calls going up, I think that's a really good sign of Trimble Connect as a platform. So I was specifically talking about Connect, which is our platform for construction at Trimble. It reflects the corpus of data that is inside of Connect that reflects the scale of users that we have in it in Connect and a number of projects. So I referenced 1 million projects added in the quarter. I mean, if over the life of Connect since we started connect over 10 years ago, we've had 50 million registered users in that time frame. I think we're about over 1 million monthly active users around 1 million monthly active users today. There's a lot of work that happens inside of Connect.

And that is where we see the intensity of the API call usage. And that we see as a really good sign, especially as we put more and more of our applications and to connect and now enter AI and the MCP connectivity, server connectivity, more data able to connect across the life cycle with the stakeholders in the industry, that's a great sign for us of just how important Connect is proving to be for our customers for them to be able to do their work and to be able to do it better, faster, safer cheaper and greener. With respect to monetization of those API calls, you're going to see more and more of that from us over time. And we talk about a hybrid model where we believe we'll monetize AI usage at the intersection of the named user license with the ability to have credits on top of that.

Your next question from the line of Jonathan Ho with William Blair.

Thank you for the additional color on the ARR portion of the business. Just regarding sort of your revised outlook and guidance, can you give us maybe a little bit of color on maybe a waterfall of the relative impact from the 3 items that you mentioned as well as help us understand what changed relative to the prior expectations?

Jonathan, this is Phil. Let me -- so let me talk about the couple of -- let me go around the businesses, first of all. So AECO, Rob mentioned this, but the business is strong. We see no change in the fundamentals of that business. The net retention, excluding SketchUp, is about 110%, which has been very consistent. Our gross retention has been stable there. Our net new ARR is actually growing throughout the year and we'll exit at the highest level of the year. And then in the AECO, there's also a bit of a roundup and round down. But with the strong performance of that business, we've increased the operating margin by 100 basis points to 36%. So that's AECO.

When I talk about the Field Systems for context of field systems is about 15% of the company's ARR. And within that, there's the 3 businesses. The Civil Construction, Geospatial and Advanced Positioning. Advancement Positioning is where we sell the satellite-based correction and that gives our users higher accuracy without needing a local infrastructure and that also gives better performance. But a significant portion of that business is actually selling the corrections into the ag market and in particular, in South America, and that's gotten worse. And then to a lesser extent, over a year ago, we started including the corrections as a standard on your offering at the point of sale with our construction hardware. And what we're seeing playing out is that is that the conversion rates which we modeled, which were based on our previous experience in the ag market are actually lower than expected. There's still contributing to the growth, but they're lower than what we modeled.

Got it. Got it. And just as a quick follow-up. -- you talked very favorably about some of the AI adoption that you're seeing. Is there any way for us to think about sort of quantification for what that looks like, maybe not for the balance of the year, but into 2027, does this start to look a bit more material? Just trying to understand some of the drivers and opportunities there.

Jonathan, thanks. This is Rob. We went through a number of examples of innovations and progress we're making in AI on the call, and that was just a small slice of what the teams are producing right now. And I see that both at individual application level, at a work flow level, at an ecosystem level. We see it connecting physical and digital workflows in both construction and transportation. It's exciting to see what's happening. And it's been more interesting to get these in our customers' hands. And so the frame we have is we want to drive adoption. We want to drive engagement. And we'll follow -- monetization will follow as those usage patterns make themselves clear and mature a bit.

I wouldn't expect that a quantification like in aggregate for that to be a needle mover in the, call it, the first half of next year. I think as we progress through next year, somewhere in the second half of the year, I think it might be a little easier to start to have a little bit of a better sense of what it is doing in aggregate. But I can tell you, like we see pockets of evidence were of growth. So if we take, for example, the SketchUp business, specifically architecture design business, when we have a hybrid model for the AI capabilities that we're delivering. So you bought a hybrid in the sense that you buy the named user license have a good, better, best tier inside that named user license, you get a package of credit. And when you go beyond those credits, you then can buy more credits and we saw quarter-over-quarter, 100% growth and those credits. I think that's a good sign for us that the technology is being used.

If we look in transportation and autonomous procurement and autonomous quotation, those products have been -- in the market, we saw 20% growth year-over-year in that space. We've got bookings that are strong year-to-date, which gives us confidence that, that business will continue to grow next year. So this isn't just futures. Like there is revenue today in the business. The Document Crunch acquisition that we completed last quarter has a project-based AI value delivery. That business is well on track with the deal underwriting model. We had significant growth happening in that business on a percentage basis. Aggregated up and when you're talking over $2.5 billion of ARR, it does get a little hard to move those needles. But I can tell you, it is gaining traction.

Your next question from the line of Jerry Revich with Wells Fargo.

Rob, Phil, I'm wondering if you could just talk about the pipeline that you have in AECO. I appreciate the ARR revision is pretty small, dollar-wise off of a larger base. I'm wondering as you look at the pipeline, what does that tell you about the growth profile for ARR for AECO over the next 12 to 18 months? And separately, from a margin standpoint as we think about the businesses using more AI credits? What are the implications for the margin profile for you folks when you do sell those credits? Can we just step through the economics there, if you don't mind?

Great. Jerry, thanks for the question. And so let's talk about AECO. Think about pipeline feeding bookings, which creates the revenue. At a pipeline level, when we look at the markets that we're serving, they're global. And the fundamentals remain large, global, underserved and are penetrated. Strong value proposition, unique offering at the intersection of the physical digital, the hardware, software, the office and the field. Asia Pacific pipeline and bookings, I think we're the strongest growers year-over-year in the quarter. I think that somewhat reflects bringing TC1 into the Asia Pacific market. So that's creating pipeline for our sellers.

What also is creating that pipeline is, I'll call it the modernization and up-leveling of our marketing efforts. It's just really impressive to see the full slate of tactics that the team has already been executing and has in store and it all gets better to create that pipeline through the investments we've made in our back-office systems and unifying our CRM systems over the last year, which is getting more and more intelligent and guess what AI is helping feed that as well. So the pipeline looks good as we look at the bookings and that flow through, that's probably a good place to pause and comment that we continue to see strength in data centers, reshoring, onshoring of manufacturing, energy, whether that's renewables or oil and gas. So good pockets of strength on the bookings front as well as geographically. All that then feeds into the model that Phil took you through with the net retention and the gross retention, cross-sell, upsell efforts continue to work and drive bookings and revenue, ARR growth in the business.

And then all of that then not only sets up for the second half of the year or this fourth quarter as we lay out in guidance and into 2027, our conviction that we'll continue to grow.

And Jerry, just one other point to add as we think about that. Our backlog, as we have it right now, is actually up 13% and the recurring backlog is also 13%. And if you actually double-click within there, the SaaS and subscription backlog is actually up a little bit higher than that. So that's another indicator of -- as we think about going into 2027.

Super. And can you just comment on the second question on margins, please, as you have more AI agent revenue. What does that mean for your unit profitability or margins?

Sorry, yes. I'd say the short term -- near term on that one, we see the gross margins in the business holding. Obviously, there comes a cost associated with hitting the models. Right now, it's -- we're able to price that through. Remember, we're pricing it through a number of factors, whether it's in that good, better, best tiering or if it's consumption -- work that's consumption-based or project-based for that matter. So what we see in front of us where we see, at a minimum, neutral to the margins.

Your next question from the line of Quinn Fredrickson with Baird.

Just wanted to start off within the field business and the 2 discrete headwinds you mentioned in positioning services. Do you see those continuing into 2027? I just asked because you mentioned you have visibility to sales growth in line with your long-term plans, the January 1 impact. So does that presume these headwinds clear at some point in '27? Or is just the rest of the business strong enough to offset?

I'll start, Quinn, this is Rob. With respect to, let's say, the ag market, that one, I don't know how to call the macro on ag, so I'm not going to attempt to do that. What I will do is talk about the growth that we have in the rest of the portfolio. So the machine control as a service business is ACV bookings growth actually ARR growth as well was over 50%. And what we see when -- as we've gone through to this model, excuse me, over the last few years, more than 1/3 of the customers that we win with this offering are new logos. But that tells us that we're expanding the addressable market. That gives us conviction as we move into next year.

We have a portfolio that we call building construction field systems where we've worked on a survey instruments, as you instead of really thinking of them as outdoors, we take them indoors, more for layout inside of a building frame. And that business continues to grow strong, strong double digit. So we see the bookings that we have there that gives us visibility into next year. So we add that -- and then software conversions, I'll just give you one more, as we continue to move from subscription from on-prem to subscription, we see the bookings there, and we have the conviction that we'll continue to grow there. And we learned, obviously, we can take the playbooks that we've had throughout the rest of the company here to learn for that. So that's the stack, Quinn, that as out.

Got it. Okay. And then second question, I think in your commentary, you alluded to some restructuring or reorganization, just any quantification of any benefits, how much of the savings will be retained versus reinvested as well as how to think about the cadence of those actions?

Yes. Quinn, this is Phil. Thanks for the question. Yes, so we did some work this year. There's puts and takes along this, but the easiest way to think about it going into 2027 is that we indicated about $90 million of a headwind on operating income from this -- from not having a January 1 in 2027. So a lot of the changes in the puts and takes would be around that neighborhood to around, call it, $80 million to $90 million is what we would expect. Now there's going to be other things that come back as we reinvest in the business as well, but that's about the [indiscernible].

Your next question from the line of Alex Sklar with Raymond James.

Great. Rob, maybe first one for you, just with Dimensions coming up next week. I want to dig into new product velocity after bringing that Document Crunch team. Where does that integration stand today? And how are you thinking about organic product expansion motion to kind of grow your share of customer wallet? How much more needs to be done there?

Thanks. Great question. So hey, we're very excited for Trimble Dimensions next week. We are going to be leaning into the platform story that we have at Trimble, the unique one, met that at the intersection of the physical and digital. As you can imagine, we'll have a lot to say as it relates to AI, we have, I think, it's 800 sessions that are scheduled. So not only that is that us being able to talk about new products, our customers, leading a lot of those sessions. We're running an off-site in addition to the into the on-site.

So the new product, the velocity will -- our customers and folks like yourself can make it out there, and we'll be able to see what we're doing, both in the office and in the field. And if we take Document Crunch, specifically, this is a fantastic team. We've put more capital behind this team. They are actually, I think, kind of helping a lot of the rest of the business see what's possible as it relates to product velocity, in an AI native fashion. A lot of inspiration there. We've actually given that business and the leader of that business, additional responsibility into -- for payments as well as there's a couple of new products that we're going to launch at Dimensions next week.

One of them specifically a year ago, we would have been looking at acquiring a business and fast forward in an AI world. We've built it ourselves and are ready to take it out next week. So a lot of -- really, just -- I can't say enough good things about the Document Crunch team, Josh and everyone in that business. And then more broadly, just as mentioned, it's going to be a fun week.

Okay. Great color. And then I'm not sure who wants to take this one. But digging into the AECO segment, can you parse out some of the trends you're seeing from that core kind of TC1 enabled multiproduct base versus the kind of 1 to 2 product customers as the divergence in trends related to retention or cross-sell that widening at all?

I'll take that one. I'd say it's quite consistent with what we see. The upsell motion actually was where we had the most growth in this last quarter, upsell growth outpaced cross-sell growth by a little bit. So that means we're deepening the penetration within our existing customers. We're winning new seats. So that's a good sign of deepening adoption within our customers. And what we tend to see is that a cross-sell motion, a onetime period creates the upsell motion in a future period. There's a certain logic to that, to see that play out. And what that means then is we continue to see steady growth of customers going from 1 to 2, 2 to 3, 3 to 4, et cetera, products or applications that they're using from us.

So continue to feel really good about the fundamentals that we have there in the business. And then actually, also I want to highlight beyond the AECO, truth of the matter is the customer doesn't care about AECO or Field. It's Trimble construction capabilities. And at that intersection point, we think there's really exciting things that we can continue to do to unlock that work in the field. So think about the surveyors, collecting data, machine control, streaming real-time positional awareness and linking that into the office with the systems that are managing those projects and the schedules in those financials. That BIM model meets the financial model meets execution and progress in the field. That's special, that's unique and something we think we can only do.

Your next question from the line of Rob Wertheimer with Melius Research.

You guys have unpacked the fuel system fairly well. And I don't suppose it's a surprise really that the South American ag is weak. On the bundled offering in construction, was there a geographic overlay because it seems like North American construction is picking up pretty well. And then just out of curiosity, is that -- it seems like you bundle it with new machine sales subscription, but was there anything else in there where you're wrapping other products from Trimble into that? And I'll stop there.

Rob, so on the bundled offerings, are you referring specifically with some machine control offerings out of field? Or do you mean it more broadly?

Yes. Yes, I just didn't know if you were able to wrap the machine control/credit services and field than anything else, [indiscernible].

Got it. Got it. I'm estimating, so from the B2W acquisition we did a few years ago, estimating and then in-field track capabilities as a natural has been the most natural place where we're bundling at the point of sale or doing a co-sell motions with the direct and the indirect team, the referrals. So estimate -- we're doing estimating for civil construction and earthmoving specifically. It's logical that one who is buying our machine control systems and also needs to create estimates for that earthworks.

The other -- the next thing that's very logical to connect to that is project management. So you're right, you're managing the work and then project management in the office and the field. So those become the bundles, Rob, and I would say those still, I think, are in their very early days. So we think we have a lot of room to run there to perfect that motion. And then you can imagine, once you do that, the next the next move on the Board is connect that to the financial system and take a North America market, for example, we uniquely have density in that construction financials. And by the way, also within financials, I don't just mean ERP, I also mean payments because earth mining contractors generally get paid based on how much earth or how much dirt they're moving. And then you can see how that would flow back into our ability to manage the projects and the financials of the payments.

All right. Perfect. That's interesting. And then just in general, though, in the weakness that you saw in outside of ag and Field Systems, was there any Europe -- any geographic overlay on that, that would further explain?

Well, I call it Europe and field systems, I called that out in my opening remarks. And I go back to the first quarter when we've talked about the war in the Middle East and how that would play out. And I had a degree of caution in the back half of the year if the award didn't end that's definitively not good. It's not good for our business in the Middle East and we see the inflation that, that has rippled through Europe. So I'd say that was modestly weaker and then that was offset, as you noted, with the strength in the U.S.

Your next question from the line of Kristen Owen with Oppenheimer.

I recall that we talked a little bit about this last quarter, but maybe just coming back to it, help us understand that gap that we're seeing in AECO revenue versus ARR growth? And then just given the term license calendar piece, does that gap start to narrow in 2027?

Kristen, this is Phil. Let me take that one. So yes, the main dynamics on that delta is -- well, there's 2 pieces to it. I'll call it. The timing of the term licenses, the term license is we recognize that revenue upfront. We smooth that out for ARR. And so that timing in any given quarter can be up or down. There's also a facet of that. that if we sell some multiyear terms, there's even more revenue in a given quarter.

The other piece of it is professional services that we have still in AECO, a large portion, particularly in our owners business. That's been declining as we move more and more from customization into more standard cloud offerings. And so that obviously is not tied to ARR. So that's why we are focused on ARR that really normalizes those dynamics. And if I look over a longer term, if I just look at our full year, for example, this year, the gap actually closes, we're guiding in the low to mid-teens for the revenue growth and about 13% for ARR. So that does get closer if you look at it over a multi-quarter period.

Great. And then I did want to follow up to the extent that you're able to give an update on the transportation business. Obviously, conditions in Europe have changed. Diesel prices have come up. So just any sort of update that you can provide on the alternative discussion there.

Kristen, this is Rob. The answer is this business as usual us. And I hope you got a sense from my prepared remarks that there are a lot of really good things happening in the business. I'm having both of those user conferences in the quarter grounded us and the importance of what we do. The European market has its puts and takes with the diesel prices. There's aspects that, of course, are not good. And then there's other aspects which create business for us. So the message overall is the same as last quarter. There's no predetermined outcome or time line as it relates to the review.

Your next question from the line of Mark Schappel with Loop Capital Markets.

As you look ahead into 2027, Rob, could you just talk about any changes that you anticipate on your go-to-market strategy in particular, maybe you could talk about how you're thinking about sales coverage or channel partnerships, cross-selling and maybe where you see some of the greatest opportunity for improvement there.

Great question. I give the teams -- all our teams, great credit for the transformation they've made over the years on the go-to-market side of the house. I'm really moving from product-based selling to platform selling to that named account, user selling, which is absolutely crucial if you're going to drive the cross-sell opportunities, you're going to best serve the customers for what they buy from us.

I'd say the next wave of what I would characterize as our opportunity to level up would be at the intersection of the direct and the indirect. So with the AECO and Field, where we serve common customers we're able to do that, I think, quite well at the enterprise account level. And I've seen that get better and better throughout the year. So I would expect to see good things from the team there. And maybe it's somewhere late '27 to '28 were at scale, I would say, without much of the handholding that it works on its own. But that intersection point, direct, indirect serving large account opportunities it's going well, and I think that we're going to be able to unlock even quite a lot more of that next year, and there's even an intersection point with our form of forward deployed engineers working with that. When we're doing that, it's just really exciting to see what customers are unlocking with our technology.

Your next question from the line of Chad Dillard with Bernstein.

So Rob, I wanted to go back to your prepared remarks when you were talking about the different capabilities of AI in your products. You mentioned that there's millions of dollars of labor savings. So I guess my question is, number one, how much does Trimble or how much is Trimble entitled to capture? And then number two, can you talk about the adoption of those capabilities by our customers by region?

So it really is just -- it's fine, it's exciting, it's compelling to see what these capabilities are achieving and what they're accomplishing. Again, I'll keep coming back to the spring that we want to drive adoption engagement. There's a lot we're learning. There's a lot of our customers are learning. With respect to, I'll say, a thought on value -- I'll call it, value capture, how we think about that. We think about quantifying value delivery and then getting our fair share of that value capture. So the equation for us has got to start with the value that's created for the customers, and then we work backwards from there. So that's more of really a thematic answer that I'd give you.

And you can see order of magnitude improvements as you transcend from, call it, a point solution productivity and to workflow, solving those higher order problems. And there are aspects, you could say, somewhat separate, but related, where we can see savings in labor hours, say, if you're using Document Crunch and you're doing where AI is automating red lining there's less human intervention needed for that. Or on the ERP side, I referenced automation and payroll and invoices and expense reporting that we think is saving hundreds of thousands of hours and therefore, millions of and labor hours. So we think about it -- we definitely think about, so I'll say, labor savings for our customers, which matters so much in this market that is tight on labor, understand that, quantify that and then work backwards to our value capture and that value capture, at a minimum, we would want to be within a frame of how we've historically done that with a bias to that being even higher.

Great. That's helpful. And then maybe wanted to talk about your M&A pipeline and your approach. So I guess like how do you think about the split between buy versus build, especially now that we've -- you're shifting more towards AI capabilities as products.

Yes. Chad, it's a great question. I mean, first, within the capital allocation frame with the M&A pillar, we believe in disciplined M&A, but fits our strategy, and it has to absolutely fit our strategy, and we differentially think about the intersection of the physical and the digital. So in other words, differential interest and capabilities that headed that intersection point.

My answer today on buy versus build, I think, is different than it would have been a couple of years ago. Where today, we have a sharper lens on acquisitions that might have been more -- I would have described as tuck-in the past. We're asking ourselves a lot more questions if we can build instead of buy and then next, we get the user conference. We'll have at least one, maybe more examples to be able to share. We're announced -- we're making announcements on some what we call them capabilities or features or products that we've been able to build fast, and we're building them inside of our platform and native way connecting them. That's different. That's pretty exciting.

We have reached the end of the Q&A session, and that does conclude today's call. Thank you all for attending. You may now disconnect.

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.

Is that the sensitivity to capital purchasing versus sort of a more lower run rate OpEx purchase? Or is that by nature of combining them and being able to deliver the software product, there is opportunity to tack on another software product without being a whole new selling motion.

Yes. I think part of it could be how you make the decisions within your firm on CapEx versus OpEx. So that is a good point. The other thing is we make -- it's a compelling offering. We have what's called a technology assurance on that. So if you're on the subscription and Trimble happens to come out with new hardware that's a like-for-like, you get the new hardware. So you don't have to worry about staying current on the technology. As long as you're on the subscription, we can keep you current. And that's really attractive for our customers because they don't have to constantly go out and look at what they need to procure to stay at the leading edge of the technology. They can just get that with the technology assurance.

Yes. And one of the strategies here as more on the construction side has been the technology outlets. Could you maybe talk about mixed fleets and where you think the industry is at in terms of -- it feels like doing the best that they can. There are obviously -- there are some customers that might be able to buy first OEM. There might be some customers that can buy first party all the way through OEM, but there's a lot of the market that can't. And so when you're talking about an organization that wants to embed more autonomy, how does mixed fleets present a pretty big challenge for them?

Yes. Look, it's a great question. And our customers, actually, a lot of them are mixed fleets. They have different types of machine. And what they really want to standardize is on the technology and the workflows. And so this really comes from a customer-first perspective of for that customer that wants to standardize on Trimble, how do we give them access to Trimble regardless of the machine type or the brand. And so the Trimble technology outlet is a natural evolution. So prior to -- I think it was late last year -- sorry, the year before, the -- we were selling most of our products through SITECH, and these are extensions of CAT dealerships. And so what we're now doing is we're selling what's called these Trimble technology outlets, and it enables us to access more of the market from different types of brands and machines.

And so again, this is really centered around the customers and whether that customer buys it factory fit or whether the customer buys it aftermarket, which is really where we sell to, they want to standardize on Trimble and Trimble's technologies and Trimble's workflows. And this just gets them more access to more points of sale and more points of service to be able to standardize on the Trimble products.

Before continuing on, any questions from the room? Right. Well, T&L -- T&L is probably the topic du jour. I think the way to frame it is you've got incredible inbound interest on that segment. There's a responsibility to shareholders to do a strategic review. But let's just talk about like broader picture around rationale and portfolio management. What do you still like about the transportation and logistics business such that if a few months from now, nothing happens, there's no transaction, what will you be focusing on? And what do you think are like the long-term opportunities of T&L? And then I'd love to just understand maybe if that transaction does happen, what priorities might change?

Sure. So really like the T&L business. We've had it for a while. It's been -- it's several segments, the main being our enterprise business, which is our TMS, our MAPS business, U.S. and our Transporeon business. Also within there is a forestry business. So those are the 4 parts to it. But we really like -- I started with the conversation around attractive markets that are underpenetrated, underserved technology. Supply chain, in particular, transportation and logistics is one of those markets. So we see a real big opportunity in that business.

The market has been down. We've been in a freight recession for several years now. And I'm really excited about the opportunity when the market does turn around because we're setting ourselves up very well. The business continues to grow even in a challenging market, and we've seen that. We see the margin expansion within the business, so demonstrating the execution on that. So really like the business. And as you said, what we look with all of these is through the lens what's best for our shareholders, what's best for our customers, what's best for our employees. And as we make decisions, those are the lenses that we look through.

Yes. Well, last time you did sort of a major divestiture, it was a time period where that kind of money was transitioned to an accelerated share repurchase. It was a certain time period in the history, but I'm just curious if you were thinking about tomorrow having the proceeds, where do you think source out is a top priority? And in the evolution of the portfolio, you've been doing a lot more tuck-in kind of activity. So when does it start to make sense to do strategic transactions again?

Yes. So let me take it -- here's how we think about capital allocation in general. So first and foremost, we put our money and P&L money into the growth of the -- that's first and foremost, when we talk about efficiencies in AI and back office and how we can pivot more capital into growth opportunities for the business. So that's first and foremost along line. Now if I look at Trimble's balance sheet, I really like the balance sheet -- the financial health of the company. We're below our 2.5x long-term target from a leverage ratio. We're closer to 1, 1.1. So we've got a lot of flexibility on the balance sheet to do things. And I look at -- so where are those opportunities then from a capital standpoint, not being in a high leverage situation. So you look at M&A, and we've talked about sort of the tuck-ins and buying capabilities that we can then cross-sell and upsell. We've been doing that. We like that motion, continue that.

If there are opportunities for larger M&A, we definitely look at that through, again, a strategic lens and does it make sense. from either another anchor tenant that we can cross-sell or run the cross-sell play into just like the Viewpoint opportunity that we've seen very successful over the years. And then beyond that, we look at share repurchases. And I committed at Investor Day to at least 1/3 of the free cash flow going to share repurchases. And I think you've seen our track record over history that we're also opportunistic on the share buybacks. If you go back to the beginning of 2025, we've actually bought back close to $1.2 billion worth of shares in that time frame. So we're willing to be opportunistic as well on the share repurchases.

All right. Well, last question, we'll take you to wrap it up. But it's just what have you learned from the CFO seat about investing in AI through the development effort and maybe even how the development organization has changed, that's the second derivative of AI investment. Because you've talked a little bit about accelerating practical AI releases. And I just -- you have given a target of how much of the development resources might go to AI. And so I think that's a very -- much more explicit messaging around that effort. And it didn't exist 5 years ago, probably as a concerted effort within the organization. So from your perspective, are you pleased with being able to ship code faster? What's required that might be like kind of a hump that you think will have more leverage over time as you kind of grow into it? Any kind of CFO takeaways from AI investment?

Yes. It's a great question. I'm sure a lot of CFOs are looking at similar ways as I am. Maybe if I just bifurcate it a little bit, it's -- can we bring product to market faster, right? And so as I think about where places that we have opportunities for us to grow our revenue, our ARR, okay, is it bringing more products to the market faster and leveraging the speed and time to market of that. We are seeing cogeneration and improvements there to be able to do that as we go forward. I also think about internal use and how we can be more effective and efficient within not just product development, but across the board and a lot of the groups that I manage. And we're definitely -- the teams are leaning in and we're finding opportunities to do that.

So I really like where we're going. But -- and again, it comes back to our capital allocation of saying where we can get more efficient, how can we then pivot that to areas of growth. But I also think about it as an end. And again, if you look at the numbers this year for Trimble, we're delivering the expansion on the margins. At Investor Day, I talked about a 30% EBITDA margin for 2027, and we are very close to that, pretty much at that for our guide this year already. So a full year early on the margin expansion. So I see us as sort of an and where we're able to move faster focus to the growth, allocate capital to the best growth and the best return and deliver the margin expansion.

Perfect. And we got an Investor Day coming up in the future, refresh on all of these...

Yes. We are -- right now, we're talking about potentially because we put targets out to 2027, so you can naturally expect that sometime in 2027, we'll do a refresh and more to come.

All right. Well, Phil, thank you so much for coming to Nashville.

Thank you.

Hello, everyone. Thank you for joining us, and welcome to the Trimble Second Quarter 2026 Financial Results Call. [Operator Instructions]

I will now hand the conference over to Rob Painter, President and Chief Executive Officer. Please go ahead.

Welcome, everyone, and thanks for joining us today. Before I get started, our presentation and safe harbor statements are available on our website. Our financial review will focus on year-over-year non-GAAP performance metrics on an organic basis.

Let's start on Slide 5 with our 3 key messages for our second quarter call. First, performance. Driven by organic execution, the Trimble team delivered a top and bottom line beat. We are raising our full year guidance and reinforcing our capital allocation strategy with a new $1 billion share repurchase authorization. Second, momentum. Our Connect & Scale strategy is accelerating as connected data and workflows compound value across our Trimble-led ecosystem. Third, transformation. Our AI transformation is hitting its stride. Building on a connected data foundation, we are deploying agentic workflows that unlock step function productivity for our customers while driving structural efficiencies inside our own walls.

Turning to Slide 6. The second quarter performance was exceptional. Organic revenue growth of 10% and EBITDA margins of 28.6%, both beat the midpoint of our guidance range. Total organic ARR grew 12% with AECO up 14%, Field Systems up 12% and Transportation up 7%. This strong execution, combined with our outlook for the second half of the year, gives us the confidence to raise the midpoint of our full year guidance for revenue by $50 million and for earnings per share by $0.10, representing 17% year-over-year earnings growth. My sincere thanks go out to the Trimble team and our global partners for their dedication and customer focus.

Turning to Slide 7. I'm going to take some focused time today to talk about our Engineering and Construction business and how AI accelerates our Connect & Scale strategy, thereby reinforcing our right to win for decades to come. Trimble sits at the very center of engineering and construction workflows. Our customers deploy our software and hardware solutions in one connected ecosystem where our unique advantage lies in closing the loop between the physical and digital worlds. Our investors see this value through our AECO and Field Systems segments. Let's review both segments before tying the full picture together.

In AECO, revenue was $389 million, up 9% and ARR reached a record $1.577 billion, up 14%. Cross-sell and upsell motions continue to drive outperformance. Our recent acquisition of Document Crunch, which delivers AI-based contract risk intelligence, is outperforming expectations and has significant momentum. We also accelerated practical AI releases for our customers across many of our products. For example, targeting small subcontractors, we launched a new AI-enhanced construction job costing and financial management solution.

In MEP estimating, we extended AI takeoff capabilities to automate the tedious manual task of measuring a project's blueprints, models or digital plans to generate a complete itemized list of all the materials needed for construction. Early customer data shows time savings of up to 60% on manual takeoffs, allowing contractors to expand bid volume and accuracy without adding headcount. In addition, AI is reshaping our software product development life cycle, and we are leaning in aggressively to embrace this change at scale within AECO and across the entire company.

In Field Systems, revenue was $442 million, up 12% and ARR reached $399 million, up 12%, marking a terrific and record-setting quarter. Global end markets demonstrate broad strength, notably in data centers, utilities and energy infrastructure. Our Civil Construction team continues to drive mixed fleet technology adoption and market expansion through our bundled subscription offerings.

In Geospatial, our latest software releases incorporate AI feature extraction, turning massive unstructured field data sets into actionable intelligence. Across both AECO and Field Systems, we are building specialized agents on our agentic platform to unlock customer productivity. These agents execute work, validating specifications, detecting exceptions, matching transactions and triggering downstream actions across customer workflows.

We are disciplined in our approach, building, learning and putting in place the underlying capabilities to scale and monetize, which we expect to happen through a combination of subscriptions and usage-based consumption. Our near-term focus is driving adoption and deepening engagement across an expanded workflow surface area. We leverage telemetry to measure real-world value creation. And as usage scales, we will adapt our pricing and packaging to match the value we unlock.

In addition, several marquee customers are now actively pulling in Trimble domain experts to help them connect disparate data and rearchitect core processes around our AI-enabled solutions. Trimble Connect sits at the core of this strategy. It serves as the connective tissue between the office and the field and between the physical and digital worlds. Today, more than 3.7 million monthly active users rely on Trimble construction solutions across modeling, project management, machine control and reality capture with Trimble Connect at the center.

Trimble Connect is far more than a common data environment. It is the collaboration platform that enables the world's leading construction firms to orchestrate complex projects on a model and digital-first paradigm, not 2D drawings. This level of sophistication requires a solution that brings together models and reality, providing a continuous up-to-date digital representation of the construction site.

In the second quarter alone, Trimble Connect added over 1 million projects, handled nearly 30 billion API calls and connected 60,000 active IoT devices. Our reality capture platform service grew ingested data volume by 68% year-over-year. We are now adding over a petabyte of real-world construction data to Trimble Connect every quarter. However, data volume alone is not the end goal. It's merely an indicator of how critical data from the field has become that when made available in Trimble Connect enables the entire project team to understand progress. The data volume managed by Trimble Connect becomes the foundation for an agentic experience designed for demanding construction environments that must manage risk along with speed, quality and outcomes.

To see how Connect & Scale compounds value in the real world, let's look at 4 concrete customer examples, starting with the data center opportunity on Slide 8. Mission-critical data center construction demands millimeter accuracy, tight coordination and delivery of reliable as builts. Trimble connects concept to construction workflows by linking models from the office to field layout and by incorporating our scanning and augmented reality solutions. In this market, there is no tolerance for rework that can delay the opening of a data center. Construction teams leverage our technology to derisk every pour, rack install and wall penetration long before rework threatens schedules.

Turning to Slide 9. Scaffold Studio in Australia runs an end-to-end digital design to delivery workflow using Trimble 3D laser scanners in the field, Trimble SketchUp for design, Trimble Tekla for steel detailing and Trimble Connect for project coordination and model sharing. 3D laser scanning generates massive unstructured data sets. Our AI now extracts the exact structural data needed in minutes rather than hours. Adopting the full Trimble workflow enables them to finish jobs weeks ahead of schedule while driving profit-enhancing labor productivity.

Turning to Slide 10. R.F. Meeh is a mechanical electrical and plumbing contractor based out of Missouri. On a recent hospital project where an HVAC inspection failure posed severe contamination risks, R.F. Meeh built a constructible 3D model with Trimble. They deployed our AI tools to parse complex specification books and validate the model in minutes instead of hours. The fabrication shop then leveraged the model to automate the fabrication, while back-office systems synced live data for job costing.

In the field, augmented reality verified installed components against the model in real time, automatically triggering invoice approvals. All of these design to fabrication and field verification workflows were enabled by Trimble Connect.

Turning to Slide 11. Chandler Construction Service is an underground utility contractor in South Carolina. Working on complex water and sewer projects, Chandler previously logged field labor, equipment time and material receipts on paper. This was a slow process and prone to error. Today, field crews log data live on mobile tablets synced directly into their financial system.

On the back end, AI reads incoming vendor invoices, flags discrepancies and executes a 3-way match against purchase orders and field receiving logs in seconds. All of this data runs through Trimble Connect, powering field to financial workflows. These outcomes reflect decades of targeted domain investment. We were an early mover in practical AI and commercial momentum confirms we are on the right trajectory. We are investing aggressively to capture the steep slope of the S-curve. This is still early, but the pace is accelerating, and that excites all of us at Trimble.

Moving to Transportation and Logistics. Revenue was $141 million, up 5% and ARR reached $533 million, up 7%, both in line with expectations. After 4 years of a freight recession, we are seeing initial green shoots in the market. Spot rates and tender rejection rates are trending upward, signaling that supply and demand are rebalancing. Transporeon grew in the mid-teens and healthy quarterly bookings reinforces our midterm growth expectations.

On innovation, the T&L team is pioneering some of our most advanced AI capabilities. We launched ARC Agent, which consolidates fragmented tasks into a single high-performance AI agent backed by an expanding skills catalog. But with safety and reliability by design, it incorporates enterprise-grade guardrails and human-in-the-loop controls to ensure automated decisions are fully explainable, auditable and supportable. Deployed across a global network touching over 1 million trucks and 1,500 shippers and retailers, ARC Agent replaces multi-agent friction with enterprise-grade automated execution.

Furthermore, our AI native autonomous procurement solution secured key wins in North America, demonstrating the international expansion power of the Transporeon platform. These innovation wins and commercial proof points demonstrate a business operating from a position of strength, highlighting the core strategic value of the platform we have built across transportation.

With that backdrop, I want to turn to our portfolio. We recently received credible inbound interest in our transportation and logistics business from multiple parties. This is not surprising. T&L is a high-quality strategic asset with a compelling growth trajectory and a bright future. We are always reviewing our strategy and our portfolio to maximize value. In response to this interest, our Board and management team, together with our long-time financial adviser, Goldman Sachs, will undertake a strategic review to evaluate third-party interest while remaining fully focused on executing our strategy within the Trimble platform. Phil, over to you.

Thanks, Rob. Let me start with reviewing our second quarter numbers on Slide 13. We posted revenue of $972 million and 10% organic growth, which were above the high end of our guidance. This performance was driven by the strength of AECO and Field Systems, while Transportation & Logistics continues to deliver positive growth in a constrained freight market.

ARR was in line with our outlook at 12% to a record $2.509 billion. The continued growth in our recurring revenue base provides a predictable and resilient foundation for our business. Gross margins expanded 120 basis points to 71.8% and we achieved EBITDA margins of 28.6%, which is a 120 basis point expansion compared to the prior year. Reported earnings per share was $0.86 for the quarter, $0.06 better than the midpoint and above the high end of our guidance.

Moving to the balance sheet and cash flow items on Slide 14, our reported free cash flow remains strong at $502 million through the first 2 quarters. Our balance sheet provides financial flexibility with $214 million of cash and a leverage ratio of 1.1x, which is well below our long-term target ratio of 2.5x. We announced a new $1 billion share repurchase authorization and continue to expect to deliver at least 1/3 of our free cash flow back to shareholders along with being opportunistic with our buybacks as demonstrated by our almost $1.2 billion of repurchases since the beginning of 2025.

Next is our segment review on Slide 15. AECO delivered another strong quarter, performing in line with expectations. It achieved a record $1.577 billion of ARR, posting 14% ARR growth and 9% revenue growth for the quarter. Operating margin was 30.6% and on track to deliver approximately 35% operating margin for the year.

Field Systems revenue was up 12% in the quarter despite a headwind of approximately 300 basis points due to tariff refunds, which we do not expect to materially impact future quarters. Note that there is a corresponding offset in cost of goods sold for the tariff refunds, which results in no impact to operating income. Transportation & Logistics continues to perform with 7% ARR growth, 5% revenue growth and 240 basis point operating margin expansion to 24%.

Turning to Slide 17, let's review our updated outlook for the year. With the strong first half performance and momentum, we are raising the midpoint of our 2026 full year revenue guidance by $50 million to $3.925 billion, which represents approximately 9% growth. We are also increasing the midpoint of our EPS guidance by $0.10 to $3.65, which represents approximately 17% growth. We expect ARR growth toward the low to mid end of our range due to Field Systems that I will talk about in the segment slide.

We now expect EBITDA margins at approximately 30%, which is the high end of our previous guidance. We targeted 30% margins for 2027 Investor Day, so we now expect this to be achieved 1 year early. We expect free cash flow to be approximately 0.9x non-GAAP net income, down from approximately 1x we guided last quarter due to incremental restructuring and other onetime costs. We expect free cash flow will be greater than non-GAAP net income over the long term.

Slide 18 breaks down the full year metrics by segment. The trajectory for AECO and T&L are consistent with our prior guidance. We are adjusting the Field Systems ARR guidance to high single digits to low double-digit growth due to our decision to replace a white label product with an internally developed solution. This creates an approximately 400 to 500 basis point headwind to Field Systems ARR and to a lesser degree, the company for several quarters. This was a low-margin product, so the change will positively impact profitability over the medium to long term. We continue to see strong underlying momentum in Field Systems and remain confident in our Investor Day targets through 2027.

Finally, regarding our third quarter outlook on Slide 19. We're setting the midpoints of our guidance at $965 million for revenue, which is approximately 7% growth, earnings per share at $0.85, and ARR growth at 12%. We expect EBITDA margins at 28.6%.

Back to you, Rob.

Thanks, Phil. Overall, I am pleased with our second quarter execution and energized by the compounding momentum of our workflow ecosystem and AI efforts, all of which are built on a foundation of decades of proprietary data.

On September 22 and 23, we'll be hosting our European Transportation User Conference in Brussels. On September 27 through 29, we'll be hosting our North American Transportation User Conference in San Diego. And on November 9 through 11, we'll be hosting our Trimble Dimensions Engineering & Construction User Conference in Las Vegas.

Thank you to our Trimble team, our global partners and our shareholders for your ongoing support. Operator, let's open the line to questions.

[Operator Instructions] Your first question comes from the line of Jason Celino with KeyBanc.

I think I heard you kind of explained why the Field Systems ARR was coming down a little bit. Maybe can you -- maybe just retouch on that a little? And then specifically, when we look at your ARR performance as a whole, excluding Field Systems, how do you think that performed in the quarter?

Jason, it's Rob. I'll start with this. We made the move from a position of strength within Field Systems. So it's a one-time decision, discrete decision to move from a white label provider to a proprietary version that comes online soon. That existing revenue is low-margin revenue. And with the new revenue, that's going to be higher-margin revenue. And importantly, that technology will natively integrate into our larger solution suite.

And given that position of strength we have in Field Systems, and you see that in that revenue growth for the quarter. For us, this was actually a relatively straightforward decision to make to accelerate.

You asked about ARR at the overall company level and at the segments. I feel really good about that. AECO, up 14%. ARR performing at $1.577 billion. So that 14% to get to that is an impressive amount of net new ARR. And within the Transportation & Logistics business, we were on point there with the 7% growth in the ARR. So I'd say all according to plan and from that position of strength, made that decision in Field Systems.

All right. And then when we look at like the AECO segment specifically, I guess what are you hearing from the different segments as it relates to macro and tailwinds and headwinds? And maybe just go a little deeper there.

Sure, Jason. At the macro level, I continue to like what we see. End market strength won't surprise you, data centers, energy, reshoring, onshoring of manufacturing are all particularly strong. Infrastructure strength overall, which we see play through in Field Systems even more so. So broad-based strength at the macro level. North America, I'd say, leading the way, obviously, in terms of the size and the continued strength. We also had a good quarter out of the Asia Pacific region.

Your next question comes from the line of Jerry Revich with Wells Fargo.

Nice quarter. Rob, I wanted to ask you. Can you just expand on the prepared remarks you made on Transportation & Logistics and what that might look like? Are you thinking about the whole segment, just a piece of it? And can you just give us a rough sense of expectations for valuation if you're able and willing to share what the initial conversations have been so far?

Jerry, thanks for the question. So let me say the interest started inbound. That interest was recent. We take our fiduciary obligation seriously, and thus, we communicated that we will undertake the review. I also want to emphatically say that we remain fully focused on executing our strategy within the Trimble platform. This is a great business. It's got a bright future. And so I'm not surprised that we got the calls.

To close the loop, there is no predetermined outcome. There's no predetermined time line. And the solve that we'll have in this work is through the lens of shareholder value. And that's the fiduciary obligation.

Okay. I appreciate that. And then can we shift gears in Heavy Civil and Geospatial. You had a nice pickup in demand. Can you talk about the supply side of the equation. So we're seeing an acceleration in machine deliveries and tightness on the used market in particular. I'm wondering to what extent can your supply base ramp up given the demand picture into the back half of the year and beyond?

Jerry, I want to first shout out to our team, both in Civil and Geospatial. They've just done a terrific job with this business over the last few years, that outperformance in the quarter is on a pretty long string now of outperformance in the business. And it's more than the macros. The macros are certainly healthy, particularly in the infrastructure side and data centers, energy. So we see that playing through the market, and it's pretty global in nature.

At an execution level within the business to control what we can control, the team continues to innovate. We're expanding the network of the mixed fleet that we're able to support and we're expanding our points of distribution into the market. We're expanding the ecosystem development. So that translates into third-party extensibility built on top of our Earthworks platform within the Civil business.

In Geospatial, new product launches are driving business, and we're going to see even more as we move into the second half of the year and particularly as you -- we come into the conference season with INTERGEO in September and Trimble Dimensions in November.

Your next question comes from the line of Rob Wertheimer with Melius Research.

Rob, I had a question on just how you're thinking about capital allocation broadly. Obviously, it's incredibly dynamic. You're seeing, I guess, a lot of opportunities from AI. The market sees some threats and so some assets are cheaper. So just in general, do you find it to be a more fruitful kind of search if you're looking at acquisitions? And then do you feel any different strategic need to assemble any other assets in the portfolio than you did a year or 2 ago.

Rob, great question. Broadly speaking, on the capital allocation front, we see it the same as ever. We focus first on investing back into the business organically. Phil put forward the model we have on buyback. And then, of course, we have been an acquisitive company over time.

If you look at the acquisition front, one of the dynamics we see at play at the moment in an AI-forward world is there's more opportunity for us to create our own features and capabilities. So in the past, where we might have looked for some tuck-in capabilities, we think we can do more of those ourselves today. So that actually would be one different commentary I have on the acquisition front.

To the extent that we can build new sets of competencies or the new, let's say, markets to enter, we remain open to that. So we'll be active. I'd say we're always active on the M&A front scanning the landscape. We actually have a venture arm in Trimble. So we pay attention, and we're actively engaged. I would not say that the valuation environment has come down in the private market in any sort of fundamental way. And so we certainly weigh that against the buyback opportunity that Phil highlighted with the $1 billion reauthorization.

Your next question comes from the line of Josh Tilton with Wolfe Research.

Two quick ones for me. First one, maybe to follow up on Celino's question. And again, I apologize if I missed this, and I also didn't run the math. So again, I apologize if it was clear that way. But had we not encountered this ARR divestiture in Field Systems, would we be reiterating the ARR guide for the full year at the midpoint? Or would we be raising the ARR guide for the full year at the midpoint?

Josh, it's Phil. Let me take that one. So yes, the Field Systems impact for this very discrete item is about 400 to 500 basis points over the next few quarters for Field Systems specifically. It's about, call it, a little under 100 basis points at the company level. So aside for those issues, we would be reiterating the range that we have.

Super helpful. And then maybe just a quick follow-up. I appreciate the incremental color on acknowledging the potential sale in transportation. I have to imagine that the inbounds that you're getting is because these buyers, I don't want to say, see this as the bottom, right? But they must see a better environment in the future hence wanting to buy the asset now and ride that positivity up as opposed to missing out on that opportunity.

Can you maybe just dive one level deeper on like what are they seeing that we should be seeing or paying attention to that maybe gives them hope that there is a better environment in your transportation market over the next, call it, 12 to 24 months than we saw over the last 12 months?

Jason, great question. This is Rob. I'll take it. This is a great business. So this business has great potential. We believe in the opportunity. With the inbound, we have a fiduciary obligation, and we take our fiduciary obligation seriously. And we compare that to our own plan to execute our own strategy within the Trimble platform. And that's why I say we remain fully focused on executing the strategy because I go back to this being a great business with great potential. The solve is actually pretty easy in the end is what do we see as the highest shareholder value creation. And so we look at the stakeholders between our customers, our employees and our shareholders, and we make the decision accordingly. And by the way, if there's a decision to make because there is no predetermined outcome and there's no predetermined time line.

Your next question comes from the line of Quinn Fredrickson with Baird.

First question just on AECO. Could you unpack the difference between organic revenue growth and ARR growth in the segment this quarter? It was just a little wider than I would have thought. I'm not sure if that's all the conversion uplift going away or if there's any other factors.

Quinn, it's Phil. Thanks for the question. So in AECO, we have some term licenses and multiyear term and also some ProServe as well. The revenue is recognized upfront with those items generally. And so the timing of those in any given quarter could be up or down and create a delta between the revenue and ARR. If you actually go and look in our past and particularly in Q2, we've seen this dynamic before. So it's nothing new. And this is why we focus on the ARR metric. And the 14% growth has been consistent in that range and in line with what our expectations are this year. And there's no change to our outlook or guide for AECO with that.

That's helpful. Second question, we're a few months into the Claude partnership. Is there any data you could share on new SketchUp user licenses and how that's trending relative to what you had hoped for at this point in time?

Quinn, this is Rob. Good question. It is early to have any definitive conclusions. But there are 4 things that I can say based on over 25,000 unique users that we've seen in Claude using the connector. The first is around learning. We're learning how to build skills to make the connector even better.

The second is that we're following the telemetry to generate the marketing motions to drive adoption to turn a user into a customer. The third, what we're confirming is what we expected is that this is not going to replace the current workflows, professional call it, grade work that's done, the deterministic analysis that could be daylight modeling, structural analysis, energy modeling that's still happening within SketchUp itself.

And the fourth, as we said originally and as we still know today is that importantly, our IP is protected. And we're building these same capabilities into the SketchUp user interface itself, and that's been launched in what we call our Trimble Labs program. So it's out there with some early users. So I would say in line with the expectations we had, Quinn. So thanks for asking.

Your next question comes from the line of Tami Zakaria with JPMorgan.

Very nice quarter. I wanted to follow up on Slide 8 of your presentation where you show how Trimble delivers value to data centers. Can you help us understand what is the duration of a typical data center project where you can stay involved? And is there a revenue curve that follows that has a phase when Trimble's value contribution peaks? Or is it pretty consistent from breaking the ground to handing over the project?

Tami, it's Rob. I'll take your question, and it's an interesting one. So if you think about a project life cycle, it often starts with capital program management, the owner of making a decision to invest in the capital into the data center itself. And we can service that need through Trimble Technology with an O and AECO, and we do that today. So that happens before there's ever even any surveyors out in the field. And guess what, after you've decided to make the capital investment, you send the surveyors out at some point after that to actually create the digital model of the physical earth to have that topographic map, but the as is conditions.

Once you have that work, you now need to send that digital model into a set of engineering and construction workflows because you need to do site preparation, which is an opportunity for our civil construction business to move the dirt and move it right the first time.

As you lay that foundation, the concrete pad, Trimble is involved in that, not only in the design, but in the layout and the verification of that as you move from the pad into the, let's call it, the building itself and into the interiors through the structural shell, through the mechanical electrical rough and through the full fit-out. We're involved in that from design solutions to estimating solutions to project coordination to field layout as well.

And then at the end, with the commissioning and the handover and then the whole quality control loop, we end up there as well. So from that concept to completion, Trimble is relevant, involved and engaged in a data center. To answer the other part of your question about the, let's say, the duration and how that flows in over time, I would say that it can cover that full life cycle of a project. So it doesn't all hit immediately at once. There does tend to be some months of, you'd say, lag between when that's -- it could be months or quarters, by the way, from when the project is commissioned and approved all the way through when the various trades are taking on our technology. It's hard to see it in the numbers today because our customers have a very healthy amount -- or most of our customers have a very healthy amount of backlog, obviously, those who are serving data centers have healthy backlog. And so we see it in the business that we're already doing with them today. So great question. Thank you.

Understood. And my second question, I think I heard you say you are going to reach the EBITDA target of 30% a year early. So what's next? Is it time to maybe renew the 2027 target and extend to maybe 2029, '30? How are you thinking about it?

Tami, I expect that we'll do an Investor Day next year. I mean that would be the right amount of timing, and it's not -- we're not going to -- not ready to talk about 2027 guides. But what I would say to address the comment you made is that I would emphatically say I am proud of this team for delivering the EBITDA target, which could potentially be a year ahead of what we put forward. That's a big deal. That's a big deal for us, and I hope our shareholders see that as a big deal as well that this business is performing and performing [Technical Difficulty] expectations.

And it is extremely reasonable to assume that we will continue to drive operating leverage going forward and expand upon that as we move the business into 2027 and beyond. So it's a great place to be and gives us optimistic about the ongoing upside potential.

Your next question comes from the line of Nay Soe Naing with Berenberg.

My first one is on -- I appreciate the fact that your AI strategy today is primarily focusing on customer adoption today. But I would love to get an update on how you're thinking about your monetization strategies going forward. I asked that because last week, one of your peers mentioned that they're looking to monetize AI features starting from next year and another peer recently came out with AI-specific supporting packages as well. So any directional update that we could have on your monetization strategy would be very helpful.

Thanks for the question. This is Rob. I'll take it. And it was a little hard to hear you, but I think you're asking about the AI monetization. And I'll start by saying it's definitely a learning journey. And I can tell you that we're monetizing today. We're monetizing on a stand-alone basis, and we're monetizing through hybrid license and consumption models. It just takes time to show up when you're a scaled company like Trimble. The near-term priority we have is to drive adoption, to drive workflow engagement across our expanded surface area and then to leverage telemetry to measure the real-world value that we're creating for our customers.

And as that usage continues to scale, we're going to learn. Like we're going to adapt our pricing. We'll adapt our packaging, and we expect to see that through a combination of tiered subscription bundles that looks like the good, better, best offerings that we've talked about before. We definitely expect to see hybrid models with license and consumption-based -- those consumption-based usage models on a go-forward basis. Like we have in the Transporeon business today, it's already a transaction-based model that we have. So we're building capabilities and those capabilities give us optionality. I like where we are on this journey right now.

Your next question comes from the line of Chad Dillard with Bernstein.

Just wanted to revisit that product change in Field Systems. So first of all, what was the product? And then if I look at the run rate, it seems like it's a $75 million headwind. So just trying to figure out like what the denominator is, like what's the total size? And then if you could unpack that 400 to 500 basis points impact over the next couple of quarters, what's churn? What else is it?

Chad, thanks for the question. This is Rob. I'll start and then Phil will give you the quantitative, which is different than what you put forward. I mean at the qualitative level, within the civil business, we have a lot of different technologies. Here, we're talking about essentially field data processing. And that is a service -- that's the specific service that we're bringing in-house with proprietary technology.

And again, doing this from a position of strength with the momentum we have in the business, we always had a plan, and we've been developing this ourselves as we decided to bring it forward. Phil, why don't you take the quant?

Yes. Thanks, Chad. Yes. So when I talked about the 400 to 500, that's specific to the Field Systems ARR. So the ARR Field systems last year was about $400 million. So the 400 to 500 basis points affects the growth rate. So that implies, call it, $16 million to $20 million on the ARR this year, and then you can extrapolate that obviously to the impact on the company.

Got it. And then I was hoping you can give some color in terms of your revenue that comes from usage-based consumption. And then just maybe more broadly, like how are your KPIs for managing the business changing as you lean more into AI and more usage-based consumption?

Great question, Chad. So when you ask about revenue from usage-based models, let me give you an example within the Transporeon business. We're talking over $150 million of transaction-based revenue that we have in that business today. That is a usage-based model. So when I talk about having the DNA and building on the DNA that we have, it's not just a future thing because we have it -- we already have that today. When we have the SketchUp in the fourth quarter of last year, launched a hybrid model with the license and then AI-based usage on top of that. That is -- again, that's -- it's in the market. It's not a futures thing that comes. So it's important for me, hopefully, to be able to communicate well here that the usage-based revenue is something that we already know how to do.

As we take this more broadly, let's say, with AI, let's call it, AI pure consumption-based, we also are building the underlying engines to be able to do the -- all the billing mechanisms and to be able to do that on a global level. That is a lot of work to put that forward. When we think about the KPIs and how they're changing in the business, some of the KPIs -- actually, a lot of the KPIs are the same as they ever were. The KPIs such as net retention. We pay a lot of attention to the net retention.

We see our gross retention holding where it was. We're not losing customers. So that -- and then so the net retention, the bridge from gross to net gets into the cross-sell, the upsell, the pricing and beyond. That's exactly where it has been. When we get into the, I'll say, specifically on the AI capabilities and features that we're adding, we're paying a lot of attention to the adoption, which is to say, how are they being used, the telemetry helps us with that.

So getting that indication that the discovery is happening, that the usage is happening and not just that it's used once, you track the daily or the weekly active usage. That's a measure of engagement. And that -- those would be the -- let's call those the predictive indicators for where we go forward as it starts to get, I'd say, revenue of a size and ARR of a size that we can report on.

Your next question comes from the line of Kristen Owen with Oppenheimer.

Just wanted to follow up on the back half guidance. You've got a couple of moving pieces here between the tariff refunds here in Q2 and then the ARR transition in Field Systems. So I just wanted to understand, did anything change in the back half assumptions for the year? Just help bridge that gap for us, please.

Kristen, it's Phil. So the tariff refund, that's more of a Q2 issue, not an issue. It was a bit of a -- it was a headwind on the revenue for Field Systems. That's really more discrete to Q2 and the bulk of our refunds coming in, in Q2. So we really don't expect a material impact on that going forward. So effectively, think about that as behind us. As I think about the back half of the year, so no change to how we're thinking about the back half of the year when we started the year.

And actually, in fact, the raise in the guide, the $50 million on the revenue and the $0.10 on the EPS would actually imply that we are raising the back half of the guide relative to the flow-through from Q2. So we see a lot of strong momentum in the business and as we enter the second half of the year.

That's super helpful. And then if I could ask you, you showed some really interesting data points on AECO growth. And the one that stood out to me is the 1 million incremental projects that you're seeing in Trimble Connect. Can you maybe help us understand like what's filling the top of the funnel there? What's the sales motion? You talked about some of the MCP early indicators, but just help us understand what's driving that incremental growth in Trimble Connect.

Kristen, thanks for the question. It's Rob, and I'm glad you asked because it is a great statistic for us. The users that we have that come in to Connect and those -- and the projects that come in -- come through our modeling solutions that come in through project management solutions. They come in the field from our machine control users, our surveyors, folks doing reality capture out in the field. So the users create projects. Those projects are initiated and managed in Trimble Connect. That is indicative of the network effects that we see in the business. It's just -- it's really compelling to see the adoption of this common and connected data environment and to see it globally. I mean this is not even -- it's not a regional topic. It's a global topic. And then the projects get added, that drives those API calls, the 30 billion API calls.

There's an intensity of that usage and the collaboration and the coordination that happens amongst stakeholders leveraging the Connect -- Trimble Connect environment. So -- and by the way, that is both serving AECO and Field Systems. That was why I wanted to set up as an overall engineering and construction commentary early in the prepared remarks. So really great things happening for us. It's something that is, we believe, very uniquely Trimble, that ability to link the work in the office in the field, the hardware and the software of Trimble, thereby connecting the physical and the digital world.

Your next question comes from the line of Nicholas Igneri with Barclays.

So product revenue grew faster than subscription and services for the second straight quarter, which is sort of a reversal from the software-led narrative investors have become accustomed to. Can you just help us understand what specifically drove the stronger product performance? And should we view this as a temporary trend or something more structural?

Nicholas, it's Phil. Let me take this one. Yes. So this is really driven by the performance in our Field Systems. Our AECO business is, aside from the ProServe, virtually all software. The Field Systems is the one that has more of the product revenue of it. And just with the strong performance of that business, the mix of that has changed where the product revenue is a little bit more and continue to see the momentum in that business and team has done a really good job.

Okay. Great. And then just Document Crunch has now been part of the portfolio for a few months. And I think Slide 15 noted strong performance in the quarter. I was just hoping you can further unpack that performance there and maybe just tell us what you guys have learned so far about customer demand.

Thanks for the question. This is Rob. I appreciate you asking about Document Crunch. This is a great team, great energy, great engagement I see between the teams. So just come in and just in a really perfect way. Our sellers have a lot of interest. I mean it's such a natural fit within the Trimble Construction One, bundled set of solutions, the commercial framework that we have. So we've got a lot of seller interest. We've got a lot of customer interest.

On the product front, the Document Crunch team came out with their next-generation solution that is being very well received in the market and by customers. It's just -- it's really -- and when you put -- when we think about this area of contract management and the risk intelligence around those contracts and really get your head around the data of just how litigious the industry can be and what the cost of those claims can be when they arise, the value proposition for having this AI-based risk management approach is a really incredible value proposition and then tie that into the proprietary set of data, we have a Trimble through from project management into the financials, into that awareness of what's happening in the field, and it just really brings things together very nicely.

The other thing we love about this team coming into the Trimble family is that we're putting more capital into this business in the form of people. This is an AI-native team. We're leveraging this team and the DNA they have to develop new features and capabilities that we may have in the past gone out and looked to acquire into some new categories where we think we can do it ourselves, leveraging this team. And that is one of the things we always look out for in acquisitions like this. So thanks for the opportunity to put color around that.

Your next question comes from the line of Clarke Jeffries with Piper Sandler.

I just wanted to clarify around the Timing or how the behavior of the replacing of the white label products, the internal solution will develop? Will that be on renewal? Or is there just kind of a cutover point at some point in time during the second half? Just wondering if there are -- if the impacts are completely contained to second half or if it's even some into '27 on renewal?

Clarke, this is Phil. Yes. So think about it in terms of effectively exiting a product. So it's winding down this year through this year, which is why it has a bigger impact on the second half of this year. We're building the new product. We should have that released soon. And then there's going to be a ramp-up as we start to sell that product. So that's why there's a bit of a lagging effect between the time right now where there's the wind down and then we build up into 2027 with the replacement product.

Perfect. And then just a question on the comment around it being higher-margin revenue. Does that -- is that going to be manifested in the gross margin line? Is that where most of the margin benefit comes from?

And then just -- and maybe getting ahead of ourselves, if there's an Analyst Day plan in the future, but certainly, one of the biggest parts of the margin story over the past few years has been the gross margin accretion, the growing recurring revenue in the base. T&L had been one of the biggest sources of gross margin improvement. When you think about what the portfolio is and Field Systems and AECO gross margin trajectories, do you feel -- still feel strongly about the gross margin story looking beyond 2026? And anything we should consider when thinking about the margin drivers just in the '27 with the early achievement on the EBITDA line?

Yes. Clarke, so I don't think we're ready to guide on specifically on 2027, but let me talk a little more generally on the questions. So for the specific product, the answer is, yes, I would expect that when we launch that product as it builds up that, that would be accretive to gross margin.

Now again, sizing that on the -- a very large-scale business is -- it will have a positive impact, but it may not be materially picked up in the gross margin as we think about the size of the Field Systems business. And then as I think about more broadly speaking, on the gross margin, our software is certainly growing faster generally. Obviously, the Field Systems products, as we talked about earlier, has been doing really well and has a lot of momentum to it. But as I think about the Investor Day targets and over the longer term, software is growing faster. That naturally has higher gross margin. So if nothing else, with just the mix change with the software growing faster than hardware over the long term, I would expect a continued expansion in the gross margin at the company level.

We have reached the end of the Q&A session, and that does conclude today's call. Thank you all for attending. You may now disconnect.

All right. Good afternoon, everyone. This is Tami Zakaria, Head of Machinery, Engineering and Construction Equity Research at JPMorgan. It is my pleasure to introduce Trimble's CEO, Robert Painter; and SVP of AECO, Mark Schwartz. Thank you, Rob and Mark, for joining us today.

So Rob, I'll start with you. Given we just came out of earnings, maybe it would be helpful to hear from you a state of the union sort of speech in terms of what were the key highlights from the quarter? And what are the things you're looking forward to for the rest of the year?

Well, good afternoon, and Tami, thanks for hosting this conversation and hosting us here today. The message of Q1 actually is quite similar to the message we've had the preceding 8 quarters, which is one of momentum, focus and clarity. Momentum in the form of the results, we can come back to that focus in the portfolio. We've made conscious choices with our capital allocation to invest and focus where we believe we've got the strongest right to win. So over the last, let's say, 5 years, we've divested 24 businesses and really focused our efforts on our construction and transportation franchises. That also is like a clarity of purpose and the capital allocation we have against that.

And then the momentum. So it was a beat and raise in the quarter. So we exceeded top and bottom line expectations. Strong performance across actually the 3 segments, reporting segments of Trimble. So we call it -- think of it as construction software in the form of the AECO segment, construction hardware in the form of Field Systems and our transportation and logistics business. So double-digit top line and -- sorry, top line revenue and ARR growth in that mid-teens level. So strong performance for us on the top line, continue to generate operating against that as well. So really a nice quarter, nice start to the year, which we think sets us up well for the rest of the year.

Perfect. So let's go back to the basics for a bit. We know Connect & Scale has been a core strategy. Can you refresh why the need for Connect & Scale? And related to that, how does TC1 fit into that strategy?

So to understand our strategy of Connect & Scale presumes a baseline understanding of Trimble, which I'm guessing there's a mix of that in the room. So some of you, I know you very well. I've known you for a long time, others some new faces in the room. Trimble is a 48-year-old company. I'm only the third CEO in 48 years. That's a pretty remarkable feat of -- in itself, particularly in a public context. That's given us a great deal of continuity in the strategy. That leadership continuity also reflects in strategic continuity.

So on 20 years working at Trimble, I've grown up in the business in that respect. I am the ultimate insider who came into the role in January of 2020. We pivoted the strategy to what we call Connect & Scale in January 2020 because we had a recognition that -- of the old adage, what got you here won't get you there. We had spent the better part of, call it, 2000 through 2015, '16 time frame being very acquisition heavy, and we had been pursuing a strategy to connect construction and connect supply chains throughout that time frame. And arguably, what we spent a lot of time doing was acquiring component capabilities across the industry life cycle continuums that we serve. When we pivoted to the Connect & Scale strategy, at one level, it is actually very -- we've got the right pieces, make them work better together.

We're going to connect the data. We're going to connect people, those stakeholders. We're going to connect workflow, and we're going to connect ecosystems. That's connect. Scale is taking the actions to make -- ensure that we can efficiently and effectively grow and pursue a global opportunity to do that. So there's a longitudinal baseline, a progression in time that got us to that moment in January 2020 when we inflected to the Connect & Scale strategy that has served us well over the 5, 6 years. And if I reflect on that for a moment, if that's okay to reflect on the progression in that time frame, we made conscious decisions on the portfolio so that we exited a number of businesses. We made conscious decisions on the business models at Trimble.

If I look at Trimble from 5 years ago to today, 5 years ago, we were 40-something percent software, today, 79% software. So we're software and hardware and proudly so, that ability for us to connect the physical and digital world is connecting the hardware and software of Trimble so that we can connect work in the office and work in the field. So that -- and that software percentage has gone up to 79%. We now sit at about 2/3 of our total revenue is recurring revenue. We closed Q1 at $2.435 billion of ARR. It was up 13% year-over-year. That's pretty rare territory to be operating at that scale. Over that time frame in the last 5 years, we increased gross margins from 58% to 72%. That's a structural transformation of the company.

We continue -- we increased EBITDA over 500 bps over that time frame. And we continue to do so in a very asset-light manner. We run negative working capital, CapEx less than 1% of revenue. We produce that free cash flow that then we then have the ability to invest back into the business and/or pursue as well along that continuum. So Connect & Scale has been through quite a transformation for us as an organization. Actually, I think it was a natural progression in that transformation, and we see it in the results of that first quarter.

Perfect. I think you launched TC1 in the APAC region recently. What are some of the initial wedge products in that region? And what has to happen for cross-sell, upsell economics to match North America in APAC?

So I'll get a start and then I'll let Mark contribute to this. He runs the AECO business. I'm really proud of what Mark and his team have done to transform the motions that we have in the AECO business and a lot of credit to him. The TC1, our Trimble Construction One, think of it as a commercial framework. We do a lot of things at Trimble, software and hardware. We see that as virtuous. The breadth and depth of what we have, we think, is very unique and provides a basis, a foundation of a right to win in the market. When we go to serve a customer, we want to make it easy for customers to do business with us. That's the scale in Connect & Scale. And we see the world -- I see the world a lot through product bundles. TC1 is simply a commercial offering.

We have over 20 prepackaged bundles that we can take to our customers. It's making it easier for the customers to consume the technology of Trimble that serves the needs that they have, and we're able to construct it and architect it in a way that we do so on a persona-based level because at Trimble, we serve architects, we serve engineers and we serve contractors, mechanical, electrical, plumbing, steel, concrete, those subcontractors to serve the general contractors. We serve owners, and we have a number of solutions to serve each of those personas. We want to make it easy for those personas, those customers to access our technology. So there's a set of product motions that we have in place that do that through the bundling. And I like to say, what do I like better than the bundle? It's the bundle. It's the recurring revenue bundle.

So we've changed those business models over time. You see that reflected in the ARR progression I talked about. And of course, what we like better than the bundle is the Trimble. It's the Trimble recurring revenue bundles, right, the bundle, the [indiscernible], the Trimble. That's the business model. It's one thing to have the product motion, but business happens at the intersection, we think, at product and go-to-market. So we've had to align the go-to-market motions to ensure that we could deliver that product motion at scale to meet the global opportunity. Again, a lot of credit to the team for what they've done. We transitioned to having one selling organization, moved to named account user model such that those sellers then are accountable and responsible to deliver everything that Trimble can do in order to help solve that customer's problems and the challenges that customers face in this industry take some form of doing the work better, faster, safer, cheaper and greener.

So get the product motion right, get the go-to-market motion right. That's where the magic happens. And that magic we see happening unlocking cross-sell opportunity. Because when you do as many things as we do as many capabilities that we can bring to bear for customers, where you can really see that show up is bringing more of what we do to that customer. That's why when we look at the net retention ratio stacks, we pay so much attention to what kind of cross-sell are we driving. And at a company level, when we put out our last Investor Day model in December of '24, we articulated a path to over $1 billion of cross-sell we see within the AECO business and over $400 million in transportation.

So Mark, I'll transition to you is -- so talk about the global rollout of that, kind of where do we start and where we've gotten to most recently?

Yes. I mean, Asia Pacific is the natural, I would say, finishing spot for the digital transformation work that we had been going through since 2021, rolling out these systems, processes, organizational design and technology to drive our go-to-market function. Why was Asia Pacific last in that rollout would be because that was where we had the least amount of global capabilities of software. Over the years, we've expanded our capabilities to be able to deliver and thus, TC1 was the natural delivery mechanism to onboard at this time. So we've rolled that out now. Historically, in Asia Pacific, we would have been dealing with our engineering product lines like Tekla as well as SketchUp, so heavily design and engineering oriented.

Recently, we've brought project management into Asia Pacific, and we have other capabilities coming down the pike. So we've shifted the contracting mechanism now to be TC1 and finished the organizational design in that area to help continue to grow the business with the same success we've seen in Europe and in North America.

So TC1, is there a target to roll out a similar platform or strategy in Field systems and transportation and logistics? Or are those 2 segments not suited for that kind of strategy?

They're very much suited for the strategy. We'll probably call it something different. So I'm not wedded to the name. And I guess Trimble Construction One wouldn't go over so well in transportation market. So we won't call it that. But the essence of the bundled capabilities, we already have the ability to do that within field systems with Mark's business. Half of our Field Systems segment is software already today. We're predominantly selling that through channel, our channel partners and a Mark's business and AECO, predominantly selling that direct. If you're a customer of Trimble and you're buying from both, let's call it, both sides of the house, you don't care about an internal distinction.

So you always work backwards from the customer, and we're having, we think, some success with that already within Field Systems. And I believe there's a lot of room to run for us. I would still say we're relatively early in the game. We're not at the beginning of it, but we're not yet in the middle of it. And then transportation, I think that manifests as being also probably pretty reasonably early in the game. But we measured last year, more than 20% of our bookings were cross-sell bookings. So we're doing it already without all the -- in that side of the business without all the, I'll say, enabling mechanisms completely dialed in. And I'm okay with that. Actually, I'm encouraged by that because I can already see what we're doing without all the cylinders firing...

Perfect. So I'm going to switch to a question that I've gotten a lot since your earnings call, and I thought it would be a great place to ask that question, so everybody gets to hear the answer.

That's AI?

Yes.

So on the SketchUp Cloud platform, the partnership, who owns the data and the outputs created through the workflow? And what specific guardrails are in place around data access, retention model training and the whole nine yards?

Yes. So I'll start, Mark, why don't you add on to this as well. We see this as very virtuous, what we've done and one of many things that you'll see from us in time. So if you have no idea what I'm talking about right now, we launched a service inside of cloud where you can create a SketchUp model. If you don't know what SketchUp is, think of architecture and design model, a 3D model. So through natural language prompting, I can create a SketchUp model, the beginning of a SketchUp model in cloud. Now to do that, I have to have a Trimble ID. That means you're a Trimble customer, and we know who you are.

You create that model in cloud and you download it and you import it into our SketchUp design package. Like to make the model usable, you need to have it in an authoring tool, and we are that authoring tool in SketchUp. To us, we see it as a path, at least early on, where we'd like to see us reaching new customers, a set of users that weren't using us before.

The professional-grade user of SketchUp in this example, they're using SketchUp to do their work. It's not -- if you don't do your work or complete your work with a model, you need to collaborate on that model with a set of stakeholders inside and outside your organization. You need to do professional-grade analysis, could be daylight analysis, energy modeling, structural detailing, rendering that you can't do inside that LLM.

So we see it as an entry path to what we think could create some new addressable market for us. And then through that Trimble identity, we know who the customers are. We can see what they're doing once the models come into SketchUp. There's a natural sort of product-led growth path that we think we can take those users and customers on over -- and now if we go back to the data question on -- the model is the customer's model, Anthropic can see the natural language prompting that's happening inside of cloud. So in that respect, they see the queries there. We actually understand the context of it and what you're doing with that model once you bring it into our authoring tool, which is where we think the value lies in it. I leave anything else?

No. I mean I would just add that the model creation is in a proprietary format that only works in SketchUp. And so when you talk about the data, what's actually being created is Claude's interacting with our MCP servers to create this file that's a proprietary Trimble format that then can only be used in a Trimble system and authoring to take it the next step of the way. And so yes, again, we look at it as like reaching more customers in an underpenetrated market, learning more about what they're trying to do with the technology and the capability and then being able to interact with them and upsell other products once we understand what they're trying to do and how they're using digital construction technology to accomplish whatever task they're after. So for us, it's a great visibility mechanism. It's yet another way to get our technology out there. We still have plenty of moats and barriers up to help protect the core as we look and explore these new routes to market and new ways to reach more users.

Another thing, Tami, if I can just add to is within the SketchUp tool itself, and by the way, many of the other software applications we have, there's -- you can have a SketchUp AI subscription to an add-on subscription. So for that professional user, we see them using our AI capabilities within the tool they're already using as an extension of that.

So a follow-up question on that. You talk about credits and tokens for SketchUp AI. What are you learning from usage and credit consumption? Are users consistently exhausting credits? Is the number of credits being used coming down as the models get more efficient? And what does that imply for pricing and packaging down the line?

I'll start with the last part first. What I would expect to see from Trimble on a go-forward basis is a higher percentage of hybrid business models, consumption-oriented models, which should hardly be a surprise to the audience. If you're not thinking about it, then you're not thinking. And the good news is it's not a hypothetical for us. We already deliver easily a couple of hundred million dollars of our revenue through some form of consumption, whether it's transaction-based. We have a hybrid model, so that's SketchUp AI as an add-on subscription with certain credits that come with it. We think about good, better, best tiers. That's actually been the starting point and foundation where we drive customers who want to use the AI features into the best version of the product that is that named user license.

It stands to reason though, over time, I expect to see more of the hybrid base and the monetization. For what we see so far through this, and it's early, so to draw any definitive conclusions, I think, would be misplaced. What we see right now is the credits are being consumed. So that's good news because they're being used. They're not being overconsumed or under-consumed. Clearly, we want to track the direction of travel on that. We don't see it like the -- like in a good, better, best tier, by the way, which is not really charging on the token or a credit. In a way, you expect like the gym membership, you got a lot of -- you got a few people who show up all the time. You're not making so much on them, but you've got a lot of people that pay that membership and they're not there every day, like -- and it all works out. And a good, better, best tiering, like you see some form of that, a Trimble form of that.

If you go pure hybrid, there's a certain amount -- there's the nature of that activity, you can get like really good data, and it's the telemetry actually, which becomes super valued to be able to track how people are using the product. And we'll learn and we'll figure out how to -- how we need to -- I would totally expect that we will see that pricing adapt over time.

So I want to move on to Document Crunch. But before I do that, if anybody has any questions in the room, feel free to raise your hand, and we'll get a mic to you so you can ask your question. So regarding Document Crunch, which you acquired recently, I think it's an AI-powered risk management category, if I remember correctly. What is the first integration workflow you plan to deliver inside TC1? And what is the rollout time line?

Yes. So the first order of business, of course, is integrating the group into the broader Trimble and getting the go-to-market motion running, which has been our focus through the M&A process. But now that we're kind of through that and that's up and running, we're focused on the technology integration into the broader ecosystem. The first places we're looking at is to bring that contract intelligence through to our different stakeholders in the field, one through Trimble Connect and two through ProjectSight.

So those user base is out in the field that need to interact with the contract and intelligence layer on top of the contract every day as they're dealing with compliance, payments, progress reports, change orders, all of that is relevant and interacted with through the field applications and collaboration. So that's where we're looking to enable first. And we should be well on our way to having that out in the market inside of 90 to 180 days, we should see the first inkling of that.

Understood. Just to dumb it down a little bit, is it going to be a an add-on bundle, bundle, bundle, like what kind -- how would you layer it on to TC1?

So the visibility into the contract is -- think about that like today, we have collaborators that we don't charge for. So people that want to interact with the data we already have, but not create data and/or do the work. And so there's an element of users out there that will be collaborators. They'll just need to see the contract or see the risk associated with the contract that they're trying to comply with. When it comes to interacting with the contract or interacting with the compliance layer and gaining intelligence for that, that's charged for today on a project basis.

Understood. And staying on AI, beyond Document Crunch, what other sort of AI-first categories adjacent to execution workflows are you most interested in building? Is it scheduling risk, cost forecasting? What are most AI-friendly?

So the horizontal workflows that are less construction specific in nature are actually the easiest to enable. So as we think about scheduling, which even in construction, you're still dealing with Kanban boards and Gantt charts, that's fairly easy to enable in an AI-first way in a predictive way, especially when we have the proprietary set of how the data decisions are made to adjust schedules and adjust the forward-looking schedule and how you might react to different contractors moving around in a complex ecosystem.

So I view that as one of the easiest for us to AI enable in the future. I also look at things like change order management and other derivatives of the contract or that operate off of the compliance layer of a contract to be also AI-enabled. But I look at things that are more platform and less construction specific that can help really accelerate our capability set and be agent first.

If I may, maybe for the benefit of the room trying to sit in your shoes, this was a tuck-in acquisition. We have the breadth and depth as a real strength of Trimble. I talk about that in terms of trillions, billions, millions and thousands. We have trillions of dollars of construction run through Trimble systems, tens of billions of freight run through Trimble systems, millions of users of our software around the world, hundreds of thousands of instruments and machines in the real physical world, physical world operate or managed by Trimble. That's pretty darn unique, that breadth and depth. We serve surveyors in the field. We serve the architects, the engineers, the general contractors, the subcontractors and the owners across that project life cycle from the planning, feasibility phase through design, bid, build, operate.

So there's a breadth and depth that we have. With the go-to-market reach we have and the bundling mechanisms we have, it stands to reason that we have a real opportunity for land and expand plays off of the capability set we have. So we aim to do -- we would love to do one a quarter of the land and expand plays. We've been shy of that. We've been probably closer to 3 of these a year. We really like -- we've been talking about this one more because we see this as creating a whole new category, like we think there's more that can be done with that in the context of the trillions of construction that run through us, the tens of millions of projects that sit in Trimble collaboration, common and connected data environments and then the reach we have of project management.

And so much of that contract management and AI-based risk management that sits at the core of Document Crunch touches that breadth of that capabilities. And you think about tens of thousands of customers that we think are applicable for this solution. And yes, we get excited about that and run it through the go-to-market motions. That's what I think you'd want to see from us is where can we create velocity out of new capabilities that we can bring in. So this is just one of -- a very good one, one of many land and expand plays we want to run.

Any questions in the room? So I wanted to ask about AECO, which had another strong quarter. And I think you're targeting mid-teens ARR through 2028, right -- 2027? So we're not too far from that. What are some of the leading indicators of any potential acceleration or slowdown in ARR from your seat?

Actually, the formula is pretty simple. We start with looking at the addressable market. The markets we serve are large, global, underserved and penetrating -- underpenetrated. The market itself has a secular adoption of technology, the digitization that is taking place at Trimble. You can see by read-through of peers that we're generally growing. So that, to me, sort of confirms the secular and construction, we think we all -- trust we all understand it's multitrillion dollar industry. So it's a large industry. Most of us probably understand the data shows that this industry is a technology laggard, which fits the narrative of the secular adoption of technology. So we like what we see there in terms of you got to be in the right market.

Now when we get closer to the coalface of executing and looking at the ARR growth, okay, well, how are you going to grow ARR? Well, you got to book. So when we talk about ACV bookings, contract value bookings. What do you got to have to have the bookings? You got -- well, just -- you got to have obviously the right product set. I walked through that and where we think we're unique and different. And then at the go-to-market motion, we talk in terms of people, pipeline and productivity, people, you got to have the feet on the street. You still do have to have sellers out there working with customers. When you look at the pipeline, think of when we move to named account user model on the marketing side, that looks like account-based marketing strategies. And I think we still have a lot of room to in terms of the marketing sophistication of Trimble.

We're not interested anymore in being a house of brands. We want to be a branded house, Trimble first. That's what customers expect from us. So we are doing more work to get that Trimble brand out there, that name recognition, supporting that brand, not the house of many brands that we've acquired over time. And we see that pipeline growing to support that. And then process, like we look for efficiencies. We look for significant productivity out of the team every year that measures double digit for what we expect, which we think is reasonable given the value proposition of what we offer and how much more technology enabled we've made that whole along the way.

So do that math. The market is there. You've got the formula to deliver, and we can put the feet on the street, and we can run plays like the tuck-in acquisitions that just give us the new, new thing to talk about. And now I haven't even said AI and then what happens when we can solve bigger problems for our customers.

So let's talk about Field Systems. The first quarter was very strong. And your full year guide sort of implies moderation. Is that realism? Is that conservatism? Do you see reasons to be cautious rest of the year? Explain the implied moderation.

Yes, it's a good question. It's a fair question. It's the strongest performance I've ever seen in the business. I'm 20 years at working at the company. So hats off to the team in Field Systems who's delivering on a global basis across the portfolio, most particularly within the civil construction space, just outstanding performance. Not only is the work going well on the channel side and that reach to market on the product side, continue to create new relationships with OEMs, continue to extend capabilities on new machine types, continue to extend reach through third parties.

We opened up the ecosystem where there's some functionality that we're not getting to fast enough ourselves that we've got partners that can help us. All of those are -- have us in a position where the data we see says that we're increasing our market share. So we are outgrowing the market, like the team is really executing well. So play that forward through the rest of the year. I think about it in 2 respects. On a longitudinal basis over the last few years, there's been a strong CAGR in the business and that strong in this case, we define as that mid- to high single digit. That segment has a couple of hundred basis points of headwind with model conversions that we're still working through in Field Systems.

We're through that, by and large, in AECO and in the transportation business. I look out at the rest of the year and by -- I'd say, I've been doing this for a few years now. I've -- I think it's a mistake to raise a guidance after a first year to be very cautious when you do so. So we had a very modest raise of that guide. So it was less than the beat. So thus, Tami's question is relevant to say, okay, why is that? Is it a level of prudence and caution in the market? And my answer is I want to ensure we've got freedom to operate the business and not get ahead of ourselves. Let's see what happens with interest rates. Let's see what happens in the Strait of Hormuz that is really the story. No pull forward in demand from the first quarter. We didn't see that.

And Trimble technology outlets, you've talked about it at the Analyst Day, too. How many do you have now? What's the end target? And why this strategy now?

So the -- yes, you work backwards from the market opportunity, and we believe there's an opportunity to better reach customers, meet them where they are. I would say virtually every contractor in the world operates some -- operates a mixed fleet, a rainbow color of iron, you meet very, very few companies. I don't know if that -- it depends how you define the equipment. I would argue I've never met a customer who operates only on one brand. So to meet the customers where they are, we believe it's a natural extension of the strategy to work with more partners around the world.

So to meet their -- like so some of the dealers that we've signed up have been John Deere dealers or a Komatsu dealer or a Case dealer, probably more of them than not have been John Deere construction -- sorry, construction dealers. And by signing them up, we're meeting the demand for those -- that John Deere equipment if it's a John Deere dealer, again, meeting that customer where they are, where they're buying. And we're seeing success in that conversion to Trimble control technology. And we're very open for the customer to have multiple choices. We're not the only choice on the market. We believe we've got the best value proposition.

So I'm open because we're confident like we want to be in that mix and meet, again, meet the customers where they are. I think we've press released probably 10 to 12 of them. We've got more than that. But that's the number of dealers, but they have hundreds of retail locations as well. So we call them technology outlets. They're not selling everything we do. We're going brand on -- just for that brand of equipment with the ones that we sign up.

So transportation and logistics, the freight markets are finally looking up after almost 3 years. Are you seeing green shoots? And do you see this as the start of possibly a new up cycle in freight markets?

Well, it's actually been 4 years of a freight recession. So we have seen spot rates higher in Europe and North America. We've seen capacity exit the market. So put all those factors together, and it looks like there are some indications in the market that we haven't seen in a few years. I think after a few years, I'm conditioned to say, I want to see a few more months or quarters stitch together before I'd be willing to lift an arm. Let's see, but it's -- those are some indicators we haven't seen in a while. So let's be -- let's end on that optimistic note.

Before we end, one question, a quick one. Given where your stock price is, any updated thoughts on capital allocation?

Yes. Great question. It's both an easy and a difficult question. Our default policy on capital allocation starts with the belief that we're paid to put capital to its highest and best use. We've got guardrails around that. We want to maintain investment grade. We've said publicly we want to put at least 1/3 of our free cash flow to buyback. So now you're within that frame, but we went through the math earlier on where we produce cash flow, our guide would have us, call it, over $800 million or $800 million plus or minus million of free cash flow this year.

We just -- we did an acquisition. We talked about with Document Crunch. So we'll preserve some freedom of movement on acquisitions, particularly the tuck-ins. But managing tension because I can do the math on the free cash flow yield on Trimble shares today. And it's -- there's, for sure, a healthy tension of looking at more buyback and the first quarter reflected that. We did over $300 million in buyback in the first quarter, and that would be well ahead of the, let's call it, an annual target in one quarter. So I think it was a recognition that there's value there for shareholders.

Awesome. Thank you so much, Rob. Thanks, Mark.

Thank you, Tami.

Thank you.

Hello, everyone, and thank you for joining us, and welcome to the Trimble First Quarter 2026 Financial Results Conference Call. [Operator Instructions]

I would now like to hand the conference over to Rob Painter, President and CEO. Please go ahead.

Welcome, everyone. Before I get started, our presentation and safe harbor statements are available on our website. Our financial review will focus on year-over-year non-GAAP performance metrics on an organic basis. In addition, we will focus on adjusted numbers that we believe more accurately portray the underlying performance of our business. This means we will exclude the impact from the mobility business, which we divested during the first quarter of 2025. As reported numbers, along with the reconciliation are provided in the appendix of our slide presentation.

The Trimble team furthered the momentum of the last couple of years and delivered a great start to the year, with top and bottom line results ahead of expectations. Revenue at $940 million, up 12%; ARR at $2.435 billion, up 13%; and earnings per share above the high end of our range at $0.79. We are raising our guidance for the year.

Financial performance is the scoreboard. It's the output. The game on the field or the input is delivering unique value to customers. On Slide 4, I want to highlight how we are partnering with our customer, George Leslie, a Scottish based civil engineering contractor that has embraced the Trimble ecosystem to connect the physical and digital worlds. With our platform, Trimble Connect acts as the orchestration layer of complex workflows, that include marine and peer works, water and wastewater treatment, bridges and infrastructure and energy and power.

When performing earthmoving, our laser scanners are deployed for capturing the job site in high fidelity 3D to create a digital twin of the physical earth. While our tools back in the office power the design of the terrain model into a constructible model. Enabled by the Trimble ecosystem, this model is seamlessly deployed to our Trimble survey and machine control systems in the field to execute the work in the physical world, while our project management and scheduling capabilities are managing the work. Physical to digital to physical. When performing complex steel and bridge work, they take the structural and design model that is managed within the Trimble ecosystem and then use our robotic total stations to precisely orient the digital model on the physical job site.

Trimble is the data platform through which our customers' data flows and remains in sync as the work moves from the physical to digital to physical to digital and so on. Through the power of the Trimble ecosystem, George Leslie is realizing significant productivity, quality and efficiency in ways that Trimble uniquely delivers. Only Trimble can connect and optimize work like this. That's our Connect & Scale strategy in action, connecting work in the office and the field, connecting our hardware and software, connecting the physical and digital worlds.

We see tremendous opportunity as we bring AI to industry workflows and further establish Trimble as the intelligence and execution layer that reconciles our customers' digital and physical realities. Slide 5 shows 4 examples of Trimble AI delivering actionable outcomes and breakthrough levels of productivity across projects in airports, rail, tunnels and roads, for some of the largest and most influential companies and organizations in the industry. Only Trimble.

Speaking of AI, we believe customers will adopt AI from trusted platforms like ours, where we deliver to support cyber security, governance and sustaining engineering that our customers expect and require. Integrated workflows with deep domain knowledge at scale is a differentiator and a moat. Our ecosystem of third-party connectivity and platform extensibility compounds value delivery and drives network effects, where every connection point in transaction improves the next autonomous decision, making the data not peripheral to the product, but the product itself. In short, we see a world where AI increases the size of the addressable market, and we believe we have a compelling right to win, thus capturing additional avenues of growth.

While we monetize our software and AI today, primarily through named user licenses, we are architecting ourselves to scale hybrid value delivery at the intersection of licenses and consumption. This isn't just a hypothetical thought experiment. We already deliver consumption models today. For example, Trimble Transporeon transacts well over $100 million of revenue through tens of millions of annual transactions on our platform, and our recent native AI products deliver autonomous procurement and autonomous quotation on a consumption basis.

In the fourth quarter of 2025, Trimble SketchUp released SketchUp AI as an add-on that is available to our subscriber base. The hybrid add-on is an additional subscription that makes a fixed number of AI credits available to each user each month. We will continue to track market adoption of our AI capabilities along with market readiness for emerging consumption and outcome-based models as our monetization strategy evolves.

Let's now turn to some segment level highlights, starting with AECO. The team delivered another outstanding quarter. Both ARR and revenue were up 14%. Cross-sell and upsell performed well, and we extended the reach of Trimble Construction One into the Asia Pacific region. While North America remains our largest market, we are pleased with our performance in Europe as well as the APAC region.

Last week, we launched an integration with SketchUp and Anthropic's Claude. This makes it easy for Claude users to create Trimble SketchUp 3D models directly from conversational text, image or speech prompts enabled by a SketchUp MCP service that allows Claude to create and modify SketchUp files. The immediate monetization is downstream in our SketchUp subscriptions.

After starting in Claude, users will then bring their files into SketchUp to further iterate on the design, leverage SketchUp's real-time collaboration features to engage project stakeholders, create visualizations, perform daylight analysis and more. The midterm revenue opportunity is expanding the addressable market by converting Claude users into Trimble customers. This is just one of the many examples you are going to see from us throughout 2026.

Turning to Slide 6. On April 2, we announced the acquisition of Document Crunch. For context, construction is a relatively low-margin industry, yet remains one of the most risk exposed industries in the world. More than 80% of projects exceed budget. And when disputes arise, the average claim in North America tops $60 million. The root cause is consistent, errors and project documents and stakeholders failing to understand their obligations.

With Document Crunch, we're addressing this directly. We're establishing a new AI-powered risk management category within Trimble, bringing contract intelligence and compliance automation into the project management, estimating and ERP workflows our customers already rely on, and that's just the beginning. Think about what that means at scale. Layering these intelligence tools across tens of millions of projects in Trimble Connect, billions and construction managed through our ERPs, and field workflows that have never before been connected to the contract.

We're connecting the field to the office, to the risk, to the execution and embedding it all into Trimble Construction One. This isn't just simply AI document review. We are linking the contract and risk elements to the execution in the field and to multiple stakeholders throughout the ecosystem, thereby addressing the core reason for disputes. Early customer feedback has been exceptional, and we're moving quickly to expand reach and to leverage this AI first development team to organically address new categories.

Moving next to Field Systems. The physical side of Trimble outperformed in the quarter, with particular strength once again in civil construction. Both ARR and revenue were up 12%. We continue to innovate and execute, with end market strength in infrastructure and data centers supporting our growth.

The strategic highlight of the quarter was seeing our team in action at the ConExpo Construction Industry Trade Show in Las Vegas in February, where the 140,000-plus construction professional attendees were able to see Trimble showcased in the booth of 24 leading construction OEMs from North America, Europe and Asia, thus demonstrating the site technology leadership position we hold in the market.

Extensibility is core to our Connect & Scale strategy and crucial to extending our leadership position. At our booth, we were able to showcase support for more machine categories such as compact machines, along with new functionality for excavators equipped with dynamic swing booms. We also introduced an integration with ground penetrating radar for real-time asphalt compaction quality control. Combined with our expansion of points of distribution in the market and the linkage with workflow as described in the customer example in my opening remarks, we are as confident as ever that we have the right strategy at the right time, executed by the right team.

Moving now to Transportation. ARR was up 9% and revenue was up 7%. Our booking strength in the quarter gives us confidence in our growth plans for the year. The AI ambitions of this team are inspiring and cutting edge. To unlock the potential of AI for product development requires a systemic paradigm shift across the entire product development life cycle. Today, the vast majority of new code is generated with AI tools, and our product development organization is fundamentally rewiring how we work, which in turn is increasing our velocity. In addition, we are approaching our target to dedicate 10% of our development resources to an applied AI organization that is tasked with agentic development as well as safe AI deployment.

With a couple of recent customer wins and selling autonomous procurement and autonomous quotation in North America, we are building momentum and demonstrating that we can bring transporting capabilities to North America, and that we can cross-sell into our carrier base. So while the macro environment remains challenged, the North American market is beginning to show some signs of market recovery.

In Europe, we continue to hold our competitive win ratios and grow our network density. In the first quarter, our new logo growth increased by more than 50% year-over-year, demonstrating the quality of our solutions, the available market to penetrate and the solid execution of the team.

Phil, I'll turn it over to you now.

Thanks, Rob. Let me start with capital allocation, which remains disciplined and consistent. During the first quarter, we repurchased approximately $317 million of common stock, a direct reflection of our balance sheet and cash flow strength, our confidence in the long-term value of our business and our commitment to delivering shareholder returns. We retain a substantial $608 million under our current repurchase authorization, which continues to give us flexibility for opportunistic buybacks. Longer term, we continue to expect at least 1/3 of our free cash flow to be used for repurchasing shares as we look to provide returns for our shareholders.

Our M&A strategy remains focused on strengthening our core market positions and adding capabilities that allow us to run the cross-sell motions and provide high ROI for our customers, such as our recent acquisition of Document Crunch. In the first quarter, we also divested a small business in Field Systems as we continue to sharpen our focus on core competencies and allocate capital and resources to the highest returns.

Let's review the first quarter, starting on Slide 7. We delivered organic revenue growth of 12%, which exceeded our outlook. This performance was driven by the strength of AECO and Field Systems, while Transportation & Logistics delivered positive growth despite a constrained freight market. ARR was in line with our outlook at 13% to a record $2.435 billion. The continued growth in our recurring revenue base provides a predictable and resilient foundation for our business. Gross margins expanded to 71%, and we achieved EBITDA margins of 27.4%, which is a 150 basis point expansion compared to the prior year. Reported earnings per share was $0.79 for the quarter, $0.07 better than the midpoint and above the high end of our guidance.

Moving to the balance sheet and cash flow items on Slide 8. Our first quarter reported free cash flow remained strong at $275 million. Our sound balance sheet provides financial flexibility with $234 million of cash and a leverage ratio of 1.1x, which is well below our long-term target ratio of 2.5x.

Next is our segment review, starting with AECO on Slide 9. AECO delivered a strong quarter, performing in line with expectations. It achieved a record $1.51 billion of ARR, posting 14% ARR growth and 14% revenue growth for the quarter. Operating margin was 31.5%, a 420 basis point expansion over the prior year.

Turning to Field Systems on Slide 10. Revenue was up 12% in the first quarter, while absorbing headwinds due to the continued model conversions to recurring revenue. The execution by the team resulted in another strong quarter of ARR growth at 12%. Operating margin was 28.8%, which is slightly down, primarily due to timing of OpEx and growth initiatives in the quarter.

Finally, Transportation & Logistics on Slide 11. The segment delivered revenue growth of 7% and ARR growth of 9% for the quarter. This represents a sequential improvement from the previous quarter. Operating margins were at 24.2%, which is a 300 basis point expansion from the previous year.

Turning to Slide 12. Let's review our updated outlook for the year. The midpoint of our 2026 full year guidance for revenue is $3.875 billion, a $15 million increase from the prior guidance and represents approximately 8% growth. We are also increasing our EPS guidance to $3.55. We expect the midpoint of ARR growth at 13% and EBITDA margins at 29.7% as our model delivers strong operating leverage while allowing us to reinvest for future growth. Regarding cash flow, we expect free cash flow to be approximately 1x non-GAAP net income, and that we deliver free cash flow greater than non-GAAP net income over the long term.

Slide 13 breaks down the full year metrics by segment. The trajectory across all 3 segments is consistent with our prior guidance and remains fully aligned to deliver the Investor Day company targets for 2027: $3 billion in ARR, $4 billion in revenue, and 30% EBITDA margins.

Finally, regarding our second quarter outlook on Slide 14. We are setting the midpoints of our guidance at $950 million for revenue, which is approximately 7.5% growth, earnings per share at $0.80, and ARR growth at 13%. We expect EBITDA margins at 27.7%, a 30 basis point expansion year-over-year.

Back to you, Rob.

Thanks, Phil. I'll end by summarizing 3 key takeaways from the quarter. First, our Connect & Scale strategy differentiates at the intersection of physical and digital. There's no other company as uniquely positioned as Trimble.

Second, we are leveraging AI to transform how we work so that we can transform how our customers work. We believe customers will gravitate towards leveraging our platform for their own AI ambitions because we are connecting their data, their workflow and their industry ecosystems. We believe AI will expand the size of the addressable market, and we are ready to adapt our business models to meet the market where it is.

Third, the quality of our strategy is driving financial performance that enables us to differentially invest back into our product and go-to-market motions to ensure the strength of our future.

My gratitude to the Trimble team and partners as well as our investors who continue to support our strategy.

Operator, let's open the line to questions.

[Operator Instructions] Your first question comes from the line of Kristen Owen with Oppenheimer.

Nice start to the year, guys. It sounds like things are kind of all rolling in the same direction. You listed your guidance for AECO and Field Systems. You beat by $0.07, you live to the guide by 4. So I'm just kind of wondering what are the back half scenarios? Or how should we think about the level of conservatism that you're baking into the guide given the strong start to the year?

Kristen, it's Phil, and thanks for the question. So let me start with -- we're in line with our previous guide from earlier this year. Actually, in fact, we raised the guide for the year, and we're on track to be -- to be at or ahead of our 3 4 30 model that we put out in Investor Day.

I'd say we have the most visibility we've ever had at the company level with the transformation and the ARR mix. But we do have less visibility on the hardware business. And in light of the conflict we see in the Middle East and uncertainty around tariff policies, along with tougher comps in the back half, we've incorporated those puts and takes into our guide, and we'll update you in a few months as we get more visibility on the year.

Great. That's very helpful. And then I wanted to dive into some of the consumption model changes that you talked about, Rob, in your prepared remarks. I'm hoping to understand any early indications of how your customers are utilizing tokens for the AI tools that are currently embedded in your products? Just any sort of qualitative or quantitative data that you can provide on like utilization trends or where you're seeing tokens being purchased? How are those early learnings informing your commercialization of AI across the platform?

Kristen, I'll start by discreetly answering the token question. Quantitatively, what we can see is that the usage is growing and that almost all of those credits that are associated with those named user licenses are being consumed. And that's good because it tells us it's actually being used.

Qualitatively, what I really like are the learnings we're getting from doing this because the development, the deployment and the monetization motions are all different. Now if we up-level the conversation, I think the real conversation to have is around the commercialization of AI across the platform because the tokens themselves, they're a tactic of commercialization. And of course, we're going to expect to see more of them going forward, and we're building the capabilities in order to do that.

But at the same time, we'll deploy many additional commercial tactics. So I'll give you 2 examples. First one, with discrete consumption and transactions. So if you take autonomous procurement and autonomous quotation within transportation, I think that's a great example of that because what we're monetizing through those particular product motions is happening at a higher rate than the traditional non-AI capabilities that we have. And we can charge more because we're demonstrating a higher ROI of our customers when we do that.

A second example is we'll create monetization through the good, better, best product motions where we put AI into those better and best upsell motions. And I highlighted 4 examples. I think it was on Slide 5 of the presentation that give examples of this. And one of those examples would be automated feature extraction out of the large point clouds that we deliver to our customers.

So in that example of that automation of the feature extraction, which turns hours and days of work into minutes of work. We're monetizing that through that better and the best product sets that we deliver to our customers. And in fact, in that example, we're actually also enabling our customers to create their own proprietary data sets for their own unique work on feature extraction. So many different motions and tactics that we'll apply to achieve and reach that vision of commercializing the value that we're delivering to our customers through AI.

Your next question comes from the line of Rob Wertheimer with Melius Research.

I had 2 questions on trend at AECO and then on monetization along the lines of what you were just talking about. On trend line, obviously, ARR growth was strong. The comp on core is a little bit abnormal. And so I wonder if you could just talk about revenue trends for the quarter. Just any sense of that. And then as we go through the year, there are questions on the competitor call yesterday about whether construction is improving or not. And there's lots of mixed indicators. I wonder if you might weigh in there.

Rob, it's Phil. Let me start. As we think about the year and the guide for AECO. So let me start with connecting this to some numbers. As I look at the net new ARR, that is growing and has grown in Q1, and we expect that to continue to grow throughout the year.

Historically, we also benefited a little bit from a tailwind due to conversion uplifts. So we move from maintenance and support into the subscriptions, there's a bit of an uplift. So if I look over history, again, that was a bit of a tailwind. Still a small amount of that left, but the impact is a bit less.

But the Q1 results in the full year guide are fully in line with our expectations and the model we put out in Investor Day with that mid-teens ARR growth and low to mid-teens revenue growth. So again, I think we're in line with the prior guide and in line with our multiyear model that we put out there.

3

Perfect. Fair enough. And then, Rob, you were just touching on this, but I'm just thinking about how you monetize some of the capabilities you're bringing your -- maybe passing through tokens, I don't know if there's a margin there, but maybe you're hoping to win new logos from competitors, new people entering an ecosystem because the capabilities are bigger and easier. I wonder if you could just talk about what you see as the biggest opportunities as your capabilities expand.

Rob, the frame I have on monetization starts with value delivery and value capture. So expense of which we're creating positive outcomes and positive ROI for our customers, we backwards integrate from that into then what would be the fair share for our value capture out of that. So we're mostly focused on the AI capabilities we can create for ourselves on leveraging the Trimble platform and the unique data set and scope and breadth and depth that we have globally. In doing so, we believe, yes, that we can capture new addressable market. We think we can take market share over time.

There, I mentioned 3 different types of motions -- monetization motions in answering that last question, another one would be, if you think about the announcement we made with SketchUp and Claude a few days ago, and the integration there. Another motion we see where we can monetize is by creating new users, creating new customers, expanding that addressable market with Claude users who weren't already SketchUp users. So by creating models in -- out of Claude, you need to bring those into a SketchUp model to be able to do more with that. So we'll watch that to see if that's another avenue by which we can gain new customers. So we see opportunities to increase the size of the addressable market. We see opportunities to monetize through our fair share capture of the value and ROI that we deliver to our customers, and we'll see over time how that plays out into market share.

Your next question comes from the line of Jason Celino with KeyBanc Capital Markets.

Rob, to that point on that SketchUp-Claude partnership that you have, it sounds like the goal is to kind of be trying to convert Claude users to SketchUp users because I imagine they'll need a SketchUp [ seat ]. Is there any consumption credits you were talking about aligned with this partnership? Or is it more on the license component? And then it wasn't lost on me that you were on an only initial partners with this initial announcement. There's one other. But could this -- is this a table stakes kind of feature? How do you think the partnerships with the frontier models kind of evolve for you and kind of the market?

Jason, thanks for the questions. I think that this is going to be more table stakes to have different motions in a way to reach the market. And we embrace that. So expect to see more from us across the portfolio. That's one example where you can start with the modeling in Claude. I flipped that around the inverse of what we launched in Q4 was SketchUp AI where you can do that, what we call [ vibe ] modeling natural language prompts within SketchUp itself to do the model. We want to offer multiple avenues so we'll see going more, call it, atomic level of the capabilities. We want to be able to do that in Trimble Connect, for example, around agentic AI platform.

So multiple paths to market, we're learning a lot. We're learning a lot internally. We'll learn a lot by following our customers and how they use it. We'll learn the motions and, let's say, optimize the motions of how to convert users and then to bring them into the Trimble ecosystem. And once you're in that ecosystem, let's say, if you've done a model through Claude, then I talked about it in the prepared remarks, if you want to do rendering or daylight analysis on that, that creates capabilities for us to upsell and deliver more value to the customers once they're coming in to SketchUp.

So coming at it from multiple angles, they do think that it's table stakes that we're engaged on a number of levels. And I'm really proud of the team for the entrepreneurial spirit they're displaying. They're all really going after it.

Okay. And then I might have missed it, but the Field Services strength in the quarter, I'm curious if any of this was a demand that was pulled -- pulled forward might not be right word, but maybe deals that closed earlier than expected? It's just I look at kind of the high oil prices, high memory prices. I wonder if clients are trying to maybe get ahead of some of those things?

Good question, Jason. So within Field Systems, the demand was strong intrinsically in the quarter. So we saw no pull forward in the quarter whatsoever. The 2 pillars of strength in the quarter, first one's in civil construction, that really has just been continuing the trend over the last few years. I know you were at ConExpo. You saw our booth. Trimble was on 24 other OEM partner booths at ConExpo.

The level of innovation the team continues to deliver extensibility for swing booms on excavators, ground penetrating radar integrated into machine control is impressive to see reaching the machine types like compact track loaders, new OEM partnerships, new go-to-market partnerships with our Trimble technology outlets. I think the sum of activity is creating the demand from the product innovation side as well as the go-to-market reach.

The survey team also had and delivered a strong quarter. I'd say also off the back of new platforms, data collector platforms, they've built and continue to go-to-market excellence. So really strong execution in the quarter, and really just a terrific print for the team.

Your next question comes from the line of Nay Soe Naing from Berenberg.

Two, if I may. The first one, if I could start with the AECO. You talked about the strength in your Trimble connection. What Trimble Construction One to Connect outside of the U.S., I was wondering, any highlights that you could call out that's really driving that up for a cross-sell motion as well? And then in the regions outside of North America, if you could maybe talk a little bit about the competitive dynamics that you're seeing as well? That would be really helpful.

This is Rob. I'll take the question. So with respect to Trimble Construction One, we launched the capabilities in Asia Pacific in the quarter. Still -- it's obviously still early as a result of that. But that to me is a real highlight because we've seen the positive benefits of that through North America and Europe.

Within Europe -- and we brought project site to Europe in the last few -- in the last couple of quarters. The team is doing a really nice job starting to take that to market. In fact, I think the European growth was even faster than the North American growth in the quarter, and that would be indicative of the cross-sell and upsell motion.

Competitively, this is a unique set of capabilities we have at Trimble inside of that TC1, offering the breadth and depth of what we can bring to our customers, much less doing when we now intersect what we can do with Field Systems and AECO. So uniquely positioned at a competitive standpoint, strong highlights that to me -- with the cross-sell and upsell that translated into the strength of not only the ARR and revenue beat, but also the bookings that support that ongoing growth here for the rest of the year.

That's very helpful. And my second question is around the SketchUp to Claude connector, really exciting, I think someone's already flagged it as well. Only a few so vendors or follow this approach in this design software space. I was just thinking more in terms of risk, I was wondering how would it work in terms of the data created is SketchUp through the users coming through Claude? Does Anthropic get hacked? Does it have access to that data? And is there any possibility that they might be able to replicate some of the SketchUp features through the data access that they might have going forward? Or is it something that maybe we shouldn't worry about it at all?

I don't see a near-term concern on that relative to what Claude or another LLM provider could do in that respect. What we like about it is -- in fact, we see more opportunity to expand the addressable market for people who are not Trimble customers today, what they have to do to be able to use these services to create a Trimble identity. So that's important so we can actually know who the user is.

So we believe we can capture customers and users who haven't used the tool before. So we seen that opportunity to expand the size of the addressable market. And it becomes relatively easy to do that modeling because you're doing so through tax prompts in order to create that. So then our opportunity then from a downstream monetization play is to create new SketchUp users and then to upsell those SketchUp users into -- inside, excuse me, the Trimble Construction One offering.

Your next question comes from the line of Jerry Revich with Wells Fargo.

Rob, I wonder if you just talk about, just a minute on all of the data that you folks have and the value of bringing that together. With using the AI tools, is there a way to quantify in terms of the number of projects that you folks have in the system, et cetera, as just to build comfort around the ability to essentially leverage AI to drive incremental ARR as opposed to the risk factors that everybody is looking at?

Jerry, you've heard me talk before about trillions, billion, millions and thousands. Trillions of dollars of construction run through Trimble today. Tens of billions of freight run through Trimble. We have millions of users deliver software, and hundreds of thousands of instruments machines in the real physical world operate on Trimble. That is singularly unique.

If we talk about -- I'll double-click within that and we take Trimble Connect, which provides that single source of truth to create that digital plan between the physical and digital. Today, inside of Trimble Connect, more than 30 million projects have been created. There's been over 50 million users in Trimble Connect since inception. We have thousands of integrations -- third-party integrations into the individual applications we have across Trimble. We have over 130 extensions, integrations that have been created inside our Trimble marketplace, which is part of Trimble Connect.

In fact, at the mentions at our user conference in November, which we'd love to see you and the community attend, we're actually going to have hold our first developer conference as part of that. So if you take this unique set of proprietary data. The density of that data, this is singularly unique, creating the ecosystem and the partner network to build upon. This is why we see such an opportunity for AI to be a logical extension of our Connect & Scale strategy, not -- really not even a separate initiative. So we really think there's a lot of compelling aspects here for us and for our customers.

Super. And then from a margin standpoint, I was really impressed with Transportation & Logistics performance in the quarter. I don't know if the margins exceeded your internal plan or -- but if you could just unpack the drivers of margins in the quarter? And I think typically, you do see a step-up in margins in the business 2Q versus 1Q. And I just want to make sure there's nothing in the base that's extraordinary as we think about the bridge in that business from here?

Jerry, it's Phil. Yes, thanks for the question. I'm really pleased with the team as we lap ourselves, we had the mobility divestiture last year. And so there were some stranded costs within that business as the team had worked on throughout the year. And so really, really happy with the performance. We're guiding to about the same rate at the end of the year throughout the year, the 24%. So I think you can view this as structural as we go throughout the year.

Your next question comes from the line of Tami Zakaria with JPMorgan.

Very nice results. Congrats on that. So this is a question from me who's not a designer, and I don't use SketchUp or Claude to draw 3D models. So I apologize for the simplistic nature of the question. But about the Claude partnership, it sounds very interesting, and I appreciate the TAM increase potential. But could you sort of explain, how do you have confidence that Claus users would eventually migrate to using SketchUp instead of just staying on plot that probably keeps getting better at giving customized designs on the platform? Or maybe a better way to ask is, what's there in SketchUp now that Claude doesn't and will not be able to help with?

Tami, thanks for the question. And I will be your personal sales rep to sell you a license of SketchUp and make you a user. Until then, what -- imagine going to Claude and -- your natural language prompting. You don't have to be a user of the underlying modeling technology. So you're new to the software, and you want to create a model. You can do so through just typing the prompt of what you want. If you want a new patio for the backyard and it's of a certain size and, let's say, dimensionality and style that you want to put in there. Okay. So Claude is going to deliver you a model.

We believe that, that's not enough. You need to do something with that model. If you just wanted a picture of the model, you could create that in Claude, but that's not actually going to translate into the workflow. What you then do is you create -- if you've created that design of that model on Claude, you bring it into the SketchUp ecosystem in order to iterate on it because the one thing we know with the design is it's not static. You don't just do a prompt and then you're done. You want to iterate on that. You want to collaborate on that. Like one of the real powers of SketchUp is the ability to have multiuser collaboration.

And think about the coordination that an architect has with an engineer, much less a contractor or the owner. You're not going to do that through the LLM, you're doing that through SketchUp and then leveraging Trimble Connect to drive that collaboration. And when you want to perform that professional-grade analysis and you want to do the energy modeling of that or the rendering on that model, you're going to come into the authoring application or the othering tool, which is SketchUp to do that.

So I go back to the ability to have started, and Claude in this example is we're lowering the barrier to entry to create that next generation of AI-first professionals who can then bring those models into SketchUp for the next iterations of that.

So I don't know -- I hope that helps you a little bit understand that is that it's insufficient to complete a workflow with that initial model that you've created in an LLM. I agree with, I think, the assertion you're making is that it's going to get better over time. And you can imagine then we'll put more capabilities into those engines upfront over time. And we want to bring more Trimble capabilities throughout our ecosystem that direction as well this -- and it's so much of that, again, I see it as an ability to create new users for our tools. And remember that within the tools we have themselves, whether it's SketchUp or every other software application we're delivering at Trimble, we also have AI inside of those tools. So think of Claude inside AI -- Claude inside of SketchUp as opposed to Sketchup inside of Claude. We work it from multiple angles.

That is extremely helpful. And my second question, I wanted to double click on Field Systems. The year started off really strong, but you're still targeting low to mid-single-digit organic growth. Can you remind us what you're expecting for 2Q? And to get to your full year guide, we need to see a lot of slowdown versus the first quarter number you had. So is it conservatism? Are you seeing an impact from the Iran War in 2Q and you expect that to stay for the rest of the year? So any color on Field Systems?

Yes, Tami, it's Phil. I'd say -- the first quarter obviously reflected what we saw last year, particularly in civil construction. So the market continues to be strong, particularly in that business. Rob mentioned, geospatial performed well in the first quarter. As we start to think about the rest of the year in that business, this is the one that has -- we have the least visibility with the hardware, particularly. And we start to get into last year, we had a really good strong second half of the year. So part of this is the year-over-year the comps.

And part of this is the Middle East, and certainly around the tariff policy, just some of the macros. I'd say -- so we've incorporated the risk, we'll also incorporate the opportunities as we think about the guide and where the strength of the market is. At this point, again, we started the year very well, but we'll continue to keep an eye on it on market and update you in a few months.

Your next question comes from the line of Joshua Tilton with Wolfe Research.

Congrats on a good quarter. And just 2 quick ones for me. The first one is kind of a follow-up question. So I think the question a lot of my peers have been trying to ask you on the call so far. And I think that's around the Claude integration announcement. And I think what a lot of people are trying to understand is just as you integrate more and more with Claude, you are increasing your users productivity. And I think people are trying to understand how are you guys setting up yourselves to capture that increase in productivity that the Claude connector will provide your average SketchUp user?

And I think the second question that I have, just a quick follow-up is, on that last Field System comment that you mentioned, is it fair to assume that there is more conservatism in the Field Systems outlook today than there was 90 days ago given everything that's going on in the world and the visibility that you just spoke to?

Josh, it's Rob. I'll take both of those. With respect to Field Systems, I'd say, what's -- what I want you to assume is that we're holding -- well, we've actually increased the guide for the year. So I want you to see that we don't see that anything has fundamentally changed in the market. We're 3 months from a reporting standpoint, we're 3 months into the year. We got 9 more to go. Let's see where things are -- how they're shaking out in 3 months from now. So no fundamental change in view in the Field Systems business. In fact, if anything, you could say it's better because of the raise -- some of the raise we put through. That's what you need to hear on that one.

With respect to Claude and as we integrate Trimble capabilities with LLM and increase our users' productivity, we start -- what I would want you to hear there, as we start by increasing our users' productivity within the tools they already use from us today, that's the primary place we start. When I think about going the other way. And when we're working with Claude with the SketchUp example or other examples that I think you'll see in time to come, we think of those as opportunities to create new users. We think of that as opportunities for our existing users to start, if that's where they want to start, and then bring those models into SketchUp.

I just can't stress enough that for the professional user would separate maybe the professional user from the consumer user of SketchUp. At that professional user level, you need to bring those vials into our ecosystem if you're going to iterate, you're going to collaborate and if you're going to perform professional grade analysis. That's the difference between the professional user and, let's say, the maker or the consumer user of SketchUp.

I totally embrace SketchUp consumers. That is the bulk of the user count that we have in that community, and it creates that brand and the content that we have and really monetize at the professional grade level. That is fundamentally a different set of workflow. And hopefully, that helps answer the question.

Your next question comes from the line of Chad Dillard with Bernstein.

I'm going to continue on the SketchUp and Claude line of questioning. So a few for me. So I guess, first of all, from an economic standpoint, we're assuming you guys price for this added feature. I guess, how do you guys think about the split up between what Trimble gets versus what Claude gets? Who owns the data? And I'm just trying to understand like how does this compress the learning curve going to more of an agentic approach? And maybe lastly, SketchUp was kind of the first deployment, but where else do you see this sort of relationship evolving across your different product sets?

Chad. This is Rob. I'll take that. Okay, there's a few topics in there. Hopefully, I can capture them here. The data is the customer's data. So I always want to orient starting there, and that customer is creating a model, an example that we talked about today. That model is downloadable and you can bring it into SketchUp.

From an economic standpoint, let me highlight 2 different motions we have. One motion is the announcement we had in Q4 of last year, where we have SketchUp AI. It's an add-on subscription to the SketchUp license you already have. And with that SketchUp AI license, it's only $11.99 a month for that add-on license. You get a set of credits for tokens, but think of it as credits that you get. So from that, I'll call it, economic standpoint, that is directly to Trimble. It's all Trimble and obviously, there's a variable cost when we're on the consumption side of that. But we built that into the pricing model.

What you are asking about, with Claude, if you start in Claude and you create that model that's downloadable, what we really see is the economic model there is to create users downstream. That's the way I would think about that. And how can we create those users downstream. Well at least today, we start by requiring them to have a Trimble ID. And when you have that Trimble ID, that's how you're able to download that SketchUp model and then bring it into SketchUp as the authoring tool.

So there's multiple paths to monetization. I think about in the first -- one of the first -- I think it was the second question we got this morning. When we talk about tokens, I see that as a tactic. That's one of multiple tactics that we have. We'll have tactics of monetization where we bundle our capabilities under the good, better, best offerings. And clearly, we want to upsell customers into the better and the best, provide a higher value. We'll monetize there.

We'll monetize purely as a stand-alone transaction or consumption. And one of the reasons we were attracted to the Transporeon acquisition when we did it is there's well over $100 million of transactional revenue that comes from that business. We don't have to imagine a world with transactional revenue. We have a world with transactional or consumption-based revenue. And inside of that, we've got autonomous, which, in other words, there's our AI-first products that we're monetizing on a consumption based level.

So we're open to multiple doors and avenues as the tactics to monetize the capabilities that we're bringing to market. And we think we can do so in a way that expands the size of the addressable market while we're doing it. And all of this is early days. And we see it as virtue that, that were out there in the market, that we're testing, that we're learning and that we're leading.

Okay. That's helpful. So second question, can you talk about what Trimble is doing to shift from like, I guess, the Copilot or assistant-based AI to more of an autonomous workflow product? I guess one thing I'm trying to get at is, do you have all the -- everything in your tech stack inside the 4 walls of Trimble? Or do you need to go out and acquire some of those capabilities? And then where is some of the low-hanging fruit today to deploy autonomous workflow in your products?

Chad, let me comment that from a couple of different angles. It's an interesting -- it's an interesting question. In terms of our own agentic AI development, we have multiple teams in the company that are working on it, but really twofold. One, from the engineering and construction, which is an intersection of Field Systems and AECO, and the second in Transportation. So each of those teams have agentic AI teams, and we believe -- we don't need to go acquire, let's say, an agentic AI platform because we're doing it ourselves. We want to do that organically.

Now the Document Crunch example is one where we acquired to create a new category. In this case, an AI-powered risk management category. And where we see through Document Crunch that we can link contract intelligence and compliance automation and link that with the project management that we deliver at Trimble, with estimating that we deliver a Trimble with ERP workflows we have at Trimble. That's singularly unique. It's bespoke. It's domain specific. That creates a new category. We're open to that.

The last example I'll give you is really coming more at it from a Field Systems perspective. And I'm going to sort of maybe take a play on the word of autonomy. Trimble has been an autonomy company for decades. We happen to call it machine control and guidance. It's between level 2 and 3 autonomy today. We already are an autonomy company. And we see what underlies that is a grade control engine. And we see autonomy as a feature extension of the grade control engine that we take to market today.

So we will, on our own, continue to work up the stack of -- in autonomy because we see autonomy as a progressive series of automation and will create extensibility on top of our grade control engine platform. And that's how we reach these new categories, whether they're safety applications, whether they're ground penetrating radar applications, whether it's a new machine type integrations, a lot of which we can believe we can deliver when we focus on the underlying platform and the extensibility of that.

Your next question comes from the line of Clarke Jeffries with Piper Sandler.

And I apologize if I missed this, but I believe reported ARR for AECO was 17% versus the 14% organic. Was there's something driving that? I'd assume Document Crunch is going to be in a future quarter when that closes. So do you want to assume something there?

Clarke, it's Phil. No, the difference is the FX. There's still a benefit with the weaker dollar for the first quarter of this year. So that's a difference.

Understood. Okay. And then second question, maybe just following up on one of the questions around operating margin. I mean it does seem pretty exceptional what happened in the AECO and Transportation & Logistics from a gross margin and operating margin perspective. Just maybe could we talk about the OpEx timing that did affect Field Systems? To what extent is that onetime and may resolve itself in future quarters in terms of not have that lump of OpEx. Anything to kind of speak about whether or not we're really getting to a point where the leverage of the recurring revenue across these portfolios are starting to really pick up on the margin benefit here?

Yes. Clarke, it's Phil again. Yes. So at the company level, really good progress on the margin expansion. And what I really like about the company model is there's an end in there. We're able to expand margins, and we're able to reinvest in the growth. So I think the teams have done really well.

As I think about -- I think you asked a specific question in Field Systems. We did have some ConExpo Rob had mentioned, trade shows in Q1. And so we've had some additional expenses, and that's where we're seeing some of the timing when I mentioned that.

There's a couple of other things on the innovation side and particularly in FedRAMP for our certification that we're investing in and what I mentioned about the investing in future growth, that's one of the additional expenses. But if you look at what we guided for the year, we ended up in Q1 about 28.8% on OI, and we're guiding towards 31% the rest -- for the rest of the year. So we see improvement.

Your next question comes from the line of Jonathan Ho with William Blair.

I wanted to start out with Document Conch. Can you give us a sense of how you can cross-sell this to your base? And maybe, what does the economics sort of look like in terms of that incremental add-on?

Jonathan, so I think as you heard me say in the prepared remarks, it creates a new high-value category for us in AI-powered risk of management. So you think about the billions of construction that runs through our ERP today and the tens of millions of projects we have in Trimble Connect, project management capabilities, think about the tools we have in the field. There's an enormous amount of data when we think about linking that contract intelligence and compliance automation that comes from Document Crunch into those project management estimating and ERP workflows that we already have today.

And the value proposition is pretty clear in terms of the risk that comes with the construction industry, which I think is relatively well understood. It's particularly in North America, it's a litigious industry. Claims are high dollars in an industry that happens to already be low margin. So this goes well beyond any kind of document review in order to really power that risk management for our customers.

So now, okay, with that value proposition, how we take it to market, we'll bundle that inside of Trimble Construction one. Out of the gate, we go about it through, I'll call it, traditional cross-selling and we'll build the motions to more tightly integrate it with Trimble Construction One, in other words, if it's on one piece of paper coming from Trimble. And we like what we see out of the gate relative to customer inquiry in terms of the press that the deal has generated. It's getting nice coverage. Our selling teams are excited to have it, and customers are telling us this is exactly where they want to go. So that intersection of got to have the right product meet the right go-to-market motion, feeling good about this one and stay tuned. We'll keep you updated how it's going.

Great. And just as a quick follow-up. With the use of AI potentially maybe displacing some workers, do you see any threat to any of the seat-based licensing models that you have as well? Or is there the opportunity to shift to maybe more value-based pricing over time?

We go back to that monetization conversation we've had in the prepared remarks and through some of the Q&A. That's one of the reasons you see us talking about hybrid models. So we do have a belief that we'll see more hybrid models, hybrid at the intersection of the named user license and consumption. At the same time, we have some consumption only businesses and capabilities as well. So there's multiple tactics that we can deploy in that respect.

Our industry today is not demand constrained. We have -- our customers have significant backlog. There's a labor shortage, hundreds of thousands of workers short in North America alone. So in the near term, it's hard to see if any kind of fundamental worker displacement. We always want to anchor to what's the value that we're delivering for our customers and then to meet them on a back into the monetization which is a tactic.

We're not shelf ware. We're not a nice-to-have thing that you use every once in a while. We are fundamental to our system, to our customers' work. If you're worker out in the field, they're using our tools all day long. If you're a project manager, you're managing an ERP, you're a civil designer, you're a mechanical estimator, you're an architect, you're working inside of Trimble all day long. So long as -- as long as we've got these labor shortages, as long as we continue to provide the value, I feel good about our ability to continue to drive the revenue in the business.

Your next question comes from the line of Guy Hardwick with Barclays.

Maybe I missed this earlier, apologies if I did, but it does look like you beat your Q1 guidance for revenues for about $35 million and you've raised your full year guidance for revenues by only $15 million. And now look at the supplementary information, it looks like Q1 '26 is going to be a higher proportion of total revenue and you have about 0.5 points for both quarters. So is it really a pull forward you saw in Q1, but at this point, you don't feel you can raise the full year as much as you beat in the first quarter? And then that's the first part of my question.

The second part, you also took top end of your EBITDA guidance down 20 bps. So just wondering, was that really mix driven? Was there anything else for reason for that?

Guy, this is Rob. I'll add color to what Phil has already talked about in the call in the prepared remarks and in the Q&A. Answer, no pull forward in the quarter really by our own policy, I do not like to raise guidance after the first quarter, to be 3 months into the year. That's the standard way I want to approach it.

Given the strength of that Q1, we did flow $15 million of that into the year. I'm thinking about it from the perspective of the year. I feel good about where we are positioned for the -- I feel good about where we're positioned now. We feel good about the rest of the year. As we all know, there's volatility uncertainty out in the world. We'll update you in 3 months where we are there. So really just think about it as there's a beat and a raise, and it's within the frame of wanting to hold that model for the year.

And just as a follow-up, obviously, you're getting very close to 2027 and potential for meeting some of the 2027 targets this year potentially on the EBITDA margin line. Are you already probably getting questions from investors about future targets? So what could we hear about 2028 targets or beyond? Is that something you would look at maybe later this year?

A good question. I think that's important to reiterate that the 3, 4, 30 model, $3 billion ARR, $4 billion revenue, 30% op margins in 2027, look at the numbers that are in the guide that Phil put forward and we are well on track for that play forward operating leverage on top of revenue growth into 2027. And it stands to reason that why we are affirming our path to that 2027 model. We're continuing to deliver and balance the short term and the long-term progression of Trimble.

We're not yet ready to talk about 2028 or to set a frame on that. And we haven't yet even thought about when it would be the next logical Investor Day to have that we think it would be smart to put something together for our user conference in November to invite the analyst community, investors to see Trimble in action at Trimble Dimensions in Las Vegas in November. See that and I think you can get renewed appreciation for the uniqueness and the quality of what we're doing and why we would continue to have conviction that 2028 would continue the path of growth and margin expansion that we're delivering today.

And with that, we have reached the end of the Q&A session. This concludes today's call. Thank you all for attending. You may now disconnect.

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.

Hello, everyone. Thank you for joining us and welcome to the Trimble Fourth Quarter 2025 Earnings Call. [Operator Instructions] I will now hand the call over to Rob Painter, President and CEO. Please go ahead.

Welcome, everyone. Before I get started, our presentation and safe harbor statements are available on our website. Our financial review will focus on year-over-year non-GAAP performance metrics on an organic basis.

In addition, we will focus on adjusted numbers that we believe more accurately portray the underlying performance of our business. This means we will exclude the divested agriculture and mobility businesses as well as the 53rd week of fiscal 2024. For the fourth quarter, we will also adjust for the timing of January 1 term license renewals, as reported numbers, along with the reconciliation are provided in the appendix of our slide presentation.

Okay. So let's get to it. Our fourth quarter results delivered a top and bottom line beat, punctuating a strong close to a strong year and positioning us well to deliver in 2026 and through the 2027 plan we presented at our last Investor Day. The results of the quarter and the year demonstrate the durability of our focused portfolio in the compounding returns of our Connect & Scale strategy.

As shown on Slide 4, we delivered $970 million in revenue in the quarter, up 9%. For the year, revenue was $3.57 billion, up 10%, our ARR grew 14% to $2.39 billion, with a notable 16% increase in our AECO segment and 20% increase in field systems.

Earnings per share of $1 in the quarter was up 12% and $3.13 for the year, up 10%. Both were even higher on an organic basis.

Connect & Scale is both an application and a platform strategy. As Slide 5 visualizes, our applications manifest as best-in-class hardware and software solutions whereas platform manifests through connected workflows and ecosystems. Said another way, an application solves one problem, whereas a platform connects people, data and workflows to address system complexity.

Furthermore, a platform empowers an ecosystem where customers and partners can build and extend offerings and integrated workflows. Platforms get stronger and more valuable as more people use them creating a network effect where all participants benefit. With this in mind, we allocate capital along this continuum of product development, go-to-market and the underlying systems and processes to unlock our full potential.

By connecting the hardware and software of Trimble to connect the office and the field, we are connecting the physical and digital worlds. In turn, we are delivering solutions that increasingly compound customer outcomes by leveraging unique data, connected solution capabilities and our unmatched go-to-market reach.

We see AI as a force multiplier that accelerates value delivery along this entire flywheel. Slide 6 illustrates the financial outcomes of disciplined execution since we began our Connect & Scale journey in 2020. We have expanded recurring revenue as a percentage of total revenue from 40% to 65%. Software and services now represent 79% of total revenue. We have expanded gross margins by 1,300 basis points, which has given us tremendous degrees of freedom to invest for our future growth while expanding EBITDA margins by 400 basis points.

With this context in mind, let's turn to a review of the segments, starting with AECO. The team delivered another outstanding quarter. ARR at $1.48 billion was up 16% and revenue at $454 million was up 15%. Our ACV bookings remained strong with the team delivering a record quarter with cross-sell and upsell motions continuing to gain momentum, as evidenced by net retention in our core commercial base at approximately 110%.

I'll highlight three examples of ongoing strategic progression in project management, collaboration and visualization and AI.

In project management, our decision to allocate capital here over the last couple of years is yielding results. We delivered over 40% growth in bookings and over 50% growth in ARR. Throughout the year, we added hundreds of new customers and began our international expansion. Ease of use, natively built workflow integrations and bundled selling motions are driving growth and adoption. We're excited about our growth potential in project management and have our 2026 sales motions aligned to continue to win here.

Trimble Connect has transcended its origins as a collaboration and model viewer to become the unifying pillar of our construction platform strategy. Connect turns field data such as point clouds and imagery from a job site into actionable insights in the office. It also takes detailed designs from the office to the field for fabrication, layout and installation. By capturing the as-built reality from the field, infusing it with design models, we are creating the definitive digital record of the physical world. This positions Trimble not just as a tool provider but as the data platform of record for the entire built environment.

With respect to AI, [ Hensel Phelps ], whom we highlighted during our Dimensions keynote, estimates they are saving millions of dollars in labor hours with our submittals AI agent that automates processing of the data and paperwork intensive aspect of construction. In MEP estimating, we've deployed AI to identify and count electrical components directly from construction drawings, replacing a manual takeoff process. This feature already has thousands of monthly active users and delivers over a 50% productivity gain and is generating millions of dollars of incremental ARR.

In addition, we have created in-app AI assistance into many of our products, some of which are orchestrating multi-agent workflows, and we can already measure tens of thousands of conversations and case deflection rates up to 20%. 2026 will be a year where we accelerate our agentic AI releases.

Stepping back to look at a set of metrics of performance and progression, Slide 7 provides a 2025 refresh on the segment composition. The key takeaways here include a well-balanced and diversified set of customers being served with each pillar of the business having greater than $230 million of ARR. A geographic split that is centric to capturing the North American opportunity while demonstrating a compelling global opportunity to expand reach and a revenue mix that is almost entirely recurring.

Slide 8 goes further to give a set of annual KPI updates that mark proof points against the growth drivers we put forward at Investor Day.

I'll start with three KPIs that demonstrate the power of the $1 billion-plus cross-selling opportunity we see in construction.

Starting with the data point that only 20% of our customers currently buy more than one product. a clear sign of penetration opportunity.

Next, customers with more than three products grew 18%, demonstrating our ability to run land and expand place.

Finally, more than 70% of our ACV bookings came from cross-sell and upsell motions, demonstrating that our customers value the breadth and depth of Trimble solutions.

In addition, the significance of Trimble Connect was demonstrated by an 18% growth in the number of projects in Connect.

Moving to Field systems, the physical business of Trimble outperformed in the quarter. with particular strength once again in civil construction. Revenue at $379 million was up 4% and ARR at $409 million was up 20%. Kudos to the field systems team. They did an exceptional job in 2025, demonstrating the strength of our innovation and execution and continuing to lay the foundation for Connect & Scale to differentiate at the intersection of the physical and digital worlds.

I'll highlight a few examples of unique Trimble value delivery that Field Systems enables starting with our customer, [ J.E. Don ], one of the largest and most sophisticated North American general contractors who self-perform their concrete work. They work with Trimble software in the office to create precise 3D design models, then utilize Trimble augmented reality to see those models in context in the field.

They deploy Trimble total stations to lay out these models in the physical world and triple 3D laser scanners to capture as-built data for quality control, all of which is coordinated through Trimble Connect to create a digital twin. This unique Trimble workflow that links work in the office and the field is driving productivity and quality while eliminating millions of dollars in rework, which in turn is significantly reducing their carbon footprint. Beyond self-performed concrete workflows, we have advanced our piling automation workflows for solar farm construction, and we developed a mass haul workflow to automate the infrastructure building process for mines as well as for large commercial and industrial sites.

AI acts as a force multiplier on top of these unique workflows. From AI classification of large data sets we collect in the field to analytics across transportation, infrastructure, building construction, mining and utilities to optimize workflows and enable our customers to make better decisions.

This isn't just a vision. We already have tens of terabytes of reality capture data that have been uploaded to Trimble Connect, and we expect to double that in 2026.

Stepping back to look at a set of metrics of performance and progression Slide 9 provides a 2025 refresh on the segment composition. The key takeaways here include a well-balanced and diversified set of capabilities we take to market.

From [ GNSS ] and optical surveying instruments to inertial navigation and our unique positioning services that support precise positioning and navigation, to our on and off machine civil construction automation portfolio. Field Systems is our most global business, and we continue to develop product and distribution to reach the global opportunity.

Finally, the revenue composition demonstrates a significant milestone in 2025. The segment is now over 50% software and services and 26% of our revenue is now recurring.

Slide 9 also lays out a set of KPIs against the growth drivers we put forward at Investor Day. During the year, our business model conversions continue to expand our addressable market as evidenced by the fact that approximately half of our sales of machine control as a service are to new logos. It's the same phenomenon we see with our Trimble Catalyst subscriptions where we are reaching new users and customers with this more affordable offering. Finally, the addition of new Trimble technology Outlets is expanding our reach to serve the mix fleet.

Moving to transportation. ARR at $508 million was up 7% and revenue at $136 million was up 4%. We continue to grow despite the challenged freight market.

To highlight a couple of examples of connected scale at work, I'll start with our unique ability to cross-sell within the portfolio.

From the perspective of a customer, they don't see divisions within the business. They see a set of capabilities. And those capabilities come in the form of carrier TMS, shipper TMS, docking yard scheduling, final mile, maintenance, mileage, navigation, field tax reporting, freight audit and beyond. Cross-selling looks like selling fleet maintenance into our TMS base, or selling mapping into our European customer base, or selling shipper TMS capabilities from Transporeon into the North American market.

In parallel, we continue to natively integrate the data flows across these capabilities and we apply AI as a force multiplier to deliver outcomes that we are uniquely positioned to deliver given the breadth and depth of the global customer base and data set we touch.

Another example of being better together comes in the form of freight marketplace. In the third quarter, we announced Procter & Gamble as an anchor tenant. In December, we won the business of one of the world's leading beverage companies to manage their U.S.-based spot, mini bid and strategic procurement. By bringing billions of dollars of additional shipper freight spend into our marketplace, we believe we are well positioned to capture additional business with the leading global shippers by connecting them with vetted carrier freight capacity.

Stepping back to look at a set of metrics of performance and progression. Slide 10 provides a 2025 refresh on the segment composition, which is almost entirely recurring revenue. The segment is well balanced with a carrier and shipper centric solutions and geographically balanced between Europe and North America.

During the year, we expanded the power of our multisided marketplace as evidenced by the addition of over 10,000 carriers and over 100 shippers.

We also demonstrated the ability to grow our existing customers. As evidenced by double-digit growth of Transporeon customers doing more than EUR 1 million of ARR and MAPS and enterprise customers doing both $100,000 and $1 million in ARR. With that, Phil, I'll turn it over to you.

Thanks, Rob. Let me start with capital allocation, which remains disciplined and consistent. During the fourth quarter, we repurchased approximately $148 million worth of shares, a direct reflection of our confidence in the long-term value of our business and our commitment to delivering shareholder returns. We retain a substantial $925 million under our current repurchase authorization, which gives us flexibility for opportunistic buybacks. .

Longer term, we continue to expect at least 1/3 of our free cash flow to be used for repurchasing shares as we look to provide returns for our shareholders. Our M&A strategy remains focused on strengthening our core market positions. We continue to screen for opportunities in high-growth capabilities that we integrated into our platforms, primarily in construction software with an emphasis on tuck-in acquisitions.

Let's review the fourth quarter of 2025, starting on Slide 11. We delivered organic revenue growth of 9%, which exceeded our outlook, driven by the continued strength of AECO and Field Systems and with transportation and logistics demonstrating resilience and positive growth within a constrained freight market.

ARR was toward the top end of our outlook at 14% to a record $2.39 billion. The continued growth in our recurring revenue base provides a predictable and resilient foundation for our business.

Gross margins expanded to 74.6% and we achieved EBITDA margins of 33.5%. Both were aided by January 1 term license renewals. Reported earnings per share was $1 for the quarter, $0.05 better than the midpoint and above the high end of our guidance.

Our 2025 full year results serve as validation of the progression of our financial model and confidence that we are on a trajectory to deliver our long-term model as presented at Investor Day of $3 billion in ARR, $4 billion of revenue and 30% EBITDA margins in 2027.

For the full year, organic revenue growth of 10% surpassed the high end of our outlook. Gross margins expanded 150 basis points to 71.7% and EBITDA margins expanded 150 basis points to 29.3%. EPS for the year was $3.13 and above the high end of our guide and well above our long-term model of low to mid-teens growth when adjusting for the ag divestiture.

Moving to the balance sheet and cash flow items on Slide 12. Our year-to-date reported free cash flow remained strong at $361 million when considering the $307 million of tax payments and other costs primarily related to divestitures. We exited the year with a strong balance sheet that provides financial flexibility with $253 million of cash and a leverage ratio of 1.1x, which is well below our long-term target rate of 2.5x.

Moving to a segment review of the numbers. Let's start with AECO on Slide 13. AECO continues to perform and exceeded expectations with a record $1.475 billion of ARR posting 16% ARR growth and 15% revenue growth for the quarter. Operating margin was at 44% and was aided by January 1 term license renewals. For the full year, both AECO revenue and ARR grew at 16%, and operating margin was at 34.2%.

Next, Field Systems on Slide 14. Revenue was up 4% in the fourth quarter, while absorbing model conversions to recurring revenue. The continued execution resulted in another strong quarter of ARR growth at 20% and operating margin was 30%. For the full year, revenue was up 5%, ARR up 20% and operating margin expanded 100 basis points to 31.1%.

Finally, Transportation and Logistics on Slide 15. In a freight environment that remains muted, the segment delivered revenue growth of 4% and ARR growth of 7% for the quarter. Operating margins were at 22.9%. For the full year, revenue grew 5%, ARR grew 7% and operating margin was at 22.9%. Operating margin for both the quarter and the full year were slightly down year-over-year, primarily due to stranded costs related to the mobility divestiture.

Turning to Slide 16. Let's look ahead to 2026. The midpoints of our 2026 full year guidance are $3.86 billion in revenue, which represents approximately 7.5% growth and $3.52 EPS. We expect ARR growth at 13% and EBITDA margins to expand approximately 50 basis points to 29.8% as our model delivers strong operating leverage while allowing us to reinvest for future growth.

From a cash flow perspective, we expect free cash flow to be approximately 1x net income and that we can deliver free cash flow greater than the non-GAAP net income over the long term.

Slide 17 breaks down these metrics by segment. The trajectory across all three segments remain fully aligned to deliver the Investor Day company targets for 2027.

Finally, regarding our first quarter outlook on Slide 18. We are setting our revenue midpoint at $905 million, which is approximately 8% growth, EPS midpoint at $0.71 and ARR growth at 13%. We expect EBITDA margins at 26.6% and which is a 70 basis points expansion year-over-year. Back to you, Rob.

Thanks, Phil. I'll close with a reflection on the compounding benefits of our Connect & Scale strategy. The fruits of what we see today are the result of years of past work by the Trimble team. Unlocking the power of compounding takes patience and conviction to be just a little bit better every day.

The strength of momentum we carry into 2026 gives us confidence that we have yet to see the biggest gains for what's possible when we connect people, data, workflows and ecosystems in construction and transportation. That same principle of compounding applies to our financial returns, and that flywheel is turning. My gratitude to the Trimble team and partners as well as our investors who continue to support our strategy. Operator, let's open the line to questions.

[Operator Instructions] Our first question comes from Jason Celino with KeyBanc Capital Markets.

I wanted to [indiscernible] the Field Systems ARR growth, it's really impressive to see it accelerate to 20%. Maybe can you speak to some of the strengths that you saw in the quarter? And then when we think about guidance, it's assuming kind of deceleration in 2026 to that low to mid-teens. Is that just a function of tough comp? Or is there some dynamic with kind of the transition we should talk about?

Jason, it's Rob here. With the growth in the quarter, and you're right, it was an impressive growth from the team. We continue to see strong performance in the machine control guidance as a service, we can see -- continue to see growth actually providing corrections into the automotive market. In Geospatial, we see growth in our catalyst, which is positioning as a service. The software conversions continue to drive growth really across the board strength.

Relative to the guide in 2026, there is a lapping effect. As we've started the conversions and have been early in them, there's just a natural mathematical effect on that. So really continue at the fundamental level to expect to see strong growth in that. And in the up level to the segment level, field systems crossed a threshold now of being over 50% software and services for the year. So very happy about that.

Okay. Wonderful. And then the construction and architecture industry seems very suitable for Agentic given the many stakeholders and historically siloed processes. But the industry has historically been pretty slow at adopting technology. Can you discuss how you think the industry will ramp adoption of Agentic and how that might compare with many other industries? And then as Trimble launches these new agenetic features, how are you looking to monetize them?

Good question. We think that Trimble platforms are the exact right place for customers to adopt the agentic workflows that we can enable, let's say, as opposed to doing them outside of a Trimble platform. So we're already that system of record that becomes a system of intelligence. We already have a unique data set resident inside of Trimble that customers want to unlock. And when I spend time with customers, increasingly, they're talking about how do they unlock more out of the data they have and how do they get AI usage on top of that data to help them address let's say, the challenges and the opportunities that exist in the industry.

So we think the best way to speed up the adoption in the industry of agentic AI is doing it on top of the existing platforms and solutions that they're already buying from us, where we have that trusted relationship and a unique and, I think, proprietary data set upon which to build.

Jason, this is Phil. Just to add -- sorry, you had asked about the monetization. So one thing I'll point out, with SketchUp, we introduced some new AI agents and what we've started to do is actually include credits. So as you use the agents you apply credits against them, early stages. But as we think about the monetization is moving a little bit more into that consumption as well.

Our next question comes from Josh Tilton with Wolfe Research.

Congrats on the strong end of the year. I'll start with a pretty high level one, maybe for next year. I think coming into this year, there were some puts and takes on some conservatism in the guidance for '25. How do we think about what those puts and takes are for the guidance that you just set for '26? Maybe a little more specifically, like what are you assuming for the macro? What are you assuming around Fed? Like how do we think about some of those inputs in the outlook for this year?

Josh, thanks for the question. I'll start, and Phil you can add on. 2025 was clearly a very strong year of progression for us strategically, operationally built on what was also a strong 2024. When we think about 2026, we're also thinking about that on a longer-term context through the 2027 model we put forward at Investor Day.

At a macro level, don't really see any fundamental differences in the market. So we're expecting and planning really a pretty consistent environment that's out there, and we can talk through the puts and takes on that. That includes, for example, with the U.S. federal government level, really a very muted amount of business there.

In transportation, at the macro level expects to continue to see a more challenged freight market. And if we look in construction, we see pockets of strength in data centers and infrastructure build. We see a ship building, we see an [ inshoring ], reshoring of manufacturing. And really, those are trends that we've been seeing here for the last couple of years.

So we continue to progress the strategy. We take that forward into the guide. And inside that guide, we want to make sure we leave ourselves room to operate the business comfortably and to be able to reinvest back into the business. And that flows then to our point of view at both the ARR growth, revenue growth down through the op margins.

Super helpful. And maybe just like one more bit of a narrowed follow-up. In AECO, I know the deck says over 70% of ACV bookings with existing customers. But when we think about, I guess, just under 30% of AC bookings coming from new, where are those new customers coming from? Like why are they choosing you over the competition? And maybe just remind us what did that look like in the past?

Let's start with the where the customers come from, where new logos are coming from. We see that in two dimensions. One is geographic. So we're a very global business, more than an AECO, more than half of it is North America. The global -- that's a different ratio than the global construction market, which is to say we have lots of opportunities outside of North America when new logos, and we see that through the results.

If you take it at a closer to a product level or even TC1 level, bundled offerings, take project management as an example, added hundreds of new customers in 2025 and to the business. and that played through that 50% ARR growth we talked about in that.

So you can see that on two different axes, product penetration in the market meets geographic penetration. And why customers are choosing Trimble? Well, we've got 48 years now of building best-in-breed best-in-class, purpose-built solutions for the end markets that we serve and those customers that we serve.

In addition, TC1, Trimble Construction 1 within AECO has been a strong catalyst for that adoption because when you're buying inside Trimble Construction 1 -- sorry, buying inside the Trimble platform. You're buying a set of solutions that are natively integrated, that are helping you solve workflow challenges and opportunities of getting after those higher order problems. We're doing the things that we can uniquely do to connect work in the office and the field. And beyond AECO Connect hardware and software across all of Trimble to connect the work in the physical and the digital world. The sum of that is what's driving those bookings, both at the new logo and existing.

Our next question comes from Chad Dillard with Bernstein.

Chad has disconnected. Our next question comes from Kristen Owen with Oppenheimer.

Rob, I wanted to follow up here on Slide 8, I really appreciate a lot of these KPIs and giving some visibility into this. One of the questions that I have for you though is if I take some of these data points around net retention, the new logos versus existing customers, and I would to roll that up into a comprehensive ARR growth algorithm that sort of points us to the mid-teens guidance that you've provided for 2026. How do we think about those individual moving parts? How much is price? How much is account accretion, et cetera, et cetera? How we take these KPIs that really contextualize them in the guidance?

Yes. Kristen, thanks for the question. So let's maybe work backwards from the guide implies a mid-teens growth in ARR in the business, which is also, by the way, consistent with what we put forward at Investor Day. When you do the stack on net retention, you start with looking at the gross retention. So the churn is in that mid-single-digit range to begin with.

When you -- now you go up the stack on that, and what you can connect the dots on is that with 70% of the ACV bookings being with existing customers, that's both -- that's the sum of cross-sell and upsell. And we actually see a ratio of higher upsell to the cross-sell. So we're continuing to penetrate on the existing base we have with customers.

By the way, when we cross-sell into customers, that then creates the next upsell opportunity. There's a flywheel that happens with that.

Pricing is relatively modest. I call that in the low single-digit range on the stack through that net -- yes, [indiscernible] to get to total net retention -- I'm sorry, those are the sum of the pieces. And so then you see some of the other statistics on there, whether it's the number of customers using more than one product or the growth in customers with more than three products. Those support that cross-sell upsell part of the net retention stack.

Okay. Great. And maybe just one additional clarification there. On the activity rate, were we to see a pickup in construction activity or infrastructure activity, how would that integrate into the algorithm? And then I have a separate follow-up.

Well, hey, any additional positive inflections on overall new construction, of course, would be a positive for us. We would see it in the bookings before we'll see it in the ARR. So call that a positive that we would probably comment on into 2027 as opposed to 2026.

There, we look to places like Europe, and let's talk about infrastructure in Germany, like that would be a place where we look out for additional business.

Another submarket would be residential where that to turn for the positive. If we see interest rates go down and then the residential market come back. That could be a positive that we would see -- I think we would see that more in 2027 than we would in 2026, and we would see that both in AECO and Field Systems. So that's the -- I guess, how I think about the activity rate. I think you said you had one other follow-up?

Yes. Sorry. The other follow-up here is the AI question. Maybe just framing it in terms of the context of how your customers are looking to adapt their business models. I mean we've heard some large integrated [ E ]&C customers publicly discussing their ambition to bring in their own AI-enabled solutions, so I'm just trying to understand where Trimble fits in that discussion? That's my follow-up.

Yes. I start with trillions, billions, millions and thousands, trillions of dollars of construction run through Trimble, tens of billions of freight run through Trimble. We have millions of customers of Trimble software and hundreds of thousands of instruments and machines in the rough physical world. operate on Trimble. So we're quite -- we have quite a presence in a global sense. If I think about segmenting our customer base, we have everywhere from, let's say, small customers all the way through the largest enterprises in the world. And I think as you move along a stack like that in the customer segmentation, you'll have customers that have naturally different levels of, let's say, AI ambitions that they can put forward and kind of resources they can even dedicate to that.

There's no question that customers, especially as you move into the large enterprise customers are looking to unlock more efficiency and more insights out of the data and then to see AI as a force multiplier to help unlock that data.

So much of what we do at Trimble is that core system of record system of intelligence. We operate that common and connect the data environment with Trimble Connect. So there's naturally a [indiscernible] amount of data from the physical and digital world that's resident on Trimble, and we see our customers looking to unlock the potential based on the data they already have with Trimble.

And but then I should also say, in connecting non-Trimble data into that. It's a fragmented industry. It's a fragmented relatively fragmented technology landscape as well. So that, thus, we have a posture and a bias of being open to third-party solutions to enrich the data sets and therefore, to enable the customers.

So we see ourselves as really the logical extension of our customers' AI ambitions to build and extend that on top of Trimble.

Separately, will customers take their own, let's say, AI initiatives to leverage data they have from Trimble, I absolutely think that they will do that. And that's our opportunity to build more of those agents and those agent workflows on top of it so that our customers don't have do it themselves. So we see all of this as a net opportunity for us.

Our next question comes from Jonathan Ho with William Blair.

Let me echo congratulations as well. Given your changes in mix to recurring, how do we think about sort of the broader convergence between your ARR growth and overall revenue growth given that mix shift? And what are some of the puts and takes for that to happen?

Thanks for the question. At the mix level, I think it's easier to take it through the segments because AECO has really converged as transportation logistics. So I would think of those as having converged the ARR and revenue growth rates, I mean it can be plus or minus 100 bps or so, but I call that in the noise. So you really isolate them to Field Systems where there's a spread between the two. And in that respect, you can see it in the numbers when with the revenue in the business, well, being $454 million in the quarter, or sorry, excuse me, $379 million in the quarter, and you see the ARR at $409 million. So over $1.5 billion for the year of revenues. In other words, it's a smaller portion of the segment. It's in the mid-20s ARR as a percent of total revenue.

So we continue to drive conversions in Field Systems, both software conversions because that's where you see the perpetual software that we have in Field Systems continue to drive those conversions to recurring, but also importantly, the hardware aspects of the business. And we're talking about 150 bps or so of headwind in field systems through the conversions, and we continue to expect to see that into 2026. And I think we'll be talking about the same thing in 2027 and we're, for sure, going to stay the course.

Got it. And then just in terms of Agentic AI, I just wanted to ask more broadly, whether you see sort of stronger adoption in your base in 2026, does this maybe look like a turning point? And how does your margin structure look like for sort of Agentic AI revenue relative to SaaS revenue?

I think the strategic adoption in our customer base in 2026 for sure, correlate to the rollout we have of Agentic AI capabilities. And I think you're going to see a lot more from us and in 2026. So much of what we've been doing, call it, the last 18 months, I'd call it more of the infrastructure building and beta applications out. And as Phil mentioned, an AI capability a few minutes ago.

So we have capabilities in the market, but actually not a lot relative to what's in the pipeline for us. So what you're going to see us releasing this year, we expect to turn into adoption in the customer base.

And building on Phil's earlier comments on the monetization we're going to expect to see more consumption in that we also monetize through the tiers, the tiered offerings and good best tiers and so we've put AI capabilities and those best of the tiers. We want to [ incent ] and motivate adoption at that level. So there's a hybrid of where it's both recurring and consumption. And we're still learning here how to get that mix rate.

Relative to the margins and saving incremental margins, of course, AI, Agentic AI, Generative AI does have a variable cost associated with it. It's not for free. So the unit economics are, of course, different in the forward and AI for growth, which, by the way, we think is something that favors the position that we have as a company and having capabilities like within Transporeon, it was already a consumption model. 60% of that revenue through Transporeon is consumption, 40% is subscription. This is a muscle that we already have in the company. So we're not starting from scratch and having to learn how to do consumption.

So again, just to summarize a mix of within the subscriptions as well as consumption.

Our next question comes from Nay Soe Naing with Berenberg.

The first one I have was around the Agentic AI rollout coming through later this year. Pretty excited about them, looking forward to them. I'm just wondering, are there any particular areas of the software portfolio that you were focused on these AI agents between AECO and P&L and then even within AECO, which stage of the life cycle -- consumption life cycle that you would look to focus on?

Thanks for the question. Yes, I think you're going to see more coming out from us in 2026. You hit it correctly with an AECO and transportation and logistics. If we think about the life cycle or the parts of AECO where you might expect to see more or less coming from us, actually, it's across the board is the punch line. I really wouldn't say it's concentrated in any one part of the business. And I'd say pretty similar within transportation and logistics. There are so many opportunities we see where to apply the technology and the capabilities.

And so I think you're going to hear pretty broad applications from us. And in many respects, I just think of AI as that force multiplier. It's an extension. It's a natural extension of what we're already doing to help our customers deliver the work better, faster, safer, cheaper and greener. So it's really just embedding it so much into the work that we already have and to accelerate outcomes for our customers.

And by the way, that's very customer-facing. I should also say, internally, we have an enormous amount of work on as well to help us optimize our own internal operations, whether that's in R&D, whether that's in customer service and customer support, whether that's in driving marketing workflows to enable the sellers to grow the pipeline that we give to them. So internal, external facing use is pretty broad-based.

Got it. That's really helpful. And my second question is also kind of related to AI. I was wondering if you could share with us technology infrastructure readiness for these AI features, like similar to the investments that you've made in your technology stack to be cloud-ready, the investment you made in the last few years. Would you need to do a similar level of investment in your technology to be AI ready going forward? Or are you already quite there?

I think we're already on a path with the technology readiness we're going to continue to invest in that. And inside the guide that we put forward and the operating leverage is we've left ourselves room to make sure that we're continuing to innovate in the solutions and then within the platform capabilities of Trimble.

I think very good news is we're not just starting on this. We've been investing in the last couple of years, so there's a run rate aspect to this. And a lot of what we've been doing the last couple of years, I would really categorize it more as having built the infrastructure of the wiring, the plumbing, an Agentic platform upon which we can, at a more scalable level, build the actual Agentic workflows.

So there is a good amount of laying of pipe and wire that we've been doing actually really a lot in 2025, much more so than 2024, which is why we believe we're positioned to be able to accelerate releases in 2026.

Our next question comes from Tami Zakaria with JPMorgan.

Thank you so much for taking my questions. I wanted to -- I'm sorry if I missed it, but I wanted to get an update on TC1. Could you remind us it's globally everywhere now and our power solutions in are on it, if not, what's the timeline?

You were breaking up a little bit, but I think I got to gist the question. So TC1 continues to -- Trimble Construction 1 comes to be a strong driver of the growth in the business, both the bookings. We see the majority of the ARR that we have today in AECO is under TC1 agreement, which means it's a commercial framework agreement. We have rolled TC1 out into Europe. I'd say we're still in motion in Asia Pacific, with the rollout of TC1. So there is some more geographic expansion that we'll continue to do, which also gives us confidence and the path forward for the growth in the business.

And so much of what TC1 does is that commercial framework as it eliminates friction from the next level of cross-sell that happened. So under a TC1 frame, you may just be buying one product, you may be buying one or two initially within a prepackaged bundle that we have once you've got that frame agreement in place, you've got months that are termly conditions. So the ability to then come by the next application that we have on Trimble becomes a lot easier, both for the sellers as well as for the customers because of that groundwork that's been late. So it's a very positive aspect of the business and still has a lot of room to run for us to grow.

Our next question comes from Rob Mason with Baird.

Rob, you had already discussed the burden -- model conversion burden you're carrying in the field systems business. But I recall coming into the year as well, we talked about a headwind from just changes in the [ CAD JV ]. But machine control was very strong throughout the year. I'm just curious, was that was a couple of points headwind expected. Was that the actual experience did that play out? And how does that carry or not into this year '26?

Rob, thanks for the question. The short answer is yes, it played out as we expected. I mean it was entirely around software conversions and entirely in addition to like the machine control guidance as a service. By the way, we call it Works plus, and it's what we call it on the customers.

And it's been just as successful actually for more successful than we expected and that drives some of the headwinds to those conversions into the revenue. But there's also something that I'd say, on top to me, which is positive, which is that really is not a headwind. It's incremental with the conversions. And that is when we look at the machine control guidance offering, we see that -- we've seen that 50% of the wins that we get are to new logos. That's an addressable market expansion. And that's not a headwind to the growth because that's incremental business that we're getting. And so that really was also part of the upside that we saw within the ARR growth versus what we had in the year.

So I'm really enthusiastic about where we see these business model conversions, helping us expand both customers and then usage within customers have penetration within those customers. So there's really kind of a double positive embedded in with that.

And then last thing I'll say on when we do these model conversions, it makes it easier to bundle additional hardware and software capabilities together.

So let's say you're a customer doing civil estimating and you want to link that to your ERP, which we also do, and you want to link that to the machines you have it on the field, which we also equip with technology. You make it a lot easier to come in with the bundled offering that can cross between that office in the field. And then it shows up for us and to reporting segments of AECO and field Systems, but of course, from a customer's perspective, it's just Trimble.

That's good insight, Rob. And then, Phil, just your overall margin guidance for I would say, as I expected. When I look across the segments and the expectations there, it looks like more basis points expansion expected in the T&L segment than the other two. You talked about stranded costs earlier. Are those -- is that reflective of getting some of those stranded costs out? And then to the extent, maybe a little color, just not as much margin expansion of field systems there's any investment going on there.

Yes. Thanks, Rob. So yes, we anticipate with the growth in the T&L business that we can continue to put high leverage off of that business to be able to expand. There is an element of the stranded costs, as you're correct, as we entered the year. We expect to get some of that out throughout the year, which will also help with the margins in T&L.

And then overall, at the company level, mentioned this for the '26 guide, we do expect about 50 basis points of expansion at the EBITDA. So as Rob mentioned earlier, what's nice about our financial models, we're able to reinvest in the business for the growth, but also show the margin expansion with the op leverage.

Our next question comes from Guy Hardwick with Barclays.

Just wondering whether you could point to any contribution to ARR or ACV from AI products, whether it's Agentic AI or AI products so far, when there's a reality capture autonomous procurement or anything else? And I have a follow-up.

So we see -- if we take autonomous procurement within transportation, that's probably the one we've talked about the most throughout 2025. It's a discrete stand-alone product that's generating double-digit millions of revenue.

Paul mentioned a release from SketchUp within the architecture business, which is obviously within AECO. The early days, but I mean we did see we launched in the fourth quarter, we could see the new customers we were getting the monthly subscription for that service.

Where I see it more as if we think about -- if we sort of flip the definition and we look at the percent of revenue that's got AI associated with it, now we're talking well over $100 million of business at Trimble that is enabled or something help powered, let's say, by AI features. And I go back to that good, better, best tier that we have of offerings where we're putting more of those AI capabilities.

You mentioned reality capture, which is largely within the Field Systems business. We're very bullish about that capability because what a surveyor is fundamentally doing is creating a digital model of the physical earth. There's an extraordinary amount of data that's collected by surveyors. And they're not collecting data for the sake of collecting data. They need to turn it into actionable information to turn it into actionable information and that pulls that data increasingly to the cloud. And then when you get to the cloud, you want to be able to do automated feature extraction as an example off of that data set, that automated feature extraction is a form of AI, and we're able to sell that capability because of just the raw efficiencies you get through the automation of that processing of these enormous data sets.

And then once you process the enormous data sets and yes, they're AI-enabled, you're now taking that and turning that into the next downstream workflow. And this to me is what -- one of the many things that is so unique about the capability set we have at Trimble to extend that workflow from that field back to the office and then back again to the field.

That's great. Just as a follow-up, Rob, you mentioned a little earlier about the efficiencies of using AI internally. Trimble shown great leverage over R&D and G&A this quarter and the full year. How much do you think AI contributed to that? And maybe just a sense of how much you give us a sense of how much it could contribute in 2026.

I mean if we look down the stack, I would say we do see it up and down. I mean we're -- I'll go -- I'll extend actually the question a bit. And if I look in COGS, we can see in pockets of the business and the AECO case deflection up to 20%. So for our folks who are working on customer support, they're able to spend time working on the higher order problems. I think we get better work out of folks as well as more efficiency out of them.

If we look through R&D, 95% plus of our engineers are using the technology today. And we see double-digit increases in the productivity, which is to say we're getting more development done and that development takes the form both of, let's call it, features that are customer-facing features as well as the underlying plumbing to -- because it's a lot of work to make sure we're able to connect the data and have the right data taxonomies and investing back in to cyber and all the wiring we need to do to be able to deliver the connected workflows.

And we look through sales and marketing we've recorded all our sellers' calls, and we're able to apply AI on top of that to be able to provide feedback and coaching to level up help level up the sellers and marketing AI run across the data sets we have to find and create pipeline for those sellers with an upgraded marketing technology stack that we released in 2025. That's an AECO comment when I say that.

And then at a G&A level, I would say, we expect a lot more to come in the next couple of years. out of where we can unlock more efficiencies. We continue to invest. So while we're getting efficiencies, we're also continuing to invest. When we look at the bookings growth we have, which obviously say translates into the ARR growth we have, and we think about it from a lifetime value of our customer acquisition costs, that tells us to keep investing in the business, and we've got the degrees of freedom to make sure that we're building the AI platform where our customers want to come and do their work.

We both -- yes, we think about playing offense as well as defense super aware of a competitive landscape. And we see a lot of strength and confidence in what we do, but we're also humble to make sure that we continue to invest and grow and improve ourselves.

Our next question comes from Kristen Owen with Oppenheimer.

Just a simple one here. You did guide to significant growth in your free cash flow generation in 2026. And even when we take out that cash tax payment, can you just contextualize the free cash flow growth for us. And then given what's happened in the vertical as space year-to-date, how you're thinking about deploying that cash?

Kristen, this is Phil. Yes. So there's a couple of elements. It obviously starts with the profit growth for the year. from the free cash flow. And then we -- you mentioned the benefit, we -- not a benefit, but we don't have the headwind or the usage for the taxes this year.

On the other side, we do get additional benefits from the repeal of the $174 million. And so there's a little bit of less cash taxes that we have to pay that also helps with that number in 2026.

And then your second question as far as the use of cash, yes, I think I'll start with a higher level of our capital allocation, how we think about that. And that's really looking at the highest returns for our shareholders. And the different elements or certainly, we look at repurchases, we look at M&A after we reinvest in the company. So we've talked about that via the T&L. So as we think about '26 going forward, I would be looking at for uses of cash, either repurchases or M&A, largely.

This concludes today's call. Thank you for attending. You may now disconnect.

Good morning. We're going to go ahead and get started. I'm Rob Mason, Senior Analyst here that covers Advanced Industrial Technology. That does include Trimble, which we're very glad to have here.

So Phil Sawarynski, CFO with us. Phil is going to open with a few comments, and then we'll go right to Q&A. So I'll hand it off to you, Phil.

All right. Well, thanks, Rob. Good to be back here. I think, this is my second or third year in a row. So I'll talk a little bit, give you an overview, forward-looking statements. You've seen those before.

Let me start with a quick overview of Trimble. Some of you may be familiar with Trimble, but let me just give a quick backdrop. So what do we do? So Trimble are -- what we do is we transform, we talk about transforming the way the world works and what does that mean? Well, we offer products and services in order to provide higher ROI to customers. When we think about ROI, we talk about safer, cheaper, greener.

So safer, how can you run your operations in a better way to be safer. Cheaper? How can you be more efficient in your operations and what you do. Greener sustainability, we think about doing things right the first time you go through and so that saves greenhouse gas emissions, saves emissions.

So talking a little bit about our history because we have been on a bit of a transformative journey. When I started with the company 16 years ago, we're a very product-focused company. We did a lot of acquisitions. We had best-in-class products. Over the years, we've transformed ourselves and particularly probably in the last 5 years, when we started with our Connect and Scale strategy. So we saw -- we had a significant amount of depth and breadth of products in the industries that we serve.

And when we listen to our customers, what do they really want for us? Well, they want to bring together the workflows, the data, the stakeholders within these large industrial segments that we're in. And so, we started on this journey about 5 years ago, where we talk about Connect and Scale.

So Connect, again, connecting the workflows, the data, the stakeholders on our platforms. Scale, how do we scale as a company as far as Trimble and so we're doing a lot of work in the digital infrastructure in the -- in our own world to be able to better serve our customers by seeing, who the customers are, what they're buying for us, which will enable cross-sell and upsell opportunities, but also lowering the friction as we think about our customers.

In the past, when you have multiple salespeople selling multiple products into a customer, well, they want to deal with 1 Trimble. And so we've been on a journey, and particularly in our AECO business being the tip of the spear that I'll talk about in a second, where we've made a lot of transformations in order to be able to better serve our customers.

The other thing we've done is transforming and simplifying the company. So we've made some portfolio moves over the past few years. We divested our ag business. We divested our mobility business in transportation. Prior to that, we had a series of businesses within Trimble that we divested as well. So we've really changed the makeup and the profile of the company as well.

And so, the slide that you see up here, if I start on the left-hand side, this is the makeup so basically 3 segments that we report: transportation logistics, field systems, which is are -- has -- the bulk of the hardware is in our field systems business, but that business is still greater than 50% software services and recurring.

AECO, which is largely construction software. And so those are the segments, and I think we've simplified and clarified a little bit of the story over time with the way we report now. The geography, you can see there heavily into North America. Some of that is because of the divestiture, our ag business had a bigger presence in Europe, and so some of that's just a manifestation of that. But really, I'd like to see the revenue by type.

On the right-hand side, we're now 65% recurring. And the business is almost 80% software services and recurring at the company level. So we've really transformed the company over the years. So how do we think about our value-creation algorithm. And so first, we start with the strategy being in the right industries. We serve large global industries that are under penetrated in technology.

At Investor Day, late last year, we talked about the addressable market at a company level, $72 billion of addressable market that's only 25% penetrated. In our AECO, which is our construction software business, just under $50 billion of addressable market that's only 20% penetrated. So we see the opportunity to grow in these markets and penetrating more as we think about global solutions.

So the right strategy and the right markets. We talk about the business model. So in the business model, we're now high gross margin software growing faster than our hardware. We talked about our operating leverage over the longer term being in the 30% to 40%. So that high gross margin translating into op margin expansion. Capital allocation is really around an ROI framework. Where do we believe we have the highest ROI?

Well, that starts with investing back into the business and our organic growth, whether it's go-to-market or innovation, and we see the highest value stream of revenue being the recurring revenues to the ARR. So to the extent that we can find opportunities, whether it's go-to-market or in the innovation to put the money back into the business, to continue to grow at the rates that we have been and what we put out in Investor Day, we see that as a first opportunity.

We also look inorganic. So we've been running a tuck-in play. So we're buying small businesses integrate them quickly. We get a high ROI from those businesses that give us more capabilities for our sellers to go cross-sell and upsell to the existing customer base. We talked about at Investor Day, I mentioned 1/3 of our free cash flow over the long term is going back to shareholders via share buybacks. So returning capital back to the shareholders.

So when you put that all together, and we think about the -- we look at ourselves as a compounder, where over time, we can see EPS growth in that low to mid-teens. So these are a little bit more of the quant of how we've transformed ourselves over the years. So with the latest guidance, you see ARR just under $2.5 billion at the company level. Revenue in a -- just short of $3.6 billion.

But what's really interesting to me and really shows the transformation between 2019 and today as we used to be 1/3 recurring revenue, and now we're almost 2/3 of recurring revenue. When I look at the gross margins, over 70% now at the company level. And the EBITDA coming out of this year from a guidance standpoint is almost 29%. So 600 basis points of growth in the EBITDA. Negative net working capital or an asset-light business.

So we continue to transform the business as we go forward and continue to execute on our connected sales strategy and look to deliver the results as we go forward. So I'll stop there because I know you have questions.

Perfect. Perfect. Again, if you have any questions, send those up to us, and we'll work them in. Phil, this business model transformation has been pretty profound. You can see the kind of the scoreboard there on a number of metrics. But I'm curious, particularly as the amount of recurring revenue has gone up, the level of visibility inside the business is going to -- how has that changed the way that you manage the business for the long term in terms of how you think about strategic growth investments, bets you're willing to make, just maybe relate if any, there's been any change there. It seemingly there would be, but I'm just...

Yes, it's a great question, and we really like the ARR business. That gives us a lot of visibility over at least the next couple of quarters, if not longer and the revenues that will be coming in. We know the margins related to that. So that allows us to figure out now where we can make those investments on the OpEx. So I mentioned the go-to-market. So is it more for you on the street? Is it building the pipeline by spending more marketing -- on marketing and innovation.

So I'm sure we'll talk about AI. But where do we put the money into innovation because -- now what we think about is, obviously, the long-term model. We want to continue to drive that ARR growth. And as I mentioned, I think that's the highest value revenue stream that we can provide that delivers shareholder value.

And so that gives us a lot more predictability about what we can spend now in order to be able to deliver the future numbers.

Well, maybe we'll just dive right into AI then. I'm not going to put you on the defensive first, but let's go ahead and tackle the question. Maybe I don't know if this being end up in an industrial conference, if there's as much appreciation for the debate that's out there. But certainly in the software world, there's questions around what AI could mean for some software businesses, disintermediation and the like.

And my first reaction when I think of that in the context of Trimble to step back and think about the 2 verticals you address, construction, transportation, frankly, not on the cutting edge of adoption of technology that's the opportunity that you've leveraged. But how do you respond to that debate? How do you see that, the merits of any of those arguments?

Yes. So I like where we sit. We've been in these spaces for a long time. So when I think about AI, it's really an extension of what we've already been doing. This isn't like a new initiative for us. It's taking what we already have and actually making it better from a customer standpoint. These industries that we're in, as you said, they haven't been digitized. And so we continue to innovate to create attractive sort of applications to allow our customers to get better. But they're large -- they're complex industries as well.

I think the domain knowledge is something that is maybe under appreciated, if you just think generically around AI, you've got to understand how customers are using products, what those workflows look like and then be able to, in the case of us being able to create agents, for example, they can look at private data, but also public data and be able to train those agents to deliver meaningful insights and results for our customers. They want to be more -- I mentioned the faster, greener, cheaper say, for sort of mantra.

And I think the AI plays into all of it as we think about our customers, but I think we're in a good position to be able to, again, continue to iterate off the things we already have as opposed to thinking about this as sort of a new initiative because we've been doing this for a while. So I think again, the domain knowledge, the -- the fact that we've already been in here with our customers that we can work with them with their private data plus public data to train these agents.

That being said, we're also humbled to this, and we keep an eye out, when I was at the -- or a few years ago, part of my role as we started up a corporate venture fund. And one of the mandates of that was to be able to see the new technology and being plugged into that ecosystem. So we're always watching to look at disruptors. We like our position, but we stay humble.

Yes. And maybe that's most evident has been in your AECO business. You talked about that being further along. The ARR growth there has been high-teens now for over 10 quarters, maybe more than that. But just -- and that's with clearly some choppiness in the construction markets as well. So just kind of talk about your ability to sustain that if construction markets get better, do they stay like they are, which has been somewhat uneven, but just kind of the prospects around that ARR growth in that particular segment.

Yes, it's a good question. One I frequently get. So I always start with talking about the addressable markets. I mentioned it earlier within AECO at Investor Day, we said $49 billion of addressable market, that's only 20% penetrated. So to me, that gives us a lot of opportunity to grow, and it's about execution, a lot of things we're doing to be able to tap into that market with some of the digital things that I talked about is how do we get a better view of our customers, the 360 understand what products they're using, what they should be using, be able to go after the cross-sell and upsell.

So regarding the cross-sell and the upsell we also talked about within the AECO a billion dollars of opportunity to just sell products to the customers that we have today. And so we see that as a big opportunity for us to continue to grow. So to me, it's around us continuing to execute in the market, and that's the opportunity we have to continue to grow.

Yes. Just around that incremental $1 billion on the cross-sell, upsell within AECO. What kind of regionally you're in different phases of how your commercial approach has evolved, kind of update us on where that stands, where it's more mature, where there's still you're still ramping some of the commercial actions and that's obviously having some impact on the cross-sell, upsell, I would imagine.

Yes. And it is because you have to be able to, again, unlock. So part of our strategy and what we're doing is creating a single framework contract for our customers. And what that allows them to do, whether they buy 1 product, 2 product, we have natural bundles that we come out of the gate with that makes sense for those customers. But they can start with 1 product and then if they want to add to other products, we make it easy and this is, again, reducing the friction to be able to sell to those customers.

So as far as stages, let me talk. So company-wide, AECO in North America was where we really started and we did that intentionally. That was the biggest opportunity for us, where we had more depth and breadth of product to be able to run that playbook. So we started there within AECO, we're rolling out to -- we've rolled out a lot of products into Europe and now into APAC. So we're continuing to roll out that go-to-market strategy around the framework contracts and the infrastructure and creating the personas to be able to do the cross-sell and upsell. There's still more products to go.

And as you can imagine, it's not just a single big bag once you roll that out, you're done. There's a lot of other things we want to continue to do enhancements. We're working on things like more -- a better digital marketing experience around how we can more personalize campaigns to our customers. We look at e-commerce, we're doing a lot of work on that to be able to allow customers to buy on their own and to self-serve.

So there's still more work to do around AECO. And then if I up level to the company, really, there's work to do in our field systems. I mentioned 50% software services occurring. That's a little bit different go-to-market. It typically goes through a dealer channel. And so we're updating systems there to be able to do a little bit more of the cross-selling within the field systems. But certainly, we're doing more conversions. And so, we want to be able to manage those subscriptions and have customers to be able to manage their subscriptions easier.

And then I think about transportation and logistics, it looks more similar to AECO. And so, that is another one, where we're going to continue to roll out the tools to be able to tap into the $400 million of cross-sell and upsell that we identified within the transportation and logistics segment. So the point is this is going to be a multiyear journey, but it's also going to be a continuous journey as I think about it.

Yes. And earlier this year, I know you talked about having good success with small or medium-sized enterprises, particularly as maybe larger enterprises, their decision-making with all the noise in the macro more elongated. So pivoting there. How are you set up to really attack that type of customer from a commercial standpoint, from a product portfolio standpoint? Does it translate just as well as it does with larger enterprises at current time?

Yes. So you're right. We have seen really good success around the SMB, small medium businesses and we do think that our products are applicable and -- but the start point may be a little bit different based on the price point and the affordability. So for example, one of the things that we came out with almost a year ago or dimensions, I think exactly a year ago, is what we call our project site, which is our project management software, and we came out with a free version of that. And what that does is we wanted to get people that were maybe using spreadsheets or basic tools to be able to manage their projects, to be able to use something that's more bespoke and makes sense for the industries that they're in, in construction.

And so that was 1 to be able to reduce, let's say, the economic barrier, get them used to the technology and then there's a path basically, there's a limitation. It's kind of a try it before you buy it, where then you can buy into a version that's monetized. But we also look at it as an opportunity to add new accounts that we can run a cross-sell and upsell playbook with other products.

And again, this goes back to the persona as when we look at who you are and the size of your business and what products you should be using, what the affordability factor is, and then we create a motion within the sales teams to be able to go and address that market and bring things to you as a customer that resonate with you and make sense from how you run your business and affordability.

Okay. Just you mentioned field systems, the other major segment of your business a minute ago. But that's a business that certainly performed well in the third quarter be planned and grew, I think, 8%, again, above plan.

Just kind of talk about what drove the strength there because that's also -- does have a little more product-centric, more hardware there. But it sounds like that's those products have been seeing good uptake in civil construction, in particular, concerns on government funding, again, not apparent in that business. So maybe just kind of walk us through the dynamics in field systems right now.

Yes, good call out. So the civil construction has been performing really well in that segment. And there's a couple of things that we're doing within civil construction. So I think 1 is the execution is there. So just a big kudos to the team for being able to execute in the marketplace. We made some changes as normal with our JV with Caterpillar.

And within that, what we're really focused on is the customer and the customer particularly that has a mixed fleet that wants to standardize in Trimble technology. And so one of the things we've done is we've -- we're now signing up and working with dealers from other logos to be able to serve -- better serve those customers that have the mixed fleets and give them more options as far as the ability to buy Trimble technology in the aftermarket.

So the team has done a really good job. It's still a relatively small part of the business. So I don't want to make it seem like a big part of that inflection was because of it. But it's something strategically that we really like and we see the team executing on. The other thing I'd call out just over on the field Systems business, we had 18% ARR growth and it's a significant number now within the Field Systems segment. And so the team has been performing really well from those.

Now some of it is -- I put it into 3 categories. 1 is just the performance and growing the existing subscription base in the ARR business. Some of it are -- we're coming out with more and more products that are just out of the box subscription. So there's less of that conversion and transformation that we have to do. But we're also intentionally putting products in there, their subscription that are embedded with some of our hardware products in order to be able to create renewal rates in the future.

So there are some things there that we did intentionally that are helping to grow that. And we expect that to moderate over the years as we start to lap ourselves, but the business has really performed well from the conversion standpoint and the ARR growth as well.

Just given that, that is more kind of construction project focus data centers, of course, have been a strong area. Just maybe talk about the pockets of strength and/or weakness within what you're seeing across construction broadly?

Yes. Well, the good news is one of the things we really look at is the project backlog, which is still -- it was still healthy overall. So -- and of course, data centers and a lot of the money that's behind that is going to be a tailwind. There's infrastructure behind that as you think about energy that has to support that. The IIJA, there's still a lot of money. I think the last I saw in August numbers were somewhere in the 40% range has been outlaid. So there's still money to be sent there. There's obviously -- in Europe, there's been infrastructure bills being passed, which we would think would be a tailwind for us.

The macro uncertainty is one that it's a tough one with the just the trade talks with geopolitical items, and it's less directly impactful for us. We mentioned on our earnings call that we were pretty bearish going into the year. So we sell to the government, by the way, still in field systems, the U.S. government. And that -- we weren't very, again, bullish on that number for this year. We anticipate with the administration change that was going to be a low number.

So the good thing is it's not -- there's not much really baked into the forecast. We said low single-digit millions in the back half of the year. But the bigger impact is really the sentiment on our customers and the uncertainty.

And so we're -- to the extent that we can see more stabilized markets, I could see that being a bit of a help, but maybe not necessarily, where we're at today because I think it's a little bit better than where we started the year. But it could easily go the other way. I think is my point is that's where things we could see some customers being a little bit reluctant, particularly on the capital.

I think it's less around the ARR business, but more around that hardware, which is more book and burn type business, if there was just a little bit of a retraction, that could be a bit of a headwind.

Yes. You mentioned kind of the machine control focus, again, trying to get after that mixed fleet that can be often an aftermarket type fit, but there's -- there is an OEM opportunity, I guess, there. I mean we're seeing maybe signs that there could be some uplift in construction equipment as you look out. Is that -- how would you -- would that be a needle mover for Trimble in that regard, I guess?

Yes, I'd say net-net, if there's more -- if there's more machine sales, that's just more of a upbuilds more of an opportunity for us as we think of the aftermarket. But we mentioned Vermeer apparel driving we're doing -- applying our technology to other -- with other OEMs versus maybe you think about traditional earthmoving equipment. So -- we've always done that, and I think we've always been partnering and whether it was in our ag business or in our construction business, we've always wanted to serve the mixed fleet and want them to standardize on the Trimble technology regardless of what color of equipment they end up buying.

And again, a big thing of what we're doing with the Trimble technology outlets that we're coming out with which are some of the other branded dealer channel that we're just trying to lower the friction and be able to make it a lot easier for our customers to have those mixed fleets to be able to access the Trimble equipment and standardize on the Trimble technology.

Your Connect and Scale effort has been kind of the underpinnings of a lot of this transformation that's happened. You're multiple years in now. But -- it sounds like you still see a lot of runway to make investments and fully leverage this as we think about maybe over the next year or so, what would be some of the priority areas where you might apply more investment.

Again, I think with the gross margin expansion that you've had that just makes that decision tilt more in the favor of towards more investment to go after that growth because it converts so well. But just where would be some of the priorities?

Yes. As we go through our planning process, one of the things we always talk about is where are these opportunities to maintain and sustain the growth that we already have and how do we shore that up and if nothing else increase the confidence.

And then we also talk about incremental investments to say, can we actually -- are there opportunities for us to grow faster at a higher pace. So we're always having those discussions as we think about the capital allocation and the highest ROI. And we believe, again, that, that ARR revenue stream is the highest ROI for us.

And so, when we see those opportunities, we will continue to invest in that. And I mentioned before, the go-to-market the innovation, primarily the AI and putting money into that. So you really think about this, right, as a long-term investment and setting ourselves up. For that long term on the growth.

The other side of things is we talk about a lot of the infrastructure is we want to be able to also -- we're doing some work in investments on the actual infrastructure and how we operate internally, because as we continue to grow the top line, we want to be able to scale internally to be able to support that. So that's probably a bit of an unseen part of the investments, but it's something, as we think long term, to really set ourselves up with -- as we continue to grow the revenue that we're not growing our G&A, for example, at the same pace.

Where have you found opportunities to apply AI to your own operations internally just along those lines?

That's a good question. Maybe I'll put it into sort of 3 buckets. There's an obvious, let's call it, let's say, a discrete one, which is we use -- our coders they'll use software, basically to auto generate code. And I think over 90% of our software developers are using some tool to be able to do that. I think about -- I'll put another bucket, it's like more general. And I use myself as an example. I'm able to bring in a lot of materials around the company. As you can imagine, there's a lot, but I can synthesize that very quickly using AI tools to be able to summarize documents or actually even search internally to find information. So I can get to things a lot faster. And what does that do? That allows me to actually spend more time on more strategic decisions or even driving more tactical execution opportunities.

So I see that around the company, where maybe people are getting more efficient, it's a little bit less tangible to measure that efficiency because it's more anecdotal. But you can see it in so many different places in the company. And then I say there is the other thing that we're looking at is -- I think about our third-party vendors or our software is who's actually -- who's making the investments in their software. And so -- we recently hired a new CIO, and one of the things he's looking at is sort of our whole vendor and where our third-party purchases.

And where are those opportunities, who actually can deliver more ROI for us. So should we be using the same vendor should we be using another vendor, that's actually embedding the agents and the AI into their technology where we can actually take advantage of it.

And so that's another initiative that we're looking at. And I just draw the parallels to how Trimble actually sells to our customers and the efficiency and the productivity, and we look at that our vendor base as well.

Yes. maybe in the little bit of time we have left, just touch on priorities for capital allocation. It's been a heavy buyback year, but it seems you had some excess cash and that's where it went. But as we think on a go-forward basis, the free cash flow profile of this business is quite attractive. How do you plan to manage that or distribute that?

Yes. So I think what you're referring to is we had -- when we sold the ag business, we had significant proceeds from that, and we committed to doing -- we paid off debt and then the remainder was used for share buybacks. So that was the big amount at the beginning of the year.

As we go forward, I mentioned 1/3 of the free cash flow going back to shareholders via share repurchases. But if I think about the decision-making on the capital allocation from a balance sheet, the first is using the cash to reinvest in the business on the organic growth. And then beyond that, we look at inorganic opportunities. And so we've been running this tuck-in play, where we -- again, it's not a big capital outlay, but we can do a lot more frequency and the added capabilities put that in the hands of the sellers, create some cross-sell and upsell opportunities within that. We've been running that. We really like that playbook.

And then I think about are there bigger opportunities within inorganic and we'd be tend to be focused on the construction software. It will be similar, if we did something larger, and look at something like a viewpoint, which is -- a customer base a sticky product that we can again run the cross-sell and upsell opportunities for something like that.

And then again, at any given time, we look at it through an ROI lens, and do we pivot more toward share repurchases or some other opportunity, but where is the highest ROI that we can provide for our shareholders.

Perfect. We'll pull up there. We're out of time. There is a breakout session upstairs in the Chestnut room. So, if you have any questions, follow up.

Thank you for standing by. My name is Bagley, and I will be your conference operator today. At this time, I would like to welcome everyone to the Trimble Third Quarter 2025 Financial Results Conference Call. [Operator Instructions] I would now like to turn the call over to Rob Painter, President and CEO. You may begin.

Welcome, everyone. Before I get started, our presentation and safe harbor statements are available on our website. Our financial review will focus on year-over-year non-GAAP performance metrics on an organic basis. In addition, we will focus on adjusted numbers that we believe more accurately portray the underlying performance of our business.

This means we will exclude the divested agriculture and mobility businesses as well as the 53rd week of fiscal 2024. As reported numbers, along with the reconciliation are provided in the appendix of our slide presentation. Okay, let's get to it.

Our third quarter results delivered a top and bottom line beat, and we are once again raising guidance for the year. The story of Trimble this year can be summarized in 3 words: clarity, durability and momentum. That message continues today, driven by the purposeful execution of our Connect & Scale strategy. Our strategy continues to guide our own transformation, delivering transformative outcomes to our global customers and positioning us well to deliver on our 2027 financial commitments.

We're also carrying this momentum forward with the Trimble brand. Earlier this year, we launched our NASCAR partnership with RFK Racing. And last week, we announced our partnership with Liverpool Football Club. This isn't just a sponsorship. LFC will employ Trimble technology and the design and construction of its world-class infrastructure. That's connect and scale in action.

Turning to Slide 5. The numbers clearly reflect our execution. We delivered $901 million in revenue in the quarter, up 11% and -- our ARR grew 15% to $2.31 billion with a notable 17% increase in our AECO segment. EPS of $0.81 was up 16% year-over-year and higher still on an organic basis. The structural quality of our model is self-evident. Recurring revenue accounted for 63% of third quarter revenue and software and services for 78% of our total.

As you will see from the results in skilled systems, the physical solutions of Trimble are uniquely empowering workflows by connecting the work between the office and the field with rich mission-critical data sets. Before turning to the segments, I want to briefly address 3 topics we've heard many of you asking about over the last few weeks. First, the impact of the U.S. federal government shutdown.

We correctly anticipated lower government revenue early in the year and have been able to contain the impact on the business, which we previously quantified as single-digit millions in the back half of 2025. The second topic is the impact of AI on vertical software. In short, we see a net opportunity. We believe we are uniquely positioned to capitalize on this transformation for 3 key reasons: First, AI as a logical extension of Connect and scale, not a separate initiative.

We've been working with AI for years, and we are already connecting physical and digital solutions, workflows and ecosystems. We believe AI will be adopted inside industry platforms like ours as a natural extension of the data coming out of the mission-critical systems we build today. We're not chasing a new market. We're leveraging our core assets.

Second, our industries are inherently difficult to disrupt. We operate in physical industries like construction and transportation, and they're fragmented and complex. This requires deep domain expertise, extensive go-to-market capabilities and a trusted partner that can bridge the office in the field. The unique corpus of data that flows through our ecosystems each and every day, combined with our deep industry relationships, creates a powerful competitive moat that a new pure-play AI company cannot easily replicate.

Third, we are already executing on this opportunity. We remain humble to the potential for disruption and are hard at work integrating AI across our business. We're using it to drive internal efficiencies and accelerate our product innovation. We view AI as a powerful tool to enhance our value proposition and extend our leadership. Expect us to drive productivity over time.

The third topic is the strong demand for AI data centers. Many of our customers have significant global backlogs and continue to invest to service them with an emphasis on speed of delivery. This is clearly reflected in our ACV bookings performance. We have the benefit of serving a diversity of end markets, infrastructure, residential, energy, commercial, onshoring and reshoring of manufacturing and more.

Our business is resilient because we are not dependent on any single project type contractor profile or end market. Okay. Let's turn to the segments, starting with AECO. The team delivered another outstanding quarter. ARR at $1.42 billion and revenue at $358 million were both up 17%. Our ACV bookings remained strong and in line with our long-term model, and we continue to see strong engagement and expansion with our core commercial customer base with net retention, excluding SketchUp at approximately 110%.

Market feedback continues to validate our value proposition to connect workflows and integrate ecosystems to address higher order problems, create connected data environment and facilitate multisided marketplace business models. In the quarter, we launched SketchUp 2026, which is now enabling real-time viewing, which in turn enhances collaboration and usage. We launched ProjectSight, which is our AI-enabled project management solution into Europe and Australia. Our unique Trimble workflows are linking design and reality capture, they're linking scan to BIM and digitizing site layout, delivering step function levels of quality and productivity to our customers.

In October, we held a user conference with our owner and public sector customers, showcasing our latest innovations in our suite of asset life cycle management solutions. We sit in a unique spot to help asset owners digitize their capital program management as well as their permitting and operational asset management needs. This digitization enables us to provide AI-driven insights that solve real problems.

Moving to Field Systems. The business outperformed in the quarter, with particular strength again in civil construction. Kudos to the team. This is the industrial IoT of our business, our data collection node in the physical world. Revenue at $409 million was up 8%. ARR at $386 million was up 18% driven by strength across our geospatial and civil solutions.

At a product and workflow level, an example of our continued mix fleet innovation comes from our announcement with Premier and their pile drivers. The solution we enable automatically move the physical machine to the precise location of a pile according to the digital project plan, then optimizes the depth of the pile with minimal operator input. The system allows one operator to complete the task of driving piles, which otherwise would be a 2- or 3-person job.

Productivity and quality. That's Trimble at work. Our latest AI innovations are now offering automated point cloud classification and inspection analysis tools to quality control as built construction. In addition, we continue to expand our points of distribution to help better drive adoption of technology in the market. In September, we held our first Trimble Dimensions in Australia, enabling us to showcase our innovations to almost 1,000 attendees in Brisbane.

Next week, we are excited to be back in Las Vegas to host our flagship Trimble Dimensions user conference for all our AECO and field systems customers, where we will showcase new workflow solutions along with our latest AI innovations. The reach of this business into the physical world is near ubiquitous, the sampling of customers and projects won in the quarter spans the globe, rail projects in Japan, airports in Quebec and Colorado, transportation authorities in Norway, Paris and the U.S. State Department of Transportation, survey agencies in Thailand and Saudi Arabia as well as wins with automotive and autonomous mining OEMs.

Moving to transportation. ARR at $501 million was up 7%, delivering profitable growth in a challenged freight market. In September, we held our European user conference in Amsterdam, an inspiring Forum with representation from some of the largest and most important companies in the world in attendance. Many of them were new customers.

At the end of this month, we'll be in New Orleans for our North American User Conference. To give a sense of connect and scale and action here, we start with critical customer problems, network optimization, empty miles, driver retention, maintenance and fuel management. Our ecosystem strategy enables interoperability to help companies achieve a more holistic view of their supply chain, leading to better planning and execution.

This breadth of data enables AI to learn and forecast future processes, enabling predictive analytics for demand, capacity and potential disruptions. As an example of the strategy in action, we announced and launched our freight marketplace offering with Procter & Gamble as our anchor shipper customer. We are building the next generation of an intelligent and responsive supply chain.

With that, I'll hand it over to Phil to walk us through more of the numbers, including our updated full year guidance.

Thanks, Rob. Let me start with some comments regarding capital allocation. During the third quarter, we repurchased $50 million worth of shares, a direct reflection of our confidence in the long-term value of our business and our commitment to delivering shareholder returns.

This leaves approximately $273 million under our current repurchase authorization. Longer term, we continue to expect at least 1/3 of our free cash flow to be used for repurchasing shares. Our M&A strategy remains focused on strengthening our core market positions. We look for opportunities in high-growth areas such as construction software with a particular emphasis on tuck-in acquisitions, smaller strategic purchases that integrate quickly and enhance our existing platforms to deliver a rapid return on investment.

Let's review the third quarter of 2025, starting on Slide 6. Organic revenue growth at 11% exceeded the high end of our outlook, driven by the strength of AECO Anfield systems with transportation and logistics continuing to grow in a challenging freight market. ARR was in line with the top end of our outlook at 15% to another record of $2.31 billion. The consistent growth in our recurring revenue base provides a predictable and resilient foundation for our business.

Gross margins expanded 90 basis points to 71.2%, showcasing our continued model progression. We achieved EBITDA margins of 29.9%, which is a 160 basis points expansion year-over-year. Reported earnings per share was $0.81 for the quarter, $0.10 better than the midpoint of our guidance and $0.06 above the high end of our guidance.

Moving to the balance sheet and cash flow items on Slide 7. Our year-to-date reported free cash flow remains strong at $206 million when considering the $277 million cash tax payment paid in the second quarter, which was related to the agriculture divestiture. Our balance sheet is a source of strength and financial flexibility with $233 million of cash and a leverage ratio of 1.2x, which is well below our long-term target rate of 2.5x.

Moving to a segment review of the numbers before we close with guidance and starting with AECO on Slide 8. AECO delivered a record $1.42 billion of ARR posting 17% ARR and revenue growth for the quarter. Operating income at 31.8% increased 270 basis points year-over-year. This business continues to operate well above the Rule of 40, reflecting a balance of high growth and profitability.

Next, Field Systems on Slide 9. Revenue was up 8% in the third quarter despite approximately 150 basis points of model conversion headwinds. The segment posted another strong quarter of ARR growth at 18% where we continue to successfully execute our business model conversions and deliver and expand capabilities that are subscription-based.

Field Systems operating income at 33.4% increased 40 basis points driven by a greater mix of higher-margin recurring revenue. Finally, transportation and logistics on Slide 10. The segment delivered revenue growth of 4% and ARR growth of 7%. We continue to make excellent progress on our connected scale strategy, which will unlock a cross-sell and upsell opportunity we size at approximately $400 million within this segment.

Operating margins expanded 10 basis points year-over-year to 25.8%. Let me turn to guidance on Slide 11. With the strong performance in the third quarter, we are increasing the midpoint of our full year as reported 2025 revenue guidance by $45 million to $3.565 billion. We are also increasing our full year EPS midpoint outlook by $0.10 to $3.08 and are maintaining our organic ARR growth midpoint at 14%.

From a cash flow perspective, we are holding to our full year view to be approximately 1x net income after adjusting for the $277 million cash tax payment related to the sale of the Agriculture business and the approximately $30 million in M&A costs. We continue to expect that we can deliver free cash flow greater than non-GAAP net income over the long term.

Before turning the call back to Rob, I want to connect these results to our long-term vision. Our execution to date in 2025 reinforces our confidence in achieving our fiscal 2027 targets, which we refer to as our 3,4,30 framework. That is $3 billion in ARR, $4 billion in revenue and 30% EBITDA.

An early look at 2026 revenue has us in the mid- to high single-digit range. We look forward to providing more details regarding 2026 in February. Back to you, Rob.

We are committed to ending the year on a high note and positioning ourselves for another year of growth and strategic progression in 2026. This confidence is rooted in our strategy and the conviction of our team. To our colleagues and partners, I thank you for your dedication and results. To our customers, thank you for your confidence in Trimble to the investment community. Thank you for your interest and support. Operator, let's open the line to questions.

[Operator Instructions] Your first question comes from the line of Jason Celino with KeyBanc Capital Markets.

Great. Nice to see the quarter here. I think, Rob, you've addressed it a little bit, but can you maybe talk a little bit more about the government shutdowns impact? I think you said the word contained and you'd already maybe take some impact into the second half, but maybe elaborate a little bit?

Jason, thanks for the question. Yes, the good news is at the beginning of the year, we correctly anticipated that it would be lower to book in the impact we're talking about and quantify it, we're talking single-digit millions in the back half of this year.

So the business, I'd say, all around this has outperformed clearly to contain this and will advertise that we are hoping that the government opens back up here soon.

Yes, absolutely. I think we all are. And then on the AECO side, nice to see the strength, again, would love to get more granularity on some of the strengths. Perhaps maybe you could break it down in the different segments, the AA, the C and the O. And what's driving kind of the confidence to sustain the ARR growth at these levels?

Sure. So if we look at each component of AA, C and the O, each one is over $230 million of ARR now. So strong balance across that portfolio. The C is the largest of the components that we have. I'd say the performance is broad-based and strong and the whole portfolio is growing.

But to go through it in a little more specificity in the quarter, our Been engineering solutions, which really fit mostly in the or the standout performers growth there, strong product and go-to-market execution came together nicely TC1 bundles and cross-sell is a big part of that.

I'd say the second callout is the construction portfolio. We call that construction management solutions internally. The project management solution project site is doing really, really well for us. We took that into Europe actually, specifically in the Benelux in the quarter as well as Australia and New Zealand, and then we'll see that in the fourth quarter rollout further into Europe.

And then the construction aspect is largely the Viewpoint ERP, which continues to perform and grow and have competitive wins and be a really good anchor tenant for our TC1 and cross-sell plays.

Your next question comes from the line of Guy Hardwick with Barclays. .

Thanks for the early look on 2026. I think you said mid- to high single-digit range. And I think consensus is 7%. So that looks solid. But perhaps it's a bit of an unfair question, but how do you feel about 2026 as that's stepping stone to 2027 and the 2027 framework? Do you feel kind of ahead or behind in any sort of metrics?

Guy, it's Phil. Thanks for the question. So I mentioned that the 2027, I think, with the performance to date, we obviously, if nothing else -- and improves our confidence around those numbers. And we're still early, obviously, in 2026. So just previewed that mid- to high single-digit growth rate. But we're going to continue to go through our planning process. We'll give another update obviously with more details next earnings call. .

And just as a follow-up, in terms of the Q4 revenue guide, obviously, it's all ahead. Is there anything going on in terms of incrementals or perhaps incrementals or maybe a little bit lower than I would have expected?

Sorry, Guy, is that on the revenue growth? Or what is -- sorry, what is your...

That's for Q4 guidance in terms of the margins relative to the revenue in terms of the revenue growth.

Guy, this is Rob. I think it's pretty well in line. I think you're following probably the guide on the revenue delta versus the EPS guide if you're looking at the midpoint. We continue to invest in the business. So if we're looking forward into where we want to be with bookings in we like where we sit right now.

So then we can put the pedal on, let's say, the marketing investments in the business, the continued underlying systems and process, work that we're doing, which is part of helping us accelerate the bookings work that we want to get going early in '26. So we get the '26 number so that we get the '27 ARR in line with the 3,4,30 model.

Your next question comes from the line of Jonathan Ho.

Trimble has long been in adopter of AI. And based on your commentary, can you talk a little bit about where your customers are at in terms of their interest in using AI in their everyday workflows? And maybe perhaps remind us of your data moats as well in the space.

Jonathan, Well, on the data moat side, if I start with that, you've heard me reference before trillions, billions of millions and thousands, trillions of [indiscernible] dollars of construction run through Trimble, billions -- tens of billions of freight run through Trimble, millions of users of our software, hundreds of thousands of instruments and machines in the physical world run on Trimble.

That's a unique Corpus data at Trimble, and we think of that in context of connecting users, stakeholders and that data across the industry life cycle continuum. And that enables a progression from optimizing tasks to optimizing systems. So it's a different category of problems we can solve. And in that respect, AI is a force multiplier for what one can do with the data. So the first question you had was around customer adoption of AI and maybe even say, readiness for AI. Is that correct? Is that what you're asking?

Yes.

Yes. As you'd expect, I mean, there's a pretty good differential in the customer base on that given the number of customers we serve. But there's no question from the time I spend in the field around the world and the time with our operators, that is increasingly part of customer conversation I'd say there's a fair amount of it that's curiosity-driven trying to understand how can they actually get more out of their data, really putting in context of the problems they're trying to solve as they need to do their work better, faster, safer, cheaper and greener.

And so how can -- our customers are asking how can they unlock their data, how can AI be a part of accelerating -- being a force multiplier for that. But I'd say like the most progressive customers are really doing some interesting things and really helping show us the way. We're not enamored with AI for the sake of AI, we're enamored with the problems that we can solve through the adoption and application technology.

And in that respect, we see customers who are working with the abilities that we provide for them to do in let's say in construction, natural language design to do auto invoicing, if you're a contractor on the ERP, working to automate RFIs and submittals, driving significant time savings around that. In transportation, the autonomous procurement on autonomous quotation products continue to grow. So I feel like we're very early in the game at the customer level, and I like where we are positioned as a company in terms of the readiness and the work we're doing to help lead our customers and lead the industry.

Perfect. And Phil, just for a quick follow-up. With your 15% ARR growth, can you maybe provide some additional color to unpack the composition of that growth between new customer acquisition, net expansion, pricing, anything that's changed in terms of the composition of that growth over time. .

Thanks, Jonathan. I think it's been pretty consistent, as we talked about, which is about 1/3 new logo, 2/3 within AECO. And that's -- so I think that's been pretty consistent. And the 15% has been consistent with the last couple of quarters as well. So I would say if nothing else treat the word but consistency with the model and what we're seeing.

Your next question comes from the line of Joshua Tilton with Wolfe Research.

This is Arsenije on for Josh. I just wanted to kind of unpack the acceleration in AECO organic ARR really strong going into the back half? And then just as a follow-up question, there's been new partnerships with OEMs, and that is kind of expanding on side of kind of the Caterpillar JV that you guys have been involved with.

Is that getting more eyes on the TC1 suite? And is that getting better existing lands into new logos that you guys haven't really had that access to before?

This is Rob. I'll take the AECO organic growth. One thing I can point out is we're getting better marketing insight in the business. So the systems investments we've been making and process investments we've been making for years continue to pay off, and we continue to roll out functionality.

So the ability for us to get insights into the data we have, let's say, about our customers. When I say about our customers to understand who they are, what are they buying, what other motions can we rerun to reach them. Cross-sell performance continues to do better, and that is absolutely enabled by the underlying processes and systems.

And let me say the team, the people, the execution, they're really raising the bar and achieving that growth and kudos to everyone on that team. Relative to the partnerships, that you referenced, that hits in the field systems arena and there, I'd say, shut out to our civil construction team, in particular, just had an absolutely terrific quarter. They've had a terrific year progress at the product level, progress at the go-to-market level where you're hitting as more of the go-to-market level and at the go-to-market level, there's 2 things to highlight.

Let's see it. One is OEM relationships. So in the quarter, we announced a relationship with Premier on their pile drivers with Kobelco and their 2D earthworks for North America with Hyundai, Trimble Ready applications for dozers in North America. So that's one aspect of reaching the mixed fleet market. The other, which is specifically which you're referencing as we call them Trimble technology outlets. That work is ahead of the plan that we've had.

And really, the core principle we have with our joint venture partner is to reach the market. So we have an absolutely aligned vision to reach the market. For us, that means it's a mixed fleet market. And to reach a mixed fleet market, we need to have relationships with OEMs as well as with those dealers in the world that can help us reach machine types and colors that we weren't previously fully reaching. So really, really good execution from the team. Thanks for the question.

Your next question comes from the line of Na Nang with Brenner.

I have 2, please. The first one is on the subscription transition growth headwinds in your field systems missing units. I think there's a 1.5 percentage point this quarter. About 2 percentage from last quarter, so there's a bit of a deceleration there. I was wondering if you could remind us how long should we expect the growth headwinds to continue?

And kind of linking to your qualitative 2026 guide, that improvement in top line growth compared to '25. Is it as a result of slower growth headwinds in the subscription transition in the field systems? Or is it -- will it come from elsewhere? And I'll wait for the second question if that's okay.

Nay, thanks for the question. Yes, we expect the transitions within Field Systems to continue through the next couple of years through '27, which is what we talked about at Investor Day as far as our anchor year. So expect those to continue throughout the next couple of years.

And then your second question was on the growth. So yes, conversions, we mentioned that. And I think we also start to lap ourselves in 2026 with the solid year that we've so far been putting up this year. On the -- so I think that -- but as I talked about before, if nothing else, we just increased our confidence around the 2027 numbers.

So I was very clear on my question on the growth outlook for '26. Clearly, what you're guiding for '26 will be higher than what you guided to '25 growth profile uplift. Is it coming from any of the particular segments? Is it as a result that we will see slower growth headwinds from the subscription transition? Is that where the growth uplift is coming from?

So we're not actually guiding higher -- '26 higher than '25. If I look at our as adjusted revenue growth for this year, it's about 9%. And so that guide for next year actually is we said the mid- to high single digits. .

Your next question comes from the line of Tami Zakaria with JPMorgan.

I wanted to ask you about the leverage ratio. It's 1.2 turns. Is that the right number? Or would you consider levering up to buy back stock? Or are you waiting for any opportunistic acquisitions. So any thoughts on the leverage ratio as it sits here today at almost at all-time lows.

Tami, thanks for the question. Yes. So as we think about the capital and particularly the balance sheet, obviously, we focus on the highest ROI and we, first and foremost, are investing back in the business to be able to continue to drive the ARR growth. And then as we think about where other places, we talked about M&A and the tuck-ins in particular, we like that play and continue to do that with the main focus within the construction software assets.

We're committed to over 1/3 of our free cash flow going back to the shareholders via the share buybacks. So as we look going forward, we always sort of look across the spectrum of where the best use and the best ROI of our capital is in any given time, and we'll put that to the best use..

Understood. And my next question is on operating margin. So operating margin, you raised the expectation, it seems like -- or it's coming in better than what we thought it would be initially when we started the year. So if you're expecting to grow mid- to high single digit next year from a top line perspective, should we expect similar year-over-year improvement in operating margins? Is there any color on how we should think about that metric?

Yes. Thanks, Tami. So we just put the top line for 2026, the mid- to high single digit as a revenue guide. We'll get into more detail as we think about the EPS and the margins in the earnings call the next time. But we're not going much deeper than at this point into the -- beyond the revenue.

Your next question comes from the line of Kristen Owen with Oppenheimer.

Congratulations on the nice quarter. So Rob, since you kind of opened up the box a little bit here on the discussion of AI disintermediation and SaaS. I'm wondering if you can maybe double-click on that a bit. particularly where you feel like given the diversity of the portfolio, do you have more of a moat against that disintermediation in certain categories? And as you assess the portfolio, are there areas where you do maybe see some vulnerabilities where you need to adjust?

Kristen, thanks for the question. Relative to the moat and let's see, particular strengths and weaknesses. Let me characterize it as follows. In totality, there's patrolling of billions of millions and thousands, which you already referenced, you could call that -- you think of that as the size of the moat where I believe we most strongly compete and differentiate is by connecting our solutions in the field in the office.

That's connecting the hardware and software of Trimble to truly connect the physical and the digital world. And the flywheel of solutions that Trimble moves from the point solution to the bundle to the workflow to ecosystems. And the value delivery, as you move along that flywheel is differential and transformative, right? It's additive as you move through that.

And so through selling, this is one of the reasons I like selling the bundles and the TC1 frameworks and the cross-sell whether it's in transportation or field systems or an ACO is you're changing the nature of how customers are using their technology. And the more value the customers get the technology, the more they're going to stay with you. I mean that's what customer successes.

So the strongest ability we have to compete on the moat is when customers are using multiple solutions, when they're using AI that we're embedding into our technology and also separate from the technology to get more out of what they're buying from us. We do that, and I have a high confidence that we retain the moat, and we grow the business and not only for the net retention, but it's a new logo gain that I believe that we can get.

And of course, there's the unlocking of the $1 billion cross-sell -- excuse me, in construction and $400 million in transportation. I'd say we're whether I call it weakness or whether I call it the humility, I think we absolutely I know we need to stay humble to the market around us. It moves so fast. And there's no question that at the moment, there are start-ups, and there's well funded start-ups.

There's the incumbents in the market. I mean all of us have AI ambitions. So we can't sit still. Like to me, that would be the risk is if we sit still. And we don't have the courage to move in to act. Now good news is I believe we do have the courage to move and to act through this moment. And the last question we had around how are we thinking about op leverage coming into next year is. And one of the reasons we want to be cautious not to get ahead of ourselves on the margin progression is we want to make sure we're investing in this business to unlock this AI opportunity. And I think we can do that and very much be within the framework of the 3430 model we put out for 2027.

And I think the way to ensure that we then get the next years beyond that, an attractive growth is to ensure that we're doing this upfront investment correctly into the business.

Really appreciate that color. My follow-up question is more on the here and now. I want to ask you about the transportation and logistics business. Obviously, some continued good growth there, not really seeing much of an inflection in the end market.

Is there anything on the horizon that you see either from a macro perspective or maybe from the Trimble's portfolio perspective like this freight marketplace introduction. It gives you some optimism for that business going into 2026.

Yes. Great question. So let's say, I think about control what we can control. I don't see meaningful green shoots right in front of us, whether it's the rest of the year in 2026 at the macro level. So our planning assumption is the same market we've got. And by the way, I hope I'm wrong about that. But that feels like the safe assumption and feels to calibrate with customers in Europe and in North America.

So in that respect, the control what we control, that's our own execution. I look at the, let's say, take the op margins this year first half versus second half. Second half, we see 400 basis point improvement and the margins in the business, okay? We can control that.

We we're growing, as you could see from the quarter, with the with the 8% -- 7%, excuse me, ARR growth in the quarter, that's clearly outperforming the end market growth. That's within our control.

And then the double-click on that gets into the product set that we have. Like you said, freight marketplace. So we -- in the quarter, we had -- I think as the -- as the largest booking we've had of taking our mapping technology which is into the transporting customer base in Europe and vice versa, we had the largest transport booking in North America that the companies had to date.

So those are elements that are within our control that let's say, give me optimism that we can do better with what we have in our portfolio. And at a $500 million ARR level, this makes us one of the largest transportation supply chain technology companies in the world.

[Operator Instructions] Your next question comes from the line of Chad Dillard with Bernstein.

So I just want to spend some time on the field systems business and particularly your OEM strategy. Maybe can you talk about the TAM expansion that you're seeing post being free to do more business with other OEMs. Maybe you can remind us what the OEM versus distribution split is and what the growth differential is. But also from like a product development and a sales perspective, what do you need to do differently versus before to win?

Yes. Thanks, Chad. This is Rob. I'll take this one. at the OEM level, we've always been able to work with OEMs. That's actually not -- that's not a new aspect of the joint venture. And so I should just continue to reinforce that that's not new.

Let's say what's new within the OEM strategy is our own ability to put a differential level of resources to meet their needs. And then to be more specific because I think this is a big unlock in the OEM world is the nature of how they're adopting and implementing technology, specifically within machine control, which is to say, you could have open interfaces something closer to an open standard that the OEMs adopt to -- in order to put on machine control technology or you have OEM by OEM technology, in other words, proprietary. It's very difficult for Trimble and our peers and competitors and very inefficient when it's OEM by OEM and very separate.

We're actually very much in favor of a singular approach to that, which means pay our competitors and peers would have the same access as us to working with OEMs. I believe we win with the quality of our solution, with the breadth of the portfolio and in the linkage and the larger ecosystem that we have, both in the software and field systems and AECO. That's where we're really in my opinion, most unique and different.

So we are putting more expense, operating expense, investment in R&D into serving the OEMs so that they've got access to our technology where we -- of course, as you know, where we really focus ultimately is in the aftermarket. I mean that's where the predominant volume comes from.

And so like I mentioned, the Trimble Ready dozer option a few minutes ago. And that is what that means when it's Trimble ready is it's prewired and plumb such that in the aftermarket we can come and access that technology. You also asked about product development.

Here, the team has done really well. If you think about the machine fleet and you think about machine control, we tend to think about dozers and graders, but excavators remain a single-digit penetrated market. And so the technology continues to serve I'd say that mid-tier level of machines, so unlocking an addressable market.

When we do that, this is a few months ago, but we announced putting on machine guidance now supports tilt buckets. That's something that the European customers need. In the quarter, we released some new technology called Roadworks 3D for pavers. Papers, obviously, is a specialty piece of of equipment. So larger reach into the available market and then at the sales level, the team is doing a really nice job. And by the way, you say our partners are doing a terrific job around the world of accessing the market. So strength and performance and all dynamics.

Great. That's helpful color. And maybe just sticking with the field systems more modeling question. So if I look at the implied guidance in the fourth quarter, it looks like you were taking a step down on growth. I'm just trying to think through like what that means from an exit rate perspective, just given that you're guiding to continued growth in '26, at least at an enterprise level. .

Chad, it's Phil. Yes, so good question. So in field Systems, a couple of things. One is we had a really good fourth quarter in 2024. And in particular, we had some larger government orders. And so we're not seeing those as Rob mentioned before, we have a very small amount in the forecast. And so that's part of the downward pressure on the field systems growth year-over-year or a large part, I should say. .

Your next question comes from the line of Jonathan Ho with William Blair.

I just wanted to maybe dig into some of your federal government comments, but from a slightly different angle. I think you're pursuing FedRAMP certification. And so just wanted to understand what you see as kind of the opportunity set, what the timing could look like for that and potentially whether sort of the shutdown slows down anything on the FedRAMP side?

Jonathan, on the -- specifically on the -- actually, let me talk about a couple of things. On the federal side, the business we do within Federal, you could think of DoD work and civilian work. Just looking forward, it won't be a surprise. We would see stronger opportunities on the DoD side and on the civilian side. And let's see how this plays out. We'll do better if -- when the government -- I guess I'm knocking wood when the government reopened, if we opened with a budget passed Omnibus to that's better than if we continue to govern by continue by the CR, the continuing resolution.

So just a little bit more color there on how we think about looking forward into 2026 on the overall federal level. With FedRAMP specifically, and going after the certifications, yes, there's a federal business. But the reality is we wouldn't do this if the opportunity was only in the federal business. We think about it as a security posture, which is increasingly important to all customers.

So the FedRAMP to one customer as security as a service to another set of customers. So we think it's an important set of work to do in a world that's got very, let's say, complex data sovereignty requirements around the world. It's a good hygiene and a good posture to have.

And yes, by the way, we think that it could be business at the federal government. We weren't planning any revenue in that for FedRAMP in the government in 2026. So it's -- there's really nothing to see there as I think about the state of the government at the moment, and we'll keep plugging away at it, but we also see our customer -- by the way, a customer may often do both federal work and private work. Maybe actually all of them do that do both. And more and more, they're asking themselves, do they want to operate with FedRAMP certified technology in one part of the business and not in another. All things equal, they'd rather just operate with one set of security proctors and protocols throughout their business. It's a significant investment to do this.

That makes a ton of sense. And just a quick follow-up in terms of your SketchUp business. We've picked up some price increases that took place a little bit earlier in the third quarter. I just wanted to understand sort of the impact there and how you think about SketchUp in terms of lead generation as well.

So on the pricing dynamic or it's even bigger than a pricing dynamic. We have multiple paths to market. We sell e-commerce we sell through direct sales to enterprise customers. We sell on the app store, and you can get sketch up and we invite you to go buy some licenses. Each one of those could offer monthly services or annual contracts.

There's an optimization routine because what's our goal is to penetrate the market, to reach the market, to reach the customers where they are. And so you got to get the balance right and optimize the monthly and the annualized pricing such that you get the incentives right, right? We would like to have more people using the -- and doing the annual license with us. And we think we got that balance right now.

So those are some of the pricing dynamics of optimizing that balance that we talked about on the last call. We think we got them we think we got them right. Relative to lead generation for the rest of the business, actually, there's some good cross-sell plays. That happened in some of the bundling plays. One of the ones that I think is the most compelling at the moment as reality capture and SketchUp.

So think about collecting 3D point cloud out in the field, and you need to do something with that data that's collected well. What you can do is bring that data and the sketch up and whether you're collecting an as belt that you didn't need to, let's say, design or do a remodel of boom, it's right there and sketch up natively integrating with the field data collection that we're doing. So that's just one example, but there's many examples where SketchUp is linked very nicely to the rest of the portfolio.

Your next question comes from the line of Na Nang with Brennenberg.

I just got a follow-up question on the operational leverage point. If we look at the year-to-date, your gross margin expansion, the year-on-year expansion dropped through to your EBIT margin expansion, I think it's tracking around 45%, almost half of the gross margin expansion we've seen that as a benefit come in to an EBIT, that rate is improvement from about 30% that you achieved in the last 2 years.

Just wanted to see -- understand from you how should we think about this margin expansion drop through and gross margins to EBIT going forward as more of your top line growth will be driven by a higher gross margin software businesses?

Yes. At Investor Day, we put the frame we put on operating the leverage was 30% to 40%. Yes, we've been tracking ahead of that. But we think on it on a multiyear baseline. So we still hold the 30% to 40%. It's not lost on us that with the higher gross margins and this continue to go up in the business. By the way, in the last 5 years, a 1,200 basis point increase in gross margins, 1,200 basis points. That is a structural improvement of transformation in the business model of Trimble.

So yes, we have -- you could say the natural ability of the business model to be at the upper end of that 30 to 40. The balance that we've got that we'll get right and we will work towards is making sure we're continuing to invest in this moment in this -- I'll say, in this AI moment.

Simultaneously, we can get unlocks of productivity in our business, and we have areas where we want to differentially invest in order to get ourselves either ready or to accelerate the work that we're doing. We're playing the long game. So I don't want to reset the expectation of that 30 to 40 range. We'll guide 2026.

Phil will put that framework out next quarter. So we're not ready to say where we want to be within that. But you can see the growth in the business, and we feel confident enough where we are now to have given you a preview of '26, and that is a stepping stone to 2027. I'll just say one other comment given whether it was the operating leverage comment on Q4.

Remember, the moving parts as you're doing the modeling, a 53rd week that we had last year. We have chunks of term licenses that hit on January 1, and our January 1 hits in the fourth quarter of this year. And so the supplementary material that the team puts out or highly encourage you to spend time with that and walk through that, and we can do that in the callbacks as well.

Thank you so much to everyone for joining us today. This does conclude today's conference call. You may now disconnect.