Hello everyone, thank you for joining us and welcome to the Trimble second quarter 2026 financial results call. After today's prepared remarks, we will host a question and answer session. If you would like to ask a question, please press star 1 to raise your hand and to withdraw your question, press star 1 again. I will now hand the conference over to Rob Painter, President and Chief Executive Officer. Please go ahead.

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

Thanks, Rob. Let me start with reviewing our second quarter numbers on slide 13. We posted revenue of $972 million and 10% organic growth, which were above the high end of our guidance. This performance was driven by the strength of AECO and field systems, while transportation and logistics continues to deliver positive growth in a constrained freight market. ARR was in line with our outlook at 12% to a record $2.509 billion. Continued growth in our recurring revenue base provides a predictable and resilient foundation for our business. Gross margins expanded 120 basis points to 71.8%, and we achieved EBITDA margins of 28.6%, which is a 120 basis point expansion compared to the prior year. Reported earnings per share was 86 cents for the quarter, 6 cents better than the midpoint and above the high end of our guidance. Moving to the balance sheet and cash flow items on slide 14, our reported free cash flow remains strong at $502 million through the first two quarters. Our balance sheet provides financial flexibility with $214 million of cash and a leverage ratio of 1.1 times, which is well below our long-term target ratio of 2.5 times. We announced a new $1 billion share repurchase authorization and continue to expect to deliver at least one-third of our free cash flow back to shareholders along with being opportunistic with our buybacks as demonstrated by our almost $1.2 billion of repurchases since the beginning of 2025. Next is our segment review on slide 15. AECO delivered another strong quarter, performing in line with expectations. It achieved a record $1.577 billion of ARR, posting 14% ARR growth and 9% revenue growth for the quarter. Operating margin was 30.6% and on track to deliver approximately 35% operating margin for the year. Field systems revenue was up 12% in the quarter, despite a headwind of approximately 300 basis points due to tariff refunds, which we do not expect to materially impact future quarters. Note that there is a corresponding offset in cost of goods sold for the tariff refunds, which results in no impact to operating income. Transportation and logistics continues to perform with 7% ARR growth, 5% revenue growth, and 240 basis point operating margin expansion to 24%. Turning to slide 17, let's review our updated outlook for the year. With the strong first half performance and momentum, we are raising the midpoint of our 2026 full-year revenue guidance by $50 million to $3.925 billion, which represents approximately 9% growth. We are also increasing the midpoint of our EPS guidance by $0.10 to $3.65, which represents approximately 17% growth. We expect ARR growth toward the low to mid-end of our range due to field systems that I will talk about in the segment slide. We now expect EBITDA margins at approximately 30%, which is the high end of our previous guidance. We targeted 30% margins for 2027 and Investor Day, so we now expect this to be achieved one year early. We expect free cash flow to be approximately 0.9 times non-GAAP net income, down from approximately one times we got it last quarter due to incremental restructuring and other one-time costs. We expect free cash flow will be greater than non-GAAP net income over the long term. Slide 18 breaks down the full-year metrics by segment. The trajectory for AECO and TNL are consistent with our prior guidance. We are adjusting the Field Systems ARR guidance to high single digits to low double digit growth due to our decision to replace a white label product with an internally developed solution. This creates an approximately 400 to 500 basis point headwind to Field Systems ARR and to a lesser degree the company for several quarters. This was a low margin product so the change will positively impact profitability over the medium to long term. We continue to see strong underlying momentum in field systems and remain confident in our Investor Day targets through 2027. Finally, regarding our third quarter outlook on slide 19, we're setting the midpoints of our guidance at $965 million for revenue, which is approximately 7% growth, earnings per share at $0.85, and ARR growth at 12%. We expect EBITDA margins at 28.6%. Back to you, Rob.

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

We will now begin the question and answer session. Please limit yourself to one question and one follow-up. If you would like to ask a question, please press star 1 to raise your hand, and to withdraw your question, press star 1 again. We ask that you pick up your handset when asking a question for optimum sound quality, and if muted locally, please remember to unmute your device. Please stand by while we compile the Q&A roster. Your first question comes from the line of Jason Salino with KeyBank. Your line is open. Please go ahead.

Hey, thanks for taking my questions. You know, I think I heard you kind of explain why the field systems, you know, ARR was coming down a little bit. Maybe can you maybe just retouch on that a little and then specifically when we look at your ARR performance as a whole, you know, excluding field systems, how do you think that performed in the quarter?

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

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

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

Wonderful. Thank you.

You bet.

Your next question comes from the line of Jerry Revich with Wells Fargo. Your line is open. Please go ahead.

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

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

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

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

Thanks, Rob.

Your next question comes from the line of Rob Wertheimer with Melius Research. Your line is open. Please go ahead.

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

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

Thank you.

You're welcome.

Your next question comes from the line of Josh Tilton with Wolf Research. Your line is open. Please go ahead.

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

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

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

Josh, that's a great question. This is Rob. I'll take it. This is a great business. This business has great potential. We believe in the opportunity. With the inbound, we have a fiduciary obligation and we take our fiduciary obligation seriously. And we compare that to our own plan to execute our own strategy within the Turnbull platform. And that's why I say we remain fully focused on executing the strategy because I go back to this being a great business with great potential. The solve is actually pretty easy in the end is what do we see as the highest shareholder value creation? and so we look at the stakeholders between our customers, our employees and our shareholders and we make the decision accordingly.

And by the way, if there's a decision to make because there is no predetermined outcome and there's no predetermined timeline.

Makes sense. Thank you guys. You're welcome.

Your next question comes from the line of Quinn Fredrickson with Baird. Your line is open. Please go ahead.

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

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

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

Hey, Quyen, this is Rob. Good question. It is early to have any definitive There are four things that I can say based on over 25,000 unique users that we've seen in Clogged using the connector. The first is around learning. We're learning how to build skills to make the connector even better. The second is that we're following the telemetry to generate the marketing motions to drive adoption. to turn a user into a customer. The third, what we're confirming is what we expected is that this is not going to replace the current workflows. A professional called grade work that's done, deterministic analysis that could be daylight modeling, structural analysis, energy modeling, that's still happening within SketchUp itself. And the fourth, as we Thanks for asking. Thanks, Ron.

Your next question comes from the line of Tammy Zakaria with JP Morgan. Your line is open. Please go ahead.

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

Good morning, Tammy. It's Rob. I'll take your question and it's an interesting one. So if you think about a project lifecycle, it often starts with capital program management. You know, the owner making a decision to invest in the capital into the data center itself. And we can service that need through Trimble technology with an O in AECO, and we do that today. So that happens before there's ever even any surveyors out in the field. And guess what? After you've decided to make the capital investment, You send the surveyors out at some point after that to actually create the digital model of the physical earth, you know, to have that topographic map of the as-is conditions. Once you have that work, you now need to send that digital model into a set of engineering and construction workflows because you need to do site preparation, which is an opportunity for our civil construction business to move the dirt and move it right the first time. As you lay that foundation, the concrete pad, Trimble is involved in that, not only in the design, but in the layout and the verification of that. As you move from the pad into the building itself and into the interiors through the structural shell, through the mechanical electrical rough-in, through the full fit-out, we're involved in that from design solutions to estimating solutions to project coordination to field layout as well. And then at the end with the commissioning and the handover and that then the whole quality control loop we end up there as well so from that concept to completion Trimble is relevant involved and engaged in a data center to answer the other part of your question about the let's say the duration and how that flows in over time I would say that it can cover that full life cycle of a project so it doesn't all hit immediately at once there does tend to be some months of You'd say lag between when that's, and it could be months or quarters, by the way, from when the project is commissioned and approved all the way through when the various trades are taking on our technology. It's hard to see it in the numbers today because our customers have a very healthy amount, or most of our customers have a very healthy amount of backlog. Obviously, those who are serving data centers have healthy backlog. And so we see it in the business that we're already doing with them today. So great question. Thank you.

Understood. And my second question, I think I heard you say you are going to reach the target of 30% a year early. So what's next? Is it time to maybe renew the 2027 target and extend to maybe 2029, 30? How are you thinking about it?

I expect that we'll do an investor day next year. I mean, that would be the right amount of timing. And we're not ready to talk about 2027 guides. But what I would say to address the comment you made is that I would emphatically say I am proud of this team for delivering the EBITDA target, which could potentially be a year ahead of what we put forward. That's a big deal. That's a big deal for us. And I hope our shareholders see that as a big deal as well, that this business is performing and performing expectations. And it is extremely reasonable to assume that we will continue to drive operating leverage going forward and expand upon that as we move the business into 2027 and beyond. So it's a great place to be and just as optimistic about the ongoing upside potential.

Understood. Thank you.

Thank you, Timmy.

Your next question comes from the line of Naeso Nang with Berenberg. Your line is open. Please go ahead.

Hi, good morning. Thank you for taking my questions. My first one is on I appreciate the fact that your AI strategy today is primarily focusing on customer adoption today but would love to get an update on how you're thinking about your monetization strategies going forward I ask that because last week one of your peers mentioned that they're looking to monetize AI features starting from next year and another peers recently came out with AI specific and some of the other stuff put in packages as well. So any directional update that we could have on the monetization strategies would be very helpful.

Thanks for the question. This is Rob. I'll take it. And it was a little hard to hear, but I think you're asking about the AI monetization. And I'll start by saying it's definitely a learning journey. And I can tell you that we're monetizing today. We're monetizing on a standalone basis and we're monetizing through hybrid license and consumption models. It just takes time to show up when you're a scaled company like Trimble. The near-term priority we have is to drive adoption, to drive workflow engagement across our expanded surface area, and then to leverage telemetry to measure the real-world value that we're creating for our customers. And as that usage continues to scale, we're going to learn. We're going to adapt our pricing. We'll adapt our packaging. and we expect to see that through a combination of tiered subscription bundles that looks like the good, better, best offerings that we talked about before. We definitely expect to see hybrid models with license and consumption-based usage models on a go-forward basis like we have in the Transporeon business today. It's already a transaction-based model that we have. So we're building capabilities and those capabilities give us optionality. I like where we are on this journey right now.

Thank you very much.

You're welcome.

Your next question comes from the line of Chad Dillard with Bernstein. Your line is open. Please go ahead.

Hey, good morning, guys. I just want to revisit that product change in infield systems. So first of all, what was the product? And then if I'm I look at the run rate it seems like it's a 75 million dollar headwind so just trying to figure out like what the denominator is like what's what's the total size and then if you could you know unpack um that 400 to 500 basis points um you know impact over the next couple of quarters feel like what's churn what else is it thank you good morning Chad thanks for the question this is Rob I'll start and then uh Phil will give you the

The quantitative, which is different than what you put forward. I mean, at the qualitative level, within the civil business, we have a lot of different technologies. Here, we're talking about essentially field data processing. And that is a service that that's the specific service that we're bringing in house with proprietary technology. And again, doing this from a position of strength and with the momentum we have in the business. We always had a plan and we've been developing this ourselves as we decided to bring it forward. So why don't you take the quant?

Yeah. Hey, thanks, Chad. So when I talked about the 400 to 500, that's specific to the field systems ARR. So the ARR field systems last year was about 400 million. So the 400 to 500 basis points Thanks for joining us.

Great question, Chad. So when you ask about revenue from usage-based models, let me give you an example within the Transporeon business. We're talking over $150 million of transaction-based revenue that we have in that business today. That is a usage-based model. So when I talk about having the DNA and building on the DNA that we have, it's not just a future thing because we have it. We already have that today. When we have in SketchUp in the fourth quarter of last year launched a hybrid model with the license and then AI-based usage on top of that. That is, again, it's in the market. It's not a futures thing that comes. So it's important for me, hopefully, to be able to communicate well here that the usage-based revenue is something that we already know how to do. As we take this more broadly, let's say with AI, let's call it AI pure consumption-based, we also are building the underlying engines to be able to do all the billing mechanisms and to be able to do that on a global level. That is a lot of work to put that forward. When we think about the KPIs and how they're changing in the business, some of the KPIs, actually a lot of the KPIs are the same as they ever were. The KPI such as net retention. We pay a lot of attention to the net retention. We see our gross retention holding where it was. We're not losing customers. So the net retention, the bridge from gross to net gets into the cross-sell, the upsell, the pricing and beyond. That's exactly where it has been. When we get into the, I'll say specifically on the AI capabilities and features that we're adding, we're paying a lot of attention to the adoption, which is to say, how are they being used? The telemetry helps us with that. So getting that indication that the discovery is happening, that the usage is happening, and not just that it's used once, that you track the daily or the weekly active usage. That's a measure of engagement. And those would be the predictive indicators for where we go forward as it starts to get, let's say, revenue of a size and ARR of a size that we can report on. Great. Thanks, guys.

Your next question comes from the line of Kristen Owen with Oppenheimer. Your line is open. Please go ahead.

Hi, good morning. Thank you for taking the question. Just wanted to follow up on the back half guidance. You've got a couple of moving pieces here between the tariff-free funds here in Q2 and then the ARR transition in field systems. So I just wanted to understand, did anything change in the back half assumptions for the year? Just help bridge that gap for us, please.

Hey Kristen, it's Phil. So the tariff refund, that's more of a Q2 issue. Not an issue, it was a bit of a, it was a headwind on the revenue for field systems. That's really more discreet to Q2 and the bulk of our refunds coming in in Q2. So we really don't expect a material impact on that going forward. So effectively think about that as behind this. As I think about the back half of the year, so no change to how we were thinking about the back half of the year when we started the year. and actually in fact the raise in the guide, the $50 million on the revenue and the $0.10 on the EPS would actually imply that we are raising the back half of the guide relative to the flow through from Q2. So see a lot of strong momentum in the business and as we enter the second half of the year.

That's super helpful. Thank you for that. And then if I could ask you, you showed some really interesting data points on ACO growth. And the one that stood out to me is the million incremental projects that you're seeing in Trimble Connect. Can you maybe help us understand what's filling the top of the funnel there? What's the sales motion? You talked about some of the MCP early indicators, but just help us understand what's driving that incremental growth in Trimble Connect. Thank you.

Kristen, thanks for the question. It's Rob, and I'm glad you asked because it is a great statistic for us. The users that we have that come in to Connect and the projects that come in come through our modeling solutions. They come in through project management solutions. They come in the field from our machine control users, our surveyors, the folks doing reality capture out in the field. So the users create projects. Those projects are initiated and managed in Trimble Connect. That is indicative of the network effects that we see in the business. It's just, it's really compelling to see the adoption of this common and connected data environment and to see it globally. I mean, this is not even, it's not a regional topic. It's a global topic. And then, you know, the projects get added. That drives those API calls, the 30 billion API calls. There's an intensity of that usage and the collaboration and the coordination that happens amongst stakeholders leveraging the Connect, Trimble Connect environment. So, and by the way, that is both serving AECO and field systems. That was what I wanted to set up as an overall engineering and construction commentary early in the prepared remarks. So really great things happening for us. It's something that is We believe very uniquely Trimble, that ability to link the work and the office and the field, the hardware and the software of Trimble, thereby connecting the physical and the digital world.

Appreciate the call, Rob. Thank you.

You're welcome.

Your next question comes from the line of Nicholas Ignary with Barclays. Your line is open. Please go ahead.

Hey, guys. Good morning. Thanks for taking my question. So, product revenue grew faster than subscription and services for the second straight quarter, which is sort of a reversal from the software-led narrative investors have become accustomed to. Can you just help us understand what specifically drove the stronger product performance, and should we view this as a temporary trend or something more structural?

Hey, Nicholas. It's Phil. Let me take this one. Yeah, so this is really driven by the performance in our field systems. Our AECO business is, aside from the pro serve, virtually all software. The field systems is the one that has more of the product revenue of it. And just with the strong performance of that business, the mix of that has changed where the product revenue is a little bit more and continue to see the momentum in that business and team has done a really good job.

Okay, great. Thanks for the color there. And then just Document Crunch has now been part of the portfolio for a few months. And I think slide 15 noted strong performance in the quarter. I was just hoping you can further unpack that performance there and maybe just tell us what you guys have learned so far about customer demand.

Thanks for the question. This is Rob. I appreciate you asking about Document Crunch. This is a great team. Great energy, great engagement I see between the teams. So just come in and just in a really perfect way. Our sellers have a lot of interest and it's such a natural fit within the Trimble Construction one bundled set of solutions, you know, that commercial framework that we have. So we've got a lot of seller interest. We've got a lot of customer interest. on the product front. The Document Crunch team came out with their next generation solution that is being very well received in the market and by customers. And when you think about this area of contract management and the risk intelligence around those contracts and really get your head around the data of just how litigious the industry can be and what the cost of those claims is, can be when they arise. The value proposition for having this AI-based risk management approach is a really incredible value proposition. And then tie that into the proprietary set of data we have at Trimble from project management and to the financials and to that awareness of what's happening in the field. And it just really brings things together very nicely. The other thing we love about this team coming into the Trimble family is that We're putting more capital into this business in the form of people. This is an AI native team. We're leveraging this team and the DNA they have to develop new features and capabilities that we may have in the past gone out and looked to acquire into some new categories where we think we can do it ourselves, leveraging this team. And that is one of the things we always look out for in acquisitions like this. So thanks for the opportunity to put color around that.

Your next question comes from the line of Clark Jeffries with Piper Sandler. Your line is open. Please go ahead.

Hello. Thank you for taking the question. I just wanted to clarify around the timing or how the behavior of the replacing of the white label products, the internal solution will develop. Will that be a on renewal or is there just kind of a cutover point at some point in time during the second half? Just wondering if the impacts are completely contained to second half or if it's even some into 27 on renewal.

Hey, Clark, this is Phil. Yeah, so think about it in terms of effectively exiting your product so it's winding down this year through this year, which is why it has a bigger impact on the second half of this year. We're building the new product. We should have that released soon. and then there's going to be a ramp up as we start to sell that product. So that's why there's a bit of a lagging effect between the time right now where there's the wind down and then we build up into 2027 with the replacement product.

Perfect. And then just a question on the comment around it being higher margin revenue. Is that going to be manifested in the gross margin line? Is that where most of the margin benefit comes from? And then just and maybe getting ahead of ourselves if there's an ALSA plan in the future. But certainly one of the biggest parts of the margin story over the past few years has been the gross margin accretion, the growing recurring revenue in the base. T&L had been one of the biggest sources of gross margin improvement. When you think about what the portfolio is and fuel systems and AECO gross margin trajectories, Do you still feel strongly about the gross margin story looking beyond 2026 and anything we should consider when thinking about the margin drivers just in the 27 with the early achievement on the EBITDA line? Thank you.

Yeah. Hey, Clark. So I don't think we're ready to guide on specifically on 2027, but let me talk a little more generally in the questions. So for the specific product, the answer is yes, I would expect that when we launch that product, as it builds up, that that would be accretive to gross margin. Now again, sizing that on a very large-scale business is, you know, it'll have a positive impact, but it may not be materially picked up in the gross margin as we think about the size of the field systems business. And as I think about more broadly speaking on the gross margin, Our software is certainly growing faster generally. Obviously, the field systems products, as we talked about earlier, has been doing really well and has a lot of momentum to it. But as I think about the investor day targets and over the longer term, software is growing faster. That naturally has higher gross margins. So if nothing else, with just the mix change, with the software growing faster than hardware over a long term, I would expect a continued expansion in the gross margin at the company level. Thank you.

We have reached the end of the Q&A session and that does conclude today's call. Thank you all for attending. You may now disconnect.