TRMB - NASDAQ

Ladies and gentlemen, thank you for standing by. My name is Krista and I will be your conference operator today. At this time, I would like to welcome everyone to the Trimble Fourth Quarter 2024 Earnings Conference Call. All lines have been placed on mute to prevent any background noise. After the speakers’ remarks, there will be a question-and-answer session. [Operator Instructions] Thank you. And I will now like to turn the conference over to Rob Painter, President and CEO. Rob, you may begin.

Welcome everyone. Before I get started, our presentation is available on our website, and please refer to the Safe Harbor Statement. Our financial commentary will reflect non-GAAP performance metrics, including organic growth comparisons, which refer to the corresponding period of the prior year, unless otherwise noted. In addition, our P&L commentary will emphasize comparables on an as-adjusted basis, which excludes our agriculture business, our recently divested mobility business, and the extra week that we had in the fourth quarter of 2024. Starting on Slide 4, we ended the year on an emphatically strong note. As reported, fourth quarter revenue at $983 million, ARR at $2.26 billion, and EPS at $0.89 were all above the midpoint of our guidance. On an as-adjusted basis, revenue was up 9% for the quarter and 6% for the year, with ARR up 16%. Gross margins at 71.7% represent the first time that we have crossed the 70% level. Kudos to our global colleagues and partners. Phil will walk us through additional details of as-adjusted performance in his commentary, which is necessary to set the correct baseline for fiscal 2025. Moving to Slide 5, our performance in the fourth quarter capped a transformative year for Trimble. For those newer to the Trimble story, we call our strategy Connect and Scale. Our technology is digitizing and transforming work in the construction, geospatial, and transportation industries. These markets are large, global, underserved, and under-penetrated with a combined addressable market of over $70 billion. By executing our strategy, We have simplified, focused, and strengthened Trimble. We now report under three segments, with leadership perfectly aligned to this structure. We have also transformed our business model in the process, delivering compelling and compounding financial returns. On an as-reported basis, between 2019 and 2024, ARR increased from $1.2 billion to over $2.26 billion. Recurring revenue doubled as a percent of overall revenue to 62% percent and overall software and services increased to 76% of revenue. Gross margins in 2024 at 68.2% have increased over 1000 basis points. All of this has translated into over 400 basis points of EBITDA improvement with 2024 ending at 27.2%. At our Investor Day in December, we outlined the progression and direction of our strategy, detailing our right to win at the intersection of product, technology, and go-to-market. We laid out our [3-4-30] (ph) ambition through 2027 to deliver $3 billion of ARR, $4 billion of revenue, and 30% EBITDA margins. By delivering transformative outcomes for our customers, we are poised to deliver compelling returns to our shareholders. Today, I'll highlight the last few months of Connect and Scale strategic progression in three areas. First, product and go-to-market through the lens of our customers. Second, technology innovation. And third, capital allocation. In the fourth quarter, we engaged with thousands of our customers and partners. Our Dimensions user conference, which focuses on the engineering and construction industry, had more than 7,000 registered attendees. We ran sessions on-site at the venue and off-site at a purpose-built proving ground where we could demonstrate our field solutions in the dirt. We had the opportunity to showcase our product innovation progression as we move from point solutions to workflow to ecosystems. This progression uniquely leverages the vast installed base, we have across the life cycle continuum of the engineering and construction industry. At the off-site venue, pictured on the cover slide, more than 25 of our OEM partners demonstrated onboard and offboard technology, serving a large array of machine types, and we were able to showcase our unique office to field workflow connectivity. The unique value we are offering to the ecosystem is evidenced by the strong growth in ARR in both AECO and Field Systems. Further evidence of this unique value is in the record level of ACV bookings in AECO in the quarter. In transportation, we see and hear our customers asking us to address similar opportunities as our construction customers. They increasingly seek data-rich solutions delivered in a common and connected data environment. While the freight market macros remain challenged, our team is doing a good job controlling what we can control. For example, the Transporeon business achieved an all-time record level of bookings in both the fourth quarter and the year. When the freight markets return to growth, this business is well-positioned to showcase its true financial potential. Complementing the product direction is the innovation that has taken hold with our go-to-market initiatives across the company, which have never been better aligned to unlock the potential of Trimble. On the technology innovation front, we continue to progress state-of-the-art and core positioning technologies, along with connectivity, collaboration and visualization. We believe we are well positioned to be a winner in the data-centric and AI forward world, leveraging trillion billions, millions and thousands. Trillions of dollars of construction programs run through Trimble. Tens of billions of freight run through Trimble. We have millions of users of our software. We manage millions of miles of our roadways and we have hundreds of thousands of instruments and machines out in the field in the real world operated by Trimble technology. Over the last few months, we have increased the adoption of AI to fuel our own productivity, creativity and to drive profit expansion. We've been launching agents to better support customers, product managers and our sellers. The potential is exciting, and we will continue to lean into the technology to drive both internal efficiencies and amplify customer value. Finally, I'll cover three topics on the capital allocation front. Starting with the divestiture of our mobility business, which we closed on February 8. We are a significant shareholder in platform science and we refreshed an ongoing and important commercial relationship with their team to link telemetry with our broad set of capabilities, including dispatch scheduling, routing, navigation, maintenance visibility, freight procurement and more. We are accounting for this investment under the cost method of accounting, where our investment will be represented on our balance sheet rather than the non-GAAP P&L. Second, we remain committed to executing our share buyback plan. We continue to believe that repurchasing Trimble stock as an attractive opportunity for capital deployment given our share price today. As further evidence of our commitment, today, we are announcing that our Board increased our repurchase authorization to $1 billion. Third, given the strength and momentum in the underlying business and particularly the success we have demonstrated executing our TC1 platform strategy in AECO, we intend to play offense on the acquisition front. Tuck-in opportunities that can quickly integrate and be put in the hands of our sellers are the most obvious category, building on the success we have had with such moves over the past few years. We will also opportunistically consider large opportunities should they present themselves, particularly instruction software. Though the bar will be high, anchored in our disciplined focus on ROI and compared to the returns we can generate from buying back our own shares. Trimble enters 2025 with a balance sheet well below our leverage targets with continued strong free cash flow generation and with shares trading at levels we find attractive. Collectively, this gives us a range of good options to consider as we drive value for shareholders. Phil, over to you.

Thanks, Rob. On January 16, we filed our 2023 amended 10-K along with our 10-Qs for the first, second and third quarters of 2024. As we messaged throughout the process, there is no change to our filed financial results. Our full attention is now focused on working with our audit provider to complete the 2024 audit. The good news is that the 2024 audit work builds on the 2023 work. The challenge is that because of the 2023 filing delays, the timeline is compressed. We are likely to file our 2024 10-K after the March 4 due date and are working to file within the 15-day extension that is allowed under SEC rules. At this time, we believe any delays to our filing would be solely due to the tight timeframe. We are, of course working hard and doing everything we can to file our 10-K on time. Let's review the fourth quarter and the year for 2024 starting on Slide 6. Unless otherwise noted, I'll be talking about our as-adjusted numbers, which remove the effects of the recent divestitures in the 53rd-week including the January 1 term license renewals. As reported numbers, along with the reconciliation are provided in the Appendix. Organic revenue was up 9% for the quarter and 6% for the year with ARR up 16%. We achieved EBITDA margins of 27.8% for the quarter and the year, both of which expanded nearly 100 basis points. Reported EPS was at $0.89 for the quarter and $2.85 for the year. The reason we didn't see an even larger EPS outperform was primarily due to additional incentive compensation accruals and additional sales commissions. Moving to the balance sheet and cash flow items on Slide 7. Our reported free cash flow for the year was $498 million, which represents a conversion rate of 0.71 to net income. Adjusting for $204 million of M&A related tax payments and transaction costs, cash flow was over $700 million with a conversion rate of approximately 1 times. Our balance sheet is strong with over $700 million of cash and a leverage ratio of less than 1 times which is well below our long-term targeted rate of 2.5 times. Let's shift to a segment review of the numbers before we close with guidance. Starting with AECO on Slide 8. 18% ARR growth for the quarter and the year and operating income at 31.2% for the quarter and the year. This is a scaled business nearing $1.3 billion of ARR and revenue and operating well above the Rule of 40. In fact, it was greater than a Rule of 45 for both the quarter and the full year. ACV bookings increased over 20% in the quarter, providing momentum to our ongoing commitment to grow ARR at our long-term model rate in the mid-teens. We are especially pleased with the ongoing performance of our Trimble Construction One offerings, as well as a level of growth in cross-selling and up-selling initiatives. Next, Field Systems on Slide 9. While for the year, revenue was slightly down on an organic basis, it inflected positively in the second half of the year and was up 2% in the fourth quarter. Of particular note, ARR growth at 21% for the quarter and the year demonstrates the intentionality of our business model conversions. In almost every business where we have implemented these changes, we have seen the addressable market expand. It should also be noted that the recurring revenue conversions were 150 basis points headwind to 2024 annual revenue growth, thus the two must be looked at in combination. It should further be noted that the team executed on these transitions while increasing operating income margins to 30.1% for the year. Finally, Transportation and Logistics on Slide 10. Revenue and ARR were up 8% both for the quarter and the year, led by growth above the segment average from our MAPS business and the Transporeon business. Operating margins were 24.1% for the year. Transporeon continues to deliver in a challenging freight environment with strong double-digit bookings growth for the year, including several cross-sells with North American customers, as the Connect & Scale playbook is being replicated in the Transportation segment. Before we turn to guidance, let us set context with a few considerations related to tariffs and foreign currency translation. Based on what we know today, we have not modeled any impact of new tariffs into our guidance. Given the software centricity of Trimble today and the geographic diversity of our revenue and supply chains, we are confident we can navigate the environment with minimal financial impact. With respect to foreign currency, our EPS has historically been naturally hedged against currency moves given our global workforce. However, with the growth in AECO and Transporeon outside the U.S. we now expect a slight amount of foreign currency translation headwind to flow through to EPS. For 2025 guidance, on Slide 11, the midpoint of our as-reported guidance is $3.42 billion and $2.87 EPS. This includes one month of mobility with approximately $20 million in revenue and under $0.01 of EPS. On an as-adjusted basis, our EPS guide implies low-to-mid teens EPS growth year-over-year, consistent with our long-term model. Our guidance assumes the strong U.S. dollar holds and we have incorporated into our guidance full year foreign currency impacts on revenue of minus $50 million, ARR of minus $30 million and EPS of approximately minus $0.04. Relative to our initial fiscal 2025 guidance we provided in December at our Investor Day, on a constant currency basis, we have raised our revenue and EPS guidance. For first quarter guidance on Slide 13, we expect as-reported revenue to be in the $794 million to $824 million range and EPS $0.55 to $0.61. We have provided an updated view of calendarization in the earnings supplement on our investor site, which is in-line with what we shared at Investor Day. On an as-adjusted basis, organic growth for the first quarter is in the minus 1% to plus 3% range. Please note that there is no January 1 in our 2025 fiscal first quarter. It was in the fourth quarter of 2024. Adjusting for this would result in first quarter 2025 organic growth of approximately 8% at the midpoint. Also note that the January 1, 2026 will occur in the fourth quarter of fiscal 2025. Both revenue and operating margins are expected to trend up in both absolute and percentage terms as we move throughout the year, reflecting the fact that our portfolio is now more heavily weighted to the growing recurring revenue business models and less impacted by seasonality in field systems. With that, I'll turn it back to Rob.

Thanks, Phil. I appreciate that divestitures and the 53rd week make comparables a bit difficult. We encourage you to refer to the supplement on our website where we outline the moving parts. To keep things simple, whether we are talking on as reported or an as-adjusted basis, the message is the same. We ended 2024 on a strong note with a significant beat on our numbers, and we are carrying that momentum into 2025 with raised guidance on a constant currency basis. I'll close with a reflection on confidence and humility. Confidence that every turn is what we deliver to our customers, improving performance and unlocking insights with technology. As we execute our Connect and Scale strategy in 2025 and beyond, we are confident in our ability to execute the strategy and excited about the opportunities in front of us. We are also humble as we navigate the uncertainty in the current environment. Our highly experienced and values-driven team is hard at work to achieve the potential of Trimble. I'll close by extending my gratitude to our colleagues, partners and shareholders for their ongoing support. Operator, let's open the line to questions.

Thank you. And we will now begin the question-and-answer session. [Operator Instructions] Your question comes from the line of Jason Celino with KeyBanc Capital Markets. Please go ahead.

[indiscernible] Rob, I'm curious how you're thinking about the current macro environment. There's pushes and pulls and we're wondering if you've had a chance to gauge sentiment among your owners and construction type customers?

Hi, Jason, thanks for the question. You broke up there at the beginning, but I think you are asking about the current macro environment, I think with a bias towards what we're hearing in construction. In that respect, I'd say, geographically North America continues to be the strongest of the geographies where we participate. If I look within North America, you probably won't be surprised to hear that segments such as data centers, energy markets are good verticals for us. They are performing well, sentiment remains strong in those respects. We see differences, I would say, within the United States. The Southeast tends to outperform geographically relative to most other states. You follow the money, there is still the infrastructure bill, the Chips Act. There's a lot of backlog that contractors have. Now with respect to contracts in the backlog, there are fewer new projects that the contractors have. So they are working down their backlogs. What we see from our own data is that our customers are hiring. And as they are hiring, that's a catalyst for the adoption of technology. So you're right, there are some puts and takes both within North America and around the world, but the overall sentiment remains healthy.

Okay. And then related to tariffs, it sounds like you are not modeling any financial impact. Is it because you don't know, and it is still kind of a wait and see? It's just I think that especially with some of your AECO segments, they would be sensitive to different price changes or perceived price changes? Thanks.

Hi, Jason, it's Phil. So on the tariffs, if you remember, we're about three quarters now, software services recurring. And so our exposure is really a lot smaller than it would have been in the past to those. On the more discrete items around Canada and Mexico that have been out there and now have been delayed, we believe it is a relatively small impact. And our supply chain and our operations team is well prepared for some contingency plans that we see just offsetting that. What we haven't really modeled in is there has been a lot of explicit answers, let us say, on the tariffs as we go forward when we think about any sort of reciprocal impacts and things like that as we think more globally. So right now, we do have confidence in our operations team. We have a global supply chain. We have opportunities and contingency plans that we can enact depending on what it manifest. But just to be clear, we have looked at it, and we don't believe there's a material impact on the financials based on the information we've seen so far.

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

Hi, good morning. Thank you for taking the question. I wanted to start with the 2025 guidance, the AECO ARR growth expectations in the mid-teens. Just given some of the changes that you made in 2024 around the commercial organization, bundling, how you are thinking about the contribution of new logos versus cross-sell, up-sell in that 2025 framework?

Hi, good morning, Kristen, it is Rob. I will take the question. We see about two-thirds from existing customers and probably a little bit less than [one-third] (ph) from new logos. So at Investor Day, you'll remember we talked about what we see as a $1 billion opportunity and cross-sell, up-sell within the portfolio. And that's consistent with that view, we have coming into 2025 with the business. And you are right that the investments that we've made and the underlying systems, the transformation we've taken into the product, as well as to the go-to-market side of the house, position us well to start to go -- or to continue to tackle this opportunity.

That's actually a good segue into my second question, which is a little bit more of a big picture question. You mentioned in the prepared remarks, Rob some of the AI agents that you've been deploying internally, can you expand on how you are thinking about operating efficiency opportunities? We've been hearing examples of 100 to 200 basis points of sound margin by applying AI to internal functions. How would you benchmark that opportunity internally for Trimble?

I think the 100 to 200 basis points that you hear in operational efficiencies, strikes me as aspirational as opposed to currently delivered. So I think if you really break down the operations, you've got -- just take it by the P&L, you've got COGS, let's say you've got R&D, you've got G&A and you have sales and marketing. And I think they are differential within each of those. I think we're -- it's probably easiest to see some of the ROI already would be in the R&D function. And if you think about internal usage in R&D, tend to think software and the majority of our engineers are software engineers these days. And then within that double-click again and break-down the software development life cycle, the efficiencies you can see on QA and testing is, I think different than what you see in development, is different than what you see in hosting, is different than what we see in provisioning. So I think it's important to double click. So QA testing, I'd say probably the highest ROI we can see from using GitHub CoPilot. On the development side, we probably see we talk about, call it 5% to 10% productivity and you are measuring that by more lines of code checked in, but that's not a perfect measure, of course, it is just having more lines of code checked in. We see it in the marketing functions internally driving more automation. We see product managers using it to help create the marketing requirements documents, as well as the product -- more technical product specifications. On the cost of goods sold, we can see efficiencies with how we're supporting our customers, providing more self-help tools along the way. So a good number of activities that we have in motion. I think that level of operating efficiency that you mentioned that range is a good aspirational target. But I would say, we don't -- I can't say that I can quantify that today, Kristen.

Great. Thank you so much for the time.

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

Hello, good morning. Rob, I wanted to just build on your comments around the data centricity of Trimble's platform, particularly around the AI opportunity. And can you speak to why your data is unique and what you can do with that data for your customers? Is this going to be new products or enhancements of existing products? Just trying to understand how Trimble is positioned for this revolution? Thank you.

Thank you, Jonathan, and good morning. What I see that is unique about the data reflects what's unique about Trimble, and that is our products and services to connect the physical and the digital world. That means connecting work in the field and work in the office. That means connecting the hardware and the software of Trimble. So if we take engineering and construction industry, think about that for a moment, the field systems business that we have combined with AECO is incredibly unique. We've been pursuing industries where we can connect users data workflow across the stakeholders of that industry. So today, when we have our AECO business, that's architects, engineers, contractors and owners. Each of those is over a $200 million business on its own within each of those pillars today. So there is a unique ability to connect field office. There's a unique ability to link the stakeholders across the industry life cycle continuum. That life cycle being from plan to design, to build, to operate. That creates a unique corpus of data. And as our customers increasingly are asking us to help them solve their higher order problems to unlock the data that they have at -- Trimble and non-Trimble data, by the way that we believe, positions us in a unique fashion and certainly represents a lot of the conversations I'm in with our customers, and I'd say particularly probably our bigger customers. So what we can do with that data that we have is we can develop unique sets of workflows. It reflects in the unique partnerships that we have. So say, a unique workflow move from scan to BIM, it could be – we are doing workflow with digital supply chains, that's linking to modeling and estimating, that's linking payments and ERP systems, that's linking about progress to plan in a civil construction context. There's just an enormous amount of possibilities in a bright future I see for us. And I would say in that baseball analogy, it's probably batting practice, or that early in the game.

Excellent. That's really helpful. Just as a follow-up, any thoughts around the U.S. federal government. Can you give us a sense of how big or small that is in terms of contribution and any potential impacts there? Thank you.

Yes. Hey, on the federal government side, so those -- the orders we predominantly have are in field systems today for us. So it is the survey equipment, GIS mapping equipment, machine control, tends to be the biggest consumer of what we sell to the federal government. The federal government work is naturally lumpy with -- we've had for a few years, it feels like government by continuing resolution. That's made it even more lumpy than we had seen in the past. When we look into 2025 and the guide that we have there, what you will see is that field systems is effectively a flat guide. If we were to take the federal business and do an apple-to-apple on it -- we also have subscription conversions by the way, happening in field systems, we would be up over 300 basis points -- sorry, 3% organic growth. if we adjusted for that. So what I'm saying is we see the federal government, we are projecting that to be down for us in 2025 relative to 2024 and still a very important customer for Trimble.

Great. Thank you.

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

My question is on the TC1 regional rollout. I think you guys had some momentum early next year pause to focus on some of the accounting questions. And I just wanted to get a better sense for like where you are in reaccelerating that and how to think about that contribution to growth in 2025? And maybe if you can just update the road map for how you are thinking about it now?

Hi, good morning Chad, thanks for the question. So we continue to feel really good about Trimble Construction One and the success that we are having with that. Part of that success, as you note, is regional rollouts of that. So North America, Europe, Asia Pacific, so think about it in that order. I think we are in a good spot in Europe as we roll that out, especially coming into this year after our sales kick-offs. I'd say Asia Pacific still has – it is coming next in a more meaningful way. So Europe is the focus on the rollout of that and that's incorporated into our thoughts for the segment. We continue to get very good feedback from our customers around the world on that. One of the things you do as you go region to region is we have different types of capabilities by region, so it is not one global answer for TC1 and so we continue to dial in the bundles that make sense for the regions and take the feedback from our customers on what they need and what they are looking for from us and we saw that reflected in the bookings performance at the end of the fourth quarter. The team did a terrific job posting very strong growth and ACV bookings on a year-over-year basis. So feeling good about it, Chad.

That's helpful. And then just shifting gears over to field systems. So you are guiding organic revenue growth to flat, but I wanted to get a little bit more color on Civil infrastructure in 2025, what's embedded for that business? Can you talk about what contribution some of the recent changes in terms of channel dynamics that you may see? And then just any bookings color you can share at least for the fourth quarter for that business?

Yes. Sure Chad. This is Rob. I will take that one. On Field Systems overall, if we think about the close of the year in the fourth quarter on an as-adjusted basis, we were up 2% organic. If we exclude that federal business we are up 3.5%, and so I look to that as a marker for where we are -- with what we'll call the field sales. And so in the field, the team is growing organically, and we project that going into next year. In the fourth quarter, ARR was up 21%. And so the bookings also reflected that level of strength of performance in fact, [indiscernible] fastest, highest ARR grower on a year-over-year business. The team has done a tremendous job of working the business models. Tremendous enough that, that creates a headwind to the revenue growth as we complete those conversions. So if we look into 2025, the revenue guide is flat. But if we were to adjust for that Fed and the subscription conversions, which are a headwind to the revenue growth, we'd be up over 300 basis points of growth in our guide for 2025. Now within the portfolio in Field Systems, think about three pillars that we have in that business. So the civil infrastructure business that we have, I'll come back to that; second, is our geospatial survey business; and third is what we call advanced positioning. Advanced positioning, think of the positioning services that we offer right that centimeter level accuracy ubiquitous around the world that actually has the most recurring revenue in that pillar and that we expect to continue to grow next year, and that's in our -- certainly in our thoughts in the ARR guide that we have. From the Civil business, that pillar we expect growth. That is the punchline. So we expect the civil infrastructure business to be a grower for us, had a strong fourth quarter. We like what we've seen coming in here to the beginning of the year in the business. So the -- and we've seen it actually globally. So the business is growing. It is performing. There's a number of catalysts for that. Of course, what we sell is productivity when you put the guidance equipment -- our guidance technology on the iron out in the field, it is like fundamental productivity 30%, 40% in a move the dirt right the first time as a profound value proposition. It continues -- customers continue to have problems finding labor. We can make an inexperienced operator good and a good operator great by using the technology. The team has done a nice job as well of product innovation, which we were able to showcase at our user conference. So we have a new -- relatively, I should say, new product BX992, and that helps us reach the tier machine control market. So a number of activities on a number of fronts, and it's leading into a nice performance from that business. By implication, then we expect of the pillars, we expect the survey business to be flat to down into next year, but that's also where we have a lot of that federal business.

Great. Thank you.

Your next question comes from the line of Jerry Revich with Goldman Sachs.

This is Clay on for Jerry. First one for me. Can you flush out the performance of Transporeon? What was organic growth in the quarter and logo growth retention rate?

Hi, good morning Clay. This is Rob. I'll take that question. The Transporeon team did a terrific job, obviously, with controlling what they can control. The macros continue to be difficult and well, actually really globally in the freight market with Transporeon as a European-centric business where that market is challenged. However, in a very good way, the team had record fourth quarter bookings. They had record bookings for the year. Phil mentioned over 20% bookings growth for the year. So that is -- reflects both existing customers and new logos. We won many new logos throughout the year. Some of the biggest company names you'll find in any vertical. And the team has done a nice job of cross-selling within that. So we looked at the sum -- and by the way, on the product side teams, that's probably -- that team has done some of the most innovative things relative to AI, both for our own internal usage as well as external capabilities. We have an autonomous procurement, autonomous quotation offering that's getting nice uptake and the team is doing a nice job and also working to bring capabilities from Europe into North America. And then we've done some product consolidation globally as well to drive efficiencies and some synergies within that. So as Phil said in his comments when the freight markets turn this business is positioned to perform well and to be able to demonstrate the potential of -- the financial potential of this business.

Great. And switching gears here. How do you view the product vitality of the geospatial and heavy civil portfolio, I believe you touched on a little bit on the last question, but just some color there.

So the team, I think, does a really nice job of innovation. And just to put a broader context on that, over the last five years, Trimble has put about $2.5 billion in the research and development. So we don't just talk -- like empty talk about innovation. We're putting our money where our mouth is, both AECO Transportation and Field Systems. So if I think about product vitality within the portfolio, I'll take those three pillars. If we take our Civil business, it's -- I talked about BX992 or the site works as a technology, that's getting us to new machine types and new price points. If I look at our survey business, the team launched last year, the R980 and that has improved communications over the prior version of the R12, which was an innovation in and of itself. If I looked in advanced positioning pillar, the team last year had launched IonoGuard, and that's correcting for errors in the atmosphere. So you can do the solar cycles that we've had to get accurate -- highly accurate performance, which you need, particularly like in the mines and in the field, in agriculture, to have that ubiquitous accuracy is very difficult to do, and the team really just had some really novel innovation. So innovation is really driving -- drives a refresh for our customers of their own technology. So like what I'm seeing from the team and like what they are working on. I talked about hardware innovation, but I should also mention the software innovation across that portfolio, and that's reflected in that 21% ARR growth that we had in the fourth quarter. I think I'm really excited about what the team is doing and reality capture. These days, data is not the topic. We got -- we're flooded with data. It is information that we need. And so Trimble is in the business of collecting enormous data sets and the software activities are converting that data and information and actionable information. So in reality capture you can apply AI on that to do feature extraction and then from that feature extraction to create actionable workflows back out in field. So a lot of good things happening in the business.

Thanks I appreciate it.

You’re welcome.

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

Hi guys. Thanks for squeezing me in here. I actually have a multi-parter on the construction business and then just a quick follow-up on transportation side. I guess I'm trying to understand, maybe diving a little bit deeper. Are you seeing any change in demand from the construction end market post-election here in the states? And the second part of that question is you did make it a point to highlight the potential for some larger acquisitions, specifically focused on construction. Is there anything that you feel that is missing from the TC1 bundle or the construction portfolio today that you guys are most interested in? And then I got a follow-up.

Hi, Josh good morning, on the change in demand since the election or -- since the election or since President came into office, nothing discernible is the punch-line. I mean you hear sentiment, you hear expectations of are we going to have onshoring, reshoring, or supply chain is going to move around. But I think overall, we are in a wait -- more in a wait-and-see mode. I haven't seen any kind of fundamental movement, let us say, on new projects coming out. So let's wait and see and as they ask the same question next quarter, and maybe we'll have some more data to be able to provide at that on that because we – about one-third of construction in the U.S. is running through our system. So I think we would have a pretty good view on what's coming, both at the contractor level, as well as the -- as well we owner level. In terms of the M&A side within construction to answer your question, I think about it in a couple of respects. One access is geography. And the other is, I call it, is really more product-oriented. At a geographic level, when we talk about our Trimble Construction One offering, it's really a commercial framework, we have different capabilities around the world. We don't have the exact same capabilities around the world. And so we look geographically -- let's say, take a construction ERP system and construction ERP has done extraordinarily well for us in a number of markets, most notably North America. We don't have a construction ERP. I'll take Central Europe -- or you could say Southeast Asia, you could say, India. We will look at those markets and where we think we can stitch together a good offering, it begs the question built by a partner, right? So we will go through that analysis, and we do go through that ourselves for how to geographically expand and even strengthen the offering from a product capability side and gaps. I think a little bit less -- I don't think about gap so much to the extent that there is gaps that's where tuck-ins can come into play. Often, the tuck-ins are really more features than they are independent businesses that fit really well within our platform offering. Also think about it on the access of segmentation. So let us say, if we play in one tier of the market, let us say, in one business that we play mid- -- more mid and large contractor, within that segmentation, we may -- we'll ask the question okay, if we want to play more in the, say, the small-mid, how would we do that? Or if we want to play in the largest of the large, how would we do that? Do we extend the product offering? Or could we go acquire an installed base and then bring in the rest of the capabilities that we have to link bundle, cross-sell and up-sell. So that's the way we think about it, Josh. It's not -- I'm not being overly specific on purpose, but hopefully, that helps frame how we go about it.

It definitely helps. Maybe just a quick follow-up on the transportation side. I think it's clear like Transporeon bookings still pretty solid, even though freight market remains challenged. How do we think about what bookings for this business or for Transporeon will look like when the freight market recovers?

Good question. Actually, that is a good question. I think that on the bookings growth itself would be probably pretty similar. It is not obvious to me that it would be that much higher. I mean, okay other than -- okay, the right sentiment is better and there's more spend available, you would think that would be a positive catalyst. But we actually have quite a reasonably low barrier to entry with our model because it is a transactional model. And so in a transactional model, really the more fundamental thing in the freight recovery is more -- and by the way, economic recovery that translates into a freight market recovery is more transactions happening for each of the customers that we already have. And that's where -- and we've seen this in the business historically, as when you come out of a down cycle, you can have a very fast recovery or a very fast improvement. I mean it is already a very good business, a very fast improvement. I think operating leverage when I say that, and the nature of the gross margins are [indiscernible] in that business. So you drive a really nice inflection in the number of transport executions or loads moving on our system, and you can drop a significant amount of operating leverage quickly. So I would look more at that, Josh, than I would the bookings.

Makes sense. Thank you guys. And congrats on the quarter.

Thank you.

Your next question comes from the line of Tami

Hi, good morning. This is [indiscernible] on behalf of Tami. I had two questions. The first is around the share repurchase authorization. Do you have a plan in terms of quarterly cadence? Or do you expect to complete the entire authorization this year? And on a related note, if -- as you mentioned your plans on M&A, how would that impact the share repurchase for the year, if at all?

Yes. Thanks for the question. This is Phil. So as we noted earlier, we just replaced our existing authorization with a new $1 billion authorization. And the way we are thinking about that is we've talked earlier about the $625 million that was remaining on the prior, and that's an amount related to the proceeds from the [Ag JV] (ph). And so we're still anticipating, let's call it, over Q1 and Q2 to initiate repurchases focused on that first $625 million that we've already talked about executing. And so the way I think about that is between Q1 and Q2, probably two-thirds of it hit in Q1 and about one-third of it hit in Q2. And then beyond that, with the remaining $375 million, what I talked about at Investor Day was at or above one-third of the free cash flow, is going back to share repurchases. So I think the way to think about that is roughly $700 million, let's call it, of free cash flow and one-third of that $200 million a year and so that's roughly $50 million a quarter that I would expect once we get past that initial $625 million. That's the way I think about modeling it. And I think your question on the M&A is, again it depends on the M&A. But right now, with what we are focused primarily on the tuck-ins, we believe we have plenty of firepower to continue to do the tuck-in work on the M&A. If we do something bigger, we do believe we still have more than enough capacity to do that. And just a reminder, we -- our targeted leverage rate over the long term is about 2.5 times, and we're well, well underneath that. We are well below 1 times right now. So we have plenty of room on our balance sheet.

Great. That's super helpful. And my second question is around the FY '25 guide compared to your initial outlook laid out in the Investor Day which areas have actually led to the positive change in the organic revenue guidance in constant currency basis?

Yes, good question. So at Investor Day, just to walk through the delta, we had about -- relative to Investor Day, we had about a $40 million FX headwind on revenue. And so the puts and takes were roughly $3.4 billion is what we guided at Investor Day. Our current guide as reported is $3.42 million. And so add $20 million for the mobility -- for one month of the mobility business that we had in January before we closed on that. And then that $40 million that we had a headwind of FX, think about that as the effective increase to offset the FX on the organic growth. And I'd say that it's really across primarily the AECO and the Field Systems businesses with the performance that Rob talked about in Civil and the performance in AECO, especially coming out the end of the year with really strong performance continuing into 2025.

Great. Thank you so much.

Your next question comes from the line of Robert Mason with Baird. Please go ahead.

Yes, good morning Rob, Phil. So I appreciate all the level of detail to get us level set given all the moving pieces, adjusted numbers, pretty helpful. So just taking that you provided, it looks like within your segments, and I'll speak Field Systems, your margins are up about 100 basis points on kind of flat organic growth. And then in the Transportation business, margins kind of flat on high single-digit core growth. So can you bridge those two dynamics, if I'm interpreting that correctly? I would have thought Field Systems needed to absorb some channel investments, so that is probably a good outcome, but just the P&L margins being flat, is that the right interpretation?

Yes. So Rob, it's Phil. One at a time. So on the Field Systems, we talked about this before with some of the changes to the JV -- with the CAT JV. We've shifted some of the margins that were in our equity investment income line into the OpEx. So we sell product into the JV, and we changed some of the margins and pricing on that. And so that actually helps improve the margins in the Field Systems business. But some of that is actually offset by what you said, which was the investment in the channel build-out. And so we do get some upside there because of the economic shift. And then on the transportation business, I think the big item that is a headwind there is really the FX. So the Transporeon is all euro-denominated and is profitable. And so when we translate that back given the strong U.S. dollar, that actually creates a decent headwind for the transportation segment.

So I think, $0.04 headwind you called out that's disproportionately in P&L then?

It is primarily T&L and AECO. AECO, given the growth and particularly in Europe, doesn't have a big footprint like we do in field systems. And so it is both Transportation and AECO. But yes, Transporeon because of the size of that and all euro-denominated, it is a big portion of it.

Sure. And just as a quick follow-up. I think you touched on some of the geographic strength calling out in North America. But could you add a little color or context to what you are seeing in Asia Pac in Europe?

Hi, Rob, this is Rob. Good morning. In what India -- India is doing especially well. I'd say that's the highlight in the region. I'd say the toughest market on the other book end, probably China and Japan, are challenged. Japan to -- the FX is particularly difficult in that market. And then in between, you are going to have Australia, New