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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 spend 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 [ 3430 ] 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 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 erector 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 of 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 requests for earthmoving in our B2W track applications to crews in the field using our site work solution and employing 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 a 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 one 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 walkaway 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 digit. 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 and 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 with 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, 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] Okay. 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, billions, millions and thousands coverage and commentary that we had. 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 to remain humble to continue to do the work and make sure we've got the underlying wiring and plumbing right, the underlying data governance right. And all this, I'd say, to me is good news and so far 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 that positions us well going forward.

Got it. And then just as a quick follow-up. In terms of TC1, 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 TC1 platform?

Good question, Jonathan. If I up-level it to AECO when we look at the bookings, about 2/3 of the bookings are to existing customers and about 1/3 are new logo. And 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 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 we, for sure, look at different customer segments and what makes sense for them. We can pull from the data that we have, apropo 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 TC1 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, Phil, 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?

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 was a market shift, plus or minus. And at any point in time, we're always going to have puts and takes as much -- as many things as we do at Trimble and as many places around the world that we do business. It'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 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. You 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're using those estimating tools off of highly accurate BIM models, you're able to have a better handle on your underlying raw material costs. You 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 to 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 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 probably not -- it's not the exhaustive list, but a few things. It makes it more affordable. So when you move from CapEx to OpEx. And we've seen this across all our businesses when we've 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 -- actually more than machine control and survey systems as well over the last couple of years and then 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 make it 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 the field from a customer perspective, they don't care if you're an AECO business or a Field Systems 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. And 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 -- who 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

Got it. Very clear. And then follow-up on TC1's rollout in Europe. I know that's still early, but maybe you could just give an update on how that rollout has been 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 in 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 -- and Europe is 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 the AECO side, especially where I've seen it with large projects and some of our larger customers. So in absence of having TC1 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 and 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 then if you overlay that on context of energy, infrastructure, defense spending, if it really does play through in places like UK 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, good memory. You're right. Last quarter, SMB, we pointed out as a positive in AECO. And I would say that played through again in the second quarter. There's a lot of work on -- I'm talking overall, let's say, -- and by the way, I'm talking the U.S. when I answer this question. There's a lot of work on in the U.S. overall. Of course, there's puts and takes depending 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 the 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, that's going to even be, let's say, 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 is we can shift resources 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 would 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 way to enterprise is 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 put 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. And AECO is now $1.36 billion ARR business, and AECO was up 16% in the quarter on a year-over-year basis. We've got scale to operate like this to be able to address multiple pockets in the market.

A lot of discussion today in 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 as maybe more mature from a technology adoption standpoint. And we keep hearing about a lot of, I'll 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 for you?

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, in 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, is we continue to make the technology easier to use for the nonlicensed 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 surveying to do the work, we've been able to expand the usage of the tools into market segments. Forensics 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 setup, 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 is -- 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 could have aerial, you could have mobile and you could have terrestrial. At an aerial 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, if you're doing asphalt profiling on a road construction and you're using 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 doing the terrestrial surveying, we think about new instruments beyond, let's say, GNSS, you know us for GNSS. You know us for a robotic total station and optical. I think about reality capture devices. These 3D laser scanners and an area of technology called SLAM, means simultaneous location and mapping. That 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 an investment or the cash flows out of it kind of are 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 on 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 pithy 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 of the 2x2 and one axis is what 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 it more shows up externally. And then the other axis is it's 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 in 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 ERP, it's auto invoicing and Field Systems for that data collection, it's point cloud semantic segmentation and transportation, it's autonomous procurement and autonomous quotation is 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 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 our own orientation to data and how we move data across our systems and how we have interoperability within Trimble as well as interoperability outside of Trimble as well. So I don't 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 or whatever you want to call it. How does your data, and I can guess, but I'd like to hear from you, differentiate from other peers and especially AECO. Thank you, 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 connected forest, 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 and skill defined as that breadth that we have. The more you're going to think about creating an industry LLM, you're going to need -- and 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 system 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, and 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 in 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 output.

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?

Yes. 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. We have monthly subscriptions. We have annual subscriptions. We have SketchUp on the App Store. So there's different flavors that we have of the models. And as you might 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 right between the monthly pricing and the annual pricing. For sure, we'd love to see customers 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 a quarter. That can vary a little bit, and I'll call it with timing on how we recognize that revenue. So any given quarter could move a little bit because of that. And so Q1 was a bit higher because of the term licenses we recognized. Q2 was a bit lower. I tend to look over, let's say, a trailing 12 month 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 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.

And 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 bases, 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 or 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 that have a nucleus of project management and then you 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 to 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 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 a continued pulling on thread 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 are you approaching your buy versus build decisions when we're thinking about this technology and then lastly, I guess, what's like the lowest hanging fruit, right, from like a development standpoint on your end and from an adoption standpoint or interest standpoint on the customer side? Like how does that intercept?

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 -- we're a little more external facing and revenue models, we -- right now, we're predominantly pricing -- we have these good, better, best tiers. And in the best tier, you could have AI capabilities. That's -- we found that to be the best way to monetize. Now in transportation, we're monetizing discretely with autonomous procurement and quotation as stand-alone AI products. I'd say we're doing a lot less of very little of consumption only. It's -- 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 in 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. Let me 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 we can sure at times look and say, we actually do think we could do that ourselves. And the lowest hanging fruit, I could have -- you asked about there. And certainly, there's 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 intersects product management and those developers. And what if it may not be the lowest hanging fruit, but I'll tell you one of the things that I'm really mindful of is 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 with respect to the lowest hanging fruit with our customers, which 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

I'll ask just one question. Excellent quarter, by the way. So on Field 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.

Hey, Tami, it's Phil. Thanks for the question. Yes, I'll say 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 prebuying 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 in 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.