Trimble at Bernstein Conference: Software Shift and Growth Prospects

On Wednesday, 28 May 2025, Trimble Inc. (NASDAQ:TRMB) shared its strategic vision at the Bernstein 41st Annual Strategic Decisions Conference 2025. CEO Rob Painter highlighted the company’s transformation towards software and recurring revenue while addressing both achievements and challenges. The company has seen significant financial gains but continues to focus on strategic growth areas.

Key Takeaways

• Trimble has shifted from 50% to 75% software revenue over the past five years.
• ARR now constitutes two-thirds of total revenue, surpassing $2.1 billion.
• The company targets double-digit ARR growth and aims for a 74% gross margin by 2027.
• Expansion efforts are focused on Europe, India, and the Middle East.
• Trimble is exploring AI opportunities to enhance efficiency and customer differentiation.

Financial Results

Trimble’s financial performance has seen remarkable improvement. The transition towards software has increased its share of total revenue from 50% to 75% in five years. ARR exceeds $2.1 billion, representing two-thirds of total revenue, with a 17% organic growth in the first quarter. Gross margins have improved by 1,200 basis points to approximately 70%, contributing to a 500 basis point increase in EBITDA. The company is targeting incremental margins of 30-40% over the next three years, with expectations of a 100 basis point improvement in gross margin and bottom line.

Operational Updates

Trimble has streamlined its operations by completing 23 divestitures and 7 acquisitions in recent years. The company has implemented Trimble Construction One, offering over 20 purpose-built bundles, and shifted to a named account selling model. International growth is a priority, with a focus on Europe, India, and the Middle East. Trimble has also renegotiated its joint venture with Caterpillar to enhance technology adoption and is moving towards subscription models in its hardware businesses.

Future Outlook

Looking ahead, Trimble is optimistic about maintaining double-digit ARR growth in the coming years. The company sees a $1 billion cross-sell opportunity in its construction software business and aims for a 74% gross margin by 2027, approaching 80% in the next decade. Trimble is also exploring AI deployment across all segments to improve internal efficiency and customer-facing differentiation.

Q&A Highlights

During the Q&A session, CEO Rob Painter emphasized the potential for new ERP logo wins from mid-sized contractors and highlighted the faster-than-average growth of SketchUp in the AECO segment. Trimble prioritizes organic investment, maintaining investment grade, and stock buybacks, with a preference for tuck-in acquisitions over transformational ones.

For a more detailed understanding, readers are encouraged to refer to the full conference call transcript below.

Full transcript - Bernstein 41st Annual Strategic Decisions Conference 2025:

Chad Dillard, Lead Analyst, Bernstein: Good afternoon, everyone. Is it afternoon? It is. Alright. Well, thank you for joining us.

My name is Chad Dillard. I’m the lead analyst here at Bernstein covering, the machinery sector as well as electrical infrastructure. And, today, I’m really pleased to have, Trimble on the stage with me, and joining me from Trimble is the CEO, Rob Painter. Thanks for having us. So, the format of today, we’re just gonna have a fireside chat.

We’ll begin with Rob, just giving a real brief overview of of Trimble. And if you have any questions, you know, from the audience, there should be a link floating around, entering your question on Pigeonhole, and I’ll make sure to get those questions answered. So, maybe I’ll pass it over to you, Rob, to give a quick intro on Trimble, then we’ll dive right in.

Rob Painter, CEO, Trimble: Yeah, feed the world, move the world, build the world. That’s the why of Trimble. That’s the purpose of Trimble. Company was founded in 1978 by Charlie Trimble. I’m the third CEO in the forty seven year history of the company.

We’re applying technologies, really geospatial centric technologies in end markets such as engineering, construction and transportation and logistics. We’ve had a big transformation in the business over the last few years, but we’ll come to that. Today, traded on the S and P five hundred, very technology forward.

Chad Dillard, Lead Analyst, Bernstein: Great. So we were just talking before it started that you’ve you’ve been at the helm for for five years. It’s been, you know, quite the journey. So I’d love to kind of, you know, get your sense for, you know, how maybe you could describe to to everybody, like, just what what the path has been and talk about, you know, what could potentially be next as the the company evolves further.

Rob Painter, CEO, Trimble: Yeah. So I have a nineteen year history with the company, grown up through many parts of the business, particularly in the construction technology side of company with CFO from 2016 to 2019. So sort of a unique vantage point coming into the role that I came into in 2020 and absolute privilege to do this job and to be able to be in an event like this. Over the last five years, we’ve had a foundational transformation of the business. And just to put some quant around the last five years, We’ve moved from about 50% software company five years ago to 75% software.

We move from one third ARR as a percent of total revenue to two thirds. Today we said over 2,100,000,000.0 of ARR that grew 17% organically in the first quarter. That’s pretty rare territory. We’ve had a structural improvement in the gross margins, 1,200 basis point increase in gross margins in the last five years, around the 70% gross margin mark today. That’s translated into 500 basis points improvement in EBITDA over that timeframe.

We’ve spent a lot of time simplifying and focusing the business and the portfolio. We’ve done 23 divestitures over the last five years that maps against seven acquisitions over that same timeframe. So the simplification and focus, this has provided clarity into the business. Durability shows up in that business model. And by the way, we’re also very asset light that tends to sometimes be lost in the story.

We’re on negative working capital, CapEx less than 1% of revenue. So that’s the durability meets the momentum that we have in the business. And we see that playing through the results that we have in the company coming out of that strength we had in 2024 played into a strong set of first quarter numbers. So our strategy, we call it connect and scale. Connect to connect users, data, stakeholder across these industry lifecycles we’re serving.

Connect them in a way that’s transformed our business models, like actually how we productize, how we’ve converted more to subscription models, to enable, that and scale is fundamentally about making ourselves easier to do business with.

Chad Dillard, Lead Analyst, Bernstein: So now let me narrow it down to the last two years or so. So since then, you’ve made some radical changes on your go to market strategy thinking about, you know, Trimble Construction One, your Salesforce reorganization, a few other things. So I’d love for you to talk about, you know, some of the results that you’re seeing and more specifically talk about what you can do now that you couldn’t before.

Rob Painter, CEO, Trimble: Okay, so there’s a few things we can unpack out of that. So I’ll narrow in on our AECO segments. We have three reporting segments today. That’s been another part of our simplification is being able to simplify how we present to the external world. Actually, you could say how we run the business as well.

Two of the three are engineering construction focus. So we call field systems is primarily like the hardware centric businesses we have at Trimble. And AECO, if you don’t know the acronym, architects, engineers, construction, and owners. When we think about these last couple of years, and I’ll center on the AECO software business here for the next few minutes. Think about, and by the way, this business is be about 1.4 billion ARRs about the guide that we have for that segment this year.

So a scaled business. We believe the magic happens at the intersection of product and go to market. So on the product side, we’ve greatly simplified how we think about the solutions we have. We do a lot of things at Trimble. We see that as virtue within the industries that we serve.

And at the same time, you have to make that accessible by the customers to unlock potential. I see the world a lot through bundles. So think solution offerings, think collections, think suites of technology, think prepackaged offerings. And so we have a commercial framework we call Trimble Construction One. We have over 20 purpose built bespoke bundles that we can take to different personas within the market that removes friction from a productization perspective.

We intersect that with the go to market work. By the way, when you simplify the offerings you take to market, that makes it easier for the sellers to actually sell, taking friction away from them. And at the level of go to market transformation, we moved to named account selling models. So in the past, we might have sent multiple salespeople in to talk to Dillard Construction. Today, we have one person who owns that account Dillard Construction, who’s tasked with bringing the best of Trimble to that.

So it’s clarity in how we go to market. It’s simplification in how we productize. It’s simplification as well and expansion through the transition of business models moving from those perpetual to the subscription. Everywhere we’ve done that at Trimble, we’ve seen expansion of the TAM come alongside of that. And that’s narrowed valleys through any kind of transitions we’ve had as the expansion of the markets.

And then further narrowed any kind of valleys because as we’ve moved into those transitions and moved to selling product bundles, we’ve been actually been able generally to increase, let’s say, pricing and the value to the customers through that model. So the intersection of product and go to market is everything and enabled by the underlying systems and processes and people.

Chad Dillard, Lead Analyst, Bernstein: Gotcha. So I think you talked about excluding your your architecture business. I think you have, you know, somewhere around like 60,000 clients or so. 30,000 of which are have either two or or fewer instances of your of your of

Rob Painter, CEO, Trimble: your software. Good memory. So how

Chad Dillard, Lead Analyst, Bernstein: do you think about expanding that? You know, go taking two to three, three to four, and then for like that incremental dollar of revenue that you generate from there, like, what does that look like from like returns or a margin perspective? Is it better than what it was before?

Rob Painter, CEO, Trimble: So there’s a few sort of questions within that question. I’ll come at it this way. In that construction software business, we see a billion dollars of cross sell opportunity that sits within the portfolio. Clearly that looks like moving customers from two solutions to three, three to four, four to five and dot dot dot. And we see an enormous greenfield opportunity as evidenced by the numbers that you articulated.

And the pattern recognition or the heuristics you can run against our own customer database. I say we’ve got the ability now to really access that. To understand a certain profile customer, how they benefit when they’re using multiple technologies from Trimble. And when you understand that pattern recognition, then you can just simply query how many other companies look like this. Right?

That’s the underlying data. From that analysis, that’s called top down analysis, then you understand how to create the product offerings to best suit that customer base. And then you can align your go to market practices. Also the marketing side, not just the sales, but the marketing motions to go tap into that how you actually reach and create pipeline. Alright, so those are all important factors and how you go after that large cross sell and upsell opportunity.

And I look at the 19% growth ARR growth we had in the first quarter, it’s 19% on a small base. It’s 19% on over a billion, well over a billion dollars just in that segment on the loan. So this is happening at scale. Now ARR is like the scoreboard. What’s the thing that happens before ARR?

It’s the bookings. And we’ll think about ACV bookings, annual contract value bookings that drive that. And within those ACV bookings, the new bookings that drive the continued growth, we see about two thirds of those coming from existing customers and one third from our new customers. So we can see it in the data that we have that the motions are working and allow us to start, be chipping away at that opportunity to serve the market to its full potential and unlock the value that the customers are asking us to deliver. Gotcha.

So like on that billion dollars, how do

Chad Dillard, Lead Analyst, Bernstein: you think about the adoption curve and when you hit that full run rate of a billion dollars across all?

Rob Painter, CEO, Trimble: Okay, so now we’ll be breaking into aspects of the time curve. So we had held an Investor Day in December here in the city and we put forward a three year model for the company where we believe we can continue to grow that top line ARR in the teens for the foreseeable future given what we see in front of us. And that is just working at a slice of that billion dollar opportunity within construction. I believe by the time that we’ve unlocked the full potential of that billion is that there’s another compelling set of numbers, especially in a data and an AI forward world given the unique corpus of data that we have access to at Trimble. Completing the thought probably from the last question too, the business model level, we for sure think about the incremental margins that we can generate.

So we seek to continue to deliver profitable growth as we grow that. As the gross margin profile of the company has increased, that provides a set of degrees, should say, of freedom. And that all baked into the incrementals that we set a 30 to 40% range of incrementals over the next three years. So do that math playing it forward, know, call it hundred bps ish of gross margin and the same on the bottom line improvement as a baseline expectation.

Chad Dillard, Lead Analyst, Bernstein: So, let’s talk a little bit more about products. Let’s stay with the AECO business. So you’ve talked about, you know, five core sets of software suites. Can you give some hard examples on how each of those deliver greater productivity for the customers that you serve?

Rob Painter, CEO, Trimble: Yeah. So let’s first look at the quantum of what we’re doing in this AECO software business. Repeating architects, engineers, construction owners. Each one of those businesses independently is over 200,000,000 of ARR. So this is pretty diverse set of businesses that we have that are each scaled capabilities on their own.

I think that’s important context to have. Okay, before I go further, repeat the

Chad Dillard, Lead Analyst, Bernstein: question. Yeah, so just maybe you can talk about some of the hard examples. If you look kind like over the five software suites, which is like how it drives productivity.

Rob Painter, CEO, Trimble: Okay, so if we take each one of those pieces, I tend to think of a shopping mall analogy is the one I’ll tend to use. And if you think of a shopping mall, you have anchor tenants in the mall and then we have the retail fill in, right? So I think we can all get that visual. And then if you keep that visual, you have the kiosks that can be in the middle of the hallway in the shopping mall. And that to me represents, you know, in a way the portfolio that we have.

Okay. So what do I mean by that? Okay, the anchor tenants for us that looks like ERP, construction ERP. It looks like construction project management. We are scaled in architecture and design, conceptual design actually really is capability through a product called SketchUp.

We’re scaled, that ERP by the way, comes from a business called Viewpoint that we had acquired a number of years ago. That’s an important part of the whole nucleus of a Trimble Construction one offering. If I look in steel detailing engineering design analysis, Trimble tech less structures, steel and concrete. We have an anchor tenant and what we’re doing for mechanical, electrical, plumbing contractors. From design to estimating to three d content to pricing engines that feed those estimating engines.

These are this is an anchor tenant. And for owners, we manage their capital programs, know, over a trillion dollars of construction are managed through a capital program management that feeds that owner side. So those are the to me those represent the anchor tenants. And what our customers are trying to solve in construction are multifaceted. But ultimately they’re looking to do their business better, faster, safer, cheaper, greener.

Construction runs in very thin margins. What we know is the data will tell us that 80% of projects are late and 40% are over budget. And in a room like this, if I ask people how many have ever done a construction project, know, most hands will go up. I say leave your hands up if that construction project was done flawlessly and on time and on budget. And I almost never see a hand that stays up.

So there’s a visceral appreciation usually for the challenges that this industry faces and what digitization can bring when you drive communication coordination and collaboration into this industry. We’re it digitize thereby delivering the productivity at the intersection really of sustain of sustainability. This is the value proposition you get. You’re using our technology. This isn’t shelfware.

This is these are systems of record. This is software that you’re using all day every day. So very, very integral to how the business operates. Asterisk doubly important if you’re worried about a macro environment, then it helps to understand that we’re the system system of record, not the nice to have. That’s the I call it the value delivery on those anchor tenants.

The retail fill in, I call those smaller products that we have in each of that a, e, the c and the o. And that kiosk that I described in that shopping mall analogy, think of those as tuck in acquisitions that we’ve done. Really, they may have been former companies. To us, we’ve seen them as features that fit into the broader product suites that we take to market.

Chad Dillard, Lead Analyst, Bernstein: So of those five products, like what are the beachheads? What drives like the greatest pull through?

Rob Painter, CEO, Trimble: I’m like on the cross sell pull through? Yeah. That one that’s driven the most dollar amount of cross sell pull through has been at the intersection of ERP and project management. And that’s pulling through, actually they’re both pulling each other through. For sure, ERP pulls project management through.

ERP is pulling civil estimating through that. So from a dollar perspective where we’ve had the beachhead of the construction management system system or that or that ERP that’s pulling in a great deal of products where we already have design. You know, once you’ve designed something, guess what? You need to estimate it. So when we have the design and the estimating capabilities, those pull together nicely.

I’ll give you one more. As we’ve just been talking about the AECO software. But from a customer standpoint, they’re not gonna care that, you know, you’ve got an AECO segment and a field system segment. If you’re if you’re a contractor, you can be working with, you know, both parts of our business. So it’s just Trimble to a customer.

So think about a BIM, we call it a BIM to field workflow. So the models that can be designed today, an engineer today, designed today, if you’re doing steel design in our models, it’s accurate down to the level of the anchor bolt. This isn’t a pretty picture telling you what the design intent is of this hotel we’re in. It’s designed down to the level of the anchor bolt. Now overlay models of that precision for mechanical, electrical, plumbing, steel, concrete.

You can eliminate the rework before it ever happens because you’ve built it virtually before you built it physically. That same design specificity when you come to do what’s called the layout in this building, because every single thing, if you took the if we could take the ceiling off, every single point in here is precisely positioned or it’s meant to be precisely positioned. We can take with our field instrumentation that we have those digital models and we can bring them out to the field and do the layout and put everything exactly where it’s supposed to be. And when you do that, guess what? You’re driving a job to be on time.

Guess what? If you do that, you’re driving a job to be on budget. Thus, the unlock and the productivity and eliminating the rework.

Chad Dillard, Lead Analyst, Bernstein: Got it. So now let’s talk about just a relative positioning. So like some of the other companies that come up are Autodesk, Procore, Bentley Systems. So we heard about, you know, your your bundling and, you know, the five, you know, key product streams that that matter. Could you contrast what you’re offering versus those competitors?

And what differentiates you in terms of like how you go to market and when?

Rob Painter, CEO, Trimble: So I have big respect for all three of those businesses and the leaders of all three of those companies. We all know each other in the industry. We’re more in my opinion, we’re more often peers than we are competitors. That’s for sure an aspect of coopetition. That’s not just a cute word.

Actually think it’s very true that what we see in our world and you see it in many technology landscapes as well. What differentiates Trimble ultimately is the breadth and depth of what we’re doing. We talk about delivering products and services that connect physical and the digital worlds. This physical digital is something I think we all probably hear more and more about these days. I’d say the difference, we can actually do it.

We got a $1,400,000,000 business in that construction software. We got a $1,400,000,000 business in that field out in the field. So whether it’s the surveyors, people doing mapping, geo locations, machine control guidance, and civil construction. We have a very unique ability to actually connect the pieces of Trimble across the full life cycle connecting the stakeholders. That’s the thing that’s the most unique.

And that we believe provides ability to move customers from delivering task productivity to systems productivity. And I’m gonna stop and cough. So what we’ll see is sometimes customers are asking us to work together, the peers or the competitors in the industry to help them unlock movement of data. Like this interoperability of data and openness of data is a pretty big deal in the construction technology. Maybe it’s true in every industry, but the one that we live in, that’s in transportation.

It is something that needs to be done is to be able to move that data. Because just like if for all of you who’ve done that construction project, can imagine the ecosystem or the network of subcontractors who had to come together to help make your project turn into reality. Well, that also mirrors the technology landscape. There’s a fragmentation because there’s so many different players that have to come together to make make the magic work.

Chad Dillard, Lead Analyst, Bernstein: So let’s talk about the macro. So just given, you know, obviously, everything that’s happening, can talk about how, you know, customers in your ACO business are navigating the uncertainty? Maybe you can contrast what you’re seeing in large versus small customers, federal versus state and local and private customers.

Rob Painter, CEO, Trimble: So on the call a few weeks ago, we said opportunity mixed with uncertainty. I really do think there’s, you know, you can have both. To me, you know, it’s legitimate juxtaposition. Our contract, excuse me, our customers by and large have backlog. If you take The US as an example, we do business in 70 different countries.

So I could have a 70 answers to this. But if you take The US, think about the last few years. We’ve had the Bipartisan Infrastructure Law. We’ve had the CHIPS Act. We have the Inflation Reduction Act.

We have reshoring and onshoring that already been happening before Liberation Day. This is a compelling backdrop. Our customers by and large, not everywhere, but our customers by and large have backlog, have healthy backlog. And in many cases, finding labor as the bottleneck to actually working that backlog down. So we see a healthy backdrop.

I’m giving you a US example, but actually globally. And that feels about right. Again, we grew 19% in the first quarter. I promise you that this is in construction software. I promise you put in place construction is not growing 19%.

It’s growing in the low, you know, low single digits. So we see healthy backlog, amidst that uncertainty. But you take that uncertainty, you know, like I give you an example, what is that unlocked? Well, that’s unlocked more talk of in this country of reshoring and onshoring. That’s unlocked conversations in a place like in a country like Germany about half a trillion euro of infrastructure spend that I haven’t heard them talk about before.

And there’s Europeans talking about spending more in defense if they need if they that the posture becomes one of more self reliance, you’re going to have to build to do a lot of that. We can help make that build happen more productively and more sustainably. Thus, you can see opportunity within the uncertainty in the macro from where we sit.

Chad Dillard, Lead Analyst, Bernstein: Gotcha. So I guess like here’s what I’m trying to get at. How has Trimble’s cyclicality changed? Like, let’s just compare this to like construction spending, for example, you know, today versus, you know, two to three years ago, or even maybe even like 2020 was the last time we saw, you know, a sharp downturn.

Rob Painter, CEO, Trimble: Best data points I can give you are two thirds of our revenue is recurring today. Three quarters of our revenue is software. It’s a more durable business model than we’ve ever had. We grew our software business and construction software business in the heat of COVID there and would have been around the second quarter of twenty twenty. We grew in the second quarter of twenty twenty.

I don’t think we’re facing that moment right now. So there’s a durability in the business model. So we’ve for sure looked at past cycles that we’ve seen in the world. Know, fundamentally, we see ourselves as secular with a cyclical undertone to be naive not to see any cycle in a market. But fundamentally, this is a secular digitization of technology and back to the peers and in the industry, most all of us have been growing.

And that to me, that’s an evidence point, a data point, therein of the secular adoption of the tools. So like kind of put all that together, and we feel good about where we are. And I didn’t finish answering your, I guess your last question. You asked about large and small and contractors. Sorry about that.

And for sure, we see differential levels. We’ve seen that of late and with public sector. Now we expected The US federal sales for us to be lower this year. And guess what, that’s played out. It’s probably even a little bit lower still.

But we had that planned from the beginning of the year. So I don’t feel like we have to alter any, in this case a guidance to adjust for that. Because I think we we called that one pretty much right. What we’ve seen is for some of our largest customers that represent less than 10% of our revenue, they’ve moved slower on the buying cycles. What’s the word we’re all using now?

Uncertainty. So they’ve moved slower in the buying cycles, but they haven’t stopped buying cycles. And I can go back to the evidence of that as we see it in our net retention ratios, we see it in the ACV bookings that we talked about in the quarter as well. So some of those cycles have slowed at the same time on the other side of the market, we’ve seen the small and mid market grow even faster than we expected. So we got to where in fact, we got ahead of where we expected with one part a little bit down and the rest a bit up.

And this is always gonna be true. You know, we’re always gonna have something that’s doing a little bit, you know, better or worse than a plan within the business and across different geographies.

Chad Dillard, Lead Analyst, Bernstein: So in your Investor Day, I think you have a slide that shows the addressable market of AECO growing by like high single digits. But if you look at, you know, how you’re guiding your segment growth, it’s kind of like mid teens. So like what’s driving the outgrowth? Are you embedding some share gains or is there something else?

Rob Painter, CEO, Trimble: I think it’s a little bit of all of the above. You know, if you do the stack to a net retention ratio, and I assume if you’re in the room, you understand that retention ratio, you’re gonna start with your gross retention, which is to say the churn, the starting point minus the churn. From there you have pricing and then you have cross sell and you have upsell to build to the stack of that net retention. We’re getting the cross sell and the upsell. That’s a part of the outperform against the market growth.

We’ve got segments within that AEC and the O. The A is growing above the average of the segment above that 19. The O has been growing a little bit slower than that and the E and the C are right about that average. So also it’s sometimes it’s about which, you know, what the mix of the product is that moves that number up. I think the execution from the team has been terrific.

I go back to that, the magic happens at the intersection of product and go to market. You gotta get the two right. It’s hand in glove. I’ve certainly had learnings in my career of having one or the other and sub optimizing a potential. The magic happens when you can get them both right and you’re designing the product to fit inside a go to market motion.

And I give our team a lot of credit for the execution against the potential.

Chad Dillard, Lead Analyst, Bernstein: So what are the growth opportunities of Trimble Construction One on the international stage? And do you think you need m and a to accelerate that strategy? Or can you do it more organically?

Rob Painter, CEO, Trimble: So, know, Trimble does business in 170 different countries today. So we are emphatically global in our view. The AECO software business is close to 60 North America today, the global economy is not 60% in North America. So absolutely see compelling opportunities around the world. We see India winning as the trade war or conflict, whatever you wanna call it with China.

I think India looks to be the winner on the other side of that. So that economy is a good economy. Super, I think Middle East is very underserved by us and the whole technology landscape today and there’s really good opportunities there. But Europe is the next, not surprisingly biggest market for us. And of course, isn’t Europe.

I mean, most advanced construction in the world happens in The Nordics. And so much of that nature of what they construct and how they construct it and how they apply technology to that is able to feed a lot of what we do around the world. So very bullish on the opportunities we have outside of The US. And we have different capabilities market to market. Not every technology we have is a fully global capability.

Our hardware businesses tend to be extremely global. Architecture and design software is extremely global. That steel concrete design engineering package I talked about, that’s extremely global. The ERPs are not. They tend to be very regional.

So my reframe would be back to that anchor tenant in the shopping mall and an attractive part of the nucleus of our bundled terminal construction one offering, I would see an opportunity to better serve that system of record that ERP, let’s say in Europe. Now we have a choice to want to build by partner in order to do that. I wouldn’t say that we need to do m and a, I might say we want to. So I would just reframe the word is that in context of the market opportunity in front of us and the capabilities that we have, if there are attractive capabilities in markets that could accelerate our growth and our ability to serve that market and those customers, I wanna posture to lean into that.

Chad Dillard, Lead Analyst, Bernstein: Okay. So moving over to your field systems business. The, the most recent renegotiation of your your Caterpillar, JV has, you know, probably unlocked, you know, some more opportunity, you know, for for other partnerships. So I guess, like, with that in place now, like, what can you do now that you couldn’t before? And what would you say about the road map for that business given that change?

Rob Painter, CEO, Trimble: So our field systems business, just to set the context for that, if I may, you know, it’s about a $1,400,000,000 business. It kind of was like a third, a third, a third of survey and mapping technology of civil construction, like machine guidance technology. And then what we call advanced positioning technologies. So we can sell the they’re called corrections that provide centimeter level accuracy for example of position. It’s a software business.

In the civil construction business, we have a joint venture with Caterpillar. Actually in the survey business, have a joint venture with Nikon. In the building construction business, have a joint venture with Hilti. And as you know, in agriculture, we have the joint venture with AGCO. Caterpillar, we’ve had over twenty year joint venture with Caterpillar, super proud of that relationship that we’ve had for decades.

Now, about every seven years, we reformed or renegotiated, reworked the joint venture agreement to reflect the game on the ground at that point and the strategic say priorities of the mother companies in that. So it’s kind of a healthy exercise. So it’s something that we’ve done a few times over the years. So in this latest rev of it, we have one simple principle and we’ve kind of turned work backwards from a set of principles. The principle is increase the level of technology adoption in the market.

Okay, With that in mind, I’m just speaking for ourselves. At Trimble, we’re very much oriented to serve the mixed fleet. I’d say picture any civil contractor that can come to mind to you and do this when you’re driving down the road and you see a contractor’s working. They operate mixed fleets. Our strategy is to serve the mixed fleet.

Okay. So if you agree on a goal to increase the adoption of technology in the market, it stands to reason you need to work better with all OEMs. You need to have broader sets of product capabilities to reach the entirety of the market because there’s still low penetration. And you need to be able to take it to market. And it should sound like a familiar formula because I’m getting to that product meets the go to market.

On the go to market side with serving the OEMs if you took were you at Bauma, by the way?

Chad Dillard, Lead Analyst, Bernstein: I was.

Rob Painter, CEO, Trimble: Okay. Okay. So at Bauma, our technology was on over 20 OEM booths. So not just talking about partnership, we were on 20 different OEM booths. So these OEM relations are relationships, excuse me, are very important to us.

I’d like to think they’re very important to the OEMs as well because they’re looking to make sure they play well into the technology ecosystems that their customers have. Right? And that forms the basis of why we would have those relationships. The nature now of post the latest turn of the joint venture gives us more degrees of freedom and how we work with those OEMs. So we can better service the opportunities that they have.

We can meet them where they are on their own technology journey. So that’s a good thing. From a productization standpoint, we think there’s a huge market that’s underserved in more mid machine types. So think of that BCP, you know, that you would know. So small mid machine types, small mid contractors.

We think that we have differential technology that we could where we can meet the needs of those that may be more interesting to us. Or I think that we got degrees of freedom on the productization side. And on the go to market side, when we work with those OEMs, and we’ve announced I think it’s four of these so far with Komatsu and John Deere dealers, the dealers, the ability to serve technology to them at their dealerships so that they can put at a, for example, a John Deere dealership, the ones that we’ve signed up, should say, our technology there at that dealership, you know, kind of at the coalface on that John Deere brand of equipment. So there’s up enough degrees of freedom and how we can better serve those customers and those dealers for the mixed fleet to increase the adoption of the technology.

Chad Dillard, Lead Analyst, Bernstein: So when I think about, you know, the mixed fleet and I pair that with scale, it naturally leads my mind towards like the rental channel. So I guess like what opportunity would Trimble have through scaling its technology on the rental side?

Rob Painter, CEO, Trimble: Okay. So we definitely have rental customers. By the way, as you know, the OEM dealers, many of them have very, very important rental. The dealers have very important rental businesses. And then of course, there’s independent fully, right, independent rental markets.

Further is depending where you are in the world. There’s markets like The UK, which is extremely rental driven. And I’m sure you know this, many of you as well. So there are markets where you want to be more forward with rental because that’s how business is done more so than buying or leasing equipment. And so markets like The UK, you’re gonna have a different set of rental outlets or firms that you wanna move with than maybe I’d say The US or Australia.

It is a interesting and compelling market where we think we can do well in rental is that they often want portability of the technology. So if the rental company values portability of the technology, which means they don’t wanna put it on every single piece of equipment and they wanna be able to continue to use it, let’s say after maybe the machine is turned, that’s in our favor to do that. That’s not true equally around the world. But it’s an important market segment. I think about that at go to market more than I don’t think it’s necessarily a different product that you need to take to the rental market.

It’s like an additional channel of how you reach them. Now when we work with the OEM dealers and they have their own rental, you’re there by definition. So it really this your question plays more to the truly independent rental houses.

Chad Dillard, Lead Analyst, Bernstein: Any sense for us how much your addressable market expands now that you’re able to work with multiple OEMs?

Rob Painter, CEO, Trimble: Oh, it’s a great question. From actually from a mechanical standpoint, the addressable market, would see as the same size because it’s the same amount of machines. And so it’s really, to me, it’s less about the size of the market. But the insights in your question is how much more quickly can we reach it by virtue of that. And we had that in mind when we put the goalpost out at the Investor Day.

So I wouldn’t see that as a fundamental inflection. What might be equally or more interesting for me to add on to that is that subscription conversion that we’ve done in our software businesses, it’s been really, really successful for us. We’re pursuing that in our hardware businesses as well. And so we have an offering in our hardware, one of them that we call it Works Plus. So think of the machine control and guidance or think of it as hardware as a service or guidance as a service.

This is one where we’re seeing that we’re expanding the size of the addressable market because you’re making it more affordable and accessible to access the technology we have. We’re seeing where we’re having we’re competitively displacing folks out there, true competitors in that business. Because economically, it’s easier for them to do when they move to the as a service model than if you had to, right, make that big huge CapEx outlay right up front. And it’s a value proposition that we’re delivering, we call it, it’s technology assurance that we deliver to the customer so we can keep sensors up to date, you know, latest and greatest so they get a better value proposition on that. Now think about it, if you’ve turned the hardware into a service, how much easier and more compelling it is for us to attach software capabilities we have around that.

And then in this respect, we think about machine site and enterprise. Yeah. You wanna win at the machine? Yes, that’s good. What’s better than winning at the machine?

Win at the site. The job site. What’s better than winning at the job site is when at the enterprise because enterprise could be configured at multiple job sites. And so now you’re taking the full technology stack of Trimble and helping customers unlock these multiple levels of value. Okay.

Chad Dillard, Lead Analyst, Bernstein: We’ve got some some audience questions. I’m gonna slide over here. So considering your market share construction ERP in North America being 35 to 40%, I believe, where do you see new logo wins coming from?

Rob Painter, CEO, Trimble: At the moment, we see them moving down market. So I think the mid sized contractors, I wouldn’t say the smallest of the small, but we’ll continue develop revs of the technology to take us further down market. As you go down market with that motion, you also need to have a go to market motion that scales with that. Right? If you’re going into a small market, you can’t park person on a plane.

Every time you do that, you might have more inside sales that you need to do that. So you need to map the two together. But we’re still doing very well at that mid large market winning logos. The cross sell, upsell, the bundles help do that. And it’s the more I hate to call it down market because that sounds derogatory, just smaller side of the market.

Chad Dillard, Lead Analyst, Bernstein: Yep. Next question. Can you provide more details about SketchUp? How much ARR and what rate is it growing in your three year targets? And what are the margins of this business?

Rob Painter, CEO, Trimble: So each pillar of that AECO is over 200,000,000 ARR business. So SketchUp is the main product in their architecture and design suite. Gosh, we’ve had and is growing faster than the segment average. So do that math. That means over 19%.

We’re on probably five years. So call it 20 plus quarters of more than 25% growth. So the business and the leaders of that business have done just a terrific job working the opportunity on a global level. So we have direct selling or ecommerce selling at the enterprise level, we sell direct, we have channel partners around the world as well. So it’s a multi tiered ecosystem of how we take that technology to market.

And many levels we’re able to integrate things that we do in that conceptual design with SketchUp into the rest of the technology stack that that we have. It’s a it’s a terrific business. Over a million paid users of the technology, tens of millions of registered users. It shows up in, if you have kids in high school here in The US, they’re probably using it at school. So it’s a strong reach that we have in that.

There’s an extremely rich content database, a three d warehouse that we have and just start to think about, okay, what could be possible dot dot dot with with all that content. Got it. So let’s talk about AI. What can you

Chad Dillard, Lead Analyst, Bernstein: tell us about your AI adoption here in terms of internal as well as external processes? Has it helped you gain more share of wallet? Can you elaborate examples? And maybe just even before that, just like lay out your roadmap.

Rob Painter, CEO, Trimble: I’m impressed that it took you forty three minutes to ask AI. You’re probably supposed to ask that in the forty three seconds. Okay. I have a two by two. We had this in our call a few weeks ago.

On one axis, I see internal and external uses of AI and on the other axis cost and revenue generating activities. And there’s four unique kind of motions that if you think about on that two by two. From an internal perspective, I guess if I kind of go across the quadrant, we think external facing could look like better serving our customers. So think this the chatbots and the customer support. Okay, AIs help by the way.

The thematic here is efficiency and productivity internally and unlock differentiation on the customer facing side. Okay, that’s the short answer. The longer answer is we see the productivity and code development from our R and D team. The logical question after that is, do you drop that productivity to the bottom line? Or do you use it to continue to invest to stay ahead?

Right now we wanna posture more to continue develop on there while still generating the op leverage that we’ve committed to. So customer support, I talked about that. We see it accelerating our sales and marketing motions as well. Like agentic approach, this isn’t just talk, it’s real of how we can better prepare our sellers, how we’re generating marketing motions. We’ve done a lot of work underneath the covers of Trimble in the last few years, like the wiring, the plumbing of the company that’s allowing us to unlock insights to then automate motions.

It’s recording the phone calls and this is sometimes it’s not our own technology. Sometimes it’s third party. We record all the sellers phone calls, and you provide coaching algorithms back to them. And then we discovered once you did that, you could run another query on that and discover the cross sell and upsell opportunities that came through the conversation that the seller didn’t pick up in real time and that’s unlocked real revenue. Like the stuff is real.

Think it’s exciting and compelling on, I’ll call it, a lot of these, the internal facing. You know, and then the the really fun stuff probably to talk about in an audience like this is, you know, where we see customer value. Think about those design packages and then moving more to natural language prompting for design. That’s not a fairy tale. You can actually start to do that.

Think rendering in those same design packages. We call it SketchUp diffusion. In the ERP, it’s automated invoice processing. And so we’re taking, know, what took days or days down to minutes for a very tedious workflow that a customer has. In our field systems business, we collect unbelievable amount of data like about 80 petabytes of data that we’ve collected on behalf or customers have collected using the tools.

Data is not the problem these days. It’s information. And so feature extraction out of large datasets that could be if you’re doing in our mobile mapping data collection, an asphalt profiling. Okay, pull out the cracks in the road and then they’re geo located. So you know where they are.

And now think, okay, once you’ve done that, what could you do? We could feed that to what we do with state departments of transportation to feed their asset inventory systems and their maintenance systems to then do the work orders out to the crews in in the field. That’s a good slice of what is already happening at a customer facing level.

Chad Dillard, Lead Analyst, Bernstein: So where’s the easiest to deploy AI across, you know, the a versus the e, the c, the o?

Rob Painter, CEO, Trimble: Yes. All of it. Yeah. All of the all of the above.

Chad Dillard, Lead Analyst, Bernstein: Gotcha. Okay. Let’s see. Oh, yeah. So how is your your Salesforce segmented by size of customer?

Do you sell direct through the channel? Are there more software upgrades to sell into existing client base?

Rob Painter, CEO, Trimble: Our transportation business and our ACO business are almost not entirely, but almost exclusively direct selling. And our field systems business is almost entirely through a global channel. So that’s the distinction that matters there. With the sellers, their named account direct sellers, should say, named account model. And so that segmentation has a region and a a and a and a size primarily.

So we can do some segmentation as well in industry, but it’s more size and location as the primary basis. And then their charge is to bring, you know, the Trimble house to best serve that customer. That’s the direct side and the unlock. Luca?

Chad Dillard, Lead Analyst, Bernstein: So let’s actually hop over to margins. So, you know, right now you’re doing somewhere around about 70% gross margins. You know, targeting on your medium term outlook somewhere in the mid seventies, and then I think there’s, you know, an aspiration of getting towards 80 by the middle of next decade. So I guess, what would you need to change in your business? Just like walk me through, like the bridge to get to those goals.

Rob Painter, CEO, Trimble: We said by 2027, we think we can be about 74% gross margin and in the next ten years, closer to that 80. We believe that can happen organically just by running our plays and adjust is to say the mix differential, the growth within the portfolio, the software is growing faster than the hardware. But that mix alone, that could that should lead to continued structural improvement. And that sort of anchor that to the, you know, moving from 58 to 70% gross margins over the last five years. It isn’t fairytale make believe like, you know, we’ve actually done it.

So continue to run and execute. So there’s not an act of God required or something inorganic to do this.

Chad Dillard, Lead Analyst, Bernstein: Gotcha. So just good old fashioned growing the software business faster than hardware? Mhmm. Yes. Okay.

Alright. So probably have one one last question. So I guess, like, through the lens of returns, talk about how you decide to allocate capital between investment R and D plus CapEx versus acquisition? And then how do you think about just like hurdle rates and the payback periods in the world of construction software?

Rob Painter, CEO, Trimble: Okay, in forty five seconds. Here we go. I believe shareholders pay me pay us as management to be capital allocators. That means put capital to its highest and best use. First, we’re gonna we’re of course, we wanna invest organically back into the business.

That’s not a problem. We’ve got bookends, we wanna continue to maintain investment grade. We said we wanna put about a third of free cash flow at a minimum back into or into a stock buyback. Now you’re double clicking down to the inorganic. We favor the tuck ins over transformational.

We favor the software businesses where we have the strongest way to win across the portfolio. And we measure those returns with through an ROIC lens and then an EPS accretion lens. Nailed it. Boom. Thanks, Rob.

Appreciate it. You betcha. Thank you.

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