Trimble Inc. (TRMB) Earnings Call Transcript & Summary

Hello, everyone. Thank you for joining us, and welcome to the Trimble Second Quarter 2026 Financial Results Call. [Operator Instructions] I will now hand the conference over to Rob Painter, President and Chief Executive Officer. Please go ahead.

Welcome, everyone, and thanks for joining us today. 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. Let's start on Slide 5 with our 3 key messages for our second quarter call. First, performance. Driven by organic execution, the Trimble team delivered a top and bottom line beat. We are raising our full year guidance and reinforcing our capital allocation strategy with a new $1 billion share repurchase authorization. Second, momentum. Our Connect & Scale strategy is accelerating as connected data and workflows compound value across our Trimble-led ecosystem. Third, transformation. Our AI transformation is hitting its stride. Building on a connected data foundation, we are deploying agentic workflows that unlock step function productivity for our customers while driving structural efficiencies inside our own walls. Turning to Slide 6. The second quarter performance was exceptional. Organic revenue growth of 10% and EBITDA margins of 28.6% both beat the midpoint of our guidance range. Total organic ARR grew 12%, with AECO up 14%, Field Systems up 12% and Transportation up 7%. This strong execution, combined with our outlook for the second half of the year gives us the confidence to raise the midpoint of our full year guidance for revenue by $50 million and for earnings per share by $0.10, representing 17% year-over-year earnings growth. My sincere thanks go out to the Trimble team and our global partners for their dedication and customer focus. Turning to Slide 7. I'm going to take some focused time today to talk about our engineering and construction business and how AI accelerates our Connect & Scale strategy, thereby reinforcing our right to win for decades to come. Trimble sits at the very center of engineering and construction workflows. Our customers deploy our software and hardware solutions in one connected ecosystem where our unique advantage lies in closing the loop between the physical and digital worlds. Our investors see this value through our AECO and Field Systems segments. Let's review both segments before tying the full picture together. In AECO, revenue was $389 million, up 9%, and ARR reached a record $1.577 billion, up 14%. Cross-sell and upsell motions continue to drive outperformance. Our recent acquisition of Document Crunch, which delivers AI-based contract risk intelligence is outperforming expectations and has significant momentum. We also accelerated practical AI releases for our customers across many of our products. For example, targeting small subcontractors, we launched a new AI-enhanced construction job costing and financial management solution. In MEP estimating, we extended AI takeoff capabilities to automate the tedious manual task of measuring a project's blueprints, models or digital plans to generate a complete itemized list of all the materials needed for construction. Early customer data shows time savings of up to 60% on manual takeoffs, allowing contractors to expand bid volume and accuracy without adding headcount. In addition, AI is reshaping our software product development life cycle, and we are leaning in aggressively to embrace this change at scale within AECO and across the entire company. In Field Systems, revenue was $442 million, up 12% and ARR reached $399 million, up 12%, marking a terrific and record-setting quarter. Global end markets demonstrate broad strength, notably in data centers, utilities and energy infrastructure. Our civil construction team continues to drive mixed fleet technology adoption and market expansion through our bundled subscription offerings. In Geospatial, our latest software releases incorporate AI feature extraction, turning massive unstructured field data sets into actionable intelligence. Across both AECO and Field Systems, we are building specialized agents on our agentic platform to unlock customer productivity. These agents execute work, validating specifications, detecting exceptions, matching transactions and triggering downstream actions across customer workflows. We are disciplined in our approach, building, learning and putting in place the underlying capabilities to scale and monetize, which we expect to happen through a combination of subscriptions and usage-based consumption. Our near-term focus is driving adoption and deepening engagement across an expanded workflow surface area. We leverage telemetry to measure real-world value creation. And as usage scales, we will adapt our pricing and packaging to match the value we unlock. In addition, several marquee customers are now actively pulling in Trimble domain experts to help them connect disparate data and rearchitect core processes around our AI-enabled solutions. Trimble Connect sits at the core of this strategy. It serves as the connective tissue between the office and the field in between the physical and digital worlds. Today, more than 3.7 million monthly active users rely on Trimble construction solutions across modeling, project management, machine control and reality capture with Trimble Connect at the center. Trimble Connect is far more than a common data environment. It is the collaboration platform that enables the world's leading construction firms to orchestrate complex projects on a model and digital-first paradigm, not 2D drawings. This level of sophistication requires a solution that brings together models and reality, providing a continuous up-to-date digital representation of the construction site. In the second quarter alone, Trimble Connect added over 1 million projects, handled nearly 30 billion API calls and connected 60,000 active IoT devices. Our Reality Capture platform service grew ingested data volume by 68% year-over-year. We are now adding over a petabyte of real-world construction data to Trimble Connect every quarter. However, data volume alone is not the end goal. It's merely an indicator of how critical data from the field has become that when made available in Trimble Connect, enables the entire project team to understand progress. The data volume managed by Trimble Connect becomes the foundation for an agentic experience designed for demanding construction environments that must manage risk, along with speed, quality and outcomes. To see how Connect & Scale compounds value in the real world, let's look at 4 concrete customer examples, starting with the data center opportunity on Slide 8. Mission-critical data center construction demands millimeter accuracy, type coordination and delivery of reliable as-builts. Trimble Connect's concept to construction workflows by linking models from the office to field layout and by incorporating our scanning and augmented reality solutions. In this market, there is no tolerance for rework that can delay the opening of a data center. Construction teams leverage our technology to derisk every poor, rack install and wall penetration long before rework threatens schedules. Turning to Slide 9. Scaffold Studio in Australia runs an end-to-end digital design to delivery workflow using Trimble 3D laser scanners in the field, Trimble SketchUp for design, Trimble Tekla for steel detailing and Trimble Connect for project coordination and model sharing. 3D laser scanning generates massive unstructured data sets. Our AI now extracts the exact structural data needed in minutes rather than hours, adopting the full Trimble workflow enables them to finish jobs weeks ahead of schedule while driving profit-enhancing labor productivity. Turning to Slide 10. R.F. Meeh is a mechanical, electrical and plumbing contractor based out of Missouri. On a recent hospital project, where an HVAC inspection failure post severe contamination risks, R.F. Meeh built a constructible 3D model with Trimble. They deployed our AI tools to parse complex specification books and validate the model in minutes instead of hours. The fabrication shop then leverage the model to automate the fabrication while back-office systems synced live data for job costing. In the field, augmented reality verified installed components against the model and real-time, automatically triggering invoice approvals. All of these design to fabrication and field verification workflows were enabled by Trimble Connect. Turning to Slide 11. Chandler Construction Service is an underground utility contractor in South Carolina working on complex water and sewer projects, channel or previously logged field labor, equipment time and material receipts on paper. This was a slow process and prone to error. Today, field crews log data live on mobile tablets synced directly into their financial system. On the back end, AI reads incoming vendor invoices, flags discrepancies and executes a 3-way match against purchase orders and field receiving logs in seconds. All of this data runs through Trimble Connect, powering field to financial workflows. These outcomes reflect decades of targeted domain investment. We were an early mover in practical AI and commercial momentum confirms we are on the right trajectory. We are investing aggressively to capture the steep slope of the S curve. This is still early, but the pace is accelerating, and that excites all of us at Trimble. Moving to Transportation & Logistics. Revenue was $141 million, up 5%. And ARR reached $533 million, up 7%, both in line with expectations. After 4 years of a freight recession, we are seeing initial green shoots in the market. Spot rates and tender rejection rates are trending upward, signaling that supply and demand are rebalancing. Transporting grew in the mid-teens and healthy quarterly bookings reinforces our midterm growth expectations. On innovation, the T&L team is pioneering some of our most advanced AI capabilities. We launched Arc Agent, which consolidates fragmented tasks into a single high-performance AI agent backed by an expanding skills catalog. But with safety and reliability by design, it incorporates enterprise-grade guardrails and human in the loop controls to ensure automated decisions are fully explainable, auditable and supportable. Deployed across a global network touching over 1 million trucks and 1,500 shippers and retailers, Arc Agent replaces multi-agent friction with enterprise-grade automated execution. Furthermore, our AI native autonomous procurement solution secured key wins in North America, demonstrating the international expansion power of the Transporeon platform. These innovation lens and commercial proof points demonstrate a business operating from a position of strength, highlighting the core strategic value of the platform we have built across transportation. With that backdrop, I want to turn to our portfolio. We recently received credible inbound interest in our Transportation & Logistics business from multiple parties. This is not surprising. T&L is a high-quality strategic asset with a compelling growth trajectory and a bright future. We are always reviewing our strategy and our portfolio to maximize value. In response to this interest, our Board and management team, together with our long-time financial adviser, Goldman Sachs, will undertake a strategic review to evaluate third-party interest while remaining fully focused on executing our strategy within the Trimble platform. Phil, over to you.

Thanks, Rob. Let me start with reviewing our second quarter numbers on Slide 13. We posted revenue of $972 million and 10% organic growth, which were above the high end of our guidance. This performance was driven by the strength of AECO and Field Systems, while Transportation & Logistics continues to deliver positive growth in a constrained freight market. . ARR was in line with our outlook at 12% to a record $2.509 billion. The continued growth in our recurring revenue base provides a predictable and resilient foundation for our business. Gross margins expanded 120 basis points to 71.8% and we achieved EBITDA margins of 28.6%, which is a 120 basis point expansion compared to the prior year. Reported earnings per share was $0.86 for the quarter, $0.06 better than the midpoint and above the high end of our guidance. Moving to the balance sheet and cash flow items on Slide 14, our reported free cash flow remains strong at $502 million through the first 2 quarters. Our balance sheet provides financial flexibility with $214 million of cash and a leverage ratio of 1.1x, which is well below our long-term target ratio of 2.5x. We announced a new $1 billion share repurchase authorization and continue to expect to deliver at least 1/3 of our free cash flow back to shareholders along with being opportunistic with our buybacks as demonstrated by our almost $1.2 billion of repurchases since the beginning of 2025. Next is our segment review on Slide 15. AECO delivered another strong quarter, performing in line with expectations. It achieved a record $1.577 billion of ARR, posting 14% ARR growth and 9% revenue growth for the quarter. Operating margin was 30.6% and on track to deliver approximately 35% operating margin for the year. Field Systems revenue was up 12% in the quarter despite a headwind of approximately 300 basis points due to tariff refunds, which we do not expect to materially impact future quarters. Note that there is a corresponding offset and cost of goods sold for the tariff refunds, which results in no impact to operating income. Transportation & Logistics continues to perform with 7% ARR growth, 5% revenue growth and 240 basis point operating margin expansion to 24%. Turning to Slide 17, let's review our updated outlook for the year. With the strong first half performance and momentum, we are raising the midpoint of our 2026 full year revenue guidance by $50 million to $3.925 billion, which represents approximately 9% growth. We are also increasing the midpoint of our EPS guidance by $0.10 to $3.65, which represents approximately 17% growth. We expect ARR growth toward the low to mid end of our range due to Field Systems that I will talk about in the segment slide. We now expect EBITDA margins at approximately 30%, which is the high end of our previous guidance. We targeted 30% margins for 2027 Investor Day, so we now expect this to be achieved 1 year early. We expect free cash flow to be approximately 0.9x non-GAAP net income, down from approximately 1x we guided last quarter due to incremental restructuring and other onetime costs. We expect free cash flow will be greater than non-GAAP net income over the long term. Slide 18 breaks down the full year metrics by segment. The trajectory for AECO and T&L are consistent with our prior guidance. We are adjusting the field systems ARR guidance to high single digits to low double-digit growth due to our decision to replace a white label product with an internally developed solution. This creates an approximately 400 to 500 basis point headwind to Field Systems ARR and to a lesser degree, the company for several quarters. This was a low-margin product, so the change will positively impact profitability over the medium to long term. We continue to see strong underlying momentum in Field Systems and remain confident in our Investor Day targets through 2027. Finally, regarding our third quarter outlook on Slide 19. We're setting the midpoints of our guidance at $965 million for revenue, which is approximately 7% growth, earnings per share at $0.85, and ARR growth at 12%. We expect EBITDA margins at 28.6%. Back to you, Rob.

Thanks, Phil. Overall, I am pleased with our second quarter execution and energized by the compounding momentum of our workflow, ecosystem and AI efforts, all of which are built on a foundation of decades of proprietary data. On September 22 and 23, we'll be hosting our European Transportation User Conference in Brussels. On September 27 through 29, we'll be hosting our North American Transportation User Conference in San Diego. And on November 9 through 11, we'll be hosting our Trimble Dimensions Engineering & Construction User Conference in Las Vegas. Thank you to our Trimble team, our global partners and our shareholders for your ongoing support. Operator, let's open the line to questions.

[Operator Instructions] Your first question comes from the line of Jason Celino with KeyBanc.

I think I heard you kind of explained why the Field Systems ARR was coming down a little bit. Maybe -- can you maybe just retouch on that a little? And then specifically, when we look at your ARR performance as a whole, excluding Field Systems, how do you think that performed in the quarter?

Jason, it's Rob. I'll start with this. We made the move from a position of strength within Field Systems. So it's a one-time decision, discrete decision to move from a white label provider to a proprietary version that comes online soon. That existing revenue is low margin revenue. And with the new revenue, that's going to be higher-margin revenue. And importantly, that technology will natively integrate into our larger solution suite. And given that position of strength we have in Field Systems, and you see that in the revenue growth for the quarter. For us, this was actually a relatively straightforward decision to make to accelerate. You asked about ARR at the overall company level and in the segments, I feel really good about that. AECO, up 14% ARR, performing at $1.577 billion, so that 14% to get to that is an impressive amount of net new ARR. And within the Transportation & Logistics business, we were on point there with the 7% growth in the ARR. So I'd say all according to plan and from that position of strength made that decision in Field Systems.

All right, Rob. And then when we look at like the AECO segment specifically, I guess what are you hearing from the different segments as it relates to macro and tailwinds and headwinds and maybe just go a little deeper there.

Sure, Jason. At the macro level, continue to like what we see, end market strength won't surprise you, data centers, energy, reshoring, onshoring of manufacturing are all particularly strong infrastructure strength overall, which we see play through in Field Systems even more so. So broad-based strength at the macro level. North America, I'd say, leading the way, obviously, in terms of the size and the continued strength. We also had a good quarter out of the Asia Pacific region.

Your next question comes from the line of Jerry Revich with Wells Fargo.

Nice quarter. Rob, I wanted to ask you. Can you just expand on the prepared remarks you made on Transportation & Logistics and what that might look like? Are you thinking about the whole segment, just a piece of it? And can you just give us a rough sense of expectations for valuation if you're able and willing to share what the initial conversations have been so far?

Jerry, thanks for the question. So let me say the interest started inbound, that interest was recent. We take our fiduciary obligation seriously. And thus, we communicated that we will undertake the review. I also want to emphatically say that we remain fully focused on executing our strategy within the Trimble platform. This is a great business. It's got a bright future. And so I'm not surprised that we got the calls. To close the loop, there is no predetermined outcome. There's no predetermined time line. And the solve that we'll have in this work is through the lens of shareholder value. And that's the fiduciary obligation.

Okay. I appreciate that. And then can we shift gears in heavy Civil and Geospatial. You had a nice pickup in demand. Can you talk about the supply side of the equation. So we're seeing an acceleration in machine deliveries and tightness on the used market in particular. I'm wondering to what extent can your supply base ramp up given the demand picture into the back half of the year and beyond?

Jerry, I'm going to first do a shout out to our team, both in Civil and Geospatial. They've just done a terrific job with this business over the last few years, that outperformance in the quarter is on a pretty long string now about performance in the business, and it's more than the macros. The macros are certainly healthy, particularly in the infrastructure side and data centers energy. So we see that playing through the market, and it's pretty global in nature. At an execution level within the business, control what we can control. The team continues to innovate. We're expanding the network of the mixed fleet that we're able to support, and we're expanding our points of distribution into the market. We're expanding the ecosystem development. So that translates into third-party extensibility built on top of our Earthworks platform, within the Civil business. I mean Geospatial, new product launches are driving business, and we're going to see even more as we move into the second half of the year, and particularly as we come into the conference season with [ Energo ] in September and Trimble Dimensions in November.

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

Rob, I had a question on just how you're thinking about capital allocation broadly. Obviously, it's incredibly dynamic. You're seeing, I guess, a lot of opportunities from AI and the market sees some threats and so some assets are cheaper. So just in general, do you find it to be a more fruitful kind of search if you're looking at acquisitions? And then do you feel any different strategic need to assemble any other assets in the portfolio than they did 1 year or 2 ago?

Rob, great question. Broadly speaking, in the capital allocation front, we see it the same as ever. We focus first on investing back into the business organically, put forward the model we have on buyback. And then, of course, we have been an acquisitive company over time. If you look at the acquisition front, one of the dynamics that we see at play at the moment in an AI forward world is there is more opportunity for us to create our own features and capabilities. So in the past where we might have looked for some tuck-in capabilities, we think we can do more of those ourselves today. So that actually would be one different commentary I have on the acquisition front. To the extent that we can build new sets of competencies or new, let's say, markets to enter. We remain open to that. So we'll be active. I'd say we're always active on the M&A front, scanning the landscape. We actually have a venture arm in Trimble. So we pay attention, and we're actively engaged. I would not say that the valuation environment has come down in the private market in any sort of fundamental way. And so we certainly weigh that against the buyback opportunity that's still highlighted with the $1 billion reauthorization.

Your next question comes from the line of Josh Tilton with Wolfe Research.

Two quick ones for me. First one, maybe to follow up on Celino's question. And again, I apologize if I missed this, and I also didn't run the math. So again, I apologize if it was clear that way. But had we not encountered this ARR divestiture in Field Systems. Would we be reiterating the ARR guide for the full year at the midpoint? Or would we be raising the ARR guide for the full year at the midpoint?

Josh, it's Phil. Let me take that one. So yes, the Field Systems impact for this very discrete item is about 400 to 500 basis points over the next few quarters for Field Systems specifically. It's about, call it, a little under 100 basis points at the company level. So aside for those issues, if we would be reiterating the range that we have.

Super helpful. And then maybe just a quick follow-up. I appreciate the incremental color on acknowledging the potential sale in transportation. I have to imagine that the inbounds that you're getting is because of these buyers, I don't want to say, see, this is the bottom, right, but they must see a better environment in the future, hence, wanting to buy the asset now and ride that positivity up as opposed to missing out on that opportunity. Can you maybe just dive one level deeper on like what are they seeing that we should be seeing or paying attention to that maybe give them hope that there is a better environment in your transportation market over the next, call it, 12 to 24 months than we saw over the last 12 months?

Josh, that's a great question. This is Rob. I'll take it. This is a great business. So this business has great potential, we believe in the opportunity. With the inbound, we have a fiduciary obligation, and we take our fiduciary obligation seriously. And we compare that to our own plan to execute on our own strategy within the Trimble platform. And that's why I say, we remain fully focused on executing the strategy because I go back to this being a great business with great potential. The solve is actually pretty easy in the end is what do we see as the highest shareholder value creation. And so we look at the stakeholders between our customers, our employees and our shareholders, and we make the decision accordingly. And by the way, if there's a decision to make because there is no predetermined outcome and there's no predetermined time line.

Your next question comes from the line of Quinn Fredrickson with Baird.

First question just on AECO. Could you unpack the difference between organic revenue growth and ARR growth in the segment this quarter? It was just little wider than I would have thought. I'm not sure if that's all the conversion uplift going away or if there's any other factors?

Quinn, it's Phil. Thanks for the question. So in AECO, we have some term licenses in multiyear term and also some pro serve as well. The revenue is recognized upfront with those items generally. And so the timing of those in any given quarter could be up or down and create a delta between the revenue and ARR. If you actually go and look at our past and particularly in Q2, we've seen this dynamic before, so it's nothing new. And this is why we focus on the ARR metric. And the 14% growth has been consistent in that range and in line with what our expectations are this year. And there's no change to our outlook or guide for AECO with that.

That's helpful. Second question, we're a few months into the Claude partnership. Is there any data you could share on new SketchUp user licenses and how that's trending relative to what you had hoped for it at this point in time?

Quinn, this is Rob. Good question. It is early to have any definitive conclusions. But there are -- I'll call it 4 things that I can say based on over 25,000 unique users that we've seen in Claude using the Connector. The first is around learning. We're learning how to build skills to make the Connector even better. The second is that we're following the telemetry to generate the marketing motions to drive adoption to turn a user into a customer. The third, what we're confirming is what we expected is that this is not going to replace the current workflows, professional, call it, grade work that's done, deterministic analysis that could be daylight modeling, structural analysis, energy modeling, that's still happening within SketchUp itself. And the fourth, as we said originally. And as we still know today is that importantly, our IP is protected. And we're building these same capabilities into the SketchUp user interface itself, and that's been launched in what we call our Trimble Labs program. So it's out there with some early users. So I'd say in line with the expectations we had, Quinn. So thanks for asking.

Your next question comes from the line of Tami Zakaria with JPMorgan.

Very nice quarter. I wanted to follow up on Slide 8 of your presentation, where you show how Trimble delivers value to data centers. Can you help us understand what is the duration of a typical data center project where you can stay involved? And is there a revenue curve that follows that has a phase when Trimble's value contribution peaks? Or is it pretty consistent from breaking the ground to handing over the project?