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Trimble Navigation Limited's CEO Discusses Q1 2012 Results - Earnings Call Transcript

Steven W. Berglund

Good afternoon. First quarter results continue to reflect momentum and we established both symbolic and meaningful milestones in the quarter. Quarterly revenue was about $500 million for the first time in company history. Non-GAAP operating profits were above $100 million for the first time. Mobile Solutions segment margins were above 10% and most importantly, non-GAAP operating margins have returned to levels above 20%.

Our markets remain workable although none have returned to pre-cash stage of robustness except for agriculture. Commercial and residential construction remains weak, although the picture on future prospects seems to be gradually brightening with the prospect of improvement later in 2012 or in 2013. In addition, Europe remains volatile and uncertain, requiring us to remain conservative in our outlook for the medium term until the continent sorts itself out politically and economically. Moreover, if the European problems are not contained, they have the potential for significant spillover effects worldwide. These conditions aside, our current market outlook remains positive by region and by industry. Our comments in January which anticipated total year revenue growth in the neighborhood of 20% were obviously reinforced by the first quarter results. Our current outlook for the year remains consistent with that earlier view with the bullishness of the first quarter balanced by some Euro-centric conservatism. The first quarter results also reflect the first time Trimble has broken out revenue by product, service and subscription categories. Raj will provide more granularity, but the results reflect service and subscription recurring revenue is more than 20% of total revenue, with gross margins above the company average. While this breakdown does not provide a complete strategic picture since it does not capture software content sold as licenses or as part of a product bundle, it is indicative of the significant changes that have taken place in our product mix over the last 5 years, as we implemented a strategy focused on providing complete solutions, targeted at vertical markets. We once again saw encouraging results in all 3 of our most strategically important segments, E&C, Field Solutions and Mobile Solutions. E&C reflected organic growth in both heavy and highway and survey instruments, as well as the effect of acquisitions. These improvements in E&C were delivered in spite of the still dormant commercial and residential construction market, slower sales in China related to the recent problems specific to railway construction and cautious decision-making by users in Europe. The Field Solutions segment again demonstrated year-to-year growth with contributions from agriculture, GIS and acquisitions. Agricultural performance reflected the strength of our product portfolio and the relatively strong agricultural economy around the world. GIS, although constrained by both governmental budgets and slower European sales, also continued to produce growth. The Mobile Solutions segment made a major contribution to the year-to-year improvement in Trimble quarterly results. Although the revenue increase was dominated by the PeopleNet acquisition, the significant year-to-year profitability improvement was a combination of both PeopleNet and improvements in the base business. Key to the improvement is the redirection of the portfolio towards vertical markets which will allow competitive differentiation, a higher value proposition and higher gross margins. This portfolio shift involves consciously refocusing away from subscale subscribers growing a limited dot on the map functionality and towards larger fleets with more demanding requirements. During this crossover period, we have -- we will therefore see a higher level of churn within one class of subscribers with offsetting growth in another class of subscribers. The overall blended segment baseline revenue will therefore camouflage this beneficial trend until 2013, when we will see higher revenue growth as the swapping-out process winds down. What we should see is relatively continuous improvement in profitability as the mix moves towards the more demanding subscribers with corresponding higher gross margins. Although most of our new wins in the segment are not press release-able, 2 recent examples that are not public are Maruti Suzuki in India, which involves managing thousands of trucks and today's announcement of our win at the U.K. Ministry of Defense, which will involve equipping a fleet of at least 12,000 vehicles. These wins are notable because they both included a demanding set of performance expectations that Trimble is well positioned to deliver. In addition, they provide some early validation of our view that it is productive to view this as a global market.

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