Thank you for standing by. My name is Novi and I will be your conference operator today. At this time, I would like to welcome everyone to the Trimble Third Quarter 2024 Results Conference Call. All lines have been placed on mute to prevent any background noise. After the speakers’ remarks, there will be a question-and-answer session. Thank you. I would now like to turn the call over to Rob Painter, President and Chief Executive Officer.

Welcome, everyone. Before I get started, our presentation is available on our website and we ask that you refer to the Safe Harbor at the back. Our financial commentary will reflect non-GAAP performance metrics, including organic growth comparisons which refer to the corresponding period of the prior year, unless otherwise noted. In addition, our P&L commentary will emphasize comparables on an as-adjusted basis which excludes our agriculture business. Let's start on Slide 4. During the third quarter, we continued to advance our Connect & Scale strategy. The Connect aspect of the strategy guides us to digitally connect users, data, and workflows across stakeholders in the engineering, construction, and transportation and logistics industries. The Scale aspect of the strategy guides us to develop increasingly common back-end systems and shared technology platforms while deploying more consistent processes around focused and accountable teams. Our strategy is working, and it is delivering unique present and future value to our customers as well as sustainable value creation for our shareholders. In the quarter, we outperformed expectations at the top and bottom line, and we are raising our top and bottom line guidance for the year. Congratulations and thank you to the entire Trimble team. The numbers reflect hard and intentional work in the quarter as well as over the last 4.5 years. Three messages to convey here. First, we delivered ARR of $2.187 billion in the quarter, up 14% organically. This kind of growth at scale doesn't happen without an enormous commitment to our Connect & Scale strategy. We also delivered a record gross margin of 68.5%. That compares to a gross margin of 57.7% in 2019. While the record numbers speak for themselves, it is important to recognize that this is a result of the journey we undertook a number of years ago, and we are proud of our progress. Second, the structural improvement in the quality of the Trimble business model reflects focus and choice; choice manifests as disciplined capital allocation. In the last 4 years, we have divested 22 businesses. In September, we announced our intention to sell our mobility business to Platform Science and to become a major shareholder in the combined business. We are playing in the zones where we believe we have the strongest right to win. As soon as we conclude the audit process with EY, we will return to share buyback as we believe this is a high return on investment use of shareholder capital at our current valuation. As a reminder, we have $625 million remaining under our current authorization. Finally, the sum of our efforts over the last year is manifesting as a more simplified Trimble, managed and led by a highly focused, engaged, and hungry team. Moving to Slide 5, we cover the financial highlights from the quarter. 4% revenue growth exceeded our expectations, as did EBITDA at a strong 27.1% and EPS at $0.70, which performed above the high end of our guidance range. To give a quick snapshot of a few of these metrics without the mobility business, ARR would have grown 16% instead of 14%, and revenue would have grown 5% instead of 4%. Before moving to comment on segment performance, I'll provide an update on the status of our financial audit procedures. During the August earnings call, I thought we were approximately a month or so away from being done. I was obviously wrong. In September, we held our Annual Shareholder Meeting, reflecting the progress made and the ongoing confidence we continue to have that our financial results will be the same as we previously reported. Since then, EY has continued to perform additional audit procedures. There is only one right answer. We work collaboratively to provide them the information they need. While our team and the EY team are making progress on completing the audit procedures, we now believe that EY will not complete their work in time for us to re-file our financial statements ahead of NASDAQ's November 11 deadline. Procedurally speaking, what will happen first is the formality of a notice from NASDAQ saying we are subject to delisting. We then communicate this via 8-K in a press release. After that, NASDAQ has a structured stay and appeals process for dealing with this exact topic. We feel confident that we are well positioned to be granted an extension, which will provide EY additional time to complete their work and for us to file our financials, thereby regaining NASDAQ compliance. Let's now talk about the business, starting on Slide 7 with the AECO segment. Congratulations to the team for delivering another record quarter of ARR at $1.21 billion, higher than all but one of our industry peers. The team grew the business 18% organically, which is at the high end of growth of our scaled industry peers. And they are doing this in a profitable manner, achieving over 29% operating income for the segment in the quarter. We look at Rule of 40 as an instructive measure where we sum ARR growth and operating margins. We are operating at a Rule of 47, delivering strong net retention and an attractive lifetime value to customer acquisition cost ratio. This provides us degrees of freedom on how we think about investing in the business to continue differentiating, as we do with the breadth and depth of our offerings, including Trimble Construction One. Our portfolio is also quite balanced, with each component of AEC and O now operating above $200 million in ARR. I often describe this segment as the tip of the spear of our Connect & Scale strategy and the strategy is definitively working in AECO. While we still have a lot of work ahead of us, the results of today give me confidence in delivering the results of tomorrow. Let's turn to Slide 8 and talk about the Field Systems business. Revenue was in line with our expectations, down 2%. ARR outperformed, growing 19%, demonstrating the intentional work of the team to move more of our value to the software aspect of our systems to do so in the cloud and to monetize as a subscription offering. ARR growth came from strong sales of our Catalyst solution, which delivers Positioning-as-a-Service, our Machine Control-as-a-Service offering, and through ongoing growth in our traditional positioning services business. The team did this while delivering a 33% operating income margin, demonstrating the ability to control costs in an unforgiving market environment. Strategically speaking, Digital Twins is a popular buzzword these days. In a Trimble context, I'd like to think we were the original digital twin company. The job of a surveying and mapping professional is to create a digital model of the physical earth. Our reach into the physical world, connected to our digital footprint, and round trip back to the physical world is what is singularly unique about our company. In the quarter, we released a new solution to enable this workflow. I'm really excited about this launch. It's called Trimble Reality Capture Service. And what it does is link data captured in the field from terrestrial, mobile, and aerial modalities, then links it to Trimble Connect, which enables cloud-based visualization and collaboration at scale. We think this will prove to be one of those only Trimble innovations and we are excited to see how the market adopts this technology and guides us to develop it further. Another strategic milestone came in the form of the renewal and extension of our 20-plus year joint venture with Caterpillar. Slide 9 provides additional details on the renewal. The most important element to convey is our shared vision to accelerate innovation and customer adoption of mixed fleet machine control solutions and the construction ecosystem technology. For Trimble customers, the goal is simple: broader availability and access to our technology. Our recent partnership announcement with John Deere is evidence that we intend to achieve this goal. Also, our ability to link machine control solutions to Trimble Construction One offerings is another only Trimble proof point. Closing our segment commentary on Slide 10, Transportation & Logistics beat our top and bottom line expectations. Transporeon delivered double-digit ARR growth, and MAPS delivered high single-digit ARR growth. Excluding the mobility business, organic ARR growth in the segment was 9%. Operating margins of 21% were the highest we have achieved in many years. While the freight recession persists, the Transporeon team delivered a record level of third quarter bookings, which was also the second largest in the history of the business. In a dynamic macro environment, the team has done a great job with solid execution and an advantaged business translating into profitable growth and consistent share gains. Strategically speaking, the big news of the quarter was our announcement that we signed a deal to sell our mobility business to Platform Science and that we intend to become a major shareholder in the business. Further details are covered on Slide 11. For the combined business, this will create a scaled and focused software business that has a unique combined breadth of solutions needed to compete in the current environment. For Trimble, we will maintain a commercial relationship with the ongoing business. And at a company level, this enables us to further simplify and focus our attention and efforts in the areas where we have the most compelling right to win. Before handing over to Phil, in the last call, I talked about how I see Trimble as an AI winner. In the quarter, we continued to progress our AI efforts, both internally and externally facing. In this call, I'll end with a perspective on the macro environment. Geographically, the bookings we see are North America as the strongest market, while Asia Pacific, excluding India, is the weakest market at the moment. By end markets, construction and transportation overall represent our bookends. Construction subsegments such as renewables, mega projects, and infrastructure remain relatively strong. Residential remains challenged, as do transportation end markets. In all environments, we anchor to our unique value proposition. What we sell enables work to be done better, faster, safer, cheaper, and greener. The business is there; we need to be showing up in the right market segments with the right solutions and the right go-to-market motions. Phil, over to you.

Thank you, Rob. As noted before, my financial commentary will emphasize comparables on an as-adjusted basis which excludes our agriculture business but will still include the mobility business. We believe that maximizing long-term free cash flow drives shareholder value. Connect & Scale is our strategy which we believe will continue to deliver recurring revenue growth, margin expansion, and ultimately, cumulative cash flow growth. Slide 12 highlights balance sheet and cash flow dynamics. Our cash flow continues to trend better than expected after considering M&A transaction impacts. 2024 year-to-date reported free cash flow was $389 million. That includes $87 million of tax payments related to our gain on sale of the agriculture business, as well as $66 million in M&A-related transaction expenses. Our conversion ratio through the first 3 quarters of 2024 without these items was well above our target of 1x non-GAAP net income. We have additional tax payments impacting future operating cash flow related to the agriculture JV gain on sale in our fourth quarter of 2024 and second quarter of 2025, since the tax payments are spread out over time. Our asset-light model continues with capital expenditures about 1% of revenue and negative net working capital. Net debt to EBITDA stands at less than 1x, well below our long-term leverage target of 2.5x. We have just over $1 billion in cash after paying down our term debt and the outstanding balances on our credit facilities. Our capital allocation focus remains the same where we invest and where we see opportunities for the highest returns. We continue to disproportionately allocate capital to our AECO business, where a significant percent of our operating expense increases are in our sales and marketing engines to continue to drive ARR and revenue growth and ultimately margin expansion and free cash flow generation. On the merger and acquisition front, we expect to opportunistically pursue tuck-in acquisitions primarily in the AECO segment where we can quickly integrate and bundle within Trimble Construction One. Our 2 recent acquisitions in AECO continue to demonstrate that our M&A playbook is working. The human resources application we purchased about a year ago was quickly integrated into our Viewpoint ERP, and we have already over tripled the ARR and almost quadrupled the customer accounts for the product in that first year. The payments application we purchased in the second quarter is ahead of our initial integration plans into the Viewpoint ERPs, and we are seeing bookings well in excess of our deal models. These growth opportunities are enabled by our Connect & Scale strategy via bundled product offerings that we put in the hands of our sellers. This playbook is a critical part of our acquisition strategy going forward. With that, let's turn to Slide 13 and talk about guidance for the remainder of the year. We have a 53rd week in fiscal 2024 which adds approximately $85 million of revenue and $50 million of operating income, mainly driven by term license renewals on January 1 which falls in the fourth quarter of this year. We are holding our ARR growth at 11% to 13%, but are biased towards the higher end of the range with the AECO performance offset by the churn in our mobility business that we previously discussed. We are increasing the midpoint of our as-reported full-year revenue guidance by $15 million from $3.63 billion to $3.645 billion. AECO revenue is slightly better than our prior guide due to the performance in the first 3 quarters. Field Systems revenue is also slightly up, and transportation is unchanged. Correspondingly, the full-year earnings per share midpoint is increasing by $0.09 to $2.83 from the prior $2.74. Our as-adjusted EBITDA margin for the year is expected to be between 27.5% and 27.8%, which is approximately an 80-basis-point improvement at the midpoint from our prior guide. Free cash flow conversion for the year is approximately 0.75x non-GAAP net income which includes $116 million of taxes from the gain on sale from the agriculture JV, as well as approximately $85 million in full-year M&A costs. Without these items, we would be above the 1x non-GAAP net income for the year and an improvement from the prior guide. Let's move to our fourth quarter on Slide 14 which is consistent with our prior guide. I will focus again on our as-adjusted view which excludes agriculture. Our outlook for ARR growth remains strong with continued expectations for 11% to 13% organic growth with a bias to the higher end. Our total company revenue is projected to be $925 million to $965 million, which includes approximately $85 million due to the 53rd week. On an as-adjusted basis, excluding the 53rd week, our revenue is anticipated to grow in the range of 1% to 6% year-over-year. Non-GAAP operating margin is expected to be in the range of 28.5% to 30%, and adjusted EBITDA margin in the range of 30% to 31.5% for the fourth quarter. Our EPS forecast is in the range of $0.83 to $0.91. One more item I'd like to mention before turning it back over to Rob. As we think about the financial model going into 2025, it is critical to make the correct pro forma adjustments for the agriculture and mobility divestitures, along with the 53rd week. I'll point you to the earnings supplement on our Investor site where we consolidated the adjustments in one place. For 2025, we expect continued double-digit organic ARR growth. Starting from a baseline of pro forma 2024 revenue, we continue to believe that with the shift to higher-growth software, we are biased above the midpoint of the last Investor Day range of 5% to 8% organic revenue growth. We expect AECO to be above this range. Transportation is expected to be in this range after the divestiture of mobility, which we are now expecting to close in the first quarter of 2025. We're expecting Field Systems to return to growth but be below this range. Rob, I'll turn it back over to you.

Thanks, Phil, and thanks to all our Trimble colleagues and partners for delivering a solid quarter and a 2024 year-to-date of strategic and financial execution. In the third quarter, we held our Signature User Conference in Las Vegas for our North American transportation business and our Signature User Conference for Transporeon in Vienna. We were able to see over 2,000 customers and partners with these 2 events. The overall feedback was positive on the mobility divestiture as well as the direction of travel on how Connect & Scale translates to digitize and connect the transportation supply chain. In less than 1 week, we will be back in Las Vegas at our Trimble Dimensions Engineering and Construction User Conference, where we will host over 6,000 attendees who are coming to learn how to further digitize and transform their work. In closing, we look forward to seeing many of you on December 10 in New York City at our Investor Day, where we will unpack our business and show you why we are so excited about our ability to win across our business lines with the right combination of products, people, and go-to-market strategies. It's a busy and exciting time to be at Trimble. Operator, let's open the line to questions.

Your first question comes from the line of Kristen Owen with Oppenheimer.

Congratulations on the nice results. I'm wondering, Rob, if we could start with just a little bit more color on the ACV bookings. What you're seeing in terms of cross-sell and upsell opportunities within the TC1 portfolio? And then I'll have a follow-up.

Thanks for the question. ACV bookings across actually the entirety of the company were strong in the quarter. So we feel really good about that. That supports obviously the ARR growth that we've already had, as well as the ARR guide that Phil took you through. Inside those ACV bookings, if we're looking inside the AECO business, TC1 was another highly successful quarter for that commercial offering and where we're doing the pre-packaged bundles. We see that the strong majority of our bookings, where we have TC1 available within AECO, which is primarily within the engineering and construction applications, the strong majority are now TC1 bookings, and those bookings are up more than the company average. And so within that, you have cross-sell and upsell happening. Similarly, in the Transportation & Logistics segment, if we look at Transporeon on year-to-date, ACV bookings are up over 30% on a year-over-year basis. So a really nice progression from the teams in the quarter.

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

Rob, thank you for sharing the preliminary comments on '25, broadly in line with consensus top line expectations. What's interesting is given the trajectory you're on for ARR growth and what you just said about bookings, it feels like to get to the high end of your organic growth range, you would have to have hardware top line that's down high single digits. And so I'm wondering, can we just flush that out? Is that about what you're assuming? And is the idea, hey, look, there's uncertainty out there, let's make sure when we provide the initial '25 outlook comments, we have enough leeway in case end markets are softer? Or are there any discrete points that we should keep in mind relative to the outlook considering how strong momentum you have in ARR and bookings?

Jerry, it's Phil. Let me address that and then Rob can chime in if needed. It's a great question. When we consider 2025, I previously mentioned that AECO is expected to be above that range. Transportation is anticipated to fall within that range, excluding mobility. Field Systems, however, is expected to be below that range. We still believe Field Systems will return to growth, albeit at a low single-digit rate. There are a couple of factors concerning Field Systems. First, regarding the Fed this year, we anticipate that Fed business will decline next year, presenting a slight headwind. Additionally, as we consider the evolution of the CAT JV, we will participate in its economics. We expect some revenue to shift toward factory fit. Looking long term, with the channel evolution we discussed and targeting mixed fleets beyond 2025, we believe this will counter and surpass any negative impacts from factory fit. However, for 2025, we anticipate a few headwinds regarding that revenue. On the profit side, we have altered how Trimble prices some products within the JV, which means that while there are a few revenue headwinds, additional profit is expected to transfer from the JV to Trimble. Overall, when we consider these factors at the EBITDA level, we believe it will be neutral for the rest of 2024 and for 2025 concerning profit. This provides a bit more context on Field Systems, but we do expect low single-digit growth for Field Systems next year.

Our next question comes from Kristen Owen with Oppenheimer.

Phil, just it does relate to the Caterpillar relationship and the Deere construction partnership announced in the quarter. Can you just help us understand with respect to the Deere partnership, what's covered under the scope of the agreement? How are you guys planning to go to market together? And I'd like to understand how you think about this partnership in the context of that long-standing relationship with Caterpillar? Any channel risk that you see with the Deere partnership there?

Kristen, it's Rob. I appreciate the follow-up. I'll begin by discussing the customer's perspective on this. Both the Deere agreement and the CAT agreement help us enhance the adoption of technology in the industry. For customers, this means they have the option to choose machines and technology that best suit their business needs, with support from both John Deere and Caterpillar. Specifically regarding John Deere, we are enabling 3D upgrades on their machine platform. These upgrades can be accessed either through John Deere dealers or the Trimble network. In terms of competition or potential channel complexities, I view it as not being an issue. We see it as complementary because we are currently not fully meeting that demand or opportunity.

Our next question comes from Rob Wertheimer with Melius Research.

My question, Rob, is maybe you could just give us a big picture take on where Transportation & Logistics stands with the subtraction of mobility? Does it change the Connect & Scale? Does it change what you're offering to customers? And then your Transporeon results continue to improve and be very impressive. I wonder if you can talk about anything you're doing aside from seeing a rebound to strategically grow that business?

Thank you for the question, Rob. I remain very optimistic about the potential and development of our business and business model in Transportation & Logistics. Clearly, a divestiture will enhance our financial metrics, improving both growth and profitability, and highlighting the strengths of our underlying portfolio. I'm pleased with our transaction with Platform Science, as I believe it will create a scalable business well-equipped to succeed in the current market. We will maintain an ongoing commercial partnership, which is crucial for us. This partnership will facilitate data exchange and integration with our platform, allowing us to deliver superior outcomes for customers. Strategically, this aligns well with our capital allocation and focus, enabling us to concentrate on areas where we are most competitive. Regarding Transporeon, both at the product and strategic level, our teams have made excellent progress in integrating capabilities across all businesses, particularly in visibility and the freight marketplace. The team's efforts to consolidate are in line with our vision from the deal. As for the ongoing development of Transporeon, I want to emphasize that bookings are my top priority, as we can't control the challenging freight market, especially in Europe. However, we are successfully gaining traction with customers, including some of the largest brands globally. The team is performing well, and while we have achieved booking wins, it's important to note that bookings in Transporeon can take time to materialize due to the consumption-based model, where about two-thirds of the business is transaction-driven. For significant near-term improvements in 2025, we do need enhancements in the freight market to drive additional transactions. I'm somewhat cautious about the European market for 2025, anticipating modest ongoing growth for Transporeon. I believe that the initiatives we've undertaken this year and into the fourth quarter will set the foundation for even faster growth in the coming year.

Our next question comes from Jerry Revich with Goldman Sachs.

Yes. I wanted to ask, Rob, the really interesting stats that you and Phil shared on the improved performance on the business you acquired within TC1 or the 2 businesses you acquired, can you just talk about your M&A pipeline as it stands today? What's the range of potential outcomes of how much capital we can deploy for similar acquisitions that fit over the next 12 to 18 months based on what you see? And if you can touch on the valuation parameters on these last 2 deals, if you don't mind?

Jerry, it's Rob. I'll start, and Phil can fill in. At the M&A level, we do have a pipeline. Our priority is with the software acquisitions. Within software, we're primarily looking at the AECO segment, which I think would not be a surprise. We think where we have opportunities to do tuck-ins is that we can create high-return outcomes, which is clearly important from a capital allocation perspective at what we call dry powder perspective, we're sitting at about 0.8x net debt to EBITDA, and we've got a target to be below 2.5x. So there's about $1.5 billion firepower should we need it, but I don't anticipate putting that kind of capital to work. We are thinking a lot as well about the buyback as a big commitment we made, and we stand behind that commitment on the buyback, especially with where we see the stock price today. So that's a balance we have, Jerry, is between the buyback and the M&A. Expect more of the tuck-in type moves, I would say, at a divestiture level, and we do not expect any additional major moves to happen on that front. Hopefully, that helps answer your question.

Our next question comes from the line of Jason Celino with KeyBanc Capital Markets.

Just 2 for me. Field Systems, really nice beat. Maybe can you just unpack the strength there? Was it more on the public sector side? Or did you see any deals closed earlier than you had initially planned?

Jason, it's Rob. Did you mean Field Systems or the AECO?

Field Systems.

Okay. So within Field Systems, actually, at the revenue level, we ended where we anticipated to be in the quarter in Field Systems. What we see that's driving the business, there's a new product we've got, a set of new products that are coming out, actually at dimensions. Next week, we'll be making a number of new announcements, both on the software and the hardware side of the business. So we continue to bring new products in geospatial or the survey market forward like the R980 that's improving communications and the range on that. In the machine control market, it hits the civil construction. Our BX992 offering helps us reach a mid-tier market. And our correction services or compositioning services business, a technology called IonoGuard is correcting for errors in the ionosphere. This is through the solar cycle that's been ongoing, and that's helping to ensure the accuracy of those signals and corrections that we provide our customers around the world. So, new product introduction is helping to drive the revenue. I'm especially pleased with the growth of the ARR in the segment in the quarter, and that's coming from the machine control service as well as offering-as-a-service. It's in our positioning services business where we continue to win new OEMs in the automotive market. And we literally sell positioning as a service with a product called Trimble Catalyst and are looking to do more bundling with the term licenses and the correction services that we have. So it's a good number of activities happening. The team is executing well in addition, at the go-to-market with our channel partners around the world. So, really a nice intersection with the product, and the go-to-market, and the business, and then the team doing a nice job working the business models.

Okay, great. Yes, I know the Field Systems there been accelerating nicely on organic level, so that explains it. Maybe just keeping on kind of the organic ARR theme. This is the second quarter in a row; we've seen 14% growth at a corporate level. I think you're still guiding to 11% to 13% organic for the full year. Maybe kind of walk us through the implied deceleration there, any conservatism you have?

Thanks, Jason. This is Phil. Yes, so if you remember, I mentioned this, we have the mobility headwind with a lot of the known churn that's going to happen at the end of this year. So my 2 comments were, one, I said 11% to 13%, but biased toward the high end. We still see the continued strength in the AECO business. But where we're seeing some of the offset is that known churn around mobility in Q4.

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

My first question is what's the conversation like among your customers post the Fed rate cuts? Do you feel a sense of optimism, could customer activity improve as we look to next year, meaning, could there be an acceleration in trends at some point next year? Any anecdotes you can share from last week cut cycles, whether you saw any acceleration maybe at a lag or anything to call out there? Or is rate cuts historically a factor for you at all? So just curious how you think about this transition.

It's Rob, and thanks for the question. I think it depends on the timeline of Fed rate cuts. Coming out of a zero interest rate policy environment, we've seen more Fed rate increases in recent years, and you'd need a long baseline to go back to see an inflationary environment that decreases. It's difficult to look back in time for helpful comparisons. I want to highlight that our business today is quite different from Trimble's past; over 75% of our revenue comes from software and more than 60% is recurring. This gives us a fundamentally different portfolio with greater visibility into our business than we've had before. From what we've heard anecdotally, there is an increased level of confidence, and that confidence can lead to certainty, which may enable capital commitments. I do want to note that more than half of our business and hardware sales occur outside the U.S., so we monitor not just the U.S. interest rate environment but global factors as well. I think it's too early to draw any definitive conclusions, other than to mention that we're hearing more confidence anecdotally. One thing I'm keeping an eye on is the bipartisan infrastructure law; so far, only about 25% of the funds have been deployed. This is positive news regarding the availability of ongoing funding. In the U.S., for example, the cost of building a mile of road is about $1 million, with over $900,000 of that representing raw materials like subsurface materials and asphalt. The smaller portion goes to machinery and labor. If inflation decreases for materials, that will be beneficial for road construction. So that reflects one side of inflation decreasing and relates to interest rates coming down, which is something we are monitoring along with the secondary and tertiary impacts.

Got it. That is very helpful. And second question, I'm actually looking forward to your Analyst Day, but any early thoughts on how you're thinking about your long-term incremental margin target now that you have divested some of the hardware-centric low-margin businesses?

Tami, it's Phil. I can take that one. Yes. So obviously, we'll get into more detail at Investor Day, but I want to reiterate what I said last earnings call, which was that we are biased above the midpoint of our prior Investor Day model, which was 5% to 8%. So that gives you the revenue number. As we continue to grow the software business more significantly than the hardware business, you would expect gross margin expansion. We also mentioned last time the operating leverage being around 30% to 35%, and we're leaning towards the high end of that. If you combine all of this with some expansion at the EBITDA level, we anticipate about 100 basis points of margin expansion over time, though this is a long-term view. We can discuss this further at Investor Day as well.

Our next question comes from Clarke Jeffries with Piper Sandler.

It's been encouraging to observe that the adjusted margin expansion this year has increased from a range of 100 to 200 basis points to now 200 to 250. I wanted to inquire specifically about the margin expansion we've experienced this year in the transportation sector. How sustainable do you believe this multi-hundred basis point margin expansion in Transportation & Logistics will be? I recognize that mobility will provide a tailwind to margins next year, but regarding adjusted figures, how are you assessing the underlying efficiency gains in the transportation segment? What kind of operating income expansion can we anticipate moving forward?

Yes. So Clarke, this is Phil. Let me start, and Rob can add any color. So as we think about, as you said, as we got rid of or as we divested the mobility business going into 2025, that's been obviously a drag on our growth and our ARR growth this year. So we mentioned that before. So then when you have what's left, you've got the MAPS business which is performing well, continues to grow. I think we grew sort of high single-digit ARR growth in Q3. Rob had already talked about the Transporeon business. And we're not forecasting right now for 2025 any meaningful change in the overall market. But he mentioned the bookings growth. And it's been a healthy business on our growth. It's been double-digit, call it, revenue growth and accretive on the OI. So when you think about those businesses continuing to perform at that level, I would expect additional growth and margin expansion from those businesses as we go forward.

Perfect. And just one follow-up. Rob, you kind of given this interesting disclosure about how much ARR is split between the A, the E, the C, and the O. When we think about the ability to sustain it seems like multiple years of 18% to 20% organic ARR growth, has the composition of that organic ARR growth has been fairly balanced over the years and you give these comments around 30% ACV growth in the E&C segment kind of driven by TC1, but are those segments kind of equally contributing over the years? And that's part of the confidence in AECO growth above the midpoint of the kind of organic growth range next year?

That's a great question. I can say that we have a variety of growth outcomes within the A, the E, the C, and the O. Each of them is above $200 million, which highlights the balance we maintain in our portfolio, preventing over-dependence on any single area. It's crucial to communicate this, and that was my intention. Regarding growth rates, our architecture and design business has significantly outpaced the rest of our portfolio in terms of annual recurring revenue growth over the past few years. We believe this sector represents the largest addressable market opportunity we have with the SketchUp product. Last quarter, we surpassed 1 million paid subscribers using this technology, giving us the broadest customer reach globally. This segment is growing the fastest and is likely to continue doing so for the next couple of years. The growth in the E and C aspects of AECO is quite similar, and I don't anticipate any changes in that regard over the next few years. As for the O, which pertains to the public sector, it does grow at a slower rate compared to the private sector. However, one attractive feature of the public sector is its high net retention, indicating low churn rates. Gross retention is typically at its highest in this area of our business, making it well-balanced. While growth rates vary, they aren't substantial enough to alter our outlook on the growth opportunities for the business, and we expect annual recurring revenue to continue growing in the teens.

Our next question comes from Chad Dillard with Bernstein.

So I wanted to go back to your early thoughts for '25. Just trying to understand like what sort of macro environment is embedded in that outlook? I guess more specifically, just thoughts on how you're thinking about construction and how it layers into your Field Systems guidance? And then secondly, I mean, it sounds like the AECO business is growing faster, the mobility side or the transportation side. And so like what does that mean for incremental margins or the gross margins in the '25 as well?

Let me start with the broader economic outlook, and Phil can provide more details on margins. From a macro perspective, I don't anticipate significant changes from what we currently know. After all, January 1 is just the day after December 31, so it’s challenging to predict any substantial shifts in the market. We've observed that the North American economy is performing stronger than the European economy, and I expect this trend to continue. Certain sectors, such as data centers, renewable energy, and onshoring of manufacturing, have been strong, even outperforming the residential sector. If interest rates continue to decrease, that could positively impact the residential market, which we recognize is underbuilt and will rebound over time. Regarding Field Systems, we are closely monitoring OEMs, who are forecasting a decline in units in construction and agriculture, and we are factoring this into our Field Systems strategy. We still anticipate growth next year, although it will be below the company’s average growth rate. For transportation and general market conditions, I think 2025 could show improvement in North America, as there are signs of better supply and demand balance. In Europe, I expect the situation to remain relatively consistent. We don’t foresee a significant increase in the number of transactions per customer that would significantly benefit the Transporeon business, unless our expectations are wrong and the economy improves.

So some of those macro thoughts make it into the revenue, I don't know if we call it guidance yet, but I'll call it revenue early revenue thoughts that Phil put forward. Phil, do you want to fill in the rest?

And I also want to point out that we have the earnings supplement. I encourage everyone to review it because there are several factors to consider. One is the mobility divestiture, which we expect to occur in Q1. Additionally, the agriculture sector will be lapping in Q1, so that will affect the adjusted figures. Another significant aspect is the 53rd week that we have in 2024. It's crucial to understand these components and work from the correct baseline. Otherwise, things may appear misleading, particularly regarding the 53rd week and the divestitures. We are approaching this from an organic perspective, excluding the 53rd week when making our comments.

That's very helpful. My second question is about the timeline for fully implementing TC1, particularly regarding the owner side and geographic expansion. Can you provide an update on that? When do you anticipate seeing this strategy fully realized? Also, how do you view the additional market opportunities that will arise from this?

Chad, that's a great question. Currently, we are focusing on selling within the AECO sector, specifically to the engineering and construction customers, including mechanical, electrical, plumbing, steel, and concrete contractors, as well as general contractors involved in both vertical and horizontal projects. These are our main customers at this moment. We integrate our architecture and design products, like SketchUp, into their bundles. However, pure architects and designers are not typically purchasing TC1; they only buy the specific products they require. In the engineering and construction segment of AECO, TC1 is already available in North America as a framework commercial offering, featuring over 20 pre-packaged sub-offerings aimed at different personas. We are just beginning our rollout in Europe and have not made significant progress in the Asia Pacific region, particularly Southeast Asia. I expect to see Europe become fully operational next year, with some progress in Asia Pacific as well, provided we complete the necessary underlying infrastructure to support regional expansion. Regarding the public sector and including owners, we will start to notice more activity in that area next year. The public sector already utilizes its own version of TC1, known as Trimble Unity, which combines our various capabilities in enterprise asset management and digital project delivery into a comprehensive technology suite for asset lifecycle management, which we believe is quite unique. We will continue to focus on asset lifecycle management in the public sector, aligning it with TC1, regardless of whether it retains that name, as our priority is delivering results to our customers. Additionally, we will establish more connections to the machine control and guidance market next year through our as-a-service offerings, integrating this with the TC1 bundles for civil contractors. For example, the capabilities we have with B2W in estimating and tracking field progress for civil contractors will fit well with the construction ERP offerings we provide, linking that to our machine control and guidance systems and project management controls. This integration reflects our unique ability to blend physical and digital solutions. I am excited to see more rollouts next year. Concerning the addressable market, we have consistently observed that our bundle rollouts are broadening the addressable markets and customer reach as we transition to more as-a-service offerings.

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

This is Arsenije Matovic on for Josh Tilton from Wolfe Research. Just first question, really great results in transportation and AECO, I guess, within transportation, record bookings and from Transporeon on despite the European freight rates. Can you maybe go into what's driving that? Is it better consumption than expected, better new logo wins with larger customers being added? And then moving on to AECO, within AECO TC1 specifically, what's going on there as well from a high level? Are there better expansions from existing customers? Are there new logo wins with improving win rates? Anything you can share there? And then, I just had a brief follow-up.

This is Rob. I'll start with Transporeon. We set a record for bookings this quarter, marking the highest level of bookings for a third quarter. Overall, we’ve seen about a 30% increase year-to-date compared to the same period last year. A significant portion of these bookings comes from new customers, and we also have a strategy to expand our offerings among our existing customers due to the diverse capabilities of our platform. This cross-selling of additional features is contributing to our booking growth. I am particularly pleased with the number of new bookings, and we successfully connected with many existing and new customers at our recent User Conference in Vienna. Customers, both carriers and shippers, are seeking the efficiencies that our platform can provide. We are experiencing strong growth in our autonomous procurement and quotation product lines. This represents AI in action, generating revenue and being monetized effectively, which is encouraging to see. We offer a unique set of products and solutions for our customers, primarily targeting shippers. They join our network, facilitating transactions with the carriers also within our network. Regarding TC1, could you clarify if you want insights into what is driving this growth or details about our ongoing efforts?

Exactly. Is the expansion? Is it new logo driven? Is there anything with better competitive wins with a more cautious budget environment for some competitors that are offering more expensive solutions, anything to get into there?

Yes, let's begin with the bookings. They were around or slightly above the level of the annual recurring revenue growth for the quarter. This aligns with the outlook that Phil mentioned in his prepared remarks. We have a significant opportunity to cross-sell and upsell within our existing customer base, which is where we anticipate most of our business growth. We are acquiring new clients and our offering stands out. By better integrating our bundles and workflows, we are achieving more wins with new clients. The team has performed exceptionally well this year, as well as over the last few years, in terms of product development, go-to-market strategies, and underlying systems. Product-wise, we are successfully defining and delivering the TC1 bundles, linking workflows, and establishing a marketplace for integrations with our APIs. We've had good success when combining ERP with project management or estimating with design. We're responding to customer and market feedback to tailor our product offerings. On the go-to-market front, we transitioned to a named account selling model earlier in the year, and it's proving effective. Additionally, we've improved our systems and processes, including sales enablement and operations, to gain comprehensive insights into our customers, alongside marketing transformations to enhance our pipeline. All these elements are aligning well for the business. In connection with an earlier question, this gives us the capability to expand our efforts beyond North America and parts of Europe into the rest of Europe and Asia Pacific.

This is Phil. Let me begin. This is our top priority. We are working through this situation. E&Y has been carrying out additional audit procedures and they are dedicated to completing this in a thorough and detailed manner. We previously thought it would take just a few weeks, but we underestimated the extent of the audit. That was our oversight. However, they are diligently working. The Trimble team is very focused on this, and we have brought in external resources during this process. I want to emphasize Rob's point that over these past months, we have gathered many data samples, and we have not found anything that would suggest restating any of our financial statements. To date, we believe the financial statements we filed are accurate. We are continuing to work hard with them, and we aim to finalize this as quickly as possible. Unfortunately, we cannot control the timeline. All we can do is stay committed, work diligently, respond promptly to EY’s requests, and strive to resolve this as soon as we can.

And I would think the answer is yes, we would anticipate having it done before Investor Day.

Got it. Thank you very much. Congrats on the results.

Thank you.

Ladies and gentlemen, that concludes today's call. Thank you all for joining. You may now disconnect.