Trimble Inc (TRMB) 2018 Q1 法說會逐字稿

Good afternoon. My name is Terry, and I will be your conference operator today. At this time, I would like to welcome everyone to the Trimble First Quarter 2018 Earnings Call. (Operator Instructions) I would now like to turn the call over to Mr. Michael Leyba, Director of Investor Relations.

Thanks, Terry. Good afternoon, everyone, and thanks for joining us on the call. I'm here today with Steve Berglund, our CEO; and Rob Painter, our CFO. I would like to point out that our earnings release and the slide presentation supplementing today's call are available on our website at www.trimble.com as well as within the webcast, and we will be referring to the presentation today.

Turning to Slide 2 of the presentation. I would like to remind you that the forward-looking statements made in today's call and the subsequent question-and-answer period are subject to risks and uncertainties. Trimble's actual results may differ materially from those currently anticipated due to a number of factors detailed in the company's Form 10-K and 10-Q or other documents filed with the Securities and Exchange Commission.

The non-GAAP measures that we discuss in today's call are fully reconciled to GAAP measures in the tables from our press release.

With that, please turn to Slide 3 for an agenda of the call today. First, Steve will start with an overview of the quarter. After that, Rob will take us through the remainder of the slides, including an in-depth review of the quarter, our guidance, and then we will go to Q&A.

With that, please turn to Slide 4, and I will turn the call over to Steve.

Good afternoon. The narrative for the first quarter is consistent in most ways with that of the fourth quarter and is notable for its strength across both businesses and regions. Reported revenue growth was over 20%, with organic revenue growth continuing to track in double digits. Reported non-GAAP operating margins improved by more than 1 point versus the first quarter last year, and the improvement was even stronger after allowing for acquisition effects.

We continue to operate with the most positive outlook we have had in over 10 years. Every segment and every significant region is growing, and all are anticipated to continue to grow during 2018. We are also experiencing renewed higher growth in segments in which recent growth has been relatively modest, such as Geospatial. We do remain observant of potential negative macro effects and volatility, most particularly in the realm of U.S. trade policy.

While we are taking advantage of simultaneous vertical and regional market upswings, we continue to focus on and invest in the major, multiyear secular trends that are specific to our markets. Our singular focus is on achieving leadership in the digitization of targeted mature industries and providing transformative benefits to those markets. We believe we have, in a number of cases, achieved a first-mover market position at a now opportune point in which the market is going through or about to go through an inflection point.

In construction, we are leveraging 2 strong and unique Trimble attributes: our ability to connect the physical and digital worlds and our now reinforced ability to integrate data across the entire construction workflow. We believe our role in facilitating this integration in the industry is monetizable and provides us with a strong competitive position. In agriculture, we are leveraging our existing position as a provider of technology on more than 125 million acres. Our goal is to be a central participant in the worldwide adoption of data-driven variable rate applications. In Transportation, our role is leading both the evolutionary changes, such as the adoption of video or electronic data logs, and transformative changes, such as providing the visibility necessary to create step-function changes in industry utilization rates.

These transformative changes are taking place now, and the contest for long-term market leadership is underway. We have evolved a view of the attributes that are necessary to maintain our leadership status during the market transition. The actual combination of attributes will vary by market and by segment within those markets, and there is a need to adapt strategy to specific circumstances. A few of the more universal attributes include: a commitment to an open information architecture; holistic and complete solutions, not simply a cobbled-together collection of point solutions; and an ability to project worldwide.

The e-Builder and Viewpoint acquisitions clearly represent our intention to shift the terms of competition and accelerate change in the construction market. Although these acquisitions are aggressive, they do not reflect a radical departure in strategy. In fact, the strategy we are executing today is a much-evolved linear descendant of the version we deployed in 2000 when we acquired Spectra Precision. What has changed are the advances across a broad range of technologies that have enabled concepts that would have been merely fanciful in 2000.

While stepping up strategically, we remain confident in our ability to continue to generate continuing improvements in the financial model. At the Viewpoint acquisition announcement, we identified our reasons for optimism on future financial performance, specifically that Trimble's core organic model is producing both revenue growth and significant improvement in margins. The data suggests that both Viewpoint and e-Builder stand-alones are poised for accelerated growth. The combination of Trimble assets with Viewpoint and e-Builder are highly complementary, which opens up a significant opportunity for an exploitable and immediate expansion in addressable market. Both Viewpoint and e-Builder bring mature management groups into the mix and strong traditions of cost discipline and accountability for the bottom line and the expectation of deleveraging the balance sheet in the next 12 to 24 months.

Finally, our program to revisit smaller, less strategic product lines is continuing to ensure our investment profile remains appropriate and to ensure that all businesses meet operating earnings thresholds. As a point of reference, the Trimble portfolio is generally more resilient than it was at the beginning of 2015 when we encountered the decline in agricultural, commodity and oil prices, less reliant on agricultural profitability and reflecting ongoing aggressive management of underperforming businesses.

Trimble presents some challenges to instant understanding, particularly with the number of moving parts at the moment. While Rob will describe our plans for an Investors Day in March -- on May 30, we look forward to that event as an opportunity to present a comprehensive and compelling case for Trimble's future leadership and growth.

Now I'll turn the call over to Rob.

Thanks, Steve, and good afternoon, everyone. I have 4 main topics today: first, a quick note on our implementation of the ASC 606 standard; second, the numbers and review of our first quarter actuals and our second quarter guidance. All P&L metrics today will be non-GAAP numbers. Third, I will provide some additional commentary on the e-Builder and Viewpoint acquisitions; and finally, a preview of our upcoming Investor Day.

Starting with ASC 606. We retroactively restated our results for 2016 as a total year and 2017 by quarter, which we believe provides the best set of comparative data for our investors. We believe the changes were not material on a total company basis, but naturally, there were some puts and takes. All year-over-year comparisons are now against restated 2017 numbers. Page 5 in the presentation provides color on the context of the change, and Page 6 shows that the impact on our 2017 results were a reduction in total year revenue by 0.3%, operating income dollars by 2% and non-GAAP EPS by $0.03. The detailed restated results are in the press release as well as on our Investor website. As for 2018 and the impact on our first quarter results under ASC 606 as compared to ASC 605, the impact was not material.

Let's start on Slide 7 with a review of the first quarter results. Top line and bottom line results came in ahead of plan, meeting or significantly exceeding expectations in all reporting segments. First quarter total revenue was $742 million, up 22% year-over-year. Within that, currency translation added about 4%, and acquisitions added about 6%. Organic growth was approximately 12%. First quarter gross margins were 56.9%, up 40 basis points year-over-year, reflecting the underlying revenue mix. Operating income dollars increased 30% to $139 million with operating margin percentage increasing 120 basis points to 18.8%. On an organic basis, operating margins expanded year-over-year and were just under 20%. Our non-GAAP tax rate declined from 23% to 19% year-over-year, reflecting U.S. tax reform. We expect to see ongoing IRS guidance and accounting interpretations of the U.S. tax reform, which may impact our ongoing non-GAAP and GAAP tax rates in future quarters. Our net income was up about 35%, and non-GAAP earnings per share in the first quarter were $0.44, up $0.11 or 33% year-over-year.

Turning to Slide 8. We finished the quarter with $274 million of cash, and our gross debt level at the end of the first quarter was $1.12 billion with net debt of about $850 million. We repatriated about $350 million of cash in the first quarter. Going forward, we anticipate the continued repatriation of cash in order to support our deleveraging plan. On this slide, I would also note that deferred revenue increased 19% to $360 million.

Operating cash flow for the quarter was $83 million, which was down year-over-year and requires a bit of color. Operating cash flow in the quarter was impacted by incentive compensation payouts for 2017 performance that had been accrued in prior quarters and discrete M&A effects related to the e-Builder transaction. Excluding these effects, operating cash flow would have been over $120 million, which would represent approximately 1.1x non-GAAP net income. In the second quarter, we expect strong operating cash flow and an excess of non-GAAP net income.

Turning now to a review of the reporting segments. Let's start with Transportation on Slide 9. Revenue was up 19% year-over-year, with currency translation adding about 2% and acquisitions adding about 2%. We continued to experience particular strength in our mobility business, which offers fleet management solutions. While we have experienced tailwinds from the first wave of ELD regulations that went into effect in December of last year, we are more encouraged by competitive wins on significant customers that are providing demonstrable evidence of success of our competitive offering well beyond that of ELD compliance. It's worth noting that we have been in this business for almost 15 years and that we have established our leadership position by offering best-in-class solutions for fleets to manage their productivity, utilization and safety. The slide also provides a few other highlights including record bookings growth in Field Service Management and addressable market expansion in our ALK business.

Next, turning to Resources and Utilities on Slide 10. Segment revenue was up 32% year-over-year, with currency translation adding about 5% and the acquisitions providing a positive effect of about 23%. In agriculture, the business continued to grow, especially in markets outside the U.S. Our new GFX-750 guidance system is ahead of projected sales through the first quarter and has been well received by our distribution channel. Operating margins contracted 290 basis points on a year-over-year basis to 32.5%, impacted primarily by Müller and our NM Group acquisition. As we have previously articulated, we expect our acquisitions in this reporting segment to be modestly dilutive at the segment level, and we will work them to be accretive at the company level. To put this into context, this is our highest margin reporting segment. So this margin dynamic is perfectly natural. Percents are down and the dollars are up.

Speaking of dollars, on the Müller acquisition which we closed in July of last year, Müller's OEM business has been running ahead of our forecast, and we are excited about the trajectory of our combined business. Strategically speaking, Müller will better position Trimble with OEMs and in the Europe market overall and Trimble will better position Müller in the aftermarket and in the North American market.

Slide 10 also highlights a few other areas of success in the segment with significant customer wins in the forestry and utilities divisions as well as continued success with our correction services business, specifically the press-released announcement with General Motors to provide correction services to their Super Cruise hands-free highway driving system.

Moving to the Geospatial segment on Slide 11. Revenue was up about 17% year-over-year, with currency translation adding about 3%. Organic revenue was up in the segment for the fifth quarter in a row and significantly exceeded our expectations in the quarter. Our surveying business continues to benefit from new product introductions and the health of end-market applications, such as construction and oil and gas. In April, we held a global dealer conference with several hundred partners for a review of the geospatial strategy and new surveying solutions coming to market for the upcoming Northern Hemisphere buying season. Sentiment in our channel is positive and strong. We also continued to experience strong sales of our inertial-based technologies from our Applanix division to automotive companies for development of their autonomous technology programs. Operating margins in the segment were 21.4%, up 280 basis points year-over-year. Slide 11 also highlights a few other areas of success in the segment, such as new product launches for building monitoring and infrastructure monitoring.

Turning now to the Buildings and Infrastructure reporting segment on Slide 12. Segment revenue was up more than 20% year-over-year, with currency translation adding about 5% and 5% from acquisitions in the quarter. The impact of growth in operating leverage enabled us to expand operating margins 240 basis points to 19.4%. Slide 12 also highlights a few other areas of success in our civil and building construction businesses, such as the continued roll-out of the Earthworks platform, where innovation is driving demand in dozers and excavators. In our SketchUp business, which is migrating to a SaaS business model, our initial SketchUp Free offering reached a milestone of having over 1 million monthly active users just 6 months after launch.

While we're on the Buildings and Infrastructure segment, let's talk a bit more about e-Builder and Viewpoint. In our last call, we discussed that e-Builder reported approximately $53 million of revenue in 2017, with over 20% year-over-year revenue growth and over 65% SaaS revenue. We also commented that because of purchase accounting effects from deferred revenue write-downs and incremental debt interest expense, we would expect $0.02 to $0.03 of EPS dilution in 2018. To put the purchase accounting effects in context, when we acquired e-Builder, they had approximately $28 million of -- in deferred revenue, which was required to be written down to approximately $12 million. The write-down means that there's a negative impact to revenue and operating income of $16 million, which occurs mostly during the first year of the acquisition, which, in combination with the estimated interest expense, translates to the $0.02 to $0.03 negative EPS impact. This write-down has 0 impact on cash flows. Excluding purchase accounting effects, e-Builder exceeded our top and bottom line deal model expectations in the first quarter. The first quarter e-Builder operating income margin, excluding the deferred revenue write-down, was over 20%. The business also achieved double-digit growth in both recurring revenue and bookings.

Let's move to commentary on Viewpoint. When we announced Viewpoint, we said we would soon be moving to a non-GAAP revenue measurement to adjust for the skewed purchase accounting effects. We believe this reporting convention will make this accounting dynamic a lot easier for investors to understand and will provide a better representation of revenue and profitability of technology companies that we acquire. Since we announced our acquisition 2 weeks ago, we have received a great deal of positive feedback. We included 2 slides from our acquisition call, and this material is on pages 13 and 14. When our existing construction business and Viewpoint are combined, Trimble will have a construction technology business that exceeds $1 billion in run rate revenue, with the majority of that revenue being software-related.

I'd like to take an opportunity to clarify 2 topics that have come up since the announcement. First, some reinforcement on what we said about the financial profile of the acquisition. In 2019, we said we expect more than $200 million in revenue, operating cash flow greater than $50 million, and operating margins greater than 20%. Including estimated interest expense, we said that the acquisition would be accretive to operating cash flow in 2019 and slightly dilutive to EPS in 2019 and then accretive to EPS in 2020. At this point, we anticipate 4 to 6 quarters maximum of EPS dilution, which, to be clear, is driven by the incremental interest expense associated with the acquisition. The underlying business will be producing strong operating income and cash flow yields above that. We believe that we have the underlying business model and underlying bookings growth to grow into EPS accretion, and we hope to over-deliver against those expectations. To put some data behind this, bookings at Viewpoint have been accelerating. First quarter 2018 SaaS bookings were up over 125% year-over-year, and the momentum has continued into the beginning of the second quarter. The acceleration of model conversion from perpetual to subscription also continues with 2/3 of new bookings year-to-date representing subscription bookings.

The second topic has to do with our approach to integrating workflows across our portfolios. To quote Steve, "a set of holistic and complete solutions, not simply a cobbling together of point solutions." To give you an example, let's talk about Trimble Connect, for which I would like to ask you to turn to Slide 15. Connect is our cloud interoperability backbone. We have over 1 million authenticated users on Trimble Connect. In Trimble Connect alone, we have over 60 solutions and workflows currently integrated with the Connect platform. Now take e-Builder and Viewpoint, and we see a path to connect owner workflows all the way through the general contractor and onto the self-performing contractors and their field workflows. And with Viewpoint, we see an ability to connect contractors to owners as well as to connect Trimble workflows into the contracts, costs and resources that Viewpoint manages today. Our unique differentiation here happens at the intersection of the digital and physical worlds, where we are connecting constructible model workflows to connect stakeholders across the construction life cycle. We'll have more to come on this at Investor Day.

Next, Slide 16, with revenue mix by geography. Rest of World shows down, and that was from the Middle East and South Africa. Brazil, for example, was up over 25% year-over-year. North America, Europe and Asia Pacific were all up nicely.

Moving to Slide 17. Software services and recurring revenue streams grew over $160 million on a trailing 12-month basis and represent about 47% of company revenue. Recurring revenue grew about $90 million and represents 28% of revenue over the trailing 12 months.

Let's now move to second quarter guidance and go to Slide 18. We expect our second quarter revenue to be between $755 million and $785 million and non-GAAP EPS to be between $0.42 and $0.46 per share. Please note that our guidance does not incorporate the new planned non-GAAP revenue measurement.

Three comments on second quarter guidance. First, with respect to top line growth, the midpoint of the range implies more than 16% year-over-year revenue growth, of which approximately $40 million or 6% is from acquisitions and between 2% and 3% from currency translation. Second, in terms of profitability, the midpoint of our guidance assumes a second quarter non-GAAP operating margin between 18% and 19%. To break that down, we expect organic operating margins to be above 19%, offset by margin dilution from recent acquisitions. Third, below the operating margin line, we expect the equity income at approximately $9 million. Furthermore, it is also important to get the modeling correct on interest expense, which will step up in the second quarter as a result of our increased leverage, which will, of course, then step up again in the second half of the year after we close the Viewpoint transaction. We expect second quarter interest expense of approximately $13 million.

Last, a few comments on our second half of 2018 outlook. After our fourth quarter call, we said our expectations for fiscal year 2018 were for low to mid-teens annual revenue growth for the year with high single-digit organic growth rates and greater than 25% operating leverage. With the acquisition of Viewpoint, assuming the deal closes at the start of the third quarter, that will add a little under $50 million of non-GAAP revenue in each of the third and fourth quarters. Including Viewpoint, revenue growth in the second half of the year is expected to be in the high teens. We also expect total year operating margins to improve more than 1 point. Please note that including the Viewpoint acquisition, total interest expense is expected to be approximately $24 million to $25 million per quarter in the third and fourth quarters.

Before we go to the Q&A, let's discuss our Investor Day, which we'll be hosting at our Westminister, Colorado campus on May 30. For those of you who cannot attend the events in person, it will be webcast on our Investor Relations website. Slide 19 has more details. We aim to hit a number of themes to address our continued financial performance, including our long-term growth outlook, our ongoing transition to software and subscription and our margin expansion outlook. We'll also be at the upcoming JPMorgan Technology, Media and Communications Conference in Boston in May, and the NASDAQ Investor Program and Berenberg Conference in London in June.

With that, let's now take your questions.

(Operator Instructions) Your first question comes from the line of Jerry Revich with Goldman Sachs.

I'm wondering if you could talk about the business model for providing positioning services for automotive applications. How should we think about revenue per unit? Presumably, it's service revenue, but maybe you could frame for us the opportunity set and what the competitive landscape looks like?

So the correction services business is within the Resources and Utilities segment, and I think we've previously referenced that as a crown jewel of the business in -- at Trimble. The role of correction services today, if you look at the customer base, it primarily services the agriculture market. Secondarily, it serves the construction market. And then the third is, let's call it, this emergence of an automotive market. In the context of agriculture or construction, centimeters matter and centimeters matter. In order to achieve centimeters ubiquitously and at a fast convergence time, you actually have to subscribe to what we call these correction services, and there's essentially a menu of options available for the accuracy and conversion time. Taken into the context of automotive, the context really is one of that of sensor fusion, and it's the role of -- let's say, of absolute position. Because that is what correction -- the correction services are providing is absolute positioning. I mean, it's providing that by augmenting the satellites with some ground -- known ground-based points, which improves the geometry plus the mathematics to correct for errors in the atmosphere to improve the accuracy of the position that's given. It is a subscription. So it's as SaaS-like business but technically a subscription business. And from a monetization standpoint in an automotive context -- but really actually in all contexts, it's a monthly subscription. And in terms of sizing, let's say, the opportunity, certainly today, it's -- the automotive slice is a very small slice of that business and, say, remains to be seen, but we have a level of optimism about the role of absolute position and how that will augment in a sense of sensor fusion with imagery and relative position that you can get today.

Good. And then in Resources and Utilities, your organic growth looks like it slowed this quarter compared to the run rate exiting '17. Can you just talk about the moving pieces in terms of how organic growth played out in the quarter by region or by product line just to give us some more context on the drivers this quarter?

Sure. In -- so the agriculture business is the largest aspect of the Resources of the-- and Utilities segment. The growth we've been seeing continues to be faster outside the U.S. than in the U.S. So that 30% plus I referenced in Brazil is predominantly driven by the agriculture business, continue to see growth in Europe and -- as well as Asia Pacific in the agriculture business. The U.S. market has -- was up slightly. It continues -- I'd say, kind of continues the pattern that we've seen of late. Within the segment, we also have that correction services business, and that was up high single digits in the quarter. So it really came in pretty much exactly as we expected, Jerry.

Your next question comes from the line of Ann Duignan with JPMorgan.

It's Ann Duignan. Maybe I'm just new to the story, having just picked up coverage yesterday. So forgive me if this is a question that doesn't need to be asked on the call. But when you talk about operating margins up and their driven by volume, gross margin expansion and operating leverage, can you expand a little bit more on the gross margin expansion and the operating leverage, please? Because in my mind, those would also be driven by volume. So what's different between volume, gross margin expansion and operating leverage?

The gross margin is reflective of the revenue mix. So you can also think of it as product mix. At a total company level, it's -- it can be a little hard to dissect gross margin because of the different dynamics within the reporting segments or, if you look at the revenue breakdown, almost half software, half hardware, there's different dynamics at play. But the overall gross margins were up, reflecting the underlying businesses, which is irrespective of the revenue growth -- or largely irrespective of the revenue growth. And then the operating leverage specifically is referring to -- in this case, it's the sum of that gross margin improvement as well as cost management. And when we look at the operating leverage, we'll look both at the -- of course, the total operating leverage that we're delivering as well as the operating leverage on the organic revenue from the business because the dynamic that we see play out within operating leverage is the acquisitions, as they come in, tend to be dilutive to the operating leverage. And so the operating leverage at a -- at the total company level is therefore lower but -- and that organic operating leverage met our expectations, above 30%.

Okay. So by segment, gross margin expansion is more a mixed comment and operating leverage is organic operating leverage?

Yes.

Okay. That's helpful to understand that. And then just a couple of follow-up questions on Viewpoint. Bain Capital paid $230 million for a majority stake in that asset in 2014. Can you help us understand what was the majority stake? I mean, how much of Viewpoint did it own? And then post the acquisition, your leverage, what's your goal in terms of how much of your debt will be fixed versus variable?

In terms of the -- I'll take the first part of the question, after Bain acquired Viewpoint, or took the majority of Viewpoint, it had been -- it was a longtime owner -- founder-owner, and then Bain Capital came in and made an investment and then took over the rest of the investment in '14. And then after that, they also did a couple of acquisitions. So to the extent you're trying to look at a purchase price, you will end up with an incomplete analysis if you're trying to compare that to the Trimble purchase price because quite a bit happened between '14 and '18. And then the -- Ann, repeat the second question, please.

Just your mix of debt post Viewpoint. I mean, how much would you expect to have fixed versus variable?

Well, at this -- I would say, at this point, we have the syndication -- or the bridge commitment from the financial institutions, and that mix will be -- will sort itself out here, I'd say, soon-- soon enough as we go to capital markets to take out the bridge and put in the permanent financing.

But do you have a targeted [CFO defer] -- look, you'd be comfortable with being variable in this environment of rising interest rates?

Well, we would look for a -- honestly, we'd look for a mix of different tranches of debt in terms of maturity times and rates, but it's a bit premature for me to nail down before we actually go out to the debt markets.

Your next question comes from the line of Richard Eastman with Baird.

Rob, could you kind of talk for a minute or 2, in the Buildings and Infrastructure piece of the business, the core growth was just under 11%. I'm curious how the -- could you maybe give a little color on the BIM business versus civil construction business and if there's any discernible trend difference between the 2 businesses going forward?

Actually, I would say there's not a particularly discernible difference. They were both -- performed well in the first quarter, I think the civil business a little bit ahead of the BIM business. The dynamics are quite probably different. There's a few different dynamics in both of those. What's common, of course, is the digitization of these -- the markets or digitization of construction. The civil engineering businesses, today, is more hardware-centric and the BIM business is more software-centric. We're working with civil contractors primarily and engineers in the civil engineering business and a mix of designers, engineers, contractors and specialty contractors and owners in the BIM business. So some different stakeholders but the macro theme of the digitization is the same. And really, the macro theme at a secular level applies to both businesses. I would say also that a dynamic that's pretty similar is the new product introduction and the impact on the respective businesses. So for instance, the Earthworks platform and the civil engineering business continues to be a real catalyst of growth as it allows us -- well, it enabled us to do many things but one of which is in the -- is to reach the excavator market, which was previously largely an untapped market. And so it is increasing in, essentially, the addressable market of what is the highest machine count in the world. And so that's one of the drivers in the civil engineering business.

Okay. And then just as a quick follow-up. When I look at the resource and utility business, maybe just a question around -- have you seen anything domestically, have you seen any buying patterns change or just shift relative to the dialogue that's going on, on the protectionist aside or the trade side? I mean, that can -- just the discussion can sometimes shut down spending in the ag economy. And I'm just curious, have you seen anything there? Because I'm a little bit surprised you addressed the slight growth in North America as kind of on plan. And I might have thought maybe that would have been a little bit stronger here.

Well, Richard, I think the net answer for us kind of operating in the realm that we operate in, no, I don't think we've seen any real impact on us in terms of the trade policy to-ing and fro-ing. I would say, though, that, historically, taking the long view on the agricultural market, there is a -- there is definitely kind of a headline factor that is involved in farmer buying patterns that depend on headlines. So I would say it's -- in general, at this point in time, people are waiting to see what might happen. But I would say, at this point in time and probably for -- until something real does happen, people are not taking anticipatory source of actions at this point, so I think steady as she goes in that sense. And what we're seeing in our demand levels, I think, is the real market without a whole lot of speculative factor going into it.

Okay. Does that business -- does the Resource and Utilities business for the full year have -- is that maybe best thought of as a high single-digit growth? I mean, does it -- can it possibly get to 10 or mid-single? I'm just curious because the starting spot seems a little bit lower than maybe I would have thought for the full year. Just curious how you view that segment.

I would view the segment in the mid- to high single, Rick. I think what we see enough -- while the majority of the business is outside the U.S. today, the U.S. market itself, I think, is not poised for double digit with the commodity prices where they are in soy and corn at the moment. Even while we are seeing some replacement cycle of machines, I think it's not enough to catalyze to a double digit.

Your next question comes from the line of Colin Rusch with Oppenheimer.

As you guys see the growth of your asset management offerings, especially in a couple of big segments like Buildings and Infrastructure and then on the Utilities side, how are you seeing that really change your customer relationships and -- as well as your product development road maps? We'd love to just kind of understand what that cycle starts to look like.

To make sure I understood you, Colin, you're saying, given the nature of the -- how the business is evolving, how is that -- how is our -- how are our relationships changing with customers along the way?

Yes, and integrating that with some comments around your product road maps and development process.

Okay. Well, from a customer segmentation standpoint, I could -- we could really apply this to any -- almost any one of our businesses but take it at a company level. If you look at -- if you do a segmentation of small, medium, large enterprise type accounts, we can map our various businesses. And on this case, I'm taking it up by customer size. The more you go up into enterprise-level customers -- so this could be the largest of contractors around the world or largest of transportation companies or the largest projects happening around the world, they tend to have a different, I'll say, purchasing dynamic or relationship dynamic, where they especially want to make sure they're working with Trimble and to have more single points of contact or at least a fewer points of contact. And so that's one area where we see the relationships changing. Another one, and it kind of correlates to that upper end of the pyramid, is professional services. So we do have some professional services capabilities that -- at the company and they tend to -- in the construction world, they tend to get deployed on these largest of projects who are really trying to figure out how to integrate all the various technologies that are available on a -- in this case, construction -- on a construction site. And so that, in itself, is a very different way of engaging with a customer as a trusted adviser as to how to optimize their processes and their use of technology in order to improve project delivery. And then backing into how all of the above, let's say, intersects with product road maps, as you'd imagine, we have customer councils, advisory councils in really almost all of our -- in all of our businesses. And so it provides us an opportunity to stay close to the -- to customers and to have a good set of advisers in that respect. And then, as all that meets technology, of course, when you're in more of a software world or you're in a SaaS world, your ability to innovate can be measured in hours. And so where you're working on a mentality of a fast fail or a minimum viable product, that's one of the especially nice things to have in a software-rich business model is the pace at which you can test the development that you're doing and see what's working. So I hope that gives you a little color, Colin.

Yes, that's helpful. I'll take a couple of follow-ups off-line. And then the other quick question is around CapEx spending that's up pretty significantly year-over-year. How should we think about that as we go through the balance of the year?

Well, from a total company perspective, we'd look to be below 2% of revenue on CapEx, and that's consistent with kind of the -- what I usually talk about when I'm talking about the company model. And then one of the biggest specific areas of spend within that CapEx is we're building a new building, a campus that we own in Colorado. And I talked about that one, I don't know if it was 1 or 2 calls ago, and that's where we're using 50 different Trimble technologies to help us build that building better, faster, safer, cheaper.

Your next question comes from the line of Jonathan Ho with William Blair.

Just wanted to start with maybe the Viewpoint and e-Builder acquisitions. You've talked about scale being an increasing differentiator in this space. Can you maybe give us a little bit more color into how to think about those market dynamics going forward?

Well, let me take a crack and maybe Rob can embellish. But I think there are maybe 2 considerations. One is scope and the other is scale. I think scope, as I would use it, would be kind of the breadth of offering in terms of kind of what I'd been referring to as the holistic solution. And the other is scale, which is -- the other is a matter of scale, which is relative size and kind of ability to project. I think both are becoming increasingly relevant. So for example, scope, I think our view would be the small to medium-sized general contractors really do prefer a one-stop shopping sort of solution. So therefore, scope in the sense of bringing kind of a full product range to bear and kind of being that one stop is going to appeal to that particular segment. Whereas, in terms of large general contractors or perhaps owners, large owners, they're -- they have relative degrees of sophistication, and kind of the one-stop shop is less preeminent there. But at the same time, the ability to deliver at scale becomes more important as just to have the capability of providing a solution in large projects becomes important. So I would say the 2 considerations are both scope, breadth, as well as scale, which is relative ability to project yourself into a situation. And scale is increasingly meaning things like professional services. Rob mentioned professional services, but it's the ability to be an effective hand-holder in a project context and really be able to deliver the goods in a changing environment. So I think that both are becoming more important depending on kind of market context. But yes -- and I think both Viewpoint and e-Builder certainly provide additional scope in terms of being more persuasive in terms of the capabilities across the continuum. But then I think that, in terms of credibility with large contractors or large owners, as Rob mentioned, that Trimble now has or is about to have $1 billion in relative revenue a year in construction technology, which certainly makes us credible from the ability to be able to deliver. So -- yes, so hopefully that's on point to your question, but that's the way I would see it.

Yes. And just maybe taking a look at the Geospatial division, I mean, this looked like it was a very strong quarter and maybe a continuation on the organic side. How should we think about that on a go-forward basis? Is this sustainable? Is this mainly driven by the SX10 product success? Can you just maybe give us some color in terms of how to think about that?

Yes. On a longer-term basis, I tend to characterize the Geospatial segment as -- within the 4 segments as being the lower growth business. So I'd tend to characterize the other 3 reporting segments as mid- to high single digits and the Geospatial business somewhere in the mid. And clearly, we're above the mid at the moment and really these last 3 quarters or so. And so if I break it down and what is it and what could make -- capitalize that to be greater than the mid-single digits that I tend to characterize it at, it'd be as follows: one would be the new product introductions, and the answer is yes to the SX10 continues to be a very effective product for us. This combination of a scanner and a total station is new, new territory, and we haven't seen anyone be able to match that product. And so it's getting a lot of positive press and a lot of, of course, positive use in the market, and so would expect to see continued demand for that product. Now that's far from the only thing we do in Geospatial. The other new product I would mention is it's a line of total stations or called mechanical total stations, which, we believe, will position us well in the emerging markets better than we had been positioned before with that same product line. So we're able to get new feature functionality at a lower cost and price point, and that's the essence of it. So we think that technology expands a market that we can reach. So -- and more to come in that group, so new product introduction. And it's a market that's driven largely by a replacement cycle. So it's acceleration or velocity in our own technology is what will drive and catalyze growth in the segment. The other part that's been strongly growing here for really the last couple of years is that -- the Applanix business, which is largely based on a set of inertial technologies, and what's really been driving that has been the autonomous car programs. And that would seem to be a market that has legs to it. The slope of it -- the first quarter surprised us actually just how strong that came in. We'd expect that to level out a bit here in Q2. It's moved out over a -- call it, a trailing-12-type basis, I think, would fit the profile that -- an economy that's healthy with construction. And if oil and gas, I think, is close to above $70 the other day, that would lead us to think that there's some positive momentum to come in that business.

(Operator Instructions) Your next question comes from the line of Alexander Frankiewicz with Berenberg Capital.

I had a quick question on your -- at the group level, what are your expectations for growth this year from software and from hardware? If you could just split those out for me.

So the -- it would make a good advertisement for our Investor Day coming up in a few weeks. At the Investor Day, we'll go into more detail at the product level. What I would give you at a high level is, if we -- if I put on the rearview mirror over the last couple of years, we've been seeing the software outgrow the hardware by a pretty good clip, I think 1.5 to 1 over the last 2, 2.5 years. What we saw in the last, let's say, 3 quarters or so is that the hardware was actually growing about as fast -- or actually almost as fast as the software part of the portfolio, and that's reflected a strengthened end market, such as the civil construction market and the ag market outside the U.S. So -- are actually a really good dynamic to have as far as percentages go because, of course, it's the dollars you take to the bank. So on a longer-term basis, we would expect -- as you might imagine, we would expect the software growth to outpace the hardware. And when we come to Investor Day, then we'll break it down in some more specificity by the business segments as well.

Okay. That's helpful. And then also on the Transportation segment, what, in rough percentages again, of that is attributable to the ELD mandate? And then also on that, what kind of penetration are you seeing with ELDs amongst those you have to switch over? And how much longer do you expect that tailwind to last?

Well, there's no question that ELD has been a tailwind for growth in the Transportation business going on a couple of years now. If I was to size -- the part of the business that's our mobility part of the business which does -- or well, yes, largely delivers the ELD solutions. And that's -- actually, it's less than -- well, call that about -- just look at my numbers real quick. That's -- yes, it's about half of the reporting segment that's within the PeopleNet business. But then even within the PeopleNet business, it's just a slice of the PeopleNet business. So it's -- let's call it, 20%, 25% of the business, I could say, over the last couple of years, could probably trace something to the ELD mandate in terms of driving growth. And we've certainly seen that in the hardware growth that's come out of that business and that you sell the hardware upfront and then it turns into a subscription thereafter. And so the cumulative subscriber base is growing in that business. The commentary, the narrative we've had -- the very consistent narrative we've had around this business is that this is not -- this was never a cliff event where -- the ELD, actually, the first phase of it went into effect in December of last year. And I think that was the question I got asked more than anything in the second half of last year is what happens after that. I think the worry being that there would be a cliff. And we talked about a slope down in demand but not a cliff because -- for a number of reasons. One, there's a whole series of other technologies we provide in this space. And by the way, ELD could just be bare minimum compliance. Well, our real differentiation happens at -- in management of an entire fleet and optimization of a fleet with video intelligent solutions. And we have end markets that we serve that are outside of just the Class A vehicles but also in end markets such as energy or in food service. So a number of other market adjacencies, a number of other technologies that we have. And then again, as you come out of that compliance and then to -- for us, it's also an opportunity to have customers, to upsell customers into a more complete solution. And all the while, while that's happening, we've been experiencing and -- or winning -- achieving significant wins, competitive wins for the full-stack service solutions, so continue to be optimistic about the business, feel very good about our competitive position in that business. And as it relates to the penetration, one thing to keep in mind is this ELD mandate has 2 phases, and the second phase goes into full effect in December of 2019. So that's why we never saw a cliff. We would see a slope of the new unit demand. I would say most fleets, at this point, of the larger fleets, are reasonably penetrated with the technology, and many of them are converting the first wave now into the -- well, actually, I'd say that what will start to happen, maybe it's the end of this year, beginning of next year, as people convert to what is called the AOBRD-compliant devices over the full ELD-compliant devices.

Okay. And then just one quick follow-up. On the ELD subs, what kind of churn are you seeing?

Well, we don't disclose churn in this business. It's an inherently more complicated number or answer than what a simple number can provide. But it's been -- I mean, well, the first part of the mandate just went into effect. So there's very little churn that we would see on just ELD. Otherwise, that would not be what we would expect this soon after the first part of that mandate went into effect.

Your next question comes from the line of James Faucette with Morgan Stanley.

It's Yuuji Anderson on for James. I also have a follow-up on Transportation. Can you -- so all in, can you speak a little bit to the mix you're seeing there between hardware and software there? Now that we're 1 quarter past the first phase of the mandate, is it fair to say that we should see substantially more software mix this year? And if so, does that kind of set up for faster operating margin expansion throughout the year?

Well, there's -- it's certainly been our narrative that as we move into a higher mix of software that we should exceed commensurate operating margin expansion in the segment. Of the -- there's 2 segments that, I'd say, particularly outperformed in the first quarter, and one of them was Transportation. And really, I think that Q1, I probably proved with an exclamation point that this wasn't all about ELD because it was a very strong quarter of demand in that business, which meant that it came with a lot of hardware in the quarter. So by the pure percentages of the math, I would expect that, that might actually temper the percentages but improve the dollars for the overall year. So having said that, we do expect positive -- a positive trend in the Transportation business as we enter -- it's really in the second half of the year more so than the first half of the year. So it's the second half of the year is where I would expect to see the margin expansion, some of which is natural, by the way, in the fourth quarter. So you could look at the last couple of years and you could see that that's a dynamic that happens in the fourth quarter that -- a step-up in -- I'll just characterize it, overall second half of the year, combine that third and fourth quarter. And yes, I would see that playing out.

Okay, got it. And then just quickly on Europe. So it's up 38% year-over-year. I assume a lot of that had to do with Müller, but I was curious to hear a little bit more in terms of what you're seeing there between the various end markets.

So I'll say, yes, Müller is based in Germany, and the majority of their business is in Europe today. So that, from an overall growth perspective, that was the main driver. To speak more specifically, let's say out of -- or I guess, I'd say in addition to Müller, we can continue to see -- even if -- on Müller's side, but Germany has been good. The U.K. actually was a good quarter for us. Italy, France, Australia, Netherlands, Nordics were strong, so pretty broad-based, Yuuji.

Thank you. I would now like to turn the call back over to Mr. Michael Leyba for closing remarks.

Thank you, Terry. And thank you, everyone, for attending today's call. We look forward to speaking to you next quarter.

Thank you for participating. That does conclude today's conference. You may now disconnect.