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Trimble, Inc. (TRMB)
Q4 2018 Earnings Conference Call
February 06, 2019 05:00 PM ET
Michael Leyba - Director of Investor Relations
Steve Berglund - Chief Executive Officer
Rob Painter - Chief Financial Officer
Conference Call Participants
Gal Munda - Berenberg Capital Markets
Ann Duignan - JPMorgan
Richard Eastman - Robert W. Baird
Jonathan Ho - William Blair
Jerry Revich - Goldman Sachs
Colin Rusch - Oppenheimer
Rich Valera - Needham & Company
Rob Wertheimer - Melius Research
Previous Statements by TRMB
» Trimble (TRMB) Q3 2018 Results - Earnings Call Transcript
» Trimble (TRMB) Q2 2018 Results - Earnings Call Transcript
» Trimble's (TRMB) CEO Steve Berglund on Q1 2018 Results - Earnings Call Transcript
I would now like to turn the call over to Michael Leyba, Director of Investor Relations. Sir, please begin.
Thanks Mark. 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. In addition, we will also be posting our prepared remarks on our Investor Relations website at investor.trimble.com shortly after the completion of this call.
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 and the year. After that, Rob will take us through the remainder of the slides, including an in-depth review of the quarter and the year, and our guidance, and then we will go to Q&A.
I would also like to briefly mention that during the month of February, we will be attending the Goldman Sachs Technology and Internet Conference on February 12 in San Francisco, as well as the Morgan Stanley Technology Media and Telecom Conference on February 25 also in San Francisco.
With that, please turn to slide 4 and I will turn the call over to Steve.
Good afternoon. . In most respects the fourth quarter and total year 2018 results represent record levels in Trimble's 40-year history and provide a strong platform for 2019 and beyond. Fourth quarter revenue grew by 13.1% and total year revenue by 18.2%. The changing company model with growing software and services was reflected in a significant gross margin improvement, which expanded 4.2 points in the quarter and 2.3 points for the year, with the gross margin of 58% for the total year.
Together with tight cost control, this improvement drove a remarkable operating leverage at 56% in the quarter and a strong 36% for the total year. As a result, operating margin grew 4.6 points in the quarter and 2.8 points for the total year.
On the surface, the quality of our financial model compares favorably to the levels we achieved in 2013 and 2014, before we encountered the negative impact of agricultural and energy commodity price changes. In reality, the portfolio of today represents significantly more balanced, resiliency and growth potential.
In particular, we are not – we are much less reliant today on the Resources and Utilities and Geospatial segments. In 2013, the combined revenue of those two segments accounted for 53% of the company total. In 2018, it was 41%. More importantly, during the same period the two segments moved from 65% of total operating income in 2013 to 46%.
The portfolio is also demonstrating rapid progress in business model conversion with over 50% of 2018 revenue coming from software and services. This change is reflected in our closing 2018 ARR balance of over $1 billion.
Clearly, 2018 was a year in which the stars were well-aligned. Every vertical market generated revenue and margin growth and demonstrated strategic progression. Almost every region produced robust growth and our OEM sales added incremental growth to our core end-user markets.
The year was also notable for substantial progress we made in creating that strategic and state in the Buildings & Infrastructure segment with the acquisitions of e-Builder and Viewpoint. These aggressive actions reinforce the unique position around a strong bundle of value in the construction market with an enhanced position in project management, extensive relationships with project owners, and an information backbone that enables real-time access to all the information needed to operate a construction enterprise.
We received validation of the strategy in the fourth quarter through our flagship users conference, Dimensions. We had more than 4,800 participants with over 2,000 of them attending our off-site hands-on demonstration area with 60 machines from 28 OEMs.
We took the opportunity to demonstrate operational examples of autonomous compactors and dozers as well as numerous examples of practical mixed reality and machine learning. There are some pictures from the conference shown on today's agenda slide as well as a hyperlink that shows the technology in use.