Thank you for being here. My name is Greg, and I will be your conference operator today. I would like to welcome everyone to Trimble's Second Quarter 2025 Financial Results Call. Now, I will turn the call over to Rob Painter, Chief Executive Officer. Rob?

Welcome, everyone. Before I get started, our presentation and safe harbor statements are available on our website. Our financial review will focus on year-over-year non-GAAP performance metrics on an organic basis. In addition, we will focus on adjusted numbers that we believe more accurately portray the underlying performance of our business. This means we will exclude the divested agriculture and mobility businesses as well as the 53rd week of fiscal 2024. As reported numbers, along with the reconciliation are provided in the appendix. Our second quarter results outperformed top and bottom line expectations, reflecting continued strong strategic execution and momentum with our Connect & Scale strategy. My congratulations and gratitude to the Trimble team and our global partners. We are raising our guidance for the full year, and Phil will walk you through the details. Starting on Slide 4. The foundation of our Connect & Scale strategy begins with our best-in-class solutions, which are generally core to the day-to-day operations of our customers, delivering productivity and sustainability outcomes. Our strategy compels us to do what we can uniquely do, that is connecting people, connecting data, connecting workflows and connecting ecosystems across the construction and transportation and logistics industry life cycles. Our product leaders are increasingly bundling our solutions together into prepackaged product suites, making it easier for customers to access our technology and making it easier for our sellers to reach our customers. They are also progressing our efforts towards subscription offerings, expanding our user base and the size of our addressable markets while simultaneously delivering us increased visibility into our business. Strategically, these business model transformations are connecting workflows as we move data from on-premise and on-machine to the cloud. We are enabling our customers to generate better insights into their own data while enabling us to build a unique data set to power our AI ambitions. For example, in our ProjectSight project management system with AI, we have processed over 1.5 million drawings with AI at a rate of over 200,000 drawings per month since our Dimensions User Conference in November of 2024. This AI capability saves significant time that our customers would otherwise spend manually adding attribute data to a model. Finally, our go-to-market motions are modernizing, enabled by better underlying technology stacks and process excellence. AI-assisted motions are increasing bookings visibility and unlocking cross-sell opportunities as well as new logo expansion. The sum of these activities plays a strong role in our current results. Turning to Slide 5. $876 million in revenue in the quarter, up 9% organically. $2.21 billion of ARR, up 14% organically and $0.71 of EPS, up 15% year-over-year and higher still on an organic basis. Software and services accounted for 79% of second quarter revenue. Recurring revenue accounted for 63% of second quarter revenue. We run negative working capital and CapEx is less than 1% of revenue on a trailing 12-month basis. Our value-creation algorithm is working. Looking forward over the next couple of years, the continued rollout and maturation of our strategy gives us conviction to deliver on our commitment by 2027: $3 billion in ARR, $4 billion in revenue, and 30% EBITDA margin. Looking beyond the next couple of years, we are optimistic about what an AI-forward future will mean to Trimble. I'd like to characterize our right to win in this space in the form of trillions, billions, millions and thousands, trillions of dollars of construction run through Trimble, tens of billions of freight run through Trimble. We have millions of users of our software, and we have hundreds of thousands of instruments and machines in the field that operate on Trimble technology. The transformation we've been making in our business over the last few years has prepared us for this moment. In the last weeks and months, we have taken thousands of Trimble colleagues through AI training sessions, and we are deploying AI across most every function of the company. While it's very early in the AI adoption cycle, we believe we are heading in the right direction and making the right decisions to unlock the efficiency and customer value creation opportunity. In June, we held our biannual technology conference, where 300 of our top engineering and product leaders came together to share and collaborate on our next waves of innovation. Not surprisingly, AI made up about half of the content of the conference. With that context, let's talk about each of our segments, starting with AECO and a quote from a steel fabricator and erector customer who said the following: "We're always 3 steps ahead of everyone else because of the technology we use. With Trimble Connect, we can visualize the entire project before it starts. We track every piece of steel in real time and stay ahead of any potential delays." This sentiment is indicative of the success we are having with connecting people and connecting data. In the quarter, ARR at $1.36 billion and revenue at $350 million were both up 16%. ACV bookings remained strong and in line with our long-term model, growing in the mid-teens with a healthy gross and net retention. At the point solution level, we continue to innovate. SketchUp won Best of Show in the BIM category at AIA 2025. And with over 4.4 million models created in the quarter, SketchUp remains core to the workflow of architects and designers around the world. ProjectSight added features such as daily reporting and ERP integration, which contributed to strong growth in the quarter. At the connected workflow level, we are now delivering an office to field to office workflow and civil construction that enables project managers to send quantity requests for earthmoving in our B2W track applications to crews in the field using our site work solution and employing that data back to the office for progress tracking, which informs decision-making and ensures accurate billing. No guesswork, no phone calls, no manual data transfer, only Trimble. This workflow example is just one example that validates our strategy of driving growth through Trimble Construction One bundles as well as running cross-selling motions that serve existing customers with more solutions. Once we have a customer using our ecosystem with a core solution, our strategy of adding connected solutions multiplies the value a customer gets and makes us an indispensable partner for a company's entire operation. The investments we have made into our business over the last few years are unlocking insights that drive sales enablement and targeted marketing campaigns to reach this market opportunity. In combination with our transformation to operate as one sales organization focused on named accounts, we remain optimistic about our ongoing growth potential. Moving to Field Systems. I'll start with a quote from a customer in Scotland talking about machine control. This is our largest investment in advanced construction technology to date and the effect on productivity has been eye-opening with one project already being 8 weeks ahead of schedule and on track to be completed in half the estimated time. The business outperformed in the quarter with particular strength in civil construction. Revenue at $393 million was up 3% despite the 200 basis point headwind based on model conversions. ARR at $358 million was up 17%, driven by strength in our Works Plus machine control offering, our Catalyst positioning as a service offering and Trimble Business Center. At a product innovation level, we expanded Siteworks machine guidance to be available for tilt bucket attachments. We expanded Trimble Ready options with a number of OEMs, and we introduced the NAV 960 guidance controller for our PTx joint venture. In the end markets, we saw strength in drilling and piling applications for renewable projects as well as site pad preparation for data centers and warehouses. This business is the most global business at Trimble, and it is inspiring to see our work in action. In the quarter, we had wins with customers in U.S. State Departments of Transportation with mobile mapping at the Panama Canal with optical solutions, with the Rwanda Statistics Department, the Dubai Municipality and the Bureau of Water Management in the Philippines buying Trimble GNSS with customers in Ukraine, Tanzania and Turkey buying Trimble reference stations and with customers in China and Australia buying our monitoring solutions. Trimble is everywhere. Moving to transportation. I'll start by quoting a customer who said, "Autonomous procurement has transformed our spot bid management by using AI to predict prices, enabling us to set realistic walkaway prices and align with market conditions, especially during peak seasons." While our end market remains in a stubborn freight recession, we continue to grow the business with innovation coming from products such as our AI-based autonomous procurement solution. Revenue at $133 million and ARR at $492 million were both up 8% in the quarter. ACV bookings were up double digits. At a product level, we have ongoing integration efforts to connect key Transporeon products such as visibility and autonomous procurement with our TMS offerings, which enhances user experience and further enables cross-selling efforts. We are accelerating our rollout of the U.S. freight marketplace, which enables real-time capacity sourcing for shippers, carriers and brokers. We are building confidence at every turn. With respect to the macro environment across our business, there was no discernible shift in sentiment or end market performance in the quarter. Various indices inevitably point one way or the other. Opportunities continue to outweigh the uncertainties. In meeting with customers in the U.K. and Europe, energy and defense look healthy. In the United States, the dynamics of the one big beautiful bill look to be net positive, including deductions on capital equipment. Globally, we remain bullish on India and the Middle East. At an end market level, our construction customers generally have healthy backlogs, and they continue to hire for their project work. In the transportation market, we are hopeful that the market has stabilized with more upward catalysts than downward catalysts.

Thanks, Rob. First, I'd like to give an update regarding impacts from policy. Regarding tariffs, our operations team has done an outstanding job creating a flexible and global supply network. With the latest information to date, there is no change to the tariff impact on our cost of goods at approximately $10 million per quarter in the Field Systems segment. We've implemented surcharges to offset this, thus, we expect no impact to profitability. Related to the repeal of Section 174 from the one big beautiful bill, we anticipate a cash flow benefit of approximately $50 million in 2025 and a total additional benefit of approximately $80 million, which will be realized over subsequent years. With regards to capital allocation, we bought back $50 million of shares in the second quarter and have approximately $323 million of authorization available. Longer term, we continue to expect at least one-third of our free cash flow to be used for repurchasing shares. On the M&A front, we continue with the small tuck-ins. And in the second quarter, we acquired capabilities that we have branded Trimble Materials, which serves contractors by connecting the field, office, warehouse teams and suppliers to streamline the entire purchasing and materials management process. The tuck-in playbook is working, and we are accelerating our ability to integrate, which yields a rapid return on investment by putting additional functionality in the hands of our sales teams to cross-sell and upsell and continue the flywheel of ARR growth. Let's review the second quarter of 2025, starting on Slide 6. Organic revenue growth exceeded our outlook at 9%, driven by outperformance in all three segments, and ARR was in line with our outlook at 14% to a record $2.21 billion. Gross margins expanded 210 basis points to 70.6%, which shows our continued model progression. We achieved EBITDA margins of 27.4%, which is a 170 basis point expansion year-over-year. Reported earnings per share was $0.71 for the quarter, $0.09 better than our guidance. Moving to the balance sheet and cash flow items on Slide 7. Our year-to-date reported free cash flow was strong at $90 million despite a $277 million tax payment related to the agriculture divestiture. Our balance sheet continues to be strong with $266 million of cash and a leverage ratio of 1.4x, which is well below our long-term target rate of 2.5x. Shifting to a segment review of the numbers before we close with guidance and starting with AECO on Slide 8. AECO delivered a record $1.36 billion of ARR, posting 16% ARR and revenue growth for the quarter. Operating income at 30.4% increased 400 basis points year-over-year. This business continues to operate above the Rule of 45. Next, Field Systems on Slide 9. Revenue was up 3% in the second quarter despite approximately 200 basis points of model conversion headwinds and a difficult comp with the large government order in the prior year. Field Systems posted ARR growth in line with our expectations at 17% for the quarter, where we continue to successfully execute our business model conversions. Our civil construction business continues to be particularly strong and ARR growth was driven by our model conversions and sales of subscription offerings. Field Systems operating income at 30.8% increased 190 basis points, driven by a greater mix of higher-margin recurring revenue. Finally, Transportation and Logistics on Slide 10. Revenue and ARR were up 8% for the quarter. The segment is greater than 90% recurring revenue following the divestiture of the Mobility business. We continue to make good progress bringing the global transportation teams, processes and systems together as we execute our Connect & Scale strategy, which allows us to access the approximately $400 million of cross-sell and upsell opportunities within the segment. Operating margins at 21.5% are expected to improve in the next two quarters as we continue to execute the strategy. Let me turn to guidance on Slide 11. With the overperformance in the first half of the year, we are increasing the midpoint of our full year as-reported 2025 revenue guidance by $100 million to $3.52 billion. We are also increasing our full year EPS midpoint outlook by $0.11 to $2.98 and are maintaining our organic ARR growth as adjusted guidance midpoint of 14%. While the business is performing well and ahead of plan, given the lingering uncertainty with tariffs, foreign exchange rates and other macro factors, we are updating our guidance with a similar approach we took in the first quarter, which we see as prudent given the unknowns of the macro environment. From a cash flow perspective, we are increasing our full year view to be approximately 1x net income after adjusting for the $277 million cash tax payment for gain of sale in the agriculture JV, the approximately $35 million in M&A costs, and the $50 million updated benefit from the repeal of Section 174. We continue to expect that we can deliver free cash flow greater than the non-GAAP net income over the long term. For the third quarter guidance on Slide 13, we expect revenue to be in the $850 million to $890 million range and EPS of $0.67 to $0.75. We expect organic revenue growth in the third quarter to be in the 4% to 9% range. For further details regarding our guidance, please see our earnings supplement document, which can be found on our investor website. With that, I'll turn it back to Rob.

Thank you, Phil. The strength of the second quarter mirrored the strength of our first quarter, demonstrating confidence and momentum in our business. We remain on a strong footing strategically, operationally and financially. Thanks to all our global colleagues for their work and their dedication. We have a lot of work to do as a business to fulfill our potential, and we are up to the task. Operator, let's open the line to questions.

Okay. It looks like our first question today comes from Jonathan Ho with William Blair.

Congratulations on the strong quarter. I was really intrigued by your AI commentary and sort of the data opportunity that you see ahead. Can you talk a little bit about how Trimble's platform potentially benefits from adding more and more of these AI capabilities? And can you talk to maybe how customers are receiving or starting to adopt AI within the marketplace?

Jonathan, thanks for the question. We have a belief set that the quality of the AI is going to correlate to the quantity and quality of the underlying data. And in that respect, quite bullish with the trillions, billions, millions and thousands coverage and commentary that we had. It's a unique data set that we have in the industry. And I can say from the time I spend with customers, increasingly, the conversations are around helping them unlock the data that they have so that they can make better decisions and manage their risk in a better fashion. So if you put all that together, it leaves me quite optimistic about a data-forward future that we can have as a company.

Got it. And then just as a quick follow-up. In terms of TC1, can you help us understand maybe where some of the traction is coming from in terms of bundling the products together? And particularly, I guess what I'm interested in is trying to understand how much of this is maybe expansionary, so it's existing customers that are adding more capabilities maybe from a net retention perspective? Or is it just brand-new adoption of the TC1 platform?

Good question, Jonathan. If I summarize the situation regarding AECO bookings, approximately two-thirds come from existing customers while about one-third are from new clients. This likely gives some insight into the uptake of TC1 and our cross-selling efforts. We're particularly pleased with the performance of our civil estimating and ERP packages. The project management aspect of ERP has also been performing well. Additionally, when we consider our field instruments in conjunction with our model-based design packages, that combination is also showing promising results.

And our next question comes from the line of Kristen Owen with Oppenheimer.

Rob, Phil, strong results all around in the quarter. And last quarter, you talked about some of the elongated cycle times just given some of that broader macro uncertainty. As you look out to the remainder of the year, can you just give us an update on customer sentiment? Are you seeing those cycle times improve? And maybe building on that last question, are there areas where you're seeing some changes in that selling motion, just given some of those acute challenges for your customers around cost management, materials inflation, labor constraints, et cetera?

Thanks for the question. Overall customer sentiment seems to be quite similar from Q2 to Q1. There hasn't been a notable market shift in either direction. At any given time, we have various factors influencing our business at Trimble across different regions. While this might not be surprising, I spent a couple of weeks in Europe in July, and I noticed increased activity in energy infrastructure and defense. In the U.S., customer sentiment appears strong in data centers, civil infrastructure, and the energy needed for AI and data center projects. There are some positive developments, but it feels more like reinforcement of existing areas rather than the emergence of new ones. And then in terms of the, let's say, to the extent customers are facing inflationary pressures, which is a real topic, 'Hey, we sell productivity and efficiency.' That's the fundamentals of Trimble, adopt our machine control technology and you're doing your work 40% more productively. You use our design and engineering tools, you build it virtually before you build it physically and you can eliminate the rework before it ever happens. You're using our estimating tools and you're using those estimating tools off of highly accurate BIM models, you're able to have a better handle on your underlying raw material costs. You use our project management tools and you've got a better handle on the labor that's managing the work in those projects. So I think we'd say we feel like we've got the right tools at the right time in the world.

And then I wanted to ask on the Field Systems strength there. That's continued to outperform the last 2 quarters relative to expectations. And in particular, some of the model transition that's ongoing there. We often hear that in some of these more traditional applications, users aren't interested in paying recurring revenue fees for their hardware or for their systems. So maybe help debunk that or help us understand what's working in that model transition? And if you have any early indications on renewal rates or anything like that, that will help us understand what that motion could look like on a go-forward basis for you?

Kristen, great question. I'll back up to overall Trimble and then zoom back down into Field Systems. I think there's nothing like math to answer your question about the customers' willingness to adopt or inverse resistance to the adoption. We stand today at over $2.2 billion in annualized recurring revenue that was up 14% organically in the quarter. That's about the best proof point I can give. We were 1/3 ARR as a company 5 years ago; we're 2/3 today. Now of course, the majority of that has been driven by the software business at Trimble. Within Field Systems, that math plays out as well, though, as the ARR was up 17% year-over-year at $358 million. So I'd say 358 million points of evidence that customers will adopt. But why will they adopt? We see a few factors that contribute to this. It becomes more affordable when you shift from CapEx to OpEx. In our experience across all our businesses, converting models has increased the addressable market due to this business model. We've achieved several competitive wins and swaps in machine control and survey systems over the past couple of years, including this quarter. A fleet swap represents a significant purchase, and utilizing the subscription business model makes it more affordable. It's more than just a business model from a customer perspective; at our best, we're providing technology assurance. When we ensure that the sensors and software are up to date, customers intentionally choose this model to keep all their machines current with the latest technology, avoiding version control issues or having multiple generations of equipment. The more we connect what we do in AECO and that software to on-site work from a customer viewpoint, they don’t differentiate between our AECO business and the Field Systems segment of Trimble. They are engaging with Trimble. It's our opportunity and responsibility to combine everything that can benefit the customer. If we can do that in one package, we believe it will be beneficial for the customers. If we prioritize our customers' needs, we'll also be able to secure our share of the value created. There's still a lot of potential for growth, Kristen. I anticipate that the adoption in the hardware sector will be slower than what we've experienced in software. However, we will persist with this initiative, as we believe it is the right course for the market and our customers. There are only a few other companies globally that we observe, which we think have achieved considerable success, and we aim to learn from them.

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

This is Zane Meehan on for Jason this morning. Rob, I wanted to ask about the U.S. public sector. Maybe you could provide an update there. I know you called out a little bit of softness last quarter, and we've seen peers echo that sentiment. But maybe any changes that you've seen in the second quarter and what your expectations are going into the second half of the year? I know you called out a couple of good wins, but just hoping for an update there.

Thank you for the question. Regarding the public sector, let's examine it starting with the federal level and then the state level. At the federal level, we observed activity from defense agencies as well as the more civilian aspects of the federal government. Our sales to the defense sector generally involve survey and machine control kits for military branches. For the civilian sector, national parks serve as an example. Overall, that federal business has declined significantly year-over-year, and we anticipate that trend will continue for the remainder of the year. In fact, that makes us feel that much better about the results that we're posting in the business as well as in Field Systems because it has to overcome that headwind. How that's going to shape now that the reconciliation bill is done and what that looks like going forward, I'd say let's see. I would expect probably to see more come back in the defense side than the civilian side, but stay tuned. These are multiyear programs, by the way, they can take a long time for appropriations to happen before the programs. So in that respect, echoing sentiment you've heard from others. But let's talk about the state level. At the state level, Departments of Transportation are actually quite strong at the moment. There's a lot of construction happening. Of course, this does intersect the federal government because I'm talking about the infrastructure bill. So this is probably one of the best pockets we have in the company. At the moment, state budgets are strong and transportation work. I don't know where, I live here in Colorado. I can't go too many places on the highway without some orange barrels. Love seeing those orange barrels, love seeing that Trimble machine control and survey kit that's out on the roads here. We actually had a nice win with the State Department of Transportation to help them manage their overall assets in the state beyond the work that actually happens out in the field. So that's a real bright spot at the state level with the DOTs.

Got it. Very clear. And then follow-up on TC1's rollout in Europe. I know that's still early, but maybe you could just give an update on how that rollout has been going, what adoption has looked like and kind of puts and takes between Europe and North America.

Yes, it’s a good question. You're correct that it's still early in TC1 to make any definitive statements. However, when we analyze the overall TC1 bookings on a year-over-year basis, they have nearly doubled for the quarter and year-to-date. Europe is included in that calculation. Overall, I feel optimistic about the early reception. One of the things I appreciate is the team we have in Europe has done a nice job of working together and collaborating from the field and the AECO side, especially where I've seen it with large projects and some of our larger customers. So in absence of having TC1 fully and elegantly available, have done a nice job of doing the right thing to bring the portfolio to customers. So I'd say I remain optimistic about what TC1 and how it will do and how it will perform and especially as we continue to roll out the project management into Europe, we think that will be important for the TC1 bundle to have that. And then if you overlay that on the context of energy, infrastructure, defense spending, if it really does play through in places like the UK and Germany and elsewhere in Europe, that would be a positive setup for TC1.

And our next question comes from the line of Robert Mason with Baird.

Last quarter, Rob, you mentioned that the SMB market was showing relative strength in AECO. I'm curious how it performed during the second quarter and what your outlook is for the rest of the year. Additionally, given the potential growth in that area, are you making any adjustments to your go-to-market strategy to better address it?

You're correct, Rob. Last quarter, we highlighted the SMB market as a positive aspect in AECO, and that trend continued in the second quarter. There is a significant amount of activity in the U.S. overall. However, there are variations depending on the specific location and type of work involved. But overall, the customers have a backlog. And in many cases, those larger contractors are working with more of the SMB side to execute and get all that work done. So not a total surprise to us the relative strength that's in that part of the market. It's also a market that's quite underserved and quite underpenetrated, which makes sense given the size of that addressable market and the low penetration overall; that's going to even be, let's say, doubly so in the SMB side. One of the beauties of the work that we've done, both on the systems process, organization side, our own internal transformation is we can shift resources as we move to that named account model and go-to-market, that's what enables it. We can shift more resources to find the more attractive pockets in the market quicker than we've ever been able to do. I would say 5 years ago, we would have been probably quite slow to be able to adapt to these kinds of changes in the market. But when you're organized around accounts, it is so much easier to change those motions and, in essence, follow the money. Now what you have to do in SMB as opposed to way to enterprise is you have to be smart about how you approach those customers where you have a bit more of a mix of some inside selling work. You can't put people on an airplane for every account as you move more and more down market. So the digital marketing motions matter more, inside selling motions matter more, that presales, the qualification, all of that matters more, and we're at a point now in this business. And AECO is now a $1.36 billion ARR business, and AECO was up 16% in the quarter on a year-over-year basis. We've got scale to operate like this to be able to address multiple pockets in the market.

A lot of discussion today in performance also out of field systems, but a lot of discussion on civil. You mentioned surveying a number of times. Historically, you've framed surveying, I guess, broadly as maybe more mature from a technology adoption standpoint. And we keep hearing about a lot of, I'll just call them, demographic labor availability challenges in that field. I'm just curious, is there an opportunity to maybe bend the growth profile upward in that part of the market for you?

Yes. Good question, Rob. And shout out to the Field Systems team. They had a great quarter. They've done really well year-to-date. They've got a lot of transformation on in that business. I'm really proud of also what I see out of our global dealer partner network. We had them all together in Paris for a global dealer meeting a few months ago. And I'd say that level of energy, enthusiasm, belief and momentum in our dealer channel is also gratifying to see. To keep them, let's say, doing their job and doing their work, we have to continue to innovate and supply them the products and the solutions for them to take to market. And in that respect, in surveying, you're right, we have a huge lack of surveyors around the world. It is a constraint to work getting done. Now one of the areas of innovation we've had, if we take construction as an example, is we continue to make the technology easier to use for the non-licensed surveyors to be able to go out and do the work, let's say, in a building construction context, for example. By innovating the software and making the technology easier to use, we have expanded the tools' usage into different market segments, including forensics. When conducting an accident reconstruction, individuals in public safety who perform 3D laser scanning are typically not professional surveyors. They set up the equipment, capture the data, and then use the software for post-processing. It's a form of innovation to broaden the use of our tools to other players in the ecosystem. When considering what a surveyor does, they create a digital model of the physical world in one of three ways: via aerial, mobile, or terrestrial methods. Aerial surveying often involves drones for data capture, while mobile mapping systems have been one of the fastest-growing segments in surveying for several years now. The team has done an excellent job of developing mobile mapping systems. This creates an effective workflow because when conducting asphalt profiling for road construction using Trimble mobile mapping technology, we can collect that data set. You can identify where the cracks are, conduct an asset inventory, bring the information back to the office, process it with our office applications, and then generate work orders to send back to the field. And then for the surveyors in the field doing the terrestrial surveying, we think about new instruments beyond, let's say, GNSS, you know us for GNSS. You know us for a robotic total station and optical. I think about reality capture devices. These 3D laser scanners and an area of technology called SLAM, means simultaneous location and mapping. That area of reality capture, we think, will be a growth area that can bend that curve over time. And so that's an area to look out for us in the quarters and years to come.

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

I know it's early days, but the AI developments are intriguing. I wanted to ask about the current releases versus what you have in the pipeline, specifically your philosophy regarding whether this is an investment or if the cash flows from it are sustainable. Additionally, Rob, you mentioned the efforts your team has made over the years on Connect & Scale. How is the development and launch process different now that you are focusing on AI?

Rob, that's a good question. I could discuss this at length, but I’ll aim to keep it brief. In last quarter's presentation, we included a slide with a 2x2 matrix where one axis represents our internal use of AI and the other shows whether it's focused on cost efficiency or revenue generation. You're interested in what we're doing with customers in those releases, and I can provide several examples. This includes natural language design, rendering of designs, and enhancements to our architecture and design systems. It's in the construction ERP, it's auto invoicing and field systems for that data collection, it's point cloud semantic segmentation and transportation, it's autonomous procurement and autonomous quotation is a few examples of capabilities or products that we have. And you're correct, there's much more in the pipeline than what has been released. At an internal level, I would say, gosh, it feels like every function in the company has worked on to drive our own levels of efficiency and productivity and quality of output. So from our engineers and software development to our product managers creating rapid prototypes to our cloud teams using it to bring infrastructure costs down to cyber teams looking at it for threat detection, marketing teams for marketing copy and digital pipeline analysis, sales ops using it for cross-sell and upsell analytics. I could just keep going through our own adoption of the technology. And to your point about the work we've done over the last few years, it's really made us have to rethink our own orientation to data and how we move data across our systems and how we have interoperability within Trimble as well as interoperability outside of Trimble as well.

No. I mean it's exciting and it's moving fast. So that's very helpful. And then just a related follow-up. You touched earlier on the quality of data that flows into AI models or features or whatever you want to call it. How does your data, and I can guess, but I'd like to hear from you, differentiate from other peers and especially AECO. Thank you, I'll stop.

Yes, I view the breadth and depth of what we do at Trimble as significant. Our goal is to connect various sectors such as construction, supply chain, forestry, and utilities, effectively linking stakeholders throughout the industry life cycles we serve. We've been pursuing this direction for nearly twenty years, and we have accelerated our efforts with the Connect & Scale initiative over the past five years. The breadth and depth of our capabilities is, in my view, the most distinctive aspect. Additionally, we have data that spans both the physical and digital realms. While many discuss the importance of connecting physical and digital, we have the ability to actually achieve this through our hardware, software, and efforts both in the office and in the field. Therefore, we possess a unique density of data that reflects our exceptional quality and expertise defined by this breadth. The more you consider developing an industry-specific LLM, the more you'll recognize the need for a comprehensive understanding of system productivity rather than just task productivity, as well as system optimization over task optimization. It's important to have the ability to see the interconnections within that industry. We believe we have unique access to a distinctive data set that supports this. Regarding the quality of that data, there's a significant amount of both structured and unstructured data, with unstructured data being more prevalent. We must ensure we maintain strong data governance as customers are particularly concerned about data sovereignty and protection.

And our next question comes from the line of Joshua Tilton at Wolfe Research.

Congrats on a very strong quarter. Two questions for me, if I may. The first one, you guys had a lot of positive commentary on SketchUp in the prepared remarks. We did pick up, I believe, a price increase that went into effect in July. Could you just maybe elaborate on that and talk to how that price increase has been received by customers?

Yes. Josh, thanks for the question. I'd say it's early to give you like a definitive view on how that's going. What I can offer that might be more helpful is we offer a number of different subscriptions in SketchUp. We have monthly subscriptions. We have annual subscriptions. We have SketchUp on the App Store. So there's different flavors that we have of the models. And as you might appreciate, there's an optimization factor between monthly pricing and annual such that you want to get that balance right so that we're incentivizing what we think is the right outcome for the customers and then for our own business model as well.

Very helpful. I have a quick follow-up. AECO has clearly performed exceptionally well for you. It continues to do so this quarter. There was a slight slowdown in ARR growth compared to the first quarter. Can you provide some insight into your confidence in maintaining mid-teens ARR growth for the entire year?

Yes, Josh, it's Phil. I'll address this one. Firstly, I want to emphasize that the numbers we released align with our guidance and previous projections, so there shouldn't be any significant surprises there. I would like to highlight that our Annual Recurring Revenue calculation is based on recognized revenue within a quarter, which can fluctuate slightly due to the timing of when we recognize that revenue. Therefore, it's possible for any particular quarter to see some variation because of that. Q1 was slightly higher due to the term licenses we recognized, while Q2 was a bit lower. I tend to look at a trailing 12-month period, and we've been quite consistent over multiple quarters in that regard. Another factor is pricing; we had some price increases this year. In the past couple of years, due to inflation, we saw higher price increases, especially for SketchUp. We anticipated that this year our price increases would moderate as we moved past inflation, and that was factored into our expectations. Thus, we expected to see some moderation throughout the year, especially from Q1 to Q2, and as we look ahead in our guidance. As we consider the guidance moving forward, I want to emphasize that we are being cautious given the current macroeconomic conditions. Rob mentioned the price change for SketchUp, and we are being a bit careful regarding potential churn related to that change. Therefore, we are adopting a conservative stance for the latter half of the year in terms of our expectations for ARR growth. However, if market conditions remain stable and we experience low or consistent churn due to the SketchUp pricing changes, we could lean towards a more optimistic outlook for our ARR growth in the second half of the year.

And our next question comes from the line of Chad Dillard with Bernstein.

So I was hoping you could unpack some of the trends in the quarter for AECO across some of your key customer bases, enterprise, midsized, small. Where are you seeing the greatest traction in TC1? And I guess maybe longer term, which of these customer groups has the greatest penetration or growth potential over the next couple of years?

Chad, regarding the trends in AECO, let's look at AECO bookings in relation to TC1. From a financial perspective, the most significant drivers typically revolve around ERP, project management, and our modeling technologies. We have identified over 20 different prepackaged offerings, but these three components are central to driving growth, particularly where ERP is involved. And that's going to correlate more to the mid and large size of the market. So where TC1 is really moving the needles where you hit one of those 3 motions or plays that we can run. From a customer count perspective, from a percentage growth perspective, that SMB is much less penetrated. And so it's not surprising to us that we see growth percentages higher and those motions that are down market, where we would expect to see going forward, continued traction with TC1 as we continue to globally roll it out further in Europe and Asia Pacific. That will give us more motions. Phil mentioned a tuck-in acquisition we did with Trimble Materials. That's a great motion for TC1 and then deeper linkages that we can make with the Field Systems and will make with the Field Systems side of the business as an additional addressable market opportunity for us to grow TC1 bookings or cross-sell bookings for that matter. We can have a cross-sell booking that's not technically TC1, and we'll take that as well. We just work backwards from how we best can serve and reach the customers with the breadth and depth of what we've got.

That's helpful, Rob. And then just a continued pulling on thread on the AI opportunity. I recognize it's a little bit early, but any thoughts on any changes you may need to make on your revenue model, how are you approaching your buy versus build decisions when we're thinking about this technology and then lastly, I guess, what's like the lowest hanging fruit, right, from like a development standpoint on your end and from an adoption standpoint or interest standpoint on the customer side? Like how does that intercept?

Yes. We utilize AI in two ways: internally and externally. When we focus on the external side and our revenue models, we primarily adopt a tiered pricing strategy. In our best tier, we offer AI capabilities, which we have identified as the most effective approach for monetization. In the transportation sector, we are also monetizing through separate offerings of autonomous procurement and quotation as standalone AI products. I would say we are currently doing very little in terms of consumption. However, I believe that consumption will become more of a monetization avenue in the future than it is now. This is one of the reasons we appreciate having Transporeon in our portfolio, as it provides the necessary expertise and capabilities to sell based on consumption. Therefore, I feel we have various options for how we can monetize in the future. With respect to buy versus build tendencies, I tend to think about that in our own adoption of AI tools and where we can use capabilities that come from the vendors we work with. We buy a lot of software ourselves. If it's already built in, I prefer that from a capital allocation perspective. Let me use what's already in what we're buying as opposed to building our own. But hey, we'll be mindful of what it costs because we can sure at times look and say, we actually do think we could do that ourselves. And there are definitely some easy opportunities to pursue both internally and externally. Internally, people often discuss the uses of R&D. I have a positive outlook on how product development can collaborate with product management and the developers involved. And what if it may not be the lowest hanging fruit, but I'll tell you one of the things that I'm really mindful of is to unlock the most out of the AI opportunity. I think it's also going to require companies, including ours, to think about how we even structure ourselves and how do we structure teams, how do we actually rethink how work is done given the tools that we have. So that's on my mind. That's not the lowest hanging fruit, I acknowledge, but I think it's important that we're mindful of that to unlock the opportunity. In terms of addressing our customers' needs, we view AI not as a standalone solution but as a tool to enhance efficiency. By focusing on solving customer issues, we believe we can navigate toward the right direction. Thank you for the question, Chad.

And our final question today comes from the line of Tami Zakaria with JPMorgan.

I'll ask just one question. Excellent quarter, by the way. So on Field Systems, organic growth guide is now back to flat. That's great to see. But your first half performance is a lot stronger than flat. So was there any front-loading by customers ahead of tariffs that will drive a weaker back half? Just curious how you're thinking about the back half after a very nice first half.

Hey, Tami, it's Phil. Thanks for the question. Yes, there are a couple of things to consider as we look at the second half of the year. First, we are monitoring our inventories closely. They are in excellent condition at the dealers, and we haven't noticed any pre-buying in anticipation of tariffs or similar issues. In fact, we've actually observed some destocking, especially in our survey channel. Overall, dealer inventories appear healthy in terms of retail demand and what's needed, so we have no concerns in that area. Two things on the back half of the year. One, I mentioned this again, with the macro uncertainty and there's still some lingering tariff discussions out there, we're still being prudent on the back half, particularly in Field Systems since that's a book and burn business. So we're being a little bit cautious there on the guide. The other thing is we started to see an inflection last year on the growth in Field Systems. And so the comps on a year-over-year basis are a little bit tougher versus the first half of the year. We haven't really seen any change in the buying behavior so far. So this is more of us being prudent than anything else as we think about it. But again, the comps are a little bit tougher as we think about the back half of the year as well.

And ladies and gentlemen, that does conclude today's call. Thank you so much for joining, and you may now disconnect. Have a great day, everyone.