Trimble Inc. Aktie

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.

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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.

Well, hello. My name is Clarke Jeffries, I'm a software research analyst here at Piper Sandler. Thank you for joining us. Very pleased to have Phil Sawarynski, CFO of Trimble Technologies joining us. Thank you for coming to Nashville.

Thanks for being here. It's my first time we were just commenting outside. So happy for the invite and happy to see hopefully a lot of new faces around as well as old faces, but glad to be here.

Yes, absolutely. Music City. So the last few years have been very eventful for the company. I think, it's been a lot to sink your teeth into in terms of my role as an analyst. But even to that, even prior to these most significant transitions, transactions, there was 22 divestitures since 2020 at the time of the Analyst Day. So maybe we could start off with an overview of the business here in 2025, what is Trimble about? And what is the opportunity for the company?

Great question. Maybe to get to the present, I'll start a little bit with the past. And if you're familiar with Trimble, I've been with the company now closing in on 16 years, I started the ag business. But when I think back about my tenure and even before that, the company was very successful. We had a lot of product innovation, both organically. So our ag business was built organically and a lot of inorganic. We have done a significant amount of acquisitions over that time. And we had an incredible amount of depth and breadth of product over that amount of time.

And so as we built those circa 2020, Rob Painter is our CEO now, started as CFO. We saw the opportunity to engage in an evolution of where we're going as a company, and we call it Connect & Scale, and we can talk about that as we go forward. This is really our strategy where we had a significant amount of products. I would argue the most depth and breadth of product in the industries that we serve from a technology perspective.

And what we want to do is bring those together as far as thinking about platform plays and ecosystem plays and the connectivity of workflows, the connectivity of data and data being just so important where we're at today and where we're going, particularly as we'll talk about with AI.

And so with that transformation of the company also came some portfolio changes, as you mentioned. And we recently divested our ag business. We have a 15% stake in a joint venture with AGCO. We divested our mobility business, which is -- now we own a stake in the combined entity with Platform Science. And so I'd characterize this as a little bit more of us simplifying and focus on how we are operating going forward. And it really also changed the financial model when we think about that.

Now we are almost 80% software related and almost 2/3 of that is recurring -- 2/3 of the company's revenue is recurring revenue, north of 70% gross margin. So the financial profile that we have in the business gives us a lot more visibility into our future. It gives us a lot of opportunity.

And again, we can talk about Connect & Scale. I'm sure you're going to ask another question on that. But with a lot of the infrastructure things that we are doing in the back end from an administrative standpoint and how we can actually tap into the addressable markets we serve, really excited about where we're positioned.

Yes, absolutely. Certainly, the recurring revenue mix continue to accrete the product mix and the margin improvement. It's been all like a very eventful year to follow from the outside. But maybe when we talk about the three buckets that the business is organized in, I think from a practical standpoint, maybe you can just -- who are the main key customers across these different segments when you talk about the benefits of being involved in this deep portfolio, is there overlap across the segments? And just maybe let's profile these customers in AECO, Field Systems and Transportation.

Sure. Yes. So the three segments, AECO is primarily focused on construction software. And that's been -- taking a quick step back, when we did the ag divestiture, we looked at that, we had an opportunity to re-segment the business. And so now you're seeing a little bit different than what we portrayed in the past. But I think you're also seeing a lot more representative of more of the transportation, AECO pure software businesses.

Field Systems is a combined software and hardware business. But AECO, construction software focused: A, architects; E, engineers; C, contractors; and O, owners. And then the Field Systems business is both hardware and software. And the ARR there has been growing really well. We're doing conversions in that business, but we're also developing new products that are out of the gate subscription.

So when we think about those two segments, I would -- there's a lot of overlap in the customers. And we report that way for various reasons, one being -- one is more of a direct model, one is more through dealers in Field Systems. But the overlap in that connectivity, when we talk about Connect & Scale, that connectivity spans beyond the segments. And really, we really like what we're doing. We really like the competitive moat that we believe we have with the hardware and the software within those two.

And then the third segment, you talked about was Transportation. This is really the movement of goods, primarily around more long-haul trucking. But we really like that business. As we mentioned, we divested the mobility business. So that's a pure software business now. And -- but yes, I think there's a lot more overlap as we talk with the customers and as we talk about the Connect & Scale strategy, I think, and our competitive, it's really critical, particularly as we think about Field Systems and AECO.

Yes. Let's talk about Connect & Scale. Could you maybe sort of describe the strategy in aggregate and maybe some specifics of how this really works? If you're a construction entity, what's the benefit of having the Field Systems, the sort of sensor to software experience? And it seems like it's a differentiated approach in the market. So I'd love to just -- let's go deep on Connect & Scale for a market.

Yes. So Connect & Scale, think about Connect is the connectivity of the workflows, connectivity of the data, connectivity of the stakeholders as we think about an ecosystem. So you have multiple stakeholders in a particular project. If we want to use that as an example.

And we still live in a physical world. And so what we think is and what we've seen is that connection between the digital and the physical is something that is a differentiator for us and is unique about Trimble, because we can use our scanners on the Field System side, for example, to pick up the environment and the reality today in an accurate fashion. That can then be transferred into a digital model, which then becomes a source of truth.

So when we think about the connective tissue, let's say, for all of this, we talk about our Trimble collaboration tool, which is Trimble Connect. And that -- where you can actually ingest 3D models from the field. We can use that. And so we think about the stakeholders that are actually part of that, it's not just about a contractor making themselves more efficient. It's about the contractor engaging with the architect, with the engineer, and with the owners.

So if you think about the ADC, the CDO, we have that connective tissue with Trimble Connect. And that allows that source of truth for everybody to be working on the same model and the same work, which I think is really important because now that's -- you're really talking about a full ecosystem as you think -- as we connect the data and the workflows there. And so we're really solving high order issues and inefficiencies from that perspective.

But going back to the connectivity between the field and the office, we really like that part of the business, because we are the ones that are collecting data with our equipment. And that data is what actually feeds into Connect, which is what feeds into this ecosystem to allow all the stakeholders to actually participate in the decision-making. It also gives us, as we think about AI by having that data and then by us actually collecting it, allows us to apply AI tools to that data to allow our customers to have faster decisions, more efficient decisions, know how to proactively manage their business instead of reactively. So we think we're really well positioned with that digital, physical, office-to-field connectivity that we have, that's I think is very unique to Trimble.

Yes. I think I've heard it a couple of times at this conference. It feels like in software, the real -- the real differentiator going forward in this world of AI is, are you a creator of data. Are you creating something that isn't within the realm of foundational models or the corporates of the Internet? Are you providing something new as a data ingest point? So certainly fascinating. And I think the construction space overall, we've seen it's been one of the slowest to digitize. And I think it's largely because of this fragmented industry, a lot of different stakeholders, a lot of different sizes of organizations, and it's a lot more complicated than a lot of horizontal software apps have to deal with.

But maybe wrapping up this kind of background, let's talk about some long-term financial outcomes and investors should be benchmarking the company again. You had an Analyst Day relatively recently, maybe you can talk about some long-term financial targets in the kind of new Trimble structure.

Yes. So Investor Day, we did late last year, I think it was December of last year. And we put out a very simple framework, which was 3, 4, 30. $3 billion of ARR, $4 billion of revenue, 30% EBITDA margins in the 2027 time frame. So that's a really simple where we're guiding to where we are going in a multiyear context.

I really like to start, our first half performance was really strong and basically across the board, even in a freight recession or a freight, at least a downturn in the freight market. The Transportation business performed, AECO business performed very well, and it's been -- had continued to perform. The Civil business has been really strong with the project backlog, in Field Systems.

So as I think about what we put out in Investor Day back in December with that 3,4, 30 and how we started this year, really pleased with the progress and getting off on the right foot at least so far.

Yes, absolutely. Especially the subscription offering, it seems like something that's just been very, very successful in bringing to market, especially in Field Systems.

Let's maybe talk about AECO, because I think construction software may be where investors have the most experience in terms of public comparables and when maybe what a vertical software company looks like in construction. But you've been able to have high teens ARR growth in that segment for years at this point and 30% operating margins.

And so, when you did this re-segmentation, I think people had this aha moment of, this is a top three construction software company operating with these kind of margins. How has the business been able to achieve that with the high growth rates in ARR? And what's the biggest growth contributor in more recent history, but also maybe looking forward to the next few years?

Yes. It's a great question. And where I would start with is the addressable market. So, Investor Day at the company level, we said $72 billion of addressable market that was only 25% penetrated. If I double-click into AECO, as said $50 billion of addressable market, that's only 20% penetrated. So there's $40 billion out there for us to go and apply. The people that aren't using the technology, that should be using it today.

And so that gives me a lot of confidence that the market is there for us to go after. And quite frankly, when you probably look at some of our peers, everybody is growing and growing in different ways if you look at volume versus pricing, for example. But at the end of the day, there's a market out there for us to go after.

Now if I take another click on that and I look at AECO, specifically around the cross-sell and up-sell opportunity, we put out there $1 billion. I mean, with the existing customers that we have today, we believe there's the opportunity to sell another $1 billion worth of product to them, just the existing customers we have today, not even looking at new logos. So that gives me a lot of comfort in the market there, that the customers are there.

And then, we talked about the execution, because I think that's really where we're -- you're seeing a lot of the success of Trimble and with the evolution is how we are executing. So when we re-segmented some of the things I'll point to two things. One is we reorganized and so we now have a singular sales organization within the AECO business that are account-based sellers. We're selling two accounts as opposed to individual products. Now we do have folks there that are product experts obviously. But we're really focused on looking at the customer, understanding how they're using the products, understanding what they should be using from Trimble and being able to cross-sell and up-sell those -- the products.

We talked about our Trimble Construction One offering. And so Trimble Construction One is more, the term is more of a blanket term around all of the things we're doing with Connect & Scale and having a singular construction platform. But what's important about that is we create a framework contract that is a singular contract for the customers that allows them to add additional capabilities on to their existing capabilities and lowering that sales friction and the purchasing friction.

If I go back to where I started the conversation with where we were years ago, we may have had different products and different salespeople talking to the same customer selling individual products under individual contracts.

Now we've really, really reduced the friction and changed the conversation with the customers as well by having more higher order and high-level discussions around really optimizing how you run your business. And that interconnectivity of multiple products and how the data and the workflows actually work through a Trimble on Trimble advantage is really compelling as you think more holistically at the system level, versus a bespoke product level.

And so we've seen really good traction where we've -- out of the gate, we're selling the vast majority of our products are bundles rather than individual products as we -- with the new bookings. And a lot of our customers are buying -- actually, the majority of our customers have at least sort of two to four products or two or more products. So the strategy is really working. The execution is there. There's an opportunity for us to continue to run with the addressable market with the cross-sell and up-sell. The re-org is an enabler.

And then, the last part of it is really the infrastructure that we've been building is bringing all that information together so that our sellers can actually have the visibility into all the products we're selling our customers, we can create sales plan around those customers in order to unlock that cross-sell and that up-sell opportunity. So it's multifaceted, but I think it really comes down to is the execution on the plan. The strategy, I think, is sound, we've been demonstrating it's continuing the execution.

Yes. That was a very great overview of really the kind of internal changes to promote the cross-sell. I wanted to ask about the productization maybe before we switch to Field Systems or Transportation. TC1 has been something, I think, comes up on every earnings call. It's a very prominent productization, bundled choice.

Can you maybe talk a little bit about the brief history on the productization benefit? And are there some other levers that are down the road in terms of distributing the bundling strategy to more regions, sort of aligning maybe what you've done in maybe North American AECO to sort of the global org. I love to have some context there.

Yes. So they're all intertwined. But maybe on the simplest form, just start there is, again, this is a framework contract. You sign a Trimble contract, whether it's one product, whether it's five out of the gate, it gives the opportunity to continue to add new capabilities, the very low sales friction from that perspective. We started in North America, as you said, and we wanted to build the infrastructure, the ecosystem. We thought that from a prioritization standpoint, that's where our largest footprint is, I wanted to start there.

We're continuing to add capabilities as we think about the full technology stack. So I talked a little bit about the sales team and the organization. But as we talk about more and more digital marketing and campaigns there, leveraging AI within our internal opportunities to continue to drive sales and marketing efficiency, but more importantly, the growth. And so, that's where we're -- we've been focused a lot of our investments are.

Now we're continuing to roll it out to the other businesses. So I mentioned Transportation Logistics being another software segment. I expect a very similar playbook to be run. So we've demonstrated the success in AECO. We have continued opportunities in AECO. We run it within T&L, is a similar motion. We brought together those businesses under one leadership in one organization. So you're seeing that playbook being replicated.

You're seeing some -- You're going to see some of the efforts within the Field Systems as we -- as I mentioned before, there's a blurry line between the two segments and how those interconnect because in a lot of cases, they're the same customers. And they're looking for the workflows. And so that information come out of the data collection, the hardware and the other software offerings within Field Systems.

And then the geographic expansion, as you said, we started in North America. We're rolling out into Europe and then expect APAC and eventually globally. But it's going to be the same motion as we think about it. We want to lower the friction with the customers. We're going to be -- give the sales team the full visibility into these customers and how they should be selling. We run our customer success folks to have the access to understand the telemetry of how people are using our product to make sure that they're successful in their use of products. It reduces churn, reduces the -- improves the interaction with us and our customers, which at the end of the day is really what we're focused on, is we want our customers to be successful. And so all of this stuff really starts with that.

Yes. Well, let's maybe turn to Field Systems, because I think AECO and transportation, even touching on the TC1 as strategy that might go to Transportation. This feels really like the base level of fitness. This is taking your recurring revenue segments and making them punch harder and be more successful. Field Systems is a product shift. It's very interesting, because the last few quarters, this is a 75% non-recurring segment. The last five quarters, ARR growth accelerated even peaking in the mid-20s. It felt like something was flipped overnight to make the productization move a lot faster in Field Systems. So can we talk about what's changing in Field Systems as the highest non-recurring segment, how is packaging and productization changing there?

Great question. And so, what we're doing is very intentional. And that is, we are -- and I'll put it into three buckets, if I think about the recurring revenue growth. One is the conversions, which is we're taking existing perpetual licenses that we have been selling, converting those into terms or pure subscriptions. And that's some of the -- what we talked about at Investor Day around a 200 to 300 basis point headwind as we convert those. So that's one element of the ARR growth.

The second element is, we -- I mentioned this earlier, but the -- a lot of the new products that are coming out of the gate is subscriptions. And we've seen really good success. We had a product that's called Catalyst, which is you can use your cell phone with a low-cost antenna and get high-accuracy GNSS from that up. That came out of the gate as a subscription. It's very successful. It actually unlocked an addressable market for us. Because of the price points with the subscription, we're able to find these more price-conscious whether it's regions, geographies or customers and have an attractive and compelling product there for them at a price that they're comfortable with. And so we saw really good traction there.

Another thing that we're doing within Field Systems is we're attaching what's called our satellite-based corrections to get high accuracy based on the satellite versus the terrestrial network. And we've been doing effectively what we call 100% attach, all the GNSS systems that come out are going to have that. And so what ends up happening, the customers get to use that, they see the benefits of it and then they buy that as a pure subscription as a renewal.

And so, we had a lot going on, and which why we saw a lot of the accelerated rates. We're starting to lap ourselves, which is why we're talking about sort of mid-teens but at the end of the year, which is a little bit lower than what we've been. But it's more because we've had such accelerated growth and we're lapping ourselves with some of these discrete decisions that we made over the last year or 2 years.

So -- and maybe we could talk about how are the JVs and the partners kind of responding to this? I think maybe traditionally or historically, they like to get paid with a big lump transaction upfront. And so maybe you can think -- you could talk through what's the approach to JVs in Field Systems? How strategic are these partnerships? And are they approaching this sort of hardware as a service or these other monetization models well? Or is there going to be some teachings that you're going to have to do to the ecosystem to get them to work with you on those new monetization models?

Yes. What I'd like to do is separate a little bit, because the JVs, as I think about the JVs, they're a little bit different on what we do. And so like a lot of it's more technology-based than go-to-market base. And so, if I just focus maybe on the second part of your question on the distribution, really excited. We've had -- we have several elements. So you mentioned we have some partnerships and some things we sell through OEM distribution, but what we've done, particularly with our relationship with our JV there is, we have a shared vision, which is we want the customers to adopt higher level technology.

So when you start with serving the customers, you work backward, how best to do that, there's things that are going to go on in the factory fit and have been going on from that perspective that come out of our JV. But one of the focus that you've probably seen recently as we've been announcing what's called TTO, which are Trimble Technology Outlets. And really from a lot of our customers, they've got mixed fleets and they have different brands and they want to standardize on the technology. And so we're really focused on that.

And this is why we're signing up other logos and other brands because ultimately, if you're a contractor, you own your own fleet, you may have actually different brands. And really what you want to do is standardize your workflow, standardize how you actually operate -- and that's what we're trying to unlock. And what you're seeing with some of the evolution and some of the relationships is us being able to go after and serve our customers better from that perspective.

And then from the dealers, as we sign these up, to your question, yes, there's an education and some working around the subscription offerings as we work through that. But some of the dealers that we have as well in distribution are already Trimble dealers and we've worked closely with them for many, many years. And there's some training, but they're embracing the models well. And we're seeing really good success.

One other thing I'll point out with -- you mentioned some of the hardware subscriptions, that we're actually, again, seeing that, that actually unlock some additional addressable market for us. And in fact, half of our bookings with our Works Plus subscription, which is the hardware -- the combined hardware subscription are actually new logos and customers that we haven't been worked with in the past. So we're seeing the benefit. It's not just about converting a customer. It's actually about us increasing our addressable market and accessing customers we may have not been able to access in the past because the price points and the entry points are easier to overcome.

All right. Well, last few minutes here, I do want to touch on Transportation. You did have a major transaction there. And as you point out, it's a little bit of a freight recession in that post-COVID, we've had some normalization about volumes, pricing and dynamic. But at a high level, what can go right for transportation? And I think the Analyst Day pointed out that we can get great incremental margins out of this business, but it seems like there's more to unlock on the top line. So maybe we could just talk about what are you hoping that could go right -- is it bundling? Is it productization? Is it even go-to-market focus? I'd love to just touch on that.

Yes. So look, we're really optimistic around our Transportation business. We like the set up. The business is -- I talk about execution. The business has been performing in a down freight market, quite frankly. We're really setting ourselves up for is when the market comes back, and that's what we -- I think you're alluding to at Investor Day.

We combined the businesses under one team. So as I mentioned, we're -- look at the AECO playbook and what we're doing there. We're looking to replicate that in T&L. Ultimately, in the short term, what we're trying -- what we're looking to do with the systems and people in the org is to unlock that $400 million. We put out there $400 million of cross-sell and up-sell opportunities within Transportation & Logistics business. And so we want to set up the structure to be able to really go after that. And that's what we're aggressively looking at in the short term.

And then long term, when the market comes back, as you talked about, particularly in our Transporeon business, is it's more of a volume business. So we monetize based on the number of transactions and the number of shipments that are procured through the platform. And so, as the market comes back, naturally more volumes are going to flow through the system. And that volumes at really high incremental margins at that point, because there's no additional touch points from a sales perspective. It's just more volume flowing through the system.

So what we control today is not necessarily the market itself, but what we can control is our ability to go out and sign up more customers both on the shipper side and the carrier side, add more density to the platform, continue to perform in the environment that we're in and then hopefully accelerate when the market comes back, because of the model that we put in place.

All right. Well, Phil, we're out of time, but absolutely great to have you in Nashville and looking forward to hearing more.

Great. Thanks all.

Thank you for standing by. My name is Greg, and I will be your conference operator today. At this time, I would like to welcome everyone to today's Trimble Second Quarter 2025 Financial Results Call. [Operator Instructions].

I'd now like to turn the call over to Rob Painter, Chief Executive Officer. Rob?

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. .

Our second quarter results outperformed top and bottom line expectations, reflecting continued strong strategic execution and momentum with our Connect & Scale strategy. My congratulations and gratitude to the Trimble team and our global partners. We are raising our guidance for the full year, and Phil will walk you through the details.

Starting on Slide 4. The foundation of our Connect & Scale strategy begins with our best-in-class solutions, which are generally core to the day-to-day operations of our customers, delivering productivity and sustainability outcomes. Our strategy compels us to do what we can uniquely do. That is connecting people, connecting data, connecting workflows and connecting ecosystems across the construction and transportation and logistics industry life cycles. Our product leaders are increasingly bundling our solutions together into prepackaged product suites, making it easier for customers to access our technology and making it easier for our sellers to reach our customers.

They are also progressing our efforts towards subscription offerings, expanding our user base and the size of our addressable markets while simultaneously delivering us increased visibility into our business. Strategically, these business model transformations are connecting workflows as we move data from on-premise and on machine to the cloud. We are enabling our customers to generate better insights into their own data while enabling us to build a unique data set to power our AI ambitions.

For example, in our ProjectSight project management system with AI, we have processed over 1.5 million drawings with AI at a rate of over 200,000 drawings per month since our Dimensions User Conference in November of 2024. This AI capability saves significant time that our customers would otherwise been manually adding attribute data to a model.

Finally, our go-to-market motions are modernizing, enabled by better underlying technology stacks and process excellence. AI-assisted motions are increasing bookings visibility and unlocking cross-sell opportunities as well as new logo expansion. The sum of these activities plays a strong role in our current results.

Turning to Slide 5. $876 million in revenue in the quarter, up 9% organically. $2.21 billion of ARR, up 14% organically and $0.71 of EPS, up 15% year-over-year and higher still on an organic basis. Software and services accounted for 79% of second quarter revenue. Recurring revenue accounted for 63% of second quarter revenue. We run negative working capital and CapEx is less than 1% of revenue on a trailing 12-month basis. Our value creation algorithm is working.

Looking forward over the next couple of years, the continued rollout and maturation of our strategy gives us conviction to deliver on our 3, 4, 30 commitment by 2027, $3 billion in ARR, $4 billion in revenue and 30% EBITDA margin.

Looking beyond the next couple of years, we are optimistic about what an AI forward future will mean to Trimble. I'd like to characterize our right to win in this space in the form of 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 users of our software, and we have hundreds of thousands of instruments and machines in the field that operate on Trimble technology. The transformation we've been making in our business over the last few years has prepared us for this moment.

In the last weeks and months, we have taken thousands of Trimble colleagues through AI training sessions and we are deploying AI across most every function of the company. While it's very early in the AI adoption cycle, we believe we are heading in the right direction and making the right decisions to unlock the efficiency and customer value creation opportunity. In June, we held our biannual Technology Conference, where 300 of our top engineering and product leaders came together to share and collaborate on our next waves of innovation. Not surprisingly, AI made up about half of the content of the conference.

With that context, let's talk about each of our segments, starting with AECO and a quote from a steel fabricator and a rector customer who said the following. We're always 3 steps ahead of everyone else because of the technology we use. With Trimble Connect, we can visualize the entire project before it starts. We track every piece of steel in real time and stay ahead of any potential delays. This sentiment is indicative of the success we are having with connecting people and connecting data. In the quarter, ARR at $1.36 billion and revenue at $350 million were both up 16%. ACV bookings remained strong and in line with our long-term model, growing in the mid-teens with a healthy gross and net retention.

At the point solution level, we continue to innovate. SketchUp won Best in Show in the BIM category at AIA 2025 and with over 4.4 million models created in the quarter, SketchUp remains core to the workflow of architects and designers around the world. ProjectSight added features such as daily reporting and ERP integration, which contributed to strong growth in the quarter. At connected workflow level, we are now delivering an office to field to office workflow and civil construction that enables project managers to send quantity request for earthmoving and our B2W track applications to cruise in the field using our site work solution and then flowing that data back to the office for progress tracking, which informs decision-making and ensures accurate billing. No guesswork, no phone calls, no manual data transfer, only Trimble.

This workflow example is just one example that validates our strategy of driving growth through Trimble Construction One bundles as well as running cross-selling motions that serve existing customers with more solutions. Once we have a customer using our ecosystem with a core solution, our strategy of adding connected solutions multiplies the value a customer gets and makes us an indispensable partner for our company's entire operation.

The investments we have made into our business over the last few years are unlocking insights that drive sales enablement and targeted marketing campaigns to reach this market opportunity. In combination with our transformation to operate as one sales organization and AECO focused on named accounts, we remain optimistic about our ongoing growth potential.

Moving to Field systems. I'll start with a quote from a customer in Scotland talking about machine control. This is our largest investment in advanced construction technology to date and the effect on productivity has been eye-opening, with 1 project already being 8 weeks ahead of schedule and on track to be completed in half the estimated time.

The business outperformed in the quarter with particular strength in civil construction. Revenue at $393 million was up 3% despite the 200 basis point headwind based from model conversions. ARR at $358 million was up 17%, driven by strength in our Works Plus machine control offering, our catalyst positioning as a service offering and Trimble Business Center.

At a product innovation level, we expanded Siteworks machine guidance to be available for tilt bucket attachments. We expanded Trimble Ready options with a number of OEMs, and we introduced the NAV 960 guidance Controller for our PTX joint venture. In the end markets, we saw strength in drilling and piling applications for renewable projects as well as site pad preparation for data centers and warehouses. This business is the most global business at Trimble, and it is inspiring to see our work in action. In the quarter, we had wins with customers in U.S. state departments of transportation with mobile mapping at the Panama Canal with optical solutions with the Rwanda Statistics Department, the Dubai Municipality and the Bureau of Water Management in the Philippines buying Trimble GNSS. With customers in Ukraine, Tanzania and Turkey buying Trimble reference stations and with customers in China and Australia buying our monitoring solutions. Trimble is everywhere.

Moving to transportation. I'll start by quoting a customer who said, autonomous procurement has transformed our spot bid management by using AI to predict prices, enabling us to set realistic, walk away prices and align with market conditions, especially during peak seasons. While our end market remains in a stubborn freight recession, we continue to grow the business with innovation coming from products such as our AI-based autonomous procurement solution.

Revenue at $133 million and ARR at $492 million were both up 8% in the quarter. ACV bookings were up double digits. At a product level, we have ongoing integration efforts to connect key Transporeon products such as visibility and autonomous procurement with our TMS offerings, which enhances user experience and further enables cross-selling efforts. We are accelerating our rollout of the U.S. -- in the U.S. of our freight marketplace, which enables real-time capacity sourcing for shippers, carriers and brokers. We are building confidence at every turn.

With respect to the macro environment across our business, there was no discernible shift in sentiment or end market performance in the quarter. Various indices inevitably point one way or the other. Opportunities continue to outweigh the uncertainties. In meeting with customers in the U.K. and Europe, energy and defense look healthy. In the United States, the puts and takes of the One Big Beautiful bill look to be net positive, including deductions on capital equipment. Globally, we remain bullish on India and the Middle East. At an end market level, our construction customers generally have healthy backlogs, and they continue to hire for their project work. In the transportation market, we are hopeful that the market has stabilized with more upward catalysts than downward catalysts.

Phil, over to you.

Thanks, Rob. First, I'd like to give an update regarding impacts from policy. Regarding tariffs, our operations team has done an outstanding job creating a flexible and global supply network. With the latest information to date, there is no change to the tariff impact on our cost of goods at approximately $10 million per quarter in the Field Systems segment. We've implemented surcharges to offset this. Thus, we expect no impact to profitability. Related to the repeal of Section 174 from the One Big Beautiful bill, we anticipate a cash flow benefit of approximately $50 million in 2025 and a total additional benefit of approximately $80 million, which will be realized over subsequent years.

With regards to capital allocation, we bought back $50 million of shares in the second quarter and have approximately $323 million of authorization available. Longer term, we continue to expect at least 1/3 of our free cash flow to be used for repurchasing shares.

On the M&A front, we continue with the small tuck-ins. And in the second quarter, we acquired capabilities that we have branded Trimble Materials, which serves contractors by connecting the field, office, warehouse teams and suppliers to streamline the entire purchasing and materials management process. The tuck-in playbook is working and we are accelerating our ability to integrate, which yields a rapid return on investment by putting additional functionality in the hands of our sales teams to cross-sell and upsell and continue the flywheel of ARR growth.

Let's review the second quarter of 2025, starting on Slide 6. Organic revenue growth exceeded our outlook at 9%, driven by outperformance in all 3 segments, and ARR was in line with our outlook at 14% to a record $2.21 billion. Gross margins expanded 210 basis points to 70.6%, which shows our continued model progression. We achieved EBITDA margins of 27.4%, which is a 170 basis point expansion year-over-year. Reported earnings per share was $0.71 for the quarter, $0.09 better than our guidance.

Moving to the balance sheet and cash flow items on Slide 7. Our year-to-date reported free cash flow was strong at $90 million despite a $277 million tax payment related to the agriculture divestiture. Our balance sheet continues to be strong with $266 million of cash and a leverage ratio of 1.4x, which is well below our long-term target rate of 2.5x.

Shifting to a segment review of the numbers before we close with guidance and starting with AECO on Slide 8. AECO delivered a record $1.36 billion of ARR posting 16% ARR and revenue growth for the quarter. Operating income at 30.4% increased 400 basis points year-over-year. This business continues to operate above the Rule of 45.

Next, Field Systems on Slide 9. Revenue was up 3% in the second quarter despite approximately 200 basis points of model conversion headwinds and a difficult comp with the large government order in the prior year. Field Systems posted ARR growth in line with our expectations at 17% for the quarter, where we continue to successfully execute our business model conversions. Our civil construction business continues to be particularly strong, and ARR growth was driven by our model conversions and sales of subscription offerings. Field Systems operating income at 30.8% increased 190 basis points, driven by a greater mix of higher-margin recurring revenue.

Finally, Transportation & Logistics on Slide 10. Revenue and ARR were up 8% for the quarter. The segment is greater than 90% recurring revenue following the divestiture of the mobility business. We continue to make good progress bringing the global transportation teams, processes and systems together as we execute our Connect & Scale strategy, which allows us to access the approximately $400 million of cross-sell and upsell opportunities within the segment. Operating margins at 21.5% are expected to improve in the next 2 quarters as we continue to execute the strategy.

Let me turn to guidance on Slide 11. With the overperformance in the first half of the year, we are increasing the midpoint of our full year as reported 2025 revenue guidance by $100 million to $3.52 billion. We are also increasing our full year EPS midpoint outlook by $0.11 to $2.98 and are maintaining our organic ARR growth as adjusted guidance midpoint of 14%. While the business is performing well and ahead of plan, given the lingering uncertainty of tariffs, foreign exchange rates and other macro factors, we are updating our guidance with a similar approach we took in the first quarter, which we see as prudent, given the unknowns of the macro environment.

From a cash flow perspective, we are increasing our full year view to be approximately 1x net income after adjusting for the $277 million cash tax payment for gain of sale in the agriculture JV and the approximately $35 million in M&A costs and $50 million updated benefit from the repeal of Section 174. We continue to expect that we can deliver free cash flow greater than the non-GAAP net income over the long term.

For the third quarter guidance on Slide 13, we expect revenue to be in the $850 million to $890 million range and EPS of $0.67 to $0.75. We expect organic revenue growth in the third quarter to be in the 4% to 9% range. For further details regarding our guidance, please see our earnings supplement document, which can be found on our investor website.

With that, I'll turn it back to Rob.

Thank you, Phil. The strength of the second quarter mirrored the strength of our first quarter, demonstrating confidence and momentum in our business. We remain on a strong footing, strategically, operationally and financially. Thanks to all our global colleagues for their work and their dedication. We have a lot of work to do as a business to fulfill our potential, and we are up to the task.

Operator, let's open the line to questions.

[Operator Instructions] It looks like our first question today comes from the line of Jonathan Ho with William Blair.

Congratulations on the strong quarter. I was really intrigued by your AI commentary and sort of the data opportunity that you see ahead. Can you talk a little bit about how Trimble's platform potentially benefits from adding more and more of these AI capabilities? And can you talk to maybe how customers are receiving or starting to adopt AI within the marketplace?

Jonathan, thanks for the question. We have a belief set that the quality of the AI is going to correlate to the quantity and quality of the underlying data. And in that respect, quite bullish with the trillions, millions, millions and thousands coverage and commentary that we had it. So it's a unique data set that we have in the industry. And I can say from the time I spend with customers, increasingly, the conversations are around helping them unlock the data that they have so that they can make better decisions and manage their risk in a better fashion. So if you put all that together, it leaves me quite optimistic about a data forward future that we can have as a company.

Now we're quite early in this in this journey, I think all of us in this AI journey, so remain humble to continue to do the work and make sure we've got the underlying wiring and plumbing, right, underlying data governance, right? And all this, I'd say is, to me, is good news insofar as we think about the work we've been doing over the last 5.5 years to execute against our Connect & Scale strategy. It has us doing the work to be ready for this moment, unlocking that data from on-prem and on machine to get it to the cloud, connecting the data, having better insights into our customers and what they're using and what they're not using. So I'm very thankful for the journey we started these last few years, it positions us well going forward.

Got it. And then just as a quick follow-up. In terms of TC One, can you help us understand maybe where some of the traction is coming from in terms of bundling the products together. And particularly, I guess what I'm interested in is trying to understand how much of this is maybe expansionary. So it's existing customers that are adding more capabilities, maybe from a net retention perspective, -- or is it just brand new adoption of the TC One platform?

Good question, Jonathan. If I up level to AECO when we look at the bookings, about 2/3 of the bookings are to existing customers and about 1/3 are our new logo, so that probably provides -- hopefully, that provides a little insight into who's doing the uptake, let's say, on TC1 as well as the cross-sell motions that we have. When we look at some of the packages that are doing better, we really like what we see around civil estimating and the ERP. That's been a strong play for the team, project management, with the ERP has also been a strong play. When we look at our field instruments and we connect that to the model-based design packages we have, that's also proving to be a nice workflow as well.

So for sure, look at different customer segments and what makes sense for them. We can pull from the data that we have [indiscernible] of the first question, you have to see where the customers have gaps and have opportunities to do their work better, faster, safer, cheaper, greener through a broader adoption of the technology. So TC One becomes a commercial offering to help us reach those customers with the breadth and depth of what we do.

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

Rob, so strong results all around in the quarter. And last quarter, you talked about some of the elongated cycle times, just given some of that broader macro uncertainty. As you look out to the remainder of the year, can you just give us an update on customer sentiment. Are you seeing those cycle times improve? And maybe building on that last question, are there areas where you're seeing some changes in that selling motion just given some of those acute challenges for your customers around cost management, materials inflation, labor constraints, et cetera?

Kristen, thanks for the question. I'd say the overall customer sentiment feels pretty similar from Q2 as it did in Q1. I wouldn't say that there is a market shift plus or minus. And at any point in time, we're always going to have puts and takes as much as -- as many things as we do at Trimble and as many places around the world that we do business, that's probably not totally a surprise. But okay, let's say within that, I was in -- I spent a couple of weeks in Europe in July. And what I can hear -- and what -- excuse me, what I did hear more of was work around energy, infrastructure and defense.

If I look at the U.S. and with customer sentiment and where we see strength, it's not surprisingly in data centers, in our civil infrastructure as well as in the energy that we need to feed to the AI and the data center work that's happening. So seeing some positive pockets there. I feel like there may be more reinforcement of pockets as opposed to as opposed to new pockets. And then in terms of the -- let's say, to the extent customers are facing inflationary pressures, which is a real topic hey, we sell productivity and efficiency. That's the fundamentals of Trimble, adopt our machine control technology, and you're doing your work 40% more productively.

Use our design and engineering tools. You build it virtually before you build it physically and you can eliminate the rework before it ever happens. You're using our estimating tools and you built -- and you're using those estimating tools off of highly accurate [ dummy ] models, you're able to have a better handle on your underlying raw material cost to use our project management tools. And you've got a better handle on the labor that's managing the work in those projects. So I think we'd say we feel like we've got the right tools at the right time in the world.

And then I wanted to ask on the Field Systems strength there. That's continued to outperform the last 2 quarters relative to expectations. And in particular, some of the model transition that's ongoing there, we often hear that in some of these more traditional applications, users aren't interested in paying recurring revenue fees for their hardware or for their systems. So maybe help debunk that or help us understand what's working in that model transition. And if you have any early indications on renewal rates or anything like that, that will help us understand what that motion could look like on a go-forward basis for you?

Kristen, great question. I'll back up to overall Trimble and then zoom back down into Field Systems. I think there's nothing like math, to answer your question about the customers have a willingness to adopt or inverse resistance the adoption. We stand today at over $2.2 billion in annualized recurring revenue that was up 14% organically in the quarter. That's about the best proof point I can give. We were 1/3 ARR as a company 5 years ago, 2/3 today. Now of course, the majority of that has been driven by the software business as a Trimble.

Within Field Systems, that math plays out as well, though, as the ARR was up 17% year-over-year at $358 million. So I'd say to $358 million points of evidence that customers will adopt. But hey, okay, so why will they adopt? And what we see is the following, and then probably not -- it's not the exhaustive list, but a few things. It makes it more affordable. So if when you move from CapEx to OpEx, and we've seen this across all our businesses when we converted models, we've seen that we've increased the size of the addressable market by virtue of that business model. We had a number of competitive wins and competitive swap-outs on machine control, watching more of the machine control and survey systems as well over the last couple of years and then in the quarter as well. And if you're doing a swap of a fleet, that's a substantial purchase. And when you do it through the business model -- the subscription business model, you may get more affordable.

It's more than a business model that from a customer standpoint at our best, we're selling technology assurance. And so when you're able to keep the sensors and the software up to date and then when you can -- we have customers who will purposely buy on this model so that they can have every machine up to date with the latest technology and not have version control problems or multiple ages of equipment.

The more we can link what we're doing in AECO and that software to the work and to the field from a customer perspective, they don't care if you're an AECO business or a Field System segment of Trimble, they're doing business with Trimble. And so it's our opportunity to -- and our imperative to bring everything that, that customer can benefit from together. And if we can do that in one -- the extent to which we can do that in one package, we think is good for the customers. If we do right by the customers, then I think we'll do -- we'll be able to take our fair share of that value creation.

Now there's a lot more room to run, Kristen. So I think this will be a much slower adoption in the hardware business than we've seen in the software. But I'd say we're going to continue this push. We think it's the right thing to do for the market and for our customers. And there are just -- there are a few, not many other companies out there in the world that we pay attention to who we think we've been quite have been quite successful with it. And so we take opportunities to learn from others.

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

This is Zane Meehan on for Jason this morning. Rob, I wanted to ask about the U.S. public sector. Maybe you could provide an update there? I know you called out a little bit of softness last quarter, and we've seen peers echo that sentiment. But maybe any changes that you've seen in the second quarter? And what your expectations are going into the second half of the year? I know you called out a couple of good wins, but just hope you can update there?

Zane, thanks for the question. Yes, on the public sector, let's break it down at the -- from the federal level and the state level. At the federal level, we sell to defense agencies as well as really more to the civilian side of the federal government. And when we're selling defense, it's typically -- it could be a survey and machine control kit branches of the military. That's typically what we're selling at a federal level. And at the civilian level, think about, say, national parks as an example. That federal business is down significantly year-over-year, year-to-date, and we would expect that for the overall year. In fact, that makes us feel that much better about the results that we're posting in the business as well as in field systems because it has to overcome that headwind.

How that's going to shape now that the reconciliation bill is done and what that looks like going forward, I'd say let's see, I would expect, probably see more come back in the defense side than the civilian side, but stay tuned. These are multiyear programs, by the way, they can take a long time for appropriations to happen before the programs. So in that respect to echoing sentiment you've heard from others.

But let's talk about the state level. At the state level, Departments of Transportation are actually quite strong at the moment. There's a lot of construction happening. Of course, this does intersect the federal government because I'm talking about the infrastructure bill. So -- and this is probably one of the best pockets we have in the company at the moment as state budgets are strong and transportation work. I don't know -- I live here in Colorado. I can't go too many places on the highway without some orange barrels. I love seeing those orange barrels and love seeing that Trimble machine control and survey kit that's out on the roads. Here, we actually had a nice win with the State Department of Transportation to help them do in Colorado, to help them manage their overall assets and the states beyond the work that actually happens out in out in the field. So that's a real bright spot is at the state level with the DOTs.

And then where we sell, say, other software to state governments and state and local governments, I'd say that's about the same. That's a little bit softer and elongated sales cycles we've seen there. Add it all together, and it's been a net positive with those state budgets here in the U.S. at the DOT level.

Got it. Very clear. And then a follow-up on TC1's rollout in Europe. I know that's still early, but maybe you can just give an update on how that rollout is be going, what adoption has looked like and kind of puts and takes between Europe and North America?

Yes, good question. You're right. It's still early. I mean TC1 to be, let's say, too definitive about it. other than to say when we look at the overall TC1 bookings on a year-over-year basis for the business, they've almost doubled on a year-to-date -- or excuse me, in the quarter, they've almost doubled -- actually the year-to-date as well, doubled. So [indiscernible] as a part of that for that math to play out. I'd say the early reception feels good. To me, one of the things I appreciate is the team we have in Europe has done a nice job of working together and collaborating from the field and [indiscernible], especially where I've seen it with large projects and some of our larger customers. So in absence of having TC1 fully -- fully and elegantly available, have done a nice job of doing the right thing to bring the portfolio to customers.

So I'd say I remain optimistic about what TC1 and how it will do and how it will perform, especially as we continue to roll out the project management into Europe. We think that will be important for the TC1 bundle to have that, and we overlay that on context of energy infrastructure, defense spending, I don't know if it really does play through in places like U.K. and Germany and elsewhere in Europe, that would be a positive setup for TC1.

And our next question comes from the line of Robert Mason with Baird.

Last quarter, Rob, you talked about kind of the SMB market was an area of relative strength in AECO. I was just curious how that held up during the second quarter and how you're seeing that market for the rest of the year? And also curious just if -- just given maybe uptake there, if you're tweaking your go-to-market to more broadly address it?

Rob, and good memory. You're right. Last quarter, SMB, we pointed out as a positive an AECO. And I would say that played through again in the second quarter. There's a lot of work on -- I'm talking about overall, let's say, by the way, I'm talking the U.S. when I answer this question. There's a lot of work in the U.S. overall. Of course, there's puts and takes depending on where you are in the country and what type of work you do. But overall, the customers have backlog. And in many cases, those larger contractors are working with more of the SMB side to execute and get all that work done. So not a total surprise to us of that relative strength that's in that part of the market.

It's also a market that's under -- quite underserved and quite underpenetrated, which makes sense given the size of that addressable market and the low penetration overall, but that's going to even be -- don't take doubly so in the SMB side. One of the beauties of the work that we've done, both on the systems process, organization side, our own internal transformation, as we can shift resources, and as we move to that named account model and go to market, that's what enables it, we can shift more resources to find the more attractive pockets in the market quicker than we've ever been able to do. I would say 5 years ago, we have been probably quite slow to be able to adapt to these kind of changes in the market. But when you're organized around accounts, it is so much easier to change those motions and in essence, follow the money.

Now what you have to do in SMB as opposed to let's say enterprises, you have to be smart about how you approach those customers, where you have a bit more of a mix of some inside selling work. You can't people on an airplane for every account as you move more and more down market. So the digital marketing motions matter more, inside selling motions matter more that presales the qualification all of that matters more. And we're at a point now in this.

Business in AECO is now $1.36 billion ARR business, and AECO was up 16% in the quarter on a year-over-year basis. Like we've got scale to operate like this to be able to address multiple pockets in the market.

I see, I see. A lot of discussion today and performance also out of field systems, but a lot of discussion on Civil, you mentioned surveying a number of times. Historically, you've framed surveying, I guess, broadly is maybe more mature from a technology adoption standpoint. We keep hearing about a lot of, I'd just call them demographic labor availability challenges in that field. I'm just curious, is there an opportunity to maybe bend the growth profile upward in that part of the market?

Yes, good question, Rob. And shout out to the Field Systems team. They had a great quarter. They've done really well year-to-date. They've got a lot of transformation on -- in that business. I'm really proud of also what I see out of our global dealer partner network. We had them all together in Paris for a global dealer meeting a few months ago, and I'd say that level of energy, enthusiasm, belief and momentum in our dealer channel is also gratifying to see.

To keep them, let's say, doing their job and doing their work, we have to continue to innovate and supply them the products and the solutions for them to take to market. And in that respect, surveying, you're right, we have a huge lack of surveyors around the world. It is a constraint to work getting done. Now one of the areas of innovation we've had, if we take construction as an example, as we continue to make the technology easier to use for the non-licensed surveyors to be able to go out and do the work, let's say, in a building construction context for example. And so by innovating the software and the ease of use of the technology, in other words, you don't have to understand all the underlying technical aspects of serving to do the work, we've been able to expand the usage of the tools into market segments. For Index is another market segment.

If you're doing an accident reconstruction folks are typically -- if you work in public safety and you're coming out and you're doing a 3D laser scan to reconstruct that scene, you're not a professional surveyor. You're doing the instrumentation set up, you capture the survey, you bring it back to the software for the post-processing work. And so it's a form of innovation to expand the usage to other, let's say, players in the ecosystem.

Now within the survey itself, think about -- what does this -- think about what a surveyor does. The surveyor creates a digital model of the physical earth. And in so doing, they may do it in 1 of 3 ways. You can have aerial, you could have mobile and you can have terrestrial. At an area level, that's, I think, drones and that data capture. Mobile mapping systems have been one of the stronger growing segments we've had within survey for quite a few -- actually, quite a few years now. The team has done a really nice job of creating mobile mapping systems. And that's a nice workflow that we can create because if you're doing a mobile -- excuse me, you're doing an asphalt profiling on a road construction and you use in Trimble mobile mapping technology, then we can capture that data set. You can see where the cracks are, do an asset inventory, bring that back to the office, run it through the office applications we have and then you create, let's say, a set of work orders back out to the field.

And then for the surveyors in the field during the terrestrial surveying. We think about new instruments beyond, let's say, GNSS. Like, you know us for GNSS. You know us for a robotic total stations as optical, I think about reality capture devices. These 3D laser scanners and an area of technology called SLAM, simultaneous location and mapping. This area of reality capture, we think, will be a growth area that can bend that curve over time. And so that's an area to look out for us in the quarters and years to come.

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

I know it's early days, but the AI stuff is interesting. And I wanted to ask releases versus what you've got in the pipeline, a little bit about your philosophy around it where I don't know if it's investment or the cash flows out of the kind of or self-funding. And then maybe, Rob, you touched on all the work you've done over the last -- the team has done over the last several years from Connect & Scale. How is development launching, et cetera, different now that you've done that for AI?

Rob, good question. I'll see how I can do this. If I can do this in a [ pity ] format, I think I could talk for an hour about your question. In the last quarter's call, we had a slide in the deck, a 2 x 2 and 1 axis is where we're using AI internally. And then the other axis is where it shows up more externally -- or excuse me, the other side of that axis is more shows up externally and then the other axis is more driven by cost efficiency or revenue generating activities. So there's a -- you're asking more about, I think, what we're doing with customers and those releases. And in that respect, I can give you a number of examples of what we're doing there.

This looks like natural language design and rendering of designs and our architecture and design systems. It's in the construction [indiscernible] invoicing, and Field Systems for that data collection, it's point cloud semantic segmentation. In transportation, it's autonomous procurement and autonomous quotation as a few examples of capabilities or products that we have. And you're correct. There's much more in the pipeline than what has been released.

At an internal level. I would say, gosh, it feels like in every function in the company has worked on to drive our own levels of efficiency and productivity and quality of output. So from -- our engineers and software development to our product managers, creating rapid prototypes, to our cloud teams using it to bring infrastructure costs down to cyber teams looking at it for threat detection, marketing teams for marketing copy and digital pipeline analysis, sales ops using it for cross-sell and upsell. Analytics, I could just keep going through our own adoption of the technology.

And to your point about the work we've done over the last few years. It's really made us have to rethink around or say, orientation to data and how we move data across our systems and now we have the interoperability within Trimble as well as interoperability outside of Trimble as well. So I want to pause there, Rob, do you have a follow-up on that?

No. I mean it's exciting and it's moving fast. So that's very helpful. And then just a related follow-up. You touched earlier on the quality of data that flows into AI models or features, whatever you want to call it. How does your data -- and I can guess I'd like to hear from you differentiate from other peers and especially AECO. I'll stop.

Yes. There's the -- well, I look at the breadth and depth -- and the breadth and depth of what we do at Trimble, right? We want to connect construction. We want to connect supply chain. We want to connect [indiscernible], connected utilities, like we think about connecting the stakeholders across the industry life cycles we serve. Arguably, we've been on this path for a couple of decades and then we accelerated that with Connect & Scale over the last 5 years. So that breadth and depth is to me the most unique thing.

And then the second most unique thing is that we've got data in the physical and the digital world. Like I'd say everyone -- I feel like everyone talks about connecting physical and digital, I feel like the difference is that we can actually do it. And that's through the hardware and software and the work in the office, and the work in the field. So to me, there's a density and a unique density of data we have, it's a unique quality defined quality [indiscernible] as breadth that we have. The more that you're going to think about creating an industry LLM, you're going to need -- if you have an industry LLM and the big opportunities to really address system productivity as opposed to task productivity or system optimization as opposed to task optimization. You want that breadth and depth to be able to see the systemic connections within that industry. And so in that respect, then we think we've got a unique access to a unique data set.

Now there's a double click on the quality of that, Rob, is that there's a lot of structured and unstructured data. There's more unstructured data than there is structured data. We've got to make sure we've got good data governance. Customers are for sure concerned about data sovereignty and the protection of that. So I'd say there's still a lot of work to be done and the underlying layers of making sure that we've got really good quality data, again -- the quality of the data is going to correlate to the quality of the [indiscernible].

And our next question comes from the line of Joshua Tilton at Wolfe Research.

Congrats on a very strong quarter. Two questions for me, if I may. The first one, you guys had a lot of positive commentary on SketchUp in the prepared remarks. We did pick up, I believe, a price increase that went into effect in July. Could you just maybe elaborate on that and talk to how that price increase has been received by customers?

Josh, thanks for the question. I'd say it's early to give you like a definitive view on how that's going. What I can offer that might be more helpful is we offer a number of different subscriptions in SketchUp, where we have monthly subscriptions. We have annual subscriptions. We've SketchUp on the App Store. So there's different flavors that we have of the model. And as you might be able to appreciate there's an optimization factor between monthly pricing and annual such that you want to get that balance right so that we're incenting what we think is the right outcome for the customers and then for our own business model as well. And so some of that pricing change has been trying to get that what we think is that balance rate between the monthly pricing and the annual pricing.

We -- for sure, we'd love to see customers on more of those annual contracts with us. But we appreciate that there's a role for the monthly to fill in for certain types of users. And so we want to get that balance right, and that pricing move we made was reflected, we think, to get that optimized correctly.

Very helpful. And then maybe just a quick follow-up for me. AECO has obviously been a monster for you guys. It continues to be a monster this quarter. There was a bit of a slowdown in the ARR growth compared to 1Q. Can you just maybe high level give us -- elaborate a little bit more on the conviction that you have in sustaining that mid-teens ARR growth for the full year?

Yes. Josh, it's Phil. Let me take this one. So first of all, I'd say that the numbers we put out there are in line with the guide and the previous guide. So I don't think there are any real surprises on that. I'll point -- maybe a couple of things just to point out specifically is when we do our ARR calculation, that's based on a recognized revenue in the quarter. That can vary a little bit, and I'll call it with timing on how we recognize that revenue.

So any given quarter, it could move a little bit because of that. And so Q1 was a bit higher because of the term license as we recognize Q2 was a bit lower. I tend to look over, let's say, a trailing 12 months. And I think we've been pretty consistent, if you look over a multi-quarter horizon on that one.

Another piece of this is on pricing, price increases for this year. The last couple of years with inflation, we had some higher price increases, particularly in the SketchUp overall. And we knew coming into this year, we anticipated that our price increases were going to moderate, coming on the backside of the inflation. And so that was always modeled in. And so again, we anticipated that, and that's where you see a little bit of that moderating over the course of the year from -- well, from Q1 to Q2 and then as we go forward, as we think about the guide.

I will say as we think about the guide going forward, just I mentioned this in the prepared remarks that we are being prudent about this with the given macros and others. And Rob mentioned the SketchUp price change that being a little cautious on if there's some additional churn or not with that change. And so being a little bit conservative on the back half of the year as I think about the carryforward on the ARR growth. But if the markets continue the way they are, and we have a low churn or consistent churn, I should say, on the SketchUp pricing changes, then I'd say that we'd be biased towards the upside of our guide on the ARR growth for the back half of the year.

Makes sense. And again, congrats on a great quarter.

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

So, I was hoping you could unpack some of the trends in the quarter for AECO across some of your key customer base is enterprise, midsized small. Where are you seeing the greatest traction in TC1. And I guess maybe longer term, which of these customer groups has the greatest penetration of growth potential over the next couple of years?

Chad, with respect to the trends in AECO, let's take it as AECO bookings to answer the question with TC1. From a dollar perspective, the biggest motions tend to have a nucleus of the ERP and have a nucleus of project management, and maybe see a nucleus of the modeling technologies we have. And then there's -- so then think about it, those are the -- and we have defined over 20-plus different prepackaged offerings that we have. But that's where the centricity of those first 3 that really move the needle, probably the biggest needle movers where there's ERP in the mix, not surprisingly. Really, if you think about that. And that's going to correlate more to the mid and large size of the market. So where TC1 is really moving the needles where you hit one of those 3 motions or plays that we can run.

From a customer count perspective, from a percentage growth perspective, that SMB is much less penetrated, and so it's not surprising to us that we see growth percentages higher and those motions that are down market. Where we would expect to see going forward continued traction with TC1 as we continue to globally roll it out further in Europe and the Asia Pacific. That will give us more motions. Phil mentioned a tuck-in acquisition, we did with Trimble Materials. That's a great motion for TC1 and then deeper linkages that we can make with the Field Systems and will make with the Field Systems side of the business as an additional addressable market opportunity for us to grow TC1 bookings or cross-sell bookings for that matter. We can have a cross-sell booking that's not technically TC1 and we'll take that as well. We just work backwards from how we best can serve and reach the customers with the breadth and depth of what we've got.

That's helpful, Rob. And then just to continue pulling on red on the AI opportunity. I recognize it's a little bit early, but any thoughts on any changes you may need to make on your revenue model? How you're approaching your buy versus build decisions when we're thinking about this technology? And then lastly, I guess what's like the low-hanging fruit, right, from like a development standpoint on your end? And from an adoption standpoint or in your standpoint on the customer side? Like how does that intersect?

Yes. So I mean, there's our own usages of AI, I call it the internal and then there's the external facing. If we talk about a little more external-facing and revenue models, we -- right now, we're predominantly pricing. We have these good, better, best tiers. And then the best tier, you can have AI capabilities. That's -- we found that to be the best way to monetize now. In transportation, we're monetizing discreetly with autonomous procurement and quotation as a stand-alone AI products. I'd say we're doing a lot less of very little of consumption only.

I do think about consumption becoming more of a monetization path in the future more so than it is today. It's one of the reasons we like having Transporeon on the portfolio as it brings that kind of DNA in house and capabilities to sell on a consumption basis. So I feel like we've got optionality for how we can monetize going forward.

With respect to buy versus build tendencies, I tend to think about that in our own adoption of AI tools and where we can use capabilities that come from the vendors we work with. We buy a lot of software ourselves. If it's already built in, I prefer that from a capital allocation perspective that we use what's already in what we're buying as opposed to building our own. But hey, we'll be mindful of what it costs because then we can [indiscernible] at times look and say, well, actually do think we could do that ourselves.

And the lowest-hanging fruit, I could have -- you asked about there. Certainly, the lowest hanging fruit opportunities internally, but externally as well. So internally, everyone talks about the R&D usages. I'm very optimistic about the intersection with product development because product development intersect product management and those developers and it may not be the lowest hanging fruit, but I'll tell you one of the things that I'm really mindful of this to unlock the most out of the AI opportunity. I think it's also going to require companies, including ours, to think about how we even structure ourselves and how do we structure teams, how do we actually rethink how work is done given the tools that we have. So that's on my mind.

That's not the lowest-hanging fruit, I acknowledge, but I think it's important that we're mindful of that to unlock the opportunity. And then with respect to the lowest-hanging fruit with our customers, we think about solving the customers' problems. AI isn't the thing in and of itself. It's a tool. We think of it as a tool to unlock that efficiency. And if we do that and we're thinking about working backwards from customer problems, I think we'll head down the right path. So thanks for the question, Chad.

And our final question today comes from the line of Tami Zakaria with JPMorgan.

I'll ask just one question. Excellent quarter, by the way. So on Fuel Systems, organic growth guide is now back to flat. That's great to see. But your first half performance is a lot stronger than flat. So was there any front-loading by customers ahead of tariffs that will drive a weaker back half? Just curious how you're thinking about the back half after a very nice first half?

Tami, it's Phil. Thanks for the question. Yes, I see there's a couple of things as we think about the back half of the year. So one is -- we keep an eye on the inventories. The inventories are in great shape at the dealers. So we haven't seen any pre-buying ahead of tariffs, things like that. As a matter of fact, we've seen some destocking in our -- particularly in our survey channel. So the dealer inventories look really good from a retail pull-through standpoint and what's necessary. So no concerns there.

Two things on the back half of the year. One, I mentioned this, again, with the macro uncertainty and there's still some lingering tariff discussions out there, we're still being prudent on the back half, particularly Field Systems since that's a book and burn business. So we're being a little bit cautious there on the guide. The other thing is we started to see an inflection last year on the growth in Field Systems. And so the comps on a year-over-year basis are a little bit tougher versus the first half of the year. We haven't really seen any change in the buying behavior so far. So this is more of us being prudent than anything else as we think about it. But again, the comps are a little bit tougher as we think about the back half of the year as well.

And ladies and gentlemen, that does conclude today's call. Thank you so much for joining, and you may now disconnect. Have a great day, everyone.