Release Date: August 06, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- Trimble Inc (TRMB, Financial) reported a record $2.11 billion in Annual Recurring Revenue (ARR), growing 14% year-over-year.
- Gross margins reached a record high of 66.5%, and EBITDA margin expanded by 40 basis points to 24.6%.
- The AECO segment achieved an impressive 18% ARR growth, with significant contributions from both existing customers and new logos.
- Trimble Inc (TRMB) is leveraging AI internally and externally, with over 2,500 engineers using GitHub CoPilot and 5,000 employees using Trimble Assistant.
- The company raised its full-year revenue guidance to $3.63 billion and increased the earnings per share midpoint to $2.74.
Negative Points
- Revenue growth was modest at 1%, indicating potential challenges in expanding top-line sales.
- The field systems segment experienced a decline in revenue, primarily due to the strength of prior year government-related sales.
- The North American transportation mobility business is facing churn, which is expected to impact the second half of the year.
- Asia Pacific markets, particularly China and Japan, showed weakness, affecting overall performance in the region.
- The automotive OEM wins, while promising, are slow to convert to revenue, indicating a long lead time before financial benefits are realized.
Q & A Highlights
Q: Hi. Good morning. Thank you for taking the question. And congratulations on the nice quarter. I wanted to ask about the 18% AECO ARR, clearly ahead of our expectations. You lifted the guidance there. And when I look across the landscape of software categories in which you compete, it seems to me like maybe there's an opportunity for Trimble to pick up some share as you think about some of the pricing and channel shifts that we've seen. So I'm just wondering if you can help us unpack the sources of growth there. Is it cross-sell, upsell, new logos, price, et cetera. Any additional color that you can provide there would be helpful.
A: Thanks, Kristen, for the question. And good morning. So let's break down a little bit there within the ARR growth. Starting with like a congrats to the team. It really was a terrific post of the number for the quarter. About two-thirds of that growth is coming from existing customers and one-third from new logos. And so we really -- the breadth and depth of the portfolio we have there's a great ability for us to package cross-sell, upsell. And that comes in the form of the Trimble Construction One offering where we now have over 20 prepackaged offerings to serve specific personas across the industry continuum. If we look at the segments that we're serving within construction, where we see strong growth are in data centers. We see the onshoring and reshoring of work, renewable energy work. These end markets have been strong and probably data centers have been the strongest. We actually have also had some growth in residential. So even though there's weakness there, we've seen growth there. One thing that's unique to, Kristen, about the data set that we have, because we're managing over $1 trillion of committed construction programs through our systems, over $0.5 trillion through the ERP alone is there's a lot of data we can see. And so in North America, we can see that jobs are up. Hiring is up that as jobs are up. We can see that the volumes are up. We can see geographic strengths within states here in the US. We can see that states like South Carolina, Florida, Texas, have been very strong. We can see states like New York and Louisiana have been weaker. So we're able to get a good insight into the market. And then differentially across the world, North America, for sure, is performing better than Europe and Asia Pacific. So I hope that gives you some color.
Q: Thank for that. And my follow-up here, this is the first real conversation we've heard Trimble have about AI. You're giving some of the examples at the back, which we'll have to go back and look into. But one of the questions that we've seen in AI in the market has been, how do you monetize it? So can you help us understand whether it's the copilot or utilization or the autonomous procurement? Just help us understand the value creation or monetization opportunity for Trimble in leveraging that technology. Thank you.
A: Yes. It's a great question, Kristen. We're still in the very early innings of monetization. We're paying a lot of attention to it. Now, you talked about the GitHub CoPilot work. That's internal productivity. So the lens I have on this is there's a set of work in AI that's for making us more efficient and productive inside our own house, that could be how we're doing customer support using the chat bot. It is the productivity through the code development. It's getting sharper about how we do our marketing efforts, leveraging AI. When we go more customer oriented, and those are the examples I had in the prepared remarks and then we put a slide in the appendix with some hyperlink so you can go look at some examples of what we're doing in the market. I'd give you sort of two breakdowns on that. One is that we see it as -- some of this is part of continuous value delivery to our customers. That is they're paying subscriptions. We typically get price increases every year. I think there's a reasonable expectation that we're providing incremental value. And in that sense, it's part of the offering that we do. The distinction I would make is when we have more breakthrough productivity or breakthrough value that we can provide customers, we think about, okay, what's the -- quantifying that value and then what's our fair share of that capture. One example I can point out is in within our Transporeon business as the team developed -- has developed autonomous procurement and autonomous quotation capabilities. And when customers are using that instead of the traditional methods they've used and solutions we've used within Transporeon, we're monetizing that at, I think, of 2 times to 3 times -- back to 2x factor, poor execution because the result is that much better for the customer. So that's one example of where we're monetizing. And I'd say we're still pretty early in it. And you're right that this is certainly evolving of -- in the monetization side of things.
Q: Great. This is Zane Meehan on for Jason Celino this morning. Thanks for taking my question. Rob, first one for you. With the election in the US coming up later this year, just curious to hear if you're hearing any customers laying buying decisions as a result of that? And if so, if that's contemplated in the 3Q and full year guidance?
A: Hey. Thanks for the question. Relative to the election, I mean, you typically hear that in these periods of people will do a bit of a pause to kind of see which way the wind is going to blow. And we'll see which way the wind blows. We believe we've taken that into account in the guide that we've put forward. And if you think about the guide, think about the visibility we have with the ARR business is much higher than we would have on, let's say, the hardware business, which manifests more as a book and burn. So we have visibility into the rest of the year differential visibility. 60% of our revenue is now recurring as a company, 75% of our revenue overall as software services and recurring. It's certainly reasonable for us to -- and all of us, I guess, to think about what the impact of the election might be on our business, whether that's around regulation or whether that's around tariffs, depending on which way and which way this goes. But we believe we've got this taken into account.
Q: Okay. Great. That's super helpful. Thanks. And then second question, Phil, for you. On the margin side, it's nice to see a little uptick in the guide. Just curious, is that coming more from the revenue outperformance? Or are you getting leverage from specific line item. Just curious to hear further infill on the margin uptake.
A: Yeah. Thanks, Zane. The main reason for it is really the mix shift is our AECO business continues to grow at a faster rate than the field systems. And we had a little bit better first half and those bookings start to flow through in the second half
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
